phoenix sky harbor international aviation symposium by oliver wyman
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© Oliver Wyman
Phoenix Sky Harbor International Aviation Symposium Pre-panel Charts May 6 – 8, 2015
• Who pays the bills? The importance of the industry’s best customers
• Evolving loyalty programs: No more mileage runs • The customer experience for different segments
Panel 1
Customer Segmentation –
Where’s My Limo?
2 © Oliver Wyman 2
Oliver Wyman surveyed 450 global frequent travelers asking where frustrations lie in the travel experience.
Frequency of response
Air Travel Irritants of Global Frequent Travelers
3 © Oliver Wyman 3
Airline loyalty program membership is spread across alliances. Oneworld and SkyTeam have similar overall participation.
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
S7 AB UL CX AR ST FB RJ QR QF AA MU FY GA VN OW CI AM ME MF JL OK KE LA DL SU SV CZ BA AZ
Loya
lty P
rogr
am R
atio
MH
Ratio of airline loyalty program members to annual passengers SkyTeam and oneworld, 2014
1 2 3
Notes: 1. OW = oneworld; 2. ST = SkyTeam; 3 = Flying Blue, which includes AirEuropa, Air France, Kenya Arways, KLM, and Tarom; Star does not report loyalty numbers. Source: Company reports
• Aircraft technology: How are aircraft needs changing over time?
• Network trends: Outsourcing short-haul feed, long-haul LCCs, and the future of regionals
• Where are the new entrants? • US airlines as a case study for the benefits of industry
rationalization
Panel 2
The Evolving Industry
5 © Oliver Wyman 5
World Total
Africa
Asia
Canada
Caribbean
Central America
Europe
Middle East
Oceania
South America
US
120 Seats 136 Seats +11.5%
2009 2015 2015
120 Seats 122 Seats +1.7%
164 Seats 164 Seats 0.0%
72 Seats 81 Seats +12.5%
80 Seats 90 Seats +12.5%
99 Seats 101Seats +2.0%
127 Seats 143 Seats +12.6%
171 Seats 182 Seats +6.4%
108 Seats 124 Seats +14.8%
124 Seats 139 Seats +12.1%
98 Seats 109 Seats +11.2%
More Seats
Source: PlaneStats.com
Since 2009, airlines have increased their average seats per departure 11.5 percent.
6 © Oliver Wyman 6
Airlines are replacing 50-seat regional aircraft with 75- to 100-seat regional aircraft.
0
100,000
200,000
300,000
400,000
500,000
600,000
700,000
Wee
kly
oper
atio
ns
2015 2014 2013 2012 2011 2010 2009 2008 2007 2006 2005
More than 100 seats
75 seats 50 seats Fewer than 45 seats
100 seats
Weekly operations by aircraft size May 2005 – 2015
Note: 50 seats = aircraft ranging from 46 to 55 seats; 75 seats = aircraft ranging from 56 to 80 seats; 100 seats = aircraft ranging from 81 to 100 seats Source: PlaneStats.com > schedule > weekly operations May 2005 – 2015
• Shortages, real or not: The latest on pilots and mechanics
• Executive and management career trends • Labor cost restructuring: Issues and status, US vs.
Europe • Management and labor relations: Sharing the benefits
of financial success
Panel 3
The Workforce of Tomorrow
8 © Oliver Wyman 8
US airline employee productivity rose in the last two decades.
0.0
0.5
1.0
1.5
2.0
2.5
3.0
0
200
400
600
800
1,000
1,200
1,400
1,600
1,800
1999 1998 1997 1996 1995
Passenger per employee
Avai
labl
e se
at m
iles,
in m
illio
ns, p
er e
mpl
oyee
2013 2012 2011 2010 2009 2008 2007 2006 2005 2004 2003 2002 2001 2000
Passengers per employee ASMs (millions) per employee
Available seat miles and passengers per employee 1995 – 2013, ASMs in millions
Sources: BTS employee statistics; MIT Airline Data Project
9 © Oliver Wyman 9
Total US airline employment declined in the last two decades.
Total employees and average wages or salaries 1995 – 2013
Sources: BTS employee statistics; MIT Airline Data Project
0
50,000
100,000
150,000
200,000
250,000
300,000
350,000
400,000
450,000
500,000
$0
$10,000
$20,000
$30,000
$40,000
$50,000
$60,000
$70,000
$80,000
Tota
l em
ploy
ees
Average wages/salaries
2013 2012 2011 2010 2009 2008 2007 2006 2005 2004 2003 2002 2001 2000 1999 1998 1997 1996 1995
Management/other Maintenance (in-house) Passenger, cargo, and aircraft handling
Flight attendants Pilots/co-pilots
Average annual wages/salaries
10 10 © Oliver Wyman
Asia Pacific has seen the strongest demand for new pilots and technicians.
New pilots by region 2014-2033
New technicians by region 2014-2033
Pilot and technician outlook 2014-2033
Source: Boeing Current Market Outlook (2014-2033)
41%
18%
17%
10%
8%
3% 3% Region Pilots
Asia Pacific 216,000
Europe 94,000
North America 88,000
Middle East 55,000
Latin America 45,000
Commonwealth of Independent States (CIS)
18,000
Africa 17,000
Total = 533,000
38%
17%
19%
11%
8%
4% 3% Region Technicians
Asia Pacific 224,000
Europe 102,000
North America 109,000
Middle East 62,000
Latin America 44,000
Commonwealth of Independent States (CIS)
24,000
Africa 19,000
Total = 584,000
• Growing the ancillary revenue slice of the pie • Increasing seat density and aircraft size to reduce unit
costs and increase revenue • Distribution costs: Where do we go from here? • Deploying technology to replace labor
Panel 4
Increasing Revenues and Reducing Costs:
What Levers Remain?
12 © Oliver Wyman 12
Ancillary revenue per passenger segment ranges from $4.54 to $48.73.
$0$20$40$60$80
$100$120$140$160$180$200$220$240$260$280
Rev
enue
per
pas
seng
er s
egm
ent
Delta United American Virgin America
Alaska US Airways
jetBlue Spirit Allegiant Hawaiian Frontier Southwest
Ticket revenue Miscellaneous Baggage fees Reservation change fees
Note: Adjustment made to Allegiant miscellaneous revenue, which is reported differently than other airlines. Source: PlaneStats.com > form 41 financials > P1.2 income statement
Service fees and ticket revenue YE Q3 2014
13 © Oliver Wyman 13
Distribution costs for the top three US airlines1 have been flat since 2011.
0.50
0.55
0.60
0.65
0.70
0.75
0.80
1Q13 2Q13 3Q13 4Q12 3Q12 2Q12 1Q12 4Q11 3Q11 2Q11 1Q11 4Q13 1Q14 2Q14 3Q14 4Q14
Cos
t per
ASM
in U
S ce
nts
Distribution costs per ASM 2011 – 2014, cents
Note: (1) Top Three US Airlines = American / US Airways, Delta Air Lines, and United Airlines Source: PlaneStats.com > form 41 financials > P1.2 income statement
14 © Oliver Wyman 14
-8.9%
-20.0%
-12.2%
Airline A 144 seats 12 first 132 coach
Airline B 158 seats 4 first 150 coach
Airline C 180 seats 0 first 180 coach
CASM 14.1 cents 12.9 cents 11.3 cents
Fare requirement $206 $188 $165
Note: Mainline operations only. Source: PlaneStats.com
Fare requirement change
A320 seat density comparison Based on average cost and revenue for US carriers, YE Q2 2014
See Oliver Wyman’s seat density tool at: http://www.oliverwyman.com/insights/publications/2014/nov/airline-economic-analysis-2014.html#.VTfGV2MuN8E
• Open skies revisited: Who is unhappy and why? The Norwegian Air Shuttle case
• The equity-stake-and-partnership model and its impact on the alliances
• What’s new in the alliance world? • Pre-clearance and other forms of government-
sponsored international competition
Panel 5
The International Panel:
Free Trade, Fair Trade
16 © Oliver Wyman 16
Alliance share of departures by region in May 2015
63% 4% 7%
27% 7%
16%
24% 52%
36%
23%
18%
23%
12%
14%
56% 17%
21%
51%
13%
16%
23%
13%
9%
55%
18%
54% 27%
1%
North America
Europe
Middle East
Asia
Oceania
LACSA Africa
Other Star Alliance SkyTeam oneworld
Monthly scheduled departures by alliance and by region May 2015
Note: (1) Other = unaligned airlines and airlines in other alliances Source: PlaneStats.com > schedule > monthly operations for May 2015
Global total
Star 19.8%
SkyTeam 17.6%
oneworld 14.5%
Other1 48.1%
17 © Oliver Wyman 17
Alliance capacity shifts
11% 15% 15%
21% 20% 20%
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
17%
2013
18% 17%
oneworld
2015
SkyTeam
Star Alliance
2014
48% 51% 48%
Shar
e of
dep
artu
res
Other1
Monthly scheduled departures by alliance May 2013 – 2015
Note: (1) Other = unaligned airlines and airlines in other alliances Source: PlaneStats.com > schedule > monthly operations for May 2013, 2014, 2015
• Showcase of new customer-facing technology • The latest in technology: What do travelers want, and
what are they getting?
Panel 6
Technology Showcase and Panel
19 © Oliver Wyman 19
Social media following doesn’t necessarily correlate to airline size. The world’s largest airlines have dramatically different followings on Facebook and Twitter.
Airline Daily departures Facebook page likes Twitter followers
American / US Airways 6,554 1,827,040 1,090,000 Delta 5,152 1,389,554 952,000 United 4,786 783,864 650,000 Southwest 3,588 4,533,636 1,840,000 China Southern 1,976 NA 31,600 China Eastern 1,818 NA 887 RyanAir 1,770 NA 149,000 Air Canada 1,606 986,994 290,000 Lufthansa 1,426 1,810,418 192,000 easyJet 1,409 329,686 282,000 Turkish 1,228 6,251,150 667,000 ANA 1,055 745,425 257,000 British Airways 1,026 1,769,784 654,000 Air France 970 5,030,149 412,000 Alaska 921 578,125 145,000 GOL 881 2,316,713 407,000 jetBlue 870 1,014,096 1,930,000 SAS 859 803,238 69,800 Aeroflot 809 75,883 79,400
Sources: PlaneStats.com departures for May 2015, Facebook.com and Twitter.com as of April 21, 2015
20 © Oliver Wyman 20
Social media isn’t going away. Growth rates for those engaging on social media continues to steadily grow
Airline Daily departures Change from PY
Facebook page likes
Change from PY
Twitter followers
Change from PY
American / US Airways 6,554 (2%) 1,827,040 +13% 1,090,000 (9%)
Delta 5,152 (8%) 1,389,554 +9% 952,000 +49%
United 4,786 (12%) 783,864 +12% 650,000 +57%
Southwest 3,588 +12% 4,533,636 +8% 1,840,000 +13%
China Southern 1,976 (1%) NA NA 31,600 +30%
China Eastern 1,818 +13% NA NA 887 +236%
RyanAir 1,770 +2% NA NA 149,000 +133%
Air Canada 1,606 (3%) 986,994 +17% 290,000 +61%
Lufthansa 1,426 (3%) 1,810,418 +15% 192,000 +34%
easyJet 1,409 +1% 329,686 +34% 282,000 +56%
Turkish 1,228 (1%) 6,251,150 +70% 667,000 +59%
ANA 1,055 (14%) 745,425 +37% 257,000 +80%
British Airways 1,026 +2% 1,769,784 +45% 654,000 _+61%
Air France 970 0% 5,030,149 +42% 412,000 +25%
Alaska 921 (1%) 578,125 +46% 145,000 +37%
GOL 881 0% 2,316,713 +29% 407,000 +43%
jetBlue 870 (3%) 1,014,096 +13% 1,930,000 +7%
SAS 859 NA 803,238 NA 69,800 NA
Aeroflot 809 +2% 75,883 +83% 79,400 +52% Sources: PlaneStats.com departures for May 2015 vs. August 2014, Facebook.com and Twitter.com as of April 21, 2015 vs. March 31, 2014
21 © Oliver Wyman 21
About PlaneStats.com
PlaneStats.com is powerful suite of analytical tools and enhanced aviation data that allows users to rapidly and intuitively craft custom analysis to make critical business decisions.
Inclusive of key industry and governmental data sets, paired with our own proprietary research and algorithms, it is easy to use and very flexible to analyze things like airline schedules, fleet composition, cost data, passenger loads, MRO data, and more.
For more information, please contact Khalid Usman at khalid.usman@oliverwyman.com or see www.PlaneStats.com.
22 22 © Oliver Wyman
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