The Future of the Airport and Airline Industry
1.2 Long-Term Growth
built, and operated by government employees until the trend toward airport privatization began in the 1990s.
The preceding means that the context, objectives, and criteria of excellence for airport planning, management, and design are fundamentally changing. Rapid changes in the in-dustry require strategic thinking and the flexibility to adapt to new circumstances. In-creased commercialization and privatization of airports calls for an appreciation of the eco-nomic and financial aspects of airport operation. Narrow technical excellence is not suf-ficient to deliver good value for money for airports. Airport professionals need to create dynamic, strategic plans that incorporate flexible designs and enable airport operators to manage their risks.
The current environment for airport planning and design requires a systems approach.
This contrasts with traditional airport engineering that has tended to focus narrowly on technical matters to the exclusion of issues such as costs and revenues, volatile traffic and risks, and operations and management. Government and international agencies have set fixed design standards that did not allow tradeoffs between cost and service. Textbooks fol-lowed the same vein. (See, e.g., FAA, 1988; IATA, 2004; ICAO, 1987; Horonjeff et al., 2010; Ashford et al., 2011.) Comprehensive systems planning and design has not been the norm.
In response to current needs, this text broadly considers the range of factors that shape the performance of the airport. It expands the concept of airport planning and design to in-clude operations and long-term management through technical and economical measures.
Correspondingly, it uses a wider range of tools for analyzing preferable solutions, asChaps.
18through21indicate. This systems approach should be broadly useful to all professionals actively associated with airports.
FIGURE1.1 Growth in airline traffic worldwide. (Sources: International Air Transport As-sociation, ICAO.)
Cheaper, safer air service has propelled the growth in aviation traffic. Most obviously, the real price of air travel has persistently fallen over the last decades. A steady rise in de-mand mirrored this long-term drop in prices, as basic economics expounds and Fig. 1.2 confirms. Meanwhile, flight safety has improved dramatically, as Fig. 1.3 shows. Passen-gers and cargo now enjoy cheaper, safer travel than they did a generation ago.
FIGURE 1.2 Traffic worldwide has grown rapidly as costs of airline traffic decreased.
(Source: IATA World Air Transport Statistics.)
FIGURE1.3 Long-term accident rates have dropped significantly. (Source: FAA, 2010.) Forecasts of future traffic are questionable. Small differences in assumptions cumulate to enormous differences in consequences 25 years or more from now. Airport professionals should thus be tentative about traffic predictions. For example, slight deviations of plus or minus 1 percent from a long-term annual growth rate lead to substantially different fore-casts. A 5 percent annual rate of growth compounded over 25 years gives a result about 140 percent greater, in terms of the starting amount, than a 3 percent annual rate of growth.
Managers should place any estimate of long-range forecasts in a broad range of possibilit-ies.Chapter 4discusses this issue in detail.
Traffic will almost certainly continue to grow substantially. Most of the world rarely flies, and the market is far from saturated. Plausible increases in population and national wealth, and the tendency of members of younger generations to fly, will lead to more traffic. Increased globalization also impels long-distance travel for business and personal reasons, in general only realistically feasible by air. Even a modest growth rate of 3 percent a year doubles traffic in 25 years.
No one can count on steady growth, however. Trends may slow down or stop. Over the last decades, a series of major causes steadily reduced operating costs that in turn lowered airfares and drove the historical rise in air traffic. These were the following:
• Larger, more efficient aircraft
• Economic deregulation of the airlines, accompanied by competition
• Worldwide privatization of aviation and increased attention to costs
• The consequent competitive restraint on wages
• The introduction by airlines of differential pricing and revenue management sys-tems that raised load factors
• Historically low fuel prices (when adjusted for inflation)
Some trends may reverse. For example, fuel prices might rise considerably. Business travel may give way to inexpensive video conferencing or other communications. Concerns about security may limit travel, particularly for short-haul flights. Persistent economic dif-ficulties might stunt traffic growth. The likely scenario, however, is that aviation will re-gister substantial overall increases. When applied to the existing market, even lower growth rates will lead to substantial growth.
Overall, it is reasonable to assume that by 2040 the level of passenger traffic could be up to two or even three times higher than that in 2012. For example, the number of enplaned passengers in the United States could be in the range of 1000 to 2000 million a year, com-pared to the 720 million a year flying in 2010. Airport planners should thus prepare for the possibility of substantial expansion. However, because the growth is speculative, they should not commit to building facilities until they can confirm this growth. In short, they need to manage their risks consciously, asChaps. 4and19indicate.
The composition of the total traffic may differ significantly from what it has been. Over time, air travel has diffused from the rich to the masses, from the early to the later deve-loped nations. It has shifted from being a luxury good for the elite, to a necessary business need, to mass transportation, to international tourism. Airport planners may anticipate an extension of such patterns, both domestically in their own markets and internationally, from North America, Europe, and Japan to the rest of the world. Asia, the Middle East, and even Africa are sure to be increasingly important for the airport/airline industry.
Cargo traffic may continue to expand dramatically as companies reorganize their dis-tribution systems around electronic commerce. As of 2012, in a development not widely perceived, the integrated package carriers UPS and FedEx were already among the largest airlines in the world in terms of aircraft operated (see Tables 1.2 and 1.6). To the extent that businesses continue to substitute web sites for brick-and-mortar stores, and to deliver products directly to customers rather than through local warehouses and in-store inventor-ies, the integrated cargo carriers may grow rapidly. This traffic may be a driving force for many future airport developments.