Module-1

Airline Industry Overview

 History of Aviation
The history of aviation dates to the 5th century with the invention of kites
in China. The famous artist Leonardo da Vinci created the first drafts for a rational
aircraft in his paintings in the 15th century. In 1647, Tito Livio Burattini developed a
model aircraft featuring four pairs of glider wings. But it never supported the weight of
a person. Later, in 1670, Francesco Terzi, the Father of Aeronautics, published a theory
that showed the possibility of lighter-than-air aircraft made of copper foil cylinders.
The discovery of hydrogen in the 17th century led to the development of the
first hydrogen balloon. In 1783, the Montgolfier brothers, including Jacques-Étienne
and Joseph-Michel, flew the first unmanned hot air balloon over Annonay, France. The
same year, they flew a piloted, tethered hot air balloon with Giroud de Villette, Jean-
François Pilâtre de Rozier, and Jean-Baptiste Réveillon onboard. Later, they launched
their first untethered hot air balloon flight, which flew nine kilometers in about 25
minutes. The hot air balloon became exceptionally popular during the late 18th
century, which led to the discovery of the relationship between altitude and
atmosphere. However, the main downside of hot air balloons was a lack of
maneuverability.
 The invention of airships came to solve the issue with hot air
balloons. Unlike hot air balloons, airships used hydrogen or helium gas
to lift and were the first ones to carry passengers over long distances.
Alberto Santos-Dumont was the first person to fly an untethered airship
designed with an internal combustion engine. In 1901, Santos-Dumont
launched his airship known as “Number 6” over Paris in less than thirty
minutes. In 1899, Ferdinand von Zeppelin started building the first
Zeppelin airship, which featured two Daimler engines. In 1902,
Leonardo Torres Quevedo launched his version of The Zeppelin, which
dealt with the balancing problems of the first Zeppelin. However, the
fatal crash at Lakehurst, New Jersey, in 1937 marked the end of the
airship era.
 Despite the numerous advancements of lighter-than-air
aircraft, their existence was short-lived and overshadowed by the
invention of the heavier-than-air airplane. In 1869, Samuel Pierpont
Langley was the first to launch an unmanned heavier-than-air aircraft
on a sustained flight successfully. Langley was later funded by the US
government to create a crewed version of his heavier-than-air aircraft
for purposes of spying on the enemy. However, his design was not
successful.
 The Wright Brothers in the History of Aviation
Between 1900 and 1902, the Wright Brothers, Wilbur and Orville Wright
from Dayton, Ohio, designed and tested numerous glider and kite models.
They built a wind tunnel and then created various devices to measure the
drag and lift on more than two hundred wing designs. Finally, their third
glider was a success as it outdid its predecessors, which heavily contributed
to the aeronautical engineering field.
The Wright brothers also worked together to solve the current issue of
controlled, powered flight. They solved the control problem by creating wing
warping for yaw control, roll control, and a steerable rudder. On December
17th, 1903, the two brothers successfully built and launched the first crewed
heavier-than-air flight. This is also the universally recognized date that
launched modern aviation. On that day, they made a total of four flights in
their simple aircraft, with the longest one piloted by Wilbur, covering 852 feet
in 49 seconds.
 First Flight

• The Wright Brothers –Wilbur and Orville

• The first successful heavier than air aircraft – the wright Flyer.
• The first flight was on December 17 1903
• Modern day aircraft giants- Boeing and Airbus
 Types of Airlines
• Full Service
A full-service carrier or FSC (sometimes referred to as a legacy airline) is
a traditional air carrier with ancillaries included in the ticket fare. Eg,
Air India, Vistara, American Airlines.
• Low Cost
A low-cost carrier (LCC) or low-cost airline, also called no-frills, budget,
or discount carrier or airline, is an airline that is operated with an
emphasis on minimizing operating costs. It sacrifices certain traditional
airline luxuries for cheaper fares. To make up for revenue lost in
decreased ticket prices, the airline may charge extra fees, such as for
carry-on baggage. Eg, Indigo, Air Asia, Air Arabia.
• Hybrid
Hybrid airlines are carriers that operate with a low-cost business model
but put an emphasis on offering a high standard of service. A true hybrid
airline will offer services similar or equivalent to a standard or legacy
airline, while keeping prices competitive to low-cost carriers. Eg: JetBlue,
Southwest Airlines, Germanwings.
• Ultra Low Cost
An ultra-low-cost carrier is an airline that operates with a low-cost
business model, with marketing focusing on offering its customers airfare
at much lower costs than competing legacy carriers. These airlines
offered unbundled fares, which do not include seat assignments, check-in
or carry-on baggage fees, or in-flight meals. Each of these services incurs
an additional cost, allowing passengers to determine which options they
are willing to pay for. Eg: Ryanair, Spirit Airlines,
 Airline Alliances
Airline alliances are partnerships between or among airlines.
Within these collaborations, airlines can share resources, pick up or
extend partner routes and even offer the ability to earn and redeem
miles through each others’ rewards programs.
There are three major airline alliances: Star
Alliance, Oneworld and SkyTeam. Each has different partner airlines.
Star Alliance
Oneworld
 Code-sharing Agreement
A codeshare agreement, also known simply as codeshare, is a
business arrangement, common in the aviation industry, in which two
or more airlines publish and market the same flight under their own
airline designator and flight number (the "airline flight code") as part of
their published timetable or schedule.
 Interline agreement
When two airlines enter into an interline agreement, it is the
most basic form of partnership you will find. In essence, it allows
passengers to book through itineraries on two (or more) airlines with
less hassle than booking each one separately.
Usually, if two airlines are interlining, they will handle the check-in
and baggage for each other’s passengers. That means travelers only
have to check in once for all the flights on the itinerary, receive all their
boarding passes, and their baggage will be transferred from the first
airline to the second airline without having to collect it and drop it off
again.
 Airline Business Models
Network Carriers
Network carriers are usually the carriers which have started their business
a long time ago or an airlines that have found a market gap for the Full service
airline. Network carriers as a custom have a variety of services they offer.
Diversification of traveling classes for passengers: First-, Business-, Economy
comfort and Economy classes. Of course pricing of these classes varies as well
by the comfort and frills added to the product. Network carriers have usually a
hub airport, where and from where the flights usually start. Going in circle the
route they are assigned to. Most of the short-haul routes will start and end in
the hub. Having a hub linking to other airports, will make the number of
available city pairs much greater than when they are linked directly.
The hub serves as a connecting point where passengers from various
originating locations transfer to other flights to reach their final destinations.
Key Characteristics
• Centralized Hubs
Hub-and-spoke airlines typically have one or more major hubs strategically
located to facilitate efficient connections.
• Schedule Coordination
Flights are scheduled to arrive and depart in a coordinated manner,
maximizing the number of connecting possibilities.
• Connectivity
This model enhances connectivity between multiple origins and destinations,
offering passengers a wide range of connecting options.
• Point to point
• Point-to-point airlines do not rely on centralized hubs; instead, flights
operate directly between city pairs. Flight schedules are more flexible,
allowing for greater adaptability to demand on specific routes. Point-
to-point carriers focus on direct connections, reducing the complexity
of their networks.
Point-to-point airlines operate by connecting passengers directly
between their origin and destination without the need for a central
hub. Each flight operates independently, and the network is designed to
link specific city pairs.
Key Characteristics
• No Central Hubs
Point-to-point airlines do not rely on centralized hubs; instead, flights
operate directly between city pairs.
• Flexible Scheduling
Flight schedules are more flexible, allowing for greater adaptability to
demand on specific routes.
• Streamlined Operations
Point-to-point carriers focus on direct connections, reducing the
complexity of their networks.
• Low Cost Carriers
A low-cost carrier is an airline that offers low airfares by eliminating all
unnecessary services [ all kinds of free in-flight services, such as in-flight
entertainment (IFE) and free meals to minimize their costs].
The low-cost carrier business model is very simple: operate at the
lowest possible cost and sell seats at low rates such that they stimulate
demand and achieve high load factors [High-density seating leads to
lower unit costs, as fixed costs can be attributed to more seats and
passengers].
 Airline Revenue Models
Airlines generate revenue through various sources, such as ticket sales,
baggage fees, ancillary services, frequent flyer programs, cargo and
mail transportation, codeshare agreements, aircraft leasing, inflight
retail, charter flights, maintenance and repair services, insurance, and
advertising.
Passengers, Cargo and ancillary revenue.
• Ticket Sales
Ticket sales are the primary source of revenue for airlines. The amount of
revenue generated by ticket sales depends on several factors, including
demand, seasonality, competition, and the number of available seats.
When demand is high, airlines can charge higher prices for tickets.
Conversely, during periods of low demand, airlines may lower ticket prices to
attract more passengers. Seasonal factors, such as holidays and events, can
also impact ticket prices.
Airlines offer different fare classes to cater to different types of passengers.
These classes include economy, premium economy, business, and first class.
Each fare class has a different price point and level of service. Airlines use
yield management to maximize revenue by adjusting ticket prices based on
demand for each fare class.
• Baggage Fees
One of the most significant sources of revenue for airlines are baggage
fees. Over the years, airlines have introduced and increased various
fees to supplement their income, including baggage fees. These fees
have become an essential revenue stream for the industry, generating
billions of dollars annually.
Ancillary revenue from baggage fees has become increasingly
important for airlines, especially as ticket prices have become more
competitive. Passengers are no longer willing to pay high fares, but
airlines still need to generate income to cover their operational costs
and make a profit.
• Ancillary Services
Airlines generate additional revenue through ancillary services, which are
products or services offered to passengers for an extra fee beyond the base ticket
price. These services are designed to improve the travel experience and provide
more options for passengers. In recent years, ancillary revenue has become a
critical component of airlines’ revenue streams. Ancillary services can include:
• Onboard food and beverages
• Seat selection fees
• Premium seats with extra legroom
• Priority boarding
• Baggage fees
• In-flight entertainment
• Wi-Fi
• Travel insurance
• Cargo and Mail
While ticket sales and ancillary services constitute a significant
portion of airlines’ revenue, carrying cargo and mail is another
important revenue stream. Airlines transport a wide variety of goods,
including perishable products, electronics, and even live animals.
The logistics of air cargo operations involve careful coordination
between airlines, freight forwarders, and customs authorities. Airlines
must ensure that cargo is safely and efficiently transported between
different airports around the world.
Carrying mail is also an essential part of many airlines’ revenue
streams. Airlines transport mail on behalf of national postal services,
generating revenue through contracts with these organizations.
• Codeshare Agreements
Airlines often enter into codeshare agreements to expand their
network and generate additional revenue. Code sharing allows airlines to
sell tickets on each other’s flights, giving passengers access to a wider
range of destinations. In a codeshare agreement, one airline (the
operating carrier) operates the flight while the other airline (the
marketing carrier) sells tickets for that flight under its own flight number.
Code sharing provides several benefits for both airlines and
passengers. Airlines can increase their reach without having to invest in
new routes or aircraft, while passengers can enjoy more convenient
travel options. Code sharing also enables airlines to offer more frequent
flights, better flight connections, and access to airports and destinations
not served by their own aircraft.
• Aircraft Leasing
Airlines can generate revenue by leasing aircraft instead of purchasing
them outright. Aircraft leasing allows airlines to expand their fleet without
committing to long-term debt or tying up capital. Aircraft leasing can also
provide flexibility in terms of aircraft size, type, and number depending on
the airline’s needs and the market demand.
• Inflight Retail
One of the additional revenue streams for airlines is inflight retail sales.
Airlines offer a variety of products and services onboard, including duty-free
items, cosmetics, and merchandise.
Passengers often have a captive audience during their flights, making
it an ideal opportunity for airlines to boost their revenue through onboard
sales. The convenience factor of purchasing products onboard the aircraft
also appeals to many travelers.
• Charter Flights
Charter flights are becoming an increasingly popular way for
airlines to generate additional revenue. In simple terms, charter flights
involve an airline leasing an entire aircraft to a customer for a specific
purpose. This can range from corporate events and business travel to
sports team transportation and group travel.
• Maintenance and Repair Services
Airlines generate revenue not only through passenger transport but
also through maintenance and repair services. A well-maintained
aircraft is vital for safe and efficient operations, and airlines’
maintenance divisions provide a multitude of services for their own and
other airlines’ aircraft.