Financial and Economic Indicators for the Air Transport Industry. NASAO Legislative Conference Washington DC February 2016

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1 Financial and Economic Indicators for the Air Transport Industry NASAO Legislative Conference Washington DC February 2016

2 General Aviation Metrics

3 Number of Active General Aviation Aircraft and On-Demand Part 135 in the U.S. by Region Western-Pacific Alaska 5,64 1 6,11 3 6, , , , N.W. Mountain 25, , , Southwest Central 30, , , , , , Great Lakes 32, , ,7 03 Southern 39, , , Eastern 23, , , Total U.S. New England 204, , , 456 7,00 0 7,61 0 8,59 6 Source: GAMA 2015 Databook.

4 Slide18 - General Aviation Airplane Shipments by Type of Airplane Manufactured Worldwide , ,417 1, Single-Engine Piston Multi-Engine Piston Turboprop Business Jet Source: GAMA 2015 Databook. 4

Customer Delivery Region for General Aviation

Manufactured Worldwide Share of Total 2015

Asia- Pacific 14% Latin America 6% Middle

20% North America 52% Asia- Pacific 11% Latin

5 Customer Delivery Region for General Aviation Airplane Shipments by Type of Airplane Manufactured Worldwide Share of Total 2015 Piston Turboprop North America 67% Europe 11% Asia- Pacific 14% Latin America 6% Middle East & Africa 2% Asia- Pacific 16% North America 56% Latin America 14% Europe 8% Middle East & Africa 6% Business Jet Europe 20% North America 52% Asia- Pacific 11% Latin America 9% Middle East & Africa 8% Source: GAMA 2015 Databook. 5

6 Total Hours Flown by General Aviation Airplane Type, 2014 (in thousands) Business 3,881 Rotorcraft 3,242 Turboprop 2,613 Other 1,710 Experimental 1,244 Gliders, Balloons, etc 159 Light-Sport Aircraft 307 Piston 11,967 Source: GAMA 2015 Databook. 6

7 U.S. General Aviation Fuel Consumption, Millions of Gallon Year Single- Engine Piston Airplane Multi- Rotorcraft Experimental and Other Total Fuel Consumed Engine Turboprop Business Jet Piston Turbine Aircraft Light-Sport Avgas Jet Fuel Total Piston , , , , , ,231 1, , ,527 1, , ,643 1, , ,486 1, , ,706 1, , ,447 1, , ,435 1, E , ,491 1, , ,542 1, ,260 1, , ,370 1,567 Source: GAMA 2015 Databook. 7

8 General Aviation Aircraft Forecast 225, ,000 General Aviation Forecast Number of Airplane by Type 203, , , , , , , , , , , , ,000 9,390 9,330 9,295 9,280 9,285 9,315 9,360 9,445 9,545 9,690 9,855 11,915 12,105 12,325 12,555 12,815 13,115 13,440 13,790 14,165 14,575 15,000 24,880 25,220 25,605 25,990 26,380 26,795 27,210 27,630 28,040 28,460 28, , ,000 75, , , , , , , , , , , ,450 50,000 25, Airplane - Piston Experimental Airplane - Business Jet Airplane - Turboprop Rotocraft - Turbine Balloons, Dirigbles, Gliders Rotocraft - Piston Special Source: GAMA 2015 Databook. 8

9 Macroeconomic Metrics

The growth in GDP no longer dictates the growth in airline capacity that it used to. Fares are following the trend line in the consumer price index.

10 The growth in GDP no longer dictates the growth in airline capacity that it used to. Fares are following the trend line in the consumer price index. Nominal US GDP Trillion $19 $18 $17 $16 $15 $14 $13 $12 Average Annual Growth Rate % 1q05 2q05 3q05 4q05 1q06 2q06 3q06 4q06 1q07 2q07 3q07 4q07 1q08 2q08 3q08 4q08 1q09 2q09 3q09 4q09 1q10 2q10 3q10 4q10 1q11 2q11 3q11 4q11 1q12 2q12 3q12 4q12 1q13 2q13 3q13 4q13 1q14 2q14 3q14 4q14 1q15 2q15 3q15 4q15 Consumer Price Index Average Annual Growth Rate % 1q05 2q05 3q05 4q05 1q06 2q06 3q06 4q06 1q07 2q07 3q07 4q07 1q08 2q08 3q08 4q08 1q09 2q09 3q09 4q09 1q10 2q10 3q10 4q10 1q11 2q11 3q11 4q11 1q12 2q12 3q12 4q12 1q13 2q13 3q13 4q13 1q14 2q14 3q14 4q14 1q15 2q15 3q15 4q15 Source: Business Cycle Analysis 10

11 Fares have nominally increased greater than the CPI recently. For YE3q15, the average fare across the top 5,000 domestic O&D markets in the U.S. has declined for the first time in 5 years $250 Average Gross Fare for Top 5,000 Domestic O&D Markets, 2010 YE3q15 $200 +8% +3% +3% +3% -4% $150 $100 $50 $ YE3q15 Source: U.S. DOT DB1B O&D Survey via Diio Mi 11

12 Household Incomes Has Bounced Back Recently with Unemployment Rate Continue to Decline. Median Household Income $60,000 $57,500 $55,000 $52,500 $50,000 $47,500 $45,000 $42,500 $40, U.S. Unemployment Rate (%) Jan-05 Jun-05 Nov-05 Apr-06 Sep-06 Feb-07 Jul-07 Dec-07 May-08 Oct-08 Mar-09 Aug-09 Jan-10 Jun-10 Nov-10 Apr-11 Sep-11 Feb-12 Jul-12 Dec-12 May-13 Oct-13 Mar-14 Aug-14 Jan-15 Jun-15 Nov-15 Source: U.S. Census Bureau, U.S. Bureau of Labor Statistics. 12

13 Commercial Aviation Metrics

14 As capacity slows, load factors continue to rise. Precisely what the airlines hoped would happen in a capacity-disciplined environment. ASMs, RPMs, and Load Factor ASMs & RPMs Billions Load Factor ASMs RPMs 1q05 2q05 3q05 4q05 1q06 2q06 3q06 4q06 1q07 2q07 3q07 4q07 1q08 2q08 3q08 4q08 1q09 2q09 3q09 4q09 1q10 2q10 3q10 4q10 1q11 2q11 3q11 4q11 1q12 2q12 3q12 4q12 1q13 2q13 3q13 4q13 1q14 2q14 3q14 4q14 1q15 2q15 3q15 90% 88% 86% 84% 82% 80% 78% 76% 74% 72% 70% Load Factor Source: Business Cycle Analysis 14

15 A closer look at the long-term relationship of capacity changes relative to GDP changes suggests a very different mindset is apparent. 30% 25% 20% % Chg - Real GDP % Chg - Seats 15% 10% 5% 0% -5% -10% -15% 1Q80 1Q81 1Q82 1Q83 1Q84 1Q85 1Q86 1Q87 1Q88 1Q89 1Q90 1Q91 1Q92 1Q93 1Q94 1Q95 1Q96 1Q97 1Q98 1Q99 1Q00 1Q01 1Q02 1Q03 1Q04 1Q05 1Q06 1Q07 1Q08 1Q09 1Q10 1Q11 1Q12 1Q13 1Q14 1Q15 Source: Business Cycle Analysis 15

16 1.0% It used to be that an accurate GDP forecast could predict airline health. After the second half of 2000 that changed. Today consumers spend less on air travel as a percent of GDP. 0.9% Average = 0.9% 0.8% ($29.3 B) Average = 0.76% 0.7% Average = 0.72% 0.6% Pax Rev Pax Rev + Ancillary Fees 0.5% 1Q79 1Q80 1Q81 1Q82 1Q83 1Q84 1Q85 1Q86 1Q87 1Q88 1Q89 1Q90 1Q91 1Q92 1Q93 1Q94 1Q95 1Q96 1Q97 1Q98 1Q99 1Q00 1Q01 1Q02 1Q03 1Q04 1Q05 1Q06 1Q07 1Q08 1Q09 1Q10 1Q11 1Q12 1Q13 1Q14 1Q15 Source: Business Cycle Analysis 16

17 Higher fuel prices have been met with a more efficient use of jet fuel. Fuel Price Per Gallon $4.00 $3.50 $3.00 $2.50 $2.00 $1.50 $1.00 $0.50 $0.00 1q05 2q05 3q05 4q05 1q06 2q06 3q06 4q06 1q07 2q07 3q07 4q07 1q08 2q08 3q08 4q08 1q09 2q09 3q09 4q09 1q10 2q10 3q10 4q10 1q11 2q11 3q11 4q11 1q12 2q12 3q12 4q12 1q13 2q13 3q13 4q13 1q14 2q14 3q14 4q14 1q15 Gallons of Fuel Consumed per Thousand RPMs $23 $22 $21 $20 $19 $18 $17 $16 $15 1q05 2q05 3q05 4q05 1q06 2q06 3q06 4q06 1q07 2q07 3q07 4q07 1q08 2q08 3q08 4q08 1q09 2q09 3q09 4q09 1q10 2q10 3q10 4q10 1q11 2q11 3q11 4q11 1q12 2q12 3q12 4q12 1q13 2q13 3q13 4q13 1q14 2q14 3q14 4q14 1q15 Source: Business Cycle Analysis 17

18 Beginning in 2012, the airlines were finally able to pass off the cost of rising jet fuel to the consumer. 80% 60% 40% 20% 0% -20% -40% % Chg - Fuel Price % Chg - Rev w/ancilliaries -60% 1Q03 1Q04 1Q05 1Q06 1Q07 1Q08 1Q09 1Q10 1Q11 1Q12 1Q13 1Q14 1Q15 Source: Business Cycle Analysis 18

3q09 4q09 1q10 2q10 3q10 4q10 1q11 2q11 3q11 4q11 1q12 2q12 3q12 4q12 1q13 2q13 3q13 4q13 1q14 2q14 3q14 4q14 1q15 ASM per FTE 2,900 2,800 2,700 2,600 2,500 2,400

19 Labor costs are rising faster than productivity. A potential problem. Labor Cost per FTE $110,000 $100,000 $102,077 $90,000 $80,000 $70,000 $60,000 1q05 2q05 3q05 4q05 1q06 2q06 3q06 4q06 1q07 2q07 3q07 4q07 1q08 2q08 3q08 4q08 1q09 2q09 3q09 4q09 1q10 2q10 3q10 4q10 1q11 2q11 3q11 4q11 1q12 2q12 3q12 4q12 1q13 2q13 3q13 4q13 1q14 2q14 3q14 4q14 1q15 ASM per FTE 2,900 2,800 2,700 2,600 2,500 2,400 2,300 2,200 2,100 2,000 1q05 2q05 3q05 4q05 1q06 2q06 3q06 4q06 1q07 2q07 3q07 4q07 1q08 2q08 3q08 4q08 1q09 2q09 3q09 4q09 1q10 2q10 3q10 4q10 1q11 2q11 3q11 4q11 1q12 2q12 3q12 4q12 1q13 2q13 3q13 4q13 1q14 2q14 3q14 4q14 1q15 2,844 Source: Business Cycle Analysis 19

Seat departures are the equivalent as to what they were in 1997.

Average Domestic Load Factor and Available Seat Departures Load Factor Domestic Seats 950

20 Seat departures are the equivalent as to what they were in Note the increase in load factor as capacity has been closely managed. U.S. Average Domestic Load Factor and Available Seat Departures Load Factor Domestic Seats % 85% Domestic Seats - Millions % 75% 70% 65% Load Factor % 55% % Source: Business Cycle Analysis 20

21 Smaller airports have suffered the most in terms of capacity cuts. Scheduled Domestic Departures Millions Large Medium Small Nonhub Scheduled Domestic Seats Millions Large Medium Small Nonhub 1, Airport Type % Change in Domestic Flights Large Hub -12.6% Medium Hub -34.7% Small Hub -20.1% Non-Hub and EAS -31.2% All Smaller Airports -26.2% All Airports -20.5% Airport Type % Change in Domestic Seats Large Hub -2.3% Medium Hub -24.7% Small Hub -2.8% Non-Hub and EAS -14.3% All Smaller Airports -6.9% All Airports -7.9% Source: InterVISTAS analysis of Innovata schedules, via Diio online portal. 21

22 While still true, the cuts have slowed. Scheduled Domestic Departures Large Medium Small Nonhub Millions Scheduled Domestic Seats Millions Large Medium Small Nonhub 1, Airport Type % Change in Domestic Flights Large Hub 0.3% Medium Hub 1.0% Small Hub -2.7% Non-Hub and EAS -2.2% All Smaller Airports -2.5% All Airports -0.2% Airport Type % Change in Domestic Seats Large Hub 4.0% Medium Hub 4.4% Small Hub -0.1% Non-Hub and EAS -0.3% All Smaller Airports -0.2% All Airports 3.5% Source: InterVISTAS analysis of Innovata schedules, via Diio online portal. 22

23 The virtuous circle of air service challenges for small U.S. airports. Operational No 50 seat and less replacement aircraft in the pipeline In the wing oil in excess of $50 per barrel Economic Smallest new production aircraft likely to be at least 100 seats 40,000 cycle decision Strategic Capacity discipline at major carriers has reduced frequencies and seats Prevalence of low cost carriers in primary catchment areas Pilot shortage surely to impact regional sector of the business Flight Time/Duty Time regulations cause staffing challenges Government-Induced 23

24 The Impending Pilot Supply Issue

25 The Regional Pilot Shortage Is Not Today s Issue But it will be tomorrow s, and tomorrow is coming quickly In 2014 v. 2013, the market only saw a net reduction in regional jet aircraft of 22 units One reason why the pain is not being felt..yet As the 70-seat jets are delivered, the regional sector has only seen jet aircraft reduced by 84 units since 2008 Turboprop aircraft have been reduced by 243 units since 2008 Since 2011, the number of city pairs being flown by regional aircraft are relatively unchanged Another reason why it seems that the issue is not today s issue, but these figures are bound to change as a result of labor supply pressures 25

26 Understanding the Scope of the Problem Retirements and New Equipment Will Put a Strain on Labor Supply Between now and 2022, the Big 4 US airlines will retire 14,200 pilots that need to be replaced just to maintain the network being flown today Today, the regional industry has seat aircraft on order that will also need to be staffed As an example, the industry will need to park 569 smaller units just to staff the larger equipment Regulatory issues have already impacted the pilot supply from expanding to the degree necessary to respond to these pressures

27 Limiting Pilot Supply Could Lead To Disastrous Effects All communities would feel the effects as the regional industry shrinks Suppose that the regional pilot labor force in 2014 stayed fixed over time. Not an outrageous assumption, considering the new 1500-hour rule that is making it impossible for carriers to fill new classes. Based on replacement of retiring pilots at the mainline and aircraft being delivered to the regional industry: Let s go to the numbers By 2017, all turboprop aircraft would likely be retired along with 215 small jets Remaining small jets likely to be retired by 2020 By 2022, the regional industry would be but 20 percent of its 2014 self

28 Conclusions Nobody is excited today as it is only frequency cuts and not market exits 2015 marks the first year where it will difficult to replace lost seats at the historical level.and it only gets harder Fear is that markets likely have insufficient traffic or population to support larger jet service If you are on the sidelines regarding the pilot supply issue, I urge you to rethink your position Regulatory change is necessary Need to focus on increasing the pilot supply Small RJ/Turboprop service is essential for many small communities

29 Benchmarking State Level Air Service

30 There is an airline story where new routes are being added State August 2007 August 2016 Absolute Change Florida Texas Illinois North Carolina Hawaii North Dakota South Carolina Oregon Washington Colorado Iowa Maryland Indiana Wyoming New Jersey Arizona South Dakota Montana Kentucky Nebraska Vermont State August 2015 August 2016 Absolute Change Florida Hawaii Arizona California Colorado Indiana Iowa New York North Carolina Oregon Texas Kentucky Nebraska Nevada Georgia Idaho Missouri Wisconsin Connecticut Louisiana Maine Source: InterVISTAS analysis of Innovata schedules, via Diio online portal. 30

31 The health of local economies and airline strategies explain departure changes State August 2007 August 2016 Percentage Change North Dakota 1,452 1, % Washington 20,051 21, % North Carolina 30,956 30, % Minnesota 18,475 17, % Louisiana 7,361 7, % New Jersey 14,826 14, % Illinois 48,004 45, % Maryland 10,640 9, % Oregon 11,179 10, % Georgia 42,145 38, % Massachusetts 20,969 18, % Colorado 29,613 26, % Hawaii 15,633 14, % Texas 76,673 68, % Florida 50,417 44, % California 83,035 72, % Virginia 31,876 27, % Michigan 23,749 20, % South Carolina 6,705 5, % New York 45,453 38, % Maine 2,758 2, % State August 2015 August 2016 Percentage Change Hawaii 12,064 14, % Nebraska 2,680 2, % Idaho 2,646 2, % Wisconsin 5,916 6, % Colorado 24,862 26, % Missouri 13,048 13, % Indiana 5,881 6, % Maryland 9,272 9, % Oregon 9,611 10, % Iowa 2,867 3, % Minnesota 16,724 17, % California 68,903 72, % Michigan 19,413 20, % Florida 42,530 44, % Arkansas 3,028 3, % Connecticut 2,716 2, % Ohio 15,306 15, % Utah 10,133 10, % Nevada 15,325 15, % Tennessee 10,896 11, % New York 37,178 38, % Source: InterVISTAS analysis of Innovata schedules, via Diio online portal. 31

32 The same is true for seats deployed State August 2007 August 2016 Percentage Change North Dakota 88, , % Washington 2,044,242 2,643, % Louisiana 592, , % Massachusetts 1,492,358 1,766, % Oregon 984,782 1,154, % North Carolina 2,665,983 3,051, % South Carolina 445, , % Colorado 2,867,883 3,144, % Georgia 4,569,728 4,993, % Minnesota 1,872,411 2,043, % Maryland 1,312,374 1,390, % California 9,310,895 9,822, % Texas 7,715,351 7,946, % Florida 6,063,659 6,220, % Montana 242, , % Illinois 4,830,046 4,855, % New Jersey 1,494,281 1,494, % Iowa 202, , % Indiana 580, , % Maine 152, , % Nebraska 287, , % State August 2015 August 2016 Percentage Change Nebraska 243, , % Colorado 2,797,948 3,144, % Missouri 1,338,247 1,501, % Wisconsin 537, , % Connecticut 288, , % Tennessee 1,005,206 1,106, % Idaho 224, , % Maryland 1,272,348 1,390, % Louisiana 669, , % Oregon 1,064,289 1,154, % Florida 5,745,431 6,220, % Minnesota 1,887,465 2,043, % California 9,105,423 9,822, % Rhode Island 182, , % Indiana 533, , % Washington 2,468,889 2,643, % Massachusetts 1,654,803 1,766, % Utah 1,129,762 1,202, % Michigan 1,906,256 2,023, % Georgia 4,706,193 4,993, % North Carolina 2,895,254 3,051, % Source: InterVISTAS analysis of Innovata schedules, via Diio online portal. 32

33 William S. Bill Swelbar Executive Vice President InterVISTAS Consulting LLC 1150 Connecticut Avenue, NW Suite 601 Washington, DC P C william.swelbar@intervistas.com

Putting Pilot Supply Into Numbers. Thinking About Minnesota. April 2016

Putting Pilot Supply Into Numbers Thinking About Minnesota April 2016 Introduction TODAY, THE ISSUE IS LESS NOTICEABLE BECAUSE LOST SEATS HAVE LARGELY BEEN REPLACED BUT THAT CANNOT GO ON FOREVER 2 The