Refocusing on Capacity
FAA, industry reps project out to 2015
WASHINGTON, D.C. — At the 29th Annual Federal Aviation Administration Aviation Forecast Conference held here in March, officials are again cautiously optimistic as the focus broadens to include issues beyond security. Air traffic is back to pre-9/11 levels at some airports, and more are expected to reach that milestone this year. The major concerns now: the rising cost of fuel and terminal/airspace congestion.
Deborah McElroy, president of the Regional Airline Association, says the regional industry is doing well, but still faces the challenges of taxation, fuel, and labor costs. The revenue streams of regional carriers are challenged by lack of purchasing power, low-cost carriers, the Internet, and other factors.
David Plavin, president of Airports Council International-North America, expects that airline load factors will begin to go up, and there may even be a return of larger aircraft, "although I won't hold my breath." He adds that the average size of a departing aircraft decreased by ten seats over the last seven years, which he calls a "very striking decline."
According to Plavin, the fourth quarter of 2003 saw the airlines finally making money, but he says, "it's hard to do little more than hope that it gets better ... there are still too many seats in too many markets chasing too few passengers."
"Airports are not on the brink of bankruptcy — that seems to bother those who are." He says that some airlines are struggling and looking for relief from the airports, but the airlines must understand that costs are rising. "At least half of expenses go to paying off debt from the last time we modernized," says Plavin.
The airports have seen "unprecedented growth" in runway congestion, which Plavin says could be relieved by air traffic control improvements. "We don't have enough [invested] in the system to manage growth," he says.
As for security, Plavin says the growth of the Department of Homeland Security will continue to have an impact on airports — particularly from a funding aspect. "The government isn't going to fully fund regulations," he says. "And it's going to get worse." The problem, he explains, is that passengers pay for everything in the system today, either directly through parking and passenger facility chargers or indirectly through fares, taxes, and fees. "When we have unfunded mandates, we're going to charge the customer."
Plavin adds that "respect doesn't always exist in this business." One way to challenge the risk of failure is to improve alliances between the airports and airlines. "We've given lip service, but we've set up policy that doesn't work."
According to John Rodgers, director of FAA's Office of Aviation Policy and Plans, traffic Revenue Passenger Miles (RPMs) were up in 2003, the first time since 2000. However, international RPMs are still down. Air carrier operations were up, but not enough and the industry suffered a loss of $5.3 billion.
General aviation remained depressed in 2003, says Rodgers, but FAA predicts hours flown will increase.
He says FAA expects that by 2015, commuters and regionals will handle 50 percent of all travelers.
FAA also foresees 2004 being a strong year for international travel growth, with some larger aircraft already returning from the desert.
Eclipse-type jets could account for 4,600 aircraft by 2015, according to Rodgers. And, as the sport aircraft segment grows, there will be a 21 percent increase in the number of pilots. Thanks to new regulations, 21,000 sport pilots will be licensed by the end of 2004.
It is expected that the level of FAA service will reach the pre-9/11 peak by 2006, with a 30 percent growth in tower operations by the end of 2015.
As for business model impacts, Rodgers says the hub and spoke model is prevalent and expected to remain, however "we will experience continuing congestion at hub airports."
Sean Donahue, VP, low-cost operations for United Airlines, says the airline believes it has found the "sweet spot between the right level of uniqueness" with its new low-cost subsidiary TED. According to Donahue, phase one at Denver International Airport is nearing completion. Phase three, which involves flights out of Chicago , will be complete May 24. "Our hubs are our points of strength," says Donahue, "we want to leverage that advantage."
By 2005, he says, $5 billion will be eliminated from UAL's costs.
Rick DeLisi, director of corporate communications for Independence Air (formerly Atlantic Coast Airlines) says the airline is working to build a national network from Dulles International Airport , forming the largest low-fare hub in the United States .
The airline's fleet will consist of 87 CRJs and 25 Airbus A319s. The company believes by ending its contract with commercial airlines to provide commuter service, it will be able to use its assets, crews, and aircraft more efficiently, leading to a lower unit cost. DeLisi says the cost advantage breaks down to 22.5 cents as United Express versus 15.8 cents operating as Independence Air.
"The pilots agreed to wage concessions in order to make this plan work," adds DeLisi.
The airline expects some 85 percent of its bookings will come from its website, www.flyi.com. I-Air looks to move forward with its plans as soon as this summer, after coming to an agreement to end its contract with United Airlines.
TSA and technology
Randy Null, deputy undersecretary of security for aviation operations, TSA, says his organization will continue to "heavily invest in technology. That's where we get improved efficiency and security." However, Null adds, while technology could hold many solutions, it is expensive. He estimates it costs some $150 to $300 million at a typical airport for an in-line baggage screening installation.
The airline on Monday announced plans to consolidate its flights across the country, saying it needed to cut costs.
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