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The Industry. Air Service.

Kansas City International .

September 2013 What We’ll Cover Today

• Airline Industry Overview

• Importance of City International

• Air Service Realities

• What the Future May Bring

• Questions, Answers, and Discussion The Airline Industry Today – Hard Realities

• There are not many left – mergers and consolidation

• They are not even a single company – flights are operated by at least four certificated operators

• Example: Over half of flights are not operated by United itself

• It’s not more passengers airlines look at – it’s the cost/revenue equation

• Airlines are looking for revenue streams. Not to pick fights with competitors Let’s Cut To The Chase: There’s No Airline “Store”

Majors Regionals

AIR CAL AIR ILLINIOIS AMERICA AMERICAN AIR OREGON CONTINENTAL AR WISCONSIN DELTA ASA 1983 Today, EASTERN ASPEN FRONTIER ATLANTIS MIDWAY BAR HARBOR Consumers could can turn to AIR BRITT book & buy on at just none large jet NORTHWEST CASCADE OZARK CHAPARRAL least 21 large jet operators, and operator brands, none of the PIEDMONT IMPERIAL plus over two regionals who were PSA MALL dozen independent REPUBLIC MESA around in 1983 are SOUTHWEST METRO in the retail airline TWA MIDSTATE brands. business. UNITED NEW AIR US AIRWAYS PBA WESTERN PLIGRIM PRECISION RIO ROCKY MOUNTAIN jetBLUE ROYALE SPIRIT SKYWEST Not a complete list. The Airline Turf Is Now Decided…

There’s not much left to fight over…

The US Market is now mature and is not in a growth mode

Excess capacity – that had to be sold at a loss – is gone

The airline business now has huge economic barriers to new entry – and it’s not just because of current incumbents Airline Economics A Very Tough Business in Which to Make a Profit

• The sharp increase in fuel costs has made many older obsolete before their time

• Fuel cost spikes have particularly hit regional aircraft and small city air service

• Constant cost pressure: labor, distribution, regulatory, service

• As a result carriers are constantly re-examining their route systems:

Nothing is sacred • The name of the game is system revenues & traffic “quality” – not volume

• If a route does not show an adequate return, based on scarce resources and other issues, it’s going to be toast Regional Airlines: Gone Like The Do-Do

Small independent regional airlines are long gone –

The costs of operation, fuel, plus major airlines acquiring larger “regionals” ended this part of the industry

Point-to-point service – even between formerly strong markets – is no longer. Costs are the issue

Plus, no new small , either “Regional” Jets – Going, going….. Logical: when they go, so does service at some airports… true

This is a hard fact of airline economics, not a reversible trend

While some airports will benefit from this by gaining service from larger aircraft, many others are at risk of losing service altogether 50-Seat Markets In Need of Larger Aircraft

The replacement of 50-seat jets will fill a need for larger jets in dozens of markets across the nation… There’s Something Called “Spill” … The National Picture – Hubsite Load Factors – Year Ending 2012

Much of the additional capacity that larger “small” jets will produce will allow smaller communities more access to/through the operation… Airlines Are Buying Lots of Airplanes But Retiring Older Ones, Too Fleets: Decline through 2019 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 Net Chg

180 + Seats 643 621 647 655 663 664 680 690 705 736 769 126 126 - 180 3,175 3,153 3,114 3,144 3,129 3,139 3,178 3,215 3,261 3,325 3,390 215 101 - 125 330 433 587 714 858 1,005 1,030 1,052 1,073 1,093 1,111 781 75 - 100 570 596 590 645 683 706 723 740 747 753 771 201 Regional Jets 1,401 1,308 980 728 583 405 405 405 405 405 405 -996

Total 6,119 6,111 5,918 5,886 5,916 5,919 6,017 6,102 6,191 6,312 6,446 327

Basic size floor will; be @ 80-90 seats – But the costs will be only marginally higher than where 50-seaters will be…

Fleets of larger airliners – more fuel-efficient – will expand

Hence – some loss of air service at smaller airports - but stronger air service at regionalized points Airlines Are Cutting Excess Seats

There will be @ 6% fewer seats for sale in 4Q 2013 Air Growth Is Slowing Is Important To Kansas City

2011 2012 2013 2014 2015 2016 16 v 11

Total Passengers 458,405 461,668 468,327 475,602 484,065 492,704 7.5%

Pax Change Y-O-Y 1.5% 0.7% 1.4% 1.6% 1.8% 1.8%

Enplanements 725,659 730,731 741,210 752,654 765,513 778,509 7.3%

Enplmt Chg Y-O-Y 0.43% 0.70% 1.43% 1.54% 1.71% 1.70%

Enp/Pax Ratio 1.583 1.583 1.583 1.583 1.581 1.580

Direct International Component 76,557 77,823 79,680 81,663 83,058 84,468

Indirect Int'l-Generated Domestic Enplmts 114,836 116,734 119,520 122,494 124,587 126,702

Total Int'l Driven 191,393 194,557 199,200 204,157 207,645 211,170 10.3%

Total Intl-Related 26.4% 26.6% 26.9% 27.1% 27.1% 27.1% The US Airline System

• It’s focused on aggregating passengers at connecting hubs

• Most small cities do not have sufficient traffic to a single destination to support service. An airline hub combines many destinations on to a single flight

• The further the distance to the hub, the more of the potential revenue is used up in the costs of flying the airplane

• Kansas City has access to all gateway hubs, plus all major metro non-hubsite cities Kansas City: Air Service Issues Kansas City Air Service

On average, @ 80% of seats are filled Airline Share At MCI

Carrier P sgr P DEW % P sgr Originating AVG Fare Fare P er M ile Efficiency Americam 161,810 898.9 8.7% 55.1% $208.55 18.53¢ 84.2% Alaska 20,449 113.6 1.1% 40.6% $239.33 11.63¢ 94.9% Delta 329,905 1,832.8 17.8% 55.9% $245.11 20.64¢ 87.8% Frontiler 87,576 486.5 4.7% 62.2% $147.45 13.58¢ 95.4% United 218,209 1,212.3 11.8% 46.8% $245.24 19.47¢ 89.2% US Airways 161,357 896.4 8.7% 56.0% $240.28 16.36¢ 90.2% Southwest 876,457 4,869.2 47.2% 66.8% $195.00 19.10¢ 95.1%

Total 1,855,773 10,309.8 100.0% 60.0% $213.79 18.68¢ 91.4%

• No carrier has as much as 50% - strong base

• American/US Airways merger will make AA #2 Southwest Thru/Connect Traffic

Southwest is concentrating connect passenger flows at other airports. Top MCI Destinations

Avg. Ticket Rank M arket P sgr Avg OW Fare % of P ax Efficiency M iles 1 100,601 $128.85 5.42% 540 98.33% 2 Phoenix 83,096 $215.05 4.48% 1,109 93.85% 3 76,593 $201.38 4.13% 1,202 94.52% 4 Orlando 73,803 $202.21 3.98% 1,151 93.01% 5 /Midway 66,601 $157.58 3.59% 410 98.32% 6 Atlanta 58,381 $190.58 3.15% 732 94.45% 7 /Love 53,056 $176.19 2.86% 464 99.28% 8 52,437 $233.95 2.83% 1,428 95.22% 9 Ft. Lauderdale 50,119 $200.03 2.70% 1,338 92.85% 10 Chicago/O'Hare 49,289 $180.83 2.66% 409 98.37%

• Note that no market is more than 6% of the total… • “Efficiency” Indicates Strong Competition Comparative MCI Fares 20-Year Passenger Trend Airline Metrics

American – DFW will bear larger aircraft…

The nation will see @ 6% fewer seats – MCI is in the ballpark. What About International?

For non-stops - with new-generation airliners, more and more possible… BUT

It will require a hub at the other end – an alliance hub – SkyTeam, Star, or … connect traffic needed

Figure , or – which ID the airline targets

For now, highest and best use of equipment

The experiment – pay to

San Diego – as a connect hub with

Plan on needing a lot – and we mean a lot – of incentive money MCI has great international access now Summing It Up

• The US airline industry is not growing… it’s contracting

• MCI air service is very strong and robust – high load factors and exceptional access

• A poster-child for other large non-hubsite airports

• No spikes or hits to the service levels are on the horizon Okay, Let’s Talk!