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InternationalAirlinesintheUSIndustryReport.pdf
WWW.IBISWORLD.COM International Airlines in the US September 2019 1
IBISWorld Industry Report 48111a International Airlines in the US September 2019 Qing Zheng
Prepare for takeoff: Rising disposable income will fuel increased passenger travel, boosting revenue
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 and Markets 13 Supply Chain
13 Products and Services
14 Demand Determinants
15 Major Markets
16 International Trade
17 Business Locations
19 Competitive Landscape 19 Market Share Concentration
19 Key Success Factors
19 Cost Structure Benchmarks
21 Basis of Competition
22 Barriers to Entry
23 Industry Globalization
24 Major Companies 24 United Continental Holdings Inc.
25 American Airlines Group Inc.
26 Delta Air Lines Inc.
27 JetBlue Airways Corporation
28 Operating Conditions 28 Capital Intensity
29 Technology and Systems
29 Revenue Volatility
30 Regulation and Policy
31 Industry Assistance
33 Key Statistics 33 Industry Data
33 Annual Change
33 Key Ratios
34 Industry Financial Ratios
35 Jargon & Glossary
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The International Airlines industry provides air transportation to passengers and cargo over regular routes and schedules. These services include any flights that either end or originate internationally. Scheduled air passenger
carriers, including commuter and helicopter carriers (except scenic and sightseeing), are included in this industry. Airlines that provide international mail transportation on a contract basis are also included in this industry.
The primary activities of this industry are
Scheduled international passenger air transport
Scheduled international cargo and freight air transport (except air couriers)
Scheduled commuter international passenger air transport
Scheduled charter international passenger air transport
33641a Aircraft, Engine & Parts Manufacturing in the US This industry provides factory conversion, overhaul and rebuilding of aircraft.
48111b Domestic Airlines in the US This industry provides air transportation of passengers and cargo over regular routes and on regular schedules.
48121 Charter Flights in the US This industry provides international air transportation of passengers, cargo or specialty flying services with no regular routes and regular schedules are classified.
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 non-US-flagged vessels.
48811 Airport Operations in the US This industry includes businesses that operate international, national or civil airports or public flying fields.
49222 Couriers & Local Delivery Services in the US This industry provides international air courier services for the market.
Industry Definition
Main Activities
Similar Industries
About this Industry
The major products and services in this industry are
Cargo transportation
Fees
Passenger transportation
Other
WWW.IBISWORLD.COM International Airlines in the US September 2019 3
About this Industry
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.census.gov US Census Bureau
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
WWW.IBISWORLD.COM International Airlines in the US September 2019 4
% c
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e
8
-2
0
2
4
6
2614 16 18 20 22 24Year
Inbound trips by non-US residents
SOURCE: WWW.IBISWORLD.COM
% c
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e
20
-20
-10
0
10
2511 13 15 17 19 21 23Year
Revenue Employment
Revenue vs. employment growth
Products and services segmentation (2019)
72.0% Passenger transportation
13.6% Cargo transportation
8.9% Other
5.5% Fees
Key Statistics Snapshot
Industry at a Glance International Airlines in 2019
Industry Structure Life Cycle Stage Mature Revenue Volatility Medium
Capital Intensity Medium
Industry Assistance High
Concentration Level High
Regulation Level Heavy
Technology Change High
Barriers to Entry High
Industry Globalization High
Competition Level High
Revenue
$52.9bn Profit
$4.8bn Wages
$8.6bn Businesses
226
Annual Growth 19–24
1.9% Annual Growth 14–19
-1.7%
Key External Drivers Inbound trips by non-US residents International trips by US residents World price of crude oil Corporate profit Per capita disposable income
Market Share United Continental Holdings Inc. 31.1%
American Airlines Group Inc. 25.9%
Delta Air Lines Inc. 24.1%
p. 24
p. 5
FOR ADDITIONAL STATISTICS AND TIME SERIES SEE THE APPENDIX ON PAGE 33
SOURCE: WWW.IBISWORLD.COM
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Key External Drivers Inbound trips by non-US residents International tourists account for a significant portion of passengers on international flights. Moreover, the majority of foreign visitors arrive by plane, and many take US-based airlines. Consequently, an increase in the number of foreign travelers visiting the United States generally leads to greater demand for industry services. Inbound trips by non-US residents are expected to increase in 2019, representing a potential opportunity for the industry.
International trips by US residents US residents seeking to travel internationally represent an important source of revenue for the International Airlines industry. Therefore, an increase in the number of international trips made by US residents is expected to generate significant revenue for industry operators. The number of international trips by US residents is expected to increase in 2019.
World price of crude oil Given that jet fuel is refined from crude oil, when global crude oil prices decline, jet fuel
Executive Summary The International Airlines industry has declined over the five years to 2019 despite rising levels of per capita disposable income and increased travel activity both into and out of the United States. In recent years, mounting competition from foreign competitors and chronic overcapacity within the industry’s cargo transportation segment have forced industry operators to slash ticket prices and reduce freight shipping rates, causing industry revenue to decline. Moreover, substantial declines in the world price of crude oil led the price of
jet fuel to plummet during the five-year period, preventing operators from generating revenue through fuel surcharge fees. As a result, industry revenue is anticipated to decrease at an annualized rate of 1.7% to $52.9 billion over the five years to 2019, including an expected 1.3% decrease in 2019 alone.
This industry is dominated by a few large-scale players; the industry’s four largest companies are expected to generate over 80.0% of total industry revenue in
2019. Prior to the five-year period, poor profitability and increasing competition forced several airlines out of business, leading to industry consolidation. Additionally, American Airlines and US Airways merged in December 2013, consolidating as American Airlines Group Inc. In turn, these major companies have been able to access significant economies of scale, investing in new technologies and ordering larger, more fuel-efficient aircraft to reduce operating costs. With fuel prices still below historical levels, industry profit is also expected to increase during the current five-year period.
Industry revenue is expected to recover over the next five years as continued growth in disposable income, corporate profit and US travel activities are anticipated to be bolstered by a substantial decrease in the price of jet fuel. However, industry revenue will continue to be constrained by growing competition from foreign operators and alternative modes of transportation. To maintain profitability despite intense competition, operators’ ability to increase their aircraft’s load factor, a measure of capacity utilization, is critical for industry operators. Overall, industry revenue is forecast to increase at an annualized rate of 1.9% to $58.1 billion over the five years to 2024.
Industry Performance Executive Summary | Key External Drivers | Current Performance Industry Outlook | Life Cycle Stage
Industry revenue is expected to recover amid continued growth in disposable income, corporate profit and US travel activity
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Industry Performance
Key External Drivers continued
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 decrease slightly in 2019; however, the volatile nature of world oil prices will likely continue to pose a potential threat to the industry.
Corporate profit International business travel represents a significant source of revenue for industry operators. When 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 2019.
Per capita disposable income The majority of industry revenue comes from discretionary consumer spending on leisure travel. When per capita disposable income rises, consumers are able to spend more on vacations and other nonessential international trips. Per capita disposable income is expected to increase in 2019.
% c
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3
4
5
6
2614 16 18 20 22 24Year
International trips by US residents
SOURCE: WWW.IBISWORLD.COM
% c
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-2
0
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4
6
2614 16 18 20 22 24Year
Inbound trips by non-US residents
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Industry Performance
Current Performance
Despite rising levels of airline passenger traffic and improving US trade activity, the International Airlines industry has declined over the past five years. This industry, which includes US-based airlines that transport passengers and cargo internationally, has suffered from volatile fuel prices, mounting competition from foreign airlines and global economic and political uncertainties. Consequently, industry revenue is estimated to decrease at an annualized rate of 1.7% to $52.9 billion over the five years to 2019.
% c
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10
-10
-5
0
5
2511 13 15 17 19 21 23Year
Industry revenue
SOURCE: WWW.IBISWORLD.COM
Passenger and cargo traffic
The industry is cyclical and highly sensitive to economic factors that affect the number of inbound and outbound international travelers. Economic growth, rising consumer spending and improving corporate profit have driven demand from both business and leisure travelers to increase over the past five years; as a result, the total number of international trips taken by US residents grew during the current five-year period. Moreover, due to global economic growth and the expansion of the global middle class, the number of trips to the United States by non-US residents is also estimated to increase. This increase in flights into and out of the United States has
provided the industry with an expanding customer base.
However, despite overall expansion, passenger traffic growth slowed down over the past five years, and inbound trips actually declined in 2016. This decline in inbound traffic was due to slowed economic growth in emerging markets and political instability associated with global trade tensions and conflicts, as well as the appreciation of the US dollar. In particular, a strengthening dollar has made it more expensive for foreign visitors to travel to the United States. Additionally, overall freight volume transported by both cargo-exclusive and passenger airlines has only recently begun to grow in a meaningful way.
Fuel prices, capacity and competition
Diminishing passenger traffic only partially explains the industry’s revenue declines over the past five years, especially given the overall increase in air traffic. Factors such as fuel prices, capacity and competition are the other reasons why revenue dropped. Fuel prices, in particular, had the largest effect. The purchase of jet fuel represents a substantial cost for industry operators, and fuel expenses can range from between
20.0% and 40.0% of an international airline’s total purchase costs. As a result, large-scale movements in jet fuel prices can have a significant effect on airline operating costs and profit margins. However, when the price of jet fuel increases, industry carriers are also able to generate significant revenue by implementing fuel surcharges and increasing ticket prices and freight rates, shifting the burden of rising fuel
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Industry Performance
Fuel prices, capacity and competition continued
costs to consumers. Nonetheless, when oil prices plunged during the five-year period, jet fuel prices followed. Consequently, airlines were forced to remove fuel surcharges and reduce prices to remain competitive, causing substantial revenue declines in 2015 and 2016.
As fuel prices fluctuated, industry players also had to deal with increased competition and capacity. To meet growing demand and mitigate fuel costs, airlines have increasingly invested in new aircraft that burn less fuel, fly longer distances and transport more people and cargo. As result, capacity slightly outgrew demand, reducing industry load factor (a measure of capacity utilization of airline services) from 82.4% to 80.6% in 2016. Consequently, airline pricing ability was limited. Moreover, industry players have had to contend with increased competition from foreign airlines. Competitors such as Emirates maintain substantial fleets of wide-body aircraft,
and many foreign carriers are subsidized or owned by government bodies, enabling them to grow relatively quickly and expand their share of the global airline market. Meanwhile, the increased efficiency of aircraft has enabled long- range budget airlines such as Norwegian Air to enter the international market. As a result of greater competition, industry players have had to lower prices and lose market share. The introduction of aircraft with more cargo capacity and the overall expansion of the global aircraft fleet has also forced down freight rates, further pressuring industry revenue. Nevertheless, a recent increase in jet fuel prices and the pickup in passenger and cargo traffic to and from the United States helped industry revenue to increase 9.3% in 2018. Overall, continued intense competition and volatile fuel prices are expected to hinder industry growth. In 2019, jet fuel prices are expected to fall again, leading to a 1.3% decline in industry revenue.
Industry structure Following a period of significant merger and acquisition activity on the part of the industry’s largest players, the industry is now overwhelmingly dominated by large- scale operators, such as United Continental Holdings Inc. and American Airlines Group Inc. In fact, the industry’s four largest players are expected to account for over 80.0% of total industry revenue in 2019, which acts as a significant barrier to entry for small-scale players attempting to gain market share in this industry. Moreover, external pressure on industry airfare and freight rates has kept the number of companies entering the industry low and mostly limited to foreign carriers, which are not considered part of the US industry. Consequently, the number of industry enterprises has decreased at an annualized rate of 2.6% to 226 companies over the five years to 2019. Conversely, the pickup in
capacity and slowly rising demand encouraged operators to hire more staff, especially after years of stagnant employment. Therefore, over the five years to 2019, the number of industry employees is expected to climb at an annualized rate of 4.7% to 107,862. At the same time, the average industry profit margin (measured as earnings before interest and taxes) has recently improved due to decreasing fuel costs and increasing industry consolidation. However, at 9.1% of industry revenue, average profit is still expected to have grown over the past five years, rising from 7.5% in 2014, when fuel prices were far higher.
The industry is now overwhelmingly dominated by large-scale operators
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Industry Performance
Industry Outlook
Over the five years to 2024, the International Airlines industry is expected to gradually expand from recent setbacks, although it will be contingent upon sustained growth in US and global economic conditions and travel activity. The combination of growing air travel demand and higher fuel surcharges are expected to bolster revenue. At the same
time, competition from an array of global airlines will continue to place downward pressure on industry ticket prices, benefiting airline customers while reducing revenue opportunities for airline companies. Nevertheless, industry revenue is forecast to grow at an annualized rate of 1.9% to $58.1 billion over the five years to 2024.
Traffic Rising per capita disposable income and an expanding service portfolio offered by industry airlines are expected to support revenue growth moving forward. As the size of the global middle class increases, demand for industry services from foreign consumers is forecast to rise, and the number of inbound trips by non-US residents is projected to increase at an annualized rate of 3.8% over the next five years. Similarly, as domestic consumer spending continues to rise, the number of international trips taken by US residents is expected to grow as well, increasing at an annualized rate of 3.2% during the same period. This growing consumer demand for air travel into and out of the United States will likely generate increased demand for the industry’s passenger transportation services, while growing levels of domestic per capita disposable income will enable greater numbers of passengers to purchase first-class seats, extra baggage allowances and other amenities that most international airlines offer. Growing levels of trade are also projected to increase freight volumes, increasing demand for industry cargo services.
Furthermore, over the five years to 2019, the world price of crude oil is anticipated to decrease at a slower rate, an annualized rate of 0.2%. The recovery in jet fuel prices will enable airlines to
raise fuel surcharges and thus revenue. In addition, according to the Federal Aviation Administration, industry load factor, which measures industry capacity utilization, is forecast to reach 81.1% by 2024, an improvement over levels posted over the past five years. This indicates that operators will improve their capacity management, leading to greater demand per seat and granting operators more leeway in pricing.
However, operators will continue to deal with competition from foreign airlines, many of which continue to expand their operations, putting pricing pressure on various routes. Moreover, industry performance will be exposed to various global macroeconomic headwinds. With global trade tensions anticipated to persist, the rate of globalization may decrease, with various trade and travel barriers potentially going up. Consequently, global air travel may decline or grow slower, tempering demand. Moreover, a decrease in emerging market growth or increased political uncertainty may further erode demand for air travel.
Operators will continue to deal with competition from foreign airlines
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Industry Performance
Improving profit margins
The combination of increasing demand, improved load factor and the introduction of more-efficient aircraft are forecast to increase average industry profit, measured as earnings before interest and taxes, from 9.1% of revenue in 2019 to 9.7% in 2024. A higher load factor means that aircraft are fuller, enabling carriers to spread costs across more customers and run their operations more efficiently. At the same time, new
aircraft models are more efficient because they use less fuel, fly over longer ranges and can carry more passengers and cargo. However, compared with the prior period, rising fuel costs will likely keep margins under pressure. In addition, moving forward, the industry’s profit margins are also expected to be constrained by the rising costs of capping and trading greenhouse gas emissions and competition from foreign airlines.
Limited industry participation
The combination of high barriers to entry, domination by incumbents and competition from foreign airlines will likely lead to further industry consolidation. Therefore, over the five years to 2024, the number of industry players is projected to fall at an annualized rate of 0.7% to reach 218. Conversely, the expansion in demand and capacity will encourage carriers to hire more staff.
Consequently, the number of industry employees is anticipated to climb at an annualized rate of 1.6% to 116,578 people during the coming five-year period.
The expansion in demand and capacity will encourage carriers to hire more staff
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Industry Performance The total number of industry operators is decreasing
The industry has experienced major consolidation, boosting market share concentration
Technological developments in the industry are moderate
There is wholehearted market acceptance of industry services
Life Cycle Stage
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Industry Performance
Industry Life Cycle The International Airlines industry is in the mature phase of its economic life cycle. The industry’s contribution to the US economy, as measured by industry value added, is projected to increase at an annualized rate of 3.5% over the 10 years to 2024. Comparatively, US GDP is expected to grow at an annualized rate of 2.0% during the same period. Typically, IVA growth that much greater than GDP indicates a growing industry. However, much of the industry’s IVA growth is due to the industry’s growing wage expense caused by increasing capacity and average wages.
Mergers and acquisitions are 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. In 2016, Alaska Air Group Inc. acquired Virgin American Inc. to expand west coast presence and customer base. 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 One World, were formed in recent decades as companies attempted to improve operations in a highly competitive environment. As a result, the industry’s major players have experienced a period of prolonged consolidation, and the industry’s four largest companies are expected to account for over 80.0% of total industry revenue in 2019. This trend is indicative of a mature industry.
Additionally, technological upgrades in the industry are moderate. While companies are spending generously on new aircraft and machinery, the level of change from previous models is declining. Over the past five years, there has been an increase in the focus on fuel-efficient technology and cost- reduction machinery. While technological upgrades are a consistent source of investment for airlines, benefits from each upgrade are slowing.
This industry is Mature
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Products and Services
Passenger transportation Passenger transportation is the main service offered by the International Airlines industry, accounting for an estimated 72.0% of industry revenue in 2019. Most revenue is earned through coach travel, while a relatively large portion of profit is earned through
business and first-class travel. Mainline carriers are flag carriers that have large and well-developed home markets. These carriers also have the ability to exploit open skies agreements through global alliances, and major passenger airlines generally focus on long-haul flights between and beyond their alliance’s main
Products & Markets Supply Chain | Products and Services | Demand Determinants Major Markets | International Trade | Business Locations
KEY BUYING INDUSTRIES
48851 Freight Forwarding Brokerages & Agencies in the US This industry uses international airlines to arrange the transportation of freight between shippers and carriers.
49222 Couriers & Local Delivery Services in the US This industry uses international airlines to transport packages and parcels to international destinations.
NN002 Tourism in the US This industry relies on international airlines to transport visitors to the United States.
KEY SELLING INDUSTRIES
33641a Aircraft, Engine & Parts Manufacturing in the US This industry provides aircraft and associated machinery to international airlines.
42472 Gasoline & Petroleum Wholesaling in the US This industry supplies fuel and lubricants to international airlines.
48811 Airport Operations in the US This industry provides space for international airlines to unload and load passengers and cargo.
48819 Aircraft Maintenance, Repair & Overhaul in the US The industry provides maintenance and support to airlines.
Supply Chain
Products and services segmentation (2019)
Total $52.9bn
72.0% Passenger transportation
13.6% Cargo transportation
8.9% Other
5.5% Fees
SOURCE: WWW.IBISWORLD.COM
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Products & Markets
Demand Determinants
Factors affecting demand for the International Airlines industry include general economic activity, airfares, exchange rates, levels of personal disposable income and the appeal of major travel destinations.
Leisure and business Movements in airfares can have a substantial effect on leisure travel, and holidays and overseas visits are often postponed during periods of high airfares. In contrast, airfares are not such an important factor for business travelers, since they are generally considered part of the usual costs of running a business. Major demand determinants for business
travel include the level of international trade activity, corporate profitability and available substitutes, such as video conferencing. During periods of weak corporate profitability, business travel may be restricted or class of travel may be downgraded for shorter international trips. The extent to which companies expand overseas and become more globalized also influences demand for international air transportation services, and demand for industry services typically increases as industries and companies expand.
Additionally, the emergence of no-frills scheduled carriers has caused price differentials among airlines to contract in recent years, enabling a greater number of
Products and Services continued
hubs. Many mainline carriers also have subsidiaries or affiliates that provide regional transportation services that connect passengers to major airline hubs.
The number of international trips taken by US residents has increased at an annualized rate of 5.0% over the past five years, and strong economic growth in several developing countries has led to more tourists visiting the United States. Moreover, 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 of these trends, passenger transportation has grown as a share of total industry revenue over the past five years.
Cargo transportation The international transportation of cargo, including freight mail, is estimated to generate 13.6% of industry revenue in 2019. 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 to carry cargo. In addition, cargo is also transported in the
belly of passenger flights. Industry operators transport a wide variety of cargo, such as fresh produce, perishable goods, livestock and dangerous or hazardous goods. Carriers that operate on scheduled routes do not provide door-to- door service. Instead, these carriers provide transportation from an airport near the cargo’s origin to an airport near the cargo’s destination. This service segment has declined as a portion of total industry revenue over the past five years. In particular, the expansion of global air cargo has reduced freight rates, which put downward pressure on segment revenue.
Fees Fee revenue includes costs such as baggage charges, reservation cancelation fees, scheduled sightseeing tours and other miscellaneous services and charges. Revenue from cancelation fees, excess baggage charges and similar items have increased over the past five years, in tandem with rising levels of airline passenger traffic and increased consumer spending. Collectively, these sources of revenue are expected to account for 5.5% of industry revenue in 2019.
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Products & Markets
Major Markets
The markets of the International Airlines industry can be segmented in many ways. Passengers usually travel for leisure, but may also travel for business or for other
occasions. Aside from passengers, carries also cater to the global shipping markets. In particular, industry’s such automotive manufacturing and fresh produce
Demand Determinants continued
consumers to travel via airlines. An increase in tourist activity generally boosts demand for airline services, especially from cash-rich, time-poor tourists. At the same time, the industry is vulnerable to unexpected safety problems or global political developments that affect an individual’s perception of air travel. Abnormal events decrease demand for air travel, adversely affecting airline operations. Seasonality is another factor that influences demand in this industry. Due to weather conditions, industry performance is generally weaker during the first and fourth quarters of the calendar year than the second and third quarters.
Cargo Factors that influence demand for airfreight services include competition from other modes of transportation, availability of routes and the timeliness of travel. Air transportation is generally more expensive than road, rail and ship transportation, largely due to the high
fuel costs and limited economies of scale associated with aircraft. As a result, the industry experiences significant external competition from these alternative modes of transportation. When these competing means of transportation become less expensive, they will likely attract more consumers, reducing demand for industry services. For example, substantial overcapacity in maritime shipping has caused many waterborne transporters to lower shipping rates in recent years, increasing demand for marine transportation at the expense of cargo airlines. At the same time, many customers are willing to pay more for their goods to be transported quickly and safely via air, and goods that are either high-value or time-sensitive are generally shipped using air transportation. Moreover, the rising popularity of online shopping has increased demand for airfreight because most of these deliveries must be made in a short period of time.
Major market segmentation (2019)
Total $52.9bn
38.0% Atlantic
30.8% Latin America
23.2% Pacific
8.0% Other
SOURCE: WWW.IBISWORLD.COM
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Products & Markets
International Trade As a service-based industry, international trade is not technically a feature of the International Airlines industry. However, the industry generates revenue through sales to customers originating and traveling overseas. Moreover, many companies also provide contract or ad hoc services to foreign airlines when they are in the United States; in effect, these companies offer service export. Service exports relate to US airlines carrying nonresident passengers to and from the United States, while service imports
relate to foreign airlines carrying US residents to and from the United States.
IBISWorld estimates that import competition in the industry has intensified over the past five years. With developments in the air transportation sectors of developing countries and countries in the Middle East, the global number of international airlines has experienced substantial growth in recent years. This expansion has increased the number of flights offered by foreign carriers to and from the United States, increasing competition in the industry.
Major Markets continued
supplies fly some of their goods by air when timeliness is essential. However, the most common way to break down industry markets is by geographic location. The US Department of Transportation divides the industry into the Atlantic, Latin American, Pacific and international markets.
Atlantic In 2019, the Atlantic market is expected to account for 38.0% of industry revenue. This market includes scheduled flights between the United States, Europe, Africa and the Middle East. Since this market includes most of the developed economies in the world, there is more passenger traffic on routes. In particular, consumers tend to be wealthier, enabling more people to fly. The interconnected nature of the United States and European economies also encourages business travel. Over the past five years, the Atlantic market’s share of revenue has decreased slightly. In part, this is due to the market being mature, especially the US and European routes and due to Europe’s slower economic growth. Industry players have also struggled to maintain market share against rapidly growing Middle East carriers and budget airlines that have started to offer transatlantic flights.
Latin America The Latin America market accounts for an expected 30.8% of industry revenue in 2019. This market includes routes between the United States and countries in Central and South America, as well as the Caribbean. Over the past five years, the market experienced the fastest growth despite economic problems in countries such as Brazil. US carriers have an advantage over their competitors due to the United States proximity to key markets, such as Mexico and the Caribbean countries.
Pacific The Pacific market accounts for an anticipated 23.2% of industry revenue and consists of routes between the United States and Asia. Despite rapid economic growth in Asia, this market’s share of revenue has actually declined over the past five years. One reason for this has been US carriers’ reliance on routes to Japan, which while being a large market, is not growing as fast as other places, such as China. The Pacific route is also subject to strong competition from rival airlines from China, South Korea and others. These airlines often pay lower wages, receive some sort of government support and have a home advantage to US carriers.
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Products & Markets
Business Locations 2019
MO 1.3
West
West
West
Rocky Mountains Plains
Southwest
Southeast
New England
VT 0.3
MA 2.0
RI 0.4
NJ 2.2
DE 0.1
NH 0.3
CT 0.5
MD 0.7
DC 0.7
1
5
3
7
2
6
4
8 9
Additional States (as marked on map)
AZ 1.6
CA 12.5
NV 1.2
OR 1.1
WA 2.7
MT 1.2
NE 0.5
MN 1.0
IA 0.6
OH 1.8 VA
3.1
FL 9.6
KS 0.7
CO 2.0
UT 0.7
ID 0.8
TX 7.7
OK 0.7
NC 2.0
AK 4.5
WY 0.7
TN 1.5
KY 1.2
GA 2.7
IL 4.8
ME 0.5
ND 0.2
WI 1.1 MI
2.2 PA2.5
WV 0.4
SD 0.6
NM 0.6
AR 0.8
MS 0.3
AL 0.8
SC 1.2
LA 1.5
HI 2.7
IN 1.2
NY 8.6 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 Establishments for the International Airlines industry 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 that 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 24.8% of all industry establishments in 2019. Airlines in the Southeast employ small workforces, while also offering relatively low wages.
West Similar to the Southeast region, the West 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 24.6% of all airline establishments in 2019. The state of California is largely responsible for this heavy concentration of establishments, as the state contains an estimated 12.5% of
all international airline locations. The West is also a major destination for goods and travelers arriving from Asia, causing the region’s airlines to handle large amounts of cargo and passenger traffic.
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 14.8% of total industry establishments. New York is the most popular location for carriers within the region, containing an estimated 8.6% of all airline establishments. Major airports in the Mid-Atlantic include John F. Kennedy International Airport, LaGuardia Airport and Newark Liberty International Airport. Establishments within this region operate with large workforces, and employees in the Mid-Atlantic benefit from relatively high wages.
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Establishments Population
Distribution of establishments vs. population
SOURCE: WWW.IBISWORLD.COM
WWW.IBISWORLD.COM International Airlines in the US September 2019 19
Cost Structure Benchmarks
Cost structure of the International Airlines industry, including the industry profitability, is subject to the world price of crude oil, since purchase costs account for the largest share of industry revenue and jet fuel is a significant input of purchase. The following breakdown represents the average costs structure for an industry operator.
Wages Wages are another major expense for industry operators, accounting for an estimated 16.3% of total revenue in 2019. Employees in this industry include aircraft and freight handling crews, maintenance and repair workers and administrative staff. Wages can vary significantly depending on an airline’s location and the
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 international airlines.
Prompt delivery to market Competition is fierce in this industry, so the inability to deliver services on time may result in the loss of customers to a competitor.
Effective cost controls Good cost-control systems help operators manage yields and increase earnings. This is particularly important in times of operational uncertainty, as is currently the case with highly volatile fuel prices.
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 serve markets with precision or risk operating losses on a given route.
Well-developed internal processes International airlines require reservation systems and e-commerce products that provide good access for clients to the services provided.
Access to the latest available and most efficient technology and techniques The use of up-to-date technology and new aircraft can improve operational efficiencies.
Market Share Concentration
The International Airlines industry has a high level of concentration, with the industry’s four largest players expected to account for 84.4% of the industry’s total revenue in 2019. Market share concentration has fluctuated in recent years due in part to significant merger and acquisition activity on the part of the industry’s largest players. For example, American Airlines and US Airways merged in 2013. Additionally, this high level of concentration implies that there is little scope for potential operators seeking to enter the industry. Possible entries include companies servicing niche
markets and traditional airlines that compete with major companies by offering of low-cost, no-frills flights. Overall, the level of concentration in this industry is not expected to increase significantly over the next five years, since any proposed merger between major airlines is likely to garner significant attention from the Department of Justice. The industry’s fluctuation in market share has also been affected by the high level of revenue volatility, with major industry players being susceptible to large declines in their revenue.
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:
WWW.IBISWORLD.COM International Airlines in the US September 2019 20
Competitive Landscape
Cost Structure Benchmarks continued
position of the employee. For instance, pilots in major metropolitan areas are typically the highest paid employees within the industry. 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. Wages have increased as a share of total industry revenue over the past five years, since revenue declined while operations and employees continued to expand.
Purchases Purchases make up an estimated 36.5% of total industry revenue in 2019. Airlines also experience substantial maintenance and repair costs, with aircraft components requiring regular upkeep. Additionally, many operators charter flights from other airlines to meet demand or provide customers with shipping routes that the
company does not typically service. However, one largest purchase costs for the industry is jet fuel. Over the past five years, purchase costs have declined as the price of jet fuel has decreased.
Profit Profitability in this industry is highly volatile. However, the industry is dominated by heavily capitalized major airlines that can afford to run losses for years before experiencing serious problems. Nevertheless, as a result of strong external factors placing downward pressure on industry profit, most airlines have introduced measures to increase fuel efficiencies and protect profitability over the past five years, including flying at slower cruising speeds and reducing the number of flights operated on less- profitable routes. At the same time, recent fluctuations in the world price of crude oil have added some uncertainty to
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 (2019)
Industry Costs (2019)
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9.3 9.1
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4.1 0.4 4.8
36.5
16.3
31.2
4.1 0.5 6.5
22.2
26.2
WWW.IBISWORLD.COM International Airlines in the US September 2019 21
Competitive Landscape
Basis of Competition Internal competition Given the considerable variety of airline customers and the ability of airlines to differentiate their prices, the high levels of competition within the International Airlines industry has led to a range of pricing and service trends. For example, competition for price-sensitive travelers, such as people traveling for leisure reasons, has led to lower ticket prices, whereas competition for price-insensitive travelers, such as business people, focuses on frequency of service, in-flight
services and the use of airport lounges. The use of the internet to reach the customer has also been a successful competitive strategy deployed by most airlines. The internet is used for flight bookings and payments, which reduce cost of sales.
International alliances between domestic and foreign carriers, such as marketing and code sharing arrangements, have significantly increased competition in international markets. Through code sharing
Cost Structure Benchmarks continued
companies’ operations. Nevertheless, with oil prices still below prior period levels, fuel costs remain relatively low. Consequently, the average industry profit margin (measured as earnings before interest and taxes) has increased from 7.5% of industry revenue in 2014 to 9.1% in 2019.
Depreciation Depreciation costs 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 2019 due to the replacement of older aircraft with newer, more fuel-efficient models. In 2019, expenses on depreciation are expected to represent 4.8% of industry revenue.
Marketing Expenses on advertising and marketing efforts are expected to account for just 0.4% of total industry revenue in 2019. Marketing expenses have been maintained at a relatively low and stagnant level, since most industry operators compete in the price of tickets and airline routes to attract customers.
Rent Rent costs are expected to account for 3.9% of industry revenue in 2019. These
costs are typically related to airport hubs, where operators store planes, handle freight and deliver passengers.
Utilities Utilities costs are expected to be relatively low and account for 0.2% of industry revenue in 2019, which mainly include electricity, water, sewer, refuse removal, and other utilities expenses.
Other Other expenses include airport landing fees, handling expenses, legal fees, insurance premiums and administrative costs. Many costs are relatively fixed, which means that they increase as a percentage of revenue when sales fall. However, administration costs have decreased in recent years due to the proliferation of online booking and check-in platforms. Insurance expenses represent the cost of hull and liability insurance. These insurance costs, particularly those pertaining to third- party coverage for war and terrorism, have increased significantly over the past five years and government intervention has occurred in the form of indemnities and cash payments. Collectively, these miscellaneous costs are expected to account for the remaining 28.8% of industry revenue in 2019.
Level & Trend Competition in this industry is High and the trend is Increasing
WWW.IBISWORLD.COM International Airlines in the US September 2019 22
Competitive Landscape
Barriers to Entry The International 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 international safety requirements, are extremely high for operators in this industry. Purchasing and updating aircraft may cost millions of dollars, which may be hard to secure given the competitive nature of the industry. Complying with international 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 with high market
share and established international routes 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
arrangements with US carriers, foreign carriers have obtained access to interior passenger traffic. Similarly, US carriers have increased their ability to sell transatlantic services to European and Asian cities.
Major US air carriers have an advantage over foreign competitors in the ability to generate traffic from their extensive domestic route systems. In some cases, however, foreign governments limit US air carriers’ rights to carry passengers beyond designated gateway cities in foreign countries. 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 Substitutes such as road, rail and water transportation also affect industry revenue, and consumer preferences for different forms of passenger and freight transportation are generally determined by differences in price, travel time and destinations served. Foreign airlines also compete with US carriers, and many foreign carriers are subsidized by government bodies, which enables these competitors to grow more quickly and expand their share of the global airline market. The deregulation of the airline industry, particularly over the past twenty years, has also contributed to a significant increase in competition among international airlines, especially along key profitable routes.
Barriers to Entry checklist
Competition High Concentration High Life Cycle Stage Mature Capital Intensity Medium Technology Change High Regulation and Policy Heavy Industry Assistance High
SOURCE: WWW.IBISWORLD.COM
Level & Trend Barriers to Entry in this industry are High and Steady
WWW.IBISWORLD.COM International Airlines in the US September 2019 23
Competitive Landscape
Industry Globalization
Globalization measures the extent to which the International Airlines industry operates on a global scale, which is determined by factors such as the level of foreign ownership of industry operations and the presence of domestic operators in foreign markets. For example, many passenger airlines have branch offices set up outside their domiciled country. Additionally, many airlines form partnerships, such as SkyTeam, Star Alliance and One World, to tap into additional routes through code-sharing agreements. The lifting of various travel restrictions and market regulations has bolstered industry globalization in recent years. Wide-ranging policies aimed at deregulating entry, increasing foreign ownership, liberalizing market access and easing infrastructure
restrictions have been implemented by several national governments, and these policies have proven to be highly beneficial for this industry.
The United States and the European Union are also engaged in Open Skies agreement, which gives airlines from the United States and EU member states open access to each other’s markets, with freedom of pricing and unlimited rights to fly. It enables every US- and EU- domiciled airline to operate between airports in the United States and London’s Heathrow Airport. The agreement has significantly increased traffic between the two regions. Overall, this industry is characterized by a high level of globalization.
Level & Trend Globalization in this industry is High and the trend is Increasing
WWW.IBISWORLD.COM International Airlines in the US September 2019 24
Player Performance United Continental Holdings Inc. (UCH) is a holding company for two wholly owned subsidiaries that include the United Airlines and Continental Airlines brands. The combined entity is based in Chicago and is the result of a previous 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, operating more than 4,800 flights per day to 353 airports across the world. UCH mainly provides transportation services for people and property across
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 at Newark Liberty International Airport, Chicago O’Hare International Airport, Denver International Airport, George Bush Intercontinental Airport, Los Angeles International Airport, San Francisco International Airport, A.B. Won Pat International Airport and Washington Dulles International Airport. In 2018, UCH employed over 92,000 staff and earned $41.3 billion in global revenue (latest data available). UCH’s international airline operations accounted for about 38.1% of its revenue in 2019, more than for any other major US carrier. Moreover, the airline has the largest market share of the Atlantic and Pacific markets.
Major Companies United Continental Holdings Inc. | American Airlines Group Inc. Delta Air Lines Inc. | Other Companies
18.9% Other
United Continental Holdings Inc. 31.1%
American Airlines Group Inc. 25.9%
Delta Air Lines Inc. 24.1% SOURCE: WWW.IBISWORLD.COM
Major Players (Market Share)
United Continental Holdings Inc. (US industry-specifi c segment) - fi nancial performance*
Year Revenue
($ million) (% change) Operating Income
($ million) (% change)
2014 16,580.5 N/C 1,375.7 N/C
2015 15,932.9 -3.9 2,313.5 68.2
2016 14,354.2 -9.9 1,109.5 -52.0
2017 14,604.1 1.7 840.6 -24.2
2018 15,750.8 7.9 1,122.8 33.6
2019 16,449.0 4.4 1,569.7 39.8
*Estimates SOURCE: US DEPARTMENT OF TRANSPORTATION
United Continental Holdings Inc. Market Share: 31.1% Industry Brand Names United Airlines Continental Airlines
WWW.IBISWORLD.COM International Airlines in the US September 2019 25
Major Companies
Player Performance Headquartered in Fort Worth, TX, and formed in December 2013 following the merger of American Airlines and US Airways, American Airlines Group Inc. (American Airlines Group) is the holding company for AMR Corporation. This merger was negotiated with the US 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 over 350 destinations in more than 50 countries. The company also employs over 18,180 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 prior to the five-year period. 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 1937. The company provides international services to Canada, Central and South America, Asia, Europe, Australia and New Zealand. American Airlines Group earned combined global revenue of $44.5 billion in 2018 (latest data available), making it one of the largest airline companies in the world in terms of revenue.
The company generated 31.6% of its revenue from international operations in
Player Performance continued
Financial performance Similar to other players in this industry, UCH’s industry-relevant revenue growth has been constrained in recent years by fluctuations in the price of jet fuel, which has forced industry operators to eliminate fuel surcharges and reduce ticket prices to remain competitive. Moreover, the strengthening US dollar has made flights to the United States relatively expensive for consumers in foreign countries, which
has limited demand for industry services. Therefore, over the five years to 2019, UCH’s industry-specific revenue is expected to decline at an annualized rate of 0.2% to $16.4 billion; UCH’s operating income of international services is projected to increase at an annualized rate of 2.7% to $1.6 billion, since they launched several new international services and routes, such as Houston to Sydney, San Francisco to Tahiti and Denver to London.
American Airlines Group Inc. (US industry-specifi c segment) – fi nancial performance*
Year Revenue
($ million) (% change) Operating Income
($ million) (% change)
2014 11,605.3 N/C 776.5 N/C
2015 12,895.5 11.1 1,523.6 96.2
2016 13,298.5 3.1 1,607.8 5.5
2017 12,587.9 -5.3 271.0 -83.1
2018 14,094.3 12.0 628.4 131.9
2019 13,683.1 -2.9 380.8 -39.4
*Estimates SOURCE: US DEPARTMENT OF TRANSPORTATION
American Airlines Group Inc. Market Share: 25.9%
WWW.IBISWORLD.COM International Airlines in the US September 2019 26
Major Companies
Player Performance Delta Air Lines Inc. (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, Mexico City, Minneapolis, New York, Paris, Salt Lake City, Sao Paulo, Seattle, Seoul and Tokyo. Collectively, Delta and its subsidiaries offer service to 324 destinations across 57 countries. In 2018, Delta earned global revenue of $44.4 billion and employed 89,000 full-time equivalent staff (latest data available).
Delta’s operations have traditionally focused on the US domestic market,
where it has become one of the fastest- growing carriers. International flights account for just 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 facilitate 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; and Europe and several Latin American countries. In 2016, Delta and Aeroméxico entered into a joint cooperation agreement to better coordinate efforts to expand destinations and frequencies, improving connecting
Player Performance continued
2018. While the carrier is not the largest in any international markets (Atlantic, Latin America and Pacific), it is the second-largest operator in the Latin America market.
Financial performance American Airlines Group’s industry- specific revenue is expected to increase at an annualized rate of 3.3% to $13.7 billion over the five years to 2019. However, the company’s operating
income from international services is anticipated to decrease an annualized 13.3% to $380.8 million during the five-year period. While total passenger traffic has increased significantly in recent years, the company has suffered from competitive pricing actions, as well as a particularly destructive year in terms of hurricanes. Low fuel prices have caused operators to lower ticket prices to remain competitive, further limiting the company’s revenue growth.
Delta Air Lines Inc. Market Share: 24.1%
Delta Air Lines Inc. (US industry-specifi c segment) - fi nancial performance*
Year Revenue
($ million) (% change) Operating Income
($ million) (% change)
2014 13,653.3 N/C 948.0 N/C
2015 13,020.7 -4.6 2,606.1 174.9
2016 11,643.3 -10.6 2,229.5 -14.5
2017 11,783.0 1.2 1,917.8 -14.0
2018 12,926.9 9.7 2,215.5 15.5
2019 12,720.2 -1.6 2,500.1 12.8
*Estimates SOURCE: US DEPARTMENT OF TRANSPORTATION
WWW.IBISWORLD.COM International Airlines in the US September 2019 27
Major Companies
Player Performance Based in Long Island City, NY, JetBlue Airways Corporation (JetBlue) was founded in 1998. In 2000, JetBlue gained formal approval to undertake flights to Buffalo, NY, and Ft. Lauderdale, FL, from John F. Kennedy International Airport (JFK) in New York. Currently, the company makes over 1,000 daily trips, primarily serving domestic locations from JFK. JetBlue makes trips to 105 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, 63 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.
JetBlue’s international operations have grown as a share of company revenue over the past five years. International flights from Ft. Lauderdale-Hollywood International Airport have become a major focus for JetBlue as it continues to expand its share of the international passenger market, and JetBlue is the airport’s largest carrier in Ft. Lauderdale. Due to the company’s push into the Americas, JetBlue’s industry-specific revenue is projected to grow at an annualized rate of 9.0% to $1.8 billion over the five years to 2019. JetBlue has also benefited from its low-cost business model.
Player Performance continued
schedules and operations. The companies will also be able to improve their on- ground experiences by colocating and investing in airport facilities such as gates and lounges. Currently, the company is the second-largest airline in the Atlantic and Pacific markets.
Financial performance Over the past five years, Delta’s industry-relevant operations have suffered from a decline in passenger revenue per available seat mile, which was largely driven by substantial price
competition caused by decreasing fuel prices. The continued strengthening of the US dollar reduced ticket sales in foreign markets, where tickets are typically purchased in the local currency. Additionally, earthquake and hurricane activity disrupted the company’s operations, with Hurricane Irma alone costing the company $120.0 million in operational disruptions in 2017. Overall, Delta’s international revenue is expected to decrease at an annualized rate of 1.4% to $12.7 billion over the five years to 2019.
JetBlue Airways Corporation Market Share: 3.4%
WWW.IBISWORLD.COM International Airlines in the US September 2019 28
Capital Intensity The International Airlines industry is characterized by a moderate to high level of capital intensity, as operators are highly reliant on both capital investment and labor inputs. In 2019, industry operators are expected to spend $0.29 on capital investments for every dollar spent on labor costs. These labor expenses include the wages and salaries paid to pilots, crew members, ground staff and administrative staff. The average annual wage for workers in this industry is relatively high. Wages reflect long working hours, the extended time a crew member spends away from his or her home and family and the industry’s strong union representation. At the same time, substantial amounts of capital are required to purchase and operate an
airline. Many large-scale players operate hundreds of planes, in addition to massive airport hubs where cargo and
Operating Conditions Capital Intensity | Technology & Systems | Revenue Volatility Regulation & Policy | Industry Assistance
Capital Intensity
0.5
0.0
0.1
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SOURCE: WWW.IBISWORLD.COM Dotted line shows a high level of capital intensity
Capital units per labor unit
International Airlines
Transportation and Warehous-
ing
Economy
Level The level of capital intensity is Medium
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Operating Conditions
Technology and Systems
The International Airlines industry has experienced significant technological changes in recent years. 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, and more importantly, due to the development of new fuel-efficient engines. With these improvements, airlines can use less fuel per trip and carry more passengers and cargo, improving industry profit margins. Examples of new aircraft include Boeing’s 737 Max and 787.
There have also been significant technological improvements in avionics such as an aircraft’s onboard computer systems. Such improvements include the
ability of 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 enhance navigation. Virtually all jet planes are also equipped with Traffic Collision Avoidance Systems (TCAS) and terrain warning systems, which improve flight safety.
Airlines also rely on 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 administration expenses. Additionally, the proliferation of smartphones has enabled consumers to search, book and manage flights remotely.
Capital Intensity continued
passengers are loaded and unloaded from aircraft, all of which contributes to the industry’s capital costs.
Airplanes can be leased to ease capital requirements, though most airlines own the majority of their airplanes. In addition, efficient communications equipment, newer aircraft, computer- assisted booking, strong and 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. Moreover, many long trips require extra crew members to adhere to federal safety requirements. Moving forward, capital investment within the industry will likely increase as competition intensifies and operators replace older aircraft with newer ones.
Level The level of technology change is High
Revenue Volatility International air travel is dependent on the performance of the domestic and global economies, consumer sentiment and the price of fuel. In general, demand for international air travel is positively correlated with global economic conditions. For example, as the global economy expands, businesses are more likely to spend on international business
trips, while rising levels of disposable income typically increase the ability of consumers to take international vacations. Revenue for the International Airlines industry is also affected by noneconomic factors, such as the popularity of specific tourist destinations and whether or not US airlines dominate the routes to them, global weather
Level The level of volatility is Medium
WWW.IBISWORLD.COM International Airlines in the US September 2019 30
Operating Conditions
Regulation and Policy The International Airlines industry is heavily regulated, and standards are set by both government authorities and industry trade associations. For example, the Department of Justice has jurisdiction over airline antitrust matters. Additionally, the US Environmental Protection Agency is authorized to regulate aircraft emissions and noise
reductions. Companies are also subjected to the Occupational Health and Safety Act concerning employee safety and health matters. However, the most relevant industry regulator is the Federal Aviation Administration (FAA). The FAA sets safety and maintenance standards, certifies airlines and aircraft and even sets certain operating procedures.
Level & Trend The level of Regulation is Heavy and the trend is Steady
conditions and outbreaks of panic concerning terrorism or disease.
Jet fuel prices can also have a strong effect on industry revenue. Airlines generally respond to high jet fuel prices by implementing fuel surcharges that increase ticket prices for passengers. As a result, industry revenue is subject to the highly volatile prices of crude oil and jet fuel. Additionally, the emergence of budget
carriers has contributed to the volatility of industry revenue by diversifying flight prices, especially to Latin America and other destinations close to the United States. Overall, the International Airlines industry has experienced a moderate level of revenue volatility over the past five years, with year-to-year revenue growth rates ranging from a decline of 9.5% in 2016 to 9.3% growth in 2018.
Revenue Volatility continued
WWW.IBISWORLD.COM International Airlines in the US September 2019 31
Operating Conditions
Industry Assistance While tariffs are not directly applied to the International 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, the Federal Aviation Administration (FAA) assists airlines in solving congestion problems caused by air traffic control systems.
Open skies agreements have become increasingly prominent within the air transportation sector, and these policies can 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. The United States has established open skies policies with over 100 partners from every region of the world and at every level of economic development. In addition to bilateral open skies agreements, the United States has negotiated 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 other’s markets, with freedom of pricing and unlimited rights to fly. It also enables every US and EU domiciled airline to operate between airports in the United States and London’s Heathrow Airport. Previously, only three US airlines were permitted to provide services to Heathrow airport from the country.
Industry trade associations The International Airlines industry also receives substantial assistance from 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 major government decisions regarding aviation, including the creation of the Civil Aeronautics Board, the creation of the air traffic control system and airline deregulation. Founded in 1936, the purpose of A4A is to support its members by promoting the air transport industry and the safety, cost-effectiveness and technological advancement of its operations; advocating common industry positions before state and local governments; conducting designated industry-wide programs; and assuring
Regulation and Policy continued
The operating authority of airlines in international markets is also subject to aviation agreements between the United States and the respective countries or governmental authorities (such as the European Union). In some cases, fares and schedules require the approval of both the Department of
Transportation and the relevant foreign governments. The industry is also dependent on opens sky agreements between the United States and other nations. These agreements enable carriers to fly to any destination within a signatory’s territory (but not between domestic points).
Level & Trend The level of Industry Assistance is High and the trend is Steady
WWW.IBISWORLD.COM International Airlines in the US September 2019 32
Operating Conditions
Industry Assistance continued
governmental and public understanding of all aspects of air transport.
Similarly, the International Air Transport Association (IATA) is an organization of international airlines that involves itself in all aspects of airline operations. In fact, most nongovernment discussions within the industry take place
under IATA auspices. In the past, airfare negotiations were an integral function of IATA, but with the emergence of more non-IATA members and increased market size, the association’s role is now limited to clearing inter-airline debts and providing general guidelines for fare setting in the industry.
WWW.IBISWORLD.COM International Airlines in the US September 2019 33
Key Statistics Revenue
($m)
Industry Value Added
($m) Establish-
ments Enterprises Employment Exports Imports Wages ($m)
Domestic Demand
International trips by US residents
(Mil) 2010 53,176.2 11,944.3 1,506 265 87,840 -- -- 5,633.6 N/A 159.7 2011 58,071.9 10,744.5 1,519 261 91,616 -- -- 6,129.1 N/A 166.1 2012 57,968.2 10,332.1 1,465 253 89,913 -- -- 5,852.0 N/A 173.4 2013 57,816.2 12,820.4 1,393 255 90,842 -- -- 6,369.9 N/A 182.1 2014 57,540.5 12,560.7 1,405 258 85,930 -- -- 6,157.4 N/A 191.2 2015 54,614.2 17,664.2 1,404 256 99,254 -- -- 7,566.1 N/A 203.2 2016 49,410.3 16,259.8 1,244 229 99,247 -- -- 7,915.5 N/A 214.1 2017 48,991.0 15,427.8 1,232 231 110,691 -- -- 8,937.3 N/A 224.6 2018 53,531.5 16,042.7 1,219 231 108,599 -- -- 8,709.5 N/A 236.3 2019 52,855.9 16,013.1 1,191 226 107,862 -- -- 8,640.2 N/A 243.9 2020 53,564.5 16,083.6 1,177 223 109,098 -- -- 8,742.5 N/A 251.7 2021 54,473.9 16,458.2 1,169 221 110,686 -- -- 8,874.1 N/A 259.8 2022 55,410.4 16,854.9 1,160 219 112,502 -- -- 9,021.0 N/A 268.1 2023 56,632.0 17,284.2 1,152 217 114,259 -- -- 9,173.5 N/A 276.7 2024 58,080.7 17,724.4 1,156 218 116,578 -- -- 9,369.4 N/A 285.9 Sector Rank 8/37 13/37 27/37 32/37 15/37 N/A N/A 13/37 N/A N/A Economy Rank 186/694 179/694 527/694 631/694 286/694 N/A N/A 183/694 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
(%) 2010 22.46 N/A N/A 605.38 10.59 58.33 64,134.79 0.08 2011 18.50 N/A N/A 633.86 10.55 60.31 66,899.89 0.07 2012 17.82 N/A N/A 644.71 10.10 61.37 65,085.14 0.06 2013 22.17 N/A N/A 636.45 11.02 65.21 70,120.65 0.08 2014 21.83 N/A N/A 669.62 10.70 61.16 71,656.00 0.07 2015 32.34 N/A N/A 550.25 13.85 70.69 76,229.67 0.10 2016 32.91 N/A N/A 497.85 16.02 79.78 79,755.56 0.09 2017 31.49 N/A N/A 442.59 18.24 89.85 80,740.98 0.09 2018 29.97 N/A N/A 492.93 16.27 89.09 80,198.71 0.09 2019 30.30 N/A N/A 490.03 16.35 90.56 80,104.21 0.08 2020 30.03 N/A N/A 490.98 16.32 92.69 80,134.37 0.08 2021 30.21 N/A N/A 492.15 16.29 94.68 80,173.64 0.08 2022 30.42 N/A N/A 492.53 16.28 96.98 80,185.24 0.08 2023 30.52 N/A N/A 495.65 16.20 99.18 80,286.89 0.08 2024 30.52 N/A N/A 498.21 16.13 100.85 80,370.22 0.09 Sector Rank 35/37 N/A N/A 6/37 30/37 4/37 9/37 13/37 Economy Rank 340/694 N/A N/A 208/694 375/694 62/694 125/694 179/694
Figures are in inflation-adjusted 2019 dollars. Rank refers to 2019 data.
Revenue (%)
Industry Value Added
(%)
Establish- ments
(%) Enterprises
(%) Employment
(%) Exports
(%) Imports
(%) Wages
(%)
Domestic Demand
(%)
International trips by US residents
(%) 2011 9.2 -10.0 0.9 -1.5 4.3 N/A N/A 8.8 N/A 4.1 2012 -0.2 -3.8 -3.6 -3.1 -1.9 N/A N/A -4.5 N/A 4.4 2013 -0.3 24.1 -4.9 0.8 1.0 N/A N/A 8.9 N/A 5.0 2014 -0.5 -2.0 0.9 1.2 -5.4 N/A N/A -3.3 N/A 5.0 2015 -5.1 40.6 -0.1 -0.8 15.5 N/A N/A 22.9 N/A 6.3 2016 -9.5 -8.0 -11.4 -10.5 0.0 N/A N/A 4.6 N/A 5.4 2017 -0.8 -5.1 -1.0 0.9 11.5 N/A N/A 12.9 N/A 4.9 2018 9.3 4.0 -1.1 0.0 -1.9 N/A N/A -2.5 N/A 5.2 2019 -1.3 -0.2 -2.3 -2.2 -0.7 N/A N/A -0.8 N/A 3.2 2020 1.3 0.4 -1.2 -1.3 1.1 N/A N/A 1.2 N/A 3.2 2021 1.7 2.3 -0.7 -0.9 1.5 N/A N/A 1.5 N/A 3.2 2022 1.7 2.4 -0.8 -0.9 1.6 N/A N/A 1.7 N/A 3.2 2023 2.2 2.5 -0.7 -0.9 1.6 N/A N/A 1.7 N/A 3.2 2024 2.6 2.5 0.3 0.5 2.0 N/A N/A 2.1 N/A 3.3 Sector Rank 36/37 34/37 36/37 37/37 35/37 N/A N/A 35/37 N/A N/A Economy Rank 618/694 561/694 648/694 643/694 594/694 N/A N/A 602/694 N/A N/A
Annual Change
Key Ratios
Industry Data
SOURCE: WWW.IBISWORLD.COM
WWW.IBISWORLD.COM International Airlines in the US September 2019 34
Apr 2017 - Mar 2018 by company revenue Apr 2014 - Apr 2015 - Apr 2016 - Apr 2017 - Small Medium Large Mar 2015 Mar 2016 Mar 2017 Mar 2018 (<$10m) ($10-50m) (>$50m)
Liquidity Ratios
Current Ratio 1.4 1.0 1.6 1.9 2.4 n/a 1.2 Quick Ratio 1.0 0.8 1.0 1.4 1.9 n/a 0.9 Sales / Receivables (Trade Receivables Turnover) 12.9 11.1 12.9 9.8 11.1 n/a 9.6
Days’ Receivables 28.3 32.9 28.3 37.2 32.9 n/a 38.0 Cost of Sales / Inventory (Inventory Turnover) 167.7 71.8 37.5 60.8 n/c n/a 60.8
Days’ Inventory 2.2 5.1 9.7 6.0 0.4 n/a 6.0 Cost of Sales / Payables (Payables Turnover) 14.5 11.9 14.3 12.5 13.2 n/a 12.7
Days’ Payables 25.2 30.7 25.5 29.2 27.7 n/a 28.7 Sales / Working Capital 21.7 -303.2 16.5 11.7 7.3 n/a 20.7
Coverage Ratios
Earnings Before Interest & Taxes (EBIT) / Interest 4.8 3.2 6.5 4.6 n/a n/a 2.5
Net Profit + Dep., Depletion, Amort. / Current Maturities LT Debt n/a 3.5 n/a n/a n/a n/a n/a
Leverage Ratios
Fixed Assets / Net Worth 1.5 1.6 1.0 1.3 1.4 n/a 1.8 Debt / Net Worth 2.1 3.8 2.2 2.4 2.6 n/a 2.9 Tangible Net Worth 24.9 11.7 32.9 31.4 28.7 n/a 23.5
Operating Ratios
Profit before Taxes / Net Worth, % 28.6 20.6 28.1 24.5 38.4 n/a 21.4 Profit before Taxes / Total Assets, % 5.7 4.5 8.9 7.9 6.3 n/a 5.5 Sales / Net Fixed Assets 2.8 3.9 3.0 5.5 5.3 n/a 20.9 Sales / Total Assets (Asset Turnover) 1.8 1.7 1.8 2.0 1.9 n/a 2.0
Cash Flow & Debt Service Ratios (% of sales)
Cash from Trading 47.5 36.1 35.4 34.4 29.4 n/a 27.3 Cash after Operations 9.3 2.4 6.7 11.8 12.0 n/a 8.5 Net Cash after Operations 10.0 3.0 8.0 11.1 11.4 n/a 6.0 Cash after Debt Amortization 3.7 1.2 3.2 3.5 5.4 n/a 1.5 Debt Service P&I Coverage 3.9 1.7 3.6 1.3 n/a n/a n/a Interest Coverage (Operating Cash) 10.5 2.7 9.3 5.8 4.6 n/a n/a
Assets, %
Cash & Equivalents 13.4 14.6 11.3 16.0 15.5 n/a 18.4 Trade Receivables (net) 20.6 19.6 17.9 18.1 19.4 n/a 16.8 Inventory 6.5 6.6 7.4 6.0 7.8 n/a 5.3 All Other Current Assets 4.8 3.6 2.5 4.4 5.1 n/a 5.5 Total Current Assets 45.3 44.4 39.1 44.5 47.6 n/a 46.0 Fixed Assets (net) 44.5 38.1 41.8 37.0 36.9 n/a 31.3 Intangibles (net) 3.7 7.1 5.9 9.2 5.4 n/a 15.8 All Other Non-Current Assets 6.5 10.4 13.2 9.2 10.1 n/a 6.9 Total Assets 100.0 100.0 100.0 100.0 100.0 n/a 100.0 Total Assets ($m) 781.2 1,527.2 1,244.5 1,638.1 43.7 226.4 1,368.1
Liabilities, %
Notes Payable-Short Term 5.2 8.9 4.4 1.8 3.4 n/a 0.9 Current Maturities L/T/D 2.9 5.1 3.0 3.7 4.7 n/a 3.0 Trade Payables 20.6 18.3 9.9 12.4 14.0 n/a 11.8 Income Taxes Payable n/a 0.1 0.3 0.5 0.3 n/a 0.8 All Other Current Liabilities 12.2 13.2 9.0 9.8 5.3 n/a 13.1 Total Current Liabilities 40.8 45.6 26.7 28.1 27.8 n/a 29.7 Long Term Debt 23.5 25.3 30.3 28.0 33.5 n/a 27.8 Deferred Taxes 2.2 1.6 0.2 0.3 n/a n/a 0.8 All Other Non-Current Liabilities 4.9 8.7 4.1 3.0 4.8 n/a 2.5 Net Worth 28.6 18.8 38.8 40.6 34.1 n/a 39.3 Total Liabilities & Net Worth ($m) 781.2 1,527.2 1,244.5 1,638.1 43.7 226.4 1,368.1
Maximum Number of Statements Used 38 43 34 35 14 6 15
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.
WWW.IBISWORLD.COM International Airlines in the US September 2019 35
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
CARGO Goods or produce transported, generally for commercial gain.
CODE-SHARING AGREEMENT An agreement between two airlines to share the same flight; a seat can be purchased on one airline but is actually operated by a cooperating airline under a different flight number or code.
LOAD FACTOR The ratio of the lift on an aircraft to the weight of the aircraft.
OPEN SKIES AGREEMENT An international agreement under which two or more countries permit unrestricted overflight and landing rights to one another.
WWW.IBISWORLD.COM International Airlines in the US September 2019 36
Jargon & Glossary
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.
IBISWorld Glossary continued
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