The FAA now doesn’t expect domestic commercial air travel to return to pre-9/11 levels until 2006, and its earlier forecasts that U.S. airlines would be enplaning one billion passengers a year by 2010 have been pushed back to at least 2014. The FAA’s soothsayers also didn’t take into account the effects of the war in Iraq, further terrorist acts and corresponding security measures, as well as the possibility of further airline bankruptcies.
That the current outlook for a quick rebound by commercial aviation remains dismal was evidenced by the fact that the greatest growth is seen in the regional airline industry and the increased use of business aircraft. FAA Administrator Marion Blakey acknowledged that her agency’s annual aerospace forecast for 2003 reflects a “downward adjustment” from what was projected last year, calling it “discouraging.”
The good news is that the FAA plans to use the downturn to retool its Operational Evolution Plan (OEP), prompted at least in part because–at this time–airlines cannot afford the investments needed for some of the new technology. Also, both government and industry hope the pause in growth will provide time to build additional runways, so that the gridlock experienced in the summer of 2000 will not be repeated when passenger boardings return to previously predicted levels.
According to the FAA, what began as a strong recovery in demand for aviation services after 9/11 started to wane in the second half of fiscal year 2002. A sluggish economy, a plunge in equity prices, a raft of allegations of corporate accounting fraud and increased international tensions all took their toll. Weak traffic demand, coupled with the failure of full-fare business travelers to return in any significant numbers, forced carriers to resort to discounting to fill empty seats, with a devastating effect on both passenger yields and profits.
In releasing its 28th annual aerospace forecast for fiscal years 2003-2014, the FAA said the most encouraging news comes from the regional airlines, which are expected to grow at a faster rate over the forecast’s 12-year period than the larger domestic airlines.
Regional airlines are anticipated to grow at 5.6 percent annually versus the larger airlines’ 3.5-percent annual growth. This stronger growth is forecast because of additional passengers obtained through arrangements with larger code-sharing partners, as well as with the creation of more nontraditional point-to-point routes employing regional jets.
The FAA noted that the general aviation industry’s seven-year run of increased shipments and billings also came to an end in 2002, with the decline in GA shipments directly attributed to a weak economy. Increased numbers of pre-owned business jets for sale and stepped-up scrutiny by corporate management of expenses also cut into shipments and billings, the FAA forecasters said.
They predicted low to moderate increases for general aviation over the forecast period, with the active GA fleet increasing by an annual average rate of 0.7 percent and hours flown increasing by 1.5 percent annually. And most of this growth is expected to occur in business and corporate flying.
“The current forecast assumes that business use of general aviation aircraft will expand at a more rapid pace than that for personal/sport use,” the forecast says. “The business/corporate side of general aviation should continue to benefit from the security restrictions imposed on flying by commercial aircraft. Safety concerns for corporate staff, combined with increased check-in and security clearance times at many U.S. airports, have made fractional and corporate aircraft ownership, as well as on-demand charter flights, viable alternatives to travel on commercial flights.”
While the active GA fleet is projected to grow from an estimated 211,040 in 2002 to 229,490 aircraft in 2014, most of this growth will be driven by the more expensive and sophisticated turbine-powered fleet (including rotorcraft). This jet fleet is projected to increase at an annual average rate of 3.6 percent over the 12-year forecast period, from 8,000 in 2002 to 12,300 in 2014.
The FAA emphasized that its forecasts do not include entry of the new Eclipse and similar types of relatively inexpensive, twin-engine business aircraft into the fleet because none has yet been certified. But the agency admitted that such aircraft “have the potential to redefine the business jet segment” by expanding business jet flying and offering performance that “may support” true air-taxi business service. It cited a September 2002 Transportation Research Board/FAA workshop in which the business aviation panel suggested that the market for Eclipse 500-type aircraft could add an additional 5,000 aircraft to the active fleet by 2010.
A caveat in the preface of the annual forecast notes that “it is important to recognize that forecasting is not an exact science, with accuracy largely dependent on underlying economic and political assumptions.” This year’s may be more akin to reading tea leaves.
The severity of what has been officially announced as the 10th recession since the end of World War II was not known until early 2002, after the FAA’s 27th annual forecast had been prepared. Instead of a one quarter decline (down 1.1 percent in the third quarter of calendar year 2001) as initially estimated, the economy actually declined for three consecutive quarters, starting with the first quarter of calendar year 2001. “Not coincidentally, the downturn in U.S. domestic passenger and cargo demand also began during this same quarter,” the FAA forecasters said.
Calling 2002 “basically a year of monotonic movement” that “I think many wish hadn’t occurred,” John Rodgers, FAA director of policy and plans, said nearly everything was down. “Traffic fell for the second consecutive year, domestic revenue passenger miles were down almost 7 percent and international was down 13 percent. The one exception was regional airline RPMs, which rose 20 percent during the year,” he said. “Even cargo, which has had relatively strong growth, was down last year.”
The FAA forecast asserts that the effect of September 11 on regional airlines was generally more positive than negative, largely because the major carriers transferred a large number of routes to their regional partners. This allowed the larger carriers to cut capacity while still maintaining presence in these markets. Regional airline growth in 2002 was also inflated by the recovery from the lengthy 98-day strike that shut down operations at Comair in 2001.
Regional airline available seat miles (ASM) were up 16.6 percent in 2002, up 17.7 percent in domestic markets but down 9.5 percent in international markets. Route transfers from the larger domestic partners were often in longer-distance, nontraditional markets that could be flown more efficiently by RJs. As a result, the average flight stage and passenger trip length increased 31.7 and 37.1 percent, respectively, in 2002. The number of regional airline departures, by contrast, declined 2.5 percent in 2002.
Regional airline traffic also continued to grow in 2002, with system RPMs up 23.1 percent in domestic markets but down 6.9 percent in international markets. Regional airlines also achieved an all-time high load factor of 61.3 percent in 2002, up 2.6 percentage points from 2001.
Regional airlines enplaned 90.7 million passengers in FY 2002, an increase of 8.5 percent over 2001. Domestic passengers totaled 88 million (up 9.4 percent) while international passengers totaled 2.7 million (down 13.7 percent). The large disparity in growth relative to passenger miles is due to the large increase in stage and passenger trip length, the FAA said.
The FAA noted that its forecasts for general aviation are based on a set of economic assumptions that includes a strong recovery starting during the second half of this year and continuing through 2005, with moderate sustained growth thereafter. GA activity is expected to continue to experience slight declines this year, then return to more normal growth patterns beginning next year as the U.S. economy reaches the peak of its recovery.
The forecast also assumes that the regulatory environment affecting general aviation will not change dramatically, the FAA said, although certain segments of the industry may continue to be affected by the “no-fly zones” around New York City and Washington, D.C.
“Specifically, it is assumed that noise and emissions requirements on business turbine aircraft will remain within the bounds prescribed by current rules and regulations,” the FAA said. “The forecast also assumes that general aviation activity will not be subject to new user fees or limited access to airports and airspace.”