Global Airline Management AM414

Chapter-2
Dr Arif Sikander
Airline Management
Airline Ma
Decisionlevelsofairlinemanagement
Global Airline Management
Processes considered in the planning and operations
phases of the airlines 
 Global Management is concerned with
the techniques and practices that are
Global involved in directing and controlling
Airline international operations. Thus, it
covers all the issues that arise as a
Management consequence of global strategies.
 To understand why the regulations
that govern international air
transport show such major
differences from country to country,
Backgroun Lets have a look at
d
The Chicago Convention
Freedoms of the Air
 The agreement marks a
critical milestone in the
history of aviation, as it
laid the foundation for
today’s global air
transportation system.
The
Chicago
Convention The Convention made
several fundamental
contributions to the conduct
of domestic and, especially,
international civil aviation
and supported the industry’s
enormous growth over time.
 The Convention decided to
simply create a framework within
which rules could be established
for regulating air transport
services on a bilateral basis, i.e.,
between pairs of countries.
The As a result, bilateral air service
Chicago agreements (ASAs) between
States emerged as the
Conventio instrument for initiating or
n modifying international
transportation services and for
regulating these services.
Bilateral ASAs continue to be
prevail today, but multilateral
ASAs have also become
increasingly common and
important in recent years.
 In another fundamental
contribution, the
Convention recognized
The the critical need for
Chicago international commonality
in airport and air traffic
Conventio control facilities,
n equipment and
procedures to ensure the
safety and operability of
aircraft across national
boundaries.
 THE CHICAGO
CONVENTION ALSO
ORIGINATED THE
CONCEPT OF THE SO-
CALLED “FREEDOMS
Freedoms OF THE AIR.”
THE FREEDOMS REFER
of the Air TO THE RIGHTS THAT
AN AIRLINE OF ANY
STATE MAY ENJOY
WITH RESPECT TO
ANOTHER STATE OR
STATES.
Airline Management
Freedoms of the Air 
 Exploiting Freedoms of the Air 

Airline Management
 Consider a commercial carrier X
registered in a State A:

Freedoms The First Freedom refers to the right of

carrier X to fly over another State B
of the Air without landing.

The Second Freedom refers to the right

of carrier X to land in another State B for
technical (e.g., maintenance or refueling)
or other reasons, without picking up or
setting down any revenue traffic.
 The Third Freedom refers to the right of
carrier X to enplane revenue traffic from
its home State A for transport to an airport
of State B.

The Fourth Freedom refers to the right of

Freedoms carrier X to enplane revenue traffic at an

airport of the agreement partner, State B,
for transport to its home State A.
of the Air The Fifth Freedom refers to the right of
carrier X to enplane revenue traffic at an
airport of the agreement partner, State B,
for transport to a third State C, and vice
versa, as part of the continuation of a
service (flight) originating or terminating
in its home State A.
 Can be defined as a company that
operates in the main markets of the
world in an integrated and co-
ordinated way

Is different from a multinational

A global company since it operates in the
main markets of the world in an

company: integrated and co-ordinated way

Is one which carries out one

activity (e.g. manufacturing) or a
component of the activity (e.g.
manufacturing one sub-part only) of
the value chain in one country
which serves the company’s
worldwide market.
 Globalisation:
Is the phenomenon of the progressive transition of
industries from a multinational to a global
competitive structure
Has four factors in its favour which are:
Political: reduces trade barriers
Technological: reduces the cost of co-ordination
and increases economies of scale
Social: encourages standardisation and global
Globalisatio branding
Competitive: induces integration and co-ordination
n Has four competitive benefits:
Cost: economies of scale and increased bargaining
powers
Timing: reaches the optimal production volume
and increases the reach of a product with a short
product life cycle
Learning: facilitates best practices to be adopted
across subsidiaries through the experience effect
and the transfer of knowledge
Arbitrage: is derived when a global company uses
resources in one country for the benefits of a
subsidiary in another country.
Globalization Push Factors
 This section is concerned with
Airline the ownership of airlines and
Privatizatio with their rights of access to
n and international markets.
Internation
al Early 1980s the great majority
Economic of the world’s major airlines
were government owned –
Regulation with the notable exception of
those in the USA.
 All this changed dramatically
when the industry began
reaching economic maturity,
first in the USA and then in
much of the rest of the world.

Airline
From a long-term perspective,
Privatizatio the complete or partial
n privatization of many
government owned airlines
since the mid-1980s has been
one of the most important
transformations that the
industry has undergone in its
history.
Types and Critical Aspects of Air
Service Agreements (ASA’s)
The Chicago Convention established a
framework for regulating international air
transportation services on the basis of
ASA’s.

All bilateral and multilateral ASA’s make

reference to four critical aspects of the
services to be provided.
 A. Market access: The potential city
pairs to be served between the States
involved in the ASA, as well as any
Freedoms beyond the Third and
Fourth, which may be granted under
the ASA.
Types and B. Airline designation: The number of
Critical airlines from each of the States that
have the right to provide service in
Aspects of each city pair included in the
Air Service agreement.
Agreements C. Capacity: The frequency of flights and
the number of seats that can be
(ASA’s) offered on each city pair.
D. Airfares (“tariffs”): The manner in
which passenger fares and/or cargo
rates to be charged are determined
and any steps necessary for
government approval of these fares.
 Depending on how it deals with each
one of the above four aspects, an
ASA can be classified into one of the
following three categories.

1. Traditional: The earliest example

ASA’s is the 1946 “Bermuda I” Agreement
classificatio between the USA and the UK; more
n “liberal” examples of traditional
ASAs emerged subsequently
starting with the 1973 “Bermuda II”
Agreement between the USA and
the UK
 2. Open market: The earliest
examples are the ASA’s between the
USA and The Netherlands, the USA
and Singapore, and the UK and The
Netherlands, all signed in 1978–
ASA’s 1979.
Classificatio
n 3. Open skies: The earliest
examples are the ASA’s between the
USA and The Netherlands, the USA
and Singapore, and New Zealand
and Chile in 1992.
 Agreements of all three types are
still being signed today. Many
countries, especially those outside
North America and Western Europe,
Types and continue to enter into bilateral ASA’s
Critical of the traditional type. In fact, the
Aspects of majority of ASA’s currently in force
around the world are of the
Air Service traditional type – although these are
Agreements no longer the most important in
(ASA’s) terms of impact, as measured by the
number of passengers affected and
the economic significance of the
markets involved.
 Under traditional agreements, which
are always bilateral, access is
permitted to only a limited number of
specified city-pair markets.
Moreover, the number of airlines that
may operate in these markets are
specified in the ASA.
Under open market agreements,
Market access is generally open to all
Access potential city pairs in the two
signatory countries.
Open market agreements usually
provide unlimited rights for charter
flights from each side, as well as
offer Fifth Freedom rights to/from a
specified set of third-party countries.
 Under open skies agreements,
access to city pairs is unlimited at
both ends. So are Fifth Freedom
Market rights (subject to concurrence from
Access third-party countries) and the right to
organize and operate charter flights.
 Under traditional agreements, each
country may typically designate only
one of its airlines for the right to
operate flights between any specific
pair of cities.

Airline Double designation may be allowed

Designatio for major markets with high volumes
n of demand, e.g., New York–London,
under more “liberal” ASA’s. Under
open market and open skies
agreements, multiple designations
are permitted – and indeed are the
rule, when feasible.
 Under traditional agreements,
strict control is exercised on the
frequency of flights and the number
of seats offered in each one of the
served markets. Typically, in the
least “liberalized” agreements, the
Capacity capacity provided is allocated on a
50–50 basis to each side’s
Constraint designated airlines. Even more
s remarkably, revenues from each
market are, in some cases, pooled
and shared in proportion to the
capacity offered, irrespective of how
many passengers actually fly on
each of the designated airlines.
 Under open market agreements,
no restrictions are imposed on the
capacity an airline may offer in a
market.

Under open skies agreements, no

Capacity capacity restrictions are likewise
Constraint imposed.
s
To add further flexibility, code
sharing is also often permitted, so
that consecutive legs of the flight
may actually be flown by two
different alliance partners.
THANK YOU