Hot Flash Archives: January - March 2011

Monday   March 28, 2011

Delta's Memphis Realignment:
More Proof Of Rapidly-Evolving Airline Strategies

It's not that Delta doesn't like Memphis. Or that the connecting hub there has no value.

But they're cutting 25% of the operations there by the end of the year. Reason: they don't have a fleet that can operate the MEM hub at the levels they could in the past. It's just an issue of hard economics. So, they're announced that they're yanking dozens of RJs out of their fleet.

At almost the same time, Delta ordered 12 more E-170s for Compass.

The two events likely have the usual suspects in the financial world in a state of even more disoriented confusion than usual. Pulling a hub down due to too many RJs, yet, according to common wisdom, ordering 12 more "regional jets." It's a contradiction, they'll claim.

But it's not. Delta is moving with good sense to reduce the number of RJs in its fleet, and the E-170 order is completely consistent with that strategy. That's because, common nomenclature notwithstanding, the E-170 is not a "regional jet." To the contrary, the market niche they were originally aimed at was the lower-end of the single-aisle category - DC-9-10s, BAC-111s, F-100s - that had been abandoned by Boeing and Airbus. (We know - we were there.) Regardless of who's going to crew them, those -170s are all about moving toward less RJ and more mainline-cabin flying.

It's what Boyd Group International Global Fleet Forecasts clearly outlined for its clients ten years ago: the US airline system even then had far more 50-seat RJs operating, on order, and on option than it could support. (It was not a finding that the rest of the consulting industry, not to mention a client or two, agreed with. But it was accurate.)

Put oil up to $50, and a lot of formerly-profitable missions for RJs went directly to Red Ink city. Oops, black goo is now over $100. Draw your own conclusions regarding what's going on in major airline planning departments. And it's not panic - it's just solid recognition of realities.

Airline Strategies Are Rapidly Evolving. We covered these emerging dynamics last week at the 2nd Annual Analytical Firepower Workshop In Denver, including detailed reviews of what to expect from each major carrier system.  In addition, attendees now have access to Aviation DataMiner to further review where service is vulnerable, and where they can review key revenue and traffic metrics specific to the airline involved. Having hard data and a clear picture of airline realities - no matter how unpleasant - is a lot better than wishful thinking.

The Confidence Games Only Make Things Worse. The most unfortunate part of this new airline economic picture is that there's massive denial in many corners of the airport world. "We're going to find another carrier..." or "We need that service to San Jose, and by golly, we'll get it back..." or, as the mayor of one city said, "We need that 'direct' service, and regardless of what the airline might tell us, in our community, the word, 'no' is not in our vocabulary..."

Look it up in your Funk & Wagnall's, your honor. It's under "N" - you'll be hearing it a lot.

Worse - let's tell it right out, as-is, where-is - there are amateurs and charlatans in the consultant world pandering to this desperation.  Instead of giving communities the straight story, i.e., that the scraping sound really was an iceberg, and to start looking for a Plan B, they resort to all manner of schlocky schemes that are about as effective as howling at the moon. The fact is that the financial and economic hurdles to support scheduled air service access - either in specific markets or perhaps all markets - have eclipsed the revenue-generating ability of some communities. End of discussion.

Sorry,  but no amount of studies, surveys, speed-date-buy-the-planner-a-Scotch-conferences, panels of "experts", crackpot rent-an-airplane schemes, "best practices", secret potions or other voodoo will change it. If the economics are gone, so, too is the air service involved.

Travel Company Service Is Great, But... And, while getting Allegiant or Vision is great for covering expenses, they don't deliver Mr. Chiang coming into town to do a site visit for that Haier appliance factory. As we advise our airport clients, air service means access to and from the rest of the world, not just having great alternative options for those discretionary funds originally intended to remodel the kitchen.

Wake Up And Smell The Regional Approach. The Memphis move by Delta is yet another signal to many communities to re-think how they approach air service planning. In some cases, and for some segments of air service access, regions will need to work together. Often it will mean that smaller airports circle the wagons around the levels of service and the customer stratas that the local economy will support , and let the rest use a larger airport in the region. In others, it may be simply recognizing that when "air service" is represented by a single-engine, single-pilot flight a couple times a day, it's not air service - it's wasting fuel.

We'll be covering this at a special workshop of the International Aviation Forecast Summit, August 28-30 in Albuquerque. Yes, the data and metrics aren't always great to hear.

But ignoring them - as some communities are being misled to do - is a lot worse.
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Torpedoing Denver's Strength As A Connecting Hubsite

Staff of Boyd Group International are today contacting airlines serving Colorado making sure they're aware of, and to review the potential impact of, a little-publicized bill now quietly going through the Colorado Senate with near-unanimous support from elected officials who vote first and worry about consequences later.

SB11-022 will mandate that Colorado remain on daylight savings time permanently throughout the year, instead of being in sync with most of the rest of the nation. The Sponsor of the bill, Republican Greg Brophy, contends it will make life easier for citizens by not having to change their clocks twice a year. He did a survey, see, and 70% of respondents liked the idea. Apparently the business aspects of this bill are not particularly important.

Do away with messing with clocks in the spring and fall? Sounds great, but what it does is monumentally screw things up for both the three hubbing carriers at DEN, plus the non-hubbing carriers as well. It would affect scheduling into clock-curfew airports such as ASE, where air service is a major artery for the region's main industry, skiing. It would materially shift the viability of DEN as a hub, making it two hours different from Pacific time, and making connect-scheduling more difficult to match to local traffic demand.

It's interesting that the airlines we've contacted didn't appear to have been consulted on the effects of the bill. Neither was the ski industry. But that's not important to politicians.
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Monday   March 21, 2011

Sloppy Security?
No Problem. Just Don't Have Any Long Lines

There are two really world-class dimbulb suggestions again getting ink in the media. These are the type of stuff that sound really, really good to the average guy on the street, but are devoid of any recognition of hard reality.

Pay Tribute. Or Get Pawed Down. The first is the "Trusted Traveler" concept. It's the current cause célèbre to "fix" airport security, according to some of those airy-fairy Washington "think tanks"  - they ones that apparently need the tank to capture what few real-world ideas they have.

The grand concept is simple, see. Let's get consumers to agree to a background check. If they weren't involved in blowing up stuff in the past, and don't have a record of being a terrorist, great. They'll be able to avoid a lot of the security processes that today everybody must go through. Then the TSA can concentrate on the rest of the huddled masses in the screening line - the ones that for whatever reason don't - or refuse - to submit to a Big-Brother background investigation. Voila!, according to the tanksters, people will breeze through the lines, TSA will have an easier job, consumers will be thrilled, and we'll all be a lot safer.

One little problem: the whole concept is kiddy-table amateur.

First, the minimum security check that can be done - the minimum - is to put the passenger and his/her carry-on through screening. The human goes through a magnetometer and the carry-on goes through a screening device as well. (How effective this process is, isn't in question.) That's what we do today.

So, the consumer pays $200 or so to a politically-connected vendor to do a background check that probably Mohammed Atta could have passed, and which will prove nothing. (Like you think a guy with a diploma from Fast Eddie's School of Cosmetology and Terrorism in Yemen is going to tumble to this? And, even more stupid, the TT concept assumes that no record means no threat. That by itself reveals how moronic this concept really is.)

So, then, just what will be the "expedited" screening process? Oh, yeah, the consumer can keep his shoes on. Or, maybe his coat. But he still will have to go through the same basic screening we see today. We aren't going to allow passengers and carry-ons to not go through the motions of being screened, or is that what the TT concept is suggesting?

Wrong, the tanksters will reply. A Trusted Traveler program will allow the TSA to focus more on the suspicious passengers who want to hide something by not shelling out money to get a jive-time background check done. That means citizens who don't pay tribute to the TT system will just have to get used to being pawed down or put through a radiation machine that nobody is sure is safe or not. Suspicious people like Grandma, who travels once a year will be scrutinized more. Or, those questionable husband and wife teams who take a vacation in 'Vegas, but can't afford to give some vendor another $400 for the privilege of not being singled-out.

So, the deal is, pay to make some vendor rich, maybe get a special screening line that's shorter, or else be prepared to be treated like a suspect. It's sort of like a mob shake-down scam. It will degenerate to that. Count on it.

It's The Carry-on, See. Related to this are calls to force airlines to check the first bag free. That'll cut down on all that extra carry-on that the TSA has to screen, the story goes. Sounds lovely. Yes, it's logical to assume that there's more carry-on volume today. But there's no metrics - at least no reliable independent metrics - that have determined just how much more. Or the real cost, per se.

We can't rely on Janet Napolitano for any reliable data - she's clueless. (As governor of Arizona, her borders were more like a Welcome Wagon to illegal, unscreened immigration. Having her in charge of national security is like appointing a coyote to guard the sheep.) These grand think tanks don't have a clue either.

Quality of Secuity Isn't An Issue. Here's the bottom line, and it represents the core reason we're not any safer than before 9/11 - as a plethora of GAO studies, not to mention some in Congress, will verify. These Associations, Think Tanks, Consumer Cabals, and the rest of the Beltway Aristocracy who dream this stuff up don't give a rat's tush about real security. They cannot but know that the TSA is a qualitative mess. They know that it, not the consumer, is what needs to be "tested" and trusted. Worse, some have actually lauded the TSA for keeping us safe since 9/11.

Yet, on that basic, fundamental issue of airport security effectiveness, they say nothing. Massive testing failures aren't a concern - they're more concerned about how long the line will be to get to that sloppy-managed screening. Whether the rest of the airport is properly secured isn't an issue, either. Lines, not threats, are the enemy. Competence is not a concern.

Nature Abhors A Leadership Vacuum. But perhaps the most disgusting part of this mess is not the ding-dong security proposals coming from think tanks. It's that we have them at all. The reason is that, since its very inception, back when Bush let congress - the world's largest and most ineffective PTA-on-steroids - call the shots setting up the TSA, there has been a vacuum of thought-leadership.

With these calls for Trusted Traveler scams, that situation continues.
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Japan Traffic Radiation - It's Already Reached US Airports

In the latest DataFlash, we look at the scope of US-Tokyo traffic, and how any diminution in those passenger levels will affect airports across the US.  It's another indication of how important international traffic generation has become to the US airline system - even in the domestic segment.

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We want to thank the aviation leaders who are joining us this week in Denver for the only interactive airport/air service planning event in the industry. We'll be reviewing and analyzing the threats, opportunities, and trends that will affect airports in the coming year - including fuel prices, reduced capacity, new fleets and more. Not talk. No schmoozing. Just hard planning.
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Monday    March 14, 2011

Small & Mid-Size Airports: Drop The Snake-Oil
Warning Signs: The Service-Cut Tsunami

One word Benjamin: Fuel.

Forecasts completed by Boyd Group International don't particularly agree with some of the rosy forecasts for air traffic growth in the next 12 months. Ominously, there could be ultimate capacity cuts in the US airline industry of 5% to 7% by the end of the year. Possibly more.

Oil is now fundamentally over $100, and that means jet-A is going to stay over $3 a gallon. What that means is smaller units of airline capacity are seeing their economics dive into the red for a lot of mission applications - misions that just a year ago were contributory to the bottom line.

What To Expect: The Unexpected. The warning signs are all around. Last week, Continental indicated it may accelerate the retirement of 737-500s from its fleet. Bank on it. The week before, seventeen more ERJs were officially dumped into the desert. In the past few weeks, several carriers have not only announced reduction in planned capacity, but in some cases have also cancelled some new market plans. Some trends to watch in the next six months:

• Prior capacity growth plans for 2011 will transform into an orderly retreat back to 2010 levels or less;

• Faster retirement of RJs than originally planned. Much faster.

• More pressure on applications of 66-70 seat RJs - they burn fuel, too;

• Major pull-downs in off-hub point-to-point RJ flying by major airline systems. That nonstop to LGA from some point in the Deep South might be able to command high fare yields. But the major carrier is paying increasingly more for the privilege. Even if it was just announced, don't make any reservations beyond 60 days or so;

• On the other hand, there may be near-term desperation moves to place RJs. At some carriers, it may be cheaper for the time being to fly them at a loss than park them entirely. But don't plan on that being a long term strategy;

• Faster retirement - without replacement - of older mainline jets. That means less capacity, which dovetails with declining demand in the 4Q, driven by higher oil costs percolating through the economy;

• Super long haul international flying may be cut back. When the fuel bill hits 100 large just to launch a 777 to Beijing, the economics tend to send the CFO to the Pepto-Bismol bottle.

Fiddling While The Schedule Gets Cancelled. What this means is that the US airline industry is again entering a contraction mode. Communities that plan for this, and anticipate airline strategies in advance will have the advantage, and be far less likely to be the victim of a cut-it-right-now drive-by in the carrier's planning department.

 This is not the time for airports to be wasting money on silly internet surveys that have all the scientific value of a Ouija Board. Or more "studies" where the realities of the airline industry already reveal which carrier systems are targets and which are not. Schmoozing with airline planners at speed dating events isn't the answer anymore, either. That scraping sound really was an iceberg.

It's full metal jacket time to recognize that this is not a drill. Fleets are going to be reduced. Capacity cut back. Markets dropped.

And it will come like a tsunami - fast and unannounced. Again, airports that have the data and planning in place can anticipate what's coming and craft programs to address and mitigate the effects.

At Boyd Group International, our forecasting expertise, combined with the best on-line analytical tools - Aviation DataMiner - are assisting clients to identify where they're "air service vulnerable," and how to craft contingency plans.

We don't play the games other consultants get into. We just help our airport clients to be ready and pro-active. Give us a call if your community is preparing for the next nine months.

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The Cuba Spasm

Two weeks ago the feds announced more US "gateways" for flights to Cuba. The media in the cities involved went bananas about the great opportunities this represented.

At almost exactly the same time, the Cuban government announced it was shedding 500,000 workers. It seems that the average monthly pay of $20 (yes, twenty bucks) is too much for them to handle. This comes after a year of power shortages, caloric intake rationing, and a dearth of things like soap for the average Cuban.

Yessir, that's the place to take the family for a vacation, particularly if you can't find a hotel vacancy in other world-class vacation venues, like, say, Yemen, or perhaps Laos. How 'bout a great bike trip from Santiago to Santa Clara? You'll meet the average Cuban on the way. One reason is that there's very few food stores and restaurants. Water sports? Not recommended. Cuban authorities get antsy when they see people floating out on the water.

The fact is that for most of these new US "gateways" there's more potential for additional gambling charters to Tunica than for flights to Havana, Holquin, or Santiago.

Reason: travel is open only to folks visiting relatives in Cuba, not the general public. There's also the provision for "humanitarian" traffic, but even though it's often a ruse for looney-bin over-the-hill 60's hippies to visit their favorite Worker's Paradise, that's still not much traffic. The point is that travel will be generated from cities that have strong Cuban-American populations. So, maybe BWI or ATL can put a few charters together, but the lion's share of Cuba flights will remain focused on Florida. That's because Florida - particularly southeast Florida - is where the majority of Cuban-Americans live. So it while makes great press and an opportunity for editors to slap misleading headlines on these stories, there isn't much to them.

As for the US travel industry, all frothy over the "huge" potential if only the feds would completely lift the trade embargo, they're not bothering to wake up and smell the poverty. Cuba is no grand travel or trade bonanza. There are gated beach resorts, to be sure, but they're in existence to gain foreign currency, and they're based on cheap rates, not five-star quality. An extra roll of toilet tissue is a big request.

As for the panting politicians claiming that Cuba is just itching to buy US goods, it's all hot air. Cuba can buy whatever it wants from the rest of the world. It doesn't because it's broke.

Boyd Group International has produced the only independent analysis of Cuba-US travel potential. It's not anywhere near what a lot of people in the travel industry are predicting.

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Monday    March 7, 2011

It's Official: Delays Will Be A Thing Of The Future

Seems not a day goes by without some glowing story on how ATC Rapture, a.k.a. NextGen, is just around the corner. All we need is congress to fund it, according to most of the media stories.

All we really need, truth be known, is some honesty in the process that's giving us this electronic Rosemary's Baby, and maybe a couple of network reporters who will do a bit of research and ask some hard questions of the FAA, instead of turning themselves into eager shills for whatever pap they get from the NextGen PR department.

Let's restate the heresy, the one that the aviation media cognoscenti and virtually all of the aviation consultant cabals sneer at when they're not too busy tossing awards at incompetent federal officials: NextGen is a fraud. It's not new. It's not "next." It's not on time. It isn't even certain how much it's going to cost or how much of an improvement it will be. Sorry to disappoint all the True Believers, but those are the facts.

The latest proof is in reports that the En Route Automation Modernization (ERAM), a key component of NextGen, will be delayed by four years, and will see a cost overrun of at least a half a billion taxpayer dollars. Because other key components depend on ERAM, that means that NextGen has just slipped again

NextGen has other problems, too. The DOT I.G. reports that it has yet to be decided how many ATC centers the system will need, and what the division of responsibilities will be between pilots and controllers.

Gee - a four year delay in a fundamental part of NextGen - one on which other key components rely. Another half billion in cost overruns. Anybody get fired? Any contractor penalized? Anybody held accountable? Nope.

Anybody in the Washington alphabet groups who represent airlines and airports get all hot and bothered over this turn of events? Nah.

Here's a challenge: go back and check out the FAA pronouncements from the late 1980s and early 1990s about the "progress" of their ATC upgrade programs. Then check out the excuses for not meeting deadlines and budgets. You'll find that nothing has changed, including the fact that we had then and have now an ATC system that doesn't meet the nation's needs, and an aviation industry that's apparently really OK with that.

The airline industry is being hit with billions in extra costs due to ATC inefficiency. One might think that would have a higher priority for the industry than worrying about raising the airport PFC a couple bucks. At least that money's accounted for.

The airline industry is getting some really bad advice from whoever's representing them in Washington. They are being advised to urge congress to fund NextGen. That's fundamentally different from demanding an ATC system that meets the future needs of the nation.

Bottom line: We called it in our 2011 Predictions - NextGen isn't going anywhere. The only part of it that works is the PR machine.

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US Airports: Major Fleet Changes & Route Realignments Coming

Seventeen more RJs were officially grounded last week - heading for the desert and eventually the hacksaw  as a result of Mesa emerging from Chapter 11.

These are in addition to the 50-60 CRJs that Delta is planning to pull out of the skies this year. And there will be more as fuel prices move upward from $3 a gallon. At some point, the economic tipping point will reach 66-70 seat variants, too. Plan on it.

These units will not be replaced, just as the hundreds of B-1900s, M-IIIs, J-31/32s, SF-340s and EMB-120s which blackened the skies 25 years ago have not been directly replaced on a unit-to-unit basis. What is happening is that airlines are restructuring how they operate and where they operate. The catch is that they often do this on an independent basis, without any input or feedback from the communities affected. Sometimes service that has strong potential for the future is axed, simply because the airline doesn't have all the data on the community, nor the time to find out.

For a lot of airports - large and small - this is crunch time. It's just within the din of great 4Q 2010 and stellar January numbers, it hasn't been recognized yet. . But we need to wake up and smell the jet-A - it is coming.

The Airports With A Plan & Hard Data Will Be The Winners. On March 21-22, we're holding the second annual Analytical Firepower Workshop. We will first review the emerging airline strategies to expect in the second half of 2011, based on projections of fuel costs and changes in consumer spending patterns as all sectors of the economy get hit with higher energy expense. We will outline the key metrics on which an airport can ascertain where service is weak, strong, or just vulnerable to changes in an airline's market strategies

Then, attendees will log on to Aviation DataMiner, and analyze their own airline's data, identifying key metrics on which to build an air service development and contingency plan - one that proactively can be used to work with  incumbents to retain and expand service.

This is a unique workshop - it is not a social event, and it is not rambling slide presentations. It is a hard-core planning session geared to meet what's coming in the future. For more information and to register on-line, click here.

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Monday, February 28, 2011

From The Don't-Bother-Me-With-Facts Department

There no longer can be any doubt.

From a policy and strategic planning standpoint, the US transportation system is in deep yogurt.

Aviation? Unless It's Ginning Up Stupid "Tarmac" Delay Rules, It's Not Important. We have more and more reports on major problems with the air traffic control system (you remember, the one that in 1993 the FAA said would be fixed for the future by 2001?) and instead of addressing it, we have Secretary of Transportation Ray LaHood charging around the country, spinning tall tales about the need to toss billions into high speed rail - without any real independent analysis of the long term financial effects on the US taxpayer. Or, even if these choo-choos will actually be "high-speed" - which they won't.

He's out and about, doing just what he said he would do when he was appointed: being a good little soldier for whatever program he's handed. He's not thinking about what they are, or what they may do to the taxpayer.

He's, well, just following orders.

A Derailed Track Record Is A Great Example. It was once again proven last week when LaHood was in Indiana, trumpeting the wonders of high-speed rail. To buttress his point about the incredible value of fast trains, he referred to America's well-known paragon of efficiency, otherwise known as Amtrak...

"...Amtrak is doing very well," the Secretary told the audience. "They're providing good service, they're providing on time service, they're providing service that now Americans want to use. They're making money, that wasn't true a few years ago..."

Nor, Mr. Secretary, is it true today, either. Somebody please clue this guy in.

Seems the fact-challenged Caporegime of the Transportation Department is so far out in left field that he doesn't know that in its 2010 Fiscal Year filing in December, Amtrak reported a loss of over $1.4 billion dollars on $2.5 billion in revenue. Do the math. Even the Acela system is Enron-rigged when the accounting is done - they don't fully-allocate the fixed costs. Bernie Madoff went to jail for that type of stuff.

Would You Buy A Used Car from This Guy? Here's the truth: it's a wonder that anybody who's awake, sober and honest can give LaHood any credibility. A rail system that's losing over 50 cents on every dollar it takes in, and he wants us to believe that's a great model for America.

The sad news is that he just really doesn't know the facts. Anybody in the transportation field is aware that Amtrak is a ghastly financial vapor hole. The bad news, then, is that LaHood is simply incompetent, and knows nothing about the subject matter.

But he wants us to be good little sheep and take his word that high-speed rail will be just as "successful." as Amtrak. That's like using Bernie Madoff as an example of why to invest on Wall Street. Our recommendation: this guy is Lost In Space.

This isn't just a minor gaffe - it clearly shows that the man is little more than a political wind-up toy, pushing whatever agenda he's handed. That's dangerous for all sectors of transportation, including aviation - which he has sternly warned not to express any reservations about the plan to squander billions on rail. When a powerful public figure tells anybody to not criticize a government program, it's a message that honest citizens must condemn.

Sorry if this frightens or offends the politically-correct folks in the Washington Alphabet Group crowd, or some of the members of various aviation consultant cabals, who have the delusion that they have to suck up to this guy - and ignore outright stupidity - to get things done. But it is the truth.

We'll give him one point. We should carefully consider the Amtrak experience when LaHood launches off like a trained seal on the glories of high speed rail. Amtrak never has done anything like it was supposed to do. It's a sloppy quagmire that has become a billion-dollar millstone around the taxpayer's neck. Just like what LaHood's pushing for the future.

Check here for the actual Amtrak financials. The ones that LaHood, the #1 transportation guy in the nation, doesn't seem to know about.

Some leader, he is. Oops. Wrong. He said it himself. He's just a soldier following orders.
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Finally, On A Cultural Note...

Boyd Group International was recently honored and pleased to welcome Marisa Harrington of Bakersfield/Meadows Field to our offices for a two-day session on airline industry data and trends. Bill Oliver and Brian Siler developed the curriculum and conducted the meetings.

Several of our client airports make this an annual event - an all-day planning session at our headquarters in Evergreen, Colorado. We prepare an in-depth review of the opportunities and challenges for the client, and then it's a roll-ups the sleeves session exploring competitive strategies and tactics.

To set up an appointment for your airport, just give us a call. Or, consider our Analytical Firepower workshop, March 21-22, here in Denver. Either way, it's access to air service and airport planning provided by the professionals at Boyd Group International. We look forward to hearing from you.
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Monday, February 21, 2011

Congratulations to New Orleans

United Airlines has reinstituted nonstop service between New Orleans Louis Armstrong International Airport and its hub gateway at SFO. Boyd Group International is honored to have worked with MSY in this success.

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Southwest: Facing Dual Hub Models?

In the Aviation Data Flash we review the de facto connecting levels at WN operations at several large airports, and note that these "random" connect operations will need to be adjusted to address the more formal banked operation that will almost certainly  be necessary at ATL to retain the current AirTran traffic. Click here to review.
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The Cargo Cult Syndrome Comes To Cincinnati

"It's broken"

"We need that London service back..."

"We'll get more airlines to fly here, by golly!"

"The airport needs to be revived!..."

These are some of the recent general comments reported in the media regarding Cincinnati/Northern Kentucky International Airport. See, it's down to under 80 nonstop destinations.

From the governor of Ohio down to local hair dressers, the call is out. Action must be taken, the civic leaders are demanding something be done.  "We're gonna get those 'direct' flights back! We'll bring in new carriers to hammer down fares!"

Actually, probably not to anywhere near the degree these fine folks may think. As honorable as the intentions are, there are hub-economic realities that cannot be changed.

Or, worse, what can be achieved will be far less than some consultants may lead them to believe.

CVG is a healthy airport. Its "problem " is that the Delta hub - which supported all that nonstop service over the past 25 years - is no longer as economic as it once was, and is being reduced. The airline industry financial underpinnings that gave CVG all that service have largely evaporated. That is a fact that must be faced. And it won't be reversed by smokescreen consultant jive, like canvassing the business community on "where they want to fly."

Here's a couple of market truths that most consultants won't bother to tell these well-meaning people, who understandably don't know the economics of the airline industry:

• The Current CVG Service Is Already Heavily "Subsidized." At over 75 nonstop destinations, CVG today is way over-served for the size of the local market demand. There are roughly only 35 - 40 markets that the local O&D will support. The rest are the result of the connecting traffic provided by the Delta connecting hub.

• International Flights: Write A Check. Unless heavily subsidized, getting London service back is a pipe dream. The connecting traffic that made it possible is gone.

• Delta Didn't Pull-Back For Yucks & Grins. They Were Losing Money. It's unfortunate that there appears to be nobody willing to state it clearly: The nonstop flights lost at CVG are the result of hard economics, not some evil plan on the part of Delta Air Lines to deny CVG its service-due.

• We're In A Hub-& Spoke System. With a number of exceptions, such as major metro non-hub airports on the East Coast, and large Florida destinations, the main points to which CVG can support nonstops in the absence of its own airline hub are, indeed, other airline connecting hubs. Consultants can conduct all the surveys, focus-group meetings, hoe-downs, hootenannies, and tent-revivals they want, but at the end of the day, it won't change this fact.

It's A New World - CVG Needs To Prepare... Not Try To Re-Create The Past. Let's look at CVG compared to other cities. At 4.1 million local O&D, it's #58 on the traffic hit parade. Columbus is 5.9 million, and it has nowhere near the nonstop service that CVG still enjoys... below are the nonstop markets currently at CVG.

This pattern at CVG is in large part compliments to the connecting power of the Delta hub operation, not the economy of the CVG region, which has benefited mightily from having the hub located at the airport.

Wake Up And Smell The Local O&D. It would be prudent planning to clearly understand what CVG itself can support in the absence of this Delta hub.

Using 3Q 2010 numbers, here are some hard data - just examples of how it's the hub, not the local economy - that's supporting a lot of the nonstops at CVG:

Without the connecting flow traffic, there is no way CVG can support nonstops in these three markets - and these are just a few examples. What the civic leaders will ultimately have to tumble to - regardless of how many "studies" are done - is that CVG itself doesn't have the O&D horsepower - a.k.a. local demand - to support many of the markets where it today has nonstop flights, not to mention where nonstops have been dropped.

Limited New-Carrier Opportunities. What this says is that just about any market where a "new carrier" might be recruited already has nonstop service. There aren't any CVG service gaps. Quite the contrary.

Let's look at service patterns today at much larger Austin, Texas, which generates over 7 million O&D passengers. They have nonstops to under 40 destinations.

And as for fares - Austin has considerable service from both Southwest and jetBlue. It's average fare is $196 v $224 at CVG. (All up, including federal fees and taxes, 3Q 2010.) But they have much less nonstop service than does CVG. That's the trade-off.

Civic Hubris Is Understandable for The C of C. But Consultants Don't Have That Excuse. At Boyd Group International, we have a strange way of doing business - at least within the context of a lot of what goes on in the consulting industry. We actually tell clients up front when their pet project won't work, and we suggest alternatives that are consistent with reality. There's a difference between positive thinking and chasing objectives that run counter to physical and economic realities The majority of our clients respect this.

To be sure, this occasionally loses us business.  But when the project, regardless of a client's good intentions, is a dead end, or is at variance with intellectual gravity, the only ethical option is to tell them so. And, occasionally, they'll seek out another consultant with more pliant ethics on which to squander their money.

Air service development is one such area. The natural gung-ho, all-American response to a loss of air service levels, or the need to fill perceived gaps, is to get up and take action. Unfortunately, this positive approach is often useless when realities of air service economics and the structure of the airline industry make such objectives physically impossible.

It's a consultant's ethical responsibility to have the expertise to recognize such situations, and to guide the client accordingly.

Bottom Line: That Lost Service Is Mostly Gone Forever. At CVG, it seems nobody wants to tell them the hard truths:

• The service that's been lost is due to Delta adjusting an unprofitable hub operation.

• The majority of "direct" flights that have been dropped were cross-subsidized by the connecting traffic the hub provided - CVG doesn't have the local passenger demand to support such flights by itself.

• This is a hub-and-spoke system. No matter how much the city fathers may want more "direct service to more destinations" unless it's to another airline's hub, or a major metro destination, the number of such opportunities are few. Unless, of course, a carrier can be convinced to put another hub operation at CVG. That will happen sometime subsequent to Richard Nixon's third term.

• Fares: Delta and other carriers will charge what they see fit for the market. It's astounding that the business leaders on these task forces would demand an airline pursue pricing below what he market will support. You think Proctor & Gamble or Ashland would do it? Remember, the majority of Delta flights providing all this nonstop service at CVG are operated by RJ equipment. They are not cheap in regard to seat costs, and as noted above, many markets from CVG cannot support larger aircraft.

• International service: only if the community wants to shell out heavy subsidies. The bantam-weight consultants will point to the PIT-CDG service. Yup. And leave out that it's got a marginal 66% load factor.

• Southwest: Probably not coming anytime soon. The local CVG market isn't particularly huge, and WN is trying to figure out how to absorb AirTran.

CVG isn't broken, as the new governor of Ohio intimated a couple of weeks ago. It just has lost a major part of the Delta hub. The airport still provides strong access to the nation and the world. But thinking that it can be "revived" to the levels of nonstop service it had ten years ago is Cargo Cultism, not solid business.

We'll put it bluntly: any consultant that doesn't tell CVG these realities right out of the box - at the first interview - is either ignorant of airline realities, or is outright unethical.

Or both.

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Monday, February 14, 2011

Tracking The New Airline Metrics
It's Hard Intelligence. Not Smoke & Mirrors

Aviation Data. It's sort of like a latter-day Oracle At Delphi. Just like in ancient Greece, there's lots of smoke and a lot of High Priests engaged in strange rituals, breathlessly trying to tell the world what it all means.

Unfortunately, some of today's High Priests have gone Elmer Gantry on us. They're crackpots tossing numbers around that they don't understand and which are often totally bogus in the first place. It's every bit as much hocus-pocus as what went on at Delphi.

But just like back then, it's not Kosher to question the Holy Ones. They're financial gurus, see. Got all those letters after their names, too.

No Data? Just Make It Up On The Fly. Recently, we came across a report from a financial industry High Priest, speaking in tongues about how "market share" is the way to achieve airline rapture. To underscore this, he  compared legacy and LCC airlines, and lo! the magic smoke has told him that, yes! it's Southwest and similar carriers that will rule the world.

To bolster his grand conclusion, he recalled  how in 2004 Southwest, in its Beatific planning vision, had captured  the majority of seat and passenger share in the lucrative MSY-PBI market, decisively denying other carriers entry.

Southwest, according to this Holy Seer, accomplished this by putting six daily round trips in the MSY-PBI market, with four of them being nonstops. The flights were full, and continue to be a big part of Southwest's success to this day. The Oracle has spoken.

Only one little problem: Southwest has never operated regularly scheduled nonstops in the MSY-PBI market. Another problem: back in 2004 the MSY-PBI market was a whopping 41 passengers per day each way. Market stim notwithstanding, there was no way that Southwest would ever toss over 1,400 daily seats in that direction.   The whole story is garbage. Just like the concept of "market share" being the sole metric for airline success.

This week, we've added an Aviation Data Flash that outlines how it's the system revenue-generation that's now the main metric of market success -i.e., how much long green does the carrier leverage out of that nonstop seat from Point A to Point B. And it varies based on airline system and airline strategy. Even fleet type.

Click Here to review the Data Flash. It should clear a lot of the smoke coming from the usual suspects in the financial world.

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Monday, February 7, 2011

"High Fare" Airports... The Key Metric Is Fares
So, It's A Very Different Picture From BTS Reports

The BTS has published third-quarter 2010 traffic data, purporting to show that Newark/Liberty International as the nation's highest fare airport.

It's not. By a long shot.

Comparing "Itinerary Cost" Is Not A Valid Fare Comparison Metric. What the BTS published is the average cost of a passenger itinerary. And that's the product of more than just fares. It's the product of the specific consumer mix and travel patterns at the given city (which will vary widely between Newark and, say, Miami), the economic and demographic foundation at a city, and - importantly - where the city is located, which determines the average itinerary length, and hence the cost of said itinerary.

The last point is critical to understanding the material difference between the BTS itinerary cost, and airline fares. The average one-way passenger trip at Newark Liberty in the 3Q of 2010 was 1,445 SM. At Denver, the average one-way trip is just 1,072 miles.

That means, just as a starting point, the average passenger trip at Newark is 40% more flying than at Denver. Remember, Denver's in the middle of the nation. Newark is on the East Coast. It doesn't take an MBA degree from Wharton to figure out that this means more dollars paid per itinerary at EWR to get to a lot of places domestically. But it doesn't necessarily mean that what the airline is charging the customer per-mile is higher. Or, as we'll see below, it doesn't mean that even the average fare paid is higher. In fact, there are many airports where EWR is lower by either metric.

Another difference in the BTS approach is that they include all itineraries - one-way, round-trip, etc. That skews things in all directions, because the mix of passenger one-way/round-trip demand is different at different cities. This is not a clear picture on which to compare what the passenger is paying on an apples-to-apples, average, one-way basis at various airports. Indeed, it is skewed again by the specific passenger stratas at each airport. Leisure destinations are very different than Newark, or Albany, or Denver.

The fact is that when it comes to actual fares paid per-mile by consumers, Newark is barely on the radar screen. When we rank all US airports with over 100,000 quarterly passengers, EWR clocks in at #82. That's several Zip codes away from the most expensive airport in America. Even in terms of raw dollars paid, Newark is lower than seven of the top-fare 15 airports listed.

Rank among airports with 100,000+ quarterly passengers.

So, the fast-conclusion that Newark/Liberty is the nation's most costly airport to fly out of is flat wrong. (Gross fares include federal fees and taxes.)

"Everybody Knows" LCC-Dominated Airports Are Cheaper, Right? But do take a gander at the airport that's #3 on the hit parade in terms of what consumers pay per mile. It's Dallas/Love, which is dominated by Southwest. The average fare was just $156.00, because of the nature of the service levels at Love - i.e., the mix of markets operated from the airport. But consumers still paid the 3th highest per-mile fares in the nation among large and mid-sized airports.

In fact, the average fare per mile at nearby DFW, which is dominated by "high-cost" American, is 30% less than at Love. The reason is that even though both airports are in the D/FW Metroplex, the service patterns offered are entirely different, again illuminating that using "itinerary costs" as a metric to make fare comparisons isn't valid.

Want More Straight Data & Market Intelligence? The key point here is that there's a fundamental difference between just published numbers and the professional expertise to understand and utilize them. While most consultants are quite happy to repeat what's published somewhere else, Boyd Group International looks beyond such ambient thinking. We don't care about being among "the consensus" or about what "everybody knows" - because it's often nonsense.

This is an example of the approach we're taking at the 2nd annual Analytical Firepower Workshop in Denver, March 21-22. Bring your laptop, and we'll be diving into the trends and events that will affect your airport, based on actual data for your specific airport. We'll review the potential outcomes and revised airline strategies due to skyrocketing fuel costs. We'll discuss - carrier-by-carrier - how service patterns and revenue hurdles will change. We'll review fleet changes. All the emerging trends - and how they'll affect air service patterns.

This will not be another get-to-know-the-data-sources event, with boring slide shows presented by the usual  suspects. That's for amateurs. This event really is a workshop for serious professional planners. You'll be delving into actual on-line traffic, load factor, capacity, fare, and other data for your airport. You'll find where vulnerabilities may emerge, and be prepared to deal with them.

For more information on the Workshop, click here. And make plans to join your colleagues March 21-22 in Denver.
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Monday, January 31, 2011

TSA Suddenly Ends Opt-Out

It's not surprising. It's a logical decision. Incompetent people always try  to cover their own incompetent tushies.

TSA Administrator Pistole has announced there will be no further airports allowed to opt-out from TSA screening. The reason is simple - to do so would acknowledge the fact that airports want to get rid of at least some of the incompetence for which the TSA is now world-famous.

World-famous for reported 70% failure in testing for screening accuracy. World-famous for never, ever admitting failure. World-famous for incompetent leadership, going back to the first loser Bush put in the administrator position. World-famous for being knee-jerk reactionary, instead of pro-active. World-famous for creating a giant bureaucracy instead of a tight, professional security organization.

By ending opt-out, it's no longer a vehicle by which airports can ignore their Washington alphabet-group lobbyists and let the world know that the TSA is a national embarrassment.

Congress generally supports this move. Think about it, these guys are more concerned about whether TSA screeners carry union cards then they do about whether we have competent transportation security.

Nevertheless, we can rest assured that regardless of this latest insult to the airport industry, and the sloppy management at the TSA, Pistole is clearing his mantle for the next award for "excellence" that one or more of these Washington alphabet organizations will lay on him in the coming year.

Bank on it.

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New Planning Imperatives 
Fuel: The Brave New Airline World

The price of airplane go-juice is going up. Likely, very rapidly in the next three weeks. There will be fallout.

Today, airlines are paying 33% more for a gallon of jet-A than a year ago, Fare increases and surcharges will be the order of the day, but they won't stop what will almost certainly be material changes in how the US and global airline industry will plan for the future.

Unfortunately, it will affect a lot of airports in ways they had not expected. In a few cases, we've already seen carriers do a 180, suddenly putting off or cancelling planned market expansion. What may have been acceptable risk at $2.50 a gallon might not look so great today.

Oil Prices: Don't Expect Rational Thinking. We'll start with this: the geo-political factors that drive the price of oil are as emotional as a pep rally at a rural high school in the running for a AAA championship. Only there tends to be a lot more guns involved. There's lots of jumping, yelling, threats, hyperbole, people dressed funny - and not much common sense. Anything can set things in motion.

Example: In the early 2000s, some Middle Eastern potentate - who had been in a coma for years - finally went on to meet the 29 virgins or whatever's there in Potentate Heaven. Oil immediately spiked up $5 or more. Reason: fears that this guy's passing would destabilize the Middle East.

This was the market conclusion and response, despite the fact that Crown Prince Whoeverhewas for the prior five years had been out cold.

It's the same thing with what's happening in Cairo. The place has turned into a nasty pep rally for one political group or another. And because Egypt - which itself has less oil than a suburban Jiffy-Lube - is in the Middle East, that sends shivers up the oil market's pantaloons. If unrest spreads to other countries that do produce oil, the fear is that supply will dry up. Or that a terrorist organization - the Muslim Brotherhood, al Qaeda, Hamas, the PTA, or whoever - might get control of the supply lines.

Now, speculators jacking up the price of crude won't do dukey to change what may happen in Amman, or Baghdad, or Dubai, or wherever. But it's how things operate.  And it's a new torpedo that the US airline industry will be maneuvering to avoid.

The Next 90 Days. Boyd Group International  would suggest the following tea-leaves to watch:

• Fleet Shifts: Even faster reduction in leased-in RJ flying. This will start to creep up from 50-seaters into the 64-70 versions as well, depending on how fast the price of jet-A heads for the Moon.

• Circling The Hub Wagons. Some of the point-to-point flying into large metro areas - particularly NYC - will get yanked due to a combination of higher fuel and reduction in RJ flying.

• Fleet Renewal. It's entirely possible that airlines will view this current spike in fuel prices as fundamental, and not as just a temporary spike. That means the projected fuel efficiency of the Bombardier C-Series - just three years away - may suddenly have a lot more attractiveness that it did before.

• Airframe Manufacturer Strategies. Boeing may no longer be able to sit on the sidelines with the 737 program, and to protect market share, announce some form of a new-generation version. The orders for the A-320NEO have not been missed by the folks in Chicago and Seattle.

• Airline Fleet Decisions - Loyalty Shifts From Manufacturer To OPEC. The point is that the price of jet fuel may never (okay, never say never,  but this is close) drop back to under $2 a gallon. That means that airlines must plan accordingly. We'll say what many of the Wall Street analyst set won't notice until the first Blue and Red and Orange C-Series is boarding passengers at Love Field: a carrier like Southwest won't let traditional loyalty get in the way of sound business. If it finds itself with the possibility of flying fleets of airplanes that are burning 15% more jet fuel than the competition, you can bet it's going to be making calls to the folks north of the border.

• Review of Super Long-Haul Intercontinental Flying. When it takes 100 large to put fuel into that nonstop from ATL or DFW or EWR to Mumbai, or Shanghai or Guangzhou, airlines start to take note as to whether it can make any money. This happened in 2008.

• Accelerated Alliance Pooling. The move toward the alliance being the brand will accelerate, with more pooling of aircraft between alliance hubs. In ten years, it's not out of the range of possibility that ATL may be no longer described as a Delta hub, but as a SkyTeam hub. Same with DFW and oneworld, or IAD and Star.

Final point. Regardless what happens in Cairo or some other corner of the globe, the fact is that oil, denominated in constantly-inflated US currency, is not likely to see the low side of $50 again.

There still will be a vibrant global airline industry (the EU and its crackpot carbon nonsense notwithstanding), but it will be one that serves fewer points, costs more to use, and will employ a lot fewer people.

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Note To US Airports: Time For Hard Planning Shifts

Airports Need To Anticipate, Too. While there's zero that small and mid-sized US airports can do about fuel prices, they need to understand and anticipate the dynamics of how they might manifest at the local boarding gate. And part of what's coming will almost certainly include what we call "planning department drive-bys" - where the sudden imperative to cut flying results in red lines going through airports and markets without the luxury of time to do any amount of deep review. If it appears to be losing money, it's a target. When cash is going out the airline's door, there's no time to set up a meeting three weeks from now with the airport to discuss things.

No time for the airport to provide brochures on that new Toyota factory going in  and the 35 weekly round-trips it will generate to China. No time to point out the hub-flow revenues that the planners may not have had time to review before the slash-and-burn order came down from on high.

When a cost crisis hits an airline, being out-of-sight and out-of-sight isn't a good thing for an airport. Just assuming that the airline will "know how strong our traffic is" can be dangerous. They may not, and when there's a fleet squeeze due to a sudden grounding of 12 more RJs, the fallout can mean service pink slips where they're completely unexpected.

This means communities - from secondary rural airports to large hubsites - need to plan now to craft $3.50-per-gallon air service analyses. It involves hard data, not social networking. No amount of schmoozing with airline planners at speed-dating events will put an unprofitable market back in the black.

What's most important is to identify how each market contributes (or, deal with it, no longer contributes) to the airline. It's important also to assure the carrier understands that you're working with them to get through this coming crisis. It's also important to be ready when a pink slip arrives - as some will in the coming six months,  and have a clear understanding of the reasons, and a clear contingency plan.

On March 21-22, airport and aviation planning professionals will be gathering in Denver for the 2nd Annual Aviation Analytical Firepower Workshop. We won't be networking. We'll be working, period. We'll be outlining the new financial imperatives un the US airline industry, and the strategies and tactical approaches that will emerge in the coming 12 months:

Effects - regionally - of reduction in RJ fleets
Key market vulnerability factors
Airline by airline strategy shifts
Revenue hurdles to anticipate
Emerging competitive imperatives
Regional leakage shifts due to Southwest/AirTran merger
Potential airline growth potential by region
Hub-by-hub expansion & contraction forecasts

Then, workshop attendees will analyze the effects on their air service, using data from their own airports, accessing Aviation DataMiner. When we're done, each will have a clear understanding of the new dynamics they need to deal with in the coming year.

Click here for more details and to register securely on-line. Get ahead of the curve and join us in Denver, March 21-22. It's at the Holiday Inn & Suites, right at Denver International Airport, and we've designed it for just one overnight, at a special rate.

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Monday, January 24, 2011

When Airport Planning Degenerates Into A Load of, Well, Carp

This one's too good to pass up. It's a first. As of last week, the battle's on: two airports fighting over a pipe dream. Now, we don't have a horse in this rodeo, but it's a hoot to watch boosters-without-a-clue promise things that will happen just after the second coming of Elvis.

We're talking about the grand scheme to establish a "China air cargo hub" at St. Louis. The deal is that goods will fly in from China. and then be transshipped all over the Midwest and the nation. Just who the shippers will be, what the range of consignees is going to be,  the levels of alternative competition, and the logistics of the distribution system, are not really clear. It's just that, see, China has a lot of stuff being shipped to the US, and by golly, St.Louis is a great place for it all to land.

It's what boosters and developers call "vision." It's what normal people would call a boondoggle. At the end of the day, the whole scheme may actually end up with a cargo flight or two, and the developers behind the program will declare success. But as for a real bricks and mortar giant FedEx-style "hub," interconnecting huge flows of inbound and outbound Chinese air freight, St. Louis has a better chance of landing the Eiffel Tower.

But the dream goes on. Now, the argument is whether this puff-dream should be at Lambert, or at always-good-for-a-laugh Mid-America, just across the river in Illinois.  They both claim that the good folks in the Middle Kingdom are just itching to blacken the skies with freighters bringing in goods, and then filling up with food, or other stuff, to take back across the Pacific.

In St. Louis, the promoters are trying to convince the folks that this is just what Louisville did, and now, like wow! there are 30,000 air cargo jobs there. STL can do it too, they urge. All we need is that go-to spirit. Not to mention no telling how many "studies" (all of which, presumably, magically support the project) and, of course, a few business-class-only "trade missions" to China. Sitting at the ceremonial dinner table in Beijing across from no doubt amused Chinese officials, toasting never-ending Sino-St.Louis friendship, urging a hearty gan bei! at each round, will do the trick eventually, right?

They leave out the fact that at SDF it's due to one US logistics company using the site as a sort center, much of it focused on high-yield domestic overnight packages - which is a fundamentally different, mega-volume business compared to having an international "hub" operated by some foreign airline or airlines. Using Louisville as an example is not only misleading, but raises serious questions about whether these folks have a clue.

If We Can Just Sell One Can of Beans To Each of 'Em... "Yeahbutt, we got a lot of food here, and there are a billion Chinese and they all eat every day." Therefore, the argument goes, those returning Chinese freighters will be chock full of American vittles, winging their way to hungry people all across China. Yup. And the Chung family in some rural town in Hubei Province will rush down to the store to buy that airlifted food, only to find that a can of Kroger spinach is the equivalent of $5, due to the high cost of shipping it by air.

Competition For A Vapor-Project. Not to be outdone, Mid-America Airport is in the fray, too. One thing they cannot be accused of is lack of creativity. Remember, Mid-America was first postured as a passenger reliever for Lambert, only no airlines came to relieve themselves. Then it was going to be a charter airport. No dice. Then it was the new gateway for seed products from Indonesia.(?) Then it was flowers from Latin America. Now, it's the perfect place - even better than Lambert - for, you guessed it, a China cargo hub.

Out-slicking STL, they've already staged one flight from China, delivering goods that then had to be transshipped by truck to other cities, most of which already have their own current cargo channels from China.

But now, the folks on the west side of the river at Lambert may really be in trouble. According to news reports, Mid-America has upped the ante. They're playing their ace card: carp.

That's right - Asian carp, to be exact. See, they've decided that Mid-America can be the #1 gateway for shipping these creatures to China. We're not sure how the Asian carp got here in the first place, but apparently Mid-America feels millions of them want to be repatriated.

It's part of the latest sure-fire Mid-America scheme: perishable food shipments to China. But again, just what "perishable food?" Exactly what commodities have the demand and local price-points in China to pay for the expense of shipping by air?  Another point: there's been no public announcement regarding how much more money  the taxpayers in St. Clair county will have to cough up for the ground facilities to assure that the carp don't degenerate into large piles of cat food before the Chinese freighter arrives.

China Is The Supplier. We're The Buyer. One of the enormous misconceptions, which we pointed out in our 2011 Aviation Predictions, is that China is still a backward nation that desperately needs our goods and products. There are trade opportunities, yes, but the idea that selling goodies to the Chinese is a slam-dunk route to Lifestyles of The Rich And Famous is off the mark. Hey, they're the ones selling stuff to us. It's Chinese products that consumers are buying at Wal-Mart and Target, and at high-end haberdasheries. They're the ones buying into US businesses. They're the ones building factories to produce refrigerators, washers and other white goods in the Deep South.

But that doesn't mean that the economic and physical realities of air cargo can be reversed. Air cargo works when the nature of the commodity demands fast delivery. And that precludes any extensive trans-shipment on other modes. A flight or two from China to STL, yes. But implying to a region that there'll be a China cargo "hub" employing 30,000 or even 1,000, is akin to trying to sell the Brooklyn Bridge to a Cub Scout Troop.

Don't Bother With Facts. It Annoys The Promoters. You can always quickly identify solid planning from flim-flam in the way the promoters respond to hard questions.

Questions like, "what, exactly, do you mean by hub?" Do a news search, and you'll quickly find that nobody has defined what they mean when they use the word. Or, "just how is this 'hub' going to distribute goods?" Or, "what about competing airports?" Or, "how many flights, what commodities, how many kilos of each good, what back-haul products, etc?" It's a boondoggle when, instead of specific answers, they shoot the messenger in an attempt to choke off any scrutiny of their pet project. Anybody who questions them must have ulterior motives, they'll say. Or are just naysayers, and aren't worthy of a response.

Ready. Fire. Aim. According to the STL hub commission (which, by the way, got bailed our by federal funds, and now has an office in Beijing) this hub thing as far as they are concerned  is a slam dunk. Yet according to one report, this bunch has hired a consultant that initially wanted a $900,000 fee to study the concept. Pretty pricy for a project that's a sure thing.

Then there's the political card: "We've got Senator Snort on our side, so don't get side tracked with Luddites questioning the project." We'd point out that Mid-America and all its grand promises right from the start were eagerly supported by politicians, too. Besides, when most politicians hear the word "jobs" they start barking like Pavlov's poodles. If it sounds good, and they can make a political play, they're in. Just like they were with the Mid-America deal right from the bogus-idea start.

Pipe Dreams Come With A Cost, Too. As for all the economic impact, this project has already scored for the state of Missouri. In the wrong way. Last December, the Governor was to fly to Taipei and sign a MOU where Taiwanese businesses were agreeing to buy $120 million from Missouri businesses. Oops. Trip cancelled. Reason? Such a deal might annoy the folks in Beijing. And that might endanger this "hub."

Just keep this in mind: When promoters can't respond with hard facts that make sense, but instead immediately question the intent of any who question them, you can bet that the project is a boondoggle.

That, unfortunately, seems to be exactly the case on both sides of the Mississippi. Caveat investor.

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Monday, January 17, 2011

It's Official:
Alliances Are Marking Their Territories

Attack from where you are strong. Retreat from where you're weak. It's simple.

That's what we're going to be seeing in the coming 24 months. The three global airline alliances - Star, oneworld, and SkyTeam - will be staking out their market territories for future growth. It's no longer individual airline brands that are driving the strategies.  What this means is that carriers will be restructuring route systems and revenue flows based on alliance strategies, and moving away from the parochial individual goals formerly chased by individual airline members.

It's much like what we experienced in the US in the 1980s and 1990s, except it's part of a world-wide process. Back then, large airline systems staked out key metro airports as fortress hubs, supported by frequent flyer program loyalty and code-shared feed. Other airlines then retreated to their own fortress hubs, conceding territory to one another.

Then, it was mega airlines in the US. Today, it's the three global alliances accomplishing the same basic strategy across the globe. And it's a dynamic that will determine the levels of economic air service access at airports of all sizes in the United States. Unfortunately, a lot of mid-size and smaller communities haven't made the strategic shift from focusing on "getting a lot of enplanements" at the local airport to the critical metric: staying connected to the globe. The trick will be ascertaining which global alliance(s) will be available to access their community (or, in some cases, region) and making that metric the strategic air service goal.

Good-Bye SFO. Hello, DFW. We witnessed another territory-marking this week, with the Qantas announcement that they're shifting their SYD-SFO service to SYD-DFW. On the surface, it doesn't make sense - it adds another 1,850 Km (1,150 miles) of flying and necessitates a fuel stop at Brisbane on the west-bound leg.

But looking deeper, from the reality that Qantas is a oneworld carrier, the decision is a sound and necessary strategic move. The reason: SYD-SFO pretty much gave Qantas access to, well, the SYD-SFO market. Period. That's because SFO is a Star-dominated airport. Over 60% of all departures are Star-operated. Only 7.5% of the airport's departures are oneworld - and that represents less than 40 daily departures. This pretty much shuts Qantas out of the majority of beyond-SFO connecting opportunities. United's SYD service accesses its huge connecting hub, at SFO with Star Alliance carriers operating almost 300 daily departures. Result: Qantas was in an untenable future competitive position.

At DFW, however, Qantas is flying into a oneworld fortress, operated mainly by American, with over 750 daily departures. Qantas has access to points in the US, Central America, and near-South America that it simply was cut off from at SFO. This certainly does not mean that the new Qantas flight will connect to all 750 DFW oneworld departures, but it still represents a US gateway with a geometric increase in revenue opportunities compared to SFO.

This is clearly the harbinger of how global alliances will affect access that US regions will have to the world. SFO-SYD is now a one-carrier (UA) market. And it will likely stay that way, unless Air New Zealand jumps in to compete with its own Star partner. On the other hand, DFW is now a stronger international gateway for an entire region of North America and parts of LatAm.

We've pointed this out at our Aviation Forecast Summits - in the future, it's access from the rest of the globe that will dictate regional economic growth in the US. And that will be based on the levels of access a region has to one of the three global alliances.

This is the reason that one of the most important measures of any air service enhancement program must be clearly identifying which alliance service a region should pursue.

It's nice to have LCC service to Florida. But the new imperative is assuring connectivity with the rest of the world, and that will require concentration on alliance gateways.

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Aviation Research Report:
IATA's CUPPS Standard: Does It Need To Be Re-Visited?

Boyd Group International just completed a review of IATA's Recommended Practice for Common Use Passenger Processing Systems (CUPPS).

When first conceived as CUTE (Common Use Technology Equipment) in 1984, it made sense. Since 2004, when  IATA set about to revise the program as CUPPS, technology advances have leap-frogged the approach.

But today, available technology has largely eliminated much of the raison d'être for CUPPS, which entails some onerous requirements for certification and re-certification, neither of which are any longer necessary.

Today, CUPPS may well be a problem more than a solution, as more and more airports are opting for alternative and newer approaches. IATA needs to completely re-think the concept. The review can be downloaded by clicking here.
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Skip The Social Events. Roll Up Your Sleeves & Meet Us In Denver
The Second Annual Analytical Firepower Workshop

 

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Monday, January 10, 2011

US Aviation Predictions For 2011:
Hard Realities

Year 2011 will be very challenging for all sectors of aviation. A couple of points:

• A sound airline industry, albeit challenged by fuel uncertainties

• China: A growing factor in US aviation

• Air Service: Getting more simple. Simply because there are fewer airline options

• NextGen: Elvis will get here before it does. But the national media loves it

• TSA & Privatization: The big news is airports aren't listening to their Washington handlers anymore

To review & download the  complete 2011 Aviation Predictions Report, click here.

 

Monday, January 3, 2011

The Year Ahead:
Weak Traffic. Strong Airlines. Smaller Systems.

Rejoice! The headlines tell us. The last 90 days of 2010 indicated a traffic rebound for US  carrier systems. As it stands today, enplanements will be up just about 1.9% - 2.1% for the year, all driven by a sudden end-of-year spike in demand.

Put away the party hats. It's a bubble, not a trend. The bad news is that none of the tea leaves for air travel demand in 2011 are positive, regardless of lemming stories in various parts of the aviation media. The good news is that the US airline industry is preparing for it.

First, all the breathless reports about airlines supposedly making big profits in 2010 don't do much more than scratch the surface. What they are missing is that the airline industry in the last quarter of 2010 was essentially flying in the eye of the storm. In the next six months, they'll be back in the turbulence. Big time. The main threats will be skyrocketing fuel costs and declining consumer discretionary dollars in the economy - both of which will be the result of oil prices heading for somewhere near Jupiter.

More good news is that the airline industry clearly sees it coming. Last week, they began to circle the wagons with a fare hike. Then there's the metric of capacity: the US network airline system as a whole is  not adding more flights. In fact, over the past 75 days, the industry has scaled back the seats it was planning to put into the market in 1Q of 2011. On a total system basis, there will be essentially no more network carrier flying than for the same quarter last year.

As of  last Wednesday, schedules filed with our data partner, Innovata, and analyzed in Aviation DataMiner, indicate just a 0.9% increase in departures - small enough to constitute just "noise" - not an increase per se. A veneer review would indicate a 2.2% increase in seat capacity, but this is due solely to retirement and some replacement of 50-seat "regional" jets, not to more flights added to the system as a whole.

First 50-Seaters Get Culled. Next, It'll Be 66 - 76 Seaters. Other market intelligence can be gleaned from this data. As fuel costs go up, it's smaller units of capacity that are disproportionately affected. That means carrier systems that are highly dependent on leased-in RJ lift will be more cost-vulnerable in the marketplace.

To date, the main victims are 50-seat and smaller RJs. But later in 2011, particularly if airplane go-juice heads toward $3 a gallon, all airliner fleets under 90 seats will be in the cross-hairs of consideration for getting reduced. It will be raw economics. Also slightly adding to this is the recent move toward making 70-seat CRJs dual class, reducing the number of saleable seats by four to six, depending on the model.

US Air Transportation System - Proactively Under The Planner's Scalpel.  With near-certain higher fuel costs coming in 2011, and declining economics (and numbers) of 50-seat and smaller jets, it's a sure bet that some small and even mid-size hub-feed markets that were in the black a year ago are going to start to produce numbers in brackets at the bottom of the airline's P&L. That means communities need to revise how they approach their air service programs.

The critical step will be tumbling to hard realities. In 2011, there will be one and only one criteria for keeping or expanding air service: developing new revenue streams that fit the specific carrier's strategies. Period. Boyd Group international has identified a number of emerging, globally-driven revenue streams in many parts of the nation - revenue streams that often airline planners don't see. That will be the airline's go-no-go factor. Period. The fact is that the "traditional" smoke-and-mirror approaches to attracting and retaining air service levels at smaller communities will finally be relegated back into the snake oil bottle.

First, the we'll-do-a-study-and-find-the-right-airline scams are rendered useless - in virtually all cases, the target airline systems (the few that are left) are as obvious as a facial blemish on prom night. The buy-your-own-RJ-time schemes look even more foolish when sophisticated entities such as Delta, American, and Continental are, for clear and demonstrable economic reasons, parking dozens of the them in the desert.  And some of the speed-dating air service events have now turned into what is mostly an annual social circuit.

The Days of Reckoning Are Here. The misconception being tossed around, even in an obscenely-expensive but generally useless 2008 TRB report, is that all that airports need to do is study the situation, work hard, use "best practices," follow what others have done successfully, and voila! getting new "routes" is just a matter of time. That is sheer nonsense, and is totally at odds with the realities of the US airline system. It also is damaging in that it misleads and distracts a lot of communities from facing the inevitable, and working on regional approaches, instead of local ones, to assuring air service access. In 2011, this will become painfully obvious to a lot of airports.

Bottom Line: The US airline industry is preparing from a tough 2011, which means that it will get through it. But it also means that with declining demand, higher fuel costs, and formerly discretionary consumer dollars going to pay gas and heating bills, it will not be a strong traffic growth year.

It also points to the US air transportation system - fleets, markets, and strategies - being much different at the close of 2011.

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