Structure of Airline Industry and b.

Medium regionals are certified carriers

Management Organization with annual gross revenue less than $10M.

• Civil Aviation includes all airline flights c. Small regional airlines don’t have a set
and services offered to the traveling revenue definition but are usually referred to
public (Purzycki, 2001). as “commuter airlines” and they are non-
• In the aviation industry, we can certified (no aircraft operators’ certificate or
identify the three main stakeholders: AOC). Airlines using aircraft seating less than
1. Aircraft manufacturing industry 60 passengers. Operate shuttle services
2. Airlines between smaller airports that cannot support
3. Airports the major airlines and equipment.
2. Supplemental or Charter airlines – fly
routes and schedules that are not flown by
Airline Business Models the scheduled airlines. They are considered
Basic Civil Aviation Categories to provide additional or supplemental
services to the major airlines. Charter airline
1. Scheduled airlines - offer regularly timed flights don’t have standard fare structures.
flights over prescribed routes and published No set flight schedules as it operates for the
timetables. The majority of passenger flights exclusive usage of passengers who
are on scheduled airlines. requested the service based on demand.
Seats on public charter sometimes are
Three major categories:
offered thru travel agencies in promotional
Major and national carriers – aka trunk tours, utilizing the chartered flights inclusive
airlines, or full-service carriers, focus on of the tour package (Purzycki, 2001).
long-distance or long-haul routes. Flag
carriers. Major airlines serve major city
airports in addition to international The airline industry is just like any other
destinations. In United States, airlines business, meaning that there are numerous
generating more than 1B USD in revenue types of airlines because their customers
annually are categorized as a major airline. have different needs. If you are going
overseas, you're likely to use a major airline
Commuter carriers
because it has more destinations overseas.
Regional carriers – provide air service A business person traveling between two
between smaller citis and also connect these small cities is likely to fly on a regional airline,
small communities with major airports. because he doesn't want to go via
Operate between points within a specific connection point which is normally the hub if
area of the country. In US DOT, regional using a major airline.
carriers are subdivided as large, medium or
small depending on gross revenue and
whether they hold a certificate of public Based on product offerings and value
convenience. added services
Types of Regional airlines 1. Full service carriers – scheduled
airlines and developed from national
a. Large regionals are certified carriers with
flag carriers,
annual gross revenues between $10M and
$99.9M. Have the following basic characteristics:
 • Utilize the ‘hub and spoke • Service is simplified – no lounge, no
connection’; Usually members of choice of seats, no frequent flyers
Aliances and other partnerships; and no in-flight services such as
• Fares are inclusive of in-flight meals;
services and other amenities; • No outsource GDS nor travel
• Using Global Distribution System or agents/intermediaries as it sells
other external airline computer directly online
reservation systems; • Maximizing sale on ancillary services
• Sales channels are extensive such as luggage charges, in-flight
including usage of intermediaries food and beverages, and advertising
such as travel agencies; space.
• Its product differentiation, pricing and
Other Airline Business Models
Yield Management system is
advanced in support of its network 1. Air Cargo Carriers – special form of an
revenue maximization. airline business model.
2. Chartered airlines – don’t have standard a. Network carriers have their own
fare structures. No set flight schedules cargo fleet (e.g. Malaysia Arlines
provide essential public services. Seats on Cargo, Lufthansa Cargo). These
public charter sometimes are offered thru companies ship cargo in their
travel agencies in promotional tours, utilizing freighters as well as in the cargo
the chartered flights inclusive of the tour compartments of their passenger
package. fleet.
3. Low-cost carriers (LCC) – aka ‘no frills’ b. whereas in the field of Air cargo
airlines that cater to passengers wanting carriers, some airfreight-only
cheap airfares with little demand for inflight carriers exist (e.g. FedEx, DHL).
services. To achieve its selling point of low
fares, the following elements are being 2. Shuttle Airlines – caters mainly to
utilized by LCCs differing from the traditional business travelers seeking movement
airlines. between two major city centers. The shuttle
concept is similar to a conventional bus
• Focus is its core business as a service offering a reasonable airfare with no
passenger air service; reservation. High frequency and easily
• Point-to-point network services – no remembered times are typical attributes of a
connections are provided from the shuttle
airline ‘base’ minimizing cost
specially delay costs;
• Use of secondary airports to REVIEW
decrease airport fees and charges;
• ‘Single-aircraft fleet’ – only one or two Delta Airlines, Alaska and American Airlines,
aircraft types are utilized to cut down all USA airlines posted more than $1B in a
repair costs and manpower training year, thus under FAA, which category do
costs; they fall? – Major airlines
• Aircraft utilization is maximized due DHL and FedEx are both shuttle airlines –
aircraft is used for longer hours due FALSE
to its point-to-point service;
Fed-Ex and DHL belong to this special Use of intermediaries such as the travel
airline category. – Airline Cargo carriers agents – Full-service airline
This type of airline business model cater to
passengers wanting cheap airfares with little
Types of Flight Services
demand for inflight servuces – LCC
1. Non-stop flight – flight which operates
Air Canada hourly flight between Toronto and
between a board point and an off point in a
Vancouver with flight duration of 45 minutes
single leg without any intermediate landings
– Shuttle Airlines
(IATA, 2010). It simply means the passenger
Passengers can choose their seats upon gets on the plane from origin, and without
reservation without additional charge – FSC any transfer nor in between stopover points,
plane lands to its final destination. A flight
There are three major stakeholders in the
with no intermediate stops with same flight
aviation industry and the most prominent number and aircraft.
group are? - Airlines
This type of airline business models have
flights which do not have standard fare
structures nor set flight schedules as it
operate based on demand – Chartered
airlines TG 621 D MNL 1 BKK 1305 1520 0

Emirates Sky, a subsidiary of Emirates, 2. Direct flight (Through flight or Direct

operates purely cargo flights to different Service) – any flight ticketed as a single flight
destination – Network carrier coupon, irrespective of whether there are
enroute stops and/or changes of aircraft
Worldwide tours has a group of 300 types (IATA, 2010). Means the passenger
passengers to Miami, USA who will attend gets on one aircraft from origin and with or
the World Travel Expo. The travel agent without stopping any other points, lands to its
contracted the services of American Airlines destination with or without changing plane
to transport the passengers on the schedule using single ticket coupon.
determined by the group – Charter airlines
- with stop(s) en route
UPS Airlines is a cargo airline based in the
US and one of the largest cargo airlines
worldwide –
Thai Airways is the national carrier of
Thailand with an annual revenue of $1.5B – Ex. Flight no. PR147 from Manila to London,
Major airline makes a fuel stop in Dubai, this flight will still
A business traveller decided to fly on Airlink be considered a direct flight Manila-London
from Canada to Johannesburg as it has 3. Connection flights – air service between
fliights every hour and now reservation is two cities that contains one or more
required – Shuttle airline immediate stops during which passenger
No frills airlines – Low-cost carrier changes aircraft and flight number. Flight
which operates between a board point and
Point-to-point service – Low-cost carrier an off point in a single leg without any
intermediate landings. (IATA, 2010). This
means that passenger boards a plane in via Asiana flight , then upon arrival in SEL
point of origin, then before arriving at the final takes a connection flight, transferring to
destination, passenger boards another plane American Airlines flight service from SEL to
in a connecting point with less than 24 hours DFW.
stay at that point.
- Connecting flights with change of
equipment en route REVIEW
Identify the type of flight service in this
itinerary:
Flt No. Date From To ETD
PR321 Y 12MAR MNL HKG 0800
CX233 Y 12MAR HKG LAX 1210
Types of Connection flights - Interline connection flight, connection
1. On-line Connection – a connection with with change of aircraft and flight
a change of aircraft and flight number within number. bet. 2 different airlines
the same airline.
Ex.: Manila to Los Angeles via Flt No. Date From To ETD
Hongkong on CX
MH087 Y 01JUN MNL KUL 2100
MH087 Y 02JUN KUL LON 0800
- On-line connection flight, connection
A passenger taking Cathay Pacific
with a change of aircraft and flight
Airways going from Manila to his final
number within the same airline
destination Los Angeles. As there is
-
no direct flight from Manila to Los
Angeles on CX services, his itinerary
is Manila to Hongkong, and upon
arrival at CX Hub -Hongkong, Flt No. Date From To ETD
passenger transfers to another plane PR321 Y 12MAR MNL HKG 0800
, also another CX flight, from
Hongkong to Los Angeles. CX233 Y 12MAR HKG LAX 1210

2. Off-line or Interline Connection – - Interline connection flight

connection with a change of aircraft and flight
Flt No. Date From To ETD
number between two different airlines
MH087 Y 01JUN MNL KUL 2100
Ex.: Manila to Dallas via Seoul on PR/OZ
MH087 Y 02JUN KUL LON 0800
- On-line connection flight

A passenger is flying from Manila to final

AI 118 MNL DEL 1750 2010 0
destination -Dallas Fort Worth. His first flight
is on Philippine Airlines from MNL to Seoul 9W 398 DEL LON 2305 0520+1 0
 - Interline connection seating and increased economy class
seating.
2. Business Class – originally intended as
BR 242 BJS TPE 1500 2135 0
an intermediate level of service between
BR 636 TPE ROM 0010+1 0730+1 0 economy class and first class. Expensive
fare but also offers more amenities to
- Online connection travelers than the lower class of service.
Business class seating is important to
airlines wanting to attract business travelers
AI 118 MNL DEL 1750 2010 0 willing to pay a high airfare.
- Non-stop flight, no intermediate stops 3. Premium Economy – offers wider seats
with same flight number and aircraft. and more legroom at a comfier price than
business or first class on most airlines. Some
airlines categorize economy and premium
PR 489 MNL LAX 0900 2300 1 economy under main cabin. Typically,
physically partitioned on international and
- Direct flight some long-haul flights, the “premium” in
premium economy is the added space and
sometimes location of seats in more
TG 621 MNL BKK 1305 1520 0 desirable locations, like the front of the
aircraft. On international flights, premium
- Nonstop flight
economy may not only be physically
Which of the following airlines will take this separate from economy class, but it may also
route on an online connection? offer additional perks like complimentary or
better food, a greater baggage allowance
HKG/SEL/SFO and amenity kits. Premium economy often
- OZ refers to the “better” seats on an aircraft on
domestic flights.
Which of the following airlines on on-line
connection will take this route? 4. Economy – whether you call it coach,
standard, main cabin, or “cattle class,”
SIN/LON/YTO economy is the most basic class. The seats
- BA here are the narrowest, ranging from 16
inches to just over 19 inches wide and the
seat pitch, the distance from one seat to the
seat in front or behind it – what travelers
Types of Seating
often refer to as “legroom” – ranges from 30
Class of Service: inches to 34 inches.

1. First Class – class with the best service,

and is typically the highest priced. Available
Amenities
on only a small number of of long flights.
Passengers in this class have a separate Food and Bar – major airlines or Full-service
check-in counter, access to the airline’s first Carriers serve meals and beverage on-board
class lounge. First class is being removed and at the airport lounge for business class
and replaced with increased business class and first class passengers. However, meals
are not inclusive of the fare in Low cost to set the policies, procedure and long term
carriers. objectives which will meet the goals
established by the board of directors
Entertainment – most aircrafts are equipped
(Wensveen, 2016). They are responsible for
with various types of in-flight entertainment
the over-all direction of the company. They
offering , but will of course add to the airline
usually have many years of experience in all
expense. However, the usual long-range
phases of management. They usually bear
aircrafts has this offering.
the title – president, executives vice-
Cargo and Freight – most major airlines president, senior vice-president, senior
offer cargo bookings , together with executives, or major executives, Chief
passenger service. Making sure that the Operating Officer, President, Executive
type of aircraft is suitable , considering the Vice-President, Senior vice-president.
limitations of space and cargo dimensions.
2. Middle management is responsible for
Making sure that the type of aircraft is
the execution and interpretation of policies
suitable, considering the limitations of space
throughout the organization.
and cargo dimensions.
Middle management is the second level of
management in the organization and is
Airline Management and Organizational responsible for the execution and
Structure interpretation of policies throughout the
organization. Middle management is
Levels of Management responsible for coming up with operational
Management is the process of achieving an plans and procedures to apply the overall
organization’s goals through the coordinated plans handed out by top management
performance of five specific functions: (Wensveen, 2016). Middle management
planning, organizing, staffing, directing, includes heads of departments or divisions
and controlling. within a major administration, such as the
advertising department under marketing or
Wensveen (2016) states that "terms such the flightprocedures and training department
as top management, middle management, under flight operations. Or it might include
and operating management are commonly the simulator division head, who reports to
used in business to distinguish the levels of the flight procedures and training department
management within an organization. head. Typical airline titles for individuals in
Unfortunately, there is no clear definition of charge of departments and divisions are
each level, and meanings attached to the vice-presidents, directors, and, in the
terms sometimes differ from one company to case of maintenance facilities,
another. However, firms will have these superintendents.
levels of management.
3. Operating management is directly
responsible for the final execution of policies
by employees under its supervision.
Three (3) levels of management:
Operating management is also called
1. Top management is generally considered
supervisory level or lower-level
to be the policy-making group responsible for
management. It is directly responsible for
the overall direction of the company.
the final execution of policies by employees
The top management is the highest level in under its supervision. Typical titles include
the management hierarchy. Their main job is managers, assistant managers, section
chiefs, general supervisors, and Chief Pilot – Operating management
supervisors who head up sections, groups,
Chief Finance Officer – Top management
or units that report to division or
department heads (Wensveen, 2016). Directly responsible for the final execution of
Examples might include the manager of policies – Operating management
display advertising or the general
supervisor. Director for Operations – Middle
management
Sales Manager – Operating management
Responsible for developing operational
plans & procedures – Middle management
Their main job is to set the policies,
procedure and long-term objectives – Top
management
Director of Sales -Asia Pacific Region –
Middle management
Cargo Sales Manager – Operating
management
Senior Vice-President Engineering and
Maintenance – Top management
Reservations Manager- Manila – Operating
management
Chief Executive Officer – Top management
Superintendent airplane overhaul division –
Middle management
REVIEW
Which level of management will some new
Which of the three levels of management has
entrant airlines and low cost carriers 'do
the most interpersonal role as they work
away' or remove from the new corporate
most closely with the general workforce? –
organizational structure to bring down
Operating management
administrative expenses? – Middle
Which of the functions of management is management
the process of selecting and develop the
best course of action to accomplish an
objective? – planning AIRLINE COMPANIES - Codes
Air transportation, specifically commercial
airlines, plays a crucial role in tourism
Determine to which level of management
growth. Airlines may offer scheduled,
the following positions belong.
chartered , low-cost or regional services
Chief Operating Officer – Operating operating to/from their country.
management
There are numerous airline companies and in fleet planning. "What type of aircraft to
city hubs at this age worldwide.
acquire, when and how many of each?".
IATA has assigned airlines, that passed
requirements, a 2-letter designator code and
a numeric 3-digit code for ticket accounting Aircraft Categories
purposes. These codes appear on
passenger tickets and on cargo airway bills Passenger aircraft vary, but mostly they are
(tracking document for air freight) to identify categorized in most recent times, by defining
the carrier that is providing transportation. A the aircraft type’s ‘range’ and ‘size’. In the
complete list of the airlines designators are industry, these technical details are aircraft
available in the IATA Passenger Air Tariff - performance statistics.
General Rules Handbook. IATA City codes The “range” of an aircraft refers to the
and Airport codes are also assigned. maximum distance that it can fly without
stopping for additional fuel, while still carrying
a reasonable payload of passengers and/or
cargo.
The “size” of an aircraft can be represented
by measures such as its seating and/or cargo
capacity, as indicators of the amount of
payload that it can carry.
If aircraft types have the same size and
range, the industry will take it as competing
aircraft types such as A320 and B737 , as
both are single-aisle, twin-engine with
around 150 seat capacity, and most of all,
with similar range capabilities.
AIRCRAFTS
Sample aircraft capabilities, and
operational definitions of the following
aircraft type characteristics

• Payload means aircraft weight or

carrying capacity.
• Range is the distance the aircraft fly
with a tank of fuel also known as the
aircraft distance
• Endurance is the time the aircraft
can stay in the air with a tank of fuel.
General way of aircraft type classification
is by dividing the aircraft types into two broad
categories:
1. Narrow-body – have one walking
Part of airline planning, a crucial step in
aisle down the center with two or
airline business, are the decisions faced three seats on each side.
 2. Wide-body aircraft – have two and ATR 42/72
walking aisles and this a middle
section of seats in addition to two sets
of seats on each side. Major Aircraft Manufacturers
Airbus and Boeing, are two main players
manufacturers of the wide-body and narrow-
Aircraft Type Classification (based on
body size and range) body jet airliners, while Bombardier and
Embraer concentrate on regional airlines.
1 . Wide-body aircraft (long range) – aka
Twin-aisle aircraft – largest airliners, an
airliner with a fuselage wide enough to Airbus – based in Europe with its
accommodate two passenger aisles with headquarters in Toulouse, France and has
seven or more seats abreast. 12 sites in Europe located in France,
Germany, Spain and UK. The main products
Ex: Boeing 747-767 & 777, Airbus
are A-series: A320, A330, A340, A350 and
A300/A310, Airbus A330, Airbus A340,
Airbus A380 (which can hold up to 800 pax) A380. Around 2019, Airbus displaced Boeing
as the largest aerospace company by
revenue.

2. Narrow-body jets (medium range) –

have one walking aisle down the center with
two or three seats on each side.
Boeing – the oldest aircraft manufacturer
based in USA with its headquarters located
in Chicago. The main commercial product
that Boeing manufacturers are the 737, 747,
767, 777, and 787 families of airplanes and
the Boeing Business Jet, with nearly 9,000
commercial jetliners in service worldwide
(about 50% of the world fleet).

3. Regional airliners (short range) – seat

fewer than 100 pax, short flights serving
Other Aircraft Manufacturers
small markets and feed hub airports.
Ex.: Bombardier CRJ series
 Seat Map

1. Embraer – based in Sao Jose dos

Campos, Brazil. Continues to lead the
industry with its innovative regional and
commercial jet product lines.
2. Bombardier Aerospace – the world’s 3rd
largest civil aircraft manufacturer. Leaders in
the design and manufacture of innovative
aviation products and services for business,
regional and and amphibious aircrafts.
Headquarters in Montreal, Canada.

Aircraft Seat Configuration

The configuration of a plane is the layout of
seat and row identifications and the location
of the plane’s galleys (kitchens), closets, and
lavatories.
When selecting seats, we use seat maps to
identify seat locations and availability.
Seat maps are displayed in the airline
reservation computer systems.
Each row is assigned a letter and number.
A common seating preference is an aisle or
window seat.
Bulkhead seats are positioned fronting the
wall or plane partition.
Baby bassinets are also usually positioned at
the bulkhead area.
 1. Theoretical Pricing Strategies
a. Cost-based pricing – the costs to an
airline of operating a schedule of flights are
fixed. The commitment to operate a
scheduled service irrespective of the no. of
passengers on board means that aircraft
ownership cost, crew costs & fuel costs are
considered fixed for a planned set of flights.
b. Demand-based pricing - based on
consumers’ willingness to pay. There are
consumers who are willing to pay a very high
price for the convenience. There are other
Seat assignment – when a specific seat is who are willing to to pay if the price is low.
reserved for a passenger. Seat assignment
will have a row number and seat letter: 4A is c. Service-based pricing – the higher the
the 4th row from the front, with seat A being a quality of the service generally will mean
window seat on the left side of the aircraft higher operating cost for the airline. The
facing forward. For full-service carriers, pricing strategy applied by legacy carriers.
advance seat selection is an important part
of an airline customer service or a travel-
agency customer service. 2. Price Discrimination vs. Product
Differentiation vs. Market Segmentation
Price Discrimination – the practice of
REVIEW charging different prices for the same
If the airline configuration is 3-3. Selecting products that have the same cost of
from seats 11ABC, 11DEF. Which seats will production based on the consumers’
you offer for passengers requesting window willingness to pay (WTP).
seats? -11A and 11F
Refers to the aircraft’s carrying capacity –
Payload
Refers to the distance the aircraft flies
without refueling – Range
The time an aircraft can stay in the air without
refueling – Endurance

Airline Pricing Strategy

Airline Pricing Practice – airline fares are
defined for an Origin – Destination (O-D)
market, not for an airline flight leg. Airline Product Differentiation – involves charging
prices are established for travel between different prices for products with different
origin point A and destination point C, where
AC or (CA) is the relevant market.
quality of service characteristics & different Destination (OD) market or point A to B flight
costs of production. segment, there will be different price levels
which will be available for sale at different
selling periods, i.e., typically lower fares will
be open earliest at a very limited selling
period.
In contrast, the most flexible fares such as
normal fares (which are more expensive) for
the same flight segment, will also be open
Market Segmentation – the successful use from the start of sale up to the last day before
of differential pricing principles depends on departure date. In other words, the flexible
the airline’s ability to identify different fare (the more expensive fares) are always
demand groups or segments. In theory, total open for booking to protect availability of the
revenue in an O-D market (or even on a higher yield fares.
single flight) is maximized when each
customer pays a different price equal to
his/her WTP. At the high end of the fare Computerized RM system – manage the
structure, the airline should offer enhanced airline’s inventory of available seats by using
service amenities that improve the mathematical models & computer database.
attractiveness of the fare products to As sales build for a flight, the lower-valued
travelers who are not price sensitive and itinerary classes are automatically closed,
willing to pay for these amenities. And, at the leaving the higher-yield seats open.
low end of the fare structure, prices low
enough to stimulate new demand for low fare
travel should be offered to fill empty seats
that would otherwise remain empty.

Revenue Management Revenue Management Techniques

Airline Revenue Management – the 1. Fare Class Mix – involves determination
strategy and systems set by an airline to of the no. of seats that should be made
maximize its revenues while improving the available to each of the different fare classes
customer experience to guarantee customer that share the same inventory of seats in a
retention. This is usually achieved by using physical compartment.
analytics to predict the customers’ behavior
with the final goal of anticipating demand to
optimize product availability and pricing to
generate the highest possible revenue.
Involves balancing of supply and demand.
Airlines play around the consumer’s
willingness to trade-off between high priced
fares (which has high levels of service
offerings and flexibility) and the lower-priced
fares (which is restricted and level of service
offerings not as high). Thus, for each Origin-
 Configuration: 332 seats (Business –
41 / Economy – 291)
a. if too many reservations are accepted and
more passengers show up than there are
physical seats, the airline must deal with the
cost of Denied Boarding (DB): Cash
compensation (involuntary DB), Free travel
voucehr (voluntary DB), Meal & hotel cost,
Space on other airlines for displaced
Inconvenience Cost – restrictions passenger.
increase the “disutility cost” of low b. if not enough reservations are accepted
fares to travelers with high and the no-show is greater than expected by
Willingness to Pay (WTP). the airline, there are cost associated for the
lost revenue for empty seats known as
“Spoilage”.
Spoilage Costs – loss of revenue
from seat that departed empty.

2. Overbooking – accepting reservations in

excess of aircraft actual capacity to
There are acronyms we see in flight
overcome loss of income due “no show”
manifest:
passengers. Because the no-show behavior
of passengers on future flights is WL – waitlisted passengers
unpredictable, there is an element of risk
involved in accepting more reservations than GS – go show passengers
physical capacity. SB – standby passengers
Physical capacity (CAP) – actual NS – no show passengers
number of seats on the flight, usually
maximum capacity of the aircraft. PAX – passengers

Ex.: Boeing 787 VOLDB – voluntary denied boarding

Configuration: 330 seats (Business –

32 / Economy – 298) 3. Origin-Destination Control (Network
Authorized booking capacity (AU) Optimization) – distinguishing between
– maximum no. of bookings that an seats available to short haul (one leg) against
airline is willing to accept. bookings with long-haul passengers
(connecting flights) to maximize total network
Ex.: Boeing 787 revenue. O-D control gives the airline the
Physical Capacity (CAP): capability to to manage its seat inventory by
the revenue value of the passenger’s origin-
Configuration: 330 seats (Business – destination itinerary on the airline’s network,
40/ Economy – 290) not separately for each flight leg.
Authorized booking capacity (AU):