Air Carriers. Significance of the Industry Employed approximately 587,000 in 1997 Average compensation about $65,000 Transports roughly 0.5% of all intercity.

Air CarriersAir Carriers

Significance of the Industry

• Employed approximately 587,000 in 1997

• Average compensation about $65,000

• Transports roughly 0.5% of all intercity ton-miles

• Specialize in hauling high-value, perishable or emergency cargo

Changes in Passenger Miles Flown

Changes in Air Ton Miles

Inbound Freight Shipments 2003

Outbound Freight Shipments 2003

Inbound Passenger Flights 2003

Outbound Passenger Flights 2003

Types of Air Carriers

• Private Carriers – Firms that transport company personnel or freight– In aircraft that the firm owns or leases.– Primary cargo is people– Subject to FAA safety regulations

Types of Air Carriers

• For-hire – Provides services to the public & charges a fee for the

service– No longer economically regulated by the Federal

Government– Can be classified by annual revenues & type of service

offered– Annual Revenues Classification

• Majors – more than $1 billion

• Nationals – $75 million to $1 billion

• Regionals – less than $75 million

Major Air Carriers

• Annual revenues of more than $1 billion

• Provide service between major population centers– New York, Atlanta, Chicago, Dallas, Miami, LA, etc

• Typically use high-capacity aircraft

• Also service some medium-sized population centers– Toledo, Ohio; Oklahoma City, Birmingham, etc

• Delta, US Airways, American

National Air Carriers

• Annual revenues between $75 million - $1 billion

• Provide service between less populated areas and the major population centers

• Fly shorter routes with smaller aircraft

• Southwest Airlines, Northwest Airlines, Air West

Regional Air Carriers

• Annual revenues less than $75 million

• Operate within a particular region of the country

• Similar to national carriers, feed passengers to the majors from smaller population areas

• Air Wisconsin, Alaska Airlines

Air Carrier Summary: Schedule T-2Sum : All Services, Revenue Ton Miles, Total by CarrierGroup

  1998 1999 2000 2001 2002 2003

Unknown

- - - - 5,558,512 4,059,557

Regional Carriers (including Large, Medium, Commuter, Small Certified)

1,110,314,806 1,104,182,114 2,499,030,342 5,167,335,220 1,984,738,533 2,314,617,353

National Carriers

9,562,976,593 9,535,457,500 9,992,791,311 9,794,603,900 10,267,619,155 9,725,704,747

Major Carriers

80,548,545,328 84,899,370,156 89,986,673,007 83,098,573,385 82,331,863,339 60,614,364,765

Domestic Only - All Cargo Carriers

- - - - 184,580,025 518,024,210

All rows (including those not displayed)

91,221,836,727 95,539,009,770 102,478,494,660 98,060,512,505 94,774,359,564 73,176,770,632

Air Carrier Summary: Schedule T-2Sum : All Services, Revenue Passenger Miles (000), Total by CarrierGroup

  1998 1999 2000 2001 2002 2003

Unknown

- - - - 55,158 40,187

Regional Carriers (including Large, Medium, Commuter, Small Certified)

3,736,342 4,623,514 4,439,093 62,133,700 7,944,181 11,076,315

National Carriers

40,893,350 44,278,675 48,760,706 52,512,980 53,738,140 54,822,242

Major Carriers

591,165,468 621,876,945 655,562,178 610,380,816 589,631,599 436,287,576

Domestic Only - All Cargo Carriers

- - - - 0 0

All rows (including those not displayed)

635,795,160 670,779,134 708,761,977 725,027,496 651,369,078 502,226,320

Classifying by Type of Service

• All-cargo carriers– Transport cargo only

• Commuter air carriers– Typically only transport people– Technically regional carriers

• Charter carriers– No time schedule or designated routes– Transport people or freight on a one-time fee basis

General Service Characteristics• Passenger transport accounts for 73% of revenues• Freight transportation accounts for about 10%• Remainder from emergency shipments• Typically transport high-value, perishable, or

emergency cargo• Typical cargo

– Mail– Clothing– Communications equipment– Jewelry– Human organs

General Service Characteristics

• Speed– Key advantage for air carriers– Terminal-to-terminal time lower than any other carrier– Can fly from New York to LA in 6 hours– Advantage reduced by fewer scheduled flights & airport

congestion

General Service Characteristics• Length of Haul & Capacity

– Average freight haul length = 1400 miles

– Average passenger haul length = 1000 miles

– Average Capacities• Wide-body, 4-engine jets

– Passengers exclusively: average of 375

– Cargo exclusively: average of 90-100 tons

– Combined: reduces cargo capacity to about 50 tons

• Regular-body, 4-engine jets– Passengers exclusively: average of 290

– Cargo exclusively: 35-40 tons

– Combined: reduces cargo capacity to about 20 tons

• Typically regional carrier uses jets with 100-150 capacity & all-cargo of 90-100 tons

• Commuter airlines typically use aircraft with 10-40 passenger capacity

Cost Structure

• High variable, low fixed cost structure

• 80% variable; 20% fixed

• Governments own & operate air carriers’ terminals

• Use of facilities paid with landing fees (variable)

Air Carrier Financial: Schedule P-7Sum : 00380 - Total Operating Expense (000) by CarrierGroup

  1998 1999 2000 2001 2002 2003

National Carriers

898,436 1,215,296 1,164,447 1,195,214 1,212,943 1,897,633

Major Carriers

93,234,896 98,742,880 110,853,869 114,275,776 104,825,900 78,073,864

All rows (including those not displayed)

94,133,333 99,958,176 112,018,316 115,470,990 106,038,843 79,971,497

Labor

• Represents over 1/3rd of total operating expenses

• Wide variety of skills– Pilots– Flight engineers– Flight attendants– Communication personnel– Mechanics & ground crews– Baggage handlers– Counter personnel– Office personnel & management

Fuel• Roughly about 10% of operating costs• Fuel cost per hour is high

– 747: $3,268– DC-10: $1,260– DC-9: $801– Function of current cost per gallon and aircraft fuel-

efficiency– Use of smaller aircraft on low-density routes

Air Carrier Summary: Schedule T-2Sum : Aircraft Fuels (gallons) by CarrierGroup

  1998 1999 2000 2001 2002 2003

Regional Carriers (including Large, Medium, Commuter, Small Certified)

326,715,459 385,128,958 256,990,586 637,195,626 208,612,715 219,762,551

National Carriers

2,189,586,415 2,221,862,447 2,333,545,065 2,338,450,480 1,980,951,971 1,459,586,177

Major Carriers

16,821,664,587 17,454,503,128 18,383,362,335 17,144,535,877 15,813,482,658 10,942,055,186

All rows (including those not displayed)

19,337,966,461 20,061,494,533 20,973,897,986 20,120,181,983 18,003,047,344 12,621,403,914

Air Carrier Financial: Schedule P-7Sum : 00020 - Aircraft Operating Expenses (000) by CarrierGroup

  1998 1999 2000 2001 2002 2003

National Carriers

379,483 614,082 626,015 644,088 676,040 1,144,827

Major Carriers

38,051,798 40,645,515 49,391,072 50,255,110 46,623,813 33,985,268

All rows (including those not displayed)

38,431,281 41,259,597 50,017,087 50,899,197 47,299,854 35,130,095

Operation Ratio• Use same operation ration as motor carriers• Typically operation ratio between 92 – 94• Also use Load Factor

– Measure of percentage of plane’s capacity that is utilized– Divide number of passengers by number of seats & multiply by

100– Average Load Factor pre-9/11: 70– Average Load Factor immediately after 9/11: 30– Current Average Load Factor: 71– Directly impacts average operating cost per passenger– Used to help determine most appropriate equipment for each

scheduled route– Also used to help determine viability of particular routes

Load Factor Example• Assume route with 1 hour transit time• Airline uses a B747

– Cost to operate per hour $5,946

– Passenger capacity = 402

• Assume average demand of 261• Load Factor = 261/402 x 100 = 65• Average operating cost per passenger

– $5,946/261 = $22.78

• If demand drops to 80 passengers– Load Factor = 80/402 x 100 = 19.9

– Average operating cost per passenger = $5,946/80 = $74.33