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““Merger Mania” Will it affect your Airport? SEC/AAAE - 2010. David Hamm Director – Corporate Real Estate Delta Air Lines April 20,2010. Delta and Northwest. Created an effective global U.S. carrier with over 390 worldwide destinations.
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““Merger Mania”Will it affect your Airport?SEC/AAAE - 2010 David Hamm Director – Corporate Real Estate Delta Air Lines April 20,2010
Delta and Northwest Created an effective global U.S. carrier with over 390 worldwide destinations • #1 U.S. carrier to Europe and strong Latin American presence • Domestic focus in East and Mountain West • Member of SkyTeam alliance • 3rd largest carrier in the U.S. with 13.2% of domestic ASMs • 4th largest carrier in the world with 4.1% of worldwide ASMs • Hubs in Atlanta, Cincinnati, New York City and Salt Lake City • Focus cities in Boston, Los Angeles and Orlando • Service to 212 domestic and 115 international destinations • International focus on Asia and #1 U.S. carrier in U.S.-Japan market • Domestic focus in Midwest • Member of SkyTeam alliance • 7th largest carrier in the U.S. with 7.3% of domestic ASMs • 9th largest carrier in the world with 2.6% of worldwide ASMs • Hubs in Detroit, Memphis, Minneapolis/St. Paul and Tokyo • Focus cities in Indianapolis and Seattle • Service to 200 domestic and 50 international destinations Source: Market share based on March 2008 OAG (week sample). Destinations served data based upon OAG Jan 2008 – Dec 2008 (excluding cancellations and including additions as of March 28, 2008)
Delta and Northwest Flying independently….. Transatlantic DL #1 Domestic DL #3 Japan NW #1 Transatlantic NW #5 Japan DL #5 Domestic NW #7 Asia NW #2 Africa DL #1 Asia DL #5 Latin America DL #2 Latin America NW #10 Regional strengths, but globally weak
Delta and Northwest Flying together….. America’s Premier Global Airline Transatlantic #1 Domestic #1 Japan #1 Asia #1 Africa #1 Latin America #2 Australia #2 Leading presence across the globe
Delta and Northwest International Networks are Highly Complementary International ASM Breakdown by Region (% of airline’s total) Source: March 2008 OAG (week sample) 4
Delta and Northwest Domestic Market is Highly Fragmented Domestic Passenger Share • No airline currently has greater than 20% domestic passenger share • Post merger, Southwest continues to have the highest domestic passenger share U.S. airline industry will remain highly competitive post merger Source: APGDat DB1A 3Q07 Domestic passenger share
Delta and Northwest Domestic Strength and International Success Northeast #1 Midwest #1 Rocky Mountain #2 West #3 Southeast #1 Southwest #5 Source: US DOT revenue 4Q ended 1Q08
Northwest airports not served by Delta Delta airports not served by Northwest Delta and Northwest Unique Regional Presence allowed for End-To-End Merger Customers benefit from increased choice and more efficient connections Source: OAG, Jan 2008 – Dec 2008 (excluding cancellations and including additions as of March 28, 2008)
Delta and Northwest Domestic Networks are Highly Complementary Domestic Passenger Breakdown by Region (% of airline’s total) Source: DOT O&D Survey, Twelve months ended 3Q07
Delta and Northwest Diversity Among the Delta/Northwest Fleets Provides Flexibility 747-400 A333 A332 757-200/300 A320/319 DC-9 777-200/LR 767-400 767-300 757-200 737-800 MD-88
Delta and Northwest Complementary Fleets allows Matching Capacity to Demand Number of Aircraft by Average Seat Count(As of 12/31/2007) <50 51-76 77-125 126-175 176-225 226-275 276-325 >325 • Delta has no aircraft with more than 285 seats while Northwest has 37 • Delta has no aircraft in the 77-125 seat range while Northwest has 151 Source: SEC Filings and Ascend Aircraft Database
Delta and Northwest Positioning Delta for Continued Success • Delta operating in over 390 airports worldwide • Roughly 245 domestic and 145 international locations • Delta rebranding completed in 76 stations where only Northwest operated • Primarily located in the Midwest and Asia • Airport consolidations in 170 locations where both Delta and Northwest operated were completed in January 2010 • First airports were consolidated in March 2009 • PHL was the last airport consolidated in January 2010 • Critical to consolidate prior to February 1, 2010, date of last Northwest flights • Over 160 airport gates and associated space were released during the process • Rebranding in 150 Delta only airports with Air France and KLM signage was also completed • Providing system wide signage consistency for SkyTeam
Industry Perspective – the last few years. • Volatile fuel costs – although lower this year, still at historically high levels • Industry seeing passenger declines in major airports for first time • Shifting dynamics of airline model – repositioning to build on core strengths • Worldwide recession and economic challenges unparalleled during our lifetime • Airline Ratings continue to be below investment grade • Consolidation – more to come?
From 2002 to 2008, Price of Jet Fuel Rose RelentlesslyAverage U.S. Spot Price Surged 320% During That Six-Year Period 2000 to 2008: Up 230.7% 2002 to 2008: Up 320.3% Average* U.S. Jet Fuel Price (¢/Gallon) * Simple average of spot prices in New York Harbor, U.S. Gulf Coast and Los Angeles Source: U.S. Energy Information Administration 13
Demand for Domestic Air Travel Has Not RecoveredDomestic Passenger Revenue as Share of U.S. GDP Continues to Stagnate “The events of 9/11 marked…a permanent decline in domestic airline demand. We estimate that the gap between pre-9/11 demand and the post-9/11 period demand resulted in $26bn in lost revenue in 2008 and $150bn in cumulative lost revenue over the last 7 years. For perspective, the cumulative loss in revenue is the equivalent of the industry having no domestic revenue in 2007 and 2008.” “9/11 Revenue Impact in Context,”Gary Chase, Barclays Capital(Feb. 10, 2009) Impact = $22B Sources: Bureau of Economic Analysis and Bureau of Transportation Statistics 14
With Declining Portion of Economy Being Spent on Domestic Air Travel, Airlines Have Contracted Accordingly Domestic ASMs per 000 Dollars ($2000) of U.S. GDP Sources: ATA analysis of data from the Bureau of Economic Analysis and Bureau of Transportation Statistics 15
Demand for Air Travel and Air Cargo Down Sharply in 2009 Year-Over-Year Change (%) Through March * Alaska, American, Continental, Delta, JetBlue, United and US Airways, as well as selected regional affiliates ** Alaska, American, Continental, Delta, FedEx, Hawaiian, JetBlue, Midwest, Southwest, United, UPS and US Airways 16
Economy Continues Heavy Toll on U.S. Airline JobsFTEs Down 28% from May 2001 Peak (542K) to February 2009 (392K) ~151,000 FTEs U.S. Passenger Airline FTEs (000) Source: U.S. Bureau of Transportation Statistics 17
One U.S. Passenger Airline Has Investment Grade CreditNo Passenger Airline in the World Enjoys an A-Minus or Better Rating U.S. airline Non-U.S. airline Investment Grade A- BBB- S&P Corporate Credit Ratings Speculative Source: Standard and Poor’s as of Apr. 16, 2009 18
Immediate Challenges Loom Large • A healthy commercial aviation sector enables/fosters a thriving economy • In large part, airlines’ post-2000 survival has come via contraction, with 152K fewer jobs and 8% less domestic seating capacity (through 2Q09) • U.S. airlines incurred multibillion-dollar pretax losses in 2008 • For 2009, lower fuel prices were offset by plummeting demand • Demand for air travel and air cargo, especially time-sensitive shipments, is down sharply in all regions in which U.S. carriers operate • Spending on air transport also down – permanently – as share of U.S. GDP • To invest in people, planes and product, airlines require sustained profitability (pretax margin) – they need to earn their cost of capital • Mergers may help facilitate continue contractions and allow carriers to cover their cost of capital 19