American Airlines Rhett Workman Managing Director, Government - - PowerPoint PPT Presentation

American Airlines

Rhett Workman Managing Director, Government & Airport Affairs April 5, 2017

Industry Overview

The U.S. Airline Industry: Fundamental Change

Airlines have been a death trap for investors. May 2013

November 2016: Warren’s investment firm Berkshire Hathaway amassed a $1 billion investment in American Airlines

If a farsighted capitalist had been present at Kitty Hawk, he would have done his successors a large favor by shooting Orville down. February 2008

Airlines Are Closing the Gap to U.S. Corporate Profitability

Source: ATA Annual Reports (1970-1976), A4A Passenger Airline Cost Index (1977-present); Bureau of Economic Analysis NIPA Table 1.14

(25) (20) (15) (10) (5) 5 10 15 20

1970 1972 1974 1976 1978 1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014 YTD16 2018 2020

U.S. Recession

Pre-Tax Profit Margin (%)

AVERAGE

Reinvestment in Customer Experience

1.29 1.15 0.64 0.47 0.43 0.55 0.82 1.04 1.16 1.41 1.43

2000 2001 2002 2003-09 2010 2011 2012 2013 2014 2015 YTD16

2016

* SEC filings of Alaska, Allegiant, American, Delta, Hawaiian, JetBlue, Southwest, Spirit, United and Virgin America

U.S. Passenger Airline* Capital Expenditures ($ Billions per Month)

U.S. Airlines are Putting Their Profits Back Into the Business

airlines.org

• Renewing fleets, improving the product at all stages of travel
• Adding capacity
• Adding staff
• Improving airports
• Reducing debt
• Returning cash to shareholders
• Buying back stock
• Issuing dividends
• Increasing job security
• Restoring/increasing employee wages and benefits
• Shoring up pensions/retirement accounts

North American Airline Satisfaction Climbs to 10-Year High

692 687 668 658 673 683 681 695 712 717 726

650 670 690 710 730 750

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 Up 68 points from 2009-2016

Source: J.D. Power 2016 North America Airline Satisfaction Study (http://www.jdpower.com/press-releases/2016-north-america-airline-satisfaction-study)

“The airlines are clearly listening to their passengers and are taking action. As a result, we see satisfaction rising across all touch points of the passenger experience. Airlines are making positive strides by adding value to its products and services with newer and cleaner planes, better in-flight services, improving on-time arrivals and bumping fewer passengers from their flights.”

• - Rick Garlick, J.D. Power (May 11, 2016)

Note: Scale = 0 to 1000

Air Travel is Still a Great Bargain!

Source: A4A, BTS Data Bank 1B, Federal Reserve Bank of St. Louis, National Association of Theatre Owners, Team Marketing Report

75 100 125 150 175 200 225 250 275 300 325 350

1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018

Airfare* Food Transit Baseball (MLB) Movie

* Domestic round-trip average, including bag and change fees

Price Index: 1990 = 100

% Change Baseball Game +232 Movie Ticket 100 Public Transit 88 Food 87 Airfare* 34

American Airlines Update

American Airlines

2017 Airline of The Year

$5.3 $2.2 $2.0 $6.2 $3.2 $2.7 $5.7 $3.4 $3.2 $5.5 $3.5 $4.3

Total Capital Expenditures 2014 - 2017

Non-Aircraft Aircraft

Unprecedented Investment in Product

2014 2015 2016 2017E

$22.7 Billion

Source: SEC filings and other company guidance

Investments in Our Fleet

14.0 yrs 9.8 yrs 16.8 yrs 16.6 yrs 13.3 yrs 14.4 yrs 10.4 yrs 10.4 yrs 8 13 18 2012 2013 2014 2015 2016 2017E Years

Average Fleet Age

• By the end of 2017, we will have inducted 395 new airplanes into the fleet

since the merger, while retiring 391 older aircraft – giving us the youngest fleet of the major airlines . . . one new plane every five days.

Source: Company filings and Ascend data

Enhanced Customer Notifications

• Deliver customers the right information, at the right time, through the right channel

Dynamic Reaccom Proactive Baggage Notification Mobile Boarding Text Updates

Enhancing our Product: Airports

LGA Terminal Rebuild

DCA Express Terminal New lounges; refreshed airport experience PHL OTG Boarding Gates

Planned Completion

Lie-flat seats 2017 Lounge renovation 2018 Premium Economy 2020 Power outlets 2021 Wi-Fi 2018

Investing in the Future: Product Investments

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Investing in Our Team

• 10,000 additional team members
• 38% average pay rate increase per team member
• Implementation of profit sharing ($314M for 2016)
• Elevate the Experience customer service training
• Two positive space tickets for ATW Airline of the Year
• Best-in-class maternity and adoption assistance program

Trust

The PHL Story

Existing PHL

UPS Facility Tinicum Township 18 Runway 9R–27L Runway 9L–27R Runway 8–26 Terminal Complex Delaware River I-95 I-95

PHL – Capacity Expansion Program (CEP)

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• In 2010, the FAA approved a $7.8 billion CEP that included a new river runway

and a new terminal complex and new cargo areas

• The FAA approved at $467.5 million LOI toward airfield development

PHL EIS Alternatives

• Alternative B:

Parallel Runway 8-26 West

• Alternative C:

Midfield Terminal

• Alternative A:

Parallel Runway 8-26 East

The PHL CEP Was Based on Outdated Data

Forecast 2002 (actual) 2005 2010 2015 2020 Enplaned Passengers Air Carrier 10,986,782 11,200,000 13,350,000 15,850,000 18,650,000 Commuter 1,429,801 2,350,000 2,790,000 3,310,000 3,900,000 Total Enplaned Passengers 12,416,583 13,550,000 16,140,000 19,160,000 22,550,000 Aircraft Operations Passenger Airlines-- Air Carrier 242,702 238,400 270,400 306,400 342,400 Passenger Airlines-- Commuter 132,586 180,000 188,000 202,000 226,000 Cargo and Air Taxi 19,732 28,600 36,600 40,600 47,600 General Aviation 67,499 60,000 63,000 66,000 69,000 Military 648 1,000 1,000 1,000 1,000 Total Aircraft Operations 463,167 508,000 559,000 616,000 686,000 Air Cargo (tons) 596,394 620,000 780,000 980,000 1,200,000 Average Aircraft Size Air carrier 139 138 142 147 153 Commuter 38 43 48 52 54 Average Load Factor Air carrier 65% 68% 69% 70% 71% Commuter 57% 61% 62% 63% 64%

2016 Actual

394,022 15,059,111

CEP Passenger Forecast

Forecast 2002 (actual) 2005 2010 2020 Enplaned Passengers Base 12,416,583 13,550,000 16,140,000 22,550,000 Low 12,416,583 12,500,000 14,000,000 19,500,000 High 12,416,583 15,270,000 18,750,000 26,400,000

Historical Forecast Forecast Range

6 12 18 24 30 36 1980 1985 1990 1995 2000 2005 2010 2015 2020 Calendar Year Enplaned Passengers (millions)

Base Forecast

Summary of Passenger Forecast Range

Actual Enplaned Passengers

CEP - Operations Forecast

Forecast 2002 (actual) 2005 2010 2020 Aircraft Operations Base 463,167 508,000 559,000 686,000 Low 463,167 429,000 447,000 549,000 High 463,167 582,000 657,000 811,000

Historical Forecast Forecast Range

200 400 600 800 1000 1980 1985 1990 1995 2000 2005 2010 2015 2020 Calendar Year Aircraft Operations (thousands)

Base Forecast Historical Forecast Forecast Range

200 400 600 800 1000 1980 1985 1990 1995 2000 2005 2010 2015 2020 Calendar Year Aircraft Operations (thousands)

Base Forecast

Summary of Operations Forecast Range

Actual Operations

FAA vs. Actual Forecasts Trending Lower

PHL Aircraft Operations which drive airfield delay are down significantly

24 March 28, 2017

100,000 200,000 300,000 400,000 500,000 600,000 700,000 800,000 900,000 2004 2009 2014 2019 2024 2029 2034 2039 2044

Actual Operations vs. Forecasts

FINAL EIS 2010 TAF 2012 TAF 2016 TAF Linear Trend on Actuals Actual Operations 2014 TAF 2011 TAF 2013 TAF

The PHL Story – Operational Changes

25

380 400 420 440 460 480 500 520 540

• 5

10 15 20 25 30 35 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

Total Takeoffs & Landings (Thousands) Total Passengers (Millions)

Total Operations vs. Passengers (all PHL airlines)

PHL Airspace Linked to other NE Airports

27

New Runway Won’t Ease Congestion – 2008 Slide

Runway to Nowhere?

Record of Decision & Written Re-Evaluation of the NY/NJ/PHL Metropolitan Area Airspace Redesign Final Environmental Impact Statement July 31, 2008

NY/NJ/PHL Airspace Redesign Record of Decision (ROD)

“A Capacity Enhancement Program (CEP) is on-going at PHL. As noted in the ROD, the CEP has the potential for cumulative impacts with the Airspace Redesign. However at the time the ROD was signed, there was insufficient information about this evolving proposal to include it within the study of cumulative impacts in the Airspace Redesign EIS. The ROD for CEP is expected to be published in September 2009, and if approved, construction would not be completed until 2020, well beyond the 2011 full implementation date for the Airspace Redesign CEP alternatives retain the runway geometry, and the Airspace Redesign procedures are incorporated into the CEP analysis. Thus potential cumulative impacts from the projects will be captured in the environmental analysis for that proposed project.”

The PHL CEP ROD did not include the cumulative impacts raised in the NY/NJ/PHL ROD: “The cumulative effects of the Airspace Redesign project on PHL were taken into consideration for the CEP EIS analysis. The CEP EIS analysis assumed full implementation of the Airspace Redesign project because, based on Airspace Redesign project phasing plans, changes to the airspace around PHL will be in place by the time CEP construction is complete.”

PHL CEP ROD – Incomplete

So What Happened?

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• Fundamental and structural changes in the Industry
• Consolidation in the industry through multiple mergers
• Load factors increased due to fuel crisis and recession
• Aircraft up-gaging
• Fleet changes due to AA and US merger
• Significant decline in operations
• Improvements in airspace
• Airport economics

Lessons Learned

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• Airport masterplans are good: All airports should develop a masterplan to

guide future infrastructure and facility development programs in a logical, sustainable and cost efficient manner

• The masterplan is prepared by independent consultants with global expertise,

delivering plans that enable all stakeholders to expand their operations and undertake profitable business

• Airlines must be fully involved in the creation, development and review of the

masterplan

• The masterplan should allow for incremental expansion of all facilities until the

ultimate capacity of the site is reached; capacity enhancement is tied to the masterplan

• No development should proceed until there is a masterplan in place

What’s Next?

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• Reassess plan for airfield and terminal development
• Base new plan on realistic forecasts with meaningful triggers
• Work with FAA on a plan on how the handle currently approved CEP
• Figure out what to do with LOI?
• Proceed with capital development at PHL that makes sense

Long Term Planning is Underway

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Parking Garage Connector

Support Facilities / RON Apron / Gate V01 Duration: 4 Years FAA Control Tower Duration: 6 Years CBIS Replacement Duration: 5 Years Headhouse Duration: 4 Years Terminal Garage Connector Duration: 3.5 Years BHS Connection to Concourse F Duration: 3 Years New AA & BB Concourses Duration: 7 Years APM – Headhouse to Concourse AA Duration: 3 Years APM – Headhouse to Concourse F OR Enhanced Bussing Duration: 6 Years

Thank You