Introduction

to the airline industry

V. Meril

Definition

• Airline Industry is a system of transportation

• Part of Aviation industry

• Moving people and goods

• Utilizing the airways

• One of the only true global businesses

Cargo

Scope

2

Aircraft

Manufacturers Airport Operations Support Industries Service Providers

• Commercial

transport

• General Aviation

planes

• Military aircrafts

• Runways

• Navigation

systems

• Fuel Supply

• Maintenance

• Ground

transportation

• Hospitality

Industry

• Car Rentals

• Travel Agents

• Freight

Forwarders

Type of airlines

• Scheduled (fixed routes and timings)

• Non-scheduled

• Passengers

• Cargo

• Passenger & Cargo

• Intercontinental

• International

• Domestic

84%

240

188

world’s international traffic

member airlines

countries

Passenger Travel

Leisure:

Extended period

Recreation purpose

950 million tourists

Worldwide (2010)

Contributes to GDP

Creates employment

Corporate:

Short period

Official purpose

Increased profitability

Cargo

Dangerous

Goods Perishable

Non

Perishable Live Animals

Passenger

Airlines

Cargo Airlines Super Cargo Passenger

Airlines

Air Freight Forwarders

Economic and Social Impact

2.5 billion passengers worldwide

million Airlines employees 5.5

9.5 million Airlines Supply Chain employees

18 million indirect Tourism jobs

History background

1944

Chicago

Convention

on

International

Civil Aviation

International Civil

Aviation

Organization

ICAO

1945

International Air

Transport

Association

IATA Standards and

Recommended

Practices

SARPS

Freedom of the Air

1: Right to fly across a country’s territory without landing

2: Right to land for non-traffic purposes

3: Right to carry passengers and goods from OWN’s country to another

4: Right to carry passengers and goods from another country to one OWN’s

5: Right to carry passengers from one OWNs country to a 2nd country and to a 3rd country

Freedom of the Air

3 4

5

Business Metrics / KPIs

Revenue Passenger Kilometer

RPK

Measure of passenger traffic

Number of Revenue

Passenger

X Kilometers of the segments

e.g:

150 passengers X 7000

kilometers= 1,050,000 RPKs

Average Unit Revenue

Measure of yield

Revenue

X RPK

e.g:

117,000 USD / 1,050,000

RPKs= 0.16USD/kilometer

Available Seat Kilometer

Measure available capacity

Number of seats

X Number of kilometers

e.g:

200 seats X 7,000 kilometers

=1,400,000 ASKs

Business Metrics / KPIs

Unit Cost

Measure of profitability

Expenses (COST)

/ ASK

e.g:

140,000 $ / 1,400,000ASKs

= 0.1$

Passenger Load Factor

Measure of capacity utilization

RPK

/ ASK

e.g:

1,050,000 RPKs

/

1,400,000 ASKs

= 75% PLF

Traffic

Segmentation Traffic (RPKs)

Yield

Improvement Price

Revenue Management

Revenue

Management

Maximization of Profits

Main Industry Features

Service

• Capital

Intensive

• High Cash Flow

Labor Intensive

Thin Profit

Seasonal

Development of Commercial Airlines

1910s

WW1

1940s

WW2 Deregulation

1970/80s 2000

New Era

Military to Civil conversion