MIT Airline Industry Recent Trend ICAT Update (November 2005)web.mit.edu/airlines/industry_outreach/board_meeting_presentation... · America West Frontier Southwest Frontier Net Profit

MIT ICATMIT ICAT

Airline Industry Recent Trend Update (November 2005)

Prof. R. John HansmanProf. R. John Hansman

With the help of the Faculty and Students of the MIT Global With the help of the Faculty and Students of the MIT Global Industry StudyIndustry Study

[email protected]@mit.eduTraffic Source: Sage Analysis courtesy Prof Ian Waitz

MIT ICATMIT ICAT RPK by Region

Scheduled Revenue Passenger-Kilometers by Region

0

200

400

600

800

1000

1200

1400

1970 1980 1990 2000 2010

RPK

(bill

ion)

North America

Europe

Asia andPacificLatin America& CaribbeanMiddle East

Africa

Data source: ICAO, scheduled services of commercial air carriers

MIT ICATMIT ICAT Freight Trends by Region

Freight Tonne-Kilometers by Region

0

10

20

30

40

50

60

1970 1980 1990 2000 2010

FTK

(bill

ion)

North America

Europe

Asia andPacificLatin America& CaribbeanMiddle East

Africa

Data source: ICAO, scheduled services of commercial air carriers

MIT ICATMIT ICAT

UpdatedOct 05

U.S. Domestic RPMs

Dom estic Traffic - RPMs (Billions)

20

25

30

35

40

45

50

Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec

Bill

ions

2000 2001 2002 2003 2004 2005

Source: ATA Monthly Passenger Traffic ReportData source: ATA, US member airlines, scheduled mainline service

MIT ICATMIT ICAT

U.S. Airline Load Factors 2000-2005

UpdatedOct 05

Domestic T raffic - Load Factor

55.0%

60.0%

65.0%

70.0%

75.0%

80.0%

85.0%

90.0%

Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec

2000 2001 2003 2004 2005

Source: ATA Monthly Passenger Traffic ReportData source: ATA, US member airlines, scheduled mainline service

MIT ICATMIT ICAT

U.S. Average Domestic Yield 2000-2005

UpdatedOct 05

10.00

11.00

12.00

13.00

14.00

15.00

16.00

Yiel

d (c

ents

/mile

)

2000 2001 2002 2003 2004 2005

Data source: ATA Monthly Airfare Report, 8 US major airlines excluding Southwest (WN).

MIT ICATMIT ICAT

0.65%

0.70%

0.75%

0.80%

0.85%

0.90%

0.95%

1.00%

1.05%

80 81 82 83 84 85 86 87 88 89 90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06

US Systemwide Passenger Revenue as % of GDP

Historical Band

Syst

emw

ide

Pass

enge

r Rev

enue

as

% o

f Nom

inal

GD

P*

≅ $30B

*Four-quarter rolling passenger revenue derived from government filings of major and national passenger airlinesSources: ATA Airline Cost Index; Bureau of Economic Analysis; U.S. Department of Transportation

ATA Analysis

MIT ICATMIT ICAT

U.S. Domestic Yield 2000-2005

UpdatedOct 05

Yield - Domestic (c per mile)

0

2

4

6

8

10

12

14

16

Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec

Yiel

d (c

per

mile

)

2000 2001 2002 2003 2004 2005

Data source: ATA Monthly Airfare Report, 8 US major airlines excluding Southwest (WN).

MIT ICATMIT ICAT

UpdatedOct 05

Atlantic Yield 2000-2005

Yield - Atlantic (c per mile)

6

7

8

9

10

11

12

13

14

Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec

Yiel

d (c

per

mile

)

2000 2001 2002 2003 2004 2005

Data source: ATA Monthly Airfare Report, 8 US major airlines excluding Southwest (WN).

MIT ICATMIT ICAT

UpdatedOct 05

Latin Yield 2000-2005

Yield - Latin (c per mile)

10

11

11

12

12

13

13

14

14

15

Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec

Yiel

d (c

per

mile

)

2000 2001 2002 2003 2004 2005

Data source: ATA Monthly Airfare Report, 8 US major airlines excluding Southwest (WN).

MIT ICATMIT ICAT

UpdatedOct 05

Pacific Yield 2000-2005

Yield - Pacific (c per mile)

6

7

8

9

10

11

12

Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec

Yiel

d (c

per

mile

)

2000 2001 2002 2003 2004 2005

Data source: ATA Monthly Airfare Report, 8 US major airlines excluding Southwest (WN).

MIT ICATMIT ICAT

US Airlines Net Profit Model Best Fit of Undamped Oscillation

Cycle Period = 11.3 yr eFolding Time = 7.9 yr

MIT ICATMIT ICAT

Airline Profits (Losses)

$(2 500)

$(2 100)

$(1 700)

$(1 300)

$(900)

$(500)

$(100)

$300

2000Q1 2000Q3 2001Q1 2001Q3 2002Q1 2002Q3 2003Q1 2003Q3 2004Q1 2004Q3 2005Q1

Net

Inco

me

(Los

s)

in

mill

ions

AmericanUnitedDeltaNorthwestContinentalSouthwestJetBlueAmerica WestAlaskaATAUS Airways

September 2001

Data source: Airline Financial Data, [airlines websites]

MIT ICATMIT ICAT

Profitable Air Carriers During 2005 Q2

Data source: Airline reports

$(1 500)

$(1 100)

$(700)

$(300)

$100

$500

2000Q1 2000Q3 2001Q1 2001Q3 2002Q1 2002Q3 2003Q1 2003Q3 2004Q1 2004Q3 2005Q1

Net

Inco

me

(Los

s)

in

mill

ions

American

Continental

Southwest

JetBlue

America West

Alaska

US Airways

MIT ICATMIT ICAT Cargo Operation Not Affected

$0

$400

$800

$1,200

$1,600

2000Q1 2000Q3 2001Q1 2001Q3 2002Q1 2002Q3 2003Q1 2003Q3 2004Q1 2004Q3

Net

Inco

me

in m

illio

ns

UPS FedEx

9/11 Attacks

SARSIraq War

West CoastDock Strike

Data source: Companies’ annual reports

MIT ICATMIT ICAT

Market Cap: US Majors, 07-Sep-2005

FLYi0.1%

Frontier2.0%

AirTran4.8%

Midwest Airlines0.2%

Alaska Airlines4.8%

American West Airlines

1.3%American Airlines

10.7%

Continental Airlines4.4%

Delta Air Lines1.0%

JetBlue Airways10.6%

Northwest Airlines1.5%

Southwest Airlines58.0%

US Airways0.1%

United Air Lines0.5%

Total Market Cap: $18.6 billionTotal Market Cap: $18.6 billion

Data source: Yahoo Finance.

MIT ICATMIT ICAT

Current Market Cap vs. RPM ShareUS Majors

FLYiFrontier

United

Southwest

NorthwestDelta

Continental

US Airways

JetBlue

American

American West

Alaska

Midwest

AirTran

0%

5%

10%

15%

20%

25%

0% 10% 20% 30% 40% 50% 60% 70%

Relative Market Cap 09/05

Ave

rage

Mon

thly

RPM

Sha

re(f

or th

e fir

st p

art o

f 200

5)

Source: Yahoo! Finance and airline traffic reports

MIT ICATMIT ICAT Chap 11 Bankruptcy

TWA06/1995-08/1995 and 01/2001-12/2001

US Air08/2002 – 03/2003 and 09/2004 – 09/2005

United12/2002 - present

Delta09/2005 - present

Northwest09/2005 - present

ATA10/2004 – present

MIT ICATMIT ICAT ASMs of the Top 11 US airlines

Source: Bureau of Transportation Statistics Schedule T-1 ASM Analysis data

0

100

200

300

400

500

600

700

800

900

1000

1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005

Bill

ions Total ASMs Bankrupt ASMs

Projected based on 2005 Q1 & Q2 results for the top 11 US airlines

TW TWUAUS

UAUS

UAUSTZ

UAUSDLNW

MIT ICATMIT ICAT

LCC Profitability

(20.0%)

(15.0%)

(10.0%)

(5.0%)

0.0%

5.0%

10.0%

15.0%

20.0%2000 2001 2002 2003 2004 1H05

FrontierSouthwest

MidwaySpirit

AirTran

AirTranJetBlue

SouthwestJetBlueAirTran

JetBlueVanguard America West

NationalVanguardMidway

SpiritATA

Independence

IndependenceATA

Spirit

ATA

FrontierSpirit

National

America WestATA

JetBlue

Spirit

ATA

America WestNational

VanguardMidway

SouthwestAirTran JetBlue

Southwest

America WestFrontier

ATA/SpiritFrontier

America West

Southwest

AirTranAmerica West

Frontier

SouthwestFrontier

JetBlue

Net

Pro

fit M

argi

n

Source: DOT Form 41 reports ATA Analysis

MIT ICATMIT ICAT

Low-Cost Carrier Envy (or not)Emergence of LCCs

Africa (2)1TimeKulula

Europe (60, 3 in 2004)Aer Arann Baboo Fare4U Sun Express Air 2000 Basiq Air German Wings SwedlineAir Baltic Bexx Air Germania Express ThomsonFlyAir Berlin BMI Baby Globespan V BirdAir Finland British European Hapag Lloyd Express Virgin Express Air Luxor Lite BudgetAir Hellas Jet VLM AirlinesAir Polonia Corendon Helvetic Airways VolareWeb Air Scotland Deutsche BA Iceland Express Windjet VolaAir Southwest EasyJet Ryanair Smart WingsAir Wales Evolavia Snalskjutsen Wizz AirAlpi Eagles Excel Airways SnowFlake Airlines HopAzzurra Air Fairline Austria Sterling

Asia/Pacific (20, 8 in 2004)Air Arabia Virgin Blue Air Asia Air BlueAir Deccan Air OneAthena Air Services BackpackersXpressCitilink JetstarFreedom Air Nok AirLion Airways Pacific BlueOne-Two-Go SkyAsiaSkymark Airlines Tiger AirwaysSkynet Asia Airways Spring

ValuAir

South America (3)BraGolU Air

Canada (7, 1 in 2004)CanJet WestjetHMY Airways ZipJetsGo Airlines Canada WestTango Airlines

USA (19, 4 in 2003/2004)AirTran Spirit AirlinesAllegiant Air Song American West Sun Country AirlinesATA USA 3000 AirlinesFrontier Airlines Vacation ExpressInterstate Jet TedJetBlue Airways Independence AirMidwest Express Virgin USAPan AmericanSoutheast AirlinesSouthwest Airlines

Total 111 LCCs, 17 started/to start in 2003/2005Source: http://www.etn.nl/lcostair.htm, airline news

MIT ICATMIT ICAT

America West - USAirwaysProposed Merger

MIT ICATMIT ICAT

America West - USAirwaysProposed Merger

MIT ICATMIT ICAT

America West - USAirwaysProposed Merger

MIT ICATMIT ICAT Trends in Fuel Price

Data source: ATA; U.S. major, national, large regional passenger and cargo airlines; all services

Sept 1st data: http://www.bloomberg.com/energy/

Average Crude Oil and Jet Fuel Prices

$0

$10

$20

$30

$40

$50

$60

$70

Jan-

86

Jan-

87

Jan-

88

Jan-

89

Jan-

90

Jan-

91

Jan-

92

Jan-

93

Jan-

94

Jan-

95

Jan-

96

Jan-

97

Jan-

98

Jan-

99

Jan-

00

Jan-

01

Jan-

02

Jan-

03

Jan-

04

Jan-

05

Cru

de O

il: S

pot P

rice

per B

arre

l

40¢

60¢

80¢

100¢

120¢

140¢

160¢

180¢

Jet Fuel: Price Paid per Gallon

Jet Fuel (R)

Crude Oil (L)

MIT ICATMIT ICAT

Increasing Jet Fuel Crack Spread

24.5

0

18.4

3

22.1

5

20.6

0

14.4

0

19.2

5 30.3

0

25.9

2

26.1

0

31.1

4

7.42

4.80

4.18

5.10

4.69 3.

67

4.91

4.34

3.55

3.13

7.49

5.56

3.63

5.90

9.28

14.7

255

.31

41.4

4

21.4

8

17.1

9

20.5

6

18.4

6

$0$5

$10$15$20$25$30$35$40$45$50$55$60$65$70$75

1990 91 92 93 94 95 96 97 98 99 2000 01 02 03 04 YTDSep-05Crude Oil Jet Crack

Source: Air Transport Association analysis of Energy Information Administration data

Ave

rage

Pric

e of

Fue

l ($/

Bar

rel)

MIT ICATMIT ICAT Fuel Efficiency

Fuel Efficiency

20

25

30

35

40

45

50

1980

1982

1984

1986

1988

1990

1992

1994

1996

1998

2000

2002

2004

Mile

s pe

r Gal

lon

Revenue Passenger Miles Available Seat Miles

Source: ATA data

MIT ICATMIT ICAT

US Airlines Net Profit Model Best Fit of Undamped Oscillation

Cycle Period = 11.3 yr eFolding Time = 7.9 yr

MIT ICATMIT ICAT

Airline Profits Adjusted for Constant Fuel Price

MIT ICATMIT ICAT

Employees Full Time: US Network Carriers 2001-2005

US Network Carrier Employees

0

20,000

40,000

60,000

80,000

100,000

120,000

2001 2002 2003 2004 2005

Empl

oyee

s (F

ull T

ime) American

United

Delta

Northw est

Continental

US Airw ays

Alaska

Source: US DOT

MIT ICATMIT ICAT

Employees Full Time: Low Cost Carriers 2001-2005

Low-Cost Carrier Employees

0

5,000

10,000

15,000

20,000

25,000

30,000

35,000

2001 2002 2003 2004 2005

Empl

oyee

s (F

ull T

ime)

Southw est

America West

JetBlue

AirTran

ATA

Frontier

IndependenceAirSpirit

Source: US DOT

MIT ICATMIT ICAT

Productivity Improvements Driving Cost ReliefNetwork Restructuring, Work Rules, Human Capital, Outsourcing, Technology

2,299

1,800

1,900

2,000

2,100

2,200

2,300

2,400

2000 2001 2002 2003 2004 1Q05Source: ATA Airline Cost Index for U.S. major and national passenger airlines

ASM

s pe

r FTE

(000

)—4-

QTR

Mov

ing

Ave

rage

MIT ICATMIT ICAT

POSITIVE VIEWS OF EMPLOYEE MORALE

0%

10%

20%

30%

40%

50%

60%

70%

12/00 12/01 12/02 12/03 12/04 09/05

Source: The Wilson Center for Public Research, Inc. – based on 150,674 interviews conducted with pilots or flight attendants from 1/1/2001 to 9/20/2005

MIT ICATMIT ICAT

Pension Obligations at the end of year 2004

0

2

4

6

8

10

12

14

16

United

DeltaAmeri

can

Northwes

tContin

ental

US Airw

ays

Southwest

JetB

lueAmeri

ca W

estAlas

ka A

irlines

Pen

sion

Obl

igat

ion

($ B

illio

ns)

Source: Airlines Annual Financial Reports (US airways (successor company) figure corresponds to year 2003)

MIT ICATMIT ICAT Retirement Benefits Paid in 2004

0

200

400

600

800

1000

1200

1400

Delta

United

America

nNorth

west

Southwest

US Airw

ays

Continen

talAlas

ka A

irlines

JetB

lueAmeri

ca W

est

Retir

emen

t Ben

efit

Pai

d in

200

4 ($

Mill

ions

)

Source: Airlines Annual Financial Reports (US airways (successor company) figure corresponds to year 2003)

MIT ICATMIT ICAT Retirement Plan Terminations

Summary of US and United Plan Terminations

($ in billions)

US Airways

United Airlines

Total Termination Liability $7.9 $16.8

Assets $2.9 $7.0

Unfunded Termination Liability $5.0 $9.8

PBGC Guaranteed Portion of Underfunding $2.9 $6.6

Value of Lost Benefits $2.1 $3.2

Lost Benefits as % of Total Term. Liability 26.58% 19.05%

Delta and NWA Chap 11 filings estimated at $16B Liability

Source: Subcommittee on Aviation Hearing on Airline Pensions: Avoiding Further Collapse, also NYT http://www.house.gov/transportation/aviation/06-22-05/06-22-05memo.html

MIT ICATMIT ICAT Safety Trend

Source: Boeing Statistical Abstract

MIT ICATMIT ICAT Safety Trend

Source: Boeing Statistical Abstract

MIT ICATMIT ICAT 2005 Fatal Accidents

Date Aircraft Operator Fatalities Location Desription

4-FebBoeing 737-200 Kam Air 104 Afghanistan

CFIT Approach Snow

3-Aug Airbus A.340

Air France 0 Canada Weather Overrun

15-Aug Boeing 737-300

Helios Airways

121 Greece Decompression

17-Aug MD-80 West Caribbean Airways

160 Venezuela Dual Flame Out Fuel?

24-Aug Boeing 737-200

TANS 40 Peru Approach Weather?

6-Sep Boeing 737-200

Mandala Airlines

102 Indonesia Initial Cimb

23-Oct Boeing 737-200

Bellview Airlines

117 Nigeria Enroute

Source: aviation-safety.net

MIT ICATMIT ICAT

Blacklist ControversyAugust 2005

France Air Koryo (North Korea)Air Saint Thomas (US)International Air Services (Liberia)Lineas Aer de Mozambique (Mozambique)Phuket Airlines (Thailand)

Belgium Africa Lines (Republic of Central Africa)Air Memphis (Egypt)Air Van Airlines (Armenia)Central Air Express (Democratic Republic of Congo)I.C.T.T.P.W. (Libya)International Air Tours Limited (Nigeria)Johnsons Air Limited (Ghana)Silverback Cargo Freighters (Rwanda)South Airlines (Ukraine)

FAA Position (IASA) Assessment by CountryCategory 1 (meet ICAO Standards)Category 2 (does not meet ICAO Standards)

MIT ICATMIT ICAT

US Flight Delays US Flight Delays

from 1995 to 2005from 1995 to 2005

Source: FAA OPSNET data

MIT ICATMIT ICAT

US Flight Delays US Flight Delays

from 2000 to 2005from 2000 to 2005

Source: FAA OPSNET data

MIT ICATMIT ICAT Flight Cancellations

0

50

100

150

200

250

1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004

Thou

sand

sCa

ncel

latio

ns

Source: BTS, Airline On Time Performance data

MIT ICATMIT ICAT Consumer Complaints

0

5

10

15

20

25

1980

1982

1984

1986

1988

1990

1992

1994

1996

1998

2000

Com

plai

nts t

o th

e D

OT

(000

)

SouthwestUSAirwaysUnitedTWANorthwestAmerica WestDeltaContinentalAlaskaAmerican

2002

2004

Note: Year 2005 consumer complaints is an extrapolation using data from Jan-Mar 2005

Data source: DOT Aviation Consumer Protection Division, available at: http://airconsumer.ost.dot.gov/

Air Traffic Controller Staffing

ATO Hiring Forecast vs. Losses

Time to CPC (Certified Professional Controller)Terminal; 8 - 24 monthsEnroute: 36 - 60 Source: Air Traffic Controller Workforce Plan - 2004

MIT ICATMIT ICAT

Projected % Developmental Controllers

From: ATCS Workforce Plan Briefing

MIT ICATMIT ICAT

Trends in Aircraft Size

80

100

120

140

160

180

200

220

1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005

Ave

rage

sea

ts p

er d

epar

ture

Domestic

International

Total

Data source: Form 41 Traffic data from Bureau of Transportation Statistics (includes Regional Jets and Turboprops)

MIT ICATMIT ICAT

U.S. Regional Jet GrowthSlowing

0

200

400

600

800

1000

1200

140019

95Q

1

1995

Q3

1996

Q1

1996

Q4

1997

Q2

1997

Q4

1998

Q2

1998

Q4

1999

Q2

1999

Q4

2000

Q2

2000

Q4

2001

Q2

2001

Q4

2002

Q2

2002

Q4

2003

Q2

2003

Q4

CRJ900CRJ700CRJ200CRJ100EMB135EMB145BAE145

Source: FAA registration data from 1995 until the present

MIT ICATMIT ICAT Most Common Regional Jets

CRJ 200 (50 seats)ERJ 145 (50 seats)

CRJ 200 Production on

holdAbout 400 aircraft in national fleetAbout 2000 daily flights in January 2003

About 400 aircraft in national fleet

About 1500 daily flights in January 2003

MIT ICATMIT ICAT RJ-NB Boundary Blurred

1000

1200

1400

1600

1800

2000

2200

2400

20 40 60 80 100 120 140 160

A/C Seats

Ran

ge

(nm

)

ERJ170

CRJ200

ERJ145

CRJ700

ERJ190

CRJ900

B735/6 B737

DC-9

Regional JetsRegional Jets New AircraftNew Aircraft

A318

B717 MD-80

MD-90

NarrowNarrow--bodybody

A319

Source: based on manufactures’ a/c specifications. Full pax range of standard version

MIT ICATMIT ICAT

World Population Distribution & 2004 Air Transportation Activity

North America36% Pax26% Cargo~160 Airlines~4100 Airports

Latin America/Caribbean4% Pax3% Cargo~50 Airlines~580 Airports

Europe27% Pax27% Cargo~200 Airlines~2400 Airports

Africa2% Pax2% Cargo ~20 Airlines~300 Airports

Asia/Pacific27% Pax36% Cargo~80 Airlines~1800 AirportsMiddle East

4% Pax6% Cargo~20 Airlines~230 Airports

Data source: Population: [URL:http://www.ciesin.org/datasets/gpw/globldem.doc.html]Air Transport: ICAO, R. Schild/AirbusPassenger and freight traffic represent RPK and FTK share in 2004