Financial and Economic Indicators for the Air Transport Industry NASAO Legislative Conference Washington DC February 2016
General Aviation Metrics
Number of Active General Aviation Aircraft and On-Demand Part 135 in the U.S. by Region 2014 2010 2007 2014 2010 2007 Western-Pacific Alaska 5,64 1 6,11 3 6,11 1 29,0 14 33,1 32 35,4 92 2014 2010 2007 N.W. Mountain 25,1 82 26,7 98 28,3 93 2014 2010 2007 2014 2010 2007 Southwest Central 30,6 09 32,3 40 33,9 09 12,5 26 12,0 99 12,7 69 2014 2010 2007 2014 2010 2007 Great Lakes 32,0 62 33,9 72 37,7 03 Southern 39,1 38 44,5 96 42,5 95 2014 2010 2007 Eastern 23,1 45 26,6 18 25,8 88 2014 2010 2007 2014 2010 2007 Total U.S. New England 204, 317 223, 278 231, 456 7,00 0 7,61 0 8,59 6 Source: GAMA 2015 Databook.
Slide18 - General Aviation Airplane Shipments by Type of Airplane Manufactured Worldwide 2000 2007 2015 103 415 258 465 110 557 1,877 752 2,417 1,137 946 722 Single-Engine Piston Multi-Engine Piston Turboprop Business Jet Source: GAMA 2015 Databook. 4
Customer Delivery Region for General Aviation Airplane Shipments by Type of Airplane Manufactured Worldwide Share of Total 2015 Piston Turboprop North America 67% Europe 11% Asia- Pacific 14% Latin America 6% Middle East & Africa 2% Asia- Pacific 16% North America 56% Latin America 14% Europe 8% Middle East & Africa 6% Business Jet Europe 20% North America 52% Asia- Pacific 11% Latin America 9% Middle East & Africa 8% Source: GAMA 2015 Databook. 5
Total Hours Flown by General Aviation Airplane Type, 2014 (in thousands) Business 3,881 Rotorcraft 3,242 Turboprop 2,613 Other 1,710 Experimental 1,244 Gliders, Balloons, etc 159 Light-Sport Aircraft 307 Piston 11,967 Source: GAMA 2015 Databook. 6
U.S. General Aviation Fuel Consumption, 2000 2014 Millions of Gallon Year Single- Engine Piston Airplane Multi- Rotorcraft Experimental and Other Total Fuel Consumed Engine Turboprop Business Jet Piston Turbine Aircraft Light-Sport Avgas Jet Fuel Total Piston 2000 201 108 176 737 8 59 15-333 972 1,305 2001 180 76 149 727 7 43 15-279 918 1,198 2002 178 74 152 746 7 41 18-277 938 1,215 2003 182 67 155 729 7 49 17-272 932 1,205 2004 168 80 167 1,005 8 59 18-273 1,231 1,504 2005 173 90 196 1,181 15 149 18-295 1,527 1,822 2006 165 80 190 1,304 17 149 22 0 283 1,643 1,926 2007 158 83 205 1,148 9 132 23 1 274 1,486 1,759 2008 143 70 230 1,313 11 162 23 2 248 1,706 1,954 2009 132 57 209 1,105 11 134 26 1 227 1,447 1,674 2010 133 54 187 1,123 11 125 22 2 221 1,435 1,656 2011E 129 53 188 1,182 11 121 21 2 216 1,491 1,706 2012 127 52 191 1,232 11 120 22 2 212 1,542 1,755 2013 117 54 189 945 9 126 17 1 197 1,260 1,457 2014 116 53 187 1,049 10 134 17 1 197 1,370 1,567 Source: GAMA 2015 Databook. 7
General Aviation Aircraft Forecast 225,000 200,000 General Aviation Forecast 2015 2025 Number of Airplane by Type 203,270 203,630 204,120 204,615 205,140 205,780 206,450 207,235 208,075 209,040 210,170 175,000 150,000 9,390 9,330 9,295 9,280 9,285 9,315 9,360 9,445 9,545 9,690 9,855 11,915 12,105 12,325 12,555 12,815 13,115 13,440 13,790 14,165 14,575 15,000 24,880 25,220 25,605 25,990 26,380 26,795 27,210 27,630 28,040 28,460 28,875 125,000 100,000 75,000 135,610 134,580 133,590 132,570 131,590 130,690 129,815 128,960 128,105 127,265 126,450 50,000 25,000 0 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 Airplane - Piston Experimental Airplane - Business Jet Airplane - Turboprop Rotocraft - Turbine Balloons, Dirigbles, Gliders Rotocraft - Piston Special Source: GAMA 2015 Databook. 8
Macroeconomic Metrics
The growth in GDP no longer dictates the growth in airline capacity that it used to. Fares are following the trend line in the consumer price index. Nominal US GDP Trillion $19 $18 $17 $16 $15 $14 $13 $12 Average Annual Growth Rate 2005-2014 3.22% 1q05 2q05 3q05 4q05 1q06 2q06 3q06 4q06 1q07 2q07 3q07 4q07 1q08 2q08 3q08 4q08 1q09 2q09 3q09 4q09 1q10 2q10 3q10 4q10 1q11 2q11 3q11 4q11 1q12 2q12 3q12 4q12 1q13 2q13 3q13 4q13 1q14 2q14 3q14 4q14 1q15 2q15 3q15 4q15 Consumer Price Index 250 240 230 220 210 200 190 180 Average Annual Growth Rate 2005-2014 2.16% 1q05 2q05 3q05 4q05 1q06 2q06 3q06 4q06 1q07 2q07 3q07 4q07 1q08 2q08 3q08 4q08 1q09 2q09 3q09 4q09 1q10 2q10 3q10 4q10 1q11 2q11 3q11 4q11 1q12 2q12 3q12 4q12 1q13 2q13 3q13 4q13 1q14 2q14 3q14 4q14 1q15 2q15 3q15 4q15 Source: Business Cycle Analysis 10
Fares have nominally increased greater than the CPI recently. For YE3q15, the average fare across the top 5,000 domestic O&D markets in the U.S. has declined for the first time in 5 years $250 Average Gross Fare for Top 5,000 Domestic O&D Markets, 2010 YE3q15 $200 +8% +3% +3% +3% -4% $150 $100 $50 $0 2010 2011 2012 2013 2014 YE3q15 Source: U.S. DOT DB1B O&D Survey via Diio Mi 11
Household Incomes Has Bounced Back Recently with Unemployment Rate Continue to Decline. Median Household Income $60,000 $57,500 $55,000 $52,500 $50,000 $47,500 $45,000 $42,500 $40,000 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 U.S. Unemployment Rate (%) 12 10 8 6 4 2 0 Jan-05 Jun-05 Nov-05 Apr-06 Sep-06 Feb-07 Jul-07 Dec-07 May-08 Oct-08 Mar-09 Aug-09 Jan-10 Jun-10 Nov-10 Apr-11 Sep-11 Feb-12 Jul-12 Dec-12 May-13 Oct-13 Mar-14 Aug-14 Jan-15 Jun-15 Nov-15 Source: U.S. Census Bureau, U.S. Bureau of Labor Statistics. 12
Commercial Aviation Metrics
As capacity slows, load factors continue to rise. Precisely what the airlines hoped would happen in a capacity-disciplined environment. ASMs, RPMs, and Load Factor ASMs & RPMs Billions 350 300 250 200 150 100 50 - Load Factor ASMs RPMs 1q05 2q05 3q05 4q05 1q06 2q06 3q06 4q06 1q07 2q07 3q07 4q07 1q08 2q08 3q08 4q08 1q09 2q09 3q09 4q09 1q10 2q10 3q10 4q10 1q11 2q11 3q11 4q11 1q12 2q12 3q12 4q12 1q13 2q13 3q13 4q13 1q14 2q14 3q14 4q14 1q15 2q15 3q15 90% 88% 86% 84% 82% 80% 78% 76% 74% 72% 70% Load Factor Source: Business Cycle Analysis 14
A closer look at the long-term relationship of capacity changes relative to GDP changes suggests a very different mindset is apparent. 30% 25% 20% % Chg - Real GDP % Chg - Seats 15% 10% 5% 0% -5% -10% -15% 1Q80 1Q81 1Q82 1Q83 1Q84 1Q85 1Q86 1Q87 1Q88 1Q89 1Q90 1Q91 1Q92 1Q93 1Q94 1Q95 1Q96 1Q97 1Q98 1Q99 1Q00 1Q01 1Q02 1Q03 1Q04 1Q05 1Q06 1Q07 1Q08 1Q09 1Q10 1Q11 1Q12 1Q13 1Q14 1Q15 Source: Business Cycle Analysis 15
1.0% It used to be that an accurate GDP forecast could predict airline health. After the second half of 2000 that changed. Today consumers spend less on air travel as a percent of GDP. 0.9% Average = 0.9% 0.8% ($29.3 B) Average = 0.76% 0.7% Average = 0.72% 0.6% Pax Rev Pax Rev + Ancillary Fees 0.5% 1Q79 1Q80 1Q81 1Q82 1Q83 1Q84 1Q85 1Q86 1Q87 1Q88 1Q89 1Q90 1Q91 1Q92 1Q93 1Q94 1Q95 1Q96 1Q97 1Q98 1Q99 1Q00 1Q01 1Q02 1Q03 1Q04 1Q05 1Q06 1Q07 1Q08 1Q09 1Q10 1Q11 1Q12 1Q13 1Q14 1Q15 Source: Business Cycle Analysis 16
Higher fuel prices have been met with a more efficient use of jet fuel. Fuel Price Per Gallon $4.00 $3.50 $3.00 $2.50 $2.00 $1.50 $1.00 $0.50 $0.00 1q05 2q05 3q05 4q05 1q06 2q06 3q06 4q06 1q07 2q07 3q07 4q07 1q08 2q08 3q08 4q08 1q09 2q09 3q09 4q09 1q10 2q10 3q10 4q10 1q11 2q11 3q11 4q11 1q12 2q12 3q12 4q12 1q13 2q13 3q13 4q13 1q14 2q14 3q14 4q14 1q15 Gallons of Fuel Consumed per Thousand RPMs $23 $22 $21 $20 $19 $18 $17 $16 $15 1q05 2q05 3q05 4q05 1q06 2q06 3q06 4q06 1q07 2q07 3q07 4q07 1q08 2q08 3q08 4q08 1q09 2q09 3q09 4q09 1q10 2q10 3q10 4q10 1q11 2q11 3q11 4q11 1q12 2q12 3q12 4q12 1q13 2q13 3q13 4q13 1q14 2q14 3q14 4q14 1q15 Source: Business Cycle Analysis 17
Beginning in 2012, the airlines were finally able to pass off the cost of rising jet fuel to the consumer. 80% 60% 40% 20% 0% -20% -40% % Chg - Fuel Price % Chg - Rev w/ancilliaries -60% 1Q03 1Q04 1Q05 1Q06 1Q07 1Q08 1Q09 1Q10 1Q11 1Q12 1Q13 1Q14 1Q15 Source: Business Cycle Analysis 18
Labor costs are rising faster than productivity. A potential problem. Labor Cost per FTE $110,000 $100,000 $102,077 $90,000 $80,000 $70,000 $60,000 1q05 2q05 3q05 4q05 1q06 2q06 3q06 4q06 1q07 2q07 3q07 4q07 1q08 2q08 3q08 4q08 1q09 2q09 3q09 4q09 1q10 2q10 3q10 4q10 1q11 2q11 3q11 4q11 1q12 2q12 3q12 4q12 1q13 2q13 3q13 4q13 1q14 2q14 3q14 4q14 1q15 ASM per FTE 2,900 2,800 2,700 2,600 2,500 2,400 2,300 2,200 2,100 2,000 1q05 2q05 3q05 4q05 1q06 2q06 3q06 4q06 1q07 2q07 3q07 4q07 1q08 2q08 3q08 4q08 1q09 2q09 3q09 4q09 1q10 2q10 3q10 4q10 1q11 2q11 3q11 4q11 1q12 2q12 3q12 4q12 1q13 2q13 3q13 4q13 1q14 2q14 3q14 4q14 1q15 2,844 Source: Business Cycle Analysis 19
Seat departures are the equivalent as to what they were in 1997. Note the increase in load factor as capacity has been closely managed. U.S. Average Domestic Load Factor and Available Seat Departures Load Factor Domestic Seats 950 90% 85% Domestic Seats - Millions 900 850 800 80% 75% 70% 65% Load Factor 750 60% 55% 700 50% Source: Business Cycle Analysis 20
Smaller airports have suffered the most in terms of capacity cuts. Scheduled Domestic Departures Millions Large Medium Small Nonhub 12 10 1.34 8 1.11 0.92 6 2.12 0.89 1.39 4 2 5.66 4.95-2005 2015 Scheduled Domestic Seats Millions Large Medium Small Nonhub 1,000 45 800 79 38 77 210 600 158 400 605 591 200 0 2005 2015 Airport Type % Change in Domestic Flights 2005-2015 Large Hub -12.6% Medium Hub -34.7% Small Hub -20.1% Non-Hub and EAS -31.2% All Smaller Airports -26.2% All Airports -20.5% Airport Type % Change in Domestic Seats 2005-2015 Large Hub -2.3% Medium Hub -24.7% Small Hub -2.8% Non-Hub and EAS -14.3% All Smaller Airports -6.9% All Airports -7.9% Source: InterVISTAS analysis of Innovata schedules, via Diio online portal. 21
While still true, the cuts have slowed. Scheduled Domestic Departures Large Medium Small Nonhub 9 8 0.94 0.92 7 0.91 0.89 6 5 1.37 1.39 4 3 2 4.93 4.95 1 0 2014 2015 Millions Scheduled Domestic Seats Millions Large Medium Small Nonhub 1,000 36 38 800 79 77 600 152 158 400 568 591 200 0 2014 2015 Airport Type % Change in Domestic Flights 2014-2015 Large Hub 0.3% Medium Hub 1.0% Small Hub -2.7% Non-Hub and EAS -2.2% All Smaller Airports -2.5% All Airports -0.2% Airport Type % Change in Domestic Seats 2014-2015 Large Hub 4.0% Medium Hub 4.4% Small Hub -0.1% Non-Hub and EAS -0.3% All Smaller Airports -0.2% All Airports 3.5% Source: InterVISTAS analysis of Innovata schedules, via Diio online portal. 22
The virtuous circle of air service challenges for small U.S. airports. Operational No 50 seat and less replacement aircraft in the pipeline In the wing oil in excess of $50 per barrel Economic Smallest new production aircraft likely to be at least 100 seats 40,000 cycle decision Strategic Capacity discipline at major carriers has reduced frequencies and seats Prevalence of low cost carriers in primary catchment areas Pilot shortage surely to impact regional sector of the business Flight Time/Duty Time regulations cause staffing challenges Government-Induced 23
The Impending Pilot Supply Issue
The Regional Pilot Shortage Is Not Today s Issue But it will be tomorrow s, and tomorrow is coming quickly In 2014 v. 2013, the market only saw a net reduction in regional jet aircraft of 22 units One reason why the pain is not being felt..yet As the 70-seat jets are delivered, the regional sector has only seen jet aircraft reduced by 84 units since 2008 Turboprop aircraft have been reduced by 243 units since 2008 Since 2011, the number of city pairs being flown by regional aircraft are relatively unchanged Another reason why it seems that the issue is not today s issue, but these figures are bound to change as a result of labor supply pressures 25
Understanding the Scope of the Problem Retirements and New Equipment Will Put a Strain on Labor Supply Between now and 2022, the Big 4 US airlines will retire 14,200 pilots that need to be replaced just to maintain the network being flown today Today, the regional industry has 302 70-seat aircraft on order that will also need to be staffed As an example, the industry will need to park 569 smaller units just to staff the larger equipment Regulatory issues have already impacted the pilot supply from expanding to the degree necessary to respond to these pressures
Limiting Pilot Supply Could Lead To Disastrous Effects All communities would feel the effects as the regional industry shrinks Suppose that the regional pilot labor force in 2014 stayed fixed over time. Not an outrageous assumption, considering the new 1500-hour rule that is making it impossible for carriers to fill new classes. Based on replacement of retiring pilots at the mainline and aircraft being delivered to the regional industry: Let s go to the numbers By 2017, all turboprop aircraft would likely be retired along with 215 small jets Remaining small jets likely to be retired by 2020 By 2022, the regional industry would be but 20 percent of its 2014 self
Conclusions Nobody is excited today as it is only frequency cuts and not market exits 2015 marks the first year where it will difficult to replace lost seats at the historical level.and it only gets harder Fear is that 150-200 markets likely have insufficient traffic or population to support larger jet service If you are on the sidelines regarding the pilot supply issue, I urge you to rethink your position Regulatory change is necessary Need to focus on increasing the pilot supply Small RJ/Turboprop service is essential for many small communities
Benchmarking State Level Air Service
There is an airline story where new routes are being added. 2007-2016 2015-2016 State August 2007 August 2016 Absolute Change Florida 439 536 97 Texas 458 503 45 Illinois 245 275 30 North Carolina 186 206 20 Hawaii 76 88 12 North Dakota 20 32 12 South Carolina 67 78 11 Oregon 77 87 10 Washington 127 137 10 Colorado 180 189 9 Iowa 34 42 8 Maryland 65 72 7 Indiana 61 67 6 Wyoming 20 22 2 New Jersey 99 100 1 Arizona 141 141 0 South Dakota 24 24 0 Montana 70 69-1 Kentucky 42 40-2 Nebraska 38 36-2 Vermont 14 12-2 State August 2015 August 2016 Absolute Change Florida 519 536 17 Hawaii 74 88 14 Arizona 134 141 7 California 430 437 7 Colorado 185 189 4 Indiana 64 67 3 Iowa 39 42 3 New York 256 259 3 North Carolina 203 206 3 Oregon 84 87 3 Texas 500 503 3 Kentucky 38 40 2 Nebraska 34 36 2 Nevada 131 133 2 Georgia 184 185 1 Idaho 36 37 1 Missouri 122 123 1 Wisconsin 60 61 1 Connecticut 26 26 0 Louisiana 62 62 0 Maine 23 23 0 Source: InterVISTAS analysis of Innovata schedules, via Diio online portal. 30
The health of local economies and airline strategies explain departure changes 2007-2016 2015-2016 State August 2007 August 2016 Percentage Change North Dakota 1,452 1,989 37.0% Washington 20,051 21,515 7.3% North Carolina 30,956 30,905-0.2% Minnesota 18,475 17,657-4.4% Louisiana 7,361 7,034-4.4% New Jersey 14,826 14,164-4.5% Illinois 48,004 45,811-4.6% Maryland 10,640 9,903-6.9% Oregon 11,179 10,243-8.4% Georgia 42,145 38,050-9.7% Massachusetts 20,969 18,923-9.8% Colorado 29,613 26,686-9.9% Hawaii 15,633 14,081-9.9% Texas 76,673 68,015-11.3% Florida 50,417 44,614-11.5% California 83,035 72,715-12.4% Virginia 31,876 27,575-13.5% Michigan 23,749 20,438-13.9% South Carolina 6,705 5,738-14.4% New York 45,453 38,620-15.0% Maine 2,758 2,332-15.4% State August 2015 August 2016 Percentage Change Hawaii 12,064 14,081 16.7% Nebraska 2,680 2,902 8.3% Idaho 2,646 2,855 7.9% Wisconsin 5,916 6,373 7.7% Colorado 24,862 26,686 7.3% Missouri 13,048 13,951 6.9% Indiana 5,881 6,287 6.9% Maryland 9,272 9,903 6.8% Oregon 9,611 10,243 6.6% Iowa 2,867 3,032 5.8% Minnesota 16,724 17,657 5.6% California 68,903 72,715 5.5% Michigan 19,413 20,438 5.3% Florida 42,530 44,614 4.9% Arkansas 3,028 3,174 4.8% Connecticut 2,716 2,840 4.6% Ohio 15,306 15,954 4.2% Utah 10,133 10,558 4.2% Nevada 15,325 15,928 3.9% Tennessee 10,896 11,319 3.9% New York 37,178 38,620 3.9% Source: InterVISTAS analysis of Innovata schedules, via Diio online portal. 31
The same is true for seats deployed. 2007-2016 2015-2016 State August 2007 August 2016 Percentage Change North Dakota 88,497 125,365 41.7% Washington 2,044,242 2,643,829 29.3% Louisiana 592,439 730,417 23.3% Massachusetts 1,492,358 1,766,955 18.4% Oregon 984,782 1,154,853 17.3% North Carolina 2,665,983 3,051,262 14.5% South Carolina 445,170 495,910 11.4% Colorado 2,867,883 3,144,941 9.7% Georgia 4,569,728 4,993,684 9.3% Minnesota 1,872,411 2,043,344 9.1% Maryland 1,312,374 1,390,672 6.0% California 9,310,895 9,822,491 5.5% Texas 7,715,351 7,946,529 3.0% Florida 6,063,659 6,220,015 2.6% Montana 242,964 245,283 1.0% Illinois 4,830,046 4,855,394 0.5% New Jersey 1,494,281 1,494,461 0.0% Iowa 202,664 199,526-1.5% Indiana 580,572 571,082-1.6% Maine 152,743 149,827-1.9% Nebraska 287,167 279,746-2.6% State August 2015 August 2016 Percentage Change Nebraska 243,741 279,746 14.8% Colorado 2,797,948 3,144,941 12.4% Missouri 1,338,247 1,501,912 12.2% Wisconsin 537,885 596,307 10.9% Connecticut 288,991 320,177 10.8% Tennessee 1,005,206 1,106,737 10.1% Idaho 224,226 245,616 9.5% Maryland 1,272,348 1,390,672 9.3% Louisiana 669,113 730,417 9.2% Oregon 1,064,289 1,154,853 8.5% Florida 5,745,431 6,220,015 8.3% Minnesota 1,887,465 2,043,344 8.3% California 9,105,423 9,822,491 7.9% Rhode Island 182,974 196,761 7.5% Indiana 533,160 571,082 7.1% Washington 2,468,889 2,643,829 7.1% Massachusetts 1,654,803 1,766,955 6.8% Utah 1,129,762 1,202,473 6.4% Michigan 1,906,256 2,023,601 6.2% Georgia 4,706,193 4,993,684 6.1% North Carolina 2,895,254 3,051,262 5.4% Source: InterVISTAS analysis of Innovata schedules, via Diio online portal. 32
William S. Bill Swelbar Executive Vice President InterVISTAS Consulting LLC 1150 Connecticut Avenue, NW Suite 601 Washington, DC 20036 P +1-202-688-2243 C +1-703-625-1130 Email: william.swelbar@intervistas.com www.intervistas.com