Predicting Airline Growth

“So it’s one of those things to be very careful going forward when you hear the FAA or the ATA talking about how this NextGen thing is going to help everything. Or reauthorization will buy that new air traffic system we need. No, it won’t. FAA’s been screwing it up for the past 20 years.

What’s going to change there?”

The reauthorization debate at this point, Boyd says, is moot. “Arguing over who pays for reauthorization right now is like arguing over the bar tab on the Hindenburg. It’s all going down. It’s not going to get fixed.”

“The airline industry is going to have to take it into their own hands,” Boyd says.

“But it’s a system where, to keep us safe, they’ve got to keep airplanes separated more and more and more. They’re talking about how delays are up this year. Departures are up about one percent for the first half of this year. But delays are up 40 percent. Gee, I wonder why that is? It’s not because of more airlines in the sky or more passengers. It has everything to do with a system that doesn’t really work.”

Peak pricing, Boyd says, will not work either — just raise costs. “Some hubs like Atlanta, there is no peak,” Boyd says. “It starts at six and goes until nine — there’s your peak.”

Will Ris, senior vice president of government affairs for AMR Corporation and American Airlines, relates that much of the problem on the Hill has to do with how Congress approaches the aviation industry. “I believe that policy-makers treat our industry fundamentally differently than others,” Ris says. “They react first as customers and only secondly as policy makers.”

“These people, these men and women on Capitol Hill, are some of the most voracious consumers of our product. They fly often, and often on extremely tight schedules. So a good deal of the policy and the debate that we have in Washington is formed on the basis of anecdotal experience and gut feelings from a consumer viewpoint.”

The nature of the aviation industry impedes the process as well, Ris says.

“We are so risk-averse in our industry that we continue to postpone and avoid the really big changes that are absolutely necessary for our long-term survival. Indeed, avoiding risk is a core component of our industry culture, and often for the right reasons. We have let our aversion to risk spread to the economic and production regions.”

“The principle debate in Washington is much more about how to reduce demand than it is to increase capacity. We are being called together collectively to talk about how we can reduce our scheduling in the New York airports as opposed to being called together collectively today — and years ago — to talk about how we can expand capacity to allow the capacity to meet the vigorous demand.

“Right now in Washington we are in absolute political gridlock with respect to reauthorization. My prediction is that we will muddle through the reauthorization debate, compromises will be made, studies will be promised to take some issues off the table, everyone’s taxes will go up, and we will again have missed an opportunity to do something of real significance.”

Air Service Outlook
For airports, Boyd says, quality, not quantity, is going to be the most important thing for air service.

“What are the load factors, but more importantly, what are the yields in those markets?” Boyd says. “What’s the fee ratio? That’s critical going forward. You might have an 80 percent load factor, but if 70 percent of that’s going on to Orlando with really low fares — goodbye.”

Traffic generation, both inbound and outbound, is also critical to an airport’s success, Boyd says. Striking the right balance is key.

“If you have a lot of traffic — more than, say, 55 percent of your total mix is generated from outside your marketplace — the good news is you’re not as dependent on changes at your marketplace,” Boyd says. “In other words, that factory closing or opening jacks traffic up or down, more than it would at a community where most of the traffic’s coming in.”

Boyd cautions that the Essential Air Service (EAS) is also a problem, and would need to be at least quadrupled in some cases to be effective. “We’ve got to do something with EAS,” Boyd says. “Because our forecast shows any EAS city is going to end up being stable at best, and in many cases you’re going to just end up having service nobody wants to get on.”