30th Annual FAA Aviation Forecast Conference

AIRPORT FORECASTING IN UNCERTAIN TIMES

Presented By:

Christina CassotisVice President, SH&E, Inc.

Washington D.C., March 18, 2005

2

Aviation Forecasts Are Necessary for Planning but Challenges Are Part of the Work

Purpose:Purpose:

Problem:Problem:

Solution:Solution:

To Assess Future Infrastructure Requirements andTo Assess Future Infrastructure Requirements andthe Relative Timing of Capital Investmentsthe Relative Timing of Capital Investments

Forecasts are Never PreciseForecasts are Never Precise

Too Many Assumptions, Too Many UnknownsToo Many Assumptions, Too Many Unknowns

Incorporate Uncertainty into Forecasting andIncorporate Uncertainty into Forecasting andthe Planning Processesthe Planning Processes

3

Forecast Scope Depends on the Application

ScopeAircraft / Engine

M anufacturers

Airlines

Government Agencies

Airport M anagement

Worldwide X X

Regional X X X

Country X X X

M etro Area X X X

Indiv idual Airports X X X

Route X X X

4

Airport Forecasters Face A Number of Issues

Understanding the Factors that Drive Demand for Your Airport

Recognizing Emerging Trends and How They May Impact Your Airport– Industry-wide developments

– Local factors

Predicting the Future in an Unstable and Ever Changing Industry

5

Understanding the Demand Profile for Your Airport is Key

Growth is Fueled by Different Factors

Market Segments Likely to Grow at Different Rates

Infrastructure Requirements Vary

Local vs. Connecting

Resident vs. Visitor

Domestic vs. International

Short-haul vs. Long-haul

Business vs. Leisure

Market SegmentsMarket Segments

6

Identifying the Drivers of Demand in a Stable Environment Can Be Straightforward

Personal Income

Economy

Population Growth

Air Fares

Service Levels

Alternate Airports

Substitute Modes

PassengerDemandForecast

7

19701970 19751975 19801980 19851985 19901990 19951995 20012001100M100M

200M200M

300M300M

400M400M

500M500M

600M600M

700M700M

But, Unpredictable External Events Can Disrupt a Stable Growth Pattern

U.S. Airline Revenue Enplanements

Economic RecessionsEconomic Recessions

Pan AmFlt 103

Gulf War

Deregulation

Controller’sStrike

9/11

8

9/11 and the 2001 Economic Recession Had A Pronounced Impact on US Demand

450,000

500,000

550,000

600,000

650,000

700,000

750,000

1995 1996 1997 1998 1999 2000 2001 2002 2003 2004

U.S. Airline Revenue Enplanements

Source: Air Transport AssociationSource: Air Transport Association

Trendline 14% Below

Expected

9/11 & Economic Recession

9

Industry Developments Will Influence Future Airport Traffic Levels

Growing Market Presence of Low Cost Carriers

Regional Jet Deployment

Increased Use of Secondary Airports

Airline Industry Consolidation

The LCC Phenomenonis a Global Trend

11

Low-Fare Airlines Now Represent Nearly 30% of the U.S. Market

8%10% 10%

12%14%

16%18% 18% 19%

21% 22% 23% 24%26% 28% 29%

Aug90

Aug91

Aug92

Aug93

Aug94

Aug95

Aug96

Aug97

Aug98

Aug99

Aug00

Aug01

Aug02

Aug03

May04

Mar05

Source: OAG Schedule Tapes and InnovataSource: OAG Schedule Tapes and Innovata

U.S. Low-Fare Carrier Share of Total U.S. Nonstop SeatsU.S. Low-Fare Carrier Share of Total U.S. Nonstop Seats

12

Canada Has Experienced Rapid LCC Growth

6%9%

12%

22%

32%36%

33%

Aug 1999 Aug 2000 Aug 2001 Aug 2002 Aug 2003 Aug 2004 Mar 2005

Source: OAG Schedule Tapes only, does not include charter activity

Low Cost Carrier Share of Nonstop Intra-Canada Seats Low Cost Carrier Share of Nonstop Intra-Canada Seats

13

LCCs are Also Gaining a Foothold in Europe

Source: OAG Schedule TapesSource: OAG Schedule Tapes

Low Cost Carrier Share of Nonstop Intra-Europe Seats Low Cost Carrier Share of Nonstop Intra-Europe Seats

Note: Excludes charter seats which carry half of intra-Europe demand

14

Europe’s LCC Market is Far From Mature

Upstart LCCs and Reinvented Carriers Are Poised for Significant Growth in Europe

15

The LCC Phenomenon is Rapidly Spreading Across Asia with Several New Entrants in SE Asia Market

Malaysian-based

Also serving Thailand and Indonesia

– Orient Thai provides low-cost Int’l service

– Formed One-Two-Go to serve domestic routes

2nd Largest Philippines-based carrier

Singapore-based LCC

Launched service in May 2004

Thai AirAsia - Joint venture with AirAsia and Thai interests

ValueAir

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Established Carriers Also Have Plans for LCC Operations in Asia

Looking to expand from Australian market into SE Asia

Launched Singapore-based JetStar Asia, in December 2004

Inaugural flight from Changi to Bangkok, September 15, 2004

Launched Nok Air July 20, 2004, a Budget Carrier Serving Domestic Thai Markets

TigerAirways

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In Addition, China and Japan Are Exploring LCC Competition

                      

Considering the entry of LCCs to serve domestic marketNumerous underutilized regional airports

Launching Air Next in 2005Will serve southern Japan Island markets

Airports Served by LCCs Experience Dramatic Traffic Growth

But Surrounding Airports May See Slower Growth or Traffic Declines

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LCCs Can Alter Airport Usage Patterns in aMulti-Airport Region – The Boston Example

Avoided Boston LoganAirport due to Congestion

Entered Providence,October 1996

Entered Manchester,June 1998

Southwest Serves the Boston Market Through Secondary Airports

Greater BostonAirport System

Primary CommercialService Airport

Secondary Airport

BostonLogan

Manchester

Providence

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-0.3%

6.7%3.3%

20.2%

28.6%

4.0%

-5%

0%

5%

10%

15%

20%

25%

30%

35%

Providence Manchester U.S.

1990-1995 1995-2000

Average Annual Passenger Growth

The Secondary Airports Experienced Phenomenal Growth after Southwest Airlines’ Entry

Source: Airport Records and US DOT, Form 41 schedules.Source: Airport Records and US DOT, Form 41 schedules.

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Providence & Manchester Providence & Manchester 14%14%

(+0.2M) (+0.2M)

LoganLogan86%86%

(+1.3M)(+1.3M)

Providence & Providence & ManchesterManchester

63%63%(+5.5M)(+5.5M)

LoganLogan37%37%

(+3.2M)(+3.2M)

+1.5 MillionPassengers

+7.5 MillionPassengers

Source: Airport Records and US DOT, Form 41 schedules.Source: Airport Records and US DOT, Form 41 schedules.

With LCC Service, The Secondary Airports Attracted Most of the Region’s Passenger Growth

1990-19951990-1995 1995-20001995-2000

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LCC Growth is Expected to Continue as They Account for an Increasing Share of Aircraft Orders

0%

20%

40%

60%

80%

100%

2004 2005 2006 2007 2008 2009

Regionals LCCsLegacy Airlines

Distribution of US Airline Aircraft OrdersDistribution of US Airline Aircraft Orders

Source: ACAS DatabaseSource: ACAS Database

23

Regional Jet Aircraft Are Also Transforming the Industry

Opening Up New, Thin Markets– Hub Bypass and Point-to-Point Services

Replacing Unpopular Turboprops

Augmenting Mainline Service in Off-Peak Hours

24

There Has Been Explosive Growth in the Use of Regional Jets in Recent Years, Particularly in the US

Note: August 1990 – August 2004 and March 2005Note: August 1990 – August 2004 and March 2005

Source: OAG Schedule Tapes and InnovataSource: OAG Schedule Tapes and Innovata

Daily U.S. Domestic Departures with RJsDaily U.S. Domestic Departures with RJs 1990 – 20051990 – 2005

405 151 172 160 229 320 477 6601,212

2,047

2,987

4,303

5,541

7,113

8,8659,380

0

1,000

2,000

3,000

4,000

5,000

6,000

7,000

8,000

9,000

10,000

1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005

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Boeing Predicts that RJ’s Will Account for 17% of the Worldwide Fleet in 2023

Single-aisle62%

Twin-aisle18%

747 & Larger

6%RJs14%

Single-aisle58%

Twin-aisle21%

747 & Larger

4%RJs17%

2003 2023

Source: Boeing, Current Market Outlook, 2004.Source: Boeing, Current Market Outlook, 2004.

16,200 Aircraft16,200 Aircraft 34,800 Aircraft34,800 Aircraft

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Over 75% of New RJs Will be Deployed in North America and Europe

North America

Europe

Asia

Latin America

Africa

Middle East

500 1,000 1,500 2,000 2,500

RJ Deliveries by World Region, 2004-2023RJ Deliveries by World Region, 2004-2023

Source: Boeing, Current Market Outlook, 2004.Source: Boeing, Current Market Outlook, 2004.

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At the Airport Level, An Influx of RJs can Affect Capacity and Facility Needs

Average Aircraft Size Will Increase to AccommodateGrowing Passenger Demand

Old Assumption:Old Assumption:

New Reality:New Reality:Average Aircraft Size Has Been Declining

Requiring More Aircraft Operations to Accommodatethe Same Number of Expected Passengers

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In Recent Years, There Has Been a Steep Decline in Average Aircraft Size

128130132134136138140142144146148

Actual Forecast

Due Largely to the Influx of RJs andDue Largely to the Influx of RJs andEmphasis on Service FrequencyEmphasis on Service Frequency

Note: System Operations for Large and Regional CarriersNote: System Operations for Large and Regional CarriersSource: FAA Aerospace Forecasts, March 2004Source: FAA Aerospace Forecasts, March 2004

Average Seats per Departure

The Realities of Forecasting

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The Factors that Explain Historic Growth Can Be Easily Quantified

0

1,000,000

2,000,000

3,000,000

4,000,000

5,000,000

6,000,000

7,000,000

8,000,000

9,000,000

Actual

Predicted

Passenger Enplanements Passenger Enplanements – Major US Airport– Major US Airport

R2 = 99%

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A Good Historic Fit Does Not Guarantee an Accurate Forecast

0

2,000,000

4,000,000

6,000,000

8,000,000

10,000,000

12,000,000

Actual

Predicted

Historic Fit Forecast

Passenger Enplanements Passenger Enplanements – Major US Airport– Major US Airport

32

There are Inherent Risks with Using Historical Relationships to Predict the Future

Structural Changes May Alter the Relationship Between Independent Variables and Traffic Growth

New Factors that Influence Passenger Demand May Arise

33

The US Short Haul Market Was Disproportionately Affected by 9/11 and Has Not Fully Recovered

The “Hassle” Factor– don’t go or drive instead of fly

The Velocity Effect– fewer trips made by those who remain in the market

The Corporate Policy Effect– reinforces both of the above

So, How do You Reflect Inherent Uncertainties and Plan Effectively?

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Develop High and Low Projections That Bracket the Most Likely Forecast

0

2,000,000

4,000,000

6,000,000

8,000,000

10,000,000

12,000,000

14,000,000

16,000,000

18,000,000

20,000,000

Historic

Mid

High

Low

Historic and Forecast Passenger EnplanementsHistoric and Forecast Passenger EnplanementsMajor US AirportMajor US Airport

Sources: SH&E AnalysisSources: SH&E Analysis

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23.6M 26.5M 27.4M

Focus on Threshold Levels and Not Forecast Years

Threshold Levels Drive Infrastructure NeedsThreshold Levels Drive Infrastructure Needs

450,000450,000

500,000500,000

550,000550,000

600,000600,000

650,000650,000

700,000700,000

1993 1998 2000

Low

29M

High Low RJ High High

37.5M 45M

HistoricHistoric ForecastForecast

Annual Annual OperationsOperations

493K507K

479K510K

552K 543K

585K608K

656K

529K

RJ

YearsYears Passenger Traffic ThresholdsPassenger Traffic Thresholds

Boston Logan Airport Planning ForecastsBoston Logan Airport Planning Forecasts

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The Best Planning Forecasts Recognize Inherent Uncertainties

Rely on Several Different Forecast Approaches

Reflect a Reasonable Range of Future Outcomes

Incorporate Forecast Refinement as More InformationBecomes Available