AIR SERVICE CHALLENGES Airports Of All Sizes: We Are Reaching An Inflection Point April 2016
So Many Questions So Few Immediate Answers We are entering a different period that will require a different mindset regarding the subject of air service It is time for economic development agencies and airports to work together like never before The days of air service because you have enough of a market to support a marginal air service market are nearing their end Often to no fault of the community. But taking air service for granted as we have for the past three decades are quickly coming to an end due to operational, strategic, economic and government induced actions WE ARE RAPIDLY APPROACHING AN INFLECTION POINT 1
Section 1 SOME AIRLINE AND AIRPORT FACTS
Airline Thinking Across The Current Business Cycle It has been established that this business cycle has not experienced the same rate of economic growth as have others The strategy the airlines employ of capacity discipline grows seats at less than the rate of growth in GDP We are starting to see growth in excess of GDP at the 60+ largest airports in the US but not at the smallest airports As airlines continue to re-invest in the product, more seats are finding their way into the domestic marketplace primarily as a result of using larger aircraft but not always at the smallest airports The significance of the regional carriers is being marginalized This contributes to capacity cutting at the smallest US airports 3
This Business Cycle Defines Capacity Discipline: Domestic seat growth that is less than growth in GDP 6% Year-over-year % Changes in U.S. GDP and Domestic Seat Departures 4% 2% 0% -2% -4% -6% YOY % Chg GDP YOY % Chg Domestic Seats -8% Source: US DOT T-100 database, via Diio online portal. BEA 4
For The First Time In This Business Cycle: Seats Are Growing Capacity discipline and schedule rationalization removed nearly 100 million seats U.S. Average Load Factor and Available Domestic Seat Departures Domestic Seats - Millions 1,000 900 800 700 600 500 400 300 Load Factor Domestic Seats 90% 80% 70% 60% 50% 40% 30% Load Factor 200 20% 100 10% 0 0% Source: US DOT T-100 database, via Diio online portal. 5
The Mix Of Capacity Growth Is Changing Prior to the run up in jet fuel, it was the regionals. Not today. 50% Monthly Change YOY 40% 30% 20% Regional ASM % Chg Mainline ASM % Chg 10% 0% -10% -20% -30% Source: US DOT, Form 41, via Diio online portal. 6
Smaller Airports Are Still Seeing Cuts In Service Albeit Less Large and medium hub airports showing growth - Scheduled Domestic Departures Millions 9 8 7 Large Medium Small Nonhub Airport Type % change in domestic flights ( 14-15) % change in domestic seats ( 14-15) 6 Large Hub 0.3% 4.0% 5 Medium Hub 1.0% 4.4% 4 3 2 1 0 2009 2010 2011 2012 2013 2014 2015 Small Hub -2.7% -0.1% Non-Hub and EAS -2.2% -0.3% All Smaller Airports -2.5% -0.2% All Airports -0.2% 3.5% Source: InterVISTAS analysis of Innovata schedules, via Diio online portal. 7
A Hard Fact: The 37:97 Proposition 37 percent of mainland airports produce 97% of demand Percent of Domestic Demand 3% Airports #151-427 97% Top 150 Airports Source: US DOT, DB1B database, YE3q 2015, via Diio online portal. 8
Section 2 WHERE ARE THOSE NEW SEATS GOING?
Where Are Those New Seats Going? In order to provide perspective on this idea, we analyzed the 427 mainland airports for changes in the number of frequencies and the change in the number of seats they receive Every airport wants to be in the upper right hand quadrant where an increase in both frequencies and seats is being realized. No airport wants to be in the lower left quadrant. In 2016 v. 2015: 211 of 427 airports will realize an increase in both frequencies and seats, or 49%. On the other hand 169 will realize both a decrease in frequencies and seats. Of the 64 small hub airports, 31, or 42% will receive an increase in frequencies and seats. 19, or 30%, will see a decrease in both Of the 194 non hub airports, 88, or 48% will receive an increase in frequencies and seats. 82, or 45%, will see a decrease in both. 10
All Airports All Carriers 2016 v. 2015 70 128 19 211 203 27 169 28 11
Large Hub Airports All Carriers 2016 v. 2015 11 16 4 23 2 0 1 1 12
Medium Hub Airports All Carriers 2016 v. 2015 11 16 1 23 2 0 4 0 13
Small Hub Airports All Carriers 2016 v. 2015 18 15 8 31 28 3 19 6 14
Non Hub Airports All Carriers 2016 v. 2015 22 58 6 82 107 7 88 18 15
Essential Air Service Airports All Carriers 2016 v. 2015 8 23 0 52 64 17 57 3 16
Section 3 WHICH CARRIERS ARE ADDING SEATS?
Which Carrier Are Adding Seats? For the small hub and non-hub cities reliant on the network carriers, it is Delta that is increasing the most airports with an increase in the number of frequencies and seats when comparing 2016 to 2015. They are followed by American and United. In the same vein it is United that is reducing frequencies and seats in the largest number of airports and Delta the least Southwest and jetblue are nearly split 50:50 in the number of airports where they are adding frequencies and seats and reducing the number of frequencies and seats Among the ULCCs, Allegiant shows a demonstrated move toward reducing the number of frequencies and seats to airports within its respective network. 18
All Airports Within Carrier Network Network Carriers 2016 v. 2015 119 237 53 376 276 18 174 47 19
All Airports Within Carrier Network 2016 v. 2015 5 52 4 47 31 0 34 3 20
All Airports Within Carrier Network 2016 v. 2015 1 50 0 17 65 0 99 0 21
At the End of the Day Airports do facilitate economic activity for communities of all sizes Assuming a community is looking to expand service or to simply retain what they have and they are being asked for some sort of financial support The simple question must be asked: does a perceived return on investment exceed the cost of making that investment? Opportunity Cost! Said another way: there just might not be sufficient funds in community coffers to pay for air service The highway is already the first access point to the air transportation grid for many.. Tomorrow it will be for more A very tough political question: should we be thinking regionally? 22
William S. Bill Swelbar Executive Vice President Albert Zhong Senior Consultant InterVISTAS Consulting Inc. 1150 Connecticut Avenue, NW Suite 601 Washington, DC 20036 P +1-202-688-2243 C +1-703-625-1130 Email: william.swelbar@intervistas.com www.intervistas.com