The US Federal Aviation Administration (FAA) has unveiled a mostly positive 20-year forecast of the aviation industry, but the new projection was clouded by nagging concerns over cuts to the US federal budget and what they could mean for the industry going forward.
The FAA predicts that US carrier passenger growth will average 2.2% per year through 2033, down from last year's forecast growth of 2.6% per year.
"After another year of slow or no growth this year, growth over the next five years will be slightly higher than the long run rate as we assume the US economy grows at a faster rate. This delayed trajectory represents the downward adjustments of the overall economy, here in the US and abroad, and of the aviation sector response," says the FAA in its forecast.
The agency expects systemwide capacity to shrink by 0.1% in 2013 before growing at an average annual rate of 2.9% through 2033. Domestic passenger traffic in the form of revenue passenger miles are expected to increase 0.7% in 2013, and then grow at an average of 2.2% each year through 2033.
The FAA's forecast also confirms latest industry trends - it says demand for 70 to 90 seat aircraft will continue to grow while the number of 50-seat regional jets in service will continue to fall.
Profitability for US carriers will depend on fuel prices, demand for corporate travel, the ability to pass along fare increases to leisure travellers and the continued growth of ancillary revenue, says the FAA.
"To navigate this volatile operating environment, mainline carriers will continue to drive down costs by better matching flight frequencies and/or aircraft gauge with demand, delaying deliveries of newer aircraft and/or grounding older aircraft, along with pressuring regional affiliates to accept lower fees for contract flying," says the agency.
In the long term, however, it forecasts a "competitive and profitable" aviation industry, characterised by increased demand for air travel and airfares increasing more slowly than inflation.
The FAA's forecast does not take into account the latest US federal budget cuts, known as sequestration, that just went into effect on 1 March. The across the board $85 billion cuts include $600 million in cuts to the FAA's budget, a move that the agency has warned could close more than 100 air traffic control towers and eliminate midnight shifts at an additional 60 towers.
Most of the FAA's employees will also be furloughed for at least one day per 14-day pay period from April until the end of the fiscal year in September.
FAA administrator Michael Huerta, who unveiled the FAA's latest forecast on 6 March at the Aviation Forecast and Policy Summit in Washington DC, says the document assumes that the FAA will not run into fiscal challenges during the 20-year projection period.
Huerta's remarks were scarce comfort for attendees of the summit, who were already shaken by the budget cuts. The uncertainty surrounding the funding of the FAA is not new - the agency had run on temporary funding extensions since 2007 before US President Barack Obama signed a new bill reauthorising funding for the next four years in February 2012.
While the FAA says the latest budget cuts are necessary, others in the industry are not quite convinced. In a panel at the summit, United Airlines' director of government affairs Karen Kuhlman says the cuts were not the "best way" to manage the economy. The FAA has warned that the budget cuts would likely result in flight delays at major airports including those in New York and Chicago, while wait times at customs and immigrations at airports are expected to go up.
These warnings have led to concerns among airlines about how their operations and bottom line could be impacted. United's Kuhlman points out that US carriers are in a unique position, with government policies impacting the airlines more than they would elsewhere in the world. The budget cuts are just the latest in a series of government policies, such as taxes on the airline industry, that make it difficult for US carriers to compete globally, says Kuhlman.
"We tend to get bogged down by different things," she adds, reiterating that policymakers must find ways to think "holistically" of how government regulations can impact the US carriers.
Smaller airports that could have their air traffic control towers closed due to the budget cuts are also at risk. The FAA has said that control towers with fewer than 10,000 commercial operations and fewer than 150,000 operations in total annually are likely to be shuttered.
Brad Van Dam, vice president of federal affairs at the American Association of Airport Executives said that while some airports could appeal against their closure on the basis of "national interest", it is not clear what this criteria means.
In response, the FAA's assistant administrator for policy, international affairs and the environment Julie Oettinger said this criteria could include national defense interests. "I recognise that this is difficult for the local community... just because they are not national interests doesn't mean we are insensitive," she adds.
Besides airlines and airports, original equipment manufacturers have also expressed concerns about how the sequestration cuts could affect their business. Darby Becker, who works in government relations for GE Aviation, says the manufacturer is concerned that ongoing certification processes of its engine platforms could be slowed down due to the budget cuts.
Whether the sequestration cuts will be effective remains to be seen, but one thing is clear for now - the US aviation industry is not expecting cuts to FAA funding to be a thing of the past. As United's Kuhlman puts it: "This will be the new normal." And it could take more than a positive FAA forecast to lift the industry's mood.