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AIRPORT FORECASTING IN UNCERTAIN TIMES

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Low-Fare Airlines Now Represent Nearly 30% of the U.S. Market ... Secondary Airports Experienced Phenomenal Growth after Southwest Airlines' Entry ... – PowerPoint PPT presentation

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Title: AIRPORT FORECASTING IN UNCERTAIN TIMES


1
AIRPORT FORECASTING IN UNCERTAIN TIMES
Presented By Christina Cassotis Vice President,
SHE, Inc.
30th Annual FAA Aviation Forecast Conference
Washington D.C., March 18, 2005
2
Aviation Forecasts Are Necessary for Planning but
Challenges Are Part of the Work
Purpose
  • To Assess Future Infrastructure Requirements
    and the Relative Timing of Capital Investments

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

Solution
  • Incorporate Uncertainty into Forecasting and the
    Planning Processes

3
Forecast Scope Depends on the Application
4
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

5
Understanding the Demand Profile for Your Airport
is Key
Market Segments
Local vs. Connecting Resident vs.
Visitor Domestic vs. International Short-haul vs.
Long-haul Business vs. Leisure
  • Growth is Fueled by Different Factors
  • Market Segments Likely to Grow at Different Rates
  • Infrastructure Requirements Vary

6
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
7
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
8
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
9
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

10
The LCC Phenomenon is a Global Trend
11
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
12
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
13
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
14
Europes LCC Market is Far From Mature
Upstart LCCs and Reinvented Carriers Are Poised
for Significant Growth in Europe
15
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 Intl 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

Value Air
16
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
17
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

18
Airports Served by LCCs Experience Dramatic
Traffic Growth But Surrounding Airports May See
Slower Growth or Traffic Declines
19
LCCs Can Alter Airport Usage Patterns in
a Multi-Airport Region The Boston Example
Southwest Serves the Boston Market Through
Secondary Airports
  • Avoided Boston Logan Airport due to Congestion
  • Entered Providence, October 1996
  • Entered Manchester, June 1998

20
The Secondary Airports Experienced Phenomenal
Growth after Southwest Airlines Entry
Average Annual Passenger Growth
Source Airport Records and US DOT, Form 41
schedules.
21
With LCC Service, The Secondary Airports
Attracted Most of the Regions Passenger Growth
1990-1995
1995-2000
Providence Manchester 14 (0.2M)
Logan 37 (3.2M)
Logan 86 (1.3M)
Providence Manchester 63 (5.5M)
1.5 Million Passengers
7.5 Million Passengers
Source Airport Records and US DOT, Form 41
schedules.
22
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
23
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

24
There Has Been Explosive Growth in the Use of
Regional Jets in Recent Years, Particularly in
the US
Daily U.S. Domestic Departures with RJs 1990
2005
Note August 1990 August 2004 and March
2005 Source OAG Schedule Tapes and Innovata
25
Boeing Predicts that RJs Will Account for 17 of
the Worldwide Fleet in 2023
2003
2023
16,200 Aircraft
34,800 Aircraft
Source Boeing, Current Market Outlook, 2004.
26
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.
27
At the Airport Level, An Influx of RJs can Affect
Capacity and Facility Needs
Old Assumption
  • Average Aircraft Size Will Increase to
    Accommodate Growing Passenger Demand
  • Average Aircraft Size Has Been Declining
  • Requiring More Aircraft Operations to
    Accommodate the Same Number of Expected Passengers

New Reality
28
In Recent Years, There Has Been a Steep Decline
in Average Aircraft Size
Average Seats per Departure
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
29
The Realities of Forecasting
30
The Factors that Explain Historic Growth Can Be
Easily Quantified
Passenger Enplanements Major US Airport
R2 99
31
A Good Historic Fit Does Not Guarantee an
Accurate Forecast
Passenger Enplanements Major US Airport
Forecast
Historic Fit
32
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

33
The US Short Haul Market Was Disproportionately
Affected by 9/11 and Has Not Fully Recovered
  • The Hassle Factor
  • dont 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

34
So, How do You Reflect Inherent Uncertainties and
Plan Effectively?
35
Develop High and Low Projections That Bracket the
Most Likely Forecast
Historic and Forecast Passenger
Enplanements Major US Airport
Sources SHE Analysis
36
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
High
Low
RJ
High
High
RJ
1993
1998
2000
29M
37.5M
45M
Years
Passenger Traffic Thresholds
37
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
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