AIR TRANSPORT

INDUSTRY
 Consists of producers and consumers
 Manufacturers of aircrafts and aircraft-
related products are identified as
producers
 Airlines consist of the major airlines,
regional airlines, charter airlines, air
cargo carriers, air taxi operators and
general aviation
 Unique in that it is both a producer and
consumer
 It avails of the products and services of
manufacturers to provide for the final
consumers
 Airlines are not allowed to operate
without sufficient insurance covers for
the third party liability
 The regulatory powers of governments
have a very significant influence in the
Air Transport Industry
 The ultimate industry players are the
consumers –the air travelers and the
air shippers
Total Performance System

(THE IPO OF PRODUCTION)

*The Airline Industry is still an industry that

is governed by the general principles of
production and the structure and
operational efficiency that governs the
viability of the business enterprise
Factors of Production

 MAN
 MONEY
 MACHINES
 MATERIALS
Machines
 The most capital-intensive
 The entire question of profitability and
continued existence of the airlines lies
on the correct choice of aircraft
Men
 Airline human resources have
experienced the most turbulent
transportation within the airline industry
with both material and psychological
impact on the global economy
Money
 The proliferation of venture capitalists
ensures the free flow of money for as
long as the venture is viable
Materials

 The acquisition and utilization of

materials have also become critical in
the Airline Industry
Methods

 A 5th M has become imperative an input

of production for the airline industry
 The airline today has become fully web-
and computer-based in all aspects of its
operation from purchasing to flying
 Airline Accounting Structure
 The final measure of an airline’s success
is in the bottom line and how it
contributes to the appreciation of the
airline’s value in terms of shareholders’
stock price
 Revenue
 Operating costs
 Core vs. Diversified Airline
 Aircraft ownership
 ]Insurance
 Space Inventory
 Cockpit and Cabin Crew Pay
 Allowances, Benefits and Company
Configuration
 Airframe and Engine Maintenance
 Fuel and Oil
 Air Traffic (ATC) Navigational and
Airport Charges
AIRCRAFT ACQUISITION
Aircraft acquisition
 Big decision area for most airlines
 Often takes a lot of study and
deliberation before a decision is firmed
up
 Aircraft to be acquired is scrutinize as to
how it dovetails with the mission, vision,
goals & objectives of the airline
 6 Major areas of investigation
1. Market Analysis
2. Strategic Planning
3. Operational Analysis
4. Aircraft Analysis
5. Economic Analysis
6. Financial Analysis
Aircraft Analysis
Airplane
Interior configuration
Major options Capacity, operating
Engines, gross weights STRATEGIC
Weights, etc PLANS

Airport Conditions
runway length
elevation
temperature FINANCIAL
stopway / clearway ANALYSIS
Slope, obstacle
in heights & location
Allowable take-off &
Landing weights
Airplane Performance
Document
ECONOMIC
Route data ANALYSIS
Mission analysis
distance, wind
Payload, block, fuel,,
temperature
Block times
flight profile,
alternate airports
 Fleet Planning for Network
Expansion
1. Fleet Planning
 a complicated and cross-functional
activity demanding broad skills and
knowledge in technical and commercial
areas
 tries to match the right amount of
capacity for a specific market
Things to be considered:
 Economic indicators
 Competitive structure
 Airline forecast
 Aircraft of choice
Portfolio Fleet Planning
 Policy of constant re-fleeting in order to
fine-tune the fleet and the service levels
to the prevailing market conditions and
for the market changes they perceive
happening in the immediate future.

2. Support for the approved operating

plan
 Options in Aircraft
Acquisition
1. Buy option & Capital or Finance Lease
Option
- title of ownership passes from
the seller/leaser to the
buyer/lessee
- most capital intensive
- contributes to about 35% to 45%
of direct operating costs of
airlines
2. Operating Lease
- renting the equipment usually on per
aircraft per month basis for a definite
period of time
- no transfer of title
- most popular means of aircraft
acquisition
- much quicker to execute, very
convenient, & less vulnerable to
inflation & foreign exchange
fluctuations
3. Sell and Leaseback

- An airline that owns a fleet of

aircrafts would still sell a unit
generate the cash & then leaseback
the unit
- 2 reason why airline resort to this:
1. to remove asset risk on the sold
equipment
2. to have liquidity through the
generation of cash from sale
3. Sell and Leaseback

- Paying lease in small amount allows

to ride out the economic crunch

- The residual cash fro sale is plowed to

operation & ease up the working
capital
AIRCRAFT
CONFIGURATION
Aircraft Configurations
 Vary widely
 Can describe an aircraft’s aerodynamic
layout or specific components.
Power Plant: The Engine
 The engine makes up for much of the
aircraft’s cost, sometimes more
expensive than the airframe itself.
 The area of consideration for engine
includes the aspect of engine
commonality, which provides for
flexibility, efficiency and economy
derived from the economies of scale of
high degree of engine commonality.
 Turboprops and Jets
 Other special categorizations related to
power plant because they are found
adaptable to specific markets and specific
routes.
 Turboprops: lost their appeal in the
passenger aircraft because of the explosive
growth of regional jets.
 Still, turboprops are desirable for short
hops, low volume routes operating in
airports with technical limitations like
runway length, width and surface bearings.
 Adaptable also for air cargo operation
particularly in three to ten-ton capacity
aircraft in the short and medium haul
routes.
 Jet aircraft: high pollutant with much
higher level of toxic emissions that
contribute to the depletion of ozone layer
but preferred for passenger carriage
because of the speed and the smoothness
of navigation and cruise.
Airframe configurations
 The aircraft is categorized in many
ways:
 It could either be a narrow-body or a
wide-body, a short-haul, medium-haul or
long-haul aircraft.
 Aircraft is also categorized based on its
power plant. It could be piston-driven,
turboprop driven, or pure jet-driven.
 There are pressurized and non-
pressurized aircrafts.
Short-haul aircrafts
 Most aircrafts in the short-haul, narrow-
body category are turboprops (but the
advent of regional jets is tipping the
balance)
 Some short-haul aircrafts are still non-
pressurized but by market preference,
most are pressurized.
 Have a range of between 3,000 to 6,000
kms that allows as much as 8 hrs of
sustained flight depending on operating
circumstances.
 In terms of density, this same aircraft
category generally belongs to the narrow-
body category consisting of just one aisle
and seating of about 100 to 200
passenger.
 Normally deployed in the domestic sectors
of most airlines although it is not
uncommon to find it being used in regional
and international sectors particularly in
geographically compact territories like
Europe.
Medium-Haul Aircraft
 Would be on a range of from 10,000 to
11,000 kms with sustained flying time
of over 10 hours depending on
operating circumstances.
 The aircrafts deployed on the route
today are two-aisle and therefore wide-
bodied, pressurized and jet-propelled.
Medium-Haul Aircraft
 The seating configuration would be
between 250-300.
 Example: regional routes of the
Philippine carriers to the neighboring
countries like Hong Kong, Sydney or
Riyadh.
Long-Haul Aircraft
 Can negotiate distances beyond 13,000
kms with sustained flight of as much as
16 hours.
 Few years ago, it would require a four-
engined aircraft to meet the range but
the two aircraft manufacturers have
developed the two-engine technology
recently for long-haul mission.
(Example: latest variants of A340s an
B777z)
Furnished Equipments
 The major areas of buyer furnished
equipments are the cockpit, the cabin
and the belly of the airframe.
 Cockpit BFEs: choice of avionics would
be the major BFE item in the cockpit.
These are critical items to the safe
operation of the aircraft so that original
equipment manufacturer keep constant
monitoring of their performance,
particularly those involved in the
communication and navigation.
 Cabin BFEs: Less critical in terms of safety
but often the more major area of concern,
debate and activity.
 The major items are the seats and the in-
flight entertainment (IFE) system.
 Belly Hold BFEs: not perceptible to
passengers but have great concerns to
airline operators are items in the cargo
and baggage compartments in the belly
of the aircraft.
AIRCRAFT UTILIZATION
Aircraft Utilization
 The cycle of operation of an aircraft.
 Varies depending on the ff:

size, mission, fleet configuration,
degree of air and ground
operational capability of the airline

the degree of airport
mechanization and its scheduled
time of operation
 Aircraft Utilization
Basic Aircraft Utilization Scheme

Overnight Towing to Ground Ground

Taxi Land
Service Ramp Service Cruise Service
Position
Take Off Taxi In
Check 20m – 1 h 20m – 1 h

Arrival and
Spotting Start of
Aircraft Departure
Turnaround
Aircraft Utilization
Aircraft Phased Checks
 Aviation authorities generally the
International Civil Aviation Organization
(ICAO) established the discipline of
maintenance, repair and overhaul (MRO)
service to be provided to every
certificated aircraft.
Aircraft Phased Checks
 Aviation authorities established the
discipline of maintenance, repair and
overhaul (MRO) service to be provided to
every certificated aircraft.
 The International Civil Aviation
Organization (ICAO) requires a standard
schemes of phased checks to ensure the
safety of aircraft operation.
Aircraft Phased Checks
 S or service checks are done before and
after every flight of the day.
 The phase checks A, B, C and D are done
after many flight hours or cycles depending
on the type of aircraft.
Aircraft Phased Checks
 The lighter checks (A and B) are usually
done overnight when the aircraft is in the
barn after a day of flight.
 The C and D checks are heavy checks
requiring the grounding of aircraft.
Aircraft Phased Checks
 The C check could run for two weeks.
 The D check requires 45 days of grounding
the aircraft when the unit is dismantled
and brought back up again at the end of
the check.
Spotting the Aircraft
 A fully serviced aircraft the night before is
towed and parked on the gate for a flight
assignment.
 It is also towing from one gate to another
or from terminal to terminal.
 Usually required one hour before
scheduled time of departure.
Ground Handling the Flight
 Many simultaneous activities happening in
preparation for departure:

fueling, catering and in – flight sales
provisions, loading cargo, baggage and
corresponding documents such as load,
cargo and passenger manifests,
passenger check in and weight and
balance or load controlling
Taxi, Take Off and Landing
 Block time consists of taxiing in/out, take
off and landing times and cruising time.
 In major airports, taxi time is so long
because of many aircrafts lining up for take
off which causes flight delays.
 Take off and landing also face the issue of
noise pollution particularly for airports
located near highly populated
communities.
Cruising Time
 refers to flying time
 impacted by several factors:

direction of the wind

the altitude

man – made factors (burnout)
Turnaround Time
 The aircraft is being serviced in order to
return to its origin or send it on a
continuing flight.
 The moment the chocks are put on, the
turnaround time kicks in and the whole
cycle is repeated again.
Ground Handling the Flight

the passengers are boarded, closure of
doors and chock off which signal the
departure.

On the reverse it is chock on and
opening of doors which signal arrival
time.
COMMONALITY
Before…
 There was a time when the trend in the
airline industry was to have the best,
latest and top-of-the-line equipment
(aircraft or ground service).

• It was some kind of airline

machismo to have varied types of
aircraft for it implies an improved
image of the airline.
HOW COMMONALITY
STARTED...
 Airbus came out with mixed type
of aircraft having common cockpit.
 When commonality was registered
to the airline industry, the concept
is immediately adopted and
extended in all the major aspects
of the industry.
COMMONALITY’S IDEAL GOAL:
 To have just one aircraft type in the
fleet:
 one type of engine
 one inventory of aircraft parts
 one type of every kind of ground
service equipment
 one kind of training module for
cockpit, cabin and maintenance
crew
 enjoy the tremendous economies of
scale engendered by it all
COMMON COCKPIT & SISTER-
SHIPS
 Airbus Industrie started the
elimination of the steering wheel of
the aircraft and introducing the
joystick as well as standardizing the
glass cockpits of the A320, A330 and
A340.
n The benefits of these revolutionary
act from the company resulted to a
tremendous economic impact on the
airlines
n The 1st major impact in the airline
operation is in the flight deck crew
 impact on the line operation
of a fleet
 flexibility on the crew rest,
which varies between a long-
haul and short-haul rated pilot
 with multiple ratings, the no. of
recurrent and transition training are
respectively reduced.
Engines, spare parts and GSE
Commonality
 Fleet commonality leads to a
reduced level of inventories of
engines, ground service equipment
(GSEs) and spare parts of the
aircraft and the GSEs.
n Commonality’s bebenit is reflected
in the maintenance of spare
engines
Values gained in commonality

 Economy
n the opportunity for cost avoidance
and cost cutting are many, w/c can
translate into greater economy in the
operation of the airline
 Maintainability:
 Itis so much easier to train and learn
one set of knowledge than a
convoluted set of facts to imbibe.
 Maintenance, repairs and overhauls
becomes easy.
 Flexibility:
 Any aircraft can be tapped w/o having
to scramble for crew or ground staff,
all of whom are expected to have
been thoroughly trained in just one
module of training.
 Reliability
 The promptness of the airline’s
operation can lead to a favorable
perception of reliability of the airline
on the part of the public.
 ALL OF THE VALUES GAINED
LEADS TO AN EFFICIENT
OPERATION OF THE AIRLINE,
HAVING LOADS AND REVENUES AT
LOWER LEVELS OF COST AND
ENSURES SECURITY, SAFETY AND
CONVENIENCE OF THE CUSTOMER.
Payload Range
Payload Range

 Aside from safety, it is payload that

matters much in commercial aviation

“…to be able to carry the most

payloads at the greatest distance..”
 Short Sector Syndrome

 the cost per kilometer in shorter

routes is higher than the cost per
kilometer in longer routes.
 Economies of Distance
FOR A SHORT STAGE LENGTH
CRUISE COST: $600 PER
KM

TAKE OFF COST LANDING COST

$ 2,000 $ 2,000

STAGE LENGTH= 100KMS

COMPUTATION OF COST PER KILOMETER FOR A 100 KM STAGE

LENGTH:
CRUISE = $600 x 100KMS = $60,000
TAKE-OFF + LANDING = $ 4,000
TOTAL COST OF TRIP = $64,000
COST PER KILOMETER = $64,000 / 100KMS = $ 640
 Economies of Distance

FOR A LONG STAGE LENGTH

CRUISE COST: $ 580 PER KM

LANDING COST
TAKE OFF COST
$ 2,000
$ 2,000

STAGE LENGTH= 500KMS

COMPUTATION OF COST PER KILOMETER FOR A 100 KM STAGE LENGTH:

CRUISE = $580 x 500KMS = $290,000
TAKE-OFF + LANDING = $ 4,000
TOTAL COST OF TRIP = $294,000
COST PER KILOMETER = $294,000 / 500KMS = $ 588
Measures to overcome
Short- sector syndrome
 Collect surcharges for air sectors
shorter than say 300 kms.
 it’s not an easy matter to get the CAB to
approve fare increase proposals
 would likely invite criticisms from the
public
 SHORT-RANGE OR SHORT-HAUL
 for flights less than two hours
 MEDIUM-RANGE OR MEDIUM-HAUL
 for regional routes that require as much
as seven to eight hours of flight
 LONG-RANGE OR LONG-HAUL
 for sectors exceeding nine hours
Aircraft Range
 Extending Aircraft Range
 Hubbing Operation
 Long Haul Aircraft Ruined Airports
 High Profile Victim of Distance/Payload
Trade-Off
 Aircraft Weights
 Basic Weights
- the certificated weight of the aircraft when
it rolled out of the manufacturer’s production
shops upon conclusion of a sale.
 Operating Weight
- fuel is loaded into the aircraft oftentimes
taking into consideration the usual enroute and
terminal weather experienced at both ends of
the sector involved
Payload Penalties
 The maximum take-off weight of any
aircraft is influenced to a great extent
by the characteristics of the origin
airport
 Issues like runway length, surface-
bearing strength, prevailing terminal
weather and many more have always
to be taken into consideration
Measures of Payload
 Volumetrics
 Seat Factor – utilization of seats in an
aircraft
 number or booked or boarded
passengers divided by the seating
configuration
 Passenger Load Factor – a measure of
the occupied seats of the aircraft being
flown the sector distance of the flight
 Overall Load Factor
 revenue ton kilometers divided by the
available ton kilometers

RTK = actual loads of passengers multiplied

to the sector distabce

ATK = established allowable payload

multiplied to sector distance
 Passenger vs. Cargo capacity
- Cargo units, which presumably are
allocated a certain capacity in the
passenger aircraft complete with
measurement in terms of available freight
ton kilometer, almost always find its
shipments offloaded due to full load of
passengers and baggage
Traffic, Yield and Revenue
Optimization
 REVENUE MANAGEMENT SYSTEM (RMS)
 the aircraft compartment is notionally
divided into more than the usual First,
Business, and Economy classes and in
the case of cargo, more than the
Express and General but with more
products for small yet high yielding
air parcels and perishable shipments
Other payload determinants
 Air Service Agreements
 Airways
 Altitudes