merger mania will it affect your airport? sec/aaae - 2010 david hamm director – corporate real...
TRANSCRIPT
““Merger Mania”
Will it affect your Airport?
SEC/AAAE - 2010
David HammDirector – Corporate Real Estate
Delta Air LinesApril 20,2010
• International focus on Asia and #1 U.S. carrier in U.S.-Japan market
• Domestic focus in Midwest
• Member of SkyTeam alliance• 7th largest carrier in the U.S. with
7.3% of domestic ASMs• 9th largest carrier in the world with
2.6% of worldwide ASMs• Hubs in Detroit, Memphis,
Minneapolis/St. Paul and Tokyo• Focus cities in Indianapolis and
Seattle• Service to 200 domestic and 50
international destinations
• #1 U.S. carrier to Europe and strong Latin American presence
• Domestic focus in East and Mountain West
• Member of SkyTeam alliance• 3rd largest carrier in the U.S. with
13.2% of domestic ASMs • 4th largest carrier in the world with
4.1% of worldwide ASMs• Hubs in Atlanta, Cincinnati, New York
City and Salt Lake City• Focus cities in Boston, Los Angeles
and Orlando• Service to 212 domestic and 115
international destinations
Created an effective global U.S. carrier with over 390 worldwide destinations
Delta and Northwest
Source: Market share based on March 2008 OAG (week sample). Destinations served data based upon OAG Jan 2008 – Dec 2008 (excluding cancellations and including additions as of March 28, 2008)
DomestiDomesticc
NW #7NW #7
JapanJapanNW #1NW #1
Latin AmericaLatin AmericaNW #10NW #10
AfricaAfricaDL #1DL #1
TransatlanticTransatlanticNW #5NW #5
AsiaAsiaNW #2NW #2
JapanJapanDL #5DL #5
AsiaAsiaDL #5DL #5
DomestiDomesticc
DL #3DL #3
Latin AmericaLatin AmericaDL #2DL #2
TransatlanticTransatlanticDL #1DL #1
Delta and Northwest
Regional strengths, but globally weakRegional strengths, but globally weak
Flying independently…..
DomestiDomesticc
#1#1
JapanJapan#1#1
Latin AmericaLatin America#2#2
AfricaAfrica#1#1
TransatlanticTransatlantic#1#1
AsiaAsia#1#1
Leading presence across the globeLeading presence across the globe
AustraliaAustralia#2#2
Delta and Northwest
Flying together….. America’s Premier Global Airline
5
61%
30%
2%
7%
31%
10%
3%
55%
Europe / MiddleEast / Africa
Latin / Caribbean Canada Asia / Pacific
Delta Northwest
International ASM Breakdown by Region (% of airline’s total)
Source: March 2008 OAG (week sample)
Delta and Northwest
International Networks are Highly Complementary
19.4 19.213.1 12.0 10.6 10.4
7.2 6.94.0 3.9 3.5
0
10
20
30
40
50
60
70
80
90
100
WN DL+NW AA DL UA US NW CO FL B6 AS
Source: APGDat DB1A 3Q07 Domestic passenger share
Domestic Passenger Share
• No airline currently has greater than 20% domestic passenger share
• Post merger, Southwest continues to have the highest domestic passenger share
U.S. airline industry will remain highly competitive post merger
Delta and Northwest
Domestic Market is Highly Fragmented
MidwestMidwest #1#1
NortheastNortheast #1#1
SoutheastSoutheast #1#1
SouthwestSouthwest #5#5
RockyRockyMountainMountain
#2#2West West #3#3
Source: US DOT revenue 4Q ended 1Q08
Delta and Northwest
Domestic Strength and International Success
Source: OAG, Jan 2008 – Dec 2008 (excluding cancellations and including additions as of March 28, 2008)
Customers benefit from increased choice and more efficient connections
Northwest airports not served by Delta
Delta airports not served by Northwest
Albany
Augusta
Waterloo
Alpena
Aspen
Watertown
Bakersfield
Binghamton
BismarckBemidji
Brunswick
BrainerdButte
Burbank
Sault St. Marie
Champaign
Hancock
Cody
Columbus
Wausau
Daytona Beach
Dothan
Duluth
Durango
Devils Lake
Eau Claire
Elko
Elmira
El Paso
Erie
Eugene
New Bern
Key West
Fresno
Fayetteville
Florence
Ft. Dodge
Grand Forks
Grand Junction
Columbus
GainesvilleKilleen
GreenvilleGuam Hilton Head
Hibbing
Houston- HOU
Huntington
Wilmington
International Falls
Ithaca
Jamestown
Latrobe
Long Beach
Lincoln
La Crosse
Lewiston
Lynchburg
Saginaw
Macon
Mason City
Meridian
Medford
Muskegon
Melbourne
Minot
Marquette
Muscle Shoals
Montrose
Jacksonville
Oakland
Ontario
Paducah
Newport News
Hattiesburg
PocatelloPierre
Pellston
Pasco
Redmond
Rhinelander
Reno
Rochester
Santa Barbara
San Luis ObispoSt. George
Salem
Saipan
St. Cloud
St. Croix
Sun Valley
Sioux City
Thief River Falls
Twin Falls
Valdosta
Yakima
Tupelo
Aberdeen
Lihue
Cedar City
LawtonYuma
Nantucket
West Yellowstone
Greenbrier
Eureka/Arcata
Escanaba
Iron Mountain
Dubuque
Fargo
Albany
Augusta
Waterloo
Alpena
Aspen
Watertown
Bakersfield
Binghamton
BismarckBemidji
Brunswick
BrainerdButte
Burbank
Sault St. Marie
Champaign
Hancock
Cody
Columbus
Wausau
Daytona Beach
Dothan
Duluth
Durango
Devils Lake
Eau Claire
Elko
Elmira
El Paso
Erie
Eugene
New Bern
Key West
Fresno
Fayetteville
Florence
Ft. Dodge
Grand Forks
Grand Junction
Columbus
GainesvilleKilleen
GreenvilleGuam Hilton Head
Hibbing
Houston- HOU
Huntington
Wilmington
International Falls
Ithaca
Jamestown
Latrobe
Long Beach
Lincoln
La Crosse
Lewiston
Lynchburg
Saginaw
Macon
Mason City
Meridian
Medford
Muskegon
Melbourne
Minot
Marquette
Muscle Shoals
Montrose
Jacksonville
Oakland
Ontario
Paducah
Newport News
Hattiesburg
PocatelloPierre
Pellston
Pasco
Redmond
Rhinelander
Reno
Rochester
Santa Barbara
San Luis ObispoSt. George
Salem
Saipan
St. Cloud
St. Croix
Sun Valley
Sioux City
Thief River Falls
Twin Falls
Valdosta
Yakima
Tupelo
Aberdeen
Lihue
Cedar City
LawtonYuma
Nantucket
West Yellowstone
Greenbrier
Eureka/Arcata
Escanaba
Iron Mountain
Dubuque
Fargo
Delta and Northwest
Unique Regional Presence allowed for End-To-End Merger
Source:DOT O&D Survey, Twelve months ended 3Q07
Domestic Passenger Breakdown by Region (% of airline’s total)
36%
24%
8% 7%
2%
23%
6%8%
24%
17%
44%
1%
Intra-East East toWest
Intra-West
Central toWest
Intra-Central
East toCentral
Delta Northwest
Delta and Northwest
Domestic Networks are Highly Complementary
747-400747-400
A333A333
A332A332
757-200/300757-200/300
A320/319A320/319
DC-9DC-9
777-200/LR777-200/LR
767-400767-400
767-300767-300
757-200757-200
737-800737-800
MD-88MD-88
Delta and Northwest
Diversity Among the Delta/Northwest Fleets Provides Flexibility
361
131204 189
50
190
151
73 71
111621
22
0
100
200
300
400
500
600
Delta Northwest
Source: SEC Filings and Ascend Aircraft Database
Number of Aircraft by Average Seat Count(As of 12/31/2007)
<50 51-76 77-125 126-175 176-225 226-275 276-325 >325
• Delta has no aircraft with more than 285 seats while Northwest has 37• Delta has no aircraft in the 77-125 seat range while Northwest has 151
Delta and Northwest
Complementary Fleets allows Matching Capacity to Demand
• Delta operating in over 390 airports worldwide– Roughly 245 domestic and 145 international locations
• Delta rebranding completed in 76 stations where only Northwest operated– Primarily located in the Midwest and Asia
• Airport consolidations in 170 locations where both Delta and Northwest operated were completed in January 2010
– First airports were consolidated in March 2009– PHL was the last airport consolidated in January 2010– Critical to consolidate prior to February 1, 2010, date of last Northwest flights– Over 160 airport gates and associated space were released during the process
• Rebranding in 150 Delta only airports with Air France and KLM signage was also completed
– Providing system wide signage consistency for SkyTeam
Delta and Northwest
Positioning Delta for Continued Success
• Volatile fuel costs – although lower this year, still at historically high levels
• Industry seeing passenger declines in major airports for first time
• Shifting dynamics of airline model – repositioning to build on core strengths
• Worldwide recession and economic challenges unparalleled during our lifetime
• Airline Ratings continue to be below investment grade
• Consolidation – more to come?
Industry Perspective – the last few years.
From 2002 to 2008, Price of Jet Fuel Rose RelentlesslyAverage U.S. Spot Price Surged 320% During That Six-Year Period
Ave
rag
e* U
.S. J
et F
uel
Pri
ce (
¢/G
allo
n)
Source: U.S. Energy Information Administration14
* Simple average of spot prices in New York Harbor, U.S. Gulf Coast and Los Angeles
2000 to 2008: Up 230.7%2002 to 2008: Up 320.3%
Demand for Domestic Air Travel Has Not RecoveredDomestic Passenger Revenue as Share of U.S. GDP Continues to Stagnate
Sources: Bureau of Economic Analysis and Bureau of Transportation Statistics15
Imp
act
=
$22B
“The events of 9/11 marked…a permanent
decline in domestic airline demand. We
estimate that the gap between pre-9/11
demand and the post-9/11 period demand
resulted in $26bn in lost revenue in 2008 and $150bn in cumulative lost revenue over the
last 7 years. For perspective, the
cumulative loss in revenue is the
equivalent of the industry having no
domestic revenue in 2007 and 2008.”
“9/11 Revenue Impact in Context,”
Gary Chase, Barclays Capital
(Feb. 10, 2009)
With Declining Portion of Economy Being Spent on Domestic Air Travel, Airlines Have Contracted Accordingly
16
Do
mes
tic
AS
Ms
per
000
Do
llars
($2
000)
of
U.S
. GD
P
Sources: ATA analysis of data from the Bureau of Economic Analysis and Bureau of Transportation Statistics
Demand for Air Travel and Air Cargo Down Sharply in 2009
* Alaska, American, Continental, Delta, JetBlue, United and US Airways, as well as selected regional affiliates
Yea
r-O
ver-
Yea
r C
han
ge
(%)
Th
rou
gh
Mar
ch
17
** Alaska, American, Continental, Delta, FedEx, Hawaiian, JetBlue, Midwest, Southwest, United, UPS and US Airways
Economy Continues Heavy Toll on U.S. Airline JobsFTEs Down 28% from May 2001 Peak (542K) to February 2009 (392K)
Source: U.S. Bureau of Transportation Statistics
U.S
. Pas
sen
ger
Air
line
FT
Es
(000
)
18
~151,000 FTEs
One U.S. Passenger Airline Has Investment Grade CreditNo Passenger Airline in the World Enjoys an A-Minus or Better Rating
Investment Grade
SpeculativeBBB-
19
Source: Standard and Poor’s as of Apr. 16, 2009
A-
S&
P C
orp
ora
te C
red
it R
atin
gs
U.S. airline
Non-U.S.
airline
Immediate Challenges Loom Large
A healthy commercial aviation sector enables/fosters a thriving economy
In large part, airlines’ post-2000 survival has come via contraction, with 152K fewer jobs and 8% less domestic seating capacity (through 2Q09)
U.S. airlines incurred multibillion-dollar pretax losses in 2008
For 2009, lower fuel prices were offset by plummeting demand
o Demand for air travel and air cargo, especially time-sensitive shipments, is down sharply in all regions in which U.S. carriers operate
o Spending on air transport also down – permanently – as share of U.S. GDP
To invest in people, planes and product, airlines require sustained profitability (pretax margin) – they need to earn their cost of capital
Mergers may help facilitate continue contractions and allow carriers to cover their cost of capital
20