Predicting Airline Growth

Meanwhile, Boyd says that airport design will need to change to be more efficient and meet passenger needs. “Going forward, you don’t need airports the size you do now,“ he says. “You need 100 linear feet of ticket counter space, when there’s no more tickets? I mean, you can check in at a kiosk.

“That is going to change how airports operate, how airports are designed, how passengers are flowed, and it’s going to be huge.”

Airlines and Fleets
Boyd divides airlines into three categories — low cost carriers (LCCs), legacy carriers, and niche carriers.

“The two airlines to watch very closely are Southwest and Frontier,” Boyd says. “Southwest because they know they have to morph and change things, and when they do they’re going to be the nastiest competitor on this planet. Because what you see today isn’t going to be what you see three years from now.”

Frontier, he says, is innovating fleet diversity and getting rid of regional jets, instead opting to fly Embraer 170s. “So they’re moving the product line and they’re moving the diversity of the root system up, which means that’s kind of the harbinger of things to come for LCCs,” Boyd predicts. “The days of being able to just get into a 737 and make money are going out. You need diversity. So those are the two carriers people say watch what happens the next three to five years.”

Boyd relates that competition between LCCs is heating up and points to the current situation at Denver International: “What’s happened when Southwest and Frontier get into a cat fight, fares go in weird directions, capacity goes in weird directions, and then that will affect Cheyenne, that will affect Colorado Springs. And those are short-term things but that’s going to happen around the country.”

While lower fares are one result consumers will appreciate, these fights can also be the death knell for affected smaller airports, Boyd says. He uses the example of Philadelphia, where Southwest began fighting for share. As a result, Bloomington lost air service.

“The damage done by the leakage can be permanent at small communities,” Boyd says.

As far as niche carriers are concerned, Boyd expresses admiration for Allegiant Air, saying he cannot find a hole in the carrier’s strategy.
“It’s a cruise ship with wings. They go into Killeen, TX; they basically attack Wal-Mart because that’s where the discretionary dollars are coming from, and they fill up airplanes to Las Vegas and to Florida. There isn’t another airline in the world that wants to fight for that traffic. So it’s a home run.”

Still, legacy carriers have the best outlook, according to Boyd, because of their ability to generate revenue. “Having more revenue streams is more important than just having low cost. Revenue streams come from places like Shreveport, they come from places like Columbus, MS. They come from places where you have net growth,” he says.

Boyd forecasts air traffic growth to drop below 2 percent annually in the next two years, and he doesn’t foresee the domestic carriers adding any real capacity. A stable economy — at best — is one reason; another is due to the buying patterns of airlines. “Virtually every airplane we see on order over a five-year period is not for growth,” Boyd says. “It’s just to replace what’s going to be retired.”

Yet, he says the size of the airplanes being retired does not necessarily predict the size of the airplanes being ordered.

“We’re in this situation where it’s very hard to forecast airplane demand based on seats,” Boyd says. “[Airlines] just want to move airplanes back and forth, which means airplane demand is more and more going to be focused on larger and larger aircraft. Because larger and larger aircraft is really where the real efficiencies are coming.”

“They’re going to be buying bigger airplanes, and maybe having lower load factors. There’s nothing wrong with carrying extra seats around as long as you’re not carrying any extra costs around.”

Boyd says he doesn’t see airline mergers happening, but alliances as being the future. Despite the money to be made, mergers are for the most part unnecessary.