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48111BDomesticAirlinesintheUSIndustryReport.pdf
WWW.IBISWORLD.COM Domestic Airlines in the US August 2017 1
IBISWorld Industry Report 48111b Domestic Airlines in the US August 2017 Brian Sayler
In plane sight: Revenue will grow as consumer sentiment and disposable income levels rise
2 About this Industry 2 Industry Definition
2 Main Activities
2 Similar Industries
3 Additional Resources
4 Industry at a Glance
5 Industry Performance 5 Executive Summary
5 Key External Drivers
7 Current Performance
9 Industry Outlook
11 Industry Life Cycle
13 Products & Markets 13 Supply Chain
13 Products & Services
14 Demand Determinants
15 Major Markets
17 International Trade
18 Business Locations
20 Competitive Landscape 20 Market Share Concentration
20 Key Success Factors
20 Cost Structure Benchmarks
22 Basis of Competition
23 Barriers to Entry
24 Industry Globalization
25 Major Companies 25 American Airlines Group Inc.
26 Delta Air Lines Inc.
27 United Continental Holdings Inc.
28 Southwest Airlines Co.
31 Operating Conditions 31 Capital Intensity
32 Technology & Systems
33 Revenue Volatility
33 Regulation & Policy
34 Industry Assistance
36 Key Statistics 36 Industry Data
36 Annual Change
36 Key Ratios
37 Industry Financial Ratios
38 Jargon & Glossary
www.ibisworld.com | 1-800-330-3772 | [email protected]
This report was provided to Texas A&M University - Corpus Christi (2127611649) by IBISWorld on 14 November 2017 in accordance with their license agreement with IBISWorld
WWW.IBISWORLD.COM Domestic Airlines in the US August 2017 2
The industry provides domestic air transportation for passengers and cargo over regular routes and on regular schedules. Network carriers operate a significant portion of their flights using at least one hub where connections are made
for flights on a spoke system. Regional carriers provide service from small cities, mostly using smaller aircraft and jets to support the network carriers’ hub and spoke systems. Airlines that transport mail are included in this industry.
The primary activities of this industry are
Scheduling domestic air transport
Scheduling domestic cargo and freight air transport (excluding air couriers)
Transporting commuter domestic passengers
Transporting charter domestic passengers
Scheduling domestic mail air transport
33641a Aircraft, Engine & Parts Manufacturing in the US This industry provides factory conversion, overhaul and rebuilding of aircraft.
48111a International Airlines in the US This industry provides international air transportation of passengers and cargo over regular routes and on regular schedules.
48121 Charter Flights in the US This industry provides domestic air transportation of passengers and cargo and specialty flying services with no regular routes and regular schedules.
48211 Rail Transportation in the US The industry comprises companies that operate railroads across the United States. This includes large railroads and regional and local line-haul railroads that carry freight and passengers.
48311 Ocean & Coastal Transportation in the US This industry provides deep-sea, coastal, Great Lakes and St. Lawrence Seaway water transportation. The deep-sea shipping activity includes US-flagged vessels and nonflagged vessels.
48811 Airport Operations in the US The industry includes businesses that operate international, national or civil airports or public flying fields.
56151 Travel Agencies in the US This industry includes businesses that sell, book and arrange travel, tour and accommodation services for the general public and commercial clients.
Industry Definition
Main Activities
Similar Industries
About this Industry
The major products and services in this industry are
Cargo transportation
Passenger transportation: coach class
Passenger transportation: first and business class
Other
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About this Industry
49222 Couriers & Local Delivery Services in the US This industry primarily engages in delivery services between urban centers using a network of air and surface transportation systems.
Similar Industries continued
For additional information on this industry
www.airlines.org Airlines for America
www.bts.gov Bureau of Transportation Statistics
www.faa.gov Federal Aviation Administration
www.dot.gov US Department of Transportation
www.ustravel.org US Travel Association
Additional Resources
IBISWorld writes over 1000 US industry reports, which are updated up to four times a year. To see all reports, go to www.ibisworld.com
Provided to: Texas A&M University - Corpus Christi (2127611649) | 14 November 2017
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Domestic trips by us residents
SOURCE: WWW.IBISWORLD.COM
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Revenue Employment
Revenue vs. employment growth
Products and services segmentation (2017)
82.3% Passenger transportation: coach class
14.4% Passenger transportation:
first and business class
1.9% Cargo
transportation
1.4% Other
SOURCE: WWW.IBISWORLD.COM
Key Statistics Snapshot
Industry at a Glance Domestic Airlines in 2017
Industry Structure Life Cycle Stage Mature Revenue Volatility Low
Capital Intensity Medium
Industry Assistance High
Concentration Level High
Regulation Level Heavy
Technology Change High
Barriers to Entry High
Industry Globalization Low
Competition Level High
Revenue
$132.3bn Profit
$9.5bn Wages
$24.4bn Businesses
369
Annual Growth 17-22
2.7% Annual Growth 12-17
1.5%
Key External Drivers Domestic trips by US residents Per capita disposable income Corporate profit Inbound trips by non-US residents World price of crude oil
Market Share American Airlines Group Inc. 23.1%
Delta Air Lines Inc. 21.2%
United Continental Holdings Inc. 16.6%
Southwest Airlines Co. 14.6%
p. 25
p. 5
FOR ADDITIONAL STATISTICS AND TIME SERIES SEE THE APPENDIX ON PAGE 36
Provided to: Texas A&M University - Corpus Christi (2127611649) | 14 November 2017
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Key External Drivers Domestic trips by US residents The total number of domestic trips taken by US residents indicates the level of activity in the Domestic Airlines industry. While not all trips are taken by plane, any growth in domestic travel indicates increasing demand for aviation services. The number of domestic trips taken by US residents is expected to increase in 2017, representing a potential opportunity for industry operators.
Per capita disposable income Most revenue earned in this industry comes from discretionary consumer spending on leisure travel. When per capita disposable income rises, consumers can spend more on vacations and other nonessential trips. Per capita disposable income is expected to increase in 2017.
Corporate profit Business customers account for a significant portion of domestic passenger traffic. When
Executive Summary
The Domestic Airlines industry has expanded over the past five years, as rising levels of per capita disposable income, consumer confidence and total corporate profit have bolstered demand from both business and leisure travelers. At the same time, price competition within the industry has intensified in recent years as low-cost airlines continue to siphon passengers from industry leaders through no-frills service options. Moreover, recent declines in the world
price of crude oil have caused the price of jet fuel to plummet, preventing many operators from generating revenue through fuel surcharge fees. Overall, industry revenue is estimated to increase at an annualized rate of 1.5% to $132.3 billion over the five years to 2017, including projected growth of 2.8% in 2017 alone.
With the industry’s top five companies holding an estimated market share of 79.0%, industry concentration has risen over the five years to 2017. Low profit margins and intense price competition in the years following the recession drove some airlines out of business and led
others to seek mergers. Even the big national carriers were not immune to unfavorable conditions. In 2013, for example, American Airlines and US Airways merged to create the world’s largest airline in terms of revenue. High-profile mergers between Delta Air Lines and Northwest Airlines, as well as United Airlines and Continental Airlines, have also occurred in recent years. Despite this consolidation activity, growing demand for airborne passenger transportation and expanding profit margins caused by plummeting fuel costs have encouraged many small-scale operators to enter the market. In fact, the total number of industry enterprises is estimated to grow at an annualized rate of 0.3% to 369 companies over the five years to 2017.
In line with continually improving economic conditions and an expected increase in demand for air travel, the Domestic Airlines industry is projected to continue growing over the next five years. At the same time, the world price of crude oil is expected to rebound in coming years, bolstering the price of jet fuel and enabling industry operators to supplement revenue through fuel surcharges and higher ticket prices. Ultimately, industry revenue is forecast to grow at an annualized rate of 2.7% to $150.9 billion over the five years to 2022.
Industry Performance Executive Summary | Key External Drivers | Current Performance Industry Outlook | Life Cycle Stage
The Domestic Airlines industry is projected to continue growing over the next five years
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Industry Performance
Key External Drivers continued
corporate profit is high, companies are more likely to pay for business travel and travelers are more likely to purchase first class tickets and other high-margin industry products. Corporate profit is expected to increase in 2017.
Inbound trips by non-US residents International tourism is a significant source of passengers for domestic airlines. The number of inbound visits to the United States is a good indication of the number of tourists entering the country. These tourists will often use other airlines to get across the country.
Inbound trips by non-US residents are expected to increase in 2017.
World price of crude oil Given that jet fuel is refined from crude oil, when global crude oil prices decline, jet fuel prices tend to decline as well, causing major airlines to remove fuel surcharges and reduce ticket prices to remain competitive. In turn, lower prices limit industry revenue growth. The world price of crude oil is forecast to increase in 2017; however, the volatile nature of world oil prices will continue to pose a significant threat to industry operators in coming years.
% c
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Per capita disposable income
SOURCE: WWW.IBISWORLD.COM
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840
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720
760
800
2309 11 13 15 17 19 21Year
Domestic trips by US residents
Provided to: Texas A&M University - Corpus Christi (2127611649) | 14 November 2017
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Industry Performance
Current Performance
The Domestic Airlines industry has experienced modest growth over the past five years. Prior to the current five-year period, industry revenue experienced significant volatility as uncertain demand for industry services and skyrocketing oil prices led to large losses and gains for many domestic airlines. More recently, however, rising levels of disposable income and improving corporate profit have caused demand from both business and leisure travelers to soar. At the same time, industry revenue growth has been constrained during the five-year period by sudden declines in the world price of crude oil, which caused the market price of jet fuel to decline as well, limiting the ability of operators to generate revenue through fuel surcharges. Ultimately, industry
revenue is estimated to increase at an annualized rate of 1.5% to $132.3 billion over the five years to 2017, including projected growth of 2.8% in 2017.
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Industry revenue
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Improving demand conditions
The Domestic Airlines industry is cyclical and highly sensitive to a variety of external economic factors that affect the number of domestic and international travelers. Fortunately for industry operators, steady growth in the US economy and improving consumer conditions have substantially bolstered demand for industry services over the past five years. For instance, per capita disposable income is estimated to grow at an annualized rate of 1.6% over the five years to 2017,
while total corporate profit is also expected to increase at an annualized rate of 1.6% during the same period. As a result of these trends, the number of domestic trips taken by US residents has grown at an annualized rate of 2.8% over the past five years. In addition to generating revenue from ticket sales, this influx of passengers has enabled domestic airlines to earn significant revenue through amenities and add- ons, such as checked baggage and loyalty programs.
Fuel prices and profit margins
The movement of world oil prices can often make or break the industry’s profit margins as fuel costs typically account for 20.0% to 40.0% of an airline’s total costs. Moreover, Airlines for America, formerly known as the Air Transport Association of America, estimates that for every dollar increase in the price of jet fuel (a derivative product of crude oil), US airlines incur an additional $445.0
million in fuel expenses. However, when the price of fuel increases, industry carriers are typically able to earn revenue by implementing fuel surcharges and increasing ticket prices and freight rates, shifting the burden of rising fuel costs to consumers. Unfortunately for industry revenue growth, the world price of crude oil declined at a substantial annualized rate of 12.6% over the five years to 2017,
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Industry Performance
Industry landscape Over the five years to 2017, the number of industry enterprises has grown at a modest annualized rate of 0.3% to 369 companies. Following a period of significant merger and acquisition activity on the part of the industry’s largest players, the industry is now dominated by large-scale operators such as United Continental Holdings Inc. and American Airlines Group Inc. In fact, the industry’s five largest players are expected to account for 79.0% of total industry revenue in 2017, which acts as a significant barrier to entry for small-scale players attempting to gain market share in this industry. Despite these barriers, smaller airlines such as Spirit Airlines have captured market share from the larger airlines through aggressive price competition, meaning American Airlines, Delta and United have had to restructure to achieve cheaper prices without compromising profitability.
At the same time, growing industry revenue and expanding profit margins have encouraged many industry operators to expand their workforces,
causing total industry employment to increase at an annualized rate of 2.4% over the past five years, reaching an estimated 354,039 employees in 2017. Similarly, while the industry has moved further toward automation through self-serve electric kiosks, online ticket sales and more budget seating in recent years, heightened demand for industry services has bolstered wage growth during the five-year period. In fact, because of a high level of unionization, wages are expected to increase at a faster rate than revenue over the five years to 2017, rising at an annualized rate of 4.5% to $24.4 billion. As a result, wages are estimated to account for 18.4% of the industry’s total revenue in 2017, up from 16.0% in 2012.
Fuel prices and profit margins continued
including declines of 47.2% in 2015 and 14.8% in 2016. The consequences of volatile oil prices have been severe for the industry, and many of the major airlines have responded by reducing services and aircraft fleet sizes, while others have merged or filed for bankruptcy. In fact, plummeting fuel prices caused industry revenue to decline 0.5% in 2015.
At the same time, substantial declines in the price of jet fuel have significantly reduced operating costs for many industry players, bolstering industry profitability. Moreover, as demand for industry services has increased, costs have fallen and mergers have led to increased economies of scale. As a result, profit is estimated to account for 7.2% of total industry revenue in 2017, up from 4.1% in 2012.
The industry is now dominated by large-scale operators
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Industry Performance
Rising demand Over the five years to 2022, a greater number of business passengers, rising disposable income levels and increases in services offered will support industry revenue growth. For instance, US per capita disposable income is projected to grow at an annualized rate of 2.9% over the next five years, enabling greater numbers of consumers to purchase air travel and purchase first class seats, extra baggage allowances and other disposable amenities that many airlines provide. In fact, the number of domestic trips taken by US residents is forecast to increase at an annualized rate of 1.9% over the next five years. At the same time, rising levels of corporate profit will lead to larger travel budgets for businesses, especially for senior executives who often purchase first class and business class tickets for business-related air travel. Over the five years to 2022, corporate profit is projected to grow at an annualized rate of 1.7%, a trend that will primarily benefit the industry’s major airlines, since low-cost airlines are generally unable to compete with industry leaders in the industry’s business class segment.
The load factor of US-operated aircraft is also increasing. A higher load factor has the potential to increase airline revenue, which can occur in two ways. First, aircrafts can operate more
efficiently and achieve higher returns by filling empty seats, which ensures that airlines are operating near maximum capacity. Second, airlines can use yield-management software to anticipate demand and extract the highest possible price for each seat. If seats fill up, prices for the remaining seats will increase. Therefore, airlines can achieve the best returns based on the number of passengers on the plane. Additionally, according to projections from the Federal Aviation Administration, total revenue passenger miles for domestic airlines are expected to increase at an annualized rate of 2.3% over the five years to 2022, while revenue per passenger mile for domestic carriers is forecast to increase at an annualized rate of 2.7% during the same period. This trend is not only indicative of greater demand for air travel, but also greater efficiency for airlines, which is expected to boost industry revenue over the next five years.
Industry Outlook
The Domestic Airlines industry will continue to grow over the next five years as economic conditions continue to improve and consumers and businesspeople continue taking trips. Additionally, both consumer and business confidence levels are expected to rise over the next five years, supporting demand for air travel. The market price of jet fuel is also expected to rebound in coming years, enabling domestic airlines
to generate additional revenue by reinstating fuel surcharges. Overall, industry revenue is projected to increase at an annualized rate of 2.7% to $150.9 billion over the five years to 2022. Furthermore, low-cost airlines are expected to control a greater share of the industry’s total revenue in coming years, with recent industry consolidation leading to greater competition among the remaining conglomerates.
Rising disposable income levels and increases in services offered will support industry revenue growth
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Industry Performance
Profitability and consolidation
The industry’s average profit margin is expected to fall slowly over the next five years as additional fees and charges are unable to offset rising operating costs caused by a projected rebound in the price of fuel. Moreover, industry profitability will likely be constrained by the rising costs of complying with environmental regulations and mounting price competition caused by the proliferation of low-cost airlines. Overall, profit is expected to account for 7.2% of total industry revenue in 2017, up from 4.1% in 2012.
In turn, contracting profit margins are expected to slow the level of future investments for this industry, though technological developments in aircraft manufacturing will continue to provide
faster and more fuel-efficient models that will improve the competitiveness of operators. However, declining profitability will likely force many small-scale operators to exit the market, while the industry’s substantial capital costs limit the entry of new players. Overall, the number of industry enterprises is projected to decline at a modest annualized rate of 0.3% over the next five years, reaching an estimated 364 companies in 2022.
Employment trends Since the industry is subject to a large degree of unionized labor, large-scale employment cutbacks are not expected if the industry remains profitable. However, all jobs within the industry, such as aircrew, engineers and customer service representatives, are expected to continue to be exposed to automation over the next five years. Flight attendants are also becoming less important as airlines provide cheaper ticket options, which include less personal service and meal
options. Even many aspects of a pilot’s job have become automated as airlines invest in pilotless technology. Nonetheless, increasing demand for air travel will require greater labor inputs to carry out certain essential functions such as flying, security and safety checks, repair and maintenance and other customer-facing roles. As a result, total industry employment is expected to increase at an annualized rate of 1.6% to 383,334 employees over the five years to 2022.
The industry’s average profit margin is expected to fall slowly over the next five years
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Industry Performance Services offered by the industry are clearly segmented and stable
There is wholehearted market acceptance of industry services
Significant consolidation is occurring
Life Cycle Stage
SOURCE: WWW.IBISWORLD.COM
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Decline Shrinking economic importance
Quality Growth High growth in economic importance; weaker companies close down; developed technology and markets
Maturity Company consolidation; level of economic importance stable
Quantity Growth Many new companies; minor growth in economic importance; substantial technology change
Key Features of a Mature Industry
Revenue grows at same pace as economy Company numbers stabilize; M&A stage Established technology & processes Total market acceptance of product & brand Rationalization of low margin products & brands
Aircraft, Engine & Parts Manufacturing
Freight Forwarding Brokerages & Agencies
Aircraft, Marine & Railroad Transportation Equipment Wholesaling
International Airlines
Gasoline & Petroleum Wholesaling
Domestic Airlines
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Industry Performance
Industry Life Cycle The Domestic Airlines industry is in the mature phase of its economic life cycle. Industry value added, or the industry’s contribution to the US economy, is expected to grow at an annualized rate of 4.5% over the 10 years to 2022. Comparatively, US GDP is forecast to increase at an annualized rate of 2.1% during the same period. While the contrast between these two growth rates generally indicates that an industry is in the growth phase of its life cycle, substantial consolidation activity among the industry’s largest players and full market acceptance of industry services reinforce the industry’s ongoing maturity.
Domestic air transport services have remained relatively unchanged over the past five years. There is very little scope to expand domestic services due to strong competition and a saturated market. This has resulted in deteriorating operating conditions for most airlines, particularly in response to unstable costs with volatile fuel prices. In response, mergers and acquisitions have become more prominent in the industry as major players attempt to expand their market share. For example, in 2013, American Airlines and US
Airways merged to form the largest airline in the world. Industry operators also frequently form alliances to expand their geographical reach and share the costs associated with transportation. Many of the industry’s largest shipping alliances, such as Star Alliance, SkyTeam and Oneworld, were formed in recent decades as companies attempted to improve operations in a highly competitive environment. This trend is indicative of a relatively mature industry.
Additionally, the industry plays a critical role in the US economy and, therefore, passenger and cargo airline services have consistently been fully accepted by downstream consumers. Airlines offer a quick, relatively affordable method for private consumers to travel and cargo airlines remain the most popular mode of transporting high-value, time-sensitive goods. Therefore, as levels of disposable income, domestic travel activity and total manufacturing output continue to increase in coming years, airborne transportation services will continue to be fully accepted by downstream markets.
This industry is Mature
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Products & Services
Passenger transportation Scheduled passenger services are the industry’s largest product segment, made up of coach, business and first-class passengers. Coach class passengers account for the greatest share of industry
revenue and the majority of passenger seats on scheduled flights. In fact, 82.3% of total industry revenue is earned through coach travel, while 14.4% of the industry’s total revenue is generated through business and first-class travel.
Products & Markets Supply Chain | Products & Services | Demand Determinants Major Markets | International Trade | Business Locations
KEY BUYING INDUSTRIES
48851 Freight Forwarding Brokerages & Agencies in the US The industry uses domestic airlines to transfer goods across the United States.
49222 Couriers & Local Delivery Services in the US Couriers use domestic airlines to transport parcels and packages across the United States.
92 Public Administration in the US Business travelers account for a significant portion of industry revenue.
99 Consumers in the US Consumers are the primary users of industry services.
KEY SELLING INDUSTRIES
33641a Aircraft, Engine & Parts Manufacturing in the US This industry provides aircraft and associated machinery to domestic airlines.
42386 Aircraft, Marine & Railroad Transportation Equipment Wholesaling in the US Domestic airlines purchase aircraft from wholesalers.
42472 Gasoline & Petroleum Wholesaling in the US The industry supplies fuel and lubricants for aircraft.
48811 Airport Operations in the US Airports provide space for domestic scheduled air operators to load and unload passengers and cargo.
48819 Aircraft Maintenance, Repair & Overhaul in the US The industry provides maintenance and support to domestic airlines.
Supply Chain
Products and services segmentation (2017)
Total $132.3bn 82.3%
Passenger transportation: coach class
14.4% Passenger transportation:
first and business class
1.9% Cargo
transportation
1.4% Other
SOURCE: WWW.IBISWORLD.COM
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Products & Markets
Demand Determinants
Demand for domestic air travel is dependent on many factors, most of which are economic influences on consumers, both private and corporate. Air transportation activity increases when the number of passengers grows and demand for freight increases. The main economic factors influencing a consumer’s choice to fly domestically or send to cargo include consumer and business sentiment, corporate profit, disposable income, exchange rates and airfares. Other considerations are
consumer preferences, leisure time availability and competition from substitute methods of travel, such as driving cars.
Leisure travel Leisure travel includes air transportation for the purpose of a vacation, visiting friends and family, moving to another city or similar related activities. Demand for these activities is generally closely linked to disposable incomes and leisure time availability. When personal or
Products & Services continued
Demand for coach class tickets has climbed over the past five years as passengers have grown increasingly budget conscious. In turn, airlines specializing in low-price tickets, such as Spirit and Jet Blue, have done particularly well as many consumers value low prices more than additional legroom and in-flight meals.
Business class and first-class passengers, distinguished from other travel classes by the quality of seating, food, drinks and other amenities, represent a smaller share of total revenue. In the United States, true business class is usually only offered on transcontinental flights and from the east coast to Hawaii. On shorter routes, the front of the cabin is often designated as first class. Premium classes are not offered by all airlines. For example, Spirit and JetBlue offer more room and some additional features for a higher fee, such as more space and priority seating, but no traditional business class seats. In recent years, rising levels of per capita disposable income and corporate profit have enabled more airline customers to purchase relatively high-end airline services, such as first-class seating. As a result, passenger transportation has grown as a share of total industry revenue over the past five years.
Cargo transportation The transportation of cargo and mail is estimated to generate an additional 1.9% of industry revenue in 2017. The main cargo airlines operating in this segment are divisions or subsidiaries of national passenger airlines, and these carriers generally use recently built or converted aircraft (passenger to freight) to carry cargo. Industry operators transport a wide variety of cargo, such as fresh produce, perishable goods, livestock and dangerous or hazardous goods. In recent years, chronic overcapacity in the global maritime shipping industry has caused many waterborne transporters to slash their rates to remain in business, which has generated significant competition for US cargo airlines. As a result, this service segment has declined as a portion of total industry revenue over the past five years.
Other Other sources of income for domestic airlines include commuter and charter air transport, excess baggage charges, reservation cancelation fees, scheduled sightseeing tours and other miscellaneous services and charges. Collectively, revenue from these operations is expected to account for the remaining 1.4% of industry revenue in 2017.
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Products & Markets
Demand Determinants continued
household disposable income is experiencing favorable growth, more consumers tend to spend money on discretionary items such as vacations and interstate visits. Also, people who have more free time away from work, like retirees, travel more. Airfares also play a role, as cheaper prices tend to attract more potential passengers. However, if prices are increasing at a slower rate than income growth, consumers will generally not be deterred from flying. Exchange rates also play a role, in that they influence consumers’ decisions whether to travel abroad or domestically.
Other factors contributing to demand for leisure air transportation include the location of the consumer and population density in the area, as well as consumer preferences. People who live in remote areas tend to fly more out of necessity, and these locations are usually poorly populated. The United States is a large landmass and the most convenient way of transport from one end to the other is flying. Consumer preferences affect demand for air transport in the choice of a mode of transportation and the choice of whether to go on vacation domestically or internationally. When people are more willing to fly rather than drive or catch a train, this increases demand for domestic airlines. A preference for domestic vacations over international vacations helps the industry as well.
Business travel Business travelers are much less responsive to price changes than they are to corporate profit and business sentiment. Demand for business travel tends to rise when corporate activity in
the country increases and profit is performing favorably. This generates more need to visit other business locations or to attend conferences. However, when profit is falling and sentiment is down, business travel is usually on the chopping block for companies. Additionally, in an age of technological developments, competition from substitutes, such as video conferencing, is on the rise. As a result, demand for business air travel is affected by developments in the communications industry and the future need for working professionals to physically move from one location to another.
Cargo transportation Demand determinants of air cargo include: the level of high-value, time-sensitive imports and exports; airfreight rates, which are influenced by operating costs and capacity; and innovation in shipping and packaging technology. It is more profitable to ship time-sensitive products that have a high value-to-weight ratio via air. Electronics and high-end products are usually transported by air to reach the market in a fast and efficient manner. Time to market is important and influences demand for these products. Many carriers are also certified to handle dangerous goods, such as explosives, gases, flammable liquids, toxic and infectious substances and radioactive materials. Consumer sentiment will also affect demand for these time- sensitive products to be transported. When sentiment is down, consumption tends to fall, leading to fewer cargos. Also, if freight rates are increasing, companies and individuals sending packages may choose another method of transportation.
Major Markets Leisure travelers Passengers traveling for leisure represent the Domestic Airline industry’s largest market. In 2017, this market is expected
to account for 69.1% of the industry’s total revenue. The price of air travel generally has a significant effect on demand from this market segment, and
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Products & Markets
ticket prices are often the primary concern for everyday consumers planning a trip. Over the past decade, the number of available consumer flights has increased considerably, partially due to higher incomes and more route offerings by major airlines and low-cost airlines. Other factors influencing demand from this market segment include baggage allowances, route of travel and service levels. For example, airlines that route travelers through multiple airports will charge more taxes and fees associated with the total fare. Many airlines also offer promotions for leisure travelers, especially during off-peak seasons when passenger volume is typically low.
Business travelers Companies often pay for flights for general business purposes, such as consulting, client service and meetings. According to the Travel Industry Association of America, one in five business trips are taken for the primary purpose of attending a convention, conference or seminar. Business travelers usually pay a premium for their tickets,
because payment is usually made under the company’s account or as last-minute bookings that attract a higher price. This type of travel has grown in recent years as companies have become increasingly global in terms of their investments, supply chains and customers. Overall, trips taken for professional purposes are expected to generate 28.9% of the industry’s total revenue in 2017.
Freight and mail markets Sales to customers transporting freight and mail are expected to account for the remaining 2.0% of industry revenue. Industry sales to mail transport markets have declined over the past five years as a result of a general decline in physical mail volumes during the period. Moreover, a chronic excess of cargo carrying capacity throughout the industry has caused many operators to lower freight rates to remain competitive, further limiting revenue from this market segment. As a result, this market has declined as a share of total industry revenue over the past five years.
Major market segmentation (2017)
Total $132.3bn
69.1% Leisure travelers
28.9% Business travelers
2.0% Freight and mail markets
SOURCE: WWW.IBISWORLD.COM
Major Markets continued
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WWW.IBISWORLD.COM Domestic Airlines in the US August 2017 17
Products & Markets
International Trade International trade does not occur in the Domestic Airlines industry due to the service-based nature of industry services. However, the industry generates revenue through sales to foreign customers that travel within the United States. In effect, industry operators are providing a service
export. Service exports relate to US airlines carrying nonresident passengers to and from destinations within the United States. Trips to and from international locations are included in the International Airlines industry (see IBISWorld report 48111a).
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Products & Markets
Business Locations 2017
MO 1.6
West
West
West
Rocky Mountains Plains
Southwest
Southeast
New England
VT 0.3
MA 2.2
RI 0.3
NJ 2.0
DE 0.0
NH 0.2
CT 0.6
MD 0.7
DC 0.7
1
5
3
7
2
6
4
8 9
Additional States (as marked on map)
AZ 1.8
CA 12.3
NV 1.1
OR 1.0
WA 2.5
MT 1.1
NE 0.6
MN 0.9
IA 0.6
OH 1.9
VA 3.3
FL 9.9
KS 0.6
CO 1.8
UT 0.6
ID 0.6
TX 9.4
OK 0.7
NC 2.2
AK 4.2
WY 0.6
TN 1.7
KY 1.1
GA 2.4
IL 4.4
ME 0.5
ND 0.1
WI 1.0 MI
2.0 PA 2.4
WV 0.3
SD 0.6
NM 0.7
AR 0.8
MS 0.4
AL 0.8
SC 1.0
LA 1.6
HI 2.4
IN 1.3
NY 8.5 5
6 7
8
3 21
4
9
SOURCE: WWW.IBISWORLD.COM
Mid- Atlantic
Establishments (%)
Less than 3% 3% to less than 10% 10% to less than 20% 20% or more
Great Lakes
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Products & Markets
Business Locations Airline establishments tend to be located in regions with large populations and significant economic activity, though government regulations and aircraft noise concerns often cause industry establishments to be located at a distance from heavily urbanized areas.
Southeast The Southeast is the most populous region in the United States, accounting for 25.7% of the total US population. As a result, airline companies in this region benefit from a steady stream of consumers who require industry services for both personal and professional travel. Moreover, the region is home to the Hartsfield-Jackson Atlanta International Airport, which handles more passengers than any other airport in the world. Overall, the Southeast is the most popular region for industry operators, accounting for an estimated 25.3% of all domestic airline establishments in 2017. Airlines in the Southeast employ small workforces, while also offering relatively low wages. In 2017, the region is expected to account for 23.6% of total industry employment and just 22.1% of the industry’s total wages.
West The West also contains a substantial share of the US population, generating significant demand for airline passenger and cargo transportation services. Consequently, this region is expected to contain the second-largest share of the industry’s total establishments, accounting for an estimated 23.4% of all airline establishments in 2017. The state of California is largely responsible for this heavy concentration of establishments, as the state contains an estimated 12.3% of all airline locations. In 2017, the West is
also projected to account for 19.5% of all industry employees and 19.6% of all industry wages.
Mid-Atlantic The Mid-Atlantic region is characterized by a relatively low concentration of airline operators, as the region accounts for 15.2% of the total US population and just 14.3% of total industry establishments. New York is the most popular location for carriers within the region, containing an estimated 8.5% of all domestic airline establishments. Major airports in the Mid-Atlantic include JFK International Airport, LaGuardia Airport and the Newark Liberty International Airport. Establishments within this region operate with large workforces, and employees in the Mid-Atlantic benefit from relatively high wages. In 2017, the region is expected to account for 15.2% of all industry employees and 15.5% of total industry wages.
%
30
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10
20
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t
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t
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Establishments Population
Distribution of establishments vs. population
SOURCE: WWW.IBISWORLD.COM
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Cost Structure Benchmarks
Profit Industry profit is measured as earnings before interest and taxes. Profit margins in the Domestic Airlines industry are highly volatile, though the industry is dominated by heavily capitalized major airlines that can afford to run losses for years before experiencing serious problems. Additionally, profitability is influenced
by the cost of fuel. The price of crude oil, which largely determines the cost of fuel for airlines, has remained volatile over the past five years. Recently, severe declines in oil prices have significantly reduced the industry’s operating costs, causing industry profit margins to expand. In 2017, profit is expected to account for 7.2% of total industry revenue, up from 4.1% in 2012.
Key Success Factors Optimum capacity utilization Airlines need to have the ability to match certain aircraft with certain routes for better utilization. The use of code-sharing agreements is also valuable to the operation of domestic airlines.
Effective cost controls Good cost control systems can help manage yields better and increase earnings. This is particularly important in times of operational uncertainty (e.g. volatile fuel prices).
Prompt delivery to market Competition is fierce in this industry. The inability to deliver services on time may result in the loss of customers to a competitor.
Well developed internal processes Domestic airlines require reservation systems and e-commerce products that provide good access for clients to the services provided.
Ability to expand and curtail operations rapidly in line with market demand Having flexible capacity to meet troughs and peaks in demand is vital to profitability in the industry. Airlines must be able to service markets precisely or risk operating losses on a given route.
Access to the latest available and most efficient technology and techniques The use of up-to-date technology and new aircraft can improve operating efficiencies.
Market Share Concentration
The Domestic Airlines industry has a high level of concentration, and the top five industry players are estimated to hold a combined market share of 79.0% in 2017. This is a significant increase from 2012, when the top five major players accounted for 70.0% of the industry’s total revenue. Concentration has been on the rise due to consolidation in the industry. For example, American Airlines and US Airways agreed to merge in 2013, creating the industry’s largest player in terms of revenue. However, the level of concentration is not expected to increase significantly over the
next five years, since any proposed merger between airlines is likely to garner significant attention from the Department of Justice and unlikely to be approved given the current level of concentration.
Additionally, this high level of concentration implies that there is little scope for potential operators seeking to enter the industry, as most companies will provide a service only if there is a sufficient market. Possible entries include companies servicing niche markets and airlines that aim to compete with major companies by offering low-cost, no-frills flights.
Competitive Landscape Market Share Concentration | Key Success Factors | Cost Structure Benchmarks Basis of Competition | Barriers to Entry | Industry Globalization
Level Concentration in this industry is High
IBISWorld identifies 250 Key Success Factors for a business. The most important for this industry are:
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Competitive Landscape
Cost Structure Benchmarks continued
Purchases Purchases, which include the acquisition of materials such as aircraft, fuel, food, uniforms and similar items, are the industry’s largest expense, accounting for an estimated 37.4% of total industry revenue in 2017. Jet fuel is one of the most significant expenses for an airline, often accounting for between 25.0% and 40.0% of total operating expenses for companies in this industry. As a result, airlines are vulnerable to fluctuations in oil prices, with many operators investing in financial derivatives and using fuel surcharges to mitigate the effects of fuel price volatility. However, it is generally more difficult for nonscheduled aviation operators to hedge against fuel price volatility as they struggle to determine future fuel consumption (as opposed to operators that fly scheduled routes). Many smaller companies also lack the financial resources and expertise to buy fuel in bulk.
Maintenance costs are also considered purchases. Maintenance expenses include the cost of expendable aircraft spare parts, maintenance to repairable aircraft components, contract labor for maintenance activities and other noncapitalized direct costs related to fleet maintenance, including spare engine leases, exchange fees and shipping costs. Over the five years to 2017, purchases have declined as a share of total industry revenue due to significant decreases in the market price of jet fuel.
Wages Wages are another major expense for industry operators, accounting for an additional 18.4% of total industry revenue in 2017. Employees in this industry include aircraft and freight handling crews, maintenance and repair workers and administrative staff. Wages can vary significantly depending on an
Sector vs. Industry Costs
n Profi t n Wages n Purchases n Depreciation n Marketing n Rent & Utilities n Other
Average Costs of all Industries in sector (2017)
Industry Costs (2017)
0
20
40
60
Pe rc
en ta
ge o
f re
ve nu
e
80
100
SOURCE: WWW.IBISWORLD.COM
8.3 7.2
25.6
6.1 0.6 4.7
37.4
18.4
26.6
5.6 1.0 5.5
27.1
25.4
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Competitive Landscape
Basis of Competition The Domestic Airlines industry is highly competitive. Airlines compete for customers on price, frequency and capacity, route offerings, loyalty programs, promotions, rewards and service quality. Industry operators must also attract customers from substitute modes of transportation such as cars, trains and buses. The level of competition is different among particular segments of the industry. For example, low-cost airlines are price competitive and therefore may not offer the same number of routes as other airlines, while competition from substitutes is the strongest among regional and short- distance service providers.
Internal competition Competition among domestic airlines has intensified over the past five years. Providers of cheap air transportation have increased the level of price competition in the industry, raising the focus on quantity over quality. While quality is still an important measure of success for an airline, this type of competition is more prevalent at the higher end of the market. Price competition is the most important tool in attracting customers in times of poor economic conditions, when unemployment is increasing and incomes are falling. During stable economic times,
Cost Structure Benchmarks continued
airline’s location and the position of the employee. Additionally, employee travel expenses often reflect the cost of air transportation, hotels and reimbursements to cockpit and cabin crew members incurred when crews operate away from home. This expense tends to be greater for unscheduled charter operations than for scheduled aviation operations, since unscheduled flights are more likely to position crew members in remote locations, and these companies are less likely to take advantage of frequent-user discounts. High union participation rates among airline staff continue to keep industry labor costs high, and wages have increased as a share of total industry revenue over the past five years.
Rent and utilities Rent and utilities are expected to account for 6.1% of industry revenue in 2017. These costs are typically related to airport hubs, where operators store planes, handle freight and deliver passengers. Airlines must pay airports for the use of real estate, terminals and other facilities. Rent and utility costs have increased slightly as a portion of total industry
revenue in recent years, as rising demand from airlines has placed a premium on land in many of the country’s major metropolitan areas.
Other Industry operators are also subject to depreciation costs, which include the depreciation of aircraft, aircraft parts, loading and unloading equipment, communication equipment, office supplies, technology and software. Depreciation costs have increased over the five years to 2017 due to the replacement of older aircraft with newer, more fuel-efficient models. In 2017, expenses on depreciation are estimated to represent 4.7% of industry revenue. Expenses on advertising are projected to represent an additional 0.6% of industry revenue, and these costs have risen over the past five years as internal competition has intensified. Other common costs for operators include airport landing fees, handling expenses, insurance premiums, legal fees, cleaning costs and a variety of administrative fees. Collectively, these miscellaneous expenses are estimated to account for the remaining 25.6% of total industry revenue.
Level & Trend Competition in this industry is High and the trend is Increasing
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Competitive Landscape
Barriers to Entry The Domestic Airlines industry is characterized by high barriers to entry. Start-up costs, which include initial expenses on hangar and airfield space, skilled labor, highly specialized machinery and adherence to stringent safety requirements, are extremely high for operators in this industry. For instance, purchasing aircraft may cost millions of dollars, which may be hard to secure given the competitive nature of the industry. Complying with government requirements is also costly and timely, making it harder to enter the industry. Skilled labor may also be difficult to find in times of pilot shortage, considering the extensive training required to be able to work in the industry.
Additionally, once a new company enters the industry, it will likely encounter significant barriers to success. Incumbent companies may already have
network alliances, a wide network of industry contacts, a proven safety record and the evidenced ability to deliver projects on time. As a result, new entrants could struggle to win business even after massive initial capital outlays. Existing major players can also use economies of scale to win business by consistently undercutting smaller players on price and speed of delivery.
Basis of Competition continued
airlines may offer additional services and higher-quality services to avoid having to cut prices.
To attract more full-fee customers, airlines have introduced new features such as internet booking and online check-in, a wide range of in-flight entertainment, seats that pull out into beds, among other features. Some airlines also permit small pets on board for a fee. Additional services that may attract long-term customers include participation in loyalty rewards programs, special promotions on additional reward points, use of airport lounges, participation in alliances with other airlines and contracts with travel agencies. Customers may also feel loyalty toward airlines that sponsor local businesses and sporting events, or airlines that they have had a good experience with in previous trips.
The strongest competitive advantage an airline can have is exclusive coverage
of a route. Additionally, to improve access to each other’s markets, various US and foreign air carriers have established marketing relationships. Alliances link the networks of the member carriers to enhance customer service and smooth connections to the destinations served by the alliance, including linking carriers’ frequent flyer programs and access to the carriers’ airport lounge facilities.
External competition Competition from ground and sea transportation poses a weak threat to the industry. Consumer preferences for different forms of passenger and freight transportation are generally determined by differences in price, travel time and destinations served. Fortunately for industry operators, the convenience and the competitive price of air travel limits competition from these substitutes.
Level & Trend Barriers to Entry in this industry are High and Steady
Barriers to Entry checklist
Competition High Concentration High Life Cycle Stage Mature Capital Intensity Medium Technology Change High Regulation & Policy Heavy Industry Assistance High
SOURCE: WWW.IBISWORLD.COM
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Competitive Landscape
Industry Globalization
The Domestic Airlines industry has a low level of globalization. Since access to domestic routes is strictly controlled for domestic airlines, foreign ownership is discouraged. Foreign operators may provide services to the domestic market, but these operators are generally restricted to limited routes and destinations. However, many airlines form global partnerships, such as SkyTeam,
Star Alliance and Oneworld, to tap into additional routes through code-sharing agreements. Additionally, the lifting of various travel restrictions and market regulations has bolstered industry globalization in recent years. Demand for air travel within the United States is also affected by a variety of global factors, including fuel prices, currency exchange rates and geopolitical affairs.
Barriers to Entry continued
Many major passenger airlines also rely on aircraft management, promotions and open skies agreements to increase revenue and market share in this industry. For instance, code- sharing and fare discounting are important tools for airlines to minimize operating costs. By selling seats on a flight operated by another carrier, code-sharing enables an airline to make direct cost savings by rationalizing services or establishing market
presence on a route without actually operating on it. Thus, both airlines may be able to save on fuel, labor and other variable costs, as well as making more effective use of aircraft and other overheads. Low-cost business models operated by no-frills airlines have proven to be an effective model for new players, however, the market for new low-cost airlines is slowly becoming saturated due to the number of players already in existence.
Level & Trend Globalization in this industry is Low and the trend is Increasing
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Player Performance Formed in December 2013 following the merger of American Airlines and US Airways, American Airlines Group Inc. is the holding company for AMR Corporation. This merger was negotiated with the Department of Justice, and the company was forced to give up landing slots in seven major airports. Collectively, the company’s airlines operate an average of 6,700 flights each day to nearly 350 destinations in more than 50 countries. The company also employs over 122,000 pilots, flight attendants, maintenance personnel and other staff members.
AMR Corporation, founded in 1934 and based in Fort Worth, TX, had previously been under Chapter 11 Bankruptcy Protection, having filed a voluntary petition for relief in November 2011. At the time, the company had $29.6 billion in debt and $24.7 billion in assets. The US Airways Group was formed in
1982, with origins traceable to the formation of All American Aviation in 1939. This subsidiary is based in Delaware and employs 31,200 full-time equivalent staff, including over 4,000 pilots and 7,000 flight attendants. AMR Corporation and US Airways earned combined global revenue of $40.2 billion in 2016, making the combined entity the largest airline company in the world in terms of revenue.
Financial performance American Airlines Group’s financial information has been calculated based on consolidated revenue, which the company began reporting in 2014. Revenue related to the company’s domestic segment is expected to increase at an annualized rate of 16.4% to $30.5 billion over the five years to 2017. While US Airways contributes less to the
Major Companies American Airlines Group Inc. | Delta Air Lines Inc. United Continental Holdings Inc. | Southwest Airlines Co. | Other Companies
24.5% Other
American Airlines Group Inc. 23.1%
Delta Air Lines Inc. 21.2%
United Continental Holdings Inc. 16.6%
Southwest Airlines Co. 14.6%
SOURCE: WWW.IBISWORLD.COM
Major players (Market share)
American Airlines Group Inc. (industry-relevant operations) - fi nancial performance*
Year** Revenue
($ million) (% change) Operating Income
($ million) (% change)
2012 14,287.0 N/C 85.1 N/C
2013 15,376.0 7.6 804.4 845.2
2014 28,568.0 85.8 2,846.1 253.8
2015 28,761.0 0.7 4,353.1 52.9
2016 28,620.0 -0.5 3,763.8 -13.5
2017 30,473.3 6.5 1,768.7 -53.0
*Combined AMR Corporation and US Airways; **Estimates SOURCE: ANNUAL REPORT AND IBISWORLD
American Airlines Group Inc. Market share: 23.1% Industry Brand Names American Airlines US Airways American Eagle
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Major Companies
Player Performance Delta Air Lines (Delta) is one of the world’s largest airlines. The company operates a system of hubs, international gateways and key airports in Amsterdam, Atlanta, Boston, Detroit, London, Los Angeles, Minneapolis, New York City, Paris, Salt Lake City, Seattle and Tokyo. Collectively, Delta and its subsidiaries offer service to 322 destinations in 58 countries through more than 15,000 daily flights. In 2016, Delta earned global revenue of $39.6 billion and employed 84,000 full-time equivalent staff, nearly 19.0% of whom were represented by unions.
Delta’s operations have traditionally focused on the United States domestic market, where it has become one of the fastest-growing carriers. International
flights account for less than one-third of the company’s annual revenue. Delta has codeshare agreements with various airlines and is part of the SkyTeam Airline Alliance. These agreements provide for the sharing of revenue and costs on transatlantic routes. The airlines in this alliance also cooperate on routes between North America and Africa, the Middle East and India, as well as on flights between Europe and several countries in Latin America. In 2013, Delta acquired a 49.0% stake in British carrier Virgin Atlantic, giving Delta access to the lucrative New York-to-London route. This transatlantic route is one of the world’s busiest and is heavily used by business travelers.
Player Performance continued
combined entity’s domestic segment, the airline outperformed its new partner in terms of revenue growth over the past five years. However, while total passenger traffic has increased significantly in recent years, the company has suffered from constrained demand due to increased competition as the industry’s total carrying capacity continues to grow more quickly than downstream demand.
Moreover, declining fuel prices have caused operators to lower ticket prices to remain competitive, somewhat limiting the company’s revenue growth. At the same time, lower fuel costs have substantially bolstered the company’s profit margins, and American Airlines Group’s industry-relevant operating income is estimated to reach $1.8 billion in 2017.
Delta Air Lines Inc. (industry-relevant operations) - fi nancial performance*
Year Revenue
($ million) (% change) Operating Income
($ million) (% change)
2012 23,150.2 N/C 1,373.1 N/C
2013 24,049.4 3.9 2,164.7 57.7
2014 26,197.0 8.9 1,431.8 -33.9
2015 27,315.4 4.3 5,235.7 265.7
2016 27,233.7 -0.3 4,776.3 -8.8
2017 27,964.5 2.7 3,391.3 -29.0
*Estimates SOURCE: ANNUAL REPORT AND IBISWORLD
Delta Air Lines Inc. Market share: 21.2%
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Major Companies
Player Performance United Continental Holdings Inc. (UCH) is a holding company for two wholly owned subsidiaries: United Air Lines and Continental Airlines. The combined entity is based in Chicago and is the result of the 2010 merger between the two airlines. Since this merger, UCH has slowly integrated its products, services, policies and information technology systems into its combined operations. The company is now one legal entity and has a single reservation system, loyalty program and departure control system. According to the company, the merger delivers more than $1.0 billion in net annual synergies.
UCH has grown to become one of the highest revenue-earning airlines in the
world and operates more than 4,500 flights per day to 337 airports across the world. UCH mainly provides transportation services for people and property throughout the United States and abroad. It serves almost every major market in the world, either directly or through its participation in the Star Alliance network. UCH operates from hubs in Chicago, Denver, Houston, Los Angeles, San Francisco and Washington, D.C. In 2016, UCH employed over 88,000 staff and earned $36.6 billion in global revenue.
Financial performance UCH’s industry-relevant revenue is expected to increase at a modest
Player Performance continued
Financial performance Delta’s domestic revenue is expected to increase at an annualized rate of 3.9% to $28.0 billion over the five years to 2017. Despite this growth, the company’s operations have suffered in recent years from a decline in passenger revenue per available seat mile, which was largely driven by substantial price competition caused by decreasing fuel prices. Delta’s operations are also subject to intense competition from other major airlines, as
well as the growing presence of low-cost carriers. These operators are often able to undercut Delta’s prices by removing certain amenities, siphoning passengers from the company’s domestic operations. However, Delta’s profit margins have experienced strong growth during the five-year period, largely due to plummeting jet fuel prices in 2015 and 2016. In fact, Delta is expected to generate industry-relevant operating income of $3.4 billion in 2017.
United Continental Holdings Inc. (industry-relevant operations) - fi nancial performance*
Year Revenue
($ million) (% change) Operating Income
($ million) (% change)
2012 21,284.0 N/C 22.3 N/C
2013 22,100.0 3.8 721.1 3,133.6
2014 22,320.0 1.0 1,361.5 88.8
2015 21,931.0 -1.7 2,992.2 119.8
2016 22,202.0 1.2 2,634.7 -11.9
2017 21,919.3 -1.3 1,084.4 -58.8
*Estimates SOURCE: ANNUAL REPORT AND IBISWORLD
United Continental Holdings Inc. Market share: 16.6% Industry Brand Names United Airlines
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Major Companies
Player Performance Southwest Airlines Co. (Southwest) is the largest low-cost carrier in the United States. The company, which operates under the Southwest Airlines and AirTran Airways brands, is the largest domestic US airline by number of passengers enplaned and scheduled domestic departures, according to the Bureau of Transportation Statistics. Based at Love Field in Dallas, the company has about 53,500 employees and has expanded its low-cost, no-frills, open-seating approach to air travel throughout the United States to serve 101 cities across nine countries.
Southwest operates more than 500 Boeing 737 aircraft. This single aircraft type strategy contributes to the
company’s low-cost business structure, enabling Southwest to simplify scheduling, maintenance and training. The company’s ability to keep costs down is also due to the use of smaller, less congested airports. Southwest provides mainly point-to-point service, rather than hub-and-spoke like most of its competitors, meaning aircraft can be scheduled to minimize the amount of time they spend on the ground, thereby reducing the number of aircraft, gate facilities and employees per aircraft. The company also runs its own reservation system and sells a significant proportion of its seats through its website.
Southwest purchased fellow low-cost airline AirTran Airlines for $1.4 billion in
Player Performance continued
annualized rate of 0.6% to $21.9 billion over the five years to 2017. Despite UCH’s newfound size and scale, the company’s total revenue suffered from substantial declines in the price of jet fuel, which have forced industry operators to eliminate fuel surcharges. The company has also adjusted its operations in recent years to improve profit margins. To save on costs, UCH has decreased the frequency of certain flights, pulled out of less profitable
routes and indefinitely postponed the launch of flights in some markets. Also, UCH has removed less fuel-efficient aircraft from its fleet to minimize the impact of volatile fuel prices. Additionally, as with the rest of the industry, UCH’s profitability benefited substantially from plummeting crude oil prices in both 2015 and 2016. Ultimately, UCH’s industry- relevant operating income is expected to reach $1.1 billion in 2017.
Southwest Airlines Co. Market share: 14.6% Industry Brand Names Southwest AirTran
Southwest Airlines Co. (industry-relevant operations) - fi nancial performance*
Year Revenue
($ million) (% change) Operating Income
($ million) (% change)
2012 17,088.0 N/C 685.0 N/C
2013 17,699.0 3.6 1,209.0 76.5
2014 18,404.9 4.0 1,796.5 48.6
2015 18,696.2 1.6 3,281.7 82.7
2016 19,009.4 1.7 3,301.2 0.6
2017 19,320.4 1.6 2,619.9 -20.6
*Estimate SOURCE: ANNUAL REPORT AND IBISWORLD
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Major Companies
Other Companies JetBlue Airways Corporation Estimated market share: 3.5% JetBlue Airways Corporation (JetBlue) is a low-cost airline based in Long Island City, NY. The company was founded in 1998, and it gained formal approval to undertake flights to Buffalo, NY and Ft. Lauderdale, FL from JFK International Airport in New York City in 2000. Currently, the company makes 925 daily trips, primarily serving domestic locations from JFK International Airport. JetBlue makes trips to 100 destinations, and the company has expanded its international operations in recent years to serve the Bahamas, Bermuda, Barbados, Colombia, Costa Rica and the Dominican Republic. The company operates 130 owned or leased Airbus A320 aircraft, 37 Airbus A321 aircraft and 60 Embraer E190 aircraft. JetBlue’s aircraft fleet is one of the youngest and most fuel-efficient fleets of all major US airlines. The company’s domestic operations accounted for 71.6% of the company’s total revenue in 2016 (latest available data), a share that has shrunk over the past five years as the company continues to expand its international
operations. Overall, JetBlue’s industry- relevant revenue is projected to grow at an annualized rate of 5.0% to $4.7 billion over the five years to 2017.
Spirit Airlines Inc. Estimated market share: 1.9% Spirit Airlines Inc. (Spirit) is a low-cost carrier based in Miramar, FL that operates scheduled flights throughout the United States, as well as the Caribbean, Mexico and Latin America. Most of the company’s 420 daily flights depart or arrive in Fort Lauderdale, FL. Spirit was founded in 1964 as a charter tour company providing travel packages before branching out into scheduled services in 1990. Spirit transitioned to a low-cost, low-fare carrier in 2007 and began charging for optional extras, such as checked and carry-on bags, drinks and advance seat selection. Spirit employs about 5,100 people, including 1,465 pilots, and has a fleet of 95 aircraft. The airline plans to triple its fleet by 2021. Spirit caters mainly to price-conscious customers and charges extra for services that have traditionally been included in base fares, such as
Player Performance continued
2011. The purchase has expanded Southwest’s international reach to AirTran’s nine destinations in six near- international countries including Mexico, Jamaica, The Bahamas, Aruba, Dominican Republic and Bermuda. Despite this expansion, revenue relevant to Southwest’s international operations is expected to account for less than 10.0% of the company’s total revenue in 2017.
Financial performance Demand for low-cost services has surged over the past five years, particularly as a substitute for standard mainline services. As a result, Southwest’s domestic revenue is expected to increase at an annualized
rate of 2.5% to $19.3 billion over the five years to 2017. However, the company’s operations have been somewhat constrained in recent years by substantial declines in the world price of crude oil that have lowered fuel purchase costs, forcing many industry operators to eliminate fuel surcharges and reduce passenger ticket prices to remain competitive. At the same time, declining fuel costs have substantially bolstered the company’s profit margins, and Southwest’s low-cost business model has caused it to be one of the country’s most profitable airlines during the five-year period. In fact, the company’s industry- relevant operating income is expected to total $2.6 billion in 2017.
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Major Companies
Other Companies continued
baggage, advance seat selection and drinks. In fact, the company generated an estimated 48.3% of its total global revenue from non-ticket revenue in 2016. This business model has led to a high number of customer complaints over the past five years. According to a report by the US Public Interest Research Group Education Fund, the
rate of complaints made against Spirit to the Department of Transportation was three times the number made against any other airline over the past five years. Nevertheless, Spirit has experienced substantial growth during the five-year period, and the company is estimated to generate $2.6 billion in industry- relevant revenue in 2017.
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Capital Intensity The Domestic Airlines industry has a moderate level of capital intensity, as operators are highly reliant on both capital investment and labor inputs, though expenditure on wages typically accounts for a greater share of the industry’s total revenue than capital. In fact, industry operators are expected to spend $0.25 on capital investments for every dollar spent on wages in 2017. Common labor expenses in this industry include the wages and salaries paid to pilots, crew members, ground staff and administrative staff, and the average industry wage is $68,903.43 per person, per year in 2017. This relatively high wage reflects long working hours and the industry’s strong union representation.
At the same time, acquiring and maintaining aircraft requires substantial investment. Moreover, many large-scale
Operating Conditions Capital Intensity | Technology & Systems | Revenue Volatility Regulation & Policy | Industry Assistance
Tools of the Trade: Growth Strategies for Success
SOURCE: WWW.IBISWORLD.COM
La bo
r In
te ns
iv e
Capital Intensive
Change in Share of the Economy
New Age Economy
Recreation, Personal Services, Health and Education. Firms benefi t from personal wealth so stable macroeconomic conditions are imperative. Brand awareness and niche labor skills are key to product differentiation.
Traditional Service Economy
Wholesale and Retail. Reliant on labor rather than capital to sell goods. Functions cannot be outsourced therefore fi rms must use new technology or improve staff training to increase revenue growth.
Old Economy
Agriculture and Manufacturing. Traded goods can be produced using cheap labor abroad. To expand fi rms must merge or acquire others to exploit economies of scale, or specialize in niche, high-value products.
Investment Economy
Information, Communications, Mining, Finance and Real Estate. To increase revenue fi rms need superior debt management, a stable macroeconomic environment and a sound investment plan.
Aircraft, Engine & Parts Manufacturing
Freight Forwarding Brokerages & Agencies
Aircraft, Marine & Railroad Transportation Equipment Wholesaling
International Airlines
Gasoline & Petroleum Wholesaling
Domestic Airlines
Capital intensity
0.5
0.0
0.1
0.2
0.3
0.4
SOURCE: WWW.IBISWORLD.COM Dotted line shows a high level of capital intensity
Capital units per labor unit
Domestic Airlines
Transportation and Warehous-
ing
Economy
Level The level of capital intensity is Medium
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Operating Conditions
Technology & Systems The Domestic Airlines industry has experienced a variety of major technological changes over the past decade. In general, technology enables airlines to enhance the guest experience, increase operating efficiencies, lower costs and safeguard information. For example, fuel efficiency per available ton-mile has steadily improved over time due to the introduction of larger aircraft, lighter aircraft material and more aerodynamic designs, as well as the development of relatively fuel-efficient engines. With these improvements, airlines can use less fuel per trip and carry more passengers and cargo, improving industry profit margins.
Another important technological development for this industry has been the evolution of the capacity and range of aircraft. The introduction of the Boeing 747 in the late 1960s changed the aviation sector, as it increased the capacity of aircraft and provided a broader choice of aircraft types. Since then, a variety of aircraft have been manufactured, but the A380 by Airbus, launched in 2008, was a significant leap for this industry. The A380 can carry 555 passengers in a three-class configuration, or up to 853 passengers in a single-class economy configuration, and is sufficient to fly from Chicago to Sydney nonstop. In
2017, the first Boeing 737 Max will be delivered to major player Southwest Airlines. This aircraft will be equipped with two engines, as well as a new tail section and winglets, which are projected to reduce the aircraft’s fuel consumption by 14.0%.
Industry operators also rely on technological innovations in computerized reservation systems, flight operations systems, telecommunications systems, websites, check-in kiosks and in-flight entertainment systems to enhance their operational efficiency. For example, online booking, payment, scheduling and check-in systems have eliminated many paper costs and administrative expenses associated with air travel. Additionally, the proliferation of smartphones has enabled consumers to search, book and manage flights remotely.
There have also been significant technological improvements in avionics (i.e. an aircraft’s onboard computer systems). These innovations have largely been focused on enabling aircraft computer systems to determine the most efficient route and altitude for an aircraft to fly given load factors and meteorological conditions. Additionally, GPS satellite navigation systems and onboard meteorological radars are now found in most planes to
Capital Intensity continued
players operate hundreds of planes, in addition to massive airport hubs where cargo and passengers are loaded and unloaded from aircraft, all of which contributes to the industry’s capital costs. Airplanes can be often leased to ease capital requirements, though most airlines prefer to own airplanes as assets. Additionally, efficient communications equipment, computer-assisted booking, flexible packing equipment and route planning facilities can reduce the need for nonflying and maintenance labor.
However, many labor functions in the industry, such as piloting and customer service, cannot be made less labor- intensive. For instance, long trips or those with quick turnarounds require extra crew members to adhere to federal safety requirements. Overall, technological advances in both aircraft design and avionics have improved industry labor productivity over the past five years, causing the level of capital intensity in the Domestic Airlines industry to increase.
Level The level of Technology Change is High
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Operating Conditions
Regulation & Policy The Domestic Airlines industry is subject to a high level of regulation from both governmental and nongovernmental bodies. For example, the US Department of Justice has jurisdiction over airline antitrust matters, and this department is primarily responsible for ensuring that there is workable competition in the domestic aviation market. Additionally, the Federal Aviation Administration
(FAA) has primary responsibility for matters relating to air carrier flight operations, including airline operating certificates, control of navigable airspace, flight personnel, aircraft certification and maintenance and other matters affecting air safety. Similarly, the US Environmental Protection Agency is authorized to regulate aircraft emissions and noise reductions. Companies are also
Revenue Volatility Over the past five years, the Domestic Airlines industry has exhibited a low level of revenue volatility, with year-to-year revenue growth rates ranging from growth of 3.1% in 2014 to a decline of 0.5% in 2015. General economic activity and the level of disposable income available to consumers primarily affect the industry’s performance. Stable economic growth generally fosters steady growth in industry revenue. Jet fuel prices can also have a strong impact on industry
revenue; airlines generally respond to high jet fuel prices by implementing fuel surcharges that increase ticket prices for passengers. Additionally, the emergence of budget carriers has contributed to industry revenue volatility by diversifying flight prices. Industry revenue is also affected by a variety of non-economic factors, such as the popularity of specific tourist destinations, weather conditions and outbreaks of panic concerning terrorism or disease.
Technology & Systems continued
enhance navigation. Virtually all jet planes are also equipped with Traffic Collision Avoidance Systems (TCAS) and terrain warning systems, which improve flight safety. These
technological improvements are particularly useful for aircraft flying nonscheduled routes, especially to airfields with air traffic control provisions that are not well developed.
SOURCE: WWW.IBISWORLD.COM
Volatility vs Growth
Re ve
nu e
vo la
ti lit
y* (%
)
1000
100
10
1
0.1
Five-year annualized revenue growth (%) –30 –10 10 30 50 70
Hazardous
Stagnant
Rollercoaster
Blue Chip
* Axis is in logarithmic scale
A higher level of revenue volatility implies greater industry risk. Volatility can negatively affect long-term strategic decisions, such as the time frame for capital investment.
When a fi rm makes poor investment decisions it may face underutilized capacity if demand suddenly falls, or capacity constraints if it rises quickly.
Domestic Airlines
Level The level of Volatility is Low
Level & Trend The level of Regulation is Heavy and the trend is Steady
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Operating Conditions
Industry Assistance The Federal Aviation Administration assists airlines in solving congestion problems caused by air traffic control systems. Additionally, while tariffs are not directly applied to the Domestic Airlines industry’s services, tariffs are often placed on products that are transported through airports, limiting demand for industry services. However, over the past few decades, industry assistance has been provided through the reduction of many trade tariffs and the overall liberalization of the aviation market, as well as government assistance to expand airports. For example, the Airline Deregulation Act of 1978 eliminated most controls on entry, exit and pricing for US domestic airlines, which led to extensive structural changes within the industry.
Additionally, open skies agreements have become increasingly prominent within the air transportation sector.
These policies are usually negotiated at the federal level, and they often provide direct assistance to the industry by reducing the government’s role in the commercial decisions of air carriers regarding routes, capacity and pricing, which enables carriers to provide more affordable and efficient services for consumers. For instance, the United States has established open skies policies with over 100 global partners, in addition to negotiating two multilateral open skies accords: the 2001 Multilateral Agreement on the Liberalization of International Air Transportation (MALIAT) with New Zealand, Singapore, Brunei and Chile, and the 2007 Air Transport Agreement with the member states of the European Union. This 2007 agreement provides airlines from the United States and EU member states open access to each
Regulation & Policy continued
subject to the Occupational Health and Safety Act concerning employee safety and health matters.
The Airport Noise and Capacity Act of 1990 (the “ANCA”) attempts to reconcile the rights of airport operators with noise problems and implement local noise abatement programs so long as these programs do not interfere unreasonably with the national air transportation system. On December 1, 2003, the FAA published a Notice of Proposed Rulemaking (NPRM) to adopt the International Civil Aviation Organization’s (ICAO) Chapter 4 noise standard, which is known as the Stage 4 standard in the United States. This standard required that all new commercial jet aircraft designs certificated on or after January 1, 2006, be at least 10 decibels quieter than the existing Stage 3 noise standard requirements. The standard is currently in force.
In November 2001, the Aviation and Transportation Security Act (ATSA) was enacted in the United States, which
created the Transportation Security Administration (TSA). The TSA is responsible for aviation security. As divisions of the US Department of Homeland Security, the TSA and US Customs and Border Protection are responsible for certain civil aviation security matters, including passenger and baggage screening at US airports.
The industry also has numerous trade associations that set minimal standards for operators, including the International Air Transport Association (IATA), which represents some 265 airlines that collectively account for 83.0% of the world’s scheduled air traffic. The association aims to foster understanding of the air transport industry among decision makers and increase awareness of the benefits that aviation brings to national and global economies. In addition, the IATA provides professional support to industry operators through publications, training and consulting.
Level & Trend The level of Industry Assistance is High and the trend is Steady
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Operating Conditions
Industry Assistance continued
other’s markets, with freedom of pricing and unlimited rights to fly.
The industry also benefits from the assistance of industry trade associations and other private organizations. For example, Airlines for America (A4A), formerly the Air Transport Association of America, has played a major role in several government decisions regarding aviation in recent years, including the creation of the Civil Aeronautics Board, the creation of the
air traffic control system and airline deregulation. Similarly, the International Air Transport Association (IATA) is an international organization of airlines that involves itself in all aspects of airline operations. In fact, most nongovernment discussions within the industry take place under IATA auspices, though the association’s primary function is to clear inter-airline debts and provide general guidelines for fare setting in the industry.
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Key Statistics Revenue
($m)
Industry Value Added
($m) Establish-
ments Enterprises Employment Exports Imports Wages ($m)
Domestic Demand
Domestic trips by US residents
(Mil) 2008 115,344.7 29,202.8 2,453 434 359,833 -- -- 20,511.2 N/A 654.3 2009 98,527.0 26,604.6 2,355 402 327,815 -- -- 19,188.2 N/A 620.8 2010 107,648.3 27,101.9 2,157 379 308,980 -- -- 18,929.9 N/A 632.5 2011 119,809.7 28,222.7 2,181 375 313,756 -- -- 20,053.9 N/A 641.6 2012 122,532.6 27,357.5 2,106 364 314,193 -- -- 19,552.1 N/A 645.0 2013 123,526.6 32,905.0 2,003 367 306,391 -- -- 20,570.2 N/A 648.2 2014 127,354.2 38,274.5 2,024 372 315,477 -- -- 21,687.9 N/A 665.5 2015 126,766.0 47,975.6 2,040 373 337,447 -- -- 23,178.3 N/A 697.9 2016 128,696.4 45,892.1 2,032 371 348,822 -- -- 23,909.2 N/A 723.6 2017 132,272.3 40,067.4 2,032 369 354,039 -- -- 24,394.5 N/A 739.6 2018 136,704.4 40,848.7 2,020 366 360,521 -- -- 24,997.0 N/A 757.5 2019 140,921.0 41,629.3 2,030 368 367,314 -- -- 25,605.1 N/A 773.5 2020 144,137.2 41,871.3 2,019 365 372,396 -- -- 26,063.9 N/A 787.4 2021 147,555.3 42,181.1 2,025 365 377,976 -- -- 26,561.7 N/A 800.4 2022 150,877.7 42,629.5 2,018 364 383,334 -- -- 27,042.3 N/A 811.3 Sector Rank 4/50 5/50 35/50 41/50 8/50 N/A N/A 5/50 N/A N/A Economy Rank 91/1812 82/1579 929/1812 1236/1812 133/1812 N/A N/A 73/1812 N/A N/A
IVA/Revenue (%)
Imports/ Demand
(%)
Exports/ Revenue
(%)
Revenue per Employee
($’000) Wages/Revenue
(%) Employees
per Est. Average Wage
($)
Share of the economy
(%) 2008 25.32 N/A N/A 320.55 17.78 146.69 57,002.00 0.20 2009 27.00 N/A N/A 300.56 19.48 139.20 58,533.62 0.18 2010 25.18 N/A N/A 348.40 17.58 143.25 61,265.78 0.18 2011 23.56 N/A N/A 381.86 16.74 143.86 63,915.59 0.19 2012 22.33 N/A N/A 389.99 15.96 149.19 62,229.59 0.18 2013 26.64 N/A N/A 403.17 16.65 152.97 67,137.09 0.21 2014 30.05 N/A N/A 403.69 17.03 155.87 68,746.37 0.24 2015 37.85 N/A N/A 375.66 18.28 165.42 68,687.23 0.29 2016 35.66 N/A N/A 368.95 18.58 171.66 68,542.70 0.28 2017 30.29 N/A N/A 373.61 18.44 174.23 68,903.43 0.24 2018 29.88 N/A N/A 379.19 18.29 178.48 69,335.77 0.23 2019 29.54 N/A N/A 383.65 18.17 180.94 69,709.02 0.23 2020 29.05 N/A N/A 387.05 18.08 184.45 69,989.74 0.23 2021 28.59 N/A N/A 390.38 18.00 186.65 70,273.51 0.23 2022 28.25 N/A N/A 393.59 17.92 189.96 70,545.01 0.23 Sector Rank 44/50 N/A N/A 11/50 39/50 2/50 12/50 5/50 Economy Rank 832/1579 N/A N/A 695/1812 910/1812 55/1812 480/1812 82/1579
Figures are in inflation-adjusted 2017 dollars. Rank refers to 2017 data.
Revenue (%)
Industry Value Added
(%)
Establish- ments
(%) Enterprises
(%) Employment
(%) Exports
(%) Imports
(%) Wages
(%)
Domestic Demand
(%)
Domestic trips by US residents
(%) 2009 -14.6 -8.9 -4.0 -7.4 -8.9 N/A N/A -6.5 N/A -5.1 2010 9.3 1.9 -8.4 -5.7 -5.7 N/A N/A -1.3 N/A 1.9 2011 11.3 4.1 1.1 -1.1 1.5 N/A N/A 5.9 N/A 1.4 2012 2.3 -3.1 -3.4 -2.9 0.1 N/A N/A -2.5 N/A 0.5 2013 0.8 20.3 -4.9 0.8 -2.5 N/A N/A 5.2 N/A 0.5 2014 3.1 16.3 1.0 1.4 3.0 N/A N/A 5.4 N/A 2.7 2015 -0.5 25.3 0.8 0.3 7.0 N/A N/A 6.9 N/A 4.9 2016 1.5 -4.3 -0.4 -0.5 3.4 N/A N/A 3.2 N/A 3.7 2017 2.8 -12.7 0.0 -0.5 1.5 N/A N/A 2.0 N/A 2.2 2018 3.4 2.0 -0.6 -0.8 1.8 N/A N/A 2.5 N/A 2.4 2019 3.1 1.9 0.5 0.5 1.9 N/A N/A 2.4 N/A 2.1 2020 2.3 0.6 -0.5 -0.8 1.4 N/A N/A 1.8 N/A 1.8 2021 2.4 0.7 0.3 0.0 1.5 N/A N/A 1.9 N/A 1.7 2022 2.3 1.1 -0.3 -0.3 1.4 N/A N/A 1.8 N/A 1.4 Sector Rank 25/50 49/50 46/50 47/50 37/50 N/A N/A 33/50 N/A N/A Economy Rank 659/1812 1572/1579 1304/1812 1459/1812 952/1812 N/A N/A 880/1812 N/A N/A
Annual Change
Key Ratios
Industry Data
SOURCE: WWW.IBISWORLD.COM
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Apr 2015 - Mar 2016 by company revenue Apr 2012 - Apr 2013 - Apr 2014 - Apr 2015 - Small Medium Large Mar 2013 Mar 2014 Mar 2015 Mar 2016 (<$10m) ($10-50m) (>$50m)
Liquidity Ratios
Current Ratio 1.4 1.5 1.4 1.0 1.2 0.9 n/a Quick Ratio 1.1 1.1 1.0 0.8 1.1 0.7 n/a Sales / Receivables (Trade Receivables Turnover) 14.6 12.0 12.9 11.1 11.4 10.1 n/a
Days’ Receivables 25.0 30.4 28.3 32.9 32.0 36.1 n/a Cost of Sales / Inventory (Inventory Turnover) 40.4 29.4 167.7 71.8 n/c 21.4 n/a
Days’ Inventory 9.0 12.4 2.2 5.1 n/a 17.1 n/a Cost of Sales / Payables (Payables Turnover) 18.2 16.7 14.5 11.9 10.9 14.7 n/a
Days’ Payables 20.1 21.9 25.2 30.7 33.5 24.8 n/a Sales / Working Capital 27.3 15.5 21.7 -303.2 40.9 -35.6 n/a
Coverage Ratios
Earnings Before Interest & Taxes (EBIT) / Interest 6.1 6.4 4.8 3.2 n/a 3.8 n/a
Net Profit + Dep., Depletion, Amort. / Current Maturities LT Debt n/a n/a n/a 3.5 n/a n/a n/a
Leverage Ratios
Fixed Assets / Net Worth 1.3 1.2 1.5 1.6 1.0 2.7 n/a Debt / Net Worth 2.1 1.3 2.1 3.8 3.0 6.3 n/a Tangible Net Worth 22.1 28.4 24.9 11.7 14.9 10.9 n/a
Operating Ratios
Profit before Taxes / Net Worth, % 32.8 24.2 28.6 20.6 5.0 11.6 n/a Profit before Taxes / Total Assets, % 9.0 10.3 5.7 4.5 0.3 5.3 n/a Sales / Net Fixed Assets 7.1 6.1 2.8 3.9 3.1 2.4 n/a Sales / Total Assets (Asset Turnover) 2.6 1.9 1.8 1.7 1.7 1.4 n/a
Cash Flow & Debt Service Ratios (% of sales)
Cash from Trading 34.9 40.1 47.5 36.1 36.1 32.9 n/a Cash after Operations 5.3 9.0 9.3 2.4 4.6 2.4 n/a Net Cash after Operations 6.3 11.2 10.0 3.0 4.6 3.0 n/a Cash after Debt Amortization 2.7 2.7 3.7 1.2 n/a 1.2 n/a Debt Service P&I Coverage 1.9 2.1 3.9 1.7 1.3 1.9 n/a Interest Coverage (Operating Cash) 9.0 6.7 10.5 2.7 n/a 2.2 n/a
Assets, %
Cash & Equivalents 15.6 13.5 13.4 14.6 23.4 8.6 n/a Trade Receivables (net) 22.9 25.7 20.6 19.6 21.4 17.6 n/a Inventory 6.9 11.7 6.5 6.6 6.9 7.4 n/a All Other Current Assets 3.9 3.4 4.8 3.6 0.2 4.1 n/a Total Current Assets 49.2 54.3 45.3 44.4 52.0 37.7 n/a Fixed Assets (net) 38.0 36.4 44.5 38.1 38.1 42.7 n/a Intangibles (net) 3.8 4.8 3.7 7.1 1.7 7.4 n/a All Other Non-Current Assets 8.9 4.5 6.5 10.4 8.2 12.2 n/a Total Assets 100.0 100.0 100.0 100.0 100.0 100.0 n/a Total Assets ($m) 603.8 596.0 781.2 1,527.2 60.9 556.6 909.7
Liabilities, %
Notes Payable-Short Term 5.1 6.8 5.2 8.9 13.3 8.2 n/a Current Maturities L/T/D 2.6 2.7 2.9 5.1 6.5 5.7 n/a Trade Payables 18.3 13.7 20.6 18.3 20.5 18.3 n/a Income Taxes Payable 2.0 0.1 n/a 0.1 0.2 0.1 n/a All Other Current Liabilities 15.2 17.0 12.2 13.2 3.6 16.8 n/a Total Current Liabilities 43.2 40.3 40.8 45.6 44.0 49.0 n/a Long Term Debt 22.2 20.5 23.5 25.3 26.4 20.5 n/a Deferred Taxes 2.6 1.3 2.2 1.6 0.5 2.9 n/a All Other Non-Current Liabilities 6.1 4.6 4.9 8.7 12.5 9.2 n/a Net Worth 25.9 33.2 28.6 18.8 16.6 18.3 n/a Total Liabilities & Net Worth ($m) 603.8 596.0 781.2 1,527.2 60.9 556.6 909.7
Maximum Number of Statements Used 34 33 38 43 15 19 9
Industry Financial Ratios
Source: RMA Annual Statement Studies, rmahq.org. RMA data for all industries is derived directly from more than 260,000 statements of member financial institutions’ borrowers and prospects. Note: For a full description of the ratios refer to the Key Statistics chapter online.
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Jargon & Glossary
BARRIERS TO ENTRY High barriers to entry mean that new companies struggle to enter an industry, while low barriers mean it is easy for new companies to enter an industry.
CAPITAL INTENSITY Compares the amount of money spent on capital (plant, machinery and equipment) with that spent on labor. IBISWorld uses the ratio of depreciation to wages as a proxy for capital intensity. High capital intensity is more than $0.333 of capital to $1 of labor; medium is $0.125 to $0.333 of capital to $1 of labor; low is less than $0.125 of capital for every $1 of labor.
CONSTANT PRICES The dollar figures in the Key Statistics table, including forecasts, are adjusted for inflation using the current year (i.e. year published) as the base year. This removes the impact of changes in the purchasing power of the dollar, leaving only the “real” growth or decline in industry metrics. The inflation adjustments in IBISWorld’s reports are made using the US Bureau of Economic Analysis’ implicit GDP price deflator.
DOMESTIC DEMAND Spending on industry goods and services within the United States, regardless of their country of origin. It is derived by adding imports to industry revenue, and then subtracting exports.
EMPLOYMENT The number of permanent, part-time, temporary and seasonal employees, working proprietors, partners, managers and executives within the industry.
ENTERPRISE A division that is separately managed and keeps management accounts. Each enterprise consists of one or more establishments that are under common ownership or control.
ESTABLISHMENT The smallest type of accounting unit within an enterprise, an establishment is a single physical location where business is conducted or where services or industrial operations are performed. Multiple establishments under common control make up an enterprise.
EXPORTS Total value of industry goods and services sold by US companies to customers abroad.
IMPORTS Total value of industry goods and services brought in from foreign countries to be sold in the United States.
INDUSTRY CONCENTRATION An indicator of the dominance of the top four players in an industry. Concentration is considered high if the top players account for more than 70% of industry revenue. Medium is 40% to 70% of industry revenue. Low is less than 40%.
INDUSTRY REVENUE The total sales of industry goods and services (exclusive of excise and sales tax); subsidies on production; all other operating income from outside the firm (such as commission income, repair and service income, and rent, leasing and hiring income); and capital work done by rental or lease. Receipts from interest royalties, dividends and the sale of fixed tangible assets are excluded.
INDUSTRY VALUE ADDED (IVA) The market value of goods and services produced by the industry minus the cost of goods and services used in production. IVA is also described as the industry’s contribution to GDP, or profit plus wages and depreciation.
INTERNATIONAL TRADE The level of international trade is determined by ratios of exports to revenue and imports to domestic demand. For exports/revenue: low is less than 5%, medium is 5% to 20%, and high is more than 20%. Imports/domestic demand: low is less than 5%, medium is 5% to 35%, and high is more than 35%.
LIFE CYCLE All industries go through periods of growth, maturity and decline. IBISWorld determines an industry’s life cycle by considering its growth rate (measured by IVA) compared with GDP; the growth rate of the number of establishments; the amount of change the industry’s products are undergoing; the rate of technological change; and the level of customer acceptance of industry products and services.
NONEMPLOYING ESTABLISHMENT Businesses with no paid employment or payroll, also known as nonemployers. These are mostly set up by self-employed individuals.
PROFIT IBISWorld uses earnings before interest and tax (EBIT) as an indicator of a company’s profitability. It is calculated as revenue minus expenses, excluding interest and tax.
Industry Jargon
IBISWorld Glossary
CODE-SHARING Code-sharing involves one or more airlines using their designator codes to process bookings and sell tickets on flights operated by another carrier.
HUB An airport that an airline uses as a transfer point to get passengers to their intended destination.
REVENUE PASSENGER MILES A measure calculated using the total number of revenue-paying passengers aboard a vehicle by the distance traveled measured in miles.
REVENUE TON MILES A measure of freight traffic onboard an aircraft, calculated using the total weight of the cargo aboard the vehicle by the distance traveled measured in miles.
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Jargon & Glossary
IBISWorld Glossary continued
VOLATILITY The level of volatility is determined by averaging the absolute change in revenue in each of the past five years. Volatility levels: very high is more than ±20%; high volatility is ±10% to ±20%; moderate volatility is ±3% to ±10%; and low volatility is less than ±3%.
WAGES The gross total wages and salaries of all employees in the industry. The cost of benefits is also included in this figure.
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