The Big 4 Airline Era, New Ultra Low Cost Carriers, and Implications for Airports

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1 The Big 4 Airline Era, New Ultra Low Cost Carriers, and Implications for Airports Linda Perry, Director AAAE Rates and Charges Workshop November 4, 2016

2 Outline The Big 4 American Delta Southwest United Ultra Low Cost Carriers (LCCs) Allegiant Spirit Frontier 2 AAAE Rates and Charges Workshop

3 In the early years, there were 10 The Big 4 together account for 77% of total seats in 2016, down from 79% in 2014 Percent of 2016 seats 23% 20% 15% 19% Sources: Graphic Money/CNN, Domestic seats--oag Aviation Worldwide Ltd, OAG Analyser online database, accessed October % 3 AAAE Rates and Charges Workshop

4 Percent of departing scheduled seats in 2016 and now there are four The Big 4 s 2016 seats are 7% below 2007 levels Larger decreases for Delta and United reflect, in part, the closure of connecting hubs Southwest s seats exceeded 2007 levels in % 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% 13% 13% 10% 11% 13% 8% Source: OAG Aviation Worldwide Ltd, OAG Analyser online database, accessed October % 20% 20% 15% 18% 19% 3% 1% 11% 16% 15% 8% 18% 21% 23% American US Airways Delta Northwest Southwest AirTran United Continental Other airlines 4 AAAE Rates and Charges Workshop

5 Percent change in total seats from 2007 The capacity muscle of the Big 4 is not what it used to be The Big 4 s 2016 seats are 7% below 2007 levels Larger decreases for Delta and United reflect, in part, the closure of connecting hubs Southwest s seats exceeded 2007 levels in % 0% -5% -10% -15% -20% American Delta Southwest United The Big 4-25% Source: OAG Aviation Worldwide Ltd, OAG Analyser online database, accessed October AAAE Rates and Charges Workshop

6 Airline domestic yield (cents per passenger mile) Average domestic trip length (miles) The cost to fly on the Big 4 is climbing Average domestic yield for the Big 4 has increased 25% since 2007 Decreases in 2015 and 2016 reflect reduced oil prices and the addition of capacity Differences in average trip length account for some of the variation in yield 20 1, , , , , , ,100 1, Southwest United The Big 4 American Delta Southwest United The Big 4 American Delta Note: Ancillary fees are not included. Data for 2014 are for the first quarter only. Source: U.S. Department of Transportation, Origin-Destination Survey of Airline Passenger Traffic, Domestic, online database, accessed October AAAE Rates and Charges Workshop

7 We re Number 1 The New American 7 AAAE Rates and Charges Workshop

8 Percent change from 2007 Percent of total seats Capacity at American s large hubs is approaching pre-recession levels American s 2016 seats are 5% below 2007 levels Large hubs account for a larger share of American s capacity in 2016 than % 100% 0% 90% -5% 80% -10% -15% -20% -25% -30% -35% American/ US Airways merger December % 60% 50% 40% 30% 20% 10% 0% 74% 78% 77% 14% 11% 11% 8% 8% 8% 4% 4% 4% Large Medium Small All airports Nonhub Nonhub Small Medium Large Note: Includes US Airways seats. Source: OAG Aviation Worldwide Ltd, OAG Analyser online database, accessed October AAAE Rates and Charges Workshop

9 Airline domestic yield (cents per passenger mile) Average domestic trip length (miles) The Cost to Fly on American Average domestic yield for American has increased 21% since 2007 Differences in average trip length account for some of the variation in yield 21 1, , ,600 1,550 1,500 1,450 1,400 1,350 1,300 1,250 1,200 Large Small All airports Medium Nonhub Large Small All airports Medium Nonhub Note: Ancillary fees are not included. Data for 2014 are for the first quarter only. Source: U.S. Department of Transportation, Origin-Destination Survey of Airline Passenger Traffic, Domestic, online database, accessed October AAAE Rates and Charges Workshop

10 We re a Close Second Delta 10 AAAE Rates and Charges Workshop

11 Percent change from 2007 Percent of total seats Capacity at Delta s large hubs is approaching pre-recession levels Delta s 2016 seats are 3% below 2007 levels Large hubs account for a larger share of American s capacity in 2016 than % 100% 5% 90% 0% 80% -5% -10% -15% -20% -25% -30% -35% Delta/ Northwest merger October 2008 Large Small All airports Medium Nonhub 70% 60% 67% 74% 75% 50% 40% 30% 14% 20% 12% 12% 10% 12% 9% 9% 0% 6% 5% 5% Nonhub Small Medium Large Note: Includes Northwest Airlines seats. Source: OAG Aviation Worldwide Ltd, OAG Analyser online database, accessed October AAAE Rates and Charges Workshop

12 Airline domestic yield (cents per passenger mile) Average domestic trip length (miles) The Cost to Fly on Delta Average domestic yield for Delta has increased 32% since 2007 Differences in average trip length account for some of the variation in yield 23 1, , , ,300 1,250 1,200 1, ,100 Large Small All airports Medium Nonhub Large Small All airports Medium Nonhub Note: Ancillary fees are not included. Data for 2014 are for the first quarter only. Source: U.S. Department of Transportation, Origin-Destination Survey of Airline Passenger Traffic, Domestic, online database, accessed October AAAE Rates and Charges Workshop

13 Who s on Third? Southwest 13 AAAE Rates and Charges Workshop

14 Percent change from 2007 Capacity reductions at Southwest s small and nonhubs reflect the rationalization of AirTran service Percent of total seats Southwest s 2016 seats are 1% above 2007 levels Large and medium hubs gain; small and nonhubs lose 20% 10% 0% -10% -20% -30% -40% -50% -60% -70% -80% Southwest/ AirTran merger May 2011 Large Small All airports Medium Nonhub 100% 90% 80% 70% 60% 50% 40% 30% 20% 52% 54% 54% 34% 36% 37% 10% 13% 0% 1% 10% 1% 9% Nonhub Small Medium Large Note: Includes US Airways seats. Source: OAG Aviation Worldwide Ltd, OAG Analyser online database, accessed October AAAE Rates and Charges Workshop

15 Airline domestic yield (cents per passenger mile) Average domestic trip length (miles) The Cost to Fly on Southwest Average domestic yield for Southwest has increased 21% since 2007 Nonhubs are primarily AirTran markets 27 1, , Large Small All airports Medium Nonhub Large Small All airports Medium Nonhub Note: Ancillary fees are not included. Data for 2014 are for the first quarter only. Source: U.S. Department of Transportation, Origin-Destination Survey of Airline Passenger Traffic, Domestic, online database, accessed October AAAE Rates and Charges Workshop

16 Just Missing a Medal in Fourth Place United 16 AAAE Rates and Charges Workshop

17 Percent change from 2007 Percent of total seats United s capacity growth lags other Big 4 United s 2016 seats are 19% below 2007 levels Large hubs account for a larger share of seats in % 0% -5% 100% 90% 80% -10% 70% -15% 60% 75.7% 77.9% 79.1% -20% 50% -25% -30% -35% -40% United/ Continental merger October 2010 Large Small All airports Medium Nonhub 40% 30% 20% 12.3% 10.1% 9.6% 10% 7.9% 7.5% 7.4% 0% 4.1% 4.5% 3.9% Nonhub Small Medium Large Note: Includes Continental Airlines seats. Source: OAG Aviation Worldwide Ltd, OAG Analyser online database, accessed October AAAE Rates and Charges Workshop

18 Airline domestic yield (cents per passenger mile) Average domestic trip length (miles) The Cost to Fly on United Average domestic yield for United has increased 21% since 2007 Differences in average trip length account for some of the variation in yield 21 2, , , ,600 1, , ,000 Large Small All airports Medium Nonhub Large Small All airports Medium Nonhub Note: Ancillary fees are not included. Data for 2014 are for the first quarter only. Source: U.S. Department of Transportation, Origin-Destination Survey of Airline Passenger Traffic, Domestic, online database, accessed October AAAE Rates and Charges Workshop

19 The Ultra Low Cost Carrier Story 19 AAAE Rates and Charges Workshop

20 Spirit Airlines In 2012, Spirit placed an order for 75 Airbus narrowbody aircraft, including 45 A320neos the first of which was delivered in October 2016 Spirit's Busiest 10 Airports in 2016 Percent of scheduled departing seats Other 34% FLL 14% LAS 8% ORD 8% BWI 3% DTW 6% IAH 5% ATL 5% MCO 5% LAX 6% DFW 6% 20 AAAE Rates and Charges Workshop

21 Frontier Airlines In 2013, Frontier was acquired by Indigo Partners, a private equity firm, and currently has orders for approximately 90 Airbus narrowbody aircraft Frontier's Busiest 10 Airports in 2016 Percent of scheduled departing seats Other 36% DEN 24% MCO 9% PHX 2% SFO 2% CVG CLE 3% 3% ATL 4% PHL 4% LAS 7% ORD 6% 21 AAAE Rates and Charges Workshop

22 Allegiant Airways Allegiant was founded on the use of inexpensive, used aircraft, particularly the MD-80, but plans to retire its 46 MD-80s by the end of 2019 and replace them with new and used Airbus narrowbody aircraft Allegiant's Busiest 10 Airports in 2016 Percent of scheduled departing seats SFB 11% LAS 11% Other 48% PIE 8% AZA 6% IND 1% LAX 2% BLI 2% FLL 3% PGD 5% CVG 3% 22 AAAE Rates and Charges Workshop

23 Percent change in total seats from 2007 The Ultra LCCs Build Capacity Strength The Ultra LCCs 2016 seats are 105% above 2007 levels Ultra LCC scheduled departing seats total 53 million in 2016, compared with 785 million for the Big 4 300% 250% 200% 150% 100% 50% 0% Allegiant Spirit Frontier Ultra LCCs -50% -100% Source: OAG Aviation Worldwide Ltd, OAG Analyser online database, accessed October AAAE Rates and Charges Workshop

24 Percent of departing scheduled seats in 2016 Ultra LCCs Share of Seats is Small, but Growing The Ultra LCCs accounted for 5.3% of total departing seats at U.S. airports in 2016, more than twice 2007 levels Between 2007 and 2016, departing seats for Allegiant increased an average of 15% per year, followed by Spirit (14% per year), and Frontier (1% per year) 6.0% 5.0% 4.0% 3.0% 2.0% 1.0% 0.0% 2.5% 0.7% 1.4% 0.4% Source: OAG Aviation Worldwide Ltd, OAG Analyser online database, accessed October % 1.7% 1.4% 0.9% 5.3% 2.4% 1.6% 1.3% Spirit Frontier Allegiant 24 AAAE Rates and Charges Workshop

25 Airline domestic yield (cents per passenger mile) Average domestic trip length (miles) The Bare Fares of Ultra LCCs Average domestic yield for the Ultra LCCs has decreased 23% since 2007 The large decrease in Frontier s yield reflects the change in its business model from a LCC to an ULCC A la carte pricing of Ultra LCCs is not directly comparable with Big 4 airfares ,250 1,200 1,150 1,100 1,050 1, Allegiant Frontier Spirit Ultra LCCs Allegiant Frontier Spirit Ultra LCCs Note: Ancillary fees are not included. Data for 2014 are for the first quarter only. Source: U.S. Department of Transportation, Origin-Destination Survey of Airline Passenger Traffic, Domestic, online database, accessed October AAAE Rates and Charges Workshop

26 Implications for Airports

27 Industry Consolidation Impacts

28 Traffic reductions at medium and small hub facilities 28 AAAE Rates and Charges Workshop

29 Increase in on demand charter 29 AAAE Rates and Charges Workshop

30 Overcrowding at large hubs 30 AAAE Rates and Charges Workshop

31 Future Terminal Facilities and Trends

32 Trend Towards Self Service Landside/ATO Security Checkpoint Airside/Concourse CUSS Kiosks Bag Drop CAT/BPSS Boarding Pass Scanners Automatic Boarding Gates 32 AAAE Rates and Charges Workshop

33 Evolution of Ticket Lobby 33 AAAE Rates and Charges Workshop

34 Evolution of Ticket Lobby 34 AAAE Rates and Charges Workshop

35 Future Vision for Security Conceptually, provides for a seamless journey from curb to airside Passengers to proceed through security based on advanced assessment of risk-based passengers Systems analyze person and carry-on baggage utilizing automation and remote image analysis 35 AAAE Rates and Charges Workshop

36 Future Vision for Security 36 AAAE Rates and Charges Workshop

37 Evolution of Gate Areas 37 AAAE Rates and Charges Workshop

38 Evolution of Gate Areas 38 AAAE Rates and Charges Workshop

39 Gate Boarding 39 AAAE Rates and Charges Workshop

40 Evolution of FIS 40 AAAE Rates and Charges Workshop

41 LeighFisher 555 Airport Blvd., Suite 300 Burlingame, California U.S.A.

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