Urbanization, or a Return to Rural

MIT Sloan Management Review offered its "Nine Megatrends to Watch" for the next decade.

One of these proposed Megatrends is "Urbanization". Sloan says:

Urbanization: Two-thirds of us will live in cities. The urbanization of our populations will increase, creating more megacities as well as small- and medium-size metropolises. Countervailing forces will include a rising cost of living in the most desirable cities. The effects will include the need for more big buildings with better management technologies (big data and AI that makes buildings much more efficient), and we will need more food moved in from where we grow it to where we eat it — or rapidly expand urban agriculture.

"Urban agriculture". Whenever I see this phrase I throw up in my mouth a little bit. We are able to support the food needs of 8 million people in New York City because of scale agriculture in rural areas as well as foot imported from the southern hemisphere. The idea of hydroponic organic rooftop farms, encased in greenhouses to deal with New York's climate, and providing a steady supply of year round fresh vegetables to the local city street corner bodega is just fantasy. This, along with the fact that some cities are collapsing under load as we speak, in 2019, with an inability to house people, no ability to support the working class a city requires (plumbers, electricians, firefighters, cops, etc.), and serious hygiene issues is why I think every urban center has a maximum load. And many are near it, and some have exceeded it.

The corollary is I read over at the Financial Samurai blog. He is looking at various commercial real estate investments in secondary cities. Including crowdsourced REITs focused on this market. So someone is putting money on the idea the major metropolises are reaching their limit in terms of crowding and cost, and businesses will expand into secondary cities.

Living in the Atlanta, and reading about businesses moving from Atlanta to Nashville and Charlotte to escape the crowding and traffic of Atlanta suggests there is a trend to build the next great secondary city, the kind of place Dallas, Denver, Atlanta, and Orlando were in the late 1970s and 1980s. And I also believe there will be a rise of tertiary cities. Hip small cities not too far from major metropolises.

My Megatrend to watch for is the rise of these new secondary and tertiary places.

The U.S. Airline Pilot Shortage, and the Airbus Opportunity

I saw a post on a travel board about Delta planning to hire 8,000 pilots over the next decade.

There is a demographic wave caused by FAA mandatory pilot retirement at age 65 (used to be 60 before 2007) and the ongoing wave of Baby Boomers hitting age 65. The first half of the Baby Boomer airline pilots were part of the Vietnam era. The second half of the Baby Boomer pilots were part of the 1980s Cold War era. Most of these Baby Boomer airline pilots came from the military. Behind them are the GenX pilots. Demographically there are many fewer GenX compared to Baby Boomers, and those born after 1970 got caught in the post-Cold War military downsizing, which was significant. I graduated in 1989, and the ROTC class behind mine had most of their pilot slots eliminated. My class experienced the "banked pilots", where pilots who graduated from flight school had no cockpit to go to, and had to wait 2-3 years to go to a flying assignment. Older pilots were pushed into staff jobs or pushed out using early retirement and mid-career pilots were pushed out using much tough promotion boards. The Air Force in the early 1990s shrank to about half of its airplane size from the peak of the Reagan Cold War buildup.

This was not a big problem for the airlines as they had a glut of pilots pushed out of the military, and then the Dot-Com bust happened along with the September 11th, 2001 terrorist attacks, and the resulting recession caused a big reduction in airline business. Many of those pilots who went to the airlines in the late 1990s were furloughed in 2001, and only returned several year later. The pilots returning from furlough, combined with the 2007 retirement age change gave an artificial bump to the airline pilot staffing.

While the Millennial cohort is much larger than the GenX cohort, and the first wave Millennials who flew as military pilots completed their military service commitments around 2015, there are far fewer Millennial military pilots because the military is so much smaller than it was during the Baby Boomer years.

Add to that the 2013 FAA requirement that regional airlines can only hire first officers with ATP certificates and the result is there are a lot fewer airline pilot candidates in the hiring pool. In the past, the regional airlines provided a pipeline for non-military pilots to build the hours and experience needed to qualify for the major airlines.

The ATP requirement for regional FOs is probably why there is so much up-gauging in the regional space. Replacing many 50-seat RJ flights with fewer 70 seat RJs, and shifting RJ flights to 100-seat plus major airline metal is a part of this.

But what surprises me is the continued replacement of larger 200-seat and above domestic airframes (767-300, 757-200) with 150 seat 737-800s and A320s. With a looming pilot shortage, it seems a return to the 1970s and 1980s 250-seat domestic airframes (DC-10, L-1011, A300, 767), but with more efficient aircraft, would be worth considering. I know the airlines love the idea of hourly frequency between major markets, but 90 minute frequency with 50% larger airframes might be a better way to deal with the looming pilot shortage.

I wonder if Airbus would consider an "A322" further stretch of the A321, perhaps based on the A321XLR weights but with a longer fuselage approaching the capacity of the 757-300 to go after the 225-250 seat domestic market. My guess is Airbus could further stretch the A321 to add about six rows of seats bringing the capacity of a proposed A322 to about 225 in a typical 2-class domestic configuration. The idea would be to use the wing, gross weights, and engines of the A321XLR, but with the fuel capacity of the A321NEO, to target at maximum range, the LAX-NYC transcontinental market. American Airlines and Delta have both used 767-300ER international configured aircraft for this market, and also premium configured 757s and A321s. With a premium seat offering, the seating capacity for an A322 would be much lower than 225, which would put it well within transcontinental range with a base A321NEO fuel capacity. Other major city pairs should have no problems with a 225 seat capacity and an A321NEO fuel capacity.

Boeing, quite simply, cannot offer a product in this space. They cannot stretch the 737 beyond the 737-10MAX. Boeing could dust off the 757-300, build an entirely new composite wing (needed to reduce the weight to make such an airplane competitive), find an acceptable engine, and put a 787 flight deck on the airplane (for crew training commonality), and they would have a competitive product. Such a "757-9X" would likely be well received by any airline who has a strong Boeing fleet presence. But this would be a huge undertaking given the out of production state of the 757. And Boeing is too busy trying to fix the disaster which is the 737MAX, and is trying to get the 777-X out the door.