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Current Status of the Airport / Airline Industry

Current Status of the Airport / Airline Industry. Dr. Richard de Neufville Professor of Systems Engineering and Civil and Environmental Engineering Massachusetts Institute of Technology. Current Status of the Air Transport Industry. Objective: To define current situation

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Current Status of the Airport / Airline Industry

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  1. Current Status of the Airport / Airline Industry Dr. Richard de Neufville Professor of Systems Engineering and Civil and Environmental Engineering Massachusetts Institute of Technology Airport Systems Planning & Design / RdN 

  2. Current Status of the Air Transport Industry • Objective: To define • current situation • major new factors • Topics: • Airline and Airport Rankings • Current Trends • Shake-up / Disappearance of Network Airlines • Coming and Going of Transfer Hubs • Commercialization / Privatization of Airports Airport Systems Planning & Design / RdN 

  3. Principal drivers of air transportation industry • Long-term 6% annual decrease in air fares: • Driving comparable annual worldwide traffic growth • Commercialization: • market economy management replaces government ownership and control in a regulated environment • Low-cost carriers • Southwest, AirTran, Jet Blue, Westjet, Ryanair, easyjet, etc • Globalization: • transnational airline alliances and airport groups • Technical innovation: • e-commerce, RJs, A380 NLA, satellite-based navigation Airport Systems Planning & Design / RdN 

  4. Major Recent Events • Disappearance of Major Airlines • TWA, Swissair, Sabena • Mergers of • Japan Airlines and Japan Air Systems (2002) • Air France and KLM (Sept 04) • Major Bankruptcies • United, US Airways, Air Canada – others near! • Surge by Low-Cost Passenger Carriers • Air Tran, Ryanair, easyjet • Surge by Chinese Carriers • Cathay Pacific, China Airlines, EVA • … also by Fedex Airport Systems Planning & Design / RdN 

  5. World Traffic, (Pax-Km x 109) World and IATA Airport Systems Planning & Design / RdN 

  6. IATA Members’ Traffic, Revenues, Yield, and CPI Source: IATA World Air Transport Statistics Airport Systems Planning & Design / RdN 

  7. Interpretation of Trends • Over past 13 years… • Yields (revenues/unit distance) have dropped about 20% • While inflation has risen about 50% • So: costs on a constant basis cut in half • Thus: traffic doubled • Implying price elasticity about -1.3 > -1.0 • So total revenues grow as price drops Airport Systems Planning & Design / RdN 

  8. Airports by millions of pax., 2003 (IATA data; US- Bold, hubs- italics) Airport Systems Planning & Design / RdN 

  9. In 2003, airport traffic mostly stagnated Big drops in Asian market (Hong Kong, Beijing, Singapore, Tokyo – also Hawaii and San Francisco) St Louis, Pittsburgh and Zurich as hubs close Several airports have fallen lower in rankings (e.g. due to failures of TWA, Swiss, Sabena) Airports by millions of pax., 2003 (IATA data; US- Bold, hubs- italics) Airport Systems Planning & Design / RdN 

  10. Changes in Transfer Hubs • Big changes in recent years • New Hubs • Big: Paris/de Gaulle, Amsterdam, Munich • Small: London/Stansted • “Close” of old hubs • Pittsburgh (US shrinking to Philadelphia) • St Louis (TWA merged out of existence) • Zurich (collapse of Swissair) Airport Systems Planning & Design / RdN 

  11. Airports by millions of pax., 2003 (IATA data; US- Bold, hubs- italics) Airport Systems Planning & Design / RdN 

  12. Airports by millions of pax., 2003 (IATA data; US- Bold, hubs- italics) Airport Systems Planning & Design / RdN 

  13. Bangkok, Guangzhou Major New Airports Nagoya/Chubu Airport in the Sea Osaka/Kansai New Island for 2nd runway Toronto Buildings, Runways, etc London/HRW Terminal 5 ($8 billion) Washington/Dulles Mid-field Pax Bldg, etc Madrid ; Miami/Intnatl Runway, Buildings NY / JFK; SFO; Singapore; Rail transit Boston/Logan ; Pax Buildings, Roads Current Major Airport Projects Airport Systems Planning & Design / RdN 

  14. Airline Rankings (Pax-Km, billions) Airport Systems Planning & Design / RdN 

  15. Airline Rankings (Passengers, millions) Airport Systems Planning & Design / RdN 

  16. Airline Rankings (Freight Tonne-Km, Billions) Airport Systems Planning & Design / RdN 

  17. Airline Rankings (Freight Tonne, millions) Airport Systems Planning & Design / RdN 

  18. Main Freight Airports(ACI data; US- Bold, hubs- italics) Airport Systems Planning & Design / RdN 

  19. Main Freight Airports(ACI data; US- Bold, hubs- italics) Airport Systems Planning & Design / RdN 

  20. Airline Rankings (Employees, thousands) Airport Systems Planning & Design / RdN 

  21. Aircraft Inventory (Jet Fleet) Airport Systems Planning & Design / RdN 

  22. Economic Deregulation • Deregulation • Full: USA, Canada, Australia, South Africa • Mostly: European Union • Result: Competition, Cost Cuts • Existing Airlines have difficulty with staff • New Airlines start with new, younger staff with lower pay, more flexibility, less sense of entitlement... Airport Systems Planning & Design / RdN 

  23. Innovations originating in the U.S. Airport Systems Planning & Design / RdN 

  24. Privatized status of airlines, previously publicly owned Airport Systems Planning & Design / RdN 

  25. Airline Market “Caps” (=price/share x shares) Airport Systems Planning & Design / RdN 

  26. Airport Market “Caps” (=price/share x shares) Many airports are economically more powerful than airlines! Airport Systems Planning & Design / RdN 

  27. Airline Alliances Star Alliance -- United, Lufthansa, Air Canada, Varig, ANA, Singapore, Thai, Air New Zealand, SAS, Asiana, Bmi, LOT Austrian, Tyrolean, Spanair oneworld -- American, British, Aer Lingus, Finnair, Iberia, Qantas, Cathay Pacific, Lan Chile Wings -- KLM, Northwest, Continental SkyTeam -- Air France + KLM, Delta, Alitalia, Korean, Aeromexico, Czech Aeroflot? China Southern? Wings??? Airport Systems Planning & Design / RdN 

  28. Alliances’ Market Shares Airport Systems Planning & Design / RdN 

  29. New Types of Airlines • Cargo Integrators • UPS, Fedex, DHL • Role of “Post Offices” ?? • Low-Cost Carriers • Point-to-point: Southwest, Ryanair • “Network”: Easyjet, AirTran • Quasi-Network: Southwest?? • The innovators are the most profitable and valuable airlines Airport Systems Planning & Design / RdN 

  30. Challenge to TraditionalNetwork Carriers • Is their business model working? • Will people pay enough for convenience of • easy connection at hubs • big expensive passenger buildings • travel agents • If not, what will they do? • Squeeze out costs (wages, standards) and survive on a more modest scale? • Manage by having “cheap” partners • Delta -- Song; United -- Ted… • Or disappear? Swissair, USAir? United? Airport Systems Planning & Design / RdN 

  31. Consequences for Airports • Cheaper travel will increase traffic • Where will it go? • To traditional hubs of legacy majors? • To/from leisure locations and homes? • Malaga, Faro, Bali, etc • To secondary airports? • London/Stansted, Frankfurt/Hahn, Rome/Ciampino, etc. • Airport customers likely to demand new locations, cheaper facilities Airport Systems Planning & Design / RdN 

  32. Meanwhile... • The nature of the Airport Business is changing dramatically • More Commercially oriented • Less Government control • More competition from “new” entrants • Providence, Cincinnati, Lübeck, Liverpool... • Not at all clear that current generation of airport professionals fully recognizes what this means Airport Systems Planning & Design / RdN 

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