1. US Airline Industry Today
B. Ben Baldanza

2. My Background Eleven years as CEO of Spirit Airlines
Six Years as SVP of US Airways
Three Years as President of TACA
Three Years as SVP of Continental
Early Years at American, Northwest, and UPS
SU ‘84 and Princeton ’86*
* Dr. Kornhauser was a teacher and advisor

3. Major Airline Theme: Consolidation
Eight Large Airlines Down to Four
DL/NW
UA/CO
WN/FL
AA/US
80% + of Domestic US Passengers
Highs Costs, Intransigent Labor

4. Major Airline Theme: High Fuel Costs
Rapid Fuel Price Increase Started Consolidation Wave
Contributed to Legacy Adoption of Ancillary Charges
Encourages Up-gauging of Fleet
Discourages New Start-ups

5. Major Airline Theme: ULCC Growth
Spirit, Frontier, and Allegiant now Carry About 4% of all US Air Travelers
RyanAir + Clones in Europe Carry 20%
Likely ULCC Penetration Rate in US is 10%-15% Due to Southwest
Still From Today That Means a Tripling in Size

6. Major Airline Theme: Ancillary Growth
Ancillary Revenues Have Structural Benefits to Ticket Revenues:
Price Elasticity
Harder to Match Fares
Reduced Excise Taxes
Dampen Seasonality
Gives Pricing Power to Consumers
But Often at the Cost of Consumer Expectations Mismanagement

7. Major Airline Theme: Encroaching Regulation
Newest Regulations Based on “Unfair and Deceptive” Standard
Is $80+$20 = $100 more deceptive than $100? The DOT says so!
Social Media Creates Action Due to Availability Bias
Tarmac Rule, Full Fare Rule, FAR 117, 1500 Rule, 24-Hour Rule all Based on Politics versus Economics or Safety

8. Airline Competition Is Evolving: Yield Management
Yield Management Is Getting Smarter
Started as a Way to Sell More Low Fares Without Diluting Business Fares
Now Combined With Physical Delivery
“Basic Economy” Idea Is Smart
Better Way for High Cost carriers to Compete with Low Cost Carriers

9. Airline Competition Is Evolving: Stuck in the Middle
“Big 4” are Clear, ULCCs are Clear, Others “Stuck in the Middle”
JetBlue, Alaska, Virgin, Hawaii
Over Time, Need to Move “Up, Down or Out”
Frontier the First Example
Alaska and Virgin have merged
JetBlue Moving Both Ways at Once!

10. Airline Competition Is Evolving: Real Estate
Limited Access to Big Cities is Huge Competitive Advantage
New Gates Swallowed Up by Big Carriers as Available (ATL)
Airport Pricing Held Hostage (MIA)
Keeps Fares High
Keeps Competition Limited

11. Airline Competition Is Evolving: Product Bifurcaction
Just Like Other Products
Consumer Reluctance to Change
Moving Away From “Serving the Whole Market”
Even Worldwide Alliances Get This
Compete, But Only As Needed

12. What’s Next? Increased Labor Costs More ULCC Growth
Clarification of Business Strategies
Limited or No New Start-ups
Increased Consumer Acceptance of New Models
Trump Administration Likely to Rollback Some Regulation

13. Questions?