Slow Growth And The Acceleration Of Regionalization ...

This event keeps getting bigger each year ... more attendees, more industry CEOs, and more for me to talk about. 

The underlying message from Mike Boyd (Chairman, Boyd Group International) at this year's forecast summit: Airline strategies have eclipsed economic factors as drivers of passenger levels. 

Airlines are essentially flying at capacity, says Boyd, and airline operating strategies will lead to slower passenger growth in the U.S. 

"It's one airline system," he comments. "Forecasting major and regional systems are meaningless."

While the replacement of regional jets by mainline carriers will spike traffic at several markets, air access to and from a particular region will focus on fewer airports, he adds.

Carriers are shifting their fleet mix, and Boyd predicts there will be 1,000 less regional jets in the air in ten years, down from some 1,400 now. Much of the demand will be in the 126 to 150-seat category, and airlines will continue to upgauge (replace smaller planes with larger ones).

Remarks Boyd, "The international impact on air travel demand will increase faster than domestic." He also points to a new passenger category - the 'impulse' traveler, which is generated by offering low-cost high-value leisure service (think Allegiant).

The message here is slow growth. Boyd Group predicts there will be approximately 740-745 million U.S. enplanements in 2012, at or slightly below 2011’s figures. Because U.S. airlines are restructuring to accommodate higher fuel costs, capacity will be adjusted to capture maximum revenue per seat.

Top growth airports cited include Atlanta, New York/JFK, Dallas/Fort Worth, and Charlotte.

Speaking of DFW, the host airport for this year's Summit, CEO Jeff Fegan pointed to IT as an increasing area of investment for the airport.

"IT is a very significant part of our overall investment," he relates. "When you look at all of our departments, public safety is number one, and IT is number two in terms of money we spend each year. Our IT department now includes more than 120 professionals who manage more than 100 different systems."

Currently in the works at DFW, the airport is installing a new parking control system "that will really transform how our parking products operate, and what we are able to provide our customers," he adds.

"As we go through the terminal renewal program, we are loading up the terminals with the infrastructure necessary to take advantage of anything that’s out there in terms of new technologies, advertising, entertainment … those types of things.

"The other big one that is just ready to come off the drawing board is with AT&T … they have their corporate headquarters in Dallas, and we worked a deal with them to provide free wireless at DFW. It’s almost ready to launch – free wireless at a speed that most airports haven’t heard of … about 9MB per second. You can even pick up the signal when you are in the parking lot, or in the plane at the gate.

"We have a number of those types of features as part of the renewal program to enhance customer service; it's a very, very important part of our business."

Southwest Airlines CEO, Gary Kelly, also spoke at the event. He relates that the strengths that only allow for short-haul markets will go away … and Southwest will be able to fly where it wants non-stop in the contiguous 48 states.

On the topic of Love Field, Kelly says the airport has languished. "It was in serious decline before the compromise was reached in 2006 … it was a micro-economic example of the larger issue: around the country, short-haul traffic has been in pretty serious decline, and so has Love Field.

"That trend has been arrested since ’06 when we could publish itineraries beyond what is now the nine-state Wright Amendment area, and that’s been healthy."

From the perspective of the kinds of places Southwest can serve, it’s expanded, remarks Kelly. "We have broken some old paradigms. Now, we are all in essence low-fare airlines.

"We are an all-737 carrier, so I think the fact that we have 143 seats per departure defines the kind of a market that we can serve.

"By the way, we are a big-market airline; we don’t serve little cities … if we do, it’s going to a big city. You don’t see little city to little city; we don’t have an RJ that we can gauge to either a small market or a market that is shrinking. We don’t have that tool, and probably will never do it.

With regard to opportunities, Kelly adds, "The most visible opportunities we have are with our fleet. We have five strategic initiatives underway, and one that is more obvious but complex is what I would describe as a fleet modernization strategy.

"So we are upgauging somewhat; we are retrofitting our 737-700 fleet with new, more comfortable seats … they are thinner to the extent that it allows us to get another row of seats on there. So we will give a lower unit cost with those aircraft, and obviously, six more seats worth of additional revenue opportunities."

All in all, the event went very well, including the workshop on non-aeronautical revenue generation I led with Columbus Regional Airport Authority concessions manager, David Saleme. Airport Business developed a survey on the topic on non-aeronautical revenue recently, and many of you may have participated - I thank you generously for that.

I presented some of the survey results as part of our workshop at the Boyd Summit, and I will publish a report on more of the results in the coming weeks.

Thanks for your interest,