July 2009 Transport and Logistics Department 1

Air Transport Management Session 1: Introduction

Dr. Mohd Azwardi Md. IsaSOIS, COLGIS

Room 238D/l: 04-928 8518

email: azwardi@uum.edu.my

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General Aviation

Surface Transport

Trade &Commerce

Tourism Industry

Aerospace Industry

Air TransportIndustry

Government

Aviation System

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Trade and CommerceMain driver of business travel by airMain driver of air cargo trafficTrade liberalisation (Doha?)GlobalisationOffshoringExchange rates may impact direction of

travel

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Corporate Travel ExamplePriceWaterhouseCoopers, PwC UKBusiness 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 CO2 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% paInvestment in phone/video conferencing facilities40% of business travel for internal meetings and training

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Tourism IndustryMain driver of leisure travel by air (also visiting

friends and relations or VFR)Air has major share of longer haul leisure trips898m international tourist arrivals (all modes) in

2007, around half of which in Europe:16% were business or professional trips50% arrivals were leisure, recreation and holidays26% of arrivals were VFR, health or religious (pilgrims)

Tourism receipts total around US$700 billion43% of total tourist arrivals travel by air (just under

400m)

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GovernmentNational government

Aviation legislationAir transport industry regulatorCan own airports and national airlinePlanning framework for airports and related infrastructureTaxation (business and personal)

Local or regional governmentCan own airportsLocal taxationPromotion of businessCan support regional air services

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Aerospace IndustryAll firms engaged in research, development and

manufacture of aerospace systems, aircraft missiles, spacecraft, and propulsion, guidance and control systems

Large defence componentHigh concentration in US, EU and RussiaOutsourcing to third countries depending on

sensitivity to securityLikely cross-subsidisation between defence and

civil programmes (Boeing vs Airbus debate)

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Surface TransportAir travel consumed together with surface

transport mode (eg car, taxi, bus, rail)Connecting infrastructure required at airport

interfaceForeign 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 AviationAll other civil or commercial flights apart from

scheduled and charter air servicesIncludes:

Air taxi operatorsCorporate aircraftPrivately-owned aircraftGliders, balloons, microlights etc

Generally use smaller more local airportsCan be alternative to scheduled and charter flights

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Impact of system changes on air transportChanges in one part of system impact on other parts:

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)

Airlines47%

Airport operators8%Aerospace

20%

Other on-site airport

25%

Source: The economic and social benefits of air transport, ATAG, 2006

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Air Transport: suppliersAirlines

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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AirportsCrucial interface between flight and ground transportCustomers are airlines and passengersCapital intensive, long-term investmentsImpact on local and regional communityDependence on local road and rail infrastructureDependence on government planning systemsCompetition between airports for airline business

somewhat limitedCompete 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

controlMany different suppliers in Europe, almost all

government owned or part of governmentUK NATS privatised and part owned by airlinesGerman DFS awaiting privatisation???EU Single European Sky (SESAR) project, 2008-

2020

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Top six commercial aircraft manufacturers

Manufacturer Sales in 2007 (US$m)Boeing 33,386Airbus (ex ATR) 32,684Bombardier 9,713Cessna 5,000Gulfstream 4,828Embraer 4,215

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Top six commercial aero-engine manufacturers

Manufacturer 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

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Banks and leasing companies: airlinesLending to airlines (secured against aircraft)Leasing to airlines (finance leases)Advising and arranging finance (corporate

finance)Short-term (operating) leasing to airlinesAdvice and arranging risk management:

Foreign exchangeInterest ratesFuel 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 exchangeInterest ratesFuel and oil

Also: long-term lending by government agencies

(eg European Investment Bank, EBRD etc)

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Oil CompaniesDelivery of aviation kerosene (and Avgas) to aircraft

on aircraft standsInvest in pipeline/rail/road tanker link to airportInvest in airport storage facilitiesInvest in delivery system by bowser or hydrantCharge for fuel, transport and refuellingA number of ‘competing’ suppliers at larger airportsSuppliers (Air BP, Total, Shell etc) part of very large

multinational companies

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Ground handling companiesProvide passenger and cargo handling services at

airportsAircraft 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 FraportGrowing number of third party suppliers, eg

Servisair/GlobeGround (French owned): US$1 billion + turnoverSwissport: $900m turnoverWorldwide Flight Services, Aviance UK, Menzies etc

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Flight catering companiesSome airlines still have their own flight catering, especially 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 overhaulsEquipment and spares needed at larger airports,

especially airline home basesLarger 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 companiesInformation processing and communications a key part

of airline and airport operationsAirlines 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 pointsDependence of airports and air transport industry on

other parts of the systemAirlines worst performers in terms of return on capitalEconomic 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 long-term investments lack flexibility to adapt to shorter term trends