Air Cargo Economic Update. John P. Heimlich Vice President & Chief Economist CNS Partnership Conference May 7, 2018

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1 Air Cargo Economic Update John P. Heimlich Vice President & Chief Economist CNS Partnership Conference May 7, 2018

2 Airlines for America ( A4A ) Member and Associate Member Airlines Founded in 1936 as Principal Trade Association for U.S. Passenger and Cargo Airlines 2

3 Global Air Cargo Volumes Continue to Rise Post-Recession 70 Global Air Freight Tonnes* Enplaned (Millions) 250 Global Air Cargo RTKs* (Billions) Source: International Civil Aviation Organization * A metric ton is equivalent to ~2,204.6 pounds; an RTK is one metric ton flown one kilometer in revenue service 3

4 Making the movement of people and goods easier, stimulating economies The combination of creative freedom and new-generation aircraft has led to another hugely significant development in recent years: the hundreds of new city pairs that airlines have launched and continue to add to their networks. These directly link communities by air as they ve never before been connected, making the movement of people and goods easier, and stimulating economies. -- Karen Walker, Editor-in-Chief, Air Transport World (April 2018) Source: Celebrating an industry, Air Transport World (April 2018) 4

5 On a Daily Basis, the 707,000 Employees* of U.S. Airlines Offer an Extensive Worldwide Network Facilitating the Safe and Rapid Movement of People and Goods 27,000 flights to/from more than 800 airports in nearly 80 countries 2.3 million passengers 55,000 tons of cargo Source: A4A and Bureau of Transportation Statistics for U.S. passenger and cargo airlines * Headcount as of February

6 U.S. Airlines Are Moving More People and More Goods Over Longer Distances Significant Growth of Demand for Air Transportation Services in the Deregulated Era 1,200 Passenger Traffic Up 4.1x Revenue Passenger Miles (Billions) 45 Cargo Traffic Up 5.6x Revenue Ton Miles (Billions) 1, Source: U.S. Bureau of Transportation Statistics (T1 systemwide for U.S. airlines) 6

7 FedEx and UPS Have Experienced Growing Package Volumes Average Daily Package Volume (000s) Domestic International Source: SEC filings of FedEx and UPS 7

8 Air-Cargo Demand Thriving on Global Economic Growth and Need for Speed As online shoppers come to expect faster home delivery of everything from smartphones to paper towels, passenger jets and dedicated cargo planes are picking up more kinds of cargo traditionally carried by container ships, trains and trucks. At the same time, strong global economic growth also is spurring demand for goods long ferried by air, such as automotive and manufacturing parts creating some of the stiffest competition for air-cargo space in years. WSJ, Why Airfreight Traffic Is Up: Dog Food and Semiconductors Are Vying for Space (Jan. 9, 2018) 8

9 CVG DCA TPA BWI LGA ONT CLT PHX DAL LAX DFW MCO CMH SEA DTW HNL MCI PDX SAN SFO Cincinnati-Covington Easily Leads U.S. Airports in Air Cargo Growth Top 20 U.S. Airports by % Change in Onboard Cargo Weight From Source: DOT T-100 (via Diio Mi) segment data, scheduled and nonscheduled services 9

10 Airline-Airport Collaboration Has Paved Way for Widespread Infrastructure Investment Capital Projects Have Grown 86% Since 2015 at the 30 Largest U.S. Airports» $130B of capital projects have been completed, are underway or approved at the 30 largest U.S. airports since 2008, including, for example: Investment at Largest Airports o Multiple new runways at Chicago O Hare and new runways at Fort ($ Billions) Lauderdale, Washington Dulles, Seattle and Charlotte $130 o New/expanded/modernized terminal facilities at New York, Miami, Las Vegas, Orlando, Honolulu, Houston, Denver, Seattle, Salt Lake $100 City and San Francisco as well as international facilities at Atlanta, Boston and Los Angeles» Development is also robust at smaller airports, including: o Runway projects at Columbus, Des Moines, Erie, Nashville, Providence and Sioux Falls o Terminal projects at New Orleans, Eugene, Grand Rapids, Greenville-Spartanburg, Oakland, Dallas Love Field, San Luis Obispo, Portland (Maine), Pasco, Reno-Tahoe and Wichita $70» Investment is also occurring in cargo facilities and related infrastructure at Louisville, Newark, Lafayette (Louisiana), Indianapolis, Rockford, Memphis and elsewhere Approved Completed/Underway 10

11 In 2017, the USA Traded 8 Teragrams of Merchandise by Air Valued at $1.07 Trillion The Value of a Kilogram Traded by Air Averaged $133 Value (Billions USD) Weight (Teragrams) Value ($) per Kilogram , $63 $92 $112 $ Exports Imports Source: USA Trade Online, Census Bureau (FT920 - U.S. Merchandise Trade) and research by Foreign Trade Division/Data Dissemination Branch 11

12 Top 10 U.S. Exports and Imports by Air Cargo Value, 2017 Exported Commodity $ Bils Electronics, Machinery 94.7 Nuclear Reactors, Parts 74.0 Aircraft, Spacecraft, Parts 68.9 Optical/Photo/Medical Instruments 61.8 Precious Metals/Stones/Coins/Pearls 55.9 Pharmaceutical Products 33.0 Works of Art, Antiques 11.2 Chemical Products 8.6 Organic Chemicals 7.2 Plastics, Plastic Products 6.1 All Other 41.1 Total $462.4 Imported Commodity $ Bils Electronics, Machinery Nuclear Reactors, Parts Pharmaceutical Products 67.5 Optical/Photo/Medical Instruments 50.5 Precious Metals/Stones/Coins/Pearls 49.1 Special Classification Provisions 47.5 Organic Chemicals 20.3 Apparel Articles and Accessories 13.3 Works of Art, Antiques 9.6 Aircraft, Spacecraft, Parts 9.1 All Other 53.2 Total $606.4 Source: USA Trade Online, Census Bureau (FT920 - U.S. Merchandise Trade) and research by Foreign Trade Division/Data Dissemination Branch 12

13 $9.2B U.S. International Trade of Merchandise by Method of Transportation Value per Kilogram in 2017 U.S. Exports $ U.S. Imports $ $0.75 $1.58 Air Vessel Air Vessel Source: USA Trade Online, Census Bureau (FT920 - U.S. Merchandise Trade) and research by Foreign Trade Division/Data Dissemination Branch 13

14 Includes > 450 aircraft Improving Finances Enabling Significant Reinvestment in Customer Experience In 2017 Alone, Airlines Directly Invested ~$20B in Flight/Ground Equipment, Facilities, IT U.S. Passenger Airline Capital Expenditures ($ Billions per Year) : $102.4B * Includes payments made for aircraft and other flight equipment, ground and other property and equipment, airport and other facility construction and information technology Source: SEC filings of Alaska, Allegiant, American, Delta, Hawaiian, JetBlue, Southwest, Spirit, United and merged/acquired predecessors 14

15 F Capital Expenditures on the Rise for U.S. Cargo Airlines $ Billions by Fiscal Year Total Enterprise Aircraft & Related Equipment Only FedEx UPS Atlas FedEx UPS Atlas Source: SEC filings of Atlas, FedEx and UPS 15

16 YTD Average Jet-Fuel Prices Constitute a Possible Headwind for Airfreight EIA Spot Price* of Crude Oil/Barrel (Brent) EIA Spot Price of Jet Fuel/Gallon (U.S. Gulf) $80 $2.00 $70 $60 $50 $40 $30 $ $1.80 $1.60 $1.40 $1.20 $1.00 $0.80 $0.60 $ $10 $0.20 $0 $0.00 Source: A4A and Energy Information Administration ( 16

17 Some Examples of Excellence in Belly Cargo» American shipped more than 18M pounds of flowers in 2017 (25 tons per day), transported more than 6 tons of China s national treasures from PEK to LAX, and joined the Medical Wings International foundation to send humanitarian aid to those affected by intense rain and flooding on the outskirts of Lima and in the northern zone of Peru; also transported 30,000 pounds of beer from Ireland (via LHR) to DFW, to be sold in Texas» Over the course of a year, Southwest carries more than 200M pounds of everything from life-critical donations to live tropical fish and fresh seafood; plus tens of thousands of pounds of humanitarian aid to Puerto Rico» United ships ~70M pounds of perishables each year (top 3 destinations are USA, Japan and UK), including 2M pounds of cut flowers (primarily from Bogota and Quito to USA); during the 2017 cherry season, United transported ~3,200 tons of cherries via air, primarily from California and Washington to Asia and Australia» Demand for pharma, medicines, vaccines and other health care material is evolving to/from China and other cities in Asia; United and DHL are collaborating to transport a new treatment for hepatitis C to China. Late in 2017, the government of China approved a U.S. drug manufacturer s all-oral treatment for hepatitis C the first therapy of its kind to treat the liver disease to be sold in China. Sophisticated inflight temperature controls and monitoring are enabling access to this treatment for estimated 10M Chinese infected with hepatitis C Source: American, Southwest and United 17

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