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FAA Aviation Forecast Conference Jason Reisinger Director, International and Express Planning

FAA Aviation Forecast Conference Jason Reisinger Director, International and Express Planning. March 18, 2005. Agenda. Revenue / Fare Environment Economics / Costs Implications Large Markets Small Markets Q & A.

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FAA Aviation Forecast Conference Jason Reisinger Director, International and Express Planning

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  1. FAA Aviation Forecast Conference Jason Reisinger Director, International and Express Planning March 18, 2005

  2. Agenda • Revenue / Fare Environment • Economics / Costs • Implications • Large Markets • Small Markets • Q & A Note: All forward looking fares and costs shown are estimates and are for illustration purposes only

  3. Revenue / Fare Environment

  4. Domestic Revenue Environment While passenger demand has almost returned to peak levels, revenue is still over 20% lower than the levels seen at the end of 2000. Note: DB1A data adjusted to 2004 dollars, using US Department of Labor CPI calculator

  5. Domestic Fare Environment Airfares in the United States began a steady decline well before the economic slowdown and terrorist attacks of 2001 accelerated the trend. Note: DB1A data adjusted to 2004 dollars, using US Department of Labor CPI calculator

  6. Airfares in Larger Markets As would be expected, large markets with a significant LCC presence have seen substantial downward pressure on airfares over the past decade. Note: DB1A data adjusted to 2004 dollars, using US Department of Labor CPI calculator

  7. Airfares in Smaller Markets However, there are smaller communities that do not have LCC service that have still realized significant drops in airfares during the same time period. Note: DB1A data adjusted to 2004 dollars, using US Department of Labor CPI calculator

  8. Airfares in Smaller Markets Due to their proximity to nearby airports with large amounts of air service, including LCC operations, cities like Erie have realized significantly lower fares even when served only by legacy carriers.

  9. Economics / Costs

  10. Economics by Aircraft Size While the smaller RJs are used regularly (and often sought after by communities), they have the highest cost per seat of any aircraft. Note: Cost / Seat is indexed to Small RJs; assumes each aircraft operating exact same route

  11. Break-Even Load Factors In today’s low fare environment, it is becoming increasingly difficult to make a profit, especially with the small RJ. Note: Assumes each aircraft operating exact same route within each scenario

  12. Annual Cost of Operation The overall annual cost of providing air service to a community can be substantial, especially as aircraft size, stage length, and frequency are increased.

  13. Express Equipment Summary Props • Most cost effective short-haul aircraft • Allows airlines to maintain service in markets without sufficient demand for larger aircraft • Limited range capabilities • Least efficient aircraft from a cost perspective • May take time for carriers to divest these aircraft, due to long-term contracts, scope clauses, etc. • May become more economical in the long-term as airlines retire their fleets of small RJs • Are as cost-effective as mainline aircraft • Open new route opportunities • Improve under-performing markets • Airlines can capitalize on increasing demand Small RJs Large RJs

  14. Implications

  15. Implications for Large Markets • Service will continue on many routes just at lower profit margins for the air carrier • New opportunities due to improved economics of larger RJ • High demand markets receive upgraded equipment • Downgrade of underperforming mainline flights • Lower frequency mainline markets may gain trips • Large business markets may gain additional carriers

  16. Implications for Small Markets • Some markets may be able to recapture leakage • Ability to support new non-stop flights • Reallocation of aircraft looking for improved financials • Decreased service into heavily congested airports • Complete loss of scheduled commercial air service or inability to reestablish lost service

  17. 105 miles 93 miles 70 miles 40 miles 62 miles 64 miles 68 miles 69 miles Leakage from Smaller Markets Due to their proximity to nearby airports with large amounts of service, cities like Youngstown and Reading will find it difficult to reestablish air service. Youngstown - YNG Reading - RDG Note: Distances shown are actual driving distances between airports

  18. Risk Mitigation for Small Markets While many of the difficulties that small communities face are out of their immediate control, there are steps that could lessen the likelihood of negative actions. • Government assistance (EAS funding or SCASD grants if available) • Local community or business support • Cost minimization • Marketing programs to maximize airport usage

  19. Q & A March 18, 2005

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