The Impact of Mergers and Consolidations on Air 

Travel Consumers and the Aviation Industry

John P. Heimlich

Vice President & Chief Economist

Presentation to DOT Advisory Committee for 

Aviation Consumer Protection 

October 29, 2014
Improving Airline Finances Translating to Customer Benefits

Views from February 2013

“The recent wave of consolidation has meant higher profits and 

more stability..., which has led airlines to invest in 

technology, new airplanes and better customer service... ‘A 

healthy airline industry means a better flying experience 

overall.’”

-- “Rick Seaney, FareCompare.com, in “AMR Stands to Gain 

Vast Route Network,”

Wall Street Journal, Feb. 7, 2013

2 airlines.org
Improving Airline Finances Translating to Customer Benefits, Continued 

Views from February 2013

“What we’re seeing in airlines is what we’ve seen in railroads, 

telecom, and trucking... You’ll have fewer crises, fewer 

bankruptcies, more predictability, more stability.”

-- Clifford Winston, Senior Fellow, Brookings Institution

Christian Science Monitor, Feb. 14, 2013

3 airlines.org
After Years of Staggering Losses, U.S. Airlines* Are Tackling the Mountain 

of Debt

“...it would be unreasonable 

to assume that all airline risks 

have just disappeared... [T]he 

business model requires a 

large cushion of cash and 

significant reinvestment.”

Alexander MacLennan

The Motley Fool

Feb. 3, 2014

$79.5

$71.9 $70.2

0

10

20

30

40

50

60

70

80

90

YE12 YE13 1H14

Total Debt* ($ Billions)

airlines.org

* SEC filings of Alaska, Allegiant, American, Delta, Hawaiian, JetBlue, Southwest, Spirit and United; includes capitalized operating leases at 7x annual aircraft rents

4
Improving Finances Are Helping Airlines Hire/Train/Retain High-Quality 

Employees

» Job growth and security;

» Attractive wages and benefits;

» Tools and training to serve customers;

» Profit sharing;

» Accelerated contributions to employee retirement 

accounts.

5 airlines.org
Earnings Momentum and Debt Reduction Are Attracting New Investors

» De-risking (e.g., paying down debt);

» Share buybacks;

» Issuance of dividends;

» Stock price appreciation;

» Value creation (ROIC > WACC).

6 airlines.org
...and the Increasing Ability to Hire, Train and Retain High-Quality Talent and to Lure LongTerm Investors is Translating Directly to Palpable Benefits for Our Customers

» New or refurbished aircraft;

» Expanded route networks (scope) and schedules (seat 

growth);

» Enhanced tools (computers, tablets, software) and training for 

customer-contact employees;

» Improved airport check-in areas, lounges, gates.

7 airlines.org
...and the Increasing Ability to Hire, Train and Retain High-Quality Talent and to 

Lure Long-Term Investors is Translating Directly to Palpable Benefits for Our 

Customers, Continued.

» Continued development and roll-out of mobile technology and 

website/kiosk functionality;

» Increasing operational reliability (controlled for weather 

conditions);

» Larger overhead bins for luggage;

» Availability of lie-flat seating with AC power and USB (incl. on 

select transcon flights);

» Proliferation of domestic and international WiFi and inflight 

entertainment options.

8 airlines.org
Improving Finances Enabling Significant Reinvestment in Customer Experience

Airline Capital Spending Continues at Robust Clip of More Than $1 Billion per Mont

U.S. Airline* Capital Expenditures ($ Billions)

5.2

6.6

9.8

12.4

7.0

2010 2011 2012 2013 1H14

* SEC filings of Alaska, Allegiant, American, Delta, Hawaiian, JetBlue, Southwest, Spirit and United

» Aircraft (317 deliveries in 2014), spare engines, 

winglets

» Premium seats, new aircraft interiors

» Ground equipment, loading bridges

» Airport (gates/lounges) and maintenance facilities

» Bag carousels, carts, scanners

» In-flight entertainment and Wi-Fi

» Computers, kiosks, mobile technology

9 airlines.org
As Airlines Generate Modest Returns on Capital, Customers Are Seeing More 

Seats Departing U.S. Airports – 11 Consecutive Quarters of Growth

Year-Over-Year Change (%) in Scheduled Seats Departing U.S. Airports

(10.0)

(8.0)

(6.0)

(4.0)

(2.0)

0.0

2.0

4.0

1Q083Q081Q093Q091Q103Q101Q113Q111Q123Q121Q133Q131Q143Q141Q15

Source: Innovata (via Diio Mi) published schedules as of Oct. 24, 2014 for all airlines providing scheduled passenger service from U.S. airports to all destinations

Fuel Spike and Recession

Economic

Recovery

Record-High 

Fuel Price

Economic Recovery and 

Modest Fuel-Price Relief

10 airlines.org
After a Decade of Sharp Workforce Reductions, U.S. Airline Jobs on the Rise Again

August 2014 Was 9th Consecutive Month of YOY Employment Gains at U.S. Airlines

520.6 

378.1 380.8 384.2 

2000 2010 2013 2014

Employment at U.S. Passenger Airlines

Thousand Full-Time Equivalents (FTEs) YTD Aug.

Source: BTS

11 airlines.org
Airline Creditworthiness Remains Far From Stellar

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

Investment Grade1(>= BBB-)

ExxonMobil, Microsoft AAA

GE, United States Government AA+

Google, Wal-Mart AA

Toyota AAUPS A+

BP, eBay, Union Pacific A

Amtrak, Starbucks AFedEx, Marriott, Starwood BBB

Ford, Lufthansa, Southwest, WestJet

BBBPassenger Airline

Alaska, Qantas BB+

British Airways, Delta, LATAM BB

Allegiant, Avis-Budget, Chrysler BBHertz, Sabre B+

AC, AAL, GOL, HA, JBLU, UAL B

SAS BSpeculative2 Grade (< BBB-)

1 Describes issuers with relatively high levels of creditworthiness and credit quality

2 Describes issuers with ability to repay but facing significant uncertainties, such as adverse business or financial circumstances that could affect credit risk

Source: Standard and Poor’s; “Guide to Credit Rating Essentials: What are credit ratings and how do they work?”

12 airlines.org
Improving Airline Finances Translating to Customer Benefits

A View from February 2014

“With airlines in the U.S. now generating acceptable returns, their ability 

to reinvest in their products has been greatly enhanced. Today’s traveler is 

likely to check in via smart phone, monitor the upgrade list in real time, board 

and enjoy a sufficiently sized overhead, and pass the time en route surfing the 

Internet. There is no way any of this would have been possible had the 

industry not found its way to firmer financial footing... Today’s business 

traveler is likely to enjoy direct aisle access and a lie-flat seat suitable for 

sleeping, even on transcon flights. Absent the industry’s financial 

turnaround, these benefits simply would not be available.”

-- Jamie Baker, Managing Director, Global Equity Research, J.P. Morgan, 

Feb.28, 2014

Jamie Baker is a Research Analyst at J.P. Morgan. His views may not be representative of others at the Company. For 

disclosures related to companies that Mr. Baker covers, please see https://jpmm.com/research/disclosures

13 airlines.org
www.airlines.org