mit airline industry recent trend icat update (november...
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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