Multi-Airport Systems in Era of Low-Cost Carriers

1. Multi-Airport Systems in Era of Low-Cost Carriers • Dr. Richard de Neufville Professor of Engineering Systems and of Civil and Environmental Engineering Massachusetts Institute of Technology Airport Systems Planning RdN

2. Theme • “Low cost” airlines are developing a “parallel network” of travel • “network choice” (rather than “airport choice”) may determine traffic in multi-airport systems • Competition between “low cost” and “legacy” airlines leading to struggle between “low cost” and “legacy” hubs • Boston/Logan vs. Boston/Providence, etc., etc. Airport Systems Planning RdN

3. What is a Multi-Airport System? • the significant airports serving transport in a metropolitan region, without regard to ownership or political control • Ex: Boston, Providence, Manchester • Discussion • This is reality for travellers • Contrasts with ACI focus on ownership Airport Systems Planning RdN

4. Planning Issue • Many ‘mistakes’ in planning multi-airport systems • Washington/Dulles – planned as major DC airport, but had only ~ 3 MAP for 20 years • London/Stansted – similar story – only developed with Ryanair hub around 2002 • Osaka/Kansai – Osaka/Itami did not close • Montreal/Mirabel – huge airfield, now “closed” to passenger traffic • Et cetera… Airport Systems Planning RdN

5. Why mistakes happened • Failure to appreciate traffic concentration at primary airports • … Because planners/forecasters using wrong mental model Airport Systems Planning RdN

6. MarketShare Frequency Share What drives traffic allocation in Multi-Airport System? • Airline competition has been primary • S-shaped market share/frequency share • Drives airlines to • Match flights => Allocate flights to major markets • Concentrate Traffic at primary airports Airport Systems Planning RdN

7. Right model: “Concentration” not “Catchment Areas” • Concentration is standard urban phenomenon • e.g.: financial, jewelry, etc. districts • Driven by what suppliers offer • Customers choose which location (airport) depending on where they find what they need -- not just most convenient facility Airport Systems Planning RdN

8. “Concentration” persists --until high level of local traffic • When local originating traffic high… • More flights add little at major airports • Airlines place flights at second airports • There appears to be a ‘threshold”… • Currently ~ 13 million originations/year • Note: higher as “average” aircraft larger Airport Systems Planning RdN

9. Metropolitan areas with significant multi-airport systems de Neufville data base for 2004 Airport Systems Planning RdN

10. Metropolitan areas with significant multi-airport systems de Neufville data base for 2004 Airport Systems Planning RdN

11. Major exceptions to rule: technical or political • Until recently, major exceptions to concentration rule were: • Technical -- runways too short • Belfast, Belo Horizonte, Buenos Aires, Rio de Janeiro, Taipei • Political -- or military... • Berlin, Dusseldorf/Bonn, Glasgow, Moscow Airport Systems Planning RdN

12. New Reality: No-frill airlinessetting up “parallel network” • Low-cost carriers “parallel” majors • Major fare distinctions • Ticket distribution separate • Internet direct to users, ‘no’ travel agents • Parallel service between cities • Providence/Baltimore not Boston/Washington • ‘No’ interlining of bags, tickets • ‘Not’ in Reservation systems Airport Systems Planning RdN

13. New Reality: No-frills choose different airports • Southwest, Westjet (Canada), Ryanair and Easyjet (UK) require: • Cheap properties, no Taj Mahals (compare San Francisco/International and Oakland; London/Gatwick and Luton) • Low congestion and delays • Flexible work force • They find this at aggressive, ‘hungry’ airports -- not in major facilities Airport Systems Planning RdN

14. New Reality: US/Canada Network of Low-Cost Carrier Airports Airport Systems Planning RdN

15. New Reality: Europe Network of Low-Cost Carrier Airports Airport Systems Planning RdN

16. Multi-Airport Systemsin Brazil Airport Systems Planning RdN

17. Importance of Parallel Networkof close-in Brazilian airports Airport Systems Planning RdN

18. Implications for modelling future of second airports • A new driver for second airports... • Low-cost carriers often ‘not’ competing at big airports • Frequency competition does not drive growth pattern of secondary airports • Competition between networks may be primary… • … followed by catchment area model of airport choice Airport Systems Planning RdN

19. Implications for future of second airports • No-frills airlines are becoming ‘major’ • Southwest 2nd largest airline in world (pax) • Market Cap ~ 12 billion $ > any other pax airline • Ryanair Market Cap greater than British Airways • Majors are shrinking (UAL, USAir, etc.) • Implies that Primary airports will lose significant traffic to second airports • This is already happening!!! Airport Systems Planning RdN

20. Southwest entry in Boston market grew second airports Source: Louis Berger, New England Regional Aviation System Plan materials Airport Systems Planning RdN

21. Market Share of Boston/Logan is in decline The 2004 Share is about 57% (SH&E, ’05) Source: Louis Berger New England Regional Aviation System Plan Airport Systems Planning RdN

22. Summary • A new, parallel air transport network is emerging to compete with majors • This low-cost carrier network may become a major feature of industry • It implies growth and importance of low-cost second airports throughout North America, Europe -- and perhaps elsewhere Airport Systems Planning RdN

23. Supplemental Comment • Meanwhile, a similar development is taking place in air cargo • Fedex and UPS are developing their own networks of cargo airports • Fedex: Memphis, Manila/Subic Bay, San Francisco/Oakland, etc. • UPS: Louisville, Los Angeles/Ontario. Chicago/Rockford, etc. Airport Systems Planning RdN