The Future of the Airport and Airline Industry
1.3 Organizational Change
• 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.
The organization of the airport/airline industry has been fundamentally changing over the last generation—and the process continues. Economic deregulation creates opportunities for low-cost and integrated cargo airlines to grow, impels governments to privatize their airlines, and leads traditional airlines to consolidate. Political deregulation, such as open-skies agreements, enables new markets, changes traffic patterns, and increases competition.
This evolution greatly affects airport systems planning and design.
The U.S. economic deregulation of the airlines in 1978 catalyzed these organizational changes. Deregulation allowed U.S. domestic airlines to establish and drop routes as they please, charge whatever prices they wish—and do so at a moment’s notice, without hav-ing to ask for government permission. This event led to rapid innovation in services, big increases in productivity, and significant fare drops. The example proved contagious, and similar deregulation of air travel has spread to major international markets, notably Aus-tralia, Canada, the European Union, Japan, and India. More recently, the United States has effectively been promoting political deregulation of the airlines through its “open-skies”
agreements with other countries. These treaties eliminate governmental restrictions on air-line destinations, frequencies, and fares, and allow wide access to each other’s markets (ex-cept for domestic flights, known legally as cabotage). The result is that much of the air transport industry now operates in a context completely different from the one that pre-vailed until the late 1990s.
Low-Cost and Integrated Cargo Airlines
Deregulation enabled new low-cost passenger and integrated cargo airlines to flourish.
They have become major and, in some markets, dominant airlines. Their innovative modes of operation are correspondingly changing airport design and operations.
Southwest represents the salient success of low-cost airlines. It became the leading car-rier of domestic passengers in the United States (Table 1.5). It has been a role model for comparable low-cost carriers in other markets: WestJet in Canada, Ryanair and easyJet in Europe, and AirAsia in Southeast Asia.
Source: US Bureau of Transportation Statistics, Schedule T1, 2011.
TABLE1.5 Southwest Airlines Was the Dominant U.S. Domestic Carrier in 2011 (in terms of passengers carried)
Southwest established the standard for low-cost operations in many ways. It uses a stand-ard fleet of aircraft to drive down training and maintenance costs and has flexible work rules that use personnel efficiently to do many tasks. To maximize the utilization of its fleet, it has historically tried to use uncongested airports with minimum delays, and to turn around aircraft in as little as 20 minutes at the gate. These operating policies directly af-fect airport planning. The low-cost airlines’ push toward uncongested airports has favored the development of secondary airports in metropolitan areas, such as Dallas/Love Field, Miami/Fort Lauderdale, and London/Stansted (seeChap. 5). Their emphasis on quick turn-around times reduces the need for gates and terminal space. Moreover, low-cost airlines have led the way for the development of low-cost terminals internationally, as at Paris/de Gaulle and Singapore.
FedEx similarly is the prototype of integrated cargo airlines that provide door-to-door service between suppliers and customers. It integrates its fleet of aircraft with huge fleets of ground vehicles using highly automated, standardized facilities and advanced IT techno-logy throughout. It provides a remarkably efficient service that is reconfiguring the distri-bution of goods both for manufacturers and consumers. Distributors increasing substitute the integrated cargo service for local warehouses or retail stores.
FedEx and UPS have grown to dominate the market for airfreight. In 2010, they carried two to four times more tons than nearest competitors (Table 1.6). Both are among the largest airlines in the world, in terms of number of aircraft. Moreover, they have been highly profitable and correspondingly have the capacity to finance the kind of airport facil-ities they need.
Source: IATA World Air Transport Statistics,http://www.iata.org/ps/index_products.asp.
TABLE1.6 FedEx and UPS Dominated Their Competitors in 2010 (in terms of tons car-ried)
FedEx and UPS have also been responsible for the development of major cargo hub air-ports such as Memphis and Louisville in the United States, and numerous major distribu-tion centers such as Los Angeles/Ontario, Guangzhou, and Paris/de Gaulle. They are re-sponsible for many “cargo airports” insofar as cargo is the major component of the activity at the airport. In the age of integrated cargo carriers, cargo is no longer a peripheral activity secondary to passenger traffic; it can be a primary driver of airport development.
Privatization
Globally, governments are getting out of the aviation business. They are privatizing airlines and airports. Business management in a market economy is replacing government owner-ship in a regulated environment. This trend further changes airport planning, design, and management.
Except in the United States, the standard practice for most of the twentieth century was that government bodies owned and operated both airports and airlines. Whereas in the Un-ited States the airlines were private and local authorities normally ran the airports, almost everywhere else national ministries or their dependencies ran both airlines and airports. The airport/airline industry thus benefited from public subsidies and protection. Correspond-ingly, it operated in a highly regulated, political context, in which political interests often dominated economic or commercial rationales. This era, and the design and management mentalities that go with it, are fast disappearing. Worldwide, the airport/airline industry is converging toward standard American practice: airlines are private and airports operate un-der some form of public–private partnership.
Governments have been privatizing their national airlines (Table 1.7). Airlines therefore increasingly follow economic self-interest. They are finding it imperative to drop unprof-itable routes and streamline their operations. With the understanding that the business in-volves economies of scale and scope, national airlines are also merging and disappearing (Table 1.8). These reorganizations affect their airports, most obviously by reducing opera-tions at the hubs of the closed airlines.
TABLE1.7 Examples of Privatized Airlines
TABLE1.8 Examples of Consolidated National Airlines
Governments have likewise been privatizing airports. They do this either by creating some forms of public–private partnership similar to those prevailing in the United States,2 or by creating independent companies that they then regulate as local monopolies (Table 1.9). In this environment, cost and economic performance are increasingly crucial criteria for good design, and they are radically changing the timing and nature of what airports de-cide to build.
TABLE1.9 Examples of Privatized Airports
Globalization
Political deregulation is also opening up more airports to international, intercontinental air-line services. “Open-skies” agreements permit airair-lines from each country to serve any des-tination in each other’s country and are becoming increasingly widespread (Table 1.10).
They permit, for example, American Airlines to serve Barcelona from any U.S. airport.
Such freedom contrasts with previous conventions that limited foreign airlines to a few gateway airports in each country. These agreements enable more convenient nonstop inter-continental service for secondary cities in different countries, asChap. 2describes. This has an impact on airports: it favors the use of smaller long-distance aircraft such as the Boeing 787 launched in 2011 (and reduces the need for the much larger Airbus A-380).
TABLE1.10 Examples of Open-Skies Agreements as of 2012
In parallel, airlines have formed three global alliances. These groupings enable the air-lines to coordinate their schedules and practices and thus provide services that are more convenient to customers. They have become a notable force in the airport/airline industry, as they account for about half the passenger traffic worldwide (Table 1.11). They present a challenge to airports managers; they demand common airport locations and services, and do so with great bargaining power.
TABLE1.11 Global Airline Alliances in 2012
To a lesser extent, major airport companies have partnered with lesser airports world-wide to provide a range of management services (Table 1.12). These arrangements have brought leading practices to less developed facilities. So far, such arrangements are relat-ively insignificant overall.
TABLE1.12 Examples of International Airport Consortia as of 2012