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AIRPORT FORECASTING IN UNCERTAIN TIMES. Presented By: Christina Cassotis Vice President, SH&E, Inc. 30 th Annual FAA Aviation Forecast Conference. Washington D.C., March 18, 2005. Aviation Forecasts Are Necessary for Planning but Challenges Are Part of the Work. Purpose:.

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airport forecasting in uncertain times

AIRPORT FORECASTINGIN UNCERTAIN TIMES

Presented By:

Christina Cassotis

Vice President, SH&E, Inc.

30th Annual FAA Aviation Forecast Conference

Washington D.C., March 18, 2005

aviation forecasts are necessary for planning but challenges are part of the work
Aviation Forecasts Are Necessary for Planning but Challenges Are Part of the Work

Purpose:

  • To Assess Future Infrastructure Requirements andthe Relative Timing of Capital Investments

Problem:

  • Forecasts are Never Precise
  • Too Many Assumptions, Too Many Unknowns

Solution:

  • Incorporate Uncertainty into Forecasting andthe Planning Processes
airport forecasters face a number of issues
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 demand profile for your airport is key
Understanding the Demand Profile for Your Airport is Key

Market Segments

  • 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

identifying the drivers of demand in a stable environment can be straightforward
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

PassengerDemandForecast

but unpredictable external events can disrupt a stable growth pattern
But, Unpredictable External Events Can Disrupt a Stable Growth Pattern

U.S. Airline Revenue Enplanements

700M

600M

500M

400M

300M

200M

100M

1970

1975

1980

1985

1990

1995

2001

9 11 and the 2001 economic recession had a pronounced impact on us demand
9/11 and the 2001 Economic Recession Had A Pronounced Impact on US Demand

U.S. Airline Revenue Enplanements

Trendline

14% Below Expected

9/11 & Economic Recession

Source: Air Transport Association

industry developments will influence future airport traffic levels
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
low fare airlines now represent nearly 30 of the u s market
Low-Fare Airlines Now Represent Nearly 30% of the U.S. Market

U.S. Low-Fare Carrier Share of Total U.S. Nonstop Seats

Source: OAG Schedule Tapes and Innovata

canada has experienced rapid lcc growth
Canada Has Experienced Rapid LCC Growth

Low Cost Carrier Share of Nonstop Intra-Canada Seats

Source: OAG Schedule Tapes only, does not include charter activity

lccs are also gaining a foothold in europe
LCCs are Also Gaining a Foothold in Europe

Low Cost Carrier Share of Nonstop Intra-Europe Seats

Note: Excludes charter seats which carry half of intra-Europe demand

Source: OAG Schedule Tapes

europe s lcc market is far from mature
Europe’s LCC Market is Far From Mature

Upstart LCCs and Reinvented Carriers Are Poised for Significant Growth in Europe

the lcc phenomenon is rapidly spreading across asia with several new entrants in se asia market
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
  • 2nd Largest Philippines-based carrier
  • Singapore-based LCC
  • Launched service in May 2004
  • Thai AirAsia - Joint venture with AirAsia and Thai interests

ValueAir

established carriers also have plans for lcc operations in asia
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

TigerAirways

in addition china and japan are exploring lcc competition
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
slide18

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

lccs can alter airport usage patterns in a multi airport region the boston example
Avoided Boston LoganAirport due to Congestion

Entered Providence,October 1996

Entered Manchester,June 1998

Greater BostonAirport System

Primary CommercialService Airport

Secondary Airport

Manchester

Boston

Logan

Providence

LCCs Can Alter Airport Usage Patterns in aMulti-Airport Region – The Boston Example

Southwest Serves the Boston Market Through Secondary Airports

the secondary airports experienced phenomenal growth after southwest airlines entry
The Secondary Airports Experienced Phenomenal Growth after Southwest Airlines’ Entry

Average Annual Passenger Growth

Source: Airport Records and US DOT, Form 41 schedules.

with lcc service the secondary airports attracted most of the region s passenger growth
With LCC Service, The Secondary Airports Attracted Most of the Region’s Passenger Growth

1995-2000

1990-1995

Providence & Manchester 14%

(+0.2M)

Logan

37%

(+3.2M)

Logan

86%

(+1.3M)

Providence & Manchester

63%

(+5.5M)

+1.5 MillionPassengers

+7.5 MillionPassengers

Source: Airport Records and US DOT, Form 41 schedules.

lcc growth is expected to continue as they account for an increasing share of aircraft orders
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

regional jet aircraft are also transforming the industry
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
there has been explosive growth in the use of regional jets in recent years particularly in the us
There Has Been Explosive Growth in the Use of Regional Jets in Recent Years, Particularly in the US

Daily U.S. Domestic Departures with RJs1990 – 2005

Note: August 1990 – August 2004 and March 2005

Source: OAG Schedule Tapes and Innovata

boeing predicts that rj s will account for 17 of the worldwide fleet in 2023
Boeing Predicts that RJ’s Will Account for 17% of the Worldwide Fleet in 2023

2023

2003

16,200 Aircraft

34,800 Aircraft

Source: Boeing, Current Market Outlook, 2004.

over 75 of new rjs will be deployed in north america and europe

1,500

1,000

500

2,500

2,000

Over 75% of New RJs Will be Deployed in North America and Europe

RJ Deliveries by World Region, 2004-2023

Source: Boeing, Current Market Outlook, 2004.

at the airport level an influx of rjs can affect capacity and facility needs
At the Airport Level, An Influx of RJs can Affect Capacity and Facility Needs

Old Assumption:

  • Average Aircraft Size Will Increase to AccommodateGrowing Passenger Demand
  • Average Aircraft Size Has Been Declining
  • Requiring More Aircraft Operations to Accommodatethe Same Number of Expected Passengers

New Reality:

in recent years there has been a steep decline in average aircraft size
In Recent Years, There Has Been a Steep Decline in Average Aircraft Size

Average Seats per Departure

Due Largely to the Influx of RJs andEmphasis on Service Frequency

Note: System Operations for Large and Regional CarriersSource: FAA Aerospace Forecasts, March 2004

the factors that explain historic growth can be easily quantified
The Factors that Explain Historic Growth Can Be Easily Quantified

Passenger Enplanements – Major US Airport

R2 = 99%

a good historic fit does not guarantee an accurate forecast
A Good Historic Fit Does Not Guarantee an Accurate Forecast

Passenger Enplanements – Major US Airport

Forecast

Historic Fit

there are inherent risks with using historical relationships to predict the future
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
the us short haul market was disproportionately affected by 9 11 and has not fully recovered
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
develop high and low projections that bracket the most likely forecast
Develop High and Low Projections That Bracket the Most Likely Forecast

Historic and Forecast Passenger EnplanementsMajor US Airport

Sources: SH&E Analysis

focus on threshold levels and not forecast years

700,000

650,000

600,000

550,000

500,000

450,000

Focus on Threshold Levels and Not Forecast Years

Threshold Levels Drive Infrastructure Needs

Boston Logan Airport Planning Forecasts

Annual Operations

Historic

Forecast

656K

608K

585K

552K

543K

529K

510K

507K

493K

479K

23.6M

26.5M

27.4M

Low

RJ

High

Low

RJ

High

High

1993

1998

2000

29M

37.5M

45M

Years

Passenger Traffic Thresholds

the best planning forecasts recognize inherent uncertainties
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 InformationBecomes Available