The Evolving Airline Industry: Impacts on Airports
2.1 Trends in Airline Fleets
An airline’s fleet is described by the total number of aircraft and the specific types of air-craft that it operates. Each airair-craft type has different technical and performance character-istics, most commonly defined by its range and size. The “range” of an aircraft is the max-imum distance it can fly without stopping for additional fuel, while still carrying a reas-onable payload of passengers and/or cargo. The “size” of an aircraft can be represented by its seating or cargo capacity, as indicators of the amount of payload that it can carry.
Other important technical and performance characteristics of each aircraft type include a variety of factors related to both airline operational and airport physical constraints. For ex-ample, each type has maximum takeoff and landing weights that determine minimum run-way length requirements and, in turn, the feasible airports for operating the aircraft. Sim-ilarly, limitations on taxiways and gate space and even ground equipment at different air-ports can impose constraints on the airline’s choice of aircraft type.
Published prices for a narrow-body 150-seat aircraft that is typically used for short- to medium-haul flights range from U.S. $60 to 80 million. The list price of the largest long-range wide-body aircraft, the Airbus A380 that can seat up to 600 passengers, is over U.S.
$350 million (Airbus, 2012). However, airlines typically pay significantly less than the published list prices because of intense sales competition and price discounting by the air-craft manufacturers.
The fleet planning process requires airlines to make long-term strategic decisions that will affect their network structures and ability to operate specific routes for many years, even decades. These investments in aircraft can affect airline balance sheets for 10 to 15 years through depreciation costs as well as long-term debt and interest expenses. The de-cision to acquire specific aircraft types can have an even longer impact on an airline’s op-erations, as some commercial aircraft more than 30 years old are still in use today.
Environmental concerns and regulations are having a growing impact on airline fleet de-cisions. The noise impact of commercial jet aircraft is a major issue for airports and the communities that surround them. Many airports now have regulations and/or curfews that limit or prevent the operation of older aircraft types with engines that exceed specified noise levels (seeChap. 6). Similarly, there is a growing trend toward imposition of air pol-lution regulations designed to limit aircraft emissions around airports. At the start of 2012, the European Union imposed an “emissions trading scheme” (ETS) intended to limit the carbon emissions of airlines operating into and out of European airports. These environ-mental regulations provide further incentives to airlines to update their aging fleets with newer-technology aircraft that are both quieter and cleaner in terms of emissions, but which have substantially higher ownership costs.
As a general rule, the largest aircraft types operate on routes with the longest flight dis-tances. This relationship has less to do with technical or performance issues (such as fuel capacity) than with the realities of airline frequency competition. All else equal, larger air-craft have lower operating costs per mile and per seat for any given flight distance.
Irre-spective of distance, it would make economic sense for airlines to operate fewer frequen-cies with larger aircraft to increase passenger loads on each flight and reduce costs—both total operating costs (due to fewer flights) and unit costs per seat (due to fixed costs being spread over more seats per flight). On competitive routes, however, frequency share is the primary determinant of airline market share, particularly on short-haul routes where more flights improve the convenience of air travel relative to other modes. Frequency share is especially important in the competition for time-sensitive business travelers who pay high-er fares than leisure travelhigh-ers.
Figures 2.1and 2.2summarize the typical seating capacity and range characteristics of different commercial jet aircraft types available to airlines in 2012. The presentation distin-guishes between single-aisle or “narrow-body” aircraft with approximately 200 seats and fewer (seeFig. 2.1) and two-aisle “wide-body” aircraft typically with more than 200 seats (seeFig. 2.2). The positive relationship between aircraft size and range is apparent in both figures, although the strength of this relationship has weakened significantly over the past several decades. The principal aircraft manufacturers have substantially increased the num-ber of aircraft types available, giving airlines a greater choice of aircraft with different range and capacity combinations.
FIGURE 2.1 Narrow-body commercial jet aircraft. (Sources: Manufacturer web sites—www.airbus.com,www.boeing.com,www.embraer.com,www.bombardier.com.)
FIGURE 2.2 Wide-body commercial jet aircraft. (Sources: Manufacturer web sites—www.airbus.com,www.boeing.com,www.embraer.com,www.bombardier.com.)
The smallest narrow-body passenger jet aircraft shown in Fig. 2.1 include the 35- to 50-seat “regional jets” developed by Bombardier and Embraer in the 1990s. At the upper end of the narrow-body spectrum are Boeing and Airbus products with 170 to 200 seats and a maximum range of 6000 to 7000 km.
A notable trend is the general increase in the range capabilities of relatively small air-craft. Several aircraft types with 120 to 130 seats can operate nonstop flights over 6000 km (e.g., B737-700 and A319). These smaller aircraft can serve transcontinental routes in North America as well as medium-haul international routes such as Amsterdam-Amman, for example. The development of smaller aircraft with longer ranges enables airlines to provide nonstop flights on routes with relatively low demands. It also allows them to in-crease the frequency of flights on competitive medium-haul routes that previously were limited to much larger aircraft types.
Small regional jets with 35 to 50 seats were introduced in the mid-1990s and their use grew rapidly, especially in North America and Europe. These small jets allowed airlines to offer the speeds and passenger comfort of much larger jet aircraft on short-haul routes, in many cases replacing slower and noisier turboprop aircraft. They also enabled airlines to offer more frequent departures on competitive short- to medium-distance routes. Perhaps the most important driver of the success of these regional jets, however, was their appeal to
large U.S. and European airlines with unionized pilots. Pilot union contract “scope clauses”
required airlines to employ well-paid unionized pilots for any jet aircraft with over a certain number of seats, typically 70. With the development of 35- to 50-seat regional jets, airlines were able to hire lower-paid pilots to fly these smaller aircraft.
These impacts of small regional jets have been most apparent in U.S. domestic opera-tions. AsFig. 2.3shows, regional jets were introduced in 1997, and the number operated by U.S. carriers on domestic flights grew to 1500 by 2006. The vast majority of these aircraft were EMB135, EMB145, and CRJ-100 and CRJ-200 aircraft, all with 50 seats or fewer.
Contrary to conventional wisdom, these regional jets were used by hub airlines and their commuter partners primarily to increase the frequency of service from the hub to small spoke cities, not to over-fly the hubs with new nonstop services (Mozdzanowska, 2004).
FIGURE2.3 Regional jets operated by U.S. airlines. (Courtesy: A. Wulz, MIT. Source: US DOT Form 41.)
The growth of the small regional jet fleet has slowed since 2000, as surging fuel prices began to put the economics of 50-seat regional jets into question. Many of the pilot con-tracts that allowed airlines to fly smaller regional jets with nonunion pilots also came due
for renegotiation, further reducing their economic appeal to airlines.Figure 2.3shows that, after 2005, the growth of U.S. domestic regional jet operations slowed dramatically and that the growth that occurred was limited to 70- and 90-seat regional jets with lower unit costs per seat. With even more dramatic increases in fuel prices starting in 2008, some air-lines replaced 50-seat regional jets with newer 70-seat turboprop aircraft that consume less fuel per seat-kilometer.
These trends led to the more recent emergence of a new set of aircraft. As the airlines shifted away from small regional jets, Embraer led the development of a new category of aircraft with capacity and range characteristics in between the early regional jets and the larger narrow-body offerings of Boeing and Airbus. Shown onFig. 2.1, the Embraer 170/
175/190/195 series filled a previous gap in terms of both seats (75–100) and range (~ 4000 km). Bombardier also announced plans for its “C-series” aircraft, with slightly higher ca-pacities and increased range capabilities.
The capacity and range characteristics of large wide-body jet aircraft are plotted inFig.
2.2. On this graph, the positive correlation between seating capacity and maximum range is much less apparent than in the case of narrow bodies. The capacities of many of the new long-range aircraft have decreased over the past decades, allowing airlines to serve relatively low-demand long-haul international routes nonstop. In addition, a medium-size/
medium-range category of new aircraft types has emerged, as airlines find new “missions”
for aircraft with intermediate combinations of range and capacity. Both the Boeing 787 and the Airbus 350 are new aircraft types that provide excellent examples of this trend.
First delivered in late 2011, the 787 is a relatively small (230-seat) aircraft with a very long range of over 15,000 km. Some have referred to the 787 as a “game changer” for air-lines hoping to expand their networks by adding routes previously thought not to be sus-tainable given low demand and/or not feasible given their long distances. Two of the earli-est routes for the 787 provide examples of how such an airplane will be used—Japan Air Lines started the first nonstop flights between Boston and Tokyo in 2012, while United has announced plans for the first non-stop service between Denver and Tokyo.
Note that, in both cases, the airlines use the 787 to add service from their existing hubs to new destinations rather than providing “point-to-point” nonstop services. Although not strictly “point-to-point,” these new flights could well divert traffic from established airline hubs—the Boston-Tokyo flight will carry passengers that previously connected via Chica-go, for example, while the Denver-Tokyo service will affect the volume of traffic connect-ing at San Francisco. As large airlines continue to reinforce their own hubs with more non-stop services to smaller connecting spoke cities, passengers can bypass other existing hubs.
This is of particular concern to European network carriers who see the buildup of large connecting hubs in the Middle East as a threat to the traffic at their European hubs.
An important exception to the general trend of smaller wide-body aircraft is the Airbus A380 aircraft with 500 to 600 seats and a 15,000-km maximum range. This aircraft has
been in service since 2009 and is operated by over half a dozen international airlines on long-haul routes where demand is high and frequency competition is not a major factor.
For example, Air France replaced two smaller wide-body flights with one daily A380 flight between Paris and Montreal, reducing its unit costs on the route with little risk of losing market share. Other A380 operators have also assigned the aircraft to the heaviest routes into their connecting hubs—Frankfurt-New York for Lufthansa and Singapore-London for Singapore Airlines are two examples.
The largest operator of this largest wide-body aircraft type, Emirates, provides another case study of how airlines will use the A380 and how it might ultimately change global air-line competition. In 2012, Emirates operated over 20 A380 aircraft and had about another 80 on order. The airline is based at its single connecting hub in Dubai, and virtually all of its flights operate to and from this airport. As Dubai has relatively small local demand for travel, Emirates depends heavily on connecting passengers that neither originate nor ter-minate their trips in Dubai. Emirates thus uses the A380 and other wide-body aircraft to carry mostly connecting traffic into and out of Dubai. For example, an industry report in-dicated that only 10 percent of the average passenger load on an Emirates A380 flight from Toronto to Dubai is actually destined to Dubai with most passengers connecting to dozens of destinations beyond Dubai. As another example, Emirates in 2012 operated daily A380 flights between Manchester, England, and Dubai, a nonstop route that few would have pre-dicted could support such a large aircraft.
With the increased diversity of available commercial aircraft, airlines in different regions of the world have adopted different fleet and network strategies reflected in the average size of their aircraft. AsFig. 2.4shows, the global average size of commercial jet aircraft is 136 seats, but it varies substantially among airlines from different parts of the world. The emphasis of Middle East and Far East airlines on the operation of long-haul services with the largest wide-body aircraft gives them substantially larger average aircraft sizes, at 199 and 172 seats, respectively. On the other hand, U.S. airlines have an average aircraft size that is 40 percent smaller, at 119 seats, as many short- to medium-haul domestic routes de-pend heavily on frequency competition for market share. The average aircraft size is even smaller in regions such as Central America and Canada, where both frequency competition and lower levels of demand for air travel lead to the use of smaller aircraft.
FIGURE2.4 Average number of seats per aircraft. (Courtesy: K. Shetty, MIT. Source: Of-ficial Airline Guide, October 2010.)
Looking ahead, the future fleet composition of the world’s airlines will reflect the trends described previously. Airlines will continue to use small new-generation narrow-body air-craft to provide increased frequency of flights on competitive short-haul routes, and to op-erate a variety of wide-body aircraft types of different sizes to expand airline networks primarily through further growth of existing connecting hubs. There has been little evid-ence to date of a widespread shift to nonstop point-to-point services, with the exception of some new entrant low-cost carriers (LCCs).
Figure 2.5illustrates the worldwide large jet aircraft (excluding regional jets) order back-log at the end of 2011, categorized both by aircraft type and world region. Asia-Pacific air-lines have the most aircraft on order, a result of more rapid air travel demand growth in that region as well as a quicker recovery from the effects of economic recession in 2008–2009.
Contributing to the number of these orders is the continued rapid growth of LCCs such as AirAsia, airlines that still see tremendous untapped potential for low-fare air travel in the region. North American and European airlines rank second and third, respectively, in terms of total aircraft orders despite their relatively larger size of fleets and networks. A decade of poor profitability, exacerbated by much deeper impacts of recession and fuel prices have kept these more established airline groups from renewing and expanding their fleets as quickly. Worth noting is the volume of aircraft on order by Middle East airlines—Emirates, Etihad, Qatar, and others all have very aggressive growth plans.
FIGURE 2.5 Large commercial jet order backlog, December 2011. (Courtesy: V. Surges, MIT. Source: Manufacturer web sites—www.airbus.com,www.boeing.com.)
AlthoughFig. 2.5shows some differences in the aircraft type composition of orders by region, the overall picture is that airlines in every region will continue to acquire aircraft of all types. There is no apparent trend toward larger or smaller aircraft, but it is true that Asia-Pacific and Middle East carriers have a greater proportion of wide-body aircraft on order. This reflects both the geographical realities of these two regions (most flights are international and longer distance) and the aggressive expansion plans of the largest carri-ers operating in these regions. In contrast, North American and European airlines continue to require a greater proportion of smaller narrow-body aircraft to serve shorter-haul routes where frequency competition is more important.
Airline decisions, based on their network structures and competitive scheduling prac-tices, determine the aircraft types that serve any individual airport. Large international car-riers will focus on wide-body aircraft, but they will also need the smallest regional jets to provide connecting feed on short-haul routes. New entrant LCCs initially focused on 150-seat narrow-body aircraft, but there is recent evidence of shifts in both directions—Air
Asia uses larger aircraft for some international routes in Asia, whereas JetBlue in the Un-ited States and Azul in Brazil have acquired smaller 100-seat aircraft for lower demand routes.
For airports, the diversity of airline fleet characteristics and the absence of universal trends in aircraft types used by airlines simply mean that tremendous flexibility will con-tinue to be paramount. From the smallest regional jets to the largest A380, different aircraft types can have significant airport implications in terms of gate configurations, runway and taxiway requirements, as well as terminal waiting lounge and passenger processing facilit-ies. With the increased pressures of airline competition, volatility of airline profitability and growing movement toward consolidation in the global airline industry, airports will have to accommodate a range of aircraft sizes at any given time and will also have to respond to changes in the fleet characteristics of their airline tenants, sometimes with little advance notice.