Hampton Roads Air Service Forum Tuesday, April 12, 2016
Air Service & Global Access Realities & Opportunities Norfolk Virginia Beach April 2016 2
The Logical Questions Question One Why don t we have more airlines and more flights? Question Two Why don t we have more nonstop flights to more cities Question Three Will fares ever go down now that fuel is so cheap 3
Affecting The Answers Challenge One: The US airline industry is consolidating due to economics, more than mergers Challenge Two: US airline fleets are changing smaller units are increasingly un-economic and are being retired Challenge Three: There really will be a constriction in pilots in the next five years highest and best use of the resource 4
What Constitutes Good Air Service? The common misconception understandably is air service is simply having more scheduled flights at the local airport It s much more than that Just having low fares to Orlando or Hawaii is not air service Definition Air service is measured by the amount of access that the rest of the nation and the globe have to Norfolk 5
Examples Youngstown, Ohio: Almost 120,000 passengers per year But they have no air service no access from the rest of the world Just Allegiant flights to a couple places in Florida Hilton Head, SC Almost 120,000 passengers per year And they do have air service One-stop access from virtually every major point in the US, plus several international destinations, over the AA hub at Charlotte. 6
Access From The Rest of The Globe Airline service is not just about having flights and access to the rest of the nation We are in a global economy there is no domestic it s increasingly global It s not just about consumers in the community It s about whether the rest of the global economy can get here access from the rest of the globe brings in economic growth. At Norfolk, almost 10% of the traffic is directly to or from an international point but 27% of all passengers in the US are directly or indirectly the result of international travel. Norfolk is likely not materially different. 7
What Norfolk Virginia Beach Faces Factor One: New fleets will shift the entire air transportation system Factor Two: There are only nine full-schedule national airlines left Factor Three: Traffic levels: Only what airlines want to capture Factor Four: More passengers is not the airline goal, anymore Factor Five: Air travel economics are changing its communication value 8
More Airlines There Aren t Any Here s a fact Norfolk Has Most of What s Available 1983 Consumers could book & buy on at least 21 large jet operator brands, plus over two dozen independent regional airline brands. Today, airports can turn to just eight large jet, full schedule operators, and none of the regionals who were around in 1983 are in the retail airline business. 9
Airline Reality: Smaller Departures Carrier 2007 2016 Change % Change 2007 2016 Change % Change Frontier 126,966 97,606-29,360-23.1% 15,092,830 14,869,767-223,063-1.5% Spirit 58,617 150,322 91,705 156.4% 9,042,512 26,140,179 17,097,667 189.1% United 1,304,150 1,677,208 373,058 28.6% 123,098,519 170,315,781 47,217,262 38.4% American 1,495,426 2,384,292 888,866 59.4% 162,162,585 252,859,167 90,696,582 55.9% Southwest 1,168,814 1,314,240 145,426 12.4% 158,949,973 193,773,080 34,823,107 21.9% Alaska 365,189 360,508-4,681-1.3% 36,232,853 41,840,533 5,607,680 15.5% Delta 1,518,456 1,937,432 418,976 27.6% 144,171,731 227,735,414 83,563,683 58.0% Jet Blue 199,937 338,981 139,044 69.5% 27,543,920 45,030,508 17,486,588 63.5% Northwest 880,298-880,298-100.0% 88,249,910-88,249,910-100.0% Air Tran 264,145-264,145-100.0% 32,542,505-32,542,505-100.0% Continental 1,058,328-1,058,328-100.0% 90,571,083-90,571,083-100.0% US Airways 1,348,316-1,348,316-100.0% 119,394,705-119,394,705-100.0% Seats Totals 9,788,642 8,260,589-1,528,053-15.6% 1,007,053,126 972,564,429-34,488,697-3.4% There are 15% fewer airline flights today than in 2007 capacity is down 3.4% due to retirement of smaller airliners And there are fewer airlines only four true comprehensive network carriers and each has its chosen turf that won t be affected by the size and scope of some giant market study. 10
Key Emerging Air Service Trends -II Strategies: Airline systems tend to stay within their turf. And target airlines and market for any airport do not take a study to identify The Servo Effect Is In Motion With changes in fleets, as service declines at some airports, it sets in motion new consumer tendencies to go to other airports Norfolk is not negatively affected by either of these dynamics. 11
Key Emerging Air Service Trends Fleets: The economics of small aircraft no longer are such as to be viable for service to many small local airports It s why places such as Lynchburg, Charlottesville, Huntington, etc., face real challenges as these aircraft are retired. Regionalization of Air Service Access Air service is constricting into fewer airports the automobile is a major part of the air service process Norfolk is positively affected by either of these dynamics. 12
The Airline Industry Is Growing Slowly 13
The Coming Shortage Lots of Airplanes. Not enough pilots New safety requirements demand more pilot hours than most candidates can afford Result: airlines do not have and increasingly will not have sufficient pilots to operate schedules that they have today. Empty due to poorlythought out safety pilot training changes First hit: Small communities without any real passengers, anyway. Future: reduced capacity for mid-size airports Bottom line: highest & best return of what flights can be offered and it will be less 14
Let s Talk Norfolk Norfolk access is very strong, and access is exceptional To most destinations, fares are comparable with other regional markets Regionalization Norfolk is emerging as the region s gateway Regional air travel growth will be mostly shaped by airline strategies, not local shifts in industry Biggest Challenge Airlines are full but they are adding capacity at Norfolk faster than the national average 15
The Dynamics Facing Norfolk Richmond is evolving into a gateway for South-DC collar regions I-95 is a funnel, supporting Richmond Replacement of 50-seat jets and turboprops inevitable The future fleet changes are mostly positive for Norfolk Biggest Challenge: Regionalization the road becomes a bigger part of the air travel mix 16
Norfolk Virginia Beach Access One-connect from every major city on the globe. Four major airlines 14 Gateways from the globe, plus Tampa and Orlando 17
Norfolk Feeds Its Incumbents Load Connect City SysCarrier Factor Percent ATL DL 86.9% 79.9% CLT US 89.2% 85.6% DCA US 75.7% 87.4% DFW AA 84.8% 73.6% DTW DL 79.5% 61.1% EWR UA 77.2% 48.5% IAD UA 83.0% 71.5% IAH UA 87.5% 62.6% JFK DL 72.1% 35.1% LGA DL 58.1% 47.1% MDW WN 91.5% 79.0% MIA AA 84.1% 14.0% MSP DL 87.3% 62.1% ORD UA 88.0% 53.4% PHL US 84.1% 72.8% 18
Regional Air Traffic Demand 19
Regional Traffic Generation 20
Let s Look At Fares 21
Systems, Not Routes Why do we have to go through the connection hassles? Why don t we have nonstop ( direct ) flights to Los Angeles. San Francisco. San Diego, New Orleans, etc... ANSWER: THERE IS NOT SUFFICIENT TRAFFIC DEMAND TO SUPPORT NONSTOP FLIGHTS TO THESE POINTS. 22
Nonstops To The West - Problematic If an airline added one nonstop a day And captured ALL of the market currently flying The load factors would be tough to sell But, there is connect traffic at Denver for United & Southwest, and for American at Phoenix 23
Norfolk Airline Shares C arrier P sgr P D EW % P sgr Originating A VG OW F are Efficiency American 1,597,071 1,251.6 33.30% 52.0% $269.60 91.5% Delta 1,490,149 1,167.8 31.07% 52.8% $282.78 88.6% United 650,766 510.0 13.57% 47.8% $302.20 91.3% WN 1,057,616 828.9 22.05% 54.4% $217.24 91.2% Total 4,795,864 3,758.5 100.00% 53.4% $269.61 89.9% With American being the largest carrier, post-merger, additional capacity to DFW is possible, with some additional service to Miami for Caribbean traffic Just one nonstop flight at 175 seats would consume the equivalent more than one entire airplane to the West Coast 24
The Future At Norfolk Every airline system is adding flights at Norfolk. Second half 2016 v 2015 This is significantly higher than the national picture and is indicative of the redistribution of air service capacity in the US 25
Okay, What s The Future Norfolk today has essentially a full-compliment of air service access More nonstop flights to non-connecting-hub airports other than Florida are not in the cards The Objective is more access via incumbents JetBlue would be great but it would be essentially JFK and/or Boston Frontier and Spirit - ultra low fare airlines are out after bigger density markets, such as Chicago-Atlanta The challenge is that airlines are not adding more aircraft, and are focused on revenue-return, not passenger volume 26
Let s Talk 27
Robert S. Bowen, A.A.E. Executive Director Norfolk Airport Authority
Airport Fundamentals Norfolk Airport Authority is a political subdivision of the Commonwealth of Virginia Governed by a nine-member board of commissioners appointed by Norfolk City Council The Airport Authority employs approximately 200 personnel functioning in the roles of administration, parking, police, aircraft rescue and fire fighting, janitorial, building maintenance and field maintenance.
Airport Fundamentals WE ARE A BUSINESS! We earn revenue and we incur costs We are self-supporting for operations: we receive no local taxes Major revenue sources (FY 2016)- Parking (38.5%) Rental Car Services (12.5%) Leases concession space, offices, gates, jet bridges (21%) Landing Fees (21.4%) Concession commissions (7%) When all is considered, it is the presence of the passenger that drives most revenue. Economic impact: 10,000+ jobs and $1B+ in output
Norfolk International Airport Strengths Very Good service from the four largest airlines with non-stop service to 16 hub, international gateway and domestic focus cities that provide connections to the entire United States and to most places in the world. Stable, experienced management team. Very good bond rating of A3 with relatively low long term debt and manageable debt service. Very good financial position with a positive operating cash flow generating a surplus each year. Consistent flow of federal and state airport improvement entitlement grants and passenger facility charges for airport improvement projects. Outstanding concessions programs (retail, food/beverage) for an airport of our size. More than adequate public parking with room for additional parking facilities to meet future demand. Good relations with the airlines and other tenants. Good inventory of available facilities (ticket counter space, concourse gates, baggage claim) for tenant and new entrant airlines.
Norfolk International Airport Weaknesses One air carrier runway. Rental Car Return facility is an open parking lot with uncovered walkway to the Departures Terminal. Lack of non-stop service to the west coast and some major east coast cities (Boston, Fort Lauderdale).
Norfolk International Airport Opportunities Available land on-airport to build a parallel air carrier runway. Available land to build a multi-level rental car return facility with a second level enclosed climate-controlled pedestrian bridge connecting it to the Departures Terminal. This facility would also accommodate employee parking which would result in annual savings of approximately $600,000 for the buses that shuttle the employees to and from a remote parking lot. Fifty acres of off-airport land in Virginia Beach that could be developed for future nonaeronautical income if our crosswind runway is replaced and relocated. Interest from our Retail and Food/Beverage master concessionaires for further development and upgrades to their facilities in the Departures Terminal and on the Concourses. Improving local economy since the Great Recession and a Federal budget that has delayed further Sequestration spending cuts for the military and federal government has made the Hampton Roads area more attractive to the airlines and we are seeing an increase in flights and seats.
Norfolk International Airport Threats The reluctance of the FAA to continue the Environmental Impact Statement project for the proposed parallel runway that would replace the short cross-wind runway which no longer meets FAA safety standards. Future federal budget cuts and the re-instatement of Sequestration could slow or even reverse the growth of the local economy which would affect air travel.
Norfolk International Airport Economic Impact Approximately $40 Million in construction and renovation work during the past six years, primarily using local contractors, engineers and architects. Approximately $20 Million is being budgeted for design, engineering and construction for FY 2017. According to a 2011 Virginia Department of Aviation Economic Impact Study of the Virginia Airport System (9 commercial service and 57 public-use general aviation airports), Norfolk International Airport s total annual economic impacts supported 10,269 jobs with a payroll of $341 Million and just over $1 Billion in economic activity. A new study is planned for 2016-2017.
Norfolk International Airport Nonstop Destinations (May 2016) Destination Daily Departures 1 Atlanta (ATL) 9 2 Baltimore (BWI) 5 3 Charlotte (CLT) 8 4 Chicago (MDW) 2 5 Chicago (ORD) 6 4 Airlines that control 80% of domestic passenger traffic. 74 Daily Departures to 16 Destinations. Most are major hubs and international gateways providing global access. 6 Dallas (DFW) 2 7 Detroit (DTW) 4 8 Houston (IAH) 1 9 Miami (MIA) 2 10 New York (JFK) 4 11 New York (LGA) 9 12 New York (EWR) 5 13 Orlando (MCO) 2 14 Philadelphia (PHL) 7 15 Washington (IAD) 4 16 Washington (DCA) 4 TOTAL 74
Norfolk International Airport Recent New Service Airline Destination Frequency Effective American Chicago (ORD) 3 daily April 5, 2016 Delta New York (JFK) 2 daily April 4, 2016 Delta Minneapolis (MSP) 1 daily* June 3, 2016 Southwest Denver (DEN) 1 weekly* June 11, 2016 Southwest Tampa (TPA) 1 weekly* June 11, 2016 * Seasonal In addition to the new service above, all four airlines at ORF have announced frequency increases in existing routes Chicago, New York, Detroit, Orlando, Philadelphia and Washington.
Norfolk International Airport GENERAL AVIATION FACILITY and PASSENGER TERMINAL REFURBISHMENT
Norfolk International Airport GENERAL AVIATION FACILITY REFURBISHMENT State Entitlement Spending: $3,415,385 Airport Funding: $1,996,798 Total Cost: $5,412,183
General Aviation Facility Improvements Upgrade to General Aviation Facility Expanded parking, new lighting, landscaping, entrance realignment and entrance canopy
General Aviation Facility
General Aviation Facility Modernized reception area, conference rooms and mezzanine provide enhanced atmosphere and greater space utilization.
General Aviation Facility Upgrade to General Aviation Facilities Elliptical Lounge adds useful space for relaxation and viewing of aircraft
Norfolk International Airport PASSENGER TERMINAL REFURBISHMENT PHASE 1 State Entitlement Spending: $7,485,861 Federal Entitlement Funding: $5,053,347 Airport Funding: $1,730,094 Total Cost: $14,269,302
Airport Improvements Passenger Terminals This multi-year phased project is intended to refresh and brighten the appearance of the airport terminals as well as address specific traffic flow issues. This will include aesthetics such as flooring, wall treatments, escalators/stairs and natural lighting. It will also include expansion of the Concourses A & B security checkpoints. Charging stations for electronics/phones. Phase I is complete.
Passenger Terminal Phase 1 Main Lobby
Main Lobby
Passenger Terminal Phase 1 Concourse B Checkpoint Expansion - Terrazzo flooring, high ceilings, large windows, brighter appearance, expanded lanes
Concourse B Checkpoint
Fiscal Years 2012-2014 Expansion of Concourse B TSA Passenger Screening Security Checkpoint Refurbishment of passenger terminal complex (Phase I) Upgrade of the General Aviation Facilities Total Cost $20.2 million: $5.4 million from federal grants $11.8 million from state grants $3.0 million from Airport generated revenue NO use of local taxes
Norfolk International Airport PASSENGER TERMINAL REFURBISHMENT PHASE 2 State Entitlement Spending: $8,686,300 Federal Entitlement Funding: $8,915,700 Airport Funding: $2,098,000 Total Cost: $19,700,000
Passenger Terminal Improvements Phase 2 Construction began November 2014. Estimated 18 month completion time (Spring 2016). Expanded Concourse A Security Checkpoint Concourses A & B skylights, new restrooms, new wall treatments, gate area graphic murals, new ceiling and lighting. Concourse B restroom renovation Arrivals Terminal terrazzo and carpeting. Ticket Lobbies carpet replacement Total Cost - $19.7 million
Concourse A Checkpoint
Concourse A Checkpoint
New Concourse Restrooms
Arrivals Building Terrazzo Flooring
Thank You! Since 1938, Norfolk International Airport has been the region's global gateway and will continue to proudly serve you as we prepare for the future. Visit TakeORF.com to see where we've landed.