Banking on growth

With traffic forecast to recover strongly and runway and airspace capacity looking strained once again in the USA, the prospect of preferential pricing for air traffic services and congestion pricing may have to be addressed

The latest set of 10-year forecasts from the FAA has already drawn considerable scepticism from those who reckon that the agency's rosy picture of traffic recovery is far too rosy. But the same sceptics are pleased that the FAA is preparing for congestion as a near-term certainty, quietly setting aside a long-standing philosophy as it begins considering economic incentives to manage growth.

The FAA's outlook is by most accounts optimistic, if not self-indulgent, with a forecast that passenger traffic for the major carriers will achieve pre-11 September levels by 2005. The near-term forecast is for traffic growth of 6.8% this year and 6.1% next, before slowing to a more manageable 4.3% in the second half of the decade.

Analyst Mike Boyd of the Boyd Group calls this "way optimistic", and puts the return to 2001 levels at least two years later. He expects airline traffic to grow by 2.5-2.7% annually. Fitch Ratings airport analyst Daniel Champeau agrees that "the 4.3% growth projections may be somewhat optimistic".

Consultant Darryl Jenkins, a visiting professor at the Embry-Riddle Aeronautical University, is blunter. "What colour glasses are they wearing? Rose?" he asks. Jenkins suggests that forecasting, admittedly inherently risky, has difficulty embracing a new dynamic: airlines have shown that they can and will respond to traffic stagnation without revenue growth by reducing capacity and doing so swiftly. The cumulative response to 2001 demonstrates that. Airlines will still offer 7% fewer flights this July, as compared to 2001, even as they begin adding capacity back to reverse the dramatic slashing of their schedules over the past two years

Complex response

However, Jenkins and others are in concert in agreeing with the FAA that low-fare airlines will carry about half of all air travellers by 2015. The discounters now carry just about a quarter of the domestic passengers. It is the growth of low-cost carriers and the regional jet response of the majors that are driving the FAA outlook, and making a more complex response necessary.

The low-cost carrier choice of non-traditional airports such as Baltimore/Washington and Oakland in California has put some airports and regions on track to overrun capacity soon. Another staple of the low-cost approach, taken from the pages of Southwest Airlines, is to plan multiple flights for each aircraft every day, a strategy that requires precise timing and minimal or at least predictable levels of delay both on the ground and in terminal airspace. That creates a further set of demands on the FAA, demands that can change rapidly as the low-cost carriers act nimbly.

Woodie Woodward, FAA associate administrator for airports, says low-cost growth was a major factor leading the agency to adopt new forecasting methods. She says that the FAA is, for the first time, biting down on socio-economic and demographic trends such as retirement patterns, newer vacation choices and trade patterns, as well as airline trends.

A study for FAA by federal research body MITRE reviewed airports in 300 metropolitan areas, projecting air traffic growth based on where people are likely to live, work and holiday. The report took into account such factors as the increasing popularity of leisure travel as well as the growth of low-cost carriers. For instance, the FAA says that San Antonio, Palm Beach and Tucson are among the cities that will reach maximum capacity by 2013. By then the number of US air travellers is projected to have grown by about 50%, to 982 million. At least 43 airports will need to add capacity - some more than once - in the next 15 years.

In 2003, just four new runways were opened - at Houston, Orlando, Miami and Denver - helping to increase overall system capacity by 4%, says FAA administrator Marion Blakey. The FAA's long-term plan aims to improve overall capacity at the top 35 airports by 30% over a decade.

Low-cost growth

The hi-tech sector, with its pattern of rapid growth and rapid expansions, is also driving growth at certain surprise airports. This, as well as low-fare growth and increased trade flows, combined to spur growth at San Antonio. Catherine Lang, FAA deputy associate administrator for airports, says: "San Antonio was not on our radar screen as having a tsunami coming their way." Woodward concludes: "With the predictions we're making, airport capacity can only get worse."

The low-fare growth has created a squeeze play, putting the FAA between two growth forces - as the low-fare carriers push up operations at non-traditional airports, hub airports undergo an uneven level of growth as the majors respond to the competitive challenge with more frequent flights on smaller aircraft. This regional jet response, which imposes the same workload per operation as larger jet flights, and the growth of low-cost carriers, are driving what John Kern, chair of the FAA's joint planning and development, calls a "second wave trend". Add in the rise in business aviation and the fact "we are looking at a doubling of the miles flown by business jets with new airframes that will last longer", and the new thinking comes in.

The FAA, says Kern, created the Joint Planning and Development Office to produce a strategy to meet the consumer, business and security needs of the future along with NASA, the White House's Science and Technology Policy office and the Departments of Commerce, Defense and Homeland Security. It will consider new demands from unmanned aerial vehicles, general aviation and from the expected growth of "personal jets", the new generation of small business jets such as the Eclipse 500 that will enter service within the next few years. It will also address the regional jet debate, Kern says.

The regional jet revolution is nothing new, but air traffic thinkers will have to listen to and help shape the growing debate over how much regional jets stress the system. Some argue that they add a burden because each requires the same level of service as a large jet, but for a smaller number of people.

Others say that regional jets use higher flight levels and longer runways than turboprops, congesting certain airspace sectors. What is beyond debate is the rapid increase in the number of these types: commuter/regional capacity is up by almost 55% since late 2000, and the FAA projects that 549 more regional jets will be delivered in the 2004-5 period, helping increase regional capacity by 26% this year and another 16% in the 2005 fiscal year, which starts in late 2004. Over the next 12 fiscal years, regional capacity will grow by an average of 8%, the FAA predicts.

In fact, the agency has already quietly set aside its founding philosophy of first-come, first-served for the coming summer rush, creating "express lanes", granting priority to some flights and holding back traffic at some airports considered less important. This system suggests that FAA is set to address differential or preferential pricing for air traffic services as well as congestion pricing. This, along with the longer-term vision that Kern outlined, may well represent what can be called a "paradigm shift" in FAA thinking. It also suggests that the FAA views the coming congestion and its forecasts of gridlock compelling enough to take on the considerable political crusades such changes would entail.

DAVID FIELD WASHINGTON

Source: Airline Business