7c Supp Revised
Item No: 7c Supp Date of Meeting: June 1, 2010 Trends and Dynamics in the Aviation Industry Considerations for SeattleTacoma International Airport June 1, 2010 1 Agenda Airline Industry Dynamics Implications / Issues for SeaTac Regional Aviation Strategy Trends Sustainability Efforts and Issues Other Key Strategic Issues 2 Challenging Economic Times Gross Domestic Product, 19962009 6.0 5.0 Fuel Price 4.0 Increases "Great Recession" 3.0 2.0 9/11 1.0 SARS 0.0 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 1.0 2.0 3.0 Airline Industry Profitability 4 Airline Revenue Reductions 5 Airline Fuel Cost Pressures 6 The Search for Black Ink Expense Cuts Customer service cuts food, pillows, etc. Overhead reduction "back office" layoffs Outsourcing staff services (e.g., ramp, agents) Outsourcing regional air service Compensation reductions Bankruptcy 7 The Search for Black Ink Revenue Enhancement Yield management sophisticated matching of higher demand with higher prices Charges for "ancillary" services food, bag check, bathrooms(?) Fuel surcharges Focus on international service Scheduling "sculpting" reducing supply Significant seasonal capacity shifts 8 The Search for Black Ink Airline Capacity Reduction 9 The Search for Black Ink Consolidation Marketing ATI JV Agreement (AntiTrust (Joint Venture) and/or Immunity) Codesharing Merger Shared cost and profit in specific Coordinated fares Incl. Reciprocal regions and scheduling mileage program = no competition Carriers still compete in "Global Alliance" revenue. may or may not be part of the agreement. (e.g. Alaska) 10 The Search for Black Ink Consolidation Delta/Western America/TWA American/Reno Air Northwest/Republic Marketing ATI Agreement JV (AntiTrust Merger and/or (Joint Venture) Immunity) Codesharing Delta/Northwest US Airways/ America West United/Continental Air France/KLM British Airways/ Iberia Lufthansa/Austria/ BMI The Search for Black Ink Application of Technology Industry Collaboration = Airline Cost Savings of $1.6Billion/year 12 Implications for SeaTac: Airlines' and Airports' Responsibilities Airlines: Shortterm commitment to shareholders; ultimately mobile assets Airline industry roiled by extraordinarily dynamic/difficult environment Airports: Longterm responsibility to communities; 50year investments Responsive to airline challenges but have "larger" responsibilities 13 Managing CPE Growth Seattle's Nonstop International Services 2005 2010 Reykjavik Copenhagen London Frankfurt Seoul Seattle Paris Amsterdam Tokyo Beijing* Osaka** Taipei New after 2005 Lost after 2005 * Beijing via Delta scheduled to start June 4, 2010 ** Osaka via Delta scheduled to start June 7, 2010 Source: OAG Schedules, August 2010 Future Enplanement Forecast Uncertainties 24.0 Enplaned 22.0 Passengers (In Millions) 20.0 18.0 2010 Bond Issue 16.0 2010 Business Plan 14.0 2008 Business Plan 12.0 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 Cargo: Tale of Two Directions Total Air Cargo Volumes, & International Freighter Landed Weight 400,000 800,000 350,000 700,000 300,000 Estimated 600,000 Metric Tons 250,000 500,000 200,000 400,000 1,000 lbs 150,000 300,000 Total Cargo Volume , 100,000 200,000 50,000 100,000 LandedWeight, 2004 2005 2006 2007 2008 2009 2010 Mail Domestic International International Freighter Landed Weight Prospective Facility Realignment POS LongTerm Gate Option B Southwest Alaska Delta United Express Horizon International Carriers US Airways S B C Alaska N Alaska (Push Gates) American Airtran Frontier Continental Virgin America Hawaiian JetBlue D United A 18 Prospective Facility Realignment Airport criteria regarding facility planning: Optimal longterm facility utilization High throughput configurations Least cost planning Equitable treatment of all airlines Anticipation/incorporation of technology SLOA includes provision for onetime reconfiguration Airline negotiation regarding costsharing 19 Growth in International Service Facility Challenges Federal Inspection Service (FIS) facilities 1970's terminal building is beyond capacity Aging infrastructure with inadequate HVAC Poor first impression for foreign visitors Redevelopment Issues Capacity: Near, Medium, Longterm Customerfriendliness Federal agencies' needs and desires 20 FIS Passenger Growth: 19982009 Deplaned FIS passengers grew 60% from 1998 to 2008. 21 Growth in International Service Facility Challenges Enhance, expand, replace? Potential "domino" impacts on landside space Port's interest in providing "welcoming front door" vs. airlines concerns re cost SeaTac is, and may always be, high peak airport, which results in: Long processing queues and/or.. Passengers held on board 22 Growth in International Service Facility Challenges May 1, 2010 1,000 Estimate queue length: actuals Estimate queue length: scheduled 900 Capacity limit warning 800 Arriving Passengers 700 600 500 400 300 200 100 0 09:30 10:30 11:30 12:30 13:30 14:30 10minute intervals 23 South Satellite Shortterm Improvements 2010: Primary inspection 21 to 29 stations 2011: Primary 29 to 39 stations, including 30 new booths Active discussions with CBP and airlines re medium and longterm: Benefit/Cost issues 24 Regional Aviation Policy/Strategy 1996: PSRC authorized 3rd runway at SEA as first addition to air capacity, to be supplemented in future by reliever airports 2008: Allegiant Air & Horizon Airlines request to provide Paine Field (PAE) service 2009: LATS confirmed that Central Puget Sound would eventually need more capacity (assumed SEA capacity at 533,000 operations) 201011: Anticipated FAA decision regarding PAE service (followed by litigation?) 25 YVR US Reliever Airport Development BLH PAE? SEA YUL BTV YYZ MHT BUF JFK BOS MKE EWR PVD ORD LGA OAK MDW SFO DEN IAD SJC DEN DCA BWI BUR LAX ONT SNA DFW DAL IAH HOU FLL MIA 26 Reliever Capacity in Puget Sound Potential drivers of reliever airport need Passenger convenience Congestion Airline assessment of market; induced demand High cost to meet peak time demand at SEA Paine Field, 2011 is not Boeing Field, 2005 Least cost regional capacity e.g., cost of incremental gate 27 Regional Aviation Policy/Strategy Comprehensive Development Plan indicated SeaTac capacity of 45 million annual passengers (MAP) Airfield operations X average seats/flight X load factor Same equation in spring 2010 = 67 MAP Reflects larger aircraft and increased load factors THIS IS NOT A FORECAST Growth rates currently quite low; do not anticipate reaching 45 MAP until 2025 or beyond Staff evaluating how many passengers beyond 45 million SEA can accommodate Gates and curb likely limiting factor, not airfield 28 Sustainability: Efforts to Date SeaTac is a leader among airports, pursuing cost effective environmental opportunities PC Air Project Recycling EGSE Greening of taxi / shuttle fleets Adopted Environmental Strategy Plan in 2009 Next phase of programs may bring projects without return on investment our partners seek 29 Sustainability: Future Direction How aggressive should the airport be? Should the airport mandate sustainable practices beyond those with a relatively shortterm paybacks? Should the airport invest in renewable energy / conservation with long payback periods? Should we pursue carbon neutrality? How should the airport use pricing and/or incentives to influence behavior? 30 Additional LongerTerm Issues How much property should we reserve for off airport cargo support? Should SeaTac include an onairport hotel? What is appropriate approach to "managing" landside access to SeaTac? What other facilities or services are appropriate for Seattle's and Washington state's front door? What is appropriate level of customer service? 31 Questions? Discussion 32
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