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Airline Business
Lecture 1: Introduction
Jan 08/10, 2019
Changmin Jiang
1
Welcome on board!
2
Course Objectives
• Overview of various aspects in the airline
business
• Focus on economics and management issues
• Industry knowledge as well as analytical tools
that enhance understanding
• Self-learning ability
3
Airline Business and Commerce
Disciplines
Finance
Supply
Marketing
Chain
Airline
Business
Law Operations
Manageme
Economics
nt
4
Why Airlines?
5
6
7
8
Rapid Growth
• Growth of world air travel has averaged
approximately 5% per year over the past 30
years.
• Annual growth in air travel has been about
twice the annual growth in GDP.
• Expected to double over next 10–15 years.
9
Air Transport Is Resilient to External Shocks
Asian 911 Financial
Oil crisis Oil crisis Gulf war crisis attack SARS crisis
10
Airbus Fleet Forecast
13
Average Airfare (roundtrip) between New York and
London, 1946-2012 (in 2012 dollars)
14
Even in the good years airline returns
are inadequate
15
Poor Profitability
Revenue per passenger exceeds cost by just $2.56 (1%
Excluding $12 ancillaries revenues would have lagged costs by $10 (-5%)
2012 worldwide airline financial results per departing passenger
160
140
80
60
40
20 Cargo & other $31.30
$2.56
0
Revenues Costs Net profit 16
Source: Ancillary revenues from Idea Works 2012 estimate, other data IATA. Costs include operating items and debt interest.
Ancillaries are helping
17
Periods of profit short-lived
18
Corporate
Corporatevs. Airline
v. Airline Profits
Profits
The Performance Improvement in 2011 v. 2008 Is Telling of Progress Made
15% $140
$124.51 $125.85
10%
$120
Corporate Profits (%)
5%
$100
0%
-5% $80
2011E
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
/1 West Texas Intermediate plus the implicit crack spread
19
19
Bankruptcies are not rare
20
21
Air Passenger Travel vs. GDP growth
Orders 78 0 34 10 10 24 33 9 4 32 2 236
Deliveries - - - - - - 1 12 10 18 15 56
23
Macro Scale Drivers
Volatility
US Airline Net Profit
24
Aviation value chain
25
26
Economic profit in the aviation value chain
27
Risk vs. Return along the value chain
28