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Earlier:

WN & Denver:
It's Not A Slam-Dunk

Independence Air:
When It Goes, So Will Some
Airports' Enplanements

CVG: A Return
To 2003 Flight Levels

SLC Forecast:
NOT A Major Pull-Down
by Delta

Post- Katrina MSY Forecast
Legacy Carriers: Not Dead Meat

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The Boyd Group, Inc.
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Since 1984

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May 6, 2007

First Quarter 2007: Positive Growth With A Few Exceptional Bright Spots And A Few Exceptions

For the first quarter of 2007, national enplanements increased 2.04%. The data indicates fundamentally solid demand, despite the repeated chorus during quarterly airline financial conference calls that forward-looking demand may be weakening slightly.

Among those airports experiencing positive growth, there were a number of stand outs:

• Newburgh, NY: The entry of jetBlue and AirTran have provided new life this Hudson Valley airport, and Delta's return to the market on May 14th should continue to fuel strong traffic growth. Through the first quarter, traffic at SWF was up 188%, although it was admittedly on a low base.

• Atlantic City, NJ: ACY enjoyed 32% growth during the first quarter that demonstrates the airport's ability to capture traffic. Clearly, for residents of Southern New Jersey, ACY represents a preferably option over PHL or EWR, and the improved service options are providing consumers with compelling reasons to use their "hometown" airport. Also driving enplanement growth is continued redevelopment and expansion of Atlantic City as a destination market. Strong growth is projected to continue for the balance of the year, albeit at a gradually slowing rate.

• Daytona Beach, FL: Daytona Beach is benefiting from the presence of AirTran Airways, which is driving new demand as well assisting in traffic recapture in a market that historically has suffered significant leakage to nearby MCO. To illustrate this point, while DAB enplanements are up 37% through the first quarter traffic at nearby Melbourne has declined 25%. MLB continues to leak traffic to MCO and, in some cases, likely along the scenic A1A drive to DAB.

• Portland, ME: A 29% increase in enplanements reflects the presence of jetBlue on a year-over-year basis. Strong percentage increases are likely to continue through the summer as traffic numbers reflect the addition of AirTran service. As a side note, little impact is projected from the entry of SkyBus at Portsmouth, NH.

• New Orleans, LA: New Orleans continues to reflect a resurgent economic and population base, along with continued restoration of service levels. Traffic is up nearly 49%, and is quickly approaching pre-Katrina levels. Conversely, Baton Rouge traffic reflects the return migration of airlines and passengers to MSY, with enplanements down nearly 22% through the first quarter.

• Columbus, OH: Traffic at Columbus has experienced low double-digit growth through the first quarter, as has neighboring Dayton. These two airports will take divergent paths for the balance of the year, as CMH experiences strong growth due to the May 22 launch of SkyBus Airlines. Watch for DAY, as well as other airports in the Ohio Valley, to suffer higher rates of traffic leakage as passengers make the trek to CMH for Independence Air-style fares. While the long-term viability of the SkyBus business model is a very open question - another similarity to FlyI - there's little question that it will have a significant near-term impact on traffic in the region.

The SkyBus show should prove interesting, although it could also prove to be a short-one. Who doesn't love a $10 plus tax fare? But when those are gone, how many of us are really going to pay $150 to endure a 29" seat pitch for 3-plus hours while locked in a tube with bunch of flight attendants on commission? Amway must be kicking themselves.

As news about SkyBus continues to dribble out, the forecasts for CMH and other impacted airports will be updated. Not yet a subscriber? Click here to learn more.

 

November 8, 2006

Traffic Trends Through 3Q06:
Flat National Traffic Masks Local Issues

Through the third quarter, passenger traffic on a macro-basis has been basically flat. The raw numbers, however, hide distortions from isolated and localized events. This makes year-over-year comparisons at specific airports and certain regions less meaningful and requires a review of the market dynamics in play.

Some key airports:

• Upstate NY: With traffic down 6.5%, the issue at ALB is strictly one of airlines capacity. US Airways, the once dominant carrier at ALB, is in a no-growth mode, basically ceding the market to Southwest. For its part, WN has added much capacity here either. Most of the intra-regional airline service targeting state government bureaucrats has vanished, and Delta replaced with mainline flying with RJs. Finally, with AirTran and JetBlue going into SWF, traffic capture that ALB once enjoyed from the Hudson Valley will diminish in the coming months. This translates into continue negative numbers for the near-term at ALB.

SYR traffic has declined nearly 10% through the third quarter, reflecting the loss of FlyI and Trans-Meridian. A new pricing initiative by US Airways may help with some traffic retention - a real problem for SYR - but leakage to ALB and ROC is will continue. It's of note that SYR is the only airport in Upstate with single LCC, a fact not lost on Central New York consumers.

• New England: Like Upstate NY, reduced capacity is driving negative enplanements trends. As legacy carriers have switched from mainline to RJ flying, and LCCs duke it out in Boston, Providence and Manchester have experienced pretty significant traffic declines. Through the third quarter, PVD and MHT traffic was off nearly 11%. Up in Portland, even JetBlue market stimulation has not been sufficient to offset capacity reductions: traffic there is down 9.4%

• Gulf Coast: With traffic up nearly 21% at BTR and down 34% at MSY, enplanements continue to reflect impacts from Hurricane Katrina. The tide is about to change, however. Residents and tourists are beginning to return to New Orleans, and airlines are cautiously adding capacity and frequencies. Yes, New Orleans still has a way to go before enplanements are fully recovered, however beginning with the September numbers MSY will start showing positive percentages while BTR is likely to see negative growth trends. As full year-over-year comparisons beginning the reflect the post-Katrina months.

• Southeast: Numerous airports in the Southeast continue to reflect bursting of the Independence Air bubble through pretty significant traffic declines. This includes airports such as CRW (-9.1%), SAV (-10.3%), CHS (-13.9%), CAE (-13.7%), and TYS (-11.4%). The negative percentage rates will shrink in the fourth quarter as the last gasp capacity reductions of FlyI are reflected in year-over-year comparisons. Thereafter, watch for growth trends in enplanement data. This is when the positives of the strong regional economy are sufficient to overtake the negatives of losing uneconomic fares.

Two other airports in the region have experienced traffic declines, although entirely unrelated to FlyI. Through the third quarter, traffic at Daytona Beach has declined 13% while Melbourne has dropped 29%. The year 2007 is likely to be one of diverging paths for these two airports. With the recent addition of United Express service and AirTran's planned market entry, DAB is likely to recapture a greater percentage of its local originating and inbound visitor traffic. Melbourne, on the other hand, is likely to continue struggling with significant traffic leakage to MCO. This situation could get worse before it gets better as some traffic will now likely meander up highway A1A to Daytona Beach. 

• Denver and Colorado Springs: With increases of 9%, Denver enplanement figures continue to reflect the "Southwest Effect." The impact on Colorado Springs, however, has been minimal. Through September, traffic at COS has basically been flat - down less than one percentage point. Highway traffic congestion and the overall hassles associated with TSA checkpoints at large airports, may reflect a changing purchasing dynamic for airline consumers. Maybe time is money.

• Cincinnati: CVG continues to reflect the elimination of SimpliFares and schedule reductions through negative traffic trends. Through September, traffic declined 30.9%. Trends here will reverse themselves during 2007, as Delta has stabilized schedules and inflated traffic figures from SimpliFares get removed from year-over-year comparisons. The wild card at CVG is how rational Comair labor behaves in coming weeks. The Mesaba Airlines experience probably provides a good template for the ultimate outcome over at Comair and in this sense, there little reason to expect a service disruption.

The above airports reflect reactions - positive or negative - to market-specific pricing and capacity actions. The reality, however, is that fundamental traffic demand is stable. The core drivers of enplanement growth are  - and will continue to be - population and economic growth. Layered on top are market or regional-specific  issues that can drive or suppress demand. In most cases, these are the result of airline strategies, while in others it's a shifting industrial or demographic base which take more longer to reflect themselves in enplanement data.

It also means that passenger traffic is much like politics - it's not all, but  in large, part local.

October 25, 2006

Newburgh Gets Some Attention, And Some Respect

For years, Stewart Airport in Newburgh, located 50 miles north of New York City, has been touted as the great savior to New York area airport congestion. The problem was getting airlines and passengers to use it.

While the airport enjoyed a growth spurt in the early part of the last decade, enthusiasm for the airport sputtered in the last half of the 1990s. Carriers such as Delta, United, Southeast, Pan Am III, and Midway came and went (of course, Midway went from a lot of airports). Traffic at SWF declined over 50% between 1996 and 2005.

This trend is about to reverse itself in big way. In recent weeks, both AirTran and JetBlue have announced new service Newburgh. When the new service patterns are fully implemented by the end of 1Q2007, SWF will have experienced a 91% increased in daily departures and nearly 220% increase in daily departing seats. While these percentages are from a low base, it does indicate strong growth rates for SWF.

It is also interesting to note that with the AirTran and JetBlue additions (and including Allegiant), over 75% of the daily departing seats will, on average, be provide by LCCs.

With the dual entrance of AirTran and JetBlue, SWF finally gets attention from credible airlines. This is important because both AirTran and JetBlue can generate market awareness and credibility among the traveling public and, unlike Pan Am III and Southeast Airlines, be catalyst for other market entrants. Surely, competitors (including some that have already tried and left SWF) will be watching the quarterly traffic and yield data coming out of Newburgh and begin to weigh their own plans for SWF. Expect some additional, albeit incremental, service announcements at SWF in the coming quarters likely from comprehensive network carriers (CNCs).

The not-so-wild card in all of this is Allegiant Air. As Scott Tyra of Allegiant Air told attendees at The Boyd Group's 11th Annual Aviation Forecast Conference, the carrier is focused on one thing and one thing only: Making money. Market share retention, network synergies, system balance, and other similar terms are just not in the lexicon over at Allegiant. Expect them to quietly leave Newburgh in the not-so-distant future, redeploying the aircraft asset into a less competitive market.

The final interesting note about Newburgh is that it represents an increasing condition in the U.S. whereby LCCs are running out markets where they can alone can be the rate-maker in a given market. It is a highly unlikely coincidence that the JetBlue announcement comes on the heals of AirTran. The pickings among high-volume markets are getting slimmer by the day, and with hundreds of aircraft on order by LCCs, for more direct confrontations between this breed of airline are bound to occur in the coming years.

The Newburgh forecast has been updated for Airports:USA subscribers. Not yet a subscriber? Click here to learn more.

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September 13, 2006

Allegiant Air Continues Niche Expansion

For Allegiant Air, it's full steam ahead. The carrier that built a nice little niche feeding small and mid-size cities into Las Vegas, has in recently been focused on Orlando-Sanford as its second destination (the carrier likes to say it it flies to dozens of cities, but only serves two destinations).

In just the past weeks, Allegiant has announced new service from Orlando-Sanford International Airport (SFB) to Chattanooga, TN; Huntington, WV; Shreveport, LA; Greenville/Spartanburg, SC; and Kinston and Fayetteville, NC.

Now comes St. Petersburg-Clearwater International Airport (PIE) as the airline's third "destination." Service begins this fall to Peoria, Rockford, Lansing, and Allentown, and if Sanford is any indication more markets will follow.

The Allegiant model is unique in a number of ways:

• The carrier is focused solely on leisure destinations, typically avoiding direct competition with Legacy or LCC carriers.

• Service is ultra-low frequency, with most markets receiving two to four roundtrips per week.

• Allegiant Air isn't just an airline, but an integral component of a vacation travel company. Yes Allegiant has pilots, airplanes, and all the other trappings, but margins are made on the ancillary revenues generated through vacation packages.

• The airline product is ala carte. Want to make a reservation? You can't call the toll-free number, because there isn't one.  You can go to website, or call the reservation center (on your nickel) for an additional $5. Want a seat assignment? That'll be $11 each way. Want a Coke or snack while on your flight? Please return your wallet to its full upright and open position.

Allegiant argues that its business model allows customers to pay  only for the services they really want to buy. Based on load factors and financial performance (Allegiant recently filed data in IPO documents), customers seem to be buying.

As noted, Allegiant doesn't really compete with other airlines. The same holds true on the airport front. Allegiant's Sanford service hasn't measured over at MCO, and it is expected that the new St. Petersburg-Clearwater service won't impact TPA.  Most of Allegiant's customers are "net-new," attracted by value-priced vacations. In this sense, there's little stealing from other airlines and airports going on.

Where stealing is occurring, however, is from the cash register down at Home Depot. A cheap, all-inclusive vacation becomes a compelling alternative to a new snowblower or finally getting those three coats of lead paint off the nursery walls. In this sense, Allegiant is dependent in discretionary income to sustain current and future growth plans. Given the strength of the economy (despite high energy prices) and with other airlines holding back on capacity additions, the near-term outlook appears pretty good. It's also good news for those of us looking for parking spot at Home Depot.

Want to learn more? Scott Tyra, Allegiant's Director-Market Planning, will discussing this business model and the carrier's route selection strategies at The Boyd Group's 11th Annual Aviation Forecast Conference. He'll be joined by other market planning guru's from Continental and Southwest, not mention more than a couple of CEOs. You can learn more about the conference and register on-line by clicking here.  

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September 6, 2006

TSA Clamp Down Suppressing Demand?

The impact of TSA's ban on liquids in carry-on baggage is starting to rear its ugly head. A recent Harris poll of 1,000 adults found that one in ten travelers adjusted their travel plans during August to avoid flying, while one in five will reduce the frequency of their trips during the coming year.

The TSA has probably been too busy patting themselves on the back to issue the obligatory press release crowing, "90% of the traveling public accepts these changes as necessary to increasing security levels and maintaining the safety of our skies."

First, taking liquids from carry-on luggage adds little, if anything, toward the goal of real security. It just makes the baggage check-in lines longer and overhead bind emptier. Second, when 10-20%  of a survey sample indicates they going to do exactly what the terrorists want us to do, that's hardly a victory.

More importantly, unlike the TSA which would view the glass as 90% full, airports and airlines should view the glass as 10% empty. In an industry where margins are already razor thin, 10% is a big deal.

Let's do some quick math: During the second quarter of 2006, Continental had passenger revenues of $3.23 billion (plus an additional $280 million in other revenue), producing an operating income of roughly $244 million. This equates to an operating margin of roughly 7%. Clearly a minimum 10% drop in passengers/revenues would hurt. For sure, Continental wouldn't be the only carrier impacted and the pain is going to extend across the industry. Those carriers likely to measure the greatest impact would be those dependent on short-haul travel, where the inconvenience of having to check luggage and then wait at baggage claim increases total elapsed travel times the most. Indeed, Southwest has already come out and said it is seeing some negative impacts.

So how would airlines make up the impact of lost revenues? Increase fares on those of that continue to fly? Ticket prices have already been climbing this year and at some point travelers (be they business or leisure) are going to begin to resist additional fare increases. Maybe the answer would be to not call it a fare increase, but what it really would be: another security surcharge.

Any impact on airlines would also filter down to airports in a domino effect. Reduced passengers volumes translate into lower PFCs, concession revenues, parking fees, etc. Morever, reduced revenues and/or volumes could throw marginal routes into the red and eventually result in service cutbacks. It could range from small frequency reductions, to specific routes being discontinued, to certain cities being pulled off airline route maps.

Clearly, TSA has to come up a long-term security solution that not only meets the objective of beating the terrorists at their own game, but also doesn't discourage air travel. If not, the agency that some dub the Travel Suppression Administration may in fact represent a greater threat to a viable air transportation system than Osama and pals could have ever dreamed up for themselves.

At The Boyd Group's 11th Annual Aviation Forecast Conference we'll be discussing the potential impacts of new security regulations, as well as other economic factors that could drivers of air travel demand over the next five years. You can learn more about the conference and register on-line by clicking here.  

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August 23, 2006

Cuándo a Mexico es el próximo vuelo?
(When Is The Next Flight To Mexico?)

Not since the Taco Bell Chihuahua has enthusiasm been so high for Mexico. It seems just about every airline has discovered our neighbor to the south as the proverbial land of "Milk and Money" in recent years. Frontier has built has a nice little franchise to resort markets, Delta has been building service from SLC and ATL, while both American and Continental serve a strong mix of ethnic, business, and leisure markets from their hubs at DFW and IAH, respectively. Ironic given their brand, but Alaska Airlines too has developed a strong presence in Mexico, using it much like east coast carriers use Florida: a nice place to put capacity in the winter.

Even smaller U.S. markets are supporting Mexico traffic, as evidenced by Mexicana's successful Fresno-Guadalajara route that serves a large VFR market (visiting friends and relatives, in airline parlance).

The latest big jump into Mexico is via Delta's emerging "focus city" at LAX. Beginning in December, DL will add nine new Mexico destinations, as well as two other Latin America markets.

Most of the new service is low-frequency and operated with 50-seats. We like this strategy for the following reasons:

• The Hispanic market continues to grow, both in population and disposable income.

• Los Angeles clearly is the economic and cultural center of this market, and while Delta lacks huge amounts of feed traffic, the local demand should produce respectable load factors on RJs while the markets mature.

• Secondary Mexico markets (we'll classify most as "ethnic VFR") are growing, but generally remain too small to support an LCC operator. This provides some level of near-term protection from yield erosion, while also representing traffic with less pronounced seasonal swings (i.e., snowbird markets).

• Mexico is a geographically large country, and the highway system and surface transportation providers leave more than a bit to be desired. In this context, air travel is the preferred mode assuming a rational fare level.

• Brand loyalty generated in the Hispanic community by the new service could translate into incremental revenue the rest of the Delta system.

Overall, we view this as low risk stuff with strong upside potential. Absent some sort of economic or political upheaval, look for a continued press south of the border in coming years. Los Angeles is expected to remain the epicenter of this growth, and the LAX forecast has been updated for subscribers. Not yet a subscriber? Click here to learn more.

At The Boyd Group's 11th Annual Aviation Forecast Conference we'll be discussing how emerging markets and demographic changes will be impacting air service all across the nation. You can learn more about the conference and register on-line by clicking here.  

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August 17, 2006

Heightened Security: Negligible Impact
Assuming Rationale Solutions

The heightened security awareness following last week's events in London is expected to have only a negligible impact on near-term traffic.

This assumes, of course, that TSA implements a policy more tenable that the current outright ban on liquids in carry-on. Occasional inconveniences in the name of security may be acceptable to the average traveler, but a long-term ban on deodorant and make-up in airplane cabins could make flying less appealing -- on multiple levels.

If the ban remains in place long-term, it's short haul flights that will take the biggest hit. Why check a bag, wait in a security line, and then again in baggage claim just for a 45 minute flight between New York and Boston? Under this scenario, elapsed travel times make the automobile or Amtrak (which last time we checked, didn't have screening or even seat belts for that matter) a viable alternative.

Clearly, a better solution has to be forthcoming if the fragile industry recovery is to maintain momentum.

Things in Heating Up at Dulles

Last week we noted that YTD Dulles traffic was down 17% through June, reflecting the loss of FlyI's kamikaze pricing structure. We also projected that the tide would turn for IAD in early 2007, an estimate that appears to playing out.

This week, United Airlines announced a 13% boost in departures for the fall schedule change, increasing to a daily average of 321. On the domestic side, the new schedule includes mostly frequency increases to existing markets (many operated by United Express partners), as well as few new sun markets like RSW, PBI, and TUS. Internationally, United is adding nonstop Tokyo-Narita and Kuwait service, and has thrown its hat in the ring for Beijing authority. Given that United is proposing a "capital-to-capital" connection, we're betting UA has the upper hand over competing routes applications.

In addition to UA, there's Southwest. Dulles service begins in October with 12 daily departures. While there are differences between Dulles and Denver, notably geographic positioning which limits the ability to use IAD as stopping point on multi-leg flights, we expect Southwest will grow IAD in a manner similar to DEN. In this context, look for a minimum of 20 daily departures by WN by the end of 2007.

With service additions and assuming continued economic strength, the revised baseline Airports:USA forecast calls for IAD enplanments during 2007 to exceed the FlyI-induced bubble of 2005.

The high forecast, available to Airports:USA subscribers, assumes an increased international focus at IAD by United. This is a real possibility given the resources that could be shifted from JFK, where UA lacks meaningful feed and faces a major competitive build-up by Delta.

At The Boyd Group's 11th Annual Aviation Forecast Conference we'll be discussing Dulles, as well as other airports and regions that are subject to significant traffic shifts due to airline strategies and capacity, demographic changes, and economic developments. Attendees will even have a chance to ask questions of key airline planners, including Southwest. Additional information about the conference and on-line registration form can be found by clicking here.  

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August 9, 2006

Bucking The Trend
Not All Airports Are Experiencing Flat Traffic

As noted a few weeks ago, traffic among the 145+ airports tracked by Airports:USA has been basically flat during the first half of 2006. On a national level, enplanements were down less than 1%, reflecting reduced capacity and full airplanes. This means even if more folks wanted to travel, getting a seat has been difficult.

Within the macro statistic, however, are a few stand outs - on both sides of the pendulum - at variance with the national average. This week we review those airport and discuss some of the dynamics at play.

• Southeast: A number of airports across the south continue to post double-digit drops in year-over-year traffic, including CHS, GSO, CRW, SAV and TYS. No fundamental market weakness here, just reflecting the loss of Independence Air. Watch for these airports to begin posting minor increases shortly after calendar page turns to 2007.

• New Orleans and Baton Rouge: MSY continues to reflect Katrina impacts, with year-to-date enplanements down nearly 50%. BTR, the primary beneficiary of MSY traffic migration, has seen its traffic increase nearly 40% through June.  Expect this pendulum to swing in the other direction during the fourth quarter, with airlines rebuilding their MSY capacity while reducing service at BTR. Already, Baton Rouge has lost its nonstop service to NYC, and we expect continued resource migration down in the bayou through the end of 2006.

• Denver and Colorado Springs: Up nearly 12%, Denver continues to reflect the market entry of Southwest Airlines and continued expansion by incumbents United and Frontier. With DEN traffic up on price stimulation, ambient thinking would have COS traffic plummeting. Think again: traffic at COS is down less than 3% through June.  Clearly there's some traffic leakage going on at COS, but the relatively minimal declines reflect core strengths in the growing Colorado Springs market as well as traveler desires to avoid congestion: both on the highways to and in the security line at DEN.

• Chicago Midway: Benefiting from renewed focus by Southwest, MDW continues to post strong growth: up nearly 15% through June.

• Washington Dulles: Down 17% through June, like other airports in the Southeast, Dulles enplanements reflect the absence of Independence Air's excess capacity and insane pricing. Negative enplanement trends end pretty soon, however, with the entry of Southwest Airlines in October with a dozen daily departures. This won't be enough to backfill for the loss FlyI capacity during the 4th quarter, but look for Dulles to turn positive in '07.

• San Francisco: YTD, San Francisco is hugging the national average with a gain of less than one percent. We see little change for the balance of 2006, but if Virgin America gets their citizenship papers from DOT, traffic at this airport could explode during 2007.

We'll be covering these specific airports and outline the traffic drivers at airports across the nation during The Boyd Group's 11th Annual Aviation Forecast Conference on October 8-10,2006. Conference attendees will be provided with a review of the key trends that can be expected in the future, and which airports and regions are subject to significant traffic shifts due to airline strategies and capacity, demographic changes, and economic developments - such as new industrial expansion.

Our host this year is Salt Lake City International Airport and the venue is the unique Stein Eriksen Lodge in Deer Valley, Utah. Additional information about the conference and on-line registration form can be found by clicking here.  

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July 26, 2006

Boston Forecast Revised
Short-Term Impacts from Tunnel Closures -
But Overall Fundamentals Remain Positive

If the possibility of anyone ever getting their money's worth from the Boston "Big Dig" project exists, for the next few months - at least - it's got to be MHT, PVD, BDL.  Falling ceiling tiles and other structural integrity concerns have led to road closures - including some that are sporadic and unannounced - in and around Boston. Among the affected routes are the Ted William's tunnel, which is a main artery into Logan International Airport. Anyone who has ever driven in Boston (besides earning a merit badge) pretty much knows to plan on traffic. But not knowing which roads, tunnels, lanes, etc. are going to be open changes the equation. A painful drive to and from Logan now becomes downright torture.

Depending on the duration of closures, some BOS traffic could opt for MHT, PVD, BDL. Near-term the impact is likely to be minimal. Clearly, the advance booking curve for summer travel works in Logan's favor. If, however, the "Big Fix" is going to drag on for months, look for some traffic diversion to surrounding airports. Consumers will likely to opt for a predictable airport drive, even if it sometimes involves more miles and, potentially, more road time. Any traffic diversion should be viewed at temporary and not a fundamental shift in New England travel patterns. It is similar, albeit on a much smaller scale and shorter duration, to the post-Katrina traffic shift between Baton Rouge and New Orleans.

Longer term, we continue to project positive fundamentals for Logan, driven in large part by JetBlue expansion. Even with a slower delivery schedule, current JFK facilities can't absorb all of the Airbus and Embraer aircraft coming.  Moreover, WN's entry may have cancelled any plans for significant B6 build-up at Dulles. Short of JetBlue setting its sights on an entirely new focus city, we see BOS as a primary beneficiary (neck and neck with JFK) of additional JetBlue capacity over next 24-36 months.

The Boston forecast and national ranking projections have been updated, and are available to subscribers. Not a subscriber? Click here to learn more.

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July 19, 2006

Forecasting 101:
Capacity Down + Full Airplanes = Flat Traffic

Back in May we reviewed first quarter enplanement trends and described them as flat as a tortilla. Well, with domestic capacity down slightly and virtually all flights but the red-eye to East Upchuck full, traffic in the first-half of 2006 is flat again.

Let's start with the capacity side of the equation. Year to date, available seat miles are basically flat. Most of the capacity additions by low-fare carriers such as Southwest, AirTran and JetBlue, has been negated by reductions at the large, legacy carriers.

Hidden in the above numbers are two important facts:

• First, the data only includes survivors and, as such, capacity is actually down to a greater degree than represented. Point in case: By this time last year Independence Air had thrown around 1.2 billion ASMs.

• Second, with a number of carriers focused on international growth (witness Delta's JFK build-up in recent months), the system capacity data illustrated above masks a higher loss of domestic capacity.

With most airports monitored and forecast by Airports:USA (representing 95%+ of all U.S. enplanments) reporting data through June, enplanements are clearly reflecting the capacity trends.  With traffic down nationwide 0.01%, lets just call it flat.

Of course there some exceptions to the national trend, such as Chicago-Midway (up 18+%) thanks to renewed attention from Southwest, New Orleans and Baton Rouge (down 49% and up 42%, respectively) as the impact from Hurricane Katrina continues, and a number of airports in the southeast continue to reflect the loss Independence Air (fares and capacity). 

We expect YTD traffic trends (or lack thereof) to continue for the balance of 2006. Not withstanding aircraft deliveries scheduled for LCCs, only minimal capacity gains are likely.  With respect to demand, the only real variable appears to be the potential impact that sustained high gas prices could have on disposable income available for air travel.

These factors, combined with the fact airplanes are mostly full, points to the rest of 2006 looking like someone ran over that tortilla with a steamroller.

Airports:USA continually tracks traffic and air service trends to provide the most accurate and up-to-date traffic forecasts for 145 airports represent over 95% of all U.S. enplanements. Not a subscriber? Click here to learn more.

 

July 12, 2006

Dayton: Finally On The Rebound

It's now been nearly 20 years since US Airways acquired Piedmont and closed what to that point had been a successful, albeit relatively small, hub operation at Dayton. Since then, travelers have filed onto Interstate 75 seeking greater frequency choices and lower fares at Cincinnati.

Well, that trend appears to be reversing itself, with DAY retaining a greater percentage of its core traffic base. Through May, enplanements at DAY are up 5.6% - well above the national average, with May 2006 enplanements up 11.3% over 2005.

There are two key drivers at play:

• The continued and expanding presence of AirTran (now the second largest carrier at DAY) and Frontier Airlines. These LCCs have injected true price competition into the DAY market, maintaining downward fare pressure to major markets. Dayton fare levels could actually be resulting in something unspeakable just a few short years ago -- reverse leakage from CVG to DAY.

• Reductions in Delta's hub operation at CVG have also aided Dayton. The lesser number of banks, loss of some nonstop destinations, and huge amounts of available of seats on 50-seat RJs (which when capacity is properly managed from the airline perspective makes a low-fare harder to find) have all conspired to dilute the perceived consumer benefits of CVG over DAY.

It is important to note that while DAY is on the upswing and CVG enplanements are down, this should not be construed as a harbinger to long-term trends.

First, as the CVG forecast available to subscribers indicates, we expect traffic levels to stabilize late in 2006 and begin a positive yet moderate growth trend in 2007. This assumes a continued Delta hub operation, which we believe is all but a certainty.

Second, and related to DAY, we expect continued positive enplanement trends for the balance of the year and into the first quarter of 2007. After that, short another LCC entering the market, the growth curve is forecast to flatten more in line with national averages.

DAY and CVG forecasts are available for Airports:USA subscribers in the members area. Not yet a subscriber? Click here for information.

 

 

June 28, 2006

SRQ Set to Top 1 Million Enplanements by End Decade

With new service announcements from both JetBlue and US Airways, Sarasota/Bradenton International Airport continues to emerge as the central gateway for Florida's Gold Coast.

On August 15, US Airways will add nonstop Ronald Reagan Washington National Airport service to its existing service pattern at SRQ, utilizing EMB-170's. Not far behind, JetBlue will begin JFK service in late September with a single Airbus frequency, adding a second roundtrip in February. (Side Note: The Boyd Group is honored to have worked with the professionals at SRQ to develop the data necessary to convince B6 and US of the strong opportunities at Sarasota/Bradenton.)

These announcements follow a period of phenomenal enplanement growth for SRQ, driven by an in-migration of year-round population, desirable demographics, and major air service developments.

One Million Hear We Come. The latest service additions at Sarasota/Bradenton International  are expected to push the airport past the 1 million annual enplanement level no later than 2010 - sooner if other airlines flow into the market or incumbents add capacity. This moves SRQ to top of the rankings for forecast percentage enplanement growth between 2005 to 2012 of all the 145 in Airports:USA.

Other JetBlue Additions. SRQ was not the only announcements coming out of JetBlue this week. A single "red-eye" frequency between JFK and TUS is slated to begin on September 28, and three daily JFK Houston-Hobby roundtrips start September 7th.

Hobby is of particular interest. While three roundtrips are not going to impact HOU enplanements all that much, the choice of HOU over IAH gives JetBlue credibility while fighting the Love Field compromise that it calls "an anti-competitive deal that was put together by two carriers in backroom." With Northwest also opposing the deal, the compromise on Wright is clearly not right with everyone. Stand by, as it looks this may drag on for quite a bit longer.

The revised SRQ and TUS forecasts are now available for Airports:USA subscribers, as are the revised ranking tables. For more information on Airports:USA Forecasts, and to subscribe, click here.

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June 19, 2006

Flash: Potential WN Market Additions
At Dallas/Love

While total Wright repeal is not part of the recent tentative agreement, the ability for Southwest to do through ticketing at DAL will essentially address the core problem facing the carrier at Love: a constricted and declining local market base that was manifesting in low load factors.

Ignoring the silly and concocted hoopla surrounding the Wright issue, the hard fact is that Southwest has very limited growth potential at Love under the current law. Dallas Love is not a growth market - to the contrary, with DFW expanding, and population growth focused west of that airport, the current situation for Southwest is one of a deteriorating competitive position at DAL.

The new agreement - if it stands - will shift this situation. Even on some very circuitous routings - which are possible -   the incremental passengers could be crucial to Southwest. While virtually every new through market possible at DAL already has nonstop service  - in some cases low-fare nonstop service - from DFW, the incremental traffic that Southwest will access will at least in the near term compensate for the traffic stagnation caused by the competitive handcuffs imposed by the Wright Amendment.

One thing should be kept in mind: this change in the law will not alter the basic passenger trends in the D/FW Metroplex. Any service at Love, including that permitted under this new deal, has significant and growing competitive disadvantages compared to flights at DFW International. The agreement does, however, allow WN to stabilize the situation for the time being, allowing it to concentrate on other challenges.

Solves WN's Problem. Might Not Be The Fare Panacea Expected. How much market stimulation may occur in these through markets from DAL is uncertain. On one hand, to a number of markets in Florida, there is already some low fare nonstop service from DFW. Ditto to LAS, PHX, and MDW. On the other hand, to markets such as CMH and SEA, the relative competitiveness of one-stop or connect service with nonstops at DFW will depend on issues such as how much the ambient fare levels change, and the amount of capacity/frequency is offered by Southwest.

Of interest, this could also give Southwest another set of weapons in its thrust to break into the local Denver market. Note that it could add through service to Denver over both Tulsa and Oklahoma City, This would give the carrier the ability to kick some local traffic out from under Frontier - feed traffic in markets such as OKC-DEN and TUL-DEN is important to Frontier in battling Southwest. If Southwest can enter these markets, buoyed by through DEN-DAL traffic, it could be a blow to F9, particularly since they are operating these markets with higher-cost CRJs leased from Horizon.

Note: The Airports:USA forecast for Dallas/Love will NOT be updated until the agreement is approved by congress and signed by the president. There are lots of political minefields the deal will need to get through before Southwest gets any relief at Love.

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June 14, 2006

CLT: Revitalized US Airways Makes Hub Status Safe
Fall Schedule Change Adds 1,400+ Daily Seats

US Airways opened the week by announcing 106 new flights at hubs and focus cities. The new flights begin in late August and early September. No airport will be a larger beneficiary of this new service than CLT, which will see an additional 1,400-plus daily departing seats (mix of mainline and Express flying).

While some capacity is likely coming from the now-abandoned attempt to build a Caribbean gateway at FLL, it is also clear that CLT remains a cornerstone of the US Airways "barbell" strategy. In our view, there is now little chance of US Airways significantly pulling down or reducing CLT, regardless of how localized competitive dynamics may change in the coming years. The CLT forecast for Airports:USA subscribers has been updated to reflect this new reality.

So why the reversal?

For starters, under previous management US Airways was not the most adept competitor. Remember the infamous "they're coming to kill us" speech of David Siegel on the heels of Southwest's Philly entry? If Southwest enters the CLT market (and we continue to see that as a strong possibility), we doubt Doug Parker and Company would mount a revival of Chicken Little.

America West, on the other hand, has learned over the years how to survive in the face of continual pressure from Southwest. Overlay the spokes of these two airlines at LAS and PHX, and it becomes clear that probably no organization has a deeper knowledge base of how to compete with WN that the "new" US Airways.

Moreover, US Airways doesn't back down from a fight or easily cede territory. jetBlue's entry into CLT was quickly met with a US Airways announcement to launch its own JFK-CLT nonstops. Conversely, if something doesn't work, it's gone. Witness the withdrawal of HP's pre-merger trans-con experiment.

Combined, HP/US led industry RASM growth during the first quarter and ended the period with $1.6 billion in unrestricted cash. Clearly, the US Airways brand is no longer attached to a hobbled competitor and this represents only upside for CLT.

For more information on Airports:USA Forecasts, and to subscribe, click here.

June 7, 2006

Southwest Increases The Pressure at Denver
Summer Schedule Addition Brings Daily Departures to 32

Southwest is turning up the competitive heat at Denver this summer, with a dozen additional flights beginning in August. This   brings WN departures at DEN to 32 a day, with more very likely on the way.

The service includes new nonstops to Nashville, Kansas City and Houston, major connecting points for Southwest (yes, despite what the ill-informed media says, Southwest does operate hubs). In this context, WN's pricing pressure will clearly spread to points beyond.

Southwest isn't the only carrier growing in Denver. Incumbents United and Frontier recently reached an agreement with the City of Denver whereby United will consolidate operations on Concourse B and Frontier will gain six more gates on Concourse A. This adjustment, scheduled to take place by mid-2007, gives Frontier room for upwards of 48 additional daily departures.

But departures to where? Frontier is a carrier that has historically enjoyed relatively strong local yields to/from DEN, while following the rate makers on flow traffic. Clearly those days are over. Going forward, we believe Frontier has little choice but to seek growth in markets that are not "tainted" by WN pricing. (Side note: Frontier did receive a bit of good news now that United is pulling out Midway Airport.)

We need to make it clear that Frontier is not a dead duck (or bear, fox, mountain lion, or gaggle of singing penguins for that matter).  We believe that a combination of efficiency increases and strategic expansion decisions will allow the carrier not only to survive, but thrive. To its credit, Frontier already is reducing costs. First quarter 2006 CASM ex-fuel was down despite a shorter average stage length. Moreover, Denver area advertising continues to capitalize on the local brand equity while increasingly emphasizing the product advantages over Southwest. Clearly, Frontier is not laying down.

All of this equates to an intensity of competition not seen at DEN since the late 1980's and which is expected to drive continued strong enplanement growth.

The revised DEN forecast is now available for Airports:USA subscribers. For more information on Airports:USA Forecasts, and to subscribe, click here.

 

May 31, 2006

Honolulu Forecast Revised Upward
Impending Low-Fare Competition and Hurricane Timidity Expected to Drive Enplanement Growth

After a steady decline during the first half of the decade, enplanements at Honolulu rebounded in 2005. For the first time since 9/11, annual boardings at HNL exceeded 10 million.

This is trend we expect to continue through 2012, although at a slightly accelerated pace for the the following reasons:

Fare Based Interisland Competition. Mesa Air Group's new CRJ operation, dubbed "go!", begins service on June 9, with additional flying coming online on June 30. The introduction of price competition into markets that for years have been at the mercy of less than vibrant competitors is expected to result in significant traffic stimulation - among visitors and island residents, alike.

Despite the perceived opportunity in challenging a duopoly, go! is far from a slam dunk. Hawaiian and Aloha have both recently emerged from Chapter 11 making them more agile, if not lean, competitors. We would also note that Hawaii is littered with the carcasses of carriers that have attempted to become Hawaii's "third wing." Do the names Mahalo, Discovery, and Mid Pacific ring a bell? Nevertheless, Mesa has repeatedly proven itself a smart and veracious competitor. With the right combination of costs and marketing, go! could be the carrier that reshapes interisland competition for years to come.

Hurricane Avoidance. With another strong season forecast (which, by the way, officially begins June 1), the smart money may be betting on vacations outside the Atlantic hurricane belt. Honeymooners may not mind being forced indoors, but they probably want a roof and running water. Translation: travelers and disposable income that might have headed for Mexico, Florida and the Caribbean could opt for the relative tranquility and safety of Hawaii. Another couple of storms like the 2005 season, and this is a trend that could manifest itself for years to come.

Strong U.S. Economy. Despite high fuel prices, the U.S. economy continues with its Eveready Bunny routine. It just keeps going and going and going. This is good news for Hawaii tourism, which historically has growth rates that track parallel with U.S. GDP growth. The only potential limiting factor is reduced capacity from the mainland, where DC-10s and 747s have been replaced with 767s and 757s (not to mention a few ETOPS 737s). New competitors, including the combined US Airways-America West and Canadian LCC WestJet, and continued mainland expansion by Aloha and Hawaiian offsets some of the equipment gauge reductions.

The baseline HNL forecast calls for growth of 18.6%  between 2006 and 2012, higher if go! proves successful and Mesa puts more capacity in the market.

For more information on Airports:USA Forecasts, and to subscribe, click here.

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May 22, 2006

Love Field: Making WN A Cornered Beast?
Southwest Needs Wright Repeal To Make DAL Work
Strategically, AA Might Be Best Served To Support Repeal

The Wright repeal saga continues. There's more misinformation, innuendo, bad data, and press stunts than a Hollywood divorce.

Our study, The Wright Amendment - Now For Some Facts, cut through the silly hype and put the matter into context. One of the conclusions was that Love Field could well turn into the airline version of Dien Bien Phu for Southwest - a strong redoubt, but one that has a slowly shrinking traffic perimeter.

We noted in our study - which, in contrast to the literary jive put out by DFW and AA - that the core issue was to look at the viability of Love Field as a long-term access point to the Metroplex. AA paid somebody to do a treatise on hub dynamics, with zero analysis of the traffic dynamics of Love. DFW made a fool of itself with a theatrical study that concluded exactly what they wanted to hear, but, like the AA "study," totally ignored any review of the true potential for Love Field within the context of emerging airline industry realities nationally, and of emerging demographics in the Metroplex.

Our findings were that Love Field is a problem for Southwest, not some Hope Diamond in its route system tiara. Most recent data again underscore our point: Love Field, far from being this much-preferred airport as AA claims, is one that is now pretty much tapped out, and one that underperforms for Southwest. As costs go up for Southwest, as its fuel hedges decline, and as competition increases, the situation at Love is one that WN must address - and soon.

American - whose planning department isn't staffed by people who just fell off a turnip truck - likely knows is that as it stands today, Love is a real problem for Southwest. Let's look at some numbers:

This is data for key nonstop WN Love Field markets in the first two months of 2006. System load factor as reported by the airline for the 1st Q of the year was 69.2%. Note that every nonstop market from Love underperformed this. (DAL-MSY was an 85% load factor, but that was affected by the post-Katrina issue.)

Take a gander - ELP is under 50%, and that figure includes any passengers going beyond ELP, say on a one-stop to Albuquerque. Tulsa and OKC in the low 50% range.

Keep in mind, as we noted in our study, that these markets are pretty much tapped out - low fare stimulation, the "Love Preference", and the "Southwest effect" are all already there. And yet, it's clear that as it stands today, Love will continue to under-perform the Southwest system. Therefore, it is critical that WN get additional through and connect traffic to bring these load factors up, particularly as the airline faces increased costs and what will eventually probably be higher break-even load factors. (Note that some of this is likely offset by higher yields, but the fact remains that Southwest has load factor problems at Love - problems that cannot be addressed without the elimination of the Wright Amendment.)

American, without any doubt, is fully aware of this. They know, and as we alone pointed out, WN is in many respects trapped at Love, an airport with a slowly collapsing traffic catchment perimeter as DFW service increases and population grows on the west side of the Metroplex. Again, DAL is a decaying airline traffic fortress. Therefore, AA's stringent opposition to Wright repeal makes eminent strategic sense, and, at least for near term planning, a competitive necessity. On the surface, AA has Southwest trapped at an under-performing airport.

And that may be a good reason that AA should quietly end its opposition to Wright Repeal.

The reasons are simple and take a long-term perspective...

First, Love, with or without Wright, is materially limited. Basically, the best Southwest can hope for is to add eight or nine additional destinations, with flight operations going to just under what they were operating before 9/11. The fact is that Love is a terribly constricted airport in terms of ground access, and it is a very poor airport to capture the growth traffic in the Metroplex. We covered these dynamics in our study, something somehow missed in the hundreds of thousands of dollars spent by AA and DFW to "analyze" the issue.

That means that with a Wright repeal, WN gets to add a limited number of flights (yes, fans, limited) and applies another 10 - 12 airplanes to the Love Operation. But without a Wright repeal, it is not beyond the realm of possibility that Southwest ultimately finds DAL to be untenable. And then, they move operations to DFW. In such case, they then would have all the access they want to the entire Metroplex, and unlimited ability to add flights up the whazoo - right across from AA, vying for the same traffic base. A wider traffic base. AA's traffic base.

No, that just can't happen, some will protest. Southwest has said clearly and with great finality that it will not move to DFW. Right. That's what they said about Denver, too. Things change, and the fact is that if the operations at Love start to lose money - either on an all-up basis, or on a revenue opportunity basis - don't get deluded that WN will live with that forever. And the fact is, too, that Wright today is fixin' to make Love untenable for WN in the long term. AA would best tumble to that.

Oh, and about AA's threat to move substantial DFW operations to Love, in the event of a Wright repeal? Take it to the bank: that threat is now off the table. Aside from the fact it was an empty threat, it is now one that AA itself has succeeded in torpedoing.

The reason is that AA's ill-advised "protect the children" strategy - the "Stop & Think" idiocy, etc., has resulted in a swarm of angry, albeit uninformed, citizens who would now turn on AA in a heartbeat if the airline even suggested adding significant flights at Love. AA has engineered this silly strategy to make it look like Southwest is the bad guy by wanting to add more flying at Love. If AA tries it, that angry mob it has funded and created will go for AA's community throat.

Bottom line: Southwest has an immediate problem at Love. It would be in AA's best interests to assure that WN stay there. Without Wright repeal, there is a long-term probability that Southwest could abandon Love in favor of DFW. Then, AA's got big problems - a major competitor at DFW that has access to the traffic of the entire Metroplex.

Finally, don't believe for one second that if WN yanked out of Love, another carrier would replace that flying. If WN can't make it at a Wright-restricted DAL, nobody can.

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May 15, 2006

1st Q YTD Enplanement Trends
The I-Air Bubble Bubble Deflates
Welcome To The Tortilla Growth Curve: Flat.

On national basis, traffic was basically flat for the first quarter of 2006. This is indicated by data from the 145 airports tracked by Airports:USA, which account for over 95% of the nation's total passenger traffic.

When A Decline Really Means Something Else. This in fact, however, represents some growth, as it encompasses the disappearance of Independence Air, along with the non-economic traffic bubble it created. Indeed, when we take a regional view, it's very clear that most of the reason for flat traffic is the decline in enplanements in the Southeast, New England, and the Mid-Atlantic regions - just the areas where I-Air spread its below-cost fare largess until it finally ran out of money. The other areas of the nation generally saw a different picture - the Plains were flat, but strong traffic growth was registered in the Southwest and Rocky Mountain regions.

Therefore, this less-than-1% decline is not reflective of any fundamental weakness in demand, and no single factor is at play. This week we review the regional trends, discuss the driving factors, and the outlook for the balance of the year.

Far West. Traffic in the Far West was up 1.7% during the first quarter. The regional leader was LAS, up 6%, and which appears a bottomless pit for low-fare traffic stimulation. Other airports with measurable traffic gains were Burbank and Portland, up 7.5% and 4.7%, respectively. Long Beach traffic during the quarter was down 5%, reflecting an East Coast-centric growth strategy of jetBlue, and not any fundamental decline in traffic demand n the LA Basin..

The region could get a boost during the third or fourth quarter when (if?) Virgin America takes off, although this will be mostly focused at SFO, with some ancillary benefit at OAK and SJC resulting from competitive fare matching. Maybe.

Rocky Mountain. The Rocky Mountain region saw traffic climb 6.2%, mostly attributable to increased competitive intensity at Denver following Southwest’s market entry. For all markets tracked by Airports:USA in the region, traffic was up 522,381 during the first quarter. At Denver, it was up 541,207, indicating that the regional growth is more correctly fare-based traffic stimulation at Denver. Expect more of the same for the balance of the year, and into 2007, as Southwest goes from 20 to potentially 60 daily departures. Also coming to DEN in the second quarter is expansion by market share leader United Airlines. Trends to watch: how well Southwest does as it expands at Denver - it's not an underserved or over-fared market, so WN will need eventually to take share from other carriers, as well as try to fare-stim the market.

Southwest. Traffic in the Southwest region was up 5.4% during the first quarter, with Airports:USA tracked markets all basically hovering around the regional average.

The major exceptions were DFW and Love Field. At DFW, traffic was basically flat , but in light of the Delta hub pull-down last year, it does not indicate that American is reducing the number of spokes from its DFW operation. Wright Amendment chest-beating aside, the airline has actually been adding markets from DFW.

Over at Love Field, traffic increased 8.3%. For the balance of the year, we expect Love Field growth to moderate.

Plains. Traffic in the Plains region was down less than one percentage point, so let’s call it flat. Even here there's some skewed data. For example, Fargo saw a 13% enplanement boost, but it was primarily due to the launch of LAS service by Allegiant Air. While it's great to have high-value, low-cost vacation packages, this traffic increase is more due to a shift of discretionary dollars from Home Depot, than to fundamental regional air traffic demand growth. Also, when starting from a low base, it only takes an increase of only 8,900 enplanements over the quarter to achieve 13% growth.

Great Lakes. After declines in traffic due to pull-down of ATA service, Chicago Midway rebounded with a 18% year-over-year increase during the first quarter thanks to a renewed focus by Southwest, along with some new markets from AirTran. But even here, it's a return to where enplanement levels were two years ago.

Cincinnati traffic declined nearly 31% during the quarter, continuing to reflect a pullback of the 2005 Delta capacity additions, which, at the time, caused a spike in CVG passengers. So much of the decline is the deflation of a temporary capacity build-up by Delta.  Barring a suicidal strike at Comair, we expect CVG to stabilize in the third quarter of 2006 and positive traffic trends to begin appearing late in the fourth quarter and into 2007. Even if there is a Comair shut-down, the capacity would likely be easily replaced within 90-days. Remember, there is no shortage of RJs, nor of RJ operators who want to spread their RJ eggs in more than one basket.

Overall, traffic in the region was up about 3.2%.

Southeast. On a regional basis, traffic throughout the Southeast was down nearly 7%. Most traffic losses are attributable to the absence of Independence Air capacity being sold at below cost. As Airports:USA forecasted, the bubble has burst.

There are a few bright spots in the region, however, including RIC which through the first quarter saw traffic increase 7.6% as a result of AirTran’s market entry. Expect continued positive trends at RIC, with new JetBlue service to BOS and JFK reflected in second quarter statistics.

Baton Rouge continues as nominally the fastest growing airport in the nation, with traffic up 48% during the first quarter. This reflects population and traffic migration in the aftermath of Hurricane Katrina - which is fundamental growth, and the fact that MSY service was cut back to nil in the aftermath of the storm. This latter growth driver, is not fundamental, and there will likely be some decline in enplanements in 2007, year-over-year. That being said, BTR still stands to benefit from some permanent population shifts and is expected to remain a long-term growth market.

Mid Atlantic. Traffic in the populous Mid Atlantic region was down 6% during the first quarter, unduly weighted by the 19% decline at Dulles, post I-Air. We expect that negative traffic trends will continue at Dulles for the balance of the year, even assuming Southwest’s entry during the third quarter. Like the Southeast region, there were a lot of unsustainable trash fares driving IAD traffic in 2005 and we don’t see any rational airline management team – particularly that in place at WN – trying to coax folks off their Lazy Boys with red-ink specials.  

New England. On a regional basis, traffic in New England fell approximately 4.3%, a figure that would be much higher absent the jetBlue driven growth at the region’s top airport: Boston Logan. Traffic at Portland was down 19% during the first quarter, a trend we expect to see reversing itself when jetBlue begins JFK service next week.

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Airports:USA continually tracks traffic and air service trends to provide the most accurate and up-to-date traffic forecasts for 145 airports represent over 95% of all U.S. enplanements. Not a subscriber? Click here to learn more.

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May 8, 2006

Red Light/Green Light
Load Factors Still Rising, But Airline Strategies Diverging

Most US-based airlines have released traffic figures for the first four months of 2006, highlighting some interesting trends – including some radical differences between the paths of the low-cost carriers and the legacy carriers (including the contract carriers that provide a significant portion of legacy carrier-branded lift).

While both sectors are experiencing higher load factors, LCC’s are expanding capacity at a rapid clip, while the legacies are being more careful about tailoring capacity to demand. This does not mean all the legacy carriers are shrinking by any means - several are growing available seats by increasing aircraft utilization, for example - it just indicates that any additional capacity coming on line must be cost effective.

AirTran, Frontier, jetBlue, Southwest: The Field of Dreams Theory of Expansion. If you fly it, they will come. Collectively, these four carriers added 12% to their capacity during the first four months of 2006, compared to 2005.  jetBlue grew 27%, with AirTran not far behind at 24%. Fortunately, traffic growth rose 18%, outpacing capacity growth.  Basically, these airlines are still committed to growing their way back to profitability, hoping that they can continue to find markets where the price/demand equation can be maintained (if not improved) in an environment where fuel price relief may be a pipe dream.

(Side note: jetBlue does appear to be tentatively putting the brakes on its growth. The airline is deferring delivery of 12 A320's for 4 to 5 years and offering some A320's for sale, undoubtedly some of the first airplanes jetBlue operated - and all probably just about ready for a D-check. All its E-190 orders remain intact. jetBlue intends to regain profitabiliy by focusing more on short-haul flying, where there is a bit more of a RASM/CASM spread than on long-haul trips with narrowbody jets.)

With LCC route maps overlapping more and more as each month passes, these airlines will bear watching.

The legacy carriers are bumping load factors up as well, but are accomplishing this primarily by dropping capacity faster than traffic drops off. As mentioned above, some carriers are adding available seats by increasing utilization or contract carrier lift ("regional airlines"), but legacies are largely still trying to shrink to profitability, especially on the domestic front. Internationally, growth remains robust, but airlines may be bumping up against the limits of profitable expansion there, as well (Then again, who knows? Maybe Philadelphia - Stockholm is a hidden profit flower just waiting to blossom).

A Mixed Bag For Airports: On the airport front, don't be surprised if the rich keep getting richer, as LCC's grow high-demand markets even further, and legacies add international services from their gateways. Some mid-size airports in the South, East and Midwest can expect jetBlue, and possibly AirTran service, but most smaller facilities will see their traffic fortunes rise and fall on the entry and exit of small jet capacity.

Airports:USA gives subscribers valuable insight on how these trends, and others, will impact airports across the country.

Subscribers can click here to access the forecasts. Not a subscriber? Click here to learn more.

Next week: First Quarter Traffic Results

 

May 1, 2006

Odds and Ends
LCC Expansion Keeps Coming

The LCC segment appears to have adopted a "full speed ahead, damn the torpedoes" approach capacity expansion, despite the projected increases in fuel costs. On the heels of jetBlue's Carolina expansion, both Southwest and Spirit have announced new flying, and Southwest has indicated that is has significant growth in store for one of its recently added cities, Denver.

Spirit: Jumping into the Boston fray. Not dissuaded by jetBlue's rapid growth in Beantown, Spirit announced that it will add service from Logan to Detroit and Myrtle Beach.  It's limited service pattern will not threaten jetBlue, but it will be interesting to see how successful these routes end up being. The Detroit service will be going heads-up against Northwest - a carrier known for aggressively responding to LCC infringement on its popular routes. Myrtle Beach, while competitively less difficult, is a smaller natural market that will require a significant amount of leisure-traffic stimulation in order to support daily A319 service.

Southwest: More Philly announced, more Denver expected. Southwest announced seven more flights (and two new nonstop destinations) from Philadelphia beginning this summer. WN is showing no inclination to slow its PHL growth pattern.  Southwest has also indicated that it intends to grow its Denver operations significantly - don't be surprised if it is running upwards of 60 flights a day from DIA in three years, much to the chagrin of United and Frontier.

More coming from JetBlue. In addition, expect new market announcements from jetBlue in coming weeks. Despite slowing some aircraft deliveries, there's still a lot of new capacity on way.

With more planes coming, LCC's really have no choice but to continue their expansion in the short term regardless of the cost or revenue environment.  If you have a new Airbus showing up at headquarters in two weeks that you are on the hook to pay for, you are generally better off flying it that parking it. Unfortunately, with several LCC's in the same boat, capacity can easily outstrip demand in the current environment. Watch for declining load factors and yields in the LCC segment - and don't be surprised if these carriers continue to tread on each other's toes with regard to route selection.

The Airports:USA forecasts are in the process of being updated based on final year end 2005 figures. In the next couple of weeks we will give an overview on the Forecast Flash, and have all the details available for subscribers.

Subscribers can click here to access the forecasts. Not a subscriber? Click here to learn more.

April 17, 2006

More jetBlue E-jet Growth
CLT, RDU Coming in July

jetBlue's next new markets will be Charlotte and Raleigh/Durham, with service starting in July.  While both have strong local demand for NYC traffic, each will present a bit of a challenge for jetBlue to overcome.

Charlotte

jetBlue's challenge at Charlotte will be that of any new carrier to the market: US Airways' dominance. US has customer loyalty and a strong service pattern to the New York area today, using equipment as large as A321s. US won't just go away.

Clearly, jetBlue will be the rate-maker in the market, that much is clear.  But with only 400 seat departures per day, it will be at a major capacity disadvantage vis-a-vis existing carriers in the market (AA/CO/DL all have nonstop CLT-NYC service as well as US, albeit on a smaller scale). With other carriers matching its fares, jetBlue will not have a slam dunk on its hands - especially since a big chunk of its competitors' service will be into LGA. (jetBlue has removed some of the negative stigma associated with JFK, but on flights of this length, most customers still strongly prefer LGA, all other things being equal).

This being said, its Pittsburgh startup apparently did not sway B6 from entering another US Airways stronghold, so it has undoubtedly taken the competitive situation into consideration.

    

Raleigh/Durham

Like Charlotte, RDU has a strong existing service pattern to NYC, with American, Continental, Delta, and US Airways providing multiple daily flights to the city's three primary airports.  Unlike Charlotte, however, RDU has no hub carrier, and the majority of its flights to New York are on 50-seat (or smaller) jets, with the exception of a couple of CO frequencies to Newark.

These differences could be pivotal for jetBlue. First, market loyalty is more fragmented at RDU, giving B6 a more level playing field on which to operate. Second, it should have a substantial cost advantage with its 100-seaters compared to the existing 50-seaters flying the routes. Third, its competitors will be less likely to respond with major capacity growth as will be the case in Charlotte, where US has this option because of its hubsite.  RDU's competitive situation is much more favorable that the one it will face in CLT.

Template for E-jet Growth?

It appears that markets like RIC, RDU, and CLT make up the template for jetBlue's E-jet growth strategy.  1.5 hour stage lengths, 3-4 roundtrips per day, markets where 50-seat jets make up most current nonstop capacity; cities like Indianapolis, Columbus, Greenville/Spartanburg, and Charleston fit the bill. With at least 8-10 more cities fitting this profile (and the potential for service from both JFK and BOS), jetBlue should not suffer a lack of opportunities for its growing E-190 fleet.

The Airports:USA forecasts for CLT and RDU have been updated. Subscribers can click here to access the new forecast. Not a subscriber? Click here to learn more.

 

April 10, 2006

Southwest to Enter Dulles
Another Pre-Emptive, Not Pro-Active, Expansion

Southwest Airlines announced this week that it intends to begin service to Washington Dulles Airport this fall, and has requested two gates from which to operate its flights. Look for WN to begin its IAD service with 8-12 flights per day in three or so markets, with growth over the next two years to 20 flights to five or six destinations.   

Heard around Dulles management’s offices: “Independence Who?” 

Basically, there is no vacuum left from the departure of I-Air at Dulles. The carrier simply had no real fundamental traffic base. WN's entry is for an entirely different reason: they have to move to preempt other LCCs (such as AirTran, jetBlue, and, maybe Virgin America) from poaching their existing traffic base in the Washington region.    

There's a lot of idiotic lore about Southwest. One is that its sole strategy is to enter only secondary airports around big metro areas. To be sure, that is one of their strategies, but the the fact is that they adjust them to the marketplace. LAX isn't secondary. Neither is TPA. In the case of IAD, they clearly saw that a huge chunk of their BWI base is vulnerable to expansion by other LCCs at IAD. So, they have to move, and move quickly to stake out territory.

But this is yet another indication that Southwest is in a defensive mode, and that it's in a new phase of its life - one where just low fares, nice employees, and on-time flights alone are no longer sufficient to keep the passenger herd in the WN corral. It has to compete with other LCCs which can deliver a product just as good, and with IFE and seat assignment, maybe better. It also has to compete with the likes of United, which regardless of having a Lost-In-Space front office, does deliver top-quality customer service, and has costs that no longer are out of line.

Southwest has a couple of main strategic reasons for entering Dulles: 

Go where the revenue is.  The Independence Air experiment, dumb as it was, did show Southwest that IAD can be a threat to BWI. It is a place where fare stimulation can work, and WN clearly doesn't want it to work for jetBlue or AirTran. At some point, there was going to be massive expansion of LCCs at IAD, and that was on one hand a threat to Southwest, while on the other hand, a great place to implement necessary expansion.

Diversion? Keep it online. BWI traffic has been stagnant recently due to the increase in low-fare service at IAD to the south and PHL to the north. Southwest, which established BWI as its initial East Coast anchor market years ago, cannot afford to have other airlines nibble away at its BWI presence. By entering Philadelphia, WN kept traffic north of BWI in the fold.  With Dulles, it will keep a measure of traffic to the south and southwest of the WAS area on its 737s, rather than see it defect to other LCC’s in the IAD market.  It can also preempt more expansion from jetBlue and AirTran.

On To Richmond? Maybe not. The folks at RIC are probably going to be singing the Colorado Springs blues. The expected entry of WN into RIC, semi-announced before 9/11, is likely now off. Like COS, it was part of a then-successful metro-peripheral strategy. Now Southwest must focus on the core cities, because if it doesn't, jetBlue or AirTran, or Frontier, will.

The New England strategy - bracketing Boston with Manchester and Providence is now under threat. jetBlue is going to go into BOS in a big way, thereby rendering useless a lot of the driving consumers were doing north to MHT or south to PVD. The B6 entry at Portland also threatens to recapture much of the traffic in southern Maine and coastal New Hampshire that had been driving to MHT.

The point is that this is a new Southwest. It's currently in a defensive/reactive mode, as seen at PHL, PIT, DEN, and now, IAD. But going forward, this is the carrier to watch, and any past historical "strategeries" they've been known for are out the door.

At some point, likely toward the end of this year or early next, we can expect a very different, and very competitively-nasty Southwest. They see vulnerability at the new US Airways, which is why WN has made hints about entering CLT. Yes, they have product vulnerabilities, but they also have more cash than Fort Knox to fix them. In short: stand by for news.

But don't expect any repeat of the I-Air capacity fiasco at IAD. If Southwest's service pattern at IAD follows the expected growth trajectory, look for IAD enplanements to get back to 2005 levels around 2010. If Southwest sees immediate success at Dulles and grows rapidly (a la Philadelphia) it could reach this point by 2008.

The Washington Dulles Airports:USA forecast has been updated. Subscribers can click here to access the new forecast. Not a subscriber? Click here to learn more.

April 3, 2006

Delta: 101 SLC Markets
Durango, CO is Latest Addition

This summer, Delta will increase the number of markets it serves from its Salt Lake City hub to 101 with the addition of Durango, Colorado. In fact, the service additions DL has announced in the last month will go a long way towards erasing the 2006 traffic deficit we expected after service reductions were announced late in 2005. 2006 traffic will probably still be down, but only modestly - and the growth trajectory for the future will be right back on track. (Actually Southwest gets some credit, too, for its addition of SLC-DEN service).

The strategy Delta is employing at SLC appears to be pretty straightforward: add flights in markets where it is relatively insulated from LCC competition, and where it can expect to garner a revenue premium.  Markets that fit this bill include:

Markets too small to support LCC service.  Examples would include Aspen, Durango, and Lewiston, ID.  AirTran and Southwest won't be touching down at these places anytime soon, and due to SLC's geography, it is an efficient hub for westbound traffic flows from these airports.  Overall passenger numbers may be modest, but DL should see a revenue premium to these cities.

International markets. Toronto, Victoria, Mazatlan, Puerto Vallarta, etc. Again, despite the fact that transborder competition is increasing to both the north and south, yields have not been completely trashed in these markets.Add the fact that SLC serves as a gateway to many markets in the Mountain West that have limited connectivity to these international destinations, and the prospects of achieving a revenue premium are strong.

Markets emerging as regional gateways. Durango is becoming a gateway to Southwest Colorado and the Four Corners Region.  Lewiston, ID serves a growing population in the Lewiston/Moscow/Pullman, WA area.  Bellingham is becoming an alternative to Seattle/Tacoma for those living north of Seattle. While the overall traffic bases at these airports remain modest, their potential is strong for the airlines willing to commit service. (As a side note, The Boyd Group helped both Lewiston and Durango recruit Delta service - focusing in no small part on these "regional gateway" dynamics.)

Delta is applying these strategies to hubs other than SLC as well.  Recently announced Atlanta flying includes Atlantic City, Wilmington (Delaware), and Pinehurst/Southern Pines (NC) - all markets that exhibit similar characteristics.

Although a legacy carrier like Delta cannot survive on modestly-sized markets alone, they can utilize them as a source of revenue unavailable to the rapidly expanding LCC's.

The Salt Lake City Airports:USA forecast has been updated.  Subscribers can click here to access the new forecast. Not a subscriber?  Click here to learn more.