Airline Business 2015

7/24/2019 Airline Business 2015

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Airline Business

Airline Characteristic

Airline Structure

Airline Management

Airline Finance

Airline Business Model

Case Study


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Airline Categories: Intercontinental

Intracontinental

Domestic

Regional

International

Scheduled

Chartered

Cargo

Passenger


Own or lease aircraft (wet vs dry)

Mostly government owned or supported (Malaysia Airline,

China airlines, etc)

Flap carrier

Some commercial owned: CX, FedEx, Ryanair


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High investment

Seasonal

Highly influenced by external factors (uncontrolled): crisis,

fuel, tourism activities, government policy

High standard requirement: safety and security

High competition: price, slot, services

High risk

Airline Structure

CEO

COO

FlightOperations

Flight Ops

Aircrew

Service Delivery

Cabin Crew

In-flight service

Airport

Engineering

Technical

Commercial

Cargo

Service

RevenueManagement

Planning

Sales andMarketing

Sales andDistribution

RevenueManagement

Product

CorporateDevelopment

Airline Planning

InternationalAffairs

AircraftPurchasing and

Trading


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Airline Management

Corporate Development Planning

Operation Planning

Maintenance Planning

Crew Resources Planning

Revenue Management

Airline Management


How to plan a route?


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Airline Management

CX launch direct flight HKG MLE 27 Oct 2013

A330

Business/Pre-economy/Economy: 39/28/175

Depart HKG 1715 (arrive MLE 2125) 6hr 25min

Depart MLE 2335 (arrive HKG 0855) 6hr 40min

Airline Management


Freedom of flight

Demand

Fleet assignment

Schedule Planning (frequency) & Slot availability

Seat Configuration

Crew scheduling Pricing control

Sales and Marketing


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Airline Management

Operation Planning

Turnaround management

Deplaning passengers, unloading cargo and baggage, cleaning,

boarding passengers, loading cargo and baggage, fuelling,

catering, exchanging crew, etc.

Airline only make money when aircraft flies

Idle time

Airport staff and facilities management, e.g. check in


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Airline Management Maintenance Planning

Schedule maintenance A check 125-150 flying hrs

Visual inspection of airframe/engine/electronic instrument

60 man-hours

B check 750 flying hrs All A check items

Control panel interior

Lubricating

200 man-hours

C check

3,000 flying hrs All A and B check items

Detailed inspection and testing of airframe/engine/electronic instrument/mostcomponents

Anti-rusting treatment

3,000 man-hours

D check 20,000 flying hrs Almosy disintegrate aircraft to check interior

10,000 man-hours

Routine daily/weekly checking


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Airline Management

Maintenance Planning

Schedule maintenance

Fleet assignment (including spare aircraft)

Spare parts inventory management

Airline Management

Crew Resources Management

Crew legal duty hour

Affected by crew origin/destination

Time zone crossing

No. of leg to fly

No. of take-off/landing

Standy-by

Flight delay?

Tenerife disaster


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Airline Management

Revenue Management

Pricing, demand forecast and seat inventory control

Selling the right seat to the right customer at the right time

Business travelersrigid plan and are less sensitive to price

Leisure travelersflexible hour and are more sensitive to

price

PriorityBusiness travelers > Leisure travelers

Oversold

Surplus of seat?

Early bird or last minutes (better planning /cash flowguarantee/utilization)

Airline Finance

Revenue cost = profit

Revenue

Aircraft utilization increased by:

Shorter turnaround time

Load factor: percentage of available seat-km

(APK) to revenue paying passenger-km (RPK)

Target load factor when calculate fare

Increased by

Reduce capacity by smaller jet (but idle staff)

Fare promotion, e.g. fanfare, last minute ticket

AircraftUtilization

LoadFactor


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Airline Finance

Cost

Direct Operating Cost Fixed cost:

Interest on loan

Depreciation

Insurance

Variable cost:

Fuel (can be up to 50%)

Crew

Aviation charge

Indirect Operating Cost

Airport cost

Passenger service (Customer Service)

Ticketing, sales, advertising

(so some airlines prefer leasing)

Airline Business Model

Conventional vs Budget

Conventional Budget

Normal Turnaround time

(~2hours)

Quick Turnaround Time

(30-45min)

Bigger leg room, less seats

United B737-800152 seats

More seats

South West B737-800 175 seats

Inflight entertainment, inflight

service

Chargeable service

Free baggage Chargeable baggage

Not much advertisement Advertisement + inflight sales

1stTier airport (connection with

other alliance)

2ndTier airport

Boarding bridge, frontal bay Bus, remote bay

Ticket sales through agents Online ticket sales

Utilization

Avg Cost

Revenue

Revenue

Revenue

Cost


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Case Study Cathay Pacific

Founded on 24 Sep 1946

Major shareholder: Swire Pacific and Air China

Acquisition of Dragonair on 28 Sep 2006

Avoid direction competition

Division of labour on different market

CX International

KA China expert

CX connects 168 destination in 42 countries


CX inventory of aircraft (in service): 121

Boeing 747-400 6

Boeing 777-200 5

Boeing 777-300 12

Boeing 777-300ER 47

Airbus A330-300 40

Airbus A340-300 11

Boeing 747-400F 5

Boeing 747-400ERF 6

Boeing 747-8F 13

Average age of passenger aircraft 8.5years


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Firm orders 79

Ordered aircraft types Total

Airbus A330-300 3

Airbus A350-900 22

Airbus A350-1000 26

Boeing 777-300ER 6

Boeing 777-9X 21

Boeing 747-8F 1


In the past, monopolized the market

Important connection between Taiwan HKG mainland

China

Asia hub connecting Australia and the West (Kangaroo

route)

High profit margin


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Challenges

High fuel price

aviation jet fuel price 14 Apr 2014 = USD$945.4 per metric tonne

(Asia)

39% of total operating cost

Direct strait route between Taiwan mainland China

Time Direct flight

frequency (per

week)

No. of mainland

China ports

July 2008 36 5

Nov 2008 108 21

Sep 2009 270 21

July 2010 370 26

July 2011 558 41

Mar 2013 616 54


Role of regional hub weaken due to competition from

Singapore

Dubai

Kuala Lumpur

Guangzhou

Incheon

The rise of budget airlines

Cargo weakening


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Case Study Emirates

Largest airline in Middle East

Based in Dubai

Current fleet size 221

Destination 142

One of the fastest growing airline

Operate all wide-body aircraft

Airline of the year in 2013

Case Study Emirates

Business advantage

Excellent geographical position connecting the East and the West

Night hub

Fuel advantage? No

As of March 2012, Emirates did not use fuel price hedging. Fuel was 45%

of total costs ($1.7 billion - 31 March 2012)

Business model

capturing the traffic from South East Asia to North America/Europe

passengers bypass the traditional hubs of London, Frankfurt

and Paris

High end luxury service

A380 major user in the world


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Case Study Emirates

Why A380?

On 17 November 2013, Emirates announced at a press

conference at the Dubai Airshow that they were placing an

order for an additional 50 Airbus A380-800s, bringing the

overall order total to 140

Fuel efficient, more fuel economy when load factor high

Ideal for long/medium long route

High seating capacity, lower down the average cost per

passenger-seat-km

lower down fare

higher load factor

Bibliography

http://www.cathaypacific.com/cx/en_HK/about-us.html

http://www.emirates.com/hk/english/about/about_emirates.aspx

"History Those Were the Days". Cathay Pacific. Retrieved 2 April 2009.

"Boeing and Cathay Pacific Airways Announce Order for 21 777-9Xs".

Boeing. Retrieved 20 December 2013.

Emirates becomes world's largest Boeing 777 operator | Emirates.

AMEinfo.com (2010-10-25).

17 November 2013. "Emirates orders 50 additional A380s, boosting fleet to140 | Airbus News & Events". Airbus.com.


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Documents

Airline Business 2015