Title: Airport
1Airport Airline Economics Jeff Borowiec,
Ph.D. Texas Transportation Institute jborowiec_at_tam
u.edu
If 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
- Background
- Significance
- Structure
- Cost/revenue framework
- Airports
- Where do airports get their money
- Who pays to operate/improve them
- How/where do they spend it
- Airlines
- Varied and complicated beasts
- Legacy vs. Low Cost Carriers
- Airspace
- Its impacts on airport and airlines and their
economics - Questions
3State of the IndustryAirline Bankruptcies
4State of the IndustryMergers and Acquisitions
5The Airport System Airside vs. Landside
6Airport DesignPrimary Design Elements Drive
Economics
- Runways
- Taxiways
- Terminal Area/Apron
- Pavements
- Airport Site Selection
- Navigational Aids
- Airspace
- Primary Design Guidance AC 150-5300-13 Change
- Passenger Terminals
- Landside Access
- Cargo Terminals
- Security
- Emergency Services
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13National Economic Benefits
- Civil aviation contributed over 900 billion and
11 million jobs to the U.S. economy in 2000, at
least 9 percent of the total U.S. GDP - Of this, one dollar in nine is contributed by
general aviation
14Importance of the Texas Airport System
- Link to national transportation system
- Connects rural urban populations
- Provides 784,000 jobs
- Generates 49 billion annually
15Current Status of Industry
- New Large Aircraft
- Very Light Jets Increased Mobility/Air Taxi
services - SATS Small Aircraft Transportation System
- Recovering Economy
- Growth in Air Cargo
- Dependent on Air Transportation System
- Fractional Ownership
16Current Status of Industry
- Industry consolidation
- Lower margins
- Increased Break-Even Load Factors
- Emerging Aircraft with better costs per seat
- (Larger RJs and Mainline aircraft)
- Fewer Small Communities with Air Service
17Current Status of Industry
- Half of U.S. airports depend on only one or two
destinations to connect them with the air
transportation system - 44 percent of U.S. airports with at least 5
weekly departures are served by one carrier - 39 percent of U.S. airports are served
exclusively by turboprop aircraft which are in
sharp decline
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19Air Transportation Network
- AIRports
- AIRplanes
- AIRways
- AIR Transportation Network
- Air traffic management is important because of
the costs associated with delay
20Air Transportation Network
- Airports are usually locally owned
- Airlines are publicly held
- Airplanes are privately owned
- Airways are controlled by the federal government
21Aviation Legislation
- Federal Governments Role Dates to 1933 and the
Civil Works Administration - Federal Airport Act of 1946
- Airport and Airway Development Act of 1970
- Airport Development Aid Program
- Airport and Airway Improvement Act of 1982
- Airport Improvement Program
- NPIAS airports only
- Airway Safety and Capacity Expansion Act of 1990
- Passenger Facility Charges (PFCs)
22Aviation Legislation
- U.S. Airline Deregulation Act of 1978
- Fly where they want (route choice)
- Charge what they want (pricing)
- Resulted in
- Hub and spoke network
- New entrants
- Increased competition
- Discount fares
- Growth in air travel
- Loyalty programs
Certificate of public convenience and
necessity/US DOT FAR Part 121 Operating
certificate/FAA
23Regulated
- International Aviation
- Open Skies agreements
- Essential Air Service
- DOT/Subsidies to carriers serving domestic
locations that are economically challenging - Safety
- FAA
24Air Transportation Network
- Governmental Entities
- FAA
- Primarily a SAFETY agency
- Airport Improvement Program
- Air Traffic Management
- NTSB
- Accident Investigation
- State Aviation Agencies
- Block Grant Program
25Airports
- Commercial Service
- Reliever
- General Aviation
26Airports
- Commercial Service
- Primary gt10,000 enplaned passengers
- Non-primary 2500-gt10,000 enplaned passengers
- Hub classification
- Large hub 1 or more of total national
enplanements - Medium hub 0.25 to 0.99
- Small hub 0.05 to 0.24
- Non-hub less than 0.05
-
- 2007National Enplanements 750 million
27Airports
- General Aviation
- Everything that is not scheduled passenger
service or military - Relievers
- Metropolitan airports that reduce congestion at
commercial service airports in the area - General aviation airports
- Airport role
- Functional class
- Design standard
28Airport Ownership
- Local Governments
- Cities
- Counties
- Airport Authorities
- Private Corporations
- State Governments
29Airport Finance
- Who Pays?
- FAA
- Airport Improvement Program
- Must meet eligibility requirements
- Aviation user taxes (i.e., passenger ticket
taxes) - Commercial Airports
- Passenger Facility Charges (reduces AIP )
- Revenue from advertising, parking, concessions,
access fees - State Aviation Agencies
- Airport Sponsors (owners)
- Local governments
30Who PaysYou Do!
31Airport 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
32NPIAS
- The plan identifies 3,356 existing and 55
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 49.7 billion of AIP eligible
infrastructure development for all segments of
civil aviation.
33NPIAS
34Airport Finance Revenues
35Airport Finance - Expenses
- NPIAS Cost by Type of Development 2009-2013
- 49.7 B
36Airport Finance - Expenses
- NPIAS Cost by Airport Type - 2009-2013
37Airport FinanceRevenue and Expenses
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40Major U.S. Airport Concentration
41Texas is BIG!
42What is the Texas Airport System?
- 300 Airports 3 Heliports
- 26 Primary Commercial Service
- 1 Non-Primary Commercial Service
- 25 Relievers
- 248 General Aviation Non-Relievers
- 3 Heliports
43Texas Airport System
44Airline Economics
- Characteristics
- Activity
- Metrics
- Costs
- Load Factors
- Low Cost Carriers
- Impacts of Rising Fuel Prices
45Airlines
- Majors
- revenue gt 1B
- Nationals
- revenue between 100M and 1B
- Regionals
- limited service/specific markets/city-pairs
- fastest growing since deregulation
46Airlines by Category
47Airline Structure
- Operations
- Sales and Marketing
- Reservations and Ticketing
- Management and Administrative Staff
48Determinants of Demand
- Demand Revenue Passenger Miles (RPMs)
- Ticket price
- Competitors ticket price
- Passenger income
- State of the economy
- Availability of other modes
- Customer loyalty
- In-flight amenities
- Frequency of service
- Safety
- Random factors SARS, 9/11, terrorism threat
49Characteristic of Demand
- Constant fluctuation
- Cyclicality
- Seasonality and peaking
- Directional flow
- Perishability
- Schedule wait time
- Airport access time
- Flight time
- Hub connection time
- Denied boarding time
50Factors Affecting Supply
- Supply available seat miles (ASMs)
- Ticket price
- Price of resources aircraft, fuel, labor,
maintenance - Technological improvements
- Behavior of the competition
- Random factors
- Government regulation
51Characteristics of Supply
- Two characteristics that shape the industry are
- Seasonality
- Pull existing capacity off of other routes
- Have excess/idle capacity somewhere in system
- Rigidity
- Can be difficult to reduce/increase supply
dramatically - Schedules are created six months in advance
52Airline MarketsMarket Continuum
53Evolution of U.S. Airline Industry
54Major U.S. Airline Concentration
55Airline Costs
56Airline Cost Trends
57Airline Cost Index 2000-2008
58Airlines Keeping Pace?
59Airline Load Factors
60Airline Costs by Function
61Airline Costs by Category
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63U.S. Air Carrier Traffic Statistics Through
December 2008
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68Low 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 2000 - Low Cost Carriers Compete In Markets Accounting
For 80 Of All Domestic Air Travelers - Legacy Carrier Operating Costs Have Gone Down and
LCC Costs Have Gone Up
69Fuel Price Impact
70Cyclical?
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72Top 25 Airlines
73TopU.S. City Pairs
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75Texas Aviation Activity
76Texas Aviation Activity
77Growth Going Forward
- U.S. Commercial Air Carriers 2009-2025
- Supply (Domestic ASMs annual percentage growth)
- Mainline 3.0
- Regionals 5.2
- Demand (Domestic RPMs annual percentage growth)
- Mainline 3.1
- Regionals 5.2
- Profitability tied to operating costs ? OIL
78Air Traffic Management
- Air Traffic Control
- VFR / IFR
- Instrument Approaches
- Landing
- Non-precision approach/Precision approach
- Terminal Airspace
79Delay Costs
80Air Traffic Management
- Phases of Flight
- ATC Tower
- TRACON
- ARTCC
- RVSM
- Area of greatest potential for efficiency gains
81Instrument Approaches
82Air Traffic Management
83Air Traffic Management
84GPS and WAAS
- The 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.
85Glass Cockpits B-777 Garmin 1000 Cirrus S-22 G550
86Air Traffic Management
87FAA Part 77 Imaginary Surfaces
- Physical Obstacles
- Ensure and preserve safety of operations in the
airspace in the immediate vicinity of airports - Surfaces protect approaches to runways, takeoffs,
and missed approaches from obstructions - Objects can be man-made or natural
- They impact height-hazard zoning restrictions and
could affect construction costs/airport viability
88FAA Part 77 Imaginary Surfaces
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90Compelling Issues Affecting Air Transportation
- Future of airline industry
- Future funding/authorization
- User fees
- Alternative fuels
- Workforce development
- Land use/development/encroachment
- Privatization efficiency, capital infusion,
conversion to tax paying entity - NextGen advanced technologies/air space
management
91Jeff Borowiec 845-5200 jborowiec_at_tamu.edu
http//ttiresearch.tamu.edu/j-borowiec/