LAS VEGAS — The mix of aircraft could change simply because the role of legacy carriers could increase, says industry prognosticator Michael Boyd of Denver-based The Boyd Group. The hub and spoke is not dead, says Boyd, and may have an opportunity to grow, which could have a significant impact on line operations at smaller airports.
Meanwhile, the role of airports in delivering line services remains a lively debate, with John Armbrust, president of the Armbrust Aviation Group, host of the 8th Annual International Airport Operations/Jet Fuel conference, forecasting an increasing role for airports. Jet fuel supply remains volatile because of market forces and global politics. Meanwhile, Boston Logan outlines a safety initiative that's having positive results.
According to airline industry analyst Boyd, the low-hanging fruit is gone for the low-cost carriers. Real airline growth in the U.S., says Boyd, will come from “secondary” cities, which fit well with the hub and spoke system of the legacy carriers.
He points to many smaller cities — cities such as Montgomery, AL and Greenville-Spartanburg, SC — which are creating a Sino-Centric business base, connecting their economies to China.
The air carrier fleet is beginning to see a changeover in aircraft, with the decline of the regional jet craze. According to Boyd, “there’s no such thing” as a regional airline anymore.
Over the next three to five years, he projects, the airline industry will see an influx of Embraer mid-size airliners and the like, along with “the dawn of the plastic aircraft” — the Boeing 787.
Of the legacy carriers, Boyd says Northwest, Continental, and American are in the best long-term financial and industry positions.
Boyd says that it is a misconception that the airline industry suffers from over-capacity. “What we have is over-competition,” he says.
He points out that the industry has seen a net reduction of 371 major airliner aircraft since January, 2001. That’s resulted in the loss of service to many of the same secondary cities which Boyd says offer promise for the future for those same legacy carriers. While many of those communities have taken a financial hit because of the loss of airline service, says Boyd, the ones which are finding ways to rebound should in time get increased access to the air transportation system.
At the same time, however, the loss of capacity has been offset by new aircraft brought into the system by the low-cost carriers: AirTran, Frontier, JetBlue, and Southwest.
The main problem for the air carriers, he says, is a competitive pricing hole which is hard to escape.
In the long term, says Boyd, three hubs to watch for growth are:
- Detroit Metro, where Northwest is well-poised for Asia;
- DFW, with American’s access to Latin American markets and its ties to China (watch for alliances by American to connect the two regions, says Boyd); and
- Houston Intercontinental, where Continental has similar ties as American at DFW.
Looking through 2011, Boyd expects the following hubs to realize the most vibrant growth:
- Philadelphia
- Atlanta
- Phoenix
- Las Vegas
- Salt Lake City
Non-hub airports expected to realized the most growth include:
- Boston Logan
- Ft. Lauderdale/Hollywood
- St. Louis
- Orlando
- JFK.
Some of the major items to watch in the airline industry in the next several years, says Boyd, include:
- what Northwest and Delta do to restructure themselves out of bankruptcy protection;
- the outcome of the Southwest-US Airways “slugfest;”
- the profitability of the low-cost carriers — “they’re not making money,” says Boyd; and
- the influx of new Embraer 75-120 seat airliners, and which air carriers purchase them.
Market Trends
According to James Scandola, senior manager of transportation for Buckeye Partners LP, a major pipeline systems company, one trend in the oil business that could impact aviation is a growing demand for diesel fuel in Europe. New mandates for ultra-low sulfur levels in fuel by European countries is the cause, says Scandola, and he suggests that the U.S. may soon follow suit with similar mandates.
One of the challenges this would bring, he explains, comes in the delivery of the product. The pipelines it would need to go through currently carry higher sulfur content products. “The cost of this handling is going to go up,” he says.
“Some pipelines may elect to no longer handle jet fuel when it constitutes such a small percentage of their volume. It will then require other modes of transportation.”
He recommends that airports and airport-based businesses involved with fuel delivery be in contact with pipeline companies to have a clearer understanding of the issues (www.buckeye.com).
Meanwhile, Armbrust, who also publishes The Jet Fuel Report newsletter, explains that U.S. refining capacity is at some 17.3 million barrels/day, but is limited by the fact that no new refineries have been built in this country since 1974. Twenty refineries in the U.S. produce 55 percent of the jet fuel delivered, and 44 of the nation’s 134 refineries make jet fuel.
Intense market forces brought on by the growth in Asia, along with the ongoing political instability in oil-rich countries, makes long-term predictions regarding aviation fuel supply at best tentative. Armbrust expects the crude oil per barrel price to remain within the $50-75 range through the end of 2006.
Armbrust also restated his position that airports need to be more involved in the fuel delivery process, particularly due to the decreasing level of expertise at the airlines. “Airports, I believe, must lead the way ... to ensure operational integrity,” he says.
The Logan Example
Regarding airfield safety, Boston Logan’s assistant fire chief Paul Calderwood detailed an initiative at his airport which grew out of disaster preparedness exercises conducted since 9/11. Logan fire officials have taken lessons learned by the promotion of “inter-connectivity” between various private and public entities to airfield safety.
The concept, explains Calder-wood, is for everyone on the airfield to have an understanding of the role of others. “There’s a critical need for systems thinking,” he says.
An example: fire officials spend time in the control tower to get a controller’s perspective during an emergency; and, controllers tour the airfield in disaster response vehicles to get the firefighter’s point of view.
