Document 7213916
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Transcript Document 7213916
Airline
Management
AVM 373
PROFESSOR GREG SCHWAB
US AIRWAYS
NEW EMPLOYEE
ORIENTATION
COURSE
INTRODUCTION
OVERVIEW
COURSE REQUIREMENTS
– HOW TO GET AN “A”
Chapter 1 Objectives
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
Interstate Air
Transportation:
The carriage of persons or property for
compensation or hire
Aerospace Industry
Research and Development
Aerospace Systems
Defense
Spacecraft
Propulsion, Guidance, Control Units
Airborne and Ground Based Equipment
– Testing, Operations, and Maintenance
Principle Product Lines
Aircraft
Missiles
Space Systems
Engines
Parts and Equipment
Product Lines
Characterized by:
High Performance
High Reliability
High Technology
High Unit Value
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
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 R&D expenses by
benefiting from large military contracts
Government Contracts
Government required to ask for “bidders”
Request for Proposals
– Detailed Specifications
Industry Characteristics
Air Transportation includes:
– all transportation by certified air carriers and general
aviation aircraft
Transformation of Industry during the 1950’s due
to:
– production of jet powered military aircraft
Late 1960’s
– fabrication of equipment to meet the nations goals in
space exploration
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
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
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
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
Reasons for downward GA trend
High aircraft prices
High interest rates
High operating expenses
High product liability costs
Changing lifestyles
Tax laws
Foreign competition
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
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
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
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
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
Chapter 2 Objectives
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
Why Regulate Aviation?
Stabilize the industry
Improve air safety
Reduce cash subsidy by US government
Congress Rights
Regulate interstate and foreign commerce
Regulate the postal service
Make treaties with foreign nations
Provide for the national defense
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
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
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
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
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
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
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
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 terms
Members not permitted financial interest in
aviation
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
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
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)
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
CAB: Road to Deregulation
Strong opposition from unions and financial
institutions
Deregulated air cargo in 1977
– initial success pushed CAB into support
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
Deregulation Issues
Prior to deregulation-problems existed:
– system suffered from overcapacity
– barriers to entry and exit from the industry
– lengthy regulatory process
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
Airline Deregulation
Proponents Argued:
Commuters would best serve low-density
markets
Market place would best serve American
interests
Airline Deregulation
Opponents Argued:
Regulation has served the public interest as
well as air carrier interest
Deregulation would destabilize the air
carrier market
Air Carrier Aircraft Development
After wartime production of aircraft ended
in the late 1940’s, aircraft companies began
to focus on producing aircraft for business
transportation
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
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)
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
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
Aviation Aircraft Pioneers
Clyde Cessna
– founded Cessna Corporation
– C-172 became most popular aircraft for
business and pleasure market
Chapter 3 Objectives
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
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)
Federal Aviation Administration
Primary Objective:
– Promotion of aviation safety while ensuring the
efficient use of the nations navigable airspace
– www.faa.gov
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
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)
FAA Operating Certificates
Airmen
– Pilots
– Mechanics
– Controllers
– Dispatchers
– Parachute Riggers
Air Carrier Operating
– Part 121/135
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
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)
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
FAA Enforcement
Investigation
– all civil accidents
– probable cause reserved for NTSB
– safety concerns
– accident doesn’t have to occur
FAA Enforcement
Operations
– ATC System
– NAVAIDS
– Airports
– Aeronautical Center
– Technical Center
NASA Report
– FAA honors NASA Report’s that are properly filed
– but there are limitations
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)
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)
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)
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
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 won’t comply
with recommendations within 90 days
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
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
NTSB Concerns
Intention of flight by pilot
– flight doesn’t have to occur
– pilots may be violated based on intent
Damage to aircraft
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 can’t perform duties, i.e. drunk
– in-flight fire
– overdue aircraft
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
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
NTSB Major Accident
Investigation
Aviation accidents have been on a flat line
since mid-1980’s
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 )
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
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
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
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
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
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
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
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
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
Chapter 4 Objectives
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
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
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
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
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
NTSB Accident Investigation
Aviation accidents have been on a flat line
since mid-1980’s
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 )
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
GA Usage
Commercial and Industrial Flying
– aerial application
– aerial observation
– other work use
– commuter air carrier
– air taxi
Agricultural
Major Factors Affecting sales of
Aircraft
Product liability claims
Luxury taxes
Subsidization of research, development,
production and financing
Economic Factors affecting GA
Aircraft
Prior to 1978: changes to GA equaled changes in the
economy
Late 1970’s: long slow decline in aircraft shipments
President Johnson’s “Great Society” social programs
4 Planes introduced in 1960’s: Cessna 172, Piper
Cherokee, Beech King Air 90, and Lear 23
More planes sold in the 1970’s than before or since
Airport Development Act of 1970
Many smaller companies purchased by larger companies in
the 1980’s.
Economic Factors affecting GA
Aircraft
1970’s 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
Chapter 5 Objectives
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
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
The Use of Aviation in the United
States
Social
Political
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
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
The Political Considerations of
Selecting a Site
Legislative and Regulatory actions
– Fuel Tax
– Landing Fees
– Property Taxes
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
The Airline Industry: Nationals
Sales between $100 million-$1 Billion
Airlines:
– Numerous airlines (32) including: AirTran,
World
Includes Supplemental air carriers, (i.e.,
ATA)
The Airline Industry:
Regional/Commuter
Regionalized service
Propeller driven (70%Turbo-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
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
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
NTSB Major Accident
Investigation
Aviation accidents have been on a flat line since mid-
1980’s
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 )
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 1980’s
Number of Regionals have decreased
– expect to grow at in the next 10 years
Airline Economic Considerations
Load factors
Airframe
Fuel Flow
Population
Competition
Air Carrier Route Selection
Determinates
Economic considerations:
Business
Pleasure
Mail
Cargo
Seasonal operations
Geography Considerations
Terrain
Weather
Navigational status
Airport
ATC Regulation
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
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
Section 418 Certificates
All-Cargo Certificates
No passengers
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
Travel Agencies
»
?
Chapter 16 Objectives
International Aviation
Sovereignty
International Air Law
Deregulation
Growth
Air Transportation involves:
Building airports
Navigational aids
Weather reporting systems
International systems
standardized include:
Air Traffic Control
Aircraft Design
Personnel licensing
Airports
International Air Law
Looked closely at establishing universal
international jurisprudence
– i.e. World Court
Sovereignty in Airspace
Should airspace above a nation be
considered within the sovereignty of each
nation?
Or like the high seas, be considered
international?
Opposing Theories
Air is Free
– states have no authority over it
Air is Not Free
– states have air sovereignty over their soil
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
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 (1960’s)
No discrimination based on nationality
Every aircraft must be registered to a state
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
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
Havana Convention- 1928
Established special customs procedures for
aviation
Reinforced 1919 convention agenda
Warsaw Convention- 1929
Provided unification of rules relating to
international transportation by air
addressing:
Passenger
Merchandise
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
Warsaw Convention- Outcomes
Set Standards for the following:
Passenger tickets
Cargo waybills
Air travel documentation
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
Chicago Conference- 1944
Standardized many rules/procedures
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–
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communication systems
airports
air traffic rules
licensing
airworthiness and registration
weather information exchange
logbooks
maps/charts
customs
accident investigation
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
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
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
Post 1970’s
International fares complicated and abused
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
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)
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
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
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
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
Air Carrier Globalization
American, Delta, United
– equipment
– growing international routes
– favorable balance sheets
Alliances
– KLM + Northwest
– SAS + Continental
– British Airways + American
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
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!
Chapter 6 Economic
Characteristics of the Airlines
Review Chapter Objectives
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
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
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
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
The Airlines as Oligopolists
Capital Requirements
Certificate of Public Convenience and
Necessity
Requires large numbers of technicallyskilled personnel
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
The Airlines as Oligopolists
Majority-in-Interest Clauses
Exclusive Use Agreements
Dominated Hubs
Noise restrictions
Price Rigidity and Non-price
Competition
Basic characteristic of oligopolist firm
Airlines would rather compete in non-price
competition
Government Financial Assistance
Airport and Airway Improvement Act of
1982 provided federal funding of airways
and airport development
Load Factors
Expresses relationship between available
seat miles and revenue passenger miles
– RPM
– ASM
High Technological Turnover
Aircraft
Airlines has led all other industries over the
past three decades in capital spending
High Labor and Fuel Expenses
Labor Specialization
– Workers must specialize in various production
tasks
Average industry salary $48,331 (1996)
The Competitive Advantage of
Schedule Frequency
Perceived passenger advantage if offer more
trips
– allows last minute changes
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
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
Close Government Regulation
Advisory Circulars (AC’s)
Federal Aviation Regulations (FAR’s)
Airworthiness Directives (AD’s)
Operations Specifications
Unscheduled directives (i.e. maintenance)
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
Chapter 7 Airline Management
and Organization
Review Chapter Objectives
Management
The process of achieving an organization’s
goals through the coordinated performance
of five specific functions:
–
–
–
–
–
Planning
Organizing
Staffing
Directing
Controlling
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
Decision Making
Define the problem
Analysis the problem
Determine alternative solutions
Functions of Management:
Planning
MBO- Management by Objective
– Goals should be quantifiable
– Follow-up discussions
– Appraisal of results
Standardization (company manuals)
Functions of
Management:Organizing
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.
Functions of
Management:Staffing
Stationing people to work in positions
provided for in the organizational structure
Involves:
– selection
– training
– compensation
Functions of Management:
Directing
Those variables required to monitor and
carry out objectives
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.
Principles of Organization
Planning
Unity of Objectives
Span of Control
Departmentalization
Delegation of Authority
Levels of Management
Clearly defined duties
Flexibility
Communication
Line and Staff Responsibilities
The Organizational Chart
Unity of objectives
– Every department within an organization
contributing to the accomplishment of the firms
overall goals
Staff Departments
Finance and Property
Informational Services
Personnel
Medical
Legal
Corporate Communications
Economic Planning
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.
Flight Operations
Director of Operations
Line Pilots
Dispatch
Weather
Engineering and Maintenance
Small engineering team focused on
planning
Route Scheduling
About 1/5 of every revenue dollar
Maintenance Stations
Maintenance Base (Hub)
– Best equipped
Major Station
– Large numbers of people
Service Station
– Fewer numbers of people and equipment
Contract Maintenance
If outsourcing maintenance
Property
Leases
Marketing and Services
Sales force -through daily contact with
customers
Internal
– reservations, ticket agents
External
– travel agencies
Marketing and Services
Advertising
Marketing Research and Development
Service Planning
Sales Planning
Food Service
The Flight- Serving Passengers
Meeting customers
Purser (1st Flight Attendant)
Image building
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)
Chapter 8: Forecasting Methods
Review chapter Objectives
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
Forecasting
Analysis
Planning
Control
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
Forecasting Methods
Smoothing the variations can eliminate
irregular variations in forecasts
– Seasonal Variations
– Irregular Variations
Accuracy of Time Series/Causal Models
Business Cycles
Vary in length for individual businesses
Magnitudes from peak to valley varies
considerably
Government has not adequate explained the
business cycles
Chapter 9: Airline Passenger
Marketing
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.
The Marketing Mix
Product
Price
Promotion
– a controllable variable
Place
– a controllable variable
Uncontrollable Marketing
Variables
Cultural and social differences
Political and regulatory environment
Economic Environment
Existing competitive structure
Resources and objectives of the company
The Consumer-orientated
Marketing Concept
Market Segmentation
Intensive growth strategies
Marketing since deregulation
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
Intensive Growth Strategies
Product development
– gain brand loyalty (i.e. special lounges at
airports)
Market penetration
Marketing development
Marketing Strategies Since
Deregulation
Computerized Reservation Systems
Frequent-flier Program
Business-Class Service
Code Sharing
Hub-and Spoke Service
Advertising and Sales Promotion
Chapter 10:
Airline Pricing, Demand, and Output
Determination
Law of Demand states that price and
quantity demanded are inversely related
Trends in Domestic Passenger
Fares
Table 10-1 (page 327)
Promotional
– only used when load factors are low
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
Determinants of Elasticity
Competition
Distance
Business versus Pleasure
Time
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
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
The Pricing Process
Airline Tariff Publishing Company
(ATPCO)
Pricing Strategies and Objectives
Pricing Tactics
Pricing Analysis
Inventory Management
Pricing Strategies and Objectives
Survival - bankruptcy (chapter 11)
Market share
Premium quality
Within these areas, carriers have a multi-
layered pricing matrix
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
Pricing Analysis
Subtract the following:
– refunds
– dilution
– advertising
– spill
– variable additional passenger costs
Inventory Management (page
346)
Manage low-fare seat numbers versus coach
seat or business seats
Minimize denied boardings
Minimize spill and spin seats
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
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 (ASM’s) will increase at a
decreasing rate
Chapter 11 Air Cargo
Review Chapter Objectives
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
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
Air Cargo: The Future
Combination Carriers
– carry cargo and passengers
• no more than 5-10% passenger
– example: UPS
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
The Market for Air Freight
Air shipments attractive EXCEPT when…
– the commodity is low value relative to weight
(corn)
When demand is frequent (bread/milk)
When distribution problems are:
– low insurance for long transit periods
The Market for Air Freight
Air shipments attractive when…
– specialty handling not required
Packaging Cargo suggests the use of
shipping containers. Why?
– reduce pilferage loss
– reduce package cost
• producers are charged at a lower rate
Types of Air Freight Rates
General Commodity Rates
Specific Commodity Rates (i.e. tires)
Exception Rates
Joint Rates (shared with another company)
Priority Reserved Air Freight
Speed Package Service
Container Rates
Special Freight Services
Assembly Service
Distribution Service
Pickup and Delivery Service
Other Specialized Services
Restricted articles MIGHT be accepted by
one airline and not another
– dependent upon air carrier operations
specifications
Factors Affecting Air Freight
Rates
Costs of the service
Volume of traffic
Directionality
Characteristics of the traffic
Value of the service
Competition
Chapter 12: Principles of Airline
Scheduling
Review Chapter Objectives
The Mission of Scheduling
The constant search between adequate
service and economic strength for the
company
Equipment Maintenance
Minimum out-of-service time
– maximum in-service utilization
Allowable Time
Personnel and Workload
Use of Facilities
Line Reserves
– extra available airplanes
Flight Operations and Crew
Scheduling
Operational factors
– Runway lengths
– Aircraft fuel capacity
– Weather conditions
– Air Traffic Requirements and routings
– Crew time limits
– Employee agreements
Flight Operations and Crew
Scheduling
Monthly schedules
– flight “line numbers” based upon seniority
Must consider crew domicile
Contract hours
Ground Operations and Facility
Limitations
Always some limitations
Cost must be considered
Must avoid ground congestion
Station Plotting Chart (figure 12-7)
Staffing
Scheduling Planning and
Coordination
Traffic Flow
Schedule Salability
Schedule Adjustments
Load-Factor Leverage
Most important responsibility is to evaluate
varied and conflicting objectives to achieve
an optimal balance to support the airline
Equipment Assignment and
Types of Schedules
Must allow enroute service checks at each
stop
Overnight
Airframe Checks
–
–
–
–
A= Every 125 hours
B= Every 750 hours
C= Every 3000 hours/15 months
D= Every 20,000 hours/6-8 years
Hub-And-Spoke Scheduling
Advantages
– Force multiplier
– lower fares with larger aircraft
– less schedule delay
Disadvantages
– congestion delay
– delay increase travel time
– lost baggage
– ATC Stress
– environmental impact
Data Limitations in Airline
Scheduling
Hard to get accurate data between air
carriers
International even worse
Chapter 13: Fleet Planning- The
Selection Process
Review Chapter Objectives
Factors in Fleet Planning
Pre-deregulation Era
Hub-and-Spoke System
Fleet Commonality
Long-Range Aircraft
The Trend toward leasing
Noise restrictions
Design and Development-The
Manufactures Viewpoint
Boeing
– leading aircraft in order by ATA members is the B-737
– Faces stiff competition
• B747-400 designed to counter MD-11
• B-777 counters A-330
Airbus
– european aircraft manufacturing consortium
– timing has always been a key to Airbus successes
– 85% common aircraft parts across production lines
• A-330 /A-340
The Fleet Planning Process
Information Required
– Current Resources
– Corporate Objectives
– Projected Industry Environments
– Market Strategy
System Constraints
– Runway capacity
– Environmental considerations
– maintenance constraints
The Fleet Planning Process
Aircraft Evaluation
– design characteristics
– physical performance
– acquisition costs
Tentative Fleet Plan and Financial Evaluation
Presentation and Management Approval
The Decision To Upgrade or
Replace
Fleet commonality
– desired results in large aircraft purchases
Refurbishing aircraft can cost as mush as
the original cost
Most difficult part:
– guessing operating economics
The Decision To Upgrade or
Replace
Acquisition costs include:
– ground equipment
– maintenance training
– flight training
– cost to borrow money $$$
Leasing
Industry trend is toward fleet leasing
Popular since 1986 Tax Reform Act
Lessor retains full title of the assets
Operating Leases
Future
Continued consolidation in airline industry
will lead to greater cooperation and
interdependence between the larger carriers
and manufacturers.
Continued cost cutting by the airlines across
all accounts
Chapter 14: Airline Labor
Relations
The Railway Labor Act and the Airlines
– covers airlines and railroads
National Mediation Board
– attempts to help both parties find a common
ground for contract agreement
Generally, airline labor unions are organized
on a “craft” basis
Railway Labor Act
Purpose
– ensure the right of workers to organize and
bargain effectively
– to prevent interruption of service
– to assist in prompt settlement of disputes or
grievances arising out of existing contracts
– Applies to Railroads and Airlines
The Collective Bargaining
Process
Step One: Collective Bargaining
– wages are negioated
Step Two: National Mediation Board
Step Three: Voluntary Arbitration
Step Four: Emergency Board
Final Option: Presidential Intervention
National Railway Adjustment
Board
Juistication over grievance and
interpretations of agreements on pay,
working conditions, and rules
Restrictive work rules
– increase the number of employees required
Criticism of the Process
Is it Needed?
– Delta is not unionized
– Too many steps
• results in a long process that is not binding
Historical Overview of Airline
Union Activity
Pre-jet Age
Jet Age
Key to airline success: high fuel costs
– 1990 impacted airline considerably costing
airlines $4 billion
Labor Relations Since
Deregulation
Elimination of the automatic labor-cost
pass-through
Labor unrest: 1980’s
Consolidation Period: 1986-Present
The future collective bargaining strategies
Labor costs represents 30% of total
operating expenses
Strike Options
Mutual Aid Pact
– provided strike insurance payments
– cancelled after deregulation
Future
Hot-Button Issues
– Two-tier pay system
• averages down pilot wages
– out-sourcing
– low-cost second tier air carriers
Chapter 15: Airline Financing
Review Chapter Objectives
Sources of Funds
Internal
– Earnings
– Depreciation
– Deferred taxes
External
– Equipment Trust Financing
– Public Equity Offering
– Private debt placement
Finding Financing
Investment Bankers
– Primary function is to serve as consultants in finding
credit sources for carriers
Equipment Trust Financing
– Financing aircraft by having a bank or group of banks
lend the required money, but, holds title to the aircraft
until a series of certificates are paid off
Venture Capital
– Startup carriers need venture capital to get started
– FedEx championed venture capital to begin operations
Finding Financing
Key consideration to gain financing
– debt/equity ratio is prime indicator of long-term borrowing power
• the higher the ratio, the less likely it is for the carrier to borrow
money
– Return on Investment (ROI) must be well grounded
• Net profits to assets
– Long-term cash forecasts are needed to appraise proposed capital
projects
– Reducing debt must be considered
• profits generated during the 1990’s have been used to reduce
debt incurred during the 1990’s
Finding Financing
Short term cash forecasts are needed to:
– Anticipate the need for short-term financing
– Maintain good bank relations
– Provide for a basis for monitoring many items on the
balance sheet
Debenture Bonds
– a bond not secured by any specific pledge of property
Depreciation
– largest single source of internal funds for a carrier
Leases
Operating
– short-term capacity enhancements
Capital
– appear as long-term liabilities on balance sheet
Why lease?
– Avoids progress payoffs to aircraft
manufactures
Cash Management and Financial
Planning
Cash Flow
Cash Budgeting