2017 Marketing and Communications Conference. November 6, 2017

Transcription

1 2017 Marketing and Communications Conference November 6,

2 2 Introduction Carrie Kenrick

3 State of the Industry Industry Consolidation Financial Trends Ancillary Product / Customer Segmentation Fleet Growth & Modernization Global Alliances & Partnerships Facility Constraints / Modernization 3

4 4 Consolidation / Growth

5 Consolidation has changed the landscape

6 Top four U.S. carriers have grown from 57% to 81% domestic share Frontier, 2007 Other, 1 JetBlue, [PERCENTAG U.S. DOMESTIC [PERCENTAG SEAT SHARE Alaska, [PERCENTAGE] E] [PERCENTAGE] AirTran, E] [PERCENTAG Southwest, E] [PERCENTAG E] Continental, [PERCENTAG E] Northwest, [PERCENTAG E] United, [PERCENTAG E] US Airways 2, [PERCENTAG E] American, [PERCENTAG E] Delta,[PERCE NTAGE] Consolidation reduces hubs and can result in less flights, fewer seats, and higher load factors Frontier, Allegiant, Other, U.S. DOMESTIC SEAT SHARE Spirit, [PERCENTAG [PERCENTAG [PERCENTAG [PERCENTAG E] E] E] E] JetBlue, 4% Alaska 3, [PERCENTAG E] United,16% Delta, [PERCENTAG E] American, [PERCENTAG E] Southwest, [PERCENTAG E] Note 1: YE 2Q 2007 & YE 2Q 2017; US to US Note 2: US & HP combined Note 3: AS & VX combined Source: APAC analysis; Diio Mi DOT O&D Summary; 6

7 U.S. Ultra Low Cost Carriers (ULCCs) experiencing double digit growth YOY (%) CAPACITY CHANGE BY CARRIER (SEATS) YE November 2017 vs. YE November % 14% 13% Capacity Growth through: 1. New aircraft 2. Increased utilization 3. Densification initiatives 8% 6% 5% 4% 4% 4% 4% 1% 0% DOMSTIC INDUSTRY Source: Diio Mi, Schedules YE November 2017 vs. YE November

8 Since 2011, U.S. ULCCs have grown capacity by 11% every year (CAGR) U.S. DOMESTIC ULCC GROWTH SINCE 2011 (F9, G4 & NK) Seats (millions); 2011 to Competitors that are just left unchecked to go after certain parts of the market the leisure part, let s say If you ignore it, you wake up in a few years and next thing you know it s a really, really big problem. 30% 25% 44 United CFO Andrew Levy, referring to the ULCC threat 20% 33 15% 22 10% 11 5% % -11 Seats (millions) YoY Growth Rate -5% Sources: Airline Weekly September 11, Diio Mi, Schedules; 2011 to

9 Seeing double digit growth from Canada s subsidiaries YOY (%) CAPACITY CHANGE BY CARRIER (SEATS) YE November 2017 vs. YE November % YOY (%) CAPACITY CHANGE BY CARRIER AND ITS SUBSIDARIES YE November 2017 vs. YE November % 5% 24% 5% 0% 0% -1% WS - Encore AC - Rouge Air Canada Porter WestJet Source: Diio Mi, Schedules YE November 2017 vs. YE November

10 Southwest and United are seeing the highest nominal seat increases YOY (#) CAPACITY CHANGE BY CARRIER (SEATS) Seats (1000s) YE November 2017 vs. YE November ,686 6,698 4,162 4,157 3,800 2,539 2,531 2,395 1,710 1, Source: Diio Mi, Schedules YE November 2017 vs. YE November

11 Strategic growth examples Source: Carriers press releases 11

12 Canadian carriers launching Ultra / Low Cost subsidiaries Air Canada launched Rouge in July 2013 Competitive in leisure markets New opportunities for growth Canada Jetlines, set to start operating in June 2018 to be Canada s first ULCC Motto: Flying Your Way WestJet announced the name for its ULCC on September 27, 2017 called Swoop Flair Air purchased NewLeaf Travel Company Assets in June 2017 New position as a low fare national airline in Canada The name Swoop denotes exactly what we plan to do 12

13 13 Financial Trends

14 Despite strong profits, headwinds exist Financial Metrics Fuel price uncertainties National pilot shortage Expensive Labor Contracts 14

15 Strong margins continue, but decline over last year 3Q 2017 OPERATING MARGIN (%) 24% 22% 21% 17% 17% 17% 16% 16% 12% 12% 12% Sources: APAC Analysis, Airline Weekly Issues October 16, October 23 & October 30, WestJet2mediaroom.com 15

16 Expense growth at a higher rate than revenue in the third quarter REVENUE AND EXPENSE CHANGE BY CARRIER 3Q % 20% 15% Fuel Labor Expense pressures Airport Renovation Fleet Modernization Technology Investments 10% 5% 0% YoY Revenue Change YoY Expense Change YoY ASM Change Sources: APAC Analysis, Airline Weekly Issues October 16, October 23 & October 30, WestJet2mediaroom.com 16

17 After bottoming in early 2016, fuel prices have risen over 50% as of August 2017 SPOT PRICE PER GALLON - JET A $3.50 Peak [VALUE] / GAL $3.00 Strong focus on aircraft that are fuel efficient $2.50 $2.00 $1.50 Current [VALUE] / GAL $1.00 $0.50 Trough [VALUE] / GAL $ Jan-16 Feb-16 Mar-16 Apr-16 May-16 Jun-16 Jul-16 Aug-16 Sep-16 Oct-16 Nov-16 Dec-16 Jan-17 Feb-2017 Mar-2017 Apr-2017 May-2017 Jun-2017 Jul-2017 Aug-2017 Source: APAC Analysis, EIA.gov 17

18 The North American market will face a dramatic shortage of pilots in the coming 20 years 20 YEARS NORTH AMERICAN PILOTS DEMAND AND SUPPLY 95,000 42% of pilots flying today for U.S. airlines will retire in the next 10 years 64,000 Pilots Demand Pilots Supply Source: Boeing and Oliver Wyman Analysis 18

19 Labor is now largest expense for airlines New contracts for pilots and other employee work groups were negotiated and signed at Delta, Southwest, United, and American in 2016 Latest Delta pilot contract granted an 18% wage hike for 2016, plus another 3% to 4% annually going forward Source: Market Realist and Individual Company Filings 19

20 20 Ancillary

21 Ancillary revenues have risen ~200% since 2010 and now accounts for 10% of global airline revenues WORLDWIDE ANCILLARY REVENUES Billions $USD $ % $50 $59 $23 $33 $36 $43 Seat Selection $$ Ancillary Revenues Source: Ideaworks 21

22 Ancillary revenue is not only critical for Ultra Low Cost Carriers (ULCCs) but it is also increasingly important for Legacy Carriers Comfort+ Seating, [PERCENTAG E] DELTA AIRLINES Other ANCILLARY REVENUES Activities, % ANCILLARY REVENUE PER PASSENGER 2016 ($USD) $50 $49 $49 $43 Baggage, [PERCENTAG E] FFP/Co- Branded Card, 52% $31 $28 $28 $26 $25 $25 $21 $19 $14 Economy Branded Fares, 21% Source: APAC analysis, Air Transport World, Ideaworks 22

23 Frequent flyer miles have transformed into high margin enterprise Source: Stifel and Bloomberg 23

24 All types of carriers are enhancing their loyalty programs and credit card agreements Our loyalty and credit card programs attract high value guests and contributed over $900 million in annual cash flow last year By 2018, co-branded agreements expect to drive $800 million in incremental revenue Launching new loyalty program in 2020 Requesting RFP for credit card partnership NPV of $2.0B-$2.5B from Loyalty Program over 15 year period Launched on September 1 st, 2016 By 2020, estimated incremental revenue benefit to be $45 million Source: Carriers press releases and Investor Day presentations 24

25 25 Product & Customer Segmentation

26 New branded fares to increase customer segmentation Sources: AA Investor Day September 2017, AC Investor Day September 2017, DL Investor Day December

27 Carriers are emphasizing the importance of a high Net Promoter Score (NPS) = High Customer Satisfaction Sources: DL Investor Day December 2016, WN Current Investor Booklet August

28 28 Fleet Growth & Modernization

29 Fleet trends Premium Economy Transatlantic narrowbody Upgauging B787s C Series Every single carrier is updating its fleet 29

30 Hot off the production line = Plane Demand! the jets (A ) are expected to generate a 20 percent improvement in operating cost per seat compared to the Boeing aircraft they will replace. Delta A321-NEO A350 E175 B737 MAX CS100 B787 Less is More The 787 s lightweight structure significantly reduces emissions and fuel consumption Air Canada Source: DL Press Release on July 13, 2017, AC aircanada.com 30

31 Rapid retirement of small regional aircraft REGIONAL JETS WITH 50 OR FEWER SEATS Scheduled block hours (millions) % YE1H'08 YE1H'09 YE1H'10 YE1H'11 YE1H'12 YE1H'13 YE1H'14 YE1H'14 YE1H'15 YE1H'16 YE1H'17 Source: Diio Mi Domestic only Regional Jets with 50 or fewer seats for Legacy carriers (AA, AS, CO, DL, HA, HP, NW, TW, UA, US) 31

32 Global Alliances, Partnerships & Joint Ventures 32

33 The growth of airline partnerships has significantly increased 91% of revenue is Alaska generated. 6% Codeshare 2% Domestic Interline 1% International Interline Sources: AS Investor Day March 2017, DL Investor Day December

34 34 Airlines not only have airline partners but also seeing the growth of nonair/hotel partners

35 35 Facility Constraints and Modernization

36 Airlines investing on major infrastructure projects at strategic locations Airport Experience DAL HOU FLL Source: news.delta.com 36

37 & BEYOND

38 Emerging airline trends Codeshare Hawaii New Loyalty program Product Segmentation Focus on operational reliability New reservation system 737 Max incorporation IPO Big Bang Network Strategies Expansion of Rouge Fleet modernization Cost Inflation Fleet Conversion New Leadership take on current strategies International Joint Ventures Lounge upgrades Merged branding Combined airline strategy for West Coast Transatlantic Expansion BOS and FLL strategies Canada s introduction to new ULCCs 38

39 39 Thank you!