Industry Update ACI-NA Winter Board of Directors Meeting February 3, 2016 Orlando, FL
U.S. & Canadian GDP 8% 6% 4% U.S.* Canada** Estimate by BEA as of 02/11/16 2% 0% -2% -4% -6% -8% -10% The U.S. economy bogged down at the end of 2015. Softer consumer spending, falling exports and a smaller buildup in business inventories were largely the cause of the fourth quarter slowdown. The slowdown in exports is likely to continue into 2016, yet the slowdown in inventories should diminish by midyear. Canada s economy remained flat because of declining business investment due to a weak energy sector. However, overall retail sales and merchandise trade remained strong. Canada s recovery from a mild recession is likely to gain momentum in 2016. Source: TradingEconomics.com Bureau of Economic Analysis (BEA) Note: annualized percentage change is the change over previous quarter *United States real GDP based on 2005 chained dollar value 2 **Canada real GDP based on 2002 chained dollar value
U.S. & Canadian Unemployment Rate 11% U.S. Canada 10% 9% 8% 7% 6% 5% 4% The U.S. economy closed out 2015 with a huge round of job creation. Nonfarm payrolls grew by 292,000 during December, and the unemployment rate was 4.9 percent during the fourth quarter. U.S. paychecks increased moderately in the final three months in 2015, yet the gain was little changed from the sluggish post-recession trend. In Canada, unemployment remained high at 7.2%, primarily due to weakness in the energy sector. While Canada added 22,800 part time jobs during December, full-time employment decreased by 6,400 jobs. Source: Trading Economics 3
Jan-07 Apr-07 Jul-07 Oct-07 Jan-08 Apr-08 Jul-08 Oct-08 Jan-09 Apr-09 Jul-09 Oct-09 Jan-10 Apr-10 Jul-10 Oct-10 Jan-11 Apr-11 Jul-11 Oct-11 Jan-12 Apr-12 Jul-12 Oct-12 Jan-13 Apr-13 Jul-13 Oct-13 Jan-14 Apr-14 Jul-14 Oct-14 Jan-15 Apr-15 Jul-15 Oct-15 Jan-16 Apr-16 In Billions of U.S. Dollars per Barrel Crude and Jet Fuel Prices 180 Jet Crude Crack Jet Forecast Crude Forecast Crack Forecast 160 140 120 100 80 Forecast by EIA as of 2/8/16 60 40 20 0 Source: EIA Crude oil prices dipped below $40 a barrel in year-end 2015 as international demand weakened and an oversupplied market put downward pricing pressure on commodities. For future months, crude prices will remain volatile and average around $40 a barrel due to inconsistency of OPEC policies amongst members on whether to continue to increase or cut production levels. It is expected that oil prices may recover some balance by the end of 2016 due to the recovering fuel demand in some countries. 4
U.S. Aviation Traffic Jan-Nov 2015 vs. 2014 Jan-Nov 2014 Jan-Nov 2015 Change Total Passengers 703.9 million 737.8 million 4.8% Domestic Passengers 609.8 million 641.5 million 5.2% International Passengers 94.1 million 96.4 million 2.4% Flights (thousands) 8398.0 8329.2-0.8% Available Seat Miles 960.3 billion 999.1 billion 4.0% Load Factor 83.4 percent 83.9 percent 0.5 pt. Flight Stage Length 780.0 miles 799.0 miles 2.4% For the first 11 months of 2015, passenger traffic grew by 4.8% compared to the same period in 2014. Strong consumer demand and competition for market share led to fewer capacity cuts resulting in a decline of only 0.8% in flights. Average flight stage length grew by 2.4% as additional international service was introduced. Source: BTS 5
Jan-13 Feb-13 Mar-13 Apr-13 May-13 Jun-13 Jul-13 Aug-13 Sep-13 Oct-13 Nov-13 Dec-13 Jan-14 Feb-14 Mar-14 Apr-14 May-14 Jun-14 Jul-14 Aug-14 Sep-14 Oct-14 Nov-14 Dec-14 Jan-15 Feb-15 Mar-15 Apr-15 May-15 Jun-15 Jul-15 Aug-15 Sep-15 Oct-15 Nov-15 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 grew for the first eleven months of 2015, with 3.1% passenger growth in November compared with the same month of 2014. Despite higher air fares and airline operating costs relative to the U.S. carriers, the Canadian airports remain optimistic about the year-end ahead, with overall air service expected to grow. International travel is also expected to remain robust with further expansion of Asia routes. Source: ACI World based on the Big 8 Canada airports 6
Passenger Traffic by ACI Region: YTD November 2014 vs. 2015 12.0% 10.0% 10.3% 8.0% 8.1% 6.0% 5.8% 5.8% 5.0% 4.0% 2.0% 0.0% Most ACI regions saw healthy growth in the first eleven months of 2015. The Middle East remained the top performer, still showing double digit growth. Despite weakening economic conditions, Asia s travel demand remained high, particularly China s domestic travel. Latin America s economic uncertainty had little effect on demand as growth held steady with a higher level of international business travel. North America continued to show modest growth with improving consumer spending. Europe s traffic growth was on par with North America as the euro economy stabilized. 0.5% MEA ASP LAC AFR NAM EUR Source: ACI World Pax Flash 7
Freight Traffic by ACI Region: YTD November 2014 vs. 2015 12.0% 10.0% 9.9% 8.0% 6.0% 4.0% 4.0% 2.7% 2.0% 1.5% 0.4% 0.5% 0.0% MEA ASP LAC AFR NAM EUR Freight amongst most ACI regions experienced modest growth during the first eleven months of 2015. Africa reported the fastest cargo growth, supported by strong regional trade activity and improved operating conditions. The Middle East remained robust, boosted by import demand for air freight goods. North American demand was steady due to improved business activity. European, Latin American, and Asian carriers continued to reduce capacity due to declining economic conditions with notable reductions in import and export volumes. Source: ACI World Freight Flash 8
Capacity: Change in Scheduled Flights and Seats February 2016 vs. February 2015 12% Flights Seats 10% 10.1% 9.4% 8.7% 8% 8.0% 7.1% 7.4% 6% 4.9% 4.7% 4% 3.9% 2% 1.9% 0% Large Medium Small Non-Hub Canada Source: Diio Mi 9
Capacity: Change in Scheduled Domestic and International Flights: February 2016 vs. February 2015 25% Domestic International 20% 20.4% 15% 10% 10.2% 6.9% 6.6% 5% 4.6% 3.9% 4.2% 4.4% 1.9% 0% Large Medium Small Non-Hub Canada 0.3% Source: Diio Mi 10
Capacity: Change in Scheduled Flights and Seats May 2016 vs. May 2015 7% Flights Seats 6.4% 6% 5% 4.5% 4% 3.9% 3.2% 3% 2% 2.4% 2.0% 1.8% 2.7% 1.3% 1% 0% -1% -0.6% Large Medium Small Non-Hub Canada Source: Diio Mi 11
Capacity: Change in Scheduled Domestic and International Flights: May 2016 vs. May 2015 18% 16% 16.1% Domestic International 14% 12% 10% 8% 6% 6.4% 4% 3.8% 2% 2.4% 2.0% 1.8% 1.1% 0% -2% 0.0% -0.2% -0.6% Large Medium Small Non-Hub Canada Source: Diio Mi 12
Average U.S. Airfare and Percent Change Year over Year Avg. U.S. Dom Fare % Change YoY $450.00 $400.00 $350.00 $300.00 $250.00 $200.00 $150.00 $100.00 $50.00 $0.00 15% 10% 5% 0% -5% -10% -15% -20% Declining fuel prices have started to influence air fares. Fares for the third quarter decreased 6.2% year over year, with the average domestic fare decreasing to $372. Airline revenue from ticket sales decreased 1.1% for the third quarter of 2015 compared to the same period in 2014. As airlines adjust fuel hedging strategies to maximize profit from lower fuel prices and growing passenger demand, air fares are likely to continue to decrease. Note: Unadjusted for inflation 13 Source: BTS
In Billions of U.S. dollars U.S. Airline Ancillary Revenue (Q3 2007- Q3 2015) 4 3.5 3 2.5 2 1.5 1 0.5 0 Source: BTS Reservation Cancellation Fees Miscellaneous Operating Revenues* Baggage Fee 27.9% $0.1 $0.6 $0.2 55.2% $0.4 $0.7 40.5% $0.7 9.3% $0.9 $0.7 $0.8 14.4% $0.4 $0.6 $0.6 $0.6 $0.6 $0.7 $0.8 $0.8 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 $0.9 $1.1 7.0% $0.9 $1.2 5.4% 2.1% $0.9 $1.0 $1.3 $1.3 16.7% 2007 2008 2009 2010 2011 2012 2013 2014 2015 Reservation Cancellation Fees remained relatively unchanged compared to previous years Q3 results, with changing passenger travel behavior accounting for marginal differences. Recovering passenger travel demand and more airlines unbundling a la carte services led to increased baggage fee and miscellaneous operating revenue resulted in a 16.7% increase in ancillary revenue in the third quarter of 2015. $1.0 $1.7
Airline Finances Net Profit/Loss 2015 vs. 2014 Carrier 2014 2015 $ 605 million $ 848 million $2,882 million $7,610 million $659 million $4,526 million $401 million $677 million $1,136 million $2,181 million $1,966 million $4,478 million CAD$105 million Not Yet Available CAD$284 million CAD$367.5 million All major North American carriers reported impressive profits in 2015 representing over half of the profits made worldwide. Profits were driven primarily by the continuing decline in fuel prices. Reduced passenger unit revenue due to foreign currency fluctuations and competition had little impact on U.S. legacy carriers bottom line. In Canada, WestJet reported a decline in 4 th quarter profit due to exchange rate fluctuations and Air Canada has not yet reported fourth quarter financials. Source: Airlines SEC Filings 15
Special thanks to Diio, BEA, DOT, FAA, and BTS for their contributions to this presentation. For comments or questions, please contact: Liying Gu Nelson Lam Joy Wu ACI-NA (202) 293-8500 lgu@aci-na.org nlam@aci-na.org jwu@aci-na.org