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
Aircraft
Manufacturers

Commercial
transport
General Aviation
planes

Military aircrafts

Airport Operations

Runways
Navigation
systems

Support Industries

Fuel Supply
Maintenance
Ground
transportation

Service Providers

Travel Agents
Freight
Forwarders

Hospitality
Industry
Car Rentals

Type of airlines

Scheduled (fixed routes and timings)

Non-scheduled

Passengers
Cargo
Passenger & Cargo

Intercontinental
International
Domestic

84%

worlds international traffic

240

member airlines

188

countries

Passenger Travel

Leisure:

Corporate:

Extended period

Short period

Recreation purpose

Official purpose

950 million tourists

Worldwide (2010)

Increased profitability

Contributes to GDP
Creates employment

Cargo

Dangerous
Goods

Perishable

Non
Perishable

Live Animals

Passenger
Airlines

Air Freight Forwarders

Passenger
Airlines

Cargo Airlines

Super Cargo

Economic and Social Impact

2.5

billion passengers worldwide

5.5

million Airlines employees

9.5

million Airlines Supply Chain employees

18

million indirect Tourism jobs

History background
1944

Chicago
Convention
on
International
Civil Aviation

1945

International Air
Transport
Association

IATA

Standards and
Recommended
Practices

SARPS

International Civil
Aviation
Organization

ICAO

Freedom of the Air

1: Right to fly across a countrys territory without landing

2: Right to land for non-traffic purposes
3: Right to carry passengers and goods from OWNs country to another

4: Right to carry passengers and goods from another country to one OWNs
5: Right to carry passengers from one OWNs country to a 2

nd

country and to a 3rd country

Freedom of the Air

Business Metrics / KPIs

Revenue Passenger Kilometer

Average Unit Revenue

RPK
Measure of passenger traffic

Measure of yield

Number of Revenue
Passenger

Revenue

RPK

Kilometers of the segments

e.g:

e.g:

150 passengers X 7000

kilometers= 1,050,000 RPKs

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

Passenger Load Factor

Measure of profitability

Measure of capacity utilization

Expenses (COST)

RPK

ASK

ASK

e.g:

e.g:

140,000 $ / 1,400,000ASKs
= 0.1$

1,050,000 RPKs
/
1,400,000 ASKs
= 75% PLF

Revenue Management

Yield
Improvement

Price

Revenue
Management

Traffic
Segmentation

Traffic (RPKs)

Maximization of Profits

Main Industry Features

Thin Profit

Seasonal

Capital
Intensive
High Cash Flow
Labor Intensive

Service

Development of Commercial Airlines

1940s

1910s

WW1

Military to Civil
conversion

WW2

1970/80s

2000

Deregulation

New Era