Congestion or Vacancy? Outlook for Airports and Air Service
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TRB Presentation, January 13, 2016
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Congestion or Vacancy? Outlook for Airports and Air Service
- 2. 11 Agenda 1. Air Service and Airports – Current trends and outlook – The challenge of system forecasting 2. Managing Risk at Airports – Balancing service and investment risk – Congestion and Vacancy 3. Implications for Airports, Policymakers and Regulators – Aviation System – Airports
- 4. 33 What is the aviation outlook beyond 2015? The air transport industry enjoys solid growth drivers, including: – Population growth – Increasing air service liberalization – Economic dynamism of emerging countries Global economic expansion is expected to continue, which in turn will drive air travel demand, though performance will vary by region: – North America is leading the economic global acceleration – Eurozone is finally gaining momentum – Despite concerns of economic slowdown in China, Asia remains a high growth region – Latin American economies dependent on natural resources have slumped recently, though the long‐term trend is positive Low cost carrier (LCCs) expansion is another aspect of the markets structure that will evolve. Low cost carriers are poised to take advantage of the growing middle classes in emerging markets that are flying for the first time (e.g., today, 99.5% of Indians have never flown). Source: Airbus
- 5. 44 World air traffic growth has outpaced GDP growth – a trend that is forecast to continue well into the future 0 500 1,000 1,500 2,000 2,500 3,000 3,500 GDP History & Forecast Traffic History Airbus Traffic Forecast (4.7%) Boeing Traffic Forecast (5.0%) ICF Traffic Forecast (4.0%) IATA Forecast (4.0%) World GDP Growth and Air Transport World Traffic (RPKs) Indexed: 1970 = 100 Note: RPK (Revenue Passenger Kilometer): number of paying passengers x kilometers flown Source: Airline Monitor, February 2015; Oxford Economics; World Economic Outlook, Airbus/Boeing/Embraer Market Outlooks, ICF 2014 ICF’s traffic forecast allows for lumpy economic growth and a weakening of the low‐cost carrier cycle Forecast (2014‐2034) World GDP World Traffic
- 6. 55 In the next 20 years, IATA forecasts a 4.0% annual average growth in global air passenger journeys Source: IATA North America 651m 3.3% (FAA 2.0% for USA) Europe 577m 2.6% Middle East 250m 5.1% Asia Pacific 1753m 4.9% Africa 190m 4.9% 2.2 times the number of air passenger journeys in 2034 compared with today In order‐ China, USA, India, Indonesia, Brazil are expected to have the biggest increases in passengers numbers Latin America 328m 4.4% Growth and change in passenger journeys by region (% and million, 2014‐2034)
- 8. 77 Airline strategy continues to evolve – a new long‐haul, low cost model has emerged Note: Aircraft includes those place by operator and by lessors assigned to operator; Source: Innovata; CAPA December 2013 December 2015 • 26 787‐9 Dreamliners on order • 9 long‐haul destinations added
- 10. 99 Airline strategy continues to evolve – hybrid low cost carriers blurring the line Source: Innovata New hybrid model: combination of cost savings methodology of pure LCCs with the services, flexibility, and routes structure of full service carriers Low‐cost Carriers Full Service Carriers Short haul, point‐to‐point Same fare to all customers No codesharing Direct sales only Single aircraft type/ one seating class Short and long‐haul; connecting flights Differentiated fares Use of codesharing/alliances Distributes through GDS Mix of aircraft types / mix of seating classes Network Fares Partnerships Sales/Dist. Operations Examples:
- 11. 1010 Airports Opportunity with Encouraging Self Connects – the case of London‐Gatwick Assess the potential for an O&D airport to support and encourage self connecting passengers (creating own 3‐city itineraries) – Estimating current LGW self‐connects (2012 approximately 900k passengers— equal to traditional connections) – Identifying plausible O&D connecting markets given competitive situation with other carriers – Determining what airlines could do with scheduling, other measures to encourage Put in Place Gatwick Connect, Offering: – Booking engine for self‐connections – Protected connection: Replacement ticket, overnight accommodation, food voucher – Baggage transfer: Convenient drop‐off baggage service – Premium Security: Dedicated security line post‐ bag drop Participating airlines include: Aer Lingus, easyJet, Flybe, Monarch, Norwegian, Thomas Cook, Virgin Atlantic and Wow Air Early returns are very positive
- 12. 11 The Hubris of Forecasters – FAA Forecasts of Passenger Growth (1994‐2012 & 2015) 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 Fiscal Year of FAA Forecast 1994 X 1995 X 1996 X 1997 X 1998 X 1999 X 2000 X 2001 X 2002 X 2003 X 2004 X 2005 X 2006 X 2007 X 2008 X 2009 X 2010 X 2011 X 2012 X Fiscal Year of FAA Forecast One Billion enplaned passengers now not expected until 2029 2015 X
- 13. 1212 Change in Scheduled Seats 2006‐2015 Compared to 2005 (July Base), OAG ‐30% ‐25% ‐20% ‐15% ‐10% ‐5% 0% 5% 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 Percent change from 2005 Nation Large hubs Medium hubs Small hubs All other airports M L PDX, FLL, MDW M S TUS, COS, GUM, SDF, RNO, OKC, TUL, ELP Airline strategy continues to evolve – distribution of seats and U.S. Airports
- 14. 13 -11.9% 12.9% 17.5% 19.3% 11.9% 20.6% 15.9% <1m 1-5m 5-15m 15-25m 25-40m >40m World Airport size (millions passengers) # of U.S. Airports 1010102562250+ Airports Net Revenue: – Alignment of Service and Financial Challenges (ACI World 2013)
- 15. 1414 Airline strategy continues to evolve – trends impacting aviation system planning and future investment Large Airports (15m+) – Concentration of traffic, including feed, at Gateways – Impact of consolidation on gates, terminal space, ticketing – New airlines entering “fortress hubs” (e.g, Spirit and MSP) – Selective airside congestion (e.g., SFO, PANYNJ) Medium‐Sized Airports (1m – 15m) – Closure of secondary hubs distorting overall picture – New aircraft and airline models opening up new markets, including international (e.g., Aer Lingus/BDL) – Will continued growth help “thicker” markets? – Will Metropolitan secondary airports (e.g., PVD, ONT) benefit from future Gateway congestion? Smaller Airports (< 1m) – Upgauging, reduced market opportunities – Fewer hub connectivity options – Lack of interlining impedes market ATL ‐ PDX STL – BUR (FAA) or STL – HSV (ACI) CAE ‐ UIN
- 20. 19 Logan Airport Passengers and Aircraft Operations Actual and Forecast Logan Airport Passenger and Operations Performance and Forecast (2014) Actual Note: Passengers includes scheduled , charter and GA. Operations include passenger, all-cargo and GA. Sources: Massport Strategic Planning Forecasts, 2011 and Massport Short-Term Forecast Update, January 2014 Passengers (in millions) Aircraft Operations International Domestic Forecast 0 84% 87% 85% 86% 82% 81% - 50,000 100,000 150,000 200,000 250,000 300,000 350,000 400,000 450,000 500,000 0 10 20 30 40 50 60 2000 2010 2013 2014 2022 2030 16% 13% 15% 16% 18% 19% 27.7 27.4 30.2 31.1 35.6 39.8 14‐32 Opens Nov. 2005
- 21. 20 MSP International Airport: 2030 Plan Greater than 50 million passengers Need 20‐30 additional aircraft gates Need an additional 18,000 parking spaces No new runways Demand driven (phased) Investment of $2 billion to $2.4 billion
- 23. 2222 Four Issues to Align Policy with Today’s Realities 1. Airside Congestion at Gateways: Solutions are needed for slot management and collaborative decision making in order to ensure access and efficient use of scarce airport infrastructure 2. Small Community Air Service: A complex problem (i.e., pilot shortage, availability of aircraft, code share business models, price of oil) requiring models beyond Essential Air Service and the Small Community Air Service Programs—perhaps mandatory interlining? 3. AIP/PFC Eligibility: Airside and new capacity focus (and bias) of FAA programs need to shift to accommodate the capacity challenges of a greater number of airports experiencing issues with existing terminals and landside access 4. Utilize Commercial Alternatives: ATC reform garnering deserved attention to fix perverse and unreliable FAA funding system— policymakers should similarly focus resources on allowing airports that can recover their costs to do so (PFCs and/or privatization) and dedicate scarce resources to airports that are financially unsustainable