State of the Aviation Industry The North American Airport Perspective Marketing and Communications Conference June 22, 2011 Cleveland, OH Greg Principato, President ACI-NA
Millions 2 U.S. Aviation Traffic: 2006-2010 Enplaned Pax % Change YoY 80 10% 70 60 5% 50 0% 40 30-5% 20 10-10% 0-15% 2007 was a record year for US aviation. However, with the onset of the recession in 2008, things went south quickly. 2010 began the climb out of the bottom.
U.S. Aviation Traffic: Signs of Hope? 2010 vs. 2009 2009 2010 Change Total Passengers 703.8 million 720.4 million 2.4% Domestic Passengers 618.0 million 629.5 million 1.8% International Passengers 85.8 million 90.9 million 5.9% Flights (thousands) 9,550.3 9,505.0-0.5% Available Seat Miles 957.1 billion 972.5 billion 1.6% Load Factor 80.4 percent 82.1 percent 1.7 pts. Flight Stage Length 717.5 miles 730.2 miles 1.8% For 2010, overall traffic grew at slightly over 2%. However, the international component grew at almost 6%. Capacity seems to have leveled out with carriers seemingly tweaking gauge rather than schedules. Record load factors continued to be posted. Source: BTS 3
Foreign Arrivals to the US: Percent Change 2010 vs. 2009 60% 50% 48.9% 52.8% 40% 34.2% 30% 20% 10% 0% -10% 16.0% 11.0% 11.4% 1.5% 2.3% -1.2% 25.0% 11.3% 18.5% 7.2% 4.1% 16.5% -3.1% 22.4% 14.6% 9.8% -20% -12.3% International arrivals to the US performed very well in 2010 coming off of a significant decrease in 2008-09. A weak dollar continues to put the US on sale. However, visa issues in key markets (China, India, Brazil) continue to impede traffic growth as Europe garners a much larger share of outbound travel from those countries than does the US. Source: Commerce Department 4
Economic Indicators Remain Mixed Unemployment Rate US Canada 11% 10% 9% 8% 7% 6% 5% 4% While U.S. and Canadian GDP has been relatively healthy for the past year, unemployment remains at uncomfortable levels in both countries. Source: Wall Street Journal 5
U.S. Aviation Traffic: Gradual Recovery Continues Jan-Mar, 2011 vs. Jan-Mar, 2010 Jan-Mar, 2010 Jan-Mar, 2011 Change Total Passengers 163.5 million 167.3 million 2.4% Domestic Passengers 142.4 million 145.6 million 2.2% International Passengers 21.1 million 21.7 million 3.1% Flights (thousands) 2,259.3 2,267.9 0.4% Available Seat Miles 227.5 billion 236.8 billion 4.1% Load Factor 78.4 percent 77.8 percent -0.6 pts. Flight Stage Length 724.2 miles 741.7 miles 2.4% Through the first quarter of 2011, growth seems to be maintaining about the same pace as 2010 with the domestic/international dichotomy still apparent, but much narrower than it had been. March saw the first year-over-year decline in load factors since July, 2009 as capacity continued to inch up. Source: BTS 6
Canadian Passengers: 2007-1Q2011 Canada has also outperformed the US in terms of passengers. 2010 saw passenger traffic increase over 4% compared to 2009. The US only saw 2.4% growth in 2010. Canada continues to outpace the US in the first quarter of 2011. Source: Big 8 Airport Reporting 7
Passenger Traffic by ACI Region 2011 vs. 2010 through April 15% 10% 11.1% 10.0% 7.1% 5% 4.8% 2.2% 0% AFR ASP EUR LAC MEA NAM -5% -10% -10.1% -15% Year to date through April, most regions have seen significant growth. The African region has been affected by the civil unrest in Libya, Egypt and Tunisia. North America continues to lag behind other regions with only 2.2% growth. Source: ACI-World PaxFlash 8
Year-over-Year Change in Flights: 2006-2011 (June base) 10% Large Medium Small Non Canada 5% 0% 2006 2007 2008 2009 2010 2011-5% % Change 2011 vs. 2006 Large -2.3% -10% -15% Medium -18.5% Small -10.5% Non -15.1% Canada 20.0% All US hub categories have lost significant service since 2006 with medium hubs being the hardest hit. However, after some contraction in 2009, Canada has 20% more flights in 2011 than in 2006. Source: apgdat 9
Year-over-Year Change in Seats: 2006-2011 (June base) 10% Large Medium Small Non Canada 5% 0% 2006 2007 2008 2009 2010 2011-5% % Change 2011 vs. 2006 Large 0.3% -10% -15% Medium -13.9% Small -5.0% Non -0.8% Canada 16.0% The numbers are similar when looking at available seats. The numbers clearly demonstrate the trend of up-gauging that has gone on in the US over the last several years, particularly in smaller markets. Source: apgdat 10
Capacity: Change in Scheduled Flights and Seats Jun-11 vs. Jun-10 Flights Seats 7% 6% 5% 5.4% 5.6% 4% 3% 3.0% 2% 1.6% 1% 0% -1% -0.6% -0.3% 0.0% -2% -3% -1.5% -2.0% -2.5% Large Medium Small Non Canada Carriers have significantly pulled back on their summer schedules largely due to high (and highly volatile) fuel prices. Canada remains in a strong growth mode. Source: apgdat 11
Capacity: Change in Scheduled Flights and Seats Jun-11 vs. Jun-10 Flights Seats 8% 6.6% 6.8% 6% 4% 3.3% 3.4% 3.8% 3.7% 2.9% 2% 1.7% 1.2% 1.8% 0% 0.2% -2% -0.3% -2.3% -0.6% -2.0% -4% -6% -6.1% -8% AA CO DL UA US WN AC WS Many carriers have reduced their June schedules significantly from even just a month ago. Air Canada in particular has cut its June growth by almost half. Source: apgdat 12
Capacity: Change in Scheduled US-EU Flights and Seats: Jun-11 vs. Jun-10 30% 25% % Change Flights % Change Seats 22.2% 25.3% 20% 16.0% 15% 12.3% 10% 10.2% 10.0% 10.0% 8.9% 5% 4.7% 4.4% 3.5% 6.0% 5.6% 4.0% 4.8% 5.4% 0% -5% -2.4% -5.6% -3.8% -1.4% -4.8% -5.6% -10% Larger markets Smaller markets Even with similar, if not worse economic conditions in some countries, most US-EU markets continue to see growth. Portugal, Spain, Ireland and France have all seen yearover-year growth in excess of 10%. Source: apgdat 13
Capacity: Change in Scheduled Canada-EU Flights and Seats: Jun-11 vs. Jun-10 100% Flights Seats 94.8% 83.3% 80% 60% 40% 40.3% 39.3% 45.3% 41.8% 20% 9.0% 4.8% 3.0% 15.5% 15.6% 16.3% 19.8% 28.7% 24.2% 26.3% 8.1% 15.7% 18.8% 13.4% 0% -2.1% -5.5% -20% Larger markets Smaller markets Canada has also seen significant increases in capacity to EU countries, albeit off of a much smaller base. Source: apgdat 14
Average US Airfare and Percent Change YoY Average US Domestic Airfare % Change YoY $370 $360 $350 $340 $330 $320 $310 $300 $290 $280 $270 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 2006 2006 2006 2006 2007 2007 2007 2007 2008 2008 2008 2008 2009 2009 2009 2009 2010 2010 2010 2010 15% 10% 5% 0% -5% -10% -15% -20% While still below their 2008 peak, carriers have regained significant pricing power since the height of the 2009 recession. Many of the fare increases this year continue to be fuel driven. Source: BTS 15
Millions U.S. Airline Fees: Ancillary Revenue Continues to Rise Baggage Fees Other Ancillary Revenue $9,000 $8,000 $7,000 $6,000 $5,000 $5,111 $4,000 $3,534 $3,000 $4,330 $2,000 $3,086 $1,000 $2,729 $2,570 $1,150 $464 $0 2007 2008 2009 1-3Q2010 Ancillary revenue continues to be a boon for the airlines. Airline ancillary revenue has more than doubled since 2007 and is on pace to set a new record in 2010 (over $8 billion). Industry-wide baggage revenue for 2010 was $3.4 billion. Among major airlines, in 2010 USAir had the highest per passenger baggage revenue at $11.37 per passenger. jetblue was the lowest at $2.70 per passenger (excludes Southwest). Source: BTS 16
Airline Finances Net Profit 2010 and 1Q2011 Carrier 2010 1Q2011 American -$389 million -$405 million AirTran $38.5 million Acquired by Southwest JetBlue $97 million $3 million Air Canada $107 (CAD) million -$19 (CAD) million WestJet $137 (CAD) million $48.2 (CAD) million UA-CO $253 million -$136 million Alaska $262.6 million $29.5 million US Airways $447 million -$110 million Southwest $459 million $20 million Delta $593 million -$316 million The effect of fuel can clearly be seen in first quarter earnings as many carriers swung back into the red. Carriers reported increased fuel costs of as much as 30% compared to 1Q2010. Source: Airline Reporting 17
1Q 2011 Major Airline Profits, by Region IATA has again revised its annual profits forecast for 2011 from $15.1 billion to $9.1 billion and now to $8.6 billion, mainly due to increased fuel costs. 18
Crude and Jet Fuel Prices per Barrel (Monthly) Crude Jet Fuel $180 $160 Futures as of 6/1/11 $140 $120 $100 $80 $60 $40 $20 $0 Although economic concerns have moderated futures prices through the summer, tensions in the Middle East and North Africa, along with the onset of the summer driving season, continue to pressure fuel higher. Many carriers are reexamining their 2011 capacity strategies as a result. Source: EIA, Wall Street Journal 19
Crude and Jet Fuel Prices per Barrel (Daily) $150 $140 Crack spread = $14.59/bbl Crude Jet Fuel Crack spread = $27.96/bbl $130 $120 $110 $100 $90 $80 A closer look at the fuel situation highlights the ongoing crisis in Libya. While oil prices have and continue to rise, jet fuel prices have increased at an even higher rate. This reflects the fact that Libya is the largest supplier of oil that is the preferred grade for refining into jet fuel. As it becomes scarce the crack spread for jet fuel has increased faster that the underlying commodity price. It currently stands around $25-$30 per barrel. Source: EIA, Wall Street Journal 20
Special thanks to Diio s APGDat, BEA, DOT, FAA, BTS, and ATA for their contributions to this presentation. For comments or questions, please contact: Debby McElroy or A.J. Muldoon ACI-NA Center for Policy and Regulatory Affairs (202) 293-8500 dmcelroy@aci-na.org amuldoon@aci-na.org 21