Hubs, Access, Connectivity

A changing, leaner airline industry will be global via alliances; some will lose service

LEXINGTON, KY — Mike Boyd opened up his company’s 14th Annual Aviation Forecast Summit held here by stating, “It’s hub access that’s going to be the name of the game.” It was a theme echoed many times. In turn, airline alliances will play an increasingly larger role, leading to a seamless global travel experience. For smaller communities, says Boyd, it will become more difficult to access that global network, particularly due to the demise of the 50- and 70-seat regional jets, which will occur because of high fuel prices. “It’s a new airline industry,” comments Boyd. “Everything has changed.”

Looking ahead, it’s all about connectivity to the global economic and transportation networks, says Boyd. How a community gets there is a changing dynamic, he says, and the path will increasingly rely on connecting through the major hubs, although the hub makeup itself is changing, as evidenced in St. Louis, Pittsburgh, and Cincinnati.

The Evergreen, CO-based Boyd Group sees the 50- to 70-seat RJs slowly transitioning out of the marketplace due to airline/oil economics. “They’re going to go to the desert,” Boyd says. Back in the mid-90s, Boyd was one of the first to foresee the increasing role that RJs would play in the U.S. air transportation system. For several years now, he has been a leading voice in predicting their declining role as rising oil prices bring with them an operating cost structure that is unsustainable from a profitability standpoint. The challenge ahead: There is nothing in the current manufacturing product lines that will serve as replacements.

Once a community has hub access, it connects to the airline alliances — oneworld, SkyTeam, the Star Alliance — which are the “next big step” in a changing airline industry, says Boyd. Within the next several years, he predicts passengers will be booking flights directly through an alliance rather than with an individual carrier. “The future is matching Dayton to Dusseldorf,” he says.

“You’re either connected to the air transportation system or you’re out of the global economy.”

In fact, Boyd relates that there are three new dynamics bringing change to the makeup of the industry. One dynamic is the fact that “the entire industrial foundation of the nation is changing, structurally and geographically,” says Boyd.

A second dynamic is the changing U.S. fleet and the massive reductions in capacity, overall expected to reach 9 percent for 2009. That should lead to improved profitability for U.S. carriers in 2010, predicts Boyd, but a significant rebound in activity will prove difficult with so many airliners out of the system. “The hurdles you need to overcome to get air service have increased,” says Boyd.

A third dynamic is connectivity has grown in importance — access not air service, per se. “Demand is no longer the issue,” comments Boyd, citing the example of an airline considering service to Billings versus Fort Lauderdale. Because of higher yields, he says, “They’d rather have Billings.”

For communities and their airports, the goal is to keep ahead of the local market and use strategic intelligence to “connect the dots” to cities worldwide and the airline alliances that serve them. “Yesterday’s approaches to air service are increasingly ineffective,” says Boyd.

Gaining strength
According to Boyd, U.S. carriers “have adjusted very well since oil hit $175/barrel” and have taken control of their businesses. “The future isn’t as dire as people paint it,” he says. “We’re looking at a revenue environment that is strengthening.”

Maintaining his anti-Washington theme, Boyd says one challenge that faces the industry is air traffic modernization. He remains skeptical regarding NextGen implementation, both in its ultimate effectiveness and in the feds’ ability to get the job done.

Meanwhile, Jim Compton, executive vice president with Continental Airlines, and John Kirby, senior director for AirTran Airways, offered the carriers’ perspective.

This content continues onto the next page...

We Recommend