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Aviation History
1974
1974 - 0016.PDF
16 HEADACHES OF AIRLINE PLANNING craft used in international operations and the rise in average stage length. In terms of average seats per flight, the size of aircraft has increased at an average rate of 4!2 per cent a year. The increase was most rapid in the early part of the 1960s—a result again of the introduction of big jets. Aircraft size has increased again in the past few years with the introduction of the Boeing 747. The increase in aircraft size has been an important influence on the level of airline operating costs. So also has the rising average stage length which has increased at an average rate of 4 per cent a year over the decade. This reflects, I believe, a number of changes in the pattern of airline traffic and operations. The first change is the tendency for passengers to go further afield; traffic has grown at a faster rate on long routes than on shorter ones. WORLD AIRLINE FORTUNES 1962 1964 1966 1968 1970 100 1962 1964 1966 1968 1970 1966 1968 1970 FLIGHT International, 3 January 1974 The second is the improved range of aircraft which has enabled unnecessary intermediate stops to be eliminated on long routes. And the third change is the introduction of new non-stop city pair services as traffic levels have grown to justify such new routes. This third change has been partly related to the second, but the main develop ments have been well within the range capabilities of pre-existing aircraft; in other words, the introduction of new very-long-range routes has only been a small factor in the increasing average stage length. For the future, my broad-brush picture of 1988 assumes that, compared with 1971, domestic traffic will increase by a factor of three, short-haul international traffic will rise by a factor of four and long-haul inter-continental by a factor of six. The most important underlying assump tions in the projection is the view that long-distance traffic will develop more rapidly than short-haul. Economic factors, particularly income levels, are highly significant in traffic forecasting. The experience of 1973, however, has been rather curious, particularly in the US market. Economic growth has been high, the economy has been booming but air travel expenditure has been far from booming. It would be foolish to say that Americans have stopped travelling but the rate of growth has certainly fallen dramatically. In the domestic travel market I think that this may have a lot to do with in flation: the increased purchase of durable goods has been seen as a hedge against continued price rises. But in inter national travel I believe that it is also due to the increased cost of foreign travel resulting from dollar devaluation. Many foreign countries are now considerably more ex pensive for American travellers than they were a year ago. This has been widely publicised in the United States and has undoubtedly been an adverse factor in air travel growth. The relevance of this US experience seems to me to be that at least one other term besides national income level and the level of air fares is required in any forecast ing equation—namely the price of the non-fare elements of a holiday travel package. This is obviously of particular importance in markets in which holiday travel is a sub stantial part of the total and this has a widespread future relevance because the holiday travel sector is the fastest growing sector of the total air travel market. When we look at the prospects for the next few years we must focus our attention on three problem areas: 1) Downward pressures on revenue yields 2) Inflationary pressures on cost levels 3) Excess capacity and low load factors The rate of traffic growth will obviously be a material factor in determining increases in the scale and density of airline operations and these are factors which have an important bearing on the level of airline operating costs. There are three ways that the scale of operations may influence the level of airline operating costs: 1) Higher route density 2) Larger aircraft 3) Larger airlines Of these three influences I think that the first and second are likely to be more important than the third in the next decade, but there is probably less to be squeezed out of any of them than the cost reducing advantages the airlines have enjoyed in the last ten years. I am rather sceptical about substantial economies of scale beyond a certain size of airline operations. This may sound strange coming from a director of an airline in volved in a very-large-scale merger programme. But we are not, in fact, attaching too much weight in British Air ways to the economies of large scale. Of the advantages of the merger, which we estimate to be a profit improve ment of £45 million a year in five years' time, a relatively small part is forecast to come from cost savings associated with larger scale. Our major financial advantage will come from improvements in marketing strength. From increases in route density we should get some advantages of lower ground-handling costs and also from lower sales and promotional costs. One of the most sur prising differences between the operating costs of Euro pean regional and US domestic airline costs is the very large advantage of the US carriers in this latter category.
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