# Presentation: 161845

## AIRPORT FORECASTING IN UNCERTAIN TIMES

**AIRPORT FORECASTING**** ****IN UNCERTAIN TIMES**

***Presented By:***
**Christina Cassotis**
- Vice President, SH&E, Inc.

**Washington D.C.,  March 18, 2005**

## 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**

## Forecast Scope Depends on the Application

## 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

**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**

## 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**

**Passenger****Demand****Forecast**

## But, Unpredictable External Events Can Disrupt a Stable Growth Pattern

**1975**

**1980**

**1985**

**1990**

**1995**

**2001**

**100M**

**200M**

**300M**

**400M**

**500M**

**600M**

**700M**

**But, Unpredictable External Events Can Disrupt a Stable Growth Pattern**

**U.S. Airline Revenue Enplanements**

## 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**

**Source: Air Transport Association**

***Trendline***

***14% Below Expected***

***9/11 & Economic Recession***

## 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 **

## The LCC Phenomenonis a Global Trend

## Low-Fare Airlines Now Represent Nearly 30% of the U.S. Market

**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**

## Canada Has Experienced Rapid LCC Growth

**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 **

## LCCs are Also Gaining a Foothold in Europe

**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**

## 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**
**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**

## 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**

## 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

## LCCs Can Alter Airport Usage Patterns in aMulti-Airport Region – The Boston Example

**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**

***Southwest Serves the Boston Market Through Secondary Airports***

## The Secondary Airports Experienced Phenomenal Growth after Southwest Airlines’ Entry

**Average Annual Passenger Growth**

**The Secondary Airports Experienced Phenomenal Growth after Southwest Airlines’ Entry**

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

**Notes:**
Regional airports grew by nearly 12% a year since 1995, faster than Logan and the nation.
This was the reverse of what happened earlier, from 1990 to 1995, when there was almost no growth at the regional airports.
Some of the growth that occurred between 1995 and 2000 was due to the stimulative effect of a strong economy, but it also reflects a fundamental shift in airport usage patterns in New England.

## With LCC Service, The Secondary Airports Attracted Most of the Region’s Passenger Growth

**Providence & Manchester ****14%**
**(+0.2M) **

**Logan**
**86%**
**(+1.3M)**

**Providence & Manchester**
**63%**
**(+5.5M)**

**Logan**
**37%**
**(+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**

**1990-1995**

**1995-2000**

**Notes:**
Another way to look at it:

The region grew by 9.5 M passengers between 1996 and 2000, and 76% of those passengers used a regional airport.

Previously, only 24% of the New England’s air passenger growth growth occurred at the Regional Airports.

## 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

**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

**Note: August 1990 – August 2004 and March 2005**
**Source: OAG Schedule Tapes and Innovata**

**Daily U.S. Domestic Departures with RJs**** *****1990 – 2005***

## Boeing Predicts that RJ’s Will Account for 17% of the Worldwide Fleet in 2023

**2003**

**2023**

**Source: Boeing, Current Market Outlook, 2004.**

**16,200 Aircraft**

**34,800 Aircraft**

## 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

**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**

## 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

## The Factors that Explain Historic Growth Can Be Easily Quantified

**Passenger Enplanements *****– Major US Airport***

**R****2**** = 99%**

## A Good Historic Fit Does Not Guarantee an Accurate Forecast

***Historic Fit***

***Forecast***

**Passenger Enplanements *****– Major US Airport***

## 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 “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?

## Develop High and Low Projections That Bracket the Most Likely Forecast

**Historic and Forecast Passenger Enplanements*****Major US Airport***

**Sources: SH&E Analysis**

## Focus on Threshold Levels and Not Forecast Years

**26.5M**

**27.4M**

**Focus on Threshold Levels and Not Forecast Years**

***Threshold Levels Drive Infrastructure Needs***

**1993**

**1998**

**2000**

**Low**

**29M**

**High**

**Low**

**RJ**

**High**

**High**

**37.5M**

**45M**

***Historic***

***Forecast***

***Annual Operations***

**493K**

**507K**

**479K**

**510K**

**552K**

**543K**

**585K**

**608K**

**656K**

**529K**

**RJ**

***Years***

***Passenger Traffic Thresholds***

**Boston Logan Airport Planning Forecasts**

## 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**