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May 2013
Mergers and Competition:
Reviewing the past decade
Joshua Marks, CEO
+1 703 994 0000 Mobile  josh@masflight.com
W W W . M A S F L I G H T . C O M
M A S F L I G H T © 2 0 1 3 A L L R I G H T S R E S E R V E D
We’re going to look at how mergers
have changed the industry since 2005
• Compare the five major mergers since 2005
• Has there been a change in competitive position?
• What about at the city or metro area level?
• How has low-fare competition evolved?
• What about international alliance competition?
S L I D E 2
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SECTION 2
S L I D E 3
INDUSTRY SNAPSHOT
M A S F L I G H T © 2 0 1 3 A L L R I G H T S R E S E R V E D
Let’s start with a current snapshot
We start today’s discussion with a review of the
U.S. airline industry today:
• America West + US Airways complete (well, mostly)
• Delta + Northwest complete
• United + Continental almost complete
• Southwest + AirTran in progress, late stage
• US Airways + American in progress, early stage
• Outliers – Alaska, Frontier, JetBlue, Hawaiian, Spirit, Allegiant
We focus on market share, network scale, and
fleet dynamics for U.S. carriers
S L I D E 4
M A S F L I G H T © 2 0 1 3 A L L R I G H T S R E S E R V E D
Today: Before US/AA and WN/FL
S L I D E 5
Daily
Flights
Mainline
Flights
Regional
Flights
Domestic
Flights
Int’l
Flights
Seats
per Day
Seat
Share %
Seats
/Flight
United Airlines 5,023 1,735 3,289 4,277 747 447,953 18.7% 89.2
Delta Air Lines 4,684 2,149 2,535 4,244 440 502,791 21.0% 107.3
American Airlines 3,441 1,850 1,590 2,809 632 371,988 15.5% 108.1
US Airways 3,007 1,205 1,801 2,800 207 287,041 12.0% 95.5
Southwest Airlines 2,840 2,840 - 2,840 - 400,573 16.7% 141.1
Alaska Airlines 745 387 358 661 84 84,905 3.5% 113.9
JetBlue Airways 697 697 - 532 165 92,193 3.9% 132.2
AirTran Airways 528 528 - 472 56 63,936 2.7% 121.1
Frontier Airlines Inc. 230 207 23 210 20 31,923 1.3% 138.8
Spirit Airlines 220 220 - 189 31 35,288 1.5% 160.2
Hawaiian Airlines 206 206 - 193 13 31,181 1.3% 151.3
Virgin America 135 135 - 132 3 19,262 0.8% 142.8
Allegiant Air LLC 111 111 - 111 - 18,597 0.8% 167.5
Sun Country Airlines 47 47 - 35 12 6,961 0.3% 149.0
masFlight/OAG Schedules for February 1 to February 7 2013, operations by US major and national airlines with more than 29 seats per departure.
Excludes freight and mixed cargo flights. Nonstop flights, no code-shares included. Average flights per day during sample period.
M A S F L I G H T © 2 0 1 3 A L L R I G H T S R E S E R V E D
International Exposure (% of Mainline)
S L I D E 6
0% 0% 1%
4%
8%
11%
13% 14% 14%
18%
23%
27%
29%
G4 WN VX F9 AS FL US NK HA DL B6 AA UA
Monday, May 20, 2013 (OAG)
% Seats % Flights
M A S F L I G H T © 2 0 1 3 A L L R I G H T S R E S E R V E D
Fleet Composition of Daily Seats
S L I D E 7
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
UA AS US AA DL F9 B6 FL G4 HA NK VX WN
5/20/2013 - US Carriers OAG
% One-Cabin RJ
% Two-Cabin RJ
% Narrowbody
% Widebody
M A S F L I G H T © 2 0 1 3 A L L R I G H T S R E S E R V E D
Code Shares (By Daily Departures)
S L I D E 8
F9
Frontier
HA
Hawaiian
WN
Southwest
FL
AirTran
AS
Alaska
AA
American
DL
Delta
US
US Air
UA
United
Africa 15 33 41 55
Asia 36 145 221 72 196
Europe 748 859 402 992
Latin America 27 3 111 234 71 224
Middle East 43 13 11 14
US/Canada 186 162 539 1,371 1,907 818 785 2,113 2,176
Pacific 5 80 51 32 53
Carrier Total 186 198 566 1,374 1,912 1,960 2,196 2,742 3,710
May 20, 2013 Flights (OAG)
M A S F L I G H T © 2 0 1 3 A L L R I G H T S R E S E R V E D
Operational Performance (March 2013)
S L I D E 9
68%
74%
80%
80%
82%
91%
75%
81%
82%
83%
85%
86%
Frontier
United
American
US Airways
Delta
Alaska
Mainline
Regional
70%
72%
79%
81%
88%
90%
Spirit
JetBlue
AirTran
Southwest
Virgin
America
Hawaiian
OPERATIONAL ONTIME ARRIVAL PERFORMANCE (A+14%)
M A S F L I G H T © 2 0 1 3 A L L R I G H T S R E S E R V E D
Section One Summary
• United and Delta have similar competitive positions
– Broad, multi-hub domestic and international networks
– Significant regional jet operations (almost 2:1 regional to mainline at United)
– Foundation members of respective alliances
• American and US Airways have similar scale
– American has a broad international network and flies larger aircraft
Average flight distance 1,121 miles (836 including regional operations)
– US Airways operates in smaller markets with smaller aircraft
Average flight distance 848 miles (573 including regional operations)
– #2 or #3 in several key markets (NYC, Los Angeles, San Francisco, etc.)
• Southwest has the highest number of mainline departures
S L I D E 1 0
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SECTION 2
S L I D E 11
MERGER HISTORY
M A S F L I G H T © 2 0 1 3 A L L R I G H T S R E S E R V E D
Looking at mergers
We will start with a review of the
five primary mergers of the last decade
1. US + HP (2005)
2. DL + NW (2008)
3. UA + CO (2010)
4. FL + WN (2011)
5. AA + US (2013)
S L I D E 1 2
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US Airways & America West (2005)
S L I D E 1 3
• HP acquired US
Airways out of
Chapter 11
• Announced May
2005; closed
September 2005
• Airbus, Air
Wisconsin and
ACE invested
• Merger “completed”
2006 - partially
AMERICA WEST
DOMESTIC MAINLINE
US AIRWAYS
DOMESTIC MAINLINE
M A S F L I G H T © 2 0 1 3 A L L R I G H T S R E S E R V E D
Setting The Stage for 2008-2012
What made mergers
attractive?
• Growth in international
traffic 2002-2007
• Escalated fuel cost
• Bankruptcies already
removed low fruit
• Revenue
synergies, high-yield
dominance
• Network optimization
S L I D E 1 4
13.0
12.4
11.7
11.7
11.1
10.2
9.8
8.6
7.8
7.3
United
Continental
American
Northwest
Delta
USAirways
Alaska
JetBlue
AirTran
Southwest
RASM 2007 (SLA)
M A S F L I G H T © 2 0 1 3 A L L R I G H T S R E S E R V E D
Delta & Northwest (2008)
• Both fresh from bankruptcy
• Elevated fuel costs drove new cost pressure
• Both in SkyTeam with competing JVs
– NW + KLM
– DL + Air France
• Announced merger in April 2008
in conjunction with a new pilot labor agreement
• DOJ approved October 2008 with final
infrastructure merged in January 2010.
S L I D E 1 5
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DL + NW – Network Synergies
S L I D E 1 6
A natural merger
• Complementary domestic:
DL east, NW central
• NW had Asian network
(55% of capacity in 2008)
• DL had Latin network
• Both carriers had strong
European presence
• Combined carrier targeted
50/50 mix of domestic &
international flying
Delta Air Lines
Domestic Mainline
Northwest Airlines
Domestic Mainline
M A S F L I G H T © 2 0 1 3 A L L R I G H T S R E S E R V E D
DL + NW Critical Stats
S L I D E 1 7
At Time of Merger Delta Northwest
Employees 48,700 29,600
Revenue (2007) $19.1 billion $12.5 billion
Passengers (2007) 109.1 million 66.4 million
RPMs (2007) 122 billion 78 billion
System Fleet Size 578 515
Overlap Routes:
Atlanta-Detroit (AirTran)
Atlanta-Memphis (AirTran)
Atlanta-Minneapolis (AirTran)
Detroit-Salt Lake City (None)
Minneapolis-Salt Lake City (None)
LA – Las Vegas (AA/US/UA/WN)
LA – Honolulu (AA/CO/HA/UA)
SF – Honolulu (AA/HA/UA)
M A S F L I G H T © 2 0 1 3 A L L R I G H T S R E S E R V E D
United & Continental (2010)
S L I D E 1 8
At Time of Merger United Continental
Employees 48,000 43,000
Daily Departures 3,300 2,400
Fleet Size 386 351
Destinations 217 262
2008 Revenue $20.2 billion $15.2 billion
United Mainline Continental Mainline
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UA+CO Overlap Routes
S L I D E 1 9
Chicago-Cleveland (AA, WN)
Chicago-Houston (AA, WN)
Chicago-Newark (AA)
Denver-Houston (F9, WN)
Denver-Newark *
Los Angeles - Honolulu
(AA, DL/NW, HA)
Houston-San Francisco *
Houston-Washington *
Newark - San Francisco *
M A S F L I G H T © 2 0 1 3 A L L R I G H T S R E S E R V E D
Comparing DL/NW and UA/CO
• You can argue that once DL+NW happened,
it was inevitable that UA+CO would occur
• US and AA were natural pairs (antitrust matters!)
S L I D E 2 0
United + Continental Delta + Northwest
Revenue (2009) $28.9 billion $28.1 billion
RPMs (1H 2010) 41.6 billion 36.5 billion
Atlantic RPMs 8.1 billion 7.3 billion
Pacific RPMs 7.0 billion 5.0 billion
M A S F L I G H T © 2 0 1 3 A L L R I G H T S R E S E R V E D
United/Continental Fleet Mixing
S L I D E 2 1
0
100
200
300
400
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
Cleveland (Mainline)
0
300
600
900
1200
1500
1800
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013Denver (Mainline)
0
300
600
900
1200
1500
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
Newark (Mainline)
0
300
600
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
Washington (Mainline)
Domestic mainline flying by United (RED) and Continental (BLUE)
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0
500
1000
1500
2000
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
Houston (Mainline)
0
500
1000
1500
2000
2500
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
Chicago (Mainline)
0
300
600
900
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
Los Angeles (Mainline)
0
300
600
900
1200
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
San Francisco (Mainline)
United/Continental Fleet Mixing (2)
Domestic mainline flying by United (RED) and Continental (BLUE)
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Southwest & AirTran (2010)
• Announced September 27, 2010
• First modern mega-merger of
nationwide Low-Cost Carriers
• FL had attempted acquisition of Midwest in
2007, built presence at MKE after deal failed
• Southwest needed stronger access in key
markets and access to international markets
S L I D E 2 3
M A S F L I G H T © 2 0 1 3 A L L R I G H T S R E S E R V E D
WN + FL – Key Stats at Announcement
S L I D E 2 4
Southwest AirTran
Employees (2010) 34,636 8,083
Aircraft 544 138
Employees/Plane 64 59
Boeing 717 86
Boeing 737 Classics 198
Boeing 737NG 345 52
Routes 461 177
Cities 69 69
Routes per City 6.6 2.5
M A S F L I G H T © 2 0 1 3 A L L R I G H T S R E S E R V E D
WN + FL: Domestic Routes
S L I D E 2 5
Key deal synergies:
• Pricing power in
key metro areas
(Orlando, Chicago)
• Strong position in
Atlanta, last major
WN “hole”
• Access to slot-
controlled markets
• Fleet simplification
Southwest Network
AirTran Network
M A S F L I G H T © 2 0 1 3 A L L R I G H T S R E S E R V E D
WN/FL service discontinuation
• Market size – could not support incremental seats
of 737NG vs. 717
– Allentown, Asheville, Bloomington, Charleston,
Huntsville, Knoxville, Lexington, Moline
• Regulatory – Wright Amendment
– Dallas/Fort Worth
• Service Overlap – Catchment area shared with
existing Southwest cities or larger AirTran markets
– Atlantic City, Harrisburg, Miami,
Newport News, Sarasota, White Plains
S L I D E 2 6
M A S F L I G H T © 2 0 1 3 A L L R I G H T S R E S E R V E D
American and US Airways Merger
• Announced February 14, 2013
• Creates largest airline with 6,700 daily flights to 336
destinations in 56 countries
• Fleet renewals on both sides
• AA and US networks are highly complementary
– Little geographic overlap
– Where they do, LCC competition or entry threat
– The American network has considerably more scope,
but US Airways has more departures on routes they serve
– Average of 4x daily per route for US vs. 3.4x daily for AA
S L I D E 2 7
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US + AA Networks and Unique Cities
S L I D E 2 8
US Airways Airports
February 2013
American Airlines Airports
February 2013
Unique Cities Brought to Merger
Unique US cities added (Black)
Unique AA cities added (Red)
Combined network fills geographic gaps
and adds nearly 8,000 new O&D pairs
61 unique airports
not served by AA
130 unique airports
not served by US
Schedules for February 1 through 7, 2013
Graphics masFlight and gcmap.com
M A S F L I G H T © 2 0 1 3 A L L R I G H T S R E S E R V E D
Competition in Overlap Markets
S L I D E 2 9
Overlap Route Legacy @
Specific Airports
Legacy @ Other
City Airports
LCCs in the same
metro area pair
Phoenix to Los Angeles DL (4x), UA (2x) - WN (29x)
Phoenix to Dallas/Ft. Worth - - WN (9x 1-stop)
Charlotte to NY LaGuardia DL (6x) DL (1x), UA (6x) B6 (2x)
Charlotte to O’Hare UA (4x) - -
Charlotte to Dallas/Ft. Worth - - -
Charlotte to Miami - - -
Chicago to Philadelphia UA (7x) - WN (6x)
Chicago to Phoenix UA (3x) - WN (7x)
DC Reagan to Raleigh - UA (5x), DL (3x) WN (6x)
DC Reagan to Nashville - UA (3x) WN (6x)
Philadelphia to Dallas/Ft. Worth - - WN (1x 1-stop)
Philadelphia to Miami - - WN/FL (6x), NK (3x)
masFlight/OAG Schedules February 1-7 2013
M A S F L I G H T © 2 0 1 3 A L L R I G H T S R E S E R V E D
WAS and NYC Post-Merger Shares
S L I D E 3 0
March 2013, Post-Merger Seat % Shares per Week, March 1, 2013 through March 7, 2013
Washington Airports (DCA/BWI/IAD)
Departing Seat Shares
New York Airports (JFK/LGA/EWR)
Departing Seat Shares
American/
US Airways
17.7%
Delta
22.3%
United
24.7%
JetBlue
12.8%
Southwest/
AirTran
3.1%
Others
19.5%American/
US Airways
25.0%
Delta
9.9%
United
26.3%JetBlue
2.8%
Southwest/
AirTran
27.5%
Others
8.5%
M A S F L I G H T © 2 0 1 3 A L L R I G H T S R E S E R V E D
Section Two Summary
• Dominoes: Once Delta-Northwest occurred,
it was inevitable the rest would follow
– HP+US was merger of opportunity (and necessity)
– The next four were driven by the recession of 2008
(and competitive requirements once DL+NW happened)
• Bankruptcy exits set the stage for mergers
– Non-core costs cut to the bone
– Not much slack left when the economic recession hit
– Fuel costs elevated at the same time
• Revenue optimization is underway
– Fleet reassignment, base consolidation evident
S L I D E 3 1
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SECTION 3
S L I D E 32
COMPETITION AFTER MERGERS
M A S F L I G H T © 2 0 1 3 A L L R I G H T S R E S E R V E D
Big Picture: After Mergers & Integration
S L I D E 3 3
Daily
Flights
Mainline
Flights
Regional
Flights
Domesti
c
Flights
Int’l
Flights
Seats
per Day
Flight
Share %
Seat
Share %
Seats
/Flight
American + US 6,448 3,055 3,391 5,609 839 659,029 29.4% 27.5% 102.2
United Airlines 5,023 1,735 3,289 4,277 747 447,953 22.9% 18.7% 89.2
Delta Air Lines 4,684 2,149 2,535 4,244 440 502,791 21.4% 21.0% 107.3
Southwest + AirTran 3,368 3,368 - 3,312 56 464,509 15.4% 19.4% 137.9
Alaska Airlines 745 387 358 661 84 84,905 3.4% 3.5% 113.9
JetBlue Airways 697 697 - 532 165 92,193 3.2% 3.9% 132.2
Frontier Airlines Inc. 230 207 23 210 20 31,923 1.0% 1.3% 138.8
Spirit Airlines 220 220 - 189 31 35,288 1.0% 1.5% 160.2
Hawaiian Airlines 206 206 - 193 13 31,181 0.9% 1.3% 151.3
Virgin America 135 135 - 132 3 19,262 0.6% 0.8% 142.8
Allegiant Air LLC 111 111 - 111 - 18,597 0.5% 0.8% 167.5
Sun Country Airlines 47 47 - 35 12 6,961 0.2% 0.3% 148.1
masFlight/OAG Schedules for February 1 to February 7 2013, operations by US major and national airlines with more than 29 seats per departure.
Excludes freight and mixed cargo flights. Nonstop flights, no code-shares included.
M A S F L I G H T © 2 0 1 3 A L L R I G H T S R E S E R V E D
Mergers cause significant share shift
Coast to coast overlap between the three majors &
significant competition on almost all O&D markets inside the U.S.
S L I D E 3 4
Source: masFlight/OAG, shares of major U.S. carriers and national airlines, nonstop systemwide seats including both mainline and regional operations.
Includes Delta, United, American, US Airways, Southwest, Alaska, JetBlue, AirTran, Hawaiian, Frontier, Spirit, Virgin America, Allegiant, and Sun Country.
Schedule sample from February 1, 2013 through February 7, 2013 for passenger services with 19 seats or greater.
UA
18.7%
DL
21.0%
WN
16.7%
AA
15.5%
US
12.0%
Others
16.1%
Seat Share, Before
US/AA and WN/FL
UA
18.7%
DL
21.0%
WN/FL
19.4%
US/AA
27.5%
Others
13.4%
Seat Share, After
US/AA and WN/FL
M A S F L I G H T © 2 0 1 3 A L L R I G H T S R E S E R V E D
Using O&D as competitive metric
• In last section we looked at nonstop overlaps
• It’s really network competition that’s relevant
• This is particularly true for metro areas
• Reviewing O&D traffic helps us understand:
– Where there’s competition for passengers
– How carrier stack up against peers
Analysis is based on Q3 2012 fare data released by DOT and available at the BTS website.
I did not utilize confidential information.
S L I D E 3 5
M A S F L I G H T © 2 0 1 3 A L L R I G H T S R E S E R V E D
US/AA Key O&D Markets (2012)
S L I D E 3 6
Rank Top US+AA Markets Pax/Day Revenue Av Fare LCC Rev Nonstop %
1 New York to Los Angeles 1,312 412,915 $315 33% 90%
2 New York to Dallas 1,145 350,377 $306 8% 88%
3 New York to Chicago 1,814 320,500 $177 21% 98%
4 Los Angeles to Dallas 1,448 313,432 $216 21% 90%
5 Dallas to Washington 957 272,258 $284 9% 85%
6 Chicago to Los Angeles 1,048 232,337 $222 35% 91%
7 Miami/FLL to New York 1,309 229,758 $176 46% 97%
8 Chicago to Dallas 1,072 226,898 $212 16% 95%
9 Los Angeles to Chicago 1,032 225,236 $218 35% 92%
10 New York to San Francisco 669 195,327 $292 32% 91%
M A S F L I G H T © 2 0 1 3 A L L R I G H T S R E S E R V E D
United Key O&D Markets (2012)
S L I D E 3 7
Rank Top United Markets Pax/Day Revenue Av Fare LCC Rev Nonstop %
1 New York to San Francisco 1,265 481,107 $380 32% 91%
2 New York to Los Angeles 1,285 437,459 $340 33% 90%
3 Chicago to New York 1,577 332,900 $211 21% 98%
4 Washington to San Francisco 845 258,219 $306 37% 82%
5 Houston to New York 882 256,515 $291 19% 88%
6 Chicago to Washington 1,280 22,024 $17 28% 97%
7 Washington to Los Angeles 734 211,920 $289 31% 79%
8 San Francisco to Boston 674 211,527 $314 54% 90%
9 Miami/FLL to New York 1,293 208,527 $161 46% 97%
10 San Francisco to Chicago 770 199,277 $259 34% 94%
M A S F L I G H T © 2 0 1 3 A L L R I G H T S R E S E R V E D
Delta Key O&D Markets (2012)
S L I D E 3 8
Rank Top Delta Markets Pax/Day Revenue Av Fare LCC Rev Nonstop %
1 Atlanta to New York 2,094 379,723 $181 16% 94%
2 Miami/FLL to New York 1,721 256,504 $149 46% 97%
3 Atlanta to Washington 1,424 240,175 $169 28% 97%
4 New York to Los Angeles 839 222,360 $265 33% 90%
5 Atlanta to Los Angeles 890 218,521 $246 21% 87%
6 Minneapolis to New York 685 190,955 $279 13% 91%
7 New York to San Francisco 636 178,051 $280 32% 91%
8 New York to Detroit 759 165,146 $218 13% 94%
9 Atlanta to Boston 812 160,245 $197 23% 92%
10 Atlanta to San Francisco 573 152,468 $266 16% 86%
M A S F L I G H T © 2 0 1 3 A L L R I G H T S R E S E R V E D
Southwest Key O&D Markets (2012)
S L I D E 3 9
Rank Top WN/FL Markets Pax/Day Revenue Av Fare Legacy Rev Nonstop %
1 Los Angeles to San Francisco 6,663 790,113 $119 21% 99%
2 San Diego to San Francisco 2,544 302,832 $119 13% 99%
3 Los Angeles to Sacramento 2,119 268,233 $127 6% 99%
4 Las Vegas to Los Angeles 2,167 249,697 $115 19% 99%
5 Las Vegas to San Francisco 1,953 227,615 $117 18% 97%
6 Los Angeles to Phoenix 1,614 186,791 $116 33% 99%
7 Boston Area to DC/Balt 1,611 185,504 $115 39% 98%
8 Houston to Dallas 1,094 161,467 $148 32% 99%
9 San Francisco to Phoenix 1,065 142,319 $134 38% 98%
10 Los Angeles to Denver 1,028 138,787 $135 41% 94%
M A S F L I G H T © 2 0 1 3 A L L R I G H T S R E S E R V E D
Domestic O&D Share (2012)
S L I D E 4 0
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
Others
American
US Airways
United
Delta
Southwest/AirTran
M A S F L I G H T © 2 0 1 3 A L L R I G H T S R E S E R V E D
Section Three Summary
• On a metropolitan area basis, competition is still
alive and well in the U.S., even with mergers
• With scale, carriers are now concentrating
operations on their fortress hubs – which can
coexist in the same metro area
• Low-cost carriers are now engaging legacy hubs
by picking off highest-yield opportunities
– Southwest/AirTran in Atlanta, Denver; Spirit at DFW
• Antitrust analysis will need to change in the
future based on the changed, consolidated
landscape
S L I D E 4 1
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SECTION 4
S L I D E 42
GLOBAL ALLIANCES
M A S F L I G H T © 2 0 1 3 A L L R I G H T S R E S E R V E D
Alliances & Global Competition
• We have been focused on domestic competition
• Let’s turn to the international arena
• International competition is dominated by global
alliances and joint-venture agreements
• US shifting to oneworld will have a leveling impact
on alliance dynamics, particularly transatlantic
S L I D E 4 3
M A S F L I G H T © 2 0 1 3 A L L R I G H T S R E S E R V E D
S L I D E 4 4
Daily Departures by Region
Daily NONSTOP departures and markets based on OAG schedules week of October 1, 2012
Source: masFlight (www.masflight.com)
2
3
8
3,283
5,177
9,667
Etihad
Qatar
Emirates
oneworld
SkyTeam
StarAlliance
North America
9
19
21
76
394
752
Etihad
Qatar
Emirates
oneworld
SkyTeam
StarAllia…
Asia
-
1
2
262
561
691
Etihad
Qatar
Emirates
oneworld
SkyTeam
StarAlliance
Central & South
America
8
25
27
99
210
735
Etihad
Qatar
Emirates
oneworld
SkyTeam
StarAllia…
Africa
27
42
57
2,506
3,218
5,519
Etihad
Qatar
Emirates
oneworld
SkyTeam
StarAllia…
Europe
102
115
164
209
230
496
oneworld
Etihad
StarAlliance
Qatar
Emirates
SkyTeam
Middle East
1
3
18
35
642
748
Qatar
Etihad
Emirates
SkyTeam
StarAllia…
oneworld
Pacific
M A S F L I G H T © 2 0 1 3 A L L R I G H T S R E S E R V E D
Alliance Reach from Key Cities
S L I D E 4 5
Flights to/from: Oneworld SkyTeam
Star
Alliance
Atlanta 33.8 78.8 60.2
Bangkok 45.3 54.3 77.3
Barcelona 44.1 65.3 77.8
Berlin 47.2 59.2 79.2
Bogota 42.6 45.6 87.4
Boston 46.9 64.7 78.9
Buenos Aires 59.1 59.9 35.6
Chicago 47.5 56.0 82.0
Hong Kong 50.5 58.6 61.9
Istanbul 27.0 55.1 84.7
Jakarta 37.8 66.2 61.4
London 52.6 59.7 76.5
Los Angeles 38.0 64.7 78.4
Madrid 51.6 64.4 72.7
Melbourne 53.3 42.4 50.5
Mexico City 32.9 75.6 67.5
Miami/Ft. Lauderdale 56.0 55.8 70.4
Milan 42.3 66.4 78.5
Flights to/from: Oneworld SkyTeam
Star
Alliance
Moscow 35.6 73.0 69.2
New York/Newark 43.5 63.7 82.7
Paris 38.9 72.9 72.6
Philadelphia 43.7 54.2 84.0
Rio de Janeiro 46.4 25.7 89.0
Riyadh 38.1 60.3 64.8
Rome 38.4 69.7 74.3
San Francisco 41.9 57.6 80.1
Santiago 55.3 58.9 31.2
Sao Paulo 44.9 38.5 86.2
Seoul 31.4 72.3 70.1
Shanghai 35.9 76.4 64.3
Singapore 41.1 57.3 75.8
Sydney 50.7 44.1 65.6
Tel Aviv Yafo 40.5 63.8 75.0
Tokyo 39.5 60.1 77.5
Toronto 40.3 57.2 83.6
Washington DC 40.9 59.6 81.3
Out of 100 potential points per market, based on breadth of service
M A S F L I G H T © 2 0 1 3 A L L R I G H T S R E S E R V E D
Alliance Mix: From the United States
US’ shift from Star to oneworld will reduce the gap with
Star Alliance – and should have a tangible competitive benefit
S L I D E 4 6
Oneworld
19.9%
SkyTeam,
16.2%
Star
Alliance, 4
1.8%
Unaligned,
22.1%
Before Realignment
Oneworld
25.6%
SkyTeam,
16.2%
Star
Alliance, 3
6.0%
Unaligned
, 22.1%
After Realignment
Schedule snapshot for first week of February 2013 (masFlight/OAG) – Share of Departures per Week
M A S F L I G H T © 2 0 1 3 A L L R I G H T S R E S E R V E D S L I D E 4 7
Oneworld
19.9%
SkyTeam,
23.7%
Star
Alliance, 4
1.7%
Unaligned,
8.9%
Before Realignment
Oneworld
30.2%
SkyTeam,
23.7%
Star
Alliance, 3
7.2%
Unaligned,
8.9%
After Realignment
Schedule snapshot for first week of February 2013 (masFlight/OAG) – Share of Departures per Week
North Atlantic: Competitive Rebalance
US’ shift to oneworld will make a significant difference
in the competitive North Atlantic market
A M E R I C A N A V I A T I O N I N S T I T U T E © 2 0 1 1 A L L R I G H T S R E S E R V E D
48
M A S F L I G H T © 2 0 1 3 A L L R I G H T S R E S E R V E D
SECTION 5
S L I D E 48
CONCLUSIONS
M A S F L I G H T © 2 0 1 3 A L L R I G H T S R E S E R V E D
Conclusions: Network Combination
Mergers from 2008 followed a similar pattern
1. Driven by pairing complementary networks, increasing
network scope, consolidating hubs and reducing duplicated
cost structures
2. Once the DL/NW merger occurred, the race was on among
remaining U.S. majors to leapfrog competitors
3. DOJ standards defined the mergers, not the other way
around
4. Mergers created the stability the industry needs going
forward
S L I D E 4 9
M A S F L I G H T © 2 0 1 3 A L L R I G H T S R E S E R V E D
Conclusions: Competition
Still a very competitive industry after these mergers
1. United, Delta, American, Southwest, plus smaller airlines
2. Most traffic is between major cities, and that’s where both
legacy and LCC carriers compete intensively
3. Southwest has a strong position in the Top 20 markets
4. US + AA does not fundamentally change competition
5. Larger markets continue multi-hub trend
(e.g. DC – UA at IAD, Southwest at BWI, US/AA at DCA)
6. LCC overlap is significant on both nonstop and O&D basis
S L I D E 5 0
M A S F L I G H T © 2 0 1 3 A L L R I G H T S R E S E R V E D
Conclusions: Alliances
Alliance competition increases
1. Minor shift in alliance share from Star  oneworld
Particularly relative to DL/NW and UA/CO shifts
2. Meaningfully changes Atlantic and Caribbean markets
3. Significantly increases oneworld network (O&D pair)
options from Central U.S. to Europe
4. I think US’ shift is good for competition and long-term
viability of three alliance model
S L I D E 5 1
M A S F L I G H T © 2 0 1 3 A L L R I G H T S R E S E R V E D
Conclusions: Other Thoughts
Benefits for consumers
1. New O&D and routing options from the merged network
will benefit both business and leisure passengers
2. Stronger networks  better local service options
3. Pricing pressure is alive and well.
– Southwest may not be as aggressive as it used to be, but their
competitive footprint is wide and evident in fares and yields
4. The US/AA merger is relatively tame given just 2 city pairs
with high impact
– Charlotte to South Florida – ripe for LCC entry
Charlotte to Dallas – more complex forecast
S L I D E 5 2

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Airline Mergers, Competition and Impact: 2005-2013

  • 1. May 2013 Mergers and Competition: Reviewing the past decade Joshua Marks, CEO +1 703 994 0000 Mobile  josh@masflight.com W W W . M A S F L I G H T . C O M
  • 2. M A S F L I G H T © 2 0 1 3 A L L R I G H T S R E S E R V E D We’re going to look at how mergers have changed the industry since 2005 • Compare the five major mergers since 2005 • Has there been a change in competitive position? • What about at the city or metro area level? • How has low-fare competition evolved? • What about international alliance competition? S L I D E 2
  • 3. A M E R I C A N A V I A T I O N I N S T I T U T E © 2 0 1 1 A L L R I G H T S R E S E R V E D 3 M A S F L I G H T © 2 0 1 3 A L L R I G H T S R E S E R V E D SECTION 2 S L I D E 3 INDUSTRY SNAPSHOT
  • 4. M A S F L I G H T © 2 0 1 3 A L L R I G H T S R E S E R V E D Let’s start with a current snapshot We start today’s discussion with a review of the U.S. airline industry today: • America West + US Airways complete (well, mostly) • Delta + Northwest complete • United + Continental almost complete • Southwest + AirTran in progress, late stage • US Airways + American in progress, early stage • Outliers – Alaska, Frontier, JetBlue, Hawaiian, Spirit, Allegiant We focus on market share, network scale, and fleet dynamics for U.S. carriers S L I D E 4
  • 5. M A S F L I G H T © 2 0 1 3 A L L R I G H T S R E S E R V E D Today: Before US/AA and WN/FL S L I D E 5 Daily Flights Mainline Flights Regional Flights Domestic Flights Int’l Flights Seats per Day Seat Share % Seats /Flight United Airlines 5,023 1,735 3,289 4,277 747 447,953 18.7% 89.2 Delta Air Lines 4,684 2,149 2,535 4,244 440 502,791 21.0% 107.3 American Airlines 3,441 1,850 1,590 2,809 632 371,988 15.5% 108.1 US Airways 3,007 1,205 1,801 2,800 207 287,041 12.0% 95.5 Southwest Airlines 2,840 2,840 - 2,840 - 400,573 16.7% 141.1 Alaska Airlines 745 387 358 661 84 84,905 3.5% 113.9 JetBlue Airways 697 697 - 532 165 92,193 3.9% 132.2 AirTran Airways 528 528 - 472 56 63,936 2.7% 121.1 Frontier Airlines Inc. 230 207 23 210 20 31,923 1.3% 138.8 Spirit Airlines 220 220 - 189 31 35,288 1.5% 160.2 Hawaiian Airlines 206 206 - 193 13 31,181 1.3% 151.3 Virgin America 135 135 - 132 3 19,262 0.8% 142.8 Allegiant Air LLC 111 111 - 111 - 18,597 0.8% 167.5 Sun Country Airlines 47 47 - 35 12 6,961 0.3% 149.0 masFlight/OAG Schedules for February 1 to February 7 2013, operations by US major and national airlines with more than 29 seats per departure. Excludes freight and mixed cargo flights. Nonstop flights, no code-shares included. Average flights per day during sample period.
  • 6. M A S F L I G H T © 2 0 1 3 A L L R I G H T S R E S E R V E D International Exposure (% of Mainline) S L I D E 6 0% 0% 1% 4% 8% 11% 13% 14% 14% 18% 23% 27% 29% G4 WN VX F9 AS FL US NK HA DL B6 AA UA Monday, May 20, 2013 (OAG) % Seats % Flights
  • 7. M A S F L I G H T © 2 0 1 3 A L L R I G H T S R E S E R V E D Fleet Composition of Daily Seats S L I D E 7 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% UA AS US AA DL F9 B6 FL G4 HA NK VX WN 5/20/2013 - US Carriers OAG % One-Cabin RJ % Two-Cabin RJ % Narrowbody % Widebody
  • 8. M A S F L I G H T © 2 0 1 3 A L L R I G H T S R E S E R V E D Code Shares (By Daily Departures) S L I D E 8 F9 Frontier HA Hawaiian WN Southwest FL AirTran AS Alaska AA American DL Delta US US Air UA United Africa 15 33 41 55 Asia 36 145 221 72 196 Europe 748 859 402 992 Latin America 27 3 111 234 71 224 Middle East 43 13 11 14 US/Canada 186 162 539 1,371 1,907 818 785 2,113 2,176 Pacific 5 80 51 32 53 Carrier Total 186 198 566 1,374 1,912 1,960 2,196 2,742 3,710 May 20, 2013 Flights (OAG)
  • 9. M A S F L I G H T © 2 0 1 3 A L L R I G H T S R E S E R V E D Operational Performance (March 2013) S L I D E 9 68% 74% 80% 80% 82% 91% 75% 81% 82% 83% 85% 86% Frontier United American US Airways Delta Alaska Mainline Regional 70% 72% 79% 81% 88% 90% Spirit JetBlue AirTran Southwest Virgin America Hawaiian OPERATIONAL ONTIME ARRIVAL PERFORMANCE (A+14%)
  • 10. M A S F L I G H T © 2 0 1 3 A L L R I G H T S R E S E R V E D Section One Summary • United and Delta have similar competitive positions – Broad, multi-hub domestic and international networks – Significant regional jet operations (almost 2:1 regional to mainline at United) – Foundation members of respective alliances • American and US Airways have similar scale – American has a broad international network and flies larger aircraft Average flight distance 1,121 miles (836 including regional operations) – US Airways operates in smaller markets with smaller aircraft Average flight distance 848 miles (573 including regional operations) – #2 or #3 in several key markets (NYC, Los Angeles, San Francisco, etc.) • Southwest has the highest number of mainline departures S L I D E 1 0
  • 11. A M E R I C A N A V I A T I O N I N S T I T U T E © 2 0 1 1 A L L R I G H T S R E S E R V E D 11 M A S F L I G H T © 2 0 1 3 A L L R I G H T S R E S E R V E D SECTION 2 S L I D E 11 MERGER HISTORY
  • 12. M A S F L I G H T © 2 0 1 3 A L L R I G H T S R E S E R V E D Looking at mergers We will start with a review of the five primary mergers of the last decade 1. US + HP (2005) 2. DL + NW (2008) 3. UA + CO (2010) 4. FL + WN (2011) 5. AA + US (2013) S L I D E 1 2
  • 13. M A S F L I G H T © 2 0 1 3 A L L R I G H T S R E S E R V E D US Airways & America West (2005) S L I D E 1 3 • HP acquired US Airways out of Chapter 11 • Announced May 2005; closed September 2005 • Airbus, Air Wisconsin and ACE invested • Merger “completed” 2006 - partially AMERICA WEST DOMESTIC MAINLINE US AIRWAYS DOMESTIC MAINLINE
  • 14. M A S F L I G H T © 2 0 1 3 A L L R I G H T S R E S E R V E D Setting The Stage for 2008-2012 What made mergers attractive? • Growth in international traffic 2002-2007 • Escalated fuel cost • Bankruptcies already removed low fruit • Revenue synergies, high-yield dominance • Network optimization S L I D E 1 4 13.0 12.4 11.7 11.7 11.1 10.2 9.8 8.6 7.8 7.3 United Continental American Northwest Delta USAirways Alaska JetBlue AirTran Southwest RASM 2007 (SLA)
  • 15. M A S F L I G H T © 2 0 1 3 A L L R I G H T S R E S E R V E D Delta & Northwest (2008) • Both fresh from bankruptcy • Elevated fuel costs drove new cost pressure • Both in SkyTeam with competing JVs – NW + KLM – DL + Air France • Announced merger in April 2008 in conjunction with a new pilot labor agreement • DOJ approved October 2008 with final infrastructure merged in January 2010. S L I D E 1 5
  • 16. M A S F L I G H T © 2 0 1 3 A L L R I G H T S R E S E R V E D DL + NW – Network Synergies S L I D E 1 6 A natural merger • Complementary domestic: DL east, NW central • NW had Asian network (55% of capacity in 2008) • DL had Latin network • Both carriers had strong European presence • Combined carrier targeted 50/50 mix of domestic & international flying Delta Air Lines Domestic Mainline Northwest Airlines Domestic Mainline
  • 17. M A S F L I G H T © 2 0 1 3 A L L R I G H T S R E S E R V E D DL + NW Critical Stats S L I D E 1 7 At Time of Merger Delta Northwest Employees 48,700 29,600 Revenue (2007) $19.1 billion $12.5 billion Passengers (2007) 109.1 million 66.4 million RPMs (2007) 122 billion 78 billion System Fleet Size 578 515 Overlap Routes: Atlanta-Detroit (AirTran) Atlanta-Memphis (AirTran) Atlanta-Minneapolis (AirTran) Detroit-Salt Lake City (None) Minneapolis-Salt Lake City (None) LA – Las Vegas (AA/US/UA/WN) LA – Honolulu (AA/CO/HA/UA) SF – Honolulu (AA/HA/UA)
  • 18. M A S F L I G H T © 2 0 1 3 A L L R I G H T S R E S E R V E D United & Continental (2010) S L I D E 1 8 At Time of Merger United Continental Employees 48,000 43,000 Daily Departures 3,300 2,400 Fleet Size 386 351 Destinations 217 262 2008 Revenue $20.2 billion $15.2 billion United Mainline Continental Mainline
  • 19. M A S F L I G H T © 2 0 1 3 A L L R I G H T S R E S E R V E D UA+CO Overlap Routes S L I D E 1 9 Chicago-Cleveland (AA, WN) Chicago-Houston (AA, WN) Chicago-Newark (AA) Denver-Houston (F9, WN) Denver-Newark * Los Angeles - Honolulu (AA, DL/NW, HA) Houston-San Francisco * Houston-Washington * Newark - San Francisco *
  • 20. M A S F L I G H T © 2 0 1 3 A L L R I G H T S R E S E R V E D Comparing DL/NW and UA/CO • You can argue that once DL+NW happened, it was inevitable that UA+CO would occur • US and AA were natural pairs (antitrust matters!) S L I D E 2 0 United + Continental Delta + Northwest Revenue (2009) $28.9 billion $28.1 billion RPMs (1H 2010) 41.6 billion 36.5 billion Atlantic RPMs 8.1 billion 7.3 billion Pacific RPMs 7.0 billion 5.0 billion
  • 21. M A S F L I G H T © 2 0 1 3 A L L R I G H T S R E S E R V E D United/Continental Fleet Mixing S L I D E 2 1 0 100 200 300 400 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 Cleveland (Mainline) 0 300 600 900 1200 1500 1800 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013Denver (Mainline) 0 300 600 900 1200 1500 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 Newark (Mainline) 0 300 600 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 Washington (Mainline) Domestic mainline flying by United (RED) and Continental (BLUE)
  • 22. M A S F L I G H T © 2 0 1 3 A L L R I G H T S R E S E R V E D S L I D E 2 2 0 500 1000 1500 2000 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 Houston (Mainline) 0 500 1000 1500 2000 2500 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 Chicago (Mainline) 0 300 600 900 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 Los Angeles (Mainline) 0 300 600 900 1200 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 San Francisco (Mainline) United/Continental Fleet Mixing (2) Domestic mainline flying by United (RED) and Continental (BLUE)
  • 23. M A S F L I G H T © 2 0 1 3 A L L R I G H T S R E S E R V E D Southwest & AirTran (2010) • Announced September 27, 2010 • First modern mega-merger of nationwide Low-Cost Carriers • FL had attempted acquisition of Midwest in 2007, built presence at MKE after deal failed • Southwest needed stronger access in key markets and access to international markets S L I D E 2 3
  • 24. M A S F L I G H T © 2 0 1 3 A L L R I G H T S R E S E R V E D WN + FL – Key Stats at Announcement S L I D E 2 4 Southwest AirTran Employees (2010) 34,636 8,083 Aircraft 544 138 Employees/Plane 64 59 Boeing 717 86 Boeing 737 Classics 198 Boeing 737NG 345 52 Routes 461 177 Cities 69 69 Routes per City 6.6 2.5
  • 25. M A S F L I G H T © 2 0 1 3 A L L R I G H T S R E S E R V E D WN + FL: Domestic Routes S L I D E 2 5 Key deal synergies: • Pricing power in key metro areas (Orlando, Chicago) • Strong position in Atlanta, last major WN “hole” • Access to slot- controlled markets • Fleet simplification Southwest Network AirTran Network
  • 26. M A S F L I G H T © 2 0 1 3 A L L R I G H T S R E S E R V E D WN/FL service discontinuation • Market size – could not support incremental seats of 737NG vs. 717 – Allentown, Asheville, Bloomington, Charleston, Huntsville, Knoxville, Lexington, Moline • Regulatory – Wright Amendment – Dallas/Fort Worth • Service Overlap – Catchment area shared with existing Southwest cities or larger AirTran markets – Atlantic City, Harrisburg, Miami, Newport News, Sarasota, White Plains S L I D E 2 6
  • 27. M A S F L I G H T © 2 0 1 3 A L L R I G H T S R E S E R V E D American and US Airways Merger • Announced February 14, 2013 • Creates largest airline with 6,700 daily flights to 336 destinations in 56 countries • Fleet renewals on both sides • AA and US networks are highly complementary – Little geographic overlap – Where they do, LCC competition or entry threat – The American network has considerably more scope, but US Airways has more departures on routes they serve – Average of 4x daily per route for US vs. 3.4x daily for AA S L I D E 2 7
  • 28. M A S F L I G H T © 2 0 1 3 A L L R I G H T S R E S E R V E D US + AA Networks and Unique Cities S L I D E 2 8 US Airways Airports February 2013 American Airlines Airports February 2013 Unique Cities Brought to Merger Unique US cities added (Black) Unique AA cities added (Red) Combined network fills geographic gaps and adds nearly 8,000 new O&D pairs 61 unique airports not served by AA 130 unique airports not served by US Schedules for February 1 through 7, 2013 Graphics masFlight and gcmap.com
  • 29. M A S F L I G H T © 2 0 1 3 A L L R I G H T S R E S E R V E D Competition in Overlap Markets S L I D E 2 9 Overlap Route Legacy @ Specific Airports Legacy @ Other City Airports LCCs in the same metro area pair Phoenix to Los Angeles DL (4x), UA (2x) - WN (29x) Phoenix to Dallas/Ft. Worth - - WN (9x 1-stop) Charlotte to NY LaGuardia DL (6x) DL (1x), UA (6x) B6 (2x) Charlotte to O’Hare UA (4x) - - Charlotte to Dallas/Ft. Worth - - - Charlotte to Miami - - - Chicago to Philadelphia UA (7x) - WN (6x) Chicago to Phoenix UA (3x) - WN (7x) DC Reagan to Raleigh - UA (5x), DL (3x) WN (6x) DC Reagan to Nashville - UA (3x) WN (6x) Philadelphia to Dallas/Ft. Worth - - WN (1x 1-stop) Philadelphia to Miami - - WN/FL (6x), NK (3x) masFlight/OAG Schedules February 1-7 2013
  • 30. M A S F L I G H T © 2 0 1 3 A L L R I G H T S R E S E R V E D WAS and NYC Post-Merger Shares S L I D E 3 0 March 2013, Post-Merger Seat % Shares per Week, March 1, 2013 through March 7, 2013 Washington Airports (DCA/BWI/IAD) Departing Seat Shares New York Airports (JFK/LGA/EWR) Departing Seat Shares American/ US Airways 17.7% Delta 22.3% United 24.7% JetBlue 12.8% Southwest/ AirTran 3.1% Others 19.5%American/ US Airways 25.0% Delta 9.9% United 26.3%JetBlue 2.8% Southwest/ AirTran 27.5% Others 8.5%
  • 31. M A S F L I G H T © 2 0 1 3 A L L R I G H T S R E S E R V E D Section Two Summary • Dominoes: Once Delta-Northwest occurred, it was inevitable the rest would follow – HP+US was merger of opportunity (and necessity) – The next four were driven by the recession of 2008 (and competitive requirements once DL+NW happened) • Bankruptcy exits set the stage for mergers – Non-core costs cut to the bone – Not much slack left when the economic recession hit – Fuel costs elevated at the same time • Revenue optimization is underway – Fleet reassignment, base consolidation evident S L I D E 3 1
  • 32. A M E R I C A N A V I A T I O N I N S T I T U T E © 2 0 1 1 A L L R I G H T S R E S E R V E D 32 M A S F L I G H T © 2 0 1 3 A L L R I G H T S R E S E R V E D SECTION 3 S L I D E 32 COMPETITION AFTER MERGERS
  • 33. M A S F L I G H T © 2 0 1 3 A L L R I G H T S R E S E R V E D Big Picture: After Mergers & Integration S L I D E 3 3 Daily Flights Mainline Flights Regional Flights Domesti c Flights Int’l Flights Seats per Day Flight Share % Seat Share % Seats /Flight American + US 6,448 3,055 3,391 5,609 839 659,029 29.4% 27.5% 102.2 United Airlines 5,023 1,735 3,289 4,277 747 447,953 22.9% 18.7% 89.2 Delta Air Lines 4,684 2,149 2,535 4,244 440 502,791 21.4% 21.0% 107.3 Southwest + AirTran 3,368 3,368 - 3,312 56 464,509 15.4% 19.4% 137.9 Alaska Airlines 745 387 358 661 84 84,905 3.4% 3.5% 113.9 JetBlue Airways 697 697 - 532 165 92,193 3.2% 3.9% 132.2 Frontier Airlines Inc. 230 207 23 210 20 31,923 1.0% 1.3% 138.8 Spirit Airlines 220 220 - 189 31 35,288 1.0% 1.5% 160.2 Hawaiian Airlines 206 206 - 193 13 31,181 0.9% 1.3% 151.3 Virgin America 135 135 - 132 3 19,262 0.6% 0.8% 142.8 Allegiant Air LLC 111 111 - 111 - 18,597 0.5% 0.8% 167.5 Sun Country Airlines 47 47 - 35 12 6,961 0.2% 0.3% 148.1 masFlight/OAG Schedules for February 1 to February 7 2013, operations by US major and national airlines with more than 29 seats per departure. Excludes freight and mixed cargo flights. Nonstop flights, no code-shares included.
  • 34. M A S F L I G H T © 2 0 1 3 A L L R I G H T S R E S E R V E D Mergers cause significant share shift Coast to coast overlap between the three majors & significant competition on almost all O&D markets inside the U.S. S L I D E 3 4 Source: masFlight/OAG, shares of major U.S. carriers and national airlines, nonstop systemwide seats including both mainline and regional operations. Includes Delta, United, American, US Airways, Southwest, Alaska, JetBlue, AirTran, Hawaiian, Frontier, Spirit, Virgin America, Allegiant, and Sun Country. Schedule sample from February 1, 2013 through February 7, 2013 for passenger services with 19 seats or greater. UA 18.7% DL 21.0% WN 16.7% AA 15.5% US 12.0% Others 16.1% Seat Share, Before US/AA and WN/FL UA 18.7% DL 21.0% WN/FL 19.4% US/AA 27.5% Others 13.4% Seat Share, After US/AA and WN/FL
  • 35. M A S F L I G H T © 2 0 1 3 A L L R I G H T S R E S E R V E D Using O&D as competitive metric • In last section we looked at nonstop overlaps • It’s really network competition that’s relevant • This is particularly true for metro areas • Reviewing O&D traffic helps us understand: – Where there’s competition for passengers – How carrier stack up against peers Analysis is based on Q3 2012 fare data released by DOT and available at the BTS website. I did not utilize confidential information. S L I D E 3 5
  • 36. M A S F L I G H T © 2 0 1 3 A L L R I G H T S R E S E R V E D US/AA Key O&D Markets (2012) S L I D E 3 6 Rank Top US+AA Markets Pax/Day Revenue Av Fare LCC Rev Nonstop % 1 New York to Los Angeles 1,312 412,915 $315 33% 90% 2 New York to Dallas 1,145 350,377 $306 8% 88% 3 New York to Chicago 1,814 320,500 $177 21% 98% 4 Los Angeles to Dallas 1,448 313,432 $216 21% 90% 5 Dallas to Washington 957 272,258 $284 9% 85% 6 Chicago to Los Angeles 1,048 232,337 $222 35% 91% 7 Miami/FLL to New York 1,309 229,758 $176 46% 97% 8 Chicago to Dallas 1,072 226,898 $212 16% 95% 9 Los Angeles to Chicago 1,032 225,236 $218 35% 92% 10 New York to San Francisco 669 195,327 $292 32% 91%
  • 37. M A S F L I G H T © 2 0 1 3 A L L R I G H T S R E S E R V E D United Key O&D Markets (2012) S L I D E 3 7 Rank Top United Markets Pax/Day Revenue Av Fare LCC Rev Nonstop % 1 New York to San Francisco 1,265 481,107 $380 32% 91% 2 New York to Los Angeles 1,285 437,459 $340 33% 90% 3 Chicago to New York 1,577 332,900 $211 21% 98% 4 Washington to San Francisco 845 258,219 $306 37% 82% 5 Houston to New York 882 256,515 $291 19% 88% 6 Chicago to Washington 1,280 22,024 $17 28% 97% 7 Washington to Los Angeles 734 211,920 $289 31% 79% 8 San Francisco to Boston 674 211,527 $314 54% 90% 9 Miami/FLL to New York 1,293 208,527 $161 46% 97% 10 San Francisco to Chicago 770 199,277 $259 34% 94%
  • 38. M A S F L I G H T © 2 0 1 3 A L L R I G H T S R E S E R V E D Delta Key O&D Markets (2012) S L I D E 3 8 Rank Top Delta Markets Pax/Day Revenue Av Fare LCC Rev Nonstop % 1 Atlanta to New York 2,094 379,723 $181 16% 94% 2 Miami/FLL to New York 1,721 256,504 $149 46% 97% 3 Atlanta to Washington 1,424 240,175 $169 28% 97% 4 New York to Los Angeles 839 222,360 $265 33% 90% 5 Atlanta to Los Angeles 890 218,521 $246 21% 87% 6 Minneapolis to New York 685 190,955 $279 13% 91% 7 New York to San Francisco 636 178,051 $280 32% 91% 8 New York to Detroit 759 165,146 $218 13% 94% 9 Atlanta to Boston 812 160,245 $197 23% 92% 10 Atlanta to San Francisco 573 152,468 $266 16% 86%
  • 39. M A S F L I G H T © 2 0 1 3 A L L R I G H T S R E S E R V E D Southwest Key O&D Markets (2012) S L I D E 3 9 Rank Top WN/FL Markets Pax/Day Revenue Av Fare Legacy Rev Nonstop % 1 Los Angeles to San Francisco 6,663 790,113 $119 21% 99% 2 San Diego to San Francisco 2,544 302,832 $119 13% 99% 3 Los Angeles to Sacramento 2,119 268,233 $127 6% 99% 4 Las Vegas to Los Angeles 2,167 249,697 $115 19% 99% 5 Las Vegas to San Francisco 1,953 227,615 $117 18% 97% 6 Los Angeles to Phoenix 1,614 186,791 $116 33% 99% 7 Boston Area to DC/Balt 1,611 185,504 $115 39% 98% 8 Houston to Dallas 1,094 161,467 $148 32% 99% 9 San Francisco to Phoenix 1,065 142,319 $134 38% 98% 10 Los Angeles to Denver 1,028 138,787 $135 41% 94%
  • 40. M A S F L I G H T © 2 0 1 3 A L L R I G H T S R E S E R V E D Domestic O&D Share (2012) S L I D E 4 0 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% Others American US Airways United Delta Southwest/AirTran
  • 41. M A S F L I G H T © 2 0 1 3 A L L R I G H T S R E S E R V E D Section Three Summary • On a metropolitan area basis, competition is still alive and well in the U.S., even with mergers • With scale, carriers are now concentrating operations on their fortress hubs – which can coexist in the same metro area • Low-cost carriers are now engaging legacy hubs by picking off highest-yield opportunities – Southwest/AirTran in Atlanta, Denver; Spirit at DFW • Antitrust analysis will need to change in the future based on the changed, consolidated landscape S L I D E 4 1
  • 42. A M E R I C A N A V I A T I O N I N S T I T U T E © 2 0 1 1 A L L R I G H T S R E S E R V E D 42 M A S F L I G H T © 2 0 1 3 A L L R I G H T S R E S E R V E D SECTION 4 S L I D E 42 GLOBAL ALLIANCES
  • 43. M A S F L I G H T © 2 0 1 3 A L L R I G H T S R E S E R V E D Alliances & Global Competition • We have been focused on domestic competition • Let’s turn to the international arena • International competition is dominated by global alliances and joint-venture agreements • US shifting to oneworld will have a leveling impact on alliance dynamics, particularly transatlantic S L I D E 4 3
  • 44. M A S F L I G H T © 2 0 1 3 A L L R I G H T S R E S E R V E D S L I D E 4 4 Daily Departures by Region Daily NONSTOP departures and markets based on OAG schedules week of October 1, 2012 Source: masFlight (www.masflight.com) 2 3 8 3,283 5,177 9,667 Etihad Qatar Emirates oneworld SkyTeam StarAlliance North America 9 19 21 76 394 752 Etihad Qatar Emirates oneworld SkyTeam StarAllia… Asia - 1 2 262 561 691 Etihad Qatar Emirates oneworld SkyTeam StarAlliance Central & South America 8 25 27 99 210 735 Etihad Qatar Emirates oneworld SkyTeam StarAllia… Africa 27 42 57 2,506 3,218 5,519 Etihad Qatar Emirates oneworld SkyTeam StarAllia… Europe 102 115 164 209 230 496 oneworld Etihad StarAlliance Qatar Emirates SkyTeam Middle East 1 3 18 35 642 748 Qatar Etihad Emirates SkyTeam StarAllia… oneworld Pacific
  • 45. M A S F L I G H T © 2 0 1 3 A L L R I G H T S R E S E R V E D Alliance Reach from Key Cities S L I D E 4 5 Flights to/from: Oneworld SkyTeam Star Alliance Atlanta 33.8 78.8 60.2 Bangkok 45.3 54.3 77.3 Barcelona 44.1 65.3 77.8 Berlin 47.2 59.2 79.2 Bogota 42.6 45.6 87.4 Boston 46.9 64.7 78.9 Buenos Aires 59.1 59.9 35.6 Chicago 47.5 56.0 82.0 Hong Kong 50.5 58.6 61.9 Istanbul 27.0 55.1 84.7 Jakarta 37.8 66.2 61.4 London 52.6 59.7 76.5 Los Angeles 38.0 64.7 78.4 Madrid 51.6 64.4 72.7 Melbourne 53.3 42.4 50.5 Mexico City 32.9 75.6 67.5 Miami/Ft. Lauderdale 56.0 55.8 70.4 Milan 42.3 66.4 78.5 Flights to/from: Oneworld SkyTeam Star Alliance Moscow 35.6 73.0 69.2 New York/Newark 43.5 63.7 82.7 Paris 38.9 72.9 72.6 Philadelphia 43.7 54.2 84.0 Rio de Janeiro 46.4 25.7 89.0 Riyadh 38.1 60.3 64.8 Rome 38.4 69.7 74.3 San Francisco 41.9 57.6 80.1 Santiago 55.3 58.9 31.2 Sao Paulo 44.9 38.5 86.2 Seoul 31.4 72.3 70.1 Shanghai 35.9 76.4 64.3 Singapore 41.1 57.3 75.8 Sydney 50.7 44.1 65.6 Tel Aviv Yafo 40.5 63.8 75.0 Tokyo 39.5 60.1 77.5 Toronto 40.3 57.2 83.6 Washington DC 40.9 59.6 81.3 Out of 100 potential points per market, based on breadth of service
  • 46. M A S F L I G H T © 2 0 1 3 A L L R I G H T S R E S E R V E D Alliance Mix: From the United States US’ shift from Star to oneworld will reduce the gap with Star Alliance – and should have a tangible competitive benefit S L I D E 4 6 Oneworld 19.9% SkyTeam, 16.2% Star Alliance, 4 1.8% Unaligned, 22.1% Before Realignment Oneworld 25.6% SkyTeam, 16.2% Star Alliance, 3 6.0% Unaligned , 22.1% After Realignment Schedule snapshot for first week of February 2013 (masFlight/OAG) – Share of Departures per Week
  • 47. M A S F L I G H T © 2 0 1 3 A L L R I G H T S R E S E R V E D S L I D E 4 7 Oneworld 19.9% SkyTeam, 23.7% Star Alliance, 4 1.7% Unaligned, 8.9% Before Realignment Oneworld 30.2% SkyTeam, 23.7% Star Alliance, 3 7.2% Unaligned, 8.9% After Realignment Schedule snapshot for first week of February 2013 (masFlight/OAG) – Share of Departures per Week North Atlantic: Competitive Rebalance US’ shift to oneworld will make a significant difference in the competitive North Atlantic market
  • 48. A M E R I C A N A V I A T I O N I N S T I T U T E © 2 0 1 1 A L L R I G H T S R E S E R V E D 48 M A S F L I G H T © 2 0 1 3 A L L R I G H T S R E S E R V E D SECTION 5 S L I D E 48 CONCLUSIONS
  • 49. M A S F L I G H T © 2 0 1 3 A L L R I G H T S R E S E R V E D Conclusions: Network Combination Mergers from 2008 followed a similar pattern 1. Driven by pairing complementary networks, increasing network scope, consolidating hubs and reducing duplicated cost structures 2. Once the DL/NW merger occurred, the race was on among remaining U.S. majors to leapfrog competitors 3. DOJ standards defined the mergers, not the other way around 4. Mergers created the stability the industry needs going forward S L I D E 4 9
  • 50. M A S F L I G H T © 2 0 1 3 A L L R I G H T S R E S E R V E D Conclusions: Competition Still a very competitive industry after these mergers 1. United, Delta, American, Southwest, plus smaller airlines 2. Most traffic is between major cities, and that’s where both legacy and LCC carriers compete intensively 3. Southwest has a strong position in the Top 20 markets 4. US + AA does not fundamentally change competition 5. Larger markets continue multi-hub trend (e.g. DC – UA at IAD, Southwest at BWI, US/AA at DCA) 6. LCC overlap is significant on both nonstop and O&D basis S L I D E 5 0
  • 51. M A S F L I G H T © 2 0 1 3 A L L R I G H T S R E S E R V E D Conclusions: Alliances Alliance competition increases 1. Minor shift in alliance share from Star  oneworld Particularly relative to DL/NW and UA/CO shifts 2. Meaningfully changes Atlantic and Caribbean markets 3. Significantly increases oneworld network (O&D pair) options from Central U.S. to Europe 4. I think US’ shift is good for competition and long-term viability of three alliance model S L I D E 5 1
  • 52. M A S F L I G H T © 2 0 1 3 A L L R I G H T S R E S E R V E D Conclusions: Other Thoughts Benefits for consumers 1. New O&D and routing options from the merged network will benefit both business and leisure passengers 2. Stronger networks  better local service options 3. Pricing pressure is alive and well. – Southwest may not be as aggressive as it used to be, but their competitive footprint is wide and evident in fares and yields 4. The US/AA merger is relatively tame given just 2 city pairs with high impact – Charlotte to South Florida – ripe for LCC entry Charlotte to Dallas – more complex forecast S L I D E 5 2