Article - Issue 8, May 2001
The future of commercial air travel
Alan Mulally FREng
How different will commercial air travel be in 10 or 20 years’ time? Alan Mulally gives his assessment of the changes we will see and their implications for business and engineering. This article is based on The Royal Academy of Engineering Hinton Lecture, delivered on 10 October 2000.
Being asked to talk about the future is always a little bit intimidating. Nevertheless I want to put forward some of the big trends that I believe are going to shape air travel in the 21st century. I want to capture a sense of where the aerospace industry is going and what it will mean for all of us, because airplanes are already a very big part of all our lives. I particularly want to share some of the magic of the engineering, design and production of commercial airplanes.
The diagram shown here attempts to capture the forces that are changing our world and also changing our industry. The regulatory environment and the basic capabilities of airplanes are shaping airlines as we know them today and influencing their strategies in the marketplace. In the middle of the diagram are the fundamentals of the business that drive commercial airplanes – the essence of commercial airplanes, but also the essence of economic development around the world.
In general we can measure the rate of economic development around the world by looking at growth in GDP, which is about 3%. This has varied a little over time – Europe today is about 3.2%, the USA is around 2.8% and Asia 6–7% – overall economic development is moving forward at around 3%.
The increase in traffic or travel is usually a couple of percentage points higher than GDP growth. Generally the increase in travel is a good lead indicator for most countries because where there is economic development, combined with the operational efficiency of airplanes, travel has traditionally grown at 1.5–2.5% higher than GDP. Therefore basic passenger travel, as we see it, will continue to grow at around 5%.
The growth in freight is particularly interesting – by freight I mean everything but the transport of people. Freight transport is beginning to increase at about 7% and many people think freight growth could be quite a bit higher than this. One of the biggest enablers of this growth is the Internet because, as we are all discovering in our personal lives, transaction costs are now beginning to come down. All the middlemen between the supplier and the ultimate consumer are becoming more transparent and more responsive. So we are starting to see freight move around the world just like passengers. Because freight forms the backbone of the economy, we see it growing at a couple of percentage points higher than passenger travel. These percentages represent large numbers that drive the global economy.
As we know, economic growth is never smooth and any industry can experience exogenous shocks. Of course, at the moment (October 2000) our biggest concern in aerospace is our oil prices. There will always be ups and downs in the world economy but in general, as the world moves to market-based economies, the fundamentals of growth look to be around 3%.
Let us now consider the regulatory environment. We have all grown up in a very regulated world because of the Cold War. When Mr Gorbachev helped move the Soviet Union forward, the world changed fundamentally. All airplanes previously flew on designated paths around the world and we all knew what would happen when airplanes strayed from those paths. Now the world is moving towards market-based economies. To foster and support these economies, countries are beginning to deregulate their industries so they can compete globally.
The same phenomenon is occurring in the airline industry and we are starting to see the effects of this all around the world. For example, in the last five years almost 98% of the world’s airlines have been privatised. We are beginning to see a proliferation of bilateral agreements – in the USA alone there have been 40 such agreements in the last year (up to October 2000). As China and India and all of the world start to deregulate, the regulations that control landing and taking off will continue to open up. This has significant consequences for airlines – these consequences are now manifesting themselves in airline alliances. Even though the companies cannot own each other yet, the reason we are seeing big alliances is because this is their way of trying to create a global transportation system. There is no other industry in the world, in a market-based economy, where the industry leader (United Airlines) has a market share of just 6%.
I also believe that ownership laws are going to change in the future – the bilaterals are going to move to multilaterals. We can imagine that the alliances of today – loose groupings of companies for mutual profit – will lead eventually to major consolidation of a very fragmented industry to deliver a higher quality, more efficient global transportation system.
The graph below shows just how fragmented the aerospace industry is today. But the industry continues to consolidate, or ‘rationalise’, to use another good economic word. The companies shown here represent about a third of the companies that existed ten years ago. During this time Boeing has bought McDonnell Douglas and Rockwell. The Lockheed Martin integration involved 41 companies coming together: the world has changed and the time has come to consolidate in order to deliver better value in the future. Many people believe that during the Cold War we probably had 200 to 300% overcapacity in our industry, so what we are seeing here is a rationalisation of supply and demand.
Now let us move on to airplane and aerospace capabilities. I believe that the major developments that are going to change the world are the operating economics of airplanes, and digital technology, miniaturisation and GPS – space-based delivery of all information through satellites. When Boeing brought out the 747, it changed the airline industry because it lowered the basic seat–mile cost of carrying passengers around the world and enabled many cities to be connected. This cost reduction has facilitated the growth of travel. The 777 carries 100 fewer passengers than the 747 but the cost to carry one passenger one mile is lower than for the 747. This just proves what a tremendous contribution technology has made over the last 30 years.
The movement of passengers around the world by air is based on a system of major hubs such as Heathrow and Chicago. Airlines have used hubs because of the regulated world we used to live in – we brought big airplanes in, filled them up with passengers to achieve the lowest cost and then moved them all to another hub. The whole structure of hubs is also based on the capabilities of the airplanes, especially the large ones with the lowest seat–mile costs.
So what will happen now that smaller, more efficient airplanes have the capability to go point-to-point? The 777 has a longer range than the 747 – the economics are such that it costs less to take a passenger in a big airplane, and the world will allow the airplanes to go where passengers want to go. In the future, who will decide what has value in travel? It will be us, the passengers, and we will continue to demand, with our purchase decisions, to go where we want to go when we want to go. The result will be more point-to-point, non-stop service with everyone connected.
To give an example, in the next two years SouthWest Airlines will carry more passengers in the USA than any of the major carriers. For 30 years they have operated on a philosophy of taking people wherever they wanted to go, in a similar way to EasyJet, Ryan Air, Go and Buzz. We might have believed this phenomenon would not catch on. But I propose that, with the coming regulatory changes and the improved capabilities of airplanes, we (the consumers) are actually going to go where we want to.
Another major development that will influence future capabilities is GPS – the global positioning satellite system. There are about 500 such satellites operating today and I believe they will augment all the terrestrial communications systems as far as data delivery is concerned. Broadband data (internet protocol) at the speed of light will be delivered with satellites. Now, not only are satellites going to deliver data to stationary objects but they will also deliver it to airplanes.
The air traffic management and air traffic control systems we use today are fundamentally the same as they were 100 years ago where we put smoke on mountain tops. We look at radars, we track the airplanes and we tell them when to slow down, speed up, turn left or turn right. But the capability exists today for an airplane to know everything about where it is – a 777 has integrated receivers for ILS, MLS and GPS, with inertial updating. Airplanes know within metres where they are in inertial space and have both navigation and guidance control information delivered through satellite-based systems. With broadband data as well, all the data will be on servers around the world from where we will be able to access the information we need. Airplanes will be one node in a large internet.
It is not difficult to see what will happen with airplanes. All the information about an airplane, previously stored in the flight data recorder, can be sent down to the ground. The airplane ought to be broadcasting all its data in real time about its health, location and course. We can imagine what that will mean to air traffic management – more room will open up to enable people to go where they want on routes they want. For the first time in history, between the airplane and the navigation and guidance control systems, we have the technical ability to achieve this. This has fundamental implications for e-enabling airplanes and e-enabling our world.
When we move to this deregulated world with new capabilities in aerospace, I believe we will see a dramatic change in the structure and the systems of aerospace and airlines in general. What does this mean to us in business? The diagram above gives my view of how the commercial airplane business will grow (in just those parts in which Boeing is involved). At the bottom we have new airplanes – the industry turnover last year was about $58 billion and Boeing had about 65% market share.
Now let us consider all the other things associated with the airplanes themselves – not the areas such as the travel, experience, reservations that the airlines work on, but the engineering, training etc. associated with operating the airplanes. These things take up almost four times more in dollars than new airplanes.
Many people believe that airplanes are going to be a great industry – if we assume that 30% of the new airplanes we produce will go to replace older ones, 70% will be for growth. As business people this is very modest – 5% top-line growth. In terms of airplanes, there are 13,715 commercial airplanes flying today with over 100 seats. With just that modest 5% growth, those 13,715 airplanes are going to grow to over 20,000 airplanes in the next ten years. There will be a tripling of the fleet in the next 20 years.
So we can imagine the pressure on the global system to move to the new environment created by deregulation and new capabilities. This is the only way to allow for economic growth and increased travel and enable freight to move around the world. We are now seeing a tremendous opportunity to consolidate a very fragmented industry: the biggest areas for consolidation, outside of airplanes, are spares, training, engineering and modifications. This is because commercial airplanes last as long as the airline wants to keep them flying – the decision as to when an older airplane is replaced becomes an economic one.
A vital element of any future development in aerospace will be our ability to work together and our ability to use our technical expertise to work on very large-scale projects. Those people who can work together and share their skills will become even more highly valued. Attracting talented people is the biggest single challenge that aerospace companies face today, because young people today have so many choices about where to contribute.
We will end up listening to each other more than ever – projects now are very sophisticated and the decisions we make are very important. Nevertheless we need to keep celebrating how much fun the industry is and make it attractive for the people that are going to follow us.
Let us take the 777 as an example of the directions in which airplane design and construction are moving. The 777 has approximately 4 million parts (generally they are flying in formation!) and has about 30,000 suppliers in 60 countries. At the peak of the 777 programme there were around 800,000 creative people working together on it around the world. These airplanes are so big (a 777-300 is longer than a 747) that construction is done with overhead cranes.
The landing gear was designed with a six-wheel bogey – six wheels on each truck. This is a tremendous innovation because the 777 lands like a bird – it sets down and rights itself. This is why the ride is so smooth and there is no need to add a centre-post gear of the kind you see on some airplanes. Because the 777 has six wheels, the weight footprint is spread around so it is user-friendly on concrete. The two aft wheels can turn 17 degrees so that the airplane can perform a U-turn on the taxiway.
The engines are the best ever from the points of view of noise, emissions, fuel efficiency and reliability. The outside diameter of these engines is larger than that of the 737 and the 757 fuselage, but because the airplane is so big it is hard to appreciate the size.
The biggest question now facing the aerospace industry is this: who is going to help design and set up the new world-wide system for air travel that I have outlined, not only for the management of airplanes in the air but also for the information that is required on and off the airplanes? And who will manage the assets themselves? These are very expensive, powerful, value-creating assets. Today some 747s fly 15 or 16 hours per day; they are unbelievably robust vehicles.
There will probably be a whole set of new opportunities for managing the fleet, removing old airplanes and putting new ones in – e-enabling the whole fleet. So we can see a tremendous opportunity for companies to provide this kind of value to the travelling public. We all want to create even further a safe and efficient global air transportation system that will allow people, ideas, goods, and services to get together around our world.
Alan Mulally is Senior Vice President of the Boeing Company and President of Boeing Information, Space and Defense Systems. He is responsible for the company’s defence, government and commercial space customers. Previously he was senior vice president of airplane development for Boeing Commercial Airplane Group. He has received numerous awards and honours for his work in engineering and aviation.
Alan Mulally FREng
Senior Vice President, Boeing Corporation
President, Boeing Commercial Airplanes