INDUSTRY PROFILE

Airlines
9.5.2016
NAICS CODES: 4811
SIC CODES: 4512

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Industry Overview
Companies in this industry provide scheduled domestic and international passenger transportation, as well as mail
and freight transportation. Major US companies include American Airlines, Delta, FedEx, Southwest, and United
Continental; leading companies based outside the US include Air France-KLM, China Southern Air, Deutsche
Lufthansa, Emirates Group, and International Airlines Group.

Worldwide, the airline industry generates about $760 billion in revenue annually. The number of air travelers is
expected to grow to about 3.9 billion in 2017, from about 3 billion in 2012, according to the International Air
Transport Association. Top regions for passenger growth include the emerging economies of Africa, Asia/Pacific,
Latin America, and the Middle East.

The US airline industry includes about 425 companies with combined annual revenue of about $180 billion.

Competitive Landscape
Demand depends highly on the health of the economy, which affects spending on business and leisure air travel.
Because many costs are fixed, the profitability of individual companies is determined by efficient operations and
on favorable fuel and labor costs. Large companies enjoy economies of scale in purchasing and the ability to
provide more extensive services. Small airlines can compete by serving local or regional routes. The US industry
is highly concentrated: the four largest companies account for more than 70% of industry revenue.

Products, Operations & Technology

Major services include domestic passenger transportation (about 70% of industry revenue) and international
passenger transportation (20%); mail and freight transportation accounts for most of the remainder. Other
revenue comes from providing maintenance, servicing, training, and reservations. Some airlines also offer
nonscheduled (charter) flights. Some airlines carry only cargo, using specially equipped planes. Most passenger
airlines also provide cargo services.

Product Segmentation by Revenue - Census Bureau

The basic operations of airlines include acquiring and maintaining airplanes and airport facilities, acquiring
passengers and/or freight, managing staff, and operating flights. The flight equipment (airplanes) that an airline
uses is crucial to efficient operations. The cost, capacity, and fuel efficiency of airplanes vary substantially.
Airbus and Boeing are the dominant manufacturers of commercial jets. Manufacturers of smaller aircraft for
regional airlines, with seating capacities of 20 to 150, include Bombardier and Embraer. The largest passenger
aircrafts have more than 500 seats, and are used for long flights with a "stage length" of more than 9,000 miles.
Large cargo aircraft can hold over 100 tons, with a range of more than 4,000 miles. Major carriers mainly operate
planes that hold about 100 to some 350 passengers.

A large plane like the Boeing 747-400 that flies 3,500 statute miles (5,630 km) and carries 126,000 pounds
(56,700 kg) of fuel will consume an average of five gallons (19 liters) per mile. Larger planes require a larger
crew. The operating cost of an airplane is often expressed in cents per seat mile, with typical values between 10
and 20 cents. The list price for a new Boeing 737-700 is about $75 million. A Boeing 747-8 lists for more than
$350 million. The actual price airlines pay for new planes can be substantially lower than the list price, especially
if they place big orders. A large market exists for used aircraft, which can have a useful life of 20 years or
more.

Airlines lease terminals; ticket counters; gates (sometimes called "slots"); cargo facilities; and maintenance
facilities from airports, which are usually owned by local government authorities. In some cases, airlines can
sublease their facilities to other airlines. About 500 airports have scheduled airline service in the US. In addition
to paying for airport facilities, airlines pay landing fees for each flight, which are based on the number of landing
and the weight of the aircraft. Landing fees at major airports are much higher. Landing and other rental fees are
typically 5% or more of total expenses for large airlines. Routine aircraft maintenance is done at local airports,
but the big carriers typically have one or several large central maintenance facilities for major overhauls. Many
smaller airlines contract maintenance out to the major carriers. Because of the large number of flight
departures, scheduling staff and equipment is a major logistics challenge for airlines. Carriers measure in terms
of departures, rather than flights, because a single flight may have several stops.

Airlines measure their performance using a number of metrics. Revenue passenger-miles (RPM) measures the
number of paying passengers and the distance flown. Available seat-miles (ASM) measures the number of seats
and the distance flown. Load factor, which measures how much of a carrier's capacity is used, is calculated by
dividing RPM by ASM.

Technology

Airlines use technology to increase operational efficiency and enhance customers' flying experience. Mobile
apps and boarding passes now allow passengers to check in to flights with their smartphones. The use of Wi-Fi is
becoming more common on airlines, and some further enable customers' use of electronic devices by providing
power outlets and services such as laptop battery lending. Other technology perks offered by some airlines
include noise-canceling headphones, larger video screens, and enhanced entertainment content and video games.

New Distribution Capability (NDC), a data transmission system supported by the airline industry, seeks to
standardize communication between airlines, travel agents, and other third-party service providers. Still under
development, NDC promises to enable additional services and sales by facilitating richer content delivery and
greater service personalization.

Sales & Marketing

Most ticket sales occur via computerized reservation systems (CRS) that show the various flight options
between cities. Airlines pay fees to CRS operators for tickets bought through their system, such as Sabre,
Worldspan, and Galileo, which are accessed by travel agents and online sites. Internet travel sites like Expedia,
Travelocity, and Orbitz also feed reservations to the airlines. Airlines also operate their own reservation websites,
which are an increasingly important source of passengers.

Major airlines use broadcast, print, and online advertising. Marketing alliances -- for example, with other airlines,
travel organizations, and destination sites -- and code-sharing agreements have become common ways for
airlines to effectively expand the number of markets they serve and passengers they can reach. Code-sharing
allows a ticketing airline to use the operating airline's flight code to book flights on that airline's planes.

Pricing systems vary considerably among airlines. Complicated computerized pricing schemes that attempt
to maximize the revenue for a particular flight by offering different prices at different times, depending on how
quickly a flight is filling. In addition to selling tickets individually, airlines may sell blocks of discounted tickets to
wholesalers, such as Hotwire and Priceline. Many airlines run loyalty programs in the form of mileage or point
accumulation systems (frequent flier programs) that entitle passengers to free tickets or upgraded service.

Finance & Regulation

Airline companies may buy or lease aircraft, depending on the prices and leasing terms of the aircraft
manufacturers and leasing companies. Airlines often have a mix of owned and leased aircraft. The decision of
whether to buy or lease depends largely on the prices and leasing terms offered by airplane manufacturers and
big airplane leasing companies. Boeing and Airbus offer their own lease financing. The industry is capital-
intensive: average annual revenue per worker in the US is about $390,000.

Airlines' high fixed costs and substantial debt levels challenge their ability to maintain adequate working capital.
On average, the working capital turnover ratio for the industry in the US is about 10%. The cost of maintaining
aircraft accounts for about 5-10% of total airline expenses. Labor costs are about 20-30% of total expenses, and
fuel costs typically range from 20-40%. Most airlines engage in financial hedging to protect themselves from
increases in fuel costs. Revenue for airlines is subject to fluctuation throughout the year but is typically higher in
the second and third quarters of the year than in the first and fourth.

Working Capital Turnover by Company Size

 The working capital turnover ratio, also known as working capital to sales, is a measure of
how efficiently a company uses its capital to generate sales. Companies should be
compared to others in their industry.

Financial industry data provided by MicroBilt Corporation collected from 32 different data sources and represents
financial performance of over 4.5 million privately held businesses and detailed industry financial benchmarks of
companies in over 900 industries (SIC and NAICS). More data available at www.microbilt.com.

Regulation

The US Department of Transportation regulates airline operations, approves routes and flights, and has
jurisdiction over international pricing, computer reservation systems, code-sharing agreements, and consumer
matters. The FAA regulates aircraft maintenance and operations, including training and licensing pilots and
mechanics, and operates the US air traffic control system.

The Transportation Security Administration (TSA), an agency of the US Department of Homeland Security,
oversees most aspects of airport and airline security, including passenger and bagging screenings and enhanced
security training. Compliance with such regulations can raise costs for airlines, and increased security
measures have contributed to airline delays. However, most major airlines and airports in the US cooperate with
programs such as the US Customs and Border Protection's Global Entry Pass and the TSA's PreCheck, which
allow low-risk travelers to experience faster screening.

International Insights
Worldwide, the airline industry generates about $760 billion in revenue annually. Major companies based outside
the US include Air France-KLM, China Southern Air, Deutsche Lufthansa, Emirates Group, International Airlines
Group, and Qantas. The number of air travelers is expected to grow to some 3.9 billion by 2017, up from about 3
billion in 2012, according to the International Air Transport Association (IATA).

With an average annual growth rate of 3.8%, the number of airline passengers will increase to 7 billion by 2034,
according to IATA. Even with the recent slowdown in China's economic growth, the country remains the fastest-
growing market in terms of number of new passengers. China is expected to overtake the US as the world's
largest passenger market (defined by traffic to, from, and within) by 2029. Based on number of new passengers,
other leading growth markets include the US, India, Indonesia, and Brazil. Based on rate of expansion, seven of
the 10 fastest-growing passenger markets are in Africa. The continent's swelling middle class has made it a target
for industry growth, but airlines face significant challenges in the region including underdeveloped infrastructure
and government policies that favor domestic carriers.

The US continues to lead all nations based in air freight volume, followed by China and Germany, but the
United Arab Emirates is expected to overtake Germany as the third-largest air freight market by 2018. The Middle
East and Africa are projected to be the fastest growing regions for air freight over IATA's 2014-2018 forecast
period.

An initiative launched by the European Commission, Single European Sky (SES) seeks to address the massive
inefficiencies resulting from Europe's highly fragmented system of air traffic management. Such inefficiencies
cost the industry billions of dollars, fueling efforts to create a single, unified air space for all EU countries.
Several country blocks have already been formed as part of SES, eliminating many of the redundancies in
aviation bureaucracy and air traffic control that increase flight delays and harmful airplane emissions.
Airline demand in a given country or an entire region can be affected by political and social unrest. Fear of
violent protests, government crackdowns, or acts of terrorism can discourage travel, and governments may
issue travel advisories for certain locations. In addition to curtailing air traffic, airlines may pay a price for
increased security measures during periods of unrest.

Regional Highlights
In the US, delays at major regional hubs, such as Atlanta, Chicago, Houston, and New York, can create traffic
bottlenecks. Airlines are impacted by local and regional economic circumstances that affect travel volume.

Based on number of establishments, top metro areas for airlines include New York, Miami, Los Angeles, Dallas,
and Chicago.

Human Resources
Average hourly wages for the US scheduled air transportation industry are significantly higher than the national
average. The industry injury rate is more than double the national average.

Most airline employees belong to unions that represent their specialized functions, including pilots, flight
attendants, mechanics, and ground crew. Pilots and mechanics require special certification by the FAA.

Industry Employment Growth

Bureau of Labor Statistics

Industry Growth Rating

Demand: Driven by leisure and business travel

Profits hinge on effective operations
Risk: Economic health impacts travel

Quarterly Industry Update

9.5.2016
Challenge: Airline 'Miscues' Cause Most Flight Delays, Study Finds - Airlines can't blame the weather for
most of the US flight delays in 2015. Mechanical issues, computer glitches, and crew scheduling were the leading
sources of flight delays, according to a recent report from Bloomberg that examined data from the federal
Bureau of Transportation Statistics. Historically, weather and setbacks attributed to the FAA's air traffic control
system have been the chief causes of flight delays, which are defined as flights that reach the gate at least 15
minutes later than the scheduled arrival time. But last year "airline miscues" caused more late arrivals.
Specifically, delays were linked to tasks such as maintenance, aircraft cleaning, or baggage loading; pilots who
didn't arrive on time also caused holdups. More than 323,000 flights were delayed last year due to the airlines, or
about almost six out of every 100 flights. Airlines responded to the study by calling the data imprecise and
claiming that they've helped reduce tardiness by cutting the overall number of flights offered.
Industry Impact - Airlines may need to focus more efforts on preventing or decreasing flight delays that are a
result of setbacks such as mechanical issues, computer glitches, or crew scheduling.

Industry Indicators
US corporate profits, an indicator of business demand for airline traffic, fell 4.9% in the second quarter of 2016
compared to the same period in 2015.

The spot price of crude oil, which affects airline fuel costs, rose 4.5% in the week ending November 11, 2016,
compared to the same week in 2015.

US tourism spending on passenger air transportation, an indicator of airline revenues, increased 1.5% in the
second quarter of 2016 compared to the same period in 2015.

Industry Forecast
US personal consumption expenditures for US airlines are forecast to grow at an annual compounded rate of 5%
between 2016 and 2020. Data Published: September 2016

First Research forecasts are based on INFORUM forecasts that are licensed from the Interindustry Economic
Research Fund, Inc. (IERF) in College Park, MD. INFORUM's "interindustry-macro" approach to modeling the
economy captures the links between industries and the aggregate economy. Forecast FAQs

Industry Drivers
Changes in the economic environment that may positively or negatively affect industry growth.

Data provided by First Research analysts and reviewed annually

Energy Prices Change in crude oil and related energy prices

Interest Rates Change in prime and related interest rates

Consumer Spending Change in overall level of consumer spending on goods and services

Technology Innovation Advances in science and technology, including information technology

 Government Regulations Changes in federal, state, or local government regulations or business-
related policies

Critical Issues
Profitability Depends on Business, Consumer Travel - Both business and tourist travel are reduced when the
economy slows. Global aviation traffic typically rises and falls at twice the pace of economic output, so a
change in the economy can double the impact for airlines. Because of relatively high fixed costs of airplanes,
airport facilities, and labor, airlines can't easily adjust to reduced passenger traffic.

Fuel Costs Can Vary Highly - Aircraft fuel can account for 20% to 40% of industry operating costs. Fuel costs
can change rapidly, making it difficult for airlines to adjust ticket prices. Some airlines use futures contracts to
protect against cost increases. Newer planes have better fuel consumption.

Business Challenges
Capital-Intensive Industry - Airplanes are expensive to acquire and maintain. Passenger airliners typically cost
between $70 and $400 million (with seating capacity ranging from for 100 to 500 passengers). Newer planes are
usually more fuel-efficient, but the high prices deter many airlines from buying them.

Industry Widely Regulated - The FAA, DOT, and TSA impose various fees on the industry, and can interfere
with airline operations. To expand operations, airlines need to get route permission from DOT and gates from local
airports.

Airlines Depend on Skilled Employees - Airlines can't fly without FAA-certified pilots and mechanics, whose
training takes years. The unions that represent these employees at most airlines have an exceptionally important
voice in labor issues.

Business Trends
Consolidation - The US airline industry has experienced substantial consolidation after a string of blockbuster
mergers and acquisitions: Delta Air and Northwest (2008), United Airlines and Continental Airlines (2010),
Southwest Airlines and AirTran (2010), and American Airlines and US Airways (2013). Such combinations are
designed to improve the efficiency and financial stability of major carriers. However, reduced competition has
raised concerns among some consumer advocates about higher fares and reduced flights and services.

Code-Sharing, Marketing Alliances - Airlines that serve a limited number of airports can expand their network
through code-sharing agreements with airlines that serve other airports. With code-sharing, connecting flights can
be booked on the other airline's planes. Marketing alliances typically include code-sharing as well as frequent-flier
programs and common use of airport lounges. Revenue from code-shared tickets is split between the partners.
Because of potential antitrust problems, code-sharing and marketing alliances have to be approved by the US
Department of Justice.

Industry Opportunities
New Distribution Capability - A system called New Distribution Capability (NDC) promises to create a
common communication link between airlines, travel agents, and other third-party service providers. Based on
extensible markup language (XML), a computer language that facilitates the interchange of data over the internet,
NDC seeks to eliminate current restrictions on the services and options that airlines can share with resellers and
other intermediaries. NDC should enable additional services and sales by facilitating richer content delivery and
greater service personalization, making it easier for consumers to compare flights, baggage options, seat
choices, and other ancillary services. As of mid-2016, 20 of the top 25 airlines groups had deployed, or made
plans to deploy, NDC standards, according to the International Air Transport Association.

Emerging Market Growth - Air traffic in emerging economies is growing rapidly and providing new revenue
opportunities for airlines. Markets in Asia, the Middle East, Africa, and Latin America have experienced much
higher growth rates than established economies in North America and Europe in recent years. Due to air service
agreements and government regulations that limit foreign airlines from carrying passengers beyond international
gateway cities, carriers typically form international joint ventures and alliances to facilitate the exchange of
passengers between route networks.

Ancillary Fees - Airlines are generating an increasing amount of revenue from ancillary fees, including baggage
fees, onboard food and beverage sales, premium seat assignments, and commissions earned on the sales of
hotel accommodations, car rentals, and other travel services. Baggage fee revenues in the US more than
quadrupled between 2007 and 2013, and reservation cancellation/change fees more than doubled over the same
period. Globally, airlines generated about $40 billion annually in ancillary fees, according to consulting firm
IdeaWorks. Carriers continue to find new products and services, such as extra leg room and better food options,
for which they can charge fees.

Fuel-Efficient Aircraft - Because of high fuel costs, newer planes and engines are designed to be as efficient as
possible. Airlines are eager to upgrade to more fuel-efficient planes, and aircraft companies are competing to
manufacture the most fuel-efficient models. Both the Airbus A320neo (introduced in 2016) and the Boeing
737MAX (slated for introduction in 2017) were designed to offer significant fuel savings over their predecessors.

Frequent Flier Sales to Businesses - Some airlines sell frequent flier miles or points, as if they were a product,
to companies unrelated to the loyalty program. This practice is a way to further commercialize the frequent flier
asset beyond the traditional airline, hotel, and credit card partners. Businesses that buy the miles or points use
them in their own incentive programs for customers or employees.

Efficiencies with Electronic Documents - Computer technology allows customers to board flights without paper
tickets and to generate their own boarding passes. Bar coded baggage tags improve handling and identification
for ticketless and self-serve travelers. As many as 90% of some airlines' customers now receive their tickets
online.

Executive Insight

Chief Executive Officer - CEO

Selecting Aircraft Mix
Planned operations and market position drive aircraft buying strategies. Southwest Airlines, which has a point-
to-point route structure and strives to be the low-fare, no-frills provider, historically has contained costs by
operating only Boeing 737s. Similarly, JetBlue Airways operates mostly Airbus 320s. Standardizing on a single
aircraft gives management better leverage with the supplier, helps control maintenance and repair costs, and
simplifies flight operations and training.

Establishing Routes
The airline selects cities and airports to reach a specific customer segment, targets underserved cities or
secondary airports, or takes market share from high-priced incumbents. In selecting airports, management also
considers level of demand, cost of labor and maintenance, and direct versus hub-spoke route structure.

Chief Financial Officer - CFO

Electing to Buy or Lease Aircraft
The cost of owning, leasing, and maintaining aircraft typically accounts for between 5-10% of total airline
expenses. Financial management develops a capital strategy that includes aircraft acquisitions. The buy-or-lease
decision hinges on the prices and lease terms of airplane manufacturers and leasing companies. Leases usually
require at least a three year commitment and can apply to a single plane or many. Some airlines buy and lease,
but others do exclusively one or the other.

Mitigating Effects of Rising Fuel Prices

Fuel typically accounts for between 20% and 40% of operating expenses. Airlines may try to pass increases to
consumers, but unless all airlines do this simultaneously, those that do are at a competitive disadvantage. To
minimize the impact of fuel price increases, airlines may cancel low-capacity routes, consolidate routes, and use
one-engine taxiing at airports. Proactively, most airlines engage in financial hedging to protect against fuel cost
increases, and may buy newer planes and engines that are more fuel-efficient for a particular type of service.

Chief Information Officer - CIO

Automating Flight Operations
An airline may have up to 1 million departures a year involving hundreds of aircraft and thousands of flight and
ground crew personnel. To support its flight operations, the airline IT group must implement a system to schedule
the aircrafts and crews available, including backups, and assure that each is in the right place. This detailed
scheduling requires interfacing with other systems, such as passenger sales and airframe maintenance, to
assure that data is entered only once, but is available to all systems.

Enhancing Internet-based Passenger Reservation Systems

Airlines have recognized that the potential for savings is great when travelers make their own reservations online.
Online reservations can reduce the number of reservation staff required, travel agent fees, and the amount paid
for postage to mail tickets. The airline IT group must implement and maintain a user-friendly, non-intimidating
system that the traveling public will use, and tie it to other internal systems.

Human Resources - HR
Dealing with Union Employee Issues
The industry is labor-intensive and most airline employees are members of unions that represent various job
functions, such as pilots, flight attendants, mechanics, and ground crew. Unions that represent FAA-certified
pilots and mechanics have a significant voice in labor issues, due to these employees' importance to airlines.
Wages and benefits are top issues for employees and airline management, and a large expense for airlines. To
minimize labor issues, HR departments are generally positioned to act as an intermediary between airline
operations management and the unions about compliance with union contract terms.

Training for Regulatory Compliance

The airline industry is highly regulated, particularly with regard to maintenance and safety. Compliance curricula
are complex and affect many job functions and employees. The HR group oversees the establishment of
training programs for employees to reach and retain certification in their area of specialty. HR schedules
individuals for classes, monitors attendance and certification status, and assures that the requisite number of
certified specialists is available at each location.

VP Sales/Marketing - Sales
Expanding Marketing Alliances
Management uses alliances with domestic or international airlines, travel organizations, and destination sites as an
economical way to reach a greater customer base. Marketing alliances include frequent flier programs, joint travel
packages, shared use of airport lounges, code-sharing, and full destination travel packages, including hotel, local
transportation, and entertainment. Marketing teams must assure that programs don't violate antitrust laws; some
submit theirs to the Department of Justice for review.

Selling Specialized Services

Besides carrying passengers, cargo, and mail for the general public, airlines also earn revenue by providing
specialized transportation services or by contracting to offer maintenance, reservations, or training services to
other carriers. Marketing services to other carriers or to individual industries presents different challenges than
marketing to the public at large.

Executive Conversation Starters

Chief Executive Officer - CEO

What aircraft buying strategies could help the airline decrease operational and buying costs?
Using a single type of aircraft can give an airline leverage with suppliers, control maintenance costs, and
simplify flight operations.

What are the airline's strategies for planning flight routes?

Airlines consider level of demand, cost of maintenance, and direct versus hub-spoke route structure.

Chief Financial Officer - CFO

How many aircraft is the airline planning to lease or buy?
Some airlines buy and lease, but others do exclusively one or the other.

How does the airline mitigate volatile fuel prices?

Most airlines engage in financial hedging, and may buy newer planes and engines that are more fuel-efficient for
a particular type of service.

Chief Information Officer - CIO

What systems help the airline automate flight operations?
Detailed operational scheduling requires interfacing with other systems, such as passenger sales and
maintenance.

What main technology challenges face the airline's online passenger reservation service?
The airline must implement and maintain a user-friendly, non-intimidating system that the traveling public will use,
and tie it to other internal systems.

Human Resources - HR
What key labor issues face the airline?
Wages and benefits are top issues for employees and airline management, and often represent an airline's
largest single expense.

What types of regulatory compliance programs does the company maintain?

Airlines provide regulatory certification classes, monitor certification status, and schedule the location of certified
specialists.

VP Sales/Marketing - Sales
What marketing partnership strategies might help the airline expand its customer base?
Marketing alliances include frequent flier partner programs and travel packages, including hotel, local
transportation, and entertainment.

What additional specialized services could the airline provide to increase revenues?
Airlines can specialize by customer industry or geographic areas, or can provide maintenance, training, and
reservations for other carriers.

Call Prep Questions

Conversation Starters
How has the company adapted to changes in business and leisure travel?
Both business and tourist travel are reduced when the economy slows.

How does the company protect itself against rising fuel prices?
Aircraft fuel can account for 20% to 40% of industry operating costs.

How is the company planning to finance its next aircraft purchase?

Airplanes are expensive to acquire and maintain.

What plans does the company have to deploy or extend New Distribution Capability (NDC) standards?
A system called New Distribution Capability (NDC) promises to create a common communication link between
airlines, travel agents, and other third-party service providers.

What international destinations represent the greatest revenue opportunity for the company?
Air traffic in emerging economies is growing rapidly and providing new revenue opportunities for airlines.

How much of the company's revenue is generated from ancillary fees?

Airlines are generating an increasing amount of revenue from ancillary fees, including baggage fees, onboard
food and beverage sales, premium seat assignments, and commissions earned on the sales of hotel
accommodations, car rentals, and other travel services.

Quarterly Industry Update

How is the company working to decrease airline-caused flight delays?
Airlines can't blame the weather for most of the US flight delays in 2015.

Operations, Products, and Facilities

If a passenger company, how much revenue comes from also flying cargo?
For passenger airlines with cargo operations, cargo may contribute about 3% of revenue.

What is the airline's average load factor?

Between 70-80% is typical.

How many different types of aircraft does the company operate?

Low-cost carriers may operate only one type of aircraft; larger carriers may operate 10 to 20 types.

What is the usual seating capacity of the company's airplanes?

Seating capacity is typically 120 to 400 for major airlines, 30 to 90 for regional.

Customers, Marketing, Pricing, Competition

What was the airline's average passenger fare last year?
Although major airlines compete very heavily on fare prices, smaller regional airlines can often undercut their
prices.

What types of passenger does the airline target?

Some airlines target business travelers, tourists, or price-conscious passengers.

What types of frequent flier rewards does the company offer?

Programs can be based on miles flown or number of flights taken. Rewards can be free tickets, service
upgrades, or merchandise.

What percentage of the airlines tickets are sold through its website?
Internet sites allow customers to easily compare airline schedules and fares, buy tickets, reserve flights, and, in
some cases, choose seats and generate their own boarding passes.

What type of code-sharing or marketing alliances does the company have with other airlines?
Through code-sharing, airlines can offer a larger number of destinations to customers by booking connecting
flights on a partner's airplanes.

Regulations, R&D, Imports and Exports

What plans does the company have to expand into additional airports?
The Department of Transportation regulates access to airports through certificates of public convenience and
necessity.

What challenges has the company faced in maintaining FAA operating or airworthiness certificates?
The FAA has jurisdiction over air safety matters.

How much of the company's business comes from international flights?

International revenue is substantial for some airlines.

Organization and Management

How does the company attract, train, and retain employees?
Many airline workers require extensive and ongoing training, and especially for pilots and mechanics, FAA
certification.

How many of the company's employees belong to unions?

The employees of most airlines belong to unions that represent the various specialized functions in their
company, including pilots, flight attendants, mechanics, and ground crew.

Financial Analysis
What percentage of the company's planes is owned versus leased?
Airlines often have a mix of owned and leased aircraft.

For leased planes, how long until the leases expire?

Airplane leases are usually for three or more years.

Does the company buy new or used airplanes?

The market for used airplanes is large. Many planes have an economic life of 20 years or more.

What percentage of operating costs is due to labor?

For many airlines, labor accounts for about 30% of operating costs.

How does the company protect itself against rising fuel prices?
Fuel prices can be volatile. Many airlines use financial hedging strategies to protect against price increases.

Business and Technology Strategies

What plans does the company have to add or cut routes?
Some routes are more profitable than others.

How many other airlines serve the same major routes the company flies?
Many markets are served by only a few airlines.
Financial Information

COMPANY BENCHMARK TRENDS

Quick Ratio by Company Size

The quick ratio, also known as the acid test ratio, measures a company's ability to meet short-term obligations
with liquid assets. The higher the ratio, the better; a number below 1 signals financial distress. Use the quick ratio
to determine if companies in an industry are typically able to pay off their current liabilities.

Financial industry data provided by MicroBilt Corporation collected from 32 different data sources and represents financial performance of over
4.5 million privately held businesses and detailed industry financial benchmarks of companies in over 900 industries (SIC and NAICS). More
data available at www.microbilt.com.

Current Liabilities to Net Worth by Company Size

The ratio of current liabilities to net worth, also called current liabilities to equity, indicates the amount due
creditors within a year as a percentage of stockholders' equity in a company. A high ratio (above 80 percent) can
indicate trouble.
Financial industry data provided by MicroBilt Corporation collected from 32 different data sources and represents financial performance of over
4.5 million privately held businesses and detailed industry financial benchmarks of companies in over 900 industries (SIC and NAICS). More
data available at www.microbilt.com.

COMPANY BENCHMARK INFORMATION

NAICS: 4811

Data Period: 2015 Last Update September 2016

Table Data Format Mean

Company Size All Large Medium Small

Size by Revenue Over $50M $5M - $50M Under $5M

Company Count 2378 17 52 2309

Income Statement

Net Sales 100% 100% 100% 100%

Gross Margin 82.3% 81.6% 81.3% 85.1%

Officer Compensation 1.2% 0.8% 1.0% 2.4%

Advertising & Sales 0.4% 0.5% 0.4% 0.4%

Other Operating Expenses 77.5% 77.6% 77.4% 77.4%

Operating Expenses 79.1% 78.9% 78.8% 80.2%

Operating Income 3.1% 2.7% 2.5% 4.9%

Net Income 1.1% 0.9% 0.9% 1.8%

Balance Sheet

Cash 12.5% 12.1% 14.0% 12.2%

Accounts Receivable 13.5% 13.8% 16.2% 10.3%

Inventory 4.4% 4.5% 4.7% 3.9%

Total Current Assets 37.6% 38.1% 42.8% 31.5%

Property, Plant & Equipment 50.0% 49.7% 42.9% 57.4%

Other Non-Current Assets 12.4% 12.3% 14.3% 11.1%

Total Assets 100.0% 100.0% 100.0% 100.0%

Accounts Payable 10.5% 10.8% 11.9% 8.5%

Total Current Liabilities 29.1% 29.4% 32.7% 25.3%

Total Long Term Liabilities 25.6% 23.7% 23.3% 32.2%

Net Worth 45.3% 46.9% 44.1% 42.5%

Financial Ratios

Quick Ratio 0.92 0.91 0.96 0.93

Current Ratio 1.29 1.30 1.31 1.25

Current Liabilities to Net Worth 64.4% 62.7% 74.1% 59.4%

Current Liabilities to Inventory x6.59 x6.53 x6.90 x6.43

Total Debt to Net Worth x1.21 x1.13 x1.27 x1.35

Fixed Assets to Net Worth x1.10 x1.06 x0.97 x1.35

Days Accounts Receivable 29 29 33 24

Inventory Turnover x6.82 x7.02 x7.20 x5.89

Total Assets to Sales 57.8% 57.1% 54.1% 63.5%

Working Capital to Sales 4.9% 5.0% 5.5% 3.9%

Accounts Payable to Sales 6.2% 6.3% 6.6% 5.5%

Pre-Tax Return on Sales 1.7% 1.4% 1.4% 2.9%

Pre-Tax Return on Assets 3.0% 2.5% 2.6% 4.5%

Pre-Tax Return on Net Worth 6.6% 5.3% 5.9% 10.6%

Interest Coverage x1.98 x1.86 x1.95 x2.20

EBITDA to Sales 10.2% 9.5% 9.5% 12.6%

Capital Expenditures to Sales 5.3% 5.0% 5.5% 5.6%

Financial industry data provided by MicroBilt Corporation collected from 32 different data sources and represents financial performance of over
4.5 million privately held businesses and detailed industry financial benchmarks of companies in over 900 industries (SIC and NAICS). More
data available at www.microbilt.com.

ECONOMIC STATISTICS AND INFORMATION

Change in Consumer Prices - Bureau of Labor Statistics

VALUATION MULTIPLES

No valuation multiples available for this industry.

Industry Websites
Air Transport World
News. Other information by subscription.

Airlines for America

News, economics, government affairs, and publication.

AirWise.com
International industry news.

Aviation Week
US industry news.

Boeing - Aircraft List Prices

Current list prices for new aircraft.

Boeing - Current Market Outlook

Boeing strategic airline market assessment.

Bureau of Transportation Statistics

Industry operating and financial statistics.

DOT Office of the Assistant Secretary for Aviation and International Affairs
Policy and regulatory issues.

EIA - Jet Fuel

Spot prices for jet fuel from the Energy Information Administration.

International Air Transport Association

News, statistics, and articles on opening page.

National Airlines Council of Canada

Media and advocacy.

Regional Airline Association

Regional statistics.

Glossary of Acronyms
A4A - Airlines for America

ASM - available seat miles

BTS - Bureau of Travel Statistics

CRS - computerized reservation system

International Air Transport Association - IATA

LCC - low-cost carrier

NDC - New Distribution Capability

OEM - original equipment manufacturer

PMA - parts manufacturing authorities

RPM - revenue passenger miles

SES - Single European Sky

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permission.