Industry and the future

I think when I mean point to point long haul, I’m talking in terms of development at non-hubs such as [say, in the UK] Manchester or Glasgow, rather than development at Heathrow. Whilst the 787 and A350 will to some extent replace 767s, I do see them increasing the viability of regional long-haul to an extent (witness what EK has already done with the A330, which would never have happened when the only long-haul choices were 747s, DC-10s and L10s).

I agree about such growth, at least in the UK or EU. My particular statement was aimed more at the quote by bring_it_on.

I don’t think we’ll ever see the mini-jumbos (A350, A340, 777, 787) be used as point to point aircraft

I think when I mean point to point long haul, I’m talking in terms of development at non-hubs such as [say, in the UK] Manchester or Glasgow, rather than development at Heathrow. Whilst the 787 and A350 will to some extent replace 767s, I do see them increasing the viability of regional long-haul to an extent (witness what EK has already done with the A330, which would never have happened when the only long-haul choices were 747s, DC-10s and L10s).

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As to fuel taxation, it annoys me when the tree huggers say the government should get on with taxing aviation fuel. Unless its a multi-latteral tax, UK airlines will be unfairly penalised, and anyway many [UK and overseas] airlines will simply tanker fuel from where ever it is cheapest – as they do now in a number of cases. Remember UK diesel tax and Eddie Stobart fitting long range tanks to some of their trucks so that they only refuelled on the continent – same concept in aviation, uplifting where its cheapest, albeit without modifying the a/c.

Thus the passengers who end up paying most of the tax will be long-range, where tankering opportunities are more limited due to capacity constraints. And ironically most of the growth (and thus creating of additional emissions) is in short haul, not long haul! The net result of airlines tankering fuel is (a) loss of revenue for local suppliers where the fuel tax is greatest and (b) increases in emissions resulting from airlines hauling excess fuel around.

I have no problem in principal with emissions taxation/charging/trading, as long as any revenue generated is plowed back into either (a) cleaning up the planet or (b) investment in reduced emissions technology. I see no case for using taxation of aviation to [for example] pay off African debt, as that nutter running France seems to be wanting to do.

Andy

I agree completely. Outside of routes between the U.S. and Europe, where frequency and choice are important to travellers, airlines are still going to ferry as many people as possible between international destinations. They’re not enhancing these major airports for nothing. And don’t forget the business traveller, they’re not flying to remote cities to do their major business, it’s the big cities like London, Paris, Tokyo, Shanghai, and they’re the bread and butter of the big carriers.

A lot of good points made by Andy and rdc1000

I believe that to cater to this large no. of populus that are willing to fly we need to bring the conveleince of flying long distances point-point closer to their HOMES and this is far better done with 787.777,a350,a340 type aircraft then with the super jumbos 380 and 747’s..

I don’t think we’ll ever see the mini-jumbos (A350, A340, 777, 787) be used as point to point aircraft. The only way to support point to point is with a lot of O/D traffic and with the numbers needed to fill or break even on these aircraft you’d be hard pressed to find such a city pairing that could support this (at least city pairings outside of the current hubs).

It’s much easier and cost effective to park your mini-jumbo in your hub and fly in the connecting passengers from outlying cities using smaller aircraft. Also the larger the aircraft gets the more unique infrastructure requirements it has. Is it really worth trying to start 777 flights out of RDU knowing that it would take a miracle to successfully operate that aircraft type out of that airport once, let alone frequently? Gate space, ramp load bearing limits, runway limits, jetway compatibility, maintenance, compatible service equipment, etc. Operationally it makes sense for an airline to equipe 2 or 3 domestic airports to meet the requirements of the mini-jumbo rather than attempt to pay for 10 airports.

I agree that point to point is the what we’ll see more of in the future but most will be found in domestic markets with much smaller aircraft. I think the new batch of 70-100 seat aircraft will fill this nitch nicely as it’ll be easy to find city pairings that could support their breakeven load factor and the 50-70 extra seats (my guess) will provide a nice profit margin.

As for a tax on the fuel itself, this is probably also completely unworkeable – you could end up with the situation where it is left to individual countries to set the tax level and the airlines then decide to take more fuel or tech stop en-route to avoid paying the higher tax levels.

I agree. This is, after all, the way that VAT works – a minimum rate is set centrally but it is left to individual states to decide the actual rate they will impose..

As for the second issue, I have not seen anything like this discussed at all, have you a source? I am disappointed if the industry press has not reported on this. But either way it is unlikely to happen, unless of course France and Germany want to make their airlines uncompetitive on the world stage.

Mostly on PPRUNE – that ever reliable source of fact :rolleyes:

You are right when you say that such a tax would make the airlines of France and Germany uncompetitive. Can you then imagine the problems that would be created if they were able to force such a tax onto the rest of Europe.

As for a tax on the fuel itself, this is probably also completely unworkeable – you could end up with the situation where it is left to individual countries to set the tax level and the airlines then decide to take more fuel or tech stop en-route to avoid paying the higher tax levels.

I had seen that – the airlines want to be included in the emissions trading scheme, and be able to buy permits off of each other and other industries in a similar way to slot trading.
On the other hand there has been much talk in the lead up to the G8 summit, mostly from French and German politicians about taxing either the aviation industry/fuel as a means of providing aid to African countries.

You are right yes, they will be able to trade amongst themselves, and theoretically with other industries.

As for the second issue, I have not seen anything like this discussed at all, have you a source? I am disappointed if the industry press has not reported on this. But either way it is unlikely to happen, unless of course France and Germany want to make their airlines uncompetitive on the world stage.

Actually the possibility of taxing fuel is VERY minimal, and infact in Europe we are probably going to see Emissions Charging instead (by 2008, inline with oher industries which are now taxed in this way, with airlines being assigned quotas of emissions. The ball is well and truly rolling for this, and it will be instead of fuel tax. This is a major debate in the industry, with most airlines coming forward in supprt of the idea (but personally I think this is because it will offer them a barrier to entry again for new carriers that cannot get their hands on sufficient permits…taking us back to the issue of reductions in barriers which have permitted Ryanair/Easyjet etc to do what they do).

I had seen that – the airlines want to be included in the emissions trading scheme, and be able to buy permits off of each other and other industries in a similar way to slot trading.
On the other hand there has been much talk in the lead up to the G8 summit, mostly from French and German politicians about taxing either the aviation industry/fuel as a means of providing aid to African countries.

Pressure from the environmental lobby in Europe will grow over the coming years to tax aviation – fuel seems to be their prime target area for tax. You will probably find that Airbus, Boeing and the engine manufacturers will argue for such a tax to be levied on those airlines that use older aircraft that burn more fuel than the newer build aircraft.

Actually the possibility of taxing fuel is VERY minimal, and infact in Europe we are probably going to see Emissions Charging instead (by 2008, inline with oher industries which are now taxed in this way, with airlines being assigned quotas of emissions. The ball is well and truly rolling for this, and it will be instead of fuel tax. This is a major debate in the industry, with most airlines coming forward in supprt of the idea (but personally I think this is because it will offer them a barrier to entry again for new carriers that cannot get their hands on sufficient permits…taking us back to the issue of reductions in barriers which have permitted Ryanair/Easyjet etc to do what they do).

Pressure from the environmental lobby in Europe will grow over the coming years to tax aviation – fuel seems to be their prime target area for tax. You will probably find that Airbus, Boeing and the engine manufacturers will argue for such a tax to be levied on those airlines that use older aircraft that burn more fuel than the newer build aircraft.
Technology will be developed that will allow the environmental impact of aircraft to be significantly reduced. Take the 787 for instance – the APU will reportedly use fuel cell technology that will allow it to use a small fraction of the amount of fuel used at present to power it.

Instead of taxing the aviation industry, the EU and EEC should be encouraging companies like RR, GE, Airbus and Boeing to develop the new technologies that will help to make the aviation industry more acceptable to the environmentalists. To achieve this, maybe they could start by using some of the money that goes on the Common Agricultural Policy to research and develop such new technologies.

In the UK the whole of the transport system needs to be better integrated. For instance the West Coast Main Line Train network should run via LHR, with a high speed link between LHR and Manchester.

* Firstly, the airline is very cyclic. Right now, it is going through a period of slow growth, but with a downward trend on service. Growth has finally come as customers get used to the post-9/11 issues and a recession, whilst the downward service trend has come as a result of the low-fare carriers and the need for airlines to fight the post-9/11 reduction in passengers and recession. We are now arriving at a point where the legacy carriers are getting closer to the low-fares, and once that equalisation is largely complete service levels from some carriers will inevitably start to slowly creap up again – the potential for growth in “traditional” airline cities is NOT limitless and airlines will ulteimately start to differentiate themselves again to win business. It will take some time, but I expect it will start to happen early in the next decade, as by then I expect the legacy carriers will be largely profitable again. We will never go back to the days when air travel was seen as a luxury, but we will move away from the idea that its just like getting on a bus to an extent, because it will become more expensive to travel.

I can’t really disagree with anything you’ve said here Andy, I just couldn’t be bothered to write an essay like that! To this point I would add the fact that the low cost carriers will start to suffer from increased costs. People believe that there are Scales of Economies in the industry, but unfortunately these are accompanied by a growth in inefficiencies in many respects, as airliens gain ‘excess baggage’ and have no choice but to pay for it. This is basically what happened with many legacy carriers (or incumbents as I would refer to them, i.e. not the new start ups in the industry).

I did my University Dissertation on ‘Contestability of the Airline Market’, and many of the issues in this post were important to the topic. Understanding the entry of airlines to the market is very interesting

Correction, make that 5, you may have forgotten BRS. (MAN, BHX, BRS, GLA, EDI)

Make that 6, you forgot Belfast ;). (MAN,BHX,BRS,GLA,EDI,BFS).

more and more airlines realise that lower fares are probably more important now than in the past – just look at how Easyjet / Ryanair to name 2 have expanded over the last 5 years. Also there is a trend in the more traditional airlines to go with a low cost option – BMI and Aer Lingus for example.

There are a number of reasons why airlines such as Easyjet/Ryanair have expanded fast in the last 5 years, it is not a case of simply providing low fares, it is a case of being able to compete. In order for these airlines to compete a number of factors have had to take place, including (as a short list of examples, there a several more):
1. Growth of internet usage, allowing a lower cost distribution channel
2. Growth of air transport to sustain use of secondary airports, allowing reduced fees, and more importantly unlimited access.
3. Reduction by major airliens in the use of Frequent Flyer programmes to retain loyalty.

You mention airlines thinking low fares are more important than in the past, the truth is the airlines were not previously able to offer them as low as they do now.

Flights to the USA can go from 4 uk cities other than London.

Correction, make that 5, you may have forgotten BRS. (MAN, BHX, BRS, GLA, EDI)

there is no direct replacement for the 747 other than the 787 which as yet still a ‘paper

The 787 is not a replacement for the 747 by any means, it’s capacity is roughly similar to the 767 models (depending on variant). Indeed it is Boeing’s direct replacement for the 767. Furthermore the aircraft has been officially launched and parts are now being constructed, therefore to say it is a ‘paper aeroplane’ is a little inaccurate.

Ouch! Huge question… Analysts get paid huge amounts of money to try to answer questions like those!

But, I’m feeling generous so I’ll supply my opinions for free this afternoon! 😉

* Firstly, the airline is very cyclic. Right now, it is going through a period of slow growth, but with a downward trend on service. Growth has finally come as customers get used to the post-9/11 issues and a recession, whilst the downward service trend has come as a result of the low-fare carriers and the need for airlines to fight the post-9/11 reduction in passengers and recession. We are now arriving at a point where the legacy carriers are getting closer to the low-fares, and once that equalisation is largely complete service levels from some carriers will inevitably start to slowly creap up again – the potential for growth in “traditional” airline cities is NOT limitless and airlines will ulteimately start to differentiate themselves again to win business. It will take some time, but I expect it will start to happen early in the next decade, as by then I expect the legacy carriers will be largely profitable again. We will never go back to the days when air travel was seen as a luxury, but we will move away from the idea that its just like getting on a bus to an extent, because it will become more expensive to travel.

* The two business models we see now (legacy and low-fare) will broadly continue, although increasingly the legacy back cabin has become hard to differentiate from the so-called low-fare offer. As the playing field equalises, and more passengers get savvy to the fact that low-fare isn’t always cheapest, I expect a slow rebound to legacy and eventually even a limited step up in service again. The low-fare model will gradually migrate to be something more like JetBlue than Ryanair. I don’t think another major in the US will go bust even though one or two may file for Ch.11. One or two European carriers are obviously still vulnerable, but desipte EU rules national pride will not allow the larger carriers to disappear.

* New-market airlines like Emirates will continue to grow (look out for the Indian carriers’ to expand too) primarily because they are built on a low cost structure and because they have less constraints (financial, environmental and political) on their growth. But this will not result in the demise of traditional carriers, as the Emirates of this world have primarily created new markets (new destinations, plus increased O&D options resulting from their new hubs). Having said that, I think airlines like Emirates will have to slow down, because they will come under increased price pressure from regional competition (in Emirates case, from Qatar and Etihad).

* Ultra large airplanes such as the A380 will find a place on major long-haul routes, although their markets will be limited – A380 will sell well but slowly, like the 747 before it. Such aircraft will have a place transporting the masses from continent to continent, and in moving people on very long haul routes where comfort is a factor AND where alternative aircraft will not offer a much more efficient service. Something that is taking off slowly, but in which I think that there will be significant growth, is the small-aircraft, premium-service, long-haul market – scheduled services like LH and LX are already offering in conjunction with Privatair on A319″CJ”s and 737″BBJ”s to the US, and which Air France is doing with its Dedicate A319s into Africa. This will be the way in which the corporate traveller who will pay a premium for point-to-point travel will fly, and it will also allow some airlines to push marginal and loss-making back-cabin traffic on regional point-to-point routes to major hubs (i.e. go direct, pay more – go via a hub, go on an A380/747 and pay less).

* Capacity will also start to constrain growth. The increase in point-to-point traffic (whether a hub-busting domestic operated by an RJ or increased O&D options across the Atlantic on a 787) will ultimately be restricted as even regional airports start to become congested. The days of building new mega-airports to accommodate growth are over – take for example the difficulties being encountered not only in Europe, but also in places like SAN in the US. RJ sales will continue to be boyant for some time, but they’ll get bigger – the market has already moved from Metros to Beech 1900s/JetStreams to Saabs to RJs, and the RJs are getting bigger (CRJ700/900 and EMB170/190). Initially smaller RJs will be moved into more point-to-point markets, but eventually capacity at airports and within the ATC system will contrict growth and the sale of new RJs will start to drop off. A lot of top-deck freight will utlimately move to its own dedicated airports to provide limited capacity growth to passenger traffic, although this will cause logistical problems when transfers are required between top-deck and belly hold on pax services.

* Environmental issues will ultimately also constrain the growth in air travel. The environmental impact of air travel is already starting to be raised in Europe, and I expect it to become more of an issue as time passes. The US may bury its head in the sand on this for now, but ultimately environment will have impact on the amount of travel that takes place (inhibited by environmental taxation/restrictions) unless the industry can really address the issue by designing MUCH more emssions friendly airplanes – and then airlines will be forced to use them eventually, much as the industry was forced to move away from noisy aircraft.

* Oil will also have an impact on travel. The days of cheap oil are over for good, and sooner or later this will feed back into the cost of travel more so than it has done to date – even Southwest can only hedge its fuel for so long! Once the hedging is over, air fare prices will rise across the board, even at the low-fare carriers and this will gradually start to constrain their growth.

Andy

more and more airlines realise that lower fares are probably more important now than in the past – just look at how Easyjet / Ryanair to name 2 have expanded over the last 5 years. Also there is a trend in the more traditional airlines to go with a low cost option – BMI and Aer Lingus for example.

Point to point over short haul is going to increase as more people wish to travel from a local airport to major holiday destinations such as Spain etc.

The hub / spoke system operated by the major US carriers works well in that it allows people from many different starting points to collect and be redistributed efficiently to different destinations that would possibly not support point to point services. This also allows better use of limited airspace and airport capacity. Can you imagine how busy the USA would become if point to point was the norm. The only major problem with the hub system is that if there is a problem it does affect a lot of flight / people.

Europe has ‘hubs’ but these tend to be the capital cities with secondary cities having their own route networks without the need to change planes at the ‘hub’. Flights to the USA can go from 4 uk cities other than London.

As for the A380 / 747 there is still a reuirement for the high capacity / long haul routes (or short haul in the case of Japan) + there is no direct replacement for the 747 other than the 787 which as yet still a ‘paper aicraft’

OK, how could I NOT burst in here??… :dev2:

Well it is my opinion that as far as commercial travel is concerned point-point is here to stay..i mean do we really want to travel to a major hub and then load up on a chitaqua type setup to flyoff to yur home destination or would u rather just fly point to point on a 787,a350,777 type aircraft directly to an airport close by..The chances of that happening are much more likely then that of a a380 or 747adv flying to many hubs throughout the world..

There will always be an element of hubbing and spoking, it is derived from the fact that many airports will not be able to sustain and support individual routes. This will be most prominent in Long Haul operations, thus creating a role for the A380 on certain major hub to hub routes, such as Singapore to London. If you think that the 767/787/777 are all good examples of point to point aircraft then I think I would recommend you check out the long haul aircraft of choice for the US carriers. These airlines use these good examples of point to point aircraft to feed into the world’s largest hub airports…logic?? So Delta has a few 777s, but mainly uses 767-300s for long haul routes, and this is from the worlds number 1 hub airport! What these aircraft allow is a higher frequency (see also United 767s/777s from Chicago/Washington to Europe incl LHR, American 777s/767s from Chicago, Dallas/Fort Worth and Miami, Continental 767s/777s from Houston and Newark). What you may be seeing though is the linking of NEW regional destinations to hubs over the long haul network using smaller capacity aircraft, that is the difference. So instead of travelling via two hubs it will be possible to travel via one hub. Or instead of travelling by car to a major airport you can now travel to your regional airport then hub through a long haul hub.

You are right though to some extent, air transport has grown at a rapid rate, and will continue to do as. As such we will see a number of new routes become viable allowing passengers to by-pass hubs. But demand for long haul travel is far less than short haul and so there will always be an element of hubbing.

On the topic of the A380, here are two points to consider. With air transport growing at the rate it is then the A380 will have a role supporting point to point demand between sevarl city pairs. Furthermore the A380 will offer the capacity (and therefore seat-mile costs) to potentially attract long haul Low Cost operators into the marketplace, thereby creating a role for itself on point to point servcies which use low fares to stimulate the market, thereby creating the ability to connect two new points!

Where point to point will really grow is on short haul services, where the use of low fares can stimulate the market for ‘weekend breaks’ and spontaneous visits to family and friends. Again the rate of growth will allow far more point to point services.

The structure of hubs is also changing, airlines are ‘de-peaking’, offering lower costs and putting less pressure on their schedules and facilities. By reducing the peak of flights airlines (particularly in America where airlines tend to rent gate space) can cut costs, but this means that higher frequencies with lower capacity aircraft is more the order of the day than high capacity. So this transposes to more regiional jets and 787/A350s.

I want to clarify, I am NOT against the logic that there will be a major increase in point to point flying, I agree that there will be. BUT, I do want to stress that I think there will be a continuing role for hubs for a long time.

Well it is my opinion that as far as commercial travel is concerned point-point is here to stay..i mean do we really want to travel to a major hub and then load up on a chitaqua type setup to flyoff to yur home destination or would u rather just fly point to point on a 787,a350,777 type aircraft directly to an airport close by..The chances of that happening are much more likely then that of a a380 or 747adv flying to many hubs throughout the world..Air travel aint the same as when the 747 came out…there was a far less percentage of the population with the means to fly then as compared to now..Now air-travel has really arrived(and is arriving) for the masses in both developed and developing countries..a lot more people have the means to fly throughout the world (US,india,china etc etc ) and are looking to go places far and near..I believe that to cater to this large no. of populus that are willing to fly we need to bring the conveleince of flying long distances point-point closer to their HOMES and this is far better done with 787.777,a350,a340 type aircraft then with the super jumbos 380 and 747’s..

BTW in some other industry news…

Airbus clears air on India’s Boeing deal

http://news.xinhuanet.com/english/2005-06/21/content_3115708.htm

Airbus raises prices on planes about 3%

http://seattletimes.nwsource.com/html/businesstechnology/2002342516_airbus21.html

Meet the man who’s buying 100 Airbus A320s!

http://inhome.rediff.com/money/2005/jun/21spec1.htm

Airbus targets half of Indian market for planes

http://www.reuters.com/newsArticle.jhtml?storyID=8851685&type=businessNews

An excellent idea, bring_it_on. You can count on our support in this.

Troller/Flamers/Fanboys be warned…………..

Grey Area
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