Aviation Managment

• Technical development
• Regulation
• Degree of economic growth of the internationalization of an economy

Bigger companies provide more OD's with comparably fewer legs.

Airlines dominating a hub show comparably higher market shares.

1. Two sided markets of airports
   1. Airlines (competitive market)
   2. Passengers (natural monopolies)
2. Single till vs. dual till airport system
   1. Single till=total revenues are integrated-->cross subsidizing of aviation business
   2. Dual till=Non-aviation revenues are used for non-aviation investments-->higher airport charges for airlines-->competition issue (only possible because airports do not operate in a competitive environment)

• Differences in Europe
• Differences compared to the Middle East (no taxes, low airport charges, 24 hours access, more RWY capacity, shorter point to point legs meaning less fuel carriage leading to less consumption and cost).

Cut the CO2 emissions by 50% until 2050.

1. Local around airports
   1. Economic: employment, living location, business location, financial effects, development potentials,...
   2. Ecologic: Noise, smell
   3. Social: mobility=quality of life
2. National
   1. Economic: export orientation, location attractiveness
   2. Ecologic: noise and emissions
   3. Social: mobility=quality life
3. International
   1. Economic: international competitiveness
   2. Ecologic: global climate change
   3. Social: global mobility needs

• Ball = most efficient shape = largest volume with smallest surface => the more volume, the smaller the proportion of the surface
• Use of kerosene would be smallest with a ball

-->Efficiency of an airplane increases with increasing size

• Lower ratio of surface area compared to volume
• Faster boarding, loading, disembarking, etc, due to 2 aisles
• Wider fuselage-shorter fuselage: better ground maneuverability-less tail strikes
• greater freight capacity

Airbus:

• fuel efficiency per pax
• economies of scale and scope
• mega hubbing

Boeing

• fuel efficient engines
• lower weight
• convenience
• point to point
• customer value and readiness to pay

See picture!

• 20 years old AC cause 50-60% higher maintenance cost
• Spare parts supply problems may occur
• Increased maintenance of older AC means less availability of the AC
• Some maintenance companies do not want to work on AC older than 18 years for liability reasons
• Higher fuel costs due to old engine technology

1. AUA did extremely well during Swissair grounding-->AUA bought planes from Swissair. Swiss started to grow and bought their planes back from AUA, then AUA did not go well. They have network and business model issues.
2. You cannot earn money as an Airline that only operates short haul flights. SH is there to fill the long haul planes. Transfer pax do not pay the fixed costs. Not many people are travelling to the AUA destinations.
3. AUA was not clear what their values are (impression from tv spot), they did not increase their brand value. They followed the CEE (Central and eastern Europe) short haul model but you cannot make money with that. They got out of business.

PanAm only flew intercontinental, niche business for the rich americans

They actually had no business model. Two major problems: B747 could no be filled up, fuel costs increased significantly-->Huge losses, because no own feeder network. They had no cooperation with partners (like Swissair and Crossair).

Delta took over PanAm in 1991.

Market activation: Airlines merged to Alliances, the size matters.

There is the challenge of competition but also cooperation partner (both are dependent of each other). Airlines realized that they need to go into partnerships but also compete each other.

-->Economy of scale=reduce the cost of seats

With mergers, airlines are integrated (Like in the US: Delta, United, American)

• Line networks
• Raster networks
• Hub-and-Spoke-Networks

1. Simple planning, understandable steering
2. Low frequencies, massive station costs, low personnel productivity, high marketing costs

1. High personnel productivity, attractive for business pax
2. Low frequencies, high station costs, high marketing costs

Interconnect low traffic area (Germany in former times)

1. Marketing Leverage (increase of offer), dominance (strategic value), production economies of scale (Production, Infrastructure)
2. Risk of marginal cost pricing if there is transfer trafiic, creation of hub-concentration peaks, high delay liability

Bigger centres with strong traffic flows (Easy Jet Basel, Lufthansa Hamburg)

See picture!

Multi hubbing: More possibilities to change flights.

1. Countries/Regions with several economic centres (Lufthansa - Frankfurt, Munich, ZRH)
2. Hub economies
   1. Redundancy but lower economies of scale
   2. Reduced dependence on one airport

A grid (network, system) is a set of elements where different relations between these elements occur. A grid/net is a set of objects (knots) where relations occur between them (connections or edges along its legs). Connections are not really flown but there are connections through hubs.

A net effect is built through hubbing.

Network/Grid = Knots+Edges/Connections

Alliances have built up a vast network with many connections which rise exponentially with numbers of legs (Skaleneffekt, Economy of scale). With connections you can sell much more products.

• Larger production entities
• Higher specialisation
• Economies of scale

• Higher market power
• Consumer effetcs/-nets
• Community effects
• Standards/Image
• Economies of Scope and Density

Production: Achievable Economies cause lower costs per unit.

• Use of larger AC
• Reduced batch-production effects (Serienanfertigung)
• Economies of scale of central hub facilities

Marketing: Effects allow a better market coverage

• Higher amount of marketable OD's
• higher amount of frequencies
• Diversification of the customers base

Strategy: Dominance in the market (above the average market share, compared to the service share) offers sustainable competitive advantages.

• Economies of density, such as attractive lounges and other services
• Mileage programs, FFP
• Standardized operations

• Tendency towards marginal cost-pricing with transfer traffic in the competition between hubs.
• Production of hub-load-peaks
• high delay-sensitivity
• sunk costs when change of strategy (because of high investment into the hub infrastructure)
• More cueing, more waiting time

• Time of waiting, long distances
• partly capacity overload

• Sales support in a world wide network
• Increasing consumer choice due to more destinations of offer
• Revenue integration through code share

• Coordination time
• Slower implementation of new ideas
• Trust to alliance partners
• Different qualities provided by different partners: I.e. Service

• Route joint ventures
• Closer coordination than code share
• Antitrust implications have to be assessed
• More seamless travel
• More attractive prices
• More destinations on offer

In the 90ies.

• Liberalisation/Deregulation in Europe
• Network-Development
• Customer value and loyality
• FFP

• Economies of scale and scope
  • through internal network effects
  • through integration or strategic alliances (second best)
• Cost efficiency and brand quality
• Good financial ratio (Equity/Total capital, share of leased planes: total planes, SLF, CASK, RASK)
• Early adoption of new technologies and changes in the regulative environment
• An operational basis of business, operational reliability and a successful service and marketing.