Airline
Industry
Overview


Framework

•  Market


•  Product

•  Customer

•  Compe;;on

•  Companies

•  Economics


–  Revenues

–  Cost

•  Externals

 Global
Market

•  2000
Airlines
opera;ng
more
than
23,000

aircraG,
providing
service
to
over
3700
airports.


•  In
2006,
there
were
28
million
scheduled
flight

departures
and
carried
over
2
billion
passengers


•  Growth
of
world
air
travel
has
averaged

approximately
5%
per
year
over
the
past
30
years

•  Annual
growth
in
air
travel
has
been
about
twice

the
annual
growth
in
GDP

•  Expected
to
double
over
next
10
–
15
years

 US
Market

•  100
cer;ficated
passenger
airlines
operate
over

11
million
flight
departures
per
year

•  Carry
over
one‐third
of
the
world’s
total
air
traffic

•  745
million
passengers
in
2006

•  $160
billion
in
total
revenues

•  545,000
employees
and
over
8,000
aircraG

opera;ng
31,000
flights
per
day

•  Commercial
avia;on
contributes
8
percent
of
the

US
Gross
Domes;c
Product,
according
to
recent

es;mates

 Market

•  US
Commercial

•  Cost
–
Safety
–
Growth


•  Consolida;on

–  Con;nental
–
United
(2010)
–
Largest
Airline

–  Delta
–
Northwest
(2009)
–
2nd

–  Southwest
–
AirTran

 Products

•  The
Good,
the
Bad,
and
the
Ugly

•  Other

–  Adver;sing

–  Airport
Gains

–  Credit
Cards?

(Good)
First
Class

Emirates
Private
Room

Emirates
Shower

Fees
(Bad)


Fees

RyanAir
(Ugly)

 Customer

•  Business

–  Time

–  Ameni;es

•  Pleasure

–  Cost

•  Low
Switching
Cost

–  No
Loyalty
–
Why
miles
exist

 Compe;;on

•  1937
–
1978:
Civil
Aeronau;cs
Board
regulates

Air
Travel
as
Public
U;lity

•  1978
–
Present:
Airline
Deregula;on
Act

–  Cost
per
passenger
is
30%
less
in
1990
vs.
1976

(accoun;ng
for
infla;on)

–  9
airlines
went
bankrupt
from
78
–
01,
and

American
today

–  Low
Cost
Airlines

–  Hub
&
Spoke

Low
Cost
Airlines

Hub
&
Spoke

 Compe;;on 


•  Cost
cugng
to
maximize
seats

–  Product
of
high
fixed
vs.
variable
cost

•  Excess
capacity
due
to
compe;;on

–  Changing
with
recession

•  Barriers
to
Entry
are
less
than
expected

•  Subs;tutes
are
generally
comparable
in
cost

–  Trains,
Buses

–  Excep;on:
E‐Mee;ng

 Companies

•  Consolida;on

•  Service

•  Image


David
Neeleman

Economics
(Profits)

Economics

 Bankruptcy

•  2001
–
2011

–  US
Air

–  United

–  Delta

–  Northwest

–  American

American
Airlines

 Improvements

•  Addi;on
of
Fees

–  Baggage

–  Food

–  Internet

•  Cost
Cugng

–  Food

–  Pillows

 Externals

•  Unions

–  
Pay
&
Benefits


•  Regula;on

•  Government
Support

•  Weather

•  Terrorism

 Fuel


Fuel

•  Hedge

•  Efficiency
–







New
787

•  Alterna;ves
–virgin

biofuel