The Big 4 Airline Era, New Ultra Low Cost Carriers, and Implications for Airports Linda Perry, Director AAAE Rates and Charges Workshop November 4, 2016
Outline The Big 4 American Delta Southwest United Ultra Low Cost Carriers (LCCs) Allegiant Spirit Frontier 2 AAAE Rates and Charges Workshop
In the early years, there were 10 The Big 4 together account for 77% of total seats in 2016, down from 79% in 2014 Percent of 2016 seats 23% 20% 15% 19% Sources: Graphic Money/CNN, www.money.cnn.com. Domestic seats--oag Aviation Worldwide Ltd, OAG Analyser online database, accessed October 2014. 77% 3 AAAE Rates and Charges Workshop
Percent of departing scheduled seats in 2016 and now there are four The Big 4 s 2016 seats are 7% below 2007 levels Larger decreases for Delta and United reflect, in part, the closure of connecting hubs Southwest s seats exceeded 2007 levels in 2016 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% 13% 13% 10% 11% 13% 8% Source: OAG Aviation Worldwide Ltd, OAG Analyser online database, accessed October 2016. 22% 20% 20% 15% 18% 19% 3% 1% 11% 16% 15% 8% 18% 21% 23% 2007 2014 2016 American US Airways Delta Northwest Southwest AirTran United Continental Other airlines 4 AAAE Rates and Charges Workshop
Percent change in total seats from 2007 The capacity muscle of the Big 4 is not what it used to be The Big 4 s 2016 seats are 7% below 2007 levels Larger decreases for Delta and United reflect, in part, the closure of connecting hubs Southwest s seats exceeded 2007 levels in 2016 5% 0% -5% -10% -15% -20% American Delta Southwest United The Big 4-25% 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 Source: OAG Aviation Worldwide Ltd, OAG Analyser online database, accessed October 2016. 5 AAAE Rates and Charges Workshop
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 Airline domestic yield (cents per passenger mile) Average domestic trip length (miles) The cost to fly on the Big 4 is climbing Average domestic yield for the Big 4 has increased 25% since 2007 Decreases in 2015 and 2016 reflect reduced oil prices and the addition of capacity Differences in average trip length account for some of the variation in yield 20 1,700 19 1,600 18 1,500 17 1,400 16 1,300 15 1,200 14 13 12 11 1,100 1,000 900 800 Southwest United The Big 4 American Delta Southwest United The Big 4 American Delta Note: Ancillary fees are not included. Data for 2014 are for the first quarter only. Source: U.S. Department of Transportation, Origin-Destination Survey of Airline Passenger Traffic, Domestic, online database, accessed October 2014. 6 AAAE Rates and Charges Workshop
We re Number 1 The New American 7 AAAE Rates and Charges Workshop
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 Percent change from 2007 Percent of total seats Capacity at American s large hubs is approaching pre-recession levels American s 2016 seats are 5% below 2007 levels Large hubs account for a larger share of American s capacity in 2016 than 2007 5% 100% 0% 90% -5% 80% -10% -15% -20% -25% -30% -35% American/ US Airways merger December 2013 70% 60% 50% 40% 30% 20% 10% 0% 74% 78% 77% 14% 11% 11% 8% 8% 8% 4% 4% 4% Large Medium 2007 2014 2016 Small All airports Nonhub Nonhub Small Medium Large Note: Includes US Airways seats. Source: OAG Aviation Worldwide Ltd, OAG Analyser online database, accessed October 2016. 8 AAAE Rates and Charges Workshop
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 Airline domestic yield (cents per passenger mile) Average domestic trip length (miles) The Cost to Fly on American Average domestic yield for American has increased 21% since 2007 Differences in average trip length account for some of the variation in yield 21 1,700 20 1,650 19 18 17 16 15 14 13 12 11 1,600 1,550 1,500 1,450 1,400 1,350 1,300 1,250 1,200 Large Small All airports Medium Nonhub Large Small All airports Medium Nonhub Note: Ancillary fees are not included. Data for 2014 are for the first quarter only. Source: U.S. Department of Transportation, Origin-Destination Survey of Airline Passenger Traffic, Domestic, online database, accessed October 2014. 9 AAAE Rates and Charges Workshop
We re a Close Second Delta 10 AAAE Rates and Charges Workshop
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 Percent change from 2007 Percent of total seats Capacity at Delta s large hubs is approaching pre-recession levels Delta s 2016 seats are 3% below 2007 levels Large hubs account for a larger share of American s capacity in 2016 than 2007 10% 100% 5% 90% 0% 80% -5% -10% -15% -20% -25% -30% -35% Delta/ Northwest merger October 2008 Large Small All airports Medium Nonhub 70% 60% 67% 74% 75% 50% 40% 30% 14% 20% 12% 12% 10% 12% 9% 9% 0% 6% 5% 5% 2007 2014 2016 Nonhub Small Medium Large Note: Includes Northwest Airlines seats. Source: OAG Aviation Worldwide Ltd, OAG Analyser online database, accessed October 2014. 11 AAAE Rates and Charges Workshop
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 Airline domestic yield (cents per passenger mile) Average domestic trip length (miles) The Cost to Fly on Delta Average domestic yield for Delta has increased 32% since 2007 Differences in average trip length account for some of the variation in yield 23 1,450 21 1,400 19 1,350 17 15 13 1,300 1,250 1,200 1,150 11 1,100 Large Small All airports Medium Nonhub Large Small All airports Medium Nonhub Note: Ancillary fees are not included. Data for 2014 are for the first quarter only. Source: U.S. Department of Transportation, Origin-Destination Survey of Airline Passenger Traffic, Domestic, online database, accessed October 2014. 12 AAAE Rates and Charges Workshop
Who s on Third? Southwest 13 AAAE Rates and Charges Workshop
Percent change from 2007 Capacity reductions at Southwest s small and nonhubs reflect the rationalization of AirTran service 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 Percent of total seats Southwest s 2016 seats are 1% above 2007 levels Large and medium hubs gain; small and nonhubs lose 20% 10% 0% -10% -20% -30% -40% -50% -60% -70% -80% Southwest/ AirTran merger May 2011 Large Small All airports Medium Nonhub 100% 90% 80% 70% 60% 50% 40% 30% 20% 52% 54% 54% 34% 36% 37% 10% 13% 0% 1% 10% 1% 9% 2007 2014 2016 Nonhub Small Medium Large Note: Includes US Airways seats. Source: OAG Aviation Worldwide Ltd, OAG Analyser online database, accessed October 2014. 14 AAAE Rates and Charges Workshop
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 Airline domestic yield (cents per passenger mile) Average domestic trip length (miles) The Cost to Fly on Southwest Average domestic yield for Southwest has increased 21% since 2007 Nonhubs are primarily AirTran markets 27 1,050 25 23 21 19 17 15 13 1,000 950 900 850 800 750 700 650 11 600 Large Small All airports Medium Nonhub Large Small All airports Medium Nonhub Note: Ancillary fees are not included. Data for 2014 are for the first quarter only. Source: U.S. Department of Transportation, Origin-Destination Survey of Airline Passenger Traffic, Domestic, online database, accessed October 2014. 15 AAAE Rates and Charges Workshop
Just Missing a Medal in Fourth Place United 16 AAAE Rates and Charges Workshop
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 Percent change from 2007 Percent of total seats United s capacity growth lags other Big 4 United s 2016 seats are 19% below 2007 levels Large hubs account for a larger share of seats in 2016 5% 0% -5% 100% 90% 80% -10% 70% -15% 60% 75.7% 77.9% 79.1% -20% 50% -25% -30% -35% -40% United/ Continental merger October 2010 Large Small All airports Medium Nonhub 40% 30% 20% 12.3% 10.1% 9.6% 10% 7.9% 7.5% 7.4% 0% 4.1% 4.5% 3.9% 2007 2014 2016 Nonhub Small Medium Large Note: Includes Continental Airlines seats. Source: OAG Aviation Worldwide Ltd, OAG Analyser online database, accessed October 2014. 17 AAAE Rates and Charges Workshop
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 Airline domestic yield (cents per passenger mile) Average domestic trip length (miles) The Cost to Fly on United Average domestic yield for United has increased 21% since 2007 Differences in average trip length account for some of the variation in yield 21 2,200 20 19 2,000 18 17 1,800 16 15 14 1,600 1,400 13 12 1,200 11 1,000 Large Small All airports Medium Nonhub Large Small All airports Medium Nonhub Note: Ancillary fees are not included. Data for 2014 are for the first quarter only. Source: U.S. Department of Transportation, Origin-Destination Survey of Airline Passenger Traffic, Domestic, online database, accessed October 2014. 18 AAAE Rates and Charges Workshop
The Ultra Low Cost Carrier Story 19 AAAE Rates and Charges Workshop
Spirit Airlines In 2012, Spirit placed an order for 75 Airbus narrowbody aircraft, including 45 A320neos the first of which was delivered in October 2016 Spirit's Busiest 10 Airports in 2016 Percent of scheduled departing seats Other 34% FLL 14% LAS 8% ORD 8% BWI 3% DTW 6% IAH 5% ATL 5% MCO 5% LAX 6% DFW 6% 20 AAAE Rates and Charges Workshop
Frontier Airlines In 2013, Frontier was acquired by Indigo Partners, a private equity firm, and currently has orders for approximately 90 Airbus narrowbody aircraft Frontier's Busiest 10 Airports in 2016 Percent of scheduled departing seats Other 36% DEN 24% MCO 9% PHX 2% SFO 2% CVG CLE 3% 3% ATL 4% PHL 4% LAS 7% ORD 6% 21 AAAE Rates and Charges Workshop
Allegiant Airways Allegiant was founded on the use of inexpensive, used aircraft, particularly the MD-80, but plans to retire its 46 MD-80s by the end of 2019 and replace them with new and used Airbus narrowbody aircraft Allegiant's Busiest 10 Airports in 2016 Percent of scheduled departing seats SFB 11% LAS 11% Other 48% PIE 8% AZA 6% IND 1% LAX 2% BLI 2% FLL 3% PGD 5% CVG 3% 22 AAAE Rates and Charges Workshop
Percent change in total seats from 2007 The Ultra LCCs Build Capacity Strength The Ultra LCCs 2016 seats are 105% above 2007 levels Ultra LCC scheduled departing seats total 53 million in 2016, compared with 785 million for the Big 4 300% 250% 200% 150% 100% 50% 0% Allegiant Spirit Frontier Ultra LCCs -50% -100% 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 Source: OAG Aviation Worldwide Ltd, OAG Analyser online database, accessed October 2014. 23 AAAE Rates and Charges Workshop
Percent of departing scheduled seats in 2016 Ultra LCCs Share of Seats is Small, but Growing The Ultra LCCs accounted for 5.3% of total departing seats at U.S. airports in 2016, more than twice 2007 levels Between 2007 and 2016, departing seats for Allegiant increased an average of 15% per year, followed by Spirit (14% per year), and Frontier (1% per year) 6.0% 5.0% 4.0% 3.0% 2.0% 1.0% 0.0% 2.5% 0.7% 1.4% 0.4% Source: OAG Aviation Worldwide Ltd, OAG Analyser online database, accessed October 2016. 4.0% 1.7% 1.4% 0.9% 5.3% 2.4% 1.6% 1.3% 2007 2014 2016 Spirit Frontier Allegiant 24 AAAE Rates and Charges Workshop
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 Airline domestic yield (cents per passenger mile) Average domestic trip length (miles) The Bare Fares of Ultra LCCs Average domestic yield for the Ultra LCCs has decreased 23% since 2007 The large decrease in Frontier s yield reflects the change in its business model from a LCC to an ULCC A la carte pricing of Ultra LCCs is not directly comparable with Big 4 airfares 14 13 12 11 10 9 8 7 6 1,250 1,200 1,150 1,100 1,050 1,000 950 900 850 800 Allegiant Frontier Spirit Ultra LCCs Allegiant Frontier Spirit Ultra LCCs Note: Ancillary fees are not included. Data for 2014 are for the first quarter only. Source: U.S. Department of Transportation, Origin-Destination Survey of Airline Passenger Traffic, Domestic, online database, accessed October 2014. 25 AAAE Rates and Charges Workshop
Implications for Airports
Industry Consolidation Impacts
Traffic reductions at medium and small hub facilities 28 AAAE Rates and Charges Workshop
Increase in on demand charter 29 AAAE Rates and Charges Workshop
Overcrowding at large hubs 30 AAAE Rates and Charges Workshop
Future Terminal Facilities and Trends
Trend Towards Self Service Landside/ATO Security Checkpoint Airside/Concourse CUSS Kiosks Bag Drop CAT/BPSS Boarding Pass Scanners Automatic Boarding Gates 32 AAAE Rates and Charges Workshop
Evolution of Ticket Lobby 33 AAAE Rates and Charges Workshop
Evolution of Ticket Lobby 34 AAAE Rates and Charges Workshop
Future Vision for Security Conceptually, provides for a seamless journey from curb to airside Passengers to proceed through security based on advanced assessment of risk-based passengers Systems analyze person and carry-on baggage utilizing automation and remote image analysis 35 AAAE Rates and Charges Workshop
Future Vision for Security 36 AAAE Rates and Charges Workshop
Evolution of Gate Areas 37 AAAE Rates and Charges Workshop
Evolution of Gate Areas 38 AAAE Rates and Charges Workshop
Gate Boarding 39 AAAE Rates and Charges Workshop
Evolution of FIS 40 AAAE Rates and Charges Workshop
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