Sixth Annual Airport Project Delivery Systems Summit. June 9 th, 2011 San Jose, California

Transcription

1 Sixth Annual Airport Project Delivery Systems Summit June 9 th, 2011 San Jose, California

2 The U.S. Airline Industry The first decade of the new millennia was the most financially challenging of any in the airline industry s 80+ years of existence US airlines lost $60B 46 airline bankruptcies resulted in 24 airlines ceasing operations 160,000 airline jobs lost Recorded the two largest year-over-year declines in passenger revenue % % 1

3 The Only Thing Constant in this Industry is Change. 1,200 1, US Carriers Capacity (Billion ASMs) Oil Crisis Source: ATA, U.S. Airlines Braniff DL / Western 1987 CO / People Ex 1987 Frontier NW / Republic 1986 PATCO Strike Braniff Eastern 1990 Midway 1990 US / PSA 1989 US / Piedmont 1989 Western Pacific 1998 Pan Am 1991 Gulf War AA / TWA 2001 AA / Reno Air 1999 Industry Capacity CAGR: 30 Years = 2.7% 10 Years = 0% Independence 2006 US / America West 2005 Vanguard /11 + Gulf War 2 + SARs Recessions RED text indicates liquidations BLACK text indicates mergers Aloha ATA Big Sky SkyBus DL / NW 2008 H1N1 + Bank Crisis F9/YX 2009 UA/CO 2010 WN/FL 2011

4 This Economic Cycle is Different Sustained, high fuel prices Maturing Low-Cost Carriers slower growth Lower relative legacy carrier costs due to recent bankruptcies Industry consolidation fewer, more-rational competitors Legacies-Greater reliance on international revenue due to macro globalization trends. LCC-ancillary revenue; schedule optimization U.S. Industry Operating Margin (%) 10% ? 8% 6% 4%? 2% 0% (2%) (4%) (6%) (8%) High Oil, H1N1, Financial Crisis Interrupt Recovery (10%) Source: ATA, U.S. Airlines

5 The U.S. Airline Industry To secure survival, airlines have taken dramatic action in response to these industry changes Financial restructurings through bankruptcy (DL, NW, UA, US) Mergers (DL/NW, F9/VX, CO/UA, WN/FL,?/?) More robust marketing arrangements and alliances Network Rationalization / Hub Closures Retiming hubs to eliminate peaks Shifting aircraft to new markets Eliminating aged aircraft and modernizing fleets Developing and adopting new revenue sources 4

6 The U.S. Airline Industry In response to declining yields, capacity throughout the domestic system has experienced dramatic cuts 0% Change in Domestic Service vs (1%) (2%) (3%) (4%) (5%) (6%) (7%) (8%) (9%) (10%) 1q08 2q08 3q08 4q08 1q09 Flights (2.3%) (1.6%) (4.6%) (7.2%) (7.8%) Seats (1.0%) (1.3%) (4.2%) (7.4%) (7.2%) ASMs* (0.1%) (1.3%) (5.1%) (8.8%) (8.2%) 5

7 The U.S. Airline Industry Which have had a significant impact on airline employees Full-Time Equivalent Employees (000) at U.S. Passenger Airlines Source: Bureau of Transportation Statistics ( 6

8 The Challenge Ahead The industry must move beyond mere survival Only a profitable industry will be capable of both weathering future storms and investing to meet future air travel demand It is imperative that the airline industry solve the most basic economic equation: Revenues must exceed Costs! There is no single answer; everything must be examined Operations Costs Governmental Requirements, Limits and Taxes Revenue and revenue enhancers 7

9 The Revenue Challenge Spending on air travel as a percentage of GDP is shrinking by almost 35% since 2000 Domestic Passenger Revenue as Share of U.S. Gross Domestic Product 8

10 The Revenue Challenge Fares in the deregulated era have not kept pace with the change in CPI. Price of Air Travel vs Other Goods and Services Product (Unit) %Change College Tuition Public (Year) $ $ 6, College Tuition Private (Year) $ 2, $ 25, Prescription Drugs (Index) $ $ Unleaded Gasoline (Gallon) $ 0.67 $ New Vehicle $ 6, $ 28, New Single Family Home $ 55, $ 232, CPI (All Items $ $ Movie Ticket $ 2.34 $ st Class Domestic Stamp $ 0.15 $ Whole Milk (Index) $ Grade A Large Eggs (Dozen) $ 0.82 $ Air Travel International (Mile) $ $ Air Travel Domestic (Mile) $ $ Television (Index) (86.00) 9

11 The Revenue Challenge And are now at 1998 levels Wednesday, October 28, Average domestic air fares in the second quarter of 2009 fell to their lowest April-to-June level since 1998, dropping 13.0 percent from the second quarter of 2008 in the largest year-to-year decline on record, BTS reported today. Sources: BTS National-Level Average Fare Series ( and BLS ( 10

12 The Cost Challenge Given the changes in the airline industry during the past decade, expectations for a long, slow economic recovery and natural limits on airline revenue growth, costs must remain a significant focus Airlines must bring their costs in line with the reasonable expectations for revenue No business can survive in an environment where costs surpass and increase disproportionately to revenue 11

13 The Cost Challenge Much has been done to date to reduce controllable costs, but airlines remain vulnerable to costs outside their control Fuel Taxes and Security Costs Airport Costs 12

14 The Cost Challenge Fuel is on the rise again The historical perspective contradicts the common misperception that jet fuel prices have plummeted Average Jet Fuel Price per Gallon 13

15 Inflation Adjusted Oil Prices Near All Time Highs $/bbl $120 $100 $80 $60 5-yr. Avg. = $79 5-yr. Avg. = $69 $40 $20 HIGHEST 5 YEARS LAST 5 YEARS $ Source: Dept. of Energy U.S. averages, CPI-U adjusted to June 2010 Note: annual data masks true peaks and valleys; June 2008 avg. = $126, Feb = $32

16 The Cost Challenge U.S. Aviation* Taxes/Fees Up Substantially From 2000 Collections, in Billions * U.S. passenger and cargo carriers; FAA taxes are commercial aviation only Source: ATA, BTS, DHS, FAA 15

17 The Cost Challenge Tax Bite on a $300 Ticket* Has Nearly Tripled 1972 Taxes 7% ($22)* 1992 Taxes 13% ($38)* 2009 Taxes 20% ($60)* Airfare Taxes * Sample itinerary assumes one-stop domestic round trip with maximum passenger facility charge (PFC) per airport; $300 total price includes taxes and fees. 16

18 Airport Costs Airport costs have been and are continuing to grow at a rate that exceeds CPI increases and airline ticket fares These cost increases cannot be passed along to passengers or absorbed by increasing fares Historic IND Lease Agreement recognizes the importance of Airport costs to both the airlines and the airport. 9

19 Airport Costs Per Enplanement Charting the growth trend of CPE against Fares and CPI, depicts the imbalance that has occurred over the last decade $14.00 All components charted using CPE at the base $12.00 $10.00 $8.00 $6.00 $4.00 $2.00 $ Dom Fares Airline CPE Over the analysis period airfares have fallen (11.2%,) while CPI has increased 28.5%, and CPE has increase 62.6% CPI Based on figures from , but average CPE for CY2009 not yet available, so no change was assumed from CY

20 Airport Operating Expenses Operating expenses per enplanement at U.S. airports have increased 60.6% since 2000 an average of 6.7% per year Operating Cost per Enplanement 60.6% $14.52 Sources: Federal Aviation Administration (FAA) Form 127 and Air Carrier Activity Information System 19

21 Airport Costs Per Enplanement Growth in Operating Expenses directly relates to the increase in the average CPE Avg. Airline Cost per Enplanement* Average Airline CPE is up 62.6% since 2000, or 7% per year $ % $11.49 Sources: Federal Aviation Administration (FAA) Form 127 and Air Carrier Activity Information System 20

22 IND Challenged in CPE Comparison Total Aeronautical Costs per Enplanement - Medium Hubs FY2008 $ $35 $30 $ Weighted Average = $10.49 $ $ $ $ $0 ANC ONT PIT OAK MEM SJU STL PDX CLE IND PVD BDL ABQ SJC TUS SNA RSW MSY HOU AUS CMH BUF SMF RNO PBI SAT CVG OMA MCI MKE BUR JAX RDU BNA OGG DAL

23 IND Compares Very Favorably in Non Airline Reveneues Total Non-Aeronautical Revenue per Enplanement - Medium Hubs FY2008 $18 $16 $ Weighted Average = $10.52 $ $ $ $ $ $2 $0 IND BUR JAX SMF TUS RNO CMH SNA SJC ONT OAK RDU MCI PBI PVD BNA RSW PDX PIT MKE AUS ABQ BUF CLE OMA SAT OGG BDL DAL HOU STL ANC CVG MEM MSY SJU

24 IND Compares Favorably in % of Airline Revenues to Total Revenues % of Aeronautical Revenues To Total Op Revenues - Medium Hubs FY % 86% 80% 77% 70% 60% 71% 68% 64% 63% 62% 58% 58% 56% 55% 54% 54% Weighted Average = 50% 50% 50% 49% 46% 46% 46% 45% 44% 43% 42% 42% 41% 40% 38% 38% 36% 35% 35% 35% 33% 30% 29% 29% 28% 27% 26% 20% 10% 0% ANC SJU MEM STL MSY PIT ONT BDL HOU CLE CVG OAK PDX ABQ PVD RSW AUS SAT BUF OMA SJC SNA TUS IND CMH PBI RNO MCI SMF MKE OGG RDU DAL BUR JAX BNA

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