AIRPORT FORECASTING IN UNCERTAIN TIMES

1. AIRPORT FORECASTINGIN UNCERTAIN TIMES Presented By: Christina Cassotis Vice President, SH&E, Inc. 30th Annual FAA Aviation Forecast Conference Washington D.C., March 18, 2005

2. Aviation Forecasts Are Necessary for Planning but Challenges Are Part of the Work Purpose: • To Assess Future Infrastructure Requirements andthe Relative Timing of Capital Investments Problem: • Forecasts are Never Precise • Too Many Assumptions, Too Many Unknowns Solution: • Incorporate Uncertainty into Forecasting andthe Planning Processes

3. Forecast Scope Depends on the Application

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 Market Segments • 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

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. But, Unpredictable External Events Can Disrupt a Stable Growth Pattern U.S. Airline Revenue Enplanements 700M 600M 500M 400M 300M 200M 100M 1970 1975 1980 1985 1990 1995 2001

8. 9/11 and the 2001 Economic Recession Had A Pronounced Impact on US Demand U.S. Airline Revenue Enplanements Trendline 14% Below Expected 9/11 & Economic Recession Source: Air Transport Association

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

10. The LCC Phenomenonis a Global Trend

11. Low-Fare Airlines Now Represent Nearly 30% of the U.S. Market U.S. Low-Fare Carrier Share of Total U.S. Nonstop Seats Source: OAG Schedule Tapes and Innovata

12. Canada Has Experienced Rapid LCC Growth Low Cost Carrier Share of Nonstop Intra-Canada Seats Source: OAG Schedule Tapes only, does not include charter activity

13. LCCs are Also Gaining a Foothold in Europe Low Cost Carrier Share of Nonstop Intra-Europe Seats Note: Excludes charter seats which carry half of intra-Europe demand Source: OAG Schedule Tapes

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

16. 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

17. In Addition, China and Japan Are Exploring LCC Competition • Considering the entry of LCCs to serve domestic market • Numerous underutilized regional airports • Launching Air Next in 2005 • Will serve southern Japan Island markets

18. Airports Served by LCCs Experience Dramatic Traffic Growth But Surrounding Airports May See Slower Growth or Traffic Declines

19. Avoided Boston LoganAirport due to Congestion Entered Providence,October 1996 Entered Manchester,June 1998 Greater BostonAirport System Primary CommercialService Airport Secondary Airport Manchester Boston Logan Providence LCCs Can Alter Airport Usage Patterns in aMulti-Airport Region – The Boston Example Southwest Serves the Boston Market Through Secondary Airports

20. The Secondary Airports Experienced Phenomenal Growth after Southwest Airlines’ Entry Average Annual Passenger Growth Source: Airport Records and US DOT, Form 41 schedules.

21. With LCC Service, The Secondary Airports Attracted Most of the Region’s Passenger Growth 1995-2000 1990-1995 Providence & Manchester 14% (+0.2M) Logan 37% (+3.2M) Logan 86% (+1.3M) Providence & Manchester 63% (+5.5M) +1.5 MillionPassengers +7.5 MillionPassengers Source: Airport Records and US DOT, Form 41 schedules.

22. LCC Growth is Expected to Continue as They Account for an Increasing Share of Aircraft Orders Distribution of US Airline Aircraft Orders Source: 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 Daily U.S. Domestic Departures with RJs1990 – 2005 Note: August 1990 – August 2004 and March 2005 Source: OAG Schedule Tapes and Innovata

25. Boeing Predicts that RJ’s Will Account for 17% of the Worldwide Fleet in 2023 2023 2003 16,200 Aircraft 34,800 Aircraft Source: Boeing, Current Market Outlook, 2004.

26. 1,500 1,000 500 2,500 2,000 Over 75% of New RJs Will be Deployed in North America and Europe RJ Deliveries by World Region, 2004-2023 Source: Boeing, Current Market Outlook, 2004.

27. At the Airport Level, An Influx of RJs can Affect Capacity and Facility Needs Old Assumption: • Average Aircraft Size Will Increase to AccommodateGrowing Passenger Demand • Average Aircraft Size Has Been Declining • Requiring More Aircraft Operations to Accommodatethe Same Number of Expected Passengers New Reality:

28. In Recent Years, There Has Been a Steep Decline in Average Aircraft Size Average Seats per Departure Due Largely to the Influx of RJs andEmphasis on Service Frequency Note: System Operations for Large and Regional CarriersSource: FAA Aerospace Forecasts, March 2004

29. The Realities of Forecasting

30. The Factors that Explain Historic Growth Can Be Easily Quantified Passenger Enplanements – Major US Airport R2 = 99%

31. A Good Historic Fit Does Not Guarantee an Accurate Forecast Passenger Enplanements – Major US Airport Forecast Historic Fit

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

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

35. Develop High and Low Projections That Bracket the Most Likely Forecast Historic and Forecast Passenger EnplanementsMajor US Airport Sources: SH&E Analysis

36. 700,000 650,000 600,000 550,000 500,000 450,000 Focus on Threshold Levels and Not Forecast Years Threshold Levels Drive Infrastructure Needs Boston Logan Airport Planning Forecasts Annual Operations Historic Forecast 656K 608K 585K 552K 543K 529K 510K 507K 493K 479K 23.6M 26.5M 27.4M Low RJ High Low RJ High High 1993 1998 2000 29M 37.5M 45M Years Passenger Traffic Thresholds

37. 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