airline industry trend update - mit
TRANSCRIPT
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Airline Industry Trend Update
Prof. R. John HansmanProf. R. John Hansman
With the help of the Faculty and Students of the MIT GlobalWith the help of the Faculty and Students of the MIT GlobalWith 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 * Presentation for Educational Use Only
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Revenue Passenger Kilometers (RPK) by World Regiony g
Data source: ICAO for 1970 to 2009
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Freight Tonne Kilometers (FTK) by World Regiony g
Data source: ICAO for 1970 to 2009
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Relationship Between Economy and Air Transportationand Air Transportation
Direct / Indirect / Induced employment effects
Economy Economic Enabling Effect(Access to people / markets / ideas / capital)
Demand SupplyPricing & SchedulePricing & Schedule
Travel/FreightNASC bilit
AirlinesRevenue/ProfitabilityRevenue/ProfitabilityFinancial Equity/
/ gNeed Capability
Debt Markets
Air Transportation System
Vehicle Capability
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Correlation Between US GDP and Passenger Trafficand Passenger Traffic
Recession
Data source: RPMs: Bureau of Transportation Statistics, (BTS) for 1965 to 2008 and May 2009-May 2008 year-over-year data for 2009 (source: Dallas News)GDP: US Bureau of Economic Analysis through Q1 2009Recession data: National Bureau of Economic Research
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Air Transportation Markets2004 Data2004 Data
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Macro Scale DriversUS Airline Net ProfitUS Airline Net Profit
Cyclic Industry with Exponential Growth In Volatility Since DeregulationCyclic Industry with Exponential Growth In Volatility Since Deregulation
DeregulationDeregulation
Data source: ATA Annual Revenue and Earnings - Net Profit and Loss
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U.S. Airlines Net Profit Best Fit of Undamped Oscillation –
Cycle Period 11 3 yrCycle Period = 11.3 yr
ATA data
Airline Quarterly Financial Reports
2010 Q1(9 major airlines)*
* Note: 2010 data airlines include: American Airlines, United Air Lines, Delta Air Lines, Northwest Airlines, Continental Airlines, US Airways, Southwest Airlines, JetBlue Airways, Alaska Airlines
Data source: ATA - available at: www.airlines.org (accounting for 89 airlines) & Airline Quarterly Reports (Net Profits and Losses Exclude Special Items)
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World Airlines Net Profit
Historical data
Data source: ICAO data (1978 to 2008) and IATA (2009-2010) Forecast from March 2010
IATA (Forecast)
Note: IATA represents 250 airlines comprising 94% of the international scheduled air traffic
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World Airlines Net Profits vs. Aircraft DeliveriesAircraft Deliveries
Phase Lag between Airline Net Profits & Aircraft Deliveries: Hypothesize that instability driven by capacity response phase lag
Data source: ICAO data (Profit) and SpeedNews data (Aircraft deliveries)
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U.S. Domestic ASMs and RPMsRPMs
ASMs
RPMs
Data source: ATA for 1970-2009, "U.S. Airlines“ defined as U.S. Department of Transportation (DOT) in Form 41 Financial and Traffic Reports (total of 89 airlines).
Note: Data for 2010 - Jan to Feb. - from DOT Form 41 available from BTS – Projected to full year 2010 based on Jan-Feb. data
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Load Factor TrendsUS DomesticUS Domestic
Data source: ATA for 1970-2008, "U.S. Airlines“ defined as U.S. Department of Transportation (DOT) in Form 41 Financial and Traffic Reports (total of 89 airlines).
Note: Data for 2009 - Jan to May - from DOT Form 41 available from BTS
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Historic Yield by Region
Domestic
LatinLatin
PacificAtlantic
Data source: ATA Passenger Yield Report. Data through March 2010
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U.S. Airline Quarterly Profits
Data sources: Airline Quarterly Reports (Net Profits and Losses Include Special Items)
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Market Cap: US Majors October 28th 2010October 28 2010
Data source: Google Finance.
Total Market Cap: $ 43 billionTotal Market Cap: $ 43 billion
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RPM Share vs. Market Cap (RPMs: Oct 2010 - Market Cap: Oct 28th 2010)(RPMs: Oct 2010 Market Cap: Oct 28 2010)
Data Source: Google Finance for Market Cap data and Bureau of Transportation Statistics for RPM data
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Market Cap: US Majors 26-May-200526 May 2005
$$Total Market Cap: $21.2 billionTotal Market Cap: $21.2 billion
Data source: Yahoo Finance
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Consolidation Trend
Recent US ConsolidationS th t d Ai T ( di ) Southwest and AirTran (pending)
United and Continental (approved) Delta and Northwest (Oct 09) USAir and America West
P t ti l f Additi l R ti M Potential for Additional Reactionary Moves
Recent International Consolidation Lufthansa and Austrian Air France and KLM Air France and KLM Air France/KLM and Alitalia (25% ownership) Lufthansa and Swiss China Southern and China Northern and Xingiang Cathy Pacific and Dragon Cathy Pacific and Dragon BMI and Lufthansa
International Strategic Investment in US Carriers Lufthansa and JetBlueLufthansa and JetBlue Virgin and Virgin America
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EU-US Open Skies Agreement
On April 30, 2007 E.U. and U.S. signed a preliminary Open Skies accord Allows EU airlines to operate direct flights between U.S. and any EU country
(and some others) Allows U.S. airlines reciprocal right, and ability to fly between EU city-pairs Agreement will replace 22 bilateral air service agreements currently in place
b h U S d h M b Sbetween the U.S. and the Member States Implications for Alliance Anti-Trust Immunity In effect March 30, 2008
E.U. has made liberalized foreign control a prerequisite for a permanent agreement
o U.S. domestic market lucrative as standalone and hub-feeder Cabotage rights only granted to U.S. Incorporated airlinesg g y g p U.S. incorporation requires meeting ownership caps Without control, network composition cannot be shaped
o Match EU’s 49% foreign control restriction
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Airline Alliances US DOT Antitrust Immunityy
Star Alliance Adria Airways (JP) Aegean Airlines (A3)
Oneworld American Airlines (AA)
SkyTeam Aeroflot (SU)
Aegean Airlines (A3) Air Canada (AC) Air New Zealand (NZ) ANA (NH) Asiana Airlines (OZ) Austrian Airlines (OS) Blue1 (KF)
British Airways (BA) Cathay Pacific (CX) Finnair (AY) Iberia (IB) Japan Airlines (JL)
Aeroméxico (AM) Air Europa (UX) Air France (AF) Alitalia (AZ) China Southern Airlines (CZ)
C h Ai li (OK)Blue1 (KF)
bmi (BD) Brussels Airlines (SN) Continental (CO) NEW Croatia Airlines (OU) LOT Polish Airlines (LO) Lufthansa (LH)
LAN (LA) Malév (MA) Mexicana (MX) Qantas (QF) Royal Jordanian (RJ)
Czech Airlines (OK) Delta (DL) Kenya Airways (KQ) KLM (KL) Korean Air (KE)
TAROM (RO)( )
SAS (SK) Shanghai Airlines (FM) Singapore Airlines (SQ) South African (SA) Spanair (JK) Swiss Intl Air Lines (LX)
TAROM (RO) Vietnam Airlines (VN)
TAM Airlines (JJ) TAP Portugal (TP) Thai Airways Intl (TG) Turkish Airlines (TK) United (UA) US Airways (US)
Prior Immunity
Immunity Application In Progress or Recently Approved
Data Source: Wikipedia, BTN Online
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Crude Oil and Jet Fuel Price TrendsTrends
Data sources: ATA Fuel Cost and Consumption (oil data through Mar. 2009, jet fuel data through Aug. 2009) – Data for June 2009: market price for Oct 24th 09
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Fuel and Labor Unit Cost TrendsUS DataUS Data
Labor
Fuel
Data source: ATA U.S. Airline Cost Index,
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Upward Trend in Ancillary Revenues(20 largest US Carriers)( g )
Source: BTS Form 41 schedules P-12 and T-2 for the 20 largest U.S. airlinesAncillary revenue includes only: baggage fees, reservation change fees and miscellaneous operating revenue (the method used by the BTS)Revenue from seating assignments and on-board sales of food, drink, pillows, blankets, entertainment, or any other ancillary items is NOT included
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Proportion of Revenue from Ancillary Sources(20 largest US Carriers)( g )
Source: BTS Form 41 schedules P-12 and T-2 for the 20 largest U.S. airlinesAncillary revenue includes only: baggage fees, reservation change fees and miscellaneous operating revenue (the method used by the BTS)Revenue from seating assignments and on-board sales of food, drink, pillows, blankets, entertainment, or any other ancillary items is NOT included
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Trends in Ancillary Revenue Breakdown (20 largest US Carriers)( g )
Source: BTS Form 41 schedules P-12 and T-2 for the 20 largest U.S. airlinesAncillary revenue includes only: baggage fees, reservation change fees and miscellaneous operating revenue (the method used by the BTS)Revenue from seating assignments and on-board sales of food, drink, pillows, blankets, entertainment, or any other ancillary items is NOT included
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Labor Productivity TrendsUS DataUS Data
Data Source: ATA US Airline Cost Index: Major & National Passenger Carriers, Q2 2010
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Electronic Distribution and Processing Processing
Airline Tickets #1 Web Product by Value Browser 1st page effect on marketing
Increase in e-Tickets Cost Savings Charge for Paper Tickets Interlining of e-Tickets Domestic 40% in 2005 to 97% in 2008
IATA Only e-tickets after June 1 2008 94% of Intl Passengers94% of Intl Passengers
CAPPS II
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Increased Price Transparency
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USAir 154915 - Jan - 200915 Jan 2009
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Colgan Air 12 – Feb - 200912 Feb 2009
Crew IssuesTrainingCommuting and FatigueCompensation ($16K - $20K)Compensation ($16K $20K)Professionalism
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Regional Airline Trends
Increasing Coverage in Domestic MarketsDomestic Markets
US Example 50% Departures 25% Passengers 25% Passengers Sole service (400
communities)
Increasing Safety ScrutinityIncreasing Safety Scrutinity
NTSB Hearing (Oct 2010) Congressional & Media
PressurePressure Training and Crew Rest
Actions
Implications for Code Share Implications for Code Share Partners
Source: AP DataSource: BTS: T-100 Domestic Market and Domestic Segment
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Air France 44727 - Aug - 200927 Aug 2009
Source: BBC
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Yemenia 62630 – June - 200930 June 2009
Airbus A310-300
19 ear old airframe A i t 19 year old airframe
152 Fatalities, 1 Survivor
Night approach to runway 20
Approximate accident location
Good visibility
Complex “circling” approach
Wind from SouthGusting up to 38 kt.
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Ethiopian Airlines 40925 - Jan - 2010
90 fatalities
Boeing 737-800
8 year old airframe
Contact lost at 9000ft shortly Contact lost at 9000ft, shortly after departure from Beirut International Airport
Thunderstorm activity in the area
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Afriqiyah Airways 77112 - May - 201012 May 2010
103 fatalities, 1 survivor
A330-200
Airframe < 1year old
Crashed on approach to Tripoli Crashed on approach to Tripoli international airport
Poor visibility (dust/mist) on approach?
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Airblue 20228 July 201028 July, 2010
152 fatalities
A-321-231
Islamabad, Pakistan
CFIT on circling approach
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Security (Passenger)
Overall security processes have increased Some efficiency improvements
TSA W kf i TSA Workforce issues
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Security (Cargo)
Yemen Bomb Plot (9/28/10 UPS (East Midlands) and FedEx (Dubai) Aircraft Involved Re-evaluation of 9/3/10 UPS (Dubai) Take-off Accident Re-evaluation of 9/3/10 UPS (Dubai) Take-off Accident
Implications for Air Cargo Security Requriements 100 % Belly Freight Screen (August 2010) Certified Shipper Programs at Risk Certified Shipper Programs at Risk Potential for 100% Screen Requirement Lack of standard international procols
Need to Balance Real vs Perceived Risk Need to Balance Real vs Perceived Risk
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Flight Delay TrendsUS DataUS Data
Data source: FAA Operational Network (OPSNET)
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Flight Cancellationsfrom 2000 to 2010 (by month)from 2000 to 2010 (by month)
Data Source: DOT, Air Travel Consumer Report, http://airconsumer.ost.dot.gov/ & BTS On Time Performance data
(top 11 airlines from 2000 to 2002, top 20 airlines from 2003 to 2009)
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Tarmac Delay Rule
Fine of up to $27,000 per passenger delayed more then 3 hours
Rule effective 29th April 2010
American, Continental, Delta, JetBlue and U.S. Airways all d i d ti f th l t JFKdenied exemptions from the rule at JFK
Longest runway at JFK closed May-June 2010, putting strain on operations at that airport
Not clear that airlines have the power to resolve the long-delay issue on their own
Reducing long delays will require the cooperation of all Reducing long delays will require the cooperation of all stakeholders in the air transportation industry
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JFK Runway Closure
8
9
10
res
ATL
ORD
5
6
7
8
op
20
Dep
artu
r
DFWLAXDEN
IAHCLTPHX PHLDTW
2
3
4
5
erce
nta
ge
of
To CLTPHX PHLDTW
LASMSP JFKEWR
LGABOSSFO
IADSLC
MCO
1 2 3 4 5 6 7 8 9 10
1
Percentage of Top 20 Taxi-out Fuel Burn
Pe
Source: H Balakrishnan
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New York Airport Flight Delays* from 1995 to 2009from 1995 to 2009
* Note: 12 month moving average
Data source: FAA Operational Network (OPSNET)
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Eyjafjallajökull Eruption
Allowable Ongoing refinement to procedures for Allowable
volcanic ash concentration raised from 0
to procedures for operating in ash
•May 17th UK CAA approves 0.004 g/m^2 limit
to 0.002 g/m2
No ash impact
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Long Term Plans for System TransformationTransformation
Common recognition that existing US and European ATM systems will not scale to meet future demand
Reflected in major long term initiatives US NextGen Europe SESAR Europe SESAR
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NextGen Implementation Plan
Focus on first phase of NextGen Transition to 2018NextGen Transition to 2018
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NextGen-SESARCNS Technologies g
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Trends in Aircraft Size U.S. Airlines
Data source: Form 41 Traffic data from Bureau of Transportation Statistics (US carriers)
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RJ-NB Boundary Blurred
2400Regional JetsRegional Jets New AircraftNew Aircraft NarrowNarrow--bodybody
2000
2200
ERJ170 ERJ190B735/6 B737
1800
2000
ng
e (n
m)
CRJ200
CRJ700CRJ900
MD-90
A319
1400
1600Ran
ERJ145A318
B717 MD-80
1000
1200 DC-9
Source: based on manufactures’ a/c specifications. Full pax range of standard version
20 40 60 80 100 120 140 160
A/C Seats
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New Aircraft Types
Embrear EMB-190671 delivered, 215 firm, 747 options
Boeing B-787847 firm, 481 options
Ai b A 380 Ai b A 350Airbus A-38037 delivered, 234 firm, 57 options
Airbus A-350573 firm, 200 options
Orders as of Oct 2010, Source: Wikipedia
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Advanced Engines
P&W Geared Turbofan
GE Unducted Rotor GE Unducted Rotor
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Next Generation Narrow Body Plans
Bombardier C-Series Airbus:A320 NEO ? Boeing Y1:Bombardier C-Series
Seats: 100 - 145Est. Entry Into Service: 2013
Airbus:A320 NEO ?
A320 Seats: 107 - 220Est. Entry Into Service: 2015
Boeing Y1:
B737 Seats: 108- 189Estimated Entry Into Service: ?
R i d B737?Re-engined B737?New Aircraft Type?
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Boeing 777 Replacement/Re-engine
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NASA N+3MIT D8 “Double Bubble” Configuration
50% 70% I t i F l B50% - 70% Improvement in Fuel Burn
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Green House Gas Emission Restrictions
Cap and Trade Discussions Greenhouse Gas Emissions Cap and Trade Discussions
CO2 Efficiency Standards
Alternative Fuel Demonstrations
Greenhouse Gas Emissions
Alternative Fuel Demonstrations
Increase in Effective Price of Fuel
Transport Each square represents 1%of total emissions inventory
TransportationElectric Utilities
Non‐Transport Transport
Source: US EPA data, 2005
Transportation
Residential
Electric UtilitiesIndustry
CommercialAgriculture
Aviation
www.ebaumsworld.com
,
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Alternative Fuels for Commercial AviationAviation
Traditional jet fuel: Kerosene from crude oil tar sands or oil shale Kerosene, from crude oil, tar sands or oil shale.
“Drop in” fuels: Fischer Tropsch (FT) synthetic fuel:
Coal to Liquid (CTL)
Alternative jet fuel well-to-wake CO2 emissions*
Coal to Liquid (CTL) Natural Gas to Liquid (GTL) Biomass to Liquid (BTL)
Biofuels: 1st generation: biomass from food crops 1st generation: biomass from food crops, 2nd generation: Nature byproducts/waste, 3rd generation: Algae, switch grass.
Hydrogen or Methane
Challenges: Availability and production cost of alternative fuels, Certification,Certification, Airport infrastructure (i.e. dual distribution systems).
*Source: Hileman, Wong, Ortiz, Maurice, Rumizen and Brown, “The feasibility and potential environmental Benefits of alternative fuels for Commercial aviation”, ICAS, 2008.