Airports: The New Future Get Ready For Changes

Airports: The New Future Get Ready For Changes

Planning For A New Horizon The role of aviation all sectors scheduled, GA, business, sport, rotor - is changing fundamentally The relationships between transportation modes shift. Some applications of air transport no longer work It s no longer all growth, all the time. Not more airplanes. Different revenue streams It s all about understanding evolving economics and projecting their trajectories And you can t trust the past, or the consensus

No Breakthroughs On The Horizon Speed: Today s jets are no faster than the Convair 880/990 and they ve been gone for three decades Powerplants: Compared to fuel costs, only marginal improvements even GTF technology New Composite Technology: Primary cost advantages come into play with size. New GA/Business aviation breakthroughs: Weak remember the Very Light Jet revolution?

Airport Industry: 2022 1. New Revenue streams will be critical 2. Scheduled air service access is the future NOT having local air service 3. Need to develop new business models the current ones are evaporating 4. New categories of airport roles

Too often, today s approach to airport planning Hey, Captain! Let s commission a study to find a solution! Like The Titanic The Physics Are Inarguable Aviation Trends Are Nothing Personal... It s Strictly Reality

The New Driver of Air Transportation Now, It s Two Words, Benjamin.. Global Economy

Global Economy = Global Logistics Very few commodities, very few products are domestic Example: Your laptop and its components may represent 5 10 border crossings Example: No China, Then No Margaritaville, either Example: Nearly 30% of US enplanements will be directly or indirectly generated by international travel by 2020. Emerging: Increased concentration of logistical infrastructure into core commercial points

What Happens In Beijing Affects Boise, Burlington, and Tucson International Component 2012 2013 2014 2015 2016 2017 17 v 12 Direct O&D 78,804 80,373 82,052 83,174 84,318 85,524 Int'l-Generated Domestic Enplmts 118,206 120,560 123,078 133,079 139,125 145,391 Total: Intl-Driven 197,010 200,933 205,130 216,253 223,443 230,915 17.2% Total Intl-Related 26.6% 26.9% 27.1% 28.2% 28.8% 29.3% Internationally generated enplanements: Direct: DFW NRT, JKF-LHR, etc. Indirect: Example - (MAF) DFW- CDG, NRT- DFW (MIA), etc Secondary: Subsequent internal trips made by visitors POINT: a) access to international flows important to carriers, b) strength of alliances will play a huge part in future airline decisions

Global Logistics 1. Changing infrastructure systems 2. Cost of infrastructure: concentration 3. Result: re-focus on large metro areas or whole new logistics communities 4. Energy factors will change logistical patterns

The Four Logistics Drivers 1. Time value competitively and productively 2. Information flows faster & concentrated 3. Proximity based on infrastructure efficiency 4. Population Both productive and consumer

Taking Stock of An Airport s Future The North American airport system will evolve based on two key factors #1: Energy costs, availability and consumption #2: Location, Location, Location

Energy Costs No airplane flying today was designed with $50 per barrel oil in mind Example: Shifts in air cargo commodity mix Example: Lessening value of super long haul flying Example: Changing carrier focus from volume, to revenue Example: Reducing economic viability of small airliners Outcome: Reduced band-width of effective air transportation

Matching Airport Planning To The Future Not The Other Way Around The Six Main Trends Affecting North American Airports 1. Mature traffic growth it s now airline strategies, not GDP 2. Slowing fleet growth - and different mixes, too 3. Regionalization of service access 4. Transformation of General & Business aviation revenues 5. Transformation of traffic from domestic to inter-global Finally.

Trend #6: New Cagtegories By 2022 1. Global Portal 2. Secondary connecting hub 3. Globally-relevant commercial center 4. Regional airports

Category: The Global Portal Domestic hub gone global Flowing passengers & goods between points not entirely related to the country where the Portal is located Characteristics of potential Global Portals Major airline/alliance connecting hub Very strong local and regional international commercial base Large & productive population base Not an Aerotropolis not really. But sorta

Potential NA Global Portals ATL Delta/SkyTeam YVR Air Canada/Star DFW American/oneworld IAH United/Star

Category: Secondary Connecting Hubs Focus is mainly on domestic connectivity and a declining role in international access. Examples CLT/AA, DTW/DL, EWR/UA probably To Watch: There will be more non-closures of secondary hubs as aircraft fleets change and Global Portals expand Message for non-hubsite communities: Get Globally Relevant

Category: Globally-Relevant Airports Communities with A high degree of international-related business investment Local industries with global attraction Population density that can support or grow to support - access to multiple connecting hubs and Global Portals Examples: Raleigh/Durham. Boise. Golden Triangle, MS. Austin. NY Capital District These will evolve and develop over the next 15 years

Airline Trends Affecting Airport Planning Access, Not Air Service

Navigating Common Assumptions 1. It s a permanent growth industry. Not. 2. The applications of aviation in transportation & logistics are expanding. To the contrary 3. New breakthroughs will continue to leapfrog current technology None to counter $90 oil 4. The past structure of the industry sectors is a pattern for the future. Nope

Airports Requesting New Airline Service

Airlines: No Overall Capacity Increases Planned

NA Airlines Are Not Growing Fleets: Decline through 2019 North America 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 Net Chg 180 + Seats 643 621 647 655 663 664 680 690 705 736 769 126 126-180 3,175 3,153 3,114 3,144 3,129 3,139 3,178 3,215 3,261 3,325 3,390 215 101-125 330 433 587 714 858 1,005 1,030 1,052 1,073 1,093 1,111 781 75-100 570 596 590 645 683 706 723 740 747 753 771 201 Regional Jets 1,401 1,308 980 728 583 405 405 405 405 405 405-996 Total 6,119 6,111 5,918 5,886 5,916 5,919 6,017 6,102 6,191 6,312 6,446 327 Basic size floor will be @ 90-100 seats But the costs will be only marginally higher than where 50-seaters will be Fleets of larger airliners more fuel-efficient will expand Hence some loss of air service at smaller airports - @ 100 but stronger air service at regionalized points

The Numbers Tell All The main demand in North America is in the 126-180 seats North America 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 Total P180 26 92 76 106 88 85 67 50 59 44 670 126-180 132 185 223 216 221 218 189 176 176 155 1,766 101-125 106 154 127 144 147 24 22 21 20 18 801 75-100 26 31 51 48 29 24 22 21 20 18 297 61-74 11 12 10 10 12 10 9 83 Regional Jets 11 15 13 51 Total 311 490 500 523 498 361 310 268 274 235 3,667 The trend will be larger jets, but virtually no expansion at rural airports the same ones facing reductions in GA activity

The Numbers Tell All Maybe 2013 2014 2015 2016 2017 Change In Seats 0.0% 0.4% 1.7% 1.6% 1.5% Avg A/C Size 138.2 143.25 146.48 148.03 150.10 Capacity measured in ASMs - is not expected to exceed 2% annually in the next five years And average airplane size is going to go up But the capacity will be re-distributed, and more concentrated

Reason For Slow Growth:Airline Strategies Point: Airlines Are Now Essentially Flying At Capacity At 80% + load factors seats are available typically at marginal times of the day, or in marginal markets Combine this factor with the fact that airlines are not adding capacity, and the conclusion is clear: Traffic growth will be at the margins i.e., very slow

Air Travel Very Slow Growth

Tale of Two Blue Chips

Moving Forward Airline strategies have eclipsed economic factors as drivers of passenger levels It s one airline system. Forecasting major & regional is meaningless Regionalization will accelerate. Fewer airports with local service, but most will have access Federal programs Essential Air Serivce are now obsolete, detrimental, and need revision

Next Let s Talk About The Future of The Other Side of The Airport

It s The Entry Levels Under Attack The new paradigm: general aviation has an increasingly higher and higher cost of entry The traditional entry-level aircraft for recreational, training, and small business are no longer in massproduction No more $3,000 Piper Tri-Pacers in the market The fleets of high-wing singles are getting long in tooth and maybe short of fuel

Hey! That T-Hangar s Empty! 1. The 100LL issue is a lot more fundamental than most believe 2. Cost of entry into general aviation will be a major barrier in the future 3. Entry level aircraft - 1953: $40,000. 2013: $130,000. 1. Picture a world where most 172s are museum pieces. FBOs? Training schools? Revenue streams from fuel, etc?

Let s Talk 100LL A very tenuous production channel Environmentalist pressure will be superceeded by economic issues Limited and declining production ergo, higher and higher costs New diesel-combustion & mo-gas powerplants in production But retro-fitting isn t in the cards, and current piston fleets are aging When 100LL goes away, so will much of the entry-level GA fleet

Production & Consumption - Down U.S. Supply of Aviation Gasoline Thousand Barrels Linear (Thousand Barrels) 8,000 7,000 Thousand Barrels 6,000 5,000 4,000 3,000 2,000 1,000 0 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 Year Year 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 US Product Supplied of AvGas (Thousand Barrels) 7,188 6,921 6,682 5,987 6,189 7,006 6,626 6,258 5,603 5,261 5,358 5,360

AvGas v Jet 2011 v 2000 AvGas consumption declined by 36% In 2000, AvGas represented 26% of total GA usage. In 2011 just 13% - and falling Between supply of lead, environmental opposition, and distribution problems, 100LL has a very short half-life

Let s Do Some Math There are @ 155,000 piston-powered fixed-wing aircraft in inventory It s estimated that 30% are 100LL vulnerable That s nearly 50,000 aircraft Figure most are singles new replacement of these aircraft with new-technology singles represents at least $27.5 BILLION. (Based on 172 Diesel @ $550,000 each) Point: there isn t any one-for-one replacement for 100LL-vulnerable fleets

Park It. And A Lot Goes With It The open question is, if 100LL is eliminated, what parts of the current single-engine fleet will go along with it Pilot Training Maintenance Charter Tie-Down & Hangar Small Airport Viability

The Pilot Career Minefield Start with: training & experience. New FAA minimums = an additional $250,000 in training Entry level: Today a regional and a domicile in Grand Island or Newark Career path: no longer clear. The regional time generally does not build seniority at a major carrier Career path: Possibly ends at a 90-100 seat jet. Over half major airline flights now flown by surrogates a.k.a. regionals Pay & Benefits: Glacial and much lower than pre-9/11

Air Transport Supplementing Ground Rotor wing aircraft have an important role But the costs and physics of the means of levitation have ruled out almost consistently the viability of wide-scope scheduled or high-volume transport Tilt-Rotor concepts were great cost, ATC and ground logistics got in the way The 1977 PanAm Building incident...

Summing It Up 1. Airports in North America are facing fundamental changes in economic underpinning 2. Commercial side fewer airports are served today but regions are not as affected 3. Air transport works less and less for smaller communities and less so for non-hubsite applications 4. Future: levels of global relevancy will be a key to access to a Global Portal 5. GA revenue streams could affect rural/small airports

Thank You!