Overview of 2017 Aviation Trends
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The New DOT Regime.
Initial Indications Are Uncertain
Major rethinking is imperative at the DOT. New policies. A trashing of the inept NextGen program and replacing it with an accountable and workable program. EAS and SCASD programs in need of restructuring. And more.
This could be positive – as she knows where the operational skeletons are buried. Or, it could mean more of the status quo.
A challenge that must be immediately dealt with is the rising din in regard to “reforming” the air traffic control system. That in itself is an open issue, but none of the people – zero, zip, nada, meiyou – who are calling for privatization have ever noted the incompetence of the current system or tumbled to proven the fact – fact – that NextGen is an on-going failure.
The new DOT secretary has said she’s open minded on ATC options. Not necessarily a good sign – we need a very closed mind – one that has a clear leadership direction and solid plans for rebuilding ATC. The committee-let’s-all-discuss approach is the reason NextGen is a failure in delivering demonstrable results in air transportation efficiency.
At this point, we could have a very innovative four years ahead, or just more of the same. The new Secretary needs to come into the job in full metal-jacket mode and take no prisoners.
The DOT at the top has been a repository for political hacks with zero expertise. The current ex-city mayor, for example. Rodney Slater, who was clueless. And how ’bout LaHood? Heck, a freshman at Embry-Riddle would have been much more effective.
This appointee has been there before. We have hopes, given the tone of the rest of this incoming administration, that the past won’t be continued.
2017 Enplanements –
3.5% – 4.0% Growth, But…
It’s With A New & Emerging Airline Structure
As we will cover at the 22nd Annual International Aviation Forecast Summit in August, the structure and flows of passenger traffic across the US will represent major shifts in enplanement levels at airports across the nation. Further, the use of airliners will divide between air access, and impulse traffic.
The first represents connectivity to the global economy. The second represent use of aircraft to provide a product that competes with other spend options for consumers’ discretionary dollars.
The Emergence of Impulse-Traffic Airlines. There are now three basic airline business models in place…
The first is the traditional network carriers, where traffic is generally based on air transportation needs. The next is the emergence of ULCCs – Frontier, Spirit, and, increasingly, Allegiant – which tend to create net-new impulse traffic based on low fares and very high cabin density. To be sure, there are fuzzy areas of overlap in the passenger bases of these two airline genres, but the focus of the latter category is mainly to divert discretionary dollars into travel that might otherwise not be taken in the absence of a very low fare.
It’s unclear how these two airline business models will co-exist, particularly as AA, DL and UA attempt to provide a bare-bones “basic economy” fare bucket that delivers a product that mimics that offered by the ULCCs.
The third airline genre are the small-aircraft hunter-gatherer category – the ones with no real route system of their own, but are in the business of flying where a subsidy is available to support flights. This is a valid business model, but in most cases it is not one that’s really focused on air connectivity, but instead simply having flights at a local airport. Flights that in most cases, not many consumers use, such as EAS points.
There’s Air Travel, And Then There’s Air Access. The clear emerging picture is that passenger traffic volume is no longer necessarily indicative of air service access. We’ve used in the past the example of Youngstown. It has well over 100,000 passengers, but it has zero air service access from the rest of the world. It only has impulse leisure service to points in Florida.
Youngstown’s airport gateways are at PIT and CAK, and that won’t change. With shrinking fleets of small jets, American, Delta or United aren’t coming YNG, and shifts in the composition of small carriers-of-opportunity (who are in the business of meeting the expectations of subsidized markets) are not likely to ever deliver fully-connective air service.
This, plus the continued re-fleeting of the First Universe carriers, will continue to result in the majority of enplanement growth in 2017 gravitating to larger airports.
This will further illuminate another major change in 2017…
2017: Realities Overcome Obsolete “Air Service Development”
The biggest emerging trend in air service in 2017 will be the recognition of airline industry realities in regard to small community air service.
It’s Called Full Disclosure. Fact: if the truth about what the US air transportation system can and cannot do, and the truth about the economics and structure of the airline industry were clearly and honestly imparted to small airports and communities, a lot of “market studies,” and leakage analyses, not to mention the expensive trip to the speed-date event – would be cancelled tout suite.
The future is assuring that the region has air access from the global economy, and by the nature of air transportation economics, that means in many cases it is not possible to support viable, consumer-useable air service at the local airport.
The Players In The Airline Industry Don’t Need A “Study” To Be Identified. Fact: any “ASD” program that doesn’t start right out by revealing the realities and structure of today’s air transportation system, is clearly and distinctly withholding key information from the client. That is not professional. It is not beneficial to the client, and in fact, any consultant should know better.
The carriers that have the systems, the networks, the fleets and the strategies that might fit with addition of service to a small community are as obvious as a blemish on prom night, right from the start. That’s go-no-go on doing an further work. Otherwise, the community is just being led into the woods. But it’s not surprising. Full disclosure is sometimes has a wide definition. We found one entity noting its corporate offices at a street address with an office suite number. It turns out that the address is the local post office and the “suite” is just a post office box.
The Examples Abound. Chasing studies before full understanding of the airline industry can be a dead-end. We’ve seen it demonstrated in service failures at Topeka, Modesto, Youngstown, Bowling Green, for starters. Lots of money spent on ASD studies, but the economic and consumer aspects were not explored. The entire necessary analyses of competitive-connectivity – which is a fundamental component of the viability of an air service route – are usually left out.
In 2017, More Communities Will Refocus On Access, Not ASD Schemes. Politically-demanded “air service” is often what consumers can’t use, and often not competitive with other air access options local consumers already have. But the hard realities that caused the failure of these doomed-from-the-start local air service attempts were clear. The communities simply were not clearly and functionally made aware from the start that the economics, operation, and structure of the air transportation system are often galaxies away from what they may assume to be the case.
It is a consultant’s responsibility to make them aware of this before that 60-page magnum-opus study is done. The current trend of doing a “study” to “lure an airline” before fully disclosing to the client exactly what those airlines are, and whether they have the fleets and strategies to make service viable, is the same as convincing a community to build an off-and-on ramp before telling them if there’s a highway there in the first place. In short, it’s snake oil.
Bottom line: In 2017, more and more small communities will begin to see beyond the snake-oil studies, and refocus on assuring that they have air access channels from and to the global economy. That will in some cases mean the need to re-think multi-modal access via regional airport gateways.
Topeka, noted above, is one such example. Today, the air access for the region is via MCI, where there are over 50 flights daily, and – truth be known – consumers from Topeka have better, more-time efficient air service than what can be supported at FOE.
Regardless of any pandering studies, the fact is that the consumer and the realities of air transportation economics have combined to make Kansas City Topeka’s gateway from the globe.
What this means: rural communities will start to re-think two key areas. The first is the business development potential of their local airport.
The second is to bluntly review development of air service access to their region – and it’s not always going to be at the local airport.
Cuba Air Access – Reset Coming In 3Q
As is being already experienced, the expectation of “pent up demand” for Cuba air access was in large part travel industry hype.
For example, there is no data to show that there’s enough demand from the US to Santa Clara to support daily 737 capacity. Most Americans are clueless about the place, and Cubans can’t travel freely out of the country, and there isn’t much there except some monuments to Che Guevara’s birthplace.
As we covered in the Cuba Workshop at the 21st International Aviation Forecast Summit, having Cuba route authority represents a huge future airline asset. Cuba has enormous – actually, incredible – potential as a destination of US leisure travelers. But the emphasis is on the word future.
Let’s be clear and forthright, instead of politically-correct: unless the current government system that has trashed Cuba into the Fifth World moves on to the happy hunting ground, the “pent-up demand” stuff is just irresponsible blather.
No question it will change, but any of this drivel about flights right now bringing “better understanding” between the two countries is nonsense, particularly when the folks on one end of the conversation can’t – and don’t dare – speak freely.
This is the airline business, and being “politically-correct” is something that carriers cannot afford.
Airport Infrastructure Investment – Vanity Projects?
The new president has claimed our airport system is Third World. He’s planning to spend lots of money on airport infrastructure.
The danger here is having better airport facilities confused with attracting better air service. There seems to be a lot of nonsense among politicians, and the monkey-hear, monkey-repeat media sectors that just building new terminals will increase local air service.
We saw this in September, when Elmira was given a $40 million state grant for new terminal and other facilities. The clear statements from the folks in Albany was that this would attract “more airlines” to the ELM market. It’ll reduce costs, see, and that will attract more flights from all those airlines out there.
American, United, and common sense didn’t get the memo. The two airlines left the market – and it had nothing to do with airport facilities.
It’s more illumination of the point made above – politicians, civic leaders often are living in a dream world when it comes to the raw economics of air transportation.
There are very real needs for more airport investment – but this is not going to reverse air transportation economics.
It will be very interesting how this process will be approached.
EU Carrier Invasion of US Heartland.
In the past year, Boyd Group International was honored to have assisted New Orleans International in recruiting new flights to London on British Airways and Frankfurt on Condor.
Our forecast methodology focused on the different multi-modal structure of international traffic compared to domestic generation. For example, BA will be using MSY, but the service catchment area is based on much wider “road hubbing.” Example, the drive to MSY from Gulfport to get to London is actually faster than flying from the local airport and connecting at ATL.
Over the next five years, this will be the focus for new LHR flights – mostly via British Airways – at targets such as CVG, IND, MEM, SMF and several other non-hubsite large commercial centers. There will be also interest in these airports as feed-generators for the SkyTeam hub at CDG and the Star Alliance hubs at MUC and FRA.
And we haven’t mentioned the Chinese carriers looking for US access. The traffic dynamics are entirely different from the EU, but standby for some interesting new entry in the next 36 months.
Airport alphabet groups in Washington, keep pushing for LHR pre-clearance. FRA and CDG, too.
For More, Join Your Colleagues At The IAFS!
On August 26-29, aviation leaders will gather in Las Vegas for the 22nd Annual International Aviation Forecast Summit.
Issues such as those above are just the tip of the Summit’s scope. We don’t dance around issues – our incisive discussion format with decision-makers across the industry and across the globe delivers insight and business intelligence not found at any other event.
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