1. Airport Systems Planning & Design / RdN  Dr. Richard de Neufville Professor of Engineering Systems 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 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

3. Airport Systems Planning & Design / RdN  Major Recent Events Disappearance of Major Airlines  TWA, Swissair, Sabena, Varig Mergers  Japan Airlines and Japan Air Systems (2002)  Air France and KLM (2004 )  America West and US Airways (2005) Major Bankruptcies  United, US Airways, Air Canada, Delta, Northwest Surge by Low-Cost, Chinese, Cargo Carriers  Air Tran, Ryanair, easyjet, AirAsia  Cathay Pacific, China Airlines, EVA

4. 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  ~ 40 % of all tickets worldwide (Nov. 2005)  Over 80% in Canada  ~ 73% in UK, ~1/3 in Asia Pacific  Some airlines at 100%: Southwest, Ryanair Source: IATA WATS

5. 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

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

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

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

9. Airport Systems Planning & Design / RdN  Non-IATA Members As of 2005, many airlines in the top 50 worldwide were not in IATA…  Southwest, Jetblue, AirTran, Spirit, Continental Express  Westjet  Ryanair, easyjet  Frontier, Hawaiian, Skywest  Condor

10. 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

11. Airport Systems Planning & Design / RdN  Airports by millions of pax, 2005 (ACI + FAA data; US- Bold, hubs- italics)

12. Airport Systems Planning & Design / RdN  Airports by millions of pax, 2004  In 2005, airport traffic stagnated at most major airports  Big increases in New Hubs – such as Madrid, Philadelphia Secondary airports – London/Stansted Asia, especially China, Thailand  Thus, significant changes in ranking over last several years

13. Airport Systems Planning & Design / RdN  Airports by millions of pax, 2005 (ACI + FAA data; US- Bold, hubs- italics)

14. 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)

15. Airport Systems Planning & Design / RdN  Current Major Airport Projects  Atlanta, Toronto Airport Makeovers  Bangkok, KobeMajor New Airport  Osaka/Kansai; Tokyo/Haneda Runway landfills  SingaporeMassive new Terminal  Shanghai/PudongNew Runway, Teminal  Paris/de Gaulle; DFW Pax Buildings, APM  London/HRWTerminal 5 ($8 billion)  FrankfurtA380 base (and T3?)  Madrid ; Miami/Intnatl Runway, Buildings  Doha (Qatar); DubaiMajor Projects

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

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

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

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

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

21. Airport Systems Planning & Design / RdN  Airline Market “Caps” (=price/share x shares)

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

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

24. Airport Systems Planning & Design / RdN  Alliances’ Market Shares 2004 Market Share of Systems

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

26. 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)  Or disappear? TWA, Sabena, Swissair…

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

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

29. 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.

30. 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

31. 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 (see discussion by Regine Weston) Compare Boston Delta and Jetblue facilities

32. 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

33. 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)