Types of Carriers in Aviation

Types of Carriers

• For-hire Carriers are companies that provide transportation services to the public in exchange for a fee.
• Types of for-hire carrier services include: all-cargo, air taxi, commuter, charter and international.
• For-hire Carriers can be categorized by revenue:
  • Majors have annual revenues exceeding $1 billion.
  • Nationals generate between $75 million and $1 billion in annual revenue.
  • Regionals have less than $75 million in annual revenue.
• Private Carriers haul goods or passengers primarily for their own company.
• Private carriers are often used to transport company personnel or emergency freight.
• Although rare, some private carriers transport freight routinely.
• The FAA (Federal Aviation Administration) regulates private carriers.

Number of Carriers

• The airline industry features a small number of large carriers.
• This structure is due to the significant capital outlays required to enter the airline business, which acts as a barrier to entry.

Market Structure (Commodities Hauled)

• The majority of freight shipped by air is high-value or emergency shipments.
  • Air transportation costs are insignificant compared to the costs of delaying emergency shipments.
  • Air freight costs are a small percentage of the value of emergency goods.

Commodities Hauled

• Examples of air freight include: mail, clothing, communication products, photography equipment, mushrooms, fresh flowers, high-priced livestock, racehorses, industrial machines, expensive automobiles, and jewelry.
• Basic raw materials like coal, lumber, iron ore, are typically not transported by air.
• The high value of these products makes it more cost-effective to transport them via other modes.
• Air carriers mainly transport low-volume, high-value, and emergency goods.

Competition

• Intermodal competition: Though air carriers have a unique service offering, their competition from other modes for both passengers and freight is limited.
  • Air carriers excel in providing time-sensitive, long-distance movement of people or freight.
• Intramodal competition: Intense competition exists among air carriers in terms of rates and service, even though the number of carriers is small.
  • Competition in air service manifests in various ways, but the primary service competition is the frequency and timing of flights on a route.
• Other modes compete with air carriers to some extent:
  • Motor carriers compete for higher-valued manufactured goods.
  • Automobiles compete for passenger transportation.
  • Trains and buses compete for passenger transportation, but to a lesser extent.

General Service Characteristics

• Passenger transport accounts for 73% of air carrier revenue.
• Freight transportation represents about 10% of air carrier revenue.
• The remainder of revenue comes from emergency shipments.
• Air carriers typically transport high-value, perishable, or emergency cargo.

Speed

• The major service advantage of air transportation is its speed.
• Terminal-to-terminal time via air transportation is shorter than any other mode.

Capacity

• Air carriers primarily move small, time-sensitive shipments.

Cost Structure

• Air carriers have a high variable cost structure and low fixed costs:
  • Approximately 80% of air carrier costs are variable, while 20% are fixed.
  • Governments own and operate air carrier terminals.
  • Landing fees are variable costs that are paid to use the terminals.
• Labor represents over 1/3 of total operating expenses.
• Fuel accounts for approximately 10% of operating costs.