AIR TRANSPORTATION

To my parents, John and Sandi, and my sister, Kristy.

Bryanne you will never be forgoen my lile one.

Air TransportationA Management Perspective

Sixth Edition

JOHN G. WENSVEEN President and CEO, Airline Visions, LLC

www.airlinevisions.com

www.airlinevisions.com

John G. Wensveen 2007

All rights reserved. No part of this publication may be reproduced, stored in a retrieval system or transmied in any form or by any means, electronic, mechanical, photocopying, recording or otherwise without the prior permission of the publisher.

John G. Wensveen has asserted his moral right under the Copyright, Designs and Patents Act, 1988, to be identified as the authors of this work.

Published by Ashgate Publishing Limited Ashgate Publishing CompanyGower House Suite 420Cro Road 101 Cherry StreetAldershot Burlington, VT 05401-4405Hampshire GU11 3HR USAEngland

Ashgate website: hp://www.ashgate.com

British Library Cataloguing in Publication Data Wensveen, J. G. Air transportation : a management perspective. - 6th ed. 1. Airlines - Management 2. Aeronautics, Commercial I. Title II. Wells, Alexander T. 387.7068

Library of Congress Control Number: 2007930947

ISBN 978-0-7546-7165-7 (hbk)ISBN 978-0-7546-7171-8 (pbk)

Printed and bound in Great Britain by TJ International Ltd, Padstow, Cornwall.

http://www.ashgate.com

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Contents

About the Author ixPreface xiAcknowledgments xxi

PART ONE AN INTRODUCTION TO AIR TRANSPORT

1 Aviation: An Overview 3Introduction 4The Aerospace Industry 4The Air Transportation Industry 21

2 Historical Perspective 29Introduction 31The Formative Period: 19181938 31The Growth Years: 19381958 39MaturityJets Arrive: 19581978 42Economic Developments Prior to Deregulation 43Federal Legislation and the Airlines 46Postderegulation Evolution 60General Aviation 67

3 Air Transportation: Regulators and Associations 79Introduction 80The Department of Transportation 81The Federal Aviation Administration 87The Transportation Security Administration 95The National Transportation Safety Board 95Major Aviation Associations 100

4 The General Aviation Industry 111Introduction 112General Aviation Statistics 112The General Aviation Support Industry 127The Available MarketThe Users 136

A I R T R A N S P O R T A T I O Nv i

PART TWO STRUCTURE AND ECONOMICS OF AIRLINES

5 The Airline Industry 147Introduction 148Structure of the Airline Industry 148Major and National Carriers 151Regional Carriers 154Airline Statistics 158Airline Certification 158Data Collection by the DOT 162Industry Agreements 163Traffic and Financial Highlights: 19602005 165

6 Economic Characteristics of the Airlines 175Introduction 176The Airlines as Oligopolists 177Other Unique Economic Characteristics 186The Significance of Airline Passenger Load Factors 191

PART THREE MANAGERIAL ASPECTS OF AIRLINES

7 Airline Management and Organization 201Introduction 202Management 202The New Corporate Structure 206Functions of Management 210Organization 213The Organizational Chart 216Staff Departments 218Line Departments 223

8 Forecasting Methods 243Introduction 244The Purpose of Forecasting 244Forecasting Methods 246

9 Airline Passenger Marketing 257Introduction 258Development of the Marketing Concept 259The Marketing Mix 260The Consumer-oriented Marketing Concept 269Marketing Strategies Since Deregulation 274

C O N T E N T S v i i

10 Airline Pricing, Demand, and Output Determination 283Introduction 285The Trend in Domestic Passenger Airfares 285Pricing and Demand 288No-frills Airfare and Survey Warfare 296Types of Passenger Fares 297The Pricing Process 298Airline Costs 304Pricing and Output Determination 309

11 Air Cargo 319Introduction 321Historical Overview 321Air Cargo Today 325The Future 328The Market for Air Freight 329Types of Air Freight Rates 331Special Air Freight Services 333Factors Affecting Air Freight Rates 337

12 Principles of Airline Scheduling 343Introduction 344The Mission of Scheduling 344Equipment Maintenance 346Flight Operations and Crew Scheduling 349Ground Operations and Facility Limitations 351Schedule Planning and Coordination 353Equipment Assignment and Types of Schedules 364Hub-and-Spoke Scheduling 366Data Limitations in Airline Scheduling 369

13 Fleet Planning: The Aircra Selection Process 373Introduction 374Factors in Fleet Planning 374Design and DevelopmentThe Manufacturers Viewpoint 382The Fleet-planning Process 387The Decision to Upgrade or Replace 392Appendix: Fleet Planning at American Airlines 396

14 Airline Labor Relations 399Introduction 400The Railway Labor Act and the Airlines 401Historical Overview of Airline Union Activity 406Labor Relations Since Deregulation 412Human Resources in the 21st Century 423

A I R T R A N S P O R T A T I O Nv i i i

15 Airline Financing 427Introduction 428Sources of Funds 428Sources and Uses of Funds by the U.S. Scheduled Airlines 437Cash Management and Financial Planning 450

PART FOUR THE INTERNATIONAL SCENE

16 International Aviation 459Introduction 460The Question of Sovereignty in Airspace 460International Air Law 463The Formation of IATA 470The Bermuda Agreement of 1946 471Three Decades Later: From Bermuda to Deregulation 472The Pursuit of Open Skies 476Globalization 480Future Challenges 484

Appendix A: Views of Industry Professionals 489Introduction 490Quotes 490Article 492

Appendix B: Career Planning in Aviation 499Introduction 500Choosing and Geing Your First Job in Aviation 500Cover Leers and the Rsum 506The Interview 508

Glossary 521Index 551

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About the Author

Dr. John Wensveen is considered one of the aviation industrys leading experts on low-cost and low-fare high value airline operations and is currently President & CEO of Airline Visions, an advisory and futurist firm specialized in air carrier start-ups.

He has been dubbed the idea factory by many of his colleagues and has the ability to identify trends and focus on fast results. Dr. Wensveen is a leading expert on business and strategic plan development, marketing and branding, diversification strategies, partnership development, due diligence and M&A. Consulting projects include business plan development for low-cost carrier (LCC) start-ups, formulation of strategic growth recommendations, managing of clients growth mission and operational objectives, providing vision and leadership to carry out mission, and building of relationships. Dr. Wensveens consulting practice also includes expert witness testimony and advisory services to the television and film industries.

In addition to aviation consulting, Dr. Wensveen advises non-aviation organizations on strategic steps to success. He is an expert in shooting holes through existing businesses and identifying a corporations strengths, weaknesses, opportunities and threats utilizing a customized plan of action.

Until March 2005, Dr. Wensveen was Vice President of International Development with Washington-Dulles based MAXjet Airways, the first start-up US flag carrier to obtain FAA certification to operate on the trans-Atlantic since the events of 9/11. Dr. Wensveens involvement with MAXjet started in 2003 as one of the founding team members. While at MAXjet, he led partnership development with airlines, airports, international government bodies, ground handling and security organizations and represented the company as spokesperson. Dr. Wensveen was responsible for seing up the European infrastructure including ground operations and was responsible for overall P&L of European operations and some aspects of US operations. While at MAXjet, he managed quick growth and aided in the build out of a strong executive team.

From 1999 to 2004, Dr. Wensveen was employed as Professor of Airline Management and Operations with the School of Business at Embry-Riddle Aeronautical University in Daytona Beach, Florida instructing courses at the undergraduate, graduate and executive levels. He was the project lead on the creation of the worlds first Airline Operations Center Simulation Laboratory (AOCSL), an international project in partnership with major aviation/aerospace companies including airlines, airports, ground handling organizations, manufacturers, academic institutions, and government at the local, federal and international levels. While at Embry-Riddle, Dr. Wensveen built a reputation in the aviation industry as one of the leading experts in his field. He is well connected and recognized for his thought leadership and subject maer expertise.

A I R T R A N S P O R T A T I O Nx

In the early 1990s, Dr. Wensveen was employed with Canada 3000 Airlines holding supervisory positions in flight operations and later, passenger services. While at Canada 3000, he assisted with the management of quick growth and was a leading contributor to base expansion in the Pacific.

Dr. Wensveen is a member of a number of professional organizations and is a frequent speaker at international aviation events. He is a faculty member of the International Air Transport Association (IATA) and is author of the Air Mercury and Strategic Management courses presented at IATA training centers around the world. He is also an adjunct faculty member of the University of Maryland University College (UMUC), University of the West Indies (UWI) and Royal Roads University (RRU). He is also a faculty member of the Arab Air Carriers Association (AACA).

Dr. Wensveen publishes frequently in major aviation publications and is an aviation analyst for the media oen