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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