Smaller Hubs, Large Hubs and the Interdependencies Prepared by: David Dague InterVISTAS Senior Vice President JANUARY 26, 2017
Why should we care about large hub airports 90 million reasons why large hub airports care 80 million passengers from small, non and EAS airports connect to domestic flights at large hub airports 10 million passengers from small, non and EAS airports connect to international flights at large hub airports 1
The importance of small community access to large hubs cannot be overstated - represents nearly 90% of service Small Community Departures by Destination Hub Type June 2017 Large 87.9% Medium 4.8% Small/Non 6.9% International 0.5% Source: Innovata Schedules, via Diio. 2
Small communities are also important to large hubs with nearly one-fourth of the departures from large hubs flown to small communities Large Hub Airport Departures by Destination Hub Type June 2017 Medium 18.7% Large 46.1% Small/Non 22.3% International 12.9% Source: Innovata Schedules, via Diio. 3
Nonstop departures in large hub small community markets declining at a faster rate than seats 105.0 Change in Nonstop Service in Large Hub Small Community Markets (Index 2007 = 100) 100.0 95.0 90.0 SEATS 85.0 80.0 DEPARTURES 75.0 70.0 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 Source: Innovata Schedules, via Diio. 4
Resulting in an increasing aircraft size Average Seats per Departure June 2007 June 2017 80.0 75.0 72.0 74.8 75.3 77.5 70.0 66.7 67.4 66.4 67.6 67.9 68.2 69.2 65.0 60.0 55.0 50.0 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 Source: Innovata Schedules, via Diio. 5
Large regional jets have become the most frequently used aircraft in the large hub-small community market Large Hub - Small Community Nonstop Service by Aircraft Type June 2007 June 2017 100% 24% 25% 23% 20% 20% 17% 17% 16% 13% 13% 11% Turboprop 75% 27% 28% Small RJ s 50% 43% 43% 44% 46% 47% 50% 50% 48% 43% 37% 37% Large RJ s 25% 11% 11% 14% 14% 12% 12% 13% 14% 21% 22% 22% 19% 20% 20% 20% 20% 22% 23% 23% 24% Jet 0% 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 Source: Innovata Schedules, via Diio. 6
Large hub markets account for over 65% of the total small community O&D passengers Small Community O&D by Hub Type Year Ended 2 nd Qtr 2016 Medium 21% Large 66% Small/Non 13% Source: USDOT, O&D Survey, via Diio.. 7
Since the recession, large hub - small community O&D has stabilized and is currently experiencing moderate growth 110 Large Hub - Small Community O&D Passengers (Millions) CY 2006 YE 2Q 2016 105 100 95 90 85 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 Source: USDOT, O&D Survey, via Diio.. 8
Large hubs build the bridge between small communities Large-Large 30% Percent Change in O&D Passengers by Market Type S/N-S/N 21% CY 2009 vs. YE 2Q 2016 Large-Medium Medium- Medium 7% 20% Large-S/N 3% Medium-S/N 0% Domestic Average 18% 0% 5% 10% 15% 20% 25% 30% 35% Source: USDOT, O&D Survey, via Diio.. 9
Passenger revenue in large hub - small communities has flourished, increasing 32% since 2009 $20 Large Hub - Small Community O&D Passenger Revenue ($ Billions) CY 2006 YE 2Q 2016 $18 $16 $14 $12 $10 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 Source: USDOT, O&D Survey, via Diio.. 10
Frequency and capacity cuts have led to increased load factors is this sustainable? 85% Load Factors CY 2006 YE 2Q 2016 80% 79.3% 79.9% 79.0% 75% 71.6% 72.1% 70.9% 71.8% 73.5% 74.9% 76.1% 76.6% 70% 65% 60% 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 Source: USDOT, T100, via Diio. 11
Top 10 large hub airports based on nonstop small community service Weekly Seats June 2017 Rank 1 2 3 4 5 6 7 8 9 10 Airport Weekly Seats Atlanta 312,352 Dallas/Fort Worth 178,983 Chicago O'Hare 165,132 Charlotte 152,111 Denver 115,600 Seattle/Tacoma 89,699 Detroit 78,750 Minneapolis 71,798 Honolulu 64,919 Phoenix 63,665 Source: Innovata Schedules, via Diio. 12
The Big 3 combine to carry 76% of the small community passengers in the U.S. On-Board Passenger Share Year Ended 2 nd Qtr 2016 United 18% American 28% All Other 24% Delta 30% Source: USDOT, T100, via Diio. 13
Large hub small community passenger revenue accounts for one-fourth of each of the Big 3 s total domestic revenue 30% Large Hub - Small Community Revenue as Pct. of Total Domestic Revenue Year Ended 2 nd Qtr 2016 24.6% 24.5% 24.0% 20% 10% 0% Delta American United Source: Innovata Schedules, via Diio. 14
Delta s Atlanta hub has well over 50% more small community market capacity than the 2 nd ranked hub Average Daily Small Community Service June 2017 Rank Carrier Airport Depts Seats 1 2 3 4 5 6 7 8 9 10 Markets Served DL ATL 417 43,457 94 AA DFW 335 25,438 97 AA CLT 316 21,482 72 UA ORD 226 13,777 81 UA DEN 180 12,367 70 DL DTW 168 10,888 58 DL MSP 145 10,224 63 AA ORD 168 9,455 59 UA IAH 154 8,575 51 AA PHL 145 7,330 42 Source: Innovata Schedules, via Diio. 15
Delta has four hubs ranked in the top 10 of small community domestic-domestic connecting passengers 25.0 Small Community Domestic-Domestic Connecting O&D Passengers YE 2Q 2016 20.0 19.5 15.0 10.0 9.6 9.4 5.0 5.2 4.9 4.8 4.5 3.2 3.0 2.9 0.0 DL/ATL AA/CLT AA/DFW UA/DEN UA/ORD DL/MSP DL/DTW AA/ORD UA/IAH DL/SLC Source: USDOT O&D Survey, via Diio. 16
American has four hubs ranked in the top 10 of small community domestic-international connecting passengers 3.0 Small Community Domestic-Intl Connecting O&D Passengers YE 2Q 2016 2.5 2.2 2.0 1.5 1.0 0.5 1.0 0.8 0.7 0.6 0.5 0.4 0.4 0.4 0.3 0.0 DL/ATL AA/DFW UA/IAH UA/ORD AA/CLT DL/DTW AA/MIA DL/MSP UA/EWR AA/PHL Source: USDOT O&D Survey, via Diio. 17
The Big 3 generate their highest market shares in their small community markets Big 3 Hub Airport Capacity Share by Market Type June 2017 80% 73.0% 60% 45.0% 53.0% 51.0% 40% 20% 0% Large Medium Small/Non Total Source: Innovata Schedules, via Diio. 18
Resulting in strong yields in their large hub small community markets on average 20% higher than other fares Big 3 Stage Adjusted Domestic Average Fares Year Ended 2 nd Qtr 2016 $250 Large Medium Small/Non $223 $225 $219 $200 $168 $190 $182 $194 $179 $189 $150 $100 American Delta United Source: USDOT, O&D Survey, via Diio.. 19
$1.2 Billion 20
Top 10 large hub airports based on the economic impact of small community passengers Los Angeles 36.4M 10 Denver 72.8M 5 Minneapolis 61.5M 6 Dallas/Ft. Worth 128.2M 2 Chicago ORD 122.9M 3 Houston IAH 53.2M 8 Detroit 53.2M 7 Philadelphia 43.9M 9 1 4 Atlanta 244.5M Charlotte 109.9M 21
Small community air service in the news "This isn't about carrying more passengers in nonstop markets, it's about competing for the sum of a whole bunch of small markets," Scott Kirby, President, United Airlines The only places with reasonable fares are the smaller cities. That s where the money is. Andrew Levy, United CFO 22