# MESSAGE FROM THE ADMINISTRATOR

Aviation is the safest it’s ever been. It’s also an industry that has challenges headed its way.

As the market stands now, trends suggest an industry continuing to change over the next several yearswith international markets growing twice as fast as domestic markets. In addition, we expect the numbers of larger regional jets flying to increase while many smaller regional jets are retired. There will be increases in corporate jet flights, fractional ownership, and very light jets. Finally, airline operations are expected to return to traditional levels at most "hub-and-spoke" airports.

In 2008, we expect minimal gains in domestic capacity, with larger gains coming in international markets, especially in the Atlantic, as the US-EU open skies accord is implemented. The size of aircraft in domestic markets will fall slightly as airlines continue to adjust their operations to better match demand.

The business climate in which aviation finds itself in could not have been anticipated a decade ago. Record oil prices, congestion and the environment are changing and challenging the entire industry.Commercial aviation demand at FAA facilities is growing as the number of regional jet operations continues to expand. The demand for general aviation products and services is increasing, and with products like VLJs, it is expected to continue to increase in the future.

The FAA is constantly at work to make sure the system can keep pace with growth that continues to set records. We’re taking new approaches to airspace, deploying new and better technology, and using advanced procedures to keep things moving. In short, we are taking the lessons of the summers of 2000 and 2007 to heart.

This year marks the FAA's 33rd annual Aviation Forecast Conference. Your continued participation will make it a success. I look forward to hearing from you.

Bobby Sturgell Acting Administrator 

### FAA Aerospace Forecast Fiscal Years 2008–2025

### FAA Aerospace Forecast Fiscal Years 2008–2025

# TABLE OF CONTENTS

P AGE
FORECAST HIGHLIGHTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3

REVIEW OF 2007 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

. 5
U.S. E CONOMIC 

### A CTIVITY 

### . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6

W ORLD 

### E CONOMIC 

### A CTIVITY 

### . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
C OMMERCIAL 

### A VIATION 

### . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8 World Travel Demand 

### . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8 U.S. Travel Demand 

### . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11 Commercial Air Carriers - Passenger 

### . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11 Commercial Air Carriers - Cargo 

### . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16 U.S. Commercial Air Carriers 2007 Financial Results 

### . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17 U.S. Commercial Air Carriers 2007 Aircraft Fleets 

### . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .19
G ENERAL 

### A VIATION 

### . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19

FAA W ORKLOAD 

### . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21

FAA AEROSPACE FORECASTS FISCAL YEARS 2008 - 2025 . . . . . . . . . . . . . . . . . . . . . . 25 E CONOMIC 

### F ORECASTS 

### . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26 World Economy 

### . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28

A

VIATION 

### T RAFFIC AND 

### A CTIVITY 

### F ORECASTS 

### . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28 Commercial Aviation Forecasts 

### . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .29 Domestic Markets 

### . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30 International Markets 

### . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33 Air Cargo 

### . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36 Commercial Aircraft Fleet 

### . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .38 General Aviation 

### . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .40 FAA Workload Forecasts 

### . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42 FAA and Contract Towers 

### . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .42 En Route Centers 

### . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44

COMMERCIAL SPACE TRANSPORTATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45

RISKS TO THE FORECAST . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49

APPENDIX I: FORECAST ACCURACY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53

APPENDIX II: ACKNOWLEDGEMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57

FORECAST TABLES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 59 

### FAA Aerospace Forecast Fiscal Years 2008–2025

1

### FAA Aerospace Forecast Fiscal Years 2008–2025

2

# FORECAST HIGHLIGHTS 2008-2025

The 2008 forecast for commercial aviation calls for significant continued growth over time. System capacity in available seat miles (ASMs) – the overall yardstick for how busy aviation is both domestically and internationally – will increase 2.7 percent this year, following last year’s increase of 2.6 percent.

In domestic markets, capacity increases only 0.6 percent, with mainline carrier capacity up just 0.3 percent as low-cost carrier 1 growth slows and network carrier 2 capacity discipline continues. Regional carrier capacity, which depends in large part on feed from the network carriers, is forecast to increase 2.5 percent. Commercial carrier revenue passenger miles (RPMs) and enplanements are forecast to increase 0.6 and 1.0 percent, respectively.

The average size of domestic aircraft is expected to decline by 0.1 seats in FY 2008 to 120.3 seats. Mainline carrier average seats per aircraft is projected to fall by 0.7 seats as network carriers continue to reconfigure their domestic fleets and low-cost carriers with relatively smaller aircraft sizes are reigning in their growth. While demand for 70-90 seat aircraft continues to increase, we expect the number of 50 seat regional jets in service will fall, increasing the average regional aircraft size in 2008 by 0.9 seats to 50.5 seats per mile. Largely because of the impacts of capacity realignment, passenger trip length in domestic markets will decrease this year by 3.2 miles.

High fuel prices and concerns about the economy are dampening the near-term prospects for the general aviation industry, but the long-term outlook remains favorable. We see a strong growth in business aviation demand continuing driven by a growing U.S. and world economy, as well as a growing fleet of very light jets (VLJs). VLJs, with their relatively inexpensive operating costs, may redefine “on-demand” air taxi service. Next year, we project that 400 units will join the fleet, with that figure growing to 450- 500 a year through 2025. Partly because of the influx of new VLJs, the number of general aviation hours flown is projected to increase an average of 3.0 percent a year through 2025.

The FAA continues to be optimistic about the future. Since 2000, U.S. airlines have dealt with the impacts of 9/11, heightened concerns about pandemics, the bankruptcy of four network carriers, and record high fuel prices. In spite of these challenges, the number of passengers traveling has grown,demonstrating the value of air transportation to the public. Last year, that number was a record 765 million. U.S. commercial aviation is on track to carry one billion passengers by 2016. In addition, international traffic is growing at much faster rates than domestic traffic.

For the first time since the 1990’s, the industry enjoyed consecutive years of profitability as rising load factors coupled with fare increases offset the impact from high fuel prices. In the long run, we see a healthy, competitive, and profitable industry buoyed by increasing demand for air travel coupled with inexpensive tickets. The combination of a competitive industry and inexpensive tickets should bode well for consumers. 

### FAA Aerospace Forecast Fiscal Years 2008–2025

3 1 Allegiant Air, American Trans Air, America West Airlines, AirTran Airways, Frontier Airlines, JetBlue Airways, Skybus Airlines

, Southwest Airlines, Spirit Airlines, USA3000, and Virgin America Airlines. 2 Alaska Airlines, American Airlines, Continental Airlines, Delta Air Lines, Northwest Airlines, United Airlines, and US Airways

.

### FAA Aerospace Forecast Fiscal Years 2008–2025

4

# REVIEW OF 2007

In 2007 3 , passenger demand growth on U.S. airlines rebounded from a weak year in 2006. System revenue passenger miles (RPMs) and enplanements grew 3.9 and 3.3 percent, respectively. Commercialair carrier domestic enplanements increased 3.1 percent while international enplanements grew 5.1 percent to a record 75.5 million. The system-wide load factor increased to an all-time high of just below 80 percent (79.9 percent) and coupled with a 2.3 percent increase in yield resulted in an industry-wide operating profit for the second year in a row.

For the first time since 1995, regional carrier domestic market share declined. The market share for low-cost carriers grew while their network carrier counterparts remained flat. In 2007 the domestic enplanement market share for the regional and low-cost carriers increased 1.4 points to 49.7 percent, up from a 30 percent share in 2000. Vigorous competition is spurring carriers to continue to cut costs and prices in an increasing number of markets. This is good news for the flying public.

Despite continued high fuel prices, the turnaround in airline industry finances continued, with the industry posting a $5.8 billion net profit in 2007, the first since 2000. The performance of the network carriers was the most visible demonstration of the financial turnaround. Both Delta and Northwest came out from bankruptcy protection, and after losing $3.2 billion in 2006, network carriers recorded their firstannual net profit since 2000, earning $4.4 billion in 2007. However continued high fuel prices and concerns about the economy are altering the carrier plans, as carriers have deferred deliveries of new aircraft and trimmed growth plans to sustain profitability. Cargo carriers continued to report strong results with net profits of $1.4 billion.

The market for general aviation products and services showed mixed results in 2007. Although totalshipments and billings were up 4.2 and 15.2 percent respectively compared to 2006, piston aircraft shipments by U.S. manufacturers were down 4.9 percent. The increase in shipments and billings seen in the jet fleet was stimulated by growth in the U.S. and world economy. Despite the higher shipments and billings, general aviation activity rose a scant 0.1 percent in 2007.

Total aviation activity remained flat as increases in air carrier operations were offset by declines in commuter/air taxi and military operations. Total operations at FAA and contract towers were unchanged from FY 2006 and remained at their lowest levels in 20 years. Although the number of flights remained steady, FAA’s workload didn’t. As the fleet mix changes with more regional and business jets in the nation’s skies and carriers consolidate their operations in their large hubs, the complexity of the airspace continues to grow, increasing our workload. 

### FAA Aerospace Forecast Fiscal Years 2008–2025

5 3 All stated years and quarters for U.S. economic and U.S. air carrier traffic and financial data and forecasts are on a fiscal year (FY) basis (October 1 through September 30). All stated years and quarters for international economic and world traffic and financi al data are on a calendar year (CY) basis, unless otherwise stated.

## U.S. E CONOMIC 

## A CTIVITY

After a solid performance in fiscal years 2005 and 2006, growth in U.S. Gross Domestic Product (GDP)slowed in fiscal year 2007, up just 2.2 percent. In FY 2007, seasonally adjusted quarterly growth fluctuated between 0.6 percent (2Q) to 4.8 percent (4Q).

According to the consumer price index (CPI), prices rose 2.3 percent in FY 2007, 1.4 percentage points lower than in FY 2006, despite record high gasoline and oil prices.

Oil prices, as measured by the U.S. Refiners’ Acquisition Cost, rose just 1.4 percent in FY 2007, following increases of 40.5 and 26.8 percent, respectively, in FY 2005 and 2006. Higher prices were spurred by strong global demand for oil and concerns about potential supply disruptions. 

### FAA Aerospace Forecast Fiscal Years 2008–2025

6ANNUAL PERCENT GROWTH

## W ORLD 

## E CONOMIC 

## A CTIVITY

As the world’s largest economy, the U.S continues to have a prominent role in world economic growth. In calendar year 2007, as has been the case since 2000, U.S. GDP growth lagged that of the rest of the world with U.S. and world economic growth reaching 2.2 and 3.6 percent, respectively. GDP growth in the rest of the world outside the U.S. was driven by the growth in Asian and Latin American markets.

On a calendar year basis, Canadian GDP growth surpassed the U.S. in 2007 after lagging in 2005 and 2006, with growth of 2.6 percent. The combined economies of the Asian and Far East nations grew by 5.1 percent in 2007, up from 5.0 percent a year earlier. This region includes the world’s second largest economy, Japan (up 1.9 percent), and the world’s most vibrant economy, China (up 11.5 percent). The 

### FAA Aerospace Forecast Fiscal Years 2008–2025

7$ PER BARRELANNUAL PRECENT GROWTHcombined economies of the Europe/Middle East/Africa nations rose by 3.3 percent in 2007, as rapid growth in Eastern Europe (up 6.8 percent) offset the slower growth in Eurozone 4 countries (up 2.7 percent). GDP in Latin America and Mexico grew by 5.2 percent, down slightly from 5.5 percent in 2006.



## C OMMERCIAL 

## A VIATION

Commercial aviation was a study in contrasts in 2007. High jet fuel prices continued to plague carriers throughout the world but demand remained robust. The global industry, including the U.S., was able torecord its first net profit since 2000. Airlines in the U.S. maintained capacity discipline in domestic markets, increased their international flying, and raised fares modestly. World airlines were not as affectedby the high fuel prices because a relatively strong world economy and a weakening dollar allowed international carriers to pass on increased fuel costs to the traveling public through higher fares without dampening demand. In the U.S., higher load factors and modestly higher fares resulted in the first profitfor the industry since 2000. Outside the U.S., the story was even better as world airlines made an estimated $2.9 billion buoyed by strong demand. 5



## World Travel Demand

Based on data compiled by the International Civil Aviation Organization (ICAO), world air carriers transported 2.1 billion passengers (up 5.3 percent) a total of 3.9 trillion revenue passenger kilometers (RPKs) (up 5.9 percent) in CY 2006. Although worldwide traffic results are not available for full year 2007, signsare the demand for world aviation services continued to grow in 2007. In December 2007, ICAO estimated that worldwide RPKs increased 6.6 percent and passengers increased about 6.0 percent in 2007. 6 

### FAA Aerospace Forecast Fiscal Years 2008–2025

8 4 Austria, Belgium, Finland, France, Germany, Greece, Ireland, Italy, Luxembourg, Netherlands, Portugal, and Spain. 5 IATA Financial Forecast, December 2007. 6 ICAO News Release, December 21, 2007.ANNUAL PRECENT GROWTHStatistics from the Association of European Airlines (AEA) show that passengers and RPKs increased 4.3 percent and 5.1 percent, respectively, during the first 11 months of 2007. Capacity, as measured by available seat kilometers (ASKs), was up 4.1 percent. With double-digit growth, AEA carrier traffic was strongest in the South Atlantic (12.0 percent) and Middle East regions (9.9 percent). The North Atlantic region posted modest results with a 4.3 percent increase in traffic.

The Association of Asia Pacific Airlines (AAPA) reported increases of 4.8 percent in RPKs and 2.3 percent in ASKs for the first 11 months of 2007. Passengers increased 4.6 percent during the same period. 

### FAA Aerospace Forecast Fiscal Years 2008–2025

9% CHANGE FROM PREVIOUS YEAR% CHANGE FROM PREVIOUS YEARIn CY 2007, U.S. and foreign flag carriers will transport an estimated 147.1 million passengers between the United States and the rest of the world, a 2.9 percent increase over 2006. The strongest growth occurred in the Atlantic market (up 5.1 percent) while growth in the Asia/Pacific markets (up 3.3 percent)and Canadian transborder market (up 2.2 percent) was more modest. Latin America markets had minimal growth (up 0.8 percent) following four years of strong growth. In 2007 passenger levels in the Asia/Pacific and Canadian transborder regions returned to pre-9/11 levels, leaving the Atlantic region as the only region that has yet to have passenger levels return to pre-9/11 levels.

Worldwide air cargo demand rebounded in 2006 following slow growth in 2005. According to ICAO statistics, worldwide freight tonnes and freight ton kilometers (FTKs) were up 5.1 and 5.5 percent, respectively. Indications are that cargo demand growth in 2007 was slower than in 2006. AEA and AAPA statistics show that their member carriers’ FTKs were up 2.7 and 3.1 percent, respectively, during the January to November 2007 time period. ICAO estimated that member cargo carrier traffic increased about 3.5 percent in 2007. 7 

### FAA Aerospace Forecast Fiscal Years 2008–2025

10 7 ICAO News Release, December 21, 2007.Millions of PassengersANNUAL PERCENT GROWTHBased on financial data compiled by ICAO, world air carriers (including U.S. airlines) reported an operating profit of $12.9 billion but a net loss of $0.5 billion in 2006. Between 2000 and 2006, world airlines produced cumulative operating profits of $13 billion but net losses of $37.5 billion. Continued demand growth, restrained capacity growth and modestly higher fares led to improved financial results in 2007 despite higher fuel prices. In December, the International Air Transport Association (IATA) estimated that global airline industry profits would be $5.6 billion in 2007. 8



## U.S. Travel Demand
The U.S. commercial aviation industry consists of 36 mainline air carriers that use large passenger jets (over 90 seats) and 84 regional carriers that use smaller piston, turboprop, and regional jet aircraft (upto 90 seats) to provide connecting passengers to the larger carriers. Mainline and regional carriers provide both domestic and international passenger service between the U.S. and foreign destinations, although regional carrier international service is confined to border markets in Canada, Mexico, and the Caribbean. An additional 27 all-cargo carriers provide domestic and/or international air cargo service.

Three distinct trends have occurred over the past several years that have helped shape today’s U.S. commercial air carrier industry: (1) major restructuring and shrinking by the mainline network carriers;(2) rapid growth by low-cost carriers, particularly in nontraditional long-distance transcontinental markets; and (3) exceptional growth among regional carriers.



### Commercial Air Carriers—Passengers

After a pause in growth in 2006, U.S. commercial air carriers in 2007 posted modest gains in capacity and traffic. In 2007, system (the sum of domestic plus international) capacity rose by 2.6 percent to 1.03 trillion ASMs. Passenger demand, despite higher fares and growing concerns about the economy, grew modestly with enplanements up 3.3 percent to 764.7 million while RPMs increased 3.9 percent to 

### FAA Aerospace Forecast Fiscal Years 2008–2025

11 8 IATA Financial Forecast, December 2007.BILLIONS OF U.S. DOLLARS821.4 billion. Mainline carrier demand rebounded from the slowdown in 2006 but regional carrier demand growth slowed. Domestic demand grew in line with U.S. economic growth, while demand growth in international markets exceeded 5 percent for the fourth consecutive year.

System load factor and trip length climbed in 2007, while seats per aircraft mile increased for the second consecutive year. Load factor increased 0.9 points to 79.9 percent, an all-time high, and trip length grew 5.3 miles to 1,074.1 miles. For the second year in a row, seats per aircraft mile increased (0.8 seats) to 136.6 seats per aircraft mile. Legacy carriers continued to shift wide-body flying from domestic to international markets and regional carriers began to phase out some smaller regional jet (50 seats and below) operations. 

### FAA Aerospace Forecast Fiscal Years 2008–2025

12ANNUAL PERCENT GROWTHANNUAL PERCENT GROWTH

### Domestic Passenger MarketsDomestic capacity (50 states, Puerto Rico, and the U.S. Virgin Islands) was up 1.6 percent in 2007 following a 2.0 percent decline in 2006, and departures increased by 0.6 percent. ASM growth was higher in the second half of the year (up 1.9 percent) compared with the first half of the year (up 1.2 percent). Mainline carrier capacity grew 1.8 percent while regional carrier capacity was up just 0.5 percent. At theend of 2007, domestic ASMs were 3.5 percent above pre-9/11 levels while departures remained 5 percent below.

Domestic passenger enplanements and RPMs grew at a faster rate than ASMs in 2007. Mainline carrier enplanements were up 3.4 percent while regional carrier enplanements were up 2.3 percent, the first time in twelve years that mainline enplanement growth exceeded that of the regional carriers.Enplanement growth was sharply higher in the second half of the year, up 4.3 percent, more than double the 1.9 percent rate recorded during the first half of the year.

Similar to passengers, domestic RPMs grew faster than ASMs with domestic RPMs up 3.0 percent. After growing at a 2 percent rate during the first half of the year, traffic growth speeded up to 3 percentand 5 percent, respectively, during the 3rd and 4th quarters. Mainline carrier RPM growth (up 3.1 percent) outpaced regional carrier growth (up 2.4 percent) for the first time since 1995. 

### FAA Aerospace Forecast Fiscal Years 2008–2025

13YEAR/YEAR % CHANGEYEAR/YEAR % CHANGEDomestic carrier load factor increased for the sixth consecutive year to reach an all-time high of 79.8 percent in 2007, 1.1 points above 2006. Mainline carrier load factor exceeded 80 percent for the first time and regional carrier load factor increased 1.5 points to 75.6 percent, an all-time high.

Since 2000, total domestic capacity has increased by only 3.5 percent. Mainline carriers have shrunk their domestic capacity by 4.2 percent with cutbacks by network carriers more than offseting the growthof low-cost carriers. Making up the shortfall from cuts in network carrier capacity, regional carriers during this time have massively increased capacity (up 142.4 percent). Mainline carrier RPMs have increased by 8.2 percent despite cutting capacity although enplanements have declined by 4.9 percent

During this same time period, regional carrier RPMs and enplanements have increased 207.6 and 95.4percent, respectively. As a result, mainline carriers’ share of domestic capacity has fallen from 94.7 percent in 2000 to 87.6 percent in 2007 while their share of RPMs has dropped from 95.5 to 88.3 percent. In 2007, regional carriers accounted for 22.6 percent of domestic commercial enplanements, up from 12.4 percent in 2000.



### Inter national Passenger Markets U.S. carriers posted a fourth consecutive year of strong gains in international capacity and traffic in 2007. U.S. carrier ASMs and departures were up 5.6 and 0.7 percent, respectively, in 2007. ASMgrowth was higher in the first half of the year (up 6.1 percent) and then moderated a bit during the second half of the year (up 5.2 percent). ASMs increased in all world travel regions—up 9.4, 4.9, and 0.5 percent, respectively, in Atlantic, Latin American, and Asia/Pacific markets. 

### FAA Aerospace Forecast Fiscal Years 2008–2025

14MILLIONSInternational RPMs and passenger enplanements were up 6.1 and 5.1 percent, respectively, in 2007 with faster growth recorded in the first half of the year. Atlantic markets posted the strongest gains, with RPMs up 8.8 percent and enplanements up 7 percent, respectively. RPMs and enplanements grew 7.7and 6.8 percent, respectively, in Latin American markets while RPMs were up 0.6 percent as enplanements fell by 2.2 percent in Pacific markets.

The international load factor climbed 0.4 percentage points over 2006 levels to an all-time high of 80.2 percent in 2007. Load factor increased in Latin American markets (up 1.9 points to 76.7 percent) and Pacific markets (up 0.1 points to 82.9 percent) but fell slightly in North Atlantic markets (down 0.4 points to 80.7 percent). 

### FAA Aerospace Forecast Fiscal Years 2008–2025

15Year/Year % ChangeYear/Year % ChangeIn 2007, 50 percent of the passengers flying abroad on U.S. flag carriers traveled to the Latin American markets. The remaining 50 percent of international passengers was split between the Atlantic markets (32 percent) and the Pacific markets (18 percent).



### Commercial Air Carriers—Cargo

Air cargo traffic contains both domestic and international revenue freight/express and mail. The demandfor air cargo is a derived demand resulting from economic activity. Cargo moves in the bellies of passenger aircraft and in dedicated all-cargo aircraft, on both scheduled and nonscheduled service.

U.S. air carriers flew 40.1 billion revenue ton miles (RTMs) in 2007, up 1.0 percent from 2006, with domestic cargo RTMs (15.8 billion) increasing by 0.7 percent while international RTMs (24.3 billion) increased by 1.2 percent. The slow growth in both domestic RTMs and international RTMs reflects many factors including a sluggish U.S. economy, strong price competition from alternative shipping modes, and record high oil prices.

Air cargo RTMs flown by all-cargo carriers were 72.3 percent of total RTMs in 2007, with passenger carriers flying the rest, or 27.7 percent of the total. Total RTMs flown by all-cargo carriers increased 3.6percent in 2007, from 28.0 billion to 29.0 billion. Total RTMs flown by passenger carriers were 11.1 billion in 2007 (down 5.1 percent).

On August 3, 2007, “Recommendations of the 9/11 Commission Act of 2007” was signed into law. Section 1602 of this Act states that air cargo placed on passenger aircraft will receive the same level of screening as passenger-checked baggage. To this end, the legislation calls for establishing a system within three years which requires 100 percent inspection of cargo transported on passenger aircraft. Itis anticipated the law will lead to increased cost and time requirements for shipment of cargo on passenger air carriers. 

### FAA Aerospace Forecast Fiscal Years 2008–2025

16BILLIONS

## U.S. Commercial Air Carriers 2007 Financial Results

Financial results for the U.S. commercial airline industry (including regional carriers) continued toimprove in 2007, despite record high oil prices. In FY 2007, U.S. commercial airlines reported an operating profit of $9.7 billion and a net profit of $5.8 billion, the first since 2000. Between 2001 and 2006, the industry posted cumulative operating and net losses of $15.7 and $37.7 billion, respectively.

Operating revenues (passenger and cargo) were up 3.6 percent in 2007, reflecting higher fares and increased cargo demand. Operating expenses were up only 1.0 percent in 2007, as jet fuel prices fell 0.5 percent from $1.98 to $1.97 per gallon.

In 2007, passenger carriers reported operating profits of $7.1 billion and net profits of $4.3 billion, respectively, while air cargo carriers, reported operating and net profits of $2.7 billion and $1.4 billion, respectively. Passenger carriers generated an operating profit ($3.6 billion) in domestic markets for the second consecutive year as international operations remained profitable ($3.5 billion). For the first time since 2000, passenger carriers reported a net profit ($990 million) in domestic markets, while posting a$3.3 billion net profit in international markets. In international markets, air cargo carriers reported operating and net profits of $1.5 billion and $840.6 million. Domestic markets were profitable for cargo carriers who posted operating and net profits of $1.2 billion and $584.0 million, respectively.

The industry’s financial improvement is largely because of the dramatic swing in network carrier financial performance. After losing $3.2 billion in FY 2006, the seven network carriers reported a $4.4 billion net profit in FY 2007, a swing of $7.6 billion. Most of the improvement occurred in domestic markets. These seven carriers accounted for 57.5 percent of domestic capacity and transported 48.2 percent ofall domestic passengers in 2007. Between 2000 and 2006, the domestic operations of the network carriers reported combined operating and net losses of $27.9 and $36.2 billion, respectively. In 2007, 

### FAA Aerospace Forecast Fiscal Years 2008–2025

17BILLIONS OF DOLLARSbuoyed by record load factors and falling expenses, the network carriers’ domestic operations reported operating and net profits of $2.4 billion and $1.1 billion, respectively. The eleven low-cost carriers reported combined operating and net profits of $1.0 billion and $510.8 million, respectively, in 2007. Strong competition from the network carriers and high fuel prices hurt many low-cost carriers’ profits. Despite a drop in capacity by the network carriers, increases in mainline carrier passenger yield were modest. After increasing by 8.5 percent in 2006, mainline carrier passenger yield rose just 1.0 percent in 2007, reflecting fierce competition between network and low-cost carriers but also among the low-cost carriers themselves.

In 2007, regional carriers reported operating profits of $326.9 million, but a net loss of $517.6 million, largely because of losses at Comair and Atlantic Southeast Airlines. The future of regional carriers is closely tied to the fortunes of the larger network carriers for whom they provide feed at major air carrierairports. Similar to the mainline carrier yield, regional carrier domestic passenger yield increased a modest 0.5 percent in 2007, but reflecting the changing nature of the industry, is down 34.9 percent since 2000. 

### FAA Aerospace Forecast Fiscal Years 2008–2025

18REVENUE PER RPM (CENTS)

## U.S. Commercial Air Carriers 2007 Aircraft Fleets

The total number of aircraft in the U.S. commercial fleet (including regional carriers) is estimated at7,816 for 2007, an increase of 113 aircraft from 2006. This includes 3,972 mainline air carrier passenger aircraft (over 90 seats), 1,008 mainline air carrier cargo aircraft, and 2,836 regional carrier aircraft (jets, turboprops, and pistons).

The mainline carriers’ passenger jet fleet increased by 63 aircraft in 2007 as increases in low-cost carriers offset cuts in the network carrier fleet. Even with the increase in the fleet in 2007, the mainline carrier fleet remains 11.5 percent below (516 aircraft) the level it was in 2000.

The mainline carrier cargo fleet remained essentially flat in 2007, falling by just 2 aircraft to 1,008. After falling in 2006 the regional carrier fleet grew by 52 aircraft in 2007 as declines in turboprop and piston aircraft were offset by an increase in regional jets. Since 2000, a total of 1,233 regional jets have come into the regional carriers’ fleet while the number of turboprops and pistons has declined by 671 aircraft.



## G ENERAL 

## A VIATION

According to numbers released by the General Aviation Manufacturers Association (GAMA), U.S. manufacturers of general aviation aircraft delivered 3,279 aircraft in CY 2007, 4.2 percent higher than in CY2006. The 4.2 percent increase in shipments was the smallest increase in four years. The turbine categories, turbojets and turboprops, were up 34.9 and 13.3 percent, respectively. Both piston categories, single-engine and multi-engine, were down with single-engine down 5.0 percent and multi-engine down 2.5 percent. Billings in CY 2007 totaled $11.9 billion, up 15.2 percent compared with 2006. 

### FAA Aerospace Forecast Fiscal Years 2008–2025

19NUMBER OF AIRCRAFTGeneral aviation activity at FAA air traffic facilities was essentially unchanged in 2007. Operations at combined FAA and contract towers rose just 0.1 percent in 2007, the first increase since 1999, as increases in contract tower activity offset a decline in FAA tower activity. General aviation instrument activity (IFR) at combined FAA towers fell in 2007, down 1.5 percent, but the number of general aviation aircraft handled at FAA en route centers increased by 1.2 percent.

The FAA uses estimates of fleet size, hours flown and utilization from the General Aviation and Air Taxi Activity and Avionics Survey (GA Survey) as baseline figures upon which assumed growth rates can be applied. This survey has been conducted annually since 1977. Beginning with the CY 2004 Surveythere were significant improvements to the survey methodology. These improvements included conducting 100 percent samples for turboprops and turbojets, all rotorcraft, all aircraft in Alaska and all aircraft operating on-demand under Part 135. In addition, the sample design was revised to stratify by aircraft type (19 categories), FAA region (9 categories), and whether the aircraft was owned by an entitycertified to fly Part 135 operations (2 categories). Furthermore, a large fleet reporting form was incorporated to allow owners/operators of multiple aircraft to report aggregate data for their entire fleet on a single form. In 2005 an additional aircraft category (Light Sport Aircraft) was added. The result of thesechanges was the sample size nearly doubled. Between 2003 and 2005 large changes in both the number of aircraft (turbojets up by 22.8 percent, total rotorcraft up by 33.7 percent) and hours (single-enginepiston down by 17.6 percent) in many categories occurred. The results of the 2006 Survey are consistent with the results of the 2004 and 2005 Surveys. This reinforces our belief the methodological improvements have resulted in superior estimates relative to those in the past and they are used as the basis for our forecast.

Based on the latest FAA assumptions about fleet attrition and aircraft utilization and GAMA aircraft shipment statistics, the active general aviation fleet is estimated to have increased 1.4 percent in 2007, to225,007. General aviation flight hours are estimated to have increased 0.6 percent in 2007 to 27.7 million. 

### FAA Aerospace Forecast Fiscal Years 2008–2025

20SHIPMENTSStudent pilots are important to general aviation and the aviation industry as a whole. In 2007, according to statistics compiled by the FAA’s Mike Monroney Aeronautical Center, the number of student pilots decreased by 0.6 percent. This is the third consecutive year of decline in this important pilot category. The industry has, over the past several years, maintained several industry-wide programs designed to attract new pilots to general aviation. The industry is trying to stimulate interest in flying, but the data suggest that more may need to be done.



## FAA W ORKLOAD

During the late 1990’s, the demand for both commercial and general aviation expanded significantly resulting in the delays that plagued many U.S. commercial airports in 2000 and 2001. Passenger demand and activity at FAA air traffic facilities declined significantly following the events of 9/11. However, passenger levels have recovered and the combination of the recovery in passenger demand plus the shift in activity from larger aircraft to smaller regional jets has resulted in increased activity and delays at some U.S. airports during 2007.

Total activity at combined FAA and contract tower airports totaled 61.1 million operations in 2007, unchanged from 2006 but 11.0 percent below the peak activity level recorded in 2000. Commercial activity (the sum of air carrier and commuter/air taxi) increased by just 0.2 percent in 2007. Air carrieroperations increased by 2.7 percent, offsetting a decline in commuter/air taxi operations (down 2.5 percent). Commercial operations as a whole are lower than their peak in 2005.

Non-commercial activity (the sum of general aviation and military) at combined FAA and contract towersfell by 0.1 percent in 2007, with general aviation activity (33.1 million) up 0.1 percent while military activity (2.7 million) fell 2.0 percent. The 0.1 percent increase in general aviation activity was the first increase since 1999. At the end of 2007, non-commercial aircraft activity was 16.1 percent below the activity in 2000, having declined each year since 2002. 

### FAA Aerospace Forecast Fiscal Years 2008–2025

21MILLIONSThe FAA pays close attention to the trends occurring at the 35 Operational Evolution Partnership (OEP) airports. These airports are the top 35 airports in the country in terms of passenger activity and account for about 75 percent of commercial passengers. Although commercial activity at the OEP airports exceeded pre-9/11 peak activity levels in 2005, subsequent industry restructuring has resulted in a dropin combined commercial activity at these airports since. In 2007, commercial activity at the OEP airports rose by 0.3 percent but remains 2.2 percent below pre-9/11 activity levels. Increases were recorded at 20 of the 35 airports with the highest rates of growth at New York Kennedy (up 21.2 percent) and Chicago Midway (up 4.4 percent). The largest declines occurred at St. Louis (down 10.7 percent) and Cincinnati (down 9.8 percent). As a result, only eighteen airports exceeded 2000 peak activity levels during fiscal year 2007, unchanged from the previous year.

Reflecting the continuing shift in demand to low-cost and regional carriers, commercial operations at Las Vegas (up 41.3 percent), Houston (up 29.1 percent), and New York Kennedy (up 28.1 percent), are up the greatest relative to their pre-September 11th activity levels. Commercial operations at Pittsburgh (down 52.4 percent) and St. Louis (down 50.3 percent) show the largest declines from pre-9/11 levels.These activity level shifts reflect the impact of the restructuring of the airline industry. American’s acquisition of TWA resulted in a consolidation of operations away from TWA’s St. Louis hub, while the merger of US Airways and America West has led to a dramatic shrinking of US Airways’ operations in Pittsburgh. 

### FAA Aerospace Forecast Fiscal Years 2008–2025

22PERCENT OF FY 2000 OPSDuring 2007, total activity at FAA en route centers (46.8 million) rose 1.2 percent from the previous year. Commercial activity was up 2.4 percent, with air carrier and commuter/air taxi aircraft handled up 2.5 and 2.3 percent, respectively. Non-commercial activity was down 2.0 percent in 2007 as an 8.3 percent fall in military activity more than offset a 1.2 percent increase in general aviation activity. In 2007, air carrier aircraft handled surpassed their 2000 activity levels while aircraft handled for the general aviation and military user groups were 5.1 and 9.3 percent below their 2000 activity levels, respectively. 

### FAA Aerospace Forecast Fiscal Years 2008–2025

23PERCENT OF FY 2000 OPSMILLIONS

### FAA Aerospace Forecast Fiscal Years 2008–2025

24

# FAA AEROSPACE FORECASTS FISCAL YEARS 2008–2025

Developing forecasts of aviation demand and activity levels continues to be challenging as the aviation industry evolves and previous relationships are changing. Nevertheless, the FAA has developed a setof assumptions and forecasts consistent with the emerging trends and structural changes currently taking place within the aviation industry.

The main assumption in developing this year’s forecasts is that there will not be a major disruption caused by terrorism against either U.S. or world aviation. Also, the forecasts do not assume further major contractions of the industry through bankruptcy, consolidation, or liquidation.

The commercial aviation forecasts and assumptions are developed from econometric models thatexplain and incorporate emerging trends for the different segments of the industry. In addition the commercial aviation forecasts are considered unconstrained in that they assume there will be sufficient infrastructure to handle the projected levels of activity.

The commercial aviation forecast methodology is a blended methodology. It relies on published schedule information and current monthly trends to drive the short-term (one year out) forecasts and then bases the medium and long-term (2009-2025) forecasts on the results of econometric models. The starting point for developing the commercial aviation forecasts (air carriers and regionals) is the futureschedules published in the Official Airline Guide (OAG). Using monthly schedules allows FAA forecasters to develop monthly capacity and demand forecasts for both mainline and regional carriers for fiscal and calendar year 2008.

The general aviation forecasts rely heavily on the discussions with industry experts that occurred at theOctober 2006 FAA/Transportation Research Board (TRB) Workshop on General Aviation. The assumptions have been updated by FAA analysts to reflect more recent data and developing trends, as well as further information from industry experts.

FAA also presents the forecasts and assumptions to industry staff and aviation associations, who are asked to comment on the reasonableness of the assumptions and forecasts. Their comments and/or suggestions have been incorporated into the forecasts as appropriate. 

### FAA Aerospace Forecast Fiscal Years 2008–2025

25

## E CONOMIC 

## F ORECASTS

The FAA uses economic forecasts developed by the Executive Office of the President, Office of Management and Budget (OMB) to project domestic aviation demand. The FAA uses the world andindividual country economic projections provided by Global Insight, Inc. to forecast the demand for international aviation services. Annual historical data and economic forecasts are presented in tabular form in Tables 1 through 4. OMB projections are presented on a U.S. government fiscal year (October through September) basis. International forecasts are presented on a calendar year basis. OMB forecasts a slowdown in U.S. economic growth in FY 2008 followed by a rebound to more historic rates for the balance of the forecast. On a quarter-by-quarter basis for the next two years OMB projects U.S. economic growth at 1.7 to 3.1 percent through FY 2009. The slowdown in 2008 could result in some difficulties for the U.S. commercial aviation industry, but the return to historic rates after that should allow the industry to continue its growth.

Over the forecast period 2008 through 2025, U.S. economic growth is expected to remain moderate with rates ranging between 2.7 and 3.0 percent through 2018 and then slowing to around 2.5 percent for the balance of the forecast period. According to Global Insight, Inc. the long-term stability of the U.S. economic growth is dependent on continued growth in the workforce, the capital stock, and improved productivity. A major risk to continued U.S. economic growth is the upward pressure on commodity prices, including the price of oil worldwide. These inflationary pressures, if unchecked, could force up inflation and bond yields and lessen domestic demand. 

### FAA Aerospace Forecast Fiscal Years 2008–2025

26ANNUAL PERCENT GROWTHOMB projects the price of oil, as measured by Refiners’ Acquisition Cost, to increase by 42.1 percent in 2008 after more than doubling over the past 3 years. Oil prices are then projected to decline steadily to 2014 and then increase slightly less than inflation for the balance of the forecast period.

The inflation rate (as measured by the CPI) is expected to be 3.1 percent in 2008, up substantially from the 2.3 percent rise in 2007. The increase in the rate of inflation in 2008 is mostly attributed to the expected rise of energy prices. Consumer price inflation is expected to rise in 2009 by 2.1 percent and then level off at 2.3 percent a year for the balance of the forecast. 

### FAA Aerospace Forecast Fiscal Years 2008–2025

27ANNUAL PERCENT GROWTHANNUAL PERCENT GROWTH

## World Economy

Worldwide economic activity is predicted by Global Insight to expand by 3.4 and 3.6 percent in 2008 and 2009, respectively, and average 3.2 percent over the forecast period.

Latin America and the Asia/Pacific region will continue to have the world’s highest economic growth rates. These regions are expected to see their economic activity grow at annual rates of 4.1 percent over the forecast period. In Asia, China, with a population of 1.3 billion, is forecast to expand by 7.3 percent a year, becoming the world’s second largest economy. India, with a population of 1.1 billion, isprojected to see its GDP triple in size, growing at an average rate of 6.8 percent a year during the forecast period. GDP growth in Canada and the Europe/Middle East/Africa nations is anticipated to rise at more moderate rates of 2.4 and 2.5 percent a year, respectively, over the forecast period.



## A VIATION 

## T RAFFIC AND 

## A CTIVITY 

## F ORECASTS

Total traffic and activity forecasts for commercial air carriers (the sum of mainline and regional carriers) are contained in Tables 5 through 9. These tables contain year-to-year historical data and forecasts.

Mainline air carrier traffic and activity forecasts and the forecast assumptions are contained in Tables 10 through 18, 20, and 22. These tables contain year-to-year historical data and forecasts.

Regional carrier forecasts and assumptions are found in Tables 23 through 26. These tables provide year-to-year historical and forecast data.

Table 19 provides year-to-year historical and forecast data for cargo activity. Table 21 provides year-toyear historical and forecast data for the cargo jet fleet. 

### FAA Aerospace Forecast Fiscal Years 2008–2025

28ANNUAL PERCENT GROWTHGeneral aviation forecasts are found in Tables 27 through 30. These tables provide year-to-year historical data and forecasts.

Tables 31 through 33 provide forecasts of aircraft activity at FAA and contract facilities.



## Commercial Aviation Forecasts

While capacity is forecast to grow in 2008 about the same rate as in 2007, demand growth in 2008 is forecast to be slower than 2007 rates. Capacity is projected to grow 2.7 percent as mainline carrier domestic market capacity increases slowly (0.3 percent) while regional carrier capacity growth remains modest. International markets continue to see healthy growth in capacity, especially the Atlantic,spurred on by the anticipation of the new U.S. – E.U. open skies treaty. Mainline carrier system capacity is projected to increase 2.7 percent while regional carrier capacity rises 2.5 percent.

Passenger demand growth slows in 2008 with system RPMs forecast to increase 2.9 percent (up 2.8 percent and 3.1 percent for mainline and regional carriers, respectively) while passenger enplanements rise 1.5 percent. Growth is projected to speed up in 2009 as system RPMs and passengers increase 4.7 and 3.8 percent, respectively, while capacity increases 4.6 percent. For the overall forecast period, system capacity is projected to increase an average of 4.1 percent a year. Supported by a growing U.S.economy and falling real yields, system RPMs are projected to increase 4.2 percent a year, with regional carriers (6.0 percent a year) growing faster than mainline carriers (4.0 percent a year). System passengers are projected to increase an average of 3.0 percent a year, with regional carriers growing faster than mainline carriers (3.8 vs. 2.8 percent a year). By 2025, U.S. commercial air carriers are projected to fly 2.1 trillion ASMs and transport 1.3 billion enplaned passengers a total of 1.7 trillion passenger miles. Planes will remain crowded, as load factor is projected to continue to increase to 81.7 percent by 2025. Passenger trip length is also forecast to increase by more than 250 miles over the forecast to 1,325.5 miles (up 14.0 miles annually). The growth in passenger trip length reflects the faster growth in the relatively longer international trips and longer domestic trips resulting from increased point-to-point service. 

### FAA Aerospace Forecast Fiscal Years 2008–2025

29PASSENGERS (Mil)

### Domestic Markets

After a modest rebound in FY 2007, following the significant capacity decline of the prior year, domestic capacity growth in FY 2008 is projected to be 0.6 percent. Mainline carrier capacity is forecast to rise just 0.3 percent following the 1.8 percent increase in 2007 as network carriers continue to shrink and low-cost carriers temper their growth because of continuing record high fuel prices. Regional carrier capacity is forecast to grow 2.5 percent in FY 2008 as increasing numbers of 70 and 90-seat regionaljets enter service, while the number of smaller regional jets (50 seats or less) shrinks. Domestic commercial carrier capacity growth quickens in 2009 to 3.3 percent as mainline carriers grow 2.7 percent while regional carriers grow 7.8 percent. For the entire forecast period (2008–2025), domestic capacity is projected to increase at an average annual rate of 3.6 percent, slightly faster than economic growth, with mainline carrier growth lower (3.2 percent) than the regional carriers (5.9 percent).

Sluggish economic growth and high energy prices restrain domestic RPM growth in 2008 (up 0.6 percent) as industry capacity and demand move more into balance. Mainline carrier RPM growth is projected to grow less than one percent (0.3 percent) for the second time in 3 years. As U.S. economic growth rebounds, traffic growth picks up in 2009 (3.4 percent) driven by higher incomes and spending. For the overall forecast period (2008-2025) domestic RPMs are projected to grow an average of 3.7 percent a year driven by continued economic growth and falling real yields. Mainline carriers throughout the forecast period are projected to grow more slowly than regional carriers (3.3 and 6.1 percent a year on average, respectively).

Following a 0.2 percent decline in 2006, passenger enplanement growth rebounded in 2007, up 3.1 percent. Similar to RPMs, passenger volume is expected to grow slowly in 2008 (up 1.0 percent) andspeed up in 2009 (up 3.5 percent). During the entire forecast period, domestic enplanements are projected to grow at an average annual rate of 2.8 percent with mainline carriers growing slower than regional carriers (2.5 and 3.8 percent a year, respectively). 

### FAA Aerospace Forecast Fiscal Years 2008–2025

30ANNUAL PERCENT GROWTHOn the heels of an 8.5 percent increase (4.7 percent in real terms) in 2006, nominal mainline carrier domestic passenger yield rose just 1.0 percent (1.3 percent decline in real terms) in 2007. Demand weakness in the 2nd and 3rd quarters resulted in year-over-year declines in nominal yield. Demandfirmed up during the 4th quarter and modest year-over-year increases in yield returned. Despite industry supply and demand more in balance and skyrocketing fuel prices, yield increases are expected to remain moderate. Newer entrant low-cost carriers (Skybus and Virgin America) will continue to put pressure on fares while the more established low-cost carriers resort to discounting in the face of slower demand. For FY 2008, nominal mainline carrier domestic passenger yield is projected to increase 3.6 percent (0.4 percent increase in real terms). For the entire forecast period, increases in nominal yields are projected to grow at a rate of 1.6 percent a year, while in real terms they are projected to decline an average of 0.7 percent a year. The decline in real yields over the forecast period assumes that increased competition from low-cost carriers will continue and exert pressure on the network carriers tomatch the lower fares on competitive routes. Competition in domestic markets will come from established low-cost carriers such as Southwest, AirTran, Frontier, and JetBlue, as well as newer entrant carriers.

Domestic commercial carrier activity (departures) at FAA air traffic facilities is projected to grow slower than passenger traffic growth over the forecast period (2.7 percent per year for departures versus 3.7 percent for RPMs). This reflects increased carrier efficiencies in three operational measures—aircraft size, load factor, and trip length.

For the first time since 1998, domestic aircraft size 9 increased in 2007 by 0.1 seats to 120.3 seats. Theincrease was driven by an 0.8 seat increase in network carrier aircraft size which offset declines in lowcost carrier and regional carrier aircraft size. Domestic aircraft size falls slightly in 2008 to 120.2 seats as mainline carrier aircraft size falls for the first time since 2001. Domestic aircraft size is projected to decrease through 2018 to 118.1 seats, then increase slowly through the balance of the forecast to 118.6 seats by 2025. 

### FAA Aerospace Forecast Fiscal Years 2008–2025

31 9 Defined as seats per mile flown and computed by dividing ASMs by miles flown.ANNUAL PERCENT GROWTHThe FAA’s projection of domestic carrier average aircraft size is greatly influenced by carrier fleet plans,publicly known aircraft order books and FAA’s expectations of the changing domestic competitive landscape. In the short-term time frame (through 2011), the forecast incorporates several network carrier assumptions: 1) network carrier desire to constrain ASM capacity growth; 2) network carrier “own metal”service on longer-haul routes; 3) the retirement of older inefficient aircraft (many of which are narrowbody); and 4) the shifting of wide-body and larger narrow-body aircraft to international services.

In the longer-term, network carriers will replace their wide-body and larger narrow-body aircraft in their domestic route networks with smaller narrow-body aircraft. In addition, some carriers, such as JetBlue, are turning to smaller aircraft, like the 100-seat Embraer 190, to supplement their network structure. The use of smaller narrow-body aircraft allows mainline carriers to better serve their customers by boosting frequency, as well as improve profitability by more closely matching supply (the number of seats) with demand (the number of passengers).

Mainline carrier domestic aircraft size increased in 2007 by 0.3 seats to 150.6 seats, but is projected to fall in 2008 by 0.7 seats. The overall average for the mainline group will continue to decrease at a slow rate throughout the forecast period. By 2025, mainline carrier domestic aircraft size is forecast to be 147.7 seats as an increasing share of domestic capacity will be flown by aircraft with 160 or fewer seats.

While mainline carriers have been reducing the size of aircraft flown domestically, regional carriers have been increasing the size of their aircraft. The most visible example of this trend is the wave of 70-90seat regional jet aircraft that are entering the fleet. Regional carriers are better able to support operations of their mainline partners when they can provide capacity that complements market demand. Thegreater number of the larger 70 and 90-seat regional jets in the fleet coupled with 50-seat jet retirements increases the average seating capacity of the regional fleet – from 49.6 seats in 2007 to 50.5 seats in 2008 up to 63.0 seats in 2025. The changing aircraft fleet mix is narrowing the gap between the size and aircraft types operated by the mainline and regional carriers.

Commercial carrier domestic load factor increased 1.1 points in 2007 to 79.8 percent. The increase in load factor was heavily weighted by the results of the network carriers whose load factor grew 1.9 points to a record 82.5 percent. In 2008, domestic load factor is forecast to remain flat at 79.8 percent as mainline carriers remain essentially flat. After 2008 load factor is projected to increase between 0.1 to 0.2 points a year, reaching 81.6 percent by 2025.

Passenger trip length is forecast to decrease until 2009. In 2007 domestic passenger trip length fell by 0.9 miles to 870.5 miles, the first decline since 1994, as mainline carrier passenger trip length fell by 2.6 miles. Domestic passenger trip length is forecast to decline in 2008 and 2009 by 3.2 and 0.7 miles, respectively, as network carriers continue to restructure their networks and realign capacity. After 2009, trip length is projected to increase steadily for the balance of the forecast, reaching 1,007.8 miles by 2025. The increase in trip length reflects increases in both mainline carrier and regional carrier trip length. Mainline carrier trip lengths are increasing mainly because shorter length routes are continuing to be transferred to regional partner carriers and because of increased point-to-point service. Regional carrier trip lengths increase because the introduction and use of the larger 70 and 90-seat regional jets allow these carriers to service longer haul markets. 

### FAA Aerospace Forecast Fiscal Years 2008–2025

32Another key factor in predicting aviation activity relative to passenger demand is the level of connectingversus non-stop (origin-destination) traffic. In total, it appears that the number of direct flights by carriers (both network and low-cost) is increasing. However, as the current cycle of U.S. airline industry restructuring unfolds and hub structures change, the impact on local communities and airport activity levels can vary significantly.

The FAA analyzes the ratio of passenger enplanements to origin-destination (O&D) passengers over time to identify changes in connecting versus non-stop traffic. This ratio is an indicator of the tendency of the average passenger to connect during a typical journey. The closer the ratio is to 1.0, the more passengers fly on a point-to-point routing. As the chart below shows, the overall ratio for the U.S. domestic industry varied within a narrow band between 1995 and 2002, but has been decreasing since then. Disaggregating the industry average into network and low-cost carrier segments reveals that while the network carrier trend has mirrored the national average, the low-cost carrier sector has reversed its trend in 2004, and has been increasing since. In FY 2007, the respective connectivity ratios of the network and low-cost carriers were the closest to each other since FY 1999. The FAA’s forecast recognizes the changing pattern of domestic traffic connectivity and the relative mix of networkversus low-cost carrier traffic volumes. These trends are captured in the forecast’s passenger enplanement totals.



### International Markets

U.S. and For eign Flag CarriersFAA provides forecasts of total international passenger demand (the sum of U.S. and foreign flag carriers) for travel between the United States and three world travel areas--Atlantic, Latin America (including Mexico and the Caribbean), and Asia/Pacific--as well as for U.S./Canadian transborder traffic. These forecasts are based on historical passenger statistics from the United States Immigration and 

### FAA Aerospace Forecast Fiscal Years 2008–2025

33Naturalization Services (INS) and Transport Canada, and on regional world historical data and economic projections from Global Insight, Inc.

Total passenger traffic between the United States and the rest of the world is estimated to total 147.1 million in CY 2007, 2.9 percent higher than in 2006. Economic growth in both the U.S. and the rest of the world drives international passengers up 5.5 and 6.1 percent, respectively, in 2008 and 2009. For the balance of the forecast, average annual U.S. and world economic growth of 2.6 and 3.1 percent, respectively, leads to international passenger growth averaging 4.5 percent a year, and totaling 331.5 million in 2025.

Over the entire forecast period (2007-2025), high economic growth in the Asia-Pacific market drives passenger growth averaging 6.1 percent a year for this region. China, Taiwan, and India (passenger growth of 11.0, 8.5, and 8.4 percent a year, respectively) are forecast to be the fastest growing markets in the region. Growth in the Japan market (the largest and most mature in the region) is projected to be below the regional average at 4.3 percent a year.

In the Atlantic region, “open skies” between the European Union and the United States fuels passenger growth of 4.6 percent a year over the forecast period. The impact from “open skies” will be strongest during the first four years of the forecast, with passenger growth averaging 7.0 percent a year. After 2011, growth in the Atlantic market returns to a slower pace, averaging 3.9 percent a year. Growth is projected to be highest in Ireland (5.9 percent a year), the United Kingdom (5.2 percent a year), and the Netherlands (4.6 percent a year). The markets of Spain, France and Germany (averaging 4.0, 3.9, and 3.8 percent a year, respectively) are projected to grow slower than the region as a whole.

In the Latin America region, passenger growth between 2007 and 2025 is forecast to average 4.2 percent a year. The highest growth is projected for Brazil (average annual growth of 5.5 percent) while the largest market in the region, Mexico, grows at an average of 4.3 percent a year. The slowest rates of growth are projected to occur in the Bahamian, Dominican Republic, and Jamaica markets (averaging growth of 0.8, 2.3, and 2.0 percent a year, respectively).

Growth in the Canadian transborder market is forecast to be close to that of the domestic U.S. market, averaging 3.3 percent a year over the forecast period. 

### FAA Aerospace Forecast Fiscal Years 2008–2025

34ANNUAL PERCENT GROWTH

### U.S. Flag Air Carriers In 2007, U.S. commercial air carrier international capacity grew 5.6 percent. Capacity is forecast to increase 8.3 percent in 2008, buoyed by growth in the Atlantic markets of 14.5 percent because of “open skies.” Capacity growth remains robust at 7.7 percent in 2009, and averages 5.2 percent a year for the balance of the forecast. Strong growth throughout the forecast reflects favorable U.S. and world economic activity, the realization by U.S. mainline carriers that international markets are a source of profitable operations, and the implementation of “open skies.”

U.S. commercial air carrier international RPMs increased 6.1 percent in 2007 and enplanements increased 5.1 percent. RPM growth is projected to quicken in 2008 to 8.9 percent, reflecting in part theimpact of “open skies.” In 2009, continued strong growth in the Pacific market results in total U.S. carrier international RPMs growing 7.8 percent. For the balance of the forecast, RPM growth is forecast to average 5.2 percent a year with the fastest growth in the Pacific region. A similar pattern is forecast forenplanement growth. International enplanement growth is projected to speed up in 2008, to 6.6 percent, and then drop to 6.0 percent in 2009. Over the balance of the forecast period, enplanements are forecast to increase an average of 4.6 percent a year with the fastest growth in Pacific markets. 

### FAA Aerospace Forecast Fiscal Years 2008–2025

35ANNUAL PERCENT GROWTHThe similar growth in U.S. carrier international passengers (4.7 percent a year) compared to total international passengers (4.9 percent a year) reflects stabilization in market share for U.S. airlines. Forecasts of international demand assume U.S. carriers will benefit from the favorable economic activity in both the United States and world markets.

International load factor for U.S. commercial carriers was 80.2 percent in 2007. Load factor is expected to rise to 80.6 percent in 2008 as capacity increases in the Atlantic and Latin markets are surpassed by the growth in traffic. International load factor is then projected to grow slightly to 80.8 percent in 2009, and then increase by just under 0.1 percentage points a year to 81.9 percent in 2025.

International passenger real yields for mainline carriers were up 4.2 percent in 2007. The largest increase was in the Pacific market (up 5.7 percent), and followed by the Atlantic (up 4.4 percent) and Latin markets (up 1.8 percent), reflecting strong demand for travel in the international regions.International yields are expected to increase by 6.4 percent in 2008 and increase an average 1.2 percent a year over the balance of the forecast. In real terms, international yields are forecast to increase 3.2 percent in 2008, and then decline at an annual rate of 1.0 percent over the forecast. The decline in real yields assumes competitive pressures will continue to exert pressure on carriers to hold the line on fare increases. In international markets, this takes the form of expanded open sky agreements and new and existing global alliances.



### Air Cargo

Historically, air cargo activity has moved in synch with GDP. Additional factors that have affected the growth in air cargo traffic include declining real yields, improved productivity, and globalization. Significant structural changes have occurred in the air cargo industry. Among these changes are the following: air cargo security regulations by the FAA and TSA; market maturation of the domestic express market; modal shift from air to other modes (especially truck); increases in fuel surcharges; growth in international trade from open skies agreements; use of all-cargo carriers (e.g., FedEx) by the U.S. Postal Service to transport mail; and increased use of mail substitutes (e.g., e-mail). 

### FAA Aerospace Forecast Fiscal Years 2008–2025

36ANNUAL PERCENT GROWTHThe forecasts of Revenue Ton Miles (RTMs) are based on several assumptions specific to the cargo industry. First, security restrictions on air cargo transportation will remain in place. Second, most of theshift from air to ground transportation has occurred. Finally, long-term cargo activity will be tied to economic growth.

The forecasts of RTMs were based mainly on models that link cargo activity to GDP. Forecasts ofdomestic cargo RTMs were developed with real U.S. GDP as the primary driver. Projections of international cargo RTMs were based on growth in world GDP, adjusted for inflation. The distribution of RTMs between passenger carriers and all-cargo carriers was forecast based on an analysis of historic trends in shares; changes in industry structure and market assumptions.

Total RTMs are forecast to increase 2.8 percent in 2008 and 6.1 percent in 2009. For the balance of the forecast period, total RTMs are forecast to increase at an average annual rate of 5.1 percent, based mainly on economic growth. The forecast of 96.5 billion RTMs in 2025 represents an average annual increase of 5.0 percent over the entire forecast period.

Domestic cargo RTMs are forecast to increase 2.8 percent in 2008 and 4.4 percent in 2009 driven by growth in the U.S. economy. Between 2009 and 2025, domestic cargo RTMs are forecast to increase at an average annual rate of 2.9 percent, based on projected U.S. economic growth. The forecast of 26.7billion RTMs in 2025 represents an average annual increase of 3.0 percent over the entire forecast period.

The freight/express segment of domestic air cargo is highly correlated with capital spending. Thus, thegrowth of this segment in the future will be tied to growth in the economy. The mail segment of domestic air cargo will be affected by overall mail volume.

The all-cargo carriers have increased their share of domestic cargo RTMs flown from 65.4 percent in 1997 to 80.9 percent in 2007. This is because of significant growth in express service by FedEx and United Parcel Service coupled with a lack of growth of domestic freight/express business for passenger carriers. There are several recent factors that account for the relative growth of the all-cargo sector. One was the October 2001 FAA security directive that strengthened security standards for transporting cargo on passenger flights. Another factor was the inclusion of Airborne Express into the cargo datareported to the Department of Transportation beginning in 2003. In addition, with passenger load factors at record levels, there is less space available for belly cargo. The all-cargo share is forecast to increase to 84.4 percent by 2025 based on increases in wide-body capacity for all-cargo carriers and security considerations. 

### FAA Aerospace Forecast Fiscal Years 2008–2025

37International cargo RTMs are forecast to increase 2.7 percent in 2008 and 7.3 percent in 2009 with growth of the world economy and expansion in trade with open skies agreements. For the balance of the forecast period, international cargo RTMs are forecast to increase an average of 6.2 percent a yearbased on projected growth in world GDP. The forecast 69.7 billion RTMs in 2025 represents an average annual increase of 6.0 percent over the entire forecast period.

All-cargo carriers increased their share of international cargo RTMs flown from 54.5 percent in 1997 to 66.7 percent in 2007. This increase has resulted from the demand for expedited service, activity from the war in Iraq, and the change in reporting of contract services. The all-cargo share is forecast to increase to 72.0 percent by 2025 based on increased capacity.



## Commercial Aircraft Fleet

The number of commercial aircraft is forecast to grow from 7,816 in 2007 to 12,202 in 2025, an averageannual growth rate of 2.5 percent or 244 aircraft annually. The commercial fleet grows by a net 92 aircraft in 2008 and 80 aircraft in 2009; however, most of this growth occurs in low-cost carriers. 

### FAA Aerospace Forecast Fiscal Years 2008–2025

38ANNUAL PERCENT GROWTHThe number of passenger jets in the mainline carrier fleet increased by 63 aircraft in 2007 and is expected to increase by 60 aircraft in 2008 and 103 aircraft in 2009. The mainline air carrier passenger fleet increases by an average of 162 aircraft a year between 2008 and 2025, totaling 6,783 aircraft in 2025. The narrow-body fleet (including E-190’s at JetBlue and US Airways) is projected to grow by 117 aircraft annually over the forecast period; the wide-body fleet grows by 40 aircraft a year as the Boeing 787 and Airbus A350’s enter the fleet.

The regional carrier passenger fleet is forecast to increase by 6 aircraft in 2008. After 2008, the regional carrier fleet is expected to increase by an average of 37 aircraft (1.2 percent) over the remaining years of the forecast period, reaching 3,469 aircraft in 2025. The number of regional jets (90 seats or fewer) at regional carriers is projected to grow from 1,803 in 2007 to 3,114 in 2025, an average annual increase of 3.1 percent. All the growth in regional jets over the forecast period occurs in the larger 70 and 90-seat aircraft. During the forecast period, more than 1,000 regional jets of 50 or less seats areremoved from the fleet, reflecting the relaxation of scope clauses. The turboprop/piston fleet is expected to decline from 1,033 in 2007 to 355 in 2025. Turboprop/piston aircraft are expected to account for just 10.2 percent of the regional fleet in 2025, down from a 36.4 percent share in 2007.

Cargo large jet aircraft are forecast to increase by 52 aircraft over the next 2 years (from 1,008 to 1,060 aircraft in 2009), and total 1,950 aircraft in 2025. The narrow-body jet fleet is projected to decline by 14 aircraft a year over the 17-year forecast period. The wide-body jet fleet is projected to increase by 40 aircraft yearly. 

### FAA Aerospace Forecast Fiscal Years 2008–2025

39ANNUAL PERCENT GROWTH

## General Aviation

The FAA forecasts the fleet and hours flown for single-engine piston aircraft, multi-engine piston, turboprops, turbojets, rotorcraft (piston, turbine), sport, experiment and other (glider, balloon). The FAA forecasts “active aircraft,” 10 not total aircraft. The FAA uses estimates of fleet size, hours flown, and utilization from the General Aviation and Air Taxi Activity and Avionics Survey (GA Survey) as baseline figuresupon which assumed growth rates can be applied. Beginning with the 2004 GA Survey there were significant improvements to the survey methodology. At the same time the survey methodology changed, large changes in both the number of aircraft and hours in many categories occurred. The results of the 2006 Survey are consistent with the results of the 2004 and 2005 Surveys reinforcing our belief that the methodological improvements have resulted in superior estimates relative to those in the past. Thus, they are used as the basis for our forecast. Because the Survey is on a calendar year basis, the 2006 statistics are the latest available. Figures for 2007 are estimated based on other activity indicators and the forecasts of activity begin in 2008 and continue through 2025.

As the demand for business jets has grown over the past several years, the current forecast assumes that business use of general aviation aircraft will expand at a more rapid pace than that for personal/sport use. The business/corporate side of general aviation should also continue to benefit froma growing market for new very light jets (VLJs). In addition, corporate safety/security concerns for corporate staff, combined with increasing flight delays at some U.S. airports have made fractional, corporate, and on-demand charter flights practical alternatives to travel on commercial flights.

The active general aviation fleet is projected to increase at an average annual rate of 1.3 percent over the 18-year forecast period, growing from an estimated 225,007 in 2007 to 286,500 aircraft by 2025. The more expensive and sophisticated turbine-powered fleet (including rotorcraft) is projected to grow atan average of 3.7 percent a year over the forecast period with the turbine jet fleet increasing at 5.6 percent a year. 

### FAA Aerospace Forecast Fiscal Years 2008–2025

40 10 An active aircraft is one that flies at least one hour during the year.ANNUAL PERCENT GROWTHAt the October 2006 TRB/FAA workshop, industry experts suggested the market for new VLJs could add 500 aircraft a year to the active fleet by 2010. The relatively inexpensive twin-engine VLJs (pricedbetween $1 and $2 million) are believed by many to have the potential to redefine the business jet segment by expanding business jet flying and offering performance that could support a true on-demand air-taxi business service. The actual number of VLJ deliveries in 2007 fell short of our assumption in last years forecast (143 vs 350). However, the current forecast assumes that they will continue to enter the active fleet at a rate of 400 to 500 aircraft a year, reaching 8,145 aircraft by 2025.

The number of active piston-powered aircraft (including rotorcraft) is projected to decrease from the 2006 total of 167,008 through 2008 and then increase gradually to 181,345 by 2025. Over the forecast period, the average annual increase in piston-powered aircraft is 0.5 percent. Although piston rotorcraft are projected to increase rapidly (4.7 percent a year) they are a relatively small part of this segment of general aviation aircraft. Single-engine fixed-wing piston aircraft, which are much more numerous, are projected to grow at much slower rates (0.5 percent respectively) while multi-engine fixed wing piston aircraft are projected to decline 0.9 percent a year. In addition, it is assumed that relatively inexpensive VLJs and new light sport aircraft could erode the replacement market for traditional piston aircraft at the high and low ends of the market respectively.

Starting in 2005, a new category of aircraft (previously not included in the FAA's aircraft registry counts) was created: "light sport" aircraft. At the end of 2006 a total of 1,273 aircraft were estimated to be in this category. The forecast assumes registration of 5,600 aircraft over a 5-year period beginning in 2005 including both newly built aircraft and conversions from ultralight trainers. By 2025 a total of 14,700 light sport aircraft are projected to be in the fleet.

The number of general aviation hours flown is projected to increase by 3.0 percent yearly over the forecast period. Much of the increase reflects increased flying by business and corporate aircraft as well as steady if relatively small annual percentage increases in utilization rates for piston aircraft. Hours flownby turbine aircraft (including rotorcraft) are forecast to increase 5.3 percent yearly over the forecast period, compared with 1.1 percent for piston-powered aircraft. Jet aircraft are forecast to account for most of the increase, with hours flown expanding at an average annual rate of 7.7 percent over the forecast period. The large increases in jet hours result mainly from the introduction of VLJs, as well as increases in the fractional ownership fleet and its activity levels. Fractional ownership aircraft fly about 1,200 hours annually compared to approximately 350 hours for all business jets in all applications.

Very light jets (VLJs) are expected to be used much differently than traditional turbojets. Because ofthis, FAA has made separate assumptions for traditional turbojets and VLJs. The assumptions underlying the VLJ forecast are vital for both fleet and hours flown. Assumptions are made for the entire VLJ fleet and also for the distribution of that fleet among air taxi use, private use and shared ownership use.For the various uses, assumptions are made about utilization rates which, along with fleet sizes, determine hours flown. Utilization rates for VLJs will vary by mission. VLJ air taxis are expected to average approximately 1,500 hours per year, shared ownership users about 525 and private use 375. By 2025 the annual utilization rate for all VLJs is forecast to be 1,014 hours. Traditional (non-VLJ) turbojets are expected to average approximately 397 hours per year by 2025, as VLJs are expected to have a greater share of their use in on-demand air taxi than the traditional turbojets. 

### FAA Aerospace Forecast Fiscal Years 2008–2025

41The number of active general aviation pilots (excluding air transport pilots) is projected to be 507,930 in 2025, an increase of almost 61,000 (up 0.7 percent yearly) over the forecast period. Commercial pilots are projected to increase from 115,127 in 2007 to 126,150 in 2025, an average annual increase of 0.5 percent. The number of student pilots is forecast to increase at an average annual rate of 1.0 percent over the forecast period, growing from 84,339 in 2007 to 100,200 in 2025. In addition, FAA is projecting that 20,600 new sport pilots will be certified during the forecast period. As of December 31, 2007, the number of sport pilot certificates issued was 2,031 reflecting a growing interest in this new “entry level” pilot certificate that was only created in 2005. The number of private pilots is projected to increase an average of 0.2 percent a year over the forecast period to total 220,550 in 2025.



## FAA Workload Forecasts

There were 499 towered airports at the end of September 2007--264 FAA towers and 235 contract towers. While the number of FAA towers is expected to remain constant at 264 in 2008, the number of FAA contract towered airports is forecast to increase by 9 to 244. In 2007, aircraft activity at these 9 airports totaled roughly 1.06 million operations, with general aviation accounting for 93.7 percent of the total activity.



### FAA and Contract Towers

Activity at the combined FAA and contract towers totaled 61.1 million operations in 2007, essentially the same as in 2006. Activity is projected to increase only 0.4 percent in 2008, as commercial operations remain flat. Growth in activity picks up in 2009 (2.3 percent) as commercial activity rises 2.6 percent. For the balance of the forecast activity growth varies between 1.8 and 1.9 percent per year, reaching 84.0 million operations in 2025.

Most of the growth over the forecast period results from increased commercial aircraft activity (up 2.5 percent annually). Air carrier activity is projected to increase 1.1 percent in 2008 as carriers slowly add capacity in an environment of record high fuel prices and slowing economic growth. In 2009, air carrier 

### FAA Aerospace Forecast Fiscal Years 2008–2025

42ANNUAL PERCENT GROWTHactivity is projected to increase 2.6 percent as airline capacity increases, and rises an average of 2.3 percent a year over the forecast period. Commuter/air taxi operations are forecast to fall 1.4 percent in 2008 then rise 2.7 percent in 2009 as increased air taxi activity is expected to stimulate growth in this user category. Over the entire duration of the forecast, commuter/air taxi operations are projected to increase 2.7 percent a year.

In 2007 general aviation activity increased for the first time since 1999 (up 0.1 percent) and is forecastto increase 0.9 percent in 2008 and 2.3 percent in 2009. For the forecast period, general aviation activity at towered airports is projected to increase an average of 1.3 percent a year, to 41.9 million operations in 2025. Much of the total growth in 2008 and 2009 results from the extra activity at the 9 newcontract towers that was not in the previous database. General aviation activity at combined FAA/contract towers grows in line with the modest increase forecast for general aviation piston hours already cited. Most operations at the smaller towers are piston in nature, while those at the largest airports tend to be turbine operations.

Military activity, which fell 2 percent in 2007, is forecast to fall 0.5 percent in 2008. We do not forecast military operations but instead assume a constant level of activity over the forecast period.

Instrument operations 11 at FAA towered airports (45.4 million) in 2007 fell (0.8 percent) for the third year in a row. They are projected to fall slightly (down 0.1 percent) in 2008 as increases in air carrier activityare offset by declines in commuter/air taxi and general aviation activity. Instrument activity is then forecast to rise 1.4 percent in 2009 as all non-military categories see an increase. For the entire forecast period, instrument operations grow an average of 2.3 percent a year, totaling 68.0 million in 2025.

Over the forecast period, commercial aircraft instrument operations are forecast to increase at 2.5 percent per year with increases in commuter/air taxi activity surpassing air carrier activity. General aviation instrument operations are projected to grow 2.1 percent a year, reflecting in part the expected impact of the introduction of VLJs to the general aviation fleet. Military activity is expected to fall slightly in 2008 (down 0.8 percent) and remain at its 2008 level (2.5 million) of activity throughout the forecast period. 

### FAA Aerospace Forecast Fiscal Years 2008–2025

43 11 Instrument operations are defined as arrivals or departures of an aircraft in accordance with an IFR flight plan or special VFR procedures or an operation where IFR separation between aircraft is provided by the terminal control facility.ANNUAL PERCENT GROWTH

### En Route Centers

The number of IFR aircraft handled at FAA en route traffic control centers increased 1.2 percent to 46.8million in 2007, as all user groups except military posted increases in activity. Activity at en route centers is forecast to increase by 1.8 percent in 2008 and 1.9 percent in 2009, respectively, with increases in air carrier and general aviation activity. After 2010 through the balance of the forecast period, en route activity increases by more than 3 percent annually, reaching 78.0 million aircraft handled in 2025. Over the entire forecast period, commercial activity is projected to increase at an average annual rate of 3.1 percent, reflecting increases in the commercial fleet and aircraft stage lengths. During the same period, general aviation activity is projected to grow almost as fast, 2.9 percent a year, reflecting the expected impact of VLJs and additional business aviation activity. Military activity is held constant at the 2007 activity level throughout the forecast period.

Activity at FAA en route centers is growing faster than at FAA towered airports because more of the activity in en route centers is from the faster growing commercial sector and high-end (mainly turbine) general aviation flying. Much of general aviation activity at FAA towered airports, which is growing more slowly, is local in nature, and does not impact the centers. 

### FAA Aerospace Forecast Fiscal Years 2008–2025

44ANNUAL PERCENT GROWTH

# COMMERCIAL SPACE TRANSPORTATION

The Federal Aviation Administration (FAA) licenses and regulates U.S. commercial space launch activity including launch vehicles and non-federal launch sites authorized by Executive Order 12465 and 49 US Code, Subtitle IX, Chapter 701 (formerly the Commercial Space Launch Act ). Title 49 and the Executive Order also direct the Department of Transportation (carried out by the FAA) to encourage, facilitate, and promote commercial launches. The FAA works with its industry advisory committee, the Commercial Space Transportation Advisory Committee (COMSTAC) to project global commercial space launch demand.



## O VERVIEW

Commercial space transportation generally consists of the launch of satellites into orbit for either commercial or government customers by private, non-government entities, called launch services providers. Commercial space transportation also covers suborbital launches, where a payload is launched on a trajectory that briefly goes into space but returns to Earth rather than going into orbit, as well as the reentry of objects from space to Earth.

The FAA licenses several expendable vehicles used for commercial orbital launches. These include the Pegasus and Taurus, two small vehicles built and operated by Orbital Sciences Corporation; the Delta IV, a heavy-class vehicle and the Delta II, a medium-class vehicle, both built by United Launch Alliance (ULA), a joint venture between Boeing and Lockheed Martin, and marketed by Boeing Launch Services(BLS); the Zenit-3SL, a heavy-class vehicle built by the Ukrainian company KB Yuzhnoye for the multinational Sea Launch venture; and the Atlas 5, a heavy-class vehicle built by ULA and marketed by Lockheed Martin Commercial Launch Services. Commercial vehicles under development include the Falcon family of boosters by SpaceX. The FAA has also previously licensed small suborbital expendablevehicles. From 1989 through the end of 2007, DOT/FAA has licensed 184 orbital and suborbital commercial launches.

Experimental Permits, for suborbital reusable vehicle development and test flights, were first granted byFAA in 2006 to Blue Origin and Armadillo Aerospace. Some permits have been granted for vehicles participating in the Lunar Lander Challenge, a competition to demonstrate technologies potentially applicable to both future lunar spacecraft and commercial suborbital vehicles, with $2 million in prizes offered by NASA’s Centennial Challenges program. There were six permitted launches in 2006 and nine in 2007.

Six commercial spaceports, located in Alaska, California (Vandenberg Air Force Base and Mojave Airport), Florida, Oklahoma, and Virginia currently have FAA launch site operator licenses. Several other commercial spaceports are under active development, including sites in New Mexico and Texas. 

### FAA Aerospace Forecast Fiscal Years 2008–2025

45

## R EVIEW OF 

## 2007

There were four FAA-licensed launches, all orbital, in 2007, down from seven in 2006. BLS carried outthree Delta 2 launches from Vandenberg Air Force Base, carrying one commercial and two Italian government remote sensing satellites. Sea Launch conducted one Zenit-3SL launch, which failed because of a problem with the vehicle’s first-stage engine. The Zenit-3SL is expected to return to flight in early 2008. There were also nine suborbital permit flights during 2007.

Worldwide there were 23 orbital commercial launches in 2007, compared to 21 in 2006. In addition tothe four FAA-licensed launches, Europe performed six commercial launches of its Ariane 5, Russia conducted 12 launches of various vehicles, and India performed one commercial launch, its first ever, usingits PSLV. There were 68 total worldwide commercial, civil, and military launches in 2007, with commercial launches representing about 34 percent of the total. For more details, see the Year in Review report available from the FAA website at: http://www.faa.gov/about/office_org/headquarters_offices/ast/reports_studies/year_review/.



## G LOBAL 

## F ORECAST

In May 2007, the FAA and COMSTAC published their annual global forecast for commercial launch demand, the 2007 Commercial Space Transportation Forecasts. The report forecasts an average of 23.4 commercial orbital launches per year of geosynchronous orbit (GSO) and non-geosynchronous orbit (NGSO) payloads through 2016. That annual average includes 15.3 launches of medium-to-heavyvehicles to deploy GSO satellites, 4.9 launches of medium-to-heavy vehicles to NGSO, and 3.2 launches to NGSO by small vehicles. 

### FAA Aerospace Forecast Fiscal Years 2008–2025

46Commercial GSO launches are used for communications satellites with masses ranging from 2,000 to over 6,000 kilograms; satellite masses have tended to grow over time although there is still interest insatellites at the low end of the mass spectrum. Demand for commercial NGSO launches spans a number of markets, including commercial remote sensing, science and technology demonstration missions (often for nations without an indigenous launch capability), and the replenishment and replacement of low Earth orbit communications satellite systems first launched in the late 1990s.

The GSO and NGSO forecasts are not a prediction of what will actually be launched but instead represent the expected demand for launch services, based on a variety of inputs. The complete forecast report is available at: http://www.faa.gov/about/office_org/headquarters_offices/ast/reports_studies/forecasts/ 

### FAA Aerospace Forecast Fiscal Years 2008–2025

47Number of Launches

### FAA Aerospace Forecast Fiscal Years 2008–2025

48

# RISKS TO THE FORECAST

The FAA is confident that its current outlook for aviation demand and activity can be achieved, as shown by the resiliency of the demand for air transportation in the face of challenges. As has been the casefor the past several years, terrorism remains the greatest risk to achieving the forecasts. Tighter security measures have restored the public’s confidence in the integrity of U.S. and world aviation securitysystems. However, because of aviation’s high visibility and global reach, concerns remain about international terrorism. Any terrorist incident aimed at aviation would have an immediate and significantimpact on the demand for aviation services. In addition, there has been much discussion about a worldwide pandemic such as influenza. Should such an event occur, it is likely that severe limits on aviation would be enacted and would have a significant impact on the demand for aviation services.

Terrorist and pandemic concerns notwithstanding, this year’s forecast is driven, at least in the shortterm, by the financial health of the commercial aviation industry, which, in turn, is tied to the price of jet fuel and the health of the U.S. economy.

During most of FY 2007 oil prices ranged between $50 and $65 per barrel and similar to the prior year, prices moved up after June, reaching $78/barrel in mid-August. But prices didn’t fall back as they had in the previous two years after the peak summer season, but instead kept on rising, breaking $80/barrel in mid-September and $90/barrel in late October. Oil prices in the spot market approached $100/barrel in mid-November 2007 before falling back to around $90/barrel at the end of December. However, in early January 2008, oil prices topped $100/barrel for the first time before retreating. The dramatic increase in the price of oil has led many analysts to revise their long-term oil price projections upward. While last year’s forecast had long-term oil prices in the $55-$65/barrel range, current projections now have oil prices in the $70-$80/barrel range over the next several years.

Although the fuel bill for U.S. commercial air carriers was essentially unchanged in FY 2007, the recentsharp increase in fuel prices threatens the continued profitability of the industry. Given FY 2007 consumption levels, a one-cent increase in the price of jet fuel costs the industry $195 million annually. Thus, the $15-$20/barrel increase in the price of oil could add $7 billion to $9 billion to the industry’s annual fuel bill, an amount equal to the FY 2007 operating profit of the 10 largest passenger carriers. This year’s forecast assumes $86/barrel oil in 2008, up from $60/barrel in 2007, and then gradually falls back to $73/barrel in 2015. Already, carriers have announced capacity reductions and service cutbacks because of high fuel prices which threaten to increase passenger inconvenience and reduce passenger demand and competition in many markets. Should oil prices reach $100/barrel on a sustained basis, carriers have said that further restructuring, including consolidation and/or further contraction of carrier route structures, would be in order. Under this scenario, several large U.S. airports could lose their major service provider. Efforts to develop alternative aviation fuels may mitigate this risk by increasingsupplies and availability and reliability; this benefit would be realized whether or not the fuels are targeted to aviation. 

### FAA Aerospace Forecast Fiscal Years 2008–2025

49Although FAA uses economic projections from OMB to derive the forecasts of aviation demand, animportant part of the FAA forecast process is to compare the OMB forecasts with other economic forecasts. FAA typically compares OMB economic forecasts to those of Global Insight, Inc., a leading economic consulting firm. Unlike prior forecasts, Global Insight’s current U.S. GDP forecast is lower than OMB’s. While OMB is projecting U.S. GDP growth to average 2.9 percent a year between 2007 and 2010, Global Insight is forecasting U.S. GDP growth to average 2.5 percent during the same period. Inaddition, Global Insight regularly provides alternative forecasts and assigns a likelihood of their occurrence; along with the likelihood of the baseline forecast occurring. In December 2007, Global Insightwas assigning a 50 percent likelihood of their baseline forecast. An optimistic scenario—higher economic growth in the rest of the world, lower oil prices, and a continuation of the high worker productivity rates of the late 1990’s—that results in higher U.S. economic growth was assigned only a 10 percentlikelihood by Global Insight. Higher economic growth would lead to increased demand for aviation services and speed the industry’s return to profitability.

However, Global Insight’s pessimistic scenario—a weaker dollar, rising oil prices, higher inflation, a deeper housing downturn, and rising unemployment—that results in a recession in the U.S. was assigned a 40 percent likelihood. We used the pessimistic scenario as inputs to our domestic traffic industry model to quantify the impact of a recession on US airline industry traffic and capacity growth. The results were as expected but the magnitude was surprising. In 2008, domestic passengers in the pessimistic scenario would be 2.2 percent lower than in our base forecast with RPMs down even further. The difference between the base forecast and the pessimistic scenario widens over the next 2 years so that by 2010, domestic passenger enplanements would be 7.7 percent lower than in the base forecast and RPMs would be 9.5 percent lower. Industry passenger revenue was 6.9 percent lower, hampering the industry’s drive for sustained profitability and balance sheet improvement.

Low-cost carriers are forecast to continue to increase their share of domestic traffic over the forecast period through a large increase in their fleet. However the 2007 financial performance of these carrierswas, at best, mixed. There is a good deal of doubt about whether the low-cost carriers, with their present business models, can profitably use all of the aircraft they are scheduled to take in the next few years. Although most of the current low-cost carriers appear to have greater financial stability and access to funding than previous start-ups, continued high fuel prices, a prolonged slump in travel demand, and/or a prolonged fare war could cause these carriers to scale back planned growth and/or cease operations. In addition, low-cost carriers have a significantly smaller percentage of their future fuel needs hedged. If jet fuel prices go higher than are forecast, the cost gap between low-cost carriers and the network carriers should narrow, further reducing the competitive advantage that many of thelow-cost carriers currently enjoy. Any loss of competition could lead to higher fares and a loss of passenger demand.

Also, the forecast assumes the addition of sizable numbers of regional jets into the fleet of regional carriers. However, the regional carriers’ future is closely linked to those of the larger network carriers. Should one or more of these large carriers cease to exist (because of financial difficulties or merger), certain regional carriers could find themselves either saddled with excess capacity or lack of sufficient capacity, or lack of feed traffic. The recent experience of the Delta and Northwest bankruptcies saw opportunities for regional flying substantially reduced. 

### FAA Aerospace Forecast Fiscal Years 2008–2025

50Despite last year’s failed attempt by US Airways to acquire Delta, there is still considerable interest in consolidation within the industry. Some carriers, particularly United and US Airways, have made it clear that they believe consolidation is necessary for the long-term stability/profitability of the industry. Other carriers, who in the past have been less vocal in their views on consolidation, have recently admittedthat they have been evaluating their options if a large merger is announced. While proponents of consolidation argue that consolidation can lead to more rational capacity decision making and enhance the financial stability of the industry, the reality is that in any consolidation scenario there would be fewer carriers and less domestic competition. Less competition could lead to higher fares for the flying public and thus reduce travel demand.

Some weakness began to appear in global economic performance in 2007, although many regions recorded strong gains. While the current forecast calls for continuing high growth rates throughout the forecast period, there are many downside risks inherent in these forecasts. In the near term, the largest risk is the global credit crunch. Although the credit crunch in the U.S. and in Europe has not severely impacted Asia, should U.S. consumer spending falter as a result, Asian exporters and Asian economic growth could suffer. In addition, sustained high ($95 - $100/barrel) oil prices pose a risk to economic growth in oil importing nations (namely the U.S., Eurozone, and Japan). Many regions are counting on strong export growth to the United States as a major contributor to their future economic growth. If economic growth in the U.S. slows as a result of sustained high oil prices, strong U.S. import growth is unlikely to occur, diminishing global economic growth prospects.

Furthermore, much of the growth that is currently occurring is concentrated in a relatively few countries such as China and India. Because so much of the current growth is concentrated in a few countries, the risk that a local event could quickly have widespread effects increases. One scenario is that China suffers a “hard landing” in which economic growth slows dramatically from current levels. Global Insight assigns about a 30-35% probability of such a scenario occurring. In such a scenario, Global Insight estimates that global economic growth would be reduced by 1 percent. In addition, there are potential geopolitical risks that could slow global economic growth, i.e., the uncertain political situations in several major oil exporting countries. Doubts remain over the strength of demand in both Japan and theEurozone as these areas continue to be constrained by structural economic problems, institutional constraints, and the authorities’ reluctance to take decisive action. The current forecasts assume strong passenger growth for travel between the United States and other world regions. Any slowing of global economic activity could seriously inhibit the growth in world passenger demand.

On the other hand, loosening of international regulatory constraints could drive growth higher than what is projected. Historically, international markets have been subject to a series of bilateral agreements that have, for the most part, severely restricted competition. It remains to be seen if the “open skies” agreement between the U.S. and the European Union will prove to be a catalyst for reaching other agreements throughout the world, especially in large markets like China and Japan. If it does, more U.S. carriers could gain access to new markets throughout the world and introduce new competition. Greater competition could lead to lower fares and higher growth in these markets.

The demand for general aviation products and services, especially business jets, appears to be expanding. While the high end of the industry (business and corporate jets) is growing, the lower end of the business (piston aircraft) is showing signs of a slowdown. How long the industry expansion continuesdepends, in large part, on the strength of the market for business jets and VLJs. The market for business jets is largely dependent upon the growth in the economy and corporate profits and it is unknownhow well this market will fare as the U.S. economy and corporate profit growth slows. The current fore

### FAA Aerospace Forecast Fiscal Years 2008–2025

51cast assumes that 400-500 VLJs will enter the fleet a year, with the U.S. market growing to 8,145 by2025. This is in the middle of a fairly wide range of industry estimates. The key driver of the VLJ market is the on-demand air taxi industry. Those who believe the time has come for the air taxi industrytend to have higher fleet forecasts. Those who are less sanguine about the prospects for the ondemand air taxi industry tend to have more conservative fleet forecasts. If the on-demand air taxi industry does gain widespread acceptance, it will spur the demand for VLJs and the general aviation active jet fleet and hours flown could be higher than forecast.

The mix of aircraft operating at most large hubs is also expected to become increasingly complex over the forecast period. The expected large increases in the numbers of regional jets and VLJs will increase the complexities of the national airspace system and make the FAA’s job more challenging. The increased complexity of the mix of aircraft serves to compound the increases in workload strictly due to the increasing demand for aviation services projected over the forecast period.

High levels of delays occurred at many U.S. airports in 2007 and could become a critical limit to growth over the forecast period. FAA’s forecasts of both demand and workload are unconstrained in that they assume that there will be sufficient infrastructure to handle the projected levels of activity. Should the infrastructure be inadequate and result in even more congestion and delays, it is likely that the forecasts of both demand and workload would not be achieved. The Department of Transportation is considering the use of market-based measures to manage congestion. New market forces from these measurescould have an impact on the aviation industry, but the specific measures to be implemented and therefore their impact are unknown at this time. In addition, should industry consolidation become a reality, the impacts on congestion are unclear. Some current hubs would likely be downsized in the event of consolidation resulting in less congestion, but other hubs might experience greater levels of activity that could lead to rising congestion at those specific airports.

Environmental concerns also pose a risk to the forecast. Concerns about aviation’s impact on the environment, which have accompanied its growth, could potentially restrict the ability of the aviation system to grow to meet national economic and mobility needs. Airport expansion or new construction is often acontentious issue because of noise, air quality, and water quality concerns. Although aviation only currently contributes 2 to 3 percent of anthropogenic greenhouse gases, emissions from the sector are expected to grow in absolute terms, and concerns about the climate impacts of these emissions are also growing. All of these concerns could have a negative impact on the ability of the aviation system to meet the mobility needs of the traveling public in the future unless systematically addressed as laid out in the Next Generation Air Transportation Plan. 

### FAA Aerospace Forecast Fiscal Years 2008–2025

52

# APPENDIX I FORECAST ACCURACY

Forecasts, by their nature, have a degree of uncertainty incorporated in them. They involve not onlystatistical analyses and various scientific methods, but also judgment, and reliance on industry knowledge and the forecaster’s experience to incorporate industry trends not yet reflected in recent results. The FAA’s annual Aerospace Forecast is no exception. Given the volatile nature of the U.S. airlineindustry, it is not surprising that each year’s forecast would contain a certain degree of forecast variance. Therefore, FAA forecasters have tried to build forecast models that give a consistent and predictable pattern of results. Analysts relying on the forecasts produced by the models would then be able to adjust for the predictable variance from actual results.

The table below presents an analysis of the variance from historical results for five key forecast metrics during the FY 2003–FY 2007 forecast period. Although this brief period has experienced industryupheaval, FAA’s forecast methodology remained consistent during this time. For these reasons, inclusion of prior periods in an analysis of forecast variance might lead to inconclusive, or inaccurate, implications about the accuracy of FAA’s current forecast methodology.

The table contains the weighted average forecast errors expressed in percentage terms of the projected values versus the eventual results for U.S. carriers’ domestic operations. Each metric has five values showing the relative forecast variance by the number of years in advance the preparation of the forecasttook place. For example, the 3 Years column for ASM shows the average forecast error was 6.0 percent for ASM forecasts prepared 3 years in advance. For the period under examination, preparation ofthe forecasts for FY 2005, FY 2006 and FY 2007 occurred in FY 2003, FY 2004 and FY 2005, respectively. 1 

### FAA Aerospace Forecast Fiscal Years 2008–2025

53 1 It should be noted that the first forecasted year for each respective fiscal year is that very same year. Therefore, FY 2003’s first forecasted year is FY 2003, and the third forecasted year is FY 2005. This also means that the 5 Years column in the table above consists of only one observation point, while the 4 Years column is based upon two observations.Presenting forecast variances in such a manner simplifies a review of longer-term trends. Typically, onewould expect the variances to decline as the forecast year draws closer to the year the forecast is prepared. In addition, presenting forecast variance in this way allows an examination of changes in the relative variances by time horizon, signaling when dramatic shifts in accuracy occur. Finally, it also shows whether forecast values are greater or lower than actual results.

Examination of the forecast variance reveals several noteworthy items. First, all the metrics examined show declining variances as the forecast time horizon decreases, as expected. For both Yield and ASMs there are steady declines in variance from Year 4 through Year 1. The largest decreases come in the Year 3 and Year 1 periods for Yield, and in the Year 2 and Year 1 periods for ASMs. Second, the FAA’s forecast model produces relatively small variances for both of the passenger traffic metrics, Enplanements and RPMs, as well as IFR aircraft handled (less than 3.5 percent for any forecast time horizon examined except for the 5-Year time horizon for RPMs).

Third, there is no improvement in forecast accuracy for RPMs within the Year 3 time horizon. Fourth, the relative divergence in forecast variances between RPM and Enplanements, and between RPMs and ASMs, suggests errors in forecasting both passenger trip lengths and load factor.

The examination of the forecast variances over time suggests three primary implications. First, added focus on passenger trip length in the forecasting process – as passenger trip length is the linchpin between RPM and Enplanements – might help improve the forecast model’s robustness. Specifically, by directly incorporating trip length estimation into its forecast model FAA believes a reduction in the divergence in annual variations between RPM and Enplanements can occur.

Second, additional focus on load factor might improve the model. Currently, load factor is calculated by dividing the forecast RPMs by forecast ASMs. The large difference between the RPM forecast varianceand ASM forecast variance indicates a consistent underestimation of load factor, one of the critical elements in converting passenger demand into aviation activity. All other things being equal, a consistent underestimation of load factor will lead to long-term forecasts of aviation activity that are too high. 

### FAA Aerospace Forecast Fiscal Years 2008–2025

54Furthermore, ASMs are becoming increasingly difficult to forecast beyond a relatively short time horizon, as carriers often react to changing market conditions. The consistent overestimation of ASMs suggests that carriers have reacted by pulling down capacity. Such capacity reductions can be identified in theshort term by using advance schedule information. However, FAA’s longer-term forecasts rely on anticipated aircraft deliveries and retirements as well as historic relationships between economic activity and capacity deployed. Given the volatile nature of many of the factors that may influence longer term ASM forecasts, a simpler approach, such as RPMs divided by load factor, may improve the long run accuracy of the ASM forecasts. 

### FAA Aerospace Forecast Fiscal Years 2008–2025

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# APPENDIX II ACKNOWLEDGEMENTS

This document was prepared by the Statistics and Forecast Branch (APO-110), Office of Aviation Policy and Plans, under the direction of Mr. Roger D. Schaufele, Jr. The following individuals were responsible for individual subject areas:

**Economic Environment:** Daniel E. Taylor (202) 267-3302 Cheryl L. Miner (202) 493-4236

**Commercial Air Carriers:** – Passengers Roger D. Schaufele, Jr. (202) 267-3306 Cheryl L. Miner (202) 493-4236 – Cargo Cheryl L. Miner (202) 493-4236

**General Aviation:** – Forecasts Roger D. Schaufele, Jr. (202) 267-3306 – Survey Data Roger D. Schaufele, Jr. (202) 267-3306

**FAA Workload Measures:** – Forecasts Roger D. Schaufele, Jr. (202) 267-3306 – Data Information Systems Branch, APO-130

**Commercial Space:** John Sloan, Commercial Space Transportation, AST-100 (202) 267-7989

**Text and Table Preparation:** Statistics and Forecast Branch Staff

**Forecast Conference Planner:** Linda Baranovics (202) 267-7924

**APO Websites:** – Forecasts/Statistical Publications http://www.faa.gov/data_statistics – APO Data System http://aspm.faa.gov

**Email:** – APO staff first name.last name@faa.gov 

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# FORECAST TABLES FAA Aerospace Forecast Fiscal Years 2008–2025

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