Boyd Group www.aviationplanning.com
http://www.aviationplanning.com/predict2005.htm
Passenger Traffic: The 8%+ traffic growth in 2004 was sparked by an unexpectedly strong economy and an equally unexpected failure of airlines to reduce capacity. Disposable dollars flowed to air travel. In 2005, there are no indications that capacity will be materially reduced - even with a failure of US Airways.
Network Airlines are now increasingly focusing on the revenue-generation of their hub systems to counter inroads made by low-fare airlines into trunk revenue routes. The "Shanghai - Shreveport" solution will become increasingly apparent in 2005.
Airline Failures. Unless there is an immediate change in affairs at US Airways, it is heading directly for the dustbin of airline history. The situation is becoming one where the industry is assuming a US Air failure. It isn't predation that Southwest entered PIT - it was the assumption that US Airways wouldn't be there for long. On another front, the Independence Air model - high frequency RJ service - is now a proven failure. And a US Airways failure won't fix the carrier's main problem - offering low fares on high-cost RJs.
Airline Unknowns. United clearly is losing ground. Instead of focusing on its strengths - strong network and strong customer service - it is instead trying to recover by shifting mainline flying to lowest-bidder small jet providers. Then there's the stupid "Ted" fiasco, where the airline re-painted some A-320s, put them back into the system and tried to pass it all off as a successful "airline-within-an-airline." While some mainline routes - such as ATL-DEN and ORD-ATL are partially downgraded to regional jets, United somehow sees value in taking mainline TED airplanes and tossing them into new markets such as MDW-DEN. The point: it appears that the airline is totally rudderless at the top.
The LCCs are looking at a slowing of growth opportunities. There are limited markets where a 737-700 can make money. Lots of markets, to be sure, but they're still limited. Potential issues: a need for Southwest to upgrade its product to meet the higher standards set by Frontier, JetBlue, and AirTran. The in-flight TV issue is of interest. JetBlue and Frontier offer it. For Southwest to install it on all of its aircraft would conservatively bring in a bill for somewhere around one quarter of a billion dollars. To be sure, a potential challenge to WN. On the other hand, inflight TV costs money - flight fees, equipment, and maintenance. Possible outcome: such frills could become detriments to the bottom line. On the other hand, if these are run as profit centers, the result is an on-board revenue premium, either via fees, or via increased brand loyalty.
Capacity. Forget the academics predicting that a US Airways failure would be good for the industry. It's the kind of drivel expected from people who can't get fired and who have the power to flunk anybody who questions them in the classroom. (Again, a great incentive to continue home education beyond the 12th grade.) A failure of US Airways would mainly reduce capacity in the small and mid-size communities that nobody else is interested in serving. Markets like FLL-LGA and the like will find the now-gone US Airways capacity replaced within weeks. As for an airline failure bringing rationality to airline pricing, dream on. You cannot rationalize an irrational industry.
Focus: The Consumer. As noted above, the game is brand loyalty. This represents vulnerability for LCCs, even the best ones such as JetBlue and Southwest. As legacy carriers get their costs down (and, despite nonsense in the media, most have) and increasingly build on network synergies, the pressure will be on LCCs to keep up.
Small Jet Providers (formerly called "regional airlines" and some of which also for the time being operate turboprops) are now completely in the vendor category - they provide lift for a fee to major carriers. As predicted last year, there is now a clear glut of both "regional" jets and their operators. The Independence Air fiasco, the United Express re-bidding, and the potential of a US Airways collapse incontrovertibly point to increasing numbers of CRJs and ERJs finding an early retirement in the desert. Adding to the fun: increased fuel and other costs, plus consumer revolts, will paint a very ugly picture for SJPs by the end of the year.
Fleet Demand. Even Merrill Lynch has discovered the E-Jet, predicting (naturally, now that it's in their rearview mirror) that these Embraer aircraft will be in high demand. As oil drops into the mid-$30 range, we can expect much stronger demand for new aircraft - particularly these E-Jets and the narrow-body 737/A-320 series. The Bombardier C-Series platform (110 - 135 seats) is a must - not for market reasons, but to keep Canada in the airliner business for another couple of years. The CRJ series is dead. Whether the C-Series has a chance of making inroads is another matter.
Boeing - Airbus Dogfight. We'd point to the situation between Embraer and Bombardier/Canadair in the mid-1990s. The Canadians were eating the Brazilians' financial lunch, as far as RJ orders went. Embraer, however, looked over the horizon, and invested in a follow-on airliner in the 70-110 seat category. (By the way, the 170/190 is not a regional jet, as many lightweights in the media describe it. If that's the classification, then so are similar size airliners, including the 737-500/600, DC-9-30, and the A-318.) Going forward, the same situation seems to be playing out in the Boeing/Airbus saga. Right now, Airbus is selling more current-generation airplanes than Boeing. Just like Bombardier did v Embraer in the mid-90s. Just like Saab was doing with turboprops v Embraer in the 1980s. But that was no indicator of the future for any of these companies. Today, Embraer is wrestling with the thorny problem of adding more production capacity. Bombardier is laying off staff. Saab is out of the airliner business completely.
In that context, let's do some righteous forecasting. Boeing is building the 7E7 - a replacement for existing 757/767/A-300 airliners, offering 15% - 20% better economics. Airbus is building the A-380 WhaleJet - a 550-seat replacement for the 747. Let's be blunt. The 7E7 is based on hard futurist fleet projections. The A-380 is a political airplane - the Europeans want a monument to show off to the world, one that shows their industrial prowess is better than that of the US.
And that perfectly describes the Concorde program of the 1960s. The WhaleJet may be no different.
Unexpected Outcome: It appears that there is a limit to the potential for super long-haul flying, or at least in the economics of using a down-sized aircraft to accomplish such flying. There are indications that the A-340-500 nonstops between Singapore and NYC/LAX are not necessarily attractive enough to demand a revenue premium. Instead of being a competitive edge for Airbus, the A-340-500 (a shortened version) may be the new-generation 747SP. Long in haul. Short in revenue-generation.
http://www.aviationplanning.com/predict2005.htm
Aviation Outlook - 2005
Overall, 2005
The Year of The Legacy Carriers
The Year of The Legacy Carriers
Passenger Traffic: The 8%+ traffic growth in 2004 was sparked by an unexpectedly strong economy and an equally unexpected failure of airlines to reduce capacity. Disposable dollars flowed to air travel. In 2005, there are no indications that capacity will be materially reduced - even with a failure of US Airways.
Network Airlines are now increasingly focusing on the revenue-generation of their hub systems to counter inroads made by low-fare airlines into trunk revenue routes. The "Shanghai - Shreveport" solution will become increasingly apparent in 2005.
Airline Failures. Unless there is an immediate change in affairs at US Airways, it is heading directly for the dustbin of airline history. The situation is becoming one where the industry is assuming a US Air failure. It isn't predation that Southwest entered PIT - it was the assumption that US Airways wouldn't be there for long. On another front, the Independence Air model - high frequency RJ service - is now a proven failure. And a US Airways failure won't fix the carrier's main problem - offering low fares on high-cost RJs.
Airline Unknowns. United clearly is losing ground. Instead of focusing on its strengths - strong network and strong customer service - it is instead trying to recover by shifting mainline flying to lowest-bidder small jet providers. Then there's the stupid "Ted" fiasco, where the airline re-painted some A-320s, put them back into the system and tried to pass it all off as a successful "airline-within-an-airline." While some mainline routes - such as ATL-DEN and ORD-ATL are partially downgraded to regional jets, United somehow sees value in taking mainline TED airplanes and tossing them into new markets such as MDW-DEN. The point: it appears that the airline is totally rudderless at the top.
The LCCs are looking at a slowing of growth opportunities. There are limited markets where a 737-700 can make money. Lots of markets, to be sure, but they're still limited. Potential issues: a need for Southwest to upgrade its product to meet the higher standards set by Frontier, JetBlue, and AirTran. The in-flight TV issue is of interest. JetBlue and Frontier offer it. For Southwest to install it on all of its aircraft would conservatively bring in a bill for somewhere around one quarter of a billion dollars. To be sure, a potential challenge to WN. On the other hand, inflight TV costs money - flight fees, equipment, and maintenance. Possible outcome: such frills could become detriments to the bottom line. On the other hand, if these are run as profit centers, the result is an on-board revenue premium, either via fees, or via increased brand loyalty.
Capacity. Forget the academics predicting that a US Airways failure would be good for the industry. It's the kind of drivel expected from people who can't get fired and who have the power to flunk anybody who questions them in the classroom. (Again, a great incentive to continue home education beyond the 12th grade.) A failure of US Airways would mainly reduce capacity in the small and mid-size communities that nobody else is interested in serving. Markets like FLL-LGA and the like will find the now-gone US Airways capacity replaced within weeks. As for an airline failure bringing rationality to airline pricing, dream on. You cannot rationalize an irrational industry.
Focus: The Consumer. As noted above, the game is brand loyalty. This represents vulnerability for LCCs, even the best ones such as JetBlue and Southwest. As legacy carriers get their costs down (and, despite nonsense in the media, most have) and increasingly build on network synergies, the pressure will be on LCCs to keep up.
Small Jet Providers (formerly called "regional airlines" and some of which also for the time being operate turboprops) are now completely in the vendor category - they provide lift for a fee to major carriers. As predicted last year, there is now a clear glut of both "regional" jets and their operators. The Independence Air fiasco, the United Express re-bidding, and the potential of a US Airways collapse incontrovertibly point to increasing numbers of CRJs and ERJs finding an early retirement in the desert. Adding to the fun: increased fuel and other costs, plus consumer revolts, will paint a very ugly picture for SJPs by the end of the year.
Fleet Demand. Even Merrill Lynch has discovered the E-Jet, predicting (naturally, now that it's in their rearview mirror) that these Embraer aircraft will be in high demand. As oil drops into the mid-$30 range, we can expect much stronger demand for new aircraft - particularly these E-Jets and the narrow-body 737/A-320 series. The Bombardier C-Series platform (110 - 135 seats) is a must - not for market reasons, but to keep Canada in the airliner business for another couple of years. The CRJ series is dead. Whether the C-Series has a chance of making inroads is another matter.
Boeing - Airbus Dogfight. We'd point to the situation between Embraer and Bombardier/Canadair in the mid-1990s. The Canadians were eating the Brazilians' financial lunch, as far as RJ orders went. Embraer, however, looked over the horizon, and invested in a follow-on airliner in the 70-110 seat category. (By the way, the 170/190 is not a regional jet, as many lightweights in the media describe it. If that's the classification, then so are similar size airliners, including the 737-500/600, DC-9-30, and the A-318.) Going forward, the same situation seems to be playing out in the Boeing/Airbus saga. Right now, Airbus is selling more current-generation airplanes than Boeing. Just like Bombardier did v Embraer in the mid-90s. Just like Saab was doing with turboprops v Embraer in the 1980s. But that was no indicator of the future for any of these companies. Today, Embraer is wrestling with the thorny problem of adding more production capacity. Bombardier is laying off staff. Saab is out of the airliner business completely.
In that context, let's do some righteous forecasting. Boeing is building the 7E7 - a replacement for existing 757/767/A-300 airliners, offering 15% - 20% better economics. Airbus is building the A-380 WhaleJet - a 550-seat replacement for the 747. Let's be blunt. The 7E7 is based on hard futurist fleet projections. The A-380 is a political airplane - the Europeans want a monument to show off to the world, one that shows their industrial prowess is better than that of the US.
And that perfectly describes the Concorde program of the 1960s. The WhaleJet may be no different.
Unexpected Outcome: It appears that there is a limit to the potential for super long-haul flying, or at least in the economics of using a down-sized aircraft to accomplish such flying. There are indications that the A-340-500 nonstops between Singapore and NYC/LAX are not necessarily attractive enough to demand a revenue premium. Instead of being a competitive edge for Airbus, the A-340-500 (a shortened version) may be the new-generation 747SP. Long in haul. Short in revenue-generation.
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