Table Of ContentEconomics of air transportation
E c o n o m i cs of air t r a n s p o r t a t i on
Proceedings of the 7th World Airports Conference organized
by the Institution of Civil Engineers and held in London on
24-26 May 1983
Thomas Telford Ltd, London
Published for the Institution of Civil Engineers by Thomas Telford Ltd, PO Box 101,
26-34 Old Street, London EC1 P 1JH
First published 1984
Organizing Committee: G. M. Crook (Chairman), D. Allford, P. W. Brooks, B. F. I. Goddard,
M. G. Hudson, Professor N. Lichfield, J. Mulkern
British Library Cataloguing in Publication data
Economics of air transport.
1. Aeronautics, Commercial
I. Institution of Civil Engineers
387.7*1 HE9782
ISBN 0 7277 0191 6
© Institution of Civil Engineers, 1983, 1984, unless otherwise stated
All rights, including translation, reserved. Except for fair copying, no part of this publication may be reproduced,
stored in a retrieval system, or transmitted in any form or by any means electronic, mechanical, photocopying,
recording or otherwise without the prior permission of the copyright owner. Requests should be directed to the
Publications Manager at the above address.
The Institution of Civil Engineers as a body does not accept responsibility for the statements made or for the
opinions expressed in the following pages.
Printed by The Thetford Press Limited, Thetford, Norfolk
Contents
Opening address. W. M. KNIGHTON 1
Keynote address. K. hammarskjOld 3
Response to Keynote address. J. DENT 7
AIRPORT DEVELOPMENTS
1. The development of a new airport, Changi, Singapore. LIM HOCK SAN 9
2. O'Hare 2000: the development programme for Chicago—O'Hare
International Airport. M. SULOWAY and J. M. STEVENSON 15
Discussion on Papers 1 and 2 23
DEREGULATION
3. Airline deregulation: the US domestic experience. D. McKINNON 25
4. Theory of deregulation: the European view. H. RABEN 31
Discussion on Papers 3 and 4 41
FINANCING
5. Airport financing in today's United States economy. P. w. PELOQUIN 43
6. Key factors in aircraft financing. T. A. GREEN 47
AIRPORTS
New concepts in airport planning and design. D. W. TURNER 53
Workshop session on new concepts in airport planning and design.
Reporter: R. LAL 61
Airports and environmental compatibility. J. E. WESLER 63
Workshop session on environmental issues. Reporter: D. R. A. STAPEL 69
Accident survival—the airport and the aircraft. B. V. HEWES 71
Workshop session on safety and fire aspects at airports. Reporter:
D. N. DRING 77
AIRLINES
Route economics—accuracy versus meaningfulness. E. C. SPRY 79
Workshop session on route economics. Reporter: S. WHEATCROFT 81
Simplifying flying—development of shuttle operations. R. WATTS 83
Workshop session on simplifying flying—development of shuttle
operations. Reporter: N. A. ROYCE 89
Commuting by fixed wing or helicopter? A. STEPHEN 91
Workshop session on commuting by fixed wing or helicopter? Reporter:
B. BOTTING 95
AIRCRAFT
US airport development in the 1980's. W. F. SHEA 97
Workshop session on air traffic management. Reporter: P. HEMMINGS 105
Future trends in transport aircraft. D. G. BROWN 107
Workshop session on future trends in transport aircraft. Reporter:
C. W. CARPENTER 117
Propulsion of future aircraft. J. F. COPLIN and H. W. BENNETT 119
Workshop session on propulsion of future aircraft. Reporter:
R. S. COLLADAY 125
Closing address. SIR PETER MASEFIELD 127
Opening address
W. M. Knighton, Department of Transport
Since this Conference last met, the world has is already under way, and the new terminal will
passed through a recession whose severity has ultimately provide capacity at Gatwick to handle
been unmatched since the depression of the up to 25 million passengers a year, twice the
1930s. The steady growth in trade and general present volume of traffic.
economic activity to which we all became so However, improvements are not only taking
accustomed in the post-war era came shuddering place at the London airports. There is now
to a halt. It would have been amazing if the hardly an airport in the UK which has not had a
air transport industry had escaped unscathed. major improvement scheme authorized in the past
Sadly, there have been casualties and some few years. At Manchester, there is a virtually
famous names have disappeared. The state-owned continuous programme of improvements to the
carriers in many countries have also felt the terminal and cargo facilities, and 1982 saw the
economic recession and have had to cut back completion of a major extension of the runway so
their operations and staff. To an industry that the airport can now handle any aircraft
geared up to meet large annual increases in wishing to fly to virtually any destination. At
demand, even a cessation of growth can require a Birmingham airport a major new terminal is now
painful process of adjustment. However, we well under construction and should be completed
should now be looking ahead again and should in 1984, while at Luton, Newcastle, Leeds-
focus on the formidable challenges before us. Bradford, Belfast anl Midlands, additional
The airports industry is in a much better terminal and runway capacity is being, or has
position now to cope with a fresh upturn in been, provided.
demand for air travel than it was during earlier In the past four years about £450 million has
periods. I can speak with knowledge only of the been spent on a wide range of projects designed
UK, but I feel that our experience may not be to enable UK airports to meet the forecast
untypical of other countries. In the UK, growth in demand. This represents both the
advantage has been taken of the recent pause in largest capital expenditure programme of its
growth in demand, both to rectify the kind since the Second World War and a token of
bottlenecks which had appeared at a number of the British Government's confidence in the long-
our airports during the late 1970s, and to plan term health of the air transport industry.
and construct the additional capacity required Terminal capacity, under construction or
to meet the forecast increase in traffic for the planned, will be able to meet any foreseeable
rest of the 1980s. level of demand for the rest of the 1980s. It
At Heathrow airport a fourth terminal is being is a reflection of the long-term nature of
constructed on the south side. When completed airports planning that the problem which is now
in 1985, this project will enable Heathrow to generating some controversy in the UK is how to
handle a further 8 million passengers each year. develop and meet the growth in passenger demand
The terminal has been designed to cope with the in the 1990s and beyond, and whether, in the
largest wide-bodied aircraft now on the drawing London area, this will require major development
board, and will be connected directly to the of the third London airport at Stansted.
London Underground system by an extension of the If there have been significant improvements in
Piccadilly line, which is now under construction the physical capacity of our airports to cope
from the central terminal area. Terminal 4 will with demand, there have also been major advances
ensure that Heathrow remains Europe's premier in reducing the impact their operation has on
airport for the foreseeable future. surrounding communities. A combinaton of the
At Gatwick, now the world's fourth busiest recent slowdown in traffic, and the steady
international airport - a figure which is not replacement of older and noisier aircraft by
generally kaovn - a major new terminal satellite their modern noise-certificated equivalents, has
was opened in April 1983 and work is now under led to a distinct improvement in the noise
way to improve the direct rail link between the climate around major airports, which is not to
airport and Victoria station in London, and also imply complacency about the present position.
to complete the M25 motorway connection to The burden of aircraft noise on many residential
Heathrow and Stansted by the mid 1980s. Looking areas is still unwelcome and the industry must
further ahead, planning permission was granted continue to take a full share of its
at the end of 1982 for the erection of a second responsibility for further ameliorating the
terminal to meet the anticipated demand well noise climate around major airports.
into the 1990s. Preliminary construction work Nevertheless, JS the various deadlines for
Economics of air transportation. Thomas Telford Ltd, London, 1984 1
OPENING ADDRESS
banning non-noise-certificated aircraft come capacity utilization by feeding passengers into
closer, we can anticipate a further significant their hub airports.
improvement in the noise levels experienced by What is now becoming increasingly clear is
those living close to airports. that modern fuel-efficient narrow-bodied and
The issues of physical capacity of airports commuter aircraft can enable smaller and often
and environmental impact continue to be more efficient new carriers to operate
important and difficult questions, which have profitably on routes hitherto regarded as
not been fully and properly resolved; but there uneconomic by the established airlines. In the
are further developments which create new UK, even during the recession, we have seen a
problems for airports, just as challenging as mushrooming of new operators, using the modern
those posed by the introduction of the modern generation of small aircraft, who are competing
jet and then of the Boeing 747 and other wide- very effectively on second and third level
bodied aircraft. There is an urgent need for routes. When these carriers are allowed to
fresh thinking about several aspects of airport compete directly with the established airlines,
operation which have received relatively little as, for example, on our major domestic trunk
public attention, at least in the UK. routes, the result is often a marked increase in
the frequency of flights offered to the
First, there is the problem of allocating
passenger and a diminution in the average
demand at airports as capacity becomes
passenger load per aircraft.
increasingly scarce. Many airports around the
world will have to face up to this once demand In the past twelve months, for example, at the
picks up. In the UK already we have to cope British Airport Authority's London area
with the problem of excess demand both for airports, while passenger numbers have increased
runway slots and terminal capacity during peak by only 1.3%, total air transport movements have
periods at Heathrow and Gatwick. Looking ahead, increased by 4%. When this trend is coupled
this is likely to become more than a peaking with the continued growth in demand for runway
problem as the limit on air transport movements, capacity from small business jets, this marks a
imposed on environmental grounds, comes into significant reversal of the previous trend
force at Heathrow, and as the runway capacity at towards an ever-higher average number of
Gatwick is reached. passengers per aircraft movement. It may mean a
The experience of the USA at its congested return to worrying about the physical
airports has highlighted some of the questions constraints on aircraft movements, rather than
that will need to be considered. What are the just our ability to handle the passengers once
most appropriate mechanisms for allocating they are inside the terminals; and that given
limited runway capacity? Are so-called the physical constraints on runway capacity at
'grandfather rights' for airlines already our hub airports, we must consider mechanisms
operating compatible with a pro-competitive air for ensuring a fairer allocation of these scarce
transport market, in which new airline services resources, particularly during peak periods.
should have a fair opportunity to compete? How Finally, we need to think more deeply about
should scarce check-in and other passenger the nature of an airport as a business
facilities be fairly allocated to new airlines? enterprise in its own right. More and more
The extent and speed with which this becomes a countries are treating their airports as
problem in other countries is likely to depend commercial entities which should seek financial
on a number of factors, including the rate of independence from the state and provide services
growth of demand, and in some countries perhaps and facilities in the most businesslike fashion
also regulatory decisions. Within the UK there possible. The British government does not
have been a number of voices raised in favour of directly own a single airport; and, as is well
greater competition between airlines and the known, not only are there no financial subsidies
need for less regulation and protection for from the taxpayer, but also airports owned by
individual carriers. Similar voices have been public sector agencies are expected to earn a
raised in international discussions. Any profit on the assets they employ. That has not
further moves towards a less tightly reguLated always been a popular objective, but it reflects
market will have implications for our airports. the view that in the long-term interests of air'
transport as a whole, airports, like all other
The second challenge flows from the radical
parts of the industry, should earn their own way
changes in aircraft technology which are now
in the world without subsidies. What is
taking effect. For much of the 1970s, a common
beginning to become a matter of political
assumption among governments and airport
discussion in the UK, however, is whether
planners was that growth in passenger demand
airports should be placed outside the public
would largely be met by the introduction of
sector and operated by private sector commercial
ever-larger aircraft which offered much lower
organizations.
costs per seat-mile. This placed a burden on
airport terminal facilities, but markedly eased Those of us involved in civil aviation are
the pressure which air traffic control working,in a field of rapid change. Change
authorities and runways had experienced in the requires flexibility, innovation, and a
late 1960s. This trend was encouraged by the realization that we always have something to
protection against competition given to the learn. Conferences such as this serve an
established carriers by the system of tight essential role in facilitating the exchange of
regulation which existed o>; r..-»s* major routes, information ajl views, which is so vital if we
and which enabled them to maximize their are all successfully to face and anticipate the
challenges of the future.
2
Keynote address
K. Hammarskjold, Director-General, International Air Transport Association
At the previous World Airports Conference I The airlines, strapped as they are for cash,
spoke on the subject of 'Airlines and airports: have to pay for the facilities provided by the
co-operation for survival,' and the theme is other components of the industry in the form of
even more relevant now. The best forecasts fees at airports and en route navigation charges
available in 1979 have proved far too - components which more often than not are in
optimistic. Worldwide economic recession has the monopoly - even government monopoly
bitten deeper and lasted longer than was position; and where consequently there is mostly
foreseen in 1979, and the effects of oil price none of the quality and price competition so
increases have been more dramatic than expected, warmly recommended to and offered by the
although the trend is currently reversing. It airlines; inevitably these costs are reflected
remains to be seen how much of the current in the price of an airline ticket. So everyone
reduction in crude oil prices will be passed on involved in civil air transport must join the
to the airlines. Because the price of jet fuel belt-tightening, cut back hard on all but
is posted in US dollars, fluctuating exchange absolutely essential developments, and reduce
rates can still result in high fuel prices in capital and operating costs to the absolute
many countries. minimum consistent with safety and functional
The year 1979 was the last in which IATA efficiency. This is (or at least should be) a
international scheduled services collectiveLy we-together situation, not them-and-us.
showed a positive operating result - albeit a Against this background there is continuing
small one - which turned into an overall loss of pressure for cheaper air fares, particularly in
US$350 million after interest payments. Since Europe, where costs are the highest in the
then, the results have taken a steep nose-dive. world. In 1981, for example, operating costs
For 1980, 1981 and 1982, IATA international for routes within Europe were more than double
scheduled services collectively showed a loss of the average before-interest payments for all
more than $5000 million. Some airlines have IATA route areas. But in spite of the steep
managed to pull put of the red by strenuous costs in Europe, airlines have introduced an
effort, and others are just about breaking even, increasingly wide range of attractive low fares,
but none are really making an adequate return on and we should not forget that more than half of
capital when the need for re-equipment is taken all intra-European air traffic is on back-to-
into account, and the debt-to-equity ratio is back programmed charters at extremely low
reaching alarming proportions. It is a sobering prices, the equivalent of which does not exist
thought that of 1982's loss on international in the USA. This European de facto scheduled
services of $1700 million, $1600 million low-price traffic is always happily forgotten by
represented interest payments. those who want to make disadvantageous
This emphasizes the urgent need for all comparisons between US and European air travel
components of the air transport industry - prices. The problem is that fares must be cost-
airlines, airport operators, air traffic based for airlines to be financially viable, but
authorities and manufacturers - to work in close at the same time the prices must not be pitched
co-operation, and above all to display an acute at a level that discourages people from flying.
awareness of the fundamental requirement for This calls for stark realism, for facing facts
extremely careful cost-evaluation of all capital as they are and not for wishful thinking based
expenditure. on incorrect or misleading comparisons with the
USA.
Airlines worldwide have undertaken major
surgery to cut costs - including massive staff The Union Bank of Switzerland recently
reductions, salary cuts and freezes and the sale published an in-depth study of prices and
of assets. At the same time they have revised earnings in 47 major cities worldwide during the
their estimates of future growth. It is first half of 1982. It clearly demonstrates
unlikely that the industry will return to the that purchasing power is higher in the USA. All
boom years of the 1960s and late 1970s, and it four US cities surveyed were in the top seven.
is a sobering thought that even during the The survey says, 'Wage earners in San Francisco
1970s, when the IATA airlines experienced an and Los Angeles are able to purchase more with
average traffic growth of 8.5%/year, the average their incomes than anywhere else in the 47
profitability rate was a mere 2.7% - not exactly cities surveyed.' In other words, you get more
a handsome return compared with many other for your money in the USA where wage and salary
industries. levels are in the top bracket, but the price
Economics of air transportation. Thomas Telford Ltd, London, 1984
KEYNOTE ADDRESS
levels for many goods and services are lower or as being 'too high' compared with the USA. By
no higher than in some European cities. This the same token, then so are: food prices in six
basic fact must be borne in mind when drawing surveyed major European cities; a 'six-pack' of
comparisons between US and European air fares. electrical household appliances in ten surveyed
The four selected cities in the USA were San European cities; car prices throughout Europe; a
Francisco, Los Angeles, Chicago and New York. A package of goods and services in twelve surveyed
representative cross-section of 19 European European cities; and public trim*port in nine
cities comprised Amsterdam, Athens, Brussels, surveyed European cities. So differences
Copenhagen, Dublin, Dusseldorf, Geneva, between European and US air fares are part of a
Helsinki, Istanbul, Lisbon, London, Luxembourg, general economic pattern.
Madrid, Milan, Oslo, Paris, Stockholm, Vienna One of the reasons for high airline operating
and Zurich. costs in Europe is that air traffic control
Taking a closer look at wage and salary costs twice as much as in the USA - largely
levels, San Francisco and Chicago were equal in because of the lack of a single air traffic flow
second place in the worldwide 'league table', management system and the proliferation of
Los Angeles was fifth and New York fourth; but European control centres. In 1981 fees for
food prices in San Francisco, for example, were government-provided services in Europe,
lower than in Helsinki, Geneva, Zurich, Oslo, including airport and air navigation charges,
Copenhagen and Stockholm. were 460% higher than in the USA.
Similarly, Los Angeles was fifth in the In this connection a recent positive
worldwide earnings league - but sixteenth in development has been the signing of a memorandum
price levels (including rents) which are as high of understanding between the USA and Britain,
or higher in five European cities, including ending a long-standing dispute about user
London. charges at Heathrow airport. The outcome is
The corollary is that general purchasing power that Britain has recognized the need for the
is lower in Europe than in the USA because British Airports Authority to seek external
European wages and salaries are much lower but financing for capital investments instead of
at the same time prices are relatively higher. recovering all costs before starting capital
This applies to a wide range of goods and projects, with the airlines as the main source
services. Again this factor must be taken into of income. Charges to the airlines will reflect
account in relation to air fares. more closely the cost of supplying airport
A few specific examples of price differentials services and all traffic will pay its
are : proportionate share of the operating costs - a
Food prices. 'Shopping basket' of 39 food very welcome step.
items in large supermarkets, including sales A further factor in European costs is
taxes where applicable, cost more in five major circuitous air routes which on average (and that
European centres than in Chicago and New York, is not new) are 15% longer than the distance 'as
and was higher in six European cities compared the crow flies'. This compares with only 3% in
with Los Angeles and San Francisco. the USA.
Household electrical appliances. This was The reasons for the inefficient European
based on a 'six-pack' comprising: an electric routes are usually political or military. The
or gas range, a refrigerator, a sewing machine, outcome is longer flying times and increased
a colour television set, a vacuum cleaner, and a fuel burn, resulting in higher costs. It is
steam iron. This cost less in New York than in estimated that if only the ten most extreme
nine major European cities, and the same as in cases were rectified, the fuel saving alone
Madrid. would amount annually to $27 million.
Public transport (i.e. bus, tram, underground Taking one example of a zigzag route, the
railway) . Compared with San Francisco - second distance flown from Stockholm to Athens is 1446
worldwide in wage/salary levels - prices for nautical miles. By straightening out this could
public transport are more expensive in nine of be reduced to 1303 nautical miles, a saving of
the surveyed European cities. 143 nautical miles or just over 10% with a
Car prices. The Union Bank of Switzerland consequent reduction in costs.
survey says categorically, 'the best place to However, considerable progress is being made.
buy a car is North America, where the average During a recent series of meetings of a special
comes to only 7984 US dollars - and for a 'big task force of the ICAO European Air Navigation
American land cruiser' at that. In Europe an Planning Group, the majority of IATA's proposals
automobile averages a good 8700 US dollars'. for route realignments were accepted. These
Services. A weighted package of 28 goods and total 9.6% of the existing mileage'on the route
services - including hairdressing, dry cleaning, sectors concerned, which is a significant saving
cinema ticket, paperback book, roll of colour in terms of fuel burn. Also a number of new
film, postage, use of telephone, travelling routeings were agreed which will further add to
expenses, etc., cost US$261 as an average of the miles-savings.
47 countries surveyed. At the working group level the representatives
The four most expensive cities - Oslo, of the various states were most co-operative,
Helsinki, London and Geneva - were all in and it is to be hoped that the European Air
Europe, where the average price of this basket Navigation Planning Group endorses the route
was US$281. Compared with San Francisco, the realignments, and that all the European states
package is more expensive in most of the involved will implement them without delay.
European cities in the survey. Here there is a real challenge for European
These examples illustrate that it is invidious politicians. When these original routes were
and misleading to single out European air fares created, they were dictated by the fact that
4
