EAS417 Air Transport Management

Air Transport

Fundamentals

Dr Keith Mason

Head of Air Transport Management Group, Cranfield University

Twitter: @keithjmason

8th – 9th Sept 2012

WHY DO WE HAVE AN

AIRLINE INDUSTRY?

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Scheduled Air Transport Industry

• Air transport demand is derived from other industries

• (including tourism)

• Airlines compete for business travellers with:-

• Phone, fax, e-mail, internet, teleconferencing

• Surface transport

• Airlines competes for leisure travellers with:-

• Savings, consumer durables, etc...

• Surface transport

IATA Members Operations

Source: IATA , WATS, 2010

Source: IATA WATS 2004

North America

16.3%

12.4% Europe

8.5%

Asia &

SW Pacific

18.1%

5.8%

9.5%

IATA scheduled RPKs 2010

5.8%

Middle

East 1.1%

4.3%

3.1%

2.1%

0.6%

Source: IATA , WATS, 2011

Major Passenger Traffic

Flows (RPKs)

ICAO, Outlook for Air Transport to 2015, Cir 304 AT/127

Actual

Passenger traffic growth forecast

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Airline industry characteristics

• Strongly influenced by economic cycles

• Seats cannot be stored

• Many markets highly seasonal

• Long aircraft ordering lead times

• Poor financial performance

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World GDP & scheduled traffic

growth

Source: ICAO, 2009a and WEO (IMF), 2009

Average Changes of World RPK / Real GDP, 1982-2008

Aircraft Manufacturer Forecasts (Pax-kms)

Route Seasonality (Summer)

0

20,000

40,000

60,000

80,000

100,000

120,000

140,000

160,000

Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec

Gatwick - Malaga: Schedule and Charter combined

2006 2009

Route Seasonality (Winter)

Route Seasonality (Business)

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Financial Return and traffic growth

Input prices, productivity and yield

-6.0

-4.0

-2.0

0.0

2.0

4.0

6.0

8.0

1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

Percent

Opera ngResultas%Revenues

NetResultas%Revenues

Source: ICAO

World scheduled airline results: margins

Scheduled airline results: margin by region

-10.0

-8.0

-6.0

-4.0

-2.0

0.0

2.0

4.0

6.0

8.0

10.0

1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

Opera

ngprofitas%Revenues

Asia/Pacific

Europe

NorthAmerica

Source: ICAO, and Airline Business (From August 2007 onward)

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Margins by business models

-6

-4

-2

0

2

4

6

8

10

2008 2009 2010

Perc

en

t

Operating Margin by Airline Business Model

Cargo Mainline Leisure Low Cost Regional

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The business travel market

• Dependent on the route, business travel can be 50% or

more of the market (in volume), although exact statistics

are hard to come by there are few international or national

published statistics

• CAA have numbers ex-UK

• OAG, CAA, IATA and AMEX publish survey data

• The value of the business market can be used to support

discounted fares in economy

• Business class travel more important than first class

• airlines are substituting first class seats with business class seats

Business Travellers

• Mainly male - 80%

• Middle aged

• 35 - 54

• 17 trips per annum

• 5 Long haul

• 12 short haul • down 3 since 2004

• Half work for large

companies

• Half work for SMEs Source: IATA CATS 2009

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Profitability by class of passenger service

0

10

20

30

40

50

60

70

80

90

100

First Class Intermediate Class Low Class

Lo

ad

Fa

cto

r (%

)

Actual Load Factor BELFSource: IATA, 2003

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Business Traveller gender

IATA CATS 2009

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Company size and trip frequency

• Short Haul

• 12.1 trips pa

• Long Haul

• 4.1 trips pa

IATA CATS 2009

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Evidence of change of business

market

• Downgrading

• Adoption of low cost airlines

• Change in booking behaviour

• Increase in fare transparency

• No longer prepared to pay high multiples for business class

• Increase in price elasticity

• Increase in “value for money” purchasing

• Use of other forms of communication

• Increased use of web-conferencing, tele-presencing, video-conferencing. This adoption has been increased as companies become aware of the carbon cost of travel.

Choice of airline

0%

5%

10%

15%

20%

25%

30%

35%

40%

45%

50%

Factors affecting choice of airline: IATA CATS 2009

LH CATS 2009 SH CATS 2009

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Travel spend

80/20?

< 100 employees

1,000 – 10,000

employees

< 1000 employees

> 10,000 employees

Airlines cannot afford to manage

accounts for companies with

spend less than £50k

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Where will you find business travellers?

• Class on travel on short haul flights (<5hrs)

• 10.0% First or Business Class

• 22.0% Premium Economy

• 68.0% Economy Class

• Class of travel on long haul

• 1.5% First Class

• 39.0% Business Class

• 19.4% Premium Economy

• 40% Economy Class

• The class is often dependent on the traveller’s corporate

status

Source: IATA CATS, 2004

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Business Travel Cuts – Summer

2009

• 71% of companies had significantly reduced business travel

• Class of travel

• 38% Business class

• Of these 70% said only for trips > 5 hours

• Reasons for trips

• Trips for sales and commercial (45%)

• Customer support (21%)

• Conference and presentations (20%)

• Internal company meeting (10%)

• Training (4%)

Source: KDS, 2009

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Demographic Segments in Leisure &

VFR

• Age - A very wide range

• Gender - 50/50

• Peaking - Weekly and seasonal

• Charter operators can manipulate demand with tour operator.

• Planning well in advance

• Although increase in Mini-breaks

• Life Cycle - Tour operators segment on life-cycle

• 18-30, Sandals (couples only), Beaches by Sandals (Families)

Eurocamp, Family destinations, Cruise and safari, Saga

• Tour segments may require specialised airline services (e.g.

Flights to family destinations may provide children's books and

colouring pens)

Leisure traveller - Lifestyle changes

Lifestyle Changes Europe:-

• Lengthier and more flexible

holiday entitlements

• Increased job and

educational mobility

• Rise of the “Grey Panthers”

• The Gap Year phenomenon

• 2nd Homes overseas

• Sporting, cultural events

Lifestyle Changes Asia:-

• Increased use of disposable

income for cheap travel – LCCs

• Rise of the newly middle class

travellers

• Ego Tourism

• Educational travel

• Sporting, cultural events

16932

13972

11431

9450

9044

8540

8398

7567

6783

6468

5922

5415

5081

5035

4576

Jakarta (Intl) Indonesia

Hong Kong (Intl) China

Shanghai (Pu Dong Intl) China

Sydney Australia

Bangkok (Intl) Thailand

London (Heathrow) UK

Manila Philippines

Melbourne Australia

Denpasar Bali Indonesia

Beijing (Capital) China

Tokyo (Narita) Japan

Brisbane Australia

Seoul (Incheon Intl) Korea

Kuala Lumpur Malaysia

Dubai U.A.E

0

2000

4000

6000

8000

10000

12000

14000

16000

18000

20000

Singapore Airlines top 15 routesWeekly one-way seat capacity - September 2010 data

Source: OAG DATA

EAS417 Air Transport ManagementNational Association of Travel Agents, Singapore

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Breakdown of visitors by region to Singapore (May 2010)

Source: CEIC

2% 4%

7%

13%

74%

Tourist Visitors to Singapore by Origin

Other

USA

Australia

Europe

Asia

0

200

400

600

800

1,000

1,200

ASEAN Japan Hong Kong SAR

India China, People's

Republic of

Taiwan South Korea

Australia United Kingdom

United States

Singapore Tourist Arrivals (000s)- 2009

Q1

Q2

Q3

Q4

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Purpose of visit to Singapore - 2009

YourSingapore.com