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Hampton Roads Air Service Forum Tuesday, April 12, 2016
Hampton Roads Air Service Forum
Tuesday, April 12, 2016
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Air Service & Global Access Realities & Opportunities
Norfolk – Virginia Beach
April 2016
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The Logical Questions…
Question One… Why don’t we have more airlines and more flights?
Question Two
Why don’t we have more nonstop flights to more cities
Question Three Will fares ever go down – now that fuel is so “cheap”
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Affecting The Answers
Challenge One:
The US airline industry is consolidating – due to economics, more than mergers
Challenge Two:
US airline fleets are changing – smaller units are increasingly un-economic and are being retired
Challenge Three: There really will be a constriction in pilots in the next five years – highest and best use of the resource
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What Constitutes “Good” Air Service?
The common misconception – understandably – is “air service” is simply having more scheduled flights at the local airport… It’s much more than that… Just having low fares to Orlando or Hawaii is not “air service” Definition
Air service is measured by the amount of access that the rest of the nation and the
globe have to Norfolk
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Examples…
Youngstown, Ohio: Almost 120,000 passengers per year… But they have no air service – no access from the rest of the world… Just Allegiant flights to a couple places in Florida
Hilton Head, SC
Almost 120,000 passengers per year… And they do have air service… One-stop access from virtually every major point in the US, plus several international destinations, over the AA hub at Charlotte.
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Access From The Rest of The Globe
Airline service is not just about having flights and
access to the rest of the nation…
We are in a global economy … there is no “domestic” – it’s increasingly global
It’s not just about consumers in the community
It’s about whether the rest of the global economy can get here – access from the rest of the globe brings in economic growth.
At Norfolk, almost 10% of the traffic is directly to or from an international point… but 27% of all passengers in the US are directly or indirectly the result of international travel. Norfolk is likely not materially different.
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What Norfolk – Virginia Beach Faces
Factor One: New fleets will shift the entire air transportation system Factor Two:
There are only nine full-schedule national airlines left Factor Three: Traffic levels: Only what airlines want to capture Factor Four:
“More passengers” is not the airline goal, anymore
Factor Five: Air travel economics are changing its communication value
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“More Airlines” – There Aren’t Any
1983…
Consumers could
book & buy on at
least 21 large jet
operator brands,
plus over two
dozen independent
regional airline
brands.
Today, airports can turn
to just eight large jet , full
schedule operators, and
none of the regionals
who were around in 1983
are in the retail airline
business.
Here’s a fact… Norfolk Has Most of What’s Available
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Airline Reality: Smaller
There are 15% fewer airline flights today than in 2007… capacity is down 3.4% due to retirement of smaller airliners And there are fewer airlines – only four true comprehensive network carriers – and each has its chosen “turf” that won’t be affected by the size and scope of some giant “market study.”
Carrier 2007 2016 Change % Change 2007 2016 Change % Change
Frontier 126,966 97,606 -29,360 -23.1% 15,092,830 14,869,767 -223,063 -1.5%Spirit 58,617 150,322 91,705 156.4% 9,042,512 26,140,179 17,097,667 189.1%United 1,304,150 1,677,208 373,058 28.6% 123,098,519 170,315,781 47,217,262 38.4%
American 1,495,426 2,384,292 888,866 59.4% 162,162,585 252,859,167 90,696,582 55.9%Southwest 1,168,814 1,314,240 145,426 12.4% 158,949,973 193,773,080 34,823,107 21.9%
Alaska 365,189 360,508 -4,681 -1.3% 36,232,853 41,840,533 5,607,680 15.5%Delta 1,518,456 1,937,432 418,976 27.6% 144,171,731 227,735,414 83,563,683 58.0%
Jet Blue 199,937 338,981 139,044 69.5% 27,543,920 45,030,508 17,486,588 63.5%Northwest 880,298 -880,298 -100.0% 88,249,910 -88,249,910 -100.0%Air Tran 264,145 -264,145 -100.0% 32,542,505 -32,542,505 -100.0%
Continental 1,058,328 -1,058,328 -100.0% 90,571,083 -90,571,083 -100.0%
US Airways 1,348,316 -1,348,316 -100.0% 119,394,705 -119,394,705 -100.0%
Totals 9,788,642 8,260,589 -1,528,053 -15.6% 1,007,053,126 972,564,429 -34,488,697 -3.4%
Departures Seats
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Key Emerging Air Service Trends -II
Strategies:
Airline systems tend to stay within their turf. And target airlines and market for any airport do not take a “study” to identify
The Servo Effect Is In Motion With changes in fleets, as service declines at some airports, it sets in motion new consumer tendencies to go to other airports
Norfolk is not negatively affected by either of these dynamics.
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Key Emerging Air Service Trends
Fleets: The economics of small aircraft no longer are such as to be viable for service to many small local airports… It’s why places such as Lynchburg, Charlottesville, Huntington, etc., face real challenges as these aircraft are retired.
Regionalization of Air Service Access Air service is constricting into fewer airports – the automobile is a major part of the air service process
Norfolk is positively affected by either of these dynamics.
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The Airline Industry Is Growing Slowly
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The Coming Shortage
Lots of Airplanes. Not enough pilots New “safety” requirements demand more pilot hours than most candidates can afford… Result: airlines do not have – and increasingly will not have – sufficient pilots to operate schedules that they have today. First hit: Small communities without any real passengers, anyway. Future: reduced capacity for mid-size airports Bottom line: highest & best return of what flights can be offered – and it will be less
Empty due to poorly-thought out “safety” pilot
training changes
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Let’s Talk Norfolk… Norfolk access is very strong, and access is exceptional To most destinations, fares are comparable with other regional
markets
Regionalization – Norfolk is emerging as the region’s gateway
Regional air travel growth will be mostly shaped by airline strategies, not local shifts in industry
Biggest Challenge – Airlines are full… but they are adding capacity at Norfolk – faster than the national average
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The Dynamics Facing Norfolk
Richmond is evolving into a gateway for South-DC collar regions – I-95 is a funnel, supporting Richmond Replacement of 50-seat jets and turboprops inevitable The future fleet changes are mostly positive – for Norfolk Biggest Challenge: Regionalization – the road becomes a bigger part of the air travel mix
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Norfolk – Virginia Beach Access
One-connect from every major city on the globe….
Four major airlines … 14 Gateways from the globe, plus Tampa and Orlando
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Norfolk Feeds Its Incumbents
Load Connect
City SysCarrier Factor Percent
ATL DL 86.9% 79.9%
CLT US 89.2% 85.6%
DCA US 75.7% 87.4%
DFW AA 84.8% 73.6%
DTW DL 79.5% 61.1%
EWR UA 77.2% 48.5%
IAD UA 83.0% 71.5%
IAH UA 87.5% 62.6%
JFK DL 72.1% 35.1%
LGA DL 58.1% 47.1%
MDW WN 91.5% 79.0%
MIA AA 84.1% 14.0%
MSP DL 87.3% 62.1%
ORD UA 88.0% 53.4%
PHL US 84.1% 72.8%
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Regional Air Traffic Demand…
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Regional Traffic Generation
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Let’s Look At Fares
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Systems, Not “Routes”
Why do we have to go through the connection hassles? Why don’t we have nonstop (“direct”) flights to… Los Angeles. San Francisco. San Diego, New Orleans, etc... ANSWER:
THERE IS NOT SUFFICIENT TRAFFIC DEMAND TO SUPPORT NONSTOP FLIGHTS TO THESE
POINTS.
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Nonstops To The West - Problematic
If an airline added one nonstop a day… And captured ALL of the market currently flying… The load factors would be tough to sell…
But, there is connect traffic at Denver for United & Southwest, and for American at Phoenix
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Norfolk Airline Shares
With American being the largest carrier, post-merger, additional capacity to DFW is possible, with some additional service to Miami for Caribbean traffic
C arrier P sgr P D EW % P sgr Originat ingA VG OW
F areEff iciency
American 1,597,071 1,251.6 33.30% 52.0% $269.60 91.5%
Delta 1,490,149 1,167.8 31.07% 52.8% $282.78 88.6%
United 650,766 510.0 13.57% 47.8% $302.20 91.3%
WN 1,057,616 828.9 22.05% 54.4% $217.24 91.2%
Total 4,795,864 3,758.5 100.00% 53.4% $269.61 89.9%
Just one nonstop flight at 175 seats would consume the equivalent
more than one entire airplane to the West Coast
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The Future At Norfolk…
Every airline system is adding flights at Norfolk …. Second half 2016 v 2015…
This is significantly higher than the national picture… and is indicative of the “redistribution” of air service capacity in the US
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Okay, What’s The Future
• Norfolk today has essentially a full-compliment of air service access
• More nonstop flights to non-connecting-hub airports – other than Florida – are not in the cards
• The Objective is more access via incumbents…
• JetBlue would be great… but it would be essentially JFK and/or Boston
• Frontier and Spirit - “ultra low fare airlines” are out after bigger density markets, such as Chicago-Atlanta
• The challenge is that airlines are not adding more aircraft, and are focused on revenue-return, not passenger volume
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Let’s Talk
Robert S. Bowen, A.A.E.
Executive Director
Norfolk Airport Authority
Airport Fundamentals
Norfolk Airport Authority is a political subdivision of the Commonwealth of Virginia
Governed by a nine-member board of commissioners appointed by Norfolk City Council
The Airport Authority employs approximately 200 personnel functioning in the roles of administration, parking, police, aircraft rescue and fire fighting, janitorial, building maintenance and field maintenance.
Airport Fundamentals
WE ARE A BUSINESS!
We earn revenue and we incur costs
We are self-supporting for operations: we receive no local taxes
Major revenue sources (FY 2016)-
Parking (38.5%)
Rental Car Services (12.5%)
Leases – concession space, offices, gates, jet bridges (21%)
Landing Fees (21.4%)
Concession commissions (7%)
When all is considered, it is the presence of the passenger that
drives most revenue.
Economic impact: 10,000+ jobs and $1B+ in output
Norfolk International Airport
Strengths
• Very Good service from the four largest airlines with non-stop service to 16 hub,
international gateway and domestic focus cities that provide connections to the entire
United States and to most places in the world.
• Stable, experienced management team.
• Very good bond rating of A3 with relatively low long term debt and manageable debt
service.
• Very good financial position with a positive operating cash flow generating a surplus each
year.
• Consistent flow of federal and state airport improvement entitlement grants and
passenger facility charges for airport improvement projects.
• Outstanding concessions programs (retail, food/beverage) for an airport of our size.
• More than adequate public parking with room for additional parking facilities to meet
future demand.
• Good relations with the airlines and other tenants.
• Good inventory of available facilities (ticket counter space, concourse gates, baggage
claim) for tenant and new entrant airlines.
Norfolk International Airport
Weaknesses
• One air carrier runway.
• Rental Car Return facility is an open parking lot with uncovered walkway to the
Departures Terminal.
• Lack of non-stop service to the west coast and some major east coast cities (Boston, Fort
Lauderdale).
Norfolk International Airport
Opportunities
• Available land on-airport to build a parallel air carrier runway.
• Available land to build a multi-level rental car return facility with a second level enclosed
climate-controlled pedestrian bridge connecting it to the Departures Terminal. This facility
would also accommodate employee parking which would result in annual savings of
approximately $600,000 for the buses that shuttle the employees to and from a remote
parking lot.
• Fifty acres of off-airport land in Virginia Beach that could be developed for future non-
aeronautical income if our crosswind runway is replaced and relocated.
• Interest from our Retail and Food/Beverage master concessionaires for further
development and upgrades to their facilities in the Departures Terminal and on the
Concourses.
• Improving local economy since the Great Recession and a Federal budget that has
delayed further Sequestration spending cuts for the military and federal government has
made the Hampton Roads area more attractive to the airlines and we are seeing an
increase in flights and seats.
Norfolk International Airport
Threats
• The reluctance of the FAA to continue the Environmental Impact Statement project for the
proposed parallel runway that would replace the short cross-wind runway which no longer
meets FAA safety standards.
• Future federal budget cuts and the re-instatement of Sequestration could slow or even
reverse the growth of the local economy which would affect air travel.
Norfolk International Airport
Economic Impact
• Approximately $40 Million in construction and renovation work during the past six years,
primarily using local contractors, engineers and architects.
• Approximately $20 Million is being budgeted for design, engineering and construction for
FY 2017.
• According to a 2011 Virginia Department of Aviation Economic Impact Study of the
Virginia Airport System (9 commercial service and 57 public-use general aviation
airports), Norfolk International Airport’s total annual economic impacts supported 10,269
jobs with a payroll of $341 Million and just over $1 Billion in economic activity. A new
study is planned for 2016-2017.
Norfolk
International
Airport
Nonstop Destinations (May 2016)
Destination Daily Departures
1 Atlanta (ATL) 9
2 Baltimore (BWI) 5
3 Charlotte (CLT) 8
4 Chicago (MDW) 2
5 Chicago (ORD) 6
6 Dallas (DFW) 2
7 Detroit (DTW) 4
8 Houston (IAH) 1
9 Miami (MIA) 2
10 New York (JFK) 4
11 New York (LGA) 9
12 New York (EWR) 5
13 Orlando (MCO) 2
14 Philadelphia (PHL) 7
15 Washington (IAD) 4
16 Washington (DCA) 4
TOTAL 74
• 4 Airlines that control 80%
of domestic passenger
traffic.
• 74 Daily Departures to 16
Destinations.
• Most are major hubs and
international gateways
providing global access.
Recent New Service
Airline Destination Frequency Effective
American Chicago (ORD) 3 daily April 5, 2016
Delta New York (JFK) 2 daily April 4, 2016
Delta Minneapolis (MSP) 1 daily* June 3, 2016
Southwest Denver (DEN) 1 weekly* June 11, 2016
Southwest Tampa (TPA) 1 weekly* June 11, 2016
* Seasonal
Norfolk International Airport
In addition to the new service above, all four airlines at ORF
have announced frequency increases in existing routes –
Chicago, New York, Detroit, Orlando,
Philadelphia and Washington.
Norfolk International Airport
GENERAL AVIATION FACILITY
and
PASSENGER TERMINAL REFURBISHMENT
Norfolk International Airport
State Entitlement Spending: $3,415,385
Airport Funding: $1,996,798
Total Cost: $5,412,183
GENERAL AVIATION FACILITY REFURBISHMENT
Upgrade to General Aviation Facility – Expanded parking, new lighting,
landscaping, entrance realignment and entrance canopy
General Aviation Facility Improvements
General Aviation Facility
Modernized reception area, conference rooms and mezzanine provide
enhanced atmosphere and greater space utilization.
General Aviation Facility
Upgrade to General Aviation Facilities – Elliptical Lounge adds useful
space for relaxation and viewing of aircraft
General Aviation Facility
Norfolk International Airport
State Entitlement Spending: $7,485,861
Federal Entitlement Funding: $5,053,347
Airport Funding: $1,730,094
Total Cost: $14,269,302
PASSENGER TERMINAL REFURBISHMENT PHASE 1
This multi-year phased project is intended to refresh and brighten
the appearance of the airport terminals as well as address specific
traffic flow issues.
This will include aesthetics such as flooring, wall treatments,
escalators/stairs and natural lighting.
It will also include expansion of the Concourses A & B security
checkpoints.
Charging stations for electronics/phones.
Phase I is complete.
Airport Improvements Passenger Terminals
Main Lobby
Passenger Terminal – Phase 1
Main Lobby
Passenger Terminal – Phase 1
Concourse B Checkpoint Expansion - Terrazzo flooring, high ceilings,
large windows, brighter appearance, expanded lanes
Concourse B Checkpoint
Fiscal Years 2012-2014
Expansion of Concourse “B” TSA Passenger Screening
Security Checkpoint
Refurbishment of passenger terminal complex (Phase I)
Upgrade of the General Aviation Facilities
Total Cost $20.2 million: $5.4 million from federal grants
$11.8 million from state grants
$3.0 million from Airport generated revenue
NO use of local taxes
Norfolk International Airport
State Entitlement Spending: $8,686,300
Federal Entitlement Funding: $8,915,700
Airport Funding: $2,098,000
Total Cost: $19,700,000
PASSENGER TERMINAL REFURBISHMENT PHASE 2
Passenger Terminal Improvements Phase
2
Construction began November 2014. Estimated 18
month completion time (Spring 2016).
Expanded Concourse “A” Security Checkpoint
Concourses A & B – skylights, new restrooms, new
wall treatments, gate area graphic murals, new
ceiling and lighting.
Concourse B – restroom renovation
Arrivals Terminal – terrazzo and carpeting.
Ticket Lobbies – carpet replacement
Total Cost - $19.7 million
Concourse A Checkpoint
Concourse A Checkpoint
New Concourse Restrooms
Arrivals Building Terrazzo Flooring
Since 1938, Norfolk International Airport has been the region's
global gateway and will continue to proudly serve you as we
prepare for the future.
Visit TakeORF.com to see where we've landed.
Thank You!
