Airline Trends
Hubbing - The Core Strength
Watch mega-carriers ("legacy" airlines) to begin to leverage their new economics, their size and their hub strengths against low-cost carriers. American's "fly-twice & fly free" promotion on key routes is just a start.
Start-Up & Low-Fare Airlines - The Model Evolves
Neither mega-carriers nor low cost airlines are sitting still. It's pretty clear that key players in the low-cost category are well aware that they must evolve, respond, and counter the newly-efficient mega carriers. One trend is upping the service ante - increasing on-board amenities such as free or cheap inflight entertainment systems. The bottom line is that the trend is toward generating consumer brand loyalty - and low fares are just the start.
Small Jet Providers
The biggest potential for upheaval will be within the Small Jet Provider category. (Again, this is the segment that some still call "regional airlines.")
These entities, which are in business to lease aircraft and crews (including turboprops in some cases) to mega-carrier systems, are facing a industry shake-out. The intent of Atlantic Coast Airlines to get out of the SJP business and start an independent airline indicates not only a recognition of this trend, but also a management team that has a good grasp of evolving trends. (All that said, it will be a delicate process to place 80+ RJs into independent service. The A-320 plan, however, has merit - especially when one considers that ACA has more cash than JetBlue did at its start-up.)
The SJP segment is a big part of the airline industry - but not one that represents strong growth. A continued shake-out, particularly among the turboprop operators, can be expected. Watch for more consolidation. And don't expect many - if any - big orders for more RJs. The 50-seat segment is saturated.
Watch For: More Pull-Backs In Small Airport Service
Especially in the Northeast, small community air service is becoming commercially untenable. It's driven as much by consumer preferences as operating economics. Consumers experience the necessarily-higher fares at the local airport, and compare it to the lower costs at the distant, bigger airport. So they drive to the bigger airport because they aren't willing to pay the costs or deal with the perceived inconvenience of boarding smaller aircraft at the local airport.
It's a bit more complex than just that, but the trend is clear - rural air service is declining fast, and much of it cannot be saved, simply because consumers aren't willing to pay the price. In some instances, innovative but heavily-subsidized service is possible. In others, it's tune-up-the-Chevy time.
Prediction: Increasing Consumer Resistance to Small Jets.
We noted this last year, and we noted it years before.
It's happening - consumers are getting weary of long-haul flying cramped within the tight tube of an RJ - including the 70 and 90 seat stretched versions of the CRJ. Even the Wall Street Journal has noted the trend.
But, one can accurately observe, mega-carriers are still replacing long haul flying with RJs. Like United, in its effort to make A-320s available for its silly Ted experiment, is actually putting an RJ on its evening DEN-ATL flight - which is a major business market. And that, friends, could lead to some very upset consumers - indeed, a consumer revolt.
To be sure, there are applications where only an RJ can provide jet service adequately. But where there is an alternative, particularly in major markets that are as much as 3 hours or more, boarding to deplaning, riding an RJ can be a physical experience not seen since the Inquisition.
Let's recount the fun a Premier Executive United passenger will have when he arrives at DEN from SEA for his connection on the 6:30 departure to ATL. Yes, he gets the full-Monty RJ experience. He finds he has to wait in a gate area handling four other flights at the same time. He eventually has to schlep his carry-on down a dirty stairwell, cross a noisy and maybe snow-covered ramp. He has to leave his "carry-on" at the foot of the stairs, perhaps in a puddle. Then he has to sit in a cramped seat, constantly vying for advantage on the middle arm-rest, which has an edge that juts into one's arm for that perfect level of discomfort. Use of a laptop is impossible, and reading a newspaper means folding it like an Origami napkin. For three hours, give or take, this fun continues.
We're not talking about a flight in a sparse market to a small community, where one might understand that this is the best and most efficient service the market can support. We're talking about Denver to Atlanta on the United Airlines system. When one considers that the DEN-ATL alternative is a 757 on Delta with a movie, or an A-319 on Frontier with TV, or an AirTran 717 with an easy upgrade, this prime-time RJ flight could lead one to believe that United is trying to drive passengers away. This is but one example, and it's not limited to United. The point is that consumers are starting to turn on RJs just as they did on turboprops a decade ago.
Write this down: for markets where mainline aircraft are uneconomic, RJs are great aircraft. Every aircraft has a proper niche, both from the perspective of operational costs and consumer comfort. In the latter regard, RJs are not well-suited to long-haul flying. Certainly, there are some thin markets where an RJ can and will be the only game in town. But in major, high density business markets that represent more than two hours, an RJ can be lethal to brand-loyalty.
The revolution hasn't started yet. But it will.
Airport Security – Keystone Kops Kontinues
The Transportation Security Administration is a shambles.
A mess. A sloppy, mis-managed affront to security standards, to the American citizen, and to many of the employees of the TSA caught inside what has become a lumbering, Hindenburg-esque bureaucracy. We've documented it. Security experts around the nation have documented it. News stories have documented it. Major failures in security at airports have documented it.
The situation is worse than many people want to believe. No anticipative security plans. No event-deterrence plans. No event-mitigation plans. Just thousands and thousands of people in white shirts, too often managed by Federal Security Directors who are political appointees that don't have the expertise to be a rent-a-cop.
Because key parts of the aviation industry have decided to strike their colors and just go along with the continuing and random ineptitude of the TSA, expect more costs, more failures, and the potential of more terrorism that will be undeterred by a "security" apparatus that has no performance standards, no management integrity, and no clue.
We are wide-open to more terrorism. Congress, the Administration, and key parts of the aviation industry know this, just as they knew pre-9/11 FAA AVSEC was a farce. Unfortunately, as long as everybody smiles at the screening point, and there are no long lines, everything's fine according to the powers-that-be.
Until they hear the explosion.
Fleet Trend Predictions
We noted it last year. "Watch for strong interest in the Embraer 170/190 series by the end of 2003, both domestically and from non-US carriers. These are essentially mini-737s. Ergonomics are more compatible with larger jets than are commuter-cabin 50-seaters..." Orders from JetBlue, Air Canada, and US Airways have validated this prediction.
By the end of 2004, assuming that traffic and revenue recovery continue, the airline industry will be facing a need to address to last biggest set of operational costs - fuel consumption and maintenance. The result will be not difficult to predict: watch for more orders for new-generation aircraft, particularly the Embraer 170/190 platform.
To watch: Boeing's real threat is not the Airbus A-380 WhaleJet. That's an airplane that is aimed at volume, not new market capabilities. Instead, it's the ultra-long range A-340-500 that Boeing may need to fear. The initial operational performance of the -500 in super long haul operations with Singapore Airlines will be something to watch closely. If it works out as Airbus expects, it could be a major chink in Boeing's armor, opening new potential for Airbus to get into US 747-400 or 777 operators with the -500. In particular, airlines looking at additional expansion in Asia (here's that China thing again), such as American and Northwest.
© 2004 The Boyd Group/ASRC, Inc. All Rights Reserved.
Here is some examples of what may be in store for the future,
