Transport Scheduled Airlines Janet Woolley 2002

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TransportScheduled AirlinesJanet Woolley 2002
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Agenda

• Importance of Industry
• Sept 11 crisis
• Background to Industry
• Government involvement
• De-regulation
• Industry Bodies

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Operational issues, to include

• Code sharing
• Alliances
• Hub and spoke
• networks

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Size of the Market?

• 1.6 billion psgrs used the worlds airlines in
  2001.
• 29 million tonnes of freight was carried by air
  in 2001
• Despite acts of war and terrorism these figures
  are expected to double in the next 12-15 years

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September 11th factor

• 2001 show a -5 in airline traffic
• After a 8 in 2000
• ICAO estimated a loss of 60 million psgrs
• But Easyjet was 39 for Nov/Dec 2001

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September 11th factor

• Insurance cost up from 1.5 bn to 10 bn a year.
• But fuel 30 and aircraft and leasing also down
• Sept 11 will be seen as the worst day in
  aviation history.
• But 2001 was one of the safest years as fatal
  accidents were 18 compared with an average of 24
  estimated on the last 10 years.

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September 11th reality check!

• Yes many airlines cut routes and jobs,and some
  went out of business, but was this a result of
  9/11 or just inevitable?

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Development of Scheduled airlines

• Started in 1919 but expanded most rapidly after
  2nd world war 1945
• Dominated by state owned airlines. Flag
  carriers-offered power and prestige
• Governments had control of
• Fares
• Routes
• Number of flights
• competition

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Chicago Convention 1944 resulted in

• 5 Freedoms of the Air
• Principle of Cabotage-reserves the right of
  carriage between two points in a country to that
  countrys own Airline.
• Bilateral Agreements resulted e.g Bermuda
  Agreement between UK and USA introduced 5th
  freedom

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IATA

• Colluded over fares-price fixing
• Restructured in 1979
• Promotes safe regular and economic air transport
• Traffic conferences-fare fixing
• Standardising operating procedures and ticketing
• BSP Bank settlement plan. Computerised banking
  system.

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International Organisations

• ICAO- International Civil Aviation
  Organisation-UN organisation
• CAA- Civil Aviation Authority 1971. Responsible
  for the economic and safe regulation of British
  civil aircraft.
• CAB Civil Aeronautic Board, 1938- 1984.
  Controlled the domestic US market. No new
  entrants since the 1930s.

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Moves Towards Deregulation

• WHY ?
• Market forces will shape industry
• Increase competition
• Increase quality
• lower fares

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Deregulation

• US deregulation in 1978- Federal Deregulation
  Act, under the Carter administration-new carriers
  entered the market, in particular low cost
  carriers and fare fixing was abolished.
• 1978 5 carriers had 69 of US market
• New entrants such as People Express

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Deregulation

• By 1985 no. of carriers operating on trunk-routes
  had increased from 36-128
• However by 1985 5carriers had 70of market
  (Oligopolistic situation)
• So did it work?

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Results of Deregulation lower fares and the
need to reduce Costs

• Hub and Spoke Networks-
• Air lines streamlined their operations, reducing
  operating and maintenance cost
• Use of smaller feeder carriers to bring psgrs.
  into main hubs

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A hub and spoke system
Airline Hub (major City)
Trunk Route
Spoke
Airline Hub (major City)
Small City/ Outlying District
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Hub and Spoke issuesl

• Need to feed psgrs into hub-alliances with
  regional airlines
• Need to dove-tail schedules
• Keeps main operation in fewer airports
• Need to operate frequent services
• Major hubs become congested
• Dominance of one airline at a hub

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Low Cost Airlines

• Developed after deregulation in the US i.e.
  Peoples Express and SouthWest. Ryanair was first
  to operate in the UK followed by EasyJet.
• They offer low fares and a simple service
  operating out of the smaller regional airports
  such as Stansted and Luton.
• Business travel now important
• Operations are mostly from regional airports

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European Deregulation

• .Europe started deregulation with the Single
  European Act, SEA in 1993 introducing the Third
  Package of liberalisation measures. Total
  implementation was in 1997.
• However there were earlier moves towards
  deregulation.
• UK Domestic deregulation started 1982
• UK and the Netherlands bilateral agreement of
  1984
• BA privatisation 1987

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Eight forces that drove the aviation industry to
change

• 1. Increase recognition of the importance of
  tourism
• 2. Worldwide moves to liberalisation and
  deregulation
• 3. Worldwide moves towards privatisation of
  Airlines
• 4. The marketing advantages of very large
  Airlines

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5. Mergers and Alliances

• 6. Computer reservation Systems (CRS) and
  communication systems
• 7. Increased acceptance of foreign ownership
• 8. Moves towards a multilateral system
• (Source WTO Aviation And Tourism Policy 1994)

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Alliances

• Code-sharing- an agreement between two airlines,
  where one of the airlines operating a specific
  route agrees to operate under both airlines
  flight codes.
• Examples are
• Connecting services, operated by two companies,
  each sold as one single flight under their own
  flight designator.
• Parallel services -flights offered by both
  partners on the same sector which share a common
  designator.

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Forms of Alliances

• Tactical partners
• Strategic Partners
• One World British Airways, American, Cathy
  Pacific, Canadian Airlines, Qantas, Iberia,
  Finnair
• Star Lufthansa, United, Thai, Air Canada, SAS,
  British Midland
• Skyteam- KLM, Northwest, Continental

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Bibliography

• Bennett (1997) Strategic Alliances in the World
  Airline Industry, Progress in Tourism and
  Hospitality Research, Vol. 3.
• Child, D.(2000) The Emergence of no frill
  airlines in Europe.Travel and Tourism
  Intelligence no, pp87-121.
• Evans, N. (2001) Collaborative Strategy, Tourism
  Management 22 pp229-243.
• Page,S J. (1999) Transport and Tourism, Longman,
  Singapore.
• Pender,L(2001) Travel Trade and Transport an
  introduction. Continuum, London.
• WWW.ATAG.org.uk