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MAHONING VALLEY AIR SERVICE
UPDATE
September 20, 2017
Mike Mooney, Managing Partner
Volaire Aviation Consulting
Volaireaviation.com
Airline Industry Highlights
Consolidation – Hub closures and capacity and gauge shifts.
Negative impacts of new pilot flight, duty and qualificationrules.
Segmentation – Five sectors of airline business models.
Risk Aversion – Pay to play for smaller cities.
Regional Carrier Re-Fleeting.
Declining Small Community Air Service Economics.
2
Airline Industry Consolidation:Six Hub Closures since 2000 (Closed Hubs in Red)
Six network carrier hubswithin 500 miles of YNGhave closed since 2000
4
97 98 99102
107109
90
92
94
96
98
100
102
104
106
108
2011 2012 2013 2014 2015 2016
Average Domestic US Aircraft Size
2011 – 2016
Change in Scheduled Departures
2011 – 2016
Source: Boeing Company
Airlines Are Lowering Operating Costs per Seatby Up-Gauging Equipment
-38%
31%
7%
-50.0%
-40.0%
-30.0%
-20.0%
-10.0%
0.0%
10.0%
20.0%
30.0%
40.0%
< 51 51-100 > 100
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Domestic Industry Sectors
Sun Country is migrating from the Value to the ULCC category.
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Model Description Examples
Global size, domestic and international
service, international alliances, regional
partners, hub & spoke system
Specializing in 50 to 76 seat gauge,
Typically operating under network carrier
contract, generally invisible to the public
Size varies, simplified service product
value pricing, more domestic than
international service
Point to point service, ultra low fares with
ancillary pricing, often less-than-daily or
low frequency
Small carriers operating smaller aircraft
in EAS or point to point markets.
Limited or no brand identiy
Ultra Low Cost Carriers
ULCCAllegiant, Frontier, Spirit
Independent regionals
AirChoiceOne, Cape Air,
Contour Air, Boutique Air,
Ultimate Air, Southern Air
DOMESTIC AIRLINE BUSINESS MODELS
Network American, Delta, United
Large Regional Carriers
SkyWest, Expressjet, Mesa,
Republic, Air Wisconsin,
Transtates, Envoy, Endevor
Value Carriers
Southwest, jetBlue,
Alaska/Virgin America,
Hawaiian, Sun Country
Industry Sectors: Distinctions Are Blurring
Network Carriers – American, Delta, United.
Regional Carriers – SkyWest, TranStates, Republic -about 12 total.
Value Carriers – Southwest, jetBlue, Alaska/Virgin,Hawaiian, Sun Country.
Ultra Low Cost Carriers – (most profitable) Allegiant,Frontier, Spirit.
Independent Regionals – Cape Air, AirChoiceOne, others.
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Industry Sectors: Network Regionals
Most network carrier regional jets operated under CapacityPurchase Agreements (CPAs).
Under a CPA the regional carrier simply provides thecapacity, the network carrier decides where and when itoperates.
SkyWest (one of the largest regional carriers) has a uniqueside agreement with American, Delta and United,permitting at-risk operation under the network brand(franchising).
This means that with network permission SkyWest candeploy RJs under a network brand at their (SkyWest’s) risk.
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Industry Sectors: ULCCs
As was noted, the ULCC sector is the most profitable in theindustry right now.
The network carriers are noticing ULCC growth and fightingback with “basic economy” and aggressive defense of hubs.
Frontier Initial Public Offering (IPO) stalled.
Spirit adjusting strategy; smaller gauge Airbuses,consideration of medium sized cities, focus on operationalimprovements.
Allegiant fleet shift, focused on mid sized cities, moving onresort development. (being a travel company, not an airline)
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Industry Sectors: Independent Regionals
Struggling sector; hit hard by pilot shortage and economiclimitations of available equipment.
Difficult to get network access; code share, bag transferagreements (T&B), Global Distribution System (GDS) display, integrated pricing and brand recognition
Focus on Essential Air Service (EAS) or niche services; NCAA,charters, NASCAR, Corporate Shuttles, point to point services.
High unit and per seat costs due to small scale and lack ofcritical mass.
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Much has Changed Since 2013
> In 2013 United Airlines operated a connecting hub at Cleveland
with over 150 daily departures to 50+ cities.
> In 2014 United closed that hub.
> From 2006 to 2013 Allegiant (YNG) operated the ONLY ULCC
Florida service in the NE Ohio/W PA triangle (CLE/CAK/PIT/YNG).
> In 2013 the ONLY other ULCC service in the triangle was Frontier
Airlines with flights from Cleveland to Cincinnati and Denver.
> In 2014 Frontier invaded Cleveland and by yearend operated
ULCC flights to 15 cities, including Las Vegas, Phoenix and four
Florida cities.
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> In 2015 Allegiant entered Akron (3 destinations) and Pittsburgh
(4 destinations).
> By yearend Allegiant had more flights and destinations at those
cities than at Youngstown.
> At Cleveland Frontier had trimmed service and offered flights to
six cities with three being in Florida.
> Spirit had entered Cleveland and by year end offered flights to
ten cities, including Las Vegas, Myrtle Beach and three Florida
cities.
> In this context Allegiant’s moves at Akron and Pittsburgh could
be seen as defensive in nature, attempting to block other ULCCs
from entering the triangle.13
Much has Changed Since 2013
> By November 2016 Spirit had entered Akron, basically on top of
existing Allegiant service. CAK had ULCC service to six Florida
cities.
> Allegiant was then seeing head-to-head challenges on Florida
routes in Akron and Pittsburgh and observing Frontier and Spirit
going head-to-head in Cleveland.
> In February 2017 Allegiant exited Akron and entered Cleveland.
> At Cleveland there was ULCC service to 15 destinations, with
Frontier offering service to 11 and Spirit to 10, with head-to-head
competition on six routes, including three in Florida.
> Frontier had entered Pittsburgh, which now had ULCC service by
Frontier and Allegiant to 14 destinations, including 5 in Florida.
14
Much has Changed Since 2013
> In May of 2017 Spirit entered the Pittsburgh market and now
serves seven destinations from PIT, including two in Florida.
> By May of 2017 there are 49 nonstop ULCC destinations being
offered from the four Triangle airports.
> Cleveland has 28 nonstop ULCC destinations, the highest non-
destination airport concentration of ULCC capacity in the nation.
> At Cleveland Frontier is offering 16 nonstop destinations and
both Spirit and Allegiant are offering 9 each. There is head-to-
head competition on 7 routes. There is nonstop service to eight
Florida airports.
> At Pittsburgh there is nonstop ULCC service to 14 destinations,
8 by Allegiant, 3 by Frontier and 7 by Spirit. There is service to
six Florida airports. 15
Much has Changed Since 2013
> In 48 months the triangle went from a ULCC backwater to a full
scale all out ULCC battleground.
> Pittsburgh and especially Cleveland are now enjoying significant
service from all three ULCC carriers, with intense pricing
competition.
> Youngstown and Akron are performing poorly in this intense
competitive environment. Neither can draw on the nearby
metroplexes for passengers, as was once the case. 16
Much has Changed Since 2013
Year Routes Carriers Routes Carriers Routes Carriers Routes Carriers Routes Carriers
2013 2 1 4 1 0 0 0 0 5 2
2014 15 1 4 1 0 0 0 0 19 2
2015 11 2 4 1 3 1 4 1 22 3
2016 15 2 4 1 8 2 14 2 41 3
2017 28 3 3 1 4 1 14 3 49 3
NORTHEAST OHIO ULCC AIR SERVICE RECAP: 2013 - 2017CLE ULCC YNG ULCC CAK ULCC PIT ULCC Region
> ULCC triangle traffic increase 2013 – 2016; +1,017%
> ULCC triangle capacity increase 2013 – 2016; +849%
> ULCC triangle departure increase 2013 – 2016; +821%
> Allegiant triangle average fare decrease 2013 – 2016; -31%
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Much has Changed Since 2013
Year Carrier Enplaned Change Seats Change Departures Change Load Factor Avg Fare Change
F9 131,213 212,054 1,274 61.88% $155.95
G4 86,384 94,666 570 91.25% $77.15
217,597 306,720 1,844 70.94%
F9 532,429 75.4% 690,156 69.3% 4,202 69.7% 77.15% $109.64 -42.2%
G4 120,896 28.5% 132,340 28.5% 790 27.8% 91.35% $81.29 5.1%
653,325 66.7% 822,496 62.7% 4,992 63.1% 79.43%
F9 961,353 44.6% 1,149,683 40.0% 7,066 40.5% 83.62% $97.34 -12.6%
G4 308,817 60.9% 384,483 65.6% 2,284 65.4% 80.32% $56.29 -44.4%
NK 598,484 778,186 4,942 76.91% $52.93
1,868,654 186.0% 2,312,352 181.1% 14,292 186.3% 80.81%
F9 1,120,322 16.5% 1,308,290 13.8% 7,266 2.8% 85.63% $83.69 -14.0%
G4 535,975 73.6% 630,186 63.9% 3,793 66.1% 85.05% $53.15 -5.6%
NK 774,182 29.4% 972,846 25.0% 5,920 19.8% 79.58% $54.50 3.0%
2,430,479 30.1% 2,911,322 25.9% 16,979 18.8% 83.48%
1017.0% 849.2% 820.8%2016 vs 2013
ULCC PARTICIPATION IN THE CLE, CAK, PIT, YNG MARKET 2013 - 2016
2013
2014
2015
2016
> It is likely that current financial results for the three ULCC
carriers on triangle routes are weak.
> Allegiant was first to the region with service to Youngstown.
> The flood of ULCC capacity into the triangle since 2014 simply
overwhelmed the once profitable Youngstown service.
> Allegiant attempted to play defense in the triangle but that
strategy has had to evolve to head-to-head competition at the
primary airports of the region.
> Youngstown service will end in January.
> Spirit load factors at Akron are 8 load factor points under the
Spirit system load factor for the November to May period.
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Much has Changed Since 2013
0
20,000
40,000
60,000
80,000
100,000
120,000
140,000
66,290
57,530
37,570
22,730
5,6700 0 0
13,27020,04022,31025,800
45,140
63,02068,900
85,270
128,615
129,687
106,395
YNGTotal O&DPassengers
YNG Air Service Summary (1999)UA-ORD 2x Daily BAe-ATP (2 via CAK)NW-DTW 4x Daily Saab-340 (2 via CAK)US-PIT 5x Daily Beech-1900D
YNG Air Service Summary (2000)NW-DTW 2x Daily Saab-340 (2 via CAK)US-PIT 5x Daily Beech-1900D
YNG Air Service Summary (2001)NW-DTW 2x Daily Saab-340 (2 via CAK)
YNG Air Service Summary (2006)G4-SFB 2x Weekly MD-80
YNG Air Service Summary (2010)G4-SFB 2x Weekly MD-80G4-MYR 2x Weekly MD-80
YNG Air Service Summary (2014)G4-SFB 2x Weekly MD-80G4-MYR 4x Weekly MD-80G4-PIE 2x Weekly MD-80G4-PGD 2x Weekly MD-80
YNG Air Service Summary (2011)G4-SFB 2x Weekly MD-80G4-MYR 2x Weekly MD-80G4-PIE 2x Weekly MD-80
YNG Air Service Summary (2015)G4-SFB 2x Weekly MD-80G4-MYR 5x Weekly MD-80G4-PIE 2x Weekly MD-80G4-PGD 2x Weekly A320
YNG Air Service Summary (2016)G4-SFB 2x Weekly MD-80G4-MYR 3x Weekly MD-80G4-PIE 2x Weekly MD-80ZK-ORD 10x Weekly E145 (7 wks)
SERVICE HISTORY
> YNG airline traffic 1998 - 2016
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SERVICE HISTORY
> Allegiant Air began YNG service in 2006, with year-round flights
to Orlando Sanford. In 2010 service was added to St. Pete and
Myrtle Beach. In 2013 service was added to Punta Gorda.
> In 2014 YNG SFB ranked 15th out of 55 Allegiant routes in ticket
revenue per block hour. For the 12 months 2017Q1 it ranked 62nd
out of 73 markets.
> In 2014 YNG PIE ranked 6th out of 34 markets in ticket revenue
per block hour. For the 12 months 2017Q1 it ranked 38th out of 54
markets.
> In late 2016 Allegiant suspended Punta Gorda service.
> In August of 2017 Allegiant advised it would terminate all YNG
service at year end 2017.
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SO WHAT HAPPENED?
> Intense competition at nearby Cleveland, Akron and Pittsburgh.
> Load factor decay.
> Average fare decay.
> Initial Allegiant attempts to defend its position in the region by
adding service at Akron and Pittsburgh.
> Then Allegiant Akron service was shifted to Cleveland.
> Finally the decision to consolidate all services at the two big
airports in the triangle. This is not a decision the carrier would
make casually or without very careful internal consideration.
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YNG ROUTE PERFORMANCE
> From 2013 to 2016;
- MYR fare down 34%, load factor down 13%
- PGD fare down 25%, load factor up 5%
- PIE fare down 31%, load factor down 5%
- SFB fare down 33%, load factor down 5% 28
YNG Avg Fare Avg Fare Chg Avg Fare Chg Avg Fare Chg Change
Destination 2013 2014 Y/Y 2015 Y/Y 2016 Y/Y 2013 - 2016
MYR $61.22 $62.85 2.7% $46.12 -26.6% $40.53 -12.1% -33.8%
PGD $81.96 $90.70 10.7% $73.34 -19.1% $61.69 -15.9% -24.7%
PIE $83.86 $85.52 2.0% $60.03 -29.8% $57.54 -4.1% -31.4%
SFB $77.23 $80.52 4.3% $62.21 -22.7% $51.79 -16.7% -32.9%
YNG LF % LF % Chg LF % Chg LF % Chg Change
Destination 2013 2014 Y/Y 2015 Y/Y 2016 Y/Y 2013 - 2016
MYR 89.4% 88.6% -0.9% 79.8% -9.9% 78.0% -2.3% -12.8%
PGD 85.0% 90.8% 6.8% 86.2% -5.1% 89.2% 3.5% 4.9%
PIE 93.1% 92.3% -0.9% 86.3% -6.5% 88.6% 2.7% -4.8%
SFB 92.0% 92.7% 0.8% 87.7% -5.4% 87.8% 0.1% -4.6%
YNG ALLEGIANT AIR AVG FARE BY ROUTE 2013 - 2016
YNG ALLEGIANT LOAD FACTOR BY ROUTE 2013 - 2016
CURRENT NEW SERVICE OPTIONS
> Pursuing less-than-daily leisure market service.
> Pursuing independent regional carrier small aircraft service to
east coast business destinations.
> Pursuing leisure market track program options (gambling resort)
> Pursuing network coded RJ service to a network hub (SCASD
grant).
> Retaining and expanding college sports team charters.
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CURRENT NEW SERVICE OPTIONS
> Extremely difficult regional environment for any carrier to enter
YNG – Florida or Myrtle Beach right now.
> Independent regional business market service challenges;
- No brand identity and high unit costs
- No T&B or limited T&B and no pricing integration
- Hub access costs
- Best to focus on local O&D
> Resort chartered track programs are low risk, low reward.
> Network RJ service will require significant MRG funding;
- Has to be next best use; aircraft, pilots, gates
- Has to make strategic sense for the carrier
- Network CPA capacity or SkyWest at-risk capacity
> SkyWest at-risk capacity currently focused on EAS options.31
SUMMARY
> Near Term Goals;
- Refine business case document
- Present business case document to viable option carriers
- Work on local new service support mechanisms
- Maintain airline related airport infrastructure (TSA/ARFF/FBO)
- Consider refining and rebranding website/social media
> Medium Term Goals;
- Get something working, something that will succeed, not fail
- Once triangle competition settles, find viable service gaps
- Recruit to fill those gaps
> Long Term Goals;
- Regain at least 10,000 annual enplanements for AIP
- Build from there
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NEXT STEPS
> Community support;
- YNG Air Partners
- Chamber
- Economic Development
- Concerned citizens
- Media
- Big travel generators
> Realistic expectations;
- What is possible?
- What are you willing to commit to achieve what is possible?
- Focus on options that will work, and those may be modest
> Patience;
- Eventually the intense regional ULCC competition will abate
- Continued economic growth
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