1Q 2018 Review & Summer Air Travel Forecast...1Q 2018 Was a Very Challenging Operating Environment...
Transcript of 1Q 2018 Review & Summer Air Travel Forecast...1Q 2018 Was a Very Challenging Operating Environment...
1Q 2018 Review & Summer Air Travel Forecast
John P. Heimlich
Vice President & Chief Economist
Media Briefing
May 23, 2018
1Q 2018 OPERATIONS AND FINANCIAL RESULTS
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1Q 2018 Was a Very Challenging Operating Environment for U.S. Airlines
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Source: A4A research, FAA Air Traffic Organization and masFlight (subsidiary of Global Eagle)
Airport Construction
Atlanta (ATL)
Chicago (MDW & ORD)
Dallas/Fort Worth (DFW)
Honolulu (HNL)
Houston (IAH)
Los Angeles (LAX)
Miami (MIA)
New York (EWR & LGA)
Orlando (MCO)
Philadelphia (PHL)
Phoenix (PHX)
San Diego (SAN)
Tampa (TPA)
Washington (DCA)
Air Traffic Control
Understaffing at many major facilities*
Critically low staffing at New York TRACON (N90)*
Power Outages/Airport Equipment
Jan 1 (U.S. CBP) nationwide outage
Jan 7 (JFK T4 water main break / evacuation)
Major Weather
Jan 3-5 (“bomb cyclone”)
Jan 7-8, 12, 16-18, 21-22
Feb 4-5, 7, 9, 11, 15, 20
Mar 2 (Winter Storm Riley northeaster)
Mar 7 (Winter Storm Quinn northeaster)
Mar 13 (Winter Storm Skylar northeaster)
Mar 20-22 (Winter Storm Toby northeaster)
* Staffing is routinely cited as the basis for many traffic management initiatives (ground delay programs, ground stops, airspace flow programs, miles-in-trail) across the NAS
Sources: BTS and DOT Air Travel Consumer Report (http://www.dot.gov/airconsumer/air-travel-consumer-reports)
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1Q 2018 Featured the Lowest-Ever Recorded Rate of Involuntary Denied Boardings
January-March Airline Flight Ops Impacted by Storms, Airport Construction, CBP Outage
96.90
98.28
98.24
97.45
2015
2016
2017
2018
1Q Flight Completion Factor (%)
99.64
99.72
99.74
99.71
2015
2016
2017
2018
1Q Properly Handled Bag Rate (%) 1Q On-Time Arrival Rate (%)
76.26
82.11
79.42
79.98
2015
2016
2017
2018
Best ever
8.5
6.0
6.2
1.2
2015
2016
2017
2018
1Q Involuntary Denied Boardings per 100K Psgrs.
1.92 1.86
1.19
0.98
0.00
0.25
0.50
0.75
1.00
1.25
1.50
1.75
2.00
1Q15 1Q16 1Q17 1Q18
Sources: DOT Air Travel Consumer Report (http://www.dot.gov/airconsumer/air-travel-consumer-reports)
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The Rate of Customer Complaints Continued to Fall in 1Q 2018
Customer Complaints to DOT per 100,000 Passengers
Jet-Fuel Prices Creeping Up Again
A Penny per Gallon per Year Equates to ~$200M in U.S. Airline Industry Fuel Expenses
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0.81
1.66
2.27
3.05 3.15 3.01
2.86
1.86
1.46 1.70
2.03
$0.00
$0.50
$1.00
$1.50
$2.00
$2.50
$3.00
$3.50
2000 2005 2010 2011 2012 2013 2014 2015 2016 2017 2018
Systemwide Average Paid Price of Jet Fuel per Gallon
Source: A4A and Bureau of Transportation Statistics (all U.S. carriers, scheduled an nonscheduled services)
Ja
n-M
ar
1Q 2018 Revenues Rose 7% But Expenses Rose 10%, Reducing Profitability Again
Labor and Fuel Costs Continue to Surge, Pressuring Margins; Other Costs Rising, Too
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Change (%) in Operating Revenues and Expenses, 1Q18 vs. 1Q17
6.0
18.7 18.3
7.0 6.8
23.3
(0.9)
5.0 3.1
9.3 9.9
6.7 4.9
Pax R
ev (
1)
Carg
o R
ev
Oth
er
Rev (
2)
Tota
l O
pR
ev
Lab
or
Fu
el
Ma
inte
nan
ce
Airp
ort
s
Aircra
ft
Oth
er
(3)
To
tal O
pE
xp
1Q
17
1Q
18
Source: A4A analysis of reports by Alaska, Allegiant, American, Delta, Hawaiian, JetBlue, Southwest, Spirit and United
1. Traffic (revenue passenger miles) up 4.5 percent; yield (revenue per passenger-mile flown up 2.3 percent; U.S. CPI up 2.2 percent
2. Sale of frequent flyer award miles to airline business partners, transportation of pets, in-sourced aircraft and engine repair, flight simulator rentals, inflight sales, etc.
3. Professional fees, food/beverage, insurance, commissions, GDS fees, communications, advertising, utilities, office supplies, crew hotels, nonfuel payments to regionals
Pre-Tax
Profit Margin (%)
$1.9B $2.5B $2
.03
vs
. $
1.6
7
In 1Q 2018, U.S. Passenger Airline* Profitability Well Below Average
Pre-Tax Profit Margin (% of Operating Revenues)
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36.7
30.1
26.4 24.4
18.4 17.5 16.6 13.5
12.1 10.0
8.2 6.9 4.9 4.6
1.4
McD
on
ald
´s
Railr
oad
s (
2)
Ap
ple
Dis
ne
y
Honeyw
ell
Com
ca
st
Ca
terp
illar
Sta
rbucks
Bo
ein
g
Ma
rrio
tt
Chip
otle
Nord
str
om
Air
lines (
1)
Fo
rd
GE
8
1 Alaska, Allegiant, American, Delta, Hawaiian, JetBlue, Southwest, Spirit and United 2 CSX, Norfolk Southern and Union Pacific Source: Company SEC filings
Crude-Oil Prices Rising Swiftly, to Highest Level Since Late 2014
May 2018 Averaging 50 Percent More Than May 2017
Spot Price* of Brent Crude Oil ($ per Barrel)
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$0
$20
$40
$60
$80
$100
$120
Ja
n-1
4
Ma
r-14
Ma
y-1
4
Ju
l-1
4
Sep
-14
Nov-1
4
Ja
n-1
5
Ma
r-15
Ma
y-1
5
Ju
l-1
5
Sep
-15
Nov-1
5
Ja
n-1
6
Ma
r-16
Ma
y-1
6
Ju
l-1
6
Sep
-16
Nov-1
6
Ja
n-1
7
Ma
r-17
Ma
y-1
7
Ju
l-1
7
Sep
-17
Nov-1
7
Ja
n-1
8
Ma
r-18
Ma
y-1
8
Ju
l-1
8
Sep
-18
Nov-1
8
Ja
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9
Source: A4A and Energy Information Administration (http://www.eia.gov/dnav/pet/pet_pri_spt_s1_d.htm)
AFFORDABILITY, COMPETITION AND
ACCESS TO AIR TRAVEL
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When Choosing an Airline, Leisure Travelers Value Affordability Above All Else
2017 Rankings Identical to 2016 (Schedule Solidly Second, Followed by Reliability)
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Criteria 2017 (2016) Score
Affordability (airfare / ancillaries / taxes) 1 (1) 2.50 (2.65)
Flight schedule (routes, timings) 2 (2) 3.12 (3.23)
Reliability of on-time departure and arrival 3 (3) 4.22 (4.28)
Airline seat comfort 4 (4) 4.54 (4.45)
Customer service (reservation/gate agents, flight attendants) 5 (5) 4.82 (4.95)
Airline frequent flyer program (earn / redeem / upgrade / status) 6 (6) 5.19 (5.00)
Quality of inflight amenities (food / entertainment / WiFi) 7 (7) 5.32 (5.17)
Environmental responsibility 8 (8) 6.28 (6.26)
When traveling for personal reasons, how would you rank the following in terms of choosing
which airline to fly, with 1 being your first priority and 8 being your last priority?
Source: Ipsos survey of American adults (January 2018)
(Base = all 2017 flyers with at least 1 personal leisure trip)
Inflation-Adjusted Fares Continued to Fall in 2017, Averaging Less Than in 2010
In Real Terms, Price of Domestic Air Travel Fell 12.5 Percent From 2014-2017
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Source: A4A analysis of data from DOT Data Bank 1B (all cabins and fare basis codes) and DOT Form 41 via Airline Data Inc.
$355
$340
$380
$363
200
210
220
230
240
250
$320
$340
$360
$380
$400
$420
2010 2011 2012 2013 2014 2015 2016 2017
U.S. CPI (right axis) Fare Only Fare + Ancillary
Ro
un
d-T
rip
Tic
ke
t P
rice
($
20
17
)*
U.S
. CP
I (19
82
-84
= 1
00
)
* Excluding taxes
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Smaller U.S. Carriers Are Serving More and More Domestic Markets
Competitive Presence of Low-Cost and Ultra Low-Cost Carriers Continues to Expand
0
20
40
60
80
100
120
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020
Nu
mb
er
of U
.S. A
irp
ort
s S
erv
ed
*
Spirit
Alaska
JetBlue
Source: Innovata (via Diio Mi) schedules as of April 20, 2018, for selected marketing airlines including predecessors
Allegiant
Frontier
* July 15-21 of each year
Hawaiian
Boston-Akron/Cleveland Is Among Countless Domestic City Pairs on Which
Competition* Increased From 2007-2017 (Real Fares Down 20%, Passengers Up 23%)
* Defined as carrying at least 5 percent of O&D passengers in the city pair Source: DOT Data Bank 1B and Innovata published schedules via Diio Mi
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63%
30%
47%
28%
12%
6%
Calendar Year 2007 Share of BOS-CAK/CLE Passengers
Calendar Year 2017 Share of BOS-CAK/CLE Passengers
Los Angeles-Seattle Is Among Countless Domestic City Pairs on Which Competition*
Increased From 2007-2017 (Real Fares Down 20%, Passengers Up 78%)
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Calendar Year 2007 Share of BUR/LAX/LGB-SEA Passengers
Calendar Year 2017 Share of BUR/LAX/LGB-SEA Passengers
64%
17%
8%
7%
52%
19%
8%
5%
7%
7%
* Defined as carrying at least 5 percent of O&D passengers in the city pair Source: DOT Data Bank 1B and Innovata published schedules via Diio Mi
2,274 2,289 2,366 2,454 2,542 2,622 310 330 351 368 390 405 2,584 2,620 2,717 2,823
2,931 3,027
0
500
1,000
1,500
2,000
2,500
3,000
3,500
2013 2014 2015 2016 2017 2018
Domestic International
Customers Are Seeing All-Time High of 3M+ Daily Seats Departing U.S. Airports
Daily Seats (000) Departing U.S. Airports in Scheduled Service: Up 3.3% YOY
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Source: Innovata (via Diio Mi) published schedules as of May 18, 2018, for all airlines providing scheduled passenger service from U.S. airports to all destinations
DOM +3.2%
INT +4.0%
SYS +3.3%
Almost Every Major* U.S. Airport Has Seen Supply of Seats Rise Over Past 5 Years
% Change in Scheduled-Service Seats Available: July 2018 vs. July 2013
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67
64
5
5
54
4
9
43
4
2
38
3
5
35
3
3
33
3
2
31
3
0
29
2
9
29
27
2
7
26
2
4
23
2
3
23
2
2
21
2
0
20
1
9
19
1
8
18
1
8
17
16
1
6
16
1
5
13
1
2
10
1
0
10
1
0
8
8
7
7
6
6
6
5
4
4
4
4
1
0
(2)
(6)
(10)
0
10
20
30
40
50
60
70
DA
LA
US
SJC
FLL
CV
GS
EA
BN
AP
DX
RD
UO
AK
SA
NM
SY
MC
OIN
DS
FO
SM
FB
OS
EW
RB
DL
LA
XO
MA
PB
IO
RD
SLC
CM
HD
EN
JF
KH
OU
BU
RJA
XP
ITO
GG
RS
WT
PA
SA
TLA
SO
NT
BW
IA
NC
DF
WM
CI
AT
LIA
HS
TL
SN
AD
CA
MS
PIA
DS
JU
PH
LD
TW
MIA
PH
XC
LT
LG
AH
NL
CL
EM
DW
MK
EA
BQ
BU
F
17
Source: Innovata (via Diio Mi) published schedules as of May 18, 2018, for all airlines providing scheduled service * FAA large and medium hub airports
SUMMER 2018 AIR TRAVEL FORECAST
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U.S. Economy and Employment Growing; Household Net Worth at All-Time High
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2.6 2.9
1.5
2.3
2.7
2014 2015 2016 2017 2018F
U.S. Real GDP Growth (% CAGR)
19
2017-2018 U.S. Employment Growth (000)
25
9
20
0
73
17
5
15
5
23
9
19
0
22
1
14
27
1
21
6
17
5
17
6
32
4
13
5
16
4
J F M A M J J A S O N D J F M A M J J
Sources: U.S. GDP and gross output (Bureau of Economic Analysis); U.S. nonfarm payroll employment growth (month-over-month, in 000s, seasonally adjusted) from BLS;
median personal and household pre-tax income (Census); U.S. household net worth in current dollars, not seasonally adjusted (Federal Reserve)
U.S. Real Gross Output Growth (% CAGR) U.S. Household Net Worth ($ Trillion, NSA)
63.0 68.7 78.4 83.3 86.3 91.6
98.7
2011 2012 2013 2014 2015 2016 2017
IHS
Fo
rec
as
t
1.4 2.2 2.4 2.5 2.8 2.5
2.1
4.7
1Q16 2Q16 3Q16 4Q16 1Q17 2Q17 3Q17 4Q17
A4A Projects Summer* 2018 Air Travel to Rise 3.7 Percent to All-Time High
Airlines Adding 116,000 Seats/Day to Accommodate 96,000 More Passengers/Day
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21
8.7
211.0
20
1.1
20
4.1
207.3
20
7.8
20
8.2
21
4.0
22
3.5
22
8.2
23
7.3
24
6.1
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018F
Source: A4A and BTS T100 segment data – U.S. carriers only; scheduled and nonscheduled services
U.S. Airline Onboard Passengers (Millions) – Summer* 2007-17 and 2018 Forecast
2.68M/day (2.32M domestically, 354K internationally) + 3.7%
* For this purpose, defined as June 1 through August 31
Drivers of growth
• Expanding presence of low-cost carriers, low-fare products and city-pair (O&D) competition
• Rising GDP, employment, disposable income and household net worth (savings, stocks, value of homes)
In 2017, 22 of the 25 Busiest Days at U.S. Airports Fell in the Summer Travel Season*
Thursdays and Fridays in Mid-June to Mid-August Are Especially Popular
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Source: A4A analysis of data from the Transportation Security Administration * Memorial Day weekend through Labor Day weekend
Rank DOW 2017
1 Fri Jun 30
2 Sun Nov 26
3 Thu Jun 29
4 Fri May 26
5 Fri Jul 21
6 Fri Dec 22
7 Thu Jul 27
8 Fri Aug 4
9 Fri Jun 23
10 Fri Jul 14
11 Fri Jul 28
12 Thu Aug 3
13 Fri Jun 16
Rank DOW 2017
14 Thu Jul 20
15 Sun Jun 25
16 Sun Jul 16
17 Sun Jul 23
18 Wed Nov 22
19 Sun Jul 30
20 Fri Aug 11
21 Sun Aug 6
22 Thu Jun 15
23 Thu Jun 22
24 Thu Jul 13
25 Thu Aug 10
Air Travelers Are Enjoying More Choices, More Available Seats Across the Atlantic
Airlines Offering More Seats From U.S. Airports to Regions Across the Globe
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Sources: Innovata (via Diio Mi) published schedules (May 18, 2018) and Scott McCartney, “Where the Travel Deals Are This Summer,” Wall Street Journal (May 9, 2018)
“Ticket prices are down, interest is up and Europe is hot.” David Solomito, VP, NA Marketing, KAYAK
“It’s crazy. There are some real deals to be had here.” Mark Okerstrom, Chief Executive, Expedia Group
6.2
4.3 4.3 4.1 3.2 2.7
1.3
(0.5) (1.6)
Europe Mexico USA LatAm Canada S. Pac ME & Afr Asia Caribbean
Change (%) in Scheduled Seats From USA by Destination, July 2018 vs. July 2017
DEREGULATION OF U.S. AIR SERVICE:
40 YEARS OF PROGRESS
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By Almost Every Measure, Air Travel Has Improved Dramatically Since Deregulation
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Source: A4A and Patrick Smith, “There Was No ‘Golden Age’ of Air Travel,” New York Times (May 27, 2017)
Pre-Deregulation Today
Safety Feared by many; fatality risk = 1 in 1M Safest travel mode; fatality risk = 1 in 29M
Competition CAB allowed just 1 or 2 airlines per route
CAB set fares, disallowed price competition
No limit on number of carriers per route
Vigorous price competition
Affordability Average domestic R/T $600-700 incl. fees Average domestic R/T ~ $363 incl. fees
Accessibility Accessible to affluent – 63% had flown
Luxury good; predominantly high-income
Accessible to all – 88% have flown
Common form of intercity transportation
Small-market service Often propeller aircraft, suboptimal times Widespread jets, market-driven flight times
International service Flights, carriers, cities, sales limited by law Plentiful, cheaper due to “Open Skies”
Routings & frequency Often multiple stops, few flights/day/week Plentiful nonstop/1-stop, multiple flights/day
Shopping Phone calls, ticket offices, travel agents A few clicks online
Ticket delivery By mail only Universally electronic, retrievable
Checking in Lined up at the ticket counter Online, kiosk, mobile
Inflight entertainment Occasional movie, far-away shared screen Unlimited options, streaming to PED
Bag tracking No tools at customers’ disposal Mobile tools becoming universal
Environmental impact Not very fuel efficient; more CO2 per flight ~120% more efficient; avoidance of CO2