The Airline Industry has its origin with the first scheduled service by the St Petersburg-Tampa Airboat Line on January 1, 1914. The plane, a Benoist XIV, conducted 1205 commercial flights across the Tampa bay in Florida, USA. The airline discontinued the service after three months, as the service proved to be unprofitable (Kaufmann, 2008).
The Benoist XIV was able to transport one passenger up to 135 km, almost one hundred years later, 853 passengers can be carried in the Airbus A380 up to 15,400 km.
Since these early days, the growth in Aviation has been phenomenal. From a standing start almost 100 years ago, aviation accounts for 11.6% of total world travel. (Ribeiro, et al.2007) See Figure 1.
Figure 1 Worldwide transport industry broken up per travel type (WBCSD, 2004b)
The growth of the airline industry has been significant, as can be seen in Figure 2, the Passenger sector has grown from less than 10 billion passenger- km in 1950 to nearly 5000 billion in 2010 and the Cargo sector has grown from less than 1 billion tons-km to more than 170 billion tons-km. (Rodrigue et al, 2009).
From it’s beginning in 1914, the world airlines now comprise of 5,541 airlines listed with an IATA unique identifier, a meteoric rise by all accounts. (IATA, 2012).
Figure 2 World Air Travel and World Air Freight Carried, 1950-2010 ( IATA)
The growth in aviation has been drive by 3 main factors (Holloway, 2003), they are:
Aviation has changed from a method of transport used by the wealthy to a common method for all. In the early days of aviation, the airline business was highly regulated and services could only be operated by state owned flag carriers. Through progressive deregulation, many different types of privately owned operators have proliferated which has increased competition, lowered fares, raised output and offered wider markets.
Figure 3 - Decrease in operating cost with New Technology (Dr. Peter Barrington, 2012)
• Improvements in Technology:
New Aircraft Technology has enabled a decrease in operating costs for the airlines, See Figure 3. Through competition, this decrease has delivered lower prices to consumers, and ultimately higher demand, as predicted in the typical airline Supply/Demand Curve seen in Figure 4.
Figure 4 Classical Supply and Demand Curve showing demand increasing with lowering of price (Chen et al , 2007)
The internet has led to direct contact between airlines and their customers, customer comparing different airlines’ product offerings, and more spot purchases by airline travellers.
The rise in airline transport has provided substantial opportunities for the world’s aviation; however, the expansion has also provided a high level of challenges. The Worlds Airlines Profitability can be fragile, and as Figure 5 shows, can be easily impacted by Macroeconomic disturbances.
Figure 5 Airline Profitability 1972-2011 (CCAirways Blog, 2010)
Figure 6 Average Price of Airline travel trend since 1979 (Perry, 2011)
As Figure 6 shows, the increased competition has driven down the average price airlines can obtain. The Price per mile for an average airline ticket has decreased by more than 50% between 1979 and 2010.
This decrease in price has placed tremendous pressure on costs as airlines strive to maintain profitability, and ultimately their survival.
Figure 7 (Dr. Peter Barrington, 2012) shows the different types of cost classes that are incurred by an airline.
Figure 7 –Cost Classes in a Modern Airline (Dr. Peter Barrington, 2012)