Industry Update ACI-NA Winter Board of Directors Meeting February 7, 2018 Palm Beach Gardens, FL
1Q2007 2Q2007 3Q2007 4Q2007 1Q2008 2Q2008 3Q2008 4Q2008 1Q2009 2Q2009 3Q2009 4Q2009 1Q2010 2Q2010 3Q2010 4Q2010 1Q2011 2Q2011 3Q2011 4Q2011 1Q2012 2Q2012 3Q2012 4Q2012 1Q2013 2Q2013 3Q2013 4Q2013 1Q2014 2Q2014 3Q2014 4Q2014 1Q2015 2Q2015 3Q2015 4Q2015 1Q2016 2Q2016 3Q2016 4Q2016 1Q2017 2Q2017 3Q2017 4Q2017 U.S. & Canadian GDP Annual Growth 5% 4% 3% 2% 1% 0% U.S.* Canada** -1% -2% -3% Change from Q4 2016 U.S.: 2.5% Change from Q4 2016 Canada: 2.9% -4% -5% U.S. GDP annual growth increased from 1.8% in Q4 2016 to 2.5% in Q4 2017. The annual growth rate for Q4 2017 was driven by consumer spending, exports, higher government spending and nonresidential fixed investment. Growth in the Canadian economy was mainly due to household spending and exports of goods. Source: Bureau of Economic Analysis (BEA), 01/30/2018 Statistics Canada, 03/13/2018 Note: annual growth rate is the change over the same quarter of the previous year *United States real GDP based on 2009 chained dollar value **Canada real GDP based on 2007 chained dollar value 2
U.S. & Canadian Unemployment Rate 10% U.S. Canada 9% 8% 7% 6% 5% 4% The U.S. unemployment rate fell to 4.1% in December 2017, unchanged from the previous month s 17-year low. The labor force participation rate, at 62.7%, was unchanged over the month and over the year. In Canada, the unemployment rate declined to 5.7%, the lowest unemployment rate since 1976. The greatest gains in employment occurred in Quebec and Alberta. Source: Trading Economics, 01/30/2018 4
U.S. Dollars per Barrel Crude and Jet Fuel Prices 170 160 150 140 130 120 110 100 90 80 70 60 50 40 30 20 10 0 Jet Crude Crack Jet Forecast Crude Forecast Crack Forecast Forecast by EIA as of 08/08/17 Crude oil prices reached the highest level in more than three years during the first week in January. This was attributed to the shutdown of the Forties Pipeline in the North Sea due to a crack in the pipeline and a pipeline outage. At the same time the demand of crude oil continued to increase, which also affected the price increase. Source: EIA, 01/30/2018 4
U.S. Aviation Traffic 2016 vs. 2017 Jan Dec 2016 Jan Dec 2017 Change Total Passengers 932.0 million 964.4 million 3.4% Domestic Passengers 720.0 million 741.6 million 3.0% International Passengers 212.0 million 222.8 million 5.1% Flights (thousands) 9,716.4 9,748.5 0.3% Available Seat Miles 1,664.8 billion 1,739.4 billion 4.5% Avg. Load Factor 82.43 percent 82.46 percent 0.03 pts. Avg. Flight Stage Length* 808.9 miles 820.4 miles 1.4% For 2017, passenger traffic grew by 3.4% compared to 2016, with a greater percentage increase in international traffic compared to domestic traffic. While available seat miles increased by 4.5%, there was only a moderate increase of 0.3% in the number of flights. This shows that airlines continued their upgauging strategy in 2017. Load factor improve marginally from 2016 by 0.03 percentage points. *U.S. Air Carriers only Source: BTS T-100 Segment data, 03/16/2018 5
Millions Canadian Passenger Traffic 14 Domestic International + Transborder 12 10 8 6 4 2 0 Based on ACI World estimates from the Big 8 Canada airports*, Canadian traffic increased by 6.1% in 2017 from 2016. Domestic traffic grew 4.3% while international and transborder traffic grew 8.0%. At 12.1%, the month of June for 2017 had the greatest year-over-year increase in traffic from 2016. * Big 8 Canada airports: YYZ, YVR, YUL, YYC, YEG, YOW, YWG, YHZ Source: ACI World PaxFlash 6
Capacity: Change in Scheduled Flights and Seats February 2018 vs. February 2017 8% Flights Seats 7% 6.7% 6% 5% 5.3% 4.9% 4% 3% 3.2% 3.1% 2.9% 3.5% 2.8% 2% 1.8% 1% 0% -1% -2% -1.3% Large Medium Small Non-Hub Canada Source: Diio Mi, 01/30/18 7
Capacity: Change in Scheduled Dom. and Intl. Flights February 2018 vs. February 2017 25% Domestic International 22.3% 20% 15% 10% 5% 1.8% 2.0% 3.5% 3.1% 2.5% 3.7% 0% -1.9% -5% -10% -7.0% -4.6% Large Medium Small Non-Hub Canada Source: Diio Mi, 01/26/18 8
Capacity: Change in Scheduled Flights and Seats June 2018 vs. June 2017 9% Flights Seats 8% 7% 7.7% 7.4% 6% 5% 5.4% 6.2% 5.4% 4% 4.0% 3% 3.2% 2.8% 2% 2.2% 1% 1.2% 0% Large Medium Small Non-Hub Canada Source: Diio Mi, 03/16/18 9
Capacity: Change in Scheduled Dom. and Intl. Flights June 2018 vs. June 2017 50% Domestic International 43.5% 40% 30% 20% 10% 0% 1.9% 3.8% 2.9% 1.3% 6.2% 4.9% 3.7% -0.4% 6.3% -10% Large Medium Small Non-Hub Canada Source: Diio Mi, 03/16/18 10
3Q2007 4Q2007 1Q2008 2Q2008 3Q2008 4Q2008 1Q2009 2Q2009 3Q2009 4Q2009 1Q2010 2Q2010 3Q2010 4Q2010 1Q2011 2Q2011 3Q2011 4Q2011 1Q2012 2Q2012 3Q2012 4Q2012 1Q2013 2Q2013 3Q2013 4Q2013 1Q2014 2Q2014 3Q2014 4Q2014 1Q2015 2Q2015 3Q2015 4Q2015 1Q2016 2Q2016 3Q2016 4Q2016 1Q2017 2Q2017 3Q2017 Average U.S. Airfare and Percent Change Year over Year Avg. U.S. Dom Fare % Change YoY $450 $400 $350 $300 $250 $200 $150 $100 $50 $0 20% 15% 10% 5% 0% -5% -10% -15% -20% -25% Average domestic fares for the third quarter of 2017 decreased 2.6% year over year to $336. Airline revenue from ticket sales remained at 75.0% for the second and third quarters of 2017, compared to 88.9% in 2000. Over the years, airlines have been unbundling services that were previously included in the airfare. Note: Unadjusted for inflation Source: BTS, 01/23/2018 11
Average Canadian Domestic Airfares (10 Major Cities) Q2 2016 (CAD) Q2 2017 (CAD) Change Calgary 150.60 161.70 7.4% Edmonton* 154.40 N/A N/A Halifax 153.80 152.70-0.7% Montréal 162.80 160.70-1.3% Ottawa 156.20 160.80 2.9% Regina 152.10 164.70 8.3% Saskatoon 139.00 151.50 9.0% Toronto 190.10 191.40 0.7% Vancouver 189.30 194.50 2.7% Winnipeg 167.40 169.20 1.1% Canada 164.40 167.70 2.0% * Data for Edmonton suppressed to meet the confidentiality requirements of the Statistics Act Source: Statistics Canada, 01/22/2018 12
Billions U.S. Airline Ancillary Revenue 2007-2017 (Q3) $4.0 $3.6 Reservation Change/Cancellation Fees Miscellaneous Operating Revenues* Baggage Fees +9.0% +16.7% -2.7% $3.2 $2.8 $2.4 $2.0 $1.6 $1.2 $0.8 $0.4 $0.0 $0.12 $0.60 $0.23 +55.2% $0.35 $0.70 +40.5% +9.3% $0.74 $0.91 $0.74 $0.79 +14.4% $0.90 $1.11 +7.0% $0.91 $1.24 +5.4% +2.1% $0.88 $0.96 $1.33 $1.29 $1.02 $1.74 $1.10 $1.58 $1.22 $1.79 $0.43 $0.61 $0.59 $0.60 $0.65 $0.73 $0.76 $0.76 $0.73 $0.72 Q3 2007 Q3 2008 Q3 2009 Q3 2010 Q3 2011 Q3 2012 Q3 2013 Q3 2014 Q3 2015 Q3 2016 Q3 2017 Note: * Includes fees paid to carriers for collection of PFC fee, transportation of pets/animals, frequent flyer related programs, WiFi, food and beverages, and others Overall, ancillary revenue increased 9.0% in Q3 2017 from Q3 2016, driven by increases in Miscellaneous Operating Revenues and Baggage Fees. Since 2007, Baggage Fees have increased more than tenfold as airlines began charging for the first checked bag on domestic flights in 2008. Source: BTS, 01/24/2018 13
Airport-Related Cost to U.S. Airlines Operating Expenses Landing Fees Airport Rents* 6.0% 5.0% 4.0% 3.0% 2.9% 3.0% 3.1% 3.2% 3.0% 2.9% 3.0% 2.7% 2.5% 3.0% 2.8% 2.5% 2.5% 2.6% 2.5% 2.8% 2.7% 2.0% 1.0% 1.7% 1.8% 2.1% 2.1% 2.1% 2.0% 1.9% 1.8% 1.7% 2.1% 2.1% 1.8% 1.7% 1.7% 1.7% 1.9% 1.9% 0.0% 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 Note: * Includes all airline rental fees (i.e. real estate, off airport property) excluding flying operation rentals (i.e. aircraft rentals) Airport-related expenses represented 4.6% of U.S. airlines operating expenses in 2016, a slight decrease compared to 2015. This was despite an increase in total operating expenses by 3.7% in 2016. Source: BTS, 01/24/2018 14
Billions Airline Profitability Forecast $18.0 2017 2018 $16.0 $14.0 $12.0 $10.0 $8.0 $6.0 $4.0 $2.0 Region 2017 2018 North America $ 15.6 B $ 16.4 B Europe $ 9.8 B $ 11.5 B Asia-Pacific $ 8.3 B $ 9.0 B Latin America $ 0.7 B $ 0.9 B Middle East $ 0.3 B $ 0.6 B Africa ($ 0.1 B) ($ 0.1 B) Total $ 34.5 B $ 38.4 B $0.0 -$2.0 Source: IATA, 01/29/2018 North America Europe Asia-Pacific Latin America Middle East Africa The airline industry continues to perform strongly in 2018, with a net profit forecast to rise to $38.4 billion. On average, each departing passenger is expected to generate a net profit of $8.90, up from $8.45 in 2017. While rising costs have put pressure on profits, North American airlines are forecast to continue leading the industry in profitability, generating close to half of the industry s total profits. 15
North American Airlines Finances Net Profit/Loss 2016 vs. 2017 Carrier 2016 2017 $814 million $1,028 million $220 million $195 million $2,676 million $1,919 million $4,373 million $3,577 million $235 million $364 million $759 million $1,147 million $2,244 million $3,488 million $265 million $421 million $2,263 million $2,131 million CAD 876 million CAD 295 million CAD 2,038 million CAD 284 million The three largest U.S. airlines, American Airlines, Delta and United, as well as Allegiant, posted lower profits in 2017 compared to 2016. This was driven by increased operating expenses, in particular fuel and labor. For other U.S. airlines, factors such as strong passenger demand and tax benefits from tax reform legislation offset increases in operating expenses, resulting in higher profits for 2017. In Canada, Air Canada attributed its better financial performance in 2017 to its successful network growth coupled with cost discipline. WestJet s lower profit was attributed to increased operating expenses such as fuel expense, depreciation and amortization. Source: Airlines Quarterly Results Releases 16
Special thanks to BEA, BTS, Diio Mi, DOT, FAA, IATA and Statistics Canada for their contributions to this presentation. For comments or questions, please contact: Liying Gu or Ashley Sng ACI-NA (202) 293-8500 lgu@aci-na.org asng@aci-na.org