Airlines - US - April 2018

OVERVIEW
What you need to know
Definition
EXECUTIVE SUMMARY 
Overview
The issues
Profits are under pressure
Figure 1: US gasoline and diesel retail prices, January 2007-December 2017
Figure 2: US average domestic fares, 1995-2015
Pilot shortage
The tech race is on
More flyers, less frequency
Figure 3: Flyer segments, by number of flights in the past 12 months, February 2018
The opportunities
Parents are a prime target for building affinity
Figure 4: Opinions of improved airport experience, any agree, by parental status of children under 18, February 2018
Tech solutions are going to be vital for airlines
Figure 5: Tech used to entertain while traveling, by generation, April 2017
In-flight service should be in-flight enabling
What it means
THE MARKET – WHAT YOU NEED TO KNOW
Airline industry has figured out profitability (for now)
Air travel will be driven by Millennials and iGeneration
The economy will continue to allow travel
Market factors will put stress on airfare profits
MARKET SIZE AND FORECAST
Airlines take advantage of record flyers, strong economy and favorable operation costs
Figure 6: Total US sales and fan chart forecast of market, at current prices, 2012-22
Figure 7: US airline operating revenue and forecast, at current prices, 2012-22
MARKET BREAKDOWN
Airfare still the workhorse
Figure 8: US airline operating revenue, by segment, at current prices, 2015- 2017
Average domestic fares
Figure 9: US average domestic fares, 1995-2015
Airfare revenues to glide forward
Figure 10: US airline airfare revenues and fanchart forecast, at current prices, 2012-22
Baggage fees are now the norm
Figure 11: US airline baggage fee revenues and fanchart forecast, at current prices, 2012-22
Reservation change fees declining
Figure 12: US airline reservation change fee revenues and fanchart forecast, at current prices, 2012-22
Other revenues picking up slack
Figure 13: US airline other revenue and fanchart forecast, at current prices, 2012-22
MARKET PERSPECTIVE
Rise in “bleisure” travel
Demand for low fares keeps airlines in a bind
Millennials still have wanderlust – and now, kids
Be excellent to everyone – but mostly me
Driverless cars still developing
Figure 14: Opinions of driving versus flying, February 2018
MARKET FACTORS 
The economy holds steady…for now
Figure 15: GDP change from previous period, Q1 2007-Q4 2017
Figure 16: Disposable personal income change from previous period, January 2007-December 2017
Figure 17: Unemployment and underemployment, January 2007-December 2017
Figure 18: Consumer Sentiment Index, January 2007-December 2017
Old headaches resurge
Fuel costs have been rising steadily since bottoming out in February 2016. Typically, fuel and labor costs represent the two largest expenditures for airlines.
Figure 19: US gasoline and diesel retail prices, January 2007-December 2017
Labor costs are also undergoing a change in the coming year, and the changes can negatively affect the bottom line.
Continuation of high load factors for carriers
Figure 20: Load factor on all us scheduled airlines (domestic & international), December 2010-May 2017
The heat is on
KEY PLAYERS – WHAT YOU NEED TO KNOW 
Fare wars continue
Airlines teching up
The good: Airlines are getting more efficient
The bad: Americans aren’t flying enough to build loyalty
The ugly: The road ahead is rocky
AIRLINE OVERVIEW
Legacy Carriers
The “Big 3” of American Airlines, Delta Air Lines, and United Airlines, large airlines that were in operation prior to the 1978 industry deregulation
Regional Legacy Carriers (RLCs)
Alaska Airlines and Hawaiian Airlines, which were also in operation prior to deregulation but serve only limited areas
Low-cost Carriers (LCCs)
Southwest Airlines and JetBlue Airways
Ultra-low-cost Carriers (ULCCs)
Spirit Airlines and Frontier Airlines
JetBlue, the tech company?
MARKETING TACTICS OF AIRLINES
Paid internet advertising
Figure 21: Paid online advertising, by airline, March 2017-March 2018
Figure 22: Paid advertising spend, by airline, top domains and platforms, March 2017-March 2018
Root for the away team
Figure 23: Delta Air Lines, desktop display ads – 2017
Taking on OTAs on their turf
Mobile video worth paying attention to
Hawaiian acts on its own
WHAT’S WORKING?
Previous struggles, improving
Best year for bags
Overbooking improved
Delta: the choice of a new generation
WHAT’S STRUGGLING?
Previous struggles, persisting
Broader, but shallower base
Trouble making connections
Digital spending missing the mark
New revenue streams needed
WHAT’S NEXT?
Pilot shortage
United price war
OTA conflict
JVs get the start
Dynamic pricing
Putting data to work
THE CONSUMER – WHAT YOU NEED TO KNOW 
Air travel is on the rise, but not done as frequently
Consumers are still looking for cheap, convenient fares
Individual experience is more important than public perception
Millennials flying at a stressful time…
…but airports can be a source of comfort
Parents want more from their loyalty programs
PAST 12-MONTH AIR TRAVEL 
More people are flying…
Figure 24: Plane travel [domestic] in the last 12 months, by all and domestic travelers, February 2010-March 2017
…less often
Figure 25: Flyer segments, by number of flights in the past 12 months, February 2018
Figure 26: High-frequency and ultra flyers, by gender and age and by household income, February 2018
Black Americans most likely to only travel once per year
Figure 27: Frequent flyer segments, by race/Hispanic origin, February 2016
Younger people are more likely to fly more often
Figure 28: Frequent flyer segments by age group, February 2018
FACTORS IMPACTING AIRLINE SELECTION
Cheap, convenient, and fun – pick two
Figure 29: Factors impacting airline selection, February 2018
Change on the horizon?
Figure 30: Factors impacting airline selection, by generation, February 2018
Figure 31: Preference for JetBlue, by generation, February 2018
PASSENGER BOOKING AND FLYING BEHAVIORS
It’s the economy
Figure 32: Fare classes by trip purpose, February 2018
Direct tactics
Figure 33: Flight booking, airline website vs OTA, February 2018
Figure 34: Airline ticket travel booking methods – nets, by generation, February 2018
TURF Analysis highlights customer desire for low price, security
Methodology
Consumers want price security
Figure 35: TURF Analysis – Desired flight booking services, February 2018
CONSUMER PERCEPTIONS OF AIRLINES
The Southwest affection
Figure 36: Consumer airline preference, February 2018
Figure 37: Consumer preference of Delta versus Southwest, by generation, February 2018
No such thing as bad press?
Figure 38: Influence of news on airline preference, February 2018
Figure 39: Influence of news on airline preference, by generation, February 2018
Figure 40: Preference of airlines of iGeneration and Millennials, February 2018
Experience matters
Figure 41: Opinions of airlines based on experience, February 2018
ATTITUDES TOWARD THE FLYING EXPERIENCE
Turbulent experiences
Figure 42: Opinions on stressfulness of air travel by generation, February 2018
Figure 43: Opinions on stressfulness of air travel, by gender and age, February 2018
Airport as destination
Beyond security
Figure 44: Desire for improved airport experience, February 2018
Figure 45: Opinions of improved airport experience, any agree, by generation, February 2018
Figure 46: Opinions of improved airport experience, any agree, by parental status of children under 18, February 2018
ATTITUDES TOWARD TECHNOLOGY
Great techspectations
Figure 47: Tech used to entertain while traveling, by generation, April 2017
Figure 48: In-flight tech: Use and interest, April 2017
Business travelers becoming iAcoccas
Figure 49: Tech used while traveling, by type of travel, April 2017
Figure 50: Airline and airport tech – any use and interest, by type of travel, April 2017
ATTITUDES TOWARD LOYALTY AND DIFFERENTIATION
Enrollment increasing
Figure 51: Frequent flyer enrollment and airline programs, 2009-2017
Figure 52: Airline loyalty program membership, by generation, February 2018
Delta coming on strong
Figure 53: Membership in Delta and Southwest loyalty programs, by generation, February 2018
Figure 54: Delta loyalty member emails, targeted to Baby Boomers – March-July 2017
Figure 55: Delta loyalty member emails, targeted to Millennials – 2nd half 2017
Turning experience into unique possessions
Figure 56: Heart of Travel case study video stills, March 2018
Family loyalty
Figure 57: Airline loyalty membership by age of children in household, February 2018
Figure 58: Appeal of hypothetical airline amenities, parents vs. non-parents, February 2018
APPENDIX – DATA SOURCES AND ABBREVIATIONS
Data sources
Sales data
Fan chart forecast
Consumer survey data
Direct marketing creative
Abbreviations and terms
Abbreviations
Terms
APPENDIX – THE MARKET 
Figure 59: US airline operating revenue and forecast, at inflation-adjusted prices, 2012-22
Figure 60: US airline operating revenue and forecast, at current prices, 2012-22
Figure 61: Total US retail sales of airlines, by segment, at current prices, 2015 and 2017
Figure 62: US airline airfare revenues and forecast, at current prices, 2012-22
Figure 63: US airline airfare revenues and forecast, at inflation-adjusted prices, 2012-22
Figure 64: US airline baggage fee revenues and forecast, at current prices, 2012-22
Figure 65: US airline baggage fee revenues and forecast, at inflation-adjusted prices, 2012-22
Figure 66: US airline reservation change fee revenues and forecast, at current prices, 2012-22
Figure 67: US airline reservation change fee revenues and forecast, at inflation-adjusted prices, 2012-22
Figure 68: US airline other revenues and forecast, at current prices, 2012-22
Figure 69: US airline reservation change fee revenues and forecast, at inflation-adjusted prices, 2012-22
APPENDIX – KEY PLAYERS 
Figure 70: Net income of top 10 US carriers, 2011-2016