Industry Update
Downdraft or Game Change?
Colorado Airport Operators Association
June 2009
Agenda
• Current Airline Situation
• Market Trends Impacting Airports
– Commercial Service
– General Aviation
• What will the Recovery Look Like?
• Airport Responses
2
AIRLINE SITUATION
3
Good Old Days
The 1930s transoceanic service offered the
height of luxury — but at prices that would
equal $10,000 a ticket in today's dollars.
Pan American Martin Clipper flying boat
4
Flying Today Just Isn’t the Same
A380 First Commercial Flight
Photo by Heiko Stolzke / EPA
5
Or is It?
Two Air Service Markets: Luxury and Commodity
6
Hard for the Airlines to Make Money
16.0
15.0
14.0
Cents
13.0
12.0
11.0
10.0
9.0
8.0
1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008
Revenue Per ASM
Cost per ASM
7
List of Bankrupt Carriers is Long
May-79 New York Airways
Nov-79 Aeroamerica
Jan-80 Florida Airlines
Mar-80 Indiana Airlines
Dec-80 Air Bahia
Dec-80 Tejas Airlines
Mar-81 Mountain West
Mar-81 LANICA
Jul-81 Coral Air
Sep-81 Pacific Coast
Sep-81 Swift Air Line
Oct-81 Golden Gate
Jan-82 Pinehurst Airlines
Mar-82 Silver State Airlines
Mar-82 Air Pennsylvania
Apr-82 Air South
Apr-82 Cochise Airlines
May-82 Braniff International
Jul-82 Astec Air East
Aug-82 Will's Air
Oct-82 Aero Sun International
Oct-82 Aero Virgin Islands
Nov-82 Altair
Dec-82 North American
Feb-83 Inland Empire
Feb-83 State Airlines
Apr-83 Golden West
Sep-83 Continental Airlines
Dec-83 National Florida
Jan-84 Air Vermont
Feb-84 Pacific Express
Feb-84 Dolphin
Apr-84 Combs Airways
Jul-84 Air Florida
Jul-84 Excellair
Jul-84 American International
Aug-84 Emerald
Aug-84 Hammonds Commuter
Sep-84 Air North
Sep-84 Wright Air Lines
Oct-84 Oceanaire Lines
Oct-84 Atlantic Gulf
Oct-84 Connectaire
Oct-84 Air One
Nov-84 Capitol Air
Nov-84 Wien Air Alaska
Jan-85 Northeastern International
Jan-85 Pompano Airways
Feb-85 Far West Airlines
Mar-85 American Central
Mar-85 Provincetown Boston
Mar-85 Sun West Airlines
May-85 Wise Airlines
Aug-85 Cascade Airways
Oct-85 Wheeler Airlines
Dec-85 Pride Air
Jan-86 Southern Express
Jan-86 Imperial Airlines
Feb-86 Arrow Airways
Apr-86 Sea Airmotive
Aug-86 Trans Air
Aug-86 Frontier Airlines
Feb-87 Chicago Airlines
Feb-87 McClain Airlines
Feb-87 Rio Airways
Mar-87 Air Puerto Rico
Mar-87 Gull Air
Mar-87 Royal West Airlines
Apr-87 Air Atlanta
Jun-87 Air South
Sep-87 Royale Airlines
Jan-88 Sun Coast Airlines
Jan-88 Air New Orleans
Jan-88 Air Virginia
Jan-88 Mid Pacific Airlines
Mar-88 Exec Express
May-88 Caribbean Express
May-88 Pocono Airlines
Jun-88 Virgin Island Seaplane
Aug-88 Princeton Air Link
Sep-88 Qwest Air
Sep-88 Southern Jersey Airways
Mar-89 Eastern Air Lines
Mar-89 Big Sky Airlines
Jul-89 Air Kentucky
Sep-89 Braniff International
Oct-89 Presidential Airways
Nov-89 Resorts International
Nov-89 Resort Commuter
Jan-90 Pocono Airlines
May-90 SMB Stage Lines
Jul-90 CCAir
Dec-90 Continental Airlines
Dec-90 Britt Airways
Dec-90 Rocky Mountain Airways
Jan-91 Pan Am World Airways
Jan-91 Pan Am Express
Jan-91 L'Express
Jan-91 Eastern Air Lines
Jan-91 Bar Harbor Airlines
Jan-91 Virgin Island Seaplane
Jan-91 Northcoast Executive
Mar-91 Midway Airlines
Mar-91 Grand Airways
Apr-91 Metro Airlines
May-91 Jet Express
May-91 Metro Airlines Northeast
Jun-91 America West Airlines
Aug-91 Mohawk Airlines
Nov-91 Midway Airlines
Dec-91 Flagship Express
Jan-92 Trans World Airlines
Feb-92 L'Express
Jun-92 Markair
Jun-92 Hermans/Markair Express
Dec-92 States West Airlines
Sep-93 Evergreen International Aviation
Sep-93 Hawaiian Airlines
May-93 Key Airlines
Mar-94 Resorts International
Oct-94 Florida West Airlines
Feb-95 Crescent Airways
Apr-95 Markair
Jun-95 Trans World Airlines
Dec-95 The Krystal Company
Nov-95 Grand Airways
Jan-96 GP Express
Jan-96 Business Express
Jan-96 Conquest Airlines
Sep-96 Kiwi International Airlines
Jul-97 Mahalo
Aug-97 Air South
Oct-97 Western Pacific Airlines
Nov-97 Mountain Air Express
Feb-98 Pan American World Airways
Jul-98 Euram Flight Centre
Mar-99 Kiwi International Airlines
Jun-99 Sunjet Int'l/Myrtle Beach Jet Express
Sep-99 Eastwind Airlines
Nov-99 Access Air
Feb-00 Tower Air
May-00 Kitty Hawk
Sep-00 Pro Air
Sep-00 Fine Air Services
Dec-00 Legend Airlines
Dec-00 National Airlines
Dec-00 Allegiant Air
Jan-01 Trans World Airlines
Aug-01 Midway Airlines
Jan-02 Sun Country Airlines
Jul-02 Vanguard Airlines
Aug-02 US Airways
Dec-02 United Airlines
Mar-03 Hawaiian Airlines
Oct-03 Midway Airlines
Jan-04 Great Plains Airlines
Jan-04 Atlas Air/Polar Air Cargo
Sep-04 US Airways
Oct-04 ATA Airlines
Dec-04 Southeast Airlines
Dec-04 Aloha Airlines
Sep-05 Delta Air Lines
Sep-05 Comair
Sep-05 Northwest Airlines
Sep-05 TransMeridian Airlines
Oct-05 Mesaba Airlines
Nov-05 Atlantic Coast Airlines
Dec-05 Era Aviation
Jan-06 Independence Air
Feb-06 Florida Coastal Airlines
Oct-07 Kitty Hawk Aircargo
Dec-07 MAXjet Airways
Jan-08 Big Sky
Mar-08 Champion Air
Mar-08 Aloha Airlines
Apr-08 ATA Airlines
Apr-08 Skybus Airlines
Apr-08 Frontier Airlines
Apr-08 Eos Airlines
May-08 Air Midwest
Jun-08 Gemini Air Cargo
Jul-08 Vintage Props & Jets
Aug-08 Gemini Air Cargo
Oct-08 Sun Country
Oct-08 Primaris Airlines
No Bankruptcies since Oct 08
Low Cost Carriers are Price Setters
Regional
4%
Low Cost
27%
Network
69%
Top 10 Airlines, ranked by January-December 2008
Scheduled Domestic and International Enplanements
9
LCCs 30% of Denver
6,000
Weekly Departures
5,000
4,000
All Others
United
3,000
Other LCCs
Southwest
2,000
Frontier
1,000
Apr 05
Apr 06
Apr 07
Apr 08
Apr 09
10
TRENDS – COMMERCIAL SERVICE
11
Good Years for Airports & Airlines Do
Not Always Coincide
8.7%
4.6%
3.8% 3.4%
3.3%
0.5%
-3.4%-3.7%
-5.1%
-6.6%
2004
2005
2006
Passenger Profit Margin
2007
2008
Enplanement Growth
Adapted from Oliver Wyman, inc.
Different measures of success
12
Enplanements Steady/Airline Profits Volatile
10%
900
800
5%
Profit Margin
0%
600
500
-5%
400
-10%
300
Enplanements (millions)
700
200
-15%
100
-20%
0
1996
1998
2000
2002
Pre-Tax Profit Margin
2004
2006
2008
Enplanements
Adapted from Oliver Wyman, inc.
13
Troubles Began with Fuel
• Airlines cut capacity
• Focus on higher fare
passengers
• Hardest Hit
Average Jet Fuel Price (Paid) per Gallon
400¢
375¢
350¢
325¢
300¢
–
–
–
–
–
275¢
250¢
225¢
200¢
2008
2009
175¢
Small Markets
Leisure Markets
Secondary hubs
Smaller Point-to-Point
Northeast and Midwest
150¢
Jan
Feb
Mar
Apr
May
Jun
Jul
Aug
Sep
Oct
Nov
Dec
14
Airline Profits Went South 4Q 2007
Quarterly Operating Profit/Loss Margin (in Percent)
9.2%
8.6%
8.8%
6.6%
3.9%
1.7%
1.5%
-0.1%
-1.1%
-0.8%
-5.2%
-6.3%
2Q 2007
3Q 2007
4Q 2007
1Q 2008
Network Carriers
2Q 2008
Low Cost Carriers
-5.4%
-6.7%
3Q 2008
4Q 2008
15
Higher Yields Have Not Held
Domestic Yields
Cents per Revenue Passenger Mile (RPM)
16.0
15.5
15.0
14.5
14.0
13.5
13.0
12.5
12.0
2000
2001
2002
2003
2004
2005
2006
2007
2008
4 mo.
2009
Weakness in business and premium demand
16
Airlines Continue to Slash Capacity
• Removed 800 aircraft from active fleet.
• Reduced seats, 9% - 22 million seats!
• Big shift from aircraft with <=50 seats to 51 to 99
seat aircraft.
Domestic Seats
International Seats
-2.2%
-5.3%
-8.9%
-4.0%
-8.7%
-10.1%
Compared With Prior Year Quarter
4Q 08
1Q 09
2Q 09
17
Extra Charges
Have Remained.
A New Untaxed
Revenue Source.
Extra Charge
Reservation by Phone
1st Checked Bag Fee
2nd Checked Bag Fee
Overweight Bag Fee
Extra Leg Room
Meal
Alcohol
Travel with Pets
Source: Data provided by farecompare.com
Unaccompanied Minors
Non-Refundable Ticket Change Fee
Fee
$10-$35
$10-$25
$25-$50
$29-$150
$5-$109
$3-$11
$1-$7
$25-$359
$75-$100
$20-$150
18
TRENDS – GENERAL AVIATION
19
General Aviation
Current Weakness/Structural Changes
Recession/High Fuel
• Lower fuel sales
• Operations falling
• Bad rap on business flying
• VLJs off to a slow start
• On-demand services
haven’t worked yet
Structural Changes
• Is the next generation
flying?
• Aging fleet/fewer hours
flown
• Aging pilots
• Students decreased by 4%
• Regulatory Changes
– User Fees
– Security Requirements
20
Changes in GA Operations
Year-Over-Year 2007-2008
Tower Activity
0%
-2%
-2%
-3%
-7%
-10%
-10%
-11%
-11%
-13%
-15%
-20%
Jan
Feb
Mar
Apr
May
Jun
Jul
Aug
Sep
Oct
Nov
Dec
Source: FAA
21
AvGas Average Monthly U.S. Demand
Thousand Barrels per Day
20.0
19.0
19.0
18.0
16.0
17.0
18.0
17.0
15.4
12.1
2000
2001
2002
2003
2004
2005
2006
2007
2008
2 mo.
2009
Market is small. 7-8 truckloads per day. One truckload of avgas = 200 barrels.
Rocky Mountain Region (MT, UT, WY, CO, ID) = 300-400 barrels per day.
Source : Petroleum Product Marketing and Consulting
22
Only 10 AvGas Producers
BP
Chevron
Exxon
Phillips 66
Merchant Refiner
Courtesy of Conoco-Phillips
23
Colorado Fuel Trends
Gross Gallons - 8 months Year-to-Date (Jul–Feb)
AvGas
Jet Fuel
FY07-08
FY08-09
% Change
3,403,596
3,325,567
-2%
189,280,423 146,324,192
-23%
Source: Colorado Department of Revenue
24
WHAT WILL THE RECOVERY LOOK LIKE?
25
A World of Higher Risk
Forecasts Just Got a Lot More Complicated
Source: Adapted from Oliver Wyman, Inc.





Event-based
Scenario modeling
Sensitivity analysis
Assessing and prioritizing risks
Developing mitigation strategies
26
Airlines Reluctant to Assume
Lower Fuel Prices are Here to Stay
Annualized Gallons of Jet Fuel Consumed (Billions)
20.5
20.0
19.5
19.0
18.5
18.0
17.5
Jan-09
Jan-08
Jan-07
Jan-06
Jan-05
Jan-04
Jan-03
Jan-02
Jan-01
Jan-00
17.0
Source: Air Transport Association
27
When Economy Stabilizes
•
•
•
•
•
•
Airlines will prefer to maintain low capacity
Grounded aircraft are not returning
New aircraft orders mostly replacements
Employment will come back slowly
Total cost to fly will increase (FARES + FEES)
Business aviation the main growth story for
GA airports…record aircraft available, stuck
until credit eases, corporate profits improve.
28
AIRPORT RESPONSES
29
Airport Strategies
•
•
•
•
•
•
•
•
Delay or cancel capital projects
Hiring or pay freeze
Staff layoffs
Reductions in training, travel, & overtime
Increases in airline fees and non-airline rents
Increases in parking fees & car rental surcharges
FOCUS ON PREMIUM PASSENGERS
DIVERSIFY AIRPORT REVENUES
30
Airport Revenue Sources
Traditional
Airport
Operations
Retail and
Customer
Service
Diversified
Activities
Then………………………………………………………………………….Now
31
Revenue Diversification
• Renewable energy
– solar, geothermal, wind, biofuels
• Mineral development
• Low impact complements
– entertainment, utilities, test farms, rights of way,
advertising, etc.
• Temporary uses
• Airport support services
• Recruitment of other airport tenants
32
Revenue/Expense Sharing
• Joint use agreements and partnerships
– ATC
– ARFF
– Utilities development and roads
– Security
– Land acquisitions and exchanges
– Property management
What is your airport doing?
33
Questions, Conversations, Comments?
NAVIGATING THE NEW ECONOMY
WITH FRESH IDEAS
Contact:
KRAMER aerotek, inc
303.247.1762
lois@krameraerotek.com