Transcript “Merger Mania” Will it affect your Airport? SEC/AAAE

““Merger Mania”
Will it affect your Airport?
SEC/AAAE - 2010
David Hamm
Director – Corporate Real Estate
Delta Air Lines
April 20,2010
Delta and Northwest
Created an effective global U.S. carrier with over 390 worldwide 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
• 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
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)
Delta and Northwest
Flying independently…..
Japan
NW #1
Japan
DL #5
Asia
NW #2
Transatlantic
DL #1
Domesti
c
DL #3
Transatlantic
NW #5
Domesti
c
NW #7
Africa
DL #1
Asia
DL #5
Latin America
DL #2
Latin America
NW #10
Regional strengths, but globally weak
Delta and Northwest
Flying together….. America’s Premier Global Airline
Domesti
c
#1
Japan
#1
Transatlantic
#1
Asia
#1
Africa
#1
Latin America
#2
Australia
#2
Leading presence across the globe
Delta and Northwest
International Networks are Highly Complementary
International ASM Breakdown by Region (% of airline’s total)
61%
55%
31%
30%
10%
7%
2%
Europe / Middle Latin / Caribbean
East / Africa
Delta
3%
Canada
Asia / Pacific
Northwest
Source: March 2008 OAG (week sample)
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Delta and Northwest
Domestic Market is Highly Fragmented
Domestic Passenger Share
100
90
• No airline currently has greater than
20% domestic passenger share
80
70
60
• Post merger, Southwest continues to
have the highest domestic passenger
share
50
40
30
19.4
20
19.2
13.1
12.0
10.6
10.4
10
7.2
6.9
NW
CO
4.0
3.9
3.5
FL
B6
AS
0
WN
DL+NW
AA
DL
UA
US
U.S. airline industry will remain highly competitive post merger
Source: APGDat DB1A 3Q07 Domestic passenger share
Delta and Northwest
Domestic Strength and International Success
West
#3
Rocky
Mountain
#2
Southwest
#5
Source: US DOT revenue 4Q ended 1Q08
Midwest
#1
Northeast
#1
Southeast
#1
Delta and Northwest
Unique Regional Presence allowed for End-To-End Merger
Thief
Devils River
Pasco
Lake Falls
International Falls
Minot
Lewiston
Bemidji
Salem
Grand Forks
Hancock
Fargo DuluthHibbing Marquette
Bismarck
Redmond
Butte
Jamestown Brainerd Iron Mountain Sault St. Marie
Eugene
Pellston
West Yellowstone
Aberdeen St. Cloud
Rhinelander Escanaba
Alpena
Watertown Eau Claire Wausau
Sun Valley
Medford
Cody
Pierre
Rochester
Ithaca
Saginaw
Twin Falls
La
Crosse
Pocatello
Elmira
Mason City
Eureka/Arcata
Nantucket
Muskegon
Ft. Dodge
Binghamton
Dubuque
Sioux City
Erie
Waterloo
Elko
Reno
Latrobe
Oakland
Lincoln
Champaign
Grand Junction Aspen
Fresno
Greenbrier
Cedar City
Montrose
Huntington
Newport News
Lynchburg
San Luis Obispo Bakersfield
Durango
St. George
Paducah
Burbank
Santa Barbara
Fayetteville
Ontario
New Bern Jacksonville
Long Beach
Muscle Shoals
Wilmington
Florence
Augusta
Tupelo
Yuma
Macon
Lawton
Lihue
Columbus
Greenville
Hilton Head
Guam
Columbus
El Paso
Meridian
Albany
Brunswick
Saipan
Hattiesburg
Dothan
Valdosta
Killeen
Gainesville Daytona Beach
Houston- HOU
Yakima
Northwest airports not served by Delta
Melbourne
Delta airports not served by Northwest
Key West
St. Croix
Customers benefit from increased choice and more efficient connections
Source: OAG, Jan 2008 – Dec 2008 (excluding cancellations and including additions as of March 28, 2008)
Delta and Northwest
Domestic Networks are Highly Complementary
Domestic Passenger Breakdown by Region (% of airline’s total)
44%
36%
24%
24%
23%
17%
8%
8%
7%
6%
2%
1%
Intra-East
Source:
East to
West
DOT O&D Survey, Twelve months ended 3Q07
IntraWest
Central to
West
Delta
Northwest
IntraCentral
East to
Central
Delta and Northwest
Diversity Among the Delta/Northwest Fleets Provides Flexibility
777-200/LR
747-400
767-400
A333
767-300
A332
757-200
757-200/300
737-800
A320/319
MD-88
DC-9
Delta and Northwest
Complementary Fleets allows Matching Capacity to Demand
600
Number of Aircraft by Average Seat Count
(As of 12/31/2007)
500
190
400
300
73
200
71
361
22
100
131
204
151
189
11
50
0
<50
51-76
77-125
126-175
Delta
176-225
226-275
21
16
276-325
>325
Northwest
• 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
Source: SEC Filings and Ascend Aircraft Database
Delta and Northwest
Positioning Delta for Continued Success
• 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
Industry Perspective – the last few years.
• 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?
From 2002 to 2008, Price of Jet Fuel Rose Relentlessly
Average* U.S. Jet Fuel Price (¢/Gallon)
Average U.S. Spot Price Surged 320% During That Six-Year Period
2000 to 2008: Up 230.7%
2002 to 2008: Up 320.3%
* Simple average of spot prices in New York Harbor, U.S. Gulf Coast and Los Angeles
Source: U.S. Energy Information Administration
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Demand for Domestic Air Travel Has Not Recovered
Impact = $22B
Domestic Passenger Revenue as Share of U.S. GDP Continues to Stagnate
“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)
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Sources: Bureau of Economic Analysis and Bureau of Transportation Statistics
Domestic ASMs per 000 Dollars ($2000) of U.S. GDP
With Declining Portion of Economy Being Spent on
Domestic Air Travel, Airlines Have Contracted Accordingly
Sources: ATA analysis of data from the Bureau of Economic Analysis and Bureau of Transportation Statistics
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Year-Over-Year Change (%) Through March
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
** Alaska, American, Continental, Delta, FedEx, Hawaiian, JetBlue, Midwest, Southwest, United, UPS and US Airways
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Economy Continues Heavy Toll on U.S. Airline Jobs
U.S. Passenger Airline FTEs (000)
FTEs Down 28% from May 2001 Peak (542K) to February 2009 (392K)
~151,000 FTEs
Source: U.S. Bureau of Transportation Statistics
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One U.S. Passenger Airline Has Investment Grade Credit
No Passenger Airline in the World Enjoys an A-Minus or Better Rating
S&P Corporate Credit Ratings
U.S. airline
Non-U.S. airline
ABBB-
Source: Standard and Poor’s as of Apr. 16, 2009
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Investment
Grade
Speculative
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
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