Transcript Document

Coping With Sky-High Jet Fuel Prices
Air Transport Association of America
April 22, 2008
The Word on the Street
“Should current fuel prices persist, the impact on industry profitability
is expected to rival – if not exceed – that of the 9/11 terrorist attacks.…
While it may sound callous to frame fuel’s rapid ascent against the far
greater tragedy of 9/11, the math is indisputable – at current fuel
prices, a similar attack on the industry's profitability appears
underway….”
“Unless fuel prices rapidly retreat, it stands to reason that additional
carrier bankruptcies cannot be ruled out. After all, no recession since
the industry deregulated has failed to include the bankruptcy of at
least one – more typically, several – carriers of size.”
(J.P. Morgan Securities North America Corporate Research, Apr. 15, 2008)
© ATA Apr-08 -- 2
Recent U.S. Airline Shutdowns, Bankruptcies
U.S. Airline
MAXjet
Big Sky
Aloha
ATA
Skybus
Champion
Last Day
12/25/07
1/7/08
3/31/08
4/2/08
4/5/08
5/31/08
U.S. Airline
Frontier
Ch. 11 Filing
4/11/08
Source: http://www.airlines.org/economics/specialtopics/USAirlineBankruptcies.htm
© ATA Apr-08 -- 3
$18B “Special” Aviation Taxes Hinder Fuel Pass-Through
$18 Billion in Aviation Excise Tax/Fee Collections Estimated for 2007*
$20,000
Sources:
• Department of Homeland Security
• Federal Aviation Administration
• Office of Management and Budget
• Transportation Security Administration
Estimated Annual Collections ($Millions)
$18,000
$512
$574
$18,005
$2,136
$16,000
$8,197
$14,000
$12,000
$10,000
DHS Collections = $3.8b
$8,000
$6,000
$4,000
$1,960
$428
$265
$554
$573
$2,806
AATF + LUST = $11.4b
$2,000
+
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*Some taxes and fees shown include collections from non-U.S. carriers
© ATA Apr-08 -- 4
Govt. Taxes/Fees on a $300 Ticket* Have Nearly Tripled
Uncle Sam’s Bite Up Sharply Over Three Decades
1972
Taxes = 7% ($22)*
Airfare
Taxes
1992
Taxes = 13% ($38)*
Airfare
Taxes
2008
Taxes = 20% ($60)*
Airfare
Taxes
*Sample itinerary assumes one-stop domestic round trip with maximum passenger facility charge (PFC) per airport; $300 total price includes taxes and fees.
© ATA Apr-08 -- 5
Jet Fuel Prices Soaring – Only Partly on Soaring Crude
Crack Spread Has Returned to Hurricane Levels: Far Above $5 Historical Norm
$130
Crack Spread
$120
Jet Average
$110
Crude Oil
$100
$90
$80
$70
$60
$50
$40
$30
$20
$10
Sources: U.S. Energy Information Administration and the Air Transport Association of America
Jan-08
Jan-07
Jan-06
Jan-05
Jan-04
Jan-03
Jan-02
Jan-01
Jan-00
Jan-99
Jan-98
Jan-97
Jan-96
Jan-95
Jan-94
Jan-93
Jan-92
Jan-91
$0
Jan-90
Average Monthly Price per Barrel
$140
© ATA Apr-08 -- 6
2008 Jet Fuel Prices on a Rampage
Jet Hits $156.66 per Barrel in NYH, Exacerbated by Heating Oil Shortfall
$170
Jet: NY Harbor
$150
Jet: Gulf Coast
Jet: Los Angeles
$140
Crude Oil (WTI)
$30-$44
crack spread
$160
$120
$110
$100
$90
$80
$70
$60
$50
Sources: U.S. Energy Information Administration and ATA
3-Dec-08
24-Oct-08
14-Sep-08
5-Aug-08
26-Jun-08
8-May-08
12-Mar-08
14-Jan-08
14-Nov-07
19-Sep-07
24-Jul-07
25-May-07
29-Mar-07
31-Jan-07
1-Dec-06
4-Oct-06
8-Aug-06
9-Jun-06
12-Apr-06
14-Feb-06
15-Dec-05
18-Oct-05
22-Aug-05
24-Jun-05
28-Apr-05
2-Mar-05
$40
3-Jan-05
Dollars per Barrel
$130
© ATA Apr-08 -- 7
Refinery Utilization at Lowest Level Since Katrina/Rita
U.S. Refineries Adjusting to Lower Gasoline Margins
96
94
92
90
88
86
84
82
80
78
76
Key Factors:
U.S. motorist demand easing
Europe wants diesel, exports gas
U.S. ethanol mandates
U.S. refinery configuration
Source: Energy Information Administration
74
72
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Utilization of Refinery Operable Capacity (%)
98
© ATA Apr-08 -- 8
2008 Jet Fuel Expense1 Will Break 2007 Record
Average Price Paid per Gallon Could Conceivably Exceed $3.00
Billions
70
Expense ($)
$59.5
60
50
Consumption (Gals.)
1. U.S. passenger and cargo airlines
2. Based on $75K to employ one FTE
3. Based on approx. $70M per aircraft
$41.2
$38.5
40
$33.1
30
$22.7
20
$15.2
$16.4
$14.8
2000
($0.81)
2001
($0.78)
$12.7
10
0
2002
($0.71)
2003
($0.85)
2004
($1.16)
2005
($1.66)
2006
($1.97)
2007
($2.10)
2008F
($3.05)
Sources: Air Transport Association, Energy Information Administration, Department of Transportation
© ATA Apr-08 -- 9
From 2000 to 1Q08, Jet Fuel Prices Overwhelming Fares
Jet Fuel Up 217%, Domestic Fares Down 0.5%
Source: U.S. Energy Information Administration
1Q08
2007
2006
$125
2005
70
2004
$130
2003
110
2002
$135
1Q08
150
2007
$140
2006
190
2005
$145
2004
230
2003
$150
2002
270
2001
$155
2000
310
2001
Avg. Fare to Fly 1,000 Miles Domestically
(U.S. Dollars, Excluding Govt. Taxes)
2000
Average U.S. Jet Fuel Price
(Cents per Gallon)
Source: ATA passenger revenue report (mainline + regionals)
© ATA Apr-08 -- 10
Fuel Has Become Cheaper for European Competitors
Exchange Rate Has Widened Price Differential to $40/bbl or 37%
115
105
USD WTI Crude Spot ($/bbl)
105
95
Euro WTI Crude Spot (€/bbl)
95
85
85
Source: Bloomberg WTI Crude NYMEX 1st Nearby Price (USD / Euro)
4/2/08
1/2/08
10/2/07
7/2/07
4/2/07
1/2/07
10/2/06
7/2/06
4/2/06
1/2/06
10/2/05
7/2/05
4/2/05
1/2/05
10/2/04
7/2/04
4/2/04
15
1/2/04
15
10/2/03
25
7/2/03
25
4/2/03
35
1/2/03
35
10/2/02
45
7/2/02
45
4/2/02
55
1/2/02
55
10/2/01
65
7/2/01
65
4/2/01
75
1/2/01
75
Euros per Barrel
Dollars per Barrel
115
© ATA Apr-08 -- 11
A Transatlantic Comparison
Equity Market Capitalization on April 17, 2008
Market Capitalization (Billions USD)
$14
$12.5
$12.8
AA+CO+DL+NW+UA+US
Lufthansa
$12
$10
$8
$6
$4
$2
$0
Sources: Bloomberg and MSN
© ATA Apr-08 -- 12
Airline* Fuel Efficiency Has More Than Doubled
22.0
6.5
Source: ATA analysis of DOT Form 41 traffic data (T2-Z240) and DOT monthly fuel consumption
20.5
19.0
6.0
Gallons
5.5
RTMs per Gallon
17.5
5.0
16.0
4.5
14.5
4.0
13.0
3.5
11.5
3.0
10.0
2.5
1978
1980
1990
2000
2005
Average Fuel Efficiency (RTMs per Gallon)*
Jet Fuel Consumption (Billions of Gallons)*
* U.S. passenger and cargo airlines operating worldwide – cargo revenue ton miles (RTMs)
2007
© ATA Apr-08 -- 13