John P. Heimlich, Vice President & Chief Economist
A4A Media Briefing
March 9, 2016
A4A Spring 2016 Air Travel Forecast and
Operational and Financial Review of 2015
A4A Projects Spring* 2016 Air Travel to Rise 3% to All-Time High of 140M Passengers
Airlines Adding Commensurate Number of Seats to Accommodate Record-High Demand
airlines.org2
118.8
119.6
107.8
110.6
123.5 1
31.4
131.8
135.1
133.7
123.0
124.2
126.8
128.4
128
.2
132.2
136.2
140.0
2000
20
01
2002
2003
20
04
2005
2006
2007
2008
2009
2010
20
11
2012
2013
20
14
2015
2016
Source: A4A and BTS T100 segment data – U.S. carriers only; scheduled and nonscheduled services
U.S. Airline Onboard Passengers (Millions) – All Services, March 1 through April 30
140 million passengers or about 2.3 million/day
• Up ~63K/day from 2015; up ~81K/day from 2007
• Includes 17M+ (285K/day) traveling internationally
• Projected average load factor: 83%-85%
+ 3%
* For this purpose, defined as March 1 through April 30
FO
RE
CA
ST
Key drivers of growth include:
• Rising employment, personal incomes
• Air travel affordability
• Improved airline operations
Key U.S. Air-Travel Demand Drivers Still Showing Growth
airlines.org
1.6
2.2
1.5
2.4 2.4 2.4
3.0
0
1
2
3
4
2011 2012 2013 2014 2015 1Q16 2Q16
Real GDP Growth Rate (% CAGR)
3
Monthly Employment Growth (000)
174 179 193
251 229
172
242
0
100
200
300
2011 2012 2013 2014 2015 Jan Feb
Sources: BEA, BLS, Federal Reserve and IHS Economics; U.S. GDP real annual average growth rate (%), U.S. nonfarm payroll employment growth (month-over-month, in
000s, seasonally adjusted), U.S. disposable personal income per capita (chained 2009 dollars, SAAR); U.S. household net worth in current dollars, not seasonally adjusted
36
37
38
39
2011 2012 2013 2014 2015
Th
ou
sa
nd
s
Real ($2009) Personal Incomes ($000) Household Net Worth ($ Trillion, NSA)
60
70
80
90
2011 2012 2013 2014 1Q15 2Q15 3Q15
Mil
lio
ns
IHS Forecast
In 2015, Amid Competitive Pressures, U.S. Carrier Air Fares Fell Almost Every Month
Down 5.1% Systemwide on 4.1% Lower Domestic Yield* and 8% Lower International Yield*
airlines.org4
Source: A4A analysis of data from Alaska, American, Hawaiian, JetBlue, Southwest, United, Virgin America and regional affiliates
% Change YOY in Domestic Yield*
1.0
(1.1
)
0.3
(2.5
)
(3.7
)
(5.6
) (3.8
)
(7.1
) (5.4
)
(6.3
) (4.1
)
(8.9
)
(6.3
)
Ja
n-1
5
Feb
Mar
Apr
May
Jun
Jul
Aug
Sep
Oct
Nov
De
c
Jan-1
6
(4.3
)
0.8
(2.7
)
(10.0
)
(10.8
) (9.3
)
(6.1
)
(9.7
)
(12.0
)
(8.7
)
(9.4
)
(11.5
)
(11.2
)
Jan-1
5
Fe
b
Mar
Apr
May
Jun
Jul
Aug
Sep
Oct
Nov
Dec
Jan-1
6
% Change YOY in International Yield*
2015 vs. 2014: (4.1%) 2015 vs. 2014: (8.0%)
* Fare per mile (cents per RPM)
With Personal Incomes Outpacing the Price of Air Travel, Americans Can Purchase
~2.5 Times the Amount of Air Travel They Could at the Outset of Deregulation
Adjusted for Inflation, Domestic Air Travel Remains ~40 Percent Below 1980 Levels
airlines.org
0.0
0.5
1.0
1.5
2.0
2.5
3.0
19
79
19
83
19
87
19
91
19
95
19
99
20
03
20
07
20
11
20
15
20
19
Fare Fare + Anc
Domestic R/T Airfare as Share (%) of
Per-Capita Disposable Personal Income
5
Source: A4A analysis of data from BEA, BLS and BTS Data Bank 1B (10% sample of tickets for all cabins and fare basis codes); 2015 based on first three quarters
$300
$350
$400
$450
$500
$550
$600
$650
19
79
19
83
19
87
19
91
19
95
19
99
20
03
20
07
20
11
20
15
20
19
Fare Fare + Anc
Domestic R/T Airfare Adjusted for
Inflation (in CY2015 Dollars)
Sources: BTS and DOT Air Travel Consumer Report (http://www.dot.gov/airconsumer/air-travel-consumer-reports)
airlines.org6
U.S. Airlines Saw Improvements in DOT Core-Four Operational Metrics in 2015
Gains Driven by More Benign Weather and Investments in Systems, Procedures, Staffing
97.82
98.46
2014
2015
Flight Completion Factor (%)
99.64
99.68
2014
2015
Properly Handled Bag Rate (%)
0.92
0.76
2014
2015
Oversales per 10,000 Customers
On-Time Arrival Rate (%)
76.25
79.92
2014
2015
2015 Airline Operating Revenues* Were Flat As Lower Fares Offset Traffic Gains
Passenger Revenue Fell $1.3B (1.0%) on 4.4% Higher Traffic and 5.1% Lower Yield
$158.6
$6.0
$7.4 $0.2
$1.6
$158.6
Operating Revenues* ($ Billions)
airlines.org7
* A4A analysis of reports by Alaska, Allegiant, American, Delta, Hawaiian, JetBlue, Southwest, Spirit, United and Virgin America
Revenue Gain
Revenue Loss
** Sale of frequent flyer award miles to airline business partners, pet transportation, in-sourced aircraft and engine repair, flight simulator rentals, inflight sales, etc.
+4.4%
(5.1%)(7.9%)
+9.6%
+0.04%
2015 Airline Operating Expenses* Fell $14B (9.5%) As Lower Fuel Offset Higher Labor
Airlines Also Saw Increases in Landing Fees, Terminal Rents and Aircraft Costs
$145.2
$18.6
$4.4
$0.1
$0.1 $0.3 $0.1
$131.4
Operating Expenses* ($ Billions)
airlines.org8
* A4A analysis of reports by Alaska, Allegiant, American, Delta, Hawaiian, JetBlue, Southwest, Spirit, United and Virgin America
** Professional fees, food/beverage, insurance, commissions, GDS fees, communications, advertising, utilities, office supplies, crew hotels, nonfuel payments to regionals
Cost Reduction
Cost Increase
(38.3%)
+12.2%+1.8% +0.3%+2.9%
(1.8%)
(9.5%)
In 2015, U.S. Airlines* Posted Respectable Margins, Approaching 15% Before Taxes
U.S. Passenger Airline* Profitability Was Just Under Half That of Apple and Altria
airlines.org
31.8 30.9
26.6 25.8
18.5 17.9 17.1 14.6 14.1 14.1
11.6
8.7
Altria
App
le
CS
X
McD
onald
´s
Sta
rbucks
Com
cast
Chip
otle
Airlin
es*
S&
P 5
00
MIlle
rCoors
Sta
rwood
Marr
iott
9
* A4A analysis of reports by Alaska, Allegiant, American, Delta, Hawaiian, JetBlue, Southwest, Spirit, United and Virgin America
2015 Pre-Tax Profit Margin (% of Operating Revenues)
$23.2
B
$72.7
B
Note: S&P 500 excludes unusual items
Airlines Continue to Strive for Solid Profitability Across the Business Cycle
In Current U.S. Business Cycle, Airline Margins Are Less Than Half the S&P 500 Average
airlines.org
31.3
28.2
17.9
13.8
5.0
0
5
10
15
20
25
30
35
AAPL MCD SBUX SPX* U.S. Airlines
10
Sources: Standard & Poor’s (S&P) and A4A Passenger Airline Cost Index plus company SEC filings
Ap
ple
McD
on
ald
’s
Sta
rbu
cks
S&
P 5
00
* Excludes unusual items
Pre-Tax Profit Margin (%) for 2011-2015
U.S. Airlines Are Putting More Than Half of Cash Flow* Right Back Into the Product
Primary Uses of Operating Cash from 2010-2015 Included $65B of Capital Reinvestment
airlines.org11
$17.0B
Enhance
Product
$10.5B
Reward
Shareholders
$8.0B
Retire
Debt
* SEC filings of Alaska/Allegiant/American/Delta/Hawaiian/JetBlue/Southwest/Spirit/United/Virgin America; denominator is net cash provided by operating activities
2015 2010-2015
$64.9B
Enhance
Product
$17.4B
Reward
Shareholders
$54.3B
Retire
Debt
airlines.org12
Following Enormous Losses of 2001-2009, U.S. Airlines Have Retired $54.3B in Debt
Adjusted Net Debt Now Just 32% of Operating Revenues, Down from 45% in 2010
Source: SEC filings of AAL/ALGT/AAL/DAL/HA/JBLU/LUV/SAVE/UAL/VA
$0
$2
$4
$6
$8
$10
$12
2010 2011 2012 2013 2014 2015
Th
ou
sa
nd
s
Payments on Debt* (Billions) Debt** as % of Operating Revenues
Average = $9B per year45.3
31.6
25
30
35
40
45
50
2010 2011 2012 2013 2014 2015
** Includes 7x annual aircraft rents (capitalized operating leases)
* Payments on long-term debt and capital lease obligations
Improving Finances Enabling Significant Reinvestment in Customer Experience
U.S. Airline* Capital Expenditures ($ Millions per Month)
airlines.org13
1,2881,148
644470 430
551
816
1,0381,162
1,414
2000 2001 2002 2003-2009 2010 2011 2012 2013 2014 2015
* SEC filings of Alaska, Allegiant, American, Delta, Hawaiian, JetBlue, Southwest, Spirit, United and Virgin America
» 2015 outlays of $17B were highest in at least 16 years:
Averaged $1.4B per month or ~$22 per passenger
Constituted 60% of operating cash flow
Included receipt of 388 new aircraft
» At YE15, $86B in firm orders to be delivered in 2016 and beyond, including an average of a plane a day in 2016
2.5
5
2.4
5
2.2
9
2.2
8
2.2
9
2.2
6
2.2
7
2.2
9
2.3
7
2.4
6
2.20
2.25
2.30
2.35
2.40
2.45
2.50
2.55
20
07
20
08
20
09
20
10
20
11
20
12
20
13
20
14
20
15
20
16
As Airlines Generate Normal Returns on Capital, Customers Are Seeing More Seats
Domestic Supply at Highest Point in Eight Years; International Supply at All-Time High
airlines.org
Domestic USA (Million Daily Seats)
14
Source: Innovata (via Diio Mi) published schedules as of Mar. 4, 2016, for all airlines providing scheduled passenger service from U.S. airports to all destinations288
292
275 282
292 299
310
330
351
370
260
280
300
320
340
360
380
20
07
20
08
20
09
20
10
20
11
20
12
20
13
20
14
20
15
20
16
International (Thousand Daily Seats)
Exceeding 2008 Highest Ever
In Addition to Expanding Schedules, Airlines Are Deploying Larger Aircraft
Replacement of 50-Seaters With Larger Regional Jets Is Biggest Driver of 14% Jump
airlines.org15
110.9
150.0
96.3
93.7 112.6
146.9
132.9
133.2 1
53.0
83.3
138.1
102.0118.3
168.6
101.8
112.2
173.6
148.2
133.3
147.3
173.6
96.0
142.2
116.1
Ala
ska
Alle
gia
nt
Am
erica
n
De
lta
Fro
ntie
r
Ha
waiia
n
Je
tBlu
e
Sou
thw
est
Spir
it
Un
ited
Virg
in
Ave
rag
e
2010 2016
Average Domestic Aircraft Size (Seats per Scheduled Departure)
Source: Innovata (via Diio Mi) as of Mar. 4, 2016
After a Decade of Sharp Workforce Reductions, U.S. Airline Jobs on the Rise Again
December 2015 Was 25th Consecutive Month of YOY Employment Gains at U.S. Airlines
airlines.org16
Source: Bureau of Transportation Statistics for scheduled U.S. passenger airlines
520.6
378.3 384.6 395.2
2000 2010 2014 2015
Employment at U.S. Passenger Airlines
Thousand Full-Time Equivalents
U.S. Airlines* Are Pumping More Wages and Benefits into the Economy
Airlines* Spending $3.35 Billion per Month on the Workforce – Up ~$800M from 2010
airlines.org17
2.55 2.61
2.73 2.76
2.99
3.35
2010 2011 2012 2013 2014 2015
* SEC filings of Alaska, Allegiant, American, Delta, Hawaiian, JetBlue, Southwest, Spirit, United and Virgin America
Total Employee Wages and Benefits* per Month
(in $ Billions)
airlines.org18
In 2015 U.S. Airlines Redoubled Their Efforts to Retain and Lure New Equity Investors,
Returning $10.5B to Shareholders Via Stock Buybacks ($9.5B) and Dividends ($981M)
Source: SEC filings of Alaska/Allegiant/American/Delta/Hawaiian/JetBlue/Southwest/Spirit/United/Virgin America
Stock Repurchases (Billions) Dividends (Millions)
$0
$100
$200
$300
$400
$500
$600
$700
$800
$900
$1,000
2010 2011 2012 2013 2014 2015
$0
$1
$2
$3
$4
$5
$6
$7
$8
$9
$10
2010 2011 2012 2013 2014 2015
2015 Operational and Financial Recap: U.S. Passenger Airlines
airlines.org19
» 2015 constituted the 6th consecutive year of consummate airline safety performance
» Like all responsible businesses, U.S. airlines serve multiple stakeholders; accordingly,
they are reinvesting cash flows to benefit customers, employees and investors
More reliable operations, lower airfares, more seats in the marketplace, a steady stream of
new and larger aircraft, expansion of inflight Wi-Fi and entertainment options – all translated in
to an improving experience for airline customers, who traveled in record numbers (>790M)
Despite flattish operating revenues, employees and investors, too, are benefiting as falling
operating expenses steadily improve the industry’s financial wherewithal
» Nearly seven years post-recession, U.S. airlines are finally achieving profitability in line
with the overall U.S. corporate (i.e., S&P 500) average and, in turn:
retiring expensive debt, reducing leverage and increasing creditworthiness
acquiring new aircraft and ground equipment and enhancing IT systems
boosting employee staffing as well as wages and benefits
launching new routes and enhancing airport and inflight amenities
offering domestic flyers the highest number of seats since the Great Recession
returning cash to shareholders through stock buybacks and dividends
The Administration Is Pushing to Increase the Government’s Share of Each Ticket
Growing Take of $300* Itinerary Leaves Less Revenue for Carriers to Reinvest
2014-2015
9/11 Fee Hike
21% ($63)*
1971-1972
AATF Begins
7% ($22)*
1992-1993
PFC Begins
13% ($38)*
Taxes Airfare
** Based on proposed increases in President’s FY2017 budget
* Sample itinerary is a $300 domestic round trip with one stop each way and maximum passenger facility charge (PFC) per airport; total ticket price includes taxes
airlines.org20
Proposed**
POTUS FY2017
26.5% ($80)*
AATF = Airport and Airway Trust Fund
2002
9/11 Fee Begins
19% ($58)*
U.S. Airports Have Ample/Multiple Resources from Which to Fund Improvements
airlines.org21
9.2
9.1
8.7 9
.2
10
.4
10
.5 11
.5 12
.0
10
.7
10
.6 11
.6 12
.6
12
.9 13
.5 14
.3
01 02 03 04 05 06 07 08 09 10 11 12 13 14 15
AATF* Revenues ($ Billions) – All-Time High AATF* Unobligated Balance ($ Billions) – Nearly $6B
7.3
4.8
3.9
2.4
1.9
1.8
1.5
1.4
0.3 0.7 1
.4
2.8
4.9
5.8
5.8
01 02 03 04 05 06 07 08 09 10 11 12 13 14 15
Source: A4A, FAA, Standard & Poor’s; PFC collections exclude any compensation received for collecting/handling/remitting
U.S. Airport Revenues ($ Billions) – All-Time High U.S. Airport Credit Ratings (per S&P) – Investment Grade
* Airport and Airway Trust Fund
1.6 1.9 2.1 2.0 2.2 2.5 2.8 2.6 2.5 2.7 2.7 2.8 2.8 2.9 3.0
19
.4
19
.0
18
.6
18
.2
19
.6
21
.0
22
.6
23
.9
20
.9
20
.7
21
.3
21
.4
22
.7
23
.9
21
.0
20
.9
20
.6
20
.2
21
.8
23
.5
25
.5
26
.5
23
.4
23
.4
24
.1
24
.2
25
.5
26
.8
01 02 03 04 05 06 07 08 09 10 11 12 13 14 15
PFC (net) Non-PFC
TB
D
16
49
14
0
AA ±
A ±
BBB ±
Lower
www.airlines.org
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