The Airline Industry: Trends, Challenges, Strategies

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THE AIRLINE INDUSTRY: Trends, Challenges, Strategies
John Wensveen, Ph.D.
Dean, School of Aviation Dowling College New York, USA www.dowling.edu President, Airline Visions www.airlinevisions.com The University of Sydney Faculty of Economics and Business Leadership and Policy Seminar Series Sydney, Australia 23 February 2010

Presentation Objectives
• Provide background on the global industry • Present a regional analysis • Discuss current and future evolvement of the industry (trends) • Discuss challenges and strategies impacting the industry • Discuss the new breed of airlines • Discuss why airlines fail and how to achieve success

Background Section

3 Stages of Development Impacting the Airline Industry
• • • • Regulation Liberalization Deregulation “Re-regulation”

Phases of Industry Restructuring (resulting from Deregulation / Liberalization) • Expansion • Consolidation • Concentration

Past, Present and Future Trends

The Global Airline Industry
2012 2010 2008 Time 2006 2004 2002 2000 1998 Survive Adapt Recover Rethink State of Industry

“Scenarios”
• • • • • SARS 9/11 War Financial Crisis of 2008, 2009, 2010… What to prepare for… – – – – Globalization Change in international political landscape Distribution of natural resources (oil, gas, water) Internal conflicts (shifts in power) and unintended consequences and unintended consequences of good intentions Public and international perception War Terrorism Continued financial issues

– – – –

Top 5 Frustrations in Aviation
1. 2. 3. 4. 5. Fuel/oil Pollution control Personnel cutbacks Global economic woes Recurring safety lapses

Top 3 Costs for Airlines (in any order)
1. Fuel* 2. Labor 3. Maintenance

*40% for US airlines in 2009: 13-40% of costs in 7 years

Typical Airline Operating Expenses
Landing & Associated Airport Charges (4.1%) Depreciation & Amortization (7%) Enroute Facility Charges (2.4%) Station Expenses (10.8%) Passenger Services (10.5%) Maintenance & Overhaul (10.1%)

Other (7.1%)

Ticketing, Sales, Promotion (16.4%)

Fuel & Oil (12%) Flight Crew (7.4%) General Administrative and other (12.2%) Source: The Aviation & Aerospace Almanac ICAO Air Transport Reporting Form EF-1

Overview:
The Industry Continues to Evolve

Industry Overview: Global
(As of October 2008)
• • • • • • Global economic crisis? Airlines to lose $5.8B in 2008 (IATA) High oil prices and falling demand Demand for travel shrinking (OAG) 46M seats to be cut Oct-Dec 500k fewer flights Oct-Dec 2008 vs. 2007 • • • • • • 200+ airports to cease offering services 3% decline on trans-Atlantic and trans-Pacific routes 25 airline failures since Dec 2007 Airlines grounding aircraft and reducing capacity Pax traffic to grow at 3.2% (from 3.9%) Cargo traffic to grow at 1.8% (from 3.9%)

Regional Analysis

6 Regions of the World
• • • • • • North America Europe Asia-Pacific Middle East Africa Latin America/Caribbean

Regional Regulatory Trends
• • • • • • N. America – Deregulation / Privatization Latin America – Deregulation /Privatization Europe – Liberalization / Privatization Asia-Pacific – Deregulation / Liberalization / Privatization Middle East – Limited Privatization / Liberalization Africa – Cautious Privatization / Some Liberalization

North American Region
(Canada/USA/Mexico)
• Canada – privatization of airlines, airports, ATC; rise of low-cost carrier • USA – rise of low-cost carrier; government control of airports; secondary airports; major airline debt; bankruptcies; mergers; stagnant domestic growth; increased international growth • Mexico – government controlled; bankruptcy; low-cost carrier to emerge • US domestic routes hardest hit

• “De-hubbing” or “de-peaking” starting to happen (i.e., AA at Chicago) • Simplifying of aircraft fleet • Automation initiatives to improve customer service and enhance productivity • Changing distribution methods • Modification of in-flight services • Initiating broad range of cost...
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