Airline Management Final Exam Review

Airline Management

• The course is about Airline Management, taught by Mr. Musab Mohammad, with the course code AVS 289.
• The final exam review consists of a general overview, exam material review, and sample questions.

General Overview

• The exam will consist of 20-40 questions, including MCQs, True and False, Short Answer, and Long Answer questions.
• The exam will cover all material covered in class after the midterm.
• The exam percentage is 30%.

Airline Management and Organization

• Levels of Management:
  • Top Management: highest level of management, responsible for determining broad objectives and procedures.
  • Middle Management: second level of management, responsible for developing operational plans and procedures.
  • Operating Management: lowest level of management, responsible for implementing operational plans.
• Line and Staff Responsibilities:
  • Line personnel: involved in producing or selling air transportation, e.g., pilots, flight attendants, mechanics, etc.
  • Staff personnel: help line personnel, e.g., accountants, budget analysts, market research analysts, etc.

Engineering and Maintenance

• Types of maintenance:
  • Routine scheduled maintenance (e.g., airframe and engine checks)
  • Nonroutine maintenance (e.g., structural fatigue repair and corrosion control)
  • Refurbishments (e.g., cabin upgrades and exterior painting)
  • Modifications (e.g., passenger-to-freight conversions and hushkit installations)
• Airframe checks:
  • A-check: detailed preflight visual inspection, conducted every 2-3 weeks.
  • B-check: open inspection of panels and cowlings, conducted every 3-4 months.
  • C-check: incorporates both A- and B-checks, conducted every 15 months.
  • D-check: most intensive and expensive form of routine maintenance, conducted every 6-8 years.

Forecasting

• The purpose of forecasting is to quantify demand in a future time period.
• Types of forecasts:
  • Short-term forecast: normally spans a period of one month to one year.
  • Medium-term forecast: spans a period of one to five years.
  • Long-term forecast: spans a period of 5 to 10 years.
• Forecasting methods:
  • Causal methods: predict future values based on understanding and modeling the cause-and-effect relationships between variables.
  • Time-series models: predict future values based on past data trends.
  • Judgmental methods: rely on the knowledge, experience, and intuition of experts to make predictions.

Airline Passenger Marketing

• Intensive growth strategies:
  • Market penetration: increase market share through promotional fares, varying classes of service, and other methods.
  • Product development: develop new products or services to attract new customers.
  • Market development: develop new target markets.### Intensive Growth Strategies
• Product Development:
  • Emphasis on product improvement for business fliers (less price sensitive)
  • Examples: comfortable seats, gourmet meals, in-flight internet, entertainment systems
  • Continual improvement and development of new products for specific market segments
• Market Development:
  • Selling current products to new target groups based on demographic and psychographic segmentation
  • Examples: luxury travelers, budget-conscious travelers, business travelers

Marketing Strategies

• Computerized Reservation Systems/Global Distribution Systems (CRSs/GDSs):
  • Effective marketing tool for travel agents, who influence consumer decisions
  • Travel agents book about 70% of all tickets
• Frequent Flyer Programs:
  • Creates loyalty among travelers
  • Accumulating miles or points encourages customers to choose the same airline for future travel
  • Reduces likelihood of customers switching to competitors
• Code Sharing:
  • Agreement between two airlines to share the same identification code on airline schedules
  • Expands market reach at relatively low cost
• Interactive Marketing Agreements:
  • Relationships between airlines to promote each other's services
  • Simplified form of promotion using airline websites to encourage passengers to book with partner airlines

Air Cargo

• Types of Carriers:
  • Integrated Carriers (Express Carriers): operate door-to-door freight transportation networks
  • Combination Carriers: carry passengers and cargo
  • Belly-Only Carriers: transport passengers and belly cargo only
  • All-Cargo Airlines: operate a variety of cargo-only services

Principles of Airline Scheduling

• The Mission of Scheduling:
  • Designing systemwide flight patterns for public service and financial health
  • Involves complex algorithms and optimization techniques to manage various factors
• Equipment Maintenance:
  • Primary purpose: provide safe, saleable aircraft for every schedule
  • Goals: minimize out-of-service time, utilize maximum allowable time in inspection programs, and optimize personnel workload
• Equipment Assignment and Types of Schedules:
  • In-service use: aircraft being flown on scheduled service, extra sections, charter flights
  • Out-of-service use: aircraft undergoing major overhaul, maintenance checks, flight training, special projects
  • Four basic schedule types: skip-stop, local service, cross-connections, nonstops

Fleet Planning: The Aircraft Selection Process

• Fleet Commonality:
  • Operating a standardized fleet of aircraft for operational efficiency and cost minimization
  • Primary goal: maximize operational efficiency and minimize costs associated with training, maintenance, and inventory
• The Trend Toward Leasing:
  • Growing trend in commercial aircraft leasing (over 50% of world's commercial aircraft are leased)
  • Two types of leases: operating and financial### Fleet Planning: The Aircraft Selection Process
• There are two types of leases:
  • Operating Lease:
    • Wet Lease: provides the aircraft, complete crew, maintenance, and insurance
    • Dry Lease: provides only the aircraft, without crew, maintenance, or insurance
    • Damp Lease: a hybrid of wet and dry leases, providing the aircraft with partial crew
  • Financial Lease: similar to a loan, with the title to the asset remaining with the lessor until all payments are made

The Fleet-Planning Process

• Information needed:
  • Current Resources: current fleet inventory, use, and month
  • Corporate Objectives: forecasted profitability, systemwide load factors, acceptable cash levels, market share, debt/equity ratio, and new-aircraft acquisition guidelines
  • Projected Industry Environment: national economy outlook, industry outlook, and carrier's performance within the industry
  • Marketing Strategy: aligning fleet composition and utilization with market positioning, customer demand, and competitive strategy
• Fleet-planning model:
  • Computer-generated model that considers the above information to determine:
    • Future aircraft acquisition requirements
    • Aircraft assignment requirements
    • Financial requirements
    • Operating conditions over various planning periods (2-3 years ahead for orders vs. options, 4-5 years ahead for long-term developments, and 7-10 years ahead for long-term financial and facility needs)
• Fleet-planning model output:
  • Number and type of aircraft to be acquired
  • Timing of acquisition
  • Timing of trade-in or phaseout of existing fleet
• Application of system constraints to the fleet-planning model output:
  • External constraints: facility requirements at airports, government regulatory bodies, airplane availability, and environmental considerations
  • Internal constraints: economic realities, maintenance facility requirements, crew training facilities, and personnel capabilities

Aircraft Evaluation

• Evaluation process:
  • Design characteristics: dimensions, weight profile, fuel capacity, power plants, systems, seating configuration, containers, and bulk volume
  • Physical performance factors: payload-range diagrams, takeoff and landing data, cruise and approach speeds, runway requirements, and noise performance
  • Maintenance needs: spare parts availability, aircraft compatibility, product support, technical record keeping, and training support
  • Acquisition costs: cost of aircraft, spare parts, ground equipment, maintenance, flight training, and financing costs
  • Operating economics: revenue potential and direct operating costs in terms of airplane miles and seat-miles

Airline Financing

• Sources of funds:
  • Internal sources: net earnings, depreciation, deferred taxes, and conversion of existing assets
  • External sources:
    • Debt financing: commercial banks, finance and life insurance companies, investment banks, vendor financing, and venture capital
    • Equity financing: sale of stocks, bonds, and other equity

Cash Budgeting

• Key to good airline cash management and financial planning
• Short-term forecasts (up to 1 year) used to:
  • Determine operating cash requirements
  • Anticipate the need for short-term financing
  • Manage the investment of surplus cash
  • Maintain good bank relations
  • Provide a basis for monitoring items on the balance sheet