2017 Mead & Hunt, Inc. AIR SERVICE & ECONOMIC DEVELOPMENT CALED Conference March 23, 2017 San Diego, CA
2 TOPICS Airline industry update Air service development overview Purpose Approach Community partnerships/economic impact Airline assistance Summary
AIRLINE INDUSTRY UPDATE
4 INDUSTRY CONSOLIDATION Top 5 Control approximately 87% of U.S. Domestic Market through M&As Today American Delta Southwest United Alaska American US Airways TWA Delta Northwest AirTran ATA Southwest Continental United Alaska Virgin America American Reno Air US Airways Trump Shuttle America West Ozark Delta Pan Am Northwest ValuJet ATA Southwest Morris Air Continental United Pan Am Pacific Jet America Air Cal Allegheny Piedmont Western National Republic Muse Air People Express Horizon PSA Frontier Other Notable Defunct Airlines Florida Airlines (1982) Eastern Airlines (1991) Braniff Airways (1982) Midway Airlines (1991) Air Florida (1984) Western Pacific (1998) Vanguard (2002) Independence Air (2005) Hooters Air (2006) Skybus (2008) Aloha (2008)
5 DRIVES CAPACITY CONSOLIDATION 81% of the market is controlled by 4 airlines Only 19% of the market is controlled by all other carriers Southwest 21% Delta 21% United 16% American 23% Other 19% JetBlue 23% Alaska 30% Spirit 15% Frontier 10% Hawaiian 7% Allegiant 8% All Others 7% Source: Diio Mi Scheduled U.S. Domestic Seats for YE June 2017
Load Factor Seats (000s) 6 UNPRECEDENTED CAPACITY DISCIPLINE 90% 85% 80% 75% 70% 65% 60% 55% 50% 45% Seats (000s) Load Factor $60B in Losses $70B in Profits 950,000 925,000 900,000 875,000 850,000 825,000 800,000 775,000 750,000 Other than the brief period after 9-11, the US industry had shown little interest in moderating capacity growth Massive losses from 2001 through 2008 forced capacity restraint on the industry Load factors (% of seats sold) continued to steadily increase throughout the last 25 years Last 2 years suggests a return to capacity growth Source: Diio Mi T-100 U.S. Domestic Seats and Load Factor (LF = RPMs/ASMs); NOTE: 2016(E) is based on the data through November adjusted for seasonality
7 SEAT CHANGE BY AIRPORT SIZE 20% 15% U.S. Domestic Capacity Change by Airport Size (July 2017 vs. July 2012) 17% 10% 13% 12% 5% 0% 6% 2% % change in seats Non-hub Small hub Medium hub Large hub Total Seats increased in all airport categories over the last 5 years Non-hub and Small hubs are lagging far behind growth in larger hub categories Most of this growth resurgence has just been in the last 2 years Source: Diio Mi Scheduled Seats for the month of July 2017 vs July 2012
AIR SERVICE DEVELOPMENT OVERVIEW
9 AIR SERVICE DEVELOPMENT (ASD) PURPOSE To attract and maintain airline service to your community/airport to enhance travel options and support business/economic development Attracting new nonstop routes or airlines to improve global access and increase economic activity Maintaining existing airline service to retain travelers that may be using competing airports
10 ASD APPROACH Route Sustainability Marketing and Sales Efforts Route Incentives Market Assessment/ Identify Need Airline Discussions Begin Here Feasibility and Target Airline Fit Build a Business Case (includes key stakeholders) Purpose of ASD is to attract and maintain the air service needed by the community Methodical approach ensures: Efforts are targeted to the right opportunity (needs vs. wants) Attention is focused on a specific goal or need of the community
11 ASD & COMMUNITY PARTNERS Economic Development Organizations (EDOs/EDCs) Targeted economic sectors Data on pending and future growth industries Chamber of Commerce (COC) Sectors with job creation in region Business development Convention & Visitor Bureau (CVB) Targeted inbound customer markets Air service access challenges Lodging associations Occupancy rates Top markets Top businesses or travelers
12 ASD COMMUNITY PARTNERSHIPS ARE KEY Air service development efforts can improve with community partners Collaboration for mutual economic benefit Community benefits from improved global access and increased economic activity Airlines more receptive to business community Business case approach to air service development Pools resources and leverages strengths Economic impact examples Economic impact study by ASU of PHX-LHR route indicated that the BA 747-400 flight had: Visitor spending impact of $101MM per year (39K visitors per year spending an average of over $2,500 per visit) Total economic impact of the route including direct, indirect and secondary multiplier effects of $1.19B SJC-LHR projected a $100MM annual economic impact
13 ASD AIRLINE ASSISTANCE CONSIDERATIONS Air service is part of the economic foundation of the community Commercial air service access is a top consideration for business location Major airlines in a capacity controlled environment New air service opportunities have become more competitive Direct access to world markets is an accelerator of economic development service to international gateways can improve Foreign investment Successful air service initiatives often depend on the support of key stakeholders, especially in smaller markets. Community engagement can be an influencing factor.
14 ASD AIRLINE FINANCIAL ASSISTANCE Airline concerns: Financial risk Incumbent carriers Frequent flyer programs Corporate purchase agreements Existing travel habits Service awareness Slow start-up period Communities have become more aggressive in their efforts to compete, retain and attract new air service Marketing, fee waivers, revenue guarantees are sales contracts are offered Influence on Airline Decision Making
15 STATE BUSINESS INCENTIVES ASD assistance similar to state & EDC efforts competing for businesses. Source: CREC
ASD SUMMARY
17 ASD SUMMARY POINTS Air service is a vital part of the economic foundation of the community Commercial service access is an important factor for business location Air service access to global gateways is an accelerator of economic development Industry consolidation has led to greater competition for new routes ASD process improves with community partners like EDC Business case inputs such as new business development ASD similar to EDC recruitment of businesses Incentives are a recruitment tool If not engaged with your airports ASD efforts, reach out and offer assistance Community partners such as EDC can improve the airports ASD efforts
Thank You 2017 Mead & Hunt, Inc. Mead & Hunt, Inc.: Joseph Pickering Business Unit Leader joseph.pickering@meadhunt.com 2011 Commerce Drive Atlanta/Peachtree City, GA 30269 Phone: (678) 364-9738