Brad Difiore Managing Director Ailevon Pacific Aviation Consulting [email protected]
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#GTSHAWAII 1 Critical Access: The State of Air Service Brad DiFiore Managing Director Ailevon Pacific Aviation Consulting [email protected] #GTSHAWAII Estimated economic impact of new air service An additional 785,000 seats versus 2017 $1.4 Billion in direct visitor spending Sources: HVCB & HTA estimates for CY2018 versus CY2017 based on schedules loaded as of June 2018 3 10 years of growth across all regions 10 YEAR SEAT GROWTH BY REGION Year ending 2008 to 2018 (millions) 20.0 18.0 16.0 14.0 12.0 10.0 14.5 +2% CAGR 8.0 12.2 6.0 4.0 0.6 +9% CAGR 2.0 0.3 1.7 2.7 +4% CAGR 0.0 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 Asia Australasia North America Source: DiioMi Schedules 4 New Service Highlight: Boston on Hawaiian in Spring 2019 BOS-HNL = 5,095 miles • The longest US domestic market • The largest domestic unserved market Source: Hawaiian Airlines Press Release 5 New Service Highlight: Delta to add Detroit-Honolulu • Begins June 29, 2019 • 3-5 days per week, year-round 6 New Service Highlight: Southwest Soon Kauai Sacramento Honolulu Oakland Maui San Jose Kona San Diego 7 New and ongoing challenges to the aviation sector 8 But where are we on the Hawai‘i Air Service Cycle? Rising Room Rates Increased Less Lodging Budget for Demand Air Airlines Lower Air Add Geographic diversification Demand Capacity continues to disrupt the Air Service Cycle. A strong global economy may Increased Airlines Air Reduce Demand Capacity mask long-term challenges…but probably not. More Fewer Budget for Visitors Air Lower Higher Room Vacancy Rates 9 North America 10 Since we met last year, Hawai‘i has welcomed a new U.S. airline and multiple new routes New airlines on existing routes Airline Market Start Date Other carriers Sun Country HNL-LAX May 2018 AA, AS, DL, HA, UA American HNL-ORD Dec 2018 UA Sun Country HNL-PDX Nov 2018 AS, DL, HA Alaska KOA-SFO Dec 2017 UA Delta LIH-SEA Dec 2017 AS Air Canada LIH-YVR Dec 2018 WS Hawaiian OGG-PDX Jan 2018 AS Hawaiian OGG-SAN May 2018 AS All-new routes Hawaiian BOS-HNL April 2019 - 2+ airlines Hawaiian HNL-LGB May 2018 - Alaska KOA-SMF Dec 2018 - 1 airline Delta OGG-SLC Dec 2017 - New Airline: Note 1: Hawai‘i – US routes that started or will start after September 2017 Source: DiioMi Schedules and Schedule Mapper 11 Traffic from mainland US continues to rise while inter-island traffic remains below the 2009 peak MAINLAND AND INTER-ISLAND DEMAND - 10 YEAR TRENDS Year-ending Daily passengers; 2008 to 20181 19,112 Daily Passengers 14,313 Daily Passengers +34% 7,303 Daily Passengers 6,826 Daily Passengers -7% 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 Mainland Inter-Island Note 1: YE 1Q 2018 Source: DiioMi Schedules 12 Strong West Coast economies have driven visitor growth TOP 15 STATES WITH THE HIGHEST 10 YEAR HAWAI‘I DEMAND CHANGE BY STATE PASSENGER GROWTH TO HAWAI‘I Daily Passengers Rank State 2008 20181 # Change 1 California 5,608 7,988 2,380 2 Washington 1,223 1,721 499 3 Oregon 661 955 294 4 Nevada 733 929 196 5 New York 261 457 195 6 Texas 611 805 194 7 Utah 269 419 150 8 Colorado 383 509 127 9 Alaska 140 239 99 10 Arizona 496 584 88 11 Florida 302 368 67 12 Minnesota 216 280 63 13 Massachusetts 162 223 61 14 Georgia 200 253 53 15 Idaho 52 101 49 Note 1: YE 1Q 2018 Source: DiioMi O&D summary, Mapchart.net 13 All airports have seen significant growth from mainland markets, with Kaua‘i experiencing the most growth 10 YEAR US MAINLAND CAPACITY TRENDS BY AIRPORT Year-ending 2008 to 2018; Annual seats (millions) 10.0 10 YEAR CHANGES 9.0 Annual 8.0 2.4 Total Island Growth 7.0 2.1 2.1 2.1 Growth 1.8 Rate 1.6 1.7 1.0 6.0 0.7 1.3 1.5 1.5 0.6 0.7 Kaua’i (LIH) 9% 127% 1.2 0.6 0.6 1.2 5.0 0.4 0.6 0.8 0.9 0.9 0.4 0.4 0.5 0.6 0.7 0.6 0.6 0.7 Hawai‘i 4.0 0.5 0.6 Island 7% 100% 3.0 (KOA + ITO) 4.3 4.4 4.6 4.6 4.6 4.7 2.0 4.2 3.9 4.0 3.9 4.1 Maui (OGG) 6% 86% 1.0 O’ahu (HNL) 1% 12% 0.0 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 O'ahu (HNL) Hawai'I Island (KOA+ITO) Kaua'I (LIH) Maui (OGG) Source: DiioMi Schedules 14 Source: DiioMi Airline Performance SummaryPerformance Airline Source: DiioMi 1: Note Data mainland and includes intra 24,000 26,000 28,000 30,000 32,000 34,000 36,000 38,000 40,000 With With all the recent growth, yields have been consistent…so far 15 Q1 2008 Q2 2008 Q3 2008 - island island capacity Q4 2008 Q1 2009 Q2 2009 Q3 2009 Q4 2009 Q1 2010 Rolling four quarter Rollingquarter capacity seat actual vs. by yield fourquarter Q2 2010 TO US HAWAI‘I Q3 2010 Q4 2010 Q1 2011 Q2 2011 Q3 2011 - Q4 2011 YIELD GROWTHYEAR TRENDS 10 SEAT VS. Q1 2012 Daily SeatsDaily Q2 2012 responded market hasThe well additionalto capacity Q3 2012 Q4 2012 Q1 2013 Q2 2013 yieldsas fairly constant havebeen Yield¢ Q3 2013 Q4 2013 Q1 2014 Q2 2014 Q3 2014 Q4 2014 Q1 2015 Q2 2015 Q3 2015 1 Q4 2015 Q1 2016 Q2 2016 Q3 2016 Q4 2016 Q1 2017 Q2 2017 Q3 2017 Q4 2017 Q1 2018 0.0 2.0 4.0 6.0 8.0 10.0 12.0 14.0 Capacity growth will eventually moderate, but not quite yet FUTURE SEAT GROWTH BETWEEN HAWAI‘I AND MAINLAND 12 month rolling average vs. % change from YE 2016 (Base) Today 800,000 16% 700,000 Southwest’s impact will be 14% 600,000 felt in 2019 12% 500,000 10% 400,000 8% 300,000 6% 200,000 4% 100,000 2% 0 0% (100,000) -2% Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec 2017 2017 2017 2017 2017 2017 2017 2017 2017 2017 2017 2017 2018 2018 2018 2018 2018 2018 2018 2018 2018 2018 2018 2018 Annual Seats; YE Growth from YE 2016 Source: DiioMi Schedules 16 Continued Canadian growth has come with lower yields HAWAI‘I TO CANADA - 10 YEAR SEAT CAPACITY AND FINANCIAL TRENDS Year-ending 600,000 0.08 +16% capacity in 5 years 0.07 500,000 ending) 0.06 - 400,000 USD$ Yield: 0.05 300,000 0.04 0.03 200,000 0.02 100,000 0.01 80% 86% 85% 86% 85% 84% 85% 83% 84% 89% 90% 0 0.00 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 YE 1Q YE 1Q Onboards and Seats (Year Seats and Onboards 2018 2019 Onboards Seats Future Seats Yield Load Factor Note 1: Future seats are subject to change by each airline Sources: Diio Mi T100, Airport IS - IATA 17 Inter-Island 18 Lower fares drove higher inter-island demand in 2017-18 INTER-ISLAND DAILY PASSENGERS AND AVERAGE FARE – 10 YEAR TREND Year-ending 2008 to 20181 8,000 $90 $79 $79 $79 $78 $73 7,000 $71 $72 $72 $80 $64 $70 6,000 $57 $60 5,000 $47 $50 4,000 Expect market dynamics to $40 3,000 change if/when Southwest enters $30 2,000 $20 1,000 $10 7,303 7,466 6,519 6,393 6,339 6,322 6,403 6,287 6,520 6,830 6,826 0 $- 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 Daily Passengers Average Fare Note 1: YE 1Q 2018 Source: DiioMi O&D summary, Mapchart.net 19 But, Hawaiian now controls 96% of the the inter-island market INTER-ISLAND MARKET SHARE - PRE ISLAND AIR EXIT By airline; YE 3Q 2017 Mokulele 4% Island Air 11% Southwest Airlines next?? “We will start interisland service once we build up our network and have enough frequency to make it meaningful,” Tom Nealon, President of Southwest Hawaiian Airlines (Pacific Business News) 85% Source: DiioMi O&D Summary; www.bizjournals.com, www.swamedia.com 20 International Markets & Carriers 21 Source: DiioMi Schedules Schedules Source: DiioMi (50,000) Stagnant Stagnant international capacity isgrowing again 22 100,000 150,000 200,000 250,000 300,000 350,000 50,000 0 Dec 2008 Feb 2009 Apr 2009 Jun 2009 Aug 2009 Oct 2009 Dec 2009 Feb 2010 Apr 2010 Jun 2010 Aug 2010 Oct 2010 Dec 2010 2008) (YE base from change % Seat vs. average month 12 Rolling Feb 2011 HAWAI‘I Apr 2011 Jun 2011 Aug 2011 Oct 2011 - Dec 2011 CHANGE CAPACITY INTERNATIONAL Feb 2012 Apr 2012 Jun 2012 YE Seats YE Aug 2012 Oct 2012 Dec 2012 Feb 2013 Apr 2013 Jun 2013 growth This inexisting mostly iscoming % Change since base 2008) since (YE % Change Aug 2013 Oct 2013 Dec 2013 Feb 2014 Apr 2014 Jun 2014 Aug 2014 Oct 2014 Dec 2014 - Feb 2015 markets 10 YEAR TREND 10YEAR Apr 2015 Jun 2015 Aug 2015 Oct 2015 Dec 2015 Feb 2016 Apr 2016 Jun 2016 Aug 2016 Oct 2016 Dec 2016 Feb 2017 Apr 2017 Jun 2017 Aug 2017 Oct 2017 Dec 2017 Feb 2018 Apr 2018 Jun 2018 Aug 2018 Oct 2018 -10% 0% 10% 20% 30% 40% 50% 60% 70% 80% In a matter of a decade, international demand increased by 32% TOP 20 - HAWAI'I INTERNATIONAL MARKETS Year-ending 2008 vs.