William (Bill) Swelbar is a leading strategist for the airline industry. He is a Research Engineer in MIT’s International Center for Air Transportation, where he is affiliated with the Global Airline Industry Program and Airline Industry Consortium.
He is visiting Huntsville the week of May 7 for the Southeast Chapter of the American Association of Airport Executives’ 2018 Annual Conference.
Below are some questions and answers on topics relevant to Huntsville’s air service, and a call to action for how you can help us move the discussion forward. Read more about this topic in our upcoming June edition of Initiatives magazine.
Q: How are today’s changes in the airline industry impacting the business traveler in Huntsville?
WS: In my view, there are seven forces at work undermining air service development efforts across the country and not just in Huntsville: 1. Consolidation of the industry where the big six players control over 85% of the domestic market; 2. Capacity deployment strategies employed by the carriers, particularly the Big 3 network carriers that have limited growth; 3. The cost of jet fuel. While not at historic highs it is on the increase and it most negatively impacts markets served with smaller aircraft; 4. The size of aircraft are simply getting larger and not all communities can support more seats. Huntsville can. Convincing the airlines when they have a limited supply to deploy is not easy; 5. There is a shortage of pilots particularly at the regional carriers. Today the industry is growing again but not all of the growth that is economic is being enjoyed because there are too few pilots to fly; 6. The reliability of air service is impacting the use of some airports causing passengers to drive to an alternative airport; and 7. A pilot issue is that mainline pilot collective bargaining agreements limit the number of regional aircraft that can be flown inside a carrier’s network. We are approaching the limit on the number of regional aircraft that can be flown at certain airlines. Huntsville is not immune nor alone.
Q: With fuel prices remaining low, carriers continue to utilize older and smaller regional jets (RJ’s) in mid-size markets. Do you anticipate the legacy carriers to retire the small regional equipment in the near term and introduce newer RJ’s with two classes of service?
WS: The industry is already parking smaller aircraft and replacing many of the frequencies with larger two-class aircraft. This is a great trend for markets like Huntsville that have relied on the 50-seat platform for many years. So an upgrade in the quality of the aircraft is a benefit, particularly to the business traveler that likely has a high status in a carrier’s frequent flyer program. What a community needs to be careful of is not to forgo too much frequency operated by the smaller jets. The fact that a business traveler has choices of times to fly is important to maintain. It is a delicate balance between frequency and seats.
Q: The term “leakage” describes when travelers choose another nearby airport.. if we “leak” passengers to Birmingham or Nashville, for example. How do legacy carriers stay competitive with the low-cost and ultra-low-cost carriers on routes where there is strong competition?
WS: Segmentation of the industry is happening fast and faster. The legacy carriers compete with the low-cost and ultra-low-cost airlines in the largest markets. They do not necessarily compete directly with them in the smaller markets like Huntsville as they low-cost providers most typically do not serve the smaller markets. Even Allegiant, that serves some smaller markets is now growing into the larger markets. “Leakage” to larger markets like Birmingham and Nashville, in particular, is the enemy of many smaller markets like Huntsville that has lower cost options available via the highway. The legacy carriers are more about price than volume whereas the lower-cost providers use price to drive volume. The lower-cost airlines operate very large aircraft that are simply too big for most small and non-hub markets in the US.
Q: Has the pilot shortage affected Huntsville yet? If not, will it soon?
WS: Yes it is and it has. Since 2014 the industry has been growing again. Huntsville has not enjoyed the growth that many airports are seeing. At these relatively low oil prices and the low capital cost of smaller regional equipment, I can say with virtual certainty that Huntsville would have more service today if only a sufficient number of qualified pilots were available to do the flying.
Q: Please describe the difference between a business and leisure market. What does it take for a business market to be successful?
WS: If I could be glib: Hunstville is a business market; Orlando and Las Vegas are leisure markets; and Nashville is a mix of the two which is why they are enjoying growth from carriers of all ilk. Huntsville, by my work, is a high performing business market. I have often referred to Huntsville as a 5.5 day a week market. It starts on Sunday night when all of the vendors fly in for the week and then they leave on Friday night. When AirTran was in the market, the carrier mined some leisure traffic. This is the traffic that is now finding its way to Nashville and Birmingham. Retaining this traffic with only network carrier service will prove difficult. What Huntsville has to do as a community is to support the new Silver service to Orlando.
Q: Why are legacy carriers pushing more travelers to their fortress hubs? Why have some other hub cities been eliminated? Does this impact mid-tier cities like Huntsville?
WS: Mid-tier cities like Huntsville have certainly suffered because of the loss of secondary hubs at Cincinnati, St. Louis, Pittsburgh and Cleveland. These hubs are all mid-continent hubs in cities with less population that the surviving hub cities. It proved difficult for them to survive on predominantly connecting traffic which often is accorded a cheaper fare. Hubs are the most efficient way for network carriers to maximize revenue. While mid-tier cities like Huntsville would prefer non-stops versus connecting over a fortress hub, it is the hub that maximizes connectivity for mid-tier cities to other domestic and international markets. Huntsville is fortunate to have good connectivity.
Q: The commercial aviation industry is has seen more mergers than startups in recent years. Given the current economics in the industry, i.e., low fuel costs, more efficient equipment and less competition, do you foresee other start-up airlines in the future?
WS: Unfortunately I do not see startups like a jetBlue or a Spirit anytime soon. It is not about low fuel, more efficient aircraft, and higher fares. It is about a lack of infrastructure at the nation’s largest markets. If a startup cannot get sufficient access to the larger markets, then there is very little hope that they might serve mid-tier markets like Huntsville.
Q: How do the airlines network planners choose cities where they want to fly to?
WS: There is no one criterion. They want to first understand the business community. Strong underlying economics and demographics is critical today. Huntsville has an incredibly strong business community as is reflected is high average fares. There is a high propensity to travel for the businesses located in Huntsville and as such there is a higher ability to pay than in many other markets.
Call to Action
The Huntsville/Madison County Chamber is gathering information about your company’s air travel. We ask you to please share the following information with Robert Recker, our Senior VP of Investor Relations:
Specifics of your company’s travel will not be shared. We plan to share aggregate information with the airline carrier network planners in order to help improve Huntsville’s air service offerings. Please email your information to firstname.lastname@example.org and feel free to ask questions.