Brighter Days for the Carriers

Boyd's bottom line: 2007 should be a turnaround year for U.S. airline industry.

Michael Boyd, a leading airline and airport analyst, opened his annual conference here in October saying, "I think the news is all good." His overriding message is that the air carriers are experiencing high load factors and have gotten their costs under control, which in turn is leading to profitability. In fact, Boyd and other speakers here foresee airlines recording profits across the board in 2007. At the same time, Boyd forecasts an airline sector that will continue to evolve, with composite aircraft being one of the catalysts to change. One caution that came out of the conference is for smaller communities which rely on 50-seat regional jet service - the 50-seaters, all here seem to agree, are on their way out due to poor economics. They will be replaced by 70-seat RJs or other aircraft; for some communities, that transition could lead to challenges in maintaining air service.

The Boyd Group's annual Aviation Forecast Conference brings together airline executives, aircraft manufacturers, and airports in an effort to forecast airline industry trends and how they will impact airports and air service, primarily in the United States. This year's conference included representatives from OEMs Boeing, Airbus, and Embraer; the air carriers in attendance included Frontier, Northwest, SkyWest, Southwest, Allegiant, US Airways, and Continental. Conspicuous by its absence was United.

According to Boyd, the airlines - particularly the legacy carriers - have figured out how to control their costs and capacity issues and, to some degree, raise ticket prices. Central to this turnaround, he says, has been the mainline carriers' ability in recent years to get a handle on labor costs. "Labor has changed," says Boyd; "it's part of the solution."

The carriers are rethinking how they grow in the future, he says, with an emphasis on a global marketplace, particularly China. For airports and their communities, a key consideration today is how they connect to the global marketplace.

Boyd says that U.S. carriers overall today are reporting load factors of some 80 percent; at 75 percent, he says, "you're full as an airline. "The airlines are going to be very different," he maintains. "The legacy carriers are the wave of the future."


As the industry evolves, according to Boyd, the carriers are falling into three distinct categories: the legacy carriers; the low-cost airlines; and the niche carriers. Legacy airlines: Boyd prefers the term 'comprehensive network carriers', or CNCs. "This is where the real future is," comments Boyd, because of the hub-and-spoke carriers' ability to connect smaller communities to global markets by way of their hubs and alliances with other domestic and/ or foreign carriers. For example, he points to the Interstate 20/40 corridor in the Southeastern U.S. where foreign automobile manufacturers have set up shop, transforming those communities in the process and presenting opportunities to air carriers who can connect the dots to Japan, China, Europe, and other countries. In particular, Boyd is bullish on China: "If you ain't Sino-Centric, you ain't happening," he says. Boyd projects that airline fleets in China will grow some 300 percent over the next decade and the country will become the second largest demand market, after the U.S.

Within the next six years, he projects, the Chinese fleets will account for at least an "equal share" of trans-Pacific traffic. "You're going to have to deal with these people," he says.

Contributing to the CNCs' future success will be the diversity of their fleets, says Boyd.

Low-cost airlines: The biggest question mark for the domestic airline industry today is how the low-cost airlines will evolve, says Boyd. Most of the origination and destination markets that have been their bread and butter have been tapped. Thus, asks Boyd, will that lead to Frontier, JetBlue, Southwest, and AirTran to begin a feeding frenzy off each other? And, comments Boyd, "I don't know what they are anymore. They're not point to point. "The growth in this category is going to slow."

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