Biography for William Swan

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Biography for William Swan
Chief Economist, Seabury-Airline Planning Group.
Visiting Professor, Cranfield University. 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 MITs Flight Transportation Lab.
Education Masters, Engineers Degree, and Ph.
D. at MIT. Bachelor of Science in Aeronautical
Engineering at Princeton. Likes dogs and dark
beer. (bill.swan_at_cyberswans.com)

• Scott Adams

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5 Surprises One Wish

• Consolidation is a myth
• Airlines a Birth-and-Death process
• Hubs are here to stay
• Heaven or Hell? connect in FRA first
• Bigger is not better
• No trend, no reason driving to bigger planes
• Smaller is better
• Quieter and maybe Cheaper
• Fares declining gracefully
• Yields plunge, Fares decline
• Trust the trends
• But make a Forecast

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Consolidation is a myth

• Venerable Heritage Carriers Dying
• 40 of 1981 airlines gone in 2001
• Vital Start-up Carriers Rising
• 30 of current ASKs on new airlines
• Lots of new Routes
• 40 of growth is added airport pairs
• Diverted Travel off Old Routes
• Secondary hubs bypassing Gateway hubs

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Increasing Regional Competition
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What Does Equivalent Competitors Mean?

• Scheduled Jet Schedules 1971-2003
• Airline share of Regional ASK (Available Seat Km)
• Herfindahl number of competitors
• Competition is number of equal-sized airlines
• Re-expresses actual airlines shares into
  equivalent equal-sized airlines
• Herfindahl is a widely-accepted measurement
• H 1 / ?(Sa2) ? airlines a

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Rising Competition in Long-Haul Flows
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Airport-Pair Competition is Flat(Passengers
Perspective)
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Long-Haul Competition DeclinesBased on
Airport-Pairs
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Competition Comes withMany New Pairs
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Hubs are Here to Stay

• Half of air travel is connecting
• Long-haul often more than once
• Growth is higher is small markets
• Stimulated by direct and cheaper service
• Small markets pay premium fares
• Covering cost of connecting services
• Evolution of Networks
• Gateway hubs
• Regional hubs
• Rolling hubs?

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Half the Trips are Connecting
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Half of Travel is in Connecting Markets
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Fares Higher in Small Markets
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HCC Revenues are 1/3 Small MarketsLCC Revenues
are 10 Small Markets
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Atlantic Nonstop Premium is 75Markets Served
Nonstop vs. Connecting Markets
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Economics of Small Markets

• Half of world-wide loads are connecting
• Small cities have small markets
• Small Markets pay more
• Value is there
• Small cities have lower living costs
• Lower housing costs
• Higher air travel costs
• Air Travel connects small cities to trade

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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

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Long-Haul Flights are to HubsCarry mostly
Connecting Traffic
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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 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

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Bigger is not better

• Trend is no growth in airplane size
• Big markets do not mean big airplanes
• Markets with big airplanes do not stay big
• New markets do not use small airplanes
• Bigger airports do not use bigger airplanes

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Forecasters in 1990 Were Confused
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Seat Count is -4 of World ASK Growth
Smaller Airplanes - 4
Longer Ranges 13
New
Markets
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Added
Frequency
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Air Travel Growth Has Been Met By Increased
Frequencies and Non-Stops
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What We Missed New Routes
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Largest Routes are Not Growing as bypass flying
diverts traffic
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JFK Gateway Hub Stagnant for 30 Years
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Nonstop Premium is 20-50Nonstop vs. Connect in
Same US O-D Market
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Atlantic Premium is 75-125Fares Nonstop and
Connecting, Same O-D Market
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Big Markets do not Mean Big Airplanes
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Big Routes Do Not Mean Big Airplanes
All Airport Pairs under 5000km and over 1000
seats/day
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Big Aircraft Markets Do Not Stay Big
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Small Airplanes Not in New Markets
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Small Airplanes Not on New Routes
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Small Airplanes not in New Markets ?
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Big Airports Do Not Mean Big Airplanes
Top 12 Airports in 12 World Regions
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Congestion is Not Driving 747 Shares UP
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Congestion Affects Short Small Flights
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Smaller is better

• Small Airplanes are Quieter
• Big Airplanes turn Slower

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Noise Per Seat Lowest for Small Airplanes
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Normalized Against Their Own Lowest
Available,Actuals Show the Same Pattern

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Big Planes Turn Slower

• Define S airplane seat count, as provided by
  airline and airplane type
• D the distance in kilometers of the
  flight segment preceding the turn
• T the turn time, in minutes
• Then
• T 24 0.115 ? S 0.0088 D
• Results from regression of same-flight number
  through flight ground times
• This says that turn times are equal to 24
  minutes, plus 11.5 minutes for every 100 airplane
  seats, and 9 minutes for each 1000 km of average
  stage length. This means a 100-seat airplane
  with a 1000-km inbound flight turns in 44
  minutes. A 200-seat airplane on the same route
  would seem to need 56 minutes, and a 400-seat
  airplane would require 79 minutes. A 4000-km
  transcon would require almost half an hour more
  time.

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Fares are declining gracefully

• Yields (/km) plummet at 2-3 a year
• Discount fares declining 1 per year
• Unrestricted fares flat with inflation
• Discount mix increasing
• Stimulation with fare declines
• More leisure demand
• Long Haul share increasing
• With lower yields

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Yields off 2 Fares off 1 -
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Yield Declines Faster Than Prices
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International Yield, Also
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Cost Reductions Keep Coming
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One Wish

• A trend is a projection of past growth
• Lots of forecasts are trend projections
• Look at the trends
• A forecast includes reasons why
• When reasons change, forecast changes
• Do not change trend without reason why
• The future includes acts of will
• For example, some hubs are made, not born
• If you build it, they might come

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William Swan
Data Troll Story Teller Economist