AirlineIndustryOverview

Framework

•  Market•  Product•  Customer•  Compe;;on•  Companies•  Economics–  Revenues–  Cost

•  Externals

GlobalMarket

•  2000Airlinesopera;ngmorethan23,000aircraG,providingservicetoover3700airports.

•  In2006,therewere28millionscheduledflightdeparturesandcarriedover2billionpassengers

•  Growthofworldairtravelhasaveragedapproximately5%peryearoverthepast30years

•  AnnualgrowthinairtravelhasbeenabouttwicetheannualgrowthinGDP

•  Expectedtodoubleovernext10–15years

USMarket

•  100cer;ficatedpassengerairlinesoperateover11millionflightdeparturesperyear

•  Carryoverone‐thirdoftheworld’stotalairtraffic•  745millionpassengersin2006•  $160billionintotalrevenues•  545,000employeesandover8,000aircraGopera;ng31,000flightsperday

•  Commercialavia;oncontributes8percentoftheUSGrossDomes;cProduct,accordingtorecentes;mates

Market

•  USCommercial•  Cost–Safety–Growth•  Consolida;on– Con;nental–United(2010)–LargestAirline– Delta–Northwest(2009)–2nd– Southwest–AirTran

Products

•  TheGood,theBad,andtheUgly•  Other– Adver;sing– AirportGains– CreditCards?

(Good)FirstClass

EmiratesPrivateRoom

EmiratesShower

Fees

Fees(Bad)

RyanAir(Ugly)

Customer

•  Business– Time

– Ameni;es

•  Pleasure– Cost

•  LowSwitchingCost– NoLoyalty–Whymilesexist

Compe;;on

•  1937–1978:CivilAeronau;csBoardregulatesAirTravelasPublicU;lity

•  1978–Present:AirlineDeregula;onAct– Costperpassengeris30%lessin1990vs.1976(accoun;ngforinfla;on)

– 9airlineswentbankruptfrom78–01,andAmericantoday

– LowCostAirlines– Hub&Spoke

LowCostAirlines

Hub&Spoke

Compe;;on

•  Costcugngtomaximizeseats– Productofhighfixedvs.variablecost

•  Excesscapacityduetocompe;;on– Changingwithrecession

•  BarrierstoEntryarelessthanexpected•  Subs;tutesaregenerallycomparableincost– Trains,Buses– Excep;on:E‐Mee;ng

Companies

•  Consolida;on•  Service•  Image

DavidNeeleman

Economics(Profits)

Economics

Bankruptcy

•  2001–2011– USAir– United– Delta– Northwest– American

AmericanAirlines

Improvements

•  Addi;onofFees– Baggage– Food–  Internet

•  CostCugng– Food– Pillows

Externals

•  Unions–  Pay&Benefits

•  Regula;on•  GovernmentSupport•  Weather•  Terrorism

Fuel

Fuel•  Hedge•  Efficiency–New787•  Alterna;ves–virgin

biofuel