AB MIDTERMS

Scheduled Airlines

Offers regularly timed flights over prescribed routes and published timetables.

Major airlines

trunk airlines, full-service carriers. Focuses on long-distance or long-haul routes. Flag carriers. Serve major city airports and international destinations. (US - 1 Billion revenue)

Regional Airlines

 air service between smaller cities and connect small communities with major airports. They operate between points within a specific area of the country. 

Large regionals

• certificated carriers with annual gross revenues between 10 mil and 99.9 mil 

Medium regionals

• certificated carriers with annual gross revenue less than 10 mil. 

Small regional

does not have a set revenue definition but is referred to as “commuter airlines.” They are non-certificated

Supplemental or Charter Airlines 

Based on product offerings, value-added services, revenue sources, target market. 

Full-Service Carriers (FSC)

scheduled airlines and developed from national flag carriers.

• Uses “hub and spoke” connection 

• Members of alliances and partnerships

• Fares are inclusive of in-flight services

• Uses GDS

Low Cost Carriers (LCC)

focus on just the transportation/seat. Known as “no-frills” which caters to passengers wanting cheap airfares with little demand for inflight services.

• Cheap 

• Simplified business model 

• Focus its core business as a passenger air service 

• Point-to-point 

• No connections are provided from the airline base minimizing cost 

• Secondary airports 

• Single-craft fleet (one type of aircraft) 

Chartered/Supplemental

do not have a standard fare structure nor flight schedules. 

• Operates for exclusive usage of passengers who requested the service 

Air Cargo carriers

Network carriers - have their own cargo fleets (Malaysia cargo, lufthansa cargo) 

Airfreight-only carriers - only carries cargo (FedEx, DHL) 

Shuttle airlines

caters to business travelers between major city centers 

• Similar to bus offering a reasonable airfare with no reservation

• High frequency and easily remembered times

Airlines

• major stakeholder in industry

Major Airlines

• Delta Airlines,  Alaska Airlines, and American Airlines are all US based airlines which posted more than $1 billion in revenue during a fiscal year and    therefore categorized under this type of airlines under FAA.

Direct Flight

any flight ticketed as a single flight coupon, irrespective of whether there are enroute stops and/or changes in aircraft types. Means the passenger gets on one aircraft from journey origin  and with or without stopping any other points, lands to its journey destination using a single ticket coupon. 

Nonstop flight

operates between a board point and an off point in a single leg without any intermediate landings. Passenger gets on the plane from origin and without any transfer nor in between stopover points, plane lands to its final destination 

Connection flight

This means that a passenger boards a plane at the point of origin , then before arriving at the final destination, passenger boards another plane  at a connecting stopover point in a less than 24 hours stay at that  point

On-line Connection

 a change of aircraft and flight number within the same airline An example will be a passenger taking Cathay Pacific Airways going from Manila to his final destination  Los Angeles. As there is no direct flight from Manila to Los Angeles on CX services, his itinerary is Manila to Hong Kong, and upon arrival at CX Hub -Hongkong, passenger transfers to another plane , also another  CX flight, from Hongkong to Los Angeles.

Off-line or Interline connection

 is a connection with a change of aircraft and flight number between two different airlines For example, a passenger is flying from Manila(MNL)  to final destination -Dallas Fort Worth (DFW). His first flight is on Philippine Airlines (PR)  from  MNL  to Seoul(SEL)  via Asiana (OZ)  flight , then upon arrival in  SEL   takes a connection flight , transferring  to  American Airlines flight service from SEL to DFW.  

Connection

less than 24 hours 

Stopover

more than 24 hours 

First Class

being removed and replaced with business class 

Increased economy class

premium economy. Comfier than economy and has wider seat and more legroom 

Economy

 coach, standard, main cabin or cattle class. Most basic class 

seat pitch

the leg room

Management

process of achieving an organization’s goals through the coordinated performance of five specific functions: planning, organizing, staffing, directing, and controlling. 

Top Management

policy-making group responsible for the overall direction

•  highest level in the management hierarchy. Their main job is to set the policies, procedure and long term objectives which will meet the goals established by the board of directors. 

• Executives, chief operating officer, president, vice

• senior vice 

Middle management

1. execution and interpretation of policies throughout the organization

• Coming up with operational plans and procedures to apply the plans by top management

• Heads of departments or divisions within major administration

• Vice-presidents, directors, superintendents 

Operating Management

final execution of policies by employees under its supervision

• Supervisory level or lower-level management

• Managers, assistant managers, section chiefs, general supervisors, and supervisors who head up sections, groups or units 

TOP MANAGEMENT

SENIOR VICE PRESIDENT OF SALES AND MARKETING

TOP MANAGEMENT

CHIEF OPERATING OFFICER

OPERATING MANAGEMENT

CHIEF PILOT

controlling

the vp employee relations gave recommendations to reduce manpower by 15% to mitigate company losses due to pandemic. this demonstrates which function of management

staffing

the HR Manager has planned annual training for manpower development. this demonstrate what?

MIDDLE MANAGEMENT

• new airlines and llcs remove from the corporate organizational structure to bring down administrative expenses 

OPERATING MANAGEMENT

has the most interpersonal role working closely with the general workforce 

Range

maximum distance that it can fly without stopping for additional fuel, while still carrying a reasonable payload of passengers and cargo. Distance the aircraft fly with a tank of fuel aka aircraft distance

Size

• of an aircraft represented by measures such as its seating and/or cargo capacity, as indicators of the amount of payload that it can carry 

Payload

• aircraft weight or carrying capacity 

Endurance

the time the aircraft can stay in the air with the tank of fuel 

Narrow-body aircraft

•  have one walking aisle down the center with two or three seats on each side 

Wide-body aircraft

• have two walking aisle and thus a middle section of seats on addition to the two sets of seats on each side 

Wide body jets (long range)

largest airliners aka a twin aisle aircraft with fuselage wide enough to accommodate two passenger aisle with seven or more seats abreast. 

Ex. Boeing 747-767, 777, Airbus A300/A310, Airbus A330/A340, A380 (800 passengers) 

Narrow-body jets (medium range)

single-aisle aircraft, permitting up to 6-abreast seating in a cabin below 4 meters (13 ft) of width. Smaller airliners, generally used for medium-distance flights with fewer passengers

Ex. Boeing 717, 737, 757, Airbus A320, McDonnell Douglas DC-9 & MD 80/MD-90 series 

Regional airliners (short range)

seat fewer than 100 passengers, short flight serving small markets and feed hub airports

Ex. Bombardier CRJ series and ATR 42/72

Boeing and Airbus

expand their product families in order to offer airliners as many size/range combinations as possible. Main players manufacturers of wide-body and narrow-jet airliners

Airbus

is based in France, Europe: A320, A330, A340, A350, A380 

Airbus 350

long range narrow body, largest aerospace company by revenue 

A380-800

Biggest aircraft, has the largest capacity

Boeing

is based in USA: 737,747, 767, 777, 787 - about 50% of world fleet and oldest manufacturer 

Bombardier and Embraer

concentrate on regional airlines

Embraer

 is based in Brazil

Bombardier

 is based in Montreal Canada - world’s third largest. largest civil aircraft manufacturer of innovative aviation products and services for business and amphibious aircraft 

A320

airbus aircraft at par with the B737, same single aisle and similar size and range capability

A350

competing with B787

BODY

where is fuselage 

Seat assignments

when a specific seat is reserved for a passenger. Row number and seat letter 

seat pitch - largest leg room

FALSE, near cockpit at front

business class compartment is usually at the back of economy seats 

Pricing

the process of determining the fare levels, combined with various service amenities and restrictions, for a set of fare products in an origin-destination (OD) market 

• Focused on full-service carriers 

• Fundamental task of revenue management 

Revenue Management (RM)

\subsequent process of determining how many seats to make available at each fare level on a flight given a fare structure in which variety of different prices with different characteristics for travel are offered in the same origin-destination (O-D) market

Yield Management,

•  involves balancing of supply (available seats per miles) and demand 

• To find a trade-off among full fare (business) passengers and the various other discount passengers 

If balance is achieved, the airlines will be in a position to satisfy all their passengers’ needs, while simultaneously maximizing their yield. 

Origin-Destination (OD) market

 point A to B flight segment, there will be different price levels which will be available for sale at different selling periods 

Flexibility fare (expensive)

are always open for booking to protect availability of the higher yield fares 

Cost-based pricing

pricing is based on the cost of operations; this is more apt for other product offerings but not in a dynamic industry such airline business

Demand-based pricing

1. pricing is based on the demand per segment- principle of “demand-based” is based on the consumers “willingness to pay” as defined by the price-demand curve in each OD market. 

Willingness to pay WTP

•  belief that there are some consumers who are willing to pay a very high price for the convenience of air travel. 

Price discrimination

• is the practice of charging different prices for the same or very similar products that have the same costs of production based solely on different consumers “willingness to pay” 

Market segmentation

•  successful use of differential pricing principles depends on the airline’s ability to identify different demand groups or segments. Maximizing market 

Service-based pricing

pricing is based on the service provided. Differences in the quality of services. First class vs. economy class. Product differentiation 

Product differentiation

• involves charging different prices for products with different quality of service characteristics and therefore different costs of production 

WILLINGNESS TO PAY

Business travelers will pay higher fares in return for more convenience and fewer restrictions on the purchase and use of tickets. This assumption is an economic concept is 

SERVICE-BASED PRICING

higher quality service cost more, the cost of production for services and amenities for business class passenger cost more, product differentiation 

Airline Economics 

• To be able to understand how airline performance are measured, there are standard measures or ways to gauge passenger traffic and airline output 

Airline traffic

 both passengers and cargo, but the focus is on passenger service 

Traffic

refers to enplaned passengers, as opposed to “demand,” which includes both those consumers that boarded the flight and those who had a desire to travel on the flight but could not be accommodated due to insufficient capacity (rejected demand or spill)

Available seat miles/KMS (ASM or ASK)

• measure of airlines capacity. The measure of the number of seats that the airline have which is multiplied by the number of miles/kilometers that the airline travels rather than just to take the sum of the no. of seats or no. of planes - the real inventory is the no. of miles/kms that they will fly in their seats. ASM is one available seat flown per mile/km airline output

  
  Miles X Seats = ASM 

  • Asm - ano yung mabebenta 

Revenue passenger miles/KMS (RPM/RPK)

•  passenger airline traffic can be measured in terms of the number of passengers transported, but the most common measure of airline traffic is a revenue passenger kilometer (RPK) OR (RPM) 

Seats transported X Miles = RPM

• Rpm - ano yung nabenta 

Load factor (LF)

• ratio of traffic to airline output, representing the proportion of airline output that is sold or consumed (output/input) 

RPM / ASM x 100  = load factor % 

Yield

•  measure of average fare paid by all passengers per kilometer (or mile) flown, in market, on a set of routes, or a region of operation for an airline. Measure of how productive airlines are using their inventories 

Total revenue / RPM = YIELD

USD18000 / 7500 RPM = 2.4 USD PER RPM 

REVENUE MAXIMIZATION

• Yield and load factor balance 

• This process determines the number of seats to be made available to each “fare class” on a flight, by setting booking limits on low-fare seats.

Flight Overbooking

accept reservations in excess of aircraft capacity to overcome loss of revenues due to passenger “no-show” effects 

Physical capacity (CAP):

The actual number of seats on the flight or in the designated compartment that can be filled with passengers at departure. Usually, this is the maximum capacity of the aircraft . 

Authorized Capacity (AU):

 The maximum number of bookings that the airline is willing to accept, given a physical capacity of CAP.

Confirmed bookings (BKD)

The total number of passenger reservations accepted by the airline for a specific departure, counted just before the check-in process for the flight begins. Generally, we expect BKD to be less than or equal to AU.

No-show rate (NSR):

 The mean proportion (percentage) of passengers with confirmed bookings that do not show up

Denied Boarding (DB)

 If too many reservations are accepted and more passengers show up at departure time than there are physical seats, the airline must deal with the costs and customer service issues of  denied boardings.

Spoilage (SP)

•  On the other hand, if not enough reservations are accepted for the flight and the no-show rate of passengers is greater than that expected by the airline, there are costs associated with the lost revenue from empty seats that could otherwise have been occupied, known as spoilage.

Spoilage Costs

• loss of revenue from seats that departed empty.

WL

 waitlisted passengers

GS

Go show passengers

SB

standby passengers

NS

no show passengers

PAX

passengers

VOLDB

voluntary denied boarding

Fare Class Mix-

determine revenue-maximizing mix of seats available to each booking (fare) class on each flight departure. The most common technique associated with Revenue Management (RM) systems is the determination of the revenue-maximizing mix of seats available to each booking (fare) class on each future flight leg departure. Virtually all airline RM systems were developed with the capability to optimize fare class mix as their primary objective. -Belobaba, etal.,2016.

Origin-Destination (O-D) Control  ( also known as Network optimization)

further distinguishing between seats available to short-haul (one leg) vs long-haul (connecting) passengers, to maximize total network revenues. O-D control gives the airline the capability to manage its seat inventory by the revenue value of the passenger’s origin–destination itinerary on the airline’s network, not simply with fare class booking limits calculated separately for each flight leg.  -Belobaba, etal.,2016.

Aircraft operating cost

include all expenses associated with operating aircraft, and are  also referred to as “direct operating costs” (DOCs) or “flight operating costs.”

Ground operating costs”

are incurred at the airport stations in handling passengers, cargo, and aircraft or by the airline in making reservations and ticket sales, and are directly incurred in  providing transportation services to the customer."

System operating costs

 are the indirect operating costs remaining after ground operating  costs are accounted for. They are not directly associated with supplying the transportation service, but are more of a corporate overhead expense."