30 th Annual FAA Aviation Forecast Conference AIRPORT FORECASTING IN UNCERTAIN TIMES Presented By: Christina Cassotis Vice President, SH&E, Inc. Presented By: Christina Cassotis Vice President, SH&E, Inc. Washington D.C., March 18, 2005

1 Aviation Forecasts Are Necessary for Planning but Challenges Are Part of the Work Purpose: Problem: Solution: To Assess Future Infrastructure Requirements and the Relative Timing of Capital Investments Forecasts are Never Precise Too Many Assumptions, Too Many Unknowns Incorporate Uncertainty into Forecasting and the Planning Processes

2 Forecast Scope Depends on the Application

3 Airport Forecasters Face A Number of Issues Understanding the Factors that Drive Demand for Your Airport Recognizing Emerging Trends and How They May Impact Your Airport –Industry-wide developments –Local factors Predicting the Future in an Unstable and Ever Changing Industry Understanding the Factors that Drive Demand for Your Airport Recognizing Emerging Trends and How They May Impact Your Airport –Industry-wide developments –Local factors Predicting the Future in an Unstable and Ever Changing Industry

4 Understanding the Demand Profile for Your Airport is Key Growth is Fueled by Different Factors Market Segments Likely to Grow at Different Rates Infrastructure Requirements Vary Growth is Fueled by Different Factors Market Segments Likely to Grow at Different Rates Infrastructure Requirements Vary Local vs. Connecting Resident vs. Visitor Domestic vs. International Short-haul vs. Long-haul Business vs. Leisure Market Segments

5 Identifying the Drivers of Demand in a Stable Environment Can Be Straightforward Personal Income Economy Population Growth Air Fares Service Levels Alternate Airports Substitute Modes Passenger Demand Forecast

M 200M 300M 400M 500M 600M 700M But, Unpredictable External Events Can Disrupt a Stable Growth Pattern U.S. Airline Revenue Enplanements

7 9/11 and the 2001 Economic Recession Had A Pronounced Impact on US Demand U.S. Airline Revenue Enplanements Source: Air Transport Association Trendline 14% Below Expected 9/11 & Economic Recession

8 Industry Developments Will Influence Future Airport Traffic Levels Growing Market Presence of Low Cost Carriers Regional Jet Deployment Increased Use of Secondary Airports Airline Industry Consolidation Growing Market Presence of Low Cost Carriers Regional Jet Deployment Increased Use of Secondary Airports Airline Industry Consolidation

The LCC Phenomenon is a Global Trend

10 Low-Fare Airlines Now Represent Nearly 30% of the U.S. Market Source: OAG Schedule Tapes and Innovata U.S. Low-Fare Carrier Share of Total U.S. Nonstop Seats

11 Canada Has Experienced Rapid LCC Growth Source: OAG Schedule Tapes only, does not include charter activity Low Cost Carrier Share of Nonstop Intra-Canada Seats

12 LCCs are Also Gaining a Foothold in Europe Source: OAG Schedule Tapes Low Cost Carrier Share of Nonstop Intra-Europe Seats Note: Excludes charter seats which carry half of intra-Europe demand

13 Europe’s LCC Market is Far From Mature Upstart LCCs and Reinvented Carriers Are Poised for Significant Growth in Europe

14 The LCC Phenomenon is Rapidly Spreading Across Asia with Several New Entrants in SE Asia Market Malaysian-based Also serving Thailand and Indonesia –Orient Thai provides low-cost Int’l service –Formed One-Two-Go to serve domestic routes 2 nd Largest Philippines-based carrier Singapore-based LCC Launched service in May 2004 Thai AirAsia - Joint venture with AirAsia and Thai interests Malaysian-based Also serving Thailand and Indonesia –Orient Thai provides low-cost Int’l service –Formed One-Two-Go to serve domestic routes 2 nd Largest Philippines-based carrier Singapore-based LCC Launched service in May 2004 Thai AirAsia - Joint venture with AirAsia and Thai interests Value Air

15 Established Carriers Also Have Plans for LCC Operations in Asia Looking to expand from Australian market into SE Asia Launched Singapore-based JetStar Asia, in December 2004 Inaugural flight from Changi to Bangkok, September 15, 2004 Launched Nok Air July 20, 2004, a Budget Carrier Serving Domestic Thai Markets Tiger Airways

16 In Addition, China and Japan Are Exploring LCC Competition Considering the entry of LCCs to serve domestic market Numerous underutilized regional airports Launching Air Next in 2005 Will serve southern Japan Island markets

Airports Served by LCCs Experience Dramatic Traffic Growth But Surrounding Airports May See Slower Growth or Traffic Declines

18 LCCs Can Alter Airport Usage Patterns in a Multi-Airport Region – The Boston Example Avoided Boston Logan Airport due to Congestion Entered Providence, October 1996 Entered Manchester, June 1998 Avoided Boston Logan Airport due to Congestion Entered Providence, October 1996 Entered Manchester, June 1998 Southwest Serves the Boston Market Through Secondary Airports Greater Boston Airport System Primary Commercial Service Airport Secondary Airport Boston Logan Boston Logan Manchester Providence

19 Average Annual Passenger Growth The Secondary Airports Experienced Phenomenal Growth after Southwest Airlines’ Entry Source: Airport Records and US DOT, Form 41 schedules.

20 Providence & Manchester 14% (+0.2M) Logan86%(+1.3M) Providence & Manchester 63%(+5.5M) Logan37%(+3.2M) +1.5 Million Passengers +7.5 Million Passengers Source: Airport Records and US DOT, Form 41 schedules. With LCC Service, The Secondary Airports Attracted Most of the Region’s Passenger Growth

21 LCC Growth is Expected to Continue as They Account for an Increasing Share of Aircraft Orders Distribution of US Airline Aircraft Orders Source: ACAS Database

22 Regional Jet Aircraft Are Also Transforming the Industry Opening Up New, Thin Markets –Hub Bypass and Point-to-Point Services Replacing Unpopular Turboprops Augmenting Mainline Service in Off-Peak Hours Opening Up New, Thin Markets –Hub Bypass and Point-to-Point Services Replacing Unpopular Turboprops Augmenting Mainline Service in Off-Peak Hours

23 There Has Been Explosive Growth in the Use of Regional Jets in Recent Years, Particularly in the US Note: August 1990 – August 2004 and March 2005 Source: OAG Schedule Tapes and Innovata Daily U.S. Domestic Departures with RJs 1990 – 2005

24 Boeing Predicts that RJ’s Will Account for 17% of the Worldwide Fleet in Source: Boeing, Current Market Outlook, ,200 Aircraft 34,800 Aircraft

25 Over 75% of New RJs Will be Deployed in North America and Europe 500 1,000 1,500 2,000 2,500 RJ Deliveries by World Region, Source: Boeing, Current Market Outlook, 2004.

26 At the Airport Level, An Influx of RJs can Affect Capacity and Facility Needs Average Aircraft Size Will Increase to Accommodate Growing Passenger Demand Old Assumption: New Reality: Average Aircraft Size Has Been Declining Requiring More Aircraft Operations to Accommodate the Same Number of Expected Passengers

27 In Recent Years, There Has Been a Steep Decline in Average Aircraft Size Due Largely to the Influx of RJs and Emphasis on Service Frequency Note: System Operations for Large and Regional Carriers Source: FAA Aerospace Forecasts, March 2004 Average Seats per Departure

The Realities of Forecasting

29 The Factors that Explain Historic Growth Can Be Easily Quantified Passenger Enplanements – Major US Airport R 2 = 99%

30 A Good Historic Fit Does Not Guarantee an Accurate Forecast Historic Fit Forecast Passenger Enplanements – Major US Airport

31 There are Inherent Risks with Using Historical Relationships to Predict the Future Structural Changes May Alter the Relationship Between Independent Variables and Traffic Growth New Factors that Influence Passenger Demand May Arise Structural Changes May Alter the Relationship Between Independent Variables and Traffic Growth New Factors that Influence Passenger Demand May Arise

32 The US Short Haul Market Was Disproportionately Affected by 9/11 and Has Not Fully Recovered The “Hassle” Factor – don’t go or drive instead of fly The Velocity Effect –fewer trips made by those who remain in the market The Corporate Policy Effect –reinforces both of the above The “Hassle” Factor – don’t go or drive instead of fly The Velocity Effect –fewer trips made by those who remain in the market The Corporate Policy Effect –reinforces both of the above

So, How do You Reflect Inherent Uncertainties and Plan Effectively?

34 Develop High and Low Projections That Bracket the Most Likely Forecast Historic and Forecast Passenger Enplanements Major US Airport Sources: SH&E Analysis

M26.5M27.4M Focus on Threshold Levels and Not Forecast Years Threshold Levels Drive Infrastructure Needs 450, , , , ,000700, Low 29M HighLowRJHigh 37.5M45M HistoricForecast Annual Operations 493K 507K 479K 510K 552K 543K 585K 608K 656K 529K RJ Years Passenger Traffic Thresholds Boston Logan Airport Planning Forecasts

36 The Best Planning Forecasts Recognize Inherent Uncertainties Rely on Several Different Forecast Approaches Reflect a Reasonable Range of Future Outcomes Incorporate Forecast Refinement as More Information Becomes Available Rely on Several Different Forecast Approaches Reflect a Reasonable Range of Future Outcomes Incorporate Forecast Refinement as More Information Becomes Available