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Pilot Pay Forecast 2012-2015

Confidential . Pilot Pay Forecast 2012-2015. J etBlue Pilot Pay Compared to Average Pay of Large Narrowbody Pilot’s Pay in Current And Expanded Peer Sets . December 10, 2012. Akins & Associates. Executive Summary: The Pay Wall Looming Large Increase in Average Pilot Pay.

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Pilot Pay Forecast 2012-2015

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  1. Confidential Pilot Pay Forecast 2012-2015 JetBlue Pilot Pay Compared to Average Pay of Large Narrowbody Pilot’s Pay in Current And Expanded Peer Sets December 10, 2012 Akins & Associates

  2. Executive Summary: The Pay WallLooming Large Increase in Average Pilot Pay • Post 9-11 era of Pilot wage compression has ended • Years of flat to 2% Pilot pay scale increases is about to end • New Pilot contracts and consolidation are establishing large, near-term Pilot pay rate increases • Pilots at DL, UA/CO, and AA have agreed to huge pay increases • US likely to merge with AA • By 2015, likely cumulative average industry Pilot pay increases range from 9% to 21% above current rates • Depending on Peer set, weighting and which scenarios occur • Demand for Pilots is rapidly changing • Demand for available qualified Pilots may soon outstrip supply • As a result of new pilot contracts, consolidation and changing pilot supply, JetBlue’s pilot pay scheme, is under increasing pressure

  3. JetBlue’s Pilot Compensation Methodology in Context • JetBlue Pilot Compensation Methodology is Problematic • JetBlue’s current unweighted average treats all carrier’s pilot pay equally in determining industry average pay • Delta with 11,000 pilots has equal value as Airtran with 1,800 pilots • Skews average pilot pay data to not represent true market average • Example: When Airtran pilots get a 21% pay raise by going to SWA, average industry pilot pay drops in an unweighted average • Designed to attract and retain JetBlue pilots • Can it continue to do so in a rapidly changing pay landscape • JetBlue peer set methodology double counts some single certificated carriers as two pilot groups • Example: Considering US East and US West as two carriers and skews average pay

  4. JetBlue Pilot Values Committee Suggested Ways to Improve Methodology and Offset Coming Pay Wall • The PVC suggested ways for JetBlue to better measure and manage average pilot pay • Weight peer set by any reasonable measure for a truer representation of actual competitor market pay for pilots • Smooth pay increases over several years to help JetBlue to offset the financial impact of huge one-time pilot pay increases at other carriers • Combine pilot groups at carriers with single operating certificates

  5. Recent History of Pilot Average Pay Rate Increase 2006-2012 Source: Contracts and Pay scales Note: Average is other airlines average annual pilot pay scale increase Excludes DL 4% pay increase in July 2012.

  6. Rapidly Changing Landscape in Pilot PayDouble Digit Increases by 2015 • Contractual Impacts 2015 vs 2012 compounded • Delta new Contract July 2012 19.7% • Spirit 10.6% • United/Continental Joint TA 11/12 24.7% to 52.5% • American (Ratified 12/7/12) 6.0%-16% (Ind. avg.) • Southwest ? (in negotiations) • Alaska ? (in negotiations) • Consolidation Impacts • Airtran Absorbed by SWA 21% • US Airways E at AA TA rates 40% increase @ US E • US Airways W at AA TA rates 27% increase @ US W

  7. United Continental Contract Pay Rates Will Have a Large Impact on Average Pilot Pay Scales Hourly Rate Captain’s Pay Large Narrowbody Aircraft Years of Service Source: New Delta pilot contract in effect July 2012 and UA Pay Data (see Appendix A). * Note: jet Blue base pay 2012

  8. Alaska and Southwest contracts under negotiationFurther Impact Pilot Average Pay in 2013 Hourly Rate Captain’s Pay Large Narrowbody Aircraft Years of Service Source: New Delta pilot contract in effect July 2012 and UA Pay Data (see Appendix A). * Note: jet Blue base pay 2012

  9. Potential US Airways – American Merger CouldFurther Impact Pilot Average Pay in 2013 Captain’s Pay Large Narrowbody Aircraft Hourly Rate Years of Service • Source: Contracts in effect July 2012 • Note: JetBlue A320 Captain base pay

  10. Current Large Narrowbody Captain’s Hourly Pay12th Year - 2012 Hourly Rate • Source: Contracts in effect July 2012 • Note: SWA pay converted from $ per TFP to $ per hour at ratio of 1.15 TFP per hr. • * OA is “Other Airline” average pay Exc l.VX & NK, and including Delta’s 4% increase on July 1, 2012

  11. Projected Large Narrowbody Captain’s Hourly Pay12th Year by 2015Including Consolidation Impacts (US > AA) Hourly Rate • Source: Contracts in effect July 2012 • Note: SWA pay converted from $ per TFP to $ per hour at ratio of 1.15 TFP per hr. • * OA is “Other Airline” average peer pay Exc l.VX & NK, but including Delta’s 4% increase on 7/1/ 2012

  12. Projected Large Narrowbody Captain’s Hourly Pay12th Year by 2015Including VX and NKS & Consolidation (e.g. US > AA) Hourly Rate • Source: Contracts in effect July 2012 • Note: SWA pay converted from $ per TFP to $ per hour at ratio of 1.15 TFP per hr. • * OA is “Other Airline” average peer pay Including Spirit and Virgin America.

  13. Likely Cumulative Pay Increase by 2015Current and Expanded Peer Set - Unweighted Unweighted * Note: Includes updated pay rate information (i.e. UA and AA 11/12 TAs). Current Peer set includes : AA, AS, FL, CO, DL, UA, US-E, US-W and WN. Expanded peers add Virgin America and Spirit.

  14. Likely Cumulative Increase by 2015Expanded Peer Set - Weighted Weighted Note: Includes updated pay rate information (i.e. UA and AA 11/12/TA’s) Peer set includes : AA, AS, FL, CO, DL, UA, US-E, US-W and WN. Expanded peers add Virgin America and Spirit.

  15. Example of Smoothing2013-2015 Annual Pay Increases (17.7% total) Expanded Weighted Peer Set UA/CO at Delta+ Pay Rates

  16. Example of Smoothing2013-2015 Cumulative Pay Increase of 17.7% Expanded Weighted Peer Set UA/CO at Delta+ Pay Rates

  17. Current Peer Set Pilot Pay Forecast as of Aug 201212 Year Captain’s Hourly Rate – Large NarrowbodyNo Speculative Consolidation Impacts Assumed - Unweighted Source: Contracts and Pay scales Note: Average is other airlines average annual pilot pay scale increase. Estimated 2013-2015 annual increase is from current peer set and no consolidation impacts *Delta pilot pay raise of 4% in July 2012 excluded from 2012 average.

  18. Current Peer Set Pilot Pay Forecast as of Jan. 201312 Year Captain’s Hourly Rate – Large NarrowbodyNo Speculative Consolidation Impacts Assumed - Unweighted Source: Contracts and AA and UA/CO November 2012 TA’s and Pay scales Note: Average is other airlines average annual pilot pay scale increase. Estimated 2013-2015 annual increase is from current peer set and no consolidation impacts *Delta pilot pay raise of 4% in July 2012 excluded from 2012 average.

  19. Weighted Expanded Peer Set Pilot Pay Forecast12 Yr Captain’s Hourly Rate – Large NarrowbodyNo Speculative Consolidation Impacts Assumed - Weighted *Note: Average pay is weighted by competitive overlap defined by JetBlue as JB capacity exposures on non-stop airport pair where peer also competes

  20. Pilot Pay Differential Among Carriers who Operate Large and Small Narrowbody Aircraft Source: Current Contracts in effect October 2012

  21. Pilot Pay Differential Among Carriers who Operate Large and Small Narrowbody Aircraft Average Among All 2.0% Average Among Those Paying Premiums 4.7% Source: Current Contracts plus UA/CO TA signed in November 2012 but not ratified at the time of this analysis (12/10/2012). Note: UA new TA pays same for A320/321 (rate premium of 4.3% is between 737-800s and A319 vs A320).

  22. Summary: The importance of accurately assessing the current pilot pay environment • Post 9/11 era is over and Pilot pay is reflecting this • Current changes in the industry due consolidation, new contracts and a looming pilot shortage are rapidly affecting pilot pay at other carriers • Industry average pilot pay is highly likely to be 10 to 20% higher by 2015 than it is in 2012 • Industry average pilot pay will increase will occur regardless of peer set or weighting • Properly measuring industry average pilot pay is critical for JetBlue to retain and attract quality pilots • Applying a proper weight to other carrier’s pilot pay yields a more accurate reflection of average pay in the industry • Methodological approaches which do not reflect accurate industry average pay will undermine JetBlue’s ability to attract and retain pilots

  23. Questions?

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