Boyd Issues Fleet Forecast, Discusses Industry Trends – Part I; More News

Lexington, KY – Changing dynamics within the airline industry will not only change airlines, but route networks as well as the demand characteristics of fleets making the 101- to 180-seat aircraft the segment to watch in the coming years, according to Boyd Group International’s Mike Boyd, who pried open his crystal ball this morning to report airline and fleet forecasts through 2019.

What he said should give airports pause as they adjust away from branded airline expansion to virtual airlines created through global alliances. “Airline alliances are morphing into the next dimension in cooperation,” he said. “The alliance will, in many ways, be the airline. In a very real sense, the airline members will become lift-providers much like Comair or Mesaba are non-brand lift providers to Delta. That means that the objective should be to align your community with access to all three global airline alliances which is easier said than done.”

He also sees a day when there will be an end to an American, United or US Airways brand in favor of a global alliance brand. In fact, he said, the alliance structure is completely changing airline market and fleet strategies. “Alliances are going to be the next big step,” said Boyd. “People don’t realize how important international enplanements are. Alliances are going to replace the airline. LCCs are great but if they aren’t in an alliance they will be in a world of trouble. The future belongs to alliances.”

The airline recovery will be slow, very slow, said Boyd at his 14th annual Forecast Summit this morning, and the industry will see continued declines through 2010. The reason, he said at the conference being held in Lexington, KY, is that demand will return far faster than capacity. This would probably be a good thing since that would mean, perhaps, air fares could rise as they have already started to do.

What is most disturbing about Boyd’s forecast is the fact that, despite expectations of a complete recovery to 2008 levels by 2014, Boyd indicated that full recovery will not come until after 2014. The forecast indicated both total passengers and enplanements will be down 2.6% and 2.9%, respectively, to 548,360 and 727,369 in 2014. Hub sites, he said would drop by 2.1% while large non-hubs will drop 1.4%. However, the biggest loss will be in regional markets which will drop 5%.

Fleet Changes
“We have whole new fleet economics,” Boyd said. “That 747 may be dumped for a smaller A330. That ERJ-145 is going to see more of the desert. That C-Series may be the new 737 and that 34-seat turboprop is never coming back once it gets parked.”

Boyd noted the re-fleeting has already begun, albeit slowly. In fact, he says, less than 70-seat aircraft are now undergoing the same deterioration in demand as the eight, 15, 19, 30 and 50 seaters have already experienced. Regional aviation – whether defined by airline or airliner – seems to have a generally bleak outlook, according to his forecast.

Boyd Group International sees a global demand for 12,847 airlines between 2010 and 2019 with China, the number two global market, requiring 3,292 new aircraft. Boyd also sees the widened performance envelopes of new airlines causing what he termed a “category overlap.” As for replacement equipment, they will come in the 2010-2013 period. Turboprops will grow in demand but still be limited, Boyd indicated, adding that demand for lower capacity aircraft will continue to decline.

The total fleet next year will reach 18,023 passenger airliners and will grow to 23,791 by the end of 2019 for a net increase of 24.2% or 5,768 aircraft. Replacement will account for 52.1% of the demand reaching 6,688 aircraft while growth will account for 47.9% or 6,159 airliners.

By category, narrow bodies between 126 and 180 seats will account for the highest demand at 4,282 aircraft or exactly a third. The company sees 180+ seats accounting for 20.3% of demand or 2,611 aircraft. Interestingly, Boyd sees the 101- to 125-seat as accounting for 19.6% of demand or 2,521 aircraft which is exactly the sweet spot for the CSeries. Seventy five to 100-seat airliners will account for 15.4% or 2,110 airliners while 61- to 74-seaters will see a demand for 1,008 airliners, or 7.8%. “The regional-cabin jets,” he said, “will be only 2.5% of the demand at 315 aircraft over the forecast period.”

North America will have the highest demand but at a reduced percentage at only 30% or 3,851 jets, followed by China at 25.5% or 3,282 and Europe at 23.6% or 3,032. Africa will be 6.3% of the market at 810 jets while Asia comes in at 9.4% or 1,206 aircraft and Latin America accounting for 5.2% or 666 aircraft.

A point he drove home again and again is the vast changes the industry is undergoing meaning that the standard methodology of applying historical data to predict the future no longer applies.

“Current traffic and O&D distribution are products of existing service levels, not true air service consumer demand,” he said. “Demand categories are not in concrete. Airline service that was sustainable 10 years ago is often out of reach today. There are new economics, regulations, and new performance will blur order books. Projections of strong less-that-75-seat demand are nice, but they are wrong. There is nobody building them, demand notwithstanding. Economics have eliminated the 15, 19, and 30 seaters and the same is in play for the less-than-70-seat ‘anythings’ with a wing. The projected demand for 70 to 100 seaters is uncertain. The new economics may make larger aircraft more segment-efficient and in-fleet efficient.”

He projects the advent of the 70- to 90-seat Mitsubishi Regional Jet, the 75- to 95-seat Sukhoi Superjet and the Embraer E-Jets at 70- to 120 seats bring the viability of that segment into question. “Are these too many players in a market with shrinking demand,” he asked, noting there are no replacements for either the 19 seaters or the CRJs on the horizon. “Embraer is already in the market successfully and it remains to be seen whether the other two will be materially more economic. Boeing is projecting a market for 2100 RJs but no one is going to invest in an aircraft only to sell them for $20 million. ”

He noted the difficulty of defining regional jets when they are being operated in such markets at Houston or Atlanta to Chicago. “The size of the aircraft has nothing to do with regional and if you define it as less than 110 seats then the 707 was an RJ along with the A318,” he said. “The point is the concept of the RJ was an expansion jet for the ‘regional’ airlines and it had nothing to do with size, markets or manufacturer. For the purposes of this forecast an RJ is an ERJ or CRJ only.

“The single-aisle, new entrants could change the 101- to 180-seat field,” he continued. “We see a demand between 2016 and 2019 for 2,700 aircraft in this category with China accounting for 525. Can Boeing and Airbus short circuit these products? There is a good chance that the China market will be engineered to buy only Chinese airliners making it highly questionable that it will really be a part of global demand.” That also brings into question manufacturer forecasts that count China as potential customers including Embraer which has said that Chinese production will not be able to meet demand, at least in the short term.

The trend is toward larger and more expensive aircraft pushing the revenue bar far higher than it is today. “In the 1980s the C99s, B-1900s, EMB-120s and others like them all made money,” said Boyd. “In the 1990s, small turboprops became uneconomic and were replaced by the RJs with new market applications not to replace turboprops. The new dynamic is RJs are going away as are the missions they are operating. Air service dynamics have fundamentally changed because the economics of the machinery has changed and there are no potential economic replacements for smaller turboprops or RJs on the horizon. The smallest airline in production in the West is 70 seats and they cost a lot. Where do you risk a $25 million asset? It sure isn’t at a community that hasn’t had service in the decade.”

Tomorrow – Emerging trends and how they will change air service

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