Monday May 14, 2012

An Airline Industry Tradition - Thirty Years In.

May 12, 1982. Most folks don't know the significance of that date.

 It was the beginning of a major tradition in the US airline industry.

Some background...

It All Started Long Ago In An Airline Galaxy Far, Far Away.  Braniff International Airways was an airline innovator. It was the carrier that other airlines tried to keep up with. Braniff was the first to do things like cabin-wide leather seats (true), multi-colored fleets, designer uniforms, the first system-wide computerized check-in system, the first airline to offer passengers one-stop advanced boarding passes for connecting flights, the first drive-through ticket office. Braniff was the airline whose passenger service computer systems were so advanced for their time that descendant parts of them are still in use at Southwest.

 Braniff was the airline that made real the word "international" in DFW International, opening the first extensive nonstop access to Europe, and through flights to the Far East.

Braniff relied on personal initiative, not corporate committees. When Delta told the CAB that it would take three months to open its newly-awarded LAS-RNO route, Braniff jumped in and said that  if the award was switched from Delta, Braniff  would open the Reno station from scratch and have flights in the market within 72 hours. To the chagrin of the folks at the DL headquarters in Atlanta, less than seventy hours later, a full 727-200, leather seats and all, took off from Reno.

Wall Street loved Braniff - highly profitable, highly efficient, and with operating costs that allowed break-even in the mid-to-high 40% load factor range.

No question, Braniff was a real trend-setter. The one other carriers tried hard to follow. On May 12, 1982, Braniff established yet another trend that the airline industry has faithfully emulated for the past 30 years.

It filed Chapter 11 bankruptcy. The first major airline to engineer itself into that status.

An Inside Job. But the Braniff bankruptcy differs from any since.

Sometime around noon that day, the airline's employees found future flights being capacity-zeroed. Later, flights were outright cancelled. Station directors were then told to lock up the cash drawers and safes. Send employees home. The cub scouts who were running the airline in its last days told airport managers to instruct the local media that the shutdown was precipitated by one of the airline's unions - a blatant lie that most managers in the field refused to pass on.

Bad Management Is Like A Boomerang. It Always Comes Back. The proximate cause for the Braniff bankruptcy was a solid six months of  really, really bad decisions - far more so than ever experienced at any subsequent C-11 airline filings. Northwest, Delta, US Airways, American and United can at least partially point to outside issues driving them to the courthouse steps. Braniff, however was a nearly complete inside job. Death by dimbulb management.

Right Expansion. Wrong Timing. Not that Braniff was a healthy airline six months before management tossed in the towel. Four years earlier, when deregulation came, Braniff opened 15 new domestic cities in one day, then proceeded to build an international network across the Atlantic from DFW and Boston, and a Pacific system stretching to Guam, Hong Kong, Seoul and Singapore. New fleets of 727s and 747s were brought on.

Unfortunately, all this didn't look so exciting when interest rates jumped to 21% and, due to the Iranian crisis, fuel prices skyrocketed to a point that, adjusted for inflation, they were probably even higher than today. The airline didn't pull back quickly enough and was fast heading toward sleeping with the financial fishes.

In 1980, the carrier installed John Casey, a superb airline professional, as CEO. He moved fast, getting waivers from the airline's backbreaking debt load. In a near-first, he got the unions to a agree to an across-the-board 10% wage cut. He revised the route network. By mid-1981, Braniff was again starting to register quarterly operating profits. It was turning around.

Then the board of directors made the #1 fatal mistake a board can make. They resorted to the siren song of bringing in a  Messiah management team. These guys were supposed to part Braniff's troubled financial seas. All they did was raise the water table.

A Primer On How Not To Save An Airline. First on their hit parade was to turn on Casey and get him tossed out, eliminating the one qualified person at the top. (He went on to a further successful career in airline leadership elsewhere. It bespeaks the professional standing of these Messiahs that even years later, long after they tanked the airline, they wrote a book including a section denigrating Mr. Casey. A cheap, unnecessary shot, but one that defines the quality of these people.)

Let The Amateur Act Begin. With Casey out of the way, the Dream Team had their way with Braniff.  They started "bold moves" that successfully confused consumers and opened great opportunities for the competition. It was the equivalent of installing vent windows on a submarine. One bonehead play after another.

Their grand idea was to transform Braniff into a Southwest clone, which was like trying to make a standard-gauge railroad run on a narrow-gauge track. WN at the time was a small successful carrier still focused pretty much on point-to-point short haul markets around DAL and HOU, completely different from the Braniff system which was competing with the likes of American, TWA, United, Delta, Northwest, etc. These were two different airline and revenue structures. They were not interchangeable - a fact that became quickly obvious.

They eliminated first class, killing off a revenue stream - and a loyal clientele - from a source that Braniff had been famous for, and driving a lot of F/C revenue to the competition. (At the time, first class seats were actually bought by consumers, but after this yum-yum play, not at Braniff). In this process, the company drove a route-interchange program with Alaska Airlines (which demanded a front cabin product) into the open cloak of American Airlines, transferring strong traffic generated from Anchorage to Braniff's main competitor. Truly bold. Get rid of a major revenue stream, and shift it to the competition.

Also trying to be Southwest, they unilaterally slashed fares, putting in an ironclad, chop-shop, two-tier fare system, with the dimbulb belief that it would stimulate more traffic. Wrong. Competitors just undercut the fares with a minimum amount of inventory, to show they were really the "low fare leader," not Braniff. Poof went the Southwest-wannabe value image, and the expected traffic stimulation, too. Great strategy.

They did the expected smoke-and-mirrors routine to show "lower costs" - cram more seats on the airplanes and fly them more, and, voila! lower ASM costs.  Unfortunately, the extra seats and extra flying didn't include extra passengers. At one point, for example,  this grand scheme scheduled three departures from SAT to DFW over a period of just 20 minutes. In the middle of the day, no less, when demand was zip.

In a particularly innovative move, they "sold" Braniff's South American routes to Pan Am, taking a $7 million non-refundable deposit. That money in hand, they then cut a deal to sell the same routes to Eastern. Real class.

Rarely, if ever, has the industry seen such a spasm of kiddy-table management.  In six quick months, Braniff was dead. However, it was nearly lethal to major competitor American Airlines. They almost died laughing.

The Pravda Approach. File Bankruptcy And Declare It A Glorious Achievement. From time to time, there have been some creative stories claiming Braniff was the industry's first "successful" (?) bankruptcy and had a smooth, un-interrupted trip into a successful re-emergence. Not quite. The facts are that Braniff got managed directly to point of impact. And it took to the skies again out bankruptcy (for a time) in 1984 as a result of the work of a new team installed by the new investors, the Pritzker Group, after the Dream Team was off the premises.

Ancient History. But as Barry Manilow said, that was 30 years ago, when they used to have a show. The airline industry show is a lot different today. But the Braniff collapse was in retrospect the beginning of the transformation of the airline industry from a world of expansion opportunities today's tight, consolidated fiefdoms.

Still, remember the date. May 12, 1982. It really was the a watershed in the evolution of the airline industry.

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Finally: Bird Lover's Unite!

To arms! Mobilize the troops! Call the Audubon Society! Get Donald Duck on the line!

Somebody is claiming that people have more rights than birds!

Indeed, someone has blasphemed that animals have no co-equal rights with humans! Some ecological infidel is telling the world that if birds are a threat to airline safety, it's the cute little innocent feathered creatures, not the evil, petroleum-consuming, meat-eating (!) trespassing humans, that must the moved out of the way.

How, in this enlightened age, we can have such non-progressive, Neanderthal thinking, boggles the mind.

Click here to read the blasphemy.

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Monday, May 7, 2012

China Aviation Officials Visit With Boyd Group International

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Consumer "Advocates" & Other Charlatans

Interested in a really bullet-proof gig?

One that requires zero qualifications or expertise, never has to bother much with facts or logic, and one that the media - particularly some talk show types - practically swoon over?

Simple. Declare yourself as a "Airline Consumer Advocate," dedicated to protecting the masses from those greedy entities that delight in trapping passengers on airplanes until the wiffies overflow. There are a lot of 'em.

Just Coil Up Like A Snake & Lash Out. It's easy. No in-depth industry knowledge required. Just say you represent a "coalition" or "rights group" or, heck, just an angry mob. It makes no never-mind, all you gottta do is act really righteous and indignant. Kinda like one of those late-night TV evangelists who purport to have the answers to the world's problems. You don't need to quit your day job, either. Part-time jihadism is fine.

Put out whatever silly, feckless and fact less press releases about airlines you want, geared carefully to implying that you have a torch-bearing mob to back you up, when it actually might be little more than a website and an e-mail list of gullible journalists - the ones you know won't bother to ask for your non-existent credentials. Make up all the cockamamie allegations you want about how airlines plan their operations specifically to defraud the public.

You'll get lots of press. Some reporters will immediately anoint you an "expert" on the airline industry, even if you can't tell the difference between a taxiway and a taxi stand.

When In Doubt, Make It Up On The Fly. You just gotta love some of these self-appointed protectors of the masses who set themselves up as experts on the airline industry, defending the Great Unwashed from the outrages routinely plotted by greedy operators of flying machines.

They don't need facts. They often apparently don't have any idea of how airlines work. Some make up accusations on the fly. Some make up new terms on the fly. They get away with it, because they have a ready audience from journalists who assume that anybody who's part of a "coalition" purporting to defend consumers must be an expert. And they have a ready bully pulpit from the usual suspect talk show hosts who handle any criticism of these crackpots by shouting down the infidel who may disagree with them.

This is despite the fact that, when it comes to hard airline industry expertise, many of these "advocates" are a veritable Children's Crusade of ignorant accusations, with all the credibility of a carny huckster. But whatever they say, regardless of how inaccurate, stupid, or, sometimes, outright dishonest, it's taken as-is, where is. No questions asked.

We covered one of the more brilliant comments made by one of these folks last fall. In response to a media question about whether American's bankruptcy would hit consumers in the wallet, one of these crackpots was quoted as follows:

““It will be noticeable because of the size of AMR,... and it will create a ripple effect throughout the system....any reduction in slotting fees at their hubs would have a huge impact on the airports, and that will trickle down to the passengers,

Now, the fact that there are no such things as "slotting fees" in the airline industry didn't seem to phase the journalist taking the quote. The fact that the statement clearly indicated that the "advocate" involved has no problem making things like this up, meant nothing. Point: some of these people are several zip codes short of intellectual integrity regarding the subject matter.

Then there was the clown on one of the TV talk shows who confidently, and to the enthusiastic gurgling of the host, announced that airlines routinely pull flights off the gates to show "on-time," and than let the flight sit for hours before taking off. Knowledge of how off-sched data is reported isn't needed here.

But there's more. The latest trendy cause célèbre is that airlines are charging ancillary fees because they are nefariously trying to avoid paying taxes. One bit of wisdom obtained last week:

... That's a significant chunk of money that is NOT going into the Aviation Trust fund which funds vital repairs of taxi-ways, runways, jetways and the air traffic control system. The airline that has capitalized on this most is Spirit Airlines who now unbundles everything but the seatbelts in order to NOT pay that excise tax, and charges only 1 dollar for an air fare on some routes.  They have completely avoided their obligation to the aviation trust fund.

'Course, the consumer twit tries to dishonestly imply that airlines would pay any such tax, when the truth is that, like all such taxes, they would just get passed on to the consumer. So, it's not okay for airlines to tack on fees, but it's great to gouge the consumer for more taxes to go into a mis-managed federal fund. By the way, how many routes does Spirit routinely charge but $1 in fares? According to this "expert" they do it all the time. 'Course that is not true, but this is a war for the consumer, and we don't need no stinkin' accuracy.

And as for the "air traffic control system," these veneer consumerists don't give a rip about the public dollars that have been tossed down that federal rat hole over the years. But taking shots at government waste just isn't sexy - and it gets no media attention, either.

And talk about spitting out stuff that's concocted, dig this comment from one consumer jihadist:

... The primary reason they are increasing the ancillary fees, as opposed to increasing base fares is to avoid the excise taxes and all of the accounting fees and costs associated with those taxes... Whether or not the Aviation Trust Fund is mis-managed is entirely irrelevant.

This is the kind of - well, let's call it like it is - it's a prime example of the complete amateur gibberish that these bozos come up with. Airlines don't "avoid" the potential taxes on ancillary fees, the consumer does. So it is outright dishonest to tell the swooning media that airlines are cheating the government, as did Senator Schumer (D-NY) a few months ago, stating that in not having taxes on ancillary fees, airlines were padding their bottom lines. Simply put, it's a lie, Senator.

And the stuff about the "costs of accounting fees" - there is nothing to prove that, especially from an clown that knows nothing about airline accounting. But, just like "slotting fees," these people know that reporters won't question them on whether they have a clue.

And, somehow, these oh-so-concerned charlatans really don't care if the consumer's dollars are paid into a federal fund that's mis-managed. They are just living the warped fantasy that it would be great if the airlines could get zapped by having to toss more bucks into it. To find the credibility and intellectual integrity of some of these people, you'd have to call a cesspool service.

The reality is that a lot of these folks are not after the truth. They hate airlines, and facts be damned. Message to reporters: truth, and what some of these consumer soapbox dwellers are putting out is not a "difference of opinion."

It's a difference in integrity.
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Workshop For Airport Board Members Now Scheduled

New airline fleets, strategies and service patterns. General aviation uncertainty. SMS programs. Whole revenue streams being shifted due to changes in aviation and in regulatory issues. The directions airports of all sizes and roles will need to take in the future are not the same as just two years ago.

Especially for airport commissioners and board members - who typically are not involved in aviation on a full-time basis, getting a handle on these dynamics can be a real challenge. 

We're pleased to announce that a new, cutting-edge Workshop for Airport Board Members. It's  being offered as an option for attendees at the 17th Annual Boyd Group International Aviation Forecast Summit, being held September 16 - 18, hosted by DFW International Airport.

The Workshop will be held Sunday September 16, and will focus on the new realities facing airports, including shifts in business aviation, new airline industry realities, and forecast factors that Boards will be facing in the coming year.

We'll be reviewing changes in the airline industry, of course. But conspicuously absent will be any hype regarding jive-time techniques to "lure new airlines" or "get that air service you want" or the like. The Summit is about the future, and with the new structure of the airline industry, there are few, if any, unknown factors in air service most small and mid-size airports . There are wider challenges facing airport boards, and more and more, continually doing "studies" or "surveys" won't create airlines where there are none.

The name of the future game will be assuring financial viability of the airport and assuring that the region has scheduled air service from the rest of the globe. Boards need to hear the hard truth, not amateur-act fluff.

For more details, click here.

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Monday, April 30, 2012

Dealing With The Virtual Airline

It happened in the petroleum industry. It's happening in the airline business.

Or, more accurately, it's already happened in the airline business. Brand virtualization.

Today, you go to the gas station and pump a brand of gas in to the tank of your SUV. But where that unleaded came from, how it was produced, who produced it, who moved it and who put it into the filling station storage tank, are all different companies, and they can change month to month, and even gas station to gas station across town. The only thing that's the same is that the sign at the station says "Conoco" or "Shell."

Twenty years ago, oil companies were involved from the wellhead to the gas pump. Today, it's different vendors and suppliers for every part of the logistics stream. It's all been farmed out to independent surrogates.

Tumble to this: that's exactly what's happened in the US airline industry over the last 15 years. Today, it's not only possible, but probable, that you can book a trip on a major airline from a mid-size community on the East Coast to one on the West Coast, and never in the process deal with anybody directly working for the airline brand. It's all been outsourced.

Think about it. You book the seat on-line. No contact whatsoever with an airline employee. And in the event that you do need human intervention, there's a better than even chance the guy on the other end of the phone is in a call center in some Third World country. He's successfully completed Level Three of English As A Second Language, and thinks that "FRA" is the code for "France."

You go to the airport. Get a boarding pass at a kiosk. Or, have it sent to your iPhone. You flash it at the gate, which, like the rest of the airline brand's operation at the airport, is staffed by outsourced vendors, or a "regional" airline. You board the RJ, operated by an outsourced vendor. You fly to the connecting hub - to a concourse again where staff are outsourced to a "regional" airline. Board another outsourced flight, and fly to your final destination.

Not one interaction with any staff or employees of the airline brand from which you bought your ticket. Just like at the gas station - the whole process is now virtual. You have no contact with anybody that is directly working for the airline. Vendors, all.

And, you'd best believe that this is sooooo much more cost-effective than having the airline itself do it with their own employees. Airline employees tend to want to make a career at the carrier. They stay around for years, moving up the pay scale. And - yikes! - they may even be in a union, one of those pesky groups that want to bargain for things like pay and working conditions. Truly, it's much more enlightened to just farm the work out.

Just Like The Fast Food Business. Youbetcha, it's better from a cost-approach to outsource this work to vendors. They just hire kids, or maybe not-so-kids, and pay 'em wages that will encourage them to work a while, and then move on, to be replaced by other bottom-of-the-scale new hires, creating a cycle that keeps labor costs low. It's the same approach that's been used in the fast food industry for years. Turnover is the key to low labor costs and a real barrier to union entry.

Sounds great. But what's been created is a system that is not focused on service. Not focused on excellence. It's just focused on labor costs. And it's one that offers employees almost zero potential for career growth - just like at the local Burger World. 

This extends across the board: The ramper at East Upchuck has a career path that will last until the ground contract is re-bid in two years. The pilots and flight attendants on the "regional" airline to which flights have been outsourced are really caught in a special bind: there are limited flow-through opportunities to majors, and worse, those mainstay 50-seat jets are going to get retired faster than new jobs will open at majors. (See recent comments by Republic Airlines CEO on the matter, by the way.)

The point is this: there's not a lot of long-term career-play for employees involved in this oh-so-cost-efficient virtual airline system. But, so what? It works, right?

Here's a clue: airlines are not the same as Burger World. Slapping secret sauce on a hamburger and keeping the yogurt machine churning out sugary glop is not the same as the skills and training needed to professionally handle an airport passenger service and ramp operation.

So,  let's touch that third rail that we're not supposed to mention: a lot of this outsourced work is shamefully done. To be sure, there are stellar companies in the business, like SkyWest, where there is a career path, and the training infrastructure in place to make it work.

But that's not the norm. It's not uncommon for consumers to get abused (unintentionally, usually) by  vendors where the "customer service" staff  has less training than a day-old puppy. Situations where they are clueless as to why the flight's late, or visually looking like they just came from a street fight. Or, hamstrung with really incompetent rules - like, the incidents where people actually standing in line to check-in for a 34-seat airplane are cut off 30 minutes before departure - and responding aggressively when consumers get understandably ticked off.

Why should they care? It's just a temporary job. If the customer doesn't come back, no big deal.

Training in customer service skills? Sure, we do a half-day program, you might hear. But to do more would be un-economic, don't ya know: There's too much turnover to spend the money,

Future? Two dynamics are emerging: Ground outsourcing will continue and expand. But in the cockpit, the trend will be toward flying shifted by to the major, simply becasuse of changes in airplane economics. As 50-seaters get retired, we can expect that 80+ seaters be the capacity floor - and they will be flown in-house.

Plan on it.

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Monday, April 23, 2012

Getting Connected To The Globe: The Real Air Service Metric
Bogota. London. Xi'an. Frankfurt.
They're Important To Boise, Louisville, and Baton Rouge.

Anybody remember  the Wall Street parrots who just a few years ago were predicting that major airlines were going to discard domestic flying in favor of international routes? The manta-lore maintained that there was more money to be made flying to foreign lands. The low-cost carriers, see, would do all the domestic flying.

Now, none of these paper-hangers ever bothered to check numbers. Like, the fact that, without a substantial domestic network feed, most international routes would be carrying huge amounts of sailboat fuel, not passengers.

Example: American's LAX-Shanghai flights experience approximately an 80% load factor. But the local LAX-PVG traffic alone would barely fill 45% of the seats. The domestic systems make the international flights viable. (It's the same for foreign carriers - it's their hub at FRA or CDG or PEK that make the over-water segments from the US viable.)

But what's also missed is that the international service also strengthens domestic flying, too.

It's the impact of secondary traffic demand, generated across major airlines' route systems, as a result of their international networks. Fact: not all passengers coming in to the US are going just to the US gateway. Many are connecting on to other destinations. In the case of Detroit, over 60% of Delta's passengers are not destined for the Motor City as a final destination - they're connecting onward domestically, right after they clear customs. True, these generally are recorded as international passengers. But what's not recorded are the substantial portion of these passengers who take other domestic trips within the US, before returning home.

As just one example, Louisville experiences somewhere around 7% - 8% of its traffic as direct international passengers. But analyses by Boyd Group International indicate that approximately 6% of SDF's reported "domestic" enplanements are the result of internationally-generated passengers, traveling within the US. taking domestic trips .Like, the German businessman who flies into New York, meets with a financial institution, and two days later makes a trip to visit the GE facilities at Louisville. Or the GM factory at Shreveport. Or his sister in Phoenix.

Ranking By International Horsepower. Point: international connectivity is increasingly important to domestic route systems. So, the carriers with the strongest international networks into the US have a revenue-stream advantage:

Source: Aviation DataMiner

Air Service Access Is The Issue. It's not just a buzz-term - we are now really in a global economy. Every US community is in it. Therefore the most critical element of air service as an economic development tool is the level to which it allows access from the rest of the world. The main metric is not whether a region has "flights" or "low fare service." Instead, it is whether  business folks can get there from the EU and Asia.

What that also means is, at many smaller communities, the concept of  "local air service" will increasingly need to be replaced by "regional air service access." Communities that think regionally and globally will be ahead of those that continue to waste money and time on futile snake-oil "studies" or "surveys" or more gospel-tent air service revival meetings, trying to resuscitate local cadaver air service that is never coming back, or which assume that just having travel-company service to Florida (not a bad thing, by the way) is "air service."

In our work with communities, the first metrics on quality of air service are: a) whether Mr. Yamaguchi can get to the community with one connection from Tokyo, and b) what's the Alliance connectivity. It doesn't take a presentation deck that can wipe out an acre of Minnesota forest to determine this. And if these two metrics are not possible at the local airport, there's only one alternative: looking down the road and partnering with an airport that has the traffic horsepower to support such service.

Yes, this approach is often not well received. And we do lose some business because of it. But that doesn't change the hard reality: without access to the rest of the globe, a community is economically out to lunch. And access doesn't always equate to flights at the local airport.

That's regardless of the number of air service studies are done. Reality is reality.
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Monday, April 16, 2012

Boyd Group International Welcomes New Staff

Boyd Group International today welcomes Daniel Higdon to our staff as Senior Analyst - Aviation Planning.

Daniel joins us from United Airlines, where he was Strategic Revenue Management Analyst. His responsibilities included research on global trends affecting passenger travel patterns. His work also included pricing analysis and he was co-chair of the Revenue Management Analyst Group at United.

Prior to United, Mr. Higdon was Sr. Revenue Management Analyst at Continental Airlines where his focus was to maximize revenue in assigned markets by forecasting demand and analyzing booking trends, as well as pricing and scheduling changes.

Daniel holds a double major in Economics and in Business Administration from Auburn University.

Daniel will be working with our airline, airport, and financial industry clients, as well as contributing to key Research Studies currently underway.

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Sizing The Scope Of The Challenge:
Dependence On 50-Seaters

As has been pointed out in Boyd Group International Global Fleet Forecasts, the coming retirement of smaller "regional" jets is going to have a structural and fundamental effect on changing the US air transportation system.

This is not an "if" - it's a when.

As these aircraft age, and as fuel goes up in price, the scope of mission applications for these aircraft will continue to shrink. Rural and mid-size airports are going to face very different challenges to air service access - challenges that won't be fixed by going to more speed-date meetings, doing jive-time internet surveys, or paying for semi-ethical "studies" promising find air service "options" that anyone awake and sober would know simply don't exist. 

It's not a minor issue. Within the next five years, hundreds of these 37-50 seat airliners are going to be heading for the desert and the smelter. These aircraft have been a huge part of the lift at major airlines, and when they get sent to airliner heaven, there are no exact one-for-one replacements.

Deal with it: a huge section of today's airliner fleets will simply not exist ten years from now. Not only are these airliners going to be functionally obsolete, but much of the air system they operated will be financially obsolete as well.

A snapshot of the role 50-seat (and smaller) RJs fill today is eye-opening. By airline system, here are the percentages of departures and seats at each major airline operated with 50-seaters:

 

With the exception of US Airways, over one third of major airline departures today are with 50-seat (or smaller) jets. And between 13% and 18% of all departing seats are generated by these flights.

The coming challenge becomes a bit more immediate when we look at individual hubsites and the percentage of flights and capacity operated with these aircraft. For one example, we have Delta's reliance on 50-seat jets by hub:

 

The open questions are simply how much of this lift - and where - will be replaced as these 50-seaters get retired? There is the fantasy that these retired machines will be so cheap to buy that they'll have a second life with new owners. Wrong. The reason they're getting zapped out of fleets is mainly cost of operation, not cost of ownership.

It's not like this is coming as a big surprise - the trend has been there for nearly a decade. Unfortunately, the general approach to air service development still assumes that it will be business as usual in the coming years.

It won't. There simply will not be aircraft that can continue to serve many communities from an economic perspective.

If rural regions want to be connected to the air transportation system in the future, many are going to have to tumble to the reality that this is not 1975 anymore, and start to think regionally, not locally. Those that don't will - without question - slip farther and farther out of the global economy.

It's a certainty. Not a supposition.

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Finally, From The Please-Check-Your-Source Department

The Wall Street Journal just published an op-ed piece on how to "fix" airport security.

It was written by none other than Kip Hawley, the former TSA Administrator under whose direction the TSA grew and developed into the giant bureaucratic blob it is today. The same guy that declared screeners to be "officers" - of what, we don't know - and the same guy who, when confronted with results of tests showing an 80% failure rate in screening, declared how proud he was of his troops.

Message to the Journal: Consulting with Kip Hawley about reforming the TSA is like asking Typhoid Mary for tips on personal hygiene.

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Monday, April 9, 2012

The Writing's In The Sky & At The Fuel Pump:
The Regional Airline Era Is Long Gone

It makes no real difference how much labor will give in concessions. It really makes little difference how much more - if any - a major airline can be cajoled in to paying more for lift. It makes almost no difference how much slack can be won from lenders. The facts are clear:

The "regional airline industry" (a misnomer) is in massive, fundamental, and permanent decline. The reason is simple and cannot be danced around any longer: the services they generally provide - leasing small units of capacity to large airlines - have a declining market need, and deteriorating market economics.

It has to do mainly with changing airline operating economics. Fifty-seat jets, once highly contributive to major airline revenue streams, have been relegated to a much smaller market need than five, and ten years ago.

Back in 1999, Boyd Group International cautioned its supplier clients that there was a limit to the number of small jets the airline industry could absorb, and the number in operation, on order and on option at that time far exceeded what the US industry could really operate profitably. That was not received well, but our unit forecasts for these aircraft have proven far more accurate than any others at that time, particularly those done by big chop-shop consulting firms who, on an ethical level, are in the business of competing directly with the young ladies who hang out on the corner in front of a 'Vegas casino.

In 2003, we forecast an immediate glut on the market of these smaller jets. Again, that was certainly not what some lightweights in the financial industry were babbling about. "Regionals" were making money, they told us, and they had a model that major carriers should emulate. Which is as stupid as telling General Motors that its radiator supplier was profitable, so it should go into the radiator business instead of building cars. Some of the last people to listen to regarding the airline industry are these financial-house garbage can gurus who think that because they buy airline tickets occasionally, they are experts on the industry.

Going forward, the US airline industry simply cannot afford to support the number of 50-seaters still in operation - regardless. The costs are going up, both in fuel and in maintenance, and therefore the number of viable mission applications are disappearing rapidly.

Wake Up & Smell The Reality. It's not like rocket science or magic - the trends are there, right in the open. We saw Mesa file Chapter 11. We've had Pinnacle file Chapter 11. We have American Eagle desperately trying to convince itself that it can spin off from AMR into to some wondrous world where lots of major carriers will be hankerin' to lease-in more 37-50 seat jets. ExpressJet was acquired by SkyWest. And even SkyWest - one of the best-managed companies in US industry - has now reported losses.

The facts are clear: While there will continue to be a role for small lift providers ("regional airlines"), skyrocketing fuel costs and increasing maintenance on out-of-production RJs point to continued shrinking of this sector.

Yes, it's not real pleasant. But it is reality. And avoiding reality can come with a very big bill later on.

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Conference Conclusions:
The Future Of Aviation Growth & Technology Focuses On China,
Not The West

The US airline industry is no longer in a growth mode. In fact, it is in a contraction mode.

Same, actually with the EU. These markets are mature and saturated. More to the point, changes in the economics of aviation point to actual constriction in many aspects of the industry in these regions.

This is not just a statistic. It is a fundamental change in the dynamics of global aviation. Technology, innovation, and financing are all driven and sustained by one common factor - growth. Investment of money and brainpower generally goes to where the greatest return will be, and that means where the future offers more expansion.

 What this means is that the future aviation opportunities - be it air service, infrastructure, research, trade, or sources of financing - will be in Asia and particularly China. Airports, manufacturers, suppliers and aviation-related companies in North America need to recognize that alliances and business relationships with Chinese firms will be the competitive advantage in the new global economy.

Last week, at the China International Aviation Fuel Conference, nearly 1,000 attendees gained enormous insights to emerging trends in the global and Asian aviation industries. Distinguished leaders attended and spoke from all areas, including Minster Li Jixiang, head of the Civil Aviation Administration, which is  China's governing aviation body, and Mr. Sun Li, Chairman of the China National Aviation Fuel Group. Key executives presented perspectives from ICAO, IATA, plus executives from Shell, Exxon/Mobile, BP, made key presentations. The themes were similar - there are big changes ahead. Increases in the cost of oil will continue to shift the risk bar when it comes to aviation investment and technology.

Message: China Is The New Center of Aviation Growth & Technology. The Path-Finding presentations from Boyd Group International covered the shift in aviation planning, technology focus, and investment from the US and the EU, where growth is now fully matured, to Asia and China, where expansion will be in full motion for the next three decades.

Included were fleet projections for the region, and a review of the emerging need for US hub airports to focus on developing into Global Portals to flow passengers and goods between Latin America and Asia. The transformation of airline alliances from loose federations of carriers into global brands was also detailed.

US-Style Hubbing: Going Global. One of the future trends that needs to be recognized and planned for is the increase in focus on aggregating passengers over Global Portals - i.e., intercontinental connecting hubs. The trend toward growth in more "super long-haul" flying has been largely torpedoed  by fuel costs. "At US 90 cents and above per liter, the expense of uplifting an additional 250,000 kilos of fuel simply to fly nonstop from Delhi to JFK now can outweigh the costs of flowing the traffic over an intermediate alliance hub," Boyd Group International President Mike Boyd noted to conference attendees.

In addition to the potential for traffic from the Americas to Asia, additional Global Portals also will be established to flow traffic between Australia and South Asia to Europe, an example being Guangzhou, where China Southern is building intercontinental connecting operations.

Widening The Perspectives To The East. During the week, Boyd Group International also held talks with a number of Chinese aviation companies regarding areas on both sides of the Pacific where future consulting and research collaboration has potential. We look for an announcement in this regard later this year.

The 2012 event was held at the China National Conference Center, adjacent to the Olympic Park in Beijing.

An announcement will be made later this summer regarding the venue of the 2013 China Aviation Fuel Conference. Boyd Group International will again be working with Armbrust Aviation, the event's co-sponsor along with the China National Aviation Fuel Group.
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Monday, April 2, 2012

It's April Fool's Day - Today, Not Yesterday.

It's a regular rite of spring. Frivolity and silliness all over the place.

Birds court and sing. Snow melts up north. Students head for Daytona to drink beer and do mating rituals on the beach. And, the usual suspect journalists swoon over the always entertaining "Airline Quality Report" issued every April from the very heart of the mushroom gardens of academia.

A re-hash of the same government data any semi-literate 12-year-old could pull off the 'net, the "AQR" wraps it in a subjective and not-to-be-questioned-by-mere-mortals mathematical formula that supposedly gives it mystical qualities to assist the Great Unwashed in identifying the good, the bad, and the ugly in the air transportation business. 

It used to be much more entertaining. Like, long rambling fantasy diatribes, accusing airlines of forcing children to sit in the back of the plane, and convicting carriers of other dreadful stuff, like "gate-lock" practices (whatever that is), and not letting people bring food on airplanes. Doggerel that had no earthly connection with reality. But it made great reading - and great 4-minute brainless fillers for the 6PM news.

And, alas, it's only in the past couple years that the issuers of the document  - who clearly posture themselves as airline gurus -  found out that it's Delta Air Lines, not "airlines." Knowing the proper names of the carriers they "rank" apparently is not a priority in academia.

At least the kid on the beach at Daytona will sober up and eventually head back to reality.
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TSA Administrator: Anybody Want To Clue This Guy In?

The TSA is continuing to roll out the latest version of the "trusted traveler" scam.

This time, it's doing background checks on top-level frequent flyers, and if they pass, they can go through screening without taking their shoes or jackets off. Wow! That's really moving from one-size-fits-all security.

As an added twist, folks over 75 can now do the same. Like, the TSA has done extensive research and found that there is no evidence of geriatric jihadism in the world, and the International Union of Terrorists  has a strict retirement age in all of their contracts, apparently.

Background checks. All the TSA needs to do is mention the concept, and it gets great press - regardless of the fact that most of the 9/11 guys would have passed one of these "checks" in a flash. And they would have gotten through today's security in a heartbeat, anyway, shoes on or not - because passenger screening was not the failure on that Tuesday morning over a decade ago.

Background checks. How 'bout the ones that the TSA did before they hired the supervisor at Washington Dulles who just got caught running a prostitution operation - at the airport, no less. Or the two "officers" who were arrested last week, after a drunken shooting spree that trashed a motel in Florida?

Then there's the TSA's Transportation Worker Identification Credential program, which, according to recent congressional testimony, is a program that nobody seems to know if it works or not.

Background checks. Like, the ones that weren't done when the TSA originally started this Bureaucracy Blob ten years ago.

But don't worry. We haven't had a terrorist event in a decade, due, of course, to the TSA.

Believe that, and book now for Elvis' big comeback tour.

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Monday, March 26, 2012

TSA: Don't Fix It. Just Grow It & Give It More Money.
On Bi-Partisan Basis, Of Course

The TSA. Truly an economic engine for America. The Bush Administration's Rosemary's Baby, which has since been enthusiastically adopted and nurtured by the Obama team.

It was envisioned as an elite security system. It has turned into one of the largest and clumsiest bureaucracies in history, hiring - as of now - 65,000 instead of the 16,000 originally envisioned. A jobs program beyond anyone's original estimate. It is reported to have at least 8,000 administrators - you know, guys in the back room. The equivalent of twenty or so for every commercially-served airport.

A New Dimension In Patronage. The TSA Administrator position has been a place to provide secure employment for a range of proven incompetents. They've ranged from Presidential buddies to (almost) an ex-cop who just missed the job because some folks thought his record of lying to congress wasn't really a skill that the job needed. But he did pretty much get through Congressional screening. Those folks do it so much, not telling the truth is daily SOP.

Spur The Economy. Spend. Spend. Spend. The first TSA Administrator jumped right in, attacking terrorism by spending $400K on his office furnishings. Just what he economy needed. Then there was the one in charge when a teenage kid sneaked all kinds of stuff into an airliner lavatory to make a point, then e-mailed the TSA to advise them. E-mail was ignored, and the stuff sat on the plane - in a relatively easy place to find - for days. Bush quietly moved that TSA Administrator upstairs toute suite, and he hasn't been heard from since.

Then there was the ex-railroad guy (another buddy of W's) who decided that screeners would do a better job if they were re-titled as "officers" (of what, it's not certain) and gave them all badges. Metal badges, great to go through magnetometers.

As far as equipment goes, the TSA is the government equivalent of the geeks that line up in front of an electronics store three days before Apple introduces the latest Next Big Thing. Except they are constantly in line for contraptions that don't work very well. They've jumped on wave after wave of new whiz-bang screening devices - remember the "puffer machines?" - installs them, finds out they don't work, and discards them for whatever the Next Big Thing is in aviation security charlatanism. The latest is the full body scanners - we do know that they don't work very well, either

Neither does the TSA as a security organization. As a airport security system, it's the equivalent of lock on a screen door, guarded by a scarecrow holding a broomstick.

Congress To The Rescue! Now comes the ever soap-boxed Democrat Senator Schumer of New York. The guy is outraged (actually, that's his normal state) that some travelers have been abused by the TSA. No, he doesn't want to fix it. No, he doesn't want to hold the TSA responsible. He simply wants the TSA to hire a "consumer advocate" to be on duty at airports at all times. Figure that to be at least another 2,000 TSA staff, not to mention the sloppy bureaucracy it will create to administer this dimbulb mess. Since they will work for the TSA, we can be pretty sure about how impartial these "advocates" will be. Typical Schumer - lots of sound and fury signifying political hot air. Global warming wins.

On the Republican side, we have Rep. Ryan. He's got a proposed budget. One that's intended to counter whatever the Administration comes up with. Except in one area: he agrees with the Administration and wants to increase the passenger screening fee to $5 from $2.50. Double it. Not demand efficiency and professional security from the management of the TSA. Just give it more money. It seems that entrenched incompetence such as we see at the top of the TSA does not come cheap, and air travelers should pay for what they get, according to Ryan.

This is from the Republican side. You know, the ones who make a stink about government waste. Unless it involves actual government waste.  Then, well, we gotta understand that it takes lotsa dough to keep these public servants in business.

Face It: It's Here To Stay. And It Doesn't Work. Some in congress talk about wanting to "fix" the TSA. Don't believe them. They have no intention of doing so.

The TSA bureaucracy is now bi-partisan "family" - and one doesn't eliminate kin folk.

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In The Aviation Data Flash...

Jet Blue and other LCC's have entered the NYC metro market extensively  in the last ten years...

In the DataFlash, we look at what that's done to passenger demand. One might conclude that the result would be massive traffic stimulation. Wrong. Growth has been bupkis - far below the national average since year 2000. Check our the DataFlash by clicking here.

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Monday, March 19, 2012

Quote Without Need For Comment

"Directly" from the now-bankrupt company's website:

"Direct Air is an indirect air carrier providing public charter air flights, and offering all- inclusive vacation, golf, and entertainment packages."

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Celebrate!
Only 9.4 Million Passengers Arrived Seriously Late In January!

The headlines were pretty consistent, which is not surprising when one considers that much of the media today does no research whatsoever beyond repeating the tag line on the press release...

"January Airline On-Time Performance At All Time High!" This was the gist of the glowing comments from the usual Washington alphabet groups touting this un-researched "achievement." And they usually went on, almost per some sort of pre-determined script, to kow-tow in sycophant-like worship to the wonders that the FAA's NextGen will eventually bring. It's not here yet, y'all, the comments went. But when it comes, we're really going to see results! We must work with the FAA and Congress to make sure funding continues for NextGen. January's just a taste of what we're going to see!

It certainly is.

Less Bad. But Still Bad. Here's the real story. The US airline industry had 691,054 arrivals scheduled in January. If we conservatively assume a 98% completion factor, and an 80% load factor, that means that the 16.7% of seriously-delayed flights affected over 9.4 million passengers. If that stellar performance is maintained, it means that by the end of 2012, it will affect 112,000,000 passenger arrivals. Sumpthin' to be real proud of, eh, guys?

The majority of these delays, regardless of the FAA's jive classification system, were directly or indirectly due to the fact that the ATC system the Agency has been promising for the past 25 years is still not here.

The Cult of NextGen. The fact that NextGen is years beyond schedule,  over budget (both of which have from time to time been conveniently "adjusted") and can't really define exactly what it will accomplish, is not to be mentioned by these people. They're worshippers at the altar of Political Correctness. These guys are starting to sound like those weird religious cults that constantly and confidently predict the date for Rapture to arrive... and the date keeps getting pushed back.

But a lot of the media, and unfortunately much of the aviation industry - which clearly should know better, tout NextGen like teenage groupies chasing after a cheap rock band. They never question the track record. They just get the word from the FAA and tell the world that a solution is in the works. In the works... In the works... year after year. Rapture is coming... Rapture is coming. Gullibility is the key requirement here.

Instead of sheepishly memorializing the DOT's throne, one might think the airline industry would be outraged over the continued abuse of its customers and the enormous unnecessary expense it inflicts on their already-beleaguered bottom lines. But that's not the advice they're getting from their Washington advisors.

One might think that instead of kissing up to one incompetent appointee after another at the top of the DOT, the industry would call for heads to roll when they find that over nine million arriving passengers were seriously delayed - in just one month. One might conclude that when over 3,500 flights every day of the month of January could not get to the destination within 15 minutes of the airlines' already ATC-adjusted schedules, somebody representing the airlines in Washington would get ticked off. Instead they take their hats off to the bureaucrats responsible.

To anyone with business standards, the saccharine comments are stomach-turning. Secretary LaHood is to be praised for this great achievement. It's like a cheap parody of the old Soviet Union. Glorious Commissar of Peoples' Department Of Moving Objects must be given Hero of The Proletariat Award for great achievement! Only 9 million comrade consumers were abused in January due to his bureau's dedication to the NexGen revolution!

It continues. Accepting mediocrity only encourages it.
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Monday, March 12, 2012

China Aviation Conference Update

The curriculum is now final for the Path-Finding Sessions to be presented at the Armbrust Aviation China Aviation Fuel Conference & Exhibition, being held  in Beijing April 4-8, 2012. Boyd Group International is scheduled to open the second day of the event with what will be a very informative period of discussion of the issues that represent new horizons for US companies seeking closer relationships with Asian aviation.

In addition to attendees networking with representatives from all areas of the Chinese aviation industry, these sessions will provide insight and direction on how companies in North America can gain competitive advantage with the emerging financial and technological power of these relationships

Click on the logo for more information. And if you're attending, Boyd Group International will be exhibiting within the area of booths 16 - 23 at the China National Convention Center. We'll be there to discuss how the firm can assist in facilitation of new business relationships between US and companies in the Middle Kingdom.

Deal with it: for US aviation, China is the future.

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DataFlash:
The Shrinking Airline Transportation System

The semi-official Air Service Cocktail Party Circuit may be in jeopardy.

This is a.k.a. the unending swirl of various air service get-togethers, roundtables, meetings, hoe-downs, show-and-tells, séances, and hootenannies that are now held nearly monthly by various organizations around the US.

The structure varies fundamentally only in venue: Airports supposedly can attend and learn the deep secrets of attracting air service... where they can trade ideas on how they "lure" that service the community needs. Get new insight on the tricks and traps of attending a meeting with an airline.  Learn how to read a T-100, or an O&D table raw from the BTS, and divine new insights on how the community is the next traffic gusher for the target carrier. Hear "best practices" on  getting new flights and learn how to retain what's already in place. Presentations that "really work" - as if airline planners are easy, simian-like marks for shiny objects and big presentation decks.

The whole thought process seems to be that there's always an airline out there to meet a community's needs. You just gotta find the magic potion of data. Increasingly, it's becoming the equivalent of Brother Love's Travelin' Air Service Show, only each time, Brother Love is a different evangelist under the Holy Gospel Tent of Air Service Righteousness. But it's the same message. And increasingly, it's way off the realities that communities and regions will face in the next 18 months.

The hard reality is that it's time for facts to replace the wishful thinking, hocus-pocus, and schmoosing. The truth is that the airline industry is shrinking, not growing. Fleets are changing. Airline brand options for most communities are clear and obvious, without a need to get a Survey Monkey account. No, these are not "opportunities" for new airlines, either. And time is running out for a lot of regions... get a plan or get run over by the future.

Underscoring this, the airline industry has reduced capacity by close to 10% since 2007, and Global Fleet Forecasts by Boyd Group International point without question to more constriction of seats in the sky and points served. In the latest DataFlash, we compare network carrier departures and seats offered in 2007 v what is now planned for 2012. Beneath those data is the fact that the reduction in capacity is not across the board. Some airports - as has already been seen - aren't going to get hit. They are going to get hammered.

Click here to see the data. And, if your airport is interested in air service assistance that's focused on the future, give us a call. We can set up a consultation in our office to review options. It's what we do for a number of our clients. No post-meeting cocktail parties. No bands. No boat rides.

Just business.
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TSA Management Steps In It Again

This past week, a You Tube segment went viral, showing how the TSA's body scanners can easily be circumvented by certain ways of concealing objects before the passenger goes prancing through one of the machines.

The real story, however, is the TSA's own response to the video. Take a click on the link below, which goes directly to the TSA's own blog. There, TSA's version of Baghdad Bob lets loose, providing one of the most clumsy denials since Richard Nixon tried to convince the nation that the Watergate break-in was just some guys looking for an apartment.

Instead of addressing the issue brought up in the You Tube video, he attacks the person involved, and tries to smokescreen the matter, not address it. The good news is, based on public responses posted on the TSA blog, the management of the agency looks like a pack of doofuses.

Clearly showing that the agency has absolutely no answer to the claims made in the video, the TSA blogger said it was just a "crude attempt" and tried to obfuscate the issue by inane babbling about the 20 layers of security that the TSA has.(Charmin has layers, too, by the way.) Left out of the diatribe was which "layer" would be in play after a terrorist got explosives into a secure area and into, say, an airplane lavatory. The clear message: the guy in the video is right, and TSA management does not have the professional integrity to address it. As we've seen since the Bush Administration created this mess, the m.o. is to deny, deny, deny.

It's all sort of moot, however. The real threat today, as it was on 9/11, does not involve passenger screening. It has to do with total airport security, a lack of clear contingency planning, and zero event-mitigation systems. But passenger screening is obvious and high-profile, so it's a great venue for some veneer network correspondents who are so eager to be shills for the TSA. And note that none of these Ron Burgundy look-alikes have investigated the story. Can't do that. Might not get the interview with Pistole next time.

Click on the link. And don't miss the comments posted by the public. Nobody awake and sober is buying to the TSA's Pravda-like defense of a security system that's based on spending money instead of proactively protecting aviation. http://blog.tsa.gov/2012/03/viral-video-about-body-scanners.html

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Monday, March 5, 2012

Mid-America Airport...

If at first you don't succeed, try, try again.
Then quit. No sense making a damn fool of yourself.
-W.C. Fields

Apparently the fine folks involved in the ever-entertaining Mid-America Airport fiasco, which since 1998 has been wandering in the Illinois desert trying to find some earthly reason for its existence, refuse to take the advice of the late Mr. Fields.

To quickly re-cap: Mid-America was going to be a passenger reliever for STL. Then a charter airport. Then a cargo facility in various innovative incarnations. Flowers, seed, Asian carp. No shortage of creativity.

Like two chefs fighting over an empty can of Spam, Mid-America competed with St.Louis/Lambert to be the new cargo hub to China, and neither of them could produce any hard, substantive data on things like just what was the demand, what the competition was at other airports, and just how STL or Mid America would be a success. Pure boosterism - and you'd better not question the concept, or be you'd be labeled a Luddite. But never have two airports fought so hard for the  right to develop something that has zero chance of becoming a reality.

The STL side spent $4 million promoting the "hub" - although they couldn't back up any claim regarding how it would be successful. Mid-America even paid a carrier to fly a load of cargo from China into the airport, which is nowhere near any business entity that would need lift to the Middle Kingdom. The flight arrived, and the load was then trans-shipped by truck to points across the nation, completely wasting whatever time benefits the flight provided.

Now, after turning over the cargo facilities to Boeing to build stuff, including (reportedly) the several million dollar machinery to chill all the flowers that were supposedly coming in from South America, they're back. According to media reports, their doing a half-billion dollar bond deal to finance a from-scratch cargo operator, including the purchase of a fleet of 747 freighters.

The heck with just China. This new operation will have flights all over the world. Exactly where, well, that's not been made clear. What commodities? That's not clear yet, either.  Projections of tonnage in each direction? Not clear, either. But it will have four 747s, that much has been decided. Media stories noted that the company involved isn't even incorporated yet, but officials are assuring the public that it's the real deal.

"Real" isn't a description that has much to do with Mid-America. "Embarrassing" is more appropriate.

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The Future: Air Service By The Numbers
Revised Air Service Opportunity Outline Now Available

It's here. The point in time when traditional approaches to developing air service at rural and regional airports are the equivalent of doing a goat sacrifice on the runway to please the airline gods.

It's all there - lots of drama, lots of pomp and circumstance with sacred 60-page presentation decks, oracle-like data direct from Survey Monkey, all delivered by an increasing number of High Priests (a.k.a. consultants) confidently chanting unintelligible mantras about leakage and the mystical traffic that will suddenly appear if only the airline gods can be convinced.

Here's a couple of hard realities: Airlines are not interested in new "routes." They are not interested in a community's "need" - particularly if it's wrapped in those three deal-killing words: "affordable air fares." Airlines are not growing, and capacity is not expanding. The only interest an airline has is whether a proposed market can deliver significantly higher returns to its system than the current use of its limited aircraft assets. Period.

This relates back to the outdated air service objective of "increasing the traffic" at the local airport. Here's a global economic clue: There's a new metric by which air service must be measured. It's called access. Not volumes of passengers, but the levels of access a community has to and from the rest of the globe.

Access is what creates economic growth.

It's no longer just having huge hordes of passengers - which is not a bad objective, but by itself, it does not necessarily represent access. Example: Youngstown, Ohio has around 60,000 annual O&D passengers. But it's all travel company flights. It has no local air service access, other than a couple of Florida package destinations. Consumers are still flying to get to and from YNG. They just use CAK or PIT.

Another dynamic is that network carrier air service levels are declining at many mid-size communities. As a quick comparison, we can look at network carrier O&D at the four main airports in the southern section of the Lower Peninsula of Michigan along the I/94/96 corridor. Comparing the full year ending 3Q 2011, with the full year ending 3Q 2005 illuminates what's happening at airports across the US:

The reason is simple: network carriers have pulled down capacity. And while some enplanements have been replaced at a few airports by travel company flights, the levels of access to the rest of the globe have not been replaced.

Much of this lost traffic is likely going to DTW or ORD - which is likely the reason that for the same periods of time, when these regional airports are down 22% in network carrier traffic, Detroit/Metro is only down half that figure. But the fact is that the US air transportation system is not looking for more passengers, and it's not looking for more "routes." It's looking for stronger revenue streams.

This is not a temporary dynamic - it is a fundamental change in the economics of tossing airliners across the sky. Take a gander at the capacity plans for 2012 compared to 2011 at major airline systems:

The US air transportation system is not growing. Actually, it's shrinking. And any expansion by Spirit, JetBlue, and Virgin America won't do diddly to reverse the trend at small and mid-size airports. (Data are sourced from our partner Innovata, and analyzed via Aviation DataMiner. Current as of airline filings February 29, 2012.) Watch for further reductions - particularly as Southwest digests and adjusts the former AirTran system, and major carriers move to cull more RJs from their systems as fuel prices go up.

Now, let's toss in the other fun stuff coming in the next 12 to 18 months.

Small Jets Going - And Systems Will Shrink More. "Regional jets" of 50-seats and under will - repeat, will - see a faster retirement date as the price of jet-A continues up. At $3+ a gallon it's ugly. At $4, the matter is critical. But because major carrier systems have substantial percentages of their flights operated by these small RJs, replacement with larger jets is going to get real problematic real fast at some airports now being served.

Global Feed. International cross-feed will be increasingly important to supporting domestic systems. And we're not talking about flights to Punta Cana. We're talking about the revenue feed from places like Munich, London, Beijing, and Sao Paulo. This revenue segment will increasingly be critical - and a competitive asset to network carriers that LCCs (some of which are increasingly not low-cost) do not have.

New Airlines. Not in the cards. There are no traffic opportunities. The traffic being dropped is due to raw economics, and a couple of start-ups relying on slave wages to keep costs down, or trying to operate comparatively-behemoth airplanes in markets with microscopic traffic (PIT-PHF?) aren't going to see the light of day. At least not for long.

These are just some of the key points in our newly revised study: The New Air Service Challenges. It reviews points made earlier - the declining number of airline systems, the changes in fleets, and the emerging regionalization of access.

Download it by clicking here. It's straight talk. At Boyd Group International, we don't ignore hard realities dealing with our clients.

We leave that to the High Priests.

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Monday, February 27, 2012

A New Chapter In US Airline Evolution... Really.

This morning, United Airlines is announcing that they will be entering the Sarasota-Chicago market with 737-800 nonstops to its hub at O'Hare. On first pass, great. Congratulate SRQ and move on.

On the other hand, don't move on. Take a hard look at what this represents.

It's a first - United is jumping into a market (SRQ-Chicago) that Southwest is abandoning

It's more than just a new route. It's a bombshell indication of an emerging paradigm in the economics of air service. It's likely that this is the first time that a legacy carrier has entered a substantial market abandoned by an LCC.

And it wasn't dropped by Southwest because of lack of traffic - but, according to WN, because of the carrier's operational costs. They are in business to make money, and they make business decisions accordingly. It's the main reason that Southwest has prospered for over 40 years. No point in staying at a destination that can't generate dollars to their bottom line.

Background: A New Competitive Paradigm: The LCC "Advantage" Illusory? The accepted lore is that LCCs are using their alleged cost advantages to blow legacy carriers out of markets left and right. The only problem with that fantasy is that the "LCC cost advantage" is often a figment of imagination on the part of financial analysts who wouldn't know a 737 from a vacuum cleaner.

Last month, Southwest Airlines advised Sarasota-Bradenton International Airport that, as part of its merger process with AirTran, it would pull out of the SRQ market in August.

The service being eliminated isn't just some one-flight-per-day drop in the bucket. It encompasses approximately 370,000  annual passengers generating over $47.3 million in revenues. This includes nearly 120,000 local O&D passengers that AirTran is carrying annually to Chicago/MDW, with average load factors in the 80% range, and all-up passenger revenue yields somewhere near 14.5 cents.

But even though MDW is one of Southwest's largest operations, with the potential for significant additional connecting feed traffic on the SRQ-MDW segment, the airline advised that the decision to drop SRQ wasn't even close - the loss factor was, according to WN, clear, unambiguous, and unsustainable with Southwest's cost structure and operating model.

So, Southwest is leaving. And United is moving to replace the gap left in Chicago service. In addition, Delta is also seeing potential in a post-AirTran/Southwest SRQ, too. They just filed schedules for nonstops to LGA. As did JetBlue.

Ponder the implications. It's a new set of competitive economics in the air service business.

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Monday, February 20, 2012

Great! Only 20% of The Product Is Really Defective!

"Detroit, February 18, 2012. The US auto industry  today announced that only one out of five of its customers were sold  cars in 2011 that were materially defective and which miserably failed to meet performance expectations promised when the automobiles were purchased. ... 'We are excited with this great achievement'!' stated Roger C. Recall, President of the Association of Auto Manufacturers. 'It's another reason to buy a US-made automobile - you now have an 80% chance the contraption won't break down on the way home from the dealer!..."

Don't laugh - that's pretty much the response from the airline industry regarding the 2011 DOT performance statistics. For the year, flights arrived less 80% of the time within 15 minutes of published schedule. December was "better"  with almost 15% of flights arriving more than 15 minutes off-schedule. Not late - it's worse. These are flights arriving off the schedule airlines develop to accommodate the inefficient air traffic control system.

Comparative statistics like these are akin to announcing that you're now just 100 feet under water, which is supposedly a great improvement from formerly being 125 feet under the waves. Still underwater.

What most of the see-the-DOT-press-release, publish-the-DOT-press-release reporters don'[t understand is that these are flights that get to the flight destination airport past schedule, with is very different than passenger getting to his destination. A lot of those late flights carried passengers that missed their connections, costing the airlines millions in extra costs, and inflicting enormous inconvenience on their customers.

This is particularly true when some airlines insist on publishing 35-40 minute hub connections with RJ flights, with  zero concern over the fact that an RJ "arrival" is only after the customer gets his "carry-on" bag delivered to the arrival jetway - which can be an additional ten minutes or more. If the RJ arrives 15 minutes late (or even 10 minutes late, in some cases) that means the passenger has zero chance of making the connecting flight. 

It's Another Hit To Rural Air Service. So that means that passengers on RJ flights have a higher chance of being zapped within that 15% - 20% envelope of severely off-schedule flights. That means, too, that it's passengers from smaller and mid-size communities that likely get the short end of the delay stick, which is another reason that the air transportation system is shrinking in scope. Consumers refuse to use the local airport and drive to a larger one. And some carriers wonder why.

Yeahbutt - We're Saving On Labor Costs! Add that to the fact that major airlines have turned over airport operations at small and mid-size airports - and even entire "regional" operations at their hubs - to subcontractors that are too often staffed with poorly-trained, poorly-motivated, and often even un-uniformed subcontractors, who, intentional or not, could care less about getting flights out on time. (Some carriers will be shocked! shocked! to hear this - but it's a lead pipe cinch that the major airline CEO has never bothered to take a look at what the airline's passengers must endure with such "cost-saving" staff.)

Fact: No, 2011 Is Not A Year To Crow About. It's a sad commentary on product quality when an industry accepts a system that precludes it from not only taking care of their passengers properly, but from making money. Instead of lauding the 2011 data, A4A and other Washington alphabets would do better to denounce the system that so badly inconveniences their customers.

Note to airline CEOs: You're getting bad counsel from your advisors inside the Beltway. The ATC system is not getting fixed, and you can plan of at least 15% - 20% of your flights to continue to inflict damage to your bottom line simply because the FAA continues to dither.

But in any case, do stop the nonsense that the 2011 performance was a great achievement.

It's like lauding the great success of the Edsel.

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Attn Airports: Updated Research Study
IATA Common Use Passenger Processing System (CUPPS)

In January 2011, Boyd Group International published a review of IATA's "Common Use Passenger Processing System" (CUPPS). The findings were that technology had leapfrogged the complex 2004 "recommended" standard for airports around the globe, and that new approaches made possible by "virtualization" were far more cost-effective and much less bureaucratic.

There was much criticism from entrenched CUPPS aficionados at the time. However, the IATA/CUPPS "Common Use Working Group" recently met and essentially came to many of the same conclusions contained in the Boyd Group International 2011 study.

 IATA has now stated that pushing the CUPPS standard is no longer a priority, which is essentially like Ford Motor Company saying they really don't have much interest in marketing the Edsel, anymore.

To review and download this review of the CUPPS program, click here.
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Monday, February 13, 2012

Some Future Trends To Consider

On September 16-18, 2012, the 17th annual Boyd Group International Aviation Forecast Summit will be held in Dallas/Ft.Worth. As our regular attendees know, this is not just another conference. It really does dig into issues and dynamics that are changing the industry.

Political correctness and ambient thinking are not allowed in the door. Nor are the usual suspects from Washington, who just read off of crib sheets, or, in the case of Secretary Ray LaHood at last year's FAA conference, threaten attendees not to oppose the Regime. At the Summit, we get into the future, regardless of whose sacred pet projects get demolished.

Below, there's a link to some of the key issues that aviation will face in the next 18 months. Here's a summary of a couple of them:

Airline Service Expansion: Slowing. Historically, air travel growth came from airlines expanding into new consumer stratas, economic growth, and technological breakthroughs that lowered the cost of air travel, opening it to more markets. That's essentially over. 

New dynamic: in the US and the EU, expansion will slow to a stop - the frontiers in net new passengers have been conquered. In the US, the reach of air transportation will continue to shrink in terms of actual airport destinations.

Global Alliances - Calling The Shots. One of the metrics Boyd Group International uses to ascertain air service stability and growth potential at airports is the alliance share. The ability of an airport to generate traffic through an alliance system will in the future be a critical determinant in capacity decisions. This is the reason Aviation DataMiner is the only on-line data and business intelligence system that provides reports at the alliance level, not just at the airline level.

Global Portals Eclipse "Hubs" -  There's a lot of excitement about the future of "ultra long haul" (ULH) traffic potential. With airliners such as the 777-300ER and the 789 and the A-350, there are few populated places that cannot be reached nonstop. It's the wave of the airline future, right?

Wrong. ULH will be a factor, but raw economics and airline strategies will limit it severely. In fact, just because two points on the globe can be served nonstop does not mean it's economically viable. We're going to discuss how these newer aircraft will accelerate the development of Global Portals - the next evolution of the connecting hub concept.

Clicking the link below will bring up a wider discussion of how alliances - and politics inside alliances - actually determine if a given nonstop market is flown or not.

Carbon Caps, Reporting Requirements & Other Fun. It's going to be a wild ride - one where the consumer will get pummeled by trendy and not-to-be-questioned rules regarding "climate change" and the "social responsibilities" that people who fly have to the poor folks in the world who are ruled by cleptocracies.

The US airline industry has gotten very bad advice. Instead of calling these sort of proposals for what they are - hogwash - the strategy is to "go along." We'll be discussing what this will mean to North American air travel demand - and it's not at all positive.

The Kodakization of Parts of The Aviation Industry. We have already reviewed how some players in the aviation industry will find themselves with a product or service that has been obliterated by changes in economics. Just like Eastman Kodak did - camera film went the way of the buggy whip. We're already seeing it in the "regional" airline sector. We're seeing it, at least partially, in the business-jet sector, too. And, deal with this, we may well see it in some parts of the mainline airline sector, too.

Just keep one thing in mind: every major airline that has disappeared in the last 30 years was at one time at or near the top of the financial heap. Loved by Wall Street. Subject of glowing stories in Fortune, or Barron's or whatever. (Like. go back and look at the stuff written about PeoplExpress in its heyday.)

Nothing is forever. Past airline empires have been seen to make mistakes, mis-judge competition, believe their own press, make strategic moves that become the financial equivalent of a Venus flytrap, and fail to realize it until too late. As long as humans run airlines,  that process is going to continue. At the Summit, we'll be taking a hard look at the emerging dynamics in the airline business that may point to danger signs.

Click here for more on these and other trends that will affect aviation in the future. It's data and perspectives that no other event even touches.

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Monday, February 6, 2012

But First: A China Conference Update

What's Your China Strategy?

Take a look around. Doing business with China will be a key component for all sectors of the US economy, particularly aviation. Today, there are entire product lines ranging from electronics, to alpine skis, to heavy equipment that we use and are made in China. ABC News just reported that Chinese companies are now building roads and bridges at communities across the USA. (Great use of stimulus dollars, eh? But it's reality.)

In aviation, for example, studies accomplished by Boyd Group International indicate that airports will be seeing bids for new boarding bridges and ground equipment coming from not only traditional companies such as JBT and ThyssenKrupp, but from global competitors such as Tienda and Guangtai. Guess where they're located. And guess where they may want to invest in new production facilities, too.

It's no longer a matter of China being a great market for US companies. That's being eclipsed by Chinese companies finding the US to be a great investment opportunity. That's why leaders from all areas of North American aviation will be in Beijing April 4 - 6 for the Armbrust Aviation China International Aviation Fuel Conference.

Air Service Development: Just doing the usual "market studies" and tossing them in front of a Chinese airline won't do diddly to get service from the Middle Kingdom.

It's not your needs that will move the planner's decision needle in Beijing. Shanghai, or Guangzhou. Instead, it's the fit your community or region has within the target carrier's strategic plan for trans-Pacific expansion. And that goes far deeper than just going after the local O&D between SAN and CAN. This is the event where airport planners can meet, network and build relationships with target Chinese carriers.

Get A Road Map For Your China Strategy...  Path-Finding Sessions

The Armbrust Aviation China International Fuel Conference & Exhibition is now expected to draw over 1,000 attendees and over 200 exhibitors. It will include Path-Finding Sessions to be held by Boyd Group International which will concentrate on identifying opportunities for North American airports and aviation companies in capturing a greater share of the increasing Chinese investment on this side of the Pacific:

• The North American routes Chinese carriers will target in the future to access both nonstop and feed traffic… 

• Key factors that Chinese carriers will consider in adding new North American routes…

•  Aviation Investment targets expected from Chinese aviation companies – categories and geographic regions in US & Canada

•  Joint ventures and industry categories to expect  with Chinese companies…

•  Strategies for US & Canadian airports and aviation companies to competitively position themselves...

Networking and Contacts. Executives from all major Chinese airlines are expected to be in attendance, along with key Chinese aviation officials. For airports and aviation companies, this is the event to be at to gain the all-important introductions and interaction with Chinese decision-makers.

A printable brochure can be reviewed and downloaded by clicking here. For more information and to register, go to our China Conference page.

If you want a part of the future Sino-US business, join us in Beijing April 4 - 6, 2012.

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General Trends - 2012:
Telling It Straight

A number of emerging trends and predictions have been reviewed here over the past several weeks. Here's a summary.

Traffic Growth.  A New Paradigm - Airline Capacity As The Driver

Traditionally over the last 50 years, the expanding population, and particularly breakthroughs in aviation technology, have combined to generate steady and strong increases in US and North American air passenger traffic.

That's over.

Airlines are no longer expanding to simply carry more passengers - they can't, because there's no money in it for them. Year 2012 capacity - the number of seats put into the sky - shows almost no growth whatsoever. Reason - the easy expansion markets are gone. The "low hanging fruit" in the form of markets where LCC entry will fare-stim traffic into the stratosphere are mostly gone, too. Finally, the economics of airline operation are resulting in traffic levels reaching a plateau, instead of year-over-year growth.

Year 2011 clocked out with just about 1.9% enplanement growth in the US. Year 2012 won't be any higher.

Shrinking Reach of The US Air Transportation System

The retirement of 50-seat jets will continue. As these units age, it's a mathematical certainty that they will go to the desert. This raises the bar in regard to the numbers of passengers a community must generate to fill larger units of capacity.

As we pointed out at the 16th Annual International Aviation Forecast Summit, dozens of communities will lose local air service in the coming decade. Most won't lose air service access to the rest of the world. It just won't be at the local airport.

The scope of connecting hubs - in terms of number of nonstop spokes - will generally shrink. The sheer costs of getting feed from long-haul RJ markets, as well as the limited feed from smaller communities, point to less "reach" from most airline connecting hubs.

Face it. The raw economics of air transportation have changed. And it's already being experienced at CVG, MEM, and soon a few other hubsites. It is functionally irreversible, no matter how much money civic leaders desperately throw down the vapor holes of jive-consultant "studies," shot-in-the-dark internet surveys, or blowfish-like community "coalitions." The fact is that a lot of nonstop ("direct") flights are not coming back. The situation is clear and unambiguous. Unfortunately, that's not what they want to hear. So, do watch for the snake-oil to continue flowing, at least for a while.

Also flowing with the elixirs of fantasy air service, in 2012 plan on seeing more attempts to pursue point-to-point, intra-state, or intra-regional commuter systems. Heck, a couple years ago one airport got hornswaggled into a study purporting to prove that tossing a bunch of 402s into the airport from small communities would make it an interline "hub." Although there was not a shred of credible data to indicate traffic and connecting flow levels, the study concluded, not surprisingly, with the recommendation that the consultant be further engaged to go ahead and set the airline up.

Nevertheless, in 2012, this will continue. The track record - which clearly shows that most short-haul, point-to-point commuter air service is neither cost-effective nor time-effective - will be smoke-screened out with the usual "surveys" and studies, all of which - surprise! - uniformly indicate that the public is just rarin' to get on that Cessna Caravan.  And, you name the case - whether in the Northwest, in Utah, in Indiana, or other places, it's been proven that airplanes are no longer economic machinery for this application, regardless of the drive time. We covered this in an Aviation Update last year.  

Air Traffic Control - NextGen Continues To Entertain In 2012

Never has such a "successful" program achieved so little over so much time.

Every year, the program is declared to be boldly moving ahead. Every year, 15% - 20% of all airline flights still arrive more than 15 minutes beyond published schedule. Every year, the FAA parades in the usual-suspect network correspondents to show presentations relating how shifting from radar to satellite communications is opening up the sky. Every year, these wind-up toy reporters come out of these meetings with glowing tales of great progress and visionary leadership at the FAA. Every year, not one of them asks a hard question, or demands to know why NextGen has become the electronic equivalent of the Sargasso Sea.

It's no big risk to predict that by December we will see NextGen continue to "move ahead" to where it is now.

DOT: More Consumer Confusion

We can rely on the Secretary of Transportation to continue to generate high-profile, low-rent "consumer" protection rules.

The "Tarmac" delay rule has succeeded in having airlines cancel more flights whenever there may be a chance that, say, the 25 airplanes that are diverted to COS from Denver's all-weather airport due to weather, won't be able to find a gate and may be stuck for more than three hours.

The latest scam is the requirement that airlines take the rap for the obscene taxes and fees the fed lays on consumers. Spirit Airlines is right - it is dishonest for DOT not to fully disclose these fees.

The Secretary of Transportation has criticized airlines for all their fees - right at the same time the administration wants to slap a $100 departure fee on flights to, yes, "reduce the deficit."

The Global Reaction To The EU Carbon-Fee Scam

The EU's carbon-tax racket has been quietly accepted by most carriers in Europe. Pay money to politicians, and carbon will go away, see. In the US, there are attempts to pass laws prohibiting carriers from paying the fees.

Take this one to the carbon-tax bank: the administration will never let any such legislation pass into law. But it's different in China, where the government and the airline industry have told the EU that they are not going to get extorted by politically-correct crackpots. They have the juice to go all the way - including telling EU carriers they can't fly to China if Chinese carriers receive any retribution for failure to pony up.

Should be real interesting.

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Monday January 30, 2012

Calling The DOT On It's Dishonesty:
The Truth Is Now Officially A Lie

Free speech, increasingly, does not extend to questioning the Regime. For one example, never question anything that's labeled as "consumer protection" - even if it has nothing to do with protecting anybody. 

It's anti-consumer to question any part of anything that comes out of Washington that's postured as being Big-Brother-Good for the poor consumer schlemiels who need the protection of a pack of clowns in congress who are too inept to balance their own budget.

Along those lines, it's now clear that daring to exercise one's First Amendment rights in regard to DOT pronouncements is not acceptable, especially if you're an airline.

It's for real. Remember last year, at an FAA conference, Ray LaHood, the Secretary of Transportation, angrily and literally  ordered airlines "not to be against high-speed rail." He warned them against any criticism of one of the administration's pet projects - one that is so riddled with intellectual, if not political, corruption that it would make Third World cleptocracies blush.

It was not just a comment. It was a threat. It was professional extortion. Shut up and don't be critical of the administration. Or, the not-so-subtle message is, you may get a political brick through the window. When it comes to LaHood's DOT policies, your First Amendment rights don't count.

Fed Fees? They're 15% - 18%. A Lot More Than A Bag Charge. Now comes the new DOT rules requiring airlines to disclose all fees right up front to the consumer. Aside from the fact that that's what most, if not all, airlines have already been doing, it's not a bad idea. But the rule, dishonestly, covers all but federal fees, which are to be buried in the quoted fare.

All other fees must be disclosed, but the fees imposed from Washington are exempt. Sure, airlines can, if they wish, advise the customer of the federal extortion, but it's only Federal fees that are not required to be identified to the consumer.

The DOT rule is intended to mislead the consumer into thinking that the "fare" quoted with tax is all charged by the airline.

It's Not Consumer Protection. It's DOT Dishonesty. Let's cut to the chase. This in not about consumer protection, or full disclosure. It's about a sleazy attempt to mislead the consumer into thinking that federal taxes are part of the airline fare. (Take a look at some of the stupid media stories: "Airlines now required to reveal their fares and taxes..." Emphasis on their.)

That says volumes about where the DOT and the administration are coming from. They'd prefer the consumer not know the exorbitant booty that the feds collect on every ticket. At least with a baggage fee, the consumer knows what he's buying. But regarding the fed extortion, not only are consumers not given any explanation of where the money's going, but they have no say in how the feds spend it. Billions for TSA fees that keep a bureaucracy in business. Billions so that the FAA can comfortably squander more money on a NextGen system that year after year delivers vapor results.

So, it is in the consumers' best interests that the fed fees should be clearly stated to the consumer, too. But that's not the intent of this DOT rule - quite the opposite.

Now comes Spirit Airlines, calling the DOT on their scam. They have correctly and boldly identified the name of the DOT's game. In public statements and on their website. Spirit is telling the truth - that the DOT rules require that federal fees be postured only as part of the fare - which they are not.

But that criticizes the Regime, and as LaHood has made clear, that is not to be tolerated. For speaking the truth, Spirit is taking a hammering - from the DOT, from sleazy politicians, from two-bit hangers-on who try to pander to the Regime, and from zipper-brained reporters who see the term "consumer protection" and don't have the professional integrity to do any research beyond parroting what the DOT says,

Don't miss Sen. Barbara Boxer, D-California, who called Spirit's actions a "deliberate attempt to deceive the flying public," which in itself is a blatant lie.

"I have been shocked by the failure of your airline to tell the truth in an email sent to your customers earlier this week as well as warnings posted on Spirit.com."

Message: if you criticize the government, we will call you a liar, facts not withstanding.

Mobilize The Lackeys. Then there are the usual running dogs of veneer consumerism, such as the bozos who posture their kitchen tables as headquarters of "coalitions," rushing to show their loyalty to the Regime, by issuing pandering press releases denouncing Spirit's "lies."  And since this rule has been supposedly issued to protect the public, by and large the media has painted the airline as being some sort of airborne scam, looking to rip off the public. Much of the media is too lazy to research stories beyond reading the official Regime press release.

The real scam is the DOT, which refuses to require that the public be made fully aware of the severe financial hit federal fees impose on the public.  The real scam is that the public gets hosed on every air trip with government charges. Charges and fees for which there is no accountability. Charges and fees that the DOT wants to dishonestly pass off as an integral part of the fare.

Like Spirit. Hate Spirit. Like the DOT rule, or hate the DOT rule. It makes no nevermind. Now, it's not the DOT rule that's the issue. An airline is being systematically attacked for honestly criticizing the government. That's the issue at hand, and everybody in aviation should recognize that the LaHood regime is not one that respects the right to free speech.

Every honest person in aviation should stand up to this outrage. The track record is clear: first it was the prohibition against criticizing high-speed rail. Now it's not proper to criticize DOT rule-making.

Ignore this at your peril. When a government takes aim at anybody's free speech, and vilifies those who question federal actions, that's a threat to everyone's rights. Right now, it's just some little airline in Florida, so, most people think it's no big deal. It's not affecting anybody but them, so who cares?

Next time, it could by you.

(Note: Boyd Group International has no business relationships with Spirit Airlines.)

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Monday January 23, 2012

Prediction 2012: Kodak Moments In The Airline Industry

Eastman Kodak. A blue chip company. An American industrial icon. The global leader in its field.

Today it's bankrupt. It has no leadership in anything. It's been living off revenues from selling patents. Their main "product"  has degenerated into making lawyers rich by suing anybody they could accuse of infringing on their patents. Their core product lines - film and copy technology - got leapfrogged by technology. They failed to morph into the 21st century.

Guess what - much of the air transportation system in place today is approaching their own Kodak situation. Point: economics are shifting - fundamentally shifting - the basic financial underpinnings of the airline business. As the fleet forecasts of Boyd Group International first predicted, fleets  of 50-seat RJs are becoming economic toast. Turboprops are not the panacea some of the recent media stories have painted them to be. Global Alliances are shifting turf decisions, focusing increasingly on just adding members instead of growing route systems of individual incumbents.

The airline business has changed much the same as what Kodak faced - they can no longer depend on consistent demand growth to fuel profits. They no longer look at competing carriers as fair game for more traffic. The consumer, by and large, no longer has anywhere near the open choice of air service options available just ten years ago. The core business traveler is focused on frequent flyer loyalties, and at any given community there is a very limited brand choice for consumers of all categories. The once rich revenue feed provided by "regional" partners is disappearing due to the sheer costs of smaller aircraft which make less and less economic sense.

Airline competition is now a matter of trench warfare, albeit without much competitive shooting.

What all this means is that in 2012, airline health for large carriers will be based on two key areas. The first is access to global traffic flows - particularly Asia - either directly or via alliance partners. Today, over 26% of all enplanements are directly or indirectly the result of international connectivity. That is going to increase in the coming decade. It's a whole lot more than just having flights to Punta Cana.

As for costs, let's face it - the air traffic control system is a deteriorating joke, NextGen or whatever Madison Avenue name they use. Fuel will continue to go up. New-technology aircraft will be only a blip on the radar screen of total costs. The key metric going forward will be how well a carrier can manage minutes - which is the core factor in airline costs. Unfortunately, most carriers are focusing just  on the bargaining table, not the airport ramp, to get costs down. 

The Kodak example has been seen in the past in the airline industry, where former powerhouses such as Braniff, Eastern, TWA, and others suddenly found themselves out in the cold and out of business because they had management that started to believe their own press. Or, the business environment suddenly outgrew the management abilities they had in place, resulting in catastrophic planning decisions. In this racket, a couple of strategic mistakes can take a carrier from being the darling of Wall Street to the steps of the bankruptcy court in a very short period of time.

Year 2012 is going to have a number of Kodak situations in the airline industry. We're already seeing it in the "regional" sector, where operators are finding 50-seat jets to be akin to a roll or Ektachrome. Nice stuff, but the market is a sliver of what it was 20 years ago.

Prediction: by December, we may well be seeing the same dynamic affecting some brand-names in the industry. Evolve or start to go away.

Kodak Moments are coming.

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Monday January 16, 2012

Another Beacon From The Financial World

In the San Francisco Chronicle, an entity called "Investopedia" last week published "A Look At The Airline Industry." Breathtaking in scope, mind-boggling in depth, bold in its conclusions. Truly a work to be reckoned with...

In addition to many profound insights, such as the tidbit advising readers that American Airlines is retiring its "MD-80 aircrafts," there was this:

"...Domestic routes are ruled by local players and margins are low. Southwest Airlines, JetBlue Airways, AirTran and Alaska Air are all low-cost domestic carriers fitting into a space that is becoming unviable for legacy players to play in. These domestic carriers usually have one type of aircraft, outsource maintenance, use lesser used airports (thus reducing landing costs) and encourage direct booking online to reduce intermediary costs. For these reasons, domestic route players are primarily becoming hub feeders..."

Somebody better let Southwest know that their entire maintenance operation at DAL does not exist, and tell B6 that they don't have A-320s and E-190s. And ask them all to check out their "landing costs" - which don't seem to be a line-item on any of their P&Ls. Call JetBlue and the Port Authority and let them know that JFK is now a "lesser-used" airport. Will someone please call Southwest and JetBlue and let them know that they're now hub feeders?

Articles like this from the financial "experts" belong at the bottom of bird feeders.
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Prediction 2012: Airlines Are No Longer in The Volume Business

American Airlines is pulling out of Burbank.

To most folks, it's just a minor route decision. To some of the talking heads in the financial world (above), it's due to inability to compete. It's neither. It's another planning outcome of an airline industry that's fundamentally different in structure and competitive strategy than just three years ago. It is fallout from a wholly-different business model - one that's already in place.

Here's the key point: air passenger traffic is now more a function of what airlines want to capture, instead of what's available to capture. This is the reason that traditional airport and system forecasting doesn't work anymore. In fact, it can - and does - sometimes lead planners and communities off into the weeds.

It's The Front Office, Not Main Street, That Drives "Demand." Historically, forecasting air passenger traffic was a matter of projecting key metrics such as GDP, disposable income, population shifts, and other data. From this, passenger "demand" could be estimated into the future, with the assumption that the airline industry would simply respond  by adding capacity to meet the projected opportunities in traffic growth. In effect, the assumption was that the airline business would be the caboose on the national economic train.

• Those were the days when lots of airlines competed with one another.

• Those were the days when the airlines focused on individual system expansion.

• Those were the days before frequent flyer programs that were engineered to identify and retain high-end business traffic, while focusing on using the economy cabin to provide fill-in revenues.

• Those were the days before having a few front-cabin passengers connecting from Shanghai or Munich became much more important that gaggles of consumers that could be generated with fare sales.

• Those were the days before global alliances and the concept of "alliance turf."

• Those were the days before raw airliner economics pointed to an air transportation system in the US that will be much more dependent on the automobile to get to the fewer airports served.

Those were the days that don't exist anymore.

Airline systems now generate the capacity that specifically fits their strategies. For one example, the year 2011 is expected to clock out with nearly flat traffic compared to 2011 - up only slightly at 1.6%. to1.8%, and well below the rates indicated earlier in the year.

And as it stands today, there will be a decline in passenger traffic in 2012 - because airlines are cutting back on capacity. Based on Aviation DataMiner analyses of data filed with our partner Innovata, LLC,  airlines will be putting almost 3% fewer flights into the skies in the 1Q of 2012, compared to the same period last year. With fleet shifts, this will translate into almost 2% fewer seats for sale. It's a lead-pipe cinch these data are just the start: airlines will be cutting back further in 2012. 

Don't mis-read this - it is not just a fallout from the recession that, regardless of what the parrots in the media might say, is still going on. It's due to a fundamental shift in the business structure of the airline industry. As noted above, historically, the idea was to carry as many passengers as possible. What has been missed is the shift to focusing on balancing their costs and their operations to the specific revenue streams - both qualitative and geographic - that can maximize the bottom line. It is a permanent shift.

This is what sets the Boyd Group International's Airports:USA enplanement forecasts apart from others - including the annual FAA Aerospace Forecasts. The latter assume that passenger traffic is the result of issues such as changes year to year in GDP, buying power, incomes and whatnot. The assumption is that when these go up, travel demand goes up, and the airline industry will be there to satisfy that intrinsic demand.

That was a forecasting methodology that may have been valid in the 1960s, 70s, and 80s, but as they say down on the ranch, not no more. Airlines are now in the bottom-line business more than the passenger volume business. This means that with a consolidated industry, the name of the game is to maximize the return from "brand-fiefdoms," not necessarily attempt to conquer new traffic territory from the competition.

At risk of making an indelicate comparison, it's sort of like the "five family" structure that was one of the key storylines in The Godfather. Each family had its territory, and give or take a skirmish or two on the geographical margins, there was an uneasy peace between the Families. Major airline systems - now evolving into global alliance brands - have now generally taken a similar approach.

Circle The 737s. Expand Turf With Additional Alliance Members, Not More Airplanes. We've reviewed in the past how American dropped BOS-SFO nonstops, despite strong load factors and good yields. Neither city, however, was a stronghold any longer for AA,  or more importantly for the oneworld Alliance. So they moved the aircraft resources elsewhere. The same territorial dynamic was in place when Qantas moved its SYD-SFO flights to SYD-DFW. Circling back to Burbank - AA also dropped BUR-DFW - a route with @ an 82% load factor. Reason? They will near-certainly keep the high-yield traffic on their DFW-LAX flights. Passengers - at least to ones AA wants to keep - will use LAX.

Traffic Forecasts: Driven By Strategies More Than Economics. This is the fundamental approach taken by Boyd Group International's Airports:USA enplanement forecast product. We understand that while economics and demographics are a factor, they take a way-back seat to shifts in airline strategies at a each airport. Hence, we have better, more realistic forecasts than the mathematical-modeled projections produced by the FAA and other sources

It's also the reason that airports, aircraft manufacturers, suppliers, engineering firms and financial institutions turn to us when they need forecasting and cutting-edge consulting expertise. For more information, click here.
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Update:

Armbrust Aviation Group

This is the event where US companies can obtain tremendous insight regarding China's aviation & airline industries. We are honored that the honorable Mr. Li Jianxiang, Minister of Civil Aviation Administration and the honorable Mr. Liu Tienan, Minister of National Energy Administration will speak at the conference.

Representatives will be there also from major Chinese airline systems. For airports, aviation authorities and other entities seeking more interaction with the opportunities represented by the growth in US-China trade, this is the event to attend in 2012.

Boyd Group International will be holding Path-Finding Sessions outlining areas where mutual opportunities are emerging for doing business with this growing aviation economy. Click above for more details and to register.
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Monday January 9, 2012

From The You-Can't-Make-This-Up-Department

“Rome, N.Y.  January 6, 2012. What if you could cruise over to Griffiss International Airport (in Rome, New York), fly to Dayton and on to San Francisco or some other destination?

... Oneida County officials are engaging a study to see if enough area residents would be interested.
If they are, and the airport is equipped, it’s possible a small airline company would step up to provide the service…

… The $19,000 study will first look specifically at the Dayton option. The study will determine what the volume of such traffic could be, and also examine whether the general public would use the option of using Dayton as an alternative connecting hub to the busy New York City airports...

...From Dayton, travelers can hop flights to a slew of airports, including ones in Washington, D.C., Chicago, Milwaukee, Orlando and New York….”

Got it? Cruise to Griffiss. Get on a small airline company, Fly to Dayton, as an alternative connecting hub, Then  hop on a slew of flights to the Big Apple.

It'll be the new paradigm in air travel.

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Prediction 2012:
The Year Air Transportation Reality Comes Back To Earth

Obsolescence:  a loss in utility or value that results over time from intrinsic limitations or circumstances
that result from external factors that render an entity or function as no longer competitive, unattractive to purchasers or investors, or of decreasing usefulness...

This perfectly describes substantial parts of  what we take for granted as the air transportation system.  Much of it is functionally obsolescent. It does not work anymore. It's unattractive to purchasers or investors.

Air Travel Obsolete? Non-Functional? Decreasing Usefulness? Heresy! For 60 years, the expansion of the air transportation system has been a march to the future. So, how could any of it now be moving to be obsolete as a travel mode?

One word, Benjamin: fuel. Another couple words: relative economic value. The technology related to levitating airplanes in many small markets is a home-run in meeting the above definition: it's no longer price-competitive, at least in terms of relative value, which now makes it unattractive to consumers.

Let's state the heresy clearly: In many cases, air transportation simply is no longer a viable mode of transportation for many smaller communities. It's not time-efficient nor cost-efficient in many applications, either.

"Yeah? It takes three hours to drive from Happyville to Indianapolis. Air service would reduce that to just 45 minutes!"

Right, Lone Ranger. But you ain't traveling between those two points. You're going from your home or office to another home or office. The air trip is just one part of it, and it departs and arrives at set times, not at your convenience. And getting to and from that alleged flight means having ground transportation at each end. All of which means less convenience, more cost, and a product that actually doesn't meet many consumers needs.

Sorry, but airplanes for scheduled intra-state or intra regional transportation to small communities are usually a great way to lose a lot of money. It is, by definition, an obsolescent means of transportation for that application. Unless it's to a major connecting hub, it's a lost cause. And even then, there are many cases where it no longer works. Standby for news throughout 2012.

Profit Center: Peddling The Bunker Mentality. This has been proven time and again in the last ten years although it's not a contention that needs to be "proven" - it's clear and obvious. The lack of aircraft, operators, and business interest in this part of the airline industry make it a fact:.

The economics of the airline business have evolved to the point that there are very few airline players left, and it does not require a "study" to identify them and determine if the community fits their systems.

Possibly nowhere is this more obvious than the Kabuki Theatrics going on in the area of air service development, particularly at rural communities. It's degenerated into games, schemes and side-shows attempting to create what simply isn't possible. The number of meetings, conferences, training events, and air service get-togethers have developed into a giant year-round cocktail-party circuit.  But they're not going to change raw airline economics. Forget offshore drilling - if consultant snake oil could be refined, we'd have a solution to energy self-sufficiency.

It really has in many cases degenerated in to selling unwary communities programs that can only be described as air-service-gone-bunker-mentality. Recall the dozens of movies made, showing the deluded dictator sitting in a bare concrete structure deep in the ground, isolated from reality, moving imaginary troops and tanks around a map, with the belief they were coming to relieve the city. But the troops and tanks didn't exist anymore. They were just on a piece of paper that had no relationship to the outside world.

It's not much different with some schemes, studies, and "plans" passed off on communities who  are desperate for local air service. Internet surveys with less scientific basis than a Ouija Board are done, "identifying" the panting public demand. Documents and massive slide decks are produced to show great air service potential, and imply that there are airlines out there ready to jump at the opportunity.

The communities are thrilled at the prospect that air service relief is in the works. But just like Berlin in 1945, there are no airlines and there is no opportunity. It's all just on paper, and the community is getting deluded information. And a healthy invoice for the show.

If We Need It, We Don't Need To Find Out If It'll Work. A few weeks ago, there was a flurry of sunshine articles lauding a proposal to establish an intra-state airline operated with, golly, wow! - turboprops. "These aren't your father's turboprops," gushed an RAA official, who went on to describe the latest and greatest about 70-seat models. Perfect for capturing all the latent intra-state O&D at small communities that can't generate sufficient traffic to a major connecting hub. Or, as another industry alphabet person suggested, getting 19-seat or 15-seat aircraft and have at it. It will capture that traffic that exists only in the minds of the paid consultant "studies" that somehow tend to pop up around such schemes.

Nope, they don't need no stinkin' facts. Like, who'd invest in such a project? Just who'd be the operator? Gee, how 'come just about every other attempt at intra-state air service went over like a lead balloon? Just a couple weeks ago, an attempt at point-to-point service between Twin Falls and Boise went glub. "Yeahbutt, Horizon used to fly it, and by golly, it was always full!"  They did a survey, too. Guess what it said.

Regardless of the situation, avoiding reality is a sure path to results that are decidedly not pleasant. It's the equivalent of digging deeper to get out of the hole.

But in the coming year, reality is going to set in. The half-baked schemes will burn enough communities that word will get around. The cocktail-party circuit will wind down. The concepts of regionalization and road-hubbing are going to come into play.

At some point, everybody has to come out of the bunker and into reality. That's going to be a trend in 2012.

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Monday January 2, 2012

Boyd Group International to Participate In China Conference

We're honored to announce that Boyd Group International will be participating in the Armbrust Aviation Group China International Aviation Fuel Conference & Exhibition in Beijing, April 4-6, 2012.

The Pacific Ocean has commerce in both directions, and the growing aviation industry in the Middle Kingdom is rapidly becoming a global industry. This has been reviewed year after year at the annual Boyd Group International Aviation Forecast Summits - China today is a driving force in economic growth, advanced technology, and aviation investment in the US. Firms that recognize this have a competitive advantage  - on both sides of the Pacific.

This is the event that gives airports, airlines, suppliers, and financial institutions the contacts and insights they need to understand and take advantage of the China opportunity.

Think You're Not Affected By Fuel Trends? Think Again. It's The Foundation Element In Aviation Planning. This the value of the Armbrust Aviation China International Aviation Fuel Conference & Exhibition. Fuel and related trends are the bedrock on which the future dynamics of aviation will develop. Manufacturers and suppliers have their long-term planning tied to the economics that result from fuel trends. Airlines make fleet decisions based largely on fuel trend considerations. (Example: witness the recent rush to order re-engined single-aisle airliners and the corresponding push to get "regional" jets parked in the desert as fast as possible.)

Airlines make market planning and hub growth decisions based on where they see fuel trends going. This Conference is about the direction of global aviation in the future, and Armbrust Aviation Group is the pre-eminent leader in identifying the wide-ranging effects of trends in aviation fuel across the world.

Get A Perspective On Your Opportunities With China Aviation. In addition to the other important events at the Conference, Boyd Group International will be holding incisive Path-Finding Sessions, designed to outline the Chinese aviation market, and the global investment direction of Chinese companies.

These sessions will provide airlines, airports, suppliers, and financial institutions with insight on how to align future planning to take advantage of the business opportunities represented by China.

Click here for more details on this event.

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The Year Ahead In US Air Service...

"Chris Gonna Find Raaaay Charles!"
- Queen Isabella, 1492

That's a line from a classic 1960's Flip Wilson routine. It's based on Columbus scamming Queen Isabella into funding his trip to America by promising to discover Ray Charles.

Take a listen. We hear similar exclamations today from small communities across the nation, except they're a long way from comedy: "Consultant gonna find San Jose!" Or Chicago. Or air service where there's no traffic. Or magic interstate commuter service. Or  some other objective that's about as likely as Christopher Columbus actually finding the late Mr. Charles in 1492.  In too many cases, intentional or unintentional, it's a scam.

In reality, it would be more ethical to actually promise to find Ray Charles. At least we know where he's laid to rest. As for promising to find flights from a small community to a non-hubsite airport, or to set up a interstate commuter system, or starting service from tiny communities 40 minutes from airports that already have low-fare service, or promising self-funded RJ service, or doing studies to discover the identity of "any airline" to fly to Chicago, Flip Wilson must be getting a good laugh from the great beyond.

2012: The Year of Reality. This is going to be one of the realities that hits home in 2012. All the air service meetings, conferences, "best practices," hoedowns, hootenannies, and social functions held throughout the year don't change economic realities. "Pitching a route proposal" to an airline sounds great - but only if it fits in the realities of air service economics.

Some realities that will become bigger than life in the coming year:

• Regionalization. Small community air service access is shifting from local to regional. For example, the 50,000 or so passengers that have disappeared at Muskegon over the past decade aren't staying at home - they're driving the hour or so to Grand Rapids. It's happening across the nation. Changing fleets and evolving aircraft economics are the reason. It's a trend that cannot be reversed, and communities need to recognize and plan for it. Pueblo, Colorado has great air service, too. It's 45 minutes away at Colorado Springs. That's not much different that the time it takes consumers to get from Rockville Center to LaGuardia.

• The Auto Will Have A Bigger Role In Air Service. The name of the consumer demand game is connectivity - not flights from the local airport. When there's a major airline connecting hubsite 60-90 minutes away from a small community that has no real air service history, an appropriate consultant response to an air service RFP might be to send back a Ray Charles CD. At least they could have some good tunes as they drive to the bigger airport.  In most cases, purporting to tell a small unserved community that it can attract air service that consumers will actually use smacks  on the ragged edge of ethics.

• Smaller Airline Systems. There are no hidden commuter airlines to come and serve small communities, particularly the ones that don't generate enough local traffic to fill a VW microbus. Not only that, but there is no secret fleet of 15-seat or 19-seat turboprops out there to recreate the air service system of the 1980s. So when an unserved community announces a program to "find an airline" - they're getting scammed. There is a finite and immediately-identifiable number of airlines, and determining whether a community fits with their systems doesn't require much work.

• Realities Trump Flim-Flam. Doing unscientific internet surveys of "where people want to fly" is one of the latest trendy scams foisted on unwary communities. Sure, the responses are always overwhelmingly positive, with quicksand conclusions like, "80% of respondents said they'd use the service if it were offered."  

A couple years ago, a community apparently paid big bucks to survey the "demand" for flights to San Jose. Yup, survey results said it was huge. But what the community wasn't told was that there is no hubbing carrier at SJC and the local traffic wasn't enough to support the market. They weren't told that the only airline operating the turboprop equipment that might even distantly fit was the one dropping the service in the first place, Finally, any cursory look at the airlines in existence revealed that none of them strategically would have any earthly interest in shifting RJ assets to a route that provided no system feed and would lose money by the planeload.

That was two years ago. The SJC service, predictably, never came back.

Gravity is going to take hold in 2012: No matter how many schemes, studies, or other smoke-and-mirrors programs are suggested. There are limited airlines, limited aircraft, and  - face it - a shrinking air service network.

The hard fact - which we will cover next week in the Boyd Group International Predictions for 2012 - is that entire portions of the national air transportation system are now obsolete.

Check out the definition of that word. The economics just don't work anymore  Alternatives need to be pursued.

Just like Ray Charles, those B-1900s aren't coming back..
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