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Air Transportation
A Management Perspective
Seventh Edition

John G. Wensveen
AIR TRANSPORTATION
I would like to dedicate this book to my sister, Kirsty. I hope it makes for pleasant reading on
your new journey to good health
To my wonderful parents, John and Sandi. Thank-you for always supporting me.
I would never have been where I am today without you.
To my girlfriend, Kerri. You make me smile and stretch for the stars. Anything is possible!
Bryanne—you will never be forgotten my little one.
Air Transportation
A Management Perspective
Seventh Edition

john g. wensveen, PhD


President and CEO, Airline Visions, LLC
www.airlinevisions.com
© John G. Wensveen 2011

All rights reserved. No part of this publication may be reproduced, stored in a retrieval system
or transmitted 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 author of this work.

Published by
Ashgate Publishing Limited Ashgate Publishing Company
Wey Court East Suite 420
Union Road 101 Cherry Street
Farnham Burlington, VT 05401-4405
Surrey GU9 7PT USA
England

www.ashgate.com

British Library Cataloguing in Publication Data


Wensveen, J. G.
Air transportation : a management perspective. – 7th ed.
1. Airlines—Management. 2. Aeronautics, Commercial.
I. Title II. Wells, Alexander T.
387.7’068-dc22

Library of Congress Control Number: 2011935389

ISBN: 978-1-4094-3062-9 (hbk)


ISBN: 978-1-4094-3063-6 (pbk)
ISBN: 978-1-4094-3064-3 (ebk)

Printed and bound in Great Britain by the


MPG Books Group, UK.
Contents

List of Figures ix
List of Tables xi
About the Author xv
Foreword by Jack J. Pelton xvii
Foreword by Michael Magnusson xix
Prefacexxi
Acknowledgmentsxxxi

PART ONE
An Introduction to Air Transportation

1 The Airline Industry: Trends, Challenges and Strategies 3


Introduction4
Stages of Development Impacting the Airline Industry 4
Past, Present and Future Trends 5
Regional Analysis 7
The Industry: Challenges and Strategies 10
The New Breed of Airlines 12
Failing and Achieving Success 13

2 Aviation: An Overview 17
Introduction18
The Aerospace Industry 18
The Air Transportation Industry 35

3 Historical Perspective 43
Introduction45
The Formative Period: 1918–1938 45
The Growth Years: 1938–1958 53
Maturity—Jets Arrive: 1958–1978 55
Economic Developments Prior to Deregulation  57
Federal Legislation and the Airlines 60
Postderegulation Evolution 74
General Aviation 81

v
vi a i r t r a n s p o r tat i o n

4 Air Transportation: Regulators and Associations 93


Introduction94
The Department of Transportation 95
The Federal Aviation Administration 101
The Transportation Security Administration 109
The National Transportation Safety Board 109
Major Aviation Associations 114

5 The General Aviation Industry 125


Introduction126
General Aviation Statistics 126
The General Aviation Support Industry 141
The Available Market—The Users 151

PART TWO
Structure and Economics of the Airlines

6 The Airline Industry 161


Introduction162
Structure of the Airline Industry 162
Major and National Carriers 165
Regional Carriers 168
Airline Statistics 174
Airline Certification 174
Step-by-Step U.S. Certification Breakdown 177
Data Collection by the DOT 178
Industry Agreements 179
Traffic and Financial Highlights: 1960–2005 182

7 Economic Characteristics of the Airlines 191


Introduction192
The Airlines as Oligopolists 193
Other Unique Economic Characteristics 202
The Significance of Airline Passenger Load Factors 207

PART THREE
Managerial Aspects of Airlines

8 Airline Management and Organization 217


Introduction218
Management218
The New Corporate Structure 222
Functions of Management 226
Organization229
contents vii

The Organizational Chart 232


Staff Departments 234
Line Departments 239

9 Forecasting Methods 259


Introduction260
The Purpose of Forecasting 260
Forecasting Methods 262

10 Airline Passenger Marketing 273


Introduction274
Development of the Marketing Concept 275
The Marketing Mix 276
The Consumer-Oriented Marketing Concept 285
Marketing Strategies Since Deregulation 290

11 Airline Pricing, Demand, and Output Determination 299


Introduction301
The Trend in Domestic Passenger Airfares 301
Pricing and Demand 304
No-Frills Airfare and Survey Warfare 312
Types of Passenger Fares 313
The Pricing Process 314
Airline Costs 320
Pricing and Output Determination 325

12 Air Cargo 335


Introduction337
Historical Overview 337
Air Cargo Today 341
The Future 344
The Market for Air Freight 345
Types of Air Freight Rates 347
Special Air Freight Services 349
Factors Affecting Air Freight Rates 353

13 Principles of Airline Scheduling 359


Introduction360
The Mission of Scheduling 360
Equipment Maintenance 362
Flight Operations and Crew Scheduling 365
Ground Operations and Facility Limitations 367
Schedule Planning and Coordination 369
Equipment Assignment and Types of Schedules 380
Hub-and-Spoke Scheduling 382
Data Limitations in Airline Scheduling 385
viii a i r t r a n s p o r tat i o n

14 Fleet Planning: The Aircraft Selection Process 389


Introduction390
Factors in Fleet Planning 390
Design and Development—The Manufacturer’s Viewpoint 397
The Fleet-Planning Process 403
The Decision to Upgrade or Replace 409
Appendix: Fleet Planning at American Airlines 412

15 Airline Labor Relations 415


Introduction416
The Railway Labor Act and The Airlines 417
Historical Overview of Airline Union Activity 422
Labor Relations Since Deregulation 428
Human Resources in the 21st Century 438

16 Airline Financing 443


Introduction444
Sources of Funds 444
Sources and Uses of Funds by the U.S. Scheduled Airlines 453
Cash Management and Financial Planning 466

Part Four
The International Scene

17 International Aviation 475


Introduction476
The Question of Sovereignty in Airspace 476
International Air Law 479
The Formation of IATA 486
The Bermuda Agreement of 1946 487
Three Decades Later: From Bermuda to Deregulation 488
The Pursuit of Open Skies 492
Globalization497
Future Challenges 500
New Airline Business Models 501

Appendix: Career Planning in Aviation 509


Introduction510
Choosing and Getting Your First Job in Aviation 510
Cover Letters and the Résumé 516
The Interview 518

Glossary531
Index561
List of Figures

3-1 The first contract air mail routes 48

4-1 Organization of the U.S. Department of Transportation 96


4-2 Organization of the Federal Aviation Administration 102
4-3 Organization of the National Transportation Safety Board 110

6-1 The structure of the airline industry—2010 167

7-1 Partial Boeing 757 routing pattern (two days), summer 200X 209
7-2 Daily seats and passengers, one Miami–New York schedule  210

8-1 Typical airline pyramid of authority 220


8-2 Typical new organizational structure for new-entrant and
low-cost carriers 225
8-3 Management by objectives 226
8-4 The administrations in a major air carrier’s organization 233
8-5 A typical major air carrier’s finance and property administration  235
8-6 A typical major air carrier’s information services administration 236
8-7 A typical major air carrier’s personnel administration 237
8-8 A typical major air carrier’s medical and legal administrations  238
8-9 A typical major air carrier’s corporate communications
administration  238
8-10 A typical major air carrier’s economic planning administration  238
8-11 A typical major air carrier’s flight-operations administration  240
8-12 A typical major air carrier’s engineering and maintenance
administration  244
8-13 A typical major air carrier’s marketing and services administration  251
8-14 A typical major air carrier’s regional sales and services department 252
8-15 An air carrier’s food service department 253

9-1 Hypothetical correlation between GNP and number of active


general aviation aircraft 264
9-2 Time-related changes in a dependent variable 266
9-3 Composite time-series trend line used for forecasting purposes,
after smoothing has been accomplished 268

10-1 Market segmentation 287

ix
x a i r t r a n s p o r tat i o n

11-1 An individual air carrier’s demand for air transportation


per month between two cities 305
11-2 Effect of changes in demand 306
11-3 Elastic demand 309
11-4 Basic rule of elastic demand 309
11-5 Inelastic demand 310
11-6 Basic rule of inelastic demand 311
11-7 Common fare 313
11-8 Total revenue and RPMs for an individual airline over a
particular period of time 327
11-9 Yield expressed in fare per 1,000 RPMs for an individual airline
over a particular period of time 327
11-10 Total costs and ASMs for an individual airline over a short
period of time 329
11-11 Total revenue and total costs for an individual airline over a
short period of time 331

12-1 General commodity rates vary by weight of the shipment 347


12-2 Containers provided by airlines. 350
12-3 Containers offered by shippers 351
12-4 Assembly service charge by total shipment weight over a
24-hour period 352

13-1 Conceptual framework for the schedule development


process 361
13-2 Maintenance facilities 364
13-3 Boeing 757 routing pattern 365
13-4 Station plotting for the hypothetical All-American Airport 368
13-5 Traffic flow 371
13-6 Schedules are sensitive to departure time 372
13-7 Schedules are sensitive to changes 373
13-8 Schedule salability varies with direction 373
13-9 Schedule salability varies with the airport 374
13-10 Time zone effect on schedules 375
13-11 Local-station activity chart for airplane cleaners 376
13-12 Staggered arrivals and departures of afternoon jet service
avoid costly duplication of ground crews and ground
equipment 376
13-13 Chain reaction effect  377
13-14 Cross-connection (hub-and-spoke) service  381
13-15 Multiplier effect of hub connections 383

14-1 Major characteristics of competing commercial jetliners 400

17-1 The nine freedoms of the air 484


List of Tables

1-1 Regional Regulatory Trends 8


1-2 Financial Issues and Challenges Impacting Air Transportation 11
1-3 Challenges Impacting Global Air Transportation 11
1-4 Strategies for Global Aviation 12

2-1 Aerospace Industry Sales by Product Group, 1990–2011 22


2-2 Aerospace Industry Sales by Customer, 1987–2010 23
2-3 Civil Aircraft Shipments, 1997–2011 28
2-4 U.S. Civil Aviation Economic Impact Study Detail—2006 38

3-1 Growth of Certificated Domestic Routes 58


3-2 Average Yield per Revenue Passenger Mile 59
3-3 U.S. Schedule Airlines Operating Revenues and Profits, Before and
After Interest Expense 60
3-4 Top U.S. Airports for Regional Flights, July 2009 78

5-1 Active U.S. General Aviation Aircraft, 1960–2009127


5-2 GAMA General Aviation Aircraft Shipments by Type of Aircraft,
1962–2010 129
5-3 Number of General Aviation and Air Taxi Aircraft by Type and
Primary Use, 2008 134
5-4 U.S. Civil and Joint-Use Airports, Heliports, Stolports, and
Seaplane Bases by Type of Ownership, 2008 140
5-5 Worldwide Piston Engine Airplane Shipments by Manufacturer,
1998–2010 144
5-6 Worldwide Business Jet Shipments by Manufacturer (1998–2010) 146
5-7 Active U.S. Pilots and Non-Pilot Certificates Held, 1999 155

6-1 U.S. Airline Passenger Traffic for the Top 12 Air Carriers, 1978 166
6-2 U.S. Airline Passenger Traffic for the Top 12 Air Carriers, 2004 166
6-3 Industry Traffic Statistics 1993–2008 170
6-4a Summary of Aircraft in Regional Airline Use—2004173
6-4b Summary of All-Cargo Aircraft in Regional Airline Use—2004173
6-5 Selected Traffic and Financial Statistics for the Certificated Air
Carriers, 1965–2009 180

xi
xii a i r t r a n s p o r tat i o n

7-1 Top 25 U.S. Airlines—2009 199


7-2 Revenue Passenger Load Factor for U.S. Scheduled Airlines,
1970–2009 208

11-1 Average Air Passenger Fares for Domestic Airlines, 1926–2008 302
11-2 An Individual Air Carrier’s Demand for Air Transportation per
Month Between Two Cities 304
11-3 Demand and Revenue Schedule for an Airline over a Particular
Period of Time 326
11-4 Total Fixed-Overhead Costs, Total Variable Costs, and
Total Costs for an Airline over a Particular Period of Time 328
11-5 Systemwide Passenger Load Factor for an Airline over a
Particular Period of Time 329
11-6 Profit-Maximizing Output for an Airline over a Particular
Period of Time 330

12-1 Freight and Express Ton-Miles and Revenues for U.S. Air
Carrier Scheduled Services, 1975–2009 342

13-1 Maintenance System for a Jet Aircraft 363

14-1 Operating Fleet of Selected U.S. Airlines, 2009 398


14-2 A Carrier’s Current Inventory of 737s 403

15-1 Airline Employment, 2009 416


15-2 Duration of Airline Strikes Between the Fall of 1958 and 1970  426
15-3 Increase in U.S. Scheduled Airline Wages and Fringe Benefits
Compared to Consumer Prices (Index 1970 = 100) 427
15-4 Fringe Benefits as a Percentage of Wages for Selected Workers,
U.S. Scheduled Airlines, 1970–1979 427

16-1 Net Profit (or Loss) and Rate of Return on Investment for the U.S.
Scheduled Airlines, 1960–2004 445
16-2 Assets Portion of the Balance Sheet for the U.S. Scheduled
Airlines, as of December 31, 2004 454
16-3 Liabilities Portion of the Balance Sheet for U.S. Scheduled
Airlines, as of December 31, 2004 455
16-4 Sources and Uses of Funds for the U.S. Scheduled Airlines as
Evidenced by Changes in the Industry Balance Sheets 458
16-5 Actual Depreciation and Amortization for the U.S. Scheduled
Airline Industry, 1960–2004 460

A-1 Aviation and Aerospace Industries Listed in the World Aviation


Directory512
A-2 Selected Flight-Related Job Titles with the Airlines 520
A-3 Selected Maintenance-Related Job Titles with the Airlines 522
A-4 Selected Management- and Non-Management-Related Job
Titles with the Airlines 523
A-5 Selected Flight-Related Job Titles in General Aviation 524
l i s t o f ta b l e s xiii

A-6 Selected Job Titles in Airport Administration 526


A-7 Selected Job Titles with the Federal Aviation Administration 526
A-8 Selected Job Titles in Manufacturing 528
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