AIR TRANSPORTATION to My Parents, John and Sandi, and My Sister, Kristy
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AIR TRANSPORTATION To my parents, John and Sandi, and my sister, Kristy. Bryanne – you will never be forgoen my lile one. Air Transportation A Management Perspective Sixth Edition JOHN G. WENSVEEN President and CEO, Airline Visions, LLC www.airlinevisions.com © John G. Wensveen 2007 All rights reserved. No part of this publication may be reproduced, stored in a retrieval system or transmied in any form or by any means, electronic, mechanical, photocopying, recording or otherwise without the prior permission of the publisher. John G. Wensveen has asserted his moral right under the Copyright, Designs and Patents Act, 1988, to be identified as the authors of this work. Published by Ashgate Publishing Limited Ashgate Publishing Company Gower House Suite 420 Cro Road 101 Cherry Street Aldershot Burlington, VT 05401-4405 Hampshire GU11 3HR USA England Ashgate website: hp://www.ashgate.com British Library Cataloguing in Publication Data Wensveen, J. G. Air transportation : a management perspective. - 6th ed. 1. Airlines - Management 2. Aeronautics, Commercial I. Title II. Wells, Alexander T. 387.7’068 Library of Congress Control Number: 2007930947 ISBN 978-0-7546-7165-7 (hbk) ISBN 978-0-7546-7171-8 (pbk) Printed and bound in Great Britain by TJ International Ltd, Padstow, Cornwall. Contents About the Author ix Preface xi Acknowledgments xxi PART ONE AN INTRODUCTION TO AIR TRANSPORT 1 Aviation: An Overview 3 Introduction 4 The Aerospace Industry 4 The Air Transportation Industry 21 2 Historical Perspective 29 Introduction 31 The Formative Period: 1918–1938 31 The Growth Years: 1938–1958 39 Maturity—Jets Arrive: 1958–1978 42 Economic Developments Prior to Deregulation 43 Federal Legislation and the Airlines 46 Postderegulation Evolution 60 General Aviation 67 3 Air Transportation: Regulators and Associations 79 Introduction 80 The Department of Transportation 81 The Federal Aviation Administration 87 The Transportation Security Administration 95 The National Transportation Safety Board 95 Major Aviation Associations 100 4 The General Aviation Industry 111 Introduction 112 General Aviation Statistics 112 The General Aviation Support Industry 127 The Available Market—The Users 136 v vi AIR TRANSPORTATION PART TWO STRUCTURE AND ECONOMICS OF AIRLINES 5 The Airline Industry 147 Introduction 148 Structure of the Airline Industry 148 Major and National Carriers 151 Regional Carriers 154 Airline Statistics 158 Airline Certification 158 Data Collection by the DOT 162 Industry Agreements 163 Traffic and Financial Highlights: 1960–2005 165 6 Economic Characteristics of the Airlines 175 Introduction 176 The Airlines as Oligopolists 177 Other Unique Economic Characteristics 186 The Significance of Airline Passenger Load Factors 191 PART THREE MANAGERIAL ASPECTS OF AIRLINES 7 Airline Management and Organization 201 Introduction 202 Management 202 The New Corporate Structure 206 Functions of Management 210 Organization 213 The Organizational Chart 216 Staff Departments 218 Line Departments 223 8 Forecasting Methods 243 Introduction 244 The Purpose of Forecasting 244 Forecasting Methods 246 9 Airline Passenger Marketing 257 Introduction 258 Development of the Marketing Concept 259 The Marketing Mix 260 The Consumer-oriented Marketing Concept 269 Marketing Strategies Since Deregulation 274 CONTENTS vii 10 Airline Pricing, Demand, and Output Determination 283 Introduction 285 The Trend in Domestic Passenger Airfares 285 Pricing and Demand 288 No-frills Airfare and Survey Warfare 296 Types of Passenger Fares 297 The Pricing Process 298 Airline Costs 304 Pricing and Output Determination 309 11 Air Cargo 319 Introduction 321 Historical Overview 321 Air Cargo Today 325 The Future 328 The Market for Air Freight 329 Types of Air Freight Rates 331 Special Air Freight Services 333 Factors Affecting Air Freight Rates 337 12 Principles of Airline Scheduling 343 Introduction 344 The Mission of Scheduling 344 Equipment Maintenance 346 Flight Operations and Crew Scheduling 349 Ground Operations and Facility Limitations 351 Schedule Planning and Coordination 353 Equipment Assignment and Types of Schedules 364 Hub-and-Spoke Scheduling 366 Data Limitations in Airline Scheduling 369 13 Fleet Planning: The Aircra Selection Process 373 Introduction 374 Factors in Fleet Planning 374 Design and Development—The Manufacturer’s Viewpoint 382 The Fleet-planning Process 387 The Decision to Upgrade or Replace 392 Appendix: Fleet Planning at American Airlines 396 14 Airline Labor Relations 399 Introduction 400 The Railway Labor Act and the Airlines 401 Historical Overview of Airline Union Activity 406 Labor Relations Since Deregulation 412 Human Resources in the 21st Century 423 viii AIR TRANSPORTATION 15 Airline Financing 427 Introduction 428 Sources of Funds 428 Sources and Uses of Funds by the U.S. Scheduled Airlines 437 Cash Management and Financial Planning 450 PART FOUR THE INTERNATIONAL SCENE 16 International Aviation 459 Introduction 460 The Question of Sovereignty in Airspace 460 International Air Law 463 The Formation of IATA 470 The Bermuda Agreement of 1946 471 Three Decades Later: From Bermuda to Deregulation 472 The Pursuit of Open Skies 476 Globalization 480 Future Challenges 484 Appendix A: Views of Industry Professionals 489 Introduction 490 Quotes 490 Article 492 Appendix B: Career Planning in Aviation 499 Introduction 500 Choosing and Geing Your First Job in Aviation 500 Cover Leers and the Résumé 506 The Interview 508 Glossary 521 Index 551 About the Author Dr. John Wensveen is considered one of the aviation industry’s leading experts on low-cost and low-fare high value airline operations and is currently President & CEO of Airline Visions, an advisory and futurist firm specialized in air carrier start-ups. He has been dubbed the ‘idea factory’ by many of his colleagues and has the ability to identify trends and focus on fast results. Dr. Wensveen is a leading expert on business and strategic plan development, marketing and branding, diversification strategies, partnership development, due diligence and M&A. Consulting projects include business plan development for low-cost carrier (LCC) start-ups, formulation of strategic growth recommendations, managing of client’s growth mission and operational objectives, providing vision and leadership to carry out mission, and building of relationships. Dr. Wensveen’s consulting practice also includes expert witness testimony and advisory services to the television and film industries. In addition to aviation consulting, Dr. Wensveen advises non-aviation organizations on strategic steps to success. He is an expert in “shooting holes” through existing businesses and identifying a corporation’s strengths, weaknesses, opportunities and threats utilizing a customized plan of action. Until March 2005, Dr. Wensveen was Vice President of International Development with Washington-Dulles based MAXjet Airways, the first start-up US flag carrier to obtain FAA certification to operate on the trans-Atlantic since the events of 9/11. Dr. Wensveen’s involvement with MAXjet started in 2003 as one of the founding team members. While at MAXjet, he led partnership development with airlines, airports, international government bodies, ground handling and security organizations and represented the company as spokesperson. Dr. Wensveen was responsible for seing up the European infrastructure including ground operations and was responsible for overall P&L of European operations and some aspects of US operations. While at MAXjet, he managed quick growth and aided in the build out of a strong executive team. From 1999 to 2004, Dr. Wensveen was employed as Professor of Airline Management and Operations with the School of Business at Embry-Riddle Aeronautical University in Daytona Beach, Florida instructing courses at the undergraduate, graduate and executive levels. He was the project lead on the creation of the world’s first Airline Operations Center Simulation Laboratory (AOCSL), an international project in partnership with major aviation/aerospace companies including airlines, airports, ground handling organizations, manufacturers, academic institutions, and government at the local, federal and international levels. While at Embry-Riddle, Dr. Wensveen built a reputation in the aviation industry as one of the leading experts in his field. He is well connected and recognized for his thought leadership and subject maer expertise. ix x AIR TRANSPORTATION In the early 1990s, Dr. Wensveen was employed with Canada 3000 Airlines holding supervisory positions in flight operations and later, passenger services. While at Canada 3000, he assisted with the management of quick growth and was a leading contributor to base expansion in the Pacific. Dr. Wensveen is a member of a number of professional organizations and is a frequent speaker at international aviation events. He is a faculty member of the International Air Transport Association (IATA) and is author of the Air Mercury and Strategic Management courses presented at IATA training centers around the world. He is also an adjunct faculty member of the University of Maryland University College (UMUC), University of the West Indies (UWI) and Royal Roads University (RRU). He is also a faculty member of the Arab Air Carrier’s Association (AACA). Dr. Wensveen publishes frequently in major aviation publications and is an aviation analyst for the media oen seen on major television networks and quoted in major newspapers and magazines around the world. He is author of North America’s leading aviation textbook entitled,