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Airline Management

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Title: Airline Management


1
Airline Management
  • AVM 373
  • PROFESSOR GREG SCHWAB

2
  • US AIRWAYS
  • NEW EMPLOYEE
  • ORIENTATION

3
COURSE INTRODUCTION
  • OVERVIEW
  • COURSE REQUIREMENTS
  • HOW TO GET AN A

4
Chapter 1 Objectives
5
Air Transportation includes
  • All civil flying performed by the certified air
    carriers and general aviation
  • Does not include military but military activity
    is tracked by the FAA

6
Interstate Air Transportation
  • The carriage of persons or property for
    compensation or hire

7
Aerospace Industry
  • Research and Development
  • Aerospace Systems
  • Defense
  • Spacecraft
  • Propulsion, Guidance, Control Units
  • Airborne and Ground Based Equipment
  • Testing, Operations, and Maintenance

8
Principle Product Lines
  • Aircraft
  • Missiles
  • Space Systems
  • Engines
  • Parts and Equipment

9
Product Lines Characterized by
  • High Performance
  • High Reliability
  • High Technology
  • High Unit Value

10
Industry activity is
  • Dominated by the DOD and NASA
  • The principle customer is the DOD (is this
    changing?)
  • The principle commercial product is the airline
    transport

11
Prior to WWII
  • There were over two dozen companies designing and
    building commercial airliners
  • Today the mayor players are down to two
  • Boeing (72)
  • Airbus (28)
  • Historically, Boeing and McDonald-Douglas have
    offset large RD expenses by benefiting from
    large military contracts

12
Government Contracts
  • Government required to ask for bidders
  • Request for Proposals
  • Detailed Specifications

13
Industry Characteristics
  • Air Transportation includes
  • all transportation by certified air carriers and
    general aviation aircraft
  • Transformation of Industry during the 1950s due
    to
  • production of jet powered military aircraft
  • Late 1960s
  • fabrication of equipment to meet the nations
    goals in space exploration

14
Changes compounded need for
  • More R D (technology)
  • Greater product complexity
  • More personnel per unit produced
  • Higher skill level
  • Longer program development time
  • The need for new facilities

15
Manufacturing Output
  • 1991 almost 65 of industry bought by federal
    government
  • Exports of aerospace represent 10 of total US
    exports
  • Aviation exports exceed aviation imports

16
Industry vital to US in
  • Trade balance
  • Employment
  • consistently employees 1,000,000 people
  • R D
  • Impact on other industries
  • Travel infrastructure
  • travel related industries

17
General Aviation
  • After record shipments in 1978, GA has
    experienced a 13 year downward trend in sales
    from 17,817 in 1978 to 1,104 in 1996
  • Historically, the GA industry has closely
    paralleled that of the nations economy (GNP)
  • In other words, things have to be pretty good
    for people to buy their own plane.
  • More recently, GA sales have not responded to the
    current economic recovery

18
Reasons for downward GA trend
  • High aircraft prices
  • High interest rates
  • High operating expenses
  • High product liability costs
  • Changing lifestyles
  • Tax laws
  • Foreign competition

19
What is General Aviation
  • All civil aviation except that which is carried
    out by the certified airlines
  • GA accounts for over 80 of operations at towered
    airports
  • GA accumulates over 80 of total hours flown by
    GA and air carriers combined

20
What is General Aviation
  • GA utilizes all of the nations 17,581 airports
  • Air carriers serve about 800 of these
  • 75 of the air carrier traffic is concentrated at
    30 of the 800 airports

21
Business Aviation
  • Business use of light aircraft remains strong
  • Why?
  • Fuel-efficient
  • Can fly to GA airports
  • Most often can fly direct to destination
  • Efficient use of time
  • Decentralization of business
  • Concentrated airline service

22
Airline Aviation
  • Fewer than 5 of US airports have airline service
  • Majority of flights serve only 30 major centers
  • Expected growth in commuter-regional airline
    service to cities with low passenger volumes
  • Large carriers will concentrate on high density
    markets

23
Airline Aviation
  • By 1960, 1/3 of adult Americans had flown
    commercially
  • By 1981, 2/3
  • By 1995, 80
  • Fare prices remain a bargain compared to price
    increases of other products and services over the
    past 40 years

24
Chapter 2 Objectives
25
Air Mail Service
  • The first regular airmail route in the US was
    established in May 1918 between New York City and
    Washington DC
  • 218 miles in length
  • Discontinued in May 1921

26
Why Regulate Aviation?
  • Stabilize the industry
  • Improve air safety
  • Reduce cash subsidy by US government

27
Congress Rights
  • Regulate interstate and foreign commerce
  • Regulate the postal service
  • Make treaties with foreign nations
  • Provide for the national defense

28
The Air Mail ACT of 1925 (Kelly ACT)
  • Authorized the postmaster general to enter into
    contracts with private persons or companies for
    the transportation of mail by air

29
Air Commerce ACT of 1926
  • Duty of the Secretary of Commerce to encourage
    air commerce by establishing civil airways and
    navigational facilities to aid aerial navigation
    and commerce
  • Got the federal government into the aviation
    business as a regulator for the air carriers
  • Created by the Kelly Act

30
Air Commerce ACT of 1926
  • Promote the development and stability of
    commercial aviation in order to attract adequate
    capital into the business and provide the
    fledgling industry with the assistance and legal
    basis necessary for its growth

31
Air Commerce ACT of 1926
  • Established regulations for
  • Licensing of Pilots
  • Licensing of Mechanics
  • Aircraft Inspection
  • Operation of aircraft
  • Marking of licensed and unlicensed aircraft
  • Airways
  • Lead to Bureau of Air Commerce

32
Air Mail ACT of 1930
  • Passed to enhance growth, efficiency, stability
  • reckless competition was rampant
  • Provided Postmaster General with unlimited
    control over airmail route system
  • Postmaster General could extend or consolidate
    routes in public interest
  • Spoils Conference

33
Air Mail ACT of 1934
  • Authorized one year contracts subject to review
    prior to renewal
  • Signed into law by President Roosevelt
  • Interstate Commerce Commission
  • regulated rates and service equipment

34
The Civil Aeronautics ACT of 1938
  • Substituted a single Federal Statute replacing
    general and airmail statutes that had up until
    this time provided direction for aviation
  • Created an overall administrative body
  • 5 member Civil Aeronautics Board
  • 3 Member Air Safety Board
  • An overall administrator

35
The Civil Aeronautics ACT of 1938
  • Members appointed by the President for 6 year
    overlapping terms
  • Members not permitted financial interest in
    aviation
  • Members appointed by the President for 6 year
    overlapping termsMembers not permitted financial
    interest in aviation

36
Civil Aeronautics Authority
  • Congressional mandate to CAA to provide
  • Encourage and develop the air transportation
    system
  • Regulate to a high degree of safety
  • Promote adequate, economical, and efficient
    system
  • Encourage development of civil aeronautics

37
Civil Aeronautics Authority
  • Exercised quasi-judicial and legislative
    functions covering economic and safety
    regulations
  • Balance of personnel, property and unexpended
    funds transferred from Bureau of Air Commerce and
    Interstate Commerce Commission

38
Civil Aeronautic Board
  • CAA Reorganized into the CAB
  • CAB became the Civil Aeronautics Administration
    (CAA)
  • CAA became Federal Aviation Agency (FAA)
  • FAA became the Federal Aviation Administration
    (FAA)

39
CAB Road to Deregulation
  • 1977, President Carter appoints Chairman, Alfred
    Kahn
  • Strong proponent of deregulation
  • Began processing and approving application for
    airlines
  • Better if airlines promised lower fares
  • Renewals were based upon delivery of promises

40
CAB Road to Deregulation
  • Strong opposition from unions and financial
    institutions
  • Deregulated air cargo in 1977
  • initial success pushed CAB into support

41
Airline Deregulation ACT of 1978
  • Mirrored other transportation deregulation Acts
  • highway, Waterway
  • Domestic Air Transportation System
  • Overriding theme was competition
  • Airline restrictions slowly removed
  • Essential Air Service
  • Small community air service program
  • CAB sunset provision transferred duties to DOT in
    1985

42
Deregulation Issues
  • Prior to deregulation-problems existed
  • system suffered from overcapacity
  • barriers to entry and exit from the industry
  • lengthy regulatory process

43
Deregulation Issues
  • Major changes under deregulation
  • Phasing out of the CAB by 1985
  • Easing of restrictions into markets
  • entry-exit
  • CAB losing authority over fares by 1983
  • Reduced reporting requirements for air carriers
  • Federal preemption of any state economic
    regulation of air transportation

44
Airline Deregulation
  • Proponents Argued
  • Commuters would best serve low-density markets
  • Market place would best serve American interests

45
Airline Deregulation
  • Opponents Argued
  • Regulation has served the public interest as well
    as air carrier interest
  • Deregulation would destabilize the air carrier
    market

46
Air Carrier Aircraft Development
  • After wartime production of aircraft ended in the
    late 1940s, aircraft companies began to focus on
    producing aircraft for business transportation

47
Air Carrier Aircraft Development
  • Good example The Douglas DC-3
  • Became the first aircraft to give airlines three
    vital ingredients necessary to reach financial
    break-even point
  • speed
  • safety
  • economy

48
Air Carrier Aircraft Development
  • DeHavilland Comet
  • first commercial aircraft (worldwide)
  • numerous crashes caused early cancellation
  • Boeing 707
  • Military R D effort
  • Boeing risked own funds for R D
  • Technology transfer to civilian market
  • First U.S. jet to enter scheduled service (Pan Am)

49
Air Carrier Aircraft Development
  • Boeing 727
  • first tested 1963
  • fielded 1964
  • hugely successful airframe
  • Boeing 737
  • Most popular air carrier jet in service today
  • 3,000 flying worldwide

50
Aviation Aircraft Pioneers
  • William Lear
  • gambler, inventor, promoter
  • developed lear jet
  • Walter Beech
  • Beech Aircraft Corporation
  • Beech King Air
  • most successful turbo-prop aircraft flown by
    commuters and corporations

51
Aviation Aircraft Pioneers
  • Clyde Cessna
  • founded Cessna Corporation
  • C-172 became most popular aircraft for business
    and pleasure market

52
Chapter 3 Objectives
53
Department of Transportation (www.dot.gov)
  • Cabinet level office first requested as far back
    as 1870
  • DOT created in 1966
  • Alan Boyd first Secretary of Transportation
  • President Johnson credited with authorship of DOT
  • Advocated creation of DOT and NTSB
  • Focused on need for system-wide coordination,
    safety, and reorganization of transportation
    activities and planning
  • He rallied support for supersonic planes,
    aircraft noise control, and high speed rail

54
Department of Transportation
  • Primary Objectives
  • stimulating technological advances
  • provide general leadership
  • coordination of transportation services
  • Secretary of Transportation
  • appointed by the President
  • reports to congress
  • Major Functions (see text)

55
Federal Aviation Administration
  • Primary Objective
  • Promotion of aviation safety while ensuring the
    efficient use of the nations navigable airspace
  • www.faa.gov

56
Federal Aviation Administration
  • Traces roots back to the Air Commerce Act of 1926
  • How does the FAA do its job?
  • issues/enforces safety rules and regulations
  • certifies airmen, aircraft, aircraft components,
    air agencies, airports
  • Manages/operates national airspace system

57
FAA Offices-Points of Contact
  • National Headquarters-Washington D.C.
  • Regional Offices
  • Flight Standards District Office (FSDO)
  • Air Traffic Control
  • Flight Service Station
  • Control Towers
  • Air Route Traffic Control Center (ARTCC)

58
FAA Operating Certificates
  • Airmen
  • Pilots
  • Mechanics
  • Controllers
  • Dispatchers
  • Parachute Riggers
  • Air Carrier Operating
  • Part 121/135

59
FAA Operating Certificates
  • Aircraft
  • 1. Type Prototype aircraft (experimental),
    aircraft, engine, propeller, or appliance
  • 2. Production after test complete (factory may
    begin production of a specific type of aircraft)
  • 3. Airworthiness unique to each airframe
    produced

60
FAA Operating Certificates
  • Air Navigation
  • FAA inspects, classify, and rate facilities such
    as lights, navigation facilities
    (VOR,VORTAC,NDB,RADAR)
  • Air Agency
  • Flight Schools, ATC Schools, Aircraft Dispatcher
    Schools, Mechanic Schools
  • Airport Operating
  • Airports serving air carriers. Ensures a minimum
    level of safety
  • Part 139 (either full or limited certificate)

61
Airport Certification Examples
  • FAA ensures airports meet standards established
    in FAA Advisory Circulars
  • Environmental Compliance
  • Fuel Storage
  • De-Icier
  • Fire Fighting
  • Bird Hazards
  • Snow Removal

62
FAA Enforcement
  • Investigation
  • all civil accidents
  • probable cause reserved for NTSB
  • safety concerns
  • accident doesnt have to occur

63
FAA Enforcement
  • Operations
  • ATC System
  • NAVAIDS
  • Airports
  • Aeronautical Center
  • Technical Center
  • NASA Report
  • FAA honors NASA Reports that are properly filed
  • but there are limitations

64
FAA Funding
  • Airport and Airway Development Act of 1970
  • allocated funds for airport construction projects
  • later became the Planning Grant Program (1980)
  • birth of Airport Improvement Program (AIP)

65
FAA AIP Funding
  • Incorporates local/State/Regional plans
  • Master/Strategic Plans
  • 10 percent sales tax supported (changing)
  • Local share 5
  • State share 5
  • Federal share 90
  • Cost refunded to sponsors (State/Local)

66
Other FAA Initiatives
  • Microwave Landing System (MLS)
  • Global Positioning System (GPS)
  • Continuous ATC System modernization
  • STARS, ASDE, ADS, ADS-B
  • Aeromedical and Human Factors
  • R D (Atlantic City,NJ)

67
NTSB
  • National Transportation and Safety Board
  • Appointed by President
  • with advise and consent of Senate
  • Five members
  • 5 year overlapping terms
  • chairman and one co-chairman
  • Independent of DOT
  • DOT must respond within 90 days of NTSB
    Recommendation
  • Offices throughout US and Alaska

68
Transportation Act of 1974
  • NTSB established as entirely independent agency
  • Broad powers to investigate transportation
    accidents
  • Most recommendations directed at FAA
  • airlines must state why they wont comply with
    recommendations within 90 days

69
NTSB Requirements of 1974 Transportation Act
  • Conduct special studies on safety problems
  • Evaluate effectiveness of government agencies
    involved in transportation safety
  • Evaluate safeguards used for transportation of
    hazardous materials
  • Review appeals from airmen and merchant seaman
    whose certificates have been suspended or revoked

70
NTSB Scope and Responsibilities
  • Investigate civilian accidents in
  • aviation
  • selected highway accidents
  • fatal pipeline accidents or substantial damage
  • all passenger train accidents or fatal railroad
  • major waterway and any involving public vessel

71
NTSB Concerns
  • Intention of flight by pilot
  • flight doesnt have to occur
  • pilots may be violated based on intent
  • Damage to aircraft

72
NTSB- When you need help
  • Notification Process
  • www.ntsb.gov
  • Flight Standards District Office
  • Air Traffic Control Facility
  • When and Why you call
  • problem with flight controls
  • crewmember cant perform duties, i.e. drunk
  • in-flight fire
  • overdue aircraft

73
NASA Report
  • Your get-out-of jail-free-card
  • Only can use once in a 5 year period
  • Must file within 10 days of a violation
  • Some restrictions

74
NTSB Major Accident Investigation
  • Go-Team Activates- on 24 hour alert
  • Accident Team Members
  • 1 of 5 board members
  • air traffic controller
  • experts trained in
  • witness investigation
  • aircraft operations
  • aircraft maintenance
  • human factors
  • meteorologists
  • hazardous materials

75
NTSB Major Accident Investigation
  • Aviation accidents have been on a flat line since
    mid-1980s
  • Recently, the number of persons killed in
    aviation accidents in the U.S. and its
    territories dropped from
  • 1,093 in 1996 (380 air carrier) ValueJet and TWA
    800
  • 976 in 1997 (8 air carrier) (source NTSB 1998
    report )

76
NTSB Major Accident Investigation
  • Year 2000 Statistics
  • Part 121 Carriers 49 Accidents 92 deaths
    (AK Flt 261, Embry DC-8)
  • Accident per 100,000 Departures 0.440
  • Charter Carriers 5 Accidents (no deaths)
  • Accidents per 100,000 Departures 1.131
  • Part 135 Operators 80 Accidents 5 deaths
  • Accidents per 100,000 Departures 3.23
  • General Aviation 1835 Accidents 341 deaths
  • Accidents per 100,000 Departures 6.49

77
NTSB Investigation Steps
  • Go-Team at site
  • 7-10 days for typical accident
  • Laboratory
  • review black box
  • review air traffic control tapes
  • Safety Recommendation
  • boards end product
  • vital to safety prevention
  • Public Hearing
  • near crash site
  • Final Report

78
International Civil Aviation Organization (ICAO)
  • www.icao.org
  • Composed of 185 countries (/-)
  • called the Assembly
  • 33 countries make up the council
  • Meet once every three years
  • additional meetings as required

79
ICAO Facts
  • Purpose and Principal Aim
  • Develop principals and techniques to foster
    planning and development of international air
    navigation to ensure safe and orderly growth

80
ICAO Facts
  • Other Aims
  • prevent economic waste caused by unreasonable
    competition
  • avoid discrimination between contracting states
  • encourage development of airways, airports, and
    navigation facilities for international civil
    aviation
  • Normally adopts FAA and NTSB guidelines
  • Headquartered in Montreal, Quebec, Canada

81
ICAO Issues
  • FAA interface
  • some consider ICAO a puppet of the FAA
  • much like United Nations considered an arm of the
    United States government
  • FAA interfaces with DOD, NTSB, ICAO

82
Major Aviation Associations
  • Air Transport Association (ATA)
  • schedules airline service organizations
  • goals achieved through a system of councils
  • Regional Airline Association
  • airlines that deals with short, local, feeder
    routes
  • formally Commuter Airline Association

83
Major Aviation Associations
  • Aerospace Industries Association (AIA)
  • trade group representing aviation R D interests
  • National Business Aviation Association (NBAA)
  • represents over 3000 aviation corporations
    (www.nbaa.org)
  • Aircraft Owners and Pilots Association (AOPA)
  • represents over 250,000 members who fly and own
    aircraft (www.aopa.org)
  • Aeronautical Radio Inc (ARNIC), (www.arinc.com)
  • company owned by the airlines and provide
    communication services

84
Major Aviation Associations
  • American Association of Airport Executives
    (www.airportnet.org)
  • represents airport officials and students of
    airport management
  • Air Traffic Control Association (ATCA)
    (www.atca.org)
  • represents those interested in advancement of air
    traffic control
  • National Air Traffic Control Association (NATCA)
    (www.natca.org)
  • union that represents the FAA air traffic
    controllers

85
Chapter 4 Objectives
86
The General Aviation Industry
  • Accepted definition of General Aviation
  • All civil aviation except that carried by the
    commercial airlines
  • Aircraft termed utility to distinguish it from
    larger aircraft

87
GA Airport Support
  • Air Traffic Control
  • Flight Service Station provides primary support
  • Active aircraft means
  • aircraft must have current registration and flown
    during the past year
  • 17,581 airports nationwide
  • public and private
  • public-use private airports of concern to FAA
  • why? vulnerability to sale
  • Private pilot certificates have increased but
    slowly
  • 600 Control Towers

88
GA Support Industry
  • Manufactures
  • shipments have steadily declined but some
    turnaround may be seen in the future
  • product liability issues have been resolved
  • Corporate Aviation
  • Executive Use
  • Specific title used by FAA to describe use not
    for compensation or hire
  • greatest number of GA aircraft show business as
    primary use

89
GA Support Industry
  • Fixed Base Operators provide numerous services
  • line services
  • aircraft storage
  • aircraft maintenance
  • sales and service (largest sales Cessna)
  • Flight instruction
  • does not include proficiency flights
  • Commercial Services
  • Part 135 Passenger and Cargo Services
  • Profit margins vary

90
GA Statistics
  • 90 of all civil air fleet is GA
  • No reporting requirements
  • 181,341 active aircraft GA aircraft (1995)
  • on a steady decline
  • GA operations represent 75 of traffic at control
    tower locations
  • Approximately 254,002 active GA pilots
  • 622,261 total U.S. pilots

91
NTSB Accident Investigation
  • Aviation accidents have been on a flat line since
    mid-1980s
  • Recently, the number of persons killed in general
    aviation accidents in the U.S. and its
    territories dropped from
  • 631 in 1996
  • 646 in 1997
  • 341 in 2000 (source NTSB 2001 report )

92
GA Usage
  • Business
  • over 2/3 of fortune 500 companies operate
    business aircraft
  • many variations
  • Personal flying
  • personal transportation by air is not
    economically regulated
  • Instructional flying

93
GA Usage
  • Commercial and Industrial Flying
  • aerial application
  • aerial observation
  • other work use
  • commuter air carrier
  • air taxi
  • Agricultural

94
Major Factors Affecting sales of Aircraft
  • Product liability claims
  • Luxury taxes
  • Subsidization of research, development,
    production and financing

95
Economic Factors affecting GA Aircraft
  • Prior to 1978 changes to GA equaled changes in
    the economy
  • Late 1970s long slow decline in aircraft
    shipments
  • President Johnsons Great Society social
    programs
  • 4 Planes introduced in 1960s Cessna 172, Piper
    Cherokee, Beech King Air 90, and Lear 23
  • More planes sold in the 1970s than before or
    since
  • Airport Development Act of 1970
  • Many smaller companies purchased by larger
    companies in the 1980s.

96
Economic Factors affecting GA Aircraft
  • 1970s focused on product liability
  • 50 per aircraft in 1962
  • 2,111 per aircraft in 1972
  • 70,000 per aircraft in 1985
  • Companies self-insured to offset risk
  • Airline Deregulation
  • slowed business aviation initially

97
Chapter 5 Objectives
98
The Airline Industry
  • A industry may be defined as a number of firms
    that produce similar products and services and
    therefore are in competition with one another
  • In the airline industry, United Airlines is the
    largest and earned 16 billion in revenues 1997

99
The Airline Industry
  • Industry Structure
  • Major
  • Nationals
  • Regionals
  • Certified carriers employ over 500,000 employees
  • Nearly 5,000 multi-engine aircraft in use by U.S.
    carriers

100
The Use of Aviation in the United States
  • Social
  • Political

101
The Social Use of Aviation in the United States
  • Transportation is civilization
  • Aviation is an applied technology
  • One jetliner contains
  • 4.5 million parts
  • 100 miles of wiring
  • 2,000 pieces of tubing
  • 75,000 engine drawings
  • 12,000 pages of Technical Orders
  • U.S. Airfares are the lowest in the world

102
The Political Use of Aviation in the United States
  • National Defense
  • CRAF
  • Aviation allows position of world leadership
  • Defense relies upon airpower and diplomacy rather
    than physical barriers
  • Air Power is Peace Power

103
The Political Considerations of Selecting a Site
  • Legislative and Regulatory actions
  • Fuel Tax
  • Landing Fees
  • Property Taxes

104
The Airline Industry Majors
  • Annual gross revenues over one billion dollars
    annually
  • Major Airlines serving airports
  • American, Delta, Northwest,TWA, United,
    Continental, Southwest, Alaska, UPS,FedEx,
    DHL Airways, American West, US Airways
  • Carry 80 of industry traffic
  • B-737 most widely used aircraft

105
The Airline Industry Nationals
  • Sales between 100 million-1 Billion
  • Airlines
  • Numerous airlines (32) including AirTran, World
  • Includes Supplemental air carriers, (i.e., ATA)

106
The Airline Industry Regional/Commuter
  • Regionalized service
  • Propeller driven (70Turbo-prop, 25 piston)
  • This is changing rapidly, moving toward business
    class jets
  • Small, medium, and large regional
  • Since deregulation, regionals have declined in
    numbers
  • Code-Sharing with Nationals and Majors

107
The Airline Industry Regional/Commuter
  • Large regional control 3/4 of regional traffic
  • 9 out of 10 airports receiving scheduled air
    service are served by a Regional
  • Primarily operate aircraft seating less than 60
    passengers
  • Operate over short distances between 100-300
    miles
  • Certified commuters are referred to as medium or
    large regional

108
The Airline Industry Regional/Commuter
  • Formerly air taxi operators
  • Classified as small regionals (noncertificated
    carriers)
  • Operate over short distances between 100-300
    miles
  • Regional Airline Association was formally the
    Commuter Airline Association
  • more descriptive of service offered

109
NTSB Major Accident Investigation
  • Aviation accidents have been on a flat line since
    mid-1980s
  • Recently, the number of persons killed in air
    carrier accidents in the U.S. and its territories
    dropped from
  • 92 in 2000 (AK Flt 262, Embry Worldwide)
  • 5 Commuter in 2000
  • 71 Air Taxi in 2000
  • Non-US Registered air carrier deaths were 236
    (mainly from Korean Air 747 craash in Guam in
    August 1997)
  • (source NTSB 1998 report )

110
Deregulation affect on Airline Industry
  • All modes of transportation deregulated
  • highway, rail, water, air
  • Increased competition
  • Safety improved after deregulation, then leveled
    off
  • Economy experienced its worst recession in two
    decades during first three years of deregulation
    of the 1980s
  • Number of Regionals have decreased
  • expect to grow at in the next 10 years

111
Airline Economic Considerations
  • Load factors
  • Airframe
  • Fuel Flow
  • Population
  • Competition

112
Air Carrier Route Selection Determinates
  • Economic considerations
  • Business
  • Pleasure
  • Mail
  • Cargo
  • Seasonal operations

113
Geography Considerations
  • Terrain
  • Weather
  • Navigational status
  • Airport
  • ATC Regulation

114
Section 401 Certificates
  • Air Carrier Certificates- Three Types
  • Primary of determination of fitness
  • Determination of public convenience and necessity
  • carriers providing foreign service
  • Continuing fitness review

115
Section 401 Certificates
  • Airlines must pass fitness test
  • carrier site
  • financial resources
  • flight equipment
  • strategy for operations
  • past performance to legal requirements
  • Recurrent evaluations
  • Insurance certificate covering operations

116
Section 418 Certificates
  • All-Cargo Certificates
  • No passengers

117
Section 419 Certificates
  • Commuter Air Carriers
  • Must submit insurance certificates
  • Also subject to Section 401 Continuing fitness
    requirements
  • Prior to beginning operations commuter must have
    registration on file

118
Travel Agencies
  • ?

119
Chapter 16 Objectives
120
International Aviation
  • Sovereignty
  • International Air Law
  • Deregulation
  • Growth

121
Air Transportation involves
  • Building airports
  • Navigational aids
  • Weather reporting systems

122
International systems standardized include
  • Air Traffic Control
  • Aircraft Design
  • Personnel licensing
  • Airports

123
International Air Law
  • Looked closely at establishing universal
    international jurisprudence
  • i.e. World Court

124
Sovereignty in Airspace
  • Should airspace above a nation be considered
    within the sovereignty of each nation?
  • Or like the high seas, be considered
    international?

125
Opposing Theories
  • Air is Free
  • states have no authority over it
  • Air is Not Free
  • states have air sovereignty over their soil

126
Paris Convention-1919
  • Allied and associated nations met
  • International Commission on Air Navigation
  • Enacted International Air Navigation Code
  • Referred to as Paris Convention of 1919

127
Paris Convention- Outcomes
  • Full and absolute sovereignty of each state over
    the air above its territories, and waters
  • states could not impose jurisdiction over the air
    above
  • Consider Captain Gary Powers flight (1960s)
  • No discrimination based on nationality
  • Every aircraft must be registered to a state

128
Paris Convention- Outcomes
  • Special treatment for military, naval, and state
    aircraft
  • Right to transit without landing
  • Right to use public airports
  • Mutual identity
  • cover damage done to another state
  • Establish a permanent International Aeronautical
    Commission
  • Rights remain during time of war

129
Paris Convention- Outcomes
  • To ensure safe navigation
  • Each aircraft will have a certificate of
    airworthiness and license for wireless equipment
  • Pilots will be licensed
  • Right of Way rules to prevent collisions
  • Rules for ground operations

130
Havana Convention- 1928
  • Established special customs procedures for
    aviation
  • Reinforced 1919 convention agenda

131
Warsaw Convention- 1929
  • Provided unification of rules relating to
    international transportation by air addressing
  • Passenger
  • Merchandise

132
Warsaw Convention- Outcomes
  • Convention provided that an air carrier is liable
    for damage sustained by
  • Death or injury to passengers
  • Destruction, loss, or damage to baggage or goods
  • Loss resulting from delay in the transportation
    of passengers, baggage, or merchandise

133
Warsaw Convention- Outcomes
  • Set Standards for the following
  • Passenger tickets
  • Cargo waybills
  • Air travel documentation

134
Chicago Conference- 1944
  • Foster development of international Civil
    Aviation
  • Based on theory of opportunity and sound and
    economical operation
  • Nation may provide reasonable search of aircraft
  • Transit aircraft will be provided fuel and oil
    except from local duties (charges)
  • Standard form of air transport agreement

135
Chicago Conference- 1944
  • Standardized many rules/procedures
  • communication systems
  • airports
  • air traffic rules
  • licensing
  • airworthiness and registration
  • weather information exchange
  • logbooks
  • maps/charts
  • customs
  • accident investigation

136
Chicago Conference- 1944
  • ICAO born
  • Expenses divided between nations
  • U.S. pay larger share (80)
  • Disputes may be settled by Permanent Court of
    International Justice
  • or special arbitration tribunal
  • Power to suspend airline from international
    operations

137
Two/Five Freedoms
  • Privilege of flying across its territory without
    landing
  • Privilege of landing for non-traffic purposes
  • Privilege of deplaning passengers, mail, and
    cargo
  • Privilege of picking up passengers, mail, and
    cargo
  • Privilege of picking up/dropping off passengers,
    mail, or cargo destined for 3rd country

138
International Air Transport Association (IATA)
  • www.iata.org
  • To provide a means for collaboration among air
    transport enterprises engaged directly or
    indirectly in international air transport service
  • Foster air commerce and study the problems
    connected with air service
  • Cooperates with ICAO
  • Provides a forum to determine fares and route
    structures

139
Post 1970s
  • International fares complicated and abused

140
U.S. Policy on International Aviation
  • Carter Policy
  • U.S. conduct in international aviation
  • Established to provide U.S. negotiators with
    guidelines on objectives
  • Goal give consumer the most competitive service
    available

141
U.S. Policy on International Aviation
  • Expand opportunities
  • exploit technology to enhance international
    travel
  • 34 of international traffic crosses the North
    Atlantic routes
  • President Carter policy to encourage competition
  • Largest percentage increase between 1977 and 1986
    was between the U.S. and South Korea (business
    buildup)

142
International Concentration
  • Inevitable
  • Individual airlines do not possess global reach
  • Force Multiplier
  • power of the hub
  • computer reservation system
  • equipment usage (supplies, purchases)
  • Cabotage
  • foreign operators carrying passengers between two
    domestic points in another country

143
International Air Transportation Act of 1979
  • Counter-part to Airline Deregulation Act of 1978
  • Implements U.S. policy in international aviation
  • Few restrictions to airlines
  • Ensure equality for American air carriers
  • Only problem no one cares in international
    arena- not enforceable

144
International Aviation
  • U.S. market share has lost share in several
    European countries such as Italy
  • Southern Europe not receptive to increases in
    U.S. services

145
Air Carrier Globalization
  • Airlines searching for global partners
  • Advantages
  • large and widespread new route network
  • dominate operations and marketing at large hubs
  • control distribution through computer reservation
    systems
  • ability to exercise price leadership

146
Air Carrier Globalization
  • American, Delta, United
  • equipment
  • growing international routes
  • favorable balance sheets
  • Alliances
  • KLM Northwest
  • SAS Continental
  • British Airways American

147
Open Skies Treaties
  • Agreement between U.S. and individual countries
  • Allows carriers to operate without restriction
    between any point in either country
  • Guarantees open entry and unrestricted capacity
    and frequency on all routes

148
Principle markets for Open Skies
  • U.S. - Europe
  • U.S. - South America
  • U.S. - Far East
  • Operations and reception varies
  • Major trend for the future!

149
Chapter 6 Economic Characteristics of the Airlines
  • Review Chapter Objectives

150
Introduction Oligopoly
  • Typically characterized by high barriers to entry
  • Substantial capital investments
  • Need for technical know-how
  • Control of patent rights
  • Few sellers in marketplace
  • Airlines typically considered an Oligopoly

151
Oligopoly Characteristics
  • Substantial economies of scale
  • a decrease in a firms long-term average costs as
    the size of its operations increases
  • Typically requires large-scale production to
    obtain low units costs
  • Growth through merger
  • the purpose of most mergers is to gain a
    substantial increase in market share, greater
    economies of scale, more buying power in the
    purchase of resources

152
Oligopoly Characteristics
  • Mutual dependence
  • In oligopoly markets, it matters what your
    competition does
  • They must consider reactions
  • Price rigidity and nonprice competition
  • oligopoly like to maintain constant prices and
    engage in nonprice competition, such as
    advertising and customer service, to hold, or
    increase their market share

153
The Airlines as Oligopolists
  • High barriers to entry
  • Access to markets are difficult due to scarce
    terminal space
  • Expenditures for advertising, personnel, and
    aircraft operations
  • If unable to recover startup costs, incoming
    airline will fail
  • Airport Terminal space is a barrier to entry for
    new or existing

154
The Airlines as Oligopolists
  • Capital Requirements
  • Certificate of Public Convenience and Necessity
  • Requires large numbers of technically-skilled
    personnel

155
The Airlines as Oligopolists
  • Other
  • Existing long-term leases held by other airlines
  • Preferred relationship between Travel Agencies
    and a hub airport by incumbent airlines

156
The Airlines as Oligopolists
  • Majority-in-Interest Clauses
  • Exclusive Use Agreements
  • Dominated Hubs
  • Noise restrictions

157
Price Rigidity and Non-price Competition
  • Basic characteristic of oligopolist firm
  • Airlines would rather compete in non-price
    competition

158
Government Financial Assistance
  • Airport and Airway Improvement Act of 1982
    provided federal funding of airways and airport
    development

159
Load Factors
  • Expresses relationship between available seat
    miles and revenue passenger miles
  • RPM
  • ASM

160
High Technological Turnover
  • Aircraft
  • Airlines has led all other industries over the
    past three decades in capital spending

161
High Labor and Fuel Expenses
  • Labor Specialization
  • Workers must specialize in various production
    tasks
  • Average industry salary 48,331 (1996)

162
The Competitive Advantage of Schedule Frequency
  • Perceived passenger advantage if offer more trips
  • allows last minute changes

163
Excess Capacity and Low Marginal Costs
  • Re-hubbing
  • Develop another airport serving the same city
  • Can contract out aircraft and services
    (by-product)
  • such as selling aircraft simulator time to
    another airline

164
Sensitivity to Economic Fluctuations
  • Airlines must be very sensitive to economic
    fluctuations
  • Discretionary travel lags after economic recovery
    by 12-18 months
  • Airlines can not get out of fixed costs

165
Close Government Regulation
  • Advisory Circulars (ACs)
  • Federal Aviation Regulations (FARs)
  • Airworthiness Directives (ADs)
  • Operations Specifications
  • Unscheduled directives (i.e. maintenance)

166
The Significance of Airline Passenger Load Factors
  • Capacity Versus Demand
  • Pricing in relation to load factor
  • traffic peaks and valleys
  • Load factor most vital statistic in airline
    business
  • Must manage growth and contraction

167
Chapter 7 Airline Management and Organization
  • Review Chapter Objectives

168
Management
  • The process of achieving an organizations goals
    through the coordinated performance of five
    specific functions
  • Planning
  • Organizing
  • Staffing
  • Directing
  • Controlling

169
Management
  • Levels of Management
  • Board of Directors
  • Chief policy making body
  • Policy is a broadly stated course of action that
    employees follow in making decisions
  • Top Management
  • President
  • Middle Management
  • Operating Management

170
Decision Making
  • Define the problem
  • Analysis the problem
  • Determine alternative solutions

171
Functions of Management Planning
  • MBO- Management by Objective
  • Goals should be quantifiable
  • Follow-up discussions
  • Appraisal of results
  • Standardization (company manuals)

172
Functions of ManagementOrganizing
  • The division of work among employees and
    determination of how much authority each person
    has.
  • Grouping of activities, delineating authority and
    responsibility, and establishing working
    relationships.

173
Functions of ManagementStaffing
  • Stationing people to work in positions provided
    for in the organizational structure
  • Involves
  • selection
  • training
  • compensation

174
Functions of Management Directing
  • Those variables required to monitor and carry out
    objectives

175
Organization
  • Organization is a plan to bring together the
    resources of a firm (capital and labor) to the
    position of greatest effectiveness, or
    productivity. The plan consists of the grouping
    of operations (labor and equipment) to achieve
    the advantages of specialization and the chain of
    command.

176
Principles of Organization Planning
  • Unity of Objectives
  • Span of Control
  • Departmentalization
  • Delegation of Authority
  • Levels of Management
  • Clearly defined duties
  • Flexibility
  • Communication

177
Line and Staff Responsibilities
178
The Organizational Chart
  • Unity of objectives
  • Every department within an organization
    contributing to the accomplishment of the firms
    overall goals

179
Staff Departments
  • Finance and Property
  • Informational Services
  • Personnel
  • Medical
  • Legal
  • Corporate Communications
  • Economic Planning

180
Line Departments
  • Those administrations that are directly involved
    in producing and selling air transportation.
    They include flight operations, engineering and
    maintenance, and marketing and services.

181
Flight Operations
  • Director of Operations
  • Line Pilots
  • Dispatch
  • Weather

182
Engineering and Maintenance
  • Small engineering team focused on planning
  • Route Scheduling
  • About 1/5 of every revenue dollar

183
Maintenance Stations
  • Maintenance Base (Hub)
  • Best equipped
  • Major Station
  • Large numbers of people
  • Service Station
  • Fewer numbers of people and equipment

184
Contract Maintenance
  • If outsourcing maintenance
  • Property
  • Leases

185
Marketing and Services
  • Sales force -through daily contact with customers
  • Internal
  • reservations, ticket agents
  • External
  • travel agencies

186
Marketing and Services
  • Advertising
  • Marketing Research and Development
  • Service Planning
  • Sales Planning
  • Food Service

187
The Flight- Serving Passengers
  • Meeting customers
  • Purser (1st Flight Attendant)
  • Image building

188
Employment
  • Volume Related Employees
  • Flight Attendance
  • Ticket Agents
  • Reservation Agents
  • These positions budgeted commensurate with their
    growth or contraction in a particular traffic
    volume
  • Employee Stock Ownership Programs (ESOP)

189
Chapter 8 Forecasting Methods
  • Review chapter Objectives

190
The Purpose of Forecasting
  • Purpose
  • Short-term Generally more accurate than
    longer-term forecasts
  • Long-term
  • Fleet Planning
  • Forecast type and volume of activity
  • Passengers
  • cargo
  • Parts

191
Forecasting
  • Analysis
  • Planning
  • Control

192
Forecasting Methods
  • Causal
  • quantitative variable used to determine demand
  • Times-Series or Trend Analysis
  • Judgmental Methods
  • accepted largely on the basis of the reputation
    of the forecaster

193
Forecasting Methods
  • Smoothing the variations can eliminate irregular
    variations in forecasts
  • Seasonal Variations
  • Irregular Variations
  • Accuracy of Time Series/Causal Models

194
Business Cycles
  • Vary in length for individual businesses
  • Magnitudes from peak to valley varies
    considerably
  • Government has not adequate explained the
    business cycles

195
Chapter 9 Airline Passenger Marketing
196
Marketing
  • Marketing is that broad area of business activity
    that directs the flow of services provided by the
    carrier to the customer in order to satisfy
    customers needs and wants and to achieve company
    objectives.

197
The Marketing Mix
  • Product
  • Price
  • Promotion
  • a controllable variable
  • Place
  • a controllable variable

198
Uncontrollable Marketing Variables
  • Cultural and social differences
  • Political and regulatory environment
  • Economic Environment
  • Existing competitive structure
  • Resources and objectives of the company

199
The Consumer-orientated Marketing Concept
  • Market Segmentation
  • Intensive growth strategies
  • Marketing since deregulation

200
Market Segmentation
  • The process by dividing potential customers into
    customer group in order to identify target
    markets
  • Increasing the number of passengers in an
    existing market

201
Intensive Growth Strategies
  • Product development
  • gain brand loyalty (i.e. special lounges at
    airports)
  • Market penetration
  • Marketing development

202
Marketing Strategies Since Deregulation
  • Computerized Reservation Systems
  • Frequent-flier Program
  • Business-Class Service
  • Code Sharing
  • Hub-and Spoke Service
  • Advertising and Sales Promotion

203
Chapter 10
  • Airline Pricing, Demand, and Output Determination
  • Law of Demand states that price and quantity
    demanded are inversely related

204
Trends in Domestic Passenger Fares
  • Table 10-1 (page 327)
  • Promotional
  • only used when load factors are low

205
Pricing and Demand
  • Determinants of Demand
  • Changes in Demand
  • Elasticity of Demand
  • Inelastic Demand
  • short haul market
  • Elastic Demand
  • airline A reduces fares betting that total
    revenue increases

206
Determinants of Elasticity
  • Competition
  • Distance
  • Business versus Pleasure
  • Time

207
Air Fare Warfare
  • Greater than 2000 price changes daily
  • 2 million individual fares between city pairs
  • Carriers will only match low-frills fares to meet
    competition

208
Types of Passenger Fares
  • Time-Specific Fares
  • i.e. night flight offered at 20-40 off
    comparable day fares
  • Common Fares
  • Joint Fares
  • Excursion Fares
  • used during seasonally weak periods of traffic
  • usually require round-trip purchase
  • fare penalties with cancellation
  • Promotional Fares
  • Always will have some kind of restriction

209
The Pricing Process
  • Airline Tariff Publishing Company (ATPCO)
  • Pricing Strategies and Objectives
  • Pricing Tactics
  • Pricing Analysis
  • Inventory Management

210
Pricing Strategies and Objectives
  • Survival - bankruptcy (chapter 11)
  • Market share
  • Premium quality
  • Within these areas, carriers have a multi-layered
    pricing matrix

211
Pricing Tactics
  • Fare actions include
  • Introduction fares
  • Excursion fare sales
  • Connection market sales
  • Business fare sales
  • mileage
  • Zone
  • Value added
  • One-way versus round-trip fares

212
Pricing Analysis
  • Subtract the following
  • refunds
  • dilution
  • advertising
  • spill
  • variable additional passenger costs

213
Inventory Management (page 346)
  • Manage low-fare seat numbers versus coach seat or
    business seats
  • Minimize denied boardings
  • Minimize spill and spin seats

214
Airline Costs
  • Direct Operating Costs
  • all flying expenses, all maintenance and overhaul
    costs and all aircraft depreciation expenses
  • Indirect Operating Costs (costs remain
    unaffected by type of aircraft flown)
  • reservations, sales, promotion costs, station and
    ground expenses
  • passenger service costs, general administration
    costs
  • Non-operating Costs and Revenues
  • all profits and losses arising from owned
    commuter carrier
  • Variable Costs
  • Fuel, meals, landing fees
  • Fixed Costs
  • Property insurance, lease equipment payments,
    flight equipment

215
Pricing and Output Determination
  • Total Costs-Short Run
  • Load Factors (Revenue versus Non-revenue)
  • Profit Maximization - Short Run
  • Law of Diminishing Returns states that as extra
    units of variable resources (labor) are added to
    a fixed resource (existing fleet) the extra
    output (ASMs) will increase at a decreasing rate

216
Chapter 11 Air Cargo
  • Review Chapter Objectives

217
Historical Overview
  • Air Freight
  • Air Mail
  • first air cargo service
  • Air Express
  • Overnight Air Express
  • FedEx established for small packages
  • The Arrival of Jumbo Jets
  • Types of Carriers

218
Air Cargo Today
  • Trend in growth over the last 25 years made
    possible by larger and more efficient aircraft
  • Largest Markets
  • North Atlantic
  • US Domestic
  • Europe-Far East

219
Air Cargo The Future
  • Combination Carriers
  • carry cargo and passengers
  • no more than 5-10 passenger
  • example UPS

220
The Market for Air Freight
  • Cannot compete to surpass air carrier revenues
    due to
  • cost
  • primarily designed to carry passengers
  • no compelling reason to ship by air

221
The Market for Air Freight
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