Air Service & Economic Development

AIR SERVICE & ECONOMIC DEVELOPMENT CALED Conference March 23, 2017 – San Diego, CA

© 2017 Mead & Hunt, Inc. TOPICS 2 . Airline industry update . Air service development overview . Purpose . Approach . Community partnerships/economic impact . Airline assistance . Summary AIRLINE INDUSTRY UPDATE INDUSTRY CONSOLIDATION 4 Top 5 Control approximately 87% of U.S. Domestic Market through M&As

Today

American Delta Southwest United Alaska

US Virgin American TWA Delta Northwest AirTran ATA Southwest Continental United Alaska Airways America

US Trump Morris Pan Am Jet American Reno Air America Ozark Delta Pan Am Northwest ValuJet ATA Southwest Continental United Airways Shuttle West Air Pacific America

People Allegheny Piedmont Western National Republic Muse Air Express Horizon Air Cal

PSA Frontier

Florida Airlines (1982) Eastern Airlines (1991) Vanguard (2002) Skybus (2008) Other Notable Braniff Airways (1982) Midway Airlines (1991) Independence Air (2005) Aloha (2008) Defunct Airlines Air Florida (1984) Western Pacific (1998) Hooters Air (2006) DRIVES CAPACITY CONSOLIDATION 5 81% of the market is Only 19% of the market is controlled by 4 airlines controlled by all other carriers

Spirit United 15% 16% JetBlue Southwest 23% 21% Frontier 10% Other 19% Hawaiian 7% Delta 21% Allegiant Alaska 8% American 30% All 23% Others 7%

Source: Diio Mi Scheduled U.S. Domestic Seats for YE June 2017 UNPRECEDENTED CAPACITY DISCIPLINE 6 $60B in Losses $70B in Profits 90% 950,000 85% Seats (000s) 925,000 80% Load Factor 900,000 75% 875,000 70% 850,000 65% 60% 825,000 800,000

Load Factor Load 55% Seats (000s) Seats 50% 775,000 45% 750,000

. Other than the brief period after 9-11, the US industry had shown little interest in moderating capacity growth . Massive losses from 2001 through 2008 forced capacity restraint on the industry . Load factors (% of seats sold) continued to steadily increase throughout the last 25 years . Last 2 years suggests a return to capacity growth

Source: Diio Mi T-100 U.S. Domestic Seats and Load Factor (LF = RPMs/ASMs); NOTE: 2016(E) is based on the data through November adjusted for seasonality SEAT CHANGE BY AIRPORT SIZE 7 U.S. Domestic Capacity Change by Airport Size 20% (July 2017 vs. July 2012)

15% 17%

13% 10% 12%

5% 6%

2% 0% % change in seats Non-hub Small hub Medium hub Large hub Total

. Seats increased in all airport categories over the last 5 years . Non-hub and Small hubs are lagging far behind growth in larger hub categories . Most of this growth resurgence has just been in the last 2 years

Source: Diio Mi Scheduled Seats for the month of July 2017 vs July 2012 AIR SERVICE DEVELOPMENT OVERVIEW AIR SERVICE DEVELOPMENT (ASD) PURPOSE 9 . To attract and maintain airline service to your community/airport to enhance travel options and support business/economic development . Attracting new nonstop routes or airlines to improve global access and increase economic activity . Maintaining existing airline service to retain travelers that may be using competing airports ASD APPROACH 10

Market Begin Here . Purpose of ASD is to Assessment/ Identify Need attract and maintain the air service needed by the Feasibility and Route Target Airline Sustainability community “Fit” . Methodical approach ensures: . Efforts are targeted to the

Marketing and Build a Business right opportunity (needs Sales Efforts Case (includes key stakeholders) vs. wants) . Attention is focused on a specific goal or need of the community Route Incentives Airline Discussions ASD & COMMUNITY PARTNERS 11 . Economic Development Organizations (EDOs/EDCs) . Targeted economic sectors . Data on pending and future growth industries . Chamber of Commerce (COC) . Sectors with job creation in region . Business development . Convention & Visitor Bureau (CVB) . Targeted inbound customer markets . Air service access challenges . Lodging associations . Occupancy rates . Top markets . Top businesses or travelers ASD COMMUNITY PARTNERSHIPS ARE KEY 12 . Air service development efforts can improve with community partners . Collaboration for mutual economic benefit . Community benefits from improved global access and increased economic activity . Airlines more receptive to business community . Business case approach to air service development . Pools resources and leverages strengths . Economic impact examples . Economic impact study by ASU of PHX-LHR route indicated that the BA 747-400 flight had: – Visitor spending impact of $101MM per year (39K visitors per year spending an average of over $2,500 per visit) – Total economic impact of the route including direct, indirect and secondary multiplier effects of $1.19B . SJC-LHR projected a $100MM annual economic impact ASD AIRLINE ASSISTANCE CONSIDERATIONS 13 . Air service is part of the economic foundation of Successful air the community service initiatives . Commercial air service access is a top often depend on the consideration for business location support of key . Major airlines in a capacity controlled environment stakeholders, . New air service opportunities have become more especially in smaller competitive markets. . Direct access to world markets is an accelerator Community of economic development – service to international gateways can improve Foreign engagement can be investment an influencing factor. ASD AIRLINE FINANCIAL ASSISTANCE 14 . Airline concerns: . Financial risk . Incumbent carriers – Frequent flyer programs – Corporate purchase agreements . Existing travel habits . Service awareness Influence on Airline Decision Making . Slow start-up period . Communities have become more aggressive in their efforts to compete, retain and attract new air service . Marketing, fee waivers, revenue guarantees are sales contracts are offered STATE BUSINESS INCENTIVES 15

ASD assistance similar to state & EDC efforts competing for businesses.

Source: CREC ASD SUMMARY ASD SUMMARY POINTS 17 . Air service is a vital part of the economic foundation of the community . Commercial service access is an important factor for business location . Air service access to global gateways is an accelerator of economic development . Industry consolidation has led to greater competition for new routes Community . ASD process improves with community partners like EDC partners such . Business case inputs such as new business development as EDC can . ASD similar to EDC recruitment of businesses improve the . Incentives are a recruitment tool airports’ ASD . If not engaged with your airports ASD efforts, reach out and efforts offer assistance Mead & Hunt, Inc.: Thank You Joseph Pickering Business Unit Leader [email protected]