MIT
ICAT
Overview of Recent Trends in
the Airline Industry
Prof. R. John Hansman
MIT Department of Aeronautics and Astronautics
Traffic Source: Sage Analysis courtesy Prof Ian Waitz
rjhans@mit.edu 617-253-2271
MIT
ICAT
World Population Distribution
and Air Transportation Activity
North America
37% Pax
26% Cargo
Europe
27% Pax
28% Cargo
~40 Airlines
~4100 Airports
~80 Airlines
~2400 Airports
Latin America/
Caribbean
5% Pax
3% Cargo
~40 Airlines
~580 Airports
Africa
2% Pax
2% Cargo
~20 Airlines
~300 Airports
Population Source:http://www.ciesin.org/datasets/gpw/globldem.doc.html
Air Transport Source: ICAO, R. Schild/Airbus
Passenger and freight traffic represent RPK and FTK share in 2002
Asia/
Pacific
26% Pax
36% Cargo
Middle East
4% Pax
5% Cargo
~12 Airlines
~230 Airports
~60 Airlines
~1800 Airports
MIT
ICAT
Conceptual Model
Direct / Indirect / Induced employment effects
Economy
Travel/Freight
Need
Financial Equity/
Debt Markets
Economic Enabling Effect
(Access to people / markets / ideas / capital)
Demand
Supply
Pricing & Schedule
Airlines
Revenue/Profitability
Air Transportation System
Vehicle Capability
NAS
Capability
MIT
ICAT
Correlation Between US GDP and
Scheduled Passenger Traffic
30%
Sch. RPMs
Annual Growth (%)
25%
GDP
Deregulation
20%
Recessions
15%
10%
5%
0%
-5%
-10%
1965
1968
1971
1974
1977
1980
1983
1986
1989
1992
1995
1998
Source: US BEA and BTS data; Recession data from National Bureau of Economic Research
2001
Air Cargo and GDP
(Mainland China)
MIT
ICAT
Carried Air Cargo (000 tonne)
2500
Relationship between carried air cargo and GDP
02
00
2000
99
1500
01
98
96
97
95
1000
94
93
92
500
0
500
90
91
1000
1500
2000
GDP (1978 RMB Bn)
2500
3000
3500
US Passenger Growth Trends
Effect of De-Regulation
MIT
ICAT
Scheduled Revenue Passenger Miles in US
800
pre-dereg
Revenue Pax Miles (billion)
700
post-dereg
600
Linear (predereg)
19.4 billion
RPMs per year
Deregulation
500
400
8.35 billion
RPMs per year
300
200
100
0
1954 1958 1962 1966 1970 1974 1978 1982 1986 1990 1994 1998 2002
Source: BTS data
MIT
ICAT
European Passenger Growth Trends
Effect of De-Regulation
Scheduled Revenue Passenger-Kilometers in Europe
1000
Regulation
Transition
Deregulation
RPK (billion)
800
600
400
Gulf War
200
0
1970
Source: ICAO data
1975
1980
1985
1990
1995
2000
2005
Asian Passenger Growth
Trends
MIT
ICAT
Scheduled Revenue Passenger-Kilometers in Asia
1000
RPK (billion)
800
600
400
200
0
1970
Source: ICAO data
1975
1980
1985
1990
1995
2000
2005
MIT
ICAT
RPK by Region
Scheduled Revenue Passenger-Kilomters by Region
1400
1200
North America
RPK (billion)
1000
Europe
800
Asia and
Pacific
Latin America
& Caribbean
600
Middle East
400
Africa
200
0
1970
1975
1980
1985
1990
1995
Source: ICAO, scheduled services of commercial air carriers
2000
2005
MIT
ICAT
Freight Trends by Region
Freight Tonne-Kilomters by Region
45
40
35
North America
FTK (billion)
30
Europe
25
Asia and
Pacific
20
Latin America
& Caribbean
15
Middle East
Africa
10
5
0
1970
1975
1980
1985
1990
1995
Source: ICAO, scheduled services of commercial air carriers
2000
2005
US Airlines Net Profit Model
MIT
ICAT
Best Fit of Undamped Oscillation
Cycle Period = 11.3 yr
eFolding Time = 6.3 yr
40
Predicted Losses
2003 $15.6 B
2004 $15.0 B
2005 $8.4 B
30
20
10
0
78
80
82
84
86
88
90
92
94
96
98
00
02
04
06
08
-10
-20
-30
-(ATA)
Estimate
10
12
MIT
ICAT
World Airline Net Profit Model
Best Fit of Undamped Oscillation
Cycle Period = 10.8 yr
eFolding Time = 8 yr
50
40
Predicted Losses
2003 $21.5 B
2004 $18.1 B
2005 $ 6.7 B
Net Profit (Current US$B)
30
20
10
0
78 79 80 81 82 83 84 85 86 87 88 89 90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12
-10
-20
World
-30
World Fit
MIT
ICAT
Net Profit and Aircraft Deliveries
Hypothesize that instability driven by capacity
response phase lag
World Airlines Net Profits vs. Aircraft Deliveries
15
1200
5
1000
Net Profits
800
0
600
-5
Deliveries
400
-10
-15
1970
Source: ICAO data
1975
1980
1985
1990
1995
2000
200
2005
Aircraft Deliveries (unit)
Net Profit (Current US$ Bn)
10
MIT
ICAT
Growth Limits
Constraints vs Damping
40
30
Upside: Capacity, Market
20
10
0
78
80
82
84
86
88
90
92
-1 0
Downside: Financial
-2 0
-3 0
94
96
98
00
02
04
06
08
10
12
MIT
ICAT
•
Trends since Sept 11
•
Economic Down Cycle
•
Capacity Reductions
Medium Term Trends
 Rolling Hubs
 Regional Jet Usage
•
Web Effects
•
Low Cost Carrier Envy
•
Bankruptcies
•
Labor Reductions and Givebacks
MIT
ICAT
US Domestic RPMs
Domestic Traffic -- RPMs
(Billions)
50
45
40
35
30
25
2000
2001
2002
2003
2004
20
Jan
Feb Mar
Apr
Source: ATA Monthly Passenger Traffic Report
May Jun
Jul
Source: ATA, US member airlines, scheduled mainline service
Aug Sep
Oct
Nov Dec
MIT
ICAT
US Airline Load Factors 2000-2003
Monthly Load Factor -- System
(Percent)
85
80
75
70
65
60
55
2000
2001
2002
2003
2004
50
Jan
Feb
Mar
Apr
May
Source: ATA Monthly Passenger Traffic Report
Jun
Jul
Source: ATA, US member airlines, scheduled mainline service
Aug Sep Oct
Nov Dec
Annual Change in Average
Domestic Fare (2000-2004)
MIT
ICAT
Average Domestic Air Fare
(Percent Change from Previous Year)
10
5
0
-5
-10
-15
-20
2000
2001
2002
2003
2004
-25
Jan Feb Mar
Apr May Jun
Jul
Aug Sep Oct
Nov Dec
Source: ATA Monthly Airfare Report; eight US major airlines excluding Southwest (WN)
MIT
ICAT
Airline Profitability Impact of
Sept 11
Quick Recovery
$/ASM
Slow Recovery
Insolvency
Security costs
CASM
RASM
9/11-9/13
Time
MIT
ICAT
Air Transportation Stabilization Act
Internationally Seen as Bailout for US Airlines
Slow Recovery
Quick Recovery
$/ASM
CASM
Insolvency
Aviation
Disaster
Relief
9/11-9/13
RASM
12/31
Time
MIT
ICAT
All Major Carriers On “Slow Recovery”
Trajectory Except Southwest and Cargo
$1,600
West Coast
Dock Strike
Net Income (Loss) in millions
$1,200
9/11 Attacks
$800
SARS
Iraq War
$400
$0
2000Q1
2000Q3
2001Q1
$(400)
$(800)
$(1,200)
AA
UA
DL
NW
CO
WN
UPS
FedEx
$(1,600)
Source: companies’ annual reports
2001Q3
2002Q1
2002Q3
2003Q1
2003Q3
MIT
ICAT
America
West
1.7%
Market Cap: US Majors, 4/7/04
With Jet Blue
ATA
0.5%
US Airways
1.1%
Alaska
3.4%
United
0.8%
Continental
4.2%
Northwest
4.4%
Jet Blue
13.1%
Delta
4.9%
Southwest
55.6%
Total Market Cap: $21.3 billion
Source: Yahoo! Finance. Includes ATA
American
10.4%
MIT
Current Market Cap vs. RPM Share
US Majors and ATA
ICAT
25%
American
RPM Share 01/04
20%
United
Delta
15%
Northwest
10%
Southwest
Continental
US Airways
5%
American West
ATA
Alaska
JetBlue
0%
0%
10%
20%
30%
40%
50%
Relative Market Cap 02/04
Network vs Cost Efficiency Questions
Source: Yahoo! Finance and airline traffic reports
60%
MIT
ICAT
Hub and Spoke vs Direct
Networks
Completely Connected Network = 2(N-1) Flights
(eg., 50 Airports, 98 Flights)
MIT
ICAT
Fully Connected Network
Completely Connected Network = N(N-1)
(eg., 50 Airports, 2450 Flights)
Global Emergence of
Low-Cost Carriers
MIT
ICAT
Europe (58, 2 in 2004)
Canada (5)
Aer Arann
Air 2000
Air Baltic
Air Berlin
Air Finland
Air Luxor Lite
USA (19, 4 in 2003/2004)
Air Polonia
AirTran
Spirit Airlines
Air Scotland
Song
Allegiant Air
Sun Country Airlines Air Southwest
American West
Air Wales
USA 3000 Airlines
ATA
Alpi Eagles
Vacation Express
Frontier Airlines
Azzurra Air
Ted
Interstate Jet
CanJet
HMY Airways
JetsGo Airlines
JetBlue Airways
Midwest Express
Pan American
Southeast Airlines
Southwest Airlines
Baboo
Basiq Air
Bexx Air
BMI Baby
British European
BudgetAir
Corendon
Deutsche BA
Duo
EasyJet
Evolavia
Excel Airways
Westjet
Zip
Independence Air
Virgin USA
Bra
Gol
U Air
Sun Express
Swedline
ThomsonFly
V Bird
Virgin Express
VLM Airlines
VolareWeb
Windjet Vola
Smart Wings
Wizz Air
Asia/Pacific (20, 9 in 2004)
Africa (2)
South America (3)
Fairline Austria
German Wings
Germania Express
Globespan
Hapag Lloyd Express
Hellas Jet
Helvetic Airways
Iceland Express
Snalskjutsen
SnowFlake Airlines
Sterling
1Time
Kulula
Source: http://www.etn.nl/lcostair.htm, airline news
Air Arabia
Air Asia
Air Deccan
Athena Air Services
Citilink
Freedom Air
Lion Airways
One-Two-Go
Skymark Airlines
Skynet Asia Airways
Virgin Blue
Air One
BackpackersXpress
Jetstar
New LCC by Qantas
Nok Air
Pacific Blue
SkyAsia
Tiger Airways
ValuAir
Total 107 LCCs, 15 in 2003/2004
US Airline Performance Cycling Up
MIT
ICAT
Faster Than Predicted
40
Prediction
2003 ($15.5B)
Actual
2003 ($1.8)
Net Profit (Current US$B)
30
20
10
0
78
80
82
84
86
88
-10
-20
US
-30
US Fit
90
92
94
96
98
00
02
04
06
08
10
12
MIT
ICAT
Profitability Improvement
Factors
•
Cargo Airlines Profitable
•
Yields Turned the Corner
•
Wage Concessions
 US: $1 billion
 UA: $2.56 billion
 AA: $2 billion
•
Distribution Costs
 $1 billion
•
Operating Efficiencies
 $4 billion
•
Debt Restructuring & Chapter 11
•
Pensions
 (Pension Benefit Guaranty Corporation (PBGC))
•
Security Costs and Insurance?
•
Fuel
MIT
ICAT
Trends in Fuel Price
Historical: Average Jet Fuel and Crude Oil Prices
130
40
Crude Oil (R)
Source: ATA data; All US Majors, Nationals, Large Regional – All Services
Jan-04
Jan-03
Jan-02
Jan-01
0
Jan-00
40
Jan-99
5
Jan-98
50
Jan-97
10
Jan-96
60
Jan-95
15
Jan-94
70
Jan-93
20
Jan-92
80
Jan-91
25
Jan-90
90
Jan-89
30
Jan-88
100
Jan-87
35
Jan-86
110
Crude Oil: Dollars per Barrel
120
Jet Fuel: Cents per Gallon
45
System (L)
MIT
ICAT
Capacity and Delays
US Air Traffic Density (11/14/02)
MIT
ICAT
Flight Delays Reemerging
OPSNET National Delays
60000
Total Delays
50000
2004
40000
2003
2002
30000
2001
2000
20000
10000
0
Jan
Feb
Mar
Apr
May
Jun
Jul
Month
Source: FAA
Aug
Sep
Oct
Nov
Dec
MIT
ICAT
•
Airport Capacity




•
Capacity Limit Factors
Runways
Gates
Landside Limits (including Security)
Weather
Airspace Capacity
 Airspace Design
 Controller Workload
 Balkanization
•
Demand
 Peak Demand
 Hub & Spoke Networks
•
Environmental Limits
 Noise (relates to Airport)
 Emissions (local, Ozone, NOX, CO2)
MIT
ICAT
•
Runways
•
Weather
Airport System
Capacity Limit Factors
 Capacity Variability
 Convective Weather
•
Landside Limits
 Gates
 Terminals & Security
 Road Access
•
Downstream Constraints
•
Controller Workload
•
Environmental
 Community Noise
 Emissions
•
Safety
MIT
ICAT
Passenger Hassle Increased
Delays Variable
Airport as an Adaptive System
Add’
Add’l Pax
Screen
Gate
Boarding
Security
Check
Passengers
Check-In
Ckd Bag
Screen
Bags/Cargo
Ground
Transport
Gates
Bag Claim
Security
Point
Airside
Drop-off
Parking
Landside
Pick-up
Parking
MIT
ICAT
500 Bags/hr
CTX 9000 Explosive Detector
Example EDS Before Ticketing
MIT
ICAT
Check In
Source: Transsolutions Website
MIT
ICAT
Other Threats
Portable SAMs
SAM-7 Fired at Arkia Airlines B757-300 Mombassa Kenya, Nov 2002
Trends in Aircraft Size
03
20
02
Total
20
01
00
20
19
99
International
98
19
97
19
96
19
95
19
94
19
93
19
92
19
19
19
91
Domestic
20
220
210
200
190
180
170
160
150
140
130
120
110
100
90
80
90
Average seats per departure
MIT
ICAT
Data source: Form 41 Traffic data from Bureau of Transportation Statistics (includes Regional Jets and Turboprops)
MIT
ICAT
World Jet Fleet Summary
(as of May 14, 2003)
Total 17,995 Jet Aircraft
2500
Boeing
2000
Airbus
Bombardier
BAe
Embraer
Dornier
Fokker
Other
2558
1918
1500
1222
1129
1108
1019
966
863
856
764
716
528
491
429
81 43
0
Other
CRJ700
CRJ200
A340
A330
A310
A300
A321
A320
A319
MD-11
DC-10
777
747
767
757
717
737NG
MD-90
MD-80
DC-9
DC-8
737 (CFMI)
737 (JT8D)
727
707
0
11
Fokker 70
2
161 191
100 64
BAe 146
94
328JET
208
Avro RJ-85/100
258
Avro RJ-70
71
198
ERJ-145
104 103
264
186
ERJ-140
228
182
489
390
ERJ-135
500
CRJ900
1000
Others include L-1011, Fokker 100, and Russia/Ukraine a/c (Yak, IL, An, Tu).
Source: Airclaims, published by ATW, July 2003
MIT
ICAT
Worldwide Stored Jet Aircraft
(as of May 14, 2003)
Total1,610 Jet Aircraft Stored
350
Boeing
300
Airbus
Bombardier
Embraer
BAe
Other
597
270
250
200
150
126
Source: Airclaims, published by ATW, July 2003
6
3
3
CRJ200
ERJ-145
Avro RJ-85/100
Other
7
BAe 146
5
A340
25
A330
A310
4
15 11
A300
A320
DC-10
777
1
747
5
767
MD-80
DC-9
DC-8
737 (CFMI)
737 (JT8D)
727
707
0
2
11 11 15
A321
26
737NG
29
717
50
55
51
42
A319
66
89
71
MD-11
82
757
100
MIT
ICAT
ERJ 145 (50 seats)
Emergence of Regional Jets
CRJ 200 (50 seats)
MIT
ICAT
U.S. Regional Jet Growth
1400
1200
1000
CRJ900
CRJ700
CRJ200
CRJ100
EMB135
EMB145
BAE145
800
600
400
200
Source: FAA registration data from 1995 until the present
2003Q4
2003Q2
2002Q4
2002Q2
2001Q4
2001Q2
2000Q4
2000Q2
1999Q4
1999Q2
1998Q4
1998Q2
1997Q4
1997Q2
1996Q4
1996Q1
1995Q3
1995Q1
0
MIT
ICAT
January 1998
DFW Departures
January 2003
MIT
ICAT
RJ-NB Boundary Blurred
Regional Jets
2400
New Aircraft
2200
B735/6
Range (nm)
ERJ170
Narrow-body
B737
ERJ190
2000
MD-90
1800
CRJ700
CRJ900
A319
CRJ200
1600
ERJ145
A318
1400
B717
1200
MD-80
DC-9
1000
20
40
60
80
100
120
A/C Seats
Source: based on manufactures’ a/c specifications. Full pax range of standard version
140
160
MIT
ICAT
•
March Deliveries
 Lot
 Alitalia
 US Airways
•
Orders
 US Airways
 85
EMB 170
MIT
ICAT
•
First Flight
 3/12/04
•
Orders
 Jet Blue
 100
 Air Canada
 45
EMB 190
MIT
ICAT
A-380
•
A380 Baseline
 Shrink
 Stretch
 ER Variants
•
555 passengers (3 class)
•
14,800km/8,000nm range
•
Payload: 330,000lbs over
10,400km/5,600nm
•
Rolls-Royce Trent 900
engines or GP7200 engines
•http://www.airbus.com/
MIT
ICAT
Boeing 7E7
•200 pax
•7800 nm range
•http://www.boeing.com/commercial/7e7/k62790.html
MIT
ICAT
•
Boeing 7E7
Boeing 7E7 Baseline (20% fuel efficiency gain)


Short Range Version
Stretch Version
•
Seating: 200 passengers in three-class configuration 300+ in single-class
configuration •
Range: 7,800 nautical miles (14,500 km) •
WingSpan: 193 feet (59 meters) •
Length: 182 feet (56 meters) Cruise
•
Speed: Mach 0.85 Cargo
•
Capacity After Passenger Bags: 5 pallets + 5 LD3s •
Maximum Takeoff Weight: 452,500 lbs •
Program Milestones:




Authority to offer: Late 2003/Early 2004
Assembly start: 2006
First flight: 2007
Certification/Entry into service: 2008
•http://www.boeing.com/commercial/7e7/k62790.html
MIT
ICAT
Small Turbofan Passenger Aircraft
Eclipse Jet
Cessna Mustang
Adam 700
Honda Jet
MIT
ICAT
Williams F22 Engine
•
Derivative of Cruise Missile engine
•
Automotive mass production techniques
•
700 lb thrust
•
14.5 inches diameter
•
Low cost
•
Originally planned for Eclipse Jet
•
Reliability issues
•
Other comparable engines


PW Canada PW 615F (1350 lb thrust) - Mustang
Honda-GE HF 118 (1650 lb thrust) - Honda Jet
MIT
ICAT
•
Electronic Processing
Airline Tickets #1 Web Product by Value
 Browser 1st page effect on marketing
•
Increase in e-Tickets
 Interlining of e-Tickets
•
Kiosk check-in
•
CAPPS II
Source: 2000 US Statistical Abstract
MIT
ICAT
Distribution
US Internet Sales by Catagory
9
USD
Sales
(Billion)
8
7
Airline
6
Hotel
5
Car Rental
4
Books
PC's
Software
3
Apparel
2
1
0
1998
1999
2000
Year
•
- Reduction in commissions to travel agents
•
- Shift to e-tickets (additional charges for paper tickets)
•
- Increased restrictions on low fares (USAir charges)
Source: 2000 US Statistical Abstract
MIT
ICAT
Safety Trend
Source: Boeing 2001 Statistical Abstract