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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
email: rohafiz@uum.edu.my
July 2009 Transport and Logistics Department 1
Aviation
System Aerospace
Industry

General Tourism
Aviation Industry

Air Transport
Industry

Government

Surface Trade &


Transport Commerce

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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
security
 Likely cross-subsidisation between defence and civil
programmes (Boeing vs Airbus debate)

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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

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Government
 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

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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)

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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

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Corporate Travel Example
 PriceWaterhouseCoopers, PwC UK
 Business travel and the environment is one part of their four
sustainability quadrants (with Marketplace, Community and
People)
 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

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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?)

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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
flights?
Surface transport alternatives improve significantly?
………………………?
……………………….?

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The Air Transport System

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Direct employment in air transport: Europe (2004)

Airport operators
Aerospace 8%
20%

Other on-site
airport
25%

Airlines
47%

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

Ground handling companies Aircraft manufacturers

Flight catering Airports and ATC service providers

Aircraft maintenance Banks and lessors

IT companies Oil companies

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Airports
 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
spending

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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

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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

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Top six commercial aero-engine
manufacturers
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

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Banks and leasing companies:
airlines
 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

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Banks and leasing companies:
airports
 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)

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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

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Ground

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

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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

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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

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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

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

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

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Airport investor value by region

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

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Expected impact of recent structural changes on investor returns

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

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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

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