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Chapter 6. Air Carriers. Brief History. Wilbur and Orville Wright made their first flight in 1903 at Kitty Hawk. In 1908, U.S. Post Office examined the feasibility of providing air mail service.
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Chapter 6 Air Carriers
Brief History • Wilbur and Orville Wright made their first flight in 1903 at Kitty Hawk. • In 1908, U.S. Post Office examined the feasibility of providing air mail service. • Airline travel is a common form of transportation for long-distance passenger travel and the only reasonable alternative when time is of the essence.
Industry Overview and Significance • In 1997, 20.51 billion revenue ton-miles(0.4 percent of total intercity ton-miles) were transported. • Although their share of the freight movement on a ton-mile basis is small, the type of traffic that they carry(high-value, perishable, or emergency) makes them an important part of our total transportation system.
Private Carriers – a firm that transports company personnel or freight in planes that is owns or leases. For-Hire Carriers By type of service offered All-cargo(Federal Express and Air Borne Express) Air-taxi Commuter(a regional carrier) – publishes timetables on specific routes. Charter(lease or rent) – Use large planes to transport people or freight. No time schedule or designated route. International – such as British Air and Air France. Types of Carriers
Types of Carriers • By annual revenue • Majors – annual revenues of more than $1 billion, provide service between major population areas within the US such as NY, Chicago, and Los Angeles. Also serve medium-sized population centers such as Toledo, Ohio using high-capacity planes. Like United, Delta, U.S.Airways, and American. • Nationals – annual revenues of $75 million to $1 billion, operate between less populated areas and major population centers. Operate schedules service over relatively short routes with smaller planes.Like Southwest Airlines and America West.
Types of Carriers • Regionals – annual revenues of less than $75 million and have operations similar to the nationals. Operate within a particular region of the country, such as New England or the Midwest, and connect lesser populated areas with larger population centers. Like Mesa, Air Wisconsin, and Alaska.
Competition • Intermodal – face limited competition from other modes for either passengers or freight. An advantage in providing time-sensitive, long-distance movement of people or freight. For short distances (under 300 miles), the access time and terminal time offsets the speed of the airline for the line-haul.
Competition • Intramodal • Competition in rates & service among the air carriers is very intense. See P.176. • May also have excess capacity(too many flights and seat miles on a route) and attempt to attract passengers by selectively lowering fares to fill the empty seats.
Service Competition • Many forms, but primary service competition is the frequency & timing. Flight departures are most frequent in the early morning (7:00 to 10:00) and late afternoon (16:00 to 18:00). • In addition, air carriers attempt to differentiate their service through the advertising of passenger amenities. Including such as on-time arrival and friendly employees.
Service Competition • Gourmet meals and on-board movies • Frequent flyer programs and special services for high-mileage customers are popular examples of other services to attract loyal customers. • No-frills service • Cheap (Southwest Airlines and American Trans Air) • Passengers receive limited snacks and drinks • Provide one class of service • Fewer airline employees involved, which contrubute to lower costs
Cargo Competition • Have published competitive rates, but are still higher than those available via surface carriers. • Some carriers provide door-to-door service through contacts with trucking companies. • Some surface carriers that have added air cargo service, such as UPS. Competition for non-passenger business will become even greater as more carriers attempt to eliminate excess capacity resulting from currently reduced passenger travel patterns.
Operating and Service Characteristics • General • In 1997, approximately 73 percent of total operating revenues was derived from passenger transport. • Approximately 10.0 percent of the total operating revenues was generated from freight transportation. Basically high-value and/or emergency shipments.
For emergency shipments, the value should depend on the “opportunity value”. Commodities includs Mail Clothing Communication products and parts Photography equipment Mushrooms Fresh flowers Industrial machines High-priced livestock (like cattle) Race houses Expensive automobiles jewelry Time is Money Operating and Service Characteristics
Major service advantage – speed Commercial jets are capable of routinely flying at speed of 500 to 600 miles per hour This advantage has been dampened somewhat by reduced frequency of flights and congestion at airports. The number of flights offered to and from low-density communities has been reduced to increase the utilization of a given plane. Concentrate on the high-density routes like NY to Chicago. Speed of Service
Speed of Service • Hub terminal like Chicago & Atlanta • Air traffic congestion and ground congestion at major airports raised and the overall transit time increased. • Inventory levels reduced • Stockouts can be controlled, reduced, or eliminated
Length of Haul and Capacity • Long distance – make 1000-mile trip a matter of hours versus days for other modes • Normally, small shipments, less than 500 pounds, are moved by air carriers. • Packaging required for freight shipped by air transportation is usually less than other modes.
Accessibility and Dependability • Being capable of providing reliable service except in adverse conditions such as fog or snow. • Poor accessibility except use smaller planes and helicopters • Cost is high, about three times greater than truck and 10 times greater than rail.
Equipment • Terminals (airports) • Financed by the government • Carriers pay for the use of the airport through landing fees, rent and lease payments for space, taxes on fuel, and aircraft registration taxes. • In addition, users pay a tax on airline tickets and air freight charges. • The government has the responsibility of financially assisting the states in the construction of airport facilities.
Equipment • Carriers perform passenger, cargo, and aircraft servicing. • Passengers are ticketed, loaded, and unloaded, and their luggage is collected and dispersed. • Aircraft servicing includes refueling; loading of passengers, cargo, luggage, and supplies(food); and maintenance.
Equipment • Certain airports in the carriers’ scope of operation become hubs. Flights from outlying, lesser populated areas are fed into the hub airport, where connecting flights are available to other areas of the region or county. • Also provide services to passengers, such as restaurants, banking center, souvenir and gift shops, and snack bars. Some even with shopping mall.
Cost Structure • Fixed V.S. Variable Cost Components • High variable (80%) & low fixed costs (20%). • Low fixed cost structure is attributable to government investment and operations of airports and airways.
Labor • Labor costs represent over one-third of total operating expenses • In 1997, about 586,000 people at an average annual compensation of $65,000. • With a variety of different skills. • Pilots, copilots, and flight engineers. • Flight attendants • Communications personnel are required to tie together the different geographic locations. • Mechanics and ground crews • Office personnel and management
Rates • Pricing • Seats on the same plane can have substantially different prices, depending on restrictions attached to the purchase, such as having to stay over a weekend or having to purchase the ticket in advance. • Due to competition with other airlines, the time and day of departure and return, the level of service (first class versus coach or no-frills service), and advance ticket purchase, the price varies.
Rates • Businessman generally pay more due to the more rigid schedules and the fact that they usually depart and return during the high-demand times. • Cargo pricing is dependent mainly on weight and/or cubic dimensions.
Operating Efficiency • Operating Ratio = (Operating Expense / Operating Income) * 100 • Was in the high 90s • Load Factor = ( # of Passengers / Total # of Seats ) * 100 • Affected by price, service level, and competition.
Current Issues • Safety • Great importance because of the large # of people affected at one time. • Several factors • Airport security – International terrorism • Aging air fleet – China Air • Substance abuse concerning pilots and ground crews • A very safe form of transportation
