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Air Carriers. Significance of the Industry Employed approximately 587,000 in 1997 Average compensation about $65,000 Transports roughly 0.5% of all intercity.

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Presentation on theme: "Air Carriers. Significance of the Industry Employed approximately 587,000 in 1997 Average compensation about $65,000 Transports roughly 0.5% of all intercity."— Presentation transcript:

1 Air Carriers

2 Significance of the Industry Employed approximately 587,000 in 1997 Average compensation about $65,000 Transports roughly 0.5% of all intercity ton-miles Specialize in hauling high-value, perishable or emergency cargo

3 Changes in Passenger Miles Flown

4 Changes in Air Ton Miles

5 Inbound Freight Shipments 2003

6 Outbound Freight Shipments 2003

7 Inbound Passenger Flights 2003

8 Outbound Passenger Flights 2003

9 Types of Air Carriers Private Carriers –Firms that transport company personnel or freight –In aircraft that the firm owns or leases. –Primary cargo is people –Subject to FAA safety regulations

10 Types of Air Carriers For-hire –Provides services to the public & charges a fee for the service –No longer economically regulated by the Federal Government –Can be classified by annual revenues & type of service offered –Annual Revenues Classification Majors – more than $1 billion Nationals – $75 million to $1 billion Regionals – less than $75 million

11 Major Air Carriers Annual revenues of more than $1 billion Provide service between major population centers –New York, Atlanta, Chicago, Dallas, Miami, LA, etc Typically use high-capacity aircraft Also service some medium-sized population centers –Toledo, Ohio; Oklahoma City, Birmingham, etc Delta, US Airways, American

12 National Air Carriers Annual revenues between $75 million - $1 billion Provide service between less populated areas and the major population centers Fly shorter routes with smaller aircraft Southwest Airlines, Northwest Airlines, Air West

13 Regional Air Carriers Annual revenues less than $75 million Operate within a particular region of the country Similar to national carriers, feed passengers to the majors from smaller population areas Air Wisconsin, Alaska Airlines

14 Air Carrier Summary: Schedule T-2 Sum : All Services, Revenue Ton Miles, Total by CarrierGroup Unknown ,558,5124,059,557 Regional Carriers (including Large, Medium, Commuter, Small Certified) 1,110,314,806 1,104,182,1142,499,030,3425,167,335,2201,984,738,5332,314,617,353 National Carriers 9,562,976,593 9,535,457,5009,992,791,3119,794,603,90010,267,619,1559,725,704,747 Major Carriers 80,548,545,328 84,899,370,15689,986,673,00783,098,573,38582,331,863,33960,614,364,765 Domestic Only - All Cargo Carriers ,580,025518,024,210 All rows (including those not displayed) 91,221,836,727 95,539,009,770102,478,494,66098,060,512,50594,774,359,56473,176,770,632

15 Air Carrier Summary: Schedule T-2 Sum : All Services, Revenue Passenger Miles (000), Total by CarrierGroup Unknown ,15840,187 Regional Carriers (including Large, Medium, Commuter, Small Certified) 3,736,342 4,623,5144,439,09362,133,7007,944,18111,076,315 National Carriers 40,893,350 44,278,67548,760,70652,512,98053,738,14054,822,242 Major Carriers 591,165, ,876,945655,562,178610,380,816589,631,599436,287,576 Domestic Only - All Cargo Carriers All rows (including those not displayed) 635,795, ,779,134708,761,977725,027,496651,369,078502,226,320

16 Classifying by Type of Service All-cargo carriers –Transport cargo only Commuter air carriers –Typically only transport people –Technically regional carriers Charter carriers –No time schedule or designated routes –Transport people or freight on a one-time fee basis

17 General Service Characteristics Passenger transport accounts for 73% of revenues Freight transportation accounts for about 10% Remainder from emergency shipments Typically transport high-value, perishable, or emergency cargo Typical cargo –Mail –Clothing –Communications equipment –Jewelry –Human organs

18 General Service Characteristics Speed –Key advantage for air carriers –Terminal-to-terminal time lower than any other carrier –Can fly from New York to LA in 6 hours –Advantage reduced by fewer scheduled flights & airport congestion

19 General Service Characteristics Length of Haul & Capacity –Average freight haul length = 1400 miles –Average passenger haul length = 1000 miles –Average Capacities Wide-body, 4-engine jets –Passengers exclusively: average of 375 –Cargo exclusively: average of tons –Combined: reduces cargo capacity to about 50 tons Regular-body, 4-engine jets –Passengers exclusively: average of 290 –Cargo exclusively: tons –Combined: reduces cargo capacity to about 20 tons Typically regional carrier uses jets with capacity & all-cargo of tons Commuter airlines typically use aircraft with passenger capacity

20 Cost Structure High variable, low fixed cost structure 80% variable; 20% fixed Governments own & operate air carriers’ terminals Use of facilities paid with landing fees (variable)

21 Air Carrier Financial: Schedule P-7 Sum : Total Operating Expense (000) by CarrierGroup National Carriers 898,436 1,215,2961,164,4471,195,2141,212,9431,897,633 Major Carriers 93,234,896 98,742,880110,853,869114,275,776104,825,90078,073,864 All rows (including those not displayed) 94,133,333 99,958,176112,018,316115,470,990106,038,84379,971,497

22 Labor Represents over 1/3 rd of total operating expenses Wide variety of skills –Pilots –Flight engineers –Flight attendants –Communication personnel –Mechanics & ground crews –Baggage handlers –Counter personnel –Office personnel & management

23 Fuel Roughly about 10% of operating costs Fuel cost per hour is high –747: $3,268 –DC-10: $1,260 –DC-9: $801 –Function of current cost per gallon and aircraft fuel- efficiency –Use of smaller aircraft on low-density routes

24 Air Carrier Summary: Schedule T-2 Sum : Aircraft Fuels (gallons) by CarrierGroup Regional Carriers (including Large, Medium, Commuter, Small Certified) 326,715, ,128,958256,990,586637,195,626208,612,715219,762,551 National Carriers 2,189,586,415 2,221,862,4472,333,545,0652,338,450,4801,980,951,9711,459,586,177 Major Carriers 16,821,664,587 17,454,503,12818,383,362,33517,144,535,87715,813,482,65810,942,055,186 All rows (including those not displayed) 19,337,966,461 20,061,494,53320,973,897,98620,120,181,98318,003,047,34412,621,403,914

25 Air Carrier Financial: Schedule P-7 Sum : Aircraft Operating Expenses (000) by CarrierGroup National Carriers 379, ,082626, ,088676,0401,144,827 Major Carriers 38,051,798 40,645,51549,391,072 50,255,11046,623,81333,985,268 All rows (including those not displayed) 38,431,281 41,259,59750,017,087 50,899,19747,299,85435,130,095

26 Operation Ratio Use same operation ration as motor carriers Typically operation ratio between 92 – 94 Also use Load Factor –Measure of percentage of plane’s capacity that is utilized –Divide number of passengers by number of seats & multiply by 100 –Average Load Factor pre-9/11: 70 –Average Load Factor immediately after 9/11: 30 –Current Average Load Factor: 71 –Directly impacts average operating cost per passenger –Used to help determine most appropriate equipment for each scheduled route –Also used to help determine viability of particular routes

27 Load Factor Example Assume route with 1 hour transit time Airline uses a B747 –Cost to operate per hour $5,946 –Passenger capacity = 402 Assume average demand of 261 Load Factor = 261/402 x 100 = 65 Average operating cost per passenger –$5,946/261 = $22.78 If demand drops to 80 passengers –Load Factor = 80/402 x 100 = 19.9 –Average operating cost per passenger = $5,946/80 = $74.33


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