巴克莱-美股-航空业-北美航空业：对西南部的战略意义-2019.5.31-22页 (2).pdf

Equity Research 31 May 2019 FOCUS Barclays Capital Inc.and/or one of its affiliates does and seeks to do business with companies covered in its research reports.As a result,investors should be aware that the firm may have a conflict of interest that could affect the objectivity of this report.Investors should consider this report as only a single factor in making their investment decision.PLEASE SEE ANALYST CERTIFICATION(S)AND IMPORTANT DISCLOSURES BEGINNING ON PAGE 15.Restricted-Internal North America Airlines Unbundling Basic Economy;Strategic Implications for Southwest With nearly every US airline now marketing almost all low published fares as a basic economy unbundled offerings,we suspect Southwest will face revenue challenges given the companys insistence on a bundled product offering.And the data supports the conclusion that a structural shift is under way to unbundled consumer expectations.While it is difficult to perfectly isolate the impact,our analysis shows both network carriers and ultra-low-cost carriers(ULCCs)likely benefit from the greater proliferation of unbundled,basic economy products.Like it or not as a consumer,basic economy is here to stay,with all the US carriers in our coverage offering or planning to offer an unbundled product by the end of the year,with the exception of Southwest.While the move to a la carte pricing should aide unit revenue outcomes for both network carriers and the already unbundled ULCCs,it also likely leaves Southwest with relatively fewer pricing tools,placing the carrier at a disadvantage to compete on ever lower entry fares for highly price sensitive leisure passengers,with limited ability to recoup revenue on an ancillary basis.A common unbundled product likely benefits most of the US airline industry.The benefits to network carriers,Delta,United and American are straightforward,as the unbundled model allows carriers to compete more effectively with a comparable product that should ultimately help boost ancillary revenues or support buy-up to more premium products.However,we also think it potentially improves ULCCs pricing power,as carriers are more likely to compete on other attributes including direct service,schedule,time and other service offerings.Further,greater adoption of the unbundled model could increase consumer acceptance of unbundling,the basis of the ULCC model.Southwest challenges likely extend past MAX groundings.Among our US airline coverage,Southwest has had the lowest topline growth in the last few years,even with modest capacity expansion,but also slower unit revenue performance since 2016.Admittedly,it has been a challenging couple of years that included a re-fleeting,an engine accident and now MAX groundings,which all impacted revenue outcomes at Southwest.While Southwest unit revenues appear to be outperforming in recent periods,tailwinds from lapping lower outcomes in previous years appear to account for most of the recent performance.Further,especially with the on-going Boeing MAX groundings,we suspect pricing challenges from basic economy could be largely masked in 2019.Our analysis highlights that when other carriers discount fares aggressively,especially ULCCs which can make up ground on ancillary revenue,Southwest is left with fewer pricing tools to compete for highly price sensitive leisure customers.We dive deep into the route level data provided by the US DOT to create an analysis that highlights various competitive scenarios.See series of graphics starting on page 2 that illustrate our market analysis supporting our conclusions.INDUSTRY UPDATE North America Airlines POSITIVE Unchanged North America Airlines Brandon R.Oglenski+1 212 526 8903 BCI,US Matthew Wisniewski,CPA+1 212 526 5143 BCI,US David Zazula,CFA+1 212 526 5108 BCI,US Matthew Preston+1 212 526 5752 BCI,US Barclays|North America Airlines 31 May 2019 2 Unbundling Basic Economy;Strategic Implications for Southwest Despite very recent unit revenue outperformance,we see the move to basic economy as a clearly negative development for Southwests bundled pricing strategy(Pages 3-5).In recent periods,Southwests unit revenues have tracked ahead of peers.However,much of the recent outperformance appears to be from lapping lower outcomes in prior periods.Further,despite some modest capacity expansion in the last few years,slower unit revenue performance led Southwest to be the slowest total revenue growth carrier among our US airline coverage since 2016.Basic economy fares exist or will be implemented at all US carriers by the end of this year,with the exception of Southwest(Page 6).Delta was the first to implement basic economy in 2015,with both United and American completing US Domestic roll-outs by mid-2017.Further,Alaska rolled out a basic economy product in early 2019,while JetBlue is expected to follow suit later this year.Both network and ultra-low cost carriers should benefit from the greater proliferation of unbundled,basic economy products(Pages 7-8).While network carriers should benefit from greater ancillary revenues,we think the ULCCs could achieve greater pricing power now that similar competitive products exist in the market.To test our hypothesis on the impact of basic economy,we segmented the US domestic market in an attempt to isolate different competitive scenarios(Pages 9-13).While we found numerous ways to segment the US domestic market,below we show a few different samples that we think highlight the impact of unbundled pricing strategies.In short,we provide evidence that the broader adoption of an unbundled,basic economy product,appears to have improved relative pricing outcomes at both the network and the ultra-low cost carriers but likely challenges Southwest,without an unbundled product.o Total US Domestic Markets:Network carriers outperform,Southwest underperforms(Figures 11-12).While lower ticket pricing in 2018 appears to have pressured outcomes for most carriers,greater ancillary opportunities results in healthy total unit revenue expansion at both the Network carriers and ULCCs.o US Domestic Leisure Markets:Fare pricing means more to Southwest(Figures 13-14).A sample of the US domestic market that had consistent ULCC service shows that Southwests ticket revenues did not improve until ULCCs pricing also inflected positively.Absent the ancillary revenues stream possessed by both ULCCs and now network carriers via basic economy,Southwest total revenues underperformed.o Network Carrier Domestic Markets:Network carriers are outperforming since implementation of basic economy(Figures 15-16).In markets with mostly network carrier service,aggressive ticket pricing from ULCCs pressured outcomes for Southwest,while it appears network carriers actually were able to expand unit revenues.o Southwest Domestic Markets:Despite dominate market share,Southwest still underperformed(Figures 17-20).In Southwests key markets,where the carrier maintains at least a 50%market share,network carriers and ULCCs show clear outperformance following the implementation of basic economy by the network carriers in mid-2017.Barclays|North America Airlines 31 May 2019 3 US Carrier Revenue Performance Despite very recent unit revenue outperformance,we see the move to basic economy as a clearly negative development for Southwests bundled pricing strategy.For the past two years,network carriers Delta,United and American have generally expanded unit revenues(Figures 1-2).While Southwest appears to be tracking to more favorable unit revenue outcomes in 2019,much of the gains appear to be attributable to the lapping of specific company events,including a less optimized schedule during fleet retirements that expanded off-peak flying,an engine accident in April 2018 as well as calendar shifts(high demand Easter travel period shifted into 2Q this year).Nonetheless given much of the improvement in recent periods is from simply lapping lower outcomes in prior periods,we think the outperformance is likely not sustainable,especially with the on-going Boeing 737 MAX groundings.FIGURE 1 While Southwest is Currently Outperforming on Unit Revenue Gains,Network Carriers,United and American Generally Tracked Ahead the Past Few Years Note:/1 DAL excludes third party refinery and ancillary business revenues.Source:Company reports;Barclays Equity Research estimates.-6%-4%-2%0%2%4%6%1Q172Q173Q174Q171Q182Q183Q184Q181Q192Q19ELarge Cap Airline Unit RevenuesLarge Cap Airline Unit Revenues(total revenue/ASMs;yoy%growth)DALAALUALLUVUntil recently,LUV underperformed.However,recent outperformance largely due to lapping lower outcomesBarclays|North America Airlines 31 May 2019 4 FIGURE 2 Domestic Markets Are likely the Best Comparison,which Similarly Show that Southwest Underperformed Until Most Recently Source:Company Reports;Barclays research.While the network carriers have generally expanded unit revenues the past two years,performance among the smaller more leisure-focused airlines has varied.Most recently,Spirit and Alaska have begun to outperform after declines at the end of 2017 and 2018(Figure 3).However,elevated expansion did likely impact unit revenues,as Spirits capacity exceed 20%and Alaska aggressively built its west coast presence following the recent acquisition of Virgin America.FIGURE 3 Spirit Has Most Recently Outperformed Peers on Unit Revenues Source:Company reports;Barclays Equity Research estimates.-6%-4%-2%0%2%4%6%8%1Q182Q183Q184Q181Q19US Domestic Unit Revenues US Domestic Unit Revenues(%yoy chng;US Domestic;passenger rev./ASM)DALAALUALLUVSouthwestsunit revenues now appear to be tracking ahead of peers after underperforming in most of 2018-10%-5%0%5%10%15%1Q172Q173Q174Q171Q182Q183Q184Q181Q192Q19ELow Fare Airline Unit RevenuesLow Fare Airline Unit Revenues(total revenue/ASMs;yoy%growth)ALKJBLUSAVEALGTSpirit has recently performed ahead ofmost low cost carrier peersBarclays|North America Airlines 31 May 2019 5 A comparison of total revenue expansion clearly shows ULCC carriers,especially Spirit outperforming,with the larger network carriers expanding more modestly given larger scale(Figure 4).However,since 2016,it appears Southwest is the slowest growing carrier among our US Airline coverage(Figure 5).While Southwest had modest capacity growth,its unit revenue expansion fell behind most peers,highlighting the carriers underperformance on pricing(Figure 6).FIGURE 4 Ultra Low Cost Carriers,Spirit and Allegiant Maintain the Highest Revenue Growth FIGURE 5 While American,Southwest and Alaskas Growth has Been Below Peers Note:/1 Pro-forma for Virgin America.Source:Company reports;Barclays Research estimates.Note:/1 Pro-forma for Virgin America.Source:Company reports;Barclays Research estimates.FIGURE 6 Most Carriers Have Maintained Healthy Unit Revenue Growth Source:Company Reports;Barclays Equity Research.17.1%9.6%6.0%5.4%5.4%5.4%5.2%3.8%SAVEALGTJBLUDALLUVALK/1UALAAL2019E US Airline Revenue Growth2019E US Airline Revenue Growth(%yoy total revenue)ULCCNetworkCarriersLow Cost Carriers18.8%10.3%7.2%5.9%5.9%5.1%4.8%4.5%SAVEALGTJBLUUALDALALK/1AALLUV20162016-2019E US Airline Revenue Growth2019E US Airline Revenue Growth(%CAGR;total revenue)18.0%9.1%5.7%4.4%2.8%4.8%1.9%3.3%0.8%1.2%1.5%1.6%3.1%0.4%2.9%1.2%18.8%10.3%7.2%5.9%5.9%5.1%4.8%4.5%SAVEALGTJBLUUALDALALK/1AALLUV20162016-2019E Revenue Growth Contribution 2019E Revenue Growth Contribution(%CAGR;ASMs;TRASM)Capacity growthUnit Revenue growthMost US carries in our coverage have had healthy unit revenue expansion since 2016.Despitemodest capacity growth LUVs unit revenues underperforms most peersBarclays|North America Airlines 31 May 2019 6 Segmentation Strategy Has Expanded Across the US Market Delta was the first to implement its segmentation strategy including basic economy,but now most carriers have followed suit(Figure 7).Now varying business models including network carriers,low cost carriers,in addition to the ultra-low cost carriers,offer an unbundled product(Figure 8).Regardless,fare structures still largely remain intact with relatively high unit revenues at the network carriers,generally due to more extensive premium classes and small city,small aircraft regional flying.FIGURE 7 With Exception to Southwest,All US Carriers in our Coverage Have or Have Plans to Deploy an Unbundled Fare Option Source:Company reports;Barclays Research.FIGURE 8 Regardless of Business Model,Most US Carriers Now Have an Unbundled Product Offering Source:Company reports;Barclays research.US Airlines-Unbundled Product(Basic Economy)Timing US Airlines-Unbundled Product(Basic Economy)Timing Unbundled ProductUnbundled ProductStart DateStart DateDomestic Rollout Domestic Rollout CompletedCompletedDeltaDeltaBasic Economy2Q 20151Q 2017UnitedUnitedBasic Economy4Q 20162Q 2017AmericanAmericanBasic Economy1Q 20173Q 2017AlaskaAlaskaSaver Fare 4Q 20181Q 2019JetBlueJetBlueFare Options 2.0End of 2019TBDSouthwestSouthwestFew Ancillary products available18.117.616.913.412.812.010.59.3UALDALAALJBLUALKLUVALGTSAVEUS Network Carrier Unit RevenuesUS Network Carrier Unit Revenues(TTM 1Q19;TRASM;SLA adjusted;USD cents)/1NetworkNetworkCarriersCarriersLow Cost CarriersLow Cost CarriersUltra Low Cost CarriersUltra Low Cost CarriersFully unbundledUnbundledproduct by YE19Unbundledproducts since YE17 Unbundledproduct in 1Q19Barclays|North America Airlines 31 May 2019 7 Network and Ultra-Low Cost Carriers Should Benefit Most carriers have indicated that segmentation strategies could represent more than a 2%increase to passenger revenues(Figure 9).We think the broader existence of an a la carte pricing structure could be positive for competitive pricing dynamics(Figure 10).While the ancillary upside is clear to carriers that are newly implementing an unbundled product,we think ULCCs,could benefit from greater pricing power now that network carriers will be competing with a similar product.While network carriers still may garner a premium,we think its now more possible for ULCCs to compete on other attributes including schedule,timing,airport or other service offerings.FIGURE 9 Basic Economy and Broader Segmentation Initiatives Are Meaningful for Most Carriers Note:/1$85 from Alaskas premium classes initially based on 2015 results,while Saver Fare more recently introduced.As such total based on 2019 revenue given implementation starts in Dec.2018./2 Assumes 50%of$350-$400 Network and Product offering savings guidance is from segmentation.Source:Company reports;Barclays Research.Carrier Segmentation Initiatives Carrier Segmentation Initiatives CarrierCarrierSegmentation Segmentation (In Process)Announced Run-Announced Run-Rate BenefitsRate Benefits%of PAX%of PAX RevenueRevenueAlaska/1Alaska/1Main Cabin,Premium Class,and First Class($85m)/Saver Fare($100m)$185m Incremental revenue 2019E2.3%UnitedUnitedBasic Economy,Economy,Premium Economy,and First Class$1.0bn Incremental revenue by 2020E2.9%Delta Delta Basic Economy,Main Cabin,Delta Comfort+,First Class;Delta One(Trans Cont./Inter.)$2.7bn Incremental re