Hot Flash Archives
01/06 - 06/06

United & Mergers
A Bad Deal, Big Time

Security: What Must Be Done
NOW

Airline Mergers:
What's Not Mentioned

DAL:  Suddenly A Sow's Ear
Becomes a Prada Purse

JD Power Airport Survey:
Who's Kidding Who?

Boeing v. Airbus Issues

Airline Bankruptcy Myths

Small Community Air Service
Grant Program Update

Flim-Flam From
Academia: The
Airline Quality Ratings

Bush:  Foreign
Control of US Airlines

Wright Amendment Debate:
Using Kids As Shills

UAL Execs
Suing For More Booty

Year 2006 Predictions

Airline Industry Trend
Forecast: 2006
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Archives
July - September 2006

HHot Flash - September 18, 2006

Year 2006: End of The Tunnel?
Year 2007: Breakout To Profitability?
Snapshot: Air Traffic Forecast Dynamics 2007

As we'll be covering in much more detail at Deer Valley, the year 2007 will represent the start of major acceleration in fundamental shifts in aviation.

Some of the issues we'll be covering...

Factor: Technology & Global Economics: A Sea-Change. The stampede to the 787 orderbook is great for Boeing, but when the dust settles from the wider applications of the "disruptive" technology this airplane represents, there will be a scorecard of winners and losers throughout the whole fabric of aviation, including airports, financial institutions, traditional manufacturing industries, suppliers, as well as wholesale shifts in both domestic and international traffic flows.

Factor: I-Air Bubble Deflation. Fundamental air traffic growth in the US will clock out next December 31 with approximately a 1.1% gain. Year 2007 will be a catch-up year, with baseline passenger growth expected to be just over 3%, according to the latest Airports:USA® forecast.

As we forecast, year 2005 traffic data was skewed by the pricing shenanigans of Independence Air, which as you will recall was an experiment in trying to reverse the laws of financial gravity, selling 15-cent seats at 9-cents and trying to make up the difference on volume.

Now that I-Air is history, the artificial 2005 traffic bubble it created has collapsed, vaporizing about 4.4 million of 2005's price-induced enplanements, mostly at airports up and down the East Coast, with about half of that decline experienced at IAD. Toss in the roughly 2.2 million now-gone enplanements created by 2005 Delta Simplifares, and the net result is that the core growth in '06 was just over 1%.

Much of this low traffic growth has to do with tight capacity controls at most CNC's (comprehensive network carriers), who tossed very few net-new seats into the sky in 2006. Plan for the same in 2007.

Looking ahead, traffic dynamics and fundamentals are in line to generate slightly over a 3% gain in 2007. The recent slide in oil prices might increase that by shaking loose some additional discretionary dollars, although the 2005-2006 jump in gas prices to over $3 didn't have the expected negative effect on consumer air travel spending.

International Traffic Expansion. The current media mantra is that CNCs are dropping domestic routes in favor of international expansion, thereby giving up domestic ground to LCCs. Unfortunately, that's lore, not fact.

CNCs are indeed adding international spokes. But that's to take advantage of emerging opportunities, and not, as some claim, because of some Patton-like LCC onslaught that has driven them off the beaches and out of the country. Carriers such as American, Continental, and Delta are adding international flying that supports and strengthens their domestic flying. Fact: Continental's expansion into increased European flying has not been accompanied by the cutting of any major domestic routes, as is implied in some media stories. Ditto, Delta. The nonstop routes carriers such as these may have "dropped" include CVG-MLI and ERI-CVG. That's just adjusting feed systems. Besides, it's unlikely that either of these markets are at the top of Herb Kelleher's hit parade.

New Economics Don't Bode Well For Some Airports. The growth will be uneven across the nation, however, with some communities in line for very strong net-new traffic, while a couple of mid-size communities in the Midwest appear to be beginning a slow but long term decline in air traffic. Hint: The production structures and systems for aircraft manufacturing are changing, and that's going to affect some regions more than others, both positively and negatively. Hint: Ford is closing factories across the nation. Hyundai, Toyota, and Kia are building manufacturing facilities, but in different places. Regional economics drive air travel demand, and a lot of the traditional economic drivers are changing, and in physical terms, actually moving.

But If The TSA Gets Frisky... There are a couple of wild cards, however. The TSA's brave attempt to protect the public from facial foundation, lip-gloss and various other weaponry produced by terrorist cabals such as Estee Lauder and Revlon, is certain to have some effect on dampening business traffic growth. That businesswoman planning a one-day trip to Buffalo will think twice if she now has to check a bag just to have make-up for the next morning's business meeting.

But if the TSA moves to ban laptops and cell phones, as recommended by the bobbleheads who do the editorial page for the New York Times, all bets are off. Air transportation is founded on the value and utility it provides. Making people check laptops shoots a torpedo in that direction. And making folks check their cell phones means that a lot of business travelers won't do the deal by air. They will stay home.

Forget the verbal yogurt about "Americans are willing to sacrifice for better security" - if they have to give up a fundamental part of their communication system - i.e., cell phones and laptops, the trip may not be worth it. Besides, it's not better security. It's expanded idiocy.

While it's difficult to predict what the effects of such a rule would be, Airports:USA® forecast analyses of business/discretionary traffic indicate that it could put the kibosh on somewhere between 30 to 35 million potential enplanements. That translates into approximately 24 million O&D passengers staying home, and somewhere between $2.2 and $2.5 billion in lost airline revenues. All to protect us from ourselves, not terrorists.

Enjoy That RJ While You Can. There are some techno-dynamics that are in play, too. One is a more rapid downsizing of RJ fleets, due to oil-price spikes and the deterioration of capacity in the air traffic control system. That means an acceleration in acquisition of new-generation small mainline jets, specifically E-170/190s, and perhaps (and not particularly positive for the buyers or their passengers) larger versions of the CRJ series.

But it also means that the air service bar gets raised for a number of smaller communities, and without question, more will slip off the air service radar in the next five years. Return of turboprops? Don't bet on it. Recent and soon-to-come orders for the economically-superb Q-400 aren't any harbinger of good things to come for small communities. Aside from cabin comfort, the advantage of the Q-400 is its size, and airplane size is the challenge in regard to supporting service at small communities.

For The Details & Projections, Join Us In Deer Valley. We'll be reviewing these and other traffic developments at The Boyd Group Annual Aviation Forecast Conference, October 8-10, in Deer Valley, Utah.

Specific to the above, Frontier CEO Jeff Potter will be there to talk about that carrier's future plans. Ed Bastian, CFO of Delta, will be reviewing their future. Doug Parker, CEO of US Airways will illuminate the progress in putting two carriers together. There'll be a fireside chat with Jerry Atkin, CEO of SkyWest, too. Plus other key aviation decision-makers. Real decision-makers, not canned speeches from DOT bureaucrats.

To register on-line, click here.
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China Route Award: The Betting's On Politics

A key strategy we've recommended to our airport clients for the past few years is to be Sino-Centric - in the future, plan on getting China-connected. If not, plan on being dis-connected from global growth. The latest round of China service applications will have a very positive effect on a number of communities that are heeding this advice.

This year, there are four applications for just one US-China route authority. Continental wants EWR-Shanghai. Northwest is applying for DTW-Shanghai. American wants DFW-Beijing. Finally, United is seeking IAD-Beijing. Regardless of the relative merits of each proposal, at the end of the day, it's likely politics will be the trump card.

• Continental wants to connect the #1 commercial center in the US with its counterpart in China.

• Northwest's application will give one-stop access to Shanghai from dozens of key commercial centers in the Midwest, East, and Southeast.

• American's proposal not only would give access to China from the D/FW Metroplex, but also it would represent one-connect access to important commercial cities in Northern Mexico and Latin America. China-Latin America trade will be the next huge traffic growth pattern. AA's hub at DFW is right in the middle of the two regions. (As, arguably, is the DL hub at ATL, not to mention the CO hub at IAH.)

• United's application offers the weakest connectivity, but it does represent the first nonstops between the two capitals, Washington and Beijing. That is not an unimportant consideration.

Betting: Politics will take front row, and that puts United in the pole position. True, it has other China authority. True, BJS-IAD doesn't offer enormous access to points beyond the US gateway. True, it will have much less impact on smaller communities. But it does represent the prestige of having nonstop US-China capital flights. It's a good bet that prestige will trump economic impact this time around. Advantage: United.

Recommendation For Airports: Jump Into The Fray. For airports, it's usually not a good thing to take a stand that might support one incumbent carrier over another. Nevertheless, as said Hyman Roth in The Godfather, this is the business airports have chosen. You gotta go with your best interests. So we'd recommend that communities review which of the four applications would best get them connected to China, and let the DOT and their congressional reps know. As always, if The Boyd Group can help in this analysis, we'd be delighted to help. Give Tim Sieber a call at (303) 674-2000.

Importance of China: More Than Meets The Rice Bowl. One of the folks we're honored to have at the Conference is Loren Aandahl, Managing Director - International Pricing & Scheduling at Northwest. In addition to reviewing NW's navigation through C-11, he'll be discussing the important role of traffic flows generated by having access to China. He should know - Northwest has been in the region for 60 years.

Getting connected to the Middle Kingdom is a hot topic, with most consultants just now starting to comment on its great importance.

We'd point out that our clients have been advised to plan in this direction for awhile now. Like, we were pointing them in this direction more than three years ago, back when most other consultants thought China was an alternative to Melmac when relatives came over for dinner...

Regions To Watch. Air service planning efforts should increasingly keep this in mind: economic development may well be determined by who has the easiest access to Asia and China.
(The Boyd Group predictions, December 2003.) Go there.

It's another example of how we help our clients get to the competitive battleground first. This year at the Annual Forecast Conference, we'll be going over the specifics of how access to China needs to be a fundamental part of any community's economic development and air service efforts.

And, we'll be covering other information that the rest of the consulting industry will be discovering a couple of years from now. You can wait until then, or join us in Deer Valley next month.

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Finally... Juan Trippe's Ultimate Legacy?

At least, it's pretty much how folks describe coach, anyway.

(c) 2006, The Boyd Group/ASRC, Inc. All Rights Reserved

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Hot Flash - September 11, 2006

Five Years Later...
Questions To Ask

PHOENIX, September 11, 2006. The former senior Transportation Security Official in Arizona has been found to have committed major violations of ethics and policies while in office.

Marcia Florian was one of the people Norman Mineta described as his security "field marshals," hired when the TSA was established.

Like so many of the senior management selections made by Mineta, this one was a political appointee, apparently. According to a story published by Phoenix Channel 13 News, the Department of Homeland Security found that Floria:

• Failed to report more than 40 days of missed work. (Note to TSA:  in the private sector that's call dishonesty.)

• Violated protocol by using cell phones to discuss airport security while she was in Mexico (Note to TSA: That's called total disregard for security, from a senior TSA official, too.)

• Violated agency policy by using a federal vehicle as her personal car and replacing the vehicle's federal license with an Arizona plate. (Note to TSA, that's called fraud.)

This, we would submit is only the tip of a very obvious and well-known corrupt iceberg. Five years after 9/11, there are more holes in aviation security than an Arkansas stop sign during hunting season.

Truth Doesn't Really Matter, Apparently. We covered it in detail last week (go there), so there's no point in trying to review the range of really stupid news stories we'll see today - the ones generally with the headlines that imply, "Security Much Improved Since 9/11" or "Passengers Adjusting To New Security Measures" or a range of other examples of slapdash journalism.

As you're regaled today by push-piece media stories, outlining the great "improvements" in aviation security, just ask yourself the following:

• If things are sooo much better, how come 60% of screeners last June at MCO flunked threat ID tests? Five years after 9/11. Five years after sloppy FAA security let three airplanes be hijacked and slammed into buildings, plus another one into the ground in Pennsylvania.

• Five years after 3,000 people were killed as a result of bad aviation security, we still don't know who's running around airplanes on supposedly secure AOAs. If we're sooo much more secure, why did immigration officials recently nail dozens of illegal aliens working in secure areas at IAD?

• If we're so much better at screening than on 9/11, how come virtually every independent test done indicates the opposite? How come even Rep. John Mica, whose sub-committee oversee the TSA, feels that we're no better? It seems that only the TSA and journalists who swallow the TSA's drivel, seem to think security's better.

• If security is so much better, how come two months ago some homeless people had no problem getting onto the secure area at Newark Liberty International?

These are not minor issues. They're part of the mountain of clear, irrefutable proof that the Transportation Security Administration is a failure and that aviation security has become a politicized, bureaucratic threat to the nation. But these aren't the things we'll be hearing today.

Which is why we've got a good chance of hearing from terrorists again.

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In The Wednesday Airport Forecast Flash
"Security" Idiocy IS Reducing Airline Revenues

It's mostly anecdotal for the moment, but it may be a lot more than we bargained for. The TSA's stupid no-hair-gel-in-the-cabin rules are hitting airlines' bottom lines.

A Harris Poll last week indicated that 70% of all travelers wouldn't change their plans due to the new rules, leading to the snap conclusion by some in the media that there'll be no effect on airlines.

A typical uninformed poll, taken with uninformed questions, of uninformed people, and "analyzed" by uninformed reporters. Get this: 70% of travelers may not be doing things differently, but 30% are. Dig it: if 30% of all travelers are going to travel less, that means that airlines are getting zapped, big time.

The poll also indicated that most Americans think the ban on liquids should remain in place. More uninformed questions to an uninformed populace on a subject they know nothing about.

When a polling company asks Americans a misleading question such as: "Do you think the new stricter security should remain in place?" golly, gee what do you think Mr. US Traveler will say? Unfortunately that question assumes facts not in evidence - it isn't stricter security at all.

The proper, informed question should be asked, "Although these new restrictions on hair-gel do nothing to increase security, mainly because we have illegal aliens working at some airports, and some airport perimeters are sieves, do think they should stay in place?" 

Ms. Business Traveler: Staying In The Office? It stands to reason that single-day, out and back business trips are now a huge hassle for women. We live in a world where ladies cosmetic items are important and are very personal. Having to check these items for a short trip does indeed change the value proposition of air travel. How much is unclear.

But the fact - the hard fact - is that these new restrictions are totally ineffective in deterring a terrorist. It's another example of the TSA being caught behind the planning curve.

Click here for more details from Airports:USA©.

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Hot Flash - September 5, 2006

9/11 - Five Years Later
Some Facts v Fictions

Prepare for an onslaught this week of 9/11 retrospectives. Some will be good, and some will be little more than media puff pastries.

In the Aviation Security Update, we've prepared a comprehensive review of where we've come as a nation, and where we seem to be going.

As usual, it isn't the typical "we've come a long way" nonsense. Clear several minutes and take a look. Then you'll have some context in which to consider all the dozens of media takes on 9/11 that will be coming out over the next several days. (Go There)
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UAX/SAT Focus City Failure:
Another Indicator of A New Future For Mid-Size Airports

Trans States Airlines, operating as United Express, has ended its experiment in providing nonstop O&D service to several markets from San Antonio. It's believed that the service was “at risk” flying for Trans States, which means that aside from the use of the United Airlines brand, it took full responsibility for the costs and the revenues.

From an outside, independent view, the service was at least on the surface a sound idea. SAT is a strong local market, and the destinations intended by Trans States appeared to be robust traffic choices. Providing nonstops where only connections are available, particularly to points with communities of business interest, such as Colorado Springs, made sense.

But, apparently, not enough sense to consumers. Even with a major carrier brand, in almost all cases, the service achieved only so-so ridership. Not dismal, but not strong enough to support the opportunity costs of the operation. 

Intra-regional service, flying on a nonstop basis between mid-size, non-hubsite communities, is an intriguing concept, and one that on paper, should work, particularly when operated with a major airline identity. But except to very large metro areas, it has simply not had a good track record. The United brand isn’t a particularly big factor in most of the markets that Trans States attempted, but it still was the United brand, carrying with it the strong reputation of a first-rate airline. Even that didn’t carry the day.

Tie this to a declining population of RJs in the US airline industry, and we can come up with some conclusions regarding the air service future that communities such as SAT need to pursue. New connecting hubs aren't in the cards. Focus city operations are also in question. Clearly, new strategies are going to be needed to assure intra-regional air transportation.

To that end, we suggest you consider joining us at The Boyd Group 11th Annual Aviation Forecast Conference, October 8-10 in Deer Valley Utah.  Not only will we be presenting our cutting-edge airline traffic and trend forecasts, but we'll be hearing from key airline executives on what they'll be planning for the future as well

The Herd Is In Shock! They Found That RJ Use Is Declining! Yet another proof of the forecast value of The Boyd Group Conference appeared this morning in USA Today.

It seems some consultants have discovered that the use and applications of "regional jets" have, yes! shocking! peaked. Four years ago, our conference attendees were provided not only with this forecast, but the hard dynamics behind it. We also outlined that new 70- to 100-seat E-Jets would replace much of the RJ flying. Gee, consultants are just now predicting this - after it's happened.

Back then, the rest of the consulting industry was busy predicting unending growth in both RJ demand and applications, with not a hint that there would be a decline. They were running safely with the herd, which is the reason they're now seeing events only as they appear in their rearview mirrors.

We prefer to keep our clients well ahead of the herd. This is another reason that airport and aviation leaders make it an an annual event to attend The Boyd Group Aviation Forecast Conference. They want to be prepared for events, not read about them in the papers after they happen.

Click here for details and to register. While you're there, download the updated Conference Agenda. You'll see that, unlike other conferences, we really do have key aviation leaders presenting. The data, forecasts and insights are such that are available nowhere else. We look forward to seeing you.

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Hot Flash - August 28, 2006

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More Air Service Development Success:

Delta Enters Jacksonville, North Carolina

The Boyd Group was instrumental in assisting Jacksonville, NC recruiting new Delta Connection service to Atlanta. The firm worked with OAJ in developing the traffic, revenue, and passenger projections to help convince the airline of the viability of the new market.

If your community is seeking air service development assistance that goes beyond the smoke-and-mirrors some other consultants offer, give us a call.

Snake Oil v Air Service Expertise. We get down to basics, because we already know the basics and the emerging trends to start with. That's because we"re the leader in aviation and airline industry forecasting and research. We don't need to charge our small airport clients $100,000 to "study" their air service situation. One small Eastern community recently got hooked into exactly that - spending a whopping 100 Gs, and today has zip air service to show for it. But they probably have a very pretty study to look at.

And we don't waste our client's money doing "surveys" to find out which airlines consumers "really want to see in town." In today's environment, that's like surveying the people in Pittsburgh, asking what rivers that they want to have flowing through the city. The airline industry is pretty much a fixed situation, and there is no airline store out there where communities can pick and choose exactly what they want. Unfortunately there are consultants who peddle such stuff.

If you're looking for something more effective in air service development, give Mike Mooney a call at (303) 674-2000.

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The Mantra Begins
Airline Mating Season About To Begin

Let's call it the "kennel effect" - one dog starts barking, the rest of the dogs follow along. They have no idea why they're doing it, except that everybody else is.

That pretty much describes the current buzz about airline mergers. The media hounds are howling, mostly at the moon, and mostly just because they read it somewhere else. A while back, it came out that an executive at US Airways may have mentioned the subject to the CEO at Delta, and the headlines start flying...

Delta And USAirways Exploring Consolidation

This, despite the fact that the CEO of Delta has made it clear that he believes that mergers aren't an answer, nor are they positive. But one story becomes the source for another, and before long, "everybody Knows" that airline mergers are "necessary" and "inevitable."

Neither is accurate.

That's notwithstanding the clear indications that some of the hounds on Wall Street are hyping the "need" and the "benefits" of mergers, making inane comments like., "...the two route systems between X Airlines and Y Airlines fit incredibly well..." Leaving out the fact that merging fleets, training programs, parts, maintenance programs, and union seniority lists can largely or completely eliminate the supposed wonderful route synergies that a merger between any large airline system supposedly would bring. But it's Wall Street and the financial types that make the big bucks in merger deals. Employees and the public pay the price.

Then there's the "shareholder value" issue that can push mergers. It's a dodge that generally means artificially increasing the stock price for a quick, short-term gain. Airline boards may very well jump at any concocted merger deal on this basis. Unfortunately, one can argue that that's the correct objective for a board of directors - get the stock ticker to go up. But when it entails literally trashing an airline system to the detriment of employees and consumers, the morality of the "shareholder value" argument gets iffy.

HP/US Is A One-Off. This is not to say that combinations of smaller players - such as the America West buy of USAirways assets -and where there is little overlap, can't work, at least on paper. But combinations of major airline systems, such as United with Continental, have lots of overlap - and lots of non-synergies that would offset the mystical revenue synergies that the people who make the bucks will be touting.

But let's go over some of the nonsense that's being spouted to support mergers:

• "There's too much capacity." That was the Wall Street mantra in the past. Today, major airline systems are reporting in with 80%+ load factors, which means airplanes are essentially full. That's certainly not an indication of "over-capacity." That means that if there is a meaningful reduction in capacity resulting from a merger, it would limit the "product" for sale, and, according to theory, allow carriers to carry fewer people, but at higher fares.

Sounds good, but not only is it detrimental to competition, but it's also sheer nonsense. In fact, past mergers have done little or nothing to reduce seats in the high-density markets where "over-capacity" supposedly exists. Even the GAO found this. But they have done wonders to eliminate capacity and competition at smaller airports.

• "When The Economy Cools, Then We'll Need Mergers." Watch for some merger proponents to claim that in the event of an economic downturn, we will again see over-capacity. What they'll leave out is that, contrary to past downturns, most major airline systems today have capacity "safety valves" in the form of excess lift that can be pulled-down relatively cheaply and quickly.

American has a large fleet of MD-80s which have reasonably low ownership costs. Northwest has about 100 DC-9s with almost no ownership costs. Virtually all mega-carriers have the ability to reduce the number of RJs they lease. Unlike LCCs, most of the comprehensive network carriers (what some still call "legacy" airlines) do not have huge amounts of net-new capacity on order.

• "It will make the combined carrier a stronger competitor." Sure. Like what it did for TWA when they bought Ozark. Or when USAirways bought Piedmont. Or when American bought Reno.

• "Airlines are financially troubled. Mergers will strengthen them." Even at current high oil prices, major airline systems are actually making operating profits. So the "failing airline doctrine" really doesn't apply. It may have been relevant to the HP/US deal, where overlap was minimal and  the USAirways system was a step ahead of the Grim Reaper, but is isn't in regard to any combination of major carrier systems.

• "The synergies will be enormous." Fuggetabuoudit. Take a Ford engine, combine it with a GM Hydromatic transmission, attach a Toyota rear end, and a Volkswagen ignition system. What you end up with is the modern equivalent of a shiny new '57 Hudson. Might look great, but nothing's going to work well or efficiently. That's pretty much what a mega-carrier merger would produce.The combination of the operating systems will essentially prevent most areas of cost-saving for years after the merger.

Facts, Not Lore, Regarding Mergers. There are three points that need to be kept solidly in mind in the coming blizzard of sunshine stories that will be carefully-fed to the media regarding airline mergers.

• Always Less, Not More. The first is that mergers always result in less than the sum of the original parts. Less service. Fewer flights. Less employment. Less competition.

• Smaller Communities Get Hit. When the dust settles, it's the small and mid-size communities that get zapped with less service.

• Over Time, Market Presence Evaporates. The poster child for this was the PSA/USAir merger. Within about five years, USAir had essentially nothing to show for the money it squandered on the deal. American bought AirCal. Poof! They opened a hub at SJC and today have dukey to show for their efforts.

There's A Lot More Fallout, Too. Not Much of It Good. For attendees at our 11th Annual Forecast Conference, we'll be covering a lot more of the things that airports, suppliers, and other aviation entities should be prepared for in the event of large-scale mergers.

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AP: Regional Air Service Heading For The Hills.
It's Only Partially True

It's been splattered all over the news - the Associated Press issued a blockbuster story on how smaller communities are seeing schedules reduced, capacity cut, and fares jacked up. The general gist was that air service woes are universal at "regional" airports, and that local economies are heading back into the Stone Age as a result.

Aside from being a generalized, broad-brush set of conclusions, we can thank the AP for at least putting up a story that has caused the media to cut back just a little on "breaking news" in the Jon Benet Ramsey case.

Nevertheless, while what the AP reported may have been a bit sensationalist and a bit over-reaching, it illuminated what was covered in The Boyd Group Airports:USA® Aviation Forecasts over the past four years: rural air service is subject to economic realities, and cutbacks and reductions are in the cards - for some airports.

Air Service Reductions Aren't Written In Stone. Our recommendations have been for communities to develop hard, aggressive - but realistic - air service development programs that focus on a futurist approach to traffic generation.

Futurist means: The new investment in the region. The expanding tire plant, and its business ties to other plants in the nation. The second and third tier suppliers for that auto parts facility.

Futurist means that using raw DOT O&D data isn't a view into next year. Futurist means that old MIDT data, reflecting outdated booking systems is an expensive foray into getting bad data. Futurist means looking at what the community will be in the future, not what it's been in the past. That doesn't mean every small airport will prosper, but it can illuminate areas where there are emerging but unrecognized traffic opportunities

Futurist does mean that looking over the horizon and crafting a credible traffic picture based on the region's evolving economy is a lot more compelling to an airline planner than spitting out DOT data that's so wacko that it indicates Hawaiian Airlines as a player in the Dakotas. (Some consultants actually re-package this stuff and sell it as-is with a straight face and a hefty invoice.)

It's Not All Bad News. Underscoring how a futurist approach can be the key to keeping and attracting air service, we have some examples that the AP missed. There are lots of bright spots in the rural air service picture that AP failed to recognize:

• Fresno gained new Frontier service to Denver. At last count, the load factor was 87%.

• Marathon, Florida, has recruited not one but two carriers to serve their airport. As soon as TSA recognizes that they're not a latter-day CAB that can determine who can and who can't have air service, flights will begin this fall.

• Lewiston, Idaho now has strong service to Delta's SLC hub.

• Durango has increased service also with new flights to Delta's SLC hub.

• Sarasota Bradenton now has extensive new low-fare service, including AirTran and jetBlue, recapturing a substantial portion of the one million passengers that formerly drove to Tampa for air service.

• Joplin has engineered new service to D/FW International.

• Latrobe, which lost all air service, now has service to Northwest's hub at DTW.

• Kalamazoo/Battle Creek recruited new service to Atlanta.

• And as noted earlier, Jacksonville, NC will see Delta Connection service to Atlanta in December.

So, AP's dire story, which has gotten more inches of column space than Kim Jong Il's latest rocket launch, isn't completely accurate. But one thing these communities had in common was that they engaged the services of The Boyd Group to develop successful futurist air service strategies.

Along these lines, airports and communities that may want to learn more about new air service tactics may want to consider registering for the 11th Annual Boyd Group Aviation Forecast Conference, October 8-10 at Deer Valley, Utah.

We're holding a fun pre-conference workshop on October 8, A Fireside Chat with Mike Mooney on Air Service Development where airports can discuss and get some innovative ideas, in a relaxed, informal environment. (Yes, there will be an actual fireplace, too. Mike ain't FDR, but he is the wizard when it comes to crafting air service programs.)

To find out more about the Conference, click here.

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Like Willie Sutton Planning Bank Security...
Finally, The FAA Again Moves To Reduce Delays

A few years ago, the Feds decided to implement a new program at LaGuardia that would do wonders for small airports. They opened lots more slots for the exclusive operation of "regional jets." The idea in their lizard-size brains was that since these were "regional jets" the slots would engender lots of service to small, rural and underserved airports.

Needless to say, almost no small communities got any access to LGA. The program was brain dead from the gitgo.

Now, the FAA has another grand plan, one that is engineered to assure that their inability to build an ATC system is completely accommodated. They are recommending that only larger aircraft be allowed to use LGA. That, according to the FAA, will counter those nasty airlines who insist on "overscheduling."

 

Hot Flash - August 21, 2006

Forget Terrorists...
Homeland Security: Now They're Arguing With Each Other

Aside from the confused paranoia about the dangers of toiletries, and aside from the emerging questions as to how imminent that UK-based bomb plot really was, the terrorists have again scored a victory.

They have our esteemed Department of Homeland Security fighting with itself.

It seems that Kip Hawley and Michael Chertoff really can't decide whether their screening systems work or not. Chertoff's Homeland Security did a study that concluded tossing shoes through a metal screener won't discover explosives.

Not so, claims the TSA.

Immediately upon hearing the news of the Homeland Security report, Kip Hawley went into show biz mode, and called a news conference in the lobby of Washington Reagan Airport.

He wanted to tell the nation that Homeland Security was wrong, wrong, wrong. He forgot that he is Homeland Security, or at least a dismal part of it.

Waving around rough drawings he claimed were representative of shoes worn by Richard Reid, he assured the American public that, with training, screeners could indeed find explosives by running footwear through a machine that wasn't designed to do so in the first place.

Aside from Hawley actually declaring that his parent organization didn't know what it was talking about, there were two operative points that made Hawley's show - and the TSA - look completely stupid: "training" and "Richard Reid."  

First, Hawley himself hasn't been too concerned with screener training, apparently. After the GAO scored 100% getting stuff through airport security last spring, he said nothing. In fact, when that happened Hawley didn't call a press conference at Reagan. He wouldn't even speak to the media. But he did put out a press release saying how proud he was of the work screeners were doing, including, presumably, failing 21 out of 21 screening tests.

Then there's Hawley's implication that all terrorists will be as klutzy as Richard Reid, who crudely stuffed explosives in his Nikes and then tried to light the fuse in the airplane cabin. A pro could engineer the shoe differently, as the Homeland Security report apparently noted. Plus, a pro would have lit the fuse in the privacy of the lavatory. By the time the smoke detector went off, the airplane itself would be pieces of floating wreckage.

So here we are, five years after 9/11. Our security officials are openly arguing about shoe screening, and Chanel No. 5's being banned from airplane cabins.

Some war on terror, eh? The bad guys apparently have leadership.
Too bad we don't.
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Update: Listing of SCASD Award Recipients

Airport Business magazine has compiled a listing of 2006 SCASD awards, along with the consultants who assisted each community.

One gander, and it's clear which consulting firm far and away was the most successful. Just as it's been for the past three years. So, if your community needs air service assistance, give us a call.

Our phone number is next to each of the successful grant applications we worked with.

It'll be easy to find, because it's listed at least three times more frequently than any other consultant on the page. To see the list, Click here.

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Hot Flash - August 14, 2006

TSA's Rule: No Shirt. No Shoes. Now You Can Fly
US Aviation Security: Stupidity As An Art Form

There's no doubt about it. The bad guys are planning to hit us again.

The foiled UK plot is just one example. Not particularly sophisticated, but still an indication of a deeply-organized threat. Then we have the clowns running into Wal-Mart, buying, say, 100 cell phones, thinking that it won't be noticed. Again, an indication of very unsophisticated people, but still, people who want to kill us. On the eve of the fifth anniversary of 9/11, there's lots of "noise."

There's also the clear indication that the US aviation system is a sitting duck.

We've spent what, $15 billion? $20 billion? on "security" and all we have to show for it is an enormous bureaucracy, and a growing industry of politicians and bureaucrats like Kean and Hamilton writing books on the subject.

But, in light of the latest threat - liquid explosives - our intrepid Department of Homeland Security has implemented the ultimate counter-measures: Ban anything wet on the airplane. No water bottles. No hairspray. No deodorants, No toothpaste. No lip gloss. No mascara.

It's a breakthrough on the war on terror: Counter 'em with bad hygiene.

The Sheep Are Buying It.

Angie Airhead, cub reporter with WDUH-TV, is at the airport. She asks some bozo waiting in the screening line, "how do you feel about the new security measures?" Standing tall, the consumer responds boldly: "If it promotes security, I'll gladly give up my tube of toothpaste!"  

The only thing it promotes, moron, is tooth decay.

Some folks, reading and hearing the news, would jump right in and agree with the soon-to-be toothless wonder in that security line: Yeah, but if they're gonna use liquid explosives, whaddya suggest we do?"

We'll start with this: The US airport system is a sieve. The ramp areas are about as secure as an unlocked Lexus in the South Bronx. Those guys working on the taxiway? The people cleaning the airplanes? The people slopping the special sauce in the burger joints in the sterile area? The catering truck, and the people driving it? We covered it weeks ago - it's a fact, regardless of the blatant lies coming out of the TSA.

The point is that if really sophisticated terrorists want to get stuff onto the ramp at big airports, they probably can. So taking a bottle of make-up foundation away from mamma isn't going to do diddly to counter terrorism.

Next, these are suicide terrorists, remember. They aren't too concerned with where the explosives are, just as long as they go boom at the right time. So, they can put this stuff into their checked suitcases, conveniently cloaked and disguised as a bottle of cough syrup. True, when in the mixed and ready state, most of the typical street-variety explosive liquid substances can be unstable. But that covers the less sophisticated, learned-it-off-the-web variety of terrorist. A more erudite virgin-seeker may use more stable varieties of explosives. And, they can be set off remotely while the terrorist is comfortably seated in first class.

So Here We React, Again. The negligent people running the TSA have ignored the threat of liquid explosive detection for years. Right after 9/11, technologies were discussed that could ascertain if that bottle in the Samsonite was mouthwash, nitro, or a bottle of cheap hooch. But the TSA ignored them, because the TSA is a political bureaucracy run by incompetents who have had no anticipatory plan to counter anything.

Prime Example: Richard Reid sticks explosives in his shoe. The TSA reacts by requiring shoes to be put through a metal detector. A metal detector that can't detect explosives.

So, now we're all going to be sitting on airplanes, with no chapstick, no make-up, no lip gloss, and no mascara. Unless the terrorist is a part-time hooker, this won't do anything except make the coach cabin even less attractive.

Cell Phones & Laptops Next. The TSA's idea of security is "target removal" - not counter-measures to protect our way of life. The idea is that if something can conceivably be used as a terrorist device, or if something might be a target, the philosophy is to simply remove it. It's like circling the wagons tighter and tighter to make a smaller target. Not defending territory, but ceding it to terrorism.

Remember, too, that Kip Hawley, Michael Chertoff and the rest of these security cub scouts have no plan, no goals, no ideas about what to do next. So jumping into that intellectual vacuum we have the congressional likes of Reps Markey, Wyden, and Israel, et al., all of whom have their own crackpot, short-term, and generally inept ideas of how security should look.

Almost certainly, the next thrust will be to ban all carry-on. And that will zap the airline industry. Forget the gooey patriotic pap about how "Americans will do what they must to adjust to new security measures.." That's a load of yogurt. First, what we see today are not security measures. They are the actions of government officials who are totally clueless and essentially are having their strings pulled by events.

Secondly, a laptop is now a necessary business tool. They are devices that cannot handle the stress of normal baggage handling. Plus, there is a theft problem at the TSA that has popped up at a number of airports across the country. Finally, if a passenger has to wait in the baggage claim area for 30 minutes to get his or her cell phone back, that isn't going to fly, literally.

Banning all carry-on, particularly laptops and cell phones, will fundamentally alter the value and the utility of air travel for a significant portion of the flying public. Don't buy into the stuff about, "... well, we didn't have 'em thirty years ago..." That's precisely right. This isn't thirty years ago.

Run, People, Run. Instead of making us safer by crafting anticipative counter-measures to terrorism, and instead of developing programs that protect and defend our way of life, Chertoff, Hawley, and - deal with it - the entire Bush Administration have no plan except to have us run faster and faster away whenever there's a threat.

Another terrorist attack - on a plane, at an airport, in a subway, on a pipeline, wherever - is, unfortunately inevitable. The lack of planning and the lack of expertise in place that DHS and TSA nearly guarantee it.

We know the problem. We know the real threat. It's us.

(c) 2006, The Boyd Group/ASRC, Inc. All Rights Reserved

 

Hot Flash - August 7, 2006

Update: Another Air Service Recruitment Success. The Boyd Group has assisted Joplin, Missouri in recruiting new flights to Dallas/Ft.Worth. The firm worked with the community and the DOT in crafting the new service.

We don't just talk, we really do assist our airport clients in resolving really tough air service challenges.

Aviation Forecast Conference: Speaking of air service, we've added a third complimentary pre-conference workshop. Air Service Recruitment Issues - A Fireside Chat With Mike Mooney, will be offered at 3:30PM on Sunday October 8th. We'll be covering this subject in the main conference, but this is an opportunity for airports and communities to sit back in a comfortable atmosphere ask specific questions and explore the matter one-on-one with Mike.

This is the conference that really does have actual forecasts, plus presentations from the airline industry leaders who're calling the shots. No, the TSA Deputy Director of Policy Excuses won't be at our conference. Neither will the Assistant Acting FAA Administrator of ATC Failures. You can probably find them at events put on by Washington Alphabet groups, but not at The Boyd Group Aviation Forecast Conference. We concentrate on value, not political fluff. To see our agenda, and to register, click here.

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The Cashing-In Continues
9/11 Commission Co-Chairmen:
We've Got A Tell-All Book! Buy It & Get The "Facts!"

A few weeks ago, we noted how 9/11 has become a cash-cow for a whole range of ex-government cockroaches, who held back sensitive or important information so they could write a tell-all book, do the Larry King circuit, and look like real "patriots" - despite the fact that when in power, they kept their mouths shut. (Go There)

The latest in this parade of tell-all books, revealing the alleged "truth" behind the terrorist attack, comes from none other than the two guys that actually chaired the political hoe-down known as the 9/11 Commission. Thomas Kean, and Lee Hamilton have just published their memoirs about the trials, tribulations, and, shock! the non-credible evidence and testimony they reviewed during weeks of hearings.

We can plan on seeing these two all over the news shows for the next couple weeks, earnestly talking about how they worked day and night to find the truth. How they are sooo frustrated with all those terrible people who didn't give them the straight skinny. And because one guy's a Democrat, and the other's a Republican, the media will trumpet how everything in the book just must be gospel, not to be questioned. They'll note how the book reveals the complexity of getting to the bottom of 9/11.

But what this book truly reveals is the lack of ethics these two people represent. It also represents what a fraudulent scam the Commission really was.

Of course, nobody credible puts much faith in anything that came out of that months-long show that was intended to simply side-step the real issues - i.e., sloppy security - and to engineer the deaths of 3,000 people into a giant pile of indecipherable double-speak, leaving nobody and everybody guilty.

But now comes The Book.

It's postured as a tell-all behind-the-scenes expose of what really went on at the 9/11 Commission. Like, how frustrated Kean and Hamilton were with what was obviously jive testimony from various agencies, including Jane Garvey's corrupt FAA. How the Administration stonewalled. How some of the data submitted didn't make sense. How Kean and Hamilton, the co-chairmen of this silly side-show, were victimized and mis-led.

All that sounds great. The only problem is that at the time, both Hamilton and Kean said nothing of the sort. They were the honchos in charge, remember. But when Jane Garvey jived them, when other agencies submitted some world-class CYA testimony, these two bi-partisan towers of impartiality said nothing. They had the ear of the press. They had the attention of a nation. But they said nothing at the time.

They kept it quiet until they could write The Book.

As a result, nothing's been fixed. Aviation security is still a mess. We're still vulnerable. Almost 3,000 people died in the span of two hours on the morning of 9/11, and all we have to show for months of testimony at the 9/11 Commission is a tell-all book from its chairmen.

If the testimony was bogus, they had the ethical responsibility to make it loudly public, right then. But they didn't.

They waited until they could write The Book.

Needless to say, even this bit of literary kitty-litter still skirts the real issues. Instead of focusing on the fraud and corruption that existed at the FAA, and which were the proximate causes of the hijackings, they took the sell-a-lotta-books route, shifting the subject into a debate on the Iraq war, which has nothing to do with the fact America was and remains vulnerable to terrorist attacks. But you can bet their literary agent told them that the Iraq angle will really get sales going and really churn the authors on the TV interview circuit.

So, plan on seeing these two all over the media for the next few weeks, gravely recounting the travails of the 9/11 Commission. But the fact is that they dishonored the nation. They failed to do their job. They ignored the hard facts, such as testimony on how the FAA doctored security tests at airports. No concern to Kean and Hamilton that government officials did such things. No concern to them - then  or since - that aviation security is just as sloppy as before 9/11. Instead, they accepted other testimony that they now freely admit was bogus. They demanded nothing better at the time.

Instead, they've cashed in on 9/11. Hope they enjoy the dough.

(c) 2006, The Boyd Group/ASRC, Inc. All Rights Reserved

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Hot Flash - July 31, 2006

Update: Delta CFO To Speak At The Boyd Group 11th Annual
Aviation Forecast Conference: We are pleased to announce that Ed Bastian, Delta Air Lines Chief Financial Officer, will be speaking at The Boyd Group Annual Forecast Conference. We're also honored that Delta will be a sponsor of this year's event.

As noted below, we're also excited to announce the addition of Loren Aandahl, Northwest Airlines Managing Director of International Planning. He will be outlining the progress Northwest has made over the past year. He's also an expert in Asian traffic trends, and will be discussing what to look for in this area in the future.

Industrial Growth. Air Service Imperatives.
The Importance of Asian & Chinese Markets

The rearview mirror is in full operation at some consulting firms. It's safe. It's "footnotable." And it has almost zero value as a forecast tool.

The latest example is in a report issued by a prestigious international firm, warning airlines that the emerging markets of China and India won't see strong demand for almost another 25 years. The reason, they noted, is that their analyses clearly show that, historically, traffic only builds strongly when average per-capita GDP gets to $15,000 per capita or above.

Since China won't be there until 2030 or so, according to their data, airlines really need not bother too much with the place. By that time, the analysis seems to imply, most folks in these countries will have traded-in their water buffaloes and will be ready to book on Expedia. Supposedly.

So, the report cautions that before that transformation talks place, airlines had best not buy into the China hysteria. Instead, for the next quarter century or so, they should toss more flights at Japan and the UK, which, according to the GDP indicators, will represent much higher growth.

Nice metric. Nice conclusion. And more proof that a lot of the ambient "forecasts" are accomplished somewhere in the depths of mushroom gardens safely protected from the light of day. Airlines that may follow this glittering advice will find themselves fighting for peanut-size share of that lucrative Turin market, while their competition will be mining high-yield traffic being generated (either on-line or via alliance) from Xian, Wuhan, and Nanjing.

You can bet that American, Northwest, and Continental are jumping puppies over this report. They might even distribute it - hoping their competitors will swallow this pompous garbage, hook, line, and financial sinker, and will ignore the China and India markets entirely for the next couple of decades.

The Goal Is To Look Over The Horizon. Where "forecasts" such as this fall off the intellectual trolley, is that they use yesterday's metrics and yesterday's status-quo to predict the future.

It's not unlike the error Thomas Jefferson made in 1804, when he concluded that the Louisiana Purchase would take to the year 2000 to get populated. Like his modern-day prestigious international colleagues, he used old perspectives and old metrics to predict the future.

Deal with it: In ten years, the global economy will be driven in large part by the Chinese economy. It's not the 19th-century silly-business about there being a billion Chinese and if we can sell one Tootsie-Roll to each one, we'll all be millionaires. To the contrary, it'll be them selling goods to us. Not to mention looking for new US factory sites in places like Muskegon, Montgomery, Erie, and Charleston.

Viable air service connectivity with China will be a critical part of any community's long term planning. Again, that means focusing on air service development targets and carriers that can do more than just get the family down to Orlando to ride Dumbo.

The importance of the growing Asian & China Market will be covered extensively at The Boyd Group 11th Annual Forecast Conference, including a presentation and discussion with Mr. Loren Aandahl, Managing Director of International Planning at Northwest Airlines. And we're going to illuminate some interesting factors that the China market represents to a number of players in US aviation, including OEMs, airports, and financial institutions.

If you're looking to hear canned speeches from Washington bureaucrats, we suggest you consider some of the meetings produced by the well-known Alphabet organizations.This is the forecast conference that skips over the political correctness and gets to the data that airports, airlines, financial institutions, and OEMs will need to plan for the future. So clear your calendar for October 8-10. Click Here for more information and to register on-line.

(c) 2006, The Boyd Group/ASRC, Inc. All Rights Reserved

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Hot Flash - July 24, 2006

In The Aviation Security Update: Department of Homeland Security: Theft & Other Fun.

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TSA: Truth Doesn't Matter
Congress: That's Okay. We Don't Care

If there were any doubt that the word of the TSA cannot be trusted, it was again illuminated recently in front of congress.

Responding to congressional crocodile outrage over baggage loss and theft at the hands of the TSA, the agency sent Charlotte Bryan, Acting Assistant Administrator for Transportation Sector Network Management on Mishandled Baggage (wonder if all that fits on her business card) to tell congress not only that the TSA can do no wrong, but that aviation security is the best ever.

All of these points, we understand, were made with a straight face by Ms. Bryan:

"...Customs and Border Protection activities identify potential terrorists and bar their entry into the United States...."

Wow, what a relief. Now we know that those thousands of illegal immigrants oozing across the Arizona border from Mexico have been pre-screened by Customs to the satisfaction of the TSA, to make sure none of them are terrorists.

No way around it, Bryan's statement is, on its face, a blatant lie.

But there's more:

"...Airline flight crews and airport employees who have access to an aircraft are subject to an even stricter vetting standard than the No-Fly analysis..."

Another fib. During her performance, Charlotte's nose must have grown to rival the length of the New Jersey Turnpike. There is minimal "vetting" of people working on and around aircraft. Certainly there was a lack of "vetting" by whoever hired this woman.

"...At the checkpoint, a professional, well-trained, experienced team of Transportation Security Officers (TSO), assisted by multiple technologies, screens passengers and their carry-on bags for weapons and explosives..."

The same team of TSOs, no doubt, that flunked 21 out of 21 times when the GAO tried to get bomb parts through checkpoints.

"...Thousands of Federal Air Marshals fly undercover on a very significant number of flights, both domestic and international..."

The same Air Marshals, no doubt who, in an investigative piece by Denver's KMGH this past week, have come out from points across the nation and stated the program is a giant failure.

From all reports, nobody broke out laughing, even though every one of these statements, made by a high-ranking TSA official, is a lie. Not a difference of opinion, but an intentional, provable lie. Yet not one single member of congress who heard this verbal sewage said a thing. When high security officials know they can say anything and get away with it, you'd best bet that terrorists can get away with murder. Jane Garvey and her FAA had that M.O., and 9/11 happened. The TSA is no different today.

Yup. We're safer. Just ask Charlotte, the TSA official. But don't trust a word she says.
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Two More Reasons To Attend The Boyd Group
Aviation Forecast Conference

Staying ahead of the curve. That describes attendees at The Boyd Group Aviation Forecast Conference. Just now, there are two more examples of how the hard, unabashed forecast data at this conference really do provide useful and powerful planning information.

Item One: Regional Jets - Not Gone. But Going

We were the first - five years ago - to provide hard fleet forecasts indicating the end of the era of "regional jets" - at least in terms of fleet size and demand for new units. We also were   the first to provide forecast data indicating that new-generation narrow-body airliners - E-Jets - would fill in the lower end of the major airline capacity segment, and begin to replace part of the RJ segment as well.

The usual suspects, naturally, sneered at this forecast. "Everybody" knew that RJs were fast, efficient, and would be in demand for years to come.

Our forecasts indicated that "everybody" was wrong - the economics and ergonomics of RJs would put the brakes on net net unit demand.

Today, Republic and US Airways announced that 30 more E-170s would be coming on line, to replace 50-seat RJs. The following announcement was made:

"...These aircraft are in addition to the twenty-eight 72-seat Embraer 170 aircraft currently in service. The new Embraer 175s will replace 20 existing 50-seat Embraer 145s operated for US Airways Express by Republic Airways Holdings' Chautauqua Airlines subsidiary. The remaining 10 Embraer 175 deliveries will either replace other retiring regional aircraft or be used for possible growth in 2008..."

As a sidebar, our forecast of lots of RJs all dressed up with no place to go, also sneered at by the rearview-mirror analysts, is now being seen. "Lots of secondary demand," was the ambient lemming-like belief. The latest deal shows otherwise: Twenty of the displaced Republic ERJs will go to Continental Express, which in turn displace part of the 69 ERJs that ExpressJet is now going to be stuck with. Where ExpressJet will place these ERJs is anybody's guess.

This is another reason that financial institutions, OEMs, and aircraft manufacturers call on The Boyd Group for fleet demand forecasts. They get real data, not a re-hash of "the consensus."

Item Two: United Airlines & The Future Revenue Model

"The simple Southwest [Airlines] model, although compelling from a cost perspective, will never serve Shanghai nor will it ever serve Springfield, Ill..."

Glenn Tilton, CEO United Airlines. Week of July 24, 2006.

Hit the rewind button. Almost two years ago... October, 2004. Attendees at our conference in Denver received the following information in the Airline Trends Forecast session:

Unfortunately, Mr. Tilton wasn't at the conference, so he's just now recognizing a key trend that attendees at The Boyd Group Forecast Conference learned about long ago. Back then, most of the aviation analyst cognoscenti were chanting the mantra that legacy carriers were doomed. The LCCs had the future. Our forecast data indicated differently.

Putting this into time perspective, in 2004 our airline forecasts also were alone in projecting that the future long-term growth in the US airline industry was at legacy carriers, not LCCs. We outlined not only the trends, but the analyses behind that backed them up. Trends such as the emergence of China as the dominant global economy. The massive investment from the Middle Kingdom and other Asian nations in mid-size communities in the Deep South. And how these growing revenue centers were by and large out of the reach of the LCC model. Shreveport's too small. Shanghai's too far.

Like we've often pointed out, what's presented at The Boyd Group Aviation Forecast Conference is what others in the industry will be just starting to notice years later - after it's taken place.

Glenn Tilton just proved it.

While he's ruminating on what's already obvious, aviation leaders are preparing to attend The 2006 Boyd Group Aviation Forecast Conference on October 8-10 in Deer Valley, Utah.

This year, The Boyd Group forecasts will be reviewing hot button issues such as the effects of VLJs on airport traffic - positive and negative. And the future enplanement trends that will affect small and midsize airports in 2007-2010. For financial institutions and suppliers, a comprehensive fleet forecast will be presented, including the spike in airliner demand that will result from "disruptive" new aircraft production technologies. So, if you're planning for the future, and don't want to find out about it after it happens, click here for more information and to register for The 11th Annual Aviation Forecast Conference.

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Hot Flash - July 17, 2006

$80 Oil - Get Ready For The Brave New World

Because they can.

That's primarily the reason oil hit close to $80 a barrel last week. It's not because there's a shortage of the black goo, or because demand has spiked commensurately with the price increase. It's because with the lunacy in certain parts of the world, "they" can bid the price up, not on demand, but on fear.

Not that there isn't something to this fear thing. We have a lot of folks around the world whose value system places senseless suicide right up there with taking the kids to Disney World, and who feel anybody who disagrees should be put painfully out of their spiritual misery.

So if that's the driving force, or a primary part of the driving force behind current oil prices, the aviation industry had best plan on doing a lot of things differently going forward. Otherwise, there are segments of the industry that simply won't be going forward at all.

The Light's Still There. But The Tunnel Just Got Longer. The airline industry is fixin' to report what will be encouraging financial results for the 2nd Quarter. Even in light of consistently-increasing fuel expense, several carriers have re-structured to the point that they will report operating profits.

But if oil goes up further - and there's no indication that it'll go down - it's going to be a whole new world for the airline industry. We're talking fundamental changes. While there is some potential for fare relief, we may be hitting a point where there's a declining ability of the consumer base to absorb material jumps in ticket prices. What's saving us up until now has been a very strong economy. When, not if, that starts to slip, the airline business could find itself in a very steep decline.

Looking Forward: We Can Adjust. Painfully. We'll be updating these trends over the next few months. At our Annual Forecast Conference this October in Deer Valley, we'll be reviewing how these trends affect various areas of the industry in the future.

Some current issues to consider as the price of jet fuel moves closer to parity with Chanel No. 5:

Labor - Tapped Out. Stick a fork in it. No relief here. Labor wasn't the creator of the problems at network airlines five years ago, and it's certainly not a contributor to the problem now. The deals done across the table, and those being done across the table may be as much as can be done.

Emotionally and financially, this well's getting pumped dry. Certainly, there are work rules here and there, and maybe a couple of contract changes that could be modified. But at legacy carriers, there are two factors that make this area a near dead-end for cost cuts to offset oil prices that have doubled in two years. The first is that there comes a time when the wages and benefits simply are no longer competitive with other industries, especially at the entry levels.

The airline industry isn't the Good Ship Lollypop anymore. Those "Marry Me & Fly Free" T-shirts now read "Marry Me - I Need A Second Income."

The prestige and globetrotting are over. The days of flying "free" are long gone, the victim of 80% load factors and, at some airlines, pass fees that simply ain't no bargain. Benefits are in many cases gone, or severely reduced, and despite some dumb stories in the media, pay rates aren't going to get anybody rich.

The second factor is that there simply isn't much incentive for employees to give more. Historically there's at least been the hint that if employees give concessions, it will be the foundation for a better compensation package in the future. That's not the case anymore. Mostly, concessions are being sought to bring labor costs permanently down, simply because of the foundational economics of the airline industry.

Fundamental Infrastructure Changes. The airline industry would do better to focus on fundamental issues, particularly the air traffic control system, that are driving costs up. Inefficiencies here are costing the industry an easy $8 - $10 billion annually.

Solution: stop the business-as-usual with the FAA. The FAA is the problem, not the solution. Airlines should fire the ex-captain who's in charge of the joint company-FAA Rodney King Can't-We-All-Get-Along ATC Liaison Committee. Have the CEO loudly demand that Marion Blakey get ATC upgrade programs out of the muck and mire of the FAA and into operation. Have CEOs lose their fear of telling the world that those delays at ATL, and MIA, and ORD, and LGA aren't due to "weather" but due to an FAA that is a bureaucratic Keystone Kops. The FAA should be run at the top by professionals, not patronage appointees.

When jet fuel is moving toward $3 a gallon, and employees jobs are threatened, and communities are in danger of losing air service, tolerance of the FAA's dangerously-inept ATC system smacks of professional negligence.

Fleets: Small Is Getting Iffy. The economics of 50-seat and smaller jets are getting about as attractive as Madeline Albright in a hula skirt. Already, the costs of leasing these aircraft and their crews from small jet vendors have been getting iffy. With jet fuel over $2.50 a gallon, major carriers may well again revisit how many they need, and how they're going to be operated.

High oil prices mean higher attractiveness of new-technology aircraft. Plan on it: Composites are in. Aluminum is going out. along with eventually large fleets of existing airliners and at least a major portion of the plant infrastructure that produced them. As noted below, the production base will be new, diffused, and may not include places where airplanes have traditionally been built.

Turboprops - maybe some increased interest, but only in the 60+ seat variety, and it won't be enough to materially change the production rates at Bombardier or ATR for the long term. While there are markets where these types can operate economically, as Horizon has demonstrated, the open question is whether carriers want to re-invest in large numbers of turboprops and the related facility and training costs.

Small Community Air Service: Rural air service will continue to see, well, nothing on the horizon. EAS markets - even those that truly are necessary and viable - will experience enormous pressure from the DOT to spread the available $$ over an increasingly expensive system. There are new markets joining the program - markets that really need the service, such as Joplin - but they'll be sharing the limited EAS funding with basket cases that are political pork, flying airplanes into communities where consumers prefer alternative access points, such as Manistee, Pueblo, and Brookings.

So, watch for: a) more of the smaller EAS points - even those that are really isolated - removed from the program due to exceeding the $200 per-passenger cap, b) more communities seeking to enter the EAS program, typically due changes in the airline industry that have eliminated prior service (markets formerly dependent on the now-gone TW/AA hub at STL are typical), and c) Congress making a dog's breakfast of the program, by forcing DOT to fund some EAS points that don't generate enough passengers to fill a phone booth.

Traffic Demand - It Could Evaporate Fast. Despite some contractions of capacity, the current record load factors are due mostly to a very robust economy - and it's not going to last forever. A slight down-tick, combined with higher energy costs, and a lot of discretionary dollars are going to disappear from airliner cabins. It could take place over a very rapid period, too - say, six to nine months.

Most Resilient: Legacy Carriers. As noted earlier, independent analyses by The Boyd Group indicate that the victim list from $80 oil and a traffic downturn would be very different than what ambient thinking may have it. It will be LCCs that have the greatest vulnerability, while legacy carriers such as American, Northwest, Continental, and Delta are better postured to weather the storm.

In terms of capacity, these legacies have enormous "pressure valves" in the form of fleet flexibility that LCCs don't. NW has DC-9s it can park quickly without much financial pain. AA has MD-80s in r