Current Status of the Airport / Airline Industry Dr. Richard de Neufville Professor of Engineering Systems and Civil and Environmental Engineering Massachusetts Institute of Technology Airport Systems Planning & Design / RdN 

Current Status of the Air Transport Industry Objective: To define current situation and major new factors Airline and Airport Rankings Major Trends Shrinking, Bankruptcy of Legacy Airlines Losses in Transfer Hubs: St Louis, Pittsburgh Rise of Innovative Carriers: Southwest, Fedex And Secondary A/Ps: Providence, Ft Lauderdale Demand for Low Cost Buildings at Airports Airport Systems Planning & Design / RdN 

Airport Systems Planning & Design / RdN  Major Recent Events Disappearance of Major Airlines TWA, Swissair, Sabena Mergers JAL and JAS (2002) ; Air France + KLM (2004) America West + US Airways; Lufthansa + Swiss (2005) United +bmi (UK)?? + Aloha???; Gol + Varig (2007) Major Bankruptcies… and recoveries United, US Airways, Delta, Air Canada, Northwest Surge by Low-Cost, Chinese, Cargo Carriers Air Tran, Ryanair, easyjet, AirAsia Cathay Pacific, China Airlines, EVA Airport Systems Planning & Design / RdN 

Airport Systems Planning & Design / RdN  Electronic Ticketing Big Savings – up to $3 billion for air transport industry Less staff, less space, less rent… $1 per E ticket vs. ~$10 per paper ticket Status >70 % of all tickets worldwide (Dec. 2006) Over 86% in Canada ~ 83% in UK, >1/2 in Asia Pacific Some airlines at 100%: Southwest, Ryanair Source: IATA WATS Airport Systems Planning & Design / RdN 

Bar Coded boarding passes Common Use Kiosks Bar Coding Estimated savings: $3.50 per ticket, or about $2.5 Billion/year for 100% use IATA Goal: 100% by 2010 Common Use Kiosks Estimated Savings $ 2.50 per check in 49 airports had CUSS by end of 2006 Source: IATA WATS Airport Systems Planning & Design / RdN 

Principal drivers of air transportation industry Long-term annual decrease in air fares: Driving comparable annual worldwide traffic growth – aircraft size, engines, composite materials Low-cost carriers Southwest, AirTran, Jet Blue, Westjet, Ryanair, easyjet, AirAsia New business practices Commercialization: market economy management replaces… government ownership and economic regulation Globalization: transnational airline alliances and airport groups Technical innovation: e-commerce, RJs, satellite-based navigation Airport Systems Planning & Design / RdN 

Annual Decrease in Air Fares Source: IATA WATS Airport Systems Planning & Design / RdN 

IATA Members’ Traffic, Revenues, Yield, and CPI Source: IATA World Air Transport Statistics Airport Systems Planning & Design / RdN 

Interpretation of Trends Over past 13 years… Yields (revenues/unit distance) have dropped about 20% While inflation has risen about 50% So: costs on a constant basis cut in half Thus: traffic doubled Implying price elasticity about -1.3 > -1.0 So total revenues grow as price drops Airport Systems Planning & Design / RdN 

World Traffic, (Pax-Km x 109) World and IATA Airport Systems Planning & Design / RdN 

Airport Systems Planning & Design / RdN  Non-IATA Members As of 2006, many airlines in the top 50 worldwide were not in IATA… Southwest, Jetblue, AirTran, Spirit, Westjet Ryanair, easyjet Frontier, Hawaiian, Skywest Condor Source: IATA WATS Airport Systems Planning & Design / RdN 

Airport Systems Planning & Design / RdN  Airports by millions of pax, 2006 (ACI data from IATA WATS; US- Bold, hubs- italics) Airport Systems Planning & Design / RdN 

Airports by millions of pax, 2006 In 2006, airport traffic stagnated at many airports San Francisco has lost a lot Big increases in New Hubs – such as Madrid, Philadelphia Secondary airports – London/Stansted Asia, especially China, Thailand and Dubai! Thus, significant changes in ranking over last several years Airport Systems Planning & Design / RdN 

Airport Systems Planning & Design / RdN  Airports by millions of pax, 2006 (ACI data from IATA WATS; US- Bold, hubs- italics) Airport Systems Planning & Design / RdN 

Changes in Transfer Hubs Big changes in recent years New Hubs Big: Paris/de Gaulle, Amsterdam, Madrid Medium: Dubai; London/Stansted, Munich “Close” of old hubs Pittsburgh (US Airways shrunk to Philadelphia) St Louis (TWA merged out of existence) Zurich (collapse of Swissair) Airport Systems Planning & Design / RdN 

Current Major Airport Projects Atlanta, Toronto Airport Makeovers (Bangkok), Kobe Major New Airport Osaka/Kansai; Tokyo/Haneda Runway landfills Singapore Massive new Terminal Shanghai/Pudong New Runway, Terminal Paris/de Gaulle; DFW Pax Buildings, APM London/HRW Terminal 5 ($8 billion) Frankfurt A380 base (and T3?) Madrid ; Miami/Intnatl Runway, Buildings Doha (Qatar); Dubai Major Projects Airport Systems Planning & Design / RdN 

Airline Rankings 2006 (Pax-Km, billions) Source: IATA WATS Airport Systems Planning & Design / RdN 

Airline Rankings 2006 (Passengers, millions) Source: IATA WATS Airport Systems Planning & Design / RdN 

Airline Rankings 2006 (Freight Tonne-Km, Billions) Airport Systems Planning & Design / RdN 

Airline Rankings 2006 (Freight Tonne, millions) Airport Systems Planning & Design / RdN 

Airport Systems Planning & Design / RdN  Main Freight Airports Sources: ACI “Top 30 Airports” 2004 FAA CY 2005 Cargo Landings Hubs in Blue. Airport Systems Planning & Design / RdN 

Airline Market “Caps” Jan 07 (=price/share x shares) $ billions Airport Systems Planning & Design / RdN 

Airline Market “Caps” Jan 07 (=price/share x shares) $ billions Airport Systems Planning & Design / RdN 

Airport Market “Caps” (=price/share x shares) Many airports are economically more powerful than airlines! Airport Systems Planning & Design / RdN 

Airport Systems Planning & Design / RdN  Airline Alliances Star Alliance -- United, Lufthansa + Swiss, Air Canada, Thai, US Airways, ANA, Singapore, LOT, SAS, Air New Zealand, Thai, TAP, bmi, South African, Asiana, Austrian, Spanair, plus regionals oneworld American, British, JAL,Aer Lingus, Finnair, Iberia, Qantas, Cathay Pacific, Lan Chile, Malev, Royal Jordanian SkyTeam Air France + KLM, Alitalia, Czech, Korean, Continental, Delta, Northwest, Aeromexico, Aeroflot Airport Systems Planning & Design / RdN 

Alliances’ Market Shares 2006 Airport Systems Planning & Design / RdN 

Airport Systems Planning & Design / RdN  New Types of Airlines Cargo Integrators UPS, Fedex, DHL Role of “Post Offices” ?? Low-Cost Carriers Point-to-point: Southwest, Jetblue, Ryanair, Air Asia, Gol (Brazil) “Network”: Easyjet, AirTran Quasi-Network: Southwest?? The innovators are the most profitable and valuable airlines Airport Systems Planning & Design / RdN 

Challenge to Traditional Network Carriers Is their business model working? Will people pay enough for convenience of easy connection at hubs big expensive passenger buildings travel agents If not, what will they do? Squeeze out costs (wages, standards) and survive on a more modest scale? Manage by having “cheap” partners Delta -- Song; United -- Ted… (hasn’t worked) Disappear? TWA, Sabena, Swissair… Merge? KLM, America West, Japan AS… Airport Systems Planning & Design / RdN 

Airline Seat-Mile Costs, 06 Q1 Source: US DOT, BTS, www.bts.gov/press_releases/ 2006 Airport Systems Planning & Design / RdN 

Airline Seat-Mile Costs, 05 Source: US DOT, BTS, www.bts.gov/press_releases/ 2005 Airport Systems Planning & Design / RdN 

Effect of Low-Cost Carriers Market Share becoming dominant US: About 45% Europe: 12% + 20% charters = 1/3 of total Inter-Asia: only 6% as of summer 2004 Real Yields have dropped by 1/3 in past decade Source: IATA WATS and McKinsey and Co. Airport Systems Planning & Design / RdN 

Southwest compared to Leading Domestic Competitors Sources US FAA, Bureau of Transportation Statistics and Airfleets. net Airport Systems Planning & Design / RdN 

Consequences for Traffic Cheaper travel will increase traffic Where will it go? To traditional hubs of legacy majors? To/from leisure locations and homes? Yucatan, Malaga, Bali, etc To secondary airports? Miami/Ft. Lauderdale, Los Angeles/Ontario, London/Stansted, Frankfurt/Hahn, Rome/Ciampino, etc. Airport customers likely to demand new locations, cheaper facilities Airport Systems Planning & Design / RdN 

Consequences for Airports (1) “Low cost airlines” are causing the development of “low cost airports” Secondary airports: Boston/Providence, Miami/Fort Lauderdale, London/Luton Inexpensive terminals, designed for new ways of handling passengers – such as Jetblue facility at New York/Kennedy Compare Boston Delta and Jetblue facilities: Pax per gate about 500,000 pax for Jetblue, about half for Delta Airport Systems Planning & Design / RdN 

Consequences for Airports (2) Struggle of “low cost” and “legacy” airlines extending to competition between “low cost” and traditional main airports Boston/Providence vs. Boston/Logan Miami/International vs Miami/Ft Lauderdale London/Heathrow vs. London/Stansted Bangkok/Suvarnabhumi vs. B/Don Muang Airport Systems Planning & Design / RdN 

Airport Systems Planning & Design / RdN  Bottom Line ... The nature of the Airport Business is changing dramatically Not clear that airport professionals fully recognize full implications Strong professional tensions … Some examples (not for publication) Airport Systems Planning & Design / RdN 