Air Transport World

It was a very good 20 years; industry leaders and ATW celebrate a very eventful 20 years with the airlines; major developments and a look into the future highlight a special report.

A great deal has happened in the airline industry since Air Transport World published its first issue in May 1964. In this special issue celebrating our twentieth anniversary we have attempted to bring some of the changes and developments into focus so that we can obtain some view of what is ahead for the industry.

In 1964 when ATW was just getting started the airline industry was in effect itself just getting started as a mass transportation business. International Civil Aviation Organization figures for 1963, the last complete year before ATW began publishing, show that world airlines carried 135 million passengers, or just one for every 23 people in the world. Last year airlines around the world carried 5.8 times that many people, 785 million, or one for every 5.7 people in the world.

Props to jets

In the past 20 years the airline industry, like the world in which it operates, has gone through many changes. It has gone through the transition from the propeller to the jet age. In 1963 jet service among world airlines was in early development stages. The de Havilland Comet had been in service 11 years, and Soviet Tu-104 seven years. But the Boeing 707 had only been in airline service less than five years. Boeing delivered only 40 transports in 1963. Only one third of the transports flying for United States' airlines were jets in 1963, but their significance was already apparent. They were producing 80% of the traffic.

Airlines in the past 20 years have also gone through some other major changes: computerization and deregulation to name just two. These two coupled with the tremendous efficiency gains of the jet transports (narrow and widebody) have increased airline efficiency many times over.

In the U.S. airline industry, for example, in the past 20 years, Air Transport Association figures show U.S. carriers have increased their RPMs 5.6 fold. In 1983 they carried 4.45 times as many passengers as they did in 1963, and they transported 5.9 times as much freight. And yet the number of employes among U.S. airlines has less than doubled.

Looking at it another way: In 1963 each U.S. airline employe produced 285,819 RPMs of traffic. Last year the airlines generated 855,947 RPMs for every employe. That is a threefold productivity gain in the past 20 years.

The airlines have not done badly with revenue either. U.S. airline passenger revenue swelled 10.68 times from 1963 to 1983. In 1963 the U.S. airlines averaged $21,256 of passenger revenue for each of their employes. In 1983 they averaged $118,527 for every employe. That is a 5.58 fold increase.

As well as U.S. airlines have done in the past 20 years, their growth rates have been outpaced by airlines elsewhere. For example, ICAO figures show that U.S. airlines produced 5.62 times as many RPMs last year as they did in 1963. But airlines outside the U.S. generated 11 times as many RPMS as they did in 1963. In addition, the disparity in growth rates has produced a dramatic shift in world market share over the past 20 years. In 1963 U.S. airlines produced 55.3% of the world's RPMs. Last year this share dropped to only 38.2%.

So, in the past 20 years the industry has gone through dramatic shifts in its complexion and its distribution. The following is our special report on what all of it means, and what could be coming in the future. In a special program for this issue we asked people in numerous air transport disciplines to present their views on what the three most important industry developments were in the past 20 years, and to give their predictions on what the major developments will be in the future. Also, there is a special analysis on the developments in the commuter/regional industry.

Joseph P. Adams

The success of the experiment in providing safe schedule air transportation--first turboprop, then jet--to hundreds of America's small- and medium-sized cities in an effective integration with trunk airline service is evidenced by the local airlines' phenomenal growth, financial stability, subsidy reduction and passenger acceptance.

Contributing to the success of the experiment was a large number of industry, congressional and regulatory officials who worked hard and long to achieve this accomplishment.

The framework supporting the Local Service airline experiment actually began forming prior to the two decades being considered here when, for example, in 1957 the Aircraft Guaranteed Loan Program was passed by Congress over Eisehnhower Administration objections. This program, which continued until just recently, was an immediate success, allowing Local Service carriers to modernize their fleets with the first turboprop airliners.

Also starting before 1964 was the Class Mail Rate System. Begun in 1961, it was amended and improved over the years to bring economic stability and viability to the entire Local Service airline system.

Throughout the process of strenghthening and expanding Local Service airline routes a predominant role was played by the Association of Local Transport Airlines (ALTA) and Association of Local Transport Airline Suppliers (ALTAS), presenting a consistent, unified message to Congress and CAB detailing how both the industry and nation would benefit from increased local service route awards.

But having developed the finest air transportation system in the world, the U.S. entered the truely mind-shattering course of deregulation, beginning with attacks made by marketing economists in 1975.

The independence and integrity of CAB as a quasi-judicial agency was completely compromised in the zeal of the Ford, Carter and Reagan administrations to appoint CAB chairmen and members only after they had publicly stated a desire to "get on with it" and complete the deregulation cycle regardless of social and human costs.

Hopefully, this degradation of the regulatory process has run its course and we can look to Congress to attempt to return the stability and growth of air transportation with revised route security and responsible pricing. I close with optimism by quoting a recent statement by House Majority Leader Jim Wright (D-Tex.), "I would like very much to see some motion to stop the momentum, the headlong drive to deregulate everything, creating the law of the jungle again which existed a century ago. I don't see it happening rapidly, but I do see the beginnings of that kind of movement." To which I add, Amen.

Roger Beteille

To select three key "events" out of the complex history of the airline industry in the last 20 years is an extremely difficult task. Since other experienced individuals have been asked to tackle the same question, it may be possible that the combination of all the answers will draw a more complete picture.

First, there is the comeback of European manufacturers in the airliner market, through close industrial cooperation, as in the example of Airbus Industrie.

The quality and efficiency of today's aircraft raises the question: Is it wise to conceive, design and build new products at great risk and cost when we already have mature aircraft in the market from which derivatives can more safely be evolved?

The competition created by the European comeback obliges other manufacturers to continue their improvement efforts. It is clear that the potential for improvements is still large enough to justify continuing progress, as has been the practice in the aviation industry since its inception.

In the next 20 years, we can expect the increase of healthy competition to continue and to broaden, covering the full spectrum of aircraft types. This will insure the best use of the imagination and ingenuity of all the world's engineers and scientists to develop easy and efficient transport tools for people and for goods.

The cooperative venture formula has demonstrated its success since 1969 with Airbus Industrie. This trend, as evidenced in the engine manufacturers' consortia of CFM International and International Aero Engines, in my opinion, will further expand in the industry over the next 20 years.

Second, deregulation in the United States has set off intense competition in the world's largest air transport system. This revolution has had both negative and positive effects. Limiting myself to those aspects influencing the aircraft manufacturers, I see the following in the negative group:

* The increasing difficulty of the airlines to plan for the long-term due to the possible instability of route structures and unpredictable competition. This obliges the manufacturers to share the risks through production of unsold products, short-term leases and so on, as well as to face cancellations or disturbances in their production planning.

* The quick fluctuations--up to now often in the wrong direction--in the financial health of the larger customers, weakened by the new entrant carriers.

In the positive group I see the following:

* The demonstration that air transport can be the least expensive and most effective way to move people and high value goods. This will positively influence the overall growth of the world market.

* The development of the second-hand aircraft market which, once the recent glut resulting from the economic recession has disappeared, will be a useful contribution to the health of the new aircraft market. Fleet rollovers of strong airlines will become more and more usual, provided that technological progress continues.

For the future, one can hope that market forces and capable management will stabilize the system in the U.S. This will enable easier medium- and long-term planning, and that example will help to give orderly liberalization in the transport system of the rest of the world. This liberalization will lead to a faster development of traffic and, consequently, to an increase in the opportunities to manufacture transport aircraft.

As a result of these consequences of deregulation, we anticipate that the relationship between airline operators and aircraft manufacturers will be considerably modified in essence. Instead of selecting currently available aircraft, customers will opt for the manufacturer who offers new technologies and the most advanced range of products. This will provide maximum potential flexibility to answer the unknowns that will have to be faced in the 20 years after the decision is taken.

Third, one may finally consider the combination of the energy crisis and environmental constraints as an important factor influencing our industry.

These two aspects can be linked because the technical solutions developed by the aircraft industry generally address both aspects simultaneously, e.g., high bypass ratio engines reduce fuel consumption and pollution, as well as the perceived noise through the shielding effect of the cold stream.

Despite energy constraints, and because of the high cost of money, many obsolete aircraft would have remained in service if the environmental constraints had not been implemented.

Saving our scarce energy resources and making transport aircraft "good neighbors" are requirements for the healthy development of the airline industry and our manufacturing industry.

In conclusion, the last 20 years have confirmed the flexibility and ability of our industry to find solutions to difficult and sometimes unexpected problems. The next 20 years will certainly not be significantly different in this respect.

Morten S. Beyer

The 20 year period spanned by the life of Air Transport World has seen enormous changes in air transportation--a three-fold growth in air travel, development of Third World airlines to challenge the traditional carriers of the West, and significant technological developments. I believe that the greatest among the forces of change have been deregulation, the fuel crisis and the advent of the widebody airliner.

Not only has deregulation totally destabilized the U.S. air transportation system, it is creating a whole new public attitude toward airlines worldwide. Airlines are less the chosen instruments of proud nations, and more pirates roaming the open skies seeking their prey among the golden galleons of the old established national carriers. Deregulation has brought much lower fares to the discretionary travelers in big markets, and the highest fares ever to the business man and luckless passenger in markets too meager to support cutrate competition. Dozens of enterprising new entrants have sprung up, and dozens have perished in bankruptcy. Drained of assets and net worth, airlines are increasingly turning to leasing to finance their aircraft. Airlines are becoming the operators, and bankers the owners of the world fleets.

Probably 50% of all long-haul passengers now fly through huge grid-locked schedule hubs in the U.S.A. For example, every domestic flight that Continental flies passes through Houston or Denver.

Airlines have also achieved the unthinkable: flying in bankruptcy and in the face of strikes. And aboard the golden galleons, once mutinous crews are of necessity becoming willing partners with management in attempting to repel low-cost startups.

The unexpected fuel crises of 1973-74 and 1978-80 spawned the first real efforts among the industry giants to focus on costs and efficiency. A new generation of fuel efficient engines was launched, along with new, more effective airframes. While fuel has now stabilized, it has had a lasting impact on the economics of the airline business and the attitude of operators, the financial community and manufacturers.

The advent of the widebody changed the way people fly. Far more comfortable and efficient than its narrow-body predecessors, the widebodies first brought a crisis in overcapacity when too many airlines ordered too many aircraft in the early 1970s. Just as they were being absorbed, deregulation put a premium on smaller aircraft as markets were suddenly Balkanized by multiple competition. Now airports and airways congestion, plus their inherent efficiency and passenger appeal, is bringing the widebodies back.

What of the next 20 years? We see three major factors affecting the future: the maturing of the industry, the oligopolization of airlines; the simplification of services.

Ebullient manufacturers and financial gurus confidently predict a return to the compounded double digit growth of air travel, with a resultant burgeoning demand for new aircraft. We do not see it that way. With a few exceptions, the airline business is entering its period of maturity, and growth in the future will be only a point or two above the growth in the world's real gross national product--maybe 3%-4%.

Deregulation will inevitably bring about the consolidation of the industry in the U.S.A. as the inefficient, weak and small carriers are forced into bankruptcy, merger, consolidation of dissolution. Basic economics classes teach us that the large, strong carriers will inevitably prevail over the weak, small ones. We have already seen three of the four smaller trunks--National, Braniff and Continental--forced into bankruptcy or consolidation. …

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