Service Cuts in the
U.S. Airline Industry
What have been the factors at play?
William S. Swelbar
Executive Vice President
Consolidation is but one factor at work impacting
the route service map
Source: InterVISTAS analysis of Innovata schedule data via Diio Mi
2
We are now in our fifth straight year of domestic capacity discipline
Year-over-Year % change in available
domestic seats
10%
5%
0%
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
AA
DL + NW
UA + CO
-5%
US + HP
WN + FL
-10%
Capacity Discipline
-15%
Rationalization
-20%
Pre-recession
Source: InterVISTAS analysis of Innovata schedule data via Diio Mi
3
What are rationalization and capacity discipline?
• Rationalization (2007-2009): an active reduction of
available seat capacity as a result of macroeconomic
shocks to the airline industry and a “new normal” of higher
fuel prices.
• Capacity discipline (2010 – present): a restriction of
seat capacity growth by network carriers (and Southwest)
even as passenger enplanements have continued to
increase.
• “[Yield growth between 2007-2012] would have been
impossible without capacity discipline.”
–John Gebo, SVP Financial Planning, United Airlines, August 2013
4
In the past year, capacity discipline has remained the status quo
Millions of Scheduled Domestic
Flights
 Airlines continued to cut domestic flights by 2.4% from
2013-2014.
8.6
8.5
8.4
8.3
8.2
8.1
8
7.9
7.8
7.7
7.6
-2.4%
2009
Source: Innovata schedule data via Diio Mi
2010
2011
5
2012
2013
2014
Air service in the U.S. faces significant challenges
Operational
Economic
No 50 seat and
less replacement
aircraft in the
pipeline
Smallest new
production
aircraft likely
to be at least
100 seats
Strategic
In the wing oil
in excess of
$100 per barrel
40,000 cycle
decision
Capacity
discipline at
major carriers
has reduced
frequencies
and seats Prevalence of
low/ultra low
cost carriers in
primary
catchment areas
6
Flight Time/Duty
Time
regulations
causes staffing
challenges
Pilot shortage
surely to impact
regional sector
of the business
GovernmentInduced
Millions of Scheduled Domestic Flights
Small airports continue to be the most affected by airline
capacity rationalization and capacity discipline
 Smaller airports saw a disproportionate share of the cuts in
flights and available seats as a result of capacity discipline.
9
8
7
6
5
4
3
2
1
0
Source: Innovata schedule data via Diio Mi
% change in domestic flights
by hub type
Airport Type
% change in
domestic flights
(2007- 2014)
Large Hub
-10.1%
Medium Hub
-30.0%
Small Hub
-25.1%
Non-Hub
-21.4%
All Smaller
Airports
All Airports
-26.8%
-17.4%
Non-Hub
Small Hub
Medium Hub
Large Hub
7
Despite cuts in service, U.S. airports remain wellconnected to the globe
% Changes in Scheduled Domestic Flights and Airport
Connectivity Quality Index Score
2007-2014
Large Hub
0%
Medium Hub
% Change Flights
% Change Connectivity
-5%
-10%
-15%
-20%
-25%
-30%
-35%
Source: Innovata schedule data via Diio Mi and
MIT Airport Connectivity Quality Index
Small Hub
8
Non-Hub
Domestic seat capacity has finally begun to grow
along with the U.S. economy—a return to normal?

Capacity discipline has not been the natural state of the industry.
% Change U.S. GDP
% Change Domestic Seats
6.0%
4.0%
2.0%
-2.0%
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014*
0.0%
-4.0%
-6.0%
-8.0%
Source: BTS T-100 via Diio Mi, BEA, OECD (2014 US GDP Estimate)
9
In today’s consolidated industry, there are more
questions than answers
 What will cause the legacy carriers to grow
frequencies?
 Where will that growth be?
 What will be the future of Southwest and jetBlue? Can
hybrid carriers find a sweet spot in the system?
 What is the future of Ultra Low Cost Carriers?
 WILL THERE BE A REGIONAL INDUSTRY?
 Some airports will be winners, others will struggle
10
I was asked to briefly mention labor
in the context of a consolidated industry
 Many more positives than negatives this time around
 Labor navigated the deal environment very nicely
 Industry not competing on labor costs
 For the first time in history, average airline salary
and benefits per full time equivalent is greater the
$100,000
 More stable industry provides employee with sense of
security
 Modest growth in employment after years of deep
job cuts
 Profitable industry makes it more an employee market
than an employer market
as in the prior decade
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