Transcript Effects of Deregulation on Airports
Effects of Deregulation on Airports
Dr. Richard de Neufville
Professor of Engineering Systems and Civil and Environmental Engineering Massachusetts Institute of Technology Airport Systems Planning & Design / RdN
Effects of Deregulation on Airports
Objective: To explore implications of airline deregulation on airports operations and management
Topics
Hub-and-Spoke Operations
Instability of Traffic
Short Term Horizons
Conclusions
Airport Systems Planning & Design / RdN
Essence of Economic Deregulation
Consumer Orientation
to define objectives
New Decision-Makers
companies not governments
Faster changes
more risk Airport Systems Planning & Design / RdN
Consumer Orientation
When governments cannot determine profit levels (by fare levels, route protection) Consumer desires will define criteria for efficiency Main consumer desires:
Business Market
–
Speed: time saved = money
– –
Comfort: third party pays Frequency: schedule flexibility
Consumer Market
– – –
Cheap fares Speed and access secondary Package deals
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Hub - and - Spoke Operations I
One way to satisfy consumer desires
Description
Drop direct flights between secondary points
Substitute flights via hubs central to market, system
• •
Higher fuels costs Passengers change at hubs (maybe not to same airline - examples: Continental - SAS at New York/Newark; KLM - NW at Amsterdam)
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Hub - and - Spoke Operations I (cont.)
Description (cont.)
Concentrate traffic to hubs
• • •
More frequency on routes Larger aircraft -- lower cost per seat-km.
Higher load factor - lower breakeven per flight
•
Economies in crew basing, inventories
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Waves or Banks
Average Arrivals, DFW, June 2000
60 50 40 30 20 10 0 0:00 1:30 3:00 4:30 6:00 7:30 9:00 10:30 12:00 13:30 15:00 16:30 18:00 19:30 21:00 22:30
15 minute intervals
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Hub - and - Spoke Operations II
Net Effects:
Lower Overall Costs, Fares for network
More Frequency
Lower average speed (maybe not more time when schedule delay included)
Hub - and - Spoke operations
Cost-Effective
Pattern in US, Increasing in Europe, Somewhat in Asia
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Point to Point Service
Direct Flights, Thin Routes
Low Frequency
Low Load Factor
Smaller Aircraft
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Hub and Spoke Service
Indirect, Heavy Routes via Hub Central to Market
High Frequency
Higher Load Factor
Larger Aircraft H
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Hub - and - Spoke Operations III: Descriptions
US Transcontinental
Traffic from one coast (San Francisco, Los Angeles…)
Sent to a Midcontinental Airport (Chicago, Denver, Dallas/Ft. Worth…)
Distributed to Destinations (Boston, Philadelphia…)
Intercontinental
Traffic from Europe
Goes to Distribution hubs (Bangkok, Singapore…)
Distributed to - Australia, Japan, Hong Kong
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Hub - and - Spoke Operations IV
Criteria for a good Hub
Centrality to Market
High Capacity
Reliability for Schedules --uncongested, good weather
Control by Airline -- to maintain schedules
Airports with 3/4 traffic with one airline
Minneapolis -- Northwest/KLM
Houston/Bush -- Continental
Dallas/Fort Worth -- American Atlanta, “Cincinnati” -- Delta
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Major US East-West Hubs
An Airline dominates at each major US East-West Hub Hubbing Airline may have up to 80% of the traffic at hub airport United NW United NW Delta US Airways American Delta Continental
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East Coast North-South Hubs
Specific markets have their own Hubs
Along US East Coast, most serve US
Miami serves US-Latin America and is central to its market Cincinnati (Delta) Atlanta (Delta) Philadephia (US Air) Dulles (United) Charlotte (US Air) Miami (American)
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Major European Hubs
British Airways SAS/Continental KLM/Northwest Lufthansa/United Swissair Alitalia Iberia
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Major East Asian Hubs
UAL NW Guangdong Hong Kong FDX Bangkok Kuala Lumpur Singapore
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Hub - and - Spoke Cargo Operations
UPS in United States
• •
Louisville (1 billion items/day) Regional Hub – Cologne, Germany - Rockford, IL - Ontario, CA - Columbia SC - Dallas, TX
Fedex Memphis
•
Guangdong Paris
Emery Dayton
TNT Liege (Belgium)
DHL Cincinnati East Midlands (UK)
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Major US Cargo Hubs
UPS UPS UPS Fedex UPS DHL UPS Fedex
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Instability of Traffic I
Deregulation removes barriers to change
immediate readjustments
frequent bumps
Automobile Analogy
Regulation like shock absorbers
Taking shock absorbers out
•
adjustment to new level
•
you feel every bump
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Instability of Traffic II Examples
“Southwest effect”
Providence 1 to 5 million in a few years
Liverpool -- similar effect with easyjet
Memphis
Fedex creates it (Likewise UPS and Louisville)
Boston -- Northwest
Many ‘definitive’ choices
Hub operations appear, disappear
New York/Newark -- Peoples Express
Raleigh-Durham -- American
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Short Term Horizons
Because of Uncertainties Airlines less ready to make long term commitments only good for short term leases
Incompatibility with long term capital investments
Therefore, need for
smaller building additions
more flexible space
more operational solutions
more aggressive management!!!
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Summary
Deregulation had and does mean:
Significant reorganizations
Strategic planning required
Greater risks than ever
...and less security!!!
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Airport Systems Planning & Design / RdN
Waves or Banks (2)
Average Departures, DFW, June 2000
70 60 50 40 30 20 10 0 0:00 1:30 3:00 4:30 6:00 7:30 9:00 10:30 12:00 13:30 15:00 16:30 18:00 19:30 21:00 22:30
15 minute intervals
Airport Systems Planning & Design / RdN
Competition Among Airports
Airports now compete as
Hubs -- many alternatives
•
Amsterdam vs. Frankfurt
• •
Bangkok vs. Singapore US midcontinentals
Destinations - for tourist packages
Relatively new phenomenon due to:
development of hubs, importance of consumer travel
How could this affect your region?
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