Cautious Projections

Cautious Projections

The Boyd Group conference report

By John F. Infanger, Editorial Director

November/December 2001

COLORADO SPRINGS, CO — The Boyd Group, at its annual forecasting conference in October, took on the task of projecting growth among the carriers and U.S. airports at a time when uncertainty rules the industry. Two possibilities — Boeing’s pullback from the 717 and potential bankruptcy for United — have subsequently been echoed by respective company officials. Also at the conference: biometrics and security.

Michael Boyd, president of The Boyd Group, based in Evergreen, CO, says that the lack of leadership and a clear-cut strategy from Washington in the aftermath of the September 11 attacks is hurting the potential rebound of the system. The airline industry, he says, was already in a significant downturn through the first two quarters of 2001, and reactions to the recent tragedies will both bring and accelerate change.
Michael Boyd foresees positive growth for peripheral airports in metropolitan areas, as well as stability for airports that serve small communities with strong global economic ties. Low-fare carrier service will help maintain better than average growth in the Southwest U.S., while the Northeast will continue to benefit as JetBlue expands, says Michael Boyd.

Security remains challenge number one, he says, "because the same incompetent security system is still in place." Until a new system is clearly identified and implemented, both airports and airlines will continue to scramble to meet changes in direction. At the same time, the impact of the September 11 tragedies has led to declining load factors that have had a significant negative effect on the collection of passenger facility charges used to fund airport infrastructure. Combined with the shutdown of the system and the prolonged closure of Washington Reagan National Airport it has made the bond markets jittery, which could have a negative impact on long-term airport project funding, says Boyd.
Because of these factors, projecting the future of the airline business becomes even more precarious, though not impossible, says Boyd.
"We are going to have a different kind of system, and it’s not all bad," he says.
Overall, Boyd predicts a drop in U.S. airline activity of 8-9 percent for 2001 over 2000, a loss of some 230 million enplanements. Airline revenue lost as a result of the hijackings will approach $32 billion, he says, and direct aviation losses could reach as high as $55 billion.
Other Boyd predictions ...
• There will evolve a more regional airport system approach, which will bode well for peripheral metropolitan airport growth (Milwaukee; Oakland; Burbank; Flint, MI; et. al.).
• Major hubs will see a higher percentage drop in growth, particularly on high frequency routes such as Dallas to Chicago.
Airline by Airline Breakdown
Michael Boyd and securities analyst Ray Neidl of ABN AMRO break down the prospects of U.S. carriers as follows ...
• United had financial problems before September 11, accounting for half of industry losses in the second quarter of 2001. A big reason: labor contracts. Its investment in a bizjet subsidiary is not seen as prudent.
• SkyWest and Atlantic Coast: both should make money in the third quarter and could reap business due to the pullout by majors to smaller markets.
• Mesa has some 35 percent of its routes at risk.
• Alaska: a lot of liquidity; stable Alaska market.
• Northwest: solid liquidity, plus the new DTW midfield terminal should bring new traffic, even luring hub activity from O’Hare. Mesaba markets may lose service, and long-term service to remote cities in the Dakotas, Minnesota, and Michigan are at risk.
• U.S. Airways is not as strapped as the general media would portend, and restructuring by other majors could bring opportunity. A necessity: significant labor concessions.
• American: in the strongest position of any major carrier; will accelerate retirement of MD-80s, F-100s, while shifting activity from O’Hare to St. Louis. Will scale back or eliminate San Jose hub operation; see elimination of Eagle subsidiary by 2005.
• America West: "In pretty good shape, other than the fact that they have no money," says Boyd. Could see cutbacks in Mesa feeder service to PHX from smaller communities.
• Continental will continue to focus on core strengths (Cleveland, Newark, and Houston hubs); in a good position to grow in Latin America. May increase international activity at Newark.
• Delta will shift more activity to regional partners (SkyWest, ASA, ACJet) and be less dependent on Comair following the recent strike. Will likely cancel many 50-seat RJ options.
• Southwest will still have its "effect" on markets, but faces challenges regarding turnaround times because of security and longer haul markets. It will become harder to attract new Southwest service.