Airline Management

1. Airline Management AVM 373 PROFESSOR GREG SCHWAB

2. US AIRWAYS NEW EMPLOYEE ORIENTATION

3. COURSE INTRODUCTION • OVERVIEW • COURSE REQUIREMENTS • HOW TO GET AN “A”

4. Chapter 1 Objectives

5. Air Transportation includes: • All civil flying performed by the certified air carriers and general aviation • Does not include military but military activity is tracked by the FAA

6. Interstate Air Transportation: • The carriage of persons or property for compensation or hire

7. Aerospace Industry • Research and Development • Aerospace Systems • Defense • Spacecraft • Propulsion, Guidance, Control Units • Airborne and Ground Based Equipment • Testing, Operations, and Maintenance

8. Principle Product Lines • Aircraft • Missiles • Space Systems • Engines • Parts and Equipment

9. Product Lines Characterized by: • High Performance • High Reliability • High Technology • High Unit Value

10. Industry activity is: • Dominated by the DOD and NASA • The principle customer is the DOD (is this changing?) • The principle commercial product is the airline transport

11. Prior to WWII • There were over two dozen companies designing and building commercial airliners • Today the mayor players are down to two • Boeing (72%) • Airbus (28%) • Historically, Boeing and McDonald-Douglas have offset large R&D expenses by benefiting from large military contracts

12. Government Contracts • Government required to ask for “bidders” • Request for Proposals • Detailed Specifications

13. Industry Characteristics • Air Transportation includes: • all transportation by certified air carriers and general aviation aircraft • Transformation of Industry during the 1950’s due to: • production of jet powered military aircraft • Late 1960’s • fabrication of equipment to meet the nations goals in space exploration

14. Changes compounded need for: • More R & D (technology) • Greater product complexity • More personnel per unit produced • Higher skill level • Longer program development time • The need for new facilities

15. Manufacturing Output • 1991: almost 65% of industry bought by federal government • Exports of aerospace represent 10% of total US exports • Aviation exports exceed aviation imports

16. Industry vital to US in: • Trade balance • Employment • consistently employees ~1,000,000 people • R & D • Impact on other industries • Travel infrastructure • travel related industries

17. General Aviation • After record shipments in 1978, GA has experienced a 13 year downward trend in sales from 17,817 in 1978 to 1,104 in 1996 • Historically, the GA industry has closely paralleled that of the nations economy (GNP) • In other words, things have to be pretty good for people to buy their own plane. • More recently, GA sales have not responded to the current economic recovery

18. Reasons for downward GA trend • High aircraft prices • High interest rates • High operating expenses • High product liability costs • Changing lifestyles • Tax laws • Foreign competition

19. What is General Aviation • All civil aviation except that which is carried out by the certified airlines • GA accounts for over 80% of operations at towered airports • GA accumulates over 80% of total hours flown by GA and air carriers combined

20. What is General Aviation • GA utilizes all of the nations 17,581 airports • Air carriers serve about 800 of these • 75% of the air carrier traffic is concentrated at 30 of the 800 airports

21. Business Aviation • Business use of light aircraft remains strong • Why? • Fuel-efficient • Can fly to GA airports • Most often can fly direct to destination • Efficient use of time • Decentralization of business • Concentrated airline service

22. Airline Aviation • Fewer than 5% of US airports have airline service • Majority of flights serve only 30 major centers • Expected growth in commuter-regional airline service to cities with low passenger volumes • Large carriers will concentrate on high density markets

23. Airline Aviation • By 1960, 1/3 of adult Americans had flown commercially • By 1981, 2/3 • By 1995, 80% • Fare prices remain a bargain compared to price increases of other products and services over the past 40 years

24. Chapter 2 Objectives

25. Air Mail Service The first regular airmail route in the US was established in May 1918 between New York City and Washington DC 218 miles in length Discontinued in May 1921

26. Why Regulate Aviation? Stabilize the industry Improve air safety Reduce cash subsidy by US government

27. Congress Rights Regulate interstate and foreign commerce Regulate the postal service Make treaties with foreign nations Provide for the national defense

28. The Air Mail ACT of 1925 (Kelly ACT) Authorized the postmaster general to enter into contracts with private persons or companies for the transportation of mail by air

29. Air Commerce ACT of 1926 Duty of the Secretary of Commerce to encourage air commerce by establishing civil airways and navigational facilities to aid aerial navigation and commerce Got the federal government into the aviation business as a regulator for the air carriers Created by the Kelly Act

30. Air Commerce ACT of 1926 Promote the development and stability of commercial aviation in order to attract adequate capital into the business and provide the fledgling industry with the assistance and legal basis necessary for its growth

31. Air Commerce ACT of 1926 Established regulations for: Licensing of Pilots Licensing of Mechanics Aircraft Inspection Operation of aircraft Marking of licensed and unlicensed aircraft Airways Lead to Bureau of Air Commerce

32. Air Mail ACT of 1930 Passed to enhance growth, efficiency, stability reckless competition was rampant Provided Postmaster General with unlimited control over airmail route system Postmaster General could extend or consolidate routes in public interest Spoils Conference

33. Air Mail ACT of 1934 Authorized one year contracts subject to review prior to renewal Signed into law by President Roosevelt Interstate Commerce Commission regulated rates and service equipment

34. The Civil Aeronautics ACT of 1938 Substituted a single Federal Statute replacing general and airmail statutes that had up until this time provided direction for aviation Created an overall administrative body 5 member Civil Aeronautics Board 3 Member Air Safety Board An overall administrator

35. The Civil Aeronautics ACT of 1938 Members appointed by the President for 6 year overlapping terms Members not permitted financial interest in aviation Members appointed by the President for 6 year overlapping termsMembers not permitted financial interest in aviation

36. Civil AeronauticsAuthority Congressional mandate to CAA to provide: Encourage and develop the air transportation system Regulate to a high degree of safety Promote adequate, economical, and efficient system Encourage development of civil aeronautics

37. Civil AeronauticsAuthority Exercised quasi-judicial and legislative functions covering economic and safety regulations Balance of personnel, property and unexpended funds transferred from Bureau of Air Commerce and Interstate Commerce Commission

38. Civil Aeronautic Board CAA Reorganized into the CAB CAB became the Civil Aeronautics Administration (CAA) CAA became Federal Aviation Agency (FAA) FAA became the Federal Aviation Administration (FAA)

39. CAB: Road to Deregulation 1977, President Carter appoints Chairman, Alfred Kahn Strong proponent of deregulation Began processing and approving application for airlines Better if airlines promised lower fares Renewals were based upon delivery of promises

40. CAB: Road to Deregulation Strong opposition from unions and financial institutions Deregulated air cargo in 1977 initial success pushed CAB into support

41. Airline Deregulation ACT of 1978 Mirrored other transportation deregulation Acts highway, Waterway Domestic Air Transportation System Overriding theme was competition Airline restrictions slowly removed Essential Air Service Small community air service program CAB sunset provision transferred duties to DOT in 1985

42. Deregulation Issues Prior to deregulation-problems existed: system suffered from overcapacity barriers to entry and exit from the industry lengthy regulatory process

43. Deregulation Issues Major changes under deregulation: Phasing out of the CAB by 1985 Easing of restrictions into markets entry-exit CAB losing authority over fares by 1983 Reduced reporting requirements for air carriers Federal preemption of any state economic regulation of air transportation

44. Airline Deregulation Proponents Argued: Commuters would best serve low-density markets Market place would best serve American interests

45. Airline Deregulation Opponents Argued: Regulation has served the public interest as well as air carrier interest Deregulation would destabilize the air carrier market

46. Air Carrier Aircraft Development After wartime production of aircraft ended in the late 1940’s, aircraft companies began to focus on producing aircraft for business transportation

47. Good example: The Douglas DC-3 Became the first aircraft to give airlines three vital ingredients necessary to reach financial break-even point speed safety economy Air Carrier Aircraft Development

48. Air Carrier Aircraft Development DeHavilland Comet first commercial aircraft (worldwide) numerous crashes caused early cancellation Boeing 707 Military R & D effort Boeing risked own funds for R & D Technology transfer to civilian market First U.S. jet to enter scheduled service (Pan Am)

49. Air Carrier Aircraft Development Boeing 727 first tested 1963 fielded 1964 hugely successful airframe Boeing 737 Most popular air carrier jet in service today 3,000+ flying worldwide

50. Aviation Aircraft Pioneers William Lear gambler, inventor, promoter developed lear jet Walter Beech Beech Aircraft Corporation Beech King Air most successful turbo-prop aircraft flown by commuters and corporations