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Biography for William Swan

Biography for William Swan.

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Biography for William Swan

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  1. Biography for William Swan Retired Chief Economist for Boeing Commercial Aircraft 1996-2005 Previous to Boeing, worked at American Airlines in Operations Research and Strategic Planning and United Airlines in Research and Development. Areas of work included Yield Management, Fleet Planning, Aircraft Routing, and Crew Scheduling. Also worked for Hull Trading, a major market maker in stock index options, and on the staff at MIT’s Flight Transportation Lab. Education: Master’s, Engineer’s Degree, and Ph. D. at MIT. Bachelor of Science in Aeronautical Engineering at Princeton. Likes dogs and dark beer. (bill.swan@cyberswans.com) • Scott Adams

  2. Airline Route DevelopmentsThe Unexpected Bill Swan, Chief Economist, Boeing Marketing

  3. Airline Route Networks Change Over TimeOutline of Discussion • I. The History of Route Developments • Similar patterns from all regions of the world • II. Why Do These Patterns Dominate? • Several reasons, which is most important? • III. Implications for Airline Strategies • Historical trends could change • The burden of proof lies on explaining why

  4. I.Growth is Served by More Airplanes, Not Bigger Jet Schedules Show Decreasing Seat Counts Data from August schedules

  5. Average Capacities Are Static Or DownGrowth is similar for all regions

  6. Forecasters in 1983 Had a Really Hard Time

  7. Forecasters in 1990 Were Still Confused

  8. What We Missed: New Routes

  9. Air Travel Growth Has Been Met By Increased Frequencies and Non-Stops

  10. Seat Count is -4% of World ASK Growth Smaller Airplanes - 4% Longer Ranges 13% New Markets 41% Added Frequency 50%

  11. Growth Patterns the Same at Closer DetailSimilar patterns all over the world

  12. Big Routes Do Not Mean Big Airplanes All Airport Pairs under 5000km and over 1000 seats/day

  13. Size in 1990 Not a Forecast for Size in 2000

  14. Small Airplanes Not on New Routes

  15. Big Airports Do Not Mean Big Airplanes Top 12 Markets in 12 World Regions

  16. Fast Growth Does not Mean Big Airplanes

  17. II.Why Does Growth Add Frequency?Many expect more demand to lead to bigger airplanes • Deregulation causes one-time move to smaller airplanes. • Competition drives airlines to more routes and frequencies. • Economic savings of larger airplanes diminish with size • For new airplanes of similar missions. • Cost savings come from avoiding intermediate stops. • Connecting passengers pay a time and cost penalty. • Natural network development. • Route networks move from skeletal to highly-connected. • Travelers’ priorities change as economies get richer. • Higher value for timely services, less emphasis on lowest cost.

  18. d. Networks Develop from Skeletal to ConnectedHigh growth does not persist at initial gateway hubs • Early developments build loads to use larger airplanes: • Larger airplanes at this state means middle-sized • Result is a thin network – few links • A focus on a few major hubs or gateways • In Operations Research terms, a “minimum spanning tree” • Later developments bypass initial hubs: • Bypass saves the costs of connections • Bypass establishes secondary hubs • New competing carriers bypass hubs dominated by incumbents • Large markets peak early, then fade in importance • Third stage may be non-hubbed low-cost carriers: • The largest flows can sustain service without connecting feed • High frequencies create good connections without hub plan

  19. Skeletal Networks Develop Links to Secondary Hubs Early Skeletal Network Later Development bypasses Early Hubs

  20. Consolidation Theory:A Story that Sounds Good • Large markets will need larger airplanes • Industry consolidation increases this trend • Alliances increase this trend • This trend is happening

  21. Fragmentation Theory • Large markets peak early • Bypass flying bleeds traffic off early markets • Some connecting travelers get nonstops • Others get competitive connections • Secondary airports divert local traffic • New airlines attack large traffic flows • Frequency competition continues

  22. Route Development Data:Measures What Really Happens • Compare top 100 markets from Aug 1993 • Top 100 by seat departures • Growth to Aug 2003 • Data from published jet schedules

  23. Largest Routes are Not Growingas bypass flying diverts traffic

  24. Large Long Routes are Not Growingas bypass flying diverts traffic

  25. Very Largest Long Routes are Not Growingas bypass flying diverts traffic

  26. JFK Gateway Hub Stagnant for 30 Years

  27. JFK Gateway Hub Airplane Size Is Declining

  28. Competition Rising in Long-Haul Flows

  29. Networks Develop Beyond Early Airports • Decline of Long-Haul Gateway Hubs 1990-2000:

  30. Congestion Has Not Slowed Route DevelopmentsCongestion is not driving seats per departure up Seat Counts at Top 5 Airports Show Little Congestion

  31. Congestion: Solutions From HistoryCongestion has been a cost, not a constraint • Solutions favored by airports: • Redefining measurement of capacity movements • Technical improvements to raise capacity • Added runways • Building replacement airport • Solutions provided by the airline market: • Using un-congested times of day • By-passing congested gateways with new nonstop markets • Building frequencies and connections at secondary hubs • Using secondary airports at congested cities • Solutions beginning to be used: • Reducing smaller, propeller aircraft movements • Moving small, short-haul jet movements to larger aircraft

  32. Congestion Affects Short & Small Flights

  33. Chicago Airplane Sizes Do Not Show Congestion

  34. Congestion is Not Driving 747 Shares UP

  35. Implications of History for AirlinesRoute strategy should respect history • Plan for growth: • 70%-100% of it in added frequencies • Plan for flexibility: • Long-term commitments should not hang on one specific future • Plan to have more routes: • Growth will include new nonstop markets • Plan to have more frequencies: • Growth will include more flights at more times of day • Plan to face competition: • Competitors will by-pass your hub • Plan to discuss history: • Leaders may imagine growth patterns different from history

  36. Hubs: The Whys and Wherefores • Just over half of trips are connecting • Thousands of small connecting markets • Early hubs are Gateways • Later hubs bypass Gateways • One third of bypass loads are local—saving the connection • One third of bypass loads have saved one connect of two • One third of bypass loads are merely connecting over a new, competitive hub • Growth is stimulated by service improvements • Bypass markets grow faster than average

  37. Half of Travel is in Connecting Markets

  38. Half the Trips are Connecting

  39. Connecting Share of Loads Averages about 50%

  40. Long-Haul Flights are from Hubs, and carry mostly connecting traffic

  41. Hub Concepts • Hub city should be a major regional center • Connect-only hubs have not succeeded • Early hubs are centers of regional commerce • Early Gateway Hubs get Bypassed • Early International hubs form at coastlines • Interior hubs have regional cities on 2 sides • Later hubs duplicate and compete with early hubs • Many of the same cities served • Which medium cities become hubs is arbitrary • Often better-run airport or airline determines success • Also the hub that starts first stays ahead

  42. Three Kinds of Hubs • International hubs driven by long-haul • Gateway cities • Many European hubs: CDG, LHR, AMS, FRA • Some evolving interior hubs, such as Chicago • Typically one bank of connections per day • Regional hubs connecting smaller cities • Most US hubs, with at least 3 banks per day • Some European hubs, with 1 or 2 banks per day • High-Density hubs without banking • Continuous connections from continuous arrivals and departures • American Airlines at Chicago and Dallas • Southwest at many of its focus cities

  43. Regional and Gateway Hubs in US JFK ORD SFO DEN LAX ATL DFW MIA

  44. Secondary Hubs in US SEA MSP DTW PIT JFK SLC ORD SFO EWR DEN CVG STL LAX ATL PHX DFW IAH MIA

  45. Minot, N. D., USA, is served over one Hub

  46. Minot Feeds to Minneapolis Hub MOT MSP

  47. 18:00 Bank Gives Minot 38 DestinationsInbound BankOutbound Bank

  48. Minot Connects to the World

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