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 Characteristic
Airline Categories: Intercontinental
Intracontinental
Domestic
Regional
International
Scheduled
Chartered
Cargo
Passenger
Airline Characteristic
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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Airline Characteristic
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
Corporate Development Planning
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
Corporate Development Planning
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
Case Study Cathay Pacific
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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Case Study Cathay Pacific
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
Case Study Cathay Pacific
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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Case Study Cathay Pacific
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
Case Study Cathay Pacific
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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