Growth, Opportunities and the Changing Dynamics of the Commercial Aviation Industry

Transcription

1 Growth, Opportunities and the Changing Dynamics of the Commercial Aviation Industry Daniel Friedenzohn, J.D., M.A. Assistant Professor, Aeronautical Science Department Embry-Riddle Aeronautical University Daytona Beach, FL May 9, 2014

2 Agenda Global view of air transport Impact of civil aviation on the U.S. and Connecticut economy The improved state of the U.S. airline industry Impact of regulatory changes on the airline industry and its pilots

3 Aviation and Its Impact on the Global Economy Airlines transported 3.1 billion passengers in 2013 Source: Aviation Benefits Beyond Borders, Air Transport Action Group, citing Oxford Economic Analysis, available at Civil aviation generates 3.4% of global GDP Source: Aviation Benefits Beyond Borders, Air Transport Action Group, citing Oxford Economic Analysis, available at The air transport industry supports 58.1 million jobs worldwide Source: Aviation Benefits Beyond Borders, Air Transport Action Group, citing Oxford Economic Analysis, available at Air transport carries 35% of world trade by value Source: Aviation Benefits Beyond Borders, Air Transport Action Group, citing Oxford Economic Analysis, available at

4 Economic Growth Will Have a Positive Impact on the Aviation Industry 2012 Passengers-2.97 billion 2032 Passengers-6.63 billion Jet aircraft-20,101 Jet aircraft in service-41,240 Jobs-58.1 million Jobs million Economic Impact-$2.4 trillion Economic Impact-$5.8 trillion Source: Aviation Benefits Beyond Borders, Air Transport Action Group, citing Oxford Economic Analysis, available at

5 GDP Growth Benefits the Aircraft Manufacturing Industry 3.0% 1.9% 7.5% 2.0% 6.2% 4.4% 4.4% 5.2% Source: The Conference Board Global Economic Outlook 2014, February 2014 ( : actual GDP growth); map obtained from the Air Transport Association (2011)

6 Other Factors Play a Role in the Growth of Air Transport Government support Geography In 2013, Asia was the largest region in terms of airline capacity (ASMs) U.S. was the largest region in 2009 Source: Airline Economic Analysis 2013, Oliver Wyman, available at 013/nov/airline-economic-analysis-2013.html Aircraft Orders for High Growth Carriers Fleet On Order Turkish Airlines Emirates Airways Etihad Airways Source: Flightglobal, Pro Database

7 Aviation and Its Impact on the U.S. Economy Civil aviation generates over $1 trillion in U.S. economic activity Source: Summary of Airlines for America President and CEO Nicholas E. Calio testimony to U.S. Senate Subcommittee on Aviation Operations, Safety and Security, March 13, 2014, citing 2009 FAA Economic Impact Study Aviation supports 10 million U.S. jobs Source: Summary of Airlines for America President and CEO Nicholas E. Calio testimony to U.S. Senate Subcommittee on Aviation Operations, Safety and Security, March 13, 2014, citing 2009 FAA Economic Impact Study U.S. civil aviation manufacturing industry continues to be the top U.S. net exporter Source: PwC US and The Manufacturing Institute Report, page 5,,U.S. Aviation Industry Poised to Enter Second Golden Age, December 2013 The aircraft sector generated a trade surplus of $71.1 billion in 2012 Source: Golden Age, December 2013 PwC US and The Manufacturing Institute Report, page 5,,U.S. Aviation Industry Poised to Enter Second

8 Aviation Plays a Significant Role in Connecticut s Economy Among the top five states in civil aerospace manufacturing Source: FAA Economic Impact of Civil Aviation on the U.S. Economy, 2009, Among the top seven states in aerospace and defense employment Source: The Aerospace and Defense Industry in the U.S, March 2012, available at Over 40,000 aerospace jobs Source: Hon. John B. Larson, The new manufacturing ecosystem, JournalInquirer.com, April 14, Second-highest number of aerospace and advanced manufacturing jobs per capita Source: Hon. John B. Larson, The new manufacturing ecosystem, JournalInquirer.com, April 14, 2014 Among top ten states with highest number of indirect and induced effect employees Source: The Aerospace and Defense Industry in the U.S, March 2012, available at Manufacturing/b4c8ae98118f5310VgnVCM c56f00aRCRD.htm#

9 Pratt & Whitney s Share in the Commercial Aircraft Engine Market Will Increase Significantly During the Next 10 Years 2014 Share of Total Number of Engines Delivered 2024 Share of Total Number of Engines Delivered Other, 4.3% P&W, 1.0% Other, 3.5% IAE, 15.8% GE, 22.5% P&W, 24.3% CFM Int'l, 37.2% CFM Int'l, 44.9% Rolls Royce, 11.5% GE, 19.7% Rolls Royce, 15.3% Source: Airline Monitor, February 2014

10 Pratt & Whitney s Geared Turbofan Engine is Driving Its Growth in the Commercial Aircraft Market PurePower Engines will be used in five different aircraft programs Airbus A320neo Mitsubishi Regional Jet (MRJ) Bombardier Cseries Irkut MS-21 Embraer E-Jet E2 Improvements in fuel consumption, noise, environmental emissions and operating costs Airbus A320neo (New Engine Option) Expected to generate a 15% fuel-burn improvement over current engines Source: AINonline,, Pratt & Whitney, CFM Dispute Heat Claims Ahead of A320neo First Flight, Thierry Dubois, February 21, 2014, Will enter service in mid-to-late 2015

11 The U.S. Airline Industry is Doing Well U.S. scheduled carriers reported a net profit of $12.7 billion in 2013 Source: BTS th Quarter and Annual 2013 Financial Data, May 5, 2014 Total operating expenses were $187.3 billion $50.1 billion for fuel (26.7% of total) $45 billion for labor (24% of total) Source: BTS th Quarter and Annual 2013 Financial Data, May 5, 2014 Enplaned Passengers (million) Departures (000) Freight/Mail (million lbs.) Load Factor (%) 2013 * 2014 * Change % 8,863 8, % 19,807 19, % points Source: transtats.bts.gov, 12 months ending January of 2013 versus 2014

12 In Real Terms, the Cost of Air Travel in the U.S. Decreased Between 2000 and 2013 Product Change (%) Gasoline (gallon, unleaded) $1.51 $ Cable TV (Monthly) $31.22 $ Prescription Drugs (BLS Index) $ $ Movie Ticket $5.39 $ Consumer Price Index 35.3 Round Trip Domestic Ticket + Ancillary $ $ Round Trip Domestic Ticket Only $ $ Source: Airlines for America Presentation, U.S. Airlines and the Quest to Reinvest, May 5, 2014

13 Bradley International Airport is Growing Average domestic fares dropped 6.5% between 2012 and 2013 Source: BTS, Ranked by 4th Quarter 2013 Average Domestic Fare (2013$) 1% year-over-year increase in passengers in 2013 Source: Connecticut Airport Authority, Bradley International Airport Passenger Traffic Shows Five Consecutive Months of Growth, March 14, 2014 Press Release Other, 28.72% American, 7.29% US Airways, 9.83% Passenger Share JetBlue, 11.08% Southwest, 27.69% Delta, 15.39% Source: BTS, Airport Snapshot, available at

14 Airline Pilot Trends: Supply and Demand Supply Trends , active pilot certificates in the U.S. dropped by 9% Source: FAA The number of FAA issued ATP certificates decreased by almost 60% from 1999 to 2009 (7,173 to 2,895) Source: American Eagle Airlines, Impact and Consequences of the 1,500 Hour Rule and NPRM, available at Fewer military pilots are joining the airline industry Demand Trends FAA forecast indicates that the global aviation market will grow High-growth regions: Asia and the Middle East Emirates, Etihad and Qatar Airways Expansion Migratory effect of international airlines recruiting U.S. trained pilots Incentives used by carriers to hire pilots Constraints on incentives by U.S. carriers

15 A Number of Factors Affect Fleet Growth and Pilot Demand GDP Growth PILOT DEMAND Regulatory changes

16 The Regulatory Environment has Resulted in Higher Demand For Pilots Airline Safety and Federal Aviation Administration Extension Act of 2010 FAA s Pilot Certification and Qualification Requirements for Air Carrier Operations Rule Changes to crew duty and rest times The average U.S. carrier will hire 9.6% more pilots in order to comply with the rule Source: American Eagle Airlines, Impact and Consequences of the 1,500 Hour Rule and NPRM, available at Pilot retirement rates are increasing

17 Many Pilots Flying for Mainline Carriers Will be Retiring at a High Rate Over the Next 10 Years 49% of all pilots with an ATP certificate are 50 or older. Source: American Eagle Airlines, Impact and Consequences of the 1,500 Hour Rule and NPRM, available at

18 A Recent Analysis by ICF SH&E Concludes that the Global Airline Industry Will Require Over 600,000 Pilots by 2023 Source: ALTA Industry Insights, ICF SH&E, Fourth Quarter 2013, page 6

19 The Pilot Supply Issue Affects Mainline and Regional Carriers in Different Ways Pilots flying for the larger U.S. carriers tend to be older than regional airline pilots Regional airline sector is important Regional airlines operate more than 50% of all flights at many large U.S. Airports Top U.S. Airports for Regional Total Regional Departures Rank Regional Flights Departures Departures % Share 1 Chicago-O'Hare 23,149 35, % 2 Charlotte-Douglas 12,880 21, % 3 Detroit 11,508 17, % 4 Atlanta 11,051 36, % 5 Denver 10,389 24, % 6 Dallas/Fort Worth 10,037 26, % 7 Houston-Intercontinental 9,820 17, % 8 Minneapolis/St. Paul 9,477 17, % 9 Philadelphia 9,465 16, % 10 New York-La Guardia 7,805 14, % 11 Newark 6,701 13, % 12 Washington-National 6,672 12, % 13 Los Angeles 6,640 21, % 14 Washington-Dulles 6,214 9, % 15 Salt Lake City 5,606 10, % 16 Cleveland 5,478 7, % 17 San Francisco 4,448 15, % 18 Boston 4,041 14, % 19 Cincinnati 3,757 4, % 20 Phoenix 3,575 15, % Source: Regional Airline Association 2013, Annual Report, pg. 31. Airports ranked by number of regional departures.

20 In Order to Support International Expansion, U.S. Carriers Rely On a Well-Developed Domestic Network In 2012, regional airlines operated about 12% of the U.S. scheduled airline capacity Source: RAA 2013 Annual Report, page 14 Average passenger trip length of 469 miles Source: RAA 2013 Annual Report, page 13 Average seating capacity of 56 seats Source: RAA 2013 Annual Report, page U.S. airports have regional service Source: RAA 2013 Annual Report, page U.S. airports only have regional service Source: RAA 2013 Annual Report, page 15

21 An Insufficient Number of Qualified Airline Pilots Will Hurt the Airline Industry and Smaller Cities with Limited Air Service Larger airlines may experience a reduction in service from their regional airline partners Network implications especially for international routes Regional airlines will face various challenges Hiring for growth and replacement Performing contract obligations United Airlines Great Lakes Aviation

22 Thank you Daniel Friedenzohn, J.D., M.A. Assistant Professor, Aeronautical Science Department Embry-Riddle Aeronautical University (386)