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

2. Airport Systems Planning & Design / RdN  Current Status of the Air Transport Industry Objective: To define  current situation  major new factors Topics:  Airline and Airport Rankings  Current Trends Shake-up / Disappearance of Network Airlines Coming and Going of Transfer Hubs Commercialization / Privatization of Airports

3. Airport Systems Planning & Design / RdN  Principal drivers of air transportation industry Long-term 6% annual decrease in air fares :  Driving comparable annual worldwide traffic growth Commercialization:  market economy management replaces government ownership and control in a regulated environment Low-cost carriers  Southwest, AirTran, Jet Blue, Westjet, Ryanair, easyjet, etc Globalization:  transnational airline alliances and airport groups Technical innovation :  e-commerce, RJs, A380 NLA, satellite-based navigation

4. Airport Systems Planning & Design / RdN  Major Recent Events Disappearance of Major Airlines  TWA, Swissair, Sabena Mergers of  Japan Airlines and Japan Air Systems (2002)  Air France and KLM (Sept 04) Major Bankruptcies  United, US Airways, Air Canada – others near! Surge by Low-Cost Passenger Carriers  Air Tran, Ryanair, easyjet Surge by Chinese Carriers  Cathay Pacific, China Airlines, EVA … also by Fedex

5. Airport Systems Planning & Design / RdN  World Traffic, (Pax-Km x 10 9 ) World and IATA

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

7. 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

8. Airport Systems Planning & Design / RdN  Airports by millions of pax., 2003 (IATA data; US- Bold, hubs- italics)

9. Airport Systems Planning & Design / RdN  Airports by millions of pax., 2003 (IATA data; US- Bold, hubs- italics)  In 2003, airport traffic mostly stagnated  Big drops in Asian market (Hong Kong, Beijing, Singapore, Tokyo – also Hawaii and San Francisco) St Louis, Pittsburgh and Zurich as hubs close  Several airports have fallen lower in rankings (e.g. due to failures of TWA, Swiss, Sabena)

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

11. Airport Systems Planning & Design / RdN  Airports by millions of pax., 2003 (IATA data; US- Bold, hubs- italics)

12. Airport Systems Planning & Design / RdN  Airports by millions of pax., 2003 (IATA data; US- Bold, hubs- italics)

13. Airport Systems Planning & Design / RdN  Current Major Airport Projects  Bangkok, Guangzhou Major New Airports  Nagoya/Chubu Airport in Sea  Osaka/Kansai, Tokyo/Haneda Runway landfills  Toronto Airport Makeover  London/HRWTerminal 5 ($8 billion)  Washington/Dulles Mid-field Pax Bldg, etc  Madrid ; Miami/Intnatl Runway, Buildings  NY / JFK; SFO; DFW; Singapore; Rail projects  Boston/Logan ; Pax Buildings, Roads  Doha (Qatar); DubaiMajor Projects

14. Airport Systems Planning & Design / RdN  Airline Rankings (Pax-Km, billions)

15. Airport Systems Planning & Design / RdN  Airline Rankings (Passengers, millions)

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

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

18. Airport Systems Planning & Design / RdN  Main Freight Airports (ACI data; US- Bold, hubs- italics)

19. Airport Systems Planning & Design / RdN  Main Freight Airports (ACI data; US- Bold, hubs- italics)

20. Airport Systems Planning & Design / RdN  Airline Rankings (Employees, thousands)

21. Airport Systems Planning & Design / RdN  Aircraft Inventory (Jet Fleet)

22. Airport Systems Planning & Design / RdN  Economic Deregulation Deregulation  Full: USA, Canada, Australia, South Africa  Mostly: European Union Result: Competition, Cost Cuts  Existing Airlines have difficulty with staff  New Airlines start with new, younger staff with lower pay, more flexibility, less sense of entitlement...

23. Airport Systems Planning & Design / RdN  Innovations originating in the U.S.

24. Airport Systems Planning & Design / RdN  Privatized status of airlines, previously publicly owned

25. Airport Systems Planning & Design / RdN  Airline Market “Caps” (=price/share x shares) US Airways in Chapter 11 as of September 15 !!

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

27. Airport Systems Planning & Design / RdN  Airline Alliances Star Alliance -- United, Lufthansa, Air Canada, Varig, ANA, Singapore, Thai, Air New Zealand, SAS, Asiana, Bmi, LOT Austrian, Tyrolean, Spanair oneworld --American, British, Aer Lingus, Finnair, Iberia, Qantas, Cathay Pacific, Lan Chile Wings --KLM, Northwest, Continental SkyTeam -- Air France + KLM, Delta, Alitalia, Korean, Aeromexico, Czech Aeroflot? China Southern? Wings???

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

29. 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, Ryanair  “Network”: Easyjet, AirTran  Quasi-Network: Southwest?? The innovators are the most profitable and valuable airlines

30. 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…  Or disappear? Swissair, USAir? United?

31. Airport Systems Planning & Design / RdN  Airline Seat-Mile Costs, 2004 Source: US DOT

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

33. Airport Systems Planning & Design / RdN  Meanwhile... The nature of the Airport Business is changing dramatically  More Commercially oriented  Less Government control  More competition from “new” entrants Providence, Cincinnati, Lübeck, Liverpool... Not at all clear that current generation of airport professionals fully recognizes what this means