Scenario

You and your group work for a multi-national consulting firm. Your team is a group of capital budget consultants and are seeking new engagements. You intend on responding to a Request for Proposal (RFP) from ExpressJet that would allow your group to help ExpressJet decide how to acquire future assets. However, before you respond to the RFP, the management of your consulting firm requires due diligence on the industry and company.

ExpressJet has been on a downward turn in profit over the past several years due to aging planes. The current fleet is not fuel efficient and the cost of repairs are steadily increasing over time. The major carriers such as American, United, etc. are moving their business to other companies that can provide the same service for cheaper with more up-to-date airplanes.

In order for ExpressJet to compete, it needs to acquire new airplanes. Part of your team has completed a Sales Budget looking forward into the next quarter as a benchmark for future quarters. With that information, you need to help ExpressJet decide under which of the following capital acquisition scenarios would benefit the company most.

Assignment

Analyze the Sales Budget your team has created. Based on the projected revenue numbers within the quarterly data given, determine approximately how many new airplanes will be needed to generate the necessary revenue on an annualized basis. The industry uses Passenger Seat Miles as a measure of revenue. Current data fm the industry shows revenue per Passenger Seat Mile is 16 cents. ExpressJet believes that their revenue will go up by one cent per month during the quarter. An average plane flies 52,500,000 miles a year and will last 30 years. Complete a 2 to 3 page memo to the management of ExpressJet explaining your analysis of their asset needs.

Based on your teams determination of the number of airplanes needed, ExpressJet is considering multiple options for acquiring the Embraer 170 airplanes at a price of $10.9 million each. The executives in charge of capital acquisitions at ExpressJet are relying on you to show and explain which option will place the company in the best financial position based on your Net Present Value calculations. In the past, all acquisitions have been in cash. However with the current trend of the company, the options being considered are as follows:

• ExpressJet will borrow the funds necessary on a 5-year note from Bank of America. This will cause the marginal tax rate to be 35%
• ExpressJet will lease the planes for 10 years from LeaseCo. This will be an operating lease. This will cause the marginal tax rate to be 35%.

Capital Budgeting Data: Cost of new equipment Expected life of equipment in years Disposal value in 5 years Life Time Miles per plane Annual miles per year Number of workers needed Annual hours to be worked per employee Earnings per hour for employees Annual health benefits per employee Other annual benefits per employee% of wages Cost per Passenger Seat Mile Other variable costs per Seat Mile Costs to purchase cansper can Required rate of return Tax rate Monthly lease payments Lease term Monthly Note payments Note Term Down payment Purchase with Cash vs Lease vs Note Purchase Less Adjustments Less Interest payment Tax Benefit Less Depreciation Tax Benefit Less Tax Benefit Total benefits Total cost to purchase Total cost to lease Total cost to finance Net Present Value Purchase Item Cost of airplane Tax savings due to depreciation Disposal value Net Present Value Net Present Value Lease Item Lease Payments Tax savings of lease payments Net Present Value Net Present Value Purchase with Note Item Down payment Payments Tax savings due to interest payments Tax savings due to depreciation Disposal value Net Present Value ExpressJet $10,900,000 30 $1,090,000 1,575,000,000 52,500,000 3 2,000 $35 $2,000 15% $0.06 $0.10 $0.50 11% 35% 95,000 10 years $203,208.91 5 years 1,000,000 Cash Purchase Lease $10,900,000 $11,400,000 3,815,000 $3,990,000 3,815,000 $3,990,000 $7,085,000 $7,410,000 Year 0 1-30 30 After tax 11% PV Amount Factor -$10,900,000 1 127,167 8.6938 1,090,000 0.0437 1-10 1-10 After tax 11% PV Amount Factor -1,140,000 5.88923 399,000 5.88923 0 1-5 1-5' 1-30 30 After tax 11% PV Amount Factor -$1,000,000 1 -$2,438,507 3.6959 $90,477 3.6959 127,167 8.6938 1,090,000 0.0437 Year Year Purchase with Note $10,900,000 3,815,000 452,387 4,267,387 6,632,613 Present Value -$10,900,000 1,105,562 47,633 -$9,746,805 Present Value -6,713,722 2,349,803 -$4,363,919 Present Value -$1,000,000 -$9,012,477.71 $334,395.50 1,105,562 47,633 -$8,524,888 Monthly payment ($203,208.91) Month 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36 37 38 39 40 41 42 43 44 45 46 47 48 49 50 51 52 53 54 Principal balance $10,900,000 10,737,666 10,574,723 10,411,170 10,247,003 10,082,220 9,916,819 9,750,799 9,584,155 9,416,887 9,248,991 9,080,466 8,911,309 8,741,517 8,571,089 8,400,022 8,228,313 8,055,960 7,882,961 7,709,313 7,535,015 7,360,062 7,184,453 7,008,186 6,831,258 6,653,666 6,475,408 6,296,482 6,116,885 5,936,615 5,755,668 5,574,043 5,391,737 5,208,747 5,025,071 4,840,706 4,655,649 4,469,899 4,283,452 4,096,306 3,908,459 3,719,907 3,530,647 3,340,678 3,149,997 2,958,600 2,766,486 2,573,652 2,380,094 2,185,810 1,990,798 1,795,055 1,598,577 1,401,363 Principal payment ($162,334) (162,943) (163,554) (164,167) (164,783) (165,401) (166,021) (166,643) (167,268) (167,896) (168,525) (169,157) (169,792) (170,428) (171,067) (171,709) (172,353) (172,999) (173,648) (174,299) (174,953) (175,609) (176,267) (176,928) (177,592) (178,258) (178,926) (179,597) (180,271) (180,947) (181,625) (182,306) (182,990) (183,676) (184,365) (185,056) (185,750) (186,447) (187,146) (187,848) (188,552) (189,259) (189,969) (190,681) (191,396) (192,114) (192,835) (193,558) (194,284) (195,012) (195,743) (196,477) (197,214) (197,954) Interest ($40,875) (40,266) (39,655) (39,042) (38,426) (37,808) (37,188) (36,565) (35,941) (35,313) (34,684) (34,052) (33,417) (32,781) (32,142) (31,500) (30,856) (30,210) (29,561) (28,910) (28,256) (27,600) (26,942) (26,281) (25,617) (24,951) (24,283) (23,612) (22,938) (22,262) (21,584) (20,903) (20,219) (19,533) (18,844) (18,153) (17,459) (16,762) (16,063) (15,361) (14,657) (13,950) (13,240) (12,528) (11,812) (11,095) (10,374) (9,651) (8,925) (8,197) (7,465) (6,731) (5,995) (5,255) Payment ($203,209) (203,209) (203,209) (203,209) (203,209) (203,209) (203,209) (203,209) (203,209) (203,209) (203,209) (203,209) (203,209) (203,209) (203,209) (203,209) (203,209) (203,209) (203,209) (203,209) (203,209) (203,209) (203,209) (203,209) (203,209) (203,209) (203,209) (203,209) (203,209) (203,209) (203,209) (203,209) (203,209) (203,209) (203,209) (203,209) (203,209) (203,209) (203,209) (203,209) (203,209) (203,209) (203,209) (203,209) (203,209) (203,209) (203,209) (203,209) (203,209) (203,209) (203,209) (203,209) (203,209) (203,209) 55 56 57 58 59 60 Totals 1,203,409 1,004,713 805,272 605,083 404,143 202,450 (198,696) (4,513) (203,209) (199,441) (3,768) (203,209) (200,189) (3,020) (203,209) (200,940) (2,269) (203,209) (201,693) (1,516) (203,209) (202,450) (759) (203,209) ($10,900,000) ($1,292,535) ($12,192,535) Plunkett Research Ltd. Copyright (C) All Rights Reserved www.plunkettresearch.com EXPRESSJET AIRLINES INC (WWW.EXPRESSJET.COM) Ticker: Subsidiary Exchange: Employees: 8,500 Fiscal Year Ends in N/A Phone: 404-856-1000 Fax: 404-856-1405 Address: 100 Hartsfield Center Pkwy., Ste. 700 Atlanta, GA 30354 United States Industry Ranks Types Of Business 1. AMR Eagle Holding Corp 2. American Airlines Group Inc 3. Air France 4. Deutsche Lufthansa AG 5. United Continental Holdings Inc 6. Air France-KLM SA 7. International Consolidated Airlines Group SA (IAG) 8. Virgin Group Ltd 9. Emirates Airline (The Emirates Group) 10. Southwest Airlines Co 71. ExpressJet Airlines Inc Industry NAICS code: 481111 Parent Company: SkyWest Inc Regional Airline 40,990,000,000 40,180,000,000 37,390,930,000 37,223,410,000 36,556,000,000 29,212,030,000 26,532,560,000 24,953,070,000 23,154,140,000 20,425,000,000 1,121,000,000 Contacts Text Jerry Atkin Brad Holt Kevin Wade Charlie Tutt Terry Vais Brandee Reynolds Ken Ashworth Terry Vais CEO Pres. VP-Finance/Controller VP-Flight Oper. VP-Customer Care VP-In-flight Svcs. VP-Maintenance COO Excel Description ExpressJet Airlines, Inc. is a regional air carrier based in Atlanta, Georgia. The airline, which serves as a Delta Connection and United Express carrier, averages over 1,077 daily departures to more than 180 destinations in the U.S., the Bahamas, Mexico and Canada. Its hubs are located at a number of U.S. airports including Dallas/Fort Worth International Airport, Hartsfield-Jackson Atlanta International Airport, Detroit Metropolitan Airport, George Bush Intercontinental Airport, Newark Liberty International Airport and O'Hare International Airport. ExpressJet transported more than 22 million people in 2016. Its fleet consists of 225 Bombardier and Embraer jet aircraft flown under the American Airlines, American Eagle, Delta Air Lines, Delta Connection, United Airlines and United Express brand names. SkyWest, Inc., the firm's parent company, views the firm as a mission-critical element of its broader operation, both in terms of the potential for profitable regional service and as a conduit for routing passengers to its long-haul domestic and international flights. -1- Plunkett Research Ltd. Copyright (C) All Rights Reserved www.plunkettresearch.com Financials $USD, In whole numbers Sales Profits 2016 1,121,000,000 Brands, Divisions and Affiliates 2015 1,169,923,000 2014 1,346,859,000 2013 1,466,341,000 2012 1,593,527,000 2011 1,640,837,000 2010 808,001,000 Top Salaries Salary Bonus SkyWest Inc Other Thoughts Corporate Culture Employees of the firm receive benefits including medical, dental, vision and mental health benefits; a prescription drug plan; domestic partner benefits; long-term disability; life insurance; an employee assistance program; a flexible spending account; and 401 (k). -2- ExpressJet Sales Budget SALES BUDGET: Miles flown by fleet Revenue per seat mile Total sales October 131,250,000 $0.16 $21,000,000 November 131,250,000 $0.17 $21,656,250 December 131,250,000 $0.18 $23,625,000 Quarter 393,750,000 $0.17 $66,281,250 To the Travel Industry Exported from Plunkett Research Online via Plunkett's Build-A-Report Downloaded on: November 01, 2017 A major update of this data was completed on: August 18, 2017 Compiled by Cody Stiffler Group 7 Consulting, LLC Copyright Plunkett Research Ltd. www.plunkettresearch.com | voice: 713.932.0000, USA All rights reserved. Plunkett Research Ltd. Copyright (C) All Rights Reserved www.plunkettresearch.com This report was exported by a user of Plunkett Research Online, enabled by Plunkett's Build-AReportSM. Available data used in this guide may include: Industry Trends Industry Statistics Company Profiles Industry Glossary This report is not intended for resale or for broad public use or distribution outside the premises of the actual subscriber to Plunkett Research Online. Permitted uses include internal sales guides, internal reports, study guides or course guides at schools and universities, employee training materials, support for individual job seekers, consulting, strategy and analysis. Use of this report is subject to the limited warranties contained herein and posted at www.plunkettresearchonline.com. For additional information about this service and for a list of all Plunkett Research products, see www.plunkettresearch.com or call 713.932.0000 (USA). We provide market research, analysis, statistics, research tools and corporate profiles in the following industry sectors: Advertising, Marketing & Branding Airline, Hotel & Travel Apparel & Textiles Asian Companies Automotive Banking, Mortgages & Credit Biotechnology Canadian Companies Chemicals, Coatings & Plastics Consulting E-Commerce Energy & Utilities Engineering & Research Entertainment & Media Food, Beverage & Tobacco Games, Apps & Social Media Green Technology Health Care InfoTech, Computers & Software Insurance International Companies Investment & Securities Job Seekers' Resources Manufacturing Middle Market Companies Nanotechnology & MEMS Outsourcing & Offshoring Private Companies Real Estate & Construction Renewable & Alternative Energy Restaurant, Hotel & Hospitality Retailing Sports Telecommunications Transportation & Logistics Wireless, Cellular, & RFID TABLE OF CONTENTS INDUSTRY TRENDS 1 Discount Airlines Compete with Legacy Airlines, but the Differences Are Beginning to Blur 1 Major Airlines Change Strategy, Charge Fees and Boost Profits 1 Boeing and Airbus Face Waning Orders/Major Aircraft Market in China 2 New Aircraft Designs Offer Greater Passenger Comfort/More Efficient Engines 3 In Flight Wireless Takes Off 4 What Millennials and Mobile-Savvy Consumers Want as Tourists and Travelers 4 Self-Check-In Kiosks, RFID and Wireless Technologies Save Costs and Enhance Travelers' Experience at Airlines and Hotels 5 INDUSTRY STATISTICS 6 Airline, Hotel & Travel Industry Statistics and Market Size Overview 6 Air Carrier Traffic Statistics, U.S.: 1996-2016 7 Air Carrier Traffic Statistics, U.S.: 12 Months Ended March 2017 and March 2016 8 Annual U.S. Domestic Average Itinerary Air Fare: 1995-2016 9 U.S. Aviation Industry Average Annual Percentage Growth Forecasts by World Region: 2017-2037 10 U.S. Airline Passenger Activity: 2001-2037 11 Total Scheduled U.S. International Passenger Traffic, U.S. Commercial Air Carriers: 2001-2037 12 U.S. Airline Revenue Passenger Enplanements: January 1996-March 2017 13 Consolidation in U.S. Airlines 14 GLOSSARY 15 INDUSTRY ASSOCIATIONS AND ORGANIZATIONS 27 Plunkett Research Ltd. Copyright (C) All Rights Reserved www.plunkettresearch.com INDUSTRY TRENDS Updated 08-14-2017 Discount Airlines Compete with Legacy Airlines, but the Differences Are Beginning to Blur For 2016, discount carrier Southwest Airlines pulled ahead of American Airlines to reclaim its first-place rank among U.S. airlines, with 147.6 million passenger enplanements (up by 5.42% over the previous year), followed by Delta with 118.4 million (up 4.37%) and American Airlines with 117.3 million (up 38.43% and boosted significantly by its 2015 acquisition of US Airways). United (which merged with Continental in 2011) totaled 72.8 million enplanements (up 7.02%); and JetBlue had 30.8 million (up 8.91%). These numbers include enplanements for both domestic and international flights. Since its first flight in 1971, Southwest and its no-frills business model have enjoyed tremendous success, wooing customers based on price, not perks. For most of its history, Southwest's single-plane platform strategy (Boeing's 737) kept maintenance costs low, while its point-to-point flying system has helped to give it a solid reputation in on-time performance. (Southwest picked up some Boeing 717s when it acquired AirTran, adding a second type of aircraft for the first time in its history.) Despite the fact that Southwest started out and made its fortune as a discount airline, it has grown to be one of the U.S.' largest carriers with expenses commensurate with its size. Some might argue that Southwest is no longer a discount airlinethat its 40+ years of operations, massive size, ticket prices and business strategy make it more of a legacy airline, albeit one without significant overseas routes. In general terms, Southwest is facing tough competition in the form of newer discount airlines such as JetBlue. Although JetBlue has only a fraction of the fleet that Southwest boasts, it has expanded rapidly, adding new planes and entering new markets. JetBlue and Southwest are making efforts to attract more business travelers. Both offer in-flight internet access on a large portion of their fleets, which has powerful appeal to business travelers because they can work while flying. Southwest offers \"business select\" fares which afford business travelers to board Southwest aircraft first for priority seating for an additional charge. Additional perks included in Business Select are a complimentary beverage, additional frequent flyer credits and expedited security lines at participating airports. As of mid-2016, Southwest was implementing technological improvements that would enable it to institute red-eye flights from the West Coast of the U.S. to markets including Baltimore, Chicago and Atlanta. It was also working on offering selected flights on a less-than-daily basis (previously, the carrier had to fly the same schedule from Sunday through Friday to all cities in its U.S. network), and the ability to cut flight schedules on days with typically slow demand such as Tuesdays and Wednesdays. In 2017, it unveiled a new integrated reservation system to more efficiently handle its growing presence as an international carrier. The new options, which the company hopes to have fully in place by 2018, could add as much as $500 million to its annual profit. Historically, U.S. discount carriers largely confined their operations to domestic travel, leaving international flights to the full-service airlines. However, JetBlue and Spirit are now offering tourist destinations like the Bahamas, Jamaica, Costa Rica, Aruba and the Dominican Republic, and may eventually fly even further afield. Southwest's acquisition of AirTran gave it a number of international destinations (including Jamaica, Mexico, the Dominican Republic and the Bahamas). In 2016, Southwest opened a new $100 million international terminal at Houston's Hobby Airport, which supports Southwest flights deep into Latin America. This puts Southwest in direct competition with United on vital flights to Mexico, Central America and South America. Asian discount carriers are now offering long-haul flights. AirAsia X, for example, offers a route from Taipei to Australia, while Scoot (the discount unit of Singapore Airlines) offers flights from Singapore to Japan, Australia and India. Keeping costs low is a challenge for long-haul flights, and carriers must rely on fuel efficient planes such as the Boeing 787 Dreamliner and the Airbus A350. The discount carriers are having to configure these planes with nine-across seating to come out ahead. Quick turnarounds are also a problem on international routes, due to more departure restrictions than domestic flights. However, growing numbers of discount airlines are taking the long-haul plunge, including Norwegian Air Shuttle which began trans-Atlantic flights in 2014. Norwegian Air's ticket prices are low while it is determined to make significant inroads to U.S. markets. As a result, legacy U.S. airlines are extremely sensitive to its plans. The fact that major legacy airlines offer extensive global flight schedules to Asia/Pacific, South America, Europe and beyond provides an opportunity for airlines like American, Delta and United to differentiate themselves from the discount airlines, especially given the fact that their full-service domestic flights can connect smoothly with their international flights at major hubs. Legacy airlines are earning a significant portion of their net profits from international routes. Their ability to lure business travelers with first or business class seats, airline clubs and destination lounges that offer showers and changing rooms, gives them a significant competitive advantage. However, with the advent of competition from so many long-haul discount carrier flights, legacy airlines have found themselves forced to offer deeply-discounted basic coach seating in order to maintain market share. These basic seats are bare-bones, with no advance seat selection and few perks. At the same time, legacy airlines are upselling with extra charges for premium economy seats in prime locations. After several bankruptcies, mergers and reorganizations, legacy airlines have dramatically cut costs, especially on domestic flights, making them more competitive against Southwest than ever before. This process included cutting flights with low utilization rates (with the net result of raising passenger load factors and efficiency on remaining flights), raising prices, developing very large revenue streams from checked baggage fees and other charges, and keeping a tight lid on all controllable expenses. Meanwhile, dozens of discount airlines, based on the Southwest model, have sprung up worldwide. Ryanair and EasyJet are setting the standard for discount operations in much of Europe. Ryanair is being especially aggressive in its cost-cutting efforts and increasing revenue by eliminating seat back pockets to lower weight and cleaning costs; eliminating airport check-in; banning checked baggage altogether; and selling 98% of its tickets via its web site. Virgin America began service from San Francisco and Los Angeles to New York in 2007. The fact that Virgin America offers three tiers of service, including a widely admired first class section and a premium coach called \"main cabin select,\" arguably removes this airline from the discount category. Seating areas include mood lighting, seat-back entertainment screens, electric power plugs at each seat, and a clean, modern look. In 2016, Alaska Airlines acquired Virgin America for $4 billion. Although it was launched on a true discount airline model, changes in JetBlue's strategy are moving it more into the legacy airline category and away from the discount segment. JetBlue is pushing a premium economy section. Also, the firm now has a highly competitive \"Mint\" business-class service on its coast-to-coast flights within the U.S., such as New York to Los Angeles. Mint cabins feature lie-flat seats. Mint's premium seating and competitive fares have been so successful that they have forced new, competitive strategies at legacy airlines on coast-to-coast routes. Updated 08-14-2017 Major Airlines Change Strategy, Charge Fees and Boost Profits The commercial airline industry has always been particularly vulnerable to economic and political changes. The deregulation of the U.S. airline industry in 1978 was a watershed event that led to intense price competition. Thereafter, several factors conspired to create multiple challenges for airlines. The stock market crash of 2000, the attacks on the U.S. via terrorist-controlled airliners on September 11, 2001, rapidly rising fuel costs and intense competition, among other problems, bankrupted several airlines and threatened many more with similar fates. In 2008-09 when the global economic crisis hit in earnest, global airlines were awash in losses. Airlines around the world reduced capacity in 2010-12 in order to increase operating efficiency. Delta, for example, cut its capacity by 2% to 3% in 2012 compared to 2011. United and Southwest made similar cuts in 2011. Approximately 15% fewer commercial flights were expected in 2014 compared to 2007, with 7.8% fewer seats available. By 2015-2017, however, passenger loads and profits had risen to the point that airlines were adding seats. With fewer flights to choose from, passengers must take those available to them. The airlines' strategy had the result of boosting passenger load ratios, leaving very few empty seats, which is a major factor in achieving efficiency and profits. U.S. carriers have replaced smaller jets with larger ones on many routes, in a practice called upgauging. The airlines were offering 12% more total domestic seats as of mid-2015 than in 2013, but on 4.4% fewer flights. This creates many operating efficiencies, including more seats per employee and fewer landing fees. At the same time, flights have been eliminated to many small cities, which were formerly served by inefficient 50-seat regional aircraft. Analysts report that between 2010 and 2015, U.S. carriers cut the number of domestic flights made by regional jets by approximately one-third. The plunge in oil prices beginning in late 2014, combined with high levels of passenger traffic led to unprecedented profits for airlines during 2015-16, and 2017 is likely to be another banner year. According to the International Air Transport Association (IATA), global aggregate profit among airlines was $35.3 billion in 2015, and $35.6 billion in 2016. The greatest growth among major airlines in recent years has been in the Middle East, dominated by Emirates, followed by Etihad Airlines and Qatar 1 Plunkett Research Ltd. Copyright (C) All Rights Reserved www.plunkettresearch.com Airways. Emirates, now one of the world's largest international airlines by passenger capacity, led the way with a business model that builds routes to developing countries that are often overlooked by U.S. and European carriers, and providing an alternative to local airlines. Emirates connects almost all of the world's continents through its Dubai hub. However, by 2017, Emirates and other Middle Eastern carriers were facing significant drops in passenger loads due to the fall in oil prices. Energy companies are deeply cutting travel to the Middle East, especially in business class (the most profitable cabin in these flights). The Air Line Pilots Association, based in the U.S., has expressed concern that U.S. carriers can't compete against rivals such as the Middle East carriers that enjoy government subsidies and financial incentives. Incentives that keep costs down included free land for airport expansion, fuel hedging contracts forgiven and nonunion workers allowed. Internet Research Tip: The U.S. Department of Transportation operates a web site with complete information regarding U.S. airlines, their on-time ratings, consumer satisfaction ratings and much more. Visit the Aviation Consumer Protection and Enforcement Division at www.dot.gov/airconsumer . ATWOnline offers extensive information regarding air operations, management, information technology, safety regulation and more: www.atwonline.com . TranStats offers in depth statistics on all types of U.S. transportation, including airlines and rail, with frequent releases of the latest data. www.transtats.bts.gov . Another shift in airline business operations is the growth in revenue from additional fees such as charges for checked bags, priority seating and food and beverages on board. IdeaWorks projected that 67 airlines would take in $67.4 billion in ancillary fee revenue during 2016, up from $59.2 billion in 2015 and $49.9 billion in 2014. These fees have been a big boost to annual airline profits. Checked bag fees making up about 20% and onboard sales (food, drink, retail goods, Wi-Fi and inflight entertainment) were to account for about 30%. As of mid-2017, Southwest allowed passengers to check up to two bags at no charge, but assessed a $75 fee for each additional bag or bags weighing more than 50 pounds. JetBlue began charging passengers for checked bags in 2015, leaving Southwest as the only carrier in the U.S. to check bags at no charge. Airlines including Delta and JetBlue are bundling fees into \"upgrade packages\" to make them more palatable to fliers. Delta's Comfort Plus ticket, for example, offers additional leg room in the coach cabin, early boarding and access to overhead bin space and free drinks. Meanwhile, United, Delta and American are betting that passengers will be willing to check bags rather than carry them on if the price is right. The carriers' new Basic Economy low-fare ticket assigns seats on the day of the flight, ensuring that passengers will be the last to board the aircraft and almost assuredly find no overhead bin space available. Fares are comparable to discount carriers' and the majors can continue to sell higher-priced options on other seats. Delta reported that approximately one-half of its Basic Economy passengers choose to purchase upgrades, helping to recoup some of the revenue lost on extremely cheap fares. American estimated that 87% of its passengers are bargain-driven and fly once per year or less. Nonetheless, those fliers generate about one-half of the airline's revenue. New technology is paving the way for passengers to check bags themselves after printing luggage tags at home. New technologies also allow them to track bags via smartphone. Airline technology firm SITA reported in 2015 that more than one-third of global airlines are asking passengers to tag their own bags compared to 13% in 2009. By 2018, more than 75% of all airlines plan to institute the practice. Air France-KLM is releasing a small tracking device in 2015 that passengers store inside their bags, in addition to permanent bag tags the display bar codes. Airlines can change the bar codes remotely when passengers are rerouted. Qantas already had the tags as of early 2015. Many passengers are paying for drinks, meals and even pillows and blankets. A number of airlines are charging fees of $30 or more for reserving seats in the first few rows of coach cabins (elite passengers who have achieved high status with the airlines because they travel frequently typically find many of these additional fees waived). Today, various passenger fees and charges, along with revenue-generating programs such as selling mileage awards to credit card companies, add up to an increasingly vital part of the airline business. Mergers and acquisitions made big news in 2008 through 2013. Delta and Northwest were merged in 2008. United and Continental's merger, which resulted in one carrier flying under the United name but using Continental's logo and colors, closed in 2010. Meanwhile, British Airways (BA) and Iberia Lineas Aereas de Espana (Iberia) merged in early 2011. They now operate, along with Britain's BMI, under the corporate umbrella of International Airlines Group (IAG). American Airlines and US Airways announced a merger in late 2012, which received U.S. bankruptcy court approval in March 2013. (American had entered bankruptcy protection in 2011). The American Airlines-US Airways merger was finalized in December 2013. Alaska Air Group completed its acquisition of Virgin America in late 2016, leaving five airlines (American, United, Southwest, Delta and Alaska Air) in the U.S. controlling nearly all of the domestic market. More and more, airlines are managing their fuel costs aggressively. For example, all new aircraft purchased by most airlines feature special upswept wing tips that are designed to reduce fuel consumption by 3% to 4%. Many airlines rely on expert market analysts for advice on when and how to purchase fuel. Results from fuel efficiency initiatives have been impressive. A 2010 World Economic forum report found that global air traffic rose 300% between 1980 and 2005, but jet fuel consumption rose only 150%. Airlines have made tremendous improvements in operating methods, while aircraft and engine manufacturers have greatly enhanced their technologies. The result is a significant drop in fuel consumption. Like their U.S. counterparts, many global carriers have slashed costs and undertaken massive restructurings. Their efforts paid off to some extent. Global airlines are increasing their reliance on partnerships such as the Star Alliance and Oneworld Alliance. The partnerships share flight codes, frequent flyer programs and airport lounge facilities, helping long distance travelers to cover thousands of miles as seamlessly as possible. As of late 2015, The Star Alliance network offered more than 18,500 daily flights on 28 airlines to 1,330 destinations in 192 countries. Starting in 2010, when the global economy slowly began recovery and travel picked up, a number of airlines were re-starting growth plans including cabin refurbishment. Coach cabins have been upgraded with leather seats; many airlines are installing power ports for coach passengers and personal video-ondemand screens. Lufthansa and Southwest, among others, have installed new seats that are lighter and slimmer than those in the past. Thinner cushions on seat backs afford more space for passengers (24 inches between seat rows instead of 22.9 inches at Lufthansa, but approximately the same space as before in Southwest planes because it has added an additional row of seats to the cabin). Lighter seats reduce weight, and Southwest expects to save $10 million annually in fuel costs with the new seats. SPOTLIGHT: Rock-It Cargo Carries Unique Air Freight Loads While Offering Unusual Services Rock-It Cargo Limited (www.rock-itcargo.com ) is a private specialty freight and logistics company that focuses on transporting expensive, fragile and unusual cargo around the world by land, sea and air. The firm was founded in London in 1978, when it provided equipment transport services for rock band the Moody Blues. Clients have included Bruce Springsteen and the E Street Band, Lady Gaga, Boeing, APR Energy, Cirque Du Soleil and the NFL. The company focuses on providing special, hands-on care to time-sensitive shipments. Its 200 employees operate from 17 offices around the world. In addition to shipping equipment for tournaments and entertainment events, Rock-It also specializes in the shipment of oversize industrial equipment. Updated 10-15-2017 Boeing and Airbus Face Waning Orders/Major Aircraft Market in China During 2016, Airbus delivered a record 688 aircraft, while Boeing delivered 748. However, in 2016-17, both companies were facing slowing orders for new aircraft. Softening global economies and political unrest in a number of countries around the world were the cause. While the new jumbojets, like the A380 and the 787 get a lot of press and admiration, perhaps more important is the demand from global airlines of all types for smaller, single-aisle planes to replace older models that are not particularly fuel-efficient. Boeing announced that it will build a new high-efficiency version of its exceptionally popular, single-aisle 737, to be called the 737 MAX. In mid-2011, American Airlines committed to buying a large quantity of the 737 MAX aircraft, leading Boeing to decide to move ahead with an updated version of the 737 rather than go through the expense, delays and uncertainties of designing and launching an entirely new airliner. The aircraft will feature CFM International LEAP engines, lowered maintenance requirements and high fuel efficiency. An all-new interior design, called \"Sky Interior,\" will have tall headroom, overhead bins that disappear into the ceiling yet carry more baggage, as well as LED lighting. As of June 2017, Boeing had 3,803 orders for the 737 MAX series (the largest of which is the 737 Max 10), which entered service in 2017. This highly effective strategy of updating existing aircraft designs is likely to be standard operating procedure for both Airbus and Boeing for the near term. It saves on research and development investment, speeds up deliveries and enables customers to acquire advanced, fuel-efficient aircraft in a relatively short period of 2 Plunkett Research Ltd. Copyright (C) All Rights Reserved www.plunkettresearch.com time. Meanwhile, the Boeing's competition in the 737 market is the single-aisle Airbus 320neo family of jets (including the A319neo, A320neo and A321neo), which will feature high efficiency through CFM International LEAP engines or the Pratt & Whitney PW1100G PurePower engine. The result is a 15% reduction in fuel use, along with two tons of additional load capacity and a boost in range of up to 500 nautical miles. As of February 2017, the A320neo family had 3,624 orders. As with Boeing's 737 MAX, this 320neo is an updating of an extremely popular aircraft that Airbus has sold for many years. The A330neo was unveiled in mid-2014, which promises to yield a 14% improvement in fuel efficiency over previous A330s, with the first deliveries in 2017. Boeing and Airbus are both enjoying strong order books and backlogs equal to several years of production. Boeing and Airbus have been in fierce competition since 2004 when they first announced new jumbojet concepts. The success of Boeing's new fuelefficient 787, which had its first flight in late 2009 and made its first commercial delivery in September 2011, hinges on growing demand for more frequent international flights on mid-size aircraft. To serve this market, the 787, known affectionately at Boeing as the \"Dreamliner,\" gives airlines the ability to offer non-stop intercontinental flights between smaller regional cities, rather than just the standard flights between major cities, such as New York-London. The Dreamliner's maximum range is 9,600 statute miles. While the 787 is not Boeing's biggest aircraft, it is the company's most fuel-efficient. The price tag is $157 million to $167 million per airplane, depending on the model. Much of the aircraft is constructed from carbon-based composite materials, which are lighter than aluminum. Today's demand for fuel efficiency positions the 787 in a favorable light. In addition to being lightweight, its composite materials are easy to mold into precise shapes. This is important for aircraft, which involve lots of curved surfaces. By using such materials, fewer pieces need to be manufactured to create a curve. Boeing promises that the materials are durable, to the extent that airlines should see 12 years of service before a 787 requires its first major maintenance overhaul (as compared to six years for an aircraft made of aluminum). Such materials are not entirely new to Boeing's assembly lineabout 11% of its 777 is already made from composite materials. Yet a commercial aircraft built primarily of composites is new. Another development is the installation of structural sensors. While diagnostic sensors that measure temperature and pressure are commonplace on aircraft, Boeing is installing multiple sensors on the 787 that allow pilots to continually monitor its structural integrity. As of June 2017, 1,275 Dreamliners had been ordered by customers around the worlda tremendous success. The company has developed different models of the 787, with varying nautical ranges and seating capacities. The 787-8 is available with the capacity to carry 210 to 250 passengers with a range of 8,640 to 9,266 statute miles. There is also a 787-9 that carries up to 290 passengers for up to 9,600 statute miles. In addition, the 787-10 carries 323 passengers with a range of 7,020 statute miles. Another plus for the 787 is the choice of General Electric or Rolls-Royce engines. Boeing designed the airplane in such a way that one engine can be swapped for the other in 24 hours as opposed to the two months required for typical aircraft. This ability is a great selling point for airlines planning ahead to times when they might wish to sell a 787 to a rival company that uses the alternative engines. But this strategy has its costs, too. Multiple aircraft models are expensive to design and bring to market (not to mention the cost of the 787's composite materials, which are significantly higher than aluminum). Boeing outsourced manufacturing of many of the 787's components to companies overseas, including a large number of components being manufactured in Japan. While outsourcing isn't especially new for Boeing (a significant percentage of the 777's components were made abroad), the fact that this outsourcing also includes wing manufacture in Japan is a new development. These are risky changes for a historically conservative company, and the practice initially created many unexpected headaches, including significant delays. Boeing responded effectively by acquiring a number of its suppliers, in order to gain better supply chain control, and working to establish closer relationships with its remaining outsourcers. In 2013, Boeing approached three firms, Emirates Airlines, International Consolidated Airlines Group and Japan Airlines, to become launch customers of a redesigned 777 called the 777X, expected to launch by 2020. Boeing hopes to top its record sales of the 365-seat 777-300ER, which is the best-selling twin-aisle jetliner model in history. The plane is especially suited for the extreme heat in the Middle East due to its extra-wide wings and powerful engines, making fully loaded takeoffs easier. Boeing is also capitalizing on a joint venture with Mubadala, a government-owned conglomerate in Abu Dhabi, charged with diversifying the economy in the Emirates. Boeing is supplying welcome technical expertise and assistance with the venture's manufacture of advanced composite materials for jet aircraft. Another jet under consideration would seat more than 200 passengers and fall between the 737 and 787 Dreamliner in size. Boeing has discussed the plane with 57 potential customers and believes there may be a market for as many as 4,000 aircraft. If the project is undertaken, the plane would enter service sometime near 2025. In 2017, Boeing announced plans to expand its aircraft parts business. By 2022, the company hopes to double annual sales from its services business to $50 billion. This is a logical strategy, since the size of the global jet fleet will continue to grow, and those jets need parts and service. Back at Airbus, the A380 represents the firm's alternative vision for the future of air travel. While Boeing's crystal ball shows an increase in demand for smaller capacity, long-haul flights between a wider range of international cities, especially in Asia and Europe, Airbus predicts that international travelers will be better served by a more centralized hub system, wherein large groups of passengers are flown in and out of fewer cities via massive jumbojets. Airbus's new A380 is well-suited for the hub model, while Boeing's aircraft could adapt to either a hub or point-to-point system. The A380 is the world's largest passenger aircraft, and, at a price tag of $375.3 million or more, the most expensive. It holds between 555 and 800 passengers, based on single- or multiple-class models. With a range of up to 9,200 miles it can travel a great distance without refueling. The aircraft also offers good fuel efficiency. As of October 2017, Airbus had received only 317 firm orders for the A380. Sales of the giant aircraft have been slowing to the extent that Airbus announced production cuts. Airbus has another new jet in the works, the A350 extra-wide body (sometimes called \"XWB\"), which will seat between 270 and 350 passengers. It is offered in three models, the A350-800, 900 and 1000. It is Airbus' answer to Boeing's 787 and its commitment to lightweight, fuel-efficient aircraft. Useful range will be as high as 8,300 nautical miles, depending on layout. Also in January 2015, Airbus announced its first customer commitment for the A321LR, a modified version of its largest single-aisle jet, the A321. Designed to compete with Boeing's 757, it promises great fuel efficiency, cutting fuel costs by as much as 30%. The A321LR can carry 206 passengers up to 4,000 nautical miles. As for the future, watch for intense competition between the two manufacturers to continue. Meanwhile, there will be immense, multi-trillion-dollar demand for new airliners over the long term. Boeing forecasts the global passenger and freight aircraft fleet to grow by nearly 40,000 new jetliners between 2016 and 2035, worth $5.9 trillion. Airbus' estimate is the delivery of 33,070 planes during the period, valued at $5.2 trillion (up 1.5% from its 2015 estimate). However, some industry observers are skeptical of this rosy outlook, due to the fact that many of the world's airlines have very little capital and are relying on vast amounts of loans or leases in order to acquire aircraft. If large numbers of airlines are unable to make timely payments on these debts and leases, then future financing of airline purchases may be much harder to come by and jet sales may suffer. Boeing and Airbus both will be facing new competition as China begins manufacturing large commercial aircraft. The Chinese government has succeeded in building its first commercial aircraft, the regional ARF-21 jet. Between 2010 and 2030, The Chinese government is fast-tracking development of its own manufacturing facilities. In late 2015, China's first big airliner, the single-aisle, 160-seat C919 jet rolled off the assembly line. Although the C919 won't see its first delivery until 2018 or 2019, it is a major step in Chinese aviation. Meanwhile, China has a joint venture with Airbus for manufacture of parts for the A350 (Air China was the first airline to place firm orders for the new aircraft). And, in 2009 the first A320 aircraft to be assembled in a new AirbusChinese joint venture plant in Tianjin rolled out of the factory. Another Chinese jet, the ARJ21, is a regional jet built by Comac will compete with the C919. Originally scheduled for initial delivery in 2007, the ARJ21 has run into a number of development problems. The first delivery was finally made in late 2015. Canada's Bombardier is a North American competitor in the Airbus vs. Boeing race. In April 2016, Bombardier won a $5.6 billion order for 75 of its CSeries jets from Delta Air Lines. The CSeries promises to afford airlines a notable operating cost advantage due to its advanced engines and design. Nonetheless, production delays and cash shortages were creating great difficulties for the firm in 2015 and into early 2016. At 1,800 to 2,950 miles, depending on configuration, this new aircraft has a more modest range than competing Boeing or Airbus models. It also holds fewer passengers, with a capacity of 100 to 149 seats. Another competitor, Brazil's Embraer, is highly competitive in smaller aircraft designed for regional airlines. Its E-175 is utilized by American Airlines in a 12 first class plus 64 economy class seat arrangement. American received the first of 60 E-175s in February 2015. Embraer's E-190 is a larger model, typically arranged with 11 first class and 88 economy seats. Japan is also attempting to join the fray with its own jet manufacturing. Mitsubishi Heavy Industries Ltd. announced plans for the Mitsubishi Regional Jet, the MRJ90, a 96-seat aircraft that made its first flight in late 2015. Mitsubishi has financial as well as technical support from a number of major global enterprises, namely Toyota Motor Corp., Boeing and United Technologies Corp.'s Pratt & Whitney jet engines. The Regional Jet would compete with Embraer's and Bombardier's. In mid-2012, Mitsubishi won an agreement to sell 100 Regional Jets to U.S. commuter service SkyWest, Inc. Updated 10-15-2017 3 Plunkett Research Ltd. Copyright (C) All Rights Reserved www.plunkettresearch.com New Aircraft Designs Offer Greater Passenger Comfort/More Efficient Engines An important selling point in new passenger aircraft, whether built by Airbus or Boeing, is comfort. Changes in seat configuration, window size and cabin climate are all key elements when buying new planes. At Boeing, for example, the new 787 Dreamliner offers a new, patented eight-seats-across configuration in economy class. The three-two-three arrangement allows seats that measure 19 inches across instead of 17, which is standard on Boeing 737s and 757s. However, the plane's cabin is wide enough to fit nine seats across, allowing some buyers to configure the cabin with narrower seats and more passengers. Windows on new aircraft models are significantly larger, as much as 65% bigger than those on older planes. The increased size allows outside views from almost any seat. Another window improvement is a film covering that can be adjusted by flight attendants to block out light during movies while still allowing passengers to see out. Boeing and Airbus both have improved in-flight cabin humidity levels. Airbus' new A350 XWB has the ability to achieve 20% humidity while the Dreamliner offers 15%. Both are a tangible improvement of the 10% level on existing airplanes. Meanwhile, increased entertainment and relaxation features will be featured in new aircraft at many airlines. In particular, the massive size of the A380 lends itself to designing unique areas into the plan. The Holy Grail of airliner engineering is to save dramatic amounts of fuel, which will require significant savings in weight in both airframes and engines, along with improvements in engine design. The next generation of jet engines will soon be commercialized, as the global airline industry has set high goals for fuel consumption reduction. Engine manufacturer Pratt & Whitney has designed an engine called PurePower PW 1000G that promises double-digit reductions in fuel use and emissions while reducing engine noise by as much as 50%. It will be offered on the new Airbus A320neo. The engine uses a technology called Geared Turbofan. This radical engine utilizes a gear box to vary the speeds between the fan and the turbine for more efficiency. GE, in partnership with French aerospace and defense firm Safran SA, has created a new joint venture called CFM International (www.cfmaeroengines.com ). It developed the LEAP engine with dramatically lower emissions, 16% fuel use reduction and much quieter operation, which was first delivered in mid-2015 to Commercial Aircraft Corporation of China (COMAC). The LEAP engines will be available on both the new Airbus A320neo and the Boeing 737 MAX. Meanwhile CFM International is working on a revolutionary design, an \"open rotor\" conceptsomething like the open propellers on non-jets, with exceptional weight savings and efficiency. Where it can, GE is also using ceramic composites instead of metal to dramatically lighten the weight of engines and other aircraft parts. One example is an engine used in the Boeing 787 which utilizes a ceramic-composite fan case and blade, and weighs 3% less than its metal counterpart. Both Boeing and Airbus are relying more and more on composite materials to decrease weight and increase fuel efficiency. Boeing's 787 is made of 50% carbon fiber composites, while Airbus' A350 is made of 53% composites. Boeing's new 777X features 233-foot long carbon fiber wings, with improved aerodynamics that require 15% less thrust than earlier 777 models. The wings have hydraulic actuators that fold hinged wingtips after landings, allowing the jets to use taxiways and gates in standard sizes. Updated 08-14-2017 In Flight Wireless Takes Off Airlines in the U.S. and around the world are investing in wireless technology to provide internet access, e-mail capability and, for non-U.S. carriers, cellphone use while in the air. Until recently, the technology necessary to provide these services was less than satisfactory and costs were prohibitively high. Today, new satellite technologies are making in-flight wireless a reality. Wi-Fi is already in use on private business jets and for commercial carrier crews. Of course, this can be very good news for airlines, as they would expect a healthy share of this money, and all airlines are keenly seeking new ways to boost revenues. In the U.S., JetBlue Airways Corp. acquired LiveTV, LLC, a provider of entertainment as well as e-mail. JetBlue is offering the service on its flights and selling it to other carriers such as United Airlines. In addition, JetBlue has an agreement with satellite communications company ViaSat, Inc. to provide airborne terminals and services for the carrier's entire fleet of aircraft. The Viasat-1 aviation broadband network uses satellite signals to provide greater broadband capacity in-flight. Global Eagle Entertainment (\"Gee Media\") acquired Row44, a provider of in-flight broadband entertainment based in Westlake Village, California, which had outfitted aircraft for Southwest Airlines, Norwegian Air Shuttle and Icelandair. Another player in in-flight wireless is Gogo Business Aviation (formerly Aircell), which utilizes a network of ground antennas to transmit data for its Gogo system. Gogo is in operation on the entire AirTran fleet and most of Delta Air Lines fleet, including its regional jets. The challenge for in-flight wireless has been and continues to be the use of cellphones. Passengers consistently state that they absolutely do not want to be forced to listen to other passengers' cell phone calls. Limiting the services available is the answer. One technology for in-flight calls, which is provided by Geneva-based OnAir (owned by the internet technology firm SITA), uses a low-power onboard network that captures passengers' phone signals and links them to a satellite for transmission to ground receivers. Airlines can control which services they wish to offer: text messaging, internet access, telephone calls, etc. Some airlines may choose to define quiet times when phone calls may not be made. The firm also serves private aircraft and cruise ships. Lufthansa is working with Panasonic to provide improved in-flight broadband service. The service, called FlyNet, could cost as much as $100,000 per airplane (which covers installing antennas and other equipment). Lufthansa is betting on the popularity of the service. However, passengers may not make phone calls on this system. Airlines and the wireless providers are working to improve satellite connectivity, increasing speeds and making streaming live video while flying possible. Inmarsat's Global Xpress service, an in-flight wireless provider, claims transmission speeds of 50 Mbps. Updated 08-14-2017 What Millennials and Mobile-Savvy Consumers Want as Tourists and Travelers At Plunkett Research, we define the Millennial cohort (Gen Y) as those people born between 1982 and 2002. (Some organizations use slightly different years.) This puts them between the ages of 15 and 35 today, totaling about 85 million in the U.S. This is the largest cohort in U.S. historylarger even than Baby Boomers. They will rapidly make up an increasingly significant share of hotel, resort and other lodging guests. Nonetheless, it's important to remember that Millennial habits and attitudes, such as deep dependence on well-curated social media pages for personal expression, are spilling over into other generations. \"Millennial\" may be as much a state of mind (psychographics) as a specific age cohort (demographics). Travelers of this mindset tend to see the following: Millennial Travel Goals and Desires: 1) Unique, adventuresome, even exotic experiences that they can be proud to post to social media. 2) Reasonable prices, even bargain vacations. 3) Modest environmental impact, even eco-friendly hotels and resorts. 4) Sharing economy experiences, particularly if the sharing strategy saves money or provides an opportunity to gather with their peers. Airbnb plays well here. (Sleeping in someone's spare bedroom is not only inexpensive, it's a sharing experience to post about.) Even hostels are making a comeback. 5) Community-based experiences such as local foods and beers, even to the extent of participating in humanitarian or philanthropic projects while on vacation. The cruise and tour industries are jumping on this \"social impact travel\" trendbut hotels lag. Carnival is building its new Fathom brand ships for Millennials and other travelers who want to add volunteerism and authentic cultural experiences to their cruise travel. The new 710 passenger Adonia (a Carnival subsidiary) is designed for this market and sailed under the Fathom brand starting in 2016. Millennial leisure travelers will look to gain status through posting about experiences that qualify as unique, local or authentic (in the real world). That is, travel that enables them to express who they are, where they've been and how they lead a meaningful and conscious life. A well-curated Instagram feed may 4 Plunkett Research Ltd. Copyright (C) All Rights Reserved www.plunkettresearch.com grant more status than owning a new car. Millennial business travelers will respond to unique hotel offers that enable them to post about unique experiences, foods and beverages. Hotels that create ways to drive social media postings from satisfied, fully-engaged guests will earn a superior ROI on marketing spending. Updated 08-14-2017 Self-Check-In Kiosks, RFID and Wireless Technologies Save Costs and Enhance Travelers' Experience at Airlines and Hotels Most airlines offer mobile boarding passes in which the Air Transport Association's (IATA) 2D standard barcodes are stored on smartphones. Qantas offers a frequent-flyer membership card embedded with a smart chip that allows members to check-in very quickly. These passengers swipe their ID cards at airport check-in, place luggage on a conveyer belt which scans the bag for size and weight and issues a heavy-duty luggage tag (called a Q Bag Tag), and then flash the ID one last time at the gate to board without having to show a boarding pass. A few airlines are also offering self-boarding lanes in which automated gates read boarding passes or 2D boarding codes stored on smartphones. The gates, called the SpeedBoarding Gate IER SBG, are manufactured by IER, a transportation equipment company in France. Luggage tags are also becoming \"smart.\" Rather than bar-coded tags that are common today, the new tags are embedded with electronic identification chips (RFID) containing information about the passenger and his or her flight. As luggage moves along the conveyor belt, scanners supplied with information about the airport's flight schedule read the luggage and forward it to the correct plane or divert it if a flight is delayed or cancelled. By incorporating RFID into baggage tags, the number of misdirected or lost bags has been reduced. Delta claimed that it previously lost as much as $100 million every year settling claims and locating misplaced luggage. In another example, at McCarran International Airport in Las Vegas, baggage was typically delivered with a painfully low level of 89% accuracy using a barcode system. A test of an RFID system resulted in 99.7% accuracy, leaving the airport eager to give the project the goahead. McCarran spent $125 million (75% of which was underwritten by the Transportation Security Administration) to implement the system, which assigns unique numbers used for storing data about bag owners, origins and destinations. The data is stored in centralized databases. McCarran is using disposable RFID tags provided by Motorola's Symbol unit (formerly Symbol Technologies). A slightly different system is in place at Narita Airport outside Tokyo, Japan. Its tags are more sophisticated in that the tags themselves store data as opposed to centralized databases. Airports in Hong Kong and Philadelphia have also implemented RFID projects. Alien Technology Corp. (www.alientechnology.com ) provides RFID related services at San Francisco International Airport. The latest in baggage technology is self-service kiosks which are already installed by Alaska Air Group in dozens of airports. Elsewhere, some firms are offering luggage tags with built-in GPS units so that owners can track their luggage. Some airlines are adopting similar technology. Air France and KLM now use digital tags that are linked to passenger's frequent flyer accounts. The correct flight information is automatically uploaded to the tags, which also feature luggage tracking. 5 Plunkett Research Ltd. Copyright (C) All Rights Reserved www.plunkettresearch.com INDUSTRY STATISTICS Airline, Hotel & Travel Industry Statistics and Market Size Overview Segment Amount Units Date Source U.S. Airline Industry Revenue Passenger Enplanements 1 831.1 Mil. 2017 BTS 9.2 Mil. 20171 BTS Passenger Revenue Miles 942.6 Bil. 20171 BTS Passenger Load Factor 82.9 % 20171 BTS Freight Revenue Ton Miles 7.2 Bil. 20171 BTS Average Air Fare 347 US$ Q4 2016 BTS Revenue Departures Performed U.S. Rail Travel - Amtrak Passenger Volume 31.3 Mil. 20162 Amtrak Amtrak Revenues 3.2 Bil. US$ 20162 Amtrak Amtrak Expenses 4.3 Bil. US$ 20162 Amtrak 500+ 21,300+ Stations Miles 2016 2016 Amtrak Amtrak % US$ US$ Hotels Rooms Bil. US$ Units Mil. 2017 2017 2017 2017 2017 2016 2016 2016 PwC PwC PwC LE LE Census AHLA AHLA Mil. Mil. 2016 2017 Carnival PRE Bil. US$ Bil. US$ Bil. US$ Mil. Mil. % Mil. Bil. US$ 2016 2016 2016 2016 2020 2016 Q4 2016 2016 USTA USTA USTA USTA ITA USTA ITA USTA Tril. US$ Tril. US$ % % Mil. Tril. US$ Mil. Bil. US$ Bil. US$ 2016 2016 2016 2027 2016 2016 2016 2017 2016 WTTC WTTC WTTC WTTC WTTC UNWTO UNWTO IATA HM Units 2016 STR Amtrak Stations Amtrak Route Miles, Approximate U. S. Lodging Industry Average Occupancy Rate, Forecast 65.5 Revenue Per Available Room (RevPAR), Forecast 83.09 Average Daily Rate, Forecast 126.81 New Hotel Openings, Forecast 1,111 New Room Openings, Forecast 120,372 Lodging Industry Revenue 240.4 Number of Hotel Properties 53,000+ Number of Hotel Guestrooms 5.0 North American Cruise Industry Total Passengers, Sourced from North America 12.4 Total Passengers Forecast, 2017 12.6 U.S. Travel Total Direct Travle Industry Spending 990.3 Total International Traveler Spending in the U.S. 246 Travel Trade Surplus 87 International Visitor Arrivals to the U.S. 77.6 International Visitor Arrivals to the U.S. (Forecast) 90.3 U.S. Share of Total International Arrivals 6.3 Total Tourism-Related Employment 7.7 Travel-Generated Tax Revenue 157.8 World Travel Global Travel & Tourism Estimated Direct Contribution to GDP 2.3 Global Travel & Tourism Estimated Total Contribution to GDP 7.6 Percentage of Global Travel & Tourism Total Contribution to GDP 10.2% Projection 11.4% Global Travel & Tourism Direct Industry Employment 109.0 International Tourism Receipts 1.5 International Tourist Arrivals 1,235 Global Commercial Aviation Net Profit (Estimate) 29.8 Global Hotel Industry Revenue 550.0 Global Number of Hotels3 156,000 1 Represents data from April 2016 through March 2017. 2 Fiscal year data, October 2015 through September 2016. 3 Hotels with 15+ rooms in North America, 10+ rooms elsewhere. BTS = U.S. Bureau of Transportation Statistics; PwC = PricewaterhouseCoopers; LE = Lodging Econometrics; Census = U.S. Census Bureau; AHLA = American Hotel & Lodging Association; PRE = Plunkett Research Estimate; ITA = U.S. International Trade Administration, Office of Travel and Tourism Industries; USTA = U.S. Travel Association; WTTC = World Travel & Tourism Council; UNWTO = World Tourism Organization; IATA = International Air Transport Association HM = Hotel Management; STR = STR Global. Source: Plunkett Research, Ltd. Copyright 2017, All Rights Reserved www.plunkettresearch.com 6 Plunkett Research Ltd. Copyright (C) All Rights Reserved www.plunkettresearch.com Air Carrier Traffic Statistics, U.S.: 1996-2016 (In Thousands of Ton Miles) Year Revenue Passenger Ton-Miles Revenue Freight Ton-Miles Overall Available Ton-Miles 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 67,147,070 70,545,149 71,666,886 75,489,431 80,308,809 74,612,693 73,351,146 75,170,112 83,727,243 87,946,586 89,311,730 91,901,919 89,871,157 84,529,188 88,820,315 90,205,855 90,852,754 92,219,557 94,884,893 98,750,221 101,819,422 6,229,315 6,870,796 6,865,321 7,420,041 7,968,819 6,967,291 7,045,126 6,515,321 7,341,697 7,371,274 7,316,421 6,873,612 6,586,928 5,798,871 7,230,720 6,910,554 6,847,194 6,640,943 7,092,031 6,971,674 7,046,411 117,900,817 121,775,854 124,343,773 131,395,095 139,650,497 137,615,913 133,927,950 134,954,795 144,997,859 151,413,061 148,736,676 152,873,956 147,828,335 141,132,098 144,024,272 146,880,568 145,300,621 145,534,496 149,221,369 156,226,325 162,629,444 A revenue ton-mile is one ton of revenue traffic transported one mile. Note: Data from "Origin and Destination Survey of Airline Passenger Traffic - Table 1," a publication of the U.S. Civil Aeronautics Board, based upon a ten-percent sample. The ten-percent sample has been expanded to 100% and rounded to thousands (000). Since 2008, calculations are based on monthly figures and may not match 2007 and earlier data. Source: U.S. Bureau of Transportation Statistics Plunkett Research, Ltd. www.plunkettresearch.com 7 Plunkett Research Ltd. Copyright (C) All Rights Reserved www.plunkettresearch.com Air Carrier Traffic Statistics, U.S.: 12 Months Ended March 2017 and March 2016 April 2016 - March 2017 NonTotal Sched. Scheduled Revenue Passenger Enplanements (000) Revenue Passenger Miles (000) Available Seat Miles (000) 826,727 4,380 831,107 807,930 5,164 813,094 937,172,990 5,429,338 942,602,328 913,225,596 6,348,164 919,573,760 1,124,377,638 12,432,348 1,136,809,986 1,091,176,705 13,052,395 1,104,229,100 83.35 43.67 82.91 83.69 48.63 83.27 6,966,545 277,895 7,244,440 6,526,218 297,387 6,823,605 Passenger Load Factor (%) Revenue Freight Ton Miles (000) April 2015 - March 2016 NonTotal Sched. Scheduled Total Revenue Ton Miles (000) 101,570,052 820,862 102,390,914 98,732,528 932,217 99,664,745 Available Ton Miles (000) 159,327,420 3,227,583 162,555,003 156,360,819 2,881,317 159,242,136 Ton Mile Load Factor (%) Revenue Departures Performed 63.74 25.43 62.98 63.14 32.35 62.58 9,014,430 150,973 9,165,403 8,972,101 163,767 9,135,868 Revenue Aircraft Miles Flown (000) 7,360,354 74,485 7,434,839 7,260,234 74,355 7,334,589 Revenue Aircraft Hours (Airborne) 17,011,058 209,786 17,220,844 16,820,994 210,845 17,031,839 Excludes all cargo services. Includes domestic and international. Source: U.S. Bureau of