Transcript Document

Reformulating U.S. Aviation
John Heimlich — VP & Chief Economist, Air Transport Association of America
July 30, 2008
The Air Transport Association of America, Inc.
Combination Services (12)
All-Cargo Services (6)
Associate Members (3)
AirTran Airways
Alaska Airlines
American Airlines
Continental Airlines
Delta Air Lines
Hawaiian Airlines
JetBlue Airways
Midwest Airlines
Northwest Airlines
Southwest Airlines
United Airlines
US Airways
ABX Air
ASTAR Air Cargo
Atlas Air / Polar Air Cargo
Evergreen Int’l Airlines
FedEx Corporation
UPS Airlines
Air Canada
Air Jamaica
Mexicana
© ATA 2008 -- 2
The L.A. Metro Area is Not Immune from Service Cuts
Los Angeles (LAX)
Airlines
Weekly Flights
Destinations
Ontario (ONT)
Airlines
Weekly Flights
Destinations
Dec-07
Dec-08
Change
55
56
1
5,914
4,989
(925)
153
144
(9)
Dec-07
Dec-08
Change
11
9
(2)
867
575
(292)
34
17
(17)
Sources: Seabury APGDat airline schedules (July 25, 2008)
© ATA 2008 -- 3
For Whom the Bell Tolls
U.S. Airline Bankruptcies Since End of 2007 Include Numerous Shutdowns
Out of Business
MAXjet
Big Sky
Aloha
ATA
Skybus
Eos
Champion
Air Midwest
Vintage Props & Jets 1
ExpressJet 2
Last Day of Ops
25-Dec-07
7-Jan-08
31-Mar-08
2-Apr-08
5-Apr-08
27-Apr-08
31-May-08
30-Jun-08
18-Jul-08
2-Sep-08
1. Intends to re-launch operations should market conditions permit
2. Ceasing branded commercial operations only; will continue to fly as Continental Express
Continuing Operations
Frontier
Gemini Air Cargo
Ch. 11 Filing
11-Apr-08
18-Jun-08
Note: Oasis Hong Kong Airlines and Silverjet are among the non-U.S. airlines that have ceased operations
© ATA 2008 -- 4
EIA Sees Jet Fuel Prices Soaring in 2008 and 2009
Average Price of U.S. Jet Fuel per Barrel
$160
Jet Fuel Crack Spread
$140
24.93
25.28
Crude Oil (West Texas Intermediate)
Source: Energy Information Administration (www.eia.doe.gov/steo)
$120
$100
“The Stone Age did not end for lack of stone, and the Oil
Age will end long before the world runs out of oil.” (Sheikh
Zaki Yamani, former oil minister of Saudi Arabia, Oct. 23, 2003)
18.59
$80
16.69
15.91
$60
127.39
132.75
9.24
$40
7.45
4.93
5.39
$20
66.05
72.34
56.64
3.61
41.51
30.38
25.98
26.18
31.08
2000
01
02
03
$0
04
05
06
07
08F
09F
© ATA 2008 -- 6
Jet Fuel Prices Maintaining Premium to Soaring Crude Oil
Average Refining Crack Spread Fluctuating Around $30 per Barrel
$200
Jet: NY Harbor
$175
Crack Spread
Jet: Gulf Coast
Crude Oil (WTI)
$150
$125
$100
Sources: Energy Information Administration and ATA
31-Dec-08
11-Dec-08
21-Nov-08
1-Nov-08
12-Oct-08
22-Sep-08
2-Sep-08
4-Aug-08
7-Jul-08
6-Jun-08
8-May-08
10-Apr-08
12-Mar-08
12-Feb-08
14-Jan-08
13-Dec-07
14-Nov-07
17-Oct-07
19-Sep-07
21-Aug-07
24-Jul-07
25-Jun-07
25-May-07
29-Mar-07
1-Mar-07
31-Jan-07
$50
27-Apr-07
$75
2-Jan-07
Dollars per Barrel
Jet: Los Angeles
© ATA 2008 -- 7
Jet Fuel Maintaining Premium to Gasoline and Diesel
$45
Jet
Diesel
Gasoline
$40
$35
$30
$25-$30 Premium
$25
$20
$15
$10
$5
$0
Sources: Energy Information Administration Weekly Petroleum Status Report
31-Dec-08
1-Dec-08
1-Nov-08
2-Oct-08
2-Sep-08
21-Jul-08
6-Jun-08
24-Apr-08
12-Mar-08
29-Jan-08
13-Dec-07
31-Oct-07
19-Sep-07
7-Aug-07
25-Jun-07
11-May-07
29-Mar-07
14-Feb-07
($5)
2-Jan-07
Product Crack Spread (Dollars per Barrel)
Key Factors Include U.S. Ethanol Mandates and Global Demand for Middle Distillates
© ATA 2008 -- 8
2008 Jet Fuel Expense1 Will Break 2007 Record
Total Expense (Excluding Taxes and Into-Plane Fees) Could Exceed $61 Billion
70
Expense ($ Billions)
60
$61.2
Consumption (Billion Gals.)
Equivalent of 267,000 Airline Jobs2
or 286 New Narrow-body Jets3
1. U.S. passenger and cargo airlines
2. Based on $75K to employ one FTE
3. Based on approx. $70M per aircraft
50
$41.2
$38.5
40
$33.1
30
$22.7
20
$16.8
$15.5
$15.0
$12.8
10
2000
($0.81)
2001
($0.78)
2002
($0.71)
2003
($0.85)
2004
($1.16)
2005
($1.66)
2006
($1.97)
2007
($2.10)
2008F
($3.40)
Note: Value in parentheses below year is average price paid per gallon excluding taxes, into-plane fees, pipeline tariffs and hedging costs
Sources: ATA, Energy Information Administration, Department of Transportation
© ATA 2008 -- 9
Surging Fuel Expense Offsetting Labor Restructuring
For Passenger Airlines, Fuel CASM Has Overtaken Labor CASM
Labor
4.00
Fuel
3.75
3.50
3.25
3.00
2.75
2.50
2.25
2.00
1.75
1.50
1.25
Source: ATA Passenger Airline Cost Index
1Q09
1Q08
1Q07
1Q06
1Q05
1Q04
1Q03
1.00
1Q02
Unit Operating Cost (¢ per Available Seat Mile)
4.25
© ATA 2008 -- 10
Airlines Effectively Managing Controllable Costs
Carrier Cost Hikes Overwhelmingly a Function of Higher Fuel Prices
Total
Excl. Fuel
13
Excl. Fuel and Transport-Related*
12
11
(4-Week Moving Average)
10
9
8
Source: ATA Passenger Airline Cost Index
* Expenses incurred for providing air transportation facilities associated with the performance of service which
emanate from and are incidental to air transportation services performed by the carrier
4Q07
2Q07
4Q06
2Q06
4Q05
2Q05
4Q04
2Q04
4Q03
2Q03
4Q02
2Q02
4Q01
2Q01
7
4Q00
Operating Cost (¢) per Available Seat Mile
14
© ATA 2008 -- 11
Relative to 2000, Jet Fuel Prices Overwhelming Fares
Since 2000, Average U.S. Jet Fuel Price Up 265%, Domestic Fares Up 1%
Average U.S. Jet Fuel Price
Avg. Fare to Fly 1,000 Miles Domestically
(Cents per Gallon)
(U.S. Dollars, Excluding Govt. Taxes)
370
$160
$155
310
$150
250
$145
$140
190
$135
130
$130
1H08
2007
2006
2005
2004
2003
2002
2001
1H08
2007
2006
2005
2004
2003
2002
2001
2000
Source: U.S. Energy Information Administration
2000
$125
70
Source: ATA passenger revenue report (mainline + regionals)
© ATA 2008 -- 12
Ticket Prices* Lagging Fuel Prices in 2008
% Change Year-over-Year (January-June)
80
69.4
40
“It’s very difficult for airlines to simply raise prices to
levels that cover their higher fuel costs. Raising
prices chokes demand: If tickets get too expensive,
business travelers make alternate plans, pick
cheaper airlines or buy discounted tickets further in
advance. For vacationers, if prices get too high, they
don’t buy or they switch to cheaper destinations.
Airlines can price themselves right out of a sale.”
30
Scott McCartney, “What to Expect as Airlines Cope With
Soaring Fuel Costs,” Wall Street Journal (May 22, 2008)
70
60
50
20
10
7.0
7.5
Domestic Airfares*
International Airfares*
0
Jet Fuel Price
Source: EIA and ATA passenger revenue report
* Fares per mile flown, also known as passenger yield
© ATA 2008 -- 13
100
“[This] level of confidence is not only
consistent with a recession; it is
suggestive of a severe recession.”
95
90
Scott Hoyt, Director of Consumer Economics,
Moody’s Economy.com (June 27, 2008)
85
Key Factors:
Household debt
Declining stock prices
Declining U.S. dollar
Rising food prices
Rising energy prices
Rising unemployment
80
75
70
65
60
Source: University of Michigan via https://customers.reuters.com/community/university
Jan-09
Oct
Jul
Apr
Jan-08
Oct
Jul
Apr
55
Jan-07
U. Mich. Consumer Sentiment Index (Dec-64=100)
U.S. Consumer Sentiment at Lowest Level Since May 1980
© ATA 2008 -- 14
Portion of Ticket Needed to Buy Fuel Exceeds 40%
Airline Fuel Expense per Passenger-Mile Will Exceed 7 Cents in 3Q08
1Q08
2007
10%
2006
1.0
2005
15%
2004
2.0
2003
20%
2002
3.0
2Q08
25%
1Q08
4.0
2007
30%
2006
5.0
2005
35%
2004
6.0
2003
40%
2002
7.0
2001
45%
2000
8.0
2001
Fuel Cost as % of Passenger Revenue
2000
Fuel Cost (¢) per Passenger Mile
Source: ATA quarterly airline cost index, reflecting systemwide (domestic and international) operations
© ATA 2008 -- 15
“Special” Aviation Taxes/Fees* Add $18B Burden
Estimated Collections Shown in $Millions
Sources:
• Department of Homeland Security
• Federal Aviation Administration
• Office of Management and Budget
• Transportation Security Administration
$2,136
$574
$512
$18,005
$8,197
DHS Collections = $3.8B
$1,960
$573
$554
$265
$2,806
$428
AATF + LUST = $11.4B
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* Some taxes and fees shown include collections from non-U.S. carriers
Je
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TO
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© ATA 2008 -- 16
“It’s Only a Few Bucks per Passenger”
In “Deregulated” Era, ATA Member Airlines Average $1.76 Net Loss per Passenger
Airline Net Profit per Passenger Enplaned*
$4
$2
$1.49
$0.53
$0
($2)
1979-2007 Average = ($1.76) per pax
($4)
($6)
($8)
($9.12)
($10)
($10.89)
($12)
($14)
1979-1989
1990-2000
2001-2007
1Q08
* Based on ATA-member passenger airlines only for each respective year
Sources: ATA Annual Reports of the U.S. Airline Industry and carrier reports and www.acte.org/resources/press_release.php?id=307
© ATA 2008 -- 17
Soaring Fuel Prices Forcing Industry Contraction
Reduction in Domestic Route Frequency and Seating Capacity Reverses 2007 Trend
% Change in Dom. Service vs. 2007
0
(2)
(4)
(6)
(8)
(10)
(12)
1q08
2q08
3q08
4q08
1q09
Flights
(2.3)
(1.6)
(5.0)
(8.5)
(8.7)
Seats
(1.0)
(1.3)
(4.5)
(8.4)
(8.1)
ASMs*
(0.1)
(1.3)
(5.4)
(10.0)
(9.4)
* An available seat mile (ASM) is one seat flown one mile and is the standard unit of capacity in the passenger airline sector
Source: ATA analysis of Seabury APGDat airline schedules as of July 25, 2008
© ATA 2008 -- 18
Dozens of U.S. Station Closings Announced or
Implemented by Individual U.S. Airlines in 2008
AOO FKL
BFD JST
DUJ MDT
SCE
BLI
FAR
EUG
MFR
BFL
CLD
MCE
MRY
ELY
RNO
OAK
ONT
PSP
SAN
SBP
VIS
GRB
STE
CDC
CNY
VEL
IGM
PRC
TUS
YUM
GRI
MCK
DRO
MHK
SLN
OKC
FMN
ABI SAT
CRP SJT
MFE
ALB
ART
ISP
JFK
JHW
MSS
OGS
PBG
SLK
AZO
LAN
MKG
BDL
CMH
BMI
TOL
MDW
COU RFD
IRK
SDF
JLN
STL
BNA/CHA
TXK
TUP MGM
ANC
STT
PSM CEF
AHN
BWI
SHD
RDU
PVD
ACY
TTN
BKW
CKB
LWB
MGW
PKB
APF
DAB
FLL
GNV
PBI
PFN
RSW
SRQ
UST
© ATA 2008 -- 19
Few FAA “Large Hub” Airports Have Escaped Flight Cuts
% Change in Scheduled Domestic Departures: 4Q08 vs. 4Q07
(24)
SLC
SAN
PHL
SFO
MSP
DEN
EWR
JFK
SEA
ATL
MIA
IAD
DFW
BWI
LGA
ORD
PHX
CVG
HNL
(20)
LAX
MCO
(16)
MDW
LAS
(12)
TPA
IAH
(8)
FLL
(4)
BOS
0
DTW
DCA
Sources: Seabury APGDat airline schedules (July 25, 2008) and Federal Aviation Administration
CLT
4
(28)
© ATA 2008 -- 20
Few FAA “Medium Hub” Airports Have Escaped Flight Cuts
% Change in Scheduled Domestic Departures: 4Q08 vs. 4Q07
15
PVD
Sources: Seabury APGDat airline schedules (July 25, 2008) and Federal Aviation Administration
ANC
BUF
RSW
10
5
MCI
MKE
OAK
TUS
OGG
SMF
RNO
PIT
RDU
SJU
CMH
JAX
AUS
OMA
CLE
SJC
BDL
ABQ
SNA
BUR
MHT
PDX
ORF
BNA
STL
DAL
SAT
MSY
PBI
IND
HOU
MEM
0
(5)
(10)
(15)
(20)
(25)
(35)
ONT
(30)
(40)
© ATA 2008 -- 21
Soaring Fuel Prices Taking Heavy Toll on Airline Workers
U.S. Passenger Airline Jobs Will Fall Below 400,000 Before 2009
460
450
440
430
420
410
400
Source: U.S. Bureau of Transportation Statistics
Sep
May
2009
Sep
May
2008
Sep
May
2007
Sep
May
2006
Sep
May
2005
Sep
May
2004
Sep
May
390
2003
Thousands of Full-Time Equivalents (FTEs)
470
© ATA 2008 -- 22
U.S. Airlines Paying Transatlantic Premium for Jet Fuel
USD-Euro Exchange Rate Has Boosted Fuel Price Differential to Nearly 60%
USD Jet Fuel Spot Price
180
Euro Jet Fuel Spot Price
$55-65 Differential
160
Sources: Energy Information Administration (NYH/USGC/LA) and http://www.oanda.com/convert/fxhistory
140
120
100
80
60
40
12/1/2008
6/14/2008
12/27/2007
7/10/2007
1/21/2007
8/4/2006
2/15/2006
8/29/2005
3/12/2005
9/23/2004
4/6/2004
10/19/2003
5/2/2003
11/13/2002
5/27/2002
12/8/2001
6/21/2001
20
1/2/2001
U.S. Dollar (USD) Equivalents per Barrel
200
© ATA 2008 -- 23
The Transatlantic Blues
Equity Market Capitalization (Millions USD) on July 16, 2008
$9,933
$6,611
American
Continental
Delta
Northwest
United
US Airways
Lufthansa
AMR+CAL+DAL+NWA+UAUA+LCC
LHA:GR
Sources: Bloomberg (for Deutsche Lufthansa AG – LHA:GR) and MSN
© ATA 2008 -- 24
U.S. Carriers Suffer From Comparatively Weak Credit
Standard & Poor’s (S&P) Corporate Credit Ratings as of July 25, 2008
Investment
Grade
ABBB+
BBB
BBBBB+
BB
Speculative
BB
BBB+
B-
B-
B-
JetBlue
United
B-
US Airways
B-
American
B
AirTran
B
Northwest
B
Delta
Air Canada
JAL
Alaska
SAS
TAM
ANZ
ANA
BA
Lufthansa
QANTAS
Southwest
B
Continental
B+
© ATA 2008 -- 25
U.S. Airlines* Greener Than Ever
Fuel Efficiency Up 24% from 2000 to 2007 and 110% from 1978 to 2007
Revenue Ton Miles (RTMs) per Gallon
6.5
5.5
“[On]ce government creates an artificial scarcity of
carbon, how the credits are allocated creates a huge
new venue for political rent-seeking and more
subsidies for favored industries. Some businesses
will benefit more than others… Congress itself will
probably take the largest revenue grab, offering itself
a few more bites out of the economy and soaking
politically unpopular businesses.”
“McCain’s Climate ‘Market,’” WSJ (May 13, 2008)
6.11
5.76
4.94
4.5
3.84
3.5
2.92
3.06
2.5
1978
1980
1990
2000
2005
2007
* U.S. passenger and cargo airlines operating worldwide – passenger and cargo revenue ton miles (RTMs) in all services
Source: ATA analysis of DOT Form 41 traffic data (T2-Z240) and gallons (T2-Z921)
© ATA 2008 -- 26