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									Aviation Industry Update

Prepared for

AASHTO Standing Committee on Aviation
Spring Meeting
Natchez, MS


May 2009
          Overview


             Aviation Industry Metrics
             Proposed United/Continental Merger
             Delta/US Airways Slot Swap
             AIP/PFC Update




         JACOBS CONSULTANCY has offices in Chicago, Cincinnati, Dallas, London, Ottawa, the San Francisco area, and the Washington, D.C. area. For over 60 years, we have assisted our
         clients in achieving their vision and goals. We have extensive practical experience in all disciplines necessary for the planning and management of airports, including airfield and airspace
         analyses, airport management and operation, commercial and concession planning, forecasting and economics, facilities planning and design, federal funding and policy development,
         financial analysis and planning, financial feasibility and reporting, ground transportation planning, air quality analysis, noise and other environmental analyses, privatization, parking
         planning and analysis, rental car facility development and business planning, security planning and implementation, and simulation and operational analyses.

         San Francisco Area Office:                          Washington D.C. Area Office:                             Chicago Area Office:
         555 Airport Boulevard, Suite 300                    14900 Conference Center Drive, Suite 300                 525 W. Monroe Street, Suite 1300
         Burlingame, California 94010                        Chantilly, Virginia 20151                                Chicago, Illinois 60661
         Telephone: (650) 579-7722                           Telephone: (703) 961-9000                                Telephone: (312) 612-6056
         Fax: (650) 343-5220                                 Fax: (703) 961-9318                                      Fax: (312) 655-9706
         E-mail: inquiry@jacobs-consultancy.com              www.jacobs-consultancy.com                               www.jacobs-consultancy.com
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                                                                                                      1                                                          Aviation Industry Update
                                                                                                                                                  AASHTO Standing Committee on Aviation
         Aviation Industry Metrics
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                    2                               Aviation Industry Update
                                     AASHTO Standing Committee on Aviation
         Trends in Aviation Traffic
         The numbers don’t lie


                                                                       2007 to                    2008 to              2007 to
                                                                         2008                       2009                 2009
         Aviation Traffic Metrics              CY 2007    CY 2008      Change    CY 2009          Change               Change

         Total Passengers (millions)             838.2      812.3        -3.1%     769.6             -5.3%                -8.2%

         Domestic Passengers (millions)          679.2      651.7        -4.1%     618.1             -5.1%                -9.0%

         International Passengers (millions)     159.1      160.6        0.9%      151.5             -5.7%                -4.8%

         Flights (thousands)                   11,200.9    10,737        -4.1%   10,027.4            -6.6%              -10.5%

         Available Seat Miles (billions)        1,378.1   1,371.6        -0.5%    1,297.6            -5.4%                -5.8%

         Load Factor (percent)                    79.5          78.6     -1.1%      79.1             -0.4%                -0.5%

         Flight Stage Length (miles)             793.9      811.8        2.3%      811.8             -0.3%                 2.3%
          Source: BTS



                        Aviation traffic declined significantly in almost every measurable category
                                               between CY 2007 and CY 2009.
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                                                            3                                       Aviation Industry Update
                                                                                     AASHTO Standing Committee on Aviation
          Historical Aviation Traffic
          The long-term outlook is optimistic

   Its been a tough few
         years…oil prices                                                 U.S. Carriers Only
                                                                    Scheduled Enplaned Passengers
         soar, SARS, financial   900,000
         markets crash, record              U.S. average growth: 1979-2009: 2.7%
                                                                                                                          '07 to '09: -8.4%
                                 800,000
         unemployment,
                                                                                               '00 to '02: -7.9%
         H1N1, volcanic ash      700,000
         clouds
                                 600,000

   Recent two-year              500,000
         decline is the second             '79 to '81: -10.0%
         worst slump in 30       400,000

         years                   300,000

   Long-term U.S.               200,000
         growth (1979-2009)      100,000
         has averaged 2.7%
         annually                    -
                                           79
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                                                                4                                            Aviation Industry Update
                                                                                              AASHTO Standing Committee on Aviation
           Recent Trends in Air Traffic
          It looks like we’ve turned the corner…


   Traffic declined every
         month from Jan 2009                                                         Total US Enplaned Passengers
         to Feb 2010                                                              Monthly % Change from Previous Year
   March 2010 produced
         0.6% growth                                  09        09       -0
                                                                           9        9               09       09        9       09       09           09       09       09       10        10       -1
                                                                                                                                                                                                     0
                                                    n-       b-       ar         r-0         ay
                                                                                                -
                                                                                                           n-       l-0      g-       p-         ct-        v-       c-       n-       b-       ar
                                                  Ja       Fe        M         Ap           M            Ju       Ju       Au       Se       O            No       De       Ja       Fe        M
   Traffic for 2010 YTD              2.0%                                                                                                                                                0.6%
         (through March) traffic      0.0%
         down 1.0%                                                                                                                                  -0.6%             -0.4%
                                      -2.0%
                                                                                                                              -1.9%
   International traffic is          -4.0%                                                                                                                  -2.8%
         up 2.6% while                                                                                                                 -3.9%                                    -3.7%
         domestic traffic is still    -6.0%                                                                  -5.2%
                                                                         -6.3%                                        -6.1%
         down 1.6%                    -8.0%

                                     -10.0%                                                     -8.6%
                                              -10.2%
                                     -12.0%                     -11.1%            -11.1%

                                     -14.0%            -13.4%
                                     -16.0%


                                     Source: Air Transport Association Monthly Passenger Traffic Report data
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                                                                                        5                                                               Aviation Industry Update
                                                                                                                                         AASHTO Standing Committee on Aviation
           Forecast Aviation Traffic
           FAA’s outlook is for a modest recovery beginning this year

          FAA forecasts a recovery                                                                               U.S. Enplaned Passengers
                                                                                                                 FAA 2010 Aerospace Forecast
           to the 2007 peak by 2013
                                                                       1,000.0
          FAA Forecast annual
                                                                        900.0
           growth
             –2010: 0.5%
                                                                        800.0




                                      Enplaned passengers (millions)
                                                                        700.0
             –2011: 2.1
                                                                        600.0
             –2012: 3.5
                                                                        500.0
             –2013: 3.2
                                                                        400.0
             –2014: 2.8
                                                                        300.0
             –2015: 2.7
                                                                        200.0

          FAA Forecast 2.6%                                            100.0
           from 2009 to 2020                                               0.0
                                                                                 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020
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                                                                                                   6                                                      Aviation Industry Update
                                                                                                                                           AASHTO Standing Committee on Aviation
                 Airline Traffic: Change in Scheduled Seats and Departures
                 by Hub Size, June 2008, 2009 and 2010
                 Trend in capacity reductions appears to be reversing

                                Annual Change in Scheduled Seats                                               Annual Change in Scheduled Departures
                                         (Month of June)                                                                  (Month of June)

     15.0%                                                                                     4.0%
                                                                                               2.0%
     10.0%
                                                                                               0.0%

         5.0%                                                                                  -2.0%
                                                                                               -4.0%
         0.0%
                                                                                               -6.0%

         -5.0%                                                                                 -8.0%

                                                                                              -10.0%
  -10.0%
                                                                                              -12.0%

  -15.0%                                                                                      -14.0%
                     2007 to 2008               2008 to 2009               2009 to 2010                2007 to 2008               2008 to 2009               2009 to 2010


                           Large hub   Medium hub    Small hub   Non-hub    Other                            Large hub   Medium hub    Small hub   Non-hub    Other




                    Compared to the wild ride of 2008 to 2009, the last year has been fairly stable.
                    All eyes are on the strength and sustainability of economic recovery and
                    whether or not this will lead to a significant increase in passenger demand,
                    improved airline balance sheets and new capacity.



                               Source: Jacobs Consultancy/ OAG
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                                                                                          7                                                Aviation Industry Update
                                                                                                                            AASHTO Standing Committee on Aviation
         Airline Traffic: Change in Scheduled Departures by Hub
         Size, Dec. 2001-2009 vs. 2000
         The precipitous declines of 2008 are leveling off



                                           Large-hub        Medium-hub       Small-hub     Non-hub   EAS


                   10.0%
                    5.0%
                    0.0%
                    -5.0%
                   -10.0%
                   -15.0%
                   -20.0%
                   -25.0%
                   -30.0%
                   -35.0%
                              2001       2002        2003      2004      2005       2006      2007   2008       2009



               The last decade was challenging for many communities and airports.
               Capacity was removed from all classes of airports; many secondary
               hubs were shuttered or significantly downsized; and small airports bore
               disproportionate reductions.

                   Source: Jacobs Consultancy/ OAG
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                                                                         8                                           Aviation Industry Update
                                                                                                      AASHTO Standing Committee on Aviation
         Airline Traffic: Change in RJ Scheduled Seats by Hub Size,
         Dec. 2001-2009 vs. 2000
         The RJs are increasing in size


                                             Large-hub      Medium-hub       Small-hub   Non-hub      EAS

                     80.0%

                     60.0%

                     40.0%

                     20.0%

                      0.0%

                    -20.0%

                    -40.0%

                    -60.0%
                                 2001        2002    2003      2004      2005     2006   2007      2008      2009

                The use of regional jets peaked in 2004/2005 as network airlines took
                advantage of the lower labor costs of their affiliates and partners. Since
                then, their use has moderated with higher fuel prices and some up-
                gauging within the industry.
                  Source: Jacobs Consultancy/ OAG
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                                                                         9                                          Aviation Industry Update
                                                                                                     AASHTO Standing Committee on Aviation
                 Airline Traffic: Effects of the Delta/Northwest Merger
                 Change in available seats by month year over year
   Capacity decrease by DL/NW has not greatly exceed the drawdown of other airlines at large and medium hub airports


                                     Large hub airports
         4.0%

         2.0%

         0.0%

         -2.0%

         -4.0%

         -6.0%

         -8.0%

    -10.0%

    -12.0%
                 JAN FEB MAR APR MAY JUN JUL AUG SEP OCT NOV DEC JAN FEB MAR APR MAY JUN JUL AUG SEP OCT NOV DEC

                                      2008                                                                    2009

                                               Delta and Northwest (combined)   All Other Airlines
                                                                                                                                                       Medium hub airports
                                                                                                      5.0%



                                                                                                      0.0%



                                                                                                      -5.0%



                                                                                                     -10.0%

                      Delta and Northwest (combined)
                                                                                                     -15.0%


                      All other airlines                                                             -20.0%
                                                                                                               JAN FEB MAR APR MAY JUN JUL AUG SEP OCT NOV DEC JAN FEB MAR APR MAY JUN JUL AUG SEP OCT NOV DEC

                                                                                                                                    2008                                                           2009

   Source: Jacobs Consultancy/ OAG                                                                                                           Delta and Northwest (combined)   All Other Airlines
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                                                                                                                     10                                                     Aviation Industry Update
                                                                                                                                                             AASHTO Standing Committee on Aviation
               Airline Traffic: Effects of the Delta/Northwest Airlines
               Merger. Change in available seats by month year over year
   Capacity decrease by DL/NW has had a greater effect at the smaller airports

                                         Small hub airports                                                                                                            Non-hub airports
          10.0%
                                                                                         Delta and Northwest                      15.0%
                                                                                         continue to decrease                                                                                                    Delta and Northwest
           5.0%                                                                                capacity                                                                                                          continue to decrease
                                                                                                                                  10.0%
                                                                                                                                                                                                                       capacity
           0.0%                                                                                                                    5.0%


           -5.0%                                                                                                                   0.0%


                                                                                                                                   -5.0%
          -10.0%

                                                                                                                                  -10.0%
          -15.0%
                                                                                                                                  -15.0%
          -20.0%
                   JAN FEB MAR APR MAY JUN JUL AUG SEP OCT NOV DEC JAN FEB MAR APR MAY JUN JUL AUG SEP OCT NOV DEC                -20.0%
                                                                                                                                           JAN FEB MAR APR MAY JUN JUL AUG SEP OCT NOV DEC JAN FEB MAR APR MAY JUN JUL AUG SEP OCT NOV DEC
                                        2008                                                              2009
                                                                                                                                                                2008                                                            2009
                                                  Delta and Northwest (combined)   All Other Airlines
                                                                                                                                                                         Delta and Northwest (combined)   All Other Airlines




                                                  EAS airports
         10.0%
                                                                                                   Delta and Northwest
                                                                                                   continue to decrease
          5.0%
                                                                                                         capacity

          0.0%

          -5.0%

         -10.0%

         -15.0%

         -20.0%

         -25.0%

         -30.0%
                                                                                                                                                       Delta and Northwest (combined)
                   JAN FEB MAR APR MAY JUN JUL AUG SEP OCT NOV DEC JAN FEB MAR APR MAY JUN JUL AUG SEP OCT NOV DEC

                                           2008                                                                       2009                             All other airlines
                                                       Delta and Northwest (combined)         All Other Airlines



   Source: Jacobs Consultancy/ OAG
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                                                                                                                             11                                                                 Aviation Industry Update
                                                                                                                                                                                 AASHTO Standing Committee on Aviation
         Proposed Merger of United Airlines and Continental Airlines
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                                     12                             Aviation Industry Update
                                                     AASHTO Standing Committee on Aviation
         Proposed United – Continental Merger
   Combined carriers would form world’s largest airline

          A Merger of Equals
            – New airline named “United Airlines“
            – Jeff Smisek, chairman and CEO of Continental will serve as United
              Airlines new CEO and sit on the Board.
            – Airlines expect to complete transaction by end of 2010 and have a
              single operating certificate by mid-2012.

          Merger Benefits
            – Worldwide network of 370 destinations
            – Merged airline will have $7.4 billion in unrestricted cash.
            – Anticipated to provide $1.0-$1.2 billion in net annual revenues and
              $800-$900 million in incremental annual revenues.
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                                                13                                Aviation Industry Update
                                                                   AASHTO Standing Committee on Aviation
           Proposed United – Continental Merger

         New livery features Continental’s colors/logo and United Airlines name
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                                                     14                                 Aviation Industry Update
                                                                         AASHTO Standing Committee on Aviation
           Proposed United – Continental Merger

         Carriers claim few competitive concerns by merger

             Air Service Competition
                – Domestic overlap on only 14 routes
                – No international route overlap
                – 76% of all markets subject to low fare competition

             Benefits to Passengers
                – Merger sustains service to small communities and offsets risk to further
                  reductions. (102 small community markets).
                – 81 unique United destinations and 42 Continental destinations
                – 96 unique Continental International destinations most in central and
                  South America, 17 unique United destinations.

             Route Networks
                – Major domestic hubs: EWR, IAD, CLR, ORD, IAH, DEN, LAX, SFO
                – Broad coverage to Asia, Europe, Latin America and Middle East
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                                                    15                                Aviation Industry Update
                                                                       AASHTO Standing Committee on Aviation
         Proposed Slot Swap Between Delta Air Lines and US Airways
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                                    16                            Aviation Industry Update
                                                   AASHTO Standing Committee on Aviation
           Proposed Slot Swap: Delta – US Airways

         Who’s slots are they anyway?

             Regulation of Air Traffic at LaGuardia and National Airports
                – Prior to Jan.1, 2007 LGA operated under High Density Rule
                – AIR-21 eliminated HDR at LGA but traffic congestion remained
                – FAA re-imposed quotas at LGA in 2006 through the “LGA Order”

             LGA Order
                – Originally scheduled to expire in Oct. 2009 was extended to Oct. 2011
                – Incumbent carriers were assigned their existing slot interests at LGA
                – Carriers may lease or trade slots during duration of LGA Order

             FAA Regulation of Slots
                – LGA Order does not allow for purchase or sale of slots at LGA
                – Sale requires an FAA Waiver to allow transaction (sale, lease, etc.)
                – FAA may issue waivers when “the exemption is in the public interest”
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                                                   17                                Aviation Industry Update
                                                                      AASHTO Standing Committee on Aviation
            Proposed Slot Swap: Delta – US Airways

         The art of the deal

             Delta-US Airways petitioned FAA for a permanent exchange of
               several hundred slots at LGA and DCA (August 2009)
                 – Delta gets 140 slot pairs from US Airways at LaGuardia (LGA)
                 – US Airways gets 42 slot pairs from Delta at National (DCA)
                 – Transaction would affect 20% of LGA slots and 10% of DCA slots
             Slot swap would increase airline market dominance
                 – DL share of LGA slots would go from 24% to 49%
                 – US share of DCA slots would got from 44% to 54%
                 – Next largest carrier is American with 19% at LGA and 15% DCA
                 – LCCs have 6.8% of slots at LGA and 3.3% slots at DCA
             FAA Tentative Determination (February 2010)
                 – DL/US must sell slots to carriers with less than 5% market share
                 – 20 slot pairs carved out at LGA
                 – 14 slot pairs carved out at DCA
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                                                    18                                Aviation Industry Update
                                                                       AASHTO Standing Committee on Aviation
           Proposed Slot Swap: Delta – US Airways

         The FAA stands firm

             Delta/US Airways Response (March 2010)
                – “mindful of the concerns expressed by FAA”
                – Entered into provisional slot sale agreements with four carriers
                – 15 LGA slot pairs: 5 each to AirTran, Spirit, and WestJet
                – 4.5 DCA slot pairs: all to jetBlue

             FAA Final Ruling (May 2010)
                – Waiver is conditioned upon FAA’s original terms
                – US Airways divests 20 slot pairs at LGA
                – Delta divests 14 slot pairs at DCA
                – Must make gates/ground facilities available at reasonable terms
             Airlines’ Response
                – Delta is disappointed and reviewing its options
                – US Airways had no comment
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                                                    19                                 Aviation Industry Update
                                                                        AASHTO Standing Committee on Aviation
         AIP/PFC Update
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               20                        Aviation Industry Update
                          AASHTO Standing Committee on Aviation
         2010 Opportunities and Challenges for Aviation Policy

         Things to watch from inside the Beltway

           FAA Funding Authorization
              – Multi-year authorization still pending…now going on 30 months
              – Congress passed short-term 3-month extension through July 3, 2010
              – Extends aviation programs, excise taxes and $3 billion of AIP spending

           Senate version of Reauthorization Bill (March 22, 2010)
              – Raises AIP funding to $4 billion or more per year
              – Excludes provision on National Fire Protections Association standards
              – PFC capped at $4.50

           House version of Reauthorization Bill (March 25, 2010)
              – Raises AIP funding to $4 billion or more per year
              – Includes provision on National Fire Protection Association standards
              – PFC cap raised to $7.00
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                                                   21                              Aviation Industry Update
                                                                    AASHTO Standing Committee on Aviation
           2010 Opportunities and Challenges for Aviation Policy

         Things to watch from inside the Beltway

           PFC Levels Remains Controversial Issue
              – Tends to be supported by larger airports
              – Received support from mayors of ATL, ORD, LAX, PHL, and SFO
              – Supporters claim $100 million per month in lost revenue

           Not Everyone Supports PFC Increase
              – Airlines oppose increasing costs to passengers
              – Small communities concerned about cost and losing air service
              – Current proposal considers a “variable PFC” that excludes small airport
                passengers from paying increase at home and connecting airports

           TSA Administrator Confirmation
              – Perhaps the third time is the charm?
              – White House intends to nominate John Pistole, FBI Deputy Director
              – Over 20 years with FBI in counterterrorism and counterintelligence
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                                                   22                              Aviation Industry Update
                                                                    AASHTO Standing Committee on Aviation
         Questions or Comments


         For any questions or comments regarding this presentation, please
           contact:


                                          Bill Flock
                                     Associate Director
                                    Jacobs Consultancy
                            525 W. Monroe Street, Suite 1350
                                      Chicago, IL 60661
                                       (312) 612-6056
                            Bill.flock@jacobs-consultancy.com
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                                            23                                 Aviation Industry Update
                                                                AASHTO Standing Committee on Aviation

								
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