Wausau Region Chamber of Commerce Coffee Talk Series

Community Air Service Support at CWA

Wednesday, March 18, 2015

Introductions and Airport UpdateTony Yaron, CWA Airport Director

Meet the Panel of ExpertsPanel of Invited Experts

Dave Eckmann Marty Lenss Joseph Pickering Kim Sippola

Special Asst. to Chancellor for

Economic Dev., UW-Stevens Point

Airport Director, Eastern Iowa Airport

Manager, Air Service Consulting,

Mead & Hunt, Inc.

Vice President, The Quotient Group

Aviation Marketing Firm

A Quick SWOT AnalysisThe Agenda

• Strengths-Airports are generally well managed, financially sound, and communities are highly competitive in the air service arena

•Weaknesses-Airline mergers and acquisitions, capacity discipline, slow measured growth have limited opportunities for air service enhancements

• The paradigm has shifted!

A Quick SWOT AnalysisThe Agenda

•Opportunities-Those communities that have shared the financial risk with airlines attract new and retain existing air service

• Threats-Regional pilot shortage, increased fuel costs, decreased fuel costs (signals a weakening global economy), retirement of 50-seat regional jet

State of the IndustryJoseph Pickering, Mead & Hunt

INDUSTRY PROFITS

• Airlines now profitable

• Increase in ancillary

revenue (e.g. bag fees)

• Capacity restraint

• Consolidation

• Expect record profits

again for 2015

• Higher airfares

• Lower fuel costs($50)

($40)

($30)

($20)

($10)

$0

$10

$20

$30

Air

lin

e e

arn

ing

s (B

illio

ns)

Cumulative profit since 1948

($11) B

$23 B

($58) B

$26 B

($26) B

$18 B

Source: Airlines for America 1990-2013

2014 WAS A RECORD YEAR

• American posted largest profit among U.S carriers

• Southwest topped $1B for first time in history

• Spirit, Alaska, and Allegiant had highest operating margins

Source: Airline Weekly for February 23, 2015

Airline Revenues Expenses

Operating profit ex si

Net profit

Net profit ex si

Operating Margin

ex si

Net margin

ex siRevenue

y/yExpenses

y/y DifferenceASMs

y/yFuel y/y

Labor y/y

Avg. fuel

price/gl.

American $42,650 $37,577 $5,073 $2,882 $4,184 12% 10% 6% 1% 4 pts 2% (5%) 8% $2.91

Delta $40,362 $35,075 $5,287 $659 $2,800 13% 7% 7% 3% 4 pts 3% (5%) 5% $2.87

United $38,901 $36,085 $2,816 $1,130 $1,970 7% 5% 2% (1%) 3 pts 0% (4%) 4% $2.99

Southwest $18,605 $16,217 $2,388 $1,136 $1,397 13% 8% 5% 0% 5 pts 1% (7%) 8% $2.92

JetBlue $5,817 $5,302 $515 $401 $232 9% 4% 7% 6% 1 pt 5% 1% 14% $2.99

Alaska $5,368 $4,436 $932 $605 $571 17% 11% 4% 3% 1 pt 7% (2%) 5% $3.08

Hawaiian $2,315 $2,090 $225 $69 $97 10% 4% 7% 3% 5 pts 2% (2%) 5% $3.03

Spirit $1,932 $1,560 $372 $226 $237 19% 12% 17% 14% 3 pts 18% 9% 20% $2.99

Virgin America $1,490 $1,252 $121 $60 $84 8% 6% 5% 2% 3 pts 0% (2%) 21% $3.07

Allegiant $1,137 $936 $201 $86 $113 18% 10% 14% 11% 3 pts 10% 1% 22% $3.01

US Industry $158,577 $140,531 $18,046 $7,254 $11,686 11% 7% 5% 1% 4 pts 2% (4%) 6% $2.93

INDUSTRY CONSOLIDATION

Source: Aviation Week

U.S. DOMESTIC AIRLINE OLIGOPOLY

4 major U.S. air carriers (AA, WN, DL, and UA) now control 84% of domestic capacity (i.e. seats)

Source: Diio Mi Schedule (CY 2014)Source: M&H Analysis of Diio Mi Scheduled Seats

FIVE YEARS OF CHANGE

• Industry capacity growing overall in the past five years

• Small hub and non-hub airports hurt by reduction in “regional hubs” with fewer options and fleet transition

• In an environment never seen before

Source: M&H Analysis of Diio Mi Scheduled Seats

(6%)

(4%)

(2%)

0%

2%

4%

6%

8%

10%

12%

% change in seats

11%

3%

(5%)

(2%)

7%

U.S. Domestic Capacity Change by Airport Size (July 2015 vs. 2010)

Large hub Medium hub Small hub Non-hub Total

INDUSTRY ISSUES RECAP

• Legacy carriers expected to continue with capacity constraint

• Any growth will be reasonable as Wall Street continues pressure

to for profit growth

• LCC/ULCC is where majority of growth is coming from but growth is mostly in larger markets

• Regional airline pilot shortages negatively impacting schedules

• Transitioning to larger aircraft across the board

• Focusing on success of existing service improves opportunities

for expanded service

• Community driven air service development environment

NEW AIR SERVICE MARKETSMainline Aircraft (>=100 seats) Regional Aircraft (50-100 seats)

ABE-SFB BOS-CHS CMH-LAX DCA-PDX GRR-STL IND-SFO MIA-SAN ALO-ORD BLI-PDX CRW-DFW DFW-SPI IAH-PIA MSP-ROC

ANC-DEN BOS-HOU CVG-SFB DCA-SFO GRR-TPA ITO-LAX MIA-SAT ASE-DFW BMI-MSP DCA-EYW DIK-MSP IAH-PSP MSP-SYR

ANC-LAX BOS-SAV DAL-DCA DCA-SJU GSP-HOU JAX-MDW MIA-SLC ASE-IAH BOI-IAH DEN-DVL DSM-EWR IMT-RHI OKC-SFO

ATL-DAL BWI-CHS DAL-DEN DEN-JAX GSP-MDW JFK-SAT MKE-MSY ATL-AVP BOI-SAN DEN-ISN ECP-IAH ISN-MSP OMA-SEA

ATL-ECP BWI-DAL DAL-FLL DFW-OAK HNL-IAD JFK-SAV MSY-SAN ATL-BTV BPT-DFW DEN-JMS ELM-ORD JAC-LAX ORD-SCE

ATL-MSN BWI-ECP DAL-ICT DSM-MDW HNL-JFK KOA-PDX MSY-SEA ATL-CID BTR-CLT DEN-LBB ERI-ORD JAC-SFO ORD-STC

ATL-TTN BWI-FNT DAL-LAS DSM-SFB HOU-IND LAX-RDU MSY-SFO ATL-FSD BUF-MSP DEN-LFT EUG-LAX JAN-ORD ORD-SUX

AUS-DCA BWI-GRR DAL-LAX ECP-HOU HOU-LGA LBE-MCO OAK-ORD ATL-FSM BZN-LAX DEN-MOT EWR-SBN LEX-PHL PDX-PSC

AUS-MIA BWI-GSP DAL-LGA ECP-STL HOU-MCI LEX-SFB OGG-SAN ATL-GRB CHA-DTW DEN-SAF FAT-SAN LGA-LIT PDX-SBA

AUS-MSY BWI-OAK DAL-MCO EWR-HOU HOU-MEM LGA-SRQ OGG-SMF ATL-LNK CHO-ORD DEN-SGU FWA-MSP MEI-PIB PDX-TUS

AZA-MOT BWI-SEA DAL-MDW EWR-MDW HOU-PIT MCI-MIA ORD-SRQ ATL-PIA CLT-DSM DEN-SHV FWA-PHL MHK-ORD PHL-SAT

AZA-PVU CHS-HOU DAL-OAK EWR-SRQ HOU-PNS MCI-MSY PBI-PVD ATL-RST CLT-EVV DFW-DRO GEG-LAX MIA-PNS SAN-STS

BLI-HNL CHS-JFK DAL-PHX FLL-IAG HOU-RDU MCO-ORH PVD-RSW AUS-PHL CLT-FWA DFW-FAR GJT-IAH MMH-SFO SFO-SUN

BNA-BOS CHS-MDW DAL-SAN FLL-LBE HOU-SNA MCO-SAN RDU-SFO BDL-IAH CLT-GRR DFW-FSD GNV-MIA MOB-ORD

BNA-CHS CLT-HOU DAL-SFO FLL-ORH HTS-SFB MCO-TTN SAN-STL BFL-IAH CLT-OKC DFW-GCK GRR-IAD MQT-ORD

BNA-DAL CLT-MDW DAL-SNA FLL-SEA IAG-PGD MDT-SFB SAT-SEA BGR-DCA CLT-OMA DFW-GRI GRR-PHL MSN-SLC

BNA-ECP CLT-PDX DAL-TPA FLL-TTN IAG-PIE MDW-MEM SEA-TPA BHM-DCA CLT-TUL DFW-JLN HIB-INL MSO-PDX

BNA-PIT CLT-SLC DCA-HOU FNT-LAS IAG-SFB MDW-OKC SFB-TYS BHM-MIA COS-SEA DFW-MEI HOB-IAH MSP-ORF

BNA-PNS CLT-SMF DCA-LAN GRR-RSW ICT-MDW MDW-ROC SFB-USA BIL-PDX COU-DFW DFW-PIB IAD-SDF MSP-PSC

BNA-RSW CLT-TTN DCA-MDW GRR-SFB IND-PGD MDW-TUL TPA-TTN BIS-DFW COU-ORD DFW-RAP IAH-ISN MSP-RIC

• Many smaller communities (e.g. RST) have been successful despite the challenging industry environment

Source: Diio Mi Weekly Snapshot Schedule for March 2015 vs March 2010. Markets that operated at least 5x per week in March 2015 and did not operate at all in March 2010

SEATS PER CAPITA PEER COMPARISON

Average:

1.05

Source: Diio Mi – YE 3Q 2014 T-100 flown seats (non-directional averaged, one-way); Woods & Poole Economics, Inc. 2014 MSA Population

O&D PASSENGER AND AIRFARE COMPARISONS

$237

$122

$216

$261

$119

$280

$259$249

$262$276

$235

$248

$0

$50

$100

$150

$200

$250

$300

$350

0

200,000

400,000

600,000

800,000

1,000,000

1,200,000

1,400,000

1,600,000

1,800,000

Ave

rag

e F

are

O&

D P

ass

en

ge

rs

O&D Pax Average Fare

CWAs average fares are in line with similar sized markets with the exception Rockford which has the majority of service on G4

Source: Diio Mi – YE 3Q 2014 total roundtrip O&D

YEAR-OVER-YEAR COMPARISONS

CWA increased O&D passengers almost 5 percent on an over 8 percent drop in seats over the same period

Airport2014 MSA

Population

YE 3Q 2014 YOY Change

# of Nonstop Destinations O&D Pax Seats

# of Nonstop Destinations O&D Pax Seats

Dubuque, IA 94,292 1 67,622 42,910 0 7.6% 2.9%

La Crosse, WI 138,194 3 180,089 121,188 0 9.9% (5.2%)

Wausau, WI 138,911 3 238,355 145,151 0 4.7% (8.2%)

Eau Claire, WI 167,404 1 40,435 33,650 0 (7.1%) (1.6%)

Rochester, MN 197,483 5 233,588 144,802 2 9.3% (7.5%)

St. Cloud, MN 199,183 3 51,116 31,707 2 114.9% 180.8%

Appleton, WI 238,203 7 476,025 307,201 0 2.6% 1.7%

Cedar Rapids, IA 265,045 12 1,075,808 641,966 1 9.2% 0.3%

Duluth, MN 283,767 6 305,267 198,668 0 (0.5%) (6.8%)

Green Bay, WI 322,065 4 562,289 370,549 (1) 6.8% 2.7%

Rockford, IL 357,963 8 200,983 97,361 0 (4.7%) (7.0%)

Madison, WI 598,380 13 1,577,987 1,023,693 0 1.2% 2.1%

Source: Diio Mi - YE 3Q 2014 total roundtrip O&D; YE 3Q 2014 T-100 flown seats (non-directional averaged, one-way); Woods and Poole Economics, Inc.

ONESTOP CONNECTIONS FROM CWA

Airline Nonstop DestinationsDaily

FrequencyDomestic

ConnectionsInternational Connections

Total Connections

American/US Airways

ORD - Chicago, IL (ORD) 2 86 12 98

Delta

DTW - Detroit, MI 2 67 8 75

MSP – Minneapolis, MN 3 102 9 111

United ORD - Chicago, IL (ORD) 2 112 23 135

Total 9 367 52 419

Total Unique Destinations 3 153 28 181

• CWA is well

served with 181

unique one-stop

connections to

the world

Source: Diio Mi Daily Schedule for Monday July 13, 2015; Unique destinations are unique O&Ds served from CWA

CONNECTIONS VIA AMERICANAmerican/US Airways

Domestic International

ATL CMH FNT MCI PIT SLC CUN

AUS CMI FSD MCO RAP SNA DUB

AZO CVG FWA MDT RDU STL DUS

BDL DAY GRR MEM RIC SYR FCO

BIS DBQ HPN MHK RNO TOL LHR

BMI DCA IAH MIA ROC TPA MAN

BNA DEN ICT MKE RSW TUL MEX

BOS DFW IND MLI SAN TUS PEK

BUF DSM JAX OKC SAT TVC PVG

BWI DTW JFK OMA SDF TYS YKF

CHA ELP LAS PBI SEA XNA YUL

CHO EVV LAX PDX SFO YYZ

CID EWR LEX PHL SGF

CLE FAR LGA PHX SJC

CLT FLL LIT PIA SJU

• Total of 98 domestic and international connections via AA/US hub at ORD

• These connections make up 12 unique international connections for AA/US

Source: Diio Mi Daily Schedule for Monday July 13, 2015

CONNECTIONS VIA UNITED

United Airlines

Domestic International

ABE BTV DEN HPN MBS ORF SAN STL AMS YHZ

ABQ BUF DFW HSV MCI PDX SAT SYR BRU YOW

ALB BWI DSM IAD MCO PHL SAV TPA CDG YQB

ANC BZN DTW IAH MEM PHX SBN TUL CUN YUL

ASE CAE EVV ICT MHT PIA SCE TVC DUB YVR

ATL CAK EWR IND MIA PIT SDF TYS EDI YWG

AUS CHS FAR JAN MKE PNS SEA XNA FCO YYC

AVL CID FCA JAX MKG PVD SFO FRA YYZ

BDL CLE FNT LAN MLI PWM SGF LHR

BGR CLT FSD LAS MOB RAP SJU MEX

BHM CMH FWA LAX MSO RDU SLC MTY

BIL COS GRR LEX MSY RIC SMF MUC

BNA CVG GSO LGA OGG ROA SNA PVG

BOI DAY GSP LIT OKC ROC SPI SNN

BOS DCA HNL LNK OMA RSW SRQ YEG

• Total of 135 domestic and international connections via UA hub at ORD

• These connections make up 23 unique international connections for UA

Source: Diio Mi Daily Schedule for Monday July 13, 2015

CONNECTIONS VIA DELTADelta Air Lines

Domestic International

ABE BOI DAY FNT INL MDW PHX SCE AMS

ABQ BOS DCA FSD ISN MEM PIA SDF CDG

ALB BRD DEN FWA JAC MHT PIT SEA FCO

ANC BTV DFW GEG JAX MIA PLN SFO MEX

ATL BUF DIK GFK JFK MLI PSC SJC PEK

AUS BWI DLH GRR LAN MOT PWM SLC PVG

AVP BZN DSM GSO LAS MSO RAP SMF YEG

AZO CAK DTW GTF LAX MSY RDU SNA YQR

BDL CHS ELM HIB LEX OKC RIC STL YUL

BHM CID ERI HLN LGA OMA ROC SWF YVR

BIL CIU EWR HPN LNK ORD RST SYR YWG

BIS CLE FAI IAD MBS ORF RSW TPA YYC

BJI CLT FAR IAH MCI PBI SAN TUL YYZ

BMI CMH FCA ICT MCO PDX SAT TYS

BNA CVG FLL IND MDT PHL SBN XNA

• Total of 133 domestic and international connections via DL hubs at DTW/MSP

• These connections make up 13 unique international connections for DL

Source: Diio Mi Daily Schedule for Monday July 13, 2015

MARKET PERCEPTIONHOW AIRLINES MAKE DECISIONS

High fares

Low load factor

Hit list

Cash cow

Low fares

High load factor

High fares

High load factor

Low fares

Low load factor

Load factor

Fa

res

AIRLINE PERFORMANCE

• Airlines compare markets they serve

• Airline planners review various indicators, including:

• Passengers

• Load factors

• Revenue

• Fare

• Yield

• Revenue per available seat mile (RASM)

Peer market comparisons are important to track

Above average = one indicator service is performing well

Below average = warning sign

ATW/RST Community Support Successes

Marty Lenss, CID Airport Director

Kim Sippola, TQG Vice President

Community Support

• Air service is important to us and we want to support it

• Traveling Community

• Business Decision Makers

• Chambers & CVB’s

•Move your feet loose your seat!!!

Empower The Process

•Success comes in all forms

•Change of plane type

•Change of timing

•Give one route for another

What Can We Do

•Travel policy changes

•Share #’s

•Positive information- be the biggest champions

•Share customer experiences- connect with airport

The Economic Impact on the Community

Dave Eckmann, University of Wisconsin

Connecting the Dots

CWA

Airline Industry

Economic Development

The Global Economy

Regional Business Factors to Consider

•Access

•Frequency

•Price

Current Airline Business ModelsVS.

Making a Compelling Casefor Enhanced Service

•Increased Enplanements - Demand

•Risk Sharing Agreements

•Travel Banks – Making a $$ commitment

Regional Economic Data – Assemble information that airlines don’t typically have at their fingertips (Annually )

• Demographic trends (population shifts)

• Per capita income

• Key economic sectors - Manufacturing, Healthcare, Insurance, Business Services, etc.

• Education Infrastructure

• New business growth

• Job creation

• Economic investments

• Employ Business Surveys

Questions??Thank You