Aviation 2020-2025, Embraer Corporation, Sao Jose dos
Campos, Brazil, May 13-15 2009 The Future of Transportation: Driving Forces for the Airline Industry (2020-25) Jean-Paul Rodrigue Associate Professor Dept. of Global Studies & Geography Hofstra University New York, USA The Future of Mobility: The Views of a Transport Geographer Socioeconomic forces Aggregate demand. Preferences. Technological forces Performance. Input costs. Regulatory forces Competition. Operations. Infrastructures Passengers Freight Information An Accessible World With Limited Expected Changes Source: Nelson (2008) ECONOMIC AND BUSINESS CYCLES Long term trends linked with paradigms shifts and incremental changes. How the current phase of mal-investment could unfold. Cumulative Modal Contribution to Economic Opportunities Horses Maritime shipping Canal shipping Railways Roads Air Telecommunications 1750 1775 1800 1825 1850 1875 1900 1925 1950 1975 2000 2025 2050 E c o n o m i c
O p p o r t u n i t i e s
Industrial Revolution Mass Production Globalization Paradigm Shifts and Incremental Changes Revolutionary changes Completely new technology. Create new markets and growth opportunities. Often marks the obsolescence of an existing technology: Modal shift. Can paradigm shifts be predicted? Incremental changes Improvement of existing technology and operations. Leads to increases in productivity: More capacity. Lower costs. Better performance. Possible to extrapolate. Past Trends and Uncertain Future Cyclic character of transport innovations Innovations lead to a wave of development. A cycles starts with a revolution and evolves incrementally. Introduction: Private entrepreneurs and innovators. Growth: Fast adoption; Often involves a paradigm shift event. Maturity: Maximal spatial coverage. Government involvement (investment, regulations, etc.) Rationalization/obsolescence: Diminishing returns (Segment or system-wide). Possibility of nationalization. A mix of regulations (protect public interests) and deregulations (increase productivity). Technology Hype Cycle Visibility Inflated expectations Abandonment Delusion Introduction Productivity peak Learning curve Utility Hype Phase Realization Phase Growth of the US Transport System, 19 th 21 st
Century Canals Rail Roads Air Maglev 1836 1800 1850 1900 1950 2000 2050 0% 1% 2% 3% 4% 1891 1946 2001 t= 30 years t= 55 years t= 65 years t= 70 years 1825 1869 1913 1969 1836 1825 Paradigm shift Peak year Blowing Bubbles: From Technology to Commodities 0.0 50.0 100.0 150.0 200.0 250.0 300.0 350.0 400.0 450.0 500.0 Jan-98 Jan-99 Jan-00 Jan-01 Jan-02 Jan-03 Jan-04 Jan-05 Jan-06 Jan-07 Jan-08 Jan-09 NASDAQ (Jan 1998=100) TOL (Jan 2003=100) BDI (Jan 2006=100) Tech / Stock Bubble Housing Bubble Commodities / Trade Bubble FORECASTING: A LESSON IN HUMILITY AND FUTILITY Failure and potential misallocations. Linear thinking versus economic, social and technological forces. We have two classes of forecasters: Those who don't know . . . and those who don't know they don't know. John Kenneth Galbraith Flying Car Concept, 1951 Flying Car (Spinner) in Science Fiction (Blade Runner, 1982) World Air Travel and World Air Freight Carried, 1950- 2007; Are We at an Inflexion Point? 0 50 100 150 200 250 300 0 1000 2000 3000 4000 5000 6000 7000 8000 B i l l i o n s
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p a s s e n g e r s - k m Passengers Freight Monkey Curve Recession and regionalization PEAK OIL OR PEAK MOBILITY? Are energy issues an overstatement? Secular inflationary cycle in the price of energy and commodities Potential for demand destruction The Peak Oil Debate: A Normal Assumption World Annual Oil Production (1900-2007) and Peak Oil (2010) 0 5 10 15 20 25 30 1900 1910 1920 1930 1940 1950 1960 1970 1980 1990 2000 2010 2020 2030 2040 2050 2060 2070 2080 2090 2100 B i l l i o n s
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b a r r e l s 2010 Peak Actual West Texas Intermediate, Monthly Nominal Spot Oil Price (1970-2009) 0 20 40 60 80 100 120 140 J a n - 7 0 J a n - 7 1 J a n - 7 2 J a n - 7 3 J a n - 7 4 J a n - 7 5 J a n - 7 6 J a n - 7 7 J a n - 7 8 J a n - 7 9 J a n - 8 0 J a n - 8 1 J a n - 8 2 J a n - 8 3 J a n - 8 4 J a n - 8 5 J a n - 8 6 J a n - 8 7 J a n - 8 8 J a n - 8 9 J a n - 9 0 J a n - 9 1 J a n - 9 2 J a n - 9 3 J a n - 9 4 J a n - 9 5 J a n - 9 6 J a n - 9 7 J a n - 9 8 J a n - 9 9 J a n - 0 0 J a n - 0 1 J a n - 0 2 J a n - 0 3 J a n - 0 4 J a n - 0 5 J a n - 0 6 J a n - 0 7 J a n - 0 8 J a n - 0 9 First Oil Shock Second Oil Shock Third Oil Shock A B C 2 1 D Major Oil Price Fluctuations Price Change Event Price Change Time Frame Cause Nominal Price Change First Oil Shock October 1973 to March 1974 Yom Kippur War / OPEC oil embargo From $4.31 to $10.11 (+134.5%) Second Oil Shock April 1979 to July 1980 Iranian revolution (1978) / Iran- Iraq war (1980) From $15.85 to $39.50 (+149.2%) Oil counter shock (A) November 1985 to July 1986 OPEC oversupply / Lower demand From $30.81 to $11.57 (- 62.4%) First Gulf War (1) July 1990 to November 1990 Iraqi invasion of Kuwait From $18.63 to $32.30 (+73.4%) Asian Financial Crisis (B) January 1997 to August 1998 Debt defaults / Non-USD currency devaluations / Reduced demand From $25.17 to $14.08 (- 44.1%) "Asian Demand Contagion" (2) January 1999 to September 2000 Rising demand / OPEC output cutbacks From $11.28 to $33.88 (+200.3%) "September 11 Effect" (C) August 2001 to December 2001 Oversupply / American recession From $27.47 to $19.33 (- 29.6%) Third Oil Shock December 2003 to June 2008 Peak oil / Rising demand / Monetary debasement / Speculation From $32.15 to $133.95 (+316.6%) Financial Crisis of 2008 (D) July to December 2008 Collapse of asset bubbles / Demand destruction / Global recession From $133.95 to $41.02 (- 69.4%; Dec 2008) Air Transportation Has Some Room for Substitution Trend in Aircraft Fuel Efficiency (Fuel burned per Seat) 20 30 40 50 60 70 80 90 100 1955 1965 1975 1985 1995 2005 Year of Introduction %
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B a s e
( C o m e t
4 ) Strategies Used by Airlines to Save Fuel Dimension Strategy Fleet Retiring less fuel efficient aircrafts (e.g. DC-9, DC10, MD-80). Switching to more fuel efficient aircrafts (e.g. A330, A319). Operations Less engine idle at gates (electrical systems). Lower flying speed (-5%). More frequent plane and engine washing. On board Lighter seats. Removal of seat-pocket documents (e.g. magazines). Less water in bathrooms. Lighter service carts. Passengers Weight restrictions for luggage. Surcharges for first or second check-in luggage. Passengers weight surcharges (?) Principle of Demand Destruction Price Quantity P1 P P2 Q1 Q Q2 Annual Vehicle-Miles Traveled in the United States and Year-over-Year Changes, 1971-2009 1,000 1,500 2,000 2,500 3,000 -6.0% -4.0% -2.0% 0.0% 2.0% 4.0% 6.0% 8.0% J a n - 7 1 J a n - 7 2 J a n - 7 3 J a n - 7 4 J a n - 7 5 J a n - 7 6 J a n - 7 7 J a n - 7 8 J a n - 7 9 J a n - 8 0 J a n - 8 1 J a n - 8 2 J a n - 8 3 J a n - 8 4 J a n - 8 5 J a n - 8 6 J a n - 8 7 J a n - 8 8 J a n - 8 9 J a n - 9 0 J a n - 9 1 J a n - 9 2 J a n - 9 3 J a n - 9 4 J a n - 9 5 J a n - 9 6 J a n - 9 7 J a n - 9 8 J a n - 9 9 J a n - 0 0 J a n - 0 1 J a n - 0 2 J a n - 0 3 J a n - 0 4 J a n - 0 5 J a n - 0 6 J a n - 0 7 J a n - 0 8 J a n - 0 9 YOY Change in Vehicle-Miles Traveled Annual Vehicle-Distance Traveled (Billion Miles) Recession End of the motorization cycle Slow down of suburbanization Aging of the population Population 60+, 1950-2005, With Projections to 2050 NETWORK STRUCTURE Regionalism or globalism? Modal shift Thinking outside the aircraft Worlds Major Gateway Systems, 2006 World Cities, Hubs of Regionalization Characteristics of Major Air Travel Markets: Expected Changes United States Europe Pacific Asia Deregulation started in 1978 Deregulation started in 1997 Regulated markets with government ownership Low population density and dispersed urban centers High population density and concentrated urban centers Dispersion of urban centers but high regional concentrations Relatively open air spaces and airports Congested air spaces and airports Congested gateway airports underutilized regional airports Rail minor competitor; Car compete for short distances High speed rail is a direct competitor; Cars compete for short distances Less competition from other transportation modes (except Japan, Korea and Taiwan) Intense competition between carriers (No loyalty; pricing and frequent flyers) Emerging competition between carriers Competition between carriers in its infancy Limited income growth and limited leisure time Limited income growth and more leisure time Growing income levels Deregulation Favored Regionalization: Reemergence of more Point-to-Point Services Before Deregulation After Deregulation Hub Hub Travel Times before and after the Introduction of a High Speed Train Service (hours) 0 1 2 3 4 5 6 7 Firenze - Rome Hannover - Wurzburg Berlin - Hannover Paris - Bruxelles London - Paris Madrid - Seville Paris - Marseille Tokyo - Osaka Seoul - Busan Taipei - Kaohsiung After Before Low-Cost Carriers are a Wild Card On-board operations Optimum use of seating space. Minimal crew. Limited and paying cabin service. Aircraft operations Few (often one) types of aircraft used to minimize maintenance costs. Stair boarding instead of air bridges. Maximal usage of runway length (take-off thrust and braking on landing). Fast turn around to maximize aircraft use. No freight being carried. Service network Point-to-point services. Destinations commonly of less than two hours apart. Usage of secondary airports (lower gate rates). Booking Online booking to minimize transaction costs. No travel agent commissions. Thinking outside the aircraft: Air Travel as an Intermodal Transport Chain Terminal / Plane Interactions Airport / City Interactions Checking in Access to public transit systems (the location paradox) Security Access to surface freight systems Gate access Parking facilities Boarding Aeotropolis McNamara Terminal, Detroit Maglev Exiting Pudong Airport, Shanghai Aeotropolis Developments Dubai Seoul Denver Beijing Bangkok Detroit Memphis Ontario Shanghai Hong Kong Guangzhou Singapore Amsterdam Kuala Lumpur Belo Horizonte Dallas-Ft. Worth Rudimentary (3) Planned (3) In development (8) Existing (2) Diffusion of a Pandemic Through a Global Transportation Network A - Emergence B - Translocation C - Diffusion D - Pandemic