Second Meeting of the Advisory Committee on Aviation Con

Aug. 7, 2012

U.S. Airlines: Their Nascent Recovery anBenefits to the Nation
Overview

• The industry is climbing out of a huge financial hole, to modest pro

o Diversification of revenues and improved alignment of revenues generated with 

been critical elements of the nascent recovery

• A heavy dose of new/proposed regulations in 2012 threaten the re

• A financially healthy airline industry means job growth and service • Operational performance is strong and improving, and reflected in 

low complaint rate – especially compared to other industries with s

2 
The Value Proposition for U.S. Air Travelers Is Alive and Well

It’s Safer, It’s Greener, It’s ~80 Percent On-Time and It’s Still a Bargain

3 

0

20406080

100120140160180

1990

1992

1994

1996

1998

2000

2002

2004

2006

2008

2010

2012

2014

Index (1990 = 100)

* 5-year-moving-average fatal accident rate for U.S. air carriers operating under 14 CFR 121 scheduled service (http://www3.ntsb.gov/aviat

On-Tim

Fares 

Noise

Exposure Fatal A

Fuel E
Modest Profits in 2010 and 2011 Came on the Heels of Massive Losses

Cumulative 2001-2011 Net Loss for U.S. Passenger Airlines = $62.3 Billion

($8.0)

($11.8)

($2.1)

($10.0)

($28.6)

$16.5 

$6.3 

($24.5)

($2.9)

$2.

($40)($30)($20)($10)

$0

$10

$20

2001 2002 2003 2004 2005 2006 2007 2008 2009 201

Source: A4A analysis of DOT Form 41 data reported by U.S. airlines for which passenger revenue constitutes at least 25 percent of total op

4 

Profit (Billions)
Even With Ancillary Revenues, 2011 Revenues Exceeded Costs by Jus

Excluding $8.06 in Ancillaries, Revenues Would Have Lagged Costs by $7.

5 

Cargo & Other

$45.14 

$211.93 

$0.81 

Airfare

$159.53

Ancillary, $8.06

Revenues Costs Net Income

2011 U.S. Airline Financial Results per Enplaned Passenger

Source: A4A analysis of DOT Form 41 data reported by U.S. airlines for which passenger revenue constitutes at least 25 percent of total o

$212.73
Historically, Airlines Have Been the Least Profitable Segment of the Va

For Airlines, the Cost of Capital Tends to Exceed Returns

Source: McKinsey & Company as cited in IATA “Value Chain Profitability” Economics Briefing (June 2006)

* Return on invested capital minus weighted average cost of capital

6 

4.4 3.7 

(1.6)

15.8 

0.3 

(1.2)

(5.5)

10.5 

(10)

(5)

05

1015

20

Manufacturers Lessors Airlines CRS/GDS 

1996-20002001-2004

Investor Returns on Capital*

IATA worked closely with McKinsey & Company to examine the investors’ returns...ocycle (1996 to 2004)... Computer reservation systems (CRS), a sector dominated by firms, delivered the highest returns, with an annual surplus of $660 million over their 
The Airline Industry’s Financial Condition Is Improving, But Far From 

Per S&P, Only One U.S. Passenger Airline Has Investment-Grade Credit

Investment Grade

1 (>= BBB-)

Source: Standard and Poor’s as of Jul. 21, 2012; “Guide to Credit Rating Essentials: What are credit ratings and how do they work?”

7 

ExxonMobil, Microsoft AAAGE AA+Wal-Mart AAToyota, UPS AABP, eBay AAmtrak, Starbucks AFedEx, Marriott, QANTAS, Starwood BBBLufthansa, Southwest BBBFord Motor Co. 

British Airways, TAM Alaska, Allegiant Avis, GOL, Hertz Delta, UnitedAir Canada, JetBlue, SAS, US AmericanSpeculative

2 Grade (< BBB-

1 Describes issuers with relatively high levels of creditworthiness and credit quality2 Describes issuers with ability to repay but facing significant uncertainties, such as adverse business or financial circumstances that could af

Passenger Airline
Sample of New Regulations on U.S. Airlines Will Add $3.3 Billion in An

With More Rules Looming, That Sum Equates to Approximately 39,000 Airl

8 

Existing

Proposed

38,793 ($3.3B)

12,407 ($1.04B)

9,580 ($804M)

9,379 ($787M)

1,703 ($143M)

3,935 ($330M)

1,789 (

TOTAL BURDEN

Full-Fare AdvertisingFlight and Duty Time

Other Consumer Mandates

Fuel-Tank Inerting

Training

Airport Hydrant Fueling Systems

Lithium Batteries (TBD)

Source: A4A and Federal Aviation Administration
Improved Airline Finances Have Translated to 18 Consecutive Months 

After Years of Losses, U.S. Passenger Airlines Have Also Been to Reinvest 

(8)(6)(4)(2)

024

2007

2008

2009

2010

2011

2012

9 

$16.9

$9.7

$6.6

$5.8

$4.8

$5.8

00-01

02

03

04

05

06-09

Aircraft Capital Spending on tAverage Annual Estimated Aircraft/En

Airline Jobs Added in 18 Months in a RowYOY Change (%) in Full-Time Equivalent Employees

Source: BTS for U.S. scheduled passenger airlines Source: Bank of America Merrill Lynch airline equ
Rising Costs and Constraints on Revenue Production Translate to Air 

Domestically, the United States Has a 9 Percent Smaller Industry Than Fiv

Source: Innovata (via Diio Mi) published schedules as of Aug. 3, 2012; an available seat mile (ASM) is one seat flown one mile

10 

186.2

169.0

160165170175180185190

4Q07 4Q12

Scheduled Domestic Seating Capacity: Five-Year Comparison

Available Seat Miles (Billions)
Product (Unit) 2000 2011 

College Tuition: Public (Year) $3,508 $8,244 Gasoline (Gallon, Unleaded) $1.51 $3.53 Costs Faced by U.S. Passenger Airlines (Index) 100.0 195.0 Eggs (Dozen, Grade A, Large) $0.91 $1.77 College Tuition: Private (Year) $16,072 $28,500 Baseball Game (Nonpremium MLB Ticket) $16.22 $26.91 Movie Ticket $5.39 $7.92 Single-Family Home (New) $169,000 $227,200 U.S. CPI (All Urban Consumers)1 172.2 224.9 Vehicle (New) $24,923 $30,659 Air Travel (Round-Trip Domestic Fare + Ancillary)2 $316.95 $365.23 

Air Travel (Round-Trip Domestic Fare Only)2 $314.46 $343.46 

Apparel: Clothing/Footwear/Jewelry (Index) 129.6 122.1 Television (Index) 49.9 6.6 

Relative to Most Goods/Services (and Airlines’ Costs), Air Travel RemaThe U.S. Consumer Price Index (CPI) Has Risen at Twice the Rate of Dom

1. Bureau of Labor Statistics “measure of the average change over time in the prices paid by urban consumers for a market basket of consum2. A4A analysis of data collected by the Bureau of Transportation Statistics – excludes taxes; “ancillary” includes revenue from reservation ch

11 
Sources: A4A analysis of BTS Data Bank 1B (from the Department of Transportation)

Even With Ancillaries Included, Price of Domestic Air Travel Lags U.S. 

From 2000 to 2011, Price in Key States Either Decreased or Rose Less Th

12 

15.2 

16.8 

7.7 

(2.9)

U.S. Domestic Average

California

Illinois

Massachusetts

U.S. CPI: +30.6%

% Change (2011 vs. 2000) Less Than U.S. CPI Mo
U.S. Airline Operations Have Improved Substantially Over Past Five Ye

Record Performance Enabled by Reinvestment in Product, Cooperative We

Sources: Bureau of Transportation Statistics and DOT Air Travel Consumer Report (http://airconsumer.dot.gov/reports/index.htm)

13 

2007 YTD 2012 Better S

On-Time Arrival Rate(% of domestic flights within 00:15) 73.4 84.3 ~11 pts. Involuntary Denied Boardings(per 10,000 passengers) 1.12 0.91 ~19% Mishandled Bags(per 1,000 domestic passengers) 7.05 3.01 ~57% Flight Cancellations(as % of sched. domestic departures) 2.16 1.06 ~51% 
Hence, the Rate of Customer Complaints Against Airlines is Remarkab

Rail Customers Express Far Greater Levels of Dissatisfaction

Sources: DOT, Federal Communications Commission, National Cable & Telecommunications Association, WMATA, Capital Metro (Austin), LoMetropolitan Transportation Authority, American Public Transportation Association, AMTRAK

16.28 

12.50 

6.56 

2.92 

2.50 

1.18 

AMTRAK

Metro North RR (NYC)

WMATA (Wash., DC)

U.S. Cable Companies

Los Angeles Metrobus

Capital Metro (Austin, TX)

U.S. Passenger Airlines

Complaints received per 100,000 customers, CY2011

14 

Sample Route Capitol Corridor (CaKeystone Acela NE Regional Chicago-CarbondalChicago-St. Louis California Zephyr 

632

0.466

362

3083

367

97

Millions of Customers
Conclusion

• The industry is climbing out of a huge financial hole, to modest pro

• New/proposed/looming regulations in 2012 alone threaten the rec• A financially healthy airline industry means job growth and service • Operational performance is strong and improving, and reflected in 

low complaint rate – especially compared to other industries with s

15 
www.airlines.org