taking the dismal science to 30,000 feet: the need for … 2010...taking the dismal science to...
TRANSCRIPT
Taking the Dismal Science to 30,000 Feet:
The Need for Speed
John P. Heimlich
VP and Chief Economist
Aircraft Builders Council Annual Conference
September 21, 2010
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Why do people travel, or ship, by air?
―Cross country skiing is great
if you live in a small country.‖
— Steven Wright
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Warm-Up Trivia
3
In 2007-2009, what airline was most profitable in the world?
How about in Europe?
United States?
Asia?
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Competing Globally Will Require Strength at HomeConstraining U.S. Carriers Domestically Will Have Lasting Implications
-5%
0%
5%
10%
15%
Co
pa
Ryan
air
Alleg
ian
t
Sin
gap
ore
LA
N
Qan
tas
Lu
fth
an
sa
So
uth
wes
t
Cath
ay P
acif
ic
Bri
tish
Air
ways
JetB
lue
Air
Tra
n
All N
ipp
on
Co
nti
nen
tal
Th
ai
Air
Fra
nce
-KL
M
US
Air
ways
Am
eri
ca
n
Delt
a
Un
ited
Source: ATA and Morgan Stanley
Net Profit Margins: Calendar Years 2007-2009
4
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Warm-Up Trivia (Cont’d)
5
What U.S. passenger airline has the youngest operating fleet?
What U.S. passenger airline has the oldest operating fleet?
Who has a younger fleet – FedEx or UPS?
Who has more airplanes: Continental or US Airways?
Who has more airplanes: Southwest or United (pre-merger)?
True or False: The new United will have more planes than Delta
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The Air Transport Association of America, Inc.
When America Flies, It Works
6
Combination Services
AirTran Airways
Alaska Airlines
American Airlines
Continental Airlines
Delta Air Lines
Hawaiian Airlines
JetBlue Airways
Southwest Airlines
United Airlines
US Airways
All-Cargo Services
ABX Air
ASTAR Air Cargo
Atlas Air Worldwide Holdings
Evergreen Int’l Airlines
FedEx Corporation
UPS Airlines
Associate Members
Air Canada
Air Jamaica
Mexicana
Founded in 1936, ATA is the nation’s oldest and largest airline trade association.
Its fundamental purpose is to foster a business and regulatory environment that
ensures safe and secure air transportation and enables U.S. airlines to flourish,
stimulating economic growth locally, nationally and internationally.
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Sample of ATA Functions/Issues
Environmental Affairs
Taxation
Air Traffic Management
Cabin/Flight Operations
Safety and Security
Fuel Quality/Technical Matters
Passenger and Cargo Facilitation
Legal/Regulatory Matters
State and Local Affairs
International Affairs
Airports/Slots/Infrastructure
Manufacturing Sector
Alternative Fuels
Communications/Media Relations
Maintenance/Engineering
Medical/Emergency Personnel
7
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Each Decade, U.S. Airline Safety Has Improved MarkedlyFatal Accidents per Million Aircraft Departures in Scheduled Service
8
0.8810
0.5050
0.2919
0.1230
1970-79 1980-89 1990-99 2000-09
Source: ATA analysis of data from the National Transportation Safety Board
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Doing Better and Doing Well Are Not the Same Thing
9
3
4
5
6
7
8
9
10
11
1980
1982
1984
1986
1988
1990
1992
1994
1996
1998
2000
2002
2004
2006
2008
2010
2012
Sources: Bureau of Labor Statistics (http://www.bls.gov/cps) and Bureau of Economic Analysis (http://www.bea.gov/national/index.htm#gdp)
U.S. Unemployment RatePercent
$12.5
$12.6
$12.7
$12.8
$12.9
$13.0
$13.1
$13.2
$13.3
$13.4
$13.5
1Q
05
1Q
06
1Q
07
1Q
08
1Q
09
1Q
10
Real U.S. GDPTrillions of Chained 2005 Dollars, SAAR
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The Industry Is Climbing Out of a Deep Hole
Net Income ($Billions) for U.S. Passenger and Cargo Airlines*
10
$2.9
($10.7)
$23.1
($58.2)
$1.0
1979-1989 1990-1994 1995-2000 2001-2009 1H 2010
* DOT Form 41 P-12, Account 9899
―The industry hasn’t seen a real upcycle. 2006-2007 in retrospect now looks more like a
brief reprieve from a downcycle… The industry has not been profitable enough to justify
investment.‖ (Lehman Brothers, ―Implications of a Profound U.S. Airline Industry Restructuring,‖ 6/27/08)
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Average U.S. Price per Gallon of Jet Fuel
$0.59
$1.05
$2.37
$1.69
$2.14$2.32
1991-2000 2001-2005 2006-2008 2009 2010 (EIA-F) 2011 (EIA-F)
Airline Energy Costs Are High and Poised to Rise
Source: Energy Information Administration
11
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For U.S. Passenger and Cargo-Only Airlines, Fuel
Expenditures Trending Up Despite Lower Consumption
12
Sources: ATA, Energy Information Administration, Department of Transportation
Note: Value in parentheses below year is average price paid per gallon excluding taxes, into-plane fees, pipeline tariffs and hedging costs; YE = year ended
16.815.0
12.815.5
22.7
33.2
38.841.9
57.8
32.3
36.6
16
17
18
19
20
21
$10
$20
$30
$40
$50
$60
2000 ($0.82)2001 ($0.78)2002 ($0.72)2003 ($0.85)2004 ($1.16)2005 ($1.66)2006 ($1.97)2007 ($2.11)2008 ($3.07)2009 ($1.90)YE 7/10 ($2.16)
Billion Gallons
Billion Dollars
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2009 Domestic Seating Capacity Fell Most Since 1942Market Forces, Policy Resulted in Largest Post-WWII Contraction in Aviation History
13
Sources: ATA, BTS and Innovata (via APGDat)
(16
.2) (6.9
)
(40)
(20)
0
20
40
60
80
100
19
32
19
34
19
36
19
38
19
40
19
42
19
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19
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19
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19
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70
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19
76
19
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80
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82
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90
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92
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19
96
19
98
20
00
20
02
20
04
20
06
20
08
20
10A
nn
ua
l P
erc
en
t C
ha
nge
in
Do
me
sti
c A
SM
s*
* An available seat mile (ASM) is one seat flown one mile
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Domestic Departures Down Sharply From 2000
14
Scheduled Domestic Flights per Day
Source: Innovata (via APG) published schedules as of Sept. 17, 2010
Scheduled International* Flights per Day
30
,08
2
25
,10
2 26
,38
4
26
,50
0
28
,08
9
27
,14
4
27
,05
2
26
,83
9
24
,35
5
23
,42
3
23
,66
6
4…
4…
4…
4…
4…
4…
4…
4…
4…
4…
4…
1,9
00
1,5
15
1,6
19
1,6
13
1,6
94
1,7
02 1
,76
4
1,8
30
1,7
76
1,7
15
1,7
31
4…
4…
4…
4…
4…
4…
4…
4…
4…
4…
4…
* Scheduled U.S.- and non-U.S.-airline flights departing U.S. airports for non-U.S. destinations
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The Future Lies Across the Pond(s)
Thinking Outside the [Domestic] Box
2.0
4.0 4.2
6.8
Do
mesti
c U
S
US
-Eu
rop
e
Jap
an
-US
Ch
ina
-US
2.5
4.6 4.7 4.9
Wit
hin
No
rth
Am
No
rth
Atl
an
tic
No
rth
Am
to
LatA
m
Tra
nsp
ac
ific
Airbus Global Market Forecast
Annual Traffic Growth: 2009-2028
Boeing Current Market Outlook
Annual Traffic Growth: 2009-2028
15
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Population-Weighted Map With 2010 Real GDP Growth Rates (%)
The World Is Changing; Growth Is Occurring On A Global Scale
16
+11%
+8%
+3%
+5%
+6%
+3%
+1%
+1%
+5%
+5%
+2%
+4%
+6%
+5%
Sources: Cartogram of the World's Population (2007); Global Insight (WMM), real GDP growth rates for 2010 (base year as 2005).
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U.S.-Carrier Access to Some of the World’s Largest and
Fastest-Growing Markets Remains Legally Restricted
17
Open Skies Agreement
Restrictive Agreement
No Agreement
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Alliances Have Helped Carriers Compete Effectively
in Response to Regulatory Barriers in Restricted Markets
18
Online Non-U.S. Destinations Served – August 2010
Source: OAG, August 2010
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Three Highly Competitive Global Airline Alliances
19
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Healthy Investment Requires Healthy CreditNo Passenger Airline in the World Enjoys an A-Minus or Better Rating from S&P
20
< BBB- (speculative or ―junk‖)
>= BBB- (investment-grade)
Ex
xo
nM
ob
il
Mic
ros
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GE
To
yo
ta
Wal-
Mart
BP
eB
ay
Go
ldm
an
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ch
s
QA
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S
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uth
we
st
Lu
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sa
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tis
h A
ir
Ala
sk
a
TA
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Co
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Air
Ca
na
da
Air
Tra
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Am
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ca
n
Je
tBlu
e
SA
S
Un
ite
d
US
Air
wa
ys
AA
A
BB
B
BBBB
B-
BB
-
B+
B+
BB
B
B-
B-
B-
B-
B-
B-
AA
A
AA
+
AA
AA
A A A B-
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Healthy Investment Requires Healthy Equity
Equity Market Capitalization (Billions) as of Sept. 17 at 0950 EDT
$311.0
$253.4
$220.4
$192.7
$174.4
$119.4
$112.6
$78.4
$37.9
$35.1
$31.5
ExxonMobil
Apple
Microsoft
Wal-Mart
GE
Toyota
BP
Goldman Sachs
Deutsche Bank
U.S. airline industry*
eBay
* AAI, ALGT, ALK, AMR, CAL, DAL, HA, JBLU, LCC, LUV, MESA, PNCL, RJET, SKYW, UAUA, XJT
21
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What’s Wrong With This Picture?Testimony of David R. Strine, Impala Asset Management (June 16, 2010)
―The poor financial performance of the industry through full
business cycles can be attributed to its high fixed cost structure,
overleveraged balance sheets, low barriers to entry, high barriers
to exit, fragmentation, and fierce competition from low-cost
domestic carriers and recently-consolidated, well-funded
international carriers…
As you weigh policy objectives for the airlines, you may want to
consider the benefits from having airlines in a better position to
generate a return on invested capital in excess of their cost of
capital through a full business cycle…. Only then will there be a
solid foundation for increased capital expenditures, rising wages,
and increased service.‖
22
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The USG Answer to Global Transport?
High-Speed Sail !
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The ATA Climate Change Commitment:
A Global, Sectoral Approach
24
Improve fuel efficiency by 1.5% per year from 2009 to 2020
Carbon-neutral growth from 2020
Reduce CO2 emissions by 50% in 2050 (relative to 2005)
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Airlines Have Opportunity to Reinvent Supply Chain,
Alleviate Dependence on Traditional Refining Economics
25
19.6
Propane|Butane|Propylene|Butylene
Kerosene | Jet Fuel
Heating Oil and
Diesel Fuel
Finished
Motor Gasoline(including Naphtha*)
* Feedstock for high-octane gasoline, petrochemicals and solvents
Lubricants|Wax|Asphalt|Tar|Fuel Oils
Petroleum Coke and Other
Light (52%)
Distillates
26%
Heavy (13%)
Distillates**
11.7
4.1
2.5
3.3
3.5G
allo
ns t
ota
l 4
4.7
du
e t
o ―
pro
ce
ssin
g g
ain
‖
Sources: EIA and American Petroleum Institute
** Includes heavy oils and residuum used in industry, marine
transportation and electric-power generation
9%
Middle (35%)
Distillates
8%
44%
7%
6%
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Alternative Energy Is Inevitable,
But Aviation Must Not Be Left Behind
26
―The Stone Age did not end for lack of stone, and the Oil
Age will end long before the world runs out of oil.‖
— Sheikh Zaki Yamani, former oil minister of Saudi Arabia, Oct. 23, 2003
“The Stone Age did not end for lack of stone, and the Oil
Age will end long before the world runs out of oil.”
— Sheikh Zaki Yamani, former oil minister of Saudi Arabia, Oct. 23, 2003
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When America Flies, It Works