Airline Industry Overview - James M. Sisco Chicago Business Travel Association Direct Member Round Table
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Airline Industry Overview
NBTA Aviation
at o Committee
Co ttee C
Chair
a
James M. Sisco
Chicago Business Travel Association
Direct Member Round Table
Chicago, IL
November 9, 2010
Can anyone guess what these $$$
figures represent?
$7.8b
$
$23.0b
$16.8b
$11 0b
$11.0b
Aviation in the Now!
• Airline Industry
• US FiFinancials
i l
• Industry Statistics (capacity, on-time, baggage, etc)
• DOT Tarmac
T Delays,
D l TSA Secure
S Flight
Fli ht
• Airline Alliances, Joint Ventures & Mergers
• Buyer Recommendations / Tips for negotiating
• NextGen
US Airlines: Net Loss/Income 2009
$400 $291
$135 $122 $58 $99
$200 $143
$94 $89 $58
$0
-$200
($205)
($282) ($295)
-$400
-$600 ($499)
Net
($651)
-$800 (Loss)/Income
-$1,000
($1 500)
($1,500) Net
-$1,200 ($1,100)
($1,200) (Loss)/Income
-$1,400 excluding special
($1,400) items
-$1 600
-$1,600
US Airlines: Net Loss/Income 2010
$400
$293 $314
$275 $331
$300 $240
$123
$200
$97 $111 $29
$ 9
$100 $1 $22 $21 $59 $49
$0
-$100
Net
-$200 (Loss)/Income
-$300
($516)
Net
-$400
(Loss)/Income
-$500 ($452) excluding special
items
-$600
Airline Profits Taking
g Off
U.S. Airlines’ Q3 2010 Financial Results
Airline Net Profit ex si Op Margin ex si
UA/CO $840 11.50%
11 50%
Delta $929 13.50%
American $143 5.90%
S th
Southwestt $195 12 20%
12.20%
US Airways $243 10.00%
Source: Airline Weekly analysis and company reports
US Airlines: 2010 YTD Stats
Passenger Demand is Recovering,
but Not Equally Worldwide
Projected 2010 Passenger Traffic Versus 2009 Results
2 9%
2.9%
8.2% 16.2%
19.5%
13.5%
13 9%
13.9%
Source: IATA September 2010 Projections
US Airlines Are Exercising Disciplined
Capacity Management
• Legacy airlines and Southwest are exercising capacity restraint
• Most LCC growth is a result of higher fleet utilization
Industry Capacity: Available Seat Miles
10% 5.5% 2Q10 vs. 2Q09
4.9% 4.4%
Percentage Change
5% 0.7% 0.1% 0.1%
SMs
(0%)
in AS
(0.3%) (0.4%) (0.7%) (1.6%)
(5%)
JBLU AAI AS US IND DL WN AA CO UA
Fines for Tarmac Delays
y
• The Transportation Department can now fine
airlines $27
$27,500
500 per passenger for delayed
domestic flights sitting on a tarmac for more than
three hours.
• It is
i considering
id i extending
t di it its ttarmac-delay
d l rule
l tto
international flights as well.
o Considerations for international flights include
the reduced frequency and the possibility that
the move may cause many passengers to be
delayed by at least 24 hours
hours.Secure Flight
• New TSA law
• All passengers are required to provide
the airline with Secure Flight
Passenger Data (SFPD):
o Name
N as it appears on
government-issued I.D. when
traveling
o Date of Birth
o Gender
o Redress number (if applicable)Secure Flight
• Behind-the-scenes collaboration between the
TSA & airlines
• Compares passenger data against government watch
lists
• Additional data elements to help differentiate from
individuals on the government watch lists
• If the passenger does not provide this information:
o TSA will not allow the airline to issue a boarding
pass
o Passenger will have to see an agent at the
airport, causing possible delays in travel
o The TSA can fine airlines for not collecting SFPD
information 72 hours prior to departure
o Some Airlines & TMC’s no longer accepts
reservations through direct booking channels that
d not h
do have SFPD iin the
h recorddAlliances are Mature - % of Global Market Share
Levels of Airline Courtship
• Interline / revenue-sharing agreements
• Code sharing alliances
Code-sharing
• ATI alliances
• Joint ventures
• Mergers
g & Acquisitions
q350 code-shares within
29 member
b airlines*
i li *
1172 destinations within
181 counties served
45 ATI agreements
8 Joint venture agreements
* 3 Pending mergers
* PendingLayers of Cooperation
MERGER104 code-shares within 13 member airlines 898 destinations within 169 countries served 10 ATI agreements 3 Joint venture agreements 1 Pending merger
Layers of Cooperation
MERGER90 code-shares
d h within
i hi
14 member airlines*
900 destinations within
150 countries served
10 ATI agreements
3 Joint venture agreements
* * *
1 Pending merger
* PendingLayers of Cooperation
MERGERJoint Venture Agreements
DL AF KL 2009
Added AZ 2010
AC CO LH UA 2009
UA/CO NH (tpac) Oct 2010
AA BA 2010
AA JL (tpac) Oct 2010Mergers / Acquisitions • American - TWA • America West – US Airways • Delta - Northwest • British Airways – Iberia (Approved by EU) • Frontier – Midwest (Acquired by Republic) • Continental – United (October 1, 2010) • Southwest – Air Tran (pending DOT/DOJ review) • AA - ?? US - ??
Alliances/ATI/JV - Impact on Corporate Buyers
• Airline Alliance members claim a number of buyer
benefits in ATI/Joint Venture contracting
• Broader route networks
• Single point account management
• Easier to manage/consolidated contract targets
• Better pricing
• However, since corporate buyers need to work with
multiple
lti l carriers
i to
t serve its
it travel
t l needs,
d contracting
t ti
with Alliances/ATI/JV rather than individual carriers
contain significant
g risks such as:
• Program dilution
• Cannibalization
• Increase in travel costsAlliances/ATI/JV - Impact on Corporate Buyers
• In overlap markets, carrier combinations result in less
competition,
p higher
g published
p prices
p and potentially
p y
lower corporate discounts less service
• Examples:
• BA/IB for London
London-Madrid
Madrid
• DL/AF for Atlanta-Paris
• UA/CO for Newark-San Francisco
• Carrier combinations reduce corporate buyer flexibility to
select the optimal mix of carriers for their airline program
• Instead of selecting the best mix of individual carriers, the corporate
buyer must now select groups of carriers
• Some of which may meet its needs, but others may notAlliances/ATI/JV - Impact on Corporate Buyers
• This leads to either selecting more carriers than
previously
p y necessary y
• Results in additional carrier overlap, reduced levels of carrier
support, target compliance issues, contract management issues and
increased risk of losing
g contracts
• Or it results in dropping preferred carriers in place of
the carriers required by the Alliance/ATI/JV
• R
Reduction
d ti off savings
i and
d di
discountst
• Trade off of non-stop service for Alliance/ATI/JV connections
• Increased traveler compliance issuesAlliances/ATI/JV - Impact on Corporate Buyers
• For buyers that previously didn’t contract with either
merging carrier, the impact will be minimal
• If neither route network provided the right service level for a
company, the merged company probably also won’t meet its
needs
• However, if the buyer didn’t select the carriers based on cost,
then the new entity may be in a position to make a more
competitive/compelling offer
• Buyers that previously contracted with both merging
carriers will face more complex negotiations
• The merged airline will hold more leverage and will push for
higher targets and the lowest of overlapping discountsAlliances/ATI/JV - Impact on Corporate Buyers
• Buyers that previously only worked with one of the
merging carriers face the largest challenges
• These companies will have to choose between entering into an
agreement with both of the merging carriers or rejecting both
• Contracting with both of the merging carriers will
generate increased conflict with other preferred carriers
• Reduced levels of support
• Missed
ssed ta
targets
gets
• Added program complexity
• The alternative is to drop one of its other preferred
carriers
i or drop
d the
th merging
i partner
t it had
h d previously
i l
contracted
• Both of these options will reduce market coverage, discounts and
savingsBuyer Recommendations / Tips
• Be vigilant of how consolidation will affect your
preferred airline program and start planning now
• Focus on what
what’ss really important – big contract items; knowing you will not win every battle
• Fully understand what the airline is trying to get out of
the deal – create a win-win environment
• Understand the strengths and weaknesses in the
relationships between joint venture partners
• Resist JV deals as far as possible and insist on
individual deals with members of the JV
• Only go down the JV/Alliance path if it makes sense for your company
• P
Putt pressure on the
th member
b off the
th JV with
ith which
hi h you
currently have most business and which therefore has
most to lose
• Reach out to non-aligned carriers to broaden the mixNextGen
NextGen Video
Benefits of NextGen
• Shift from ground to satellite based system
• Collaborative
C ll b ti air i ttraffic
ffi managementt – Increase
I safety
f t
• Reduce aviation’s impact on the environment – quieter,
cleaner and more fuel efficient
• Significantly reduce delays at high density airports
NextGen 2018 – flight planning to landing, taxi and gate
arrival (and everything in-between)NextGen Air Transportation System
Example of current ATC Inefficiencies
Additional burn due to reroute
1493 lbs
Actual Route flown Optimal Boston,
RouteMABurn
5883 lbs.
Optimal Route
Actual Route Burn
7376 lbs
lbs.Questions
Airline Ancillary Fees
NBTA Aviation
at o Committee
Co ttee Co
Co-Chair
C a
Cyndi Hunter
Chicago Business Travel Association
Direct Member Round Table
Chicago, IL
November 9, 2010Airline Ancillary Products
Ancillary Airline Products and Fees
• Evolution
E ol tion
• Corporate Buyer Impact Areas
• Industry Solution?
• Reporting Options
• Optional Services
• Next StepsAirline Ancillary Fees http://www youtube com/watch?v=ZAg0lUYHHFc http://www.youtube.com/watch?v ZAg0lUYHHFc
CONFIDENTIAL - AirPlus - Concur - Continental Airlines P. 36
Traditional Airline Fees (Historic)
• Change fees
• Penalty fees
• Agency
g y booking
g fees Pet fees
• Movies
• Unaccompanied
p Minors
• Pre-paid tickets
• Excess or oversize/overweight bagsLatest Airline Fees • First/Second checked bag fee • Meals on-board • Advance seating assignments • “Premium” seat selection • Snacks / soft drinks • Blankets / pillows • WiFi / Internet
E Elit e Clas s
Ancillary Fee Expense: $7.8B
collected in 2009
It is difficult to quantify the cost of ancillary fees
• What is included in the reporting of these airline revenues?
• Traditional products/services: bags, premium seating, internet
• What about change fees and even frequent flier mileage purchases?
• Corporations are trying to understand the impact of these fees
• Some studies show that ancillary fees represents only 1% of air costs*, some
up to 30%**
• Latest Concur study shows the cost at 22.3%
3% of air cost
• Many fees are waived for elite flyers
• Most airline ancillary products are not purchased at the point-of-sale
• Currently no product is available to accurately report the total ancillary fee
spend by carrier
* TRX (as reported in The Beat) **NBTA 2010 U.S. Business Travel Buyers' Cost Forecast.Key
y Findings
g 2010 NBTA Survey
y
• 58% of respondents were not aware of the total amount spent on
ancillary fees
• 61% said it was very
y important
p to know the total cost of a trip
p
• 75% stated the most important reason to identify/track fees was to
utilize this information for future negotiations
• 86% indicated the industry should develop an industry standardAncillary Fee Impact Areas
Policy & Cost Impact & Expense Process &
Compliance Budgeting Reporting
• Should policy be • Projecting traveler • Expense systems
developed for use of services is must be changed to
ancillary fees? difficult provide new
categories
• Will it prompt • Data doesn’t
travelers to use a currently associate • Airlines should
service they would service purchase enhance reporting
not normallyy use? p
with specific for their corporate
p
trip/project customers
• Once added, do you
have the manpower • Fees are adjusted • Enhanced
and reporting in frequently Corporate Card
place to enforce it? reporting to support
program needsDrive Internal Cost Avoidance/Savings
g
• Contract Negotiations
• Negotiate Elite Status Awards with Preferred Carriers
• Status Match Travelers
• Travel Policy Updates
• Prohibit WiFi / Internet expenses for flights under “x” hours
• Only Allow 1 checked back to be expensed
• Publish an approved / non-approved list within policyEveryone is working towards a
solution – but not together!
Developing EMDs (4Q10)
GDS’s
Are working on building merchandizing platforms
Has set a Has introduced
deadline to standardized codes
standardize for ancillary fees
fees in 2012Two Parallel Paths: PoS and Credit Card Reporting
Industry Proposed Solution and Alternatives
ATPCO GDS ARC TMC
• File fares with • Display • EMD Agency
ancillary options
products R
Reporting
ti
• Multiple
• Already products
testingConsiderations
Point of Sale Purchase Data
• Not all buying decisions are • No tie back to the original
made at the point of sale ticket number
• Merchandising Will
canthe
varyGovernment
by Step In?
• Merchant transaction data
airline is inconsistent
• Technology needs to • Current IATA standard not
support merchandising widely adopted
• Industry economics • Standards do not address
• Processing
P i all issues
changes/cancellations post- • Corporate card utilization is
purchase criticalDo you really want to government to
intervene?
Two issues: Transparency
p y and purchase
p point
p needs
• General agreement that transparency is needed to ensure
customers know what is included in their purchase
• Open question: is it critical that the ancillary product is
purchased at the point-of-sale?
• Competitive products exist in the marketplace –
consumers can choose
• Does interjecting additional regulation and taxation really
address the issue?
• New technologygy is emerging
g g that will enhance how airlines
deliver customized products through all channelsData on Fees Provided to
C dC
Card Companies
i - CO
P. 48Data on Fees Provided to
Card Companies - UA
P. 49Data on Fees Provided to
Card Companies - AA
?
P. 50Concur’s Solution for Reporting
off Ancillary
A ill Fees
F
• Concur identifies a charge coming from an airline based on
merchant code or employee
p y entry y if not using
g a card feed
• If a charge is under a company-defined amount, the expense type
is automatically entered into the expense report as “other airline
fee”
• The employee is prompted to choose one of six sub-fee expense
types: Baggage, Upgrades, Seats, Airline Club, On Board, Other
• Policy audit rules can be associated with each of the fee types
• Fee reporting availableTRAVELTRAX ANCILLARY FEES
• Reporting Method
o TRX Uses multiple pass logic to identify ancillary
airline fees in credit card data received from AMEX,
MC Diners,
MC, Diners & Visa
• Charge Description - (Onboard Sale, Gogo In-flight, United
Air *Inflt)
• Routing – (XXA/XPC – Pet Carrier)
• Ticket Number
• Spend Amount – (Alaska Airlines can only identified by
amounts t (15,25))
(15 25))
• Merchant Code / Name – (UNITED- TICKET SVC CENTE)
52Optional Services Example
Next Steps
NBTA Airline Ancillary Product Task Force
In addition to working on specific initiatives, this task
force will serve as a resource for NBTA members around
the world.
world The group will first develop a best practices
proposal about the improvement of airline data
submission to credit card companies. Improvement in
this critical area would result in enhanced corporate
reporting on ancillary fees, regardless of purchase point.Questions
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