Presentation on theme: "Airport & Airline Economics"— Presentation transcript:
1Airport & Airline Economics Jeff Borowiec, Ph.D.Texas Transportation InstituteIf you want to be a millionaire, start with a billion dollars and open an airline. Soon enough you will be a millionaire. – Sir Richard Branson, Founder Virgin Atlantic Airlines
2Outline Air Transportation Industry Airports Airlines BackgroundSignificanceStructureCost/revenue frameworkAirportsWhere do airports get their moneyWho pays to operate/improve themHow/where do they spend itAirlinesVaried and complicated beastsLegacy vs. Low Cost CarriersEconomic CharacteristicsAirspace (time permitting)Its impacts on airport and airlines and their economicsQuestions
14National Economic Benefits Civil aviation contributed over $1.315 Trillion11.5 million jobs$400 Billion in earnings.5.6 percent of the total U.S. GDPSource FAA/The Economic Impact of Civil Aviation on the U.S. Economy December 2009
15Importance of the Texas Airport System Link to national transportation systemConnects rural & urban populationsProvides 784,000 jobsGenerates $49 billion annually
16Current Status of Industry New Large AircraftVery Light Jets – Increased Mobility/Air Taxi servicesSATS – Small Aircraft Transportation SystemRecovering EconomyGrowth in Air CargoDependent on Air Transportation SystemFractional Ownership
17Current Status of Industry Industry consolidationLower marginsIncreased Break-Even Load FactorsEmerging Aircraft with better costs per seat(Larger RJs and Mainline aircraft)Fewer Small Communities with Air Service
18Current Status of Industry Half of U.S. airports depend on only one or two destinations to connect them with the air transportation system44 percent of U.S. airports with at least 5 weekly departures are served by one carrier39 percent of U.S. airports are served exclusively by turboprop aircraft which are in sharp decline
20Air Transportation Network AIRports +AIRplanes +AIRways =AIR Transportation NetworkAir traffic management is important because of the costs associated with delay
21Air Transportation Network Airports are usually locally ownedAirlines are publicly heldAirplanes are privately ownedAirways are controlled by the federal government
22Aviation LegislationFederal Government’s Role Dates to 1933 and the Civil Works AdministrationFederal Airport Act of 1946Airport and Airway Development Act of 1970Airport Development Aid ProgramAirport and Airway Improvement Act of 1982Airport Improvement ProgramNPIAS airports onlyAirway Safety and Capacity Expansion Act of 1990Passenger Facility Charges (PFCs)
23Aviation Legislation U.S. Airline Deregulation Act of 1978 Fly where they want (route choice)Charge what they want (pricing)Resulted in:Hub and spoke networkNew entrantsIncreased competitionDiscount faresGrowth in air travelLoyalty programsCertificate of public convenience and necessity/US DOTFAR Part 121 Operating certificate/FAA
24Regulated…… International Aviation Essential Air Service Safety Open Skies agreementsEssential Air ServiceDOT/Subsidies to carriers serving domestic locations that are economically challengingSafetyFAA
25Air Transportation Network Governmental EntitiesFAAPrimarily a SAFETY agencyAirport Improvement ProgramAir Traffic ManagementNTSBAccident InvestigationState Aviation AgenciesBlock Grant Program
27Airports Commercial Service Primary: >10,000 enplaned passengers Non-primary: 2500->10,000 enplaned passengersHub classification:Large hub: 1% or more of total national enplanementsMedium hub: 0.25% to 0.99%Small hub: 0.05% to 0.24%Non-hub: less than 0.05%2009 National Enplanements = 700 million
28Airports General Aviation Everything that is not scheduled passenger service or militaryRelieversMetropolitan airports that reduce congestion at commercial service airports in the areaGeneral aviation airportsAirport roleFunctional classDesign standard
29Airport Ownership Local Governments Private Corporations CitiesCountiesAirport AuthoritiesPrivate CorporationsState Governments
30NPIAS National Plan of Integrated Airport Systems The plan identifies 3,332 existing and 48 proposed public-use airports that are significant to national air transportation and therefore, eligible to receive grants under the Federal Aviation Administration Airport Improvement Program (AIP).The report estimates that over the next 5 years, there will be $52.2 billion of AIP eligible infrastructure development for all segments of civil aviation.
45Airport Finance Airport funding comes from several sources: Airport bonds 59%AIP grants 21%Passenger Facility Charge 13%State and local funding 4%Airport revenue 4%Source: ASCE/FAA
46Airline Economics Characteristics Activity Metrics Impacts of Rising Fuel Prices
47Airline Economics Industry Characteristics Service Industry Capital-IntensiveLabor-Intensive
48Airline Structure Operations and Maintenance Sales and Marketing Reservations and TicketingManagement and Administrative Staff
49Airline Metricsavailable seat mile (ASM) One seat transported one mile; the most common measure of airline seating capacity or supply. For example, an aircraft with 100 passenger seats, flown a distance of 100 miles, produces 10,000 ASMs. Sometimes measured in available seat kilometers (ASKs).revenue passenger mile (RPM) One fare-paying passenger transported one mile; the most common measure of demand for air travel. Sometimes measured in revenue passenger kilometers (RPKs).
50Airline Metricsunit revenue The average amount of revenue received by the airline per unit of capacity available for sale. Most often used to measure the effectiveness with which revenue management activity balances price and volume to generate passenger revenue per ASM, known as PRASM or RASM.yield The average amount of revenue received per revenue passenger mile (RPM) or revenue ton mile (RTM), net of taxes.
51Airlines Majors Nationals Regionals revenue > $1B revenue between $100M and $1BRegionalslimited service/specific markets/city-pairsfastest growing since deregulation
54Determinants of Demand Demand = Revenue Passenger Miles (RPMs)Ticket priceCompetitor’s ticket pricePassenger incomeState of the economyAvailability of other modesCustomer loyaltyIn-flight amenitiesFrequency of serviceSafetyRandom factors – SARS, 9/11, terrorism threat
55Characteristic of Demand Constant fluctuationCyclicalitySeasonality and peakingDirectional flowPerishabilitySchedule wait timeAirport access timeFlight timeHub connection timeDenied boarding time
56Factors Affecting Supply Supply = available seat miles (ASMs)Ticket pricePrice of resources – aircraft, fuel, labor, maintenanceTechnological improvementsBehavior of the competitionRandom factorsGovernment regulation
57Characteristics of Supply Two characteristics that shape the industry are:SeasonalityPull existing capacity off of other routesHave excess/idle capacity somewhere in systemRigidityCan be difficult to reduce/increase supply dramaticallySchedules are created six months in advance
71U.S. Air Carrier Traffic Statistics Through November 2010 Twelve Months - SystemDecember November 2010December November 2009ScheduledNon-ScheduledTotalRevenue Passenger Enplanements (000)718,7195,845724,564704,2535,390709,643Revenue Passenger Miles (000)795,432,42411,031,526806,463,950769,711,68010,536,280780,247,960Available Seat Miles (000)969,734,23319,390,318989,124,551959,327,05418,125,515977,452,569Passenger Load Factor (%)82.0356.8981.5380.2358.1379.82Revenue Freight Ton Miles (000)7,127,21066,0127,193,2225,615,05653,1995,668,255Total Revenue Ton Miles (000)87,359,3001,169,17288,528,47283,316,1041,106,84584,422,949Available Ton Miles (000)140,489,2073,136,906143,626,113138,450,2892,909,910141,360,199Ton Mile Load Factor (%)62.1837.2761.6460.1838.0459.72Revenue Departures Performed9,500,010170,4659,670,4759,567,245153,9639,721,208Revenue Aircraft Miles Flown (000)6,927,46398,2447,025,7076,862,29089,3396,951,629Revenue Aircraft Hours (Airborne)16,436,281262,51016,698,79116,426,716238,80116,665,517SOURCE: Bureau of Transportation Statistics, T-100 Market and Segment (Excludes all-cargo services. Includes domestic and international)
78Low Cost Carriers Carry 1/3 of all US Passengers LCC Presence in Largest 1,000 Domestic City Pairs Has Increased by More Than 30% Since 2000Low Cost Carriers Compete In Markets Accounting For 80% Of All Domestic Air TravelersLegacy Carrier Operating Costs Have Gone Down and LCC Costs Have Gone Up
98GPS and WAASThe Global Positioning System (GPS) is a system of 24 satellites operated by the Department of Defense (DOD) under joint DOD/Department of Transportation (DOT) management.Wide Area Augmentation System uses a series of ground stations to augment or enhance the GPS signal increasing its accuracy.Allowed for new instrument approaches and reduced minimums.
100ADS-BAn air traffic system that will provide more precise surveillance data to air traffic controllers and to ADS-B equipped aircraft at the same time. This information will significantly enhance pilots’ situational awareness.
101ADS-BADS-B uses Global Navigation Satellite System (GNSS) position information processed by aircraft avionics to transmit the aircraft’s location to ground receivers for presentation to air traffic controllers.Pilots with ADS-B avionics will receive traffic and weather information on their cockpit displays. Controllers will see the information on automation displays they are already using, so little additional training will be needed. ADS-B signals are transmitted once per second, providing a more accurate tracking system for pilots and controllers.
104FAA Part 77 Imaginary Surfaces Physical ObstaclesEnsure and preserve safety of operations in the airspace in the immediate vicinity of airportsSurfaces protect approaches to runways, takeoffs, and missed approaches from obstructionsObjects can be man-made or naturalThey impact height-hazard zoning restrictions and could affect construction costs/airport viability