A Decade of Consolidation in Retrospect MARCH 7, 2017
CONSOLIDATION TIMELINE Airlines Announced Closed SOC US Airways- America West Delta- Northwest Frontier- Midwest United- Continental Southwest- AirTran American-US Airways Alaska-Virgin America May 2005 September 2005 April 2008 October 2008 Reservation cutover October 2008 March 2007 December 2009 February 2010 June 2009 June 2009 n.a. n.a. May 2010 October 2010 September 2010 February 2013 April 2016 November 2011 May 2011 March 2012 December 2013 December 2016 March 2012 November 2014 April 2015 October 2015 Stay tuned! Stay tuned! 1
THE UPSHOT: DELTA-NORTHWEST Has used merger to create the nation s most profitable airline Closed CVG and MEM hubs Built hubs at LGA and SEA Increased dominance in ATL Started industry upgauging trend 2
THE UPSHOT: UNITED-CONTINENTAL Rocky integration led to consistent underperformance Post-2008 fleet retirements heavily eroded domestic market share CLE hub closed; large cutbacks at IAD and IAH New leadership installed September 2015-now Consistently expanded SFO, likely as a competitive response to Virgin America New competitive focus on DEN and ORD Renewed focus on domestic network? 3
THE UPSHOT: SOUTHWEST-AIRTRAN Large cutbacks in ATL; exit from smaller AirTran markets Aircraft moved from traditional markets to larger markets to compete against Frontier, JetBlue, Spirit, Virgin America (e.g., from MHT to BOS) Hub built overnight at DAL; Wright Amendment markets (e.g., ABQ) suffered International buildup with new terminals at HOU and FLL Continued DEN buildup 4
THE UPSHOT: FRONTIER-MIDWEST Frontier v. 5.0? Former Midwest hub in MKE completely dismantled Transition to ultra low-cost carrier a la Spirit Large DEN hub cutbacks with transition to point-to-point network Sold to Indigo Partners No more cookies! 5
THE UPSHOT: AMERICAN-US AIRWAYS More favorable economic environment has prevented need from large cutbacks Some network and fleet realignment starting to occur (e.g., A321s at PHX replaced with 737-800s) CLT hub grows with Southwest cutbacks New competitive focus on LAX and ORD 6
THE UPSHOT: ALASKA-VIRGIN AMERICA Was the acquisition all about the eliminating a competitor? Will Alaska be a true West Coast powerhouse? Where will Alaska choose to focus its network? What will be the effects of end of Delta relationship? What will happen to the Airbus fleet? What happens to the Eskimo? 7
Index (1990=1.00) MACRO TRENDS: INTERNATIONAL FOCUS 3.00 2.50 Global financial crisis International: Up 176% (4.1% CAGR) 2.00 1.50 1.00 0.50 September 11, 2001 attacks Domestic: Up 64% (2.0% CAGR) 12-month periods ending June 30 Source: U.S. DoT T100 database, accessed via Diio Mi, March 2017. 8
Index of scheduled seats (1990=1.0) MACRO TRENDS: INCREDIBLY SHRINKING LEGACIES? 1.05 Southwest: Down 2% (-0.2% CAGR) 1.00 Delta: Up 12% (1.4% CAGR) 0.95 0.90 American: Down 5% (-0.6% CAGR) 0.85 United: Down 12% (-1.6% CAGR) 0.80 2008 2009 2010 2011 2012 2013 2014 2015 2016 12-month periods ending June 30 Source: Diio Mi Schedules database, accessed March 2017. 9
MACRO TRENDS: THAT S THE SPIRIT! 3.00 Spirit: Up 182% (13.8% CAGR) Foreign flags: Up 38% (4.1% CAGR) 2.50 Allegiant: Up 171% (13.3% CAGR) Legacy total: Down 9% (-1.1% CAGR) Index of scheduled seats (1990=1.0) 2.00 1.50 JetBlue: Up 47% (4.9% CAGR) Alaska: Up 38% (4.1% CAGR) Frontier: Down 34% (-5.0% CAGR) 1.00 0.50 2008 2009 2010 2011 2012 2013 2014 2015 2016 Source: Diio Mi Schedules database, accessed March 2017. 12-month periods ending June 30 10
Index of enplaned passengers (1990=1.0) MACRO TRENDS: SIZE MATTERS 1.15 1.10 U.S. as a whole: Up 6% (0.7% CAGR) Large hubs: Up 12% (1.4% CAGR) 1.05 1.00 Nonhubs: Down 2% (-0.2% CAGR) 0.95 0.90 Medium hubs: Down 5% (-0.6% CAGR) 0.85 0.80 2008 2009 2010 2011 2012 2013 2014 2015 2016 12-month periods ending June 30 Source: U.S. DoT T100 database, accessed via Diio Mi, March 2017. Small hubs: Down 12% (-1.6% CAGR) 11
THE SOUTHWEST SHUFFLE New England Los Angeles Basin BOS: +2,204 BDL: +192 SNA: +2,393 LGB: +772 LAX: +303 PVD: -1,708 MHT: -2,144 BUR: -1,136 ONT: -2,561 Net loss: 1,456 seats San Francisco Bay Area Net loss: 230 seats Selected Wright Amendment mkts SFO: +3,156 SJC: -587 OAK: -2,628 DAL: +8,206 ABQ: -3,706 BHM: -1,677 JAN: -1,171 LIT: -817 TUL: -633 OKC: -75 Net loss: 59 seats Source: Diio Mi Schedules database, accessed March 2017. Net gain: 127 seats 12
Change in avg daily departing seats, 2008-2016 MIDWESTERN BLUES 10,000 5,000 0-5,000 Avg daily seats lost: 71,982-10,000-15,000 Avg daily seats gained: 8,728-20,000 Source: Diio Mi Schedules database, accessed March 2017. 13
FY 2009-2016 change in average daily departing seats from DTW MIDWESTERN BLUES 1,500 1,000 35 other states and international: net gain of 4,500 seats 500 0-500 -1,000-1,500 10 Midwestern states: net loss of 4,000 seats Regions as defined by the U.S. Census Bureau Middle Atlantic includes NJ, NY, and PA; New England CT, MA, ME, NH, RI, and VT; South Atlantic DC, DE, FL, GA, MD, NC, SC, VA, and WV; East South Central AL, KY, MS, TN; West North Central IA, KS, MN, MO, NE, ND, and SD; West South Central AR, LA, OK, and TX; Mountain AZ, CO, MT, NV, UT; Pacific AS, CA, OR, and WA. 14
CALIFORNIA (LARGE HUB) DREAMING Source: Diio Mi Schedules database, accessed March 2017. 15
CALIFORNIA (LARGE HUB) DREAMING Source: Diio Mi Schedules database, accessed March 2017. 16
LARGE HUB SCOREBOARD Airport Top 5 2008 epax 2016 epax CAGR SFO 18,082 24,949 4.1% SEA 16,056 21,040 3.4% CLT 17,076 22,038 3.2% MDW 9,460 11,271 2.2% MIA 16,176 20,710 3.1% Bottom 5 TPA 9,400 9,232-0.2% HNL 10,051 9,541-0.6% PHL 15,874 15,047-0.7% DTW 17,547 16,543-0.7% IAD 11,724 10,314-1.6% Source: U.S. DoT T100 database, accessed via Diio Mi, March 2017. For 12 months ended June 30. Ranked in order of CAGR. 17
MEDIUM HUB SCOREBOARD Airport Top 5 2008 epax 2016 epax CAGR DAL 4,561 7,841 7.0% MSY 4,097 5,501 3.8% AUS 4,538 6,056 3.7% HOU 4,984 6,452 3.3% BNA 5,199 6,145 2.1% Bottom 5 BUF 2,716 2,285-2.1% CLE 5,610 3,996-4.2% ABQ 3,726 2,372-5.5% ONT 3,494 2,107-6.1% CVG 7,416 3,111-10.3% Source: U.S. DoT T100 database, accessed via Diio Mi, March 2017. For 12 months ended June 30. Ranked in order of CAGR. 18
SMALL HUB SCOREBOARD Airport Top 5 2008 epax 2016 epax CAGR PGD 37 477 37.6% AZA 95 638 26.9% PIE 408 818 9.1% SFB 572 1,143 9.0% BLI 256 413 6.1% Bot 5 JAN 749 493-5.1% COS 1,048 600-6.7% MHT 1,931 1,014-7.7% ISP 1,156 598-7.9% MEM 5,608 1,953-12.3% Source: U.S. DoT T100 database, accessed via Diio Mi, March 2017. For 12 months ended June 30. Ranked in order of CAGR. 19