OW Raymond James 2012 FINAL

February 2012
airline economic analysis
By:
Bob Hazel
Tom Stalnaker
Aaron Taylor
Table of Contents
Summary
Carriers Included and Methodology
Cost
1. System CASM Increase
2. Domestic CASM Increase
3. Long-Term Domestic CASM Trends
4. Fuel Prices
5. Value Versus Network Carrier Domestic CASM Comparison, with and

Without Fuel
6. Use of More Efficient Aircraft
7. Regional Aircraft Efficiency
11
8. Individual Value Carrier Domestic CASMs
12
9. Individual Network Carrier Domestic CASMs
14
10. Stage-Length-Adjusted Individual Carrier CASMs
15
11. Direct CASMs for Smaller Narrowbody Aircraft Operated by the

Same Carrier
16
Revenue
18
12. RASM Increase
18
13. Network/Value Carrier Domestic RASM Gap
19
14. Changes in US Airline Revenue over Time
19
15. RASM Adjusted for Stage Length
20
16. Baggage and Cancellation Fees
21
Margin
24
17. RASM/CASM Margin
24
18. Domestic RASM/CASM Margin
25
19. Break-Even Load Factors
26
20. Changing Capacity in the US Domestic Market
29
Copyright 2012 Oliver Wyman
21. Changing Fleet Composition in the US Domestic Market
30
22. International Portion of US Network Carrier Revenue
31
23. Revenue Growth Drivers
32
International Carriers
35
24. Air Service Provided by Value Carriers Around the World
35
25. Stage-Length-Adjusted Costs for International Carriers
36
Conclusion
Copyright 2012 Oliver Wyman
37
Summary
In our annual economic analysis, the following changes
affecting US airlines stand out since last year (Q2 2010 Q2 2011):
Cost
1. CASM Increase Both network and value carriers experienced much larger CASM
increases than last year, driven by fuel-price increases. The average network carrier
CASM increased by less than the average value carrier CASM.
2. Network/Value Carrier Domestic CASM Gap The domestic CASM gap between
network and value carriers has now declined for the fourth consecutive year and is the
smallest ever.
3. Network/Value Carrier Fuel Cost Gap Historically, value carriers have had a fuel
cost advantage because of their newer fleets and, at one time, Southwest Airlines
advantageous hedge positions. However, network carriers have closed the gap by
transitioning to newer technology aircraft.
4. Fuel Consumption In an era of high fuel prices, the continuing growth of the
large regional aircraft fleet is easy to understand, as airline operating cost data show
that the smaller regional aircraft consume much more fuel per seat hour than the
large regionals.
5. Aircraft Seat Size For carriers that operate multiple narrowbody types, there are
sharp operating cost differences between the larger and smaller aircraft.
Revenue
6. RASM Increase Both network and value carriers experienced smaller RASM increases
than last year, as carriers were unable to pass on all of their increased costs. The average
network carrier RASM increased by less than the average value carrier RASM.
7. Network/Value Carrier Domestic RASM Gap The domestic RASM gap between
network and value carriers declined and amounts to only about a 6% premium for
network carriers.
8. Revenue Growth Among US network carriers, nearly all domestic revenue growth
this past year was the result of yield increases, while their international revenue growth
was the result of yield increases and additional passengers. Among US value carriers,
revenue growth was driven by yield increases and additional passengers.
9. Ancillary Revenue Revenue from reservation change fees and bag fees has
substantially leveled off. Other miscellaneous sources of ancillary revenue continue to
grow. Most carriers generate 5%-11% in fees above their ticketed revenue.
Copyright 2012 Oliver Wyman 1
10. International Operations The proportion of US network carrier revenue generated

by international operations reached a new highwith Latin America having surpassed
the Pacific region and growing most rapidly.
Margins
11. Margins Despite strong cost control, network carriers did not make a profit on
their domestic operations, as measured by a comparison of total RASM/CASM, while
value carriers did. Network carriers remained slightly profitable because of their
international operations.
12. Break-even Load Factors Domestic load factors have been steadily increasing,
while operating profits have not. With the largest network carriers having load factors
in the mid-80s, while the largest value carriers have load factors in the low 80s, future
profitability improvements will depend on yield increases or cost reductions, as there is
little room for additional load factor growth.
13. Domestic Capacity Growth Regional carriers are no longer a growth business. In
2011, regional capacity in ASMs declined even more than network carrier ASMs. Only
value carriers eked out a small increase in domestic capacity.
14. Value Carriers Around the World Value carriers are steadily gaining market share
around the world. Oceania has the highest percentage of ASMs provided by value
carriers. South America and the Middle East have the lowest percentages.
15. International Carriers RASK/CASK Cross-country RASK/CASK comparisons
for international carriers are limited by foreign exchange and financial reporting
differences. However, our analysis shows the same trends for international carriers as
among US carriers. In all regions, the value carriers have lower unit costs than their
network carrier rivals. Ryanair and Air Asia have CASKs that are a step lower than even
the value carriers in those regions.
CARRIERS INCLUDED
AND METHODOLOGY
The largest US value carriers are included in this analysis, as are the largest US network
carriers. The carriers included comprise over 85% of US carrier ASMs.1
Our set of value carriers (low-cost):
1. AirTran
2. Allegiant
3. Frontier
4. JetBlue
5. Southwest
6. Spirit
7. Virgin America
Our set of network carriers:

1. Alaska
2. American
3. Continental
4. Delta
5. Hawaiian
6. Northwest2
7. United
8. US Airways
We have based most of the analysis on second quarter 2011 data, which is the most recent
US DOT (Form 41) data available. In past years, we have used third quarter data, but DOTs
data releases have increasingly lagged the reporting period, and third quarter data was
not available in time for this report. Still, DOT data was used instead of SEC filings to permit
comparisons of specific equipment types and ensure that non-airline-related costs did
not dilute the specific focus on airline costs. For US carrier comparisons, we have used
data either from the most recent quarter or the most recent four quarters, as appropriate.
For carriers outside the US, we have used the most recent reporting period available on a
comparative basis.
1
The primary category not included is regional carriers, which provide most of their capacity under Capacity Purchase Agreements
(CPAs). Regional carriers have different expense payment arrangements in the CPAs with their mainline partners, and the number
of expense categories paid directly by mainlines and not appearing in the regional carriers costs has increased over time. Fuel and
aircraft ownership were among the first to be directly paid in some CPAs; more recently, some mainlines have taken over payment
for ground handling and engine maintenance. As a result, comparing total CASM across regional carriers and aircraft may be very
misleading. Instead, our report provides a fuel consumption comparison of regional aircraft.
Northwest data is prior to 2010.
Unless indicated otherwise, the revenues and costs provided are for mainline domestic
operations only. We have removed the revenues and costs associated with the carriers
regional affiliates by correcting for their transport-related revenues and cost although
it is impossible to do so with absolute precision. Weighted averages are used for
carrier groupings.
Cost
1. System CASM Increase
The average network carrier CASM increased by 11.4% from 11.9 to 13.2, while the
average value carrier CASM increased even more by 16.8% from 10.3 to 12.1. The
increases were driven primarily by fuel costs. As a result, the network carrier CASM
disadvantage to the value carriers declined from 15.0% in Q2 2010 to 9.6% in Q2 2011. This
relatively small cost disadvantage is a far cry from the much larger gaps of previous years.
Exhibit 1: System CASM by group
(Q2 2010/2011)
15
13.2
13.0
12.1
11.9
11.5
COST PER ASM (CENTS)
10.3
10
0
2010
2011
Our airline sample overall
2010
2011
2010
Average for network carriers

(Alaska, American, Continental, Delta,
Hawaiian, Northwest, United,
US Airways)
Labor
Fuel
2011
Average for value carriers

(AirTran, Allegiant, Frontier, JetBlue,
Southwest, Spirit, Virgin America)
Other
Source: PlaneStats.com for Q2 2010 and Q2 2011. Mainline operations only. Excludes transport-related revenue and cost (regionals)
2. Domestic CASM Increase

The average network carrier domestic CASM increased by 10.5%, from 12.4 to 13.7,
while the average value carrier CASM increased even more by 17.3%, from 10.4 to 12.2.
As a result, the network carrier domestic CASM disadvantage to the value carriers declined
from 19.2% in Q2 2011 to 12.3% in Q2 2011. The value carrier results are heavily impacted
by Southwest, which provided 54% of value carrier domestic ASMs and collected 56%
of value carrier domestic revenue. Of the three cost categories shownlabor, fuel, and
othernetwork carrier CASM increased only in the fuel area, while value carrier CASM
increased in each of the three areas.
Exhibit 2: Domestic CASM by group
(Q2 2010/2011)
15
13.7
13.2
12.4
11.8
12.2
10.4
10
0
2010
2011
2010
2011
2010

US Airways)
Labor
Fuel
2011

Other
Source: PlaneStats.com. Mainline operations only. Excludes transport-related revenue and cost (regionals).
3. Long-term Domestic CASM Trends

Exhibit 3 shows the domestic CASM differential between network and value carriers broken
into Fuel and Other for the 2nd quarter of each year from 2005 through 2011.
Exhibit 3: Comparison of Domestic CASM between network and
value carriers over time
16
14.4
13.7
14
12
3.7
11.7
11.4
8.0
9.0
2.6
11.8
10.7
10.6
10
12.4
2.5
8.9
2.8
9.3
12.2 1.5
10.4 2.0
2.5
6
4
2
2005 Q2
2006 Q2
2007 Q2
Fuel
2008 Q2
Other
2009 Q2
2010 Q2
Value
Cost Gap
Network
Value
Cost Gap
Network
Value
Cost Gap
Network
Value
Cost Gap
Network
Value
Cost Gap
Network
Cost Gap
Value
Network
Value
Cost Gap
Network
2011 Q2
Difference
The domestic CASM gap between network and value carriers has now declined for the
fourth consecutive year and is the smallest ever. The table below shows the declining gap in
percentage terms:
Network carrier CASM %

higher than value carrier CASM
2008 Q2
2009 Q2
2010 Q2
2011 Q2
34.6%
27.1%
19.2%
12.3%
One reason for the declining gap is the change in fuel cost for network versus value carriers,
which will be discussed next.
4. Fuel Prices
As of Q2 2011, the average fuel price was the second highest since 2001, exceeded only
by the mid-2008 peak. From Q2 2010 to Q2 2011, the network carrier domestic fuel CASM
increased from 3.5 to 4.6, while the value carrier fuel CASM increased from 3.4 to 4.7.
During Q2 2011, fuel costs amounted to 38.5% (up from 32.7% in Q2 2010) of the average
value carrier domestic CASM and 33.6% (up from 28.2% in Q2 2010) of the average network
carrier CASM.
Exhibit 4 shows the average fuel price paid by US carriers in comparison to the average
spot price. Where the system average is lower than the spot price, as was the case through
mid-2011, carriers are benefiting from effective hedging. Conversely, during much of 2009
and 2010, carriers were losing money on their hedges as lower prices were available in the
market on a spot basis.
Exhibit 4: System average fuel price (US carriers) and fuel spot price
(January 2001November 2011)
400
Carriers benefit from
future buys
350
CENTS PER GALLON
300
Carriers penalized
by future buys
250
200
tion
Stabiliza
150
100
2001
2002
2003
2004
2005
2006
2007
2010
Nov
Jul
Sep
May
Jan
Mar
Jul
Sep
Fuel spot price

May
Jan
Mar
Nov
Jul
2009
Sep
Mar
May
Q3
2008
Jan
Q1
Q3
Q1
Q3
Q1
Q3
Q1
Q3
Q1
Q3
Q1
Q3
Q1
Q3
Q1
System average fuel price
Nov
50
2011
Source: Oliver Wyman research based on US DOT (Form 41) Fuel Cost and Consumption Report and US Energy Information
Administration data.
5. Value versus Network Carrier Domestic

CASM Comparison, With and Without Fuel
Historically, value carriers have had a fuel cost advantage because of their newer fleets and,
at one time, Southwest Airlines advantageous hedge positions. However, network carriers
have completely closed the gap.
As shown in Exhibit 5, since late 2009, network carrier fuel costs have been tracking very
close to value carrier levels. Q2 2011 is the first time that the network carrier domestic fuel
CASM has been slightly lower than the value carrier fuel CASM. In a business where every
0.1 in CASM counts, this is significant. For historical perspective, see the 2008 fuel price
peak in Exhibit 5, where the network carrier CASM of 5.9 far exceeded the value carrier
CASM of 4.5.
Exhibit 5: CASM and fuel CASM growth (Q1 2007Q2 2011)
12
10
8
6
4
2
0
Q1
Q2
Q3
Q4
Q1
Q2
2007
Network CASM ex-Fuel
Q3
Q4
Q1
2008
Q2
Q3
Q4
Q1
Q2
2009
Fuel CASM
Value CASM ex-Fuel
Q3
2010
Q4
Q1
Q2
2011
Value Fuel CASM
Source: PlaneStats.com. Mainline operations only. Excludes transport-related cost (regionals).
Apart from showing the convergence of fuel costs between the two groups, Exhibit 5 also
shows the narrowing of CASM excluding Fuel (ex-Fuel CASM) between network and value
carriers over time. Putting aside quarterly swings, the network carrier ex-Fuel CASM has
been generally flat since 2008, while the value carrier ex-Fuel CASM has been trending
upwards slightly. As noted previously, the value carrier results are heavily influenced by
Southwests large proportion of value carrier ASMs.
6. Use of More Efficient Aircraft

Network carriers have been upgrading their fleets and replacing old technology aircraft with
new, fuel-efficient aircraft. The result, as discussed, has been to eliminate the fuel efficiency
advantage enjoyed by value carriers. The transition to new technology aircraft is shown in
Exhibit 6. For purposes of this analysis, the 737-700/800/900 and A318/319/320/321 are
considered new-generation aircraft.
Exhibit 6: Proportion of Domestic aircraft days flown by new and old
technology aircraft (YEQ2 2006YEQ2 2011)
NETWORK
VALUE
100%
100%
New Technology
52.3%
80%
80%
New Technology
69.2%
69.8%
60%
60%
40%
40%
20%
72.9%
Old Technology
20%
Old Technology
0%
YEQ2 2011
YEQ4 2010
YEQ2 2010
YEQ4 2009
YEQ2 2009
YEQ4 2008
YEQ2 2008
YEQ4 2007
YEQ2 2007
YEQ4 2006
YEQ2 2006
YEQ2 2011
YEQ4 2010
YEQ2 2010
YEQ4 2009
YEQ2 2009
YEQ4 2008
YEQ2 2008
YEQ4 2007
YEQ2 2007
YEQ4 2006
YEQ2 2006
0%
Source: PlaneStats.com. Mainline operations only.
Exhibit 7 shows the general correlation between fuel efficiency and aircraft age, and also
points to the tendency to fly newer aircraft on longer stage lengths, where fuel makes up a
higher portion of total operating costs. The similar results for aircraft <5 and 510 years old is
largely due to the fact that many aircraft in the 510 year age category are close to the 5-year
point in that range. (The average age of aircraft in the 510 year group is 7 years.) The 510
year group in fact has lower reported fuel burn per seat hour than the 05 group, reflecting
differences in aircraft mix and seat configuration between the two groups.
GALLONS OF FUEL PER SEAT HOUR
Exhibit 7: Fuel burn versus aircraft age and average stage-length

Median
andVERSUS
high-low
fuel AGE
burns
by carrier
sample (YEQ2 2011)
FUEL BURN
AIRCRAFT
ANDreported
AVERAGE STAGE
LENGTH
7.0
6.91
6.0
5.98
6.19
6.03
6.10
5.11
5.23
5.57
5.0
5.19
4.84
4.0
3.82
3.0
2.82
2.0
> 15 Years
10-15 Years
5-10 Years
< 5 Years
AIRCRAFT AGE
Average Stage
Length (miles)
677
1,021
1,071
1,230
Not surprisingly, there is a similar correlation between aircraft age and maintenance cost,
shown in Exhibit 8. The maintenance cost per ASM more than doubles between the 510 year
age group and the 1015 year age group. As with the previous chart, the 05 and 510 year
groups have similar costs because of the disproportionate number of 510 year old aircraft
that are in the younger years of that group, as well as differences in aircraft mix and seat
configuration.
Exhibit 8: Maintenance cost versus aircraft age and stage length

median and high-low maintenance costs reported by carrier sample
(YEQ2
2011)
MAINTENANCE
COST VERSUS AIRCRAFT AGE AND AVERAGE STAGE LENGTH
MAINTENANCE COST PER ASM
7.0
6.0
5.99
5.0
4.0
3.85
3.0
2.59
2.0
1.0
1.61
1.71
0.99
0.98
1.59
0.83
0.32
0.0
> 15 Years
10-15 Years
5-10 Years
0.63
0.40
< 5 Years
AIRCRAFT AGE
Average Stage
Length (miles)
693
937
1,019
1,213
7. Regional Aircraft Efficiency

As shown in Exhibit 9, the fastest growing aircraft segment is the large regional segment. In
an era of high fuel prices, the continuing growth of this fleet is easy to understand. Based on
airline operating cost data for the year ended Q2 2011, the smallest regionals consume much
more fuel per seat hour than the large regionals. The ERJ-135, for example, consumes 84%
more fuel per hour than the ERJ-175.
Exhibit 9: Regional aircraft gallons per seat hour (YEQ2 2011)

12
10.1
GALLONS PER SEAT HOUR
10
8.5
8
6
5.5
5.7
6.1
6.2
6.3
CRJ 900 (78)
CRJ 200 (50)
6.8
6.8
7.0
CRJ 100 (50)
ERJ-170 (72)
ERJ-145 (50)
4
2
0
ERJ-175 (80) ERJ 190 (100) CRJ 700 (66)
ERJ-140 (44)
ERJ-135 (37)
AIRCRAFT (SEATS)
Source: PlaneStats.com.
8. Individual Value Carrier Domestic CASMs

Each of the value carriers experienced domestic CASM increases over the one-year term
between Q2 2010 and Q2 2011, ranging from 0.7 to 3.6. These changes are largely driven
by the increase in fuel prices, and are much greater than last year when the range was 0.3
to 0.9. Spirit, which had the lowest CASM last year, again had the lowest CASM at 9.8.
The largest increases were at Frontier, which was in the middle of restructuring; AirTran,
which had just been acquired by Southwest; and Allegiant, whose fleet of older aircraft is
disproportionately affected by higher fuel prices. Of the set of seven value carriers, only
Spirit increased costs by less than 10 percent.
Exhibit 10 shows the domestic CASM for each of the value carriers, ranked from low to
high. These rankings are not adjusted for stage length, and that adjustment will change
the rankings.
Exhibit 10: Domestic CASM breakdown by airlinevalue carriers

(Q2 2010/2011)
15
11.4
11.1
9.1
10
9.8
9.2
11.0
13.0
12.8
12.6
11.6
10.4
9.9
9.4
8.9
0
2010 2011
Spirit
2010 2011
2010 2011
Virgin America
JetBlue
2010 2011
Allegiant
Labor
Fuel
2010 2011
Southwest
2010 2011
AirTran
2010 2011
Frontier
Other
Source: PlaneStats.com for Q2 2010 and Q2 2011. Mainline operations only. Excludes transport-related revenue and cost (regionals).
Individual carrier details are shown below:

Exhibit 11: Domestic CASM details for individual carriers
airli ne
Year
casm
Labor
Fuel
Other
Spirit
2010
9.10
1.81
2.99
4.30
2011
9.82
1.70
4.17
3.95
Virgin
JetBlue
Allegiant
Southwest
AirTran
Frontier
2010
9.16
1.44
3.11
4.61
2011
11.05
1.44
4.21
5.40
2010
9.86
2.68
3.13
4.05
2011
11.41
2.66
4.56
4.19
2010
8.87
1.64
3.78
3.45
2011
11.58
1.80
5.65
4.13
2010
10.99
3.71
3.50
3.78
2011
12.57
3.82
4.65
4.10
2010
10.40
2.25
3.51
4.64
2011
12.84
2.40
5.12
5.32
2010
9.42
1.96
2.87
4.59
2011
13.03
2.33
4.77
5.93
Increase
Increase %
0.72
7.9%
1.89
20.6%
1.55
15.7%
2.71
30.6%
1.58
14.4%
2.44
23.5%
3.61
38.3%
Of the value carriers, Allegiant had the highest fuel CASM in Q2 2011, while Southwest had
the highest labor CASM.
9. Individual Network Carrier

Domestic CASMs
Each of the network carriers experienced domestic CASM increases over the one-year term
between Q2 2010 and Q2 2011, ranging from 0.9 to 1.5. Hawaiian was the one exception
with a greater increase, linked to a one-time fleet transition event (lease termination costs
related to its Boeing 717 aircraft purchase, which its Q2 financials reported to have added
2.35 to its CASM). See Exhibit 12. As with the value carriers, these changes are largely driven
by the increase in fuel prices, and are much greater than last year.
Alaskawhich had the lowest CASM among the network carriers last yearagain had the
lowest CASM at 10.9. The largest increase was for Hawaiian at 44%, a one-time event that
should not be viewed as indicative. Other increases fell within the 7.0% to 12.3% range,
consistent with the lower end of the range of the increases for the value carriers. The CASMs
are grouped tightly among the largest network carriers, with Delta slightly higher than the
others. As with the value carriers, these are not stage-length adjusted CASMs.
Exhibit 12: Domestic CASM by breakdown by airlineNetwork carriers
(YEQ2 2010/2011)
20
17.2
15
13.2
12.1
12.5
2010 2011
2010 2011
Alaska
Continental
11.9
13.7
13.6
13.4
14.5
13.2
12.1
12.2
2010 2011
2010 2011
2010 2011
2010 2011
2010 2011
American
US Airways
United
Delta
Hawaiian
11.9
10.9
10
Labor
Fuel
Other
Individual carrier details are shown below:

Exhibit 13: Domestic CASM Details for individual carriers
airli ne
Year
casm
Labor
Fuel
Other
Alaska
2010
10.93
3.44
2.96
4.53
2011
11.94
3.19
4.32
4.43
Increase
Increase %
1.01
9.2%
Continental
2010
12.10
3.76
2.89
5.45
2011
13.22
3.83
3.96
5.43
American
2010
12.51
3.86
3.58
5.07
2011
13.38
3.78
4.48
5.12
US Airways
2010
12.07
3.03
3.58
5.46
2011
13.56
2.93
4.94
5.69
United
2010
12.20
3.44
3.50
5.26
2011
13.70
3.90
4.26
5.54
Delta
2010
13.18
3.91
3.90
5.37
2011
14.51
3.80
4.88
5.83
Hawaiian
2010
11.91
3.02
3.15
5.74
2011
17.16
2.89
4.81
9.46
1.12
9.3%
0.87
7.0%
1.49
12.3%
1.50
12.3%
1.33
10.1%
5.25
44.1%
10. Stage-Length-Adjusted Individual

Carrier CASMs
Using an accepted stage-length adjustment method, we recomputed the Q2 2011 domestic
CASM for each carrier based on a standardized stage length of 1,000 miles. Exhibit 14 shows
the results: Spirit remains the lowest cost value carrier, followed by Southwest and Allegiant.
Among the network carriers, Alaska and US Airways have the lowest costs. Alaskas costs are
lower than two of the value carriersVirgin America and Frontier. In comparison to last year,
the major changes involve Hawaiian and Allegiant for the reasons mentioned previously. Of
the three largest network carriers, Americans stage-length adjusted CASM was slightly less
than Delta and the United/Continental system.
Exhibit 14: Domestic CASM by airlinestage-length adjusted to 1,000 miles

(Q2 2011)
United
14.7
Continental
14.3
Hawaiian
14.1
Delta
14.0
American
13.7
US Airways
13.0
Virgin America
12.8
Frontier
12.8
Alaska
12.3
AirTran
11.8
JetBlue
11.7
Allegiant
11.1
Southwest
11.0
Spirit
9.6
10
SLA = CASM * ((SL/1000)^0.3333)
12
14
16
SLA COST PER ASM (CENTS)
Source: PlaneStats.com for Q2 2011. Mainline operations only. Excludes transport-related revenue and cost (regionals).
11. Direct CASMs for Smaller Narrowbody

Aircraft Operated by the Same Carrier
Traditionally, value carriers operated with a single aircraft type, although that has changed
over time. Three value carriers in our sample, Frontier, JetBlue, and the Southwest/AirTran
system, currently operate two different narrowbody aircraft. Exhibit 15 illustrates how the
smaller aircraft compare in efficiency with the larger aircraft.
Exhibit 15: Direct CASM plotted against average stage length by aircraft
type, actual fuel prices (YEQ2 2011)
11
JetBlue
E190 (100 seats)
10
AirTran
717-200 (117 seats)
DIRECT CASM
Frontier
A318 (120 seats)
Southwest
737-700/LR (137 seats)
AirTran
737-700/LR (137 seats)
Frontier
A320 (162 seats)
JetBlue
A320 (150 seats)
5
4
400
500
600
700
800
900
1,000
1,100
1,200
1,300
1,400
STAGE LENGTH
Source: PlaneStats.com for Q2 2011. Mainline operations only. Costs include direct aircraft operating expenses. Direct costs include pilots,
fuel, aircraft ownership, maintenance and insurance. Indirect expenses not reported by aircraft type.
The values plotted are for Direct CASM onlythe direct operating costs reported by the
carriers on DOT Form 41, including pilots, fuel, aircraft ownership, maintenance, and
insurance. Indirect costs are not included because the carriers may allocate these in different
ways. To smooth out quarterly variations caused primarily by maintenance requirements,
the data is for the full year ending Q2 2011.
Frontiers A320 has the lowest unit costs measured on a Direct CASM basis when stagelength is taken into account, much lower than Frontiers A318, which is being retired. The
results of Frontiers most recent restructuring are not included in the chart, which is for the
year ending Q2 2011.
AirTrans 737-700, which had the lowest unit costs last year, now has significantly higher
unit costs than the same Southwest aircraft. AirTrans 117-seat 717 has the highest unit
costs of the three narrowbodies within the Southwest/AirTran fleet, although still lower than
JetBlues 100-seat E190.
JetBlues two aircraft have very different stage lengths and Direct CASMs, at 684 miles and
approximately 6 for the E190, versus 1278 miles and 10 for the A320. For the E190 to be
successful, it requires a different mission than the A320, as the smaller aircraft has much
higher direct costs and therefore would not be successful in a low-fare environment.
REVENUE
12. RASM Increase
Both network and value carriers experienced much smaller RASM increases from Q2 2010
to Q2 2011 than they did during the prior year, as carriers were unable to pass on all of their
increased costs. From Q2 2010 to Q2 2011, RASM for the average network carrier increased
by 7.3%, less than the average value carrier RASM increase of 11.4%. By comparison,
network carrier RASM increased by 20.3% from Q2 2009 to Q2 2010, while value carrier
RASM increased by 14.9%. RASM has been trending upwards for both network and value
carriers since early 2009. See Exhibit 16.
Exhibit 16: RASM growth (Q1 2007Q2 2011)
15
REVENUE PER ASM (CENTS)
14
13
12
11
10
9
8
Q1
Q2
Q3
2007
Q4
Q1
Q2
Q3
Q4
2008
Network RASM System

Value RASM System
Q1
Q2
Q3
Q4
Q1
2009
Q2
Q3
Q4
2010
Q1
Q2
2011
Network RASM Domestic

Value RASM Domestic
Source: PlaneStats.com. Mainline operations only. Excludes transport-related revenue (regionals).
13. Network/Value Carrier Domestic

RASM Gap
The domestic RASM gap between network and value carriers declined from 2010 and,
during Q2 2011, amounted to only about a 6% premium for network carriers. As shown in
Exhibit 17, the RASM gap has declined nearly every year since 2007.
Exhibit 17: Comparison of Domestic RASM between network and
value carriers over time (Q2 2005Q2 2011)
16
14
0.9
REVENUE PER ASM (CENTS)
13.6
12
11.7
10
10.1
1.5
11.9
10.2
1.3
12.4
1.8
1.9
9.9
11.5
1.0
11.0
10.6
12.8
1.1
12.6
9.9
8.8
8
6
4
2
2005 Q2
2006 Q2
2007 Q2
2008 Q2
2009 Q2
2010 Q2
Value
Rev. Gap
Network
Value
Rev. Gap
Network
Value
Rev. Gap
Network
Value
Rev. Gap
Network
Value
Rev. Gap
Network
Rev. Gap
Value
Network
Value
Rev. Gap
Network
2011 Q2
Source: PlaneStats.com. Mainline operations only. Excludes transport-related revenue (regionals).
14. Changes in US Airline Revenue over Time

Exhibit 18 shows US airline revenue over the past ten years, including revenue from cargo,
regional carriers (Transport Revenue), and service fees. All US carriers are included in the
chart. Peak revenue for the decade occurred during YEQ3 2008. Revenue declined sharply
the following year, and has nearly reached the peak again in current dollars. Despite all the
public discussion of fees collected beyond the ticket price, the chart shows that they remain
a small percentage of airline revenue. A more detailed discussion of the sources and drivers
of airline revenue follows.
Exhibit 18: Operating revenue, all reporting carriers, including transport revenue
(YEQ3 2001YEQ2 2011)
OPERATING REVENUE (BILLIONS)
$200
$180
Reservation Fees
Baggage Fees
Miscellaneous
Charter
$160
Cargo
$140
$120
Transport Revenue
$100
$80
$60
Passenger Revenue
$40
$20
$0
YEQ22001 YEQ22002 YEQ22003 YEQ22004 YEQ22005 YEQ22006 YEQ22007 YEQ22008 YEQ22009 YEQ22010 YEQ22011
Note: Transport revenue is primarily revenue from regional carriers.
Source: PlaneStats.com advanced query > income statement for all reporting carriers.
15. RASM Adjusted for Stage Length

Exhibit 19 shows the stage-length adjusted domestic RASM for all carriers in the study, similar
to the domestic CASM ranking in the cost section. The highest unit revenue performance, by
Continental, is 38% greater than the lowest, by Allegiant. This gap is only about half of last
years 77%, largely the result of improved revenue performance at the low end by Allegiant
and Sprit. Continental and United have the highest RASMs (and also the highest CASMs).
Frontiers results are included as reported, but as with its CASM results, are considered nonrepresentative.
As expected, the value carriers tend to have lower RASMs than the network carriers. Virgin
America has the highest RASM among the value carriers, just below American. Allegiant has
the lowest RASM, consistent with its ancillary revenue-focused business model.
Exhibit 19: Domestic RASM by airlinestage-length adjusted to 1,ooo miles

(Q2 2011)
14.2
14.2
14.7
14.8
United
Frontier
Continental
13.0
13.6
Delta
Southwest
13.0
US Airways
Hawaiian
12.6
American
11.3
11.7
AirTran
10.9
11.7
JetBlue
10.7
Spirit
12
11.6
Allegiant
SLA DOMESTIC RASM (CENTS)
14
Virgin
America
16
10
8
6
4
2
Alaska
Source: PlaneStats.com advanced query > income statement for all reporting carriers. Excludes transport-related revenue (regionals).
16. Baggage and Cancellation Fees

Over the past several years, airlines have captured increasing amounts of revenue from nonticket charges such as baggage, buy-on-board meals, in-flight entertainment, reservations,
and change fees; some of which are not included in DOT-reported average airfares or
passenger RASM. Exhibit 20 focuses on the three major categories of feesbaggage,
reservation change, and miscellaneousto show the growth to date. Miscellaneous is a
broad category including food and beverages, in-flight entertainment, Wi-Fi, and other.
Exhibit 20: Baggage, reservation change, and miscellaneous fees

(YEQ2 2001 YEQ2 2011)
$10
$9
$8
Misc.
SERVICE FEES (BILLIONS)
$7
+22.1%
+0.0%
$6
$5
$4
+13.2%
Reservation
Change Fees
+1.4%
+11.0%
$3
$2
Baggage
Fees
+66.9%
+8.6%
$1
+48.8%
+287.8%
$0
YE2Q2001
YE2Q2002
YE2Q2003
YE2Q2004
YE2Q2005
YE2Q2006
YE2Q2007
YE2Q2008
YE2Q2009
YE2Q2010
YE2Q2011
Based on airline reports to DOT, these service fees generated $9.2 billion in YEQ2 2011,
with baggage fees and miscellaneous fees generating the largest shares, $3.4 billion each.
Change fees generated $2.4 billion. Baggage fees continued to grow modestly, by 8.6% from
Q2 2010 to Q2 2011, but reservation change fees reached a plateau, increasing only 1.4%
during the same period. Miscellaneous fees grew strongly, by 22.1%, as carriers searched for
new sources of revenue.
Although these fees contribute much needed revenue to the carriers, the average revenue
generated is a smaller portion of the total amount collected from each passenger than many
passenger anecdotes would suggest. The percentage of revenue collected in fares and fees
from each segment passenger is broken out for selected carriers in Exhibit 21.3 Most carriers
collected from 5-11% of passenger revenue from service fees. Spirit, which collected 29.5%
of revenue from service fees, is the exception.
These percentages are less, and in some cases substantially less, than reported by some
individual carriers in their quarterly financial reports. Allegiant, a leader in this area, reported
that third-part ancillary revenue amounted to 28.1% of its gross revenue in Q2 2011. The
important distinction between that figure and the DOT results is that the carrier reports to
the DOT only those fees directly related to the provision of air transportation. Allegiants
A segment passenger is a passenger traveling on one segment of what may be a multi-segment itinerary. The long-term average
number of segments per one-way itinerary is 1.4. Segment passengers are used here instead of O&D passengers based on the
available data at this time.
strong ancillary revenue is largely the result of its success in hotel room sales. Note as well
that carrier sales of frequent flyer miles are not included in the DOT results.
Exhibit 21: Service fees by carrier (YEQ2 2011)
$250
REVENUE PER SEGMENT PASSENGER
4.9%
$200
7.4%
4.8%
10.6%
$150
$100
7.9%
8.0%
10.9%
5.0%
9.8%
29.5%
6.8%
6.4%
11.2%
$50
Reservation Res
Change
FeesFees
Ticketed Revenue
Ticketed Revenue
Change
Baggage
Fees
Baggage
Fees
CO/UA
JetBlue
American
Hawaiian
Southwest
Virgin America
Alaska
Frontier
AirTran
Delta
US Airways
Allegiant
Spirit
$0
Miscellaneous
Misc
Outside the US, carriers service fees vary widely. The carriers with the least amount of
service fee revenue are network carriers, such as Singapore, Lufthansa, and LAN, each of
which reported 1% or less in ancillary revenue in 2010. At the other end of the spectrum,
carriers such as Ryanair, Tiger, EasyJet, and Air Asia, reported ancillary revenue percentages
approaching or exceeding the level of Spirit.
Margin
17. RASM/CASM Margin
For all carriers, the RASM/CASM margin declined substantially from Q2 2010 to Q2 2011.
For network carriers, the margin declined by 87%, from 0.5 to only 0.1. For value carriers,
the results were better, but value carriers still experienced a 41% decline in margin, from
1.1 to 0.6. For both groups, the RASM increase failed to match the overall fuel-price driven
increase in CASM.
Exhibit 22 shows the RASM and CASM comparison for network versus value carriers on a
system basis for the second quarters of 2010 and 2011.
Exhibit 22: Comparison of system RASM and CASM (Q2 2010/2011)
16
13.2
14
12.2
CENTS PER ASM
12
13.0
13.3
12.4
11.5
13.2
11.9
12.7
11.4
12.1
10.3
10
8
6
4
2
0
RASM CASM RASM CASM

2010
2011
RASM CASM RASM CASM

2010
2011
RASM CASM RASM CASM

2010
2011

US Airways)

Labor
Fuel
Other
18. Domestic RASM/CASM Margin

For all carriers, the domestic RASM/CASM margin declined substantially from Q2 2010
to Q2 2011. For network carriers, the domestic margin declined from 0.2 to -0.1. For
value carriers, the domestic margin declined by 42%, from 1.1 to 0.6. As with the system
RASM, the domestic RASM for both groups increased less than the fuel-price driven increase
in CASM.
Exhibit 23 shows the RASM and CASM comparison for network versus value carriers
for domestic service for the second quarters of 2010 and 2011. As with the previous
comparison, this one excludes transport-related revenue and cost.
Exhibit 23: Comparison of Domestic RASM and CASM (Q2 2010/2011)
16
13.3
14
12.2
CENTS PER ASM
12
13.2
11.8
13.6
12.6
13.7
12.8
12.4
11.5
12.2
10.4
10
8
6
4
2
0
RASM CASM RASM CASM

2010
2011
RASM CASM RASM CASM

2010
2010

US Airways)
Labor
RASM CASM RASM CASM
2011
Fuel
2011

Other
Most important, despite strong cost control, US network carriers did not make a profit
on their domestic operations, as measured by a comparison of total RASM/CASM, while
value carriers did. Network carriers remained slightly profitable only because of their
19. Break-even Load Factors

The largest network carriers have load factors in the mid-80s, while the largest value
carriers have load factors in the low 80s. With break-even load factors above 80% for most
carriers, future profitability improvements will depend on yield increases, as there is little
room for additional load factor growth. Exhibit 24 shows the high break-even load factors
for most carriers and the limited opportunities for additional revenue provided by the small
percentage of unfilled seats.
Exhibit 24: Domestic Break-even Load factor versus actual load factor
(Q2 2011)
100%
90%
80%
70%
60%
50%
40%
30%
20%
10%
0%
Spirit
Frontier
Alaska
Southwest Continental
Gain Load Factor

in Excess of Break-Even
Delta
JetBlue
US Airways AirTran
Loss Load Factor Less

Than Break-Even Load Factor
Virgin
America
United
Allegiant
American
Revenue Opportunity
Empty Seats Available
Note: Break-even calculation does not take into account generation of ancillary revenue, which for carriers such as Allegiant may
be substantial.
Further historical perspective is provided in Exhibit 25. It shows that network carriers
achieved a load factor of 86.0% in Q2 2011 in their domestic operations, but they required
a break-even load factor of 86.8%. They were one seat short of breaking even on aircraft
averaging 160 seats. (For network carriers, the average mainline domestic aircraft has had
about the same number of seats over the past several years). Since 2001, their load factor
has increased, but their domestic operating margin has turned slightly positive only very
briefly and intermittently.
Exhibit 25: Network carrier domestic load factor and Break-even load
factor (Q1 2004 Q2 2011)
100%
95%
90%
85%
80%
75%
Q2 2011
Load Factor: 86.0%
BELF: 86.8%
70%
Quarterly Load Factor
BELF
Q2 2011
Q1 2011
Q4 2010
Q3 2010
Q2 2010
Q1 2010
Q4 2009
Q3 2009
Q2 2009
Q1 2009
Q4 2008
Q3 2008
Q2 2008
Q1 2008
Q4 2007
Q3 2007
Q2 2007
Q1 2007
Q4 2006
Q3 2006
Q2 2006
Q1 2006
Q4 2005
Q3 2005
Q2 2005
Q1 2005
Q4 2004
Q3 2004
Q2 2004
Q1 2004
65%
Monthly Load Factor
Note: Break-even load factor calculated without transport (regional) revenue/expense.

Exhibit 26 shows that value carriers achieved a domestic load factor of 83.0% in 2Q 2011,
and had a break-even load factor of 79.3%. They were five passengers ahead of breaking
even on aircraft averaging 138 seats. (For value carriers, the average mainline aircraft has
had roughly the same number of seats over the past several years). However, since 2001,
the value carriers load factor has increased, while their operating margin has not.
Exhibit 26: Value carrier domestic load factor and Break-even load factor
(Q1 2004 Q2 2011)
100%
Q2 2011
Load Factor: 83.0%
BELF: 79.3%
95%
90%
85%
80%
75%
70%
Avg. Load Factor
BELF
Q2 2011
Q2 2011
Q1 2011
Q4 2010
Q3 2010
Q2 2010
Q1 2010
Q4 2009
Q3 2009
Q2 2009
Q1 2009
Q4 2008
Q3 2008
Q2 2008
Q1 2008
Q4 2007
Q3 2007
Q2 2007
Q1 2007
Q4 2006
Q3 2006
Q2 2006
Q1 2006
Q4 2005
Q3 2005
Q2 2005
Q1 2005
Q4 2004
Q3 2004
Q2 2004
Q1 2004
65%
Monthly Load Factor
Note: Break-even load factor calculated without transport (regional) revenue/expense.

Using seat maps, Exhibit 27 compares the situation of network carriers and value carriers
operating domestically in terms of seats needed to break-even and seats still available to
be sold.4
Exhibit 27: Seats Needed to Break Even, and Still Available for Sale (Q2 2011)
Network (168 Seats)
Covers Cost
Need to Fill This Seat to B/E
Revenue Opportunity
Value (138 Seats)
A B C
D E F
10
10
11
11
12
12
13
13
14
14
15
15
16
16
17
17
18
18
19
19
20
20
21
21
22
22
23
23
Covers Cost
Profit
Revenue Opportunity
Note: Seat maps are illustrative only and do not recognize differences in individual carrier performance or revenue composition. Illustration
based on average industry segment fares, including first, business and coach fares, and assumes same load factors in different classes.
The net effect is that more and more seats must be filled to generate a profit. Stated
differently, there are declining revenue opportunities from selling more seats. Future
operating margin gains must depend on yield increases or cost improvements.
Seat maps are illustrative only and do not recognize differences in individual carrier performance or revenue composition. Illustration
based on average industry segment fares, including first, business and coach fares, and assumes same load factors in different classes.
20. Changing Capacity in the US

Domestic Market
During much of the past decade, value carriers and regional carriers grew rapidly. Even as
network carriers reduced their mainline operations, regional carriers filled in. Then in 2009,
the industry significantly reduced capacity: domestic network mainline ASMs declined by
9.2%, regional ASMs by 5.5%, and value airline ASMs by 3.9%.
Exhibit 28 shows what happened subsequently. In 2010, domestic capacity remained
essentially unchanged. In 2011, the industry reduced capacity again. Domestic mainline
ASMs declined by 5.4%, regional ASMs declined even more (by 6.7%), and the value carriers
grew by only 1.8%. In each year, value carriers have gained capacity share as they have their
reductions have been smalleror their growth largerthan the network carriers.
Exhibit 28: Change in scheduled domestic US ASMs
(January 2010 January 2012)
40
35
SEAT MILES (BILLIONS)
30
-1.2% yoy
-5.4% yoy
+1.8% yoy
+1.8% yoy
+0.1% yoy
-6.7% yoy
25
20
15
10
0
Jan
Mar
May
Jul
Sept
Nov
Jan
Mar
May
2010
Jul
2011 2011
Network
Value
Sept
Nov
Jan
2012
Regional
Source: PlaneStats.com schedule data for all carriers.
21. Changing Fleet Composition in the US

Domestic Market
Another perspective on capacity in the US market is provided by the changing size and mix
of the active commercial airline fleet. Exhibit 29 shows that the number of active aircraft used
in domestic service increased by 3.0% from Q2 2010 to Q2 2011, nearly reversing the 3.5%
decrease of the previous year. Over the four years covered, the two aircraft categories with
consistent trends are large regionals, which increased every year, and turboprops, which
declined every year.
Exhibit 29: Distribution of US carriers aircraft (operated during period)
in domestic service (2008 2011)
% Change
2010-2011
5,000
4,000
4,813
248
4,693
4,529
245
1,064
396
3,000
207
4,663
3.0%
193
-6.8%
1,035
1.7%
1,028
1,018
497
500
529
5.8%
2,813
2,684
2,799
4.3%
2,000
2,983
1,000
122
111
120
107
2008Q2
2009Q2
2010Q2
2011Q2
Widebody
Narrowbody
Large RJ
Small RJ
-10.8%
Turbo
22. International Portion of US Network

Carrier Revenue
US mainline carriers have continued to look overseas for revenue opportunities, with
their domestic operations contributing less and less to their system revenue. As shown in
Exhibit 30, the share of network carrier system revenue contributed by domestic operations
dropped by 8.5 points between Q2 2001 and Q2 2010, from 73.5% to 66.0%. The trend
continued between Q2 2010 to Q2 2011, as domestic revenue dropped from 66.0% to
63.7% of total network carrier revenue. Total domestic and international revenue grew
during this period, but international revenue grew much more rapidly.
Exhibit 30: US network carrier operating revenue by geographic area
(YEQ2 2001YEQ2 2011)
100%
Pacific
Latin
80%
SHARE OF OPERATING REVENUE
Atlantic
60%
Domestic
40%
REVENUE $USBIL
20%
Pacific
Latin
Atlantic
Domestic
YEQ2 2001
$7.4
$5.5
$10.4
$64.7
YEQ2 2011
$10.4
$11.3
$18.8
$71.1
CAGR
3.4%
7.5%
6.1%
0.9%
0%
YEQ2 2001 YEQ2 2002 YEQ2 2003 YEQ2 2004 YEQ2 2005 YEQ2 2006 YEQ2 2007 YEQ2 2008 YEQ2 2009 YEQ2 2010 YEQ2 2011
Value carriers are growing internationally, with the focus so far on Latin America. Although
their share of revenue derived from domestic service remains at 95.9%, (down from 96.9%
last year), their revenue from Latin American service has grown from 1.6% in YEQ2 2008
to 4.1% in YEQ2 2011 (up from 3.1% in YEQ2 2010). This trend is likely to continue and
accelerate as Southwest, the largest US value carrier, acquires AirTrans international routes
and develops its own international capabilities.
23. Revenue Growth Drivers

The following charts identify the sources of revenue growth for value and network carriers
from Q2 2010 to Q2 2011, divided into four categories:
Load factor
Yield
Seat capacity
Other (primarily service fees)
During this period, value carriers increased revenue by $3.5 billion, while network carriers
increased revenue by $4.2 billion from their domestic operations and $6.3 billion from their
The sources of revenue growth are different for the two groups. For value carriers, price and
seat capacity were the primary drivers, with minor contributions from increased load factor
and fee revenue. See Exhibit 31.
Exhibit 31: Value carriers revenue increase

price and volume drivers (YEQ2 2010/2011)
$26.0
$24.0
MAINLINE REVENUE (BILLIONS)
$22.0
$3.5B
$20.0
$18.0
$16.0
$14.0
$12.0
$10.0
YEQ22010
Load Factor Impact
Yield Impact
More Seats
Other
YEQ22011
Source: PlaneStats.com advanced query > income statement for value carriers, domestic, mainline operations only. Excludes transport
revenue (regionals) and public service revenue.
For network carriers domestic operations, nearly all of the revenue increase is attributable to
higher yields.
Exhibit 32: Domestic mainline revenue increase
price and volume drivers (YEQ2 2010/2011)
$52.0
$50.0
$4.2B
$48.0
$46.0
$44.0
$42.0
$40.0
YEQ22010
Load Factor Impact
Yield Impact
Fewer Seats
Other
YEQ22011
For network carriers international operations, higher yields were the primary driver,
followed by the expansion of seat capacity, with other revenue making a minor contribution
and lower load factors slightly offsetting the increases in other areas.
Exhibit 33: International mainline revenue increase
price and volume dRIVERS (YEQ2 2010/2011)
$38.0
$36.0
$6.3B
$34.0
$32.0
$30.0
$28.0
$26.0
$24.0
$22.0
$20.0
YEQ22010
Load Factor Impact
Yield Impact
More Seats
Other
YEQ22011
Source: PlaneStats.com advanced query > income statement for network carriers, international, mainline operations only. Excludes
transport revenue (regionals) and public service revenue.
24. Air Service Provided by Value Carriers
around the World
In Exhibit 34, we offer a comparison of the percentage of ASMs provided by different carrier
types around the world. Value carrier market shares vary by region, but the business model
is firmly established everywhere. As shown, the highest percentage of air service provided
by value carriers is in Oceania, home to Virgin Australia, Jetstar, and Tiger Australia, where
41.2% of ASMs are flown by value carriers. Mexico/Central America is second, home to
Volaris and Interjet, where 34.3% of ASMs are flown by value carriers. All of the value carriers
in that region are in Mexico. Canada (28.7%) and the US (27.9%) follow. South America
(5.4%) and the Middle East (7.3%) have the lowest percentage of service provided by
value carriers. In all regions of the world, value carriers have increased their share over the
past year.
Exhibit 34: ASMs by airline type and country origin (December 1 7, 2011)
Scheduled
Charter %
Network %
Value %
Asia
80.3%
10.4%
1.0%
Other%*
8.3%
Middle East
78.8%
7.3%
3.0%
10.9%
11.0%
Africa
76.6%
10.8%
1.6%
USA
71.7%
27.9%
0.1%
0.3%
S. America
69.3%
5.4%
0.6%
24.7%
Caribbean
69.3%
16.7%
4.7%
9.3%
10.7%
Europe
66.7%
19.7%
2.9%
Canada
65.7%
28.7%
0.6%
5.0%
Mexico/C. America
59.3%
34.3%
0.5%
5.9%
Oceania
54.8%
41.2%
0.1%
3.9%
Note: Other includes small regionally focused airlines that operate independently, as opposed to other, typically larger regionals included
within the network carrier category.
25. Stage-Length-Adjusted Costs for

In Exhibit 35, RASK (kilometers instead of miles) and CASK are provided on a stage-lengthadjusted basis for selected European, Asian, and South American carriers. The blue line
shows the average stage length for each carrier. Because of differences in time period (e.g.,
fiscal years that end on different months) and other factors, this information is not directly
comparable to that provided for US carriers. The cost comparison (expressed in US Dollars),
however, is useful in showing the relative differences in RASK/CASK between the carriers.
In all regions, the value carriers have lower unit costs than their network carrier rivals. Also,
in all regions, the lower CASK carriers produce lower RASK. Both Europe and Asia, in addition
to having typical value carriers, have successful ultra-low cost carriers in Ryanair and Air Asia,
which have CASKs that are a step lower than even the value carriers in those regions.
Among the network carriers, Singapore and Cathay stand out with their much higher RASK
and CASK, reflecting the premium nature of the service.
Exhibit 35: RASK/CASK for international carriers stage-length adjusted
to 1,609 km (1,000 miles)
20
6,000
5,000
16
14
4,000
12
10
3,000
8
2,000
6
4
1,000
STAGE LENGTH (KILOMETERS)
RASK/CASK (US CENTS)
18
2
0
RASK
CASK
Air Canada
Westjet
Singapore
Cathay Pacific
Malaysian Airline
Qantas
Virgin Blue
AirAsia
Air France
Lufthansa
British Airways
Airberlin
EasyJet
Ryanair
LAN Chile
Copa
TAM Linhas Aereas
Gol Transportes Aereos
AVIANCA
Stage Length
Note: Based on most recent public financial statements as of December 2011

Conclusion
As 2011 wore on, profit predictions for the airline industry steadily weakenedthe result
of mounting fuel prices and uncertain demand. Airline executives, looking back at their
success in 2010, concluded that capacity discipline, along with tight cost control, remained
the best strategy. We can expect to see more of the same in 2012 and beyond.
Throughout the airline industry, some struggles are constants: high fuel prices, uncertain
demand in mature economies, and intense competition between value and network carriers,
in both domestic and international markets. In all parts of the world, value carriers are
gaining market share. For the recently consolidated carriers, the process of rationalizing
their multi-hub systems continues. And in the US market, profitability remains an elusive
goal for the network carriers that are shrinking their domestic systems and shifting their
focus to profitable international operations. As 2012 evolves, well keep a close eye on how
airlines respond to these challenges.
About Oliver Wyman

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February 2012

airline economic analysis

Carriers Included and Methodology

1. System CASM Increase

2. Domestic CASM Increase

3. Long-Term Domestic CASM Trends

5. Value Versus Network Carrier Domestic CASM Comparison, with and

6. Use of More Efficient Aircraft

7. Regional Aircraft Efficiency

8. Individual Value Carrier Domestic CASMs

9. Individual Network Carrier Domestic CASMs

10. Stage-Length-Adjusted Individual Carrier CASMs

11. Direct CASMs for Smaller Narrowbody Aircraft Operated by the

12. RASM Increase

13. Network/Value Carrier Domestic RASM Gap

14. Changes in US Airline Revenue over Time

15. RASM Adjusted for Stage Length

16. Baggage and Cancellation Fees

17. RASM/CASM Margin

18. Domestic RASM/CASM Margin

19. Break-Even Load Factors

20. Changing Capacity in the US Domestic Market

Copyright 2012 Oliver Wyman

21. Changing Fleet Composition in the US Domestic Market

22. International Portion of US Network Carrier Revenue

23. Revenue Growth Drivers

24. Air Service Provided by Value Carriers Around the World

25. Stage-Length-Adjusted Costs for International Carriers

Copyright 2012 Oliver Wyman

10. International Operations The proportion of US network carrier revenue generated

Copyright 2012 Oliver Wyman 2

Our set of network carriers:

Copyright 2012 Oliver Wyman 3

Our airline sample overall

Average for network carriers

Average for value carriers

Copyright 2012 Oliver Wyman 4

2. Domestic CASM Increase

COST PER ASM (CENTS)

Our airline sample overall

Average for network carriers

Average for value carriers

Copyright 2012 Oliver Wyman 5

3. Long-term Domestic CASM Trends

COST PER ASM (CENTS)

Network carrier CASM %

Copyright 2012 Oliver Wyman 6

CENTS PER GALLON

Fuel spot price

System average fuel price

Copyright 2012 Oliver Wyman 7

5. Value versus Network Carrier Domestic

COST PER ASM (CENTS)

Network CASM ex-Fuel

Value CASM ex-Fuel

Value Fuel CASM

Source: PlaneStats.com. Mainline operations only. Excludes transport-related cost (regionals).

Copyright 2012 Oliver Wyman 8

6. Use of More Efficient Aircraft

Source: PlaneStats.com. Mainline operations only.

Copyright 2012 Oliver Wyman 9

GALLONS OF FUEL PER SEAT HOUR

Exhibit 7: Fuel burn versus aircraft age and average stage-length

Source: PlaneStats.com. Mainline operations only.