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Air Transport Management

Session 1: Introduction

Dr. Mohd Azwardi Md. Isa


SOIS, COLGIS
Room 238
D/l: 04-928 8518
email: azwardi@uum.edu.my
July 2009

Transport and Logistics Department

Aviation
System

Aerospace
Industry

Tourism
Industry

General
Aviation
Air Transport
Industry

Government
Surface
Transport

Trade &
Commerce

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
PriceWaterhouseCoopers, PwC UK
Example

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 CO 2
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

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)

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

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)

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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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

Impact of system
changes
on
air
Changes in one part of system impact on other parts:
transport
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)

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, 20082020

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Top six commercial aircraft manufacturers


Manufacturer

Sales in 2007 (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

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Sales in 2007 (US$m)

General Electric

15,429

United Technologies

12,129

Rolls-Royce

10,711

Snecma

7,601

Honeywell International

5,290

MTU

3,563

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
Some airlines still have their own flight catering, especially
companies
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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Source: Value chain profitability, IATA Briefing No.4, June 2004


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


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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 longterm investments lack flexibility to adapt to shorter
term trends

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