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October 22, 2014

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Holding pattern: Expert sees slow recovery for McCarran

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Sam Morris

No tail wind: A Southwest Airlines jet takes off at McCarran International Airport as an American Airlines jet waits to taxi to its gate. Aviation analyst Mike Boyd expects McCarran traffic to begin to improve next year but says it won’t reach 2008 levels for at least five years.

McCarran International Airport won’t fully recover from the current recession until at least 2014, a leading aviation expert says.

Mike Boyd, president of Evergreen, Colo.-based Boyd Group International, said in a report on enplanement trends and forecasts released this week that Las Vegas airport traffic would begin to rebound next year but that it won’t reach 2008 levels for at least five years.

Although Boyd projects traffic in 2014 to be about 1.4 percent below 2008 levels, McCarran will still remain the seventh busiest airport in the nation because other airports face similar struggles. Traffic peaked at McCarran in 2007, but the economic downturn started taking a bite out of passenger counts a year later.

Boyd also told Aviation Forecast Summit-goers that Las Vegas will be the harbinger for the end of the recession.

“Wondering how to tell if the recession is ending?” Boyd asked. “Don’t call the Fed. Don’t listen to (President Barack) Obama. Just watch the enplanements at Las Vegas.”

Boyd made his projection at the close of his 14th annual summit. The conference had a record turnout of more than 250 people who heard presentations and panels from airline executives, aircraft manufacturers and other industry suppliers.

Aviation trends generally predict the health of Las Vegas’ resort industry since around 45 percent of the city’s visitors arrive by air.

In raw numbers, Boyd projected Las Vegas would have 19.9 million enplanements in 2010, 20.7 million in 2012, 21.2 million in 2013 and 21.8 million in 2014 — a net loss of about 301,000 passengers compared with 2008 levels. The 2008 totals are about half the number of passengers listed in McCarran statistics because the airport counts passengers getting off planes as well as getting on them as customers.

Boyd analyzed traffic at 150 airports nationwide, considering population, economic factors, airline service trends and extraordinary local factors. His projections differ with U.S. Transportation Department statistics because federal officials don’t take industry-driven events into account.

Like all projections, Boyd’s forecast can be affected by changing industry trends, he said. Among the circumstances driving traffic are the fluctuating cost of fuel, revenue aggregation trends by low-cost carriers, changing fleet plans, alliance-driven route decisions and airline consolidation. Boyd also noted that the recession still has its grip on the nation, reducing discretionary spending — a trend Las Vegas resorts are quite familiar with.

But he does consider Las Vegas to be “the canary in the mine” to watch for an uptick since greater discretionary spending here should indicate that consumers have regained their confidence.

Some of the wild cards Boyd will be watching include the continued reduction of business travel, “environmental jihadism” — climate change legislation that could cost airlines millions of dollars — and the deterioration of the nation’s air traffic control system that will result in flight delays.

Boyd predicts airport traffic rankings for the top 10 U.S. airports in 2014 will remain close to current rankings. The busiest airport will continue to be Atlanta’s Hartsfield International Airport, Boyd said, followed by Chicago O’Hare, Dallas-Fort Worth and Los Angeles International. He expects Denver to supplant New York’s John F. Kennedy International as the No. 5 airport because of growth there by Southwest Airlines and continued competition it has with market leader United Airlines and Denver-based Frontier.

He also expects San Francisco International Airport, which is seeing growth by Virgin America Airlines, to jump into 10th place, knocking Newark, N.J.’s Liberty International out of the top 10.

Boyd also warned that Reno-Tahoe International Airport would lose an estimated 486,000 passengers between 2008 and 2014 — a 21.8 percent decline — the fourth steepest in the nation by percentage behind Cincinnati’s airport in northern Kentucky, which is losing flights due to the Delta-Northwest merger, Ontario International Airport in Southern California and St. Louis.

Other aviation trends outlined at the three-day conference that ended Oct. 6:

• Southwest Airlines, the busiest air carrier at McCarran, expects to add cities to its network and further enhance its Rapid Rewards frequent-flier program in 2010. Bob Jordan, executive vice president of strategy and planning for the carrier that added Minneapolis, New York’s LaGuardia Airport and Boston’s Logan International Airport to its network and will add Milwaukee next month, said the company will soon add high-broadband Internet access on its planes as a passenger purchase option.

• Boyd thinks the Delta-Northwest merger may be one of the last of its kind for awhile. But he expects airlines to continue to align themselves in strategic partnerships. There’s still not enough information available to indicate how that plays out for Las Vegas. Delta and Northwest have done little consolidation of flights to and from McCarran. Meanwhile, strategic partnerships by Las Vegas market leader Southwest Airlines with Canada’s WestJet and Mexico’s Volaris may lead to additional traffic.

• While capacity continues to be down by around 7 percent nationwide, the schedule cuts have produced a healthier airline industry. Boyd theorizes that 10 years ago the aviation industry may not have survived a major recession, with oil at $70 a barrel and a major decline in business travel, but staying lean has made companies stronger.

• Unions, which have borne the brunt of many airline cost-cutting strategies, will no longer tolerate being “the shock absorber” for financial turmoil. Boyd said he expects union leadership to get tougher with airline management in future negotiations.

• Boyd predicts many airlines will rethink their business models to focus more on the transportation needs of global industries and not as much on families making leisure trips.

• Governments worldwide are making it harder for airlines to operate, he said. The European Union is preparing cap-and-trade policies that could decimate the industry in Europe; the United Kingdom is raising taxes to a level that could make air travel too expensive for many consumers; and in the United States, the federal government has gotten preoccupied with high-speed rail projects. Boyd repeated a common theme from past presentations — that the United States is no closer to implementing a satellite-based next-generation air traffic control system that could reduce flight delays, make air travel safer and help airlines stem financial losses resulting from delays.

• Boyd also is concerned about the likely passage of passenger rights legislation that he says will be costly to airlines and address problems that occur on less than 1 percent of the nation’s flights.

• Technological innovations will continue to drive airlines to grow their fleets with jets that seat between 126 and 180 passengers. That’s also the sweet spot for McCarran traffic with Boeing 737s and Airbus A319 and A320 jets, which are used the most in Southern Nevada airspace, dominating that category.

• Drew Magill, the director of marketing for Boeing, said upgraded interiors for the twin-engine 737 will include massive new overhead storage bins to accommodate more carry-on luggage, which is becoming more abundant as airlines increase fees for checked luggage. That should be a positive for travelers to and from Las Vegas since that’s the aircraft used most at McCarran. Southwest uses the 737 exclusively and several other carriers have them in their fleets. On the negative side, more carry-on luggage would mean a greater burden on Transportation Security Administration check-points, although McCarran has expanded the number of security lines to meet anticipated growth.

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