The Global Airline Industry - Challenges & Opportunities For US Airports
←
→
Page content transcription
If your browser does not render page correctly, please read the page content below
The Global Airline Industry
Challenges & Opportunities
For US Airports
Keep On Doing What Might Have Worked In The Past …
And That’s Exactly Where It’ll Leave You
16th Annual Boyd Group
International Aviation Forecast Summit
www.AviationForecastSummit.com
All Contents © 2011 Boyd Group International, Inc. All Rights Reserved
Small Airports In The Economic Cross Hairs:
• Airports with under 150,000 passengers are generally going to be
challenged by the new economics. But even some larger ones can be
threatened
• Airlines want profitability, not flying to marginal markets, or markets
that don’t fit their long term strategies
• The number of airline systems has shrunk materially in the last 20
years, and the fleets under their brand have changed, too
• Tumble to it: Survival in the global economy means access from the
rest of the world – not necessarily “local” air service to get to
Orlando
• It’s not a matter of a route being profitable – it’s a matter of being
profitable and compatible with the airline’s strategy…
Key Airline & Air Service Trends
Ignore The Hype – Retaining Air Service Access - Not Necessarily Local Air Service - Will
Be The Future Challenge For Many Communities
Traffic Demand: Don‟t get misled by 2011 airline financials. They
were strong because the industry adjusted to the economy, not because
of a booming business environment.
Revenues: Driven by ancillary fees and tight control of capacity – this
will continue. Capacity monitoring reduces the potential for at-risk flying
to small & mid-size communities
Expansion: Airlines are capitalizing on their strengths, but are adding
strong, targeted markets that fit specific strategies
“Low Fare Carriers:” The revenue hurdles are going up by the day –
and the WN/FL merger does not change that situation
The Future: Air Service Access May No Longer Be At The Local Airport.
Key Trends Fleets: The industry is awash in excess 50-seat “regional jets” – and that is not an opportunity Operator Conundrum: lose less flying „em than parking them? Conundrum: maintenance costs going up like a moon launch. At @ 40,000 hours they start to turn into financial pumpkins Solution – at least for now: high-yield feed markets. AA‟s found military points & EAS markets for Eagle – but they‟re limited in number, and not necessarily all-up profitable… Get pre-emptive: monitor RJ hub-feed performance – distance/local yield/flow contribution. Then make hard decisions
Key Trends Air Access Is Via Network Carriers, At The Carriers‟ Hubsites Small communities need access to connecting hubs to aggregate enough traffic to support air service… Therefore, air access is by definition via a comprehensive network carrier system… These CNCs are less able to attain an adequate ROI at smaller airports… Independent airlines? Not a chance. No hub to aggregate traffic, then no chance of survival. Point: long term, “local air service” – EAS or not – that is not connective to a network brand‟s hub connectivity, isn‟t air service. It‟s a waste of fuel. The Only Alternative: Assuring global access at a regionalized airport that can aggregate sufficient traffic to support service that consumers – particularly inbound consumers – will use. Can your airport fill this role?
There Are No Airline Alternatives Travel Company Operators Allegiant, Vision, & semi-charter operators are great to pursue… They generate lots of mostly net-new travel volumes But they aren‟t in business to fill a community‟s air service needs They focus on taking discretionary dollars from other sources This type of operator is excellent for small airport revenue streams, but don‟t do much to retain/recapture leakage to other airports Point: Keep on recruiting efforts. But don‟t get mislead into believing this is access from the rest of the globe
Today‟s “Cargo Cult” Air Service Distractions
• Like: Another leakage study to find out - yet again - that 70% of the
traffic is using another much larger airport 40 minutes away… in some
cases, it’s not going to change
• How ‘bout: An internet survey to find “where people want to fly” –
usually data that are a non sequitur – the airline & hub access options
are clear before the first unscientific result is posted on the ‘net.
• E Pluribus Dumb: A Chamber of Commerce “coalition” to let an airline
know how much the community needs the airline, and how they need
lower fares
“You sure this’ll work better • Goin’ Hollywood: A YouTube video, showing civic leaders imploring
than a travel bank?” the target airline to fly to the community – these have all the impact
of a hostage video
Tumble to hard reality: it’s a matter of airlines no longer having
airplanes that can serve many smaller markets - period.
Let‟s Review Some of The Snake Oil
These flim-flam, go-nowhere schemes really happened:
• A small, unserved airport, 40 minutes away from two low fare carriers, being told
they have local service potential for a hundred thousand passengers or more…
• A mid-size airport told that it can be a “regional hub,” fed by 9-seat airplanes, even
though no carriers bank flights there whatsoever…
• The Jet America fiasco: Communities persuaded to spend thousands marketing a non-
existent airline promising three flights a week to the East Coast…
• Communities advised that just getting more “direct” (read: nonstop) flights will
instantly spike demand by 40%....
• Airports with barely 150,000 enplanements, being told they can “lure a low cost
carrier” with a couple $K in incentives
These sorts of scams might make communities feel better, but they are just re-arranging
the deck chairs, not planning for the future
Air Service: It‟s Subject To The Laws of Physics, Too…
Hey, Captain Smith,
let’s do a study and find the solution!!!
• It went down strictly due to hard, physical realities…
Scheduled air service is no different –
• Conditions outside of its control changed factors that no
there are economic realities that can’t
longer permitted it to float
be reversed with another “study” or
• No amount of consulting schemes or Black Magic could have
“survey” – the situation is clear, so
changed these realities
deal with it. Or go down with the ship.
The Current State of Rural Air Service
• The physical economic realities of air service have changed
• The cost of flying airplanes across the sky has eclipsed the ability to
support it at many communities
• The same economics are causing major airline systems to re-structure
• Air service is no longer a matter of flights at the local airport.
• It is whether whole regions have access to and from the rest of the world –
• Access & Regionalization are the trends of the future
• For many communities, it’s time to get off that air service TitanicIt‟s Not A Matter of “Finding The Right Airline”
Majors Regionals
AIR CAL AIR ILLINIOIS
ALASKA AIR MIDWEST
AMERICA WEST AIR NEW ORLEANS
AMERICAN AIR OREGON
CONTINENTAL AR WISCONSIN
DELTA ASA
Consumers could Today, airports can EASTERN ASPEN
book & buy on at turn to just nine FRONTIER ATLANTIS
MIDWAY BAR HARBOR
least 21 large jet large jet operators. NEW YORK AIR BRITT
operator brands, NORTHWEST CASCADE
plus over two And none of the OZARK CHAPARRAL
PAN AM COMAIR
dozen independent regionals who were PIEDMONT IMPERIAL
regional airline around in 1983 are PSA MALL
brands. in the retail airline REPUBLIC MESA
SOUTHWEST METRO
business. TWA MIDSTATE
UNITED NEW AIR
US AIRWAYS PBA
WESTERN PLIGRIM
PRECISION
RIO
ROCKY MOUNTAIN
jetBLUE ROYALE
SPIRIT SKYWEST
Not a complete list.The Fleet Bar Keeps Going Up Entire Fleet Categories Have Disappeared Not a complete list.
These Are Shrinking They are already being retired… Gone already… Lots of them retired… more are in line for the desert sun As we speak, in North America, there are close to 200 of these airplanes sitting inactive, retired. They are economically obsolete. In the 2Q of 2011, some airlines were paying, all-up, almost $4 per gallon for jet fuel. Spreading this over 50 seats (or less) gets real expensive, real quick. And, again, there’s that maintenance cost issue. It’s a matter of time.
That Fleet/Revenue Bar Is Going Up
… And no amount of denial will change it:
A Gift From The
People:
All 50-seaters are out of production and are getting older…
Most of the
development costs Fuel costs on a per-seat basis are getting tougher…
for CRJ and ERJ
were borne by the At 35K – 40K hours, they get maintenance-costly
taxpayers of
Canada and Brazil
And no replacements… the next cost-hurdle will be 100-
when the
manufacturers seaters (like the E-190) - maybe
were privatized.The Future Is Clear In One Key Area…
Est Hrs
Avg Age Est Avg Hrs Age 2020
2020
CRJ-100/200 10.4 24,960 19.4 46,560
Going out….
ERJ-135/145 8.8 21,120 17.8 42,720
• Long before 2020, most 50-seaters will become cost-prohibitive
• Between now and 2020, most of these will be in the desert
• Turboprops? Only 60-70 seaters still in production – high ticket airplanesLet‟s Summarize The Real Trends…
• Sheer costs are outrunning ability of markets to support air service locally,
so…
• The concentration of service IS gravitating to being regionalized
Going out….
• Airline resources = highest & best use only
• Airline strategies: maximizing revenues v system costs – shifting to
cooperative Alliance strategies
• Key metric: revenue flows to/through the alliance is job #1
Going up….It‟s About Alliance Territory, Not Local Markets…
• Capturing and Defending Revenue Streams.
Based on each Alliance’s strategies, the goal is to capture revenues that build
and strengthen the system.
• Globally, Growth By Adding Members, Not Expanding Incumbents
The idea is to get regional strength through recruiting more regional players
• Territorial
Alliances will stake out turf – globally – and ceded other turf
• Concentration of Pooled Resources
“… Don SkyTeam, the oneworld Today – independent fleets. By 2020 – pooled fleets,
family has given up SFO- maintenance, purchasing, standards
Australia to the Star family…
should we make a move on • Focus: Global Flows
New Zealand – LAX?...?”
Less ability to serve small & mid-size markets. Less interest, too.
Aggregation of traffic at fewer US airports is not just a trend – it is
a certainty. Communities that ignore this put their economic
future at risk in a global economyYes, That Scraping Sound Is An Iceberg
Let’s Recap Before We Head To The Lifeboats
• The types of aircraft that are now serving many communities are
going away – no question – it is a mathematical certainty
• There are no aircraft breakthroughs that will result in replacement for
“regional” jets. The 50-seat era is over. No manufacturer is taking the
risk to develop a follow-on
Howling at the moon won’t • There are no new airlines coming to the rescue – and the LCC growth
change economic realities. era is over. Measured expansion, if any – and not in rural areas
Neither will social media, “best
practices,” or another consumer
survey. • Deal with it: at least 100-125 non-EAS airports will lose
scheduled air service in the next 8 – 10 years…
Communities must start making
contingency plans to assure air
including many that today have over 150,000 O&D
service access – and that may
mean regional cooperation.Okay…
Let’s Move Into The Future…
Year 2020Fast Forward To Year 2020. Let‟s Look:
• Passenger growth slow– up 12% from today - to 517.6 million
Airports:USA™ forecasts indicate
• Enplanements: up @ 10% to 799.1 million that air passenger demand will
grow much slower than in the
• Fleets: Smallest jet airliner: @ 100 seats past, and much more slowly than
FAA forecasts.
• No 50-seat jets are left – they are all run out Remember? In 1992, the FAA
predicted enplanements to exceed
• Traffic is concentrating into fewer airports 1 billion by 2001.
Now, their forecasts predict that
• “Local air service” not always at the local airport number to be reached after 2021
• Regionalization of access
• Service determined by potential for revenue capture, not passenger volumeThese Are Your 2020 “Local” Airline Brands
Year 2020 – The Competitive Landscape
Fleets – big iron only
The costs of design and development of a new small-capacity airliner simply
are too risky
Point: the enplanement bar will be up – big time.
Competition
Three network carriers – Star, oneworld, SkyTeam. A couple of independents
– Southwest, JetBlue, etc.
Face it – competition will be minimal – the airline business will no longer be
one with easy entry or viable return on investmentBy 2020, The Traffic Requirements Will Be Much Higher
Remember, there
will be no small jets
– take it to the These are rough numbers, but indications of a rough
bank… future for local air service… Figure what a basic
schedule will demand in terms of passengers
And it will be global annually…
alliances that will be
driving strategy… Flights Equivalent
Weeks Seats/Flt L/F Pax Rq
Per Day Days
Where an airline
schedules a $30
6 6 52 100 85.0% 155,938
million airplane is
much different than
a $15 million unit.
Assumes three RT flights - six daily
segments - & 98% completion factorThe New Global Alliance “Market Definition” Model…
Where Might Your Airport Fit For Each Alliance?
Alliances have specific • Primary/Anchor Markets: Connecting Hub Portals: Star:
market systems that are FRA/NRT/IAH, etc. In a very few cases, two alliances may have
based on their individual the same Primary/Anchor market – ORD & NRT are examples
strategies & strengths.
• Secondary Major Markets: Typically large metro airports,
One Alliance’s including those where the Alliance needs presence at another
Primary/Anchor market Alliance’s primary market. Example: Delta needs ATL-LHR as a
can be another’s secondary secondary major market, even though oneworld is the
or even incremental dominant alliance at Heathrow
market.
• Incremental: markets where strong feed is provided to the
Point: Alliances are Primary/Anchor airports, specific to each Alliance
splitting turf between
themselves – and that turf • Marginal: markets that provide Alliance presence, and/or feed
includes regions of the US that is additive, but not critical to the Alliance strategy
and Canada
• Ceded Markets: Routings, and even regions where the Alliance
is not strong enough to maintain a brand presence.It’s Not Just Very Small Airports:
A Few Potential Examples Of Airports At Service-Risk
Airports With Over 50,000 Annual Passengers That Are
Likely To Lose Scheduled Service By 2020
Yakima Marquette
Toledo
Redding
Springfield Champaign
Fort Smith
Abilene Tyler
San Angelo
College Station
Brow nsv ille
These do not include over 100 smaller airports where
retirement of small airliners will end serviceRegionalization of Air Service… The Traffic Is Still There…
Except “There” Is At Another Airport
Regionalization Is In Progress
Passengers Aren't Lost - Just Using Other Airports
Since 1990 passenger traffic has shifted to centralized Bloomington/Normal -
The region has grown by 10% in air traffic, but Bloomington/Normal has now
grown by over 350%, capturing over 40% of the 5-airport region traffic - up
from 9% in 1990 - 120,000 passengers O&D in 1990 to over 560,000 in 2010
Reason: Central location allows carriers to "regionalize" traffic capture at
one airport.
Same dynamic in other regions of the countryTotal traffic in the region is up 10%...
But regionalization has resulted in BMI
jumping 350%Do All The Surveys, Studies, “Best Practices” And Other Voodoo You Want, But:
It’s A Mathematical Certainty… By 2020 Dozens of Local Airports Will Lose Service
Market Dynamics: “Regional Airlines” –
which today are just
Small Jet Airliner leasing aircraft to majors,
Retirements 2011 – 2020 shrink dramatically
Mergers Have Reduced
Competitive Choices
Code-Share & Frequent Flyer
Program Sharing Between
The New Air
Alliance Partners Control
Consumer Brand Choice
Transportation
System:
Airline Capacity Additions
– Very Slow & 100+ Fewer Cities With Local
Anticipatory To Economy Air Service
Capacity Aimed At Bottom
Global Alliance Strategies
Increasingly Focus on
Line, Not More Passengers…
Maximizing Revenue Flows –
Not Flying More Places. Trend: Less Competition
Fuel Costs Raise Revenue
Requirement Bar “Low Cost Carriers” –
Not Low Cost, Anymore“Yeahbutt… New Airlines Will Pop Up…”
No, they won’t
• What will they fly? Retired RJs will be run-out and
Passengers Are Not Being “Lost” - uneconomic at $3 - $4 a gallon for jet-A.
There will be little opportunity
for new airlines to serve small • Economics make no sense for designers to try new-
and mid-size airports – the cost
of entry is high, the ROI is
generation small jets – the R&D cost are prohibitive
abominable, and here’s the
kicker…
• There are no viable openings for new airlines trying
Those passengers “lost” at MKG to fly to East Cupcake. Like inter-urban rail of the
or CMI or PLN or PUB are still
flying – it’s just at other airports. early 20th century, it’s transportation mode that
cannot be supported any longer
A new carrier to fill these
supposed “gaps” in rural air
service would be taking on
incumbents, big time. • Low Cost Carriers? Their cost is too high to “take
advantage” of the “opportunities” at Fort Smith or
Muskegon, or Champaign/UrbanaFactors Defining Future Regional Gateways
• Strong Industrial Base. Particularly an international-focused
business base: Montgomery… Charleston WV… etc.
The main decisions on
where an airline alliance • Anchor Business W/ Big Travel Budget: Alliances will salivate at
will place lift comes from getting the travel budget of major employer – State Farm at
the front office – and you BMI
can’t always count on
logical decisions from that • Surrounded By Smaller Markets Nearby: This is business,
area… nothing personal. If strong traffic currently, your airport has as
good a chance as any – as long as its current service is already
But there are factors that strong. Examples: Grand Rapids. Midland TX
make one airport more
attractive than others… • Yields: This is one area where you want to have strong airline
fares. The goal is access from the rest of the globe. No center
of el cheapo fares, that’s the deal. Shreveport: your high fares
don’t make airlines unhappy. And happy airlines bring service
to townRegional v Metro Peripheral Markets
• Not all traffic will automatically funnel into regional gateways…
• Some markets are stand-alone: Traverse City. Saginaw. Flagstaff.
• There are markets that have local traffic sufficient to maintain strong local service –
particularly where local industry is strong and focused – Binghamton. Lincoln. L.A. Basin.
• Watch population & business trends – Flint got strong access to migration out of Detroit.
Toledo did not. It just moved north, not south – nor west, toward Lansing
• The move toward regionalization is driven by a combination of consumer & airline strategies,
so…
• Pro-Active regional planning will facilitate the process – the region can control it or, it can be
haphazard, or not at all
• The airlines of 2020 will be heavily-dependent on “road hubbing” – markets with strong 4-
lane feeder systems will have the advantageSo, How To Plan…
• First: all of the financial factors have changed for the airline industry… the air service recruitment techniques of 2010 are now like trying
to put a vacuum tube into an iPad. Meeting and schmoozing with airline planners is nice, but now you have to have more than a travel
bank, a leakage study, or a slide deck of size to rival War & Peace. What revenue streams do you offer to the airline/alliance system?
• Identify which category of market you fit into – or can work to fit into – for each alliance. Assume that individual airline brands will evolve
into an alliance identity – US & UA will represent one alliance strategy
• What type of regional role does your airport face? A true regional gateway? A stand-alone with strong industries to support future
service? A Metro-peripheral access point? Or, worst case, one that needs to plan for assuring access that may be at another airport in the
region. Civic hubris to avoid reality can be very expensive in the future.
• What is your regional airport competition? Competitively awake? Asleep? Side-tracked with dumb air service schemes? What’s your most
likely path – try to dominate the region, or recognize other airports have the advantage? What emerging industries are in the region, and
what value do the represent to the alliance carriers serving your airport?
• If regional jets got replaced tomorrow with 100 seaters, where would you stand, revenue v cost? Load factors? Hub access. Facilities.
What is the distance to the current connecting hubs where you have service. The more distant, the more vulnerable.
• Hard analysis: What are the airport alternatives in the region? What are the airline strategies at each? Are you a potential GRR? Or a
candidate for regionalization to other airports? Just a glance at where EAS airports are headed – increasingly to single-engine, non-
connecting service – is a harbinger for larger airports in theMore? Give Boyd Group International a call – we’ll be up front about where we think we can help
crafting an aggressive air service plan that addresses these futurist issues. We’ll also be upfront regarding
the realities we see for your airport and your region.
Unlike other consultants, we turn down any assignments where the air service goals are inconsistent
with reality, and we let clients and potential clients know this right up front….
Air Service Success In The Global Economy Will Go To The Communities
That Boldly Plan Within The Context of The Future Airline System.
For Straight Talk To Assist In Developing An Air Service Strategy That Fits The Future, Call
Us At (303) 674-2000. No Fluff. We’ll Give You The Facts As-Is & Where-Is
The 16th Annual International Aviation Forecast Summit
AlbuquerqueYou can also read
