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Air Transport Management

Session 1: Introduction

Dr. Rohafiz binti Sabar

Transport and Logistics Department
College of Business
Room 2055 , STML
D/l: 04-9287048
July 2009 Transport and Logistics Department 1
System Aerospace

General Tourism
Aviation Industry

Air Transport


Surface Trade &

Transport Commerce

Aerospace Industry
 All firms engaged in research, development and
manufacture of aerospace systems, aircraft missiles,
spacecraft, and propulsion, guidance and control systems
 Large defence component
 High concentration in US, EU and Russia
 Outsourcing to third countries depending on sensitivity to
 Likely cross-subsidisation between defence and civil
programmes (Boeing vs Airbus debate)

General Aviation
 All other civil or commercial flights apart from scheduled
and charter air services
 Includes:
Air taxi operators
Corporate aircraft
Privately-owned aircraft
Gliders, balloons, microlights etc
 Generally use smaller more local airports
 Can be alternative to scheduled and charter flights

 National government
Aviation legislation
Air transport industry regulator
Can own airports and national airline
Planning framework for airports and related infrastructure
Taxation (business and personal)
 Local or regional government
Can own airports
Local taxation
Promotion of business
Can support regional air services

Tourism Industry
 Main driver of leisure travel by air (also visiting friends and
relations or VFR)
 Air has major share of longer haul leisure trips
 898m international tourist arrivals (all modes) in 2007,
around half of which in Europe:
16% were business or professional trips
50% arrivals were leisure, recreation and holidays
26% of arrivals were VFR, health or religious (pilgrims)
 Tourism receipts total around US$700 billion
 43% of total tourist arrivals travel by air (just under 400m)

Trade and Commerce
 Main driver of business travel by air
 Main driver of air cargo traffic
 Trade liberalisation (Doha?)
 Globalisation
 Offshoring
 Exchange rates may impact direction of travel

Corporate Travel Example
 PriceWaterhouseCoopers, PwC UK
 Business travel and the environment is one part of their four
sustainability quadrants (with Marketplace, Community and
 Business flights account for around 50% of its total CO2
footprint (£30m spend on air tickets)
 Annual business travel distance: 165m kilometres in 2007, of
which 130m (79%) by air
 Absolute reduction goals for CO2: 2.1% pa
 Investment in phone/video conferencing facilities
 40% of business travel for internal meetings and training

Surface Transport
 Air travel consumed together with surface transport mode
(eg car, taxi, bus, rail)
 Connecting infrastructure required at airport interface
 Foreign air visitors generally need good and cheap
connection to nearest city (eg rail, bus or taxi)
 Resident air travellers often use private car and need good
and convenient car parking facilities at airport
 Surface transport congestion can affect attractiveness of
airport (London Heathrow?)

Impact of system changes on
air transport
Changes in one part of system impact on other parts:

What if?
Defence no longer subsidises civil aircraft?
Governments impose aviation fuel tax on international
Surface transport alternatives improve significantly?

The Air Transport System

Direct employment in air transport: Europe (2004)

Airport operators
Aerospace 8%

Other on-site


Source: The economic and social benefits of air transport, ATAG, 2006
Air Transport: suppliers

Ground handling companies Aircraft manufacturers

Flight catering Airports and ATC service providers

Aircraft maintenance Banks and lessors

IT companies Oil companies

 Crucial interface between flight and ground transport
 Customers are airlines and passengers
 Capital intensive, long-term investments
 Impact on local and regional community
 Dependence on local road and rail infrastructure
 Dependence on government planning systems
 Competition between airports for airline business
somewhat limited
 Compete with off-airport stores for passenger retail

Air Traffic Services (ATS)
 Also called Air Traffic Control (ATC)
 Responsible for en-route and approach/take-off control
 Many different suppliers in Europe, almost all government
owned or part of government
 UK NATS privatised and part owned by airlines
 German DFS awaiting privatisation???
 EU Single European Sky (SESAR) project, 2008-2020

Top six commercial aircraft manufacturers

Manufacturer Sales in 2017 (US$m)

Boeing 33,386
Airbus (ex ATR) 32,684
Bombardier 9,713
Cessna 5,000
Gulfstream 4,828
Embraer 4,215

Top six commercial aero-engine
Manufacturer Sales in 2017 (US$m)

General Electric 15,429

United Technologies 12,129

Rolls-Royce 10,711

Snecma 7,601

Honeywell International 5,290

MTU 3,563

Banks and leasing companies:
 Lending to airlines (secured against aircraft)
 Leasing to airlines (finance leases)
 Advising and arranging finance (corporate finance)
 Short-term (operating) leasing to airlines
 Advice and arranging risk management:
Foreign exchange
Interest rates
Fuel and oil

Banks and leasing companies:
 Lending to airlines (usually unsecured)
 Leasing to airlines (not widespread)
 Advising and arranging finance (corporate finance)
 Advice and arranging risk management:
Foreign exchange
Interest rates
Fuel and oil

Also: long-term lending by government agencies

(eg European Investment Bank, EBRD etc)

Oil Companies
 Delivery of aviation kerosene (and Avgas) to aircraft on
aircraft stands
 Invest in pipeline/rail/road tanker link to airport
 Invest in airport storage facilities
 Invest in delivery system by bowser or hydrant
 Charge for fuel, transport and refuelling
 A number of ‘competing’ suppliers at larger airports
 Suppliers (Air BP, Total, Shell etc) part of very large
multinational companies


handling companies
Provide passenger and cargo handling services at airports
Aircraft handling on stand (eg cabin cleaning, boarding etc)
Passenger handling in terminal (eg check-in, gate)
Cargo handling at cargo terminal and for cargo/passenger flights
 Airlines generally do this themselves at home base and busier
outstations (and on reciprocal basis to other airlines)
 Many airports offer these services, eg Fraport
 Growing number of third party suppliers, eg
Servisair/GlobeGround (French owned): US$1 billion + turnover
Swissport: $900m turnover
Worldwide Flight Services, Aviance UK, Menzies etc

Flight catering companies
 Some airlines still have their own flight catering, especially at
home base
 Many airlines have outsourced this to third party suppliers, even
at home base (eg British Airways to Gate Gourmet)
 Larger airlines provide third party catering (air and ground): only
22% of LSG SkyChefs turnover of €2.4 billion billion for
Lufthansa (2007)
 LSG SkyChefs global market share of around 30%, operating in
47 countries serving 119 customers
 Gate Gourmet (originally owned by Swissair Group) in 25
countries with 250 airline customers; 2007 turnover €1.5 billion

Aircraft and engine maintenance and overhaul

 Aircraft need line checks (on stand during turnrounds) and

A/B/C/D checks in hangar
 Aero-engines need checks and major overhauls
 Equipment and spares needed at larger airports, especially
airline home bases
 Larger airlines provide third party maintenance, repair and
overhaul (MRO): only 39% of Lufthansa MRO division
turnover of €3.6 billion for Lufthansa (2007)
 Some independent third party suppliers, eg SR Technics
(formerly part of Swissair): CHF$1.85 billion turnover in 2007

IT companies
 Information processing and communications a key part of
airline and airport operations
 Airlines need reliable reservations and booking system, as
well as specific tools for crew/aircraft scheduling, load
control, passenger boarding, flight information display in
airports etc
 Larger airlines provide third party IT: 59% of Lufthansa IT
division turnover of €679m billion for Lufthansa (2007)
 Airline Global Distribution Systems (GDS) providers such
as Amadeus, Galileo and Sabre also offer IT solutions

Return on invested capital by sector, 1996-2004 (%)

Source: Value chain profitability, IATA Briefing No.4, June 2004

Airport investor value by region

Source: Value chain profitability, IATA Briefing No.4, June 2004

Expected impact of recent structural changes on investor returns

Source: Value chain profitability, IATA Briefing No.4, June 2004

Main points
 Dependence of airports and air transport industry on other
parts of the system
 Airlines worst performers in terms of return on capital
 Economic value of air transport much larger than industry
itself but depends on investment throughout system
 Airport crucial role in air transport system, providing the
platform for airlines and other operators
 Airports less sensitive to economic cycle, but its long-term
investments lack flexibility to adapt to shorter term trends