2004 Predictions/Boyd


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Hot Flash - December 22, 2003

Predictions, Trends, Forecasts
2004 - Plan On A Great Year

Happy Holidays.

And plan on a Happy 2004, too. That’s because our analyses of airline trends, passenger growth, and other key indicators point to a very strong year ahead.

On January 5th, we’ll be looking at what we expect for 2004, and we’ll review how our 2003 predictions panned out, too. In the meantime, we thought we’d outline some of the key prediction areas we’ll be talking about in depth in two weeks.

Airline Industry: All signals – with the exception of fuel prices – are positive. The big news: mega-carrier systems are beginning to focus on their strengths. The "low fare carriers" are also re-assessing their operational models, too. We’ll be looking at the following trends:

Mega-Carriers: The circling of the wagons to defend against LCCs is drawing to a close. Operational and marketing counter-attacks are about to start. The oft-spouted mantra from some Wall Street types that airlines like AA, CO, and NW are static targets for LCCs is about to get shown for the myopic nonsense it is.
Low Cost Carriers: We’ll be looking at how this model is now under pressure, and some key players in this segment (which, again, is pretty small in terms of numbers) are now moving to fundamentally modify how they operate. A point to consider: Southwest will be under increasing pressure on the East Coast. Another point to consider: there could be consolidation in this industry segment.
Small Jet Providers: It's not a question anymore. There will be consolidation in this segment. These companies, which some rearview-mirror worshipers still call "regional airlines," are also facing fundamental shifts in their marketplace. These entities are in the business of providing lift (small jets and some turboprops - for the time being) under contract to major airlines, and they’ll be facing a situation where a glut of RJs and an excess SJPs will result in consolidation of this segment. Some big winners. Some big losers, too.
Capacity: Mega-carriers are adding capacity, which has resulted in cries of despair and disaster from some of the talking heads in the aviation media and in the financial world. Here’s a flash: much of these increases in capacity are risk-neutral, and/or cost-neutral. Add that to the fact that the economy is coming back, and the bottom line appears to be, well, a better bottom line.

Aircraft & Fleet Demand: As The Boyd Group’s fleet forecasts have predicted, the RJ demand curve is falling fast, and the demand for E-jets (new-technology 70-110 seaters) is now in its early stages. We’ll outline how the recent Air Canada order illuminates both trends.

Air Service Development: Economic realities will continue to manifest. The name of the airline game is survival, not expansion. Airlines will be looking for opportunities that represent big potential, but with zero risk.

Small & Rural Airports: The bar to gaining and recruiting air service continues to go up, potentially leaving smaller airports and entire rural areas high and dry.
Mid-Size Airports (Roughly 50,000 to 400,000 enplanements) – The tea leaves read well for most mid-size airports, but emerging trends in LCC costs and strategies are making entry into such markets a distant fantasy. All the civic hubris in the world, and regardless of how much money some airports might toss into the giant vapor hole of "traffic pattern studies" and the like, won't change airline economics. For airports anywhere south of 700,000 enplanements, Santa Claus is more likely to come to town than Southwest.
Hubsite Airports: Plan on STL continue to be pulled down as a connecting hub. Pittsburgh and US Airways are likely to come to a deal. Yield pressure – and traffic growth – at DFW, LAS & maybe one other hubsite due to major increases in LCC expansion. (Yes, LAS, too.)
What's out - "travel banks," "leakage studies," and travel-agency data. What's in - revenue guarantees, new economic pattern analyses, and Asian traffic generation. (Yup.) Just for starters.

We’ll cover these issues Monday, January 5. There won’t be a Hot Flash December 29.

From the staff at The Boyd Group, we want to wish you a happy, safe, and TSA-Flummoxed-Free holiday.