AirportInfo. Airline Mergers & Acquisitions

Transcription

1 AirportInfo Airline Mergers & Acquisitions July

2 Airline Mergers & Acquisitions (M&A) In the last few years, the United States has held the lead in airline mergers and acquisitions (M&A). Airlines engage in M&A to control capacity, realize savings through economies of scale and to gain access to additional, valuable markets. As airports rely on the sustainability of airline operations, this edition will highlight how recent consolidation has affected airports. Airline Mergers and Acquisitions (M&A) Timeline and Process Impact of M&A on Mainline and Regional Fleets Market Share Flight Schedule Airline Hubs Pre- and Post-Merger Airline Operating Cost and Revenue Performance

3 Timeline of Recent Mergers and Acquisitions (M&A) United Airlines / Continental Airlines Airline Focus Pinnacle Airlines / Mesaba Airlines Skywest / Atlantic Southeast Airlines / ExpressJet Airlines US Airways / American Airlines Republic Airways / Shuttle America Pinnacle Airlines / Colgan Air Delta Airlines / Northwest Airlines Southwest Airlines / AirTran Airways US Airways / America West Republic Airlines / Midwest Airlines Skywest / Atlantic Southeast Airlines Republic Airlines / Frontier Airlines The last several years have seen an increase in airline consolidation in order to control capacity, realize economic savings through economies of scale and gain access to valuable markets. Spikes in input costs, such as oil, forced rationalization in the industry among both the legacy and regional carriers. From 2005 to 2012, there were 12 mergers and acquisitions. 3

4 Mergers and Acquisitions Process: United and Continental Airlines Example Airline Focus May 2010 Merger Announced August 2010 Government Approval September 2010 September 2010 October 2010 November 2011 March 2012 Shareholders Approval Senior Leadership Appointments Merger Transaction Closes Issuance of Single Operating Certificate Single Reservation System 18 Months 27+ Months March 2012 Single Frequent Flier Program April 2012 Single Livery and Uniform August Current Union Negotiations Mergers and acquisitions are lengthy and complicated processes. United announced its intention to merge with Continental in May 2010 and did not achieve a single operating certificate for more than a-year-and-a-half. Even to this day, United continues to negotiate new agreements to bring some of its labor groups together in the merged carrier. Airports play a key role in facilitating the operational impacts of a merger while ensuring customers needs are being met. 4

5 M&A Mainline Flight Schedules by Aircraft (Pre-Merger vs. Current) Airline Focus Q Q1 Q3 Q Q Q3 Q Q Q3 B717 39,155 37,698 B737-3/4/5 166, , ,488 9,846 15,926 9,463 B737-6/7/8/9 292, , ,481 69,614 93,376 61,925 74,551 B747 3,841 3,109 2,424 B757 33,245 42,517 38,486 25,715 5,533 31,368 B767 8,954 11,366 6,550 11,013 2,078 13,095 B777 11,062 13,175 11,061 5,850 7,303 B787 1,043 A320 68,018 64,938 67, , ,232 A330 3,299 4,227 Canadair CRJ 2,155 MD-80 75,871 80,542 E-Jet 7,808 11,162 TOTAL 459, , , , , , , , ,943 Pre Consolidation Post Consolidation Airline mergers lead to a complex flight integration, sometimes with multiple aircraft that do not always fit the merged carrier s business strategy. For Southwest, the merger with AirTran resulted in the acquisition of the B-717, which added complexity to Southwest s single fleet strategy. Conversely, United s integration with Continental resulted in the acquisition of the B-787. American s merger with US Airways will lead to a greater fleet mix of narrow body aircraft potentially allowing for earlier retirement of its older 737 and MD80 fleets. Source: Form 41 Note: Flight schedules based on marketing airlines Pre Consolidation includes only the airline listed Post Consolidation includes both merged airlines 5

6 M&A Regional Flight Schedules by Aircraft (Pre-Merger vs. Current) Airline Focus Q Q Q3 Q Q Q3 Beechcraft 9,878 3,518 Q Q Q3 Canadair CRJ 188, , , , , ,934 25, , ,652 Q-Series/Dash 8 3,446 28,624 30,114 31,128 29,928 E170/175/190/195 7,613 25,965 29,521 17,639 20,457 21,399 37,897 40,743 Embraer Turbo 6,297 6,056 4,113 28,916 31,616 26,446 ERJ 43,449 26,721 15,778 24, , , ,081 8, ,797 MD-80 Saab ,334 8,083 18,009 3,779 ATR 6,636 1,068 1,172 4,688 Other 12 TOTAL 252, , , , , , , , ,120 Pre Consolidation Post Consolidation Airline mergers also lead to complexity for regional affiliates. After merging with Northwest, Delta used the dynamics of the regional airline market to make major shifts in its regional aircraft strategy resulting in the elimination of Comair and the acquisition of Pinnacle. The American/US Airways merger has the potential to be challenging as the airline wrestles with US Airways diverse use of regional partners and American s historical reliance on American Eagle. Source: Form 41 Note: Flight schedules based on marketing airlines Pre Consolidation includes only the airline listed Post Consolidation includes both merged airlines 6

7 M&A Airlines Market Summary Domestic markets: Pre-merger 229 destinations served Post-merger 231 destinations served 114 overlapping destinations (+) 44 new markets acquired (-) 7 destinations cut post-merger International markets: Pre-merger 31 destinations served Post-merger 52 destinations served 5 overlapping destinations (+) 36 new markets acquired (-) 22 destinations cut post-merger Domestic markets: Pre-merger 136 destinations served Post-merger 142 destinations served 39 overlapping destinations (+) 25 new markets acquired (-) 11 destinations cut post merger International markets: Pre-merger 4 destinations served Post-merger 8 destinations served No overlapping destinations (+) 4 new markets acquired (-) 0 destinations cut post merger M&A allows airlines to enter new markets and strengthen pre-existing destinations but not all newly acquired destinations are profitable. In a period of high fuel expense and a focus on yields, United acquired 36 new international markets but cut 22 existing destinations in favor of utilizing resources for entrance into destinations with higher demand. Southwest s acquisition of AirTran led to cuts in service to several cities. Source: Diio Mi Note: Market summary based on full year flight schedules and include destinations cut prior to the actual merger transaction closing date. 7

8 M&A Flight Schedules by Fleet and Hub Sizes Pre-Merger vs. Post-Merger- % Change Airline Focus 20% 10% 0% -10% -20% Narrowbody Widebody Regional >50 Regional < % 5.5% 4.6% 1.0% 1.7% 0.0% 1.1% 1.0% -0.3% -1.4% -1.6% -5.6% -5.3% -6.1%-6.3% -4.6% -10.6% -8.8% -9.7% -15.2% Large Medium Small Non-Hub International 20% 0% -20% -40% -60% Narrowbody Widebody Regional >50 Regional <50 5.5% 8.8% 0.1% 0.0% 0.0% -1.6% -5.3% -3.8% -2.4% -3.8%-2.0% -8.5% -5.2% -9.4% -17.0% -13.6% -19.8% -24.4% -28.4% -49.6% Large Medium Small Non-Hub International Airlines striving for operational efficiency post-merger results in a decline of flights to various airports. Flights producing low yields and load factors are often transitioned to smaller aircrafts with the same or greater frequency. United and Delta post-merger decreased its widebody flights and replaced them with modern narrowbodies. For some small and non-hub airports, narrowbody flights and regional flights with 50 seats or less were replaced by regional aircraft with more than 50 seats. Source: Diio Mi 8

9 M&A Hub Review Market Share by Passengers Airline Focus AirTran Hub AirTran share (%) Southwest Focus Cities Southwest share (%) Pre Merger Total (%) Current* Total (%) Baltimore (BWI) Orlando (MCO) Atlanta (ATL) Dallas Love Field (DAL) Chicago Midway (MDW) Houston Hobby (HOU) Denver (DEN) Los Angeles (LAX) US Airways Hub US Airways share (%) American Hub American share (%) Pre Merger Total (%) Current* Total (%) Charlotte (CLT) Philadelphia (PHL) Washington (DCA) Phoenix (PHX) Dallas (DFW) Miami (MIA) Chicago (ORD) Los Angeles (LAX) New York (JFK) A merger transaction strengthens the passenger market share at airports operated by both airlines. Southwest s merger acquired majority market share within its focus cities and gained new capacity in heavily competitive markets like Orlando, Denver, and Washington (DCA). There is potential for the same effect with the American and US Airways merger anticipated for later this year. Source: T100 Current*: Based on February 9

10 United and Continental s ORD Flight Schedules Flights by Fleet Type and Hub Sizes Airline Focus Flights to ORD Pre-Merger Large Medium Small Non-Hub TOTAL Flights from ORD Pre-Merger Large Medium Small Non-Hub TOTAL Narrowbody 133,976 14,805 5, ,313 Narrowbody 131,800 15,927 5, ,156 Widebody 15, ,249 Regional 130,587 29,407 51,693 21, ,748 TOTAL 280,498 44,392 57,032 21, ,310 Post-Merger Large Medium Small Non-Hub TOTAL Narrowbody 124,798 11,338 3, ,049 Widebody 11, ,881 Regional 170,996 33,543 56,680 24, ,876 TOTAL 307,513 44,939 60,152 25, ,806 ORD Widebody 16, ,103 Regional 130,905 28,674 51,748 21, ,394 TOTAL 279,372 44,904 56,881 21, ,653 Post-Merger Large Medium Small Non-Hub TOTAL Narrowbody 123,988 11,662 3, ,559 Widebody 11, ,313 Regional 170,635 32,624 57,593 24, ,522 TOTAL 306,199 44,868 61,164 25, ,394 CAGR Large Medium Small Non-Hub TOTAL Narrowbody -4.9% -15.9% -17.2% -2.6% -7.7% Widebody -25.8% -5.5% -43.6% -26.1% Regional 23.7% 6.8% 4.7% 8.0% 7.7% TOTAL -1.4% -0.2% 3.0% 7.9% 1.3% CAGR Large Medium Small Non-Hub TOTAL Narrowbody -3.0% -14.4% -17.2% 6.0% -4.5% Widebody -16.7% 38.6% 4.1% -15.2% Regional 14.2% 6.7% 5.5% 8.2% 10.8% TOTAL 4.7% 0.0% 3.7% 8.2% 4.2% Flight consolidation from airline mergers has resulted in an increased use of regional aircraft flying to and from the small and non-hub airports. At United s ORD hub, flights departing ORD show the upgauging to widebody aircraft at medium hubs and a downsizing of narrowbodies to regional jets at small hubs. Flights to non-hub airports grew due to the addition of regional affiliates from Continental. Source: Diio Mi 10

11 Flights to ATL Delta and Northwest s ATL Flight Schedules Flights by Fleet Type and Hub Sizes Pre-Merger Large Medium Small Non-Hub TOTAL Flights from ATL Airline Focus Pre-Merger Large Medium Small Non-Hub TOTAL Narrowbody 222,941 45,046 27,521 5, ,810 Widebody 45,465 1, ,140 Regional 179,495 21,766 66,480 56, ,547 TOTAL 447,901 68,486 94,001 62, ,497 Narrowbody 223,135 45,148 27,547 5, ,954 Widebody 45,332 1, ,160 Regional 179,474 21,764 66,577 56, ,542 TOTAL 447,941 68,739 94,124 61, ,656 Post-Merger Large Medium Small Non-Hub TOTAL Narrowbody 237,145 44,512 18,403 1, ,844 Widebody 28, ,777 Regional 189,500 23,729 82,666 58, ,878 TOTAL 454,659 69, ,069 60, ,499 ATL Post-Merger Large Medium Small Non-Hub TOTAL Narrowbody 237,096 44,370 18,407 1, ,648 Widebody 27, ,580 Regional 189,432 23,761 82,689 58, ,877 TOTAL 454,328 68, ,096 60, ,105 CAGR Large Medium Small Non-Hub TOTAL Narrowbody 3.1% -0.6% -18.2% -42.0% 0.2% Widebody -21.5% -32.5% -21.9% Regional 2.7% 4.4% 11.5% 1.9% 4.6% TOTAL 0.8% 0.4% 3.7% -1.1% 1.0% CAGR Large Medium Small Non-Hub TOTAL Narrowbody 3.1% -0.9% -18.3% -41.1% 0.1% Widebody -21.7% -34.7% -22.2% Regional 2.7% 4.5% 11.4% 2.0% 4.6% TOTAL 0.7% 0.1% 3.6% -0.9% 0.9% Due to rising fuel expenses and a slowing economy during the Delta and Northwest merger, the airline consolidated flights and matched capacity with demand on narrowbody and regional flights at ATL. As airlines continue to chase profits, regional hubs may face additional pressure as airlines realign services following mergers to large hubs within close geographic proximity. Source: Diio Mi 11

12 AirportInfo July, Contact: Economic Affairs and Research Tel: