AIR TRANSPORT INDUSTRY

The air transportation industry includes all civil flying performed by certificated air carriers and general aviation. By
definition under Republic Act No. 776, it means service or carriage of persons, property or mail, in whole or in part, by
aircraft.

 CONSUMERS
o PASSENGERS
A passenger is entitled, as are all consumers, to receive what he is paying for―no more, no less. A
passenger should know in advance the services he can expect and the producers’ obligations to him
concerning these services, such as:
a) Safety and security
b) Convenience
c) Flight information
d) An accessible way of booking/reservation
e) Facilities and equipment services
f) Affordable price
i. Low cost carrier/Budget vs. Legacy
g) Arrival and departure handling―Baggage handling
h) In-flight amenities and perks

Affordable price
Low cost carrier/Budget vs. Legacy

 Low-cost carriers (LCC), or also known as low-cost airlines, budget or discount carriers; are carriers that is
operated with an especially high emphasis on minimizing operating costs and without some of the traditional
services and amenities provided in the fare, resulting in lower fares and fewer comforts. To make up for revenue
lost in decreased ticket prices, the airline may charge extra fees – such as for carry-on baggage.

 Legacy airlines are carriers that provide higher quality services than low-cost carriers; for example, a legacy
carrier offers first class and business class seating, a frequent-flyer program, and exclusive airport lounges.

o SHIPPERS
Same with other consumers, such as the passengers, shippers or transporters are also entitled to receive
services that will benefit them and the goods that are being transported, such as:
a) Safety and security of the goods being transported
b) Flight information for cargo tracking
c) Affordable price
i. Express, General and Specific cargo
d) Information about cartels

Information about cartels

Cartel is an organization created from a formal agreement between groups of producers of a good or service to regulate
supply or manipulate prices in order to improve their profits and dominate the market. In other words, a cartel is a
collection of otherwise independent businesses or countries that act together as if they were a single producer and thus
can fix prices for the goods they produce and the services they render without competition.
  PRODUCERS
o GOVERNMENT
Government departments provide inspection and maintenance to every service that other producers
provide to the aviation industry. They provide proper charges, fees, and taxes for other producers to
function, as well as rules and regulations, rights, and power, such as:

 COMMERCIAL PURPOSES
a) Franchising
b) Economic regulations
c) Tariffs and schedule filings or SEC filings
d) Quasi judicial powers
e) Aeropolitical matters
f) Traffic rights
g) Air services agreement

 TECHNICAL PURPOSES
a) Provides inspections to every pilot, mechanic, air controller, engineer, and licensed inspector
b) Check for the environmental effects
c) Safety Management System (SMS) concerning the risk management and safety assurance
d) Ensuring and upholding the Category 1 rating of Philippine aviation industry

Ensuring and upholding the Category 1 rating of Philippine aviation industry

The Philippines held a Category 1 rating until January 17, 2008, when it was downgraded to Category 2 by the Federal
Aviation Administration (FAA), citing safety concerns; saying that the Air Transportation Office (ATO) did not fully satisfy
international safety standards set by the United Nations' International Civil Aviation Organization (ICAO), resulting to the
termination of Air Transportation Office (ATO) under R.A. 9497, thus creating the Civil Aviation Authority of the
Philippines (CAAP).

ICAO classified the Philippine aviation industry as a "significant safety concern" after CAAP failed to meet and implement
safety standards that ICAO required. The Category 2 status prohibited Philippine carriers from mounting new and
additional flights to the United States.

Following the announcements of FAA and ICAO, on April 1, 2010, the European Union (EU) banned Philippine carriers
from flying to Europe.

On March 4, 2013, ICAO lifted its earlier classification of Philippine aviation, saying the country had made corrective
actions that successfully addressed and resolved the “significant safety concerns” identified by the ICAO. Following the
lifting of the ICAO classification, on July 10, 2013, the European Union (EU) allowed Philippine Airlines (PAL) to fly to
Europe.

On April 10, 2014, after over 6 years, the Philippines regained its Category 1 status, allowing local carriers to launch and
add flights to the US. Hours after the FAA announcement, Cebu Pacific became the second local carrier allowed to fly to
Europe.

o AIRCRAFT MANUFACTURERS
Company or individual involved in the various aspects of designing, building, testing, selling, and
maintaining aircraft, aircraft parts, and other material present in the aircraft.
a) Components
i. Brand new vs. Used/old
ii. Owning vs. Leasing
b) Technology
i. Fuel efficient aircrafts
ii. Hybrid aircrafts
iii. Artificial intelligence
iv. Drones

Components
Brand new vs. Used/old

 Cost. When looking at the costs to acquire, operate, maintain and dispose of the aircraft, used aircraft can often
have a significant cash advantage.

 Depreciation. New components have a higher depreciation cost than a pre-owned or old variants. For example,
an airline bought an aircraft for P30,000; you often hear that a product loses 20% of its value as soon as you buy
it. Yes, in just one minute, a P30,000 aircraft will lose P6,000 and by the end of the first year, wear and tear
could bring that to 30%, or P9,000. If an airline bought an aircraft for P30,000 and sells it three years later for
P15,000. The aircraft has cost you P15,000 in depreciation. Now let’s say you buy the same aircraft, but its 3
years old when you buy it. You could buy the aircraft for P15,000. Three years later you could sell it for P10,500.
So the used car depreciation cost you only P4,500.
  Tax Deduction. Depreciation expense helps companies generate tax savings. Tax rules allow depreciation
expense be used as tax deduction against revenue in arriving at taxable income. The higher the depreciation
expense, the lower the taxable income and, thus, the more the tax savings.

 Reliability and efficiency. How can you say if a component is reliable and efficient? If it achieved its maximum
productivity with minimum wasted effort or expense. New components are less prone to usage thus makes it at
advantage.

 Perks. Configuration, warranty and insurance. When purchasing a new aircraft, the buyer gets to select the
options and configuration desired. That covers everything to the color of the interior fabrics, to having the latest
in safety equipment and avionics. Reconfiguring a used aircraft not only takes time, it adds additional expenses.
A new aircraft warranty today typically runs for about five years. The new aircraft warranty typically covers any
unscheduled maintenance, often both parts and labor. Aircraft insurance, also called aviation insurance,
provides liability and property coverage for aircraft. It covers specifically the operation of aircraft and the risks
involved in aviation.

The new vs. used is just a matter of trade-offs.

Owning vs. Leasing

 Concept of Leasing. A lease is a contract outlining the terms under which one party agrees to rent property
owned by another party. It guarantees the lessee, the one who rents, use of an asset and guarantees the lessor,
the property owner, regular payments for a specified period in exchange. Aircraft are considerably expensive
purchases, especially when buying dozens of them. Purchasing huge numbers of aircraft can tie up considerable
capital and weigh down balance sheets, which is not viable for many airlines. This is where the aircraft leasing
business steps in.

Leasing aircraft benefits airlines in several ways. First, the amount of capital required to lease an aircraft is
significantly less than the amount needed to purchase an aircraft. If capital is limited, which it usually is, an
airline may not have enough on hand to purchase several aircraft. Leasing aircraft would allow the airline to
operate several planes at once, instead of just having one. Furthermore, leasing allows airlines to afford new
aircraft since capital can be deployed to lease newer planes that were out of range to purchase. This allows the
airline to operate newer more fuel-efficient aircraft, as opposed to being limited to purchasing older, more
expensive aircraft outright. Newer planes are also less prone to breaking down and also have lower
maintenance costs to that effect.

 Sale and leaseback. Leasing aircraft, in some cases, can even make money for an airline through a method called
“sale and leaseback”. This method allows an airline to lower operating costs and, therefore, increase
profitability. In a “sale and leaseback model,” an airline purchases aircraft, sells them to leasing companies and
then leases them back to use. This is due to the fact that airlines can often acquire aircraft from manufacturers
at lower prices than leasing companies.

o AIRLINES
A company that provides air transport services for traveling passengers and freight. Airlines utilize
aircraft to supply these services:
a) Safety and security
b) Baggage handling
c) Ground services
d) Pilot training and supply
e) Catering
f) Booking commission
g) Ground transportation arrangement
h) Concierge reservations
i) Flight services
i. Low cost carriers
ii. Business class services
iii. Charter services
j) Fuel hedging

Fuel hedging
Fuel hedging allows a fuel-consuming company to establish a fixed or capped cost, via commodity swap. The companies
enter into hedging contracts to mitigate their exposure to future fuel prices that may be higher than current prices
and/or to establish a known fuel cost for budgeting purposes.
o GENERAL AVIATION
Company, or networks, that provide necessary air services for the benefit of other air service providers
and operators that provide flight activities other than commercial air transportation and specialized
services such as agriculture, construction, photography, surveying, observation and patrol, search and
rescue, aerial development, etc.
a) Recreational flying
b) Fuel hedging
c) Consultations and legal works
d) Approved Maintenance Organization (AMO)
e) Approved Training Organization (ATO)
i. Flight training
ii. Aircraft homebuilding
f) Ground/ramp services and handling
g) Terminals/hangars
h) Advertisement for commercialization and tourism

o AIRPORTS
A defined area on land or water including any buildings, installations and equipment intended to be
used either wholly or in part for the arrival, departure and surface movement of aircraft. Airport or
aerodrome is one of the major air service providers in the aviation industry, it provides:
a) Safety and security
b) Ground transportation access
c) Concessionaires
d) Booking commission
e) Ground/ramp services and handling
f) Terminals/hangars and other facilities