Norfolk International Airport. Looking Ahead In A Cloudy Industry

Transcription

1 Norfolk International Airport Looking Ahead In A Cloudy Industry

2 Air Travel A Quick Look At The Immediate Future

3 Don t Plan On Any Real Growth In 2012 Airlines are not planning any real capacity increases in fact, they are reducing capacity The name of the game is now revenue share, not willy-nilly market share

4 Air Travel Slow Growth Current Projection

5 Those Passengers From Munich Are Critical v 11 Total Passengers 458, , , , , , % Pax Change Y-O-Y 1.5% 0.7% 1.2% 1.3% 1.5% 1.5% Enplanements 725, , , , , , % Enplmt Chg Y-O-Y 0.43% 0.62% 1.19% 1.28% 1.41% 1.40% Enp/Pax Ratio Direct International Component 76,557 77,764 79,426 81,188 82,332 83,482 Indirect Int'l-Generated Domestic Enplmts 114, , , , , ,223 Total Int'l Driven 191, , , , , , % Total Intl-Related 26.4% 26.6% 26.9% 27.1% 27.1% 27.1%

6 Cancel That Study To Find More Airlines Consumers could book & buy on at least 21 large jet operator brands, plus over two dozen independent regional airline brands. Not a complete list. Today, airports can turn to just ten large jet operators, and each has distinct market strategies and fleets None of the regionals who were around in 1983 are in the retail airline business. Fewer airlines larger airliners do the math. Majors AIR CAL ALASKA AMERICA WEST AMERICAN CONTINENTAL DELTA EASTERN FRONTIER MIDWAY NEW YORK AIR NORTHWEST OZARK PAN AM PIEDMONT PSA REPUBLIC SOUTHWEST TWA UNITED US AIRWAYS WESTERN Virgin America jetblue SPIRIT Regionals AIR ILLINIOIS AIR MIDWEST AIR NEW ORLEANS AIR OREGON AR WISCONSIN ASA ASPEN ATLANTIS BAR HARBOR BRITT CASCADE CHAPARRAL COMAIR IMPERIAL MALL MESA METRO MIDSTATE NEW AIR PBA PLIGRIM PRECISION RIO ROCKY MOUNTAIN ROYALE SKYWEST

7 It s Now Hitting Small Jets All 50-seaters are out of production and are getting older Fuel costs on a per-seat basis are getting tougher At 35K 40K hours, they get maintenance-costly And no replacements the next cost-hurdle will be 100- seaters (like the E-190) - maybe Factoid: Most of the development costs for CRJ and ERJ were borne by the taxpayers of Canada and Brazil when the manufacturers were privatized. The actual development costs were not reflected in the sales price to airlines.

8 The Airline Industry Is Losing Its Rural Reach Fleets are aging and more small jets are coming out of the system As a result RJ fleets will 780 units It s going to shift airline fleets and the structure of the airline industry Source: Boyd Group International Global Fleet Trend & Demand Forecast,

9 Air Service: It s Subject To The Laws of Physics, Too Hey, Captain Smith, let s do a study and find the solution!!! It went down strictly due to hard, physical realities Conditions outside of its control changed factors that no longer permitted it to float No amount of consulting or Black Magic could have changed these realities Scheduled air service is no different there are economic realities that can t be reversed.

10 It s A Mathematical Certainty Dozens of Airports Will Lose Service Small Jet Airliner Retirements Mergers Have Reduced Competitive Choices Code-Share & Frequent Flyer Program Sharing Between Alliance Partners Airline Capacity Additions Very Slow & Anticipatory To Economy Global Alliance Strategies Increasingly Focus on Maximizing Revenue Flows Regional Airlines which today are just leasing aircraft to majors, shrink dramatically The New Air Transportation System: 100+ Fewer Cities With Local Air Service Capacity Aimed At Bottom Line, Not More Passengers Trend: Less Competition Fuel Costs Raise Revenue Requirement Bar Low Cost Carriers Not Low Cost, Anymore

11 A New, Secondary Model Impulse Carriers Allegiant: creates its own traffic with low cost, but high value vacation packages Mostly from small & secondary airports Elmira, Bangor, Shreveport. Almost totally out of the line of fire from major carrier systems Spirit looks to create net new traffic at large markets with very low fares (and enough fees to make up the difference.) Not a model tried before the open question is whether majors will respond on key business routes

12 Okay Let s Move Into The Future Year 2020

13 Fast Forward To Year 2020 Passenger growth slow up 12% from today - to million Enplanements: 10% to million less connections from rural airports Fleets: Smallest jet 100 seats No 50-seat jets are left they are all run out Airline Traffic is concentrating into fewer airports Service determined by potential for revenue capture Entire regions of the nation are no longer connected to the scheduled air transportation system it s raw economics

14 Year 2020 The Competitive Landscape Fleets big iron only The costs of design and development of a new small-capacity airliner simply are too risky Point: the enplanement bar will be up big time. Competition Three network carriers Star, oneworld, SkyTeam. A couple of independents Southwest, JetBlue Face it competition will be minimal the airline business will no longer be one with easy entry or viable return on investment

15 Forget Airlines Think Alliances Capturing and Defending Revenue Streams. Based on each Alliance s strategies, the goal is to capture revenues that build and strengthen the system. Globally, Growth By Adding Members, Not Expanding Incumbents The idea is to get regional strength through regional players Territorial Alliances will stake out turf - globally Don SkyTeam, the oneworld family has given up San Francisco -Australia to the Star family should we make a move on New Zealand Los Angeles?...? Concentration of Pooled Resources Today independent fleets pooled fleets, maintenance, purchasing, standards Focus: Global Flows Less ability to serve small & mid-size markets. Less interest, too

16 It s Not Just Very Small Airports: A Few Examples Some Cities & Regions Will Simply Change Airports Airports With Over 50,000 Annual Passengers That Are Likely To Lose Scheduled Service By 2020 Yakima Marquette Redding Springfield Champaign Toledo Fort Smith Abilene San Angelo Tyler College Station Brow nsv ille These do not include over 100 smaller airports where retirement of small airliners will end service

17 Michigan Harbinger Of Future Challenge Example: Muskegon (MKG) 80,000 annual passengers in It still has 80,000 passengers except 50,000 are now using much larger Grand Rapids, That s Regionalization But the Upper Peninsula will have second-tier (at best) air service General aviation is a partial soluton not a political enemy

18 Shrinking Airlines More Regionalization

19 The Shifts Are Real

20 Let s Talk Norfolk

21 Current Air Service Access To Norfolk There are no gaping service gaps Ten full-blown airline connecting hub gateways Plus New York/LGA, Boston & Jacksonville One-connects from Asia SIX hub options

22 No Jump In Additional Capacity Comparison of first half of 2011 v current schedules for 2012 Departures Seats Carrier System % Change % Change American -1.8% -3.3% Continential -19.8% -19.0% Delta 6.4% 5.8% UA -1.2% 6.6% US Airways -2.9% -0.7% Southwest -5.8% -5.4% Total -2.6% -1.2%

23 Comparative Fares Norfolk Newport News Richmond Rank Market Psgr Avg Fare Psgr Avg Fare Psgr. Avg Fare 1 MCO 131,708 $ ,591 $ ,911 $ SAN 108,079 $ ,571 $ ,068 $ JAX 106,681 $ ,842 $ ,501 $ ATL 99,811 $ ,229 $ ,139 $ LGA 92,315 $ ,312 $ ,239 $ LAX 90,663 $ ,583 $ ,182 $ TPA 88,963 $ ,369 $ ,067 $ LAS 84,764 $ ,572 $ ,374 $ ORD 79,178 $ ,323 $ ,529 $ DFW 73,324 $ ,674 $ ,384 $ All Markets 3,137,128 $ ,046,266 $ ,091,790 $211.32

24 Alliance Share of Norfolk Due geographic location Norfolk has excellent alliance competition A lliance P sgr P D EW % P sgr oneworld SkyTeam Star Unallied 221, % 788,071 1, % 1,262,023 1, % 877,599 1, % oneworld American SkyTeam Delta Star United, US Airways, Continental

25 Newport News The Air Tran Hit 1 ATL 160,229 2 BOS 98,940 3 LGA 96,312 4 MCO 64,591 5 DEN 41,696 6 DFW 28,674 7 LAS 23,572 8 LAX 21,583 9 FLL 21, HOU 16,410 Filter Totals 573,215 Totals 1,046,968 Top ten markets from Newport News 2010 Q3 through 2010 Q2 All but two markets are served by remaining incumbents But New York & Boston are problematic due to routing issues over Atlanta and Charlotte the remaining network carriers Other replacement carriers? Not highly likely

26 Air Tran Departure From Newport News There will be diversion of some traffic to Norfolk Looking at New York & Boston Market Newport News Norfolk Est Norfolk Capture Net New New York/LGA 96,312 92,315 25% 24,078 Boston 98,940 56,514 25% 24,735 Totals 195, ,829 48,813 The open question is how much more capacity will Delta and US Airways add to Newport News with the departure of AirTran

27 Changing Airline Industry The Next 12 Months US passenger demand will soften airlines will continue to cut capacity Global alliance strategies will move to eclipse local national strategies It s all about consolidating revenues, not about competition Growth will be dependent on airline capacity expansion i.e., how much of the potential traffic global airlines want to chase after Low Cost Carriers - the fare variances will moderate but there won t be a lot of new carriers

28 So, The Future For Norfolk Slow growth it will be paced by the capacity that carriers add or take away Incumbents are all strong no shocks to the system (up or down) expected Likely: Delta may eliminate Norfolk Cincinnati Additional markets: limited opportunities Denver? Frontier is uncertain & for sale. United is reducing spokes Hard fact: Norfolk will be the main Coastal Virginia gateway the airlines have made that decision.

29 Thank You Boyd Group International 78 Beaver Brook Canyon Road Evergreen, Colorado (303)