The Plot Thickens…Airport Planning Take Note

Now, A Fourth US Carrier Suffers Parked 737 MAX Fleets…

… and All Four Are Affected Differently.

Boeing 737 MAX 8, S/N 44079, has taken its place in an aircraft parking lot somewhere in North America. A second unit, S/N 44080 will be there shortly, too.

With that, Alaska has now joined American, Southwest and United in having its fleet plan affected by the grounding. These are the first of five scheduled for delivery this year to the airline.

Now that it may be the New Year before the MAX fleet is back in the sky, let’s cut to the bottom line regarding what airports can expect in regard to air service shifts.

A Financial Hit. Not A Torpedo. None of these carriers are facing any financial danger as a result of not taking on the numbers of MAX airliners planned. Their “hit” is that they could be filling these extra airplanes, as well as gaining some efficiencies in operations.

Fleets Are Still Growing – With One Exception. Also, all four of these airlines will be operating fewer departures than planned, but that does not translate necessarily into less flying than a year ago, nor cancellations in the retail consumer sense.

The flights just won’t be in the schedule, and those passengers that may have been in for long-advance bookings face the same resolution as when routine schedule changes affect operations. They generally get rebooked.

Most of AA/UA System Departures Are Not Directly Affected. Today, less than half of all United and American branded system flights are actually operated by these carriers. The rest are outsourced to entities such as SkyWest, Trans States, Air Wisconsin, etc.

Over 55% of United-branded flights are operated by other than mainline United, and almost one third of departing seats are there, too. Numbers are very similar at American.

Only Southwest doesn’t have any other new aircraft coming into its fleets… AA, UA and AS all have other aircraft on order, and being delivered, both mainline and to outsourced lift providers.

AA and UA are accepting previously-ordered Airbus aircraft, and both continue to be actively adding used A-319s. Plus, they are also placing mainline-cabin E-175s, many owned and leased out to outsourced operators such as SkyWest.

They are also continuing to add widebody aircraft – new and used. United recently completed taking 767s formerly operated by Hawaiian. 787-10s are coming on line, too.

Point: The MAX grounding is a giant financial headache, but will not cause chaos at the nation’s airports. However, that could be the operative word in front offices when it comes to determining the potential revenue being forgone at the four affected airlines.

American Airlines

They had to park 24 active aircraft in March, and not take delivery of an estimated 16 more since then. Previously-planned deliveries would indicate that by the end of the year, American will not have the services of approximately 55-60 737 MAX airliners.

They currently operate a narrow-body fleet of approximately 725 airliners (not including 757s), assuming that the last MD-80s are retired. There are no strong indications that, other than 20 E-190s, any major part of the current fleet may be in line for near to mid-term retirement.

Therefore, beyond filling some of the MD-80 gap, most of the new MAX capacity was likely to contribute to new additional revenue generation. But it isn’t a situation that stops the airline in its tracks. The airline has a solid 117 A-320/321s on firm order, plus the E-175s continuing to be placed at surrogate operators.

Prognosis: AA will likely continue to re-think any near-term expansion – re-think, not necessarily eliminate.

United Airlines

The airline has 14 MAX-9 airliners parked with another 151 of all categories – 8,9,10-  on order. This is within a current narrow-body fleet of 494 airliners. As time passes, these missing deliveries will become more apparent in the carrier’s route planning.

However, as with American, 55% of the United-branded departures are not affected directly, as they are operated by outsourced “regional” (misnomer) partners.

Prognosis: United, like American, is actively adding used A-319s to its fleet, but these are essentially a dribble in regard to new capacity. Assume that any expansion or capacity additions involving narrow-body flying will shift to a back burner for the near term.

Southwest

With only 737 MAX airliners on order, Southwest faces a situation where any new expansion will be very tough to accomplish until the situation is resolved.

They have 291 MAX units ordered, including the 34 that were taken out of the fleet. The airline does not have a “regional” (misnomer) set of operators to which to shift any capacity.

The limited options for Southwest are illustrated when we look at the capacity planned for the three carriers July through September

Alaska, United and American have some alternative fleet flexibility to take advantage of the growth in air travel due to the strong economy.

Southwest has less, and is holding the line compared to last year. It is likely that any retirement of -700s that may have been contemplated will be postponed– to the maximum extent possible, based on overhaul cycles.

It is likely that the anticipated domestic expansion of WN in late 2020 will likely be delayed into 2021. In addition, depending on how long this fleet-deprivation continues, the carrier will probably sharpen route-planning pencils in regard to current markets.

Bottom Line – Digesting Fleets, Post-Grounding

As it stands, AA, AS, UA are facing the frustrating situation of seeing new revenue and not being fully able to tap it. But they do have expansion aircraft in the pipeline.

Southwest will be marking expansion time for the next six months.

Further, digesting these airplanes when the FAA releases them will not be immediate.

Taking on  a couple dozen or more 737s all at one gulp isn’t possible – it will take weeks.

The real winners in this will be flight simulator facilities… remember, when the FAA gives the go-ahead, there literally will immediately be hundreds of airliners ready to fly… and it’s very likely that demand for sim time will be standing room only. And as for MAX-specific simulators, there are currently less than 25 in the world.

Every department at the affected airlines will be in full metal jacket mode.

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Post-Script – China & The MAX – Capacity Relief?

This MAX delay may not be totally unwelcome in China.

As of today, there are approximately 300 MAX airliners ordered by Chinese entities. The delay in deliveries may be a benefit, as it is beginning to appear that historic growth rates are falling in line with the decline in China’s GDP growth – and other issues.

Boyd Group International is now completing the 2019-2020 Airports:China™ forecast of traffic in the Middle Kingdom, covering each of the top 200 airports in the nation. There are some very interesting revelations.

Yes, there is huge latent demand for air transportation… but with the economic downturn in China (and, a lot has not been accurately covered due to media-spin regarding the “trade war”) nationwide passenger growth is slowing materially to under 8% and maybe lower – that’s from well over 10% for the last decade.

One of the other forecast issues is secondary Chinese airports, where load factors are not as strong as in the top 25 commercial centers. In fact, the domestic Chinese airline system is in some areas woefully mis-fleeted, with a focus on 737/A320 narrow bodies, when many of the emerging airports cannot support such capacity.

It is interesting that China has very few small airliners in its fleets. The native 76-seat ARJ-21 is becoming a challenge if not an embarrassment – 18 in operation since it rolled out more than ten years ago. ATR has been able to place some -42 turboprops, but only with onerous capacity restrictions. The locally-produced MA60 and MA600 platforms are not widely used in China itself. Nor elsewhere.

The conclusion is that China needs to re-fleet domestically.   More 160-180 seat airliners can be placed, but when many airports of under roughly 5 million passengers are seeing load factors in the 65% -70% (or less) range, and which need Beijing government and provincial financial support, a delay in acceptance of several dozen MAX airliners may not be any economic hit to China.

The Airports:China™ forecast is now being completed, with highlights to be posted shortly at www.BoydGroupChina.com, and full details to be outlined at the 24^th International Aviation Forecast Summit in Las Vegas, August 25-27.

The Summit is the only forum that actually is focused on aviation forecasts – trends, dynamics, traffic growth, fleets, and airline strategies. It is also the only event with independent US enplanement trend forecasts, too. Clear discussions and unscripted Q&A with airline and aviation CEOs and senior executives.

Lots of networking opportunities, too.

If you haven’t registered yet, we’d suggest you click here and take a look. Then clear your calendar and join your colleagues at the IAFS.

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The Seven New Realities of Air Service Planning

We’ve pointed it out before.

Every form of communication has changed over the past 30 years, including the structure, economics and mission applications of air transportation.

We hear – accurately – about the challenges some communities face in assuring connectivity to the global air transportation network. In some cases of truly rural communities – fewer than typically thought – it really is a situation where the economics of air service simply do not work.

Nevertheless, this should not overshadow the fact that the air transportation system on the whole in the US faces very robust growth and a robust increase in global connectivity.

But it will be airports that are willing to ditch old thinking and toss out obsolete methodologies that will have the advantage.

There are new fleets coming on line, and new airline strategies, that illuminate several areas where airports and communities need to shift focus and shift air service planning. Now.

At Boyd Group International, we’ve compiled the Seven New Realities In Air Service Planning for communities to understand and pursue to take advantage of the evolving air transportation system.

Things like how geographic leakage concepts are inaccurate and outdated… why accommodation of international traffic flows, even at small airports will be important… understanding that raw DOT/BTS data are a roadmap into the planning weeds… how small jet retirements in the next five years will actually be positive for small and mid-size airports, and the need to deal with air service misconceptions, particularly from the media.

The Seven New Realities In Air Service Planning deals with some sacred cows (hamburgers, anyone?) and outlines how airports can get ahead of their competition for new and enhanced air service.

The report is just about 6 pages and an easy but insightful read.  It will suggest new ways of approaching the challenge of optimizing the advantages of the emerging air transportation system. And it’s an example of the type of approach that we’ll be seeing at the 24th International Aviation Forecast Summit in Las Vegas, August 25-27.

To download your complimentary copy of The Seven New Realities In Air Service Planning , just click here.

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Forecast Projections At The IAFS…

A Robust 2019 Second Half – A Disruptive 2020

While the Max saga continues, the US will still be looking at very strong traffic growth for the remainder of 2019.

As it stands today, the US airline industry is planning to put nearly 5% more flights and seats into the domestic skies over the next six months.

On the surface, this indicates stability in the air transportation system… but a deeper look indicates a lot more disruption than expected.

Disruption: What these data don’t show is that the distribution of this growth will continue to change the air service picture – it isn’t a level playing field across the board.

A foundation is being laid for some very fundamental changes in the US air transportation system for 2020. For starters:

Rural/Small Community Air Service: Economic Gravity Will Finally Take Hold.  At the 2019 International Aviation Forecast Summit, we’ll be exploring how global connectivity will begin to replace the Luddite schemes to establish air service at small airports that have zero chance of supporting it.

This race has been run… the desperate attempts at jive studies to “lure” airlines to small airports will finally start to shift toward planning to assure regional connectivity to the global economy. This means waking up and smelling the fumes on the interstate highways… air travel is multi-modal, and the assumption that air service is essential at every local airport is bogus. And impossible to achieve.

Geographic “Catchment Areas” – Replaced By Consumer Access Stratas. The obsolete approach of drawing a perimeter around a small or medium airport, and declaring it a “catchment area” sounds logical. But it flies in the face of consumer realities and airline system economics. The name of the new game is determining the specific stratas of consumer capture that an airport can achieve, based on the service levels it can support.

In no case is it 100%, and in no case is it any longer a geographic issue alone.

Depending on the range of alternative consumer options, the “catchment” is now based on consumer needs. The local service at a small airport will meet some of these needs. But when there is access to dozens of LCC flights at another airport 75 minutes away, to believe that all local consumer travel “belongs” to the local airport is malarkey.  This service meets the needs of some local consumers, but to imply that those that don’t take flights at the local airport are “leakage” is not accurate and not productive to futurist access planning. In many cases, the local area is part of that distant airport’s catchment- consumer access – region.

Regional Preference Shifts Due To New International Service.  We’ve noted how EU and UK airlines (and in some cases, their US airline alliance partners) will be adding hub spokes to US non-hubsite and secondary cities. But having more international flights out of airports, such as for example, Louisville, will raise their profile and role as a regional gateway for domestic service as well.

Discretionary Spend Shifts – The ULCC Roller-Coaster. Day-of-week ULCC service at mid-size airports, based on providing an alternative use of discretionary dollars, can come and go in a near heartbeat. In regions with strong influx of new industry – plan on traffic spikes.  But do watch regions were local industry is moving out. ULCC service can move with it.

Plus, it’s important to understand that most ULCC service is not based on core air service demand, but instead on creating net-new traffic based on a new spend option. That spend can be exhausted – and the  ULCC can and will move on.

Join Us At The International Aviation Forecast Summit To Explore More. Certainly, American Airlines, United, Delta, Southwest, Spirit, and more than a dozen other airline CEOs and executives have their own perspectives on these and other issues that will shape the future… so join your colleagues August 25-27 in Las Vegas, and hear them.

New visions, new concepts… this is what the IAFS is all about.  If you haven’t registered, click here to do so now.

It’s going to be a very different 2020 – we look forward to discussing it with you.

Marketing Genius of The Week…

This’ll Get Airlines To Start Buying…

The manufacturer, touting the delivery of the second 76-seat ARJ-21 into China’s new Genghis Khan Airlines, is cutting new territory in personal comfort.

“Each seat is equipped with a USB charging interface, making it comfortable to ride.”

Ouch. Wonder if  Genghis Khan had this feature on the saddles of his Mongolian war ponies? No wonder his troops had such bad attitudes when pillaging the countryside from China to Europe.

But who knows, tush-charging may be the next big thing in inflight entertainment.

By the way, the ARJ-21 first rolled out in 2008. They’ve built 18.

Not exactly a big seller. In what will be the world’s #1 domestic airline market within the next 15 months, that sends messages.

Without any need for a USB port.

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Delta’s “Focus City” Concept.

An Approach Finally In Place – After 30 Years

Bear with us for some background verification, and maybe a tinge of promotion.

One of the factors that sets Boyd Group International apart from other consulting firms is that we are actively and independently engaged in research and forecasting of emerging trends in aviation. We are expert in airline, fleet and market strategy shifts. Our enplanement forecasts – Airports:USA – rely on analyses of the air service trends evolving at each of 146 airports.

No trend-lining and no reliance whatsoever on federal data, the forecasting reliability of which is somewhere south of a defective Quija board.

Most other consultants just pull down numbers from laughable government sources, such as completely brain-dead FAA Terminal Area Forecasts.

One example of our independent approach was a study in 1989 that outlined how new market mission capabilities differentiated planned 50-seat jets from similar-capacity turboprops. Back then, that was not understood. Lots of folks simply concluded that 50 seats was 50 seats, regardless of powerplant – an outlook that ignored mission-capability.

Fast forward a dozen years later, after Bombardier and Embraer order-books were practically dog-eared from the all the 50-seat business, BGI was alone in forecasting that the demand for these machines had been fully met, and new orders would be scarce.

At the time, forecasts from other companies showed these machines to have orders well into the next couple decades. These weren’t forecasts. They were blind trendlines.

Then, we could touch on our 2009 and 2014 forecasts of the US-Cuba air service potential – which, to guffaws of the travel industry, were alone in accurately describing the realities of the market, and pretty much that’s what’s transpired.

Same Concept. Different Airline System. Now we have another example.

There’s been a lot of accurate discussion regarding the aggressive “focus city” strategy in place now at Delta Air Lines. It makes sense in both providing access between “secondary” commercial centers, delivering a better product to the consumer, and in freeing up facilities at Atlanta.

One thing we’d like to point out… We outlined this concept – and we were the first to use the term “focus city” – just a bit over 30 years ago.

Then and now, a bit different in implementation, but not in application.

Back then there still existed remnants of a robust independently branded and independently operating regional airline system – with fleets of 19-seat to-30 seat aircraft that had the potential of providing quick nonstops between secondary commercial centers, avoiding major carrier hubsite airports.

Back then, consumers were not averse to riding these machines on intra-regional routes, such as Abilene – Austin, Shreveport-New Orleans, Albany – Islip, and the like. So “focusing” on potential nonstops between mid-size commercial cities made sense – on paper. The idea of delivering nonstop routes – O&D – for places like OKC and OMA and BHM – using small and low sector-cost airplanes had potential.

Like, what Delta is doing today was conceptually viable back them, only the economics and the fleets and the market sizes have changed in scope. It was logical to expect that these then-strong independent regional carriers could well expand such a system into secondary airports across the nation. A shadow system for such airports, concentrating on a specific and defined consumer segment. Back then, they had lots of new airliners on order, and the prognosis was strong expansion.

It was a system that had great growth potential.

Well, at least until the independent regional airline industry was incorporated into major carriers’s systems, due to the advent, DOT approval, and ultimately transformation of the concept of code-sharing.

In a few short years, the application of code-sharing steamrollered from simply putting a major airline booking code on a regional’s flights, to completely shifting the regional’s aircraft into the major’s route planning. In a couple of years time, these small airlines simply were suppliers of lift, and had no specific route system or market brand of their own.

That process, by the mid 1990s, totally eliminated the brand identity and market planning – of regional carriers. Actually, it ultimately eliminated regional airlines as an independent air transportation system.

The transformation was strictly business – one that made more economic opportunity for the former regional and its shareholders than trying to operate as an independent brand.

Today, those “regionals” that are still in business have morphed into highly professional companies leasing crews and aircraft to major carriers. Heck, the largest such entities are operating E-175s and other planes owned by the major carrier.

As it evolved, code-sharing completely erased the entire independent regional airline industry, and along with it a lot of the air service that it once provided. Poof! went any potential for an independent regional to go, well, independent. So, building a hub-bypass “focus city” program operated by independent regional airlines was out.

But Delta is doing it today – with apparently strong results. The city pairs are larger, due to larger jet aircraft. The focus city model is additive to the hub-connect system, not a replacement.

Different Economics. Different Communication Systems. Evolved Consumer Needs. The interesting observation is that today, the few random independent commuters that are left (mostly focused on EAS, and not proprietary route systems) no longer have any real consumer brand-awareness. That’s another change from 30 years ago… consumers generally don’t support independent carriers with small aircraft. Also, a lot of the need for travel between the cities envisioned in 1989 has been eliminated by other forms of communication.

The recent failure of Via Air underscores this. (Contrary to reports, they had a “passenger shortage” more than a lack of pilots.)

Today, the Delta strategy is very similar in template to what was outlined by BGI three decades ago… it’s just on a much larger scale, and cities like Shreveport are not in the play.

Interested In More Heresy? Join Your Colleagues At The IAFS. Aviation is anything but a stable playing ground… dynamics like the above shift constantly. This is why you need to be in Las Vegas August 25-27 for the International Aviation Forecast Summit.

Over 20 airline CEOs and senior executives will be there, each outlining what he or she sees at the critical challenges for the industry. In addition, there will be dozens of airline staff in attendance, which will mean plenty of time for networking, too.

The agenda is now posted. If you haven’t registered yet, click here for more information

The IAFS is the only true forecast event in the industry. It’s also the more incisive in regard to exploring new and emerging trends.

This year, we’ll be covering the trends that the rest of the industry will be noticing five years from now… but our attendees will be way ahead of that.

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Top Five Airline Trends – 2020-2024

At the International Aviation Forecast Summit, dozens of airline staff attend every year, allowing extensive interaction with our attendees throughout the event. Networking is a key part of the event.

But just as importantly, we’re hosting almost two dozen CEOs and senior executives from across the entire airline industry.

Each will be discussing the issues and trends that he or she feel to be the most pertinent to the future. They determine what’s most critical to explore – they’re not shoe-horned in to addressing one predetermined subject area, as is done at most other conferences.

Plus, our fireside chat format allows further unscripted exploration of key trends and industry dynamics.

In addition, Boyd Group International opens the Summit with an incisive Forecast Mapping Session, that illuminates what we feel to be the hot button aviation planning issues for the next five years.

We thought we might bullet-point a few of the most pertinent dynamics that will be affecting aviation in the next three years…

Strong US Enplanement Growth – But Now Airline-Driven.

We are forecasting steady 3.0% to 3.5% enplanement growing annually in the next five years. It will be the result of subjective airline capacity and strategic determinations.

This means that “air service development” needs to evolve into far more sophisticated systems that accurately focus on airline strategies, instead of the wonders of the local economy. If the community isn’t a fit for the airline – based on professional understanding of the target carrier – it won’t come to town. That sounds natural – but a lot of today’s ASD programs ignore the need to understand the airline first.

Increased Secondary City Access

At one end of the spectrum – small rural airports, true local access will continue to decline. Or, in many cases, it won’t decline at all – it’s already gone, and EAS notwithstanding, won’t come back. Indication: the day of single-engine, independent-brand airline service is coming to an end.

The reason is one that most “market studies” foisted on small airports completely side-step: the community can’t support service levels or quality that local consumers will use.

On the other end of the spectrum, mid-size communities – those that now generate 100,000 or more enplanements – are in line for increased major airline hub access. The feed traffic value has already been discovered at places such as Traverse City and Springfield – and as long as the US economy remains strong, this will continue.

ULCC Dynamics – The Growing Parallel Airline System

The use of airliners to offer alternative discretionary spend options – as opposed to meeting demonstrated existing air service demand – will continue to be a unique and growing dynamic in the US. It’s not “air service” in the traditional mode, but instead another leisure outlet for consumers.

Our Airports:USA® and our fleet forecasts indicate that this ULCC system will grow from @7% of the total US capacity to nearly 15% by 2022. But the point is that it will still be a system that is separate and distinct from traditional airlines… they offer a spend-option, not air service access to the nation or globe.

Increased Trans-Atlantic Access

The arrival of new-technology long-range airliners such as the A-321LR and XLR will open EU destinations from secondary US points such as Albany, Jacksonville, Columbus, and Grand Rapids. The traffic demand is there already – and the feed through EU carrier’s hubs can be substantial.

China – New US Business Investment. Rapidly Declining Leisure Visitation

This will be a sucker punch for communities and airports putting any dependence on future Chinese service and investment. China is the #2 global economy and what happens in Beijing affects a lot of what goes on in the USA.

In regard to China-US travel, a complete strategy change is in order. Now.

Forget the politically-correct nonsense that the “trade war” is reducing China-US travel. The decline is caused by a whole range of complex changes in the Chinese economy that have just emerged into the light of day in the last six months. The trade issues haven’t even begun to move the needle.

Shifting from prior expectations of nearly-unstoppable growth in Chinese leisure travel to the US, the Airports:China™ forecasts show that these folks increasingly are running out of money… it’s now clear that the China real estate boom – and others – were a recipe for the fun Wall Street had in 1929.

Much of the new-found discretionary money is now discovered to be based on air… air that is deflating.

There are two major shifts that are important to US airport and air service planners.

The first is that leisure travel will drop by approximately 10% in 2019, and will see a further decline of at least another 10% in 2020. This will be exacerbated in the future, certainly, by rhetoric coming out of China, warning about the US being a dangerous place to travel, but the core reason for the decline will be found in the Chinese economy.

This means that US leisure venues that depended on Chinese visitor-spend now need to rapidly re-think the future. The millions paid to tour operators to funnel Chinese bus tours into specific shopping malls and sight-seeing spots will go down the ceramic fixture.

The second is counter-intuitive. But since China is declining as a growth economy, and some companies are pulling factories out, the US is becoming increasingly attractive for Chinese businesses to invest and expand – and keep their capital safe.

This means that communities reaching out to gain more Chinese investment need to re-strategize and rethink their approach. The days are over of lavish “trade missions” that give the mayor bragging rights and picture on his wall of him doing a robust gan bei with the Chinese Minister of Nobody-Can-Remember-What-Department-But-He’s-Been-Purged-Anyway.

“Refugee Capital.” In the next two to three years, there will be new channels emerging regarding Chinese investment in the US… it will be a lot more productive and secure than in that Development Zone in western China that features an entire city that looks like Paris but is completely empty.

Airports and communities are facing huge new investment opportunities if they professionally assure that they have a clear profile of their opportunity among Chinese industry, and that they demonstrate it with a clear and focused China welcome program.

At the IAFS this year, we’re honored to have a Workshop from Tencent and our partner, IM2China, that will outline new approaches to attracting and keeping Chinese business.
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And More at the IAFS this year… These are just starters of the dynamics that we can expect aviation leaders to dive into at the IAFS.

By the way, Early Registration is now extended to June 19th. So click here and join your colleagues in shaping the future.