Passenger Market Analysis & Planning Caracas

Passenger Market Analysis and Planning
BOEING is a trademark of Boeing Management Company.

Copyright © 2012 Boeing. All rights reserved.
Passenger Market Analysis Drives
Corporate, Fleet and Network Strategies
 Introduction
 Understanding the Market
 Demand
 Underlying Factors
 Variation
 Competition
 Summary
Copyright © 2012 Boeing. All rights reserved. |2

Introduction: Revenue Has Tremendous Leverage
A 1% increase in revenue will have the
same affect on operating profit as:
A 17.7% decrease in maintenance cost, or
A 8.1% decrease in ownership cost.

5%
An 3.8% decrease in fuel cost.

0%
Boeing 787-8
US International Rules
6,000nm mission
-5%
% Change
Fuel @ $2.00/USG
-10%
-15%
-20%

Introduction: Air Travel and Economic Growth are
Directly Related
Percent Annual Change Passenger Traffic
Real GDP Growth
16 8
14 7
12 6
10 5
8 4
6 3
Long-term
4 Traffic
2
Growth
2 1
0 0
-2 -1
-4 -2
1970 1975 1980 1985 1990 1995 2000 2005 2010
Pax Airline Traffic Growth GDP
Sources: Traffic Growth – ICAO (historical) and IATA (forecast); GDP Growth – IMF (PPP)

Corporate, Fleet And Network Strategies
 Introduction
 Demand
 Variation
 Competition
 Summary

Understanding the Passenger Market: Demand
Demand Variation
markets served, demand variation, spill
traffic volume,
yields, traffic
definitions
Underlying Factors Competition

purpose, cultural and stimulation, mode split,
ethnic ties airline market share

Demand: Varies by Region
Annual Passengers

Demand: Simple Numbers May Not Tell the Whole
Story
China – U.S. Market
2.5
Total 2.0
Passengers
Arriving at 1.5
U.S.
Gateways 1.0
(millions)
.5
Source: U.S. Citizenship and Immigration Services, I-92

Demand: Passengers Arriving at U.S. Gateways
1.4
Non-US Citizens
1.2
U.S. Citizens
Total
Passengers 1.0
Arriving at .8
U.S.
.6
Gateways
(millions) .4
.2

Underlying Factors: Since 2004 Proportion of US
Citizens Has Actually Decreased
80%
70%
Percent of 60%
U.S.
50%
Passengers
40%
30%
20%
10%
0%

Copyright © 2012 Boeing. All rights reserved. | 10
Demand: Purpose May Vary
Business, 51%
Conference/
Convention 11%
Pleasure, 32%
Other
6%
Purpose of travel & willingness to pay are often related

Source: 2007 U.S. Department of Commerce
Demand: A Few Travelers… Can Generate
Significant Revenue
Frequent Business
Frequent Business Travelers
Travelers
All Other Travelers All Other Travelers
Total Travelers Total Revenue
Travelers In Premium Travelers In Premium

Cabin Cabin
All Other Travelers All Other Travelers
Total Travelers Total Revenue

Demand: Measurement
Iberia #100 Iberia #200 Santa Barbara #300
LHR BCN BCN MAD MAD CCS BLA
Onboard Loads LHR-BCN

• excellent for dispatchers and caterers BCN-MAD
4 passengers?
• of limited use for airline planners MAD-CCS
• cannot identify passenger O&D CCS-BLA
Coupon Origin & Destination (O&D) LHR-BCN
• excellent for revenue accounting BCN-MAD Or 3 passengers?
• of limited use for airline planners MAD-BLA
Online O&D LHR-MAD
• usually available from airlines MAD-BLA Or 2 passengers?
• not helpful for new route selection
True O&D
• useful in evaluating new off-line markets Best Answer:
LHR-BLA
• able to eliminate double-counting 1 Passenger!
• difficult to determine - can be estimated

Understanding the Passenger Market : Underlying
Factors
Demand Variation
traffic volume,
yields, traffic
definitions


Underlying Factors: Seasonality is Essential in
Planning
Singapore is a solid year-round market, while Washington and Delhi frequency levels
could be alternated – Montreal likely too seasonal for year-round service
Europe Traffic Seasonality by Month
Sabre ADI, Last 5 years
160%
Montreal
Monthly Variance from Annual Average
140%
120%
Washington
Singapore
100%
80% Delhi
60%
40%
JAN FEB MAR APR MAY JUN JUL AUG SEP OCT NOV DEC
Monthly Passenger Leg Revenues (Millions)
0
1,000
2,000
3,000
4,000
5,000
6,000
2002-1
2002-4
2002-7
2002-10

2003-1
2003-4
2003-7
RevenueInUSD
2003-10
2004-1
2004-4
2004-7
2004-10
2005-1
2005-4
2005-7
2005-10
Yield-US-Cents/Mile
2006-1
2006-4
2006-7
Revenues-Yield
2006-10
2007-1
2007-4
2007-7
2007-10
2008-1
2008-4
2008-7
2008-10
Dropped 25% In The Wake Of The Recession
Underlying Factors: North Atlantic Revenues
2009-1
2009-4
2009-7
0
5
10
15
20
25
30
35
40
45
50
Monthly Yield (US Cents)

| 16
Underlying Factors: Growth Rate can Vary by
Purpose of Trip
Annual Foreign Visitor Arrivals
Select Catchment Area
1,600,000
1,400,000 Other
Pleasure
1,200,000
“Other” Annual
Business Growth: 6.8%
Annual Visitor Arrivals
1,000,000
800,000
“Pleasure” Annual
600,000
Growth: 5.1%
400,000
200,000
“Business” Annual
Growth: 7.4%
0
1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009
Source: U.S. INS I-94 Immigration Form Data
Underlying Factors: Availability of Holiday Time
Affects Travel Patterns
Average Number of Vacation Days
40
35
30
25
20
15
10
0
Germany Brazil United Kingdom Japan United States
Source: infoplease.com
Underlying Factors: Ethnography and Diaspora are
Strong Influences
 “Ethnography is a scientific research strategy often used in the
field of social sciences, also known as part of historical science
that studies people, ethnic groups and other ethnic
formations, their ethnogenesis, composition, resettlement,
social welfare characteristics, as well as their material and
spiritual culture.”
 “A diaspora is the movement or migration of a group of

people, such as those sharing a national and/or ethnic identity,
away from an established or ancestral homeland”
Understanding ethnography & diasporas is vital for 6th freedom carriers

Underlying Factors: Estimated 3.5M Americans of
Arab Ancestry
 Majority of Arab immigrants
come from countries in the
Levant region
 Large Lebanese communities in

Northeast, Chicago & Detroit
Arab-American Ancestry
Other Arabs Lebanese

30% 31%
Palestinian Syrian
5% Moroccan 10%
Egyptian
 EK passenger traffic to/from Levant Yemeni
1% 10% 10%
Iraqi
region must “backhaul” over Dubai 3%

Underlying Factors: Other Important Diasporas
Within The U.S.
Pakistani Immigrant Settlement African Immigrant Settlement
New York City JFK/EWR Washington IAD
Chicago ORD New York City JFK/EWR
Houston Atlanta ATL

IAH
Washington IAD Minneapolis MSP
Los Angeles LAX Los Angeles LAX
Total Population:
Dallas/Ft Worth DFW Detroit DTW
800,000
Philadelphia PHL Houston IAH
Total Population:
San Francisco SFO Chicago ORD
500,000
Detroit DTW Dallas/Ft Worth DFW
Atlanta ATL Boston BOS
- 10,000 20,000 30,000 40,000 50,000 60,000 70,000 0 20,000 40,000 60,000 80,000
Source: U.S. Census 2000

Underlying Factors: Arab Diasporas in Latin
America
Arab Ancestry in Latin America
 Close to 20 million persons of Arab

Brazil
descent reside in Latin America
 The largest population resides in Argentina

Brazil – more Lebanese in Brazil than
in Lebanon
Mexico
 Other Arab concentrations exist in

Argentina, Mexico, Chile and Chile
Venezuela
 Vast majority of those Latin Venezuela

Americans of Arab descent trace
their roots to Lebanon or Syria Ecuador
0 2 4 6 8 10
Millions
Understanding the Passenger Market: Variation
Demand Variation
traffic volume,
yields, traffic
definitions

ethnic ties, resorts, trade, airline market share
macroeconomics

Variation: Spill is Known by Many Names
 Passenger Turnaway
 Rejected Demand
 Unsatisfied Demand
 Truncated Demand

Variation: Understanding and Tracking Passenger
Behavior Can Help Predict Spill and Maximize Revenue
737-200 737-700
at 110 at 126
Seats Seats
Extra Revenue for the

Larger Airplane
Average Unconstrained 737-700 Spill

Demand = 100 passengers 737-200 Spill

Variation: Spilling No One Can Actually Have
Negative Consequences
Excess Capacity
Excess Operating Costs
Reduced Profit

Variation: Key Messages Concerning Spill
 Spill refers to passengers who can’t get on their desired
flight
 It is not necessarily bad
 Variation in demand is complex

 Seasonality
 Day of week/time of day
 Truly random variation
 Passenger demand is a random variable and can be

represented as a normal distribution

Variation: Is Spill Bad?
 Bad
 You didn’t capture all the potential revenue on that day
 You may help a competitor by sending passengers their way
 Good
 You are not flying too big of an airplane for most of the
variations in demand
– Excess capacity leads to excess costs which leads to reduced profit
Revenue Management Systems allow you to spill selectively

Understanding the Passenger Market: Competition
Demand Variation
traffic volume,
yields, traffic
definitions


Competition: Low Cost Carrier Effect on Yield
DEN-PHX: Change in Yield (2002-2008)
0.18
F9
HP/US
0.16 UA
WN
0.14
Yield (cents per km)
0.12
2005: UA begins ‘Ted’
LCC operations
0.10
0.08
0.06 2006: WN enters market
0.04
2002 2003 2004 2005 2006 2007 2008
Source: DB1A & T100, 1st Quarter; non-stop passengers

Competition: Lower Prices Stimulate Demand
DEN-PHX: Yield and Total Passengers (2002-2008)
0.18 180,000
0.16 160,000
0.14 140,000
Total Passengers
0.12 Total Passengers
120,000
F9
0.10 HP/US 100,000
UA
0.08 WN 80,000
0.06 60,000
0.04 40,000
2002 2003 2004 2005 2006 2007 2008

Competition: Total Market Revenue may Not
Change
DEN-PHX: Yield and Total Revenue (2002-2008)
0.18 18,000,000
0.16 16,000,000
0.14 14,000,000
Total Revenue
0.12 12,000,000
0.10 10,000,000
Total Revenue
0.08 8,000,000
F9
HP/US
0.06 UA 6,000,000
WN
0.04 4,000,000
2002 2003 2004 2005 2006 2007 2008

Competition: New Services Stimulate Demand
Europe Longhaul Market Stimulation Study
300%
R² = 0.69
275%
250%
AY: HEL-BOM (6/07)
Observed 1-year stimulation rate
225% Before: 6 PDEW

After: 21 PDEW
200%
175%
150%
SQ: SIN-DME (3/08)
Before: 54 PDEW
125%
After: 94 PDEW
100%
75%
50%
25%
0%
0 5 10 15 20 25 30 35 40 45 50 55 60 65 70 75 80 85 90 95 100
Base Market Size (PDEW)
Competition: High-Speed Train Diversion in Spain
Market Distance: 480km Source: CAPA

Competition: Mode Split Severely Impacted Air Travel
In Seoul - Busan Market
Travel Mode 2003/04 2004/05 2006 2007 2008

KTX: High speed train 0% 50.4% 60.2% n/a 63.0%
Conventional train 37.9% 10.5% 5.5% n/a 4.6%
Total Rail 37.9% 60.9% 65.7% n/a 67.6%
Buses 7.8% 4.7% 5.5% n/a 7.3%
Car 12.1% 9.4% 8.9% n/a 8.1%
Total Road 19.9% 14.1% 14.4% n/a 15.4%
Total Airlines 42.2% 25.0% 19.8% n/a 17.0%
Market Distance: 320km Source: KTX website

Competition: “Drive Diversion” Has Helped to
Segment the Market in Some Situations
Could lower fares or congestion entice your airline’s core

customers to fly from an alternate airport?
Competition: London Market Large Enough For Five
Airports
 Over the years increasing demand has led to development of 5 airports to
serve the London area
 Heathrow is the primary long-haul LTN STN
gateway and British Airways hub
 Gatwick has long been known as
London’s “second” airport and caters
to a range of long-haul network and LCY
short haul LCC flights
 Stansted and Luton developed over
recent years to address increased LHR
Charter/LCC demand
 City Airport caters to the financial
district and has numerous
operational restrictions
LGW
Heathrow & Gatwick only airports

directly linked together
Corporate, Fleet and Network Strategies
 Introduction

 Demand
 Variation
 Competition
 Summary

Passenger Analysis : Why Is It Important?
 Passenger Analysis Attempts to answer these
questions:
 What makes people travel?
 Why does market size vary?
 What can be done to make more people travel in a given
market?
 What factors must be considered when deciding whether to
serve a market or not?
 How do competitors impact the size of a market?
The better an airline understands its passenger market, the better it can
plan for future growth and respond to changing market dynamics

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Passenger Market Analysis and Planning

BOEING is a trademark of Boeing Management Company.

Copyright © 2012 Boeing. All rights reserved. |2

A 17.7% decrease in maintenance cost, or

A 8.1% decrease in ownership cost.

An 3.8% decrease in fuel cost.

Copyright © 2012 Boeing. All rights reserved. |3

Pax Airline Traffic Growth GDP

Copyright © 2012 Boeing. All rights reserved.

Copyright © 2012 Boeing. All rights reserved. |5

Underlying Factors Competition

Copyright © 2012 Boeing. All rights reserved. |6

Copyright © 2012 Boeing. All rights reserved. |7

Source: U.S. Citizenship and Immigration Services, I-92

Source: U.S. Citizenship and Immigration Services, I-92

Source: U.S. Citizenship and Immigration Services, I-92

Purpose of travel & willingness to pay are often related

All Other Travelers All Other Travelers

Total Travelers Total Revenue

Travelers In Premium Travelers In Premium

All Other Travelers All Other Travelers

Total Travelers Total Revenue

LHR BCN BCN MAD MAD CCS BLA

Onboard Loads LHR-BCN

Copyright © 2012 Boeing. All rights reserved. | 13

Underlying Factors Competition

Copyright © 2012 Boeing. All rights reserved. | 14

Copyright © 2012 Boeing. All rights reserved.

Monthly Yield (US Cents)

 “A diaspora is the movement or migration of a group of

Understanding ethnography & diasporas is vital for 6th freedom carriers

 Large Lebanese communities in

Other Arabs Lebanese

Copyright © 2012 Boeing. All rights reserved. | 20

New York City JFK/EWR Washington IAD

Chicago ORD New York City JFK/EWR

Houston Atlanta ATL

Washington IAD Minneapolis MSP

Los Angeles LAX Los Angeles LAX

Philadelphia PHL Houston IAH

Detroit DTW Dallas/Ft Worth DFW

Atlanta ATL Boston BOS

Source: U.S. Census 2000

 Close to 20 million persons of Arab

 The largest population resides in Argentina

 Other Arab concentrations exist in

 Vast majority of those Latin Venezuela

Underlying Factors Competition

Copyright © 2012 Boeing. All rights reserved. | 23

Copyright © 2012 Boeing. All rights reserved. | 24

Extra Revenue for the

Average Unconstrained 737-700 Spill

Copyright © 2012 Boeing. All rights reserved. | 25

Excess Operating Costs

Copyright © 2012 Boeing. All rights reserved. | 26

 It is not necessarily bad

 Variation in demand is complex

 Day of week/time of day

 Truly random variation

 Passenger demand is a random variable and can be

Copyright © 2012 Boeing. All rights reserved. | 27

 You didn’t capture all the potential revenue on that day

 You may help a competitor by sending passengers their way

– Excess capacity leads to excess costs which leads to reduced profit

Passenger Market Analysis & Planning Caracas

Passenger Market Analysis & Planning Caracas