AIR TRANSIORTATION

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Air Transporlalion
A Managemenl Ierspeclive
Sixlh Idilion
IOHN G. WINSVIIN
Prcsi!cni an! C|O. Air|inc Visicns. IIC
vvv.airIinevisions.com
Iohn G. Wensveen 2007
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Iohn G. Wensveen has asserled his moraI righl under lhe Copyrighl, Designs and Ialenls Acl, 1988,
lo be idenlied as lhe aulhors of lhis vork.
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British Library Cataloguing in Publication Data
Wensveen, I. G.
Air lransporlalion : a managemenl perspeclive. - 6lh ed.
1. AirIines - Managemenl 2. Aeronaulics, CommerciaI
I. TilIe II. WeIIs, AIexander T.
387.7068
Library of Congress Control Number: 2007930947

ISN 978-0-7546-7165-7 (hbk)
ISN 978-0-7546-7171-8 (pbk)
Irinled and bound in Greal rilain by TI InlernalionaI Lld, Iadslov, CornvaII.
v
Contents
A|cui inc Auincr ix
Prcjacc xi
Ackncu|c!gncnis xxi
PART ONE
AN INTRODUCTION TO AIR TRANSPORT
1 Aviation: An Overview 3
Inlroduclion 4
The Aerospace Induslry 4
The Air Transporlalion Induslry 21
2 Historical Perspective 29
Inlroduclion 31
The Iormalive Ieriod: 19181938 31
The Grovlh Years: 19381958 39
MalurilyIels Arrive: 19581978 42
Iconomic DeveIopmenls Irior lo DereguIalion 43
IederaI LegisIalion and lhe AirIines 46
IosldereguIalion IvoIulion 60
GeneraI Avialion 67
3 Air Transportation: Regulators and Associations 79
Inlroduclion 80
The Deparlmenl of Transporlalion 81
The IederaI Avialion Adminislralion 87
The Transporlalion Securily Adminislralion 95
The NalionaI Transporlalion Safely oard 95
Ma|or Avialion Associalions 100
4 The General Aviation Industry 111
Inlroduclion 112
GeneraI Avialion Slalislics 112
The GeneraI Avialion Supporl Induslry 127
The AvaiIabIe MarkelThe Users 136
A I R T R A N S P O R TAT I O N v i
PART TWO
STRUCTURE AND ECONOMICS OF AIRLINES
5 The Airline Industry 147
Inlroduclion 148
Slruclure of lhe AirIine Induslry 148
Ma|or and NalionaI Carriers 151
RegionaI Carriers 154
AirIine Slalislics 158
AirIine Cerlicalion 158
Dala CoIIeclion by lhe DOT 162
Induslry Agreemenls 163
Trac and IinanciaI HighIighls: 19602005 165
6 Economic Characteristics of the Airlines 175
Inlroduclion 176
The AirIines as OIigopoIisls 177
Olher Unique Iconomic Characlerislics 186
The Signicance of AirIine Iassenger Load Iaclors 191
PART THREE
MANAGERIAL ASPECTS OF AIRLINES
7 Airline Management and Organization 201
Inlroduclion 202
Managemenl 202
The Nev Corporale Slruclure 206
Iunclions of Managemenl 210
Organizalion 213
The OrganizalionaI Charl 216
Sla Deparlmenls 218
Line Deparlmenls 223
8 Forecasting Methods 243
Inlroduclion 244
The Iurpose of Iorecasling 244
Iorecasling Melhods 246
9 Airline Passenger Marketing 257
Inlroduclion 258
DeveIopmenl of lhe Markeling Concepl 259
The Markeling Mix 260
The Consumer-orienled Markeling Concepl 269
Markeling Slralegies Since DereguIalion 274
C O N T E N T S v i i
10 Airline Pricing, Demand, and Output Determination 283
Inlroduclion 285
The Trend in Domeslic Iassenger Airfares 285
Iricing and Demand 288
No-friIIs Airfare and Survey Warfare 296
Types of Iassenger Iares 297
The Iricing Irocess 298
AirIine Cosls 304
Iricing and Oulpul Delerminalion 309
11 Air Cargo 319
Inlroduclion 321
HisloricaI Overviev 321
Air Cargo Today 325
The Iulure 328
The Markel for Air Ireighl 329
Types of Air Ireighl Rales 331
SpeciaI Air Ireighl Services 333
Iaclors Aecling Air Ireighl Rales 337
12 Principles of Airline Scheduling 343
Inlroduclion 344
The Mission of ScheduIing 344
Iquipmenl Mainlenance 346
IIighl Operalions and Crev ScheduIing 349
Ground Operalions and IaciIily Limilalions 351
ScheduIe IIanning and Coordinalion 353
Iquipmenl Assignmenl and Types of ScheduIes 364
Hub-and-Spoke ScheduIing 366
Dala Limilalions in AirIine ScheduIing 369
13 Fleet Planning: The Aircra Selection Process 373
Inlroduclion 374
Iaclors in IIeel IIanning 374
Design and DeveIopmenlThe Manufaclurers Vievpoinl 382
The IIeel-pIanning Irocess 387
The Decision lo Upgrade or RepIace 392
Appendix: IIeel IIanning al American AirIines 396
14 Airline Labor Relations 399
Inlroduclion 400
The RaiIvay Labor Acl and lhe AirIines 401
HisloricaI Overviev of AirIine Union Aclivily 406
Labor ReIalions Since DereguIalion 412
Human Resources in lhe 21sl Cenlury 423
A I R T R A N S P O R TAT I O N v i i i
15 Airline Financing 427
Inlroduclion 428
Sources of Iunds 428
Sources and Uses of Iunds by lhe U.S. ScheduIed AirIines 437
Cash Managemenl and IinanciaI IIanning 450
PART FOUR
THE INTERNATIONAL SCENE
16 International Aviation 459
Inlroduclion 460
The Oueslion of Sovereignly in Airspace 460
InlernalionaI Air Lav 463
The Iormalion of IATA 470
The ermuda Agreemenl of 1946 471
Three Decades Laler: Irom ermuda lo DereguIalion 472
The Iursuil of Open Skies 476
GIobaIizalion 480
Iulure ChaIIenges 484
Appendix A: Views of Industry Professionals 489
Inlroduclion 490
Ouoles 490
ArlicIe 492
Appendix B: Career Planning in Aviation 499
Inlroduclion 500
Choosing and Geing Your Iirsl Iob in Avialion 500
Cover Leers and lhe Resume 506
The Inlerviev 508
Glossary 521
Index 551
ix
About the Author
Dr. Iohn Wensveen is considered one of lhe avialion induslrys Ieading experls on Iov-cosl
and Iov-fare high vaIue airIine operalions and is currenlIy Iresidenl & CIO of AirIine
Visions, an advisory and fulurisl rm speciaIized in air carrier slarl-ups.
He has been dubbed lhe idea faclory by many of his coIIeagues and has lhe abiIily
lo idenlify lrends and focus on fasl resuIls. Dr. Wensveen is a Ieading experl on business
and slralegic pIan deveIopmenl, markeling and branding, diversicalion slralegies,
parlnership deveIopmenl, due diIigence and M&A. ConsuIling pro|ecls incIude business
pIan deveIopmenl for Iov-cosl carrier (LCC) slarl-ups, formuIalion of slralegic grovlh
recommendalions, managing of cIienls grovlh mission and operalionaI ob|eclives,
providing vision and Ieadership lo carry oul mission, and buiIding of reIalionships. Dr.
Wensveens consuIling praclice aIso incIudes experl vilness leslimony and advisory
services lo lhe leIevision and Im induslries.
In addilion lo avialion consuIling, Dr. Wensveen advises non-avialion organizalions on
slralegic sleps lo success. He is an experl in shooling hoIes lhrough exisling businesses
and idenlifying a corporalions slrenglhs, veaknesses, opporlunilies and lhreals uliIizing
a cuslomized pIan of aclion.
UnliI March 2005, Dr. Wensveen vas Vice Iresidenl of InlernalionaI DeveIopmenl vilh
Washinglon-DuIIes based MAX|el Airvays, lhe rsl slarl-up US ag carrier lo oblain
IAA cerlicalion lo operale on lhe lrans-AlIanlic since lhe evenls of 9/11. Dr. Wensveens
invoIvemenl vilh MAX|el slarled in 2003 as one of lhe founding leam members. WhiIe al
MAX|el, he Ied parlnership deveIopmenl vilh airIines, airporls, inlernalionaI governmenl
bodies, ground handIing and securily organizalions and represenled lhe company as
spokesperson. Dr. Wensveen vas responsibIe for seing up lhe Iuropean infraslruclure
incIuding ground operalions and vas responsibIe for overaII I&L of Iuropean operalions
and some aspecls of US operalions. WhiIe al MAX|el, he managed quick grovlh and
aided in lhe buiId oul of a slrong execulive leam.
Irom 1999 lo 2004, Dr. Wensveen vas empIoyed as Irofessor of AirIine Managemenl
and Operalions vilh lhe SchooI of usiness al Imbry-RiddIe AeronaulicaI Universily in
Daylona each, IIorida inslrucling courses al lhe undergraduale, graduale and execulive
IeveIs. He vas lhe pro|ecl Iead on lhe crealion of lhe vorIds rsl AirIine Operalions
Cenler SimuIalion Laboralory (AOCSL), an inlernalionaI pro|ecl in parlnership vilh
ma|or avialion/aerospace companies incIuding airIines, airporls, ground handIing
organizalions, manufaclurers, academic inslilulions, and governmenl al lhe IocaI, federaI
and inlernalionaI IeveIs. WhiIe al Imbry-RiddIe, Dr. Wensveen buiIl a repulalion in lhe
avialion induslry as one of lhe Ieading experls in his eId. He is veII connecled and
recognized for his lhoughl Ieadership and sub|ecl maer experlise.
A I R T R A N S P O R TAT I O N x
In lhe earIy 1990s, Dr. Wensveen vas empIoyed vilh Canada 3000 AirIines hoIding
supervisory posilions in ighl operalions and Ialer, passenger services. WhiIe al Canada
3000, he assisled vilh lhe managemenl of quick grovlh and vas a Ieading conlribulor lo
base expansion in lhe Iacic.
Dr. Wensveen is a member of a number of professionaI organizalions and is a frequenl
speaker al inlernalionaI avialion evenls. He is a facuIly member of lhe InlernalionaI Air
Transporl Associalion (IATA) and is aulhor of lhe Air Mercury and Slralegic Managemenl
courses presenled al IATA lraining cenlers around lhe vorId. He is aIso an ad|uncl facuIly
member of lhe Universily of MaryIand Universily CoIIege (UMUC), Universily of lhe
Wesl Indies (UWI) and RoyaI Roads Universily (RRU). He is aIso a facuIly member of lhe
Arab Air Carriers Associalion (AACA).
Dr. Wensveen pubIishes frequenlIy in ma|or avialion pubIicalions and is an avialion
anaIysl for lhe media ohen seen on ma|or leIevision nelvorks and quoled in ma|or
nevspapers and magazines around lhe vorId. He is aulhor of Norlh Americas Ieading
avialion lexlbook enlilIed, Air Transpcriaiicn. A Managcncni Pcrspcciite and is aulhor of
anolher successfuI book enlilIed, Wncc|s Up. Air|inc Busincss P|an Octc|cpncni.
Irom 1996 lo 1999, Dr. Wensveen hosled a number of Ieading radio shovs in lhe
Uniled Kingdom and vas avarded esl MaIe Iresenler in 1997 al lhe C Radio One
Avards.
Dr. Wensveen, born and raised in Vancouver, Canada earned a Ih.D. in InlernalionaI
Air Transporl Managemenl vilh a focus on usiness, Slralegy and Markeling from lhe
Universily of WaIes Cardi (Uniled Kingdom) and a .A. in Geography and Transporlalion
IIanning from lhe Universily of Vicloria (Canada).
Preface
Il vas onIy lhree years ago since lhe hh edilion of lhis book vas pubIished and lhe
gIobaI avialion induslry has experienced numerous changes lhal in many cases, vere
nol predicled. The sixlh edilion of Air Transpcriaiicn. A Managcncni Pcrspcciitc covers lhe
reasoning behind such changes and aempls lo forecasl lhe fulure lo a cerlain degree in
lerms of hov air lransporlalion viII evoIve.
On Seplember 11, 2001, lhe avialion induslry slarled a nev era in hislory as a resuIl
of lhe lerribIe lerrorisl aacks againsl lhe Uniled Slales. The Iraqi crisis, Severe Acule
Respiralory Syndrome (SARS), record fueI and oiI prices, massive nanciaI Iosses, Iooming
lhreals of lerrorism, and poIilicaI inslabiIily have conlribuled lo conlinued reslrucluring
of lhe induslry. GeneraI avialion, incIuding business avialion, and commerciaI avialion
have been impacled as have manufaclurers and aII olher parlicipanls in avialion. Al lhe
lime of lhe Iasl prinling, lhe induslry vas in a period of survive, adapl and recover. Today,
lhe induslry is in a period of relhink resuIling in organizalions becoming more ecienl
as a resuIl of recenl lurbuIenl limes. AirIines conlinue lo faiI as viII aIvays be lhe case
bul lhere are a Iol of posilive success slories al lhe same lime. Aircrah manufaclurers Iike
Airbus and oeing have experienced posilive grovlh vilh lhe design of nev and ecienl
aircrah vhiIe regionaI |el manufaclurers have experienced, in some cases, negalive resuIls
due lo lhe changing nalure of roule nelvork deveIopmenl and airIine reslrucluring
programs. Such manufaclurers are being faced vilh lhe chaIIenge of delermining vhal
lhe nexl slage in aircrah lechnoIogy is.
The previous edilion of lhis book said 2005 vouId be lhe year in vhich lhe gIobaI air
lransporlalion induslry vouId be back al normaI IeveIs. Ior lhe mosl parl, lhis is lrue.
Some regions of lhe vorId vere somevhal isoIaled from lhe evenls of 9/11 and more
recenl evenls and air carriers of dierenl lypes and sizes are exceIIing. In olher regions of
lhe vorId, lhere are dislinclive grovlh paerns ranging from sIov lo fasl. Load faclors
are back up lo reguIar IeveIs and yel airIines conlinue lo slruggIe as a resuIl of annuaIIy
increasing operalionaI cosls.
The gIobaI air lransporlalion induslry changes on a daiIy basis and il is imporlanl lo
undersland lhis change musl be examined on a regionaI basis more so lhan a gIobaI basis.
As dened by lhe InlernalionaI CiviI Avialion Organizalion (ICAO), lhe vorId consisls
of Norlh America, Lalin America and Caribbean, Iurope, Asia-Iacic, Africa and MiddIe
Iasl. uiIding on a lesled framevork of sub|ecl areas, lhis book incorporales lhe lrends,
chaIIenges and slralegies impacling aII regions of lhe vorId crealing a modern revision
suilabIe for academic and induslry use for some lime lo come. The chaIIenge of an aulhor
vriling a nev edilion of a veII eslabIished book, is lo produce somelhing readers are
aIready famiIiar vilh bul are inlroduced lo nev informalion above and beyond lhe
predecessor.
xi
A I R T R A N S P O R TAT I O N x i i
The sixlh edilion remains inlroduclory in nalure providing lhe reader vilh a soIid
foundalion of lhe air lransporlalion induslry and a grealer apprecialion of lhe ma|or
managemenl funclions vilhin an airIine. Various references are provided al lhe end of
each chapler encouraging lhe reader lo expIore and keep abreasl of currenl periodicaIs
such as Air|inc Busincss. Air Transpcri Wcr|!. Atiaiicn Wcck an! Spacc Tccnnc|cgu. Air Cargc
Wcr|!. Busincss an! Ccnncrcia| Atiaiicn. Ccnnuicr Air. |nicratia. Air Pi|ci. and Prcjcssicna|
Pi|ci. The reader shouId grasp enough knovIedge lo reason accuraleIy and ob|ecliveIy
aboul probIems facing lhe induslry and lhe deveIopmenl of a Iasling inleresl in lhe
air lransporlalion induslry. The basic concepls and probIems facing lhe induslry in a
slraighlforvard and IogicaI fashion are presenled lhroughoul each chapler.
CHANGES IN THE SIXTH EDITION
CompIeleIy updaled lo reecl lhe chaIIenges facing airIines in lhe 21sl cenlury, lhis lexl
provides comprehensive, sophislicaled coverage of bolh cIassic and currenl praclices in
air lransporlalion managemenl. The reader is guided lhrough lhe ins and ouls of lhe air
lransporlalion induslry as veII as lhrough lhe delaiIs of managemenl funclions vilhin
airIines. This edilion pIaces grealer emphasis on lhe gIobaI airIine induslry, vilh such
lopics as airIine passenger markeling, Iabor reIalions, nancing, and heighlened securily
precaulions inlegraled lhroughoul lhe lexl. TabIes, gures, slalislics, key lerms, reviev
queslions, and gIossary lerms have been added and updaled.
One imporlanl change since lhe Iasl edilion of lhis book is lhe reliremenl of Dr.
AIexander WeIIs vho is nov en|oying lraveIing lhe gIobe vilh his vife, Mary. I am gralefuI
lo Dr. WeIIs for bringing me on board as co-aulhor of lhe hh edilion and aIIoving me
lo proceed vilh lhe sixlh edilion. Dr. WeIIs conlribulions lo academia and induslry are
knovn lhroughoul lhe vorId. He represenls one era of avialion having vilnessed ils
grovlh decade by decade. The lorch has nov been passed Ieading lo a nev era of avialion.
I vish Dr. WeIIs lhe very besl Iife has lo oer. In|oy reliremenl!
TEACHING AND LEARNING AIDS
The subslanlive conlenl of a lexlbook is onIy parl of vhal makes il usabIe in lhe cIassroom:
for lhe book lo be eeclive, ils conlenl musl be laughl by inslruclors and Iearned by
sludenls. To faciIilale lhe process, lhis edilion conlinues lo pay parlicuIar aenlion lo
leaching and Iearning aids, such as lhe foIIoving:
1. Cnapicr cui|incs. Iach chapler opens vilh an oulIine of lhe ma|or lopics lo be
covered.
2. Cnapicr cncck|isis. Aher lhe oulIine, each chapler incIudes a checkIisl of ob|eclives lhal
sludenls shouId be abIe lo accompIish on compIeling lhe chapler.
3. |c|ctancu. Mosl of lhe exampIes, appIicalions, and exlensions of lhe basic maleriaI are
dravn from and appIy lo lhe air lransporlalion environmenl of lhe 1990s.
P R E FA C E x i i i
4. Siauing pcucr. The lexl is designed lo have slaying pover over lhe years. Il emphasizes
lhe underIying principIes, praclices, and poIicies lhal viII nol change appreciabIy
over lime. Il is recognized lhal inslruclors viII suppIemenl lhe maleriaI vilh currenl,
lopicaI appIicalions and evenls.
5. |igurcs an! ia||cs. Imporlanl poinls in each chapler are iIIuslraled vilh slrong visuaI
maleriaIs.
6. Icgica| crganizaiicn an! jrcucni nca!ings. Air lransporlalion can easiIy become
overvheIming in ils muIlilude of lopics, concepls, praclices, and exampIes. The
maleriaI covered here has been pul in a syslemalic framevork so lhal sludenls knov
vhere lhey have been, vhere lhey are, and vhere lhey are going in lhe lexl. Irequenl
headings and subheadings aid organizalion and readabiIily.
7. Kcu icrns. Iach chapler concIudes vilh a Iisl of key lerms used in lhe lexl.
8. |cticu ucsiicns. Reviev queslions al lhe end of each chapler address imporlanl
poinls.
9. Appcn!ix an! suggcsic! rca!ings. One chapler incIudes an appendix lhal is of praclicaI
inleresl and lhal reinforces lhe maleriaI covered. A Iisl of suggesled readings is
incIuded in each chapler for sludenls vho vish lo pursue lhe maleriaI in grealer
deplh.
10. Carccr appcn!ix. This edilion once again incIudes an appendix on |obs in lhe air
lransporlalion eId and vays lo gel lhem.
11. G|cssaru cj air iranspcriaiicn icrns. AII key lerms appearing al lhe end of each
chapler, as veII as many olher lerms used in lhe lexl and olhers of signicance in air
lransporlalion, are incIuded in lhe gIossary.
12. Ccnp|cic in!cx. The book incIudes a compIele index lo heIp sludenls nd needed
informalion.
INTENDED AUDIENCE
ecause lhe aspiralions of mosl sludenls of air lransporlalion (and, for lhal maer, mosl
career palhs) Iead lo lhe airIine segmenl of lhe air lransporlalion induslry, lhe ma|or focus
of lhis lexl is on lhe managemenl funclions and organizalion of airIines. Hovever, lhe
signicance and conlribulion of generaI avialion is nol overIooked.
This book is inlended for lhree somevhal dierenl audiences vilh simiIar inleresls:
sludenls enroIIed in a course such as Air Transporlalion or AirIine Managemenl:
sludenls in lransporlalion and lrafc managemenl programs vho vish lo gain more
insighl inlo lhe air lransporlalion induslry because mosl of lheir cIasses concenlrale
on surface lransporlalion modes: and individuaIs vho vork for an airIine and vanl lo
gain a beer underslanding of manageriaI aspecls. Too ohen, an airIine empIoyee, as a
speciaIisl, sees onIy a Iimiled parl of lhe overaII operalion and has IiIe, if any, knovIedge
A I R T R A N S P O R TAT I O N x i v
of such imporlanl sub|ecls as markeling, pricing, scheduIing, and eel pIanning. Iven
individuaIs vilhin markelingreservalions, for exampIehave IiIe apprecialion of
lheir companys grovlh slralegies and markel segmenlalion. These empIoyees are simpIy
loo busy fuIIIing lhe funclions of lhe parlicuIar |ob descriplion.
ORGANIZATION OF THE TEXT
The foIIoving is an oulIine of Air Transpcriaiicn. A Managcncni Pcrspcciitc. sixlh edilion.
Pari Onc An |nirc!ucii cn ic Ai r Transpcriaii cn
Chapler 1 Avialion: An Overviev. Chapler 1 inlroduces sludenls lo lhe
characlerislics, scope, and economic signicance of lhe aerospace
induslry and ils ma|or segmenlslhe governmenl markel and lhe
commerciaI markel for air lransporl and generaI avialion aircrah. The
air lransporlalion induslry is cIearIy dened, and ils conlribulion lo lhe
economy is discussed in deplh.
Chapler 2 HisloricaI Ierspeclive. This chapler provides a hisloricaI skelch of U.S.
airIines and generaI avialion, incIuding lhe federaI IegisIalion lhal has
aecled lheir grovlh and deveIopmenl. The AirIine DereguIalion Acl of
1978 and lhe circumslances Ieading up lo il are lhoroughIy expIored. The
posldereguIalion era from 1978 lo lhe earIy 2000s is discussed, incIuding
changes in lhe slruclure of lhe induslry and nev airIiners enlering lhe
markel (Iov-cosl carriers, virluaI carriers, and mega-carriers).
Chapler 3 Air Transporlalion: ReguIalors and Associalions. This chapler
discusses lhe roIes pIayed by lhe four primary federaI agencies lhal
inlerface vilh bolh segmenls of lhe air lransporlalion induslry:
lhe Deparlmenl of Transporlalion (DOT), lhe IederaI Avialion
Adminislralion, lhe Transporlalion Securily Adminislralion, and lhe
NalionaI Transporlalion Safely oard. The ofces al lhe Deparlmenl
of Transporlalion responsibIe for carrying oul lhe remaining funclions
of lhe former CiviI Aeronaulics oard are lhoroughIy expIored. The
purpose and ma|or funclions of lhe prominenl avialion lrade associalions
are aIso described.
Chapler 4 The GeneraI Avialion Induslry. This chapler concIudes Iarl One by
revieving lhe generaI avialion induslry, incIuding ils slalislics and a
descriplion of videIy diverse segmenls according lo lheir primary use
calegories. Olher lopics incIude lhe roIe of generaI avialion airporls, IAA
services lo generaI avialion, and lhe generaI avialion supporl induslry,
vhich, Iike a lhree-Iegged slooI, is made up of lhe manufaclurers, lhe
xed-base operalors, and lhe users of generaI avialion aircrah.
Pari Tuc Siruciurc an! |ccncni cs cj inc Ai r| i ncs
Chapler 5 The AirIine Induslry. This chapler revievs lhe currenl slruclure
of lhe U.S. airIine induslry and ils composile nanciaI and
lrafc slalislics. A compIele discussion of lhe posldereguIalion
P R E FA C E x v
expansion, consoIidalion, and concenlralion of lhe induslry is
incIuded. The groving roIe of regionaI carriers and nev lypes
of airIines is lhoroughIy discussed. This chapler aIso incIudes a
seclion on airIine cerlicalion, incIuding lypes of and requiremenls for
cerlicalion and ofces vilhin lhe DOT responsibIe for lhis imporlanl
funclion. The currenl lrend of inlra-induslry agreemenls, such as code
sharing and olher cooperalive eorls, are described in delaiI.
Chapler 6 Iconomic Characlerislics of lhe AirIines. This chapler deaIs vilh
lhe economic characlerislics of oIigopoIies in generaI and lhe unique
characlerislics of airIines in parlicuIar. Aenlion is aIso given lo lhe
economic forces in lhe posldereguIalion period lhal have Ied lo such mega-
carriers as American, Uniled, ConlinenlaI, and DeIla. The signicance of
airIine passenger Ioad faclors is lhoroughIy expIored. This chapler aIso
discusses hov lhe induslry has changed since lhe evenls of 9/11 and
currenl gIobaI evenls.
Pari Tnrcc Managcri a| Aspccis cj Ai r| i ncs
Chapler 7 AirIine Managemenl and Organizalion. The opening chapler of Iarl
Three inlroduces sludenls lo lhe principIes and praclices of airIine
managemenl and organizalion. The dierenl IeveIs of managemenl
vilhin an airIine are expIored, aIong vilh lhe funclions of managemenl
pIanning, organizing, slafng, direcling, and conlroIIing. This is
foIIoved by a comprehensive reviev of organizalion pIanning and
a descriplion of a lypicaI ma|or air carriers organizalionaI slruclure,
incIuding lhe purpose and funclion of various adminislralions and
deparlmenls. DeparlmenlaIizalion and lhe need for nev divisions
vilhin lhe organizalion, such as safely and securily and lraining, are
inlroduced.
Chapler 8 Iorecasling Melhods. Iorecasling is exlremeIy imporlanl in lhe
managemenl of airIines. AII pIanning invoIving personneI and equipmenl
needs is based on forecasls of fulure lrafc and nanciaI expeclalions. Ior
lhis reason, lhis chapler naluraIIy precedes aII of lhe chaplers reIaling
lo lhe olher manageriaI aspecls of airIines. The purpose of lhis chapler
is lo expose sludenls lo lhe primary forecasling melhods used by rms
engaged in air lransporlalion.
Chapler 9 AirIine Iassenger Markeling. This chapler begins vilh a discussion
of hov lhe markeling of air lransporlalion has changed over lhe years.
The markeling mix (producl, price, promolion, and pIace) is anaIyzed in
deplh, and lhe consumer-orienled markeling concepl of lhe Iale 1990s
and earIy 2000s is discussed. Various currenl airIine markeling slralegies
are lhen expIored, incIuding such inlensive approaches as gaining deeper
markel penelralion, increasing producl deveIopmenl, and deveIoping
nev largel markels. Direcl markeling, compulerized reservalion syslems
(CRSs), lraveI agenls, frequenl-ier programs, business-cIass service, code
sharing, hub-and-spoke service, and adverlising and saIes promolion are
aII highIighled.
A I R T R A N S P O R TAT I O N x v i
Chapler 10 AirIine Iricing, Demand, and Oulpul Delerminalion. This chapler
focuses on pricing, cerlainIy one of lhe mosl voIaliIe of lhe four Is of
markeling since dereguIalion. Sub|ecls incIude lhe delerminanls of airIine
passenger demand and eIaslicily of demand. The lypes of airIine passenger
fares are discussed, foIIoved by in-deplh coverage of lhe pricing process,
incIuding pricing slralegies and ob|eclives, pricing anaIysis, and lhe sleps
invoIved in anaIyzing fare changes. The imporlanl roIe of invenlory, or
yieId, managemenl is addressed as veII. This is foIIoved by an in-deplh
discussion of airIine operaling cosls, prol maximizalion, and oulpul
delerminalion in lhe shorl run.
Chapler 11 Air Cargo. Aher a brief discussion of lhe hislory of air cargo in lhe
Uniled Slales, sludenls are inlroduced lo lhe imporlance of air express
and air freighl loday and lo lhe expeclalions for fulure grovlh in lhe
induslry. The markel for air freighl is lhen covered, incIuding lhe lypes
of air freighl rales. SpeciaI air freighl services are discussed, as are faclors
aecling air freighl rales. The concepl of lhe very Iarge aircrah (VLA) is
aIso discussed.
Chapler 12 IrincipIes of AirIine ScheduIing. UnqueslionabIy one of lhe mosl crilicaI
and yel mosl difcuIl lasks facing airIine managemenl is scheduIing
equipmenl in lhe mosl efcienl and economicaI manner. This chapler deaIs
vilh lhe many inlernaI and exlernaI faclors lhal aecl scheduIe pIanning.
Types of scheduIes are discussed, aIong vilh severaI exampIes of hov a
carrier goes aboul puing a scheduIe logelher. The chapler concIudes
vilh a discussion of hub-and-spoke scheduIing and ils imporlance in lhe
compelilive posldereguIalion environmenl of lhe 1980s, 1990s, and 2000s.
Chapler 13 IIeel IIanning: The Aircrah SeIeclion Irocess. The decision lo purchase
nev aircrah is cerlainIy one on vhich managemenl expends a greal deaI
of lime and eorl. This cruciaI decision viII enlaiI miIIions of doIIars, and
ils eecls viII remain vilh lhe carrier for years. Sludenls are inlroduced lo
lhe aircrah seIeclion process, rsl from lhe slandpoinl of lhe manufaclurer
and lhen from lhe individuaI carriers vievpoinl. The lrend lovard
Ieasing is lhoroughIy expIored, aIong vilh lhe groving probIem of noise
reslriclions on oIder aircrah. AII of lhe inpuls lo lhe process are addressed,
as are lhe crileria by vhich a carrier evaIuales a parlicuIar aircrah. The nev
generalion of aircrah, incIuding lhe regionaI |el and nev Iong-range lvin-
engine aircrah, are inlroduced. The chapler concIudes vilh an appendix
demonslraling lhe eel-pIanning process al American AirIines.
Chapler 14 AirIine Labor ReIalions. Represenling over 35 percenl of a lypicaI
carriers operaling expense, Iabor is cerlainIy one of lhe mosl imporlanl
areas of concern lo managemenl. This chapler opens vilh a lhorough
discussion and anaIysis of lhe RaiIvay Labor Acl, foIIoved by a reviev
of lhe coIIeclive bargaining process under lhe acl. A hisloricaI skelch of
airIine union aclivily in lhe Uniled Slales, beginning in lhe 1930s lhrough
lhe posldereguIalion period, aIso is provided. This chapler educales
lhe reader on lrends aecling fulure deveIopmenl of human resources
deparlmenls. The chapler ends vilh an overviev of lhe coIIeclive
bargaining process in recenl years and ils impacl on lhe carriers.
P R E FA C E x v i i
Chapler 15 AirIine Iinancing. This chapler lakes up lhe probIem of airIine capilaI
nancing. The ma|or sources of funding are examined, foIIoved by
a discussion of lhe sources and lhe use of funds over lhe lvo decades
foIIoving lhe inlroduclion of |els. The naI porlion of lhis chapler deaIs
vilh funding sources in lhe 2000s and lhe imporlanl sub|ecls of cash
managemenl and nanciaI pIanning.
Pari |cur Tnc |nicrnaii cna| Sccnc
Chapler 16 InlernalionaI Avialion. The naI chapler rounds oul lhe lexl
coverage of air lransporlalion by adding lhe dimension of inlernalionaI
avialion. Air lransporlalion pIays a signicanl roIe in lhe movemenl
of passengers and cargo belveen counlries, and lhis chapler discusses
hov lhe various inlernalionaI conferences and convenlions have
shaped vorIdvide avialion. The Iasl seclion of lhe chapler covers lhe
inlernalionaI avialion markel foIIoving passage of lhe InlernalionaI Air
Transporlalion Compelilion Acl of 1979. The sub|ecls of gIobaIizalion
and inlernalionaI airIine and airporl aIIiances are lhoroughIy expIored.
Appendix A This is a nev seclion, vhich quoles lhe vievs of airIine induslry
professionaIs.
Appendix Career IIanning in Avialion. This appendix provides a slruclured
approach lo lhe aII-imporlanl sub|ecl of career pIanning. Sludenls are
laken lhrough lhe sleps of choosing and geing lheir rsl |ob in avialion,
idenlifying sources of career informalion, deveIoping resumes, and
preparing for an inlerviev. IncIuded are numerous |ob descriplions from
aII segmenls of lhe avialion induslry.
A NOTE TO INSTRUCTORS
Anyone vho has laughl courses in air lransporlalion has sureIy recognized lhe paucily
of lexls on lhe sub|ecl. The fev books lhal are avaiIabIe eilher are loo broad in scope,
resuIling in a shaIIov overviev of mosl lopics, or examine a parlicuIar segmenl of lhe
induslry or phase of managemenl in deplh bul vilh very IiIe breadlh. I have aempled
lo lake a baIanced approach, recognizing lhal mosl inslruclors viII have lheir ovn ideas
regarding lhe imporlance of lhe sub|ecl maer under discussion and viII suppIemenl
lhe lexl vilh lheir ovn maleriaIs accordingIy. Slalislics appearing in labIes and charls
have been dravn from easiIy accessed sources, such as Acrcspacc |acis an! |igurcs. |AA
Siaiisiica| Han!|cck. and ATA annuaI reporls, so lhal lhey can be readiIy updaled by users
of lhe lexl.
This book is designed lo carry ils fair share of lhe burden of inslruclion. Sludenls using
lhis lexl shouId nol reIy on you for delaiIed, repelilive expIanalions. Less cIass lime is
required lo generale funclionaI underslanding of lhe sub|ecl, so more lime is avaiIabIe
for cIass discussion and lhe appIicalion of lhe maleriaI lo currenl issues. In researching
lhis book, I acquired a veaIlh of maleriaIs, mosl of lhem free, from numerous sources,
incIuding lhe DOT, IAA, NTS, ICAO, ATA, RAA, and Wcr|! Atiaiicn Oirccicru. The air
carriers are a rich source of maleriaI lhal can be used lo suppIemenl your course: vrile
A I R T R A N S P O R TAT I O N x v i i i
lo lhe parlicuIar deparlmenl aboul vhich you are seeking informalion. The GAMA, AIA,
ATA, and individuaI aircrah manufaclurers can aIso suppIy a hosl of maleriaIs.
Anolher source lhal I have found heIpfuI in our courses is lhe Harvard usiness SchooI
Case Services, Harvard usiness SchooI, oslon, Mass. 02163. Some of lhe air lransporlalion
cases viII be appropriale for your courses, and lhe sludenls viII en|oy lhem.
Suggcsic! Oui| i ncs j cr a Onc-Scncsicr Ccursc
Courses in air lransporlalion vary in conlenl and emphasis, and so viII lhe uses of lhis
book. Some courses may cover lhe maleriaI from beginning lo end: olhers viII focus on
cerlain seclions and omil lhe resl. Iarls One and Tvo oer a broad-based inlroduclion
lo air lransporlalion and shouId be suilabIe for mosl users. AirIine managemenl courses
mighl focus on Iarls Three and Iour.
These recommendalions are exibIe. Olher combinalions are possibIe.
Chapler Topic Inlroduclory Air
Transporlalion
Course
AirIine
Managemenl
course
1. Avialion: An Overviev
2. HisloricaI Ierspeclive
3. Air Transporlalion: ReguIalors and Associalions
4. The GeneraI Avialion Induslry
5. The AirIine Induslry
6. Iconomic Characlerislics of lhe AirIines
7. AirIine Managemenl and Organizalion
8. Iorecasling Melhods
9. AirIine Iassenger Markeling
10. AirIine Iricing, Demand, and Oulpul Delerminalion
11. Air Cargo
12. IrincipIes of AirIine ScheduIing
13. IIeel IIanning: The Aircrah SeIeclion Irocess
14. AirIine Labor ReIalions
15. AirIine Iinancing
16. InlernalionaI Avialion
A. Vievs of Induslry IrofessionaIs
. Career IIanning in Avialion
P R E FA C E x i x
A NOTE TO STUDENTS
I hear and I forgel
I see and I remember
I do and I undersland
Confucius
The mosl eeclive and inleresling vay lo Iearn any sub|ecl is by doing il. No professor or
lexlbook couId ever leach you aII aboul air lransporlalion: aII lhey can do is heIp you lo
Iearn il. Much of lhe Iearning process is up lo you. This lexl has been designed lo be easy
lo undersland. UsuaIIy, as you read lhe lexl, you vonl have lo slruggIe lo gel lhe meaning
of a concepl or principIe. ul underslanding is one lhing: Iearning somelhing veII and
appIying il lo currenl evenls is somelhing eIse.
efore slarling a chapler, reviev lhe chapler oulIine and checkIisl. Take noles and
highIighl lhe ma|or poinls as you proceed vilh your reading. Aher reading lhe chapler, see
if you can accompIish lhe ob|eclives Iisled in lhe chapler checkIisl. The reviev queslions
al lhe end of each chapler are aIso designed lo bring oul lhe mosl imporlanl poinls made
in lhe chapler.
ecome famiIiar vilh avialion lrade |ournaIs and magazines. You viII be surprised lo
see hov many arlicIes lhere are reIaling lo lhe maleriaI discussed in cIass. This Iileralure
viII nol onIy enhance your ovn knovIedge of lhe sub|ecl maer bul aIso enrich your
cIassroom experience as you discuss lhe maleriaI vilh cIassmales.
This is probabIy one of lhe mosl exciling periods in lhe brief hislory of our air
lransporlalion induslry. Wilh lhe passage of lhe AirIine DereguIalion Acl of 1978, ve have
vilnessed lhe emergence of a compIeleIy nev slruclure for air lransporlalion services in
lhe Uniled Slales. The induslry slands poised for a nev surge of grovlh. Many nev career
palhs viII surface in lhe nexl severaI years for lhose of you vho have prepared for lhem.
Good Iuck!
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xxi
Acknowledgments
My passion for avialion began al lhe age of lhree vhen I had lo evacuale a Iarge |el aircrah
vilh an engine re. I vas dressed in a piIols uniform proudIy dispIaying my vings. LiIe
did I knov lhe evenls of lhal day vouId change lhe course of my Iife and y me dovn
a palh lo a IifeIong career in avialion. As a smaII chiId, my dream vas lo Iearn lo y and
aher a fev hours hoIding lhe slick and a fev years of malurily, I reaIized my reaI passion
vas avialion business.
I ove many lhanks lo lhe pioneers of avialion and lhe enlrepreneurs of loday lhal
conlinuousIy amaze me vilh nev deveIopmenls. There are fev induslries in exislence
vhere one can go lo sIeep al nighl and vake up lhe nexl morning faced vilh chaIIenges
lhal did nol exisl lhe day prior. The excilemenl crealed by lhe daiIy slresses of lhis
business keep me going and slriving lovard lhe design of lhe uIlimale airIine. Is lhis
even possibIe`
Many lhanks are oved lo induslry sources vho provided a greal deaI of maleriaI lhal
vas exlremeIy heIpfuI in puing logelher lhis lexlbook. Thank you lo lhe Deparlmenl of
Transporlalion, IederaI Avialion Adminislralion, Transporlalion Securily Adminislralion,
NalionaI Transporlalion Safely oard, Air Transporl Associalion, Aircrah Ovners and
IiIols Associalion, InlernalionaI CiviI Avialion Organizalion, and lhe InlernalionaI Air
Transporl Associalion. AddilionaI lhanks lo Airbus Induslrie, The oeing Company,
Raylheon Corporalion, Cessna Aircrah Company, and lhe Nev Iiper Aircrah
Corporalion.
A lexlbook of lhis nalure cannol come logelher vilhoul lhe assislance of a leam. Thank
you lo Ashgale IubIishing especiaIIy Guy Loh.
IinaIIy, I vouId Iike lo shov my apprecialion and Iove for my parenls, Iohn Sr. and
Sandi, my sisler, Krisly, and my IiIe girI, ryanne. Your conlinued palience and supporl
viII aIvays be remembered.
Iohn Wensveen
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PART ONE
An Introduction to
Air Transportation
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1
Aviation: An Overview
Introduction
The Aerospace Industry
The Air Transportation Industry
Chapter Checklist You Should Be Able To:
Dene acrcspacc in!usiru and describe ils basic
characlerislics and economic magnilude
Discuss some of lhe probIems faced by lhe
governmenl markel
Describe lhe currenl economic oulIook for lhe lhree
segmenls incIuded in lhe civiI avialion markel
Idenlify and briey describe lhe faclors aecling
commerciaI lransporl saIes
Dene reIaled aerospace producls and services
Dene air iranspcriaiicn in!usiru and dislinguish
belveen cerlicaled air carriers and generaI avialion
Describe lhe impacl of lhe air lransporlalion induslry
on lhe economy
Describe hov air lransporlalion conlribules lo lhe
ecienl conducling of business and aecls personaI
and pIeasure lraveI paerns

3
INTRODUCTION
In a shorl span of 100 years, ve have gone from making a fev lesl ighls lo orbiling
ceIesliaI bodies, from sIiding aIong sand dunes lo spanning oceans, from performing feals
of isoIaled daring lo depending on avialion in our everyday Iives. Speeds have increased a
lhousandfoId, as have aIlilude and range capabiIily. No Ionger is lhe sky lhe Iimil. Ahead
Iie risks and revards as vasl as space ilseIf. We have lhe promise of nev airIiners lhal
y vilh grealer fueI efciency, of huge air freighlers lhal move lhe nalions goods, of an
expanding generaI avialion eel, and of lhe peacefuI uses of space for expIoralion and
research.
THE AEROSPACE INDUSTRY
The aerospace industry incIudes lhose rms engaged in research, deveIopmenl, and
manufaclure of aII of lhe foIIoving: aerospace syslems, incIuding manned and unmanned
aircrah: missiIes, space-Iaunch vehicIes, and spacecrah: propuIsion, guidance, and conlroI
unils for aII of lhe foregoing: and a variely of airborne and ground-based equipmenl essenliaI
lo lhe lesling, operalion, and mainlenance of ighl vehicIes. VirluaIIy aII of lhe ma|or rms
in lhe aerospace induslry are members of lhe Aerospace Industries Association (AIA) or
lhe General Aviation Manufacturers Association (GAMA). Iounded in 1919 and based
in Washinglon, D.C., lhe AIA is a lrade associalion represenling lhe nalions manufaclurers
of commerciaI, miIilary, and business aircrah, heIicoplers, aircrah engines, missiIes,
spacecrah, and reIaled componenls and equipmenl. GAMA, aIso based in Washinglon,
D.C., is lhe lrade associalion lhal represenls lhe inleresls of manufaclurers of Iighl aircrah
and componenl parls.
As lhe 21sl cenlury began, approximaleIy lvo-lhirds of lhe aerospace induslrys oulpul
vas boughl by lhe federaI governmenl. During lhe pasl lvo decades, lhis gure has ranged
as high as 74 percenl. Al lhe same lime, lhe aerospace induslry is lhe vorIds Iargesl
producer of civiI aircrah and equipmenl. RoughIy 6 oul of every 10 lransporls operaling
vilh lhe vorIds civiI airIines are of U.S. manufaclure, and in addilion, lhe induslry lurns
oul severaI lhousand civiI heIicoplers and generaI avialion pIanes yearIy.
These facls underIine lhe unique slalus of lhe aerospace induslry. Ils roIe as
principaI deveIoper and producer of defense, space, and olher governmenl-
required syslems in Iarge measure diclales lhe induslrys size, slruclure, and producl
Iine. ecause il operales under federaI governmenl procuremenl poIicies and praclices,
lhe induslry is sub|ecl lo conlroIs markedIy dierenl from lhose of lhe commerciaI
markelpIace. ul lhe aerospace induslry is aIso a commerciaI enlily, and il musl compele
in lhe civiI markel for economic and human resources vilh olher induslries Iess feered
by governmenl conslrainls. Ils duaI nalure as governmenl and commerciaI suppIier makes
lhe aerospace induslry parlicuIarIy imporlanl lo lhe nalionaI inleresl. Ils lechnoIogicaI
capabiIilies inuence nalionaI securily, foreign poIicy, lhe space program, and olher
nalionaI goaIs. AIso, lhe efcacy of lhe nalionaI air lransporlalion syslem depends lo
considerabIe degree on lhe quaIily and performance of equipmenl produced for lhe
airIines and lhe airvays operalors.
A I R T R A N S P O R TAT I O N 4
NaluraIIy, such an induslry is vilaI lo lhe U.S. economy, especiaIIy in lhe foIIoving
areas:
1. Tra!c |a|ancc. The exceIIence of U.S. aerospace producls has crealed slrong demand
abroad, vilh lhe resuIl lhal lhe induslry consislenlIy records a Iarge inlernalionaI
lrade surpIus.
2. |np|cuncni. Despile severaI years of decIine in number of vorkers, lhe aerospace
induslry remains one of lhe nalions Iargesl manufacluring empIoyers.
3. |cscarcn an! !ctc|cpncni. The induslry conducls more research and development
(R & D) lhan any olher induslry, and R & D is a ma|or Iong-lerm delerminanl of
nalionaI economic grovlh.
4. |npaci cn cincr in!usirics. A greal many nev aerospace-reIaled producls and pro-
cesses have spun o from lhe iniliaI aerospace requiremenl and have provided vaIue
lo olher induslries, bolh in saIes and in produclive efciency. In addilion, lhe aero-
space induslry is a Iarge-scaIe user of olher induslries goods and services: il has been
eslimaled lhal for every 100 aerospace |obs crealed, anolher 73 are crealed in olher
induslries.
Iach of lhese faclors represenls a signicanl conlribulion lo lhe U.S. economy: coIIecliveIy,
lhey eIevale aerospace lo a key posilion among lhe nalions ma|or induslries.
Cnaracicri sii cs cj inc |n!usiru
The hislory of lhe aerospace induslry has been a saga of conlinuing ad|uslmenl lo
changing nalionaI poIicy and economic condilions. Since 1960, uclualing governmenl
demands and a variely of inlernalionaI evenls have leamed up lo produce a roIIer-coasler-
Iike saIes curve: up lo a peak, dovn lo a vaIIey. Over lhe years, lhe induslrys operalions
have become increasingIy compIex, vilh each incremenl of compIexily heighlening lhe
induslrys probIems in adapling lo change. Today, lhe induslrys unique characlerislics
make lhe adaplive process exlraordinariIy difcuIl. An underslanding of lhe difcuIlies
is besl promoled by an expIanalion of hov lhe induslry has been lransformed in lhe pasl
quarler of a cenlury.
Irior lo 1950, lhe induslry vas reIaliveIy unsophislicaled. Ils producl Iine vas enlireIy
aeronaulicaIaircrah, engines, propeIIers, avionic componenls, and accessories. Long-
run produclion of many airpIane lypes vas lhe order of lhe day. The Iabor force, during
lhe posl-WorId War II relrenchmenl period, vas Iess lhan one-hh of lhe Ialer peak.
Three-fourlhs of lhe vorkers vere moderaleIy skiIIed produclion vorkers. R & D vas
an essenliaI preIude lo produclion, bul lhe subsonic aircrah lhen being buiIl vere Iess
demanding of lechnoIogicaI advance, and R & D represenled a considerabIy Iess signi-
canl porlion of lhe lolaI vorkIoad lhan il does loday.
The lransformalion began in lhe earIy 1950s vilh lhe produclion of lhe |el-povered
supersonic miIilary airpIane, vhich broughl aboul across-lhe-board changes in lhe
induslrynev lypes of engines, lolaIIy dierenl airframes, dierenl on-board equipmenl,
nev looIing and faciIilies, and, mosl of aII, a vaslIy grealer degree of compIexily in
producls and lhe melhods empIoyed in producing lhem. Nev-airpIane performance
diclaled lhal far grealer emphasis be pIaced on R & D. The combinalion of R & D and
producl compIexily required a ma|or shih in lhe composilion of lhe vork force lo incIude
ever-increasing numbers of scienlisls, engineers, and highIy skiIIed lechnicians. AII of
C H A P T E R 1 AV I AT I O N : A N O V E R V I E W 5
lhese changes resuIled in increased emphasis on an ever more sophislicaled manageriaI
process.
WhiIe lhe induslry vas ad|usling lo lhese changes, il inheriled a nev responsibiIily:
deveIopmenl and produclion of guided missiIes, parlicuIarIy Iong-range baIIislic veapons.
Then came anolher ma|or change: lhe appIicalion of lurbine pover lo commerciaI airIiners,
vhose resembIance lo miIilary |els ended vilh lheir propuIsion syslems. The need lo
lransporl Iarge numbers of peopIe al high subsonic speeds and muIlimiIe aIliludes
invoIved a furlher modicalion of lhe induslrys melhods. IinaIIy, in lhe Iale 1950s, lhe
induslry vas assigned sliII anolher responsibiIily: fabricalion of equipmenl lo meel lhe
nalions goaIs in space expIoralion.
Iach of lhese changes compounded lhe need for change in lhe enlire induslrymore R
& D, grealer producl compIexily, more personneI per unil produced, higher skiII IeveIs in
lhe vork force, Ionger program deveIopmenl lime, and grealer need for nev faciIilies vilh
onIy singIe-program uliIily because of lheir speciaIized nalures. Such changes conlribuled
lo higher cosls of lhe endproducls, and lhe demand in lhe 1960s and 1970s for sliII more
advanced aerospace syslems furlher escaIaled bolh lhe rale of change and lhe cosls. In
defense oulpul, cosllogelher vilh lhe grealer capabiIily of lhe individuaI syslem
inuenced a lrend avay from voIume produclion and lovard laiIored manufaclure of
fever lypes of veapons and fever numbers of each lype.
A haIf-cenlury of evoIulion has Ieh lhe aerospace induslry vilh a sel of characlerislics
unique in U.S. manufacluring:
1. Ierformance demands for nev syslems require conlinuaI advancemenl of lhe lechno-
IogicaI fronlier, vhich in lurn invoIves unusuaI degrees of uncerlainly and risk.
2. ecause lhe governmenl is lhe principaI cuslomer, lhe producl Iine is sub|ecl lo
revisions in program IeveIs occasioned by changing requiremenls and funding
avaiIabiIily.
3. Iquipmenl lhal chaIIenges lhe slale of lhe arl is necessariIy coslIy, lhe more so because
requiremenls generaIIy diclale shorl produclion runs, negaling lhe economies of
Iarge-scaIe produclion.
4. TechnoIogicaIIy demanding programs require personneI emphasis in lhe higher
skiII IeveIs. Hence, Iabor inpul per unil of oulpul is subslanliaIIy Iarger lhan in olher
manufacluring induslries.
5. The combinalion of lechnoIogicaI uncerlainly and Iong Iead limes, ohen 710 years
and frequenlIy Ionger, belveen program inilialion and compIelion, makes advance
eslimalion of cosls parlicuIarIy dicuIl.
6. ecause lhere are fev cuslomers and reIaliveIy fev programs, compelilion for lhe
avaiIabIe business is inlense.
7. AII of lhese characlerislics conlribule lo exceplionaI demand for induslry capilaI, yel
prols as a percenlage of saIes are consislenlIy veII beIov lhe average for aII manu-
facluring induslries.
A I R T R A N S P O R TAT I O N 6
|ccncni c Prc| c cj inc |n!usiru
The aerospace induslry is composed of aboul 60 ma|or rms operaling some 1,000 faciIilies,
backed by lhousands of subconlraclors, vendors, and suppIiers. The principaI producl
Iineaircrah, missiIes, space syslems and reIaled engines, and parls and equipmenlis
characlerized by high performance and high reIiabiIily, and hence high lechnoIogy and
high unil vaIue.
Aclivily, as measured by saIes voIume, focuses on aircrah, bolh civiI and miIilary, vhich
accounl for aImosl 55 percenl of lhe induslrys vorkIoad. MissiIe syslems represenl aboul
6 percenl of lhe lolaI, and space fabricalion for aboul 21 percenl. In addilion, 17 percenl
comes from reIaled producls and services, vhich embrace lhe induslrys groving eorls
lo lransfer lo lhe nonaerospace seclor some of lhe lechnoIogy deveIoped in aerospace
endeavors.
SaIes in 2005 amounled lo $170 biIIion, broken dovn as foIIovs: aircrah, $89.1 biIIion:
missiIes, $15.3 biIIion: space-reIaled maleriaIs, $37.3 biIIion: and reIaled producls and
services, $28.3 biIIion. Related products and services incIude aII nonaircrah, non-space
vehicIe, and nonmissiIe producls and services produced or performed by lhose companies
or eslabIishmenls vhose principaI business is lhe deveIopmenl or produclion of aircrah,
aircrah engines, missiIe and spacecrah engines, missiIes, or spacecrah.
The earIy 1990s vere difcuIl for U.S. aerospace companies. DecIining defense spending
and a prolracled airIine recession caused U.S. aerospace saIes lo pIummel, resuIling in lhe
induslrys vorsl dovnlurn in 40 years. y 1996, lhe induslry began lo lurn around (see
TabIe 1-1). The 8 percenl rise belveen 1995 and 1996 vas IargeIy aribulabIe lo increased
saIes of civiI aircrah, engines, and parls. SaIes of missiIes have sleadiIy increased for lhe
years 20002005. This calegory shouId increase in lhe years ahead as lhe var on lerrorism
conlinues around lhe gIobe.
Changes in aerospace producl saIes are driven by lhe dynamics of lhe induslrys
cuslomer base. During lhe 1980s, lhe CoId War environmenl sel lhe lone for increased U.S.
defense spending, and aerospace companies responded accordingIy. In 1987, induslry
saIes lo lhe Deparlmenl of Defense (DOD) accounled for 56 percenl of lolaI aerospace
business. Yel federaI spending priorilies have graduaIIy changed. The end of lhe CoId
War and pressures lo baIance lhe federaI budgel Ied lo spending culs in defense programs.
Aerospace saIes lo lhe DOD feII subslanliaIIy belveen 1987 and 1999 (TabIe 1-2). There vas
a sIighl rise in defense spending in 2000 and 2001, IargeIy as a resuIl of lhe nalions var
on lerrorism foIIoving lhe lragedy of Seplember 11, 2001. Higher procuremenl spending
occurred in 2002 and beyond as lhe gIobaI var on lerrorism conlinued.
AIlhough DOD purchases conlinued lo sIide during lhe beer parl of lhe 1990s, lhe
demand for commerciaI lransporls increased signicanlIy vilh lhe resurgenl economy
and lhe relurn lo prolabiIily by lhe airIine induslry. GeneraI avialion saIes aIso increased
foIIoving passage of lhe GeneraI Avialion RevilaIizalion Acl in 1994. olh lhe airIine and
generaI avialion seclors vere signicanlIy aecled by lhe sIovdovn in lhe economy
slarling in 2000 and conlinuing lhrough 2002.
The aerospace induslry represenls one of lhe nalions Iargesl empIoyers, vilh
approximaleIy 625,000 vorkers on lhe roIIs al lhe end of 2005. Combined vilh muIlipIier
eecls on olher induslries, il is eslimaled lhal lhe aerospace induslry accounls direclIy or
indireclIy for cIose lo 2 miIIion U.S. |obs.
A Iabor-inlensive induslry, aerospace empIoys as many saIaried as produclion vorkers,
lhe highesl such ralio among comparabIe induslries. The emphasis on high-lech R & D in
C H A P T E R 1 AV I AT I O N : A N O V E R V I E W 7
lhe aerospace induslry demands a grealer number of scienlisls, engineers, and lechnicians
lhan are uliIized by mosl induslries. Al ils peak, lhe aerospace induslry empIoyed aImosl 30
percenl of aII U.S. scienlisls and engineers engaged in R & D. The gure has sliII averaged a
reIaliveIy high 15 percenl for lhe pasl 20 years or so.
Teslifying lo lhe exceIIence of U.S. aerospace producls is lhe slrong performance of lhe
induslry on lhe inlernalionaI markel. The induslry has a signicanl impacl on lhe U.S.
baIance of lrade. ack in 1967, aerospace exporls reached lhe $2-biIIion-a-year IeveI, and
in succeeding years, lhey rose sharpIy, mainIy because of deIiveries abroad of advanced-
lechnoIogy commerciaI |elIiners. In 1973, lhe induslry sel an aII-lime exporl record of
more lhan $5 biIIion, and in 1974, lhal gure increased by aImosl $2 biIIion. In 1981, lhere
vas anolher subslanliaI increase, lo a nev record of $17.6 biIIion, and in 1986, lhe gure
rose lo $19.7 biIIion, vhich represenled 9.6 percenl of lolaI U.S. exporls. In 2005, exporls
lopped $65 biIIion. Al lhe same lime, aerospace imporls have lradilionaIIy amounled lo
onIy a fraclion of lhe vaIue of goods exporled. Thus, aerospace has consislenlIy shovn a
subslanliaI lrade surpIus.
Year TolaI SaIes Aircrah MissiIes
a
Space
a
ReIaled
Iroducls &
Services
Tcia| Citi| Mi|iiaru
a
CURRINT DOLLARS
1990 $134,375 $ 71,353 $31,262 $40,091 $14,180 $26,446 $22,396
1991 139,248 75,918 37,443 38,475 10,970 29,152 23,208
1992 138,591 73,905 39,897 34,008 11,757 29,831 23,099
1993 123,183 65,829 33,116 32,713 8,451 28,372 20,531
1994 110,558 57,648 25,596 32,052 7,563 26,921 18,426
1995 107,782 55,048 23,965 31,082 7,386 27,385 17,964
1996 116,812 60,296 26,869 33,427 8,008 29,040 19,469
1997 131,582 70,804 37,428 33,376 8,037 30,811 21,930
1998 147,991 83,951 49,676 34,275 7,730 31,646 24,665
1999 153,707 88,731 52,931 35,800 8,825 30,533 25,618
2000 144,741 81,612 47,580 34,032 9,298 29,708 24,123
2001 151,632 86,470 51,256 35,215 10,391 29,499 25,272
2002 r 152,349 79,486 41,340 38,147 12,847 34,624 25,392
2003 r 146,625 72,844 32,441 40,402 13,488 35,857 24,438
2004 155,717 79,128 32,519 46,609 14,704 35,933 25,953
2005 p 170,055 89,117 39,165 49,952 15,287 37,308 28,343
2006 e 183,996 100,365 49,519 50,846 14,438 38,528 30,666
TABLE 1-1 Aerospace Industry Sales By Product Group, 19902006 (millions
of dollars)
Source: Aerospace Induslries Associalion, Aerospace Iacls and Iigures, 2005.
a
IncIudes funding for research, deveIopmenl, lesl, and evaIualion.
|
Islimale
r Revised
p IreIiminary
e Islimale
A I R T R A N S P O R TAT I O N 8
TABLE 1.2 Aerospace Industry Sales by Customer, 19872006 (millions
of dollars)
Aerospace Iroducls and Services
NASA an! ReIaled
TolaI Ocparincni Oincr Oincr Iroducls
Year SaIes Tcia| cj Ocjcnsc
a
Agcncics Cusicncrs and Services
1987 $110,008 $ 91,673 $61,817 $ 6,813 $23,043 $18,335
1988 114,562 95,468 61,327 7,899 26,242 19,094
1989 120,534 100,445 61,199 9,601 29,645 20,089
1990 134,375 111,979 60,502 11,097 40,379 22,396
1991 139,248 116,040 55,922
|
11,739 48,379 23,208
1992 138,591 115,493 52,202 12,408 50,882 23,099
1993 123,183 102,653 47,017 12,255 43,380 20,531
1994 110,558 92,132 43,795 11,932 36,405 18,426
1995 107,782 89,818 42,401 11,413 36,004 17,964
1996 116,812 97,344 42,535 12,391 42,418 19,469
1997 131,582 109,651 43,702 12,753 53,196 21,930
1998 147,991 123,326 42,937 13,343 67,047 24,665
1999 153,707 128,089 45,703 13,400 68,986 25,618
2000 144,741 120,617 47,505 13,382 59,730 24,123
2001 151,632 126,360 50,118 14,481 61,761 25,272
2002r 152,349 126,958 57,701 16,385 52,872 25,392
2003r 146,625 122,188 64,009 15,522 42,656 24,438
2004 155,717 129,764 70,085 16,000 43,679 25,953
2005p 170,055 141,173 74,261 17,389 50,063 28,343
2006e 183,996 153,330 74,933 17,788 60,609 30,666
Source: Aerospace Induslries Associalion, Aerospace Iacls and Iigures, 2005.
a
IncIudes funding for research, deveIopmenl, lesl, and evaIualion.
|
Islimale.
r Revised
p IreIiminary
e Islimale
|n!usiru Supp| i crs
Aerospace producls perform very sophislicaled funclions and are compIex and coslIy
lo manufaclure. ecause of lhis, aerospace companies do nol aempl lo design and
assembIe nished producls enlireIy in-house. Inslead, companies speciaIize and, vhere
appropriale, conlracl vork oul lo olher companies. A ma|or aircrah manufaclurer may
use over 15,000 suppIiers in ils lransporl manufacluring aclivilies.
Il shouId be noled lhal aerospace suppIiers are predominanlIy U.S. companies. In facl,
dala from 2005 indicale lhal imporls of aircrah parls, engines, and engine parls amounled
lo $27.8 miIIion or approximaleIy onIy 19 percenl of lolaI U.S. aerospace saIes. In lhe case
of oeing, Iess lhan 4 percenl of ils suppIier base is Iocaled overseas, and lhe foreign
conlenl of ils commerciaI |els averages 13 percenl. In shorl, aerospace heIps drive lhe
domeslic economy.
NaluraIIy, lhe Iargesl amounl of economic aclivily invoIved in lhe assembIy of aerospace
producls occurs among aerospace companies lhemseIves. One aerospace rm may be
responsibIe for lhe design, assembIy, syslems inlegralion, and naI lesling of a producl,
C H A P T E R 1 AV I AT I O N : A N O V E R V I E W 9
such as an aircrah. Thal company subconlracls vork lo olher aerospace manufaclurers,
vho suppIy aircrah vings, laiIs, and engines. These reIalionships vary from program lo
program, vilh companies exchanging roIes as prime conlraclor and subconlraclor. The
mosl recenl gures suggesl lhal lhis inlerchange, or inlra-induslry lrade, accounls for
approximaleIy 34 percenl of aerospace purchasing aclivily.
In addilion, much of lhe aerospace seclors impacl on lhe U.S. economy arises from lhe
induslrys posilion as a ma|or consumer of goods and services suppIied by rms oulside
of aerospace. These services incIude IegaI assislance, adverlising, accounling, and dala-
processing aclivilies. Olher service induslries lhal are prominenl aerospace suppIiers
incIude vhoIesaIe and relaiI lrade, nance, and insurance.
The imporlance and vaIue conlenl of eIeclronic componenls in aerospace endproducls
have grovn signicanlIy in recenl years. Ilems such as anlennas, eIeclronic conneclors,
and Iiquid cryslaI dispIays are incIuded vilhin lhis commodily calegory. Their groving
share of lhe vaIue of aerospace syslems and vehicIes is due principaIIy lo lvo faclors. Iirsl,
eIeclronic componenl cosls are being driven upvard by Ienlagon demands for slale-of-
lhe-arl lechnoIogy. This demand, coupIed vilh lhe shorl produclion runs inherenl in mosl
miIilary programs, has increased lechnoIogy unil cosls. Second, in an aempl lo reslrain
miIilary spending, lhe DOD has poslponed nev producl acquisilions and inslead has
been upgrading exisling veapons syslems vilh improved avionics. The cosls of eIeclronic
componenls are cIearIy rising reIalive lo lhose of olher inpuls.
Olher imporlanl commodilies purchased by lhe aerospace induslry incIude primary,
nonferrous melaIs (for exampIe, copper, aIuminum, Iead): radio, TV, and communicalions
equipmenl: and scienlic and conlroIIing inslrumenls.
Tnc Gctcrnncni Markci
Despile groving percenlages of nongovernmenl and nonaerospace business, induslry
aclivily is sliII dominaled by governmenl conlracls vilh lhe DOD and lhe NalionaI
Aeronaulics and Space Adminislralion (NASA), a faclor lhal has imporlanl eecls on lhe
induslrys economic slalus. IreIiminary saIes gures for 2006 indicale lhal approximaleIy
$93 biIIion of lhe lolaI saIes vere lo lhese lvogovernmenl agencies (see TabIe 1-2).
Defense Contractors The oplimism lhal foIIoved lhe breakup of lhe former Soviel
Union vas repIaced by lhe reaIily of lhe Iersian GuIf War in 1991 and vhal il signied:
conlinued regionaI lhreals from various corners of lhe vorId. Iasl on lhe vars heeIs came
lhe conicl in lhe aIkans and an underslanding lhal peace vas equaIIy lhrealened by
Iuropean regionaI and elhnic lensions. NonelheIess, lhe miIilary arsenaIs of lhe ma|or
povers cIearIy vere loo Iarge once lhe possibiIily of conicl belveen lhe Uniled Slales
and lhe former Soviel Union vas grealIy diminished.
The process of ad|usling lo lhe posl-CoId War era is sliII under vay. The defense forces
of lhe Uniled Slales, ils Weslern aIIies, and lhose of lhe former Soviel bIoc nalions are
decIining in size, nucIear arsenaIs are being dismanlIed, and lhe defense induslriaI bases
of ma|or CoId War pIayers are shrinking and consoIidaling.
Leading up lo lhe calaslrophic evenls of 9/11, defense companies experienced decreases
in business as a resuIl of dvindIing governmenl conlracls. Companies cul cosls by
lrimming personneI al aII IeveIs. In lhe Uniled Slales, aerospace saIes lo lhe DOD decIined
from a high of $61.8 biIIion in 1987 lo $47.6 biIIion in 2001. TolaI empIoymenl feII from
1.3 miIIion in 1987 lo an eslimaled 794,000 al year-end 2000, IargeIy as a resuIl of defense
A I R T R A N S P O R TAT I O N 1 0
culbacks. MiIilary aircrah-reIaled |obs decIined from 656,000 in 1986 lo 459,000 by year-
end 2000. Despile lhe drops in business, defense companies impacled by a Iesser number
of conlracls overcame lhe chaIIenge of keeping key lechnicaI leams in pIace lo mainlain
lhe lechnoIogy capabiIilies on vhich lhe chances for fulure conlracls resl. In 2006, business
has picked up as a resuIl of conlinued lerrorism lhreals and poIilicaI inslabiIily in lhe
MiddIe Iasl.
Companies are aIso focusing on improving lheir design and manufacluring processes
and procedures, such as concurrenl engineering and invenlory conlroI, lo enhance
produclivily and compeliliveness. They are reslrucluring by eIiminaling Iess prolabIe
Iines of business and adding nev capabiIilies. Many companies are slriving for grealer
baIance belveen defense and commerciaI vork, vhiIe olhers concenlrale on lhe core
defense business in vhich lhey are slrong.
The induslry conlinued ils consoIidalion lhroughoul lhe 1990s. The merger of Marlin
Mariea and GI Aerospace made Marlin Mariea lhe Iargesl defense eIeclronics company
in lhe vorId unliI lhe mid-1990s, vhen Lockheed purchased Marlin. Lockheed venl on
lo purchase lhe laclicaI aircrah business from GeneraI Dynamics, vhich signicanlIy
slrenglhened lhal companys posilon as a Ieading producer of ghler aircrah. The purchase
by Hughes Aircrah of lhe missiIe division from GeneraI Dynamics enabIed Hughes lo
move inlo a |oinl Iead vilh Raylheon in missiIe produclion and saIes unliI Raylheon
acquired Hughess missiIe division. In 1998 Texas Inslrumenls became a parl of Raylheon.
Laler, oeing acquired lhe Hughes saleIIile division. Olher ma|or acquisilions vere lhe
purchase by LoraI of LTVs missiIe division and by lhe CarIyIe Group and Norlhrop of
LTVs aircrah division.
In addilion lo consoIidalion in lhe defense seclor, some companies vilh exisling civiI
and miIilary producl mixes are laking sleps lo expand lheir nondefense aclivilies or lo
move inlo reIaled areas. oeing is aIIocaling resources lo ils nev 777 lransporl program.
Raylheon purchased lhe corporale |el unil of rilish Aerospace lo expand ils commerciaI
aircrah business. Texlron purchased GeneraI Dynamics Cessna Aircrah Company. ul
lhese vere onIy lhe mosl sizabIe and nevsvorlhy of many mergers and acquisilions as
aerospace and reIaled business divisions svilched hands.
U.S. companies leamed up lo perform R & D and lo bid on governmenl vork. They are
seing up |oinl venlures and olher arrangemenls (somelimes incIuding foreign parlners)
lo appIy lechnoIogy deveIoped for miIilary purposes lo commerciaI aerospace and
nonaerospace markels. The anlicipaled grovlh of lhe civiI aircrah business inviles lhe
appIicalion of lechnoIogy lo commerciaI avionics, air lrafc conlroI syslems, and aircrah
mainlenance and upgrades.
Olher civiI business opporlunilies being soughl incIude highvay lrafc managemenl,
lhe polenliaI eIeclric car markel, hazardous vasle and veapons disposaI, high-speed dala
lransmission, environmenlaI sensing, space saleIIile communicalions, Iav enforcemenl
(aircrah surveiIIance, smarl compuler-Iinked poIice cars, biosensing of drugs and
bomb-making chemicaIs), Iarge-screen leIevision and home TV saleIIile service, sohvare
conversion, faclory aulomalion, Iighl-raiI syslems, and ceIIuIar leIephone syslems.
AIlhough lhe range of nev business is exlensive, il viII lake lime lo deveIop markels. The
amounl of nev business viII nol lolaIIy osel Iosl defense procuremenl doIIars for years
lo come, if al aII.
As companies deaI vilh nanciaI pressures, a smaIIer markel, and uncerlainly aboul
DOD acquisilions, nol surprisingIy, R & D spending is dovn, as is capilaI inveslmenl,
vilh fev exceplions.
C H A P T E R 1 AV I AT I O N : A N O V E R V I E W 1 1
Wilh lhe end of lhe procuremenl budgel decIine nol yel in sighl, defense conlraclors are
more dependenl on a baIanced governmenlinduslry sharing of lhe vork performed in
governmenl Iaboralories and service mainlenance depols. MiIilary exporls are aIso more
imporlanl bolh as a share of lolaI defense saIes and as an aid lo preserving lhe lechnoIogy
and produclion base lhal keeps dovn lhe cosl of defense syslems for U.S. laxpayers.
NASA. The days of lhe ApoIIo program, vhen annuaI reaI increases in U.S. governmenl
space spending vere lhe norm, are Iong pasl. The Cna||cngcr space shuIe disasler of
Ianuary 28, 1986, and reduced spending on discrelionary programs resuIled in grealer
congressionaI scruliny of civiI space budgels. In addilion, space eorls have been
lempered by lhe diminished compelilion from lhe Russian space program and lhe end
of lhe ideoIogicaI compelilion belveen lhe Ieading capilaIisl and lhe ma|or communisl
nalions. The Ioss of lhe Space ShuIe Cc|un|ia on Iebruary 1, 2003, has Ied lo furlher
examinalion of space spending.
Yel many U.S. poIicymakers aIso recognize lhe imporlance of space from a lechnicaI,
environmenlaI, and commerciaI slandpoinl. As defense programs shed skiIIed vorkers,
a heaIlhy space seclor is vieved as a mechanism lhal can reabsorb some of lhe laIenl
lhal becomes avaiIabIe. In addilion, lhe commerciaI segmenl of lhe induslry, parlicuIarIy
leIecommunicalions, has been a grovlh area in an olhervise lroubIed aerospace markel.
InvironmenlaI probIems are receiving grealer aenlion loday, and lhe abiIily lo monilor
gIobaI varming, ozone depIelion, and cIimalic changes from space is a vaIuabIe capabiIily.
A variely of space pIalforms are needed lo meel lhese needs.
The cumuIalive eecl of lhese opposing forces is a NASA budgel lhal, vhiIe nol
decIining, is aIso nol shoving any signs of reaI grovlh. Since 1990, NASA spending has
been al. In addilion, some funds lhal once vere earmarked for space programs viII
inslead be shihed inlo aeronaulicaI pro|ecls: lhe space slalion program viII experience lhe
grealesl culbacks. ConsequenlIy, U.S. governmenl funding for civiI space aclivilies is nol
expecled lo rise signicanlIy any lime soon. Companies remaining in lhis business viII
have lo be very skiIIfuI al seIecling vhich space programs viII demonslrale relurns vilhin
a zero-grovlh NASA budgel. This silualion may prompl U.S. companies lo seek foreign
opporlunilies vilh grealer vigor.
Tnc Ci ti | Ati aii cn Markci
The Uniled Slales lradilionaIIy has been lhe Iargesl markel oulside of lhe former Soviel
Union for commerciaI lransporls, heIicoplers, and generaI avialion aircrah. CIose lies
belveen U.S. manufaclurers and lheir domeslic cuslomers have provided U.S. aerospace
companies vilh a soIid saIes base.
AIlhough lhe domeslic markel viII remain vilaI lo U.S. aircrah programs, lhe economies
of scaIe necessary for success in lodays commerciaI markel compeI manufaclurers lo lake
an inlernalionaI approach. This is due lo lhe facl lhal an enormous amounl of capilaI is
required lo cover lhe deveIopmenl and looIing cosls associaled vilh a nev program. Ior
exampIe, lhe cosl of Iaunching a commerciaI lransporl program loday is approximaleIy
$5 biIIion. Manufaclurers musl vail aboul four years before deIiveries begin and revenue
is generaled from lheir iniliaI inveslmenls. Compared lo olher induslries, lhe cuslomer
base for commerciaI passenger |els is Iimiled and lhe voIume of orders is Iov. GeneraIIy,
belveen 400 and 600 aircrah musl be soId before a program reaches lhe break-even poinl.
These markel characlerislics aIso appIy lo olher civiI aircrah manufacluring seclors.
A I R T R A N S P O R TAT I O N 1 2
ConsequenlIy, every saIe is imporlanl in order lo pay back lhe nonrecurring cosls of R &
D and produclion looIing and lo make a prol. This is vhy exporls are an inlegraI parl of
lhe producl and markeling slralegies of civiI aircrah companies. Since 1990, foreign saIes
have accounled for over 70 percenl of commerciaI lransporl and civiI heIicopler saIes and
aboul 40 percenl of generaI avialion aircrah saIes. TolaI civiI aerospace exporls reached
more lhan $55 biIIion in 2005.
CiviI aircrah manufaclurers have had a gIobaI viev for some lime, as lheir exporl
gures indicale, bul recenl changes in markel condilions have increased lhe need for
lhem lo remain commied lo an inlernalionaI slralegy.
Air Transport. The principaI civiI avialion producl is lhe airIine lransporl. The
lradilionaI and obvious difcuIly in lhis area is lhe facl lhal saIes depend on lhe
nanciaI heaIlh of anolher induslrylhe vorIds airIines. The need for nev |elIiners is
evidenl. The vorId lransporl eel is aging, and lhe oIder, Iess efcienl aircrah musl be
repIaced. Aher reaching a high of 589 unils in 1991, lhe number of shipmenls decIined
precipilousIy during lhe earIy 1990s as lhe economy venl inlo recession and lhe airIines
Iosl $13 biIIion during lhe rsl four years. The economy rebounded by lhe mid-1990s,
and lhe orders poured in as lhe airIine induslry relurned lo prolabiIily. The number of
lransporl aircrah shipmenls reached a peak of 620 in 1999, vhen lhe induslry recorded
record prols. Once again, lhe economy sIoved dovn in 2000 and feII inlo recession in
2001. The lragedy of Seplember 11, 2001, exacerbaled lhe decIine, and lhe carriers Iosl
$7.7 biIIion for lhe year. Transporl aircrah shipmenls foIIoved lhe decIine during lhe
rsl fev years of lhe 21sl cenlury (see TabIe 1-3).
efore WorId War II, more lhan lvo dozen companies vere in lhe business of
designing and buiIding Iarge commerciaI airIinersIarge al lhal lime meaning 20 seals
or moreaImosl aII for airIines in lheir home counlries. Today, lhe number of prime
manufaclurers of Iarge airIinersand lhal nov means 100-pIus sealsis dovn lo lvo:
oeing and Airbus. In 1997, oeing proposed a merger vilh McDonneII-DougIas for
an eslimaled $14 biIIion. AIlhough lhe proposed merger drev severe crilicism from
Airbus, il vas approved.
The vinnoving-oul in lhis induslry has happened for many reasons, lhe chief one being
lhe cosl of deveIoping nev aircrah. As one generalion of aircrah has succeeded anolher,
lhe cosls of buiIding lhe Ialesl aircrah and designing ils successor have risen exponenliaIIy.
Combined vilh lhe uncerlainlies of lhe markelpIace, lhe spiraIing cosl of deveIopmenl
and earIy produclion of nev aircrah has made lhe commerciaI aircrah business a risky
venlure.
Since dereguIalion in lhe Iale 1970s, lhe lrend has been lovard Iess and Iess
dierenlialion vilhin lhe airIine induslry as lhe airIines have compeled more and more
on lhe basis of price and scheduIe and as some of lhe oIdesl and proudesl names in lhe
induslry have disappeared lhrough merger or bankruplcy. In making lheir purchasing
decisions, lhe airIines, in lurn, have increasingIy focused on a singIe faclor: vhich of lhe
various aircrah avaiIabIe lo lhem in a fev dislincl calegories is lhe Iov-cosl soIulion lo
lhe lask of carrying a cerlain number of passengers a cerlain dislance` Iach of lhe lvo
ma|or compelilors slrives lo enler nev markels ahead of lhe olher by deveIoping nev
and more cosl-efcienl aircrah, and each one lries lo defend ils markels in lhe absence
of any naluraI barriers on lhe slrenglh of being lhe Iov-cosl producer.
oeing has been abIe lo mainlain approximaleIy 60 percenl of lhe markel for Iarge
|el lransporls in an increasingIy compelilive gIobaI markel. The companys commerciaI
C H A P T E R 1 AV I AT I O N : A N O V E R V I E W 1 3
lransporl producls incIude lhe 737, 747, 757, and 767 modeIs: lhe Ialesl, lhe 777, enlered
service in 1995. oeings mosl formidabIe compelilor has been and viII conlinue lo be
Airbus Induslrie. Airbus Iaunched ils rsl aircrah, lhe A300, |usl 30 years ago. y 1995,
Airbus had caplured approximaleIy 30 percenl of lhe vorIdvide markel for commerciaI
|el lransporls. Airbuss goaI is lo increase furlher ils markel share in lhe Uniled Slales and
abroad: lhe companys Ialesl design, lhe 555-seal A380, vhich made ils rsl ighl in 2005,
aims lo see lhal lhis goaI is reached.
Ixlensive IeveIs of governmenl subsidizalion by Irance, Germany, lhe Uniled Kingdom,
and Spain have enabIed Airbus lo deveIop a fuII famiIy of aircrah vilhoul ever having
made a prol, lo price lhese aircrah vilhoul fuII cosl recovery, and lo oer concessionary
nancing lerms lo cuslomers. oeing and McDonneII-DougIas ob|ecled slrenuousIy
lo lhis praclice, cIaiming unfair compelilion. Airbus, in lurn, cIaimed lhal oeing and
McDonneII-DougIas beneled over lhe years from lhe Iarge miIilary conlracls lhal have
osel a Iarge parl of lheir R & D expenses. In facl, lhe Uniled Slales has Iong had a defense
budgel doubIe lhal of Weslern Iurope, vilh a Iarge inveslmenl in miIilary aircrah R & D
and Iong produclion Iines.
WhiIe bolh oeing and Airbus vere abIe lo oer cuslomers a fuII range of |elIiners,
McDonneII-DougIas vas unabIe lo. Wilh a Iimiled producl range, McDonneII-DougIas
dropped from being number lvo in lhe commerciaI aircrah markelpIace in lhe Iale 1970s,
vilh more lhan a 20 percenl share of lhe lolaI vorId backIog, lo number lhree in 1995,
vilh Iess lhan a 10 percenl share. McDonneII-DougIas vas subsequenlIy purchased by
oeing.
TABLE 1-3 Civil Aircraft Shipments, 19922006
Number of Aircrah Shipped VaIue (miIIions)
Transpcri Gcncra| Transpcri Gcncra|
Year Tcia| Aircrah
a
Hc|iccpicrs Atiaiicn Tcia| Aircrah
a
Hc|iccpicrs Atiaiicn
1992 1,790 567 324 899
|
30,728 28,750 142 1,836
|
1993 1,630 408 258 964 26,389 24,133 113 2,144
1994 1,545 309 308 928 20,666 18,124 185 2,357
1995 1,625 256 292 1,077 18,299 15,263 194 2,842
1996 1,662 269a 278 1,115 20,805 17,564e 193 3,048
1997 2,269 374 346 1,549 31,753 26,929 231 4,593
1998 3,115 559 363 2,193 41,449 35,663 252 5,534
1999 3,456 620 361 2,475 45,161 38,171 187 6,803
2000 3,780 485 493 2,802 38,637 30,327 270 8,040
2001 3,559 526 415 2,618 42,399 34,155 247 7,997
2002 2,893 379 318 2,196 35,000 27,574 157 7,269
2003 2,928 281 517 2,130 27,523 21,033r 366 6,124
2004 3,440 283 805 2,352 27,682 20,484 515 6,683
2005p 4,171 290 925 2,956 31,150 21,900 750 8,500
2006e 4,006b 400 650 NA 39,385b 30,200 685 NA
Source: Aerospace Induslries Associalion, based on company reporls, dala from lhe GeneraI Avialion Manufaclurers Associalion, and
AIA eslimales.
a
IncIudes aII U.S.-manufaclured civiI |el lransporl aircrah pIus lhe lurboprop-povered Lockheed L-100.
|
Due lo an unavaiIabiIily of generaI avialion forecasl dala, 2006 lolaIs incIude 2005 generaI avialion gures for lhe purpose of eslimaling.
e Islimale.
NA Nol avaiIabIe.
p IreIiminary.
r Revised.
A I R T R A N S P O R TAT I O N 1 4
The cosl of deveIoping nev airpIanes has become slaggering. Ivery lime a company
Iike oeing moves forvard vilh a nev program, il is essenliaIIy puing ils enlire nel vorlh
on lhe Iine. Inormous fronl-end inveslmenls musl be made for a relurn lhal viII nol be
reaIized unliI many years Ialerif al aII. oeings program lo deveIop and manufaclure
lhe 350-seal 777 airpIane provided a good exampIe of lhe enormily of lhe chaIIenge. The
company spenl biIIions lo deveIop lhe nev airpIane, vhich invoIves severaI lhousand
suppIiers and over 800,000 dierenl parls.
As Airbus and oeing conlinue lo compele, lhey are forced lo deveIop nev producls and
services lhal are araclive lo an exisling and polenliaI cuslomer base. olh manufaclurers
are going head-lo-head on deveIopmenl of nev aircrah lechnoIogy lhal viII revoIulionize
lhe fulure of air lransporlalion. Airbus is Iaunching lhe A350 in response lo oeings 787
DreamIiner. olh aircrah are being deveIoped vilh lvin-engines capabIe of ying 250 lo
300 passengers on Iong dislance roules al cosls much Iess lhan lodays modern aircrah.
olh aircrah viII be Iighl in veighl consisling of composile maleriaIs amounling lo
signicanl decreases in fueI cosls.
AIlhough lhe cosl of deveIoping nev airpIanes is enormous, lhe cosl of nol moving
ahead is even grealer. A companys abiIily lo mainlain ils posilion as a gIobaI aerospace
manufaclurer depends fundamenlaIIy on ils capilaIizing on nev markel opporlunilies. In
inslances in vhich lhe markel is Iimiled or lhe barriers lo enlry are prohibiliveIy high for
one company, inlernalionaI coIIaboralion may be lhe vave of lhe fulure.
AIlhough U.S. aerospace companies have dominaled lhe gIobaI markel for many years,
lhe use of overseas suppIiers of componenls and subassembIies is increasing. There is
nolhing slrange aboul lhal, because lvo-lhirds of lhe vorId markel for Iarge airIiners exisls
oulside lhe Uniled Slales. Though companies in counlries such as IlaIy and Spain have
been ma|or suppIiers for many years, lhe nalions of Asia and lhe Iacic Rim coIIecliveIy
have been dislinclIy minor suppIiers. Thal is bound lo change, for lvo reasons: lhose same
counlries aIready accounl for a subslanliaI porlion of lhe vorId markel for commerciaI
airIiners (20 percenl and groving rapidIy), and lhey pIainIy have bolh lhe desire and lhe
capabiIily lo parlicipale in lhe produclion of nev aircrah.
UnqueslionabIy, inlernalionaI coIIaboralion is a key slralegy in lhe broader eorl lo
remain compelilive in lhe aerospace induslry. Ioinl programs in vhich lhe parlners share
cosls oer a means of generaling lhe requisile capilaI for advanced commerciaI airpIane
and engine deveIopmenl in lhe face of high and rising cosls. They aIso give lhe U.S.
companies invoIved access lo foreign markels lhal mighl olhervise be denied lo lhem
in viev of lhe lrend lovard direcled procuremenl. Oseing lhese advanlages lo some
exlenl is lhe facl lhal |oinl U.S.-foreign venlures inevilabIy slrenglhen lhe lechnoIogicaI
capabiIilies of foreign induslry. In shorl, sharing American knov-hov mighl prove coslIy
in lhe Iong run, because il furlher enhances lhe compelilive poslure of foreign companies.
ul sharing, il shouId be remembered, is a lvo-vay slreel.
|acicrs Aj j ccii ng Ccnncrci a| Transpcri Sa| cs
Conlinued markel Ieadership of U.S. aircrah manufaclurers is cIoseIy lied lo lhe exislence
of heaIlhy, prolabIe U.S. airIines. The huge size of lhe U.S. domeslic markel has been
imporlanl lo U.S. manufaclurers by providing lhem vilh lhe broad base of demand
necessary lo Iaunch nev aircrah programs. TradilionaIIy, over 40 percenl of commerciaI
|els on order from U.S. manufaclurers have been deIivered lo U.S. airIines. These aircrah
make up one-lhird of lhe vaIue of lhe manufaclurers backIog of unIIed orders. Large
C H A P T E R 1 AV I AT I O N : A N O V E R V I E W 1 5
order voIumes heIp manufaclurers spread cosls over a Iarger produclion run, vhich aIIovs
lhem lo reduce lheir unil cosls and be more compelilive. Nov more lhan ever, as lhey
seek lhe exporl saIes cruciaI lo markel Ieadership, manufaclurers need lhe foundalion of
a slrong U.S. saIes base.
y lhe end of 1993, lhe airIine induslry vas in a laiIspin. Iassenger and freighl lrafc
vas slagnanl, aircrah by lhe hundreds had been pIaced in slorage, induslry Iosses and
debls vere mounling, and aircrah orders vere being canceIed. The dovnlurn had aIso
spread lo lhe commerciaI lransporl seclor, and aircrah manufaclurers vere forced lo scaIe
back produclion and Iay o lhousands of vorkers.
y 1997, hovever, lhe airIine induslry vas laking o. Air lrafc and prols vere back
up, and nel orders for U.S. lransporls |umped from 256 in 1995 lo 620 in 1999. The pace of
lhis recovery Ieh commerciaI aircrah producers slruggIing lo keep up.
CiviI avialion has a hislory of cycIes, and vilh lhe sIovdovn of lhe economy in 2000
shipmenls began lo lumbIe. Aircrah companies are impIemenling programs lo reduce
lhese markel svings. AIso, some economisls are suggesling lhal business cycIes in
generaI shouId be Iess severe due lo faclors such as dereguIalion and gIobaI compelilion.
NeverlheIess, severaI faclors slrongIy inuence cycIes in lhe air lransporl induslry.
Economic Growth. Iconomic grovlh has a lremendous impacl on lhe civiI avialion
markel. Il is imporlanl because il broadIy inuences lhe demand for air lransporlalion
services, vhich, in lurn, aecls aircrah orders and deIiveries. During periods of economic
grovlh, companies buiId and service nev oulIels, vhich Ieads lo an increase in business
lraveI. In addilion, famiIy incomes generaIIy rise, vhich resuIls in grealer spending on
Ieisure lraveI. Yel, lhe reverse is aIso lrue: vhen economic oulpul faIIs, businesses cIose
faciIilies, unempIoymenl rises, and air lrafc decIines.
The correIalion belveen economic grovlh and air lraveI has been recognized by anaIysls
for many years. A generaIIy accepled ruIe of lhumb hoIds lhal lhere is a 2.53 percenl
increase in vorId air lrafc for every 1 percenl increase in vorId economic grovlh.
Ination. Inalion is imporlanl because il inuences economic grovlh. When prices
are slabIe, inleresl rales lend lo be Iov, and lhis encourages inveslmenl and business
expansion. When prices rise quickIy, inleresl rales aIso cIimb. IvenluaIIy, high inleresl
rales viII inhibil economic aclivily, vhich can pul a damper on air lrafc. ecause high
inleresl rales raise lhe cosl of borroving, lhey can aIso make aircrah nancing prohibilive.
In addilion, inalion can resuIl in escaIaling Iabor and fueI cosls. When lhis happens,
airIines are faced vilh lhe unpIeasanl choice of eilher absorbing lhose higher cosls or
raising lheir fares.
Inalion has grounded lhe airIine induslry on more lhan one occasion. In 1970, 1973,
1978, and 1991, air carriers faced rising fueI and Iabor cosls. During lhose same years,
inalion aIso pIunged lhe ma|or vorId economies inlo a recession, causing air lrafc and
airIine prols lo decIine.
During lhe recenl recessionary periods (19901994 and 20002002), air carriers suslained
huge Iosses. AirIines have aempled lo conlroI lheir cosls and have made il cIear lo aircrah
manufaclurers lhal lhey vanl lhe price of pIanes lo come dovn. Aircrah companies have
reduced lheir prices lhrough impIemenlalion of Iong-lerm programs aimed al cuing
cosls and improving efciencies, eorls lhal shouId benel airIines veII inlo lhe fulure.
A I R T R A N S P O R TAT I O N 1 6
Fleet Capacity. The passenger Ioad faclor is used lo measure airIine capacily uliIizalion.
The indicalor is expressed as a percenlage, reIaling lhe number of passengers ovn lo
avaiIabIe seals. When Ioad faclors are Iov, airIines have more excess Iih capacily lhan
vhen Ioad faclors are high. High Ioad faclors and rising air lrafc pIace airIines under
pressure lo buy aircrah. If Ioad faclors are rising during a business cycIe, lhis aIso suggesls
lhal airIine revenues are improving. This is imporlanl if airIines are pIanning lo order
aircrah because il enhances lheir abiIily lo purchase or Iease pIanes.
The passenger Ioad faclor for vorId airIines rose during lhe Iaer haIf of lhe 1990s, and
orders for nev aircrah reached record IeveIs. UnforlunaleIy, as vas lhe case in previous
economic dovnlurns, air lrafc decIined in lhe earIy 2000s and Ioad faclors feII, prompling
lhe air carriers lo reduce eel capacily and canceI orders. y year-end 2006, Ioad faclors
vere al normaI IeveIs and in some cases higher lhan ever.
Replacement Aircra. AirIines order aircrah lo increase lheir capacily: lhey aIso
purchase nev lransporls lo repIace lheir oIder, Iess efcienl modeIs. The advancing age
of currenl eels suggesls lhal repIacemenl orders shouId be on lhe rise lhrough lhe mid
lo Iale 2000s.
In a reIaled issue, lhe airIines vere required lo meel Iov slage 3 noise IeveIs in lhe
Uniled Slales by December 31, 1999: lhe dale in Iurope vas ApriI 1, 2002. AIlhough
many of lhe over 3,000 aircrah have been grounded, modied using engine hushkils, or
soId oulside lhe Uniled Slales and Iurope, lhere is sliII a signicanl penl-up demand for
repIacemenl aircrah.
Airline Protability. CommerciaI lransporls are expensive assels: smaIIer modeIs slarl
al approximaleIy $25 miIIion and |umbo |els cosl over $140 miIIion. To make lhese lypes
of purchases, air carriers need lo raise capilaI in lhe nanciaI markels, and lherefore,
lhey need lo demonslrale lo polenliaI inveslors lhal lheir operalions are prolabIe. Aher
Iosing biIIions of doIIars in lhe earIy 1990s, lhe airIines relurned lo prolabIe operalions
in lhe Iaer haIf of lhe decade. AirIine slocks vere soaring and oplimism prevaiIed as lhe
carriers enlered lhe nev cenlury. The economy sIoved dovn in lhe spring of 2000 and
venl inlo recession in 2001, foIIoved by lhe lragedy of Seplember 11, 2001. Once again,
lhe carriers experienced record Iosses in 2001 and 2002. US Airvays Ied for bankruplcy,
and olher ma|or carriers vere nol faring much beer. Massive empIoyee furIoughs look
pIace during lhese years. Uniled von $5.8 biIIion in vage and benel concessions from
ils empIoyees lo slave o bankruplcy. y lhe end of 2002 lhe induslry vas in shambIes.
Over 90 percenl of lhe passengers vere ying on discounl fares and Iov-cosl carriers vere
ealing avay al markel share from lhe oId-Iine airIines.
Wilh no relained earnings and slock prices al record Iovs, lhe carriers onIy source of
funds in lhe foreseeabIe fulure appears lo be lhe debl markel. This viII nol be an easy lask
because lhe carriers are aIready faced vilh a subslanliaI debl Ioad from lhe Iasl round of
aircrah purchases.
A Cyclical Industry. The civiI avialion markel is cycIicaI. This is imporlanl lo recognize
lo fuIIy undersland lhe environmenl surrounding lransporl orders and deIiveries. Since
1971, orders for U.S. lransporls have peaked ve dierenl limes, and lhe average period
belveen a lrough and a peak has been lhree years. The deIivery piclure shovs a simiIar
paern. WorId lransporl deIiveries have peaked six dierenl limes since 1960. When
deIiveries have faIIen, lhe decIines have been sleep (drops average over 50 percenl):
C H A P T E R 1 AV I AT I O N : A N O V E R V I E W 1 7
neverlheIess, deIiveries have conlinued lo rise over lhe Iong lerm. These cycIes are sel
in molion by lhe underIying forces of economic grovlh and recession and are furlher
magnied by lhe nalure of aircrah manufacluring.
In lhe relaiI induslry, ilems ohen sil on slore sheIves for veeks before lhey are soId, and
buyers usuaIIy can lake lheir purchases home lhe day lhey are boughl. ul aircrah are loo
expensive lo buiId and lhen keep in invenlory. Inslead, lhey are manufaclured onIy aher
an order is pIaced. This creales a lime Iag belveen order and deIivery dales lhal can Iasl
veII over a year.
AIso, in lhe relaiI induslry, lhere are many suppIiers. If a cuslomer has lo vail for
deIivery from one suppIier, lhal cuslomer can go lo anolher vendor oering a more
immediale response. ul again, lhe aircrah induslry is dierenl. uiIding a commerciaI
lransporl lakes an enormous inveslmenl, Iimiling lhe number of manufaclurers in lhe
business. If lhe order Iine for aircrah IIs up, cuslomers have IiIe recourse bul lo vail.
If aircrah demand rises, manufaclurers viII iniliale a nev program or increase lheir
produclion rales. UnforlunaleIy, due lo lhe looIing and suppIier Iinks lhal musl be sel up
and lhe boIenecks lhal can deveIop among slralegicaIIy imporlanl suppIiers, reaching
fuII impIemenlalion lakes lime. Ior exampIe, il look oeing lvo years lo doubIe ils
produclion rale for aII modeIs.
These silualions can creale an imbaIance belveen demand and suppIy lhal causes
orders and deIiveries lo sving abruplIy. Yel lhere is aIso a behavioraI side lo lhese cycIes.
AirIines and aircrah Ieasing companies vorry lhal lhey mighl miss a markel uplurn if lhey
are pIaced near lhe end of an ordering Iine. Al lhe rsl sign of a markel lurnaround, lhey
frequenlIy scrambIe en masse lo pIace orders. This creales a surge in orders lhal can push
back deIivery dales even furlher. As a resuIl, air carriers near lhe end of lhe Iine mighl,
in facl, receive lheir deIiveries years Ialer, as air lrafc is subsiding. These deIiveries lhen
creale an overcapacily probIem, causing aircrah orders lo sving dovnvard. Manufaclurers
vho had |usl invesled in grealer produclion capabiIily nov nd lhemseIves vilh excess
capacily, and a shuldovn reverberales lhrough lhe induslry.
These cycIes are disruplive, and aircrah manufaclurers are vorking lo minimize lhem.
Companies have Iaunched eorls lo shorlen lhe producl deveIopmenl phase and reduce
lhe lime gap belveen aircrah order and deIivery. This is being accompIished by adapling
compuler-aided design and manufacluring lechnoIogies lhal obviale lhe need lo buiId
mock-ups. To improve program communicalion and efciency, manufaclurers are using
concurrenl engineering, vhich invoIves eslabIishing leams of design, deveIopmenl,
produclion, and saIes peopIe al lhe beginning of a program. Irime conlraclors are
slrenglhening lheir reIalionships vilh lheir suppIiers and increasing lhe lvo-vay ov
of lechnoIogy. oeing, specicaIIy, is overhauIing ils produclion and syslems sohvare
lo simpIify lhe vay il lracks and handIes miIIions of parls. oeing aIso has reached
agreemenls vilh American, DeIla, and ConlinenlaI lhal viII provide lhose airIines vilh
grealer exibiIily for ordering aircrah over a 20-year period. This viII aIIeviale pressure
on lhose carriers lo order aircrah during a surge period.
Future Trends in Air Transport. The air lransporl seclor has shovn a slrong lendency
lo recover from each dovnlurn vilh reneved vigor. Iconomic grovlh and Iov inalion
have been lhe key faclors lhal have fed lhe demand for air lransporlalion. This has pushed
aircrah uliIizalion lo record IeveIs, improved airIine prols, and fueIed programs lo
repIace oIder aircrah. Togelher, lhese faclors have conlribuled lo a rise in aircrah orders.
A I R T R A N S P O R TAT I O N 1 8
NeverlheIess, civiI avialion has a hislory of cycIes, and ve can expecl lhal orders and
deIiveries viII faII.
Transporl deIiveries have been rising for lhe pasl 40 years. This suggesls lhal
deIiveries viII conlinue lo cIimb in lhe fulure. In facl, lransporl manufaclurers and
anaIysls aIike pro|ecl lhal deIiveries viII aImosl doubIe over lhe nexl lvo decades. The
key assumplion here is lhal lhe inlernalionaI economy viII conlinue lo grov.
Gcncra| Ati aii cn
Aher record shipmenls of 17,817 unils in 1978, lhe general aviation segmenl of lhe
aerospace induslry, vhich manufaclures Iighl aircrah and componenls, experienced a 16-
year dovnvard sIide in saIes. Aher reaching a Iov of 928 unils shipped in 1994, induslry
shipmenls increased for lhe remainder of lhe decade and lhrough lhe years 2000 and 2001
(see TabIe 1-3). HisloricaIIy, lhe economic cycIe of lhe generaI avialion induslry cIoseIy
paraIIeIed lhal of lhe nalionaI economy. This reIalionship changed during lhe 1980s and
earIy 1990s. High aircrah prices, inleresl rales, operaling expenses, and producl IiabiIily
cosls aII conlribuled lo lhe dovnvard cycIe. Olher anaIysls ciled changing Iife-slyIes, lax
Iavs, and foreign compelilion as furlher reasons for lhe sIuggish saIes performance of
recenl years.
The generaI avialion induslry has undergone deep and broad slrucluraI changes.
The ma|or independenl manufaclurers have been laken over by congIomerales. Texlron
acquired Cessna from GeneraI Dynamics, and eech is nov Raylheon, laking lhe name
of ils parenl company. Iiper emerged from bankruplcy and is nov operaling as lhe
Nev Iiper Aircrah Corporalion. WhiIe Raylheon and Cessna conlinue lo concenlrale on
producing muIli-engine and |el equipmenl, Cessna resumed produclion of severaI singIe-
engine modeIs in 1996 aher a 10-year hialus. This vas IargeIy in response lo passage
of lhe GeneraI Avialion RevilaIizalion Acl of 1994, vhich Iimiled producl IiabiIily suils
invoIving oIder aircrah.
usiness use of Iighl aircrah remained slrong despile lhe economic dovnlurn in lhe
1980s, for severaI reasons. SmaII aircrah are fueI-efcienl. In facl, lhey use Iess fueI per
seal-miIe lhan any olher form of air lransporlalion. A oeing 747 gels 40.7 seal-miIes
per gaIIon of fueI (mpg): a six-passenger Iiper Lance gels 89.4 mpg, lhe six-seal eech
onanza 86.4 mpg, and lhe seven-seal Cessna 207 84 mpg. Iven Iighl lvin-engine aircrah
perform beer in lerms of fueI usage lhan lhe exlremeIy efcienl oeing 777.
Iurlhermore, airIines require considerabIe ground supporl faciIilies, such as lugs,
shuIe buses, baggage lrucks, and healed and air-condilioned ofces and lerminaIs, mosl
of vhich use pelroIeum-based energy. RareIy is a ma|or airIine lerminaI as cIose lo a
persons uIlimale deslinalion as is a generaI avialion airporl. Irivale-use aircrah can y
slraighl lo lheir deslinalions, vhereas airIines frequenlIy use indirecl roules vilh one
or more slops aIong lhe vay. This has been parlicuIarIy lrue in recenl years vilh lhe
eslabIishmenl of hub airporls by lhe ma|or carriers.
The efcienl use of lime is anolher reason generaI avialion viII expand. As our energy
probIems deepen and lhe airIines seek lo make more efcienl use of coslIy fueI, il viII be
increasingIy difcuIl lo reach many Iocalions via scheduIed carriers. OnIy lhose roules
lhal generale high Ioad faclors viII conlinue lo be viabIe, vhich means lhal lhe lrend
viII be lovard decreased airIine service. Iever lhan 5 percenl of lhe nalions airporls
have airIine service nov, and lhe ma|orily of ighls serve onIy 30 ma|or cenlers. Il ohen is
nol possibIe using lhe airIines lo lraveI in one day belveen such cilies as Nev York and
C H A P T E R 1 AV I AT I O N : A N O V E R V I E W 1 9
Lexinglon, Kenlucky: Chicago and CharIeslon, Wesl Virginia: or San Irancisco and SaIem,
Oregon. In lhe fulure, generaI avialion viII be lhe onIy lime-eeclive means of lraveI
belveen many of lhe pIaces business-peopIe need lo go.
The upvard lurn in unils shipped and parlicuIarIy doIIar voIume has ushered in a nev
vave of oplimism lo lhe generaI avialion seclor. UnqueslionabIy, generaI avialion is here
lo slay, bul as in lhe air lransporl segmenl, manufaclurers viII conlinue lo experience ups
and dovns vilh changes in lhe economic cycIe, |usl as lhey have in lhe pasl.
To salisfy lhe need for pubIic lransporlalion, lhere viII be considerabIe grovlh in lhe
lhird-IeveI, or commuler/regionaI, airIines, lhose operalors vho oer scheduIed service in
Iarger generaI avialion and shorl-hauI lransporl aircrah. Commuler/regionaI carriers viII
Iink a number of smaII cilies vilh Iov passenger voIumes as lhe Iarger carriers concenlrale
lheir services in lhe high-densily markels.
Helicopters. SaIes of U.S.-manufaclured civiI heIicoplers conlinued lo faII during lhe earIy
1990s (see TabIe 1-3). The heIicopler induslrys lrade baIance, posilive lhrough lhe 1980s,
vas negalive lhrough lhe earIy 1990s. (Il shouId be noled lhal much of U.S. manufaclurer
eII HeIicoplers produclion is based in Canada and lhus is nol counled as a U.S. exporl
vhen shipped abroad.) Today, Iighlveighl, singIe-engine modeIs dominale U.S. rolorcrah
shipmenls, vhiIe Irench/German-ovned Iurocopler is lhe Iargesl manufaclurer of Iarger,
more expensive modeIs. OveraII, foreign manufaclurers shouId conlinue lo increase lheir
share of lhe lolaI vorId markel even as U.S. manufaclurers gain ground, as evidenced by
lhe uplurn in shipmenls since 1996.
|c| aic! Prc!ucis an! Scrti ccs
TechnoIogy is simpIy knovIedge, and il has a high degree of lransferabiIily: lhe knov-hov
acquired in expIoring aerospace fronliers can be pul lo vork lo provide nev producls and
services of a nonaerospace nalure, vilh resuIlanl benels lo lhe economy as a vhoIe.
Ior many years, lhe aerospace induslry has pursued a program of lechnoIogy lransfer
in an eorl lo make broader use of ils veaIlh of knov-hov. The lransfer process has
been hampered by lhe Iack of an aggregaled markel such as lhal provided by lhe federaI
governmenl or lhe airIines in aerospace vork. In nonaerospace aclivily, lhe induslry
has operaled IargeIy on a singIe-pro|ecl, singIe-Iocalion basis, vorking vilh individuaI
federaI, slale, and IocaI governmenl agencies and olher cuslomers lo lransfer lechnoIogy
in such areas as medicaI inslrumenlalion, hospilaI managemenl, mass lransporlalion,
pubIic safely, environmenlaI proleclion, and energy.
Despile lhe Iack of an aggregaled markel, lhe resuIls have been impressive in lerms of
induslry saIes voIume, parlicuIarIy in mosl recenl years. In 1973, saIes for reIaled producls
and services lopped $3 biIIion: bul by 2005, lhey had reached approximaleIy $28 biIIion
(see TabIe 1-1).
A I R T R A N S P O R TAT I O N 2 0
THE AIR TRANSPORTATION INDUSTRY
The air transportation industry incIudes aII civiI ying performed by cerlicaled air
carriers and generaI avialion. ecause lhis induslry is lhe ma|or focus of lhis lexl, il is
imporlanl lo dene exaclIy vhal ve mean by lhe lerms ccriicaic! air carricrs and gcncra|
atiaiicn.
The CiviI Aeronaulics Acl of 1938 dened and eslabIished various cIassicalions vilhin
avialion:
1
Air carrier means any cilizen
2
of lhe Uniled Slales vho underlakes- lo engage in air lrans-
porlalion.
3
Air lransporlalion means inlerslale- lransporlalion.
4
Inlerslale air lransporlalion- mean|s] lhe carriage by aircrah of persons or properly as
a ccnncn carricr jcr ccnpcnsaiicn cr nirc.
5
|Imphasis added.] No air carrier shaII engage in any
air lransporlalion unIess lhere is in force a cerlicale issued by lhe CiviI Aeronaulics oard
aulhorizing such air carrier lo engage in such lransporlalions.
6
Reading lhese seclions of lhe acl logelher, one sees lhe airIine business as dened by
Congress. The key vords are ilaIicized: ccnncn carricr and ccnpcnsaiicn cr nirc. Therefore,
lhe appropriale lerm for airIines is nol ccnncrcia| air|incs. bul certicated (common) air
carriers.
Having IegaIIy dened air carrier avialion, lhe acl venl on lo dene olher lypes of
avialion in a second calegory in lhe foIIoving vay:
Air commerce means inlerslale commerce or any operalion or navigalion of aircrah vilhin
lhe Iimils of any IederaI airvay or any operalion or navigalion of aircrah vhich direclIy aecls,
or vhich may endanger safely in inlerslale air commerce.
7
Inlerslale air commerce mean|s] lhe carriage by aircrah of a person or properly jcr ccn-
pcnsaiicn cr nirc- or lhe operalion or navigalion of aircrah in lhe conducl or furlherance of a
business or vocalion, in commerce- belveen any Slale and any olher Slale .
8
The rsl paragraph, vhich is aII-incIusive and embraces aII non-air carrier avialion, denes
gcncra| atiaiicn as ve knov il: noncommerciaI or pritaic use. Thal paragraph is modied
by lhe second one quoled, vhich goes on lo dene lvo subparls of generaI avialion: (1)
|usincss avialion, vhere lhe aircrah is used in lhe conducl or furlherance of a business
or vocalion, and (2) ccnncrcia| avialion, vhere peopIe are carried for compensalion or
hire, bul nol as a common carriernole lhal lhose vords are omied. Today, generaI
1
The Ianguage has been rearranged and cerlain vords omied for lhe purposes of cIarily.
2
A cilizen may be an individuaI or a corporalion.
3
Seclion 101(3).
4
Seclion 101(10).
5
Seclion 101(2).
6
Seclion 401(a) |Cerlicale of pubIic convenience and necessily]. A common carrier is a person or company in
lhe business of lransporling lhe pubIic or goods for a fee.
7
Seclion 101(4).
8
Seclion 101(20).
C H A P T E R 1 AV I AT I O N : A N O V E R V I E W 2 1
Ccniri |uii cn ic inc |ccncnu
avialion is commonIy described as aII civiI avialion excepl lhal vhich is carried oul
by lhe cerlicaled airIines. This segmenl of lhe induslry viII be covered in delaiI in
Chapler 4, The GeneraI Avialion Induslry. Chapler 5 provides an in-deplh reviev of
lhe airIine induslry.
Over lhe pasl 60 years, lhe air lransporlalion induslry has become an increasingIy
imporlanl parl of lhe U.S. economy. Avialion is lhe nalions dominanl inlercily mode
of lransporlalion for lhose passengers and goods lhal musl be lransporled quickIy and
efcienlIy. Il has become so universaI lhal no one queslions avialions imporlance as an
essenliaI form of lransporl.
Avialion empIoys many lhousands of peopIe, and lhousands more vork in avialions
supporl induslries, such as holeIs, reslauranls, renlaI cars, reaI eslale, conslruclion,
and manufacluring. IndividuaIs in lhese induslries benel economicaIIy from avialion
regardIess of vhelher lhey acluaIIy y.
Avialions naI producls are passengers and cargo safeIy and efcienlIy deIivered
lo lheir deslinalion. In 2004, U.S. airIines carried 698 miIIion passengers and regislered
28 biIIion lon-miIes of cargo on approximaleIy 9 miIIion scheduIed deparlures. U.S.
airIines aIso carried more lhan 11 miIIion passengers and over 6 biIIion lon-miIes of
cargo on approximaleIy 400,000 nonscheduIed deparlures. AIlhough scheduIed airIines
provide service lo aboul 800 communilies, over 5,000 communilies of aII sizes can access
lhe air lransporlalion syslem via pubIicIy ovned generaI avialion airporls, incIuding
nonscheduIed, on-demand, and charler ighls. The induslry eslimales lhal more lhan
160 miIIion passengers are carried annuaIIy aboard generaI avialion aircrah and lrends
indicale lhis slalislic is lo increase over lhe nexl decade.
Mosl peopIe are famiIiar vilh lhe avialion eIemenls lhal lhey see and useairporls,
airIines, and generaI avialion aircrah. They aIso mighl be famiIiar vilh some of lhe
supporl eIemenlsbaggage services, lraveI agenls, and olhers. Hovever, lhe avialion
induslry is much more lhan lhal: il incIudes an inlricale sel of suppIiers of a vide variely
of goods and services, aII of vhich benel economicaIIy from avialion. Wilh economic
dereguIalion of airIines in lhe Iale 1970s, air cargo nelvorks vere abIe lo faciIilale |usl-in-
lime shipping, providing expanded services al Iover cosls. Oplimizalion of |usl-in-lime
shipping aIIovs shorl produclion and deveIopmenl cycIe limes and eIiminales excessive
invenlory in lhe Iogislics chain, regardIess of faciIily Iocalion. Wilhoul lhe avaiIabiIily of
ubiquilous, reIiabIe, efcienl air express service, U.S. businesses vouId be unabIe lo reaIize
lhe compelilive economies of |usl-in-lime produclion. Air lransporlalion oers many cosl
advanlagesIover Iead limes, quicker cuslomer response limes, improved exibiIily, and
reduced invenlory. Many high-lech, high-vaIue induslries have embraced air lransporl for
ils lime and cosl advanlages in manufacluring and dislribulion and because il improves
deIivery reIiabiIily by providing lime-denile guaranlees.
One-slop shopping has become exlremeIy imporlanl lo businesses in lheir seIeclion
of Iogislics service providers and air cargo carriers. The abiIily lo use a carrier lhal
viII provide door-lo-door service vilh singIe-vendor conlroI makes lhe enlire Iogislics
chain much Iess compIicaled lhan lhe lradilionaI melhod of using severaI providers
vilh dierenl deIivery funclions. The ma|or inlegraled carriers provide seamIess
lrucking, varehousing, and dislribulion service funclions in addilion lo air cargo. As a
A I R T R A N S P O R TAT I O N 2 2
consequence, shippers are increasingIy subsliluling bIended air and surface lransporlalion
services provided by (or lhrough) a singIe carrier.
In IuIy 2002, DRI-WIIA Incorporaled in coIIaboralion vilh The CampbeII-HiII Avialion
Group compIeled a sludy lilIed Tnc Naiicna| |ccncnic |npaci cj Citi| Atiaiicn. As of earIy
2006, lhis is lhe mosl recenl sludy. Using 2000 dala, lhe sludy examined lhe impacl of civiI
avialion, vhich incIuded:
1. ScheduIed and unscheduIed commerciaI passenger and cargo operalions (incIuding
cargo-onIy lransporlalion)
2. GeneraI avialion (incIuding business avialion and air laxi operalions)
3. Their reIaled manufaclurers, servicing, and supporl (incIuding piIol and mainlenance
lechnician lraining)
4. Their suppIy chains (indirecl impacls)
5. The eecls of income generaled (induced impacls) direclIy and indireclIy by civiI
avialion
6. The direcl, indirecl, and induced impacls of reIaled induslries, such as lraveI and
lourism, for vhich air lransporlalion provides an enabIing funclion
Economic Impact Types and Causes. The avialion induslry economic impacls caIcuIaled
in lhe DRI-WIIA sludy incIuded lhose nanciaI lransaclions lhal couId be lraced lo
avialion and lhal vere of vaIue lo lhe nalions economy and ils cilizens. The impacls vere
reaI and quanliabIe: hypolhelicaI, imaginary, or sub|eclive impacls vere nol considered
in lhe sludy. The impacls vere divided inlo lhree lypes: direcl impacls, indirecl impacls,
and induced impacls (see TabIe 1-4).
Direcl impacls vere lhose nanciaI lransaclions Iinked lo lhe provision of air
passenger and air cargo services and lhe provision of aircrah. They lypicaIIy occur al
airporls and aircrah manufacluring rms and incIude expendilures by airIines, airporl
lenanls, air cargo rms, Iixed-ase Operalors (IOs), ground lransporl rms, ighl
schooIs, airporl concessions, aircrah manufaclurers, and olhers.
The direcl impacl in 2000 vas $343.7 biIIion and 4.2 miIIion |obs in civiI avialion or in
induslries reIaled lo civiI avialion, such as lraveI and lourism. CiviI avialion, excIuding
reIaled induslries, direclIy produced $183.3 biIIion in GDI ($169.6 biIIion from commerciaI
avialion and $13.7 biIIion from generaI avialion) and 2.2 miIIion |obs.
Indirecl impacls vere lhose nanciaI lransaclions Iinked lo lhe use of avialion. They
incIude expendilures by lraveIers vho arrive by air, lraveI agenls, business avialion, and
olhers. Indirecl impacls lypicaIIy (bul nol aIvays) occur al o-airporl Iocalions.
The indirecl impacl amounled lo $254.9 biIIion and 3.2 miIIion |obs arising indireclIy in
lhe olher induslries in lhe suppIy chain lo civiI avialion and reIaled induslries.
Induced impacls vere lhe muIlipIier impIicalions associaled vilh direcl and
indirecl impacls.
The DRI-WIIA sludy conrmed lhal virluaIIy aII aclivilies invoIved in lhe provision
and use of avialion are imporlanl lo lhe nalions economy. The lolaI economic impacl of
civiI avialion, incIuding ils muIlipIier eecl, vas caIcuIaled as $903.5 biIIion for 2000,
C H A P T E R 1 AV I AT I O N : A N O V E R V I E W 2 3
TABLE 1.4 U.S. Civil Aviation Impacts, 2000 (billions of dollars and thousands of employees)
Direcl Indirecl Induced TolaI Impacl
ImpIoy- ImpIoy- ImpIoy- ImpIoy-
GDI menl GDI menl GDI menl GDI % GDI menl
Ccnncrcia| atiaiicn
Air lransporl
a
$100.1 1,172 $ 67.9 858 $ 85.7 1,035 $253.6 3,065
Aircrah 14.7 205 31.2 395 23.4 306 69.4 906
Aircrah parls 9.8 136 20.7 262 15.6 203 46.1 601
Airporl expendilures
|
38.0 437 na na 19.4 223 57.4 660
IederaI (IAA & NASA) 7.0 75 na na 3.6 38 10.6 113
TolaI 169.6 2,025 119.8 1,514 147.6 1,805 437.1 4.4% 5,345
|xpcn!iiurc rc|aic! ic ccnncrcia| atiaiicn
Tourism by air 132.9 1,680 96.5 1,219 117.0 1,478 346.4 4,377
TraveI arrangemenl 3.3 47 7.8 98 5.7 74 16.8 219
Ireighl forvarding 0.5 7 0.6 8 0.6 8 1.7 23
TolaI 136.8 1,734 104.9 1,326 123.2 1,560 364.9 3.7% 4,619
CommerciaI avialion, lolaI 306.4 3,759 224.7 2,840 270.9 3,365 802.0 8.1% 9,964
Gcncra| atiaiicn
CommerciaI operalions 1.4 17 1.0 2 1.2 15 3.6 34
Irivale operalions 8.9 104 6.0 76 7.6 92 22.6 272
GeneraI avialion aircrah 2.7 38 5.8 74 4.4 57 12.9 169
IIighl lraining 0.7 19 0.4 5 0.6 12 1.6 36
TolaI 13.7 178 13.2 157 13.8 176 40.7 0.4% 511
|xpcn!iiurc rc|aic! ic gcncra| atiaiicn
Tourism by air 22.9 290 16.6 210 20.2 255 59.8 755
IubIicalions 0.6 7 0.4 5 0.5 6 1.5 18
TolaI 23.5 297 17.1 215 20.7 261 61.3 0.6% 773
GeneraI avialion, lolaI 37.3 475 30.3 372 34.5 437 102.0 1.0% 1,284
Grand lolaI $343.7 4,234 $254.9 3,212 $305.1 3,802 $903.5 9.2% 11,248
Source: DRI-WIIA, Inc. Reprinled by permission of GIobaI Insighl (USA), Inc. vvv.gIobaIinsighl.com
a
Air lransporl consisls of aII expendilures made by commerciaI airIines, incIuding bolh passenger and freighl, scheduIed and non-scheduIed, mainlenance, and piIol and
lechnician lraining.
|
Airporl expendilures consisl of aII expendilures made by airporl aulhorilies, incIuding airporl services.
Nole: In 2000, lolaI U.S. GDI vas $9,873 biIIion. ecause of rounding, lolaIs and sublolaIs may nol add preciseIy.
A
I
R

T
R
A
N
S
P
O
R
T
A
T
I
O
N
2
4
or 9.2 percenl of GDI. CiviI avialion incIuding reIaled induslries represenled 11.2 miIIion
|obs.
CommerciaI avialion accounled for 88 percenl of avialions lolaI impacl. AIlhough
generaI avialion accounled for onIy 12 percenl of lhe lolaI, il generaled nearIy 1.3 miIIion
|obs and $102.0 biIIion in economic aclivily.
Ccniri |uii cn ic |j ci cni Ccn!uci cj Busi ncss
Air lransporlalion is nov as much a parl of our vay of Iife as lhe leIephone or lhe
compuler. Speed, efciency, comforl, safely, economylhese are lhe symboIs of bolh
modern sociely and modern air lransporlalion. If you need lo gel somevhere in a hurry,
and mosl businesses do, because lime means money, lhen ycomforlabIy, safeIy, and
economicaIIy.
Air lransporlalion has enabIed empIoyees of business and governmenl organizalions
lo reach any poinl in lhe vorId vilhin hours, vhelher ying by air carrier or a generaI
avialion aircrah. Cerlain vaIues are associaled vilh lhis limeIiness:
1. Ouicker on-lhe-spol decisions and aclion
2. Less faligue associaled vilh lraveI
3. Grealer mobiIily and usefuIness of lrained, experienced execulives, engineers,
lechnicians, lroubIeshoolers, and saIes personneI
4. DecenlraIized produclion and dislribulion
5. The abiIily lo expand markel areas lhrough more efcienl use of managemenl and
saIes personneI
To visuaIize a vorId vilhoul modern air lransporlalion, consider lhe vorId of 1940,
vhen surface lransporlalion vas sliII in ils prime and air lransporlalion vas in ils infancy.
The 800-miIe Nev YorkChicago lrip look 17 hours each vay on lhe faslesl raiI rouling. The
same lrip loday can be made in a coupIe of hours. AIso consider lhe lhousands of smaIIer
communilies nov served by business represenlalives ying in and oul lhe same dayil
look days and veeks lo cover lhe same lerrilory back in lhe 1940s.
|npaci cn Pcrscna| an! P| casurc Tratc| Paiicrns
In 1940, fev peopIe had ever ovn in a scheduIed airIiner. y 1960, one-lhird of U.S.
aduIls had ovn: by 1981, lvo-lhirds of lhe popuIalion over 18 years of age had been
airIine passengers, and by 2006, over 85 percenl of lhe aduIl popuIalion had ovn on
a commerciaI ighl. The impacl of lhe air age on personaI and pIeasure lraveI has been
al Ieasl as greal as il has been on business lraveI. And airIine fares remain a bargain
compared lo lhe price increases of olher producls and services over lhe pasl 50 years.
The combinalion of speed and economy has aIlered peopIes ideas aboul personaI
lraveI. In 1940, onIy a fev veaIlhy individuaIs lraveIed lo pIaces Iike IIorida or Havaii,
much Iess lo Iurope. Today, lhousands of coIIege sludenls y lo Iurope during lhe
summer. Inlire regions have deveIoped inlo slrong lourisl-orienled cenlers because air
C H A P T E R 1 AV I AT I O N : A N O V E R V I E W 2 5
lransporlalion has made lhem accessibIe lo vacalioners from many areas. The economic
deveIopmenl of such areas as IIorida, Havaii, Iuerlo Rico, Las Vegas, Ihoenix, and San
Diego can be aribuled lo lhe access provided by air lransporlalion.
KEY TERMS
aerospace induslry
Aerospace Induslries Associalion (AIA)
GeneraI Avialion Manufaclurers Associalion (GAMA)
research and deveIopmenl (R & D)
reIaled producls and services
generaI avialion
air lransporlalion induslry
cerlicaled (common) air carriers
REVIEW QUESTIONS
1. Dene acrcspacc in!usiru. and describe lhe roIe of bolh lhe AIA and lhe GAMA. The
induslry is a vilaI faclor in four parlicuIar areas of lhe U.S. economy. Whal are lhey`
2. Hov has lhe aerospace induslry changed since lhe 1950s` Whal are lhe unique
characlerislics of lhe aerospace induslry`
3. Describe lhe aerospace induslry in lerms of ils ma|or producls and ils saIes during lhe
1990s and earIy 2000s. Whal are reIaled aerospace producls and services`
4. Whal are some of lhe causes and eecls of lhe signicanl dovnsizing in lhe lvo
ma|or segmenls of lhe governmenl markel` Describe lhe oulIook for lhe civiI avialion
markel in lhe earIy 2000s.
5. Whal is lhe primary cause for consoIidalion in lhe commerciaI aircrah manufacluring
induslry` Why has oeing accused Airbus Induslrie of unfair compelilion` Whal has
been Airbuss response` Hov do you foresee lhe induslry nancing lhe nev generalion
of aircrah lhal viII appear in lhe 21sl cenlury` Why has lhere been a grealer emphasis
on inlernalionaI cooperalion in buiIding aircrah componenls and subassembIies`
6. Lisl and briey describe lhe ma|or faclors aecling commerciaI lransporl saIes. Hov
does lhe cycIicaI nalure of civiI avialion aecl aircrah manufacluring`
7. Whal are some of lhe faclors lhal Ied lo lhe decIine in generaI avialion aircrah saIes`
Why have lhe corporale and commuler segmenls of lhe generaI avialion induslry
done so much beer lhan lhe personaI-use segmenl` Whal is lhe oulIook for heIicopler
saIes`
8. Dene air carricr. inicrsiaic air iranspcriaiicn. and air ccnncrcc. olh air carriers and
generaI avialion y for compensalion or hire. Whal dislinguishes lhe lvo`
A I R T R A N S P O R TAT I O N 2 6
9. Discuss lhe impacl of lhe air lransporlalion induslry on lhe U.S. economy in lerms of
doIIar expendilures and |obs.
10. Describe lhe conlribulion of air lransporlalion lo lhe efcienl conducl of business and
ils impacl on personaI and pIeasure lraveI.
WEB SI TES
hllp://vvv.faa.org
hllp://vvv.boeing.com
hllp://vvv.airbus.com
hllp://vvv.raylheon.com
hllp://vvv.airIines.org/home/
hllp://vvv.raa.org
hllp://vvv.iala.org
SUGGESTED READI NGS
Abeyralne, Ruvanlissa. Atiaiicn Trcn!s in inc Ncu Mi||cnniun. urIinglon, VT: Ashgale, 2001.
Anderson, Iohn D. |nirc!uciicn ic ||igni. Nev York: McGrav-HiII, 1999.
DRI-WIIA, Inc., A GIobaI Insighl Company, in coIIaboralion vilh The CampbeII-HiII Avialion
Group, Inc. Tnc Naiicna| |ccncnic |npaci cj Citi| Atiaiicn. AIexandria, Va., 2002.
Graham, rian. Gccgrapnu an! Air Transpcri. Nev York, NY: Iohn WiIey & Sons, 1995.
Lopez, Virginia C. (ed.). Acrcspacc |acis an! |igurcs 2002/03. Washinglon, D.C.: Aerospace
Induslries Associalion of America, 2002.
IhiIIips, AImarin. Tccnnc|cgu an! Markci Siruciurc. A Siu!u cj inc Aircrah |n!usiru. Lexinglon, Mass.:
Lexinglon ooks/Healh, 1971.
RendaII, David. |ancs Aircrah |cccgniiicn Gui!c. Nev York, NY: HarperCoIIins, 1999.
Schriever, ernard A., and WiIIiam W. Seiferl. Air Transpcriaiicn 1975 an! Bcucn!A Susicns
Apprcacn. Cambridge, Mass: MIT Iress, 1968.
C H A P T E R 1 AV I AT I O N : A N O V E R V I E W 2 7
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2
Historical Perspective
Introduction
The Formative Period: 19181938
The Growth Years: 19381958
MaturityJets Arrive: 19581978
Economic Developments Prior to Deregulation
Federal Legislation and the Airlines
Postderegulation Evolution
General Aviation
Chapter Checklist You Should Be Able To:
Discuss some of lhe earIy aempls lo provide air maiI
service in lhe Uniled Slales
IxpIain lhe signicance of lhe KeIIy Acl and lhe Air
Commerce Acl of 1926
Idenlify some of lhe breaklhroughs in commerciaI
aircrah deveIopmenl from 1918 lo 1958
Describe lhe evenls lhal Ied lo lhe deveIopmenl of
commerciaI |el air lransporlalion
Summarize lhe ma|or economic deveIopmenls in air
lransporlalion during lhe four decades from 1938 lo
1978
Discuss lhe reasons lhe federaI governmenl gol inlo
lhe business of reguIaling lhe air carriers
Undersland lhe signicance of lhe federaI IegisIalion
Ieading up lo dereguIalion in lhe 1970s
Give a brief summary of lhe dereguIalion movemenl
before lhe AirIine DereguIalion Acl of 1978
Describe lhe ma|or provisions of lhe DereguIalion Acl
of 1978

29
Idenlify some of lhe changes lhal look pIace in lhe airIine
induslry during lhe lvo decades foIIoving dereguIalion
Discuss earIy generaI avialion and hov eech, Cessna,
and Iiper began
IxpIain lhe reasons for lhe decIine in generaI avialion
aircrah saIes slarling in lhe Iale 1970s
Undersland lhe impacl of lhe evenls of Seplember 11,
2001, on lhe avialion induslry
Inlroduce lhe concepl of nev aircrah lechnoIogy for lhe
21sl cenlury

A I R T R A N S P O R TAT I O N 3 0
INTRODUCTION
In 1914, mosl of lhe vorId vas loo preoccupied vilh WorId War I lo nolice lhal for a fare of
$5 (more if lhe passenger veighed over 200 pounds), a person couId buy a lickel for a one-
vay lrip in an open-cockpil enoisl ying boal lhal ev across Tampa ay, connecling
Tampa and Sl. Ielersburg. The Iand |ourney look an enlire day: lhe ighl look aboul 20
minules. On Ianuary 1, 1914, lhe mayor of Sl. Ielersburg became lhe rsl passenger on a
reguIarIy scheduIed airIine using heavier-lhan-air aircrah in lhe Uniled Slales. Iinanced
by I. I. IansIer and ovn by Tony Ianus, lhis primilive operalion foIded aher four monlhs
vhen il ran inlo nanciaI lroubIe. A humbIe beginning for lhe nov-gianl induslry.
elveen 1912 and 1916, lhe Iosl Ofce Deparlmenl made severaI aempls lo oblain
federaI approprialions for lhe lransporlalion of maiI by air, bul no approprialions vere
granled unliI 1916. In lhal year, Congress made funds avaiIabIe for lhe eslabIishmenl of
proposed air maiI roules, severaI in AIaska and one belveen Nev edford, Massachuses,
and Iavluckel, Rhode IsIand. The Iosl Ofce Deparlmenl issued ads inviling bids on
lhe roules, bul no bids vere forlhcoming because of lhe Iack of pIanes suilabIe for lhe
services.
The deveIopmenl of Iarge bombing pIanes during WorId War I demonslraled lhal lhe
airpIane couId be used for fasl commerciaI and maiI lransporlalion. In 1918, Congress
approprialed $100,000 lo lhe Iosl Ofce Deparlmenl for lhe deveIopmenl of an experimenlaI
air maiI service and for lhe purchase, operalion, and mainlenance by lhe Iosl Ofce
Deparlmenl of vhal vere referred lo as aeropIanes. Thus vas born lhe air lransporlalion
induslry.
THE FORMATIVE PERIOD: 19181938
Aher preIiminary sludies, lhe rsl reguIar air maiI roule in lhe Uniled Slales, 218 miIes
in Ienglh, vas eslabIished on May-15, 1918, belveen Nev York Cily and Washinglon,
D.C. One round lrip vas made every day excepl Sunday, and an inlermediale slop in
IhiIadeIphia enabIed lhe receipl and discharge of maiI and lhe servicing of lhe pIanes.
The service vas conducled |oinlIy by lhe Uniled Slales War Deparlmenl and lhe Iosl
Ofce Deparlmenl. The War Deparlmenl furnished lhe pIanes and piIols and performed
lhe operalion and mainlenance, and lhe Iosl Ofce Deparlmenl aended lo lhe sorling of
lhe maiI, ils lransporl lo and from lhe airporl, and lhe Ioading and discharge of lhe pIanes.
This |oinl arrangemenl conlinued unliI Augusl 12, 1918, vhen lhe Iosl Ofce Deparlmenl
assumed excIusive responsibiIily for lhe deveIopmenl of a Iarger-scaIe maiI service.
The Nev YorkWashinglon air maiI roule vas disconlinued on May 31, 1921, because
of lhe need for economy and lhe faiIure of Congress lo specicaIIy aulhorize lhe roule.
Tnc Pcsi Oj cc Ocparincni Scrti cc
When lhe Iosl Ofce Deparlmenl look over lhe enlire air maiI service in 1918, incIuding
personneI and equipmenl and lhe compIele operalion and mainlenance of lhe domeslic
air maiI service, il shouIdered a formidabIe lask. This period in lhe hislory of lhe air maiI
service represenled a lriaI slage during vhich lhe Iosl Ofce Deparlmenl experimenled
vilh airpIane equipmenl, vealher service, nighl ying, ying and ground service
arrangemenls, roules, poslage rales, and olher areas in vhich addilionaI dala vere
C H A P T E R 2 H I S T O R I C A L P E R S P E C T I V E 3 1
required before lhe service couId be pIaced on a sound basis and operaled nalionvide
over reguIar roules. IniliaIIy, lhe Iosl Ofce Deparlmenl acquired a number of airpIanes
from lhe War and Navy Deparlmenls, rebuiIding or remodeIing lhe pIanes lo lransporl
maiI. Safely and carrying capacily vere lhe principaI quaIilies soughl vhen seIecling
or remodeIing lhe pIanes. Laler, lhe Iosl Ofce Deparlmenl acquired pIanes especiaIIy
designed for carrying maiI. The success of lhe rsl experimenlaI roule Ied lo lhe exlension
of lhe service lhrough lhe eslabIishmenl of a lransconlinenlaI roule belveen Nev York
Cily and San Irancisco.
Wealher condilions vere one of lhe mosl serious difcuIlies faced in eslabIishing lhe
air maiI service. The Wealher ureau of lhe Deparlmenl of AgricuIlure vas enIisled lo
provide lhe piIols vilh adequale vealher informalion. Improvemenls vere made in
lhe design of pIanes, in airpIane molors, and in airvay marking and communicalion
faciIilies, vhich made il possibIe lo operale lhe air maiI service in vealher lhal vouId
have prevenled ying in lhe earIy years of lhe service.
One of lhe many conlribulions of lhe Iosl Ofce Deparlmenl lo lhe deveIopmenl of
avialion during lhis period of experimenlalion and deveIopmenl vas lhe demonslralion
of lhe praclicabiIily of reguIar nighl ying over reguIar roules on xed scheduIes. In
1923, using dala compiIed by lhe War Deparlmenl, lhe Iosl Ofce Deparlmenl sludied
lhe feasibiIily of reguIar nighl ying. Army pIanes had done a considerabIe amounl
of nighl ying during lhe var. In addilion, airpIanes had been ovn al nighl
occasionaIIy before lhese experimenls, bul reguIarIy scheduIed roule ying had nol
been aempled.
A Iighled airvay vas eslabIished belveen Cheyenne, Wyoming, and Chicago, and
emergency Ianding eIds vere Iocaled aIong lhe airvay and equipped vilh Iighls. IiIols
made experimenlaI nighl ighls over lhe roules. In Augusl 1923, a reguIar scheduIe of
nighl ying vas eslabIished belveen Chicago and Cheyenne, and in IuIy 1924, reguIar
nighl service vas eslabIished on lhe lransconlinenlaI roule.
Olher Iosl Ofce Deparlmenl air maiI roules vere added or disconlinued as need
for lhe roules vas demonslraled or lhe Iack of need became apparenl. One of lhe mosl
imporlanl roules, lhe overnighl service belveen Nev York and Chicago, vas eslabIished
on a reguIar scheduIe of ve nighls a veek in 1925 and on a nighlIy basis in 1926.
The Iosl Ofce Deparlmenl experimenled vilh various lypes of airpIanes in acluaI
ighl condilions during lhis period. Al rsl, pIanes lhal couId be acquired by lhe
governmenl al nominaI prices vere used in air maiI service. Laler, lhe sleady increase
in voIume of maiI lrafc necessilaled lhe deveIopmenl of a lype of pIane capabIe of
carrying more lhan 500 pounds. The governmenl accepled compelilive bids, and lhe
Iosl Ofce Deparlmenl began purchasing maiI pIanes lhal vere fasler and lhal had
lvice lhe maiI-carrying capacily of lhe earIier lypes.
y 1925, domeslic air maiI service in lhe Uniled Slales had progressed lo lhe poinl
lhal lhe feasibiIily of reguIar service had been adequaleIy demonslraled. IaciIilies
for air lransporlalion had been eslabIished, and lhe desirabiIily of conlinued direcl
governmenl operalion or privale operalion under conlracl vilh lhe governmenl vas
videIy discussed. The U.S. governmenl lradilionaIIy had arranged vilh raiIroads,
sleamship Iines, and olher carriers for lhe Iong-dislance lransporlalion of maiI, vilh
lhe Iosl Ofce Deparlmenl providing lhe services incidenl lo lhe coIIeclion, sorling,
IocaI lransporlalion, and deIivery of lhe maiI.
A I R T R A N S P O R TAT I O N 3 2
Ccniraci Mai | Scrti cc
The lhird slage in lhe deveIopmenl of air maiI service vas ushered in by lhe Conlracl Air
MaiI Acl of 1925, lhe so-caIIed KeIIy Acl, named aher ils sponsor, CIyde KeIIy (see lhe
seclion IederaI LegisIalion and lhe AirIines). The KeIIy Acl aulhorized lhe poslmasler
generaI lo enler inlo conlracls vilh privale cilizens or companies for lhe lransporlalion
of maiI by air.
ShorlIy lhereaher, lhe |oinl congressionaI commiee on civiI avialion, vhich had been
eslabIished al lhe requesl of lhe Deparlmenl of Commerce, decried in ils reporl hov
much lhe Uniled Slales Iagged behind Iurope in avialion. In response lo lhese ndings,
Iresidenl CaIvin CooIidge appoinled a seIecl board of prominenl business Ieaders,
headed by Dvighl Morrov, lo make recommendalions regarding lhe deveIopmenl of
avialion in lhe Uniled Slales. The Morrov board essenliaIIy conrmed lhe ndings of lhe
|oinl commiee and recommended lhe separalion of civiI and miIilary avialion, vilh lhe
former under lhe auspices of lhe Commerce Deparlmenl. This pIeased lhe secrelary of
commerce, Herberl Hoover, vho vas a slrong proponenl of avialion. Oul of aII lhis came
lhe Air Commerce Acl of 1926, vhich, in eecl, gol lhe federaI governmenl back inlo lhe
avialion business, lhis lime as a reguIalor of lhose budding carriers crealed by lhe KeIIy
Acl (see lhe seclion on IederaI LegisIalion and lhe AirIines).
The Iosl Ofce Deparlmenl rsl sel up shorl feeder routes (designed lo feed
lrafc inlo lhe main-Iine lrunk roule) belveen various cilies and scheduIed lhe slarl
of a lransconlinenlaI Columbia route once lhe shorl Iines vere vorking salisfacloriIy.
usinessmen, Iured by lhe KeIIy Acls aIIovance of 80 percenl of lhe air maiI revenue lo
lhe conlraclor vho carried il, ooded lhe Iosl Ofce Deparlmenl vilh more lhan 5,000
bids. Irom lhese, lhe deparlmenl chose lhe operalors of 12 feeder, or CAM (contract air
mail), routes Iinking cilies lhroughoul lhe nalion (see Iigure 2-1).
On November 15, 1926, lhe Iosl Ofce Deparlmenl adverlised for bids
on proposaIs for service on lvo seclions of lhe lransconlinenlaI air maiI roulelhe Nev
YorkChicago and lhe ChicagoSan Irancisco seclions. An acceplabIe proposaI al a
salisfaclory rale of compensalion for lhe ChicagoSan Irancisco seclion vas submied by
lhe oeing AirpIane Company and Idvard Hubbard. This service vas Ialer incorporaled
as lhe oeing Air Transporl Company. Al rsl, no salisfaclory bid vas received for
lhe Nev YorkChicago seclion, bul on March 8, NalionaI Air Transporls bid vas
accepled.
Service on lhe ChicagoSan Irancisco roule vas reIinquished lo oeing by lhe Iosl
Ofce Deparlmenl on Iune 30, 1927. oeings enlry inlo commerciaI avialion had far-
reaching eecls. To cIear lhe Rocky Mounlains, oeing produced a nev airpIane, lhe -40,
povered by lhe nev air-cooIed Ira & Whilney 400-horsepover (hp) Wasp radiaI engine
and equipped lo carry lvo passengers in addilion lo ils maiI cargo. SubsequenlIy, oeing
and Ira & Whilney |oined forces lo become Uniled Aircrah and Transporl Company.
Service on lhe Nev YorkChicago roule began on Seplember 1, lhus pIacing lhe air
maiI service in lhe same reIalionship vilh lhe Iosl Ofce Deparlmenl as lhe maiI service
provided by lhe raiIroads, sleamship Iines, and olher maiI conlraclors.
The air maiI conlracls provided lhe genesis for severaI of lodays airIines. CoIoniaI
AirIines, vhich von CAM roule 1 belveen Nev York and oslon, vas lhe predecessor of
American AirIines. Weslern Air Ixpress, operalor of CAM 4 from Los AngeIes lo SaIl Lake
Cily, evenluaIIy became parl of TWA. Norlhvesl AirIines picked up CAM 9 from Chicago
lo MinneapoIis aher lhe originaI conlraclor gave il up. Uniled absorbed lhe operalors of
C H A P T E R 2 H I S T O R I C A L P E R S P E C T I V E 3 3
lvo veslern carriers, Varney Speed Lines, operalor of CAM 5, and Iacic Air Transporl,
operalor of CAM 8. Aher a slruggIe lo gain ma|orily slock inleresl, Uniled aIso gained
conlroI of lhe carrier aIong lhe easlern segmenl of lhe lransconlinenlaI roule, NalionaI
Air Transporl, vhich had ovn speciaIIy designed pIanes on CAM. In lhe midvesl, lhe
biggesl name in aulomobiIes, Henry Iord, emerged as a ma|or force on lhe avialion scene
by vinning lhe conlracls for CAM 6 and CAM 7 belveen Delroil, Chicago, and CIeveIand.
Iords venlure inlo avialion gave a skeplicaI pubIic nev condence in air lransporlif lhe
aslule aulo manufaclurer vas viIIing lo gel inlo lhe business, lhere musl be somelhing
lo il.
Iord branched oul in 1926 by acquiring lhe Sloul MelaI Aircrah Company in Sloul Cily,
Michigan, and began conslruclion of lhe famous Tin Goose. The Iord Trimolor, as il
vas ofciaIIy designaled, had lhree-engine reIiabiIily, as veII as grealer aIlilude capabiIily
Los Angeles
Salt Lake City
Pueblo, Colo.
Cheyenne, Wyo.
MinneapolisSt. Paul
St. Louis
Pittsburgh
Cleveland
Chicago
Detroit
CAM 1
CAM 7 New York
Boston
Atlanta
Jacksonville
Dallas
Elko, Nev.
Pasco, Wash.
Seattle
CAM 4
CAM 12
CAM 3
CAM 9
CAM 10
CAM 6
CAM 2
CAM 11
CAM 8
CAM 8
CAM 5
San Francisco
Columbia Routes:
Western Express Route Boeing Air Transport July 1, 1927
Eastern Express Route National Air Transport September 1, 1927
Feeder Routes:
Route No. Company Route Began Operating
CAM 1 Colonial Airlines New York Boston June 18, 1926
CAM 2 Robertson Aircraft Corp. Chicago St. Louis April 15, 1926
CAM 3 National Air Transport Chicago Dallas May 12, 1926
CAM 4 Western Air Express Los Angeles Salt Lake City April 17, 1926
CAM 5 Varney Speed Lines Elko, Nev. Pasco, Wash. April 6, 1926
CAM 6 Ford Air Transport Detroit Cleveland February 16, 1926
CAM 7 Ford Air Transport Detroit Chicago February 15, 1926
CAM 8 Pacific Air Transport Los Angeles Seattle September 15, 1926
CAM 9 Charles Dickenson Chicago Minneapolis June 7, 1926
CAM 10 Florida Airways Corp. Atlanta Jacksonville September 14, 1926
CAM 11 Clifford Ball Cleveland Pittsburgh April 21, 1927
CAM 12 Western Air Express Pueblo, Colo. Cheyenne, Wyo. December 15, 1926
FIGURE 2-1 The rst contract air mail routes. Airline feeder routes were contracted
to private operators in 1926. The transcontinental express sections
were set up in 1927, and commercial air travel across the United States
became a reality.
A I R T R A N S P O R TAT I O N 3 4
Pcsinasicr Gcncra| Brcun an! inc Ai r| i ncs
WaIler IoIger rovn vas poslmasler generaI under Iresidenl Herberl Hoover in lhe
Iale 1920s. An aorney from Ohio, rovn combined aslule vision vilh a rulhIess viII
lo ensure lhe success of lhe Iosl Ofces mission lo deveIop commerciaI avialion. olh
Hoover and rovn disIiked reckIess compelilion as much as lhey did monopoIies, and
lhey bolh soughl induslry slabiIily, efciency, and grovlhspecicaIIy, slrong companies
vilh reguIaled compelilion. ConsequenlIy, rovn spurred lhe adoplion of anolher
amendmenl lo lhe KeIIy Acl, lhe McNaryWalres biII. Knovn as lhe Air MaiI Acl of 1930,
il empovered lhe poslmasler generaI lo consoIidale air maiI roules if he lhoughl lhal
vouId serve lhe pubIic inleresl.
rovn redrev lhe air map of lhe Uniled Slales, forcing smaII operalors oul of business
and avarding lhe buIk of lhe air maiI business lo a handfuI of airIines he considered lo
be veII run, nanciaIIy slabIe, and efcienl. In May-1930, he inviled lhe heads of lhe
Iarger airIines lo Washinglon for a series of meelings lhal came lo be caIIed lhe Spoils
Conference. Il vas an apl name, for lhe spoiIs IileraIIy venl lo lhose parlicipanls vho
supporled rovns pIan lo eslabIish lhree main maiI roulescenlraI, norlhern, and
soulhernoul of lhe originaI CAM roules. Uniled (a fusion of moslIy vesl coasl CAM
companies) vouId gel lhe norlhern roule: Avco (lhe Avialion Corporalion, a hoIding
company lhal Ialer became American AirIines) vouId gel lhe soulhern roule. The cenlraI
roule vouId go lo a merger of Weslern Air Ixpress and TransconlinenlaI Air Transporl
(TAT), vhich had hired CharIes Lindbergh lo survey roules for a passenger service based
on aIlernaling raiI and Iord Trimolor ighls lhal vouId aIIov for coasl-lo-coasl lraveI in lhe
unheard-of lime of 48 hours. Weslern had aIso shovn considerabIe inleresl in passenger
lraveI, aIlhough ils roule vas for onIy lhe mosl rugged of individuaIs. Weslerns Harris
Iop Hanshue vas nol lhe lype lo be forced inlo anylhing, and he foughl rovn aII lhe
vay, evenluaIIy compromising by accepling slock and a posilion in lhe nev company.
Hanshue agreed lo lhe eslabIishmenl of a nev airIine named TransconlinenlaI and
Weslern Air Ixpress, in vhich TAT and Weslern heId lhe ma|orily of slock. rovns
pIan seemed lo succeed unliI 1934, vhen a scandaI erupled in Washinglon. AIlhough
rovn had been quile candid aboul lhe facl lhal he vanled lhe air maiI business avarded
according lo proven performance and nanciaI soIidily, nevspaper reporler IuIlon Levis,
Ir., discovered lhe resuIl of rovns phiIosophy. Ludinglon AirIines, ying lhe lrianguIar
WashinglonIhiIadeIphiaNev York roule, had bid 25 cenls a miIe on lhe maiI conlracl
and a Iarger payIoad capacily lhan any of ils predecessors. Irom lhe lime of ils rsl ighl
in 1926 lo ils reliremenl from TWA in 1934, lhe Tin Goose vas reIiabIe, reIaliveIy sIov al
85 knols, very slrong, and ralher uncomforlabIe.
In lhe meanlime passenger service couId onIy improve. In 1927, an airpIane caIIed lhe
Lockheed Vega made ils rsl ighl, heraIding lhe age of fasl, comforlabIe lraveI for more
lhan a maiI sack and piIol.
In 1928, vealher informalion vas lransmied by leIelype, and in lhe decade lhal
foIIoved, lhal nelvork expanded rapidIy lo bring piIols lhe kind of informalion lhal vas
essenliaI lo safe, reIiabIe service. y 1929, lhe Graf ZeppeIin had ovn around lhe vorId,
and Iames H. DooIiIe had made lhe rsl successfuI inslrumenl Ianding. In lhal same era,
HamiIlon Slandard produced lhe rsl hydrauIic variabIe-pilch propeIIer. The lechnoIogy
vas advancing, bul vouId any company running an airIine be prolabIe enough lo buy
il`
C H A P T E R 2 H I S T O R I C A L P E R S P E C T I V E 3 5
belveen lhese cilies bul had Iosl oul lo Iaslern Air Transporl, a much bigger Iine lhal had
bid 89 cenls a miIe. When his nevspaper vouId nol pubIish lhe slory, Levis approached
Senalor Hugo Iack of AIabama, vho vas chairing a Senale commiee invesligaling
marilime maiI conlracls. When Iack heard lhe slory, he quickIy added air maiI conlracls
lo his invesligalion.
Aher some Ienglhy hearings in vhich a number of supposed scandaIs vere uncovered,
Iack had aroused lhe pubIic and Iresidenl IrankIin D. RooseveIl lo a poinl lhal aII prior
conlracls vere immedialeIy canceIed. RooseveIl ordered lhe Army lo begin ying lhe
maiI, a decision lhal had lragic consequences. Iven lhough Ioslmasler GeneraI Iames
IarIey had argued againsl lhe canceIIalion, lhe pubIics vralh feII on him more lhan on
lhe presidenl vhen one Army pIane aher anolher crashed in poor vealher lhal lhe piIols
vere compIeleIy unequipped lo handIe.
AIlhough Iacks hearings uIlimaleIy reveaIed no iIIegaIilies in rovns arrangemenls
even lhe supposed bidding scandaI vas expIained lo everyones salisfaclion as a more
compIex arrangemenl lhan il rsl appearedIack sliII came oul lhe vinner. He laIked
RooseveIl inlo supporling a biII lo separale lhe airframe companies from lhe airIines, lo
reopen compelilive bidding, and lo bar aII lhe aendees of lhe SpoiIs Conference from
furlher parlicipalion. Il vas pure punilive poIilics, bul al Ieasl lhe Army vas oul of lhe
maiI business. Nol onIy had a number of piIols Iosl lheir Iives, bul il had cosl lhe Army
$2.21 a miIe lo y 16,000 miIes of roules, compared lo 54 cenls a miIe lo cover 27,000 miIes
for lhe airIines.
The Air MaiI Acl of 1934 vas signed inlo Iav by Iresidenl RooseveIl aher Senalor
Ial McCarrans eorl lo IegisIale an independenl reguIalory body vas defealed. The
acl aulhorized nev one-year conlracls lhal vere sub|ecl lo reviev before renevaI. The
Inlerslale Commerce Commission vas invoIved as a reguIalor of rales, and lhe secrelary
of commerce vas empovered lo specify vhal equipmenl vas suilabIe for each roule.
To pIacale smaIIer airIines anxious lo acquire porlions of lhe big roules, Ioslmasler
GeneraI IarIey added a provision lhal barred aII prior conlracl hoIders from bidding
anev. ObviousIy, lhis meanl lhe end of lhe airIines as an induslry. The governmenl lhal
had crealed lhem under rovn vas nov preparing lo deslroy lhem under IarIey. IarIey
privaleIy advised aII lhe airIines lo reorganize, vhich is hov American AirIines, Iaslern
AirIines, and Uniled AirIines aII came lo be.
Of grealesl consequence vas lhe provision lhal severed aircrah manufaclurers from
lhe airIines lhemseIves. oeing had lo puII oul of Uniled: Avco gave up American: Norlh
American soId ils TWA hoIdings: and GeneraI Molors surrendered ils slock in bolh
Iaslern and Weslern. A nev era had davned, one in vhich lhe airIines vouId guide lheir
ovn deslinies.
Tnc Turni ng Pci ni j cr inc Ai r| i ncs
Cerlain aspecls of lhe induslry vere Iooking up. olh lhe oeing 247 and lhe DC-1 had
made lheir rsl ighls during 1933, rendering immedialeIy obsoIele such anliqualed
xlures as lhe Trimolor and lhe Curliss Condor, lhe Iasl of lhe bipIane lransporls.
oeings aII-melaI, Iov-ving, lvin-engine monopIane vas lhe rsl modern airIiner.
NeverlheIess, lhe 247 vas nol a success, serving as an iIIuminaling exampIe lhal in lhe
airIiner markel, lhe design lhal is rsl lo lhe nish Iine does nol necessariIy vin lhe race.
The 247 vas speclacuIar: fasler lhan mosl ghler pIanes and abIe lo carry 10 passengers
in unaccuslomed Iuxury. Il von lhe CoIIier Trophy for speed and endurance in 1933, as
A I R T R A N S P O R TAT I O N 3 6
veII as lhe favor of WiIIiam A. Iaerson, vho became presidenl of Uniled AirIines aher
lhe previous presidenl resigned during lhe rovn scandaI.
Iaerson boughl 60 of lhe oeings for $4 miIIion, al lhe lime lhe Iargesl singIe purchase
of airpIanes in hisloryand a bigger order lhan oeing couId reaIIy handIe. The order lied
up lhe companys assembIy Iines for a year, forcing TWA and American lo Iook eIsevhere
for pIanes. UnforlunaleIy for oeing, lheir search look lhem lo a smaII manufaclurer
headed up by DonaId DougIas.
The 247 originaIIy vas lo have been buiIl vilh lhe nev Ira & Whilney air-cooIed
Hornel engines, bul Unileds piIols veloed lhose engines: lhey lrusled onIy lhe reIiabIe
Ira & Whilney Wasp engine. The 247 vouId have carried 14 passengers vilh Hornels,
bul lhe Uniled version couId carry onIy 10 vilh lhe smaIIer Wasps, and lhereby oeing
von lhe baIe bul Iosl lhe var.
In 1932, Iack Irye, presidenl of TWA, had gone lo DougIas vilh a proposaI for a
lrimolor airIiner. DougIas knev lhal lhe Wrighl CycIone vouId eIiminale lhe need for lhe
lhird engine, oering seals for 14 in a lvin-engine airpIane. Thus, vhen oeing sIammed
lhe door on TWA and American, DougIas vas abIe lo shov lhem somelhing beerfour
more passengers lhan lhe 247 couId carry for lhe same operaling cosl. The resuIling DC-
1, vhich quickIy slrelched lo lhe DC-2, vas a coIossaI gambIe for DonaId DougIas, and
lhe debl he incurred deveIoping il vas nol paid o even by TWAs evenluaI order for 25
pIanes. oeing soId 75 of lhe 247sbul lhal vas aII. Luhhansa boughl lvo lhal served as
modeIs for some of Germanys WorId War II bombers, so advanced vas lhe 247s design
and performance. Uniled soon svilched lo lhe DougIas airpIanes as veII, in order lo
remain compelilive vilh American and TWA. ul if lhe 247 had been buiIl vilh lhe proper
engine, lhere mighl never have been a DougIas airpIane lo consider.
The 247 caused a selback for oeing, bul il did serve as lhe slimuIus for lhe DC
famiIy, a Iine of airpIanes lhal are generaIIy crediled vilh moving lhe airIines from
lheir pre-1933 red-ink days lo limes of soIid prol. The DC-3, vhich vas inlroduced
as lhe SIeeper Transporl (lhe DST) in response lo a specicalion vrien by American
AirIines C. R. Smilh, nol onIy increased lhe speed and comforl of lraveI, lhereby
vinning passengers vho had nol been viIIing lo brave an airIiner before, bul aIso
operaled reIiabIy and prolabIy. The pIane vas incredibIy slrong, an aribule
lhal is IargeIy crediled lo an engineer named Iack Norlhrop. Ils deveIopmenl
aIso inlroduced lhe imporlance of operaling cosls lo airIine managers, vho vere moslIy
nev lo lhe business and lherefore viIIing lo lry nev ideas. The DC-3 vas lhe rsl airpIane
lo insliII a feeIing of condence in air lraveI, as measured by lhe facl lhal ils safely record
encouraged lhe inlroduclion of lhe rsl air lraveI insurance in 1937.
Tnc Arri ta| cj inc Prcj cssi cna| Ai r| i nc Managcr
Once lhe 1934 Air MaiI Acl had become Iav, a nev group of managers emerged vho vouId
prove lo be lhe mosl dominanl personaIilies lhus far in lhe shorl hislory of air lraveI. The
pioneers had been Iong on courage, bul lhey came up shorl vhen il came lo business
acumen. CuriousIy, fev of lhe Ieaders ve nov associale vilh lheir respeclive companies
acluaIIy founded lheir airIines. The ma|or exceplion is Iuan Trippe, lhe former Navy piIol
vho Iaunched Ian American WorId Airvays in 1927 vilh a renled seapIane because lhe
Iokker he ordered didnl shov up on lime. Anolher exceplion vas Tom rani, vhose
brolher IauI vas one of his rsl piIols. A lhird founder, lhough he came aIong Ialer, vas
lhe coIorfuI ob Ieach of Mohavk AirIines (nov parl of US Airvays).
C H A P T E R 2 H I S T O R I C A L P E R S P E C T I V E 3 7
Ior lhe mosl parl, hovever, lhe men vho became lhe gianls of lhe induslry vorked
lheir vay up from Iess exaIled posilions. Ior exampIe, WiIIiam A. Iaerson, vho boIdIy
signed for $4 miIIion vorlh of oeings, vas onIy a vice-presidenl al Uniled vhen lhe
massacre of 1934 moved him up. As Iale as 1934, aher lhe Air MaiI Acl had gone inlo
eecl, C. I. WooIman vas onIy generaI manager of DeIla, bul he vouId Iead lhe companys
deveIopmenl as ils presidenl in lhe decades lo foIIov. The presidenl of Iaslern vas Irnesl
I. reech: Iddie Rickenbacker didnl |oin unliI lhe foIIoving year, as generaI manager.
And TWA vas aboul lo eIecl Iack Irye as presidenl, bul he vas onIy a vice-presidenl for
lhe 10-monlh period preceding his eIeclion.
The induslry needed slrong Ieadership al lhis poinl in ils deveIopmenl, and lhese
individuaIs vouId en|oy some of lhe Iongesl and mosl successfuI lenures in U.S. business
hislory. This group of dynamic individuaIs seemed lo share one oulslanding lraillhe
abiIily lo lake risks againsl greal odds and keep going in lhe face of adversily. And belveen
1929 and 1933, lhe adversily vas greal indeed. The airIines had a falaIily rale 1,500 limes
lhal of lhe raiIroads and 900 limes lhal of buses: in 1932, lhe carriers had 108 accidenls,
16 of lhem falaI. And nol unliI lhe 1940s did passenger revenues exceed lhe income from
maiI paymenls. If lhal vasnl bad enough, lhe induslry Iearned earIy on lhal lhe years
vhen ils eel needed modernizalion and expansion usuaIIy preceded limes of economic
slagnalion, recession, lighl money, and sIack air lraveI.
Iusl before WorId War II, some evenls look pIace lhal inuenced lhe fulure of lhe
airIines and redirecled lhe vay lhey conducled lheir operalions. Considering lheir avfuI
safely record al lhe lime, il is hard lo fauIl lhe decisions lhal Ied lo lhe changes, bul fev
vouId ever have guessed al lhe evenluaI oulcome.
On December 1, 1935, lhe rsl airvay lrafc conlroI cenler vas formed in Nevark, Nev
Iersey, lo inform by radio aII piIols in lhe vicinily as lo lhe vhereabouls of olher air lrafc
during inslrumenl condilions. SignicanlIy, il vas lhe airIines lhemseIves lhal rsl slaed
lhe faciIily. They had seen lhe need for such a praclice and had haslened lo lake aclion. In
Iess lhan a year, lhe ureau of Air Commerce vas arranging lo lake over air lrafc conlroI,
a Iandmark evenl lhal seemed Iess signicanl al lhe lime lhan il does in relrospecl. The
governmenl vas nov irrelrievabIy invoIved in lhe direcl operalion of lhe airIines.
Thal same year, Senalor ronson Cuing vas kiIIed vhen his TransconlinenlaI and
Weslern ighl crashed in Missouri. An immediale invesligalion vas Iaunched inlo lhe
safely funclion of lhe ureau of Air Commerce. AIso in 1935, lhe rilish inslaIIed a lop-
secrel nelvork of radar lransceivers aIong lheir coasl and equipped lheir miIilary aircrah
vilh an earIy lransponder knovn as III (for idenlicalion, friend or foe).
y 1936, Socony-Vacuum OiI Company vas producing 100-oclane avialion gasoIine by
a melhod knovn as calaIylic cracking, vhich efcienlIy derived Iarge quanlilies of high-
quaIily fueI from pelroIeum slock. ShorlIy lhereaher, Caplain CarI I. Crane invenled a
syslem for lolaIIy aulomalic Iandings and successfuIIy lesled lhe devices al Wrighl IieId
in Ohio. Il seems surprising nov lo reaIize lhal so many ma|or lechnoIogicaI advances
vere avaiIabIe so earIy. Thal lhey arrived vhen lhey did may veII have had a decisive
eecl on hov lhe governmenl deaIl vilh vhal il sav as ils obIigalion lo ensure lhe safely
of passengers, for lhis vas a lime of erce debale lhal vouId cuIminale in a signicanl
piece of IegisIalion.
A I R T R A N S P O R TAT I O N 3 8
The Iavs reIaling lo air commerce vere a hopeIess mess. Three agencies heId pover in
various inlerlvined areas: lhe Iosl Ofce Deparlmenl, lhe Commerce Deparlmenl, and
lhe Inlerslale Commerce Commission. In an eorl lo cIean IegisIalive house, Iresidenl
IrankIin D. RooseveIl soIiciled and received recommendalions for a nev, incIusive body
of reguIalions. The resuIl vas lhe CiviI Aeronaulics Acl of 1938, vhich eslabIished lhe
CiviI Aeronaulics Aulhorily (see lhe seclion IederaI LegisIalion and lhe AirIines).
When WorId War II broke oul, RooseveIl made arrangemenls lo nalionaIize lhe airIines,
and had il nol been for lhe slrong opposilion of lhe Air Transporl Associalion (ATA), lhis
arrangemenl mighl veII have become permanenl. Iusl a fev days aher lhe Iapanese aack
on IearI Harbor, RooseveIl had signed an execulive order lhal vouId have aIIoved him
lo seize lhe airIines, bul lhe presidenl of lhe Air Transporl Associalion laIked him oul of
il, pIeading lhal lhe carriers couId do a beer |ob if lhey vere Ieh lo run a gIobaI varlime
lransporlalion syslem lhemseIves. The order vas rescinded.
SliII, avialion in aII ils forms conlribuled lo lhe var eorl. Iverylhing lhal ev became
al Ieasl quasi-miIilary: lhe CiviI Air IalroI venl oul on coaslaI palroIs, and lhe airIines
conlracled lhe buIk of lheir eels lo lhe Army. The miIilary aIso enIisled mosl of lhe piIols
vho had slaed lhe airIines, and roules vere revised draslicaIIy lo aIIocale lhe remaining
resources lo lhe var eorl ralher lhan lhe needs of lhe lraveIing pubIic.
Iroduclion vas converled overnighl: lhe DC-3 became lhe C-47 and vas even more
Iegendary in ils accompIishmenls as a miIilary airpIane lhan in ils civiIian counlerparl. Al
lhe beginning of lhe var, U.S. lransporls vere lhe mosl highIy evoIved aircrah lhe miIilary
had, and cerlainIy lhe mosl lried and lesled. The var shrank lhe airIines lhemseIves
lo insignicance, bul lhe induslry had never been more lhan lhe sum of lhe skiII and
equipmenl lhal lurned il inlo an efcienl miIilary force as easiIy as lhey had made il a
prolabIe business.
THE GROWTH YEARS: 19381958
19381945
Oul of WorId War II came lhe DC-4 and lhe ConsleIIalion, lvo high-performance, Iong-
range airpIanes lhal Ialer prepared lhe induslry for lhe |el era. The C-54 (lhe miIilary
designalion for lhe DC-4) had ils beginnings back in 1936 as lhe DC-4I, an aborlive
design lhal combined lhe forvard end of a DC-3 vilh four engines and a lripIe laiI.
MeanvhiIe, George Mead of Ira & Whilney had underlaken lhe lask of geing lhal
company back inlo lhe lransporl business: ils miIilary success had been phenomenaI,
bul Wrighl AeronaulicaI had dominaled lhe commerciaI markel vilh lhe DC-3. The nev
Ira & Whilney R-2000 engine mel lhe specicalions for lhe naI version of lhe DC-4,
an enlireIy nev DougIas design lhal rsl ev in 1942, |usl in lime lo become lhe Armys
C-54 Skymasler.
SimuIlaneousIy, Lockheed vas buiIding lhe ConsleIIalion, vhich had Wrighl
engines, a pressurized airframe, and lhe lripIe laiIs lhal DougIas abandoned: il rsl
ev in 1943. Il is signicanl lhal air cargo became a vorlhvhiIe nolion during lhe var.
Ireighl vas rsl carried in lhe C-47, lhe C-54, and lhe ConsleIIalionlhe oId passenger
carriersand Ialer in airpIanes such as lhe C-82s, vhich vere designed specicaIIy
lo move freighl. AIlhough lhe airIines couId nol benel nanciaIIy from lhese nev
Tnc Pcsiuar Ycars
C H A P T E R 2 H I S T O R I C A L P E R S P E C T I V E 3 9
airpIanes unliI aher lhe var, il maered IiIe. The aircrah exisled, and lhe facl lhal
lhe miIilary produced lhem in Iarge numbers simpIy made lhem avaiIabIe cheapIy as
poslvar surpIus.
The compIex operalions of var aIso haslened lhe improvemenl of communicalions
lechniques, and radar became a high-priorily pro|ecl lhal vouId Iay lhe foundalion for
modern air lrafc conlroI. MiIilary air lrafc operalions in high-densily environmenls
became a vaIid modeI lo be furlher improved upon and modied lo l lhe needs of lhe
airIines.
The immediale poslvar era vas a slagnanl lime for lhe airIines. Iresidenl Harry S.
Trumans adminislralion vas pIagued by healed rivaIries and poIilicaI inghling over
roules and revenues. Wilh lhousands of avialors avaiIabIe aher lhe var, a Iarge number of
airIines sprang up. Trunk roules vere aIready laken by lhe prevar companies, bul many
feeder roules vere up for grabs. The eslabIished carriers vieved vilh horror lhe lhoughl
of governmenl subsidies for nev feeder Iines, arguing lhal lhey shouId provide lhe feeder
service. The CiviI Aeronaulics oard assured lhe Iarger carriers lhal lhe nevIy eslabIished
feeders vouId be carefuIIy monilored and nol aIIoved lo compele vilh airIines ying lhe
lrunk Iines. Some of lhe rsl feeders eslabIished vere AIIegheny, Mohavk, Iiedmonl,
Norlh CenlraI, Ironlier, onanza, Ozark, and Iacic.
Overexpansion furnished enough lroubIe for lhe airIines, bul lhe nonscheduIed airIines
lhal sprang up aII over lhe nalion provided more. These airIines, naluraIIy, made runs
belveen ma|or popuIalion cenlers, vhich cul inlo lhe lrunk Iines lrafc.
The erIin airIih in 194849 represenled an unequaIed opporlunily lo deveIop
experience in high-voIume air freighl and conlribuled lo lhe sense of oplimism aboul
air freighl as a viabIe business. Independenl Iines speciaIizing in carrying onIy freighl
vere formed, and lhe rsl experimenls in using heIicoplers lo carry lhe maiI lo inner-cily
heIiporls vere conducled. In 1947, Los AngeIes Airvays succeeded in gaining approvaI
for lhe rsl scheduIed heIicopler service.
oeing lried lo bounce back vilh ils 377 Slralocruiser, modeIed aher lhe miIilary -
29 Superforlress. Ils success vas Iimiled, hovever, and oeing lurned ils aenlion lo
miIilary |el aircrah. MeanvhiIe, Convair and Marlin lvin-engine pIanes vilh pressurized
cabins ev shorl-hauI roules lo feed lhe ever-groving gianl airIines lhal crossed lhe
enlire counlry in nonslop Ieaps. Avialion records feII as nev and improved modeIs of
ConsleIIalions, DC-6s, and DC-7s vilh reciprocaling pover pIanls appeared. The Uniled
Slales had emerged in lhe poslvar years as lhe aircrah manufacluring Ieader.
The rilish aircrah manufacluring induslry mel vilh governmenl ofciaIs aher lhe
var lo decide vhelher lo lry lo chaIIenge lhe Iead of lhe Uniled Slales vilh convenlionaI
lransporls or lo lake anolher approach. They decided lo Ieapfroglo gambIe on producing
lhe rsl |el airIiner. The resuIl vas lhe deHaviIIand Comel |elIiner. Il made ils rsl ighl
in IuIy 1949, and il enlered service vilh OAC in May 1952. In Ianuary 1954, a Comel
pIummeled inlo lhe Medilerranean, kiIIing aII 35 passengers and crev members: in ApriI
1954, a second Comel ripped aparl and pIunged inlo lhe sea aher lakeo from Rome. AII
Comels vere grounded vhiIe ofciaIs conducled a lhorough invesligalion lo ascerlain
lhe cause of lhe crashes. In Iebruary 1955, lhe invesligalors delermined lhal melaI faligue
in lhe huII had Ied lo expIosive decompression.
TechnoIogicaI advances vere coming so fasl lhal lhe oId pioneers of lhe airIines
vere soon Ieh behind. AirpIanes quickIy became machines of avesome compIexily,
requiring syslems no one person couId ever enlireIy undersland. IncreasingIy, il vas lhe
governmenl lhal recognized lhis, and beginning in 1947, lhe CiviI Aeronaulics Aulhorily
A I R T R A N S P O R TAT I O N 4 0
(CAA) began cerlifying lhree nev cIasses of ighl personneI: ighl radio operalors,
navigalors, and engineers, a symboI of lhe era of lhe lechnocral. Landings became rouline
al 42 lerminaI airporls used by 12 of lhe airIines. In 1948, lhree engineers al lhe eII
TeIephone Laboralories invenled lhe lransislor, vhiIe dislance-measuring equipmenl
(DMI) and very high frequency (VHI) omnirange Ioomed as lhe ansver lo a need for
improved air navigalion aids. y 1951, Ira & Whilney vas lesling ils 10,000-pound-
lhrusl I57, vhich vouId make lhe deveIopmenl of lhe oeing 707 possibIe.
Very quielIy, in 1953, a sludy vas compIeled shoving for lhe rsl lime lhal lhe airpIane
had become lhe prime mover of lraveIers on lrips of more lhan 200 miIes. This onIy
conrmed vhal lhe young execulives in lhe airIine markeling deparlmenls aIready knev.
The vay lo vin lhe pubIic vas lo seII nol lransporlalion, bul lraveI, and lhal look nev
and ingenious melhods.
If U.S. engineers verenl viIIing lo experimenl vilh lurbo|els, lhey couId al Ieasl go
haIfvay vilh lurboprops, and CapilaI AirIines lried lhe rilish-buiIl Vickers Viscounl amid
press parlies lhal fealured demonslralions of hov one couId baIance a quarler on lhe edge
on ones meaI lray, so smoolh vere lhe nev lurbine engines. ul vhen Lockheed lried lhe
same approach vilh ils IIeclra lurboprop, lhe resuIl vas one of lhe mosl expensive recaII
campaigns ever. AIlhough lhe airpIane evenluaIIy proved lo be one of lhe mosl efcienl
ever buiIl, ils image suered vhen crilics queslioned ils slrucluraI inlegrily. Lockheed
evenluaIIy redesigned lhe vings and engine naceIIes on 165 of lhe airpIanes.
oeing had never reaIIy prospered in lhe commerciaI business since lhe DCs had sloIen
lhe lhunder from ils 247. The 307 and 377, lhough praisevorlhy for lheir impIemenlalion
of revoIulionary fealures, had nol reaIIy been successfuI. IorlunaleIy, oeing had been
bIessed vilh an endIess succession of conlracls for heavy miIilary equipmenl lhal kepl il
aoal.
Al greal nanciaI risk, oeing buiIl a |el lanker, lhe miIilary KC-135, vhose purpose
vas lo fueI lhe oeing-buiIl -47 |el bomber. The air force lesled lhe pIane and boughl
il. oeing lhen approached lhe airIines, proposing a |el airIiner based on lhe oeing
|el lanker. The airIines vere Iukevarm lo lhe proposaI and decIined lo invesl any
money in research. Once more, oeing risked ils ovn funds, lhis lime lo deveIop lhe
oeing 707.
When, in 1955, Ian Am announced ils order nol onIy for lhe 707 bul aIso for lhe DougIas
DC-8, oeing had spenl $185 miIIion on |el lransporl deveIopmenl. Il marked lhe end of
one era, and lhe beginning of anolher.
MATURITYJETS ARRIVE: 19581978
The |els vere coming, and by 1956 lhe CAA recognized lhe inevilabIe and heId a conference
lo pIan for lhe |el age. The chaIIenges vere enormous, nol onIy for lhe airIines, for vhom
30 years of parls and mainlenance experience became obsoIele overnighl, bul aIso for lhe
governmenl, because safe operalions vere lheir responsibiIily. Then, in 1956, an evenl
occurred lhal deed aII lhe odds: a TWA Super ConsleIIalion and a Uniled DC-7 coIIided
over lhe Grand Canyon, kiIIing 128 peopIe. SuddenIy, il vas a crovded sky, and lhe oulcry
for reform vas Ioud and cIear. The ansvers, of course, vere soughl in lechnoIogy.
If a pair of concepluaIIy obsoIele pislon airIiners couId have a midair coIIision, vhal
vouId happen vilh |els, vhich venl 50 percenl fasler` The seemingIy impossibIe coIIision
belveen lvo airpIanes in vhal had once seemed a boundIess sky vas a pivolaI evenl in
C H A P T E R 2 H I S T O R I C A L P E R S P E C T I V E 4 1
lhe hislory of airIine lraveI, for il broughl lhe issue of lhe conlroI of each ighl by some
cenlraI aulhorily lo lhe fore, made air lrafc conlroI mandalory, and increased demands
for precision. Il aIso paved lhe vay for lhe nexl ma|or piece of IegisIalion.
The Grand Canyon midair coIIision vas foIIoved by lvo more bad accidenls, and
in 1958, lhere vas a virluaI slampede lo push lhrough Congress a Iav crealing a nev
IederaI Avialion Agency (IAA), an independenl and comprehensive governmenl agency
lo conlroI aII avialion maers, bolh civiI and miIilary. CenlraIized air lrafc conlroI began
Iess lhan a monlh aher lhe biIIs vere inlroduced. Iresidenl Dvighl D. Iisenhover pressed
for passage, and lhe IAA vas born.
Iusl as lhe lurboprops enlered service in 1958, lhe 707 began ying overseas roules.
The lurboprop aircrah had a reIaliveIy shorl Iife vilh lhe ma|or carriers. Il vas American
AirIines lhal began 707 service belveen lhe coasls a year Ialer. Wilh lhe advenl of lhe 727,
one of lhe mosl efcienl lransporl airpIanes ever buiIl and one lhal became as videIy
ovn as lhe DC-3, and lhe DC-9, lhe airIines soon disposed of aII lheir reciprocaling
propeIIer equipmenl. Ior a vhiIe, Iaslern used some oIder airpIanes on ils shuIe ighls
belveen lhe norlheasl corridor cilies of oslon, Nev York, and Washinglon, bul lhey vere
soon repIaced.
On December 30, 1969, oeing achieved cerlicalion of an airpIane lhal revoIulionized
airIine lraveI forever. Iusl as lhe originaI -707 broughl vibralion-free, over-vealher, |el-
engine ying lo passengers, lhe gianl 747 vas lo bring Iov-cosl lraveI lo lhe masses. Once
again, Ian Am Ied lhe vay by inlroducing |umbo-|el service across lhe AlIanlic in Ianuary
1970. An economic dovnlurn dried up orders for lhe pIane belveen 1969 and 1972, bul
aher lhal iniliaI selback, orders began lo ov in a sleady slream.
The oeing 747 vas unmalched. Il vas abIe lo carry aboul 380 passengers in an 8- or
even 10-abreasl, lvin-aisIe, mixed-cIass Iayoul and broughl a nev lerm lo commerciaI
avialion: vide-body. The humpback proIe of lhe airpIane resuIled from an earIy
decision lo maximize freighl-carrying capabiIily: lhe liIl-up nose on lhe 747I (freighler)
and 747C (converlibIe) versions aIIoved direcl inserlion of cargo conlainers. Doing so
required a cockpil lhal vas removed from lhe main deck and a generous aherbody for
slreamIining, and, al Iuan Trippes insislence, an upper-deck, rsl-cIass Iounge vas added
in lhe area behind lhe cockpil.
The oeing 747 has reigned supreme over lhe vorIds air roules for more lhan a quarler
of a cenlury. More lhan a lhousand 747s have aIready been buiIl, and produclion conlinues.
WiseIy, olher manufaclurers did nol lry lo chaIIenge oeing head-on. The lri-|el DougIas
DC-10 and lhe Lockheed L-1011, under deveIopmenl al lhe same lime as lhe 747, vere
onIy aboul lhree-quarlers of ils size. Conlaining aboul 270 seals, lhe pIanes vere inlended
lo salisfy lhe requiremenls of air roules lhal did nol generale sufcienl lrafc lo |uslify lhe
depIoymenl of lhe gianl oeings. The DC-10 enlered service on Augusl 5, 1971, and lhe
TriSlar on ApriI 26, 1972. olh suered severe selbacks. A DC-10 suered a speclacuIar
crash al lhe vorIds busiesl airporl, Chicagos OHare, on May 25, 1979. Iroduclion of lhe
TriSlar vas disrupled by lhe bankruplcy of ils engine manufaclurer, RoIIs-Royce.
A Ialecomer lo lhe vide-bodied airIiner eId vas lhe Airbus. Il vas rsl conceived
simuIlaneousIy by Havker-SiddeIey, vhich had laken over deHaviIIand, in Greal rilain
and by requel-Sud in Irance. The basic design of lhis lvin-engined varianl on lhe vide-
bodied principIe look shape in lhe Iale 1960s. The vings for vhal became lhe A300 series
vere buiIl by a Iuropean consorlium of airframe manufaclurers. Air Irance pul lhe rsl
version of lhe Airbus, as il quickIy became knovn, inlo service in May 1974.
A I R T R A N S P O R TAT I O N 4 2
oeing had nol been negIecling olher pro|ecls during lhe years of lhe 747 program.
The lhree-engine 727 shorl-hauI airIiner began as a 100-seal regionaI carrier, evenluaIIy
slrelching inlo Ienglhened versions lhal malched lhe 707s Ienglh. olh lhe 727 and lhe 737
used lhe fuseIage cross seclion of lhe 707 series, giving shorl-range cuslomers amenilies
simiIar lo lhose found on lhe Ionger lrips. The lvin-engine 737, cerlicaled in IuIy 1967,
vas designed lo compele vilh DougIass DC-9.
Since lhe |els look over, lhe airIine induslry has inlroduced one lechnoIogicaI
advancemenl aher anolher: ighl recorders, vealher radar, lerrain-avoidance syslems,
and so on. During lhis era, lhe airIines passed from a period of high risk lo a period of
virluaIIy no risk al aII. Wilh lhe passage of lhe AirIine DereguIalion Acl of 1978 (see lhe
seclion IederaI LegisIalion and lhe AirIines), lhe airIine induslry moved inlo an era of
nev chaIIenges.
The period from 1938 lo 1978 vilnessed lruIy phenomenaI grovlh in bolh domeslic and
inlernalionaI air lransporlalion. Over lhe years, U.S. airIines received many nev roule
aulhorizalions, domeslic and inlernalionaI. TabIe 2-1 shovs lhe grovlh in lhe number
of cerlicaled domeslic roule miIes of lhe Ieading carriers during 40 years of reguIalion.
The number of U.S. cily pairs connecled by scheduIed airIine service grev in slep vilh
expanded roule miIes. InlernalionaIIy, Iimiled service vas provided in 1938 by a handfuI
of scheduIed U.S. airIines (principaIIy Ian American Airvays and ils reIaled companies)
and a haIf dozen or so signicanl foreign airIines. y 1978, lhese numbers had increased
lo 21 U.S. and 73 foreign airIines.
Air passenger lrafc aIso grev al an aslonishing rale. The number of passengers
(domeslic and inlernalionaI) carried by U.S. airIines increased from a IiIe over 1 miIIion
in 1938 lo aImosl 267 miIIion in 1978. In addilion, in 1978, foreign airIines carried some
16 miIIion passengers lo or from lhe Uniled Slales. Wilh increases in average Ienglh
of |ourney, lhere vas an even grealer grovlh in U.S. airIine passenger miIes, from 533
miIIion in 1938 lo 219 biIIion in 1978. The air lransporl induslry lhus emerged as one of
lhe nalions ma|or induslries. Over lhe four-decade period, revenues increased from $58
miIIion lo $22.8 biIIion, and lolaI airIine assels increased from under $100 miIIion lo over
$17 biIIion.
The air lransporl induslry aIso became a ma|or empIoyer. TolaI direcl airIine empIoymenl
increased from aboul 13,000 lo veII over 300,000. In addilion, hundreds of lhousands
of peopIe vere empIoyed in lhe manufaclure of civiI lransporl aircrah, engines, and
accessories: al airporls: in lraveI agencies: and in lhe vasl range of olher reIaled service,
suppIy, and supporl aclivilies.
TechnoIogicaI deveIopmenl vas speclacuIar, nol |usl in aircrah bul in lhe air lransporl
syslem infraslruclure as veII. In lerms of aircrah, lhis 40-year period vilnessed lhe
evoIulion from lhe propeIIer-driven, 21-passenger DC-3 lo lhe 400-seal, vide-body oeing
747 |el lhal, in addilion lo a fuII passenger Ioad, has cargo capacily equaI lo lhe Ioad-
carrying capabiIily of ve DC-3s. Aircrah nonslop range, vilh fuII payIoad, grev lo over
6,000 miIes.
Accompanying lhese deveIopmenls vere quanlum improvemenls in safely, speed,
comforl, and overaII convenience for lhe users of air service. A lruIy inlegraled air
ECONOMIC DEVELOPMENTS PRIOR TO
DEREGULATION
C H A P T E R 2 H I S T O R I C A L P E R S P E C T I V E 4 3
TABLE 2-1 Growth of Certicated Domestic Routes (miles)
AirIine 1938 1978
American 6,826 43,755
DeIla 1,091 50,380
Iaslern 5,276 43,576
Norlhvesl 2,507 30,927
TWA 5,749 29,127
Uniled 5,321 48,709
Source: CA SlalislicaI Reporls.
lransporl syslem vas deveIoped lhal enabIed lhe pubIic lo buy lickels from virluaIIy any
airIine (and from many lhousands of lraveI agenls) for lraveI on muIlipIe airIines and
lo check baggage al lhe poinl of origin for deIivery al lhe deslinalion regardIess of hov
many airpIane or airIine changes vere made en roule.
Al lhe same lime, lechnoIogicaI advances combined vilh economies of scaIe lo produce
Iover unil cosls, heIping make il possibIe lo hoId lhe Iine on prices over lhis 40-year
period. Despile a consumer price inalion rale of aImosl 400 percenl from 1938 lo 1978,
average fares per passenger miIe remained remarkabIy slabIe (see TabIe 2-2). The increase
from 1968 lo 1978 reecled nol onIy acule inalion bul aIso lhe sharp fueI cosl increases
foIIoving lhe 1973 oiI embargo.
The air lransporl induslry aIso mel lhe congressionaI ob|eclive of assisling lhe nalionaI
defense. As reporled by lhe CA in ils 1942 AnnuaI Reporl lo Congress: IearI Harbor
broughl reaI meaning and nev force lo lhe nalionaI defense slandard so viseIy vrien
inlo lhe CiviI Aeronaulics Acl during peacelime. The airIines, domeslic and inlernalionaI,
venl on varlime fooling and conlribuled signicanlIy lo lhe var eorl. SubsequenlIy,
lhey heIped break lhe erIin bIockade, provided imporlanl conlribulions in lhe Korean
and Vielnam vars, and furnished emergency and evacualion assislance in dozens of
olher crilicaI silualions around lhe gIobe. And by 1978, lhe formaI CiviI Reserve Air
IIeel, avaiIabIe vilh crevs for miIilary caII-up al dened slages of nalionaI emergency,
conlained 298 commerciaI aircrah, of vhich 216 vere Iarge inlerconlinenlaI unils.
The U.S. air lransporl syslem, by far lhe Iargesl in lhe vorId, vas aIso lhe besl in
|usl aboul every respecl. And lhis conlribuled, in no smaII measure, lo lhe vorIdvide
supremacy of lhe U.S. aerospace induslry, exporling as il did many biIIions of doIIars
vorlh of aircrah, engines, componenls, and parls.
AII of lhis vas accompIished lhrough privale enlerprise vilh an earIy phaseoul of
governmenl subsidies excepl for Iimiled lypes of service in lhe pubIic inleresl. Ixacl earIy
gures do nol exisl, because lhe CA did nol idenlify lhe compensalory eIemenl in
lolaI maiI pay unliI 1951. Ior scaI 1951, sIighlIy over $75 miIIion vas paid in subsidies,
equaI lo sIighlIy over 7 percenl of lolaI induslry revenues. In 1951, subsidy recipienls, by
calegory, vere:
A I R T R A N S P O R TAT I O N 4 4
TABLE 2-2 Average Yield per Revenue Passenger Mile (cents)
InlernalionaI
AII Roule Domeslic Trunk
Carriers
a
Trunk Lines Operalions
1938 5.50c 5.12c 8.34c
1948 6.30 5.73 8.01
1958 5.80 5.58 6.46
1968 5.46 5.45 4.95
1978 8.35 8.14 7.50
Source: CA SlalislicaI Reporls.
a
IncIudes IocaI service carriers, vhose yieIds vere higher lhan lhose of domeslic lrunk Iines and inlerna-
lionaI lrunk operalions.
Domeslic lrunks $18.9 miIIion
LocaI service $17.1 miIIion
InlernalionaI, overseas, and lerriloriaI $39.3 miIIion
$75.3 miIIion
Ior caIendar year 1977, by coincidence, aImosl lhe same IeveIs of subsidies ($76.7 miIIion)
vere dislribuled, bul none venl for domeslic lrunks or inlernalionaI services, vhich had
Iong funclioned vilhoul governmenl nanciaI supporl. The recipienl groups in 1977
vere:
LocaI service $72.2 miIIion
AIaskan carriers $ 4.5 miIIion
$76.7 miIIion
Subsidies in 1977 represenled onIy 0.3 percenl of lolaI induslry revenues.
The 40-year period of air lransporl reguIalion sav a sleady increase in lhe number of
operalors on specic domeslic roules. In 1978, fev markels vilh signicanl lrafc exisled
lhal vere served by onIy one airIine. And in inlernalionaI service, lhere vas a sleady
and subslanliaI increase in lhe number of operalors (U.S. and foreign) over virluaIIy aII
commerciaIIy imporlanl roules.
This 40-year period aIso sav changes in lhe slruclure of lhe U.S. airIine induslry. A
number of lhe originaI grandfalher lrunk-Iine carriers (5 of lhe originaI 16) merged vilh
or vere acquired by olher airIines: lhere vere no bankruplcies among lhem. During lhe
same period, nev calegories of carriers, as veII as nev carriers, vere Iicensed, incIuding
8 IocaI-service and 3 aII-cargo companies, and 10 charler airIines. This Iaer group pIayed
a signicanl roIe in oering Iover-priced lransporlalion and deveIoped a slrong presence
in cerlain markels, parlicuIarIy for lransalIanlic ighls.
Despile probIems and inadequacies, fev couId reasonabIy deny lhe briIIianl success
of lhe 1938 reguIalory scheme. There vas a high IeveI of pubIic salisfaclion vilh U.S.
airIines. A U.S. Ncus c Wcr|! |cpcri survey reveaIed lhal oul of 21 dened calegories of
U.S. induslry, lhe airIines vere raled lhe highesl for giving lhe cuslomer good vaIue for
money.
C H A P T E R 2 H I S T O R I C A L P E R S P E C T I V E 4 5
In onIy one respecl did lhe airIines perform poorIy: compared vilh olher broad induslry
groups, lhe airIine business vas nol highIy prolabIe. CoincidenlaIIy, 1978, lhe Iasl year of
reguIalion, vas by far lhe mosl prolabIe year over lhe 40-year period.
Any reviev of airIine prolabiIily musl aIso lake inlo accounl lhe exlremeIy cycIicaI
nalure of lhe business. Il is highIy Ieveraged, because lhe marginaI cosl of addilionaI
lrafc (and lhe marginaI savings from Iess lrafc) al any given IeveI of capacily is very
Iov. As a resuIl, lhe svings in prolabiIily from recession lo good limes and back lo
recession can be very vide. This is veII iIIuslraled by hov lhe 197071 and 197475
recessions aecled airIine nanciaI performance (see TabIe 2-3). Il is inleresling lo nole
lhal ATA compulalions of rale of relurn on inveslmenl shoved, for exampIe, posilive
relurns of 1.2 percenl in 1970, vhen lhe induslry reporled a nel Ioss of $201 miIIion, and
2.5 percenl in 1975, vhen il reporled a nel Ioss of $84 miIIion. Irol margin provides
a meaningfuI nanciaI yardslick. ased on lhese compulalions, airIine prol margins
from 1967 lo 1977 averaged onIy 1.7 percenl, versus 4.8 percenl for U.S. manufacluring
companies.
TABLE 2-3 U.S. Schedule Airlines Operating Revenues and Prots,
Before and Aer Interest Expense (millions of dollars)
Operaling Irol
Operaling Operaling Inleresl (Loss) Aher
Revenue Irol Ixpense Inleresl Ixpense
1968 $ 7,753 $ 505 $222 $ 283
1969 8,791 387 283 104
1970 9,290 43 318 (275)
1971 10,046 328 331 (3)
1972 11,163 584 307 277
1973 12,419 585 368 217
1974 14,699 726 420 306
1975 15,356 128 402 (274)
1976 17,506 723 372 351
1977 19,917 908 373 535
1978 22,884 1,365 539 826
Source: Air Transporl Associalion (ATA) AnnuaI Reporls.
FEDERAL LEGISLATION AND THE AIRLINES
The aulhorily of lhe federaI governmenl lo reguIale inlerslale and overseas avialion and
air lransporlalion derives from lhe Conslilulion of lhe Uniled Slales, vhich granls lo
Congress lhe righl lo reguIale inlerslale and foreign commerce, lo reguIale lhe poslaI
service, lo make lrealies vilh foreign nalions, and lo provide for lhe nalionaI defense. The
ralionaIe for reguIalion is rooled in lhe economic and physicaI characlerislics of lhe air
lransporl induslry. The ma|or reasons are Iisled here:
1. Tc sia|i|izc inc in!usiru. The air lransporlalion induslry is a pubIic uliIily lhal
is imporlanl lo lhe commerciaI and sociaI veIfare of lhe nalion. The need lo
slabiIize modes of lransporlalion so lhal lhey couId serve lhe pubIic al reasonabIe
A I R T R A N S P O R TAT I O N 4 6
prices spurred lhe inlroduclion of economic reguIalion of valer lransporlalion,
raiIroads, and, Ialer, highvays. In lhe case of air lransporlalion, lhe induslry vas
somevhal unslabIe in ils earIy years of grovlh, even lhough safely reguIalions
and federaI subsidies lhrough air maiI conlracls vere in pIace from lhe beginning.
Induslry inslabiIily vas one of lhe primary reasons for bringing air lransporlalion
under a syslem of reguIalion.
Air lransporlalions earIy years vere characlerized by erce compelilion
among numerous budding carriers, uclualing prices, unreIiabIe service, and
high lurnover among carriers. Overcapacily in lhe induslry and lhe compelilive
bidding process for air maiI conlracls vere said lo have Ied lo absurdIy Iov bids
and disaslrous price vars. This almosphere vas nol conducive lo inveslmenl by
lhe nanciaI communily, and vilhoul oulside capilaI funding, lhe erce IiIe
compelilors lhal made up lhe induslry in ils earIy years couId nol acquire lhe
equipmenl lhey needed. Laler, in lhe earIy 1930s, lhe air carriers lhemseIves soughl
federaI reguIalion, reaIizing lhal lhe hislory of lransporlalion demonslraled lhal
lhe absence of such reguIalion Ied lo eviIs from vhich nol onIy lhe pubIic bul
aIso lhe induslry ilseIf vouId suer. y 1938, lhe air lransporlalion induslry
vas experiencing crilicaI nanciaI difcuIlies: many of lhe ma|or Iines faced lhe
lhreal of bankruplcy, and much of lhe originaI inveslmenl in airIines had been
dissipaled. IinanciaI difcuIlies vere aIso aggravaled by a series of accidenls in
lhe vinler of 193637 lhal undermined pubIic condence. The facl lhal raiI and
highvay lransporlalion vas aIready reguIaled sel a precedenl for reguIalion lhal
encouraged ils enaclmenl in air lransporlalion.
2. Tc inprctc air sajciu. The induslry vas, and sliII is, IargeIy dependenl on
governmenl aid lo mainlain lhe safe ov of lrafc. IederaI reguIalion of air
lransporlalion safely vas in eecl from lhe earIy years. Il vas recognized lhal
safely reguIalion couId nol reach ils maximum eecliveness if lhe induslry
vas unslabIe and if lhe carriers vere nanciaIIy veak and unabIe lo aord lhe
necessary safely precaulions and devices. Therefore, economic reguIalion vas
inlended, in parl, lo slabiIize air lransporlalion so lhal lhe carriers vouId have
lhe nanciaI capacily lo pay for vhalever vas needed lo conform vilh safely
reguIalions perlaining lo lhe design, operalion, and mainlenance of aircrah.
3. Tc rc!ucc casn su|si!ics. Anolher reason, aIlhough minor, for reguIaling air
lransporlalion vas lhe facl lhal air carriers had been subsidized lhrough lhe air
maiI program since lhe mid-1920s. Il vas beIieved lhal lhe subsidies needed couId
be reduced by slabiIizing lhe induslry lhrough economic reguIalion. A nanciaIIy
slrong and slabIe airIine induslry vouId need smaIIer subsidies from lhe federaI
governmenl.
Olher reasons for reguIalion incIuded lhe facl lhal lhe induslry used lhe airspace
over lhe enlire Uniled Slales, over olher nalions, and over inlernalionaI valers.
ConsequenlIy, il naluraIIy feII under federaI ralher lhan slale |urisdiclion. Anolher
reason vas lhe induslrys roIe in lhe nalionaI defense. This vas evidenced as earIy as
WorId War II, vhen lhe airIines, ying under conlracl for lhe miIilary, provided lhe
backbone of lhe Air Transporl Command. Under conlracls vilh lhe miIilary for airIih
services, lhe airIines pIayed a signicanl roIe during lhe Korean and lhe Vielnam
vars. In addilion, a |oinl program belveen lhe Deparlmenl of Defense and lhe
C H A P T E R 2 H I S T O R I C A L P E R S P E C T I V E 4 7
airIines, lhe CiviI Reserve Air IIeel (CRAI), vas designed lo augmenl miIilary airIih
capabiIily in lhe evenl of a nalionaI emergency.
|ar| u |c!cra| Icgi s| aii cn
The Air Commerce Acl of 1926 imposed on lhe secrelary of commerce and lhe Deparlmenl
of Commerce lhe duly of promoling and foslering lhe deveIopmenl of commerciaI avialion
in lhe Uniled Slales. The acl aulhorized lhe Deparlmenl of Commerce lo encourage and
deveIop faciIilies necessary for air navigalion and lo reguIale and mainlain lhem.
The acl did nol iniliaIIy creale a nev bureau vilhin lhe Deparlmenl of Commerce.
Ralher, lhe inlenlion vas lo dislribule lhe dulies imposed by lhe acl among lhe lhen-
exisling agencies of lhe deparlmenl.
The ob|eclive of lhe Air Commerce Acl vas lo slabiIize civiI or commerciaI avialion
in such a vay as lo aracl adequale capilaI lo lhe edgIing induslry and lo provide il
vilh lhe assislance and IegaI basis necessary for ils deveIopmenl. The Iav emphasized
lhe federaI governmenls roIe in lhe deveIopmenl of civiI air lransporlalion more lhan il
slressed ils responsibiIily for reguIaling lhe business aspecls of air lransporlalion. The acl
vas designed lo encourage lhe rapid deveIopmenl of commerciaI avialion, as indicaled
by lhe IegisIalive hislory of lhe acl.
In inlroducing lhe biII lhal became lhe Air Commerce Acl, lhe Senale Commiee on
Inlerslale Commerce slaled lhal aIlhough Americans buiIl lhe rsl airpIanes capabIe of
ighl, and vere lhe rsl lo Iearn hov lo y heavier-lhan-air machines, and hoId more vorId
records lhan do lhe cilizens of any olher nalion, commerciaI avialion has nol advanced
as rapidIy in lhe Uniled Slales as had been hoped and expecled. This acl dened air
Tnc Ai r Ccnncrcc Aci cj 1926
The rsl sleps lhe federaI governmenl look lo reguIale avialion and air lransporlalion
occurred in conneclion vilh lhe deveIopmenl of lhe air maiI service. In May 1918, lhe air
maiI service vas inauguraled on an experimenlaI basis by lhe Iosl Ofce Deparlmenl and
lhe Army. In Augusl of lhe same year, lhe service vas laken over as a Iosl Ofce Deparlmenl
operalion. On Iebruary 2, 1925, Congress enacled lhe Conlracl Air MaiI Acl, usuaIIy
knovn as lhe KeIIy Acl, and as such gave birlh lo lhe airIine induslry. This Iav aulhorized
lhe poslmasler generaI lo conlracl vilh privale individuaIs or companies engaged in air
lransporlalion service for lhe lransporlalion of air maiI. y 1927, aII lhe air maiI services
of lhe Iosl Ofce Deparlmenl had been lurned over lo lhe air lransporlalion companies,
and nev roules vere eslabIished lo be operaled by air maiI conlracl carriers. The eecl
on air passenger lransporlalion of lhe eslabIishmenl of conlracluaI reIalionships belveen
lhe Iosl Ofce Deparlmenl and lhe air maiI carriers can scarceIy be overemphasized. The
subsidies received by lhe air maiI conlraclors enabIed a number of airIines lo eslabIish
passenger services. Indeed, il vouId have been impossibIe for some companies lo exisl
vilhoul lhe air maiI conlracls.
The KeIIy Acl vas amended in 1926 lo provide higher rales of compensalion.
Subsequenl air maiI IegisIalion vas imporlanl because of lhe reIalionship of lhis lype of
reguIalion lo lhe broader IegisIalion deaIing vilh lhe reguIalion of air lransporlalion. The
pioneer IegisIalion of lhis lype, because il Iaid lhe foundalion for aII fulure reguIalion of
air lransporlalion, vas lhe Air Commerce Acl of 1926, aIso knovn as lhe inghamIarker
Acl.
A I R T R A N S P O R TAT I O N 4 8
commerce as lransporlalion, in vhoIe or in parl, by aircrah, of persons or properly for
hire, and lhe navigalion of aircrah in furlherance of or for lhe conducl of a business.
The acl made il lhe duly of lhe secrelary of commerce lo encourage air commerce by
eslabIishing civiI airvays and olher navigalionaI faciIilies lo aid aeriaI navigalion and air
commerce.
The reguIalion of avialion provided for in lhe acl incIuded lhe Iicensing, inspeclion,
and operalion of aircrah: lhe marking of Iicensed and unIicensed crah: lhe Iicensing of
piIols and of mechanics engaged in aircrah vork: and lhe reguIalion of lhe use of airvays.
SeveraI dierenl governmenlaI agencies or deparlmenls vere empovered lo perform
funclions reIalive lo carrying oul lhe provisions of lhe acl:
1. The Deparlmenl of Commerce vas enlrusled vilh lhe adminislralion and
enforcemenl of ma|or porlions of lhe acl. An assislanl secrelary for aeronaulics
vas appoinled in 1927 lo adminisler lhe dulies assigned lo lhe deparlmenl.
2. The secrelary of lhe lreasury vas given lhe duly of providing reguIalory ruIes
for enlry, cIearance, and cusloms reguIalions for aircrah engaged in foreign
commerce.
3. The secrelary of Iabor vas empovered lo deaI vilh aII immigralion probIems
reIalive lo air lransporlalion.
4. The Wealher ureau of lhe Deparlmenl of AgricuIlure vas aulhorized lo suppIy
meleoroIogicaI informalion.
5. The secrelary of var vas aulhorized lo designale miIilary airvays.
6. The ureau of Slandards of lhe Deparlmenl of Commerce vas direcled lo
underlake R & D lo improve air navigalion faciIilies.
Through lhis dislribulion of funclions in conneclion vilh avialion and air lransporlalion,
Congress soughl lo uliIize as many of lhe exisling governmenlaI agencies as possibIe,
lhus avoiding or reducing lhe need lo creale addilionaI and dupIicaling federaI agencies
especiaIIy for air lransporlalion and avialion. ConsequenlIy, no separale bureau vas
iniliaIIy sel up in lhe Deparlmenl of Commerce. Hovever, in IuIy 1927, a direclor of
aeronaulics vas appoinled, vho, under lhe generaI direclion of lhe assislanl secrelary
for aeronaulics, vas in charge of lhe vork of lhe Deparlmenl of Commerce in lhe
adminislralion of lhe Air Commerce Acl.
In November 1929, because of lhe increasing voIume of vork incidenl lo lhe rapid
deveIopmenl of avialion, il vas necessary lo decenlraIize lhe organizalion. Three
assislanls and lhe slas of lhe divisions under lheir respeclive |urisdiclions vere assigned
lo lhe assislanl secrelary of commerce for aeronaulics. These incIuded a direclor of air
reguIalion, a chief engineer of airvays, and a direclor of aeronaulics deveIopmenl lo assisl
in aeronaulicaI reguIalion and promolion. The organizalion vas knovn as lhe Aeronaulics
ranch of lhe Deparlmenl of Commerce.
The vork vas furlher reassigned by execulive order of lhe presidenl in 1933, so as lo
pIace lhe promolion and reguIalion of aeronaulics in a separaleIy consliluled bureau of lhe
Deparlmenl of Commerce. An adminislralive order of lhe secrelary of commerce provided
for lhe eslabIishmenl of lhe ureau of Air Commerce in 1934. The bureau consisled of lvo
divisions, lhe Division of Air Navigalion and lhe Division of Air ReguIalion.
A revised pIan of organizalion for lhe ureau of Air Commerce, adopled in ApriI 1937,
pIaced aII lhe aclivilies of lhe bureau under a direclor, aided by an assislanl direclor, vilh
supervision over seven principaI divisions: airvay engineering, airvay operalion, safely
C H A P T E R 2 H I S T O R I C A L P E R S P E C T I V E 4 9
and pIanning, adminislralion and slalislics, cerlicalion, inspeclion, and reguIalion. A
poIicy board vas formed lo deaI vilh aII maers aecling poIicy vilhin lhe bureau, and
an advisory board, consisling of civiIian and olher represenlalives of aII avialion inleresls,
vas appoinled lo advise lhe bureau.
The Air MaiI Acl of 1930, knovn as lhe McNaryWalres Acl, vas passed by Congress
on ApriI-29, 1930. Il provided lhe poslmasler generaI vilh unIimiled conlroI over lhe
air maiI roule syslem. The poslmasler generaI couId nov exlend or consoIidale roules
if he lhoughl il vouId serve lhe pubIic inleresl. The acl aIso lighlened lhe provisions
under vhich conlraclors vere reimbursed for carrying lhe maiI and provided addilionaI
remuneralion for conlraclors ying muIli-engine aircrah and using lhe Ialesl navigalionaI
aids.
In Iebruary-1934, lhe poslmasler generaI annuIIed aII domeslic air maiI conlracls,
and lhe lransporlalion of lhe maiI vas assigned lemporariIy lo lhe Air Corps of lhe U.S.
Army. This aclion vas laken because lhe poslmasler generaI had evidence lhal lhere vas
a conspiracy lo defeal compelilive bidding.
The arrangemenl vilh lhe Air Corps conlinued from Iebruary 20 lo May 16, 1934.
Then, aher lhe reorganizalion of lhe commerciaI air lransporlalion companies according
lo governmenl requiremenls as a precondilion lo submiing bids for air maiI conlracls,
lhe commerciaI companies submied bids, and nev conlracls vere avarded.
The Air MaiI Acl of 1934, passed on Iune 12 and knovn as lhe IackMcKeIIar Acl,
provided lemporary conlracls and gave lhe Inlerslale Commerce Commission (ICC)
lhe responsibiIily of periodicaIIy ad|usling lhe rales of compensalion lo be paid lhe air
lransporl companies for lhe carriage of lhe maiI vilhin lhe Iimilalions imposed by lhe acl.
The ICC vas required by Iav lo reviev annuaIIy lhe rales of air maiI pay lo ensure lhal
no company vas earning unreasonabIe prols. Iach air maiI conlraclor vas required lo
submil for examinalion and audil by lhe ICC ils books, accounls, conlracls, and business
records and lo Ie semiannuaI reporls of aII free lransporlalion provided. The ICC aIso vas
aulhorized lo invesligale any aIIeged unfair praclices and compelilive services of companies
lransporling air maiI lhal adverseIy aecled lhe generaI lransporl business or earnings on
olher air maiI roules, and lo order lhe praclices or compelilion lo be disconlinued if unfair
condilions vere found lo exisl. The acl aIso provided lhal aher IuIy 1, 1938, lhe aggregale
cosl of air maiI lransporlalion lo lhe governmenl couId nol exceed lhe anlicipaled revenue
from air maiI. The ICC organized lhe ureau of Air MaiI lo adminisler lhe reguIalion of air
maiI compensalion under ils direclion.
In addilion, lhe acl separaled lhe manufacluring companies from conneclions vilh
airIines and forbade inlerIocking direclorales, overIapping inleresls, and muluaI slock
hoIdings. y 1938, lvo generaI calegories of air carriers had deveIoped. The rsl,
economicaIIy more signicanl, group vas composed of lhe air maiI conlraclors lhal ev
over eslabIished roules and lransporled persons, properly, and maiI. The second group,
lhe so-caIIed xed-base operalors, vas composed of persons operaling airporls, ying
schooIs, crop-dusling services, and so forlh, vho aIso carried persons and properly on an
air laxi basis in smaII, nonlransporl-lype aircrah.
A!!i ii cna| Ai r Mai | Acis
A I R T R A N S P O R TAT I O N 5 0
On Iune-23, 1938, lhe CiviI Aeronaulics Acl vas approved by Iresidenl
RooseveIl. This acl subsliluled a singIe federaI slalule for lhe severaI generaI
and air maiI slalules lhal up lo lhis lime had provided for lhe reguIalion of
lhe avialion and air lransporlalion induslry. The acl pIaced aII lhe funclions
of aid lo and reguIalion of avialion and air lransporlalion vilhin one adminislralive
agency consisling of lhree parlIy aulonomous bodiesa ve-member CiviI
Aeronaulics Aulhorily (CAA), a lhree-member Air Safely oard, and an
adminislralorand aempled lo demarcale execulive, IegisIalive, and |udiciaI
funclions.
Members of lhis composile agency or adminislralion vere appoinled by lhe presidenl
vilh lhe advice and consenl of lhe Senale. No lerm vas slaled for lhe adminislralor,
bul members of lhe olher lvo agencies vere appoinled lo ofce for lerms of six years.
The acl required members of lhe lhree agencies lo devole fuII lime lo lheir dulies and
forbade lhem from having any nanciaI inleresl in any civiI aeronaulics enlerprise.
The ve members of lhe CiviI Aeronaulics Aulhorily performed quasi-|udiciaI and
IegisIalive funclions reIaled lo economic and safely reguIalions. The adminislralor
performed pureIy execulive funclions reIaled lo lhe deveIopmenl, operalion, and
adminislralion of air navigalion faciIilies, as veII as promolionaI vork in avialion.
The Air Safely oard vas a quasi-independenl body crealed for lhe purpose of
invesligaling and anaIyzing accidenls and making recommendalions lo eIiminale lhe
causes of accidenls.
The personneI, properly, and unexpended baIances of approprialions of lhe ureau
of Air Commerce of lhe Deparlmenl of Commerce and of lhe ureau of Air MaiI of lhe
Inlerslale Commerce Commission, vhich had adminislered air maiI paymenls under
lhe Air MaiI Acl of 1934, vere lransferred lo lhe nev CiviI Aeronaulics Aulhorily. The
lransfer of lhe responsibiIilies of lhe ureau of Air Commerce lo lhe CiviI Aeronaulics
Aulhorily, eecled in Augusl 1938 under provisions of lhe CiviI Aeronaulics Acl,
broughl lo a cIose a 12-year period during vhich lhe deveIopmenl and reguIalion of
civiI aeronaulics vere under lhe |urisdiclion of lhe Deparlmenl of Commerce.
The CiviI Aeronaulics Aulhorily exercised aII quasi-IegisIalive and quasi-|udiciaI
povers conferred by lhe acl and aII execulive povers of appoinlmenl vilh respecl lo
ils ofcers and empIoyees. Il look conlroI of lhe expendilures of lhe adminislralor and
lhe Air Safely oard and of aII olher execulive povers of appoinlmenl vilh respecl lo
lhe exercise of lhese quasi-IegisIalive and quasi-|udiciaI povers.
The adminislralor, appoinled by lhe presidenl, exercised execulive povers vilh
respecl lo lhe deveIopmenl of civiI aeronaulics and air commerce: lhe foslering,
eslabIishmenl, and mainlenance of air navigalion faciIilies: and lhe reguIalion and
proleclion of air lrafc.
The Air Safely oard vas appoinled by lhe presidenl, by and vilh lhe approvaI
of lhe Senale. Il acled independenlIy of lhe CiviI Aeronaulics Aulhorily, and in
performing ils invesligalions of accidenls, il reporled on lhe facls and probabIe causes
and recommended prevenlive measures lo avoid fulure accidenls.
The CiviI Aeronaulics Aulhorily vas direcled by Congress, in lhe decIaralion of
poIicy of lhe CiviI Aeronaulics Acl, lo reguIale air lransporlalion in lhe pubIic inleresl
by performing six funclions:
Tnc Ci ti | Acrcnauii cs Aci cj 1938
C H A P T E R 2 H I S T O R I C A L P E R S P E C T I V E 5 1
1. Incouraging and deveIoping an air lransporlalion syslem adapled lo lhe presenl
and fulure needs of domeslic and foreign commerce, lhe poslaI syslem, and
nalionaI defense
2. ReguIaling air lransporlalion so as lo preserve ils inherenl advanlages, promoling
lhe highesl degree of safely and sound condilions in lhe induslry, improving
reIalions among air lransporl companies, and coordinaling lransporlalion by air
carriers
3. Iromoling adequale, economicaI, and efcienl lransporlalion service by air
carriers al reasonabIe charges, and prohibiling un|usl discriminalion, undue
preferences or advanlages, and unfair or deslruclive compelilive praclices
4. Ireserving compelilion in keeping vilh lhe sound deveIopmenl of an
air lransporlalion syslem for commerce, lhe maiI service, and nalionaI defense
5. Iromoling lhe deveIopmenl of air commerce and safely
6. Incouraging lhe deveIopmenl of civiI aeronaulics
The acl exlended federaI reguIalion lo aII phases of aeronaulics, lo aII persons engaged
in ying, and lo aII inslrumenlaIilies of avialion vilh lhe exceplion of lhe acluaI acquisilion
and operalion of airporls. This vas accompIished by vhal has been lermed a ralher unusuaI
use of denilions. Air ccnncrcc vas dened by lhe acl lo mean aII inlerslale, overseas,
or foreign air commerce, or lhe lransporlalion of maiI by aircrah, or any operalion or
navigalion of aircrah vilhin lhe Iimils of any civiI airvay, or any operalion or navigalion
of aircrah lhal direclIy aecled or lhal mighl endanger safely in inlerslale, overseas,
or foreign air commerce. This Iasl cIause provided for a degree of federaI conlroI over
inlraslale avialion, because a privale piIol mighl use an airvay in inlraslale operalion lhal
mighl endanger lhe safe conducl of inlerslale commerce.
Under severaI reorganizalion pIans in 1940, lhe Air Safely oard vas
aboIished and ils funclions lransferred lo lhe ve-member CiviI Aeronaulics Aulhorily,
vhich vas redesignaled lhe CiviI Aeronaulics oard (CA). The adminislralor of
civiI aeronaulics (vhose organizalion vas lhen knovn as lhe CiviI Aeronaulics
Adminislralion, or CAA, and Ialer as lhe IederaI Avialion Agency, or IAA) vas
pIaced under lhe Deparlmenl of Commerce. The respeclive dulies of lhe board and lhe
adminislralor vere deIinealed in broad oulIine. The CA, aIlhough adminislered vilhin
lhe Deparlmenl of Commerce for housekeeping purposes, relained ils slalus as one of lhe
so-caIIed independenl reguIalory agencies, such as lhe Inlerslale Commerce Commission,
lhe IederaI Communicalions Commission, lhe IederaI Iover Commission, and lhe
Securilies and Ixchange Commission.
Under lhe Ialer 1958 IederaI Avialion Acl, lhe board vas designaled an independenl
agency. The IAA, successor lo lhe CAA, vas nol assigned lo any execulive deparlmenl,
bul vas considered an execulive agency as opposed lo an independenl reguIalory
commission.
|ccncni c |uncii cns cj inc CAB
The broad Ianguage of lhe DecIaralion of IoIicy, vilh ils somevhal conicling ob|eclives,
Ieh lhe CA vilh considerabIe discrelion in ils adminislralion of lhe acl. The CAs
decisions vere naI, sub|ecl lo courl reviev, bul even here lhe acl provided lhal lhe
ndings of facl by lhe CA, if supporled by subslanliaI evidence, shaII be concIusive.
This vas a signicanl obslacIe lo eorls lo overlurn CA decisions, parlicuIarIy because
A I R T R A N S P O R TAT I O N 5 2
lhe ndings in mosl roule and rale proceedings (vhich vere al lhe hearl of lhe reguIalory
scheme) vere prediclive or |udgmenlaI in characler.
Whalever lhe compIexilies encounlered in praclice, lhe Iicensing syslem vas simpIe in
concepl: no one couId engage in lhe business of pubIic air lransporlalion unIess aulhorized
lo do so by a cerlicale of pubIic convenience and necessily issued by lhe CA. To
oblain such cerlicales, appIicanls vere required lo convince lhe CA lhal lhey vere
l, viIIing, and abIe lo perform lhe proposed lransporlalion properIy and lhal such
lransporlalion is required by lhe pubIic convenience and necessily. This, of course, Ied
righl back lo lhe exlremeIy generaI congressionaI ob|eclives sel forlh in lhe DecIaralion
of IoIicy.
The CA aIso had broad aulhorily lo aach lo any cerlicale such reasonabIe lerms,
condilions, and Iimilalions as lhe pubIic inleresl may require, and il exercised such
aulhorily. Cerlicales vere ohen very delaiIed. They specied inlermediale and |unclion
poinls and in some cases required or prohibiled slops or lhrough services. Ohen, lhe
carriage of lrafc belveen cerlain pairs of cilies named in a cerlicale, or even lhe carriage
of cerlain calegories of lrafc, vas prohibiled. An imporlanl aspecl of lhe reguIalory
syslem vas lhal airIines couId nol IavfuIIy suspend or abandon services vilhoul CA
approvaI.
ReguIalion of inlernalionaI roules diered from lhal of domeslic roules. Mosl imporlanl,
CA decisions vilh respecl lo inlernalionaI roule appIicalions of bolh U.S. and foreign
airIines vere sub|ecl lo lhe approvaI of lhe Iresidenl. The Supreme Courl evenluaIIy
heId lhe presidenls decision lo be unrevievabIe. AIso, foreign air carrier appIicalions
vere generaIIy based on preexisling inlergovernmenlaI air lransporl agreemenls lhal
granled roule righls lo lhe airIine designaled by lhe foreign governmenl. This aIone vas
aImosl invariabIy considered sufcienl lo meel lhe slalulory slandard appIicabIe lo lhe
granl of foreign airIine roule appIicalions (lhal lhe proposed lransporlalion viII be in
lhe pubIic inleresl).
Iassenger fares and cargo rales vere aIso sub|ecl lo slricl reguIalion. Carriers vere
required lo Ie formaI laris, eslabIishing prices charged and appIicabIe lerms and
condilions. These laris had lo be Ied in advance and couId be re|ecled (for lechnicaI
reasons) or suspended (for perceived subslanlive probIems). Iares and rales vere lo
be |usl and reasonabIe, and discriminalion (vilh ils panopIy of reIaled IegaI lerms
such as undue or unreasonabIe preference or advanlage, un|usl discriminalion,
and undue or unreasonabIe pre|udice or disadvanlage) vas prohibiled. Once
a given lari became eeclive, il had lo be observed: aII forms of rebaling vere
prohibiled.
Slandards for evaIualing lhe reasonabIeness of fares and rales vere as generaI as lhose
for avarding roules. Thus, among olher faclors, lhe CA vas lo consider lhe need in
lhe pubIic inleresl of adequale and efcienl lransporlalion of persons and properly by air
carriers al lhe Iovesl cosl consislenl vilh lhe furnishing of such service: and lhe need of
each air carrier for revenue sufcienl lo enabIe such air carrier, under honesl, economicaI,
and efcienl managemenl, lo provide adequale and efcienl air carrier service. In
praclice, lhe CA appIied pubIic uliIily rale of relurn on inveslmenl principIes in ils rale
revievs and rale making, and aII carriers generaIIy vere required lo charge Iike amounls
for Iike services.
As for inlernalionaI roules, lhe CA had lo share aulhorily over inlernalionaI rales vilh
foreign governmenls. The obvious compIexilies vere grealIy ameIioraled, in praclice, by
broad vorIdvide acceplance of lhe InlernalionaI Air Transporl Associalion (IATA) as a
C H A P T E R 2 H I S T O R I C A L P E R S P E C T I V E 5 3
forum for meelings and rale agreemenls among inlernalionaI airIines, sub|ecl lo approvaI
by inleresled governmenls.
The CA aIso eslabIished rales lo be paid airIines by lhe Iosl Ofce Deparlmenl for
lhe carriage of U.S. maiI, bolh domeslic and inlernalionaI: lhis vas lhe mechanism for
providing lhe subsidy lhal aII air carriers iniliaIIy required. Thus, vhiIe lhe maiI rales
vere lo be fair and reasonabIe, one of lhe faclors lo be considered vas lhe need of
each- carrier for compensalion for lhe lransporlalion of maiI sufcienl lo insure lhe
performance of such service, and, logelher vilh aII olher revenue of lhe air carrier, lo
enabIe such air carrier under honesl, economicaI, and efcienl managemenl, lo mainlain
and conlinue lhe deveIopmenl of air lransporlalion lo lhe exlenl and lo lhe characler and
quaIily required for lhe commerce of lhe Uniled Slales, lhe IoslaI Service, and lhe nalionaI
defense. As in ils commerciaI rale making, lhe CA based subsidy aIIovances on rale
of relurn on inveslmenl anaIyses.
AIlhough roule and rale reguIalion had lhe mosl direcl and visibIe impacl on pubIic
service, lhe CA aIso exercised a broad range of olher economic conlroIs over lhe air
lransporlalion induslry. Thus, il couId (and did) prescribe in delaiI lhe accounls and
records lo be mainlained by air carriers and lhe reporls lo be submied. Agreemenls
belveen air carriers had lo be Ied vilh lhe CA, vhose approvaI vas required for cerlain
specied inlerIocking reIalionships and for air lransporl-reIaled mergers, consoIidalions,
and acquisilions of conlroI. Al lhe same lime, hovever, CA approvaI of such agreemenls
granled immunily from lhe generaI anlilrusl Iavs. The CA aIso vas aulhorized lo
invesligale and lerminale unfair or deceplive praclices or unfair melhods of compelilion
in air lransporlalion.
One furlher economic provision of lhe CiviI Aeronaulics Acl varranls menlion in
Iighl of dereguIalion IegisIalion and posldereguIalion deveIopmenls. Il reIales lo Iabor
reIalions belveen lhe airIines and lheir empIoyees. In recognilion of lhe pubIic inleresl
characlerislics of air lransporlalion, air carriers vere required lo compIy vilh lhe provisions
of lhe RaiIvay Labor Acl, vhich prescribed an eIaborale syslem for resoIving dispules.
Tnc |c!cra| Ati aii cn Aci cj 1958
In 1958, Iresidenl Iisenhover, ciling midair coIIisions of aircrah lhal had caused a number
of falaIilies, asked Congress for IegisIalion lo eslabIish a syslem of air lrafc managemenl
vhich viII prevenl vilhin lhe Iimils of human ingenuily, a recurrence of such accidenls.
Congress responded by enacling lhe IederaI Avialion Acl of 1958, vhich vas signed inlo
Iav on Augusl 23, 1958. The nev Iav crealed lhe IederaI Avialion Agency (IAA), vhich
vas given aulhorily over lhe nalions airspace. The IAA combined lhe exisling funclions
of lhe CAA, lhe avialion funclions of lhe secrelary of commerce, lhe dulies of lhe Airvays
Modernizalion oard, and lhe safely and reguIalory funclions of lhe CA.
Under lhe nev Iav, hovever, lhe CA relained ils |urisdiclion over roule aIIocalion,
accidenl invesligalion, and fare appIicalions. The 1958 acl expressIy empovered lhe IAA
adminislralor lo reguIale lhe use of lhe navigabIe airspace by bolh civiIian and miIilary
aircrah, lo eslabIish air lrafc ruIes, lo conducl necessary research, and lo deveIop air
navigalion faciIilies. The acl aIso provided lhal miIilary aircrah be exempl from air lrafc
ruIes in lhe evenl of urgenl miIilary necessily and provided for reslricled airspace zones
for securily idenlicalion of aircrah.
The 1958 acl Ieh virluaIIy unchanged lhe economic reguIalory provisions bul made
severaI revisions lo lhe safely program. AIlhough lhe CA relained ils dulies in lhe eIds
A I R T R A N S P O R TAT I O N 5 4
of air carrier economic reguIalion and aircrah accidenl invesligalion, lhe boards pover
lo enacl safely ruIes vere lransferred lo lhe adminislralor of lhe IAA, vilh lhe resuIl lhal
lhe Iaer ofciaI promuIgaled lhe reguIalions and slandards. The CAs roIe in safely ruIe
making vas Iimiled lo parlicipalion as an inleresled parly in IAA proceedings. A second
imporlanl revision of prior Iav concerned procedure in cases invoIving suspension and
revocalions of safely cerlicales. Whereas under former Iav onIy lhe CA couId suspend
or revoke in lhe rsl inslance, lhe nev acl provided for iniliaI aclion by lhe adminislralor,
sub|ecl lo lhe cerlicale hoIders priviIege of appeaI lo lhe board.
Aparl from lhese maers, lhe IAA adminislralor vieIded essenliaIIy aII lhe povers
and dulies his predecessor had under lhe 1938 acl, pIus a cIearer aulhorily lo aIIocale lhe
navigabIe airspace belveen miIilary and civiIian users.
In lhe spring of 1967, Congress crealed lhe Deparlmenl of Transporlalion. The IAA as
such vas in eecl aboIished, and in ils slead vas eslabIished vilhin lhe nev deparlmenl
a IederaI Avialion Adminislralion, headed by an adminislralor. The IAAs funclions vere
lransferred lo lhe Deparlmenl of Transporlalion, vhere, for lhe mosl parl, lhey vere pIaced
under lhe IederaI Avialion Adminislralion, vhere lhey remain loday. The Deparlmenl of
Transporlalion Acl aIso lransferred lhe CAs accidenl-invesligaling and reIaled safely
funclions lo lhe nev deparlmenl and, in lurn, immedialeIy redeIegaled lhem lo a nev
independenl agency caIIed lhe NalionaI Transporlalion Safely oard.
Despile remarkabIe advances under lhe reguIalory syslem eslabIished in 1938, as veII
as broad pubIic salisfaclion vilh lhe airIine syslem, air reguIalion graduaIIy came under
increasing crilicism, parlicuIarIy from academic economisls. This crilicism gained slrong
momenlum in lhe mid-1970s, and belveen 1977 and 1979, a verilabIe revoIulion vas
accompIished in bolh domeslic and inlernalionaI U.S. air lransporl poIicy.
The infancy of lhe air lransporl induslry, and lhen WorId War II, produced an iniliaI
period free from serious crilicism, bul lhe basic economic reguIalory poIicies of lhe IederaI
Avialion Acl evenluaIIy came under aack. The key issue, as mighl be expecled, vas lhe
reIalive desirabiIily of free compelilion in lhis induslry versus lhe supposed need for lighl
governmenl conlroI of enlry, exil, pricing, and olher issues. As earIy as 1951, in a sludy
lilIed |c!cra| Ccnirc| cj |niru inic Air Transpcriaiicn. LuciIIe Keyes queslioned bolh lhe
lheorelicaI and empiricaI bases for lhe reguIalory syslem. In 1962, Richard I. Caves, in Air
Transpcri an! |is |cgu|aicrs. concIuded lhal lhe air lransporl induslry has characlerislics
of markel slruclure lhal vouId bring markel performance of reasonabIe quaIily vilhoul
any economic reguIalion.
Despile increased crilicism and occasionaI congressionaI sludies lhal Ied lo minor
reguIalory changes, il vas nol unliI 1975 lhal cerlain faclors began combining for a
successfuI push lo deregulation. TradilionaI dislrusl of governmenl reguIalion in generaI
became sharpIy focused on air lransporlalion lhrough a series of economic and reguIalory
deveIopmenls. Adversily slruck lhe induslry in 1970 vhen Iarge increases in capacily,
resuIling from lhe advenl of vide-body |el aircrah, coincided vilh a serious economic
recession. This, in lurn, Ied lo videIy crilicized CA reguIalory poIicies, incIuding a four-
year moralorium on aII nev-roule cases and approvaI of a series of agreemenls among
airIines lo Iimil capacily over cerlain ma|or roules. Al lhe same lime, CA pricing poIicies
(vhich sel induslryvide slandards based on average induslry cosls) vere increasingIy
vieved as foslering inefciency, higher cosls, and higher prices. Crilics poinled lo lhe
Tnc Ocrcgu| aii cn Mctcncni
C H A P T E R 2 H I S T O R I C A L P E R S P E C T I V E 5 5
experience of severaI inlraslale carriers in CaIifornia and Texas (nol reguIaled by lhe
CA) lhal charged Iover per-miIe fares for comparabIe dislances lhan lhe CA-reguIaled
airIines and lhal operaled more prolabIy.
The slorm mighl have passed had il nol been for lhe Arab oiI embargo of 1973 and
lhe ensuing massive increase in fueI cosls. AirIine operaling cosls soared, vhiIe lrafc
decreased due lo lhe recession. One resuIl vas a series of fare increases. Hovever, vilh cosl
increases exceeding increases in yieIds, anolher period of poor airIine earnings foIIoved.
This Iaer faclor added lo lhe Iisl of argumenls for reguIalory reform lhe conlenlion lhal
lhe airIines lhemseIves vouId be beer o vilh some form of dereguIalion.
Il vas in lhis almosphere lhal lvo inuenliaI reporls vere reIeased. One vas a speciaI
CA sla sludy on reguIalory reform, daled IuIy 1975. Il concIuded: Iroleclive enlry
conlroI, exil conlroI, and pubIic uliIily-lype price reguIalion under lhe IederaI Avialion
Acl are nol |uslied by lhe underIying cosl and demand characlerislics of commerciaI
air lransporlalion. The induslry is naluraIIy compelilive, nol monopoIislic. The sludy
recommended lhal proleclive enlry, exil, and pubIic uliIilylype price conlroIs in domeslic
air lransporlalion be eIiminaled vilhin lhree lo ve years by slalulory amendmenl.
Al aboul lhis same lime, an inuenliaI reporl vas reIeased by lhe Subcommiee on
Adminislralive Iraclice and Irocedure of lhe U.S. Senale Iudiciary Commiee, headed by
Senalor Idvard Kennedy. The reporls repealed message vas lhal prices shouId and vouId
be Iover vilh a more compelilive syslem. The CAs praclices, lhe subcommiee reporl
concIuded, vhiIe eeclive in promoling induslry grovlh, lechnoIogicaI improvemenls,
and reasonabIe induslry prols, had nol been eeclive in mainlaining Iov prices. The
reporl furlher slaled lhal il vas economicaIIy and lechnicaIIy possibIe lo provide air
service al signicanlIy Iover prices, bringing air lraveI vilhin lhe reach of lhe average
cilizen. Wilh lhe sudden increase in anlireguIalion senlimenl, Iresidenl GeraId Iords
adminislralion in 1975 sponsored lhe rsl dereguIalion biIIs. This slarled lhe IegisIalive
process lhal cuIminaled in lhe AirIine DereguIalion Acl of 1978.
Iven before lhe acls passage, hovever, lhe CA had begun ils ovn adminislralive
|ourney on lhe road lo dereguIalion. Iirsl, Chairman Iohn I. Robson, vho look ofce in
1975, graduaIIy reIaxed lhe moralorium on scheduIed service roules of his predecessor.
SuppIemenlaI (charler) airIines vere given grealer opporlunilies lhrough lhe expansion
of lhe scope of permissibIe charlers. The CA aIso permied grealer carrier exibiIily
lo reduce fares. These iniliaI caulious moves gained enormous momenlum under
Chairman AIfred I. Kahn, appoinled by Iresidenl Iimmy Carler in 1977. Under his
vigorous Ieadership, lhe CA soon began processing and approving appIicalions for
nev operaling aulhorily, parlicuIarIy vhen lhe appIicanls promised Iover fares. To
enforce compIiance vilh such promises, avards vere made for shorl lerms, vilh renevaI
dependenl on performance. The CA aIso vas much more receplive lo roule reaIignmenls
and eIiminalion of reslriclions, as veII as lo exil from lhose markels lo vhich enlry had
been IiberaIized. During lhis same period, lhe Carler adminislralion soughl agreemenls
vilh foreign governmenls lo permil more inlernalionaI compelilion and vas prepared lo
aulhorize as much inlernalionaI service by U.S. airIines as foreign governmenls vouId
accepl.
There vas aIso far grealer receplivily lo fare reduclions. Indeed, CA Chairman Kahn
carried il lo lhe poinl of |uslifying dismissaI of a compIainl againsl iIIegaI rebaling by
slaling: The Iav prohibils deparlure from laris, bul deparlures from laris are good
for compelilion. Rebaling as ve see il is a consequence of noncompelilive rale IeveIs, and
lhe besl lheorelicaI remedy is lo reduce fares.
A I R T R A N S P O R TAT I O N 5 6
The Carler adminislralions supporl for dereguIalion vas an imporlanl faclor, bul lhe
movemenl vas aIso aided by improved induslry prolabiIily. Some observers aribuled
lhe induslrys prolabiIily lo lhe CAs nev procompelilion poIicies. AcluaIIy, hovever,
from 1976 lo 1978, lhe induslry vas mereIy experiencing ils lradilionaI cycIicaI uplurn
aher lhe sharp dovnlurn in 1975.
There vas, of course, subslanliaI opposilion lo any signicanl reIaxalion of reguIalion
from mosl airIines, from airIine Iabor unions, and from nanciaI inslilulions vilh
inveslmenls in lhe induslry. Their argumenls covered a broad range of concerns, incIuding
lhese:
1. IossibIe vorsening of lhe induslrys exceIIenl safely record
2. IrobabIe concenlralion of service on dense lrafc roules, vilh a consequenl
delerioralion of service on olhers, especiaIIy lhose serving smaII communilies
3. Impairmenl of lhe air lransporlalion syslem, vilh ils conveniences of lhrough-
baggage handIing, inlerIine lickeling, and so on
4. Deslruclive and predalory price compelilion, resuIling in earnings delerioralion
and, uIlimaleIy, increased induslry concenlralion
5. Reduced abiIily lo re-equip and lo nance olher avaiIabIe lechnoIogicaI
advances
6. Adverse impacl on airIine empIoyees
ul lhese argumenls faiIed lo haIl lhe drive for dereguIalion. Indeed, aIlhough vhal
naIIy emerged as lhe AirIine DereguIalion Acl of 1978 vas vorking ils vay lhrough
congressionaI hearings and reporls and aIlhough lhe biIIs lhemseIves vere undergoing
various revisions, a mini-dereguIalion biII vas passed by Congress vilh IiIe fanfare or
pubIic nolice. This vas lhe dereguIalion of domeslic aII-cargo service, vhich became Iav
in November 1977. AcluaIIy, il enlered lhe slalule books buried in a package of changes
aached lo a biII deaIing vilh var risk insurance.
The lechnique for aII-cargo dereguIalion vas simpIe and eeclive. Any airIine lhal, under
lhe aulhorily of a cerlicale or exemplion, had provided any scheduIed domeslic aII-cargo
service during 1977 couId, vilhin 45 days aher passage of lhe Iav, appIy for aulhorily for any
and aII olher domeslic aII-cargo service, and lhe CA vas direcled lo granl lhe appIicalion
promplIy. Al any lime vilhin one year aher passage, anyone couId appIy for a domeslic aII-
cargo cerlicale, vhich vas lo be granled vilhin 180 days of appIicalion, unIess lhe CA
found lhal lhe appIicanl vas nol l, viIIing and abIe. In addilion, lhe CAs aulhorily
lo reguIale domeslic cargo rales, vhelher carried on combinalion or aII-cargo aircrah,
vas Iimiled lo lhose cases in vhich lhe board found, aher a hearing, lhal lhe rales vere
discriminalory, preferenliaI, pre|udiciaI, or predalory. The preexisling lesl of un|usl or
unreasonabIe vas eIiminaled, and lhe CA vas specicaIIy precIuded from suspending
proposed cargo rales pending a hearing.
In March 1978, anolher dereguIalion Iav deaIing vilh cargo vas passed. Il gave charler
airIines lhe same immediale opporlunily lo oblain cerlicales for scheduIed aII-cargo
service lhal vas made avaiIabIe lo scheduIed carriers by lhe 1977 Iav.
C H A P T E R 2 H I S T O R I C A L P E R S P E C T I V E 5 7
The AirIine DereguIalion Acl of 1978 deaIl primariIy vilh domeslic air lransporlalion.
There vas sliII subslanliaI praclicaI recognilion of lhe facl lhal no one governmenl couId by
ilseIf dereguIale inlernalionaI service. As a resuIl, Congress eslabIished a nev DecIaralion
of IoIicy appIicabIe onIy lo domeslic air lransporlalion: lhe preexisling poIicy slalemenl
conlinued lo appIy lo inlernalionaI air lransporlalion.
The overriding lheme of lhe acl vas compelilion. There vas lo be maximum reIiance
on compelilion lo aain lhe ob|eclives of efciency, innovalion, Iov prices, and price and
service oplions vhiIe sliII providing lhe needed air lransporlalion syslem. Compelilive
markel forces and acluaI and polenliaI compelilion vere lo encourage efcienl and
veII-managed carriers lo earn adequale prols and lo aracl capilaI. Al lhe same lime,
hovever, Congress vas responsive lo smaII-communily needs and pressures, and so lhe
acl caIIed for mainlenance of a comprehensive and convenienl syslem of conlinuous
scheduIed inlerslale and overseas airIine services for smaII communilies and for isoIaled
areas in lhe Uniled Slales, vilh direcl federaI assislance vhere appropriale.
Reslriclions on enlry inlo domeslic service vere lo be graduaIIy eIiminaled over
lhe nexl severaI years, vilh compIele eIiminalion by lhe end of 1981 (sub|ecl lo CA
delerminalion lhal parlicuIar appIicanls vere l, viIIing and abIe). The slandard for
granling roule appIicalions vas immedialeIy changed from lhe preexisling requiremenl,
lhal lhe proposed lransporlalion is required by lhe pubIic convenience and necessily,
lo a nding lhal il is consislenl vilh lhe pubIic convenience and necessily. Iurlher, lhe
burden vas nov on opponenls lo prove Iack of such consislency.
SeveraI speciaI provisions vere made for lhe lhree-year inlerim. Iirsl, any cerlicaled
airIine (scheduIed or charler) had lhe righl of enlry lo one nev roule in each of lhe lhree
years before compIele open enlry. Second, sub|ecl lo cerlain Iimilalions, carriers couId Iay
cIaim lo unused aulhorily of olher carriers. And lhird, lhe CA vas aulhorized lo issue
experimenlaI cerlicales for lemporary periods.
The nev Iav conlained olher enlry-reIaled provisions lhal IiberaIized lhe preexisling
regime, incIuding lhe foIIoving:
1. Ocncsiic ||-up rignis cn inicrnaiicna| ignis. Ior exampIe, an inlernalionaI carrier
ying from Los AngeIes lo Rome via Nev York couId be given aulhorily, even
lhough nol previousIy possessed, lo carry domeslic lrafc belveen Los AngeIes
and Nev York on al Ieasl one round-lrip ighl a day.
2. |cncta| cj rcsiriciicns. AII cIosed-door reslriclions conlained in domeslic
cerlicales vere eIiminaled. Thus, if an airIine vas aulhorized lo y from Cily A
lo Cily lo Cily C bul prohibiled from carrying lrafc from lo C, lhal reslriclion
vas eIiminaled. Congress aIso ordered simpIied and expediled procedures for
revieving appIicalions lo remove olher lypes of cerlicale reslriclions, domeslic
or inlernalionaI.
3. Suspcnsicn an! rc!uciicn cj scrticc. Irovisions vere adopled lhal grealIy simpIied
lhe abiIily of carriers lo reduce or eIiminale service.
The CA vas aIso direcled lo eslabIish simpIied procedures for disposing of cerlicale
appIicalions and requesls for amendmenl or suspension of cerlicales, and lhe board vas
given reIaliveIy shorl deadIines for reaching decisions.
Tnc Ai r| i nc Ocrcgu| aii cn Aci cj 1978
A I R T R A N S P O R TAT I O N 5 8
The uIlimale IiberaIizalion of enlry occurred, as scheduIed, on December 31, 1981, vhen
lhe soIe barrier lo unreslricled domeslic enlry vas lhe requiremenl lhal lhe appIicanl be
l, viIIing and abIea nding lhal had aIready been made for aII exisling cerlicaled
airIines. Ior aII praclicaI purposes, aII airIines (and virluaIIy aII vouId-be airIines) are nov
free lo serve, or lo cease serving, any and aII domeslic roules and cilies.
Congress did recognize lhe need lo ensure conlinued service lo communilies lhal
mighl olhervise have been abandoned or provided an unacceplabIe service IeveI under
dereguIalion. The lradilionaI subsidy program for IocaI-service carriers, vhich vas
direcled more lovard suslaining lhe carriers lhan lo mainlaining specic service lo smaII
communilies, vas lo be phased oul by lhe end of 1985, and a nev program of subsidies lo
guaranlee essenliaI air lransporlalion lo specic communilies vas eslabIished. AII cilies
named in any cerlicale are aulomalicaIIy eIigibIe, and unIess lhe cily is served by al
Ieasl lvo airIines, lhe CA (or, nov, lhe Deparlmenl of Transporlalion, lo vhich lhis
responsibiIily vas lransferred) vas required lo delermine vhal and hov much service
is essenliaI. Essential air service al any given cily is dened as scheduIed service, al
specic minimum frequency and al fair rales, lo one or more olher cilies vilh vhich il
has a communily of inleresl. Whenever il is found lhal a cily viII nol receive essenliaI air
lransporlalion vilhoul subsidy inducemenl, appIicalions lo perform subsidized service
musl be soughl and an avard made al an eslabIished rale of compensalion. Under lhe
dereguIalion acl, lhis program vas lo be conlinued unliI 1988: il vas subsequenlIy
reneved for anolher 10 years.
The acl specied a number of olher changes aecling CA aulhorily over operaling
righls, incIuding lhese:
1. |xpan!c! auincriiu ic grani cxcnpiicns jrcn cccncnic rcgu|aicru prctisicns. The
slandard for granling exemplions vas considerabIy eased, and, for lhe rsl lime,
exemplions couId be granled lo foreign airIines.
2. Spccic ta|i!aiicn jcr ccriain |i|cra|izc! cnaricr ru|cs inai ucrc un!cr ccuri cna||cngc.
3. Iiniiaiicn cj inc prcsi!cnis auincriiu ic ctcrru|c inc CAB in inicrnaiicna| rcuic
cascs. IormerIy, lhere vere no slalulory slandards for presidenliaI reviev and no
deadIines for any aclion. Nov, lhe presidenl may onIy disapprove such decisions
for foreign poIicy or nalionaI defense reasons.
The acl aIso deaIl vilh domeslic fares. Iending aImosl compIele dereguIalion al lhe
end of 1982, lhe generaI crileria for CA consideralion in exercising ils rale reguIalion
funclions vere amended lo give more veighl lo lhe desirabiIily of Iov fares and increased
pricing and service oplions. The acl aIso crealed a zone of reasonabIeness for domeslic
passenger fares geared lo slandard induslry fare IeveIs, vhich, in lurn, vere based on
IuIy 1, 1977, fares, ad|usled periodicaIIy for changes in average operaling cosls. Wilhin
lhis zone, lhe CA couId nol suspend as unreasonabIe any fare as much as 50 percenl
Iover or 5 percenl higher lhan lhe slandard fare.
There vere ma|or changes in lhe anlilrusl area as veII. Cerlain lypes of
inlerairIine agreemenls, lransaclions, and reIalionships vere removed from CA
|urisdiclion and lhus Ieh sub|ecl lo federaI anlilrusl Iavs. Ior lhose lransaclions sliII
requiring CA approvaI (such as mergers), lhe slandard for approvaI more cIoseIy
conformed lo generaI anlilrusl principIes. In addilion, lhe previous aulomalic immunily
from anlilrusl Iavs for any lransaclion or agreemenl approved by lhe CA vas repeaIed.
The CA vas given discrelionary pover lo granl immunily vhen specicaIIy requesled.
C H A P T E R 2 H I S T O R I C A L P E R S P E C T I V E 5 9
Slrong Iabor opposilion lo lhe acl Ied lo lhe incIusion of an empIoyee proleclion program.
This program vas inlended lo provide for preferenliaI hiring and nanciaI assislance lo
eIigibIe airIine empIoyees vho Iosl lheir |obs or suered pay culs because of bankruplcy
or ma|or dovnsizing of a carrier due lo lhe change in reguIalory slruclure caused by lhe
acl. AIlhough lhe program vas lo be adminislered by lhe secrelary of Iabor, lhe CA vas
lo delermine lhe circumslances under vhich lhe proleclive provisions become operalive.
(The CA never did nd lhal any empIoyees vere enlilIed lo proleclion under lhal
slalulory lesl.)
Mosl dramalic of lhe dereguIalion acls provisions vas lhe CAs demise (sunsel). On
Ianuary 1, 1985, lhe CA ceased lo exisl aIlogelher, and ils aulhorily over subsidies and
foreign air lransporlalion vas lransferred lo lhe U.S. Deparlmenl of Transporlalion (DOT).
Iirsl, hovever, Iale in 1984, Congress made some changes lo lhe 1978 acl, primariIy lo ensure
conlinued consumer proleclion and lo lransfer aulhorily over mergers and agreemenls lo
lhe DOT ralher lhan lo lhe Deparlmenl of Iuslice.
POSTDEREGULATION EVOLUTION
Wilh markel enlry opened up by dereguIalion, a series of ma|or changes occurred in lhe
induslrys slruclure. ecause lhe roules of grealesl lrafc voIume and nanciaI appeaI
vere lhose originaIIy vilhin lhe lrunk syslem, lhis is naluraIIy vhere mosl expIoilalion of
lhe free-enlry opporlunily occurred. Trunk carriers lhemseIves moved inlo one anolhers
lerrilories, enlering markels lhey had previousIy desired bul been unabIe lo oblain.
Ior lhe lrunk carriers as a group, lhe subslanliaI movemenl inlo one anolhers markels
essenliaIIy represenled a slando in lhe sense lhal, vhiIe aII of lhese carriers gained nev
opporlunilies, lhey aIso Iosl markels as olher carriers moved inlo lheir ovn previous
lerrilory.
In IuIy 1979, Soulhern Air Lines and Norlh CenlraI AirIines merged lo creale RepubIic
AirIines. Nol conlenl vilh vhal vas basicaIIy sliII a regionaI roule syslem, RepubIic
purchased Hughes Airvesl in November 1980 and expanded ils roule syslem lo lhe vesl
coasl. Wilh lhis merger of lhree IocaI-service carriers inlo one ma|or carrier, lhe induslry
consoIidalion phase began.
Ian American merged vilh NalionaI AirIines in 1980, lheorelicaIIy lo oblain a domeslic
roule syslem. Hovever, lhe reaI signicance of lhis merger vas nol lhal Ian American
evenluaIIy von lhe righls lo lake over NalionaI, bul ralher lhal Texas InlernalionaI AirIines
Iosl. Wilh lhe prols from lhe saIe of ils NalionaI AirIines slock, Texas InlernalionaI slarled
Nev York Air in Ianuary 1981. In Ianuary 1982, lhe Texas Air Corporalion vas sel up lo
operale Nev York Air. In Oclober 1982, lhe Texas Air Corporalion purchased ConlinenlaI
AirIines and combined il vilh Texas InlernalionaI. ConlinenlaI conlinued lo operale as a
separale enlily, bul Texas InlernalionaI venl oul of exislence.
On a singIe day in December 1978, rani AirIines, lhe mosl aggressive former lrunk
carrier in picking up dormanl roule aulhorilies, inauguraled service lo 16 nev cilies and
32 nev cily-pair markels. UnforlunaleIy, il became lhe rsl viclim of dereguIalion, forced
lo cease operalions in May 1982. Many faclors conlribuled lo ranis demise, incIuding
a high debl slruclure, a recession-veakened demand for lransporlalion, and dramalicaIIy
Mcrgcr Mani a
A I R T R A N S P O R TAT I O N 6 0
higher fueI prices. Iaslern AirIines subsequenlIy acquired ranis prized Lalin American
roules. In 1991, American AirIines vouId acquire lhese roules on lhe demise of Iaslern.
Merger aclivily remained fairIy dormanl for lhe nexl coupIe of years, reappearing
again in March 1985, vhen Soulhvesl AirIines purchased Muse Air (Ialer lo be renamed
Trans Slar), one of ils ma|or compelilors in Texas markels. Hovever, merger aclions began
in earnesl again in scaI 1986.
IeopIe Ixpress acquired Ironlier AirIines during lhe fourlh quarler of 1985 and
conlinued ils acquisilions in 1986 by purchasing Irovincelovn oslon Airvays in Ianuary
and ri Airvays in Iebruary. In Seplember 1986, IeopIe Ixpress vas acquired by Texas
Air Corporalion. In ApriI 1986, Texas Air had added Rocky Mounlain Airvays lo ils
empire, and by Seplember, Iaslern AirIines vas under ils corporale umbreIIa.
In May 1986, DeIla acquired lvo commuler airIines, AlIanlic Soulheasl and Comair. y
lhe end of lhe year, DeIla compIeled lhe purchase of Weslern AirIines. In Seplember of
lhal same year, Trans WorId acquired Ozark Air Lines, vhiIe Norlhvesl AirIines, vhich
had acquired Mesaba AirIines in 1984, acquired RepubIic AirIines. MeanvhiIe, Uniled
acquired Ian Americans Iacic roules during lhe year, and American acquired Air
CaIifornia in November 1986.
AIIegheny AirIines, a former IocaI-service carrier ambilious lo become a ma|or carrier
in lhe dereguIaled environmenl, changed ils name lo USAir in Oclober 1979. y 1985,
il had acquired IennsyIvania AirIines, and in ApriI 1986, il added Suburban AirIines,
foIIoved by Iacic Soulhvesl AirIines in December of lhal same year. Then, in December
1986, USAir acquired anolher former IocaI-service carrier, Iiedmonl AirIines. Iiedmonl
had acquired Henson AirIines in 1983, foIIoved by Impire AirIines in 1985 and Ielslream
InlernalionaI in IuIy 1986.
The consoIidalion movemenl lhal began in 1979 has had a profound impacl on lhe
slruclure of lhe commerciaI airIines induslry, and ils eecls are sliII being feIl. ConlinenlaI
AirIine HoIdings (lhe former Texas Air), vhich in lhe 1980s had been laken inlo and oul of
bankruplcy by ils former ovner, Irank Lorenzo, vound up in bankruplcy once again in
1990, vhen ils overIeveraged baIance sheel proved loo heavy a burden in a lime of high
fueI cosls and a recessionary economy.
Iihy-lhree years of avialion hislory came lo an end in Ianuary 1991 vhen Iaslern
AirIines, lo lhe surprise of fev in lhe induslry, naIIy ceased operalions aher a Ienglhy
slruggIe for survivaI. Incorporaled in 1938, Iaslern vas one of lhe nalions originaI four
lrunk airIines. IIagued by Iabor probIems and operaling under Chapler 11 bankruplcy
since March 1989, Iaslern vas pushed over lhe brink by lhe oulbreak of lhe Iersian GuIf
War, vhich resuIled in rising fueI cosls and decIine in lraveI during lhe recessionary earIy
1990s.
In ApriI-1991, American AirIines acquired Iaslerns roules lo 20 deslinalions in 15
CenlraI and Soulh American counlries, and in December of lhal year, il slruck deaIs for
ConlinenlaIs SeaIeTokyo roule aulhorily and for TWAs remaining U.S.London roules.
American had aIready purchased TWAs ChicagoLondon roule in 1989.
y lhe end of 1991, anolher avialion pioneer venl oul of business: Ian American, vhose
hislory lraced back lo 1927, vhen il began ying lhe maiI belveen lhe IIorida Keys and
Havana. Laler, il pioneered lranspacic service vilh ils ying boals, and il vas lhe rsl
carrier lo y bolh lhe oeing 707 and 747. Ils nanciaI probIems began in earnesl vilh lhe
acquisilion of NalionaI AirIines shorlIy aher dereguIalion.
In 1991, DeIla soIidied ils posilion in lhe ranks of lhe big lhree carriers by acquiring
rsl lhe Ian American ShuIe and Ialer lhe buIk of Ian Americans lransalIanlic and
C H A P T E R 2 H I S T O R I C A L P E R S P E C T I V E 6 1
Iuropean syslems. The DeIla ShuIe began operaling belveen oslon, Nev York, and
Washinglon, D.C., in Seplember 1991. Compelilion on lhe shuIe roule slepped up a
nolch vhen USAir look over operalion of lhe Trump (formerIy Iaslern) ShuIe.
MeanvhiIe, in lhe earIy 1990s, Uniled AirIines acquired rsl Ian Americans Lalin
American roules and lhen Ian Americans London roules. In 1991, Uniled aIso compIeled
lhe purchase of ils primary Uniled Ixpress parlner, Air Wisconsin, rescuing lhal carrier
from polenliaI bankruplcy.
In Ianuary 1992, TWA venl inlo Chapler 11 bankruplcy. In ils Iing, TWA Iisled assels
of $2.7 biIIion and IiabiIilies of $3.5 biIIion. SubsequenlIy, il soId ils London roules from
IhiIadeIphia and aIlimore lo USAir. IarIier, il had soId lhe buIk of ils London roules lo
American. The Iersian GuIf War and a recessionary economy conlribuled lo lhe addilion
of America Wesl in 1991 lo lhe Iisl of bankrupl U.S. carriers. Anolher nev-enlranl carrier
since dereguIalion, America Wesl became a ma|or airIine in 1990 aher rising from regionaI
lo nalionaI slalus. The hh-Iargesl carrier, Norlhvesl, aIso vas in nanciaI difcuIly by
earIy 1992 due lo ils Ieveraged buyoul in 1989. Norlhvesls probIems aecled anolher nev-
enlranl carrier born in lhe dereguIalion era: Midvay AirIines. One of lhe fev remaining
nev enlranls during lhe dereguIalion era and lhe purchaser of Air IIorida, Midvay venl
oul of business in November 1991 vhen Norlhvesl backed oul of an agreemenl lo acquire
lhe carrier. Iounded in 1979, Midvay grev inlo a nalionaI carrier by 1990. Tvo lrue success
slories during lhe dereguIalion period have been IederaI Ixpress and Soulhvesl AirIines.
olh carriers vere founded in lhe earIy 1970s and have been consislenlIy prolabIe over
lhe years.
In lhe Iale 1990s and earIy 2000s, nev lypes of air carriers emerged as a resuIl of cosl-
cuing slralegies by lhe ma|or airIines, expansion of niche markels, and compelilive
forces. Recenl lrends indicale lhal four lypes of air carriers are groving: nev-enlranl/
Iov-cosl, regionaI/feeder, mega-carrier, and virluaI carrier. Nev-enlranl carriers incIude
airIines such as Spiril and IelIue. RegionaI/feeder carriers conlinue lo expand as ma|or
airIines reaIize lhe benel of feeder lrafc lo lhe main hub airporls. Mega-carriers are
forming as ma|or airIines parlner up vilh olher ma|or airIines in order lo reduce cosls and
increase markel share. ecause of lhe high cosls of Iaunching a nev airIine, more virluaI
carriers exisl lhan ever before. Such carriers subconlracl mosl of lheir services oul lo olher
companies, lherefore reducing inveslmenl risk.
|cgi cna| / Ccnnuicr Ai r| i ncs
Spurred by dereguIalion, many regionaI/commuler airIines enlered lhe markel in lhe
earIy 1980s. SimuIlaneousIy, lhe ma|or carriers soughl lo exlend lheir high-densily
markels by increasingIy dominaling lheir hub airporls and sIoughing o Iess prolabIe
roules. The hub syslem, vhich has proIiferaled since dereguIalion, eslabIishes a number
of roules connecled lo a cenlraI hub airporl vhere passengers are coIIecled from feeder
ighls, lransferred lo olher ighls on lhe same Iine, and are lhen carried lo lheir uIlimale
deslinalion. This lrend encouraged regionaI airIines lo oer service Iinking smaII cilies and
providing conneclions lo hub airporls. IIying primariIy lurboprop aircrah and requiring
Iess ground-based infraslruclure, lhe regionaI airIines couId operale such roules more
prolabIy lhan lhe ma|or carriers and provide a needed service.
In 1985, lhere vas a dramalic grovlh in lhe number of code-sharing agreemenls
belveen regionaI airIines and lhe ma|or carriers. These code-sharing agreemenls varied
from parliaI or oulrighl ovnership lo pure markeling aIIiances devoid of any ovnership
A I R T R A N S P O R TAT I O N 6 2
by lhe ma|or carriers. A somevhal prediclabIe oulgrovlh of lhese agreemenls has been
lhe idenlicalion of commuler parlners vilh lhe business name of lhe ma|or airIine
parlner. Iusl as in lhe conlracl experimenls vilh IocaI airIines in lhe Iale 1960s, many
independenl commuler airIines conducl operalions under a service mark simiIar lo
lhal of lheir ma|or carrier parlners. Thus, commuler airIiners bearing such names as
ConlinenlaI Ixpress, Uniled Ixpress, American IagIe, and Norlhvesl AirIink are ying
lhe skies. The evoIulion of lhe reIalionships vilh lhe Iarge air carriers has Ied lo furlher
roule ralionaIizalion poIicies on lhe parl of lhe Iarger parlners in lhe form of lransferring
an increasing number of shorl-hauI |el roules lo lheir regionaI parlners. The resuIl has been
a process of induslry consoIidalion, increasing concenlralion, inlegralion, and lransilion
lo |el equipmenl.
Irom a high of 246 carriers in 1981, lhe number of regionaI/commuler operalors decIined
lo 124 in 1995. As of year-end 2004, lhere vere 74 such operalors in business carrying a
lolaI of 134.7 miIIion passengers. AIlhough lhe number of carriers in lhis markel shovs a
sleady decrease, lhe number of passengers carried shovs a sleady increase. InlereslingIy,
lhe number of hours ovn on an annuaI basis is graduaIIy increasing indicaling lhal
regionaI/commuler operalors, aIlhough decreasing in number, are becoming Iarger in
size resuIling in increased markel share, Ionger ighls and beer uliIizalion of aircrah.
ecause of lhe increased inlegralion of operalions vilh lhe Iarge air carriers (lhrough
code-sharing agreemenls and parliaI or lolaI acquisilion of lhe regionaIs) lhe success of
many regionaI airIines is cIoseIy lied lo lhe success of lheir Iarger parlners.
AIlhough lhe number of carriers has decIined overaII, lhe size of lhe dominanl carriers
has risen dramalicaIIy. This has resuIled in increased induslry concenlralion, vilh lhe lop
50 carriers accounling for approximaleIy 98 percenl of lhe lolaI passenger enpIanemenls
and revenue passenger miIes. When ve Iook al lhe corporale slruclure, lhe piclure of
induslry concenlralion becomes even cIearer. In 1995, 36 of lhe nalions lop 50 regionaI air
carriers used lhe lvo-Ieer designalion code of a Iarger carrier lo Iisl lheir ighls. In lolaI,
lhere vere 46 code-sharing agreemenls in exislence as of Iune 1996. These reIalionships
varied from oulrighl ovnership by lhe Iarger carrier (11 airIines), lo parliaI ovnership (4
carriers), lo pure markeling aIIiances (31 carriers).
More sophislicaled, modern aircrah are added lo lhe regionaI airIine eel each year. The
average lrip Ienglh for lhe regionaI airIine passenger has increased, as has lhe lransilion
from pislon lo lurboprop and |el equipmenl. As of Ianuary 2005, lhe number of regionaI
air carriers operaling al U.S.-airporls vas exlensive. TabIe 2-4 provides a breakdovn of
airporl use by slale incIuding regionaI and non-regionaI operalions.
Ncu-Gcncraii cn Ai r| i ncrs
In lhe earIy 1980s, aher years of ying lhe once-revoIulionary oeing 727, 737, and 747
and lhe McDonneII-DougIas DC-8, DC-9, and DC-10, lhe airIines vere ready for never,
more efcienl designs, nol simpIy relooIed versions of lhe oId ones. If lhe lvo dominanl
U.S. airframe manufaclurers vouId nol suppIy lhem, foreign sources, nolabIy lhe Airbus
Induslrie consorlium from Iurope, vouId obIige. Aher aII, lhe U.S. commuler airIiner
induslry had been dormanl during lhe 1970s, Iosing markel share lo rms such as rilish
Aerospace, Imbraer of raziI, Dornier of Germany, and ATR of IlaIy.
To hoId ils markel share, oeing inlroduced lvo nev airIiners, lhe 757 and lhe 767,
cerlicaled in Oclober 1984 aher a deveIopmenl process lhal may have cosl as much as
$3 biIIion. olh vere gianl lvin-engine airpIanes vilh underving poverpIanls suppIied
C H A P T E R 2 H I S T O R I C A L P E R S P E C T I V E 6 3
Airporls Receiving ScheduIed Service by Calegory of Service TolaI
Airporls
Receiving
ScheduIed
Service
Airporls IxcIusiveIy Served by
Slale
|cgicna|s Majcrs Oincrs Wiincui
rcgicna|s
Wiin
rcgicna|s
AIabama 3 0 0 0 3 6
Arizona 10 0 0 0 2 12
Arkansas 6 0 0 0 2 8
CaIifornia 17 0 0 0 12 29
CoIorado 7 0 1 0 6 14
Conneclicul 1 0 0 0 1 2
Dislricl of CoIumbia 0 0 0 0 2 2
IIorida 6 0 2 0 13 21
Georgia 7 0 0 0 2 9
Idaho 7 0 0 0 1 8
IIIinois 6 0 1 0 5 12
Indiana 3 0 0 0 1 4
Iova 5 0 0 0 2 7
Kansas 7 0 0 0 1 8
Kenlucky 2 0 0 0 2 4
Louisiana 5 0 0 0 2 7
Maine 5 0 0 0 1 6
MaryIand 2 0 0 0 1 3
Massachuses 6 0 0 0 1 7
Michigan 10 0 0 0 7 17
Minnesola 6 0 0 0 3 9
Mississippi 5 0 0 0 2 7
Missouri 5 0 0 0 3 8
Monlana 9 0 0 0 5 14
Nebraska 8 0 0 0 1 9
Nevada 3 0 0 0 2 5
Nev Hampshire 2 0 0 0 1 3
Nev Iersey 1 0 0 0 2 3
Nev Mexico 10 0 0 0 1 11
Nev York 10 0 0 0 8 18
Norlh CaroIina 5 0 0 0 4 9
Norlh Dakola 3 1 0 0 3 7
Ohio 1 0 1 0 5 7
OkIahoma 3 0 0 0 2 5
Oregon 6 0 0 0 1 7
IennsyIvania 10 0 0 0 4 14
Rhode IsIand 2 0 0 0 1 3
Soulh CaroIina 2 0 0 0 4 6
Soulh Dakola 5 0 0 0 2 7
Tennessee 3 0 0 0 3 6
Texas 13 0 0 0 13 26
Ulah 4 0 0 0 1 5
Vermonl 1 0 0 0 1 2
Virgina 4 0 0 0 3 7
Washinglon 16 0 0 0 3 19
Wesl Virgina 8 0 0 0 0 8
Wisconsin 6 0 0 0 4 10
Wyoming 9 0 0 0 1 10
TOTAL 48 STATIS 275 1 5 0 150 431
AIaska 193 3 0 0 14 210
Havaii 3 0 0 0 8 11
Iuerlo Rico 6 0 0 0 2 8
Virgin IsIands 2 0 0 0 2 4
TOTAL U.S. 479 4 5 0 176 664
Canada 12 1 0 0 7 20
Caribbean 18 5 0 1 15 39
Mexico 18 1 0 2 10 31
TOTAL NORTH AMIRICA 527 11 5 3 208 754
Source: RegionaI AirIine Associalion.
TABLE 2-4 Summary of Passenger Service by State, January 2005
A I R T R A N S P O R TAT I O N 6 4
by GI/Snecma, Ira & Whilney, or RoIIs-Royce. IIovn by lvo-person crevs, lhey couId
carry 190 persons in lhe narrov-body 757 version or 230 in lhe vide-body 767. The nev
pIanes IIed lhe niche belveen lhe 115145-seal 737 and lhe smaIIesl 420-seal 747. The 757
quickIy suppIanled lhe aging 727 vilh ils grealer efciency, and lhe roomy 767 proved lo
be economicaI on lhe lransalIanlic roules.
Wilh lhe increasing reIiabiIily of modern |el engines, lhe IAA had approved exlended
lvin-engine operalions (ITOIS) over roules lhal did nol meel lhe IAR 121.161(a)
requiremenl for conlinuous avaiIabiIily of a Ianding sile vilhin one hour of singIe-engine
cruising. HisloricaIIy lhe province of lhree-engine DC-10s and L-1011s as veII as four-
engine oeing and DougIas airIiners, lhe nev 120-minule ITOIS exemplion aIIoved lhe
767 lo y lo Iurope vilhoul devialing over an uneconomic norlhern roule lo slay near
Iand.
Iirsl approved in Iebruary 1985 for TWAs oeing 767-200, lhe basic crileria for ITOIS
vas a documenled in-ighl engine shuldovn rale of Iess lhan 0.05 per 1,000 hours of
operalion, or Iess lhan 1 shuldovn per 20,000 hours. Given lhal malure lurbine pover
pIanls vere experiencing shuldovn rales as Iov as 0.02 per 1,000 hours, lhe risk assumed
by ying over roules lhal vouId require lvo or even lhree hours of singIe-engine cruising
lo reach a diversionary airporl vas quile smaII. Wilhin eighl years, ITOIS had become
so commonpIace lhal 400-seal lvin-engine airIiners, such as lhe Airbus A330 and oeing
777, vere being deveIoped for lhe Norlh AlIanlic run.
MeanvhiIe, lhe 737 became lhe mosl-buiIl |elIiner in 1987, surpassing lhe 727s
previous record of 1,832. More lhan 3,000 of lhe 737s have been soId lo dale, and lhe 300-
series, inlroduced in 1981, began a nev cycIe for lhis phenomenaIIy successfuI aircrah.
The 737-300, -400, and -500 are aII equipped vilh nev-lechnoIogy GI/Snecma CIM-56
lurbofans and gIass cockpils vilh eIeclronic ighl inslrumenlalion (IIIS) repIacing lhe
oId mechanicaI ighl direclors and engine gauges. IIIS had been inlroduced previousIy
on lhe 757 and 767.
The 747-400 appeared in 1988 vilh an exlended upper deck, bringing lhe lolaI sealing
up lo 660 in lhe aII-lourisl conguralion (550 on lhe main deck and 110 on lhe upper deck,
65 more lhan lhe 200). Iealuring Ira & Whilney IW 4000, GeneraI IIeclric CI6-80C2,
or RoIIs-Royce R 211-524D4D engines, lhe 747-400 is capabIe of ying 7,200 miIes, 1,000
more lhan lhe 747-300.
McDonneII-DougIas vas abIe lo remain a presence in lhe airIiner business during lhe
1980s and 1990s, bul vilh sli compelilion from oeing and Airbus, il sav ils markel
share drop lo 10 percenl by lhe mid-1990s. The slrelched DC-9-80 became knovn
as lhe MD-80, subsequenlIy groving inlo lhe MD-81, MD-82, MD-83, MD-87, and
MD-88, vilh each modeI diering chiey in gross veighl and ving size. An MD-90
version vilh furlher updaling vas roIIed oul in Iebruary 1993. GIass cockpils became lhe
norm, aIong vilh ighl managemenl syslems lhal choreographed ighls for maximum
efciency. The Iasl DC-10 came o lhe produclion Iine in 1989, and in Ianuary 1990, lhe
MD-11 made ils maiden ighl. Iovered by nev engines, lhe nev airIiner grosses over
600,000 pounds al lakeo and can carry over 400 passengers. The paneI fealures six
8-inch calhode-ray lube dispIays, repIacing aII lhe mechanicaI gauges of lhe DC-10, and
vilh lhe aid of ighl managemenl compulers, lhe pIane is simpIer lo y, even vilh lvo
piIols. The MD-11 oers lhe oplion of manuaI cabIe conlroIs vhen lhe aulopiIol is nol
engaged, ralher lhan lhe fuII y-by-vire syslems popuIarized by lhe Airbus A320.
y lhe earIy 1990s, more and more airIiners vere being buiIl in componenl form, vilh
onIy lhe naI assembIy laking pIace al lhe parenl companys pIanl. In lhe case of lhe MD-
C H A P T E R 2 H I S T O R I C A L P E R S P E C T I V E 6 5
11, lhe vings vere buiIl in Canada, lhe vingIels vere produced by IlaIys AerilaIia, lhe
laiIcone came from Milsubishi, and lhe conlroI surfaces vere manufaclured by companies
such as Imbraer and CASA.
oeing, seeking lo cIose lhe gap belveen lhe 767 and 747, deveIoped lhe 777, an even
Iarger lvin-engine airIiner capabIe of carrying 305440 passengers. Iovered by huge
GeneraI IIeclric, Ira & Whilney, or RoIIs-Royce fan-|el engines in lhe 74,000- lo 92,000-
pound-lhrusl cIass, vilh fan diamelers approaching 10 feel, lhe 777 oers efciency, size,
and Iong-range capabiIily. One of lhe 777s unique oplions is ils foIding ving lips, vhich
reduce lhe 200-fool vingspan lo Iess lhan 160 feel for simpIied docking al crovded
gales.
Il shouId be noled lhal in 1997, oeing and McDonneII-DougIas merged lo become one
company, Ieaving Airbus Induslrie as lhe primary compelilor. The merger vas a slralegic
move lo expand oeings presence in lhe increasingIy compelilive aircrah manufacluring
markel. The merger vas anlicipaled lo bring an eslimaled $48 biIIion in revenues per
year. Aher lhe merger, oeing moved ils corporale headquarlers from SeaIe lo Chicago.
In 2006, oeing and Airbus conlinue lo remain lhe Iargesl aircrah manufaclurers in
lhe vorId conslanlIy compeling lo oul perform lhe olher in lerms of saIes. Nev aircrah
lechnoIogy Ieads lo increased saIes and for lhe rsl lime since 2000, oeing is once
again lhe number one aircrah manufaclurer Ieaving Airbus in lhe number lvo posilion.
oeings produclion of lhe 787 DreamIiner has caplured lhe induslry by slorm as
airIines slrive lovard operaling fueI ecienl lvin-engine aircrah on Iong-hauI ighls.
Hovever, circumslances couId change al any lime as Airbus markels nev aircrah Iike lhe
Airbus A380, lhe vorIds Iargesl commerciaI aircrah, and lhe A350 lo compele againsl lhe
DreamIiner.
Scpicn|cr 11. 2001A Ncu |ra i n Ati aii cn
On Seplember 11, 2001, lhe vorId vas shocked lo hear aboul lhe biggesl disasler in lhe
hislory of avialion. Iour commerciaI airIine ighls vere hacked simuIlaneousIy (Uniled
AirIines IIighl 93, Nevark lo San Irancisco: American AirIines IIighl 77, Washinglon
DuIIes lo Los AngeIes: Uniled AirIines IIighl 11, oslon lo Los AngeIes: and American
AirIines IIighl 175, oslon lo Los AngeIes). IIighl 93 missed ils inlended largel, beIieved
lo be lhe While House, and crashed inlo a eId in Somersel, IennsyIvania, kiIIing aII 45
persons on board. IIighl 77 vas ovn direclIy inlo lhe Ienlagon, lhe ciladeI of vorId
slralegic miIilary pIanning, kiIIing 189 persons. IIighl 11 vas ovn direclIy inlo lhe norlh
lover of lhe WorId Trade Cenler in Nev York Cily, kiIIing aII 92 persons on board lhe
aircrah. IIighl 175 vas ovn direclIy inlo lhe soulh lover of lhe WorId Trade Cenler,
kiIIing aII 65 persons on board. In lhe end, more lhan 3,000 peopIe Iosl lheir Iives on 9/11
as a resuIl of lhe acls of fanalic lerrorisls.
ecause of lhe evenls of 9/11, securily al airporls, as veII as securily al high-risk evenls
oulside avialion, vas slepped up signicanlIy. The gIobaI avialion business vas hil hard
nanciaIIy and conlinues lo recover. Il vas eslimaled in Oclober 2002 lhal airIines in lhe
Uniled Slales vouId Iose a lolaI of $8 biIIion by lhe end of lhe fourlh quarler for lhe same
year. Some anaIysls said lhal lhese eslimaled Iosses vere oplimislic and lhal $10 biIIion
vouId be a more IikeIy gure.
Since lhe evenls of 9/11, a number of airIines around lhe vorId have decIared bankruplcy
vilh some cIosing lheir doors forever. In lhis nev era of air lransporlalion, air carriers
A I R T R A N S P O R TAT I O N 6 6
have been forced lo impIemenl cosl-cuing slralegies in order lo survive. Such slralegies
are discussed in Ialer chaplers.
WorId War I ended in November 1918, and severaI lhousand Curlis Iennies, vhich cosl
lhe U.S. governmenl cIose lo $17,000 apiece, became surpIus and soId for as much as $750
for a nev pIane vilh an OX-5 engine and as IiIe as $50 for a used one. AIlhough mosl
WorId War I piIols relurned lo olher professions, a group of lhem vilh ying in lheir bIood
became barnstormers. Living from hand lo moulh and acling as lheir ovn mechanics, lhe
members of lhis happy-go-Iucky group pul on air shovs and look lhe IocaI lovnfoIk for
rides, usuaIIy for aboul ve minules, and charged vhalever lhe lrafc vouId bear.
Wilh lhe passage of lhe Air Commerce Acl in 1926 and ils requiremenls for lhe Iicensing
of piIols, mainlenance requiremenls, and olher reguIalions, lhe barnslormer era came lo
an end. A number of lhese coIorfuI individuaIs seIed dovn and became knovn as xed-
base operators, providing everylhing from ighl inslruclion, lo saIe of aircrah and fueI,
lo mainlenance vork. GeneraI avialion had been born.
GENERAL AVIATION
Tnc Hcnc cj Gcncra| Ati aii cn
Wichila, Kansas, vas a boom lovn in lhe 1920s. Since ils founding in 1870, lhe cily had
ridden lhe boom-lo-busl roIIer coasler in caIe and oiI. Avialion, hovever, vas lhe boom
lhal vouId Iasl. Wichila had lhe righl lerrainal (lhe cily vas caIIed lhe vorIds Iargesl
naluraI airporl). Il had lhe righl vealhercIear. Il aIso seemed lo aracl lhe righl peopIe.
May Laird and Iake MoeIIendick began vork in ApriI 1920 on lhe rsl Laird SvaIIov
aircrah. They soon hired lhree olher avialion enlhusiasls, vho in lime deveIoped lheir
ovn companies: uck Weaver, vho slarled Weaver Aircrah Company (WACO): LIoyd
Slearman: and WaIler eech. The Iasl lvo, aIong vilh anolher barnslormer by lhe name
of CIyde Cessna, pooIed lheir laIenls in 1925 lo form lhe TraveI Air Manufacluring
Company.
The rsl TraveI Air pIane, buiIl of veIded melaI lubing, as opposed lo vood framing,
von lhe 1925 Iord ReIiabiIily Tour vilh WaIler eech al lhe conlroIs. In lhe 1926
ReIiabiIily Tour, eech ev a TraveI Air 4000 monopIane equipped vilh inslrumenls lhal
permied bIind ying, lhe rsl lime such a feal had ever been aempled. y 1929, vhen
lhe company vas boughl by Curliss-Wrighl Corporalion, TraveI Air vas producing 25
percenl of aII commerciaI aircrah in lhe Uniled Slales. eech, vho vorked for Curliss-
Wrighl unliI 1932, lhen embarked on vhal proved lo be his grealesl chaIIenge, lhe slarl of
eech Aircrah Corporalion. He soon announced pIans lo buiId a four-pIace cabin bipIane
lhal vouId y 200 miIes per hour. ImpossibIeor so lhe crilics lhoughl. Tvo monlhs
aher eech Aircrah inlroduced ils rsl airpIane, lhe slagger-ving ModeI 17, lhe sIeek
bipIane ev o vilh rsl pIace in lhe presligious Texaco Trophy Race in Miami. A slring
of lriumphs foIIoved as eechcrahs von ve ma|or races in 1936 aIone, incIuding lhe
Denver MiIe-High Air Race and lhe endix TransconlinenlaI Speed Dash. eechcrahs
conlinued lo pick up lrophies inlo lhe nexl decade. In 1937, lhe ModeI 18 Tvin eech vas
born. ImpIoymenl peaked during lhe WorId War II years, and in 1946, eech inlroduced
lhe V-laiI onanza, vhich has had lhe Iongesl produclion record of any generaI avialion
aircrah.
C H A P T E R 2 H I S T O R I C A L P E R S P E C T I V E 6 7
Al 48 years of age, WiIIiam T. Iiper vas a successfuI IennsyIvania oiIman vhen he
invesled in lhe TayIor Aircrah Company in 1931. He vas a superb saIesman vilh a cIear
idea of vhal vouId make a Iighl aircrah successfuI. His formuIa vas simpIe: buiId easy-
lo-y machines and price lhem Iov enough lo aracl buyers. Aher an aborlive aempl
lo design a gIider, TayIor Aircrah deveIoped lhe I-2 Cub, an exceIIenl exampIe of Iipers
vision of lhe simpIe airpIane.
The name of lhe company vas changed lo Iiper Aircrah Corporalion in 1936, and
lhe subsequenl modeIs vere caIIed I-2 and I-3. The IA-11 came nexl in lhe Cub Iine, and
lhen lhe IA-18 Super Cub, vhich had essenliaIIy lhe same slrucluraI and aerodynamic
conguralion as lhe 1932 I-2. To lhis day, more lhan one-lhird of lhe over 120,000 aircrah
produced by Iiper since 1937 have been Cubs, and 80 percenl of U.S. piIols in WorId War II
received lheir iniliaI lraining in lhal lvo-pIace landem design. Iiper Aircrah Corporalion
boomed and lhen nearIy busled during lhe difcuIl days aher WorId War II.
Tnc Pcsi-Wcr| ! War || Ycars
Mr. Pi pcr an! Hi s Cu|s
y 1934, economic condilions had improved sufcienlIy lo aIIov CIyde Cessna lo open his
ovn smaII faclory in Wichila and lo inslaII his nephev, Dvane WaIIace, a recenl aeronaulicaI
engineering graduale, as pIanl manager. WaIIace vas nol paid a saIary, bul he did have lhe
opporlunily lo design, buiId, lesl, y, seII, and race lhe companys producls. WaIIace sel
aboul designing lhe C-34, a high-ving, four-pIace cabin monopIane vilh a 145-hp Warner
Super-Scarab engine. Aher monlhs of anxious ighl lesls and ledious renemenls, lhe C-
34 vas enlered in lhe 1935 Delroil Nevs Trophy Race, parl of lhe presligious NalionaI
Air Races. The C-34 von lhe day, and lhe aendanl pubIicily vaslIy enhanced Cessnas
repulalion as a buiIder of fasl, efcienl aircrah.
WaIIaces nexl pro|ecl vas a Iighl, inexpensive lrainer-uliIily airpIane lhal vas easy
lo y and nol loo sophislicaled lo buiId. y 1939, lhe T-50 vas ying, and by 1940, il
vas in produclion and ready for buyers. Among lhe rsl vas lhe Canadian governmenl,
foIIoved by lhe U.S. Army Air Corps. y 1945, some 5,000 of lhese lrainers had been
produced. Aher lhe var, Cessna inlroduced lhe 120/140 series, vhich vas foIIoved by lhe
190/195 series. These slrong bul simpIe singIe-engine aircrah heIped Cessna survive lhe
poslvar shakeoul of many smaII manufaclurers of generaI avialion aircrah and heIped
propeI lhe company inlo lhe 1950s.
Wichila is lhe home of anolher man vhose name is famous in corporale avialion:
WiIIiam Lear, gambIer, invenlor, discoverer, promoler, and induslriaIisl, vho deveIoped
lhe highIy successfuI corporale Lear |el.
The Aircrah Ovners and IiIols Associalion (AOIA) had 22,000 members by lhe mid-
1940s (387,000 members as of 2002), and lheir molivalions vere lhe same lhen as
nov: lo prolecl privale ying from lhe depredalions of lhe airIines and lhe assauIls of
bureaucrals vho vanl lo buiId empires around lhe commerciaI airIines and IegisIale
lhe privale ier oul of lhe skies. The AOIA is lhe Iargesl, mosl inuenliaI avialion
associalion in lhe vorId. The lerm gcncra| atiaiicn vas coined lo remove lhe imagined
onus of lhe lerm privale ying from lhe induslry. GeneraI avialion denoles avialion
used for vilaI, usefuI, generaI purposes, much Iike lhose for vhich lhe privale
aulomobiIe is used.
A I R T R A N S P O R TAT I O N 6 8
The Iighl-aircrah manufaclurers, vilh fev exceplions, envisioned lheir producls
becoming as popuIar as lhe aulomobiIe in lhe years lo come. Aher a banner year in 1946,
lhe manufaclurers reaIized lhal lhe generaI pubIic had perhaps been oversoId on Iighl-
pIane ying and lhal lhey couId nol hope lo have a mass-produclion induslry comparabIe
lo lhe aulo induslry.
In 1947, a year before Cessna inlroduced ils 170, vhich evenluaIIy deveIoped inlo lhe
172, lhe vorIds mosl successfuI Iighl pIane, lhe induslry vas beginning lo ounder.
Wilh manufacluring companies lurning beIIy up aII over lhe pIace, deIivery ramps
vere cIogged vilh unsoId airpIanes. Al lhe end of 1947, saIes vere dovn 44 percenl from
1946, and lhe dovnvard lrend conlinued veII inlo 1949. ul lhis period aIso represenled a
ma|or lurning poinl for lhe Iighl-aircrah manufaclurers, as execulives began lo Iook al lhe
fulure from a dierenl angIe. The fulure Iay in deveIoping a eel of airpIanes lhal vouId
provide soIid, comforlabIe, reIiabIe business lransporlalionaircrah lhal couId operale in
inslrumenl condilions vilh high enough speed and Iong enough range. A cerlain number
of lraining airpIanes vouId have lo be buiIl lo gel nev peopIe slarled ying, bul a uliIily
airpIane lhal businesspeopIe couId aord and on vhich lhe manufaclurer couId make a
fair prol vas lhe largel design for lhe fulure.
Iroduclion in 1951 vas onIy 2,477 unils. GeneraI avialion conlinued lo Iimp aIong,
aIlhough lhe ranks of lhe manufaclurers vere decimaled. eech, eIIanca, Cessna,
Iiper, and Ryan vere sliII lrickIing airpIanes o lhe produclion Iines, bul nol aII of lhese
companies vere sure lhal lhey couId hang on much Ionger.
Things vere nol aII bad in lhe earIy 1950s: more ground-based navigalion slalions vere
buiIl, improved slalic-free radios vere inslaIIed, and faclory oplions on more and more
airpIanes became avaiIabIe. iII Lear produced lhe rsl Iighl-pIane lhree-axis aulopiIol in
1951 and made cross-counlry ying easier and more reIaxing. Tovard lhe end of lhe year,
aboul lhe lime lhal Ryan vas dropping lhe produclion of lhe Navion, a nev company,
Aero Design and Ingineering, oered ils ve-pIace Aero Commander lo lhe business
communily: and Mooney unveiIed ils singIe-pIace $1,000 Mooney Mile. Thal same year,
Iiper pul a nosevheeI on ils IiIe Iacer and renamed il lhe Tri-Iacer, vhich sparked a nev
surge of inleresl in Iighl pIanes for fun as veII as for business.
y 1953, lhings vere slarling lo lurn around for lhe induslry. Ingineers in Wichila
and Lock Haven made carefuI nole of lhe groving acceplance of Iighl lvins for business.
Cessna disconlinued lhe 195 modeI in 1953 and produced lhe four-pIace 180, a more
poverfuI successor lo lhe successfuI 170. Iiper slayed vilh lhe Tri-Iacer and lhe Super
Cub, and eech vas backIogged vilh orders for lhe onanza, lhe Tvin-onanza, and lhe
Super-18. The NalionaI usiness Aircrah Associalion heId ils rsl meeling, in Sl. Louis,
vhich vas aended by 9 manufaclurers and suppIiers aIong vilh 50 voling members and
16 associales (lhe annuaI NAA meeling loday aracls over 10,000).
In 1954, Cessna and Iiper inlroduced lheir four-pIace Iighl lvins, lhe 310 and lhe
Apache, bolh of vhich represenled lhe beginning of a Iong Iine of descendanls. Many
companies had enlered lhe avionics business, incIuding ARC, endix, CoIIins, Lear,
MilcheII, and WiIcox, lo name a fev. Monlh aher monlh, nev aulopiIols vere coming oul
for Iighl pIanes.
C H A P T E R 2 H I S T O R I C A L P E R S P E C T I V E 6 9
Tnc Maiuri ng cj Gcncra| Ati aii cn
As lhe 1950s lurned inlo lhe 1960s, generaI avialion vas deveIoping an unmislakabIe
slabiIily and purpose. Though pIeasure ying vas far from exlincl, lhe generaI avialion
airpIane cIearIy vas deveIoping inlo a viabIe means of business lransporlalion. In 10
years, lhe generaI avialion eel had more lhan doubIed lo 60,000 aircrah, over haIf of
vhich vere equipped for inslrumenl ying. GeneraI avialion had become a ma|or parl
of lhe nalions lransporlalion syslem, vilh an invenlory of Iighl aircrah lhal vere fuIIy
capabIe of ying peopIe in comforl 1,500 miIes in one day lo lhousands of pIaces nol
served by lhe commerciaI air carriers.
eech broughl oul lhe TraveI Air, lo be foIIoved by lhe aron, lhe Oueen Air, and lhe
King Air. Cessna pul lricycIe Ianding gear on ils 170s and 180s in deveIoping lhe 172 and
182 series, vhich became lhe besl-seIIing airpIanes in hislory. Iiper disconlinued lhe Tri-
Iacer and enlered lhe Cherokee, Comanche, and Tvin Comanche inlo lhe markel. Many
of lhe oId names, such as eIIanca, Mooney, Navion, and Norlh American, vouId aIso
en|oy a comeback.
y 1965, lhe generaI avialion aircrah eel had grovn lo 95,000 airpIanes, and
produclion lhal year lolaIed 11,852 nev aircrah. The foIIoving year a record 15,768 unils
vere produced. GeneraI avialion grovlh during lhe Iale 1960s paraIIeIed grovlh in lhe
economy and aII segmenls of avialion al lhal lime.
Nolhing added more lo lhe groving imporlance of generaI avialion lhan lhe advenl
of lurbine pover. The business |el and lurboprop vere inlroduced lo corporale users. Al
rsl, lhere vere |usl a fev Lockheed IelSlars, Norlh American SabreIiners, eech King
Airs, and Grumman GuIfslreams. Il vasnl Iong before iII Lear arrived in Wichila vilh
lhe idea of lurning a smaII Sviss ghler aircrah inlo a business |el. olh lhe SabreIiner and
lhe IelSlar vere designed as miIilary uliIily aircrah. Lear vouId go on lo seII hundreds of
Lear|els and, Iike Iiper and his Cubs, his name vouId become synonymous vilh a cerlain
kind of lransporlalion.
In 1970, lhe manufaclurers of Iighl aircrah eslabIished a slrong and eeclive Iobbying
and pubIic reIalions organizalion in Washinglon, lhe GeneraI Avialion Manufaclurers
Associalion (GAMA). The NalionaI usiness Aircrah Associalion (NAA) bIossomed
inlo a highIy professionaI Washinglon-based service organizalion for business users. The
Aircrah Ovners and IiIols Associalion (AOIA) and olher speciaI-aircrah-use organizalions
deveIoped inlo eeclive Iobbying groups. The IederaI Avialion Adminislralion (IAA),
under adminislralor Iack Shaer, appoinled a depuly adminislralor for generaI avialion.
Despile an economic recession during lhe rsl lvo years of lhe 1970s and an oiI embargo
in 1973, generaI avialion conlinued lo grov, reaching a high poinl in 1978, vilh 17,811
unils produced. y lhe Iale 1970s, bolh manufaclurers and users began lo feeI a condence
in generaI avialion lhal lhey had seIdom en|oyed before. Ierhaps for lhe rsl lime, lhe
generaI avialion communily perceived lhal polenliaI probIems reIaled lo governmenl
conlroIs, charges, fees, and laxes, as veII as reslriclive IegisIalion, vere manageabIe.
Hovever, fundamenlaI changes vere laking pIace in lhe induslry. IueI prices rose
dramalicaIIy during lhe 1970s, and manufaclurers Iooked lo more fueI-efcienl aircrah for
lhe fulure. Airspace congeslion vas anolher probIem lhal lhe induslry had been sludying
since lhe mid-1960s. As a resuIl, lhe Airporl and Airvays DeveIopmenl Acl of 1970 vas
passed lo provide lhe revenue needed lo expand and improve lhe airporl and airvay
syslem over a 10-year period. IinaIIy, lhe induslry vas faced vilh ever-increasing federaI
reguIalion during lhe 1970s. TerminaI conlroI areas (TCAs) vere inlroduced around lhe
A I R T R A N S P O R TAT I O N 7 0
counlrys busiesl airporls, vhich required lvo-vay communicalion vilh air lrafc conlroI
(ATC), VHI OmnidireclionaI Range (VOR) navigalion capabiIily, and aIlilude-reporling
lransponders. Increasing reguIalions parlicuIarIy aecled lhe personaI-pIeasure piIol.
Il vas aIso during lhe 1970s lhal lhe aenlion of lhe generaI avialion induslry slarled
focusing on producl IiabiIily. As lhe number of Iavsuils and lhe size of avards increased,
insurance premiums shol up, from $51 per nev airpIane in 1962 lo $2,111 in 1972. This
lrend vas a sign of lhings lo come for aircrah manufaclurers and, no doubl, one of lhe
ma|or causes of lhe precipilous decIine in lhe produclion of generaI avialion aircrah
during lhe 1980s.
UnforlunaleIy, lhe 1980s broughl on a nev round of chaIIenges for lhe induslry. Soaring
inleresl rales and a depressed economy during lhe earIy 1980s had an eecl on saIes.
Aircrah shipmenls dropped from 11,877 in 1980 lo 9,457 in 1981 and lo 4,266 in 1982.
y 1994, lhe number had reached a record Iov of 928 unils. Once again, lhe ranks of lhe
manufaclurers vere being lhinned. Raylheon Company acquired eech in 1980, and in
1984, Lear-SiegIer look over Iiper as parl of a buyoul of angor Iunla, ils former parenl.
Iiper changed ovnership severaI more limes before lhe end of lhe decade. GeneraI
Dynamics look over Cessna, lhe Iasl independenl of lhe big lhree manufaclurers of
generaI avialion aircrah. y 1986, Cessna decided lo drop ils pislon-aircrah produclion.
Lov unil saIes of generaI avialion aircrah during lhe 1980s and earIy 1990s have been
aribuled lo lhe ever-increasing cosl of nev aircrah vilh reIaliveIy fev design changes
since lhe 1970s, higher fueI and olher operaling expenses, incIuding mainlenance and
hangar charges, and lhe avaiIabiIily of used aircrah. Olher anaIysls cile producl IiabiIily
cosls and changing lasles and preferences among lhe lradilionaI business and pIeasure
aircrah users. Inleresls in sporls cars and boals, lhe operalion of vhich requires Iess
lraining, seemed lo peak during lhe 1980s. Anolher nanciaI pressure vorking againsl
aircrah ovnership invoIved lhe passage of lhe Tax Reform Acl of 1986, vhich eIiminaled
lhe 10 percenl inveslmenl lax credil (ITC). IinaIIy, foreign aircrah manufaclurers enlered
lhe lradilionaIIy U.S.-dominaled markel in a much bigger vay during lhe 1980s.
AIlhough lhe U.S. economy experienced impressive grovlh and inleresl rales decIined
during lhe Iaer parl of lhe 1980s, generaI avialion faiIed lo recover. y 1992, lhe number
of generaI avialion aircrah manufaclured in lhe Uniled Slales had dropped beIov 1,000
for lhe rsl lime since lhe end of WorId War II. elveen 1978 and 1994, ying hours
decIined by aboul 45 percenl, and lhe aclive generaI avialion eel, aher reaching a peak
of 220,943 aircrah in 1984, feII lo 170,660 by 1994. More imporlanlIy for lhe fulure grovlh
of lhe induslry, lhe number of sludenl and privale piIol cerlicales issued dropped by
aImosl 50 percenl belveen 1978 and 1994.
GeneraI Dynamics apparenlIy found lhe eId of generaI avialion lo be loo far removed
from ils core miIilary business, vhich vas in decIine during lhe poslCoId War period, so
Cessna vas soId lo Texlron in 1992. This caused much specuIalion in generaI avialion circIes
aboul a relurn lo Iighl-pIane produclion, because Texlron aIso ovned lhe manufaclurer
of Lycoming engines, vhich had been used in Cessnas 152, 172, 172 RG, T182, and 182
RG modeIs, and il vouId be IogicaI lo creale a markel for lhem. Hovever, Texlron aIso
ovned eII HeIicopler, and lhere vas aboul as much chance of Cessna svilching over lo
heIicopler produclion as lo slarl buiIding Lycoming-povered Iighl pIanes again. Cessna
vas salised buiIding Caravan singIe-ngine lurboprops, operaled primariIy under
conlracl lo IederaI Ixpress over smaII-parceI freighl roules. Cessna vas aIso conlenl vilh
ils Iine of six business |els, ranging from lhe 10,400 pound Cilalion Iel, povered by II44
fan |els from WiIIiams Research, lo lhe speedy, 31,000 pound Cilalion X vilh ils lvo huge
C H A P T E R 2 H I S T O R I C A L P E R S P E C T I V E 7 1
AIIison GMA 3007C engines. More lhan 2,000 Cilalions have been soId since Seplember
1972, vhen lhe rsl one vas deIivered: pIane number 2,000, a Cilalion VII, vas roIIed oul
on March 30, 1993.
Iiper Iimped aIong lhrough lhe dovnlurn of lhe 1980s bul sliII ceIebraled ils hielh
anniversary in 1987. Hovever, a series of ovnership changes had Ieh il iII-equipped lo
make lhe lough manageriaI decisions needed in hard limes. In 1970, conlroI passed from
lhe Iiper famiIy lo angor Iunla Corporalion, ilseIf acquired by Lear-SiegIer in 1984. In
lurn, Lear-SiegIer vas laken over by inveslmenl bankers Iorslmann LiIe in lhe mid-
1980s. Then, vilh shuldovn imminenl, privale enlrepreneur M. Sluarl MiIIar boughl
Iiper in May-1987 vilh lhe idea of relurning il lo ovner-managemenl. Iiper dropped
ils producl IiabiIily insurance in an aempl lo discourage Iavsuils, prices vere cul, and
enlhusiasm ran high. UnforlunaleIy, lhe company sIipped inlo Chapler 11 bankruplcy in
1991, unabIe lo buiId airpIanes cheapIy enough lo II lhe Iarge backIog of orders laken al
bargain prices. Il vas purchased in ApriI 1992 by anolher enlrepreneur, A. Slone DougIas.
A lrickIe of airpIanes conlinued lo ov from lhe produclion Iines under lhe proleclion of
lhe courl. IinaIIy, in IuIy 1995, lhe Nev Iiper Aircrah Corporalion vas formed from lhe
assels saIe of Iiper Aircrah Corporalion.
eech survived by concenlraling on ils lradilionaI roIe as a suppIier of business
airpIanes. Wilh over 90 percenl of lhe execulive lurboprop markel rmIy in lhe hands
of lhe various King Airs, ranging from lhe 7-passenger King Air C-90 lo a 10-passenger
Super King Air 350, onIy Iimiled pIanl space vas devoled lo pislon-aircrah produclion.
Hovever, eech sliII oered ils four-pIace onanza I-33A, a six-seal onanza A-36 or
lurbo-charged 36TC, and a lvin-engine aron 58. These neIy crahed, pislon-povered
pIanes served lo inlroduce fulure King Air buyers lo eech quaIily.
eech acquired lhe righls lo Milsubishis Diamond business |el in 1986, giving il a fasl
enlry inlo lhe business |el eId, |usl above lhe Iargesl King Air. This vas acluaIIy eechs
lhird aempl al |els. The company had enlered inlo markeling agreemenls for lhe Irench-
made Moraine-SauInier MS-760 in 1955 and lhe rilish-made Havker H-125 in lhe
1970s, bul neilher venlure had been overIy prolabIe. This lime, hovever, eech vas in a
posilion lo lake over lhe produclion of ils |els, vhich il redesigned and buiIl as lhe eech
Iel-400A.
The resl of lhe U.S. generaI avialion induslry heId on lhrough lhe 1990s by slaying smaII,
merging, or diversifying. Mooney had been ovned by lhe Irench rm IuraIair since 1984
and vas sliII buiIding singIe-engine aircrah in lhe KerrviIIe, Texas, pIanl il occupied in
1953. Lear|el vas soId lo lhe Canadian rm ombardier, bul il remained based in Wichila.
The slrelched ModeI 55 grev inlo lhe ModeI 60, cerlicaled in Iale 1992.
SpeciaIly aircrah buiIders hung on by expIoiling lheir parlicuIar niche, such as
manufaclurers of fabric-covered laiI-vheeI airpIanes (Husky, MauIe, TayIorcrah,
American Champion), amphibian ying boals (Lake), cuslom-made and sleeI-lube cIassic
aircrah (eIIanca, Waco CIassic), and olher personaI airpIanes (Commanders 114 and
lhe American GeneraI Tiger, a rebirlh of lhe Grumman AA-58).
Signs of oplimism appeared in 1994 vilh lhe passage of lhe GeneraI Avialion
RevilaIizalion Acl, vhich Iimiled producls IiabiIily suils, and vilh Cessnas announcemenl
lhal il vouId resume produclion of singIe-engine aircrah in 1996. The Nev Iiper Aircrah
Corporalion vas formed, and in 1995, generaI avialion aircrah shipmenls naIIy increased
aher an 18-year decIine. UnqueslionabIy, lhe 1990s broughl nev chaIIenges lo lhe induslry.
ul as lhe hislory of generaI avialion shovs, lhis is hardIy a noveI silualion.
A I R T R A N S P O R TAT I O N 7 2
Busi ncss Ati aii cn
AIlhough business or corporale ying had ils foundalions in lhe 1930s, vhen pelroIeum
companies, nevspaper pubIishers, and manufaclurers ovned and operaled lheir ovn
aircrah, il vasnl unliI lhe Iale 1950s lhal business ying reaIIy look o. The lurbine engine
vas one of lhe ma|or faclors.
Iver since lhe end of WorId War II, corporale operalors had reIied heaviIy on former
miIilary aircrah lhal vere converled lo civiIian use. The Lockheed Lodeslar and Venlura
vere exampIes. Iacic Airmolive Corporalions Lode-slar conversion, lhe Learslar, vas
one of lhe mosl soughl aher of ils kind. Il oered 280-mph speed and 3,800-miIe range. The
DC-3 and ils miIilary version, lhe C-47, l veII inlo lhe corporale eels. Many corporale
ighl deparlmenls operaling loday gol slarled vilh eech D-18s or I-18s, each povered
by 450-hp Ira & Whilney R985 radiaI engines.
ul lhe end vas signaIed for lhe Iarge radiaI-engine business aircrah vilh Grumman
Aircrah Corporalions announcemenl in 1957 lhal il inlended lo buiId lhe rsl made-for-
business-avialion lurbine-povered airpIane. Il vouId be caIIed lhe GuIfslream, and il
vouId cosl a haIf-miIIion doIIars.
Lockheed vas rsl on lhe lurbo|el scene vilh ils IelSlar, bul lhe big vinner in lhe |el
compelilion vas Norlh American Avialions T-39 SabreIiner. The DH-125 lvin-|el airpIane
by deHaviIIand foIIoved, and a shorl lime Ialer, DassauIl of Irance vas ready vilh ils
ModeI-20 IaIcon.
y lhe mid-1960s, lurboprops abounded. The Turbo Commander and King Air
couId be seen on many ramps, and lhere vas laIk of lhe coming of lhe Milsubishi
MU-2. ul perhaps lhe favored aircrah among Iorlune 500 companies vas lhe eech|el.
usiness and corporale avialion has been Iess severeIy aecled lhan olher segmenls of
generaI avialion, a facl lhal reecls lhe reIiabiIily and exibiIily of lodays corporale
eel.
DereguIalion has had a lvofoId eecl on generaI avialion. Iirsl, corporalions and
businesses vilh videIy scaered pIanls, mines, miIIs, conslruclion siles, and so on have
found il essenliaI lo eslabIish ighl deparlmenls equipped vilh high-performance aircrah
lo minimize execulive lrip lime, increase empIoyee produclivily, and mainlain a high
IeveI of cohesion and conlroI of far-ung operalions. Second, lhe proIiferalion of hub-and-
spoke operalions for commerciaI lrafc has expanded scheduIed regionaI and commuler
airIine syslems, vhich feed aboul 70 percenl of lheir passengers from videIy scaered,
Iov-densily airporls inlo Iarge, high-densily lerminaIs, vhere lhey can conlinue lheir
lrips on lhe ma|or carriers. The regionaI/commuler airIines serve many communilies in
lhe conlinenlaI Uniled Slales, providing air Iinks lo communilies lhal mighl olhervise be
cul o from fasl, efcienl air lransporlalion.
Hovever, lhe proIiferalion and expansion of lhe nev regionaI carriers does nol mean
lhal aII business and corporale requiremenls for efcienl, nonscheduIed air lransporlalion
have been mel. The currenl hub-and-spoke paern may be economicaIIy more efcienl
lhan lhe eIaborale muIlipoinl nelvork il repIaced, bul some passengers musl pay for
lhis in lime-consuming Iayovers and olher inconveniences during lheir lrips. Ior
business and execulive lraveIers, lime is of greal imporlancea commodily companies
have shovn lhemseIves viIIing lo pay for lhrough lhe purchase of business
aircrah.
C H A P T E R 2 H I S T O R I C A L P E R S P E C T I V E 7 3
Wi | | Ncu Tccnnc| cgu Aj j cci inc |uiurc cj Ccrpcraic Ati aii cn?
Il vas nol loo Iong ago lhal lhe main funclion of corporale aircrah vas lo lransporl
execulives belveen deslinalions regardIess of lhe nanciaI cosl faclors. Ohen, lhe aircrah
vas nol ovn enough in a year lo make il a viabIe mode of lransporl for lhe organizalion,
because ils use vas Iimiled lo a smaII number of key peopIe.
Today, organizalions musl reduce cosls vherever possibIe in order lo remain
compelilive in lhe gIobaI markelpIace. Ior lhe mosl parl, lhe days of lhe royaI barge
have disappeared as corporale aircrah operalors have Iearned aboul lhe high cosls of
operaling such aircrah. More and more, corporale aircrah are used nol |usl by key
execulives bul by empIoyees of aII IeveIs vilhin an organizalion. Some organizalions
conlinue lo underuliIize aircrah bul lhere mighl be advanlages lo doing lhis, depending
on vhal kind of business is lransacled on board lhe aircrah or al a deslinalion. Olher
organizalions fuIIy uliIize corporale aircrah and use lhis lechnoIogy as a shuIe belveen
deslinalions vhiIe maximizing lhe Ioad faclor.
Aircrah lechnoIogy has shrunk lhe vorId, and il is becoming more imporlanl lo
be abIe lo visil more deslinalions vilhin a shorl period of lime. As lhe need for lraveI
increases, expenses increase. Localions lhal vere previousIy nol accessibIe by commerciaI
and corporale aircrah need lo beaccessed.
Nev lechnoIogy is being deveIoped by governmenl, induslry, and academic parlners
for a lype of aircrah lhal can safeIy and aordabIy move peopIe and goods among
underuliIized airporls in urban, suburban, and ruraI Iocalions lhroughoul lhe Uniled
Slales. This nev lechnoIogy is knovn as lhe Small Aircra Transportation System
(SATS). The pro|ecl reached ils concIusion vilh a proof-of-concepl demonslralion in Iune
2005 al DanviIIe, VA. Demonslralions are inlended lo shov poIicymakers and lhe pubIic
lhal lhis nev lechnoIogy can vork.
Under SATS, each aircrah viII hoId 4 lo 10 peopIe, incIuding lhe piIol(s). Iach aircrah
viII be ouled vilh digilaI avionics suiles vilh saleIIile-based navigalion syslems, on-
board compulers lhal permil coordinaled conlroI and dispIay of aircrah syslem operalion
and slalus, and synlhelic vision lhal aIIovs operalions in Iov-visibiIily environmenls. A
compuler dispIay viII shov a lhree-dimensionaI viev of lhe ighl palh, lerrain, obslacIes,
lrafc, and vealher, vilh superimposed guides for lhe piIol lo y any ighl pIan seIecled.
These aircrah viII have simpIer conlroIs lhan any aircrah currenlIy ying, making lhe
aircrah easier lo operale. The convenlionaI lhroIe and mixlure conlroIs viII be repIaced
by a singIe Iever pover conlroI. The yoke and pedaIs viII be repIaced by a simpIe |oyslick
conlroI.
ecause of lhe simpIicily of lhis lechnoIogy, lhe amounl of ighl lraining required viII
be reduced, and lechniques used viII be simpIied. Il is expecled lhal a person viII receive
privale piIol cerlicalion vilh inslrumenl raling in an economicaI and acceIeraled singIe
course. SATS aircrah viII have access lo lhe Inlernel and lhe IubIic Svilched Nelvork for
airborne communicalions. Iach aircrah viII aIso have access lo vealher graphics, lrafc
informalion, and ground faciIily informalion, aIIoving operalors lo scheduIe reservalions
for meelings, accommodalions, car renlaIs, and reslauranls vhiIe en roule.
SATS aircrah viII nol be dependenl on currenl air lrafc conlroI (ATC) syslems because
of lhe use of saleIIile-based navigalion informalion. Iach aircrah viII knov ils exacl
Iocalion from lakeo lo Ianding, reducing lhe number of deIays currenlIy imposed by ATC
syslems. Ior corporale operalors, lhis viII mean a more efcienl environmenl lo conducl
business. Iach SATS aircrah viII beam ils Iocalion and inlenl lo olher SATS aircrah in
A I R T R A N S P O R TAT I O N 7 4
lhe vicinily and lo IocaI ATC faciIilies, reducing rouling and scheduIing conslrainls. Once
SATS malures, il viII inlegrale vilh lhe NalionaI Airspace Syslem.
Il has been delermined lhal approximaleIy 5,000 exisling SATS IorlaI Airporls
lhroughoul lhe nalion viII be uliIized. Ior lhe mosl parl, lhese are airporls equipped vilh
xed-base operalors (IOs), oering a comforlabIe environmenl vilh accessibIe parking
and check-in, baggage handIing, food service, ofce supporl, ground lransporlalion, access
lo accommodalion, and aircrah service and mainlenance. Some 10 percenl of IIoridas
airporls vere used for SATS demonslralions using primariIy professionaI piIols. Avionics
viII be vhal is commerciaIIy avaiIabIe. SATS viII have muIlimodaI conneclivily, and il is
expecled lhal lhese airporls viII aII remain in operalion as SATS airporls.
Ior corporale operalors, SATS viII reduce lraveI lime and eIiminale lhe need lo y
in and oul of congesled airporls. No more airporl Iines and no more connecling ighls!
Deparlures and arrivaIs viII lake pIace vilhin a 30-minule radius of ones home or ofce,
permiing more reasonabIe lraveI limes and increased lraveI range.
KEY TERMS
Airbus oeing
feeder roule dereguIalion
CoIumbia roule essenliaI air service
CAM (conlracl air barnslormers
maiI) roule xed-base operalor
SpoiIs Conference SmaII Aircrah Transporlalion
air commerce Syslem (SATS)
REVI EW QUESTI ONS
1. When vas lhe rsl reguIar domeslic air maiI service provided` Who ev lhe maiI in
lhe years before 1925` Whal vas lhe ma|or signicance of lhe KeIIy Acl` Of lhe Air
Commerce Acl` Who vas lhe successfuI bidder on lhe CoIumbia roule` Whal vas lhe
name of lhe aircrah specicaIIy designed lo carry maiI on lhe CoIumbia roule` Who
vere 6 of lhe rsl 12 carriers on lhe nevIy eslabIished CAM roules`
2. Whal roIe did WaIler IoIger rovn pIay in deveIoping lhe earIy CAM roules` Whal
vas lhe SpoiIs Conference` Which lhree carriers picked up lhe norlhern, cenlraI, and
soulhern cross-counlry roules` Whal evenl prompled Senalor Iack lo invesligale air
maiI bidding praclices` Whal vas lhe signicance of lhe Air MaiI Acl of 1934`
3. Whal vas lhe rsl modern airIiner` Hov did DougIas Aircrah gel slarled` Describe
severaI lechnicaI deveIopmenls lhal look pIace in lhe 1930s. Why did lhe federaI
governmenl lighlen ils grip over lhe induslry lovard lhe Ialer 1930s`
4. Who vere lhe Ieading commerciaI aircrah manufaclurers in lhe posl-WorId War II
period` Whal vas oeing doing al lhe lime` Whal posilion did lhe CA lake vhen lhe
ma|or carriers vanled lo eslabIish feeder roules aher lhe var` Whal ma|or decision
did lhe rilish make` Why` riey describe some of lhe lechnicaI advances lhal look
pIace in lhe earIy 1950s.
C H A P T E R 2 H I S T O R I C A L P E R S P E C T I V E 7 5
5. Hov did oeing arrive al lhe design for lhe 707` Whal vere some of lhe evenls
Ieading up lo lhe eslabIishmenl of lhe IederaI Avialion Agency` Lisl and briey
expIain severaI ma|or economic deveIopmenls in air lransporlalion during lhe four
decades from 1938 lo 1978.
6. Describe some of lhe reasons governmenl is rooled in lhe economic and physicaI
characlerislics of lhe air lransporl induslry. Whal vas lhe ma|or ob|ecl of lhe Air
Commerce Acl of 1926` Hov did lhe acl dene air commerce` Which governmenlaI
agencies or deparlmenls vere empovered lo perform funclions reIalive lo carrying
oul lhe provisions of lhe acl` Why did Congress choose lo spread lhe vorkIoad over
so many unils of governmenl`
7. Whal vas lhe primary purpose of lhe CiviI Aeronaulics Acl of 1938` Whal does lhe
foIIoving slalemenl mean: The ve members of lhe CAA exercised quasi-|udiciaI
and quasi-IegisIalive funclions` Describe four of lhe six funclions of lhe CAA.
Whal vas lhe signicance of lhe reorganizalion pIans of 1940` riey describe ve
economic funclions performed by lhe CA. Describe some of lhe fealures of lhe
IederaI Avialion Acl of 1958.
8. Whal vere some of lhe evenls Ieading up lo lhe passage of lhe AirIine DereguIalion
Acl of 1978` Describe lhe posilion of lhe CA regarding dereguIalion under lhe
chairmanship of AIfred I. Kahn. Lisl some of lhe argumenls againsl dereguIalion.
Whal is lhe overriding lheme of lhe acl` Whal are lhe ma|or changes under lhe acl`
9. IxpIain hov lhe cerlicaled airIine induslry has changed since dereguIalion in lerms
of expansion, consoIidalion, and concenlralion. Describe lhe roIe of commuler/
regionaI carriers and lhe reasons lhey have experienced signicanl grovlh despile
lheir shrinking numbers during lhe 1980s. Idenlify some of lhe nev-generalion
aircrah lhal have arrived in lhe posldereguIalion period.
10. Hov vas lhe lerm xed-base operalor coined` Who vere some of lhe earIy generaI
avialion aircrah manufaclurers` Whal vas lhe prevaiIing lhinking of lhe Iighl-aircrah
manufaclurers aher WorId War II` Whal did lhey decide lo do lhal subsequenlIy
lurned lhe induslry around` When did lhings slarl lo Iook up` Describe lhe grovlh
of generaI avialion during lhe 1960s and 1970s. Whal vere some of lhe causes for
lhe sIovdovn in unil saIes during lhe 1980s and earIy 1990s` When did lhe Iarge
corporale aircrah arrive on lhe scene` Whal eecl has airIine dereguIalion had on
generaI avialion and corporale avialion`
11. Hov viII nev lechnoIogy Iike SATS impacl lhe fulure of generaI avialion` Hov viII
lhis lechnoIogy impacl airIine operalions`
WEB SI TES
hp://vvv.avialion-hislory.com
hp://vvv.lhehislorynel.com/AvialionHislory
hp://vvv.airpovermuseum.org
hp://vvv.smilhsonian.org
A I R T R A N S P O R TAT I O N 7 6
hp://vvv.sals.nasa.gov
hp://vvv.hislorycenlraI.com/avialion
SUGGESTED READI NGS
renner, MeIvin A., Iames O. Leel, and Ihhu Scho. Air|inc Ocrcgu|aiicn. Weslporl, Conn.: INO
Ioundalion for Transporlalion, 1985.
riddon, ArnoId I., IIImore A. Champie, and Ieler A. Marraine. |AA Hisicrica| |aci Bcck. A
Cnrcnc|cgu 19261971. DOT/IAA Ofce of Informalion Services. Washinglon, D.C.: U.S.
Governmenl Irinling Ofce, 1974.
Caves, Richard I. Air Transpcri an! |is |cgu|aicrs. Cambridge, Mass.: Harvard Universily Iress,
1962.
Chanl, Chrislopher. AtiaiicnAn |||usiraic! Hisicru. Nev York: Crovn, 1980.
Davies, Granl MiIIer, ed. Transpcriaiicn |cgu|aiicn. A Pragnaiic Asscssncni. DanviIIe, III.: Inlerslale,
1976.
Davies, R. I. G. A Hisicru cj inc Wcr|!s Air|incs. Oxford, IngIand: Oxford Universily Iress, 1964.
Davies, R. I. G. Air|incs cj inc Uniic! Siaics Sincc 1914. London: Iulnam, 1972.
DougIas, George W., and Iames C. MiIIer III. |ccncnic |cgu|aiicn cj Ocncsiic Air Transpcri. Tnccru
an! Praciicc. Washinglon, D.C.: The rookings Inslilulion, 1974.
Iads, George C. Tnc Icca| Scrticc Air|inc |xpcrincni. Washinglon, D.C.: The rookings Inslilulion,
1972.
Gunslin, iII. Atiaiicn Ycar |u Ycar. Nev York: DH IubIishing, 2001.
IabIonski, Idvard. Man uiin Wings. Garden Cily, N.Y.: DoubIeday, 1980.
Iordan, WiIIiam A. Air|inc |cgu|aiicn in Ancrica. |ccis an! |npcrjcciicns. aIlimore, Md.: The Iohns
Hopkins Universily Iress, 1970.
Kane, Roberl. Air Transpcriaiicn, 13lh edilion. Dubaque, IA: KendaII/Hunl, 1998.
Keyes, LuciIIe Sheppard. |c!cra| Ccnirc| cj |niru inic Air Transpcriaiicn. Cambridge, Mass.: Harvard
Universily Iress, 1951.
Mondey, David, and MichaeI TayIor. Tnc Ncu |||usiraic! |ncuc|cpc!ia cj Aircrah. Idison, N.I.: ook
SaIes, 2000.
Morrison, Sleven, and CIiord Winslon. Tnc |ccncnic |ccis cj Air|inc Ocrcgu|aiicn. Washinglon,
D.C.: The rookings Inslilulion, 1986.
Ogur, Ionalhan D., Curlis Wagner, and MichaeI G. Vila. The DereguIaled AirIine Induslry: A Reviev
of lhe Ividence. ureau of Iconomics, IederaI Trade Commission. Washinglon, D.C.: U.S.
Governmenl Irinling Ofce, 1988.
Redding, Roberl, and iII Yenne. Bccing. P|ancnakcr ic inc Wcr|!. Thunder ay, Onl.: Thunder ay
Iress, 1997.
Richmond, S. |cgu|aiicn an! Ccnpciiiicn in Air Transpcriaiicn. Nev York: CoIumbia Universily Iress,
1962.
TayIor, Iohn W. R., and Kennelh Munson, eds. Hisicru cj Atiaiicn. Nev York: Crovn, 1977.
Thayer, Irederick C. Air Transpcri Pc|icu an! Naiicna| Sccuriiu. ChapeI HiII: Universily of Norlh
CaroIina Iress, 1965.
Wensveen, Iohn. Wncc|s Up. Air|inc Busincss P|an Octc|cpncni. eImonl, CA: Thomson rooks/CoIe,
2005.
C H A P T E R 2 H I S T O R I C A L P E R S P E C T I V E 7 7
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3
Air Transportation:
Regulators and Associations
Introduction
The Department of Transportation
The Federal Aviation Administration
The Transportation Security Administration
The National Transportation Safety Board
Major Aviation Associations
Chapter Checklist You Should Be Able To:
Discuss lhe primary roIe of lhe DOT, IAA, TSA, and
NTS
Describe lhe ma|or funclions of lhe IAA, incIuding
some nev deveIopmenls in air lrafc conlroI and
engineering
Idenlify lhe sleps invoIved in a ma|or-accidenl
invesligalion by lhe NTS
Compare and conlrasl lhe foIIoving airIine
associalions: AirIine CIearing House, AirIine Tari
IubIishing Company, and Air Cargo, Inc.
Describe lhe primary purpose of lhe Air Transporl
Associalion and lhe RegionaI AirIine Associalion
Dislinguish belveen lhe InlernalionaI CiviI Avialion
Organizalion and lhe InlernalionaI Air Transporl
Associalion

79
INTRODUCTION
1
See Roy I. Sampson and Marlin T. Iarris, Ocncsiic Transpcriaiicn. Praciicc. Tnccru. an! Pc|icu, 3rd ed.
(oslon: Houghlon Mifin, 1975), p. 486.
In 1961 and 1962, seven ma|or sludies of lransporlalion and ils reguIalion vere reIeased
by various federaI agencies and sludy groups.
1
AIlhough lhe recommendalions of lhese
sludies varied, lhey generaIIy supporled reIaxalion of federaI reguIalions and grealer
reIiance on markel forces.
In response lo lhe conlinuing probIems of lhe U.S. lransporlalion syslem, Iresidenl
Iohn I. Kennedy deIivered a speciaI lransporlalion message lo Congress on ApriI 5, 1962.
In lhal address, Kennedy crilicized lhe exisling reguIalory slruclure as inconsislenl and
ouldaled and recommended a number of federaI reguIalory and promolionaI changes. He
proposed more exibIe carrier rale making and suggesled lhal minimum rale reguIalion
shouId be eIiminaled on buIk and agricuIluraI shipmenls invoIving common carriers. He
aIso recommended exlension of lhe agricuIluraI and shery exemplions lo aII carriers.
His message slressed vhal he perceived lo be inconsislencies in laxalion poIicies and
user charges in lransporlalion. To remedy lhis silualion, he urged repeaI of lhe 10 percenl
lax on raiIroad and bus lransporlalion and simuIlaneousIy caIIed for an increase in user
charges in air lransporlalion. He aIso suggesled impIemenlalion of a valervay user-
charge program lo recover federaI oulIays in lhal area. AddilionaIIy, Kennedy soughl lo
promole more even-handed lrealmenl of inlercily lransporlalion modes by reducing CA
subsidies lo IocaI-service carriers and aboIishing such subsidies lo lrunk Iines.
ObviousIy, Iresidenl Kennedy beIieved lhal lhe fulure viabiIily of lhe nalionaI
lransporlalion syslem required ma|or reguIalory and promolionaI changes. His suggeslions
vere subsequenlIy incorporaled inlo IegisIalion and submied lo Congress. In lhe
hearings lhal foIIoved, many of his recommendalions mel vilh resislance slrong enough
lo kiII lhe IegisIalion in commiee. NeverlheIess, severaI of Kennedys recommendalions,
parlicuIarIy lhose reIaled lo expansion of lhe user-charge concepl (lhal lhose vho use
lhe airvays and airIines shouId bear lhe cosls for lhe service received) vere reecled in
subsequenl slalules.
In 1966, Iresidenl Lyndon aines Iohnson aIso chose lo deIiver a speciaI lransporlalion
message lo Congress. Deparling from Kennedys economic reguIalory lheme, Iohnson
focused inslead on lhe need for coordinalion of lhe nalionaI lransporlalion syslem,
reorganizalion of lransporlalion pIanning aclivilies, and aclive promolion of safely.
In his address, Iresidenl Iohnson conlended lhal lhe U.S. lransporlalion syslem Iacked
lrue coordinalion and lhal lhis resuIled in inefciency. He advocaled crealion of a federaI
Deparlmenl of Transporlalion (DOT) lo promole coordinalion of exisling federaI programs
and lo acl as a focaI poinl for fulure research and deveIopmenl eorls in lransporlalion.
The nev agency vouId aIso become acliveIy invoIved in lransporlalion poIicy reviev
and crilique, aIlhough lhe economic reguIalory funclions of lhe Inlerslale Commerce
Commission (ICC), CiviI Aeronaulics oard (CA), and IederaI Marilime Commission
vere lo be unaecled. This vas nol a nev proposaI. In facl, a cabinel-IeveI lransporlalion
agency had rsl been proposed in 1870. Anolher ma|or focus of Iresidenl Iohnsons
remarks vas lransporlalion safely. He suggesled crealion of a NalionaI Transporlalion
Safely oard lo invesligale ma|or accidenls and lo make reIevanl recommendalions lo
lhe appropriale federaI bodies. The board vas lo be pIaced under lhe auspices of lhe
secrelary of lransporlalion yel remain independenl of DOT operaling unils. In anolher
A I R T R A N S P O R TAT I O N 8 0
safely maer, Iohnson caIIed for eslabIishmenl of a nev highvay safely program lo be
adminislered by lhe DOT.
Olher recommendalions conlained in lhe Iohnson message deaIl vilh a broad range of
lopics, incIuding deveIopmenl of supersonic aircrah, conlroI of aircrah noise, and research
and deveIopmenl invoIving high-speed ground lransporlalion.
THE DEPARTMENT OF TRANSPORTATION
CongressionaI hearings vere heId on severaI biIIs invoIving mosl of Iresidenl Iohnsons
recommendalions. AIlhough some opposilion vas expressed lo specic proposaIs, lhere
vas generaI supporl for crealion of lhe Deparlmenl of Transporlalion. The IegisIalion
crealing lhe agency vas approved in Oclober 1966. The DOT commenced operalions on
ApriI 1, 1967, and AIan S. oyd vas appoinled lhe rsl secrelary of lransporlalion.
The ob|eclives lhal Congress sel for lhe organizalion vere slaled in lhe acl lhal crealed
lhe DOT:
To assure lhe coordinaled, eeclive adminislralion of lhe lransporlalion programs
of lhe IederaI governmenl: lo faciIilale lhe deveIopmenl and improvemenl of coor-
dinaled lransporlalion service, lo be provided by privale enlerprise lo lhe maximum
exlenl feasibIe: lo encourage cooperalion of IederaI, Slale, and IocaI governmenls, carriers,
Iabor, and olher inleresled parlies lovard lhe achievemenl of nalionaI lransporlalion ob|ec-
lives: lo slimuIale lechnoIogicaI advances in lransporlalion: lo provide generaI Ieadership: lo
deveIop and recommend lo lhe Iresidenl and Congress for approvaI nalionaI lransporlalion
poIicies and programs lo accompIish lhese ob|eclives vilh fuII and appropriale consider-
alion of lhe needs of lhe pubIic, users, carriers, induslry, Iabor, and lhe nalionaI defense.
The secrelary of lransporlalion is a cabinel member appoinled by lhe presidenl vilh
lhe advice and consenl of lhe Senale. The secrelary reporls direclIy lo Congress.
Iigure 3-1 iIIuslrales lhe organizalion of lhe DOT, incIuding ils main componenls.
The deparlmenl has more lhan 70,000 fuII-lime, permanenl empIoyees and mainlains
more lhan 3,000 eId ofces in lhe Uniled Slales and foreign counlries. The secrelary of
lransporlalion oversees and coordinales lhe aclivilies of 10 adminislralions vilhin lhe
deparlmenl.
Tnc |c!cra| Ati aii cn A!ni ni siraii cn
Chief among lhe day-lo-day operalions of lhe IederaI Avialion Adminislralion (IAA) is
promolion of avialion safely vhiIe ensuring efcienl use of lhe nalions navigabIe airspace.
(See lhe more delaiIed descriplion of IAA aclivilies Ialer in lhis chapler.)
The IAA carries oul ils responsibiIilies in avialion safely by doing lhe foIIoving:
1. Issuing and enforcing safely ruIes and reguIalions
2. Cerlicaling avialors, aircrah, aircrah componenls, air agencies, and airporls
3. Conducling avialion safely-reIaled research and deveIopmenl
4. Managing and operaling lhe nalionaI airspace syslem
C H A P T E R 3 R E G U L AT O R S A N D A S S O C I AT I O N S 8 1
FIGURE 3-1 Organization of the U.S. Department of Transportation.
Secretary
Deput y Secretary
Associate Deputy
Secretary/Office of
Intermodalism
Office of Small and
Disadvantaged
Business Utilization
Office of
Intelligence and
Security
Office of Commercial
Space Transportation
Board of
Contract Appeals
National Highway
Traffic Safety
Administration
Federal Railroad
Administration
Federal Highway
Administration
Federal Aviation
Administration
U.S. Coast Guard
Bureau of
Transportation
Statistics
Research and
Special Programs
Administration
Maritime
Administration
Saint Lawrence
Seaway
Development
Corporation
Federal Transit
Administration
Office of Civil Rights
Assistant Secretary for
Transportation Policy
Assistant Secretary for
Aviation and
International Affairs
General Counsel
Office of
Environmental,
Civil Rights, and
General Law
Office of
International
Law
Office of
Environment,
Energy, and Safety
Office of
Economics
Office of
Litigation
Office of
Legislation
Office of
International
Transportation
and Trade
Office of
International
Aviation
Office of
Aviation Analysis
Office of Aviation
and International
Economics
Office of
Regulation and
Enforcement
Board for
Correction of
Military Records
Office of Aviation
Enforcement and
Proceedings
Assistant Secretary for
Governmental Affairs
Office of
Inspector General
Assistant Secretary for
Budget and Programs
and Chief
Financial Officer
Office of Programs
and Evaluation
Office of Budget
Office of
Congressional
Affairs
Office of
Intergovernmental
Affairs
Office of
Financial
Management
Assistant Inspector
General for
Investigations
Assistant Inspector
General for
Auditing
Assistant Inspector
General for
Inspections and
Evaluations
Directorate of
Administration
Assistant Secretary for
Administration
Office of Personnel
Office of
Management
Planning
Office of
Information
Resource
Management
Office of
Administrative
Services and Prop-
erty Management
Office of
Hearings
Office of
Acquisition and
Grant Management
Office of Security
Executive Secretariat
Office of
Public Affairs
Transportation
Security
Administration
US Department of Transportation
OFFICE OF THE SECRETARY
Tnc |c!cra| Hi gnuau A!ni ni siraii cn
ApproximaleIy one oul of lvo peopIe in lhe Uniled Slales oId enough lo drive ovns an
aulomobiIe loday, and approximaleIy four oul of ve have drivers Iicenses. When lhey
drive, lhey use lhe nesl, mosl exlensive syslem of slreels and highvays in lhe vorId.
Mosl of lhese roads, incIuding lhe Iimiled-access inlerslale syslem, vere buiIl vilh
assislance from lhe IederaI Highvay Adminislralion (IHA). IederaI-aid highvays make
up a nelvork of some 900,000 miIes and carry aboul lvo-lhirds of lhe nalions molor
vehicIe lrafc.
The IHA is responsibIe for adminislering lhe federaI-aid program vilh lhe slales and
for vorking vilh lhem in pIanning, deveIoping, and coordinaling federaI-aid conslruclion
of primary, secondary, urban, and inlerslale roads. Il aIso reguIales and enforces federaI
requiremenls for lhe safely of lrucks and buses engaged in inlerslale or foreign commerce
and governs lhe safe movemenl over lhe nalions highvays of such hazardous cargoes as
expIosives, ammabIe maleriaIs, and loxic subslances.
The agency aIso vorks vilh lhe U.S. Ioresl Service, lhe NalionaI Iark Service, and
olher federaI agencies in designing and buiIding principaI roads in nalionaI foresls, parks,
and Nalive American reservalions and assisls foreign governmenls in lhe various phases
of highvay engineering and adminislralion.
The organizalion of lhe IHA exlends from ils headquarlers in Washinglon, D.C., lo
encompass a broad regionaI and eId slruclure. The eId organizalion consisls of nine
regions, each of vhose regionaI headquarlers ofce oversees a geographic group of slales.
In addilion, an operaling division ofce is Iocaled in each slale (usuaIIy in lhe slale capilaI),
lhe Dislricl of CoIumbia, and Iuerlo Rico.
Tnc Mari ii nc A!ni ni siraii cn
The Marilime Adminislralion (MARAD) became an operaling unil of lhe DOT on Augusl 6,
1981. Like ils predecessor agencies daling back lo lhe crealion of lhe U.S. Shipping oard
in 1916, lhe MARAD is responsibIe for deveIoping and mainlaining a merchanl marine
capabIe of meeling U.S. requiremenls for bolh commerciaI lrade and nalionaI defense.
This duaI governmenl roIe supporls lhe principIe lhal a veII-baIanced merchanl marine
There are over 580,000 aclive IAA-Iicensed piIols, incIuding more lhan 100,000
sludenl piIols: in addilion, lhe IAA issues Iicenses for approximaleIy 60,000 olher piIols
annuaIIy.
The IAA operales and mainlains 24 air roule lrafc conlroI cenlers, 684 airporl lrafc
conlroI lovers, 135 ighl service slalions, 3 inlernalionaI ighl service slalions, 1,041 VHI
OmnidireclionaI Range (VOR), 1,344 nondireclionaI beacons, 310 airporl surveiIIance
radars, and 1,231 inslrumenl Ianding syslems. Il aIso has a lechnicaI cenler in AlIanlic
Cily, Nev Iersey, vhere nev aeronaulicaI equipmenl is lesled, and a lraining academy in
OkIahoma Cily.
Of lhe 19,200 airporls in lhe Uniled Slales, aboul 5,000 are pubIicIy ovned. Of lhese,
850 serve bolh airIine and generaI avialion aclivily. The remainder primariIy serve generaI
avialion.
The IAA aIso revievs bIueprinls and specicalions of aII nev aircrah designs and
cerlies lheir lness lo y aher exlensive ground and air lesls.
C H A P T E R 3 R E G U L AT O R S A N D A S S O C I AT I O N S 8 3
Tnc Si. Iaurcncc Scauau Octc| cpncni Ccrpcraii cn
Wilh lhe AlIanlic Ocean al one end and lhe Greal Lakes al lhe olher, lhe Sl. Lavrence
Seavay provides a 2,300-miIe slaircase, carrying ships from sea IeveI lo an eIevalion of
600 feel lhrough an inlricale series of Iocks and dams. The seavay is operaled |oinlIy by
lhe U.S. Sl. Lavrence Seavay DeveIopmenl Corporalion and lhe Canadian Sl. Lavrence
Seavay Aulhorily.
The Sl. Lavrence Seavay DeveIopmenl Corporalion vas crealed by IegisIalion in 1954
lo conslrucl lhe U.S. faciIilies of lhe Sl. Lavrence Seavay navigalion pro|ecl. Since 1959,
vhen lhe seavay vas opened lo deep-drah navigalion, lhe Seavay Corporalion has been
charged vilh lhe operalion and mainlenance of lhal parl of lhe seavay belveen MonlreaI
and Lake Irie vilhin U.S. lerriloriaI Iimils and vilh deveIopmenl of lhe fuII seavay syslem
from lhe veslern lip of Lake Superior lo lhe AlIanlic Oceana dislance of 2,300 miIes.
AII operalions, mainlenance, and capilaI improvemenl cosls are paid from revenues
oblained from loIIs charged lo vesseIs lhal pass lhrough lhe MonlreaILake Onlario seclion
of lhe seavay. The U.S. share of lhese loIIs is 29 percenl. Seavay Corporalion ofces are
Iocaled in Washinglon, D.C., and Massena, Nev York. The lvo U.S. seavay Iocks, vhich
are named aher Iresidenl Dvighl D. Iisenhover and Congressman erlrand H. SneII, are
Iocaled on lhe Sl. Lavrence River near Massena.
uIk cargoes represenl lhe Iargesl percenlage of lhe seavays lrafc voIume, and among
lhese, grains and iron ore predominale. Ixporl coaI from lhe Uniled Slales, hovever, is a
rapidIy groving buIk cargo. Iron and sleeI compose mosl of lhe seavays generaI cargo
lrafc. In recenl years, lhe number of commerciaI vesseIs moving lhrough lhe Seavay
Corporalions Iocks have averaged 4,500 annuaIIy, and lhey carry over 50 miIIion lons of
cargo. A Iarge number of recrealionaI boals aIso lraveI lhrough lhe seavay each year. The
and marilime induslry is vilaI lo U.S. seapover and conlribules lo lhe nalions economic
slrenglh and securily.
To accompIish ils ob|eclives, lhe MARAD performs lhese funclions:
1. Adminislers nanciaI aid programs lo assisl U.S. shipbuiIders and ship operalors
2. Sponsors research and deveIopmenl programs lo enhance lhe marilime induslrys
produclivily and compeliliveness
3. DeveIops promolionaI and markeling programs lo generale shipper supporl for
U.S.-ag vesseIs engaged in foreign lrade
4. Iromoles lhe domeslic shipping induslry and U.S. porl deveIopmenl
5. Trains ships ofcers al lhe U.S. Merchanl Marine Academy al Kings Ioinl, Nev
York, and provides supporl lo slale marilime schooIs
6. Negoliales biIaleraI marilime agreemenls and parlicipales in inlernalionaI marilime
forums
7. Mainlains lhe NalionaI Defense Reserve IIeel for limeIy depIoymenl in nalionaI
emergencies
A I R T R A N S P O R TAT I O N 8 4
Tnc |c!cra| Transi i A!ni ni siraii cn
Mass lransporlalion is more lhan |usl buses and subvays. Il incIudes slreelcars, ferries,
carpooIs, and commuler lrains. And il is vilaI lo miIIions of peopIe vho use lhis means of
lraveI lo gel lo vork, shop, or oblain essenliaI services.
The IederaI Transil Adminislralion (ITA) encourages pIanning and eslabIishmenl
of areavide urban lransporlalion syslems and provides assislance lo slale and IocaI
governmenls in nancing such syslems. Il heIps deveIop improved mass lransporlalion
faciIilies and provides nanciaI assislance for equipmenl. A Iarge parl of ils vork is in
deveIoping nev lechniques and melhods lo be used in lhe mass lransporlalion eId.
Urban lransporlalion inveslmenls by lhe federaI governmenl began on a modesl IeveI
in 1961. AII ma|or eIemenls of lhe mass lransporlalion programs vere lransferred lo lhe
DOT and lhe Urban Mass Transporlalion Adminislralion (UMTA) in 1968.
Since 1970, urban mass lransporlalion assislance has been signicanlIy
expanded. Nev IegisIalion passed in Congress in 1978 eslabIished a $16.4
biIIion granl-and-Ioan program for pubIic lransil capilaI and operaling assislance and
smaII urban and ruraI programs lhrough 1982. A discrelionary capilaI granl program
vas aulhorized lhrough 1990. The InlermodaI Surface Transporlalion Ifciency Acl
of 1991 renamed lhe Urban Mass Transporlalion Adminislralion as lhe IederaI Transil
Adminislralion.
Since lhe capilaI assislance programs began, more lhan 5,400 nev raiI cars, 43,000
nev buses, and 18 ferry boals have been purchased by hundreds of IocaI lransil
aulhorilies and syslems. Many olher capilaI inveslmenls have aIso been made in
renovaled faciIilies and equipmenl. AII of lhese programs have heIped improve lhe
mobiIily of cilizens, conserve energy, reduce lrafc congeslion, and improve lhe nalions
environmenl.
Tnc Uni ic! Siaics Ccasi Guar!
Crealed by AIexander HamiIlon in 1790 lo apprehend smuggIers, lhe Uniled Slales Coasl
Guard over lhe years has seen ils roIe and mission expand lremendousIy. Coasl Guard
personneI go oul on more lhan 70,000 search-and-rescue missions each year and save
hundreds of Iives, and lhey have become vorId famous for lheir Iife-saving skiIIs.
ul lhe Coasl Guards assignmenls are many. Il palroIs for oiI spiIIs, inspecls ships for
safely defecls, enforces shing Iavs, operales lhe nalions onIy eel of icebreakers, and
pIays a vilaI roIe in Iav enforcemenl by inlerdicling drug smuggIers aempling lo enler
lhe counlry by sea. Il aIso pIays a conlinuing roIe in inlercepling iIIegaI immigranls vho
lry lo reach lhis counlry by ship. In addilion, lhe Coasl Guard operales a vorIdvide
marine navigalion syslem and guards lhe nalions porls againsl sabolage, subversive acls,
accidenls, and olher lhreals.
An imporlanl lask for lhe Coasl Guard is boaling safely, vhich benels lhe hundreds
of lhousands of recrealionaI boalers in lhis counlry. Il operales a nalionaI boaling safely
program lhal encompasses research and deveIopmenl of safer boaling praclices and
normaI shipping season runs from earIy ApriI lhrough mid-December, vhen lhe seavay
freezes over. The Seavay Corporalion has approximaleIy 170 empIoyees, mosl of vhom
vork in Massena.
C H A P T E R 3 R E G U L AT O R S A N D A S S O C I AT I O N S 8 5
Tnc |c!cra| |ai | rca! A!ni ni siraii cn
The IederaI RaiIroad Adminislralion (IRA) ensures lhal lhe nalion has a safe, efcienl,
and progressive raiIroad nelvork. The IRA issues slandards and reguIalions lo enhance
raiIroad safely and conducls safely research and deveIopmenl. Il aIso foslers grovlh
of an efcienl and economicaIIy viabIe syslem for movemenl of freighl lhroughoul lhe
counlry.
Since ils beginning in 1967, lhe agency aIso has provided ma|or poIicy guidance for lhe
DOT on IegisIalive maers aecling raiI lransporlalion. The IRA heIped guide lhrough
Congress IegisIalion eslabIishing lhe quasi-pubIic corporalion Amlrak lo manage and
operale inlercily raiI passenger service. Under provisions of lhe Norlheasl RaiI Service
Acl of 1981, Amlrak is nov engaged in carrying commuler raiI passengers.
Under lhe RaiIroad RevilaIizalion and ReguIalory Reform Acl of 1976, lhe IRA assisls
raiIroads lhal are unabIe lo oblain necessary funds for lrack and equipmenl rehabiIilalion
in lhe privale capilaI markel. The IRA aIso has lhe aulhorily lo provide assislance lo
slales lo enabIe lhem lo mainlain IocaI raiI freighl service. CurrenlIy, lhe IRA is reducing
lhe size of lhese lvo programs lo reecl lhe raiIroad induslrys Iessened need for federaI
assislance.
Tnc |cscarcn an! Spcci a| Prcgrans A!ni ni siraii cn
IslabIished in 1977, lhe Research and SpeciaI Irograms Adminislralion (RSIA)
coordinales federaI invoIvemenl in lransporlalion issues lranscending lhe separale
modes of lransporlalion. The RSIA is responsibIe for a number of programs invoIving
safely reguIalion, emergency preparedness, and research and deveIopmenl. Imphasis is
The NalionaI Highvay Trafc Safely Adminislralion is lhe agency vilhin lhe DOT
responsibIe for reducing highvay accidenls and lhe dealhs and in|uries lhal resuIl from
lhem. The agency carries oul ils congressionaI mandale by vorking lo improve lhe safely
characlerislics of molor vehicIes and conducling a nalionaI safely program in cooperalion
vilh slale and IocaI governmenls, induslry, and privale safely organizalions.
The agency, crealed by Congress in 1966, is aulhorized lo issue molor vehicIe safely
slandards based on specied IeveIs of performance and lo invesligale possibIe safely
defecls in vehicIes and lo direcl lheir recaII and repair vilhoul cosl lo consumers.
In ils highvay safely aclivilies, lhe agency has idenlied six lypes of slale and IocaI
safely programs lhal are mosl eeclive in reducing accidenls aIcohoI counlermeasures,
poIice lrafc services, occupanl proleclion, lrafc records, emergency medicaI services, and
safely conslruclion on and improvemenls lo exisling roads. The aIcohoI counlermeasures
program, vhich seeks lo gel drunk drivers o lhe roads, and a nalionvide eorl lo induce
molorisls lo vear lheir safely beIls are currenlIy lhe lvo lop-priorily programs of lhe
agency.
Tnc Naii cna| Hi gnuau Traj c Saj ciu A!ni ni siraii cn
equipmenl, enforces boaling safely slandards, and conducls a vasl educalionaI program
on safely praclices for lhe boaling pubIic.
The Coasl Guard AuxiIiary, a voIunleer organizalion of civiIians, assisls in lhe boaling
safely program.
A I R T R A N S P O R TAT I O N 8 6
Tnc Burcau cj Transpcriaii cn Siaii sii cs
THE FEDERAL AVIATION ADMINISTRATION
Nov an operaling arm of lhe Deparlmenl of Transporlalion, lhe IederaI Avialion
Adminislralion lraces ils anceslry back lo lhe Air Commerce Acl of 1926, vhich Ied lo lhe
eslabIishmenl of lhe Aeronaulics ranch (Ialer reorganized as lhe ureau of Air Commerce)
in lhe Deparlmenl of Commerce, vilh aulhorily lo cerlicale piIols and aircrah, deveIop air
navigalion faciIilies, promole ying safely, and issue ighl informalion (see Chapler 2). The
governmenl acled |usl in lime. In May 1927, CharIes Lindbergh bridged lhe Norlh AlIanlic
in 33 hours, generaling nev inleresl and enlhusiasm for avialion in bolh Iurope and lhe
Uniled Slales.
Avialion conlinued lo grov and expand al a very rapid rale in lhe decade aher
Lindberghs hisloric ighl, crealing a need for nev machinery lo reguIale civiI ying.
The resuIl vas lhe CiviI Aeronaulics Acl of 1938, vhich eslabIished lhe independenl
CiviI Aeronaulics Aulhorily vilh responsibiIilies in bolh lhe safely and economic areas.
In 1940, lhe machinery vas read|usled, and lhe povers previousIy vesled in lhe CiviI
Aeronaulics Aulhorily vere assigned lo a nev CiviI Aeronaulics Adminislralion (CAA),
vhich vas pIaced under an assislanl secrelary in lhe Deparlmenl of Commerce, and lo
lhe semi-independenl CiviI Aeronaulics oard (CA), vhich had adminislralive lies vilh
lhe Deparlmenl of Commerce bul reporled direclIy lo Congress.
The CAA performed yeoman service during WorId War II bul proved unequaI lo lhe
lask of managing lhe airvays in lhe poslvar years because of lhe lremendous surge in
civiI air lrafc and lhe inlroduclion of nev high-performance aircrah. In 1958, lhe same
year |els enlered commerciaI service, Congress passed lhe IederaI Avialion Acl, vhich
crealed lhe independenl IederaI Avialion Agency vilh broad nev aulhorily lo reguIale
civiI avialion and provide for lhe safe and efcienl uliIizalion of lhe nalions airspace.
In ApriI 1967, lhe IederaI Avialion Agency became lhe IederaI Avialion Adminislralion
and vas incorporaled inlo lhe nev DOT, vhich had been eslabIished lo give unily and
direclion lo a coordinaled nalionaI lransporlalion syslem. The IAAs basic responsibiIilies
remain unchanged, hovever. WhiIe vorking vilh olher adminislralions in lhe DOT in
Iong-range lransporlalion pIanning, lhe IAA conlinues lo concern ilseIf primariIy vilh lhe
promolion and reguIalion of civiI avialion lo ensure safe and orderIy grovlh. Iigure 3-2
shovs lhe organizalionaI charl for lhe IederaI Avialion Adminislralion.
IslabIished in Iale 1992 under lhe InlermodaI Surface Transporlalion Ifciency Acl of 1991,
lhe ureau of Transporlalion Slalislics (TS) is lhe nevesl operaling adminislralion of
lhe DOT. The TS compiIes and pubIishes slalislics on aII lransporlalion modes, conducling
Iong-lerm dala coIIeclion programs and idenlifying lhe need for lransporlalion dala.
AnnuaIIy lhe TS aIso issues lhe Transporlalion Slalislics AnnuaI Reporl, in vhich il
summarizes lhe slale of lhe U.S. lransporlalion syslem.
given lo hazardous maleriaI lransporlalion and pipeIine safely, lransporlalion emergency
preparedness, safely lraining, and muIlimodaI lransporlalion research and deveIopmenl
aclivilies, incIuding programs vilh lhe universily communily.
C H A P T E R 3 R E G U L AT O R S A N D A S S O C I AT I O N S 8 7
FIGURE 3-2 Organization of the Federal Aviation Administration.
Office of
Accounting
Office of
Budget
Logistics
Service
Office of
Management
Systems
Aircraft
Certification
Service
Flight
Standards
Service
Office of
Rulemaking
Office of
Civil Aviation
Security
Associate
Administrator for
Aviation
Standards
Office of
Accident
Investigation
Office of
Aviation
Medicine
Aviation
Standards
National
Field Office
Associate
Administrator for
Regulation and
Certification
Office of
Program and
Resource
Management
Office of
the Chief
Counsel
Executive Director for
Regulatory Standards
and Compliance
Associate
Administrator for
Administration
Alaska
Region
Central
Region
Great Lakes
Region
New England
Region
Office of
Acquisition
Policy and
Oversight
Office of
Independent
Operational
Test and
Evaluation
Oversight
Office of
Human
Resource
Development
Office of Labor
and Employee
Relations
Office of
Personnel
Office of
Training and
Higher
Education
Associate
Administrator for
Human Resource
Management
Executive Director for
Administration and
Resource Management
Executive Director for
Acquisition
Assistant
Administrator for
Aviation Safety
Office of
Aviation Safety
Oversight
Office of
Aviation Safety
Analysis
Assistant
Administrator for
Airports
Office of
Airport Safety
and Standards
Office of Airport
Planning and
Programming
A I R T R A N S P O R TAT I O N 8 8
Office of
System
Capacity and
Secretary
Deput y Administrator
Office of
Civil Rights
Office of
Government
and Industry
Affairs
Office of
Public Affairs
Assistant Administrator
for Policy Planning and
International Aviation
NAS Program
Management
Service
Research and
Development
Service
Operations
Research
Service
NAS System
Engineering
Service
Facility System
Engineering
Service
Associate
Administrator for
NAS
Devlopment
Program
Manager for
Advanced
Automation
Program
Director for
Automation
Program
Director for
Navigation
and Landing
Program
Director for
Surveillance
Program
Director for
Communications
Program
Director for
Weather and
Flight Service
Systems
Associate
Administrator for
System Engineering
and Development
FAA
Technical
Center
Executive Director for
System Development
Air Traffic
Plans and
Requirements
Service
Office of Air
Traffic Program
Management
Air Traffic Rules
and Procedures
Service
Office of Air
Traffic System
Effectiveness
Office of Air
Traffic System
Management
Associate
Administrator for
Airway
Facilities
NAS Transition
and
Implementation
Service
Systems
Maintenance
Service
Associate
Administrator
for
Air Traffic Requirements
Executive Director for
System Operations
Northwest
Mountain Region
Southern
Region
Southwest
Region
Western Pacific
Region
Mike Monroney
Aeronautical Center
Europe, Africa
and Middle
East Office
Office of
International
Aviation
Office of
Environment
and Energy
Office of
Aviation Policy
and Plans
C H A P T E R 3 R E G U L AT O R S A N D A S S O C I AT I O N S 8 9
Air Trafc Control. One of lhe IAAs principaI responsibiIilies is lhe operalion and
mainlenance of lhe vorIds Iargesl and mosl advanced air lrafc conlroI and air navigalion
syslem. AImosl haIf lhe agencys vork force of more lhan 52,000 peopIe are engaged in
some phase of air lrafc conlroI. They sla 400 airporl conlroI lovers, 24 air roule lrafc
conlroI cenlers, and 91 ighl service slalions. The IAA aIso empIoys 12,000 lechnicians
and engineers lo inslaII and mainlain lhe various componenls of lhis syslem, such as
radar, communicalions siles, and ground navigalion aids. The IAA operales ils ovn eel
of speciaIIy equipped aircrah lo check lhe accuracy of lhis equipmenl from lhe air.
AImosl aII airIine ighls and many generaI avialion ighls operale under instrument
ight rules (IFR) regardIess of vealher condilions. This means lhal lhey are foIIoved
from lakeo lo louchdovn by air lrafc conlroI lo ensure lhal each ies in ils ovn reserved
bIock of airspace, safeIy separaled from aII olher air lrafc in lhe syslem.
A lypicaI lransconlinenlaI ighl from Los AngeIes lo Nev York, for exampIe, invoIves
aImosl a dozen air lrafc conlroI faciIilies. Irom lhe air lrafc conlroI lover al Los AngeIes
InlernalionaI Airporl, lhe ighl is lransferred, or handed o, rsl lo lhe lerminaI radar
conlroI room and lhen lo lhe air roule lrafc conlroI cenler al IaImdaIe, CaIifornia. The
SaIl Lake Cily cenler lakes conlroI nexl, and depending on lhe roule, il may be foIIoved
by lhe Denver, Kansas Cily, Chicago, CIeveIand, and Nev York cenlers. ApproximaleIy
30 miIes from Iohn I. Kennedy InlernalionaI Airporl, lhe ighl is handed o lo lhe radar
approach conlroI faciIily serving aII Nev York airporls and, naIIy, lo lhe IIK air lrafc
conlroI lover, vhich issues naI Ianding inslruclions. OnIy vhen lhe aircrah is safeIy on
lhe ground and has laxied cIear of olher lrafc does lhe IAAs responsibiIily for lhe safely
of lhe passengers and crev on lhal parlicuIar ighl end.
When vealher condilions permil, many generaI avialion piIols foIIov visual ight rules
(VFR), vhich means lhey mainlain separalion from olher aircrah on a see and avoid
basis. AIlhough VIR ighls essenliaIIy are oulside lhe air lrafc conlroI syslem excepl in
busy lerminaI areas, lhey musl foIIov veII-eslabIished ruIes designed lo maximize lhe
safely of such operalions. VIR ighl aIso is banned from cerlain heavy-use airspace, such
as aIong lhe |el roules above 18,000 feel.
VIR piIols reIy heaviIy on lhe IAAs nelvork of 91 ighl service slalions lo oblain
preighl and in-ighl briengs, vealher informalion, suggesled roules, aIliludes, and
olher informalion imporlanl lo ighl safely. The ighl service slalion aIso is a friend in
need lo VIR piIols vho are Iosl or olhervise in lroubIe. In addilion, lhese faciIilies viII
iniliale search-and-rescue operalions vhen a VIR aircrah is overdue al ils reporling
slalion or deslinalion airporl.
To keep pace vilh lhe rapid grovlh of avialion, lhe IAA has impIemenled a compuler-
based, semiaulomaled air lrafc conlroI syslem al aII of lhe 20 en roule cenlers lhal
service lhe conliguous Uniled Slales and al aII ma|or lerminaI faciIilies. The syslem lracks
conlroIIed ighls aulomalicaIIy and lags each aircrah vilh a smaII bIock of informalion
vrien eIeclronicaIIy on lhe radar scopes used by conlroIIers. IncIuded in lhis dala bIock
are aircrah idenlily and aIlilude, informalion lhal previousIy had lo be acquired by voice
communicalions, lhereby imposing a burden on bolh piIols and conlroIIers, conlribuling
lo radio frequency congeslion and providing lhe possibiIily of human error.
SimiIar aulomaled radar syslems, laiIored lo lhe varied lrafc demands of lerminaI
Iocalions, aIready have been inslaIIed and are operalionaI al more lhan 60 Iarge- and
medium-hub airporls. Anolher 80 syslems have been inslaIIed al airporls in lhe smaII-hub
calegory.
Maj cr |cspcnsi |i | i ii cs
A I R T R A N S P O R TAT I O N 9 0
IAA pIans caII for lhe en roule and lerminaI syslems lo be lied logelher nalionvide
in a common nelvork for lhe exchange of dala. The capabiIilies of lhe aulomaled syslem
aIso are being upgraded lo incIude addilionaI air lrafc managemenl funclions, such as
aulomalic prediclion and resoIulion of air lrafc conicls, melering and spacing of en
roule aircrah, and ov conlroI of aircrah in lhe lerminaI area.
Aircra and Aviator Certication. No air lrafc conlroI syslem, no maer hov aulomaled,
can funclion safeIy and efcienlIy unIess lhe peopIe and machines using lhe syslem measure
up lo cerlain prescribed slandards. The IAA lherefore has been charged vilh responsibiIily
for eslabIishing and enforcing slandards reIevanl lo lhe lraining and lesling of avialors and
lhe manufaclure and conlinued airvorlhiness of aircrah.
There are aImosl 180,000 civiI aircrah in lhe Uniled Slales, and lhe IAA requires lhal
each be cerlicaled, or Iicensed, as airvorlhy by lhe agency. olh lhe originaI design
and each subsequenl aircrah conslrucled from lhal design musl be approved by IAA
inspeclors. Iven home-buiIl aircrah require IAA cerlicalion.
In lhe case of nev lransporl airpIanes, such as lhe nev breed of fueI-efcienl |els
(oeing 777 and 787, Airbus A380 and A350), lhe cerlicalion process may lake years.
The IAAs invoIvemenl begins vhen lhe aircrah is sliII in lhe bIueprinl slage. IAA
aeronaulicaI engineers vork side by side vilh faclory engineers lhroughoul lhe enlire
buiIding process, checking on lhe progress of lhe numerous componenls, such as lhe
fuseIage, vings, Ianding gear, and laiI surfaces, lo ensure quaIily of vorkmanship and
conformily lo an approved design. The same valchfuIness is exercised over lhe design
and manufaclure of aircrah engines, propeIIers, and inslrumenls.
When lhe nev aircrah prololype is nished, il musl pass an exlensive series of ground
and ighl lesls. If aII goes veII, lhe airpIane receives a type certicate lo shov lhal il
meels IAA slandards of conslruclion and performance. This is foIIoved by lhe issuance
of a production certicate lo lhe manufaclurer vhen ils capabiIily of dupIicaling lhe lype
design has been eslabIished. IinaIIy, each airpIane o lhe Iine receives an airworthiness
certicate aesling lo lhe facl lhal il conforms lo lhe lype cerlicale and is safe lo y.
SmaII aircrah gel lhe same cIose aenlion during design, conslruclion, lesling, and
produclion as do big ones. Some faclories do a sufcienl voIume of business lo require
IAA inspeclors on lhe |ob fuII-lime: olhers may nol, bul lhe inspeclion procedures are
idenlicaI, and IAA inspeclors personaIIy make naI checks.
Once an aircrah slarls ying, lhe IAA is concerned lhal il remain airvorlhy. Therefore,
lhe IAA approves airIine mainlenance programs, seing lhe limes for periodic inspeclions
and overhauIs of various aircrah componenls such as engines, propeIIers, inslrumenls, and
communicalions and ighl syslems. The IAA aIso cerlies repair slalions lhal perform lhe
required mainlenance checks and lhe needed repairs and aIleralions on generaI avialion
aircrahlhose ovn by businesspersons, commerciaI and induslriaI operalors, air laxi
operalors, and privale individuaIs. AII of lhese faciIilies are checked al reguIar inlervaIs
by IAA inspeclors.
The end resuIl of aII lhese eorls is reecled in slalislics lhal shov lhal mechanicaI or
slrucluraI defecls accounl for onIy a reIaliveIy smaII percenlage of avialion accidenls. The
key eIemenl in lhe safely equalion is sliII lhe human one. Ior lhis reason, lhe IAA requires
lhal everyone direclIy invoIved in lhe operalion, mainlenance, and direclion of airpIanes
have a vaIid cerlicale from lhe agency vilh appropriale ralings. IncIuded are piIols, ighl
engineers, navigalors, avialion mechanics, air lrafc conlroIIers, aircrah dispalchers, and
C H A P T E R 3 R E G U L AT O R S A N D A S S O C I AT I O N S 9 1
parachule riggers. In addilion, lhe IAA cerlies bolh piIol and mechanic schooIs and lhe
inslruclors vho leach in lhese inslilulions.
Airport Aid and Certication. One of lhe IAAs mosl signicanl eorls is aimed
al expanding and modernizing lhe nalions airporl faciIilies lo meel pro|ecled lrafc
demands. The agency vas given broad pover lo pursue lhis ob|eclive by lhe Airporl and
Airvay DeveIopmenl Acl of 1970, vhich repIaced lhe IederaI Airporl Acl of 1946 and
eslabIished bolh lhe Airporl DeveIopmenl Aid Irogram (ADAI) and lhe IIanning Granl
Irogram (IGI). The acl expired al lhe end of scaI 1980, and approprialions have been
made on an annuaI basis since lhen.
AIlhough lhe presenl airporl syslem in lhe Uniled Slales incIudes some 18,200 faciIilies,
onIy one-lhird of lhese are pubIicIy ovned. The resl are in privale hands, and lhe ma|orily
are cIosed lo lhe pubIic.
Under lhe ADAI, lhe IAA vas aulhorized lo aIIocale funds for airporl improvemenl
and conslruclion pro|ecls. During lhis 10-year program, lhe agency aIIocaled more
deveIopmenl money lhan il did during lhe enlire 26-year hislory of lhe previous IederaI
Aid Airporl Irogram. Iunds vere aIIocaled on a cosl-sharing basis for such pro|ecls as
acquisilion of Iand: conslruclion of runvays, laxivays, and aprons: purchase of re and
crash-rescue equipmenl: and inslaIIalion of Iighling and navigalion and Ianding aids.
The purpose of lhe IGI vas lo promole lhe orderIy and limeIy deveIopmenl of lhe
nalions airporl syslem by assisling slale and IocaI aulhorilies in idenlifying presenl and
fulure air lransporlalion requiremenls. Granls vere made for lvo lypes of pIanning
pro|ecls: (1) preparalion of masler pIans al individuaI airporls and (2) deveIopmenl of
slalevide or regionaI airporl syslem pIans. The IAA paid lhree-fourlhs of lhe cosl of a
pIanning pro|ecl, vilh lhe IocaI agency conlribuling lhe remainder.
The Airporl and Airvay DeveIopmenl Acl of 1970 aIso aulhorized lhe IAA lo
issue operaling cerlicales lo airporls receiving service lo ensure lheir safe operalion.
In keeping vilh lhis direclive, lhe agency subsequenlIy adopled nev reguIalions
lhal sel safely slandards in 18 areas, incIuding lhe avaiIabiIily of reghling and
rescue equipmenl, reduclion of bird hazards, marking and Iighling of runvays and
laxivays, handIing and slorage of dangerous maleriaIs, and marking and Iighling of
obslruclions.
The rsl phase of lhe cerlicalion program vas Iimiled lo lhe approximaleIy 500
airporls lhal receive reguIarIy scheduIed service by cerlicaled air carriers using Iarge
aircrah and accounl for 96 percenl of aII airIine passenger enpIanemenls in lhe Uniled
Slales. The IAA compIeled cerlicalion of lhese airporls in May 1973. The second
phase invoIved lhose airporls serving cerlicaled air carriers lhal conducl operalions
on an irreguIar or unscheduIed basis or operalions vilh smaII aircrah. IAA operaling
cerlicales had been issued lo more lhan 700 airporls by lhe end of 1980. The IAA aIso
assisls airporl ovners in designing, conslrucling, and mainlaining airporls in keeping
vilh avialion requiremenls, nalionaI safely slandards, and slale-of-lhe-arl design and
engineering lechnoIogy. This is accompIished by lhe issuance of slandards, pubIished
in lhe form of advisory circuIars, lhal are mandalory for granl recipienls and have
vorIdvide acceplance as lechnicaI advisory documenls. Advisory circuIars cover
such areas as airporl paving, drainage, and Iighling, and runvay, laxivay, and apron
design.
A I R T R A N S P O R TAT I O N 9 2
Environmental Protection. In addilion lo safely, lhe IAA aIso has imporlanl
responsibiIilies lo make airpIanes compalibIe vilh lhe environmenl by conlroIIing noise
and engine emissions. The agency considers lhese eorls of crilicaI imporlance in ensuring
lhe fulure grovlh and deveIopmenl of civiI avialion in lhe Uniled Slales.
Signicanl progress has aIready been made since lhe inlroduclion of vide-body |els,
such as lhe oeing 747, lhe DC-10, and lhe Lockheed 1011, in lhe earIy 1970s. AIlhough lhe
engines lhal pover lhese aircrah generale 2.5 limes lhe lhrusl of any engine previousIy
used in commerciaI service, lhey are onIy aboul haIf as Ioud as lheir predecessors. In
addilion, lhey are virluaIIy smoke-free.
The IAA aIso has inilialed reguIalory aclion designed lo quiel oIder |els presenlIy
in service by requiring lhal lhey eilher be modied vilh noise suppression devices or
phased oul of service. In addilion, engine noise slandards have been deveIoped for lhe
nev generalion of aircrah and lhe supersonic lransporls.
Civil Aviation Security Program. Anolher ma|or IAA responsibiIily is lhe CiviI Avialion
Securily Irogram. Iorls in lhis area are aimed al prevenling or delerring such criminaI
acls as air piracy, sabolage, exlorlion, and olher crimes lhal couId adverseIy aecl avialion
safely. Key eIemenls of lhe program incIude required screening of aII enpIaning airIine
passengers and a search of lheir carry-on baggage. A Iav enforcemenl ofcer aIso musl
be presenl al each screening slalion during lhe boarding process. In addilion, airporl
operalors are required lo eslabIish a securily syslem lhal viII keep unaulhorized persons
from gaining access lo air operalions areas.
ImpIemenlalion of lhese reguIalions in earIy 1973 and negolialion of an agreemenl vilh
lhe Cuban governmenl on lhe disposilion of hackers al aboul lhe same lime produced a
dramalic lurnaround in lhe hacking silualion. Aher averaging aImosl 30 per year from
1968 lo 1972, lhe number of hacking aempls dropped lo 5 in 1977 and has remained al
around lhal number ever since.
CiviI avialion securily vas slrenglhened furlher in Augusl 1974 vhen Congress passed
lhe Anli-Hacking Acl of 1974, vhich gave slalulory force lo lhe IAAs securily reguIalions.
And in IuIy 1978, lhe induslriaIized nalions of lhe vorId agreed al a summil meeling in
onn, Germany, lo acl logelher lo cul o aII air service lo and from counlries lhal refuse
lo exlradile or prosecule aircrah hackers. In addilion, lhe secrelary of lransporlalion is
aulhorized lo acl againsl foreign carriers operaling in lhe Uniled Slales lhal do nol meel
minimum securily slandards.
Engineering and Development. The IAA supporls aII of ils safely, securily, and
environmenlaI programs vilh exlensive engineering and deveIopmenl (I & D) pro|ecls,
conducled in parl lhrough conlracls vilh induslry, olher governmenl agencies, and
universilies. Much of lhe I & D vork, hovever, is done in-house al lhe IAA lechnicaI
cenler in AlIanlic Cily, Nev Iersey, and lhe lransporlalion syslems cenler in Cambridge,
Massachuses. AeromedicaI research is done al lhe IAAs CiviI AeromedicaI Inslilule in
OkIahoma Cily.
A conlinuing priorily of lhe agencys I & D vork is furlher aulomalion of lhe air lrafc
conlroI syslem lo heIp conlroIIers keep aircrah safeIy separaled as air lrafc increases.
Warning syslems, for inslance, have been added lo lhe aulomaled syslems al lhe busiesl air
lrafc faciIilies lo aIerl conlroIIers vhen aircrah under lheir conlroI are dangerousIy cIose
lo lhe ground or lo one anolher. Work is under vay lo deveIop olher compuler syslems
C H A P T E R 3 R E G U L AT O R S A N D A S S O C I AT I O N S 9 3
lhal viII assisl conlroIIers in handIing higher lrafc Ioads vilh increased efciency and
safely.
The IAA has aIso deveIoped collision avoidance systems lhal operale independenlIy
of lhe air lrafc conlroI syslem bul are compalibIe vilh il. These eIeclronic devices varn
piIols direclIy of polenliaI conicls vilh olher aircrah and shov hov lo avoid lhem. The
rsl of lhese syslems, designed for use in en roule airspace and al airporls vilh Iighl lo
moderale lrafc, vere in operalion by 1981. The IAA conlinues lo deveIop and lesl more
sophislicaled coIIision avoidance syslems for eeclive operalion in congesled airspace.
An imporlanl eIemenl in an eeclive coIIision avoidance syslem for high-use airspace
is lhe discrele address beacon syslem (DAS), vhich is being deveIoped by lhe IAA
lo upgrade lhe presenl air lrafc conlroI radar beacon surveiIIance syslem. IssenliaIIy,
DAS is an improved lransponder, bul il viII provide a dala Iink for use vilh a ground-
based anlicoIIision syslem. Il viII aIso be lhe basis for olher syslem improvemenls, such
as aulomalic melering and spacing lo improve lhe ov of lrafc and aulomalic vealher
reporling.
SuppIying piIols vilh accurale and limeIy vealher informalion, parlicuIarIy in
hazardous vealher, is anolher ma|or I & D program goaI. Among lhe eorls under
vay lo achieve lhis safely goaI are lhe deveIopmenl and demonslralion of aulomaled
vealher observalion syslems for airporls vilhoul conlroI lovers, lesling of a vake vorlex
advisory syslem lhal varns piIols of polenliaIIy dangerous air lurbuIence in approach
and deparlure palhs, and Iov-IeveI vind shear aIerl syslems lo heIp piIols cope vilh vind
shear during lhe crilicaI slages of approach and Ianding. In addilion lo enhancing safely,
lhese vealher syslems viII heIp reduce deIays and conserve fueI and viII enabIe more
efcienl use of airporl capacily.
The IAA aIso has an exlensive aeromedicaI research program lo expIore lhe human
faclors lhal aecl lhe safely and advancemenl of civiI avialion. Currenl research eorls
incIude sludies of crash impacl and survivaI, lhe loxic hazards of burning cabin maleriaIs
aher a crash, and lhe eecl of aging and slress on piIols performance.
In addilion, lhe IAA conducls a comprehensive heaIlh program for more lhan 24,000 air
lrafc conlroI speciaIisls. The program provides a compIele annuaI physicaI examinalion
and cerlain Iaboralory procedures lo delermine vhelher conlroIIers are l lo perform
lheir demanding dulies and lo preserve lheir usefuIness by earIy deleclion of correclabIe
diseases.
Oincr |AA Acii ti ii cs
ecause lhe Uniled Slales is lhe recognized vorId Ieader in avialion, lhe IAA has a vilaI
roIe lo pIay in inlernalionaI avialion maers. Ior exampIe, in cooperalion vilh lhe Slale
Deparlmenls Agency for InlernalionaI DeveIopmenl, il sends civiI avialion assislance
groups abroad lo provide lechnicaI aid lo olher nalions. The IAA aIso lrains hundreds
of foreign nalionaIs every year al lhe Mike Monroney AeronaulicaI Cenler in OkIahoma
Cily.
The IAA aIso vorks vilh lhe InlernalionaI CiviI Avialion Organizalion (ICAO) in
eslabIishing vorIdvide safely and securily slandards and procedures, provides lechnicaI
advice on lhe exporl and imporl of avialion producls, and handIes cerlicalion of foreign-
made aircrah engines and parls under lhe lerms of biIaleraI airvorlhiness agreemenls.
The IAA aIso parlicipales vilh lhe NalionaI Transporlalion Safely oard
(NTS) in lhe invesligalion of ma|or aircrah accidenls lo delermine if any
A I R T R A N S P O R TAT I O N 9 4
immediale aclion is needed lo correcl deciencies and prevenl a recurrence.
In addilion, lhe agency invesligales mosl nonfalaI and many falaI generaI avialion
accidenls on behaIf of lhe NTS, aIlhough lhe responsibiIily for delermining probabIe
cause remains vilh lhe board. The IAA aIso operales a pubIic-use airporl al ils lechnicaI
cenler oulside AlIanlic Cily, Nev Iersey.
THE TRANSPORTATION SECURITY ADMINISTRATION
On November 19, 2001, Iresidenl George W. ush signed inlo Iav lhe Avialion and
Transporlalion Securily Acl, vhich among olher lhings eslabIished a nev Transporlalion
Securily Adminislralion (TSA) vilhin lhe Deparlmenl of Transporlalion headed by lhe
undersecrelary of lransporlalion for securily. In March 2003, lhe TSA vas moved lo lhe
Deparlmenl of HomeIand Securily. This acl vas impIemenled lo achieve a secure air lraveI
syslem and vas formed as a resuIl of lhe lragic evenls of Seplember 11, 2001. Ior lhe rsl
lime in U.S. avialion hislory, airporl securily became a direcl federaI responsibiIily. The
TSA prolecls lhe nalions lransporlalion syslems lo ensure freedom of movemenl for
peopIe and commerce by seing lhe slandard for exceIIence in lransporlalion securily
lhrough ils peopIe, processes, and lechnoIogies.
The TSA is responsibIe for federaI securily screening operalions for passenger air
lransporlalion and inleIIigence informalion reIaled lo lransporlalion securily: managing
and carrying oul program and reguIalory aclivilies: discovering, prevenling, and deaIing
vilh lhreals lo lransporlalion securily: research and deveIopmenl aclivilies reIaled lo
enhancing lransporlalion securily: coordinaling inlermodaI lransporlalion securily,
incIuding avialion, raiI, olher surface lransporlalion, and marilime lransporlalion:
and overseeing mosl lransporlalion-reIaled responsibiIilies of lhe federaI governmenl
during a nalionaI emergency.
The TSA issues and adminislers Transporlalion Securily ReguIalions (TSR), vhich
vere formerIy ruIes of lhe IAA. These ruIes vere lransferred lo lhe TSA vhen lhe
TSA assumed conlroI of lhe IAAs civiI avialion securily funclion on Iebruary 17,
2002. The generaI conlenls of lhe TSR cover lhe responsibiIilies of lhe undersecrelary
of lransporlalion for securily, invesligalive and enforcemenl procedures, passenger
civiI avialion securily service fees, avialion securily infraslruclure fees, proleclion of
sensilive securily informalion, civiI avialion securily, airporl securily, aircrah operalor
securily (air carriers and commerciaI operalors), foreign air carrier securily, indirecl air
carrier securily, and aircrah securily under generaI operaling and ighl ruIes.
Crealed by lhe Deparlmenl of Transporlalion Acl of 1966, lhe NTS ofciaIIy came inlo
being by execulive order on ApriI 1, 1967. AcluaIIy, il vas on May 2 lhal lhe rsl ve-
member board, appoinled by lhe presidenl vilh lhe advice and consenl of lhe Senale,
vas svorn inlo ofce.
The board vas lo be independenl in ils operalions, bul for housekeeping purposes,
il vas made a parl of lhe nev Deparlmenl of Transporlalion. NearIy eighl years Ialer,
lhe Transporlalion Safely Acl of 1974 eslabIished lhe board as an enlireIy independenl
agency and broadened lhe boards slalulory mandale for invesligalion of cerlain surface
THE NATIONAL TRANSPORTATION SAFETY BOARD
C H A P T E R 3 R E G U L AT O R S A N D A S S O C I AT I O N S 9 5
FIGURE 3-3 Organization of the National Transportation Safety Board.
Member Member Member
Office of
Managing Director
Office of
General Counsel
Bureau of
Technology
Human Factors
Division
Operational Factors
Division
Engineering
Division
Laboratory Services
Division
Bureau of
Accident Investigation
Human Factors
Division
ANC Anchorage
ATL Atlanta
CHI Chicago
DEN Denver
FTW Fort Worth
MKC Kansas City
LAX Los Angeles
MIA Miami
NYC New York
SEA Seattle
Aviation Accident
Division
Railroad Accident
Division
Highway Accident
Division
Hazardous Materials and
Pipeline Accident Division
Marine Accident
Division
Office of Administrative
Law Judges
Office of Government
and Public Affairs
Vice-Chairman Member
lransporlalion accidenls. The nev acl aIso slrenglhened lhe NTSs posilion in pressing
for aclion by lhe DOT on board safely recommendalions. The secrelary of lransporlalion
vas required lo respond, in vriling, vilhin 90 days of each recommendalion lo lhe DOT
and lo give delaiIed reasons vhenever lhe DOT re|ecled a recommendalion. The NTS,
in lurn, insliluled a formaI procedure for moniloring responses lo recommendalions and
for evaIualing lhem.
In 1982, lhe 1974 IegisIalion vas amended lo give lhe NTS priorily over aII olher
invesligalions- by olher IederaI agencies in surface lransporlalion cases. Irovision vas
made for parlicipalion of olher agencies in board invesligalions, and lhe boards righls lo
examine physicaI evidence vere exlended specicaIIy lo any vehicIe, roIIing slock, lrack,
or pipeIine componenl invoIved in an accidenl. Iigure 3-3 shovs lhe organizalionaI charl
for lhe NTS.
The board is composed of ve members appoinled by lhe presidenl and conrmed by
lhe Senale, lvo of vhom are designaled by lhe presidenl for lvo-year lerms lo serve as
chair and vice-chair. The fuII lerm of a member is ve years. The boards headquarlers are
in Washinglon, D.C., and eId ofces are Iocaled in Anchorage, AlIanla, Chicago, Denver,
Iorl Worlh, Los AngeIes, Miami, Kansas Cily, Nev York Cily, and SeaIe.
A I R T R A N S P O R TAT I O N 9 6
Bureau of
Administration
Comptroller
Division
Personnel and
Training Division
Operations and
Facilities Division
Information
Management Division
Bureau of
Safety Programs
Safety Recommendations
Division
Safety Studies and
Analysis Division
Sccpc an! |cspcnsi |i | i ii cs
The NTS is required lo delermine lhe probabIe cause of lhe foIIoving:
1. CiviI avialion accidenls
2. Highvay accidenls seIecled in cooperalion vilh lhe slales
3. AII passenger lrain accidenls, any falaI raiIroad accidenl, and any raiIroad accidenl
invoIving subslanliaI damage
4. Ma|or marine accidenls and any marine accidenl invoIving a pubIic and a
nonpubIic vesseI
5. IipeIine accidenls invoIving a falaIily or subslanliaI properly damage
Under lhe Transporlalion Safely Acl of 1974, lhe board is required lo lake lhese
aclions:
1. Conducl speciaI sludies on safely probIems
2. IvaIuale lhe eecliveness of governmenl agencies invoIved in lransporlalion
safely
3. IvaIuale lhe safeguards used in lhe lransporlalion of hazardous maleriaIs
C H A P T E R 3 R E G U L AT O R S A N D A S S O C I AT I O N S 9 7
4. Reviev appeaIs from avialors and merchanl saiIors vhose cerlicales have been
revoked or suspended
Safety Board Publications. The boards IubIic Inquiries Seclion mainlains a pubIic
dockel al ils headquarlers in Washinglon, D.C. The dockel conlains lhe records of aII
board invesligalions, aII safely recommendalions, and aII safely enforcemenl proceedings.
These records are avaiIabIe lo lhe pubIic and may be copied, revieved, or dupIicaled
for pubIic use. The board makes pubIic aII of ils aclions and decisions in lhe form of
accidenl reporls, speciaI sludies, safely eecliveness evaIualions, slalislicaI revievs,
safely recommendalions, and press reIeases.
Aviation Safety. Avialion is lhe Iargesl of lhe NTSs divisions. The board invesligales
hundreds of accidenls annuaIIy, incIuding aII air carrier accidenls, aII in-ighl coIIisions,
falaI generaI avialion accidenls, and aII air laxi commuler accidenls. The ma|or share of
lhe boards air safely recommendalions are direcled lo lhe IAA. The recommendalions
have resuIled in a vide range of safely improvemenls in areas such as piIol lraining,
aircrah mainlenance and design, air lrafc conlroI procedures, and survivaI equipmenl
requiremenls. The board aIso is empovered lo conducl speciaI sludies of lransporlalion
safely probIems, videning lhe focus on a singIe accidenl invesligalion lo examine a safely
probIem from a broader perspeclive. In lhe pasl, for exampIe, lhe board has conducled
speciaI sludies in lhe areas of vealher, crash vorlhiness, in-ighl coIIisions, and commuler
airIines.
In 1967, lhe NTS inheriled lhe enlire ureau of Safely of lhe CiviI Aeronaulics oard, a
professionaI sla vilh a hislory of more lhan 50 years of pioneering vork in civiI avialion
accidenl invesligalion. Ils go-leam organizalion and ils emphasis on speciaIized sludy of
aII facels of an accidenl had been recognized for ils exceIIence and emuIaled lhroughoul
lhe vorId.
In lhe NTSs 35-year hislory, airIine safely has improved sleadiIy. In 1967, lhe airIine
falaI accidenl rale vas 0.006 per miIIion aircrah miIes ovn. y 1980, il vas dovn lo
0.001 per miIIion miIes, a reduclion of 83 percenl. And on Ianuary 1, 1982, U.S. airIines
compIeled 26 monlhs vilhoul a calaslrophic crash of a pure-|el lransporl: never before
had lhere been lvo caIendar years vilhoul such an accidenl. The airIines ev more lhan
a haIf-biIIion passengers on over 10 miIIion ighls in lhal 26-monlh periodmore lhan a
haIf-lriIIion passenger miIes. The aeriaI lransporlalion invoIved vouId have laken every
man, voman, and chiId in lhe counlry on a ighl of more lhan 2,000 miIes.
In 1985, lhere vere four falaI accidenls, incIuding lvo by lhe ma|or carriers, ending
lhe dovnvard lrend in accidenl rales. The falaI accidenl rale decIined during lhe Iale
1980s, reaching anolher Iov of 0.023 per 100,000 deparlures by year-end 2005. The chance
of a passenger on a ma|or carrier being invoIved in a falaI accidenl is sliII aboul 1 in 3
miIIion.
Sicps |ntc| tc! i n a Maj cr Acci !cni |ntcsii gaii cn
In lhe evenl of a ma|or accidenl, lhe NTS foIIovs cIearIy deIinealed procedures, as
oulIined here.
1. Tnc gc-ican. One of lhe more pubIicIy visibIe aspecls of a ma|or NTS accidenl
invesligalion is lhe boards use of lhe go-team concepl. The go-leam, vhich is on
A I R T R A N S P O R TAT I O N 9 8
24-hour aIerl, is a group of board personneI vhose members possess a vide range of
accidenl invesligalion skiIIs. In avialion, for exampIe, a go-leam rosler couId incIude
one of lhe ve members of lhe safely board, an air lrafc conlroI speciaIisl, and experls
lrained in vilness inlerrogalion, aircrah operalions, and aircrah mainlenance records.
In lhe case of a raiIroad accidenl, lhe go-leam is simiIar, bul lhe speciaIlies vary,
lypicaIIy consisling of lrack engineers, Iocomolive and signaI experls, and operalions
speciaIisls. Some go-leam members are inlermodaI in lhal lheir area of experlise is
appIicabIe lo each lransporlalion mode. Human-faclors experls faII inlo lhis calegory,
as do lhe boards melaIIurgisls, meleoroIogisls, and hazardous maleriaIs experls.
2. Ai inc siic. The Ienglh of lime a go-leam remains on lhe accidenl sile varies vilh
need, bul generaIIy a leam compIeles ils vork in 710 days. Hovever, accidenl
invesligalions ohen can require o-sile engineering sludies or Iaboralory lesls lhal
may exlend lhe facl-nding slage.
3. |n inc |a|craicru. The NTS operales ils ovn lechnicaI Iaboralory lo supporl
invesligalors in lhe eId vilh unbiased anaIysis. Ior exampIe, lhe Iaboralory has lhe
capabiIily lo read oul aircrah cockpil voice recorders (CVRs) and decipher ighl dala
recorders (IDRs). These so-caIIed bIack boxes provide invesligalors vilh a proIe
of an aircrah during lhe ohen cruciaI Iasl minules of ighl. ul lhe boards readoul
capabiIily is nol conned lo avialion. SimiIar lechniques are appIied lo marine
course recorders laken from ships invoIved in accidenls. MelaIIurgy is anolher of lhe
Iaboralorys skiIIs. oard melaIIurgisls perform poslaccidenl anaIyses of vreckage
parls ranging from aircrah componenls lo raiIroad lracks. The Iaboralory is capabIe
of delermining vhelher faiIures resuIled from inadequale design slrenglh, excessive
Ioading, or delerioralion in slalic slrenglh due lo melaI faligue or corrosion.
4. Tnc sajciu rcccnncn!aiicn. The safety recommendation is lhe NTSs end
producl. Nolhing lakes a higher priorily: nolhing is more carefuIIy evaIualed. The
recommendalion is vilaI lo lhe boards basic roIe of accidenl prevenlion, because il is lhe
Iever used lo bring changes in procedures and improvemenls in safely lo lhe nalions
lransporlalion syslem. Wilh human Iives invoIved, limeIiness aIso is an essenliaI parl
of lhe recommendalion process. As a resuIl, lhe board issues a safely recommendalion
as soon as a probIem is idenlied, vilhoul necessariIy vailing unliI an invesligalion
is compIeled and lhe probabIe cause of an accidenl delermined. In ils mandale lo lhe
board, Congress cIearIy emphasized lhe imporlance of lhe safely recommendalion,
slaling lhal lhe board shaII advocale meaningfuI responses lo reduce lhe IikeIihood
of recurrence of lransporlalion accidenls. Iach recommendalion issued by lhe board
designales lhe person or lhe parly expecled lo lake aclion, describes lhe aclion lhe
board expecls, and cIearIy slales lhe safely need lo be salised. To emphasize lhe
imporlance of lhe safely recommendalion, Congress has required lhe DOT lo respond
lo each board recommendalion vilhin 90 days.
5. Tnc pu||ic ncaring. Aher an accidenl, lhe NTS may decide lo hoId a pubIic hearing
lo coIIecl addilionaI informalion and lo air al a pubIic forum lhe issues invoIved in
an accidenl. The hearing is presided over by a member of lhe board, and vilnesses
leslify under oalh. Ivery eorl is made lo hoId lhe hearing promplIy and cIose lo lhe
accidenl sile.
C H A P T E R 3 R E G U L AT O R S A N D A S S O C I AT I O N S 9 9
6. Tnc na| rcpcri. Wilh lhe compIelion of lhe facl-nding phase, lhe accidenl
invesligalion enlers ils naI slageanaIysis of lhe facluaI ndings. The anaIysis is
conducled al lhe NTSs Washinglon headquarlers, and lhe resuIl is a slalemenl of
vhal lhe board lerms lhe probabIe cause of lhe accidenl. The nal report on lhe
accidenl is lhen presenled lo lhe fuII ve-member board for discussion and approvaI
al a pubIic meeling in Washinglon. The enlire process, from accidenl invesligalion
lo naI reporl, normaIIy lakes severaI monlhs. Accidenls invesligaled by lhe boards
eId invesligalors are reporled in brief formal.
MAJOR AVIATION ASSOCIATIONS
Ai r| i nc-|c| aic! Asscci aii cns
Air Transport Association of America
1301 IennsyIvania Avenue NW
Washinglon, DC 20004
hp://vvv.airIines.org
Iounded in 1936, lhe Air Transport Association of America (ATA) is lhe lrade and service
organizalion of lhe scheduIed airIines of lhe Uniled Slales. Through lhe ATA, member
airIines pooI lheir lechnicaI and operalionaI knovIedge lo form a singIe, inlegraled airIine
syslem serving lhousands of communilies nalionvide.
Of aII ATA aclivilies, safely is foremosl. Olher ob|eclives incIude lhe improvemenl of
passenger and cargo lrafc procedures, economic and lechnicaI research, and aclion on
IegisIalion aecling lhe induslry. IIanning lhe airIines roIe in augmenling lhe nalionaI
defense is anolher imporlanl ATA concern, as are such maers as faciIilaling lhe movemenl
of passengers and cargo across inlernalionaI borders, improving lhe environmenlaI
aspecls of airIine operalions, and ensuring lhe accessibiIily of lhe airIines lo adequale
sources of energy lo meel pubIic lransporlalion needs.
The ATA is divided inlo nine deparlmenls: (1) Operalions and Airporls, (2) Trafc
Services, (3) Iconomics and Iinance, (4) InlernalionaI Aairs, (5) LegaI, (6) IederaI Aairs,
(7) IubIic Aairs, (8) IubIic ReIalions, and (9) Ofce of Inforcemenl.
The inleresls and goaIs of lhe airIines as an induslry are achieved lhrough a syslem
of counciIs and reIaled commiees made up of airIine and ATA sla members vorking
logelher. The commiee slruclure aIso incIudes lhe Air Trafc Conference, vhose funclion
is lo deveIop induslry slandards lhrough inlercarrier agreemenls. These agreemenls
make il possibIe for a member of lhe pubIic lo vaIk inlo lhe ofce of virluaIIy any airIine
or lraveI agenl in any cily and buy a lickel lhal viII lake him or her lo any poinl served
by lhal airIine or any olher scheduIed airIine lhroughoul lhe vorId. The same service is
avaiIabIe lo a person making a shipmenl by air freighl.
Regional Airline Association
1200 19lh Slreel NW
Washinglon, DC 20036
hp://vvv.raa.org
The Regional Airline Association (RAA), renamed in 1981 (formerIy lhe Commuler
AirIine Associalion of America), represenls lhose airIines engaged in lhe scheduIed air
lransporlalion of passengers and cargo primariIy in IocaI, feeder, and shorl-hauI markels
A I R T R A N S P O R TAT I O N 1 0 0
lhroughoul lhe Uniled Slales and ils lerrilories. The RAA is charlered lo promole a heaIlhy
business cIimale for lhe grovlh of regionaI and commuler services by vorking vilh
governmenl, olher organizalions, and lhe pubIic on issues aecling lhe induslry. Through
cooperalion and educalion, lhe RAA seeks lo fosler lhe deveIopmenl of lhe induslry.
Oincr Ai r| i nc Asscci aii cns
Airline Clearing House
1301 IennsyIvania Avenue NW
Washinglon, DC 20004
The Airline Clearing House is a corporalion, vhoIIy ovned by lhe Iarger cerlicaled
airIines, lhrough vhich lhe inlerIine accounls of airIines, cerlicaled and regionaI,
are seIed on a nel basis each monlh. RegionaI airIines, by parlicipaling as associale
members, are abIe lo reaIize aII lhe biIIing and cIearance benels vilhoul lhe necessily of
purchasing slock in lhe corporalion.
Iach member air carrier submils a recap sheel on lhe heenlh of each monlh lo lhe
AirIine CIearing House bank shoving accounls due from every olher member, covering
bolh passenger and freighl. The bank nels lhese accounls and nolies each airIine on
lhe lvenlielh of lhe monlh of lheir nel debil or credil posilion in lhe CIearing House.
SeIemenl is made on lhe lvenly-eighlh, vilh penaIlies Ievied for faiIure lo pay. IIighl
coupons and air biIIs are senl lo lhe appropriale airIine for a foIIov-up audil, vilh an
opporlunily for subsequenl CIearing House ad|uslmenls.
Iach parlicipaling carrier is requesled lo mainlain an accounl al lhe AirIine CIearing
House bank. The AirIine CIearing House performs lhe cIearing funclions vilhoul charge.
The cosl of such ilems as prinling, poslage, buIIelin correspondence, and mainlenance
of lhe manuaI of procedures is nominaI. Reimbursemenl for such cosls is biIIed lo aII
members and associale members on an annuaI basis. When making appIicalion as an
associale member, commuler airIines are required lo have inlerIine agreemenls vilh al
Ieasl one member or associale member of lhe CIearing House.
Airline Tari Publishing Company
DuIIes InlernalionaI Airporl
ox 17415
Washinglon, DC 20041
hp://alpco.nel
The Airline Tari Publishing Company (ATPCO), vhoIIy ovned by 35 cerlicaled
air carriers, is empIoyed by lhe airIines lo pubIish and dislribule fares and cargo rales
lo lhe lraveI induslry. ATICO pubIicalions Iisl |oinl fares laris, commuler IocaI fares
laris, commuler airIine cargo IocaI ruIes and rales, smaII-package rales, and air cargo
memorandum laris. ATICO dislribules lhese laris lo lraveI agenls, airIine rale desks,
and olher companies in lhe business.
Air Cargo , Inc.
1819 ay Ridge Road
AnnapoIis, MD 21403
Air Cargo, Inc. is a service organizalion ovned by lhe scheduIed airIines of lhe Uniled
Slales. Air Cargo, Inc.s compIele syslem of airIine and air freighl services invoIves lhree
C H A P T E R 3 R E G U L AT O R S A N D A S S O C I AT I O N S 1 0 1
dislincl areas: IocaI air freighl pickup and deIivery, air and lruck and conlainer pickup and
deIivery, and Ioading and unIoading. RegionaI airIines may conlracl for lhe services of Air
Cargo, Inc. as associale members.
Aeronautical Radio, Inc.
2551 Riva Road
AnnapoIis, MD 21401
Aeronautical Radio, Inc., more famiIiarIy knovn as ARINC, is dedicaled lo serving lhe
communicalions needs of lhe air lransporl communily. The companys services, once used
aImosl excIusiveIy by ma|or U.S. airIines, nov are empIoyed by a variely of corporalions,
governmenl agencies, and domeslic and foreign carriers ranging in size from ma|or lrunks
lo commuler air carriers. ARINCs services conlinue lo be provided on a nol-for-prol
basis, as vas lhe case vhen lhe company vas incorporaled in 1929.
ARINC provides such benels as advanced lechnoIogy, high-quaIily service, cosl-based
charges, and Iong-slanding reIalionships vilh lhe reguIalory bodies and lhe avialion
communily. ARINC aIso provides many services.
1. Wcaincr uirc scrticc dislribules severaI forms of vealher dala lo lhe avialion
communily. The informalion incIudes hourIy sequence reporls, upper almospheric
vind and lemperalure dala, foreign vealher informalion, and reprinls of vealher
saleIIile piclures.
2. Air/grcun! !cncsiic scrticc is lhe originaI service provided by ARINC. Radio operalors
slalioned in Nev York, Chicago, and San Irancisco conlroI a series of nelvorks of
radio slalions. VirluaIIy uninlerrupled air-ground-air VHI voice communicalions are
provided lhroughoul lhe conliguous Uniled Slales. ReguIar service consisls of lhe
exchange of messages belveen users aircrah and ighl operalions or olher ofces
via ARINC operalors. In addilion, radio-phone palches, permiing direcl conlacl
belveen air and ground personneI, are made via ARINC nelvorks. Messages consisl
of operalionaI informalion.
3. Air/grcun! inicrnaiicna| scrticc is simiIar lo air/ground domeslic. Voice service is
provided oulside lhe conliguous Uniled Slales lhrough lhe use of bolh VHI and
HI radio. Messages consisl of users operalionaI informalion and air lrafc conlroI
inslruclions.
4. ACA|S (ARINC communicalions addressing and reporling syslem) is lhe nevesl
service. Using slale-of-lhe-arl lechnoIogy, speciaI equipmenl in aircrah aulomalicaIIy
coIIecls numerous operalionaI characlerislics. DigilaI messages conlaining lhe
informalion are lransmied aulomalicaIIy or on requesl via lhe ARINC radio nelvork
and message-svilching syslem lo lhe respeclive ground ofces. CurrenlIy, a number
of domeslic lrunk and regionaI airIines use lhe service.
5. Pcini-ic-pcini scrticc is a syslem of Iov- and medium-speed dedicaled and shared
generaI-purpose communicalions channeIs. Links exisl belveen lhe conliguous
Uniled Slales and cenlers in AIaska, Havaii, Iuerlo Rico, lhe Caribbean, CenlraI
and Soulh America, and lhe soulh and vesl areas of lhe Iacic Ocean. The channeIs
A I R T R A N S P O R TAT I O N 1 0 2
connecl vilh lhe ISS (see lhe nexl ilem). They permil lhe exchange of messages and
operalionaI informalion belveen users operaling in each of lhe areas.
6. |SS (eIeclronic svilching syslem) is one of lhe Iargesl message-svilching services.
Over 300 users, incIuding domeslic and foreign airIines, holeI and renlaI car
chains, and governmenl agencies are lied logelher lhrough an exlensive nelvork
of communicalions Iinks. A baery of compulers, Iocaled in Chicago, aulomalicaIIy
svilch messages belveen users. Much of lhe lrafc consisls of inlerIine reservalions.
7. PI|N (privale-Iine inlercily nelvork) is an exlensive nelvork of communicalions Iinks
lhroughoul lhe conliguous Uniled Slales. ARINC purchases services from leIephone
companies and olher common carriers and is abIe lo provide Iov-cosl foreign exchange
Iines and privale-Iine leIephone and dala circuils lo aII carriers.
8. Icca|-arca VH| air/grcun! ccnnunicaiicns scrticc incorporales a number of radio
slalions Iicensed by ARINC bul slaed by lhe users personneI. The radio slalions are
used for lhe exchange belveen air crevs and ground personneI of such operalionaI
informalion as gale assignmenls, arrivaI and deparlure limes, speciaI handIing
arrangemenls for passengers, and so forlh. This service is made avaiIabIe lo users
under one of lvo arrangemenls:
a. A||NC-cunc! scrticc permils users lo opl for ARINC-ovned, -Iicensed, -inslaIIed, and
-mainlained radio equipmenl. ARINC aIso seIecls lhe besl frequency for operalion.
b. Icasc! ccniracis aIIov users lo ovn, inslaII, and mainlain lhe equipmenl. ARINC,
as lhe Iicensee, handIes lhe adminislralive aclivilies associaled vilh hoIding and
mainlaining ICC Iicenses for aeronaulicaI en roule and IocaI radio slalions.
9. Supp. svcs (suppIemenlaI services) are exlensions of basic services provided by
ARINC. SpeciaI services laiIored lo individuaI users requiremenls make up lhis
service. IxampIes incIude ARINC-ovned IocaI VHI radio slalions and lhe lerminaI
devices and connecling circuilry for a user of lhe ISS nelvork. ARINC provides
mainlenance service on radio syslems, ighl informalion dispIay syslems (IIDS), dala
lerminaIs, muIlipIex syslems, and a variely of olher lypes of eIeclronic equipmenl.
Mainlenance can be purchased on a lime-and-maleriaI basis or al an eslabIished rale
per monlh lhal is sub|ecl onIy lo annuaI reviev.
Aerospace Industries Association
1250 Iye Slreel NW, Sle. 1200
Washinglon, DC 20005
hp://vvv.aia-aerospace.org
The Aerospace Industries Association (AIA) is lhe nalionaI lrade associalion lhal
represenls U.S. companies engaged in research, deveIopmenl, and manufaclure of such
aerospace syslems as aircrah, missiIes, spacecrah, and space-Iaunch vehicIes: propuIsion,
guidance, and conlroI syslems for lhe ighl vehicIes: and a variely of airborne and
Ai rcraj i-Manuj aciuri ng Asscci aii cns
C H A P T E R 3 R E G U L AT O R S A N D A S S O C I AT I O N S 1 0 3
ground-based equipmenl essenliaI lo lhe operalion of lhe ighl vehicIes. A secondary
area of induslry eorl, grouped under lhe heading nonaerospace producls, consisls of
a broad range of syslems and equipmenl generaIIy derived from lhe induslrys aerospace
lechnoIogicaI experlise bul inlended for appIicalions olher lhan ighl.
The AIA funclions on nalionaI and inlernalionaI IeveIs, represenling ils membership
in a vide range of lechnoIogicaI and olher reIalionships vilh governmenl agencies and
lhe pubIic. To faciIilale ils vork al lhe nalionaI IeveI, lhe AIA is a member of lhe CounciI
of Defense and Space Induslry Associalions (CODSIA), a coordinalion medium for six
induslry associalions vilh muluaI inleresls reIaled lo federaI governmenl procuremenl
poIicies. In inlernalionaI aclivilies, lhe AIA cooperales, vhenever il is praclicaI, vilh
lrade associalions in olher counlries, bolh individuaIIy and lhrough lhe InlernalionaI
Coordinaling CounciI of Aerospace Induslry Associalions (ICCAIA), an informaI body of
lhe vorIds nalionaI aerospace associalions. The AIA aIso serves as secrelarial for TC 20,
lhe aircrah/space group of lhe InlernalionaI Organizalion for Slandardizalion (ISO).
General Aviation Manufacturers Association
1400 K Slreel NW
Washinglon, DC 20005
hp://vvv.generaIavialion.org
The General Aviation Manufacturers Association (GAMA) is an independenl lrade
organizalion represenling 52 U.S. companies lhal produce over 95 percenl of lhe nalions
generaI avialion aircrah and equipmenl. The GAMA represenls lhe |oinl inleresls of lhe
generaI avialion seclor in Washinglon and provides insighl inlo lhe induslrys roIe in lhe
U.S. lransporlalion syslem.
Aviation Distributors and Manufacturers Association
1900 Arch Slreel
IhiIadeIphia, IA 19103
hp://vvv.adma.org
The Aviation Distributors and Manufacturers Association (ADMA) represenls
dislribulors and manufaclurers of avialion parls, suppIies, and equipmenl in aII maers
of nalionaI imporlance. The ADMA cooperales vilh various governmenl agencies,
incIuding lhe IAA, and represenls lhis segmenl of lhe induslry in aII issues reIaling lo
federaI IegisIalion, reguIalions, orders, and olher governmenl aclivilies. Like lhe GAMA,
il provides a focaI poinl for aII olher eIemenls in lhe induslry lo delermine vhal can be
done lhrough induslry eorls lo make prospeclive purchasers and lhe pubIic al Iarge
avare of lhe advanlages and usefuIness of given avialion producls. The ADMA conducls
research in conneclion vilh operalions of members lo promole efciency and economy in
lhe dislribulion of avialion parls, suppIies, and equipmenl.
Gcncra| Ati aii cn Asscci aii cns
National Business Aircra Association
1200 18lh Slreel NW, Sle. 400
Washinglon, DC 20036
hp://vvv.nbaa.org
A I R T R A N S P O R TAT I O N 1 0 4
The National Business Aircra Association (NBAA) represenls more lhan 4,000 businesses
and corporalions lhal generale more lhan one-lhird of lhe gross nalionaI producl of lhe
Uniled Slales. Members y more lhan 5,500 aircrah in lhe conducl of business, from
singIe-engine pIanes and heIicoplers lo inlerconlinenlaI |els of airIiner size. More lhan
haIf lhe members ovn and operale one or more aircrah.
Al lhe nalionaI IeveI, lhe NAA is concerned vilh fueI aIIocalion and avaiIabiIily,
discriminalion in lhe use of airporls and airspace, aircrah noise and lhe environmenl,
ighl service slalion requiremenls, vealher reporling services, federaI laxes for lhe use of
airporls and air lrafc conlroI syslem, cusloms services, and any federaI reguIalion lhal
has a bearing on business aircrah use.
There is no olher spokesperson for business avialion before Congress, lhe DOT, lhe
IAA, lhe Deparlmenl of Inergy, lhe IRS, lhe U.S. Cusloms Service, or any olher federaI
agency. Sla members inlerprel business avialions requiremenls, accompIishmenls, and
aclivilies: anaIyze governmenl proposaIs, ruIes, and reguIalions for lhe eecl on members:
generale pubIic informalion programs: and coordinale, vhen appropriale, vilh olher
nalionaI avialion associalions. As needed, sla members lurn lo lhe enlire membership
for assislance.
Aircra Owners and Pilots Association
421 Avialion Way
Irederick, MD 21701
hp://vvv.aopa.org
The Aircra Owners and Pilots Association (AOPA) represenls more lhan 265,000
members vho ovn or y generaI avialion aircrah and y for personaI and business
purposes.
The AOIA vorks cIoseIy vilh lhe IAA, lhe DOT, lhe NTS, Congress, and olher
avialion organizalions, bolh IocaI and nalionaI, lo ensure lhal lhe inleresls of ils members
and lhe enlire generaI avialion communily are veII represenled.
Safely in ying has aIvays been of prime concern lo lhe AOIA. y 1950, lhal area of
aclivily had expanded lo lhe degree lhal a separale organizalion, lhe AOIA Ioundalion,
Inc., vas deveIoped lo concenlrale on avialion safely and educalionaI programs. In 1967,
lhe foundalion vas redesigned and named lhe AOIA Air Safely Ioundalion.
During lhe 1960s, AOIAs success in eecliveIy represenling lhe generaI avialion
popuIalion gained vorIdvide recognilion. Spearheaded by lhe AOIA, lhe InlernalionaI
CounciI of Aircrah Ovner and IiIol Associalions (IAOIA) vas formed. The goaI vas
lo bring lo olher nalions around lhe gIobe lhe same ying freedom and professionaI
represenlalion lhal lhe AOIA oblained in lhe Uniled Slales.
AIlhough service lo ils members remains ils primary consideralion, lhe AOIA
aggressiveIy pursues lhe lolaI pubIic acceplance of generaI avialion.
National Association of State Aviation Ofcials
8401 CoIesviIIe Road, Sle. 505
SiIver Spring, MD 20910
hp://vvv.nasao.org
The National Association of State Aviation Ofcials (NASAO) represenls 47 slale
avialion agencies, as veII as Iuerlo Ricos Avialion Deparlmenl. Ils members are lhe
C H A P T E R 3 R E G U L AT O R S A N D A S S O C I AT I O N S 1 0 5
|nicrnaii cna| Ati aii cn Asscci aii cns
aeronaulics commissions and deparlmenls crealed under lhe Iavs of lhe various slales lo
fosler, deveIop, and reguIale avialion al lhe IocaI and slale IeveIs.
The primary purpose of lhe NASAO as an associalion is lo fosler and encourage
cooperalion and muluaI aid among lhe slales, as veII as federaI and IocaI governmenls, in
deveIoping bolh slale and nalionaI air lransporlalion syslems lhal viII be responsive lo lhe
needs of aII users of avialion. y vorking lo coordinale various slale Iavs, reguIalions, and
programs vilh lhose of lhe federaI governmenl, lhe NASAO seeks lo deveIop operalionaI
uniformily among lhe slales and lo minimize conicl belveen and dupIicalion of slale and
federaI eorls in lhe deveIopmenl of an inlegraled nalionaI air lransporlalion syslem.
International Civil Aviation Organization
IIace de LAvialion InlernalionaIe
IO ox 400
MonlreaI, I.O., Canada H3A2R2
hp://vvv.icao.org
The principaI aim of lhe International Civil Aviation Organization (ICAO) is lo deveIop
lhe principIes and lechniques of inlernalionaI air navigalion and lo fosler lhe pIanning and
deveIopmenl of inlernalionaI air lransporlalion. The specic goaIs of lhe ICAO incIude
lhe foIIoving:
1. Insure lhe safe and orderIy grovlh of inlernalionaI civiI avialion lhroughoul lhe
vorId
2. Incourage lhe arls of aircrah design and operalion for peacefuI purposes
3. Incourage lhe deveIopmenl of airvays, airporls, and air navigalion faciIilies for
inlernalionaI civiI avialion
4. Meel lhe needs of lhe peopIes of lhe vorId for safe, reguIar, efcienl, and economicaI
air lransporl
5. Irevenl economic vasle caused by unreasonabIe compelilion
6. Insure lhal lhe righls of conlracling slales are fuIIy respecled and lhal every conlracling
slale has a fair opporlunily lo operale inlernalionaI airIines
7. Avoid discriminalion belveen conlracling slales
8. Iromole safely of ighl in inlernalionaI air navigalion
9. Iromole generaIIy lhe deveIopmenl of aII aspecls of inlernalionaI civiI aeronaulics
The ICAO has a sovereign body, lhe AssembIy, composed of 182 counlries (conlracling
slales), and a governing body, lhe CounciI, made up of 36 conlracling slales. The AssembIy
meels al Ieasl once every lhree years and is convened by lhe CounciI. Iach conlracling
slale is enlilIed lo one vole, and decisions of lhe AssembIy are made by a ma|orily of
A I R T R A N S P O R TAT I O N 1 0 6
lhe voles casl excepl vhere olhervise slipuIaled in lhe convenlion. Al lhis session, lhe
compIele vork of lhe organizalion in lhe lechnoIogicaI, economic, IegaI, and lechnicaI-
assislance eIds is revieved in delaiI, and guidance is given lo lhe olher bodies of lhe
ICAO for lheir fulure vork.
The CounciI is a permanenl body responsibIe lo lhe AssembIy. Conlracling slales are
eIecled by lhe AssembIy for lhree-year lerms. In lhe eIeclion, adequale represenlalion
is given lo slales of chief imporlance in air lransporl. Slales nol olhervise incIuded lhal
make lhe Iargesl conlribulion lo lhe provision of faciIilies for civiI air navigalion or vhose
designalion viII ensure lhal aII lhe ma|or geographic areas of lhe vorId are incIuded aIso
are represenled on lhe CounciI.
The CounciI, lhe Air Navigalion Commission, lhe Air Transporl Commiee, lhe
Commiee on Ioinl Supporl of Air Navigalion Services, and lhe Iinance Commiee
provide lhe conlinuing direclion of lhe vork of lhe organizalion. One of lhe ma|or dulies
of lhe CounciI is lo adopl inlernalionaI slandards and recommended praclices and lo
incorporale lhese as annexes lo lhe Convenlion on InlernalionaI CiviI Avialion. The
CounciI may acl as an arbiler belveen member slales on maers concerning avialion
and impIemenlalion of lhe convenlion, and il may invesligale any silualion lhal presenls
avoidabIe obslacIes lo lhe deveIopmenl of inlernalionaI air navigalion. In generaI, il may
lake vhalever sleps are necessary lo mainlain lhe safely and reguIarily of operalion of
inlernalionaI air lransporlalion.
International Air Transport Association
800 IIace Vicloria
IO ox 113
MonlreaI, I.O., Canada H421M1
hp://vvv.iala.org
Whereas lhe ICAOs ma|or focus is on seing slandards for lhe safe and orderIy ov of air
lransporlalion lhroughoul lhe vorId, lhe International Air Transport Association (IATA)
is primariIy concerned vilh lari coordinalion, incIuding lhe coordinalion of fares, rales,
and charges, and rales and IeveIs of lraveI agenl commissions. Il provides a forum for
member slales lo discuss lhese maers coIIecliveIy and lo enabIe lhem, if lhey vish, lo
deveIop and adopl agreemenls on fares, rales, and commissions lhal are submied lo
lheir respeclive governmenls for approvaI.
The IATAs vork begins onIy aher governmenls have promuIgaled a formaI exchange
of lrafc and olher righls (biIaleraI air lransporl agreemenls) and have Iicensed lhe airIines
seIecled lo perform lhe service. ul from lhal poinl on, lhe aclivily of lhe IATA spreads
lhrough virluaIIy every phase of air lransporl operalions.
The basic source of aulhorily in lhe IATA is lhe annuaI generaI meeling, in vhich aII
aclive member slales have an equaI vole. Year-round poIicy direclion is provided by an
eIecled execulive commiee (of airIine chief execulives), and ils crealive vork is IargeIy
carried oul by ils lrafc, lechnicaI, nanciaI, and IegaI commiees. Coordinalion of fares
and rale agreemenls is enlrusled lo lhe IATA lari coordinalion conferences, vilh separale
meelings addressing passenger and cargo issues and eslabIishing agreemenls vaIid for
periods of up lo lvo years.
Members of IATA commiees are nominaled by individuaI airIines, and, sub|ecl lo
lhe reguIalion and reviev of lhe execulive commiee, lhey serve as experls on behaIf of
lhe enlire induslry. In lhe lrafc conferences, hovever, deIegales acl as represenlalives of
C H A P T E R 3 R E G U L AT O R S A N D A S S O C I AT I O N S 1 0 7
lheir individuaI companies. AIlhough lhe execulive commiee xes lhe lerms of reference
of lhese conferences, lheir decisions are sub|ecl onIy lo lhe reviev of governmenls and
cannol be aIlered by any olher parl of lhe associalion. The day-lo-day adminislralion of
lhe IATA is carried oul by a nine-member execulive managemenl board, headed by a
direclor generaI.
KEY TERMS
inslrumenl ighl ruIes (IIR) AirIine Tari IubIishing Company
visuaI ighl ruIes (VIR) Air Cargo, Inc.
lype cerlicale ARINC
produclion cerlicale AIA
airvorlhiness cerlicale GAMA
coIIision avoidance syslem ADMA
go-leam NAA
safely recommendalion AOIA
naI reporl NASAO
ATA ICAO
RAA IATA
AirIine CIearing House
REVI EW QUESTI ONS
1. Describe some of lhe evenls lhal Ied lo lhe crealion of lhe Deparlmenl of Transporlalion.
Whal are lhe primary ob|eclives of lhis deparlmenl` riey describe lhe ma|or roIe of
each of lhe nine adminislralions under lhe DOT.
2. The IAA has ils rools in vhich earIy piece of IegisIalion` When vas lhe IAA crealed
as an agency` Describe some IAA funclions vilh regard lo air lrafc conlroI, aircrah
and avialor cerlicalion, airporl aid and cerlicalion, environmenlaI proleclion, civiI
avialion securily programs, and engineering and deveIopmenl. Hov does lhe IAA
inlerface vilh lhe ICAO and lhe NTS`
3. riey describe lhe genesis of lhe NTS. Whal is lhe boards primary funclion`
Whal are some of ils olher funclions` Give lhe sleps invoIved in a ma|or accidenl
invesligalion. Whal is incIuded in a safely recommendalion` A naI reporl` Describe
lhe accidenl experience of U.S. scheduIed air carriers and generaI avialion over lhe
period 197385.
4. Whal is lhe primary funclion of lhe foIIoving associalions: lhe ATA, RAA, AIA, GAMA,
ADMA, NAA, and AOIA` Describe lhe funclions performed by lhe foIIoving airIine
associalions: AirIine CIearing House: AirIine Tari IubIishing Company: Air Cargo,
Inc.: and ARINC. Whal are some of lhe services provided by ARINC`
5. Whal is lhe primary purpose of lhe NASAO`
6. Compare lhe roIes of lhe ICAO and lhe IATA. Hov are lhey simiIar` Dierenl`
A I R T R A N S P O R TAT I O N 1 0 8
7. Whal is lhe primary purpose of lhe TSA`
WEB SI TES
hp://vvv.iala.org
hp://vvv.icao.org
hp://vvv.aopa.org
hp://vvv.nasao.org
hp://vvv.airIines.org
hp://vvv.raa.org
hp://vvv.alpco.nel
hp://vvv.nbaa.org
hp://vvv.generaIavialion.org
hp://vvv.adma.org
hp://vvv.aia-aerospace.org
SUGGESTED READI NGS
urkhardl, Roberl. Tnc Citi| Acrcnauiics Bcar!. DuIIes InlernalionaI Airporl, Va.: Green HiIIs, 1974.
Caves, Richard I. Air Transpcri an! |is |cgu|aicrs. Cambridge, Mass.: Harvard Universily Iress,
1958.
Davies, Granl MiIIer. Tnc Ocparincni cj Transpcriaiicn. Lexinglon, Mass.: Lexinglon ooks/Healh,
1970.
Dresner, M. Tnc |cgu|aiicn cj U.S.-Cana!a Air Transpcriaiicn. Pasi. Prcscni. an! |uiurc. Orono:
Universily of Maine, 1991.
Kane, Roberl M., and AIIan D. Vose. Air Transpcriaiicn (14lh ed.). Dubuque, Iova: KendaII/Hunl,
2003.
Levis, W. David (ed.). Air|inc |xccuiitcs an! |c!cra| |cgu|aiicn. Casc Siu!ics jrcn inc Airnai| |ra ic inc
Oaun cj inc |ci Agc. CoIumbus: Ohio Slale Universily Iress, 2000.
Iegrum, DudIey I. Transpcriaiicn. |ccncnics an! Pu||ic Pc|icu (3d ed.). Homevood, III.: Irvin, 1973.
Sampson, Roy I., and Marlin T. Harris. Ocncsiic Transpcriaiicn. Praciicc. Tnccru. an! Pc|icu (3rd ed.).
oslon: Houghlon Mifin, 1975.
Thomas, A. R., Atiaiicn |nsccuriiu. Tnc Ncu Cna||cngcs cj Air Tratc|. Amhersl, NY: Iromelheus,
2003.
Wassenbergh, H. A. Princip|cs an! Praciiccs in Air Transpcri |cgu|aiicn. Iaris: Inslilule of Air Transporl,
1993.
C H A P T E R 3 R E G U L AT O R S A N D A S S O C I AT I O N S 1 0 9
This page intentionally left blank
4
The General Aviation Industry
Introduction
General Aviation Statistics
The General Aviation Support Industry
The Available MarketThe Users
Chapter Checklist You Should Be Able To:
Dene gcncra| atiaiicn and describe ils segmenls in
lerms of primary use
Give a slalislicaI summary of generaI avialion in lerms
of lolaI aircrah, number of aircrah produced annuaIIy,
lype of aircrah, number of piIols, and number of
airporls
Discuss lhe ma|or faclors aecling lhe generaI avialion
induslry in lhe posldereguIalion period
Dislinguish belveen business and execulive uses
and belveen various lypes of commerciaI and
noncommerciaI uses of generaI avialion aircrah
Dislinguish belveen lhe various lypes of generaI
avialion airporls
IxpIain severaI of lhe services provided by lhe IAA lo
generaI avialion piIols
Describe lhe reIalionship belveen manufaclurers, lhe
service induslry, and users
Lisl lhe ma|or funclions of a medium lo Iarge IO
Discuss lhe faclors causing businesses lo seek lhe
benels of lheir ovn lransporlalion

111
GENERAL AVIATION STATISTICS
GeneraI avialion has no reporling requiremenls comparabIe lo lhose of lhe cerlicaled
air carrier induslry. As is lhe case vilh operalors of privale aulomobiIes, generaI avialion
operalors do nol have lo reporl lo anyone on lhe specics of lheir ighls. The onIy slalislics
INTRODUCTION
Ask peopIe loday vhal commerciaI avialion is, and lhey viII undoubledIy leII you lhal il
is lhe airIines. The pubIic is avare of lhe exislence and operalion of vhal are commonIy
caIIed lhe commerciaI airIines because of bolh represenlalions of lhem in leIevision and
molion piclures and recurrenl coverage in magazines and nevspapers, incIuding a vasl
adverlising campaign by lhe air carrier induslry. The miIIions of air lraveIers vho pass
lhrough lhe ma|or lransporlalion cenlers of Nev York, Chicago, AlIanla, Los AngeIes, and
olher cilies have had personaI experience vilh airIines.
As a resuIl of lhese direcl and vicarious exposures lo air lransporlalion, lhe huge roIe
pIayed by lhe airIines in lhe nalions lransporlalion syslem is aImosl universaIIy recognized.
UnforlunaleIy, mosl peopIe regard lhe airIines as lhe onIy form of air lransporlalion.
GeneraI avialion is lhe Iargesl segmenl of avialion based on number of aircrah, number
of piIols, and number of airporls and communilies served. Il is a $40 biIIion induslry
lhal generales over $100 biIIion annuaIIy in economic aclivily. ecause of ils efciency
and produclivily, generaI avialion has become an imporlanl business looI. The ma|orily
of hours ovn by generaI avialion aircrah are for business and commerciaI purposes. Il
is lruIy an inlegraI parl of lhe nalionaI lransporlalion syslem and lhe U.S. economy. ul
lhere is no IegaI denilion of generaI avialion, and il is commonIy described in reIaliveIy
negalive lerms as aII civiI avialion excepl lhal carried oul by lhe commerciaI airIines.
The lerm vas invenled in lhe earIy 1950s by lhe lhen Utility Airplane Council
(forerunner of GAMA) of lhe Aerospace Induslries Associalion (AIA) lo describe lhe
operalions of lhe uliIily aircrah produced by lhe Iighl-pIane manufaclurers and lo
dislinguish lhem from lhe airpIanes made by lhe Iarge-airpIane manufaclurers, lhe
members of lhe AIA, vho produce aircrah (missiIes and space) equipmenl for lhe airIines
and lhe miIilary. Wilh lhe passage of lime, lhe lerm generaI avialion came lo be appIied
lo a helerogeneous group of cIose lo 220,000 aircrah of vaslIy diverse usage, performance
characlerislics, and cosl.
GeneraI avialion is lhe aeriaI appIicalion pIane lhal lreals one oul of every ve liIIabIe
acres of Iand, vhich faciIilales grealer food produclion and keeps lhe cosl of food Iov. Il
is lhe Iand deveIoper making survey ighls and lhe poIice ofcer observing lrafc. Il is lhe
famiIy on a vacalion lrip and lhe air ambuIance ying a mercy mission. Il is lhe reIaxalion
of a brief ighl on a Sunday ahernoon.
Il is lhe air laxi bringing passengers lo lhe airIine or picking lhem up al lhe lerminaI lo
vhisk lhem lo a dislanl o-airIine poinl. Il is lhe business lraveIer vho lraveIs lo and from
many cilies making deaIs and decisions aecling lhe veIfare of lhousands of empIoyees.
Il is lhe spare parl ovn in lo keep an assembIy Iine running. Il is lhe bush piIol in AIaska,
ferrying peopIe, maiI, and suppIies from lovns lo viIderness areas.
UnqueslionabIy, generaI avialion is lhe dominanl force in lhe sky, incIuding as il does
over 90 percenl of lhe civiI air eel, 75 percenl of civiI operalions al IAA-lovered and
unlovered airporls, and 80 percenl of lhe lolaI cerlicaled piIols in lhe Uniled Slales.
A I R T R A N S P O R TAT I O N 1 1 2
galhered by lhe governmenl (lhe IAA) are based on an annuaI survey requesling every
aircrah ovner lo reporl lhe number of ighl hours for lhe previous year by primary-use
category: corporale, business, personaI, inslruclionaI, aeriaI appIicalion, aeriaI observalion,
sighlseeing, exlernaI Ioad, air lour, air laxi, medicaI, and olher.
As of December 31, 2004, lhere vere 210,700 aclive generaI avialion aircrah on record
vilh lhe IAA (see TabIe 4-1). AIlhough lhis number sliII represenls 90 percenl of lhe lolaI
aclive aircrah in lhe Uniled Slales, il aIso represenls a decIine from 1990 because fever
nev aircrah enlered lhe eel and many oIder aircrah have been relired. The number of
nev aircrah enlering lhe eel dropped draslicaIIy, from a high of 17,048 in 1978 lo a Iov of
1132 in 1994 (see TabIe 4-2). AII calegories experienced reduclions, bul parlicuIarIy singIe-
engine and muIli-engine pislon aircrah. The number of amaleur-buiIl experimenlaI aircrah,
formerIy primariIy incIuded under lhe singIe-engine calegory, increased consislenlIy
over lhe pasl 30 years, from a lolaI of 2,100 in 1970 lo over 20,000 by earIy 2006. The
popuIarily of lhe amaleur-buiIl aircrah slems from severaI faclors, incIuding aordabiIily
and performance.
Amaleur-buiIl aircrah are subslanliaIIy Iess expensive lhan nev-produclion
aircrah (aircrah produced under a lype and produclion cerlicale) because of lhe
Iarge amounl of Iabor lhal lhe buiIder provides. Ierformance-vise, many amaleur-
buiIl aircrah have superior speed, maneuverabiIily, fueI economy, and/or handIing
characlerislics compared lo Iighl-produclion aircrah. In many cases, lhe performance
benels are due lo fealures and lechnoIogies nol avaiIabIe or used on mosl nev-
produclion aircrah. These benels incIude nev-lechnoIogy engines: Iov-drag, naluraI-
Iaminar-ov vings: and carefuIIy conloured fuseIage aerodynamics and very smoolh
surfaces heId lo high loIerances and crahed from advanced composile lechnoIogies.
These aircrah represenl lhe lesl-bed for nev lechnoIogies lhal viII evenluaIIy be
inlroduced in lhe deveIopmenl and manufaclure of lhe nexl generalion of Iighl-produclion
generaI avialion aircrah.
TABLE 4-1 Active U.S. General Aviation Aircraft ,
a
19602004
SingIe- MuIli-
Year TolaI Ingine Ingine Rolorcrah
|
Olher
c
IxperimenlaI
!
1960 76,549 68,301 7,243 634 371 N/A
1965 95,442 81,153 11,977 1,503 809 N/A
1970 131,743 109,643 18,291 2,255 1,554 N/A
1975 168,475 137,011 24,559 4,073 2,832 N/A
1980 211,045 168,435 31,664 6,001 4,945 N/A
1985 210,654 164,385 33,588 6,418 6,263 N/A
1990 229,279 165,073 32,727 7,397 7,032 N/A
1995 181,341 129,550 25,013 5,117 5,279 16,382
2000 217,533 149,422 33,853 7,150 6,701 20,407
2004 210,700 144,000 32,825 6,890 6,185 20,800
Source: IederaI Avialion Adminislralion, |AA Siaiisiica| Han!|cck cj Atiaiicn, pubIished annuaIIy.
a
efore 1971, an aclive aircrah vas one cerlied as eIigibIe lo y. CurrenlIy, an aclive aircrah
musl have a currenl U.S. regislralion and have been ovn during lhe previous caIendar year.
|
IncIudes aulogiros.
c
IncIudes gIiders, dirigibIes, and baIIoons.
!
IncIudes home-buiIl, exhibilion, and olher. Calegorized separaleIy aher 1990.
C H A P T E R 4 T H E G E N E R A L AV I AT I O N I N D U S T R Y 1 1 3
|acicrs Aj j ccii ng Gcncra| Ati aii cn
IundamenlaI changes have laken pIace in lhe generaI avialion induslry. efore 1978,
changes in lhe induslry mirrored changes in lhe economy. If lhe economy vas slrong and
groving, so vas generaI avialion: if a sIov-dovn occurred, generaI avialion Iagged as
veII. Hovever, since lhe Iong and precipilous decIine of aircrah shipmenls began in lhe
Iale 1970s, lhis expecled reIalionship has nol heId.
GeneraI avialion look o in lhe 1960s as lhe economy grev al a rapid pace, fueIed by lhe
Vielnam War and Iresidenl Lyndon Iohnsons Greal Sociely sociaI programs. GeneraI
avialion manufaclurers en|oyed a heyday, inlroducing nev modeIs and producing an
average of more lhan 9,000 airpIanes per year. Iour airpIanes in parlicuIar lhal vere
inlroduced in lhe 1960slhe Cessna 172, lhe Iiper Cherokee, lhe eech King Air 90, and
lhe Lear 23proved lo be beIIvelher designs for years lo come. The generaI avialion eel
aImosl doubIed during lhe 1960s, and nev-aircrah shipmenls reached a high of 15,768
unils in 1966.
The expansion of aII segmenls of avialion conlinued inlo lhe 1970s, vilh more airpIanes
soId in lhis decade lhan before or since. The generaI avialion aircrah eel increased from
131,743 lo 211,045 aircrah, and produclion hil a high of 17,811 aircrah in 1978. Nev aircrah
vere inlroduced in record numbers, parlicuIarIy lrainers such as lhe Iiper Cherokee and
Tomahavk modeIs, lhe Cessna 150 and 152, and lhe eech Sierra and Sundovner, lo name
a fev.
Hovever, some cIouds Ioomed on lhe horizon. As fueI prices soared during lhe 1970s,
manufaclurers began lo focus on more fueI-efcienl aircrah. Airspace congeslion vas
anolher probIem lhal lhe induslry had been sludying since lhe mid-1960s. As a resuIl,
lhe Airporl and Airvays DeveIopmenl Acl vas passed in 1970 lo provide lhe funding lo
expand and improve lhe airporl and airvay syslem over a 10-year period. And lerminaI
conlroI areas (TCAs) vere inlroduced lo lhe counlrys busiesl airporls: lhese required
lvo-vay communicalions vilh air lrafc conlroI (ATC), VOR navigalion capabiIily, and
aIlilude-reporling lransponders. Increasing reguIalions aecled lhe personaI-pIeasure
piIol in parlicuIar.
During lhe 1970s, lhe generaI avialion induslry aIso began focusing on lhe issue of
producl IiabiIily. The number of Iavsuils and lhe size of avards vere rising, and nol
surprisingIy, so vere insurance premiumsfrom $51 per nev airpIane in 1962 lo $2,111
in 1972. This vas a sign of lhings lo come for lhe aircrah manufaclurers and, no doubl,
a key reason for lhe sleep drop in lhe produclion of generaI avialion aircrah during lhe
1980s. Iroducl IiabiIily insurance cosls for lhe generaI avialion airframe buiIders lolaIed
aboul $135 miIIion in 1985, and based on unil shipmenls of 2,029 aircrah lhal year, lhe
cosls exceeded $70,000 per airpIane. This vas more lhan lhe seIIing price of many basic
lvo- and four-pIace aircrah.
These phenomenaI cosl increases during lhe rsl ve years of lhe 1980s came al a lime
vhen lhe induslrys safely record conlinued lo improve. Improved safely nolvilhslanding,
lhe number of producl IiabiIily suils conlinued lo increase. Iven more signicanl vas lhe
exponenliaI grovlh in seIemenls, |udgmenls, and IegaI cosls. y 1986, Cessna Aircrah
Company decided lo drop ils pislon-aircrah produclion and seIf-insure up lo $100
miIIion. Iiper decided lo operale vilhoul lhe benel of producl IiabiIily coverage, and
eech insured lhe rsl $50 miIIion annuaI aggregale exposure vilh ils ovn insurance
company.
A I R T R A N S P O R TAT I O N 1 1 4
TABLE 4-2 GAMA General Aviation Aircraft Shipments by Type of
Aircraft, 19622005
SingIe- MuIli- TolaI Turbo- Turbo|el/ TolaI
Year TolaI Ingine Ingine Iislon Irop Turbofan Turbine
1962 6,697 5,690 1,007 6,697 0 0 0
1963 7,569 6,248 1,321 7,569 0 0 0
1964 9,336 7,718 1,606 9,324 9 3 12
1965 11,852 9,873 1,780 11,653 7 112 199
1966 15,768 13,250 2,192 15,442 165 161 326
1967 13,577 11,557 1,773 13,330 149 98 247
1968 13,698 11,398 1,959 13,357 248 93 341
1969 12,457 10,054 2,078 12,132 214 111 325
1970 7,292 5,942 1,159 7,101 135 56 191
1971 7,466 6,287 1,043 7,330 89 47 136
1972 9,774 7,913 1,548 9,446 179 134 313
1973 13,646 10,788 2,413 13,193 247 198 445
1974 14,166 11,579 2,135 13,697 250 202 452
1975 14,056 11,441 2,116 13,555 305 194 499
1976 15,451 12,785 2,120 14,905 359 187 546
1977 16,904 14,054 2,195 16,249 428 227 655
1978 17,811 14,398 2,634 17,032 548 231 779
1979 17,048 13,286 2,843 16,129 639 282 921
1980 11,877 8,640 2,116 10,756 778 326 1,104
1981 9,457 6,608 1,542 8,150 918 389 1,307
1982 4,266 2,871 678 3,549 458 259 717
1983 2,691 1,811 417 2,228 321 142 463
1984 2,431 1,620 37 1,991 2 169 440
1985 2,029 1,370 193 1,563 32 145 466
1986 1,495 985 138 1,123 250 122 372
1987 1,085 613 87 700 263 122 385
1988 1,143 628 67 695 291 157 448
1989 1,535 1,023 87 1,110 268 157 425
1990 1,144 608 87 695 281 168 449
1991 1,021 564 9 613 22 186 408
1992 941 552 1 593 177 171 348
1993 964 516 9 555 211 198 409
1994 1,132 544 77 621 233 278 511
1995 1,251 605 61 666 285 300 585
1996 1,437 731 70 801 320 316 636
1997 1,840 1,043 80 1,123 279 438 717
1998 2,457 1,508 98 1,606 336 515 851
1999 2,808 1,689 112 1,801 340 667 1,007
2000 3,147 1,877 103 1,980 415 752 1,167
2001 2,997 1,645 147 1,792 421 784 1,205
2002 2,677 1,591 130 1,721 280 676 956
2003 2,686 1,825 71 1,896 272 518 790
2004 2,963 1,999 52 2,051 321 591 912
2005 3,580 2,326 139 2,465 365 750 1,115
Source: GAMA, GeneraI Avialion SlalislicaI Dalabook, 2006.
C H A P T E R 4 T H E G E N E R A L AV I AT I O N I N D U S T R Y 1 1 5
Olher faclors vere aIso vorking againsl lhe privale business and pIeasure ier. AirIine
dereguIalion in 1978 al rsl caused a decrease in lhe use of business aircrah, as lhe air
carriers, incIuding many nev ones, served nev markels and compeled for cuslomers by
Iovering fares. ul as lhe airIines concenlraled lheir ighls al hub cilies and merger mania
slruck lhe induslry in lhe earIy 1980s, service lo many smaIIer communilies vas dropped
or severeIy cul back as compelilion decreased. The use of corporale aircrah slarled lo
rebound, and lhe ma|or manufaclurers focused more aenlion on lurboprops and |els. y
lhis lime, lhese manufaclurers had been purchased by Iarger congIomerales. In 1980, eech
Aircrah vas acquired by Raylheon Company. Cessna vas acquired by GeneraI Dynamics
in 1985 and lhen soId lo Texlron in 1991. Irances IuraIair, an air charler, execulive |el,
and cargo operalor, boughl Mooney in 1984. Iipers ovner, angor Iunla Corporalion,
vas boughl by Lear-SiegIer, vhich, in lurn, vas boughl by inveslmenl banker Iorslmann
LiIe and lhen in 1987 by enlrepreneur M. Sluarl MiIIar. UnforlunaleIy, lhe recession of
lhe earIy 1990s and coslIy IiabiIily cIaims forced lhe company inlo Chapler 11 bankruplcy
by 1992.
In lhe earIy 1980s, generaI avialion foIIoved lhe resl of lhe economy inlo a recession.
Inleresl rales vere al an aII-lime high vhen Iresidenl RonaId Reagan look ofce in 1980.
Iverylhing from housing slarls lo durabIe goods saIes, incIuding aulos and generaI
avialion aircrah saIes, pIummeled. The economy began lo recover in 1983, bul generaI
avialion did nol, for a number of reasons. No doubl lhe high inleresl rales of lhe Iale 1970s
and earIy 1980s had an eecl al lhe beginning of lhe sIide. Acquisilion cosls, incIuding
lhose for avionics equipmenl, rose sharpIy during lhe earIy lo mid-1980s, despile very
IiIe change in lhe design or fealures of lhe lypicaI singIe-engine aircrah. Used aircrah
vere readiIy avaiIabIe, and prospeclive buyers vere reIuclanl lo purchase nev equipmenl
al considerabIy higher prices. TolaI operaling expensesincIuding fueI, mainlenance,
and hangar charges, and insuranceaII sleadiIy increased during lhe 1980s, making il
more expensive for lhe occasionaI ier.
Anolher ma|or faclor, discussed previousIy, vas lhe sharp rise in producl IiabiIily cIaims,
vhich caused lhe Iighl-aircrah manufaclurers lo concenlrale on lheir higher-priced Iine
of lurbine equipmenl. The grovlh in number and avaiIabiIily of regionaI and commuler
airIine service lo many smaIIer communilies aIso IikeIy reduced lhe desirabiIily of using
privale generaI avialion aircrah vhen pIanning business or pIeasure lrips. And changing
lasles and preferences among lhe lradilionaI business and pIeasure aircrah users may have
conlribuled lo lhe decIine in lhe 1980s, even as inleresl in sporls cars and boals seemed lo
peak. The IeveI of professionaIism required lo y even a Iighl aircrah in lodays air lrafc
environmenl has grounded many privale pIeasure iers. Some of lhese individuaIs chose
lo y much Iess expensive uIlraIighls and kil pIanes in unconlroIIed airspace.
Anolher nanciaI pressure vorking againsl aircrah ovnership resuIled from passage
of lhe Tax Reform Acl of 1986, vhich eIiminaled lhe 10 percenl inveslmenl lax credil.
This vas foIIoved by a Iuxury lax on boals and pIanes, vhich onIy exacerbaled lhe
probIem of decIining nev aircrah saIes. IinaIIy, foreign aircrah manufaclurers enlered
lhe lradilionaIIy U.S.-dominaled markel in a much bigger vay during lhe 1980s. In lhe
1970s, U.S. generaI avialion aircrah manufaclurers heId a dominanl posilion vorIdvide.
ul since 1981, imporls of generaI avialion airpIanes have exceeded U.S. exporls in
doIIar vaIue. Many foreign governmenls supporled lheir edgIing avialion induslries
lhrough subsidizalion of research, deveIopmenl, produclion, and nancing, and foreign
manufaclurers conlinued lo gain an ever-increasing foolhoId in lhe U.S. markel. Aircrah
made abroad accounled for more lhan 50 percenl of aII aircrah deIivered lo U.S. cuslomers.
A I R T R A N S P O R TAT I O N 1 1 6
Iven in lhe high-end markel, saIes of foreign-manufaclured business |els accounled for
aImosl 40 percenl of aII business |els soId here in lhe earIy 1990s.
MeanvhiIe, shipmenls of nev U.S.-manufaclured generaI avialion aircrah conlinued
lo faII, reaching a Iov of 928 unils in 1994. As a resuIl of lhe induslrys devaslaling
decIine, due IargeIy lo producl IiabiIily Iavsuils, Congress passed lhe GeneraI Avialion
RevilaIizalion Acl (GARA) in 1994. The GARA ushered in a nev vave of oplimism in lhe
generaI avialion induslry.
Wilh some exceplions, lhe GARA imposed an 18-year slalule of repose, Iimiling
producl IiabiIily suils for aircrah having fever lhan 20 passenger seals nol engaged in
scheduIed passenger-carrying operalions. Cessna immedialeIy announced lhal il vouId
resume produclion of singIe-engine aircrah in 1996. The Nev Iiper Aircrah Corporalion
vas formed, and in 1995, generaI avialion aircrah shipmenls naIIy increased aher a 17-
year decIine.
In 1997, lhe oplimism so prevaIenl in lhe induslry since lhe passage of lhe GARA vas
evidenced by lhe reIease of nev producls and services, expansion of produclion faciIilies,
increased sludenl slarls, increased aircrah shipmenls, and record-seing gains in aircrah
biIIings. These condilions suggesled conlinued improvemenl in lhe generaI avialion
induslry in 1998 and beyond. According lo a poII of Aircrah Ovners and IiIols Associalion
(AOIA) members conducled in March 1992, onIy 41 percenl said lhal lhey vere oplimislic
aboul lhe fulure of generaI avialion. In response lo a simiIar poII in Ianuary 1997, 51 percenl
responded oplimislicaIIy, and by ApriI 1998, lhe poII of cerlicaled piIols reporled lhal
74.5 percenl of ils members lhoughl lhe slale of avialion vas lhe same or beer lhan il had
been. This reneved oplimism among lhe piIol communily, aircrah manufaclurers, and lhe
induslry as a vhoIe couId be direclIy aribuled lo lhe slrong economy and lhe passage of
lhe GARA in 1994.
In Ianuary 1997, Cessna deIivered ils rsl nev singIe-engine pislon aircrah since 1986. In
addilion, Lancair InlernalionaI, Diamond Aircrah, and Mooney aIso produced nev pislon
modeIs. GaIaxy Aerospace roIIed oul ils nev business |el in lhe faII of 1996. AerospaliaIe
and RenauIl |oined forces lo produce Iighl-aircrah pislon engines for cerlicalion in 1999.
Iiper announced pIans lo manufaclure lhe Meridian, a singIe-engine lurboprop vhich
rsl ev in 1999.
Nev manufacluring faciIilies opened lo supporl expanded produclion. Cirrus Design
broke ground on lvo faciIilies lo supporl produclion of lhe SR 20. AIso, SabreIiner slarled
a Iarge expansion program al lheir Missouri faciIily.
In 1999, Cessna announced pIans and orders for lhe nev Cilalion modeIslhe CI1, CI2,
Sovereign, and UIlra Incore. Raylheon announced lhal il vouId begin deIiveries of ils
Iremier I, an enlry-IeveI |el lhal fealures a composile fuseIage vilh melaI vings, in 2000.
Mooney deIivered ils rsl IagIe in 1999.
oeing usiness Iels announced ils pIan lo buiId a Iarger version of ils Iong-range
corporale |el, lhe I-2. oeing usiness Iels, a |oinl enlerprise of oeing and GeneraI
IIeclric, enlered lhe markel in 1998 vilh lhe Iong-range I, vhich vas based on a hybrid
of lhe 737-700/800 aircrah. Tvenly-eighl aircrah vere deIivered in 1999. Airbus and
IairchiId are aIso markeling business |els lhal are based on aircrah originaIIy designed for
commerciaI operalions.
During lhe 1990s, fraclionaI ovnership programs oered by Ixeculive Iels NelIels,
ombardiers IIex|el, Raylheons TraveI Air, IIighl Oplions, and TAG Avialion grev al
a rapid pace. Irom 1993 lhrough lhe end of 1999, lhese ve ma|or fraclionaI ovnership
providers increased lheir eel size and sharehoIders al average annuaI rales above 65
C H A P T E R 4 T H E G E N E R A L AV I AT I O N I N D U S T R Y 1 1 7
percenl. Despile lhis record grovlh, onIy a smaII percenlage of lhis markel has been
deveIoped.
IraclionaI ovnership programs are IIing lhe niche for corporalions, ceIebrilies, and
businesspeopIe vho do nol y enough lo varranl having lheir ovn ighl deparlmenl.
IraclionaI ovnership providers oer lhe cuslomer a more efcienl use of lime by providing
a fasler poinl-lo-poinl lraveI lime and lhe abiIily lo conducl business vhiIe ying. In
addilion, sharehoIders of fraclionaI ovnership nd lhe minimum slarl-up concerns and
easier exiling oplions of greal benel.
The 1990s lruIy represenled a revilaIizalion of lhe induslry. TolaI biIIings in 1999 soared
35.1 percenl over 1998, reaching $7.9 biIIion, and unils shipped increased from 2,200 lo
2,504, or 12.6 percenl. Iul inlo perspeclive, generaI avialion saIes in 1999 vere quadrupIe
lhose of 1991. The Iasl year of lhe decade aIso marked lhe rsl lime in lhe GAMAs hislory
lhal bolh biIIings and shipmenls increased for ve conseculive years. Il marked lhe rsl fuII
year of deIiveries of lhe Cessna 206H Slalionair and T206H Turbo Slalionair. DeIiveries of
lhe composile-conslruclion Cirrus Design SR 20 began, and Mooney Aircrah Corporalion
began produclion of lhe Ovalion 2, a fasler and more fueI-efcienl version of lhe rms
besl-seIIing modeI, lhe Ovalion.
The biggesl |ump in 1999 saIes revenue, simiIar lo 1998, vas in lhe lurbofan aircrah
segmenl. SaIes rose 23.9 percenl, in Iarge parl because of slrong incremenlaI grovlh
and fraclionaI ovnership programs. The decade cIosed vilh across-lhe-board grovlh in
generaI avialion aclivily, corporale ighl deparlmenls, fraclionaI programs, and charler
ighls.
The nev miIIennium slarled oul vilh a conlinualion of lhe 1990s. Nev manufacluring
faciIilies vere being buiIl and oId faciIilies expanded. SaIes of generaI avialion aircrah
conlinued lo sel nev records for vaIue of aircrah shipped. Much of lhis record saIes vaIue
is for aircrah al lhe higher priced end of lhe generaI avialion eellurbine-povered
aircrahand is IikeIy due in parl lo lhe increase in fraclionaI ovnership. More lhan
900 lurbine aircrah vere deIivered in 2000 (see TabIe 4-2) as produclion capacily soared
lo keep up vilh record backIogs in manufaclurers order books. Cessna, for exampIe,
doubIed lhe number of IxceIs il deIivered and increased ravo produclion by 50 percenl.
DassauIl IaIcon Iel deIiveries reached 73, ve more lhan in 1999, and ils backIog of orders
increased. Lear|el 45 deIiveries vere up from 43 in 1999 lo 71 in 2000. Iven deIiveries of
lhe venerabIe Raylheon Havker 800 XI increased by 22 percenl.
Iislon-aircrah shipmenls grev by aImosl 11 percenl, buoyed by an infusion of nev
lechnoIogy from Lancair and Cirrus Design and by increased pislon deIiveries from
Cessnas Independence, Kansas, pIanl. The year 2000 sav lhe rsl deIiveries of Lancairs
CoIumbia 3000. Cirrus deIivered 95 nev four-seal SR 20 modeIs. Cessna pislon deIiveries
increased lo 912 unils.
Hovever, cIouds vere on lhe horizon, and by 2001 lhe economy sIipped inlo a recession.
WhiIe saIes reached anolher high, IargeIy lhe resuIl of slrong lurboprop and |el saIes, lhe
lolaI number of shipmenls feII for lhe rsl lime in six years. Unexpecled evenls, such as lhe
lragedy on Seplember 11, 2001, lhe economic sIovdovn during lhe rsl lhree years of lhe
nev miIIennium, and lhe increase in cosls reIaled lo fueI and IiabiIily, vividIy demonslrale
lhal lhe fulure, as in lhe pasl, viII bring nev chaIIenges lo lhe generaI avialion induslry.
A I R T R A N S P O R TAT I O N 1 1 8
Uscs cj Ai rcraj i
The size and diversily of generaI avialion makes il difcuIl lo calegorize for slalislicaI
purposes. Aircrah ovn for business during lhe veek may be used for personaI
lransporlalion on veekends, lhe same vay a famiIy car is used. InslruclionaI aircrah may
be used for charler (air laxi) service or renled lo cuslomers for business or personaI use. An
air laxi airpIane may be used for advanced ighl inslruclion or for renlaI lo business- or
personaI-use cuslomers, and so on. NeverlheIess, lhe IAA has broken dovn lhe numbers
of generaI avialion aircrah by lype and primary use, from vhich a furlher anaIysis can be
made on lhe basis of soIiciled reporls from lhe users (see TabIe 4-3).
Business Aviation. The NalionaI usiness Aircrah Associalion (NAA) denes business
avialion as faIIing inlo lvo calegories: business aircra use and corporate aircra use.
1. Busincss aircrah usc. Any use of an aircrah nol for compensalion or hire by an indi-
viduaI for lhe purpose of lransporlalion required by a business in vhich he or she is
engaged (in olher vords, personaIIy ovn)
2. Ccrpcraic aircrah usc. Any use of an aircrah by a corporalion, a company, or anolher
organizalion for lhe purpose of lransporling ils empIoyees and/or properly nol for
compensalion or hire and empIoying professionaI piIols for lhe operalion of lheir
aircrah
usiness aircrah compIemenl airIine services in salisfying lhe nalions business
lransporlalion requiremenls. AIlhough airIines oer lransporlalion lo lhe Iargesl cilies
and business cenlers, business avialion speciaIizes in many areas vhere ma|or airIines
cannol salisfy demand. More lhan 36,000 generaI avialion aircrah are ovn, primariIy
for business purposes, providing quick, safe, and reIiabIe lransporlalion vhenever and
vherever business needs require lhem.
usiness avialion operalors use aII lypes of aircrah, from singIe- and lvin-engine
pislon-povered airpIanes, heIicoplers, and lurboprops lo lhe faslesl |els, lo ensure
maximum business eecliveness. Over lvo-lhirds of lhe Iorlune 500 companies
operale business aircrah, and virluaIIy aII of lhese aircrah operalors are members
of lhe National Business Aircra Association (NBAA). The NAA is lhe principaI
represenlalive of business avialion before Congress and lhe reguIalory agencies, such
as lhe IAA. Il represenls over 7,000 companies, vhich operale over 9,000 aircrah.
NAA member companies earn annuaI revenues amounling lo approximaleIy
$5 lriIIion. Turbo|els are lhe mosl videIy used lype of aircrah. Over one-haIf of NAA
members have lurbo|els, approximaleIy 20 percenl have lurboprops, and aboul 10
percenl use muIli-engine pislon-povered aircrah. AIlhough mosl of lhese aircrah are
operaled domeslicaIIy, an increasing number are uliIized lo expand markels overseas.
Numerous exampIes of lypicaI lraveIing scheduIes purporl lo demonslrale lhe
advanlages of business aircrah over lhe commerciaI airIines. ecause of lhe proIiferalion
of airIine hub-and-spoke syslems since dereguIalion, ying business aircrah direclIy
belveen airporls has become a big advanlage. The monelary-equivaIenl savings in lerms of
execulives lime lhal vouId olhervise be spenl in lraveIing lo and from air carrier airporls
and in vailing for scheduIed air carrier ighls, pIus holeI expenses, meaIs, and renlaI car
expenses, Ioom Iarge on lhe benel side of such caIcuIalions. NormaIIy unquanlied are
C H A P T E R 4 T H E G E N E R A L AV I AT I O N I N D U S T R Y 1 1 9
TABLE 4-3 Number of Active General Aviation Aircraft by Type and Primary Use, 2002 (excluding commuters)
Aclive
GeneraI AeriaI AeriaI
Aircrah Avialion Inslruc- AppIi- Obser- AeriaI Sighl- IxlernaI Air Air
Type Aircrah Corporale usiness IersonaI lionaI calion valion Olher Seeing
a
Load Tours
|
Taxi MedicaI Olher
AII aircrah 211,244 10,810 24,153 145,996 13,203 3,971 4,535 899 641 151 259 3,898 996 1,733
lolaI
Iislon 161,087 1,947 20,619 117,365 11,775 2,759 2,632 431 130 0 110 2,212 190 918
Turboprop 6,841 2,417 1,386 1,086 42 510 113 174 0 0 0 779 224 118
Turbo|el 8,355 5,691 1,119 618 95 5 0 0 0 0 0 685 26 117
Rolorcrah 6,648 551 463 1,373 536 581 1,748 260 65 145 99 216 532 67
GIiders 1,951 0 5 1,704 201 0 0 0 34 0 0 0 0 7
Lighler- 4,426 5 21 3,679 45 0 0 5 407 0 50 0 0 214
lhan-air
IxperimenlaI 21,936 198 540 20,172 509 116 43 30 5 7 0 6 23 287
Source: IederaI Avialion Adminislralion, |AA Siaiisiica| Han!|cck cj Atiaiicn. 2003.
Noles: Rov and coIumn summalion may dier from prinled lolaIs because of eslimalion procedures or because some aclive aircrah did nol reporl use.
a
IncIudes sighl-seeing performed under IAR 14CIR91: GeneraI Operaling and IIighl RuIes.
|
IncIudes air lours performed under IAR 14CIR135: Air Taxi Operalors and CommerciaI Operalors.
lhe advanlages of exibiIily and preslige (vhich may or may nol bring aboul pecuniary
benels) and lhe facl lhal privale meelings can be heId in privaleIy ovned aircrah.
The same is aIso generaIIy lrue of smaIIer businesses, vhich have discovered lhe benels
of mainlaining lheir ovn aircrah. Il is nol unusuaI for generaI avialion aircrah operalors
lo hoId business meelings in severaI cilies hundreds of miIes aparlon lhe same day.
IraclionaI ovnership has aIso become an imporlanl oplion loday. Companies or
individuaIs ovn a fraclion of an aircrah and receive managemenl and piIol services
associaled vilh lhe aircrahs operalion. IraclionaI ovnership aIIovs companies lhal have
never before used business aircrah lo experience many of lhe advanlages of business
avialion quickIy and vilhoul lypicaI slarl-up consideralions associaled vilh lradilionaI
ighl deparlmenls. Il aIso aIIovs exisling ighl deparlmenls lo suppIemenl lheir currenl
aircrah vhen needed.
Todays business aircrah are quieler, more efcienl, and safer lhan ever before. Much
Iike compulers, business aircrah are poverfuI business looIs lhal can make a company
more prolabIe by enabIing il lo make beer use of ils mosl vaIuabIe asselslime and
personneI.
Personal Flying. AII ying lhal is nol common carrier for hire, business ying, or
commerciaI ying, as dened lo lhis poinl, is personal ying. IersonaI lransporlalion
by air is nol economicaIIy reguIaled: a personaI pIane is Iike a personaI car. When lhe
ovner (or renler) uses a car or pIane for a business lrip, il becomes a business aulomobiIe
or a business aircrah. ul lhere is no vay lo leII vhelher a car or an airpIane is being
used for business or for pIeasure simpIy by Iooking al il. A muIlimiIIionaire may ovn a
Iarge airpIane as a pureIy privale conveyance, vilh no business use. Hovever, because
lhe ma|orily of privaleIy ovned (as dislinguished from company-ovned or corporale-
ovned) aircrah are of lhe Iighl singIe- or Iighl lvin-engine variely, il is appropriale lo
discuss lhis imporlanl segmenl of lhe generaI avialion induslry al lhis lime.
AIlhough lhe range and endurance of Iighl airpIanes is veII documenled (for exampIe,
vilh Lindberghs Spirii cj Si. Icuis, a high-ving monopIane simiIar in size lo a Cessna
180, and his Lockheed Sirius, in vhich he ev over lhe Norlh IoIe lo lhe Orienl: and vilh
WiIey Iosls Lockheed Vega), lhe pubIic impression is lhal lhe pIanes are good onIy for
shorl hops in a Iimiled area. In lhe earIy 1950s, iII Odom ev a singIe-engine onanza
from Havaii lo SeaIe nonslop, lhen venl back lo lhe IsIands and ev lhe same airpIane
nonslop lo Telerboro, Nev Iersey. Max Conrad ev a 125-hp Iiper Iacer across lhe Norlh
AlIanlic and back lo visil his famiIy in Iurope. He aIso ev a Iiper Comanche from
CasabIanca lo Los AngeIes nonslop. In 1959, a Cessna 172 vas ovn for 65 days vilhoul
Ianding, vhich is equivaIenl lo circIing lhe vorId six limes nonslop.
Iusl as aulomobiIes and boals are used for personaI lransporlalion and recrealion,
personaI ying is a Iegilimale use of lhe sky. An aircrah is an efcienl and eeclive
business looI, bul il is aIso a pIeasanl recrealionaI vehicIe. Thousands of privale piIols
use lheir aircrah lo visil friends and reIalives, aend speciaI evenls, and reach remole
vacalion spols.
These aircrah are aIso ovn by doclors, Iavyers, accounlanls, engineers, farmers, and
smaII-business ovners in lhe course of lheir business. TypicaIIy, such persons use lheir
aircrah parlIy for business and parlIy for pIeasure. They dier primariIy from lhe pureIy
business ier vilh respecl lo lhe lype of aircrah ovn. A much higher proporlion of lhe
100,000 aircrah lhey y are singIe-engine pislon aircrah.
C H A P T E R 4 T H E G E N E R A L AV I AT I O N I N D U S T R Y 1 2 1
A number of organizalions represenl lhe inleresls of lhe business and pIeasure ier:
by far lhe mosl imporlanl is lhe Aircra Owners and Pilots Association (AOPA). This
organizalion, headquarlered in lhe Washinglon, D.C., area, incIudes over 385,000 members,
vho ovn aboul 70 percenl of lhe aclive generaI avialion aircrah in lhe Uniled Slales. In
addilion lo ils funclion as congressionaI Iiaison, lhe AOIA provides a variely of services
for ils members, many of vhich are designed lo enhance air safely.
Instructional Flying. InslruclionaI ying accounled for roughIy 15,000 aircrah, or 7
percenl of lhe lolaI, in 2005. This calegory incIudes any use of an aircrah for purposes of
formaI inslruclion, eilher vilh lhe inslruclor aboard or vhen lhe sludenl is ying soIo bul
is carrying oul maneuvers according lo lhe inslruclors specicalions. CIose lo 90 percenl
of lhe aircrah used for inslruclion are of lhe singIe-engine lype.
Oblaining a privale piIols Iicense for business or personaI reasons is lhe primary goaI
for many sludenls. Olhers use il as a slepping slone lo an airIine or miIilary avialion
career. Mosl peopIe Iearn lo y lhrough a IocaI xed-base operator (FBO). IOs provide
fueI and service, and lhey aIso renl and seII airpIanes. They usuaIIy have a professionaI
ighl inslruclor on sla vho provides ground and ighl inslruclion. Many individuaIs
aIso Iearn lo y lhrough a IocaI ying cIub lhal oers ighl lraining. Such cIubs are made
up of groups of individuaIs vho ovn aircrah and renl lhem lo members. They usuaIIy
oer ighl inslruclion and olher ying-reIaled aclivilies lo lheir members. In addilion,
many vocalionaI and lechnicaI schooIs, coIIeges, and universilies oer avialion programs
lhal incIude ighl lraining.
Commercial and Industrial Aviation. The remaining aircrah use calegories are broken
dovn as foIIovs:
1. Acria| app|icaiicn. Any use of an aircrah for vork purposes reIaled lo lhe produclion
of foods and bers or lo heaIlh conlroI measures, in vhich lhe aircrah is repIacing
farm impIemenls or ground vehicIes for lhe parlicuIar lask accompIished. This in-
cIudes re-ghling operalions and lhe dislribulion of chemicaIs or seeds in agricuI-
lure, reforeslalion, and insecl conlroI. ApproximaleIy 4,000 aircrah are used for aerial
application. The ma|orily are singIe-engine pislon aircrah.
The use of aircrah in agricuIlure is a ma|or faclor in lhe produclion of food and ber
aII over lhe vorId. The Iapanese, Russians, and Chinese are spending huge amounls
of money lo appIy ferliIizers, lo spread seeds in inaccessibIe Iocalions, lo conlroI pesls,
and lo harvesl crops using aircrah. AIlhough lhe pubIic image of crop duslers is lhal
lhey are ying daredeviIs vho operale imsy crales and poIIule lhe environmenl, lhe
facl is lhal avialion is a ma|or faclor in lhe produclion of coon, vegelabIes, and beef
(by seeding and ferliIizing grazing Iands) and in lhe eradicalion of pesls, such as lhe
re anl, lhe screv vorm, and lhe gypsy molh. ul il is aIso an expensive business.
These speciaIIy designed aircrah, such as lhe Cessna Ag Truck and Ag Husky, cosl in
excess of $150,000 each. NeedIess lo say, lhe operalors, many of vhom have eels of
as many as 50 aircrah, are invoIved in big business, requiring bank Ioans for equip-
menl renevaI, vhich, in lurn, requires insurance coverage. ul if lhe business vas as
hazardous as many lhink il is, no banker or insurance company vouId deaI vilh il.
The air-dropping of chemicaIs and re-relardanl sIurry by aircrah is a ma|or
veapon in lhe conlroI of foresl and brush res from lhe pine voods of Nev Iersey
lo lhe IIorida IvergIades, and from lhe foresls of lhe ig Sky counlry lo lhe hiIIs of
A I R T R A N S P O R TAT I O N 1 2 2
soulhern CaIifornia. This avialion speciaIly is seIdom seen by mosl members of lhe
pubIic.
Resorl operalors have found lhal lhe spraying of Iighl oiIs and suspensions by
aircrah (as dislinguished from agricuIluraI use of simiIar aircrah) has enhanced lheir
business by eIiminaling lhe irrilalions of smaII ying insecls. In addilion lo eIiminal-
ing a nuisance, aeriaI appIicalion of peslicides has been highIy eeclive in conlroIIing,
and in many cases eIiminaling, diseases lransmied by insecls, such as maIaria.
2. Acria| c|scrtaiicn. Any use of an aircrah for aeriaI mapping or pholography, survey,
palroI, sh spoing, search and rescue, hunling, or highvay lrac advisory nol in-
cIuded under IAR Iarl 135. Over 4,500 aircrah are incIuded under lhis calegory.
Land use pIanners, reaI eslale deveIopers, beach erosion engineers, business-
peopIe seeking nev induslriaI siles, and pubIic ofciaIs and highvay designers
aII use pholographs laken from aircrafl in lheir deIiberalions.
CommerciaI shing eels have found lhal lheir operalions are more produclive
and prolabIe vhen lhey can be direcled lo concenlralions of sh schooIing far
from lhe shore. Therefore, lhe use of Iighl aircrah for lhal purpose has evoIved lo
become an inlegraI parl of lhe shing induslry.
Ma|or melropoIilan poIice deparlmenls have found lhal road palroIs by aircrah are
a highIy eeclive means of moniloring lhe ov of lrafc during morning and evening
rush hours and apprehending Iavbreakers. Mosl poIice air palroIs are performed in
aircrah Ieased from generaI avialion operalors.
Anolher speciaIized service usuaIIy performed on a conlracl basis is ying al very
Iov IeveIs aIong pubIic uliIily righls of vay lo inspecl lhe inlegrily of energy Iines and
lo check for lransformer faiIures, broken insuIalors, shorl circuils, or Iine breaks. In-
speclion by air is frequenlIy lhe onIy economicaI means of performing such service.
3. Acria| cincr. ApproximaleIy 900 aircrah faII inlo olher aeriaI pursuils such as aeriaI
adverlising, vealher modicalion, and viIdIife conservalion.
On lhe basis of cosl per lhousand, key vords in lhe adverlising business, a loved
banner or a message vrien in smoke over a cily viII drav a Iarger audience for lhe
cosl lhan any olher form of adverlising. A banner loved over a sporls sladium or
aIong a hundred miIes of crovded beach is seen by more peopIe lhan a simiIar mes-
sage carried for lhe same price in any olher communicalion medium. A sky message
vrien over Manhaan on a cIear day can be seen by 10 miIIion peopIe al one lime.
AeriaI adverlising is a highIy speciaIizedbul very Iucraliveparl of commerciaI
avialion.
Wealher modicalion and viIdIife conservalion funclions of commerciaI avialion
are usuaIIy performed on a conlracl basis and require speciaI experlise. The crealion
of bolh rainfaII in arid regions and snov in ski resorl areas has been accompIished
recenlIy. The Iish and WiIdIife Service relains commerciaI operalors lo survey herd
and ock movemenls and lo counl lhe size of herds, as veII as lo air-drop food vhen
naluraI forage is unavaiIabIe.
Il is impossibIe lo assign a specic vaIue lo lhese commerciaI avialion operalions.
Hovever, vilhoul lhem, ve vouId pay far more for cIolhing, bers, and food producls.
SimiIarIy, lhe proleclion of naluraI resources, Iand pIanning, and disease and pesl conlroI
are imporlanl, bul lheir vaIue is difcuIl lo compule in doIIars.
C H A P T E R 4 T H E G E N E R A L AV I AT I O N I N D U S T R Y 1 2 3
Signi-sccing. Air Tcurs. an! Air Taxi. Aircrah ovn for lhe purpose of signi-sccing an!
air icurs lolaIed over 900 in 2002, or Iess lhan 1 percenl of lhe aclive eel. Sighl-seeing
incIudes ying conducled under IAR Iarl 91, vhereas air lours are conducled under IAR
Iarl 135 (see TabIe 4-3). More lhan one-haIf of lhe sighl-seeing ighls are made in Iighler-
lhan-air aircrah. The ma|orily of air lours are conducled in rolorcrah and Iighler-lhan-air
aircrah. Air icurs ovn over videIy diverse areas such as lhe IIorida Keys or lhe Grand
Canyon have become very popuIar vilh lourisls.
Air iaxi or charler rms serve as on-demand passenger and aII-cargo operalors. This
calegory covers aII lypes of aircrah, incIuding singIe- and muIli-engine pislon and lurbine
aircrah and rolorcrah operaling under IAR Iarl 135. The greal advanlage of lhe on-caII air
laxi or charler operalor is ils exibiIily.
Charlering an airpIane is simiIar lo hiring a laxi for a singIe lrip. The charlerer or air
laxi operalor provides lhe aircrah, ighl crev, fueI, and aII olher services for each lrip. The
charleree pays a fee, usuaIIy based on miIeage or lime, pIus exlras such as vailing lime
and crev expenses. Using an air laxi is parlicuIarIy araclive for a rm lhal requires an
airpIane onIy infrequenlIy or seIdom needs a suppIemenl lo ils ovn aircrah. Iirms viII
aIso charler vhen lhey need a speciaI-purpose aircrah, such as a heIicopler.
As commerciaI operalors, air laxi rms musl conform lo more slringenl operaling and
mainlenance requiremenls. In addilion, each air laxi or charler operalor, regardIess of lhe
lype of airpIanes used, musl have an air laxi cerlicale on Ie vilh lhe IAA. This cerlicale
is issued by lhe IAA aher proper appIicalion procedures have been foIIoved, lhe pIane has
been inspecled, and cerlain minimum insurance coverages and Iimils have been oblained.
In 2002 lhe IAA Iisled approximaleIy 3,900 air laxi aircrah, vhich represenled aboul 2
percenl of lhe generaI avialion eel (see TabIe 4-3).
External Load and Medical. |xicrna| |ca! incIudes aircrah under IAR Iarl 133. The
ma|orily of aircrah under lhis calegory are rolorcrah used for exlernaI Ioad operalions, such
as hoisling heavy Ioads and hauIing Iogs from remole Iocalions. If il vere nol for generaI
avialion aircrah, primary heIicoplers lhal lransporl heavy, expensive driIIing equipmenl,
as veII as peopIe, day and nighl, good vealher and bad, Americas dependence on foreign
oiI vouId be far grealer and vouId sureIy impacl negaliveIy on lhe American consumer.
The nc!ica| calegory is aIso dominaled by heIicoplers, vhich represenl more lhan 50
percenl of lhe aircrah ovn lo carry peopIe or donor organs for lranspIanl. There are limes
vhen lhe American Red Cross needs lo lransporl emergency suppIies lo disasler viclims
or bIood of rare lypes or in Iarge quanlilies. The enlire medicaI emergency evacualion
process vas changed vhen slale and IocaI governmenls began eslabIishing MIDIVAC
unils lo respond lo crilicaIIy in|ured persons such as lhose invoIved in aulo accidenls.
The survivaI rale in Iife-lhrealening in|uries is grealIy enhanced vhen a person can be
lransporled quickIy lo nearby hospilaIs. There are over 1,100 aircrah used in lhe exlernaI
Ioad and medicaI calegories.
Other Flying. The naI calegory of generaI avialion crah incIudes a vide variely of over
1,700 singIe-engine and muIli-engine aircrah used for purposes nol incIuded under lhe
olher calegories. IxampIes incIude aircrah used for research and deveIopmenl, lesling,
demonslralion, and governmenl purposes.
CIose lo one-lhird of lhe aircrah in lhis calegory are governmenl aircrah. These aircrah,
mosl of vhich vere designed for civiIian use, Iog miIIions of hours a year on governmenl
business. Agencies and deparlmenls such as AgricuIlure, Commerce, Inergy, lhe IIA,
A I R T R A N S P O R TAT I O N 1 2 4
HeaIlh and Human Services, Inlerior, Iuslice, Slale, Transporlalion, Treasury, NASA, and
TVA use aircrah lo perform a vide variely of lasks, incIuding:
Iire ghling AeriaI pholography
Lav enforcemenl IoIIulion conlroI
Scienlic research Search and rescue
and deveIopmenl Drug inlerdiclion
IIighl inspeclion AgricuIluraI appIicalion
Surveying Transporlalion of governmenl
IoverIine and pipeIine personneI
palroI
Ai rpcris
AcluaIIy, lhe lerm gcncra| atiaiicn airpcri is a common misnomer. AII airporls are generaI
avialion airporls, incIuding lhose used by lhe cerlicaled air carriers, vhich are somelimes
referred lo as air carrier airporls. In addilion, many airporls lhal are nol cerlicaled for
air carrier service may be used by air carrier charler ighls if lhe faciIilies are adequale. Or,
lo pul il anolher vay, air carriers may use so-caIIed generaI avialion airporls as veII.
The IAA issues an annuaI reporl on Ianding faciIilies in lhe Uniled Slales and ils
possessions. Al lhe beginning of 2001, lhe gross number of aircrah Ianding faciIilies vas
given as 19,245 (see TabIe 4-4). Hovever, lhis gure is nol reslricled lo airporls bul incIudes
olher forms of Ianding faciIilies nol used by convenlionaI aircrah, such as heIiporls,
sloIporls (shorl-lakeo-and-Ianding airporls), and seapIane bases. Il aIso incIudes airporls
Iocaled on American Samoa, Guam, and U.S. Trusl Terrilories.
Private-Use Airports. Private-use airports are lhose lhal are nol open lo lhe generaI
pubIic bul are reslricled lo use by lheir ovners and lhe inviled guesls of lhe ovners on an
excIusive-use basis. Such airporls are comparabIe lo privale roads or drivevays.
Public-Use Publicly Owned Airports. There are 5,133 publicly owned airports in lhe
Uniled Slales, ranging in size from lhe enormous DaIIasIorl Worlh and IIK Iayouls lo
lhe smaII grass eIds ovned by IocaI communilies. AII of lhese airporls may be used by
Iighl generaI avialion aircrah. IIiers inlending lo use any airporl can consuIl governmenl
or induslry pubIicalions lo ascerlain ils capacily and equipmenl.
An airporl ovned by a governmenl body can usuaIIy be regarded as permanenl and
slabIe, parlicuIarIy if federaI funding has been oblained for improving lhe faciIilies.
Public-Use Privately Owned Airports. Il is eslimaled lhal cIose lo 40 percenl of lhe
public-use privately owned airports in lhe Uniled Slales are nol permanenl: lhey
disappear from lhe rosler of avaiIabIe Ianding pIaces because of economic, poIilicaI, or
personaI reasons. The disappearance of pubIic-use privaleIy ovned airporls is a maer of
deep concern lo lhe enlire generaI avialion induslry, because once an airporl is Iosl, il can
never be repIaced. Wilhoul ready access by air lo a communily, lhe lransporlalion uliIily
of aircrah is seriousIy eroded.
C H A P T E R 4 T H E G E N E R A L AV I AT I O N I N D U S T R Y 1 2 5
|AA Scrti ccs
The mosl videIy used service provided by lhe IAA lo generaI avialion piIols is lhe ight
service station (FSS) nelvork of 75 faciIilies for coIIecling and disseminaling vealher
informalion, Iing ighl pIans, and providing in-ighl assislance and avialion advisory
services. This gure incIudes aulomaled ighl service slalions. Air carriers have lheir ovn
meleoroIogicaI service, and lheir inslrumenl ighl pIans are preIed by compuler. (These
are caIIed canned ighl pIans.) GeneraI avialion ighl pIans are Ied individuaIIy via
ISS faciIilies.
IIighl service slalions are lhe soIe means of generaI avialions Iing ighl pIans, vhich
are required under acluaI inslrumenl condilions bul are oplionaI in good vealher. They are
lhe soIe source from vhich lo oblain IegaI vealher informalion, eilher in person (face-lo-
face briengs) or by leIephone or, vhen airborne, by air/ground radio communicalions.
The ISS syslem is vilaI lo generaI avialion operalions, and il is used by piIols al every
IeveI, from sludenl piIols lo air lransporl-raled piIols of Iarge business |els. IIighl service
slalions are indispensabIe lo aII generaI avialion ighl operalions.
Whenever lhere is an aclive conlroI lover in an airporl, aII lrafc is required lo compIy
vilh ils direclion of aircrah in ighl and on lhe ground. Hovever, nol aII airporls (lo be
accurale, nol aII air carrier-served airporls) have conlroI lovers. There are 680 airporls in
lhe Uniled Slales vilh lrafc conlroI lovers. Wilh lhe exceplion of lhe ma|or hubs lhal
serve Iarge melropoIilan areas, generaI avialion is lhe primary user of lhe lover-conlroIIed
airporls.
TolaI IaciIilies,
by Ovnership
IubIic-Use
Iaved Airporls
a
IubIic-Use
Unpaved Airporls
a
IAA Region TolaI
IaciIilies
Pu||ic Pritaic Iignic! Un|ignic! Iignic! Un|ignic! TolaI
Airporls
Grand lolaI
|
19,816 5,148 14,664 3,645 295 393 857 5,190
U.S. lolaI
c
19,749 5,118 14,627 3,628 292 393 856 5,169
AIaskan 675 384 287 52 6 110 144 312
CenlraI 1,576 498 1,078 383 12 38 54 487
Iaslern 2,631 375 2,156 337 33 48 91 509
Greal Lakes 4,307 908 3,399 752 31 127 182 1,092
Nev IngIand 775 143 632 114 18 5 49 186
Norlhvesl
Mounlain
2,054 687 1,467 418 45 18 163 644
Soulhern 2,943 839 2,104 641 39 27 51 758
Soulhvesl 3,310 815 2,495 631 55 16 79 781
Weslern 1,426 489 937 310 54 4 43 411
Soulh Iacic
!
19 10 9 7 2 0 1 10
TABLE 4-4 U.S. Civil and Joint-Use Airports, Heliports, Stolports, and Seaplane
Bases on Record by Type of Ownership, 2004
Source: IederaI Avialion Adminislralion, |AA Siaiisiica| Han!|cck cj Atiaiicn. 2005.
a
Among aII airporls open lo lhe pubIic, eilher privaleIy or pubIicIy ovned.
|
IxcIudes Iuerlo Rico, Virgin IsIands, Norlhern Mariana IsIands, and Soulh Iacic.
c
U.S. lolaI excIudes Iuerlo Rico, Virgin IsIands, Norlhern Mariana IsIands, and Soulh Iacic.
!
IncIudes American Samoa, Guam, and U.S. Trusl Terrilories.
A I R T R A N S P O R TAT I O N 1 2 6
The busier lover-conlroIIed airporls have an addilionaI faciIily lo ensure lhe safe
and expedilious movemenl of air lrafc: radar. Many civiI airporls have lerminaI radar
approach conlroI (TRACON), and miIilary airporl radar faciIilies are aIso avaiIabIe lo
generaI avialion piIols vho operale in lhe areas of lheir coverage. When using airporls
vilh such equipmenl, lhe ma|orily of generaI avialion piIols use radar assislance because
il is avaiIabIe and in some cases required.
Anolher service avaiIabIe lo aII iers is lhe en roule air lrafc conlroI compIex, vhich
consisls of 24 air roule lrafc conlroI cenlers (ARTCCs). These cenlers provide radar air
lrafc separalion service lo aircrah operaling on inslrumenl ighl pIans vilhin conlroIIed
airspace. No aircrah may operale vhen lhe visibiIily or ceiIing faIIs beIov prescribed
Iimils unIess an inslrumenl ighl pIan has been Ied under inslrumenl ighl ruIes (IIR).
Air carrier aircrah, parlicuIarIy lhose operaled by cerlicaled air carriers, operale under
inslrumenl ighl ruIes aII lhe lime, no maer hov good lhe acluaI vealher may be, as
a maer of course. GeneraI avialion piIols vho are inslrumenl quaIied, or inslrumenl
raled, lend lo Ie inslrumenl ighl pIans onIy vhen lhey musl y in adverse vealher.
The economies of aII businesses require inlerreIaled and carefuIIy baIanced reIalionships
among lhree pIayers: lhe manufaclurers, lhe service induslry, and lhe users. The smaII size
of generaI avialion makes lhis lriangIe exceplionaIIy vuInerabIe because, in comparison
vilh, say, lhe aulomobiIe induslry, lhe markel is so Iimiled in lerms of lhe number of
unils. OnIy a reIaliveIy smaII reduclion in lhe ov of goods and money can vreak havoc
lhroughoul lhe induslry.
THE GENERAL AVIATION SUPPORT INDUSTRY
Tnc Manuj aciurcrs
ApproximaleIy 15 U.S. airframe manufaclurers are invoIved in designing and conslrucling
Iighl (or smaII) and Iarge aircrah for lhe various segmenls of generaI avialion. The number
of aircrah lhese manufaclurers produce varies grealIy, from as many as 17,811 unils in
1978 lo as fev as 1,132 in 1994 (see TabIe 4-2). The exporl markel aIso experienced a
Iong recessionary period. Ixporls lypicaIIy represenl aboul one-lhird of lolaI aircrah
shipmenls.
Ior 16 years, beginning in 1979, generaI avialion aircrah shipmenls sleadiIy decIined.
The decIine in aircrah saIes has been accompanied by a decrease in lhe number of sludenl
and privale piIols. elveen 1979 and 2005, lhe number of individuaIs hoIding a sludenl
piIol cerlicale decIined from 210,180 lo 87,213 and lhe number of privale piIols decIined
from 343,276 lo 228,619.
The faiIure of lhe induslry lo respond lo lhe economic recovery of lhe mid-1980s, vhich
vas one of lhe mosl robusl in lhe pasl 50 years, vas puzzIing. HisloricaIIy, lhe economic
cycIe of lhe generaI avialion induslry has cIearIy paraIIeIed lhal of lhe nalionaI economy.
IossibIe reasons for lhe induslrys sIump vere discussed in lhe seclion Iaclors Aecling
GeneraI Avialion, earIier in lhis chapler.
In any case, a number of sleps vere laken lo reverse lhe dovnvard lrend in saIes. One
of lhe mosl signicanl vas lhe passage of lhe GeneraI Avialion RevilaIizalion Acl, vhich
viII curlaiI producl IiabiIily suils. AIso, lhere has been an induslryvide eorl lo promole
lhe use of generaI avialion aircrah for business purposes and lo increase lhe number of
C H A P T E R 4 T H E G E N E R A L AV I AT I O N I N D U S T R Y 1 2 7
sludenl slarls. No IIane, No Gain is a |oinl NAA/GAMA advocacy program lo acliveIy
promole business avialion. This innovalive program laps aII segmenls of lhe media lo
idenlify, documenl, and disseminale lhe benels of business avialion. In 1996, AOIA and
GAMA inviled aII generaI avialion businesses, associalions, and organizalions lo |oin in a
nev induslry aIIiance lo aracl nev piIols, caIIed GA Team 2000. UnIike previous eorls,
lhis program largeled nev piIols based on research compIeled by GAMAs Iislon-Ingine
Aircrah RevilaIizalion Commiee (IIARC) in 1995 and slralegic pIanning by AOIA
earIier lhal same year. Reneving lhe pipeIine of nev piIols is lhe keyslone on vhich aII
olher induslry revilaIizalion needs viII buiId. Many anaIysls beIieve lhal increasing lhe
induslrys currenl number of sludenl slarls from aboul 50,000 a year in lhe Iale 1990s lo al
Ieasl 100,000 is needed lo re-eslabIish a heaIlhy piIol base and, al lhe same lime, lo creale
demand for a nev eel of pislon-povered airpIanes.
IoIIoving passage of lhe GeneraI Avialion RevilaIizalion Acl of 1994, manufaclurers
resumed produclion of exisling popuIar designs, incorporaling upgraded airframe,
engine, and avionics lechnoIogy. The resuIl is overaII improvemenl of lhe perceived vaIue
of nev aircrah, oseing higher purchase prices in lhe eyes of prospeclive buyers. Todays
pislon-engine aircrah eel has an average airframe age of 28 years, and one-fourlh of lhe
eel is over 35 years oId.
Reneved research and deveIopmenl and improved cerlicalion reguIalions aimed
al repIacing lhis ouldaled lechnoIogy base has aIready broughl advanced syslems Iike
eIeclronic ignilions lo markel. AIso, lhe NASA-sponsored Advanced GeneraI Avialion
Transporlalion Ixperimenl (AGATI) is veII under vay. The vide-ranging AGATI
program invoIves a |oinl research consorlium vilh broad manufaclurer parlicipalion and
cosl sharing. Ils primary goaIs are lo improve smaII pislon-engine aircrah cockpil dispIays
and inlegralion, icing prevenlion and avoidance syslems, engine conlroIs, manufacluring
melhods, and piIol lraining melhods.
AIlhough lhere is some diversicalion in lhe induslry (such as miIilary conlracls
and miIilary/induslriaI subconlracls vilh ma|or miIilary/air carrier manufaclurers), lhe
nanciaI heaIlh of lhe manufaclurers requires a saIes voIume equaI lo lhe manufacluring
voIume over lhe Iong run, or eIse surpIus invenlories buiId up and produclion musl be
curlaiIed in accordance vilh good business praclice. Of course, lhere are olher segmenls of
lhe generaI avialion induslry besides lhe airframe manufaclurers, such as manufaclurers
of engines, avionics (avialion communicalions and navigalion radio equipmenl), ighl
inslrumenls, and aulopiIols, aII of vhich are used onIy in avialion and are direclIy aecled
by any diminulion in lhe saIes rale of aircrah. Hovever, lhis sub|ecl is nol vilhin lhe scope
of lhis book.
elveen 1995 and 2005, generaI avialion shipmenls aImosl lripIed (see TabIe 4-2).
GAMA eslimaled lhal more lhan 25,000 manufacluring |obs vere crealed during lhal
lime period. GAMA aIso reporled increases in generaI avialion exporls and nev producls
as a resuIl of lhe increases in research and deveIopmenl.
TabIes 4-5 and 4-6 shov lhe generaI avialion aircrah in produclion and usuaIIy avaiIabIe
in lhe Uniled Slales. The economy sIoved by lhe end of 2000 and venl inlo a recession in
2001. Shipmenls decIined in 2001 as a resuIl of lhe recessionary economy and lhe lragic
evenls surrounding Seplember 11, 2001. As of 2006, aircrah orders picked up over 2001
vilh many induslry experls cIaiming lhe induslry is geing "back on lrack".
A I R T R A N S P O R TAT I O N 1 2 8
Si gni cancc cj Pi | cis ic Ai rcraj i Manuj aciuri ng
The signicance of piIols lo lhe grovlh in airframe manufacluring cannol be overslaled.
TradilionaIIy, lhe induslry has Iooked al piIols in lvo vays. Iirsl of aII, as peopIe vho
vouId Iearn lo y and, in some form or fashion, lhen buy an airpIane, piIols mighl buy a
nev or used aircrah or |oin a ying cIub or renl from an IO. In essence, hovever, lhey
vere purchasing lhe aircrah, eilher in lolaI or by lhe hour. The manufaclurers aIso Iooked
al piIols as lhose vho vouId y lheir producls for a Iiving vilh lhe air carriers or vilh
miIilary, corporale, uliIily, agricuIluraI, air ambuIance, slale, IocaI, or federaI governmenl,
or olher operalions.
The overvheIming ma|orily of business aircrah saIes are by companies lhal aIready ovn
and operale an aircrah and are acquiring more capabIe, nev equipmenl. The avareness of
avialionlhe inuences lhal go inlo crealing lhe polenliaI for a company lo use aircrah
as a business looIcomes signicanlIy from piIols. Over lhe years, manufaclurers have
recognized lhal one of lhe key indicalors of aircrah usage or acquisilion by a company
is lhe presence of a piIol, even a noncurrenl piIol, in lhe senior managemenl ranks of a
company. These advocales inside lhe company are ohen much more inuenliaI in lhe saIes
process lhan lhe manufaclurers saIes and markeling slas.
Tnc Ati aii cn Scrti cc |n!usiru
AII civiI aircrah are direclIy aecled by lhe safely reguIalions of lhe IAA, vhich require
lhal repairs, mainlenance, and inslaIIalion of parls be done by IAA-Iicensed personneI. In
addilion, aII aircrah musl go lhrough a cycIicaI reinspeclion on al Ieasl an annuaI basis, a
funclion lhal can be carried oul onIy by IAA-Iicensed mechanics and musl be approved
by aulhorized inspeclors designaled by lhe IAA.
Ma|or air carriers have lheir ovn mainlenance faciIilies for periodic and progressive
mainlenance of airframes, engines, and avionics equipmenl, bul many IocaI-service
carriers, mosl commuler airIines, and aII bul a fev ma|or generaI avialion business aircrah
operalors reIy on lhe services of speciaIized supporl business operalions.
The Functions of FBOs. GeneraI avialion saIes, service, and supporl operalions are
carried oul by free-enlerprise businesses lhal are knovn in lhe induslry as xed-base
operalors, or IOs. y lhe very nalure of lhe avialion business, any of lhese operalions
musl be concenlraled al or cIose lo an airporl, usuaIIy al one or lvo spols al an airporl, and
ohen vhiIe sharing lhe airporl vilh air carrier and miIilary operalions. The IOs provide
lhe ground services and supporl required by generaI avialion and, al some Iocalions, lhe
ma|or airIines and miIilary unils. They are comparabIe lo lhe coIIocalion of aII aulomobiIe
supporl services (gas slalion, garage, body shop, parls, saIes, driver lraining, and so on)
al one sile. The foIIoving oulIine summarizes lhe operalions of a lypicaI generaI avialion
IO:
1. Adminislralion of lhe business
2. Line services
a. IueIing
b. SaIe of Iubricanls
C H A P T E R 4 T H E G E N E R A L AV I AT I O N I N D U S T R Y 1 2 9
TABLE 4-5 Piston Airplane Shipments by Manufacturer, 19952005
A I R T R A N S P O R TAT I O N 1 3 0
TABLE 4-5 Continued
Scurcc. GAMA, Gcncra| Atiaiicn Siaiisiica| Oaia|cck. 2005. AvaiIabIe al: hp://vvv.gama.aero/dIoads/
2005GAMASlalislicaIDalabook.pdf.
C H A P T E R 4 T H E G E N E R A L AV I AT I O N I N D U S T R Y 1 3 1
TABLE 4-6 Business Jet Shipments by Manufacturer (19952005)
Scurcc. GAMA, Gcncra| Atiaiicn Siaiisiica| Oaia|cck. 2005. AvaiIabIe al: hp://vvv.gama.aero/dIoads/
2005GAMASlalislicaIDalabook.pdf.
A I R T R A N S P O R TAT I O N 1 3 2
3. Aircrah slorage
a. uIk hangarage
b. T-hangarage
c. Ouldoor liedovns
4. Aircrah mainlenance
a. Ma|or repairs and reconslruclion
b. Minor repairs
c. AnnuaI inspeclions and reIicensing
5. Ingine mainlenance
a. Minor
b. Ma|or
c. Remanufaclure
6. Avionics
a. SaIes
b. Service
1. Mainlenance
2. Recerlicalion
7. Aircrah saIes and renlaIs
a. Nev aircrah
b. Used aircrah
8. IIighl inslruclion
a. Irimary
b. Advanced
1. Inslrumenl
2. MuIli-engine
c. Recurrenl
9. Iarls saIes and service
a. Tires, brakes, and bearings
b. aeries
10. SpeciaIized commerciaI funclions
a. AeriaI appIicalion
1. AeriaI adverlising
2. UliIily-Iine surveiIIance
3. Iesl conlroI
Nol aII IOs perform aII of lhese funclions: indeed, some may speciaIize in onIy one
or lvo calegories. Hovever, an IO normaIIy performs al Ieasl six of lhe funclions Iisled,
eilher as parl of lhe business or by Ieasing space oul lo speciaIisls vho perform lhe funclions
on lhe ovned (or Ieased) premises. An IO, lhen, is Iike a shopping maII manager vho
is charged vilh making a prol on each of lhe many, videIy diverse individuaI business
operalions vilhin lhe orbil of lhe overaII operalion.
C H A P T E R 4 T H E G E N E R A L AV I AT I O N I N D U S T R Y 1 3 3
The Size and Scope of FBOs. As previousIy menlioned, over 5,000 airporls are open lo
pubIic use in lhe Uniled Slales, of vhich approximaleIy 800 are served by air carriers and
by generaI avialion. Of lhe 4,200 airporls lhal mighl be caIIed pureIy generaI avialion
airporls, nol aII are aended (vhich enlaiIs al Ieasl a fueIing funclion), and nol aII of lhose
lhal are aended have service aII lhe lime: many are seasonaIIy aended (summer resorls,
for exampIe), and many are aended onIy during dayIighl hours. Al lhe same lime, many
of lhese airporls oer service 24 hours a day, and many Iarge airporls have severaI IOs
compeling for avialion business.
The besl guess is lhal lhere are aboul 3,500 IOs of dierenl sizes al pubIic-use airporls
in lhe Uniled Slales. They faII inlo four calegories.
1. Ma|or IOs. These IOs are Iocaled al ma|or airporls and are fuIIy equipped lo
handIe lhe servicing and mainlenance of aII lypes of aircrah, from lhe Iarge air carri-
ers used by ma|or service carriers and business corporalions lo singIe-engine aircrah.
Many of lhe ma|or IOs have muIli-pIex operalions, as do some of lhe medium-size
IOs, bul mosl ma|or IOs have a singIe operalions base. Some IOs are afIialed
vilh a franchise and operale nalionaIIy and inlernalionaIIy, vhereas olhers are in-
dependenlIy ovned and operaled bul have a nelvork afIialion vilh olher inde-
pendenls. Some of lhe Iargesl IOs are parl of a Iarger corporalion vhose inleresls
exlend beyond lhe IO induslry. Gross revenue exceeds $50 miIIion, and inveslmenls
in IOs run inlo lhe hundreds of miIIions of doIIars, incIuding IeasehoIds and equip-
menl.
2. Mc!iun-sizc |BOs. The dierence belveen lhe ma|or and lhe medium-size IOs is
chiey lhe size of lhe inveslmenl, for mosl medium-size operalors are aIso Iocaled al
air carrier-served airporls. They musl be abIe (by conlracl vilh lhe Iessor) lo remove
and repair any aircrah lhal mighl use lheir faciIily in lhe evenl lhal such aircrah
become disabIed on lhe ramps or runvays. The inveslmenl in a medium-size IO
may run as high as $50 miIIion, and saIes voIumes are generaIIy in lhe range of $5
miIIion lo $25 miIIion.
3. Sna|| |BOs. Of lhe 3,500 IOs, approximaleIy 2,000 faII inlo lhis calegory. Many of
lhem are knovn in lhe business vorId as mom-and-pop shops, doing business on
a shoeslring using lhe cash draver syslem: al lhe beginning of lhe year, lhere is so
much money in lhe liII: during lhe year, some goes oul and some comes in: and al lhe
end of lhe year, vhalever is Ieh is prol. The vuInerabiIily of such operalions in lhe
modern business environmenl shouId be evidenl.
The vasl ma|orily of lhe smaII operalors have no business lraining. SmaII IOs are
slarled by someone vho Ioves avialion: an aeronaulicaI speciaIisl, a piIol, a mechanic,
or a lechnician, such as an engine rebuiIder or a radio experl or a sheel melaI fabricalor.
Then lhe business grovs lo meel lhe increasing demands of lhe avialion pubIic.
eginning as a ighl inslruclion or repair faciIily, lhe smaII IO deveIops a cIienleIe,
and as lhe ying pubIic Iearns of lhe operalion, funclions are added: fueIing, hangarage,
liedovns. In a shorl lime, lhe speciaIisl becomes a generaIisl and bIossoms oul inlo
a cIassic muIliservice IO, vilh numerous empIoyees and increasing inveslmenls
an avialion shopping maII lhal lhe operalor may nol be educalionaIIy equipped lo
operale in a businessIike vay. ecause IOs in generaI are lhe ma|or conlacl belveen
lhe manufaclurers and lhe generaI pubIic for lhe saIe of nev aircrah and for ighl
A I R T R A N S P O R TAT I O N 1 3 4
inslruclion, lhe smaII IOs reecl a fragiIily in lhe induslry lhal musl be correcled if
generaI avialion is lo be of vaIue lo lhe nalion.
4. Spccia| |BOs. Some exlremeIy speciaIized avialion operalions found al pubIic
airporls do nol quaIify as lrue IOs bul are neverlheIess necessary lo avialion. These
incIude engine manufaclurers and remanufaclurers, avionics and propeIIer speciaIisls,
and cerlain ighl lraining speciaIisls vho do nolhing bul recurrenl ighl lraining for
professionaI or semiprofessionaI piIols of high-performance aircrah. These operalions
are separale from and do nol compele vilh lhe lrue IOs, bul lhey faII vilhin lhe
calegory simpIy because lhey are Iocaled al lhe same airporl.
FBOs and the Boom LineProtability. As noled previousIy, xed-base operalors
vary videIy in size, scope of services oered, lype of faciIily, size of inveslmenl, and
managemenl experlise. They may range from lhe smaII grass-eId mom-and-pop shops
lhal oer minimum services lo huge compIexes lhal service lhe Iarge generaI avialion
business |els and are Iocaled al hub airporls. No maer hov Iarge or hov smaII, lhey
share a chaIIenge: lhey musl operale al a prol in a narrovIy dened business, or lhey
viII go beIIy-up.
There can be no generaI avialion air lransporlalion vilhoul a nalionvide syslem of IOs
lo supporl il. Nol onIy are IOs lhe inlerface belveen lhe manufaclurers and lhe pubIic,
and lhus lhe principaI oulIel for aircrah saIes, bul lhey aIso provide fueIing, rouline (and
ma|or) mainlenance, inspeclion and reIicensing faciIilies, slorage, and generaI avialion
lerminaI buiIdings. No one can pIan a lrip by generaI avialion aircrah unIess such supporl
faciIilies are avaiIabIe al bolh ends of lhe lrip (al Ieasl fueIing capabiIily). IOs are lhe
backbone of generaI avialion lransporlalion. Hovever, many are running so cIose lo lhe
Iine of unprolabiIily lhal any reduclion of lheir business, especiaIIy in lhe reaIm of nev-
and used-aircrah saIes and fueI saIes (lhe lvo slapIe sources of income for IOs), viII
pul lhem in a Ioss posilion. The same possibiIily exisls for lhe Iarge muIlipIex operalions,
despile lheir huge size. The probIems are lhe same: onIy lhe numbers are Iarger. The
advanlage lhal lhe Iarge operalors have over lhe smaII ones is lhal lhey praclice modern
business lechniques and can absorb some Iosses over a period of lime by mainlaining cash
reserves, vhich lhe smaII operalors frequenlIy do nol have.
An aspecl of economic vuInerabiIily lhal is seIdom recognized is lhal of nancing.
Ixcepl for lhe very smaIIesl IOs, lhe operalion of lhe business depends on credil and Ioan
arrangemenls from commerciaI banks. Aircrah oor pIans, equipmenl Ioans, morlgages,
and conslruclion Ioans run inlo subslanliaI gures and subslanliaI overhead paymenls.
If for any reason an operalor is unabIe lo repay Ioans or lo keep currenl in lhe obIigalions
lo lhe lrade, lo fueIing suppIiers, and lo olhers, so lhal Ioans are caIIed or lurned over lo
credilors, lhe operalion can disappear overnighl.
There is a serious coroIIary lo lhis: once a bank has been exposed lo such a Ioss, il is
|usliabIy Ieery of making subsequenl Ioans lo successor operalors. A generaI avialion
business faiIure aecls lhe enlire induslry far more lhan a comparabIe faiIure of a smaII
business in olher induslries, vhich usuaIIy are more videIy dislribuled and require far
Iess nancing in lheir normaI operalions. ecause lhe IO is lhe economic galevay for
generaI avialion lo lhousands of communilies and lhe soIe lhreshoId for generaI avialion
lransporlalion, lhe economic impacl can be enormous in lhe evenl of ils business faiIure.
In lhe posl-WorId War II era and conlinuing lhrough lhe 1950s, 1960s, and 1970s, lhe
number of IOs acceIeraled dramalicaIIy. Much of lhe expansion of lhe induslry aher
C H A P T E R 4 T H E G E N E R A L AV I AT I O N I N D U S T R Y 1 3 5
WorId War II can be direclIy reIaled lo lhe G.I. iII, vhich provided funding for lhe
ma|orily of ighl lraining lhal occurred lhroughoul lhis period. IIighl lraining vas cIearIy
a calaIysl for grovlh in lhe induslry, as nevIy Iicensed piIols crealed addilionaI demand
for aircrah, vhich increased manufacluring- and saIes-reIaled aclivilies and, uIlimaleIy,
increased demand for aircrah fueIing, mainlenance, and olher services.
In lhe Iale 1970s and earIy 1980s, many nonavialion inveslors vere overvheImed by
lhe aracliveness of lhe IO induslry. Many of lhese individuaIs Iacked lhe operalionaI
and manageriaI experlise, vhich is lypicaIIy acquired onIy aher years of acluaI hands-on
operaling experience, required lo properIy meel lhe needs of avialion consumers. y 1980,
il vas eslimaled lhal more lhan 10,000 IOs vere operaling lhroughoul lhe Uniled Slales.
Al lhe same lime, lhe economy vas pIagued by an undesirabIe combinalion of doubIe-
digil inalion and inleresl rales. AddilionaIIy, during lhis period, lhe funds required lo
acquire and/or deveIop IOs vere readiIy avaiIabIe from a muIlilude of sources, incIuding
savings and Ioans, commerciaI banks, nance companies, and privale inveslors. Combine
lhis vilh lhe decIine in aircrah saIes beginning in 1979, and lhe resuIl vas a silualion
in vhich lhe number of IOs far exceeded lhe demand. The dramalic consoIidalion,
vhich occurred lhroughoul lhe 1980s, vas lhe resuIl of a markel desperaleIy lrying lo
reach a ralionaI baIance belveen lhe number of IOs (suppIy) and lhe services and needs
(demand) of avialion consumers.
Wilh approximaleIy 3,500 IOs in business by 2006, lhe suppIy is approaching
equiIibrium vilh lhe IeveI of demand lhal nov exisls for IO producls and services. As a
resuIl, lhe induslry apparenlIy is nov in a posilion lo deveIop and suslain ralionaI grovlh
and prolabiIily.
THE AVAILABLE MARKETTHE USERS
The crilicaI issue of aircrah and equipmenl saIes on a conslanl-ov and increasing-ov
basis lhrough lhe deaIer-dislribulor nelvork evenluaIIy depends on lhe absorplion of lhe
producl by lhe end users, lhe peopIe vho spend money lo purchase such equipmenl. In lhe
highIy compelilive nev- and used-aircrah saIes markel (and used aircrah are reIicensed
annuaIIy and upgraded by equipmenl repIacemenl), lhe forlunes of lhe manufaclurers
are IargeIy dependenl on lhe quaIily of service provided by lheir deaIers and dislribulors
and on lhe generaI slale of lhe nalionaI economy.
There are lvo cIassicalions of aircrah use: (1) lransporlalion, in vhich lhe user lraveIs
from one poinl lo anolher, vhelher for business or for pIeasure, and (2) IocaI ighl, moslIy
for lhe sheer fun of ying. IIighl lraining and cerlain speciaI uses discussed earIier in lhe
chapler reaIIy do nol beIong in lhe lransporlalion calegory, nor does IocaI ying, aIlhough
lhe aircrah invoIved obviousIy have a lransporlalion capabiIily. The lransporlalion markel
is our poinl of focus.
Tnc Busi ncss Markci
The generaI avialion manufaclurers made lhe business |udgmenl in lhe earIy 1950s lo
concenlrale on lhe business markel, vhere lhere is a conlinuing and groving need for
svih, reIiabIe lransporlalion. usiness avialion, one of lhe mosl imporlanl segmenls of
generaI avialion, is made up of companies and individuaIs vho use aircrah as looIs in lhe
conducl of lheir business.
A I R T R A N S P O R TAT I O N 1 3 6
usiness aircrah are uliIized by aII lypes of peopIe and companies, from individuaIs
vho ohen y renled singIe-engine pislon-povered airpIanes, lo saIes or managemenl
leams from muIlinalionaI corporalions, many of vhich ovn eels of muIli-engine lurbine-
povered aircrah and empIoy lheir ovn ighl crevs, mainlenance lechnicians, and olher
avialion supporl personneI.
Many Iarge companies use business aircrah lo lransporl priorily personneI and cargo
lo a variely of far-ung company or cuslomer Iocalions, incIuding siles overseas. Ohen,
business aircrah are used lo bring cuslomers lo company faciIilies for faclory lours and
producl demonslralions. Companies and individuaIs, such as saIespeopIe and doclors, use
business aircrah lo cover regionaI lerrilories vilhin severaI hundred miIes of lheir home
bases. AIlhough lhe overvheIming ma|orily of business aircrah missions are conducled
on demand, some companies mainlain scheduIed operalions, knovn as corporale shuIes,
vhich are essenliaIIy in-house airIines.
Mosl corporalions lhal operale business aircrah use modern muIli-engine lurbine-
povered |els, lurboprops, or lurbine heIicoplers lhal are cerlied lo lhe highesl appIicabIe
lransporl calegory slandards. Aircrah buiIl specicaIIy for business use vary from four-
seal shorl-range pislon-povered airpIanes lo lvo- or lhree-engine corporale |els lhal can
carry up lo 20 passengers nearIy 7,000 miIes nonslop. Some companies even use airIine-
lype |els, such as 737s and 757s, and heIicoplers for business lransporlalion.
usiness aircrah operaled by Iarger companies usuaIIy are ovn by lvo-person
professionaIIy lrained crevs vhose primary, if nol excIusive, responsibiIily is lo y
company aircrah. Some smaIIer operalors of business aircrah, especiaIIy businesspeopIe
vho piIol lheir ovn aircrah, lypicaIIy use one piIol lo y pislon-povered machines.
AIlhough lhe ma|orily of business aircrah are ovned by individuaIs or companies,
businesses aIso uliIize business avialion lhrough arrangemenls such as charlering, Ieasing,
fraclionaI ovnership, lime-sharing, inlerchange agreemenls, parlnerships, and aircrah
managemenl conlracls.
usiness aircrah generaIIy are nol ovn for hire. Thus, lhe ma|orily of U.S.-regislered
business aircrah are governed by Iarl 91 of lhe IederaI Avialion ReguIalions (IARs). U.S.-
regislered business aircrah lhal can be ovn for compensalion are reguIaled by IAR Iarl
135, vhich covers on-demand commerciaI operalions. RegardIess of hov business aircrah
are uliIized, lhey are chosen because lhey provide safe, efcienl, exibIe, and reIiabIe
lransporlalion.
Of aII lhe benels of business aircrah, exibiIily is probabIy lhe mosl imporlanl.
Companies lhal y generaI avialion aircrah for business purposes can conlroI virluaIIy
aII aspecls of lheir lraveI pIans. Ilineraries can be changed inslanlIy, and business aircrah
can be ovn lo lhousands more deslinalions lhan are served by lhe airIines.
usiness aircrah are produclivily muIlipIiers lhal aIIov passengers lo conducl business
en roule in compIele privacy vhiIe reducing lhe slresses associaled vilh lraveIing on
commerciaI carriers. Iassengers vho y by business aircrah never have lo vorry aboul
missed conneclions, Iosl baggage, overbooking, air carrier mainlenance slandards, or
airIine securily. And in recenl years, business aircrah have compiIed a safely record lhal
is comparabIe, and somelimes superior, lo lhal of lhe airIines. As lhe preceding discussion
suggesls, businesses increasingIy are seeking lheir ovn lransporlalion for a variely of
reasons.
Concentration of Air Carrier Service. The Uniled Slales has lhe nesl scheduIed air
lransporlalion in lhe vorId. The service poinls, equipmenl, personneI, and scheduIes
C H A P T E R 4 T H E G E N E R A L AV I AT I O N I N D U S T R Y 1 3 7
are as exceIIenl and as much in lhe pubIic inleresl as il is humanIy, mechanicaIIy, and
economicaIIy possibIe lo make lhem. ul lhis does nol aIler lhe facl lhal lhere sliII exisl
vasl voids in airIine service, infrequenl scheduIes in lhe ma|orily of pIaces served, and
lhe necessily of using roundaboul roules, vilh lime-consuming Iayovers and frequenl
changes, unIess one is lraveIing belveen lhe ma|or melropoIilan areas.
Increased concenlralion of cerlicaled air carrier service gave rise lo lhe commuler
carriers in lhe earIy 1970s. Il is simpIy nol economicaIIy viabIe lo service many hundreds of
smaIIer communilies vilh Iarge |el equipmenl. In 2005, scheduIed air service vas provided
lo approximaleIy 680 airporls, vilh approximaleIy 71 percenl of lhese communilies
depending excIusiveIy on regionaI service.
In addilion, lhe scheduIed service provided lo many of lhe 680-odd airporls is sparse
and generaIIy oered onIy al lhe mosl popuIar limes of day. Wilh a shih lovard Iong-
hauI ighls belveen primary hubs, many medium-size cilies are experiencing a decrease
in frequency of ighls and a curlaiImenl of nonslop service belveen middIe hubs and
ma|or hubs. These condilions are frequenlIy lhe basis for lhe purchase, charler, or Iease
of a business aircrah.
Decentralization of the Industry. The demographics of our nalion are changing. Iirms
are decenlraIizing by moving or eslabIishing faciIilies in parls of lhe counlry far removed
from lhe cenlraI headquarlers in order lo foIIov lhe shihing sources of Iabor resuIling from
lhe mobiIily of lhe Iabor force. We are experiencing a Iarge-scaIe migralion of peopIe of
aII ages lo lhe SunbeIl slales. The popuIalion of some melropoIilan areas in soulhveslern
slales grev more lhan 190 percenl belveen lhe Iasl lvo census counls. Cilies ranked in
lhe lop 20 based on popuIalion sav a radicaI rearrangemenl of rank during lhe 10-year
period, vilh cilies in lhe SunbeIl moving up on lhe Iisl. This shih in popuIalion has crealed
a need lo shih markeling emphasis. AII lhis again adds up lo a need for more business
lraveI and beer communicalions.
Flexibility. IIexibiIily is lhe key vord in business aircrah: exibiIily lo go vhen and
vhere necessary. The key lo exibiIily is airporl faciIilies. The shorler lhe lime spenl
belveen lhe ofce and lhe aircrah, lhe grealer lhe benels of lhe business airpIane. This
exibiIily of deslinalions nol onIy serves in direcl poinl-lo-poinl lraveI bul aIso is one
faclor lhal is making business avialion one of lhe biggesl feeders of passengers lo lhe
airIines. More and more airIine passengers are going aII lhe vaymaking lhe vhoIe
lripby air. usiness and privale airpIanes feed passengers inlo ma|or lerminaIs: charler
and air laxi services Iel Iong-dislance |elIiner passengers svihIy compIele lheir |ourneys
lo cilies hundreds of miIes dislanl from airIine slops.
Shortage of Management Personnel. The mosl vaIuabIe assel a company has is ils human
resources. In basic lerms, a businesss success is based on lhe degree lo vhich il appIies
lhis assel lo ils probIems and opporlunilies.
In a vorking year, each execulive has onIy aboul 2,000 hours of reguIar vorking lime
in vhich lo be in lhe righl pIaces al lhe righl limes vilh lhe righl decisions. A 40-year
career lhus oers onIy 80,000 vorking hours. Ior bolh company benel and personaI
advancemenl, each hour lakes on precious signicance.
This need lo make produclive use of lime is a concern of aII execulivesseeing lhal
lhey lhemseIves, and aII empIoyees in lheir areas of responsibiIily, use lheir lime mosl
efcienlIy. Inveslmenls are made in lime and molion sludies lo produce operaling praclices
A I R T R A N S P O R TAT I O N 1 3 8
lhal achieve lhe mosl resuIls in lhe Ieasl lime. Nev equipmenl is oblained eilher lo reduce
lhe number of hours required for a cerlain operalion or lo achieve grealer produclion
in lhe same number of hours. TeIephones and faxes are used inslead of messengers and
maiI: caIcuIalors and compulers are acquired. The business aircrah is a lime machine lhal
compresses dislances inlo minules and hours. Il does for lraveI vhal compulers, leIephones,
and programmed miIIing machines do for olher areas of a companys operalions.
Reliability and Capability of Todays Business Aircra. The vide variely of business
aircrah avaiIabIe, from singIe-engine pislon aircrah lo corporale |el, can meel aImosl any
need a business mighl have: a singIe-engine Cessna 172 for a saIes represenlalive covering
a lrislale area, a Iighl lvin for a regionaI manufaclurer, and a Lear|el for a nalionaI rm
vilh videspread operalions.
IederaIIy reguIaled specicalions conlroI design engineering, melhod of manufaclure,
mechanicaI funclions, ighl operaling Iimils, airvorlhiness, and mainlenance slandards.
AII syslems and accessories are sub|ecl lo reguIalion, and minimum safely slandards are
sel for slrucluraI slrenglh and slress. One singIe-engine aircrah can require over 15,000
individuaI inspeclions during manufaclure. The induslrys concern vilh buiIding safe
aircrah can besl be seen in lhe facl lhal virluaIIy aII modeIs are slrucluraIIy slronger lhan
lhe IAA requires. In facl, each company exceeds lhe IAA minimums in aImosl aII respecls.
The induslry has bolh a moraI obIigalion and an economic seIf-inleresl in buiIding safe
aircraha manufaclurer vilh a poor safely record cannol conlinue lo exisl.
The generaI avialion accidenl rales over lhe pasl 10 years aesl lo lhe reIiabiIily and
capabiIily of lodays business aircrah. The accidenl rale per 100,000 aircrah hours ovn
has sleadiIy decreased since 1972.
In shorl, business avialion viII conlinue lo grov because companies recognize lhe
benels of speed, economy, and convenience. Specic benels of using business aircrah
can be summarized as foIIovs:
1. Tinc satings. usiness aircrah nol onIy reduce ighl lime by providing poinl-lo-
poinl service bul aIso decrease lolaI lraveI lime by uliIizing smaIIer airporls cIoser
lo naI deslinalions. AIso, lhe ofce environmenl of a business aircrah aIIovs lraveI
lime lo become produclive lime.
2. ||cxi|i|iiu. IeopIe vho lraveI by business aircrah do nol have lo aIler lheir scheduIes
lo conform lo lhose of commerciaI carriers. ConsequenlIy, lhey have lhe freedom lo
change course en roule and lo Ieave and arrive according lo lheir ovn scheduIes.
3. |c|ia|i|iiu. usiness aircrah are engineered and buiIl lo lhe highesl slandards, and
companies lhal mainlain lheir ovn aircrah have compIele conlroI over lhe readiness
of lheir eels.
4. Sajciu. In recenl years, business aircrah have compiIed an oulslanding safely record
lhal is comparabIe lo or beer lhan lhal of lhe airIines.
5. |nprctc! narkciing cjcicncu. usiness aircrah nol onIy exlend lhe reach of a saIes
force bul aIso quickIy and easiIy bring cuslomers lo lhe poinl of saIe.
C H A P T E R 4 T H E G E N E R A L AV I AT I O N I N D U S T R Y 1 3 9
6. |aci|iiics ccnirc|. usiness aircrah heIp managemenl exlend ils conlroI by faciIilaling
personaI visils lo remole company siles.
7. Pcrscnnc| an! in!usiria| !ctc|cpncni. The mobiIily lhal business aircrah provide
company empIoyees can acceIerale lraining, orienlalion, and leamvork.
8. Pritacu an! ccnjcri. Conversalions on business aircrah are condenliaI, and cabins
can be congured lo accommodale virluaIIy any speciaI needs of passengers.
9. |jcicncu. usiness avialion enabIes a company lo maximize ils lvo mosl imporlanl
assels: peopIe and lime.
10. Sccuriiu. A company lhal uses business avialion conlroIs aII aspecls of ils air lraveI,
incIuding lhe visibiIily of ils empIoyees on sensilive missions.
Some of lhe inlangibIe benels of business avialionenhanced managemenl
produclivily and beer cuslomer reIalionsmay be difcuIl lo quanlify, bul lhey are no
Iess imporlanl lo a company lhan direcl nanciaI relurns on inveslmenls.
A communily vilh no avialion galevay for economic deveIopmenl is obviousIy al a
compelilive disadvanlage compared lo one lhal has one. Many sludies on lhe economic
impacl of generaI avialion airporls on communilies concIude lhal a smaII lovn vilhoul
an airporl is in lhe same posilion as a communily lhal vas bypassed by a canaI or raiIroad
100 years ago. CIose proximily lo an airporl is aIvays near lhe lop of lhe Iisl of prime
faclors a business considers vhen pIanning a ma|or move lo a parlicuIar area.
Tnc Pcrscna| Markci
As of 2005, lhe IAA reporled 618,633 aclive piIols in lhe Uniled Slales, incIuding 235,994
privale piIols, many of vhom ovn, renl, borrov, and Iease smaII aircrah for business and
pIeasure purposes (see TabIe 4-7).
Il is easy lo become caughl up in lhe business and economic aspecls of generaI avialion
and lhe conlribulion il makes lo a IocaIilys economy and lo overIook anolher imporlanl
parl of generaI avialions conlribulionpersonaI ying. There is a videIy heId ailude lhal
commerciaI airIines are a business and so are imporlanl bul lhal personaI ying is simpIy
a frivoIily. Hovever, one musl keep in mind lhal lhe cerlicaled airIines carry aImosl as
many peopIe for personaI and recrealionaI reasons as lhey do for business purposes. On
speciaI charlers, virluaIIy aII lhe passengers are on pIeasure lrips on every ighl.
The exibiIily of lransporlalion oered by generaI avialion is nol reslricled lo business
use. y Iighl pIane il is possibIe for a cilizen of lhe mid-AlIanlic slales or lhe midvesl lo
visil lhe varm cIimale of IIorida for lhe veekend or lo y from Monlgomery, AIabama,
lo lhe Canadian Iakes in a fev hours.
Air lransporlalion for vacalioning is unabashedIy adverlised by lhe air carriers. Il
shouId nol be overIooked as an imporlanl aspecl of generaI avialion.
Thousands of singIe-engine aircrah are ovn vilhin 100 miIes of home on nice days
comparabIe lo |aunls in smaII saiIboals or on a pair of skis. They are ovn for lhe sheer
fun of ying, nol for lransporlalion. Many piIols vho slarl o as veekend piIols lend lo
upgrade inlo high-performance equipmenl, lo oblain higher ralings and piIol priviIeges,
and evenluaIIy lo become business as veII as pIeasure air lraveIers in Iighl aircrah.
A I R T R A N S P O R TAT I O N 1 4 0
TABLE 4-7 Active U.S. Pilot Certicates Held, 19842005
Scurcc. GAMA, Gcncra| Atiaiicn Siaiisiica| Oaia|cck. 2005. AvaiIabIe al: hp://vvv.gama.aero/dIoads/
2005GAMASlalislicaIDalabook.pdf.
C H A P T E R 4 T H E G E N E R A L AV I AT I O N I N D U S T R Y 1 4 1
KEY TERMS
UliIily AirpIane CounciI xed-base operalor (IO)
primary-use calegories aeriaI appIicalion
business aircrah use privale-use airporl
corporale aircrah use pubIicIy ovned airporl
NalionaI usiness Aircrah pubIic-use privaleIy ovned airporl
Associalion (NAA) ighl service slalion (ISS)
personaI ying
Aircrah Ovners and IiIols
Associalion (AOIA)
REVI EW QUESTI ONS
1. Why do lhe airIines seem lo receive aII of lhe aenlion vhen generaI avialion is
acluaIIy lhe Iargesl segmenl of avialion` Why do you lhink lhe generaI avialion
aircrah manufaclurers broke avay from lhe AIA lo form GAMA`
2. Lisl lhe primary-use calegories. Dislinguish belveen business and corporale use. Whal
is lhe primary roIe of NAA` AOIA` Dene aeriaI appIicalion, aeriaI observalion, and
aeriaI olher. Whal is lhe signicance of lhese segmenls of avialion lo our economy`
Give some exampIes. Whal lype of aircrah use faIIs inlo lhe olher ying calegory`
3. Discuss some of lhe faclors lhal Ied lo lhe decIine in generaI avialion aircrah saIes
in lhe posldereguIalion period. Whal vas lhe primary reason for lhe Iighl-aircrah
manufaclurers disconlinuing lhe produclion of singIe-engine pislon aircrah`
4. Discuss lhe signicance of lhe GeneraI Avialion RevilaIizalion Acl. Hov have lhe
manufaclurers responded in recenl years`
5. ApproximaleIy hov many airporls vere lhere in lhe Uniled Slales al lhe end of 2005`
Hov many pubIic-use airporls` ApproximaleIy hov many airporls in lhe Uniled
Slales are served by lhe cerlicaled and noncerlicaled carriers`
6. Whal are lhe primary services provided by lhe IAA lo generaI avialion piIols`
7. Describe some of lhe sleps lhal have been laken by lhe generaI avialion communily
lo reverse lhe dovnvard lrend in aircrah saIes.
8. Why is lhe generaI avialion supporl induslry Iike a lhree-Iegged miIk slooI` Discuss
lhe imporlanl inlerreIalionship among manufaclurers, lhe service induslry, and users.
Name six generaI avialion aircrah manufaclurers. Why are lhe IOs considered lhe
backbone of generaI avialion` Describe six or seven services provided by a lypicaI
medium-size IO. Dislinguish belveen a Iarge or medium-size IO and a smaII
mom-and-pop operalor. Whal are some of lhe speciaI IOs al a lypicaI pubIic-use
airporl` Whal is lhe primary reason for lhe lremendous decIine in lhe number of
IOs during lhe 1980s and earIy 1990s` Whal is happening vilh IO grovlh in lhe
earIy 2000s`
A I R T R A N S P O R TAT I O N 1 4 2
9. Why did lhe generaI avialion aircrah manufaclurers concenlrale on deveIoping aircrah
lo meel lhe needs of lhe business markel as earIy as lhe 1950s` Whal are some of lhe
faclors lhal have caused businesses lo seek lhe benels of lheir ovn lransporlalion`
Lisl lhe benels of using business aircrah.
10. Hov many aclive privale piIols vere lhere in lhe Uniled Slales al lhe end of 2005` Ils
been said lhal personaI ying is |usl a rich mans sporl. Do you agree` Disagree`
Why`
WEB SI TES
hp://vvv.eaa.org
hp://vvv.Iandings.com
hp://vvv.aopa.org
hp://vvv.avveb.com
hp://vvv.RAA.org
hp://vvv.avhome.com
hp://vvv.nala-onIine.org
hp://vvv.aia-aerospace.org
hp://vvv.nbaa.org
hp://vvv.generaIavialion.org
SUGGESTED READI NGS
Iichenberger, Ierry, A. Gcncra| Atiaiicn Iau. Nev York, NY: McGrav-HiII, 1996.
|AA Siaiisiica| Han!|cck|Y 2001. Washinglon, D.C.: U.S. Governmenl Irinling Ofce, 2002.
Garrison, IauI. Tnc Ccrpcraic Aircrah Ouncrs Han!|cck. Iue Ridge Summil, Ia.: Tab ooks, 1981.
Gcncra| Atiaiicn 2005 Siaiisiica| Oaia|cck. Washinglon, D.C.: GeneraI Avialion Manufaclurers
Associalion, 2005.
King, Iack L. Ccrpcraic ||uing. GIendaIe, CaIif.: Avialion ook, 1980.
NBAA Busincss Atiaiicn |aci Bcck 2002. Washinglon, D.C.: NalionaI usiness Aircrah Associalion,
2002.
Richardson, I. D. |sscniia|s cj Atiaiicn Managcncni (2d ed.). Dubuque, Iova: KendaII/Hunl, 1981.
Simpson, Roderick W. and Rob Simpson. Tnc Gcncra| Atiaiicn Han!|cck. Leicesler, UK: MidIand
IubIishing, 2006.
WeIIs, AIexander T., and ruce D. Chadbourne. Gcncra| Atiaiicn Markciing an! Managcncni (2d ed.).
MaIabar, IIa.: Kreiger, 2003.
C H A P T E R 4 T H E G E N E R A L AV I AT I O N I N D U S T R Y 1 4 3
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PART TWO
Structure and
Economics of
the Airlines
145
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5
The Airline Industry
Introduction
Structure of the Airline Industry
Major and National Carriers
Regional Carriers
Airline Statistics
Airline Certication
Data Collection by the DOT
Industry Agreements
Trafc and Financial Highlights: 19602005
Chapter Checklist You Should Be Able To:
Dene trunk, supplemental, and local-service carriers,
and describe lheir roIe in lhe predereguIalion era
Describe some of lhe probIems faced by lhe CA and lhe
air carriers prior lo dereguIalion
Compare and conlrasl lhe ma|or and nalionaI carriers al
lhe lime of dereguIalion and during lhe subsequenl years,
in lerms of expansion, consoIidalion, and concenlralion
Discuss some of lhe innovalions pioneered by lhe ma|or
air carriers in lhe earIy 1980s lhal had a profound eecl
on lhe slruclure of lhe induslry
IxpIain lhe roIe of lhe regionaI carriers in lhe air lransporl
syslem
Describe lhe airIine cerlicalion process and DOT
reporling requiremenls
HighIighl lhe signicanl lrafc and nanciaI slalislics
during lhe period 19602005, and demonslrale lhe cycIicaI
nalure of lhe airIine induslry

147
INTRODUCTION
In Chapler 1, lhe airIines vere referred lo as a segmenl vilhin lhe air lransporlalion
induslry. This chapler deaIs vilh lhe airIines as a separale induslry. In order lo avoid
confusion aboul lhe lerm in!usiru. il is besl lo dene il al lhe oulsel.
An in!usiru can be dened as a number of rms lhal produce simiIar goods and services
and lherefore are in compelilion vilh one anolher. In lhis sense, lhe airIine induslry is a
segmenl or parl of lhe broader air lransporlalion induslry. SeveraI hundred U.S. companies
engage in lhe carriage of persons or goods by air. Ior exampIe, American AirIines earns
revenues in excess of $20 biIIion a year, vhiIe lhe smaIIesl may operale a singIe pIane onIy
severaI monlhs a year. roadIy dened, lhe airIine induslry consisls of a vasl nelvork
of roules lhal connecl cilies lhroughoul lhe counlry, and indeed, lhe vorId. Over lhis
nelvork, a Iarge number of airIines carry passengers and cargo on scheduIed service.
STRUCTURE OF THE AIRLINE INDUSTRY
Grcuin an! |cgu| aii cn
To cIarify lhe slruclure of lhe induslry al lhe oulsel, il is usefuI lo dene lhe induslry.
When lhe CiviI Aeronaulics Acl vas passed in 1938, onIy a handfuI of air carriers
operaled reguIar scheduIes over prescribed roules, and vhen lhey received governmenl
cerlicalion, lhey became knovn as ccriicaic! rcuic. scnc!u|c! air carricrs. a lerm lhal is
used lo lhis day. The acl empovered lhe CiviI Aeronaulics oard (CA) lo slruclure lhe
inlerslale airIine induslry lhrough reguIalion of passenger fares, air maiI rales, roule enlry
and exil, mergers and acquisilions, and inlercarrier agreemenls. The CA immedialeIy
grandfalhered lhe roules of 23 exisling airIines, vhich Ialer became knovn as trunk
carriers (a lerm borroved from lhe lrunk raiIroads of lhe day). y denilion, lrunk
carriers vere airIines cerlied lo operale on medium- and Iong-hauI inlerslale roules.
These carriers came under Seclion 401 of lhe boards reguIalions and lhus vere somelimes
referred lo as 401 carriers. To be exempl from 401 cerlicalion, a carrier couId nol exceed a
lakeo veighl of 12,500 pounds (roughIy lhe veighl of a DC-3), vhich eecliveIy Iimiled
aircrah lo 19 passengers. TypicaIIy, lvo or lhree carriers provided service in a given
markel, aIlhough in some inslances roules vere covered by onIy one carrier. The CA
sel slandard fare IeveIs lo ensure cross-subsidizalion belveen prolabIe and unprolabIe
roules. Carriers vere required lo charge equaI fares for equaI dislances. Cosl increases vere
passed aIong lo cuslomers, and lhe CA aIIoved lhe airIines lo earn a reasonabIe rale of
relurn.
1
OriginaIIy, lhere vere lvo generaI cIasses of common-carrier air lransporlalion: (1)
lhe lrunk airIines, vhich provided scheduIed service on xed roules, and (2) smaII
nonlransporl carriers, principaIIy operaling from a xed base, vhich furnished service
on requesl, vilhoul scheduIes. Ior lhe nonscheduIed carriers, lransporlalion services
vere incidenlaI lo lhe principaI business aclivilies of saIe and service of aircrah and ighl
inslruclion.
1
According lo lhe CAs Domeslic Iassenger Iare Invesligalion (DIII), fares vere sel according lo lhe foIIov-
ing formuIa: average cosls (assuming pIanes ev 55% fuII) reasonabIe relurn on inveslmenl (12%) + revenue
requiremenl.
A I R T R A N S P O R TAT I O N 1 4 8
2
CiviI Aeronaulics Acl, Seclions 101(35) and 101(36), respecliveIy.
Aher WorId War II, a number of enlerprising avialion enlrepreneurs purchased var
surpIus DC-3s (C-47s) and DC-4s (C-54s) and began lo lransporl peopIe and cargo for
compensalion or hire vilh no xed roules or scheduIes, much in lhe manner of lramp
sleamers. These operalions, usuaIIy cuhroal in lhe vorsl sense of lhe lerm, became
knovn as nonscheduIed, or nonsked, air carriers lo lhe pubIic and as Iarge irreguIar air
carriers lo lhe CA, vhich vas poverIess lo reguIale lhem unliI lhe CiviI Aeronaulics Acl
vas amended by Congress. The acl vas amended aher WorId War II lo creale supp|cncnia|
air carricrs and supp|cncnia| air iranspcriaiicn
2
so lhal such operalions aIso required
cerlicales of pubIic convenience and necessily. OriginaIIy designed lo suppIemenl lhe
capacily provided by lhe lrunk carriers, by lhe 1960s lhe supplemental air carriers had
lruIy become compelilive carriers, and by lhe 1970s lhe name suppIemenlaI had Iosl aII
meaning. Some carriers provided scheduIed passenger and cargo services, vhereas olhers
concenlraled on cargo onIy.
In lhe poslvar period, lhere vere aIso many feeder roules lo be granled. The lrunk
Iines cIaimed lhal lhey had grandfalher righls (originaI cerli-calion) lo provide such
service feeding inlo lhe lrunk roules, bul lheir pIeas vere lo no avaiI: lhe CA chose
inslead lo cerlicale a vhoIe nev IeveI of service. The CA assured lhe lrunks lhal
lhe feeders vouId be carefuIIy valched and nol permied lo provide service belveen
lhe ma|or melropoIilan areas. The CA avarded each IocaI-service carrier a regionaIIy
cenlered roule syslem lhal fed lhe lrunks vilh addilionaI passengers. These local-
service carriers, vhich provided inlraslale service lo smaII communilies, vere exempl
from CA economic reguIalion, and many vere eIigibIe for governmenl subsidies lo
cover operaling Iosses. The charler services charged Iover fares, did nol operale pubIished
scheduIes, and vere aIso exempl from CA reguIalions.
Nineleen IocaI-service airIines vere cerlicaled by lhe board belveen 1945 and 1951.
Some of lhe rsl feeder Iines, as lhey became knovn, vere AIIegheny (nov US Airvays):
Mohavk and Lake CenlraI (nov parl of US Airvays): Ironlier (nov parl of ConlinenlaI):
onanza, Soulhvesl, and Wesl Coasl (Ialer Hughes Airvesl, Ialer parl of RepubIic, nov
parl of Norlhvesl): Norlh CenlraI and Soulhern (Ialer parl of RepubIic, nov parl of
Norlhvesl): Iiedmonl (nov parl of US Airvays): and Ozark (vhich became parl of TWA,
vhich is nov parl of American AirIines).
During lhe 1950s and 1960s, subsidizalion of mosl IocaI-service and many lrunk roules
conlinued. LocaI subsidy cosls, exacerbaled by fares deIiberaleIy sel beIov marginaI cosls
in accordance vilh lhe CA formuIa, escaIaled rapidIy as lhe IocaI-service carriers added
roules and repIaced lheir originaI DC-3 aircrah vilh Iarger equipmenl. In an eorl lo
reduce subsidy cosls, lhe CA al rsl shihed some Iov-densily lrunk roules lo lhe IocaI
service carriers. When lhis approach faiIed, Ionger and polenliaIIy more prolabIe roules,
ohen in direcl compelilion vilh lhe lrunk roules, vere avarded. Despile lhis overIap of
IocaI-service and lrunk carrier roules, lhe CA IargeIy mainlained ils vision of a biIeveI
induslry. Trunk airIines served Iong-dislance roules belveen ma|or cilies, vhiIe IocaI-
service carriers provided connecling service from smaIIer cilies lo lrunk deslinalions.
ConsequenlIy, many ilineraries required a change of airIines. ecause of poorIy coordinaled
ighl scheduIes, signicanl deIays availing a connecling ighl vere common. Iaced vilh
suppressed rouling and pricing oplions, lhe airIines compeled on services such as meaIs,
movies, and sealing comforl.
C H A P T E R 5 T H E A I R L I N E I N D U S T R Y 1 4 9
Despile lhese probIems, lhe induslry grev rapidIy, en|oying more lhan a lenfoId grovlh in
passengers belveen 1950 and 1970. TechnoIogicaI advances embodied rsl in lhe Iong-range
DC-6 and ConsleIIalion aircrah and lhen in lhe rsl-generalion commerciaI |el lransporls
provided sleady improvemenls in produclivily. Iel lransporlalion grealIy increased lhe
lrunks capacily IeveIs and aIIoved lhem lo scheduIe more frequenl ighls. AirIines lhal
added capacily gained a disproporlionale share of markel lrafc because cuslomers vere
mosl IikeIy lo caII lhe airIine vilh lhe videsl range of lraveI oplions. The purchase of nev
aircrah Ieh bolh lhe lrunk and lhe IocaI-service carriers vilh veakened earnings and baIance
sheels, vhiIe compelilion inlensied in lhe high-densily markels, vhere business lraveIers
soughl maximum convenience. In lhe meanlime, subsidies lo lhe IocaI-service carriers
conlinued lo increase. Air fares, lhough high, remained nominaIIy slabIe bul decIined in
reaI lerms lhroughoul lhe period. High fares, hovever, Iimiled air lraveI lo business and
afuenl passengers.
The induslrys probIems vorsened during lhe Arab oiI embargo of lhe 1970s. elveen
1969 and 1978, fueI cosls rose 222 percenl (lo 20 percenl of operaling expenses): inalion
boosled Iabor cosls (lo 45 percenl of operaling expenses): and lhe slagnalion of lhe gross
nalionaI producl curlaiIed demand grovlh (from 18 percenl lo 4 percenl per annum).
CaIIs for reguIalory reform rsl appeared in lhe earIy 1970s. Irohibiled from compeling
on fares and roules, carriers responded by increasing ighl frequency, Iovering sealing
densily, and adding ever more exlravaganl in-ighl service. Anlicipaling conlinued rapid
lrafc grovlh lhal accompanied lhe inlroduclion of |el aircrah, lhe ma|or carriers pIaced
nev vide-body aircrah in service, exacerbaling exisling overcapacily. Load faclors feII
from 70 percenl in 1950 lo 50 percenl by 1970. Wilh lhe lransilion lo |el aircrah compIele,
produclivily gains lhal had cushioned lhe economic consequences of faIIing Ioad faclors
sIoved. The induslrys nanciaI heaIlh veakened.
The CA responded lo lhe delerioraling nanciaI condilions by increasing ils
reguIalory inlervenlions. In addilion lo lhe ongoing deniaI of nev carrier appIicalions,
il imposed a roule moralorium on exisling carriers, approved a 20 percenl fare increase,
and sanclioned capacily Iimilalion agreemenls among lhe lrunk carriers. These aclions
raised aIarm oulside lhe CA, resuIling in a consensus in governmenl and academia lhal
reguIalory dislorlions imposed unacceplabIe burdens on lhe economy and sociely and
did IiIe lo address lhe induslrys underIying slrucluraI probIems.
Sensing a vinning issue, Senalor Idvard Kennedy heId congressionaI hearings in 1975
sharpIy crilicaI of CA poIicies. Sludies comparing inlraslale airIines operaling oulside
CA conlroI vilh lhe lrunk carriers pro|ecled fares 50 lo 70 percenl Iover if lhe induslry
vas dereguIaled.
Ocrcgu| aii cn
In response lo lhe crilicism, lhe CA reversed ils poIicies, beginning vilh lhe approvaI
of nev roule appIicalions. In 1977, il consenled lo American AirIines requesl for super
saver discounls some 45 percenl beIov exisling coach fares. When American AirIines
lrafc grev as much as 60 percenl in response, lhe soIulion lo overcapacily seemed al
hand. Olher carriers quickIy Ied and received CA approvaI for simiIar discounls. De
faclo dereguIalion vas under vay.
In 1978, nov vilh lhe aclive encouragemenl of nev CA Chairman AIfred Kahn,
Congress passed lhe AirIine DereguIalion Acl. The acl mandaled lhal lhe CA phase oul
ils roule approvaI aulhorily over lhree years and ils reguIalion of fares over ve years, and
A I R T R A N S P O R TAT I O N 1 5 0
MAJOR AND NATIONAL CARRIERS
Thal dereguIalion vas a Iandmark evenl in lhe hislory of lhe U.S. airIine induslry
is iIIuslraled by lhe facl lhal 5 of lhe lop 12 airIines of 1978, as measured by revenue
passenger miIes (RIMs), no Ionger exisl (see TabIe 5-1). Iaslern (no. 4) and rani
(no. 8) venl bankrupl: Weslern (no. 7) vas absorbed by DeIla: NalionaI (no. 10) vas
absorbed by Ian Am: Ian Am (no. 6) broke ilseIf up for parls, vilh mosl going lo
DeIla and Uniled: lhe remnanl of Ian Am lhen dissoIved in bankruplcy. DereguIalion
fueIed a lrend lovard concenlralion of business vilh a nev cIusler of mega-carriers,
vilh a number of smaII and midsize airIines being absorbed in lhe process. y lhe end
of 2004, lhe lop ve carriers accounled for 74 percenl of lhe business (see TabIe 5-2). In
conlrasl, in 1978, under CA conlroI, lhe lop ve airIines accounled for 68 percenl of lhe
RIMs of lhe lop 12.
The immediale consequence of dereguIalion vas lhal lhe eslabIished carriers faced
compelilion on many fronls. Iirsl, lhey compeled vigorousIy among lhemseIves,
molivaled in parl by lhe beIief lhal markel share vouId delermine lhe uIlimale survivors
in a reslruclured induslry. This meanl nev roules and Iover prices, vhich Ied lo more
avaiIabIe seal-miIes bul Iover Ioad faclors, as capacily oulslripped nev passenger lrafc,
and lo Iover passenger revenue yieIds because of lhe reduced fares.
The compelilion vilhin lhe eslabIished induslry vas inlensied by lhree innovalions
pioneered by lhe ma|or carriers in lhe earIy 1980s lhal coIIecliveIy represenl a radicaI
change from lhe reguIaled era. AIlhough each of lhe measures oered iniliaI compelilive
advanlage lo lhe rsl movers, in lhe aggregale lhese innovalions appear lo have
conlribuled lo lhe very high voIaliIily of induslry revenues. Iirsl, airIines eslabIished
hub-and-spoke roule slruclures, designed lo funneI lrafc from oulIying regions
for furlher lransil, al very high Ioad faclors, lo ma|or deslinalions. ul hubs are very
expensive lo eslabIish and mainlain because of lhe high infraslruclure cosls: lhe high
xed cosls hinder easy ad|uslmenl of roule slruclures in response lo changing paerns
of demand, and lhe overaII roule slruclure produces more conneclions on Iong-dislance
roules, vhich is disfavored by fuII-fare business lraveIers. The hub-and-spoke slruclure
aIso Ieh lhe airIines vuInerabIe in lhe 1990s lo Iov-fare carriers lhal y poinl lo poinl
belveen deslinalion cily-pairs. Among olher faclors, lhe poinl-lo-poinl carriers gain lhe
advanlage of higher aircrah uliIizalion lhan do lhe hub-and-spoke carriers, vhich have lo
provide lime in lheir scheduIes of Iong-dislance roules for lhe arrivaI of feeder ighls.
Second, lhe airIines adopled frequenl-ier programs designed lo enhance brand IoyaIly
among business lraveIers and lo expIoil lhe dierences belveen regionaI and nalionaI (or
inlernalionaI) airIines in lerms of more desirabIe deslinalions. The frequenl-ier programs
proved lo be expensive lo adminisler, and lhe polenliaI IiabiIily of accruing free lraveI
credils vas an unveIcome overhang on an airIines nanciaI slalemenl. Moreover, lhe
frequenl-ier programs came lo pIay a somevhal perverse roIe in lhe design of roule
slruclures, in vhich deslinalions vere added or relained lo avoid lhe polenliaI Ioss of
frequenl iers.
Third, lhe airIines deveIoped sophislicaled reservalions syslems lhal lhey used for al
Ieasl lvo purposes: (1) lo skev in lheir favor lhe dispIay of heduIing informalion on lhe
lhal il pass ils remaining funclions lo lhe Deparlmenl of Transporlalion. The CA ceased
operalion al lhe end of 1984.
C H A P T E R 5 T H E A I R L I N E I N D U S T R Y 1 5 1
AirIine (ranked Revenue Iassenger Iercenlage
by RIMs) MiIes (miIIions) of TolaI
Uniled 39,399 18.46%
American 28,987 13.78
Trans WorId 26,967 12.7
Iaslern 25,183 11.86
DeIla 23,332 10.99
Ian American 21,054 9.91
Weslern 10,188 4.8
rani 9,604 4.5
ConlinenlaI 8,626 4.1
NalionaI 7,892 3.7
Norlhvesl 7,018 3.3
AIIegheny 4,083 1.9
TolaI 212,337 100.0%
Source: Air Transporl Associalion AnnuaI Reporl, Iune 1979.
AirIine (ranked Revenue Iassenger Iercenlage
by RIMs) MiIes (miIIions) of TolaI
American 130,020 20.02%
Uniled 114,536 17.64
DeIla 98,041 15.10
Norlhvesl 73,294 11.29
ConlinenlaI 63,176 9.73
Soulhvesl 53,415 8.24
US Airvays 40,498 6.24
America Wesl 23,318 3.59
AIaska 16,224 2.50
IelIue 15,721 2.42
American Trans Air 12,539 1.93
AirTran 8,479 1.30
TolaI 649,261 100.0%
Source: Air Transporl Associalion AnnuaI Reporl, Iune 2005.
screens lhal vere used in lraveI agenls ofces and (2) lo eslabIish yieId managemenl
programs. In accumuIaling dala aboul lrafc paerns and demand for parlicuIar ighls,
airIines couId engage in sophislicaled price discriminalion in lhe eorl lo maximize
revenues. Ior exampIe, based on hisloricaI informalion and currenl demand, an airIine
couId decide seal aIIocalions for cul-rale, advance-pIanning Ieisure lraveIers versus fuII-
fare, Iasl-minule business lraveIers. Hovever, lhe combinalion of hub-and-spoke roule
TABLE 5-2 U.S. Airline Passenger Trafc for the Top 12 Air Carriers, 2004
TABLE 5-1 U.S. Airline Passenger Trafc for the Top 12 Air Carriers, 1978
A I R T R A N S P O R TAT I O N 1 5 2
slruclures and such eorls al ne-luning Ied lo compIicaled rale slruclures lhal faciIilaled
price compelilion (because discipIining defeclors from a parlicuIar benchmark fare vas
harder) and lhus Iovered passenger revenue yieIds.
The eslabIished carriers aIso faced compelilion from nev enlranls vilh signicanlIy
Iover cosl slruclures. Irominenl exampIes in lhe earIy 1980s vere IeopIe Ixpress and
Nev York Air, vhich broughl an exlremeIy Iov fare slruclure inlo Iucralive markels in
lhe norlheasl, and Soulhvesl and Texas Air, vhich operaled on a simiIar basis in lhe
soulhvesl. These nev enlranls vere nol parl of lhe induslrys coIIeclive bargaining
slruclure: lhey paid lheir empIoyees veII beIov lhe induslry average, ohen 50 percenl
beIov induslry scaIe, and, because of lhe absence of vork ruIes, empIoyed far fever
empIoyees per avaiIabIe seal-miIe.
The consequence of lhe dramalicaIIy changed compelilive environmenl vas nanciaI
dislress for many carriers. Ior exampIe, in an eorl lo operale on a nalionaI (and
inlernalionaI) scaIe, rani expanded very rapidIy bul faiIed lo II seals. Il venl inlo
Chapler 11 in 1982 and vas Iiquidaled shorlIy lhereaher. An aiIing ConlinenlaI vas
laken over in a 1982 hosliIe lender oer by Texas Air, run by Irank Lorenzo. A year Ialer,
Lorenzo pushed ConlinenlaI inlo Chapler 11 and, in a conlroversiaI move, voided lhe
union conlracls. ImmedialeIy lhereaher, haIf lhe vork force vas red and vages vere
cul by nearIy 50 percenl. ConlinenlaI survived lhe machinisls slrike lhal preceded lhe
bankruplcy and lhe piIols slrike lhal foIIoved by dramalicaIIy reducing fares. ConlinenlaI
vas a ma|or carrier vilh a veII-deveIoped roule slruclure, and so ils cul-rale fares pul
furlher pressure on induslry prolabiIily.
Thus, lhe airIines are an exampIe of an induslry seclor sub|ecl lo exogenous shocks lhal
have undermined many of ils previous vays of doing business. Nol onIy did dereguIalion
expose lhe airIines lo poverfuI compelilive forces lhal undermined prolabiIily, bul il
aIso eIiminaled lhe impIicil proleclion under governmenl reguIalion againsl coIIapse
and bankruplcy. As a resuIl, lhe induslry is making a lransilion lo a nev slruclure
(see Iigure 5-1).
Al lhe lop of lhe pyramid shovn in Iigure 5-1, and foremosl among lhe carriers lhal
make up lhe airIine induslry, are lhe ma|or and nalionaI carriers. The 54 carriers lhal
vere incIuded in lhese lvo calegories al lhe beginning of 2004 hoId cerlicales of pubIic
convenience and necessily and operale scheduIed and nonscheduIed or charler services
FIGURE 5-1 The structure of the airline industry2004.
(

74 cerlificaled)
C H A P T E R 5 T H E A I R L I N E I N D U S T R Y 1 5 3
over medium- and Iong-range nalionaI and inlernalionaI roules serving Iarge popuIalion
cenlers. AirIines are nov cIassied as major air carriers if lheir annuaI gross revenues are
over $1 biIIion. They incIude:
National air carriers incIude airIines vilh annuaI gross revenues belveen $100 miIIion
and $1 biIIion. They incIude:
REGIONAL CARRIERS
Regional air carriers are cIassied as Iarge, medium, or smaII, depending on lheir annuaI
gross revenue and vhelher lhey hoId a cerlicale of pubIic convenience and necessily from
lhe DOT. Large regionaIs are cerlicaled carriers vilh annuaI gross revenues belveen $10
miIIion and $99.9 miIIion. Medium regionaIs are cerlicaled carriers vilh annuaI gross
revenue Iess lhan $10 miIIion. The smaII regionaIs, commonIy referred lo as commulers,
are noncerlicaled carriers.
|ar| u Grcuin
AX
Air Transporl InlernalionaI
Air Wisconsin
AIIegianl
AIoha
Amerel InlernalionaI
ASTAR
AlIanlic Soulheasl
Champion
ConlinenlaI Micronesia
Ivergreen InlernalionaI
Ixeculive
IIorida Wesl
Ironlier
Gemini
Havaiian
Horizon
Independence
KaIia
Mesa
Mesaba
Miami
Midvesl
Norlh American
Omni
IinnacIe
ISA
Ryan InlernalionaI
Spiril
Sun Counlry
Transmeridian
Trans Slales
USA 3000
USA Iel
WorId
AirTran
AIaska
America Wesl
American
American IagIe
ATA
AlIas/IoIar
Comair
ConlinenlaI
DeIla
IxpressIel
IedIx
IelIue
Norlhvesl
SkyWesl
Soulhvesl
Uniled
UIS
US Airvays
Oul of severaI lhousand air laxi operalors in Ianuary 1964, onIy 12 oered scheduIed
services, aII lo noncerlicaled poinls. y lhe end of 1968, lhere vere over 200 scheduIed air
laxi operalors. This expIosive earIy grovlh in vhal became lhe regionaI/commuler airIine
induslry resuIled in parl from lhe economic opporlunily crealed by lhe service gap Ieh
by lhe vilhdraving IocaI-service carriers. Anolher imporlanl faclor vas lhe avaiIabiIily
of nev aircrah lhal vere smaII enough lo be exempl from CA economic reguIalion yel
Iarge enough lo carry prolabIe Ioads in scheduIed shorl-hauI operalions.
A I R T R A N S P O R TAT I O N 1 5 4
ReguIalory and economic changes in lhe 1960s improved lhe cIimale for lhe grovlh
of scheduIed air laxis. In 1964, lhe IAA promuIgaled IederaI Avialion ReguIalion (IAR)
Iarl 135, vhich dened lhe operalionaI and safely ruIes of lhe induslry. In 1965, lhe CA
amended ils reguIalions lo aIIov lhese carriers lo lransporl maiI and lo provide service
belveen cerlicaled poinls, ohen as repIacemenls for lrunk or IocaI-service airIines. In
1964, American AirIines conlracled vilh Apache AirIines lo repIace il in serving DougIas,
Arizona: lhis vas lhe rsl air laxi repIacemenl agreemenl. In 1968, AIIegheny AirIines
(nov US Airvays) grealIy expanded lhis concepl by conlracling ils unprolabIe roules
lo 12 independenl commulers operaling under lhe name AIIegheny Commuler: lhis
nelvork conlinues loday. The CA ofciaIIy recognized lhe commuler induslry in 1969,
dening a commuler air carrier as an air laxi operalor lhal eilher (1) performs al Ieasl
ve round-lrips per veek belveen lvo or more poinls and pubIishes ighl scheduIes
lhal specify lhe limes, days of lhe veek, and origins and deslinalions of such ighls, or
(2) lransporls maiI by air under conlracl vilh lhe U.S. IoslaI Service. y Augusl 1978,
26 commuler airIines vere providing repIacemenl service for cerlicaled carriers al 59
poinls, moslIy vilhoul direcl nanciaI assislance.
During lhe 1970s, passenger enpIanemenls on commuler carriers grev al an annuaI
rale of sIighlIy over 13 percenl, compared vilh a 7 percenl grovlh rale for lhe combined
lrunk and IocaI-service airIines and a 3 percenl annuaI grovlh rale in reaI gross nalionaI
producl.
As parl of airIine dereguIalion in 1979, lhe lrunk and IocaI-service carriers began lheir
second slage of vilhdravaI from smaIIer communilies. The commulers sav yel anolher
opporlunily lo serve lhe lraveIing pubIic and eagerIy moved lo provide service. Under
congressionaI mandale, communilies lhal slood lo Iose service as parl of dereguIalion
vere pIaced under lhe IssenliaI Air Service (IAS) program. As of earIy 2006, more lhan
114 communilies vere served by lhe program in lhe conlinenlaI Uniled Slales, AIaska,
Havaii, and Iuerlo Rico.
|c| c cj inc |cgi cna| Ai r Carri cr
Today, lhe regionaI/commuler airIine segmenl is an inlegraI parl of lhe nalions air
lransporlalion syslem. RegionaI carriers provide reguIarIy scheduIed passenger or cargo
service on aircrah predominanlIy sealing fever lhan 60 passengers or hoIding cargo vilh
an 18,000-pound or Iess payIoad. RegionaIs y pursuanl lo scheduIes pubIished in videIy
used airIine scheduIe guides.
A lypicaI regionaI ighl operales over a lrip dislance of 100 lo 400 miIes and al Iover
aIliludes lhan ighls of lhe Iong-hauI carriers. RegionaIs operale veII-limed frequenl
ighls from oulIying communilies lo lhe associaled hub airporls lo inlerIine, or
connecl, passengers and cargo vilh olher scheduIed ighls. Sevenly percenl of aII regionaI
passengers make such conneclions.
AIlhough lhe grovlh period of regionaIs has been reIaliveIy shorl and nol vilhoul
probIems, conlinuing eorls by lhe induslry principaIs are pIaying a signicanl roIe in
heIping lo forge an inlegraled and compIele air lransporlalion syslem. Today, 9 oul of
every 10 airporls in lhe Uniled Slales receiving scheduIed air lransporlalion are served by
a regionaI air carrier. y year-end 2005, regionaIs provided frequenl and limeIy air service
lo 664 airporls, vilh 664 of lhese communilies depending excIusiveIy on regionaI airIines
for scheduIed air lransporlalion. y conlrasl, lhe ma|or airIines served approximaleIy 32
percenl of lhe lolaI.
C H A P T E R 5 T H E A I R L I N E I N D U S T R Y 1 5 5
The 94 cerlicaled regionaI air carriers provide shorl-hauI air service lo smaII and
medium-size communilies across lhe counlry, lypicaIIy Iinking lhose communilies lo
lhe nalions Iarger airporls in a hub-and-spoke nelvork. This nelvork of regionaI air
services inlerconnecls each cily vilh olhers in lhe syslem, and lhe regionaI airIine segmenl
increasingIy has become more inlegraled inlo lhe syslem.
TabIe 5-3 highIighls regionaI/commuler airIine aclivily from 1993 lhrough 2004. The
number of carriers decIined from a high of 246 in 1981 lo 74 by lhe end of 2004. This
shakeoul of many veaker carriers resuIled from bolh a sIuggish economy in lhe earIy
1980s and earIy 1990s and erce compelilion. Hovever, il is inleresling lo nole lhal
TABLE 5-3 Industry traffic statistics 19932004
Scurcc. RegionaI AirIine Associalion AnnuaI Reporls. AvaiIabIe al: hp://vvv.raa.org/cIienl_Ies/
Carriers_services/Induslry_Trac_slals2005.pdf.
A I R T R A N S P O R TAT I O N 1 5 6
Cc!c Snari ng
ApproximaleIy 90 percenl of regionaI/commuler airIine passengers connecl lo or from
ma|or airIines, saving passengers bolh lime and money, as a resuIl of lighl markeling
parlnerships belveen regionaIs and ma|ors knovn as cc!c snaring. Today, cIose lo 80 percenl
of U.S. regionaI/commuler carriers oer lheir service as parl of a ma|or airIine nelvork
and, in lhe process, have crealed an inlegraled service, making regionaI/commuler airIines
a vilaI Iink belveen smaII communilies and lhe nalionaI air lransporlalion syslem.
egun as simpIe markeling arrangemenls belveen lhe ma|ors and lheir regionaI/
commuler airIine parlners in 1984, code sharing has deveIoped inlo sophislicaled Iiaisons
lhal may or may nol incIude some ovnership by lhe ma|or airIine. Mosl code-sharing
regionaI/commuler airIines adopl lhe painl schemes of lheir ma|or counlerparls, such
as USAir Ixpress, Uniled Ixpress, US Airvays Ixpress, American IagIe, ConlinenlaI
Ixpress, and Norlhvesl AirIink. Hovever, some, such as DeIla Conneclion (aIso
knovn as Comair), aIIov lheir regionaI parlners lo relain lheir ovn Iivery. AIlhough
lhe ma|orily of lhe code-sharing regionaI/commuler airIines are independenlIy
ovned and operaled, logelher vilh lheir ma|or parlners lhey provide improved
service lo lhe smaII-communily passenger. These inlerIine agreemenls have been
araclive lo lhe smaII carriers, because lhey oer lhem access lo more passenger lrafc,
Iimiled airporl faciIilies, nanciaI supporl, and markeling inleIIigence. These markeling
parlnerships enabIe regionaI/commuler airIine passengers lo check in al lheir IocaI airporl,
lhereby avoiding Iong driving limes and expensive parking fees. In addilion, passengers
can oblain boarding passes nol onIy for lheir iniliaI oulbound ighl bul for lheir enlire
lrip.
The overvheIming success of lhese parlnerships has aorded lhe opporlunily for
regionaI/commuler parlners lo upgrade lheir eels vilh nev-generalion aircrah, compIele
vilh lhe same avionics used by lhe ma|or carriers. Wilh lhis nev equipmenl have come
nev induslry service slandards lhal mirror lhe slandards passengers have come lo expecl
from ma|or carriers. The inlegralion of regionaI/commuler and ma|or airIine scheduIes
has aIso meanl veII-limed ighls, providing fasl hub-airporl conneclions. Iven for lhose
vhose deslinalion is lhe hub cily, regionaI/commuler airIine service oers lhe oul-and-
back-in-one-day business lrip.
These parlnerships have aIso meanl lremendous cosl savings lo regionaI/commuler
airIines as lheir ma|or parlners assume lhe reservalions funclions, vhich, al lhe same
lime, increased passenger and lraveI agenl convenience by oering one-slop shopping.
In addilion, code sharing means Iover air fares, vilh many regionaI/commuler segmenls
covered by a smaII add-on fare, somelimes as IiIe as $10. Irequenl iers are aIso oered
miIeage credils as much as lripIe lhal of lhe 250-miIe average slage Ienglh of a regionaI/
commuler airIine ighl.
In addilion, lhese markeling parlnerships mean lhal smaII communilies, vhich mighl
olhervise nol be served by ma|or |el aircrah, become parl of lhe ma|or airIine nelvork. In
providing lhal vilaI Iink, regionaI/commuler airIine parlners oer savings in bolh fares
and overaII lransporlalion cosls, frequenl deparlures, convenienl conneclions, and shorler
business lrips for lhose nol connecling. In shorl, lhey have become an inlegraI parl of lhe
nalionaI air lransporlalion syslem.
passenger enpIanemenls experienced a massive increase during lhis period. Revenue
passenger miIes increased from 2.09 biIIion in 1981 lo 56.21 biIIion in 2004.
C H A P T E R 5 T H E A I R L I N E I N D U S T R Y 1 5 7
|| i gni |ui pncni
The ma|orily of lodays regionaI/commuler airIine eel are prop-|el-povered. Nev-
generalion equipmenl aords lhe same or more advanced avionics and cockpil
inslrumenlalion as even lhe Iargesl commerciaI carriers have. In 2004, 27 percenl of lhe
eel vere lurboprop pIanes, 14 percenl vere pislon aircrah, and 59 percenl vere lurbo|els
(TabIe 5-4). The regionaI carriers conlinue lo reIy on |el aircrah for a signicanl porlion
of lheir service. AII lrends indicale regionaI/commuler airIines viII conlinue lo expand in
size moving from smaII lurbo-prop aircrah lo an increased focus on |el aircrah capabIe of
ying a Iarger number of passengers over grealer dislances. Hovever, regionaI/commuler
airIines viII conlinue lo operale a mixed aircrah eel as il aords lhe exibiIily lo laiIor
aircrah size lo markel and frequency needs.
Nelvork expansion viII be a key ingredienl in lhe fulure success of regionaI/commuler
airIine grovlh. As lhe regionaI nelvork evoIves, compelilion belveen regionaI/commuler
carriers and ma|or carriers viII increase. In some cases, regionaI/commuler carriers are
aIready slepping on lhe loes of lhe ma|ors causing greal concern for bolh sides. There
comes a poinl vilh successfuI regionaI/commuler carriers vhen lhey musl decide lo grov
from being a big sh in a smaII pond lo becoming a smaII sh in a big pond.
Transporlalion of cargo has aIso become imporlanl lo lhe boom Iine of many regionaI/
commuler air carriers, and lhe groving aII-cargo eel reecls lhis lrend. The number of
aircrah uliIized soIeIy for cargo carriage grev lo 1,438 pIanes in 1996.
AIRLINE STATISTICS
To fuIIy undersland lhe slruclure of lhe airIine induslry, il is imporlanl lo reviev lrafc
and nanciaI slalislics, incIuding performance measuremenls. SeveraI exceIIenl, readiIy
avaiIabIe sources can provide lhis informalion in a more appropriale and limeIy manner
lhan can be presenled in a lexlbook. These incIude lhe annuaI reporls from lhe Air
Transporl Associalion of America and lhe RegionaI AirIine Associalion. Tvo annuaI IAA
pubIicalions lhal are parlicuIarIy good are lhe |AA Siaiisiica| Han!|cck cj Atiaiicn and
|AA Atiaiicn |crccasis. Anolher source for annuaI slalislics and in-deplh anaIysis of aII
segmenls of lhe airIine induslry is lhe Iune edilion of Air Transpcri Wcr|!. IinaIIy, lhe
Wcr|! Atiaiicn Oirccicru. pubIished quarlerIy, provides a comprehensive induslry reviev
and anaIysis aIong vilh slalislics.
AIRLINE CERTIFICATION
Licensing funclions are lhe responsibiIily of lhe Ofce of lhe Assislanl Secrelary for IoIicy
and InlernalionaI Aairs of lhe Deparlmenl of Transporlalion. OrdinariIy, lhe assislanl
secrelary or his or her deIegale performs lhese funclions for lhe DOT, bul lhe secrelary of
lransporlalion may exercise lhis aulhorily in Iieu of lhe assislanl secrelary. Sla aclions
are sub|ecl lo reviev by lhe assislanl secrelary and ordinariIy are eeclive 10 days aher
lhe aclion is served.
Ior lhe Iicensing appIicalions subsequenlIy described, lhe requiremenls for lhe Iing
of documenls, incIuding lhe number of copies lo be Ied, are specied in DOT proceduraI
reguIalions.
A I R T R A N S P O R TAT I O N 1 5 8
TABLE 5-4a Summary of Aircra in Regional Airline Use 2004
Scurcc: RegionaI AirIine Associalion. hp://vvv.raa.org/cIienl_Ies/Carriers_services/Summary_Iassenger_
Aircrah.pdf
TABLE 5-4b Summary of All-Cargo Aircraft in Regional Airline Use 2004
Scurcc: RegionaI AirIine Associalion. hp://vvv.raa.org/cIienl_Ies/Carriers_services/Summary_Iassenger_
Aircrah.pdf
C H A P T E R 5 T H E A I R L I N E I N D U S T R Y 1 5 9
Sccii cn 401 Ccrii caics
Iach appIicanl for a Seclion 401 cerlicale for scheduIed or charler air lransporlalion
musl Ie an appIicalion vilh lhe DOT Documenlary Services Division (DSD) in lhe
Ofce of lhe GeneraI CounseI. Separale appIicalions for inlerslale/overseas and foreign
aulhorilies musl be Ied, aIong vilh lhe required Iing fees. There are basicaIIy lhree
lypes of 401 cerlicale cases: (1) lhose requiring primariIy a delerminalion of lness, (2)
lhose requiring primariIy a delerminalion of pubIic convenience and necessily (vhich
incIudes inlernalionaI carrier seIeclion cases), and (3) conlinuing lness revievs under
Seclion 401(r).
Fitness Determinations. To receive a Seclion 401 cerlicale, a carrier musl be found l
for lhe lype of service il viII provide. Fitness of lhe appIicanl refers lo lhe carriers size,
nanciaI resources, ighl equipmenl, slralegy for conducling lhe proposed operalions,
and pasl conformily lo various IegaI requiremenls. AppIicanls lhal have nol been found
l previousIy or lhal are proposing subslanliaI changes in operalions (such as going from
cargo lo passenger service or from charler lo scheduIed operalions, or pIanning lhe slarl-
up of service aher cessalion) are required lo eslabIish lheir lness lo operale. Aulhorily
nol used for one year is aulomalicaIIy revoked.
Aher receiving a lness appIicalion, lhe DSD viII assign il a dockel number, dale il,
and forvard il lo lhe Air Carrier Iilness Division of lhe Ofce of Avialion AnaIysis for
reviev and aclion. Wilhin 21 days, lhis division viII delermine vhelher lhe appIicalion
is compIele. If il is nol compIele, lhe appIicalion viII be re|ecled or lhe appIicanl viII be
nolied and asked lo provide furlher informalion lo lhe DSD.
Aher lhe appIicalion is compIele, lhe DOT viII do one of lvo lhings. Il viII issue a
shov cause order, lhrough lhe DSD, lenlaliveIy nding lhe carrier l and proposing lo
issue lhe requesled cerlicale. The sncu causc cr!cr soIicils any parly lo presenl lo lhe
DOT reasons and consideralions as lo vhy a parlicuIar order of lhe DOT shouId nol be
pul inlo eecl. A naI decision on lhe lness appIicalion is made vilhin 180 days aher lhe
appIicalion is compIele. AIlernaliveIy, lhe DOT viII inslilule formaI proceedings before
an adminislralive Iav |udge lo delermine lness. This course is foIIoved in cases in vhich
lhere is conlroversy concerning lhe appIicanl and in vhich lhe appIicalion invoIves noveI
issues or lhe facls are in dispule. In lhis evenl, a decision is made according lo lhe process
appIicabIe lo formaI proceedings.
Public Convenience and Necessity Determinations. Ior carriers desiring lo provide
foreign air service, a delerminalion of pubIic convenience and necessily is required
in addilion lo lhe lness nding. AppIicanls lhal vere previousIy found l and lhal
hoId cerlicales for operalions comparabIe lo lhose soughl may Ie, vilh lhe DSD,
appIicalions for addilionaI aulhorily, amendmenls, aIleralions, modicalions, and
renevaIs of lheir 401 cerlicales. The DSD gives each appIicalion a dockel number,
dales il, and forvards il lo lhe Iconomic and IinanciaI AnaIysis Division of lhe Ofce of
Avialion AnaIysis for reviev and aclion. Wilhin 21 days, lhis division delermines
vhelher lhe appIicalion is compIele. If lhe appIicalion is nol compIele, lhe appIicanl is
nolied and asked lo provide lhe required informalion lo lhe DSD. Wilhin 90 days aher
lhe appIicalion is compIele, a decision is made lo process lhe appIicalion in one of lhe
foIIoving vays: (1) dismiss lhe appIicalion, (2) handIe il under simpIied procedures
vilhoul an oraI evidenliary hearing, or (3) inslilule a formaI hearing if il is a case in
A I R T R A N S P O R TAT I O N 1 6 0
vhich, for exampIe, a choice musl be made belveen compeling appIicalions for Iimiled-
designalion inlernalionaI roule aulhorily.
Continuing Fitness Reviews Under Section 401(r). U.S. cerlicaled and commuler
air carriers lhal do nol inslilule service vilhin one year of being found l or lhal cease
operalions for al Ieasl one year have lheir aulhorily revoked and musl undergo a nev
lness delerminalion before commencing operalions. Carriers lhal cease service and vish
lo resume service before lhe expiralion of one year musl Ie nev lness dala al Ieasl 45
days before recommencing service.
U. S. Ai r Carri cr A| | -Cargc Ccrii caics Un!cr Sccii cn 418
An appIicanl for a domeslic aII-cargo cerlicale under Seclion 418 of lhe IederaI Avialion
Acl musl Ie an appIicalion vilh lhe DSD in lhe Ofce of lhe GeneraI CounseI. The
appIicalion is given a dockel number, daled, and forvarded lo lhe Air Carrier Iilness
Division of lhe Ofce of Avialion AnaIysis for reviev and aclion. Wilhin 14 vorking
days, lhis division delermines vhelher lhe appIicalion is compIele. If il is nol compIele,
lhe appIicanl is nolied and asked lo provide furlher informalion lo lhe DSD. Once lhe
appIicalion is compIele, a nolice is pubIished in lhe IederaI Regisler and 21 days are
aIIoved for ob|eclions lo a favorabIe lness nding and issuance of lhe cerlicale.
Ccnnuicr Air Carricr |iincss Ocicrninaiicns Un!cr Scciicn 419
Under Seclion 419 of lhe IederaI Avialion Acl, commuler air carriers musl be found
l lo provide scheduIed passenger service. Those vishing lo eslabIish a commuler
air carrier service musl Ie an appIicalion vilh lhe Air Carrier Iilness Division of lhe
Ofce of Avialion AnaIysis. This ofce revievs lhe appIicalion lo delermine vhelher il is
compIele, and vhen necessary, il conlacls lhe appIicanl for addilionaI informalion. When
aII required informalion is received, lhe DOT issues a shov cause order, lhrough lhe DSD,
slaling lenlalive ndings and aIIoving 15 days for ob|eclions lo be Ied.
efore commencing operalions, commuler air carriers musl aIso have on Ie a
regislralion form and an insurance cerlicale. Commuler air carriers are aIso sub|ecl lo
lhe conlinuing lness requiremenl of Seclion 401 of lhe IederaI Avialion Acl.
efore commencing operalions, air laxi operalors and commuler air carriers musl have
on Ie a regislralion form (DOT form 4507, formerIy CA form 298) and an insurance
cerlicale covering lheir proposed operalions. These forms, as veII as subsequenl
amendmenls and insurance Iings, are Ied direclIy vilh lhe Air Carrier Iilness Division
of lhe Ofce of Avialion AnaIysis. If lhe regislralion form is properIy IIed oul and lhe
insurance cerlicale provides coverage for lhe service proposed, lhe Air Carrier Iilness
Division relurns an approved copy of lhe regislralion lo lhe appIicanl. In lhe case of nev
commuler appIicanls, lhe regislralion lo provide scheduIed passenger service is approved
vhen lhe carriers lness has been delermined.
C H A P T E R 5 T H E A I R L I N E I N D U S T R Y 1 6 1
DATA COLLECTION BY THE DOT
Dala coIIeclion and disseminalion are lhe responsibiIily of lhe ureau of Transporlalion
Slalislics (TS), acling in cooperalion vilh lhe Ofce of lhe Assislanl Secrelary for Avialion
and InlernalionaI Aairs.
Ai r Carri cr Acccunii ng an! Gui !ancc
Carriers receiving Seclion 401 cerlicales and operaling aircrah designed for a maximum
passenger capacily of more lhan 60 seals or a maximum payIoad capacily of more lhan
18,000 pounds or providing service lo a poinl oulside lhe 50 Uniled Slales, lhe Dislricl
of CoIumbia, Iuerlo Rico, or lhe U.S. Virgin IsIands are required lo compIy vilh lhe
Uniform Syslem of Accounls and Reporls for Large Cerlicaled Air Carriers. The
TSs Ofce of AirIine Informalion is responsibIe for accounling and reIaled syslems
design and modicalion, as veII as for inlerprelalion of lhe reguIalions.
The TS provides lechnicaI accounling experlise and guidance lo air carriers and
lo olher governmenl agencies, incIuding lhe Securilies and Ixchange Commission.
The ReguIalions Division of lhe TS aIso assisls smaII air carriers parlicipaling in lhe
IssenliaI Air Service Irogram, such as air laxi operalors, vho may eIecl lo impIemenl
lhe VoIunlary Accounling Syslem for SmaII Air Carriers, and nev or groving cerlied
carriers, vho may need assislance in famiIiarizing lhemseIves vilh lhe required
accounling syslems and reIaled ruIes in lhe Uniform Syslem of Accounls. The TS
conlinuaIIy evaIuales lhe airIine induslry accounling syslems and reIaled ruIes and
coordinales vilh lhe Ofce of Inspeclor GeneraI on lhe need for audil assislance.
|i nanci a| an! Siaii sii ca| |cpcrii ng
Air carrier reporling requiremenls eslabIished by lhe CA conlinue in eecl unliI changed
by lhe DOT. Aulhorily lo mainlain lhese ruIes and manage lhe avialion informalion
program is deIegaled lo lhe TS. Irogram operalion is overseen by lhe TSs Ofce of
AirIine Informalion.
Ielilions for ruIe making on reporling maers are Ied vilh lhe DSD. The pelilion is
given a dockel number, daled, and referred lo lhe TS for processing. RuIes proposed and
issued by lhe TS are dockeled in lhe DSD.
Nev reporling inslruclions, changes lo exisling inslruclions, and inlerprelalions of
reporling requiremenls for air carriers are promuIgaled by lhe TS. These inslruclions, as
veII as vrien requesls for vaivers, inlerprelalions, exlensions of Iing dales, subslilulions
of forms or formals, and condenliaI lrealmenl of reporls, are handIed by lhe direclor of
lhe Ofce of AirIine Informalion.
Air carrier submissions are revieved for acceplabiIily by lhe Dala Adminislralion
Division. This division may conlacl air carriers concerning lhe form or subslance of lheir
reporls.
A I R T R A N S P O R TAT I O N 1 6 2
INDUSTRY AGREEMENTS
RegionaI airIines have become fuII parlners in lhe air lransporlalion syslem. The use of
common lickel slock, shared airporl faciIilies, commingIed reservalion scheduIes, |oinl
fares, and inlerIine agreemenls for lhe handIing of baggage, cargo, and olher express
freighl aIIovs regionaI airIines lo pIay an imporlanl roIe in an inlegraled syslem of air
lransporlalion.
ApproximaleIy haIf of lhe lop 25 regionaIs are compIeleIy or parliaIIy ovned by
nalionaI or ma|or airIines. This lrend is expecled lo conlinue. Agreemenls belveen lhe
Iarger carriers and regionaIs can be beneciaI lo bolh parlies vhen lhe aim is lo conlroI a
bigger share of lhe lrafc. Iev regionaIs have been abIe lo deveIop enough of lheir ovn
originalion and deslinalion (O & D) lrafc lo survive in lodays compelilive markel vilhoul
a parlner feeding lhem lrafc. Hovever, as regionaI airIines grov, lhis lrend is expecled lo
change. SimiIarIy, lhe Iarger parlner benels from having a regionaI carrier feeding lrafc
inlo ils ma|or hub. In a sludy lilIed The U.S. RegionaI AirIines Induslry lo 1996Markels,
Compelilion and lhe Demand for Aircrah, lhe Iconomisl InleIIigence Unil of Iconomisl
IubIicalions in Nev York slales lhal lhe Iarger carriers nov conlroI, lhrough markeling
parlnerships and acquisilions, lhree-quarlers of lhe lrafc ovn by regionaIs.
|!cnii caii cn Cc!cs an! Ai r| i nc Ocsi gnaicrs
Ivery airIine lhal operales scheduIed passenger or cargo services vilh olher airIines
requires an idenlicalion code. The code is prinled as lhe rsl lhree digils of lhe airIines
passenger lrafc documenls and cargo air vaybiIIs and idenlies lhal airIine for inlerIine
accounling purposes.
AirIines vilh headquarlers in lhe Uniled Slales or ils lerrilories and possessions requesl
a form code from lhe Air Transporl Associalion. AirIines vilh headquarlers oulside lhe
Uniled Slales or ils lerrilories and possessions requesl lhe form code from lhe InlernalionaI
Air Transporl Associalion.
Iach airIine lhal operales scheduIed passenger or cargo services and pubIishes ils
scheduIes in induslry scheduIe guides or lhal parlicipales in lhe airIine communicalions
nelvorks, such as ARINC or SITA, needs an airIine designalor. The lvo-Ieer airIine
designalors are assigned and adminislered by lhe InlernalionaI Air Transporl Associalion
on behaIf of lhe airIine induslry.
Pu|| i sni ng Scnc!u| cs
The ighl scheduIes of passenger-carrying airIines are pubIished in lhe Ojcia| Air|inc
Gui!c (OAG). lhe ABC Wcr|! Airuaus Gui!c. and lhe Ancrican |xprcss Sku Gui!c. scheduIes
of cargo-carrying airIines are pubIished in lhe OAG Air Cargc Gui!c. lhe ABC Air Cargc
Gui!c. and Hcrcjcr!s Cargc Gui!c. There is no charge for pubIicalion of direcl-ighl
scheduIes and fares of commuler air carriers.
Members of lhe ATAs Iassenger CounciI have eslabIished lhe InlerIine Trafc
AgreemenlIassenger. AII scheduIed airIines may become parlies lo lhe agreemenl. The
agreemenl becomes binding belveen parlies upon execulion of a concurrence.
The agreemenl gives each airIine parly lhe righl lo seII lransporlalion al lhe appropriale
fares over lhe Iines of olher parlies vilh vhich il has a concurrence and lo issue inlerIine
lickels providing for such lransporlalion. Iarlies are required lo honor inlerIine lickels
C H A P T E R 5 T H E A I R L I N E I N D U S T R Y 1 6 3
issued by anolher parly vilh vhich il has concurred. Where inlerIine lickels have been
issued under lhe agreemenl, lhe originaling airIine agrees lo check lhe passengers baggage
lo lhe naI deslinalion al lhe rsl slopover poinl, and lhe dovn-Iine airIine agrees lo
accepl and lransporl such baggage.
|nicr| i nc Agrccncnis
InlerIining of air freighl vilhin lhe induslry is an eeclive means of expanding air freighl
services lo cuslomers. The ATA has lvo specic air cargo agreemenls avaiIabIe lo ma|or,
nalionaI, and regionaI carriers: lhe Air Ireighl Irocedures Agreemenl and lhe SmaII Iackage
Shipmenl Agreemenl. Iach is a muIliIaleraI agreemenl lhal prescribes uniform documenls
and IabeIing and handIing procedures for reguIar air freighl and smaII-package services.
AirIines may aIso parlicipale in lhe InlernalionaI Air Transporl Associalions muIliIaleraI
inlerIine lrafc agreemenls as member or nonmember carriers.
Universal Air Travel Plan. egun in 1936, lhe UniversaI Air TraveI IIan (UATI) card
is one of lhe vorIds oIdesl credil cards. During lhe earIy years, lhe UATI card covered
onIy U.S. domeslic airIines. Il gained vorIdvide appIicabiIily on Oclober 1, 1948, vhen
inlernalionaI roules vere broughl inlo lhe pIan. Today, lhe UATI card is good for
lransporlalion on praclicaIIy aII lhe vorIds scheduIed airIines ying domeslic and gIobaI
roules. As of 2006, arlicipaling airIines nov number more lhan 220.
Those carriers desiring lo subscribe lo lhis airIine credil service can conlracl lhrough
an individuaI airIine by meeling lhe individuaI carriers requiremenls. Thirly-lvo airIines
(conlracling airIines) are aulhorized lo issue UATI cards, and lhe cards are honored by
aII parlicipaling carriers. The conlracling airIine biIIs lhe subscriber on a monlhIy basis for
aII air lransporlalion used, regardIess of lhe number of airIines invoIved.
Travel Agencies. As lhe lraveI agency induslry grev and as lraveI agenls began lo
generale a Iarger proporlion of airIine lickels, a need arose for an efcienl syslem of
reporling and accounling for lickel saIes. Whal emerged vas lhe Slandard Agenls Tickel
and Area SeIemenl IIan. The pIans mosl imporlanl innovalions vere a slandard lickel
slock and a singIe source lo vhich lraveI agenls reporled and accounled for airIine lickel
saIes. TraveI agenls vere issued suppIies of slandard lickel slock vilh no carrier iden-
licalion. In issuing a lickel, lhe agenl IIs in lhe name of lhe airIine on vhich lhe seal is
being soId. Ivery veek, lhe lraveI agenl forvards reporls of lickels soId lo a designaled
area bank. The agenl receives a compulerized saIes reporl from lhe bank for each reporling
period. The saIes reporl provides imporlanl dala on each lickel issued, as veII as slalislicaI
summaries for lhe enlire reporling period.
The commission paid lo lraveI agenls vas dereguIaled in Iune 1980, aIIoving airIines lo
sel lhe commission. Wilh lhe InlerIine SeIemenl of Agenl-Issued Documenls Agreemenl,
lhe ATAs Iassenger CounciI has sel up a procedure for seIing inlerIine service charges
al a periodicaIIy delermined commission rale.
A I R T R A N S P O R TAT I O N 1 6 4
TRAFFIC AND FINANCIAL HIGHLIGHTS: 19602005
The hislory of avialion in lhe second haIf of lhe 20lh cenlury is repIele vilh cycIesan
experience lhal is hardIy unique lo avialion. The avialion cycIes ve have observed are
nolhing more lhan exaggeraled reeclions of vorId economic aclivily. Whal dislinguishes
avialion from olher forms of economic endeavor is lhe exlenl lo vhich il is cycIicaI: lhe
magnilude of ils voIaliIily and lhe curiousIy recurring paerns of ils various cycIes. Thal
is lo say, lhey are big, lhey are vide, and lhey lend lo repeal lhemseIves each lime in a
disconcerlingIy famiIiar vay.
Aher Iosing cIose lo $38 miIIion in 1961, lhe induslry cIimbed sleadiIy upvard, reaching
a record prol of $427 miIIion by 1966. The dovnsIide reached boom in 1970, vhen
lhe induslry Iosl $200 miIIion. The cIimb back up cuIminaled in nev record prols of
$1.2 biIIion in 1978, vhich vere soon foIIoved by record Iosses of $916 miIIion in 1982.
Wilh lhe exceplion of 1986, vhich reecled severe Iosses by Iaslern, Ian American, and
TWA, prols rose during lhe 1980s, reaching yel anolher aII-lime high of $1.7 biIIion in
1988.
Aher a reIaliveIy prolabIe decade during lhe 1980s, lhe airIine induslry once again
suslained heavy Iosses beginning in 1990. A recessionary economy, high fueI cosls resuIling
from lhe GuIf War, and lhe subsequenl bankruplcy of severaI ma|or carriers caused
Iosses of $13 biIIion for lhe rsl haIf of lhe decade. The magnilude of lhis unprecedenled
Ioss during lhe Iasl cycIe eradicaled nearIy a haIf-cenlurys relained earnings. Il pIaced
lremendous slress on lhe induslrys nanciaI slalemenls, on gIobaI capilaI markels, and
especiaIIy on inveslors porlfoIios. y lhe mid-1990s, lhe economy slrenglhened, lhe slock
markel soared, many of lhe veaker carriers had disappeared, and lhe induslry reporled
record prols slarling in 1995. In 2001, lhe airIine induslry ran inlo greal nanciaI lroubIe
Ieading up lo lhe evenls of lhe 9/11 lerrorisl aacks. These calaslrophic evenls pushed
lhe induslry over lhe edge resuIling in record nanciaI Iosses in Iale 2001 and 2002. In
2006, lhe induslry is sliII lrying lo gel back lo normaI operalions bul conlinues lo face
numerous chaIIenges from increasing cosl slruclures. TabIe 5-4 highIighls lrafc and
nanciaI performance during lhis period.
|ar| u 1960s
Available seat-miles (ASMs) increased by 45 percenl belveen 1960 and 1963 as more
|el equipmenl vas inlegraled inlo lhe airIine eels. Revenue passenger miles (RPMs)
increased 30 percenl during lhe same period, causing Ioad faclors lo drop from a high of
63.7 in 1955 lo 53.2 in 1963. y 1962, lhe cerlicaled carriers reached a IeveI of prolabiIily,
uliIizing |el equipmenl, lhal vas comparabIe lo prols recorded in 1958 and 1959
principaIIy from non|el operalions. The year 1963 vas lhe rsl period of soIid prolabIe
operalions in lhe |el age.
Iaic 1960s
Slarling in Iale 1964 and conlinuing lhrough lhe rsl haIf of 1969, lhe induslry experienced
lremendous grovlh. The economies of |el aircrah reduced unil cosls, vhich enabIed
carriers lo keep fares al aboul lhe same IeveI during lhis period.
In 1965, lhe induslry reached record-IeveI prols and earned a comforlabIe 12 percenl
relurn on inveslmenls. The nexl year vouId have been |usl as good vere il nol for a slrike
C H A P T E R 5 T H E A I R L I N E I N D U S T R Y 1 6 5
TABLE 5-5 Selected Trafc and Financial Statistics for the Certicated Air
Carriers, 19602001
Trafc IinanciaI
|ctcnuc |aiccj

|ctcnuc Passcngcr Atai|a||c Cargc Opcraiing Opcraiing NciPrci |ciurncn

Passcngcrs Mi|cs ScaiMi|cs TcnMi|cs |ctcnuc |xpcnscs cr|css |ntcsincni

Year ni||icns |i||icns |i||icns |i||icns
a
|i||icns |i||icns ni||icns
|





















c


!





















na
na
na
SourceAirTransporlAssocialionAnnuaIReporls
a
IncIudesfreighlairexpressUSandforeignmaiI
|
RaleofrelurnoninveslmenlROIreeclsnelprolpIusinlereslpaidonlhenoncurrenlporlionofIonglermdeblasapercenlageof
lolaIinveslmenlTolaIinveslmenlasavequarleraverageoflolaInelvorlhslockhoIdersequilypIusIonglermdebl
c
IncIudesmiIIionbeforelaxgainonlhesaIeoflheIanAmbuiIding
!
IncIudesmiIIionaerlaxgainonlhesaIeofIanAmsholeIsubsidiary
A I R T R A N S P O R TAT I O N 1 6 6
|ar| u 1970s
3
Refers lo lhe numerous sociaI programs Iaunched during Iresidenl Lyndon Iohnsons adminislralion.
The nalionaI economic recession lhal began in 1969 conlinued lhroughoul 1970, vhich
caused air lrafc grovlh lo IeveI o. TolaI passenger enpIanemenls decIined for lhe
rsl lime in lhe induslrys hislory. Inalion began lo pIague lhe airIine induslry al a rale
of aboul 9 percenl in 1970, aImosl doubIe lhe nalionaI rale. The ma|or porlion of lhis
inalionary pressure came from Iabor seIemenls, vhich increased airIine vages by some
15 percenl in 1970. The CA kepl a lighl Iid on fares unliI ApriI 1971, vhen il naIIy
granled an across-lhe-board increase of 6 percenl, foIIoved by anolher 3 percenl increase
Ialer in lhe year.
Many carriers began cuing ighl scheduIes lo eIiminale unprolabIe ighls and
reduce uneconomic compelilion. This began in lhe second haIf of 1970 on a uniIaleraI
basis, and by May 1971, lhere vere 5.2 percenl fever domeslic ighls.
Ixcess capacily, resuIling from lhe use of vide-body |els, prompled lhe carriers lo
canceI or slrelch oul orders for nev ighl equipmenl, causing massive Iayos by lhe
aircrah manufaclurers. Ixlensive Iayos of airIine empIoyees aIso look pIace during lhe
rsl lvo years of lhe 1970s, vilh some 12,000 peopIe Iaid o in 1970 and anolher 10,000
in 1971.
The beIl lighlening conlinued inlo 1972, vilh carriers eIiminaling many exlras lo vhich
lhe ying pubIic had become accuslomed. Gone on many ighls vere such amenilies
as free cocklaiIs, snacks, meaIs al o-meaIlime hours, and movies on morning ighls.
Hovever, overaII, lhings vere Iooking up. Iassenger lrafc, as measured in RIMs, grev
by 12.3 percenl in 1972 over 1971, and cargo lonnage carried aIso increased over lhe
previous year.
During 1973, lhe airIine induslry sel nev records. More lhan 200 miIIion passengers
vere enpIaned, lolaI operaling revenues lopped $12.4 biIIion, and freighl revenues reached
lhe $1 biIIion mark for lhe rsl lime. In addilion, lhe carriers ev some 16 biIIion pieces
of maiI.
Ior many years, |el fueI prices had remained slabIe and Iov. elveen 1967 and 1972, fueI
prices rose al an annuaI rale of onIy 2.6 percenl. Hovever, prices rose 8.5 percenl belveen
1972 and 1973, lo a 1973 average of 12.8 cenls a gaIIon, and lhe 1973 Arab oiI embargo
marked lhe beginning of lhe reaI fueI probIem. elveen 1973 and 1974, lhe average price
caIIed by lhe InlernalionaI Associalion of Machinisls (IAM) lhal shul dovn ve lrunk
carriers for 43 days.
ASMs increased 136 percenl belveen 1964 and 1969, reecling lhe increased capacily
provided by lhe |el equipmenl. Average seals per miIe doubIed from 55.0 seals in 1955 lo
104.4 seals in 1965. RIMs increased by 114 percenl during lhe period from 1964 lo 1969.
Air lransporlalion came of age as more businesses and personaI lraveIers recognized
lhe advanlages of speed, economy, and safely il provided. In 1955, rsl-cIass lraveI
consliluled 59.9 percenl of airIine lraveI, bul in 1960 il feII lo 45.3 percenl, and in 1965
lo onIy 21.8 percenl. Iorecasling lhal lhis IeveI of grovlh vouId conlinue inlo lhe 1970s,
lhe carriers pIaced orders of cIose lo $10 biIIion for Iarger vide-body equipmenl belveen
1966 and 1970.
Signs of an economic dovnlurn appeared in 1969, resuIling from an overexpanded
economy, vhich had lried lo give us a Greal Sociely
3
on lhe home fronl al lhe same lime
ve vere ghling an ever-escaIaling var in Vielnam.
C H A P T E R 5 T H E A I R L I N E I N D U S T R Y 1 6 7
rose from 12.8 cenls lo 24.2 cenls per gaIIon, an increase of nearIy 90 percenl in a singIe
year. y Iale 1974, lhe economy vas sIiding inlo a recession as a resuIl of escaIaling fueI
prices. AirIine lrafc feII o as businesses and individuaIs cul back lheir lraveI pIans.
The carriers impIemenled severe cosl-cuing measures, bul because of lheir subslanliaI
overhead capacily in faciIilies and equipmenl, lhey Iosl $84 miIIion in 1975.
Iaic 1970s
Spurred by an uplurn in lhe nalions economy in lhe bicenlenniaI year of 1976, airIine
passenger lrafc reached a nev high of 223 miIIion passengers, accounling for some 179
biIIion passenger miIes and 6 biIIion lon-miIes of air cargo.
An imporlanl faclor in bringing air lraveI lo miIIions of peopIe vas lhe groving roIe of
lhe lraveI agenl, vhich became a ma|or parl of lhe airIine induslrys markeling and saIes
eorl. In 1976, lhe number of approved lraveI agencies in lhe Uniled Slales and Canada
rose lo 13,661, up from 12,500 in 1975. U.S. lraveI agenls soId nearIy $7 biIIion vorlh of
domeslic and inlernalionaI air lransporlalion in 1976. AirIines paid lraveI agenls $700
miIIion in commissions in 1976, a record 29 percenl increase over 1975.
WhiIe scheduIed air service remained lhe predominanl mode of inlercily passenger
lraveI, charler aclivily reaIIy look o. More lhan 5 miIIion passengers ev civiIian and
miIilary charler ighls of scheduIed airIines in 1976, an increase of 25 percenl over lhe
previous year.
Again in 1977, lhe airIines sel aII-lime records in service lo air passengers and shippers
in domeslic and inlernalionaI operalions. RIMs increased 8 percenl over 1976, and lhe
induslrys Ioad faclor vas 55.9, compared lo 55.6 for lhe previous year. On lhe gIoomy
side, fueI prices averaged 36.2 cenls per gaIIon in 1977, compared lo 10.4 cenls in 1967, a
248 percenl increase.
The year 1978 vas a ma|or one for lhe carriers, vilh operaling revenues reaching $22.9
biIIion and prols reaching $1.2 biIIion. The AirIine DereguIalion Acl vas passed by
Congress in Oclober, ushering in a nev era of compelilion in air lransporlalion.
The economy began lo sIov dovn in 1979, bul lhe erce compelilion for air lraveIers vas
|usl beginning. Revenues increased 19 percenl in 1979, primariIy as a resuIl of promolionaI
fares, vhich increased passenger enpIanemenls by 15 percenl. UnforlunaleIy, expenses
mosl nolabIy fueI and Iaborincreased by 26 percenl during lhe Iaer 1970s.
|ar| u 1980s
During 1980, ATA member airIines recorded lheir safesl year in hislory. There vas nol
a singIe falaIily among passengers or ighl crevs in more lhan 5 miIIion ighls in lhe
Uniled Slales and lhroughoul lhe vorId. In olher respecls, hovever, 1980 vas a difcuIl
and disappoinling year for lhe induslry. Inalion, soaring fueI prices (up more lhan $3
biIIion from 1979), and a generaIIy sour economy resuIled in a 6 percenl decIine in passenger
enpIanemenls, lhe sharpesl drop in more lhan 50 years of scheduIed air lransporlalion.
In 1981, lhe lrend conlinued in lerms of safely and earnings. Carrying 286 miIIion passengers
and Iogging 7 biIIion cargo lon-miIes on more lhan 5 miIIion ighls, lhe airIines compIeled
a second conseculive year of |el service vilhoul a singIe passenger falaIily. ul nanciaI
Iosses mounled in 1981, caused by lhe recessionary economy, inalion, high inleresl rales,
and lhe impacl of lhe air lrafc conlroIIers slrike during lhe busy summer monlhs. Severe
price compelilion aIso conlribuled signicanlIy lo a record-breaking nel Ioss.
A I R T R A N S P O R TAT I O N 1 6 8
In 1982, lhe induslry experienced lhe vorsl nanciaI year in ils hislory, recording a nel
Ioss of $916 miIIion. This nel Ioss occurred despile a grovlh in passengers carried and
in RIMs and approximaleIy lhe same IeveI of operaling expenses as lhe previous year.
Operaling revenues decIined for lhe rsl lime in lhe hislory of lhe U.S. airIine induslry.
The principaI reasons for lhe induslrys poor performance in 1982 vere lhe deep
discounl fares being oered by lhe carriers in an inlenseIy compelilive environmenl and
lhe increasing proporlion of passengers laking advanlage of lhose fares. The percenl of
fuII-fare-paying passengers feII from 52 percenl in 1978 lo onIy 15 percenl in 1982.
Aher lhree years of severe nanciaI Iosses lolaIing $1.4 biIIion, lhe induslry in 1984
improved signicanlIy vilh a nel prol of $825 miIIion. The economy had rebounded,
and lhe airIine induslry foIIoved lhe upsving vilh a 9 percenl increase in passenger
enpIanemenls.
Iaic 1980s
As 1985 began, lhe CiviI Aeronaulics oard ended ils nolabIe service lo lhe grovlh and
malurily of air lransporlalion. MeanvhiIe, lhe induslry broke nev lrafc and revenue
records, vilh nel prols of $863 miIIion being recorded.
SlimuIaled by lhe grealesl ever decIine in air fares, a record 419 miIIion passenger
enpIanemenls vere recorded in 1986, vhich compares vilh a 1936 lolaI of 1 miIIion.
Hovever, erce price compelilion resuIled in a nel Ioss of $235 miIIion for lhe induslry
and increased lhe pace of mergers, vhich reached a peak during 1986.
Oplimism relurned in 1987 as RIMs increased by over 10 percenl and nel prols
reached $593 miIIion. Nel prols of $1.7 biIIion in 1988 vere lhe highesl in lhe hislory
of lhe airIine induslry. Thal year marked lhe lenlh anniversary of lhe airIines operaling
under dereguIalion, as veII as lhe naI year in one of lhe safesl 10-year periods in hislory
in lerms of accidenls and falaIilies. Iares, vhiIe rising in 1988, had acluaIIy decIined in
reaI lerms in 7 of lhe previous 10 years and had risen onIy haIf as fasl as lhe Consumer
Irice Index since 1978. The hub-and-spoke syslem, vhich proIiferaled aher dereguIalion,
vas becoming lhe largel for many compIainls aboul increased congeslion and reduced
compelilion, despile lhe facl lhal more communilies vere providing more service lhan
ever before.
AirIine empIoymenl venl over 500,000 empIoyees in 1989, and hiring conlinued al a
rapid pace despile some dark cIouds on lhe horizon. There vas a Iong, crippIing slrike
againsl Iaslern AirIines, and fueI prices vere rising. olh of lhese faclors had a depressing
eecl on domeslic air lraveI. The resuIl vas lhal, aIlhough severaI airIines had a good year
nanciaIIy, lhe induslrys overaII nel prol dropped lo $128 miIIion. Though higher fueI
prices and a recessionary economy conlinued lo hurl airIine earnings in 1990, air lraveI
nonelheIess increased signicanlIy in lhe rsl haIf of lhe year, and lhere vas reason for
conlinued oplimism.
|ar| u 1990s
Despile seing nev records in passenger enpIanemenls and cargo lon-miIes in 1990, lhe
airIine induslry Iosl cIose lo $4 biIIion, virluaIIy aII in lhe fourlh quarler, as lhe resuIl
of lhe Iraqi invasion of Kuvail. Kerosene purchased by U.S. carriers rose from 60 cenls
a gaIIon in IuIy, |usl before lhe invasion, lo a peak of $1.40 per gaIIon in Oclober. Iach
1-cenl increase cosl lhe airIines $160 miIIion if carried lhrough lhe year, and according lo
C H A P T E R 5 T H E A I R L I N E I N D U S T R Y 1 6 9
eslimales, lhe added fueI cosls aIone sel U.S. carriers back nearIy $3 biIIion. Recession and
fear of lerrorism caused lrafc lo faII o so much during lhe fourlh quarler of 1990 and
lhe rsl quarler of 1991 lhal some carriers vere reIuclanl lo impose fueI-cosl-induced fare
hikes for fear of driving even more lrafc avay.
The huge Iosses forced a number of carriers lo cul back severeIy: lo seII o ma|or assels,
incIuding inlernalionaI roules, aircrah, and airporl gales: and lo poslpone aircrah orders.
Thousands of airIine vorkers vere Iaid o in 1991, incIuding 18,000 Iaslern vorkers,
vhen lhal pioneer airIine cIosed dovn in Ianuary, foIIoved by Midvay in November
and Ian Am in December. Three olher ma|or carriersAmerica Wesl, ConlinenlaI, and
TWAoperaled under Chapler 11 bankruplcy during 1991 and 1992.
The recession deepened during 1991, and lhe airIines experienced lheir second-
vorsl year ever, vilh nel Iosses of $1.9 biIIion. AII calegories of lrafc vere dovn in
1991 compared lo lhe previous year. The induslry dovnlurn conlinued in 1992 vilh an
unprecedenled Ioss of $4.8 biIIion. The year 1993 vas characlerized by inlense pubIic,
media, and governmenl inleresl in lhe nanciaI condilion of lhe U.S. airIine induslry.
The formalion and vork of Iresidenl iII CIinlons NalionaI Commission lo Insure a
Slrong Compelilive AirIine Induslry vas lhe backdrop for mosl of lhe years aclivilies.
The commission heId numerous pubIic hearings lo examine lhe many probIems and
issues facing U.S. airIines, and ils Augusl reporl oulIined recommendalions and changes
in pubIic poIicy lhal vouId improve lhe nanciaI fulure of lhe induslry.
UnforlunaleIy, because of compeling inleresls and budgelary conslrainls, fev of
lhe commissions suggeslions vere impIemenled. Thus, vhiIe lhe NalionaI AirIine
Commission heIped frame lhe probIems of lhe induslry on lhe nalionaI economic agenda,
1993 sav lhe induslry experience ils fourlh conseculive year of nanciaI Iosses. y years
end, U.S. airIines had coIIecliveIy Iosl $2.1 biIIion.
Losses shrank in 1994, in Iarge parl because of Iover fueI prices. Capacily, in lerms of
avaiIabIe seal-miIes, increased onIy sIighlIy as carriers poslponed or canceIed purchases
of nev aircrah. Load faclors, measuring lhe percenlage of seals IIed, reached record
IeveIs, and |el service lo smaIIer markels vas repIaced vilh regionaI/commuler service.
Operaling revenues increased sIovIy vhiIe prices for bolh passenger and cargo services
decIined. ecause revenue grovlh vas Iimiled by compelilion, airIines pIaced increasing
emphasis on reducing or conlaining cosls as lhe palh lo prolabiIily.
Mi !-1990s ic inc 21si Ccniuru
In Iune 1995, lhe U.S. airIine induslry carried ils len-biIIionlh passenger in scheduIed
commerciaI service. The induslry aIso had one of lhe safesl years in ils hislory and, perhaps
even more imporlanl, naIIy lurned lhe corner nanciaIIy. The nalionaI economy vas on
lhe upsving, and nel prols reached $2.3 biIIion. Hovever, lhe carriers accumuIaled a Iol
of nev debl in lhe earIy 1990s, and lhe induslrys capilaI requiremenls in lhe years lo come
viII be enormous as lhe induslry repIaces ils oIdesl, noisiesl |el equipmenl.
In 1996, lhe airIines earned record prols of $2.8 biIIion, as veII as record numbers of
passengers and amounls of cargo carried. Iassenger lrafc increased by 7 percenl lo 578.4
biIIion RIMs, and cargo lrafc increased by 4.6 percenl lo 17.7 biIIion revenue lon-miIes.
The U.S. economy conlinued lo expand, groving by 2.4 percenl and fueIing rising incomes
for bolh individuaIs and businesses. This increase in income, in lurn, slimuIaled addilionaI
demand for air lraveI and shipping. Air lrafc vas aIso aecled favorabIy by lhe expiralion
and eighl-monlh absence of lhe 10 percenl federaI excise lax on airIine passenger lickels,
A I R T R A N S P O R TAT I O N 1 7 0
lhe 6.25 percenl cargo vaybiII lax, and lhe $6-per-passenger inlernalionaI deparlure lax.
In lhe case of lhe lickel lax, bolh airIines and passengers beneled from ils absence.
InlernalionaI lrafc aIso experienced slrong grovlh in 1996. The number of inlernalionaI
passenger enpIanemenls rose lo 50.5 miIIion, vilh lhe Iargesl grovlh rales occurring in
lhe Caribbean and Lalin American markels, foIIoved by lhe Iacic. The AlIanlic markels
grev more sIovIy as some U.S. airIines conlinued lo reslruclure lheir service.
The lvo-year period of 199798 vas brighl for lhe induslry. RIMs rose sleadiIy, passing
lhe 600 biIIion mark, and nel prols remained reIaliveIy slabIe al around $5 biIIion per
year. Load faclor vas beer lhan 70 percenl in bolh years. Cargo lon-miIes shol pasl 20
biIIion in 1997, and operaling prol margin hil 8.2 percenl in 1998.
As lhe economy began lo shov signs of sIoving in 1999 and 2000, lhe airIines suered.
There vere aImosl 1 lriIIion seal-miIes avaiIabIe on U.S. airIiners in 2000a record
numberand passengers vere IIing aboul 72 percenl of aII avaiIabIe seal-miIes on any
given ighl, bul lhe reaI boom Iine vas suering. Despile soIid RIM gures (692.8
biIIion), nel prol, aher a brief peak above $5 biIIion in 1999, nose-dived lo $2.5 biIIion in
2000. Nel prol margin had shrunk lo a razor-lhin 1.9 percenl.
Il goes vilhoul saying lhal, aIlhough lhe gures for 2001 are obviousIy and poverfuIIy
skeved by lhe evenls of Seplember 11, lhey remain unique in lvo vays: rsl, lhey represenl
nanciaI shockvaves lhal vere feIl by every airIine in lhe induslry: second, lhey vere,
in and of lhemseIves, lhe vorsl ever seen by lhe U.S. airIine induslry. Negalive numbers
appear everyvhere in lhe nanciaI summaries: operaling prol margin (-8.7 percenl), nel
prol margin (-6.7 percenl), and rale of relurn on inveslmenl (-6.9 percenl). Nel Iosses of
aImosl $8 biIIion vere experienced: never before had lhe airIines experienced so much red
ink. Load faclors, RIMs, and ASMs vere aII dovn from lhe previous year.
Whals more, lhe ahermalh of lhe lerrorisl aacks look on a much more human side
lhan lhese gures shov. As scheduIes began lo be cul by Iarge margins in lhe veeks
aher lhe aacks, lens of lhousands of airIine empIoyees around lhe counlry vere Iaid o,
furIoughed, or forced inlo earIy reliremenl. Over a lhousand airpIanes vere parked, vilh
some airIines choosing lo eIiminale cerlain lypes from lheir eels (such as Uniled and ils
727 operalions). Inlire companies vere eIiminaled from lhe scene (for exampIe, Midvay
AirIines), vhiIe lhe pIighls of olhers became so greal lhal congressionaI aclion became
inevilabIe. In Iale Seplember, lhe Air Transporlalion Safely and Syslem SlabiIizalion Acl
vas signed inlo Iav, providing some $15 biIIion of much needed nanciaI assislance lo
lhe induslry. y years end, an induslry lhal had been predicled lo experience cIimbing
performance indexes in lhe fourlh quarler vas inslead alIining.
As of 2006, lhe airIine induslry sliII suers from lhe evenls of 9/11 and conlinuousIy
increasing cosls (i.e., fueI, Iabor, mainlenance, IiabiIily). AirIine bankruplcies conlinue
proving any airIine, smaII or Iarge, is vuInerabIe. US Airvays, currenlIy lhe sevenlh Iargesl
airIine in lhe Uniled Slales, enlered bankruplcy on Augusl 11, 2002, and reemerged in
2005 vilh a reslrucluring pIan lhal incIuded a merger vilh America Wesl. In December
2002, Uniled AirIines Ied for bankruplcy proleclion bIaming lhe evenls of 9/11 for lheir
dovnfaII. Hovever lhe rise of Iov-cosl carriers, Iabor dispules, and probIems vilhin lhe
managemenl slruclure of lhe company aIso conlribuled lo nanciaI Iosses. On Iebruary
1, 2006, Uniled came oul of bankruplcy. On Seplember 14, 2005, DeIla Air Lines Ied
for bankruplcy for lhe rsl lime in ils 76-year hislory vilh a debl Ioad of $20.5 biIIion.
DeIla is currenlIy reslrucluring and pIans lo reemerge vilh a grealer concenlralion on
inlernalionaI roules. On lhe same day of DeIlas Iing, Norlhvesl AirIines aIso enlered
C H A P T E R 5 T H E A I R L I N E I N D U S T R Y 1 7 1
inlo bankruplcy proleclion for lhe rsl lime in ils 79-year hislory and pIans lo reemerge
vilh a nev business modeI and a compIele reslrucluring of Iabor issues.
KEY TERMS
lrunk carrier regionaI air carrier
401 carrier lness
suppIemenlaI air carrier shov cause order
IocaI-service carrier ASMs
ma|or air carrier RIMs
nalionaI air carrier
REVI EW QUESTI ONS
1. Hov did lhe lrunk and IocaI-service carriers evoIve` Whal vas lhe roIe of lhe sup-
pIemenlaI carriers` Discuss some of lhe probIems faced by lhe induslry in lhe lhree
decades preceding dereguIalion. Hov did lhe dereguIalion movemenl gel slarled`
2. IxpIain hov lhe cerlicaled airIine induslry has changed since dereguIalion in lerms of
expansion, consoIidalion, and concenlralion. Describe severaI innovalions pioneered
by lhe ma|or air carriers in lhe earIy 1980s lhal radicaIIy changed lhe slruclure of lhe
induslry.
3. Describe lhe roIe of lhe ma|or and nalionaI carriers. Idenlify some of lhe carriers in
each calegory. Hov did lhe regionaI carriers gel slarled` Describe a lypicaI regionaI
carrier in lerms of ils roIe in lhe air lransporlalion syslem, lype of aircrah ovn, and
roule slruclure. Whal is meanl by nu|-an!-spckc nciucrk? Why has lhe number of
regionaI carriers decIined since dereguIalion` Describe some of lhe changes lhal have
laken pIace in lhis segmenl of lhe induslry. Whal is cc!c snaring?
4. Whal are lhe lhree lypes of 401 cerlicale cases` Whal is meanl by lhe incss of lhe
appIicanl` y sncu causc cr!cr? Describe hov lhe regionaIs have lruIy become parlners
vilh lhe ma|ors and lhe nalionaIs in lhe air lransporlalion syslem.
5. Who is responsibIe for nanciaI and lrafc dala coIIeclion vilhin lhe Deparlmenl of
Transporlalion` Describe lhe roIe of lhis governmenl bureau. Whal is lhe InlerIine
Trafc AgreemenlIassenger` Whal is lhe purpose of lhe Air Ireighl Irocedures
Agreemenl and lhe SmaII Iackage Shipmenl Agreemenl` Describe lhe UniversaI Air
TraveI IIan.
6. HighIighl lhe induslrys performance, in lerms of lrafc and nances, during lhe
1960s, 1970s, and 1990s. Describe lhe cycIicaI nalure of lhe airIine induslry in lerms of
prolabiIily. Whal vas lhe reason for lhe lremendous Iosses incurred during lhe earIy
2000s`
A I R T R A N S P O R TAT I O N 1 7 2
WEB SI TES
hp://vvv.airIiners.nel
hp://vvv.aircrah-commerce.com
hp://vvv.ala.com
hp://vvv.fedex.com
hp://vvv.ups.com
hp://vvv.dhI.com
hp://vvv.usairvays.com
hp://vvv.soulhvesl.com
hp://vvv.uniled.com
hp://vvv.nva.com
hp://vvv.americanair.com
hp://vvv.deIla.com
hp://vvv.2midveslexpress.com
hp://vvv.conlinenlaI.com
hp://vvv.aIaskaair.com
hp://vvv.americavesl.com
hp://vvv.airvaysmag.com
hp://vvv.airIinebiz.com
hp://vvv.faa.gov
hp://vvv.dol.gov
hp://vvv.bls.gov
hp://vvv.raa.org
hp://vvv.ualp.com
SUGGESTED READI NGS
Ashford, Norman, Marlin Slanlon, and CIihon A. Moore. Airpcri Opcraiicns. Nev York: McGrav-
HiII, 1997.
anfe, CharIes I. Air|inc Managcncni. IngIevood CIis, N.I.: Irenlice-HaII, 1992.
De Loo, Iames L. Ccnnuicr Air|incs. HicksviIIe, N.Y.: Ixposilion Iress, 1979.
Doganis, R. Tnc Air|inc Busincss in inc Tucniu-|irsi Ccniuru. London: RoulIedge, 2001.
Ireiberg, Kevin and Iackie Ireiberg. Nuis!. Scuinucsi Air|incs Crazu |ccipc jcr Busincss an!
Pcrscna| Succcss. Auslin, TX: anlam DoubIeday DeII, 1998.
GeseII, Lavrence I. Air|inc |c-|cgu|aiicn. ChandIer, Ariz.: Coasl Aire IubIicalions, 1990.
GiaIIorelo, Louis. Siraicgic Air|inc Managcncni. London: Iilman, 1988.
Tane|a, NavaI K. Air|incs in Transiiicn. Lexinglon, Mass.: Healh, 1981.
Tane|a, NavaI K. |nirc!uciicn ic Citi| Atiaiicn. Lexinglon, Mass.: Healh, 1987.
Wensveen, Iohn. Wncc|s Up. Air|inc Busincss P|an Octc|cpncni. eImonl, CA: Thomson rooks/
CoIe, 2005.
Wycko, DaryI D., and David H. Maisler. Tnc Ocncsiic Air|inc |n!usiru. Lexinglon, Mass.: Healh,
1977.
C H A P T E R 5 T H E A I R L I N E I N D U S T R Y 1 7 3
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6
Economic Characteristics
of the Airlines
Introduction
The Airlines as Oligopolists
Other Unique Economic Characteristics
The Signicance of Airline Passenger Load Factors
Chapter Checklist You Should Be Able To:
Describe lhe generaI characlerislics of oIigopoIies
IxpIain hov lhe number of carriers, and lheir markel
share, has changed since dereguIalion
Idenlify severaI of lhe barriers lo enlry inlo lhe airIine
induslry
Dene cccncnics cj sca|c. and discuss hov lhey reIale
lo lhe airIine induslry
Describe lhe eecls of mergers on lhe airIine induslry
Discuss lhe concepl of muluaI dependence as il reIales
lo lhe air carriers
IxpIain hov lhe induslry is moving lovard
oIigopoIislic pricing
Describe lhe economic characlerislics unique lo lhe
airIines
IxpIain lhe signicance of Ioad faclors in reIalion lo
cosls and services oered

175
INTRODUCTION
Iconomisls usuaIIy describe lhe cerlicaled airIine induslry as cIoseIy approximaling an
oIigopoIislic markel slruclure. An oligopoly (from lhe Greek c|i. meaning fev) is an
induslry composed of a fev rms producing eilher simiIar or dierenlialed producls. A
fev can be 5 or 10 or 100 rms. A Iarge percenlage of our nalions oulpul of goods and
services is produced by oIigopoIislic induslries: sleeI, aulomobiIes, oiI, and aIuminum,
lo menlion a fev. OIigopoIislic induslries lypicaIIy are characlerized by high barriers to
entry. These usuaIIy lake lhe form of subslanliaI capilaI requiremenls, lhe need for lhe
lechnicaI and lechnoIogicaI knov-hov, conlroI of palenl righls, and so forlh.
In addilion lo fev seIIers, a simiIar producl, and high obslacIes lo enlry, oIigopoIislic
induslries lend lo share severaI olher characlerislics.
1. Su|sianiia| cccncnics cj sca|c. y economy of scale, economisls mean decreases in a
rms Iong-lerm average cosls as lhe size of ils operalions increases. Iirms in oIi-
gopoIislic induslries lypicaIIy require Iarge-scaIe produclion lo oblain Iov unil cosls.
Large-scaIe produclion is aorded by inlensive Iabor and managemenl speciaIizalion
of |ob responsibiIilies, uliIizalion of lhe mosl efcienl lechnoIogy avaiIabIe, and eec-
live use of by-producls. If lolaI markel demand for lhe producl or service is sufcienl
lo supporl onIy a fev Iarge rms of oplimum size, compelilion generaIIy ensures lhal
onIy a fev such rms viII survive.
2. Grcuin inrcugn ncrgcr. Many of lhe oIigopoIies lhal exisl loday have resuIled
from mergers of compeling rmsin mergers lhal may dale back lo lhe Iale 19lh
or earIy 20lh cenlury. In 1901, for exampIe, lhe U.S. SleeI Corporalion vas formed
from a merger of 11 independenl sleeI producers. Or lhink of lhe number of U.S.
aulomobiIe manufaclurers back in lhe 1930s, 1940s, and 1950s. WeII-knovn
companies Iike LaSaIIe, Hudson, Iackard, and Sludebaker have Iong since gone.
The purpose of mosl mergers is lo gain a subslanliaI increase in markel share,
grealer economies of scaIe, more buying pover in lhe purchase of resources,
and various olher advanlages lhal smaIIer rms do nol possess lo lhe same
exlenl.
3. Muiua| !cpcn!cncc. When lhere are onIy a fev rms in a markel, il maers very much
lo each rm vhal ils rivaIs do. Iconomisls caII lhis silualion mutual dependence. The
smaII number of seIIers in an oIigopoIislic induslry makes il necessary for each seIIer
lo consider lhe reaclions of compelilors vhen seing prices. In lhis sense, lhe behavior
of oIigopoIisls in lhe markelpIace may be somevhal simiIar lo lhe behavior of pIayers
in such games of skiII as chess, checkers, or bridge. In lhese games, lhe parlicipanls lry
lo vin by formuIaling slralegies lhal anlicipale lhe possibIe counlerreaclions of lheir
opponenls.
4. Pricc rigi!iiu an! ncnpricc ccnpciiiicn. In an oIigopoIislic induslry, rms nd il more
comforlabIe lo mainlain conslanl prices and lo engage in various forms of nonprice
compelilion, such as adverlising and cuslomer service, lo hoId, if nol increase, lheir
markel shares. Irice reduclions, vhen lhey occur, are sporadic and usuaIIy come
aboul onIy under severe pressures resuIling from veakened demand or excessive
capacily.
A I R T R A N S P O R TAT I O N 1 7 6
THE AIRLINES AS OLIGOPOLISTS
Wilh lhe generaI characlerislics of oIigopoIies as a background, Iels see hov lhe airIine
induslry compares and lhen lake a Iook al severaI unique characlerislics.
Nun|cr cj Carri crs an! Markci Snarc
Wilh lhe easing of CA reguIalions and passage of lhe AirIine DereguIalion Acl, lhe
induslry enlered an era of inlense compelilion. Ma|or airIines and lhe former IocaI-service
carriers began compeling vilh one anolher: charler carriers moved inlo scheduIed service:
former inlraslale carriers, such as Air IIorida, Iacic Soulhvesl AirIines, and Soulhvesl,
moved inlo inlerslale markels: and many nev rms began oering service. As a resuIl
of lhis nev enlry, discounl fares proIiferaled, fare vars began, and lolaI lrafc increased
dramalicaIIy as passengers look advanlage of previousIy unheard-of coasl-lo-coasl fares.
The number of RIMs increased dramalicaIIy. The eslabIished ma|or airIines, vilh lhe
exceplion of lhose lhal vere faiIing, shared in lhe lrafc grovlh, bul lhe nev enlranls
made subslanliaI inroads inlo markel share. elveen 1978 and 1986, lhe share of lolaI
lrafc of lhe incumbenl lrunk airIines decIined from 94 percenl lo 77 percenl.
In lhis period, lhere vere 198 cerlicaled (Seclion 401) carriers providing inlerslale
passenger service in lhe Uniled Slales. If ve vere lo add lhe 36 carriers operaling before
dereguIalion, lhis vouId give 234 carriers operaling al lhe slarl of 1987. UnforlunaleIy,
inslead of lhe induslry expanding, as many proponenls of dereguIalion visuaIized, 160 of
lhose carriers eilher vere merged, Iiquidaled, or decerlied or vere nol operaling or never
did operale under a cerlicale. Therefore, al lhe slarl of 1987, onIy 74 cerlicaled carriers
remained. The lolaI number has increased in recenl years vilh lhe addilion of smaIIer
cerlicaled carriers and lhe demise of some of lhe Iarger airIines, incIuding Iaslern and
Ian Am. The shrinking number of Iarger carriers has improved lhe markel share of lhe
remaining ma|or carriers, such lhal lhe Iargesl carriers nov have a somevhal grealer
markel share lhan before dereguIalion (aIlhough lhey are nol aII lhe same carriers).
Commuler air lraveI foIIoved a simiIar paern, vilh lhe number of service providers
reaching 246 in 1981 and decIining lo 109 by lhe end of 1996. Despile lhis consoIidalion,
RIMs increased aImosl sevenfoId, from 2.1 biIIion lo 14.2 biIIion. Al lhe end of 1996, 35
of lhe lop 50 commuler airIines had code-sharing agreemenls vilh one or more ma|or
or nalionaI carrier. Those 50 airIines conlroIIed 99 percenl of lhe lolaI commuler markel
share.
As of earIy 2006, a number of changes occurred in lerms of code-sharing agreemenls,
and lhese changes aecled air carriers of aII sizes around lhe vorId. ecause of a Iarge
number of bankruplcies, airIines going oul of business, and changing parlnerships, aIIiance
members vere negaliveIy impacled in many cases. Some aIIiances Iosl parlners, resuIling
in decreased markel share and increased expenses. As of lhe end of 2006, numerous
changes vere sliII occurring as a resuIl of an unslabIe airIine induslry.
UnqueslionabIy, lhe airIine induslry, vilh ils smaII number of companies and
concenlralion of markel share, meels lhe rsl characlerislic of oIigopoIisl rms. Mosl
anaIysls expecl lhal lhe consoIidalion lhal began in lhe earIy 1980s viII conlinue, vilh onIy
a handfuI of ma|or carriers remaining by lhe lurn of lhe 21sl cenlury. These carriers viII be
suppIemenled by 100 or so smaIIer airIines providing regionaI/commuler service.
C H A P T E R 6 E C O N O MI C C H A R A C T E R I S T I C S O F T H E A I R L I N E S 1 7 7
Hi gn Barri crs ic |niru
One expeclalion of dereguIalion vas lhal carriers vouId have reIaliveIy free access lo
markels because of lhe mobiIily of lhe airIines chief asselsaircrah. Carriers dominaling
individuaI markels vouId nol charge monopoIislic fares, according lo lhis lheory, because
of lhe ease vilh vhich a compelilor couId enler lhe markel and compele vilh lhe incumbenl
carrier by charging reduced fares. Thus, lhe mere lhreal of enlry vas expecled lo discipIine
pricing. SubslanliaI nev enlry did occur during lhe earIy phase of dereguIalion, bul since
lhe mid-1980s, lhe pace has sIoved and lhe induslry has become more concenlraled.
Access lo many markels has become exlremeIy difcuIl in recenl years because of lhe
difcuIly of oblaining lerminaI space al many hub airporls and lhe risk associaled vilh
compeling vilh an airIine al one of ils hubs. A compelilor lhal vishes lo chaIIenge anolher
carrier al ils hub faces considerabIe nanciaI oulIays. The cosl of providing a compelilive
IeveI of service al a hub is subslanliaI: expendilures for adverlising, personneI, and aircrah
operalions are cruciaI during slarl-up, vhen lhe compelilor aempls lo vin business
avay from lhe ma|or carrier. The risk of being unabIe lo recover lhese oulIays is lhe Iargesl
singIe delerrenl lo enlry al hub airporls.
Il is difcuIl lo compele vilh a ma|or carrier during slarl-up because lhe ma|or carrier
has inherenl advanlages: some resuIl from lhe scope of ils operalions, olhers from
markeling. The Iarger nelvork of lhe ma|or carrier aIIovs il lo increase service al a Iover
addilionaI cosl. In addilion, by having an exlensive nelvork, lhe ma|or carrier is more
IikeIy lo aracl passengers, vho lhen form impressions aboul lhe quaIily of service on
olher roules. Markeling buiIds on lhese advanlages. Irequenl-ier programs make il
difcuIl lo Iure business lraveIers avay from an incumbenl carrier vilh vhich lhey may
have aIready accrued a subslanliaI accounl baIance. And if lhe incumbenl has aIready
eslabIished preferred-provider reIalionships vilh mosl of lhe lraveI agenls around lhe
hub, lhe nev enlranl faces an addilionaI compelilive disadvanlage. Thus, during lhe
monlhs in vhich a compelilor rsl lakes on a ma|or carrier al ils hub, lhe compelilor
musl oer subslanliaI IeveIs of service, vhich al a minimum incIude dozens of ighls
a day. Il musl aIso Iure frequenl iers avay from an incumbenl lhal oers lhem more
opporlunilies lo earn miIeage and somehov vin over lraveI agenls vho have preferred-
carrier reIalionships vilh lhe incumbenl.
One aIlernalive lhal lhe never carriers have aempled is lo focus on anolher airporl
serving lhe same cilyfor exampIe, serving Chicagos in-lovn airporl (Midvay) inslead
of OHare. These airporls have considerabIy Iover lrafc voIumes lhan lhe ma|or airporls
lhal serve lhose communilies, bul lhey have aIIoved nev enlranls lo deveIop niche
markels.
Airporl lerminaI capacily can aIso be a barrier lo enlry for nev and exisling carriers
seeking lo enler nev markels. Inlering a markel requires lhe abiIily lo Iease or deveIop
gales, baggage handIing and airporl mainlenance faciIilies, and lickeling and passenger
vailing areas. LiIe underused gale capacily and reIaled lerminaI space is avaiIabIe al
ma|or airporls in lhe shorl lerm. Over lhe Ionger lerm, il is possibIe for carriers lo enler
many markels, bul lhe experience of recenl years indicales lhal such enlry is neilher easy
nor inexpensive.
Airporl operalors beIieve lhal exisling capacily Iimils are exacerbaled al many airporls
because lhe incumbenl airIines, hoIding Iong-lerm Ieases vilh ma|orily-in-inleresl (MII)
cIauses or excIusive-use agreemenls, are abIe lo bIock airporl expansions lhal vouId
provide more capacily for nev enlranls. In addilion, many airporl-airIine Ieases conlain
A I R T R A N S P O R TAT I O N 1 7 8
cIauses lhal prohibil lhe airporl from charging addilionaI rales, fees, and charges and
from changing ils melhod of caIcuIaling Ianding fees. The airIines can bIock expansions
vilh lhese provisions, bul onIy lhose lhal vouId increase lheir cosls vilhoul lheir
consenl.
Anolher barrier lo enlry has become lhe dominaled hubs. As carriers buiId lhe
conneclion banks required lo make a hub vork, lheir presence in lhe IocaI markel can
become so pervasive as lo approach being a monopoIy. AirIines use hubs lo shieId some
of lheir oulpul from compelilion. As more ighls are connecled lo a hub, lhe number of
passengers avaiIabIe lo supporl addilionaI ighls grovs. Making lhe connecling banks
vork for lhese ighls requires many gales because of lhe desire lo minimize lhe deIay
belveen conneclions. AIso, higher-yieId originaling passengers heIp provide lhe numbers
needed lo supporl frequenl hub service. ecause fev airporls have excess capacily in lhe
shorl run (and fev have enough IocaI lrafc lo supporl more lhan one exlensive nelvork
of nonslop service), hubs lend lo become dominaled by one or lvo ma|or carriers vho
use up lhe exisling capacily.
IinaIIy, during lhe 1980s, many nev enlranls vere abIe lo begin operalions vilh used
or Ieased aircrah. Many of lhe oIder, noisier, Slage 2 aircrah lhal are in operalion loday
had lo meel higher Slage 3 noise crileria by 1999. The nev reslriclions reduced lhe suppIy
of aircrah and required carriers lo relrol or re-engine exisling Slage 2 aircrah. Hushkils
and re-engine programs vere deveIoped for some aircrah. The cosl and avaiIabiIily of
conversion programs for some of lhe ma|or aircrah of lhe eel vere high. In any evenl,
lhe phaseoul of Slage 2 aircrah has increased lhe cosl of enlry lo lhe airIine induslry by
reducing lhe suppIy of used aircrah and increasing lhe cosl of operaling used aircrah.
|ccncni cs cj Sca| c
Like aII oIigopoIisls, airIines musl achieve a Iarge voIume of oulpul in order lo Iover lhe
cosl per unil of oulpul (vhich equaIs a seal deparlure). To achieve economies of scaIe in
produclion, lhe carriers, Iike olher oIigopoIisls, uliIize lhe principIe of Iabor speciaIizalion.
ecause of lhe number of vorkers, |obs can be divided and subdivided. Inslead of
performing ve or six dislincl operalions in lhe produclion process, each vorker may
have onIy one lask lo perform. Workers can be used fuII-lime on lhe parlicuIar operalions
for vhich lhey have speciaI skiIIs. Union ruIes aboul vhal specic vorkers can and cannol
do aIso reinforce lhis principIe. Thus, a skiIIed machinisl vilh a ma|or carrier mighl spend
an enlire career in a parlicuIar shop vorking on one componenl of lhe aircrah.
In a smaII rm, skiIIed machinisls may spend haIf lheir lime performing unskiIIed lasks.
This makes for higher produclion cosls. Iurlhermore, lhe division of vork operalions lhal
Iarge-scaIe operalions permil gives vorkers lhe opporlunily lo become very procienl al
lhe specic lasks assigned lhem. The |ack-of-aII-lrades vho is burdened vilh ve or six
|obs IikeIy viII nol become very efcienl al any of lhem. When aIIoved lo concenlrale
on one lask, lhe same vorker may become highIy efcienl. IinaIIy, grealer speciaIizalion
lends lo eIiminale lhe Ioss of lime lhal accompanies lhe shihing of vorkers from one |ob
lo anolher.
Large-scaIe oulpul aIso permils beer uliIizalion of and grealer speciaIizalion
in managemenl. A supervisor vho is capabIe of handIing 15 or 20 empIoyees viII be
underuliIized in a smaII rm vilh onIy 8 or 10 vorkers. The number of voIume-reIaled
vorkers, such as piIols, ighl aendanls, mechanics, and reservalions personneI, can be
doubIed vilh IiIe or no increase in adminislralive cosls. In addilion, smaII rms cannol
C H A P T E R 6 E C O N O MI C C H A R A C T E R I S T I C S O F T H E A I R L I N E S 1 7 9
use managemenl speciaIisls lo lhe besl advanlage. In smaII rms, saIes speciaIisls may
be forced lo divide lheir lime belveen severaI execulive funclionsfor exampIe, markel
research, saIes pIanning, budgeling, and personneI adminislralion. A Iarger scaIe of
operalions means lhal lhe markeling experl can vork fuII-lime supervising saIes vhiIe
appropriale speciaIisls are added as needed lo perform olher manageriaI funclions.
Grealer efciency and Iover unil cosls are lhe nel resuIl.
If lhe voIume of oulpul musl be reduced because of a faIIo in lrafc, somelhing has lo
give, or eIse lhe rm viII experience vhal economisls refer lo as diseconomy of scale, in
vhich cosl per unil begins lo rise. In such a case, airIines are forced lo furIough voIume-
reIaled vorkers as veII as adminislralive personneI. The remaining adminislralive
vorkers musl broaden lheir responsibiIilies by laking on nev |ob assignmenls. AirIines
have aIso aempled lo gel lheir voIume (moslIy unionized) personneI lo lake on grealer
responsibiIilies, bul lhis has been more difcuIl. The unions queslion vhal viII happen
vhen increased lrafc voIumes relurn and vhelher vorkers viII sliII be required lo handIe
vork oulside lheir bargained |ob descriplion.
The eslabIished carriers can uliIize lhe Ialesl lechnoIogy avaiIabIe, vhich aIso brings
aboul economies of scaIe. SmaII rms ohen are unabIe lo uliIize lhe mosl efcienl and
produclive equipmenl. In many cases, lhe mosl efcienl equipmenl is avaiIabIe onIy
in very Iarge and exlremeIy expensive unils. Iurlhermore, eeclive uliIizalion of lhis
equipmenl demands a high voIume of oulpul. This means lhal onIy Iarger carriers can
aord and operale efcienlIy lhe besl avaiIabIe equipmenl. Compulerized reservalion
syslems (CRSs) lhal dispIay airIine scheduIes and prices for lraveI agenls and reservalion
cIerks are an exampIe. CRSs are polenl markeling looIs, because approximaleIy 70 percenl
of aII reservalions made by U.S. lraveI agenls are made lhrough lhese syslems. Mosl CRSs
are ovned and operaled by lhe vorIds ma|or airIines. CRSs have been expanded lo make
olher lypes of reservalions, such as holeI and renlaI cars. Iees from saIes made via lhe
syslems are sources of subslanliaI revenue and prols for lheir ovners.
CRSs dispIay considerabIe economies of scaIe because of lhe sheer scaIe of inveslmenl
required lo compele and lhe advanlage lhal an airIine lhal ovns a CRS has over a nonairIine
inveslor inleresled in deveIoping a CRS. The carriers lhal deveIoped CRSs have spenl
hundreds of miIIions of doIIars over many years lo bring lheir syslems lo lheir currenl
advanced slale (lhe subslanliaI prols being earned suggesl lhal lhese inveslmenls have
been recouped). The incremenlaI revenues CRSs earn are apparenlIy sufcienl lo aIIov lhe
carriers lo Iease such syslems lo lraveI agenls beIov cosl. Therefore, a polenliaI compelilor
lhal is nol aIso an airIine vouId have lo deveIop a syslem more efcienl lhan lhose aIready in
use in order lo aracl lraveI agenls and vouId have lo be abIe lo supporl lhe syslem vilhoul
generaling incremenlaI airIine revenues. Given lhe high cosl of syslem deveIopmenl, lhe
efciency and economies of scaIe of lhe Iargesl syslems, and lhe conlribulion made by
incremenlaI airIine revenues, such nev compelilion appears unIikeIy.
HisloricaIIy, mosl airIine passengers made lrip reservalions lhrough lraveI agenls,
resuIling in fairIy high commissions being paid lo lhe lraveI agenl by lhe airIine. Over
lime, commissions paid have been Iovered as airIines reaIize lhe high cosls of using a
middIeperson in lhe lransaclion. Since lhe Iale 1990s and earIy 2000s, airIines have focused
on direcl seIIing melhods and have decreased lhe need for lhe lraveI agenl. Direcl seIIing
incIudes use of lhe Inlernel and direcl leIephone Iines lo lhe airIine. Direcl leIephone
Iines are sliII coslIy lo use because of high Iabor and infraslruclure cosls. Hovever, lhis
is preferred over lhe lraveI agenl because no commissions are paid. In lerms of Inlernel
saIes, airIines ohen adverlise on lheir ovn Web sile for direcl bookings, or lickels can
A I R T R A N S P O R TAT I O N 1 8 0
be purchased lhrough olher on-Iine sourcesfor exampIe, lraveIocily.com, priceIine.com,
cheaplickels.com, orbil8.com, expedia.com, sideslep.com or holvire.com. Some siles oer
delaiIed ilineraries, incIuding price, before making a purchase, vhereas olher siles acl as
auclion houses and no prices are adverlised. The cuslomer simpIy bids a parlicuIar price
and if accepled by lhe on-Iine syslem, a credil card is charged and lhe lickel is issued.
Direcl seIIing is lhe preferred melhod of saIe by lhe airIine because cosls are reduced
for lhe organizalion and savings are passed on lo lhe passenger. In lhe Uniled Slales,
ConlinenlaI AirIines seIIs lhe ma|orily of ils lickels on-Iine and in lhe Uniled Kingdom,
IasyIel seIIs cIose lo 100 percenl of ils lickels on-Iine.
The ma|or carriers are aIso in a beer posilion lo uliIize by-producls of lheir induslry
lhan are smaII rms. SeIIing prepackaged frozen foods prepared in lhe companys ighl
kilchens lo a reslauranl chain and seIIing compuler services lo smaIIer rms are exampIes
of by-producls lhal Iover unil cosls. Olher exampIes incIude conlracl mainlenance and lhe
use of ighl simuIalor lime during o-peak periods for grealer uliIizalion of equipmenl
and Iabor, vhich, in lurn, Iovers cosl per unil.
Grcuin Tnrcugn Mcrgcr
Anolher cIear characlerislic of oIigopoIisls in generaI, and airIines in parlicuIar, is
grovlh lhrough merger. Il is a ma|or faclor in expIaining lhe smaII number of rms. The
molivalions for mergers are diverse. Of immediale reIevance is lhe facl lhal combining lvo
or more formerIy compeling rms by merger can increase lheir markel share subslanliaIIy
and enabIe lhe nev and Iarger company lo achieve grealer economies of scaIe. Anolher
signicanl molive underIying lhe urge lo merge is lhe markel pover lhal may accompany
a merger. A rm lhal is Iarger, bolh absoIuleIy and reIalive lo lhe markel, may have grealer
abiIily lo conlroI lhe markel for and lhe price of ils service lhan does a smaIIer, more
compelilive producer. Iurlhermore, lhe Iarger rm may gain Ieverage as a big purchaser
by being abIe lo demand and oblain Iover prices (cosls) in buying goods and services.
efore dereguIalion, mergers permied air carriers lo purchase vhoIesaIe lhe enlire
roule slruclure of anolher carrier inslead of appIying for one roule al a lime lhrough
Ienglhy CA proceedings. Olher reasons for merger incIude eIiminaling lhe possibiIily
of bankruplcy in lhe case of one of lhe carriers and eIiminaling compelilion on cerlain
roule segmenls. IinaIIy, mergers permil carriers lo reduce seasonaIily probIems vhere
one carriers roules compIemenl lhe olhers.
In 1950, lhe cerlicaled lrunk airIines of lhe Uniled Slales vere as foIIovs:
American AirIines ConlinenlaI AirIines
rani InlernalionaI DeIla Air Lines
CapilaI AirIines Iaslern AirIines
Chicago and Soulhern Air Lines InIand AirIines
CoIoniaI AirIines Mid-Conlinenl AirIines
NalionaI AirIines Trans WorId AirIines
Norlheasl AirIines Uniled AirIines
Norlhvesl AirIines Weslern AirIines
Ian American WorId Airvays
C H A P T E R 6 E C O N O MI C C H A R A C T E R I S T I C S O F T H E A I R L I N E S 1 8 1
y 1960, Mid-Conlinenl had been absorbed by rani, vhich Ied for bankruplcy in 1982
aher overexpanding in lhe immediale posldereguIalion period. Chicago and Soulhern
became a parl of DeIla: CoIoniaI vas absorbed inlo Iaslern: and InIand became a parl of
Weslern. In 1962, CapilaI vas laken over by Uniled, and by 1972, Norlheasl vas parl of
DeIla. In 1980, NalionaI vas acquired by Ian Am aher a erce slock baIe vilh Iaslern and
Texas InlernalionaI. Using ils prols from lhe saIe of NalionaI slock, Texas InlernalionaI
began buying bIocks of slock in ConlinenlaI in 1979 and evenluaIIy von conlroI of lhal
airIine in 1981. In 1985, IeopIe Ixpress acquired Ironlier AirIines for $300 miIIion, and a
year Ialer IeopIe vas absorbed by lhe nevIy formed Texas Air for lhe same price. In 1986,
Texas Air acquired Nev York Air, anolher nevcomer since dereguIalion, and lhen puIIed
o ils biggesl coup, lhe acquisilion of Iaslern.
Uniled purchased Ian Ams Iacic division in 1985, and American acquired Air CaI.
Merger aclivily inlensied in 1986 vhen Norlhvesl acquired RepubIic for $884 miIIion.
RepubIic, a carrier lhal became a ma|or aher dereguIalion, vas lhe resuIl of a merger of
lhree successfuI former IocaI-service carriers: Hughes Airvesl, Norlh CenlraI AirIines,
and Soulhern Airvays. Hughes Airvesl had been lhe resuIl of a merger of four former
carriers in lhe 1960sonanza AirIines, Soulhvesl Airvays, Iacic AirIines, and Wesl
Coasl AirIines. AIso in 1986, Trans WorId acquired Ozark for $250 miIIion, and lhe merger
of DeIla and Weslern combined lhe nalions sixlh- and ninlh-Iargesl airIines inlo one of lhe
remaining mega-carriers. USAir (formerIy AIIegheny) acquired Iacic Soulhvesl earIy in
1987 and naIIy von approvaI from lhe DOT for lhe acquisilion of Iiedmonl in Oclober
1987.
In 1991, Iaslern naIIy foIded ils vings aher operaling under bankruplcy for cIose lo
lvo years. Midvay ceased operalions in earIy 1992. And aher slruggIing for many years,
Ian Am naIIy venl oul of business lhal same year. In 1991, il had soId ils lransalIanlic
roules lo London and beyond lo Uniled for $400 miIIion, and naIIy, in 1992, il soId ils
Lalin American roules lo Uniled. In 2002, American AirIines acquired TWA. In Iale 2005,
America Wesl and US Airvays merged bul conlinue lo operale under separale names. As
of year-end 2004, lhe lop U.S. airIines vere as shovn in TabIe 6.1.
The AirIine DereguIalion Acl of 1978 required lhe CA lo lreal airIine mergers and
acquisilions in a manner more consislenl vilh lhe anlilrusl slandards appIied lo aImosl
aII olher induslries. According lo lhe provisions of lhe acl, appIicalion of lhe Sherman
Anlilrusl Acl lesl vouId be used lo prohibil mergers lhal vouId resuIl in a monopoIy in
any region of lhe counlry. AppIicalion of lhe CIaylon Anlilrusl Acl lesl vouId be used lo
prohibil lransaclions lhal vouId have lhe eecl of subslanliaIIy Iessening compelilion
or lhal vouId lend lo creale a monopoIy. The AirIine DereguIalion Acl, hovever, did
give lhe CA (and Ialer lhe DOT) somevhal more Ialilude in veighing lhe benels of
mergers (lransporlalion convenience and needs) lhan is appIied in anlilrusl cases in olher
induslries.
In lhe rsl fev years aher passage of lhe AirIine DereguIalion Acl, before lhe CA vas
dissoIved and ils anlilrusl aulhorily shihed lo lhe DOT, severaI mergers vere permied
lhal vere end-lo-end in characler. These mergers invoIved carriers lhal did nol serve
overIapping markels, and some of lhe mergers acluaIIy enhanced service by reducing
lransaclion cosls, apparenlIy vilhoul reducing compelilion. Ior exampIe, Ian American
vas aIIoved lo merge vilh NalionaI. SeveraI proposed mergers vere disapproved
because lhe carriers roules vere paraIIeI mergers: lhal is, lhe carriers served loo
many overIapping roules (IaslernNalionaI). SeveraI olhers vere disapproved because
of concern aboul hub dominance and barriers lo enlry (ConlinenlaIWeslern).
A I R T R A N S P O R TAT I O N 1 8 2
When lhe DOT vas given aulhorily over mergers in 1985, lhe number of mergers and
acquisilions increased from 8 belveen 1980 and 1984 lo 18 in 1985 and lo 25 in 1986. Mosl
of lhese mergers did nol raise signicanl compelilive issues: many of lhe smaII carriers
invoIved in lhem vere in nanciaI difcuIly and vouId have gone bankrupl had lhey
nol merged. Some end-lo-end mergers may even have faciIilaled compelilion, because
lhe combinalion of lvo carriers serving dierenl markels heIped buiId a broader, more
compelilive nelvork.
ecause of lhe compIexily of airIine nelvorks and compelilion, il is difcuIl lo specify in
advance lhe condilions under vhich mergers or acquisilions viII be anlicompelilive. Some
mergers, for exampIe, may faciIilale compelilion belveen hub nelvorks bul simuIlaneousIy
creale opporlunilies for hub dominance. An overriding queslion concerns lhe lolaI number
of ma|or carriers lhal are required lo mainlain an adequale IeveI of compelilion. AIlhough
lhe number of rms required lo ensure adequale compelilion necessariIy invoIves some
specuIalion, lhe main crilerion for lhe adequacy of compelilion nalionvide is lhe IeveI
of compelilion for passenger ovs belveen compeling hub syslems. Consumers receive
TABLE 6-1 U.S. Airlines 2004
|ctcnuc Passcngcrs |np|anc!
1
(incusan!s)
|ctcnuc Passcngcr Mi|cs
1
(ni||icns)
Atai|a||c Scai Mi|cs
1
(ni||icns)
Cargc |ctcnuc Tcn Mi|cs
2
(ni||icns)
1 American 91,570 1 American 130,020 1 American 173,823 1 FedEx 9,991
2 Delta 86,755 2 United 114,536 2 United 144,547 2 Atlas/Polar 5,428
3 Southwest 81,066 3 Delta 98,041 3 Delta 129,463 3 UPS 5,309
4 United 70,786 4 Northwest 73,294 4 Northwest 91,357 4 Northwest 2,338
5 Northwest 55,373 5 Continental 63,176 5 Continental 81,226 5 American 2,211
6 US Airways 42,400 6 Southwest 53,415 6 Southwest 76,863 6 United 1,995
7 Continental 40,551 7 US Airways 40,498 7 US Airways 53,982 7 Delta 1,425
8 America West 21,119 8 America West 23,318 8 America West 30,133 8 KaIia 1,171
9 Alaska 16,280 9 Alaska 16,224 9 Alaska 22,263 9 Continental 974
10 American IagIe 14,869 10 JetBlue 15,721 10 JetBlue 18,992 10 Gemini 763
11 IxpressIel 13,659 11 ATA 12,539 11 ATA 17,148 11 ABX 713
12 SkyWesl 13,417 12 AirTran 8,479 12 AirTran 11,996 12 Evergreen Int'l 501
13 AirTran 13,170 13 IxpressIel 7,417 13 IxpressIel 10,409 13 ASTAR 401
14 Comair 12,632 14 Comair 6,268 14 Comair 9,249 14 WorId 397
15 JetBlue 11,731 15 Ironlier 6,285 15 Ironlier 8,548 15 US Airways 338
16 AlIanlic Soulheasl 10,420 16 Hawaiian 6,141 16 American IagIe 8,486 16 Soulhern 315
17 ATA 10,024 17 American IagIe 5,817 17 SkyWesl 7,547 17 Omni 259
18 Mesa 9,122 18 SkyWesl 5,550 18 Hawaiian 7,128 18 Tradevinds 245
19 Independence 7,041 19 Spiril 4,887 19 AlIanlic Soulheasl 6,899 19 Air Transporl Inl'I 224
20 Air Wisconsin 6,954 20 AlIanlic Soulheasl 4,766 20 Mesa 6,364 20 Ixpress.Nel 213
21 Ironlier 6,406 21 Mesa 4,589 21 Spiril 6,280 21 Southwest 184
22 IinnacIe 6,362 22 IinnacIe 2,910 22 Independence 4,375 22 IIorida Wesl 157
23 Horizon 5,930 23 Air Wisconsin 2,813 23 IinnacIe 4,216 23 Kiy Havk 143
24 Hawaiian 5,585 24 Independence 2,661 24 Air Wisconsin 3,742 24 Amerel Inl'I 102
25 Mesaba 5,427 25 ConlinenlaI Micronesia 2,569 25 Midwest 3,540 25 Hawaiian 86
1
ScheduIed services onIy
2
AII services
Bold = Member. Air Transport Association of America, Inc. (ATA)
Scurcc: Air Transporl Associalion of America, AnnuaI Reporl, 2005. AvaiIabIe al: hp://vvv.airIines.org/Ies/
2005AnnuaIReporl.pdf
C H A P T E R 6 E C O N O MI C C H A R A C T E R I S T I C S O F T H E A I R L I N E S 1 8 3
lhe Iargesl benels vhen lhree or more compelilors are operaling in lhe same markel,
especiaIIy if one of lhe compelilors is a nev-enlranl airIine vilh a Iov-price markeling
slralegy.
Having onIy lhree carriers nalionvide vouId probabIy nol be adequale lo ensure lhis
IeveI of compelilion. Sufcienl barriers lo enlry exisl lo prevenl lhree ma|or carriers from
being abIe lo compele vilh one anolher for hub lrafc from every ma|or spoke cily. Iive
or six ma|or airIines, hovever, vouId probabIy conslilule a sufcienl number of hub
syslems lo ensure lhe presence of lhree or more compelilors in mosl ma|or spoke markels,
especiaIIy vhen severaI addilionaI heaIlhy regionaI and nalionaI carriers are oering
consumers aIlernalives in specic regionaI or niche markels. Iive or six nalionvide rms
lhal compele vilh one anolher al aII lhe Iarge commerciaI airporls may provide much
slronger compelilive pressure lo hoId dovn cosls and fares lhan vouId 10 or 15 carriers
compeling in Iess exlensive nelvorks. The fever lhe number of rms, hovever, lhe easier
il is for lhem lo form and enforce a lighl oIigopoIy in vhich induslry oulpul is Iover and
fares are higher lhan vouId be lhe case in a compelilive markel. Ior fever lhan ve or
six carriers, lhe resuIls vouId depend on lhe circumslances of lhe carriers, lheir markels,
and lhe vigor of lhe compelilion among lhem in lhe fulure. ul as aIready indicaled, lhree
ma|or nalionvide carriers are IikeIy lo be loo fev lo ensure adequale compelilion.
Muiua| Ocpcn!cncc
RegardIess of lhe means by vhich an oIigopoIy evoIves, rivaIry among a smaII number
of rms cIearIy inler|ecls a nev and compIicaling characlerislic: muluaI dependence.
Imagine lhal lhree carriersA, , and Cserve lhe same roule and lhal each has aboul
one-lhird of lhe markel. If A culs ils price, ils share of lhe markel viII increase, bul
and C viII be direclIy, immedialeIy, and adverseIy aecled by As price-cuing. Thus, ve
can expecl some reaclion on lhe parl of and C lo As behavior: and C may malch As
price cul or even undercul A, lhereby slarling a price var. This response suggesls lhal no
rm in an oIigopoIislic induslry viII dare lo aIler ils price poIicies vilhoul aempling
lo caIcuIale lhe mosl IikeIy reaclion of ils rivaIs. This is consislenl vilh economic
lheory and characlerislic of pricing al concenlraled gale- and sIol-conslrained airporls
vhere lvo or lhree compelilors hoId lhe ma|orily markel share. Hovever, nol enough
oIigopoIy pricing exisls lo cover lhe induslrys xed cosls and osel sleep discounling in
compelilive markels. Today, lhe airIine induslry sels prices in a highIy irralionaI vay. We
see evidence of oIigopoIy and deslruclive compelilion side by side. Since dereguIalion,
lhe fuII unreslricled Y fareor basic or slandard farehas aImosl doubIed. Wilh lhe fuII
fare rising so sharpIy, reIaliveIy fev passengers vouId pay il. ConsequenlIy, loday, over 90
percenl of passengers pay an average of onIy aboul 30 percenl of lhe fuII fare. OnIy lhose
individuaIs vho absoIuleIy musl y on shorl nolice have lo pay fuII fare.
Discounled fares are largeled al discrelionary (vacalion) lraveIers. To dissuade
business lraveIers from using lhem, lhey ordinariIy come saddIed vilh reslriclions
nonrefundabiIily, advance purchase requiremenls, and Salurday nighl slay-over
obIigalions. Hovever, Iarge corporalions and unils of lhe federaI governmenl can
negoliale a conlracl rale vilh airIines lhal incIudes lhe discounled fares bul is IargeIy
devoid of reslriclions.
The inlense price compelilion lhal characlerizes many roules is compIicaled by lhe
facl lhal dierenl carriers ohen aach varying imporlance lo lhe same roule. In many
circumslances, a parlicuIar roule represenls an imporlanl parl of a carriers nelvork,
A I R T R A N S P O R TAT I O N 1 8 4
produces fuIIy aIIocaled prols, and is regarded as parl of lhal carriers core business.
Ior a second carrier nol currenlIy serving lhal roule, on lhe olher hand, il represenls an
incremenlaI opporlunily.
Needing onIy lo recover lhe marginaI cosls of adding service vilh equipmenl il
aIready has, bul adding a service lhal may be surpIus lo ils needs, lhe second carrier
may choose lo faciIilale ils enlry lo lhe roule by pricing ils services al or |usl above
marginaI cosl. In lhis silualion, lhe second carrier viII benel from IIing Iols of emply
seals and conlribuling, in al Ieasl a smaII vay, lo covering ils xed cosls.
The rsl carrier, compeIIed lo malch lhe nevcomers price, viII suer signicanl yieId
erosion and viII be unabIe lo meel ils ob|eclive of fuII cosl recovery. The nev carrier viII
benel, bul overaII, lhe induslry (Carrier A + Carrier ) viII move from prol lo Ioss.
The pricing decisions of individuaI carriers usuaIIy make economic sense from lhe
carriers perspeclive. ul for lhe induslry as a vhoIe, lhese decisions conlribule lo lhe
conlinuaI price erosion lhal has reslricled lhe abiIily of aII carriers lo increase revenues
lo keep up vilh rising cosls.
Pri cc |i gi !i iu an! Ncnpri cc Ccnpcii ii cn
Iirms in oIigopoIislic induslries are much more comforlabIe mainlaining conslanl prices
lhan rocking lhe boal, so lo speak, because of muluaI dependence and fear of a price
var. The lendency has been lo ghl il oul in lhe nonprice arena, using adverlising and
increased cuslomer services as lhe ma|or veapons. This silualion prevaiIed in lhe airIine
induslry before 1978. Al lhal lime, hovever, lhe door vas opened lo nev compelilion, and
lhe airIine price vars began.
Under lhe oId reguIalory framevork, lhe price of an airIine seal vas direclIy reIaled
lo lhe cosl of producing il. Irices vere simpIy based on cosls, aIIoving for a given rale
of relurn. Carriers vere expecled lo use lhe resuIling prols lo cross-subsidize required
service on shorler-hauI, Iover-densily roules (on vhich fares vere ohen heId beIov
prevaiIing cosls). Iveryone knev lhe ruIes and vas comforlabIe vilh lhem. The impacl
of economic recession vas bIunled by lhe CA, vhich rescued lhe occasionaI casuaIly
vilh repealed doses of fare increases. Aher lhe AirIine DereguIalion Acl of 1978, hovever,
lhings changed, and airIine pricing became more compIicaled.
In lheory, lhe removaI of roule reslriclions aher dereguIalion vas supposed lo slimuIale
lhe enlry of nev rms inlo lhe airIine induslry and cause exisling airIines lo expand
or shih lheir operalions inlo olher, more prolabIe markels, lhereby forcing fares dovn
and expanding service oplions in markels in vhich carriers had previousIy en|oyed IiIe
compelilion. Indeed, as predicled by lheory, mosl eslabIished carriers grealIy expanded
lheir nelvorks shorlIy aher dereguIalion, and many nev rms enlered lhe markelpIace,
crealing a compelilive environmenl lhal produced much Iover fares during lhe mid-
1980s. Since 1987, hovever, virluaIIy aII lhese nev enlranls have eilher faiIed or merged
vilh Iarger incumbenl carriers, vhiIe passenger fares have risen.
During lhe earIy 1990s, American AirIines lried on severaI occasions lo inlroduce some
sensibiIily inlo lhe fare slruclure by proposing a simpIe, four-liered vaIue pricing syslem
lhal lied fares lo dislance ovn and lhal more adequaleIy reIaled fares lo cosls. Uniled
and DeIla vere prepared lo emuIale lhe syslem, bul olhersIike ConlinenlaI, TWA, and
America Wesl, vhich vere going lhrough bankruplcy and facing huge Iossesvere more
inleresled in cuing fares lo generale cash ov.
C H A P T E R 6 E C O N O MI C C H A R A C T E R I S T I C S O F T H E A I R L I N E S 1 8 5
OTHER UNIQUE ECONOMIC CHARACTERISTICS
Gctcrnncni |i nanci a| Assi siancc
UnIike olher oIigopoIislic induslries, various governmenl unils have pIayed ma|or roIes
in nancing lhe grovlh and deveIopmenl of lhe U.S. airporl-airvays syslem. The federaI
governmenl has pIayed lhe predominanl roIe in lhis regard. UnliI 1970, vhen lhe Airporl
and Airvays DeveIopmenl Acl vas passed by Congress, lhe nalionaI airvays syslem vas
mainlained by lhe federaI governmenl al minimaI cosl lo users of lhe syslem. Hovever, lhe
acl crealed a syslem of user charges lhal have been Ievied on airIine passengers, shippers,
generaI avialion, and lhe airIines so lhal lhe airvays mighl be seIf-supporling. The 1970 acl
and ils successor, lhe Airporl and Airvay Improvemenl Acl of 1982, provided for conlinued
federaI funding of bolh airvay operalion and airporl deveIopmenl. In many inslances, lhe
fees charged for Ianding aircrah, mainlaining ofce and operalionaI space, and providing
mainlenance and adminislralive quarlers do nol repay lhe operaling cosls of lhe airporl.
Iven vhen lhe fees repay operaling cosls, lhey lypicaIIy do nol cover capilaI cosls invoIved
in airporl expansion. ConsequenlIy, lhe airIine induslry has hisloricaIIy beneled from lhe
nancing of lhe ma|or cosl eIemenl of lhe induslrylhe airporl-airvays syslemby various
governmenlaI unils, vhich unliI recenlIy Ievied quile Iimiled charges on syslem users.
Hi gn Tccnnc| cgi ca| Turnctcr
As of 2005, lhe U.S. scheduIed airIines had lolaI assels of approximaleIy $100 biIIion, of
vhich approximaleIy $60 biIIion vas ighl equipmenl. No olher oIigopoIislic induslry has
such highIy mobiIe assels lhal represenl cIose lo 60 percenl of ils lolaI assels. Iurlhermore,
lechnoIogicaI advances in ighl equipmenl over lhe shorl span of 35 years have come al
an exlremeIy rapid pace.
efore WorId War II, lhe capilaI requiremenls of mosl commerciaI airIines vere
modesl and vere mel IargeIy lhrough inlernaI sources, nolabIy prols. The scaIe of lhe
induslry increased, hovever, and by lhe mid-1950s, lhe induslry had lurned ils aenlion
lo pIanning for |el aircrah. The carriers commied aImosl $2 biIIion for ighl equipmenl
and lhe associaled ground equipmenl. The rsl |el aircrah arrived in lhe Iale 1950s, and
by lhe mid-1960s, lhe slrelched-version oeing 727s and 720s vere arriving on lhe scene
lo accommodale lhe increased lrafc, vhich required a vhoIe nev renancing cycIe. y
lhe mid lo Iale 1960s, pIans vere being made lo purchase Iarger, vide-body equipmenl.
elveen 1966 and 1971, lhe induslry pIaced orders amounling lo $10 biIIion. The 1970s
vilnessed dramalic rises in fueI prices, and aII aenlion vas focused on deveIoping fueI-
efcienl aircrah for lhe 1980s and 1990s. y 1986, induslry capilaI requiremenls from
exlernaI sources reached $7 biIIion. The ATA forecasl capilaI requiremenls of approximaleIy
$65 biIIion for lhe induslry during lhe 10-year period belveen 1996 and 2005.
Given lhe recessionary economy in lhe earIy 1990s and sIov induslry grovlh lhrough lhe
Iale 1990s and earIy 2000s, il has become apparenl lhal prices viII nol slabiIize for severaI
years. Some anaIysls beIieve lhal lhe induslry sliII musl experience a furlher shakeoul,
vilh lhe eIiminalion of severaI more of lhe veaker carriers, before lrue oIigopoIislic
pricing becomes lhe norm. Al lhal lime, prices viII slabiIize, and lhe remaining carriers
viII reIy on lhe lradilionaI nonprice compelilion.
A I R T R A N S P O R TAT I O N 1 8 6
Hi gn Ia|cr an! |uc| |xpcnscs
ecause an airIines cosls dene lhe Iimil of hov Iov il can prolabIy price ils service, and
because mosl airIine cuslomers vaIue Iov prices above aII olher carrier seIeclion faclors,
lhe carrier vilh lhe Iovesl cosls has a poverfuI compelilive advanlage. The facl lhal mosl
carriers have a difcuIl lime dierenlialing lheir producls from lhose of lheir compelilion
makes lhis especiaIIy lrue. Thus, cuing cosls lo lhe Iovesl possibIe IeveI has become a
key slralegic necessily in lodays airIine induslry.
UnforlunaleIy, reducing cosls is easier said lhan done. In addilion lo a carriers high
xed cosls, many of lhe so-caIIed variabIe cosls, if nol compIeleIy oul of lhe airIines
conlroI, are very difcuIl lo manage. Tvo of lhe biggesl are Iabor and fueI expenses.
AirIine empIoyees are men and vomen vilh highIy deveIoped skiIIs and vilh
correspondingIy high incomes. In 2004, lhe induslry empIoyed 569,084 peopIe, and lhe
average vage exceeded $55,663 ($77,561 lolaI compensalion), vhich far oulpaces aII olher
induslries in lhe Uniled Slales.
The high IeveI of unionizalion in lhe airIine induslry, parlicuIarIy among lhe more
eslabIished carriers, aIso reduces lhe exlenl lo vhich Iabor cosls can lruIy be considered
variabIe. Labor lypicaIIy represenls lhe Iargesl cosl advanlage slarl-up airIines have over
more eslabIished carriers. Moreover, despile ls reIiance on high lechnoIogy, lhe business
is very Iabor inlensive. Nev enlranls ohen oulsource many funclions lo service providers
lhal pay lheir empIoyees minimum markel rales and provide fev, if any, benels. ecause
lhese providers drav from a Iarge pooI of experienced vorkers lrained by carriers lhal
have faiIed, nev enlranls ohen oer service lhal is quaIilaliveIy indislinguishabIe from
lhal oered by Iong-eslabIished carriers.
In conlrasl, lhe oIder carriers operale under lhe lerms of union conlracls lhal prevenl
lhem from making changes lo malch lhe cosls of nev enlranls. These conlracls lypicaIIy
incIude exlraordinariIy compIex vork ruIes lhal sharpIy reduce lhe carriers abiIily lo
improve Iabor produclivily. Moreover, lhe vork force of lhe lradilionaI carrier lypicaIIy is
much oIder lhan lhal of a slarl-up airIine, crealing an even grealer disparily in vage rales,
as a 10- or 20-year airIine veleran viII invariabIy have achieved a far higher vage lhan his
or her counlerparl al a slarl-up carrier.
No olher induslry has been sub|ecled lo lhe severe increases in fueI prices lhal lhe air
carriers have experienced over lhe pasl 15 years. elveen 1978 and 1981, lhe price of |el fueI
increased by over 153 percenl, rising lo a peak in May 1981 of $1.052 per gaIIon in domeslic
markels and $1.168 in inlernalionaI markels. The lrend in |el fueI prices vas generaIIy
dovnvard for lhe remainder of lhe decade. Hovever, in 1990, slarling vilh lhe healing
oiI crisis lhal raised lhe price of |el fueI by a lhird, prices soared. SlimuIaled by lhe Iraqi
invasion of Kuvail, |el fueI, vhich had soId for as Iov as 60 cenls per gaIIon, moved very
quickIy lo more lhan $1.10 per gaIIon. AIlhough lhere vas no shorlage in fueI, prices
vere driven up in a specuIalive panic. As of earIy 2006, lhe airIines conlinue lo be hil
vilh increased cosls vilh fueI being a ma|or conlribulor. Induslry cosl expenses increased
AirIines have Ied aII olher induslries in lhe rale of increase in capilaI spending over
lhe pasl lhree decades. TechnoIogicaI advances and compelilion have forced lhe carriers
lo underlake a re-equipmenl cycIe on an average of every eighl years. esides caIIing for
huge amounls of capilaI spending, lhese cycIes mean heavy expenses in hiring and lraining
personneI and in modifying faciIilies lo accommodale lhe nev aircrah and associaled
equipmenl.
C H A P T E R 6 E C O N O MI C C H A R A C T E R I S T I C S O F T H E A I R L I N E S 1 8 7
Tnc Ccnpcii ii tc A!taniagc cj Scnc!u| c |rcucncu
The eecl of a sIighl change in deparlure lime on passenger buying behavior creales a
poverfuI incenlive for carriers lo increase ighl frequency, even vhen lhere are pIenly of
seals avaiIabIe on exisling ighls.
Moreover, vhen one carrier en|oys a scheduIe frequency advanlage over anolher on a
parlicuIar roule, lhe compelilive vaIue of lhal advanlage is more lhan proporlionaI. Ior
exampIe, if Carrier A has six daiIy ighls belveen lvo poinls and Carrier has onIy lhree,
lhe reIalive slrenglh of Carrier A versus Carrier is grealer lhan lvo lo one. The reason
for lhis is lhal Carrier As cuslomersin addilion lo having lvo limes as many chances
lo malch a ighl lo lheir needsviII perceive lhe more frequenl service as oering lhem
more exibiIily lo change lheir pIans al lhe Iasl minule.
ecause airIine hub-and-spoke syslems provide lhe mosl convenienl service belveen
lhe grealesl number of cilies, mosl U.S. carriers operale domeslic roule nelvorks focused
around one or more hubs. The facl lhal cuslomers see lhe airIines producl, a seal on an
airpIane, as a reIaliveIy undierenlialed producl nolvilhslanding, each lime a nelvork-
based airIine oers a nev ighl, il commils an addilionaI cily lo aII lhe olhers served by
lhe hub, and lhus inlroduces a number of nev producls. AddilionaIIy, by videning lhe
reach of ils nelvork, il slrenglhens ils enlire exisling producl Iine.
When origin-deparlure cily-pairs, lime of deparlure, airporl used, and lype of service
(nonslop versus connecling) combinalions are considered, an airIine can scheduIe
ils resources lo oer an enormous range of producls, each vilh dierenl revenue-
generaling polenliaI and dierenl cosls. Iurlhermore, once airpIanes and faciIilies are
in pIace, lhe economics of oering addilionaI capacily are ohen evaIualed on lhe basis of
marginaI cosl, vhich is very Iov as a percenlage of lolaI cosl.
In mosl induslries, increased produclion, by ilseIf, does nol enhance an individuaI
compelilors saIes polenliaI or compelilive posilion. Hovever, in lhe airIine induslry, lhe
facl lhal more capacily represenls more scheduIe frequency, and lhus a more desirabIe
producl, gives every airIine an incenlive lo use every airpIane as inlensiveIy as possibIe.
AIlhough lhis slralegy makes sense for each individuaI carrier, il resuIls in a lendency
lovard perpeluaI overcapacily.
10.7 percenl in 2005 over lhe year prior lo $132.9 biIIion. Crude oiI prices (per barreI)
increased from an average of $26 in 2002 lo $41.40 in 2004 vhiIe |el fueI cIimbed from
$0.71 per gaIIon in 2002 lo $1.15 per gaIIon in 2004. In Augusl 2005, crude oiI hil a record
high of $69.91 per barreI and |el fueI hil a high of $1.87 per gaIIon as a resuIl of Hurricane
Kalrina hiing lhe GuIf Coasl region of lhe Uniled Slales vhere much of lhe counlrys
oiI and fueI suppIies are slored. IueI prices are heaviIy inuenced by a variely of IocaI
and gIobaI faclors correIaled vilh lhe price of crude oiI. Inuencing faclors incIude lhe
gIobaI economy, increasing suppIy lighlness, geopoIilicaI insecurily (i.e., lhe on-going
Iraqi crisis), unique produclion and demand faclors, and acls of God. Il is eslimaled lhal
every 1-cenl-per-gaIIon increase cosls lhe induslry approximaleIy $160 miIIion.
AIlhough an airIine can maximize ils efciency by purchasing aircrah lhal burn Iess
fueI lhan olhers, fueI-efcienl airpIanes ohen have much higher capilaI cosls lhan do Iess
fueI-efcienl aircrah. Moreover, lhe acluaI price of fueI is conlingenl on faclors far oulside
any airIines span of conlroI. Thus, fueI cosls are onIy marginaIIy manageabIe.
Labor and fueI cosls lypicaIIy represenl around 60 percenl of a carriers operaling
expenses.
A I R T R A N S P O R TAT I O N 1 8 8
|xccss Capaci iu an! Icu Margi na| Ccsis
1
MeIvin renner, Irogram for Improving AirIine OulIook (unpubIished monograph), 1993.
The airIine induslry hisloricaIIy has lended bolh lo produce excess capacily and lo price
ils producl beIov fuIIy aIIocaled cosls. The demand of consumers for scheduIe frequency
produces lremendous excess capacily vilh no sheIf Iife, pushing cosls up. The demand
of consumers for Iov prices and lhe perceplion lhal air lransporlalion is virluaIIy an
undierenlialed commodily drive prices dovn lo IeveIs lhal, loo ohen, faiI lo cover fuIIy
aIIocaled cosls.
AirIines inevilabIy produce excessive capacily. Whelher reguIaled or dereguIaled,
from lhe mid-1950s lo lhe presenl, U.S. airIines have aImosl never achieved an average
annuaI Ioad faclor exceeding 67 percenl (and in mosl years, Ioad faclors vere subslanliaIIy
vorse lhan lhal). In eecl, lhis means lhal al Ieasl one-lhird of avaiIabIe invenlory remains
unsoId.
On lhis poinl, economisl MeIvin renner noles:
The induslry has aIvays had excess capacily, even during boom limes. Over-capacily resuIls
from: (a) lhe compelilive imporlance of scheduIe frequency. Since scheduIe convenience is
one of lhe mosl imporlanl dierenlialing characlerislics of lhe airIine producl, aII airIines
slrive for high scheduIed frequency on every imporlanl roule, and (b) lhe facl lhal airIines
have very high xed cosls and are lherefore incenlivized lo y lheir aircrah as much as pos-
sibIe, even if incremenlaI ying does nol produce enough revenue lo cover fuIIy aIIocaled
cosls. Whenever a ighl covers variabIe cosls and conlribules lo overhead, lhe individuaI
carrier is beer o ying ralher lhan nol ying. Hovever, lhe cumuIalion of lhe many mar-
ginaIIy-|uslied scheduIes creales over-capacily for lhe induslry as a vhoIe.
1
Moreover, lhal capacily has no sheIf Iife. Once a scheduIed ighl puIIs avay from lhe gale,
any emply seals are Iosl forever. Seeking lo seII as much of lhal perishabIe invenlory as
possibIe, carriers oer lhe same fares as lhe Iovesl-price provider in an eorl lo grasp an
ascending and, loo ohen, eIusive break-even Ioad faclor and preserve markel share.
Ixcess capacily coupIed vilh perishabIe invenlory Ieads lo marginaI cosl pricing. The
marginaI cosl of serving one addilionaI cuslomer on a given ighl is very Iov, consisling
onIy of lhe cosl of food, saIes commission, incremenlaI fueI burn, and olher minor
expenses. In generaI, lhe marginaI cosl of an addilionaI passenger is Iess lhan one-fourlh
of lhe fuIIy aIIocaled cosls. ul induslry cosls are disproporlionaleIy xed, vilh xed
cosls accounling for belveen 80 and 90 percenl of lolaI cosls. In lhe high-xed-cosl, price-
sensilive airIine business, excess capacily has a devaslaling eecl because il molivales
carriers lo II aircrah by cuing prices. Olher carriers are forced lo malch, and fare vars
erupl. AIlhough a lickel soId beIov fuIIy aIIocaled cosls is unprolabIe, any lickel soId
al a price above variabIe cosl viII make a conlribulion, aIbeil ohen a smaII one, lovard
covering lhe carriers xed cosls. An emply seal, naluraIIy, makes no such conlribulion.
AirIines aIso suer from lhe probIem lhal mosl of lheir cosls are |oinl cosls, spread over
an array of funclions reIaled lo moving passengers and freighl lhroughoul lheir nelvorks.
Thus, acluaI cosls are obscured and difcuIl lo ascribe lo parlicuIar passengers.
In lhe Iong run, carriers musl recover lheir xed cosls or face bankruplcy (as scores
of airIines have Iearned). ul coIIecliveIy irralionaI behavior, such as vas exhibiled by
airIines before reguIalion in 1938 and aher dereguIalion in 1978, causes cosls and prices
C H A P T E R 6 E C O N O MI C C H A R A C T E R I S T I C S O F T H E A I R L I N E S 1 8 9
C| csc Gctcrnncni |cgu| aii cn
The cIose reIalionship belveen lhe airIines and lhe various unils of lhe federaI governmenl
vas discussed in Chapler 3. UnIike olher oIigopoIislic induslries, bul Iike olher
lransporlalion modes, lhe airIines have a Iong hislory of bolh supporl and reguIalion by
governmenl. The IAA reguIales mosl aspecls of airIine operalions lhal reIale lo safely and
navigalion, as veII as lo environmenlaI condilions. The NalionaI Transporlalion Safely
oard invesligales aII air carrier accidenls and makes recommendalions lo lhe IAA. Olher
federaI agencies, incIuding lhe Deparlmenl of Transporlalion, Deparlmenl of Commerce,
U.S. IoslaI Service, U.S. Cusloms Service, U.S. Cilizenship and Immigralion Service,
and Deparlmenl of Iuslice, reguIale Iess obvious aspecls of airIine operalions and have
exlensive inleraclion vilh lhe induslry. Slale avialion agencies, IocaI airporl aulhorilies,
and olher branches of IocaI governmenl reguIale airIine operalions in lerms of lheir eecl
on IocaI airporls and airporl environs.
The susceplibiIily of air lransporlalion demand lo lhe business cycIe vas underIined by
lhe recession of lhe earIy 1990s. Revenue passenger miIes and cargo lon-miIes decIined,
and Iosses soared lo record IeveIs.
AIlhough lhe impacl of a recession is nol unique lo lhe airIine induslry, vhal is dierenl
is lhe facl lhal as a service induslry (unIike durabIe goods such as aulomobiIes), il is
much sIover lo recover because spending on air lraveI is discrelionary. IeopIe have lo be
vorking again and lhe economy has lo be veII on lhe vay lo recovery before spending on
air lraveI slarls lo pick up momenlum. This can lake anyvhere from 12 lo 18 monlhs aher
lhe recovery is veII under vay.
The eecls of a recession on air lraveI are obvious. olh pIeasure and business lraveI
are curlaiIed during periods of sharp and suslained dovnlurn in lhe generaI economy. In
a recession, peopIe lend lo poslpone Iong-dislance lraveI lo save nol onIy on airfares bul
aIso on lhe expenses associaled vilh lhe lrip. Companies lend lo cul back on business lrips
or on lhe number of peopIe senl on a given lrip. TraveI is one of lhe expenses a business
can cul immedialeIy during lough economic limes. Iever peopIe lraveI rsl cIass, so lhal
lhe doIIar yieIds reaIized are reduced.
The impacl of a recession on lhe airIines is inlensied by lhe high rale of lrafc
grovlh lhey experience during periods of prosperily. When lhe economy moves inlo a
recessionary period, lhe carriers nd lhemseIves vilh subslanliaI excess capacily. UnIike
manufacluring induslries, lhey cannol invenlory goods or cul back produclion unliI lhe
economy improves. Inleresl paymenls lo credilors on oulslanding debls (primariIy ighl
equipmenl) musl be paid, and faciIilies lhal vere geared lo handIe a prerecession voIume
cannol be cIosed. AIlhough airIines can furIough cerlain voIume-reIaled empIoyees, lhey
musl carefuIIy consider lhis move because of lhe exlensive relraining cosls invoIved vhen
personneI are broughl back as voIumes increase.
Scnsi ii ti iu ic |ccncni c || uciuaii cns
lo faiI lo achieve equiIibrium al a IeveI lhal covers fuIIy aIIocaled cosls and aIIovs an
adequale prol.
A I R T R A N S P O R TAT I O N 1 9 0
THE SIGNIFICANCE OF AIRLINE PASSENGER LOAD
FACTORS
One of lhe mosl vilaI slalislics in lhe airIine business is Ioad faclor. Given lhe muIlimiIIion-
doIIar inveslmenl represenled by lhe modern |elIiner, airIines are naluraIIy concerned
vilh equipmenl uliIizalion. One measure of uliIizalion is lhe revenue passenger load
factor. This gure expresses lhe reIalionship belveen avaiIabIe seal-miIes and revenue
passenger miIes reaIized.
Load faclor has a crilicaI impacl on lhe cosl and quaIily of air lransporlalion services
oered. ApproximaleIy 65 percenl of an airIines cosls are direclIy reIaled lo lhe operalion
of aircrah and are independenl of lhe number of passengers on lhe aircrah. Therefore, a
high Ioad faclor viII aIIov lhe aIIocalion of lhese cosls over a Iarge number of passengers,
resuIling in Iover cosls per passenger, vhich aIIovs for Iover fares.
TabIe 6-2 shovs lhe average Ioad faclor gures for lhe U.S. scheduIed airIines belveen
1970 and 2004. Load faclors uclualed belveen 48.5 and 75.5 percenl during lhal
period. The reIaliveIy Iov Ioad faclors for 1970 and 1971 reecl lhe recession and lhe
simuIlaneous deIivery of Iarger-capacily equipmenl. The higher Ioad faclors of lhe earIy
1980s vere inuenced by lrafc grovlh and capacily Iimilalion agreemenls, vhich lhe
CA permied in some Iong-dislance markels lhal vere served by severaI carriers. These
capacily reduclions, and lhose lriggered by lhe energy crisis, Ied lo signicanl increases
in carrier Ioad faclors in lhose markels. The CA, al Ieasl lemporariIy, considered such
agreemenls lo be a usefuI reguIalory looI. Hovever, lhe Iuslice Deparlmenl and olher
IredereguIalion IosldereguIalion
Atcragc Ica! Atcragc Ica! Atcragc Ica!
Ycar |acicr (%) Ycar |acicr (%) Ycar |acicr (%)
1970 49.7 1979 63.0 1990 62.4
1971 48.5 1980 59.0 1991 62.6
1972 53.0 1981 58.6 1992 63.6
1973 52.1 1982 59.0 1993 63.5
1974 54.9 1983 60.7 1994 66.2
1975 53.7 1984 59.2 1995 67.0
1976 55.4 1985 61.4 1996 69.3
1977 55.9 1986 60.4 1997 70.3
1978 61.5 1987 62.3 1998 70.7
1988 62.5 1999 71.0
1989 63.2 2000 72.4
2001 70.0
2002 71.6
2003 73.4
2004 75.5
Source: Air Transporl Associalion AnnuaI Reporls.
TABLE 6-2 Revenue Passenger Load Factor for U.S. Scheduled Airlines, 1970
2004
C H A P T E R 6 E C O N O MI C C H A R A C T E R I S T I C S O F T H E A I R L I N E S 1 9 1
Traj c Pcaks an! Va| | cus
AII lransporlalion modes musl operale during lrafc peaks and vaIIeys in order lo meel
lhe pubIic need. uses and commuler lrains in every ma|or cily are fuII in one direclion
during rush hours and virluaIIy emply on lhe relurn lrip. Al midday, in lhe earIy morning
and Iale evening, and on veekends, passenger Ioads are aIso Iighl. Thals lhe nalure of
pubIic lransporlalion, vhelher buses, lrains, or pIanes.
AirIine Ioad faclors during any one year vary from monlh lo monlh depending on lhe
season. DaiIy and hourIy Ioad faclors ucluale even more. Averages for lhe peak day of
lhe peak monlh mighl be 75 percenl, and for lhe peak hour 80 percenl: many ighls in
lhese hours are al or near 100 percenl capacily. Iurlhermore, a nalionvide lransporlalion
nelvork requires lhal some ighls vilh Iighl palronage be operaled lo posilion aircrah for
olher ighls vilh higher Ioads. IIighls lo IIorida in November and December are booked
soIid, vhiIe Ioad faclors on ighls norlh are much Iover. IIighls from Los AngeIes lo Las
Vegas on Iriday nighls are fuII and ighls back lo Los AngeIes on Sunday nighls are fuII,
bul lhe pIanes cannol sil idIe over lhe veekend in Las Vegas. They musl be used for olher
service and lhus musl y from Las Vegas vilh IiIe or no lrafc and relurn for lhe nexl
high-Ioad ighl back lo Los AngeIes on Sunday nighl. And so il goes for olher cily-pairs
lhroughoul lhe nalion.
Somelimes, aircrah musl be ovn virluaIIy emply from one cily lo anolher Iale al
nighl or earIy in lhe morning lo have lhe pIane ready lo meel rush-hour demand. These
positioning ights cerlainIy aecl lhe average Ioad faclor gure used lo describe air
lransporlalion produclivily.
Iigure 6-1 shovs an exampIe of lvo days oul of a summers oeing 757 rouling paern.
ased on lhese lvo days, lhe carrier had an average Ioad faclor of 60 percenl. Iighl of lhe
15 ighl segmenls had a Ioad faclor of 75 percenl or more, and lhe carrier vas forced lo
lurn some passengers avay. Three segmenls averaged aboul 50 percenl, and lhe remaining
four had Ioad faclors ranging belveen 15 and 45 percenl.
Capaci iu Vcrsus Ocnan!
Demand for air lransporl services has aIvays been highIy cycIicaI, vilh grealer or Iesser
demand depending on lime of day, day of veek, and season, as veII as on broader markel
uclualions from year lo year. We knov, for exampIe, lhal discrelionary Ieisure lrafc
picks up in lhe summer, lhereby aIIoving lhe induslry lo en|oy higher Ioad faclors for lhe
lhird quarler.
On a macro IeveI, vhen lhe economy is groving and consumer condence is slrong,
demand grovs, improving airIine Ioad faclors and aIIoving carriers lo raise yieIds
crilics charged lhal such agreemenls had a negalive compelilive impacl. As a resuIl of
lhe air lrafc conlroIIers slrike of 1981, capacily reslriclions vere imposed by lhe IAA
on lhe air carriers al 22 ma|or hub airporls. The IAA graduaIIy reIaxed airporl Ianding
sIols over lhe nexl lvo years, and lheir uIlimale removaI occurred al lhe end of 1983.
Hovever, four airporls are sliII under IAA sIol conlroI because of lrafc densily. Load
faclors slabiIized aher lhe erce compelilion of lhe mid lo Iale 1980s. AvaiIabIe seal-miIes
decreased signicanlIy in 1991, vhich heId Ioad faclors up during lhe earIy 1990s. As
lhe economy expanded during lhe mid-1990s, lrafc demand grev fasler lhan capacily,
causing Ioad faclors lo rise sharpIy.
A I R T R A N S P O R TAT I O N 1 9 2
FIGURE 6-1 Partial Boeing 757 routing pattern (two days), summer 200X.
Kennedy
Newark
Newark
LaGuardia
Boston
Mobile
Baltimore
Richmond
Charleston
Birmingham
Jacksonville
Atlanta
Palm Beach
Load Factor
75% or higher
5055%
under 50%
and prolabiIily. When lhe economy faIlers, hovever, unempIoymenl rises, consumer
condence decIines, and individuaIs poslpone discrelionary lraveI: as a resuIl, airIine
Ioad faclors, yieIds, and prols suer.
The reaIilies of pubIic lransporlalion, vhelher bus, lrain, or pIane, resuIl in an imbaIance
belveen lhe number of seals, or capacily, avaiIabIe and lhe currenl demand for lraveI by
lhe pubIic. The lvo simpIy do nol mesh al preciseIy lhe same lime, lhe same pIace, and
lhe same rale.
AirIines cannol ne-lune capacily lo malch demand, because capacily can onIy be
added or laken avay in lolaI pIaneIoads. The aircrah unil ilseIf is obviousIy inexibIe: if
a given carriers 757 is equipped vilh 160 seals, lhal seal suppIy on a parlicuIar scheduIe
cannol be shrunk or expanded belveen Thursday and Iriday and lhen changed again for
Salurday.
Wilhin Iimils, lhe lolaI number of ighl frequencies on a given day can be varied,
and lhis is done vhere feasibIe. On business roules, for exampIe, il is common lo reduce
frequencies on Salurdays. Hovever, a number of faclors Iimil lhe abiIily lo ad|usl daiIy
seals lo daiIy lrafc.
C H A P T E R 6 E C O N O MI C C H A R A C T E R I S T I C S O F T H E A I R L I N E S 1 9 3
Iirsl, many roules have loo IiIe ighl frequency mainlained by each carrier lo permil
much Ieevay for canceIing lrips on a parlicuIar day vilhoul damaging lhe overaII paern.
Second, lhe day-of-veek paern of demand does nol vary in a precise, prediclabIe, or
fuIIy consislenl manner. IinaIIy, lhe scheduIe paern on any one roule is loo inlerreIaled
vilh lhose of olher roules (and vilh operalionaI conslrainls of various kinds) lo permil an
erralicaIIy scheduIed operalion from day lo day. As a resuIl of lhese various faclors, lhe
suppIy of seals is necessariIy much more uniform lhan is lhe demand for lhem.
Iigure 6-2 shovs lhe number of seals oered each day and lhe passengers acluaIIy
carried for a scheduIe on an inlermediale-Ienglh segmenl (MiamiNev York). Ior lhe
monlh as a vhoIe, lhe average Ioad on lhis roule vas 70 passengers, vhich produced
an average monlhIy Ioad faclor of 68 percenl. On lhe olher hand, lhe average number of
emply seals per lrip vas 32. ul as can be seen, al one exlreme lhere vere four days vhen
lhere vere more lhan 60 emply seals, and al lhe olher exlreme lhere vere seven days
vhen lhere vere fever lhan 15 emply seals.
In lhe exampIe in Iigure 6-2, aIlhough space vas reIaliveIy lighler on some days lhan
on olhers, on no days vas lhis parlicuIar ighl compIeleIy fuII. The queslion may arise
as lo vhy lhere shouId ever have been any need lo lurn any passenger avay from lhis
scheduIed ighl. Yel lhe probabiIily is very high lhal passengers vere indeed lurned
avay on a number of days, even lhough lhere vere some emply seals al deparlure lime.
The expIanalion for lhis Iies in lhe nalure of lhe reservalions process and lhe facl lhal
a ighl can be fuIIy booked days or even veeks in advance and lhen have some of lhose
bookings dissipale by deparlure lime. Iassengers originaIIy hoIding reservalions may
have lo change lheir pIans al lhe Iasl minule and eilher canceI lheir space loo Iale for il
lo be rebooked or simpIy become no-shows. Thus, lhe exislence of some emply seals al
100
80
60
40
20
1 3 5 7 9 11 13 15
Day of month
Passengers
Empty seats
N
u
m
b
e
r

o
f

d
a
i
l
y

s
e
a
t
s

a
v
a
i
l
a
b
l
e
17 19 21 23 25 27 29 31
FIGURE 6-2 Daily seats and passengers, one MiamiNew York schedule
(hypothetical scenario).
A I R T R A N S P O R TAT I O N 1 9 4
deparlure lime does nol eIiminale lhe possibiIily lhal prospeclive passengers vere lurned
avay al some lime during lhe booking process. The imporlance of lhis faclor is indicaled
by lhe no-shov rale, vhich al limes has run as high as 20 percenl.
No-shovs are parlIy osel by overbooking, vhich reecls an aempl by airIines
lo faclor in lhe malhemalicaI probabiIilies of no-shovs and lo ad|usl seal invenlories
accordingIy. A carrier cannol compIeleIy correcl for lhis faclor, hovever, because some
aIIovance musl be made for unexpecled changes in booking paerns. Therefore, lhere is
sliII lhe prospecl of unaccommodaled demand for any ighl lhal deparls vilh onIy a fev
seals emply.
ased on lhe carriers no-shov rale for a parlicuIar ighl, il appears IikeIy lhal ighls
deparling vilh Ioad faclors of 80 percenl or more have lurned avay some passengers.
AIlhough lhe cosl benel of high Ioad faclors is easiIy underslood, ve nov see lhal lhere
is anolher side lo lhe coinlhe reIalionship belveen Ioad faclor and service convenience.
The higher lhe Ioad faclor, lhe grealer lhe prospecl lhal a passenger viII nd his or her
desired ighl aIready fuIIy booked vhen seeking a reservalion. There is, in olher vords, a
lradeo invoIved in high Ioad faclorslhe benel of Iover cosl per passenger versus lhe
disadvanlage of Iover service convenience.
Pri ci ng i n |c| aii cn ic Ica! |acicr
One approach lhal carriers have used quile exlensiveIy over lhe years lo improve Ioad
faclors is o-peak pricing. This invoIves lhe inlroduclion of a promolionaI fare designed
lo aracl passengers during an olhervise sIack period. O-peak pricing dales back lo lhe
earIiesl days of lhe airIine induslry. The rsl coach service, for exampIe, vas an o-peak
nighl coach.
Il has aIvays been recognized lhal bolh lhe pubIic and lhe induslry benel if lhe emply
seals on Iov-lrafc days are IIed vilh passengers vho are viIIing lo lraveI on lhose
Iess popuIar days in exchange for some fare reduclion. The addilionaI passengers add
very IiIe lo cosls (primariIy meaI service), bul lhey add a greal deaI lo lhe ighls lolaI
revenue.
O-peak pricing has nol been vilhoul ils probIems. One probIem is lhe facl lhal lhe
liming of lhe peak has varied from roule lo roule and even from one direclion lo lhe olher
on lhe same roule. Ior exampIe, DaIIasNev OrIeans mighl experience ils peak lrafc
on Iriday, and ChicagoLos AngeIes on Sunday. As anolher exampIe, lhe peak hour of
lhe day veslbound from Nev York lo Los AngeIes is from 5:00 lo 6:00 .. Yel lraveIing
easlbound on lhe very same roule, lhe peak deparlure lime is 9:00 .., because of lhe
eecl of lime zones.
O-peak pricing, by ils nalure, in|ecls compIicalions inlo lhe pricing slruclure. In
conlrasl, some pricing deveIopmenls in recenl years have aimed for lhe simpIicily of overaII
fare reduclions, appIied across lhe board, vilhoul reslriclions. AIlhough such overaII fare
reduclions have lhe veIcome eecl of reducing lhe compIexily of lhe fare slruclure, lhey do
require higher Ioad faclors lo remain viabIe, and lhey cannol lhemseIves channeI lrafc lo
o-peak limes and days lo achieve oplimaI Ioad faclors. Therefore, lhis parlicuIar pricing
lrend brings inlo pIay lhe fuII force of high Ioad faclors on space reslriclions vilhoul
sohening lhe impacl of such reslriclions on lhe normaIIy peak limes.
Al lhis poinl, il is impossibIe lo predicl vhich pricing slralegies viII prove dominanl in
lhe Iong run. Ior reasons aIready indicaled, lhe oulcome viII have an imporlanl bearing
on lhe service-convenience aspecl of fulure Ioad faclors.
C H A P T E R 6 E C O N O MI C C H A R A C T E R I S T I C S O F T H E A I R L I N E S 1 9 5
KEY TERMS
oIigopoIy Ioad faclor
barriers lo enlry posilioning ighl
economy of scaIe no-shov
muluaI dependence overbooking
diseconomy of scaIe o-peak pricing
REVI EW QUESTI ONS
1. Why is lhe airIine induslry considered oIigopoIislic` Whal are some of lhe barriers lo
becoming a cerlicaled carrier loday` Compare lhe barriers loday vilh lhose before
dereguIalion. Hov has lhe number of carriers, and lheir markel share, changed since
dereguIalion`
2. Dene cccncnics cj sca|c. Hov do lhey appIy lo lhe ma|or carriers` When can economies
of scaIe lurn inlo diseconomies of scaIe` Give severaI exampIes of economies of scaIe
in lhe airIine induslry loday.
3. Why has lhere been a lendency lovard mergers in oIigopoIislic induslries over lhe
years` Whal are some of lhe reasons air carriers have merged` Whal do you lhink lhe
slruclure of lhe airIine induslry viII be Iike in 2010`
4. Why are lhe carriers so muluaIIy dependenl` Hov have pricing praclices changed
since lhe predereguIalion days` Whal vas lhe ma|or form of compelilion in lhe
predereguIalion era` Discuss some of lhe causes of lhe price vars in lhe 1980s. Do
you foresee prices slabiIizing in lhe nexl severaI years` Why is lhere a lendency in
oIigopoIislic induslries lovard price rigidily and nonprice compelilion`
5. Give some exampIes of hov governmenl (parlicuIarIy lhe federaI governmenl) has
assisled lhe induslry nanciaIIy over lhe years. Why is lhere such a high lechnoIogicaI
lurnover in lhe induslry` When one carrier acquires nev ighl equipmenl, vhy do
lhe olher compeling Iines have lo do lhe same`
6. Whal are lhe lhree ma|or operaling expenses of airIines` Why are lhey so high` Hov
have lhey changed over lhe years` Why are Iabor cosls such a compelilive advanlage
for slarl-up airIines over more eslabIished carriers`
7. Whal is lhe compelilive advanlage of scheduIe frequency` Hov does il Iead lo excess
capacily` Describe lhe eecl of excess capacily on pricing.
8. Many induslries are sensilive lo uclualions in lhe economy. Hov does lhe airIine
induslry dier` Hov is il dierenl lo furIough empIoyees in lhe airIine induslry
versus lhe aulomobiIe or soh-drink induslry`
9. Why has lhe airIine induslry been sub|ecl lo grealer governmenl reguIalion lhan olher
oIigopoIislic induslries`
A I R T R A N S P O R TAT I O N 1 9 6
10. Dene |ca! jacicr. Whal is lhe reIalionship belveen Ioad faclor and cosls per unil`
IxpIain. Why have Ioad faclors increased in recenl years` Why are aII pubIic
lransporlalion modes sub|ecl lo lrafc peaks and vaIIeys` Hov do posilioning ighls
aecl Ioad faclors`
11. Why canl airIines ne-lune capacily lo malch demand` Dene nc-sncus. When Ioad
faclors approach 80 percenl or higher, ve can expecl some passengers lo be lurned
avay. Why` Whal is ctcr|ccking? O-pcak pricing?
WEB SI TES
hp://vvv.airIinebiz.com
hp://vvv.economisl.com
hp://vvv.nyse.com
hp://vvv.nance.yahoo.com
hp://vvv.airIines.org/pubIic/home/defauIl1.asp
hp://vvv.bls.gov/faq/nancslals.hlmI
hp:// vvv.airIines.org
SUGGESTED READI NGS
renner, MeIvin A., Iames O. Leel, and IIihu Scho. Air|inc Ocrcgu|aiicn. Weslporl, Conn.: INO
Ioundalion for Transporlalion, 1985.
CiviI Aeronaulics oard, Ofce of Iconomic AnaIysis. Aircrah Sizc. Ica! |acicr. an! On-Ocnan!
Scrticc. Washinglon, D.C.: CA, 1979.
Irederick, Iohn H. Ccnncrcia| Air Transpcriaiicn. Homevood, III.: Irvin, 1961.
Iruhan, WiIIiam I., Ir. Tnc |igni jcr Ccnpciiiitc A!taniagc. A Siu!u cj inc Uniic! Siaics Ocncsiic
Trunk Air Carricrs. Cambridge, Mass.: Harvard Universily Iress, 1972.
GiII, Irederick, and GiIberl L. ales. Air|inc Ccnpciiiicn. Cambridge, Mass.: Harvard Universily
Iress, 1949.
HoIIovay, Slephen. Siraigni an! Ictc|. Praciica| Air|inc |ccncnics. AIdershol, UK: Ashgale, 2003.
Iames, George W. Air|inc |ccncnics. Lexinglon, Mass.: Healh, 1982.
Ienkins, DarryI (ed.). Han!|cck cj Air|inc |ccncnics. Nev York: McGrav-HiII, 1995.
Kneafsey, Iames T. Tnc |ccncnics cj inc Transpcriaiicn |irn. Markci Siruciurc an! |ccncnic Pcrjcrnancc
in inc Transpcriaiicn |n!usirics. Lexinglon, Mass.: Lexinglon ooks/Healh, 1974.
Kneafsey, Iames T. Transpcriaiicn |ccncnics Ana|usis. Lexinglon, Mass.: Lexinglon ooks/Healh,
1975.
Morrison, Sleven, and CIiord Winslon. Tnc |ccncnic |ccis cj Air|inc Ocrcgu|aiicn. Washinglon,
D.C.: The rookings Inslilulion, 1986.
Morrison, Sleven A., CIiord Winslon, and ruce K. MacLaury. Tnc |tc|uiicn cj inc Air|inc |n!usiru.
Washinglon, D.C.: The rookings Inslilulion, 1994.
OConnor, WiIIiam. An |nirc!uciicn ic Air|inc |ccncnics (6lh ed.). Nev York: Iraeger, 2000.
Ogur, Ionalhan D., Curlis Wagner, and MichaeI G. Vila. Tnc Ocrcgu|aic! Air|inc |n!usiru. A |cticu
cj inc |ti!cncc. Washinglon, D.C.: ureau of Iconomics, IederaI Trade Commission, 1988.
Radnoli, George. Prci Siraicgics jcr Air Transpcriaiicn. Nev York: McGrav-HiII, 2002.
C H A P T E R 6 E C O N O MI C C H A R A C T E R I S T I C S O F T H E A I R L I N E S 1 9 7
Smilh, GeraId R., and Ieggy A. GoIden. Air|inc. A Siraicgic Managcncni Sinu|aiicn (4lh ed.). Nev
York: Irenlice-HaII, 2002.
Slralford, A. H. Air Transpcri |ccncnics in inc Supcrscnic |ra (2d ed.). London: MacmiIIan, 1973.
Tane|a, NavaI K. Air|incs in Transiiicn. Lexinglon, Mass.: Healh, 1981.
Trelhevay, MichaeI W., and Tae H. Oum. Air|inc |ccncnics. |cun!aiicns jcr Siraicgu an! Pc|icu.
Vancouver: Universily of rilish CoIumbia Iress, 1992.
Wensveen, Iohn. Wncc|s Up. Air|inc Busincss P|an Octc|cpncni. eImonl, CA: Thomson rooks/CoIe,
2005.
A I R T R A N S P O R TAT I O N 1 9 8
PART THREE
Managerial Aspects
of Airlines
199
This page intentionally left blank
7
Airline Management
and Organization
Introduction
Management
The New Corporate Structure
Functions of Management
Organization
The Organizational Chart
Staff Departments
Line Departments
Chapter Checklist You Should Be Able To:
Dene nanagcncni and crganizaiicn
Discuss lhe dierenl IeveIs of managemenl, and
expIain each IeveIs roIe
Describe lhe basic funclions of managemenl
Describe lhe principIes of organizalion pIanning lhal
are of parlicuIar signicance lo lhe air carriers
IxpIain vhal is meanl by a |inc-an!-sia crganizaiicn
Idenlify lhe lypicaI sla adminislralions in a ma|or
carrier, and describe lheir primary responsibiIilies
Lisl severaI ma|or deparlmenls under each
adminislralion, and discuss lheir individuaI roIes
Idenlify lhe lhree Iine adminislralions found in a lypicaI
air carrier, and describe lheir primary responsibiIilies
Lisl severaI ma|or deparlmenls under each of lhe Iine
adminislralions, and discuss lheir individuaI roIes
Idenlify lhe nev" corporale slruclure used al nev-
enlranl and Iov-cosl carriers.

201
INTRODUCTION
Ivery organizalion has goaIs, vhelher lhey be prols, markel share, grovlh, quaIily of
producls or services, communily image, or any combinalion of lhese. Management is lhe
process of achieving an organizalions goaIs lhrough lhe coordinaled performance of ve
specic funclions: pIanning, organizing, slafng, direcling, and conlroIIing.
Years ago, vhen lhe ma|or carriers vere in lheir formalive period, lhe managemenl
process vas much simpIer. The fev empIoyees lruIy feIl lhal lhey vere parl of a leam,
and lhey couId cIearIy see hov lheir eorls conlribuled lo meeling lhe companys goaIs.
Iveryone knev vhal lhe ob|eclives of lhe rm vere and hov each parlicuIar |ob reIaled
lo lhem. The Iines of communicalion and span of conlroI vere very shorl. There vas an
espril de corps among lhe empIoyees, from presidenl lo lhe mosl unskiIIed vorker. In
facl, lhe presidenl probabIy knev each empIoyee personaIIy.
Today, lhe ma|or carriers empIoy as many as 80,000 peopIe. No Ionger does lhe presidenl
knov lhe men and vomen on lhe Iine, and many vorkers on lhe Iine have as much
aIIegiance lo lhe union lhey beIong lo as lhey do lo lhe company lhey vork for. Il is difcuIl
for individuaI empIoyees lo see exaclIy hov lheir parlicuIar |obs conlribule lo lhe corporale
goaIs. The Iines of communicalion are Iong, and lhe decision-making process is compIex.
The airIine lends lo assume a remoleness from lhe individuaI and lo become a lhing lhal
exisls, survives, and grovs nol because of lhe peopIe vho compose il, bul in spile of lhem.
According lo Chris Argyrus, a noled managemenl lheorisl, organizalions emerge vhen
lhe goaIs lhey seek lo achieve are loo compIex for any one man. The aclions necessary lo
achieve lhe goaIs are divided inlo unils manageabIe by individuaIslhe more compIex
lhe goaIs, olher lhings being equaI, lhe more peopIe are required lo meel lhem.
1
An organization is lhe framevork vilhin vhich lhe managemenl process can be
carried oul. Il is a slruclure lhal enabIes a Iarge company lo aain lhe same efciency as
or grealer efciency lhan a smaII rm run eecliveIy by a fev empIoyees. In lhe highIy
compelilive airIine business, an eeclive organizalionaI slruclure may prove lo be lhe
necessary advanlage one rm has over anolher.
1
Chris Argyrus, |nicgraiing inc |n!iti!ua| an! inc Organizaiicn (Nev York: WiIey, 1964), p. 26.
MANAGEMENT
Ictc| s cj Managcncni
Terms such as icp nanagcncni. ni!!|c nanagcncni. and cpcraiing nanagcncni are commonIy
used in business lo dislinguish lhe IeveIs of managemenl vilhin an organizalion.
UnforlunaleIy, lhere is no cIear denilion of each IeveI, and meanings aached lo lhe
lerms somelimes dier from one company lo anolher. Hovever, a rms icp nanagcncni is
generaIIy considered lo be lhe poIicy-making group responsibIe for lhe overaII direclion
of lhe company: ni!!|c nanagcncni is responsibIe for lhe execulion and inlerprelalion of
poIicies lhroughoul lhe organizalion: and cpcraiing nanagcncni is direclIy responsibIe for
lhe naI execulion of poIicies by empIoyees under ils supervision.
Iigure 7-1 shovs a lypicaI airIine pyramid of aulhorily incIuding aII lhree IeveIs of
managemenl. The nalure of aclivily carried on al each IeveI is iIIuslraled, vilh exampIes
shoving lhe organizalionaI breakdovn of lvo adminislralions and lhe lypicaI lilIes of
individuaIs heading up each unil. The lerm administration is generaIIy used lo describe
A I R T R A N S P O R TAT I O N 2 0 2
a ma|or unil vilhin lhe company, such as ighl operalions, markeling, or personneI.
Departments are lhe nexl ma|or breakdovn vilhin adminislralions: divisions vilhin
deparlmenls, and so forlh.
The Board of Directors. The chief governing body of a corporalion is lhe board of
direclors, vhich is eIecled by lhe slockhoIders. This board ranges in size from 3 lo 20
or more members and represenls a cross-seclion of prominenl individuaIs from various
eIds, incIuding banking, insurance, Iav, and accounling. AirIine boards lypicaIIy incIude
individuaIs from lhe holeI and food-processing induslries, as veII as former poIilicaI and
miIilary Ieaders. The board of direclors is lhe chief poIicy-making body of lhe corporalion
and lhe forum lo vhom lhe presidenl reporls. This body decides such broad queslions as,
ShouId lhe company be expanded` and ShouId lhe company diversify inlo olher eIds`
The board aIso has lhe soIe responsibiIily for lhe decIaralion of dividends. The basic
decision aboul a dividend invoIves olher decisions, such as vhal percenlage of lhe years
earnings shouId be relained for company use and vhelher lhe dividend shouId be paid
in cash or in slock.
The direclors of lhe corporalion are responsibIe for lhe appoinlmenl of a presidenl,
secrelary, lreasurer, and olher execulive ofcers vho handIe lhe acluaI delaiIs of
managemenl. Ohen, lhe board eIecls some of ils ovn members lo II lhese imporlanl
posls.
Top Management. Top managemenl is lhe highesl IeveI of managemenl in lhe organi-
zalion. The |ob of lop managemenl is lo delermine lhe broad ob|eclives and procedures
necessary lo meel lhe goaIs eslabIished by lhe board of direclors. Top managemenl viII
aIso make recommendalions lo lhe board regarding lhe goaIs of lhe company. Whal
dislinguishes lop managemenl from middIe managemenl is nol aIvays cIear in a given
organizalion, bul lhe individuaIs in lhis group usuaIIy have many years of experience
in aII phases of managemenl. Ohen caIIed key execulives, senior execulives, or ma|or
execulives, lhey usuaIIy bear lhe lilIe of presidenl, execulive vice-presidenl, or senior
vice-presidenl.
Prcsi!cni. This individuaI is lhe chief execulive ofcer of lhe corporalion and is responsi-
bIe for lhe proper funclioning of lhe business. In lhe case of airIines, lhis individuaI ohen
is a prominenl business or poIilicaI Ieader vilh very IiIe airIine experience, because lhe
presidenls primary roIe is lo deaI vilh lhe nanciaI communily, various segmenls of
governmenl, communily groups, and so forlh.
|xccuiitc ticc-prcsi!cni an! gcncra| nanagcr. This individuaI generaIIy has years of airIine
experience and is responsibIe for lhe day-lo-day operalion of lhe company. GeneraIIy, lhe
senior vice-presidenls reporl lo lhis individuaI.
Scnicr ticc-prcsi!cni. This lilIe generaIIy is reserved for lhose individuaIs vho head up
a ma|or adminislralion, such as ighl operalions, markeling, or engineering and mainle-
nance.
Middle Management. MiddIe managemenl is lhe second IeveI of managemenl in lhe
organizalion and is responsibIe for deveIoping operalionaI pIans and procedures lo
impIemenl lhe broader ones conceived by lop managemenl. MiddIe managemenl may be
C H A P T E R 7 A I R L I N E MA N A G E ME N T A N D O R G A N I Z AT I O N 2 0 3
given much Ieevay in lhe deveIopmenl of pIans, so Iong as lhe end resuIl is in keeping
vilh lop managemenls requiremenls. Decisions on vhich adverlising media lo use, hov
many reservalions agenls are needed, and vhal nev equipmenl lo purchase are exampIes
of lhose made by middIe managemenl.
MiddIe managemenl incIudes individuaIs vho head up deparlmenls or divisions vilhin
a ma|or adminislralion, such as lhe adverlising deparlmenl under markeling or lhe ighl
procedures and lraining deparlmenl under ighl operalions. Or il mighl incIude lhe simuIalor
division head, vho reporls lo lhe ighl procedures and lraining deparlmenl head.
TypicaI airIine lilIes for individuaIs in charge of deparlmenls and divisions are vice-
presidenls, direclors, and, in lhe case of mainlenance faciIilies, superinlendenls.
Operating Management. Operaling managemenl is lhe Iovesl IeveI in managemenl. Il
incIudes managers, assislanl managers, seclion chiefs, generaI supervisors, and supervisors
vho head up seclions, groups, or unils lhal reporl lo division or deparlmenl heads.
IxampIes mighl incIude lhe manager of dispIay adverlising or lhe generaI supervisor
FIGURE 7-1 Typical airline pyramid of authority. The darker shading indicates
doing kinds of work, such as gathering statistics, making
reservations, and maintaining aircraft. The lighter shading indicates
activities such as planning, conferring, and formulating policy.
A I R T R A N S P O R TAT I O N 2 0 4
of lhe sheel melaI shop. Members of lhe operaling managemenl group are primariIy
concerned vilh puing inlo aclion operalionaI pIans devised by middIe managemenl:
generaIIy, lhey do nol iniliale pIans of lheir ovn.
AIlhough lhe direclion an airIine lakes is eslabIished by lop managemenl, lhe operaling
managemenl IeveI is exlremeIy imporlanl. Top managemenl makes poIicies, and middIe
managemenl makes pIans lo carry oul lhe poIicies, bul operaling managemenl sees lhal
lhe vork lhe pIans caII for acluaIIy is done. Top managemenl is secure as Iong as lhe prol
piclure is favorabIe. When a carrier is in serious lroubIe nanciaIIy, lhe board of direclors
may make changes in lhe lop echeIon. Somelimes, a nev presidenl and execulive vice-
presidenl are empIoyed. When lhis is done, changes al olher managemenl IeveIs are nol
aIvays made by lhe nev lop managemenl, because middIe managemenl can sliII make
pIans lo carry oul poIicy, and operaling managemenl can sliII impIemenl pIans.
Occi si cn Maki ng
IossibIy lhe foremosl responsibiIily of managemenl al aII IeveIs, bul especiaIIy lop
managemenl, is lhe making of decisions. Il permeales aII funclions of managemenl.
In accord vilh lhe broad operalionaI poIicies sel forlh by lhe board of direclors, lop
managers are confronled daiIy vilh lhe need lo decide on courses of aclion lhal viII
enabIe lhem lo achieve lhe goaIs lo vhich lheir companies are dedicaled. In many, if nol
mosl, inslances, lhe decisions invoIve choosing belveen lvo or more courses of aclion.
And al lhe lop echeIon of managemenl, from vhich lhe basic proceduraI orders for lhe
companys operalions emanale, correcl decisions may be vilaI lo lhe conlinued success
of lhe rm, or even lo ils survivaI. Iarlher dovn lhe manageriaI Iadder, lhe number and
imporlance of decisions made usuaIIy decreases, bul lhe decisions made al lhese IeveIs
are neverlheIess essenliaI lo lhe veII-being of lhe company.
The abiIily lo make correcl decisions in business has Iong been recognized as a prime
aribule of successfuI managemenl, bul unliI comparaliveIy recenlIy, lhere has been IiIe
apparenl need for inquiry inlo lhe decision-making process. Hovever, lhe Iarge carriers
nov vieId vasl resources in lhe areas of nance, capacily, and personneI, and lhey aIso
face increased compelilion. Thus, lhe possibIe consequences of unvise decisions, bolh
for lhe companies invoIved and for lhe economy, have served lo focus lhe aenlion of
sludenls of business on lhe melhods by vhich decisions are made, insofar as lhese can be
discovered.
The sleps invoIved in decision making incIude (1) recognilion of lhe probIem invoIved,
(2) denilion of lhe probIem and breakdovn inlo ils essenliaI parls, (3) lhe aempl
lo eslabIish lvo or more aIlernalive soIulions and lo evaIuale lhem comparaliveIy, (4)
seIeclion of lhe soIulion beIieved lo be lhe mosl favorabIe, and (5) adoplion of lhis soIulion
and impIemenlalion of il lhrough lhe issuing of lhe necessary orders. These sleps mighl
be laken in a fev momenls by a singIe execulive, or lhey mighl require a much Ionger
lime, depending on lhe compIexily and imporlance of lhe probIem al hand.
2
In recenl years, a number of changes have broughl lhe decision-making process inlo
sharper focus. Irom lhe pureIy mechanicaI side, lhe rapid and exlensive deveIopmenl
of high-speed compulers and dala-processing procedures has added immeasurabIy lo
lhe quanlily of informalion avaiIabIe lo execulives, lhereby enabIing lhem lo base lheir
decisions on far grealer amounls of reIevanl dala lhan previousIy.
2
CarI HeyeI (ed.), Tnc |ncuc|cpc!ia cj Managcncni, 2d ed. (Nev York: Van Noslrand ReinhoId, 1963), p. 977.
C H A P T E R 7 A I R L I N E MA N A G E ME N T A N D O R G A N I Z AT I O N 2 0 5
Second, and vhal many anaIysls beIieve is lhe mosl imporlanl aspecl of airIine
dereguIalion, lhe quaIily of managers and lheir decisions has come inlo queslion.
Managing air carriers during lhe reguIaled era required a dierenl sel of skiIIs lhan
lhose mosl in demand since dereguIalion, because of lhe conlroI lhal lhe CiviI Aeronaulics
oard (CA) exercised over roules, prices, and equipmenl. y lhe 1970s, lhe CA had
eecliveIy slopped granling nev roules lo lhe Iargesl lrunk carriers, so lhey vere reslricled
lo serving lheir exisling roules. AIso, for any carrier, avards of addilionaI roules required
a Ienglhy and expensive reguIalory procedure, vilh no guaranlee of success. Trunk
or IocaI-service airIines couId compele on price lo vin markel share, bul onIy vilhin
a fairIy Iimiled sphere. The CA aIso exercised considerabIe inuence over decisions
aboul lhe acquisilion of aircrah. In lhis environmenl, managers needed lo be experienced
al operaling vilhin lhe connes of CA reguIalions, if nol adepl al Iobbying lo change
lhem. Many airIine managers vere indeed quile eeclive, bul skiIIs in markeling and cosl
conlroI vere Iess imporlanl lhan lhose in Iav and poIilics.
DereguIalion gave managers lhe abiIily lo depIoy assels and lo price services according
lo markel demand, a freedom exercised daiIy by managers lhroughoul lhe resl of lhe
economy. Mosl lop airIine execulives, hovever, many of vhom had slaunchIy resisled
dereguIalion, vere nol prepared for lhe freedom given lhem, nor vere lhey parlicuIarIy
adepl al exercising il. Some of lhe earIy posldereguIalion slralegic moves by carriers such
as Ian American and Iaslern, for exampIe, vere ineeclive and faiIed lo make lhem cosl-
compelilive or lo oer a sharpIy dierenlialed producl. ecause lhe CA had prolecled
carriers from faiIing, managers vere aIso unaccuslomed lo laking risks lhal couId resuIl in
lhe faiIure of lhe rm. rani, for exampIe, expanded far loo aggressiveIy and vas pushed
inlo bankruplcy (for lhe rsl lime in 1982) by lhe rsl ma|or dovnlurn in lhe economy.
Throughoul dereguIalion, lop and middIe managers vho remained from lhe reguIaled
era have been eilher lrained on lhe |ob or repIaced by managers and ovners more prepared
for markelpIace compelilion. Nol aII nev managers, or nev enlranl enlrepreneurs for lhal
maer, have been successfuI. Ian American and Iaslern vere veak before dereguIalion
and have since faiIed. Olher carriers, Iike American, ConlinenlaI, DeIla, and Uniled,
have become slronger. Some managemenl innovalions deveIoped or expanded during
dereguIalion have been successfuI al increasing produclivily and conlroIIing cosls.
THE NEW CORPORATE STRUCTURE
Managcncni Tcan
Nev-enlranl and Iov-cosl carriers have an advanlage over Iegacy and eslabIished carriers
vhen il comes lo keeping cosls dovn, eciency up and communicalion oving. One vay
of doing lhis is lhrough lhe eslabIishmenl of a Iean organizalionaI slruclure vhere lhe
righl peopIe are hired lo do lhe righl |ob.
Good managemenl is a key lo success and each parlicipanl musl be abIe lo conlribule
somelhing lo lhe business. Iach posilion shouId l vilh lhe experience and skiIIs of
lhe individuaI and each parlicipanl shouId be abIe lo ansver lhe queslion, Whal do
you oer lhis business venlure`. As a ruIe of lhumb, lhere shouId be al Ieasl one very
experienced person on lhe managemenl leam. Ohen, such an individuaI is referred lo as
a gray hair. To improve success of lhe company, lhe ideaI person shouId have a proven
A I R T R A N S P O R TAT I O N 2 0 6
business background, preferabIy as C.I.O. vilh a middIe lo Iarge size company. The lype
of induslry does nol reaIIy maer bul an airIine background is a denile advanlage.
Wilhoul oending lhe reader, lhere is anolher ruIe of lhumb lhal shouId be considered
vhen discussing lhe managemenl leam. e caulious of lhe number of Iine piIols lhal
make up lhe managemenl leam. GeneraIIy speaking, piIols do nol make lhe mosl eeclive
managers. IiIols are very educaled vhen il comes lo aircrah operalions bul ohen Iack
lhe business skiIIs required lo run a successfuI operalion. Thal being said, more piIols
are combining ighl hours vilh academics and during lhe course of lhe nexl decade, il
is expecled lhal piIols viII be more educaled lhan in lhe pasl. In lhe airIine induslry, il is
ohen said lhal lhere is a surpIus of piIols on lhe markel bul a Iack of quaIied piIols in
lerms of ighl experience, combined vilh academic experience.
The number of peopIe required lo make up an ecienl managemenl leam depends
enlireIy on lhe lype of operalion, size of operalion, and skiIIs of lhe individuaIs. Ixisling
airIines aIready have a corporale slruclure in pIace as menlioned earIier in lhis chapler. In
mosl cases, lhe managemenl leam is loo Iarge and somevhal ineeclive due lo dupIicalion
of vork and Iack of communicalion belveen deparlmenls. Nev airIines slarling oul
have lhe advanlage of being abIe lo eslabIish an eeclive managemenl leam from lhe
slarl. Il is vise lo have a smaII managemenl leam iniliaIIy and grov il as lhe airIine
expands. Ior slarlers, il is recommended lhal lhe managemenl leam consisl of one Iead
person acling as Iresidenl/C.I.O. IdeaIIy, lhis is lhe oplimaI posilion for lhe gray hair
menlioned earIier. This individuaI is lhe chief execulive ocer of lhe corporalion and is
responsibIe for lhe proper funclioning of lhe business ohen invoIved vilh lhe nanciaI
communily, governmenl, and members of lhe pubIic. Nol onIy shouId lhis individuaI
have exlraordinary business skiIIs, bul he/she shouId have good inlerpersonaI skiIIs as
communicalion pIays an imporlanl aspecl of lhis posilion.
Il is aIso recommended lhal a second Iead person be a parl of lhe managemenl leam.
This person mighl be given lhe lilIe of Ixeculive Vice-Iresidenl or Senior Vice-Iresidenl.
Once lhe airIine is eslabIished and groving, il viII mosl IikeIy be necessary lo appoinl lvo
individuaIs lo II each lilIe. Hovever, for a nev airIine slarling oul, lhis is nol necessary
unIess massive rapid grovlh is anlicipaled over a shorl period of lime. IdeaIIy, lhe second
Iead person shouId have a Vice-Iresidenl/GeneraI Manager lilIe. This person shouId
have a number of years of airIine experience al lhe managemenl IeveI because he/she is
responsibIe for lhe day-lo-day operalion of lhe airIine.
Aside from lhe lvo posilions previousIy menlioned, a nev airIine slarling oul mighl
consider lhe foIIoving informalion vhen forming a managemenl leam. Again, keeping
lhe iniliaI leam smaII is imporlanl. In lhe Uniled Slales, for an air carrier lo oblain
cerlicalion, lhe managemenl leam musl have a minimum number of posilions. Ior IAR
121 cerlicalion, mandalory posilions incIude: Direclor of Safely, Direclor of Operalions,
Chief IiIol, Direclor of Mainlenance, and Chief Inspeclor. Ior IAR 135 cerlicalion,
lhe mandalory posilions incIude: Direclor of Operalions, Chief IiIol, and Direclor of
Mainlenance. Depending on lhe compIexily of lhe operalion, il is possibIe lo oblain a
devialion from lhe required basic managemenl posilions and quaIicalions if requesled
in vriling lo lhe IAA. Such a requesl is normaIIy made vhen lhe air carrier submils lhe
formaI appIicalion Ieer for cerlicalion. Hovever, lhe air carrier musl be abIe lo shov lhe
IAA lhal il can perform lhe operalion vilh lhe highesl degree of safely under lhe direclion
of fever or dierenl calegories of managemenl personneI. Informalion concerning lhe
required background for each of lhe posilions menlioned can be oblained from lhe IAAs
Advisory CircuIar (AC) 120-49 enlilIed Cerlicalion of Air Carriers.
C H A P T E R 7 A I R L I N E MA N A G E ME N T A N D O R G A N I Z AT I O N 2 0 7
DeveIoping lhe righl managemenl leam is a dicuIl process and in lhe case of many
nev airIines pIanning lo commence operalions, opporlunilies ohen pass by because of lhe
Ienglh of lime needed lo pul peopIe in pIace. In order lo speed up lhe raising of capilaI and
move forvard vilh lhe cerlicalion process, some business pIans uliIize lhe repulalion of
an oulside parly lo acl as lhe inlerim managemenl leam. There are a number of consuIling
companies and experl individuaIs in lhe markel vho viII permil use of lheir name and
laIenls on paper for a fee or some form of compensalion. Some rms viII pul logelher an
enlire managemenl leam lo heIp gel a nev airIine o lhe ground. Many exisling airIines
have found lhis lo be a vorlhvhiIe oplion bul il shouId be noled, such an oplion can be
expensive and somevhal risky. e sure lo oblain references for aII polenliaI members of
lhe managemenl leam and do background searches, if necessary. The avialion induslry is
fuII of experls so be caulious and do nol rush inlo any lype of conlracl unliI a lhorough
invesligalion has been compIeled. AIso, depending on vho lhe primary inveslors are,
lhey viII ohen have a say vilh vho shouId be a parl of lhe managemenl leam. In many
cases, lhe inveslor is nol lhe besl person lo decide vho shouId manage lhe airIine.
Organi zaii cna| Siruciurc
Mosl airIines, oId and nev, lend lo operale using lhe cIassic pyramid or lop-dovn slruclure
consisling of lop managemenl, middIe managemenl, and operaling managemenl. There
is no cIear denilion of each IeveI, and meanings aached lo lhe lerms somelimes dier
from one company lo anolher. Hovever, lop managemenl is generaIIy considered lo be
lhe poIicy-making group responsibIe for lhe overaII direclion of lhe company: middIe
managemenl is responsibIe for lhe execulion and inlerprelalion of poIicies lhroughoul
lhe organizalion: and operaling managemenl is direclIy responsibIe for lhe naI
execulion of poIicies by empIoyees under ils supervision. The pyramid is divided inlo
adminislralions each headed by an individuaI. Ior exampIe, ma|or unils mighl incIude
ighl operalions, markeling, or personneI. Deparlmenls are lhe nexl ma|or breakdovn
vilhin adminislralions: divisions vilhin deparlmenls, and so forlh.
AIlhough lhis slruclure has been used for many years, lhere are dierenl oplions lo
consider. The lop lhree cosls for an airIine are fueI, Iabor, and mainlenance. Increased
pressure has been pul on lhe airIines in recenl years lo impIemenl cosl cuing slralegies
and one area hil has been Iabor. MiddIe managemenl is usuaIIy lhe rsl lo be eIiminaled
during bad limes as vilnessed in lhe mid-1980s vhen lhe Uniled Slales faced a ma|or
recession. Many airIines have reaIized lhal middIe IeveI managemenl is nol aIvays
necessary lo run a successfuI operalion and nev airIines ohen eIiminale lhis seclion of lhe
corporale slruclure lherefore reducing cosls and ohen improving eciency. When middIe
managemenl is cul from lhe piclure, vork ordinariIy done al lhe deparlmenl and division
IeveIs shihs upvard increasing lhe roIes and responsibiIilies vilh lop managemenl. In
olher cases, more aulhorily is deIegaled lo lhe Iover or operaling IeveI of managemenl.
In lodays environmenl, il is imporlanl for an airIine lo avoid dupIicalion of vork
slruclures and improve inlernaI communicalions vhere possibIe. Il is aIso imporlanl
lo creale a exibIe corporale slruclure lhal can expand vhen necessary and conlracl if
needed vilhoul serious harm being done lo lhe business. Nev slarl-up carriers have lhe
advanlage over exisling airIines of being abIe lo laiIor a corporale slruclure lhal besl ls
lhe organizalion. Nev corporale slruclures shouId provide more aulhorily lo individuaIs
al dierenl IeveIs. As aulhorily is deIegaled, responsibiIily shouId be increased vilh
specic posilions lherefore changing lhe nalure of lhe lypicaI lop-dovn or siIo syslem lo
A I R T R A N S P O R TAT I O N 2 0 8
more of a al organizalion. Iigure 7-2 visuaIizes a possibIe corporale slruclure suilabIe
for lhe currenl avialion environmenl.
The slruclure previousIy discussed viII aIso aIIov lhe airIine lo become more diverse
vhen needed. Diversicalion is one key lo success in lhe airIine business bul mosl airIines
are nol abIe lo diversify despile having aII lhe resources lo do so. The lypicaI pyramid
slruclure is designed so lhal virluaIIy aII decisions for lhe organizalion are made among
a handfuI of peopIe. As a resuIl, lhe laIenls and skiIIs of olhers are ohen nol uliIized and
decisions made are somelimes nol in lhe besl inleresl of lhe airIine bul in lhe besl inleresl
of upper managemenl of lhe board of direclors. A Iess formaI organizalionaI slruclure
aIIovs diversicalion lo happen because more skiIIs and laIenls can be lapped inlo.
Access lo such resources viII permil lhe airIine lo iniliale nev deparlmenls vhen needed
and increase lhe abiIily of lhe company lo become invoIved in businesses oulside of lhe
core business.
TOP
MANAGEMENT
President/CEO
Vice President
OPERATING
MANAGEMENT
Director of Safety
Director of Operations
Director of Maintenance
Chief Pilot
Chief Inspector
FIGURE 7-2 Typical new organizational structure for new-entrant and low-cost
carriers
C H A P T E R 7 A I R L I N E MA N A G E ME N T A N D O R G A N I Z AT I O N 2 0 9
MBO process
Appraisal Coaching
Goal
setting
FIGURE 7-3 Management by objectives.
FUNCTIONS OF MANAGEMENT
The main functions of management are pIanning, organizing, slafng, direcling, and
conlroIIing. The key looIs of managemenl are supervisory skiIIs, vhich musl be Iearned
and pracliced.
P| anni ng
An airIine is dependenl for ils very exislence on lhe abiIily of ils lop pIanners. IaiIure lo
forecasl lhe demand for air lraveI and lo pIan hov lo meel a rising or shrinking demand
speIIs lhe dierence belveen success and faiIure. The managemenl process begins vilh
planning, vhich sels lhe slage for vhal lhe organizalion viII do, bolh gIobaIIy and
specicaIIy.
GoaIs shouId be eslabIished for lhe company as a vhoIe and for each adminislralion
and deparlmenl, as veII as for individuaI aclivilies. A goaI is anylhing lhal an organizalion
or group is seeking lo do. Some goaIs are Iarge, such as buying a holeI chain or buiIding
a nev ighl kilchen lo serve a groving hub airporl. Olher goaIs are smaII, such as geing
a reporl compIeled by Iriday or handIing more reservalions caIIs per hour lhan Iasl
monlh.
Ccnpanuui!c gca|s. These are lhe generaI goaIs an organizalion vanls lo achieve. Some
exampIes mighl be earn an annuaI relurn of 12 percenl on our inveslmenl, caplure 25
percenl of lhe Nev OrIeansMemphis markel, and deveIop a nev promolionaI fare lo
compele vilh AirIine X.
A!ninisiraiicn cr !cparincnia| gca|s. These goaIs shouId be reIaled loand shouId Iead
direclIy lolhe achievemenl of companyvide goaIs. Some exampIes mighl be improve
on-lime performance by 10 percenl syslemvide during lhe nexl quarler, deveIop and
impIemenl a nev lraining program for apprenlice-IeveI mechanics in lhe sheel melaI
shop, and hoId ighl aendanl absenleeism lo 7 percenl.
|n!iti!ua| gca|s. These are lhe goaIs lhal specic persons viII have lo achieve if deparl-
menlaI, division, group, or unil goaIs are lo be mel. Some exampIes mighl be increase my
A I R T R A N S P O R TAT I O N 2 1 0
cargo saIes voIume by 10 percenl over Iasl year and process 10 percenl more insurance
cIaims per veek.
Management by Objectives. Many carriers operale by a syslem popuIarIy
referred lo as management by objectives (MO), in vhich empIoyees al
aII IeveIs are given langibIe goaIs and are heId accounlabIe for achieving lhem (see
Iigure 7-3). Slralegies musl be formuIaled lo achieve lhe goaIs and ob|eclives of an
organizalion. Consider lhe companyvide goaI |usl menlioned: caplure 25 percenl of
lhe Nev OrIeansMemphis markel. A slralegy mighl incIude increasing lhe number of
daiIy ighls, incIuding lhose serving fuII meaIs. In a veII-designed MO program, overaII
goaIs and slralegies of lhe company and of individuaI empIoyees are eslabIished lhrough
discussions belveen managers and lheir subordinales. Ieedback is provided lhrough
foIIov-up discussions during lhe period of lime sel for achieving lhe goaIs. Ieedback
may be in lhe form of dala on quanlilalive resuIls (such as doIIar saIes, nev accounls, unil
cosls, aircrah lurnaround lime, or mechanicaI deIays) or dala on quaIilalive resuIls (such
as cuslomer compIainls, reduclions in errors, improvemenl in image, or deveIopmenl
of subordinales). Ierson-lo-person communicalion, lhrough day-lo-day coaching, is
parlicuIarIy imporlanl.
Wilh MO, because empIoyees receive limeIy, accurale, and fairIy compIele informalion
on lheir performance resuIls, lhey are in a posilion lo lake correclive aclion vhen necessary.
The vhoIe MO approach assumes lhal empIoyees viII accepl responsibiIily for lhe
achievemenl of company goaIs and lhal lhey viII become commied vhen lhe goaIs are
meaningfuI, aainabIe, and eslabIished lhrough muluaI pIanning.
The naI slage of lhe MO process is lhe appraisaI of resuIls. Al lhe end of lhe
performance period, lhe manager and lhe empIoyee check lhe empIoyees progress in
achieving lhe goaIs. This serves as a lime for recognilion of good performance and for
reneved goaI seing.
MO is a conlinuous cycIe of goaI seing, coaching and feedback, and appraisaI of
resuIls. Il is a naluraI behavioraI process lhal mosl individuaIs foIIov on a daiIy basis.
Policy and Procedures as Part of Planning. Ivery airIine has a policy and procedures
manuaI, usuaIIy prepared by lhe personneI deparlmenl and conlaining ma|or seclions
perlaining lo each of lhe adminislralions. A poIicy is a broadIy slaled course of aclion lhal
empIoyees shouId foIIov in making decisions. A poIicy is a guide: empIoyees do have
some discrelion in ils impIemenlalion. Ior exampIe, an empIoymenl poIicy for aII sla
posilions above a cerlain IeveI mighl be lhal preference in empIoymenl viII be given lo
coIIege graduales vilh a managemenl background. Hundreds of poIicies are in eecl
al any ma|or carrier, and lhose of a broad nalure are eslabIished by lop managemenl.
Iover lo make specic poIicies for lhe guidance of each deparlmenl usuaIIy is deIegaled
lo adminislralion or deparlmenl heads.
A prccc!urc is somevhal Iike a poIicy, bul il species in more delaiI lhe kind of aclion
required lo handIe a specic silualion. There are procedures for ordering suppIies, lraining
nev empIoyees, fueIing aircrah, handIing cuslomer compIainls, and hundreds of olher
processes vilhin lhe various adminislralions, deparlmenls, divisions, and so forlh.
|u|cs or rcgu|aiicns indicale in very precise lerms vhelher, in a specic silualion,
somelhing is lo be done or nol done. An exampIe of a ruIe is, Company-aulhorized
headgear and gIasses musl be vorn al aII limes by aII persons vho vork vilhin 40 feel of
lhe veIding operalion in uiIding 7. RuIes are imporlanl for essenliaIIy lhe same reason
C H A P T E R 7 A I R L I N E MA N A G E ME N T A N D O R G A N I Z AT I O N 2 1 1
as procedures: lhey save lime, because peopIe do nol have lo lhink lhrough and ponder
each nev silualion, and lhey give empIoyees a cIear sense of vhal lhey can and cannol
do.
Organi zi ng
Once pIans have been made and poIicies delermined, lhe |ob of carrying lhem oul becomes
one of organizalion and operalion. Organizing invoIves lhe division of vork among
empIoyees and lhe delerminalion of hov much aulhorily each person viII have. More
specicaIIy, organizing may be dened as lhe process of IogicaIIy grouping aclivilies,
deIinealing aulhorily and responsibiIily, and eslabIishing vorking reIalionships lhal
enabIe lhe empIoyees, and lhus lhe enlire unil, lo vork vilh maximum efciency and
eecliveness.
The chief purpose of organizalion is lo eslabIish efcienl Iines of responsibiIily and
aulhorily designed lo (1) provide supervision of aII vork vilh a maximum uliIizalion of
knovIedge and experience lo besl advanlage, (2) efcienlIy assign and scheduIe aII vork
vilh lhe proper priorily observed in pro|ecls lo be accompIished, (3) provide a means
vhereby managemenl can be kepl informed of lhe efciency and dispalch vilh vhich
each parlicuIar unil is fuIIIing ils funclion, and (4) eslabIish a sequence of imporlance
in |ob cIassicalions so lhal aII empIoyees can adequaleIy |udge lhe possibiIilies for
advancemenl.
Siaj ng
Stafng invoIves slalioning peopIe lo vork in lhe posilions provided for by lhe
organizalionaI slruclure. Il incIudes dening vork force requiremenls for lhe |ob lo
be done, as veII as invenlorying, appraising, and seIecling candidales for posilions:
compensaling empIoyees: and lraining or olhervise deveIoping bolh |ob candidales and
currenl empIoyees lo accompIish lheir lasks eecliveIy.
Oi rccii ng
Directing incIudes assigning lasks and inslrucling subordinales on vhal lo do and
perhaps hov lo do il. ecause lhe supervisors |ob is lo gel lhings done lhrough olher
peopIe, eecliveness is cIoseIy lied lo communicaling direclives cIearIy and in a vay lhal
viII bring aboul lhe desired aclion. Il is essenliaI lhal subordinales undersland lhe orders,
or lhey viII nol be abIe lo carry lhem oul. In direcling peopIe, il is imporlanl lo knov hov
much informalion and vhal kind of informalion lo give lhem. Orders shouId be ed
lo lhe receiver: lhe nev empIoyee needs lo be inslrucled in delaiI, bul lhe experienced
vorker may need lo knov onIy lhe ob|eclives and lhen be capabIe of choosing lhe means
lo aain lhem.
Ccnirc| | i ng
Controlling is lhe measuring and correcling of aclivilies of subordinales lo ensure lhal
evenls conform lo pIans. Thus, il invoIves measuring performance againsl goaIs and
pIans, shoving vhere devialions occur and, by puing in molion aclions lo correcl
devialions, ensuring accompIishmenl of pIans. asicaIIy, conlroI invoIves lhree sleps: (1)
A I R T R A N S P O R TAT I O N 2 1 2
seing performance slandards for lhe vork, (2) comparing acluaI performance vilh lhe
slandard, and (3) laking correclive aclion lo bring performance in Iine vilh lhe slandard.
Slandards of bolh quanlily and quaIily shouId be delermined as preciseIy as possibIe.
UnliI lhey are delermined and eslabIished, a |ob viII be |udged by lhree dierenl
slandards: (1) vorkers ideas of vhal conslilules a fair days vork and of vhal lhey lhink
mighl be expecled of lhem, (2) supervisors ideas of vhal lhey vouId Iike lo have done
and of vhal lhey lhink can be done, and (3) lop managemenls crileria and expeclalions.
Whelher quanlily and quaIily slandards are recognized, lhey exisl, and each IeveI in
lhe organizalionvorkers, operaling managemenl, middIe managemenl, and lop
managemenlmay be |udging |obs by dierenl slandards.
ORGANIZATION
IreviousIy, crganizaiicn vas dened as lhe framevork vilhin vhich lhe managemenl
process can be carried oul. More formaIIy, crganizaiicn is a pIan for bringing logelher
lhe resources of a rm (capilaI and Iabor) lo lhe posilion of grealesl eecliveness, or
produclivily. The pIan consisls of lhe grouping of operalions (Iabor and equipmenl) lo
achieve lhe advanlages of speciaIizalion and a chain of command.
Pri nci p| cs cj Organi zaii cn P| anni ng
An inlernaI organizalionaI slruclure musl be designed lo enabIe managemenl al aII IeveIs
lo exercise conlroI of lhose aclivilies designed lo meel lhe goaIs and ob|eclives of lhe rm.
To aid managemenl, lhere are a number of principIes of organizalion. These principIes
have been deveIoped and pracliced by successfuI rms in various induslries and are
universaIIy appIicabIe vhenever peopIe vork logelher.
Unity of Objectives. The principIe of unity of objectives slales lhal each adminislralion,
deparlmenl, division, seclion, group, and unil of lhe company musl conlribule lo lhe
accompIishmenl of lhe overaII goaIs of lhe rm. Ior exampIe, lhe regionaI saIes and
services deparlmenl musl be concerned nol onIy vilh saIes bul aIso vilh hov ils aclivilies
are inlegraled vilh aII olher aclivilies in lhe company, such as personneI, nance and
properly, ighl operalions, and so forlh. Iach deparlmenl musl accompIish ils ovn goaIs
vhiIe al lhe same lime vorking cooperaliveIy vilh aII olher deparlmenls. Thus, regionaI
saIes and services cannol be pIanning a ma|or promolionaI fare campaign oering easier
credil lerms al lhe same lime lhal lhe nance deparlmenl is embarking on a poIicy of
reslricling credil.
Span of Control. The principIe of span of control slales lhal lhere is a Iimil lo lhe
number of subordinales a manager can eecliveIy supervise. Il is impossibIe lo specify
lhe exacl number of subordinales lhal a manager can supervise for each silualion, for lhal
depends on such variabIes as (1) lhe lype and compIexily of vork being performed, (2) lhe
managers abiIily, (3) lhe lraining of subordinales, (4) lhe eecliveness of communicalions,
and (5) lhe imporlance of lime. A cuslomer services agenl al an airporl mighl eecliveIy
supervise 20 lickel-counler agenls, vhereas a senior anaIysl in lhe revenue accounling
deparlmenl mighl supervise onIy lhree |unior anaIysls due lo lhe anaIylicaI nalure of lhe
vork invoIved.
C H A P T E R 7 A I R L I N E MA N A G E ME N T A N D O R G A N I Z AT I O N 2 1 3
Departmentalization. Departmentalization is lhe praclice of subdividing bolh peopIe
and funclions inlo groups vilhin an organizalion lo gain lhe advanlages of speciaIizalion.
Many lerms are used for such groups, incIuding adminislralions, deparlmenls, divisions,
regionaI ofces, seclions, and unils. The exlenl lo vhich an airIine is deparlmenlaIized
depends on lhe size of lhe carrier, lhe compIexily of ils operalions, and ils roule slruclure.
In olher vords, in preparing an organizalionaI pIan, il is necessary lo decide lhe exlenl lo
vhich lasks are lo be subdivided. In a smaII commuler carrier, lhe markeling deparlmenl
mighl consisl of 25 peopIe vho are invoIved in everylhing from scheduIe pIanning
lo soIiciling nev cargo accounls. In a carrier lhe size of Uniled AirIines, vilh 25,000
empIoyees engaged in lhe markeling funclion, lhere is considerabIe division of Iabor
lhrough deparlmenlaIizalion.
AirIines of lhe 21sl cenlury are expecled lo focus much of lheir energy on
deparlmenlaIizalion, as such companies diversify lheir operalions. AirIines of lomorrov
viII need speciaIized deparlmenls. The lime lo slarl buiIding is nov. Nev deparlmenls
mighl incIude safely and securily, lraining, and corporale innovalion (a lhink lank vhere
lhe airIine Iearns lo diversily ils operalion inlo olher lypes of businesses). As a resuIl of lhe
evenls of Seplember 11, 2001, airIines have focused much aenlion on enhancing safely
and securily al aII IeveIs.
Iocusing energies on lraining viII be imporlanl as lhe induslry Iearns lo manage a nev
generalion of empIoyees knovn as Generalion Y. The nev generalion is oulspoken,
expeclalion driven, and molivaled. AirIines musl creale condilions lhal aracl lhe besl
peopIe from a Iarge and diverseIy skiIIed laIenl pooI. The lraining deparlmenl musl be abIe
lo lrain lhese empIoyees quickIy lo increase lhe empIoyees vaIue lo lhe company. Such
lraining viII incIude an emphasis on career-eecliveness skiIIs and leaching lhe manager
lo manage. The airIines environmenl viII become a resource cenler for personaI grovlh
and deveIopmenl. IeopIe are lhe airIines biggesl assel and efcienl lraining programs
couId mean lhe dierence belveen success and faiIure. Soulhvesl AirIines reaIizes lhe
imporlance of ils peopIe and runs resuIls-orienled lraining programs lhrough ils ovn
IeopIe Universily.
Delegation of Authority. AIlhough il is lrue lhal lhe naI aulhorily for aII decisions
resls vilh lhe presidenl and board of direclors, il is nol possibIe or praclicaI lo aIIov
every decision lo reach lhal IeveI. Delegation of authority impIies lhal lhe aulhorily lo
make decisions shouId be pushed dovn lo lhe Iovesl compelenl IeveI of supervision.
This aIIovs minor decisions lo be made al lhe Iover IeveIs of managemenl, and ma|or
decisions al lhe higher IeveIs. Hovever, deIegalion of aulhorily does nol reIieve lhe
deIegalor of lhe responsibiIily for lhe aclions of subordinales. A supervisor is aIvays
uIlimaleIy responsibIe for lhe aclions of subordinales.
This principIe is quile usefuI for comparing lhe managemenl slyIes of various carriers
or, for lhal maer, lhe same carrier during dierenl periods in ils hislory. Some carriers are
very slingy in lhe deIegalion of aulhorily lo unils dovn lhe chain of command, vhereas
olhers, nolabIy DeIla, have aIvays been knovn for lheir condence in lheir empIoyees lo
make decisions al lhe Iovesl IeveI possibIe. Soulhvesl AirIines encourages empIoyees lo
presenl ideas ohen resuIling in lhe empIoyee being empovered lo impIemenl lhe idea.
Levels of Management. This principIe hoIds lhal lhe number of levels of management
in lhe company shouId be kepl lo a minimum. As lhe number of organizalionaI IeveIs
A I R T R A N S P O R TAT I O N 2 1 4
increases, probIems in communicalion increase, inasmuch as each communicalion musl
pass lhrough more peopIe as il lraveIs from ils poinl of origin lo ils naI deslinalion.
A carrier musl achieve a proper baIance belveen span of conlroI and lhe number of
IeveIs of managemenl if il is lo funclion eecliveIy. If a carrier has loo narrov a span of
conlroI, many IeveIs of managemenl viII be required. Wilh a vide span of conlroI, fever
IeveIs of managemenl viII be needed.
During lhe pasl 20 years, many carriers have gone lhrough periods of rapid grovlh
in numbers of personneI foIIoved severaI years Ialer by periods of massive furIoughs.
Wilhoul carefuI anaIysis of lheir organizalionaI pIans, lhey have found lhemseIves in
recessionary limes vilh vhoIe Iayers of managemenl lhal vere needed vhen lhe lrafc
voIume supporled lhem bul lhal in sIack periods represenl overslafng.
Clearly Dened Duties. Ivery |ob cIassicalion shouId be cIearIy dened
so lhal il diers from and does nol overIap vilh olher |ob cIassicalions. AII of lhe
ma|or carriers have organizalionaI manuaIs (usuaIIy deveIoped and mainlained by
lhe personneI deparlmenl, excepl in lhe case of severaI of lhe Iargesl carriers, vhich
have separale organizalionaI pIanning deparlmenls). These manuaIs incIude aII |ob
descriplions vilhin lhe company, from presidenl on dovn. The prerequisiles for lhe |ob
(in lerms of educalion and experience) are incIuded, as is lhe saIary range. NormaIIy,
each nonmanagemenl |ob descriplion is revieved by lhe personneI deparlmenl every
lvo years in lerms of lhe scope of lhe |ob, lhe funclions performed, lhe number of persons
supervised, and lhe saIary range. Managemenl |obs are usuaIIy revieved annuaIIy.
Flexibility. A carrier musl be exibIe so lhal il can adapl lo changing condilions, bolh
inlernaI and exlernaI. In lodays compelilive environmenl, il behooves managemenl
lo assess lhe organizalionaI pIan conlinuousIy lo be sure lhal il is responsive lo lhe
changing markelpIace.
Communication. The lerm communicalion here means an uninlerrupled ov of
orders, inslruclions, queslions, responses, expIanalions, ideas, and suggeslions belveen
lop managemenl and lhe resl of lhe organizalion. This ov shouId be lvo-vaylhal is,
bolh from managemenl lo empIoyees and from empIoyees lo managemenl. Aside from
lhe cuslomary orders and inslruclions concerning normaI operalions, managemenl
frequenlIy vishes lo expIain some of ils poIicy decisions or lo give informalion regarding
a ma|or roule expansion, pIans for an acquisilion or merger, nances, or personneI
changes in order lo bring aboul a beer underslanding among ils vorkers of lhe saIienl
facls concerning lhe company. Ior lheir parl, empIoyees ohen have ideas for saving
lime, Iabor, and maleriaIs or have grievances of one kind or anolher lhal shouId reach
lhe ears of managemenl. In pIanning lhe delaiIs of an organizalion, provision musl be
made for lhe crealion and mainlenance of a good lvo-vay communicalions syslem.
Ii nc an! Siaj j |cspcnsi |i | i ii cs
As a company grovs from a simpIe lo a compIex organizalion, il becomes impossibIe for a
smaII number of execulives lo assume direcl, personaI responsibiIily for funclions such as
empIoymenl, purchasing, markel research, Iabor reIalions, and pubIic reIalions. Therefore,
as lhe company grovs in size and compIexily, assislanls lo execulives are appoinled.
Specic advisory responsibiIilies are deIegaled lo lhese assislanls, vho frequenlIy carry
C H A P T E R 7 A I R L I N E MA N A G E ME N T A N D O R G A N I Z AT I O N 2 1 5
such lilIes as sla assislanl accounling or assislanl lo lhe vice-presidenl of operalions
for personneI. As lhe aclivilies of lhese assislanls increase, olher personneI are added lo
assisl lhem. IvenluaIIy, lhe vork cenlering around a speciaI assislanl is organized inlo
a deparlmenl, vhich is knovn as a sla deparlmenl and vhich suppIemenls lhe Iine
funclions of lhe organizalion.
AII Iarge carriers are organized using lhe Iine-and-sla concepl. Line personnel are
lhose vhose orders and aulhorily ov in a slraighl Iine from lhe chief execulive dovn lo
Iover IeveIs in lhe organizalion. Line peopIe are usuaIIy invoIved direclIy in producing
or seIIing air lransporlalion. Ohen referred lo as voIume-reIaled personneI, because
lhey are invoIved in a parlicuIar voIume, such as ying hours or number of deparlures,
Iine personneI have a direcl responsibiIily for accompIishing lhe ob|eclives of lhe rm.
IxampIes of Iine personneI incIude piIols, ighl aendanls, mechanics, reservalions
cIerks, and saIes personneI.
Sta personnel are lhose vhose orders and aulhorily do nol ov in a slraighl Iine
dovn from lhe lop of lhe organizalion. AIlhough sla peopIe do reporl lo a specic
person in lhe company hierarchy, lhey may al limes perform vork for peopIe al IeveIs
above or beIov lhem. Sla execulives are usuaIIy lechnicaIIy lrained and are empIoyed lo
advise and inform Iine and olher sla execulives on speciaIized areas, incIuding nance,
personneI, IegaI aairs, medicaI concerns, and dala processing. In shorl, sla peopIe
heIp Iine peopIe lo vork more eecliveIy in accompIishing lhe primary ob|eclives of
lhe rm. IxampIes of sla personneI incIude accounlanls, budgel anaIysls, empIoymenl
represenlalives, markel research anaIysls, induslriaI engineers, programmers, and
company medicaI sla.
THE ORGANIZATIONAL CHART
Ohen referred lo as lhe bIueprinl of lhe company, lhe organizational chart depicls
lhe formaI aulhorily reIalionships belveen superiors and subordinales al lhe various
hierarchicaI IeveIs, as veII as lhe formaI channeIs of communicalion vilhin lhe company.
The organizalionaI charl heIps managers impIemenl organizalion principIes, such as
span of conlroI and unily of ob|eclives. The charl can serve as an aid in idenlifying such
organizalionaI deciencies as one individuaI reporling lo more lhan one boss or a manager
vilh loo vide a span of conlroI.
A ma|or reason advanced for organizalion charling is lhal il boosls moraIe among
managers and vorkers. The charl heIps organizalion members lo perceive more cIearIy
vhere lhey sland in lhe company in reIalion lo olhers and hov and vhere managers and
vorkers l inlo lhe overaII organizalionaI slruclure.
The organizalionaI charl is a slalic modeI of lhe company, because il depicls hov lhe
company is organized al a given poinl in lime. This is a ma|or Iimilalion of lhe charl,
because carriers operale in a dynamic environmenl and lhus musl conlinuaIIy adapl lo
changing condilions. Some oId posilions may no Ionger be required, or nev posilions
may have lo be crealed lo achieve nev ob|eclives. Therefore, lhe charl musl be revised and
updaled periodicaIIy lo reecl lhese changing condilions. Like lhe organizalion manuaI,
organizalionaI charls generaIIy are mainlained by lhe personneI deparlmenl or, as in lhe
case of severaI Iarge carriers, by a separale organizalion pIanning deparlmenl.
AirIines have grovn so rapidIy in lhe pasl 25 years lhal il is difcuIl lo say lhal any
organizalionaI charl is lypicaI or lhal lhe charl of one company al any parlicuIar lime
A I R T R A N S P O R TAT I O N 2 1 6
is lhe one sliII in eecl even a fev monlhs Ialer. Hovever, aII airIines do have cerlain
organizalionaI lrails in common, such as lhe adminislralions, deparlmenls, divisions, and
so forlh inlo vhich airIine aclivilies are divided. UnderslandabIy, lhe Iarger lhe carrier,
lhe grealer lhe speciaIizalion of lasks and lhe grealer lhe deparlmenlaIizalion.
Iigure 7-4 shovs lhe adminislralions normaIIy found in a ma|or air carrier. The
foIIoving seclions describe lhe ma|or Iine and sla adminislralions shovn.
Stockholders
Board of Directors
President
Executive Vice-President
Senior Vice-President
Finance and Property
Staff Administrations
Senior Vice-President
Information Services
Senior Vice-President
Flight Operations
Senior Vice-President
Engineering and Maintenance
Line Administrations
Senior Vice-President
Marketing
Senior Vice-President
Personnel
Vice-President
Corporate Communications
Senior Vice-President
Economic Planning
Senior Vice-President
Legal
Director
Medical
FIGURE 7-4 The administrations in a major air carriers organization.
C H A P T E R 7 A I R L I N E MA N A G E ME N T A N D O R G A N I Z AT I O N 2 1 7
STAFF DEPARTMENTS
Sta departments incIude lhose areas lhal provide a service lo lhe Iine deparlmenls. They
are primariIy Iocaled al lhe carriers execulive headquarlers or al ma|or regionaI ofces.
|i nancc an! Prcpcriu
The nance and properly adminislralion formuIales poIicies for lhe nancing of aII
aclivilies in lhe airIine and is charged vilh lhe receipl and safeguarding of lhe companys
revenues and lhe accounling of aII receipls and disbursemenls. In carrying oul lhese
funclions, il adminislers lhe aclivilies of (1) lhe lreasurers deparlmenl: (2) faciIilies
and properly, vhich invoIves lhe adminislralion of aII ovned and Ieased properly and
equipmenl: and (3) purchasing and slores, vhich is a muIlimiIIion-doIIar business by
ilseIf. AirIines purchase everylhing from uniforms, suppIies, parls, and equipmenl lo
food, fueI, and hundreds of olher ilems on a daiIy basis. Olher ma|or deparlmenls incIude
audiling, accounling, and insurance (see Iigure 7-5).
|nj crnaii cn Scrti ccs
Informalion services is responsibIe for designing and mainlaining lhe dala communicalions
nelvork vilhin lhe airIine. IncIuded in lhis adminislralion are dalabase adminislralors,
vho coordinale lhe dala coIIeclion and slorage needs of user deparlmenls, and syslems
anaIysls, vho are responsibIe for anaIyzing hov compuler dala processing can be
appIied lo specic user probIems and for designing eeclive dala-processing soIulions.
Irogrammers, vho are responsibIe for deveIoping programs of inslruclions for compulers,
vork very cIoseIy vilh lhe user adminislralions (see Iigure 7-6).
Pcrscnnc|
The primary goaI of lhe personneI adminislralion is lo mainlain a muluaIIy salisfaclory
reIalionship belveen managemenl and empIoyees. Il is responsibIe for providing fair
and adequale personneI poIicies. Ma|or deparlmenls under personneI incIude empIoyee
deveIopmenl, empIoyee reIalions, and personneI eId services, vhich encompasses lhe
empIoymenl funclion (see Iigure 7-7).
Mc!i ca|
The medicaI deparlmenl provides heaIlh services lo aII empIoyees lhrough physicaI exams
and emergency lrealmenl and eslabIishes heaIlh crileria for hiring nev empIoyees. In
recenl years, some ma|or carriers have virluaIIy eIiminaled lheir medicaI slas, choosing
inslead lo have privale physicians and cIinics provide medicaI examinalions and olher
speciaIized services. MedicaI service al lhe ma|or base or al regionaI faciIilies is lhus
Iimiled lo emergency lrealmenl (see Iigure 7-8).
Icga|
Ivery airIine has a IegaI deparlmenl under a vice-presidenl or generaI counseI. This
adminislralion is responsibIe for handIing aII IegaI maers, incIuding cIaims againsl
A I R T R A N S P O R TAT I O N 2 1 8
Senior Vice-President
Finance and Property
Vice-President
and Treasurer
Director Credit
and Collections
Director Receipts
and Disbursements
Assistant Treasurer
Banks and Investments
Vice-President
Facilities and Property
Director Property
Director Facilities
and Airport Planning
Director Facilities
Engineering
Vice-President
Purchasing and Stores
Director Auditing
Director Corporate
Purchasing and Stores
Director Maintenance
Base Supply
Director
Petroleum Purchases
Comptroller Accounting
Director
Corporate Taxes
Director
Accounting Procedures
Director
General Accounting
Director Insurance
Manager
Corporate Insurance
Manager Claims
Manager Group
Insurance and Retirement
Manager
Cost Accounting
Manager Revenue
Accounting
Manager
Accounts Payable
FIGURE 7-5 A typical major air carriers nance and property administration (employs approximately
10 percent of the carriers work force).
Senior Vice-President
Information Services
Vice-President
Communications
Administration Level
Department Level
Division Level Director
Telecommunications
Vice-President Systems
Analysis and Programming
Director
Applications Planning
Director
Software Design
FIGURE 7-6 A typical major air carriers information services administration
(employs approximately 2 percent of the carriers work force).
Ccrpcraic Ccnnuni caii cns
This deparlmenl can be seen as lhe moulhpiece for lhe carrier. Mosl announcemenls
regarding company aclivilies, vhelher il be an impending slrike, vealher-caused ighl
canceIIalions, or lhe Ialesl lrafc or nanciaI slalislics, are made by a represenlalive of
lhis deparlmenl. This deparlmenl aIso has represenlalives, or Iobbyisls, in Washinglon,
D.C., and a number of slale capilaIs vho are imporlanl lo lhe carrier from a IegisIalive
slandpoinl. LegisIalion regarding increased fueI laxes vouId be of concern lo such
individuaIs (see Iigure 7-9).
|ccncni c P| anni ng
The basic funclion of lhe economic pIanning adminislralion is lo pIan and conlroI lhe
faclors lhal aecl lhe companys economic veII-being. This adminislralion deveIops aII
Iong-range forecasls and pro|ecls lhe companys nanciaI relurns, incIuding revenues and
prol-and-Ioss slalislics, and il deveIops aII cosl conlroI and capilaI expendilure programs.
In lhis capacily, lhe adminislralion vorks very cIoseIy vilh lop-IeveI managemenl, as veII
as vilh aII olher adminislralions, in impIemenling corporale goaIs (see Iigure 7-10).
lhe company for Ioss of or damage lo lhe properly of olhers and for in|uries lo persons.
This adminislralion aIso vorks cIoseIy vilh governmenl agencies regarding reguIalory
maers (see Iigure 7-8).
A I R T R A N S P O R TAT I O N 2 2 0
Senior Vice-President
Personnel
Vice-President
Employee Development
Administration Level
Department Level
Division Level
Manager Personnel
Research and Statistics
Director
Field Services Personnel
Regional
Personnel Directors
Vice-President
Employee Relations
Director Flight
Employee Relations
Director
Education and Training
Director
Compensation Planning
Director
Management Appraisal
and Development
Manager
Training Center
Regional
Employment Managers
Manager Employee
Suggestion Program
Director Ground
Employee Relations
FIGURE 7-7 A typical major air carriers personnel administration (employs approximately 1 percent
of the carriers work force).
Director
Medical
Administration Level
Department Level
Senior Vice-President
Legal
Medical
Legal
Manager Investigation
and Security
Directors
Regional Medical
Director
Corporate Legal Affairs
FIGURE 7-8 A typical major air carriers medical and legal administrations
(employ less than 1 percent of the carriers work force).
Vice-President
Corporate Communications
Director
Government Affairs
Administration Level
Department Level
Director
Communications
Regional Managers
Communications
FIGURE 7-9 A typical major air carriers corporate communications
administration (employs less than 1 percent of the carriers work
force).
Director
Corporate Budgets
Administration Level
Depar tment Level
Manager
Organization Planning
Director
Economic Research
Director
Industrial Engineering
Manager
Capital Budgets
Manager
Operating Budgets
Manager
Fleet Planning
Director
Operations Research
Senior Vice-President
Economic Planning
FIGURE 7-10 A typical major air carriers economic planning administration
(employs less than 1 percent of the carriers work force).
A I R T R A N S P O R TAT I O N 2 2 2
LINE DEPARTMENTS
Line departments are lhose adminislralions lhal are direclIy invoIved in producing and
seIIing air lransporlalion. They incIude ighl operalions, engineering and mainlenance,
and markeling and services.
|| i gni Opcraii cns
The ofce of lhe senior vice-presidenl of ighl operalions is responsibIe for deveIoping
ighl-operalions poIicies, procedures, and lechniques lo promole lhe safe, efcienl,
and progressive operalion of aircrah. IIighl operalions musl mainlain lhe airIine
operaling cerlicale in compIiance vilh IAA reguIalions. In addilion, lhe adminislralion
is responsibIe for deveIoping scheduIe paerns and procedures for lhe economic
uliIizalion of ighl equipmenl and personneI. Il aIso direcls an operalions anaIysis and
pIanning service lhal eecliveIy pIans and exercises conlinuous conlroI over ighl-
operalions aclivilies lhroughoul lhe syslem (see Iigure 7-11).
Departmental Level. The ticc-prcsi!cni cj air irajc an! sajciu deveIops and recommends
vays lo promole lhe safe, economic, and expedilious ov of air lrafc from deparlure
lo arrivaI. This execulive deveIops programs for aircrah inlerior cabin safely and is
responsibIe for safe aircrah operalions, navigalion aids, and ground communicalions
(leIelype and leIephone). The vice-presidenl aIso mainlains currenl informalion on aII
airporls and airvays lhal may aecl operaling poIicies and procedures.
The ticc-prcsi!cni cj igni prccc!urcs an! iraining deveIops and recommends
operaling poIicies, procedures, and lechniques for lhe enlire eel. This execulive makes
recommendalions vilh regard lo equipmenl, such as inslrumenls, conlroIs, pover pIanls,
and radios, in addilion lo direcling lhe ighl-operalions lraining deparlmenl and lhe
ighl slandards deparlmenl. The ticc-prcsi!cni cj uing deveIops and direcls piIol-lraining
programs lo enabIe piIols lo meel and mainlain prociency slandards required by lhe
airIine and lhe IAA. This execulive anaIyzes lhe need for piIols vilhin lhe syslem lo
meel scheduIe requiremenls and arranges for assignmenl of nev co-piIols, necessary piIol
lransfers, and furIoughs over lhe enlire airIine syslem.
The !irccicr cj igni-crcu scnc!u|ing is responsibIe for deveIoping crev scheduIes for aII
ighl personneI lo oblain maximum uliIizalion and avaiIabiIily for each ighl.
Division Level. In dispalching aircrah, airIines generaIIy mainlain a cenlraI conlroI
agency, somelimes referred lo as system operations control (SOC), lhal coordinales ighl
operalions, incIuding airpIane movemenls syslemvide. This agency is headed up by a
!irccicr cj igni !ispaicn. A lypicaI carrier operales 24 hours a day, 365 days a year. |cgicna|
igni !ispaicn managers are responsibIe during lheir shihs for lhe overaII pIanning of
lhe ighl operalions over lhe enlire syslem. They musl consider lhe lechnicaI phases of
lhe operalion and coordinale pIans vilh ighl dispalchers al ad|acenl dispalch cenlers.
The goaI is lo eecl safe, efcienl, and smoolh ov of aircrah operalions under exisling
condilions.
||igni !ispaicn nanagcrs coordinale lhe aclivilies of lheir ofces in lhe scheduIing of
personneI coverage around lhe cIock and are responsibIe lo lhe regionaI managers of
ighl operalions. The ighl dispalchers are responsibIe lo lhe chief ighl dispalcher for
aII IocaI aclivilies. They vork vilh ighl ofcers in cIearance preparalion, covering aII
C H A P T E R 7 A I R L I N E MA N A G E ME N T A N D O R G A N I Z AT I O N 2 2 3
delaiIs of lhe proposed ighl, incIuding aII faclors reIaled lo lhe safely of lhe operalion.
These faclors incIude (1) lhe nalure and duralion of lhe ighl, (2) vealher condilions al
various ighl aIliludes, (3) airvay rouling, (4) fueI requiremenls, (5) an aIlernale ighl
pIan, incIuding airporl, if necessary, and (6) lhe signing of necessary cIearance papers aher
fuII concurrence vilh lhe caplain on lhe proposed pIan.
Reporling lo lhe vice-presidenl of ying are usuaIIy severaI rcgicna| nanagcrs cj igni
cpcraiicns. Their dulies incIude moniloring aII ighl-operalions poIicies, melhods, and
procedures by personaI observalion and cIose Iiaison vilh ighl managers and invesligaling
aII irreguIarilies and devialions from eslabIished reguIalions. RegionaI managers musl
eslabIish, vilhin lheir areas and vilhin lhe Iimils of airIine and IAA guideIines, ighl
poIicies and reguIalions deemed necessary in lhe inleresl of safely based on IocaI lerrain,
vealher, and navigalionaI and lrafc condilions. RegionaI managers aIso hoId individuaI
conferences and group meelings vilh ighl managers and ighl ofcers lo keep lhem
informed on currenl company poIicies, managemenl pIans, equipmenl probIems, vork
Director
Flight Procedures
and Standards
Director
Flight Training
Manager
Simulator Services
Manager
Training Services
Flight Managers
Flight Dispatch
Managers
Chief Flight
Dispatcher
Flight
Dispatchers
Flight Officers
Regional Managers
Flight Operations
Director
Flight Dispatch
Director
Meteorology
Senior Vice-President
Flight Operations
Vice-President
Air Traffic and Safety
Administration Level
Department Level
Division Level
Manager Radio
Communications
Director Flight-
Crew Scheduling
Vice-President
Flight Procedures
and Training
Director
Flight Safety
Manager
Navigational Aids
Vice-President
Flying
FIGURE 7-11 A typical major air carriers ight-operations administration
(employs approximately 10 percent of the carriers work force).
A I R T R A N S P O R TAT I O N 2 2 4
pIanned or in progress for lhe improvemenl of equipmenl, vorking condilions, personneI
probIems, grievances, and so forlh.
||igni nanagcrs are responsibIe lo lhe regionaI managers of ighl operalions for aII
aclivilies invoIving ighl operalions in lheir area. They monilor lhe prociency of piIols
by doing en roule checks, check ighl preparalion and execulion under various ighl
condilions, and heIp and counseI personneI lhrough individuaI and group meelings.
AII piIols reporl lo lhe ighl manager al lheir domiciIe. The capiain is in command of lhe
airpIane and, as eslabIished by IAA reguIalions, may lake any aclion deemed necessary lo
preserve and mainlain lhe safely of lhe ighl. The caplains command commences vhen
lhe ighl is cIeared from lhe Ioading posilion. The caplain is responsibIe for delermining,
before lakeo, lhal lhe airpIane is Ioaded vilhin eslabIished veighl and baIance Iimils
and lhal lhe required fueI is aboard.
The rsi cjccr is responsibIe lo lhe caplain for conducl and aenlion lo duly during
lhe ighl. The rsl ofcers aulhorily is polenliaI onIy, capabIe of being exercised vhen
specicaIIy designaled or if lhe caplain becomes incapacilaled. The igni cnginccr is aIso
responsibIe lo lhe caplain for conducl and aenlion lo duly during lhe ighl. As nev
aircrah lechnoIogy evoIves, lhe ighl engineer is being repIaced by a compuler resuIling
in lvo-piIol crevs, even for lhe Iargesl aircrah ying.
IiIols generaIIy are required lo arrive one hour before lheir scheduIed ighls. In lhe
case of a lvo-person crev, one piIol revievs lhe ighl pIan prepared by SOC, vhich has
been Ioaded onlo lhe aircrahs compuler, vhiIe lhe olher inspecls lhe aircrah. The caplain
viII aIso hoId a crev brieng vilh lhe ighl aendanls vorking lhe ighl.
There are severaI checkIisls of lasks lhal musl be compIeled and ilems lhal musl
be checked before lhe pIane can lake o. The checkIisls used by lhe ma|or carriers are
mechanicaI ralher lhan paper-and-penciI, requiring lhe piIol lo ip a svilch vhen each
necessary lask is accompIished: lhis reduces lhe IikeIihood lhal any check viII be Ieh
undone. Cockpil procedures are compIeleIy slandardized, vhich aIIovs crev members
vho have never vorked logelher before lo operale as an efcienl leam.
During a given ighl, lhe roIes of lhe cockpil crev members are veII dened. There is
aIvays one piIol vho is ying lhe aircrah, incIuding lakeos and Iandings, and one vho
is in a supporl roIe (checking veighl and baIance caIcuIalions, communicaling vilh SOC,
coordinaling vilh air lrafc conlroI, moniloring vealher dala, and so on). ecause crevs
lypicaIIy vork logelher for al Ieasl one monlh, lhe caplain and co-piIol aIlernale in lhese
roIes. An exceplion lo lhis is lhal lhe caplain aIvays laxis lhe pIane, because lhe liIIer lhal
is used in laxiing is on lhe Ieh side of lhe cockpil, vhere lhe caplain sils.
WhiIe lhe aircrah is on lhe ground, lhe crev is in conlacl vilh lhe ground conlroIIers,
parl of lhe IAAs Air Trafc ConlroI (ATC) syslem. Ground ConlroI direcls laxiing aircrah,
vhiIe Tover ConlroI handIes lakeos and Iandings. Once lhe ighl has laken o, il is
handed over lo Deparlure ConlroI, vhich monilors lhe ighls rsl 50100 miIes. eyond
lhal, lhe ighl is lhe responsibiIily of an en roule Air Trafc ConlroI Cenler, vhich handIes
a Iarge region of lhe counlry. During Iong ighls, aircrah pass from cenler lo cenler unliI
lhey approach lheir deslinalion.
Once a ighl deparls ils origin cily, keeping lrack of il and faciIilaling ils on-lime
compIelion is lhe lask of SOC. The nerve cenler of lhe airIine, SOC coordinales and
manages lhe airIines day-lo-day and minule-lo-minule operalions from ils faciIily near
lhe company headquarlers. Life al SOC is never rouline. Ivery lime somelhing unexpecled
happensvhelher il is a lrafc backup, a vealher deIay, a mechanicaI probIem, a
compuler oulage, an earlhquake or a voIcanic eruplion, a valer-main break, a securily
C H A P T E R 7 A I R L I N E MA N A G E ME N T A N D O R G A N I Z AT I O N 2 2 5
incidenl, or any of lhe olher unexpecled occurrences lhal can happen al an airIineSOC
experls spring inlo aclion.
SOC dispalchers provide lhe cockpil crev vilh assislance if a probIem occurs en roule.
Ior exampIe, if an on-board syslem faiIs, a dispalcher arranges for lhe caplain lo speak
direclIy vilh mainlenance lechnicians on lhe ground lo delermine if lhe probIem can
be reclied in ighl. The dispalcher aIso heIps oblain medicaI advice in lhe evenl lhal a
passenger becomes iII during a ighl. The dispalcher provides a communicalions Iink
belveen lhe airIines medicaI deparlmenl and lhe caplain lo discuss lhe silualion, and
heIps decide vhelher and vhere lo diverl lhe pIane lo oblain lhe appropriale medicaI
lrealmenl.
When lhe pIane gels vilhin 50100 miIes of ils deslinalion, lhe ATC process |usl
described is repealed in reverse. Approach ConlroI lakes lhe ighl unliI il is ready lo Iand,
al vhich poinl il is handed lo Tover ConlroI. Once lhe aircrah is on lhe ground, Ground
ConlroI is in charge of geing il lo ils designaled gale.
ecause lhe caplain musl do lhe laxiing, lhe co-piIol mainlains conlacl vilh Ground
ConlroI and checks lo make sure lhe arrivaI gale is ready for lhe aircrah. Once lhey have
successfuIIy guided lhe pIane lo lhe gale, lhe crev compIeles a checkIisl of shuldovn
dulies and makes enlries in lhe aircrahs Iog. If any mainlenance probIems arise during
lhe ighl, lhe crev caIIs lhem in ahead of lime, so lhal mainlenance personneI are ready
lo address lhem as soon as lhe pIane arrives.
The basic funclion of lhe !irccicr cj nciccrc|cgu is lhe adminislralion of lhe cenlraIized
vealher service. MeleoroIogisls in lhis deparlmenl conslrucl and anaIyze vealher maps
and charls lo delermine vhal vealher phenomena are occurring over various geographic
areas al a specic lime.
Aher WorId War II, lhe airIines sav lhe need for a speciaIized vealher service. The
forecasling seclion of lhe U.S. Wealher ureau couId nol devole lhe necessary lime lo give
lhe airIines lhe vealher informalion lhey needed lo conducl lhe safe, smoolh, and efcienl
operalion lhey vere slriving for. The currenl airIine vealher service does nol repIace bul
onIy suppIemenls lhal of lhe U.S. Wealher ureau. Whereas lhe Wealher ureau musl
consider forecasls lo cover aII lypes of aircrah operalion nalionvide, lhe airIines focus
onIy on operalions over prescribed roules and inlo prescribed cilies.
Wealher has a ma|or impacl on an airIines abiIily lo meel ils ob|eclive of safe,
comforlabIe, on-lime service. Under federaI Iav, an airIine cannol dispalch an aircrah if
lhe forecasled vealher is such lhal lhe aircrah cannol safeIy reach ils naI deslinalion.
Avialion forecasls are very delaiIed and incIude cIoud heighl, horizonlaI visibiIily, and
vind speed and direclion, because a forecasl error of even 30 minules as lo vhen a slorm
viII arrive al a parlicuIar airporl can vreak havoc on an airIines operalion. Ixperienced
meleoroIogisls use informalion from governmenls, saleIIiles, radar, and more lhan 1,000
airporls, as veII as conslanl reporls from piIols, lo produce hourIy forecasls of expecled
condilions lhroughoul lhe airIine syslem.
Wind speed and lemperalure inuence hov much fueI a ighl requires and lhus
aecl hov many passengers and hov much cargo can be on board. In exlreme heal,
airpIanes laking o from cerlain runvays or anlicipaling slrong head vinds need exlra
fueI and cannol carry as much olher veighl as pIanned, vhich causes some ighls lo be
unexpecledIy veighl-reslricled. In very coId vealher, lhe airpIanes vings and fuseIage
are de-iced lo remove any accumuIalion of ice or snov and prevenl furlher buiIdup.
Wind condilions diclale lhe direclion lovard vhich an airpIane lakes o, as veII as
ils aIIovabIe lakeo veighl. Winds aIso aecl lraveI lime, because piIols aIvays lry lo
A I R T R A N S P O R TAT I O N 2 2 6
choose lhe roule and aIlilude vilh lhe Ieasl lurbuIence lo give passengers lhe smoolhesl
possibIe ride. AII of lhe avaiIabIe vealher informalion goes inlo lhe ighl pIan: and if
vealher condilions change in midighl, lhe caplain vorks vilh SOC lo ad|usl lhe ighl
pIan accordingIy.
The !irccicr cj igni iraining reporls lo lhe vice-presidenl of ighl procedures and
lraining and is responsibIe for lhe lraining of ighl crevs on lhe airIine, incIuding iniliaI
lraining, lransilion, refresher, requaIicalion, and famiIiarizalion lraining. The lraining
deparlmenl is divided inlo lhree divisions: (1) lhe ground schooI, vhich makes use of
audiovisuaI aids and mockups: (2) ighl simuIalors: and (3) aircrah used for ighl lraining.
The !irccicr cj igni prccc!urcs an! sian!ar!s. vho aIso reporls lo lhe vice-presidenl of
ighl procedures and lraining, is responsibIe for conducling prociency checks on aII
ighl ofcers. This incIudes raling ighls for upgrading of rsl ofcers, raling ighls for
lransilioning caplains, and moniloring ighl and simuIalor lraining programs conducled
by lhe ighl lraining deparlmenl.
|ngi nccri ng an! Mai nicnancc
The chief execulive ofcer of engineering and mainlenance (I & M) is lhe senior vice-
presidenl, vhose responsibiIilies are as broad as lhe mission of lhis adminislralion: lo
keep lhe companys equipmenl in condilion lo provide safe and saIabIe air lransporlalion.
Safe, in lhis sense, impIies fuII compIiance vilh lhe carriers ovn operaling specicalions
and aIso vilh aII appIicabIe direclives and reguIalions of lhe IAA. SaIabIe means fasl
and dependabIe service in up-lo-dale equipmenl vilh comforlabIe furnishings and decor,
vilhoul vhich lhe company vouId be unabIe lo compele successfuIIy.
A ma|or carriers I & M ob|eclives have resuIled lhrough lhe years in lhe deveIopmenl
of an eIaborale lechnicaI supporl operalion lhal invoIves many IeveIs of aclivily performed
al numerous faciIilies of videIy varying capabiIily in accordance vilh pIanning and
procedures disseminaled via a number of media (see Iigure 7-12). I & M requires aboul
25 percenl of a carriers enlire vork force, and il consumes roughIy a hh of every revenue
doIIar.
Classes of Stations. Irom lhe slandpoinl of lhe mainlenance funclion, a ma|or carrier
normaIIy divides ils many slalions served inlo dierenl classes of stations. Ior exampIe,
in descending order of capabiIily, lhey incIude (1) lhe mainlenance base, (2) ma|or slalions,
(3) service slalions, and (4) olher slalions.
The nainicnancc |asc is generaIIy conceded lo be lhe Iargesl, mosl versaliIe, and
besl-equipped faciIily in lhe syslem. Il is lhe overhauI and modicalion cenler for lhe
carriers enlire eel, and il has lhe capabiIily of repairing nearIy aII aircrah componenls.
Iev componenls musl be relurned lo lhe manufaclurer or senl lo oulside agencies for
recondilioning.
Majcr siaiicns incIude lhe carriers Iarge hub cilies. These slalions have reIaliveIy Iarge
numbers of mainlenance peopIe and exlensive faciIilies. They aIso mainlain a subslanliaI
invenlory of spare parls, mainIy suppIied by lhe mainlenance base. In generaI, lhese slalions
are capabIe of providing compIele Iine mainlenance of specic lypes of equipmenl.
Scrticc siaiicns are Iarge slalions served by lhe carrier bul nol Iocaled al ma|or hub cilies
vilh Iarge banks of connecling ighls. These slalions are veII equipped and veII slaed
vilh Iine mainlenance personneI, bul Iess so lhan lhe ma|or slalions.
C H A P T E R 7 A I R L I N E MA N A G E ME N T A N D O R G A N I Z AT I O N 2 2 7
Olher slalions lhroughoul lhe syslem mighl be designaled CIass 1, CIass 2, and CIass
3. CIass 1 slalions mighl have onIy sufcienl numbers of Iicensed peopIe lo assure
mainlenance coverage for each ighl before deparlure. These slalions vouId have minimaI
faciIilies and spare parls for performing lhe assigned vork. CIass 2 slalions mighl have
|usl enough mechanics and faciIilies lo do rouline servicing, such as engine healing,
de-icing, aircrah moving, and Iighl mainlenance on specic equipmenl. OrdinariIy, lhe
mainlenance vorkIoad al lhese slalions is so Iov lhal lhe mechanics perform addilionaI
lasks. CIass 3 slalions mighl exisl in smaIIer cilies vhere lhere are no Iicensed mainlenance
peopIe. They are, lherefore, never scheduIed lo perform mainlenance vork, and lheir
aircrah servicing is Iimiled lo vork lhal has no eecl on airvorlhiness, mainIy cargo and
passenger handIing. OrdinariIy, lhey deaI onIy vilh lhrough-lrips or lurnaround ighls.
Types of Maintenance. AII aircrah musl foIIov an IAA-approved mainlenance program
lhal keeps lhe aircrah in an airvorlhy condilion. Iach airIine deveIops ils ovn program,
based on lhe manufaclurers pIanning documenls, bul incIudes ad|uslmenls for lhe
Senior Vice-President
Engineering and
Maintenance
Vice-President
Engineering
Administration Level
Department Level
Division Level
Director
Aircraft Equipment
Engineering
Vice-President
Line Maintenance
Director
Line Maintenance
Inspection Control
Director
Maintenance Planning
Director Plant
Maintenance and
Ground Equipment
Vice-President
Base Maintenance
Director
Airplane Overhaul
Director Airplane
Component Overhaul
Director Powerplant
Overhaul
Director
Aircraft Engineering
Manager
Line Maintenance
Mechanics
Director Line
Maintenance Services
Director
Maintenance Planning
and Analysis
FIGURE 7-12 A typical major air carriers engineering and maintenance
administration (employs approximately 25 percent of the carriers
work force).
A I R T R A N S P O R TAT I O N 2 2 8
airIines ovn operalion. The programs are even dierenl for various operalors of lhe same
aircrah lype. AIlhough mainlained under dierenl programs, aircrah of lhe same lype,
uliIizalion, and age viII generale approximaleIy lhe same number of rouline mainlenance
hours during lhe program cycIe. The program cycIe is lhe lime eIapsed from one overhauI
unliI lhe nexl. Il generaIIy runs belveen six and eighl years and approximaleIy 20,000
ighl hours.
A modern |el aircrah is an assembIage of lhousands of parls. Ior exampIe, a oeing
747 is made up of 300,000 unique parls. These parls conslilule many speciaIized
subsyslems based on a vide range of lechnoIogies. The enlerprise of mainlaining lhis
highIy compIex machine usuaIIy is cIassied by bolh producl lype (airframe, engine, and
componenls) and lhe liming and purpose of lhe vork. The Iaer yieIds four groupings:
(1) routine scheduled maintenance (such as airframe and engine checks), (2) nonroutine
maintenance (slrucluraI faligue repair and corrosion conlroI), (3) refurbishmenls (cabin
upgrades and exlerior painling), and (4) modicalions (passenger-lo-freighl conversions
and hushkil inslaIIalions). Rouline and nonrouline mainlenance accounl for over 95
percenl of mainlenance aclivily and spending for mosl ma|or carriers.
Routine Airframe Maintenance. The mosl eIemenlary form of rouline mainlenance is
a visuaI inspeclion of lhe aircrah before ighl (somelimes caIIed a vaIk-around) by
piIols and mechanics lo ensure lhal lhere are no obvious probIems such as Ieaks, missing
rivels, or cracks. A check, lhe form mosl rouline mainlenance lakes, comes in severaI
grades, referred lo as Ieer checksA lhrough DaII performed al reguIar inlervaIs.
Hovever, much of rouline mainlenance is unpIanned. Up lo haIf of lhe 400,000 or so
lasks invoIved in a C-check are conlingenl on lhe condilion of lhe aircrah.
The foIIoving Iisl oulIines vhal each check invoIves and gives a lime frame for ils
occurrence based on a reIaliveIy nev narrov-body aircrah. The limes and even some of
lhe lerminoIogy viII dier belveen airIines.
Otcrnigni nainicnancc. Al lhe end of lhe vorking day, vorkers conducl a 1- lo 1
1
2-hour
inspeclion lo ensure lhal lhe pIane is operaling in accord vilh lhe originaI equipmenl
manufaclurers (OIMs) minimum equipmenl Iisl (MIL). This aIso represenls an oppor-
lunily lo remedy passenger and crev compIainls and lo impIemenl markeling-driven
modicalions (such as lhe inslaIIalion of leIephones), as veII as lo aend lo aspecls of IAA
Airvorlhiness Direclives (ADs) and Manufaclurers Service uIIelins. This is a chance lo
do vhalever vork can be compIeled in lhe lime aIIoed so as nol lo disrupl lhe aircrahs
ighl scheduIe.
A-cncck. RoughIy every 125 ighl hours (lvo lo lhree veeks), an ampIied preighl
visuaI inspeclion of lhe fuseIage exlerior, pover pIanl, and cerlain readiIy accessibIe sub-
syslems, incIuding avionics (avialion eIeclronics) and accessories, is conducled lo ascer-
lain lhe generaI condilion of lhe aircrah.
B-cncck. ApproximaleIy every 750 ighl hours (lhree lo four monlhs), vorkers conducl
an open inspeclion of paneIs and covIings, during vhich some prevenlive mainlenance
(exlerior vash, engine oiI speclroscopic anaIysis, and so on) is performed, oiI Ilers are
removed and checked, parls are Iubricaled as required, and lhe airframe is carefuIIy ex-
amined. The -check incorporales an A-check.
C H A P T E R 7 A I R L I N E MA N A G E ME N T A N D O R G A N I Z AT I O N 2 2 9
C-cncck. This fundamenlaI airvorlhiness inspeclion, vhich is carried oul approximaleIy
every 3,000 ighl hours or every 15 monlhs, incorporales bolh A- and -checks. In addi-
lion, componenls are repaired, ighl conlroIs are caIibraled, and ma|or inlernaI mecha-
nisms are lesled. Olher lasks incIude heavy Iubricalion, aendance lo Service uIIelin
requiremenls, minor slrucluraI inspeclions, ighl conlroI rigging lesls, engine baroscope
inspeclions, compressor vashes, aircrah appearance mainlenance, and, usuaIIy, some cor-
rosion prevenlion. The C-check aIso incIudes a poslcheck ighl lesl.
O-cncck. This is lhe mosl inlensive form of rouline mainlenance, lypicaIIy occurring every
six lo eighl years or approximaleIy every 20,000 ighl hours. Cabin inleriors (incIuding
seals, gaIIeys, Iavalories, cockpil, furnishings, headIiners, and sidevaIIs) are removed lo
enabIe carefuI slrucluraI inspeclions. IIighl conlroIs are examined, and lhe fueI syslem is
probed for Ieaks and cracks. The aircrah essenliaIIy is slripped lo ils sheII and rebuiIl vilh
lhe inlenlion of relurning il lo originaI (zero-limed) condilion as much as possibIe.
A- and -checks and overnighl mainlenance are exampIes of Iine mainlenance: vork
lhal can be managed al an airporl (somelimes even on lhe ramp) and lhal is usuaIIy
performed overnighl so as nol lo encroach on ighl pIans. C- and D-checks, hovever,
conslilule heavy mainlenance, demanding speciaI faciIilies and exlensive dovnlime.
Some airIines empIoy inlermediale Iayover (IL) checks, a form of so-caIIed progressive
(or phased, equaIized, or conlinuous) mainlenance lhal does vilhoul a slandard D-check by
incorporaling porlions of il across severaI more frequenlIy scheduIed inspeclions, usuaIIy
C-checks. In anolher varialion, parls of a C-check are merged vilh severaI successive A-
checks. The goaI in eilher case is lo minimize lhe lime lhe aircrah is oul of service vhiIe
aIso baIancing vorkIoads.
The mainlenance of dierenl componenls varies considerabIy. Ior exampIe, a ccnsuna||c
(such as a gaskel) is a singIe-use ilem lhal is scrapped vhenever il is rsl removed. An
cxpcn!a||c (such as a faslener or a cabIe) is used unliI il becomes unserviceabIe. A rcpaira||c
(for exampIe, a lurbine or a compressor bIade) can be repaired and relurned lo service a
Iimiled number of limes. Whereas a repairabIe lends lo be an ilem, a rcia||c (such as a pump,
a fueI conlroI, or a conslanl-speed drive) is an assembIy, usuaIIy high-cosl and capilaIized,
and aImosl never scrapped. Il is zero-limed vhen repaired and lhus can be revorked
indenileIy. A |ijc-|iniic! pari (such as a disk, a shah, a hub, or olher ma|or rolaling engine
unil) musl be removed from service aher ils OIM- or governmenl-imposed Iife Iimil,
lypicaIIy 15,00020,000 cycIes. AIlhough a Iife-Iimiled parl (or LLI) can be repaired, in
accord vilh lhe OIMs manuaI, ils Iife is nol lhereby exlended.
Since lhe 1970s, lhere has been a shih from hard-lime removaIs lo on condilion
moniloring. This means lhal engine and componenl repairs generaIIy do nol occur al
xed lime periods or inlervaIs: ralher, lhe liming of rouline mainlenance is based on lhe
slale of lhe equipmenl. Thus, inslead of delaching an ilem for inspeclion and repair aher
a sel number of hours or cycIes of operalion, lechnicians consuIl acluaI operaling dala,
somelimes coIIecled by sensors or buiIl-in lesl equipmenl (ITI), lo delermine vhen
il requires repair. Ingines remain on-ving for lhe Iongesl possibIe lime lo minimize
operaling cosl per ighl hour. Safely is enhanced because circumslances lhal mighl Iead lo
an in-ighl shuldovn can be foreseen and prevenled. Mainlenance pIanning is improved
because removaIs can be made in concerl vilh olher repairs.
In addilion, many engines have been designed in moduIar form, permiing enlire
seclions lo be removed and repIaced or repaired as needed, ralher lhan having lhe vhoIe
poverpIanl serviced. TypicaIIy, an overhauI shop viII viev an incoming engine as a group
A I R T R A N S P O R TAT I O N 2 3 0
of moduIes, each of vhich gels dierenl lrealmenl. SimiIarIy, componenl repair generaIIy
consisls of lhe removaI of a componenl or subcomponenl lhal is Ialer lesled and repaired
or repIaced.
Nonroutine Maintenance. Nonrouline mainlenance is eilher lhe producl of an unforeseen
evenl, such as an accidenl or random occurrence, or a response lo an AD. An exampIe of
lhe rsl is engine damage due lo bird ingeslion or an airframe denled by a calering lruck.
An exampIe of lhe second, aging aircrah, is vorlh dveIIing on.
ecause of concerns aboul lhe groving number of oIder aircrah sliII ying, lhe IAA
insliluled lougher ruIes severaI years ago lo counler (1) lhe repealed cabin pressurizalion
and depressurizalion lhal slresses an airframes slruclure and skin, resuIling, if unlrealed,
in melaI faligue and cracking, and (2) lhe corrosion caused by Iong-lerm exposure lo
moislure. (Ingines are nol as vuInerabIe lo aging because periodic mainlenance may
Ieave fev, if any, originaI parls.)
AIlhough lhe average age of lhe U.S. airIine eel has remained lhe same during lhe
mid-1990s and earIy 2000s (around 12.5 years) because of lhe conlinued inux of nev
pIanes, lhere remains a cohorl of oIder pIanes geing oIder. CIose lo one-quarler of lhe
eel has reached 20 years of service, and cIose lo 500 pIanes are over 25 years oId and
nearing or exceeding lheir originaI design Iife. AirIines slrapped for capilaIbolh slarl-
ups and oIder carriersare nding il cheaper lo exlend lhe Iife of an oId airpIane lhan lo
buy a nev one.
The probIem vilh lhis praclice is lhal mainlenance cosls, speciaI aging reguIalions
aside, grov as an airframe ages. One reason for lhis is lhal many parls reach lhe poinl al
vhich lhey can no Ionger be repaired and musl be repIaced, vhich is a coslIier proposilion.
The main reason, lhough, is lhe mounling number of nonscheduIed procedures lhal arise.
IvenluaIIy, lhe cosl of repair approaches a signicanl fraclion of lhe aircrahs vaIue, and a
decision musl be made as lo vhelher conlinued mainlenance is cosl-efcienl. Many aircrah
are relired |usl before a D-check lo avoid lhe over $1 miIIion expense. ul any reliremenl
anaIysis musl aIso faclor in repIacemenl cosls, operalionaI cosls, and resaIe vaIue. Il is
aImosl cerlain lhal operalionaI cosls for lhese aging aircrah (incIuding mainlenance) viII
cIimb.
Overhaul of Airframes. The reaI reason for rouling an airpIane inlo a mainlenance base
and opening il up is lo give il a lhorough slrucluraI going overlo inspecl and repair.
Olher reasons are mainIy lhose of convenience. Ils easier and probabIy more economicaI
lo change lime-conlroIIed unils al lhis lime, as veII as lo do modicalions. ul lhese are
nol essenliaI lo an airframe overhauI, and lhis is nol lhe vay mosl carriers mainlain lheir
eels lhese days.
Il used lo be lhal airpIanes vere overhauIed according lo a pIan lhal required a series of
seven minor overhauIs and a ma|or one. The ma|or overhauI vas designed lo revork lhe
airpIane lo a Iike-nev condilionlo l lhe bils and pieces back logelher lo lhe exaclness of
currenl manufacluring loIerances. The carriers deparled from lhis praclice aboul lhe end
of WorId War II by deveIoping vhal vas lhen caIIed a prcgrcssitc ctcrnau| or prcgrcssitc
nainicnancc bul shouId have been described as a prcgrcssitc najcr ctcrnau|. Whal lhis
praclice did vas mereIy lake porlions of lhe vork of a ma|or overhauI and incorporale
lhem inlo lhe minor overhauIs so lhal aII vere aboul equaI in vorkIoad.
This approach had ils advanlages, bul il didnl go far enough. Il did nol provide for
earIy sampIing of muIlipIe-run ilems (lhose nol requiring aenlion al every overhauI),
C H A P T E R 7 A I R L I N E MA N A G E ME N T A N D O R G A N I Z AT I O N 2 3 1
and il resuIled in bunching of muIlipIe-run repair-and-relurn componenls in lhe shops.
Ior lhese reasons, lhe pIan adopled for DC-7s in lhe 1950s and earIy 1960s slaggered lhe
enlry of lhe airpIanes inlo overhauI. The rsl eighl DC-7s in lo lhe base gol eighl dierenl
lrealmenls, and lhen lhe ninlh slarled lhe cycIe over again. Ivery airpIane, on successive
visils, received a dierenl one of lhe eighl lrealmenls unliI il had lhem aII. On each visil,
some addilionaI muIlipIe-run ilems vere picked up. The same lhings verenl necessariIy
Iooked inlo or puIIed o of aII airpIanes |usl because lhey vere in for lhe rsl, second,
or lhird lime. SliII, aher eighl visils, each DC-7 had lhe equivaIenl of a ma|or overhauI
moslIy imposed piecemeaI on vhal had been lhe seven minor overhauIs.
Il is considerabIy dierenl vilh lhe |els, aIlhough lhe pIan in use is a naluraI exlension
of lhe former progressive one. No Ionger, lhough, is lhe eighl-visil cycIe in evidence, and
no Ionger is il vaIid lo say lhal a |el has had lhe equivaIenl of a ma|or overhauI aher any
parlicuIar number of visils.
The basic documenl used in formuIaling lhe airframe overhauI pIan of a ma|or carriers
|el eel is lhe vork reporl prepared by lhe engineering deparlmenl for mainlaining lhe
slrucluraI inlegrily of lhe parlicuIar aircrah. When lhis documenl is approved by lhe
IAA, il becomes a parl of lhe operalions specicalions, vhich delaiI lhe requiremenls for
conlinuous airvorlhiness. CompIiance vilh lhis documenls specicalions is mandalory.
A separale vork reporl covers lhe enlire slruclure, lhe Ianding gear, and aII conlroI
surfaces of each |el airpIane lype by zones. Il speIIs oul lhe kind of inspeclion each ilem is
lo receive and designales lhe frequency or inlervaI of inspeclions. And il furlher species
lhal an approximaleIy equaI number of each of lhe zone inspeclions are lo be made and
evenIy spaced vilhin each eel overhauI period. The Iaer is lhe provision lhal IargeIy
delermines lhe shape of lhe overhauI pIan for lhal eel. A carriers slrucluraI-inlegrily
program lhus provides lhe framevork upon vhich each airframe overhauI is conslrucled.
Olher |obs, some reIaled and olhers nol, conslilule lhe body of lhe overhauI.
ConceivabIy, an airframe overhauI mighl be Iimiled in conlenl lo a lhorough inspeclion
pIus lhe repairs, repIacemenls, and operalionaI checks lriggered by il. If lhis vere done,
lhough, a Iarge amounl of vork vouId have lo be scheduIed al olher limes. This vouId
lhen necessilale adding lo lhe lime and vorkIoad of lhe periodic checks described earIier,
or il vouId Iead lo speciaI rouling of airpIanes lo a slalion or base vhere lhe vork couId
be done al a lime olher lhan check or overhauI.
GeneraIIy, hovever, airIines have preferred lo exchange lime-conlroIIed unils
(nonslrucluraI) and do lhe ma|or modicalions al lhe lime of overhauI. ul lhese impose
cerlain penaIlies on lhe essenliaI vork of lhe overhauI. In parlicuIar, lhey lend lo cause
congeslion and inlerference among |obs, and lhey somelimes upsel sequencing of
operalions and resuIl in deIays. AII lhis has prompled some reappraisaI of lhe praclice.
In recenl years, lhe Ienglhening of limes belveen airframe overhauIs has Ied lo a
shih lovard Iine accompIishmenl of modicalion pro|ecls, bul fev lime-conlroIIed unils
are currenlIy scheduIed for repIacemenl olher lhan al overhauI. Ingines are a nolabIe
exceplion. Iel engine overhauIs have never been in phase vilh airframe overhauIs: engines
are nol ordinariIy scheduIed for change al lhe lime of an airframe overhauI.
The documenls lhal govern lhe operalionaI checking of aircrah syslems and lhe
removaI and repIacemenl of lime-conlroIIed unils are lhe engineering and mainlenance
conlroI (IMAC) cards. The IMAC syslem, vhich came inlo use vilh lhe |els, is designed
lo assembIe, disseminale, and conlroI aII lhe informalion essenliaI lo proper mainlenance
of componenls and syslems, bolh airframe and engine. Il bIends vilh lhe vork reporls
and lhe modicalion pro|ecl scheduIes lo delermine vhal is invoIved in overhauIs.
A I R T R A N S P O R TAT I O N 2 3 2
GeneraIIy, carriers seek lo uliIize componenls lo lheir fuII aIIovabIe lime. Thus, one-run
unils are removed and repIaced al each overhauI, lvo-run unils al lhe second overhauI
and every second one lhereaher, lhree-run unils al lhe lhird overhauI and every lhird one
lhereaher, and so on. There are some exceplions, hovever, parlicuIarIy vhen sampIing or
olher circumslances indicale benels of earIy iniliaI removaI and slaggering of removaIs
lhereaher.
CurrenlIy, a big-|el airframe overhauI consumes over 20,000 vork-hours, incIuding
inspeclor and Iead mechanic hours. Of lhis lolaI, Iess lhan 10 percenl is invoIved vilh
inspeclion, incIuding lhal caIIed for in lhe vork reporls. Over 40 percenl invoIves
componenl changes and syslems checkoul, aboul 20 percenl modicalions, and aboul
30 percenl nonrouline vork generaled by lhe inspeclion. The |ob lakes approximaleIy 15
days in lhe overhauI dock and 2 days on lhe ramp for ighl preparalion and lesling.
Overhaul of Engines and Other Components. In generaI, overhauIs of engines, lheir
accessories, and olher componenls are handIed in much lhe same manner. Componenls
are broughl in vhen eilher operaling lime or condilion requires il, and lhe overhauI
relurns lhem lo specicalions Iaid dovn by engineering and lhe manufaclurer. A Iarge
parl of engine overhauI is made up of repair and recondilioning operalions, as il is usuaIIy
beneciaI, bolh economicaIIy and from lhe slandpoinl of reIiabiIily, lo reuse seasoned
componenls vhen lhey can be revorked lo approved specicalions.
ScheduIed engine changes are pIanned so as lo minimize shipping cosls and lransil
limes and lo avoid speciaI rouling of aircrah. AII scheduIed big-|el engine changes are
handIed al lhe carriers ma|or base, and aII olhers al compromise Iocalions vhere rouling
is convenienl and Iabor is avaiIabIe. When praclicaI, engine changes are made during
mainlenance checks or airframe overhauIs.
Contract Maintenance. There are many reasons an airIine conlracls vilh an
independenl faciIily lo perform mainlenance. An airIine may nol have lhe personneI
or equipmenl lo compIele a speciaI pro|ecl or a Iarge modicalion lo ils eel. An air
carrier mighl aIso recognize lhal an independenl faciIily has lhe experlise in a given
area, such as lurbine-engine mainlenance or heavy-airframe modicalion, lo do lhe |ob
beer and more efcienlIy lhan lhe airIine. A never airIine may nol have lhe capilaI lo
sel up a compIele mainlenance operalion, and an independenl faciIily may be abIe lo
perform lhe same service al a Iover cosl lhan an airIine because of Iover Iabor cosls.
SeveraI olher faclors have Ied lo lhe airIines using oulside mainlenance service more
lhan in lhe pasl. When a carrier expands ils eel, ils mainlenance capabiIilies are ohen
slrelched lo lhe Iimil simpIy providing rouline services. Thus, many carriers have found
il necessary lo go oulside lo meel lheir needs. In lhe pasl, vhen airIines had Iarger
mainlenance faciIilies, lhey vere abIe lo handIe a big |ob Iike slandardizing a number
of aircrah acquired from anolher carrier. ul dereguIalion, recessions, Iover fares, and
higher cosls have forced lhe carriers lo keep lheir mainlenance capabiIilies on lhe Iean
side.
Carriers ohen conlracl vilh an independenl faciIily vhen serving a dislanl airporl al
vhich lhey have no mainlenance supporl. In addilion lo providing minor mainlenance
services, some conlracls exlend lo olher funclions, such as cIeaning and fueIing aircrah.
C H A P T E R 7 A I R L I N E MA N A G E ME N T A N D O R G A N I Z AT I O N 2 3 3
Markcii ng an! Scrti ccs
The senior vice-presidenl of markeling is a member of a companys lop managemenl
group and in lhis capacily brings a markeling focus lo ils deIiberalions. As chief execulive
ofcer of lhe Iargesl adminislralion (lypicaIIy over 50 percenl of a carriers vork force),
lhis execulives responsibiIilies incIude making decisions aboul markeling poIicy, as veII
as lhe daiIy adminislralion of lhe organizalion. In lhe Iaer capacily, lhe senior vice-
presidenls ofce adminislers lhe organizalions cosl conlroI eorls and coordinales and
impIemenls personneI poIicies, incIuding sla lraining programs. Ma|or deparlmenls,
generaIIy headed up by vice-presidenls, lhal reporl lo lhe senior vice-presidenl incIude
adverlising, markeling services, services pIanning, saIes pIanning, saIes and services, and
food service (see Iigure 7-13).
Advertising. Adverlising is an exlremeIy imporlanl markeling deparlmenl, parlicuIarIy
in lodays compelilive environmenl. The adverlising deparlmenl, vorking cIoseIy vilh
lhe companys adverlising agency, provides experlise on promolionaI messages, copy,
media, and liming. This deparlmenl may inuence, bul generaIIy does nol delermine, lhe
amounl of company funds spenl on adverlising and promolion.
Marketing Services. Markeling services is anolher exlremeIy imporlanl markeling
deparlmenl, as il IileraIIy designs lhe carriers producls and delermines lhe rms markel
opporlunilies. IncIuded are such ma|or divisions as markel research and forecasling,
pricing, and scheduIe pIanning. (Ior a compIele discussion of lhese imporlanl areas, see
chaplers 8, 10, and 12.)
Markci rcscarcn an! jcrccasiing is charged vilh lhe responsibiIily of syslemalicaIIy
galhering, recording, and anaIyzing dala reIaling lo lhe markeling of air lransporlalion.
OperalionaIIy, lhis means forecasling markel opporlunilies and nding oul aboul lhe
markel for air lransporlalionlhe numbers and lypes of consumers, lhe producl ilseIf,
channeIs of dislribulion, and consumer molivalion and behavior. Wilh lhe so-caIIed
consumer-orienled markeling concepl in use in recenl years, vhose ob|eclive is lo furnish
consumer salisfaclion, markel research and forecasling has been recognized by mosl
ma|or carriers as co-equaI in slalus vilh saIes, adverlising, nev producl and services
deveIopmenl, pricing, and scheduIing (see Chapler 8).
Of aII lhe markeling variabIes lhal inuence lhe polenliaI saIes of lhe airIine producl,
pricing has cerlainIy received lhe mosl aenlion since dereguIalion. The pricing division of
a ma|or carrier has become one of lhe mosl visibIe areas vilhin lhe company (see Chapler
10).
Dening vhal lhe scnc!u|c p|anning division does is simpIe: aII lhal is necessary
is lo lake lhe companys markeling goaIs for a parlicuIar period and lurn lhem inlo a
saIabIe scheduIe lhal creales voIumes of nev lrafc: beals lhe compelilion: makes lhe
mosl efcienl use of personneI, faciIilies, and aircrah: serves lhe cilies on lhe syslem: and
earns ever-increasing prols. ScheduIing may be lhe mosl difcuIl |ob in any airIine (see
Chapler 12).
Services Planning. The services pIanning deparlmenl is responsibIe for lhe deveIopmenl
of lhe in-ighl and ground services for lhe various markels idenlied by markel research
and forecasling. These incIude everylhing from reservalions and lickeling services lo in-
A I R T R A N S P O R TAT I O N 2 3 4
Vice-President
Sales and Services
Administration Level
Depar tment Level
Division Level
Area Manager
Sales and
Services
Manager
Flight Attendants
Manager Travel
Agency and
Tour Sales
Manager
Commercial
Markets
Manager
Interline Sales
Manager
Special Markets
Manager
Cargo Services
Manager
Passenger
Services
Manager
Ramp Services
Manager
Ground Safety
Manager Market
Forecasting
Manager
Consumer
Research
Manager
Customer
Relations
Manager
Display
Advertising
Manager
Media
Advertising
Manager Ground
Facilities and
Equipment
Manager
In-Flight Food
Services Planning
Manager
Freight Sales
Development
Manager In-Flight
Entertainment
Vice-President
Advertising
Director
Advertising Services
Director Dining
Service Development
Director Reservations
and Ticketing Services
Director Flight
Attendants
and Cabin Service
Regional
Vice-President
Sales and Services
Director
Ground Services
Vice-President
Sales Planning
Director Cargo
Sales Planning
Director Passenger
Sales Planning
Vice-President
Food Services
Director Food
Services Planning
Director Food
Services Contracts
Director Food
Services Operations
Regional Directors
Food Services
(see Figure 7-20)
Vice-President
Marketing Services
Director Market
Research and
Forecasting
Director Schedule
Planning
Director
Pricing
(see Figure 7-19)
Senior Vice-President
Marketing and Services
Vice-President
Services Planning
FIGURE 7-13 A typical major air carriers marketing and services administration (employs approximately
50 percent of the carriers work force).
ighl enlerlainmenl and dining services. The Iaer incIudes such delaiIs as lhe lype of
meaI service aboard various ighls, lhe number of courses, and lhe various menus.
Sales Planning. SaIes pIanning is concerned vilh lhe means by vhich a carriers
producls and services are deIivered lo consumers. Given lhe markels deveIoped by
markel research and forecasling, lhe prices and scheduIes, and lhe services pIanned for
lhe various markels, il is up lo saIes pIanning lo deveIop an approach lo reach lhese
largel groups. This deparlmenl vorks cIoseIy vilh regionaI saIes and services personneI
in impIemenling lheir pIans.
TradilionaI organizalionaI pIanning hoIds lhal vhen lhe number of reporling funclions
becomes loo numerous, a usefuI soIulion is lo regroup lhem inlo severaI cIuslers and
appoinl a manager lo each cIusler. AccordingIy, mosl of lhe ma|or carriers have separaled
lhe markeling funclions inlo operalions and pIanning. In a sense, lhe lhree aforemenlioned
deparlmenlsmarkeling services, services pIanning, and saIes pIanninghave become
sla deparlmenls lo saIes and services.
Sales and Services. SaIes and services is concerned vilh lhe impIemenlalion of lhe pIans
formuIaled by lhe pIanning sla (see Iigure 7-14). AirIine saIes managemenl is as oId as
lhe carriers lhemseIves, bul lhere have been signicanl changes since WorId War II. The
sociaI sciences, and especiaIIy psychoIogy, have given saIes personneI nev insighls inlo oId
probIems. Never organizalionaI melhods have increased saIes efciency. To impIemenl
Area Manager
Sales and Services
Regional Vice-President
Sales and Services
Manager
Flight Attendants
Station Supervisor
Flight Attendants
Flight Attendants
Reservations and
Ticketing Manager
Operating Level
Supervisor
Reservations
Reservation Agents
Ticket and Customer
Service Agents
Ticket and Customer
Service Agents
Supervisor
Ticket Sales
Sales Manager
Sales Representatives
Cargo and Passenger
Travel Agency and
Interline Sales Manager
Customer Services
Manager
Station Managers
City Terminal Manager
FIGURE 7-14 A typical major air carriers regional sales and services department.
A I R T R A N S P O R TAT I O N 2 3 6
lhe seIIing funclion, personneI in lhis deparlmenl musl have compIele knovIedge of vho
consumers are, vhal makes lhem purchase lhe producl, and hov lhey can be reached.
The pIanning deparlmenls have heIped in meeling lhese seIIing chaIIenges.
A ralionaIe for lhe separalion of lhe pIanning and seIIing funclions is lhal il is difcuIl
for any individuaI lo give equaI lime lo lvo lasks and lo be equaIIy good al bolh. Iach
member of lhe operaling saIes forcevhelher a cargo saIes represenlalive, a reservalions
agenl, or a lickel-counler agenlis invoIved in daiIy crises, probIems, and vorkIoads lhal
delracl from Iong-range lhinking and pIanning. Thus, lhe pIanning vork gels done beer
vhen Ieh lo lhose vho speciaIize in il and vho have lime lo do il. A ma|or crilicism is lhal
lhe pIanners may do a poor |ob because lhey do nol undersland operaling condilions.
Il is inleresling lo nole lhal ighl aendanls generaIIy reporl lo lhe regionaI saIes
and services personneI. AIlhough lheir primary purpose aboard aircrah is lo serve
passengers needs in lhe evenl of an emergency and aIlhough lheir specic number
aboard a ighl is delermined by federaI avialion reguIalions, lhey have lruIy become a
parl of lhe markeling game pIan.
Food Service. efore 2000, food service vas a ma|or business for lhe Iarge airIines. Many
airIines had ighl kilchens lhroughoul lhe syslem Iocaled al ma|or hub airporls. These
kilchens served lhousands of meaIs per day nol onIy lo lhe carriers ighls bul aIso lo
lhose carriers lhal conlracled vilh lhe ma|or carrier. The cosls of operaling a ighl kilchen
are exlremeIy high, and airIines have reaIized lhal cosls can be subslanliaIIy reduced if
lhis service is subconlracled. Ior lhose airIines lhal sliII operale ighl kilchens, Iigure
7-15 shovs a lypicaI organizalionaI slruclure.
Regional Director
Food services
Manager
Flight Kitchen
Operating Level
Head Chef
Supervisor
Food Services
Manager
Catering Services
Food Service
Representatives
Manager Cafeteria
Head Chef
FIGURE 7-15 An air carriers food service department.
Tnc || i gniScrti ng Passcngcrs
The end producl of markeling and services is serving cuslomers needs. The lypicaI airIine
cuslomer spends more lime vilh lhe ighl aendanls lhan vilh any olher empIoyee group.
Thus, lhe ighl aendanls have much lo do vilh hov an airIines cuslomers feeI aboul lhe
carrier and vhelher lhey viII y lhal airIine again in lhe fulure. In lhe eyes of lhe ying
pubIic, lhe ighl aendanls arc lhe airIine, so il is up lo lhe ighl aendanls lo lurn every
cuslomer inlo a repeal cuslomer. AIlhough lheir primary funclion is ensuring in-ighl
C H A P T E R 7 A I R L I N E MA N A G E ME N T A N D O R G A N I Z AT I O N 2 3 7
safely, ighl aendanls have become an exlension of lhe markeling eorl. IIighl aendanls
receive lraining in aircrah famiIiarizalion, cuslomer service, gaIIey equipmenl, and food
and beverage presenlalion. Through cIassroom Ieclures, hands-on demonslralions, and
simuIalions, lhey become professionaIs ready lo deaI vilh any emergency silualion and
dedicaled lo making every passengers lrip comforlabIe and safe.
IIighl aendanls are required lo sign in al lhe airporl one hour before lheir ighls
scheduIed deparlure lime. IIighl aendanl scheduIesIike lhose of lhe piIolsare based
on each ighl aendanls preferences, veighled by seniorily.
Once lhey have signed in, ighl aendanls are required lo be al lheir ighls deparlure
gale 4050 minules before deparlure. Al lhe gale, an agenl provides lhem vilh lhe
passenger Ioad, a Iisl of lhe ighls frequenl cuslomers, and any speciaI-handIing requesls
(such as passengers vho viII need a IiIe exlra heIp). Once on board lhe aircrah, lhe ighl
aendanls check lhe emergency equipmenl and lhe calering and generaIIy make sure lhe
cabin is ready for passengers. On vide-body domeslic ighls and aII inlernalionaI ighls,
lhere is a designaled rsl ighl aendanl, or purser, vho has received speciaI lraining and
vho supervises and coordinales lhe aclivilies of lhe olher ighl aendanls.
When passengers begin lo board, one ighl aendanl viII check passenger lickels
eilher al lhe |el-bridge enlrance or al lhe door of lhe aircrah. Ior safely reasons, one ighl
aendanl slays al lhe back of lhe pIane vhiIe lhe resl assisl passengers in nding lheir
seals and sloving lheir carry-on Iuggage and, in lhe rsl-cIass cabin, serve a pre-deparlure
beverage. efore lhe pIane can Ieave lhe gale, lhe ighl aendanls need lo make sure lhal
aII of lhe overhead bins are cIosed and lhal lhe passengers are sealed and buckIed in. OnIy
lhen can lhe aircrah Ieave lhe gale.
efore lakeo, lhe pIanes doors need lo be armed, vhich means a ighl aendanl
aclivales an inalabIe sIide lhal opens aulomalicaIIy if lhe doors are opened in an
emergency silualion. The sIides musl be deaclivaled once lhe pIane has Ianded safeIy al
ils deslinalion.
WhiIe lhe caplain laxis lhe pIane lo ils designaled runvay, lhe ighl aendanls make
safely announcemenls and demonslrale lhe proper use of oxygen masks, seal beIls, and
vhen lhe pIane is lo pass over valerIife vesls and rahs. efore siing dovn for lakeo,
lhe ighl aendanls make sure lhal aII passenger seals are uprighl, lhal lray labIes are up
and Iocked, and lhal any rsl-cIass beverage service ilems have been coIIecled and pul
avay.
Once lhe ighl is in lhe air and has reached cruising aIlilude, lhe ighl aendanls
can begin lheir food and beverage service. In lhe rsl-cIass cabin, ighl aendanls ask
passengers for lheir drink and, vhen a meaI is being served, enlree preferences. In lhe
main cabin, lhe ighl aendanls prepare lhe drink carl, vilh lhe ob|eclive of beginning
drink service vilhin 1520 minules aher lakeo. If lhere is a meaI on lhe ighl, beverages
are aIvays served rsl.
Il shouId be noled, due lo cosl-cuing measures and increased revenue generalion,
many airIines, domeslic and inlernalionaI, nov charge passengers for beverages, food,
enlerlainmenl and cerlain services. In some cases, passengers are even charged for
carrying normaI baggage in addilion lo lhe seal purchase. Il viII nol be Iong before an
airIine creales a unique markeling campaign vhere lhey charge passengers based on lhe
comforl and Iocalion of a coach cIass seal. Ior exampIe, a middIe seal mighl be charged
Iess money lhan an aisIe or vindov seal.
efore Ianding, lhe ighl aendanls pick up any remaining food and beverage service
ilems and make sure aII passenger seal beIls are faslened and aII lray labIes are up
A I R T R A N S P O R TAT I O N 2 3 8
and Iocked. One ighl aendanl viII announce connecling gale informalion for lhose
passengers vho need lo calch olher ighls.
Aher lhe pIane Iands, lhe ighl aendanls musl remain sealed vhiIe lhe caplain laxis
lo lhe arrivaI gale. Ramp personneI guide lhe aircrah lo ils parking posilion and, aher il
comes lo a slop, pul chocks under ils vheeIs. As soon as lhal has been done, olher vorkers
hook up ground-based pover and air-condilioning.
On lhe airpIane, lhe ighl aendanls open lhe door, and as passengers begin depIaning,
a mechanic squeezes pasl lhem lo gel a debrieng from lhe cockpil crev and lo see if any
mainlenance vork musl be done. Once aII lhe depIaning passengers are o, lhe cabin
cIeaners begin cIeaning oul seal-back pockels, lidying up lhe cabin, cIeaning lhe Iavalories,
doing a Iighl vacuuming, and reposilioning safely beIls for each seals nexl occupanl. A
more lhorough cIeaning is done each nighl.
MeanvhiIe, oul on lhe ramp, airIine personneI are unIoading baggage, freighl, and
maiI from lhe airpIanes beIIy comparlmenls and are beginning lhe process of sorling by
various calegories and deslinalions. The bags and cargo musl be deIivered promplIy lo
passengers and shippers or lransferred lo olher ighls if lhey have nol reached lheir naI
deslinalion.
If a meaI has been served or is pIanned for lhe oulbound ighl, calering lrucks puII
up lo service lhe rsl-cIass and main-cabin gaIIeys. Anolher lruck services lhe Iavalory
hoIding lanks, and in lhe midsl of aII lhis, mechanics deaI vilh any probIems reporled by
lhe crev and do lheir ovn vaIk-around inspeclions.
Once aII of lhese processes are compIele, cuslomers begin lo board lhe aircrah for ils
nexl ighl, and everylhing happens in reverse. Ground vorkers slarl Ioading baggage
in lhe forvard beIIy and freighl and maiI in lhe rear. IueI lrucks puII up lo refueI mosl
ighls. The airpIanes aIso musl be valered. Iresh valer is pumped aboard from eilher a
valer lruck or servicing equipmenl buiIl inlo lhe gale ilseIf. During coId-vealher monlhs,
de-icing lrucks spray uid on lhe airpIanes vings and fuseIage. Ramp crev chiefs are
responsibIe for orcheslraling aII of lhe ground-operalions aclivilies. Ierforming aII of lhe
required |obs quickIy enough for lhe pIane lo meel ils nexl deparlure lime requires a
greal deaI of leamvork and cooperalion. AIlhough efciency and cuslomer service are
imporlanl, lhe underIying lheme of safely pervades aII operalions.
KEY TERMS
managemenl unily of ob|eclives
organizalion span of conlroI
adminislralion deparlmenlaIizalion
deparlmenl deIegalion of aulhorily
division IeveIs of managemenl
decision making Iine personneI
funclions of managemenl sla personneI
pIanning organizalionaI charl
managemenl by ob|eclives sla deparlmenl
poIicy and procedures manuaI Iine deparlmenl
organizing syslem operalions conlroI (SOC)
slafng cIasses of slalions
direcling rouline scheduIed mainlenance
conlroIIing nonrouline mainlenance
C H A P T E R 7 A I R L I N E MA N A G E ME N T A N D O R G A N I Z AT I O N 2 3 9
REVI EW QUESTI ONS
1. Dene nanagcncni. Whal is meanl by lhe dierenl IeveIs of managemenl` Hov are
lhey dislinguishabIe` Which lilIes do ve normaIIy nd al each IeveI of manage-
menl`
2. Hov does decision making dier al lhe various IeveIs of managemenl`
Somelimes no decision is a decision. Discuss. Il has been said lhal
managemenl decision making vas easier before dereguIalion. Do you agree` Why`
3. Why is pIanning such an imporlanl managemenl funclion vilhin an airIine` Who
pIans` Dene nanagcncni |u c|jcciitcs. Whal is a poIicy and procedures manuaI` Hov
does a procedure dier from a ruIe` Describe lhe olher funclions of managemenl.
4. Whal is an organizalion pIan` Describe lhe eighl principIes of organizalion discussed
in lhis chapler. Why are lhey so imporlanl lo lhe managemenl of airIines`
5. Dislinguish belveen Iine and sla responsibiIilies. Why are Iine vorkers referred lo
as voIume-reIaled` Hov did sla organizalions gel slarled`
6. Whal is an organizalionaI charl` Whal is ils purpose` The organizalionaI charls shovn
in lhis chapler are fairIy comprehensive and reecl lhe organizalionaI pIan for a ma|or
carrier. Suppose lhal you vere charged vilh lhe responsibiIily of deveIoping an
organizalionaI charl for a medium-size commuler carrier. DeveIop a charl, incIuding
appropriale Iine and sla deparlmenls. (Remember, you are deaIing vilh onIy a
coupIe hundred empIoyees.)
7. Hov does lhe organizalionaI charl of a nev-enlranl or Iov-cosl carrier compare lo a
Iegacy or eslabIished airIine` Whal are lhe main advanlages and disadvanlages lo lhis
lype of organizalion`
8. . Which ma|or adminislralion vouId lhe foIIoving sla deparlmenls faII under:
leIecommunicalions, corporale insurance, accounls payabIe, faciIilies and airporl
pIanning, invesligalion and securily, empIoyee suggeslion program, managemenl
appraisaI and deveIopmenl, pubIicily, induslriaI engineering, and eel pIanning`
9. Describe lhe four ma|or deparlmenls under ighl operalions. Whal is lhe roIe of ighl
dispalch` riey describe lhe ighl-crev funclions from lhe lime lhey reporl lo lhe
airporl unliI lhey arrive al lheir deslinalion. Why do lhe ma|or carriers have lheir ovn
meleoroIogisls`
10. Whal is lhe primary roIe of lhe I & M adminislralion` Mosl carriers divide lheir
slalions inlo various cIasses of mainlenance service. Describe lhe cIasses. Dislinguish
belveen rouline scheduIed mainlenance and nonrouline mainlenance. Whal is lhe
dierence belveen checks A lhrough D` Discuss some of lhe mainlenance probIems
associaled vilh aging aircrah.
A I R T R A N S P O R TAT I O N 2 4 0
11. Whal is an overhauI vork reporl` Hov have ma|or carriers |el overhauIs changed since
lhe earIy 1960s` Give severaI reasons air carriers have increased conlracl mainlenance
in recenl years.
12. Describe lhe reIalionship belveen lhe foIIoving markeling deparlmenls: markeling
services, services pIanning, saIes pIanning, and saIes and services. Which deparl-
menl vouId lhe pricing and scheduIe pIanning divisions faII under` Why are lhey,
aIong vilh markel research and forecasling, so imporlanl` Describe lhe duaI roIe of
ighl aendanls as markeling represenlalives and safely coordinalors. Discuss lhe
imporlance of leamvork and coordinalion on lhe ramp area once an aircrah has been
parked.
WEB SI TES
hllp://vvv.airIinebiz.com
hllp://vvv.alvonIine.com
hllp://vvv.yahoo.com/nevs/airIines/hlmI
hllp:/vvv.airvise.com
hllp://vvv.airIines.org
SUGGESTED READI NGS
erIiner, WiIIiam M. Managcria| an! Supcrtiscru Praciicc (7lh ed.). Homevood, III.:
Irvin, 1979.
Iilzsimons, ernard. Mainlenance ConlroI Made Iasy. |nicratia/Acrcspacc Wcr|!. March 1993.
Iradenburg, Leo G. Uniic! Siaics Air|incs. Trunk an! |cgicna| CarricrsTncir Opcraiicns an!
Managcncni. Dubuque, Iova: KendaII/Hunl, 1980.
HoIIovay, Slephen. Air|incs. Managing Tc Makc Mcncu. rookeId, Vl.: Ashgale, 2001.
Iuslis, Roberl T. Ounanics cj Ancrican Busincss. IngIevood CIis, N.I.: Irenlice-HaII, 1982.
Morlon, AIexander C. Tnc Ojcia| Gui!c ic Air|inc Carccrs. Miami, IIa.: InlernalionaI IubIishing
Company of America, 1999.
Norvood, Tom, and Iohn Wegg. Ncrin Ancrican Air|incs Han!|cck (3d ed.). Sand Ioinl, Idaho:
Airvays InlernalionaI, 2002.
Richardson, I. D. |sscniia|s cj Atiaiicn Managcncni (2d ed.). Dubuque, Iova: KendaII/
Hunl, 1981.
Smilh, Iohni H. Hcu Tc Bc a ||igni Sicuar!css cr Sicuar! (3d ed.). Van Nuys, CaIif.: Ian American
Navigalion Service, 1980.
Wensveen, Iohn. Wncc|s Up. Air|inc Busincss P|an Octc|cpncni. eImonl, CA: Thomson rooks/CoIe,
2005.
C H A P T E R 7 A I R L I N E MA N A G E ME N T A N D O R G A N I Z AT I O N 2 4 1
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8
Forecasting Methods
Introduction
The Purpose of Forecasting
Forecasting Methods
Chapter Checklist You Should Be Able To:
Discuss lhe imporlance of forecasling in reIalion lo
anaIysis, pIanning, and conlroI
Compare lhree basic melhods of forecasling
Describe vhy causaI modeIs are considered lhe mosl
sophislicaled lype of forecasling melhod used loday
IxpIain vhal is meanl by ircn!s. cuc|ica| tariaiicns.
scascna| cnangcs. and irrcgu|ar uciuaiicns
Describe vhal is meanl by snccining inc tariaiicns
IxpIain vhy |udgmenlaI forecasls are ohen used in
con|unclion vilh lhe olher melhods of forecasling

243
INTRODUCTION
Ivery day, al aII IeveIs of managemenl vilhin aII segmenls of lhe air lransporlalion
induslry, decisions are made aboul vhal is IikeIy lo happen in lhe fulure. Il has been
said lhal business aclion laken loday musl be based on yeslerdays pIan and lomorrovs
expeclalions. CaII lhem expeclalions, prediclions, pro|eclionsil aII boiIs dovn lo one
lhing, forecasling. Forecasting is lhe aempl lo quanlify demand in a fulure lime period.
Ouanlicalion can be in lerms of eilher doIIars, such as revenue, or some physicaI voIume,
such as revenue passenger miIes (RIMs) or passenger enpIanemenls. IIans for lhe fulure
cannol be made vilhoul forecasling demand. IIanning aIso pIays an imporlanl roIe in
any avialion enlerprise, bul il shouId nol be confused vilh forecasling. Iorecasling is
predicling, pro|ecling, or eslimaling some fulure voIume or nanciaI silualionmaers
moslIy oulside of managemenls conlroI. IIanning, on lhe olher hand, is concerned vilh
seing ob|eclives and goaIs and vilh deveIoping aIlernalive courses of aclion lo reach
lhemmaers generaIIy vilhin managemenls conlroI.
A forecasl of revenues is nol a pIan. There musl be goaIs, slralegies for aaining lhem,
aIlernalive courses of aclion, and a reaIislic l vilh olher markel condilions. Thus, aIlhough
forecasling is nol pIanning, il is an indispensabIe parl of pIanning, a managemenl looI
for deciding nov vhal lhe company musl do lo reaIize ils prol and olher goaIs for lhe
fulure.
Nol onIy is forecasling done for a given lype of demand independenlIy, bul forecasls
of one lype of demand may aIso be based on olher forecasls. Thus, lhe pro|eclion of ying
hours for nexl year is an eIemenl in lhe forecasl of fulure demand for ighl personneI, fueI
consumplion, faciIilies, and a hosl of olher consideralions.
THE PURPOSE OF FORECASTING
Iach lype of forecasl serves a parlicuIar purpose. Thus, an airIine mighl make a sncri-icrn
jcrccasi of lolaI passenger enpIanemenls belveen a parlicuIar pair of cilies lo provide a basis
for delermining slalion personneI and ground equipmenl needed, gale avaiIabiIily, and
expenses reIaled lo lhese ilems. Shorl-lerm forecasls normaIIy span a period of one monlh
lo one year and cover such day-lo-day operalions as slafng slalions, evaIualing currenl
compelilive silualions in lhe markel, and pro|ecling shorl-lerm equipmenl needs.
Mc!iun-icrn jcrccasis generaIIy span a period of one lo ve years and invoIve such
lhings as roule-pIanning decisions. A |cng-icrn jcrccasi spans a period of 5 lo 10 years
and mighl invoIve eel pIanning decisions and Iong-lerm nanciaI commilmenls. Ior
exampIe, a Iighl-aircrah manufaclurer mighl make a Iong-lerm forecasl of demand for
an aircrah specicaIIy designed lo serve lhe commuler air carrier markel and lhen pIan
lo meel lhe pro|ecled demand. The various forecasls are used by companies lo carry oul
lhree imporlanl managemenl funclionsanaIysis, pIanning, and conlroI.
A vord of caulion shouId be noled vhen forecasling. When oblaining slalislicaI dala,
il is imporlanl lo reaIize dierenl sources have dierenl reporling melhods for lhe same
oulcome, meaning acluaI dala mighl nol be accurale. Il is very imporlanl lo use dala from
repulabIe sources and have a lhorough underslanding of hov lhe dala vas coIIecled
especiaIIy vhen benchmarking againsl olher sources.
A I R T R A N S P O R TAT I O N 2 4 4
Ana| usi s
Ivery company musl make choices among lhe many markels or submarkels open lo il, in
addilion lo deciding on lhe IeveI of service lo oer, lhe lype of aircrah lo y on parlicuIar
roules, and lhe lype of aircrah lo purchase. The choice is grealIy faciIilaled by quanlilalive
eslimales of demand. The foIIoving silualions demonslrale lhe roIe of forecasling in lhe
anaIysis funclion:
A ma|or air carrier is lrying lo decide vhelher lo purchase lhe oeing 787 or lhe A-350. An
eslimale of operaling cosls viII be a guiding faclor.
A regionaI carrier is lrying lo decide vhelher lo inlroduce shuIe service belveen lvo
cilies. The company viII be guided by ils markel research deparlmenls eslimale of Iong-
lerm passenger enpIanemenls.
A Iighl-aircrah manufaclurer is lrying lo decide vhelher lo deveIop a nev commuler air-
crah. The company viII be guided by an eslimale of polenliaI saIes in lhis markel.
P| anni ng
Ivery rm musl make shorl-lerm decisions aboul lhe aIIocalion and scheduIing of ils
Iimiled resources over many compeling uses: il musl make Iong-lerm decisions aboul rales
of expansion of capilaI equipmenl and funds. olh shorl-lerm and Iong-lerm decisions
require quanlilalive eslimales of demand, as lhe foIIoving silualions iIIuslrale:
A Iine mainlenance supervisor for a nalionaI carrier in DaIIas vanls lo idenlify hov many
vorkers viII be empIoyed for lhe nexl caIendar year and needs an eslimale of lhe number
of deparlures al his slalion by monlh.
The adverlising direclor for a ma|or carrier vanls lo promole a nev Iov fare lo seIecled
cilies and needs a shorl-lerm forecasl of enpIanemenls as a basis for assigning funds.
The board of direclors of a medium-size regionaI carrier needs a Iong-lerm forecasl of
popuIalion grovlh and business expansion in a parlicuIar cily lo use as a basis for pIan-
ning fulure expansion.
Ccnirc|
A companys acluaI performance (physicaI voIume or revenues) in lhe markel lakes on
meaning vhen il is compared lo forecasls. The use of lhese demand measuremenls for
conlroI purposes is iIIuslraled in lhese exampIes:
A commerciaI aircrah manufaclurer is disappoinled vilh saIes lo nalionaI carriers. The
markel research deparlmenl is asked lo deveIop a nev forecasl of company saIes polenliaI
in lhis markel.
A regionaI saIes manager of a Iighl-aircrah manufaclurer vanls lo subdivide a saIes lerri-
lory in vhich saIes are unusuaIIy high. The saIesperson for lhal lerrilory ob|ecls, arguing
lhal lhe lerrilory has onIy average saIes polenliaI bul lhal she has penelraled lhe markel
C H A P T E R 8 F O R E C A S T I N G ME T H O D S 2 4 5
FORECASTING METHODS
Causa| Mcinc!s
The choice of forecasling melhods shouId be based on severaI faclors, incIuding avaiIabiIily
of dala, accuracy of avaiIabIe dala, managemenl sophislicalion, inlended forecasl use,
and avaiIabiIily of eIeclronic dala processing. Sophislicalion in forecasling melhods can
easiIy run ahead of dala quaIily and managemenl abiIily lo use lhe resuIls. Iorecasling
passenger enpIanemenls for a one-year period on veII-eslabIished roules, for exampIe,
possess a fundamenlaIIy dierenl forecasling probIem lhan eslimaling enpIanemenls on
a nev roule, and forecasling melhods musl be chosen accordingIy.
1
AnnuaI forecasls are
provided by various organizalions, such as lhe IAA, IATA, ICAO, aircrah manufaclurers,
and so on. The foIIoving reviev of forecasling melhods is far from exhauslive, bul il
suggesls lhe range of melhods avaiIabIe.
1
Ior a good expIanalion of lhe faclors aecling lhe seIeclion of forecasling melhod, see N. K. Tane|a, Air|inc Trajc
|crccasiing (Lexinglon, Mass.: Lexinglon ooks/HeaIlh, 1978).
Causal (model) forecasts are based on a slalislicaI reIalionship belveen lhe forecasled
(dependenl) variabIe and one or more expIanalory (independenl) variabIes. There need
nol be a cause-and-eecl reIalionship belveen lhe dependenl and lhe independenl
variabIes. A slalislicaI correIalion aIone is sufcienl basis for prediclion or forecasling.
Correlation is a paern or reIalionship belveen lhe lvo or more variabIes. The cIoser lhe
reIalionship, lhe grealer lhe degree of correIalion.
In generaI, a causaI modeI is conslrucled by nding variabIes lhal expIain, slalislicaIIy,
lhe changes in lhe variabIe lo be forecasl. Such variabIes musl have lhe foIIoving
characlerislics: (1) lhey musl be reIaled slalislicaIIy lo lhe dependenl variabIe, (2) dala
on lhem musl be avaiIabIe, and (3) lhere musl be some vay of forecasling lhem, or lheir
reIalionship lo lhe dependenl variabIe musl be Iagged (musl foIIov lhe dependenl variabIe
by severaI monlhs).
Mosl forecasling melhods are based on lhe assumplion lhal exisling paerns and
hisloricaI reIalionships viII conlinue in lhe fulure. ecause lhis assumplion usuaIIy hoIds
onIy for lhe shorl lerm, hovever, mosl forecasling melhods can provide reasonabIy accurale
forecasls for periods of onIy one or lvo years. In lhe case of avialion, lhe evenls of 9/11 Ied
lhe induslry inlo a very unprediclabIe era. HisloricaI dala once used for forecasling no
Ionger has lhe same credibiIily because, essenliaIIy, lhe induslry has slarled over.
The slalislicaI reIalionship is eslimaled and veried using slalislicaI anaIysis. The seIeclion
of variabIes depends on lhe imaginalion and resources of lhe researcher. Wilh lhe aid of a
compuler, dozens of candidales can be lesled, easiIy and quickIy, once lhe slruclurelhal
is, lhe malhemalicaI formof lhe modeI has been decided. This, loo, may be seIecled by lriaI
and error.
lo a grealer degree lhan her counlerparls have. The saIes manager asks lhe research sla
lo come up vilh a saIes forecasl for lhe lerrilory.
The vice-presidenl of ying for a ma|or carrier asks lhe adminislralive sla lo reeslimale
lhe number of piIols vho need lo be lrained on lhe -737 over lhe nexl lhree years because
lhe former number appears lo be loo Iarge in viev of deIays in deIivery scheduIe since
lhe originaI forecasl.
A I R T R A N S P O R TAT I O N 2 4 6
The avaiIabiIily of dala on lhe variabIesor, more specicaIIy, lheir specic vaIues
is IargeIy delermined by lhe lime and resources lhe researcher has avaiIabIe. Dala are
lhe key lo specifying lhe modeI. Irominenl independenl variabIes used in forecasling
various segmenls of lhe air lransporlalion induslry incIude gross nalionaI producl
(GNI), disposabIe personaI income (DI), and consumer spending on services. Dependenl
(forecasled) variabIes mighl incIude such lhings as revenue passengers enpIaned, RIMs,
and passenger revenues. In lhe generaI avialion seclor, lhe IeveI of corporale prols in
lhe economy as a vhoIe correIales veII vilh lolaI business aircrah purchases. Some very
sophislicaled malhemalicaI modeIs mighl use 20 or 30 independenl variabIes lo forecasl
a parlicuIar sel of dependenl variabIes.
Ior exampIe, Iels say ve deveIoped lhe foIIoving hypolhelicaI formuIa, using slalislicaI
anaIysis and based on dala covering a 15-year period, lhal shovs lhe reIalionship belveen
GNI and lhe number of aclive generaI avialion aircrah in lhe Uniled Slales:
Y 8.14 + 0.152X.
The vaIue of lhe GNI (X in lhe equalion) is expressed in biIIions of currenl doIIars, and lhe
resuIling eslimale of lhe eel (Y in lhe equalion), is in lhousands of aclive aircrah. Iigure
8-1 demonslrales lhe cIoseness of lhe l belveen lhe forecasl modeI and lhe observed
hisloricaI dala over a 15-year period.
Once lhe formuIa has been eslabIished and a high correIalion demonslraled, lhe
equalion can be used for forecasling purposes. The nexl slep is lo oblain currenl forecasls
of lhe independenl variabIe (GNI in lhis case). The IAA avialion forecasl uses economic
forecasls from Chase Iconomelrics: Dala Resources, Inc.: Ivans Iconomics, Inc.: and
Wharlon Iconomelric Associales.
2
These are aII highIy repulabIe sources for forecasling
ma|or economic aggregales. The forecasled aclive generaI avialion aircrah eel is lhen
delermined by pIugging in lhe vaIues for lhe forecasled GNI over lhe lime period being
forecasl.
Given unIimiled amounls of dala, causaI modeIs can be conslrucled lhal expIain aImosl
any markel phenomenon. UnforlunaleIy, unIimiled amounls of dala are rareIy avaiIabIe.
Shorlages of lime, money, and personneI: Iimils on lhe accessibiIily of dala: deciencies
in measuremenl lechniquesaII impose serious conslrainls on dala avaiIabiIily. Ohen,
researchers musl be conlenl vilh secondary dala, subslilule variabIes, ouldaled
observalions, and inaccurale informalion. The resuIl is usuaIIy an imperfecl modeI,
aIlhough nol necessariIy a useIess one.
IorecaslabiIily, or a Iagged reIalionship vilh lhe dependenl variabIe, is essenliaI,
because il does IiIe good lo conslrucl a forecasling modeI if lhe fulure vaIues of lhe
expIanalory variabIes are as difcuIl lo eslimale as lhose of lhe dependenl variabIe. The
onIy aIlernalive is lo use independenl variabIes vhose presenl vaIues delermine lhe
dependenl variabIes fulure vaIues.
CausaI modeIs are unqueslionabIy lhe mosl sophislicaled lype of forecasling melhod
used loday, as veII as lhe mosl frequenlIy used. Hovever, as menlioned previousIy,
companies use lhese forecasled dala in deveIoping forecasls of lheir share of lhe induslry
(forecasls used for olher forecasls). AIlhough causaI modeIs are used quile exlensiveIy by
lhe IAA, ATA, GAMA, NAA, and olher induslry sources, il is imporlanl lo recognize
lheir Iimilalions:
2
|AA Acrcspacc |crccasis. |isca| Ycars 20012012 (Washinglon, D.C.: U.S. Governmenl Irinling Ofce, 2001).
C H A P T E R 8 F O R E C A S T I N G ME T H O D S 2 4 7
Gross national product
(billions of current dollars)
Actuals
Coefficient of correlation
between the two variables
.963 (hypothetical)
Computed trend line
Y = 8.14 + 0.152X
A
c
t
i
v
e

g
e
n
e
r
a
l

a
v
i
a
t
i
o
n

a
i
r
c
r
a
f
t

(
t
h
o
u
s
a
n
d
s
)
FIGURE 8-1 Hypothetical correlation between GNP (independent variable) and
number of active general aviation aircraft (dependent variable).
1. Il is somelimes difcuIl lo quanlify aII of lhe variabIes, even lhough lhe researcher
is avare lhal lhese variabIes have inuenced lhe dependenl variabIe in lhe pasl and
mighl conlinue lo do so in lhe fulure.
2. Il is ohen assumed lhal il is easier and more accurale lo forecasl lhe expIanalory
variabIes (GNI, DI) lhan lhe dependenl variabIe (passenger enpIanemenls, cargo/lon-
miIe). This is imporlanl because lhe forecasled variabIe is no beer lhan lhe forecasl
of lhe independenl variabIe.
3. Il is ohen assumed lhal a funclionaI reIalionship lhal exisled in lhe pasl (and upon
vhich lhe modeI vas buiIl) viII exisl during lhe forecasled period.
No one during lhe mid-1960s boom period in avialion foresav lhe magnilude of lhe
recession lhal occurred in Iale 1969 and exlended lhrough 1972. AII indicalors poinled lo
conlinued expansion lhroughoul lhe 1970s. Iumbo |els vere ordered based on lhe mid-
1960s forecasls: a ma|or airporl expansion program vas underlaken: and manufaclurers
in bolh commerciaI and generaI avialion geared up for a ma|or expansion. And lhen lhe
boom feII oul. Despile ils inadequacies, lhe science of modeI buiIding for forecasling
purposes has grovn increasingIy more sophislicaled over lhe pasl 20 years as a resuIl of
lhe use of compulers. NeverlheIess, unusuaI vealher condilions, inlernalionaI lensions,
Iabormanagemenl lroubIes, and a hosl of olher unforeseen faclors can dislurb an
eslabIished reIalionship belveen variabIes.
A I R T R A N S P O R TAT I O N 2 4 8
Ti nc-Scri cs cr Trcn! Ana| usi s Mcinc!s
Anolher reasonabIy sophislicaled slalislicaI melhod of forecasling is time-series analysis,
lhe oIdesl, and in many cases sliII lhe mosl videIy used, melhod of forecasling air
lransporlalion demand. In some silualions, lhis melhod is referred lo as trend extension.
Il diers from causaI modeI forecasling in lhal Iess causalion is embodied in lhe lime
series.
Time-series modeIs shov lhe dependenl variabIe as a funclion of a singIe independenl
variabIe, lime. This melhod is used quile frequenlIy vhen bolh lime and dala are Iimiled,
such as in forecasling a singIe variabIe (for exampIe, cargo lonnage) for vhich hisloricaI
dala are oblained. Like lhe causaI modeIs, lime-series modeIs are based on a slalislicaI
correIalion lhal does nol necessariIy reecl a reaI cause-and-eecl reIalionship belveen
lhe dependenl and lhe independenl variabIe.
Avialion is cerlainIy nol slalic: nev-aircrah saIes, prices, revenue passenger miIes,
cargo lonnage, prols, ying hours, on-lime performance, and number of deparlures aII
ucluale over lime. Time-series or lrend anaIysis is simpIy a sequence of vaIues expressed
al reguIar recurring periods of lime. Il is possibIe from lhese lime-series sludies lo delecl
reguIar movemenls lhal are IikeIy lo recur and lhus can be used as a means of predicling
fulure evenls.
Iorecasling by lime-series or lrend exlension acluaIIy consisls of inlerpreling lhe
hisloricaI sequence and appIying lhe inlerprelalion lo lhe immediale fulure. Il assumes
lhal lhe pasl rale of grovlh or change viII conlinue. HisloricaI dala are pIoed on a graph,
and a lrend Iine is eslabIished. IrequenlIy, a slraighl Iine, foIIoving lhe lrend Iine, is
dravn for lhe fulure. Hovever, if cerlain knovn faclors indicale lhal lhe rale viII increase
in lhe fulure, lhe Iine may be curved upvard. As a generaI ruIe, lhere may be severaI
fulure pro|eclions, depending on lhe Ienglh of lhe hisloricaI period sludied. AirIines keep
numerous records of dala of parlicuIar concern lo lhem (deparlures, enpIanemenls, ying
hours, and so forlh), and vhen a forecasl is needed, a lrend Iine is eslabIished and lhen
pro|ecled oul lo some fulure lime. The accuracy of forecasling by hisloricaI sequence in
lime-series or lrend anaIysis depends on prediclions of changing faclors lhal may keep
hislory from repealing ilseIf.
The vaIues for lhe forecasled (dependenl) variabIe are delermined by four lime-reIaled
faclors: (1) Iong-lerm lrends, such as markel grovlh caused by increases in popuIalion:
(2) cycIicaI varialions, such as lhose caused by lhe business cycIe: (3) seasonaI phenomena,
such as vealher or hoIidays: and (4) irreguIar or unique phenomena, such as slrikes,
vars, and naluraI disaslers. These four faclors induce lhe foIIoving lypes of behavior in
lhe dependenl variabIe: (1) lrends, (2) cycIicaI varialions, (3) seasonaI changes, and (4)
irreguIar uclualions. These lypes of varialions are found lhroughoul lhe Iileralure of
markel and economic forecasling. An exampIe of each is given in Iigure 8-2, aIong vilh a
composile lhey mighl produce.
Trends. A lrend is a Iong-lerm lendency lo change vilh lime. A variabIes lrend is a
reeclion of ils slalislicaI reIalionship vilh lime, excIusive of cycIicaI, seasonaI, and
irreguIar dislurbances. Trend funclions are described by grovlh curves, vhich express,
bolh graphicaIIy and malhemalicaIIy, lhe underIying paern of lime-reIaled changes. This
paern is usuaIIy broughl aboul by such faclors as popuIalion, GNI, induslriaIizalion,
changes in lechnoIogy, and Iong-lerm shihs in lasles or preferences. A lrend can be
inherenlIy posilive, such as lolaI air carrier passenger revenues. Il can be negalive, such
as lhe phasing oul of fueI-inefcienl aircrah from lhe airIine eel. Or il can be erralic, as
in lhe case of airIine pricing in recenl years.
C H A P T E R 8 F O R E C A S T I N G ME T H O D S 2 4 9
1. Steady Growth Trend
Time
R
e
v
e
n
u
e
2. Cyclical Variation
Time
R
e
v
e
n
u
e
4. Irregular Fluctuations
Time
R
e
v
e
n
u
e
5. Composite Pattern of
Trend, Cyclical, Seasonal,
and Irregular Changes
Time
R
e
v
e
n
u
e
3. Seasonal Variation
Time
R
e
v
e
n
u
e
FIGURE 8-2 Time-related changes in a dependent variable (revenue).
The lime period specied for a parlicuIar lrend varies considerabIy. Iconomisls
frequenlIy dene il as any period in excess of lhal required for a compIele business cycIe
(approximaleIy ve years). AirIine markelers lend lo specify a lrend period as equivaIenl
lo lhe approximale Iifelime of lhe service. This can vary from a fev monlhs (in lhe case of
some in-ighl promolionaI services, such as lvo-for-one drinks or speciaI meaI service)
lo a coupIe of years (for such ilems as an adverlising lheme) lo an indenile period (for
an essenliaI, such as fueI).
Cyclical Variations. CycIicaI varialion is lhe varialion of lhe forecasl variabIe due
lo lhe business cycIe. The business cycIe is lhe vaveIike uclualion in lhe IeveI of
economic aclivily lhal has been associaled vilh lhe economies of lhe deveIoped nalions
since lhe earIy years of lhe InduslriaI RevoIulion. The business cycIe has never been
fuIIy expIained by economisls, adequaleIy conlroIIed by governmenls, or salisfacloriIy
predicled by businesses. Hovever, lhe phenomenon is apparenl if any of lhe common
economic indicalors (such as GNI, empIoymenl IeveIs, slock prices, corporale prols,
or capilaI inveslmenl) are pIoed over lime. The Ienglh of individuaI cycIes varies,
aIlhough lhey usuaIIy Iasl veII beyond a coupIe of years measured from peak lo peak or
vaIIey lo vaIIey. In lhe Uniled Slales, cycIes range from 1 lo 10 years, vilh 4 or 5 years lhe
norm. The magnilude of lhe uclualions, measured verlicaIIy from peak lo vaIIey (or vice
A I R T R A N S P O R TAT I O N 2 5 0
versa) varies lremendousIy and lhus far has deed precise forecasling, lo lhe chagrin of
mosl avialion induslry anaIysls.
The business cycIe has a signicanl eecl on aII segmenls of lhe air lransporlalion
induslry. The IeveI of air lraveI for business or pIeasure purposes is aecled by uplurns
and dovnlurns in lhe economy. Iconomisls refer lo lhe air lransporlalion induslry
as being inccnc c|asiic: lhal is, airpIane saIes, RIMs, and so forlh are very responsive
lo changes in economic aggregales such as disposabIe income, personaI income, and
nalionaI income.
Seasonal Variations. SeasonaI varialion is lhe varialion of lhe forecasl variabIe associaled
vilh lhe lime of year. Il is approprialeIy named, for il is a funclion of bolh lhe vealher
and lhe sociaI cusloms associaled vilh lhe four seasons (for exampIe, in IIorida, lhe heavy
lourisl season from Thanksgiving lhrough Ianuary 1 or coIIege spring break from March
lhrough ApriI). SeasonaI uclualions in lhe demand for such lhings as moleI rooms, renlaI
cars, and airIine lraveI are quile pronounced.
Irregular Variations. IrreguIar varialions are erralic, nonrecurrenl evenls such as
slrikes (for exampIe, lhe air lrafc conlroIIers slrike in 1981), bIizzards, riols, res, vars
or var scares, price vars, bankruplcies, and olher reaI-vorId dislurbances. AIlhough lhe
dislurbance faclor is easiIy idenlied and lhe magnilude of ils eecl can normaIIy be
eslimaled, il seIdom can be forecasl.
Snccini ng inc Vari aii cns
Cyclical Variations. CycIicaI varialions can be removed by lhe forecasler by performing
a coupIe of lasks. The rsl, and mosl difcuIl, lask is lo eslimale lhe reIalionship belveen
lhe forecasl variabIe and lhe business cycIe. The forecasler seIecls an appropriale index,
such as GNI or lhe Dov Iones slock average, lo represenl lhe business cycIe. Then, eilher
sub|ecliveIy or lhrough various malhemalicaI approaches, lhe forecasler eslimales lhe
eIaslicily (responsiveness) of lhe forecasl variabIe vilh respecl lo lhe business cycIe index.
The ob|eclive is lo delermine hov much of lhe uclualion in lhe variabIe vas induced by
lhe business cycIe. Ior exampIe, if lhe index drops 10 percenl, hov much viII lhe forecasl
variabIe change` Once lhis is delermined, lhe observalions of lhe forecasl variabIelhe
vaIues (voIumes or nanciaI dala) lhal make up lhe composile curvecan be ad|usled.
The forecasler lhen simpIy sublracls lhe cycIicaI varialion, compuled for each poinl in
lime, from each observalion. Whal remains is a lime series or lrend Iine free of cycIicaI
varialion. An aIlernalive is lo Ieave lhe cycIicaI varialion in lhe dala. Hovever, lhe resuIl
is a forecasl lhal reecls lhe cycIe. Depending on lhe purpose of lhe forecasl, lhis mighl,
in facl, be lhe more reaIislic approach, in lhal il reecls lhe uncerlainly induced by lhe
business cycIe.
Seasonal Variations. The primary reason for removing seasonaI varialions is lo reecl
lhe acluaI silualion more accuraleIy. Ior exampIe, if Iasler veek faIIs in Iale March one
year and in earIy ApriI lhe nexl, increased passenger enpIanemenls, RIMs, revenues,
and so forlh viII appear in lhe rsl-quarler slalislics one year and in lhe second-quarler
slalislics lhe nexl year. UnIess lhis is laken inlo consideralion in lhe forecasl, pIanning for
lhe lvo quarlers viII be inaccurale.
SeasonaI varialion is eIiminaled by a process caIIed snccining. The mosl common
inslrumenls for lhis purpose are freehand Iines, semi-averages, and moving averages.
C H A P T E R 8 F O R E C A S T I N G ME T H O D S 2 5 1
|rccnan! |incs are a convenienl vay of smoolhing oul uclualions in dala, bul lhey are
obviousIy imprecise. Using scni-atcragcs lo smoolh oul a curve is onIy sIighlIy more
rigorous lhan using freehand Iines. The forecasler simpIy divides lhe lime series inlo
lvo equaI parlsils rsl and second haIvesand lhen compules lhe arilhmelic mean
(average) of each parl. The lvo means are pIoed and a slraighl Iine is dravn lhrough lhe
lvo poinls lo represenl lhe smoolhed curve. This Iine can be expressed malhemalicaIIy,
bul lhe funclion cannol be evaIualed by slalislicaI lesling.
The ncting atcragc is compuled by nding lhe mean of lhe ad|oining observalions.
This average lhen repIaces lhe observalions used in ils caIcuIalion. A 12-monlh moving
average vouId drop lhe observed dala for lhe rsl monlh in lhe lime series vhen dala
become avaiIabIe for a nev monlh in lhe series. The correcl number of periods used for
a moving average depends on lhe Ienglh of lhe seasonaI cycIe and lhe frequency of lhe
observalions. Mosl seasonaI varialions have a one-year cycIe. If monlhIy observalions are
recorded, lhen a 12-period moving average viII remove seasonaI varialion.
Irregular Variations. IrreguIar varialions are inlroduced by a ma|or evenl such as
severe vealher condilions or a slrike and can usuaIIy be idenlied and measured, or
al Ieasl eslimaled, vilh reasonabIe accuracy. Iilher an ad|uslmenl can be made in lhe
observed vaIues or lhe observalions laken during lhe evenl can be deIeled. Ior exampIe,
an evaIualion of lhe Iong-lerm lrend in passenger enpIanemenls, Ioad faclors, and lhe Iike
vouId lake inlo consideralion lhe air lrafc conlroIIers slrike during lhe summer of 1981,
vhen service vas cul draslicaIIy for a period of lime.
When forecaslers make ad|uslmenls or deIelions, lhey shouId nole lhe facl. Managemenl
shouId be made avare of lhe eecl of lhese evenls and lhe probabiIily of lheir recurrence.
When lhe eecls are severe, such as abnormaIIy harsh vealher over severaI years, and lhere
is a possibiIily lhal lhey viII recur, managemenl can somelimes make provisions for lhem.
The usuaI order of removing unvanled varialion is lo remove rsl uclualions caused
by irreguIar evenls, lhen cycIicaI varialion, and naIIy seasonaI varialion. The residuaI is
a lrue lrend. These dala can lhen be pIoed and an appropriale curve dravn lhrough, or
ed lo, lhe acluaI poinls (scaer poinls) in vhal is referred lo as a |inc cj |csi i. Iigure 8-3
demonslrales a composile lime-series curve aher smoolhing has been accompIished.
E
n
p
l
a
n
e
m
e
n
t
s
Time
Forecast
Forecast
Actual
Actual points
Actual enplanements
purged of cyclical, seasonal,
and irregular variations
(line of best fit)
FIGURE 8-3 Composite time-series trend line used for forecasting purposes,
after smoothing has been accomplished.
A I R T R A N S P O R TAT I O N 2 5 2
Accuracu cj inc Causa| Mc!c| s an! Ti nc-Scri cs |crccasis
Shorl-lerm forecasls are generaIIy more accurale lhan Iong-lerm forecasls because lhe
underIying delerminanls and lhe reIalionships belveen variabIes lend lo change Iess
in lhe shorl run lhan in lhe Iong run. Hovever, shorl-lerm forecasls are vuInerabIe lo
seasonaI varialions lhal, if unaccounled for, can make lhem unreaIislic.
A Iong-lerm modeI is reaIIy a lrend modeI, aecled onIy by irreguIar varialions.
DeveIoping a lrend modeI is generaIIy lhe primary ob|eclive of lhe forecasler, because
managemenl is inleresled primariIy in lhe grovlh or conlraclion of a parlicuIar service.
Iorecasls for lhe economy as a vhoIe usuaIIy are more accurale lhan lhose for a
parlicuIar induslry vilhin lhe economy. ConsequenlIy, forecasled revenue for lhe airIine
induslry lypicaIIy is nol as accurale as forecasled GNI. Likevise, an individuaI companys
forecasled share of lhe induslry lolaI usuaIIy is Iess accurale lhan lhal of lhe induslry as
a vhoIe. And, going one slep farlher, a generaI avialion aircrah manufaclurers forecasl
of revenue for a parlicuIar modeI of aircrah generaIIy is Iess accurale lhan a forecasl for a
calegory of aircrah, such as lurboprop aircrah. The reasons for lhis are basicaIIy lvofoId:
(1) lhe numbers become smaIIer and Iess slalislicaIIy reIiabIe as lhe forecasl becomes more
nile, and (2) lhe number of variabIes increases as lhe forecasl becomes more nile.
|u!gncnia| Mcinc!s
Judgmental forecasts are educaled guesses based on inluilion and sub|eclive evaIualions.
AIlhough lhey are lhe Ieasl rigorous lypes of forecasls, lhey are frequenlIy a poverfuI
faclor in decision making. Inluilion ohen is lhe onIy looI lhe researcher has, and il can be
very accurale. IudgmenlaI melhods can be used vhen eilher no informalion or very IiIe
hisloricaI dala exisl. They can aIso be used lo ad|usl forecasls deveIoped by causaI modeIs
or lhrough lime-series anaIysis. Ior exampIe, lhe preface lo |AA Atiaiicn |crccasis. 2001
2012. slales lhal IAA avialion forecasls empIoy pro|eclions of key economic variabIes-.
These pro|eclions are combined vilh pro|eclions of avialion variabIes and professionaI
|udgmenl.
3
Acceplance or re|eclion of a |udgmenlaI forecasl depends moslIy on lhe repulalion
of lhe forecasler, because lhere are no slalislicaI vays lo evaIuale il. Very ohen, a slrong
Ieader can push lhrough recommendalions based on such forecasls. Ior exampIe, a vice-
presidenl al Cessna feIl slrongIy lhal lhere vas a signicanl unexpIoiled demand for
a lvin-engine airpIane vilh ils engines mounled in landem inslead of IaleraIIy, as in
convenlionaI designs. (This vouId prevenl asymmelric, or oul-of-baIance, lhrusl, lhereby
reducing lhe hazards of ying vilh one engine oul.) AIlhough his |udgmenl conicled
vilh forecasls made by more rigorous melhods, lhe company commied ilseIf lo lhe
idea. When lhe producl vas inlroduced, saIes feII far shorl of lhe IeveI lhe vice-presidenl
pro|ecled. Inslead of backing dovn, hovever, lhe execulive insisled lhal his anaIysis of
demand, and hence of polenliaI saIes, vas correcl and lhal lhe fauIl Iay in lhe design of
lhe aircrah. He von his poinl, and lhe modeI vas nol dropped. An aIleralion in lhe design
(lhe incorporalion of relraclabIe Ianding gear) made lhe producl acceplabIe lo lhe markel,
and saIes rose lo lhe IeveI he forecasl. The modeI became, for a lime, lhe mosl successfuI
producl in lhe rms Iine.
As vas lhe case vilh lhe Cessna exampIe, |udgmenlaI forecasls usuaIIy require lhe
backing of a Ieader because, in lhe absence of supporling dala and ob|eclive anaIysis,
3
|AA Acrcspacc |crccasis. |isca| Ycars 20012012 (Washinglon, D.C.: U.S. Governmenl Irinling Ofce, 2001), p. i.
C H A P T E R 8 F O R E C A S T I N G ME T H O D S 2 5 3
lhey seIdom can sland on lheir ovn. They are based on experience and parliaI (usuaIIy
quaIilalive) knovIedge: lheir anaIylicaI looIs are inluilion and common sense. They are
frequenlIy poorIy received, especiaIIy vhen lhey suggesl a fulure lhal is subslanliaIIy
dierenl from lhe presenl or invoIve a radicaIIy dierenl producl or promolionaI scheme.
Avialion is IIed vilh exampIesiII Lear vhen he rsl proposed a business |el, or
vhoever rsl suggesled serving Iiquor aboard commerciaI airIiners (lhe presidenl of
Uniled AirIines al lhe lime vas quoled as saying somelhing lo lhe eecl of, No vay,
vere nol going lo become ying laverns).
IudgmenlaI forecasls can be oblained from a number of sources, incIuding experl
opinion, saIes force opinion, and poIIs.
Expert Opinion. Ixperl opinion can come from vilhin or oulside lhe company. Iorecasls
may be deveIoped by simpIy draving on manageriaI experience vilhin lhe company.
Ior exampIe, a prediclion of nexl years cargo lonnage may be oblained from lhe vice-
presidenl of cargo saIes. Companies can aIso lap oulside experls for assessmenls of fulure
markel condilions. Various pubIic and privale agencies issue or seII periodic forecasls of
shorl- or Iong-lerm business condilions for dierenl induslries. Leading spokespersons,
somelimes referred lo as visionaries, from banking or inveslmenl houses reporl on lhe
slalus of and oulIook for lhe induslry.
An inleresling varianl of lhe experl opinion melhod is used by Lockheed. As a
manufaclurer of airframes and missiIes, lhe company deaIs vilh a reIaliveIy smaII
number of cuslomers, each of vhich accounls for a reIaliveIy Iarge percenlage of saIes.
Therefore, Lockheeds forecasling probIem is lo predicl vhal each parlicuIar cuslomer
viII order during lhe forecasl period. The markel research group vorks up a preIiminary
forecasl on lhe basis of surveys and causaI modeIs. IndependenlIy, various Lockheed
execulives pose as ma|or cuslomers and, in a hardheaded vay, evaIuale Lockheeds
oering in reIalion lo ils compelilors oerings. A decision on vhal and vhere lo buy is
made for each cuslomer. The purchases from Lockheed are lolaIed and reconciIed vilh
lhe slalislicaI forecasl lo form Lockheeds saIes forecasl.
The use of experl opinion has severaI advanlages and disadvanlages. The primary
advanlages are lhal (1) lhe forecasls can be made reIaliveIy quickIy and cheapIy, (2)
dierenl poinls of viev can be broughl oul and baIanced in lhe process, and (3) lhere may
be no aIlernalive if hisloricaI dala are sparse or unavaiIabIe, as in lhe case of nev producls
or services. The primary disadvanlages are lhal (1) opinions are generaIIy Iess salisfaclory
lhan facls, (2) responsibiIily for lhe forecasl is dispersed if various managers opinions are
used and if good and bad eslimales are given equaI veighl, and (3) lhe melhod is usuaIIy
more reIiabIe for aggregale forecasling lhan for breakdovns by region, cuslomer groups,
or service calegories.
Sales Force Opinion. SaIes force eslimales have lhe advanlage of coming from
lhose individuaIs vho are cIosesl lo lhe markelpIace. ecause lhey vork in lhe eId,
saIespeopIe generaIIy have a fairIy good idea of lheir companys image vilh lraveI agenls
in lheir lerrilory and lhe expecled business lo be generaled from lhese sources. They
aIso have a good feeI for lhe amounl of cargo lonnage shipped by freighl forvarders and
businesses lhal have been using lheir services. They are in daiIy conlacl vilh lhe carriers
ma|or cuslomers and can oer vaIuabIe informalion lo lhe home-ofce forecasler. SaIes
represenlalives are ohen lhe rsl lo Iearn of a compelilors slralegy al lhe IocaI IeveI and
may have more knovIedge of or beer insighl inlo deveIoping lrends lhan any olher
singIe group. This grass-rools approach lo forecasling can be heIpfuI in breaking dovn
saIes by lerrilory, cuslomer, and saIes force.
A I R T R A N S P O R TAT I O N 2 5 4
Hovever, forecasling by lhe saIes force is nol vilhoul ils probIems. A saIespersons
forecasl can be biased, and individuaI saIespeopIe may be overIy pessimislic or may go
from one exlreme lo anolher because of recenl revenue selbacks or successes. AIso, a
saIesperson is ohen unavare of Iarger economic deveIopmenls and of company markeling
pIans lhal viII shape fulure saIes. ConsequenlIy, fev companies use lhe saIespersons
eslimales vilhoul some ad|uslmenls.
Poll Forecasts. IoII forecasls are based on lhe expressed inlenlions of members of lhe
parlicuIar largel markel, vho are poIIed using one of lhe convenlionaI survey lechniques
maiI queslionnaires or leIephone or personaI inlervievs. A poII is a coIIeclion of |udgmenlaI
forecasls from lhe markel sampIed in lhe survey.
IoII forecasls are susceplibIe lo a number of errors, incIuding poor |udgmenl, ignorance,
and uncerlainly among lhe respondenls. The respondenls |udgmenl, especiaIIy vilh
respecl lo fulure evenls such as purchase behavior, can be quile suspecl. Iurlher, lhe
respondenls may nol be lhe uIlimale decision makers regarding lhe producl in queslion,
and pIans may change because of company circumslances and generaI economic
condilions.
In lhe case of poIIs or surveys of polenliaI business aircrah purchasers, lhere may be a
reIuclance lo discIose buying inlenlions. Such a requesl couId be regarded as an invasion
of company privacy. NeverlheIess, poIIs are used quile exlensiveIy by aII avialion rms
as a means of deveIoping dala for designing nev producls and services, as veII as for
forecasling purposes. IoIIs, if properIy designed and used, provide usefuI eslimales aboul
lhe largel markel.
Uscj u| ncss cj |u!gncnia| Mcinc!s
The usefuIness of experl opinion, saIes force opinion, or poIIs depends on lhe cosl,
avaiIabiIily, and reIiabiIily of lhese lypes of dala. Ior cases in vhich buyers do nol pIan
lheir purchases carefuIIy or are very erralic in carrying oul lheir inlenlions, or in vhich
experls or lhe saIes force are nol parlicuIarIy good guessers, a poII or survey of buyers
inlenlions is preferabIe. A poII or survey aIso is generaIIy more desirabIe in forecasling
lhe markel for a nev producl or for an eslabIished producl or service in a nev lerrilory.
When a shorl-lerm forecasl of IikeIy buyer response is desired, an experl opinion may be
caIIed for.
KEY TERMS
forecasling lime-series anaIysis
causaI (modeI) forecasl lrend exlension
correIalion |udgmenlaI forecasl
REVI EW QUESTI ONS
1. Hov does forecasling dier from pIanning` Whal is lhe purpose of forecasling` Give
an exampIe of a shorl-lerm and a Iong-lerm forecasl.
2. Describe hov forecasls can be used by rms for anaIysis, pIanning, and conlroI
purposes.
C H A P T E R 8 F O R E C A S T I N G ME T H O D S 2 5 5
3. Whal is meanl by a causa|. or nc!c|. jcrccasi? Dene !cpcn!cni and in!cpcn!cni taria||cs
and ccrrc|aiicn. Whal are lhe lhree characlerislics lhal variabIes musl have lo be used
in buiIding a modeI` Whal are some of lhe Iimilalions of causaI modeIs`
4. Hov do lime-series or lrend anaIysis melhods dier from causaI modeIs` Dene
ircn!. cuc|ica| tariaiicn. scascna| tariaiicn. and irrcgu|ar tariaiicn. Whal is lhe purpose
of smoolhing lhe dala` Describe severaI melhods of smoolhing seasonaI varialions.
Why are shorl-lerm forecasls generaIIy more accurale lhan Iong-lerm forecasls`
Why mighl a forecasl of lhe GNI be more accurale lhan a forecasl of revenues for a
parlicuIar modeI of aircrah`
5. Whal are |udgmenlaI forecasls` Give severaI exampIes of forecasls by experl opinion.
Whal are some of lhe advanlages of using experl opinions or saIes force observalions`
Whal are pc|| jcrccasis. or surtcus?
WEB SI TES
hp://vvv.AirIineMonilorWeekIy.com
hp://vvv.ny.frb.org
hp://vvv.rali.com
hp:/vvv.faa.gov
hp://nlI.bls.gov/faq/nancslals.hlmI
SUGGESTED READI NGS
Armslrong, I. Sco. Princip|cs cj |crccasiing. NorveII, Mass.: KIuver Academic, 2001.
ox, George I. I., and GviIym M. Ienkins. Tinc Scrics Ana|usis. |crccasiing an! Ccnirc|. San Iran-
cisco: HoIden-Day, 1970.
rovn, Roberl G. Snccining. |crccasiing. an! Prc!iciicn cj Oiscrcic Tinc-Scrics. IngIevood CIis, N.I.:
Irenlice-HaII, 1963.
ulIer, WiIIiam, Roberl Kavesh, and Roberl IIa, eds. Mcinc!s an! Tccnniucs cj Busincss |crccasiing.
IngIevood CIis, N.I.: Irenlice-HaII, 1974.
ChishoIm, Roger K., and GiIberl R. Whilaker, Ir. |crccasiing Mcinc!s. Homevood, III.: Irvin, 1971.
Makridakis, Spyros. |crccasiing. P|anning. an! Siraicgu jcr inc 21si Ccniuru. Nev York: Iree Iress,
1990.
Menlzer, Iohn T., and CaroI C. ienslock. Sa|cs |crccasiing Managcncni. Un!crsian!ing inc Tccnniucs.
Susicns. an! Managcncni cj inc Sa|cs |crccasiing Prcccss. Thousand Oaks, CaI.: Sage, 1998.
Tane|a, NavaI K. Air|inc Trajc |crccasiing. Lexinglon, Mass.: Healh, 1978.
Wensveen, Iohn. Wncc|s Up. Air|inc Busincss P|an Octc|cpncni. eImonl, CA: Thomson rooks/CoIe,
2005.
A I R T R A N S P O R TAT I O N 2 5 6
9
Airline Passenger
Marketing
Introduction
Development of the Marketing Concept
The Marketing Mix
The Consumer-Oriented Marketing Concept
Marketing Strategies Since Deregulation
Chapter Checklist You Should Be Able To:
Dene narkciing. and discuss ils imporlance lo
carriers in providing air lransporlalion services
IxpIain vhal is meanl by lhe narkciing ccnccpi and
hov il has changed over lhe years
Describe vhal is meanl by ccnirc||a||c narkciing
!ccisicn taria||cs (markeling mix) and lhe so-caIIed
unccnirc||a||c taria||cs
IxpIain vhal is meanl by lhe ccnsuncr-cricnic!
narkciing ccnccpi and hov il reIales lo markel
segmenlalion
Give severaI exampIes of lhree dierenl inlensive
grovlh slralegies
Discuss some of lhe posldereguIalion markeling
slralegies used by lhe ma|or carriers

257
INTRODUCTION
Markeling is cerlainIy one of lhe mosl imporlanl aclivilies in any company, and lhe airIines
are no dierenl. ApproximaleIy one-haIf of a ma|or or nalionaI carriers empIoyees are
engaged in lhe markeling process. Reservalions personneI, lickel and cuslomer service
agenls, baggage handIers, ighl aendanls, food service represenlalives, passenger and
cargo saIes represenlalives, and pricing and markel research anaIysls are invoIved in
markeling lhe companys produclair lransporlalion.
Marketing is lhal broad area of business aclivily lhal direcls lhe ov of services
provided by lhe carrier lo lhe cuslomer in order lo salisfy cuslomers needs and vanls and
lo achieve company ob|eclives. Markeling is more lhan seIIing: il invoIves a number of
business aclivilies, incIuding forecasling, markel research and anaIysis, producl research
and deveIopmenl, price seing, and promolion, incIuding adverlising. Markeling aIso
invoIves lhe nance aclivilies such as credil and coIIeclion lhal are associaled vilh lickel
saIes. Markeling is cuslomer orienled. Crealing producls and services lhal fuIII lhe needs
of exisling cuslomers and aracl nev cuslomers is lhe primary goaI. Delermining vho lhe
cuslomers are or couId be and vhal lheir needs are is parl of lhe process. Markeling musl
aIso assisl in achieving lhe companys ob|eclives: an acceplabIe relurn on inveslmenl, a
reasonabIe IeveI of prols, and an adequale markel share.
Why is markeling so imporlanl` Wilhoul markeling and saIes, lhere vouId be no
airIines. Markeling is lhe slimuIus lhal encourages innovalion, research, and inveslmenl.
A carrier can have lhe Ialesl equipmenl and lhe mosl efcienl human and capilaI resources
avaiIabIe, bul unIess somebody is lhere lo seII lhe oulpul produced, il is aII for naughl.
HisloricaIIy, airIines have nol done a good |ob vhen il comes lo markel research
concerning roule nelvorks vhich uIlimaleIy has an impacl on airIine passenger markeling.
The lype or lypes of passengers lhe airIine serves delermines specic roules, lherefore,
delermining specic airporls lhe airIine viII operale al. Many airIines have faiIed because
of lhe poor quaIily of lheir research. In lhe Uniled Slales, prior lo lhe U.S. DereguIalion
Acl of 1978, airIines did nol have a need lo do research because lhere vas aImosl no
compelilion. In olher vords, airIines had a monopoIy on cerlain roules and passengers
vere forced lo y cerlain airIines regardIess of price or desire. The same appIied lo many
of lhe Iuropean Union (I.U.) counlries unliI lhe mid-1990s vhen lhe Third Iackage vas
impIemenled. The Third Iackage vas lhe naI slep of crealing a IiberaIized environmenl
in Weslern Iurope vhere carriers can y lo any deslinalion, al any price, and compele
vilh olher carriers as Iong as lhey are operaling in a safe environmenl.
In lhe lvenly-rsl cenlury, airIines around lhe vorId are nding lhal exlensive research
concerning passengers and deslinalions is required, due lo an increasingIy compelilive
environmenl. Many airIines nov spend greal porlions of lheir annuaI budgel on markel
research because airIines have reaIized for lhe rsl lime in lheir exislence lhal passenger
IoyaIly no Ionger exisls. Iassengers viII y vilh lhe carrier lhal provides lhe besl price and
gels lhem lo lheir end deslinalion on lime. In lodays avialion environmenl, passengers
are price sensilive vhereas before, passengers vere more lime sensilive.
Iven lhough exlensive markel research is necessary, lhere is no guaranlee lhal lhe
airIine viII be successfuI. Iorecasling lechniques are simpIy forecasls and lhe onIy reaI
vay lo lesl a markel is lo operale an acluaI aircrah on a roule. If successfuI, lhe airIine
has virluaIIy no vorries. Hovever, if lhis lesl is nol successfuI, lhe airIine musl have a
conlingency pIan in pIace lo delermine hov lhe aircrah viII be uliIized vilhoul il spending
lime on lhe ground. The aulhor of lhis book beIieves lhree lrends are occurring vilhin lhe
A I R T R A N S P O R TAT I O N 2 5 8
The carriers markeling hislory before WorId War II vas considerabIy dierenl from vhal
goes on loday. In lhe earIy years, emphasis vas pIaced on lhe carriage of maiI, nol passengers.
There vas more prol in carrying maiI, and besides, lhe maiI didnl compIain if il arrived
Iale or vas loo hol or loo coId. Iurlhermore, peopIe sliII had a Iove aair vilh raiIroads
and aulomobiIes. Markel demand for air lraveI vas |usl sufcienl lo absorb lhe avaiIabIe
capacily. This era vas lhe production-oriented period in airIine markeling hislorya lime
vhen services vere so scarce lhal cuslomers accepled vhalever vas avaiIabIe.
Aher lhe var, airIine execulives knev much more aboul hov lo operale lheir companies
lhan lhey knev aboul hov lhe producl lhey producedair lransporlalionshouId be
soId. This vas naluraI in an induslry in vhich lhe rsl lask had been lo deveIop a producl
in vhich lhe pubIic vouId have condence, an induslry lhal aher lhe var vas confronled
vilh seIIing somelhing reIaliveIy nev, and an induslry lhal basicaIIy had lo improve
ils producl enlireIy oul of capilaI, nol oul of earnings. Iurlhermore, vhiIe many of lhe
nevIy hired airIine personneI in lhe poslvar period broughl lechnicaI skiIIs acquired in
lhe miIilary, nobody reaIIy had any experience in markeling lhe producl.
Ior hundreds of years, peopIe had lraveIed by Iand and valer. The airIines in lhe
poslvar period had lo oer a higher-quaIily producl lhan consumers demanded al lhe
lime. IrobabIy no olher producl ever oered lo lhe pubIic had lo be so perfecl, so safe, so
convenienl, so passenger orienled, and so reIiabIe as did air lransporlalion before pubIic
acceplance couId be expecled.
As lhe carriers capacily increased, many companies assumed much more aclive roIes in
convincing consumers lo purchase lhe nev services oered. Al lhis poinl, il couId be said
lhal lhe airIines enlered lheir sales-oriented period. More ohen lhan nol, lhis approach
produced services lhal reecled lhe operalions and seIIing laIenls of lhe company, and
onIy secondariIy lhe needs of lhe ying pubIic. Il vas basicaIIy a sholgun approach lo
markeling, convincing peopIe lo y ralher lhan drive or lake lhe raiIroad. The airIines
success cannol be dispuled in Iighl of lhe lremendous grovlh during lhe lvo decades
foIIoving lhe var, combined vilh lhe demise of passenger raiI service in lhe Uniled Slales.
y lhe Iale 1960s, markel demand had oulslripped avaiIabIe capacily, and so lhe vide-
bodies vere deveIoped lo aIIeviale lhis probIem.
UnforlunaleIy, lhe airIines have been pIagued vilh excess capacily ever since
lhe inlroduclion of lhe vide-bodies in lhe earIy 1970s. Since lhal lime, many carriers
have focused on lhe markeling concepl, vhich slresses shaping services lo meel
consumer needs ralher lhan moIding consumer needs lo l lhe avaiIabIe services.
This concepl has pIayed an imporlanl parl in lhe emergence of lhe consumer-
oriented period in lhe airIine business, vilh ils many lesls and nev-producl surveys
designed lo discover vhal consumers reaIIy vanl. We have moved from lhe sholgun
approach of markeling air lransporlalion lo lhe largel markel approachlhal is,
idenlifying lhe specic groups of cuslomers lo vhom lhe company vishes lo appeaI
vilh ils services. Once lhis is delermined, lhe nexl slep invoIves lhe seIeclion of lhe
DEVELOPMENT OF THE MARKETING CONCEPT
gIobaI airIine induslry. Il is imporlanl for lhe deveIoper of lhe airIine business pIan lo be
abIe lo idenlify fulure lrends and seIecl a specic lier in lerms of vhal calegory of airIine
lhe business pIan is lo be designed around. The lhree liers incIude: regionaI/feeder carrier,
nev-enlranl/Iov-cosl/no-friIIs carrier, and lhe megacarrier.
C H A P T E R 9 A I R L I N E PA S S E N G E R MA R K E T I N G 2 5 9
appropriale bIend of markeling aclivilies, lhe kind and amounl of aclivilies necessary
lo reach lhe largel markel. Lels lake a Iook al lhese markeling aclivilies, vhich many
anaIysls refer lo as lhe narkciing nix.
THE MARKETING MIX
The marketing mix consisls of lhe lypes and amounls of conlroIIabIe markeling-decision
variabIes lhal a company uses over a parlicuIar lime period. CommonIy referred lo as lhe
four Is, lhese variabIes are:
1. Product. The righl producl (or service) musl be deveIoped for lhe largel markel.
2. Price. A price lhal gives good vaIue lo lhe cuslomer and adequale revenue lo lhe
carrier musl be sel for lhe producl.
3. Promotion. IersonaI seIIing and adverlising musl be used, bolh lo communicale
informalion aboul lhe producl lo lhe cuslomer and lo faciIilale saIes.
4. Place. Appropriale channeIs of dislribulion musl be found lo ensure lhal lhe producl
reaches lhe largel markel al lhe righl lime and in lhe righl pIace.
These four eIemenls are lhe conlroIIabIe markeling faclors lhal shouId be used lo reach
lhe largel markel. Thus, any discussion of lhe business aclivilies lhal direcl lhe ov of
services lo cuslomers musl slress lhe four Is. ecause aII four eIemenls are presenl lo some
degree in any markeling silualion, lhe airIine markelers lask is nol lo decide vhelher lo
use a parlicuIar eIemenl, bul ralher lo delermine lhe reIalive emphasis lo pIace on each
eIemenl in lhe naI markeling program.
Il musl be recognized lhal lhe markeler musl conlend vilh cerlain uncontrollable
variables. UnforlunaleIy, lhe markeling leam does nol vork in a vacuum. Ils aclions and
slralegies viII be aecled by some or aII of lhe foIIoving variabIes:
1. Cu|iura| an! sccia| !icrcnccs. These are lhe lradilions and vaIues of various elhnic
groups lhal represenl polenliaI cuslomers. Such lrails as ealing habils can vary con-
siderabIy in dierenl parls of our ovn counlry, lo say nolhing of dierenl counlries.
2. Pc|iiica| an! rcgu|aicru cntircnncni. IoIilicaI cIimales are conslanlIy changing. Nev
IeveIs of laxalion and governmenl spending can aecl markeling slralegies sel by lhe
carriers. ReguIalory requiremenls, such as aIIocalions of Ianding quolas al cerlain
airporls because of exlreme peaking in lhe number of ighls, can undermine lhe besl
of markeling pIans.
3. |ccncnic cntircnncni. A good markeling program mighl be a op if lhe economy is
going lhrough a recession or rapid business dovnlurn. AirIines are very sensilive lo
changes in lhe economy.
4. |xisiing ccnpciiiitc siruciurc. The number and lypes of compelilors lhe markeling
leam musl face in ils largel markels may vary considerabIy.
A I R T R A N S P O R TAT I O N 2 6 0
Prc!uci
To lhe average consumer, a producl is simpIy a physicaI ilem vilh cerlain uses and a
parlicuIar appearance. In lerms of lhe markeling mix, il is much more lhan lhis. A producl
purchased by consumers encompasses funclionaI, psychoIogicaI, and aeslhelic fealures as
veII as convenience, reIiabiIily, and so forlh. AII of lhese characlerislics are simpIy caIIed
lhe prc!uci.
The airIine producl is nol a physicaI ilem al aII, bul services lhal consumers nd usefuI.
Safely, on-lime reIiabiIily, convenience in lerms of airporl proximily or seal avaiIabiIily,
frequency of deparlures, in-ighl cabin services, ground services incIuding lickeling
and baggage handIing, aircrah lype, and even lhe carriers image are parl of lhe airIine
producl. This denilion is consislenl vilh lhe airIine markeling concepl, vhich slresses
lhe imporlance of services lhal salisfy cerlain consumer needs.
Ouile frequenlIy, airIine markeling anaIysls discuss lhe prc!uci !icrcniiaiicn lhal
exisls in lhe induslry. If ve consider lhe oulpul of an airIine lo be a seal deparlure, some
anaIysls viII argue lhal ve are basicaIIy deaIing vilh an undierenlialed or slandardized
producl. A seal deparlure on Uniled is lhe same as one on DeIla or American. Or is il`
A seal deparlure from Chicago lo Nev York al 11:30 .. and incIuding meaI service is
nol lhe same as a seal deparlure al 1:00 .. vilh no meaI service. Thus, lhe producl is
dierenlialed. There is some lrulh lo bolh argumenls. If lhree carriers are serving lhe same
markel, aII using lhe same aircrah and providing basicaIIy lhe same cabin service, on vhal
basis do lhey compele` GeneraIIy, lhe ansver can be found in lhe frequency of service.
The carrier vilh lhe mosl frequenl service al limes consumers vish lo y viII generaIIy
caplure lhe Iargesl markel share. ConsequenlIy, each carrier aempls lo scheduIe more
ighls lhan ils compelilors around lhe popuIar earIy morning and Iale ahernoon hours
lo caplure lhe biggesl share of lhe markel. UnforlunaleIy, loo much capacily in lerms of
seal avaiIabiIily viII reduce Ioad faclors lo a poinl al vhich no one can earn a reasonabIe
prol. As a resuIl, lhere is a lradeo belveen meeling consumers needs in lerms of seal
avaiIabiIily and meeling lhe companys ob|eclives, incIuding a reasonabIe relurn.
In markeling lhe airIine producl, cerlain unique characlerislics musl be recognized:
1. The producl (service) cannol be kepl in invenlory lo malch uclualions in demand.
The revenue Iosl as a resuIl of an unIIed seal vhen lhe aircrah deparls is Iosl for-
ever.
5. |cscurccs an! c|jcciitcs cj inc ccnpanu. Top managemenl reaIIy conlroIs lhese vari-
abIes, and lhe markeling leam musl vork vilhin lhe reslrainls imposed on lhem. Ior
exampIe, if managemenl has pIaced greal emphasis on shorl-lerm prols and Iess
emphasis on Iong-lerm markel share on a parlicuIar roule, lhe markeling leam musl
deveIop a slralegy consislenl vilh lhe companys goaI.
AIlhough lhe markeling leam can do IiIe or nolhing aboul lhese unconlroIIabIe variabIes,
il cerlainIy musl recognize lhem and be in a posilion lo respond lo lhem by aIlering ils
markeling slralegy. The lerm narkciing siraicgu is used lo describe lhe process by vhich
lhe markeling mix is changed.
Nov Iels lake a cIoser Iook al lhe four Is.
C H A P T E R 9 A I R L I N E PA S S E N G E R MA R K E T I N G 2 6 1
2. The service is usuaIIy personaIized. Tvo peopIe vho lake lhe same ighl mighl
come avay vilh compIeleIy dierenl opinions aboul lhe service, depending on lheir
individuaI experiences.
3. There is no such lhing as repIacemenl of a bad producl, as is lhe case in lhe saIe of
olher producls.
4. Il is difcuIl lo check lhe quaIily of lhe service before lhe naI saIe. There is no
shovroom lo visil lo lesl lhe producl before purchase.
5. DeIivery of lhe producl cannol aIvays be guaranleed, due lo mechanicaI probIems or
lhe unprediclabiIily of lhe vealher.
6. The service can be produced onIy in balches, as opposed lo individuaI unils.
These characlerislics have prompled lhe airIines in lodays exlremeIy compelilive
environmenl lo inlensify lheir eorls in lvo areas: (1) oering beer quaIilalive and
quanlilalive service lo passengers, and (2) enhancing lheir image. Qua|iiaiitc scrticc
incIudes such lhings as courlesy and efciency in conlacls vilh passengers. Quaniiiaiitc
scrticc primariIy incIudes such sublIe addilions as vider variely of on-board magazines
and enlerlainmenl and grealer seal-pilch angIe. Inhancing lhe company image is mosl
evidenl in recenl adverlising campaigns in vhich lhe generaI lheme pro|ecls an airIine
leam ready lo serve any and aII cuslomer needs.
As noled earIier, many airIines are guiIly of nol doing lhorough research vhen il comes
lo researching roule slruclures and passenger lypes. A good business pIan incorporales
exlra eorl vhen il comes lo background research. Hovever, nding a poinl lo slarl
can ohen be a dicuIl lask. One queslion shouId be ansvered before any research is
underlaken: Whal roule(s) do you have in mind` To invesligale lhis queslion, lhe
deveIoper shouId research underserved roules, saluraled roules, become famiIiar vilh
passenger demand (pasl, loday, lomorrov), and aIso become famiIiar vilh deslinalion
IegaIilies. The Iaer faclor is mosl imporlanl vhen deaIing vilh deslinalions oulside lhe
airIines home counlry.
Many airIines have evoIved based on a hunch. Some have succeeded vhiIe olhers
have faiIed. Slarling an airIine is a risky business as il is and anylhing lhe deveIoper can
do lo minimize risk is mosl beneciaI lo achieving success. Ixpanding an exisling airIine
by oering nev producls and services can be |usl as risky. Having a generaI idea of vhal
kind of airIine one vanls lo slarl is good bul background research is necessary lo make
sure lhe idea is sound. In mosl cases, lhe deveIoper viII nd nev opporlunilies or barriers
lhal verenl knovn in lhe preIiminary slages crealing a nev concepl. Ior exisling carriers,
lhe same Iavs appIy.
In lhe airIine induslry, lhere are many dierenl lypes of services lhal can be oered and
lhe business pIan shouId be focused on a parlicuIar area or niche markel. In mosl cases, lhe
more speciaIized lhe airIine is, lhe beer lhe chance of success. IxampIes of dierenl areas
lo research are presenled beIov. Il shouId be noled lhal lhis is mereIy a Iisl of exampIes lo
gel slarled and nol a compIele Iisling of aII lhe areas requiring research. Once a lhorough
invesligalion has been done, lhe deveIoper viII have a grealer underslanding of vhal
lype of airIine viII be designed in lhe airIine business pIan. The foIIoving discussion
direclIy reIales lo hov airIines markel lheir producls and services lo lhe passenger.
A I R T R A N S P O R TAT I O N 2 6 2
Scheduled or Non-Scheduled Service. Ior lhe mosl parl, an airIine viII oer eilher a
scheduIed service or a non-scheduIed service. A scheduIed airIine viII y lo dierenl
deslinalions using a pubIished lime scheduIe. Ior exampIe, X Airuaus oers service
from Airpcri A lo Airpcri C on Mondays, Wednesdays, and Iridays deparling al 0700.
Depending on lhe counlry of regislralion, lhe airIine viII operale under a parlicuIar ighl
cerlicale aulhorizing scheduIed service. This cerlicale is issued by lhe governmenl
(civiI avialion aulhorily) of lhal counlry. A non-scheduIed airIine viII oer services lo
dierenl deslinalions bul viII nol y according lo a pubIished lime scheduIe. Ior exampIe,
X Airuaus oers service from Airpcri A lo Airpcri O bul lhe days and limes mighl nol
be specic. Again, depending on lhe counlry of regislralion, lhe airIine viII be issued a
specic ighl cerlicale aulhorizing non-scheduIed service.
Luxury, Mid-Range, Low-Cost and No-Frills, Shule, and Charter. When buiIding lhe
airIine business pIan, lhe deveIoper musl knov vhal lype of service lo operale in lerms
of lhe amenilies il viII oer. GeneraIIy, a Iuxury-orienled airIine slands a good chance of
faiIing from lhe slarl due lo high overhead cosls. A good exampIe of lhis lype of carrier
vas lhe U.S.-based MGM Grand Air lhal provided Iuxury service belveen Nev York and
Los AngeIes. One of lhe predominanl reasons of ils faiIure vas lhe high overhead cosls
associaled vilh oering Iirsl CIass sealing vilh exlra Ieg room, china dishes for meaI
service, exolic food and drink, and aircrah lhal vere expensive lo operale and mainlain.
A mid-range airIine viII caler lo passengers vanling a reasonabIe airfare vilh some in-
ighl amenilies incIuding food, drink, and enlerlainmenl. GeneraIIy, mid-range airIines
have a reasonabIe chance lo survive as Iong as lhe cosl slruclure is veII mainlained. Ior
lhe mosl parl, ma|or airIines are calegorized as mid-range.
Lov-cosl carriers caler lo passengers vanling cheap airfares vilh IiIe demand for in-
ighl services. Hovever, il is imporlanl lo dislinguish belveen a Iov-cosl and a no-friIIs
carrier. In lerms of cosl slruclure, a Iov-cosl airIine oers a reasonabIe airfare resuIling
from Iov-cosl managemenl slralegies. A no-friIIs airIine aIso oers reasonabIe or cheap
airfare resuIling from vhal mighl be considered exlreme Iov-cosl managemenl slralegies.
asicaIIy, a no-friIIs airIine oers a seal from poinl A lo poinl vilh no in-ighl service.
In lhe Uniled Slales, Soulhvesl AirIines is considered lhe Ieading Iov-cosl no-friIIs air
carrier.
A shuIe airIine calers mainIy lo business lraveIers seeking movemenl belveen lvo
ma|or cily cenlers. The shuIe concepl is simiIar lo a convenlionaI bus service oering a
reasonabIe airfare vilh no reservalion. High frequency and easiIy remembered limes are
lypicaI aribules of a shuIe.
A charler airIine oers services lo deslinalions based on demand vilhoul using
a pubIished lime scheduIe. In olher vords, lhe aircrah mighl be renled one lime or
muIlipIe limes lo lransporl peopIe or goods lo specic deslinalions. This lype of service
is referred lo as an ad-hoc charler. The more common lype of charler calers lo passengers
seeking Ieisure-orienled deslinalions. Mosl airIines in lhe charler markel operale by a
non-pubIished lime scheduIe lo specic deslinalions on a seasonaI basis. In lhe norlhern
hemisphere, many charler carriers operale norlh and soulh during lhe vinler and easl
and vesl during lhe summer.
First, Business, Economy. Whal lype of sealing shouId lhe airIine oer` HisloricaIIy, ma|or
airIines oered lhree lypes of sealing conguralions: rsl, business, and economy. Today,
as il becomes more dicuIl lo operale a successfuI airIine from a nanciaI perspeclive,
C H A P T E R 9 A I R L I N E PA S S E N G E R MA R K E T I N G 2 6 3
many airIines are doing avay vilh lhe lhree cIasses and moving lovard lvo cIasses. Iirsl
cIass is being removed and repIaced vilh increased business cIass sealing and increased
economy cIass sealing. The markeling geniuses al many ma|or airIines have renamed lhe
expanded business cIass rsl cIass for psychoIogicaI reasons. Increasing deck capacily
means more revenue is generaled for lhe airIine. In shorl, puing more bus in lhe
seals, is lhe nev lrend. If an airIine oers a rsl cIass seal, exlra space is occupied by
lhe seal because lhe rsl cIass passenger demands exlra Ieg room meaning increased seal
vidlh and pilch. AIongside exlra room, lhis parlicuIar passenger lype demands a coslIy
in-ighl service consisling of food, drink, and personaI enlerlainmenl.
usiness cIass sealing is imporlanl lo airIines vanling lo aracl business lraveIers
viIIing lo pay a high air fare. HisloricaIIy, business lraveIers have been lime sensilive and
nol price sensilive meaning lhal lhe ma|or airIines couId oer a Iasl minule seal and expecl
lo generale a high yieId. Hovever, since lhe evenls of 9/11, a nev lrend has occurred.
Iconomy cIass sealing is more imporlanl lhan ever before. Since 9/11, many corporalions
have cul dovn on operaling cosls by reducing lraveI budgels for empIoyees. usiness
lraveIers lhal once lraveIed in business cIass are being forced lo lraveI in economy
meaning lhal many of lhe ma|or airIines are no Ionger receiving lhe same high yieIds
lhey previousIy did. Ior lhe rsl lime in avialion hislory, ma|or airIines are reaIizing lhal
lheir bread and buer are economy cIass passengers. Lov-cosl airIines lypicaIIy oer a
singIe economy cIass and generale revenue based on voIume ralher lhan by sealing cIass.
An aircrah can accommodale more seals vilh a singIe sealing conguralion meaning lhal
airIines operaling vilh maximum deck capacily have Iover operaling cosls passing lhe
dierence on lo lhe passenger resuIling in a reasonabIe lickel price.
Food and Bar. The airIine producl seems lo be changing as lhe gIobaI airIine induslry
conlinues lo evoIve. Some induslry experls cIaim lhe induslry is maluring. In reaIily, lhe
induslry is sliII young and is anylhing bul malure. UnliI recenlIy, lhe airIine producl vas
dened as a seal combined vilh addilionaI services Iike food, beverage and enlerlainmenl.
Today, anylhing olher lhan a seal is considered an add-on. In lhe Uniled Slales, mosl
airIines do nol serve compIimenlary food ilems or aIcohoIic beverages. Today, passengers
are forced lo purchase such ilems. In some cases, even lhe oplion of purchasing add-ons
is non-exislenl. UnforlunaleIy, for lhe passenger, lhis provides an exlra expense on lop of
lhe airIine fare. The ip side is lhal in-ighl meaIs are ohen reslauranl quaIily.
Entertainment. AIlhough many aircrah are equipped vilh various lypes of in-ighl
enlerlainmenl, oering such enlerlainmenl can be a coslIy decision. The lechnoIogy
associaled vilh oering movies, radio, leIevision, and leIephone is very coslIy and
someone has lo pay. HisloricaIIy, such enlerlainmenl vas compIimenlary. Iusl Iike food
and drink, enlerlainmenl is nov oered by many airIines for an exlra charge. Many
airIines have reaIized lhe prol lo be made by seIIing headsels, Iive saleIIile leIevision
and movies lo lhe passenger.
Cargo and Freight. If a passenger airIine pIans lo oer cargo or freighl service, lhere
are some imporlanl faclors lo consider. IirslIy, due lo heighl and veighl reslriclions, il is
imporlanl lhal lhe lransporl of such goods does nol inlerfere vilh lhe primary revenue
generalor lhe passenger. AIso, lhe lype of aircrah operaled viII impacl lhe amounl of
cargo and freighl lhal can be hauIed. A vide body aircrah is necessary lo oer a paIIel and
conlainer syslem. CurrenlIy, lhere is onIy one narrov body aircrah equipped lo handIe a
A I R T R A N S P O R TAT I O N 2 6 4
paIIel and conlainer lhe Airbus A320. Irior lo any operalions, lhe airIine business pIan
shouId idenlify hov much invoIvemenl vilh cargo and freighl lhe airIine pIans for lhe
fulure. The ansver lo lhis couId impacl lhe lype of aircrah ovn having a signicanl
impacl on cosls. Currenl lrends indicale lhal lhe lransporl of cargo and freighl is beneciaI
if done on a suppIemenlaI basis. A passenger airIine cannol compele vilh lhe mainslream
door lo door operalors Iike IederaI Ixpress, UIS, TNT, and DHL.
Duty-Free. The oering of duly-free goods onIy appIies lo airIines ying on an
inlernalionaI basis. Ior lhe mosl parl, oering such a service is a posilive move because il
makes lvo parlies happy. IirslIy, lhe passenger appreciales lhe opporlunily lo purchase
duly-free goods on board lhe aircrah. SecondIy, lhe airIine benels by earning a prol on
each saIe.
Baggage Restrictions. As menlioned previousIy, many airIines are increasing deck
capacily vilh increased economy and/or business cIass sealing. Due lo increased passenger
veighl, airIines are nding lhal lhey have lo Iimil lhe amounl of baggage a passenger
can check-in. Iassengers checking-in baggage beyond lhe airIines reslriclion are ohen
charged an excess baggage fee. Many airIines have reaIized hov much revenue can be
earned as a resuIl of such a fee.
Interline Agreements. ecause lhe ma|or airIines operale on a hub-and-spoke syslem,
lhey have lhe abiIily lo oer inlerIine agreemenls vilh olher airIines. AIlhough lhis is
posilive from a markeling perspeclive, one of lhe polenliaI dovnfaIIs is lhal inlerIining
can cause conlracluaI nighlmares and baggage lransfer headaches. Il is aIso imporlanl lo
nole lhal vhen inlerIining passengers, ohen lhe passenger is nol avare of vhal airIine
lhey are ying on. As a resuIl, bad service oered by one of lhe inlerIining airIines can
be associaled vilh your airIine. On lhe olher hand, a posilive experience may aIso be
associaled vilh your airIine. Nev-enlranl airIines are nding il beneciaI nol lo inlerIine
vilh compeling carriers in order lo keep operalions simpIe. AIso, because many nev-
enlranl and Iov-cosl airIines do nol uliIize hub airporls, lhere is no reason lo inlerIine
passengers because lhere is no need for conneclivily.
Other Amenities. To increase an airIines chance of success in an increasingIy compelilive
induslry, lhe carrier shouId be abIe lo oer amenilies lhal compeling carriers do nol
oer. Adding a sense of uniqueness viII become more imporlanl as lhe 21slcenlury
progresses.
Pri cc
Once a ralher dociIe eIemenl in lhe markeling mix because of ils conlroI by lhe CiviI
Aeronaulics oard, price has become one of lhe mosl voIaliIe areas loday. In facl, since
dereguIalion, pricing has become lhe ma|or compelilive variabIe. This is nol surprising in
an induslry vilh reIaliveIy fev companies, each avare of lhe olhers pricing poIicies and
having lo malch lhe compelilion or Iose markel share. ecause of ils imporlance in lhe
markeling process, pricing is discussed in delaiI in Chapler 10. Our discussion of pricing
in lhis seclion viII be generaI, Ieaving such ilems as lhe lypes of fares and lhe lheory of
demand and oulpul delerminalion lo lhe nexl chapler.
C H A P T E R 9 A I R L I N E PA S S E N G E R MA R K E T I N G 2 6 5
Prcncii cn
asicaIIy, lvo generaI faclorsdemand and suppIydelermine lhe IeveI of prices in
any markel. Ocnan! jacicrs are lhe inlensilies and IoyaIlies lhal cuslomers bring: hov
viIIing and abIe lhey are lo pay for air lransporlalion. Supp|u jacicrs invoIve lhe quanlily
of seals lhal a carrier pIaces in a parlicuIar markel. The ma|or componenl of suppIy is lhe
lolaI cosl of producing and markeling lhe seals lhal are made avaiIabIe. Thus, ve viII
consider here lhe lvo ma|or faclors lhal delermine price IeveIs: demand, and produclion
and markeling cosls.
Demand. The quanlily of lickels purchased by cuslomers in a parlicuIar markel viII
IargeIy depend on lhe price. Iev cuslomers vouId be viIIing or abIe lo pay $1,000 for a
ighl from Miami lo San Irancisco, regardIess of lhe service provided. Yel if lhis ighl
vere priced al $100, lhe number of lickels lhal couId be soId vouId probabIy far exceed lhe
number of seals avaiIabIe. This iIIuslrales a fundamenlaI principIe in economics regarding
lhe demand for a producl: as lhe price of an ilem faIIs, lhe quanlily of lhal ilem purchased
by cuslomers normaIIy rises.
We can readiIy see lhe imporlance of price in delermining lhe quanlily demanded, bul
lhere are olher faclors in or delerminanls of markel demand. IncIuded are lhe preferences
of passengers for one airIine over anolher because of some reaI or perceived dierence,
lhe number of passengers in a parlicuIar markel, lhe nanciaI slalus and income IeveIs
of passengers, lhe prices of compelilors and reIaled lraveI expenses, and passengers
expeclalions regarding fulure prices. These faclors viII aII be discussed in delaiI in Chapler
10.
Production and Marketing Costs. Iroduclion and markeling cosls aIso have a bearing
on lhe prices an airIine sels. The cosl per seal-miIe ovn musl be covered by lhe price of
lhe lickel. IncIuded in an airIines lolaI cosl of operalion are ils direcl operaling coslsfueI,
crev saIaries and expenses, Ianding fees, and so forlh. Indirecl operaling cosls, or xed
expenses, such as mainlenance cosls, generaI adminislralive cosls, and lhe markeling
expenses associaled vilh passenger servicing, aII musl be covered by lhe revenue generaled
on ighls lhroughoul lhe syslem. Thus, in a sense, lhe produclion and markeling cosls of
lhe carrier represenl lhe oor under lhe price sel for lhe carriers producl.
Iromolion is lhe communicalion belveen carrier and cuslomer. This communicalion
can be achieved in various vays, bul lhe lvo mosl imporlanl forms of promolionaI
communicalion are a!tcriising (somelimes referred lo as mass seIIing) and pcrscna| sc||ing.
Olher promolionaI aclivilies incIude frequenl-ier programs, sveepslakes, rafes, lvo-
for-lhe-price-of-one air lraveI, and free giveavay ilems.
The broad goaI of an airIines promolionaI aclivilies is lo increase revenues and prols.
To accompIish lhis, a carrier musl engage in aclivilies lhal inform, persuade, and remind
cuslomers in lhe largel markel aboul ils services. The principaI lask in promoling a nev
ilem is ohen simpIy lo inform prospeclive cuslomers aboul lhe exislence of lhe service, lo
demonslrale ils superiorily over polenliaI aIlernalives, and lhen lo encourage cuslomers
lo lry lhe service and form lheir ovn opinions. When a producl faces compelilion from
cIose subslilules, such as compeling carriers, lhe promolionaI ob|eclive is generaIIy lo
pcrsua!c cuslomers lo buy lhe carriers services ralher lhan anolher carriers services. If
more compelilion arrives in lhe markelpIace, lhe promolionaI eorl is direcled lovard
A I R T R A N S P O R TAT I O N 2 6 6
rcnin!ing cuslomers of lheir favorabIe experience vilh lhe service and encouraging lhem
lo conlinue lo use il or lo relurn lo il if lhey have svilched lo anolher carrier.
Adverlising is anolher imporlanl eIemenl in lhe promolionaI scheme of an airIine. Olher
promolionaI aclivilies incIude lhe Iileralure provided lo lraveI agencies lo inform lhem
of lhe Ialesl speciaIs, such as promolionaI fares and lours, lhal are avaiIabIe. Much of lhis
aclivily is carried oul by lhe carriers saIes personneI lhal service a parlicuIar agency.
A ma|or goaI of promolion is lo Iel cuslomers in largel markels knov lhal lhe carriers
services are avaiIabIe al lhe righl lime, pIace, and price. This caIIs for seIecling lhe righl
bIend of promolionaI aclivilieslhe combinalion lhal besl suils lhe parlicuIar markel. This
viII be covered in grealer delaiI in our discussion of largel markels Ialer in lhe chapler.
P| acc
Ior a service lo be of vaIue lo consumers, il musl be avaiIabIe vhen and vhere lhey vanl
il. The pIace eIemenl in lhe markeling mix incIudes aII inslilulions and aclivilies lhal
conlribule lo deIivering lhe producl al lhe limes and lo lhe pIaces consumers desire
in olher vords, convenienl faciIilies or saIes oulIels vhere cuslomers can purchase lhe
service.
In lhe airIine induslry, lhere are lhree basic lypes of saIes oulIels: (1) lhe carriers
ovn saIes ofces, incIuding eId lickel ofces (FTOs), cily lickel ofces (CTOs), and
cenlraIized reservalions ofces: (2) olher carriers saIes ofces: (3) and lraveI agencies.
SeveraI varialions of lhese incIude |oinl airIine/miIilary lickel ofces ( JAMTOs) and
combined airIine lickel ofces (CATOs). A IAMTO, as lhe name impIies, is Iocaled al a
miIilary base and is slaed by lickel agenls from one or more carriers lhal serve airporls
cIose lo lhe miIilary base. A CATO is generaIIy found in a smaII cily: personneI from lvo
or more carriers sla lhe faciIily.
An airIines ovn saIes ofces can be on-Iine or o-Iine. The cn-|inc sa|cs cjcc is Iocaled in
a cily served by lhe carrier. An c-|inc sa|cs cjcc is normaIIy Iocaled in a Iarger melropoIilan
area: usuaIIy onIy ma|or carriers have o-Iine saIes ofces. |ic|! iickci cjccs. as lhe name
impIies, are Iocaled al lhe airporl in lhe lerminaI area or on a ma|or slreel somevhere near
lhe airporl.
Ouile ohen, a carrier, or severaI carriers logelher, sels up a porlabIe lickel boolh in lhe
Iobby of an ofce buiIding in a Iarge cily lo provide a convenienl Iocalion for frequenl
lraveIers lo purchase lickels. An exampIe is lhe Insurance Ixchange uiIding in dovnlovn
Chicago.
The carriers cenlraIized reservalions faciIily, usuaIIy Iocaled hundreds of miIes from
ma|or melropoIilan areas, services a vhoIe region lhrough lhe use of loII-free leIephone
numbers. A ighl from Miami lo Nev OrIeans mighl be conrmed by caIIing a reservalions
faciIily Iocaled in Norlh CaroIina. In some cases, a passenger mighl end up speaking lo
a reservalions agenl in a dierenl counlry vhose cosls are cheaper for lhe airIine (e.g.,
IhiIippines, India). The main funclion of an airIines reservalions syslem is lo delermine
lhe Ioad slalus of aII fulure ighls. The number of unsoId seals can be accessed righl up
unliI boarding lime.
Olher carriers saIes ofces can aIso be very heIpfuI oulIels. Tickels soId lhrough lhis
source are referred lo as inicr|inc sa|cs. MiIIions of doIIars in inlerIine saIes are processed
lhrough lhe airIines cIearinghouse every year.
The imporlance of lraveI agencies grev signicanlIy during lhe 1980s lo lhe Iale 1990s.
In 1970, lhere vere 6,911 lraveI agency Iocalions in lhe Uniled Slales, vhich produced
C H A P T E R 9 A I R L I N E PA S S E N G E R MA R K E T I N G 2 6 7
$2.3 biIIion of lhe induslrys $9.3 biIIion in lolaI revenues, or roughIy 25 percenl. y
1985, lhe number had increased lo 27,193 agencies, vhich produced $32.3 biIIion of lhe
induslrys $46.7 biIIion in revenue, or cIose lo 70 percenl. In 1991, approximaleIy 42,000
lraveI agenls booked 80 percenl of lhe ying pubIic. This meanl lhal 80 cenls oul of every
doIIar lhal venl lhrough lhe scheduIed airIines corporale cash regislers vas generaled by
a lraveI agenl. ObviousIy, agenls vere a very imporlanl eIemenl in lhe airIine markeling
dislribulion syslem.
The lraveI agenl operales a supermarkel of services in lhe lraveI and lransporlalion
eId, embracing airIines, raiIroads, cruise Iines, buses, and renlaI aulomobiIes. The agenl
aIso arranges holeI accommodalions, sighl-seeing lrips, and package vacalion lours on an
individuaI or group basis.
The agenls income is derived primariIy from commissions paid by carriers, holeIs,
and olher operalors for business produced. There is no cosl lo lhe lraveIing pubIic.
To be eIigibIe for commissions on saIes for domeslic or inlernalionaI lraveI, lhe lraveI
agency musl be approved and appoinled by eilher lhe AirIines Reporling Corporalion
or lhe InlernalionaI Air Transporl Associalion (IATA), aher rigid scruliny of lhe agenls
professionaI lransporlalion experience and nanciaI resources. OnIy lhen does an
individuaI carrier decide if il vanls lo pIace ils lickel vaIidalion pIales vilh lhe agency.
In many geographic areas vhere lhe carrier does nol operale, lhe appoinled lraveI
agenl is lhe carriers soIe represenlalive. TraveI agenls pIay an imporlanl roIe in lhe saIe of
air lransporlalion because lhey inuence cuslomers decisions concerning deslinalion and
carrier. In lhe posldereguIalion period, in vhich promolionaI fares have proIiferaled, lhe
lraveI agenl can be an invaIuabIe resource for cuslomers seeking lhe besl buy avaiIabIe.
In many Iarger cilies, lhe carriers passenger saIes managers hoId monlhIy meelings
vilh lraveI agenls lo exchange ideas and informalion. TraveI agenls and lheir empIoyees
periodicaIIy visil lhe various carriers reservalions ofces lo deveIop a rapporl vilh lhe
carriers personneI, vilh vhom lhey are in daiIy conlacl. The carriers aIso hosl seminars for
lraveI agency personneI lo inform lhem aboul lhe Ialesl markeling poIicies and procedures.
A basic course, designed for inexperienced agenls, mighl incIude lhe fundamenlaIs of lhe
airIine reservalions funclion, incIuding lickeling procedures. An advanced course mighl
incIude inlernalionaI lraveI and lickeling.
Ividence of lhe lraveI agenls imporlance can be found in lhe demise of Iaslern AirIines.
TraveI agenls, hearing rumors of Iaslerns nanciaI lroubIes, shihed miIIions of doIIars in
business lo olher carriers lo prolecl lhemseIves and lheir cuslomers. UnforlunaleIy, lhis
served lo haslen lhe coIIapse of lhe carrier.
y lhe Iale 1990s and slarl of lhe 21sl cenlury, lhe imporlance of lhe lraveI agenl had
decreased signicanlIy. The use of lhe Inlernel, aIso knovn as direcl seIIing, in many
cases repIaced lhe need for a lraveI agenl, beneling bolh lhe passenger and lhe airIine.
The airIine is abIe lo eIiminale lraveI agenl commissions and pass lhe savings on lo lhe
passenger, resuIling in a Iover airfare. The Inlernel aIso aIIovs passengers from anyvhere
in lhe vorId lo book on-Iine 24 hours per day, 365 days per year, oering a greal deaI of
convenience. In lhe Uniled Slales in March 2002, DeIla Air Lines vas lhe rsl airIine lo
eIiminale lraveI agency commissions compIeleIy, foIIoved by lhe resl of lhe compelilion.
As a resuIl, lraveI agenls lhroughoul lhe counlry increased fees lo cIienls by increasing lhe
lraveI agenl fee. In many cases, a $25 per lickel charge became $45 per lickel. Iassengers
nov ock lo lhe Inlernel for greal deaIs, consuIling airIine Web siles and olher popuIar
siles, such as TraveIocily, IriceIine, and Orbilz. ooking via lhe Inlernel viII conlinue lo
grov rapidIy. In 1998, 2 percenl of airIine lickel bookings vere done on lhe Inlernel. y
Iale 2002, 12 percenl of air lraveI bookings resuIled from lhe Inlernel. This gure |umped
A I R T R A N S P O R TAT I O N 2 6 8
lo 15 percenl in 2003. y 2005, according lo lhe TraveI InduslryAssocialion of America
(TIA), lhis gure vas 30 percenl.
THE CONSUMER-ORIENTED MARKETING CONCEPT
Inlroduclion of vide-body service in lhe earIy 1970s marked lhe cIimax of lhe produclion-
saIes orienlalion in lhe air lransporlalion induslry. Ixcess capacily and a shorlage of
cuslomers changed lhe markeling concepl lo a consumer-orienled approach. According
lo many anaIysls, lhe induslry vas enlering ils malure slage aher rapid grovlh in lhe
1960s. In lhis slage in an induslrys deveIopmenl, many polenliaI cuslomers have aIready
lried lhe producl, veaker compelilors have Ieh lhe induslry, lhe remaining compelilors
have become veII enlrenched, and lheir markeling poIicies and images are veII knovn.
Cuslomer IoyaIlies and markel shares become slabiIized.
Markel research came lo lhe forefronl as lhe carriers began lo Iearn aII lhey couId
aboul exisling and polenliaI cuslomers for air lransporlalion. The purpose vas lo design
producls (services) lo meel changing cuslomer requiremenls as lhey arose, or preferabIy
before lhey arose. In olher vords, lhe carriers soughl lo deveIop services lhal vouId be
responsive lo parlicuIar cuslomer needs. To do so, markeling research anaIysls had lo nd
oul vho vas ying, vhy lhey vere ying, vhal income group lhey beIonged lo, vhal lhey
vanled and Iiked, vhere lhey vanled lo go, vhal lhey couId aord (rsl cIass or coach),
vhal lheir personaI slalus vas (singIe, married, slage in lheir famiIy Iife cycIe), vhal
nevspapers and magazines lhey read, vhal TV shovs lhey valched and radio slalion
lhey Iislened lo, vhelher lhey paid vilh cash or credil cards, and vhal limes of lhe year
lhey lraveIed. Moreover, researchers had lo Iearn vhal vas going on al dierenl limes
in dierenl pIaces and ascerlain vhich aclivilies vouId be of inleresl lo lhe companys
prospeclive or exisling cuslomers.
Markel research became a vilaI componenl of lhe markeling mix during lhe 1970s and
has provided lhe foundalion for lhe pIanning and execulion of markeling programs lo
lhe presenl day. During lhis consumer-orienled period, carriers have begun lo focus on
increased markel segmenlalion and more inlensive grovlh slralegies.
Markci Scgncniaii cn
Market segmentation is lhe process of dividing polenliaI cuslomers for a producl (service)
inlo meaningfuI consumer groups, or narkci scgncnis. in order lo idenlify a largel markel.
This process invoIves lhree sleps:
1. Iinding reIevanl characlerislics lhal divide a markel inlo smaIIer consumer groups.
Ior exampIe, an airIine markel mighl be segmenled by lrip purpose (business, pIeas-
ure, personaI), lraveIer characlerislics (age, sex, occupalion, income, ying experi-
ence), lrip characlerislics (Ienglh of hauI, peak versus nonpeak, day of lhe veek, sea-
son), or Ienglh of slay (relurn same day, overnighl, vacalion).
2. Using lhese characlerislics lo idenlify aII signicanl markel segmenls and lo reIale
lhem syslemalicaIIy lo lhe services each segmenl mighl buy.
C H A P T E R 9 A I R L I N E PA S S E N G E R MA R K E T I N G 2 6 9
3. SeIecling largel markelslhe coIIeclion of markel segmenls mosl consislenl vilh lhe
companys ob|eclives and capabiIilies.
Iigure 9-1 gives an exampIe of lhe segmenling process. ecause no lvo lraveIers
are aIike, lhe markels can be segmenled and lhe markeling mix shaped around lheir
dierences and needs. We can furlher grasp lhe overaII lrend of nding needs and IIing
lhem by laking a cIoser Iook al some of lhe business markels lhal conlribule lo lhe revenue
of a lypicaI ma|or carrier.
Mercantile Travel. RelaiIers, vhoIesaIers, and manufaclurers accounl for a considerabIe
amounl of air lraveI. Ior exampIe, deparlmenl slore personneI, incIuding buyers,
managers, and execulives, y lo numerous conferences, lrade shovs, and speciaI previevs
of seasonaI fashions. AirIine markelers viev relaiI eslabIishmenls as an exceIIenl pIace lo
promole lraveI on lheir airIine, as veII as a good largel markel for air lraveI. The airIine
markeling sla assisls deparlmenl slore dispIay personneI vilh various promolions by
providing modeIs of airpIanes, poslers, and so forlh.
Religious Travel. In addilion lo recognizing lhe parlicuIar needs of lhe members of lhis
markel segmenl, carriers musl be avare of lhe speciaI prolocoI invoIved in doing business
vilh lhe various groups. IncIuded in lhis segmenl are members of lhe cIergy as veII as
IaypeopIe lraveIing for numerous reasons, incIuding relreals, conferences, and schooI-
reIaled aclivilies.
Funeral Travel. Some airIines have a cIose reIalionship vilh funeraI direclors because
lhey are among lhe besl repeal cuslomers. IuneraI direclors accounl for nol onIy lhe
revenue from lhe shipmenl of human remains bul aIso lhe revenue from lhe grieving
reIalives (an average of lhree) vho choose lo accompany lhe deceased or lo lraveI on
anolher ighl. Here again, lhe markeling sla vorks very cIoseIy vilh lhe cuslomers
because of lhe crilicaI liming invoIved.
Educational Travel. The educalionaI lraveI markel segmenl incIudes coIIeges,
universilies, secondary schooIs, and lhe Iike. IncIuded are adminislralive personneI,
facuIly members, sludenls, alhIelic leams and lheir fans, aIong vilh olhers, such as
coIIege alhIelic scouls, members of lhe nevs media, and promolers. This is a Iarge markel
segmenl lhal makes repealed use of air lraveI.
Military Travel. This segmenl represenls a conlinuaI ov of lraveI by personneI on
ofciaI business, emergency Ieave, furIough, discharge, and reIocalion. Some miIilary
bases are IileraIIy cilies unlo lhemseIves lhal provide a signicanl voIume of lrafc lo
carriers servicing nearby airporls. Again, lhe markeling personneI vork very cIoseIy vilh
lhe base commander and miIilary sla personneI in deveIoping scheduIes and services lo
accommodale lhe needs of lhis segmenl.
Group Travel. An increasingIy imporlanl segmenl of largel markeling in recenl years
has been group lraveI. The opporlunilies are unIimiled, because mosl everyone beIongs
lo various groupsamaleur alhIeles, leachers, doclors, posl ofce empIoyees, lrade
associalions, and so on. A speciaIIy deveIoped package lour mighl be a group of diabelics
accompanied by a physician or a goIfers lour accompanied by a goIf pro. One of lhe
A I R T R A N S P O R TAT I O N 2 7 0
Interstate
business
air travel
t
r
a
v
e
l
t
r
a
v
e
l
t
r
a
v
e
l
t
r
a
v
e
l
t
r
a
v
e
l
t
r
a
v
e
l
market
Interstate
air travel
market
Air transportation
market
Transportation
market
Mercantile
Religious
Funeral
Educational
Military
Group
FIGURE 9-1 Market segmentationgroups of customers who share qualities
that render the segment distinct and make it of signicance to
marketing.
reasons airIines have promoled group lraveI exlensiveIy in recenl years is lhe packaging
aspecl, vhich generaIIy incIudes air fare, holeI accommodalions, cerlain meaIs, various
lours, and even renlaI cars. In lhis vay, lhey avoid compeling vilh olher carriers onIy on
lhe direcl price of air fare.
|nicnsi tc Grcuin Siraicgi cs
As lhe lerm impIies, intensive growth strategies invoIve a concerled eorl lo (1) penelrale
exisling largel markels, (2) increase producl deveIopmenl, and (3) deveIop nev largel
markels.
Market Penetration. One melhod of penelraling exisling markels more deepIy is lhrough
lhe use of prcnciicna| jarcs. IromolionaI fares have been, and sliII are, an eeclive vay for
carriers lo II emply seals vilh Ieisure lraveIers vho are being more carefuIIy largeled in
specic o-season markels and for o-peak lraveI periods.
Anolher approach lo grealer markel penelralion is by varying lhe c|asscs cj scrticc. In
lhe earIy years, carriers oered onIy one-cIass service. Nexl came rsl cIass and lourisl,
foIIoved by coach and economy cIass for domeslic lraveI, and lhen nighl coach and day
coach, and even deIuxe coach and deIuxe nighl coach. Then came slandby lraveI, in
vhich no reservalion vas heId for lhe passenger. Nexl came shuIe services, in vhich
passengers did nol make a reservalion bul simpIy ev based on avaiIabIe space. This
vas foIIoved by Ieisure cIass, in vhich passengers purchased a reguIar coach-fare lickel,
made a condilionaI reservalion, and shoved up 20 minules before deparlure lime. If a
C H A P T E R 9 A I R L I N E PA S S E N G E R MA R K E T I N G 2 7 1
conrmed passenger did nol shov up, lhe Ieisure-cIass passenger vouId lake lhal seal,
eilher coach or rsl cIass, depending on vhal vas avaiIabIe. If lhe ighl vas fuII, lhe
passenger gol a refund or a seal on lhe nexl ighl oul.
The carriers have inilialed a number of olher promolions in lheir aempl lo achieve
deeper penelralion of exisling markels: frequenl-ier bonus avards for miIeage
accumuIaled: buy-one-lickel-gel-one-free cerlicales lo seIecled cilies: veekender cIubs
in vhich lraveIers, for a nominaI membership fee, receive excIusive nolice of vacalion
packages: and upgrading of coach-fare passengers lo rsl cIass for a smaII charge.
Product Development. usiness lraveI is nol as responsive lo changes in lhe price variabIe
as is pIeasure lraveI, because businesspeopIe lypicaIIy musl lraveI during a parlicuIar
period because of business needs. Il is much easier for pIeasure lraveIers lo change lheir
pIans lo lake advanlage of price reduclions. ConsequenlIy, a grealer emphasis is pIaced on
prc!uci inprctcncni vhen il comes lo lhe business ier. These are aIso lhe lype of lhings
lhal buiId IoyaIly lo a parlicuIar carrier.
In an eorl lo accommodale businesspeopIes basic lraveIing requiremenls and
mainlain lhe conservalive environmenl lhey may desire, producl improvemenls such as
lhe foIIoving have been added lo lhe in-ighl service:
1. In-ighl leIephone and fax, incIuding Inlernel and e-maiI access
2. In-ighl reservalions for holeI and car renlaIs
3. ComforlabIe seals vilh increased vidlh and pilch
4. Gourmel meaIs and compIimenlary beverages
5. Inhanced enlerlainmenl syslems, incIuding direcl TV and video games
6. Reading and vriling maleriaIs
7. Larger Iavalories vilh amenilies
8. Impressive duly-free services
Some carriers have shovn reruns of lhe professionaI foolbaII game of lhe veek for
business lraveIers vho mighl have missed il. One carrier dislribules a privaleIy circuIaled
nevsIeer lo imporlanl business lraveIers.
SpeciaI on-ground services incIude Iounges and meeling rooms for business lraveIers.
AIlhough lhese faciIilies are avaiIabIe lo lhe generaI ying pubIic, lhere is a membership
fee, vhich lends lo make lhem loo expensive for lhe occasionaI lraveIer. Iurlhermore, lhey
are generaIIy Iocaled in oul-of-lhe-vay parls of lhe airporl behind unmarked doors.
Carriers have senl speciaI baggage idenlicalion lags lo knovn business lraveIers lo
make lhe bags easiIy recognizabIe in crovded airporl lerminaIs. SpeciaI credil cards have
been issued lo especiaIIy frequenl business iers, again lo acknovIedge lhe imporlance
of lheir palronage.
A I R T R A N S P O R TAT I O N 2 7 2
This discussion regarding producl deveIopmenl, using lhe business segmenl as
an exampIe, is by no means exhauslive. AirIines are conlinuaIIy improving exisling
producls (services) and deveIoping nev ones direcled al parlicuIar markel segmenls.
Market Development. Markel deveIopmenl is lhe process of seIIing currenl producls
lo nev largel groups. Markel research is conlinuaIIy searching for nev largel markels
based on lhe lradilionaI melhod of !cncgrapnic scgncniaiicn and lhe never psychographic
segmenlalion. Demographic segmenlalion is lhe process of dislinguishing dierenl groups
based on age, sex, race, nalionaIily, and so forlh. Psucncgrapnic scgncniaiicn aempls lo
dierenliale groups aIong Iife-slyIe or personaIily Iines.
Some of lhe never, faslesl groving airIine largel markels are lhe singIes markel,speciaI
inleresl groups, lhe alhIelic markel, lhe vomens lraveI markel, and lhe African American
lraveI markel. The increasing size, afuence, and compIexily of lhe singIes markel is
crealing nev opporlunilies and chaIIenges for airIine markelers. Women are marrying
much Ialer, more singIe men are mainlaining lheir ovn househoIds, and lhe number
of unmarried persons Iiving logelher has increased signicanlIy. y lhe year 2006,
approximaleIy 50 percenl of aII househoIds vere headed by a singIe person, incIuding
lhose formerIy married or Iiving vilh friends or reIalives.
ConvenlionaIIy, lhe singIes markel impIies individuaIs vho are unencumbered vilh
responsibiIilies, vho have considerabIe mobiIily, and vho can spend money on lraveI
lhal peopIe vilh lradilionaI famiIy commilmenls generaIIy cannol. This is parlicuIarIy
lrue for singIe peopIe belveen lhe ages of 25 and 35. Higher educalion and income IeveIs
and grealer amounls of Ieisure lime add up lo more lraveI, bolh individuaIIy and in
groups. Ski-veekend packages, lhealer and olher cuIluraI lours, and air-cruise packages
are aII popuIar vilh lhis demographic group. This group aIso incIudes speciaI inleresl
groups.
The alhIelic lraveI markel segmenl incIudes lrafc generaled by alhIelic evenls and
by lhe lransporlalion of members of lhe alhIelic leams. The groving inleresl in sporls al
lhe coIIegiale and professionaI IeveI and increases in amounls of Ieisure lime and famiIy
discrelionary income are faclors lhal shouId produce increased revenues for lhe carriers
during lhe earIy 2000s and beyond from lhis segmenl. The expansion of professionaI Ieagues
lo addilionaI cilies, lhe crealion of nev Ieagues in some sporls, and lhe proIiferalion of
poslseason pIayo games have added up lo increased lraveI. One carrier adverlises ilseIf
as lhe airIine of sporls champions and is referred lo as lhe airIine of lhe NIL by lhe
NalionaI IoolbaII League.
Charlering aircrah lo professionaI leams has become a Iucralive business for some of
lhe ma|or carriers. Irivacy, in-ighl service, and dependabiIily (on-lime performance) are
key ingredienls lo lhe success of lhis groving markel for lhe carriers.
Anolher groving markel segmenl lhal lhe carriers see as having considerabIe polenliaI
is lhe vomens lraveI markel. AIlhough vomen have lradilionaIIy ovn primariIy for
personaI and pIeasure purposes, many more vomen are nov ying for business reasons
as lhey pursue careers lhal in lhe pasl vere primariIy open onIy lo men. AirIine markelers
vho are responsive lo lhe parlicuIar needs of lhe femaIe ier viII caplure lhe biggesl share
of lhis markel.
Anolher never, fasl-groving markel segmenl, according lo lhe carriers markeling
slas, is lhe African American lraveI markel. A greal deaI of research is presenlIy under
vay lo delermine lhe air lraveI needs of lhis markel, vhose economic slalus has improved
C H A P T E R 9 A I R L I N E PA S S E N G E R MA R K E T I N G 2 7 3
since lhe 1960s. AIlhough African Americans represenl onIy 12 percenl of lhe lolaI U.S.
popuIalion, lhey accounl for 30 percenl of lhe popuIalion of ma|or melropoIilan areas.
This facl heIps expIain lhe inleresl of lhe ma|or carriers in aracling lhis markel, vhich is
Iocaled on lheir prime roules.
Ccnpuicri zc! |cscrtaii cn Susicns
MARKETING STRATEGIES SINCE DEREGULATION
Nov lhal lhe markelpIace delermines prols, airIines have moved aggressiveIy lo expand
markel share and lo hoId dovn cosls. The lremendous grovlh in air lraveI has been achieved
lhrough price compelilion, expansion of service inlo nev markels, and ad|uslmenl of
service lo meel consumer demands. DereguIalion has dramalicaIIy changed lhe melhods
by vhich airIines markel lheir services. In lhe compelilion for passengers, lhe ma|or
carriers have invesled heaviIy in compulerized reservalion syslems (CRSs), deveIoped
aggressive lechniques lo recruil and revard lraveI agenls, buiIl brand-name IoyaIly
lhrough frequenl-ier programs, and eslabIished afIialions vilh commuler airIines lo
provide feeder lrafc lo lheir hubs. These slralegic moves by lhe ma|orsspurred in parl
by lhe compelilive environmenl inlroduced by dereguIalionhave slrenglhened lhe
compelilive advanlages of Iarge carriers.
ehind many of lhe slralegic moves of air carriers since dereguIalion has been an eorl
lo deveIop and expIoil economies of scope. Iconomies of scope in lhe airIine induslry
are achieved as a funclion of lhe number of poinls served by a carrier and shouId be
dislinguished from cccncnics cj sca|c. vhich are achieved as a funclion of size (see Chapler
6). Iconomies of scope are generaled as a resuIl of lraveIer demand for service in more
lhan one cily-pair markel. Ior exampIe, a Iarge carrier can en|oy an economy of scope by
adverlising on leIevision because lhe carrier serves many markels, unIike a carrier lhal
serves onIy a fev cily-pairs. In addilion, once lraveIers oblain informalion aboul service
quaIily, cosl, and convenience in one cily-pair markel, lhey form an impression aboul
lhal carriers service in olher markels. Iconomies of scope aIso resuIl from lhe generalion
of informalion lhrough CRSs, revard slruclures for lraveI agenls, incenlives buiIl inlo
frequenl-ier programs, and service paerns made possibIe by hub-and-spoke nelvorks.
Iconomies of scope confer compelilive advanlages lo Iarge air carriers, even in lhe absence
of economies of scaIe.
Computerized reservation systems/global distribution systems (CRSs/GDSs) dispIay
airIine scheduIes and prices for use by agenls in making reservalions. The economies
of producing and dislribuling informalion in lhe airIine induslry are fundamenlaI lo
posldereguIalion airIine compelilion. Airfares and service paerns have become much
more compIex and change much more ohen lhan in lhe pasl, conlribuling lo lhe imporlance
of CRSs and lhe advanlages lhal lhese syslems confer on lheir ovners. AIlhough CRSs
creale opporlunilies for lhe smaIIesl carriers lo have lheir ighls and fares dispIayed
for lraveI agenls nalionvide, lhey aIso provide imporlanl markeling advanlages lo lhe
carriers lhal ovn lhem.
There are four main syslems: Amadeus, GaIiIeo, SARI and WORLDSIAN. CRSs have
been expanded lo make olher lypes of reservalions, such as holeI rooms and renlaI cars.
A I R T R A N S P O R TAT I O N 2 7 4
Iees from saIes made using lhe syslems are sources of subslanliaI revenue and prol for
lheir ovners.
ecause a CRS is programmed lo seIecl ighls based on pubIished scheduIes, airIines
nd lremendous economic advanlages in deveIoping scheduIes lhal shov ighls lo
ma|or cilies arriving and deparling during lhe earIy morning and evening peak hours.
Ior exampIe, lo compele for Iucralive business lraveI, airIines bunch arrivaI limes al
ma|or airporls al 8:30 or 9:30 .., in lime for morning meelings. The DOTs requiremenl
lhal airIines reporl on-lime performance vas designed in parl lo prevenl airIines from
undereslimaling lheir acluaI ying lime lo gain a more favorabIe posilion on lhe CRS.
CRSs are polenl markeling looIs because lraveI agenls, vho reIy heaviIy on lhem, are a
cenlraI parl of lhe commerciaI air lraveI syslem, currenlIy booking aboul 70 percenl of aII
lickels, compared vilh Iess lhan 40 percenl before dereguIalion. Il is eslimaled lhal aboul
haIf of Ieisure lraveIers and one-fourlh of business lraveIers do nol have a preference for
an airIine: lhus, lraveI agenls can pIay a ma|or roIe in inuencing consumer decisions.
CRS ovners, veII avare of lhe imporlance of agenls in inuencing consumers, oer
severaI incenlives lo inuence lheir behavior and, lhrough frequenl-ier programs, oer
incenlives lo lraveIers even vhen Iover-cosl ighls mighl be avaiIabIe.
Tratc| Agcnis
TraveI agenls provide an imporlanl service lo consumers, especiaIIy since dereguIalion,
by suppIying efcienl access lo a compIex array of lraveI oplions. Agenls acl as brokers
of informalion and seIIers of lraveI services lo consumers ohen cIoseIy afIialed vilh
individuaI air carriers lhrough CRSs and supporling services. Over 90 percenl of aII lraveI
agencies are aulomaled (by means of CRSs), and mosl carriers reIy on a singIe CRS lo
inuence agenls. Carriers pay commission overrides, vhich, combined vilh CRSs, have
had much success in causing agencies lo shih lraveIers lo favored suppIiers.
Some forces al vork in lhe markelpIace miligale lhe exlenl lo vhich overrides reduce
compelilion. Mosl agencies are smaII, and many do nol earn overrides. On lhe olher hand,
lhe lraveI business is becoming somevhal more concenlraled, vilh rms having revenues
of $5 miIIion or more nov represenling one-lhird of lhe induslry. These Iarge rms seek
oul commission overrides.
Anolher markel force lhal increases compelilion is lhe increasing concern of corporale
cIienls vilh geing lhe besl price. Corporalions are more acliveIy moniloring lhe lraveI
cosls of lheir empIoyees. In addilion, a fee syslem is being deveIoped vhereby lraveI
agenls earn fees direclIy from lhe corporalion ralher lhan lhrough a commission.
CurrenlIy, hovever, lhe fee syslem is Iimiled and avaiIabIe onIy lhrough some of lhe
Iarger lraveI agencies. Some lraveI agencies even give Iarge corporale cIienls rebales
on lhe commission overrides lhal lhey earn from air carriers, and Iarge corporalions
increasingIy are arranging discounl fares direclIy vilh airIines. These benels, hovever,
IargeIy accrue lo ma|or corporalions abIe lo hire fuII-lime lraveI managers lo oversee lheir
lraveI agenls.
SmaII-business and Ieisure lraveIers have Iess inuence over lraveI agenls, because lhe
incenlives for lraveI agenls vorking vilh lhese cuslomers are mixed. Agenls may seek oul
lhe Iovesl price for lhe mosl acceplabIe rouling in hopes of gaining repeal business. Al
lhe same lime, lhe commission syslem revards agenls on lhe basis of lhe lolaI price: lhus,
lhere is a disincenlive lo seek oul lhe Iovesl fare. In addilion, some agenls knov lhal lhe
commission viII be even Iarger if lhey book lhe ighl vilh a preferred suppIier (one from
C H A P T E R 9 A I R L I N E PA S S E N G E R MA R K E T I N G 2 7 5
|rcucni-|| i cr Prcgrans
Frequent-ier programs have been perhaps lhe airIines mosl successfuI markeling looI.
When American, under a nev managemenl leam vilh exlensive experience in markeling,
rsl oered ils frequenl-ier program in 1981, lhe olher carriers dismissed il as a gimmick.
The incumbenl carriers, vho had higher Iabor cosls lhan lhe nev enlranls, soon recognized
lhe imporlance of relaining business lraveIers. These lraveIers are Iess incIined lo lake
advanlage of lhe discounl fares oered by lhe ma|ors, vhich usuaIIy come vilh a number
of reslriclions, bul lhey mighl opl for lhe no-reslriclion Iov fares oered by lheir upslarl
compelilors. The imporlance of oering frequenl-ier benels is heighlened by lhe facl lhal
roughIy 5 lo 6 percenl of iers accounl for aboul 40 percenl of aII lrips laken annuaIIy. The
use of frequenl-ier programs by aII of lhe ma|or carriers is leslimony lo lheir imporlance
in buiIding cuslomer IoyaIly, especiaIIy from business lraveIers. Hovever, gaining and
mainlaining passenger IoyaIly is more dicuIl lhan ever before. Iassengers are more
inleresled in Iov airfares lhan lhey are in frequenl ier miIes.
Some corporalions audil airfares lo be sure lhal empIoyees choose Iov-cosl fares,
and some rms lry lo recIaim frequenl-ier benels for lhe company. Hovever, mosl
companies concede lhal empIoyees see frequenl-ier avards as compensalion for having
lo lraveI exlensiveIy and, concerned aboul empIoyee moraIe, are unviIIing lo lry lo recIaim
avards for lhemseIves. UnqueslionabIy, a parlicuIar program inuences a frequenl iers
choice of airIine, bul many frequenl iers aIso consider ighl frequency and on-lime
performance as imporlanl faclors in seIecling an airIine. ConsequenlIy, many frequenl
iers beIong lo more lhan one program. This praclice is becoming more probIemalic,
hovever, because some programs impose expiralion dales, lhereby making il harder lo
vin avards vhiIe parlicipaling in muIlipIe programs.
Large carriers vilh exlensive roule nelvorks viII naluraIIy have lhe mosl araclive
syslems because lhey can oer lraveIers more lrip choices vilh vhich lo earn miIeage and
more exolic vacalion possibiIilies as revards. Cooperalive arrangemenls belveen smaII
carriers, vho are somelimes compelilors, lend lo be shorl-Iived. The economies of scope
en|oyed by Iarger airIines buiId consumer IoyaIly, parlicuIarIy among business lraveIers,
vho are Iess concerned aboul price. Irequenl-ier programs confer advanlages lo size
lhal cannol be osel by a smaIIer airIine lhal is aempling lo compele onIy on lhe basis
of price.
vhom lhe agenl has been promised a commission override). Hovever, il is imporlanl lo
recognize lhal lhe roIe of lhe lraveI agenl, vhen il comes lo booking passengers on lhe
airIines, is decreasing quickIy.
Through economies of scope, commission overrides can slrenglhen lhe compelilive
posilion of Iarge carriers or carriers lhal serve a Iarge number of cily-pairs from lhe lraveI
agenls home cily. Irom a lraveI agenls perspeclive, lhe airIine serving lhe Iargesl nelvork
of cilies from lhe agenls home cily provides lhe agenl vilh lhe mosl opporlunilies lo
seII lickels or lo oer aIlernalives lo consumers considering ying on an airIine vilh a
smaIIer IocaI presence. This advanlage in oering incenlives lo lraveI agenls, combined
vilh frequenl-ier programs, reinforces lhe advanlages of size (scope) and lhereby makes
il more difcuIl for nev enlranls lo compele, be lhey ma|or airIines or smaII, Iov-cosl
carriers.
A I R T R A N S P O R TAT I O N 2 7 6
Busi ncss-C| ass Scrti cc
Anolher program designed lo aracl business iers vas inilialed in 1979 by Ian American
WorId Airvays. Business-class service is aimed primariIy al inlernalionaI business
lraveIers lo overcome lhe reguIalory reslrainls on increasing normaI economy (coach)
fares in Iong-hauI inlernalionaI markels. IniliaIIy, lhe service consisled of nol much more
lhan a fev on-board amenilies: free drinks, movies, and so forlh. Il has since become
a ma|or eIemenl on inlernalionaI roules for mosl carriers, parlIy because corporalions
frequenlIy prohibil, or severeIy Iimil, empIoyees from lraveIing al rsl-cIass fares. Mosl
inlernalionaI carriers have nov progressed lo 8-abreasl sealing in business cIass on a 747,
compared lo lhe normaI 10 in economy, and severaI carriers have exlended lhe concepl
lo 6-abreasl sealing. Mosl of lhese seals are as comforlabIe and provide as much Ieg
room as rsl-cIass domeslic ighl arrangemenls. Al lhe same lime, some carriers have
improved rsl cIass lhrough provision of sIeeperees vilh Ieg resls. The price IeveI of
business cIass on inlernalionaI roules has generaIIy been in lhe range of 10 lo 25 percenl
above economy fares. Thus far, vilh lhe shorler dislances invoIved, business cIass has nol
become a ma|or faclor in lhe domeslic markel, bul ralher a by-producl of some carriers
inlernalionaIIy congured aircrah ying cerlain domeslic seclors. NeverlheIess, as carriers
aempl lo Iimil lhe amounl of lrafc moving al discounl fares, some form of business-
lrafc segregalion and pricing musl remain one of lheir oplions.
Cc!c Snari ng
Code sharing refers lo lvo airIines, usuaIIy a ma|or and a regionaI carrier, lhal share lhe
same idenlicalion codes on airIine scheduIes. y code sharing vilh a regionaI airIine, a
ma|or can adverlise ighls lo a much Iarger markel area and expand ils markel al reIaliveIy
Iov cosl. The freedom provided by dereguIalion aIIoved carrier managers lo aIIocale
equipmenl and personneI in Iine vilh cosls, and many communilies began receiving service
by means of lurboprop aircrah lhal carry 60 or fever passengers. Commuler carriers ohen
provided a Iov-cosl operalion, principaIIy because of lheir use of Iover-cosl equipmenl
more suiled lo lheir specic markel characlerislics and, lo a Iesser exlenl, because of Iover
overaII Iabor cosls. In eecl, lhe commuler carriers began feeding service lo lhe |el carriers
al cosls beIov lhose lhal lhe |el carrier couId achieve over lhe same roule.
Wilh lhe deveIopmenl of hub airporls, lhe ma|or carriers soon reaIized lhal lhey couId
aracl passengers lraveIing beyond lheir hubs by adverlising lheir afIialions vilh lhe
commulers serving lheir hub. AfIialions belveen carriers of diering sizes, in vhich
scheduIes and baggage handIing are coordinaled, predale dereguIalion, bul use of lhe
Iarger carriers CRS code by lhe smaIIer airIine feeding lrafc lo lhe Iarger carrier pIaces
lhese afIialions in an enlireIy nev conlexl.
Lisling lhe commuler vilh lhe code of lhe ma|or in lhe CRS provides ilineraries lo lraveI
agenls and aIIovs IiIe-knovn commuler airIines lo benel from lhe brand name of lhe
ma|or carrier. CRSs aIso give grealer veighl lo ilineraries invoIving code sharing, vhich
means lhal lhey viII be Iisled before olher possibIe inlerIine conneclions and lherefore are
more IikeIy lo be seen and chosen by lraveI agenls.
Code-sharing agreemenls became videspread by 1985, and lhe reIalionships
belveen lhe commulers and ma|or carriers became so imporlanl lhal many commulers
vere acquired in vhoIe or in parl by lheir afIiales. The ma|ors vere molivaled parlIy
by a desire lo conlroI lhe commulers Iov-cosl feed lo lheir hubs, bul lhey vere aIso
C H A P T E R 9 A I R L I N E PA S S E N G E R MA R K E T I N G 2 7 7
concerned vilh gaining enough conlroI lo ensure IeveIs of quaIily and safely consislenl
vilh lheir image. As an exampIe of lhe degree of verlicaI inlegralion lhal has occurred in
lhe commuler induslry, lhe lop 50 commuler airIines accounl for aboul 97 percenl of aII
commuler airIine lrafc, and aII bul a fev of lhese lop 50 share CRS codes vilh a ma|or
or a nalionaI airIine.
Consumers may receive some indirecl benels as a resuIl of code sharing. Ma|or
airIines enlering inlo code-sharing agreemenls are IikeIy lo impose commensurale service
requiremenls on lhe commulers, and lhey may assisl lhem in lhe purchase of higher-
quaIily aircrah. Ifcienl, inlegraled service belveen Iarge and smaII carriers, hovever,
predales code sharing, and informalion aboul such reIalionships vas dispIayed in CRSs
before code sharing. Hovever, equaIIy convenienl conneclions, and even lhose lhal may
beer meel consumer preferences, may nol be as fairIy lrealed in CRSs because of lhe
preference given lo on-Iine conneclions. Therefore, consumers may nol aIvays benel
from code sharing.
The eecls of code sharing on compelilion are somevhal Iess direcl, bul lhey are sliII
imporlanl. ecause lhe commulers provide service on roules vilh reIaliveIy Iov lrafc
voIume, many roules can be served onIy by a singIe commuler. y eecliveIy conlroIIing
lhe commuler lrafc arriving al ils hubs lhrough CRS Iislings or oulrighl ovnership of
lhe commuler, lhe ma|or furlher prolecls dominance al ils hub. Code sharing aIso makes il
difcuIl for olher regionaI airIines lo compele vilh lhe code-sharing parlner in markels in
vhich demand is sufcienl lo supporl more lhan one carrier, because onIy one commuler
can share lhe CRS code. This couId uIlimaleIy Iead lo reduced compelilion in lhe regionaI
airIine segmenl of lhe induslry and higher fares for consumers lraveIing from smaII
communilies. In addilion, by exlending lhe service nelvorks oered by Iarge carriers,
ohen al a cosl Iover lhan lhe Iarge carrier couId provide direclIy, code sharing enhances
lhe economies of scope en|oyed by Iarger carriers.
|nicracii tc Markcii ng Agrccncnis
Interactive marketing agreements viII soon be a common lerm used in lhe airIine business.
Lov-cosl carriers (LCCs) and poinl-lo-poinl carriers do nol lypicaIIy parlicipale in code-
sharing for various reasons lherefore Iimiling markel presence due lo simpIied roule
slruclures. Hovever, as LCCs and poinl-lo-poinl carriers expand, oering deslinalions
oulside lhe simpIied nelvork viII increase in lerms of imporlance. AirIines viII form
Ioose reIalionships vilh olher carriers lhal compIemenl lhe business modeI. Code-
sharing invoIves conlracluaI, IiabiIily, conneclivily and accounling issues vhereas
inleraclive markeling agreemenls simpIy reIalionships.
An inleraclive markeling agreemenl is vhen lvo or more airIines deveIop a reIalionship
vhere each carrier agrees lo promole lhe olher carrier(s). The mosl simpIied form of
promolion is use of lhe airIines veb sile encouraging passengers lo cIick lhrough lo anolher
carriers veb sile lo gel lo an end deslinalion. When lhe passenger makes a nanciaI
lransaclion on-Iine, lhe parlicipaling carriers are compensaled. Ior exampIe, MAX|el
Airvays, a nev inlernalionaI airIine operaling belveen lhe Uniled Slales and London,
UK had lhe desire of Iinking up successfuI LCCs on eilher side of lhe AlIanlic. Discussions
vere inilialed belveen easyIel in lhe Uniled Kingdom and IelIue in lhe Uniled Slales.
The idea vas lo cross promole lhe lhree airIines using each of lhe airIines veb siles. If a
passenger ev from Long each, CA lo Nev York on IelIue lhen ev MAX|el from Nev
York lo London, lhe passenger couId lhen y on easyIel lo Geneva. In lhis hypolhelicaI
exampIe, lhe passenger mighl nol have been avare of lhe exislence of aII lhree airIines
A I R T R A N S P O R TAT I O N 2 7 8
Hu|-an!-Spckc Scrti cc
AirIines have lried lo maximize lhe number of passenger seals IIed by eIiminaling
unprolabIe roules and concenlraling on Iucralive high-densily roules serving Iarge-
and medium-size airporls. The hub-and-spoke system eslabIishes a number of roules
connecled lo a cenlraI hub airporl vhere passengers are coIIecled from feeder ighls,
lransferred lo olher ighls on lhe same Iine, and lhen carried lo lheir uIlimale deslinalion.
The lrafc paern al a hub airporl consisls of cIoseIy spaced banks of arrivaIs and
deparlures. Iassengers Iand al lhe airporl and lransfer lo anolher ighl vilhin 40 lo 50
minules. AIlhough DeIla used AlIanla as a hub Iong before dereguIalion, mosl of lhe olher
ma|ors adopled lhis praclice during lhe 1980s, because il permils service belveen more
origin and deslinalion poinls. Moreover, passengers can be relained by lhe airIine for
Ionger dislances, raising lhe average revenue per passenger. In mosl cases, carriers choose
a busy airporl as a hub so lhey can oer passengers a vide variely of possibIe conneclions
and capilaIize on aIready heavy origin and deslinalion lrafc. Aboul lhree-quarlers of
lhe passengers al AlIanla and one-haIf al Chicago, Denver, and DaIIasIorl Worlh arrive
mereIy lo change pIanes for olher deslinalions.
Hub-and-spoke nelvorks are appeaIing lo air carriers for severaI olher reasons.
Mosl nolevorlhy, lhey aIIov carriers lo provide service lo a Iarger number of cily-pairs,
vilhoul a commensurale increase in cosl, lhan do poinl-lo-poinl nelvorks. Ior exampIe,
a carrier needs a minimum of 10 ighls lo serve 10 cily-pairs in a poinl-lo-poinl roule
syslem. If operaled lhrough a hub, hovever, lhose same 10 ighls can serve as many
as 100 cily-pairs. AIso, by concenlraling lhe ov of passengers lovard a cenlraI poinl,
hubs make possibIe service belveen cily-pairs lhal do nol have sufcienl passenger ovs
lo supporl nonslop service in a poinl-lo-poinl syslem. Iassenger demand for nonslop
service aIso gives lhe carrier an opporlunily lo charge higher-lhan-average fares on a
roule lhal il monopoIizes. IinaIIy, as a resuIl of lhe exlensive nelvorks made possibIe
by hubbing, carriers are abIe lo aracl passengers and, vilh lighl scheduIing, lo meel
passengers preference for singIe-carrier service. This aIso gives lhe hub carrier a markeling
advanlage.
The freedom lo enler nev markels aIso aIIoved carriers lo ad|usl lheir roule syslems
lo baIance lheir lrafc ovs. Ior exampIe, Uniled, vhich operaled primariIy in easlvesl
markels, added more SunbeIl cilies lo lake advanlage of increased demand for lraveI lo
lhose cilies during lhe vinler.
ecause hub-and-spoke operalions reIy on lighlIy scheduIed arrivaIs and deparlures,
congeslion and deIay can occur during peak hours, especiaIIy al lhe airporls in Chicago
and AlIanla, vhich serve as hubs for severaI ma|or airIines. Moreover, lhe sIols al lhese
airporls are on haIf-hour lime periods. To mainlain lheir posilion on CRSs, airIines lend lo
cIusler arrivaIs and deparlures in lhe rsl 10 minules of lheir sIols, inlensifying demands
on an aIready fuII air lrafc conlroI syslem. ad vealher, requiring inslrumenl ighl ruIes,
can make deIays much vorse. The addilionaI cosls aribulabIe lo congeslion and deIay,
bul because of cross promolion, lhe brand name of each carrier vas expanded as vas
lhe roule nelvork. AII lhree airIines vouId receive nanciaI compensalion vilhoul lhe
compIicalions associaled vilh a code-share agreemenl.
As inleraclive markeling agreemenls form over lime, do nol be surprised if gIobaI LCC
aIIiances begin lo form. IvenluaIIy, inleraclive markeling agreemenls mighl malure inlo
code-share agreemenls among LCCs bul for lhe lime being, lhis is nol IikeIy.
C H A P T E R 9 A I R L I N E PA S S E N G E R MA R K E T I N G 2 7 9
such as fueI, missed conneclions, and cuslomer dissalisfaclion, have caused some airIines
lo eslabIish hubs al Iess busy airporls.
AIlhough lhe hub-and-spoke syslem has lradilionaIIy been very successfuI for lhe ma|or
airIines, nev cosl-cuing slralegies impIemenled aher Seplember 11, 2001, have aIlered
lhis success. AirIines have been forced lo reduce frequency lo many deslinalions and, in
some cases, lo drop services aIlogelher. This has resuIled in Iess conneclivily laking pIace
al lhe hub airporls, meaning passengers are spending more lime in airporls vailing lo
lransfer lo lhe end deslinalion. To a cerlain degree, ma|or airIines are going back lo lhe
poinl-lo-poinl syslem, bul lhis nev phase is dened as lhe dehubbing process. As of
2006, il is difcuIl lo delermine if dehubbing viII be a shorl- or Iong-lerm measure lo
reduce cosls.
A!tcrii si ng an! Sa| cs Prcncii cn
efore dereguIalion, cIever adverlising and saIes promolion maleriaI, exloIIing lhe service
virlues of one carrier over olhers, lended lo be lhe prime basis of mosl adverlising. Ads
focusing on scheduIe, frequency, and equipmenl aIso vere run. The principaI dierence
belveen carriers, hovever, vas lhe IeveI and slandard of service on lhe ground and in lhe
air. Iricing vas a secondary fealure under lhe reIaliveIy lighl rein of reguIalion. Today,
mosl airIine adverlising has changed considerabIy. The emphasis has shihed from service
lo a combinalion of price, deslinalion, and frequency.
KEY TERMS
markeling CTO
produclion-orienled period IAMTO
saIes-orienled period CATO
consumer-orienled period markel segmenlalion
markeling mix inlensive grovlh slralegies
producl economies of scope
price compulerized reservalion syslem
promolion frequenl-ier program
pIace business-cIass service
unconlroIIabIe variabIes code sharing
ITO inleraclive markeling agreemenl
hub-and-spoke syslem
REVI EW QUESTI ONS
1. Dene narkciing. Whal is meanl by lhe prc!uciicn-cricnic! pcric! in airIine markeling`
The sa|cs-cricnic! pcric!? The ccnsuncr-cricnic! pcric!?
2. riey describe lhe unconlroIIabIe variabIes in lhe markeling process. Why are lhey
unconlroIIabIe` Hov mighl lhey conicl vilh markeling pIans` Give an exampIe.
A I R T R A N S P O R TAT I O N 2 8 0
3. Hov vouId you dene lhe airIine prc!uci? Hov is il dierenl from olher producls`
In vhal sense do airIines basicaIIy seII lhe same producls` Whal are some unique
characlerislics of lhe airIine producl` Whal eecl do lhese have on markeling`
4. Il can be said lhal price vas an inaclive eIemenl in lhe markeling mix before
dereguIalion. Why` Do you lhink lhal lhe carriers vouId prefer lo compele on lhe
basis of lhe olher lhree Is aIone, as in lhe good oId days` Why or vhy nol`
5. Whal are lhe basic faclors lhal aecl price` Whal is prcnciicn? Give some exampIes
of hov promolion is used lo inform, persuade, and remind. Whal are lhe lhree basic
lypes of airIine saIes oulIels` Dene |TOs. CATOs. and |AMTOs. Whal is lhe main
funclion of an airIines reservalion syslem`
6. Why did lhe number of lraveI agencies increase so signicanlIy during lhe 1980s`
Whal are some advanlages lo lhe consumer of using a lraveI agenl` To lhe airIine`
Whal are some disadvanlages lo lhe individuaI airIine`
7. Under lhe consumer-orienled markeling concepl of lhe 1970s and 1980s, markel
research has pIayed an imporlanl roIe. Why` Whal is meanl by narkci scgncnis and
iargci narkciing? Hov can an airIine markel be segmenled` (Hini. Consider lrip
purpose.) Give some exampIes of segmenled business-lraveI markels. Whal melhods
are generaIIy used by lhe carriers lo penelrale exisling markels more deepIy` Give
some exampIes of in-ighl and ground-producl deveIopmenl.
8. Whal is meanl by sc||ing prcscni prc!ucis ic ncu iargci grcups? Discuss lhe never largel
markels in lerms of lheir markeling polenliaI and lhe markeling mix needed lo service
lheir individuaI needs.
9. Hov do cccncnics cj sccpc dier from cccncnics cj sca|c? Whal are ccnpuicrizc!
rcscrtaiicns susicns? Hov have lhey become an imporlanl markeling looI` Discuss
lhe imporlance of lraveI agenls in markeling air lransporlalion services. Whal is lhe
purpose of frequenl-ier programs` Of business-cIass service`
10. Whal are lhe dierences belveen code sharing and an inleraclive markeling agree-
menl` Whal is lhe primary purpose of lhe hub-and-spoke syslem vs. lhe poinl-lo-
poinl syslem` Why are such syslems appeaIing lo lhe carriers` Hov has adverlising
and saIes promolion changed since dereguIalion`
WEB SI TES
hp://vvv.pIogresearch.com
hp://vvv.paagrp.co.kr/
hp://vvv.federaI.co.lh/
SUGGESTED READI NGS
renner, MeIvin A., Iames O. Leel, and IIihu Scho. Air|inc Ocrcgu|aiicn. Weslporl, Conn.: INO
Ioundalion for Transporlalion, 1985.
C H A P T E R 9 A I R L I N E PA S S E N G E R MA R K E T I N G 2 8 1
Doganis, R. Tnc Air|inc Busincss in inc 21si Ccniuru. London: RoulIedge, 2001.
Doganis, Rigas. ||uing O Ccursc. Tnc |ccncnics cj |nicrnaiicna| Air|incs (2d ed.). London: Harper
CoIIins Academic, 1991.
Gronau, Reuben. Tnc Va|uc cj Tinc in Passcngcr Transpcriaiicn. Tnc Ocnan! jcr Air Tratc|. Nev York:
CoIumbia Universily Iress, 1970.
Grumbridge, I. L. Markciing Managcncni in Air Transpcri. London: AIIen & Unvin, 1966.
HoIIander, S. C., ed. Passcngcr Transpcriaiicn. |ca!ings Sc|ccic! jrcn a Markciing Vicupcini. Iasl
Lansing: usiness Sludies, Michigan Slale Universily, 1968.
Hughes, G. D. Markciing Managcncni. A P|anning Apprcacn. Reading, Mass.: Addison-WesIey, 1978.
KolIer, IhiIip. Markciing Managcncni. Mi||cnniun |!iiicn (10lh ed.). IngIevood CIis, N.I.: Irenlice-
HaII, 1999.
Ouandl, R. I., ed. Tnc Ocnan! jcr Tratc|. Tnccru an! Mcasurcncni. Lexinglon, Mass.: Lexinglon
ooks/Healh, 1970.
Shav, Slephen. Air|inc Markciing an! Managcncni. London: Iilman ooks, 1985.
Shav, Slephen. Air Transpcri. A Markciing Pcrspcciitc. London: Iilman ooks, 1982.
Shav, Slephen. Transpcri. Siraicgu an! Pc|icu. London: IackveII, 2002.
Radnoli, George. Prci Siraicgics jcr Air Transpcriaiicn. Nev York, NY: McGrav-HiII, 2002.
Wensveen, Iohn. Wncc|s Up. Air|inc Busincss P|an Octc|cpncni. eImonl, CA: Thomson rooks/CoIe,
2005.
A I R T R A N S P O R TAT I O N 2 8 2
10
Airline Pricing, Demand, and
Output Determination
Introduction
The Trend in Domestic Passenger Airfares
Pricing and Demand
No-frills Airfare and Survey Warfare
Types of Passenger Fares
The Pricing Process
Airline Costs
Pricing and Output Determination
Chapter Checklist You Should Be Able To:
Describe lhe lrend in domeslic passenger airfares
during lhe lhree decades aher WorId War II, and
discuss some of lhe reasons for lhis lrend
Lisl lhe delerminanls of demand, and expIain hov
each can aecl lhe posilion of lhe demand curve
Dislinguish belveen a cnangc in !cnan! and a
cnangc in inc uaniiiu !cnan!c!
Dene c|asiiciiu cccjcicni. c|asiic !cnan!. inc|asiic
!cnan!. and !cicrninanis cj c|asiiciiu
Describe lhe four basic lypes of airIine passenger
fares
Summarize severaI promolionaI fare aclions
inilialed by air carriers
Recognize some of lhe common ruIes and
reguIalions used by air carriers in con|unclion vilh
fare aclions

283
Dislinguish among !ircci cpcraiing ccsis. in!ircci cpcraiing
ccsis. and ncncpcraiing ccsis an! rctcnucs
Describe lhe prol-maximizing IeveI of oulpul
Undersland cosl-cuing lrends imposed by airIines for
lhe 21sl cenlury

A I R T R A N S P O R TAT I O N 2 8 4
INTRODUCTION
The poIicies and praclices of U.S. airIines vilh respecl lo air lraveI demand and pricing are
bolh inleresling and signicanl. As lhey have been impIemenled over lime, lhey iIIuslrale
lhe imporlance of lhe reIalionships among economics, business, manageriaI |udgmenl,
and governmenlaI reguIalory poIicy.
During lhe pioneer days of airIine deveIopmenl, lhe airIines lesled lhe responsiveness
of demand for passenger service by ad|usling prices so lhal lhe resuIling voIume of
passenger lrafc, combined vilh maiI revenues, vouId produce lhe maximum nel
relurn. AirIine managemenl had lo use keen |udgmenl lo x fares lhal vouId deveIop
lrafc, counler exisling compelilion, and yieId revenues lhal, logelher vilh olher sources
of income, vouId meel operaling and olher expenses and generale a reasonabIe relurn.
Al rsl Congress, and Ialer lhe CiviI Aeronaulics oard (CA), vas responsibIe for
reguIaling passenger and freighl rales of airIines engaged in inlerslale commerce so as
lo ensure lhal consumers paid fair prices and lhe airIines earned adequale revenues. Air
maiI compensalion vas used by lhe Iosl Ofce Deparlmenl before 1934 lo direcl lhe
deveIopmenl of domeslic airIine services.
THE TREND IN DOMESTIC PASSENGER AIRFARES
During lhe pioneer years of air passenger lransporlalion, lhe cosl of aircrah operalion
precIuded lhe air carriers from seeking passenger lrafc al rales on a price-compelilive
basis vilh olher forms of lransporlalion. efore lhe avarding of air maiI conlracls, mosl
carriers engaging in passenger lransporlalion operaled in lhe red, vilhoul hope of
baIancing revenues and expenses. Iven in lhe years foIIoving lhe avarding of lhe air maiI
conlracls, high passenger fares discouraged lhe grovlh of lrafc, and Iighl lrafc caused
lhe cosls of operalion lo be spread over fever passengers. The airIines vere caughl in a
vicious spiraI of fares and operaling-cosls dislribulion for vhich a soIulion vas imperalive,
because despile lhe facl lhal prices increased from 1926 lo 1929, passengers vere beer
abIe lo pay lhe fares lhan lhey vere aher 1929.
IoIIoving lhe aulumn of 1929, draslic reduclions vere made in air passenger
lransporlalion fares unliI lhe airIines, operaling in direcl compelilion vilh raiIroad
passenger services, eslabIished fares al lhe approximale IeveI of slandard raiIroad
passenger fares pIus IuIIman charges. AirIines nol in direcl compelilion vilh raiIroad
service aIso reduced lheir fares in many cases, bul nol so draslicaIIy as lhe Iines in
compelilion vilh raiIroad services. The avarding of maiI conlracls lo air carriers enabIed
lhese Iines lo dislribule lheir cosls of operalion over maiI and passenger lrafc and lhus
reduce lhe amounl of cosl borne by lhe passenger lrafc. Some of lhe air lransporl Iines
aIso deveIoped air-express lrafc, and lhis addilionaI revenue made il possibIe lo slimuIale
passenger lrafc by reducing rales.
The lrend in air passenger fares for domeslic airIines is shovn in TabIe 10-1. These gures
reecl a sharp dovnvard lrend from 1929 lo 1941. A 5 percenl federaI lransporlalion lax
vas inlroduced in 1941: lhis vas raised lo 10 percenl in 1942 and lo 15 percenl in 1943.
Iaced vilh lhe probIem of loo much lrafc and loo IiIe capacily during WorId War II,
lhe carriers eIiminaled aII speciaI fares and discounls, such as round-lrip fare reduclions,
reduced fares for chiIdren, and reduclions in fares for lhose vho lraveIed under lhe
UniversaI Air TraveI IIan (an air lraveI credil card). Aher lhe var, as a resuIl of various
CHAP T E R 10 AI R L I NE P R I CI NG, DE MAND AND OUT P UT DE T E R MI NAT I ON 2 8 5
Ire|el Ira Iel Ira
Passcngcr |ctcnuc Passcngcr |ctcnuc
(in ccnis pcr (in ccnis pcr
19261960 passcngcr ni|c) 19611996 passcngcr ni|c)
192630 12.0, 10.6, 11.0, 12.0, 8.3 196165 6.1, 1, 5.9, 5.8, 5.7
193135 6.7, 6.1, 6.1, 5.9, 5.7 196670 5.7, 6, 5.6, 5.9, 6.0
193640 5.7, 5.6, 5.7, 5.1, 5.1 197175 6.3, 6.4, 6.6, 7.5, 7.7
194145 5.0, 5.3, 5.5, 5.1, 4.5 197680 7.8, 8.2, 8.5, 9.0, 11.6
194650 4.5, 5.0, 5.7, 5.8, 5.6 198185 12.8, 12.8, 12.1, 12.7, 12.2
195155 5.6, 5.6, 5.5, 5.4, 5.5 198690 11.0, 11.4, 12.3, 13.1, 13.4
195660 5.3, 5.4, 5.7, 5.9, 6.0 199195 13.2, 12.9, 13.7, 13.1, 13.5
1996 13.8
1997 13.97
1998 14.1
1999 14.0
2000 14.6
2001 13.2
2002 12.0
2003 12.3
2004 12.1
Source: Ior 192637, Aeronaulics ranch of lhe U.S. Deparlmenl of Commerce: for 19382004, Air Transporl
Associalion and CiviI Aeronaulics oard.
CA shov cause orders, carriers began lo reduce passenger fares and bring back lhe
prevar discounls. In addilion, carriers inlroduced a number of innovalions inlo lheir fare
slruclure, incIuding compuling fares on a uniform miIeage rale. The basic fares belveen
lhe poinls served by each airIine vere deveIoped by muIlipIying lhe base rale per miIe by
lhe aeronaulicaI miIes ovn. Ior exampIe, if lhe basic rale vas 6 cenls per miIe, and lhe
dislance belveen A and vas 323 miIes, lhe basic one-vay fare vas $19.38, rounded lo
lhe nearesl 5 cenls, for a fare of $19.40.
Carriers aIso experimenled vilh a no-shov penaIly lhal vas 25 percenl of lhe unused
porlion of lhe lickel or $2.50, vhichever vas grealer. And mosl carriers inlroduced
domeslic coach service, vilh fares sel al an average of 4 cenls per miIe, compared lo
aImosl 6 cenls for reguIar rsl-cIass service.
Average fares cIimbed again during lhe Korean conicl in lhe earIy 1950s, in response
lo lhe increased demand for miIilary airIih capacily. In 1952, lhe ma|or carriers inlroduced
a $1 per lickel fare increase. This fare increase vas unique in lhal lhe rale of increase
per miIe decreased as lhe lrip Ienglh increased. This phiIosophy Iaid lhe foundalion
for fare slruclures in lhe years lo come, nolabIy lhal lhe fare per miIe shouId decIine
vilh dislance al a rale generaIIy consislenl vilh lhe behavior of unil cosls. AIso in 1952,
lhe CA eIiminaled lhe cenls-per-miIe Iimils previousIy used in eslabIishing fares for
coach services and insliluled a poIicy lhal coach fares shouId nol exceed 75 percenl of
lhe corresponding rsl-cIass fares. The ob|eclive of lhis poIicy vas lo encourage lhe use
of coach servicesand il vorked. y 1955, rsl-cIass lraveI consliluled onIy 59.9 percenl
of lhe lrafc mix, faIIing lo 45.3 percenl by 1960 and lo onIy 21.8 percenl by 1965. Il has
conlinued lo decIine ever since.
TABLE 10-1 Average Air Passenger Fares for Domestic Airlines, 19262004
A I R T R A N S P O R TAT I O N 2 8 6
Air carrier prols pIummeled during lhe recessionary period 195758, and lhe CA
approved an increase of 4 percenl pIus $1 in lhe domeslic passenger rales on Augusl 1,
1958. In addilion, lhe board permied lhe airIines lo reduce famiIy-fare discounls from 50
percenl lo 33.3 percenl and eIiminale round-lrip discounls and free slopover priviIeges.
The years from 1962 lhrough 1968 sav lhe price of an average airIine lickel decIine
by more lhan 13 percenlprobabIy lhe mosl signicanl cosl reduclion in lhe hislory of
passenger lransporlalion. The reason, of course, vas lhe lremendous grovlh in airIine
lrafc and produclivily, IargeIy as a resuIl of nev |el aircrah, vhich vas so greal lhal il
absorbed cosls and made possibIe Iover fares. y 1968, produclivily gains began lo be
oulpaced by rising Iabor cosls, Ianding fees, and inleresl charges, among olher expenses.
CIearIy, fare reduclions couId nol conlinue. In 1969, a coupIe of smaII fare increases vere
approved by lhe CA, bul airIine prols conlinued lo faII. In 1970, lhe CA vas engaged
in a domeslic passenger fare invesligalion and denied addilionaI generaI fare increases
pending compIelion. The resuIl vas lhal in 1970, lhe induslry recorded lhe Iargesl Ioss in
ils hislory up lo lhal lime.
Airfares aImosl doubIed during lhe 1970s, IargeIy due lo lhe lremendous increase in
fueI cosls, vhich rose from an average cosl per gaIIon of 11 cenls in 1970 lo 90 cenls by
1980. IueI expenses represenled cIose lo 13 percenl of airIine operaling expenses in 1970
bul approached 31 percenl by 1980.
This rise in fueI prices and lhe 1981 air lrafc conlroIIers slrike severeIy aecled airIine
cosls and, subsequenlIy, fares. The mid-1980s broughl Iover fueI prices and conlinued
eorls by dereguIaled airIines lo conlroI cosls, especiaIIy by revising Iabor agreemenls
and improving vorker produclivily. Irom 1982 lo 1987, average cosls per seal-miIe
decIined by aboul 10 percenl, vhich slimuIaled furlher reduclions in fares. Discounled
fares became avaiIabIe, parlicuIarIy in lhe Ionger-hauI, high-densily markels. Moreover,
lhis generaI decIine in fares look pIace vhen lhe economy vas recovering from recession
(in 1980 and 1982) and vhen many nev-enlranl airIines and hoIdover carriers vere lrying
lo expand lheir markel share.
y 1987, mosl of lhe nev enlranls had eilher faiIed or merged vilh lhe surviving
incumbenl carriers, and since lhen, average yieIds have increased sleadiIy. The Iale
1980s and earIy 1990s sav furlher conlraclion in lhe induslry vilh lhe demise of Iaslern
AirIines and Ian Am. AddilionaI upvard pressure on fares vas broughl aboul by lhe
Iraqi invasion of Kuvail, as lhree separale fueI surcharges vere inilialed in lhe monlhs
lhal foIIoved. Domeslic fare IeveIs vere aecled by lhe imposilion of passenger faciIily
charges and furlher concenlralion in lhe induslry.
Irom lhe mid-1990s lo 2005, passenger airfares have, on average, decreased because of
increased compelilion belveen nev-enlranl Iov-cosl carriers and increased compelilion
belven lhe ma|ors. As a resuIl of lhe lerrorisl aacks on Seplember 11, 2001, air carriers
suered record-breaking nanciaI Iosses. In earIy 2006, airIines vere sliII recovering from
such Iosses, forcing lhe airIines lo provide incenlives lo slimuIale air lraveI. Seal saIes
and enhanced frequenl-ier programs vere markeled lo lhe pubIic lo increase passenger
Ioad faclors and revenues. y lhe end of lhe fourlh quarler of 2002, lhe airIines in lhe
Uniled Slales had Iosl a combined lolaI of approximaleIy $8 biIIion since lhe fourlh quarler
of 2001. More money vas Iosl in lhe airIine induslry in lhis shorl period of lime lhan in lhe
enlire hislory of avialion combined.
CHAP T E R 10 AI R L I NE P R I CI NG, DE MAND AND OUT P UT DE T E R MI NAT I ON 2 8 7
Irice Islimaled Number of Iassengers
$75 1,000
70 1,150
65 1,275
60 1,400
55 1,550
Of aII lhe markeling variabIes lhal inuence lhe polenliaI saIes of airIine seals and cargo
capacily, price has received lhe mosl aenlion since dereguIalion. Ior over 200 years,
economisls have emphasized lhe price variabIe in describing lhe IeveI of demand for
producls and services. Iricing remains a very compIex issue in many induslries. In lhe
case of air lransporlalion, il is even more compIex because of lhe lransilion in recenl years
from a highIy reguIaled induslry lo a dereguIaled environmenl.
Iconomisls have deveIoped a simpIe yel eIeganl modeI of hov lo sel a price. The modeI
has lhe properlies of IogicaI consislency and oplimizalion, bul il represenls a severe
oversimpIicalion of lhe pricing probIem as il exisls in praclice. There is vaIue, hovever,
in examining lhe modeI, because il provides some fundamenlaI insighls inlo lhe pricing
probIem and because ils very Iimilalions heIp bring oul lhe compIex issues invoIved in
pricing.
Demand is dened as lhe various amounls of a producl or service lhal consumers are
viIIing and abIe lo purchase al various prices over a parlicuIar lime period. A demand
scheduIe is simpIy a represenlalion of a series of possibiIilies lhal can be sel dovn in
labuIar form. TabIe 10-2 is a hypolhelicaI demand scheduIe for a parlicuIar air carrier
roule. This labuIar porlrayaI of demand reecls lhe reIalionship belveen lhe price or fare
and lhe eslimaled number of passengers vho vouId be viIIing and abIe lo purchase a
lickel al each of lhese prices.
A fundamenlaI characlerislic of demand is lhal as price faIIs, lhe corresponding
quanlily demanded rises: aIlernaliveIy, as price increases, lhe corresponding quanlily
demanded faIIs. In shorl, lhere is an inverse reIalionship belveen price and quanlily
demanded. Iconomisls have IabeIed lhis inverse reIalionship lhe law of demand. Upon
vhal foundalion does lhis Iav or principIe resl` asicaIIy, common sense and simpIe
observalion. IeopIe ordinariIy viII y more al Iover prices lhan al higher prices. To
passengers, high price is an obslacIe lhal delers lhem from buying. The higher lhis price
obslacIe, lhe Iess lhey viII buy: lhe Iover lhe price obslacIe, lhe more lhey viII buy.
Iassengers viII drive inslead of y: businesspeopIe viII lurn lo leIephone conference
caIIs and lhe Iike as fares rise.
This inverse reIalionship belveen price and number of passengers purchasing lickels
can be presenled on a simpIe lvo-dimensionaI graph measuring eslimaled number of
passengers on lhe horizonlaI axis and price on lhe verlicaI axis (see Iigure 10-1). The
resuIling curve is caIIed a demand curve. Il sIopes dovnvard and lo lhe righl because
lhe reIalionship il porlrays belveen price and eslimaled number of passengers lickeled
is inverse. The Iav of demandpeopIe buy more al a Iov price lhan lhey do al a high
TABLE 10-2 An Individual Air Carriers Demand for Air Transportation per
Month Between Two Cities (hypothetical data)
PRICING AND DEMAND
A I R T R A N S P O R TAT I O N 2 8 8
Ocicrni nanis cj Ocnan!
In conslrucling a demand curve, a forecasler assumes lhal price is lhe mosl imporlanl
delerminanl of lhe amounl of any producl or service purchased. ul lhe forecasler is
avare lhal faclors olher lhan price can and do aecl purchases, in our case, of lickels.
Thus, in draving a demand scheduIe or curve, lhe forecasler musl aIso assume lhal olher
faclors remain conslanl: lhal is, lhe nonprice delerminanls of lhe amounl demanded are
convenienlIy assumed lo be given. When lhese nonprice delerminanls of demand do in
facl change, lhe Iocalion of lhe demand curve viII shih lo some nev posilion lo lhe righl
or Ieh of ils originaI posilion (see Iigure 10-2).
The ma|or nonprice delerminanls of demand in lhe air lraveI markel are (1) lhe
preferences of passengers, (2) lhe number of passengers in a parlicuIar markel, (3) lhe
nanciaI slalus and income IeveIs of lhe passengers, (4) lhe prices of compelilors and
reIaled lraveI expenses, and (5) passenger expeclalions vilh respecl lo fulure prices.
P
r
i
c
e
Estimated number of passengers
1,000
D
$75
70
65
60
55
50
1,400 1,300 1,600 1,200 1,100 1,500
FIGURE 10-1 An individual air carriers demand for air transportation per month
between two cities (hypothetical data).
Cnangcs i n Ocnan!
priceis reecled in lhe dovnvard sIope of lhe demand curve. Whal is lhe advanlage of
graphing our demand scheduIe` Il permils us lo represenl cIearIy a given reIalionship
in lhis case, lhe reIalionship belveen price and eslimaled number of passengersin a
simpIer vay lhan ve couId if ve vere forced lo reIy on verbaI and labuIar presenlalion.
Whal happens if one or more of lhe delerminanls of demand shouId change` Il viII change
lhe demand scheduIe dala and lherefore lhe Iocalion of lhe demand curve. Such a change
in lhe demand scheduIe dala, or, graphicaIIy, a shih in lhe Iocalion of lhe demand curve,
CHAP T E R 10 AI R L I NE P R I CI NG, DE MAND AND OUT P UT DE T E R MI NAT I ON 2 8 9
is caIIed a snih in !cnan!. Ior exampIe, if passengers become viIIing and abIe lo buy more
lickels, al each possibIe price over a parlicuIar lime period ve have an increase in demand.
An increase in demand is reecled in a shih of lhe demand curve lo lhe righl, for exampIe,
from O
1
lo O
2
, as shovn in Iigure 10-2. ConverseIy, a decrease in demand occurs vhen,
because of a change in one or more of lhe delerminanls, consumers buy fever lickels al
each possibIe price lhan vas forecasl. GraphicaIIy, a decrease in demand enlaiIs a shih of
lhe demand curve lo lhe Ieh, for exampIe, from O
1
lo O
3
, as shovn in Iigure 10-2.
Lel us nov examine lhe eecl on demand of changes in each of lhe aforemenlioned
nonprice delerminanls, using lhe same hypolhelicaI exampIe.
1. Prcjcrcnccs cj passcngcrs. A change in passenger preferences favorabIe lo an airIine
possibIy prompled by adverlisingviII mean lhal more lickels viII be demanded al
each price over a parlicuIar lime period, shihing lhe curve lo lhe righl. An unfavora-
bIe change in passenger preferences viII cause demand lo decrease, shihing lhe curve
lo lhe Ieh. The airIine seIIs fever lickels lhan forecasl al aII prices oered during lhal
lime period. Ireferences can incIude a number of faclors, incIuding an airIines im-
age (Unileds friendIy skies, DeIlas professionaIism), perceived safely record, on-
lime reIiabiIily, in-ighl and ground services aorded, gale posilion, lype of aircrah
ovn, frequency of deparlure, and many more eilher reaI or perceived dierences
lhal reIale lo a passengers preference for one airIine over anolher.
2. Nun|cr cj passcngcrs. An increase in lhe number of passengers in a markelbroughl
aboul perhaps by improvemenls in connecling ighls or by popuIalion grovlhviII
P
r
i
c
e
Estimated number of passengers
1,000
D
1
$75
70
65
60
55
50
1,400 1,300 1,600 1,200 1,100 1,500
D
2
D
3
FIGURE 10-2 Effect of changes in demand.
A I R T R A N S P O R TAT I O N 2 9 0
conslilule an increase in demand. Iever polenliaI passengers viII be reecled by a
decrease in demand.
3. |inancia| siaius an! inccnc |ctc|s cj passcngcrs. This nonprice delerminanl reIales lo
lhe slale of lhe economy and lhe IeveI of such lhings as personaI income, disposabIe
income, and prols (in lhe case of businesses). Air lransporlalion is very sensilive
lo uclualions in lhe economy. If lhe economy is in a recessionary period, vilh
higher lhan normaI unempIoymenl and decreased faclory orders, bolh business and
pIeasure lraveIers viII be ying Iess. ConverseIy, vhen lhe economy is booming,
businesspeopIe are lraveIing exlensiveIy and vorkers are nol hesilanl lo make air
lraveI pIans.
4. Priccs cj ccnpciiicrs an! rc|aic! iratc| cxpcnscs. An increase in a compelilors price,
aII olher lhings being equaI, viII normaIIy prompl some passengers lo svilch lo
your airIine. The reverse is aIso lrue: if you raise your prices and your compelilor
doesnl, aII olher lhings being equaI, you viII Iose some business. An increase in lhe
compelilors price viII normaIIy shih your demand curve lo lhe righl, and, assuming
your prices hoId and your compelilors prices drop, your demand curve viII shih lo
lhe Ieh. Iconomisls refer lo lhese as subslilule or compeling goods.
There are olher reIaled lraveI expenses lhal compIemenl one anolher. Ior
exampIe, if moleI and renlaI car rales are faIIing and lhese ilems make up 70 percenl
of lhe proposed expenses for a lrip, lhe air fare price on a parlicuIar lrip may be
insignicanl, reIaliveIy speaking. Thus, if a pIanned $1,000 vacalion is unexpecledIy
oblainabIe lhrough a package cosling $550, lhe facl lhal lhe airfare venl from $150 lo
$165, a 10 percenl increase, becomes insignicanl.
5. Passcngcrs cxpcciaiicns uiin rcspcci ic juiurc priccs. Iassengers expeclalions of higher
fulure prices may prompl lhem lo buy nov in order lo beal lhe anlicipaled price rises.
ConverseIy, expeclalions of faIIing prices viII lend lo decrease lhe currenl demand for
lickels.
A cnangc in !cnan! shouId nol be confused vilh a cnangc in inc uaniiiu !cnan!c!. A
change in demand is a shih in lhe enlire demand curve, eilher lo lhe righl (an increase in
demand) or lo lhe Ieh (a decrease in demand). The passengers slale of mind concerning a
lickel purchase has been aIlered because of a change in one or more of lhe delerminanls of
demand. As used by forecaslers, lhe lerm !cnan! refers lo a scheduIe or curve: lherefore,
a change in demand musl mean lhal lhe enlire scheduIe has changed or lhal lhe curve has
shihed ils posilion. In conlrasl, a change in lhe quanlily demanded is lhe movemenl from
one poinl lo anolher poinlfrom one pricequanlily combinalion lo anolheron a xed
demand curve. The cause of a change in lhe quanlily demanded is a change in lhe price
of lhe lickel under consideralion.
Decide vhelher a change in demand or a change in lhe quanlily demanded is invoIved
in each of lhe foIIoving iIIuslralions:
1. AirIine Iovers ils price on a parlicuIar ighl, vilh lhe resuIl lhal AirIine A, vilh a
ighl deparling 15 minules Ialer, Ioses passengers.
CHAP T E R 10 AI R L I NE P R I CI NG, DE MAND AND OUT P UT DE T E R MI NAT I ON 2 9 1
|| asii ci iu cj Ocnan!
2. AirIine C Iovers ils price on a parlicuIar roule segmenl and experiences an increase
in lhe number of passengers carried.
3. Iassengers incomes rise as a resuIl of a lurnaround in lhe economy, resuIling in more
vacalion lraveIing.
The Iav of demand leIIs us lhal consumers viII respond lo a price decIine by buying more
of a producl or service. ul consumers degree of responsiveness lo a price change may vary
considerabIy. Iconomisls, forecaslers, and airIine price anaIysls measure hov responsive,
or sensilive, passengers are lo a change in lhe price by elasticity of demand. The demand
for some air lraveI is such lhal passengers and shippers are reIaliveIy responsive lo price
changes: price changes give rise lo considerabIe changes in lhe number of passengers
carried. This is caIIed elastic demand. Ior olher air lraveI, passengers are reIaliveIy
unresponsive lo price changes: lhal is, price changes resuIl in modesl changes in lhe
number of addilionaI passengers molivaled lo y. This is knovn as inelastic demand.
Iricing anaIysls and olhers measure lhe degree of eIaslicily or ineIaslicily by lhe
eIaslicily coefcienl, or |
!
. in lhis formuIa ( change):
Iercenlage change in passenger demand %Q
|
!

Iercenlage change in price %P
One caIcuIales lhese percenlage changes by dividing lhe change in price by lhe midpoinl
belveen lhe prices and lhe change in passenger demand by lhe midpoinl belveen lhe
demands. Thus, ve can reslale our formuIa as
Change in passenger demand Change in price
|
!
+
Midpoinl belveen passenger demands Midpoinl belveen prices
We use lhe midpoinls lo delermine percenlage changes lo avoid lhe discrepancy lhal
vouId occur if ve venl from one price, say $100, lo $120, vhich vouId resuIl in a 20
percenl increase changing from $100 lo $120, bul a 16 percenl decrease changing from
$120 lo $100. y using lhe midpoinl, $110, and dividing il inlo lhe change, ve arrive al a
compromise percenlage change of 18 percenl vhelher ve go from $100 lo $120 or $120 lo
$100. SimiIarIy, if lhe originaI number of passengers carried al a price of $100 vas 220, and
180 passengers vere carried al a price of $120, lhe percenlage change using lhe midpoinl
vouId be 20 percenl.
Nov Iel us inlerprel our formuIa.
Elastic Demand. Demand is eIaslic if a given percenlage change in price resuIls in a
Iarger percenlage change in passengers carried. Ior exampIe, demand is eIaslic if a 7
percenl decrease in price resuIls in a 12 percenl increase in lhe number of passengers
carried or if a 4 percenl increase in price resuIls in a 10 percenl decrease in lhe number
of passengers. In aII such cases, vhere demand is eIaslic, lhe eIaslicily coefcienl viII
obviousIy be grealer lhan 1. Anolher vay of delermining lhe eIaslicily is lo see vhal
happens lo lolaI revenue as a resuIl of lhe price change. If demand is eIaslic, a decIine
A I R T R A N S P O R TAT I O N 2 9 2
in price viII resuIl in an increase in lolaI revenue, because even lhough lhe price per
passenger is Iover, enough addilionaI passengers are nov being carried lo more lhan
make up for lhe Iover price. This is iIIuslraled in Iigure 10-3.
TolaI revenue is price limes quanlily. Thus, lhe area shovn by lhe reclangIe 0P
1
AQ
1
,
vhere P
1
= $50 and quanlily demanded Q
1
= 200 passengers carried, equales vilh lolaI
revenues of $10,000. When price decIines lo P
2
($40), causing lhe quanlily demanded lo
increase lo Q
2
(400 passengers carried), lolaI revenue changes lo 0P
2
BQ
2
($16,000), vhich
is obviousIy Iarger lhan 0P
1
AQ
1
. Il is Iarger because lhe Ioss in revenue caused by lhe
Iover price per unil (P
2
P
1
AC) is Iess lhan lhe gain in revenue caused by lhe Iarger saIe in
doIIars (Q
1
CBQ
2
) lhal accompanies lhe Iover price. The reasoning is reversibIe: if demand
is eIaslic, a price increase viII reduce lolaI revenue, because lhe gain in lolaI revenue
caused by lhe higher unil price (P
2
P
1
AC) is Iess lhan lhe Ioss in revenue associaled vilh
lhe accompanying faII in saIes (Q
1
CBQ
2
). Thal is, if demand is eIaslic, a change in price
viII cause lolaI revenue lo change in lhe opposile direclion. Iigure 10-4 may be heIpfuI in
remembering lhis ruIe.
300
Passengers carried
Demand curve
P
r
i
c
e
A
B
C
$50 P
1
$40 P
2
Q
1
200
0 Q
2
400
FIGURE 10-3 Elastic demand. When demand is elastic, a decrease in price results
in an increase in total revenue, and an increase in price results in a
decrease in total revenue.
% Q > % P
(percentage change in
Q is greater than
percentage change in P)
Price Quantity Total revenue
FIGURE 10-4 Basic rule of elastic demand.
CHAP T E R 10 AI R L I NE P R I CI NG, DE MAND AND OUT P UT DE T E R MI NAT I ON 2 9 3
ObviousIy, vhen airIines reduce prices, lhey anlicipale lhal consumers viII be responsive
(eIaslic). In olher vords, lhey assume lhal lhe price drop viII be more lhan osel by
a Iarger percenlage increase in consumers, lhereby IIing seals and cargo capacily and
increasing lolaI revenues. If lhey raise prices and consumers are responsive (eIaslic), lhe
rise in price viII be osel by a Iarger percenlage decrease in consumers, and lolaI revenues
viII faII.
Inelastic Demand. Demand is ineIaslic if a given percenlage change in price is
accompanied by a reIaliveIy smaIIer change in lhe number of passengers carried. Ior
exampIe, if a 10 percenl decrease in price resuIls in a 5 percenl increase in lhe number
of passengers carried, demand is ineIaslic. If an 8 percenl increase in fares resuIls in a 3
percenl decrease in lhe number of passengers, demand is ineIaslic. Il is apparenl lhal lhe
eIaslicily coefcienl viII aIvays be Iess lhan 1 vhen demand is ineIaslic. If demand is
ineIaslic, a price decIine viII cause lolaI revenue lo faII. The modesl increase in saIes lhal
viII occur viII be insufcienl lo osel lhe decIine in revenue per passenger, and lhe nel
resuIl viII be a decIine in lolaI revenues. This silualion exisls for lhe $7080 price range
shovn on lhe demand curve in Iigure 10-5.
IniliaIIy, lolaI revenue is 0P
1
AQ
1
$24,000, vhere price P
1
$80 and lhe number of
passengers carried Q
1
300. If ve reduce lhe price lo P
2
($70), lhe passengers carried viII
increase lo Q
2
(325). TolaI revenue viII change lo 0P
2
BQ
2
($22,750), vhich is Iess lhan
0P
1
AQ
1
. Il is smaIIer because lhe Ioss in revenue caused by lhe Iover fare (area P
2
P
1
AC) is
Iarger lhan lhe gain in revenue caused by lhe accompanying increase in saIes (area Q
1
CBQ
2
).
Again, our anaIysis is reversibIe: if demand is ineIaslic, a price increase viII increase
Passengers carried
Demand curve
P
r
i
c
e
A
B
C
$80 P
1
$70 P
2
Q
1
300
0 Q
2
325
FIGURE 10-5 Inelastic demand. When demand is inelastic, a decrease in price
results in a decrease in total revenue, and an increase in price
results in an increase in total revenue.
A I R T R A N S P O R TAT I O N 2 9 4
% P > % Q
(percentage change in
P is greater than
percentage change in Q)
Price Quantity Total revenue
FIGURE 10-6 Basic rule of inelastic demand.
Ocicrni nanis cj || asii ci iu
Competition. GeneraIIy speaking, lhe more compelilion lhere is (lhe more subslilules
and aIlernalives), lhe more responsive (eIaslic) consumers viII be. Ior exampIe, if four
carriers are operaling ighls vilhin 15 minules of one anolher lo a parlicuIar cily and
one oers a Iover fare, a passenger IikeIy viII y vilh lhal carrier, aII olher lhings being
equaI.
Distance. Long-hauI ighls lend lo be more eIaslic lhan shorl-hauI ighls. Thus,
vacalioners viII be responsive lo a fare reduclion of $100 on a $500 fare even if lhey have
lo Ieave belveen Tuesday and Thursday. Shorl-hauI fare changes lend lo be ineIaslic. A
10 percenl increase on a $30 fare is onIy $3. A carrier viII generaIIy nol experience a 10
percenl or grealer decrease in passengers for such a smaII amounl.
Business Versus Pleasure. usiness iers lend lo be Iess responsive lo price changes lhan
vacalioners or individuaIs on personaI lrips. Why` Mosl businesspeopIe are on expense
accounls and have lo make lheir lrips vilhin a cerlain period of lime. Nor are lhey
generaIIy viIIing lo lake a Iale-nighl ighl lo lake advanlage of a discounl. Vacalioners
can arrange lheir scheduIes and be much more eIaslic (responsive) lo price changes if il
is vorlh il lo lhem.
Time. CerlainIy, if ve have lime, ve can be much more responsive lo price changes
lhan if ve do nol. On lhe olher hand, if ve have IiIe lime and musl be al a cerlain pIace
al a parlicuIar lime, ve generaIIy viII be very ineIaslic vilh regard lo price changes. Ior
exampIe, fares lo Los AngeIes may be going up by 20 percenl nexl veek, bul if niece KeIIie
is geing married lhere nexl monlh, ve cannol be responsive by ying oul lhere nov lo
save lhe exlra 20 percenl.
lolaI revenue. Thal is, if demand is ineIaslic, a change in price viII cause lolaI revenue lo
change in lhe same direclion. Iigure 10-6 may be heIpfuI in remembering lhe ruIe.
The borderIine case lhal separales eIaslic and ineIaslic demand occurs vhen a percenlage
change in price and lhe accompanying percenlage change in number of passengers carried
are equaI. Ior exampIe, a 5 percenl drop in price causes a 5 percenl increase in lhe number
of lickels soId. This speciaI case is lermed unii c|asiiciiu. because lhe eIaslicily coefcienl is
exaclIy 1, or unily. In lhis case, lhere vouId be no change in lolaI revenue.
CHAP T E R 10 AI R L I NE P R I CI NG, DE MAND AND OUT P UT DE T E R MI NAT I ON 2 9 5
Tnc jc||cuing i||usiraiicn is |asc! cn a iruc casc inai nappcnc! sctcra| ucars agc uncn a ncu nc-
jri||s airjarc uas inirc!ucc!.
As lhe recession made inroads inlo lhe passenger lrafc Ioads of lhe ma|or airIines,
AirIine A aempled an experimenl vilh a discounl of 35 percenl from normaI coach
fares on cerlain of ils reguIarIy scheduIed roules. In an eorl lo buiId up ils Ioad faclor,
AirIine A lied ils discounl fare proposaI lo lhe oering of no-friIIs service during lhe ighl,
incIuding doing avay vilh compIimenlary meaIs, snacks, soh drinks, and coee, so as lo
reduce cosls and parliaIIy osel lhe Iover-priced fares. Hovever, passengers using lhe
no-friIIs pIan couId seIecliveIy purchase lhese ilems in ighl if lhey vished. The no-friIIs
fares vere oered onIy Mondays lhrough Thursdays.
AirIines and C, bolh compelilors of AirIine A on some of lhe roules on vhich AirIine
A proposed lo impIemenl no-friIIs fares, venl aIong vilh lhe discounl fares. AirIine A
cIaimed lhal 56 percenl of lhe 133,000 passengers vho used ils no-friIIs fare from mid-
ApriI lhrough Iune 30 vere enliced lo lraveI by air because of lhe discounl pIan. According
lo AirIine A, lhe nev passenger lrafc generaled by discounl fares increased ils revenues
by $4 miIIion during lhal period. AirIine A said lhal ils gures vere based on an on-board
survey of 13,500 passengers and represenled one of lhe mosl exhauslive sludies il had
ever conducled.
I. Smilh, vice-presidenl for markeling for AirIine A, vas quoled al a nevs conference
as saying lhal lhe fare had been an unquaIied success, had crealed a nev air lraveI
markel, and had generaled more lhan lvice lhe voIume of nev passengers required lo
osel revenue diIulion caused by reguIar passengers svilching lo lhe Iover fare. He said
lhal lhe slimuIus of lhe fare gave AirIine A a nel lrafc gain of 74,000 passengers during
lhe iniliaI lvo-and-one-haIf-monlh lriaI. He aIso caulioned lhal lhe success cIaims he vas
making for lhe no-friIIs fare did nol mean lhal Iov fares vere lhe ansver lo lhe airIine
induslrys excess capacily probIems. Yel Smilh did go so far as lo slale lhal vhal no-
friIIs has proved is lhal a properIy conceived discounl fare, oered al lhe righl lime in
lhe righl markels vilh lhe righl conlroIs, can heIp airIines hurdIe lradilionaIIy soh lrafc
periods.
AirIine reporled a dierenl experience. Ils sludies shoved lhal onIy 14 percenl of lhe
55,200 passengers vho used ils no-friIIs fare belveen mid-ApriI and May 31 represenled
nevIy generaled lrafc, vilh lhe remaining 86 percenl represenling passengers diverled
from higher fares vho vouId have ovn anyvay. Il said lhal lhe eecl of lhe fare in lhe
six ma|or markels il sludied vas a nel Ioss in revenue of $543,000 during lhe iniliaI one
and one-haIf monlhs. Al lhe same lime, AirIine aacked lhe credibiIily of AirIine As
survey, noling lhal ils ovn dala vere based on an exhauslive and scienlic bIind leIephone
survey among persons vho did nol knov lhe purpose and sponsor of lhe survey. AirIine
cIaimed lhal lhis lype of sludy vas more apl lo produce unbiased resuIls lhan AirIine
As on-board survey.
Olher airIines |oined AirIine in chaIIenging AirIine As survey resuIls. AirIine C, for
exampIe, cIaimed lhal lhe no-friIIs fare did nol even come cIose lo oseing lhe diIulion il
experienced in revenues. Olher airIine ofciaIs observed lhal aIlhough AirIine A mighl have
succeeded lhrough ils heavy promolion of lhe no-friIIs fares in diverling some business
from olher carriers, lhey feIl lhal AirIine As cIaims of generaling many passengers vho
olhervise vouId nol have ovn vere preposlerous.
NO-FRILLS AIRFARE AND SURVEY WARFARE
A I R T R A N S P O R TAT I O N 2 9 6
Those airIines in direcl compelilion vilh AirIine A on lhe roules on vhich lhe discounl
fares vere lried vere vehemenlIy opposed lo conlinuing lhe discounls. In lheir viev,
lhe no-friIIs approach consliluled economic nonsense. They announced a poIicy of
malching AirIine As discounl fare onIy vhere forced lo for compelilive reasons.
Some Questions for Discussion
1. Does AirIine As experimenl suggesl lhal lhe demand for airIine service al discounl
prices is eIaslic or ineIaslic` Do AirIine s resuIls indicale lhal demand is eIaslic or
ineIaslic`
2. Which of lhe lvo sludies, AirIine As on-board survey or AirIine s leIephone survey,
do you lhink vouId yieId lhe mosl reIiabIe eslimale as lo lhe lrue eIaslicily of demand`
Is il possibIe or IikeIy lhal lhe eIaslicily of demand for AirIine A is dierenl from lhe
eIaslicily of demand for AirIine ` Why` Hov vouId you accounl for lhe dierences
in lhe experiences of AirIine A and AirIine vilh discounl fares`
TYPES OF PASSENGER FARES
SeveraI lypes of fares are incIuded in lhe passenger fare slruclure. Normal fares (aIso
caIIed sian!ar! or |asic jarcs) are lhe backbone of lhe fare slruclure in lhal lhey appIy lo aII
passengers al aII limes (vilhoul reslriclion) and are lhe basis for aII olher fares. Separale
normaI fares are provided for each cIass of service: rsl cIass, coach, and economy.
Common fares are an unusuaI appIicalion of normaI fares in lhal lhey appIy a specic
fare lo poinls olher lhan lhe poinls belveen vhich lhe fare is delermined. An exampIe of
a common fare is shovn in Iigure 10-7.
Joint fares are singIe fares lhal appIy lo lransporlalion over lhe |oinl Iines or roules
of lvo or more carriers and lhal are delermined by an agreemenl belveen lhem. Ioinl
fares are becoming very popuIar belveen lhe ma|or and nalionaI carriers and commuler
(regionaI) Iines.
San Francisco
Passenger routing
Example Fare
ChicagoSan Francisco $200
ChicagoFresno (via San Francisco) $200
Fresno
Passenger does not
pay for this travel
Chicago
FIGURE 10-7 Common fare. Passengers in this example pay the same fare whether
they are flying from Chicago to San Francisco or to Fresno.
CHAP T E R 10 AI R L I NE P R I CI NG, DE MAND AND OUT P UT DE T E R MI NAT I ON 2 9 7
THE PRICING PROCESS
The basic lvofoId responsibiIily of airIine pricing anaIysls appears lo be simpIe and
slraighlforvard. They musl (1) monilor, anaIyze, and respond lo hundreds, somelimes
lhousands, of daiIy fare changes impIemenled by compelilor airIines and (2) roulineIy
deveIop pricing inilialives lo slrenglhen and/or forlify lheir companys posilion in lhe
markelpIace. In moving from concepluaI responsibiIily lo reaI-lime praclice, hovever,
airIine pricing becomes quile compIex. In broad lerms, lhe pricing process can be
characlerized as being heaviIy dependenl on aulomalion, having many dierenl fare
IeveIs sub|ecl lo change as a compelilive response.
AII ma|or airIines parlicipale in lhe fare Iing process via lhe Airline Tari Publishing
Company (ATPCO), vhich is |oinlIy ovned and funded by 19 U.S. and foreign carriers.
The ATICO serves as an eIeclronic cIearinghouse for fare informalion and changes.
Seven days a veek, ATICO accepls fare changes submied by aII parlicipaling airIines,
consoIidales and processes lhe changes overnighl, lhen lransmils and dispIays lhese
changes lo aII carriers by 6:00 .. The ATICO vas eslabIished in lhe 1940s, al a lime
vhen airIine pricing vas sliII reguIaled by lhe CA. The ATICOs roIe in pricing vas
quickIy heighlened vilh lhe advenl of airIine dereguIalion, vhich spavned inlense price
compelilion among carriers. Ils imporlance has aIso grovn vilh lhe increased roIe of
aulomalion, parlicuIarIy of compulerized reservalions syslems, vhich nov serve as lhe
source of aulomalion for mosl of lhe nalions 42,000 lraveI agency Iocalions.
Al any poinl in lime, because carriers coIIecliveIy serve lens of lhousands of origin and
deslinalion (O & D) cily-pairs, vilh each O & D having severaI dierenl fare IeveIs, lhe
lolaI fare invenlory managed by lhe ATICO exceeds 2 miIIion individuaI fares. Any singIe
airIines share of lhe ATICOs dalabase may amounl lo severaI hundred lhousand fares.
Iach year, lhe ATICO processes miIIions of domeslic fare changes. An average day may
invoIve over 130,000. Ior each carrier, lhis couId mean severaI lhousand each vorkday,
vhich requires some degree of anaIysis and, in mosl cases, some lype of compelilive
response.
Il is againsl lhis backdrop of fasl-paced change, fueIed by conlinuing advances in
aulomalion, lhal lhe pricing slas of lhe nalions airIines formuIale, and reguIarIy
reformuIale, lheir basic pricing slralegies and crah daiIy laclicaI maneuvers lhal are parl
science, parl arl.
Promotional fares are discounled fares lhal suppIemenl lhe normaI fare slruclure.
They are aIvays oered vilh some kind of reslriclion, such as minimum Ienglh of slay,
day of lhe veek, or season. Reslriclions serve lo minimize lhe risk of diverling fuII-fare
lrafc and maximize lhe generalive benel associaled vilh lhe fare reduclion. IxampIes
incIude famiIy-pIan fares, excursion fares, group fares, and slandby fares.
IromolionaI fares are normaIIy used vhere Ioad faclors are beIov lhe oplimum IeveI.
(Where Ioad faclors are above lhe oplimum IeveI, fuII-fare passengers vouId be dispIaced
by discounled-fare passengers, lhereby reducing revenue.) These discounled fares, because
lhey are Iover lhan normaI fares, do reduce revenue yieId per passenger. Hovever, lhis
reduclion in yieId is onIy undesirabIe, as ve discussed in lhe seclion on eIaslicily, vhen
lhe addilionaI lrafc generaled is nol enough lo osel lhe price reduclion
A I R T R A N S P O R TAT I O N 2 9 8
Pri ci ng Siraicgi cs an! O|j ccii tcs
The currenl Iileralure on pricing describes severaI dierenl slralegies or ob|eclives
lhal a rm mighl pursue, from simpIe survivaI pricing for cash, lo ghling for markel
share, lo pricing al a premium over compelilors lo compIemenl a superior producl or
service quaIily. AppIying lhese lexlbook slralegies lo lhe airIines is compIicaled, because
carriers donl charge onIy one price for lheir services. Inslead, lhey oer a hierarchicaI
array of fares designed lo appeaI lo bolh price-sensilive Ieisure lraveIers and Iess price-
sensilive business lraveIers. Iurlher compIicalions arise from various olher faclors lhal
characlerize lhe markel for airIine services. These incIude (1) lhe prediclabIe seasonaI
paern of demand, especiaIIy for Ieisure lraveI, (2) lhe inuence of override commissions
lhal many airIines pay lo lraveI agencies, (3) lhe dynamic nalure of airIine scheduIes and
lhe slrong reIalionship lhal exisls belveen scheduIe frequency and passenger demand,
and (4) lhe lendency for individuaI carrier pricing slralegies and ob|eclives lo vary by
markel and over lime.
Despile lhe difcuIlies (and sub|eclivily) of ing lhese generaI slralegies lo individuaI
airIines, lhe exercise can be a meaningfuI one, parlicuIarIy if a xed and reIaliveIy brief
lime frame is dened and if slralegies are idenlied for each carrier. American AirIines,
for exampIe, lends lo be a prol-focused premium pricer and a price Ieader in mosl
markels, vhereas Uniled lends lo be a quick foIIover ralher lhan Ieader. Soulhvesl
AirIines represenls lhe exlreme case of a Iov-fare pricer, slrongIy focused on oblaining
and mainlaining markel share and on diverling lrafc from aulo, bus, and raiI lraveI.
AIso, some of lhe nanciaIIy dislressed airIines operaling under lhe proleclion of Chapler
11 bankruplcy Iavs cIearIy have priced primariIy for survivaI. Il is nolevorlhy as veII
lhal, despile lhe dierences among airIines, aII carriers lend lo mainlain price parily
vilh lheir rivaIs. This is due lo lhe commodily nalure of airIine service, vhich may be
diminishing somevhal as lhe suppIy of air service is conlroIIed by fever more nanciaIIy
slabIe airIines.
AIlhough idenlifying lhe fundamenlaI slralegies of compeling carriers is an essenliaI
parl of airIine pricing, il is every bil as imporlanl, and perhaps more so, lo undersland and
execule eecliveIy lhe day-lo-day laclics of pricing.
Pri ci ng Tacii cs
Iricing laclics can be broadIy calegorized as (1) fare aclions and (2) ad|uslmenls lo fare
ruIes and/or reslriclions. NormaIIy, daiIy pricing aclivily invoIves bolh laclics. The
foIIoving discusses some of lhe more common aclions vilhin each calegory.
Fare Actions. Ior lhe mosl parl, fare aclions invoIve changesincreases or reduclions
lo acluaI fare IeveIs, in conlrasl lo lhe ruIes, reslriclions, and/or foolnoles lhal accompany
mosl fares. Changes can be markel specic, regionaI, or mass markel in scope.
|nirc!ucicru jarcs. When a carrier begins service in a nev markel, il lypicaIIy oers un-
reslricled Iov fares for a period of 30 lo 45 days. Key compelilors normaIIy malch lhese
fares, vilh reslriclions. Irovided lhal inlroduclory fares are nol exlended beyond lhe
convenlionaI lime frame, lhey usuaIIy donl Iead lo any sorl of upping of lhe anle by
compelilors (for exampIe, exlending lhe period of avaiIabiIily or discounling lhe fare even
furlher).
CHAP T E R 10 AI R L I NE P R I CI NG, DE MAND AND OUT P UT DE T E R MI NAT I ON 2 9 9
Susicn cxcursicn-jarc sa|cs. During seasonaIIy veak lrafc periods, carriers frequenlIy
oer a syslemvide saIe of excursion fares. SaIes are conducled, on average, for a period
of 7 lo 10 days, vilh lraveI aIIoved lvo lo four monlhs inlo lhe fulure. As a ruIe, pro-
vided lhal lhe carrier isnl conducling a re saIe simpIy lo generale cash, lhe voIume of
seals oered in such a saIe is Iimiled and conlroIIed on a ighl-by-ighl basis. Americans
SuperSaver and MaxSaver fares are some of lhe more prominenl exampIes.
Susicn |usincss-jarc sa|cs. This lype of saIe is simiIar lo lhe syslem excursion-fare saIe, ex-
cepl lhal il invoIves higher-IeveI business fares. Common molives are lo slimuIale de-
mand and brand svilching and lo provide added vaIue. The lypicaI approach in lhis case
is lo inlroduce a one-vay or round-lrip fare, belveen 15 and 30 percenl Iess lhan lhe fuII
coach (Y-cIass) fare, vilh lhe requiremenl lhal lhe fare be purchased al Ieasl lhree lo seven
days before lraveI. Seals oered al lhis fare lend lo be pIenlifuI.
Ccnncci narkci sa|cs. In markels vhere an airIine oers muIlipIe nonslop ighls, lhe car-
rier viII lend lo Iimil lhe number of seals soId al discounled fares, because ils ighls
represenl a higher-quaIily service lhan, for exampIe, connecling-ighl service. In lhese
inslances, a compeling carrier oering onIy connecling service may periodicaIIy aempl
lo gain increased markel presence and sleaI markel share by inlroducing a Iov fare in ils
markels. The business risk faced by lhe connecling-service carrier is lhal lhe compelilion
may aempl lhe same slralegy in lhe inilialors ovn nonslop markels.
Targci scgncni pricing. These speciaI fares are Iover lhan normaI pubIished fares and
are aimed al a veII-dened largel audience, such as miIilary personneI, senior cilizens,
or sludenls. Ior passengers lo lake advanlage of lhese fares, some form of idenlicalion is
usuaIIy required. ecause lhe audience for lhese fares is smaII, lhe risk of diIuling currenl
revenues is minimaI.
||igni-iinc-spccic jarcs. To shore up a parlicuIarIy veak ighl in a markel or as a basic
compelilive maneuver, carriers viII somelimes oer Iover lime-specic or ighl-specic
fares. A common exampIe is nighl-ighl fares (for exampIe, aher 8 ..) lhal are 20 lo 40
percenl beIov comparabIe fares on earIier ighls vilh higher demand. There is a risk in
oering lhis kind of fare, because lhe improvemenl in lhe nighl ighls Ioad faclor and lhe
increase in revenue may come al lhe expense of earIier, slronger ighls in lhe same markel
as passengers aIler lheir normaI lraveI paerns lo oblain lhe Iover fare. When such can-
nibaIizalion occurs, lolaI markel revenue may acluaIIy decIine.
Mi|cagc-|asc! pricing. AIlhough lhere are aImosl aIvays aberralions due lo compelilive
pressures, carriers generaIIy aempl lo reIale price lo dislance ovn, consislenl vilh
some price/miIeage curve or malhemalicaI funclion.
Zcnc pricing. This is a somevhal more slreamIined varialion of miIeage-based pricing.
Irom Chicago, for exampIe, deslinalions mighl be grouped inlo one of severaI regions
(for exampIe, Midvesl, Iasl Coasl, IIorida/Soulh, Wesl Coasl), vilh each regionaI group
carrying lhe same price. LogicaIIy, Ionger-dislance regions are priced higher lhan shorler-
dislance ones.
A I R T R A N S P O R TAT I O N 3 0 0
Va|uc-a!!c! pricing. ecause fares can be malched so quickIy lhrough lhe ATICO sys-
lem, carriers somelimes seek a vaIue advanlage ralher lhan an oulrighl price advanlage.
IxampIes of vaIue-added laclics are an oer of rsl-cIass sealing for coach fares and exlra
frequenl-ier credils for lhe purchase of higher-IeveI fares. UIlimaleIy, vaIue-added price
oerings aIso lend lo be quickIy malched by aII compeling carriers.
Adjusting Rules and Restrictions. This second sel of laclics invoIves lhe periodic
ad|uslmenl of ruIes and reslriclions lhal accompany mosl fares ralher lhan lhe doIIar
amounl of lhe fares. Common ruIes and reslriclions laclics incIude lhe foIIoving:
A!tancc purcnasc rcuircncnis. AirIines roulineIy ad|usl advance purchase requiremenls
on excursion and discounled business fares. Advance purchase culos are one of lhe key
fences airIines erecl lo prevenl business lraveIers from laking advanlage of excursion
fares. The advance purchase reslriclion on lhe Iovesl excursion fares lends lo range from
7 lo 30 days, vhiIe 3 lo 7 days is lhe norm for business fares. The advance purchase reslric-
lion can be Iikened lo a demand lhroIe: in periods of slrong demand, Ionger advance
purchase requiremenls prevaiI, on lhe presumplion lhal higher-fare lrafc viII maleriaI-
ize as lhe deparlure dale approaches. ConverseIy, in limes of veak demand, advance
purchase requiremenls are Iess reslriclive, lhal is, shorler.
Onc-uau tcrsus rcun!-irip purcnasc rcuircncnis. Ixcursion fares are usuaIIy designed lo
require a round-lrip purchase, primariIy because lheir doIIar vaIue is so Iov. ConverseIy,
higher-price business fares are usuaIIy oered on a one-vay basis and lypicaIIy can be
combined vilh Iover one-vay fares, if avaiIabIe, lo compIele an ilinerary. In an eorl lo
maximize revenues, airIines viII converl one-vay business fares lo round-lrip purchase
fares vhen lhree condilions exisl: (1) lhe carrier oers a round-lrip scheduIe paern lhal
viII salisfy lhe passenger: (2) lhere is a high probabiIily lhal any resuIling fare increase
(as passengers are unabIe lo combine a higher one-vay fare vilh a Iover one) viII more
lhan osel an associaled impacl on demand: and (3) lhere is a slrong IikeIihood lhal key
compelilors viII malch lhe move.
Mininun cr naxinun siaus. Mosl Iover excursion fares carry reslriclions such as re-
quires a minimum lhree-day or Salurday nighl slay. The ob|eclive is lo erecl yel anolher
purchase fence lhal business lraveIers cannol cIear.
|arc pcna|iics. These penaIlies appIy lo Iover excursion fares and are lriggered vhen a
passenger canceIs a reservalion. Common exampIes are penaIlies of $25, $50, 50 percenl
of lhe lickel vaIue, or even lolaI forfeilure or nonrefundabiIily if il invoIves lhe Iovesl
excursion fares. The ob|eclive is lo impose lhese penaIlies as a revenue osel lo lhe Iov
fares and, more imporlanl, lo shih seal invenlory risk lo lhe passenger. Carriers viII peri-
odicaIIy lry lo gain a secondary pricing advanlage over one anolher by reIaxing lhese
lypes of penaIlies, bul compelilive malching is usuaIIy lhe end resuIl.
Oircciicna| pricing. If an airIines saIes are nol approprialeIy baIanced al eilher end of an
O & D cily-pair, perhaps because il Iacks scheduIe slrenglh in one of lhe cilies, lhe carrier
may aempl lo Iover fares on a direclionaI basis from lhe veaker cily.
CHAP T E R 10 AI R L I NE P R I CI NG, DE MAND AND OUT P UT DE T E R MI NAT I ON 3 0 1
Pcak an! c-pcak pricing. Depending on lhe seasonaIily of demand in parlicuIar markels,
as veII as lime-of-day and day-of-veek paerns of demand, airIines viII dene cerlain
days of lhe veek and/or limes of lhe day as peak, vhich carry a $20 lo $30 premium
over o-peak prices.
Sa|cs. iickciing. an! iratc| uin!cus. As carriers periodicaIIy inlroduce Iov saIe fares,
lhey slrive lo crah a deIicaleIy baIanced combinalion of saIe, lickeling, and lraveI pe-
riods. They vanl a saIe period lhal is Iong enough for lhe adverlising message lo be
heard bul shorl enough lo creale a sense of purchase urgency7 lo 10 days is lhe norm.
They aIso vanl a lickel by (dale) dened lo ensure a degree of conlroI over lhe pricing
inilialive, as veII as appropriale lraveI periods for lhe saIe fares. AIIoved lraveI periods
usuaIIy span 60 lo 120 days, during seasonaIIy veak limes of lhe year (for exampIe, Ianu-
aryIebruary and SeplemberOclober). TraveI periods lhal are loo shorl donl generale
lhe voIume of lrafc lhe airIines are seeking. TraveI periods lhal are loo Iong risk diIulion
of slronger, higher-yieId lrafc periods.
Pri ci ng Ana| usi s
The decision lo use any one, or a combinalion, of lhe laclics described is essenliaIIy a
decision lo raise or Iover a fare. Ior exampIe, increasing lhe advance purchase reslriclion
from 3 lo 7 days on a discounled business fare viII force a cerlain number of passengers lo
buy lhe nexl higher fare. CorrespondingIy, by reIaxing lhe advance purchase requiremenls
on excursion fares from 21 days lo 7 days and/or aIIoving for more o-peak days during
lhe veek, more passengers viII be abIe lo lake advanlage of a Iover fare.
The proper economic anaIysis supporling lhe decision lo change fares viII dier,
depending on vhelher il invoIves a fare reduclion or an increase. In bolh inslances,
eIaslicily expeclalions are crilicaI, bul so are olher faclors, especiaIIy in lhe case of a fare
decrease.
Steps in Analyzing a Fare Decrease. The pricing anaIysls rsl caIcuIale lhe expecled
revenue gain (or Ioss) aribulabIe excIusiveIy lo eIaslicily and lhen do lhe foIIoving:
1. Su|iraci !i|uiicn. DiIulion resuIls from lhose passengers purchasing lhe proposed
Iover fare vho vouId have lraveIed anyvay al lhe prior higher fare.
2. Su|iraci rcjun!s. AirIines normaIIy obIigale lhemseIves lhrough lhe so-caIIed
guaranleed-fare ruIe lo refund lhe doIIar dierence belveen a fare or lickel lhal has
aIready been purchased and a proposed Iover fare in lhe same fare cIass, provided
lhal lhe passenger viII sliII be abIe lo lraveI on lhe dale and ighl originaIIy reserved
and meel lhe lraveI reslriclions of lhe nev Iover fare (for exampIe, advance purchase
and minimum slay requiremenls).
3. Su|iraci a!tcriising. To lhe exlenl lhal previousIy unbudgeled funds are dedicaled
lo a parlicuIar pricing inilialive, such an expendilure shouId be deducled as a slep in
caIcuIaling lhe nel revenue gain, or Ioss, reaIized from lhe fare inilialive.
4. Su|iraci a!!iiicna| taria||c passcngcr ccsis. Cerlain cosls vary direclIy vilh passenger
voIume. Trafc IiabiIily insurance, food, and reservalions fees are lhe expenses
A I R T R A N S P O R TAT I O N 3 0 2
mosl commonIy idenlied as lruIy variabIe cosls. As a naI slep in eslimaling lhe
nel revenue generaled from a fare reduclion, lhe addilionaI variabIe passenger cosls
incurred shouId aIso be deducled, parlicuIarIy if lhe lrafc increase is expecled lo be
Iarge.
5. A!! spi||. When a nevIy inlroduced fare is especiaIIy Iov and is malched by aII
ma|or compelilors in lhe markel, il has lhe polenliaI lo slimuIale primary demand lo
such a high IeveI lhal cerlain carriers may benel by picking up lrafc lhal is spiIIed
lo lhem by olher carriers lhal cannol accommodale aII of lheir polenliaI lrafc due lo
excessiveIy high Ioad faclors.
6. A!! rcjccic! !cnan! |u cincr air|incs. Al limes, cerlain airIines viII lighlIy reslricl lhe
number of seals soId al a parlicuIar discounled-fare IeveI, on lhe assumplion lhal
lhey can II lhe same seals vilh higher-fare passengers. This can resuIl in a re|ecled
demand by lhe reslriclive carrier, vhich can be absorbed by anolher carrier lhal is Iess
reslriclive in conlroIIing ils ovn discounl seal invenlory.
Steps in Analyzing a Fare Increase. In lhe case of a fare increase, lhere are fever faclors
lo consider in eslimaling lhe nel economic impacl. The formuIa becomes simpIy: revenue
gain or Ioss from eIaslicily pIus passenger variabIe cosls avoided. Wilh lhe inlroduclion
of a fare increase, spin and re|ecled demand are irreIevanl. Likevise, lhere is no polenliaI
for refunds, and il is highIy unIikeIy lhal a carrier viII choose lo adverlise a fare increase.
The one imporlanl nuance is lhal passenger variabIe cosls viII be Iovered as a funclion of
each passenger vho, facing a higher fare, chooses nol lo y or seIecls an aIlernale mode
of lransporlalion.
The ob|eclive of inventory management is lo maximize individuaI ighl revenue. In lhe
simpIesl lerms, invenlory anaIysls face lhe lask of seIIing as many seals as possibIe al
lhe highesl possibIe fares. This usuaIIy means making avaiIabIe an adequale number
of Iover-fare seals far in advance of lhe deparlure dale in order lo accommodale price-
sensilive business lraveIers. Ils a lricky baIancing acl lhal requires a keen underslanding
of lhe compelilive dynamics and lrafc composilion of individuaI markels and ighls.
AddilionaIIy, il is lhe anaIysls responsibiIily lo overbook lhe ighls |usl enough lo make
up for lhe number of passengers vho can be expecled nol lo shov up for lheir ighl.
Whal makes lhe invenlory managemenl |ob especiaIIy difcuIl is lhal bookings for any
parlicuIar deparlure may begin lo maleriaIize monlhs before lhe lime lhe ighl acluaIIy
deparls, and ils nol unusuaI for an individuaI anaIysl lo be responsibIe for 50 lo 100 daiIy
deparlures. As eighl or more fare cIasses are muIlipIied across lhe exlended conlroI lime
frame of veeks or monlhs, and as lhese faclors are muIlipIied again over lhe vorkIoad
of 50 lo 100 daiIy ighl deparlures, lhe |ob of invenlory managemenl can become quile
compIex.
UIlimaleIy, invenlory anaIysls are evaIualed on lheir abiIily lo do lhe foIIoving
simuIlaneousIy: (1) minimize Iov-yieId revenue spin (lhe unnecessary Ioss of Iover-fare
excursion revenue resuIling from lhe aIIocalion of loo fev discounl-fare seals): (2) minimize
high-yieId revenue spiII (lhe unnecessary Ioss of higher-fare business revenue resuIling
from lhe aIIocalion of loo fev high-fare seals): (3) minimize lhe cosl of spoiIed seals
Tnc |c| c cj |ntcnicru Managcncni
CHAP T E R 10 AI R L I NE P R I CI NG, DE MAND AND OUT P UT DE T E R MI NAT I ON 3 0 3
AIRLINE COSTS
Cosl is a ma|or delerminanl in pricing lhe airIine producl. The price or average revenue per
passenger miIe ovn musl be sufcienl lo cover average cosl per passenger miIe ovn.
roadIy speaking, airIine cosls can be calegorized as operaling cosls or nonoperaling
cosls.
Oi rcci Opcraii ng Ccsis
Direct operating costs are aII lhose expenses associaled vilh and dependenl on lhe lype of
aircrah being operaled, incIuding aII ying expenses (for exampIe, ighl crev saIaries and
fueI and oiI), aII mainlenance and overhauI cosls, and aII aircrah deprecialion expenses.
Flight Operations. The Iargesl calegory of direcl operaling cosls is for ighl operalions.
Il incIudes lhe foIIoving ilems:
||igni crcu cxpcnscs. These expenses invoIve nol onIy direcl saIaries and lraveIing ex-
penses bul aIso aIIovances, pensions, and insurance. IIighl crev cosls can be caIcuIaled
direclIy on a roule-by-roule basis or, more commonIy, can be expressed as an hourIy
cosl per aircrah lype. In lhe Iaer case, lhe lolaI ighl crev cosls for a parlicuIar roule or
service can be caIcuIaled by muIlipIying lhe hourIy ighl crev cosls of lhe aircrah being
operaled on lhal roule by lhe block speed lime for lhal roule. Iock speed is lhe average
speed of an aircrah as il moves lhrough lhe air.
|uc| an! ci|. Anolher ma|or cosl eIemenl of ighl operalions is fueI and oiI. IueI con-
sumplion varies considerabIy from roule lo roule in reIalion lo lhe slage Ienglhs, aircrah
veighl, vind condilions, cruise aIlilude, and so forlh. Thus, an hourIy fueI cosl lends lo
be even more of an approximalion lhan an hourIy ighl crev cosl, so fueI consumplion
normaIIy is compuled on a roule-by-roule basis. In addilion lo avialion fueI, oiI con-
sumplion musl be delermined. Hovever, oiI consumplion is negIigibIe and, ralher lhan
lrying lo caIcuIale il direclIy for each roule, lhe normaI praclice is lo eslabIish hourIy oiI
consumplion for each lype of engine. The oiI consumplion on a parlicuIar roule is lhen
caIcuIaled from lhe number of engines on lhe aircrah ying lhe roule muIlipIied by lhe
hourIy oiI consumplion for lhal engine and by lhe bIock speed lime. IueI and oiI cosls
incIude aII reIevanl laxes and dulies, such as laxes on fueI and oiI Ievied by governmen-
laI unils, and fueI lhroughpul charges Ievied by some airporl aulhorilies on lhe voIume
of fueI upIihed.
Airpcri an! cn rcuic cnargcs. AirIines musl pay airporl aulhorilies for lhe use of lhe run-
vay and lerminaI faciIilies. Airporl charges normaIIy have lvo eIemenls: (1) a Ianding fee
(seals spoiI vhen demand is sufcienl lo II lhe aircrah bul lhe anaIysl undereslimales lhe
number of no-shov passengers and lhe ighl deparls vilh emply seals): and (4) minimize
lhe cosl of denied boardings (vhen a passenger is denied boarding because an anaIysl has
overeslimaled lhe no-shov rale on a high-demand ighl, lhe airIine usuaIIy musl pIace
lhe passenger on anolher carrier, al a reIaliveIy high lickel price).
A I R T R A N S P O R TAT I O N 3 0 4
reIaled lo lhe veighl of lhe aircrah and (2) in some cases, a passenger faciIily charge Iev-
ied on lhe number of passengers boarded al lhal airporl. AddilionaIIy, if an aircrah slays
al an airporl beyond a slaled lime period, il viII have lo pay parking or hangarage fees.
These are reIaliveIy smaII compared lo lhe basic Ianding and passenger charges. Il shouId
be noled lhal nol aII airporls use a slandardized syslem for impIemenling charges. Many
airporls, especiaIIy lhose seeking increased business, are viIIing lo negoliale charges on
an individuaI basis. This is especiaIIy lrue of secondary or peripheraI airporls vhere fa-
ciIilies are underuliIized. In many cases, underuliIized airporls are viIIing lo conlribule
resources lovard lhe markeling of nev air service as veII as lo reduce cosls for various
ground handIing charges.
Aircrah insurancc ccsis. The aircrah huII and IiabiIily insurance expenses amounl lo a
reIaliveIy smaII parl of ighl operalion cosls. The huII premium is generaIIy caIcuIaled as
a percenlage of lhe vaIue of lhe ighl equipmenl and may range from 1 lo 2 percenl, or
Iover, depending on lhe airIine, lhe number of aircrah insured, and lhe geographic areas
in vhich ils aircrah operale. LiabiIily premiums are generaIIy based on lhe eslimaled
number of revenue passenger miIes ovn. AddilionaI coverages, such as var risk cover-
age, may be purchased for an addilionaI premium. The eslimaled annuaI premium can
be converled inlo an hourIy insurance cosl by dividing il by lhe pro|ecled aircrah uliIiza-
lion, lhal is, by lhe lolaI number of bIock speed hours lhal each aircrah is expecled lo y
during lhe year.
Oincr igni-cpcraiicns cxpcnscs. IinaIIy, lhere may be some expenses reIaled lo ighl op-
eralions lhal do nol faII inlo any of lhe preceding calegories. These addilionaI expenses
may incIude lhe cosl of ighl crev lraining and of roule deveIopmenl. Hovever, if lrain-
ing cosls are amorlized over lvo or lhree years, lhen lhey are generaIIy grouped logelher
vilh deprecialion. Some airIines may have lo pay renlaI or Iease charges for lhe hiring or
Ieasing of aircrah or crevs from olher airIines. These expenses are usuaIIy considered parl
of ighl-operalions cosls.
Maintenance and Overhaul Costs. TolaI mainlenance cosls cover a vide range of cosls
reIaled lo dierenl aspecls of mainlenance and overhauI. IIighl equipmenl mainlenance
cosls are divided inlo lhree calegories: direcl mainlenance on lhe airframe, direcl
mainlenance on lhe engines, and a mainlenance burden. The mainlenance burden is
basicaIIy lhe adminislralive and overhead cosls associaled vilh lhe mainlenance funclion
lhal cannol be aribuled direclIy lo a parlicuIar airframe or engine bul aIIocaled on a
fairIy arbilrary basis. U.S. air carriers musl furnish lhe DOT vilh lhese lhree calegories
of mainlenance cosls separaleIy for each aircrah lype lhal lhey operale. These dala are
pubIished quarlerIy and provide an exceIIenl basis for lhe comparison of mainlenance
cosls among airIines and aIso among dierenl aircrah lypes and engines.
IndividuaI carriers, having eslimaled lhe lolaI mainlenance cosls for one parlicuIar
aircrah lype, may converl lhese cosls inlo an hourIy mainlenance cosl by dividing lhem
by lhe lolaI number of bIock speed hours ovn by aII lhe aircrah of lhal parlicuIar lype
operaled by lhe airIine.
Depreciation and Amortization. Deprecialion of ighl equipmenl is lhe lhird componenl
of direcl operaling cosls. AirIines lend lo use slraighl-Iine deprecialion over a given
number of years, vilh a residuaI vaIue of 0 lo 15 percenl. Deprecialion periods can vary
CHAP T E R 10 AI R L I NE P R I CI NG, DE MAND AND OUT P UT DE T E R MI NAT I ON 3 0 5
by aircrah, vilh lhe period for vide-body |els ranging from 14 lo 16 years. Ior smaIIer
shorl-hauI aircrah, deprecialion periods are shorler, generaIIy 8 lo 10 years.
The annuaI deprecialion charge or cosl of a parlicuIar aircrah in an airIines eel
depends on lhe deprecialion period adopled and lhe residuaI vaIue assumed. Ior
exampIe, an aircrah vilh a purchase price of $90 miIIion and anolher $10 miIIion for
spare parls deprecialed over a 15-year period lo a 10 percenl residuaI vaIue vouId carry
a deprecialion of $6 miIIion per year:
Irice of aircrah and spares $100
Iess residuaI vaIue (10%) - 10
divided by 15 years $ 90
AnnuaI deprecialion $ 6
If an airIine chooses a shorler deprecialion period, lhen lhe annuaI deprecialion cosl
viII rise. The hourIy deprecialion cosl of each aircrah in any one year can be eslabIished
by dividing ils annuaI deprecialion cosl by lhe aircrahs annuaI uliIizalion, lhal is, lhe
number of bIock speed hours ovn in lhal year. Thus, if our exampIe aircrah achieved
3,000 bIock speed hours in a year, ils hourIy deprecialion cosl vouId be $2,000 ($6 miIIion
divided by 3,000). If lhe annuaI uliIizalion couId be pushed up lo 4,000 hours, lhen lhe
hourIy cosl vouId be cul lo $1,500 ($6 miIIion divided by 4,000). CIearIy, any changes in
lhe deprecialion period, in lhe residuaI vaIue, or in lhe annuaI uliIizalion viII aecl lhe
hourIy deprecialion cosl.
Many airIines amorlize lhe cosls of ighl crev lraining, as veII as any deveIopmenlaI
and preoperaling cosls reIaled lo lhe deveIopmenl of nev roules or lhe inlroduclion of
nev aircrah. In essence, lhis means lhal such cosls, inslead of being debiled in lolaI lo lhe
year in vhich lhey occur, are spread oul over a number of years. Such amorlizalion cosls
are grouped logelher vilh deprecialion.
|n!i rcci Opcraii ng Ccsis
Indirect operating costs are aII lhose cosls lhal viII remain unaecled by a change of
aircrah lype because lhey are nol direclIy dependenl on aircrah operalions, incIuding
expenses lhal are passenger reIaled ralher lhan aircrah reIaled (such as passenger
service cosls, cosls of lickeling and saIes, and slalion and ground cosls) and generaI and
adminislralive cosls.
Station and Ground Expenses. Slalion and ground cosls are aII lhose expenses, aparl
from Ianding fees and olher airporl charges, incurred in providing an airIines services
al an airporl. Such cosls incIude lhe saIaries and expenses of lhe airIine sla Iocaled al
lhe airporl and engaged in lhe handIing and servicing of aircrah, passengers, or freighl.
In addilion, lhere are lhe cosls of ground handIing equipmenl, of ground lransporlalion,
of buiIdings and ofces and associaled faciIilies, and of communicalion equipmenl. Cosls
aIso arise from lhe mainlenance and insurance of each slalions buiIdings and equipmenl.
Renls may have lo be paid for some of lhe properlies used.
Passenger Service Costs. The Iargesl singIe eIemenl of cosls arising from passenger
services is lhe payroII, aIIovances, and olher expenses reIaled direclIy lo aircrah cabin
sla and olher passenger service personneI. Such expenses incIude holeI and olher cosls
A I R T R A N S P O R TAT I O N 3 0 6
associaled vilh overnighl slops, as veII as lhe lraining cosls of cabin sla vhere lhese
are nol amorlized. ecause lhe number and lype of cabin sla may vary by aircrah lype,
some airIines consider cabin sla cosls lo be an eIemenl of ighl-operalions cosls and, as
such, a direcl operaling cosl.
A second calegory of passenger service cosls are lhose direclIy reIaled lo lhe passengers.
They incIude lhe cosls of in-ighl calering, lhe meaIs and olher faciIilies provided on lhe
ground for lhe comforl of passengers, and expenses incurred as a resuIl of deIayed or
canceIed ighls.
Reservations, Sales, and Promotional Costs. AII cosls associaled vilh reservalions,
saIes, and promolionaI aclivilies, as veII as aII ofce and accommodalion cosls arising
from lhese aclivilies, are incIuded in lhis calegory. Sla expenses al relaiI lickel ofces,
vhelher al home or abroad, aIso are incIuded. In addilion, lhe cosls of aII adverlising
and any olher form of promolion, such as famiIiarizalion ighls for |ournaIisls or lraveI
agenls, faII in lhis calegory. IinaIIy, commissions or fees paid lo lraveI agencies for lickel
saIes normaIIy are incIuded.
General and Administrative Costs. GeneraI and adminislralive cosls are usuaIIy a
reIaliveIy smaII eIemenl of an airIines lolaI operaling cosls, because many adminislralive
expenses can be reIaled direclIy lo a parlicuIar funclion or aclivily vilhin lhe carrier, such
as mainlenance or saIes. ConsequenlIy, generaI and adminislralive cosls shouId incIude
onIy lhose expenses lhal are lruIy generaI lo lhe airIine or lhal cannol readiIy be aIIocaled
lo a parlicuIar aclivily. InlerairIine comparison of lhese generaI cosls is very difcuIl,
because airIines use dierenl accounling syslems.
Ncncpcraii ng Ccsis an! |ctcnucs
Nonoperating costs and revenues incIude lhose expenses and revenues nol direclIy
reIaled lo lhe operalion of an airIines ovn air lransporlalion services. Ma|or nonoperaling
cosls and revenues incIude lhe foIIoving:
1. Gains or Iosses arising from lhe reliremenl of properly or equipmenl, bolh aeronauli-
caI and nonaeronaulicaI. Such gains or Iosses arise vhen lhere is a dierence belveen
lhe deprecialed book vaIue of a parlicuIar ilem and lhe vaIue lhal is reaIized vhen
lhal ilem is relired or soId o.
2. Inleresl paid on Ioans, as veII as any inleresl received from bank or olher deposils.
Ior some accounling purposes, some carriers incIude inleresl paid on aircrah-reIaled
Ioans as an operaling cosl.
3. AII prols or Iosses arising from an airIines afIialed companies, some of vhich may
be direclIy invoIved in air lransporlalion, such as an ovned commuler carrier.
4. A vide range of olher ilems lhal do nol faII inlo lhe preceding lhree calegories, such
as Iosses or gains arising from foreign exchange lransaclions or from saIes of shares
or securilies.
5. Direcl governmenl subsidies or olher governmenl paymenls.
CHAP T E R 10 AI R L I NE P R I CI NG, DE MAND AND OUT P UT DE T E R MI NAT I ON 3 0 7
The lradilionaI cIassicalion of cosls |usl described is essenliaIIy a funclionaI one. Cosls
are aIIocaled lo specic funclionaI areas vilhin lhe airIine, such as ighl operalions and
mainlenance, and are lhen grouped logelher in one or lvo calegories, as eilher direcl or
indirecl operaling cosls. This cosl breakdovn is of considerabIe vaIue for accounling and
generaI managemenl purposes.
To aid in economic anaIysis and managemenl decision making, variabIe cosls and xed
cosls musl be dislinguished. CIearIy, some cosls may be immedialeIy avoidabIe as a resuIl
of some managemenl decision. IurIoughing empIoyees and eIiminaling meaI service on
cerlain ighls vouId be exampIes. Olher cosls associaled vilh morlgage paymenls on
buiIdings and hangars may nol be avoided excepl in lhe Iong run. The mosl common
vay of dislinguishing belveen lhose cosls lhal can be varied in lhe shorl run and lhose
lhal cannol is lhrough lhe concepl of variabIe cosls and xed cosls. AirIines idenlify lhose
eIemenls of cosl generaIIy accepled as being direcl operaling cosls and furlher subdivide
lhem inlo xed cosls and variabIe cosls.
Variable Costs. Variable costs are lhose cosls lhal increase or decrease vilh lhe IeveI
of oulpul, or available seat-miles (ASMs), lhal an airIine produces. (A seal-miIe is one
passenger seal lransporled one slalule miIe.) These cosls, for lhe mosl parl, are avoidabIe
in lhe shorl lerm. Ior exampIe, if a ighl or series of ighls is canceIed, lhe airIine is
no Ionger responsibIe for ighl crev expenses, fueI charges, Ianding fees, and lhe cosls
of passenger meaIs. These are fairIy seIf-evidenl. Less obvious are lhe engineering and
mainlenance cosls, vhich shouId be cIassied as variabIe. Cerlain mainlenance checks
of dierenl parls of lhe aircrah, invoIving bolh Iabor cosls and lhe repIacemenl of spare
parls, are scheduIed lo lake pIace aher so many hours of ying or aher a prescribed
number of ighl cycIes. (A igni cuc|c is one lakeo and Ianding.) ecause a Iarge parl
of direcl mainlenance is reIaled lo lhe amounl of ying or lhe ighl cycIes, canceIing a
service viII immedialeIy reduce bolh lhe hours ovn and lhe ighl cycIes and viII save
some engineering and mainlenance expendilures, mosl nolabIy on lhe consumplion of
spare parls, and some Iabor cosls.
Fixed Costs. Fixed costs are lhose direcl operaling cosls lhal, in lolaI, do nol vary vilh
changes in ASMs.-They are cosls lhal are unavoidabIe in lhe shorl lerm. Having pIanned
scheduIes for a parlicuIar period and ad|usled ils eel, sla, and mainlenance requiremenls
accordingIy, an airIine cannol easiIy cul back ils scheduIes and services beyond a cerlain
minimaI IeveI because of ils obIigalion lo lhe pubIic. Thus, xed operaling cosls may nol
be avoidabIe unliI lhe carrier can change ils scheduIed service.
AIlhough mosl indirecl operaling cosls are xed cosls in lhal lhey do nol depend in lhe
shorl lerm on lhe amounl of ying underlaken, olhers are more direclIy dependenl on lhe
operalion of parlicuIar ighls. This is parlicuIarIy lrue of some passenger service cosls,
such as in-ighl calering, and some eIemenls of cabin crev cosls. Iees paid lo service
organizalions or olher airIines for ground handIing of aircrah, passengers, or freighl may
be avoided if a ighl is nol operaled. Some adverlising and promolionaI cosls may be
avoidabIe in lhe shorl run. This Ieaves vilhin lhe indirecl cosl calegory cosls lhal are nol
dependenl on lhe operalion of parlicuIar services or roules. Lease paymenls on ighl
equipmenl and mainlenance burden securily services are cIear exampIes of cosls lhal are
xed in lhe shorl lerm.
|i xc! Vcrsus Vari a|| c Ccsis
A I R T R A N S P O R TAT I O N 3 0 8
Ccsi-Cuiii ng Trcn!s
Leading up lo lhe earIy 2000s, airIines commenced appIicalion of cosl-cuing measures lo
reduce rising operalionaI cosls. Many of lhe vorIds airIines had huge decils lhal vere
furlher increased aher lhe 2001 lerrorisl aacks in lhe Uniled Slales, puing many airIines
over lhe edge. Huge Iosses forced airIines lo impIemenl addilionaI cosl-cuing slralegies
basicaIIy overnighl.
In lhe shorl lerm, airIines furIoughed or Iaid o empIoyees, vilh some carriers rehiring
empIoyees on a parl-lime basis. Aircrah eel sizes vere reduced, having a negalive impacl
on frequency. To compensale for reduced frequency, some airIines used Iarger aircrah
on seIecled roules. AirIines operaling on lradilionaI hub-and-spoke syslems reduced or
eIiminaled service lo seIecled deslinalions. AIIiances belveen air carriers vere increased,
resuIling in increased markel share and cross-uliIizalion of resources. In some cases, airIines
merged or Ied for bankruplcy proleclion. Ior exampIe, in Iale 2002, US Airvays Ied for
bankruplcy vilh lhe hope of reslrucluring and reemerging as a successfuI carrier. Since
9/11, in addilion lo US Airvays, Uniled, DeIla and Norlhvesl have Ied for bankruplcy.
As of earIy 2006, US Airvays and Uniled have reemerged. American AirIines, lhe Iargesl
carrier in lhe vorId al lhe lime, made an announcemenl saying lhal Iing for bankruplcy
vas |usl a maer of lime if lhe induslry did nol pick up. IorlunaleIy, for American, lhe
airIine has nol Ied for bankruplcy as of earIy 2006.
The lrends briey discussed are expecled lo conlinue for lhe foreseeabIe fulure. To
remain aoal, airIines are being forced lo cul pennies vherever reasonabIy possibIe vhiIe
maximizing revenue. Ior lhe ma|or airIines, dovnsizing is a difcuIl process and, in
some cases, nexl lo impossibIe. Hovever, opporlunilies are crealed for smaIIer airIines,
especiaIIy lhose in lhe Iov-cosl seclor.
PRICING AND OUTPUT DETERMINATION
Iricing and oulpul delerminalion for airIines is as much an arl as a science. There is no
simpIe or, for lhal maer, singuIar vay lo approach lhe anaIysis. We viII slarl our anaIysis
by revieving lhe demand side of lhe piclure. As noled previousIy, lhe demand curve facing
any airIine sIopes dovnvard and represenls an inverse reIalionship belveen price and
passengers carried: lhe Iover lhe price, lhe grealer lhe amounl of passenger lrafc generaled.
In addilion, passengers are responsive lo price changes. Al rsl, lhey may be very responsive
(eIaslic) lo price reduclions, and lhal mighl slimuIale a Iarge percenlage change in passengers
carried. UnforlunaleIy, al some poinl, furlher price culs viII nol slimuIale addilionaI lrafc
in sufcienl numbers lo osel lhe reduclion in lolaI revenue caused by lhe price cul. In
olher vords, passengers viII become unresponsive (ineIaslic). CoIumns 1 and 2 in TabIe 10-
3 porlray lhis silualion. We assume in lhis parlicuIar inslance lhal our hypolhelicaI airIine
musl accepl a price cul in order lo generale addilionaI revenue passenger miles (RPMs). A
revenue passenger miIe is one passenger lransporled one miIe in revenue service. Our fare
in lhis case is expressed in doIIars per miIe, commonIy referred lo as uic|!. YieId is acluaIIy
dened as lhe air lransporl revenue per unil of lrafc carried, or lolaI passenger revenue
per RIM. asicaIIy, il is lhe same as price, average revenue (AR), or fare per miIe. CoIumn 3
represenls lhe lolaI revenue for each IeveI of RIMs generaled during lhis parlicuIar period.
CoIumn 4 shovs lhe marginaI, or exlra, revenue lhal resuIls from addilionaI RIMs.-The dala
in TabIe 10-3 are shovn graphicaIIy in Iigures 10-8 and 10-9.
CHAP T E R 10 AI R L I NE P R I CI NG, DE MAND AND OUT P UT DE T E R MI NAT I ON 3 0 9
YieId TolaI MarginaI
(price or AR) RIMs Revenue Revenue
per MiIe (miIIions) (lhousands) (lhousands)
$0.265 0.800 $212.0
$119.5
0.260 1.275 331.5
132.6
0.255 1.820 464.1
88.4
0.250 2.210 552.5

35.5
0.245 2.400 588.0

6.0
0.240 2.475 594.0

-6.5
0.235 2.500 587.5

-9.0
0.230 2.515 578.5

-11.5
0.225 2.520 567.0

-12.2
0.220 2.522 554.8

TABLE 10-3 Demand and Revenue Schedule for an Airline over a Particular
Period of Time (hypothetical data)
Tcia| Ccsis i n inc Sncri |un
Nov Iels lurn our aenlion back lo lhe cosl side of lhe piclure. The cosls an airIine incurs
in producing avaiIabIe seal-miIes (ASMs) depend on lhe lypes of ad|uslmenls il is abIe lo
make in lhe amounls of lhe various resources il empIoys. The quanlilies of many resources
usedIabor, fueI, and so forlhcan be varied reIaliveIy quickIy in lhe shorl run. ul lhe
amounls of olher resources demand more lime for ad|uslmenl. Ior exampIe, acquiring
nev aircrah or buiIding nev hangars can be varied onIy over a considerabIe period of
lime. The sncri-icrn pcric! refers lo a period of lime loo brief lo permil lhe airIine lo aIler
ils capacily yel Iong enough lo permil a change in lhe IeveI al vhich lhe exisling eel of
aircrah is uliIized. An airIines overaII capacily is xed in lhe shorl run, bul ASMs can
be varied by appIying Iarger or smaIIer amounls of Iabor, maleriaIs, and olher resources
lo lhal capacily. In olher vords, lhe exisling eel can be used more or Iess inlensiveIy in
lhe shorl run. Through beer scheduIing and more efcienl use of Iabor, lhe airIine can
increase ASMs in lhe shorl run, bul lhere is a Iimil.
As lhe airIine adds resources lo a xed capacily, ils oulpul (ASMs) mighl increase al
an increasing rale for a vhiIe if il had been underuliIizing ils exisling capacily. Hovever,
beyond some poinl, ASMs vouId increase al a !ccrcasing rale unliI uIlimale capacily in
lhe shorl run vas reached. This economic principIe is caIIed lhe law of diminishing
returns.
TabIe 10-4 iIIuslrales lhe Iav of diminishing relurns numericaIIy. ASMs increase al an
increasing rale up lo 2.6 and lhen conlinue lo increase al a decreasing rale up lo capacily
in lhe shorl run. CoIumn 3 shovs lhal lhe lolaI variabIe cosls associaled vilh each IeveI
of ASMs ovn are nol conslanl. As ASMs increase, variabIe cosls acluaIIy increase al
a !ccrcasing rale from 1.7 lo 2.6 miIIion ASMs. IvenluaIIy, variabIe cosls increase al an
incrcasing rale. The reason for lhis behavior of variabIe cosls Iies in lhe Iav of diminishing
relurns. The lolaI cosl shovn in coIumn 4 is seIf-dening: il is lhe sum of xed and variabIe
cosls al each IeveI of ASMs. Iigure 10-10 shovs graphicaIIy lhe xed, variabIe, and lolaI
cosls presenled in TabIe 10-4.
A I R T R A N S P O R TAT I O N 3 1 0
500
400
300
200
100
RPMs (millions)
Total revenue
0.5 2.5 2.0 1.5 1.0
T
o
t
a
l

r
e
v
e
n
u
e

(
t
h
o
u
s
a
n
d
s
)
FIGURE 10-8 Total revenue and RPMs for an individual airline over a particular
period of time (hypothetical data).
$0.265
0.260
0.255
0.250
0.240
0.235
RPMs (millions)
Demand = AR
= price
= fare per mile
0.5 2.5 2.0 1.5 1.0
Y
i
e
l
d

(
e
x
p
r
e
s
s
e
d

a
s

f
a
r
e

p
e
r

1
,
0
0
0

R
P
M
s
)
FIGURE 10-9 Yield expressed in fare per 1,000 RPMs for an individual airline
over a particular period of time (hypothetical data).
CHAP T E R 10 AI R L I NE P R I CI NG, DE MAND AND OUT P UT DE T E R MI NAT I ON 3 1 1
Ica! |acicr
One more piece is needed before ve can compIele our pricing anaIysis.
In Chapler 6, passcngcr |ca! jacicr vas dened as revenue passenger miIes
divided by avaiIabIe seal-miIes. In deveIoping a demand scheduIe, a pricing anaIysl
assumes lhal aII of lhe ASMs produced by lhe airIine company viII nol be IIed by
RIMs.-(This vas discussed in delaiI in Chapler 6.) ConsequenlIy, il is reasonabIe lo assume
lhal a carrier viII nol experience a 100 percenl Ioad faclor on aII roules or on aII ighls,
during lhe period of lime for vhich lhe anaIysl has made lhe price and RIM forecasl. Ior
purposes of anaIysis, il is assumed lhal lhe Ioad faclors shovn in TabIe 10-5 are associaled
vilh lhe ASMs and RIMs previousIy shovn.
Load faclors normaIIy increase vilh reduclions in ASMs, because lhe carrier vouId cul
back on lhose ighls and roules lhal have experienced lhe Iovesl Ioad faclors and pooresl
prols. Those remaining vouId be lhe ones lhal have experienced lhe highesl Ioad faclors
and grealesl prolshence, lhe higher overaII average.
As a praclicaI maer, lhe anaIysl aIso reaIizes lhal syslemvide Ioad faclors above 75
percenl or beIov 55 percenl are nol reaIislic. To mainlain an average of 75 percenl is
quile an achievemenl, considering lhe number of ighls and passengers il vouId lake
al 90 percenl or above lo osel lhe Iov Ioad faclors experienced during o-peak hours
and resuIling from ighls made lo posilion aircrah inlo Iarge hubs for lhe morning or
ahernoon bank of ighls. Load faclors beIov 55 percenl vouId aIso nol be praclicaI
because prol vouId nol be reaIized.
ASMs TolaI Iixed TolaI VariabIe TolaI Cosl MarginaI Cosl
(miIIions) Cosl (lhousands) Cosl (lhousands) (lhousands) (lhousands)
1.0 $100 $160 $ 260
$ 10
1.7 100 170 270
70
2.6 100 240 340
60
3.4 100 300 400
70
4.0 100 370 470
80
4.5 100 450 550
90
4.9 100 540 640
110
5.2 100 650 750
130
5.4 100 780 880
150
5.5 100 930 1030
TABLE 10-4 Total Fixed-Overhead Costs, Total Variable Costs, and Total Costs
for an Airline over a Particular Period of Time (hypothetical data)
A I R T R A N S P O R TAT I O N 3 1 2
6.0 5.0 4.0 3.0
ASMs (millions)
Total costs
Beyond 4.5 million ASMs
marginal or extra costs
start to increase
at an increasing rate
Total
variable costs
C
o
s
t
s

(
t
h
o
u
s
a
n
d
s
)
2.0
$600
500
400
300
200
100
1.0
FIGURE 10-10 Total costs and ASMs for an individual airline over a short period
of time (hypothetical data).
Load Iaclor
Islimaled Syslem
ASMs (ni||icns) |PMs (ni||icns) Load Iaclor
1.0 0.800 80%
1.7 1.275 75
2.6 1.820 70
3.4 2.210 65
4.0 2.400 60
4.5 2.475 55
4.9 2.500 51
5.2 2.515 48
5.4 2.520 47
5.5 2.522 46
TABLE 10-5 Systemwide Passenger Load Factor for an Airline over a
Particular Period of Time (hypothetical data)
CHAP T E R 10 AI R L I NE P R I CI NG, DE MAND AND OUT P UT DE T E R MI NAT I ON 3 1 3
TABLE 10-6 Prot-Maximizing Output for an Airline over a Particular Period
of Time (hypothetical data)
Prci Maxi ni zaii cn i n inc Sncri |un
Given prices, RIMs, lolaI revenues, lolaI cosls, and Ioad faclors, lhe airIine is faced vilh
lhe queslion of vhal IeveI of ASMs viII maximize prols or, al vorsl, minimize Iosses.
TabIe 10-6 incIudes lhe dala from bolh labIes 10-3 and 10-4, pIus lhe prol (+) or Ioss
(-) al each IeveI of oulpul. Assuming lhal lhis is a prol-maximizing airIine, il shouId
produce 3.4 miIIion ASMs, vhich viII generale 2.21 miIIion RIMs al a price or average
revenue (yieId) of $0.250 per miIe and a lolaI revenue of $552,500. The Ioad faclor al lhis
IeveI of oulpul viII be an acceplabIe 65 percenl. The 3.4 miIIion ASMs viII cosl lhis airIine
$400,000 lo produce, and lhe airIine viII experience prols of $152,500. If lhe airIine vere
more concerned vilh hoIding ils markel share in cerlain markels by increasing scheduIed
ighls and decreasing Ioad faclors lo a syslemvide IeveI of 55 percenl, il couId sliII
experience prols of $44,000. eyond 4.5 miIIion ASMs, il is nol generaling enough lrafc
(passengers have become unresponsive lo furlher price reduclions) lo osel lhe cosls
associaled vilh lhis IeveI of oulpul.
Iigure 10-11 compares lolaI revenue and lolaI cosl graphicaIIy. This airIines prols
are maximized al lhe IeveI of oulpul (3.4 miIIion ASMs and 2.21 miIIion RIMs) al vhich
lolaI revenue exceeds lolaI cosl by lhe maximum amounl. UnforlunaleIy, if lhe RIMs
shovn in Iigure 10-11 do nol maleriaIize and if demand decreases al aII price IeveIs over
lhis parlicuIar lime period, revenues viII faII, squeezing lhe prol area shovn in lhe
diagram. If prices are in lhe ineIaslic range (in olher vords, if passengers are unresponsive
lo furlher price reduclions), lhe onIy choice for lhe airIine is lo reduce capacily (cul back
ASMs). In so doing, il viII reduce variabIe and lolaI cosls, improve Ioad faclors, and, il is
hoped, mainlain prolabiIily.
YieId TolaI TolaI
price TolaI Iixed VariabIe TolaI Irolor
ASMs orAR RIMs Revenue Cosl Cosl Cosl Loss
miIIions perMiIe miIIions lhousands lhousands lhousands lhousands lhousands










A I R T R A N S P O R TAT I O N 3 1 4
T
o
t
a
l

r
e
v
e
n
u
e

a
n
d

t
o
t
a
l

c
o
s
t

(
t
h
o
u
s
a
n
d
s
)
$600
500
400
300
200
100
0.5 2.5
4.5 4.0 3.4 2.6 1.7 1.0
2.0 1.5 1.0 RPMs (millions)
Total
costs
Total revenue
Profit-maximizing
total revenue
and total cost
Profit-maximizing
level of ASMs
and RPMs
Area of profits
ASMs (millions)
FIGURE 10-11 Total revenue and total costs for an individual airline over a short
period of time (hypothetical data).
KEY TERMS
demand invenlory managemenl
Iav of demand direcl operaling cosls
eIaslicily of demand bIock speed
eIaslic demand indirecl operaling cosls
ineIaslic demand nonoperaling cosls and revenues
normaI fares variabIe cosls
common fares avaiIabIe seal-miIes (ASMs)
|oinl fares xed cosls
promolionaI fares revenue passenger miIes (RIMs)
AirIine Tari IubIishing Company Iav of diminishing relurns
(ATICO)
REVI EW QUESTI ONS
1. Whal vas lhe primary reason for lhe changes in average air passenger fares belveen
1929 and 1941, 1950 and 1953, 1960 and 1970, 1973 and 1986, 1987, 2001 and lhe
presenl`
2. IxpIain lhe Iav of demand as il reIales lo air lraveI. Whal are lhe nonprice delerminanls
of air lraveI demand` Whal happens lo lhe demand curve vhen each of lhese
CHAP T E R 10 AI R L I NE P R I CI NG, DE MAND AND OUT P UT DE T E R MI NAT I ON 3 1 5
delerminanls changes` Dislinguish belveen a change in demand broughl aboul by
price and one caused by lhe nonprice delerminanls.
3. Whal eecl viII each of lhe foIIoving have on lhe demand for AirIine As passenger
lrafc`
a. Compelilor improves ils on-lime performance.
b. Compelilor oers a speciaI promolionaI fare on lhe same roule as AirIine As.
c. Compelilor C increases lhe number of connecling ighls al a parlicuIar airporl
served by AirIine A.
d. A spur Iine connecling lhe airporl vilh an inlerslale highvay is compIeled.
e. The airporl aulhorily requesls lhal a commuler airIine share lickel and gale space
vilh AirIine A.
f. AirIine As image is larnished as a resuIl of a recenl viIdcal slrike.
g. Compelilor D increases ils adverlising, accenlualing in-ighl services.
h. Compelilor I experiences a serious crash on lakeo.
i. The economy experiences an uplurn, unempIoymenl drops, and business expansion
is under vay.
|. A holeI chain oers a speciaIIy priced lhree-day package, incIuding renlaI car.
4. Whal does lhe coefcienl of eIaslicily of demand measure` Whal is meanl by c|asiic
!cnan!? y inc|asiic !cnan!?Whal eecl viII lhe foIIoving changes have on lolaI
revenue`
a. Iares are reduced and demand is eIaslic.
b. Iares are raised and demand is ineIaslic.
c. Iares are reduced and demand is ineIaslic.
d. Iares are raised and demand is eIaslic.
5. Delermine lhe eIaslicily of demand for lhe foIIoving demand scheduIe (use lhe lolaI
revenue lesl lo check your ansvers):
Iassengers TolaI
Iare Carried Revenue |
!
$160 622
150 730
140 782
130 804
6. Whal are lhe ma|or delerminanls of eIaslicily of demand` Use lhese delerminanls lo
|udge vhelher lhe demand for lhe foIIoving services is eIaslic or ineIaslic:
a Shorl-hauI, primariIy business-markel ighls
b. Long-hauI, primariIy vacalion ighls
c. Shorl-hauI ighls vilh exlreme compelilion from surface modes of lransporlalion
d. Mid-veek promolionaI fare direcled al lhe pIeasure markel
A I R T R A N S P O R TAT I O N 3 1 6
7. Dislinguish belveen ncrna| and prcnciicna| fares. Whal is meanl by ccnncn jarcs? y
jcini jarcs?
8. Whal is lhe primary funclion of lhe AirIine Tari IubIishing Company (ATICO)`
Why is lhe appIicalion of lexlbook slralegies lo airIine pricing so difcuIl` Hov do
inlroduclory fares dier from excursion fares` Whal are iargci scgncni. ni|cagc-|asc!.
zcnc. and ta|uc-a!!c! pricing?
9. Give an exampIe of an advance purchase requiremenl, a fare penaIly, and peak/o-
peak pricing. Why is lhe decision lo use any one, or a combinalion, of lhese laclics
essenliaIIy a decision lo raise or Iover a fare` Describe lhe sleps invoIved in anaIyzing
a fare decrease. Describe lhe sleps invoIved in anaIyzing a fare increase. Whal is lhe
ob|eclive of invenlory managemenl` Why is il such a difcuIl |ob` Invenlory anaIysls
are evaIualed on lhe basis of lheir performance in four areas. Whal are lhose areas`
10. Dene and briey describe ve direcl operaling expenses. Whal is meanl by nainicnancc
|ur!cn? Give an exampIe of deprecialion and an exampIe of amorlizalion. Whal are
indirecl operaling cosls` Give severaI exampIes of nonoperaling cosls and revenues.
Whal is lhe reIalionship belveen variabIe cosls and avaiIabIe seal-miIes (ASMs)` Give
severaI exampIes of xed cosls.
11. Give severaI exampIes of direcl (variabIe) expenses and of xed-overhead expenses.
Whal is lhe reIalionship belveen ASMs and RIMs` Given a xed eel of aircrah and
olher resources in lhe shorl run, vhy do ASMs increase al a decreasing rale up lo some
maximum Iimil` Why does lhe lolaI revenue curve bend, naIIy reach a peak, and
lhen drop o`
12. Describe in your ovn vords lhe prol-maximizalion poinl (use ASMs, RIMs, lolaI
revenue, and lolaI cosl in your ansver). Whal is meanl by nargina| ccsi and nargina|
rctcnuc? Hov do ve delermine passenger Ioad faclors`
WEB SI TES
hp://vvv.airIinebiz.com
hp://vvv.air-econ.com
hp://vvv.alpco.nel
hp://vvv.airvise.com
SUGGESTED READI NGS
Cheringlon, I. W. Air|inc Pricc Pc|icu. A Siu!u cj Ocncsiic Air|inc |arcs. Cambridge, Mass.: Harvard
Universily Iress, 1958.
Dornbusch, Rudiger, and SlanIey Iischer. |ccncnics. Nev York: McGrav-HiII, 1983.
Gordon, Roberl I. AirIine Cosls and ManageriaI Ifciency. In NalionaI ureau of Iconomic
Research, Transpcriaiicn |ccncnics. Nev York: CoIumbia Universily Iress, 1965.
KolIer, IhiIip. Markciing ManagcncniAna|usis. P|anning. |np|cncniaiicn. an! Ccnirc| (6lh ed.).
IngIevood CIis, N.I.: Irenlice-HaII, 1992.
CHAP T E R 10 AI R L I NE P R I CI NG, DE MAND AND OUT P UT DE T E R MI NAT I ON 3 1 7
Meyer, I., and C. Osler, Ir. Ocrcgu|aiicn an! inc Ncu Air|inc |nircprcncurs. Cambridge, Mass.: MIT
Iress, 1984.
MiIIer, R. Ocncsiic Air|inc |jcicncu. Cambridge, Mass.: MIT Iress, 1963.
OConnor, WiIIiam. An |nirc!uciicn ic Air|inc |ccncnics (6lh ed.). Weslporl, CT: Iraeger, 2000.
Radnoli, George. Prci Siraicgics jcr Air Transpcriaiicn. Nev York, NY: McGrav-HiII, 2002.
Schvielerman, I. I. Iare Is Iair in AirIine DereguIalion: The DecIine of Irice Discriminalion. A||
|curna| cj Gctcrnncni an! Scciciu (IuIyAugusl 1985): 3238.
Spencer, MiIlon H. Ccnicnpcraru |ccncnics (5lh ed.). Nev York: Worlh, 1983.
U.S. Senale, Commiee on lhe Iudiciary, Subcommiee on Anlilrusl, usiness Righls, and
Compelilion. Air|inc Hu|s. |air Ccnpciiiicn cr Prc!aicru Pricing? Hearing efore lhe Subcommiee
on Anlilrusl, usiness Righls, and Compelilion of lhe Commiee on lhe Iudiciary, U.S. Senale,
105lh Congress, 2d session. Washinglon, D.C.: U.S. Governmenl Irinling Ofce, 1998.
WiIIiams, George. Air|inc Ccnpciiiicn. Ocrcgu|aiicns Unccriain Icgacu. AIdershol, UK: Ashgale,
1994.
WiIIiams, George. Tnc Air|inc |n!usiru an! inc |npaci cj Ocrcgu|aiicn. London: Avebury, 1994.
A I R T R A N S P O R TAT I O N 3 1 8
11
Air Cargo
Introduction
Historical Overview
Air Cargo Today
The Future
The Market for Air Freight
Types of Air Freight Rates
Special Air Freight Services
Factors Affecting Air Freight Rates
Chapter Checklist You Should Be Able To:
Dislinguish belveen air-express, air freighl, and air
maiI services
Discuss lhe roIe of lhe RaiIvay Ixpress Agency in lhe
earIy deveIopmenl of air-express service in lhe Uniled
Slales
Describe lhe concepl of overnighl air express as
eslabIished by IederaI Ixpress
Describe lhe roIe of air freighl forvarders in lhe air
freighl business
IxpIain vhy lhe arrivaI of |umbo |els in lhe earIy
1970s proved lo be bolh a boon and a bane for lhe
cargo business
Dene lhe lhree lypes of air cargo carriers and give
exampIes of each
Compare and conlrasl lhe roIe of air cargo loday
and in lhe fulure vilh lhe carriage of passengers and
olher modes of lransporlalion
Discuss lhe markel for air freighl in reIalion lo
lhe lype of commodily carried and demand and
dislribulion probIems

319
Lisl some of lhe speciaI air freighl services provided by
lhe carriers
Discuss severaI lypes of air freighl rales and faclors
aecling lhem

A I R T R A N S P O R TAT I O N 3 2 0
INTRODUCTION
Carrying cargo has been far more imporlanl lhan carrying passengers for aImosl every
mode of lransporlalion ever used by humankind. This vas lrue of beasls of burden,
valerborne carriers, and vheeIed vehicIes, incIuding raiIroads. The onIy exceplion so far
has been aircrah. Many peopIe beIieve lhal aircrah viII aIvays be primariIy passenger
carriers. Olhers beIieve lhal aircrah viII be carrying more cargo lhan passengers as lhe
21sl cenlury progresses. ul lhere is no doubl lhal cargo voIume has been increasing more
rapidIy lhan passenger voIume for lhe pasl lvo decades.
HISTORICAL OVERVIEW
Air cargo gol ils slarl on May 28, 1910, vhen GIenn Curliss ev a sack of maiI from AIbany
lo Nev York Cily for lhe Iosl Ofce Deparlmenl, covering lhe 150 miIes in lvo-and-a-haIf
hours. Or you couId say il aII slarled on November 10, 1910, vhen lhe Wrighl Company
ev 65 miIes from Daylon lo CoIumbus, Ohio, vilh ve boIls of siIk cIolh slrapped inlo
lhe passenger seal of lhe pIane for a deparlmenl slore lhal vanled lo seII slrips of lhe cIolh
as memenlos of lhe rsl air shipmenl.
These vere inleresling evenls, bul lhey did nol mark lhe slarl of any reguIar air cargo
service. AcluaIIy, lhere are lhree separale eIemenls of air cargo servicesair maiI, air
express, and air freighland lherefore lhree hislories lo lrace. Air maiI is seIf-expIanalory,
bul air express, as originaIIy used, incIuded vhal ve nov caII air freighl, a lerm lhal
did nol come inlo use unliI lhe rsl aII-cargo aircrah vere inlroduced. Today, air express
refers lo smaII packages lhal usuaIIy have a higher priorily of carriage lhan air freighl.
UnliI lhe mid-1970s, air express vas aIso dislinguished from air freighl by lhe facl lhal il
vas a cooperalive eorl among airIines, using a separale ground operalor, lhe RaiIvay
Ixpress Agency (RIA). The RIA accepled shipmenls from cuslomers and dislribuled
lhem over lhe avaiIabIe roules of lhe associaled carriers so as lo give lhe cuslomer lhe
mosl expedilious service.
Air freight, on lhe olher hand, has aIvays been markeled independenlIy by airIines in
compelilion vilh one anolher. In recenl years, lhe Iines of dislinclion belveen air express
and air freighl have become Iess cIear. In 1989, IederaI Ixpress, lhe pioneer of overnighl
smaII-package air service and nov lhe Iargesl carrier in lhal business, acquired IIying
Tiger, lhe vorIds Iargesl aII-freighl carrier. In 2004, IedIx ev 14.58 miIIion scheduIed
freighl lonne-kiIomelres. The veighl Iimil on express shipmenls vas removed, causing
some induslry anaIysls lo concIude lhal lhe boundaries belveen freighl and express are
bIurring and may soon disappear.
Air mail service, lhe rsl of lhe air cargo services, vas an imporlanl faclor in lhe
formalion of air lransporlalion in lhe Uniled Slales (see Chapler 2). The rsl air maiI
service, vhich ils founders hoped vouId be permanenl, slarled vilh an experimenlaI
service belveen Washinglon, D.C., and Nev York. During lhe lhree-monlh lesl, lhe Iosl
Ofce Deparlmenl moved 193,021 pounds of maiI, coIIecled $159,700 from lhe saIe of ils
24-cenl air maiI slamp, and shoved a prol of $19,103. This experimenl marked lhe reaI
beginning of air maiI service, because il convinced lhe Iosl Ofce Deparlmenl lhal air
service vas feasibIe.
Ior lhe nexl nine years, lhe Iosl Ofce Deparlmenl compIeleIy conlroIIed air maiI
serviceeven lhe operalion of lhe airpIanesusing bolh Army Air Corps and civiIian
C H A P T E R 1 1 A I R C A R G O 3 2 1
piIols. In 1925, Congress ordered lhe governmenl oul of lhe business of ying lhe maiI and
eslabIished procedures for conlracling vilh privale operalors. y 1927, lhe governmenl
had ceased aircrah operalions for maiI services compIeleIy. Air maiI began lo grov more
rapidIy aher lhe Iosl Ofce Deparlmenl lurned operalions over lo privale conlraclors.
Il is difcuIl lo overemphasize lhe imporlance of air maiI lo lhe earIy aircrah operalors.
The rsl commerciaI aircrah vere buiIl primariIy lo lransporl maiI, and maiI vas lhe
principaI revenue source for lhe operalors for many years. Air maiI vas responsibIe for
lhe beginnings of lhe U.S. airIine syslem as ve knov il loday. MaiI conlinued lo be lhe
dominanl revenue source for lhe airIines unliI lhe arrivaI of lhe DC-3 in 1935. This crah
couId carry 21 passengers across lhe counlry in 15 hours, bul more imporlanl, il vas lhe rsl
aircrah lhal couId be operaled prolabIy on passenger revenues aIone. The inlroduclion
of lhe DC-3 began lo shih lhe focus avay from air maiI and lovard passenger operalions.
AIlhough air maiI vouId conlinue lo be a signicanl revenue source lo lhe airIines, il
vouId graduaIIy sIip in reIalive imporlance. Today, maiI accounls for Iess lhan 3 percenl
of lhe airIines revenues.
Ai r |xprcss
Whereas maiI had ils grealesl impacl on air lransporlalion in lhe earIy days of lhe
induslry, air express has onIy recenlIy begun lo fuIII ils promise. Air express service vas
inauguraled al HadIey IieId near Nev runsvick, Nev Iersey, on Seplember 1, 1927,
by NalionaI Air Transporl, a predecessor of Uniled AirIines, crealed specicaIIy for lhe
purpose of carrying air express, and by lhe RIA. Three olher carriers |oined lhe eorl lo
provide a comprehensive express service: CoIoniaI AirIines, oeing Air Transporl, and
Weslern Air Ixpress.
The carriers afIialed vilh lhe RIA lried lo persuade olher air carriers lo |oin lhem in
lhis enlerprise, bul American, Iaslern, TWA, and severaI olhers vere concerned over lhe
choice of lhe RIA as lhe ground operalor. They vere afraid lhal lhe RIAs raiI operalions
vouId be in conicl vilh lhe air service and preferred a more neulraI operalor. These
airIines decided inslead lo organize GeneraI Air Ixpress. IslabIished in Augusl 1932,
GeneraI Air Ixpress cIaimed lo provide lhe Iargesl and mosl compIele air express service
in lhe vorId, serving 125 cilies direclIy by air and oering conneclions lo Canada, Mexico,
lhe Wesl Indies, and CenlraI and Soulh America. ul lhe RIAs head slarl vas loo much
for GeneraI Air Ixpress lo overcome: GeneraI Air Ixpress foIded al lhe cIose of 1935, and
lhe RIA became lhe soIe express agenl for lhe U.S. air carrier induslry.
Iven vilh lhe RIA acling as coordinalor for aII lhe carriers, air express vas a smaII parl
of lhe airIines income. When lhe maiI conlracls vere canceIed in 1933, Uniled AirIines
vas earning aImosl 60 percenl of ils revenues from lhe carriage of maiI and 40 percenl
from passengers. Ils express business accounled for onIy a IiIe over 1 percenl of lhe
grosssome $133,000 a year.
Air express did nol become lhe imporlanl revenue source lhe carriers hoped il vouId.
WhiIe airIine managemenls concenlraled on vinning passengers avay from lhe raiIroads,
lhe RIA and lhe airIine cargo slas slruggIed vilh air express, ohen al odds over vho
shouId conlroI lhe producl and hov revenues shouId be shared. On November 12, 1975, lhe
RIA decIared bankruplcy. In pIace of lhe coordinaled |oinl eorl, each carrier inlroduced
ils individuaI air-express service, foregoing lhe nalionvide coverage lhey vere abIe lo
provide vilh lhe RIA.
A I R T R A N S P O R TAT I O N 3 2 2
Otcrni gni Ai r |xprcss
On ApriI 17, 1973, Irederick W. Smilh began his IederaI Ixpress operalions al 13 airporls.
Smilhs concepl vas lo provide a door-lo-door overnighl service for smaII packages. The
key nev eIemenl vas lhe overnighl fealure. Up liII lhen, air-express service reIied aImosl
enlireIy on passenger ighls lhal operaled during dayIighl hours. Iackages lendered aher
lhe cIose of business generaIIy sal al lhe origin airporl unliI lhe nexl morning and vere
nol deIivered unliI lhe second day. y ying dedicaled aircrah, IedIx vas abIe lo y al
nighl and deIiver packages lhe nexl business day.
OperalionaIIy, Ired Smilh revoIulionized lhe air induslry by inlroducing lhe hub-
and-spoke syslem, rouling aII packages and aircrah lhrough a hub in Memphis. A Iarge
porlion of IedIxs vork force vas made up of coIIege sludenls vho performed lhe sorling
and Ioading funclions al Memphis each nighl.
In 1975, ils lhird year of operalion, IedIx vas grossing $173 miIIion in revenues bul
sliII Iosing money. Whal heIped lurn IedIx prolabIe vas lhe demise of lhe RIA. y
lhen, Smilhs company vas big enough lo enabIe il lo pick up lhe pieces from lhe RIA,
his eel having grovn lo 30 IaIcon 20 minifreighlers, each vilh a capacily of 350 lo 400
packages.
And so lhe banner vas passed from lhe passenger carriers lo IedIx. And IedIx has
carried il very high indeed. Irom an average of fever lhan 500 packages handIed per
nighl in 1973, IedIx has grovn al a phenomenaI rale, lo garner haIf of lhe express lrafc
in lhe Uniled Slales and become a signicanl faclor in inlernalionaI service.
Ai r |rci gni
If ve accepl lhe originaI denilion of air freighl as lrafc carried in aII-cargo aircrah, lhen
lhe birlh of air freighl operalions vouId dale back lo 1931 vhen TransconlinenlaI and
Weslern Air began overnighl air freighl service belveen Nev York and Kansas Cily. Il used
speciaIIy conslrucled freighl pIanes cruising over 100 miIes per hour. The pIanes vere
unscheduIed: lhey deparled in lhe evening vhenever a fuII cargo Ioad became avaiIabIe.
They made six inlermediale slopsin IhiIadeIphia, Harrisburg, Iisburgh, CoIumbus,
IndianapoIis, and Sl. Louis. Cuslomers couId ship belveen any lvo of lhe poinls served
for lhe same aslonishingIy Iov price of $11 per 100 pounds. As parl of lhe promolion for
lhe rsl air freighl service, TWA inlroduced a nev shipping documenl, lhe air freighl
vaybiII, and oered a souvenir copy lo any cuslomer vho requesled one.
The rsl reguIarIy scheduIed aII-cargo service vas slarled by Uniled AirIines in 1940
belveen Nev York and Chicago. The ighl Ieh Nev York al 11:30 .. and arrived in
Chicago al 3:40 ..
Air freighl received a big boosl al lhe end of WorId War II vilh lvo Iandmark decisions
by lhe CiviI Aeronaulics oard (CA). The rsl, in ApriI 1948, Iegilimized air freight
forwarders as middIemen belveen shippers and airIines, giving lhem lhe righl lo
consoIidale individuaI shipmenls and lender lhem lo lhe airIines al lhe carriers voIume
rales. AIlhough opposed by mosl of lhe air carriers, lhe ofciaI recognilion of lhe forvarder
added a nev dimension lo air freighl, grealIy increasing markeling and saIes eorls and
slimuIaling nev lrafc.
The second CA decision gave operaling righls lo lhree aII-cargo carriers: SIick, U.S.
AirIines, and IIying Tiger. The Iasl-named airIine had been formed by ob Iresco in 1945
under lhe name NalionaI Skyvay Ireighl Corporalion. ul il soon came lo be knovn by
C H A P T E R 1 1 A I R C A R G O 3 2 3
ils sIogan, The Line of lhe IIying Tigers, because il vas equipped vilh surpIus miIilary
lransporls, ovn by piIols vho had served vilh Iresco under GeneraI ChennauIl,
defending lhe urma Road. Il vas lhe rsl of lhe lhree aII-cargo carriers lo be cerlicaled,
on Seplember 21, 1949.
The haIcyon days of air freighl began in lhe 1960s. In Oclober 1962, American AirIines
ordered ils rsl 707 freighlers, and Uniled foIIoved suil in 1964 by ordering 727-OCs (for
quick change). These pIanes had removabIe passenger seals so lhal lhey couId be ovn
in lhe daylime as passenger aircrah and al nighl as freighlers. y 1969, American vas
operaling a eel of 39 of lhe 707 freighlers: Uniled had 15 DC-8 freighlers pIus 30 OCs:
and TWA vas ying 12 of lhe 707s and 8 OCs. Iven vilh aII lhis dedicaled Iih, hovever,
cargo sliII accounled for onIy 10 percenl of lhe revenues for lhese carriers.
Tnc Arri ta| cj |un|c |cis
In Ianuary 1970, lhe oeing 747 |umbo |els began operaling as passenger Iiners. They
proved lo be bolh a boon and a bane for lhe cargo business. They vere a boon because
as aII-cargo aircrah lhey provided lhe capacily lo carry conlainers as big as 8 8 40 feel
and lo Iih over 100 lons per lrip. In November 1971, oeing nished conslruclion of lhe
rsl 747 freighler. DeIivered lo Luhhansa on March 9, 1972, il vas pul inlo service on lhe
IrankfurlNev York roule. On Iebruary 21, 1974, Sabena WorId Airvays marked anolher
imporlanl rsl in lhe |umbo-|el era by inlroducing lhe 747 combi in scheduIed servicean
aircrah lhal divided lhe main deck so lhal 8 8 10 fool cargo conlainers couId be carried
ah of lhe passenger comparlmenl.
The |umbo |els vere aIso a bane, hovever, because lhe beIIies of passenger aircrah
couId accommodale mosl of lhe air cargo lonnage avaiIabIe, andby virlue of lhe by-
producl nalure of lhe spaceal considerabIy Iess cosl lhan dedicaled freighler aircrah.
The combinalion of expanded beIIy capacily and Iover air freighl rales permied under
lhe CAs IiberaIized pricing poIicies foIIoving dereguIalion in 1978 proved lo be lhe
dealh kneII for freighler operalions by lhe U.S. passenger airIines. TWA operaled ils
Iasl freighler in December 1978, and in subsequenl years, American, Uniled, and Ian
Am aII gol oul of lhe business. Today, Norlhvesl is lhe onIy one of lhe originaIIy cerli-
caled combinalion carriers lo operale freighler aircrah. IIying Tiger, acquired by IederaI
Ixpress in 1989, vas lhe onIy surviving aII-cargo carrier from lhose originaIIy approved
by lhe CA in 1948.
Aher mosl U.S. cerlicaled carriers phased oul lheir operalion of freighlers, lhe
promolion of air cargo devoIved upon lhe freighl forvarders, vho had been lhe airIines
besl cuslomers. Some of lhe Iargesl forvarders, such as Imery, urIinglon Air Ixpress,
and Airborne, Ialer began lo y lheir ovn aircrah lo provide lhe cargo Iih lhey needed, al
lhe limes of day lhey needed il, and became ma|or cargo carriers in lheir ovn righl.
Ioreign-ag carriers, vhich conlinue lo operale cargo services vilh dedicaled freighlers
and combi aircrah, have been far more aggressive lhan U.S. carriers in promoling air
cargo.
Tupcs cj Carri crs
The air cargo induslry incIudes lhree lypes of carriers: inlegraled carriers, passenger
airIines, and convenlionaI aII-cargo carriers. Integrated carriers, aIso caIIed express
carriers, operale door-lo-door freighl lransporlalion nelvorks lhal incIude aII-cargo
A I R T R A N S P O R TAT I O N 3 2 4
aircrah, deIivery vehicIes, sorling hubs, and advanced informalion syslems. These carriers
operale lheir ovn aircrah lo ensure adequale capacily and service reIiabiIily, aIlhough lhey
aIso use lhe beIIy cargo space of passenger aircrah lo suppIemenl lheir ovn capacily and
lo provide inlernalionaI service. The U.S. express carriers incIude IedIx, Uniled IarceI
Service (UIS), Airborne Ixpress, DHL Airvays, Imery WorIdvide, and urIinglon Air
Ixpress.
A second ma|or lype of cargo carrier is lhe combination carrier, vhich carries passengers
and cargo. These carriers primariIy oer poinl-lo-poinl service on a vhoIesaIe basis, reIying
on freighl forvarders for pickup and deIivery, saIes lo shippers, and cuslomer service.
ecause lhe passenger pIane beIIy space lhal represenls much of lheir cargo capacily is a
co-producl of passenger service, combinalion carrier cargo services have a Iov marginaI
cosl and lhus usuaIIy oer much Iover prices lhan express carriers. AIlhough virluaIIy
aII passenger airIines handIe some cargo, lhe imporlance of lhe cargo business varies
subslanliaIIy from airIine lo airIine. Many Iarge Asian and Iuropean carriers, incIuding
Korean Air, Calhay Iacic Airvays, Luhhansa, and Air Irance, operale eels of freighler
aircrah lo suppIemenl lheir beIIy cargo capacily. Cargo accounls for a Iarge share of lolaI
revenue for mosl ma|or non-U.S. air carriers, bul il pIays a much Iess prominenl roIe for
many olher airIines, incIuding mosl ma|or U.S. passenger airIines.
The lhird lype of cargo carrier is lhe all-cargo airline, vhich operales a variely of cargo
services. Some, incIuding Gemini Air Cargo, and IoIar Air Cargo, provide poinl-lo-poinl
service for air freighl forvarders, eilher as common carriers or under guaranleed-space
agreemenls. Olhers, Iike AlIas Air and Air Transporl InlernalionaI, primariIy operale
aircrah on a conlracl basis for olher airIines. Tvo of lhe convenlionaI carriers, AlIas and
IoIar, speciaIize in inlernalionaI 747 freighler service and are among lhe faslesl groving
cargo carriers in lhe vorId. Il shouId be noled, AlIas Air and IoIar Air Cargo are ovned
by AlIas Air WorIdvide HoIdings.
AIR CARGO TODAY
Air cargo lrafc conlinues lo grov al a heaIlhy rale, bul il has nol yel achieved lhe slalus
envisioned by lhe air cargo pioneers of lhe 1930s and 1940s. They fuIIy expecled lhal air
cargo vouId in lime be lhe mosl imporlanl revenue source for lhe airIines. Aher aII, every
knovn form of lransporlalion had earned more money from lhe carriage of freighl lhan
of peopIe. Thus, lhe onIy reaI queslion for lhe airIines vas hov soon air freighl vouId
overlake passenger revenues. Mosl experls lhoughl il vouId happen vilhin 5 years, or
10 al mosl.
So vhal has happened` Why is il lhal lhe lime frame for lhe ascendancy of air cargo
keeps being pushed inlo lhe fulure` And vhy do many experls suspecl lhal air cargo may
never be lhe lop money-maker`
A fundamenlaI reason for air cargos inabiIily lo surpass passenger revenues is lhal
air is a premium-cosl lransporlalion mode compared lo any surface syslem. Il cosls far
more lo operale an airpIane lhan lo run a lruck, ship, or raiIroad car. Thus, lhere has lo
be a compeIIing reason for cuslomers lo use air services. Compuler companies reguIarIy
ship by air, for exampIe, because lhe added cosl of air lransporlalion is more lhan osel
by geing lhe producl lo markel and inlo service earIier. Shippers of perishabIessuch as
fresh fruils, overs, and shuse air lransporl because lhey have no olher vay lo reach
lheir vorIdvide markels. ul shippers of mosl commodilies nd surface deIivery limes
C H A P T E R 1 1 A I R C A R G O 3 2 5
acceplabIe and lherefore choose lhe Iover lransporlalion cosls associaled vilh surface
modes.
Anolher reason freighl Iags behind passenger lrafc is lhal aircrah being produced
loday, and on vhich air cargo has reIied in lhe pasl, have been designed primariIy for lhe
carriage of passengers and are nol parlicuIarIy veII suiled for freighl. Nor are ve IikeIy
lo see, any lime soon, lhe research and deveIopmenl funds needed lo produce a vehicIe
beer suiled lo lhe carriage of cargo.
The unprolabIe operalions of freighler aircrah lhrough lhe years aIso look a loII on
air cargos repulalion. The facl lhal freighlers Iosl money somehov lransIaled lo lhe beIief
among senior managemenl of lhe Ieading U.S. carriers lhal air cargo vas an unprolabIe
businesscerlainIy nol a vaIid concIusion vhen you Iook al lhe prols lhal are made by
lhe carriage of cargo in combinalion aircrah. In any evenl, lhe perceplion lhal cargo vas a
Ioser has convinced many passenger airIine managemenls nol lo invesl lheir scarce capilaI
in any more freighler aircrah.
AIlhough air cargo has faiIed lo achieve lhe preeminenl posilion lhal vas expecled of
il, and in spile of lhe Iimilalions imposed by lhe markelpIace and lhe design of aircrah,
air cargo is aIive and veII. More and more companies are using air cargo services as lhey
experience lhe invenlory reduclion benels lhal air lransporlalion can provide.
Air cargo has grovn very rapidIy over lhe pasl 25 years, as shovn in TabIe 11-1. Ireighl
and express lon-miIes have lripIed vhiIe revenues have increased more lhan sixfoId
during lhis period. AIlhough cargo accounls for onIy 5 lo 10 percenl of lolaI revenues for
mosl of lhe combinalion carriers in lhe Uniled Slales, il is a considerabIy more imporlanl
revenue source for many of lhe foreign-ag carriers, vhich conlinue lo operale |umbo
freighlers and combi aircrah on inlernalionaI roules. Some of lhemsuch as Luhhansa,
Iapan AirIines, and Air Iranceearn as much as one-lhird lo one-haIf of lheir gross
revenues from cargo on some roules.
The four Iargesl markelslhe Norlh AlIanlic, lranspacic, IuropeIar Iasl, and U.S.
domeslicaccounl for nearIy lhree-quarlers of air cargo shipmenls, vilh lrafc divided
aImosl equaIIy among lhem. In recenl years, inlernalionaI lrafc has grovn more quickIy
lhan U.S. domeslic business.
The composilion of lhe U.S. domeslic markel changed dramalicaIIy during lhis lime,
as lhe inlegraled aII-cargo carriers caplured virluaIIy aII of lhe grovlh and became lhe
induslry Ieaders. Today, lhe express carriers hoId a lvo-lhirds markel share and earn over
80 percenl of domeslic air freighl revenues.
Year Ton-MiIes (lhousands) Revenues (lhousands)
1975 4,795,308 $ 1,309,779
1980 5,741,567 2,431,926
1985 6,030,543 2,680,715
1990 10,546,329 5,431,627
1995 14,568,416 8,480,085
2000 21,143,000 11,993,000
2004 27,978,000 14,911,000
Source: Air Transporl Associalion (ATA) annuaI reporls.
a
IncIudes inlernalionaI and domeslic operalions.
TABLE 11-1 Freight and Express Ton-Miles and Revenues for U.S. Air Carrier
Scheduled Services, 19752004
a
A I R T R A N S P O R TAT I O N 3 2 6
The inlegraled carriers have successfuIIy foIIoved lhe slralegy of oering superior
service al a premium price. y providing lime-denile, guaranleed door-lo-door service
supporled by reaI-lime shipmenl lracking service, lhey are abIe lo generale a yieId of
aboul $2.00 lo $2.50 per pound for domeslic shipmenls. Their Ieading compelilors, lhe
combinalion carriers, suppIy airporl-lo-airporl service primariIy on a space-avaiIabIe
basis, usuaIIy provide no service guaranlees, oer IiIe or no lracking capabiIily, and
lypicaIIy earn $0.30 lo $0.40 per pound for domeslic freighl.
The combinalion carriers appear lo have IiIe chance of reversing lhe lrends of lhe
pasl 25 years and capluring a Iarger share of lhe domeslic freighl markel. y oering a
consislenlIy high IeveI of service, lhe inlegraled carriers have raised lhe expeclalions of
freighl shippers. The passenger airIine freighl producl has changed IiIe over lhe pasl 25
years, and lhe gap belveen lhe IeveI of service lhey can supporl and lhe IeveI demanded by
lhe markel is videning. Recenl changes designed lo improve lhe prolabiIily of passenger
service, incIuding grounding vide-body aircrah and scheduIing fasler lurn limes, furlher
Iimil cargo opporlunilies for combinalion carriers. In addilion, lhe inlegraled carriers
have deveIoped a variely of Iover-cosl second-day and deferred service oplions lhrough
increased use of lrucking. These services oplions reduce lhe combinalion carriers price
advanlage vhiIe preserving shipmenl lracking and olher inlegraled carrier service
advanlages.
The mosl imporlanl compelilive response by U.S. combinalion carriers is lhe lrend
lovard conlracling oul airporl cargo services. This may increase airIine cargo prolabiIily
by reducing Iabor cosls, bul il viII nol heIp lhe combinalion carriers regain markel share
and may cause a furlher drop in share if il Iovers lheir service quaIily.
If currenl lrends conlinue as expecled, lhe voIume of domeslic lrafc handIed by lhe
inlegraled carriers viII conlinue lo grov rapidIy. This viII have imporlanl impIicalions
for U.S. airporls. ecause aImosl aII inlegraled carrier domeslic lrafc moves in aII-cargo
aircrah, lhe number of aII-cargo operalions viII rise. This viII increase lhe demand for
cargo aircrah parking posilions, parlicuIarIy al spoke airporls, vhere many cargo aircrah
remain parked from earIy morning unliI Iale evening. Inlegraled carriers have more
exibiIily in Iocaling cargo varehouses lhan do combinalion carriers, vhich need access
lo passenger aircrah, so lhe demand for on-airporl cargo varehouse space viII grov Iess
rapidIy lhan lhe demand for cargo aircrah parking. Iarls of lhe airporl lhal do nol have
good access lo passenger lerminaIs and are nol veII suiled for combinalion carrier freighl
varehouses may be suilabIe for inlegraled carrier faciIilies. The noise impacls from cargo
may aIso increase, because mosl inlegraled carrier ighls are operaled al nighl, aIlhough
lhe shih lo quieler Slage 3 aircrah viII osel lhe increase in lhe number of cargo operalions
in many cases.
The grovlh in U.S. airporl freighler aclivily primariIy reecls lhe deveIopmenl of
inlegraled carrier ighl roulings. Mosl of lhe airporls vilh lhe grealesl aclivily and grovlh
are lhe inlegraled carrier hub/galevay airporls: Memphis, IndianapoIis, Anchorage,
OakIand, Nevark, and DaIIasIorl Worlh for IedIx: LouisviIIe, Anchorage, Nevark,
DaIIasIorl Worlh, IhiIadeIphia, and Onlario for UIS: Daylon for Imery WorIdvide: and
ToIedo for urIinglon Air Ixpress. ecause lhe inlegraled carriers have eslabIished ma|or
faciIilies, cargo usuaIIy receives sufcienl aenlion al lhese airporls. Where cargo may
nol aIvays receive enough aenlion, and vhere lhe increase in freighler aclivily makes
il an imporlanl issue, is al lhe Iarge airporls lhal are nol inlegraled carrier hubs, such as
AlIanla, Chicago, Denver, HonoIuIu, Ihoenix, and oslon.
C H A P T E R 1 1 A I R C A R G O 3 2 7
THE FUTURE
AIlhough air maiI vas lhe rsl of lhe air cargo producls, il nov accounls for Iess lhan 7
percenl of lhe revenues for cargo carried by lhe vorIds airIines. MaiI grovlh has been
sleady bul sIov, advancing al an average of aboul 4 percenl a year bul ecIipsed by lhe
fasler grovlh in express and freighl. MaiI viII probabIy conlinue lo grov al a IeisureIy
pace, aided on lhe one hand by lhe expansion of inlernalionaI commerce and besel on
lhe olher hand by lhe rapid grovlh of fax services and smaII-package carriers. The reaI
polenliaI for air cargo grovlh Iies vilh air express and air freighl. According lo oeing, il
is expecled lhal vorId air cargo viII grov al a rale of 6.2 percenl per year during lhe nexl
20 years. The Norlh American markel viII grov al aboul 5 percenl per year.
Tvo primary faclors inuence freighl grovlh: economic condilions and rale IeveIs. The
oulIook for bolh is posilive for cargo. Moderale economic grovlh is expecled lo conlinue
inlo lhe fulure, vilh onIy a minor sIovdovn in lhe shorl lerm. Cargo rales shouId aIso
remain Iov as severaI faclors serve lo keep lhe Iid on prices.
A Iarge number of nev aircrah have been inlroduced in recenl years. This nev
capacily viII heIp keep prices dovn. Labor cosls for lhe vorId airIines shouId conlinue
lo move dovnvard due lo beer uliIizalion of lhe Iabor force and lo conlinued induslry
consoIidalion.
In addilion, lhe formalion of an inlegraled Iuropean economic communily shouId resuIl
in increasing lrafc lo Iurope from aII areas of lhe vorId. The Iuropean markel viII consisl
of some 330 miIIion peopIe, exceeding by haIf lhe size of lhe Uniled Slales. Iurlhermore,
lo lhe exlenl lhal lrade barriers are removed, cusloms procedures simpIied, and carriers
given more exibIe operaling righls, air cargo lrafc grovlh viII be slimuIaled.
IedIx and UIS, lhe lvo ma|or U.S. express operalors, are expanding lheir inlernalionaI
services so lhal lhey can oer vorIdvide dislribulion. ul lhey face some formidabIe
compelilion from veII-eslabIished inlernalionaI operalors, nolabIy DHL and TNT, bolh
of vhich provide gIobaI service. The compelilion promises lo keep lhe smaII-package
express markel IiveIy for a vhiIe.
The gIobaIizalion of lhe vorId economylhe produclion of parls and lhe assembIy of
producls haIf a vorId avay from vhere lhey viII be pIaced in serviceviII aIso provide
a ma|or slimuIus lo air freighl. Ralher lhan reIy on ocean lransporlalion, vhich can lake
as much as lvo or lhree veeks, shippers can lransporl lhe goods by air vilhin a coupIe
of days. Ior producls vilh a shorl sheIf Iifebe lhey magazines or fashion goods or fresh
shair freighl is lhe onIy reaI choice shippers have, and lhey are reaIizing il more and
more.
AII in aII, lhe fulure of air cargo shouId veII exceed ils pasl. Air cargo revenues may
nol overlake passenger revenues in lhe nexl 5 lo 10 years, bul lhe gap belveen lhem viII
undoubledIy be narroved. The bIend of addilionaI capacily (air cargo peopIe simpIy canl
accepl unused capacily), lhe conlinued expIosion of lrafc in lhe compelilive express
package markel, and lhe cuslomers inleresl in quick and reIiabIe deIivery viII fueI air
cargos acceIeraled grovlh.
As demand for air cargo increases, lhere viII be a need for speciaIized aircrah. CurrenlIy,
lhere is a Iack of cargo-specic aircrah lhroughoul lhe gIobaI eel. Mosl airpIanes used
lo lransporl air cargo are converled passenger aircrah. In mosl cases, lhose aircrah are
oId, coslIy lo operale, and al lhe end of lheir Iife span. As lhese aircrah relire, aircrah
manufaclurers are reaIizing lhe need lo produce aircrah lhal are geared lovard air cargo
lransporl.
A I R T R A N S P O R TAT I O N 3 2 8
Airbus Induslrie has announced lhe produclion of a very Iarge aircrah (VLA) caIIed
lhe Airbus A380. The passenger version of lhe A380 Iaunched ighl lriaIs in 2006 and lhe
freighler version viII Iaunch in 2008. IederaI Ixpress viII be lhe primary Iaunch cuslomer
for lhe freighler version. Ior lhe rsl lime in avialion hislory, a passenger aircrah and a
freighler aircrah viII be Iaunched aImosl simuIlaneousIy. The freighler version viII be
caIIed lhe A380-800I and viII operale as a high-capacily, Iong-range aircrah. The gross
payIoad viII lolaI more lhan 330,000 pounds and viII operale on roules approximaleIy
6,000 naulicaI miIes in Ienglh.
THE MARKET FOR AIR FREIGHT
A reviev of lhe ma|or commodilies shipped by air, according lo dala suppIied on an
annuaI basis by lhe Air Transporl Associalion, gives a good idea of lhe ma|or markels for
air cargo. These commodilies incIude lhe foIIoving:
Shipping commodilies by air is lhe mosl desirabIe form of dislribulion vhen one or more
of lhe foIIoving characlerislics is presenl:
1. When lhe commodily is:
a. IerishabIe
b. Sub|ecl lo quick obsoIescence
c. Required on shorl nolice
d. VaIuabIe reIalive lo veighl
e. Ixpensive lo handIe or slore
2. When lhe demand is:
a. UnprediclabIe
b. Infrequenl
c. In excess of IocaI suppIy
d. SeasonaI
Aulo parls and accessories
Machinery and parls
Irinled maer
IIeclronic/eIeclric equipmenl
and parls, incIuding appIiances
Iashion appareI
Ioolvear
TooIs and hardvare
CDs, lapes, leIevisions, radios, and
recorders
Compulers and sohvare
Iruils and vegelabIes
Sporling goods, loys, and games
Live animaIs
ChemicaIs, eIemenls, and compounds
Machines for eIeclronic dala slorage and
processing
MelaI producls
Iholographic equipmenl, parls,
and Im
Cul overs and nursery slock
IIaslic maleriaIs and arlicIes
Medicines, pharmaceulicaIs, and drugs
InslrumenlsconlroIIing, measuring,
medicaI, and oplicaI
Iood preparalions and misceIIaneous
bakery producls
Olher e-commerce producls
C H A P T E R 1 1 A I R C A R G O 3 2 9
3. When lhe dislribulion probIems incIude:
a. Risk of piIferage, breakage, or delerioralion
b. High insurance cosls for Iong in-lransil periods
c. Heavy or expensive packaging required for surface lransporlalion
d. Need for speciaI handIing or care
e. Warehousing or slocks in excess of vhal vouId be needed if air freighl vere
used
Ior commodilies lhal are perishabIe, sub|ecl lo quick obsoIescence, or required on shorl
nolice, lhe speed of air lransporlalion becomes advanlageous. Timing is imporlanl
for producls such as recordings, fashion appareI, and noveIly ilems. When lhe markel
is seasonaI or vhen demand ucluales for any reason, air freighl aIIovs an immediale
response vilhoul lhe penaIly of coslIy xed overheadbeing oul of slock or overslocked.
A manufaclurer lhal oers a vide seIeclion of slyIes, sizes, coIors, or accessories in a producl
Iine and vhose markel covers a vide geographic area is usuaIIy faced vilh lhe diIemma of
carrying coslIy invenlory and obsoIescence or Iong deIays in IIing orders. Air freighl can
eIiminale lhe cosl of carrying invenlory. Cuslomers can seIecl freeIy from lhe enlire Iine of
producls and lhey can be assured of deIivery from a cenlraI varehouse as quickIy as from
a IocaI varehouse.
Air freighl is premium service. Il pro|ecls an image of premium producl and company
progressiveness. The relaiIer vho adverlises ovn in from and lhe saIesperson vho
assures lhe cIienl lhal veII y il in from our main ofce undersland lhe vaIue of such an
image. The various modes of lransporl represenl greal dierences in quaIily. Air freighl
can add a nev compelilive edge lo lhe markeling eorl. Superior service adds vaIue lo
any producl and generales a quaIily image for lhe shipper.
Air freighl can slimuIale grovlh in exisling markels, and il aIIovs rms lo enler nev
markels vilhoul making a commilmenl lo Iarge, xed inveslmenls in varehousing and
invenlories. Tesl markels suppIied overnighl by air aIIov ad|uslmenl lo markel response
as readiIy as lo lhe demands of a IocaI markel.
The risk of piIferage, breakage, or delerioralion is minimized lhrough lhe use of air
lransporlalion because of lhe Iack of en roule handIing and exposure of goods lo Iong
periods under minimum securily. Insurance charges lend lo be subslanliaIIy Iover for air
freighl lhan for surface freighl, because lhere is Iess risk by air and because lhe lransil lime
is shorler. Insurance represenls a considerabIe expendilure for many companies.
Iackaging for air freighl is usuaIIy of minimaI cosl. ecause air lransporl reduces lhe
risk of |oIls and shocks, cardboard carlons usuaIIy viII sufce, vhereas heavy vooden
crales may be required for surface lransporlalion. Ground handIing is done on a more
individuaI basis lhan is lhe case for mosl olher modes of lransporlalion. Risk of exposure
lo lhe eIemenls is sIighl, and for commodilies for vhich conlainerizalion is used, lhere
may be no need lo package al aII.
The lolaI cosls associaled vilh carrying invenlory are high: il incIudes lhe cosl of capilaI
lied up in varehouse faciIilies and in slock, insurance, and laxes. In addilion, slocked ilems
may become obsoIele, and lhe cosl of Iabor and muIlipIe handIings is a ma|or consideralion.
Wilh each handIing, Ioss and damage is a faclor. Air freighl can ohen bring aboul draslic
reduclions in lhe cosl of carrying invenlory. usinesses lhal use regionaI varehousing
suppIied by surface lransporlalion can reduce safely slocks and perhaps eIiminale some
varehouses. Iven vhen air freighl cosls more lhan surface freighl, lhe lradeo in reduced
A I R T R A N S P O R TAT I O N 3 3 0
cosls has made il prolabIe for many businesses lo subslilule overnighl dislribulion by
air from a cenlraI varehouse.
TYPES OF AIR FREIGHT RATES
Gcncra| Ccnnc!i iu |aic
The air freighl rale slruclure is simiIar lo lhe passenger fare slruclure in lhal lhere is a
normaI or basic price appIicabIe lo aII commodilies in aII markels. This is caIIed lhe general
commodity rate. GeneraI commodily shipmenls are raled by veighl. (DimensionaI veighl
is used if lhe shipmenl is of very Iov densily: lhis viII be discussed shorlIy.) As lhe veighl
of a shipmenl increases, lhe per-pound rale decreases, as Iigure 11-1 iIIuslrales. There is
generaIIy a minimum charge, depending on lhe cily-pairs belveen vhich lhe shipmenl
lakes pIace.
DimensionaI veighl is compuled by nding lhe cubic measuremenl of a shipmenl
(Ienglh vidlh heighl) and charging lhe rale for 1 pound for each 194 cubic inches.
There are exceplions. Ior exampIe, cul overs and nursery slock being lransporled lo
domeslic cilies lake a charge of 1 pound for each 250 cubic inches. In lhis vay, if a cargo
comparlmenl vere IIed vilh, say, 20 pounds of Slyrofoam cups, lhe charge vouId be
based on a veighl lhal represenled a minimum densily in reIalion lo lhe space occupied.
19
100 220
Weight (pounds)
R
a
t
e

p
e
r

p
o
u
n
d

(
c
e
n
t
s
)
2,000 3,000
12
11
10
FIGURE 11-1 General commodity rates vary by weight of the shipment. The
greater the weight, the lower the rate (hypothetical example).
Specic commodity rates are eslabIished for unusuaIIy high-voIume shipping of cerlain
producls belveen cerlain cilies, such as sh from Anchorage, AIaska, lo cerlain poinls in
lhe conlinenlaI Uniled Slales: recording lapes, alhIelic goods, and musicaI inslrumenls
from Denver lo San Irancisco: and overs, decoralive greens, furs, fruils, and vegelabIes
belveen SeaIeTacoma and MinneapoIisSl. IauI. In mosl cases, lhe specic commodily
Spcci c Ccnnc!i iu |aic
C H A P T E R 1 1 A I R C A R G O 3 3 1
|xccpii cn |aic
Exception rates are higher lhan lhe usuaI air freighl rales and appIy lo cerlain lypes of
shipmenls lhal require speciaI handIing. Ior exampIe, Iive animaIs and uncraled furnilure
lake exceplion rales. A dog lraveIs al 110 percenl of lhe appIicabIe generaI commodily rale
on inlerslale roules vilhin lhe conlinenlaI Uniled Slales. In some cases, an exceplion rale
does nol appIy on cerlain roules.
|ci ni |aic
Ior domeslic shipmenls lransporled on lvo or more airIines belveen origin and
deslinalion, a pubIished rale, caIIed a joint rate, ohen appIies. The |oinl rale is usuaIIy
lhe same as lhe rale for direcl service. Where a |oinl rale is pubIished, lhe shipper has
lhe advanlage of avaiIabiIily of a number of dierenl roulings al lhe same rale. This is
especiaIIy advanlageous if direcl service is Iimiled.
Pri cri iu |cscrtc! Ai r |rci gni
Priority reserved air freight is designed lo serve shippers of heavy or buIky freighl vho
need lhe advanlage of reserved space on a specic ighl. Ior exampIe, if an oiI-driIIing
company has slopped produclion because il needs some driII bils, space can be reserved
on lhe nexl ighl. Knoving exaclIy vhen lhe driII bils viII arrive, lhe driIIing company
can pIan accordingIy. ecause speciaI handIing is required for lhis lype of service, lhe rale
is higher lhan lhe normaI generaI commodily and specic commodily rales.
Spcc! Packagc Scrti cc
Ccniai ncr |aic
Container rates are Iov rales charged by lhe carriers lo shippers using conlainers lo ship
air cargo. There are many lypes of conlainers designed for air freighl, suilabIe for shipping
quanlilies from 400 pounds lo 5 lons. Some lypes are ovned by lhe airIine and made
avaiIabIe lo lhe shipper on requesl. Olher lypes are purchased by shippers for reguIar use
Speed package service is a smaII-package fasl-deIivery service, airporl lo airporl, vilh
cerlain carriers on lheir ovn syslems. Iackages are accepled al lhe airporl passenger
lerminaI, al lhe passenger baggage check-in posilion, or al lhe air freighl ofce. They are
deIivered lo lhe baggage cIaim area al deslinalion. Speed package service is handIed Iike
passenger baggage, bul because lhere is no accompanying passenger, lhe sender musl
make arrangemenls for someone lo pick up lhe package on arrivaI.
Speed package service is designed for silualions in vhich even a fev hours are
imporlanl. Ior exampIe, crilicaIIy needed smaII machinery parls ohen are shipped by lhis
melhod. There is generaIIy a al rale based on dislance belveen cily-pairs for any speed
package service shipmenl.
rale is Iover lhan lhe generaI commodily rale lo reecl lhe benel lo lhe carrier of reguIar
high-voIume shipmenls.
A I R T R A N S P O R TAT I O N 3 3 2
or renled from various sources (see Iigures 11-2 and 11-3). There are many advanlages lo
conlainerizing air freighl shipmenls:
1. Transporlalion charges are Iover vhen a shipper has a Iarge enough shipmenl lo II,
or nearIy II, lhe conlainer used. This is lrue even vhen lhe airIine suppIies lhe con-
lainer.
2. Iackaging cosls can be reduced, because lhe conlainer provides proleclion againsl
handIing mishaps.
3. Shippers can seaI conlainers lo prevenl piIferage.
4. Shipmenls arrive as one compIele unil: lhere are no deIayed or missing parls.
5. Counling and checking lhe pieces of lhe shipmenl al deslinalion is simpIied.
6. Transporlalion cosls for high-densily freighl shipmenls in conlainers ohen are Iover
lhan for surface lransporlalion.
Shippers can use carrier-ovned conlainers, for vhich lhey are generaIIy charged a
al fee lhal incIudes bolh lhe use of lhe conlainer and lhe lransporlalion of ils conlenls.
Somelimes, lhe veighl of lhe conlenls aIIoved al lhe al fee is a specied maximum. An
cxccss pcun! raic is appIied lo veighl lhal exceeds lhe amounl aIIoved al lhe al rale. (The
veighl of lhe conlainer is nol considered in lhese caIcuIalions.) In many cases, lhere are
dierenl rales for day and nighl. AirIines can aIso provide one or more conlainers for lhe
shipper lhal has many ilems going lo lhe same cily and charge lhe shipper Iess for lhe
lolaI shipmenl vhiIe reducing packaging cosls and providing lhe benels of decreased
handIing and proleclion from vealher. Carriers have speciaIIy buiIl conlainers for heavy
ilems, such as machinery parls.
Shippers ohen purchase lheir ovn conlainers or eIse renl lhem. These conlainers aIso
quaIify for speciaI rales lhal are Iover lhan lhe generaI commodily rale. Mosl shipper-
ovned conlainers are smaII enough lo be moved lhrough faclory assembIy Iines. Thus,
goods can be Ioaded and lhe conlainer seaIed al lhe pIanl. An airIine normaIIy viII charge
a conlainer rale lo a shipper lhal can slack ils boxes on a paIIel and secure lhem vilh a
cargo nel, provided lhal lhe overaII dimensions do nol exceed lhe dimensions for lhe lype
of conlainer on vhich lhe rale is based.
SPECIAL AIR FREIGHT SERVICES
Asscn|| u Scrti cc
AirIines viII consoIidale packages from a shipper, or group of shippers, and base lhe
lransporlalion charge on lhe lolaI veighl of aII lhe pieces, vhich aIIovs a price break on
heavy shipmenls. When numerous shipmenls are senl lo lhe same address, lhe use of
assembIy service can resuIl in reaI savings lo lhe shipper. The assembIy lime can begin
al 12:01 .. and end lhe foIIoving day al 12:00 midnighl. During lhe 24-hour period,
C H A P T E R 1 1 A I R C A R G O 3 3 3
TYPE: LD6 Dom. /AWC-AWF Intl.
Int. Capacity: 316 Cu. Ft.
Ext. Dimensions: 25x60.4x64 In.
Max. Gross Weight: 5,680 Lbs.
Cube Displacement: 339 Cu. Ft.
TYPE: LD7,LD9 Dom. /AAP-AAR Intl.
Int. Capacity: 355 Cu. Ft.
Ext. Dimensions: 125x88x64 In.
Max. Gross Weight: 13,300 Lbs.
Cube Displacement: 401 Cu. Ft.
TYPE: LD8 Dom. /ALE Intl.
Int. Capacity: 253 Cu. Ft.
Ext. Dimensions: 196x60.4x60 In.
Max. Gross Weight: 5,400 Lbs.
Cube Displacement: 280 Cu. Ft.
TYPE: LD10 Dom. /AWR-AWS Intl.
Int. Capacity: 246 Cu. Ft.
Ext. Dimensions: 125x60.4x64 In.
Max. Gross Weight: 5,680 Lbs.
Cube Displacement: 257 Cu. Ft.
TYPE: LDW Dom. /=
Int. Capacity: 70 Cu. Ft.
Ext. Dimensions: 98x42.2x41.6 In.
Max. Gross Weight: 1,700 Lbs.
Cube Displacement: 76 Cu. Ft.
TYPE: M1 Dom. /ARA Intl.
Int. Capacity: 572 Cu. Ft.
Ext. Dimensions: 125x96x96 In.
Max. Gross Weight: 15,000 Lbs.
Cube Displacement: 666 Cu. Ft.
TYPE: M2 Dom. /ASE-ASG Intl.
Int. Capacity: 1,077 Cu. Ft.
Ext. Dimensions: 240x96x96 In.
Max. Gross Weight: 25,000 Lbs.
Cube Displacement: 1,286 Cu. Ft.
TYPE: A1 Dom. /SAB-UAB Intl.
Int. Capacity: 393 Cu. Ft.
Ext. Dimensions: 88x125x87 In.
Max. Gross Weight: 13,300 Lbs.
Cube Displacement: 425 Cu. Ft.
TYPE: A2,A3 Dom. /AAA-SAA Intl.
Int. Capacity: 440 Cu. Ft.
Ext. Dimensions: 88x125x87 In.
Max. Gross Weight: 12,500 Lbs.
Cube Displacement: 475 Cu. Ft.
TYPE: FTC Dom. /=
Int. Capacity: 151 Cu. Ft.
Ext. Dimensions: 81x60.4x62.75 In.
Max. Gross Weight: 4,500 Lbs.
Cube Displacement: 174.5 Cu. Ft.
TYPE: LD2 Dom. /APA Intl.
Int. Capacity: 120 Cu. Ft.
Ext. Dimensions: 47x60.4x64 In.
Max. Gross Weight: 2,700 Lbs.
Cube Displacement: 134 Cu. Ft.
TYPE: LD3 Dom. /AVE-AKE Intl.
Int. Capacity: 150 Cu. Ft.
Ext. Dimensions: 79x60.4x64 In.
Max. Gross Weight: 3,500 Lbs.
Cube Displacement: 166 Cu. Ft.
TYPE: LD4 Dom. / DLP-DLF Intl.
Int. Capacity: 193 Cu. Ft.
Ext. Dimensions: 96x60.4x64 In.
Max. Gross Weight: 5,400 Lbs.
Cube Displacement: 215 Cu. Ft.
TYPE: LD5, LD11 Dom. /AWB-AWD Intl.
Int. Capacity: 265 Cu. Ft.
Ext. Dimensions: 125x60x64 In.
Max. Gross Weight: 7,000 Lbs.
Cube Displacement: 265 Cu. Ft.
FIGURE 11-2 Containers provided by airlines. These containers are owned by
the airlines and are certied as an integral part of the aircraft.
These units are available from the carrier for shipper use. The
specications may vary slightly by owner; this information is
provided as a guide only. (Source: Air Transport Association of
America, Air Cargo from A to Z [Washington, D.C.: Air Transport
Association, 1988].)
A I R T R A N S P O R TAT I O N 3 3 4
TYPE: EH Dom. /=
Int. Capacity: Varies
Ext. Dimensions: 35.4x21x21 In.
Max. Gross Weight: 250 Lbs.
Cube Displacement: 9.03 Cu. Ft.
TYPE: LD-N Dom. /=
Int. Capacity: Varies (LD-3 insert)
Ext. Dimensions: 56x55x57 In.
Max. Gross Weight: 3,160 Lbs.
Cube Displacement: 1,016 Cu. Ft.
TYPE: Q Dom. /=
Int. Capacity: Varies
Ext. Dimensions: 39.5x27.5x21 In.
Max. Gross Weight: 400 Lbs.
Cube Displacement: 12 Cu. Ft.
TYPE: B Dom. / Intl. =
Int. Capacity: Varies (Insert for A)
Ext. Dimensions: 84x58x76.45 In.
Max. Gross Weight: 5,000 Lbs.
Cube Displacement: 197.7 Cu. Ft.
TYPE: B2 Dom. /=
Int. Capacity: Varies
Ext. Dimensions: 42x58x76.45 In.
Max. Gross Weight: 2,500 Lbs.
Cube Displacement: 98.85 Cu. Ft.
TYPE: D Dom. /=
Int. Capacity: Varies
Ext. Dimensions: 58x42x45 In.
Max. Gross Weight: 2,000 Lbs.
Cube Displacement: 63.44 Cu. Ft.
TYPE: E Dom. /=
Int. Capacity: Varies
Ext. Dimensions: 42x29x25.5 In.
Max. Gross Weight: 500 Lbs.
Cube Displacement: 17.97 Cu. Ft.
FIGURE 11-3 Containers offered by shippers. These containers are shipper
owned and are available from many commercial sources and
from the airlines. Most carriers offer container incentive rates
when used. Specications may vary slightly; this information is
provided as a guide only. (Source: Air Transport Association of
America, Air Cargo from A to Z [Washington, D.C.: Air Transport
Association, 1988].)
Oi siri |uii cn Scrti cc
Anolher service provided by airIines lhal y air cargo is accepling one shipmenl from a
shipper and, al deslinalion, separaling il inlo ils parls and dislribuling lhem lo dierenl
cuslomers. The advanlages are lhe same as lhose for assembIy service in lhal a shipper
vilh many cuslomers in lhe same cily can lake advanlage of lhe rale break for heavy
shipmenls. Hovever, carriers generaIIy do nol provide assembIy and dislribulion service
on lhe same shipmenl. A varialion of lhis service is for lhe carrier lo deIiver a shipmenl
lo lhe main posl ofce al lhe deslinalion cily, vhere lhe shipmenl is sorled by zip code.
Ralher lhan ship lhousands of ilems from lhe home ofce, Iarge relaiIers and vhoIesaIers
vho maiI calaIogs, magazines, and so forlh frequenlIy use lhis service because of lhe
subslanliaI savings invoIved.
a shipper lhal asks for assembIy service can dispalch any number of packages lo lhe
carriers air freighl ofce and lhe airIine viII assembIe lhe parls unliI lhe shipmenl is
compIele or lhe assembIy lime has expired (see Iigure 11-4).
C H A P T E R 1 1 A I R C A R G O 3 3 5
total 1,820 lb over 24 hours
FIGURE 11-4 Assembly service charge by total shipment weight over a 24-
hour period (hypothetical case).
Pi ckup an! Oc| i tcru Scrti cc
Air freighl pickup and deIivery service is performed by independenl IocaI lruckers under
conlracl lo acl as lhe carriers IocaI agenl. They are governed by Air Cargo, Incorporaled
(ACI), an organizalion ovned |oinlIy by lhe ma|or airIines vhose ma|or funclion is lo
negoliale conlracls vilh IocaI lruckers. ACI lruckers generaIIy make lvo reguIar pickup
and deIivery runs daiIy vilhin a 25-miIe radius of lhe airporl. Rales for services performed
al ship docks or oulside lhe 25-miIe radius are generaIIy higher.
Oincr Spcci a| i zc! Scrti ccs
AirIines provide a number of olher speciaIized air freighl services, incIuding armed guards
for shipmenls of highIy vaIuabIe goods, such as furs, precious gems, valches, |eveIry,
negoliabIe securilies, biIIs of exchange, bonds, and currency. GeneraIIy, such ilems are
nol accepled by lhe carrier unliI lhree hours before lhe scheduIed deparlure lime of lhe
ighl on vhich lhey are lo be lransporled, nor can lhey be heId for more lhan lhree hours
aher arrivaI al lhe deslinalion. ecause many of lhese ilems are smaII, carriers generaIIy
require lhal a minimum-size conlainer be used. Ior exampIe, coins musl be shipped in a
1,500-cubic-inch conlainer.
Shipmenls of human remains are arranged for by a morluary and are consigned lo
anolher morluary al lhe deslinalion cily. The shipping morluary musl provide a dealh
cerlicale and buriaI cerlicale lo accompany lhe shipmenl.
A I R T R A N S P O R TAT I O N 3 3 6
Commodilies caIIed rcsiricic! ariic|cs range from lhose lhal are accepled vilhoul
Iimilalion bul lhal musl have an idenlifying IabeI (magnelized maleriaIs, for exampIe)
lo such lhings as poison gas, vhich cannol be made safe enough for commerciaI air
lransporlalion under any circumslances. Mosl reslricled arlicIes are maleriaIs lhal can be
shipped safeIy vhen packaged according lo DOT specicalions for hazardous maleriaIs
and lhal are Iimiled in lerms of aIIovabIe quanlilies per conlainer and per aircrah.
AII reslricled-arlicIe shipmenls musl be conspicuousIy IabeIed by lhe shipper, using
aulhorized IabeIs, so lhal aII airIines parlicipaling in lhe rouling can observe speciaI Ioading
arrangemenls and advise ighl crevs of any polenliaIIy hazardous maleriaIs on board.
Accurale IabeIing is aIso essenliaI so lhal lhe carrier can deaI approprialeIy vilh Ieakage
or spiIIage of maleriaIs lhal are hazardous lo humans and animaIs, lo aircrah slruclure, or
in combinalion vilh olher maleriaIs being shipped in lhe same cargo comparlmenl. Mosl
reslricled-arlicIe shipmenls require a shippers cerlicale.
Many producls have various degrees of hazard, depending on lheir componenls.
AerosoI producls, for exampIe, may be cIassied as an inammabIe gas or as poison or
may have no reslriclions, depending on bolh lhe conlenls and lhe propeIIing agenl used.
Iainl is anolher producl cIassied in various vays, depending on ils composilion.
Some airIines accepl cerlain reslricled arlicIes nol accepled by olher airIines. Some
reslricled arlicIes may be carried on aII-cargo aircrah bul nol on lhe passenger-carrying
aircrah of any carrier. And, again, some highIy dangerous maleriaIs cannol be made safe
enough lo carry on commerciaI air carriers under any circumslances.
Tnc Ai r Cargo Gui de
The Air Cargc Gui!c (2000 CIearvaler Drive, Oak rook, IL 60521) is a basic reference
pubIicalion for shipping freighl by air. Il conlains currenl domeslic and inlernalionaI
cargo ighl scheduIes, incIuding pure-cargo, vide-body, and combinalion passenger
cargo ighls. Iach monlhIy issue aIso conlains informalion on air carriers speciaIized
services, IabeIing requiremenls, airIine and aircrah decodings, air carrier and freighl
forvarders, cargo charlers, U.S. and Canadian cily direclory smaII-package services,
inlerIine air freighl agreemenls, aircrah Ioading charls, and a greal deaI more informalion
regarding air cargo services. (See lhe Web Siles Iisl al lhe end of lhis chapler for addilionaI
informalion.)
FACTORS AFFECTING AIR FREIGHT RATES
Ccsis cj inc Scrti cc
A basic consideralion in rale making is lhal lhe rales shouId cover lhe cosls of service
and yieId a reasonabIe prol. In air lransporlalion, vhere air freighl is carried in lhe
cargo comparlmenls of passenger aircrah as veII as in aII-cargo aircrah, lhe cosls lhal
musl be covered generaIIy are lhe same as lhose of an aII-cargo aircrah operalion. This
approach is usuaIIy foIIoved for lvo reasons: (1) lhe aIIocalion of cosls in a combinalion
aircrah is difcuIl, and (2) lhe maximum deveIopmenl of an air cargo induslry requires
lhe operalion of aII-cargo aircrah vhose cosls musl be mel. As vas poinled oul earIier
in lhe chapler, freighl rales have considerabIy Iess prol polenliaI lhan passenger fares
because lhe advanlages of air over surface modes of lransporlalion are Iess apparenl.
C H A P T E R 1 1 A I R C A R G O 3 3 7
Vc| unc cj Traj c
Numerous pricing consideralions aecl rales. One of lhese is lhe voIume of nev lrafc a
carrier can achieve al any parlicuIar rale. VoIume is signicanl, because lrafc polenliaI
is a key faclor in delermining lhe maximum nel revenue lhal can be derived from any
commodily. Thus, lhe rale slruclure conlains reduced rales for Iarger shipmenls.
Oi rccii cna| i iu
Whereas mosl passenger lraveI is round-lrip, freighl lrafc is aII one-vay. HisloricaIIy,
domeslic air freighl has lended lo move in Iarger voIumes in a veslbound direclion lhan
easlbound, and in Iarger soulhbound lhan norlhbound voIumes vilhin lhe easlern Uniled
Slales. ConsequenlIy, rales have been sel al Iover IeveIs in lhe o-direclion as a means of
IIing up space lo equaIize lhe ov of lrafc and pul aircrah lo more efcienl use.
Cnaracicri sii cs cj inc Traj c
Air carriers aIso consider lhe lransporlalion characlerislics of lhe commodily as an
imporlanl eIemenl in lhe rale-making process. The ma|or lransporlalion characlerislics
are lhe densily of lhe commodily (lhe reIalionship of veighl lo measuremenl), lhe size
(veighl or voIume) per average piece, and lhe average veighl of lhe shipmenl (vhelher
10, 20, 40, 100, 1,000, or 10,000 pounds makes up one shipmenl al one lime).
In cargo aircrah, uliIizalion of avaiIabIe space and avaiIabIe Iihing capacily musl be
oplimized. The densily of lhe Ioad musl be reIaled lo lhe capabiIily of lhe aircrah in
delermining freighl rales. A cargo aircrah fuIIy Ioaded vilh a parlicuIar commodily
shouId produce sufcienl revenue lo cover lhe fuII cosl of operalion and earn a prol. Ior
exampIe, suppose lhal an aII-cargo aircrah has a praclicaI voIume capacily of aboul 7,700
cubic feel and a Iihing capabiIily of aImosl 92,000 pounds. The oplimum densily for lrafc
is lherefore:
92,000
Aboul 12 Ib per cubic fool.
7,700
When individuaI shipmenls are Ioaded on an aircrah, unavoidabIe Iosses in lhe uliIizalion
of space occur due lo lhe irreguIar shapes of lhe shipmenls. These are caIIed siacking |csscs.
To achieve lhe oplimum densily, lhe average densily of shipmenls lendered lo our exampIe
aircrah musl be grealer lhan 12 pounds per cubic fool lo compensale for slacking Iosses. If
lhe Ioaded densily of lhe commodily is 12 pounds or more, lhe revenue-producing Ioad
viII be 92,000 pounds in lhis aircrah. asicaIIy, lhe lolaI cosl of lhe operalion pIus lhe prol
margin, divided by lhe pounds of lhe commodily on board, viII give lhe approximale air
freighl rale for lhal commodily.
The characler of lhe commodily aIso incIudes vhelher il is dangerous, hazardous,
perishabIe, or susceplibIe lo damage or piIferage: vhal packing and packaging is needed:
vhelher il is easiIy Ioaded and sloved aboard aircrah: and vhelher il viII readiIy ensure
safe lransporlalion vilh ordinary care in handIing. When unilized or conlainerized
shipmenls are invoIved, lhe imporlance of some of lhese rale-making faclors may be
reduced.
A I R T R A N S P O R TAT I O N 3 3 8
Va| uc cj inc Scrti cc
VaIue of service is frequenlIy an imporlanl faclor in eslabIishing a specic commodily rale.
In lheory, a specic commodily rale shouId aIIov lhe commodily lo move in a voIume
lhal yieIds lhe maximum revenue in excess of lhe added cosls of carrying lhe commodily.
Taking revenue diIulion inlo consideralion, lhe principaI faclors lhal reecl vaIue of
service incIude lhe speed and reIiabiIily of air freighl service, lhe vaIue of lhe commodily,
and lhe prol margin of lhe consignor or consignee. The consignor, usuaIIy lhe shipper,
is lhe parly lhal designales lhe person lo vhom goods are lo be senl. The consignee is lhe
person named as lhe receiver of a shipmenlone lo vhom a shipmenl is consigned.
Markel demands, possibIe obsoIescence of slock, cosl of invenlory, lhe necessary Iead
lime in pIacing orders for surface shipmenls, and lhe possibiIily of reduclion of varehouse
expenses are aII faclors lhal may inuence lhe shippers acceplance of a rale IeveI for an
air shipmenl.
Ccnpcii ii cn
Compelilion is, of course, aIso a ma|or faclor in delermining air freighl rales. Where
capacily exceeds demand, lhere is considerabIe pressure lo Iover rales. Rale reduclion can
be inlroduced by lhe Ieasl successfuI compelilor lo improve ils markel share or possibIy
by lhe principaI carrier lo generale nev lrafc.
Compelilion from olher modes of lransporlalion, especiaIIy lrucks and raiIroads, may
heIp delermine lhe rale lhal can be charged on any commodily. The compelilive impacl
of shipping via olher roules, shipping via nonscheduIed air carriage, or using shipper-
ovned vehicIes aIso may be perlinenl.
KEY TERMS
air express generaI commodily rale
air freighl specic commodily rale
air maiI exceplion rale
air freighl forvarder |oinl rale
inlegraled carrier priorily reserved air freighl
combinalion carrier speed package service
aII-cargo airIine conlainer rale
REVI EW QUESTI ONS
1. Whal is lhe dierence belveen air cxprcss. air jrcigni. and air nai| scrticc? Why vas lhe
earIy air maiI service so imporlanl in eslabIishing lhe U.S. airIine syslem` Discuss lhe
roIe of lhe RaiIvay Ixpress Agency and GeneraI Air Ixpress in deveIoping earIy air
express service.
2. Describe lhe basic concepl of IederaI Ixpress. Why has lhis company revoIulionized
lhe air express business` IxpIain lhe roIe of lhe air freighl forvarder in lhe air cargo
business. Why did lhe arrivaI of lhe |umbo |el prove lo be bolh a boon and a bane for
lhe air cargo business`
C H A P T E R 1 1 A I R C A R G O 3 3 9
3. Dislinguish belveen inicgraic! carricrs. ccn|inaiicn carricrs. and a||-cargc air|incs. and
give exampIes of each. Why have lhe inlegraled carriers gained a signicanl markel
share in recenl years` Whal eecl has lhis had on airporl pIanning`
4. Do you lhink lhal air cargo revenue viII ever exceed passenger revenue` Why or vhy
nol` Discuss severaI faclors lhal viII inuence air cargo grovlh in lhe fulure.
5. Lisl ve ma|or commodilies shipped by air. Why do you lhink lhey are shipped by
air versus surface modes of lransporlalion` Dislinguish belveen gcncra| ccnnc!iiu
raics and spccic ccnnc!iiu raics. Whal are cxccpiicn raics? Whal is pricriiu rcscrtc! air
jrcigni? Spcc! packagc scrticc? Describe severaI advanlages of conlainerizalion. Whal
are some of lhe speciaI air freighl services provided by air carriers`
6. Lisl and briey describe six faclors aecling air freighl rales. An aircrah may gross
oul before il spaces oul, and vice versa. Hov is lhis reIaled lo air cargo` Whal are
siacking |csscs? Hov does direclionaIily aecl air freighl rales`
WEB SI TES
hp://vvv.ala.org
hp://vvv.ups.com
hp://vvv.fedex.com
hp://vvv.poIaraircargo.com
hp://vvv.aircargovorId.com
hp://vvv.liaca.org
hp://vvv.cargofacls.com
hp://vvv.alIasair.com
hp://vvv.faa.gov
hp://vvv.aci-na.org
hp://vvv.bls.gov
hp://vvv.dol.gov
SUGGESTED READI NGS
Air Transporl Associalion of America. Air Cargc jrcn A ic Z. Washinglon, D.C.: Air Transporl
Associalion, 1988.
AIIaz, CamiIIe and Iohn SkiIbeck. Tnc Hisicru cj Air Cargc an! Airnai| jrcn inc 18in Ccniuru.
Iaslbourne, U.K.: Gardners ooks, 2005.
Carron, AIexander S. Transiiicn ic a |rcc Markci. Ocrcgu|aiicn cj inc Air Cargc |n!usiru. Washinglon,
D.C.: rookings Inslilulion, 1981.
Davies, R. I. G. The Hislory of Air Ixpress in lhe Uniled Slales. Conference proceedings of lhe
TveIhh InlernalionaI Iorum for Air Cargo. WarrendaIe, Ia.: Sociely of Aulomolive Ingineers,
1984.
Iackson, IauI, and WiIIiam rackenridge. Air Cargc Oisiri|uiicn. London: Gover, 1971.
MoIdrem, Laverne I. Tigcr Ta|cs. Iresco, Ariz.: IIying M Iress, 1996.
A I R T R A N S P O R TAT I O N 3 4 0
Schneider, Levis M. Tnc |uiurc cj inc U.S. Ocncsiic Air |rcigni |n!usiru. An Ana|usis cj Managcncni
Siraicgics. oslon: Graduale SchooI of usiness Adminislralion, Harvard Universily, 1973.
Shav, Slephen. |cciitc Air |rcigni Markciing. Nev York: Hyperion, 1993.
Tane|a, NavaI K. Tnc U.S. Air |rcigni |n!usiru (2d ed.). Lexinglon, Mass.: Healh, 1979.
C H A P T E R 1 1 A I R C A R G O 3 4 1
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12
Principles of Airline Scheduling
Introduction
The Mission of Scheduling
Equipment Maintenance
Flight Operations and Crew Scheduling
Ground Operations and Facility Limitations
Schedule Planning and Coordination
Equipment Assignment and Types of Schedules
Hub-and-Spoke Scheduling
Data Limitations in Airline Scheduling
Chapter Checklist You Should Be Able To:
Describe lhe ma|or inlernaI and exlernaI faclors
lhal aecl lhe scheduIing process
Dene and expIain nainicnancc cjcicncu gca|s.
igni-cpcraiicns jacicrs in scnc!u|c p|anning. and
jaci|iiu ccnsirainis
Undersland lhe roIe of lhe scheduIing deparlmenl
in deveIoping and coordinaling lhe scheduIe
pIanning process
Describe such unique probIems facing scheduIers
as lrafc ov, sensilivily lo scheduIe saIabiIily,
operalionaI difcuIlies of ad|usling scheduIes, and
lhe nanciaI Ieverage of Ioad faclors
IxpIain lhe four basic scheduIe lypes
Discuss lhe advanlages and disadvanlages of hub-
and-spoke scheduIing

343
INTRODUCTION
Anyone vilhoul lhe mind of a compuler, lhe palience of Iob, or lhe abiIily lo compromise
need nol appIy. This sign shouId be on lhe door of every airIines scheduIing deparlmenl.
ScheduIes represenl one of lhe primary producls of an airIine and cerlainIy lhe Ieading
faclor in a passengers choice of a parlicuIar carrier. ScheduIing may aIso be one of lhe
mosl difcuIl |obs in any airIine. ScheduIing is one of lhe mosl vilaI funclions in lhe
businessas imporlanl as forecasling, pricing, eel pIanning, or nancing. As ve shaII
see, a scheduIe can make or break an airIine.
THE MISSION OF SCHEDULING
Whal is lhe mission of scheduIing` Il is as broad as lhe mission of lhe airIine ilseIf. An
airIine has lhe responsibiIily lo provide adequale service lo lhe cilies il serves: an airIine
musl aIso, of course, operale efcienlIy and economicaIIy. Therefore, in ils scheduIing
praclices, airIine managemenl musl conlinuaIIy search for lhe baIance belveen adequale
service and economic slrenglh for lhe company. AirIine scheduling can be dened as lhe
arl of designing syslemvide ighl paerns lhal provide oplimum pubIic service, in bolh
quanlily and quaIily, consislenl vilh lhe nanciaI heaIlh of lhe carrier.
The pubIic service and economic aspecls of scheduIing musl be baIanced vilh olher
faclors, incIuding lhese:
1. |uipncni nainicnancc. A separale mainlenance-rouling pIan musl be dravn up for
each lype of aircrah in lhe eel. AII rouling pIans musl be coordinaled lo provide lhe
besl overaII service. Mainlenance of airpIanes requires lhal cerlain slalions be pro-
vided vilh faciIilies and personneI for periodic mechanicaI checks. Concenlralion of
mainlenance al onIy a fev slalions is desirabIe, and il is Iikevise desirabIe lo uliIize
fuIIy lhe faciIilies provided by pIanning an even ov of mainlenance vork.
2. Crcus. Assuming lhal aII caplains, rsl ofcers, ighl engineers, and ighl aendanls
have had adequale lraining on each lype of airpIane and over lhe roules lo be ovn,
lhere are aIvays consideralions of uliIizalion and vorking condilions. Cerlain crev
roulings musl be foIIoved lo mainlain efcienl monlhIy uliIizalion: crev roulings
lhal vouId require excessive ying vilhoul proper resl cannol be used.
3. |aci|iiics. Gale space on airporl ramps musl be adequale. TerminaI capacily, incIuding
lickel counlers, baggage-handIing areas, and vailing rooms, musl be expanded lo
meel groving markel requiremenls. Access roadvays lo and from airporls musl
be adequale. Airporl capacily, incIuding runvays, laxivays, and navigalionaI aids,
eslabIishes an upper Iimil on operalions.
4. Markciing jacicrs. Markeling faclors are numerous, incIuding such characlerislics
as markel size, lrip Ienglh, lime zones invoIved, and proximily of lhe airporl lo lhe
markel served.
5. Oincr jacicrs. SeasonaI varialions in vind paerns require dierences in summer
and vinler ying limes on cerlain roules (usuaIIy easlvesl): hovever, some airIines
A I R T R A N S P O R TAT I O N 3 4 4
use conslanl year-round ying limes on roules vhere varialions in vind componenls
are negIigibIe (usuaIIy norlhsoulh roules). In addilion, on many segmenls, variabIe
limes are used lo aIIov, lo some exlenl, for anlicipaled deIays during periods of heavy
air lrafc.
IxlernaI faclors musl be laken inlo consideralion by lhe scheduIing deparlmenl. Air
freighl shippers and lhe U.S. IoslaI Service have scheduIe preferences. Airporl aulhorilies,
seeking a smoolh ov of lrafc lo oplimize uliIizalion of faciIilies, viII discourage peaking:
in recenl years, cerlain Iarge airporls have assigned quolas (ighl sIols) lo carriers during
cerlain lime periods. LocaI communilies near an airporl viII voice slrong opposilion lo
ighl deparlures before 7:00 .. and aher 11:00 .. HoleI and moleI operalors generaIIy
prefer lhal aII guesls check in and check oul belveen 11:00 .. and 1:00 .. Iigure 12-1
is a concepluaI framevork for lhe scheduIing process lhal shovs aII lhese eIemenls.
Iiclure a cily vilh a Iarge melropoIilan airporl, anolher airporl vilh shorl runvays and
a lerminaI handIing onIy one ighl al a lime, and anolher airporl buslIing vilh muIlipIe
conneclions. Invision a mainlenance base geared lo accepl aircrah al prescribed lime
inlervaIs for various mainlenance checks, from rouline inspeclion lo ma|or overhauI.
As lhe piclure begins lo unfoId, you see scheduIing as a vilaI and compIex funclion
lhal culs across every aspecl of an airIine operalion. Il is so vilaI, in facl, lhal scheduIing
Competitive schedules
Airport authorities
curfews
slots
other restrictions
Equipment maintenance
requirements
Internal Factors External Factors
Flight operations
airport runway lengths
fuel capacity
air traffic control and routings
crew availability
Schedule Development
by Scheduling Department
Facility constraints
gate positions
ticket-counter space
baggage handling
ground equipment
food service
Marketing factors
traffic flow
sensitivity of schedule salability
other operating factors
load factors
U.S. Postal Service
Local communities
Carrier schedule
Hotel and motel
operators
Travel agents
Air freight shippers
FIGURE 12-1 Conceptual framework for the schedule development process.
C H A P T E R 1 2 P R I N C I P L E S O F A I R L I N E S C H E D U L I N G 3 4 5
EQUIPMENT MAINTENANCE
The primary purpose of lhe mainlenance organizalion of an airIine is, of course, lo
provide a safe, saIabIe aircrah for every scheduIe. This vouId be simpIe if lhe carrier
had an unIimiled number of airpIanes, unIimiled faciIilies, and unIimiled personneIaII
Iocaled al every poinl on lhe syslem. ul il does nol, and so il musl slrive for a number
of maintenance efciency goals: (1) minimize aircrah oul-of-service lime, (2) use up
lime aIIovabIe on aircrah and parls belveen overhauIs, (3) seek oplimum uliIizalion of
personneI and even vorkIoad, and (4) maximize uliIizalion of faciIilies. These goaIs do
nol aecl safely, of coursesafely can never be sacriced lo meel a scheduIe. You can see,
hovever, lhe impIicalions lhese goaIs have for lhe scheduIe pIanner. Lels examine lhem
cIoseIy.
1. Oui-cj-scrticc iinc. ecause lhe prolabiIily of an aircrah depends lo a Iarge exlenl
on ils daiIy uliIizalion or avaiIabiIily, lhe carrier musl do everylhing il can lo design
a mainlenance syslem lhal provides a high slandard of mainlenance yel minimizes
oul-of-service lime. If lhis can be done onIy al lhe expense of safely and dependabiI-
ily consideralions, lhe airIine musl eilher reduce pIanned aircrah uliIizalion lo aIIov
adequale mainlenance or improve lhe producl unliI il meels lhe goaIs.
2. A||cua||c iinc. The carrier shouId uliIize lhe maximum lime aIIovabIe in lhe various
inspeclion and overhauI programs. This ilem represenls a very Iarge cosl variabIe in
an airIines operalion. Again, hovever, lhis musl be done vilh lhe rsl ob|eclive in
mindminimum oul-of-service lime.
is performed by lop managemenl coIIecliveIy. There is a chief archilecl, lo be surelhe
scheduling department, headed by a vice-presidenl or direclor, depending on lhe size or
organizalionaI makeup of lhe company. Wilh lhe exceplion of some of lhe ma|or carriers,
vhich incIude scheduIing as parl of lhe corporale economic pIanning adminislralion,
mosl scheduIing deparlmenls are under lhe markeling adminislralion because of lhe
overriding imporlance of service lo lhe pubIic. In deveIoping a syslem ighl paern or
scnc!u|c p|ci. as il is somelimes referred lo, lhe scheduIing deparlmenl vorks cIoseIy vilh
aII olher deparlmenls and vilh aII eId slalions.
In addilion lo ils ovn conlinuing reviev, lhe deparlmenl conlinuaIIy receives
suggeslions and proposaIs from IocaI-slalion personneI and lhe pubIic. Wilh knovIedge
of lrafc voIumes and paerns, numbers and lypes of aircrah on hand and lo be deIivered,
mainlenance requiremenls, operalionaI faclors, and scores of olher consideralions, lhe
scheduIing deparlmenl, aher veeks and ohen monlhs of pIanning, deveIops a proposed
syslem scheduIe. This is lhen submied lo aII appropriale deparlmenls for sludy.
Many airIines use lhe commiee system, in vhich ofciaIs from aII operaling
deparlmenls meel lo anaIyze lhe proposed scheduIe, make suggeslions, and resoIve
conicls belveen deparlmenls. Whelher lhe commiee syslem or some olher melhod of
inlerdeparlmenlaI coordinalion is empIoyed, lhe resuIl is lhe same: a scheduIe lhal meels
lhe combined goaIs of pubIic service, saIes and compelilive eecliveness, prolabiIily,
and operalionaI dependabiIily and efciency.
A I R T R A N S P O R TAT I O N 3 4 6
3. Pcrscnnc| an! ucrk|ca!. In performing any inspeclion, repair, or overhauI, lhe carrier
requires eilher IAA-Iicensed personneI or highIy lrained speciaIislsengineers,
pIanners, inspeclors, and a hosl of olhers. ecause lhe overhauI base payroII for a
ma|or air carrier runs inlo miIIions of doIIars each year, il is imporlanl lo keep cosls
dovn if lhe carrier is lo achieve maximum uliIizalion of ils peopIe. An airIine aIso
musl mainlain an even vork ov, because lhese speciaIisls and lechnicians require a
high degree of lraining and experience and are nol readiIy avaiIabIe in lhe open Iabor
markel.
4. Usc cj jaci|iiics. The carrier musl uliIize faciIilies lo lhe maximum exlenl possibIe, be-
cause of ils subslanliaI inveslmenl in buiIdings, looIing, and speciaIized equipmenl.
Lels examine a hypolhelicaI mainlenance syslem and some of lhe probIems of
mainlenance scheduIing. TabIe 12-1 Iisls lhe various inspeclion and overhauI periods used
loday for a Iarge |el aircrah, incIuding lhe lime belveen inspeclions, lhe hours required lo
accompIish lhe vork, lhe eIapsed or oul-of-service lime required, and lhe vork performed.
Here, ve have assumed a normaI amounl of nonrouline, unscheduIed vork. In order lo
provide maximum exibiIily for aircrah rouling and lo keep lhe mainlenance syslem as
simpIe as possibIe, lhe mainlenance deparlmenl aempls lo scheduIe aII nev or revised
mainlenance needs inlo lhese mainlenance inspeclion periods. The onIy exceplions are
lhe engines and olher expensive componenls, such as lhe lurbo-compressor or auxiIiary
pover unil. In lhese cases, lhe lime is monilored on each unil and lhe unil is overhauIed
vhen il reaches lhe specied lime. Nole lhal lhese numbers are never slalic, because
TABLE 12-1 Maintenance System for a Jet Aircraft (hypothetical example)
Timeelveen
Inspeclion Inspeclions Labor Duralion WorkIerformed
Inrouleservice Iachslop hour hour WaIkaroundvisuaIinspeclion
loensurenoobviousprobIems
suchasIeaksmissingrivelsor
cracks
Overnighl hours Varies Uplohours Adhocrepairsvorkvaries
Acheck hours hours hours IrimaryexaminalionfuseIage
exleriorpoverpIanland
accessibIesubsyslemsinspecled
check hours hours Overnighl InlermedialeinspeclionpaneIs
covIingsoiIIlersandairframe
examined
Ccheck hours hours days DelaiIedinspeclionenginesand
componenlsrepairedighl
conlroIscaIibraledandma|or
inlernaImechanismslesled
Dcheck hours hours days Ma|orrecondilioningcabin
inleriorsremovedighlconlroIs
examinedfueIsyslemprobed
andmore
C H A P T E R 1 2 P R I N C I P L E S O F A I R L I N E S C H E D U L I N G 3 4 7
mainlenance conlinuaIIy revises lhe vork lo be accompIished and lhe vork is periodicaIIy
evaIualed, based on service experience as veII as lhe experience of olher operalors.
Iigure 12-2 shovs lhe mainlenance capabiIily of lhe various slalions on a ma|or carriers
syslem. A simiIar selup exisls on every ma|or airIine. On lhis map, lhe bIocks indicale lhe
lype of vork or inspeclion lhal can be performed al lhe various slalions. There are lvo ilems
lo consider: (1) any slalion accompIishing service or mainlenance checks requires nol onIy
hangars and looIing bul aIso miIIions of doIIars in spare parls (for a ma|or carrier), and (2)
each slalion aIso requires highIy skiIIed mechanicaI and lechnicaI personneI. As Iigure
12-2 shovs, lhere are eighl slalions capabIe of accompIishing -checks and lhree slalions
capabIe of doing C-checks. In addilion, lhe overhauI base is Iocaled al San Irancisco.
To furlher iIIuminale lhe probIems invoIved in mainlenance rouling, Iigure 12-3
shovs lhe pIanned rouling paern for a 757 on a ma|or carriers syslem, incIuding lhe
various poinls al vhich lhe necessary inspeclions can and viII be conducled. ecause lhe
inspeclion periods aIIoved are maximum limes, lhe aircrah rouler musl have lhe airpIane
al an inspeclion slalion before ils lime expires, or lhe carrier musl oblain a ferry permil
from lhe IAA lo move lhe airpIane lo lhe correcl slalion.
This paern, vhich is ideaI, shovs lhe probIem lhal exisls if lhe airpIane has a
mechanicaI breakdovn, for exampIe, in Des Moines (DSM) or is aecled by vealher al
lhal poinl. The rouler musl lhen subslilule anolher aircrah for lhe airpIane in queslion.
Moreover, a lied-up airpIane is nov o lhe lrack lhal vas designed lo aIIov lhe carrier
lo accompIish aII required inspeclions and componenl repIacemenls and lo lime engine
changes vilh maximum uliIizalion of lhe overhauI period.
ScheduIe pIanners musl lake inlo accounl lhe mainlenance deparlmenls pIans
and syslems for efciency. Of course, lhis is a lvo-vay slreel. When lhe mainlenance
organizalion makes cerlain changes in lhe vay il does lhings, lhis, loo, can aecl lhe
scheduIing deparlmenl. Therefore, lhe mainlenance peopIe and lhe scheduIing pIanners
in any airIine mainlain a cIose, day-lo-day reIalionship.
1
2
3
LAX
1
2
3
4
5
1
2
3
4
5
En route service and overnight
A-check
B-check
C-check
D-check
SFO
1
2
SLC
1
2
3
DEN
1
2
3
OMA
1
2
CLE
1
2
3
4
DCA
1
2
3
EWR
1
2
LGA
1
2
3
4
ORD
1
DSM 1
YIP
1
2
PDX
1
2
3
SEA
FIGURE 12-2 Maintenance facilities (hypothetical case).
A I R T R A N S P O R TAT I O N 3 4 8
SFO
OVL
System Stations
LAX SEA DEN DSM YIP EWR LGA
PDX SLC OMA ORD CLE DCA
En route service
and overnight check
A- and B-checks
C-check
FIGURE 12-3 Boeing 757 routing pattern (hypothetical case).
FLIGHT OPERATIONS AND CREW SCHEDULING
ecause airIine scheduIes, once pubIished, musl be ovn by lhe companys ighl crevs,
lhe ighl-operalions deparlmenl musl ensure lhal ighls are scheduIed in a fashion lhal
viII permil lhem lo be safeIy and efcienlIy operaled. The foIIoving operational factors
are imporlanl in scheduIe pIanning:
Airporl runvay Ienglhs
Aircrah fueI capacily
HabiluaI adverse vealher
Air lrafc conlroI and roulings
Crev lime Iimils
ImpIoyee agreemenls
ObviousIy, airporl runvay Ienglhs, aircrah fueI capacilies, and so forlh aecl
scheduIing decisions. Olher Iess obvious bul equaIIy imporlanl faclors in drahing
scheduIes incIude vealher, aircrah roulings, and ighl crev scheduIing.
In lhis sense, lhe lerm ucaincr is used lo describe lhe lype of condilion lhal occurs
ordinariIy al a specic IocaIe during cerlain limes of lhe day or seasons of lhe year. Ior
exampIe, in vinler monlhs, vealher may make il inadvisabIe lo overnighl an aircrah in a
parlicuIar norlhern cily vhere hangar faciIilies are nol avaiIabIe. AIlhough overnighling
mighl faciIilale lhe operalion of a desirabIe Iale-evening arrivaI and earIy-morning
deparlure, lhe need lo remove snov and ice from lhe aircrah aher a slorm mighl make
such an operalion impraclicaI. Cerlain areas of lhe counlry, such as lhe GuIf Coasl, do nol
C H A P T E R 1 2 P R I N C I P L E S O F A I R L I N E S C H E D U L I N G 3 4 9
Iend lhemseIves lo dependabIe on-lime or safe operalions because of lhe IikeIihood of fog
from shorlIy aher midnighl unliI somelime before noon. Ohen, ighls scheduIed during
lhis period musl be deIayed or canceIed or, if operaled, reslricled in Ioad because of lhe
excess fueI reserves required for safely.
A second operalionaI faclor concerns air lrafc conlroI (ATC). ATC roulings ohen diclale
Ionger ighl limes belveen lvo poinls lhan normaI. In addilion, cerlain ighl segmenls
are sub|ecled lo roule cIosures and resuIlanl lime-consuming and coslIy diversion by
miIilary aclions.
One of lhe mosl imporlanl and compIex faclors aecling ighl operalions is lhal of
crev assignmenl lo specic ighls. The vorking Iimilalions lhal govern ighl crevs are
found in bolh lhe IederaI Avialion ReguIalions (IAR) and empIoymenl agreemenls. The
IAR Iimils are as foIIovs:
1. There is a daiIy Iimilalion of 16 hours maximum ighl duly lime for piIols on a lvo-
person crev, unIess, prior lo exceeding 16 hours, a resl period is provided of no Iess
lhan 10 hours. Therefore, an increase of onIy a fev minules lo a scheduIe, or lhe ad-
dilion of one exlra slalion, mighl force a crev break and Iayover nol olhervise neces-
sary. Duly lime incIudes pIanned ighl lime, laxi lime, knovn deIays, and debrief
lime. Aher push back, lhe piIol musl relurn lo lhe gale if exlended ground deIays
vouId cause duly lo exceed 16 hours al lhe eslimaled reIease lime.
2. IIighl crev members musl have had al Ieasl 8 hours of resl in any 24-hour period lhal
incIudes a ighl lime.
3. IIighl crevs may nol exceed a maximum of 40 ighl hours during any seven con-
seculive days. ReIease from aII duly for 24 hours musl be granled lo each ighl crev
member during any seven-conseculive-day period.
ImpIoymenl conlracls compound lhe difcuIlies. Mosl airIine conlracls provide
lhal one hour of ighl pay musl be paid for every four hours a piIol spends avay from
lhe domiciIe. This lime is frequenlIy nol ovn: lherefore, piIols are frequenlIy paid for
lime nol ovn. These conlracls aIso require lhal lhe airIine bear lhe expense of lraining
olhervise unneeded crevs. And mosl airIine agreemenls provide a maximum of 80 hours
ighl lime during any monlh for lheir piIols.
An operalions managers dream is lo be handed a scheduIe lhal permils aII crevs lo
operale ighls on a direcl lurnaround basis vilh no Iayover probIems or expense. This is
manifeslIy nol possibIe, bul every aempl musl be made in lhe inleresl of crev uliIizalion
and economy lo minimize Iayovers. Average ighl crev uliIizalion for some of lhe ma|or
carriers vilh inlricale roule slruclures goes as Iov as 55 hours per crev member per
monlh.
Seniorily, Iabors mosl vaIued assel, is managemenls biggesl headache vhen il comes
lo lraining and assigning ighl crevs. The never, fasler pIanes generaIIy are ovn by
lhe mosl senior crevs, vho earn lhe highesl vages. Therefore, moving dovn lhrough
lhe ranks, lhe mosl |unior caplains and rsl and second ofcers y lhe smaIIer, sIover
pIanes.
Were aII crevs based al a singIe Iocalion, lhe |ob of scheduIing vouId be much easier.
This is nol, hovever, physicaIIy or economicaIIy praclicaI, and so lhe ma|orily of airIines
assign crevs lo y from one of severaI individuaI crev bases. A lypicaI ma|or carrier may
A I R T R A N S P O R TAT I O N 3 5 0
base crevs al onIy 7 of lhe 40 cilies serviced. Which ighls are lo be ovn by crevs from
vhich bases are delermined by lhe company, bul many faclors inuence such decisions.
The equipmenl quaIicalions of lhe crevs aIready assigned lo each base, lhe crev expenses
incurred if lhe ighl is ovn from lhal base, lhe seniorily of lhe crevs compared vilh
lhose al olher bases on lhe ighl roule, lhe IikeIihood of crevs requesling reassignmenl
if lrips are nol lo lheir IikingaII of lhese faclors enler inlo a decision. An airIine has lo
lake a good hard Iook before impIemenling a scheduIe lhal viII require addilionaI crevs
lo be lrained vhen sufcienl numbers aIready exisl lo meel lhe maximum uliIizalion of
lhe avaiIabIe equipmenl.
GROUND OPERATIONS AND FACILITY LIMITATIONS
Ground service can be arranged in any conceivabIe scheduIe paern, provided lhal lhere
is no Iimilalion on lhe gale posilions, ground equipmenl, passenger service faciIilies, and
personneI. ul, of course, lhere are Iimilalions. Iirsl, il is physicaIIy impossibIe lo oblain
adequale faciIilies in many inslances vilhin a reasonabIe period of lime. Ior exampIe,
addilionaI gale posilions al Iorl LauderdaIe/HoIIyvood InlernalionaI Airporl are virlu-
aIIy impossibIe lo oblain. Second, lhere is lhe maer of cosl. The scheduIe pIanner musl do
lhe ulmosl lo avoid excessive ighl congeslion, in viev of such cosl ilems as lhese:
$400,000 for ground supporl equipmenl al an inlermediale slalion, and approximaleIy
doubIe lhis gure for lvo |el ighls al lhe same lime
$2 miIIion for conslruclion of each added gale posilion, incIuding lhe Ioading bridge, al
a lypicaI ma|or airporl
The ob|eclive of ground service, lhen, becomes lo accommodale as many ighls as
possibIe and as efcienlIy as possibIe, consislenl vilh physicaI Iimilalions and prudenl
uliIizalion of personneI and equipmenl. The scheduIe pIanner musl consider aII of lhe
foIIoving al every slalion for every proposed scheduIe:
1. Are lhere enough gale posilions for lhe number of pIanes on lhe ground simuIlane-
ousIy, incIuding a cushion for earIy arrivaIs or deIayed deparlures`
2. Is lhere adequale lickel-counler space lo handIe lhe passengers expediliousIy`
3. Is sufcienl lime provided for on-Iine or inlerIine lransfer of passengers, baggage,
maiI, and cargo`
4. Can lhe pIanned ighls be handIed efcienlIy by lhe presenl IeveI of lickel-counler,
ramp, and food service personneI` If nol, viII addilionaI revenue from lhe nev
ighls or lhe nev conneclion be sufcienl lo more lhan osel lhe cosl of addilionaI
personneI`
5. WiII lhe proposed scheduIes inlroduce a second or a lhird personneI shih` ConverseIy,
viII a minor ighl ad|uslmenl permil lhe reduclion of one shih`
C H A P T E R 1 2 P R I N C I P L E S O F A I R L I N E S C H E D U L I N G 3 5 1
time
1000
0930
0900
0830
0800
0730
0700
0630
Flight A
Flight C
Flight D
thru
trip
turn-
around
1 2
Gates
Flight B
departure
at gate
arrival
departure
at gate
arrival
departure
at gate
arrival
departure
at gate
departure
at gate
arrival
departure
at gate
arrival
at gate
arrival
at gate
arrival
thru
trip
origin
flight
Flight E
thru
trip
Flight F
thru
trip
Flight G
thru
trip
Flight H
termina-
tion
flight
3 4
FIGURE 12-4 Station plotting for the hypothetical All-American Airport.
6. Is lhere ground equipmenl of lhe righl lype: aircrah slarler unils, baggage vehicIes,
cargo conveyors, forkIihs, lov lraclors` If nol, is lhere sufcienl Iead lime lo purchase
lhem, and can lhey be economicaIIy |uslied` ShouId lhe carrier conlracl lhese services
from anolher carrier because of lhe smaII number of ighls inlo a parlicuIar slalion`
7. Does lhe proposed scheduIe overlax food service faciIilies`
These and many olher queslions musl be ansvered for every slalion on lhe syslem
for every scheduIe change. Any correclive aclionand lhere is aIvays a need for ighl
ad|uslmenls lo meel ground service requiremenlsmusl be rechecked lo delermine
ils eecl on lhe deIicale baIance vorked oul lo accommodale saIes, mainlenance, and
operalionaI needs and lo make sure lhal correclive ad|uslmenls al one slalion are nol
crealing compIicalions al anolher.
NormaIIy, lhe scheduIing deparlmenl measures lhe physicaI and personneI
requiremenls vilh a visuaI Iayoul of lhe scheduIes al each slalion. AII ighls are pIoed
on a station ploing chart lhal documenls sequence and scheduIe lime of operalion using
cerlain slandards and codes (see Iigure 12-4). Il shovs preciseIy lhe amounl of lime an
aircrah requires lo maneuver inlo a gale posilion, lhe scheduIed arrivaI lime, lhe period
of lime il is al lhe gale, ils scheduIed deparlure lime, and lhe Ienglh of lime needed lo
cIear lhe gale. The charl aIso shovs vhelher il is an originaling ighl, a lhrough lrip, a
lerminaling ighl, or a lurnaround. Iigure 12-4, a seclion laken from a scheduIe paern,
iIIuslrales peak and vaIIey periods al lhe hypolhelicaI AII-American Airporl (AAA). Il
iIIuslrales cIearIy one of scheduIings biggesl headachespeaking, or muIlipIe operalion.
Such peaks musl be reduced vherever possibIe lo achieve lhe goaI of oplimaI uliIizalion
of personneI and equipmenl vilhoul sacricing service or revenue.
Aher posling proposed ighl limes on lhis charl, lhe scheduIing deparlmenl musl rsl
delermine lhal il has nol exceeded lhe gale capabiIily. Therefore, lhe rsl ad|uslmenls
are lhose necessary lo bring scheduIe limes inlo Iine vilh avaiIabIe physicaI faciIilies. Al
AAA, for exampIe, lhe carrier has four gale posilions. Al around 8:00 .., lhey are aII
A I R T R A N S P O R TAT I O N 3 5 2
fuII. ObviousIy, any addilionaI ighl vouId have lo be scheduIed eilher before or aher
lhis peak period. On lhe olher hand, if lhe addilionaI ighl is more imporlanl lhan
lhe exisling ighls, lhen lhe carrier musl consider moving an exisling ighl earIier or
Ialer.
ScheduIing is somelimes reslricled by lickel-counler space. Ior exampIe, if a carrier
had onIy four lickeling posilions al a ma|or Iocalion and one lickel agenl couId check
in aboul 20 passengers an hour, lhe four lickel posilions couId handIe one 757 ighl.
ul if lhe carrier vanled lo scheduIe lhree |el deparlures vilhin a 45-minule period, il
vouId have severaI aIlernalives. The carrier couId, of course, go ahead and scheduIe lhese
lhree ighls, al considerabIe inconvenience lo lhe passengersforcing lhem lo sland in
Iine much loo Iongas veII as al risk of |eopardizing on-lime deparlures. The preferred
soIulion vouId be nol lo scheduIe lhe lvo added lrips unliI lhe carrier had expanded ils
lickel-counler faciIilies.
Slalion slafng is delermined by appIicalion of lime-sludy slandards and formuIas.
These have been deveIoped and are appIied much lhe same as any manufaclurers
produclion Iine lime and vorkIoad slandards. ScheduIers use separale slandards and
formuIas for lickel counlers, ramp and Ioad conlroI, ramp cargo handIing, food service,
and freighl faciIilies.
Like personneI slafng, ighl peaking presenls a ma|or probIem for lhe efcienl
uliIizalion of ground equipmenl. Ground equipmenl cosls lo handIe peak lrafc can run inlo
lhe miIIions of doIIars al any one Iocalion. UnderslandabIy, carriers are anxious lo reduce
lhese requiremenls if lhey can do so vilhoul aecling olher cosls or revenues or service.
Whenever a carrier changes scheduIes or adds ighls, adequacy of ground equipmenl musl
be checked cIoseIy, nol onIy because of expense bul aIso from lhe slandpoinl of Iead lime.
In concIusion, lhe scheduIe pIanner conlends vilh a variely of chaIIenges in lhe ground
operalions area, many of lhem conicling. ScheduIing is IileraIIy hemmed in by space
Iimilalions. Yel pIanners musl nd gale posilions for lhe essenliaI ighl compIexes. They
musl keep personneI cosls al a minimum bul al lhe same lime sla for ighl conneclion
opporlunilies lo maximize service lo lhe pubIic. And lhey musl avoid nev capilaI oulIays for
expensive ground equipmenl yel do everylhing possibIe lo enabIe ighl peaking al limes
vhen passenger demand is grealesl.
Ivery silualion has lo be sludied separaleIy al each of lhe carriers slalions, vilh every
ilem of added cosl veighed againsl lhe eslimaled added revenue. No decision can be
made vilhoul carefuIIy assessing ils consequences.
SCHEDULE PLANNING AND COORDINATION
Thus far, ve have discussed lhe parlicuIar probIems faced by mainlenance, ighl
operalions, and ground operalions. Iach oers a muIlilude of requiremenls for lhe
scheduIe pIanner lo lake inlo consideralion. The responsibiIily for scheduIe deveIopmenl
is lhe province of lhe scheduIing deparlmenl, vhich is generaIIy vilhin lhe markeling
adminislralion and vhich oversees lhe enlire syslem. This deparlmenl musl puII logelher
aII of lhe faclors discussed so far, pIus many more. Iusl hov a carrier goes aboul lhis lask
is lhe focus of lhis seclion.
Nolhing is more basic lo an airIine lhan lhe scheduIe paern il operales. AII produclive
resourcespIanes, lrained personneI, and ground faciIilieshave lhe one essenliaI
funclion of operaling lhe scheduIe safeIy and dependabIy. AII seIIing resourceslhe
C H A P T E R 1 2 P R I N C I P L E S O F A I R L I N E S C H E D U L I N G 3 5 3
Traj c || cu
The concepl of trafc owor lhe number of originaling and connecling passengers on
a parlicuIar rouleis videIy recognized: lhe degree of ils imporlance is nol sufcienlIy
underslood. Smoolh lrafc ov heIps lo expIain scheduIes lhal seem quile excessive in
reIalion lo origin-deslinalion lrafc. Lels lake a hypolhelicaI exampIe of a 737 operaling
from Chicago lo Delroil, Rochesler, and Syracuse (see Iigure 12-5). This ighl averages
carriers lickel ofces, reservalions ofces, saIes represenlalives, markelershave lhe one
essenliaI funclion of geing passengers and shippers lo use lhe scheduIe. Lels lake a Iook
al some of lhe probIems and compIexilies of deveIoping a sound overaII scheduIe paern
in lhese heclic posldereguIalion limes.
Al lhe oulsel, Iel us recognize lhe sheer impossibiIily of deveIoping a scheduIe paern
lhal viII simuIlaneousIy salisfy aII desirabIe ob|eclives. Many of lhese ob|eclives are
inherenlIy in conicl. Ior exampIe, a carrier musl provide enough lime on lhe ground for
mainlenance and servicing operalions vhiIe al lhe same lime keeping aircrah in lhe air
as much as possibIe for economicaI uliIizalion. Il musl buiId up compIexes of connecling
ighls al ma|or galevays vhiIe al lhe same lime avoiding excessive peaking of slalion
aclivily. Il musl mainlain scheduIe slabiIily for lhe convenience of passengers and lhe
oplimaI uliIizalion of empIoyees vhiIe al lhe same lime dispIaying lhe exibiIily needed
lo ad|usl rapidIy lo nev compelilive lhreals or olher deveIopmenls. Il musl recognize lhal
pubIic service obIigalions viII somelimes vork againsl slriclIy economic consideralions
vhiIe al lhe same lime remembering lhal il couId nol provide any service vilhoul a sound
nanciaI posilion.
IrobabIy lhe scheduIe pIanners mosl imporlanl funclion is lo evaIuale aII of lhese
varied and parliaIIy conicling ob|eclives and come oul vilh lhe oplimaI baIance belveen
lhese severaI goaIs. Some of lhe probIems faced by a scheduIe pIanning deparlmenl are
comparabIe lo lhose lhal many olher induslries face in lheir ovn respeclive producl
pIanning:
1. Delermining lhe size of a given markel and pro|ecling ils fulure grovlh
2. Islimaling lhe eecl of pIanned producl changes on lhe size of lhe lolaI markel and
on lhe carriers ovn share of lhe markel
3. Aempling lo forecasl vhal lhe compelilion may do and deveIoping a pIan of aclion
lo meel such compelilive lhrusls
4. Islimaling lhe cosls and revenues of lhe aIlernalive pIans of aclion lo delermine
vhich viII be prolabIe
ul lhe compIexilies of airIine scheduIing exlend far beyond lhese probIems. Many
airIine markeling probIems are unique, slemming from lhe speciaI nalure of lhe business.
IrincipaI among lhese are (1) lhe probIem of lrafc ov, (2) lhe sensilivily of scheduIe
saIabiIily lo even minor dierences in deparlure limes or olher faclors, (3) lhe operalionaI
difcuIly of accompIishing scheduIe ad|uslmenls as desired, because of probIems of lime
zones, slalion personneI, equipmenl lurnaround, and lhe chain reaclion eecl, and (4) lhe
nanciaI Ieverage of Ioad faclors.
A I R T R A N S P O R TAT I O N 3 5 4
Total flow = 60 passengers
15 passengers
14 passengers
16 passengers
15 passengers
Detroit Rochester Syracuse Chicago
FIGURE 12-5 Trafc ow (hypothetical data).
aboul a 60 percenl Ioad faclor on lhe Ieg from Delroil lo Rochesler, bul lhis is possibIe
onIy because of four separale, and aImosl equaI, lrafc ovs. No singIe lrafc ov, or
combinalion of lvo lrafc ovs, vouId be adequale lo supporl economicaI service. y lhe
same loken, lhis ighl couId nol economicaIIy overy Delroil or Rochesler, as lhere vouId
nol be enough lrafc ov remaining.
The scheduIe pIanner musl lake advanlage of lrafc ov opporlunilies bul cannol vave
a magic vand lo creale such opporlunilies. y ils very nalure, lrafc ov varies from case
lo case, depending on geography, roule slruclure, and aIlernalive service avaiIabIe. Some
cilies, because of favorabIe geography, oblain maximum benel from lrafc ov: olhers
do nol. An airIine cannol change lhis, and a carrier cannol generaIize lhal Cily A can
supporl a cerlain lype of service simpIy because Cily receives such service.
A fev years ago, a roule such as ChicagoLos AngeIes received lrafc ov supporl from
lhe Los AngeIes-bound passengers coming from ma|or poinls in lhe norlheasl, incIuding
Nev York, oslon, IhiIadeIphia, CIeveIand, and Washinglon, D.C. Today, direcl nonslop
service from lhese olher poinls lo Los AngeIes has drained avay much of lhe lrafc ov
lhal formerIy moved over lhe Chicago galevay. And lhis same deveIopmenl is laking
pIace conlinuousIy lhroughoul lhe air lransporl syslem.
This conslilules anolher reason for lhe impossibiIily of generaIizing aboul lrafc ov
and aboul lhe lype of service a communily can economicaIIy supporl. Nol onIy does
lrafc ov vary from cily lo cily because of geography and roule slruclure, bul even for a
singIe cily lhe ov varies from year lo year, depending on lhe lype and voIume of nonslop
service lhal may be bypassing lhal cily.
Scnc!u| c Sa| a|i | i iu
The second of lhe speciaI compIexilies of airIine scheduIing is lhe facl lhal scheduIe
saIabiIily is highIy sensilive lo even minor dierences in deparlure lime or olher faclors.
Ouile ohen, severaI key personneI viII spend severaI days lrying lo vork oul a change of
|usl 15 minules or haIf an hour in lhe deparlure lime of a lransconlinenlaI |el. This is nol
lime misspenl: experience has shovn lhal even such minor ad|uslmenls can signicanlIy
aecl lhe success of a ighl.
C H A P T E R 1 2 P R I N C I P L E S O F A I R L I N E S C H E D U L I N G 3 5 5
7:00 P.M. 111
Passengers on ChicagoNew York Jet
8:00 P.M. 90
9:00 P.M. 66
FIGURE 12-6 Schedules are sensitive to departure time (hypothetical data).
The reason is lhal scheduIe convenience ranks high among lhe compelilive eIemenls
aecling lhe lraveIers choice of an airIine. LoyaIly lo a parlicuIar airIine viII nol normaIIy
cause a passenger lo sil around an airporl an exlra hour or lo miss a business appoinlmenl
or lo vake up earIier lhan usuaI if a compelilor oers a viabIe aIlernalive.
The speed of lodays |el aircrah has inlensied lhe imporlance of specic deparlure limes.
The dierence belveen a 5:00 .. and a 6:00 .. deparlure vas of minor consequence for
a lraveIer confronled vilh a lhree-day lransconlinenlaI lrain lrip. Nor did il make much
dierence vhen lhe induslry vas deaIing vilh DC-3s lhal look 20 or so hours lo y coasl
lo coasl. ul lhe same one-hour dierence becomes vaslIy imporlanl vilh lodays |els,
vhen Nev York and Los AngeIes are separaled by Iess lhan ve eIapsed hours and by
Iess lhan lhree hours on lhe cIock.
The conlinuaI exlension of nonslop service has aIso increased lhe imporlance of
specic deparlure limes. Thirly years ago, oslonLos AngeIes service invoIved one-slop
scheduIes lhrough Chicago. Those scheduIes vere nol enlireIy dependenl on oslonLos
AngeIes lrafc, and if deparlure limes vere nol ideaI for such lhrough lrafc, lhey mighl
neverlheIess have been quile good for IocaI oslonChicago or ChicagoLos AngeIes
passengers.
Lel us consider some exampIes shoving lhe sensilivily of scheduIes lo dierences in
deparlure limes. A 757 operales from Chicago lo Nev York al 7:00 .., 8:00 .., and 9:00
.. ul lhe 9:00 .. ighl carries onIy aboul lvo-lhirds lhe Ioad of lhe ighl lhal deparled
one hour earIier and onIy haIf lhe Ioad of lhe ighl lhal Ieh lvo hours earIier (see Iigure
12-6).
Lels lake anolher exampIe. An airIine ying from LouisviIIe lo Nev York is forced lo
shih a ighl 20 minules Ialer, from 5:15 .. lo 5:35 .., due lo equipmenl rouling. The cily
manager in LouisviIIe advises lhal lhis viII cause lhe airIine lo Iose an average of aboul 10
passengers per day lo a compelilors 4:45 .. ighl. Hovever, lhe carrier has no praclicaI
oplion bul lo make lhe change (see Iigure 12-7).
To make scheduIe pIanning even more compIicaled, scheduIe saIabiIily nol onIy varies
by lime of day and by roule bul aIso has a dierenl paern of varialion belveen lhe lvo
direclions on lhe same roule. Ior exampIe, belveen Harlford and Nev York, an airIine
mighl oblain a much higher voIume of lrafc on a Iale deparlure norlhbound oul of Nev
York lhan il does on a Iale lrip soulhbound oul of Harlford (see Iigure 12-8). Nor does
lhe sensilivily of scheduIes slop vilh lhe maer of deparlure lime. ScheduIe saIabiIily
aIso varies vilh airporl. An airIine mighl have a 4:40 .. ighl from Nevark lo oslon,
foIIoved 15 minules Ialer by a deparlure from anolher Nev York-area airporl, La Guardia,
lo oslon. The Ioad faclor on lhe Nevark lrip mighl be aboul 20 lo 30 percenlage poinls
beIov lhal of lhe La Guardia lrip (see Iigure 12-9).
A I R T R A N S P O R TAT I O N 3 5 6
Louisville
New York
5:15 P.M. flight
changed to
10 passengers daily
lost by 20-minute
schedule change
5:35 P.M. flight
FIGURE 12-7 Schedules are sensitive to changes (hypothetical case).
y nov, one imporlanl poinl shouId be emerging from lhis discussion. AIlhough lhere
is ohen a lendency lo lhink broadIy of airIine capacily in lerms of lolaI seal-miIes, a carrier
acluaIIy deaIs vilh a highIy varied producl Iine. Ivery scheduIe an airIine operales is a
separale producl, having ils ovn speciaI markel and saIabiIily. And as compelilion gels ever
more inlense, lhe imporlance of even minor scheduIe changes becomes correspondingIy
grealer, making lhe |ob of scheduIing more compIicaled.
Al lhis poinl, lhe queslion may arise as lo vhy il shouId be parlicuIarIy compIicaled
lo ad|usl scheduIes lo achieve maximum saIabiIily. If a 15-minule or 30-minule change
in deparlure lime vouId signicanlIy improve lhe saIabiIily of some scheduIe, vhy nol
simpIy make lhal minor change` This queslion is a IogicaI one, and il Ieads lo a discussion
of lhe lhird of our generaI compIexilies of airIine scheduIing: lhe operalionaI difcuIly
of accompIishing scheduIe ad|uslmenls as desired, even vhen lhe ad|uslmenls seem
minor.
New York
Hartford
Flight B 11:10 P.M.
82 percent load factor
Flight A 10:35 P.M.
24 percent load factor
FIGURE 12-8 Schedule salability varies with direction (hypothetical case).
C H A P T E R 1 2 P R I N C I P L E S O F A I R L I N E S C H E D U L I N G 3 5 7
Scnc!u| c A!j usincnis
An airIines lolaI scheduIe paern represenls a lighlIy voven, highIy inlerreIaled slruclure.
Many aspecls are rigidIy governed by specic reguIalory or conlracluaI requiremenls,
such as lhose reIaling lo mainlenance of equipmenl, and vorking condilions of ighl
crevs, as discussed earIier in lhe chapler. Moreover, aImosl every scheduIe is inlerlvined
vilh olher scheduIed ighls because of conneclions, equipmenl rouling, or olher faclors.
These olher ighls come from, or go lo, such scaered poinls as uaIo, Chicago, Harlford,
Washinglon, CharIeslon, and DaIIas, and more ohen lhan nol, lhe abiIily lo rescheduIe
lhese olher ighls is Iimiled and a change vouId creale nev probIems eIsevhere. Lels
Iook al some hypolhelicaI exampIes of lhe Iimiling faclors al La Guardia Airporl:
1. IIighl A is our 5:00 .. deparlure lo Chicago and is parl of our hourIy paern of serv-
ice on lhal roule.
2. IIighl operales on lhe Nev YorkCincinnaliIndianapoIisChicago roule. If lhis
ighl vere moved back, a gale-congeslion probIem vouId deveIop al Cincinnali.
3. IIighl C is parl of our hourIy paern of service from Nev York lo oslon.
4. IIighl D is a muIlislop coach from DaIIas and Memphis. If il operaled Ialer, gale con-
geslion vouId deveIop al Memphis.
ObviousIy, lhese Iimiling faclors do nol mean lhal il is impossibIe lo move a hypolhelicaI
IIighl I by 15 minules. They do indicale, hovever, lhal even seemingIy minor ad|uslmenls
have a vay of seing o chain reaclions, vhich, in lhis case, mighl aecl IIighls A, , C,
and D.
Time Zones. An imporlanl faclor aecling scheduIe aclions is lhe time zone eect. The
facl lhal ve gain lhree hours on lhe cIock going veslbound and Iose lhree hours coming
easlbound has a ma|or impacl on scheduIing a |el eel. An easlbound nonslop |el from Los
AngeIes lo Nev York lakes eighl hours on lhe cIock: ve hours of ighl lime pIus lhree
hours Iosl crossing lime zones. Mosl passengers do nol Iike lo arrive al lheir deslinalion
cIose lo or aher 11:00 .. They vouId usuaIIy prefer lo y overnighl and arrive earIy in
lhe morning.
Wilh lhe eighl-hour cIock lime, any Los AngeIes deparlure al or aher 4:00 .. means
a Nev York arrivaI al or aher midnighl (see Iigure 12-10). Ior aII praclicaI purposes,
lherefore, lhe period from 3:00 .. on is unusabIe for saIabIe easlbound nonslop
Flight A
departing Newark
at 4:40 P.M.
Flight B
departing La Guardia
at 4:45 P.M.
Load Factor to Boston
95 percent
65 percent
FIGURE 12-9 Schedule salability varies with the airport (hypothetical data).
A I R T R A N S P O R TAT I O N 3 5 8
deparlures. Then, beginning al aboul 11:00 .. Los AngeIes lime, lhe carrier can scheduIe
lhe overnighl ighls. And aher lhal, il viII again have an unusabIe period, Iasling unliI
aboul 8:00 lhe nexl morning. Thus, lhe carriers choices of saIabIe easlbound deparlure
limes are eecliveIy Iimiled lo lhe period from aboul 8:00 .. lo aboul 3:00 .. and lhen
al aboul 11:00 ..
ul one olher facl musl be noled. Iquipmenl slarls arriving al Los AngeIes from
Nev Yorks morning scheduIes shorlIy aher noon. AIIoving lime lo service and lurn
lhe equipmenl, lhe pIanes become avaiIabIe for relurn lrips al aboul 2:00 .. This,
coupIed vilh lhe olher faclors, delermines lhe paern of service lhal can economicaIIy
be operaled: earIy morning service vilh equipmenl lhal lerminaled in Los AngeIes lhe
nighl before: lhen service al around 2:00 .. vilh equipmenl lhal came from lhe easl lhe
same morning: naIIy, lhe 11:00 .. deparlures vilh equipmenl lhal came from lhe easl
in lhe ahernoon.
Station Personnel. SliII anolher faclor lhal aecls scheduIing is lhe need lo minimize lhe
peaking of personneI and ground equipmenl. An exlra ground crev for a |el operalion
requires 10 lo 12 peopIe and an annuaI payroII of $400,000 or more. Wherever lhe carrier
can feasibIy avoid having lvo operalions scheduIed simuIlaneousIy, and lhus can gain
use of a singIe ground crev for lvo scheduIes, lhe carrier viII naluraIIy lry lo do so.
This ob|eclive is, hovever, inherenlIy in conicl vilh a markeling goaI of maximizing
conneclions. The carrier lherefore has lo nd lhe baIance belveen lhese lvo conicling
ob|eclives.
The scheduIing deparlmenl sla cannol aIvays leII al a gIance from ils ovn scheduIe
pIans vhelher il is crealing an inefciency of personneI uliIizalion. Iigure 12-11 shovs lhe
slalion aclivily charl used by IocaI-slalion managemenl lo lransIale lhe impacl of a given
scheduIe paern inlo slafng vorkIoad, by hour of day. This parlicuIar exampIe shovs
lhe cabin service vorkIoad al a IocaI slalion. Through spIil shihs and olher arrangemenls,
such as parl-lime personneI, IocaI-slalion managemenl can frequenlIy handIe vhal Iooks
Iike a scheduIe peak vilhoul acluaIIy incurring a personneI peak. UnforlunaleIy, lhe
reverse silualion aIso occurs: a scheduIe paern Iooks Iike a smoolh vorkIoad bul in facl
invoIves a peaking requiremenl of slalion personneI. In such cases, lhe slalion viII ask lo
move IIighl A by 15 minules or IIighl by a haIf-hour in order lo avoid inefcienl use of
Los Angeles
departures
Convenient
departure
times
Inconvenient
departure
times
Convenient
departure
times
Inconvenient
departure
times
New York
arrivals
midnight to 6:00 A.M. 7:00 A.M. to 8:00 A.M. 9:00 A.M. to 4:00 P.M. 4:00 P.M. to 11:00 P.M.
4:00 P.M. to 10:00 P.M. 11:00 P.M. to midnight 1:00 A.M. to 8:00 A.M. 8:00 A.M. to 3:00 P.M.
FIGURE 12-10 Time zone effect on schedules.
C H A P T E R 1 2 P R I N C I P L E S O F A I R L I N E S C H E D U L I N G 3 5 9
personneI. Then, of course, lhis ad|uslmenl of IIighl A or may creale nev probIems for
olher slalions, vhich may require sliII olher ighls lo be ad|usled, and so on.
This silualion becomes especiaIIy probIemalic al slalions vhere lhe carrier has onIy
a Iimiled voIume of |el operalions and vhere il vouId be especiaIIy inefcienl lo have
lhis Iimiled voIume peak al one parlicuIar lime. As an exampIe, consider lhe deparlure
and arrivaI limes of an ahernoon |el scheduIed inlo Sl. Louis (see Iigure 12-12). There
presenlIy is a gap of 27 minules belveen lhe deparlure of IIighl A and lhe arrivaI of IIighl
. Nov suppose lhal for some reasonpossibIy gale congeslion al some olher slalion
lhe carrier had lo move IIighl C up a haIf-hour. To do so vouId creale simuIlaneous |el
operalions al Sl. Louis, making il no Ionger possibIe lo handIe lhe slalion vilh a singIe |el
ground crev.
Equipment Turnaround Time. Lels nov louch on one more faclor aecling scheduIing
exibiIilyequipment turnaround time requiremenls. Al lhe end of every lrip, cerlain
27 minutes
7:30 P.M. departure to
Los Angeles (Flight C) 6:30 P.M. arrival from Cleveland (Flight B)
6:30 P.M. departure from New York (Flight A)
5:40 P.M. arrival from New York
St. Louis
FIGURE 12-12 Staggered arrivals and departures of afternoon jet service avoid
costly duplication of ground crews and ground equipment
(hypothetical case).
30
20
N
u
m
b
e
r

o
f

e
m
p
l
o
y
e
e
s
10
12:00 noon 6:00 P.M. 6:00 A.M.
FIGURE 12-11 Local-station activity chart for airplane cleaners (hypothetical
case).
A I R T R A N S P O R TAT I O N 3 6 0
operalions musl be performed, such as cabin cIeaning, refueIing, and calering. Slandards
have been eslabIished for lhe iurn iinc required for dierenl pIanes on dierenl-Ienglh
hops. On lop of lhese minimum requiremenls, lhe scheduIing deparlmenl musl buiId in
anolher faclor as a cushion for lhe possibiIily of Iale arrivaI.
Ouile ohen, an airIine viII nd ilseIf in lhe fruslraling posilion of having equipmenl
siing idIe on lhe ground al some slalion, vilh enough lime avaiIabIe lo y lhe pIane lo
some olher poinl and back, bul vilhoul enough lime on lhe ground al lhe olher poinl
for adequale lurn lime. Lacking lhis exlra hour or so, lhe carrier has no aIlernalive bul lo
Ieave lhe pIane siing on lhe ground, possibIy for severaI hours.
Chain Reaction Eect. Thus far, ve have discussed each of lhese operalionaI markeling
faclors as separale and independenl variabIes. AcluaIIy, hovever, severaI of lhem
are usuaIIy presenl in a singIe scheduIe silualion, lhereby increasing lhe compIexilies
in geomelric proporlion. ecause of lhe inlerreIalionship among gale congeslion,
mainlenance rouling, and olher faclors, a singIe scheduIe aclion frequenlIy sels up a chain
reaction eect requiring many olher scheduIe changes. As an exampIe, Iels Iook al IIighl
A, a 757 operaling from DaIIas lo Nev York via LiIe Rock, Memphis, and NashviIIe (see
Iigure 12-13).
Al ils DaIIas originalion, lhis ighl receives conneclions from eighl inbound ighls in
lhe DaIIas galevay. When il gels lo Memphis, il receives conneclions from four ighls
of olher carriers and aIso deIivers conneclions lo seven olher ighls. In addilion, ils
arrivaI and deparlure limes al Memphis lie inlo gale occupancy vilh olher ighls going
lhrough lhal slalion al aboul lhe same lime. When il gels lo NashviIIe, lhe ighl deIivers
conneclions lo lhree olher ighls. IinaIIy, vhen il gels lo Nev York, il deIivers passengers
lo seven ighls, and lhe equipmenl lhen lurns back oul as scheduIed IIighl lo Chicago.
If lhe carrier had lo change lhis ighl scheduIe al any poinl, il vouId polenliaIIy mean
Dallas Flight A
Connects from eight flights
Little Rock
Memphis Connects from four flights
Connects to seven flights
Gate congestion
three gates, all occupied
Nashville Connects to three flights
New York Connects to seven flights
Turns to Flight B to Chicago
FIGURE 12-13 Chain reaction effect (hypothetical case).
C H A P T E R 1 2 P R I N C I P L E S O F A I R L I N E S C H E D U L I N G 3 6 1
making many changes in olher ighls lo preserve conneclions, avoid gale probIems, and
so forlh.
Ica!-|acicr Ictcragc
Nov Iels lurn lo lhe Iasl of lhe speciaI compIexilies of airIine scheduIing, lhe probIem of
Ioad-faclor Ieverage. One of lhe unforlunale facls of lhe airIine business is lhal lhe carriers
produce revenue passenger miIes bul seII avaiIabIe seal-miIeshence lhe imporlance of
Ioad faclors. In olher induslries, a manufaclurer can eslimale lhe probabIe markel for
each individuaI producl and lhen gear produclion accordingIy. And, if overeslimalion has
occurred, lhe manufaclurer can add lhe surpIus lo invenlory and dispose of il, perhaps
al a reduced price.
An airIine has no simiIar opporlunily. Il may be convinced lhal, say, a given nonslop |el
lo Los AngeIes viII average onIy 80 lo 90 passengers per day. NeverlheIess, if il operales
lhe scheduIe, il musl y a seal-miIe incIuding 230 seals. And, of course, once il produces
lhe emply seal-miIes, lhey are irrelrievabIy Iosl.
Cosls of operaling a scheduIe vary onIy sIighlIy as Ioad faclor changes, vhereas revenue
varies in direcl proporlion lo changes in Ioad faclor. Thus, a shih in Ioad faclor of onIy a
fev percenlage poinls can make aII lhe dierence belveen a money Ioser and a prolabIe
lrip.
There is anolher vay lo dramalize lhis poinl. The sensilivily of scheduIes lo even minor
changes in deparlure limes has been menlioned. Lels assume lhal ve vere unabIe lo
accompIish one of lhe desired changes in lhe deparlure of a ChicagoLos AngeIes |el and
as a resuIl Iosl a daiIy average of 10 passengers per lrip, mosl of vhom vouId probabIy
be Iosl in lhe opposile direclion as veII. These 10 daiIy passengers vouId represenl an
annuaI revenue of over $1 miIIion:
1 coach-cIass passenger $ 300
10 coach-cIass passengers $ 3,000
10 daiIy coach-cIass passengers for 30 days $ 90,000
10 daiIy coach-cIass passengers for 365 days $1,095,000
ecause cosls vouId nol be maleriaIIy changed, il can aIso be said lhal lhese 10 daiIy
passengers vouId represenl a reduclion of over $1 miIIion in operaling prols. This, lhen,
may slarl puing inlo focus vhy airIines viII go lo such Ienglhs lo vork oul scheduIes lo
maximize lheir saIabiIily and vhy lhey do nol lake IighlIy requesls from cily managers
for even a 10- or 15-minule change in a scheduIe.
We can Iook al lhe nanciaI impIicalions of our scheduIe aclion in sliII anolher vay.
Lels consider lhe lolaI cosl of operaling a lransconlinenlaI |el scheduIe. In a year, a singIe
daiIy round-lrip belveen Nev York and Los AngeIes cosls over $1.5 miIIion. Assume
lhal lhe carrier adds such a lrip lhal is nol reaIIy required and lhal is nol IikeIy lo gel any
signicanl amounl of nev business lo heIp pay ils vay. In lhal case, lhis cosl becomes
slraighl operaling Ioss and a sheer economic vasle. The economic vasle invoIved in an
unnecessary airIine scheduIe is rareIy apprecialed, possibIy because lhe vasle in an airIine
scheduIe does nol Ieave langibIe physicaI evidence. Al lhe end of lhe year, lhe unused
seal-miIes cannol be seen galhering dusl in a varehouse.
Referring lo lhe scheduIing process, a pIanner vas once overheard lo say lhal our |ob
is Iike lrying lo pul logelher a |igsav puzzIe, conslrucled in lhree dimensions, vhiIe lhe
A I R T R A N S P O R TAT I O N 3 6 2
shape of key pieces is conslanlIy changing. The facl lhal saIabiIily of an airIines producl
is sensilive lo even minor changes vouId be no serious probIem if lhe carrier had lhe
exibiIily lo make lhese changes readiIy. Or carriers couId Iive vilh lhe duaI probIems of
sensilivily of scheduIes coupIed vilh lhe difcuIly of ad|usling scheduIes vilhoul loo much
slrain vere il nol for Ioad-faclor Ieverage. Then il vouId be possibIe lo ad|usl capacily on
any given scheduIe lo lhe IeveI of lrafc lhe carrier lhoughl il mighl gel for lhal parlicuIar
lrip. ul vhen aII of lhese faclors are laken logelherlhe sensilivily of scheduIes lo even
minor changes, lhe difcuIly of ad|usling scheduIes, and lhe lremendous nanciaI impacl
of Iosing even a fev passengerslhe fuII measure of lhe difcuIly becomes apparenl.
NormaIIy, a carrier pubIishes a nev scheduIe six or seven limes a year, generaIIy on a
bimonlhIy basis. During an average year (lhe Iasl severaI have been anylhing bul average),
lhe spring and faII scheduIes are lhe primary ones.
ScheduIe buiIding never reaIIy slarls from scralch. Dala are conlinuousIy fed inlo lhe
scheduIing deparlmenl from regionaI saIes and services, as veII as from lhe olher ma|or
operaling deparlmenls. These nev dala are added lo lhe basic body of knovIedge lhal
lhe scheduIing deparlmenl has aboul lhe airIines scheduIing paerns and lhe numerous
faclors invoIved. The scheduIe lhal emerges is lhe producl of conlinuaI renemenl.
Lels lake a Iook al an exampIe of a carrier aempling lo pul logelher a scheduIe for
Seplember 1, 20XX. The compiIalion and meshing of dala begin around ApriI 1. In our
hypolhelicaI case, a number of ma|or markeling consideralions have lo be Iooked al by
lhe scheduIing deparlmenl in preparing lhe Seplember scheduIe:
1. The addilion of lvo A320s
2. The need lo relurn service lo lhe poinl il had reached before lhe lerrorisl aacks of
Seplember 11, 2001, vhich had necessilaled scheduIe culs
3. Crealion of a fourlh connecling bank of ighls in uaIo
4. Addilion of nev hourIy service belveen Iisburgh and Chicago, based on more
singIe-pIane service lhrough Iisburgh
5. Resloralion of oslonIhiIadeIphia and IisburghIhiIadeIphia hourIy frequencies
These are bul a fev of lhe ob|eclives lhal lop-IeveI markeling managemenl has sel for
scheduIing in preparing lhe Seplember scheduIe.
The scheduIing deparlmenl generaIIy submils ils proposed scheduIe lo aII operaling
deparlmenls 60 days before lhe eeclive dale. Aboul a veek aher lhe dislribulion, lhe
inlerdeparlmenlaI meelings begin. The conference room ad|oining lhe scheduIing
deparlmenl, vhere lhe meelings are generaIIy heId, Iooks Iike lhe var room from a WorId
War II movie. Slalion charls vilh lhe proposed scheduIe are laped on every spare inch
of vaII space. A lypicaI meeling in lhe earIy slages of negolialion mighl incIude 10 lo 20
managemenl personneI represenling aII of lhe operaling deparlmenls.
Puiii ng Tcgcincr inc Scpicn|cr Scnc!u| c
C H A P T E R 1 2 P R I N C I P L E S O F A I R L I N E S C H E D U L I N G 3 6 3
The scheduIing deparlmenl may make concessions vhen suggeslions by olher
deparlmenls are backed up vilh lhe reaIilies of operalionaI requiremenls. ul, in generaI,
lhe scheduIing deparlmenl musl remain rm. If il does nol, lhe enlire scheduIelhe resuIls
of monlhs of pIanningmay suer. IrobIems mighl invoIve such lhings as sufcienl
lurnaround lime or separalion belveen ighls. Ior one reason or anolher, incIuding
personneI, gale avaiIabiIily, or vehicIes required, cuslomer services or Iine mainlenance
mighl argue lhal lhey need more lime belveen ighls. Ohen, caIIs viII be made lo eId
personneI during lhe meelings lo gel lheir inpul: Can you handIe il` If nol, vhal do you
need`
Anolher ma|or faclor in seing lhe Seplember 1 scheduIe mighl be lhe goaI of increasing
lhe carriers on-lime performance. Iconomic pIanning mighl have performed a speciaI
sludy lo delermine vhal vas causing deIays. Lale-arriving passengers, vealher, cargo
Ioading, mainlenance, and olher faclors aII pIay a roIe. The resuIls vouId be inlegraled
inlo lhe Seplember 1 scheduIe.
Al lhis slage, lhe scheduIing deparlmenl cannol aord lo give avay Iarge chunks of
lime. Il lries lo lake inlo accounl lhe pecuIiarilies of each slalions operalionaI capacily
and lo lrade in no Iarger lhan ve-minule incremenls. Cuslomer service gives a IiIe, Iine
mainlenance backs o on ils demands, and scheduIing adds a coupIe of minules aIong lhe
aircrahs roule. IIighl operalions agrees.
Anolher probIem al one of lhe deparlmenlaI meelings mighl invoIve a |oinl markeling
program vilh one of lhe inlernalionaI carriers. Lels suppose lhe carrier has a ighl lo
Kennedy Airporl in lhe Seplember 1 scheduIe lhal connecls vilh a ighl lo London,
vhose lime vas lo reverl lo slandard aher lhe scheduIe vas pubIished. ScheduIing mighl
have lo change lhis ighl al a Ialer dale.
Olher probIems mighl incIude lhe lime required by mainlenance for an aircrah en roule
check, an addilionaI ve minules needed lo accommodale a bus lransporling commuler
passengers al OHare Airporl, or a 737 vingspan loo vide lo accommodale lhree pIanes
simuIlaneousIy al La Guardia Airporls Gales 20 and 21, as lhe scheduIe caIIs for.
The meelings go on unliI a generaI consensus is reached. Iven lhen, mosl scheduIers
admil lhal lhe naI producl is a compromise al besllhe besl possibIe under lhe markeling
and operaling crileria sel forlh.
As a carrier grovs, lhe scheduIing process becomes more compIicaled. Compuler
modeIs are used quile exlensiveIy by lhe ma|or carriers, bul lhey have nol eIiminaled
lhe meelings lhal scheduIing musl have vilh lhe operaling unils lo vork oul specic
probIems.
EQUIPMENT ASSIGNMENT AND TYPES OF SCHEDULES
The scheduIing deparlmenl viII generaIIy refer lo aircrah lhroughoul lhe syslem as being
operaled in eilher in-scrticc or cui-cj-scrticc usc. In-service use refers lo lhose aircrah
being ovn (1) on scheduIed service, (2) as an exlra seclion, or (3) as a charler ighl.
An cxira scciicn is an addilionaI aircrah assigned lo handIe a parlicuIar ighl because
of an unusuaIIy Iarge number of passengers. Oul-of-service use refers lo lhose aircrah
lemporariIy assigned for ma|or overhauI, mainlenance checks, ighl lraining, speciaI
pro|ecls, such as inslaIIing dierenl seals, or Iine reserves. Iinc rcscrtcs are exlra airpIanes
slalioned al ma|or lerminaIs lo be caIIed on in lhe evenl of a probIem vilh a scheduIed
ighl.
A I R T R A N S P O R TAT I O N 3 6 4
AirIines use four basic scheduIe lypes in assigning lheir equipmenl: (1) skip-slop, (2)
IocaI service, (3) cross-conneclions (hub and spoke), and (4) nonslops. Skip-sicp scheduIing
refers lo lhe praclice of providing service lo poinls A, , C, D, I, I, G, and so forlh by
scheduIing ighls in lhe foIIoving manner: ACIG or ADG, or simiIar combinalions
in vhich one or more of lhe inlermediale slalions are skipped, vilh service being
provided by olher ighls. The principaI advanlage of skip slopping is lo provide fasl
service lo inlermediale slalions: lhe principaI disadvanlage is in nol providing service
belveen conseculive cilies.
In |cca|-scrticc scheduIes, shorler-range aircrah make aII slops on a segmenl and connecl
al Iarger inlermediale slalions vilh Iong-range aircrah. The principaI advanlage of IocaI
service is lhal il provides fasl service belveen smaII inlermediale slalions and lerminaI
poinls: lhe principaI disadvanlage is lhe change of pIanes invoIved.
Crcss-ccnncciicns (nu| an! spckc) are frequenlIy used in scheduIe pIanning by aII airIines.
An exampIe of a roule over vhich lhis can be accompIished is lhe Uniled AirIines roule
serving lhe principaI cilies shovn in Iigure 12-14. When a WashinglonChicagoSan
Irancisco ighl, a Nev YorkChicagoSeaIe ighl, and a oslonChicagoLos AngeIes
ighl arrive al Chicago essenliaIIy al lhe same lime, lrafc can be lransferred from one
lo anolher, lhereby providing more daiIy service belveen poinls in lhe easl and lhose in
lhe vesl. This is lhe principaI advanlage, parlicuIarIy if one of lhe ighls is lhe onIy one
lo serve one or more of lhe slalions: principaI disadvanlages are lhe change in pIanes and
lhe congeslion of lrafc. (The nexl seclion discusses hub-and-spoke scheduIing in more
delaiI.)
Ncnsicps are being used more frequenlIy lhan ever by lhe ma|or and nalionaI carriers.
The principaI advanlage is provision of fasl service belveen lerminaI poinls: lhere is no
reaI disadvanlage, aIlhough, of course, no inlermediale slalions receive service on lhese
ighls.
AcluaIIy, aII airIines have used and viII conlinue lo use aII four ma|or scheduIe lypes
vilh varialions lo l lheir individuaI needs. The lypes mosl adapled lo a eel of same-
range airpIanes are skip slopping and cross-conneclions: for a eel of al Ieasl lvo generaI
lypes of airpIanes, aII four scheduIe lypes can be used, vilh perhaps more emphasis on
IocaI service and nonslops.
Irom lhe passengers vievpoinl, lhe goaI is safe, speedy, dependabIe, and comforlabIe
service from poinl A lo poinl Z. Safely is lhe overriding and conlroIIing faclor in aII
airIine operalions. To gain lhe olher lhree in lhe grealesl possibIe measure, lhe passenger
naluraIIy prefers (1) a nonslop ighl from poinl A lo poinl Z, or (2) if lhal service is nol
avaiIabIe al a convenienl lime, a lhrough ighl, or (3) if lhe |ourney can be speeded, a
Chicago
Washington
Boston
New York
Los Angeles
Seattle
San Francisco
FIGURE 12-14 Cross-connection (hub-and-spoke) service (hypothetical case).
C H A P T E R 1 2 P R I N C I P L E S O F A I R L I N E S C H E D U L I N G 3 6 5
connecling ighl vilh adequale connecling lime lo ensure dependabiIily and vilh fasl
equipmenl and as fev slops as possibIe.
Irom an airIine slandpoinl, lhe desire lo meel every individuaI passengers needs musl
be veighed againsl prolabiIily. A nonslop ighl cosls Iess lo operale from poinl A lo poinl
Z lhan one on lhe same lype equipmenl lhal makes inlermediale slops. If sufcienl lrafc
demand is nol avaiIabIe lo |uslify nonslop operalion, lhrough service means lhal each
passenger is handIed onIy once and lherefore cosls are Iover lhan lhey are on connecling
service.
HUB-AND-SPOKE SCHEDULING
DereguIalion has Ied lo signicanl changes in lhe roulings and scheduIe paerns of lhe
carriers. A calaIysl for lhese changes has been lhe grealIy increased emphasis on hub-and-
spoke scheduIing. DereguIalion eIiminaled airIines incenlive lo dissipale lheir added
revenues lhrough vaslefuI expendilures on exlra (and underuliIized) ighls aIong lhe
roule slruclure mandaled by lhe CA. In addilion, dereguIalion aIIoved carriers lo creale
nev scheduIe paerns lhal Iovered lhe cosls of providing nev ighls.
In lhe pasl, lhere vas conslanl pressure (from communilies and from lhe CA) for
more and more direcl poinl-lo-poinl nonslops. If a carrier did nol exercise ils franchise
of nonslop operalions in a parlicuIar markel, il risked having lhal communily induce
anolher airIine lo seek lhe unused aulhorily from lhe CA. This concepl of nonslop
obIigalion vas carried righl inlo lhe AirIine DereguIalion Acl, vhich cIassied dormanl
aulhorily as any roule segmenl nol lhen acluaIIy served nonslop and, as lhe rsl slep
lovard IiberaIized roule granls, provided for lhe lransfer of dormanl aulhorily lo olher
carriers.
Many cily-pair markels, hovever, couId nol supporl nonslop service in lerms of lheir
ovn origin and deslinalion lrafc. Iconomic viabiIily frequenlIy depended on adding
lrafc ovs from backup markels on eilher end of a nonslop roule. In CA roule cases,
cilies ohen vere added lo a carriers roule syslem specicaIIy for lhe purpose of providing
enough lrafc lo make nonslop service viabIe. ecause of lhe proleclion aorded by a
reguIaled roule franchise syslem, lhe backup markels for some nonslop roules couId be
expecled lo remain reIaliveIy slabIe over Iong periods of lime.
In lhis framevork, lhe airIine roule slruclure evoIved graduaIIy inlo many Iinear
paerns, in vhich one cily vouId mainIy serve as backup lo some specic roule segmenl,
vhiIe olher cilies vouId back up olher roules, and so forlh. Wilh dereguIalion, carriers
couId no Ionger regard lheir backup lrafc markels as slabIe or secure. There vere, of
course, some hub-and-spoke connecling operalions, bul lheir scope vas Iimiled by lhe
roule franchises lhen in eecl.
In response lo compelilive pressures foIIoving dereguIalion, carriers rapidIy repIaced
lhe oId slruclure vilh a hub-and-spoke system. In hub-and-spoke syslems, severaI poinls
of deparlure are fed inlo a singIe airporl (lhe hub), from vhich connecling ighls
lransporl passengers lo lheir various deslinalions (aIong lhe spokes).
A!taniagcs cj Hu|-an!-Spckc Susicns
The main advanlage of lhe highIy deveIoped airIine hub-and-spoke operalion is lhal il
provides an enormous muIlipIier eecl as lo lhe number of cily-pairs an airIine can serve
A I R T R A N S P O R TAT I O N 3 6 6
vilh a given amounl of ighl miIeage. This is demonslraled in Iigure 12-15. The lop
porlion of lhe charl shovs eighl hypolhelicaI cilies, Iinked in pairs vilh direcl nonslop
service. The number of cily-pairs receiving air service in lhis paern is four. The middIe
porlion of lhe charl shovs vhal happens if, vilh approximaleIy lhe same amounl of
miIeage ovn, each cily is Iinked
lo a cenlraIIy Iocaled hub.
Wilh lhe permulalion of roulings
possibIe via lhe hub, lhere vouId
nov be a lolaI of 24 cily-pairs
served (lhe 16 cily-pairs oblained
by lhe conneclion Iinkage of each
of lhe four easlern cilies vilh each
of lhe four veslern cilies, pIus lhe
Iinkage of lhe four easlern and four
veslern cilies lo lhe hub cily ilseIf).
ObviousIy, lhis muIlipIicalion of
lrafc grealIy increases lhe chances
of oblaining slrong Ioad faclors.
IuII airpIanes resuIl in Iover cosls,
vhich permil Iover fares, and
lhese savings have aIso aIIoved lhe
airIines lo increase lhe frequency of
ighls.
Once a carrier eslabIishes ilseIf
vilh a soIid nelvork of spokes al a
parlicuIar hub, il becomes difcuIl
for any olher carrier lo chaIIenge
il compeliliveIy, unIess lhe olher
carrier has lhe resources lo
underlake a simiIar feed nelvork.
To aempl lo compele on onIy one
or lvo of lhe individuaI spokes
inlo lhal hub becomes difcuIl,
because lhe chaIIenging carrier
in lhis silualion musl reIy mainIy
on |usl lhe IocaI O & D lrafc on
lhose fev segmenls vhiIe lhe
hub operalor can supporl a much
broader paern of service vilh lhe
supporl of aII of lhe feed lrafc.
y dominaling a hub, an airIine
can aIso charge higher airfares
lo passengers originaling from
lhe hub region, lhus achieving a
grealer polenliaI for prols.
Hubbing aIso oers advanlages
lo lraveIers. Iassengers ying in
Iov-lrafc markels mighl nol en|oy
City A
Hub
City B
City C
City D
City E
City F
City G
City H
Service via Cross-Connection (Hub)
Total of 24 city-pairs served
City A
City B
City C
City D
City E
City F
City G
City H
Point-to-Point Service Without Hub
Total of 4 city-pairs served
Growth in the Power of a Hub
n Local
n(n 1)/2 Markets Total
Connecting Terminating Markets
n Spokes Markets at the Hub Served
2 1 2 3
6 15 6 21
10 45 10 55
50 1,225 50 1,275
100 4,950 100 5,050
Source: Dennis and Dogaris (1989).
FIGURE 12-15 Multiplier effect of
hub connections.
C H A P T E R 1 2 P R I N C I P L E S O F A I R L I N E S C H E D U L I N G 3 6 7
Iov airfares or y in Iarge |els if lhe airIines vere lo y lhem nonslop belveen lhe end
cilies. SmaII pIanes cosl more per seal-miIe lo operale and may require muIlipIe slops for
refueIing. In facl, lhrough muIlipIe-hub syslems, passengers from smaII cilies can y lo
any smaII or Iarge cily in lhe vorId vilh reIaliveIy Iov airfares. y connecling al a hub,
passengers can aIso en|oy lhe convenience of frequenl ighls lo and from lhal hub. This
usuaIIy resuIls in Iover scnc!u|c !c|au. vhich is dened as lhe vailing lime belveen a
passengers mosl desirabIe deparlure lime and lhe acluaI scheduIed ighl. The use of
Iarge |els aIso increases lraveIers chances of nding a seal on lheir desired ighl.
Oi sa!taniagcs cj Hu|-an!-Spckc Susicns
AIlhough hubbing seems lo benel airIines and oers some advanlages lo lraveIers,
lhe exlenl of excessive concenlralion al lhe hub can resuIl in some negalive economic
impacls, nameIy, congeslion deIay. As aircrah voIume approaches lhe capacily of lhe
hub airporl, congeslion deIay increases rapidIy, vhich may oulveigh some of hubbings
benels lo bolh airIines and passengers. This addilionaI deIay increases passengers lolaI
lraveI lime and adds lo lhe airIines operaling cosls (for exampIe, vages for lhe crev
and fueI and mainlenance expenses for lhe airpIane). Congeslion during peak periods
aIso puls a lremendous slrain on airporl and airIine personneI. Il requires maximaI slafng
for each 45-minule peak-slafng al lhe gale, on lhe apron, al lhe lickel counler, and al
curbside. Moreover, for each cily feeding inlo lhe hub, a separale gale is required, and
adding more cilies requires more gales.
On lhe larmac, lhe Iaunching of 30 aircrah vilhin a 5- lo 10-minule period can cause
excessive laxi vails, forcing scheduIers lo buiId addilionaI minules inlo bIock limes.
During bad vealher, deIays al one hub airporl creale deIays syslemvide. The requiremenl
lhal aircrah arrive al lhe hub al lhe same lime is coslIy. AirpIanes serving lhe shorler
spokes musl sil on lhe ground al lhe oul-slalions, ohen for hours, lo compensale for lhose
airpIanes on lhe Ionger segmenls. AIso, because scheduIing inlo lhe hub is based on lhe
limes of lhe connecling compIexes, acluaI deparlure limes al lhe oul-slalions may nol be
lhe mosl convenienl for lhe communilies. Some porlion of lhe polenliaI IocaI O & D markel
is al risk of being Ieh unsalised. To compensale for lhis, some carriers have increased lhe
use of lhe regionaI |el (RI) concepl. Consumer demand in oul-slalion markels conlinues lo
grov rapidIy as more and more passengers are ovn from secondary Iocalions lhrough
hubs and on lo secondary Iocalions.
SliII anolher probIem is baggage. Mosl compIexes provide belveen 30 and 45 minules
for passengers lo make lheir conneclions. When ighls are Iale, hovever, lhere is very
IiIe Ieevay for lhe baggage lo make lhe same conneclion. Iassengers simpIy vaIk from
one gale lo lhe olher and board lheir nev ighl. aggage, on lhe olher hand, musl be
o-Ioaded, sorled, lransferred, and Ioaded aboard lhe nev aircrah. When o-scheduIe
operalions occur, lhe 30- lo 45-minule connecling lime guaranlees a high mishandIed-
baggage expense. Congeslion deIay aIso creales addilionaI vork for air lrafc conlroIIers
and increases lheir slress IeveIs. Il may require upgrading lhe ATC faciIilies and
adding more personneI al lhe ATC cenlers and airporl lovers. IinaIIy, excessive aircrah
concenlralion al lhe hub can have adverse environmenlaI impacls, such as noise and
poIIulion. These negalive economic eecls of aircrah concenlralion musl be laken inlo
accounl vhen conducling cosl-benel anaIyses inlo buiIding or expanding ma|or hubs.
A I R T R A N S P O R TAT I O N 3 6 8
DATA LIMITATIONS IN AIRLINE SCHEDULING
Since lhe earIy 1980s, sophislicaled compuler programs, vhich use compIex malhemalicaI
aIgorilhms, have been deveIoped lo address lhe compIele scheduIing lask. The mosl
videIy used are lhose programs lhal assisl vilh lhe mechanicaI compIexily of assembIing
up lo 1,000 ighls, efcienlIy rouling aircrah across ighl segmenls, and assisling lhe
carrier in meeling conslrainls imposed by such faclors as mainlenance requiremenls,
ighl operalions and crev scheduIing, ground operalions and faciIily Iimilalions, and
passenger service needs. Hovever, airIine scheduIing remains a funclion lhal invoIves as
much arl as science.
AIlhough delaiIed lrafc dala are avaiIabIe on-Iine, hisloricaIIy, airIine scheduIing has
been performed vilh Iimiled sources of lrafc dala. Slalion managers observe compelilor
enpIanemenls, and many carriers parlicipale in informaI informalion exchanges vilh one
anolher. The probIem vilh lhis lype of informalion is lhal ils accuracy is queslionabIe
and il is onIy avaiIabIe on an aggregale basis. The DOT forms 41, T-100, and Ten Iercenl
Surveys of Domeslic and InlernalionaI Trafc are basic scheduIe pIanning and roule
anaIysis looIs, and aIlhough lhe informalion lhey provide is beneciaI, lhere are probIems
concerning dala accuracy and IeveI of delaiI. Ior exampIe, lhese sources provide Iimiled
informalion on ighl numbers and passenger origins and deslinalions and are lypicaIIy
nol avaiIabIe from lhe DOT unliI lhree lo six monlhs aher lhe ighl dale.
The avaiIabiIily and presenlalion of lhese dala by commerciaI informalion service
organizalions has improved signicanlIy in recenl years. The DOT dala are avaiIabIe on
easy-lo-use CD-ROMs and can be abslracled readiIy for use by scheduIing anaIysls.
Currenl dala regarding inlernalionaI carriers are more difcuIl lo oblain. Organizalions
such as lhe IATA and ICAO coIIecl highIy aggregaled informalion lhal is generaIIy nol
avaiIabIe for years. Nol onIy is lhe informalion daled, il is ohen incompIele because of lhe
reIuclance of many carriers lo share dala for compelilive reasons.
Advances in leIecommunicalions and compuler science are providing beer informalion
sources for lhe airIines. AIong vilh beer informalion, more sophislicaled anaIylicaI looIs
are being deveIoped using eIeclronic dala sources. Hovever, even vilh nev informalion
resources and more sophislicaled anaIylicaI looIs, airIine scheduIing viII conlinue lo be a
compIex and chaIIenging lask.
KEY TERMS
scheduIing lrafc ov
scheduIing deparlmenl lime zone eecl
commiee syslem equipmenl lurnaround lime
mainlenance efciency goaIs chain reaclion eecl
operalionaI faclors hub-and-spoke syslem
slalion pIoing charl
REVI EW QUESTI ONS
1. Whal is lhe mission of scheduIing` Discuss some of lhe exlernaI faclors lhal scheduIe
pIanners musl lake inlo consideralion. Why do many airIines use lhe commiee sys-
lem lo anaIyze a proposed scheduIe`
C H A P T E R 1 2 P R I N C I P L E S O F A I R L I N E S C H E D U L I N G 3 6 9
2. Whal is lhe primary purpose of engineering and mainlenance and Iine mainlenance
vilh regard lo scheduIing` Discuss lhe four mainlenance efciency goaIs. Name
severaI of lhe inspeclion and overhauI periods for a |el as il is rouled lhroughoul
a syslem. Why are lhere dierenl IeveIs of mainlenance capabiIily lhroughoul an
airIine syslem`
3. If an aircrah experienced a mechanicaI breakdovn in CIeveIand, hov mighl lhal
aecl passengers expecling lo board a ighl in Youngslovn`
4. IIighl operalions is concerned vilh a number of operalionaI faclors in scheduIe
pIanning. Discuss lhree of lhem. Hov do crev lime Iimils and empIoyee agreemenls
aecl ighl scheduIing` Hov does lhe facl lhal crev members are based al various
IocaIilies compIicale ighl scheduIing` Hov are seniorily and crev quaIicalions al
a parlicuIar IocaIe probIems in lhe scheduIing process` Why is so much emphasis
pIaced on reducing crev Iayovers and deadhead ighls`
5. Whal is lhe ob|eclive of ground handIing in lhe scheduIing process` Whal are some
of lhe faciIily Iimilalions imposed on scheduIers` Whal is a scheduIe pIoing charl`
Why is personneI pIanning so difcuIl and coslIy vhen lhere is exlreme peaking of
ighls inlo a parlicuIar slalion` Why is il so expensive for a ma|or carrier lo service
a smaII airporl vilh onIy lvo or lhree ighls per day` (Hini. lhink aboul equipmenl
and personneI.)
6. You can pIease aII of lhe peopIe some of lhe lime and some of lhe peopIe aII of lhe
lime, bul you canl pIease aII of lhe peopIe aII of lhe lime. Hov does lhis reIale lo
scheduIing` Why is il imporlanl lo buiId up compIexes of connecling ighls al ma|or
galevays`
7. Discuss some of lhe probIems faced by an airIine scheduIing deparlmenl lhal are
simiIar lo probIems of olher induslries and some probIems lhal are unique lo lhe
airIine induslry. Discuss lhree markeling reIaled probIems. Whal is meanl by irajc
cu? Scnsiiitiiu cj scnc!u|c sa|a|i|iiu? Give one exampIe of lhe Iaer.
8. Hov do olher operaling faclors, such as lime zones, slalion personneI, and equipmenl
lurnaround lime, aecl lhe scheduIing process` Why mighl a |el ighl scheduIed
lo deparl Los AngeIes al 11:35 .. be popuIar` Whal is meanl by lhe cnain rcaciicn
ccci?
9. AirIines produce revenue passenger miIes bul seII avaiIabIe seal-miIes. Whal does
lhal mean` Why do lhe cosls of operaling a ighl vary onIy sIighlIy vilh addilionaI
passengers`
10. Whal are lhe lhree basic in-service equipmenl assignmenls` The ve oul-of-service
assignmenls` Discuss lhe advanlages and disadvanlages of skip-slop, IocaI service,
cross-conneclion, and nonslop service.
A I R T R A N S P O R TAT I O N 3 7 0
11. Whal vas meanl by !crnani auincriiu before dereguIalion` Hov did il aecl
scheduIing` Whal is lhe purpose of hub-and-spoke scheduIing` Discuss lhe advanlages
and disadvanlages of hub-and-spoke scheduIing.
WEB SI TES
hp://vvv.iala.org
hp://vvv.mercury.bc.ca
hp://veb.mil.edu/cbarnhar/vvv/1206.hlm
hp://vvv.gra-inc.com/airIines13.hlm
SUGGESTED READI NGS
renner, MeIvin A., Iames O. Leel, and IIihu Scho. Air|inc Ocrcgu|aiicn. Weslporl, Conn.: INO
Ioundalion for Transporlalion, 1985.
Dempsey, IauI S., Laurence I. GeseII, and Roberl L. CrandaII. Air|inc Managcncni. Siraicgics jcr inc
21si Ccniuru. ChandIer, Ariz.: Coasl Aire IubIicalions, 1997.
Dennis, NigeI, and Rigas Doganis. Lessons in Hubbing. Air|inc Busincss 3 (1989).
Doganis, Rigas. Tnc Airpcri Busincss. London: RoulIedge, 1992.
Ilschmaier, I. M., and D. X. MalhaiseI. AirIine ScheduIing: An Overviev. Transpcriaiicn Scicncc
19 (1985): 127138.
Iames, George W., ed. Air|inc |ccncnics. Lexinglon, Mass.: Healh, 1982.
Kanafani, A., and A. GhobriaI. AirIine Hubbing: Some ImpIicalions for Airporl Iconomics. Trans-
pcriaiicn |cscarcn 19A (1985): 1527.
OConnor, WiIIiam I. An |nirc!uciicn ic Air|inc |ccncnics. Nev York: Iraeger, 2000.
Svan, W. I. A Susicn Ana|usis cj Scnc!u|c! Air Transpcriaiicn Nciucrks. Reporl ITL-R79, Deparlmenl
of Aeronaulics and Aslronaulics, MIT, Cambridge, Mass., 1979.
Tane|a, NavaI K. Tnc Ccnncrcia| Air|inc |n!usiru. Managcria| Praciiccs an! |cgu|aicru Pc|icics. Lex-
inglon, Mass.: Healh, 1976.
Wensveen, Iohn. Wncc|s Up. Air|inc Busincss P|an Octc|cpncni. eImonl, CA: Thomson rooks/CoIe,
2005.
C H A P T E R 1 2 P R I N C I P L E S O F A I R L I N E S C H E D U L I N G 3 7 1
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13
Fleet Planning:
The Aircra Selection Process
Introduction
Factors in Fleet Planning
Design and DevelopmentThe Manufacturers
Viewpoint
The Fleet-Planning Process
The Decision to Upgrade or Replace
Appendix: Fleet Planning at American Airlines
Chapter Checklist You Should Be Able To:
Undersland lhe imporlance of eel pIanning, and
describe ils Iong-range impIicalions
Describe lhe induslry changes since dereguIalion
lhal have aecled lhe eel-pIanning process
incIuding nev aircrah lechnoIogy
Discuss lhe ma|or faclors an aircrah manufaclurer
musl lake inlo consideralion in designing and
deveIoping a nev |elIiner
Idenlify lhe four inpuls in lhe eel-pIanning process
and expIain vhal each one means
Dene susicn ccnsirainis and ccnsirainc! cpcraiing
p|an
Discuss lhe ve areas lhal musl be considered by an
individuaI carrier in evaIualing a parlicuIar aircrah

373
INTRODUCTION
One of lhe mosl difcuIl decisions airIine managemenls musl make is vhelher lo buy nev
or used aircrah and vhal lype. AIlernaliveIy, lhey musl consider vhelher il makes beer
nanciaI sense lo modernize oIder aircrah aIready in lheir eel or lo acquire aircrah from
lhe oulside. Many addilionaI faclors, incIuding lhe cosls associaled vilh engineering and
mainlenance, musl be veighed. The faclors are conslanlIy changing, and lheir reIalive
imporlance al each airIine depends on lhe carriers individuaI silualion.
FACTORS IN FLEET PLANNING
Iurchasers of nev aircrah can generaIIy gel by for 7 lo 10 years vilhoul having lo make any
ma|or slrucluraI repairs. Iurlhermore, mainlenance cosls as a percenlage of lolaI cosls have
been sleadiIy decreasing since lhe 1960s. Hovever, percenlages do nol necessariIy presenl
a lrue piclure. If one sel of cosls, such as for mainlenance, rises Iess sleepIy lhan olhers, ils
percenlage of lhe lolaI may drop aIlhough lhe cosl in absoIule doIIars may be rising. In
lhis conlexl, a sel of gures from American AirIines is vorlh noling. Over lhe 20-year Iife
of a 707, American found lhal mainlenance cosls rose 10 percenl bul lhal improvemenls in
reIiabiIily more lhan compensaled for lhe rise. This vas in lerms of currenl doIIars. When
lransIaled inlo conslanl doIIars, vhich lake inalion inlo accounl, lhe silualion vas even
beer: mainlenance cosls acluaIIy dropped.
Il vouId be quile simpIe if mainlenance vere lhe onIy, or lhe mosl imporlanl, faclor
lo consider in eel decisions. ul besides mainlenance cosls, many olher faclors musl be
baIanced againsl one anolher: lhe price of fueI: lhe avaiIabiIily and price of used aircrah:
resaIe vaIue: lhe price of nev aircrah: lerms of purchase: cash ov: debl/equily ralio: lhe
avaiIabiIily of money from Ienders: lhe receplivily of WaII Slreel lo lhe issuance of slocks,
bonds, and debenlures: inleresl rales: roule slruclure: compelilive silualion: slralegy: and
Iabor cosls. AII are even more imporlanl lhan before in lodays dereguIaled environmenl.
Tnc Prc!crcgu| aii cn |ra
efore dereguIalion, lhe airIines consliluled a fairIy slabIe business, and eel decisions
vere much simpIer, usuaIIy based on lechnicaI consideralions. The airframe and engine
manufaclurers came up vilh improved modeIs, and lhe airIines boughl lhem on aboul
a ve-year re-equipmenl cycIe. In lhe predereguIalion vorId, lhe carriers vouId buy
up lhe nev aircrah coming on lhe markel despile lheir high prices. The highIy efcienl
and reIiabIe engines, digilaI avionic cockpils, oulslanding performance, and improved
mainlainabiIily of lhese aircrah seemed lo make lhem irresislibIe. ul lhal simpIy hasnl
been lhe case.
In lhe oId days, overaII cosls couId be predicled vilh some degree of condence. Trafc
kepl groving, and roules vere prolecled by lhe CA. Lenders vere secure in lhe knovIedge
lhal Ioans vouId be repaid on lime. Iven lhe veaker carriers couId gel lhe nancing lhey
needed, because under lhe faiIing carrier doclrine, lhe CA vouId, if necessary, nd
lhem a slronger airIine as a merger parlner. Norlheasl AirIines vas merged inlo DeIla
under lhis doclrine in lhe earIy 1970s vhen lhe former ran inlo nanciaI difcuIly.
A I R T R A N S P O R TAT I O N 3 7 4
efore dereguIalion, lhere vere exceIIenl lechnicaI reasons for massive repIacemenl
of aircrah. The advenl in lhe 1960s of lhe lurbine engine and in lhe 1970s of lhe vide-
body airframe permied quanlum |umps in produclivily. TechnicaI progress since lhen,
aIlhough impressive, has been more in lhe nalure of slep-by-slep advances. Today, lhere
has lo be a much more carefuI anaIysis of cosls versus benels before eel decisions can
be made.
DereguIalion changed lhe ruIes of lhe game. Nev nonunion carriers, usuaIIy ying
reIaliveIy inexpensive used aircrah, invaded lradilionaI markels vilh Iov fares. Olher
Iov-cosl carriers, such as Soulhvesl AirIines, expanded lheir syslems inlo nev markels.
To make maers vorse, lhe price of fueI soared lo over $1 a gaIIon. The oId, eslabIished
lrunk carriers, vhose eel phiIosophy had been lo prepare lhemseIves lo meel peak
demands, vere sluck vilh eels of lhree- and four-engine aircrah ovn by cockpil crevs
of lhree or four and vilh pover pIanls designed al a lime vhen a gaIIon of fueI cosl onIy
10 lo 15 cenls. The nev carriers, on lhe olher hand, ev lvin-engine aircrah vilh onIy
lvo piIols in lhe cockpil.
Wilh dereguIalion, lhe eslabIished airIines had lo nd vays lo reduce lhe operaling
cosls associaled vilh aircrah aIready in lheir invenlory lhal vere nol as efcienl as lhe
never generalion of equipmenl. The incumbenl carriers began lo focus on nev equipmenl
lhal generaled lhe Iovesl operaling cosls and vere avaiIabIe in sufcienl quanlilies and al
lhe righl limes lo meel lheir eel and markel-pIanning requiremenls. The slrong markel
for used aircrah enabIed many of lhe incumbenl carriers lo upgrade lheir eels more
rapidIy and, even vilh higher Iabor cosls, lo compele successfuIIy vilh lhe slarl-ups.
Tnc Hu|-an!-Spckc Susicn
In lhe quesl lo achieve lhe Iovesl possibIe unil cosl, U.S. airIines have come lo slress hub-
and-spoke roule syslems vhere praclicaI. This, loo, has had a profound inuence on nev
aircrah requiremenls. Lih capacily has lended lo be grealer in smaIIer aircrah vilh shorler
fuII-payIoad ranges, such as Americans MD-80s, Unileds eel of 737s of various modeIs,
and US Airvays IRIs and CRIs.
Hub-and-spoke nelvorks have inuenced airIines in olher vays. AIlhough lhe air
carrier communily has Iong recognized economies of scaIe (as reecled in lhe preference for
a Iarge number of idenlicaI aircrah), il has aIso come lo appreciale lhal, vilh dereguIalion,
economies of scope are perhaps as imporlanl as economies of scaIe. This has Ied carriers
lo serve nol onIy more cily-pair markels bul more varied markels lhan ever before.
This, in lurn, has caused lhe Iargesl airIines lo require a vider variely of aircrah lhan ever
before. Indeed, lhe range of aribules embodied in such aircrah appears lo be broadening
as economies of scope are pursued, parliaIIy lhrough airIine consoIidalion.
Hubs have aIso inuenced carriers decisions vilh regard lo Iarger aircrah, such as
lhe oeing 767 and Airbus A330. As lhe hubs become increasingIy congesled and sIol
Iimilalions more conslraining, lhere is a naluraI lendency lo scheduIe Iarger aircrah ralher
lhan smaIIer ones lhrough lhe hub, especiaIIy during periods of peak aclivily. This, loo,
has Ied lo a proIiferalion of cerlain lypes of aircrah in lhe eels of lhe Iarger carriers reIianl
on hub-and-spoke nelvorks. Here, aIso, lhere has been a happy con|unclion of evenls:
changes in lhe so-caIIed lvo-engine ruIe have increasingIy enabIed airIines lo operale
Iarger lvin-engine aircrah inlerconlinenlaIIy and inlernalionaIIy as veII as on shorler
hauIs.
C H A P T E R 1 3 F L E E T P L A N N I N G: T H E A I R C R A F T S E L E C T I ON P R OC E S S 3 7 5
|| cci |aii cna| i zaii cn
ConsoIidalion of lhe induslry during lhe 1980s as a resuIl of mergers has Ied lo a proIiferalion
of specic aircrah lypes operaled by any parlicuIar carrier. No doubl, much of lhis
proIiferalion viII be reduced as eel ralionaIizalion becomes bolh praclicaI and possibIe.
AIlhough eel ralionaIizalion may veII be a rsl order of business for consoIidaled airIines,
such carriers sliII need lo acquire nev aircrah nol onIy lo address nev markels bul aIso
lo enabIe lhem lo en|oy lhe benels of maximum praclicaI eel commonaIily in lhe Iong
run. Whal viII inuence lhe acquisilion process invoIving nev aircrah is lhe economic
organizalion of lhe airIine induslry as consoIidalion proceeds. The issue is lhe behavior of
lhe airIine induslry under condilions of oIigopoIy.
Tccnni ca| Aspccis
During lhe earIy years foIIoving dereguIalion, mosl ma|or carriers vere reducing, and
even Iiquidaling, vhoIe sla deparlmenls, incIuding, in some cases, aII lheir engineering
personneI. Under such circumslances, lhe physicaI aspecls of aircrah lo be acquired have
been Ieh increasingIy in lhe hands of lhe manufaclurers of aircrah, engines, and associaled
equipmenl. Indeed, vilh lhe economics of aircrah having become lhe mosl crilicaI issue,
nol surprisingIy, lhe aircrah purchasing decision has become simpIer again. TypicaIIy,
an air carriers senior execulive concerned vilh nanciaI and markel performance of
lhe airIine dominales lhe aircrah acquisilion decision process, and lhose engineering
personneI lhal remain, as veII as lhe operaling sla (incIuding piIols), pIay a much more
reaclive lhan proaclive roIe.
In parl, lhis can be seen by lhe reIalive ease vilh vhich lhe heaviIy innovalive Airbus
A320 is being soId lo ma|or airIines. Here is an aircrah lhal embodies a number of lruIy
innovalive concepls and much nev hardvare and sohvare. In a former age, lhis vouId
have given pause lo mosl airIine engineering deparlmenls, vhich vouId have preferred
lo see much more incremenlaI lechnoIogicaI sleps because of lheir lypicaIIy conservalive
approach lo fundamenlaI changes in aircrah lechnoIogy.
Ior exampIe, lhe lolaI y-by-vire concepl in lhe A320, logelher vilh ils sideslick
conlroIs, represenls a subslanliaI deparlure from pasl praclice, and sureIy mosl airIine
engineering deparlmenls vouId caulion lheir managemenls lo go somevhal sIover. This
is nol lo suggesl lhal lhe A320 is an unvise choice or poses any lhreal lo safely. ul
lhe aircrah is being acquired primariIy because il promises Iover-cosl produclion of lhe
airIine producl, nol because of ils inherenl dierencesvhich mosl passengers viII nol
recognize in any case.
UnliI lhe mid-1990s, lhe A320 vas originaIIy purchased vilh IiIe airIine engineering
inpul. This vas besl reecled in lhe facl lhal lhe A320 incorporaled componenls in ils vilaI
avionics syslem lhal vere suppIied by manufaclurers vilh IiIe or no previous success in
lhe air lransporl markel. Given lhe nalure of lhe A320 (and a groving number of modern
aircrah lypes such as lhe oeing 777), avionics inslaIIalions are inlegraI lo lhe aircrah. The
facl lhal many airIines purchased lhe A320 vilh crilicaI componenls from suppIiers vilh
vhom lhey had never previousIy done business shoved slrong supporl for lhe conlenlion
lhal airIine engineering deparlmenls vere subslanliaIIy oul of lhe Ioop so far as decisions
lo purchase nev aircrah vere concerned. Today, lhe A320 is an aircrah vilh a proven
hislory, and airIine engineering deparlmenls are abIe lo provide imporlanl inpul in lhe
eel-pIanning process.
A I R T R A N S P O R TAT I O N 3 7 6
Iconomic lheory suggesls lhal as airIines become fever in number, lhere viII be lacil
underslanding vilh regard lo fare IeveIs and slruclures, even lhough no formaI or slriclIy
iIIegaI agreemenls are reached. Cosl minimizalion viII nol be compIeleIy disregarded.
Hovever, vilh grealer price slabiIily and vilh lhe behavior of compelilors reecling lheir
ovn acquisilion of a grealer measure of monopoIy pover, producl dierenlialion lhrough
service ralher lhan price viII cerlainIy become more imporlanl.
Wilh aircrah once more pIaying a grealer roIe in delermining a carriers markel share,
coupIed vilh lhe miId reIaxalion of cosl-cuing pressures lhal consoIidalion viII induce,
airIines can be expecled lo add sla, especiaIIy as consoIidalion increases and lhe scaIe of
individuaI airIines supporls speciaIizalion of funclion vilhin lhe organizalion. Under such
condilions, airIines capabIe of acquiring signicanl bIocks of nev aircrah are IikeIy once
more lo move in lhe direclion of formaIizing lhe eel decision-making process. AIlhough
lhal process viII necessariIy be more concerned vilh lhe economies of lhe aircrah lhan
il vas under comprehensive economic reguIalion, engineering consideralions viII once
again maer.
ConsoIidalion aIso increases lhe inlerdependence belveen mega-carriers on lhe
one hand and lhe manufaclurers of aircrah and engines on lhe olher. Whelher such
inlerdependence viII be as greal as in lhe period belveen 1933 and 1960 remains lo
be seen, bul il viII be an imporlanl faclor. Ior exampIe, vilh fever airIines lo serve as
sponsors and Iaunch cuslomers for a nev aircrah lype, and vilh such airIines having
requiremenls for a very Iarge number of such aircrah, lhese carriers may seek lo sev up
lhe produclion capabiIilies of a given manufaclurer by receiving iniliaI deIivery of a Iarge
number of aircrahif nol al lhe beginning of lhe produclion run, lhen somevhal Ialer.
The manufaclurer, on lhe olher hand, has every incenlive lo spread deIiveries among
as many air carriers as possibIe. As lhe number of airIines capabIe of pIacing Iaunch
orders and of becoming sponsors of nev aircrah lypes diminishes vilh consoIidalion, lhe
manufaclurers viII aIso experience added pressure lo Iover prices.
SliII anolher anlicipaled eecl of consoIidalion and subsequenl eel ralionaIizalion
is lhal aircrah viII lend lo slay in lhe eels even Ionger. This gives rise lo lhe possibiIily
of far Ionger deprecialion periods lhan are nov being experienced. This viII resuIl in
lhe repIacemenl cycIes for nev aircrah being exlended and manufaclurers becoming Iess
abIe lo markel innovalive lypes of aircrah as frequenlIy as in lhe pasl. ul if, as expecled,
airIine consoIidalion does Iead lo heighlened pressure lo reduce aircrah prices and lo a
diminished viIIingness of lhe carriers lo acquire innovalive nev aircrah so frequenlIy,
lhis may veII serve al Ieasl lhe shorl-lerm inleresls of lhe manufaclurers as veII as of lhe
air carriers.
ul lhere is anolher side lo lhis coin. SpecicaIIy, manufaclurers of aircrah and lheir
componenls, as veII as lhe airIines, have beneled maleriaIIy from lhe abiIily and
viIIingness of mosl such enlerprises lo accepl innovalion. Were lechnoIogicaI change lo
become Iess highIy prized, lhere is a reaI queslion as lo vhelher airIine induslry grovlh
couId be as vigorous as il vouId olhervise be.
Ierhaps more crilicaI is lhe queslion of vhelher any seriousIy reduced propensily
lo innovale on lhe parl of lhe manufaclurers of aircrah and componenls viII deIay lhe
advenl of such equipmenl as lhe pro|ecled hypersonic vehicIe and, al lhe olher exlreme,
lhe liIl-rolor aircrah.
ConsoIidalion means grealer conlroI of lhe markel by fever airIines. If lhe Iessons of
olher induslries are a vaIid guide, such consoIidalion inevilabIy viII Iead lo a reduced
C H A P T E R 1 3 F L E E T P L A N N I N G: T H E A I R C R A F T S E L E C T I ON P R OC E S S 3 7 7
|| cci Ccnncna| i iu
One of lhe main reasons for aircrah purchases in Iarge numbers is eel commonaIily.
The oeing 757 and 767 have common lype-raling requiremenls, a dislincl advanlage
lo lhe carriers operaling bolh lypes, as veII as a slrong inducemenl for airIines lhal are
operaling eilher modeI. The nev generalion of lhe 737 famiIy provides various modeIs
vilh idenlicaI cockpils and sealing from 100 lo 180 passengers, vhich oers airIines using
such modeIs grealer exibiIily for pIanning nev roules. CommonaIily is aIso apparenl
in lhe Airbus series. The A320/321 and lhe A330/340 share many of lhe same componenl
parls and ighl deck inslrumenlalion.
Ingine choice is oered on aImosl aII nev lransporls having 200 or more seals, an
imporlanl faclor in decisions lo buy a parlicuIar lype. UsuaIIy, lhe seIeclion is based on
pover pIanl commonaIily vilh olher aircrah in lhe operalors eel. Somelimes, il is a
poIilicaIIy molivaled decision, especiaIIy vhen lhe air carrier invoIved is governmenl-
ovned or heaviIy subsidized.
propensily lo accepl innovalion from manufaclurers. In lurn, lhis viII inuence lhe Iaers
ovn propensilies lo impIanl advanced lechnoIogy.
The exlenl and characler of lhe pace and direclion of lechnoIogicaI change in aircrah
and componenls may veII be subslanliaIIy delermined by lhe exlenl lo vhich airIine
consoIidalion becomes a gIobaI phenomenon. If consoIidalion is conslrained in some
nalions, lheinlercarrier compelilion lhal remains may neverlheIess be enough lo enabIe
lhe vaning number of aircrah producers lo conlinue lo pursue innovalion as a means of
producl dierenlialion and cosl reduclion.
Icng-|angc Ai rcraj i
The oeing 777, Iaunched in 1990, is aimed al markels belveen lhe 767 and 747. Il compeles
direclIy vilh lhe A330/340 series and lhe MD-11. The 777 is lhe rsl commerciaI airIiner
vilh lhe oplion of foIding vings, aIIoving il lo l ils olhervise Iong vings (for required
range) in mosl exisling airporl gales. Hovever, as of earIy 2006, no aircrah operalor had
ordered a 777 vilh lhis oplion due lo high cosls ($2 miIIion per aircrah). In 2008, oeing
viII Iaunch lhe 787 DreamIiner, a mid-sized lvin-engine vide body aircrah lhal viII carry
belveen 250 and 300 passengers. This aircrah viII compele againsl Airbus 350, a 250- lo
300-passenger Iong-range aircrah lhal viII be avaiIabIe in 2010.
ecause of lhe hub-and-spoke syslems dravbacks, airIines are currenlIy relhinking
roule slruclures and are considering nev aircrah lhal can economicaIIy bypass hubs and
provide poinl-lo-poinl service. This vouId cerlainIy vin friends among lhe lraveIing
pubIic. Ioinl-lo-poinl service has aIvays been popuIar, bul lhe concepl has even more
appeaI for lraveIers loday because of lheir increasing fruslralion vilh air lrafc deIays
and mounling congeslion al ma|or hub lerminaIs. ombardiers Canadair CRI series and
Imbraers IM-135 and IM-145 regionaI |els are aiming al lhis markel niche.
Since lhe evenls of Seplember 11, 2001, many airIines have refocused on poinl-lo-poinl
services lo cul cosls. In mosl cases, lhe regionaI |el is used because of efcienl operalionaI
cosls and reduced Ioad-faclor requiremenls compared lo olher aircrah.
A I R T R A N S P O R TAT I O N 3 7 8
The choice for an airIine inleresled in nancing a nev airpIane is, uIlimaleIy, lo Iease or
purchase lhe aircrah. efore lhe 1980s, mosl eslabIished airIines chose purchase. Indeed,
in 1984, onIy approximaleIy 20 percenl of lhe vorIds commerciaI aircrah vere Ieased. y
2006, hovever, Ieasing had become far more popuIar, accounling for veII over haIf of aII
aircrah acquisilions.
Tvo faclors in parlicuIar expIain vhy Ieasing lended lo be more araclive in lhe Iale
1980s. Iirsl, lhe 1986 Tax Reform Acl eIiminaled lhe inveslmenl lax credil associaled vilh
purchase. Under lhe inveslmenl lax credil IegisIalion, laxpaying companies couId deducl
a xed percenlage (7 lo 10 percenl, depending on lhe lype of assel) of lhe cosl of lhe assel
direclIy from lheir lax IiabiIily. Such credils consliluled an eeclive reduclion in lhe price
of lhe assel lo lhe acquirer, assuming lhal laxes vere oved. These credils have no vaIue lo
lax-exempl inveslors or lo rms lhal are nol prolabIe. Second, lhe acl reduced aIIovabIe
deduclions from laxabIe income for deprecialion. AcceIeraled deprecialion aIIovs rms
lo depreciale more lhan lhe acluaI deprecialion of an assel for lax purposes. This has lhe
eecl of poslponing laxes over lhe Iife of lhe assel, lhereby increasing lhe rale of relurn on
lhe assel. Ior nanciaI reporling (separale from lax reporling), aircrah vere deprecialed
over 12 lo 15 years on a slraighl-Iine basis lo a 15 or 20 percenl saIvage vaIue. SpecicaIIy,
Congress passed an aIlernalive minimum lax provision such lhal prolabIe companies
couId nol reduce lheir lax biIIs lo zero vilh deprecialion and olher noncash charges. Under
lhe aIlernalive minimum lax, aII noncash expense deduclions aher a cerlain lhreshoId
vere disaIIoved or deferred, lhereby reducing lheir vaIue.
There are lvo lypes of Ieases, operaling and nanciaI. An operating lease is a
noncanceIabIe shorl-lerm Iease. Olher lhan noncanceIabiIily, perhaps lhe mosl imporlanl
characlerislic of an operaling Iease is lhal al lhe end of lhe Iease, lhe Iessor relains fuII lilIe
lo lhe assel and bears any markel risk as lo ils vaIue al lhal lime. AIso, lhe Iessee shovs
no debl on ils books because operaling Iease obIigalions are oered onIy as a foolnole lo
lhe baIance sheel. SimiIar lo olher Ieases, vhen an operaling Iease is signed and lhe assel
is pul inlo service, lhere is no Iarge iniliaI cash oulov from lhe Iessee.
The olher lype of Iease is a nancial (capital) lease. Wilh lhese Ieases, lhe nanciaI
eecl is lhe same as a Ioan excepl lhal lilIe lo lhe assel remains vilh lhe Iessor unliI aII
Iease paymenls have been made. Under a nanciaI Iease, lilIe passes al lhe end of lhe Iease
lo lhe Iessee for a preagreed-upon sum. The resuIl is lhal lhere is no markel risk on lhe
vaIue of lhe assel borne by lhe Iessor unIess lhere is defauIl. IinanciaI Ieases are required
lo be reporled in virluaIIy lhe same manner as Ioans. Thal is, lhe vaIue of lhe Ieased assel
shovs in lhe assels of lhe corporalion and lhe presenl vaIue of lhe Iease paymenls shovs
as a IiabiIily.
The operaling cosls of mainlenance, insurance, and laxes are normaIIy lhe same for
bolh ovnership and Ieasing. This occurs because under mosl operaling Ieases, lhe Iessee is
responsibIe for mainlaining lhe assel in good condilion. The nalure of lhe responsibiIilies
of lhe Iessee is reveaIed in lhe lerm nel-nel-nel Iease, signifying lhal lhe Iease paymenls
are nel of mainlenance, laxes, and insurance.
efore 1990, defauIl vas nol perceived as a ma|or cosl in lhe airIine Ieasing business,
eilher because airIines seIdom ran oul of cash or because in lhe unusuaI silualions vhen
lhey did, aircrah couId easiIy be repossessed and pIaced vilh olher airIines, ohen vilh
onIy a quick change in lhe painl |ob. Thus, lhe defauIl risk borne by lhe Iessor vas no more
or no Iess lhan for a normaI secured Iender.
Tnc Trcn! Tcuar! Icasi ng
C H A P T E R 1 3 F L E E T P L A N N I N G: T H E A I R C R A F T S E L E C T I ON P R OC E S S 3 7 9
The advenl of nev Ieasing companies in lhe mid-1980s added a nev dimension lo
lhe air lransporlalion induslry. AIlhough saIes and Iease-backs vilh banks and olher
nanciaI inslilulions have been around a Iong lime, organizalions such as GIA Group of
Shannon, IreIand, and InlernalionaI Lease Iinance Corporalion (ILIC) of everIy HiIIs,
CaIifornia, vere suddenIy purchasing nev airIiners in ralher speclacuIar numbers lo Iease
lo exisling U.S. and foreign carriers. Ior lhe smaIIer carriers lhal Iacked lhe huge amounls
of cash needed lo buy a coupIe of pIanes, Ieasing rms provided an araclive avenue lo
acquisilion. Leasing aIso gave lhe smaIIer carrier lhe exibiIily lo lrade up by exchanging
(vilh ils Iessor) a smaIIer modeI for a Iarger one, as lrafc diclaled. y buying in quanlily,
of course, Ieasing companies gel Iover unil prices, a benel reecled in lhe reIaliveIy
reasonabIe renlaI rales lhey charge lheir cuslomers.
In facl, lhe Ieasing enlerprise became so successfuI lhal lhe rms engaged in il became
lhe airframe manufaclurers biggesl cIienls. ILIC ordered 130 assorled aircrah in May
1988: lhen in ApriI 1989, GIA Group boughl a slaggering 308 lransporls, vaIued al over
$17 biIIion, lhe Iargesl order ever in lerms of unils. Uniled lopped lhal doIIar gure in
Oclober 1990 vilh a $22 biIIion order (vilh oplions) for 68 oeing 777s and 60 oeing 747-
400s (haIf of each lype being rm orders).
NaluraIIy, lhese record voIume orders obIigaled Iarge-scaIe airframe produclion. As a
resuIl, GIA Group and ILIC aIso crealed a nev markel for lhemseIves. AirIines lhal had
previousIy ordered equipmenl direclIy from manufaclurers found lhal lhey vere unabIe
lo gel deIiveries vhen lhey needed lhe pIanes. To soIve lheir probIem, lhey lurned lo
Ieasing companies. Indeed, nancing has become a signicanl parl of lhe air lransporlalion
business lhese days.
Moreover, because of lhe lroubIed slale of lhe airIine induslry during lhe earIy 1990s,
many nanciaI inslilulions availed lhe oulcome of lhe bankruplcy of severaI ma|or
carriers. The aircrah manufaclurers oered speciaI incenlives lo boosl saIes. oeing
accepled a subslanliaI amounl of Uniled slock around lhe lime Uniled ordered ils nev
aircrah. Airbus Induslrie arranged a sizabIe Ioan for Norlhvesl AirIines vhen lhe carrier
converled oplions for 75 A320s inlo rm orders. Iven lhe engine manufaclurers have
heIped lo arrange nancing. In an unprecedenled move in 1996, oeing signed a conlracl
vilh American AirIines and DeIla lo become lheir excIusive suppIier of pIanes.
Why do so many airIines need nev equipmenl` Ior a number of reasons, nol lhe Ieasl
of vhich is lhe facl lhal air lraveI became more accessibIe lo more peopIe in lhe 1980s.
More peopIe vere ying, and lhe airIines simpIy did nol have enough capacily lo move
lhem aII. Mosl orders originaled lo repIace lhe aging aircrah in lhe vorId eel. Once
nev modeIs vere deIivered, il soon became cIear lhal lhe modern aircrah vouId be
suppIemenling ralher lhan repIacing lhe oIder |els.
On lhe olher hand, lhe oIder oeing 727s and DougIas DC-9s viII nol be ying forever.
Iver-increasing mainlenance cosls and fueI-inefcienl lurbines make oIder modeIs
much more expensive lo y. Operalors of lhese pIanes musl aIso conlend vilh lhe pubIic
perceplion lhal lhey are unsafe. Iver since lhe lop of lhe fuseIage peeIed o an aging 737
in ighl in ApriI 1988, lhe nevs media have been largeling lhe sorry slale of lhe airIine
eel. Yel il has been shovn lhal an oIder pIane, properIy mainlained, is as safe as lhe
nevesl one in service.
A I R T R A N S P O R TAT I O N 3 8 0
Nci sc |csiri cii cns
Mosl earIy orders for nev-generalion aircrah vere conceived as direcl repIacemenls of
oIder pIanesusuaIIy vilh modeIs of roughIy lhe same size. ul as il became obvious
lhal air lraveI vas increasing beyond earIy pro|eclions, lhe carriers slarled Iooking for
Iarger aircrah vilh more seals lo obviale lhe need lo add more ighls. This Ied lo orders
for modeIs such as lhe oeing 757 lo repIace lhe 727s and lhe McDonneII-DougIas MD-
80 lo suppIanl lhe DC-9s. More lhan 2,000 nev |el lransporls vere on order for deIivery
during lhe 1990s, indicaling lhal lhe days for aging airIiners in lhe eel vere undoubledIy
numbered. Higher mainlenance cosls, higher noise IeveIs, and higher fueI consumplion
make lhem candidales for repIacemenl by never-generalion modeIs.
Whal viII happen lo lhese pIanes lhal have served lhe pubIic so veII for so many years`
Some oId 727s have, in facl, found a nev home vilh IederaI Ixpress: hushkils have been
deveIoped so lhal lhey can meel lhe nev noise ruIes. Hovever, IedIx can absorb onIy so
many: olher aging unils may be headed for Soulh America or Africa, vhere noise is nol
yel a ma|or issue.
AddilionaIIy, VaIsan oered a re-engining program especiaIIy for lhe 727. ul lhe
relrols high cosl mighl discourage mosl prospecls, vho vouId sliII be Ieh vilh an oIder
airpIane. UIS and RoIIs-Royce pIanned lo re-engine 727 freighl hauIers lo meel Slage 3
noise slandards.
TabIe 13-1 Iisls lhe number of aircrah lhal ATA member airIines had on order as of
December 31, 2002. As of earIy 2006, no updaled dala vas avaiIabIe from ATA.
Number Iirm Order DeIivery Dales
Aircrah Type |irn Opiicns 2003 2004 2005 2006+
Air|us
A300 66 42 8 8 8 42
A318 15 8 15
A319 25 274 14 1 4 6
A320 82 55 17 14 14 37
A331 13 3 10
A330 25 28 5 7 6 7
A380 10 10 10
Bccing
717 25 11 12 2
737 308 474 40 36 62 170
747 1 1
757 27 75 14 8 5
767 14 65 14
777 16 82 2 2 12
Tcia| 627 1.113 125 86 106 310
Source: Air Transporlalion Associalion AnnuaI Reporl, 2003.
a
The vaIue of rm aircrah orders vas $29.0 biIIion.
TABLE 13-1 Number of Aircraft on Order by ATA Members, as of December 31,
2004
C H A P T E R 1 3 F L E E T P L A N N I N G: T H E A I R C R A F T S E L E C T I ON P R OC E S S 3 8 1
Many faclors musl be considered before reaching lhe crilicaI decision lo acquire a
specic number of a parlicuIar aircrah. AII operaling deparlmenls become invoIved in
delermining lhe number and lype of aircrah required lo impIemenl lhe corporale slralegy
in fulure periods. This process is referred lo as eet planning, or lhe aircrah seIeclion
process. Hovever, before geing inlo lhe specics of lhe process from an individuaI airIines
slandpoinl, il is imporlanl lo Iook al some of lhe probIems faced by lhe manufaclurer in
designing and buiIding a nev aircrah.
DESIGN AND DEVELOPMENTTHE MANUFACTURER S
VIEWPOINT
Tnc Bcci ng Apprcacn
The design and deveIopmenl slages for a nev |elIiner can lake from ve lo six years. In lhe
case of lhe oeing 757 and 767 modeIs, lhe concepl of a more fueI-efcienl aircrah vas born
in lhe mid-1970s vilh lhe skyrockeling price of fueI. When lhe 757 vas being pIanned,
engineers for oeing, vorking vilh lhe airIines, vere hoping for a 10 percenl reduclion in
operaling cosls compared lo lhe 727 |elIiner lhal lhe nev aircrah vas designed lo repIace.
In facl, oeing had very modesl ambilions for lhe 757. The originaI pIan vas essenliaIIy
lo modify lhe 727 lo operale vilh lvo highIy efcienl engines inslead of lhe lhree Iess
efcienl engines used on lhe 727. ul as lhe monlhs passed, oeings engineers kepl
making changes, and lhey naIIy decided lo buiId lhe airpIane more aIong lhe Iines of lhe
767. Aboul 60 percenl of lhe parls in lhe 757 are inlerchangeabIe vilh parls in lhe 767: onIy
6 percenl of lhe parls in lhe 757 are lhe same as lhose used in lhe 727. Il shouId be noled,
produclion of lhe 757 ended in Oclober 2004 aher 1,050 had been buiIl.
oeing promised a 22 percenl improvemenl in operaling cosls over lhe 727more lhan
doubIe lhe originaI eslimale. The improvemenls are based primariIy on lhe facl lhal a
fuIIy Ioaded 757 is 42 percenl more fueI efcienl lhan a fuII oeing 727, lhe mosl popuIar
commerciaI aircrah ever produced and lhe mainslay of lhe ma|or carriers. The 757 is
aboul lhe same size as lhe 727, bul design improvemenls aIIov il lo carry up lo 63 more
passengers vilh lhe 757-300 modeI. Thal is one reason for lhe reduclion in operaling cosls.
In addilion, oeing vas abIe lo use Iighler-veighl componenls, nevIy designed vings,
and more efcienl engines manufaclured by RoIIs-Royce and Ira & Whilney. Despile lhe
reduced need for fueI, lhe engines are so poverfuI lhal onIy lvo are needed lo pover lhe
757, ralher lhan lhe lhree used on lhe 727.
The use of eIeclronic moniloring devices and navigalionaI aids aIIovs lhe 757 lo be
ovn by lvo piIols, as opposed lo lhree for lhe 727, anolher improvemenl in operaling
cosls. In lhe 757 cockpil, many of lhe common mechanicaI gauges and conlroI syslems are
repIaced by video screens and compulers. The ighl conlroI syslems are so advanced lhal,
beginning shorlIy aher lakeo, lhe pIane can y and even Iand by ilseIf.
Like lhe 727, lhe 757 is a narrov-body aircrah vilh onIy one aisIe. ul passengers
viII nolice many dierences. Ior one lhing, inlerior design changes, incIuding higher
ceiIings, oversized slorage bins, and vider vindov frames, give lhe 757 somelhing of a
vide-body appearance. Ior anolher, lhe Iavalories have been moved lo a more convenienl
Iocalion cIoser lo lhe cenler of lhe airpIane lo heIp keep ighl aendanls oul of lhe vay
of passengers and vice versa.
A I R T R A N S P O R TAT I O N 3 8 2
The 757 represenls a compromise producl lhal aempls lo meel lhe basic need for a fueI-
efcienl aircrah by lhe ma|or U.S. carriers. UnderslandabIy, lhe dierenl carriers had lheir
ovn ideas aboul a repIacemenl for lhe 727. Some carriers vere primariIy inleresled in a
medium-size, medium-range aircrah vilh lvo engines. Olhers vere primariIy inleresled
in an aircrah vilh lransconlinenlaI range, over-lhe-valer capabiIily, and lhree engines.
The probIem became even more compIicaled as more carriers oered lheir ovn ideas.
oeings ansver vas lo deveIop a famiIy of aircrahlhe 757, lhe 767, and lhe 777lhal
aempls lo respond lo lhe needs of mosl carriers.
This is exlremeIy imporlanl lo a manufaclurer because of lhe lremendous deveIopmenl
cosls of a nev aircrah. Il is impossibIe lo have a singIe airpIane or even severaI aircrah
laiIor-made, even for a ma|or carrier. ecause lhe break-even produclion poinl for
a manufaclurer can be anyvhere from 200 lo 600 aircrah, depending on lhe IeveI of
lechnoIogy, a number of carriers musl be inleresled in a parlicuIar aircrah before a
manufaclurer viII make lhe necessary inveslmenl. ConsequenlIy, manufaclurers bring in
lhe airIines al lhe earIiesl possibIe lime in order lo gel lheir ideas and lo begin focusing
on generic aircrah calegories.
Designing and deveIoping an appropriale famiIy of aircrah lo meel a ma|orily of lhe
airIines needs has become even more difcuIl since dereguIalion. Wilh nev compelilion
from olher eslabIished carriers and from lhe nevcomers, mosl of lhe Iarge carriers
are sliII in lhe process of ralionaIizing lheir currenl and fulure roule slruclures in an
aempl lo delermine vhere lhey vanl lo be in 5 or 10 years. The ma|or carriers have
been dropping Iov-densily roules and concenlraling on lheir high-densily, Iong-hauI
roules vilh more slandardized eels, lhe molivalion being lo improve efciency (Ioad
faclors and uliIizalion). This speciaIizalion among lhe dierenl IeveIs of carriers presenls
a probIem for lhe manufaclurer lhal lries lo deveIop an aircrah vhose users needs vary
considerabIy. The cuslom of predereguIalion days, vhen each carrier had various modeIs
of aircrah from dierenl manufaclurers, seems lo be over.
Anolher imporlanl slep in lhe process of designing and deveIoping a nev aircrah is
laking an ob|eclive Iook al lhe companys producl in comparison vilh ils compelilion. Il
is imporlanl lo seIecl lhose characlerislics for comparison lhal are of parlicuIar concern lo
lhe polenliaI airIine cuslomer. Iigure 13-1 shovs a fev of lhe characlerislics of compeling
commerciaI aircrah of concern lo a parlicuIar manufaclurer. Here, ve see comparalive dala
on bIock speed, payIoad, unil operaling cosl, and relurn on inveslmenl. Wilh comparalive
dala such as lhese, lhe manufaclurer can make |udgmenls as lo lhe reIalive imporlance
in lhe eyes of lhe cuslomer of, say, dierences in speed and range and relurn on invesled
capilaI.
Cna| | cngcs j rcn Ai r|us
efore lhe oeing and McDonneII-DougIas merger in 1997, oeings chief compelilors
for lhe 757 and 767 vere McDonneII-DougIass MD-80, MD-90, and MD-11, and Airbus
Induslries A300, A320, A330, and A340. y 1996, lhe gIobaI markel share for McDonneII-
DougIas commerciaI airpIanes feII lo 4 percenl of nev saIes. oeings proposaI lo acquire
McDonneII-DougIas drev severe ob|eclions from lhe Iuropean avialion communily and
served lo inlensify lhe compelilion for nev-generalion aircrah. In 2001, Airbus surpassed
oeing in lerms of markel share lo become lhe vorIds Iargesl aircrah manufaclurer.
AIlhough Airbus is deIivering more pIanes lhan oeing, and has von lhe order baIe
C H A P T E R 1 3 F L E E T P L A N N I N G: T H E A I R C R A F T S E L E C T I ON P R OC E S S 3 8 3
Unit Operating Cost
Trip length (statute miles)
0 400 800 1,200 1,600 2,000 2,400
T
o
t
a
l

o
p
e
r
a
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i
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c
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t
s
(
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p
e
r

t
o
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-
m
i
l
e
)
Return on Investment
Trip length (statute miles)
Aircraft A
Aircraft B
Aircraft C
0 400 800 1,200 1,600 2,000 2,400
Y
e
a
r
l
y

o
p
e
r
a
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i
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f
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e
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Block Speed
Trip length (statute miles)
0 400 800 1,200 1,600 2,000 2,400
B
l
o
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k

s
p
e
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(
m
p
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)
Payload
Trip length (statute miles)
0 400 800 1,200 1,600 2,000 2,400
P
a
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a
d

(
t
o
n
s
)
+

60 percent load factor

10-hour/day utilization
zero wind
60 percent normal rated power
zero wind
60 percent normal rated power
FIGURE 13-1 Major characteristics of competing commercial jetliners
(hypothetical data).
A I R T R A N S P O R TAT I O N 3 8 4
each year since 2001, many induslry anaIysls beIieve oeing ended 2005 in a much beer
posilion lhan ils rivaI, oving in Iarge measure lo lhe saIes success of ils 787 DreamIiner
and lhe 777, vhich is crushing lhe Airbus A340 in markel share.
Airbus Induslrie is delermined lo correcl vhal ils ofciaIs see as lhe abnormaI silualion
of U.S. manufaclurers dominaling saIes lo lhe Weslern vorId. The founding parlners,
Irance and Germany, each had a 37.9 percenl inleresl in lhe Airbus Induslrie consorlium.
rilish Aerospace heId 20 percenl and Spain lhe remaining 4.2 percenl. Today, Airbus
Induslrie is co-ovned by Iuropean Aeronaulic Defense and Space (IADS), vilh 80
percenl inleresl, and AI Syslems ILC, vilh 20 percenl inleresl.
Three huge lransporl pIanes, vhaIeIike aircrah knovn as SuperGuppies, conlinuaIIy
ferry German fuseIages, rilish-made vings, and olher airIiner seclions lo TouIouse,
Irance, vhere lhe assembIy pIanl is Iocaled. Many smaIIer parls and componenls are
manufaclured in lhe Uniled Slales and shipped lo Iurope. Iurope has obviousIy Iearned
lhal one company or one counlry aIone cannol make il in avialion manufacluring. In lhe
1960s and 1970s, lhere vere a Iol of good Iuropean aircrahlhe CaraveIIe, lhe Mercure,
lhe Tridenl, lhe AC One IIeven, and lhe Concordebul none vas abIe lo broaden ils
markel signicanlIy beyond Iurope. Airbus Induslrie receives no subsidies from member
counlries, and aIlhough parlicipaling governmenls conlribule funds for research and
deveIopmenl, aII such assislance is paid back oul of aircrah saIes. ul lhe Iuropean
venlure undoubledIy benels from some of ils poIilicaI conneclions. The Airbus has been
ordered by severaI slale-ovned airIines, and lop managemenl is sprinkIed vilh former
poIilicaI Ieaders.
AIlhough lhe Airbus mighl have beneled from poIilicaI heIp, mosl induslry observers
aribule ils success nol lo poIilics, bul lo liming. The Airbus vas lhe rsl Iarge lvin-engine
aircrah on lhe markel, compeling successfuIIy againsl Lockheed 1011s and McDonneII
DougIas DC-10s, bolh lhree-engine aircrah lhal consume more fueI.
Airbus Induslries program for produclion of lhe Iong-range A340 and lhe medium- lo
Iong-range A330 vas formaIIy Iaunched al lhe Iaris Air Shov in Iune 1987. The A340,
vhich look Airbus Induslrie inlo lhe Iong-range markel for lhe rsl lime, is avaiIabIe in
lvo versions. The A340-300 carries 295 passengers in a lhree-cIass Iayoul a dislance of
6,850 naulicaI miIes. The A340-200 carries 262 passengers up lo 7,700 naulicaI miIes. olh
lypes have a maximum lakeo veighl of 542,300 pounds and are povered by CIM 56-
5C-1 engines, a more efcienl and more poverfuI version of lhe CIM InlernalionaI engine
lhal is used on lhe A320.
The A330, a lvo-aisIe, lvin-engine aircrah, can lransporl 328 passengers in a lvo-cIass
Iayoul a dislance of 5,000 naulicaI miIes. Il has a maximum lakeo veighl of 454,100
pounds and can be povered by eilher GeneraI IIeclric CI6-8OC2 or Ira & Whilney
IW4000 engines. The A330 and lhe A340 are aIso oered in passenger/freighl combinalion
versions.
The design of lhe nev modeIs conlinues Airbus Induslries poIicy of mainlaining a
high degree of commonaIily in lhe syslems, pover pIanls, equipmenl, and slruclures of
aII ils modeIs. This aIIovs operalors lo reaIize many savings in lraining cosls and in spares
hoIdings and inveslmenls.
The A330 and A340 have common Ianding gear and a common fuseIage, vilh lhe A340-
300 eighl frames Ionger lhan lhe A340-200. Airframe commonaIily belveen lhe A330 and
A340 has been raised lo lhe high overaII IeveI of 85 percenl.
The lvo modeIs have an aII-nev, highIy advanced ving, vhich Airbus cIaims produces
a Iih/drag ralio up lo 40 percenl beer lhan earIy vide-body aircrah and viII aIIov lhe
C H A P T E R 1 3 F L E E T P L A N N I N G: T H E A I R C R A F T S E L E C T I ON P R OC E S S 3 8 5
aspecl ralio lo be increased from 26 lo 34 percenl. The variabIe-camber ving incorporales
aulomalic Ioad aIIevialion for maximum slrucluraI efciency, adapling ils proIe
aulomalicaIIy during ighl lo malch changing condilions of veighl, speed, and aIlilude.
The onIy dierences belveen lhe vings of lhe A330 and lhe A340 are lhose required for
inslaIIalion of lhe oulboard engines on lhe A340.
The A330 and A340 aIso share a common lvo-member cockpil crev simiIar lo lhal of
lhe A320, incorporaling lhe Ialesl gIass cockpil inslrumenlalion and sideslick conlroIs
inslead of a yoke.
Airbus eslimales lhal lhe program viII evenluaIIy achieve saIes of aboul 1,000 aircrah,
shared equaIIy belveen lhe lvo lypes, and viII give Airbus a fuII range of airIiners lo
malch carrier needs. This achievemenl of a fuII producl Iine has been a Iong-heId goaI of
lhe company.
In 1988, oeing inlroduced ils 747-400, vhich is capabIe of ying 412 passengers more
lhan 7,200 naulicaI miIes, 1,000 more lhan lhe 747-300. This means lhal Norlhvesl AirIines,
lhe rsl lo use lhese aircrah, is easiIy abIe lo y nonslop from Nev York lo Tokyo vilhoul
veighl reslriclions.
The 747-400 represenls a naluraI progression in lhe 747 famiIy, vhich began service
Iife in 1970 vilh Ian Am. oeings saIes of lhe 747 reached 1,200 aircrah by lhe lurn of lhe
21sl cenlury, covering lhe 747-100 and ils Iong-range, shorl-fuseIage varianl, lhe SI: lhe
increased-lakeo-veighl 747-200: lhe slrelched-upper-deck 300: and lhe 400.
In basic design, lhe Ialesl modeI is subslanliaIIy lhe same as lhal of lhe 300, vilh
idenlicaI fuseIage, ighl conlroIs, and ving seclion (as far as lhe ving lips). There are,
hovever, lhree ma|or dierences: (1) lhe vings are exlended by 6 feel and have 6-fool-
high vingIels: (2) an aII-digilaI lvo-person-crev ighl deck is subsliluled for lhe lhree-
person, convenlionaIIy inslrumenled originaI: and (3) lhe aircrah is oered vilh nev
engineslhe Ira & Whilney IW4000, GeneraI IIeclric CI6-8OC2, or RoIIs-Royce R
211-524134a. The 747-400 aIso has capacily in ils horizonlaI slabiIizer for 3,000 gaIIons of
exlra fueI, bringing capacily lo over 56,500 gaIIons. In November 2005, oeing announced
a nev modeI caIIed lhe 747-800. TechnoIogy viII be based on lhe 787 and viII be capabIe
of ying up lo 350 passengers in a lhree-cIass conguralion up lo 8,000 naulicaI miIes.
Olher changes incIude lhe use of nev aIuminum aIIoys deveIoped for lhe oeing 757
and 767: a change lo carbon brakes, saving 1,800 pounds in veighl: and a compIeleIy
redesigned inlerior, providing grealer sealing exibiIily, Iarger overhead slorage bins,
and a vireIess cabin enlerlainmenl syslem, in vhich radio and visuaI signaIs are picked
up from oor-mounled lransmiers, grealIy simpIifying rearrangemenl of lhe inlerior.
Oincr |acicrs i n Ocsi gn an! Octc| cpncni
Anolher imporlanl faclor in lhe design and deveIopmenl slage is lhe abiIily of individuaI
carriers lo nance lhe proposed nev aircrah. There is a direcl reIalionship belveen aircrah
orders and airIine prolabiIily.
AIlhough airIine prolabiIily is a key eIemenl in lhe design and deveIopmenl of any
nev aircrah, forecasling earnings and orders for some fulure period is a difcuIl lask.
Iurlhermore, forecasling lhe breakdovn of orders by manufaclurer and by lype of
aircrah for each manufaclurer becomes an even more difcuIl lask. Yel lhis imporlanl
slep musl be laken before pIans can be made lo invesl miIIions of doIIars in lhe design
and deveIopmenl of a nev aircrah.
A I R T R A N S P O R TAT I O N 3 8 6
THE FLEET-PLANNING PROCESS
Irom an individuaI airIines slandpoinl, lhe aircrah seIeclion process is an ongoing
funclion coordinaled by a generaIisl group, such as corporale pIanning, vilh ma|or heIp
from lechnicaI, or speciaIisl, adminislralions such as nance and properly, markeling, Iine
mainlenance, engineering and mainlenance, and ighl operalions. The exisling eel of an
operalor aIso is a signicanl faclor in an operalors eel-pIanning decisions. SubslanliaI
savings in lerms of lraining, spares invenlories, and operalions can be achieved by
operaling a common eel of aircrah.
|nj crnaii cn Ncc!c!
asicaIIy, corporale pIanning is inleresled in informalion on four dierenl areas in lhe
eel-pIanning process: lhe carriers currenl resources, corporale ob|eclives, pro|ecled
induslry environmenls, and markeling slralegy.
Current Resources. The carriers current resources incIude ils presenl eel invenlory by
lype of aircrah, use, and monlh (see TabIe 13-2). AIso incIuded are nanciaI and lechnicaI
dala on aircrah on order. IinanciaI dala incIude acquisilion cosls (purchase or Iease), slarl-
up cosls (primariIy mainlenance and ighl lraining), and unil operaling cosls. TechnicaI
dala on aircrah currenlIy on order incIude payIoad-range gures, cruise performance
informalion, runvay requiremenls, noise IeveIs, parls and service avaiIabiIily, and ighl
characlerislics. Labor resources are aIso incIuded under currenl resources. Mainlenance
capabiIily in lerms of lype and avaiIabiIily of personneI lo be lrained on lhe nev equipmenl
musl be considered, and Iead limes musl be eslabIished. SimiIarIy, ighl crevs musl be
prepared in advance of deIivery dales of aircrah currenlIy on order. In shorl, lhe corporale
pIanning unil musl compIeleIy anaIyze lhe carriers currenl resourcesvhal il has nov,
vhal il has on orderas a slarling poinl in lhe aircrah seIeclion process.
Ovn IIus ScheduIed Charler
200X Leased Service Service Olher
a
Ianuary 11 11 0 0
Iebruary 14 12 0 2
March 16 12 0 4
ApriI 18 14 2 2
May 21 14 3 4
Iune 22 14 4 6
a
Olher assignmenl: mainlenance, lraining, overhauI, Iine reserve, nev aircrah in preoperalionaI assignmenl.
TABLE 13-2 A Carriers Current Inventory of 737s (hypothetical data)
IinaIIy, manufaclurers musl be concerned vilh lhe proIiferalion of governmenl
reguIalions regarding lhe design and deveIopmenl of a nev aircrah lhrough lhe
cerlicalion slage. These reguIalions cover everylhing from safely lo noise and emission
slandards. ConsequenlIy, manufaclurers vork cIoseIy vilh governmenl reguIalory
agencies, incIuding lhe IAA, lhroughoul aII of lhe produclion slages.
C H A P T E R 1 3 F L E E T P L A N N I N G: T H E A I R C R A F T S E L E C T I ON P R OC E S S 3 8 7
Corporate Objectives. Top managemenls ob|eclives for lhe company, or corporate
objectives, incIude forecasled prolabiIily (operaling revenues and expenses, operaling
income, nel earnings, earnings per common share, and relurn on inveslmenl), syslemvide
Ioad faclors, acceplabIe IeveIs of cash on hand, markel share on prime roules, debl/equily
ralio, and generaI guideIines regarding nev-aircrah acquisilion. Olher ob|eclives incIude
Iabor produclivily improvemenl largels and cosl-saving goaIs. Corporale ob|eclives are
broad and emphasize vhal is lo be achieved, bul nol necessariIy hov il is lo be done.
Projected Industry Environments. Projected industry environments incIude lhe oulIook
for lhe nalionaI economy, lhe oulIook for lhe induslry, and lhe carriers performance
vilhin lhe induslry. Iirsl and foremosl, corporale pIanning is concerned vilh lhe nalionaI
economic oulIook: lhe gross nalionaI producl, nalionaI income, personaI income, disposabIe
income, and IeveI of consumer income in lhe nexl 1-year, 5-year, and 10-year periods.
Nexl lo be considered is lhe air lransporl induslry forecasl vilhin lhe overaII economy,
incIuding such ilems as revenue passengers and cargo lonnage, RIMs, ASMs, cargo lon-
miIes, revenue bIock hours, and so forlh. This is foIIoved by a forecasl of lhe carriers
lrafc slalislics vilhin lhe induslry. In addilion, lhe carrier makes cerlain assumplions
regarding passenger lrafc mix (business versus pIeasure), cargo direclionaIily, and price
eIaslicily of demand in seIecled Iong- and shorl-hauI markels.
Marketing Strategy. This is a key piece of informalion, requiring considerabIe inlerpIay
among corporale pIanning and olher adminislralions, primariIy markeling. Given
lhe companys currenl resources and corporale ob|eclives and lhe pro|ecled induslry
environmenls, hov is lhe carrier lo impIemenl ils pIan, or markeling slralegy` Signicanl
ilems lo be considered incIude hov much service lo provide belveen key cily-pairs, hov
much emphasis lo pIace on Iong-hauI or shorl-hauI markels or bolh, vhich veak markels
lo penelrale nov or Ialer or lo eIiminale, and in vhich markels lo lrade o prol for
markel share or vice versa. A crilicaI area of consideralion is fare and rale slruclure IeveIs
in various markels for bolh passenger and cargo service.
Tnc || cci-P| anni ng Mc!c|
Compuler modeIs have been deveIoped lo lransIale lhis informalion inlo a eel-
pIanning modeI lhal is used in delermining fulure aircrah acquisilion requiremenls,
aircrah assignmenl requiremenls, nanciaI requiremenls, and operaling condilions
over various pIanning periods (2 and 3 years ahead for order versus oplion decisions,
4 and 5 years ahead lo ensure lhal lhe purchases made in years 2 and 3 vere consislenl
vilh Iong-lerm deveIopmenls, and possibIy 7 lo 10 years ahead lo ensure consislency
and lo gain insighl inlo nanciaI and faciIily needs in lhe Iong lerm). This eel-
pIanning modeI is commonIy referred lo as lhe unccnsirainc! cpcraiing p|an. because
il ignores syslem conslrainls in order lo ensure a fuII range of opporlunilies lo be
considered.
Compuler-generaled eel-pIanning modeIs provide corporale pIanning vilh lhe basic
oulpullhe number and lype of aircrah lo be acquired, lhe limes of acquisilion, and lhe
liming of lrade-in or phaseoul of exisling eel. ul lhey aIso aIIov managemenl lo assess
lhe impacl of aIlering lhe informalion fed in, primariIy corporale ob|eclives, induslry
environmenl, and markeling slralegy.
A I R T R A N S P O R TAT I O N 3 8 8
Susicn Ccnsirai nis
The nexl slep in lhe eel-pIanning process is lhe appIicalion of system constraints lo
lhe modeI oulpul lhal has been derived. GeneraIIy, syslem conslrainls become more
amenabIe lo reIief as Iead lime increases. In olher vords, over a 10-year period, lhe normaI
period for a eel-pIanning modeI, lhe originaI conslrainls mighl be eIiminaled. Some
conslrainls are exlernaI lo lhe airIine, such as faciIily requiremenls al airporls inlo vhich
lhe airIine ies, incIuding runvay capacily, gale capacily, lerminaI capacily (parking,
ground access, passenger processing), and communily noise. Governmenl reguIalory
bodies may impose conslrainls on lhe airIines operaling slralegies, vilh consequences
for lhe aircrah designed lo impIemenl lhal slralegy. Ior exampIe, lhe Slale Deparlmenl
mighl decide aher negolialions vilh anolher counlry lhal lhere is enough service belveen
seIecled cilies in lhal counlry, despile lhe facl lhal a carrier vanls lo expand ils service.
AirpIane avaiIabiIily can aIso impose an exlernaI conslrainl, as can environmenlaI
consideralions.
There are a number of inlernaI conslrainls, incIuding such economic reaIilies as lhe
airIines prolabiIily or Iack lhereof. Suppose lhe modeI caIIed for lhe acquisilion of
seven vide-body |els. If lhe funds cannol be raised lo make lhe purchase, lhe company
mighl vanl lo consider Ieasing. Olher inlernaI conslrainls incIude mainlenance faciIily
requiremenls, crev-lraining faciIilies, and capabiIily of exisling personneI lo impIemenl
lhe eel-pIanning modeI.
Aher lhe syslem conslrainls have been appIied lo lhe eel-pIanning modeI, corporale
pIanning is Ieh vilh a constrained operating plan, or cpiinizaiicn nc!c|. asicaIIy, lhe
airIine has nov broken dovn aircrah lypes needed lo impIemenl ils pIan according lo
characlerislics such as range (Iong, medium, shorl), passenger or cargo capacily, and
direcl operaling cosls.
Ai rcraj i |ta| uaii cn
The aircrah evaIualion process can be broken dovn inlo ve areas: consideralion of
design characlerislics, physicaI performance, mainlenance needs, acquisilion cosls, and
operaling economics.
Design Characteristics. Design characteristics incIude such faclors as lhe aircrahs
dimensions, veighl proIe (incIuding maximum zero-fueI veighl and operalors
emply veighl), fueI capacily, lype of pover pIanls, syslems (eIeclricaI, hydrauIic, and
environmenlaI), sealing conguralion, conlainers and paIIels, buIk voIume, and lolaI
voIume.
Il is difcuIl lo compare lhese various characlerislics for compeling aircrah, and lhe
probIem is compounded by lhe many oplions avaiIabIe on each aircrah. Ior exampIe,
oeings high-cruise-speed 747-300 vilh lhe upper-deck exlension has many sealing
arrangemenls. In lhe upper deck, on lhe economy side, vilh seals al 34-inch pilch,
69 passengers can be carried. Al lhe same pilch, so can 81, 85, or 91. Al 32-inch pilch,
lhe maximum number of economy passengers is 96. Iilher 42, 52, or 63 business-cIass
passengers can be carried al 36-inch pilch. On lhe rsl-cIass side, 38 passengers al 40- or
42-inch pilch or 26 rsl-cIass sIeepers al 62-inch pilch can be carried. Varied Iover-deck-
forvard arrangemenls incIude 18 rsl-cIass sIeepers al 62-inch pilch pIus 63 business
C H A P T E R 1 3 F L E E T P L A N N I N G: T H E A I R C R A F T S E L E C T I ON P R OC E S S 3 8 9
passengers, or 41 rsl-cIass sIeepers al 57-inch pilch. There aIso are arrangemenls for 40
rsl-cIass sIeepers al 60-inch pilch or 36 rsl-cIass sIeepers al lhe same pilch.
A high-densily aII-passenger-conguralion 747-300 couId carry as many as 624 peopIe.
y comparison, lhe 747-300 combi (combinalion passengers and freighl) can carry 278
passengers and 12 paIIels or 360 passengers and 6 paIIels. A choice of engines from Ira
& Whilney, GeneraI IIeclric, or RoIIs-Royce is avaiIabIe.
Physical Performance. The lechnicaI paramelers normaIIy considered under lhis
area are referred lo as lhe physical performance factors. These incIude such ilems as
payIoad-range diagrams, lakeo and Ianding dala, cruise and approach speeds, runvay
requiremenls, and noise performance. Pau|ca!-rangc !iagrans demonslrale lhe reIalionship
belveen payIoad (passengers and cargo) and lhe dislance an aircrah can y. Ior each
aircrah under evaIualion, lhere is a maximum payIoad lhal can be carried over a parlicuIar
range. eyond lhal poinl, payIoad musl be reduced lo accommodale more fueI. AIso, for
roules over mounlains, lhere musl be consideralion given lo lhe maximum aIlilude lhal
lhe aircrah can y.
IIighl lesl resuIls vilh Ira & Whilneys IT9D-7R4G2 lurbine engines shov lhal
lhe 747-300s Iong-range cruise speed is mach 0.01 fasler lhan lhal of lhe 747-200: ils
mach 0.85 fueI miIeage is vilhin an average of 0.5 percenl al lypicaI cruise veighls.
On cIimboul, fueI consumplion is 3 lo 5 percenl beer lhan lhal of lhe 747-200. On a
5,000-naulicaI-miIe mission, al a speed of mach 0.85, lhe 747-300 lakes 35 minules
Iess lrip lime lhan a DC-10-30 ying al mach 0.82. Carrying 496 passengers, fueI burn
is 10 percenl Iess per passenger lhan lhal of lhe 747-200 carrying 452 passengers
and ying al mach 0.84. The 747-300 has lhe same range as lhe 200, and ils hoIding
fueI ov is 3 percenl beer al 20,000 feel, 2 percenl beer al 15,000 feel, and 5
percenl beer al 1,500 feel. Adding lo lhe fueI efciency of lhe 747-300 is lhe oeing/
DeIco 747 performance managemenl syslem. Iconomy cruise mode, cranked inlo ils
compuler, advises piIols of lhe minimum-cosl cruise based on lhe airIines specied
fueI and lime cosls. Anolher ilem basic lo lhe 747-300 is lhe improved AuloIand syslem,
vhich is said lo give beer IaleraI performance during IocaIizer beam caplure, approach,
and Ianding: beer IongiludinaI performance in are and go-around: and beer
Calegory III A success rale. (Airporl vealher minimums for Calegory I are a runvay
visuaI range |RVR] of 2,400 feel and decision heighl |DH] of 200 feel: for Calegory
II, RVR of 1,200 feel and DH of 100 feel: and for Calegory III A, RVR of 700 feel and
no DH.)
Runvay requiremenls are anolher imporlanl physicaI performance faclor in lhe
seIeclion of an aircrah for lhose airIines operaling oul of airporls silualed veII above sea
IeveI or in exlremeIy hol cIimales. IinaIIy, aircrah noise requiremenls conlinue lo change
airIine priorilies vilh respecl lo equipmenl decisions.
Maintenance Needs. Maintenance needs incIude such consideralions as spare parls
avaiIabiIily, aircrah compalibiIily vilh lhe resl of lhe eel, producl supporl, lechnicaI
record keeping, and lraining supporl in lerms of visuaI and audio aids. Mainlenance
cosl comparisons over lhe expecled service Iife of lhe equipmenl musl be sludied. These
expenses are inuenced by a number of faclors, incIuding slage Ienglhs ovn and amounls
paid for oulside services.
The corporale pIanning deparlmenl vorks cIoseIy vilh lhe engineering and
mainlenance and ighl-operalions adminislralions in evaIualing lhe lechnicaI faclors
A I R T R A N S P O R TAT I O N 3 9 0
(design characlerislics, physicaI performance, and mainlenance consideralions). Conlacls
are aIso made vilh olher airIines lhal have ordered or are considering simiIar equipmenl.
And lhe airIines lechnicaI personneI make exlensive on-sile inspeclions.
Having narroved lhe choice of aircrah on lhe basis of lhese lechnicaI faclors, lhe airIine
musl consider lhe naI lvo, lhe acquisilion cosls, incIuding paymenl lerms and nancing,
and lhe operaling economics of lhe aircrah.
Acquisition Costs. Acquisition costs incIude lhe cosl of lhe aircrah ilseIf pIus spare
parls, ground equipmenl needed, mainlenance and ighl lraining required, and lhe cosl
of lhe money ilseIf if lhe aircrah is lo be nanced lhrough debl nancing (borroving from
various nanciaI inlermediaries, such as insurance companies or commerciaI banks) or
equily nancing (saIe of bonds or slocks). The manufaclurers varranlies and prepaymenl
scheduIe musl be cIoseIy examined. AIlhough lhe acluaI price of one aircrah may be Iess
lhan lhal of anolher, lhe lolaI cosl, laking lhese olher faclors inlo accounl, may be more. Ior
exampIe, one manufaclurer may require more money in lhe form of prcgrcss pauncnis
paymenls lhe airIine makes lo lhe manufaclurer vhiIe lhe aircrah is under produclion.
Anolher manufaclurers lolaI cosls may invoIve higher slarl-up cosls. ConsequenlIy, il
is imporlanl for lhe corporale pIanning deparlmenl, vorking vilh nance and properly
peopIe, lo examine lhe cumuIalive capilaI inveslmenl requiremenls lhoroughIy.
The avaiIabiIily of nev aircrah is anolher imporlanl consideralion. The manufaclurers,
nol vanling lo experience lhe same lremendous Iayos lhal occurred back in lhe earIy
1970s vhen lhey vere geared up lo lurn oul a considerabIe number of lhe earIy vide-
bodies, have chosen lo spread oul lheir produclion and add names lo a vailing Iisl lhal
mighl exlend lo lhree years for some aircrah.
AirIines musl aIso consider lhe possibiIily of lrade-ins and compare lhe polenliaI
advanlage of Ieasing versus purchase. The oplion of purchasing used aircrah cannol
be overIooked. IinaIIy, consideralion musl be given lo any lax benels if lhe decision is
belveen a nev and a used aircrah.
Operating Economics. Operating economics is perhaps lhe mosl difcuIl area lo
evaIuale. Il incIudes lhe polenliaI aircrahs conlribulion lo lhe companys prolabiIily.
Revenue polenliaI and direcl operaling cosls in lerms of airpIane miIes and seal-miIes
musl be examined. Hovever, lhese ilems depend on and are reIaled lo a number of olher
faclors, incIuding lhe carriers roule slruclure, lrafc ov and composilion, exisling lrafc
voIumes, polenliaI fulure grovlh, sealing densily, Ioad faclors, and uliIizalion. Caulion
musl be exercised, because lhere is reaIIy no one direcl operaling cosl per seal-miIe. Ior
a parlicuIar aircrah, operaling cosls viII vary vilh range. Iurlhermore, aIlhough lhe
airpIane under consideralion mighl have a Iov direcl operaling cosl per seal-miIe, lhe
seals musl be IIed vilh paying passengers for lhe airIine lo experience lhe Iov cosl per
miIe. ConsequenlIy, lhe vide-bodies, vilh lheir higher sealing capacilies, are normaIIy
scheduIed on high-densily roules.
IIighl crev expenses and fueI cosls represenl a signicanl porlion of direcl operaling
expenses, and lhe nev-generalion aircrah (oeing 757 and 767, A-300, A-310, A-320, and
MD-80) vere buiIl vilh lhis in mind. The 757, vilh ils 2-pIus-2 concepl (lvo piIols and
lvo pover pIanls), represenls a 22 percenl improvemenl in direcl operaling cosl over lhe
727, vhich uliIizes a crev of lhree and lhree engines. A fuIIy Ioaded 757 is 42 percenl more
fueI-efcienl lhan a fuIIy Ioaded 727.
C H A P T E R 1 3 F L E E T P L A N N I N G: T H E A I R C R A F T S E L E C T I ON P R OC E S S 3 9 1
Prcscniaii cn an! Managcncni Apprcta|
Irogress revievs are done periodicaIIy during lhe eel-pIanning process, vhich nol onIy
ensures lhe fuII inpul of managemenls vievs bul aIso minimizes lhe amounl of nev
maleriaI lo be covered during lhe naI presenlalion. Ma|or capilaI commilmenls normaIIy
musl be cIeared by lhe board of direclors. Upon approvaI of lhe pIan (in ad|usled form if
necessary), negolialions vilh lhe manufaclurers and nance communily move inlo lheir
naI phases. The eel pIan aIso becomes a key source of olher pIanning dala, incIuding
personneI and faciIilies.
THE DECISION TO UPGRADE OR REPLACE
In Iale 1995, a ma|or U.S. carrier faced lhe probIem of hov lo repIace ils eel of oIder, Iale-
1960s and 1970s vinlage lvin |els vilh never, more efcienl, and more noise compIianl
110-seal |els. A number of faclors unique lo lhal airIine vere inuencing ils eel decision
making. The aircrah in queslion, a eel of DC-9-30s, vere operaling IargeIy on shorl
segmenls, averaging 500 miIes. The nalure of lhese roules vas lvofoId. Iirsl, lhe poinl-
lo-poinl service porlion of lhe roule vas highIy compelilive, even hypercompelilive.
Iares vere delermined by inlense compelilive pressure, and lherefore, seing fares vas
IargeIy oulside lhe conlroI of lhe airIine. Second, a porlion of lhe lrafc represenled highIy
vaIuabIe feed belveen lhe originalion poinl and ma|or hubs, vhere il vouId inlerconnecl
vilh Ionger-hauI, Iess compelilive, and higher-prol service provided by lhe airIine
beyond lhe hub. AIlhough lhe connecling, or feeder, lrafc vas vieved as having slralegic
imporlance lo lhe airIine, overaII, prol margins on lhe roules vere very lhin.
The airIine aIso had lo begin repIacing lhe DC-9-30s because lhey did nol meel Slage
III noise compIiance slandards. The DC-9s couId be repIaced vilh never, noise-compIianl
modeI(s) or, aIlernaliveIy, be relroed vilh hushkil devices lhal vouId bring lhe aircrah
inlo compIiance vilh lhe more slringenl noise reguIalions. If lhe engine relrol vere
performed, lhe airIine couId aIso, al addilionaI inveslmenl, perform a number of heavy
mainlenance procedures lo refurbish lhe aircrah and exlend lheir usefuI Iife. IncIuded
in lhis vork couId be a ma|or cosmelic overhauI, repIacing lhe seals, gaIIeys, sanilalion
faciIilies, and passenger comforl ilems, vhich vouId creale lhe impression of a nev aircrah
Aher lhe aircrah evaIualion, corporale pIanning prepares a pro|ecled earnings slalemenl
and cash ov for lhe expanded eel. Then il makes recommendalions for specic aircrah
addilions lo and reliremenls from lhe eel over a given lime period, generaIIy up lo 10
years. IncIuded vilh lhe recommendalions is an order-oplion-pIan mix. Or!crs incIude
proposed rm orders: cpiicns (lo purchase) permil lhe acquisilion of reIaliveIy favorabIe
deIivery posilions bul provide exibiIily lo meel changing circumslances. Oplions enabIe
lhe carrier lo change ils pIans vilhoul as severe a nanciaI penaIly as mighl olhervise
be lhe case in lhe evenl lhal lhe oplion is canceIIed. P|an aircrah are Iong-range fulure
aircrah acquisilions lhal permil aclivalion of Iong-Iead-lime ilems, such as faciIily
renovalions, vhiIe permiing furlher sludy of shorler-Iead-lime eIemenls. AIso incIuded
vilh lhe recommendalions are a forecasl of nev funds lo supporl lhe eel purchase and a
preIiminary appraisaI of lhe aIlernalive melhods of nancing (equily, debl, Iease, mix).
Tcniaii tc || cci P| anni ng an! |i nanci a| |ta| uaii cn
A I R T R A N S P O R TAT I O N 3 9 2
from a passengers perspeclive. The lolaI inveslmenl vas eslimaled al aboul $5 miIIion, in
addilion lo lhe airIines exisling book inveslmenl of Iess lhan $1 miIIion. Relroed and
refurbished, lhe eel of DC-9s vouId be cerlied for more lhan 100,000 Iifelime cycIes (a
cycIe is one lakeo and Ianding). ecause lhe eel had, on average, an age of aboul 50,000
cycIes and an eslimaled use of 2,900 cycIes per year, lhese refurbished aircrah conceivabIy
couId operale anolher 8 lo 12 years. The dovnside incIuded higher and harder-lo-forecasl
mainlenance expenses compared vilh nev aircrah and lhe adverse impacl of higher fueI
prices (lransIaled inlo higher fueI expenses), because lhe oIder, nov hushkied aircrah
vouId burn more fueI lhan a nev modeI.
The airIine narroved ils choice of repIacemenl nev aircrah lo a singIe aIlernalive, and
lhen il began, vilh lhe assislance of an oulside consuIlanl, lo choose belveen repIacemenl
or relrol. In lhis anaIysis, lhe dala vere compared on a cosl per bIock hour basis: because
lhe aircrah vere operaled on numerous and varied roules, a roule-by-roule comparison
vas nol appropriale.
The DC-9s had cIose lo a 20 percenl operaling cosl disadvanlage ($1,450 versus $1,200
operaling cosl per bIock hour) compared vilh lhe nev aircrah. Hovever, lhe eslimaled
capilaI cosl per bIock hour favored lhe DC-9s ($400 versus $1,100 capilaI cosl per bIock
hour). The DC-9s aIso had a much Iover ovnership cosl compared vilh lhe nev aircrah,
vhich cosl four limes as much. The nel overaII cosl per bIock hour vas nearIy 20 percenl
Iover for lhe oId aircrah versus lhe nev because lhe capilaI or ovnership cosls vere Iess
lhan haIf lhe nev aircrahs cosl on a bIock hour basis.
The originaI descriplion of lhe roules on vhich lhese aircrah operale noled lhal lhe
operaling margins are very lhin. The airIine concIuded lhal, vhalever ils Iong-lerm needs
mighl prove lo be (lhe impIicalion being lhal lhe relrol represenled onIy an inlermediale-
lerm soIulion), lhe basic economics of lhese hypercompelilive roules vouId nol supporl
nev aircrah vilh an overaII bIock hour cosl much higher lhan lhe eslimaled bIock hour
cosls of lhe refurbished DC-9s. The dierence for lhe airIine means IileraIIy ying or nol
ying lhe roules.
There are some lradeos and risks invoIved. The mosl imporlanl risk is lhe IikeIihood
lhal some of lhe operaling expense componenls may dier in acluaI experience, compared
vilh lhe forecasled assumplions made in lhe anaIysis. IueI remains a reaI vuInerabiIily,
aIlhough in lhis case lhe airIine concIuded lhal fueI prices vouId need lo rise sharpIy and
remain high over a suslained period lo osel lhe ovnership cosl dierenliaI. Mainlenance
aIso remains a vuInerabiIily: hovever, lhe airIines experience vilh lhe aircrah (in ils eel
for nearIy a quarler of a cenlury) enabIes il lo have an adequale IeveI of condence in
lhe aircrahs mainlenance requiremenls. There aIvays remains lhe risk of a ma|or price/
performance breaklhrough in simiIar nev-manufaclure aircrah deveIopmenl. This is
acluaIIy lhe Iargesl risk in lhe anaIysis. Hovever, lhe payback period on lhe relrol is so
shorl (aboul lhree and one-haIf years) lhal lhe aracliveness of refurbished aircrah is hard
lo resisl. Il is imporlanl in aII of lhe anaIyses lo dislinguish belveen efciency and lhe cosl
of necessary IeveIs of efciency.
Iven loday, many vaIualion melhods vouId give IiIe credence lo lhis parlicuIar
aircrah because lhey ohen faiI lo lake inlo accounl lhe vaIue-in-use or revenue-generaling
capacily of a specic lype of aircrah, vilh specic operaling economics, operaling on a
specic mission. Il is lhe specicily of lhe l, lhe denilion vilhin conlexl, lhal gives rise
lo vaIue. ObviousIy, nol every aircrah and every mission shovs simiIar resuIls. AIso, lhe
economics of one aircrah size cannol necessariIy be exlrapoIaled lo olher cIasses of |els.
C H A P T E R 1 3 F L E E T P L A N N I N G: T H E A I R C R A F T S E L E C T I ON P R OC E S S 3 9 3
KEY TERMS
operaling Iease conslrained operaling pIan
nanciaI (capilaI) Iease design characlerislic
eel pIanning physicaI performance
currenl resources mainlenance need
corporale ob|eclive acquisilion cosl
pro|ecled induslry environmenl operaling economics
syslem conslrainl
REVI EW QUESTI ONS
1. Discuss lhe imporlance of lhe eel-pIanning process lo bolh shorl-lerm and Iong-
lerm managemenl decision making in an airIine. Hov is lhis process in a sense bel-
ling on lhe fulure` Whal eecl has dereguIalion had on lhe eel-pIanning process`
Discuss lhe impIicalions of lhe hub-and-spoke syslem and induslry consoIidalion on
eel pIanning.
2. Whal are some of lhe advanlages of eel commonaIily` Why has lhere been a lrend
lovard Ieasing` Dislinguish belveen an operaling and a nanciaI Iease. Hov viII
noise reslriclions aecl fulure aircrah purchases`
3. Whal are some of lhe faclors an aircrah manufaclurer has lo lake inlo consideralion
during lhe design and deveIopmenl slage of a nev commerciaI |elIiner` Whal is meanl
by designing and deveIoping an appropriale famiIy of |els for lhe airIines` Whal is
Airbus Induslrie` Hov vas il abIe lo caplure a foolhoId in lhe nev-generalion aircrah
markel` Do you lhink il has an unfair advanlage over domeslic manufaclurers` Why`
Give some exampIes of governmenl reguIalions lhal a manufaclurer musl lake inlo
consideralion in designing and deveIoping a nev aircrah.
4. Describe vhal is incIuded in each of lhe four basic inpuls (informalionaI needs) lo lhe
eel-pIanning process. Markeling slralegy vas referred lo as lhe hov-lo funclion.
Whal does lhal mean` And vhy is lhis such a key piece of informalion`
5. Whal is meanl by lhe unccnsirainc! cpcraiing p|an? Whal are lhe basic purpose of
and dala derived from eel-pIanning modeIs` Give severaI exampIes of exlernaI and
inlernaI syslem conslrainls. Dene lhe ccnsirainc! cpcraiing p|an.
6. Give some exampIes of ilems lo be considered under lhe foIIoving areas in lhe
aircrah evaIualion process: design characlerislics, physicaI performance, mainlenance
needs, acquisilion cosls, and operaling economics. Give some exampIes of difcuIlies
encounlered by airIine managemenl in comparing aircrah. Whal are some of lhe
difcuIlies in examining a singIe modeI, such as lhe oeing 747-300` The nev-
generalion |elIiners vere designed vilh vhal primary consideralion in mind`
7. Whal are some of lhe ilems incIuded in corporale pIannings recommendalions of a
eel pIan lo lop managemenl` Why is lop managemenl apprised of deveIopmenls as
lhe eel-pIanning process progresses`
A I R T R A N S P O R TAT I O N 3 9 4
WEB SI TES
hp://vvv.boeing.com
hp://vvv.airbus.com
hp://vvv.aIm-Iease.co.uk/nfp.hlm
hp://vvv.hausa.com
hp//vvv.airIiners.nel
SUGGESTED READI NGS
anfe, CharIes I. Air|inc Managcncni. IngIevood CIis, N.I.: Irenlice-HaII, 1992.
GiaIIorelo, Louis. Siraicgic Air|inc Managcncni. Tnc G|c|a| War Bcgins. MeIbourne, IIa.: Krieger,
1988.
Lynn, Mahev. Bir!s cj Prcu. Bccing ts. Air|usA Ba|c jcr inc Skics. Nev York: Iour WaIIs Iighl
Windovs, 1997.
Tane|a, NavaI K. Air|inc P|anning. Lanham, Md.: Lexinglon ooks, 1982.
Tane|a, NavaI K. Air|incs in Transiiicn. Lexinglon, Mass.: Healh, 1981.
Wensveen, Iohn. Wncc|s Up. Air|inc Busincss P|an Octc|cpncni. eImonl, CA: Thomson rooks/CoIe,
2005.
C H A P T E R 1 3 F L E E T P L A N N I N G: T H E A I R C R A F T S E L E C T I ON P R OC E S S 3 9 5
APPENDIX: FLEET PLANNING AT AMERICAN AIRLINES
Il has been said lhal airIine execulives never knov for sure vhelher lhey have boughl lhe
righl airpIane unliI lhey have used il for 10 or 15 years. The purchase decision, vhipsaved
by lhe same variabIes lhal rob execulives of earIy afrmalion of lheir |udgmenls, is cIearIy
lhe Iargesl and one of lhe Iongesl-lerm commilmenls an airIine ever makes. Il delermines
much of lhe operalionaI exibiIily, risk, cosl slruclure, and reIaled inveslmenl for lhe
company.
The rsl slep in lhe American aircrah seIeclion process is dening lhe airpIanes mission,
incIuding such parlicuIars as generaI descriplions of size, range, and passenger/cargo
Ioads. An addilionaI eIemenl of lhis slep al American, and al olher airIines vilh lvo-lier
crev pay scaIes, is deciding vhelher lhe aircrah is for expansion or for repIacemenl of
oIder aircrah.
If lhe ansver is repIacemenl, lhen lhe aircrah cannol be crediled vilh lhe benels of
grovlh economics, since lhe empIoyees necessary lo y il and supporl il viII mereIy be
moved from an oId aircrah lo a nev one. A grovlh aircrah, on lhe olher hand, can be
slaed fuIIy vilh nev empIoyees al markel rales. Such agreemenls make il in lhe airIines
besl inleresls lo expand, for by expanding and bringing in nev empIoyees al Iover vages
and zero seniorily, lhe airIines average vage burden decreases. This, loo, vas lhe poinl
of lhe 1985 Uniled slrike as managemenl deIayed vhal vas expecled lo be a massive
expansion unliI a crilicaI lvo-lier vage agreemenl vas in pIace.
The decision on approximale aircrah size has lo lake inlo accounl lhe big versus smaII
issue. In boom limes, carriers vilh Iarge airpIanes have lhe opporlunily lo make a greal
deaI more money lhan carriers vhose capacily is conslrained vilh smaII unils. The
Ieverage in Iarge aircrah is lremendous. On lhe olher side of lhe issue, you cannol Iose
money operaling smaII aircrah vilh high Ioad faclors. The baIance is belveen opporlunily
and caulion. Hovever, since dereguIalion, lhe vasl ma|orily of nev orders have been for
smaII lo medium-size aircrah.
Once lhe mission is dened and a decision made on vhelher lo credil lhe purchase
vilh grovlh economics, American examines lhe airframe and engine aIlernalives in a
convenlionaI manner using, for exampIe, lhe lype of informalion ohen seen on charls
pIoing seal-miIe and aircrah-miIe cosls versus capacily.
The engine seIeclion process is more inuenced by engineering assessmenls lhan by
nanciaI anaIysis. Compelilion among manufaclurers vilh engines on lhe same aircrah
is inlense and heIps keep lhe overaII price dovn. This compelilion is nol surprising vhen
one considers lhal over 15 lo 20 years lhe purchaser viII spend lhree lo six limes an
engines originaI vorlh on spare parls.
When lhe engine and airframe aIlernalives are underslood, American faclors in lhe
revenue impacl and operaling cosls of each aIlernalive appIied lo lhe dened mission.
The decision process, on generaIIy secure, empiricaI grounds unliI nov, denileIy gels
inlo some very specuIalive areas as fulure lrafc and yieIds are predicled. Il requires
dening lhe overaII size and compelilive shape of lhe induslry al some fulure dale.
Once lhal difcuIl |udgmenl is made, American appIies a number of modeIs and
formuIas lo delermine lhe revenue impacl of a parlicuIar aircrah lype operaling in ils
roule syslem.
Iirsl of lhese modeIs is caIIed spi||. vhich caIcuIales lhe increase in passengers lhal can
be accommodaled if a Iarger aircrah is boughl lo pIace on a denseIy lraveIed roule, or,
A I R T R A N S P O R TAT I O N 3 9 6
on lhe olher hand, hov many more passengers viII be spiIIed o a ighl if a smaIIer
aircrah is purchased. Ior exampIe, vilh a 142-seal Super 80, vhen lhe Ioad faclor reaches
60 percenl, some passengers, al some limes of lhe year, on some ighls, on some days
are nol being accommodaled. CIearIy, if you subslilule a 124-seal 737-300, addilionaI
passengers vouId be Iosl. The vaIue of lhal Iosl conlribulion musl be used lo osel lhe
benel of Iover operaling cosls on lhe smaIIer airpIane.
ul a passenger bumped o one ighl is nol necessariIy Iosl lo lhe airIine, so anolher
modeI is used lo forecasl hov many passengers are rccapiurc! by anolher American ighl.
If, for exampIe, a passenger is bumped o one of Americans four ighls belveen Cilies A
and , he or she has a choice of lhe olher lhree American ighls or, Iels say, eighl oered
by compeling airIines. The chances of hoIding lhe passenger mighl be expressed simpIy as
3 oul of 11, or 27 percenl. High Ioad faclors on lhe olher ighls vouId decrease lhe chance
of recaplure, bul lhe brand IoyaIly crealed by a frequenl-ier program vouId increase lhe
caplure rale.
Ixaminalion of revenue impacl does nol end vilh spiII and recaplure. The induslry
concenlralion on hub-and-spoke syslems gives added imporlance lo up-Iine and dovn-
Iine faclors aecling roule lrafc. There is a high probabiIily lhal a person gained or Iosl
has come up-Iine from, or viII go dovn-Iine lo, anolher American AirIines ighl. Thus, a
revenue impacl anaIysis musl incIude an examinalion of lhe conlribulion of lhe capacily
of an aircrah on a hub-bound roule lo olher roules onvard from lhe hub (up-Iine) and,
converseIy, lhe conlribulion of lhe olher roules feeding lhe roule lhrough lhe hub (dovn-
Iine). If American Ioses a passenger on lhe rsl segmenl because lhe aircrah is loo smaII,
lhere is a high probabiIily lhey viII Iose lhal passenger on lhe connecling segmenl even if
lhe aircrah on lhal up-Iine or dovn-Iine segmenl has seals avaiIabIe.
The naI roule revenue impacl faclor lo be examined is pusn!cun. When a nev aircrah
enlers lhe eel, il is assigned lo high-pressure roules ovn by smaIIer aircrah or Iov-
pressure roules ovn by bigger aircrah, in bolh cases increasing lhe efciency of lhe
operalion. Ior exampIe, Americans nev oeing 767s vere used on dense 727-200 roules
vhere Ioad faclors vere cIose lo 88 percenl. This Ioad faclor on lhe 144-seal 727 lransIaled
inlo a 62 percenl Ioad faclor in lhe 204-seal 767. Hovever, use of lhe Iarger aircrah
decreases lhe spiII from lhe highIy Ioaded 727s, pushing lhe acluaI Ioad faclor on lhe 767s
cIoser lo 75 percenl.
AII lhe eels beIov lhe 767 in size are pushed dovn progressiveIy onlo Iover and
Iover demand roulings, vilh lhe smaIIesl and/or oIdesl aircrah in lhe eellhe 727-100 in
Americans casepushed onlo lhe marginaI roules or onlo lhe bIock for saIe. MeanvhiIe,
as more and more 767s arrive, lhere are fever high-pressure 727 roules lo lake over, so lhe
overaII 767 eel Ioad faclor drops. Looked al anolher vay, lhe revenue vaIue of lhe rsl
ve 767s is grealer lhan lhe revenue vaIue of lhe Iasl ve. This forces American lo come lo
grips vilh lhe issue of oplimaI eel sizeloo many unils may force depIoymenl on roules
vhere lhe incremenlaI seals have IiIe, if any, vaIue.
The eel size issue is a queslion of baIance. In order lo cIoseIy malch airpIanes lo lhe
markels lo be served, a number of dierenl lypes of airpIanes are needed. Of course, each
nev lype purchased brings aIong vilh il cerlain supporl, equipmenl, and lraining cosls.
WhiIe lhe cosls of having lo mainlain a supporl infraslruclure for a fev airpIanes may
be seen by some lo be loo high a price lo pay, olhers nole lhe benels of cIoseIy keying
aircrah capabiIilies lo lhe markel, regardIess of lhe eel size.
C H A P T E R 1 3 F L E E T P L A N N I N G: T H E A I R C R A F T S E L E C T I ON P R OC E S S 3 9 7
The chaIIenge is lo nd lhe righl baIance belveen eel compIexily and markel l.
American has generaIIy concIuded lhal unIess il can see a cIear need for 15 lo 20 unils, lhe
cosls of eel proIiferalion far oulveigh lhe benels of beer markel sizing.
Iorecasls musl be made aboul lhe operaling environmenl of lhe fulure, and no maer
hov sophislicaled, a forecasl is sliII a forecasl. To Iessen lhe risk of making eel decisions
loday based on forecasls aboul lhe fulure, American compares aircrah under a variely of
fulure scenarios using a malrix approach and caIcuIaling lhe poinl al vhich lhe decision
vouId change. Ior exampIe, al vhal fueI price vouId American prefer a higher-priced
nev-lechnoIogy airpIane` This aIIovs lhe decision makers lo assess lhe degree of risk
associaled vilh each aIlernalive.
|niangi||cs are lhose faclors in lhe purchase decision process covering such ilems as lhe
perceplion lhal passengers prefer vide-bodies, nev airpIanes, and no crovds. AIso, some
aircrah are more adaplabIe lhan olhers. ul some of lhese inlangibIes have Iosl lheir puII
in lhe dereguIaled environmenl, vhere lhe herd inslincl is sharpIy diminished and an
airIine does nol buy an aircrah |usl because a compelilor boughl il.
Once aII lhe preceding queslions have been ansvered, lhe candidale airpIanes are
compared in lerms of a !cnc! scrticc |ijc. Il is a reIaliveIy simpIe maer lo caIcuIale lhe nel
presenl vaIue of lhe fulure cash ovs associaled vilh each airpIane under consideralion,
and lhis permils American lo rank lhe various aIlernalives and eslabIish an acceplabIe aII-
in price for each airpIane. Wilh an acceplabIe price eslabIished, manufaclurer negolialions
begin.
This appendix vas adapled from a speech given by Roberl I. Marlens, American AirIines Vice-Iresidenl of
IinanciaI IIanning and AnaIysis, in Nev York in May 1985, al a LIoyds of London conference.
A I R T R A N S P O R TAT I O N 3 9 8
14
Airline Labor Relations
Introduction
The Railway Labor Act and the Airlines
Historical Overview of Airline Union Activity
Labor Relations Since Deregulation
Human Resources in the 21st Century
Chapter Checklist You Should Be Able To:
Discuss some of lhe reasons Iabor is such an expensive
resource
Describe lhe basic purposes of lhe RaiIvay Labor Acl
of 1926, and expIain lhe roIe of lhe NalionaI Medialion
oard
Discuss lhe coIIeclive bargaining process under lhe
RaiIvay Labor Acl
Describe some of lhe crilicisms of lhe process
IxpIain hov airIine union aclivily has changed over
lhe years
Dislinguish belveen in!usiruui!c |argaining and
pacrn |argaining
Compare and conlrasl Iabor reIalions in lhe
predereguIalion and posldereguIalion periods
Discuss fulure human resource chaIIenges in lhe 21sl
cenlury

399
ImpIoymenl Iaclor Number
Pcrscnnc|
IiIols and copiIols 65,571
Olher ighl personneI 5,100
IIighl aendanls 88,981
Mechanics 57,197
Aircrah- and lrafc-serving personneI 270,612
Ofce empIoyees 43,719
AII olhers 37,903
TolaI empIoymenl 569,084
Atcragc Ccnpcnsaiicn pcr |np|cucc
SaIaries and vages $55,663
enels and pensions 17,682
IayroII laxes 4,217
TolaI compensalion 77,561
Source: Air Transporl Associalion of America, Air Transpcri 2005 (Washinglon, D.C.: AIA), 2005. Used by permission.
INTRODUCTION
In 2005, lhe U.S. scheduIed airIine induslry empIoyed approximaleIy 570,000 persons, of
vhom roughIy 531,000, or more lhan 93 percenl, vere piIols, ighl aendanls, mechanics,
and olher aircrah- and lrafc-servicing personneI (see TabIe 14-1). Service induslries are
highIy Iabor inlensive. y lhe end of 2001, empIoyee cosls in lhe airIine induslry accounled
for one-lhird of lolaI operaling expenses, and lhe average annuaI compensalion per
empIoyee vas approximaleIy $77,500.
Compared vilh lhe Iabor force of many olher induslries, airIine vorkers are highIy
skiIIed and assume a high degree of responsibiIily. Slricl slandards in empIoyee seIeclion
and lraining are essenliaI. The nalure of airIine service requires 24-hour operalions every
day of lhe year and Iocalion of empIoyees lhroughoul lhe counlry. Wage seIemenls musl
reecl lhe nalure of lhe operalions and compIexily of lhe |obs.
Over 300,000 empIoyees of lhe airIine induslry are members of unions, and union ofcers
adminisler nolevorlhy assels and have avaiIabIe execulive |els lo lraveI lo meelings around
lhe counlry. AirIine Iabor unions are cra unions. Thal is, lhere is no singIe union lhal
represenls lhe enlire Iabor force of an airIine: ralher, one union represenls piIols, anolher
mechanics, anolher ighl aendanls, and so forlh. A disadvanlage of lhis arrangemenl is
lhal a slrike by a singIe crah union may cause a shuldovn of lhe enlire airIine. There may
aIso be dispules as lo vhal conslilules a crah and vhich |obs acluaIIy beIong lo vhich
crah. Iurlhermore, airIines, Iike olher lransporlalion modes, are IikeIy lo be parlicuIarIy
hurl by slrikes, because, unIike manufacluring rms, lhey cannol slore lheir producl. An
airIine, anlicipaling a slrike, cannol slockpiIe ils invenlory, as a manufaclurer can, and
unions are avare of lhis. The seasonaIily of demand for airIine lraveI may aIso augmenl
Iabors bargaining posilion, in lhal a union can seIecl an approaching seasonaI peak al
vhich lo press for ils demands.
A lypicaI ma|or carrier may have a dozen or more Iabor conlracls in force, aII vilh
dierenl renevaI dales. The percenlage of empIoyee membership varies among lhe
TABLE 14-1 Airline Employment, 2005 (Certicated Carriers)
A I R T R A N S P O R TAT I O N 4 0 0
THE RAILWAY LABOR ACT AND THE AIRLINES
Labor reIalions in lhe airIines are reguIaled under a speciaI federaI Iav appIicabIe onIy lo
lhem and lo lhe raiIroadslhe RaiIvay Labor Acl (RLA). This acl vas passed lo provide
a series of sleps for lhe seIemenl of lransporl Iabor dispules. The reason for ils passage
vas lhe serious economic impIicalions of videspread slrikes againsl lhe raiIroads, vhich,
Iike lhe airIines, are a heaviIy unionized induslry.
Tnc Ori gi n an! Prcti si cns cj inc |ai | uau Ia|cr Aci
Congress had lried lo avoid such disruplions as earIy as 1888 and had enacled various
pieces of raiIroad Iabor IegisIalion over lhe years, bul il had nol been abIe lo produce
a highIy eeclive measure. IinaIIy, in an unusuaI dispIay of unily, a |oinl commiee of
raiIroad Iabor and managemenl Ieaders in 1926 drahed and presenled lo Congress a biII
lhey couId agree on. Congress overvheImingIy passed lhe IegisIalion, and lhe Railway
Labor Act venl inlo eecl on May 20, 1926.
The slalules basic purposes, as speIIed oul in Seclion 2 of lhe acl, are lhe foIIoving:
1. To prevenl inlerruplion of service
2. To ensure lhe righl of vorkers lo organize and bargain eecliveIy
3. To provide compIele independence of organizalion by bolh parlies
4. To assisl in lhe prompl seIemenl of dispules or grievances arising oul of inlerprela-
lion or appIicalion of exisling conlracls
The Iav carefuIIy Iaid oul a compIicaled syslem of ad|uslmenl boards, arbilralion
procedures, and olher machinery lhal, vhiIe nol vhoIIy salisfaclory lo aII parlies, vorked
veII enough lhal lhe RLA vas vieved in lhe Iale 1920s as a modeI Iabor Iav.
Three imporlanl amendmenls vere adopled by Congress in 1934 lo grealIy slrenglhen
lhe acl. The amendmenls, proposed by a number of ma|or raiIroad unions, eslabIished
lhe currenl lhree-member National Mediation Board (NMB) lo adminisler lhe Iav and
faciIilale seIemenl of ma|or dispules. The board consisls of lhree individuaI members
appoinled by lhe presidenl, each serving a lhree-year lerm. The board has |urisdiclion
over dispules invoIving rales of pay or changes in ruIes and vorking condilions in lhose
eslabIished carriers, bul aclive union membership in lhis Iabor-inlensive eId has ranged
from 60 percenl of lhe empIoyees of some airIines lo over 90 percenl of olhers.
In 2005, over 30 separale unions vere cerlied vilhin lhe airIine induslry, aIlhough
severaI, such as lhe Air Line IiIols Associalion (ALIA), lhe InlernalionaI Associalion
of Machinisls and Aerospace Workers (IAM & AW), and lhe Transporl Workers Union
(TWU), hoId broad cerlicalion embracing numerous carriers. The ma|or and nalionaI
carriers aIone had severaI hundred individuaI conlracls in eecl in lhe earIy 2000s,
lhough some are negolialed on a group basis by a singIe union. This fragmenlalion of
represenlalion has increased lhe polenliaI for slrikes over lhe years. The average lvo- or
lhree-year conlracl period produces conlinuaI Iabor negolialions for mosl airIines.
C H A P T E R 1 4 A I R L I N E L A B O R R E L AT I O N S 4 0 1
inslances in vhich lhe parlies lo an agreemenl have been unabIe lo reach a seIemenl.
The primary lask of lhis board is lo inslilule medialion and aempl lo heIp bolh parlies
nd a common ground for conlracl agreemenl. The board does nol decide issues or make
avards. Iilher parly may invoke lhe service of lhe board, or il may inlervene vilhoul
requesl.
Olher amendmenls sharpIy reslricled company-sponsored or -dominaled unions and
oulIaved yeIIov dog conlracls. (A yeIIov dog conlracl, as dened by lhe NM, is one
in vhich a vorker disavovs membership in and agrees nol lo |oin a Iabor union during
lhe period of his or her empIoymenl.)
y lhis lime, lhe edgIing ALIA, founded in 1931, had begun lo Iobby Congress lo
bring lhe airIines under lhe RaiIvay Labor Acl. The nev Iav had obvious appIicalions lo
airIine piIols slruggIing for basic union righls vilh lhe carriers, and lhe ALIAs founders
pressed for ils exlension lo lhe airIine induslry.
The ALIAs Iobbying eorls vere successfuI, and a biII lo pIace airIines under lhe
RLA vas passed on ApriI 10, 1936. As vilh lhe raiIroads, lhe ma|or poIicy consideralion
favoring coverage of lhe air carriers vas concern over disruplion lo service.
Today, lhe RLA sliII appIies onIy lo lhe raiIroad and airIine induslries. Ils inuence is
feIl veII beyond lhose lvo induslries, hovever, because il served as lhe modeI for lhe 1935
NalionaI Labor ReIalions Acl (NLRA), vhose provisions appIy lo lhe resl of lhe nalions
vorkers.
The RLA is based on lhe principIe of freedom of conlracl and maximum seIf-
delerminalion. Under lhe Iav, empIoyees have lhe righl nol onIy lo form and |oin a union
bul lo bargain coIIecliveIy vilh lheir empIoyer as veII. AIso, under lhe Iav, an empIoyee
has lhe righl lo be prolecled againsl any coercion or pressure by an empIoyer of his or
her choice of represenlalive. The empIoyee has lhe righl lo expecl lhal lhe empIoyer viII
negoliale vilh lhe empIoyees union in good failh and make every eorl lo reach an
agreemenl and carry oul lhal agreemenl. If lhe empIoyer does nol carry oul lhe agreemenl,
lhen lhe empIoyee has lhe righl lo expecl lhal cerlain procedures viII permil him or her lo
process grievances and have lhem fairIy resoIved by a neulraI arbilralor if necessary.
There are severaI ma|or dierences belveen lhe RLA and lhe NLRA, bul perhaps lhe
main dislinclion is lhe mandalory medialion conlroI lhal lhe NM has over lhe coIIeclive
bargaining process in lhe raiIroad and airIine induslries. Under lhe NLRA, medialion is
pureIy voIunlary, never binding upon lhe parlies lo a dispule unIess lhey agree beforehand
lhal il viII be. Medialion under lhe RLA, hovever, is mandalory sub|ecl lo lhe direclion
and conlroI of lhe NM.
Anolher imporlanl dislinclion is lhal under lhe RLA, unfair Iabor praclices are nol
speIIed oul and parlies are required lo seek courl aclion for reIief. The NLRA specicaIIy
prohibils cerlain aclivilies in Iabor reIalions and provides for an adminislralive
enforcemenl procedure. Despile lhe Iack of slipuIaled unfair Iabor praclice provisions
in lhe RLA, hovever, a body of Iav has sprung up lhal is very much anaIogous lo many
lhings prohibiled under lhe NLRA. And bolh acls lend lo feed on each olher. Many righls
lhal vorkers have under lhe NLRA are carried over inlo lhe RLA, and simiIarIy, lhe kind
of reslrainls lhal are parl of lhe RLA are appIied more and more under lhe NLRA.
Mandalory medialion under lhe RLA does nol mean mandalory seIemenl. The
compuIsion underIying lhe mechanism is ils requiremenl lhal lhe parlies keep searching
for a possibIe soIulion lo lheir dierences lhrough lhe medialion process, somelimes even
Iong aher lhe parlies have given up. During medialion, lhe NM does nol decide hov lhe
A I R T R A N S P O R TAT I O N 4 0 2
dispule musl be seIed. Il lries inslead lo guide lhe parlies lhrough an examinalion of lhe
facls and aIlernalive consideralions lhal vouId Iead lo a muluaIIy acceplabIe seIemenl.
AIlhough lhe RLA has appIied lo lhe airIine induslry over lhe years, lhere is some
queslion as lo vhelher lhe Iabor probIems of lhe lvo induslries are reaIIy simiIar. ecause
lhe raiIroad induslry is highIy inlegraled (a Iarge proporlion of freighl is inlerchanged
among lhe carriers), a slrike againsl one or a fev carriers can bring lhe vhoIe syslem lo a
haIl. In conlrasl, a slrike againsl a fev ma|or air carriers may nol have nalionaI emergency
impIicalions. Iven lhe IAMs slrikes againsl seven carriers in 1966 (see TabIe 14-2 on page
410) vere nol considered by lhe presidenl lo cause a nalionaI emergency. Iurlhermore,
much of lhe RLA machinery is orienled lovard raiIroad needs and has been crilicized over
lhe years as nol being responsive lo airIine needs.
AIlhough each slep under lhe RLA is nol cIearIy dened or provided under lhe
Iav, lhere are various sleps in lhe mechanics of Iabormanagemenl conicl seIemenl,
depending on vhelher lhe dispule is a minor or a ma|or one. A ma|or dispule arises
in lhe formalion of a coIIeclive agreemenl or lhe Iack of one, vhiIe a minor dispule
arises in lhe proper meaning or appIicalion of an agreemenl. The RLAs process diers
for each dispule. Minor dispules, for vhich lhere are nol slrikes, are seIed by syslem
boards of ad|uslmenl. ResoIulion of ma|or dispules foIIovs a formaIized procedure. These
procedures reIy on lhe RLAs phiIosophy of coIIeclive bargaining, aIong vilh lhe NMs
medialion and oplionaI arbilralion.
Tnc Cc| | ccii tc Bargai ni ng Prcccss
The RLA has an enormous emphasis on slabiIily. Mosl imporlanl, lhe slalus quo
specicaIIy, prohibilion againsl unions slriking or carriers uniIaleraIIy changing pay,
ruIes, or vorking condilionsis preserved lhroughoul lhe Iong and invoIved coIIeclive
bargaining process. Thal process Iasls unliI lhe NM, in ils soIe, virluaIIy unrevievabIe
discrelion, delermines lhal lhe parlies shouId be reIeased lo use seIf-heIp. SeIf-heIp
usuaIIy means, for a carrier, a Iockoul or uniIaleraI impIemenlalion of nev vages, hours,
and vorking condilions, and, for lhe union, a slrike.
CoIIeclive bargaining under lhe RLA is a ralher insuIar process. Il Iimils lhe dispules
lo lhe parlies invoIved and il avoids lhe kind of Iiligalion lhal is characlerislic of lhe
NLRA and olher Iabor reIalions slalules. Tvo of lhe NMs cenlraI funclions, resoIving
represenlalion dispules and aiding coIIeclive bargaining lhrough medialion, aIIov lhe
board virluaIIy unrevievabIe discrelion. CompIainls chaIIenging lhe represenlalion and
coIIeclive bargaining aclivilies of lhe board are seIdom successfuI because lhe federaI
courls IargeIy defer lo lhe board.
The processes of lhe RLA increase lhe IikeIihood of seIemenl, vhich avoids shuldovns.
The acl requires lhe parlies lo meel, lo laIk, lo mediale, lo exerl every reasonabIe eorl lo
seIe aII dispules. The process keeps lhe parlies vorking on resoIving lheir disagreemenls
and Iimils lhe invoIvemenl of lhe courls and lheir endIess appeaIs processes. The Ienglh of
lime during vhich lhe parlies are required lo negoliale aIso may be Iong and dravn oul
lo encourage lhe parlies lo make lhe accommodalions necessary for seIemenls.
Al lhe same lime, NM eIeclion ruIes lend lo preserve conlinuily of union represenlalives.
This aIso provides slabiIily and makes agreemenls more oblainabIe.
C H A P T E R 1 4 A I R L I N E L A B O R R E L AT I O N S 4 0 3
Step 1: Collective Bargaining. The mechanics of seIemenl assume lhal conlracls viII
normaIIy be reached by use of lhe lradilionaI melhods of free coIIeclive bargaining.
Dispules over conlracls, inlerprelalions, and grievances presumabIy viII usuaIIy be
seIed by conferences belveen carriers and empIoyees. These lvo devices, il is hoped, viII
handIe lhe ma|orily of probIems, and no olher procedure viII be necessary. UnforlunaleIy,
hovever, lhe mere exislence of addilionaI procedures somelimes seems lo |eopardize lhe
eecliveness of earIier sleps, and neilher side makes any greal eorl lo seIe issues al lhe
Iover IeveIs.
The process slarls vilh lhe union and company exchanging opening proposaIs. The lvo
sides have 10 days lo agree on a lime, pIace, and dale lo begin lhe coIIeclive bargaining
laIks. olh sides musl begin laIks vilhin 30 days foIIoving lhe exchange of openers. The
laIks conlinue vilh onIy lhe union and company represenlalives invoIved. There is no
lime Iimil, and if bolh sides come lo an agreemenl, a nev conlracl is voled on by lhe union
members.
Step 2: National Mediation Board. If lhe coIIeclive bargaining is unsuccessfuI and lhe
laIks deadIock, lhe union or company requesls, or lhe NM oers, medialion. This slep
musl begin vilhin 10 days of bolh sides decIaring a deadIock in lhe laIks. The NM
assigns a medialor, and medialion laIks begin. There is no lime Iimil as lo vhen lhe laIks
slarl, or hov Iong lhey musl conlinue. These decisions Iie vilh lhe NM. If medialion is
successfuI, a nev conlracl is reached.
Step 3: Voluntary Arbitration. If lhe NM faiIs in ils eorl lo bring lhe parlies logelher
on common ground, lhe Iav requires il lo vork for voIunlary arbilralion. olh sides
musl agree lo abide by lhe resuIls of arbilralion before a lemporary arbilralion board is
eslabIished lo hear lhe dispule. One-lhird of lhe arbilralors are chosen by lhe carriers, one-
lhird by lhe Iabor organizalions, and one-lhird by lhe carrierIabor arbilralors logelher. In
cases of disagreemenl concerning lhe choice of lhe neulraI arbilralors, lhe NM chooses
lhem. AIlhough arbilralion ilseIf is voIunlary, once lhe parlies agree lo il, lhe arbilralion
decision is IegaIIy binding on bolh parlies.
Step 4: Emergency Board. If arbilralion is refused, lhe NM nolies lhe parlies lhal
ils medialory eorls have faiIed, and for 30 days lhereaher, unIess lhe parlies agree lo
arbilralion in lhe inlerim or an emergency board is crealed, no change can be made in lhe
condilions lhal prevaiIed al lhe lime lhe dispule arose. Al lhe same lime, if in lhe NMs
opinion a slrike couId Iead lo a nalionaI emergency, il is required lo nolify lhe presidenl,
vho may creale an emergency board, vhich has 30 days lo invesligale lhe dispule and
reporl ils ndings lo lhe presidenl. The recommendalions of lhe emergency board are
nol enforceabIe, bul lhey have been accepled in a number of inslances and il is hoped
lhal pubIic opinion viII induce acceplance of lhe ndings. If lhe recommendalion of lhe
emergency board is refused, vhich has been lhe case in mosl inslances in recenl years,
anolher 30 days musl eIapse before any change or aclion can commence. Thus, il is ohen
said lhal lhe appoinlmenl of an emergency board poslpones any vork sloppage for a 60-
day cooIing-o period. Aher lhe cooIing-o period, lhe company may change vork ruIes,
rales of pay, and so forlh, or il may inslilule a Iockoul. The union musl decide vhelher lo
accepl lhe company oer or go on slrike.
A I R T R A N S P O R TAT I O N 4 0 4
A Final Option: Presidential Intervention. If aII lhe foregoing eorls faiI and lhe pover
of pubIic opinion does nol induce a seIemenl, lhe presidenl may acl lo avoid disruplion
of commerce. The presidenl can eilher aIIov lhe slrike lo occur or ask Congress for
emergency IegisIalion lo prevenl il. This slep is nol incIuded in lhe RLA, bul il is a reaI
possibiIily. On severaI occasions, lhe presidenl has seized lhe raiIroads, and on al Ieasl
one occasion, he recommended immediale congressionaI aclion lo avoid a nalionvide
raiI slrike. Hovever, lhis has nol been lhe case vilh lhe airIines. In facl, Iresidenl George
H. W. ush refused lo parlicipale in lhe mechanics slrike againsl Iaslern AirIines before
lhal carriers bankruplcy. Hovever, Iresidenl CIinlon did caII American AirIines presidenl
CrandaII lo averl a slrike by lhal carriers ighl aendanls in 1993.
Cri ii ci sn cj inc Prcccss
Where a carrier is veak and a concessionary agreemenl is cIearIy appropriale, lhe process
mighl deIay lhe carrier from oblaining vilaIIy needed cosl savings and, lherefore, make
lhe carrier more vuInerabIe lo nanciaI coIIapse. AIlhough lhis may be lrue, lhe NM has
greal discrelion lo operale quickIy lo make sure carriers slay aoal, for lhe benel of lhe
empIoyees and lhe carrier, as veII as for lhe lraveIing pubIic.
NonelheIess, lhe NMs reIease of lhe parlies lo use seIf-heIp does nol necessariIy resuIl
in concessions lhal ensure carrier survivaI. Ralher, a devaslaling slrike mighl lake pIace
lhal vouId, in facl, Iead lo lhe carriers demise. In addilion, companies sub|ecl lo lhe
NLRA have aIso enlered bankruplcy as a resuIl of a Iabor dispule.
Crilics poinl lo anolher aIIeged dravback of lhe RLA processlhal carriers even
in good limes are insuIaled from chaIIenging unions lo ralionaIize excessive cosls and
inefcienl vork ruIes. Of course, one persons excessive cosls and inefcienl vork ruIes
are anolher persons decenl Iiving vage and loIerabIe vorking condilions. ul in lerms
of lhe process, lhe lrade unionisls counlerargumenl is lhal unions are ohen, in facl, vorn
dovn by lhe eIongaled processes of lhe acl and nol aIIoved lo use lheir grealesl veapon,
lhe slrike, as readiIy as lhey vouId and do under lhe NLRA and lhal, lherefore, lhey seIe
more cheapIy lhan lhey mighl olhervise. Il is aImosl a lruism lhal in good limes, vhen
lhe carriers are making money, unions vho expecl lo make vage gains crilicize lhe RLA
process, vhiIe in bad limes, carriers vho need quick reIief crilicize il.
Anolher crilicism is lhal lhe deIays in coIIeclive bargaining occasioned by lhe vorkings
of lhe RLA breed bad Iabormanagemenl reIalions. Of course, if a carrier does nol survive,
good Iabor reIalions are irreIevanl.
Given lhe reIalive securily of lhe unions in lhe induslry, lhey can and do make
concessionary agreemenls and olher accommodalions vhere needed for lhe survivaI of
a carrier. ul as a praclicaI maer, subslanliaI deIays in reaching coIIeclive bargaining
agreemenls are nol good for Iabor reIalions. DeIays are somelimes necessary, hovever, lo
permil good-failh bargaining and a lhorough reviev of issues in a serious aempl lo nd
soIulions lhal bolh parlies can Iive vilh. In lhose silualions, deIays have a much more
beneciaI lhan harmfuI eecl, parlicuIarIy in an induslry lhal can iII aord shuldovns al
any lime.
In a parlicuIarIy vuInerabIe induslry Iike lhe airIines, having a syslem lhal encourages
an adversariaI silualion vhenever a dispule arises is bad Iabor poIicy.
The generaI consensus among Iabor economisls is lhal lhe process of coIIeclive
bargaining has beneled lhe carriers and Iabor in lhe posldereguIalion period and lhal
Iabor cosls have nol been lhe cause of lhe airIines nanciaI crises lo any signicanl degree.
C H A P T E R 1 4 A I R L I N E L A B O R R E L AT I O N S 4 0 5
ul anaIyses have shovn |usl lhe opposile. Labor produclivily has increased lremendousIy
since lhe 1978 passage of lhe AirIine DereguIalion Acl, because lhe airIines have nol been
abIe lo aImosl aulomalicaIIy pass on lheir cosls lo lhe lraveIing pubIic as lhey vere abIe
lo do vhen lhe CA reguIaled lhem. AIso, since dereguIalion vas enacled, lhe induslry
per capila compensalion has acluaIIy faIIen. Unil Iabor cosls have aIso decreased and have
represenled a decreasing fraclion of capacily cosls. Labor cosls per avaiIabIe seal-miIe,
vhich is lhe slandard measure of produclivily in lhe induslry, are much Iover on U.S.
airIines lhan on foreign carriers, by approximaleIy 15 lo 20 percenl. Labor cosls generaIIy
cannol be said lo delermine an airIines survivaI or lhe desliny of lhe induslry.
HISTORICAL OVERVIEW OF AIRLINE UNION ACTIVITY
Since 1936, lhe year lhal Congress pul commerciaI airIines under lhe RaiIvay Labor Acl
a period of 7 decades lhal incIuded 42 years of economic reguIalion and approximaleIy
25 years of dereguIalionairIine Iabormanagemenl reIalions have been overseen by lhe
U.S. governmenl. Over lhal lime span, lhe goaIs of coIIeclive bargaining have nol changed
much, nor have lhe ob|eclives of managemenl and Iabor.
Whal has changed is lhe economic, sociaI, and business environmenl, and lhe resuIl
has been a nev induslry slruclure and lremendous advances in lechnoIogy and in lhe
economics of operalion. These changes are readiIy apparenl vhen a DC-3, lhe gIamour
pIane of lhe 1940s, is compared lo a modern-day oeing 777.
Tnc Prcj ci Agc
In lhe earIy years of lhe airIine induslry, during ils air maiI service phase and inlo lhe
earIy years of lhe Nev DeaI of lhe 1930s, airIines, Iike raiIroads, vere vieved as common
carriers vesled vilh a pubIic inleresl, a kind of privale-pubIic uliIily lo be reguIaled by
means of lhe conlroI of predalory compelilion, markel enlry, vages, and fares. In lhis
edgIing slage of commerciaI air lransporlalion, economic slabiIily of lhe airIine induslry
vas a high governmenl priorily, as lhe nalion endeavored lo puII ilseIf oul of lhe Greal
Depression of lhe 1930s. Concern for vorkers righls and slandards of Iiving vas parl
of lhe sociaI and poIilicaI phiIosophy of lhe period. This vas quile unIike lhe period of
dereguIalion aher 1978, vhen governmenl vieved lhe airIine induslry as malure enough
lo vealher any kind of compelilion. This oulIook vas based on a beIief lhal lhe markel,
nol lhe governmenl, couId more efcienlIy aIIocale resources.
Induslryvide bargaining became a reaIily in 1934 lhrough Decision 83 of lhe NalionaI
Labor ReIalions oard, vhich vas eslabIished under lhe NalionaI Recovery Acl.
Industrywide bargaining occurs vhen unions and managemenl of lhe ma|or rms in
an induslry agree lo bargain coIIecliveIy lo reach conlracl lerms lhal viII appIy lo aII lhe
rms and lheir empIoyees, vherever lhey are Iocaled. One purpose is lo lake vages oul
of compelilion.
Decision 83 eslabIished minimum vages and maximum hours for piIols across lhe
induslry. Il aIso aempled lo compensale piIols al Ieasl parliaIIy for lechnoIogicaI changes
by reIaling pay lo increasing aircrah speed. Though lhe decision prolecled vages and
hours onIy of piIols empIoyed by airIines carrying maiI under conlracl lo lhe Iosl Ofce
Deparlmenl, il eslabIished de faclo induslryvide proleclion. Il vas lhe byproducl of a
prolecled infanl induslry in vhich no company couId hope lo survive vilhoul governmenl
A I R T R A N S P O R TAT I O N 4 0 6
supporl lhrough maiI paya form of subsidy. MaiI compensalion covered lolaI cosls
(incIuding Iosses on passenger business), nol mereIy lhe cosl of carrying lhe maiI.
As imporlanl as Decision 83 vas, il vas Iimiled lo a smaII porlion of lhe airIine
induslrynameIy, airIine piIols. A more imporlanl evenl deaIing vilh Iabormanagemenl
reIalions in lhe enlire airIine induslry look pIace in 1936 vhen Congress, IargeIy al lhe
behesl of Iabor, pIaced lhe airIine induslry under lhe RLA and ils mandalory medialory
dispule seIemenl procedures adminislered by lhe NM. This proleclion of Iabors and
managemenls righls had nol been secured by coIIeclive bargaining.
The vage formuIa (Decision 83) vas Ialer incIuded in lhe Air MaiI Acl of 1934 and
lhe CiviI Aeronaulics Acl of 1938. y lhal lime, hovever, coIIeclive bargaining had
increased vages and xed hours so lhal lhe vage formuIa and hour ruIes had become
meaningIess. And vilh lhe passage of lhe AirIine DereguIalion Acl of 1978, lhey vere
formaIIy aboIished.
Since passage of lhe RaiIvay Labor Acl as amended in 1936, lhe ma|or lype of bargaining
in lhe airIine induslry has been paern bargaining. Iaern bargaining occurs vhen each
airIine negoliales ils ovn agreemenl vilh a Iabor union. ecause agreemenls are negolialed
over dierenl lime periods vilh dierenl expiralion dales, each empIoyee group seeks lo
beer lhe mosl recenl agreemenls signed by olher airIines. Thus, a paern is eslabIished
in vhich lhe unions are said lo piggyback and Ieapfrog conlracl benels, one over
anolher, lo ensure ever-increasing vage rales and benels. Managemenls use lhe lerm
unipsau lo describe hov lhey are forced lo accede in successive negolialions lo vages
and/or benels lhal some olher airIine has given.
In lhe earIy days, airIine piIols vere lhe onIy eecliveIy organized group, and lheir
reIalionships vilh managemenl vere usuaIIy handIed by operalions personneI. There
vere no induslriaI reIalions deparlmenls as ve knov lhem loday. Inslead, lhe personneI
deparlmenls handIed everylhing, and in mosl cases, personneI speciaIisls vere ignored
by lop airIine managemenl. AII loo frequenlIy, lhe advice and counseI of personneI vere
neilher vanled nor soughl and, vhen oered, venl unheeded.
This silualion began lo change in Iale 1946, and by 1948, many of lhe empIoyee groups
in lhe airIine induslry vere organized. Companies began lo reaIize lhal lhey had lo
upgrade lheir personneI deparlmenls and lheir melhods of handIing empIoyees lo deaI
vilh lhese nevIy organized groups and lhe probIems lhal vere deveIoping. InduslriaI
reIalions deparlmenls slarled lo crop up, and lhe opinions of personneI and induslriaI
reIalions direclors began lo hoId some veighl. As lhese experls and lheir deparlmenls
grev in slalure vilhin lheir companies, lheir lilIes vere upgraded and lheir economic
posilions improved.
During lhis same period, Iabor unions began lo recognize lhe polenliaI membership lhal
exisled among unorganized empIoyees in lhe avialion induslry, and many unions began
lo |ockey for posilion vilhin lhe induslry. y 1955, cIass and crah Iines vere becoming
veII dened, and nol onIy piIols bul aIso ighl aendanls, mechanics, slock cIerks,
communicalion empIoyees, ighl engineers, and dispalchers vere organized. There vas,
hovever, praclicaIIy no unionizalion among lhe vhile-coIIar ground empIoyees, incIuding
cIericaI, reservalions, and lickeling personneI and slalion agenls.
AIlhough greal progress had been made in organizing airIine empIoyees by 1955, lhe
induslry vas sliII smaII enough for mosl vorkers lo be on a rsl-name basis, and mosl
probIems vere handIed on a personaIized basis. This couId be lermed phase 1, or lhe
pre|el age, in lhe airIine induslry.
C H A P T E R 1 4 A I R L I N E L A B O R R E L AT I O N S 4 0 7
Tnc |ci Agc
Wilh lhe inlroduclion of lhe |el inlo commerciaI airIine lransporlalion in lhe Iale 1950s,
lhe enlire piclure changed. SuddenIy, lhe airIines became lhe number-one means of
lransporlalion. The |el age broughl speed, Iuxury, comforl, and a hosl of olher advanlages
lo lhe airIine induslryand il aIso broughl vilh il IileraIIy hundreds of nev probIems for
airIine empIoyees. OId vays of doing business had lo be repIaced by more efcienl and safer
ones. More skiIIs and lraining vere needed, and Iabor requiremenls expIoded overnighl.
Nol onIy did piIols have lo be relrained lo handIe lhe nev |els, aII ground personneI had
lo be relrained in servicing lechniques, and nev syslems had lo be deveIoped lo handIe
lhe increasing ood of lraveIers. These probIems, and olhers lhal deveIoped vilh lhe
advenl of lhe |el age, produced considerabIe Iabor unresl, a feeIing of insecurily among
empIoyees, and a deveIoping resislance lo change, especiaIIy lo aulomalion, vhich vas
and is necessary lo run an efcienl |el airIine induslry.
The |el age broughl vilh il unexpecled prols, and lhe empIoyees naluraI desire lo
share in lhese prols ohen caused head-on conicl vilh managemenl, vhich resisled
vhal il considered unreasonabIe demands or an invasion of managemenl prerogalives
by lhe unions. This vas a period of slrained Iabormanagemenl reIalions, as lhe frequenl
slrikes suggesl (see TabIe 14-2). olh managemenl and Iabor vere unprepared for some
of lhe changes broughl aboul by lhe |el age.
In an eorl lo improve lheir bargaining pover vilh lhe unions, in 1958 a group of lhe
ma|or carriers drev up lhe so-caIIed mutual aid pact (MAI) vhereby lhey agreed lhal if
one of lhem vas slruck, lhe olhers vouId pay lhe slruck carrier lhe vindfaII revenues lhey
reaIized from lhe slrike Iess lhe added expense of carrying lhe addilionaI lrafc. Irecise
caIcuIalion of lhese revenues vas nol possibIe, bul formuIas vere agreed on lhal aempled
lo measure lhe added revenues of each nonslruck carrier and lo deducl lhe added cosls of
moving lhis lrafc. The slruck carrier agreed lo make every reasonabIe eorl lo provide
lhe pubIic vilh informalion concerning air service oered by olher carriers in lhe pacl.
The MAI vas a form of slrike insurance, and lhe unions naluraIIy opposed il on lhe
grounds lhal lhe carriers vere nol bargaining in good failh vhen lhey broughl carriers
lhal vere nol parly lo lhe dispule inlo il and lhereby forced lhe union lo accepl lheir
recommendalions. In lhe spring of 1959, lhe CA approved lhe MAI, re|ecling lhe unions
posilion on lhe grounds lhal lhere vere olher imporlanl faclors lhal vouId slop a carrier
from proIonging any slrike. The CA ciled such faclors as lhe Iong-lerm Iosses associaled
vilh resuming service, Iosl markel share, and lhe facl lhal paymenls under lhe MAI did
nol cover lhe enlire cosl of lhe slrike.
SeveraI amendmenls vere made belveen 1958 and 1970 lo increase paymenls under
lhe MAI. In 1970, lhe pacl vas broadened vhen lhe CA approved lhe parlicipalion of
lhe regionaI carriers, six of vhich subsequenlIy |oined.
Over lhe years, Iabor lried unsuccessfuIIy lo have lhe courls sel lhe MAI aside or lo
have Congress oulIav il. IinaIIy, in 1978, vilh lhe passage of lhe AirIine DereguIalion
Acl, aII exisling muluaI aid agreemenls vere decIared void. During lhe 20-year hislory
of lhe MAI, over haIf a biIIion doIIars in muluaI aid vas paid oul. AIlhough lhe AirIine
DereguIalion Acls provisions viping oul aII exisling muluaI aid pacls appeared lo be a
viclory for Iabor, lhey Ieh lhe door open for nev agreemenls, bul under severeIy Iimiling
condilions:
A I R T R A N S P O R TAT I O N 4 0 8
AII nev agreemenls conlinued lo be sub|ecl lo CA approvaI unliI lhe boards expiralion,
al vhich lime lhis funclion vas lurned over lo lhe Deparlmenl of Iuslice. The deparlmenl
shaII nol approve any such agreemenl unIess such agreemenl provides (a) lhal any air carrier
viII nol receive paymenls for any period vhich exceed 60 per cenlum of lhe direcl operal-
ing expenses during such period, (b) lhal benels under lhe agreemenl are nol payabIe for
more lhan eighl veeks during any Iabor slrike, and lhal such benels may nol be for Iosses
incurred during lhe rsl lhirly days of any Iabor slrike, and (c) lhal any parly lo such agree-
menl viII agree lo submil lhe issues causing any Iabor slrike lo binding arbilralion pursuanl
lo lhe RaiIvay Labor Acl if lhe slriking empIoyees requesl such binding arbilralion.
1
AirIine union negolialors vere quile successfuI in gaining above-average increases for
lheir members up lo lhe lime of dereguIalion. The average annuaI percenlage increase in
compensalion per empIoyee vas 9.9 percenl for lhe airIine induslry from 1969 lo 1979,
compared vilh an 8.1 percenl average for aII U.S. induslry. This dierenliaI added $1.5
biIIion lo lolaI airIine Iabor cosls in 1979 aIone.
The disparale gains in vages and fringe benels for lhe U.S. scheduIed airIines in lhe
1970s are shovn in TabIe 14-3. asic vages are of fundamenlaI inleresl lo any vorker
and are usuaIIy a slraighlforvard payroII caIcuIalion appIying rales negolialed in a Iabor
conlracl. Iringe benels cover a muIlilude of added concessions of vaIue lhal are parliaIIy
or fuIIy paid by lhe empIoyer. There has been a dislincl union emphasis on slressing such
benels in recenl years, parlicuIarIy because lhey are generaIIy lax-free lo lhe empIoyee.
The main areas of fringe benels vary by airIine, bul lhey usuaIIy incIude medicaI and
denlaI pIans (basic and ma|or), Iife insurance, accidenlaI dealh and dismembermenl
coverage, reliremenl pIans, vacalion-accruaI provisions, and sick-Ieave coverage.
AddilionaI benels are reguIarIy proposed by lhe unions, incIuding increased company
conlribulions lo empIoyee reliremenl programs and increased reliremenl benels. Iree
air lransporlalion is aIso a fringe benel avaiIabIe lo airIine empIoyees and cerlain of lheir
reIalives, bul lhis advanlage does nol usuaIIy produce a cosl oulIay by lhe carrier. Nol
aII crahs oblain fringe benels of lhe same proporlion of lheir average vages, bul fringe
benels of aII vorkers increased appreciabIy as a percenlage of overaII vages during lhe
1970s, as shovn in TabIe 14-4.
In spile of conlinuing vage escaIalion during lhe 1970s, fringe benels became an
increasingIy Iarge proporlion of lolaI empIoyee compensalion, lhe expense of vhich
conlinued in lhe 1980s lo inale lhe operaling cosls of lhe eslabIished carriers. Iurlher-
more, ighl crevs on mosl ma|or airIines have olher nanciaI advanlages. Ior exampIe,
lheir conlracls usuaIIy provide lhem, vhiIe avay from home base, vilh company-paid
ground lransporlalion lo holeIs, singIe-occupancy rooms, and in-ighl meaIs, vhiIe lheir
pay scaIes aIso incIude IiberaI aIIovances per hour avay from home. The resuIl of lhese
deveIopmenls has been a sleady gain in lhe average empIoyee compensalion vilhin lhe
airIine induslry lhal oulpaced lhe rise in lhe Consumer Irice Index during lhe 1970s.
1
AirIine DereguIalion Acl of 1978, Seclion 412(e).
C H A P T E R 1 4 A I R L I N E L A B O R R E L AT I O N S 4 0 9
TABLE 14-2 Duration of Airline Strikes Between the Fall of 1958 and 1970 [the
rst 12 years of the jet age and the mutual aid pact (MAP)]
TolaIs
MAP
Carrierand Carrierand Bcjcrc
Year Union Days Year Union Days MAP
CapilaIIAM IanAmALIA Numberof
WeslCoaslIAM SIOHeIicoplerTWU slrikes
TWAIAM IaslernIAM TolaIduralion
LakeCenlraIALSSA NalionaIIAM indays
IaslernIIIA NorlhveslIAM Average
IaslernIAM TWAIAM duralion
AmericanALIA UniledIAM indays
IacicALDA IacicIAM
SoulhernACMA MohavkIAM
IIyingTigerTWU WeslCoaslALIA
MohavkALIA AirIiALIA
SoulhernALIA OanlasIAM
ConlinenlaIIIIA SlandardSAIIA
IaslernALIA ReeveAIeulianIAM
raniRAC NalionaIIAM
IanAmIIIA AmericanTWU
NorlhveslIAM AirCanadaIAM
AmericanIIIA IiedmonlALIA
TWAIIIA WeslernIT
IaslernIIIA IanAmIT
NalionaIIIIA LosAngeIesAirvaysALIA
IanAmIIIA NalionaIALIA
IIyingTigerIIIA OzarkAMIA
WeslernIIIA WorIdAirvaysIT
NalionaIIAM NorlhveslRAC
IaslernIIIA TWAALSSATWU
IanAmIIIA MohavkALIA
UniledIAM
NalionaIALIA
IanAmTWU
OACIAM
TransCaribbean
IT
SourceAir|incManagcncniIune
AirIineunionsandabbrevialionsALDAAirLineDispalchersAssocialionALIAAirLineImpIoyeesAssocialionALIAAirLine
IiIolsAssocialionALSSAAirLineSlevardsandSlevardessesAssocialionAMIAAircraMechanicsIralernaIAssocialionRAC
rolherhoodofRaiIvayAirIineandSleamshipCIerksIreighlHandIersIxpressandSlalionImpIoyeesIIIAIIighlIngineers
InlernalionaIAssocialionIAMAWInlernalionaIAssocialionofMachinislsandAerospaceWorkersITInlernalionaIrolherhood
ofTeamslersTWUTransporlWorkersUnion
A I R T R A N S P O R TAT I O N 4 1 0
Consumer
Year Wages Iringe enels Irice Index
a
1970 100.0 100.0 100.0
1971 108.8 113.1 104.3
1972 120.0 134.0 107.4
1973 127.5 157.4 114.5
1974 137.0 175.1 127.0
1975 149.0 201.2 138.6
1976 162.7 239.2 146.6
1977 180.0 276.3 156.0
1978 197.1 313.0 168.0
1979 207.8 336.6 186.9
Source: Air Transporl Associalion of America, ATA Annua| |cpcri. 19701979. Used by permission.
a
ased on U.S. ureau of Labor Slalislics.
TABLE 14-3 Increase in U.S. Scheduled Airline Wages and Fringe Benets
Compared to Consumer Prices (Index 1970 = 100)
IIighl IIighl TolaI
Year Deck Crev Mechanics Aendanls Work Iorce
1970 22.3% 10.8% 10.8% 13.8%
1971 21.8 12.0 11.6 14.3
1972 22.9 13.3 12.6 15.4
1973 24.7 15.2 14.0 17.0
1974 25.3 15.2 14.9 17.7
1975 26.3 16.3 16.0 18.6
1976 28.0 18.1 17.5 20.3
1977 30.6 18.5 17.5 21.2
1978 32.3 19.9 17.7 21.9
1979 30.7 21.3 18.9 22.3
Source: Air Transporl Associalion of America, ATA Annua| |cpcri. 19701979. Used by permission.
TABLE 14-4 Fringe Benets as a Percentage of Wages for Selected Workers, U.S.
Scheduled Airlines, 19701979
Sunnaru. Prc!crcgu| aii cn Ia|crManagcncni |c| aii cns
elveen 1936 and 1978, lhe range of Iabormanagemenl reIalionships among lhe airIines
had been remarkabIy consislenl compared vilh lhose in U.S. induslry in generaI.
NonelheIess, lhose reIalionships ranged from oulrighl hosliIily lovard unions, lo arms-
Ienglh deaIing (some refer lo lhis as armed lruce), lo accommodalion, lo cooperalion, or
some combinalion lhereof. In lhe predereguIalion period, lhe mosl common poslure of
airIine rms vas arms-Ienglh deaIing, vilh accommodalion running a bil behind. There
vere fev, if any, exampIes among lhe ma|or airIines of lhe exlremes of oulrighl hosliIily
lovard or cooperalion vilh unions. AIlhough lhere vere, from lime lo lime, nev-enlranl
airIines, lhere vas no dramalic grovlh of unions lhal lhrealened lo upsel lhe exisling
dynamics of unionmanagemenl reIalionships.
C H A P T E R 1 4 A I R L I N E L A B O R R E L AT I O N S 4 1 1
Moreover, al lhal lime, poverfuI moderaling forces vere al vork. The rsl vas
governmenl reguIalion of airIine roules, prices, compelilion, and operalions. Second,
dispule resoIulion procedures under lhe RLA vere in pIace and avaiIabIe lo lhe parlies.
Third, coIIeclive bargaining exisled in a generaI poIilicaI environmenl lhal favored
accommodalion or probIem soIving over hosliIily, as Iabor and managemenl vere Iearning
lo Iive vilh each olher under bolh lhe NLRA and lhe RLA. Iourlh, on bolh sides of lhe
labIe vere peopIe vho had grovn up in lhe airIine induslry and knev one anolhers
probIems.
As lime passed, and up lo lhe Iale 1970s, vhal had slarled oul as muIli-empIoyer
bargaining graduaIIy evoIved inlo coordinaled bargaining of unions foIIoved by paern
bargaining. Laler sliII, eorls lo relurn lo coordinaled bargaining by empIoyers, epilomized
by lhe muluaI aid pacl, faiIed.
Unions in lhe Uniled Slales reached lheir membership peak by 1953, boasling some
34 percenl of lhe nonagricuIluraI Iabor force, bul by 1995 membership had decIined lo 15
percenl. In generaI, lhe posldereguIalion era began vilh evidenl veakness in membership
of lhe U.S. Iabor movemenl. Union veakness vas compounded by lhe increased diversily
of union membership and by somelimes conicling inleresls. y lhe Iale 1970s, lhe ailude
of induslry lovard unions vas Iess lhan veIcoming, much Iike in lhe 1920s, before lhe
passage of lhe RLA, or during lhe period Ieading up lo passage of lhe NLRA.
LABOR RELATIONS SINCE DEREGULATION
Compared vilh lhe posldereguIalion era, predereguIalion bargaining vas more orderIy.
The ma|or deslabiIizing eIemenl lhal has aecled coIIeclive bargaining during dereguIalion
has been inlense compelilion from numerous nev-enlranl carriers lhal immedialeIy began
lo bile inlo lhe markel share of lhe ma|or airIines. A hosl of nev unorganized carriers
emerged in lhe earIy 1980s lo provide scheduIed service on seIecled roules in direcl
compelilion vilh lhe eslabIished operalors, and more enlranls are expecled lo appear
over lime. These carriers incIuded Midvay AirIines, IeopIe Ixpress, Nev York Air, Muse
Air, and Iel America, lo name a fev. Olhers vilh Ionger hislories, such as Air IIorida,
Soulhvesl, CapilaI AirIines, and WorId Airvays, aII expanded lheir roules. During lhe
rsl ve years of lhe 1980s, more lhan 100 nev airIines enlered lhe induslry, and in lhal
decade, as many or more exiledan indicalion of unparaIIeIed induslry inslabiIily. This
inslabiIily vas accompanied by periodic fare vars lhal have conlinued lo lhe presenl,
aIong vilh bankruplcies or lhrealened bankruplcies of ma|or airIines, grealer compelilion
from surviving nev-enlranl airIines, franlic eorls lo gain compelilive advanlage, and
massive and coslIy inveslmenls in pIanes and airIine hubs designed lo monopoIize
passenger lrafc from slarl lo slop.
Mosl of lhe nev airIines slarled service vilh smaIIer lvin-engine |els on shorl lo medium-
Ienglh roules vilh high lrafc densily. The edgIing airIines beneled from minimaI
empIoyee seniorily, vhich produced Iov unil vage cosls, because mosl union pay scaIes
are based on Iongevily of service. In addilion, lhey vere generaIIy nonunion companies,
vhich enabIed lhem lo oblain grealer empIoyee produclivily vilhoul reslriclive cIass
and crah groupings lhal resuIl in coslIy vork ruIe Iimilalions. Iurlhermore, lhese poinl-
lo-poinl operalors did nol oer lhe same IeveI of passenger service (such as inlerIine
lickeling and baggage checking) provided by lhe malure airIines. Anolher cosl advanlage
vas lheir grealer exibiIily lo conlracl oul ground handIing services al many slalions
A I R T R A N S P O R TAT I O N 4 1 2
lo exisling carriers on a per-ighl-handIed basis. This obvialed high xed expenses lo
mainlain sla and faciIilies al secondary lerminaIs vilh onIy minimaI operalions per shih.
In addilion, lhese airIines conlroIIed cosls by empIoying parl-lime vorkers lo a degree nol
possibIe in lhe case of unionized airIines.
The resuIl vas lhal lhese nev enlranls en|oyed appreciabIy Iover unil vage cosls lhan
mosl oId-Iine operalors. The nev enlranls vere furlher aided by lheir seIeclion of smaIIer
2-pIus-2 |el aircrah (lvo engines and lvo piIols), vhich vere more efcienl and beer
sized lo mainlain ighl frequencies in markels fragmenled by increased compelilion under
dereguIalion. The oeing 737-200 and lhe DC-9-30 lvin |els vere especiaIIy popuIar vilh
lhe never airIines, and lhese pIanes had an average seal-miIe cosl around 25 percenl beIov
lhal of lhe oeing 727-100, lhen lhe smaIIesl aircrah operaled by many ma|or airIines. Iarl
of lhis cosl advanlage slemmed from an abiIily lo use high-densily coach sealing on such
aircrah reslricled lo seIecled markels. Thus, lhe nev poinl-lo-poinl airIines vere abIe lo
oer Iover fares lhan lheir eslabIished compelilion vhiIe sliII generaling prol.
IronicaIIy, slarl-up airIines somelimes purchased smaIIer lvin |els second-hand from
eslabIished carriers and used lhem in Iov-fare services in direcl compelilion vilh lhe
originaI ovners. This unil operaling cosl dierenliaI belveen nev and malure airIines
eroded lhe markel shares of lhe enlrenched incumbenls by skimming some prolabIe
lrafc beyond lhe break-even IeveI and forced lhe higher-cosl operalors lo Iover lheir
fares compeliliveIy lo nonprolabIe IeveIs. The prolabiIily of lhe eslabIished carriers
vas impaired lo lhe poinl lhal lheir services vere evenluaIIy cul back, vilh a consequenl
reduclion of lhe empIoyee vorkIoad and IeveI of lake-home pay. Al lhe Ieasl, il hampered
lhe abiIily of lhese airIines lo generale adequale earnings for nancing of capilaI expansion
lo purchase lhe more cosl-efcienl aircrah necessary lo remain compelilive.
More compIexilies and compelilion vere inlroduced by mergers, combinalions,
buyouls, and various reslruclurings of airIines, eilher lo grov, lo enler lhe markel, or lo
survive lhe faIIoul from lhe cosl of debl. These came in lhe form of vage and benel culs,
bankruplcies lhal resuIled in Iosl |obs, lvo-lier pay syslems and even second-lier airIines
lhal produced second-lier vages, and oulsourcing of vork lo conlraclors. The goaI vas lo
average dovn vages and furlher cul coslsa praclice famiIiar lo lhe aulomobiIe induslry,
vhich had Iong oulsourced produclion and services lo achieve Iover vages and higher
produclivily.
|| i ni naii cn cj inc Auicnaii c Ia|cr Ccsi Pass-Tnrcugn
efore dereguIalion, lhe CA sel aIIovabIe fare IeveIs based on acluaI induslry cosls. As a
resuIl, lhe added expense of each carriers nev Iabor agreemenl vas evenluaIIy embedded
in lhe overaII rale slruclure lhal eslabIished fuII-fare price IeveIs approved by lhe CA
and generaIIy charged by aII domeslic scheduIed airIines. Of course, lhe unil operaling
cosls of individuaI airIines did vary around lhe rale-making norm, and lhere vere aIso
discounl fares.
NeverlheIess, lhere vas very IiIe incenlive for one company lo resisl excessive union
demands lo lhe poinl of a polenliaIIy expensive slrike, because lhe seIemenl cosls couId
evenluaIIy be passed lhrough lo lhe ad|usled generaI fare IeveI. This ailude produced
lhe slair-slep approach lo induslry Iabor negolialions by nalionvide unions, under vhich
ma|or concessions gained from one carrier (ohen a nanciaIIy veak carrier) became lhe
basis of escaIaling Iabor demands for lhe nexl open conlracl.
There vas aIso videspread airIine preoccupalion vilh proleclion of markel share
from compelilion under lhe franchised roule slruclures lhal exisled. This concern ohen
C H A P T E R 1 4 A I R L I N E L A B O R R E L AT I O N S 4 1 3
A Pcri c! cj Ia|cr Unrcsi. Tnc 1980s
Labor has aIvays been an imporlanl parl of lhe cosl slruclure of lhe airIines, represenling
on average over one-lhird of lolaI operaling expenses and over lvo-lhirds of conlroIIabIe
cosls. Il became quile cIear shorlIy aher dereguIalion lhal lhere vas room for subslanliaI
savings in lhis area. ImpIoyees al lhe eslabIished carriers vere making considerabIy
more lhan lhey couId oulside lhe induslry, parlicuIarIy lrue for cerlain |obs, such as
airpIane cIeaners and baggage handIers. The nev enlranls made lhe mosl of lhis polenliaI
advanlage, vilh lheir average compensalion during lhe earIy 1980s being more lhan one-
lhird beIov lhe induslry average.
The disparily sliII exisled in 1986 al carriers such as American, DeIla, and Uniled,
vhere vages and benels ranged from 36 lo 39 percenl of operaling expenses. In lhe same
year, Iabor accounled for onIy 20 lo 24 percenl of lolaI operaling expenses al ConlinenlaI,
Soulhvesl, and some of lhe never carriers.
These enormous dierences inevilabIy resuIl in price and cosl dierences, and lhe
eslabIished carriers musl evenluaIIy meel lhe price of any signicanl compelilor. Iasl
and fulure compelilion has crealed enormous pressure lo reduce Iabor cosls.
IquaIIy imporlanl for polenliaI cosl savings, lhough Iess quanliabIe, vere lhe vork
ruIes, buiIl up over many years, lhal hindered produclivily improvemenls. Work vas
divided aIong crah Iines, making cross-uliIizalion of vorkers aImosl impossibIe. The
use of parl-lime empIoyees lo cover peak-Ioad periods vas sharpIy reslricled. IiIols and
ighl aendanls had von compIex Iimils on lhe number of ying hours, pIus many exlras
invoIving duly lime and expenses incurred avay from base.
AcluaIIy, Iabor began dereguIalion on an upsving, vilh vages and benels conlinuing
lo rise on average unliI 1981. In lhal key year, a severe economic recession, compounded
by lhe ring of lhe slriking air lrafc conlroIIers, reslricled lrafc and viped oul carriers
abiIily lo spread cosls lhrough expansion. MeanvhiIe, fueI prices soared, and aII carriers
engaged in erce price compelilion.
The incumbenls vere forced lo reduce cosls lo aord lhe Iover fares needed lo malch
lhe Iover fares of lhis nev compelilion. Cosl reduclion aecling empIoyees look lhe
form of Iayos, lvo-lier pay syslems, lhe beginning of lhe oulsourcing of vork lo Iover-
cosl providers, and lhe eslabIishmenl of Iover-cosl second-lier airIines as subsidiaries.
caused carriers lo accepl unreaIislic union demands. The nov-defuncl muluaI aid pacl
provided some incenlive lovard hard bargaining, bul of lhe lrunk Iines, onIy NalionaI
and Norlhvesl shoved any slrong incIinalion lo accepl prolracled slrikes during lhe
1970s.
Nov il is a dierenl slory. Under lhe free-enlry syslem lhal has evoIved, lhere are
no lrue franchises lo prolecl domeslic roules, no muluaI aid programs lo compensale
for slrike Iosses, and no basic fare slruclure charged by aII parlicipanls. ul lhere are
nev Iov-cosl, nonunion compelilors. The underIying probIem is an inabiIily lo pass on
direclIy lo passengers any abnormaIIy high unil cosl increases, vhelher caused by more
generous conlracl seIemenls or use of inefcienl aircrah.
Of course, compelilive fares vere parl of Congresss basic inlenl in passing lhe
dereguIalion Iav. Today, a Iov-cosl airIine, vhelher a nev enlranl or an eslabIished
carrier, vilh efcienl |els and a reIaliveIy exibIe Iabor silualion can uniIaleraIIy sel ils
fare slruclure (bolh fuII fare and discounl) al a prolabIe IeveI lhal can seriousIy harm any
compelilor vilh appreciabIy higher unil operaling cosls.
A I R T R A N S P O R TAT I O N 4 1 4
IiIols, because of lheir speciaIized, nol easiIy lransferrabIe skiIIs and higher pay, vere
parlicuIarIy aecled. Iaming many of lheir probIems on pasl slralegic mislakes by lop
managemenl, mislakes in vhich lhey had no inpul, empIoyees mounled a counleroensive
nol previousIy used. Ior exampIe, piIols al Uniled AirIines, lhe induslrys Iargesl and
mosl successfuI ma|or carrier, concIuded lhal lheir managemenl nol onIy vas benl on
deslroying lhe union bul aIso vas shihing ils corporale slralegy from lhal of airIine
grovlh lo a boom-Iine ob|eclive. The piIols aIso beIieved lhal Uniled vas crealing a
congIomerale lhal incIuded nonairIine enlerprises (renlaI car and holeI properlies) lhal
seemed lo make lhe airIine (and lheir |obs) secondary and dispensabIe. When lhe piIols
slruck, lop managemenl deparled.
The rsl union concessions appeared al rani, Weslern, and Ian Am, bul lhese vere
foIIoved shorlIy by concessions al ConlinenlaI, Iaslern, and RepubIic, as lhose Iabor groups
engaged in survivaI bargaining. The cosl culs al lhose carriers gave heaIlhy compeling
airIines lhe Ieverage lo drive lheir ovn cosls dovn, conlinuing lhe spread of concessions lo
lhe carriers. In some cases, lhe need for vage culs Ied lo a search for cooperalion. In exchange
for cooperalion, lhe unions soughl lhree lhings: (1) adequale informalion lo persuade
lhem lhal lhe culs vere necessary, (2) a voice in fulure slralegic decisions, and (3) equaIily
of sacrice among vorkers, managers, and sharehoIders. These condilions Ied lo a deep
invoIvemenl of unions in lhe manageriaI reaIm, lhrough represenlalion on company
boards, vorker parlicipalion programs, and exlensive empIoyee slock ovnership.
Iaslern AirIines vas lhe besl-knovn exampIe of lhis approach. Labor cosl savings,
exchanged for empIoyees sharing in decision making and equily, heIped propeI il lo lhe
mosl prolabIe rsl haIf in ils hislory in 1985. RepubIic, Ironlier, and Weslern AirIines aIso
adopled many of lhe same laclics. In 1981, lhe Air Line IiIols Associalion (ALIA) direcled
ils ire lovard vhal il caIIed runavay airIines. A prime exampIe vas lhe ALIAs aempl on
behaIf of Texas InlernalionaI (TI) piIols, ighl aendanls, mechanics, and lickel agenls lo
oblain an in|unclion againsl TIs hoIding company, Texas Air Corporalion, for eslabIishing
a nev nonunion subsidiary (Nev York Air), cIaiming lhal exisling conlracls required
union membership vilhin lhis oshool of lhe company. Of course, lhe crux of lhis dispule
vas lhe facl lhal Nev York Air caplains vere being paid aboul $30,000 per year for a 75-
hour monlh, vhereas Texas InlernalionaI caplains earned approximaleIy $62,000 annuaIIy
for ying onIy 55 hours per monlh on lhe same lype of aircrah. The ALIA had requesled
reIease from medialion vilh Texas InlernalionaI in order lo begin lhe slalulory 30-day
cooIing-o period, bul lhe union vilhdrev lhis requesl from lhe NalionaI Medialion
oard before a ruIing vas given.
During lhe summer of 1981, lhe IrofessionaI Air Trafc ConlroIIers Organizalion
(IATCO) iIIegaIIy caIIed on ils membership lo vaIk o lhe |ob. IIeven lhousand IAA
conlroIIers foIIoved lhe order and vere subsequenlIy red by Iresidenl Reagan. LegisIalion
had been inlroduced in Congress (and vas subsequenlIy passed) caIIing for lop pay of
$73,420 per year for air lrafc conlroIIers, cosl-of-Iiving raises one-and-a-haIf limes lhe
rale of inalion, a 32-hour vork veek, and reliremenl al 75 percenl of a conlroIIers lop
pay aher 20 years.
The year 1982 sav lhe rsl bankruplcy of a ma|or carrier vilh lhe demise of rani
AirIines. Despile severaI ma|or pay culs incurred by rani union members and olher
empIoyees, lhe carriers cash ov reached a poinl al vhich il couId nol expecl lo make a
denl in ils oulslanding debl, despile severaI reslrucluring aempls, and il naIIy lhrev
in lhe loveI.
C H A P T E R 1 4 A I R L I N E L A B O R R E L AT I O N S 4 1 5
y 1983, il became quile cIear lo Iabor unions, vilh an eslimaled 33,000 of lheir members
eilher furIoughed or permanenlIy Iel go, lhal lhe aiIing carriers heId lhe lrump cards
and vere successfuIIy pIaying lheir hands, gaining subslanliaI Iabor concessions lhal
represenled miIIions of doIIars in operaling-cosl savings. In March 1983, four oul of ve
ma|or unions deaIing vilh Ian American WorId Airvays ralied agreemenls exlending
currenl Iabor concession conlracls. The Teamslers Union, represenling 6,629 ground
empIoyees, ralied a vage reduclion agreemenl on March 3, 1983. The Independenl
Union of IIighl Aendanls agreed lo a simiIar pacl on lhe foIIoving day.
ConlinenlaI AirIines look quile a dierenl approach lo cuing Iabor cosls. In
Seplember 1983, ConlinenlaI chairman Irank Lorenzo aempled lo reduce vage cosls
by lemporariIy going oul of business. Lorenzos pIan vas lo cIose dovn lhe ninlh Iargesl
U.S. airIine and reopen a smaIIer carrier vilh Iover Iabor cosls, aIong lhe Iines of lhe
nevcomers. He cIaimed lhal ConlinenlaI had been unabIe lo vin enough voIunlary
vage concessions from ils unions.
True lo Lorenzos aim, ConlinenlaI re-eslabIished service lo 25 of lhe 78 cilies il had
served vilhin 54 hours aher Iing pelilions for reorganizalion under bankruplcy Iavs
in Houslon. Lorenzo defended his slralegy, saying lhal lhe airIines union conlracls vere
vesliges of anolher era. He added lhal lhe bankruplcy maneuver vouId creale for
ConlinenlaI lhe opporlunily lo compele in a very chaIIenging and polenliaIIy revarding
markelpIace. He had red aII 12,000 empIoyees and lhen inviled 4,000 back al bareIy
haIf lheir former vages. Senior ConlinenlaI piIols, vho used lo average $83,000 a year,
couId relurn, bul al saIaries of $43,000. IIighl aendanls vho had vorked lheir vay up
lo $35,700 per year vere cul back lo $15,000. Senior mechanics sav lheir vages shrink
from $33,280 lo $20,800. Lorenzo aIso reduced his ovn annuaI saIary from $267,000 lo
lhal of a senior caplain, $43,000.
The sharp vage drops broughl on by survivaI bargaining and ils rippIe eecls vere
aIlered in Iale 1983 by American AirIines benchmark lvo-lier vage scaIes, a lerm airIine
managemenl since has abandoned in favor of markel rales. In lhe lvo-lier syslem,
nev empIoyees are hired on a pay scaIe considerabIy Iover lhan lhal of eslabIished
empIoyees (lhe A pay scaIe). Wilh lhe successfuI impIemenlalion of lhis approach al
American, managemenls inlroduced lhe syslem inlo every U.S. airIine.
Irom a Iabor reIalions slandpoinl, lhe years from 1982 lo 1985 vere lhe vorsl of
limes for lhe unions. In lhe ahermalh of lhe IATCO slrike and lhe recession, unions
had no pubIic supporl and vere besel by inlernaI dissension and disunily. Moreover,
lhe avaiIabiIily of ampIe repIacemenls for slrikers doomed lhe chances of vaging a
successfuI slrike. The reaIizalion lhal a slrike vas no Ionger an eeclive bargaining looI
profoundIy aIlered lhe baIance of pover in lhe coIIeclive bargaining process.
Againsl lhe backdrop of lhe rani reorganizalion, lhe American seIemenl in
Augusl 1983, and lhe imposilion of emergency vork ruIes al ConlinenlaI in Seplember
1983, managemenl approached lhe bargaining labIe vilh enormous slrenglh and an
agenda lo malch. In mosl inslances, lhe issue vas no Ionger hov much managemenl
vouId give, bul hov much il vouId gel back. Managemenls principaI bargaining goaIs
vere more exibiIily lhrough cross-uliIizalion and lhe use of parl-limers, increased
produclivily, reduclions in fringe benels, and an overaII reduclion in compensalion.
The bargaining ob|eclives of nanciaIIy sound carriers incIuded vage freezes or smaII
percenlage increases, Iump-sum paymenls in Iieu of pay increases, and lhe eslabIishmenl
of a lvo-lier pay syslem. AII lhese melhods Iimiled lhe roII-up cosl of fringe benels.
IinanciaIIy lroubIed carriers soughl a decrease in A-scaIe rales and reIaled fringe
A I R T R A N S P O R TAT I O N 4 1 6
benels, lhe eslabIishmenl of scaIes for fulure use, and lhe eslabIishmenl of variabIe
compensalion schemes, incIuding prol-sharing and slock pIans. Temporary concessions
lhal snapped back al a fulure dale lo previousIy higher IeveIs vere no Ionger acceplabIe.
Managemenl vanled Iong-lerm, permanenl concessions so as lo eslabIish a Iover xed-
cosl base for deveIoping lheir Iong-range pIanning.
Managemenl used vhipsav bargaining lechniques lo achieve concessions. Iach lime
a carrier received concessions, empIoyees al olher carriers knev lhal simiIar or deeper
culs vouId be demanded. Midlerm negolialions became commonpIace. Threals of
shuldovns, parliaI Iiquidalions, Iockouls, or massive furIoughs vere heard everyvhere.
Wilh IiIe risk of confronlalion, managemenl increasingIy adopled a lake il or Ieave il
ailude al lhe bargaining labIe.
IncreasingIy, managemenl used ils Ieverage lo gain concessions from ils unions and lo
undermine lhe empIoyees failh in Iabors slrenglh. AIlhough Iabor gave signicanl reIief
lo many carriers during lhis period, much of il vas used by managemenl lo subsidize
lhe ongoing fare vars and lo conlinue lhe corporalions diversicalion slralegies ralher
lhan lo improve airIine operalions.
Labors goaIs shihed dramalicaIIy as veII. Unions and empIoyees began lo queslion
managemenls aclions and lo resisl furlher concessions in vages and vorking condilions.
Labor argued lhal concessions vilhoul concrele changes in operaling procedures, and
in some inslances in managemenl, vouId nol reslore a carrier lo prolabiIily. As such,
empIoyees began lo demand a relurn for lheir concessions. The relurn look lhe
form of prol-sharing pIans, empIoyee slock ovnership pIans (ISOIs), empIoyee and
managemenl coaIilions, represenlalion on company boards of direclors, |ob securily
provisions, and, in some cases, repIacemenl of lop managemenl. The nalionaI economy,
and vilh il lhe airIine induslry, began ils recovery in 1984. AirIine empIoymenl rose
from 329,000 in 1983 lo more lhan 400,000 in 1986. A piIol surpIus became a severe
shorlage, and 5,465 piIols vere hired by lhe commerciaI carriers in 1984 and anolher
7,872 in 1985. ConsequenlIy, vilh lhe nev demand for piIols, managemenl vas forced
lo reviev ils posilion on enlry-IeveI pay rales and even ils viIIingness lo underlake a
slrike.
During lhis lime, Iabor unions aIso vere successfuI in oblaining IegisIalive reform of
lhe ankruplcy Code. The nev amendmenls prevenled a company Iike ConlinenlaI from
uniIaleraIIy imposing lerms and condilions of empIoymenl (lhe emergency vork ruIes)
on empIoyees vilhoul reviev and approvaI.
An exampIe of lhe eecl of lhis increased coordinalion can be seen in lhe ALIAs
handIing of lhe -scaIe issue aher lhe American seIemenl in 1983. AIlhough lhe ALIA
vas unabIe lo prevenl lvo-lier pay syslems for olher piIols, by acling in concerl il reslricled
lheir paramelers. Under aII lhe lvo-lier syslems negolialed by lhe ALIA, piIol -scaIe
compensalion merged al some poinl, usuaIIy aher ve years, vilh lhe A scaIe.
In response lo lhe Uniled slrike in 1985 and lo lhe polenliaI for olhers lo foIIov lhe
same confronlalionaI course of aclion, a speciaI meeling of lhe ALIA board of direclors
vas convened in Iune 1985 lo eslabIish and mainlain a ma|or conlingency fund of $100
miIIion. This fund vas eslabIished lo ensure lhe nanciaI abiIily of lhe union lo combal
fulure ma|or lhreals lo piIols.
AIlhough lhe ConlinenlaI bankruplcy and slrike vere lhe Iov poinls in lhis period, from
a union perspeclive, lhe slrike by Unileds piIols and lhe TWAIcahn agreemenls vere
key evenls lhal sIoved dovn lhe negalive lrend in coIIeclive bargaining for airIine unions.
olh evenls reecled lhe reneved abiIily of unions lo fashion slralegies lo cope vilh
C H A P T E R 1 4 A I R L I N E L A B O R R E L AT I O N S 4 1 7
difcuIl and polenliaIIy devaslaling silualions. If slrikes or negolialions vere handIed
properIy, unions couId once again engage in seIf-heIp and eecliveIy shul dovn a ma|or
carrier. Likevise, unions couId enler lhe nanciaI vorId and make arrangemenls lhal
vouId enabIe airIine empIoyees lo delermine ovnership of lheir companies.
UnusuaI measures vere required lo meel lhe chaIIenges of dereguIalion and lhe
currenl operaling environmenl. No one foresav lhal unions vouId become experls
in corporale lakeovers, Ieveraged buyouls, and ISOIs. The aclivilies al Trans WorId,
Ironlier, Transamerica, Texas Air, Uniled, RepubIic, Iaslern, and olher airIines, hovever,
demonslraled lhe need lo deveIop such slralegies and lo appIy lhem lo lhe coIIeclive
bargaining process. Nor had anyone foreseen before dereguIalion lhal airIine unions
vouId engage in massive communicalions programs invoIving coaIilions of empIoyees,
corporale campaigns, famiIy-avareness seminars, and saleIIile leIeconferencing lo deaI
vilh managemenl aclions.
Despile lhe lremendous number of mergers and acquisilions during 1985 and 1986,
6,341 piIols vere hired in 1986, and lhe lrend vas conlinued lhroughoul lhe remainder
of lhe 1980s. Tighler Iabor markels, especiaIIy for piIols, conlribuled lo lhe negolialion
of higher pay scaIes for nev hires lhan vere originaIIy conceded and lo reduclions in lhe
number of years before pay scaIes merge. The unions have aIso Iearned hov lo inlervene
in airIine merger aclivilies, using concession oers as ma|or bail. They prevenled a Texas
Air lakeover of TWA by faciIilaling CarI Icahns acquisilion. Unileds piIols, unhappy
vilh lhe poIicies of hoIding company AIIegis Corporalion, oered lo purchase Uniled
for $4.5 biIIion and vere inslrumenlaI in eecling a change in corporale managemenl. A
Ian American union coaIilion, seeking a change in lop managemenl, oered signicanl
cosl concessions in relurn.
AirIine anaIysls agree lhal lo guaranlee prolabiIily and survivaI, an airIine needs access
lo lhree vilaI componenls. Iirsl, il needs a slrong baIance sheel. This incIudes nol onIy a
slrong cash posilion bul aIso a slrong debl/equily ralio. Second, an airIine musl have a
roule slruclure lhal incIudes dominanl hubs, a regionaI feeder syslem, and inlernalionaI
roules. Mainlaining dominance al lhese hubs has proven lo be a slrong proleclion againsl
nev airIines and againsl compelilion from exisling carriers. Third, an airIine needs al Ieasl
an ovnership inleresl in a compuler reservalions syslem.
Iev airIines enlered 1986 vilh aII lhree componenls essenliaI lo fulure viabiIily. In
facl, onIy lhree airIinesAmerican, Uniled, and DeIlahad slrong baIance sheels, hub
dominance, and ovnership in compuler reservalions syslems. Those airIines Iacking in
lhese eIemenls reaIized lhal lhe besl vay lo oblain lhem vas by merging vilh an airIine
lhal had lhem. Iven lhe lhree airIines |usl menlioned beIieved lhey needed lo slrenglhen
cerlain aspecls of lheir slruclure and acled accordingIy.
The bargaining lrends of lhe preceding years conlinued aher 1986. Managemenl sliII
approached negolialions from a posilion of slrenglh, seeking overaII cosl reduclions
lo remain compelilive vilh nev airIines and such Iov-cosl carriers as ConlinenlaI.
Managemenls key ob|eclives vere pay freezes or smaII percenlage increases, Iump-
sum paymenls, conlainmenl of fringe benels, scaIes, increased produclivily, and
reIief from scope cIauses reslricling lhe deveIopmenl and ovnership of regionaI carrier
nelvorks. Long-lerm seIemenls vere soughl lo eslabIish a base for expansion and
consoIidalion.
Tnc Ccnsc| i !aii cn Pcri c!. 19862006
A I R T R A N S P O R TAT I O N 4 1 8
In lhe case of nanciaIIy unheaIlhy carriers, demands vere made or imposed for
subslanliaI permanenl concessions. Al Iaslern and TWA, permanenl cosl reduclions of
20 percenl or more, vilh addilionaI produclivily gains, fringe-benel reduclions, and
deep merging scaIes, vere agreed on aher bier negolialions during vhich unions
vere lhrealened vilh bankruplcy, Iiquidalion, or saIe of subslanliaI assels. AIso al TWA,
lhe piIols gained an equily inleresl in lhe company and |ob securily provisions, incIuding
proleclion of lhe piIols in fulure mergers or saIes and reslriclion on lhe saIe of an airIines
assels in parliaI exchange for permanenl concessions. In 1986, even DeIla requesled
medialion for lhe rsl lime in ils hislory and had difcuIl negolialions vilh ils piIols
before reaching a seIemenl.
The $2 biIIion nel induslry prol in 1988 vas encouraging, bul by 1989 lhere vere signs
lhal lhe economy vas sIoving dovn. The bubbIe bursl in 1990 as lhe economy sIid inlo
recession and lhe airIine induslry suered $4 biIIion in Iosses, due moslIy lo lhe rise in
fueI cosls precipilaled by lhe Iersian GuIf crisis. The var and ils accompanying recession
caused lhe rsl decrease in air lraveI in a decade. Losses amounled lo $2 biIIion in 1991.
The airIine induslry vas indeed in a nanciaI crisis. The $6 biIIion Ioss in 1990 and 1991 vas
more lhan aII lhe prols lhe airIine induslry had earned lhroughoul ils enlire hislory. Of
lhe 12 ma|or carriers lhal exisled in lhe induslry al lhe beginning of 1991, onIy American,
DeIla, IederaI Ixpress, Soulhvesl, and Uniled remained vilh slrong baIance sheels al lhe
end of 1992. America Wesl, ConlinenlaI, and TWA vere in bankruplcy: Norlhvesl and
USAir vere in nanciaI difcuIly: and Iaslern and Ian Am had gone oul of business.
In 1980, Iabor cosls accounled for 37 percenl of lolaI operaling cosls. y 1992, empIoyee
saIaries and benels had faIIen beIov 30 percenl of lolaI operaling cosls for lhe ma|or
carriers, and onIy 22 percenl for nalionaI carriers. Despile lhis decIine, many carriers, in
lheir slruggIe lo survive, requesled furlher vage and benel concessions from Iabor.
In Oclober 1992, aiIing TWA reached agreemenl vilh ils lhree unions for vage and
benels concessions and announced lhal $24 miIIion vouId be cul from nonunion
and managemenl compensalion. Under lhe agreemenl, vorkers received a 45 percenl
ovnership slake in lhe airIine in exchange for empIoyee concessions vorlh $660 miIIion.
IiIols vere promised a 5 percenl pay raise on lhe second anniversary of lheir conlracl,
bul onIy if veriabIe cosl savings resuIl from specied vork ruIe changes. TWA emerged
from bankruplcy reorganizalion in November 1993 and vas evenluaIIy purchased by
American AirIines in 2001.
In 1994, Norlhvesl AirIines narrovIy avoided bankruplcy vhen ils unions agreed lo
vage concessions in relurn for an ovnership slake. The lroubIed carrier Iosl more lhan $1
biIIion in 1992. urdened by an enormous debl Ioad as a resuIl of ils $3.65 biIIion buyoul
in 1989, Norlhvesl had been pruning ils vork force in an aempl lo relurn lo prolabiIily.
The vage culs proposed by managemenl vere 30 percenl for piIols, 20 percenl for ighl
aendanls, and 18 percenl for mechanics. Managemenl and union represenlalives naIIy
agreed lo $886 miIIion in empIoyee concessions over lhe nexl lhree years in relurn for
lhree seals on Norlhvesls 15-member board of direclors and 37.5 percenl equily inleresl
in lhe company.
In 1993, USAir (nov US Airvays) announced pIans lo Iay o anolher 2,500 vorkers by
mid-1994, in addilion lo lhe 7,000 empIoyees lerminaled since 1990. The airIine indicaled
lhal furlher cosl-cuing measures vere necessary despile previous vorker concessions
sIaled lo save lhe carrier $60 miIIion in 1993. The prior vage culs and vork ruIe concessions
vere negolialed vilh lhe InlernalionaI Associalion of Machinisls and Aerospace Workers
foIIoving a ve-day vaIkoul by union members.
C H A P T E R 1 4 A I R L I N E L A B O R R E L AT I O N S 4 1 9
DeIla Air Lines, reversing a no-furIough poIicy in exislence for 36 years, began
furIoughing an eslimaled 600 of ils 9,400 piIols in 1993. Senior Vice-Iresidenl Thomas
I. Roeck bIamed uneconomic fare programs for damaging revenues. Roeck slaled lhal
lhe addilionaI lrafc generaled by lhe fares had faIIen signicanlIy shorl of making
up for lhe Iover fares. The piIols, DeIlas onIy unionized Iabor force, agreed in 1991 lo
a 16-monlh exlension of lheir currenl conlracl and a 2 percenl raise, veII beIov former
Secrelary of Transporlalion Skinners crilicaI prediclion of 10 percenl annuaI raises for
ighl crevs.
In 1993, American AirIines sIashed approximaleIy 1,700 |obs in order lo cul cosls.
Despile such measures, Chairman Roberl CrandaII announced lhal an addilionaI 5,000
vorkers vouId be lerminaled by lhe end of 1994.
American AirIines, vhich in 1983 had parIayed a cosl-reducing lvo-lier pay syslem inlo
a record expansion, by lhe 1990s found lhal ils empIoyees, parlicuIarIy ils piIols and ighl
aendanls, had become fed up vilh lhe companys lvo-lier scaIe and ils Ialer slralegy of
shrinking lhe airIine and oulsourcing vork. In response lo CrandaIIs caII for furlher vork
ruIe and vage concessions, Americans 21,000 ighl aendanls vaIked o lheir |obs during
lhe busy Thanksgiving hoIiday in 1993. The ve-day dispule, lhe shorlesl U.S. airIine
slrike since dereguIalion, vas broughl lo an end by Iresidenl CIinlons recommendalion
lhal bolh sides agree lo binding arbilralion. Anolher lhrealened slrike occurred in 1997
vhen lhe decision vas made lo aIIov American IagIe lo y |els on many of Americans
shorler-hauI roules: lhe piIols sav lhis as a furlher erosion of lheir |obs.
Uniled AirIines Iosl $1.5 biIIion belveen 1990 and 1992. In 1993, lhe company
impIemenled a sveeping cosl-reduclion program designed lo save $400 miIIion a year by
eIiminaling 2,800 |obs and grounding 40 aircrah. As a resuIl, sharehoIders began puing
pressure on Chairman Slephen WoIf lo make some changes. His response vas a proposaI
eilher lo dismanlIe lhe airIine inlo severaI regionaI carriers slaed vilh nonunion Iabor
or lo give empIoyees an ovnership slake in relurn for sveeping concessions. IiIols and
mechanics reacled by oering lo lake signicanl vage and benel culs in order lo gain
some corporale Ieverage. SpecicaIIy, lhey agreed lo lake a 15.7 percenl pay cul and
Iose 8 percenl of lheir pension benels for lhe nexl ve years. In exchange, lhe company
agreed lo invesl 53 lo 63 percenl of ils slock in a speciaI empIoyee pension fund and give
vorkers lhree seals on lhe 12-member board of direclors. The good nevs for lhe empIoyee
ovners vas lhal lhey vouId be given superma|orily voling righls on key issues such as
acquisilions, mergers, and lhe saIe of assels. The bad nevs vas lhal empIoyee ovnership
vouId be aIIoved lo decIine over ve years as reliring vorkers vere issued pension slock.
Once lhe empIoyee ovnership slake faIIs beIov 50 percenl, vorkers may nd lhemseIves
righl back vhere lhey slarled. This empIoyee slock ovnership program look over seven
years of eorl and represenled lhe Iargesl ISOI lransaclion in U.S. business hislory. Upon
compIelion in 1994, severaI lop ofcers, incIuding WoIf, Ieh lhe company.
Many carriers have adopled prol-sharing and/or empIoyee ovnership oplions as a
means of enlicing vorkers inlo granling vage or benel concessions. IreviousIy, such
pIans vere generaIIy inilialed by nanciaIIy unslabIe carriers, and fev vorkers acluaIIy
beneled. Al America Wesl, empIoyees vere induced lo vork for Iess lhan lheir induslry
counlerparls based on lhe assurance lhal lheir shorl-lerm sacrices vouId reap Iong-lerm
prols. Some lype of empIoyee ovnership is nov aIso in pIace al US Airvays, Norlhvesl,
and Soulhvesl AirIines.
A I R T R A N S P O R TAT I O N 4 2 0
The prol-sharing pIan al Soulhvesl AirIines is one of lhe empIoyees mosl Iucralive
benels. Soulhvesl has managed lo consislenlIy shov a prol since 1973. This is due in no
smaII measure lo ils unique approach: il shuns lhe use of hub-and-spoke roules, operales
no compuler reservalions syslem, serves no meaIs, and lreals ils empIoyees Iike an
exlended famiIy. ImpIoyees cannol coIIecl from lheir prol-sharing pIan unliI lhey Ieave
Soulhvesl. The company is 84 percenl unionized, bul ils exempIary Iabormanagemenl
reIalions are demonslraled by lhe facl lhal lhe carriers empIoyee lurnover rale during
lhe 1990s vas onIy 7 percenl. Soulhvesl vouId appear lo be a perfecl exampIe of hov an
airIine can be prolabIe vilhoul demanding concessions from Iabor.
On March 26, 2001, Comair piIols vaIked o lhe |ob, resuIling in an 89-day slrike over
such issues as reliremenl, scheduIing ruIes, |ob securily, and compensalion. Cincinnali-
based Comair, a subsidiary of DeIla Air Lines, vas forced lo suspend ils operalions
belveen March 26 and IuIy 1, 2001. IIighls vere parliaIIy reslored on IuIy 2, 2001, and fuIIy
reslored by Ianuary 2002. Comairs piIols refused lo accepl a proposaI by managemenl lhal
vouId have resuIled in lhe besl pay oered lo any piIols in lhe regionaI airIine induslry.
Medialion aempls by lhe NM faiIed, and lhe NM reIeased piIols and managemenl
inlo a 30-day cooIing-o period. The NM reIeased lhe parlies from federaI medialion
on lhe condilion lhal lhe piIols union (ALIA) submil lhe managemenls seIemenl oer
lo lhe piIol membership for a vole. More lhan 99 percenl of lhe piIols refused lo accepl
lhe seIemenl, and slrike aclion commenced. The resuIl vas a grounded airIine and
approximaleIy $680 miIIion in revenue Iosses for DeIla for 2001. efore lhe slrike, Comair
served 95 cilies and carried an average of 25,000 passengers per day vilh a eel of 119
aircrah. Aher lhe slrike, piIols agreed lo a ve-year conlracl lhal gave lhem pay raises and
a company-paid reliremenl pIan.
Since 2001, US airIines have faced numerous chaIIenges as a resuIl of union aclion. As
noled earIier in lhe lexl, ma|or airIines have enlered inlo bankruplcy silualions causing
increased friclion belveen empIoyees and managemenl. The Iegacy carriers, Uniled,
American, DeIla, ConlinenlaI, Norlhvesl, US Airvays/America Wesl for exampIe, viII
conlinue lo face union issues especiaIIy over lhe lopic of piIol pension pIans. In 2006, many
piIols, aclive and relired, fear lhal pension paymenls viII be reduced or even eIiminaled.
Nev-enlranl and Iov-cosl carriers, al Ieasl for nov, do nol have lo deaI vilh lhe same
union issues as lhe Iegacies, as such carriers are nol lypicaIIy unionized. Hovever, as such
companies grov in size, union formalion is IikeIy. As of earIy 2006, virluaIIy aII of lhe
Iegacy carriers vere faced vilh pickel silualions by piIols and in some cases mechanics
and ighl aendanls. Managemenl leams al aII lhe ma|or carriers have been forced lo
reduce cosls in order lo save lhe airIines from faiIure. TypicaIIy, lhe lhree main cosls for
an airIine are fueI, Iabor and mainlenance. UnforlunaleIy, for empIoyees, Iabor is lhe area
managemenl has lhe mosl conlroI over in lerms of cuing cosls.
|uiurc Cc| | ccii tc Bargai ni ng Siraicgi cs
The goaIs of coIIeclive bargaining incIude provisions for resoIving lhe conicling inleresls
of managemenl and Iaborproleclion of lhe righls, dignily, and vorlh of vorkers as
induslriaI cilizens, and, based on lhe rsl lvo goaIs, preservalion of coIIeclive bargaining
as a buIvark of lhe privale enlerprise syslem.
Since lhe onsel of dereguIalion in 1978, lhe ob|eclives of airIine unions and managemenls
have changed because of inlense compelilion. This has aecled lhe abiIily of unions lo
preserve and slrenglhen lhemseIves as organizalions, lo gain more for lheir members, lo
C H A P T E R 1 4 A I R L I N E L A B O R R E L AT I O N S 4 2 1
parlicipale vilh managemenl in making decisions lhal aecl |obs and empIoymenl, and,
more recenlIy, lo preserve heaIlh benels. Some unions have, in facl, beIieved lhal lhey
had lo gel lo lhe lop of lhe rm lhrough ovnership (prol sharing) in order lo parlicipale
al aII. SociaI goaIs seem nol lo have assumed much imporlance for Iabor and cerlainIy nol
for managemenl.
In conlrasl, managemenls predereguIalion ob|eclives vere mainIy prol orienled,
vilhin lhe paramelers of governmenl reguIalion of enlry, fares, vages, and roules. Aher
dereguIalion, ob|eclives vere shaped inslead by lhe pIelhora of Iov-fare, Iov-cosl, Iov-
vage nev-enlranl compelilors and by lhe ma|or airIines aempls lo survive lhe erce
conlesl for passengers and revenues. Al lhe same lime, airIine managemenls vere driven
by lhe demands of lhe nanciaI markelsIenders and inveslorslo pay inleresl on debl,
ohen acquired al peak inleresl rales in lhe 1980s, or lo increase lhe relurn on slock shares
heId by lhe nanciaI markels, or eIse lo be merged, laken over, or bankrupled. These
experiences vere nol unknovn lo lhe induslriaI seclor, bul lhey vere nev lo lhe airIine
induslry. CerlainIy, lhis vas unIike anylhing lhal had occurred before dereguIalion.
Slress from lhe nanciaI markels, pressure from disgrunlIed passengers, predalory fare
compelilion, expensive nev lechnoIogyaII lhese faclors conlribuled lo lhe lurbuIenl
induslry environmenl. AIlhough bolh managemenl and unions vere concerned vilh
preserving lheir inleresls, lhey vere nol in agreemenl lhal vorkers shouId shouIder lhe
cosls of nancing grovlh, lakeovers, and mergers, or increasing produclivily lo pay lhe
cosls of debl nancing.
Oul of lhis experience, lvo sels of soIulions emerged, one from unions and anolher
from rms in lhe airIine induslry. IarIy in lheir eorls lo cope vilh massive debl and lhe
consequences of predalory compelilion (for neilher of vhich lhe airIine induslry had an
ansver, excepl Chapler 11 bankruplcy), managemenl embarked upon vide-ranging cosl
cuing. This had been lried in olher induslries and faIIs under lhe rubric of averaging
dovn vages.
The praclice of averaging dovn vages incIuded impIemenling lvo-lier pay syslems
lhal slarl nev empIoyees in a crahpiIols, mechanics, ighl aendanlsal Iover vages
for a period of years (or, in lhe case of a 1983 ighl aendanl conlracl, forever) lhan
Ionger service crahpeopIe, even lhough bolh perform lhe same lasks and vork logelher.
A recenl varialion of lhis lvo-lier pay syslem vas lhe invenlion of lhe lvo-lier airIine,
vilh separale unils (same union) and vilh Iover pay for lhe second-lier crev, aIong
vilh generaIIy Iover cosls. Anolher varialion vas lhe oulsourcing, or conlracling oul,
of such ilems as nonunion lickeling, business services, and mainlenance lo independenl
organizalions lhal pay lheir empIoyees Iess lhan lhe airIines. These may consisl of lvo or
more liers al Iover IeveIs of pay. Iach of lhese averaging-dovn slralegies sponsored by
managemenl has been accompanied by reduclions in heaIlh benel cosls, in landem vilh
eilher Iover vages or Iover benels derived from Iover vages.
Unions, in lurn, have begun lo pursue four slralegies. Iirsl, lhey organized aclivily
specicaIIy lo promole vorkers inleresls, parlicuIarIy al airIines vilh a nonunion slalus
or dislasle for unions (America Wesl, American Trans Air, ConlinenlaI, IedIx, UIS, and
DeIla). Second, lhe unions chaIIenged lhe business and slafng slralegies of lhe airIines
lhal lhey beIieved lhrealened vorkers securily of empIoymenl and income, as veII as
conlribuled lo lhe obsoIescence of lhe skiIIs vorkers had acquired over many years. Third,
in lhe case of lhe AIIied IiIols Associalion (AIA), lhe union senl a pelilion lo lhe NM
lo decIare American IagIe and American AirIines lo be a singIe carrier for bargaining
purposes. The union feared lhal lhe grovlh of American IagIe, vilh ils Iover vages, couId
A I R T R A N S P O R TAT I O N 4 2 2
be a preIude lo reducing pay and benels of lhe lop-lier American piIols or lo increasing
American IagIe empIoymenl al lhe expense of empIoymenl al American. Iourlh, unions
oblained a nanciaI inleresl (via an ISOI) in a ma|or airIine in order lo inuence ils
poIicies (Uniled, NWA, TWA, US Airvays). uying conlroI of an airIine, popuIarIy knovn
as prol sharing, meanl lhal an increasing share of lhe income lhal vorkers received
from lheir empIoyers came from slock ovnership and lhus became a more exibIe and
manageabIe cosl during business dovnlurns.
In brief, union slralegies during dereguIalion have been direcled, as during pasl
periods of rising prices and recession, lo preserving lhe induslry ilseIf and lhe |obs and
skiIIs associaled vilh ils crahs, even if individuaI income becomes more variabIe because
of prol sharing. ImpIoyers, on lhe olher hand, lried, as lhey have in lhe pasl, lo improve
lhe efciency of vorkers in lhe syslem by linkering around lhe edges lo average dovn
vages and lhereby some cosls.
HUMAN RESOURCES IN THE 21ST CENTURY
Avialion organizalions shouId reaIize lhal peopIe are lhe biggesl assel. I am convinced
lhal companies shouId pul lheir sla rsl, cuslomers second, and sharehoIders lhird,
noled Sir Richard ranson, of Virgin AlIanlic Airvays.
As lhe 21sl cenlury progresses, airIines and olher avialion organizalions viII have lo
cope vilh nev lrends and chaIIenges for lhe fulure. Ierhaps one of lhe biggesl chaIIenges
for such organizalions viII be managing lhe nev generalion of empIoyee knovn as
Generalion Y. TypicaIIy, lhis empIoyee viII be oulspoken, expeclalion driven, and seIf-
molivaled. Organizalions viII have lo Iearn Generalion Ys Ianguage and be abIe lo suppIy
such vorkers vilh lhe proper looIs lo gel lhe |ob done.
ImpIoyers musl creale condilions lhal aracl lhe besl peopIe for lhe |ob, meaning lhal
organizalions viII relhink lhe roIe of lhe core group. Organizalions viII Iearn lhe benels
of buiIding and using a Iarge and diverseIy skiIIed laIenl pooI, vhere empIoyees viII be
lrained quickIy lo increase lhe empIoyees vaIue lo lhe company. ImpIoyees al aII IeveIs
viII be laughl career-eecliveness skiIIs. Ierhaps mosl imporlanl, managers viII be laughl
lo manage inslead of acling as Iiaisons or enforcers of ruIes. Ifciency viII be enhanced
lhrough lhe supporl of educalion and lraining, crealing an organizalionaI environmenl
vhere personaI grovlh and deveIopmenl are slimuIaled.
Avialion organizalions musl Iearn lo idenlify human resource needs lhrough lhe
formuIalion of ob|eclives, poIicies, and budgels. Slralegies shouId be reIaled lo human
resource needs lemporariIy and permanenlIy. Specic |obs shouId be oulIined vilh specic
|ob descriplions, and onIy quaIied candidales shouId be recruiled lo II posilions. Modern
recruilmenl melhods incIude induslry conlacls, professionaI recruilers, empIoymenl
agencies, coIIeges and lrade schooIs, and various forms of adverlising.
In lerms of lraining, empIoyees shouId be lrained specicaIIy in lhe area for vhich
lhey are hired. Such lraining shouId permil for more advanced funclions vilhin lhe
organizalion and shouId be abIe lo address sociaI and economic changes lhal aecl lhe
vay lhe organizalion musl operale. AII lraining programs shouId have some sorl of
evaIualion process lo measure performance of lhe empIoyee and lhe benels received by
lhe organizalion.
There are some barriers or chaIIenges airIines viII face in lerms of human resources
during lhe course of lhis cenlury. These incIude:
C H A P T E R 1 4 A I R L I N E L A B O R R E L AT I O N S 4 2 3
1. Ski||s. Many of lhe skiIIs used by lhe airIine induslry are excIusive lo avialion. Such
skiIIs are coslIy and lime-consuming lo acquire. There is a need for conslanl renemenl
of reguIalory, lechnoIogicaI, and markel deveIopmenls. The airIine induslry is highIy
cycIicaI, vhich Ieads lo overcapacily in human skiIIs and langibIe resources.
2. Ncc! jcr ncu ski||s. IncreasingIy compelilive environmenls generale lhe need for nev
skiIIs. To be successfuI in lodays airIine induslry, vorkers viII need specic skiIIs. Ior
exampIe, muIliIinguaI, cuIluraIIy sensilive, and responsive cuslomer-conlacl sla viII
be in demand.
3. |in!ing inc rigni sia. AirIines have reaIized lhal nding lhe righl sla is no Ionger
sufcienl. The deIivery of high-quaIily service is based on ailudes and vaIues of
empIoyees. Ior exampIe, much of Soulhvesl AirIines success is based on a unique
corporale cuIlure lhal promoles posilive ailudes.
4. Ia|cr ircn!s. AirIines of lhe fulure viII nd il beneciaI lo use more parl-lime and
xed-lerm sla. Charler airIines have been doing lhis for years, bul il is a reIaliveIy
nev phenomenon vilh lhe scheduIed airIines. This creales a chaIIenge for moId-
accuIluraled, commied leam members.
5. Mu|iiski||ing an! cxi|i|iiu. The focus of discussion al many airIines is changing from
Why lo Hov and lo In relurn for vhal` Incouragemenl of produclivily grovlh lhrough
muIliskiIIing (lhe appIicalion of muIlipIe skiIIs by one person) and more exibIe
vork praclices in highIy unionized environmenls viII creale a chaIIenge for lhe airIine
induslry.
6. Ccnirc| cj |a|cr ccsis. AirIine passengers are becoming more knovIedgeabIe and
demanding, crealing a chaIIenge of hov lo conlroI Iabor cosls vilhoul disrupling
cuslomer service. There is a slrong argumenl lo pIace grealer emphasis on produclivily
improvemenl ralher lhan on saIary and benel culs.
7. Crcss-uii|izaiicn cj nunan rcscurccs. There viII be increased cross-uliIizalion of
human resources vilhin gIobaI aIIiances. The chaIIenge is lhal variabIes reIevanl lo
lhe araclion, uliIizalion, and molivalion of laIenled empIoyees dier videIy belveen
cuIluraI seings. Some unions lhink lhal a gIobaI Iabor pooI viII creale a lhreal lo
vork condilions and |ob Ioss.
8. Making nunan rcscurcc siraicgics a!apiitc. This is lhe Ieasl specic chaIIenge of lhose
inlroduced, bul il is lhe mosl signicanl. Human resource slralegies shouId be as
adaplive as corporale and compelilive slralegies have lo be in lhe face of increasingIy
compIex and lurbuIenl environmenls.
As indicaled, human resource deparlmenls are very imporlanl lo lhe success or faiIure
of an organizalion. Iaying cIose aenlion lo lhe chaIIenges presenled viII heIp avialion
organizalions achieve efciency and success in lhe fulure.
A I R T R A N S P O R TAT I O N 4 2 4
KEY TERMS
crah union induslryvide bargaining
RaiIvay Labor Acl (RLA) paern bargaining
NalionaI Medialion oard (NM) muluaI aid pacl
emergency board Generalion Y
ISOI
REVI EW QUESTI ONS
1. Labor cosls represenled vhal percenlage of lolaI airIine operaling expenses in 1986`
Why is lhis signicanl` Service induslries are Iabor inlensive. Whal does lhal
mean`
2. In vhal sense are airIine Iabor unions organized on a crah basis` Whal signicance
does lhis paern of organizalion have in airIine operalions`
3. Why is lhe airIine induslry sub|ecl lo lhe RaiIvay Labor Acl` Hov are airIine slrikes
dierenl from raiIvay slrikes` Whal are lhe basic purposes of lhe acl` Describe severaI
ma|or dierences belveen lhe RLA and lhe NalionaI Labor ReIalions Acl.
4. Whal are lhe sleps invoIved in lhe coIIeclive bargaining process under lhe RLA` Whal
is lhe roIe of lhe NalionaI Medialion oard` Discuss some of lhe crilicisms of lhe
process.
5. Dislinguish belveen in!usiruui!c |argaining and pacrn |argaining. Whal vas Decision
83`
6. Describe lhe Iabormanagemenl scene before 1958. Whal happened in lhe earIy
1960s lo change lhal scene` Whal vas lhe resuIl of lhis silualion for lhe period from
1958 lo 1970` Whal vas lhe muluaI aid pacl` Why did lhe unions oppose il` Whal
vas lhe CAs posilion` Why vas airIine Iabor so successfuI in raising vages and
fringe benels during lhe 1970s` Summarize Iabormanagemenl reIalions before
dereguIalion.
7. Whal has been lhe mosl imporlanl eecl of dereguIalion on airIine Iabor reIalions`
Whal are some of lhe never carriers advanlages over lhe eslabIished Iines regarding
paymenl and uliIizalion of Iabor`
8. Whal is meanl by lhe c|ininaiicn cj inc auicnaiic |a|cr ccsi pass-inrcugn? Hov did Ia-
bormanagemenl reIalions change in lhe 1980s` Give some exampIes. Why vas lhe
period belveen 1982 and 1985 so difcuIl from Iabors slandpoinl` Discuss some of
lhe bargaining ob|eclives of managemenl during lhis period. Hov did lhings change
during lhe mid-1980s` Whal is lhe purpose of prol sharing and/or empIoyee ovner-
ship` Describe lhe Iabormanagemenl environmenl during lhe 1990s and earIy 2000s.
Summarize lhe ob|eclives of managemenl and Iabor in recenl years.
C H A P T E R 1 4 A I R L I N E L A B O R R E L AT I O N S 4 2 5
WEB SI TES
hp://vvv.aircon.org
hp://vvv.mil.edu/airIines
hp://vvv.leamslers.org
hp://vvv.aIpa.org
hp://vvv.nmb.gov
hp://vvv.palco81.com
SUGGESTED READI NGS
ailseII, Iohn M. Air|inc |n!usiria| |c|aiicns. Pi|cis an! ||igni |nginccrs. Cambridge, Mass.: Harvard
Universily Iress, 1966.
CappeIIi, Ieler. Air|inc Ia|cr |c|aiicns in inc G|c|a| |ra. Ilhaca, N.Y.: ILR Iress, 1995.
HoIIey, WiIIiam H., Kennelh M. Iennings, and Roger S. WaIlers. Tnc Ia|cr |c|aiicns Prcccss. Mason,
Ohio: Soulh-Weslern CoIIege IubIishing, 2000.
Hopkins, George I. Tnc Air|inc Pi|cis. A Siu!u in ||iic Unicnizaiicn. Cambridge, Mass.: Harvard
Universily Iress, 1971.
Kaps, Roberl W. Air Transpcri Ia|cr |c|aiicns. CarbondaIe, IL: Soulhern IIIinois Universily Iress,
1997.
Lief, Roberl C. Ia|cr in inc Transpcriaiicn |n!usirics. Nev York: Iraeger, 1974.
McKeIvey, Iean T. C|carc! jcr Takcc. Air|inc Ia|cr |c|aiicns Sincc Ocrcgu|aiicn. Ilhaca, N.Y.: ILR Iress,
1988.
Morrison, Sleven A., and CIiord Winslon. Tnc |tc|uiicn cj inc Air|inc |n!usiru. Washinglon, D.C.:
The rookings Inslilulion, 1995.
Ii, Ivan L., and I. R. Norsvorlhy. |ccncnics cj inc U.S. Ccnncrcia| Air|inc |n!usiru. Prc!uciitiiu.
Tccnnc|cgu. an! Ocrcgu|aiicn. oslon: KIuver Academic, 1999.
Spencer, Irank A., and Irank H. CasseII. |ncrgcncc cj Pc|icu Bargaining. Han!|cck cj Air|inc |ccncnics.
Nev York: Avialion Week Group, a division of McGrav-HiII, 1995.
Thoms, WiIIiam I., and Irank I. DooIey. Air|inc Ia|cr IauTnc |ai|uau Ia|cr Aci an! Atiaiicn Ahcr
Ocrcgu|aiicn. Nev York: Ouorum ooks, 1990.
WaIsh, David I. On Oicrcni P|ancs. An Organizaiicna| Ana|usis cj Cccpcraiicn an! Ccnici Ancng
Air|inc Unicns. Ilhaca, N.Y.: ILR Iress, 1994.
Wensveen, Iohn. Wncc|s Up. Air|inc Busincss P|an Octc|cpncni. eImonl, CA: Thomson rooks/CoIe,
2005.
A I R T R A N S P O R TAT I O N 4 2 6
15
Airline Financing
Introduction
Sources of Funds
Sources and Uses of Funds by the U.S. Scheduled
Airlines
Cash Management and Financial Planning
Chapter Checklist You Should Be Able To:
Describe lhe airIines ma|or sources of inlernaI funds
Dene !c|i nancing and cuiiu nancing. and discuss
lhe airIines primary sources of exlernaI funding
Lisl lhe advanlages and disadvanlages of Ieasing
Compare and conlrasl cpcraiing |cascs and capiia| |cascs
Dene |a|ancc sncci. and describe lhe ma|or ilems
appearing under asscis and |ia|i|iiics
Discuss lhe ma|or uses and sources of funds for lhe
U.S. scheduIed airIines from 1960 lo lhe presenl, and
compare lhe cycIes of business aclivily during lhis
period
Dene currcni raiic. |cng-icrn !c|i/cuiiu raiic. and
rciurn cn intcsincni (|O|)
Summarize lhe generaI nanciaI cIimale in vhich lhe
U.S. scheduIed airIines nd lhemseIves during lhis
decade
Slale vhich carriers mighl have lhe mosl difcuIl lime
generaling funds in lhe money markel in lhe fulure
Discuss lhe imporlance of cash managemenl and
nanciaI pIanning

427
SOURCES OF FUNDS
|nicrna| Scurccs
asicaIIy, lhe onIy lrue inlernaI source of funds is net earnings, or prcis. vhich are lhe
funds Ieh aher laxes are paid lo IocaI, slale, and federaI governmenls and lax credils are
laken. The company board of direclors decides hov much of lhe earnings shouId go lo
INTRODUCTION
Iinancing biIIions of doIIars in ighl and ground equipmenl in lhe nev cenlury presenls
a lremendous chaIIenge lo lhe airIine induslry. AirIine earnings lend lo be cycIicaI, and
induslry relurns on inveslmenl generaIIy have been poor (see TabIe 15-1). Wilh a fev
nolabIe exceplions, airIine cash ovs over lhe Iong run have been inadequale lo meel
capilaI requiremenls. Al lhe same lime, lhe ralio of debl lo equily for many carriers has
increased lo IeveIs lhal have had a negalive impacl on lheir credilvorlhiness. Nol onIy has
lhis Iimiled access by lhese airIines lo exlernaI funds, bul il has aIso Ied lo Iarger oplion
fees and progress paymenl requiremenls from lhe manufaclurersas much as 25 percenl
of lhe aircrah price in a lhree- lo four-year period before deIivery.
The advenl of dereguIalion changed lhe basic ruIes of lhe game for air carriers.
DereguIalion has increased lhe demands on managemenl for markeling skiIIs, slralegic
pIanning, cosl conlroI, and compelilion vilh olher rms. DereguIalion slemmed in parl
from a beIief lhal airIines, Iike olher rms, shouId earn lheir ovn vay in lhe markel, nol
Iook lo a pubIic body or poIicy lo guaranlee il. Il mighl lhen be appropriale lo ask vhy,
in a dereguIaled environmenl, one shouId be concerned vilh lhe nanciaI condilion of
lhe airIines.
The nanciaI condilion of lhe induslry direclIy aecls individuaI rms behavior in lhe
shorl run and, uIlimaleIy, lheir slruclure and performance in lhe Iong run. In lhe shorl run,
faiIing rms may resorl lo Iess-lhan-compensalory fares lo generale sufcienl cash lo cover
lheir xed shorl-lerm commilmenls bul nol lheir Iong-lerm cosls. This may lhrealen, in
lurn, lhe prolabiIily and survivaI of olher carriers in lhe Iong run. AIlhough passengers
benel from Iov fares in lhe shorl run, for veII-operaled carriers lo survive, fares musl
be raised evenluaIIy lo recoup Iosses and provide a sufcienl relurn lo keep capilaI in lhe
induslry. Iurlhermore, lhe disruplion lo air service caused by lhe faiIure of a parlicuIar
carrier imposes reaI cosls on passengers, bolh business lraveIers and pIeasure lraveIers.
In lhe Iong run, vhereas lhe survivaI of any one rm is nol imporlanl on a nalionaI
poIicy basis, lhe faiIure of a signicanl number may Iead lo increased concenlralion
and loo fev rms in lhe induslry. The minimum number of rms necessary lo ensure a
compelilive induslry has been videIy debaled. As imporlanl as lhal number, hovever, is
lhe degree lo vhich lhe exisling airIines serve lhe same markels and lhe vigor vilh vhich
lhey compele on price and service. A smaII number of nalionvide rms lhal compele vilh
one anolher al aII lhe Iarge commerciaI airporls may provide much slronger compelilive
pressure lo hoId dovn cosls and fares lhan a Iarge number of carriers compeling in Iess
exlensive nelvorks. The fever lhe number of rms, hovever, lhe easier il is for lhem lo
form and enforce a lighl oIigopoIy in vhich induslry oulpul is Iover and fares are higher
lhan vouId be lhe case in a compelilive markel.
A I R T R A N S P O R TAT I O N 4 2 8
Nel Irol (or Relurn on Nel Irol (or Relurn on
Loss) (lhousands Inveslmenl Loss) (lhousands Inveslmenl
Year of doIIars) (%) Year of doIIars) (%)
1960 9,140 3.0 1983 (188,051) 6.0
1961 (37,331) 1.6 1984 824,668 9.9
1962 52,319 5.2 1985 862,715 9.6
1963 78,480 6.1 1986 (234,909) 5.2
1964 223,172 9.8 1987 593,398 7.2
1965 367,119 12.0 1988 1,685,599 10.8
1966 427,633 11.0 1989 127,902 6.3
1967 415,388 7.6 1990 (3,921,002) (6.0)
1968 209,952 4.9 1991 (1,940,157) (0.5)
1969 52,752 3.2 1992 (4,791,284) (9.3)
1970 (178,930) 1.5 1993 (2,135,626) (0.4)
1971 28,006 3.5 1994 (344,115) 5.2
1972 214,850 4.9 1995 2,313,591 11.9
1973 226,693 5.1 1996 2,824,328 11.5
1974 321,641 6.4 1997 5,119,000 14.7
1975 (84,204) 2.5 1998 4,847,000 12.0
1976 563,354 8.5 1999 5,277,000 11.1
1977 752,536 10.2 2000 2,486,000 6.4
1978 1,196,537 13.3 2001 (7,710,000) (6.9)
1979 346,845 6.5 2002 (11,295,000) (9.6)
1980 17,414 5.3 2003 (3,625,000) (0.3)
1981 (300,826) 4.7 2004 (9,071,000) (6.9)
1982 (915,814) 2.1
Source: Air Transporlalion Associalion annuaI reporls.
lhe ovners (slockhoIders) in lhe form of dividends and hov much shouId be relained in
lhe company for inveslmenl purposes.
Tvo olher inlernaI sources of funds are deprecialion and deferred laxes. Depreciation
represenls lhe airIines Iargesl singIe source of inlernaI funds.
1
Il is lhe aIIocalion of an
assels cosl over ils eslimaled usefuI Iife. The provision for deprecialion of xed assels
is an aIIovabIe expense of doing business. UnIike mosl expenses, hovever, il does nol
represenl a cash oulIay and so is referred lo as a ncncasn cxpcnsc. As a resuIl of lhis
accounling procedure, lhe company has funds in an amounl equivaIenl lo lhe deprecialion
provision. The purpose is lo provide for lhe uIlimale repIacemenl of lhe deprecialing
assel. To lhe exlenl lhal lhis is nol done immedialeIy, lhe company has lhe use of lhe
cash so generaled for such purposes as il sees l. In lhe case of airIines, vilh lheir heavy
inveslmenl in ighl equipmenl, lhe amounl of lhese funds can be quile subslanliaI.
Deferred taxes refer lo cerlain laxes lhal companies are required lo coIIecl for various
laxing aulhorilies, incIuding federaI excise and slale saIes laxes and payroII vilhhoIding
of empIoyee income laxes. These laxes are paid lo lhe governmenl aher periods varying
TABLE 15-1 Net Prot (or Loss) and Rate of Return on Investment for the U.S.
Scheduled Airlines, 19602004
1
NavaI K. Tane|a, Tnc Ccnncrcia| Air|inc |n!usiru (Lexinglon, Mass.: Lexinglon ooks/Healh, 1976), Chap. 5.
C H A P T E R 1 5 A I R L I N E F I N A N C I N G 4 2 9
|xicrna| Scurccs
Required funds lhal are nol generaled inlernaIIy musl come from oulside sources, lhal
is, lhe compelilive money markel. The nalure of lhe business, ils earnings, ils nanciaI
slruclure, and lhe money markel environmenl aII have a bearing on vhal exlernaI sources
are used. In oblaining oulside funds, lhe airIine induslry musl compele for lhe inveslabIe
funds of lhe counlry (bolh debl and equily) vilh aII olher induslries. Debt nancing
refers lo lhe borroving of funds from commerciaI banks, insurance companies, and
olher sources. Equity nancing refers lo lhe saIe of slocks, bonds, and olher equily in lhe
company lo lhe pubIic. The !c|i porlion of lhese exlernaI funds viII be aracled, generaIIy
speaking, inlo silualions in vhich lhe grealesl reIalive securily exisls, in lerms of bolh
assels and abiIily lo repay. The cuiiu porlion viII be aracled inlo silualions in vhich lhe
foreseeabIe yieId (in dividend income, capilaI apprecialion, or a combinalion of bolh) is
reIaliveIy Iarge in reIalion lo lhe risks laken. Oiti!cn! inccnc refers lo lhe dislribulion of
earnings lo slockhoIders (ovners) of a corporalion, and capiia| apprcciaiicn. as used here,
refers lo lhe vaIue of capilaI slock. Thus, lo succeed in lhe race for funds in lhe compelilive
money markel, lhe airIines musl be al Ieasl as slrong as lhe olher compeling induslries.
In praclice, hovever, equily nancing is avaiIabIe aImosl excIusiveIy lo nanciaIIy
slrong airIines, and mosl airIines loday remain undercapilaIized. Therefore, lhey are
unIikeIy lo be abIe lo raise enough in lhe vay of equily lo nance subslanliaI orders for
aircrah.
from one monlh lo lhree monlhs from lhe lime of receipl of lhe income on vhich lhey
are caIcuIaled. Thus, lhe company has lhe use of lhese funds in lhe inlervaI, and il
acknovIedges ils obIigalion by an accrua| for laxes, or a reserve. In accounling, an accruaI
is an expense (such as laxes) lhal is recognized vhen il is incurred bul before cash is
acluaIIy disbursed. Considering lhe lremendous cash ov of airIines, lhis source of funds
can represenl miIIions of doIIars.
CurrenlIy, mosl airIines are unabIe lo generale sufcienl reserves from lheir deprecialion
charges and relained earnings lo nance aircrah acquisilion. Cash ovs have aIso been
aecled by reduclions in deprecialion aIIovances and eIiminalion of lhe 10 percenl
inveslmenl lax credil vilh lhe Tax Reform Acl of 1986. Induslryvide, cash reserves mighl
normaIIy provide aImosl a quarler of fulure aircrah inveslmenl needs, bul lhese reserves
are nol evenIy dislribuled among airIines, and, for some, lhe avaiIabiIily of cash for
inveslmenl is virluaIIy negIigibIe.
Anolher inlernaI source of funds in recenl years has been lhe conversion of exisling
assels. This reIaliveIy nev vay of oblaining cash for nancing aircrah is Iinked lo lhe
deveIopmenl of Ieasing and has some advanlages vhen lhe secondhand markel is
buoyanl. Il can lake lhe form of an oulrighl saIe of equipmenl or a saIe and Iease-back.
The Iaer lype of lransaclion aIIovs airIines lo use lhe generaIIy apprecialed vaIue of
aircrah lo nance addilionaI aircrah, lo remove oIder aircrah from baIance sheels vhiIe
vaIues are sliII high, lo nance inveslmenl in olher airIines, or lo nance lheir ovn inlernaI
operalions (in lhe case of undercapilaIized airIines).
Many Ieasing companies have generaled business lhrough saIe and Iease-back
lransaclions. Some airIines have even crealed lheir ovn Ieasing companies lo vhich lhey
seII lheir aircrah, Ieasing lhe same aircrah back from lhese companies. Hovever, lhe
currenl cycIe of high residuaI vaIue for secondhand aircrah seems lo have passed ils peak,
and lhis source of nancing mighl be much more Iimiled in lhe fulure.
A I R T R A N S P O R TAT I O N 4 3 0
Inveslmenls loday are more ohen debl nanced lhan equily nanced. Depending on
lhe nanciaI viabiIily of a company and lhe perceived risk invoIved, debl may be eilher
unsecured or secured by lhe assels concernedhence lhe lerm assci-|asc! nancing. In
praclice, increasing debl/equily ralios and occasionaI bankruplcies have Ied lo a shih
lovard assel-based nancing in lhe airIine induslry: debl bonds and reIaled assel-Iinked
securilies are lhe onIy pubIic oerings lhal sliII aracl much aenlion. The debl markel
is Iarge in lhe Uniled Slales, vhere insurance companies and pension funds have slrong
cash assels lo pIace, bul il is sensilive lo lhe generaI economic environmenl.
Commercial Banks. AIlhough Ioans can be slruclured lo l aImosl any need, lhey
basicaIIy faII inlo lvo calegoriesshort-term loans for seasonaI needs and vorking
capilaI and Iong-lerm Ioans lo nance nev or used equipmenl. CommerciaI banks have
hisloricaIIy been primariIy in lhe shorl-lerm credil business, because lhey oblain lheir
funds from checking accounls and so lheir inveslmenls are made lo conform lo lhe paern
of lheir IiabiIilies. Dala are Iacking lo measure accuraleIy lhe parl pIayed by commerciaI
banks as a source of Iong-lerm funds. Hovever, il has been veII eslabIished lhal lhey have
become a ma|or faclor in Iong-lerm Iending in recenl years.
Hov a Ioan is priced, slruclured, and presenled depends on lhe banks perceplion of
a borrovers condilion, as veII as on lhe banks perceplion of ils exposure lo risk. Ior
exampIe, a shorl-lerm Ioan (90 days) may be easy lo negoliale on an unsecured basis, bul
a Iong-lerm Ioan needed lo nance a signicanl eel expansion may require exlensive
negolialions and compIex documenlalion.
A bank viII vanl lhe borrover lo shov lhal lhe reason for lhe Ioan requesl has been
cIearIy conceived and makes sound business sense. This can be a simpIe lask, as in lhe
case of demonslraling seasonaI cash ov varialions, or il can be more compIex, as in
proving lhe need for nev or addilionaI aircrah. Cash ow refers lo lhe receipl or paymenl
of an amounl of money. Ior accounling purposes, cash ov equaIs nel earnings (prols
aher laxes) pIus deprecialion charges. The lenor of a Ioan shouId malch ils purpose. If
lhe Ioan is lo be used lo cover seasonaI cash ov varialions, lhen il shouId be paid o
before lhe nexl seasonaI cash ov cycIe slarls. Repaymenl lerms shouId be malched lo lhe
purpose of lhe Ioan and lo lhe airIines besl pro|eclions of ils abiIily lo repay. Hov much a
bank charges for ils Ioans depends on many faclors, ranging from exlernaI faclors, such as
lhe banks viIIingness lo be compelilive in a cerlain markel or perceived risk, lo inlernaI
conslrainls, such as lhe banks Ioan porlfoIio managemenl poIicy.
The usuaI praclice is for an airIine lo eslabIish a line of credit vilh a commerciaI bank
before lhe lime lhe funds viII be needed. IslabIishmenl of a Iine of credil does nol bind
lhe bank IegaIIy lo make a Ioan al lhe lime requesled, if condilions have changed. ul lhe
bank seIdom faiIs lo honor ils agreemenl unIess circumslances have changed draslicaIIy.
Under normaI arrangemenls, lhe Iine of credil eslabIishes lhe amounl and lhe lerms
on vhich lhe bank viII advance funds as required. The amounl may vary from severaI
lhousand doIIars lo severaI miIIion, depending on lhe size of lhe airIine and ils credil
slalus. Whalever lhe amounl, lhe arrangemenl is a highIy desirabIe one for lhe airIines
corporale managemenl, because il provides funds vhen needed, quickIy, and vilhoul
compIicaled nanciaI procedures.
Mosl banks require coIIaleraI vhen lhey Iend lo airIines, because of lhe sensilivily of
lhe induslry lo generaI economic cycIes and lhe high debl/equily burdens carried by mosl
airIines. Hovever, mosl bankers are nol viIIing lo make lheir credil decisions slriclIy on
lhe basis of cc||aicra| vaIue (lhe vaIue of lhe assels pIedged in lhe evenl of defauIl). Mosl
C H A P T E R 1 5 A I R L I N E F I N A N C I N G 4 3 1
viII vanl lo make sure lhal lheir primary source of repaymenl is lhe cash ov slream
generaled by lhe companys operalions. CoIIaleraI vaIue and guaranlees of repaymenl are
vieved as secondary sources, because lhey are more difcuIl lo converl inlo coIIeclions
lhan is cash ov.
Aircrah equipmenl Ioans in recenl years primariIy have been in lhe form of equipmenl
lrusls. Wilh equipment trust nancing, a bank, or more IikeIy a group of banks, Iends
lhe required money for lhe purchase of nev equipmenl, bul lhe lilIe for lhe equipmenl
remains vilh lhe banks, vho are lhe lruslees of lhe series of cerlicales issued vilh lhe
equipmenl as securily. The equipmenl lrusl cerlicales are ovned by lhe banks doing lhe
nancing and are heId by lhem or soId lo inveslors, vho hoId lhem unliI malurily. The
airIine operaling lhe equipmenl pays enough each year lo relire a series of lhe cerlicales
and lo pay inleresl on lhem, as veII as on lhose cerlicales in lhe hands of lhe remaining
banks or inveslors. Malurilies run from 10 lo 20 years.
The big advanlage lo inveslors of equipmenl lrusl nancing is securily. AirIine
equipmenl does nol depreciale as fasl as olher lypes of capilaI goods because of rigid IAA
mainlenance requiremenls. Il is nol unusuaI for a carrier lo seII lhe equipmenl 5 or 10 years
Ialer and sliII gel 75 percenl of ils originaI vaIue. AIso, as each annuaI paymenl is made, lhe
equily behind lhe remaining cerlicales becomes grealer, because lhe enlire vaIue of lhe
equipmenl is securily for lhe enlire issue of cerlicales unliI aII are paid o. In olher vords,
lhe airIine does nol ovn any of lhe equipmenl unliI aII of il is paid o.
Finance and Life Insurance Companies. Olher sources of debl nancing incIude nance
and Iife insurance companies, vhich come in aII sizes and have videIy varying capabiIilies.
Mosl of lhe nance companies lhal have been aclive in lhe airIine eId oer a seIeclion of
Ioan and Iease packages. The basic nance company services incIude equipmenl nancing,
Ieasing, and, occasionaIIy, shorl-lerm Ioans. In many cases, lhe credil packages oered by
nance companies are simiIar lo lhose oered by banks, as are lheir pricing and credil
evaIualion poIicies.
Life insurance companies became a ma|or source of airIine inveslmenl funds in lhe
earIy 1970s, vhen lhe induslry lurned lo olher compelilive sources in search of doIIars lo
nance lhe |umbo |els. In many respecls, Iife insurance companies are lhe mosl singuIarIy
ed of aII nanciaI inslilulions lo provide for lhe Iong-lerm capilaI needs of lhe airIine
induslry. ecause lhe buIk of lhe funds pIaced vilh Iife insurance companies are for
exlended periods of lime, Iife insurance companies are in an ideaI posilion lo exlend
credil lhal synchronizes vilh lheir ovn IiabiIilies.
Investment Banks. Inveslmenl banks provide lhe mosl formaIIy organized machinery
for lhe raising of funds. Indeed, il is lheir primary funclion. In a sense, lhey are nol a source
of capilaI, bul ralher serve mainIy as inlermediaries belveen inveslmenl oulIels and lhe
induslry. In addilion, lhey ohen serve as advisers or consuIlanls in lhe deveIopmenl of
various lypes of lransaclions, such as mergers and lhe pIacemenl of privale Ioans.
Inveslmenl bankers provide privale debl pIacemenl and pubIic equily oerings. A
pritaic !c|i p|accncni is simiIar lo a bank Ioan, excepl lhal lhe funding source of lhe Ioan
is a privale parly, such as an inveslor group, an insurance company, or anolher concern
lhal is Iooking for Iong-lerm inveslmenls. As vilh bank Ioans, covenanls and nanciaI
lesls are required. These usuaIIy can be renegolialed vilh lhe Iender if lhe companys
circumslances change during lhe course of lhe Ioan.
A I R T R A N S P O R TAT I O N 4 3 2
AIlhough inveslmenl banking rms are nol lechnicaIIy sources of equily, lhey are
experls al lapping lhe pubIic equily source. The benels of a pu||ic cuiiu ccring are
considerabIe. A pubIic oering may be lhe Iovesl-cosl capilaI avaiIabIe for conlinued
airIine grovlh, and a successfuI oering is a means of reducing some of lhe Ieverage
burden ohen associaled vilh grovlh. In addilion, lhe issue can creale a markel for lhe
airIines slocks or bonds. This has lvo uses. Iirsl, given furlher corporale deveIopmenl
and success, a markel for fulure oerings has been crealed. Second, lhe ovners of lhe
airIine have a means of vaIuing or seIIing lheir hoIdings, an imporlanl poinl in lerms of
nanciaI pIanning.
An inveslmenl banking rm viII usuaIIy agree lo accepl lhe responsibiIily for nding
buyers for lhe slocks and bonds il pIans lo undervrile (seIecl and markel). In order lo
commil ilseIf lo lhe undervriling lask, an inveslmenl banking rm musl be condenl
aboul lhe airIines condilion and pIans. The rm viII scrulinize lhe airIine cIoseIy and base
ils decision lo make an oer on lhe quaIily of managemenl and lhe companys nanciaI
posilion. Once lhe bank has made an afrmalive decision, il viII provide direclion for lhe
preparalory vork, vhich lakes monlhs lo compIele.
Iven vhen everylhing is ready and aII of lhe accounling, IegaI, and prinling lasks are
compIele, lhe liming of lhe oering is IargeIy up lo lhe inveslmenl banker. The bank knovs
lhe slrenglhs and veaknesses of lhe markel. ConsequenlIy, an airIines lop managemenl
generaIIy deveIops a cIose vorking reIalionship vilh lhe inveslmenl banking source.
An airIine lhal needs lo suppIemenl ils capilaI funds by borroving or seIIing slock in lhe
open markel ordinariIy consuIls ils inveslmenl bankers, vho invesligale lhe corporalions
needs and recommend melhods of nancing. These incIude lhe foIIoving:
1. Ccnncn sicck (cuiiu). The ovnership of lhe corporalion is divided inlo a specied
number of shares of common stock, each represenling equaI parlicipalion in lhe af-
fairs of lhe rm. The ovners of lhe company, caIIed ccnncn snarcnc|!crs or ccnncn
siccknc|!crs. receive cerlicales of common slock or shares in proporlion lo lheir par-
licipalion in lhe rm.
2. Prcjcrrc! sicck (cuiiu). Like common slock, preferred stock is a share in lhe ovnership
of lhe company, bul inslead of equaI parlicipalion in lhe prols, preferred shares
carry xed annuaI dividends lhal musl be paid before dividends can be decIared on
common slock.
3. Bcn!s (!c|i). In formaI, IegaI lerminoIogy, a bond is a promissory nole under seaI.
Hovever, ve commonIy use lhe vord |cn! lo mean a Iong-lerm debl obIigalion,
parlicuIarIy one issued lo lhe generaI pubIic.
Leasing. Leasing has become one of lhe mosl videIy accepled nancing looIs for
equipmenl acquisilion. An imporlanl advanlage lo Ieasing is lhal an airIine can gel lhe
use of aircrah vilhoul having lo pul oul any of ils ovn equily funds. Leasing conserves
vorking capilaI. Il aIso avoids progress payments lo lhe manufaclurer, or money paymenls
lhal a carrier advances lo a manufaclurer on a reguIar scheduIe vhiIe lhe aircrah is under
produclion. These paymenls can be as much as 30 percenl of lhe cosl of lhe aircrah.
Leasing makes il easier lo repIace and modernize equipmenl. Ovnership of equipmenl
lends lo fosler a make-do phiIosophy. When equipmenl is capilaIized, il ohen becomes
C H A P T E R 1 5 A I R L I N E F I N A N C I N G 4 3 3
avkvard for a company lo repIace il before obsoIescence. If lhe equipmenl has a Iong Iife,
such as airpIanes, many companies conlinue deprecialion before repIacemenl lo avoid a
heavy vrile-o. The resuIl couId be a Ioss of compelilive advanlage, due lo nol having lhe
Ialesl equipmenl, or of prols lhrough coslIy mainlenance.
The ma|or disadvanlage associaled vilh Ieasing is lhe high cosl. Olher nancing forms
or oulrighl purchase do cosl Iess, on lhe surface. Hovever, vhen lhe presenl vaIue of
cash ov is laken inlo consideralion, Ieasing can acluaIIy be lhe Ieasl expensive form
of nancing. Anolher disadvanlage is lhe Ioss of residuaI vaIues in many cases. If lhe
equipmenl is markelabIe al lhe lerminalion of a Iease, lhen any residuaI vaIue normaIIy
goes lo lhe Iessor, nol lhe Iessee. To Iessen lhe impacl of lhis disadvanlage, Iessors
frequenlIy oer reduced renlaIs aher Iease lerminalion. Many Ieasing companies can
provide assislance in evaIualing specic Iease versus purchase oplions.
Leasing consisls of bolh operaling Ieases and capilaI, or nanciaI, Ieases. Operating
leases are shorl lerm (generaIIy nol more lhan ve years) and have varying degrees of
exibiIily for canceIIalion by lhe airIine. They generaIIy convey no residuaI vaIue in lhe
aircrah and, from an accounling slandpoinl, are considered slriclIy as an operaling cosl.
Financial (capital) leases are Iong lerm, generaIIy 12 lo 25 years. ecause of reslriclions
on lerminalion, lheir Iong lerm, and lhe conlracluaI commilmenl lo pay lhe lolaI vaIue of
lhe Iease paymenls, lhey are considered a form of capilaI nancing. The lolaI cosl of lhe
Iease paymenls is amorlized over lhe Iife of lhe Iease, and a porlion of lhe renlaI paymenls
is aribuled lo lhe impIicil inleresl cosl of lhe nancing.
olh forms of aircrah nancing have become imporlanl since lhe mid-1970s, or roughIy
since dereguIalion. Whereas virluaIIy 100 percenl debl nancing and inlernaI nancing
of aircrah lypied lhe 1960s and earIy 1970s, currenl eslimales are lhal 50 percenl of lhe
aircrah of ma|or carriers is under Iease and lhal lhis gure mighl reach 70 percenl in lhe
near fulure. Of parlicuIar inleresl here is lhe eecl lhal operaling Ieases have on carriers
nanciaI performance.
CapilaI Ieases appear as Iong-lerm IiabiIilies on carriers baIance sheels, and lhe inleresl
expense and lhe amorlizalion of principaI are lrealed in a manner simiIar lo inleresl and
deprecialion on debl-nanced aircrah. The principaI advanlage oered by capilaI Ieases is
lhe Iover nancing cosls lhal arise from lhe dierence in lhe abiIily of Iessors and Iessees
lo use deprecialion and olher lax benels. In Ieases under vhich lhe airIine does nol relain
lhe residuaI vaIue of lhe pIane al lhe end of lhe Iease, lhe opporlunily for Iong-lerm capilaI
gains may be sacriced, especiaIIy if lhe expeclalions of lhe Iessor (reecled in lhe Iease
lerms) and lhe Iessee dier.
Operaling Ieases, on lhe olher hand, do nol appear on baIance sheels and are
somelimes crilicized for providing o-baIance-sheel nancing of essenliaI capilaI goods.
The impIicalion is lhal xed capilaI cosls are hidden, lhereby presenling a rosier baIance
sheel piclure of debl lo equily inveslors. NeverlheIess, lhe subslilulion of operaling Ieases
for olher forms of nancing oers advanlages as veII as disadvanlages.
On lhe posilive side, operaling Ieases may provide a melhod of Iovering lhe air carriers
overaII cosl of capilaI. Iquily, debl, capilaI Ieases, and operaling Ieases aII have diering
direcl cosls, risk premiums, deprecialion and lax benels, and degrees of exibiIily.
ReIying loo heaviIy on one source of nancing IikeIy vouId resuIl in capilaI cosls grealer
lhan lhose achievabIe vilh a mixed porlfoIio of capilaI sources.
Iarl of lhe Iover cosl lhal operaling Ieases may provide lo an airIines nancing derives
from lhe exibiIily oered by lheir reIaliveIy shorl lerm. The besl vay lo describe lhis
aspecl is by vay of an admiedIy oversimpIied exampIe. Suppose lhal an airIine puls 30
A I R T R A N S P O R TAT I O N 4 3 4
percenl of ils operaling eel on equaIIy slaggered ve-year noncanceIabIe Ieases. In lhis
case, 6 percenl of ils eel is up for renevaI each year. In lhe evenl of a faIIo in lrafc, lhese
aircrah can be relurned lo lhe Iessor and a nev Iease deIayed unliI aher lhe dovnlurn. To
lhe exlenl lhal equily nancing of aircrah is suppIanled by lhe conlracluaI commilmenls
of debl and Ieases (bolh operaling and capilaI), lhe exibiIily and cushion of carriers in a
dovnlurn are reduced. In lhis exampIe, if lhal 30 percenl of lhe eel vere equily nanced,
lhe earnings requiremenls of lhese aircrah (essenliaIIy, dividends and relained earnings)
couId be lolaIIy avoided in a dovnlurn (lhough evenluaIIy, in an uplurn, lhe aircrah
vouId have lo provide a relurn lo compensale sharehoIders in lhe Iong run).
In summary, lhe move lo operaling Ieases by carriers may assisl in baIancing a debl
porlfoIio. Hovever, vhen changes in individuaI carriers and induslry Ieverage are
examined over lime, specic lerms of operaling Ieases musl be laken inlo accounl, because
apparenl Ieverage may be reduced by operaling Ieases bul lhe nanciaI risk of lhe airIine
may nol drop proporlionaleIy.
Vendor Financing. Manufaclurers increasingIy are oering nanciaI supporl as an
inducemenl in lhe compelilive environmenl of aircrah markeling. TradilionaIIy, aircrah
manufaclurers have granled supporl lo cuslomers lhrough various means, incIuding
lhe arrangemenl or provision of equily nancing, purchase of slock oplions, and
guaranlees for debl nancing lo nanciaI inslilulions. Wilh lhe increasing sophislicalion
of nancing lechniques, manufaclurers are becoming invoIved in compIex Ieasing and
olher arrangemenls.
In earIy 1983, American vas lhe rsl airIine lo make vhal vas lermed an innovalive
arrangemenl vilh McDonneII-DougIas and Ira & Whilney by Ieasing 20 MD-80s. TWA
foIIoved shorlIy lhereaher vilh a 15-aircrah order. American had sludied olher aircrah
and had dala on lhe MD-80 from olher carriers and performance guaranlees from lhe
manufaclurers lhal aided in lhe purchase decision. American pIanned lo repIace lheir
111-seal oeing 727-100s vilh lhe MD-80s, vilh lheir 142-passenger seal conguralion,
on cerlain roules lhal vere experiencing conlinuaI heavy Ioad faclors and acluaIIy lurning
some prospeclive passengers avay.
ecause American had $1.5 biIIion in oulslanding Iong-lerm debl on ils baIance sheel and
did nol vanl lo add lo il, an innovalive arrangemenl had lo be devised. The Iease vas for onIy
5 years: hovever, an oplion lo exlend lhe Iease vas provided lhal couId run 13 exlra years,
bringing lhe lolaI lo 18 years, lhe lradilionaI lerm for nev-|el nancing. The unique fealure
in lhe arrangemenl belveen American and McDonneII-DougIas and Ira & Whilney vas
prol sharing. If lhe operaling cosls of lhe MD-80s, vilh lheir lvo IT8D-200-series engines,
feII beIov an agreed-on poinl, lhen American vouId share lhal increase in operaling prol.
In eecl, McDonneII-DougIas and Ira & Whilney assumed |oinl ovnership of lhe $20
miIIion aircrah. Ira & Whilney vouId provide aII engine overhauIs.
TWA, Iike American, found lhe lerms of lhe agreemenl very araclivea vay lo acquire
nev airpIanes vilhoul exlending ils heavy debl obIigalion. ul lhe TWA arrangemenl did
nol incIude lhe prol-sharing fealure. In any case, McDonneII-DougIas vas anxious bolh
lo make ils rsl saIe of an MD-80 vilh lhe IT8D-200-series engines lo a ma|or carrier and
lo slrelch oul ils produclion Iine, vhich vas al risk of cIosing dovn vilhoul an order Iike
Americans and TWAs.
Venture Capital. Venture capital is money invesled in business enlerprises lhal generaIIy
do nol have access lo lhe convenlionaI sources of capilaI previousIy discussed. Many of
C H A P T E R 1 5 A I R L I N E F I N A N C I N G 4 3 5
lhe never regionaI carriers have used venlure capilaI lo gel slarled, and some eslabIished
airIines aIso have lapped lhis source in search of nev funding.
The key ingredienl of venlure capilaI rms is an enlrepreneuriaI leam. The enlrepreneurs
generaIIy prepare a delaiIed business pIan lhal describes lhe nalure of lhe proposed
business and forecasls fulure aclivilies and incomes. This business pIan is used lo aracl
venlure capilaI. Venlure capilaI inveslors viII invesl onIy in silualions lhal viII uIlimaleIy
produce sizabIe capilaI gains. ecause lhe inveslmenls are made in unproven silualions,
venlure capilaI invesling is risky and depends on lhe abiIily of lhe enlrepreneurs (nev
carriers) lo lurn lheir ideas inlo a successfuI company. The inveslmenl in lhe enlerprise is
made by buying slock (generaIIy from lhe lreasury), by Iending money, or by combinalions
of bolh.
IeopIe Ixpress, lhe innovalive airIine lhal served lhe easlern parl of lhe Uniled Slales
vilh oeing 737s, vas Iaunched vhen lvo men look lheir idea for a nev, Iov-cosl airIine
lo Cilicorp Venlure CapilaI and asked for a hearing. Al lhal lime (Iale Ianuary 1980),
IeopIe Ixpress vas onIy lhe name on a business pIan: no aircrah vere ovned, no roules
vere being served, and no approvaIs had been requesled from lhe IAA or lhe CA.
Wilhin lvo monlhs, hovever, Cilicorp Venlure CapilaI vas sufcienlIy impressed lo
invesl $200,000, lhereby Iaunching IeopIe Ixpress. A shorl lime Ialer, $400,000 vas added.
AIlhough lhe $600,000 pul forlh by Cilicorp Venlure CapilaI vas nol even cIose lo vhal
vas needed lo creale an airIine, il vas sufcienl lo puII logelher a managemenl leam
and lo formuIale delaiIed pIans for IeopIe Ixpress. y November 1980, lhe airIine vas
enough of an enlily lhal managemenl vas abIe lo raise $27 miIIion in lhe pubIic markel
by seIIing equily in vhal had been nolhing bul an idea Iess lhan a year before. One of
lhe mosl successfuI airIines loday, IederaI Ixpress Corporalion, gol ils slarl in IuIy 1973
vhen il approached a Nev York venlure capilaIisl, Nev Courl Securilies. This company, a
division of RolhchiIds, vas a merchanl banking operalion lhal managed massive amounls
of capilaI. Some $52 miIIion vas subsequenlIy raised, lhe Iargesl privale pIacemenl up lo
lhal lime.
UnliI a fev decades ago, lhe primary sources of venlure capilaI vere veaIlhy famiIies or
parlnerships of afuenl individuaIs Iooking for capilaI gains. Ior exampIe, lhe RockefeIIer
famiIy has funded severaI venlure capilaI pooIs. Il vas Laurence RockefeIIer vho backed
Iddie Rickenbacker lo Iaunch Iaslern AirIines in lhe 1930s. I. H. Whilney supporled
Iuan Trippes rsl Ian American ighls belveen IIorida and Cuba. Since lhe mid-1960s,
a number of professionaI managers of venlure capilaI have formed rms lo invesl
funds provided by veaIlhy famiIies and insurance companies and olher inslilulionaI
inveslors. Since 1978, lhere has been a urry of aclivily in lhis lype of nancing as ma|or
corporalions, Iabor unions, pension funds, and even universilies have aIIocaled porlions
of lheir inveslmenl funds lo venlure capilaI managemenl rms lo Iocale enlrepreneurs
and parlicipale in lhe managemenl of nev companies.
The venlure capilaIisls invoIvemenl vilh managemenl is an essenliaI eIemenl in
agreeing lo nance a slarl-up silualion. The backer usuaIIy insisls on a posilion on lhe
board of direclors. In lhis vay, lhe venlure capilaIisl can acl quickIy lo eecl changes in
lhe evenl lhal business condilions change. The ma|orily of venlure capilaI inveslmenls are
made by purchasing equily (slocks) or debl converlibIe lo equily (bonds) in lhe slarl-up
rm. Iure debl is generaIIy secondary lo equily, because such nancing does nol provide
lhe opporlunily lo share in fulure grovlh. Iurlhermore, lhe young rm probabIy vouId
nol produce sufcienl cash ov lo service lhe debl.
A I R T R A N S P O R TAT I O N 4 3 6
Some venlure capilaI rms speciaIize in slarl-up inveslmenls, vhiIe olhers prefer lo vail
unliI a second, lhird, or Ialer round of privale nancing. Venlure capilaIisls are successfuI
onIy if lhe companies lhey back succeed. Then lhey can seII lhe slock lhey hoId lo lhe
pubIic al a higher muIlipIe of lhe originaI purchase price or lo vhalever Iarger company
acquires lhe nov-successfuI operalion.
Some venlure capilaI groups have afIialed lhemseIves vilh inveslmenl banking rms
(or in some cases, vilh Iarge commerciaI banks). These are generaIIy lhe groups vilh lhe
grealesl resources. In phiIosophy, lhey are simiIar lo privale venlure capilaIisls. In lerms
of capabiIilies, lhey ohen bring vilh lhem lhe managemenl and nanciaI resources of
lheir afIialed companies, vhich makes access lo debl and equily markels much easier.
The principaI advanlages of bolh lhe privale venlure capilaI groups and lhe afIialed
venlure capilaI groups Iie in lheir exibiIily and abiIily lo lake risks. UnIike mosl olher
funding sources, venlure capilaIisls viII give slarl-up venlures serious consideralion.
SOURCES AND USES OF FUNDS BY THE U. S. SCHEDULED
AIRLINES
The foIIoving anaIysis of lhe sources and uses of funds by lhe U.S. scheduIed airIines is
based on dala from lhe income slalemenls and baIance sheels provided by lhe Air Transporl
Associalion from ils annuaI reporls for lhe induslry covering lhe period from 1960 lo 2004.
The induslry grev signicanlIy during lhese four-pIus decades, foIIoving passage of lhe
IederaI Avialion Acl of 1958, basicaIIy vilhin a highIy reguIaled environmenl. The lviIighl
period of reguIalion began in 1978, and lhe 1980s ushered in a nev era for lhe induslry.
During lhe period from 1960 lo 1981, lhe induslry experienced a compIele lransilion in
lhe eel, vilh lhe rsl |els appearing in lhe earIy 1960s, lhe slrelched versions in lhe Iale
1960s, and lhe vide-bodies in lhe earIy 1970s. y lhe Iale 1970s, lhe ma|or carriers vere
pIacing lheir orders for lhe fueI-efcienl equipmenl lhal began appearing in lhe earIy lo
mid-1980s. In lhe period, lhe airIines experienced four dislincl business cycIes lhal cIoseIy
foIIoved lhe overaII economys performance. The dala in TabIe 15-1 evidence lhe cycIicaI
performance. The dala demonslrale four dislincl Iovs: 196061, 197071, 198083, and
198994. The periods 196468, 197678, 198488, and 19952004 reecl lhe upvard and
dovnvard svings of lhe cycIe in earnings and relurn on inveslmenl.
|n!usiru Ba| ancc Sncci
A balance sheet is mereIy a slalemenl of assels and cIaims lhal summarizes lhe nanciaI
posilion of a rmor, in lhis case, lhe U.S. scheduIed airIine induslryal some specic
poinl in lime. y denilion, il musl baIance, because each and every knovn assel, as
somelhing of vaIue, viII be cIaimed by someone. Il baIances because assels equaI cIaims
(IiabiIilies and nel vorlh). In lhis conlexl, assets are lhings of vaIue lhal are ovnedcash,
properly, and lhe righls lo properly. Liabilities are monelary debls or lhings of vaIue lhal
are oved lo credilors. Net worth, or ovners equily, is lhe dierence belveen assels and
IiabiIilies.
C H A P T E R 1 5 A I R L I N E F I N A N C I N G 4 3 7
TABLE 15-2 Assets Portion of the Balance Sheet for the U.S. Scheduled Airlines,
as of December 31, 2004
DoIIars
Assels Denilion (miIIions)
Currenl assels Cash and olher resources lo be reaIized in cash, 33,835
soId, or consumed vilhin one year
Inveslmenls and Long-lerm inveslmenls in securilies of olhers 14,189
speciaI funds incIusive of U.S. governmenl securilies: funds sel
aside for specic purposes: and olher securilies,
receivabIes, or funds nol avaiIabIe for currenl
operalions
IIighl equipmenl The lolaI cosl of properly and equipmenl of aII 113,591
lypes used in lhe in-ighl operalions
Ground properly The lolaI cosl of ground properly and equipmenl 24,292
equipmenl
Olher properly The lolaI cosl of olher properly, incIuding Iand and 17,390
conslruclion vork in progress
Reserve for depre- AccruaIs for deprecialion of ovned properly and (48,091)
cialion (ovned) equipmenl
Leased properly TolaI cosl lo lhe air carrier for aII properly oblained 9,020
capilaIized under Ieases lhal meel one or more of lhe foIIoving
crileria: (1) lhe Iease lransfers ovnership of lhe
properly lo lhe Iessee by lhe end of lhe Iease lerm:
(2) lhe Iease conlains a bargain purchase oplion:
(3) lhe Iease lerm is equaI lo 75 percenl or more of
lhe eslimaled economic Iife of lhe Ieased properly:
or (4) lhe presenl vaIue al lhe beginning of lhe Iease
lerm of lhe minimum Iease paymenls, excIuding lhal
porlion of lhe paymenls represenling execulory cosls
such as insurance, mainlenance, and laxes lo be paid
by lhe Iessor, incIuding any prol lhereon, equaIs or
exceeds 90 percenl of lhe excess of lhe fair vaIue of
lhe Ieased properly lo lhe Iessor al lhe inceplion of
lhe Iease over any reIaled inveslmenl lax credil
relained by lhe Iessor and expecled lo be reaIized
by lhe Iessor
Reserve for depre- AccruaIs for deprecialion of Ieased properly and (3,040)
cialion (Ieased) equipmenl
Deferred charges Debil baIances in generaI cIearing accounls incIuding 2,314
prepaymenls chargeabIe againsl operalions over a
period of years, capilaIized expendilures of an
organizalionaI or deveIopmenlaI characler, and
properly acquisilion ad|uslmenls
TolaI assels 163,500
Source: Air Transporl Associalion AnnuaI Reporl, 2005.
A I R T R A N S P O R TAT I O N 4 3 8
TABLE 15-3 Liabilities Portion of the Balance Sheet for U.S. Scheduled Airlines,
as of December 31, 2004
DoIIars
LiabiIilies Denilion (miIIions)
Currenl IiabiIilies ObIigalions lhe Iiquidalion of vhich is expecled 46,178
lo require lhe use, vilhin one year, of currenl
assels or lhe crealion of olher currenl IiabiIilies
Long-lerm debl Long-lerm debl pIus advances from associaled 55,174
companies and nonlransporl divisions Iess
unamorlized discounl and expense on debl
Olher noncurrenl LiabiIilies under company-adminislered 36,758
IiabiIilies empIoyee pension pIans and for inslaIImenls
received from company personneI under company
slock purchase pIans, and olher noncurrenl IiabiIilies
Deferred credil Credil baIances in generaI cIearing accounls, 14,021
incIuding premiums on Iong-lerm debl securilies
of lhe air carrier
SlockhoIders The aggregale inleresls of hoIders of lhe air carriers 11,369
equily nel of slock in assels ovned by lhe air carrier
lreasury slock
Ireferred slock The par or slaled vaIue of preferred capilaI slock 172
oulslanding (in lhe case of no-par slock vilhoul
slaled vaIue, lhe fuII consideralion received)
Common slock The par or slaled vaIue of common slock issued 4664
(in lhe case of no-par slock vilhoul slaled vaIue,
lhe fuII consideralion received)
Olher paid-in Iremium and discounl on capilaI slock, gains or 17,859
capilaI Iosses arising from lhe reacquisilion and lhe resaIe
or reliremenl of capilaI slock, and olher paid-in capilaI
Relained earnings The cumuIalive nel income or Ioss from operalions of (17,648)
lhe air carrier, Iess dividends decIared on capilaI slock
and amounls approprialed for speciaI purposes
Less: Treasury slocklhe cosl of reacquired capilaI slock (3,677)
issued by lhe air carrier and nol relired or canceIed
TolaI IiabiIilies and equily 163,500
Source: Air Transporl Associalion AnnuaI Reporl, 2005.
The cIaims shovn on a baIance sheel are divided inlo lvo groups: (1) lhe cIaims of lhe
ovners of a rm againsl lhe rms assels, caIIed nci ucrin. and (2) lhe cIaims of nonovners,
caIIed |ia|i|iiics. Thus:
Assels LiabiIilies + Nel vorlh.
TabIes 15-2 and 15-3 incIude lhe assels and IiabiIilies porlions of lhe baIance sheel for lhe
U.S. scheduIed airIine induslry for lhe Ialesl avaiIabIe year, 2004 aIong vilh lhe lerms ve
viII incIude in our anaIysis.
C H A P T E R 1 5 A I R L I N E F I N A N C I N G 4 3 9
The dala shovn in TabIes 15-4 and 15-5 vere laken from lhe Air Transporl Associalion
annuaI reporls from 1960 lo 2000. The anaIysis presenled in lhis seclion is based on
baIance sheels, income slalemenls, and operaling expenses during lhis period for lhe
lolaI U.S. scheduIed airIine induslry, incIuding inlernalionaI operalions. In lhe Ma|or
Uses porlion of TabIe 15-4, lhe dala represenl acluaI monies spenl (excepl in lhe case of
reserves for deprecialion) during lhe parlicuIar lime period. This cIaricalion is necessary
because a ma|or porlion of lhe funds used for equipmenl purchases is normaIIy commied
a number of years before equipmenl deIivery.
TabIe 15-4 shovs lhe sources and uses of funds, as evidenced by increases in lhe dala on
lhe baIance sheels for lhe periods under reviev. TabIe 15-5 shovs lhe acluaI deprecialion
and amorlizalion (aIIocalion of cosl for each capilaI goods eslimaled Iife) oblained from
operaling expenses for lhis period.
Upward Side of the First Cycle: 196066. oIslered by slrong earnings during lhis period,
parlicuIarIy from 1963 lo 1966 (see TabIe 15-1), increases in ovned and Ieased properly
vere IargeIy nanced lhrough inlernaI sources (see TabIe 15-4, under Ma|or Uses).
Deprecialion and relained earnings represenled signicanl sources of funding during
lhis period. IrolabiIily during lhe mid-1960s aIso vas inslrumenlaI in securing debl
nancing (see Long-lerm debl in TabIe 15-4), vhich pIayed an imporlanl roIe during
lhese years. Nev-slock issuance pIayed a minor roIe as a funding source.
Downward Side of the First Cycle: 196671. Il vas during lhis period lhal lhe induslry
pIaced biIIions of doIIars in nev orders for vide-bodied equipmenl, vhich arrived on
lhe scene in lhe earIy 1970s. Hovever, lhis commilmenl vas made before lhe induslry
foIIoved lhe economy inlo a laiIspin lhal slarled during lhe Iasl haIf of 1969 and conlinued
lhrough 1971. Many of lhe nevIy produced vide-bodies vere parked in lhe Arizona deserl
because of Iack of demand for air lransporlalion during lhe earIy 1970s. Lov prols, an
uncerlain fulure concerning earnings, inalion, and decIining airIine slock prices resuIled
in a lighl suppIy of money for lhe airIine induslry.
Iquily has suppIied Iess oulside funds for lhe airIines ever since lhey reached lheir
high-valer mark in mid-1967. The generaI Iack of condence on lhe parl of inveslors has
aIso aecled lhe ailudes of lhe Ienders vho make up lhe debl markel.
CapilaI in lhe form of debl or equily vas difcuIl lo oblain during lhese years, and
vilh earnings drying up, lhe induslry had lo lurn lo nev sources. CommerciaI banks
had provided lhe grealer porlion of debl nancing up lo lhis poinl. Nov lhe induslry
had lo lurn lo dierenl and more expensive inslrumenls lo nance ils capilaI needs,
incIuding converlibIe debenlure nancing, IargeIy vilh Iife insurance companies, and
Iease nancing.
The insurance companies, in parlicuIar IrudenliaI, MelropoIilan, and IquilabIe, vere
nol parlicuIarIy inleresled in slraighl Iending. In generaI lerms, a debenture is a debl.
Hovever, nanciaI praclice has reslricled lhe meaning of !c|cniurc lo onIy lhose bonds
lhal are nol secured by any specic pIedge of properly. The debenlure bond is a videIy
accepled mode of corporale nancing. Il appeaIed lo lhe airIines al lhis lime because lhe
absence of a specic Iien gives grealer freedom lo managemenl and permils lhe reservalion
of secured obIigalions for periods of emergency. In lhe evenl of defauIl on inleresl or
Scurccs an! Uscs cj |un!s. 1960Prcscni
A I R T R A N S P O R TAT I O N 4 4 0
principaI paymenls, lhe bondhoIders are unabIe lo bring forecIosure proceedings lo have
lhe properly soId by lhe courl.
Irom lhe inveslors poinl of viev, lhe debenlure bond is appeaIing because lhe generaI
credil or nanciaI posilion of lhe corporalion conslilules lhe primary basis of safely.
As lhe name suggesls, ccntcrii||c !c|cniurcs give lhe hoIder lhe priviIege of exchanging
hoIdings for securilies of a dierenl lype, usuaIIy common slock. The use of converlibIe
debenlures as a means of raising nev capilaI depends in Iarge measure on condilions
in lhe capilaI markel and lhe nanciaI appeaI of lhe issuing corporalion. Slock prices
vere sliII reasonabIy buoyanl during lhis period, vhich made lhe conversion priviIege
araclive lo lhe insurance companies, vhich Iooked upon lhe airIine induslry as araclive
in lerms of Iong-lerm grovlh.
During lhe 196671 period, a subslanliaI porlion of lhe capilaI required vas nanced
lhrough Iong-lerm debl (see TabIe 15-4). Iinancing lhrough commerciaI banks vas
expensive because of higher shorl-lerm inleresl rales and shorler Ioan periods (generaIIy
8 lo 10 years) lhal required renegolialion.
Leasing ighl equipmenl came inlo vogue during lhis period of poor earnings and
considerabIe exlension of debl. The generaI nanciaI posilion of lhe carriers al lhe end of
1970 Iooked very poor indeed.
Upward Side of the Second Cycle: 197176. IoIIoving massive Iayos in lhe earIy 1970s
(induslry empIoymenl dropped from 311,922 in 1969 lo 289,926 by lhe end of 1975) in
response lo a sagging economy, excess capacily, and an increase in operaling cosls, mosl
nolabIy fueI prices, lhe induslry rebounded sIighlIy in 1971, and prols rose lhrough
1976. A greal deaI of lhe success during lhis period is aribulabIe lo lhe severe cosl-
cuing measures Iaunched by lhe carriers. CapilaI requiremenls during lhese years vere
mel IargeIy lhrough deprecialion, increases in currenl IiabiIilies, and, lo a Iesser degree,
relained earnings.
Downward Side of the Second Cycle: 197683. Grovlh in lrafc and earnings conlinued
lhrough 1978, despile ever-increasing fueI cosls. A number of faclors boosled lrafc a
record 17 percenl in revenue passenger miIes (RIMs) during 1978. A veak doIIar abroad
aracled record numbers of Iuropeans lo lhe Uniled Slales, and subslanliaI price cuing
slimuIaled an eIaslic markel for air lraveI. Irols of $1.2 biIIion vere posled, and lhe
carriers responded by ordering $9.4 biIIion in nev pIanes. Trafc feII o in 1979 bul sliII
shoved a 12 percenl increase in RIMs.
Deprecialion provided lhe ma|or source of funding during lhis period, foIIoved by
debl nancing and relained earnings resuIling from lhe prolabIe years from 1976 lo
1979. Leasing became so imporlanl lhal lhe capilaIized Ieased-properly doIIar amounl
is nov broken dovn in lhe Air Transporl Associalion annuaI reporls. Severe nanciaI
Iosses lolaIing $1.4 biIIion for lhe induslry from 1981 lo 1983 vere IargeIy lhe resuIl of a
recessionary economy, high fueI cosls, severe compelilion, and lhe exlended eecls of lhe
air lrafc conlroIIers slrike in Augusl 1981.
Upward Side of the Third Cycle: 198388. The economy rebounded in 1983, and an
upsving in airIine earnings resuIled in signicanlIy improved nanciaI performance in
1984 and 1985.
A record 418 miIIion passenger enpIanemenls vere recorded in 1986, undoubledIy
slimuIaled by lhe grealesl ever decIine in airfares. y 1986, lhe year of lhe mergers,
C H A P T E R 1 5 A I R L I N E F I N A N C I N G 4 4 1
TABLE 15-4 Sources and Uses of Funds for the U.S. Scheduled Airlines as
Evidenced by Changes in the Industry Balance Sheets

lhousands
ofdoIIars

lhousands
ofdoIIars

lhousands
ofdoIIars

lhousands
ofdoIIars

lhousands
ofdoIIars

lhousands
ofdoIIars

lhousands
ofdoIIars
MajcrUscs
Increasein
Currenlassels
Inveslmenlsand
speciaIfunds

IIighlequipmenl
Groundproperly
equipmenlandolher

Reservefor
deprecialion

Leasedproperly IncIuded
above
IncIuded
above
IncIuded
above

Reservefor
capilaIized
deprecialion
IncIuded
above
IncIuded
above
IncIuded
above

SublolaIovnedand
Ieasedproperly

Deferredcharges
TolaIassels
MajcrScurccs
Increasesin
CurrenlIiabiIilies
Longlermdebl
Olhernoncurrenl
IiabiIilies

Deferredcredil
SlockhoIdersequily
neloflreasuryslock

Ireferredslock
Commonslock
OlherpaidincapilaI
Relainedearnings
Iesslreasuryslock

TolaIIiabiIilies
Source: Air Transporlalion Associalion annuaI reporls
A I R T R A N S P O R TAT I O N 4 4 2

lhousands
ofdoIIars

lhousands
ofdoIIars

lhousands
ofdoIIars

lhousands
ofdoIIars

lhousands
ofdoIIars

lhousands
ofdoIIars

lhousands
ofdoIIars

lhousands
ofdoIIars




















TABLE 15-4 Continued
C H A P T E R 1 5 A I R L I N E F I N A N C I N G 4 4 3
TABLE 15-5 Actual Depreciation and Amortization for the U.S. Scheduled
Airline Industry, 19602004
Ycar Ocprcciaiicn an! Ancriizaiicn (incu-
san!s cj !c||ars)
Ycar Ocprcciaiicn an! Ancriizaiicn
(incusan!s cj !c||ars)
1960 314,193 1981 2,194,947
1961 404,708 1982 2,349,322
1962 400,829 1983 2,546,701
1963 428,379 1984 2,702,742
1964 381,543 1985 2,848,898
1965 431,228 1986 3,234,827
1966 491,578 198186 15,877,437
196066 2,852,458 1986 3,234,827
1966 491,578 1987 3,414,988
1967 612,294 1988 3,606,059
1968 742,240 1989 3,824,863
1969 868,384 1990 4,164,535
1970 952,036 1991 4,109,011
1971 959,323 198691 22,354,283
196671 4,625,855 1991 4,109,011
1971 959,323 1992 4,372,752
1972 1,002,924 1993 4,698,880
1973 1,064,441 1994 5,019,139
1974 1,101,358 1995 4,872,053
1975 1,116,607 1996 5,358,350
1976 1,132,074 199196 28,430,185
197176 6,376,727 1997 5,221,000
1976 1,132,074 1998 5,574,000
1977 1,219,914 1999 6,271,000
1978 1,554,458 2000 6,819,000
1979 1,721,648 19972000 23,885,000
1980 2,001,787 2001 8,418,000
1981 2,194,947 2002 6,933,000
197681 9,824,828 2003 6,691,000
2004 6,834,000
28,876,000
Source: Air Transporlalion Associalion annuaI reporls.
A I R T R A N S P O R TAT I O N 4 4 4
aImosl 90 percenl of passengers vere ying on some form of discounl. Average discounls
(percenlage o fuII fare) reached a high of 61 percenl.
Induslry earnings feII during 1986. AIlhough such carriers as American, DeIla,
Norlhvesl, Iiedmonl, and USAir reporled signicanl nel prols, Iaslern, Ian Am, TWA,
and Uniled experienced Iarge Iosses.
Improved earnings enabIed many of lhe carriers lo lap bolh lhe debl and equily markels
for equipmenl nancing during lhis period. Hovever, Ieasing conlinued lo pIay an
imporlanl, and groving, roIe in meeling carriers equipmenl needs. Tax reform and repeaI
of lhe inveslmenl lax credil in 1987 caused an upsurge in aircrah orders during 1986. One-
lhird of lhe lolaI |el orders in 1986 vere by Ieasing companies. SimiIarIy, one-lhird of lhe
U.S. ma|or airIines eels vere Ieased, compared vilh aboul 21 percenl in 1980.
oIslered by a slrong economy, airIine revenues increased by 13 percenl belveen
1987 and 1988. Hub-and-spoke syslems grev, and nel prols rose from $593 miIIion
lo $1.7 biIIion. The ma|or carriers pIaced signicanl orders for nev |el equipmenl, and
empIoymenl remained slrong.
Downward Side of the Third Cycle: 198994. A grealIy overexpanded economy began
lo shov signs of sIoving dovn in 1989, precipilaled by lhe faiIure of many savings and
Ioan associalions. IueI prices rose, and Iaslern AirIines faced a Iong, difcuIl slrike. The
coIIapse of lhe Uniled AirIines Ieveraged buyoul in Oclober 1989 and lhe shuldovn
of rani a monlh Ialer scared avay a Iol of polenliaI inveslors in lhe airIine induslry.
ranis faiIure reIeased 48 |els inlo lhe markel and, for lhe rsl lime, pIaced a Iarge
number of nev Slage 3 Airbus A320s inlo lhe markel. These faclors aII had a depressing
eecl on domeslic air lraveI. The resuIl vas lhal, aIlhough severaI airIines had a good year
nanciaIIy, lhe induslrys overaII nel prol vas $128 miIIion, vilh a nel prol margin of
onIy 0.2 percenl, compared lo 5.5 percenl average for aII U.S. induslry.
The U.S. airIines Iosl cIose lo $4 biIIion in 1990, virluaIIy aII in lhe fourlh quarler, vhen
lhe cosl of fueI doubIed as lhe resuIl of lhe Iraqi invasion of Kuvail. Losses conlinued
lhrough 1991, as lhe eecls of a deepening recession in lhe Uniled Slales and a sleep decIine
in lraveI abroad broughl on by lhe GuIf War look lheir loII. Huge Iosses forced a number
of carriers lo cul back service severeIy: lo seII ma|or assels, incIuding inlernalionaI roules,
aircrah, and airporl gales: lo poslpone aircrah orders: and lo furIough vorkers. CIose lo
40,000 empIoyees vere Iaid o, incIuding 18,000 Iaslern vorkers vhen lhal carrier cIosed
dovn in Ianuary. The depressed economy conlinued inlo 1992, vhich look ils loII on
lvo more carriers: Ian American, lhe pioneer inlernalionaI carrier, and Midvay AirIines,
a nev enlranl since dereguIalion. Thousands more airIine empIoyees vere Ieh vilhoul
|obs. Three olher ma|or carriers, America Wesl, ConlinenlaI, and TWA, vere operaling
under Chapler 11 bankruplcy by lhe end of 1992. USAir and Norlhvesl AirIines vere aIso
experiencing nanciaI difcuIlies.
In response, Slandard and Ioors (a ma|or bond raling agency) dovngraded lhe debl
ralings of |usl aboul aII of lhe Iarge U.S. carriers nol aIready in bankruplcy. The shorlage
of aordabIe capilaI prompled many observers bolh inside and oulside lhe induslry lo
caII for reIaxalion of foreign inveslmenl ruIes lo make il more araclive for foreign airIines
lo acquire ovnership inleresl in lhe U.S. airIines, lhus providing much-needed capilaI
infusion. Ioreign ovnership of U.S. airIines is currenlIy Iimiled lo 25 percenl of voling
pover and 49 percenl of equily.
elveen 1990 and 1994, lhe induslry Iosl cIose lo $13 biIIion. Losses dvindIed in 1994 lo
$344 miIIion, in Iarge parl due lo Iover fueI prices and lhe sacrices lhal airIine empIoyees
and airIine slockhoIders made during induslry reslrucluring.
C H A P T E R 1 5 A I R L I N E F I N A N C I N G 4 4 5
Upward Side of the Fourth Cycle: 19951997. When lhe induslry vas Iosing biIIions of
doIIars in lhe earIy 1990s, lhe airIines look on addilionaI debl in order lo suslain lheir
operalions and remain in business. The prols earned during 1995 and 1996 vere used
lo reduce lhe IeveI of debl in lhe induslry. TolaI Iong-lerm debl decreased from $17.6
biIIion in 1994 lo $16.5 biIIion in 1995 and lo $14.8 biIIion in 1996. The percenlage of
capilaI coming from debl and Iong-lerm capilaI Ieases in lhe airIine induslry in 1996 vas
50.4 percenl. This is a very high IeveI of indebledness vhen compared lo U.S. induslry
overaII, in vhich lhe percenlage of capilaI coming from debl and capilaI Ieases averages
onIy 40 percenl. ecause of lhe high IeveI of indebledness, airIines have high xed charges
for inleresl expenses. In an economic sIovdovn, lhese xed charges do nol drop vilh
reduced operalions and expose lhe induslry lo higher IeveIs of risk as earnings decIine. Ior
lhis reason, mosl airIine debl has nol yel regained ils inveslmenl-grade raling, prevenling
many banks, insurance companies, and pension funds from invesling in airIine securilies.
As addilionaI debl is repaid, raling agencies viII IikeIy reconsider lhese ralings.
Some of lhe carriers earnings vere being used lo acquire addilionaI aircrah. Induslry
capacily has been groving sIovIy for lhe pasl severaI years. AirIines have been very
caulious aboul adding capacily foIIoving lhe Iosses of lhe earIy 1990s. Al lhe end of 1996,
ATA U.S. member airIines, vhich carried more lhan 95 percenl of domeslic passenger
and freighl lrafc, had 575 nev aircrah on order, al a lolaI cosl of $34.3 biIIion. This is lhe
Iovesl number of aircrah on order in many years and demonslrales a conlinualion of lhe
lrend lovard reducing lhe grovlh rale of nev capacily. Iurlhermore, many of lhe aircrah
on order viII be used lo repIace oIder Slage 2 aircrah, ralher lhan lo add nev capacily. The
reIaliveIy Iov number of aircrah orders suggesls lhal capacily for lhe U.S. airIine induslry
viII IikeIy grov sIovIy for lhe nexl severaI years. Al lhe beginning of 1997, lhe gross book
vaIue of aircrah assels reached $67.3 biIIion, incIuding capilaIized Ieases. Aircrah are lhe
Iargesl calegory of lhe airIines $95 biIIion in lolaI assels.
|un!i ng Scurccs i n inc 1990s an! ai Prcscni
The baIance sheel gives a piclure of lhe nanciaI posilion of a parlicuIar company or an
enlire induslry al a cerlain dale. To bankers and lhe inveslmenl communily in generaI,
il has become lhe cruciaI yardslick by vhich funding decisions vere made in lhe 1990s.
efore dereguIalion in 1978, lhe U.S. airIine induslry represenled Iimiled risks for lhe
inveslmenl communily. Wilh roules prolecled by lhe CA and cosls passed on lo lhe
ying pubIic lhrough higher prices approved by lhe same agency, lhere vas IiIe lo fear
from an inveslmenl slandpoinl. Where Iov Iiquidily IeveIs (cash reserves) and a Iarge
oulslanding debl vere once accepled, lhe nanciaI communily nov demands a beer
baIance sheel and beer assel managemenl by airIines.
Many members of lhe nanciaI communily increasingIy are concerned vilh lhe gap
lhal seems lo be groving in many airIines belveen operaling cash and lhe burdens of
inleresl expense and cash needs based on required capilaI expendilures.
One of lhe primary indicalors of a companys abiIily lo meel ils currenl IiabiIiliesand,
as such, ils abiIily lo seek funding in lhe money markelis lhe current ratio. The currenl
ralio is a measure of Iiquidily oblained by dividing currenl assels by currenl IiabiIilies.
The higher lhe number, lhe more cash lhere is on hand for shorl-lerm needs. A Iov currenl
ralio vouId be a signaI of concern lo lhe nanciaI communily, parlicuIarIy if accompanied
by an operaling Ioss. A carrier in a veak Iiquidily posilion may experience difcuIly
A I R T R A N S P O R TAT I O N 4 4 6
paying ils day-lo-day biIIs. If lhe currenl ralio is Iov, il may be compared vilh prior years
lo evaIuale lhe exlenl of delerioralion.
Anolher prime indicalor is lhe long-term debt/equity ratio, vhich reecls lhe companys
Iong-lerm borroving pover and Iong-lerm slabiIily. Il is oblained by dividing Iong-lerm
debl by slockhoIder equily. The higher lhe number, lhe Iess abIe a company is lo borrov
money. AirIines lhal have nanced lheir grovlh primariIy vilh Iong-lerm debl (varranls,
debenlures, equipmenl Ioans, capilaI Ieases, and so forlh) ralher lhan equily are referred lo
as being highIy Ieveraged. Iurlhermore, lhey incur subslanliaI xed-inleresl cosls because
of lhe high debl. A sludy of lhe Iarger U.S. carriers shovs, in generaI, lhal lheir ralio of
Ieverage paraIIeIs lheir prolabiIily. HighIy indebled rms are lypicaIIy unprolabIe. Ior
exampIe, Iaslern and Ian Am vere highIy Ieveraged and consislenlIy unprolabIe. Thus,
highIy Ieveraged carriers represenl a high risk because lhey are burdened by having lo
service high debl. Under lhese condilions, lhere is IiIe equily avaiIabIe lo absorb Iosses,
and furlher borroving is difcuIl and musl be underlaken al an even higher rale. On lhe
olher hand, carriers Iike Soulhvesl and DeIla are nol highIy Ieveraged and are consislenlIy
prolabIe.
If lhe debl/equily ralio increases over a period of lime, il indicales lhal lhe airIine
is laking on more debl lo grov, enlering nev markels, or encounlering Iosses. A debl/
equily ralio of 2.5: 1 or more indicales a highIy Ieveraged airIine and raises a red ag in
lhe nanciaI communily. Such a ralio is parlicuIarIy vorrisome if operaling Iosses are
anlicipaled. When lhe ralio is moving upvard and operaling Iosses are expecled, highIy
Ieveraged airIines nd addilionaI funding nol onIy difcuIl lo acquire bul, if avaiIabIe,
very expensive and ohen accompanied by reslriclive provisions.
asicaIIy, lhere are lhree liers of ma|or carriers in lerms of baIance sheel slrenglh:
1. The fev carriers in lhe rsl lier have sufcienl nanciaI slrenglh, eilher lhrough in-
lernaIIy generaled funds or favorabIe baIance sheels, lo go lo lhe money markels for
repIacemenl aircrah. These carriers aIso lend lo have a currenl eel mix lhal aIIovs
lhem a period of lime before lhey musl refurbish lheir eels. Among lhese carriers are
American, DeIla, Soulhvesl, and ConlinenlaI.
2. AirIines in lhe second lier, lhe Iargesl parl of lhe induslry, are eilher capilaI conslrained
or capilaI shorl. Norlhvesl and US Airvays have such Iarge eel acquisilion
requiremenls lhal lhey viII be conslrained (US Airvays Ied for bankruplcy in
Augusl 2002).
3. The lhird lier, incIuding airIines such as America Wesl (merged vilh US Airvays
in 2005), vonl have lo go oul of business (Iike Iaslern and Ian American, vhich
found lhemseIves shorl of currenl assels and vilh an abnormaIIy high Iong-lerm
debl/equily ralio), bul lhey musl reassess lheir business and improve prolabiIily lo
aracl capilaI. They mighl aIso have lo reassess lheir roule slruclures and consider
shrinkage. This shouId improve prolabiIily and al lhe same lime reduce equipmenl
requiremenls. Il is hard for anyone in lhe nanciaI communily lo envision any Iong-
lerm viabiIily for lhis group in lhe absence of prolabiIily and roule reslrucluring.
Signicanl concern aboul lhe nanciaI heaIlh of lhe airIine induslry revoIves around
ils IeveI of Ieverage. In parlicuIar, if a rm is aIready highIy Ieveraged, il may nol be abIe
lo nance operaling Iosses during recessions or periods of reduced demand. The slriking
C H A P T E R 1 5 A I R L I N E F I N A N C I N G 4 4 7
We can summarize lhe discussion of funding sources and lheir impIicalions as foIIovs:
1. Demand for capilaI funds viII remain slrong as carriers recycIe lheir eels inlo more
fueI-efcienl aircrah.
2. Some carriers are in a much beer nanciaI posilion lhan olhers (in lerms of Iiquidily
and baIance sheel) lo secure funding sources in lhe money markel.
3. Some carriers viII have lo relrench by seIIing assels and reducing lheir roule slruclures
lo remain compelilive.
4. Operaling resuIls have been somevhal veaker on an induslryvide basis, lhough lhey
vere hardIy robusl before dereguIalion.
5. In lhe earIy 1990s, lhe carriers vere nol in a posilion lo raise cash lhrough lheir
common slock. The induslry needs earnings before lhe inveslmenl communily viII
Iook al common slocks, and il needs more lhan |usl one or lvo years of earnings.
Puiii ng |i A| | Tcgcincr
dicholomy belveen lhe slrong carriers and lhe veak ones is quile apparenl. American,
DeIla, ConlinenlaI, and Soulhvesl have generaIIy kepl debl lo Iess lhan haIf of lheir
capilaIizalion. Hovever, in recenl years, lhings have changed resuIling in a record number
of bankruplcies among ma|or carriers. IreviousIy slrong carriers are nol necessariIy slrong
in loday's environmenl. America Wesl and Norlhvesl (since lhe Ieveraged buyoul in 1989)
and lhe former TWA reIy heaviIy on debl lo nance lheir operalions. The demise of Iaslern,
Ian American, and Midvay vas lied direclIy lo lhe high cosl of carrying debl. SimiIarIy, lhe
bankruplcies of ConlinenlaI, America Wesl, and TWA vere parlIy a consequence of lheir
debl slruclure. CerlainIy, lhe high Ieverage of lhe veaker carriers makes lhem vuInerabIe
in a recession and, if lhey survive, makes il difcuIl for lhem lo renev lheir eels in lhe
re-equipmenl cycIe of lhe 1990s and earIy 2000s.
Return on investment (ROI) is a key measure of an induslrys and individuaI rms
abiIilies lo aracl capilaI for conlinued grovlh and repIacemenl of exisling assels. Il is
lhe ralio of nel prol lo lolaI assels. Whereas high Ieverage can kiII a rm quickIy vhen
operaling Iosses arise, conlinuaI Iov relurns on invesled capilaI can aIso Iead lo ils demise,
lhough generaIIy more sIovIy. IvenluaIIy, access lo equily markels vouId be Iosl, forcing
a reIiance on debl and lhe subsequenl polenliaI for an inabiIily lo cover xed charges.
The induslrys ROI has never been slrong and consislenlIy has underperformed lhe
average of aII manufacluring induslries excepl for lhe slrong years of 1978 and 1988 and
lhe expansion years of lhe mid-1960s. Hovever, as is lhe case for operaling resuIls and
Ieverage, bul even more so, ROIs on an induslryvide basis hide lhe Iarge discrepancy
belveen a group of reIaliveIy slrong airIines and a group of veaker carriers. The slrong
carriers have achieved, bolh before and since dereguIalion, ROIs much cIoser lo lhose
seen in aII manufacluring induslries and ones lhal shouId Ieave us Iess concerned vilh
lheir fulure abiIily lo aracl equily inveslmenl. Ior lhe veaker carriers, lhe poor operaling
resuIls of lhe Iasl decade are reecled in lhe Iarge Iosses lo equily, primariIy because of
lheir high Ieverage in recenl years.
A I R T R A N S P O R TAT I O N 4 4 8
6. Ior individuaI rms, lhe induslry can be divided inlo a group of slrong performers
vhose resuIls have sIipped onIy sIighlIy since dereguIalion and a Iarger group of
veaker performers vhose resuIls have broughl lheir conlinued exislence inlo
queslion.
7. Some increase has occurred in induslry Ieverage, lhough lhis has lended lo concenlrale
in cerlain rms.
8. ROIs are as bipoIar as operaling resuIls, vilh lhe group of slrong carriers achieving
relurns much more in Iine vilh lhose of olher induslries.
9. Inleresl rales viII ucluale depending on lhe vorId economy. When inleresl rales
are high, borroving is coslIy even for lhose vho are in a posilion lo do so. When
inleresl rales are Iov, aircrah are easier lo acquire, assuming lhe organizalion is in
good nanciaI slanding.
10. Insurance companies are nol as eager lo |oin in lhe nev round of Iending as lhey vere
in lhe earIy 1980s. Iirsl, lhey havenl been paid in fuII for previous Ioans. Second,
lhey, Iike olher members of lhe nanciaI communily, vere generaIIy opposed lo
dereguIalion, because lhere vas no CA lo keep lhe airIine induslry nanciaIIy
heaIlhy. Compelilion may eIiminale some carriers, and no Iong-lerm Iender viII Iend
unIess il is reasonabIy sure lhal lhe airIine viII survive and pay back ils Ioans.
11. anks are in a sIighlIy dierenl silualion lhan insurance companies, because on a
shorl-lerm Ioan lhey can renev and re-renev. If lhe oulIook is nol good, lhey can
recaII lhe Ioan.
12. Leasing viII conlinue lo grov sleadiIy, and airIines viII be concenlraling on a eel
baIance of purchase and Iease vilh an emphasis on Iease.
13. Lenders and carrier managemenl viII be Iooking for empIoyee commilmenls lo lheir
company in lhe form of inveslmenl programs.
The silualion can be inlerpreled in various vays. The veak performance of lhe induslry
as a vhoIe can be vieved as evidence of a draslic decIine lhal is sliII under vay and
lhal is Ieading lo lhe coIIapse of lhe induslry and lhe concenlralion of airIine service in
lhe hands of a fev carriers. Or lhe veak performance can be vieved as lhe necessary
shaking oul of veak carriers, vilh lhe resuIl lhal lhe induslry viII emerge vilh fever
bul slronger carriers lhal are capabIe of compeling vigorousIy nalionvide and, indeed,
vorIdvide. DereguIalion vas meanl nol lo improve or aid lhe performance of aII carriers
in lhe induslry bul lo revard lhe besl-managed ones.
CIearIy, lhe induslry is sliII in lransilion from lhe reguIalory period. The faiIure of
Iaslern, Midvay, and Ian American and lhe bankruplcies of ConlinenlaI, America Wesl,
TWA, and, more recenlIy, Uniled, DeIla and Norlhvesl, can be lraced vilhoul much
difcuIly lo lhe operaling and slrucluraI ad|uslmenls lhal have been conlinuing since
dereguIalion. The induslry apparenlIy is moving lovard an equiIibrium of a smaII number
of Iarge nalionvide carriers and an uncerlain number of signicanl smaIIer ones. The
induslrys nanciaI performance in such a vorId may end up on any poinl of lhe speclrum.
C H A P T E R 1 5 A I R L I N E F I N A N C I N G 4 4 9
Al severaI poinls in lhis chapler, ve have menlioned lhe imporlance of cash hoIdings as parl
of vorking capilaI. CerlainIy, one of lhe primary reasons for lhe demise of Iaslern AirIines
vas lhe facl lhal il became cash slarved and simpIy couId nol pay ils biIIs. AirIines lake
in and spend miIIions of doIIars daiIy. Apprehensive aboul Iaslerns nanciaI probIems,
lraveI agencies diverled miIIions of doIIars in lickel saIes lo olher carriers in order lo
prolecl lheir cuslomers, despile assurances from Iaslern managemenl aImosl up lo lhe
day lhey caIIed lheir eel home.
In many respecls, cash is lhe mosl imporlanl ilem in lhe operalion of an airIine. Il is
bolh a means lo and an end of lhe enlerprise. Relurn on inveslmenl lakes lhe form of a
paymenl of cash dividends, and in lhe evenl of Iiquidalion, cash becomes lhe naI medium
by vhich cIaims are discharged. Cash is one of lhe mosl imporlanl looIs of day-lo-day
operalion, because il is a form of Iiquid capilaI lhal is avaiIabIe for any use. Cash is ohen
lhe primary faclor in lhe course of an airIines desliny. The decision lo expand may be
delermined by lhe avaiIabiIily of cash, and lhe borroving of funds, as vas slaled earIier,
may be delermined by lhe carriers cash posilion. There is never a lime in lhe Iife cycIe of
an airIine lhal cash, or lhe ready access lo il, is nol imporlanl. Hovever, il is of parlicuIar
imporlance for a edgIing carrier lo have an adequale suppIy of cash. IayroIIs musl be
On lhe one hand, a Ioose oIigopoIy couId form in vhich fares and service remain fairIy
slabIe and remuneralive bul al IeveIs cIose lo or equaI lo compelilive relurns. On lhe olher
hand, a lighl oIigopoIy couId arise, Ieading lo higher lhan normaI prols, reduced service
oerings on roules, and efciency Iosses lo lhe economy.
Irom a nanciaI slandpoinl, il is difcuIl lo predicl vhal lhe recenl nanciaI hislory
porlends. Thin operaling margins oer IiIe pricing room lo avoid sIipping beIov fares
lhal are suslainabIe in lhe Iong run. The IeveI of Ieverage in lhe induslry may vork in
bolh direclions. HighIy Ieveraged rms viII have incenlives lo conlroI cosls and produce
efcienlIy: al lhe same lime, lhe exigencies of meeling debl service may encourage
inilialion of or acquiescence lo oIigopoIislic pricing behavior.
Anolher concern ohen expressed is vhelher lhe induslry has lhe nanciaI capacily for
lhe re-equipmenl and expansion of ils eel in lhe foreseeabIe fulure. The abiIily lo aracl
capilaI and provide service depends on lhe slrenglh of lhe underIying demand for an
induslrys oulpul. Iev doubl lhal airIine service viII conlinue lo be in high demand in
lhe Iong run. UndoubledIy, capilaI viII be avaiIabIe al some price lo meel lhal demand.
Relurns in lhe induslry may have lo increase lo pay lhal price.
DereguIalion has provided rms vilh lhe abiIily lo respond rapidIy lo changes in lheir
cosls and lhe fares oered by lheir compelilors. In lhe end, lhe prolabiIily and slrenglh
of airIine rms viII depend on hov veII lhey use lhose freedoms. Whelher lhe emerging
capilaI slruclure of lhe airIines viII be a source of addilionaI slrenglh and prolabiIily
or viII add cosls from inefcienl slruclures, excessive risks, or cosls of ad|uslmenl from
bankruplcies and disruplions of service cannol be predicled vilh lhe avaiIabIe evidence.
ConceivabIy, some reduclion in lhe number of carriers viII reduce excess capacily in lhe
induslry and lhereby improve lhe nanciaI performance of lhe remaining carriers. The
IackIusler nanciaI condilion of some of lhese carriers, hovever, vhich mighl be furlher
veakened by a recession and an increase in fueI prices, gives reason lo be concerned aboul
lhe number of carriers lhal viII survive and lhe eecl lhis mighl have on compelilion.
CASH MANAGEMENT AND FINANCIAL PLANNING
A I R T R A N S P O R TAT I O N 4 5 0
Casn || cu
Some nanciaI anaIysls regard cash ov as a beer measure of corporale success and
dividend-paying abiIily lhan nel income in ilseIf. Il musl be remembered lhal noncash
expenses, of vhich deprecialion is lhe Iargesl, are delermined in Iarge parl by managemenl
poIicy. Over lhe period of lime represenling lhe average usefuI Iife of an airIines assels,
deprecialion musl equaI lhe amounls invesled, or lhe cosls of operalion viII be underslaled.
SimiIarIy, if deprecialion is overslaled, income viII be underslaled and laxes reduced (al
Ieasl lemporariIy).
The imporlanl consideralion in lhe cash ov concepl is a measure of exibiIily. A Iarge
cash ov means lhal a carrier can y nev roules or adopl nev slralegies vilhoul as much
(or perhaps any) nev nancing.
Cash ov anaIysis assesses a carriers abiIily lo generale cash from inlernaI sources
reIalive lo lhe IeveI of cIaims againsl lhal cash. Cash ov may be dened as funds from
operalions (lhe sum of nel income, deprecialion and amorlizalion, and any change in
noncurrenl deferred laxes) or cash from operalions, vhich lakes inlo accounl changes in
lhe currenl accounls. Currenl assels and currenl IiabiIilies are lypicaIIy a smaII parl of lhe
baIance sheel for airIines, so lhe dierence belveen lhe lvo dened vaIues is nol greal. As
vilh earnings measures, hovever, exlraordinary ilems are excIuded.
The key anaIylicaI ralio is cash ov divided by lolaI debl. This shovs, in lheory al Ieasl,
hov quickIy a carrier couId repay debl if aII cash ov vere appIied lo lhal goaI. Indeed,
il is lhe malhemalicaI inverse of a debl payback period. Ixaminalion of lhe debl malurily
scheduIe is an addilionaI and imporlanl parl of lhis anaIysis.
The currenl ralio and vorking capilaI baIances are Iess usefuI in |udging an airIines
Iiquidily lhan lhey vouId be for many induslriaI companies. Mosl airIines roulineIy run
mel: conlracled mainlenance sources musl be paid: fueI suppIiers viII nol loIerale an
exlension of credil in lodays environmenl. Unexpecled cosls incurred as a resuIl of poor
vealher and many olher evenls require cash on hand. Lacking cash, a carriers operalions
are sIoved, if nol paraIyzed. Credilors press lhe coIIeclion of lheir cIaims. If paymenls
cannol be made or ad|uslmenls eecled, bankruplcy and faiIure foIIov.
Iven aher a company has overcome ils iniliaI nanciaI groving pains, lhe daiIy cash
posilion conlinues as a key faclor in ils operalions. Some ma|or carriers mainlain Iarge
Iiquid cash baIances in excess of lheir immediale needs and prefer lo borrov IiIe, if al
aII, on lheir currenl accounl. ul olher carriers are nol in lhis posilion and musl frequenlIy
borrov lheir seasonaI vorking capilaI requiremenls. Some companies deIiberaleIy pIan
lheir nancing and operalions lo provide lheir seasonaI requiremenls from bank Ioans. In
such cases, lhey musl pIan carefuIIy so as lo provide adequale cash lo repay lhe currenl
Ioans vhen due. Credil musl be mainlained by promplIy meeling aII obIigalions as lhey
become due.
There is no easy formuIa lo delermine lhe amounl of cash a company shouId mainlain.
Il depends on many faclors, incIuding lhe business cycIe, revenues produced, seasonaI
requiremenls, and currenl maluring debl. Managemenl poIicy lovard lhe carrying of
cash in excess of immediale currenl needs aIso pIays a roIe. The generaI economic oulIook
and lhe nanciaI and banking silualion are aIvays imporlanl consideralions. The maer
of expansion or conlraclion in operalions is frequenlIy a faclor. IinaIIy, priceslheir IeveI
and direclion of changeinuence managemenls |udgmenl as lo lhe amounl of cash lhal
shouId be mainlained.
C H A P T E R 1 5 A I R L I N E F I N A N C I N G 4 5 1
Casn Bu!gcii ng
vorking capilaI decils, because lhey lake advanlage of lhe facl lhal airIine lickels are
usuaIIy paid for before lhey are used. The cash generaled lhereby is osel by an accounl
caIIed air lrafc IiabiIily under generaIIy accepled accounling principIes. In conlrasl
lo mosl induslries, a groving airIines cash ov from operalions viII lherefore ohen be
grealer lhan ils funds (vorking capilaI) from operalions. Inslead of inveslmenl in vorking
capilaI, airIines generale cash from vorking capilaI vhen lhey expand. Of course, lhe
reverse is lrue vhen an airIine conlracls, a silualion lhal is mosl dangerous vhen a slrike
haIls operalions and passengers relurn lheir unused lickels.
Comparison of cash ov lo capilaI expendilures gauges a companys abiIily lo nance
capilaI programs vilh inlernaIIy generaled funds. UnforlunaleIy, reporled capilaI
spending ohen underslales lhe lrue IeveI of oulIays, because mosl faciIilies and many
aircrah are Ieased. If aircrah are nanced using a saIe and Iease-back, lheir cosl viII shov
up in capilaI expendilures, bul if lhey are Ieased direclIy, no such amounl appears.
The key lo good airIine cash managemenl and nanciaI pIanning is lhe cash forecasl, or,
more specicaIIy, lhe cash budget. On a shorl-lerm basis, il is exlremeIy imporlanl lhal
lhe airIine manage ils nances in a manner lhal viII permil il lo make maximum use of
ils avaiIabIe cash. On a Iong-lerm basis, nanciaI pIanning musl be conducled in a limeIy
and eeclive manner if lhe corporalion is lo achieve ils Iong-range ob|eclives.
Lels lake a Iook al lhe nalure and purpose of bolh shorl-lerm and Iong-lerm cash
forecasls. Sncri-icrn jcrccasis generaIIy cover a period of up lo one year. Ior lhe rsl lvo
or lhree monlhs, eslimales are normaIIy provided on a daiIy or veekIy basis. These can
usuaIIy be made vilh considerabIe accuracy and have many day-lo-day appIicalions. This
forecasl is used lo accompIish severaI lhings:
1. Ocicrninc cpcraiing casn rcuircncnis. In olher vords, lhe cash forecasl ensures lhal
cash receipls meel cash operaling expenses. Such informalion is vilaI lo airIines vilh
a lighl cash posilion. Wilh lhe aid of an eeclive shorl-lerm cash forecasl, cerlain ex-
pendilures, such as invenlory and capilaI expendilures, can be limed lo coincide vilh
lhe avaiIabiIily of cash.
2. Aniicipaic inc ncc! jcr sncri-icrn nancing. The forecasl enabIes an airIine lo minimize
borroving cosls (by avoiding borroving more or borroving for Ionger periods lhan
needed) and provides lhe bank vilh reIiabIe forecasls of lhe companys requiremenls,
lhus enabIing lhe company lo oblain more IiberaI Ioans.
3. Managc inc intcsincni cj surp|us casn. An accurale cash forecasl heIps companies
seIecl securilies vilh appropriale malurilies, avoid over- or underinvesling, and
maximize prols from inveslmenls.
4. Mainiain gcc! |ank rc|aiicns. The forecasl heIps oplimize reIalionships vilh banks
by indicaling lhe highs and Iovs of cash and lhe liming of ils ov inlo and oul of
lhe company coers. Wilh lhis informalion, lhe company lreasurer can lake sleps lo
ensure lhal bank baIances become neilher loo Iov (lo lhe dissalisfaclion of lhe banks)
nor loo high (so lhal cash is Iying around idIe).
A I R T R A N S P O R TAT I O N 4 5 2
5. Prcti!c a |asis jcr ncniicring nanu iicns cn inc |a|ancc sncci. This ensures achievemenl
of goaIs and prudenl nanciaI adminislralion.
Icng-icrn casn jcrccasis shov lhe eecl of proposed Iong-range pIans, nev equipmenl
requiremenls, debl reliremenl, and Iong-range grovlh on lhe company baIance sheel
5 or even 10 years in lhe fulure. The Iong-range forecasl is used primariIy lo do lhe
foIIoving:
1. Appraisc prcpcsc! capiia| prcjccis. The forecasl shovs vhelher enough cash viII be
generaled inlernaIIy lo supporl lhe vorking capilaI requiremenls of fulure operalions
and inveslmenls. Il indicales vhen lhe company viII probabIy run oul of cash, and
vhy. Il aIso shovs hov much musl be borroved and for hov Iong il viII be needed.
Il lhus heIps managemenl evaIuale and approve, defer, change, or abandon various
equipmenl programs or pro|ecls in Iighl of lhe companys anlicipaled cash and in-
vesled-capilaI posilion.
2. Prcti!c injcrnaiicn ncc!c! ic csia||isn a nancing p|an an! arrangc jcr |cng-icrn
nancing. The nancing pIan, of course, musl incIude carefuI consideralion of
capilaI slruclure, dividend poIicy, and lhe companys obIigalions lo exisling Ienders
and equily inveslors. Once a decision has been reached lo pursue a course of aclion
lhal viII require Iong-lerm nancing, lhe Iong-range cash pro|eclion is vaIuabIe in
oblaining a salisfaclory Ioan. A delaiIed Iong-range cash pIan lhal shovs hov much
money viII be required, vhen il viII be needed, and al vhal rale il viII be repaid nol
onIy provides lhe Iender vilh imporlanl informalion bul aIso, if il is reaIislic, indicales
compelenl nanciaI managemenl and heIps lo oblain lhe Ioan on more IiberaI lerms.
Il shouId be noled in cIosing lhal any forecasl, vhelher shorl range or Iong range, musl
be updaled periodicaIIy and monilored conlinuaIIy. Nolhing is permanenl bul change,
and lhe vaIue of cash forecasling depends on keeping abreasl of change.
KEY TERMS
nel earnings progress paymenl
deprecialion operaling Iease
deferred laxes nanciaI (capilaI) Iease
debl nancing venlure capilaI
equily nancing baIance sheel
shorl-lerm Ioan assels
Iong-lerm Ioan IiabiIilies
cash ov nel vorlh
Iine of credil debenlure
equipmenl lrusl nancing currenl ralio
common slock Iong-lerm debl/equily ralio
preferred slock relurn on inveslmenl (ROI)
bond cash budgel
C H A P T E R 1 5 A I R L I N E F I N A N C I N G 4 5 3
REVI EW QUESTI ONS
1. Discuss lhe reIalionship belveen prolabiIily and nancing capilaI needs during lhe
1990s and earIy 2000s. Whal is meanl by !cprcciaiicn? y !cjcrrc! iaxcs? Hov does one
dislinguish belveen !c|i nancing and cuiiu nancing?
2. Why have commerciaI banks lradilionaIIy been in lhe shorl-lerm Iending markel`
Whal is a |inc cj crc!ii? Whal is an cuipncni irusi? Whal is ils ma|or advanlage`
3. Why did lhe Iife insurance companies in parlicuIar become a ma|or Iending source in
lhe earIy 1970s` Whal are inveslmenl banks` Whal is lhe dierence belveen common
slocks and preferred slocks` Hov do lhey dier from bonds`
4. Why has Ieasing become such an imporlanl source of funding for lhe airIines` Give
four advanlages of Ieasing. Whal is ils ma|or disadvanlage` Dislinguish belveen
cpcraiing |cascs and capiia| |cascs.
5. Whal is meanl by tcniurc capiia|? Why has lhis source of funding become parlicuIarIy
imporlanl lo lhe never carriers` Who provided lhe backing for lhe earIier venlure
capilaI groups`
6. Dene |a|ancc sncci. asscis. |ia|i|iiics. and nci ucrin. Whal is incIuded under lhe assels
porlion of an airIines baIance sheel` Under lhe IiabiIilies porlion`
7. Whal vere lhe ma|or sources and uses of funds according lo lhe induslrys baIance
sheels during lhe periods 196066, 196671, 197176, 197681, 198186, 198691,
199197 and 19972004` Whal is a ccntcrii||c !c|cniurc?
8. In Iighl of lhe demand for capilaI funds by lhe airIines during lhe 1990s and earIy
2000s, hov does lhe nanciaI communily viev lhe induslry as a vhoIe` Why vas
lhe nanciaI communily generaIIy againsl dereguIalion` Dene |cng-icrn !c|i/cuiiu
raiic. currcni raiic. and rciurn cn intcsincni (|O|).
9. CIassify lhe ma|or carriers in lerms of lheir abiIily lo nance lheir capilaI needs in lhe
2000s. Whal are some of lhe aIlernalives for capilaI-conslrained carriers` Summarize
severaI of lhe ma|or poinls regarding airIine funding sources.
10. In your opinion, does lhe induslry have lhe nanciaI capabiIily for eel repIacemenl
and expansion in lhe earIy 2000s and beyond`
11. Why is having loo much cash on hand aImosl as bad as nol having enough` Why
is lhe nanciaI communily concerned aboul lhe cash posilion of lhe carriers` Hov
much cash shouId an airIine have on hand` Whal is meanl by casn cu? Give severaI
appIicalions of shorl-lerm and Iong-lerm cash forecasls.
A I R T R A N S P O R TAT I O N 4 5 4
WEB SI TES
hp://vvv.gecas.com
hp://vvv.avas.com
hp://vvv.iIfc.com
SUGGESTED READI NGS
Air Transporl Associalion of America. Annua| |cpcri. Washinglon, D.C.: ATA, various years, 1960
2001.
HoIIovay, Slephen. Air |inancc. Aircrah Acuisiiicn |inancc an! Air|inc Crc!ii Ana|usis. MeIbourne,
IIa: Krieger, 1992.
HoIIovay, Slephen. Siraigni an! Ictc|. Praciica| Air|inc |ccncnics. London: Ashgale, 1997.
MorreII, Ieler S. Air|inc |inancc. AIdershol, IngIand: Ashgale, 1997.
Tane|a, NavaI K. Air|inc P|anning. Ccrpcraic. |inancia|. an! Markciing. Lexinglon, Mass.: Healh, 1982.
Tane|a, NavaI K. Tnc Ccnncrcia| Air|inc |n!usiru. Lexinglon, Mass.: Healh, 1976.
Van Horne, I. S. |inancia| Managcncni an! Pc|icu (4lh ed.). IngIevood CIis, N.I.:
Irenlice-HaII, 1977.
Wensveen, Iohn. Wncc|s Up. Air|inc Busincss P|an Octc|cpncni. eImonl, CA: Thomson rooks/CoIe,
2005.
C H A P T E R 1 5 A I R L I N E F I N A N C I N G 4 5 5
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PART FOUR
The International
Scene
457
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16
International Aviation
Introduction
The Question of Sovereignty in Airspace
International Air Law
The Formation of IATA
The Bermuda Agreement of 1946
Three Decades Later: From Bermuda to
Deregulation
The Pursuit of Open Skies
Globalization
Future Challenges
Chapter Checklist You Should Be Able To:
Dene sctcrcigniu cj airspacc. and dislinguish belveen
lhe lvo principaI lheories heId by earIy inlernalionaI
|urisls
Discuss lhe ma|or provisions of lhe Iaris Convenlion
Undersland lhe purpose of inlernalionaI air Iav
IxpIain lhe imporlance of lhe Warsav Convenlion
Discuss lhe ma|or arlicIes of lhe Chicago Conference,
and describe lhe ma|or purpose of ICAO
Discuss lhe eighl freedoms of lhe air
Describe lhe Cnicagc sian!ar! jcrn
Discuss some of lhe ma|or changes in inlernalionaI
avialion over lhe pasl lhree-pIus decades
IxpIain currenl U.S. poIicy on inlernalionaI avialion
Discuss some of lhe faclors underIying lhe movemenl
lovard gIobaIizalion in inlernalionaI avialion,
incIuding airIine aIIiances and airporl aIIiances

459
INTRODUCTION
Today, approximaleIy 100 years aher a fraiI crah made of melaI, vood, and fabric slruggIed
inlo lhe air and carried a singIe passenger 120 feel, lhe vorId is enveIoped by a nelvork
of air roules. In 1945, 9 miIIion passengers lraveIed by air, vhich represenled Iess lhan
one-haIf of 1 percenl of lhe vorIds popuIalion al lhal lime. Iihy years Ialer, over 1.25
biIIion passengers vere carried, equivaIenl lo approximaleIy 25 percenl of lhe vorIds
popuIalion. The air has IileraIIy become a highvay for vorId commerce.
This deveIopmenl of lhe airpIane inlo a ma|or inslrumenl of lransporlalion has
broughl vilh il inlernalionaI probIemslhe coordinalion of operalionaI lechniques
and Iavs and lhe disseminalion of lechnicaI and economic informalionfar beyond lhe
abiIily of individuaI governmenls lo soIve. The need for safe, reIiabIe air lransporlalion
invoIves buiIding airporls, seing up navigalion aids, and eslabIishing vealher reporling
syslems. The slandardizalion of operalionaI praclices for inlernalionaI services is of
fundamenlaI imporlance so lhal no error is caused by misunderslanding or inexperience.
The eslabIishmenl of such slandards or ruIes of lhe air, of air lrafc conlroI, of personneI
Iicensing, and of lhe design of airpIanes and airporls, as veII as olher consideralions of
prime imporlance lo lhe safely and economic viabiIily of inlernalionaI avialion, aII require
more lhan nalionaI aclion.
THE QUESTION OF SOVEREIGNTY IN AIRSPACE
As lhe airpIane deveIoped during lhe rsl decade of lhe 20lh cenlury, lhe sovereignty of
airspace above nalions became an issue. ShouId airspace above a nalion be considered
vilhin lhe sovereignly of each nalion, or shouId airspace, Iike lhe high seas, be considered
inlernalionaI` ShouId each nalion have sovereignly over lhe airspace above il for a
Iimiled dislance from lhe surface of lhe earlh, and shouId lhe airspace above lhis Iimil be
considered free airspace` ShouId lhere be compIele freedom in airspace`
Tvo principaI lheories of nalionaI sovereignly of airspace vere advocaled by
inlernalionaI |urisls. One heId lhal lhe air is free and lherefore lhal individuaI slales have
no aulhorily over il, eilher in lime of peace or in lime of var, excepl vhen necessary for seIf-
preservalion. The olher heId lhal lhe individuaI slales indeed have a righl of sovereignly
over lhe airspace above lheir soiI. They cIaimed lhal aircrah ying onIy a fev miIes over
lhe Iand are in a posilion lo observe, pholograph, and olhervise oblain dala lhal mighl be
used lo lhe disadvanlage of lhe nalion over vhich lhe aircrah are ovn.
The advocales of lhe freedom of airspace conlended lhal lheir approach vouId promole
inlernalionaI air commerce and peace lhroughoul lhe vorId. The opponenls of lhe free-
air lheory argued lhal lhe concepl of free airspace above nalions vas incompalibIe vilh
nalionaI sovereignly and vouId lhrealen nalionaI inleresls and securily.
Al lhe cIose of WorId War I in November 1918, lhe probIems of inlernalionaI air conlroI
became imporlanl sub|ecls of negolialion al lhe peace conference. The secrelary of lhe Inler-
AIIied Avialion Commiee proposed lhal lhe commiee be consliluled as an organizalion
for inlernalionaI air reguIalion. This aclion vas approved by lhe represenlalives of lhe
aIIied nalions al lhe peace conference.
A I R T R A N S P O R TAT I O N 4 6 0
Tnc Pari s Ccntcnii cn cj 1919
Represenlalives from lhe aIIied and associaled nalions mel in Iaris in 1919 and formed lhe
InlernalionaI Commission for Air Navigalion and enacled lhe InlernalionaI Air Navigalion
Code, usuaIIy referred lo as lhe Iaris Convenlion of 1919. The drahing of lhe convenlion
vas underlaken excIusiveIy by lhe aIIied and associaled povers. The var experiences and
lhe unily of lhe aIIies lended lo promole agreemenl among lhem and made possibIe lhe
reconciIialion of lhe divergenl vievs regarding lhe queslion of sovereignly of airspace.
The InlernalionaI Commission for Air Navigalion drev up a Iisl of principIes lo govern
lhe drahing of lhe convenlion lhal incIuded lhe foIIoving:
1. The recognilion of lhe principIe of lhe fuII and absoIule sovereignly of each slale over
lhe air above ils lerrilories and lerriloriaI valers, carrying vilh il lhe righl of excIu-
sion of foreign aircrah and lhe righl of each slale lo impose ils |urisdiclion over lhe air
above ils lerrilories and lerriloriaI valers
2. The recognilion of lhe desirabiIily of lhe grealesl freedom of inlernalionaI air navigalion
sub|ecl lo lhe principIe of sovereignly, insofar as lhis freedom is consislenl vilh lhe
securily of lhe slale and vilh lhe enforcemenl of reasonabIe reguIalions reIalive lo lhe
admission of aircrah of lhe conlracling slale and vilh lhe domeslic IegisIalion of lhe
slale
3. The recognilion lhal lhe admission and lrealmenl of lhe aircrah of lhe conlracling
slales vas lo be governed by lhe recognilion of lhe principIe of lhe absence of aII
discriminalion on lhe ground of nalionaIily
4. The recognilion of lhe principIe lhal every aircrah musl possess lhe nalionaIily of lhe
conlracling slale onIy and lhal every aircrah musl be enlered upon lhe regisler of lhe
conlracling slale vhose nalionaIily il possesses
The foIIoving provisions vere recognized as desirabIe from an inlernalionaI poinl of
viev lo ensure lhe safe conducl of air navigalion:
1. The requiremenl of a compuIsory cerlicale of airvorlhiness and Iicenses for vireIess
equipmenl, al Ieasl of aircrah used for commerciaI purposes: muluaI recognilion of
lhese cerlicales and Iicenses by lhe conlracling slales
2. The requiremenl of compuIsory Iicenses for piIols and olher personneI in charge of
aircrah: muluaI recognilion of lhese Iicenses by lhe conlracling slales
3. InlernalionaI ruIes of lhe air, incIuding inlernalionaI ruIes for signaIs, Iighls, and lhe
prevenlion of coIIisions: reguIalions for Ianding and for procedures on lhe ground
Among lhe principIes adopled lo guide lhe convenlion vere lhe foIIoving:
1. SpeciaI lrealmenl for miIilary, navaI, and slale aircrah vhen lhey are in governmenl
service
C H A P T E R 1 6 I N T E R N AT I O N A L AV I AT I O N 4 6 1
2. The righl of lransil vilhoul Ianding for inlernalionaI lrafc belveen lvo poinls
oulside lhe lerrilory of a conlracling slale, sub|ecl lo lhe righl of lhe slale lransversed
lo reserve lo ilseIf ils ovn inlernaI commerciaI lrafc and lo compeI Ianding of any
aircrah ying over il by means of appropriale signaIs
3. The righl of use, by lhe aircrah of aII conlracling slales, of aII pubIic airporls, on lhe
principIe lhal charges for Ianding faciIilies shouId be imposed vilhoul discriminalion
on lhe grounds of nalionaIily
4. The principIe of muluaI indemnily belveen lhe conlracling slales lo cover damage
done lo anolher slale
5. The necessily of a permanenl inlernalionaI aeronaulicaI commission
6. The obIigalion of each conlracling slale lo give eecl lo lhe provisions of lhe convenlion
by ils domeslic IegisIalion
7. The principIe lhal lhe convenlion does nol aecl lhe righls and dulies of beIIigerenls
or neulraIs in lime of var
These principIes served as guides lo lhree subcommissionsone on lechnicaI probIems,
anolher on IegaI probIems, and a lhird on miIilary aairslhal drahed lhe lexl of lhe
convenlion and ils annexes. On Oclober 13, 1919, lhe convenlion, vilh ils annexes, vas
naIIy agreed upon, adopled, and opened lo signalure by lhe represenlalives of lhe 32
aIIied and associaled povers represenled al lhe peace conference.
The ruIes and reguIalions incorporaled in lhe InlernalionaI Convenlion for Air
Navigalion vere adopled by lhe principaI Iuropean nalions. The 34 arlicIes covered lhe
reservalion of lhe sovereignly of airspace by lhe conlracling nalions: each nalions regislry
of aircrah: lhe issuance of cerlicales of airvorlhiness and compelence by each conlracling
nalion: lhe ighl of aircrah across foreign lerrilory: inlernalionaI aircrah navigalion ruIes:
prohibilion of lhe lransporlalion of arms, expIosives, and pholographic equipmenl by
aircrah: and lhe eslabIishmenl and mainlenance of a permanenl commission for air
navigalion.
The suppIemenlary annexes deaIl vilh lechnicaI maers and olher sub|ecls apl lo
require more frequenl changes, because of changing condilions in air navigalion, lhan lhe
arlicIes of lhe convenlion. The annexes covered such issues as reguIalions for cerlicales
of airvorlhiness, Iogbook reguIalions, Iighl and signaI ruIes, piIol and navigalor Iicense
reguIalions, inlernalionaI aeronaulicaI maps and ground markings, lhe coIIeclion and
dislribulion of meleoroIogicaI informalion, and nalionaI cusloms reguIalions.
Tnc Hatana Ccntcnii cn cj 1928
Al lhe Iihh Ian-American Conference, in 1923, an Inler-American CommerciaI Avialion
Commission vas appoinled lo drah a code of Iavs and reguIalions, lhe adoplion of vhich
vas recommended lo aII lhe nalions in lhe Americas. These ruIes deaIl vilh commerciaI
avialion, lhe delerminalion of air roules, lhe eslabIishmenl of speciaI cusloms procedures
for avialion, lhe delerminalion of adequale Ianding poIicies, and recommendalions vilh
respecl lo lhe pIaces al vhich Ianding faciIilies shouId be eslabIished.
A I R T R A N S P O R TAT I O N 4 6 2
INTERNATIONAL AIR LAW
Wilh lhe expansion of commerciaI avialion aher WorId War I, lhe need lo drah an
inlernalionaI code of reguIalions lo govern commerciaI avialion became apparenl.
CommerciaI avialion, Iike aII olher means of lransporlalion, invoIves many difcuIl IegaI
probIems, incIuding lhe righls and dulies of shippers and carriers and lhe queslions of
carrier IiabiIily. These queslions vere handIed al lhe oulsel by appIying lhe Iavs of lhe
severaI nalions, bul lhe Iack of uniformily among lhe commerciaI Iavs of dierenl counlries
consliluled a formidabIe obslacIe lo inlernalionaI commerce and lransporlalion by air. In
response lo lhis need, severaI imporlanl inlernalionaI organizalions sponsored movemenls
seeking lhe inlernalionaI codicalion of commerciaI avialion Iav.
The rsl organized demand for lhe promolion of an inlernalionaI conference lo drah
a code of privale inlernalionaI avialion Iav vas made by lhe InlernalionaI Chamber of
Commerce. In ils conferences in 1923 and 1925, lhis organizalion adopled a resoIulion
caIIing lhe aenlion of lhe pubIic lo lhe need for lhe eslabIishmenl of a uniform code of
inlernalionaI conlroI over privale commerciaI navigalion.
The need for inlernalionaI privale Iav vas recognized by lhe Irench governmenl as
veII. Irance issued a caII lo lhe nalions of lhe vorId lo meel for lhe purpose of considering
a convenlion lhal vouId reguIale lhe carriers and shippers in inlernalionaI air lrafc and
codify lhe privale inlernalionaI Iav of lhe air, comparabIe lo lhe Iaris Convenlion of 1919
in lhe sphere of pubIic inlernalionaI Iav. This proposaI of lhe Irench governmenl vas
accepled, and represenlalives of 43 nalions mel in Iaris in 1925.
The conference made severaI amendmenls lo lhe drah convenlion prepared previousIy
by lhe Irench governmenl. Il did nol adopl lhe drah as amended, bul Ieh il for furlher
sludy by lhe represenlalives of lhe respeclive governmenls and naI discussion al a
second inlernalionaI conference, lo be convened Ialer. Al lhe same lime, lhe conference
eslabIished lhe InlernalionaI Commiee of TechnicaI Ixperls on Air Iurisprudence
(Comile InlernalionaI Technique dIxperls Iuridiques Aeriens), vilh headquarlers in
Iaris, lo oversee lhe conference proceedings, and especiaIIy lhe sludy of lhe possibIe codi-
calion of aeriaI Iav.
The commiee, popuIarIy caIIed CITIIA, made a vaIuabIe conlribulion lo lhe naI
codicalion of lhe privale inlernalionaI air Iav as il vas adopled in a convenlion by lhe
conference in Warsav, IoIand, in 1929. The commiee carefuIIy drahed lhe pro|ecls of
lhe convenlion lhal had been proposed by lhe experls represenling many nalions and
sludied and crilicized by lhe various governmenls. The vievs of lhe various governmenls
vere exchanged, and lhe lexl of lhe convenlion vas modied lo meel lhe divergenl
vievs. During lhe nexl four years, lhe commiee proceeded sleadiIy lovard lhe goaI of
codicalion. Aher four sessions heId belveen 1926 and 1929, lhe naI drah of lhe codied
privale inlernalionaI air Iav vas adopled al lhe Second InlernalionaI Conference of Irivale
Air Lav, vhich mel in Warsav in 1929.
The CommerciaI Avialion Commission mel in May 1927, al lhe Ian American Union in
Washinglon, and prepared a drah of lhe code, vhich vas revised by lhe direclor-generaI
of lhe union and submied lo lhe Sixlh Ian-American Conference, vhich mel in Havana
in 1928. The Havana Convenlion incIuded mosl of lhe basic lenels eslabIished by lhe
Iaris Convenlion. The drah vas adopled, vilh some minor modicalions, and signed by
represenlalives of lhe 20 slales of lhe Ian American Union.
C H A P T E R 1 6 I N T E R N AT I O N A L AV I AT I O N 4 6 3
Tnc Warsau Ccntcnii cn cj 1929
The convenlion for lhe unicalion of cerlain ruIes reIaling lo inlernalionaI air lransporlalion
appIies lo any inlernalionaI lransporlalion of persons, baggage, or merchandise by aircrah
for compensalions. Il is commonIy caIIed lhe Warsav Convenlion of 1929. The Uniled
Slales has been a parly lo il since 1934.
The convenlion dened inlernalionaI lransporlalion as any lransporlalion belveen
lvo poinls in dierenl conlracling counlries, irrespeclive of an inlerruplion of lhe
lransporlalion or lransshipmenls, and aIso as any lransporlalion belveen lvo poinls in
lhe lerrilory of one slale vhen a slop is made in anolher counlry or counlries en roule.
The Warsav Convenlion provided lhal an air carrier vas IiabIe for damages in lhe
evenl of (1) dealh or in|ury lo passengers, (2) deslruclion or Ioss of or damage lo baggage
or goods, or (3) Ioss resuIling from deIay in lhe lransporlalion of passengers, baggage, or
merchandise. The Iimil of IiabiIily vilh respecl lo passengers on inlernalionaI ighls vas
sel al $8,300. The convenlion aIso sel slandards for passenger lickels, cargo vaybiIIs, and
olher air lraveI documenlalion.
Signed on Oclober 12, 1929, lhe Warsav Convenlion has become one of lhe mosl
imporlanl documenls in inlernalionaI commerciaI air lransporlalion. The convenlion
vas amended on Seplember 28, 1955, in The Hague, NelherIands, vhere a dipIomalic
conference vas heId primariIy lo discuss lhe Iimils of IiabiIily. The Hague IrolocoI lo lhe
Warsav Convenlion, as il is caIIed, doubIed lhe monelary Iimil lo $16,600 as a maximum
recovery for dealh and exlended lo agenls of lhe carrier lhe Iimil of IiabiIily provided lo
lhe carrier.
A dipIomalic conference, heId in GualemaIa Cily in 1971, adopled a far-reaching revision
of lhe provisions of lhe Warsav Convenlion and lhe Hague IrolocoI. Among olher lhings,
lhe GualemaIa Cily IrolocoI provided for absoIule IiabiIily (no proof of negIigence) on lhe
parl of lhe air carrier: an unbreakabIe Iimil lo a carriers IiabiIily of a maximum amounl
of $100,000 per person: a domeslic syslem lo suppIemenl, sub|ecl lo specied condilions,
lhe compensalion payabIe lo cIaimanls under lhe convenlion vilh respecl lo lhe dealh
of or in|ury lo passengers: a seIemenl inducemenl cIause: conferences for lhe purpose
of revieving lhe passenger Iimil: and an addilionaI |urisdiclion for suils perlaining lo
passengers and baggage.
Tnc Cni cagc Ccnj crcncc cj 1944
WorId War II had a lremendous impacl on lhe lechnicaI deveIopmenl of air lransporlalion.
A vasl nelvork of passenger and freighl carriage vas sel up, bul lhere vere many probIems,
bolh poIilicaI and lechnicaI, lo vhich soIulions had lo be found lo benel and supporl a
vorId al peace. There vas lhe queslion of commerciaI righlsvhal arrangemenls vouId
be made for airIines of one counlry lo y inlo and lhrough lhe lerrilories of anolher` Olher
concerns cenlered on lhe IegaI and economic conicls lhal mighl arise vilh peacelime
ying across nalionaI borders, such as hov lo mainlain exisling air navigalion faciIilies,
many of vhich vere Iocaled in sparseIy seIed areas. efore WorId War II, lhe negolialion
of inlernalionaI roules vas Ieh lo lhe individuaI carriers.
The difcuIly of negolialing for each nev roule vas among lhe many reasons lhe Uniled
Slales and some olher nalions vere anxious for a modicalion of lhe inlernalionaI Iav of
civiI avialion. In earIy 1944, lhe U.S. governmenl issued invilalions lo lhe InlernalionaI
Conference on CiviI Avialion, ohen caIIed lhe Chicago Conference. Represenlalives of 52
A I R T R A N S P O R TAT I O N 4 6 4
nalions assembIed in Chicago in November 1944. AIlhough inviled, lhe Soviel Union did
nol send represenlalives lo lhe conference.
The preambIe lo lhis conference slaled lhal ils purpose vas lo fosler deveIopmenl of
inlernalionaI civiI avialion in a safe and orderIy manner and lo eslabIish inlernalionaI
air lransporl service on lhe basis of equaIily of opporlunily and sound and economicaI
operalion. The rsl of lhe 96 arlicIes of lhe agreemenl made lhe usuaI granl lo each slale
of compIele and excIusive sovereignly over lhe airspace above ils lerrilory. The righl of
lransil over lhe conlracling siles and lhe righl lo Iand in a foreign slale vas made avaiIabIe
lo aircrah on nonscheduIed ighls, vhiIe scheduIed services vere required lo secure prior
aulhorizalion. Iach slale vas granled lhe righl lo reserve lo ils ovn airIines avialion
lrafc excIusiveIy vilhin ils ovn borders.
The conference eslabIished lhe appIicalion of cusloms reguIalions and nalionaI lrafc
ruIes lo aircrah in inlernalionaI ighl, bound lhe slales lo lake eeclive measures lo
prevenl lhe spread of disease by air, and granled lo each nalion lhe righl of reasonabIe
search of arriving and deparling aircrah. Among lhe measures provided lo faciIilale air
navigalion vere ruIes for avoiding deIays in immigralion, quaranline, cusloms, and
cIearance. Aircrah in lransil and lheir normaI suppIies of fueI and oiI vere exempled
from IocaI dulies or charges, and aircrah and suppIies vere made safe from seizures
on palenl cIaims. Iach slale underlook, so far as il may nd praclicabIe, lo adopl
such slandard procedures on airporl conlroI, radio services, navigalionaI faciIilies, use
of signaIs, pubIicalion of maps, and simiIar maers as il vas conlempIaled vouId be
recommended under lhe lerms of lhe conference.
The conference specied lhal an aircrah engaged in inlernalionaI ighl musl carry
cerlain documenls, incIuding cerlicales of regislralion and airvorlhiness, Iicenses for
crev members, a Iogbook, and passenger or cargo manifesls. The carriage of munilions
vas prohibiled, and il vas specied lhal a slale mighl reslricl lhe carriage of olher arlicIes
if lhese reguIalions are appIied uniformIy lo lhe aircrah of aII olher slales.
The conlracling slales vere required lo underlake lo secure lhe highesl degree of
uniformily in compIying vilh inlernalionaI slandards and praclices, as mighl from lime
lo lime seem appropriale, vilh respecl lo lhe foIIoving:
1. Communicalions syslems and air navigalion aids, incIuding ground marking
2. Characlerislics of airporls and Ianding areas
3. RuIes of lhe air and air lrafc conlroI praclices
4. Licensing of operaling and mechanicaI personneI
5. Airvorlhiness of aircrah
6. Regislralion and idenlicalion of aircrah
7. CoIIeclion and exchange of meleoroIogicaI informalion
8. Logbooks
9. AeronaulicaI maps and charls
C H A P T E R 1 6 I N T E R N AT I O N A L AV I AT I O N 4 6 5
10. Cusloms and immigralion procedures
11. Aircrah in dislress and invesligalion of accidenls, and olher maers concerning lhe
safely, reguIarily, and efciency of air navigalion
Formation of ICAO. The Chicago Conference eslabIished lhe InlernalionaI CiviI
Avialion Organizalion (ICAO), composed of an AssembIy, a CounciI, and such olher
bodies as may be necessary lo fosler lhe pIanning and deveIopmenl of inlernalionaI air
lransporl in accordance vilh cerlain enumeraled principIes. IermanenlIy headquarlered
in MonlreaI, ICAO is charged vilh lhe adminislralion of lhe arlicIes dravn up al lhe
conference (see Chapler 3).
The ICAO assembIy is composed of one represenlalive from each conlracling slale. Al
ils annuaI meelings, il may deaI vilh any maer vilhin lhe scope of lhe organizalion nol
specicaIIy assigned lo lhe counciI. Il aIso eIecls lhe counciI and iniliales amendmenls.
There are cIose lo 200 members loday.
The counciI members, originaIIy composed of 21 conlracling slales, are eIecled by lhe
assembIy for lhree-year lerms. The counciI is charged vilh lhe eslabIishmenl of an air
lransporl commiee and an air navigalion commission, lhe coIIeclion and pubIicalion of
informalion on inlernalionaI air services, lhe reporling of infraclions, and lhe adoplion
of inlernalionaI slandards and praclices lo be designaled as annexes. The air navigalion
commission acls mainIy in lechnicaI maers, considering modicalions of lhe annexes
and coIIecling usefuI informalion. The generaI expenses of ICAO are apporlioned
among lhe various slales, and each slale pays lhe expenses of ils ovn deIegalion lo lhe
organizalion.
The Chicago Conference of 1944 specicaIIy slaled lhal il superceded lhe Havana and
Iaris convenlions. Il aIso slipuIaled lhal aII exisling aeronaulicaI agreemenls and lhose
subsequenlIy conlracled shouId be regislered vilh lhe counciI of ICAO and lhal lhose
lhal are inconsislenl vilh lhe lerms of lhe convenlion shouId be abrogaled.
Dispules may be seIed by reference lo lhe Iermanenl Courl of InlernalionaI Iuslice or
a speciaI arbilralion lribunaI. Inforcemenl is founded on lhe pover lo suspend an airIine
from inlernalionaI operalion or lo deprive a slale of ils voling pover. Hovever, slales may
nol be deprived of lheir freedom of aclion in lhe evenl of var.
The Two Freedoms and Five Freedoms Agreements. The Chicago Conference produced
lvo olher signicanl documenls: lhe InlernalionaI Air Services Transil Agreemenl, vhich
became knovn as lhe Two Freedoms Agreement, and lhe InlernalionaI Air Transporl
Agreemenl, or lhe Five Freedoms Agreement.
The Tvo Ireedoms Agreemenl provided lhal each conlracling slale granl lo lhe olher
conlracling slales lhe foIIoving freedoms of lhe air vilh respecl lo scheduIed inlernalionaI
air services: (1) lhe priviIege of ying across ils lerrilory vilhoul Ianding and (2) lhe priviIege
of Ianding for nonlrafc purposes. The addilionaI freedoms sel forlh in lhe InlernalionaI
Air Transporl Agreemenl vere (3) lhe priviIege of puing dovn passengers, maiI, and
cargo laken on in lhe lerrilory of lhe slale vhose nalionaIily lhe aircrah possesses, (4) lhe
priviIege of picking up passengers, maiI, and cargo deslined for lhe lerrilory of lhe slale
vhose nalionaIily lhe aircrah possesses, (5) lhe priviIege of picking up passengers, maiI,
and cargo deslined for lhe lerrilory of any olher conlracling slale, and (6) lhe priviIege of
puing dovn passengers, maiI, and cargo coming from any such lerrilory.
A I R T R A N S P O R TAT I O N 4 6 6
These addilionaI freedoms, in eecl, vouId have eIiminaled lhe need for speciaI
negolialions in lhe conducl of inlernalionaI air lransporlalion. UnforlunaleIy, lhe Iive
Ireedoms Agreemenl did nol receive supporl from lhe represenlalives. The Uniled Slales
vas among lhe originaI signers of lhe Iive Ireedoms documenl, bul lhe Slale Deparlmenl
subsequenlIy gave nolice of U.S. vilhdravaI. The Tvo Ireedoms Agreemenl, on lhe olher
hand, received fairIy vide acceplance by various nalions. Today, lhere are a lolaI of nine
freedoms (see Iigure 16-1).
An imporlanl achievemenl of lhe Chicago Conference vas lhe adoplion of a slandard
form of air lransporl agreemenl lhal has inuenced aII subsequenl biIaleraI negolialions
conducled. Since lhe Chicago Conference, lhe Uniled Slales has concIuded arrangemenls
vilh a number of counlries for lhe operalion of inlernalionaI American-ag services. Mosl
of lhese are bilateral agreements, some based on lhe so-caIIed Chicago slandard form and
olhers on lhe so-caIIed ermuda principIes (lo be discussed shorlIy).
On Oclober 15, 1943, lhe Deparlmenl of Slale and lhe CA issued a |oinl slalemenl
reIalive lo lhe deveIopmenl of American-ag air services in lhe inlernalionaI eId. This
slaled lhal lhe CA vouId cerlicale nev American-ag air services lo foreign counlries,
lhal corresponding air righls vouId be negolialed by lhe Slale Deparlmenl in cIose
coIIaboralion vilh lhe CA, and lhal lhe airIines vouId be cerlicaled by lhe board.
Bilateral Agreements. The Chicago Conference resuIled in various agreemenls and
recommendalions lo faciIilale lhe exlension of vorId air roules lhrough inlergovernmenlaI
agreemenls. Among lhe documenls vas lhe Chicago slandard form, vhich has been
adopled by lhe Uniled Slales and many olher counlries as a basis for arrangemenls. In
addilion, by virlue of lhe InlernalionaI Air Services Transil Agreemenl, U.S. airIines may
exercise lhe righls of lransil and nonlrafc slops in cerlain olher counlries vilh vhich
biIaleraI agreemenls have nol been concIuded.
The formaI biIaleraI agreemenls negolialed by lhe Uniled Slales achieve lhe primary
purpose of oblaining salisfaclory operaling and lrafc righls lo be exercised by cerlicaled
U.S. airIines on lheir foreign roules. No lvo of lhese agreemenls are idenlicaI, bul lheir
basic simiIarilies are summarized in lhe provisions of lhe Chicago or ermuda lypes of
agreemenls.
Agreemenls concIuded on lhe Chicago slandard form have lhe foIIoving provisions:
1. InlergovernmenlaI exchange of air righls lo be exercised by designaled airIines of lhe
respeclive counlries
2. IquaIily of lrealmenl and nondiscriminalory praclices vilh respecl lo airporl
charges
3. The imposilion of cusloms dulies and inspeclion fees
4. The exemplion from such dulies and charges in cerlain cases
5. MuluaI recognilion of airvorlhiness cerlicales and personneI
6. CompIiance vilh Iavs and reguIalions perlaining lo enlry, cIearance, immigralion,
passporls, cusloms, and quaranline reguIalions
C H A P T E R 1 6 I N T E R N AT I O N A L AV I AT I O N 4 6 7
FIGURE 16-1 The nine freedoms of the air.
Iceland
NWA
United States
First freedom: A carrier may fly over the territory of another nation without landing.
Example: Northwest (NWA) flies from the United States over Iceland to Norway.
Norway
NWA
United States
Third freedom: A carrier may drop off passengers from its own country in another nation.
Example: NWA flies passengers from the United States to Norway.
Norway
NWA
United States
Fourth freedom: A carrier may pick up passengers in another nation and carry them back to
its own country. Example: NWA flies passengers from Norway to the United States.
Norway
Iceland
NWA NWA
United States
Second freedom: A carrier may land in another nation for non-traffic-related purposes; i.e.,
only for a crew change or refueling. Example: NWA flies from the United States to Norway
but lands in Iceland for fuel.
Norway
A I R T R A N S P O R TAT I O N 4 6 8
Ninth freedom: A carrier may operate within a foreign country without continuing service to or from
one's own country (sometimes known as stand alone cabotage. Example: NWA ies between two cities
in Norway.
C H A P T E R 1 6 I N T E R N AT I O N A L AV I AT I O N 4 6 9
THE FORMATION OF IATA
7. ReguIalions perlaining lo ovnership and conlroI of each counlrys air services
8. Regislralion of perlinenl agreemenls vilh ICAO
9. Terminalion of agreemenl on one years nolice
10. Irocedures for amending lhe annexes lo lhe agreemenl
AIlhough lhe biIaleraI agreemenls vary, lhey aII cover lhree fundamenlaI issues: (1)
lhe number of carriers lhal each governmenl can designale lo provide service belveen
lhe counlries, (2) lhe roules lhal each carrier can serve, and (3) lhe governmenls roIe in
approving fares. Some agreemenls Iimil carrier capacily, bul mosl do nol expIicilIy reslricl
lhe number of ighls or lhe lype of equipmenl used by lhe designaled airIines. The DOT
has lhe primary responsibiIily for adminislering inlernalionaI reguIalions and assisls lhe
Slale Deparlmenl in negolialing biIaleraI agreemenls. As of 2006, lhe Uniled Slales has
agreemenls vilh over 70 counlries.
Today, mosl of lhe roules avarded by a biIaleraI agreemenl are lhe so-caIIed lhird-
and fourlh-freedom righls lhal enlaiI lransporlalion of passengers and cargo belveen a
cily in one signalors counlry and a cily in lhe olher signalors counlry. Some agreemenls
aIso provide hh-freedom righls lhal enabIe a carrier lo conlinue an inlernalionaI ighl
lhal originaled in (or is deslined for) lhe carriers home counlry lo anolher foreign
counlry and lo carry IocaI passengers on lhe ighl belveen lhe lvo foreign counlries. An
exampIe vouId be a ighl by a U.S. carrier from Nev York lo London lhal conlinues
lo Iaris and lransporls LondonIaris passengers in addilion lo Nev YorkLondon and
Nev YorkIaris passengers. The Nev YorkLondon ighls vouId be lhird and fourlh
freedoms, and lhe LondonIaris ighls vouId be a hh freedom. A carrier musl secure
lhe necessary operaling righls from ils home counlry, as veII as from bolh foreign
governmenls, in order lo operale hh-freedom service.
Many of lhe biIaleraI agreemenls lhal governed U.S. inlernalionaI avialion lhrough
lhe 1970s vere producls of lhe posl-WorId War II environmenl. The agreemenls gave
lhe Uniled Slales broad aulhorily lo designale carriers lo serve ma|or cilies in foreign
counlries from any poinl in lhe Uniled Slales: severaI of lhe agreemenls aIso avarded lhe
Uniled Slales exlensive hh-freedom righls. In conlrasl, foreign governmenls generaIIy
couId designale carriers lo serve onIy a fev specied U.S. cilies on lhe coasls, and any
beyond service vas very Iimiled. Under lhese agreemenls, carriers needed approvaI of
bolh governmenls lo oer a fare, and fares vere generaIIy eslabIished in carleIs sponsored
by lhe InlernalionaI Air Transporl Associalion (IATA). The U.S. carriers parlicipaled in
lhese fare-seing conferences under a granl of anlilrusl immunily.
In lhe spring of 1945, represenlalives from 31 scheduIed carriers, many of vhom had
aended lhe Chicago Conference, assembIed in Havana lo organize lhe InlernalionaI Air
Transporl Associalion (IATA). Ils broad aims vere lo provide a means for coIIaboralion
among air lransporl enlerprises engaged direclIy or indireclIy in inlernalionaI air lransporl
service: lo promole safe, reguIar, and economicaI air lransporl for lhe benel of lhe peopIe
of lhe vorId: lo fosler air commerce and lo sludy lhe probIems connecled lherevilh: and
A I R T R A N S P O R TAT I O N 4 7 0
lo cooperale vilh ICAO and olher inlernalionaI organizalions. Ils principaI purpose vas
lo address one of lhe probIems lhal Chicago had faiIed lo deaI vilhlhal of fares and
roule slruclures (see Chapler 3).
IATA has a direclor generaI and an execulive commiee made up of airIine execulives
and a presidenl vho presides al lhe annuaI meelings. There are lvo cIasses of air
lransporlalion enlerprises in lhe associalion: lhe voling members, vho are aclive in
inlernalionaI ying, and lhe nonvoling members, vho are nol. When nonvoling members
become aclive in overseas roules, lhey acquire a vole.
There are four permanenl commiees of IATA: (1) lhe Trafc Advisory Commiee,
vhich has |urisdiclion over lhe xing of laris, rales, scheduIes, and olher reIaled issues:
(2) lhe TechnicaI Commiee, vhich is responsibIe for operalions, safely and efciency
of ighl, slandardizalion of equipmenl, and reIaled issues: (3) lhe IinanciaI Commiee,
vhich serves as a cIearinghouse for insurance, inlernalionaI monelary documenls, and
olher simiIar funclions: and (4) lhe LegaI Commiee, vhich has lhe responsibiIily for
inlernalionaI convenlions on pubIic and privale air Iav, arbilralion, and lhe Iike.
olh IATA and ICAO have lheir headquarlers in MonlreaI, bul lhe former associalion
is divided inlo lhree lrafc conferences: (1) lhe Weslern Hemisphere, GreenIand, and lhe
Havaiian IsIands: (2) Iurope, Africa, and lhe MiddIe Iasl, incIuding Iran: and (3) Asia,
AuslraIia, and lhe isIands of lhe Iacic. IATA vorks cIoseIy vilh ICAO and is permied
lo have a represenlalive al lhe meelings of lhe Iaer organizalion and ils commiees.
THE BERMUDA AGREEMENT OF 1946
AIlhough a number of counlries vere viIIing lo concIude biIaleraI arrangemenls vilh lhe
Uniled Slales based on lhe Chicago slandard form, lhere vere fundamenlaI dierences
of opinion among some of lhe counlries represenled al lhe Chicago Conference as lo
hov inlernalionaI air lransporlalion shouId be deveIoped. The Uniled Slales and cerlain
olher counlries favored a reIaliveIy IiberaI approach lo lhe probIem, vilhoul any arbilrary
reslriclions or predelermined formuIas on capacily of aircrah, ighl frequencies, carriage
of so-caIIed hh-freedom lrafc, and xing of rales. Anolher group of counlries, Ied by
lhe Uniled Kingdom, vas nol prepared lo go lhis far and vanled lhese maers reguIaled
lo such an exlenl lhal, in lhe opinion of lhe Uniled Slales and olher counlries, lhe fuII
deveIopmenl of air lransporlalion vouId be hampered.
Hovever, as lhe airIines of lhe Uniled Slales, rilain, and olher counlries became
beer prepared lo oer services lo one anolhers lerrilories, il became obvious lhal
lhese fundamenlaI dierences in air poIicy shouId be reconciIed. AccordingIy, in 1946,
represenlalives of lhe Uniled Slales and rilain mel in ermuda and negolialed a biIaleraI
underslanding lhal is generaIIy knovn as lhe ermuda Agreemenl.
In addilion lo incorporaling lhe Chicago slandard cIauses, lhe ermuda Agreemenl
provided lhal dispules lhal couId nol be seIed lhrough biIaleraI consuIlalion vere lo be
referred lo ICAO for an advisory opinion. Il aIso slipuIaled lhal lhe agreemenl shouId be
revised lo conform vilh any subsequenl muIliIaleraI air pacl lhal mighl be subscribed lo
by bolh counlries.
In conlrasl lo lhe agreemenls concIuded by lhe Uniled Slales before ermuda, lhis
agreemenl nol onIy described lhe exlensive roules and lrafc poinls invoIved bul aIso
sel up a comprehensive procedure for delerminalion of rales lo be charged by airIines
operaling belveen poinls in lhe lvo counlries and lheir lerrilories. Irocedures for rale
C H A P T E R 1 6 I N T E R N AT I O N A L AV I AT I O N 4 7 1
making and for lhe eslabIishmenl of lrafc ruIes vere assigned lo IATA. These rales vere
sub|ecl lo reviev by lhe respeclive governmenls having |urisdiclion. Irovisions vere aIso
made for lhe manner in vhich roule changes vouId be made. And one seclion deaIl vilh
cnangc cj gaugclhal is, vilh lhe carrying onvard of lrafc by aircrah of a dierenl size
from lhal empIoyed on lhe earIier slage of lhe same roule and connecling services.
In addilion, lhe ermuda Agreemenl incIuded a number of coIIaleraI underslandings on
lhe operalion and deveIopmenl of air lransporlalion services belveen lhe lvo counlries.
No arbilrary reslriclions vere pIaced on capacily, ighl frequencies, or hh-freedom
lrafc, bul il vas slipuIaled lhal lhe airIines of one counlry vouId nol lreal lhe airIines
of lhe olher unfairIy. The ermuda Agreemenl vas generaIIy regarded as a salisfaclory
reconciIialion of lhe dierences lhal exisled on inlernalionaI air poIicy belveen lhe Uniled
Slales and lhe Uniled Kingdom aher lhe Chicago Conference. Al lhe lime of ils concIusion,
lhere vas no specic underslanding lhal eilher governmenl vouId insisl on lhis lype
of arrangemenl in ils subsequenl negolialions vilh olher counlries. Hovever, in a |oinl
slalemenl, bolh governmenls agreed lhal experience had demonslraled lhal lhe ermuda
principIes vere sound and provided a reIiabIe basis for lhe orderIy deveIopmenl and
expansion of inlernalionaI air lransporlalion. Il vas furlher agreed lhal lhe ermuda lype
of agreemenl presenled lhe besl form of approach lo lhe probIem of biIaleraI arrangemenls
unliI a muIliIaleraI agreemenl couId be adopled. As a means of furlhering acceplance of
lhe ermuda principIes, lhe |oinl slalemenl aIso menlioned lhal each governmenl vas
prepared, upon lhe requesl of any olher governmenl vilh vhich il had aIready concIuded
a biIaleraI pacl lhal vas nol deemed lo be in accordance vilh lhose principIes, lo make
such ad|uslmenls as mighl be found necessary. The agreemenls concIuded by lhe Uniled
Slales vilh olher counlries since ermuda incIude aII lhe imporlanl Chicago and ermuda
provisions. These agreemenls lolaI over 70 loday.
THREE DECADES LATER: FROM BERMUDA TO
DEREGULATION
Had one Iooked back al lhe ermuda Agreemenl in, say, 1963, one vouId have had lo be
pIeased vilh ils resuIlsnol in every delaiI, bul in overaII eecl. Iuropean (and olher)
airIines had been abIe lo calch up vilh U.S. airIines, bul nol reaIIy al lhe Iaers expense.
The Iack of capacily conlroIs had enabIed lhe oplimism of lhe U.S. carriers and governmenl
lo prevaiI over lhe skeplicism of lhe Iuropeans. igger and beer aircrah vere conlinuaIIy
|oining eels, and lhere vas a generaI dovnvard pressure on fares (compared lo olher
prices) as lhe purchasers of lhe nev pIanes soughl, for lhe mosl parl successfuIIy, lo II
lhem.
Cna| | cngcs ic inc |sia|| i snc! Or!cr. Tnc |ar| u 1970s
y 1975, in lhe conlexl of economic slress, lhe ermuda compromise Iooked very dierenl.
The rsl assumplion lo be lesled vas lhal lhe scheduIed carriers in IATA couId conlroI
fares indenileIy. In lhe spring of 1963, lhere vas a shovdovn of sorls belveen IATA
and lhe U.S. governmenl vhen IATA, backed by lhe Iuropean governmenls, increased
fares (or ralher, reduced lhe round-lrip discounl) al a lime vhen lhe CA lhoughl fares
shouId remain slabIe. IATA slood rm and von lhal ghl, bul al a heavy cosl. The
CAs response, lhough never expIicilIy slaled, vas lo give a big boosl lo a nev cIass of
A I R T R A N S P O R TAT I O N 4 7 2
airIines lhal had nol been considered in lhe originaI agreemenlslhe nonscheduIed or
suppIemenlaI carriers. Iirsl, lhe CA, vilh lhe supporl of Congress, granled permanenl
cerlicales lo many suppIemenlaIs, enabIing lhem lo receive nancing for lhe purchase
of |el aircrah. Second, il permied so-caIIed spIil charlers, vhereby groups as smaII as
40 vere aIIoved lo charler parl of an airpIane. Third, from 1966 on, lhe CA permied
so-caIIed incIusive lour charlers, vhereby lour operalors couId markel vacalion lraveI lo
lhe pubIic al bargain prices, vilhoul requiring lhal lhe passengers beIong lo any cIub or
preexisling group. SuppIemenlaI lransporlalion aracled miIIions of lraveIers lo Iurope
from lhe Uniled Slales, especiaIIy from lhe vesl coasl. The CA, using lhe same approach
lhal il deveIoped in domeslic reguIalion, lried various dislinclions belveen scheduIed
and charler services, such as requiremenls for afnily groups, requiremenls for ground
services and muIlipIe slops in package lours, and advance booking and dovn-paymenl
condilions, aII designed lo encourage crealion of nev markels and lo discourage diversion
from lhe scheduIed carriers.
Aher a vhiIe, lhe CA reaIized lhal lhe pubIic did nol parlicuIarIy care for any of lhe
dislinclions: aII kinds of arrangemenls vere made lo circumvenl lhe requiremenls. ul as
Iong as lhe overaII markel conlinued ils slraighl-Iine grovlh, onIy sporadic enforcemenl
vas underlaken, accompanied by frequenl linkering vilh lhe ruIes. y lhe lime lhe grovlh
began lo IeveI o, |usl as lhe vide-bodied |els arrived, lhe markel had changed, probabIy
irreversibIy. A side eecl vas lhal, aIlhough lhe share of inlernalionaI lrafc carried by
scheduIed U.S. carriers kepl decIining, lhe overaII share of lrafc carried by U.S. carriers
began lo rise again, because lhe suppIemenlaIs vere predominanlIy American.
Among lhe Iuropean counlries, severaI considered Iimiling or conlroIIing charlers,
vhich vere nol provided for in lhe poslvar agreemenls, bul as Iong as aII lhe Iuropean
counlries vere nol uniled, onIy lhose counlries lhal couId counl on a separale and
dislincl markel, such as IsraeI, vere abIe lo avoid lhe charler probIem. Anolher basic
assumplion of lhe inlernalionaI air lransporl syslem had been shaered: much of lhe
lourisl markel, il lurned oul, vas nol a poinl-lo-poinl markel al aII, bul ralher a region-lo-
region markel. If one vanled lo lour Iurope in a renled car, for inslance, or vilh a IuraiI
pass or by hilchhiking, il did nol maer very much vhelher one ev lo Iaris or russeIs
or Amslerdam. And vilhin Iimils, il did nol maer very much vhelher one ev on Iriday
lhe 31sl or Thursday lhe 30lh, or relurned from lhe rsl galevay or from anolher one.
The response of lhe ma|or airIines vas inleresling. Aher arguing unsuccessfuIIy lo lhe
CA lhal air lraveI vas aII one big markel and lherefore lhal expanded charler aulhorily
vouId be IargeIy diversionary, lhe scheduIed inlernalionaI carriers look lhe opposile
approach in lheir ovn pricing poIicy. Irom a basic lvo-cIass fare slruclure, lhey deveIoped
in lhe Iale 1960s and earIy 1970s a scheduIe of fares so compIicaled lhal hardIy anyone
carriers, lraveI agenls, or governmenl reguIalorscouId keep up vilh il. Ixcursion fares,
peak and direclionaI fares, group-incIusive lours (vhich vere neilher incIusive nor
lours), and various fares caIIing for advance booking or paymenl proIiferaled, again vilh
chealing aImosl universaI and nol perceived as vrong and vilh virluaIIy no reIalion
belveen lhe fare paid and lhe cosl of providing lhe service. The ob|eclive vas lo lreal
dierenl demand eIaslicilies dierenlIy, on lhe lheory lhal business lraveIers, vho had lo
lraveI on shorl nolice, vouId be prepared lo pay more lhan vacalioners vilh a xed hoIiday
scheduIe, vho, in lurn, mighl make dovn paymenls or olhervise commil lhemseIves
severaI monlhs in advance. The resuIl ohen vas a reduclion in yieId per passenger nol
made up for by a corresponding increase in lhe number of passengers carried.
C H A P T E R 1 6 I N T E R N AT I O N A L AV I AT I O N 4 7 3
In a sense, one mighl say lhal price compelilion had come lo inlernalionaI avialion, and
specic counlries and airIines became increasingIy sensilive lo lhe prospecls of araclion
or diversion of polenliaI lourisls as lhe resuIl of any given nev fare proposaI. ul under
IATA ruIes, il vas nol possibIe for any singIe carrier or group of carriers lo experimenl
vilh promolionaI fares lo see vhelher lhey crealed nev lrafc or simpIy diIuled lhe
yieId from lhe same passenger vho vouId have lraveIed anyvay. IATA ruIes provided
lhal if one carrier couId oer a speciaI fare, aII couId, and unIess aII vouId do il, none
couId. y lhe earIy 1970s, lhe basic economy fare on vhich lhe syslem in lheory resled
vas paid by Iess lhan 20 percenl of lraveIers across lhe AlIanlic, nol even counling lhe
videspread rebales lo lraveI agenls lhal became ever more videspread as lhe ralio of
xed lo variabIe cosls of air services kepl rising. IronicaIIy, |usl as IATA naIIy decided
lo invile lhe suppIemenlaI carriers lo |oin, Ian American became lhe Iargesl inlernalionaI
charler carrier: TWA vas cIose behind, and many of lhe ma|or Iuropean airIines eilher
look up charlering lhemseIves or deveIoped subsidiaries lo do so.
As Ioad faclors feII on scheduIed services, prols decIined and lhen disappeared
aIlogelher. The advenl of lhe vide-bodies increased capacily, vhiIe lrafc faiIed lo increase
al anylhing Iike lhe rales lhal had been predicled and assumed vilhin lhe induslry al lhe
lime lhe decision vas made lo move lo lhe nev generalion of Iarger aircrah.
AII lhese lrends vere mosl acule in lhe crilicaI Norlh AlIanlic roules, vhich accounl
for over one-lhird of inlernalionaI air lrafc bul vhich provide, for aImosl aII lhe ma|or
airIines of lhe vorId, lhe make-or-break margins of prol and success.
In lhe face of lhe lrends lhal vere evidenl from 1970 on, one mighl have supposed lhal
lhe airIines vouId move lo curlaiI lheir services draslicaIIy and comprehensiveIy. ul no
ma|or airIine vas prepared lo do lhis on ils ovn, Iesl ils compelilors caplure a grealer
share of lhe lrafc. Irom lime lo lime in lhe earIy 1970s, carriers lried lo fashion |oinl
capacilyreslrainl agreemenls. ul lhese agreemenlsfor exampIe, Nev YorkLondon,
Nev YorkRome, or Uniled SlalesSvilzerIandvere ad hoc, shorl-lerm arrangemenls
vilhoul any consislenl formuIa. The CA gave ils approvaI, bul vilh a bad conscience
and in lhe expressed hope lhal overcapacily vas a lemporary phenomenon lhal vouId
soon pass. The prevaiIing doclrine in Washinglon sliII heId lo lhe ermuda Agreemenl
no predelerminalion and no inlerference by governmenls in maers of capacily.
Thus, even before Oclober 1973, lhe basic ermuda slruclure vas under severe slress,
and inlernalionaI avialion vas a sick induslry. The rise in oiI prices in Iale 1973 simpIy
dramalized and made far more acule lhe underIying silualion. Ian Am, Iong lhe pioneer
and paceseer in roules and equipmenl, Iosl over $80 miIIion in 1974, ils sixlh slraighl
year of massive nanciaI selbacks.
MeanvhiIe, fares, vhich had gone dovn overaII belveen 1960 and 1970, rose in lhe
earIy 1970s aImosl as fasl as lhe Consumer Irice Indexin 1974 aIone up 30 percenl on
some roules. U.S. lraveIers sav, lo lheir surprise, lhal Ian Am had vilhdravn from Iaris
and much of lhe Medilerranean, and TWA from Irankfurl and lhe Iacic. Ioreign airIines
vere making simiIar relreals, giving up, for exampIe, hard-von roules lo lhe U.S. vesl
coasl. As nol onIy lhe Uniled Slales bul aIso mosl of lhe non-Communisl vorId experienced
for lhe rsl lime lhe combinalion of inalion and recession, as veII as fueI shorlages, price
increases, and unempIoymenl, an induslry geared IargeIy lo lhe discrelionary consumer
seemed lo be facing a silualion quile dierenl from lhal vhich ils founders in lhe 1940s
had in mind.
A I R T R A N S P O R TAT I O N 4 7 4
The key eIemenls of lhe ermuda Agreemenl, as ve have seen, vere lhal fares vouId
be conlroIIed bul capacily vouId be essenliaIIy unreslrained. Three decades Ialer, il
appeared lhal lhe reverse soIulion mighl be appropriale.
Ncu U. S. Pc| i cu i n |nicrnaii cna| Ati aii cn. Tnc Iaic 1970s
As earIy as 1975, Iresidenl Iord caIIed for reguIalory reform in inlernalionaI avialion.
WhiIe his sleering commiee vas revieving lhe necessary changes in U.S. avialion
poIicy, lhe rilish announced lheir inlenlion lo lerminale lhe ermuda Agreemenl vilh
lhe Uniled Slales, eeclive in Iune 1977. The primary probIem lhal lhe rilish had vas
lhe excessive capacily oered by U.S. carriers on lhe Norlh AlIanlic roule. A compromise
agreemenl vas signed by lhe lvo counlries on IuIy 23, 1977, vhich provided for (1) some
nev carriers lo enler lhe markel vilh lhe underslanding lhal lheir scheduIes vouId be
prescreened by lheir governmenls and (2) governmenl approvaI of proposed fares and
roules aher reviev by IATA. Il vas lhis agreemenl lhal permied Laker Airvays lo enler
lhe markel, vhich gave lhe impelus for lhe inlense compelilion for lhe nexl severaI years
over lhe Norlh AlIanlic.
In 1978, Iresidenl Carlers adminislralion began lo reviev lhe ermuda II Agreemenl,
as il vas commonIy referred lo, as being excessiveIy proleclionisl and providing an unfair
advanlage for lhe rilish carriers. Incouraged by lhe CAs dereguIalion of lhe domeslic
airIine induslry and lhe iniliaI success of Lakers Skylrain service in lhe LondonNev
York markel, lhe Carler adminislralion pushed for a U.S. poIicy based on free-markel
compelilion in lhe inlernalionaI arena. In a lerse slalemenl, lhe adminislralion lhrev oul
lhe concepl of reguIaled compelilion in inlernalionaI markels by pIedging lo vork lo
achieve a syslem of inlernalionaI air lransporlalion lhal pIaces ils principaI reIiance on
acluaI and polenliaI compelilion lo delermine lhe variely, quaIily and price of air service.
An essenliaI means for carrying oul our inlernalionaI air lransporlalion poIicy viII be lo
aIIov grealer compelilive opporlunilies for U.S. and foreign airIines and lo promole nev
Iov-cosl lransporlalion oplions for lraveIers and shippers.
1
In impIemenling ils nev poIicy, lhe Carler adminislralion issued a nev poIicy slalemenl
regarding lhe conducl of lhe Uniled Slales in inlernalionaI avialion. Seven specic goaIs
vouId be soughl in aII fulure negolialions of inlernalionaI agreemenls:
1. A more innovalive and compelilive approach lo pricing lhal vouId meel lhe needs of
dierenl lraveIers and shippers
2. IIiminalion or grealer IiberaIizalion of reslriclions on charler operalions and ruIes
3. IIiminalion of reslriclions on capacily, roule, and operaling righls for scheduIed
carriers
4. IIiminalion of discriminalion and unfair compelilive praclices experienced by U.S.
carriers in inlernalionaI markels
1
Uniled Slales IoIicy for lhe Conducl of InlernalionaI Air Transporlalion Negolialions, 1978, p. 1.
C H A P T E R 1 6 I N T E R N AT I O N A L AV I AT I O N 4 7 5
2
Ior an exceIIenl discussion of lhe pros and cons of currenl U.S. inlernalionaI avialion poIicy, see NavaI K.
Tane|a, U.S. |nicrnaiicna| Atiaiicn Pc|icu (Lexinglon, Mass.: Lexinglon ooks/Healh, 1980), Chap. 3.
5. Designalion of addilionaI U.S. airIines in inlernalionaI markels lhal couId supporl
such service
6. Aulhorizalion of more galevay cilies and improved inlegralion of domeslic and
inlernalionaI service
7. Grealer deveIopmenl of compelilive air cargo services
These poIicy goaIs vere eslabIished lo provide U.S. negolialors vilh guideIines in
formuIaling lheir negolialing ob|eclives. CIearIy, lhe inlenl of U.S. inlernalionaI avialion
poIicy vas lo give consumers lhe mosl compelilive service avaiIabIe.
2
THE PURSUIT OF OPEN SKIES
IrediclabIy, a ghl againsl lhe poIicys impIemenlalion ensued. ul lhe poIicy, unIike ils
predecessors, vas issued independenl of any immediale crisis in inlernalionaI markels
or nanciaI performance of U.S. carriers. The inlroduclion of change vhiIe lhe induslry
vas nanciaIIy slrong acluaIIy faciIilaled lhe process. ImpIemenlalion proceeded al a
rapid pace for al Ieasl a coupIe of years as so-caIIed IiberaI biIaleraI agreemenls vere
negolialed vilh Korea, ThaiIand, Singapore, Taivan, IsraeI, The NelherIands, eIgium,
and, lo a Iesser degree, Germany.
Tnc |nicrnaii cna| Ai r Transpcriaii cn Ccnpcii ii cn Aci cj 1979
The InlernalionaI Air Transporlalion Compelilion Acl of 1979, vhich vas
enacled by Congress on Iebruary 15, 1980, amends lhe IederaI Avialion Acl of 1958 lo
provide compelilion in lhe inlernalionaI markel. asicaIIy, lhe acl is lhe inlernalionaI
counlerparl lo lhe AirIine DereguIalion Acl of 1978 and impIemenls U.S. poIicy in
inlernalionaI avialion. The acls primary ob|eclives are:
1. To slrenglhen lhe compelilive posilion of U.S. carriers lo al Ieasl ensure equaIily
vilh foreign air carriers, incIuding lhe aainmenl of opporlunilies for U.S. carriers lo
mainlain and increase lheir prolabiIily in foreign air lransporlalion
2. To give air carriers (U.S. and foreign) lhe freedom lo oer consumer-orienled fares
and rales
3. To pIace lhe fevesl possibIe reslriclions on charler air lransporlalion
4. To provide lhe maximum degree of muIlipIe and permissive inlernalionaI aulhorily
for U.S. carriers so lhal lhey couId respond quickIy lo shihs in markel demand
5. To eIiminale operalionaI and markeling reslriclions lo lhe grealesl exlenl possibIe
A I R T R A N S P O R TAT I O N 4 7 6
Tnc 1980s
y earIy 1981 lhe nev presidenls poIicy sla vas being barraged vilh crilicism of
lhe previous adminislralions poIicies from incumbenl operalors, vho vere Iess lhan
enamored of lhe reIenlIess pursuil of pure compelilion. Al lhe same lime, lhe economy
moved inlo a recession, oiI prices again spiraIed upvard, lhe air lrafc conlroIIers slrike
draslicaIIy disrupled lhe domeslic markel, and lhe airIine induslry sIipped inlo a period
of nanciaI Ioss. These Iosses, and lhe rsl demise of a U.S. lrunk carrier in 1982 (rani
AirIines), Ienl credence lo lhe cries of havoc in lhe inlernalionaI avialion poIicy arena.
ImpIemenlalion of lhe procompelilive poIicy came lo a haIl in lhe earIy 1980s.
Hovever, many faclors graduaIIy converged lo supporl lhe conviclion lhal free lrade
in inlernalionaI avialion shouId progress over lime. Carrier managemenl, much of vhich
vas aIso changing, appeared lo Iike being unfeered, aIlhough il may nol aIvays have
veIcomed or lhrived on unbridIed compelilion. There vas some poIilicaI supporl from
a presidenliaI adminislralion lhal vieved free lrade and dereguIalion of induslry as
basic lenels of ils economic poIicies. Al lhe same lime, lhe domeslic markel vas shoving
a lendency lovard IackadaisicaI grovlh, vhiIe inlernalionaI lraveI vas burgeoning. As
U.S. carriers again inlroduced nev and more efcienl aircrah, lhey Iooked lo inlernalionaI
markels for expansion. IinaIIy, lhe economic boom of lhe mid- lo Iale 1980s resuIled in
higher prols and ambilions lo expand.
Irom lhe reguIalors perspeclive, evidence began lo emerge lhal markels lhal had been
IiberaIized vere groving fasler lhan lhose lhal remained cIosed. LiberaIized markels
vere lhose markels open lo U.S. carrier compelilion, vhiIe reslriclive markels vere
lhose in vhich U.S. carrier designalion and/or capacily vas Iimiled, eilher by negolialed
agreemenls or by praclice. In lhe case of lhe Uniled Kingdom, vhich couId be cIassied
as olher, enlry and capacily vere reslricled, bul negolialions and provisions in lhe
agreemenl aIIoved some increases in capacily. AIso, lhe pricing provision in lhe agreemenl
vas inlerpreled IiberaIIy by bolh lhe Uniled Slales and lhe Uniled Kingdom, permiing
a subslanliaI amounl of price compelilion.
In every inslance, belveen 1978 and 1983, lhe IiberaI markels demonslraled a slronger
lrafc grovlh rale lhan lhe reslriclive markels. y 1988, lhis disparily vas even grealer,
6. To inlegrale domeslic and inlernalionaI air lransporlalion
7. To increase lhe number of nonslop U.S. galevay cilies
8. To provide opporlunilies for foreign carriers lo increase lheir access lo U.S. poinls if
exchanged for benels of simiIar magnilude for lhe U.S. carriers or passengers and
shippers
9. To eIiminale discriminalion and unfair compelilive praclices faced by lhe U.S. carriers
in foreign air lransporlalion, incIuding excessive Ianding and user fees, unreasonabIe
ground handIing requiremenls, undue reslriclions on operalions, and prohibilions
againsl change of gauge
10. To promole, encourage, and deveIop civiI aeronaulics and a viabIe, privaleIy ovned
U.S. air lransporl induslry
C H A P T E R 1 6 I N T E R N AT I O N A L AV I AT I O N 4 7 7
vilh lhe onIy exceplions being Irance and Iapan. The grovlh in Uniled SlalesIrance
lrafc reecled lhe facl lhal lhe ermuda Agreemenl vilh lhe Uniled Slales, vhich
permied muIlipIe designalion and unIimiled frequencies, had been honored by Irance
as U.S. carriers moved lo inlroduce nev services. This expansion by U.S. carriers vas
slopped vhen Irance served nolice in 1992 lhal il vouId lerminale ils agreemenl vilh lhe
Uniled Slales. In lhe case of Iapan, nev services by incumbenl carriers vere permied lo
some exlenl in order lo accommodale lhe boom in lrafc lhal vas IargeIy driven by lhe
Iapanese economy.
Thus, aIlhough mosl of lhe IiberaI markels vere nol Iarge, lhe decision lo lrade open
access in lhe foreign counlry for expanded access in lhe Uniled Slales appeared lo be a
good one for lhe lraveIing pubIic.
NeverlheIess, lhe conlinuing eorls lo IiberaIize avialion agreemenls vere hampered
for a number of reasons. Iirsl, lhe counlries lhal vere lhe mosl IikeIy candidales for such
agreemenls had aIready been approached by lhe U.S. governmenl. In lhese inslances, lhe
foreign-ag carriers vere anxious lo expand inlo lhe Uniled Slales and viIIing lo make a
generous oer lo lhe U.S. governmenl lo do so. Where lhe foreign-ag carriers had no, or
very Iimiled, expansionary ambilion, lhere vas no inleresl in IiberaIizing lhe reIalionship
vilh lhe Uniled Slales. Thus, lhere vas no cIear palh as lo hov lo handIe lhe remaining
counlries.
Second, disruplion vilhin lhe U.S. domeslic induslry vas conlinuing apace, vilh
bankruplcies and mergers becoming commonpIace. These changes Ienl poIilicaI credence
lo lhe argumenls being made in some quarlers lhal dereguIalion of lhe domeslic induslry
had been loo abrupl and lhal lhe U.S. governmenl shouId again become more concerned
aboul lhe heaIlh of ils induslry.
Third, U.S. carriers, ohen compeling againsl one anolher and seeing inlernalionaI
markels as lhe lickel lo expansion, foughl harder lhan ever lo slrenglhen lheir markel
presence, and lhe inghling around negolialions became increasingIy brulaI. The U.S.
governmenl vas unviIIing and unabIe lo lake risks by negolialing arrangemenls lhal
couId nol be veII |uslied lo Congress in lerms of lheir conslruclive eecl on U.S. air
carriers.
As lhe economy slrenglhened in lhe mid-1980s and fueI prices slabiIized, lhe Uniled
Slales lried lo nd opporlunilies for IiberaIizalion of inlernalionaI avialion agreemenls.
AccordingIy, lhe mosl eeclive vay lo creale a more compelilive environmenl vas lo
negoliale a nev biIaleraI agreemenl. To gel olher governmenls lo granl carriers lhe grealer
pricing and operaling exibiIily il soughl, lhe Uniled Slales ohen had lo give foreign
carriers lhe righl lo operale more inlernalionaI roules lo lhe Uniled Slales. SmaIIer nalions
generaIIy found such oers lo be more appeaIing lhan did Iarger ones. The Uniled Slales
enlered inlo agreemenls vilh counlries Iike The NelherIands and eIgium, aIlhough il
recognized lhal U.S. carriers vouId gain IiIe from lhe grealer operaling exibiIily. In
parl, lhe Uniled Slales vieved Iess reguIalion as an end, in and of ilseIf, bul il aIso sav
lhe agreemenls vilh smaIIer counlries as a means of puing pressure on Iarger nalions.
Ior exampIe, KLMs expanded service lo lhe Uniled Slales pIaced compelilive pressure
on Luhhansa, lhe carrier of The NelherIands Iarger neighbor, Germany.
None of lhese earIy agreemenls represenled vhal has become knovn as an open-sky
agreement. Under an open-sky agreemenl, carriers of bolh counlries can y any roule lhey
vish belveen lhe counlries and can conlinue lhose ighls inlo lhird counlries, aIlhough
cabotage is sliII nol permied. Cabolage is a foreign operalor carrying passengers belveen
lvo domeslic poinls of anolher counlry.
A I R T R A N S P O R TAT I O N 4 7 8
AIlhough lhe Uniled Slales vas lhe mosl vehemenl proponenl of increased inlernalionaI
compelilion, ils carriers share of inlernalionaI lrafc decIined in lhe earIy 1980s. AIlhough
U.S. carriers inlernalionaI lrafc grev, lheir share feII from 50.7 percenl in 1979 lo 47.4
percenl in 1986. In addilion, bolh U.S. and non-U.S. carriers vere regislering Iosses on
many inlernalionaI roules despile lhe grovlh in lrafc. As a resuIl, lhe Uniled Slales
reIaxed ils pursuil of lhe dereguIalion of inlernalionaI markels.
The piclure began lo change in lhe mid-1980s. Carriers vilh Iarge domeslic syslems
expanded inlernalionaI service from lheir hubs and acquired oulslanding roule aulhorily
from olher carriers. Ior exampIe, Uniled, a very Iarge domeslic carrier vilh no inlernalionaI
service in 1982, acquired Ian Ams Iacic division in 1983. y 1994, Unileds share of
U.S. inlernalionaI lrafc vas Iarger lhan ils share of domeslic lrafc. Mosl inlernalionaI
roules operaled by U.S. carriers have become an inlegraI parl of a domeslic roule syslem,
and carriers vilh Iarge domeslic roule syslems nov conlroI a Iarge share of inlernalionaI
lrafc.
In Iale 1992, concerned vilh lhe horrendous nanciaI Iosses in lhe induslry, Congress
crealed lhe Commission lo Insure a Slrong, Compelilive AirIine Induslry. Once again, given
lhe circumslances of lhe lime, lhe commission vas faced vilh lhe choice of compelilion
versus proleclionism. Throughoul lhe commissions discussion of inlernalionaI poIicy,
ils ambivaIence vas evidenl. On lhe compelilive side, lhere vere slalemenls lo lhe
eecl lhal air service agreemenls shouId be compelilive and recognilion lhal biIaleraI
agreemenls are resuIling in agreemenls or de faclo reIalionships eilher markedIy more
rigid or proleclionisl lhan before, or seriousIy oul of baIance. The remedy, as far as lhe
commission vas concerned, vas lo be lhe negolialion of IiberaI muIlinalionaI agreemenls.
Hovever, al lhe behesl of a smaII number of U.S. carriers, lhe commission perpelualed
oId-slyIe concepls of comparabiIily and equivaIency of markel size and opporlunilies:
ecause of our counlrys geographicaI size and popuIalion, biIaleraI agreemenls can
resuIl in lhe U.S. granling foreign carriers grealer access lo lhe immense and diverse U.S.
air lraveI markel vilhoul corresponding compelilive opporlunilies for U.S. carriers. The
commission eilher did nol recognize or did nol vanl lo acknovIedge lhal lhese concepls,
based on vievs of our lrafc versus lheir lrafc, are inescapabIy proleclionisl and are
increasingIy ouldaled and irreIevanl as markels become gIobaI.
Iaic 1990s Pc| i cu
Given lhe conservalive nalure of lhe commissions reporl, il is surprising lhal a year Ialer,
in November 1994, lhe CIinlon adminislralion issued a poIicy slalemenl lhal vas bolh
perceplive and advenluresome. Reminiscenl of lhe CA vhen il reaIized lhal lhe domeslic
induslry had essenliaIIy grovn beyond lhe bounds of lhe reguIalors abiIily lo keep up,
lhe DOT focused on lhe fundamenlaI and dramalic slrucluraI changes in lhe induslry:
As a direcl resuIl of lhe Chicago Convenlion, an air lransporl syslem has deveIoped lhal consisls
primariIy of nalionaI carriers oering poinl-lo-poinl services, vilh inlernalionaI conneclions
principaIIy provided lhrough inlerIine arrangemenls belveen lhose airIines. AIlhough such
operalions conlinue lo be imporlanl componenls of inlernalionaI air lransporl, ma|or changes
have occurred during lhe pasl fev years lhal are chaIIenging lradilionaI nolions of lhese services.
AirIines are becoming increasingIy gIobaI. Roule nelvorks are nov being Iinked in aIIiances
consisling of carriers from dierenl nalions, vilh inlernalionaI hub-and-spoke nelvorks lhal
oer passengers on-Iine services lo cilies around lhe vorId.
C H A P T E R 1 6 I N T E R N AT I O N A L AV I AT I O N 4 7 9
The documenl aIso conlained a precise IIan of Aclion. The rsl slep in lhis pIan vas
lo exlend invilalions lo enler inlo open avialion agreemenls vilh a group of counlries
lhal share our vision of IiberaIizalion and oer imporlanl ov lrafc polenliaI for our
carriers ctcn incugn incu nau natc |iniic! Tnir! an! |curin |rcc!cn irajc pcicniia| (emphasis
added). This vas lhe rsl lime lhal lhe U.S. governmenl impIicilIy acknovIedged lhal ils
previous aempls lo impIemenl ils free-lrade poIicies had, in facl, been discriminalory
and inconsislenl. Wilh lhe exceplion of lhe Uniled SlalesNelherIands service, lhe Uniled
Slales had focused since lhe earIy 1980s on lrading access for U.S. and foreign air carriers
onIy if lhe foreign markel vas reIaliveIy Iarge.
This acknovIedgmenl marked a gianl slep forvard in governmenl lhinking because il
fundamenlaIIy re|ecled lhe nolion lhal inlernalionaI avialion markels belveen counlries
musl be comparabIe or equivaIenl in size before lhey shouId be opened. As basic as
lhis concepl is lo mosl olher areas of lrade, il has eIuded lhe inlernalionaI avialion induslry
since biIaleraIism and freedoms of lrafc vas invenled. The DOT aIso acknovIedged
poIilicaI reaIily vhen il slaled lhal ve viII oer IiberaI agreemenls lo a counlry or group
of counlries if il can be |uslied economicaIIy or slralegicaIIy. SubsequenlIy, despile lhe
opposilion of some U.S. carriers and some members of Congress, lhe governmenl began
negolialions vilh a group of counlries and reached agreemenls vilh nine smaII avialion
parlners in Iurope.
Al lhe same lime, lhe U.S. governmenl expressed a viIIingness lo conslrucl a phased-
in open agreemenl vilh Canada. This agreemenl, vhich vas a ma|or breaklhrough in a
markel lhal had grovn exlraordinariIy sIovIy under a highIy reslricled regime, is cerlain
lo demonslrale lhe benels lo lhe pubIic and lo lhe lvo counlries carriers as lhe markel
is expanded lhrough increased services and grealer exibiIily in seing prices.
Today, carrier nelvorks seem lo be al Ieasl as imporlanl lo success in inlernalionaI
markels as lhey are domeslicaIIy. InlernalionaI services generaIIy invoIve subslanliaIIy
Ionger dislances lhan domeslic services, and mosl can be served efcienlIy onIy vilh
vide-bodied aircrah. There are onIy a handfuI of inlernalionaI roules, lherefore, lhal
have sufcienl IocaI lrafc lo make poinl-lo-poinl service economicaIIy viabIe. ReguIalion
crealed a segmenled induslry in vhich carriers had lo suppIemenl lheir IocaI lrafc on
inlernalionaI roules vilh inlerIine connecling lrafc from olher airIines. The grovlh of
inlernalionaI service from carrier hubs has changed lhal and has made il increasingIy
necessary for carriers lo generale on-Iine connecling lrafc from lheir ovn nelvorks.
GLOBALIZATION
GIobaIizalion of lhe vorId economy, vhich is being so profoundIy evidenced in myriad
manufacluring and service induslries, as veII as lhe airIine business, viII mosl cerlainIy
press lhe Uniled Slales and olher governmenls avay from proleclionisl posluring and
lovard open markels. Yel under exisling Iavs and agreemenls, il is difcuIl for U.S.
carriers lo eslabIish hubs oulside lhe Uniled Slales, and foreign carriers cannol eslabIish
hubs in lhe Uniled Slales. Iirsl, governmenls lhroughoul lhe vorId bolh prohibil cabolage
and Iimil nonresidenl ovnership of domeslic carriers. In addilion, hh-freedom righls
lend lo Iimil a carriers ighl frequency and lherefore ils abiIily lo compele for IocaI
lrafc. AIlhough hh-freedom righls ohen have onIy Iimiled vaIue in eslabIishing an
inlernalionaI hub, lhere are exceplions. Ior exampIe, U.S. carriers have had some success
in hh-freedom markels and have, in eecl, eslabIished hubs in Iapan. olh Uniled and
A I R T R A N S P O R TAT I O N 4 8 0
Norlhvesl conlinue lheir Tokyo ighls lo beyond deslinalions such as ManiIa, Singapore,
and MaIaysia. These roules are reIaliveIy Iong hauIs, and lheir frequency Iimilalions
are nol as much of a probIem as lhey are on shorler-hauI roules. IrobabIy of grealer
signicance, hovever, are lhe sIol reslriclions al Tokyos Narila Airporl, vhich Iimil lhe
abiIily of lhird- and fourlh-freedom carriers lo increase lheir services in lhese markels.
WhiIe sliII acliveIy seeking expanded lhird- and fourlh-freedom service, lhe Uniled
Slales and olher governmenls are increasingIy addressing carrier desires lo creale gIobaI
roule nelvorks. There are lvo approaches. Under one oplion, counlries can negoliale a
nev inlernalionaI reguIalory regime muIliIaleraIIy. Such an agreemenl conceivabIy couId
provide a forum lo address nol onIy hh-freedom righls bul aIso cabolage and foreign
ovnership issues. Independenl commissions in bolh lhe Uniled Slales and Iurope have
advocaled such muIliIaleraI negolialions, yel lhe negolialion of such agreemenl is IikeIy
lo be a very difcuIl process.
An aIlernalive approach is lo conlinue lo negoliale biIaleraI agreemenls and lo permil
carriers lo expand lheir roule nelvorks lhrough lhe use of code-sharing agreemenls vilh
olher carriers. Such code sharings are mosl commonIy used for connecling service and
permil carriers lo markel inlerIine lransporlalion as lhough il vere on-Iine. AIlhough
muIliIaleraI agreemenls may uIlimaleIy be negolialed, lhe Uniled Slales is pursuing lhe
deveIopmenl of gIobaI nelvorks biIaleraIIy. A carrier can oer a code-sharing service onIy
in markels vhere il has lhe underIying aulhorily, and so lhe Uniled Slales is aempling
lo negoliale open-sky agreemenls lhal give bolh U.S. and non-U.S. carriers broad
operaling aulhorily. The Uniled Slales, hovever, sliII prohibils cabolage and Iimils foreign
ovnership of U.S. carriers: bolh reslriclions are IegisIaled and can onIy be changed by an
acl of Congress.
Wilh an open-sky agreemenl and a code-sharing parlner, a non-U.S. carrier can form an
aIIiance vilh one or more domeslic carriers and gain access lo virluaIIy lhe enlire Uniled
Slales. Mosl foreign counlries are much smaIIer lhan lhe Uniled Slales, and lherefore,
a singIe biIaleraI agreemenl, in and of ilseIf, does nol provide U.S. carriers vilh simiIar
opporlunilies. An open-sky agreemenl does permil a U.S. carrier lo incorporale cilies
in olher counlries inlo ils nelvork lhrough code sharing, bul each such service requires
lhe acquiescence of a lhird counlry. These counlries can provide lhal acquiescence by
aIso signing an open-sky agreemenl, so lhe Uniled Slales has soughl a crilicaI mass
of counlries lo accepl such agreemenls. Ior exampIe, lhe Uniled Slales signed seven
open-sky agreemenls vilh nine Iuropean counlries in lhe spring of 1995, aIlhough lhe
Uniled Slales lhree Iargesl Iuropean avialion lrading parlnersIrance, Germany, and
lhe Uniled Kingdomdid nol parlicipale. In lheir ovn righl, lhese agreemenls oer
lhe possibiIily of increased compelilion and beer service for consumers. In addilion,
foIIoving lhe precedenl of more lhan 15 years earIier, lhese agreemenls may pul pressure
on Iarger counlries lhal have been more reIuclanl lo reIax lheir reguIalions. Iulure open-
sky inilialives may depend on hov U.S. and non-U.S. carriers divide lhe lrafc generaled
by lhese agreemenls.
Under some code-sharing arrangemenls, lhe parlners make a concerled eorl lo
coordinale bolh ighl scheduIes and ground operalions lo mimic on-Iine service. In some
cases, one carrier, and perhaps bolh, in lhe cooperalive venlure invesls in lhe olher. Such
inveslmenls can demonslrale a good-failh commilmenl by lhe carriers and reduce lhe risk
of opporlunislic behavior. Governmenls, hovever, reslricl lhe share of an airIine lhal can
be ovned by a foreign cilizen. In lhe Uniled Slales, foreign ovnership of domeslic airIines
is Iimiled lo 49 percenl vilh a maximum of 25 percenl of lhe voling righls.
C H A P T E R 1 6 I N T E R N AT I O N A L AV I AT I O N 4 8 1
Some code-sharing agreemenls, hovever, provide IiIe in lhe vay of service
enhancemenls and are simpIy lhe carriers same inlerIine services markeled under a
dierenl name. In lhese cases, an imporlanl parl of lhe markeling advanlage slems from
compulerized reservalions syslem praclices. IrequenlIy, bolh of lhe carriers parlicipaling
in code sharing viII markel lhe service as lheir ovn, and lhus, a given service is dispIayed
lhree limes in a CRS: under each carriers code and on an inlerIine service. Governmenls
may come under increasing pressure lo delermine vhelher lhese CRS praclices dislorl lhe
informalion provided by lraveI agenls and, if necessary, lo design a reguIalory soIulion.
A more fundamenlaI queslion, hovever, concerns lhe impacl lhal lhese code-sharing
agreemenls have on compelilion. An agreemenl lhal Ieads lo Iess capacily lhan vouId
olhervise be provided viII IikeIy yieId reduced service and increased airfares, vhich is
nol in lhe pubIic inleresl. Ior exampIe, inslead of servicing a parlicuIar roule, a carrier
mighl reIy on ils code-sharing parlner, and olher carriers may be reIuclanl lo enler. On
lhe olher hand, by expanding lhe size of ils nelvork and generaling increased lrafc,
code sharing can prompl a carrier lo inslilule nev services. Ior exampIe, by increasing
feed, code sharing may make service on a roule economicaIIy viabIe. Code sharing can
aIso slimuIale lrafc by providing more frequenl service and beer conneclions, and by
increasing lrafc, il can reduce cosls and fares.
A code-sharing agreemenl gives carriers lhe aulhorily lo serve markels |oinlIy: il does
nol give lhem lhe righl lo sel fares |oinlIy. efore carriers serving lhe Uniled Slales can sel
fares |oinlIy, lhey musl receive anlilrusl immunily from lhe DOT. In some cases, a code-
sharing agreemenl vilh anlilrusl immunily may produce Iover prices lhan an agreemenl
vilhoul anlilrusl immunily.
Wilh an efcienl code-sharing arrangemenl, a carrier faces essenliaIIy lhe same cosl of
providing lhe service as il vouId if il provided lhe same service on-Iine. In mosl code-
sharing agreemenls, hovever, one carrier charges lhe olher for lrafc il carries in ils aircrah,
and lhal charge is IikeIy lo be lhe cosl of lransporling lhe passengers pIus some markup.
ecause of lhis markup, each carrier faces a higher cosl for lransporling passengers under
lhe code sharing lhan il vouId for a simiIar service il provided on-Iine.
Wilh anlilrusl immunily, carriers are free lo eslabIish some mechanism by vhich fares
can be based on incremenlaI cosls, and lhen lhe prols generaled by lhe saIe can be divided.
In lhal case, lhe carriers viII perceive lhe cosl of lransporling an addilionaI passenger lo
be Iover lhan lhe cosl each carrier vouId face from a lypicaI |oinl-fare agreemenl. If lvo
carriers have a Iarge share of lhe reIevanl markels, hovever, lhe reduclion in compelilion
couId dominale any efciency gain. A decision aboul anlilrusl immunily shouId be based
on an anaIysis of bolh lhe aecled markels and lhe impacl of lhe |oinl-fare agreemenl. As
lhe veb of gIobaI aIIiances and code sharing increases, lhe Uniled Slales viII cIearIy be
mindfuI of lhe compelilive eecls and lhe possibIe impacl of anlilrusl immunily. There
are incenlives for lhe Uniled Slales lo be reIaliveIy IiberaI in avarding granls of immunily,
because lhe prospecl of anlilrusl immunily is a vaIuabIe bargaining chip in negolialing
IiberaI agreemenls vilh foreign governmenls.
The airIine and airporl induslries are facing conlinuous change on a gIobaI scaIe and
recenl lrends shov lhal as bolh induslries conlinue lo expand, gIobaIizalion viII increase
in imporlance.
A I R T R A N S P O R TAT I O N 4 8 2
G| c|a| i zaii cn cj Ai r| i ncs
GIobaI aIIiances viII conlinue lo expand among airIines because passengers demand
lraveI lo deslinalions beyond a singIe airIines nelvork. AIIiances are necessary lo drive
dovn lhe cosls of airIine operalions.
There are lhree main faclors inuencing lhe deveIopmenl of airIine aIIiances: markeling
advanlages, nalionaIily and ovnership ruIes, and compelilion. The markeling advanlages
of airIine aIIiances vere idenlied in lhe Uniled Slales during lhe 1980s in a dereguIaled
environmenl. Ma|or U.S. airIines vere abIe lo survive in a compelilive markel lhrough
mergers and acquisilions, lhus increasing lhe size of nelvorks.
NalionaIily and ovnership ruIes Iimil lhe pover of airIines lo purchase a foreign carrier,
lhus reslricling compelilive advanlage over olher carriers. iIaleraI reguIalions slale lhal
airIines musl be subslanliaIIy ovned and conlroIIed by nalionaIs of lhe slale in vhich lhey
are regislered. The onIy vay lo gel around lhese ruIes is lo enler airIine aIIiances lhal may
incorporale code sharing, franchising, |oinl frequenl-ier programs, combined saIes oulIels,
and so on.
IinaIIy, compelilion pIays a Iarge roIe in lhe deveIopmenl of aIIiances because muluaI
agreemenls among airIines eIiminale lhe need lo compele vilh each olher. Ior exampIe,
roules lhal vere previousIy ovn by lvo compeling companies may resuIl in reduced fares
because lhere is no need lo compele againsl each olher once an aIIiance has been formed.
Iormalion of airIine parlnerships expands exisling roule nelvorks lhrough code-sharing
agreemenls, provides nev producls for consumers, creales a high brand of service for
business lraveIers, and creales gIobaI recognilion for priorily passengers. Concenlralion of
airIine aclivily viII lake pIace al hub airporls and priorily viII go lo airporls providing a
exibIe slruclure. Hovever, a Iarge number of secondary airporls viII increase in lerms of
imporlance as LCCs and poinl-lo-poinl carriers make a slronger presence vilhoul lhe need
for conneclivily. As a resuIl of lransfer lrafc, minimum connecling limes viII be imporlanl,
bul lhis viII be a chaIIenge as airporls become more congesled as hub-and-spoke nelvork
carriers conslrain lhemseIves vilh somevhal Iimiled lime scheduIes. Specic largels viII
be made lo decrease aircrah and Iuggage deIays. Ior an airporl lo be successfuI, il musl
undersland lhe needs of lhe airIines and be abIe lo meel lhose demands.
Ai rpcri A| | i anccs
Airporls, Iike any olher business, lry lo reduce cosls vherever possibIe and maximize lheir
prols. One vay of doing lhis is lo |oin an airporl aIIiance. This is a reIaliveIy nev concepl,
bul il is becoming more imporlanl as airporl operalors reaIize lhe benels. Airporl aIIiance
members can reduce cosls lhrough lhe |oinl purchasing of equipmenl, |oinl markeling,
|oinl lraining, and lhe cenlraIizalion of corporale ofce funclions. This lype of aIIiance is
especiaIIy beneciaI for smaII airporl operalors, because lhey can lake advanlage of lhe
Iarge airporls managemenl and expecl lo increase prol al lhe same lime.
Airporls Iocaled cIose lo one anolher may choose lo |oin an airporl aIIiance in order lo
conlroI runvay and lerminaI capacily or lo conlroI fulure deveIopmenl. This may Iead lo
lhe |oinl markeling of lhe member airporls, resuIling in Iess compelilion. In olher vords,
such aIIiances decrease lhe friclion of lransilion.
Irankfurl InlernalionaI Airporl vouId Iike lo promole lhe concepl of airporl aIIiances in
Germany, bul as yel, il has nol been abIe lo convince olher German airporls lhal lhis move
vouId be beneciaI for aII concerned. An airporl aIIiance vouId bring operalionaI benels
C H A P T E R 1 6 I N T E R N AT I O N A L AV I AT I O N 4 8 3
for avialion and nonavialion business, increase lhe calchmenl area, promole inlermodaI
lransporl, simpIify operalionaI procedures, coordinale communicalion syslems, and
provide a good quaIily producl lo aII.
FUTURE CHALLENGES
The chaIIenges are hardIy over for lhe Uniled Slales in lhe inlernalionaI arena. Il musl
conlinue lo relain lhe courage of ils conviclions and pursue IiberaIizalion of inlernalionaI
avialion markels. To do so, il musl appIy ils conviclions consislenlIy and ignore lhe
argumenls of lhose vho vouId have lhe Uniled Slales reverl lo lradilionaI concepls aboul
baIancing benels and seeking equivaIencies. These mercanliIisl concepls beIie lhe facl
lhal avialion lrade, Iike aII olher lrades, shouId be based nol on lhe abiIily of one counlry
lo produce as much as lhe olher or lhe facl lhal one counlrys markel for a producl is as
Iarge as ils parlners markel, bul on lhe viIIingness of counlries lo open lheir markels lo
free lrade.
The Uniled Slales viII aIso have lo conlinue lo underlake addilionaI ma|or poIicy
changes. Iusl as il had lo break dovn enlrenched ideas aboul lhe need lo reguIale
compelilion in inlernalionaI markels, so, loo, il musl re-examine lhe ralionaIe for many
of lhe lenels on vhich lhe scheme for reguIaling compelilion in inlernalionaI avialion
markels vas originaIIy based. CIearIy, limes have changed dramalicaIIy since lhe infancy
of lhe induslry, and vhal seemed naluraI and righl al lhe lime of lhe Chicago Convenlion
may be irreIevanl al besl, and harmfuI al vorse, lo lhe inleresls of bolh lhe lraveIing
pubIic and U.S. carriers and lheir empIoyees.
SpecicaIIy, requiremenls for nalionaI ovnership, reservalion of domeslic lrafc for
domeslic carriers (cabolage, IIy America, governmenl-reserved lrafc), and various
means of propping up lhe nanciaI slale of domeslic carriers (slale aids and subsidies,
Chapler 11 bankruplcy Iavs) shouId be queslioned on a vorIdvide basis. The Uniled
Slales shouId lake lhe Iead in lhis debale, bul il cannol do so if il is uncerlain aboul ils ovn
commilmenl lo unreguIaled markels.
Al lhis slage in ils deveIopmenl, il is uncIear vhy lhe U.S. inlernalionaI avialion
induslry shouId be lrealed dierenlIy lhan any olher induslry. Righl nov, lhe induslry is
a slrong inlernalionaI compelilor, and il shouId be among lhe beneciaries of a reduclion
in lrade barriers. The Uniled Slales musl conlinue lo use lhe muscIe of ils Iarge domeslic
and inlernalionaI markel lo beal dovn lrade barriers. ul il musl aIso be dedicaled lo
genuineIy open markels in lhe puresl lerms. This viII require laking some risks, bul onIy
by Ieading lhe vay, as il has recenlIy done in ils negolialions vilh Canada and lhe smaIIer
Iuropean counlries, viII lhe Uniled Slales reap lhe benels of an unreslricled markel in
inlernalionaI avialion services.
KEY TERMS
sovereignly of airspace biIaleraI agreemenl
Tvo Ireedoms Agreemenl open-sky agreemenl
Iive Ireedoms Agreemenl cabolage
righls of freedom
A I R T R A N S P O R TAT I O N 4 8 4
REVI EW QUESTI ONS
1 Whal vere lhe lvo principaI lheories regarding lhe nalionaI sovereignly of airspace`
Which lheory prevaiIed`
2. Discuss severaI of lhe principIes governing lhe drahing of lhe Iaris Convenlion. Whal
provisions vere designed lo ensure lhe safely of air navigalion` Discuss severaI of lhe
principIes lhal vere adopled by lhe convenlion. Whal vas lhe primary purpose of lhe
Havana Convenlion`
3. Why is lhere a need for inlernalionaI air Iav` Whal vere lhe ma|or agreemenls resuIling
from lhe Warsav Convenlion` Hov did lhe Hague IrolocoI and lhe GualemaIa Cily
IrolocoI aecl lhe provisions of lhe Warsav Convenlion`
4. Discuss some of lhe reasons for lhe Chicago Conference of 1944. Whal vas lhe purpose
of lhis convenlion` Describe some of lhe imporlanl arlicIes under lhis convenlion.
Whal vere some of lhe areas in vhich lhe conlracling slales agreed lo deveIop lhe
highesl degree of uniformily`
5. Whal is lhe purpose of ICAO`
6. Hov many righls of freedom are lhere` Whal vas lhe Tvo Ireedoms Agreemenl` The
Iive Ireedoms Agreemenl` Whal is meanl by |i|aicra| agrccncni? Discuss some of lhe
provisions under lhe Chicago slandard form.
7. Whal is lhe broad aim of IATA` Whal is lhe funclion of lhe four permanenl commiees
of IATA`
8. Whal vere some of lhe faclors Ieading up lo lhe ermuda Agreemenl` Whal vas lhe
posilion of lhe Uniled Slales` Discuss some of lhe principIes eslabIished under lhe
ermuda Agreemenl.
9. Discuss some of lhe ma|or changes lhal look pIace in inlernalionaI avialion during
lhe lhree decades foIIoving lhe ermuda Agreemenl. Hov vouId you describe lhe
CAs posilion lovard IATA during lhe 1970s` Whal vas lhe probIem lhal lhe rilish
had regarding lhe ermuda Agreemenl in lhe Iale 1970s`
10. Whal ma|or evenl prompled lhe nev U.S. poIicy on inlernalionaI avialion in lhe
Iale 1970s` Describe some of lhe goaIs enumeraled under lhe U.S. poIicy slalemenl.
Discuss some of lhe ob|eclives of lhe InlernalionaI Air Transporlalion Compelilion
Acl of 1979. Hov vas lrafc aecled during lhe earIy 1980s` Why vere conlinuing
eorls lo IiberaIize avialion agreemenls hampered`
11. Whal is an cpcn-sku agrccncni? Ca|ciagc? Whal vas lhe purpose of lhe Commission
lo Insure a Slrong, Compelilive AirIine Induslry` In 1995, lhe commission oulIined a
IIan of Aclion regarding fulure open-avialion agreemenls. IxpIain.
C H A P T E R 1 6 I N T E R N AT I O N A L AV I AT I O N 4 8 5
12. Describe gIobaIizalion as il appIies lo lhe airIine induslry. Why is il so difcuIl for
U.S. carriers lo eslabIish hubs oulside lhe Uniled Slales` Why are biIaleraI agreemenls
belveen lhe Uniled Slales and many foreign counlries lo lhe disadvanlage of U.S.
carriers` Hov vouId an open-sky agreemenl improve lhis silualion` Describe hov
code-sharing agreemenls operale. Whal is lhe impacl on compelilion` Hov does lhe
airIine induslry dier from olher induslries vilh regard lo gIobaIizalion`
WEB SI TES
hp://vvv.icao.org
hp://vvv.iala.org
hp://vvv.alvonIine.com
hp://vvv.baIpa.org
hp://vvv.ainonIine.com
hp://vvv.avdir.com
hp://vvv.airIines.org
hp://vvv.inlI.faa.gov
SUGGESTED READI NGS
rancker, I. W. |ATA an! Wnai |i Occs. Leiden, The NelherIands: Slho, 1977.
uergenlhaI, Thomas. Iaunaking in inc |nicrnaiicna| Citi| Atiaiicn Organizaiicn. Syracuse, N.Y.: Syra-
cuse Universily Iress, 1969.
Cheng, . Tnc Iau cj |nicrnaiicna| Air Transpcri. London: Slevens and Sons, 1962.
Chuang, R. Y. Tnc |nicrnaiicna| Air Transpcri Asscciaiicn. Leiden, The NelherIands:
Slho, 1971.
Doganis, Rigas. Tnc Air|inc Busincss in inc 21si Ccniuru. London: RoulIedge, 2001.
Doganis, Rigas. ||uing O Ccursc. Tnc |ccncnics cj |nicrnaiicna| Air|incs (2d ed.). London: HarperCoI-
Iins Academic, 1991.
GiaIIorelo, Louis. Siraicgic Air|inc Managcncni. London: Iilman, 1988.
Gidvilz, . Tnc Pc|iiics cj |nicrnaiicna| Air Transpcri. Lexinglon, Mass.: Healh, 1980.
Graham, A. Managing Airpcris. Oxford: uervorlh-Heinemann, 2001.
HanIon, Ial. G|c|a| Air|incs (2d ed.). Oxford: uervorlh-Heinemann, 1999.
Kasper, D. M. Ocrcgu|aiicn an! G|c|a|izaiicn. Ii|cra|izing |nicrnaiicna| Tra!c in Air Scrticcs. Cam-
bridge, Mass.: aIIinger, 1988.
NalionaI Commission lo Insure a Slrong, Compelilive AirIine Induslry. Cnangc. Cna||cngc an!
Ccnpciiiicn. A |cpcri ic inc Prcsi!cni an! Ccngrcss. Washinglon, D.C.: U.S. Governmenl Irinling
Ofce, 1993.
Slraszheim, M. Tnc |nicrnaiicna| Air|inc |n!usiru. Washinglon, D.C.: The rookings Inslilulion,
1969.
Tane|a, NavaI K. Air|incs in Transiiicn. Lexinglon, Mass.: Healh, 1981.
Tane|a, NavaI K. Tnc |nicrnaiicna| Air|inc |n!usiru. Lexinglon, Mass.: Healh, 1988.
Tane|a, NavaI K. |nicrnaiicna| Atiaiicn Pc|icu. Lexinglon, Mass.: Healh, 1980.
U.S. GeneraI Accounling Ofce. |nicrnaiicna| Atiaiicn. OOT Ncc!s Mcrc |njcrnaiicn ic A!!rcss U.S.
Air|incs Prc||cns in Ocing Busincss A|rca!. Washinglon, D.C.: U.S. Governmenl Irinling Ofce,
1994.
A I R T R A N S P O R TAT I O N 4 8 6
U.S. InlernalionaI Air Transporlalion IoIicy Slalemenl. Slalemenl of lhe Secrelary of Transporlalion,
ApriI 1995.
Wensveen, Iohn. Wncc|s Up. Air|inc Busincss P|an Octc|cpncni. Thomson rooks/CoIe, 2005.
C H A P T E R 1 6 I N T E R N AT I O N A L AV I AT I O N 4 8 7
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APPENDIX A
Views of Industry Professionals
Introduction
Quotes
Article
489
INTRODUCTION
The airIine induslry has faced more chaIIenges, lriaIs and lribuIalions lhan any olher
business sparking a vide array of commenlary by induslry professionaIs lhroughoul
lhe years. WhiIe revising lhe sixlh edilion of lhis book, I requesled commenlary on lhe
airIine induslry from Ieading induslry professionaIs ranging from CIOs lo high-proIe
consuIlanls. The requesled lask vas lo provide a personaI viev on vhere lhe airIine
induslry has been, lhe currenl silualion and vhal direclion il is heading incorporaling
noled chaIIenges. In many cases, commenls vere one-Iiners and did nol address lhe lask
100 percenl bul aher receiving so much aenlion on lhis sub|ecl via a privale on-Iine
induslry discussion forum, I decided lo make lhe mosl inleresling commenls avaiIabIe lo
lhe reader. IIease nole, commenls are nol necessariIy lhe viev of lhe aulhor of lhis lexl.
QUOTES
As a piIol for a ma|or airIine for nearIy 30 years, I beIieve one of lhe mosl imporlanl
slralegic issues is eel pIanning. A properIy pIanned eel can reduce lhe compIexily of
lraining piIols, ighl aendanls, Ioad pIanners, mechanics el aI. Iurlher il can reduce
parls slores and lhe probIems of changing gauge on a specic segmenl (if lhe cockpils
are common, a change of gauge need nol mean a change of crev). UnforlunaleIy,
slralegic pIanning ohen goes oul lhe vindov vhen limes are good and airIines scour
lhe gIobe Iooking for addilionaI airframes or vhen lhe Iure of a merger Iooms. My
guess is lhal a Iegacy carrier vilh lhree airframe lypes, four al mosl, and a eel pIan lhal
slresses commonaIily viII aIvays fare beer lhan one vilh a hodgepodge of airframes,
ohen vilh signicanl dierences vilhin lhe same lype. Ivery airIine aspires lo eel
commonaIily and simpIicalion, fev have lhe discipIine lo impIemenl il.
You are al lhe mercy of your dumbesl compelilor.
AcluaIIy, lhe more bIunl vay lo pul il is: Hov do you make a smaII
forlune in lhe airIine induslry` Slarl vilh a big one!
If you vanl lo end up vilh a IiIe money in lhe airIine business, slarl oul vilh a Iol of
money.
Ils lhe slupid nelvork`
You can incIude me vilh a concise, Ils lhe nelvork slupid!
The nelvork: so Tvenlielh Cenlury.
If you insisl on hauIing Iive humans, vhy nol gel inlo lhe lraveIbusiness`
The minule you lhink youve gol il made, disasler is |usl around lhe corner.
A I R T R A N S P O R TAT I O N 4 9 0
Any airIine can be oul of business in six monlhs. AIlhough, as veve seen, Iing for
bankruplcy seems lo slop lhe cIock.
Slop vilh lhal herd menlaIily. Ils nol loo Iale lo lhink crealiveIy and slarl lo
innovale.
When a Soulherner diesno maer lhal lhe mosl vrelched shaII sureIy be damned
lo HeII vilhoul equivocalion, nor lhal lhe mosl chasle shaII cerlainIy be headed for
lheir |usl revardlhe onIy absoIule is lhal regardIess of vhelher lhey go lo Hades or
Heaven, il viII nol be vilhoul rsl making conneclions over AlIanla.
Me loo is a Iousy corporale slralegy.
Nelvork carriers seamIessIy under-performing ever-diminishing cuslomer expecl-
alionsby no means Iimiled lo lhe pasl ve years.
A P P E N D I X A V I E WS O F I N D U S T R Y P R O F E S S I O N A L S 4 9 1
The reaI probIem, lhe core issue
slrangIing lhe hub-and-spoke modeI
is operalionaI produclion variance
crealed by randomness and chaos
driven by independenl aclion and IocaI
oplimizalion. The negalive eecl of lhe
variance inherenl vilhin lodays hub-
and-spoke operalion impacls lhe nelvork
airIines boom Iine annuaIIy by upvards
of 10 percenl lo 20 percenl of lolaI cosls or
more.
The rsl queslion mosl viII ask is,
Whal is produclion variance` WeII,
variance is many lhings. Ior exampIe,
variance is lhe Iarge beII curve of acluaI
arrivaI lime around lhe scheduIed arrivaI
lime, or lhe dierenl lemperalure of
lhe meaIs, or lhe lime lhe agenl shuls
lhe door, or lhe speed lhe piIol ies, or
vailing for a gale and lhen vailing for
a marshaIIer lo guide lhe aircrah in,
or agenl lo open lhe aircrah door, or a
passenger geing o a 777 in business
cIass and lhen geing on an RI. AII of
lhese and hundreds more are variance,
lhe singIe lhing lhal is kiIIing lhe nelvork
airIines and somelhing lhe airIines have
yel lo fuIIy undersland or measure.
The nexl obvious queslion, Whal
has variance gol lo do vilh lhe airIine
nanciaI probIem` The shorl ansver is
money.
According lo Dr. Henry R. Neave
(W. Idvards Deming Irofessor of
Managemenl, Noingham usiness
SchooI) Underslanding varialion. Why is
lhal imporlanl` WeII, Iel us consider vhen
you buy a producl, or a service, or you
are engaged in a service operalion, or a
manufacluring process, or adminislralive
process, elc. Does il aIvays vork
smoolhIy, lhe same vay, lake lhe same
amounl of limeso lhal you can eilher
do, or experience, a perfecl |ob` Thal
vouId be very rare. Or does il vork ne
one day, bul have nasly surprises for you
lhe nexl` Thals varialion, or variabiIily.
Varialion is nasly: il makes lhings
dicuIl, unprediclabIe, unlruslvorlhy:
bad quaIily. Good quaIily is very much
reIaled lo reIiabiIily, lruslvorlhiness, no
nasly surprises. In a big vay, bad quaIily
means loo much varialion, good quaIily
means IiIe varialion.
As queuing lheory predicls and an
in deplh anaIysis of acluaI aircrah ovs
al numerous congesled airporls shovs,
lhe lime in queue and lhe associaled
variance increases vhere nelvork airIines
need capacily mosl. And unforlunaleIy,
lhe amounl of variance in lhe airIine
produclion process is Iarge and groving.
Leh unchecked, variance viII conlinue lo
decimale airIine aher airIine.
And lhe vorsl enemy lhe nelvork
airIines face is lime. Given lhe fragiIe
nanciaI condilion of lhe nelvork airIines,
lhey eilher rapidIy miligale lhe variance
ealing avay al lheir boom Iines or lhey
foIIov Ian Am, Iaslern and rani
inlo avialion hislory. As for dovnsizing
or Iinearizing lheir nelvorks, again,
lime prevenls lhem from reorienling
lheir business modeIs lo compele in
Soulhvesls pIayground.
ARTICLE
The Network Airline
Production Problem
|. Micnac| Baia!a
A I R T R A N S P O R TAT I O N 4 9 2
UnIess somelhing is done, and done
quickIy, lhe nelvork modeI viII conlinue
ils dovnvard spiraI. WhiIe some free
markel advocales beIieve lhal lhis is a
good lhing, il is nol. The hub-and-spoke
modeI is nol onIy lhe besl airIine business
and lransporlalion modeI (passengers and
cargo), il is aIso lhe besl modeI for bolh
lhe economy and lhe lraveIing pubIic.
Thal said, unforlunaleIy, as currenlIy
operaled, lhe hub-and-spoke modeI is
unsuslainabIe. Iurlher, lhe foIIoving Iisl
of probIems, mosl of vhich slem from
lhose nasly surprises menlioned by Dr.
Neave, are acluaIIy lhe visibIe symploms
of lhe huge amounl of variance vilhin
lhe nelvork airIine operalion. Therefore,
lhese probIems can onIy be correcled
by removing lhe underIying probIem
crealing lhese symplomsvariance.
Increased cosl of produclion,
higher Iabor cosls
Randomness and chaos, coIIapse
of lhe slalic processes
Iusl in case operalion, numerous
Iasl minule changes required
Less syslem lhroughpul/
produclivily
Iver increasing bIock lime
UnderuliIizalion of assels,
over-uliIizalion of consumabIes
(i.e., higher fueI burn)
Lov empIoyee success,
Iov empIoyee moraIe
Cuslomers viev of lhe airIine
seal as a commodily
Decreased producl quaIily,
no producl dierenlialion
Lack of pricing pover,
price driven cosling
Less salised cuslomers, Iover
cuslomer expeclalions
Tcc Mucn Ncisc
In lodays Six Sigma, Iusl-in-Time, SuppIy
Chain managed vorId buiIl lhrough
order, prediclabiIily and consislency

of process, lhe hub-and-spoke modeI

generales lhe opposilerandomness
and chaos. In eecl, aIlhough lhe hub
operalion is nol designed lo faiI, given
lhe IocaI, independenl oplimizalion
of each eIemenl of lhe hub syslem, il
is guaranleed lo faiI aII loo ohen. As
W. Idvards Deming laughl, Trying
lo oplimize vilhin lhe noise nol onIy
doesnl heIp, il hurls (Ncccssaru. |ui Nci
Sucicni, Dr. IIiyahu GoIdra). SadIy, lhe
nelvork operalionaI modeI generales far
loo much noise.
WhiIe aII airIines, incIuding Soulhvesl,
face lhis probIem, il is lhe Iarge nelvork
airIines, DeIla, US Airvays, Uniled and
American for exampIe, lhal are aecled
mosleecliveIy a reverse economics of
scaIe. As an airIine increases in size and
creales Iarge, inlerdependenl hub-and-
spoke operalions, lhe negalive eecls
of variance vilhin lhe syslem expand
dramalicaIIy. WhiIe lhe cosls associaled
vilh lhe high IeveIs of variance are
considered by mosl lo be inherenl vilhin
lhe hub-and-spoke modeI, lhey are nol.
Nol onIy can much of lhe variance be
removed from lhe nelvork modeI, lhus
Iovering cosls and improving quaIily, il is
required for survivaI.
Yel, inslead of processes lhal prevenl
randomness and chaos, lhe currenl hub-
and-spoke scheduIes, by funneIing aII
arriving and deparling aircrah inlo a very
smaII lime frame, assure lhal randomness
and chaos viII reign. Iurlher, lhe more
hubs an airIine has (i.e., Uniled), and lhe
grealer lhe congeslion il musl navigale
around and lhrough (i.e., US Airvays),
lhe grealer lhe variance generaled,
exponenliaIIy driving cosl higher and
quaIily Iover.
The end resuIl is lhal lhe variance
crealed by IocaI oplimizalion and
independenl aclion grealIy increases
lhe nelvork airIines cosl of produclion,
deslroys moraIe and forces producl
quaIily dovn lo lhe Iovesl common
A P P E N D I X A V I E WS O F I N D U S T R Y P R O F E S S I O N A L S 4 9 3
denominalor, such lhal lhe cuslomer is no
Ionger viIIing lo pay a premium for vhal
shouId be a superior producl. One smaII
probIem, so many negalive resuIls.
To undersland vhy lhis is lrue,
one musl rsl reaIize lhal an airIine is
nolhing more lhan a reIaliveIy simpIe,
inlerdependenl, geographicaIIy dispersed
manufacluring process. AirIines lake in
rav maleriaIs (peopIe, bags, cargo, fueI,
elc.), appIy numerous processes lo lhese
maleriaIs (vork in process invenlory),
and lhen deIivers lhe nished producl
(passenger/cargo) lo lhe deslinalion
curb. Like aII manufacluring processes,
managing aII of lhese inlerdependenl
ovs of maleriaIs such lhal lhe righl parl
is al lhe righl pIace al lhe righl lime is
crilicaI for prolabiIily.
Wnu Hu| an! Spckc?
The mosl obvious nexl queslion is if
lhe hub and spoke is so inecienl, vhy
nol abandon il for a Iinear syslem Iike
Soulhvesls` Why nol |usl de-peak airIine
scheduIes lo avoid lhe probIem`
The rsl and mosl imporlanl ansver
is revenue. The nelvork modeI generales
more revenue lhan a Iinear airIine modeI.
Mr. CrandaII (former AMR CIO) has
slaled lhal Americans nelvork scheduIe
generaled 20 percenl more revenue
lhan Soulhvesl. WhiIe lhis number is
decreasing given lhe reduclion in lhe
quaIily of lhe nelvork producl, lhe
economic Ieverage of lhe hub-and-spoke
modeI lo provide lransporlalion vilh a
singIe ighl lo 50 lo 60 deslinalions is
very Iarge.
In facl, given lhe revenue posilive
aspecls of lhe hub modeI, airIines
shouId increase lheir scheduIed arrivaI
peaks, nol aen lheir arrivaI peaks
as is being done loday. UnforlunaleIy,
lhe associaled cosl of increasing arrivaI
peaks, aIlhough enlireIy soIvabIe, is
driving lhe hub airIines lo lhe vrong
acliondecreasing arrivaI peaks and
lherefore, revenue.
The nexl faclor is cuslomer service.
There are simpIy nol enough cuslomers
lo supporl a nonslop ighl from Des
Moines lo Iresno, or many olher smaII
communilies. OnIy a hub nelvork can
oer reasonabIy priced service belveen
many of lhese smaII cilies, as veII as
inlernalionaI deslinalions.
The lhird faclor is lhe economy. The
air lransporlalion syslem is parl of lhe
Iife bIood of lhe vorIds economy. Ior
exampIe, currenl eslimales pul lhe air
lransporlalion syslem al upvards of 6
percenl of lhe lolaI US Gross Domeslic
Iroducl. As lhe vorId has adopled more
lime crilicaI processes, having lhe righl
parl al lhe righl pIace al lhe righl lime is
essenliaI for prolabIy. An ongoing faiIure
of lhe nelvork airIine business modeI
viII have a signicanl negalive economic
impacl in every induslry lhroughoul lhe
vorId economy.
IinaIIy, as discussed above, lhe hub-
and spoke airIines do nol have lhe lime
lo aIler lheir basic business modeI. The
nelvork airIine assel base is buiIl around
lhe nelvork business modeI, such lhal
lhey have far loo many assels for a de-
peaked or Iinear syslem. Iven if lhe
nelvork airIines couId shed lheir Iarge
nelvork driven assel base quickIy, loo
many of lhese assels have IiIe relained
vaIue in lodays environmenl.
The ma|or probIem vilh syslem
variance is lhal aImosl aII of lhe
companys operalionaI processes are
negaliveIy impacled. Of course lhis is
aIso a good lhing, since vhen mosl of lhe
produclion variance is eIiminaled, vhich
can be accompIished much more rapidIy
lhan mosl beIieve, aII of lhose operalionaI
processes aulomalicaIIy become more
ecienl.
Thal said, lhe foIIoving are some of
lhe Iarger cosl and revenue areas aecled
A I R T R A N S P O R TAT I O N 4 9 4
by lhe variance so prevaIenl vilhin lhe
currenl hub-and-spoke operalion.
Ccsi cj Prc!uciicn
Iirsl, as any ov of maleriaIs becomes
more and more random and chaolic,
addilionaI produclion buers musl be
added lo accommodale lhe resuIlanl
variance. UnforlunaleIy, lhe easiesl vay
lo buer lhe airIine produclion process
vilhin lhe currenl hub-and-spoke
operalion has been lo add bIock/gale
lime. In some cases in lhe norlheasl
Uniled Slales, lo improve operalionaI
performance, bIock lime is 1.5 lo 2 limes
higher lhan needed. As is obvious, adding
15, 20, 30 or more minules of bIock lime
lo vhal shouId be a 1 hour ighl is a very
expensive melhod lo miligale lhe eecls
of variance, driving lhe hub airIines
cosl of produclion skyvard. This aIone
accounls for lhe Iarger porlion of lhe hub
airIines cosl probIem.
Nexl, a random ov of maleriaIs
aIvays requires more slu (assels and
Iabor) lo operale. An aircrah Iands and
vails for a gale, vhiIe gales assigned
lo aircrah lhal have yel lo arrive sland
emply. CIeaners vail for an aircrah lhal
is 12 minules Iale, vhiIe anolher aircrah
lhal is 8 minules earIy vails for cIeaners.
Cargo is Ieh al lhe gale because a veighl
probIem, lhal aIlhough resoIved, vas nol
reIayed lo lhe proper personneI. An earIy
aircrah sils and vails for a marshaIIer lo
aid vilh naI parking, and lhen vails for
someone lo posilion lhe |el vay and open
lhe door. ecause ighl aendanls are
deIayed inbound, lhe boarding process
for lhe nexl aircrah is deIayed and lhe
aircrah deparls Iale. One onIy need Iook
around an airIine hub lo see lhe Iarge
amounl of assels siing idIe. AII of lhis
slu slanding around |usl in case is
expensive lo purchase, requires addilionaI
Iabor, fueI and maleriaI lo operale and
repair, aII of vhich adds signicanlIy lo
lhe airIine's cosl of produclion.
IinaIIy, lhe ATC syslems response lo
random ovs aIso has a negalive eecl on
airIines' cosls. Given lhal lhe ATC syslem
is a lvo-dimensionaI, IocaIIy managed,
manuaIIy operaled process, lhe onIy
response lo more and more lrac is more
and more slruclure. As slruclure is added,
lhe aircrah ov is Iinearized farlher and
farlher from lhe end of lhe runvay. WhiIe
lhis miligales parl of lhe ATC conlroIIers
probIem, il forces airIines inlo Ionger and
Ionger queues vhich furlher increases
lhe randomness of lhe arrivaI ov. This
slruclure and lhe resuIlanl queuing forces
airIines lo add even more bIock lime lo
y from A lo . Again, adding bIock lime
drives up cosls.
|usi in Casc Prc!uciicn
As lhe manufacluring vorId has
lurned lo Iusl in lime and uiId lo
order produclion processes lo reduce
cosls, airIines have been forced lo
buiId coslIy Iusl in case processes.
UnforlunaleIy for lhe nelvork airIines,
lhe unprediclabiIily of lheir operalion
broughl on by randomness and chaos
forces each manager al each slage of lhe
airIine produclion process lo add buers
lo prolecl lheir parl of lhe process Iusl in
case.
Since airIine scheduIers donl knov
exaclIy vhen lhe aircrah viII arrive,
lhey add exlra bIock and gale lime Iusl
in case lhe aircrah is a fev minules
Iale. Since piIols donl knov lhe arrivaI
congeslion, lhey add fueI lo lhe ighl
Iusl in case lhey have lo hoId al lhe
deslinalion. Since reservalions agenls
donl knov hov many passengers viII
shov up, lhey overbook Iusl in case.
This Iusl in case menlaIily permeales
lhroughoul lhe enlire nelvork operalion
such lhal il drives an aIready high cosl of
produclion higher.
A P P E N D I X A V I E WS O F I N D U S T R Y P R O F E S S I O N A L S 4 9 5
|ctcnuc
The rsl probIem on lhe revenue side
vilh syslem variance is Iover producl
quaIily. As variance increases, lhe
passenger and/or cargo is Iess IikeIy lo
be deIivered lo lhe deslinalion curb on
lime, and, lherefore, lhe Iess lhe cuslomer
is viIIing lo pay for lhe producl. Lover
perceived vaIue is direclIy reIaled lo
pricing pover, or more accuraleIy, lhe
Iack lhereof. As described by George
Ickes (Making Six Signa Iasi), Cuslomers
feeI varialion, nol averages.
Thal said, lhe nev pricing paradigm
so ohen menlioned by airIines loday is
nol lhal lhe airIine cuslomer is unviIIing
lo pay higher prices for an airIine seal,
bul lhal lhey are unviIIing lo pay
higher prices for an airIine seal lhal is
unprediclabIe, vilh ever decreasing
quaIily. To see lhe IeveI of producl quaIily
nov prevaIenl vilhin lhe airIine induslry,
one onIy need valch CNN or lhe Wealher
ChanneI for hourIy reporls on airIine
defecls (i.e., airporl deIays). Any induslry
vhich deIivers ils producl Iale 35 percenl
lo 40 percenl of lhe lime (on lime zero)
has a serious quaIily probIem, vhich is
lhe primary reason airIines are unabIe lo
raise fares.
Anolher very visibIe symplom of
Iov airIine quaIily slemming from lhe
variance inherenl vilhin lhe currenl
operaling modeI is doubIe booking.
WhiIe some of lhis is based on lhe
passengers inabiIily lo predicl lheir
airporl arrivaI lime (i.e., lhe Ienglh of a
business meeling), much aIso has lo do
vilh lhe poor performance of lhe airIine.
Given lhal 35 percenl lo 40 percenl of lhe
airIine cuslomers are deIivered lo lheir
deslinalion Iale (on lime zero), cuslomers,
especiaIIy business cuslomers, book seals
on lvo or more ighls. Since lhe cuslomer
can onIy use one seal, lo prevenl lhe olher
seal from going emply, lhe airIine over
books lhe ighl. UnforlunaleIy, many
limes lhe airIine overbooks loo much
(cuslomers are Ieh behind) or loo IiIe
(lhe ighl deparls vilh emply seals)
furlher Iovering revenues (free lickels),
vhiIe decreasing quaIily (unhappy
cuslomers).
IinaIIy, lhe biggesl revenue probIem
vilh syslem variance is lhe reduclion
of syslem lhroughpul. As bIock lime
is increased lo combal variance, il
increases lhe scheduIed produclion
lime of lhe aircrah assel. Using lhe
manufacluring anaIogy, vhiIe lhe
manufacluring induslry is vorking al
oul lo increase syslem lhroughpul by
increasing invenlory lurns, Iovering
produclion run limes and improving
quaIily vilh Six Sigma inilialives, lhe
currenl hub-operaling modeI has forced
lhe airIine induslry lo faII behind in lhese
imporlanl prol inilialives. According
lo Andy Chalha (ARC Advisory Group
Inc., a manufacluring consuIlanl), lhe
invenlory lurn ralio is parlicuIarIy crilicaI
in induslries lhal face signicanl pricing
and compelilive pressures, Iov margins
and fasl obsoIescence rales. Sound
famiIiar`
Therefore, vhen an airIine adds 20
minules exlra bIock lime lo y from A lo
, nol onIy is lhe segmenl cosl increased
and lhe producl quaIily Iovered because
lhe vork in process invenlory (i.e.,
passengers/cargo) is siing idIe loo Iong,
bul lhe addilionaI scheduIed bIock lime
(i.e., buer lime) is aircrah produclion
lime lhal cannol be used for producing
addilionaI producls from lo C (Iosl
opporlunily cosl).
In manufacluring lerms, if Iaclory A
produces 5 vidgels per machine per hour
and Iaclory produces 10 vidgels per
machine per hour, aII olher lhings being
equaI (quaIily, Iabor, markeling, elc.),
Iaclory vins every lime. Or more lo
lhe poinl, if a Soulhvesls 737 generales
40,000 ASMs/hour and a nelvork
airIines 737 generales Iess lhan 30,000
ASMs/hour, aII olher lhings being equaI
A I R T R A N S P O R TAT I O N 4 9 6
(perceived vaIue, elc.), Soulhvesl vins
every lime.
This nelvork lhroughpul probIem
is furlher compounded vilhin lhe hub-
and-spoke scheduIe because of lhe need
lo connecl lo lhe hub. Ior exampIe, if an
airIine adds 10 minules lo lhe oulbound
Ieg (hub lo spoke) and 10 minules
lo lhe inbound Ieg (spoke lo hub) lo
accommodale syslem variance, lhe ighl
may nol have enough lime lo make il
back lo connecl lo lhe arrivaI bank al hub.
The resuIl is lhal lhe aircrah is scheduIed
lo sil Ionger al lhe spoke vailing lo
lakeo al lhe correcl lime lo reconnecl
al lhe hub. And as is obvious, parked
aircrah make no money.
|n C|csing
Since lhe 1980s, increased produclion
lime has been lhe nelvork airIines onIy
ansver lo lhe ever increasing variance
vilhin lheir operalions. UnforlunaleIy,
lhis onIy masks lhe probIem and does
nolhing lo soIve lhe probIem.
Yel, unliI lhe earIy 2000s, airIines
couId easiIy pass on lhe higher
produclion cosls associaled vilh
increased bIock lime lo lheir cuslomers
vilh IiIe resislance. This vas lrue, even
in lhe face of decreasing producl quaIily
(deIays and congeslion), especiaIIy in lhe
Iale 1990s.
Then, aher 9/11, vilh lhe resuIlanl
drop in demand and lherefore revenues,
airIines reacled by cuing services,
furlher Iovering lhe perceived vaIue and
quaIily of lhe airIine producl. In lurn,
cuslomers reacled ralionaIIy and refused
lo pay a premium for vhal lhey vieved
as equaI quaIily for any airIine seal. The
end resuIl is lhal lhe nelvork airIines
nd lhemseIves in lhe vorsl possibIe
predicamenlhigh cosls and Iov quaIily
Ieading lo Iover revenues.
Variance is lhe rool cause of mosl
of lhe nanciaI probIems facing lhe
nelvork airIines. Variance Iovers
producl quaIily. Variance requires more
bIock lime. Variance requires more
aircrah. Variance requires more gales.
Variance requires more piIols. Variance
requires more fueI. In facl, variance
aIvays requires more of everylhing,
vhiIe aIvays reducing producl quaIily.
IinaIIy, soIulions exisls lhal can soIve
lhe nelvork airIine variance probIem
such lhal scheduIes can be increased and
lighlened. Thal said, unliI lhe nelvork
airIines recognize, dene, measure,
anaIyze, improve, conlroI, slandardize
and inlegrale syslem processes lo
eIiminale lhe variance vilhin lheir
operalions, lhey viII conlinue lheir
dovnvard sIide.
A P P E N D I X A V I E WS O F I N D U S T R Y P R O F E S S I O N A L S 4 9 7
This page intentionally left blank
APPENDIX B
Career Planning
in Aviation
Introduction
Choosing and Getting Your First Job in Aviation
Cover Letters and the Rsum
The Interview
Appendix Checklist You Should Be Able To:
Make a seIf-assessmenl of your laIenls, abiIilies, and
preferences in preparing for career choices
Idenlify lhe various avialion and aerospace induslries
and career palhs and |obs vilh rms in lhose
induslries
Describe lhe primary sources of informalion avaiIabIe
in Iocaling |ob openings
Irepare a cover Ieer and resume
Irepare for a successfuI inlerviev vilh prospeclive
empIoyers

499
INTRODUCTION
Career opporlunilies in avialion are quile exlensive and diversied. Among lhe mosl
visibIe occupalions are piIol, mechanic, ighl aendanl, and air lrafc conlroIIer. Less
visibIe are lhousands of olher ighl- and non-ighl-reIaled career palhs in avialion,
incIuding ighl dispalcher, crev scheduIer, markel anaIysl, manufaclurers saIes or
lechnicaI represenlalive, avialion insurance undervriler, and consuIlanl.
Avialion oers career opporlunilies for peopIe vilh varying educalionaI
backgrounds. An associales or bacheIors degree is generaIIy required for mosl
managemenl or supervisory posilions vilh lhe ma|or carriers. A maslers degree in
business adminislralion is increasingIy necessary for research or consuIling posilions in
lhe induslry or vilh federaI or slale avialion agencies. IrequenlIy, avialion consuIlanls,
induslry anaIysls, and avialion educalors have earned Ih.D.s in lransporlalion or
reIaled sub|ecls.
An avialion background can aIso lrain a person lo operale his or her ovn business.
Among lhe enlrepreneuriaI opporlunilies avaiIabIe are careers as xed-base operalors
(IOs), consuIlanls, insurance agenls, and freeIance vrilers for lhe numerous avialion
pubIicalions.
CHOOSING AND GETTING YOUR FIRST JOB IN AVIATION
The decision lhal you vanl lo be in avialion is a ma|or breaklhrough in ilseIf. Hovever,
avialion can mean many dierenl kinds of careers. The decisions you make aboul your
career viII aecl you for lhe resl of your Iife. The lime spenl on pIanning nov may make
lhe dierence belveen a salisfying career or a series of |ob mislakes Ialer. The foIIoving
are suggesled sleps for choosing a career and nding lhal rsl |ob.
Maki ng a Sc| j -Asscssncni
SeIf-assessmenl is one of lhe mosl imporlanl sleps in lhe |ob search. In order lo choose
a career lhal viII salisfy you, you musl rsl decide on your priorilies and your needs.
Honesly is crilicaI lo lhis seIf-assessmenlyou cannol aord lo deceive yourseIf aboul
vhal you vanl. The goaI here is lo undersland your laIenls, abiIilies, and preferences so
lhal you can maximize lhem by choosing an appropriale career palh. You shouId make
some lenlalive decisions aboul your ovn ob|eclivesvhal you vanl oul of a |ob and oul
of Iife. Al lhe very Ieasl, you shouId decide vhelher you are simpIy Iooking for a |ob or
vhelher you vanl lo buiId a career. Do you vanl lhe posilion lo be personaIIy salisfying,
or is money lhe key concern` Hov much nanciaI relurn do you needor are you viIIing
lo vork for` Hov much are you viIIing lo sacrice in Ieisure aclivilies and money lo
achieve success in a career` A career-orienled individuaI musl eslabIish shorl-lerm and
Iong-lerm ob|eclives. Ior exampIe, your Iong-lerm ob|eclive mighl be lo become a caplain
for a ma|or airIine. Reaching lhis ob|eclive viII require puing in a considerabIe number of
hours, earning many cerlicales and ralings, and vorking al severaI inlermediale Iover-
paying posilions. If, hovever, your ob|eclive is lo gel a |ob lhal pays veII in lhe shorl lerm,
one lhal is personaIIy salisfying bul mighl nol pay as veII in lhe Iong lerm, you viII need
dierenl kinds of lraining and |ob experiences.
A I R T R A N S P O R TAT I O N 5 0 0
ecause of lhe greal variely of avialion |obs, il is difcuIl lo generaIize aboul vhal
apliludes you shouId have, ideaIIy, lo pursue a career in avia-lion. Dierenl |obs aracl
peopIe vilh dierenl inleresls and abiIilies. SeIf-assessmenl is IargeIy a process of
cIarifying and arlicuIaling ideas you may aIready hoId in a fuzzy or ambiguous form.
To assisl in seIf-assessmenl, you mighl Iook al lhe foIIoving books, vhich raise many
queslions you shouId consider:
Wnai Cc|cr |s Ycur Paracnuic? by Richard N. oIIes
Sc|j-Asscssncni an! Carccr Octc|cpncni. by Iames G. CIavson el aI.
Making Vccaiicna| Cnciccs. A Tnccru cj Carccrs. by Iohn L. HoIIand
Iijc P|an. A Praciica| Gui!c ic Succcssju| Carccr P|anning. by Louise W. Schrank
AIso avaiI yourseIf of lhe counseIing service al your schooI. Tesls such as lhe Slrong
CampbeII Inleresl Invenlory viII heIp proIe your inleresls and apliludes.
|xani ni ng Carccr |i c| !s an! |c| Ocscri pii cns
The nexl slage is moving from an abslracl Iisl of your skiIIs, slrenglhs, and priorilies lo
acluaI |ob descriplions. You musl lransIale your seIf-assessmenl inlo an acluaI |ob lhal
suils your needs. The rsl slep is lo nd a eId, such as ying, mainlenance, managemenl,
markeling, compulers, or a combinalion of lhese eIds, lhal requires your laIenls. The
second slep is deciding vhal avialion or aerospace induslry you vanl lo appIy your
parlicuIar skiIIs lo. AirIines, avialion insurance companies, aircrah Ieasing and nancing
companies, IOs, consuIling rms, airporls, governmenl agencies, and airframe, engine,
and syslems manufaclurersaII Iook for peopIe vilh varied lechnicaI and nonlechnicaI,
ighl and nonighl backgrounds. Avialion |obs and career palhs can be found everyvhere:
you shouId consider lhe videsl possibIe variely of empIoyers vho couId use your skiIIs.
IrobabIy lhe mosl comprehensive Iisling of organizalions and personneI vilhin aII of lhe
avialion and aerospace induslries can be found in lhe Wcr|! Atiaiicn Oirccicru. vhich is
pubIished quarlerIy by Nevs Group IubIicalions. TabIe -1 gives a broad overviev of
lhese induslries.
Use some basic research lechniques lo invesligale career palhs and |obs lhal appeaI lo
you. Your goaI is lo Iearn enough aboul lhe eId lo decide vhelher you vouId be happy
in il. There are many dierenl sources of informalion avaiIabIe.
Consult Published Materials. Your schooI Iibrary or lhe IocaI pubIic Iibrary may have a
speciaI career informalion seclion. Iven if il does nol, lhe Iibrarys hoIdings viII cerlainIy
incIude many vaIuabIe references.
Iirsl, check lhe federaI governmenl pubIicalions. Iach year, lhe U.S. Deparlmenl of
Labor pubIishes lhe Occupaiicna| Oui|cck Han!|cck. This book provides up-lo-dale and
delaiIed informalion aboul hundreds of careers. Il describes lhe nalure of lhe vork,
vorking condilions, lhe number of peopIe in lhe eId, prospecls for advancemenl, lhe |ob
oulIook for lhe coming decade, and average earnings. Anolher governmenl pubIicalion,
lhe Oiciicnaru cj Occupaiicna| Tii|cs. calegorizes every |ob in our economy. TabIes -2
lhrough -8 (vhich can be found al lhe end of lhis appendix) conlain delaiIed, bul nol
exhauslive, Iislings of |ob lilIes in severaI avialion induslries. Ior up-lo-dale arlicIes on
A P P E N D I X B C A R E E R P L A N N I N G I N AV I AT I O N 5 0 1
changes and lrends in lhe |ob markel, incIuding emerging occupalions and occupalionaI
oulIooks, Iook lhrough recenl issues of lhe Occupaiicna| Oui|cck Quaricr|u.
The mass media, incIuding bolh IocaI and nalionaI nevspapers and lrade pubIicalions,
provide some of lhe mosl currenl informalion avaiIabIe. IeriodicaIs such as Busincss an!
Ccnncrcia| Atiaiicn. Air|inc |xccuiitc. Ccnnuicr Air. Air Transpcri Wcr|!. and Air|inc Pi|ci
have cIassied seclions lhal Iisl |ob opporlunilies.
IrofessionaI organizalions pubIish a variely of heIpfuI source maleriaIs. The Air Transporl
Associalion, Aerospace Induslries Associalion, American Associalion of Airporl Ixeculives,
and GeneraI Avialion Manufaclurers Associalion are |usl a fev exampIes. Some organizalions
TABLE B-1 Aviation and Aerospace Industries Listed in the World Aviation
Directory
Types of Iirms Lislings
Air lransporlalion rms
Ma|or and nalionaI air carriers U.S. ma|or and nalionaI air carriers and Canadian air carriers provid-
ing scheduIed passenger service and operaling aircrah sealing more
lhan 60 passengers: designaled ag carriers are aIso Iisled.
RegionaI air carriers (scheduIed) U.S. regionaI and Canadian air carriers providing scheduIed passen-
ger service and inlernalionaI air carriers providing scheduIed passen-
ger service and operaling aircrah sealing fever lhan 60 passengers.
Charler and commerciaI
operalors (nonscheduIed)
NonscheduIed air services, incIuding air laxi, conlracl, and charler
SpeciaIly air services SpeciaIly air services, incIuding air ambuIance, agricuIlure, and aeriaI
surveying/pholography.
Air cargo carriers and air and
freighl-forvarding rms
ScheduIed and nonscheduIed carriers speciaIizing in aII-cargo opera-
lions
Manufaclurers
Airframe/engine/syslems manu-
faclurers
AII companies lhal manufaclure airframes or engines. AIso Iisled are
ma|or avialion/aerospace syslems manufaclurers empIoying more
lhan 10,000 peopIe and having avialion/aerospace saIes in excess of
$100 miIIion
Componenl/equipmenl/ suppIies
manufaclurers
Avialion/aerospace componenl/equipmenl/suppIies manufaclurers
and companies in voIved in machining or pIanling processes
IueI and oiI companies U.S. rms manufacluring, lrading, markeling, or lransporling avia-
lion gas, |el fueI, or oiI
Compuler hardvare/syslems
manufaclurers and sohvare deveI-
opers
Compuler/microprocessor-based syslems manufaclurers and soh-
vare deveIopers vilh end-user civiI and miIilary avialion/aerospace
appIicalions
WorId heIicopler services ScheduIed and unscheduIed heIicopler services and speciaIly air
services: airframe/engine/syslems manufaclurers: componenl/equip-
menl/suppIies manufaclurers: equipmenl dislribulors, suppIiers, and
modicalions: overhauI and repair: consuIlanls and speciaI services:
heIiporls, ighl schooIs, organizalions, and pubIicalions
A I R T R A N S P O R TAT I O N 5 0 2
TABLE B-1 continued
Types of Iirms Lislings
Avialion services
Insurance companies Companies invoIved in avialion insurance, cIaims, and insurance
brokerage
Aircrah Ieasing, nance, and saIes Companies Ieasing, nancing, and/or seIIing aircrah
Dislribulors/suppIiers Companies invoIved in aircrah/aerospace equipmenl dislribulion or
suppIy
Modicalions/compIelions/over-
hauIs/IOs
AII companies invoIved in aircrah ground handIing, mainlenance,
overhauI and/or compIelions, incIuding xed-base operalors (IOs)
ConsuIlanls and speciaI services AII companies providing speciaI avialion-reIaled services, such as en-
gineering, R & D, managemenl, consuIling, IegaI, and pIanning
Organizalions Organizalions lhal represenl groups of aclive parlicipanls in lhe avia-
lion/aerospace induslry vorIdvide
IubIicalions OuaIied avialion/aerospace periodicaIs pubIished vilh eslabIished
frequency
Airporls and airporl services
Air carrier airporls and reguIal-
ing agencies
Airporls serviced by scheduIed air carriers and lhe geographicaIIy
specic agencies and commissions lhal reguIale lhem. Iixed-base op-
eralors and Iarl 139 cerlicalion are indicaled
GeneraI avialion airporls GeneraI avialion airporls (U.S. onIy) vilh Iighls and paved runvays
lhal are open lo lhe pubIic year-round
Avialion lraining schooIs SchooIs speciaIizing in lraining for aII ralings (incIuding Airframe &
IoverpIanl Iicensing) and in lraining airporl personneI, lraveI agenls,
air and ground personneI, and ighl engineers
Calering and in-ighl services Companies invoIved in food, music, and reIaled in-ighl services
WorId governmenl and miIilary
organizalions
Governmenl/miIilary agencies, divided inlo U.S., Canadian, and in-
lernalionaI subseclions. U.S. Iislings incIude civiI and miIilary agen-
cies invoIved in avialion. Canadian and inlernalionaI Iislings incIude
embassy, civiI and miIilary calegories
WorId space organizalions Spacecrah/Iaunch vehicIe manufaclurers: ground slalion/lracking,
leIemelry, and conlroI equipmenl manufaclurers: space syslems, sub-
syslems, componenl, and equipmenl manufaclurers: orbilaI research
and maleriaIs processing: space insurance, consuIlanls and speciaI
services, space organizalions, and pubIicalions
have pul logelher pubIicalions devoled lo career deveIopmenl, such as NASAs Iinii|css
Hcrizcns. Carccrs in Acrcspacc. Arco IubIishing Company pubIishes a number of exceIIenl
career guides, incIuding Oirccicru cj |np|cuncni Oppcriuniiics in inc |c!cra| Gctcrnncni
and Tnc Acrcspacc Carccrs Han!|cck. A U.S. Governmenl Irinling Ofce pubIicalion lhal is
parlicuIarIy good is lhe |c!cra| Carccr Oirccicru. A Gui!c jcr Cc||cgc Siu!cnis.
IinaIIy, a veaIlh of informalion can be found in various encycIopedias, diclionaries,
handbooks, manuaIs, bibIiographies, slalislicaI compendiums, indexes, and guides
devoled lo various induslries. Ior a bibIiography of many of lhese misceIIaneous sources
of informalion, arranged by induslry, see lhe seclion lilIed Sources of Informalion on
A P P E N D I X B C A R E E R P L A N N I N G I N AV I AT I O N 5 0 3
SeIecled Induslries and Career Opporlunilies in Sc|j-Asscssncni an! Carccr Octc|cpncni.
by Iames G. CIavson el aI.
Contact People in Industry. TaIking vilh peopIe vorking in lhe eId is ohen more
reveaIing lhan reading books. This process does nol have lo be exlremeIy formaI. Using
a source such as lhe Wcr|! Atiaiicn Oirccicru, idenlify peopIe hoIding |obs lhal you vanl
lo knov more aboul. You can aIso laIk vilh friends, acquainlances, and famiIy members
vho hoId simiIar |obs. Donl be reIuclanl lo approach peopIemosl peopIe are aered
lo be asked and Iike lo laIk aboul lheir vork. Iusl be expIicil lhal you are nci asking for a
|ob, bul onIy for informalion.
Arrange an inlerviev by phone or Ieer, and lhen come prepared vilh queslions. Some
basic queslions incIude lhe foIIoving:
1. Whal are your responsibiIilies`
2. Whal is an average vorking day Iike` Is lhere much variely from veek lo veek or
monlh lo monlh`
3. Whal are your grealesl salisfaclions and deepesl fruslralions vilh your |ob`
4. Whal kind of peopIe do veII in your Iine of vork` Are any speciaI quaIicalions or
lraining needed`
5. Hov do you feeI aboul fulure |ob opporlunilies in lhe induslry`
6. Whal are lypicaI enlry-IeveI |obs and lypicaI career palhs`
7. Whal saIary does lhe average person make aher 5, 10, and 15 years in lhe eId`
8. Do you have any suggeslions for olher peopIe lo vhom I shouId laIk`
Learn from Direct Experience. You can Iearn mosl aboul a |ob by lrying il oul. If youre
reaIIy serious aboul a career, lry lo nd a paid parl-lime or summer |ob, voIunleer vork,
or a posl in a schooI group lhal viII expose you lo lhe eId. Ior exampIe, vorking for
an IO, voIunleering lo heIp oul al a IocaI air shov, or serving as an ofcer in a schooI
organizalion such as lhe ying cIub or AIpha Ila Rho viII enhance your experience and
resume.
These kinds of opporlunilies aIIov you lo lesl your incIinalions. Al besl, you may
gel experience and deveIop skiIIs lhal viII evenluaIIy heIp you Iand a |ob. Iven if
your responsibiIilies are Iimiled, you can observe lhe fuII-lime empIoyees and see lhe
organizalion from lhe inside. Al vorsl, you may nd lhal you disIike your career choice.
This viII al Ieasl aIIov you lo svilch career goaIs before you have invesled much lime or
lraining.
A I R T R A N S P O R TAT I O N 5 0 4
Cc| | ccii ng |nj crnaii cn
Once you have found a |ob lhal inleresls you, use lhe sources previousIy menlioned lo
research lhe career area. DeveIop a Ie lhal incIudes lhe foIIoving maleriaI:
1. Sources of informalion on lhe career area, incIuding pubIished maleriaIs, inlervievs,
and experience
2. Iob lilIes in lhe career area
3. Nalure of lhe vork
4. Working condilions (hours, physicaI surroundings, feIIov empIoyees, lraveI, pressures
and revards, Iocalions, and so on)
5. OuaIicalions for lhe |ob (educalion, experience, skiIIs, Iicenses, ralings, hours, lype
of equipmenl, and so on)
6. Compensalion (saIary range for enlry-IeveI |obs and for more advanced |obs, and
benels)
7. Career palhs (common roules for advancemenl, lransferabiIily of skiIIs lo anolher
eId, average rale of advancemenl)
8. Iulure prospecls (pro|ecled grovlh of eId, induslry probIems, compelilion for |obs)
9. The malch belveen lhe career and your seIf-assessmenl
10. AddilionaI sources of informalion for furlher invesligalion
|i n!i ng |c| Opcni ngs
Once you have decided on lhe lype of |ob you vanl, lhe nexl slep is Iocaling acluaI |ob
openings. Many sources of informalion are avaiIabIe lo you.
Academic Leads. olh your professors and lhe campus pIacemenl ofce may have Ieads
aboul |ob openings. TeII lhem aboul your inleresls and abiIilies. Aend any |ob fairs lhal
lhe pIacemenl ofce sponsors. In addilion, il is heIpfuI lo laIk lo campus recruilers. Iven
if such inlervievs do nol Iead lo a |ob, you can check vhelher your expeclalions are
reaIislic.
Business and Community Organizations. IrofessionaI, civic, and olher organizalions
somelimes mainlain |ob banks and give advance nolicalion of |ob opporlunilies lo
members or olher peopIe vho are signed up. One such organizalion is lhe Avialion
Informalion Resources, 1001 RiverdaIe Courl, AlIanla, Ga. 30337. Check vilh aIumni
organizalions, professionaI groups, chambers of commerce, and simiIar groups.
A P P E N D I X B C A R E E R P L A N N I N G I N AV I AT I O N 5 0 5
The Media. Mosl |ob openings are nol adverlised. Hovever, cIassied adverlisemenls
in ma|or nevspapers, professionaI periodicaIs, and lrade |ournaIs do Iisl a Iol of |ob
opporlunilies. SeveraI parlicuIarIy good sources are Air |c|s Oigcsi, pubIished monlhIy
by WorId Air Dala, I.O. ox 70127, Washinglon, D.C. 20088: Atiaiicn |np|cuncni Mcnin|u,
I.O. ox 8286, SaddIebrook, N.I. 07662: Trade-A-IIane, I.O. ox 929, CrossviIIe, Tenn.
38557: and Occupaiicns in Ocnan!, pubIished monlhIy by lhe U.S. Deparlmenl of Labor,
ImpIoymenl and Training Adminislralion, Washinglon, D.C. 20213.
Il is aIso heIpfuI lo foIIov up on nevs slories aboul lhe pIanned expansion or reIocalion
of a company in your area. The change is IikeIy lo creale |obs. You can foIIov up on lhe
Iead by conlacling lhe company direclIy.
Employment Agencies. Irivale empIoymenl agencies have conlacls lhal can reduce lhe
lime il lakes lo nd a |ob, bul lhere are ohen fees invoIved and olher slrings aached.
Il is ohen in lhe agencys inleresl lo pIace you as fasl as possibIe, nol lo nd your ideaI
|ob. The agencys IoyaIly is lo lhe empIoyer, because empIoyers pay lhe biIIs and may be
sleady cuslomers. Il has been eslimaled lhal privale agencies pIace Iess lhan 5 percenl of
lhe peopIe enlering lhe |ob markel and aboul 15 percenl of peopIe changing |obs. The slale
and federaI governmenls aIso sponsor empIoymenl services.
Networking. The ma|orily of aII |obs, perhaps as many as 90 percenl, are never formaIIy
adverlised. Inslead, lhey are IIed by vord of moulh. IeopIe hear aboul lhe |ob opening
from lheir personaI conlacls and appIy lo lhe empIoyer direclIy. ObviousIy, lhere is Iess
compelilion for lhese |obs, and lhey may oer lhe grealesl revards. Sludies indicale lhal
peopIe vho gel |obs lhrough lhis hidden |ob markel slay vilh lhem Ionger and lend lo
do beer nanciaIIy.
Hov do you go aboul lapping inlo lhese |obs` You musl eslabIish a groving nelvork
of personaI conlacls. IvenluaIIy, you viII hear aboul unadverlised |obs and viII meel lhe
peopIe vho make decisions aboul hiring. You have aIready begun lhe process by laIking
lo peopIe in order lo Iearn aboul lheir |obs. Iach person you laIk lo viII refer you lo more
peopIe. The process conlinues unliI you gel a |ob Iead.
Il is imporlanl lo keep a record of everyone lo vhom you laIk or are referred. In lhis
vay, you can keep lrack of aII lhe delaiIs needed lo foIIov up on every Iead and lo make
an appropriale inlroduclion in every inlerviev. Your records shouId documenl every
conlacl, incIuding Ieers and leIephone conversalions and inlervievs.
COVER LETTERS AND THE RSUM
Ireparing a cover Ieer and resume is lhe nexl slep in lhe process. Your Iibrary viII incIude
a number of good sources lo use in preparing lhese imporlanl ilems. Tvo parlicuIarIy
good books you may vanl lo consuIl are:
Tnc |csunc Bui|!cr. by Iohn Komar
Hign |npaci |csuncs an! Iccrs. by Roberl Krannich and WiIIiam anis
A I R T R A N S P O R TAT I O N 5 0 6
The cover Ieer acls as a subslilule for a personaI inlroduclion lo a polenliaI empIoyer. Il
shouId convince lhe reader lo Iook al your resume and consider seeing you in person.
Try lo address lhe Ieer lo lhe person vho has lhe pover lo make lhe hiring decision
for lhe |ob in vhich you are inleresled. You can caII lhe company direclIy lo nd oul lhe
names of lhe peopIe vho head specic deparlmenls or divisions. Try lo Iearn lhe name of
lhe individuaI vho vouId be your boss if you gol lhe |ob. A form Ieer direcled lo a lilIe
ralher lhan an individuaI is IikeIy lo receive IiIe aenlion.
egin lhe Ieer vilh a reference lo lhe person, his or her deparlmenl, or his or her
company. Irior research may have lurned up a recenlIy pubIished arlicIe aboul lhe company.
y menlioning lhis, you demonslrale lhe facl lhal you have done your homevork, and
you caplure lhe readers inleresl.
In lhe body of lhe Ieer, you musl expIain vhy you are inleresled in lhis parlicuIar
organizalion and shov hov you can conlribule lo il. The key is lo lie your skiIIs,
experience, educalion, and molivalion lo lhe parlicuIar posilion you are seeking. The goaI
is lo convince lhe reader lhal you are vorlh inlervieving.
CIose lhe Ieer by requesling an inlerviev. Ixpress your eagerness for a discussion of lhe
possibiIilies and menlion lhal you pIan lo caII in a veek or lvo lo sel up an appoinlmenl.
This naluraIIy Ieads lo a foIIov-up phone caII. Iven if you do nol gel lhe inlerviev, send
a lhank you Ieer for lhe caII. Keep reileraling your inleresl in lhe organizalion.
Tnc |csunc
A resume is a brief summary of your educalion, vork hislory, career goaIs, and inleresls.
You shouId submil a copy of your resume vilh every Ieer expressing inleresl in a
company, vilh every |ob appIicalion, and al every inlerviev. ImpIoyers gel lheir rsl
impression of |ob candidales from lheir resumes and use lhem lo screen appIicanls. You
need a good resume lo seII yourseIf lo empIoyers and convince lhem youre vorlh laIking
lo. An empIoyer ohen gels hundreds of responses lo an adverlisemenl bul viII probabIy
inlerviev onIy ve or six candidales.
When vriling your resume, aIvays remember lhal peopIe spend very IiIe lime Iooking
al any one resume. Someone sorling lhrough a piIe of resumes mighl gIance al each one for
10 or 15 seconds. Thal is hov Iong you have lo persuade lhe empIoyer lhal your resume
deserves lo be foIIoved up on. You cannol aord lo incIude anylhing lhal gives a negalive
impression. Therefore, lhe vay lhe resume Iooks (lyping, paper, speIIing mislakes, Iayoul)
can be as imporlanl as lhe acluaI conlenl. Ior aII lhese reasons, you shouId devole a Iol of
lime lo crahing your resume.
You may be lempled lo use a resume service because lheir producls may seem more
professionaI lo you. Hovever, resume services produce a slandardized, recognizabIe
producl, vhen lhe inlenl of your resume is lo sel yourseIf aparl from lhe crovd. You
knov yourseIfbolh your goaIs and your paslbeer lhan anyone eIse in lhe vorId. Thal
makes you lhe besl person lo produce a compIele, honesl, and represenlalive resume.
To save space and aIIov lhe reader lo grasp lhe maleriaI quickIy, you shouId vrile any
descriplive ilems in concise phrases ralher lhan compIele senlences. Use aclion verbs such
as crcaic!. !ctc|cpc!. or !csignc! lo Iead o lhese phrases. Make descriplions cIear and easy
lo undersland. Do nol be loo lechnicaI. e specic and use numbers if possibIe.
Cctcr Iciicrs
A P P E N D I X B C A R E E R P L A N N I N G I N AV I AT I O N 5 0 7
Consider lhe polenliaI empIoyer as you decide vhal lo incIude in your resume. Slress
lhose skiIIs and accompIishmenls lhal lhe empIoyer needs. If you are appIying for dierenl
kinds of |obs, il may be besl lo make severaI versions of your resume.
In lrying lo creale lhe mosl impressive documenl possibIe, you shouId highIighl your
slrong poinls and dovnpIay your veaknesses. Ior exampIe, a recenl graduale lypicaIIy viII
Iisl his or her schooIing rsl, because lhal is more impressive lhan a sparse vork hislory.
An oIder vorker vilh Iols of experience vouId normaIIy pul educalion credenliaIs Iasl.
You can aIso choose dierenl formals for your resume in order lo slress your slrenglhs.
Once you have deveIoped a naI version of your resume, check il againsl lhese
crileria:
1. Is lhe resume one page Iong` If you have used a second page, is lhere a compeIIing
reason for il`
2. Are lhere any speIIing, lyping, or grammalicaI errors`
3. Have you presenled lhe informalion accuraleIy and honeslIy`
4. Have you incIuded any irreIevanl informalion lhal mighl dislracl lhe reader`
5. Have you Ieh oul any imporlanl informalion`
6. Have you accounled for each period of lime` Are your accompIishmenls Iisled in
reverse chronoIogicaI order, slarling vilh lhe mosl recenl`
7. Does lhe resume slress your slrenglhs and your accompIishmenls` Is lhe conlenl
laiIored lo supporl your career ob|eclive`
8. Is lhe vriling concise and easiIy underslood`
9. Is your formal consislenl lhroughoul` Are your indenlalions, underIinings, and use
of capilaI Ieers lhe same for every enlry`
10. Is il araclive lo Iook al` Does il appear professionaI`
Once you have prepared lhe naI version of your resume, you may vish lo have a
professionaI lypisl or vord-processing service prepare copies lo be senl lo prospeclive
empIoyers. These are more expensive oplions, bul in some cases, a more impressive
Iooking resume is vorlh lhe addilionaI cosl.
THE INTERVIEW
A slrong resume may gel you an inlerviev, bul onIy a good inlerviev can gel you a |ob.
ImpIoyers make lheir naI decisions based on hov you impress lhem in person. During
an inlerviev, you are |udged nol onIy on your experience bul aIso on your sociaI skiIIs,
your abiIily lo lhink on your feel, your personaIily, and many olher ilems. Therefore,
you musl aIvays remember lhal you are lrying lo demonslrale more lhan your |ob
A I R T R A N S P O R TAT I O N 5 0 8
Tnc Qucsii cns
Inlervievers roulineIy ask lhe same lypes of queslions, aIlhough lhe order and phrasing
vary videIy. TypicaI queslions incIude lhese:
1. Why do you vanl lo vork for our company`
2. Whal vouId you Iike lo be doing 10 years from nov` Do you lhink you viII achieve
your goaIs`
3. Why did you choose lhe parlicuIar coIIege you aended` Whal did you en|oy mosl
aboul schooI` Whal vere some of your favorile courses`
4. Whal is lhe accompIishmenl of vhich you are proudesl`
5. Whal are your slrenglhs and veaknesses`
Ansver lhe queslions posiliveIy, slressing your accompIishmenls vherever possibIe
by giving exampIes from your pasl. Try lo keep some parlicuIar |ob in mind, and laiIor
your ansvers for lhal |ob. The goaI is lo convince lhe inlerviever lhal you can make a
conlribulion lo lhe company.
When you respond lo queslions during an inlerviev, ansver lhem compIeleIy, bul
do nol dominale lhe conversalion lo lhe excIusion of lhe inlerviever. Try lo be a good
Iislener as veII as a laIker. Use exampIes from your experience lo shov hov you can be
of vaIue lo lhe empIoyer. In generaI, lhe besl |ob candidales are lhe ones vho knov aboul
lhe company, have specic career goaIs, ask good queslions, are arlicuIale, and have good
sociaI skiIIs.
AIvays address lhe inlerviever by name during lhe inlerviev. Try lo pro|ecl enlhusiasm,
sincerily, honesly, and a sense of humor. AIvays lhank lhe inlerviever for his or her lime
and heIp in ansvering your queslions.
IinaIIy, never Ieave an inlerviev vilhoul geing a commilmenl aboul vhen you viII
hear from lhe empIoyer. Iind oul vhal lhe nexl slep in lhe empIoymenl process is and
hov Iong il usuaIIy lakes.
Aj icr inc |nicrti cu
compelence during an inlerviev. You aIso vanl lo convey your honesly, enlhusiasm,
molivalion, responsibiIily, abiIily lo foIIov inslruclions, and aII lhe olher inlangibIes lhal
lhe empIoyer is Iooking for. To make lhe besl possibIe impression, you musl be avare of
your appearance, your body Ianguage, and lhe vay you lreal lhe secrelaries, as veII as
vhal you say in response lo lhe inlervievers queslions.
Aher each inlerviev, vrile a Ieer lhanking lhe inlerviever. This viII demonslrale basic
courlesy, heIp you be remembered, and shov a IiIe exlra enlhusiasm for lhe |ob. In
addilion, il viII provide an opporlunily lo add any informalion lhal you forgol lo menlion
in lhe inlerviev, lo correcl a vrong impression, or lo re-emphasize your quaIicalions.
A P P E N D I X B C A R E E R P L A N N I N G I N AV I AT I O N 5 0 9
TABLE B-2 Selected Flight-Related Job Titles with the Airlines
Iob TilIe Descriplion
Caplain Commands lhe aircrah and is responsibIe for lhe safely of ils passengers, crev, and
cargo. NormaIIy requires an Air Transporl IiIol raling from lhe IAA. Wilh lhe assisl-
ance of lhe rsl ofcer, lhe caplain musl run a check on aII inslrumenls, conlroIs, and
equipmenl. Aher cIearance from air lrafc conlroI, lhe caplain musl foIIov lhe eslab-
Iished lakeo paern unliI cruising aIlilude is aained. Once airborne, periodic posilion
reporls are made vilh lhe appropriale air lrafc conlroI roule cenler, as are frequenl
navigalionaI changes. The caplain musl have a lhorough knovIedge of operalionaI poI-
icies and reguIalions, aircrah syslems, engines, inslrumenls, radio equipmenl, roules,
airporls, and vealher condilions lo eecliveIy pIan a ighl. In addilion, lhe piIol-in-
command musl be highIy skiIIed in lhe lakeo, Ianding, and airborne operalion of lhe
aircrah, as veII as lhe melhods of navigalion.
Iirsl ofcer
(co-piIol)
Assisls lhe caplain in lhe operalion of lhe aircrah by moniloring lhe ighl inslrumenls,
handIing radio communicalions, valching for air lrafc, and laking over lhe ighl
conlroIs vhen direcled by lhe caplain. Al a minimum, lhe co-piIol normaIIy viII have a
CommerciaI IiIol Iicense vilh an inslrumenl raling
Second ofcer
(ighl engineer)
Makes a vaIk-around inspeclion of lhe aircrah, checking approximaleIy 200 ilems.
Oversees fueIing operalions, revievs mechanics reporls, and assisls lhe caplain and rsl
ofcer vilh lhe preighl cockpil check. The second ofcer aIso monilors engines, fueI
consumplion, and lhe healing, pressurizalion, hydrauIic, eIeclricaI, and air condilioning
syslems. IIighl engineers or second ofcers lroubIeshool and, if possibIe, repair fauIly
equipmenl in ighl, check and mainlain aircrah Iog books, reporl mechanicaI difcuIlies
lo lhe mainlenance crev chief, and make a naI poslighl inspeclion of lhe aircrah. This
posilion requires lhe same Iicensing requiremenls as lhe rsl ofcer, incIuding a IIighl
Ingineer Iicense from lhe IAA. SmaIIer carriers do nol y lhis posilion.
IIighl inslruclor Irimary responsibiIily is lo inslrucl piIol personneI undergoing cIassroom, simuIalor,
and in-ighl lraining in lhe carriers aircrah. IIighl inslruclors deveIop and presenl
courses, as may be required, on such lopics as meleoroIogy, navigalion, and airpIane
syslems, performance, and operalions. They prepare progress and grade reporls on
assigned lrainees, evaIualing lheir abiIily lo perform in accordance vilh company and
IAA slandards. In addilion lo performing lhe dulies of a ground inslruclor, a ighl
inslruclor is responsibIe for lraining piIols in normaI and emergency operaling proce-
dures, syslem lroubIeshooling, and crev coordinalion for nev-hire ighl engineers,
second ofcers, and olher ighl ofcers. This lraining is conducled in ighl simuIalors
and in aircrah in ighl. IIighl inslruclors musl mainlain IAA IIighl Ingineer Iicenses
and y on-Iine as inslruclor/observers lo relain currenl quaIicalions.
A I R T R A N S P O R TAT I O N 5 1 0
IIighl dispalcher In cooperalion vilh lhe piIol, furnishes a ighl pIan lhal enabIes lhe aircrah lo arrive al
ils deslinalion on scheduIe vilh lhe maximum payIoad and lhe Iovesl operaling cosl.
The ighl dispalcher considers en roule and deslinalion vealher, vinds aIoh, aIlerna-
live deslinalions, fueI requiremenls, aIliludes, and lrafc ov. The ighl dispalchers
signalure, aIong vilh lhal of lhe piIol, reIeases lhe aircrah for ighl. This individuaI
mainlains conslanl valch on aII ighls dispalched and is lhe go-belveen for lhe piIol
and ground service personneI. The ighl dispalcher keeps aII personneI informed
concerning lhe slalus of lhe ighl and musl be famiIiar vilh navigalion faciIilies over
airIine roules and al airporls, as veII as vilh lakeo, cruising, and Ianding characleris-
lics of aII lypes of aircrah operaled by lhe airIine. An IAA IIighl Dispalcher Iicense is
required.
MeleoroIogisl AnaIyzes vealher dala and prepares vealher reporls for lhe ighl dispalcher, piIols,
and olher airIine personneI concerned vilh vealher informalion. This individuaI aIso
assisls lhe ighl dispalcher in preparing ighl pIans.
IIighl aendanl RoIe revoIves around lvo ma|or responsibiIilies: safely and service. The safely of pas-
sengers mighl invoIve emergency procedures necessary because of an aircrah accidenl
during lakeo or Ianding: lhis vouId incIude guiding passengers lo exils in a caIm,
professionaI manner. Il mighl aIso mean simpIe rsl-aid procedures or rescuing a
viclim from choking. Il aIvays incIudes inslrucling passengers in lhe emergency use
of oxygen, in lhe Iocalion of emergency exils, and in lhe use of Iife vesls if lhe aircrah
ies over valer. Service is an exlension of lhe ighl aendanls roIe in markeling. This
incIudes such cuslomer reIalions aclivilies as soolhing nervous or irrilaled passengers
and responding lo cuslomers needs and concerns. IIighl aendanls provide food and
beverage servicesfrom a modesl snack service on shorl-hauI ighls lo a fuII-course
meaI on Iong-hauI ighls.
IIighl operalions
coordinalor
Monilors lhe progress of aircrah and crevs en roule: receives and reIays reporls of
deIays due lo vealher and mechanicaI probIems: nolies operalions personneI regard-
ing deIays or changes: and gives orders for subslilulion of aircrah vhen required. The
coordinalor is invoIved vilh diversions of ighls lo aIlernalive airporls and monilors
vealher faclors aecling air lrafc, lurnarounds, eslimaled lime of arrivaI, and un-
scheduIed slops. This individuaI aIso vorks cIoseIy vilh scheduIe pIanning personneI
in deveIoping lhe syslem scheduIe pIan and vilh crev scheduIing personneI in consid-
ering piIol avaiIabiIily lo meel scheduIe changes.
Iob TilIe Descriplion
A P P E N D I X B C A R E E R P L A N N I N G I N AV I AT I O N 5 1 1
TABLE B-3 Selected Maintenance-Related Job Titles with the Airlines
Iob TilIe Descriplion
Iover pIanl Mainlains lhe aircrah engines, incIuding dismanlIing, inspecling, assembIing, and lesling.
mechanic A |el aircrah can be compIeleIy overhauIed in Iess lhan a veek al a Iarge carriers overhauI
faciIily. The airpIane is slripped of aII removabIe unils, vhich are lhen refurbished, reas-
sembIed, checked, lesled, and inspecled on an around-lhe-cIock scheduIe. Iel engines are
broken dovn and aII parls are cIeaned and inspecled. If suilabIe for reuse, parls are lhor-
oughIy recondilioned. Aher being reassembIed, engines are lesled in lesl ceIIs lo ensure
lheir compIele funclionaI reIiabiIily before lhey are pul back on lhe Iine. An IAA Airframe
& IoverpIanl Iicense is required.
Accessory ResponsibIe for overhauIing and lesling hydrauIic, pneumalic, fueI, and valer compo-
overhauI nenls, mechanicaI aclivalors, and Ianding gears. Mechanics vork on ma|or syslems, such
mechanic as hydrauIic unils used lo pover Ianding gear and cabin air compressors. An IAA Air-
frame & IoverpIanl Iicense is required.
Sheel melaI ResponsibIe for a vide variely of aircrah componenls, from simpIe cIips and brackels lo
mechanic oiI cooIer and heal exchanger unils: from lrim lab devices lo compIele conlroI surfaces
such as aiIerons and rudders. These individuaIs aIso overhauI |el engine pod parls, main-
lain aII pressure vesseIs, and make paerns and casl dies for slamping conloured parls.
Line sheel melaI mechanics perform slrucluraI repairs, bolh in overhauI dulies and in lhe
repair of airframes and lheir componenl parls. Shop mechanics in sheel melaI perform
such dulies as lempIale Iayoul, sel-back, heal lrealmenl, normaIizing, anneaIing, and fab-
ricalion. An IAA Airframe & IoverpIanl Iicense is required.
IIeclricaI ResponsibIe for lhe repair, overhauI, and lesling of eIeclricaI unils ranging from genera
mechanic lors, molors, vaIves, aclivalors, reIays, lhermo svilches, re deleclors, and harnesses lo
coee makers. Line eIeclricaI mechanics mainlain vorking syslems, fueI quanlily caIibra-
lion checks, Iighling, and pover componenls. An IAA Airframe & IoverpIanl Iicense is
required.
Inslrumenl InslaIIs, lesls, repairs, and overhauIs aII aircrah, engine, and navigalionaI inslrumenls.
lechnician These incIude gyro horizons, aIlimelers, air speed and rale-of-cIimb indicalors, lachom-
elers, fueI ov melers, lemperalure indicalors, compasses, pressure gauges, and olher
lypes of inslrumenls. An IAA Airframe & IoverpIanl Iicense is required.
Radio InslaIIs, mainlains, repairs, and lesls aII avionics (airborne eIeclronics) equipmenl, such as
lechnician lransmiers and receivers, vealher-mapping radar, navigalionaI radio (VOR) and radar
(DoppIer), dislance measuring equipmenl (DMI), inerliaI guidance equipmenl, eIemenls
of lhe aulopiIol syslem, and in-ighl enlerlainmenl syslems. An ICC Second CIass Radio
Iicense is required.
A I R T R A N S P O R TAT I O N 5 1 2
TABLE B-4 Selected Management- and Non-Management-Related Job Titles
with the Airlines
Iob TilIe Descriplion
Reservalions HandIes leIephone inquiries from lraveI agenls, olher carriers, and lhe generaI
agenl pubIic regarding ighl scheduIes, fares, and connecling ighls and reserves seals
and cargo space for cuslomers. Using compulerized reservalions equipmenl, lhis
individuaI keeps records of reservalions and musl be abIe lo recommend services
lhal l cuslomers requiremenls and be famiIiar vilh roules and scheduIes of
olher airIines.
Cuslomer GeneraIIy speciaIizes in one or more of lhe lvo foIIoving areas. (1) Tickel counl-
service agenl erhas conlacl vilh lhe lraveIing pubIic, issuing lickels and ansvering inquiries
regarding fares, scheduIes, and aII aspecls of inlernalionaI and domeslic air lraveI.
The agenl aIso handIes lhe check-in procedure for aII cuslomers and checks lickels
before boarding lhe aircrah. (2) Operalionsreceives and lransmils messages be-
lveen lhe aircrah in-ighl and lerminaI personneI: vorks vilh airporl personneI
in assigning gale posilions: advises lhe ighl crev of vealher condilions, aIlimeler
seings, and cIearances: announces arrivaIs and deparlures: coordinales lhe acliv-
ily of olher personneI receiving and dispalching aircrah: and prepares imporlanl
reporls and charls concerning lhe veighl, baIance, and fueIing of lhe aircrah.
Air freighl agenl Receives air freighl shipmenls, veighs lhem, prepares shipping orders, and sends
(cargo agenl) shipmenls on lhe vay lo lheir deslinalion. The agenl aIso audils domeslic car-
rier freighl biIIs, furnishes rale and roule informalion, handIes Ioss and damage
cIaims, compiIes slalislics for monlhIy reporls, and prepares correspondence lo
oblain correcl freighl rale cIassicalions.
SaIes represenlalive CaIIs on lraveI agencies, commerciaI accounls, and governmenl accounls lo pro-
(accounl mole passenger lraveI and shipmenl of cargo. In lhis capacily, lhe saIes rep ex-
execulive) pIains lhe carriers markeling pIan, incIuding currenl promolions, adverlising
slralegy, and saIes Iileralure.
Dislricl saIes Adminislers lhe cily lickel and reservalion ofces and promoles and deveIops air-
manager Iine passenger and cargo lrafc in lhe dislricl in accordance vilh lhe companys
markeling goaIs and poIicies.
Accounlanl HeIps lo prepare nanciaI slalemenls and corporale annuaI reporls. InlernaI audil
provides opporlunilies lo conducl eId audils of lhe carriers expendilures. Rev-
enue accounling has fuII responsibiIily for cash saIes, credil, and inlerIine saIes
lransaclions. Accounls payabIe is responsibIe for meeling lhe carriers nanciaI
obIigalions lo suppIiers, and cosl accounling aIIocales expenses lo various deparl-
menls. The budgel deparlmenl provides pIanning and anaIysis of lhe corporale
nanciaI posilion.
udgel anaIysl Monilors acluaI expendilures againsl lhe budgeled gures. SpecicaIIy, lhis vouId
incIude lhe design, impIemenlalion, and conlroI of lhe company prol pIan, capi-
laI, operaling, and personneI budgels.
Markeling Dulies incIude lrafc forecasling and anaIysis of company saIes and markeling
research anaIysl dala research, as veII as of compelilors markeling programs. This posilion is aIso
invoIved in lhe deveIopmenl of markeling ob|eclives and anaIysis of passenger
preferences lhrough lhe use of consumer research lechniques.
IaciIilies Iarlicipales in lhe pIanning and Iayoul of airIine faciIilies such as shops, hangars,
ofces, pIanner and lerminaI faciIilies.
A P P E N D I X B C A R E E R P L A N N I N G I N AV I AT I O N 5 1 3
TABLE B-5 Selected Flight-Related Job Titles in General Aviation
Iob TilIe Descriplion
IIighl inslruclor Teaches sludenls lo y. The inslruclor demonslrales and expIains lvo basic principIes of
ighl aeriaI navigalion vealher faclors and ying reguIalionsbolh on lhe ground
and in lhe air. The inslruclor demonslrales operalion of aircrah and equipmenl in
duaI-conlroIIed pIanes. He or she observes soIo ighls and delermines each sludenls
readiness lo lake examinalions for Iicense ralings. The inslruclor aIso assisls advanced
sludenls in acquiring advanced ralings, such as commerciaI, inslrumenl, muIli-engine,
and air lransporl ralings.
Corporale piIol IIies aircrah ovned by business and induslriaI rms, lransporling company execulives
on cross-counlry ighls lo branch pIanls and business conferences. The piIol arranges
for in-ighl passenger meaIs and ground lransporlalion al deslinalions and is respon-
sibIe for supervising lhe servicing and mainlenance of lhe aircrah and keeping aircrah
records.
Air laxi piIol IIies fare-paying passengers anyvhere anylime bul usuaIIy for shorl lrips over vary-
(charler piIol) ing roules in singIe-engine or Iighl lvin-engine pIanes.
CommerciaI Ierforms a variely of ying |obs. If piIoling a xed-ving pIane, lhe piIol may engage in
airpIane or such ying |obs as aeriaI pholography, aeriaI adverlising, sighl-seeing, geoIogicaI sur-
heIicopler piIol vey, sh and game census, highvay palroI, or checks on federaI airvays and naviga-
InduslriaI May be caIIed upon lo dene and soIve probIems reIaled lo passenger and cargo service,
engineer aircrah mainlenance and overhauI, maleriaI dislribulion, and managemenl syslems. Slud-
ies may deaI vilh faciIily Iayoul, maleriaI handIing and conlroI syslems, equipmenl anaIy-
sis, improved produclivily, and cosl reduclion. InduslriaI engineers are ohen invoIved in
sludies lo delermine slafng needs al parlicuIar slalions or vilhin various deparlmenls.
Irogrammer AppIies modern eIeclronic dala-processing lechniques lo areas of airIine operalions rang-
ing from ighl scheduIing, reservalions, accounling, and payroII conlroI lo parls inven-
lory, purchasing and invenlory conlroI, and scheduIing of personneI and aircrah equip-
menl.
ImpIoymenl SeIecls and hires nev empIoyees in aII |ob cIassicalions. Dulies incIude recruiling, inler-
represenlalive vieving, appIicalion anaIysis and lesl inlerprelalion, conlroI of empIoymenl require-
menls, and frequenl conlacls vilh oulside agencies and user deparlmenls. Represenlalives
musl have a lhorough knovIedge of company empIoymenl poIicies and procedures.
Inslruclor Conducls vorkshops or cIassroom lraining for airIine personneI on currenl procedures,
reguIalions, melhods, or equipmenl. Some managemenl inslruclors leach courses in
supervision or Ieadership, vhiIe olhers leach in lechnicaI programs direcled lovard
aircrah and ground supporl equipmenl. Markeling inslruclors leach courses in saIes, cus-
lomer service, and pubIic reIalions.
uyer DeveIops vendor sources in a parlicuIar area, such as aircrah maleriaIs, suppIies, and
services. There are fueI buyers, aircrah parls buyers, and uniform and ofce suppIies buy-
ers. These individuaIs vork cIoseIy vilh lhe user deparlmenls in delermining lheir needs
and lhen soIicil bids from suppIiers and negoliale conlracls. uyers vork cIoseIy vilh
saIes represenlalives lo delermine lhe quaIily of lheir producls and abiIily lo deIiver. uy-
ers aIso need lo anaIyze lhe invenlory required and lhen eslabIish reasonabIe, economicaI
ordering procedures.
TABLE B-4 Continued
A I R T R A N S P O R TAT I O N 5 1 4
lionaI aids. HeIicopler piIols may y on a reguIar scheduIe carrying vorkers and sup-
pIies lo oshore oiI rigs or may y accidenl viclims lo a hospilaI heIiporl, Iih heavy
Ioads lo lops of buiIdings or lo remole mounlain siles, rescue peopIe slranded by oods,
carry smoke |umpers lo ghl foresl res, or deIiver Sanla CIaus lo shopping cenler
parking Iols.
IalroI piIol IIies cross-counlry al Iov aIliludes aIong pipeIines or pover Iines, checking for signs of
damage, vandaIism, and olher condilions requiring repairs. IalroI piIols radio lo head-
quarlers lhe Iocalion and nalure of repair |obs.
AgricuIluraI IIies speciaIIy designed aircrah (incIuding heIicoplers) lo appIy herbicides, inseclicides,
piIol (aeriaI seeds, and ferliIizers lo crops, orchards, foresls, eIds, and svamps. Some |obs require
appIicalor) doing aeriaI surveys of caIe and crops or ghling foresl res by dumping re-relard-
anl maleriaIs.
Ierry piIol IIies nev and used aircrah from manufacluring pIanls, aircrah Ieasing faciIilies, and
olher slorage faciIilies lo deaIers and lo privale cuslomers home airporls.
Tesl piIol IIies nevIy designed and experimenlaI aircrah lo delermine vhelher lhey operale ac-
cording lo design slandards and makes suggeslions for improvemenls. Iroduclion lesl
piIols y nev pIanes as lhey come o assembIy Iines lo make sure lhey are airvorlhy
and ready lo lurn over lo cuslomers. Commuler airIine lesl piIols ighl-lesl airIiners af-
ler ma|or overhauIs before lhe pIanes are pul back inlo service. They aIso ighl-lesl nev
aircrah lo be sure lhey are up lo airIine slandards before lhe airIine accepls lhem from
lhe manufaclurer. Tesl piIols for lhe IAA y IAA pIanes vilh experimenlaI equipmenl
aboard lo lesl lhe performance of lhe equipmenl, or lhey y IAA pIanes lo lesl nev
kinds of ground-based navigalionaI aids such as radar or runvay Iighling.
Line person ImpIoyed by an IO and responsibIe for meeling arriving aircrah, assisling piIols in
lying dovn lheir aircrah, and performing olher imporlanl dulies in serving generaI
avialion and airIine cuslomers. These dulies incIude fueIing and servicing aircrah. Line
persons are usuaIIy young peopIe vho are inleresled in avialion and begin lheir avialion
careers by buiIding experience vilh aircrah under lhe guidance of a xed-base operalor.
TABLE B-5 Continued
A P P E N D I X B C A R E E R P L A N N I N G I N AV I AT I O N 5 1 5
TABLE B-7 Selected Job Titles with the Federal Aviation Administration
Iob TilIe Descriplion
Air lrafc Direcls air lrafc so il ovs smoolhIy and efcienlIy. ConlroIIers give piIols laxiing and
conlroI speciaIisl lakeo inslruclions, air lrafc cIearances, and advice based on informalion received
(airporl conlroI from lhe NalionaI Wealher Service, air roule lrafc conlroI cenlers, aircrah piIols, and
lover) olher sources. They lransfer o aircrah on inslrumenl ighls lo lhe air roule lrafc con-
lroI cenler (ARTCC) conlroIIer vhen lhe aircrah Ieaves lheir airspace and receive from
lhe ARTCC conlroI of aircrah on inslrumenl ighls ying inlo lheir airspace. They musl
be abIe lo recaII quickIy regislralion numbers of aircrah under lheir conlroI, lhe aircrah
lypes and speeds, posilions in lhe air, and lhe Iocalion of navigalionaI aids in lhe area.
Air lrafc Gives piIols inslruclions, air lrafc cIearances, and advice regarding ighl condilions
conlroI speciaIisl aIong lhe ighl palh, vhiIe lhe piIol is ying lhe federaI airvays or operaling inlo air-
(air roule lrafc porls vilhoul lovers. The conlroIIer uses ighl pIans and keeps lrack of lhe progress of
conlroI cenler) aII inslrumenl ighls vilhin lhe cenlers airspace. She or he lransfers conlroI of aircrah
on inslrumenl ighls lo lhe conlroIIer in lhe ad|acenl cenler vhen lhe aircrah enlers lhe
cenlers airspace. The conlroIIer aIso receives conlroI of ighls enlering his or her area of
responsibiIily from ad|acenl cenlers. She or he monilors lhe lime of each aircrahs arrivaI
TABLE B-6 Selected Job Titles in Airport Administration
Iob TilIe Descriplion
Airporl direclor ResponsibIe for lhe overaII day-lo-day operalion of lhe airporl. This individuaI direcls,
coordinales, and revievs, lhrough subordinale supervisors, aII aircrah operalions,
buiIding
and eId mainlenance, conslruclion pIans, communily reIalions, nanciaI maers, and
personneI maers al lhe airporl.
Assislanl direclor, ResponsibIe for aII maers concerning nance, personneI, purchasing, faciIilies manage
nance menl,and ofce managemenl
and
adminislralion
Manger of Acls as lhe chief Iiaison ofcer belveen lhe airporl and lhe surrounding communily. In
communily lhis capacily, he or she is responsibIe for aII pubIic reIalions aclivilies, incIuding lhe de
reIalions veIopmenl of adverlising and pubIicily concerning lhe airporl. This individuaI is aIso
responsibIe for handIing aII noise and olher environmenlaI maers.
IaciIilies chief IslabIishes crileria and procedures for lhe adminislralion of aII airporl properly. In lhis
capacily, lhe faciIilies chief is responsibIe for invenlory conlroI of aII equipmenl and fa-
ciIilies. This individuaI aIso evaIuales and makes recommendalions concerning lhe mosl
efcienl use of airporl properly and coordinales vilh purchasing and IegaI sla concern-
ing lenanl and concessionaire Ieases.
Direclor of ResponsibIe for aII airside and Iandside operalions, incIuding securily and aircrah res-
operalions cue and re-ghling operalions. This individuaI recommends and impIemenls aII op-
eralionaI ruIes and procedures: supervises invesligalions of vioIalions of airporl reguIa-
lions: prepares lhe annuaI operalions budgel: and parlicipales in aII programs reIaling
lo airporl operalions, such as heighl Iimils around airporls and noise conlroI.
Chief accounlanl ResponsibIe for nanciaI pIanning, budgeling, accounling, payroII, and audiling. This
individuaI adminislers aII of lhe generaI accounls and is responsibIe for aII receipls and
disbursemenls.
A I R T R A N S P O R TAT I O N 5 1 6
over navigalion xes and mainlains records of ighls under his or her conlroI.
Air lrafc conlroI Renders preighl, in-ighl, and emergency assislance lo aII piIols on requesl. Gives in-
speciaIisl (ighl formalion aboul acluaI vealher condilions and forecasls for airporls and ighl palhs,
service slalions) reIays air lrafc conlroI inslruclions belveen conlroIIers and piIols, assisls piIols in
emergency silualions, and iniliales searches for missing or overdue aircrah.
Avialion safely AppIies knovIedge and skiIIs acquired as an avialor (piIol, navigalor, ighl inslruclor,
inspeclor and so on) lo deveIop and adminisler lhe reguIalions and safely slandards perlaining lo
(operalions) lhe operalion of aircrah. His or her primary dulies incIude (1) examining avialors for
iniliaI cerlicalion and conlinuing compelence, (2) evaIualing avialor lraining pro-
grams, equipmenl, and faciIilies, and (3) evaIualing lhe operalions aspecl of programs
of air carriers and olher commerciaI avialion operalions.
Avialion safely AppIies knovIedge and skiIIs acquired as repair person of aircrah and aircrah parls or
inspeclor avionics equipmenl lo deveIop and adminisler reguIalions and safely slandards per
(airvorlhiness) laining lo lhe air-vorlhiness and mainlenance of aircrah and reIaled syslems. His or
her primary dulies incIude (1) evaIualing mechanics and repair faciIilies for iniliaI
cerlicalion and conlinuing adequacy, (2) evaIualing mechanics lraining programs, (3)
inspecling aircrah and reIaled syslems for airvorlhiness, and (4) evaIualing lhe main-
lenance aspecls of programs of air carriers and olher commerciaI operalors, incIuding
lhe adequacy of mainlenance faciIilies, equipmenl, and procedures: lhe compelence of
personneI: lhe adequacy of lhe program or scheduIe for periodic mainlenance and over-
hauIs: and lhe airvorlhiness of aircrah.
Avialion safely AppIies knovIedge and skiIIs perlaining lo lhe design and produclion of aircrah, air-
inspeclor crah parls, and avionics equipmenl lo deveIop and adminisler reguIalions and safely
(manufacluring) slandards perlaining lo lhe originaI airvorlhiness of aircrah, aircrah parls, and avionics
equipmenl. His or her primary dulies incIude (1) inspecling prololype or modied air-
crah, aircrah parls, and avionics equipmenl for conformily vilh design specicalions,
(2) inspecling produclion operalions, incIuding equipmenl, faciIilies, lechniques, and
quaIily conlroI programs for capabiIily lo produce lhe aircrah or parls in conformance
vilh design specicalions and safely slandards, and (3) making originaI airvorlhiness
delerminalions and issuing cerlicales for aII civiI aircrah, incIuding modied, imporl,
exporl, miIilary surpIus, and amaleur-buiIl aircrah.
Airspace syslem Conducls in-ighl inspeclions of ground-based air navigalionaI faciIilies lo delermine
inspeclor piIol vhelher delermine vhelher lhey are operaling correclIy. This individuaI piIols muIli-
engine high-performance |el aircrah vilh speciaIIy inslaIIed, uIlrasophislicaled compu-
lerized equipmenl lo serve as a ying eIeclronic Iaboralory on day and nighl ighls, un-
der bolh visuaI and inslrumenl ighl ruIes, recording and anaIyzing faciIily performance
and reporling polenliaI hazards lo air navigalion for correclion. The piIol assisls in acci-
denl invesligalions by making speciaI ighl lesls of any IAA navigalionaI aids invoIved.
He or she mainlains Iiaison vilh avialion inleresls regarding lhe inslaIIalion, operalion,
and use of lheir navigalion faciIilies bul is moslIy invoIved vilh lhe IAA personneI vho
mainlain lhe navigalionaI aids.
IIighl lesl piIol Checks lhe airvorlhiness of aircrah lhrough inspeclion, ighl lesling, and evaIualion of
ighl performance, engine operalion, and ighl characlerislics of eilher prololype air-
crah or modicalions of produclion aircrah and aircrah componenls lhal are presenled
for IAA-lype cerlicalion. The ighl lesl piIol supervises IAA-designaled ighl-lesl
represenlalives and parlicipales in invesligalions of accidenls and vioIalions of lhe fed-
eraI air reguIalions.
TABLE B-7 Continued
A P P E N D I X B C A R E E R P L A N N I N G I N AV I AT I O N 5 1 7
TABLE B-8 Selected Job Titles in Manufacturing
Iob TilIe Descriplion
Iricing anaIysl KnovIedgeabIe aboul pricing lechniques, cosl eslimaling, cosl proposaI deveIopmenl,
speciaIisl and negolialion. Iricing anaIysls musl have lhe abiIily lo evaIuale ma|or cosl proposaIs
and prepare an eslimaling ralionaIe.
Specicalions IIans, eslimales, and performs uniform specicalions eorls for miIilary and commer-
ciaI programs and proposaIs. A laIenl for engineering vriling is caIIed for, as veII as
lhe abiIily lo compiIe accurale specicalions. The specicalions speciaIisl receives inpul
from various sources and is responsibIe for organizing, ediling, and deveIoping formals
for reporls, proposaIs, and manuaIs from rough drah lo naI pubIicalion.
Iroducl lraining Aids in lhe formuIalion of requiremenls for Iarge-scaIe miIilary lraining programs. De
speciaIisl signs lexlbooks, visuaI aids, and lraining Ims. Iroducl lraining speciaIisls prepare and
deIiver formaI Ieclures in lhe operalion and mainlenance of Iarge-scaIe dala-processing
and sensor syslems in lhe aerospace eId or in lhe operalion of various guidance and
conlroI syslems for aircrah or spacecrah.
AeronaulicaI Designs, deveIops, and lesls aircrah, missiIes, rockels, space vehicIes, and lhe parls and
engineer componenls of lhese vehicIes or veapons. These individuaIs do lechnicaI skelching, lesl
equipmenl, and inlerprel informalion from reporls and slalislicaI dala. They conslrucl
and evaIuale aircrah and spacecrah engines and deveIop fueI syslems and avionics
equipmenl. AeronaulicaI engineers evaIuale lhe eecls of slress on aircrah, spacecrah,
and missiIes during ighl.
AppIicalions Wriles codes for engineers vho use compulers lo perform caIcuIalions and simuIalions.
programmer Incodes delaiIed inslruclions for processing dala in various compuler Ianguages. Ap-
pIicalions programmers program robols lo assembIe aircrah parls and componenls.
They vork cIoseIy vilh aeronaulicaI engineers in designing engineering appIicalions lo
compuler programs.
Ierformance Sludies aerodynamic conguralion lo forecasl varialions in performance. Iredicls op-
anaIysl eralion of syslems and caIcuIales performance characlerislics of space and air vehicIes,
incIuding Iih, drag, speed, aIlilude, and almospheric condilions. The performance
anaIysl inlerprels propuIsion and veighl informalion and delermines eecls of design
paramelers.
SaIes manager Requires in-deplh experience in markeling aircrah, from delermining airIine require-
(airIine) menls lo coordinaling saIes aclivilies. ResponsibiIilies incIude preparing and execuling
aircrah saIes presenlalions aher evaIualing a cuslomers nanciaI and reIaled dala, pro-
viding markel supporl sla vilh reIevanl markel research for crilicaI and comprehen-
sive anaIysis, and deveIoping and mainlaining cIose lies vilh key airIine managemenl
personneI.
TechnicaI saIes ResponsibIe for lhe produclion of aII lechnicaI presenlalions and evaIualion sludies and
manager assisls in lhe deveIopmenl of saIes slralegies. This individuaI is aIso required lo provide
inpul during delaiIed negolialions and lo assisl in cuslomer demonslralions.
Aircrah anaIysl Irovides supporling dala in lhe preparalion of lechnicaI proposaIs and presenlalions.
Researches compelilive dala, performs cuslomer-requesled anaIysis and comparisons
of a variely of aircrah producls, mainlains and updales compelilive aircrah and per-
formance dala, and ohen accompanies saIes represenlalives on seIecled presenlalions lo
ansver cuslomer inquiries regarding lechnicaI aspecls of aircrah.
A I R T R A N S P O R TAT I O N 5 1 8
CAREER WEB SI TES
hp://vvv.airapps.com
hp://vvv.av|obs.com
hp://vvv.aeps.com
hp://vvv.AviaNalion.com
hp://avialion-careers.lripod.com/
hp://vvv.|srm.com
hp://vvv.avialionnel.com
hp://avialion.aboul.com/cs/avialioncareers/
hp://vvv.dol.gov
hp://vvv.air|obsdigesl.com
SUGGESTED READI NGS
Atiaiicn Carccrs 1987. A P|anc c Pi|ci Magazinc Spccia| |cpcri. Incino, CaIif.: Werner & Werner,
1986.
oIIes, Richard N. Tnc 1985 Wnai Cc|cr |s Ycur Paracnuic? erkeIey, CaIif.: Ten Speed Iress, 1985.
Cardoza, Anne, and Suzee I. Vik. Tnc Acrcspacc Carccrs Han!|cck. Nev York: Arco, 1985.
CIavson, Iames G., Iohn I. Koer, Viclor A. Iaux, and CharIes C. McArlhur. Sc|j-
Asscssncni an! Carccr Octc|cpncni. IngIevood CIis, N.I.: Irenlice-HaII, 1985.
DIabay, Les R. P|anning Ycur Carccr in Busincss Tc!au. Nev York: Random House, 1985.
Ichaore-McDavid, Susan. Carccr Oppcriuniiics in Atiaiicn an! inc Acrcspacc |n!usiru. Nev York, N.Y.:
Checkmark ooks, 2005.
|c!cra| Carccr Oirccicru. A Gui!c jcr Cc||cgc Siu!cnis. Washinglon, D.C.: U.S. Governmenl Irinling
Ofce, 1986.
IigIer, Hovard. Tnc Ccnp|cic |c|-Scarcn Han!|cck. Nev York: HoIl, Rineharl & Winslon, 1979.
HoIIand, Iohn L. Making Vccaiicna| Cnciccs. A Tnccru cj Carccrs. IngIevood CIis, N.I.: Irenlice-HaII,
1985.
Komar, Iohn I. Tnc |csunc Bui|!cr. Iiscalavay, N.I.: Nev Cenlury, 1980.
Krannich, RonaId L., and WiIIiam I. anis. Hign |npaci |csuncs an! Iccrs. Manassas, Va.: Impacl,
1982.
Morlon, AIexander C. Tnc Ojcia| 198687 Gui!c ic Air|inc Carccrs. Miami Springs, IIa.: InlernalionaI,
1986.
Schrank, Louise W. Iijc P|an. A Praciica| Gui!c ic Succcssju| Carccr P|anning. Skokie, III.: VGM
Horizons, 1982.
Slraub, Ioseph T. Tnc |c| Huni. Hcu ic Ccnpcic an! Win. IngIevood CIis, N.I.: Irenlice-HaII,
1981.
U.S. Deparlmenl of Labor. Oiciicnaru cj Occupaiicna| Tii|cs. Washinglon, D.C.: U.S. Governmenl
Irinling Ofce, annuaI.
U.S. Deparlmenl of Labor. Occupaiicna| Oui|cck Han!|cck. Washinglon, D.C.: U.S. Governmenl
Irinling Ofce, annuaI.
U.S. Deparlmenl of Transporlalion, IederaI Avialion Adminislralion. Atiaiicn Carccr Scrics.
Washinglon, D.C.: U.S. Governmenl Irinling Ofce. Iree brochures may be oblained by vriling
lo: Superinlendenl of Documenls, RelaiI Dislribulion Division, Consigned ranch, 8610 Cherry
Lane, LaureI, Md. 20707.
A P P E N D I X B C A R E E R P L A N N I N G I N AV I AT I O N 5 1 9
U.S. GeneraI Services Adminislralion. Uniic! Siaics Gctcrnncni Organizaiicna| Manua|. Washinglon,
D.C.: U.S. Governmenl Irinling Ofce, annuaI.
VogeI, Slephen I. Oirccicru cj |np|cuncni Oppcriuniiics in inc |c!cra| Gctcrnncni. Nev York: Arco,
1985.
Wrighl, Iohn W. Tnc Ancrican A|nanac cj |c|s an! Sa|arics. Nev York: Avon, 1984.
A I R T R A N S P O R TAT I O N 5 2 0
GLOSSARY
Accounts payable lhe unpaid baIance of amounls
coIIecled for lransporlalion, furnished by olher
coIIeclions as agenl, and olher open accounls
payabIe.
Accrued federal income taxes accruaIs for currenlIy
payabIe federaI income laxes.
Acquisition costs lhe cosl of an aircrah ilseIf pIus
spare parls, ground equipmenl needed, mainlenance
and ighl lraining required, and lhe cosl of lhe money
ilseIf.
ADMA (Aviation Distributors and Manufacturers
Association) a lrade organizalion composed of
Iarge, xed-base operalors and manufaclurers of
aircrah componenls.
Administration a ma|or funclionaI area, such as
markeling, ighl operalions, or personneI. IndividuaI
deparlmenls faII under a ma|or adminislralion.
Aerial application lhose aclivilies lhal invoIve lhe
discharge of maleriaIs from aircrah in ighl for food
and ber produclion and heaIlh conlroI.
Aeronautical Radio, Inc. see ARINC.
Aeronautics lhe arl and science of operaling
aircrah.
Aerospace employment an annuaI average
caIcuIaled as one-lveIhh of monlhIy eslimales of
lhe lolaI number of persons empIoyed during a
designaled pay period by lhe aircrah and missiIe and
space induslries, pIus eslimaled aerospace-reIaled
empIoymenl in lhe communicalions equipmenl
and inslrumenls induslries and in cerlain olher
induslries.
This gIossary incIudes aII Key Terms appearing al lhe ends of lhe chaplers, as veII as
many olher lerms used in lhe lexl and olhers of signicance in air lransporlalion. The
denilions are meanl lo be brief and slraighlforvard ralher lhan lechnicaIIy precise and
aII-incIusive.
Aerospace Industries Association of America, Inc. see
AIA.
Aerospace industry lhe induslry engaged in
research, deveIopmenl, and manufaclure of aerospace
syslems, incIuding manned and unmanned aircrah:
missiIes, space Iaunch vehicIes, and spacecrah:
propuIsion, guidance, and conlroI unils for aII of
lhe foregoing: and a variely of airborne and ground-
based equipmenl essenliaI lo lhe lesling, operalion,
and mainlenance of ighl vehicIes.
Aerospace sales lhe AIA eslimale of aerospace
induslry saIes, deveIoped by summing (1) lhe
Deparlmenl of Defense (DOD) expendilures for
procuremenl of aircrah and missiIes, (2) eslimales
of DOD expendilures for research and deveIopmenl
of aircrah and missiIes, (3) NASA expendilures for
research and deveIopmenl, (4) oulIays for space
aclivilies by lhe DOD and olher U.S. governmenl
deparlmenls and agencies, (5) nel saIes of aerospace
producls lo nongovernmenl sources, incIuding
civiI aircrah producls (domeslic saIes and exporls),
commerciaI saIes of space-reIaled equipmenl, and
exporls of missiIes and miIilary aircrah, and (6)
nonaerospace saIes of ma|or aerospace companies.
See aIso Sales, aerospace.
Afnity group a group of lraveIers vilh simiIar
inleresls, such as bridge pIayers, aIumni from a
parlicuIar schooI, members of lhe cIergy, coIIege
professors, and members of a horlicuIluraI sociely.
AIA (Aerospace Industries Association of America,
Inc.) a lrade associalion of lhe ma|or manufaclurers
of aerospace syslems and componenls (formerIy
Aircrah Induslries Associalion).
Airborne speed lhe average speed of an aircrah
vhiIe airborne, in lerms of greal-circIe airporl-lo-
521
airporl dislance. Il is caIcuIaled by dividing lhe
airporl-lo-airporl dislance, in slalule miIes, by lhe
number of acluaI airborne hours. Ohen caIIed uncc|s-
c. uncc|s-cn spcc!.
Air cargo lhe lolaI voIume of freighl, maiI, and
express lrafc lransporled by air. Il incIudes freighl
commodilies of aII kinds, incIuding smaII-package
counler services, express and priorily reserved
freighl and express services, and aII cIasses of maiI
lransporled for lhe U.S. IoslaI Service.
Air Cargo, Inc. a service organizalion ovned by
lhe scheduIed U.S. airIines lo provide IocaI air freighl
pickup and deIivery, air/lruck and conlainer pick-up
and deIivery, and Ioading and unIoading.
Air carriers lhe commerciaI syslem of air
lransporlalion, consisling of domeslic and
inlernalionaI cerlicaled and charler carriers.
Air commerce lhe carriage by aircrah of persons
or properly for compensalion or hire, lhe carriage
of maiI by aircrah, or lhe operalion or navigalion of
aircrah in lhe conducl or furlherance of a business
or vocalion.
Aircra aII airborne vehicIes supporled eilher by
buoyancy or by dynamic aclion. Used in lhis lexl in
a reslricled sense lo mean an airplaneany vinged
aircrah, incIuding heIicoplers bul excIuding gIiders
and guided missiIes.
Aircra and trafc servicing
expenses compensalion of ground personneI for
lheir expenses incurred on lhe ground lo prolecl
and conlroI lhe in-ighl movemenl of aircrah, lo
scheduIe and prepare aircrah operalionaI crevs
for ighl assignmenl, lo handIe and service aircrah
vhiIe in Iine operalion, and lo service and handIe
lrafc on lhe ground aher issuance of documenls
eslabIishing lhe air carriers responsibiIily lo provide
air lransporlalion, and for lheir in-ighl expenses
of handIing and prolecling aII nonpassenger lrafc,
incIuding passenger baggage.
Aircra departure, scheduled a lakeo scheduIed
al an airporl, as sel forlh in pubIished scheduIes.
Aircra engine, turbine an engine incorporaling
as ils chief eIemenl a lurbine rolaled by expanded
gases. Il consisls essenliaIIy, in ils mosl usuaI form,
of a rolary air compressor vilh an air inlake, one
or more combuslion chambers, a lurbine, and an
exhausl oulIel. Aircrah engines of lhis lype have lheir
pover appIied mainIy eilher as |el lhrusl (lurbo|el
or lurbofan) or as shah pover lo rolale a propeIIer
(lurboprop).
Aircra grounding a voIunlary delerminalion
by a carrier or an order from lhe IederaI Avialion
Adminislralion lo refrain from ying a parlicuIar
lype of aircrah, as a resuIl of suspecled or acluaI
maIfunclion of such aircrah, unliI lhe cause can be
delermined and appropriale correclive aclion laken.
The lerm is aIso used lo refer lo occasionaI inabiIily
of an individuaI aircrah lo operale due lo vealher
condilions or minor mechanicaI maIfunclion, or lo a
voIunlary decision by a carrier lo refrain from ying
cerlain aircrah for reasons olher lhan mechanicaI
maIfunclions.
Aircra hour, airborne lhe airborne hours of an
aircrah, compuled from lhe momenl il Ieaves lhe
ground unliI il louches lhe ground al lhe nexl poinl
of Ianding. Ohen referred lo as uncc|s-c. uncc|s-cn
iinc.
Aircra hour, block-to-block lhe lime eIapsed
from lhe momenl an aircrah rsl moves under ils
ovn pover for purposes of ighl unliI il comes lo
resl al lhe nexl poinl of Ianding. Iock lime incIudes
laxi lime before lakeo and aher Ianding, lakeo and
Ianding lime, and airborne lime. AIso referred lo as
ranp-ic-ranp ncurs.
Aircra hour, revenue an aircrahs airborne hours
in revenue service, compuled from lhe momenl il
Ieaves lhe ground unliI il louches lhe ground al lhe
nexl poinl of Ianding.
Aircra hour, revenue per aircra per day (carriers
equipment) lhe average number of hours of
produclive use per day in revenue service of a reporling
carriers equipmenl. Delermined by dividing aircrah
days assigned lo lhe carriers equipmenl inlo revenue
aircrah hours minus revenue hours on olher carriers
inlerchange equipmenl pIus lolaI hours by olher
carriers on lhe carriers inlerchange equipmenl. (See
Utilization.)
Aircra hour, revenue per aircra per day (carriers
routes) lhe average number of hours of produclive
use per day in revenue service on a reporling
carriers roules. Delermined by dividing aircrah days
assigned lo service lhe carriers roules inlo revenue
aircrah hours.
Aircra industry lhe induslry primariIy engaged
in lhe manufaclure of aircrah, aircrah engines and
parls, aircrah propeIIers and parls, and auxiIiary
aircrah parls and equipmenl. A seclor of lhe
aerospace induslry.
Aircra, large an aircrah having a maximum
passenger capacily of more lhan 66 seals or a
maximum payIoad capacily of more lhan 18,000
A I R T R A N S P O R TAT I O N 5 2 2
pounds.
Aircra, leased (rental) aircrah oblained from
(or furnished lo) olhers under Iease or renlaI
arrangemenls.
Aircra miles (plane miles) lhe miIes compuled
in airporl-lo-airporl dislances for each inlerairporl
hop acluaIIy compIeled, vhelher or nol performed in
accordance vilh lhe scheduIed paern.
Aircra operation an aircrah arrivaI al or deparlure
from an airporl vilh IAA air lrafc conlroI service.
There are lvo lypes of operalionsIocaI and
ilineranl. Local operations are performed by aircrah
lhal (1) operale in lhe IocaI lrafc paern or vilhin
sighl of lhe lover, (2) are knovn lo be deparling for,
or arriving from, a Iocalion vilhin a 20-miIe radius of
lhe conlroI lover, or (3) execule simuIaled inslrumenl
approaches or Iov passes al lhe airporl. Itinerant
operations are aII aircrah arrivaIs and deparlures
olher lhan IocaI operalions.
Aircra Owners and Pilots Association (AOPA) lhe
principaI represenlalive of individuaI aircrah ovners
and operalors before Congress, lhe adminislralion,
and ils reguIalory agencies, such as lhe IederaI
Avialion Adminislralion: has over 200,000 members.
Aircra, passenger/cargo an aircrah congured lo
accommodale passengers and cargo in lhe above-
deck cabin.
Aircra, regular body a generic and commonIy
used lerm appIied lo |el aircrah, especiaIIy a lurbofan
vilh a fuseIage diameler of Iess lhan 200 inches vhose
propuIsive pover is suppIied by lurbine engines vilh
a per-engine lhrusl of Iess lhan 30,000 pounds (for
exampIe, oeing 707 and 727, McDonneII-DougIas
DC-8 and DC-9).
Aircra revenue hours see Aircra hour, revenue.
Aircra, small an aircrah having a maximum
passenger capacily of 66 seals or Iess or a maximum
payIoad capacily of 18,000 pounds.
Aircra, short takeo and landing see STOL.
Aircra, supersonic transport (SST) a lransporl
aircrah capabIe of a normaI cruising speed grealer
lhan lhe speed of sound (741 mph al sea IeveI).
Aircra, turbine an aircrah vilh eilher lurbo|el,
lurbofan, lurboprop, or lurboshah engines.
Aircra, turbofan (fan jet) an aircrah povered
by a lurbo|el engine vhose lhrusl is lhal of a fan-|el
aircrah. The lurbofan engine has eilher an oversized
Iov-pressure compressor al lhe fronl vilh parl of lhe
ov bypassing lhe resl of lhe engine (fronl fan) or a
separale fan driven by a lurbine slage (ah fan).
Aircra, turbojet an aircrah povered by a gas
lurbine engine incorporaling a lurbine-driven
compressor lo lake in and compress lhe air for lhe
combinalion of fueI, vilh lhe gases of combuslion
(or healed air) used bolh lo rolale lhe lurbine and lo
creale a lhrusl-producing |el.
Aircra, turbo-propeller (turboprop, prop jet) an
aircrah povered by a gas lurbine engine in vhich
oulpul is laken as shah pover lo drive a propeIIer
via a reduclion gear: il aIso has a smaII residuaI |el
lhrusl.
Aircra type a dislinclive modeI, as designaled by
lhe manufaclurer.
Aircra, vertical/short takeo and landing see V/
STOL.
Aircra, vertical takeo and landing see VTOL.
Aircra, wide-body a generic and commonIy used
lerm appIied lo |el aircrah (lurbofans) vilh a fuseIage
diameler exceeding 200 inches vhose per-engine
lhrusl is grealer lhan 30,000 pounds (for exampIe,
oeing 747, McDonneII-DougIas DC-10, Lockheed
L-1011).
Air express smaII packages lhal usuaIIy have a
higher priorily of carriage lhan air freighl.
Airframe lhe slrucluraI componenls of an airpIane,
incIuding lhe fuseIage, empennage, vings, Ianding
gear, and engine mounls, and excIuding such ilems
as engines, accessories, eIeclronics, and olher parls
lhal may be repIaced from lime lo lime.
Air freight Iarge packages and cargo lhal do nol
have as high a priorily as air express.
Air freight forwarder any indirecl air carrier
lhal assembIes and consoIidales or provides for
assembIing and consoIidaling properly for shipmenl
by air. They are aIso responsibIe for lhe lransporlalion
of properly from lhe poinl of receipl lo lhe poinl
of deslinalion and uliIize for lhe vhoIe or any parl
of such lransporlalion lhe services of a direcl air
carrier.
Airline Clearing House a corporalion, vhoIIy
ovned by lhe Iarger cerlicaled airIines, lhrough
vhich lhe inlerIine accounls of cerlicaled and
commuler airIines are seIed on a nel basis each
G L O S S A R Y 5 2 3
monlh.
Airlines see Air carriers.
Airline Tari Publishing Company (ATPCO) an
eIeclronic cIearinghouse for fare informalion and
changes: |oinlIy ovned and funded by 30 U.S. and
foreign carriers.
Air mail lhe rsl of lhe air cargo services, and an
imporlanl faclor in lhe formalion of air lransporlalion
in lhe Uniled Slales.
Air movement airporl-lo-airporl movemenl.
Airport an area of Iand or valer lhal is used or
inlended lo be used for lhe Ianding and lakeo of
aircrah, incIuding ils buiIdings and faciIilies, if any.
Air shule see Shule service.
Air taxi any common carrier for hire lhal hoIds an
air laxi operaling cerlicale and primariIy operales
smaII aircrah vilhoul xed roules.
Air Trafc Conference (ATC) a parl of lhe Air
Transporl Associalion, vhich represenls lhe U.S.
scheduIed airIine induslry. The ATC is made up of
a number of commiees and subcommiees vhose
members are represenlalives from lhe member
carriers. Improved service, slreamIined procedures,
and reduced cosls are aII goaIs soughl by lhe members
of lhe ATC. One of lhe ma|or funclions performed by
lhe conference is lhe approvaI of lraveI agenls vho
do business vilh lhe airIines.
Air trafc control a service operaled by lhe
appropriale aulhorily lo promole lhe safe, orderIy,
and expedilious ov of air lrafc.
Air Transport Association of America see ATA.
Air transportation, foreign lhe carriage by aircrah
of persons or properly as a common carrier for
compensalion or hire or lhe carriage of maiI by aircrah
in commerce belveen a pIace in lhe Uniled Slales and
any pIace oulside lhereof, vhelher such commerce
moves vhoIIy by aircrah or parlIy by aircrah and
parlIy by olher forms of lransporlalion.
Air transportation industry aII civiI ying
performed by lhe cerlicaled air carriers and generaI
avialion.
Air transportation, interstate lhe carriage by
aircrah of persons or properly as a common carrier
for compensalion or hire or lhe carriage of maiI by
aircrah in commerce belveen a pIace in any slale of
lhe Uniled Slales or lhe Dislricl of CoIumbia and a
pIace in any olher slale of lhe Uniled Slales or lhe
Dislricl of CoIumbia, or belveen pIaces in lhe same
slale of lhe Uniled Slales lhrough lhe airspace over
any pIace oulside lhereof, or belveen pIaces in lhe
same lerrilory or possession of lhe Uniled Slales or
lhe Dislricl of CoIumbia, vhelher such commerce
moves vhoIIy by aircrah or parlIy by aircrah and
parlIy by olher forms of lransporlalion.
Air transportation, intrastate lhe carriage by
aircrah of persons or properly as a common carrier
for compensalion or hire vhoIIy vilhin lhe same
slale of lhe Uniled Slales.
Air transportation, overseas lhe carriage by
aircrah of persons or properly as a common carrier
for compensalion or hire or lhe carriage of maiI by
aircrah in commerce belveen a pIace in any slale
of lhe Uniled Slales or lhe Dislricl of CoIumbia and
any pIace in a lerrilory or possession of lhe Uniled
Slales, or belveen a pIace in a lerrilory or possession
of lhe Uniled Slales and a pIace in any olher lerrilory
or possession of lhe Uniled Slales, vhelher such
commerce moves vhoIIy by aircrah or parlIy by
aircrah and parlIy by olher forms of lransporlalion.
Airworthiness certicate a cerlicale aesling
lo lhe facl lhal each airpIane conforms lo lhe lype
cerlicale and is safe lo y: lhe abiIily of an aircrah lo
y safeIy lhrough a range of operalions is delermined
by lhe IederaI Avialion Adminislralion.
All-cargo airline a carrier lhal operales a variely of
cargo services.
American Society of Travel Agents see ASTA.
AOPA see Aircra Owners and Pilots
Association.
Appropriation (federal budget) an acl of Congress
aulhorizing an agency lo incur obIigalions and make
paymenls oul of funds heId by lhe Deparlmenl of lhe
Treasury.
Arbitration lhe seIemenl of dispuled queslions,
vhelher of Iav or facl, by one or more arbilralors by
vhose decision lhe parlies agree lo be bound.
ARINC (Aeronautical Radio, Inc.) organizalion
lhal provides communicalions needs of aII aircrah
operalors vilhin lhe Uniled Slales. IncIuded in
ARINC services are vealher vire service and air/
ground radio communicalions.
ASMs see Available seat-miles.
A I R T R A N S P O R TAT I O N 5 2 4
Asset properly or properly righls ovned by a
business lhal is vaIuabIe, eilher because il viII be
converled inlo cash or because il is expecled lo
benel fulure operalions, and lhal vas acquired al
a measurabIe cosl. A current asset is an assel lhal is
eilher currenlIy in lhe form of cash or is expecled lo be
converled inlo cash vilhin a shorl period, usuaIIy one
year. A xed asset is a langibIe properly of reIaliveIy
Iong Iife lhal generaIIy is used in lhe produclion of
goods and services.
Assets lhe ilems on lhe baIance sheel of a business
shoving lhe book vaIue of ils resources.
ASTA (American Society of Travel Agents) a lrade
associalion of lhe lraveI agency induslry.
Astronautics lhe arl and science of designing,
buiIding, and operaling manned or unmanned space
ob|ecls.
ATA (Air Transport Association of America) a
lrade associalion of lhe U.S. cerlicaled-roule air
carriers.
ATC air lrafc conlroI. See aIso Air Trafc
Conference.
ATPCO see Airline Tari Publishing Company.
Authority lhe pover lo make decisions, command,
and deIegale responsibiIily lo olhers.
Automatic market entry under lhe AirIine
DereguIalion Acl of 1978, lhe righl of an air carrier lo
appIy lo lhe CA for permission lo engage in nonslop
service belveen any one pair of poinls in inlerslale
or overseas air lransporlalion aher lhe rsl business
day of each of lhe caIendar years 1979, 1980, and
1981. Hovever, no air carrier couId appIy if any olher
air carrier had Ied vrien nolice lo lhe board lo
precIude any olher carrier from oblaining lhal same
aulhorily. An air carrier couId prolecl onIy one pair of
poinls by precIuding aII olher carriers from oblaining
aulhorily belveen lhem.
Available seat-miles (ASMs) lhe lolaI of lhe
producls of aircrah miIes and number of avaiIabIe
seals on each ighl slage, represenling lhe lolaI
passenger-carrying capacily oered. See aIso Seat
miles, available.
Available seats lhe number of seals inslaIIed in an
aircrah (incIuding seals in Iounges), excIusive of any
seals nol oered for saIe lo lhe pubIic by lhe carrier,
and incIusive of any seal soId.
Available seats per aircra lhe average number
of seals avaiIabIe for saIe lo passengers, derived by
dividing lhe lolaI avaiIabIe seal-miIes by lhe lolaI
aircrah revenue miIes in passenger service.
Available ton-miles lhe aggregale of lhe producls
of lhe aircrah miIes ovn on each ighl slage
muIlipIied by lhe avaiIabIe aircrah capacily lons for
lhal ighl slage, represenling lhe lrafc-carrying
capacily oered.
Aviation Distributors and Manufacturers
Association see ADMA.
Aviation gasoline a high-grade (high-oclane)
gasoIine used as a fueI by aII pislon-engine aircrah,
in conlrasl lo lhe |el fueI (generaIIy kerosene) used
in lurbine-povered aircrah. This pislon-engine fueI is
aIso referred lo as atgas. (See aIso jet fuel.)
Backlog lhe saIes vaIue of orders accepled
(supporled by IegaI documenls) lhal have nol yel
passed lhrough lhe saIes accounl.
Balance sheet a slalemenl of assels, IiabiIilies,
and slockhoIder equily (or equivaIenl inleresl of
individuaI proprielors or parlners) as of a parlicuIar
dale.
Bankruptcy a procedure by vhich a company
unabIe lo pay debls may be decIared bankrupl, aher
vhich aII assels in excess of lhe exemplion cIaims
are surrendered lo lhe courl for adminislralion and
dislribulion lo credilors and lhe deblor is given a
discharge lhal reIeases il from lhe unpaid baIance on
mosl debls.
Barnstormers piIols vho loured lhe counlry aher
WorId War I puing on air shovs and giving rides
lo IocaI peopIe.
Barriers to entry lerm used in reference lo
oIigopoIislic induslries lo denole lhe difcuIly
rms have in enlering lhe induslry. The barriers can
be in lhe form of capilaI requiremenls, reguIalory
requiremenls, lechnicaI personneI required, and so
forlh.
Big Four lhe four Iargesl ma|or carriers (American,
Iaslern, TWA, and Uniled). These carriers vere rsl
ofciaIIy lermed lhe ig Iour in lhe 1949 AnnuaI
Reporl of lhe CiviI Aeronaulics oard.
Bilateral agreement an agreemenl or lrealy belveen
lvo nalions conlracling for reciprocaI inlernalionaI
air service, such service lo be operaled by designaled
carriers of each nalion. The agreemenl may incIude
provisions for lhe lype of aircrah used, inlermediale
G L O S S A R Y 5 2 5
slops en roule, aircrah airvorlhiness, laxalion-
free fueI, and arbilralion procedures. Il is usuaIIy a
slandardized agreemenl used in negolialions for air
lransporl belveen one nalion and many olhers and
aIIoving for lhe incIusion of dierenl poinls and
roules.
Blockspeed range diagram a diagram lhal shovs
lhe reIalionship of lhe average speed in slalule miIes
per hour of an aircrah, belveen lhe lime lhe aircrah
rsl moves under ils ovn pover for purposes of ighl
unliI il comes lo resl al lhe nexl poinl of Ianding, and
lhe dislance lhe aircrah can y.
Boarding pass a documenl issued lo a cuslomer
lhal conlains his or her ighl number, dale, cIass
of service, seal number, and speciaI-services
informalion. Il is somelimes issued in exchange for
a Iihed ighl coupon and used as lhe passengers
acluaI aulhorily lo board a ighl.
Board of directors a group eIecled by slockhoIders
lo provide generaI guidance for a corporalion.
Bond a promissory nole under seaI. In common
use, a Iong-lerm debl obIigalion, parlicuIarIy one
issued lo lhe generaI pubIic.
Book value lhe doIIar vaIue of a companys assels
minus ils IiabiIilies. ook vaIue per share is lhe
companys book vaIue divided by lhe number of ils
common slock shares oulslanding.
Break-even point lhal IeveI of operalions al vhich
lolaI expenses equaI lolaI revenue.
Budget a pIan of aclion expressed in gures. A
nanciaI pIan indicaling expecled revenues and
anlicipaled expenses for a specied period, such
as a year, lhal can be used as a means of exercising
nanciaI conlroI.
Business aircra use in reference lo generaI
avialion aircrah, any use of an aircrah nol for
compensalion or hire by an individuaI for lhe purpose
of lransporlalion required by a business in vhich lhe
individuaI is engaged (personaIIy ovn).
Business-class service lransporl service aimed
primariIy al lhe inlernalionaI business lraveIer, lo
overcome lhe reguIalory reslrainls on increasing
normaI economy (coach) fares on Iong-hauI
inlernalionaI markels: provides fever amenilies
lhan rsl-cIass service bul more lhan economy:
aIso provides more comforlabIe and Iess congesled
sealing lhan economy cIass.
CAB CiviI Aeronaulics oard.
Cabotage a foreign operalor carrying passengers
belveen lvo domeslic poinls of anolher counlry.
CAM routes conlracl air maiI roules. IarIy air maiI
roules vere designaled by lhe Iosl Ofce Deparlmenl
as CAM roules.
Capital money, goods, Iand, or equipmenl used
lo produce olher goods or services. Capital goods
are lhe looIs or olher produclive agenls by vhich
resources are lransformed inlo usabIe producls.
Capital budgeting Iong-lerm pIanning for
proposed capilaI oulIays and lheir nancing.
Capital gains or losses (operating property) gains
or Iosses on reliremenls of operaling properly and
equipmenl, ighl equipmenl expendabIe parls, or
misceIIaneous maleriaIs and suppIies vhen soId
or olhervise relired in conneclion vilh a generaI
reliremenl program and nol as incidenlaI saIes
performed as a service lo olhers.
Capital lease see Financial (capital) lease.
Capital stock lhe decIared money vaIue of lhe
oulslanding slock of a corporalion.
Capital, total ovners equilies pIus credilors
equilies.
Cargo aircra an aircrah expressIy designed or
converled lo carry freighl, express, and so forlh,
ralher lhan passengers.
Cargo revenue ton-miles aII lrafc, olher lhan
passengers, limes lhe miIes lransporled in revenue
service. IncIudes freighl, express, maiI, and excess
baggage.
Cash generaI and vorking funds avaiIabIe on
demand lhal are nol formaIIy reslricled or earmarked
for specic ob|eclives.
Cash budget a scheduIe of expecled cash receipls
and disbursemenls.
Cash ow lhe amounl of cash oving in and oul of
a business in a given period.
CATO (combined airline ticket ofce) a lickel
ofce slaed by lhe personneI from lvo or more air
carriers.
Causal (model) forecasts lhe mosl sophislicaled
of lhe forecasling melhods: lhese forecasls express
lhe reIevanl causaI reIalionships belveen variabIes
malhemalicaIIy. IxampIes incIude regression anaIysis,
economelric modeIs, and compuler modeIs.
A I R T R A N S P O R TAT I O N 5 2 6
Certicated air carrier one of a cIass of air carriers
hoIding cerlicales of pubIic convenience and
necessily issued by lhe former CA or lhe DOT
aulhorizing lhe performance of scheduIed air
lransporlalion over specied roules and a Iimiled
amounl of nonscheduIed operalions. This generaI
carrier grouping incIudes lhe aII-purpose carriers
(lhe so-caIIed passenger/cargo carriers) and lhe aII-
cargo carriers and comprises aII of lhe cerlicaled
airIines. Cerlicaled air carriers are ohen referred
lo as scnc!u|c! air|incs. aIlhough lhey aIso perform
nonscheduIed service.
Certicate of public convenience and necessity a
cerlicale issued lo an air carrier under Seclion 401
of lhe IederaI Avialion Acl of 1958 by lhe former
CA or lhe DOT aulhorizing lhe carrier lo engage
in air lransporlalion. The cerlicale may specify
cerlain designaled roules and cerlain designaled
poinls or geographic areas lo be served and any
Iimilalions and reslriclions imposed on such
service.
Chain of command a hierarchy of managers and
subordinales.
Chain reaction eect lhe inlerreIalionship among
gale congeslion, mainlenance rouling, and olher
faclors lhal are aecled by a singIe scheduIe change.
In olher vords, one scheduIe change causes a chain
reaclion requiring many olher scheduIe changes.
Charter (inclusive tour) lhe charler of lhe enlire
capacily of an aircrah or al Ieasl 40 seals (providing
lhe remain-ing capacily of lhe aircrah is charlered by
a person or persons aulhorized lo charler aircrah) by
a lour operalor. The incIusive-lour charler is required
lo be a round lrip vilh a minimum of lhree slops
olher lhan lhe poinl of origin and lo be a minimum of
seven days in duralion, and ils cosl musl incIude aII
accommodalions and surface lransporlalion.
Charter air carrier an air carrier hoIding a cerlicale
of pubIic convenience and necessily aulhorizing il lo
engage in charler air lransporlalion.
Charter revenues revenues from nonscheduIed air
lransporl services in vhich lhe parly receiving lhe
lransporlalion oblains excIusive use of an aircrah and
lhe remuneralion paid by such parly accrues direclIy
lo, and lhe responsibiIily for providing lransporlalion
is lhal of, lhe accounling air carrier. Iassenger charler
revenues are lhose from charler ighls carrying
onIy passengers and lheir personaI baggage. Ireighl
charler revenues are lhose from charler ighls
carrying eilher freighl onIy or passengers and freighl
simuIlaneousIy.
City-pair lhe origin and deslinalion cilies of an air
lrip.
City ticket ofce see CTO.
Classes of stations a lerm used in reference lo lhe
IeveI of mainlenance service provided al various
slalions lhroughoul a carriers roule syslem. In
descending order of capabiIily, lhey incIude lhe
carriers mainlenance base, ma|or slalions, service
slalions, and olher slalions.
Class of service lhe lype of accommodalions or
fares oered on an airpIane. Referred lo as rcscrtaiicn
|ccking cc!cs.
Coach passenger revenue revenue from lhe air
lransporlalion of passengers al fares and quaIily of
service beIov rsl-cIass service.
Coach service lransporl service eslabIished for lhe
carriage of passengers al fares and quaIily of service
beIov lhal of rsl-cIass service.
Code sharing markeling parlnerships belveen
regionaI carriers and ma|or carriers lhal creale an
inlegraled service Iinking smaII communilies and
lhe nalionaI air lransporlalion syslem. olh carriers
in such a parlnership share lhe same idenlicalion
codes on airIine scheduIes.
Collision avoidance systems eIeclronic devices lhal
varn piIols direclIy of polenliaI conicls vilh olher
aircrah and shov lhem hov lo avoid lhem. One syslem
presenlIy being deveIoped by lhe IAA is lhe discrele
address beacon syslem (DAS), vhich is an improved
lransponder and vhich viII provide a dala Iink for use
vilh a ground-based anlicoIIision syslem.
Columbia route lhe rsl ma|or lransconlinenlaI
air maiI roule belveen San Irancisco and Nev York.
oeing Air Transporl, lhe successfuI bidder on lhe
veslern porlion of lhe CoIumbia roule, began service
on IuIy 1, 1927, belveen San Irancisco and Chicago.
NalionaI Air Transporl, lhe successfuI bidder on lhe
easlern porlion, commenced operalion on Seplember 1,
1927.
Combination carrier an air carrier lhal provides
passenger and cargo services.
Combined airline ticket ofce see CATO.
Commercial aviation in reference lo generaI
avialion ying, commerciaI use incIudes air laxi/
commuler use, renlaI use, aeriaI appIicalion, aeriaI
observalion, and olher vork.
G L O S S A R Y 5 2 7
Commission lhe paymenl by airIines lo a lraveI
agenl of specied amounls of money in relurn for lhe
agenls saIes of air lransporlalion. Il is expressed and
paid by each carrier as a percenlage of lhe vaIue of
lhe air lransporlalion soId on lhal air carrier.
Commiee system a group of individuaIs
represenling various adminislralions, deparlmenls,
or regions vho are ofciaIIy deIegaled lo perform
a funclion, such as invesligaling, considering,
reporling, or acling on a maer.
Common air carrier an air lransporlalion rm lhal
hoIds oul ils services for pubIic hire.
Common fares an unusuaI appIicalion of normaI
fares: a specic fare appIied lo poinls olher lhan
lhose belveen vhich lhe fare is delermined. Ior
exampIe, a passenger ying belveen SeaIe and
MiIvaukee mighl pay lhe same fare as a passenger
ying belveen SeaIe and Chicago.
Common stock lhe ovnership of lhe corporalion
divided inlo a specied number of shares, each
represenling equaI parlicipalion in lhe aairs of lhe
company.
Commuter air carrier a cIass of noncerlicaled air
carriers (air laxi operalors) lhal operale smaII aircrah
(fever lhan 66 seals) and perform al Ieasl ve round
lrips per veek belveen lvo or more poinls: pubIish
ighl scheduIes specifying limes, days of lhe veek,
and pIaces belveen vhich such ighls are performed:
or lransporl maiI by air pursuanl lo a currenl conlracl
vilh lhe U.S. IoslaI Service.
Competitive market any cily-pair or pair of
geographic areas served by more lhan one air
carrier.
Computerized reservation system (CRS) a syslem
lhal dispIays airIine scheduIes and prices for use by
agenls in making reservalions.
Constrained operating plan lhe syslem conslrainls
(runvay Ienglh and capacily, gale capacily, ground
access, and so forlh) lhal are pIaced on lhe carrier in
lhe eel-pIanning process.
Consumer-oriented period lhe airIine markeling
period slarling in lhe earIy 1970s in vhich lhe carriers
aempled lo delermine lhrough markeling research
lechniques exaclIy vhal air lraveIers reaIIy vanled
and lhen designed producls and services lo meel
lhose vanls.
Container rates speciaI cargo rales for shippers
using conlainers.
Controlling lhe evaIualion of performance and, if
necessary, correclion of vhal is being done lo ensure
aainmenl of resuIls according lo pIan.
Corporate aircra use any use of an aircrah by a
corporalion, company, or olher organizalion for lhe
purpose of lransporling ils empIoyers or properly nol
for compensalion or hire and empIoying professionaI
piIols for lhe operalion of lhe aircrah.
Corporate objectives ma|or ob|eclives eslabIished by
lhe board of direclors and senior managemenl. Such
ob|eclives mighl incIude expecled relurn on inveslmenl
(ROI), prols aher laxes, slockhoIder dividends, or
largeled markel share on a ma|or roule segmenl.
Correlation a slalislicaI lolaI lhal measures lhe
degree of dependency belveen lvo or more variabIes
and lhe average amounl of change in one variabIe
associaled vilh a unil increase in anolher. In simpIe
correIalion, lhe dependenl variabIe is reIaled lo onIy
one independenl variabIe. In muIlipIe correIalion,
lhe dependenl variabIe is reIaled lo lvo or more
independenl variabIes.
Cra union a Iabor union composed of vorkers
in a parlicuIar lrade, such as piIols, mechanics,
ighl aendanls, or dispalchers. An excIusiveIy
organized union.
Cross-utilization lhe use of personneI in vork
oulside of lheir normaI |ob descriplionfor exampIe,
mechanics used lo sorl baggage or ighl aendanls
serving as reservalion or lickel agenls.
CRS see Computerized reservation system.
CTO (city ticket ofce) an airIine lickel ofce
generaIIy Iocaled in lhe ma|or business dislricl of a
Iarge cily.
Current assets cash and olher resources expecled lo
be reaIized in cash, soId, or consumed vilhin one year.
IncIudes cash, markelabIe securilies, receivabIes, and
invenlories.
Current liabilities obIigalions lhe Iiquidalion of
vhich is expecled lo require lhe use, vilhin one
year, of currenl assels in lhe crealion of olher currenl
IiabiIilies. IncIudes accounls payabIe, unpaid laxes,
and olher debls vilhin one year.
Current notes payable lhe face vaIue of noles,
drahs, acceplances, or olher simiIar evidences of
indebledness payabIe on demand or vilhin one year
lo olher lhan associaled companies, incIuding lhe
porlion of Iong-lerm debl due vilhin one year of lhe
baIance sheel dale.
A I R T R A N S P O R TAT I O N 5 2 8
Current ratio a measure of Iiquidily oblained by
dividing currenl assels by currenl IiabiIilies. The
higher lhe number, lhe more cash is on hand for
shorl-lerm needs.
Current resources lhe quanlily and quaIily of
human and capilaI resources avaiIabIe, incIuding
presenl eel, mainlenance faciIilies, ighl crevs,
mechanics, and so forlh.
Customer any person lo vhom air lransporlalion
and reIaled services are lo be provided. TechnicaIIy,
a cusicncr becomes a passcngcr onIy vhen he or she
boards an airpIane for a ighl.
Debenture a lype of bond lhal is generaIIy nol
secured by any specic pIedge of properly as
coIIaleraI. Convertible debentures give lhe hoIder
lhe priviIege of exchanging lhe hoIdings for securilies
of a dierenl lype, usuaIIy common slock.
Debt currenl and noncurrenl IiabiIilies: equilies of
credilors.
Debt nancing currenl and noncurrenl IiabiIilies
(equilies of credilors) incurred from borroving funds
from commerciaI banks, insurance companies, and
olher sources.
Decentralization an exlension of deIegalion
generaIIy from lhe home ofce lo branch ofces: lhe
deIegalion of responsibiIily and aulhorily avay from
a cenlraIized unil.
Decision making lhe process of choosing belveen
aIlernalive courses of aclion.
Deferred charge debil baIances in generaI cIearing
accounls, incIuding prepaymenls chargeabIe againsl
operalions over a period of years, capilaIized
expendilures of an organizalionaI or deveIopmenlaI
characler, and properly acquisilion ad|uslmenls.
Deferred credits credil baIances in generaI cIearing
accounls, incIuding premiums on Iong-lerm debl
securilies.
Deferred taxes cerlain laxes lhal companies are
required lo coIIecl for various laxing aulhorilies
incIuding federaI excise and slale saIes laxes and
payroII vilhhoIding of empIoyee income laxes.
Deators (constant dollars) muIlipIiers used lo
reduce a price IeveI lo lhal comparabIe vilh lhe price
IeveI al a given lime, oseing lhe eecl of inalion.
The gross nalionaI producl, in conslanl doIIars, is
arrived al by dividing componenls of lhe currenl
doIIar gures by appropriale price dealors.
Delay a Iack of limeIy movemenl lhal resuIls in
monelary Ioss lo lhe shipper. Il incIudes, bul is nol
Iimiled lo, consequenliaI or speciaI damages and
physicaI delerioralion or damage lo lhe goods lhal
resuIls from deIay.
Delegation of authority lhe assignmenl of aulhorily
and dulies lo olhers al a Iover organizalionaI IeveI.
Demand a scheduIe lhal shovs lhe various amounls
of a producl or service lhal consumers are viIIing and
abIe lo purchase al various prices over a parlicuIar
lime period.
Denied-boarding compensation compensalion
paid lo a passenger hoIding conrmed reserved space
vho arrives for carriage al lhe appropriale lime and
pIace bul is denied sealing. The passenger musl have
compIied fuIIy vilh lhe carriers requiremenls as lo
lickeling, check-in, and reconrmalion procedures
and be acceplabIe for lransporlalion under lhe
carriers lari.
Department a grouping of aclivilies. Deparlmenls
generaIIy faII under adminislralions (for exampIe, lhe
adverlising deparlmenl faIIs under lhe markeling ad-
minislralion).
Departmentalization lhe praclice of subdividing bolh
peopIe and funclions inlo groups vilhin an organizalion
in order lo gain lhe advanlages of speciaIizalion.
Department of Transportation (DOT) an execulive
deparlmenl of lhe U.S. governmenl eslabIished by
lhe Deparlmenl of Transporlalion Acl of 1966 for
lhe purpose of deveIoping nalionaI lransporlalion
poIicies and programs conducive lo lhe provision
of fasl, safe, efcienl, and convenienl lransporlalion
al lhe Iovesl possibIe cosl. The deparlmenl consisls
of lhe secrelary, lhe undersecrelary, and lhe heads
of lhe operaling agencies, vhich incIude lhe Coasl
Guard, lhe IederaI Avialion Adminislralion, lhe
IederaI RaiIroad Adminislralion, and severaI olher
adminislralive unils.
Departure an aircrah lakeo from an airporl.
Depreciation lhe generaI conversion of lhe
depreciabIe cosl of a xed assel inlo an expense,
spread over ils remaining Iife. There are a number
of melhods of deprecialion, aII based on a periodic
charge lo an expense accounl and a corresponding
credil lo a reserve accounl.
Depreciation of ight equipment charges lo
expense for deprecialion of airframes, aircrah
engines, airframe and engine parls, and olher ighl
equipmenl.
G L O S S A R Y 5 2 9
Design characteristics an aircrahs dimensions:
veighl proIe, incIuding such ilems as maximum
zero-fueI veighl and operalors emply veighl: fueI
capacily: lype of pover pIanls: syslems (eIeclricaI,
hydrauIic, and environmenlaI): sealing conguralion:
conlainers and paIIels: buIk voIume: and lolaI
voIume.
Determinants of demand lhose faclors lhal aecl
demand. Irice is generaIIy considered lhe mosl
imporlanl delerminanl of demand: hovever, olher
nonprice delerminanls incIude (1) lhe preferences
of passengers, (2) lhe number of passengers in
a parlicuIar markel, (3) lhe nanciaI slalus and
income IeveIs of lhe passengers, (4) lhe prices
of compelilors and reIaled lraveI expenses, and
(5) passenger expeclalions vilh respecl lo fulure
prices.
Determinants of elasticity lhose faclors lhal
change a consumers responsiveness lo price changes,
incIuding compelilion, dislance ovn, business
versus pIeasure lraveI, and lime invoIved.
Developmental and preoperating cost cosls
accumuIaled and deferred in conneclion vilh
aIleralions in operalionaI characlerislics, such as lhe
deveIopmenl and preparalion for operalion of nev
roules and lhe inlegralion of nev lypes of aircrah or
services.
Directing lhe process of assigning lasks and
ordering, leIIing, and inslrucling subordinales vhal
lo do and perhaps hov lo do il.
Directionality lhe preponderance of air cargo
lrafc oving belveen cily-pairs.
Direct operating cost aII expenses lhal are
associaled vilh and dependenl on lhe lype of aircrah
being operaled, incIuding aII ying expenses (such
as ighl crev saIaries, fueI and oiI, aII mainlenance
and overhauI cosls, and aII aircrah deprecialion
expenses).
Diseconomies of scale see Economies of scale.
Dividends dividends payabIe, in cash or in slock,
lo preferred and common slockhoIders decIared bul
nol necessariIy paid during lhe accounling period.
The currenl IiabiIily is crealed by lhe decIaralion, lhe
amounl ordinariIy being charged lo relained earnings.
Division a speciaIized unil or grouping of aclivilies
vilhin a deparlmenl (for exampIe, cosl accounling
mighl be a division of lhe generaI accounling
deparlmenl, vhich faIIs under lhe nance and
properly adminislralion).
Domestic operation in generaI, operalions vilhin
or belveen lhe 50 slales of lhe Uniled Slales and lhe
Dislricl of CoIumbia.
DOT see Department of Transportation.
Earnings per share nel earnings divided by lhe
number of shares oulslanding.
Earnings, retained lhe cumuIalive increase
in slockhoIders equily as a resuIl of company
operalions.
Economies (diseconomies) of scale lhe
decreases (increases) in a rms Iong-run average
cosls as lhe size of ils operalions increases.
The faclors lhal give rise lo economies of scaIe
are (1) grealer speciaIizalion of resources,
(2) more efcienl uliIizalion of equipmenl, (3)
reduced unil cosls of inpuls, (4) opporlunilies for
economic uliIizalion of by-producls, and (5) grovlh
of auxiIiary faciIilies. Diseconomies of scaIe may
evenluaIIy sel in, hovever, due lo (1) Iimilalions
of (or diminishing relurns lo) managemenl in ils
decision-making funclion and (2) compelilion among
rms in bidding up cosls of Iimiled inpuls.
Economies of scope economies reIaled lo lhe
number of poinls served by a carrier, as dislinguished
from cccncnics cj sca|c. vhich are achieved as a
funclion of size.
Economy service in domeslic operalions, lransporl
service eslabIished for lhe carriage of passengers al
fares and quaIily of service beIov coach service.
Efcient use of capital lhe uliIizalion of lhe Ialesl
lechnoIogy avaiIabIe, vhich brings aboul economies
of scaIe.
Elastic demand lhe demand if a given percenlage
change in price resuIls in a Iarger percenlage change
in passengers carried (consumers are responsive).
The coefcienl of eIaslicily of demand is grealer
lhan 1. When demand is eIaslic, a price increase viII
reduce lolaI revenue and a price decrease viII raise
lolaI revenue.
Elasticity of demand lhe percenlage change in
quanlily demanded resuIling from a 1 percenl
change in price. MalhemalicaIIy, lhe ralio of lhe
percenlage change in quanlily demanded lo lhe
percenlage change in price. In generaI, eIaslicily
may be lhoughl of as lhe responsiveness of changes
in one variabIe lo changes in anolher, vhere
responsiveness is measured in lerms of percenlage
changes.
A I R T R A N S P O R TAT I O N 5 3 0
Emergency board a speciaI commiee sel up by
lhe presidenl upon recommendalion of lhe NalionaI
Medialion oard vhen in lheir opinion a slrike by
empIoyees of one or more carriers mighl Iead lo a
nalionaI emergency. The emergency board has 30
days lo invesligale lhe dispule and reporl ils ndings
lo lhe presidenl.
Employee productivity oulpul (in lerms of some
voIume, such as ying hours or deparlures) versus
inpul (number of empIoyees). GeneraIIy, lhe average
lolaI number of empIoyees divided inlo lhe indicaled
lrafc and/or nanciaI measures for lhe year.
Enplanements, passenger see Passenger enplane-
ments.
Equipment trust nancing a Ioan by a bank or
group of banks lo an air carrier for lhe purchase of
equipmenl in vhich lilIe remains vilh lhe banks,
vhich are lruslees of a series of cerlicales issued vilh
lhe equipmenl as securily. A number of cerlicales
are paid o annuaIIy by lhe carrier.
Equipment turnaround time lhe Ienglh of
lime belveen an aircrahs arrivaI and deparlure.
GeneraIIy, lhe lime needed lo prepare an aircrah for
deparlure, incIuding aircrah cIeaning, fueIing, en
roule mainlenance check, baggage Ioading, and food
service.
Equity nancing lhe saIe of slocks and bonds in lhe
capilaI markel lo lhe pubIic.
Essential air service lhe lhreshoId number of
deparlures Iinking a communily lo lhe nalionvide air
lransporl nelvork. Tvo round lrips per day, ve days
a veek, or lhe IeveI of service provided on lhe basis of
caIendar year 1977 air carrier scheduIe, vhichever is
Iess, is lhe slalulory minimum service.
Exception rate a rale higher lhan lhe usuaI air
freighl rale lhal appIies lo cerlain lypes of shipmenls
lhal require speciaI handIing (animaIs, for exampIe).
Excess baggage passenger baggage in excess of free
aIIovance. This excess is sub|ecl lo a charge, vhich is
caIIed cxccss |aggagc rctcnuc.
Express properly lransporled by air under
pubIished air express laris Ied vilh lhe CiviI
Aeronaulics oard. OriginaIIy, cxprcss referred lo lhe
priorily movemenl of parceI shipmenls moving on
aircrah in con|unclion vilh an agreemenl belveen
lhe various air carriers and RIA Ixpress, Inc. Since
lhe cessalion of operalions by RIA Ixpress in 1976,
lhis lerm refers lo lhe repIacemenl services oered by
lhe various air carriers.
Extra section an addilionaI passenger-carrying
ighl, usuaIIy sel up for one day onIy, lo accommodale
heavy cuslomer demand.
FAA see Federal Aviation Administration.
Facility constraints operaling Iimilalions caused
by inadequale runvay Ienglh, gale posilions, lickel
counler space, and so forlh.
Fare lhe amounl per passenger or group of persons
slaled in lhe appIicabIe lari for lhe lransporlalion
lhereof, incIuding baggage unIess lhe conlexl
olhervise requires.
Fare, coach (tourist) lhe lari appIicabIe lo lhe
lransporlalion of a passenger or passengers al a
quaIily of service beIov lhal of rsl-cIass service bul
higher lhan or superior lo lhal of economy service.
Fare, discount a reduced fare designed lo slimuIale
lrafc voIume. Discounl fares are sub|ecl lo one or
more lraveI reslriclions, such as minimum Ienglh of
slay or appIicabiIily onIy on cerlain days of lhe veek
or onIy during a parlicuIar season, and are lypicaIIy
caIcuIaled as a percenlage reduclion from lhe normaI
fuII fare.
Fare, economy a charge for domeslic air
lransporlalion al a IeveI of service beIov lhal of coach
service. The signicanl dierence belveen coach and
economy service is lhal lhe coach passenger receives
a compIimenlary meaI vhiIe lhe economy passenger
has an oplion of purchasing a meaI. Sealing densily
in lhe economy area may be higher lhan in lhe coach
area. In inlernalionaI air lransporlalion, cccncnu jarc
appIies lo second-cIass service or service |usl beIov
lhal of rsl-cIass. Il is synonymous vilh lhe lerm
ccacn jarc vilhin lhe Uniled Slales.
Fare, excursion a lype of discounl fare.
Fare, rst-class lhe fare appIicabIe lo lhe
lransporlalion of a passenger or passengers for vhom
premium-quaIily services are provided.
FBO see Fixed-base operator.
Federal Aviation Administration (FAA) an
independenl agency of lhe U.S. governmenl charged
vilh conlroIIing lhe use of U.S. airspace (by civiI and
miIilary operalors) lo oblain lhe maximum efciency
and safely. IormerIy lhe IederaI Avialion Agency, il
became parl of lhe Deparlmenl of Transporlalion in
1967 as a resuIl of lhe Deparlmenl of Transporlalion
Acl. The IAA is charged vilh reguIaling air commerce
lo promole ils safely and deveIopmenl: achieving lhe
efcienl use of lhe navigabIe airspace of lhe Uniled
G L O S S A R Y 5 3 1
Slales: promoling, encouraging, and deveIoping
civiI avialion: deveIoping and operaling a common
syslem of air lrafc conlroI and air navigalion for
bolh civiIian and miIilary aircrah: and promoling lhe
deveIopmenl of a nalionaI syslem of airporls.
Feeder routes roules designed lo feed lrafc inlo
lhe ma|or lrunk roules. Aher WorId War II, a number
of smaIIer air carriers vere eslabIished lhal became
knovn as |cca|-scrticc carricrs or jcc!cr |incs.
Field ticket oce see FTO.
Final report lhe naI accidenl reporl issued by lhe
NTS lhal ciles lhe probabIe cause of lhe accidenl.
Financial (capital) lease a Iong-lerm Iease
(generaIIy 12 lo 15 years) lhal, because of (1)
reslriclions on lerminalion, (2) ils Iong lerm, and (3)
lhe conlracluaI commilmenl lo pay lhe lolaI vaIue of
lhe Iease paymenls, is considered a form of capilaI
nancing.
First-class passenger revenues revenues from lhe
air lransporlalion of passengers al slandard fares,
premium fares, or reduced fares, such as famiIy pIan
and rsl-cIass excursion, for vhom slandard- or
premium-quaIily services are provided.
First-class service lransporl service eslabIished for
lhe carriage of passengers al slandard fares, premium
fares, or reduced fares, such as famiIy pIan and rsl-
cIass excursion, for vhom slandard- or premium-
quaIily services are provided.
Fitness an appIicanl carriers size, nanciaI
resources, ighl equipmenl, slralegy for conducling
proposed operalions, and pasl performance in
conforming lo various IegaI requiremenls.
Five Freedoms Agreement lhe InlernalionaI
Air Transporl Agreemenl lhal arose oul of lhe
Chicago Conference of 1944 proposing lvo basic
freedoms (see Two Freedoms Agreement) pIus lhree
addilionaI freedoms: (1) lhe priviIege of puing
dovn passengers, maiI, and cargo laken on in lhe
lerrilory of lhe slale vhose nalionaIily lhe aircrah
possesses: (2) lhe priviIege of picking up passengers,
maiI, and cargo deslined for lhe lerrilory of lhe slale
vhose nalionaIily lhe aircrah possesses: and (3) lhe
priviIege of picking up passengers, maiI, and cargo
deslined for lhe lerrilory of any olher conlracling
slale and lhe priviIege of puing dovn passengers,
maiI, and cargo coming from any such lerrilory.
Fixed assets lhe Iand, pIanl and equipmenl, and
olher physicaI produclive assels of a rm lhal are
expecled lo have a usefuI Iife in excess of one year.
Fixed-base operator (FBO) a free-enlerprise
business lhal carries on generaI avialion saIes,
service, and supporl operalions.
Fixed costs lhose direcl operaling cosls lhal in lolaI
do nol vary vilh changes in avaiIabIe seal-miIes
(ASMs) lhal an airIine produces.
Fixed-wing aircra an aircrah vhose vings are
xed lo lhe airpIane fuseIage and oulspread in ighl
(nonrolaling vings).
Fleet planning lhe aircrah seIeclion process.
Flight airborne movemenl of an aircrah. CommonIy
used lo mean scnc!u|c! igni.
Flight dispatch lhe overaII pIanning of ighl
operalions. IIighl dispalch personneI vork cIoseIy
vilh lhe ighl crev in preparing aII delaiIs perlaining
lo lhe proposed ighl, incIuding such faclors as lhe
nalure and duralion of lhe ighl, vealher condilions
al various ighl aIliludes, airvay rouling lo be used,
and fueI requiremenls.
Flight equipment airframes, aircrah engines,
aircrah propeIIers, aircrah communicalions and
navigalionaI equipmenl, misceIIaneous equipmenl
used in lhe operalion of lhe aircrah, and improvemenls
lo Ieased ighl equipmenl.
Flight-equipment cost lhe lolaI cosl lo lhe air carrier
of lhe compIele airframe: fuIIy assembIed engines:
inslaIIed aircrah propeIIers, rolary ving aircrah
rolors, and simiIar assembIies: inslaIIed airborne
communicalions and eIeclronic navigalionaI
equipmenl and olher simiIar assembIies: compIele
unils of misceIIaneous airborne ighl equipmenl:
and cosls of modicalion, conversion, or olher
improvemenls lo Ieased ighl equipmenl.
Flight-equipment expendable parts ighl-equipmenl
repIacemenl parls of a lype recurrenlIy expended and
repIaced ralher lhan repaired or revised.
Flight-equipment spare parts and assemblies parls
and assembIies of maleriaI vaIue lhal are generaIIy
reserviced or repaired and used repealedIy and
lhal possess a service Iife approximaling lhal of lhe
properly lype lo vhich lhey reIale.
Flight, scheduled any aircrah ilinerary periodicaIIy
operaled belveen lerminaI poinls lhal is separaleIy
designaled, by ighl number or olhervise, in lhe
pubIished scheduIes of an air carrier.
Flight service station (FSS) an IAA-operaled air/
ground voice communicalions slalion lhal reIays
A I R T R A N S P O R TAT I O N 5 3 2
cIearances, requesls for cIearances, and posilion
reporls belveen en roule aircrah and lhe air roule
lrafc conlroI cenler. In addilion, lhe ISS provides
preighl brieng for ighls operaling under eilher
visuaI or inslrumenl ighl ruIes, gives in-ighl
assislance, broadcasls vealher once each hour,
monilors radio navigalionaI faciIilies, accepls ighl
pIans for aircrah operaling under visuaI ighl ruIes
and provides nolicalion of arrivaI, and broadcasls
nolices lo airmen (NOTAMS) concerning IocaI
navigalionaI aids, aireIds, and olher ighl dala.
Flight stage lhe operalion of an aircrah from lakeo
lo Ianding. (See aIso Overall ight stage length.)
Flying operations expenses expenses incurred
direclIy in lhe in-ighl operalion of aircrah and
expenses aached lo lhe hoIding of aircrah and aircrah
operalionaI personneI in readiness for assignmenl lo
in-ighl slalus.
Forecasting lhe aempl lo quanlify demand in a
fulure lime period. Ouanlicalion can be in lerms of
doIIars, such as revenue, or some physicaI voIume,
such as revenue passenger miIes or passenger
enpIanemenls.
Foreign air carrier permit a permil issued by
lhe former CA or lhe DOT lo a foreign air carrier
aulhorizing il lo conducl air lransporl operalions
belveen foreign counlries and cilies in lhe Uniled
Slales, eilher in accordance vilh lhe lerms of a
biIaleraI air lransporl agreemenl or nonscheduIed air
service agreemenl or under condilions of comily and
reciprocily.
Foreign-ag carrier an air carrier olher lhan a
U.S.-ag air carrier engaged in inlernalionaI air
lransporlalion. Foreign air carrier, a more incIusive
lerm lhan jcrcign-ag air carricr. presumabIy incIudes
lhose non-U.S. air carriers operaling soIeIy vilhin
lheir ovn domeslic boundaries, bul in praclice lhe
lvo lerms are used inlerchangeabIy.
401 carrier an air carrier cerlicaled under Seclion
401 of lhe IederaI Avialion Acl of 1958 by lhe former
CA or lhe DOT aulhorizing lhe carrier lo engage in
air lransporlalion.
Freight properly olher lhan express and passenger
baggage lransporled by air.
Freight revenues revenues from lhe lransporlalion
by air of properly olher lhan express or passenger
baggage, predominanlIy from individuaIIy vaybiIIed
shipmenls carried in scheduIed service.
Frequent-ier program an air carrier program
lhal aIIovs frequenl iers lo earn free lickels aher
accumuIaling a cerlain number of miIes ovn on
lhe carrier. Iirsl inlroduced by American AirIines,
vhich recognized lhal roughIy 5 lo 6 percenl of lheir
iers accounl for aboul 40 percenl of aII lrips laken
annuaIIy. Il vas a markeling program originaIIy
aimed al crealing ier IoyaIly in response lo price
compelilion in lhe earIy 1980s.
Fringe benets insurance pIans, pensions,
vacalions, and simiIar benels for empIoyees.
FSS see Flight service station.
FTO (eld ticket ofce) a lickel ofce Iocaled on
airporl properly.
Fuel tax an excise lax paid by an airIine on lhe
avialion gasoIine and |el fueI il purchases.
Functions of management lhe process of achieving
an organizalions goaIs lhrough lhe coordinaled
performance of ve specic funclions: pIanning,
organizing, slafng, direcling, and conlroIIing.
GAMA (General Aviation Manufacturers
Association) a lrade organizalion of lhe
manufaclurers of Iighl aircrah and componenl parls.
General and administrative expenses expenses of
a generaI corporale nalure and expenses incurred
in performing aclivilies lhal conlribule lo more
lhan a singIe operaling funclion, such as generaI
nanciaI accounling aclivilies, purchasing aclivilies,
represenlalion al Iav, and olher generaI operalionaI
adminislralion nol direclIy appIicabIe lo a parlicuIar
funclion.
General aviation avialion olher lhan miIilary and
commerciaI common carriage, incIuding business
ying, inslruclionaI ying, personaI ying, and
commerciaI ying such as agricuIluraI spraying and
aeriaI pholography.
General Aviation Manufacturers Association see
GAMA.
General commodity rate lhe basic or normaI price
appIicabIe lo aII commodilies in aII markels. GeneraI
commodily shipmenls are raled by veighl. As lhe
veighl of a shipmenl increases, lhe per pound rale
decreases.
General-use airport an airporl serving as a reguIar,
aIlernalive, or provisionaI slop for scheduIed and
nonscheduIed air carriers and nonair carriers and
oering minimum services, such as fueI and reguIar
aendanls during normaI vorking hours: aIso,
G L O S S A R Y 5 3 3
airporls operaling seasonaIIy lhal quaIify under lhe
above denilion.
Glider a heavier-lhan-air aircrah vhose ighl does
nol depend principaIIy on a pover-generaling unil.
Go-team lhe NTS accidenl invesligalors vho are
on 24-hour aIerl lo respond lo any ma|or accidenl.
The leam is generaIIy made up of experls lrained
in vilness inlerrogalion, air lrafc conlroI, aircrah
operalions, and aircrah mainlenance records.
Gross prot prol earned on saIes aher deducling
lhe cosl of lhe goods soId bul before deducling olher
business expenses.
Grounding see Aircra grounding.
Ground movement pickup and deIivery and/or
connecling or |oinl molor carrier service pursuanl lo
inlerIine air/ground agreemenls.
Ground property and equipment properly and
equipmenl olher lhan ighl equipmenl, Iand, and
conslruclion vork in progress.
Ground transportation surface lransporlalion
belveen an airporl and cily or belveen lvo or more
airporls. Il is provided by privale or governmenl
operaled Iimousine, bus, cab, or raiI, and may incIude
baggage lransfer service.
Guaranteed loan see Loan, guaranteed.
Helicopter a lype of aircrah lhal derives Iih from
lhe revoIving of vings (engine-driven bIades)
aboul an approximaleIy verlicaI axis. A heIicopler
does nol have convenlionaI xed vings, nor in
any bul some earIier modeIs is il provided vilh a
convenlionaI propeIIer, forvard lhrusl and Iih being
furnished by lhe rolor. The povered rolor bIades aIso
enabIe lhe machine lo hover and lo Iand and lake o
verlicaIIy.
Hub, air trafc a cily or slandard melropoIilan
slalislicaI area requiring avialion services.
Communilies faII inlo four cIasses, as delermined by
lheir percenlage of lhe lolaI enpIaned passengers in
scheduIed and nonscheduIed service of lhe domeslic
cerlicaled roule airIines in lhe 50 slales, lhe Dislricl
of CoIumbia, and olher U.S. areas designaled by lhe
IederaI Avialion Adminislralion. A large hub is a
communily lhal enpIanes 1 percenl or more of lolaI
enpIaned passengers for aII air services in lhe Uniled
Slales: a medium hub, from 0.25 lo 0.99 percenl: a
small hub, from 0.05 lo 0.24 percenl: and a nonhub,
Iess lhan 0.05 percenl.
Hub-and-spoke system a syslem lhal feeds air
lrafc from smaII communilies lhrough Iarger
communilies lo lhe lraveIers deslinalion via
conneclions al lhe Iarger communily.
IATA (International Air Transport Association) a
voIunlary organizalion open lo any scheduIed
air carrier vhose home counlry is a member (or
eIigibIe lo be a member) of lhe InlernalionaI CiviI
Avialion Organizalion (ICAO). The IATAs main
funclion is lhe economic reguIalion of inlernalionaI
air lransporlalionin parlicuIar, inlernalionaI rales
and fares lhal are sel by one of seven regionaI or
|oinl lrafc conferences and sub|ecl lo unanimous
resoIulions of lhe carriers, provided lhal lhe counlries
do nol ob|ecl.
ICAO (International Civil Aviation Organization) a
speciaIized agency of lhe Uniled Nalions composed
of conlracling slales vhose purpose is lo deveIop
lhe principIes and lechniques of inlernalionaI
air navigalion and lo fosler lhe pIanning and
deveIopmenl of inlernalionaI air lransporl.
IFR see Instrument ight rules.
Incidental revenues, net revenues Iess reIaled
expenses from services incidenlaI lo air lransporlalion,
such as saIes of service, suppIies, and parls, and
renlaI of operaling properly and equipmenl.
Income before taxes nel saIes minus lhe cosl of
goods or services soId, minus operaling expenses,
minus nonoperaling expenses.
Income, net (aer income taxes) nel income (before
income laxes) Iess federaI income laxes.
Income, net (before income taxes) nel operaling
income pIus or minus olher income and expenses.
Income, net operating lolaI nel saIes Iess lolaI
operaling cosls.
Income statement a slalemenl of revenues and
expenses and resuIling nel income or Ioss covering a
slaled period of lime, usuaIIy one year.
Income taxes for the period provisions for federaI,
slale, IocaI, and foreign laxes lhal are based on nel
income.
Indirect operating cost aII cosls lhal viII remain
unaecled by a change of aircrah lype because lhey
are nol direclIy dependenl on aircrah operalions
(for exampIe, passenger service cosls, cosls of
lickeling and saIes, slalion and ground cosls, and
adminislralive cosls).
A I R T R A N S P O R TAT I O N 5 3 4
Industrial/special use any use of an aircrah for
speciaIized vork aIIied vilh induslriaI aclivily,
excIuding lransporlalion and aeriaI appIicalion
(pipeIine palroI, survey, adverlising, pholography,
heIicopler hoisl, and so forlh).
Industrywide bargaining agreemenl belveen
unions and managemenls of ma|or rms of an induslry
lo bargain coIIecliveIy lo reach conlracl lerms lhal viII
appIy lo aII lhe rms and lheir empIoyees, vherever
lhey are Iocaled. One purpose is lo lake vages oul of
compelilion.
Inelastic demand demand silualion lhal occurs
vhen a given percenlage change in price is
accompanied by a reIaliveIy smaIIer change in
passengers carried (consumers are unresponsive).
The coefcienl of eIaslicily of demand is Iess lhan
1. When demand is ineIaslic, a price increase viII
increase lolaI revenue and a price decrease viII Iover
lolaI revenue.
Instructional ying any use of an aircrah for
lhe purposes of formaI inslruclion vilh lhe ighl
inslruclor aboard or vilh lhe maneuvers on lhe
parlicuIar ighls specied by lhe ighl inslruclor.
Instrument ight rules (IFR) ruIes specied by
quaIied aulhorily (IAA) for ighl under vealher
condilions such lhal visuaI reference cannol be made
lo lhe ground and lhe piIol musl reIy on inslrumenls
lo y and navigale.
Integrated carriers carriers lhal operale door-lo-
door freighl lransporlalion nelvorks lhal incIude
aII-cargo aircrah, deIivery vehicIes, sorling hubs, and
advanced informalion syslems. AIso caIIed cxprcss
carricrs.
Intensive growth strategies aempls lo more
inlensiveIy penelrale exisling largel markels, increase
producl deveIopmenl, and deveIop nev largel
markels.
Interest expense inleresl on aII cIasses of debl,
incIuding premium, capilaIized inleresl, and
expenses on shorl-lerm obIigalions and amorlizalion
of premium discounls and expenses on shorl-lerm
and Iong-lerm obIigalions.
International Air Transport Association see IATA.
International Civil Aviation Organization see
ICAO.
International operations lhose operalions belveen
lhe 50 slales of lhe Uniled Slales and foreign poinls,
belveen lhe 50 slales and U.S. possessions or
lerrilories, and belveen foreign poinls. IncIudes bolh
lhe combinalion passenger/cargo carriers and lhe aII-
cargo carriers engaged in inlernalionaI operalions.
Interstate see Air transportation, interstate.
Intrastate see Air transportation, intrastate.
Inventory management lhe slralegy of seIIing
as many seals as possibIe al lhe highesl possibIe
fares. This usuaIIy means making avaiIabIe an
adequale number of Iover-fare seals far in advance
of lhe deparlure dale in order lo accommodale price-
sensilive business passengers.
Investment bank a bank lhal serves as an
inlermediary belveen inveslmenl sources
and lhose vho need funds. Inveslmenl
bankers serve as consuIlanls and advisers
regarding privale debl pIacemenl and pubIic equily
oerings.
Investments and special funds Iong-lerm
inveslmenls in securilies of olhers excIusive of U.S.
governmenl securilies: funds sel aside for specic
purposes: and olher securilies, receivabIe equipmenl
purchase deposils, and appIicabIe capilaIized inleresl
or funds nol avaiIabIe for currenl operalions.
JAMTO (joint airline/military ticket ofce) a lickel
ofce Iocaled al a miIilary base and generaIIy slaed
by personneI from severaI air carriers.
Jet fuel lhe kerosene used lo fueI lurbine-povered
aircrah, as opposed lo avialion gasoIine used in
pislon-engine aircrah.
Jetway a lrade name, used lo describe aII makes
and modeIs of passenger Ioading bridges. A passcngcr
|ca!ing |ri!gc is an encIosed, movabIe vaIkvay lhal
connecls lhe cabin of an airpIane vilh lhe lerminaI.
Job description a slalemenl of lhe ob|eclives,
aulhorily, responsibiIily, and reIalionships vilh olhers
required by a person occupying a specic posilion.
Job evaluation a formaIized syslem for delermining
lhe vorlh, in monelary lerms, of aII |obs vilhin an
organizalion.
Joint airline/military ticket ofce see JAMTO.
Joint fare a singIe fare lhal appIies lo lransporlalion
over lhe |oinl Iines or roules of lvo or more carriers
and lhal is made and pubIished by an agreemenl
belveen lhe carriers.
Joint rate an air freighl rale for domeslic shipmenls
G L O S S A R Y 5 3 5
lransporled on lvo or more airIines belveen origin
and deslinalion.
Judgmental forecasts forecasls based on inluilion
and sub|eclive evaIualion of lhe fulure. NormaIIy,
lhey are derived from experl opinion, saIes force
eslimales, and various cuslomer research poIIs.
Land lhe iniliaI cosl and lhe cosl of improving Iand
ovned or heId in perpeluily by an air carrier.
Landing area any IocaIily, eilher of Iand or valer,
incIuding airporls and inlermediale Ianding eIds,
lhal is used, or inlended lo be used, for lhe Ianding
and lakeo of aircrah, vhelher or nol faciIilies are
provided for lhe sheIler, servicing, or repair of aircrah
or for receiving or discharging passengers or cargo.
Law of demand lhe inverse reIalionship belveen
price and quanlily. As price faIIs, lhe corresponding
quanlily demanded rises: aIlernaleIy, as price
increases, lhe corresponding quanlily demanded
faIIs.
Law of diminishing returns Iav slaling lhal as
resources (Iabor, capilaI equipmenl) are added lo
a xed capacily (number of aircrah, gale posilions,
hangars), oulpul (ASMs) mighl veII increase
al an increasing rale vhiIe exisling capacily is
underuliIized. Hovever, beyond some poinl, ASMs
viII increase al a decreasing rale, unliI lhe uIlimale
capacily in lhe shorl run is reached.
Levels of management lhe IeveIs of aulhorily and
responsibiIily vilhin an organizalion. Tcp nanagcncni
is lhe highesl IeveI and incIudes lhe companys chief
poIicymakers, incIuding senior ofcers responsibIe
for ma|or adminislralions. Mi!!|c nanagcncni is
responsibIe for deveIoping operalionaI pIans and
procedures and incIudes heads of deparlmenls
and divisions. Opcraiing nanagcncni is lhe Iovesl
IeveI and incIudes managers and supervisors vho
are primariIy concerned vilh puing inlo aclion
operalionaI pIans devised by middIe managemenl.
Liability lhe equily of a credilor.
Liability, current an obIigalion lhal becomes due
vilhin a shorl lime, usuaIIy one year.
Limited-use airport an airporl avaiIabIe lo lhe
pubIic bul nol equipped lo oer minimum services.
Line departments lhose areas in an airIine lhal
are direclIy invoIved in producing or seIIing air
lransporlalion. They faII under lhe foIIoving
adminislralions: ighl operalions, engineering and
mainlenance, and markeling.
Line of credit lhe amounl and lhe lerms upon
vhich a bank viII advance funds as required. The
amounl may vary from severaI lhousand doIIars lo
miIIions, depending on lhe size of lhe airIine and ils
credil condilion.
Line personnel lhose empIoyees vhose orders and
aulhorily ov in a slraighl Iine from lhe chief execu-
live dovn lo Iover IeveIs in lhe organizalion. Line
personneI are direclIy invoIved in producing or
seIIing air lransporlalion. CommonIy referred lo as
voIume-reIaled peopIe because lheir numbers are
generaIIy delermined by some voIume such as ying
hours or deparlures.
Liquidity abiIily lo meel currenl obIigalions. The
ease vilh vhich an assel can be converled lo cash.
Load factor, revenue passenger lhe proporlion
of aircrah sealing capacily lhal is acluaIIy soId
and uliIized. Revenue passenger miIes divided by
avaiIabIe seal-miIes.
Loan, guaranteed an aircrah purchase Ioan
guaranleed by lhe federaI governmenl and
adminislered by lhe Deparlmenl of Transporlalion
lo assisl cerlain carriers in oblaining suilabIe ighl
equipmenl.
Local-service air carriers a cIass of air carriers lhal
originaIIy provided service lo smaII and medium
communilies on Iov-densily roules lo Iarge hubs
and lhal vere eIigibIe for CA subsidies lo cover
operaling Iosses from such service. These carriers
have since evoIved from lheir feeder airIine origins
inlo medium lo Iarge airIines.
Long-term debt lhe face vaIue or principaI amounl
of debl securilies issued or assumed by lhe air carrier
and heId by olher lhan associaled companies or
nonlransporl divisions, vhich has nol been relired
or canceIed and is nol payabIe vilhin 12 monlhs of
lhe baIance sheel dale.
Long-term debt/equity ratio lhe percenlage of lhe
business lhal is nanced by credilors in reIalion lo
lhal nanced by ovners. Il is compuled by dividing
Iong-lerm debl pIus capilaIized Ieases by nel
slockhoIder equily. The higher lhe number, lhe Iess
abIe a company is lo borrov money.
Long-term loan a Ioan negolialed for Iong-lerm
capilaI pro|ecls and aircrah purchases.
Long-term prepayments prepaymenls of obIi-
galions, appIicabIe lo periods exlending beyond one
year.
A I R T R A N S P O R TAT I O N 5 3 6
MAC see Military Airli Command.
Maintenance, direct lhe cosl of Iabor, maleriaIs,
and oulside services consumed direclIy in periodic
mainlenance operalions and lhe mainlenance, repair,
or upkeep of airframes, aircrah engines, olher ighl
equipmenl, and ground properly and equipmenl.
Maintenance efciency goals four primary
produclivily goaIs: (1) minimize aircrah oul-
of-service lime, (2) use up lime aIIovabIe
on aircrah and parls belveen overhauI,
(3) seek oplimum uliIizalion of personneI and even
vorkIoad, and (4) maximize uliIizalion of faciIilies.
Maintenance, indirect overhead or generaI
expenses of aclivilies invoIved in lhe repair and
upkeep of properly and equipmenl, incIuding
inspeclions of equipmenl in accordance vilh
prescribed operalionaI slandards. IncIudes expenses
reIaled lo lhe adminislralion of mainlenance slocks
and slores, lhe keeping of mainlenance operalions
records, and lhe scheduIing, conlroIIing, pIanning,
and supervising of mainlenance operalions.
Maintenance needs mainlenance consideralions in
lhe acquisilion of a nev aircrah. IncIuded are such
faclors as spare parls avaiIabiIily, aircrah compalibiIily
vilh lhe resl of lhe eel, producl supporl, lechnicaI
record keeping, and lraining supporl in lerms of
visuaI and audio aids.
Major air carriers a cIass of cerlicaled air carriers
vhose annuaI gross revenues are over $1 biIIion.
Management lhe process of combining and guiding
lhe faclors of produclion lo achieve lhe desired goaIs
of lhe rm.
Management by objectives a process in vhich
empIoyees al aII IeveIs are given langibIe, usuaIIy
numericaI, goaIs and heId accounlabIe for achieving
lhem.
MAP see Mutual aid pact.
Marketing lhe broad area of business aclivily lhal
direcls lhe ov of services provided by lhe rm lo lhe
consumer in order lo salisfy cuslomers and lo achieve
company ob|eclives.
Marketing mix lhe lypes and amounls of
conlroIIabIe markeling decision variabIes lhal a
company uses over a parlicuIar lime period: producl,
price, promolion, and pIace.
Market segmentation lhe process of dividing
polenliaI cuslomers for a producl or service inlo
meaningfuI consumer groups or markel segmenls in
order lo idenlify a largel markel.
Market strategy approach used in lhe eel-pIanning
process vhen inlegraling nev aircrah inlo lhe eel.
IncIuded are such consideralions as lhe proposed
IeveI of service belveen key cily-pairs, emphasis
on Iong-hauI or shorl-hauI roules, and fare and rale
slruclures in various passenger and cargo markels.
Merger lhe acquisilion of one rm by anolher,
eilher lhrough purchase of slock or direcl purchase
of assels, and lhe merging of operalions.
Mile a slalule miIe (5,280 feel).
Military aclivilies under charler or olher conlracl
vilh lhe Deparlmenl of Defense.
Military Airli Command (MAC) a ma|or
command organizalion of lhe Uniled Slales Air Iorce
lhal provides air lransporlalion for personneI and
cargo for aII miIilary services on a vorIdvide basis.
MAC is lhe conlraclor for lhe U.S. Air Iorces Logair
and lhe U.S. Navys Ouicklrans.
Misconnection a passenger vho, due lo Iale arrivaI
or canceIIalion of his or her originaling ighl, arrives
al a connecling poinl loo Iale lo board lhe connecling
ighl.
Missile a lerm somelimes appIied lo space Iaunch
vehicIes bul lhal more properIy denoles aulomalic
veapons of varfare (veapons lhal have an inlegraled
syslem of guidance, as opposed lo unguided
rockels).
Mixed-class service lransporl service for lhe
carriage in any combinalion of rsl-cIass, coach
(lourisl), and/or economy (lhrih) passengers on lhe
same aircrah. The aircrah couId aIso carry freighl,
express, and/or maiI. IxcIudes aII-rsl-cIass, aII-
coach, and aII-economy services.
Model lhe generaI characlerizalion of a process,
ob|ecl, or concepl in lerms of malhemalics. A modeI
enabIes a reIaliveIy simpIe manipuIalion of variabIes
lo be accompIished in order lo delermine hov lhe
process, ob|ecl, or concepl vouId behave in dierenl
silualions.
Mortgage a pIedge of reaI eslale as securily for a
Ioan.
Multilateral agreement an agreemenl or lrealy
belveen lhree or more nalions conlracling for reciprocaI
inlernalionaI air service belveen lhe various nalions,
such service lo be operaled by designaled carriers of
G L O S S A R Y 5 3 7
each nalion. The agreemenl may incIude provisions
for lhe lype of aircrah used, inlermediale slops en
roule, aircrah airvorlhiness, laxalion-free fueI, and
arbilralion procedures. Il is usuaIIy a slandardized
agreemenl used in negolialions for air lransporl
belveen one nalion and many olhers, aIIoving for
lhe incIusion of dierenl poinls and roules.
Mutual aid pact (MAP) an agreemenl belveen lhe
ma|or carriers during lhe 20-year period from 1958 lo
1978 lhal provided for muluaI assislance in lhe evenl
lhal any carriers ighl operalions vere shul dovn
by a slrike. If one or more members of lhe agreemenl
vere slruck, lhe olher members of lhe pacl paid lhe
slruck carriers vindfaII revenues lhey reaIized from
lhe slrike Iess lhe added expense of carrying lhe
addilionaI lrafc.
Mutual dependence a characlerislic of oIigopoIislic
induslries: lhe necessily of each seIIer lo consider
lhe reaclions of compelilors vhen seing prices or
impIemenling olher compelilive slralegies.
NASA (National Aeronautics and Space
Administration) a U.S. governmenl organizalion
eslabIished by lhe NalionaI Aeronaulics and Space
Acl of 1958 vilh lhe principaI slalulory funclions lo
(1) conducl research for lhe soIulion of probIems of
ighl vilhin and oulside lhe earlhs almosphere and
deveIop, conslrucl, lesl, and operale aeronaulicaI and
space vehicIes: (2) conducl aclivilies required for lhe
expIoralion of space vilh manned and unmanned
vehicIes: and (3) arrange for lhe mosl eeclive
uliIizalion of lhe scienlic and engineering resources
of lhe Uniled Slales vilh olher nalions engaged
in aeronaulicaI and space aclivilies for peacefuI
purposes. Many of NASAs research programs have
Ied lo ndings and deveIopmenls lhal are appIicabIe
lo lodays commerciaI air lransporlalion.
NASAO (National Association of State Aviation Of-
cials) based in Washinglon, D.C., an organizalion
represenling lhe inleresls of 47 slale avialion agencies
and Iuerlo Rico in promoling and deveIoping air
lransporlalion al lhe IocaI, slale, and federaI IeveIs.
National Aeronautics and Space Adminis-
tration see NASA.
National air carriers a cIass of cerlicaled air
carriers vhose annuaI gross revenues are belveen
$100 miIIion and $1 biIIion.
National Association of State Aviation Ofcials see
NASAO.
National Business Aircra Association
(NBAA) lhe principaI represenlalive of business
avialion before Congress, lhe adminislralion, and
ils reguIalory agencies, such as lhe IederaI Avialion
Adminislralion.
National Mediation Board lhree individuaIs
appoinled by lhe presidenl vhose primary
responsibiIily is lo mediale ma|or Iabor dispules
under lhe RaiIvay Labor Acl. The board has
|urisdiclion over dispules invoIving rales of pay or
changes in ruIes and vorking condilions in lhose
inslances in vhich lhe parlies lo an agreemenl have
been unabIe lo reach a seIemenl.
National Transportation Safety Board (NTSB) an
aulonomous agency eslabIished in 1975 by lhe
Independenl Safely oard Acl. The board seeks
lo ensure lhal aII lypes of lransporlalion in lhe
Uniled Slales are conducled safeIy. The board
invesligales accidenls and makes recommendalions
lo governmenl agencies, lhe lransporlalion induslry,
and olhers on safely measures and praclices.
Navigable airspace lhe airspace above lhe minimum
aIliludes of ighl prescribed by reguIalions issued
under lhe IAA Acl, vhich incIudes airspace needed
lo ensure safely in lakeo and Ianding of aircrah.
NBAA see National Business Aircra Association.
Net earnings (prot or loss) revenues minus
expenses, laxes, inleresl paid, and deprecialion. The
earnings of a company aher aIIoving for aII Iegilimale
business expenses, incIuding laxes.
Net income before income taxes operaling prol
or Ioss pIus or minus nonoperaling income and
expenses.
Net operating property and equipment, as a
percentage of cost lhe cosl of operaling properly
and equipmenl Iess reIaled deprecialion and
overhauI reserves as a percenlage of lhe lolaI cosl of
operaling properly and equipmenl before deducling
such reserves.
Net worth lhe dierence belveen assels and
IiabiIilies for a person, famiIy, or business. If lhe doIIar
vaIue of assels is grealer lhan lhal of IiabiIilies, lhere
is a posilive nel vorlh. In a business, nel vorlh mighl
aIso be knovn as parincrsnip snarc or cuncrs cuiiu.
Noncurrent liabilities obIigalions vhose
Iiquidalion is nol expecled lo require lhe use, vilhin
one year, of currenl assels or lhe crealion of currenl
IiabiIilies.
Nonoperating costs and revenues income and Ioss
of commerciaI venlures nol parl of lhe common-
A I R T R A N S P O R TAT I O N 5 3 8
carrier air lransporl services of lhe accounling enlily:
olher revenues and expenses aribulabIe lo nancing
or olher aclivilies lhal are exlraneous lo and nol an
inlegraI parl of air lransporlalion or ils incidenlaI
services.
Nonrevenue ights ighls and ighl slages
invoIving lraining, lesling, posilioning for scheduIed
ighls, ferrying, company business, pubIicily,
and forced relurns for vhich no remuneralion is
received.
Nonroutine maintenance generaIIy lhe resuIl of an
unforeseen evenl, an accidenl or random occurrence,
or a response lo an airvorlhiness direclive (AD).
IxampIes vouId incIude corrosion conlroI, cabin
upgrading, inslaIIalion of a hushkil, and repairing
damage from a bird slrike or a denl from a calering
lruck.
Nonscheduled freight properly carried in charler
operalions.
Nonscheduled service revenue ighls nol operaled
in reguIar scheduIed serviceprincipaIIy conlracl
and charler operalions.
Nonstop service belveen lvo poinls on a singIe
ighl vilh no scheduIed slops belveen lhe poinls.
Aulhorily granled lo a carrier, in a cerlicale of pubIic
convenience and necessily, lo service lvo poinls
vilhoul addilionaI slops.
Non-volume-related workers see Sta personnel.
Normal (standard or basic) fare a fare lhal appIies
lo aII passengers al aII limes vilhoul reslriclion and is
lhe basis for aII olher fares. Separale normaI fares are
provided for each cIass of service: rsl cIass, coach,
and economy.
No-show a person vho books a reservalion
or purchases a lickel for a ighl and faiIs
lo use lhe reservalion or lickel or lo nolify
lhe carrier of lhal inlenl before lhe ighls
deparlure.
NTSB see National Transportation Safety Board.
Ofcial Airline Guide a bimonlhIy pubIicalion
of lhe airIines scheduIed operalions and services
shoving service and fares lo one cily from aII olher
cilies vhere direcl or simpIe connecling service is
avaiIabIe.
O-peak pricing a promolionaI fare designed lo
aracl passengers during an olhervise sIack period.
Oligopoly a markel in vhich a fev rms seII eilher
a simiIar or dierenlialed producl or service, inlo
vhich enlry is difcuIl, in vhich lhe rms conlroI
over lhe price al vhich il seIIs ils producl or service is
Iimiled by muluaI dependence, and in vhich lhere is
lypicaIIy exlensive nonprice compelilion.
Open-sky agreement an agreemenl lhal permils
carriers of dierenl counlries lo y any roule lhey
vish belveen lhe counlries and lo conlinue lhose
ighls inlo lhird counlries, aIlhough cabolage is sliII
nol permied.
Operating economics an aircrahs conlribulion lo
lhe companys prolabiIily, incIuding ils revenue
polenliaI and direcl operaling cosls in lerms of
airpIane miIes and seal-miIes.
Operating expenses expenses incurred in lhe
performance of air lransporlalion, incIuding direcl
aircrah operaling expenses and ground and indirecl
operaling expenses.
Operating income (prot or loss) lhe prol or Ioss
from performance of air lransporlalion before income
laxes, based on overaII operaling revenues and overaII
operaling expenses. Does nol incIude nonoperaling
income and expenses or speciaI ilems.
Operating leases shorl-lerm Ieases (generaIIy nol
more lhan ve years) lhal have varying degrees of
exibiIily for canceIIalion by lhe airIines. They gen-
eraIIy convey no residuaI vaIue in lhe aircrah and,
from an accounling slandpoinl, are considered
slriclIy an operaling cosl.
Operating prot and equipment Iand and unils
of langibIe properly and equipmenl used in air
lransporlalion services and incidenlaI services.
Operating revenues revenues from lhe performance
of air lransporlalion and reIaled incidenlaI services,
incIuding (1) lransporl revenues from lhe carriage of
aII cIasses of lrafc in scheduIed and nonscheduIed
services, incIuding lhe performance of aircrah
charlers, and (2) nonlransporl revenues, consisling
of federaI subsidies (vhere appIicabIe) and lhe nel
amounl of revenues Iess reIaled expenses from
services incidenlaI lo air lransporlalion.
Operational factors faclors lhal musl be laken
inlo consideralion in lhe scheduIe-pIanning process.
IncIuded are airporl runvay Ienglhs, aircrah fueI
capacily, habiluaI adverse vealher, air lrafc conlroI
and roulings, crev lime Iimils, and empIoyee
agreemenls.
G L O S S A R Y 5 3 9
Operations, domestic see Domestic operations.
Operations, international see International
operations.
Organization lhe ofciaI reIalionships or lhe
posilions generaIIy shovn on an organizalionaI
charl and slaled in |ob descriplions. A pIan for
bringing logelher resources (capilaI and Iabor) inlo
lhe posilion of grealesl eecliveness, or produclivily.
The pIan consisls of lhe grouping of operalions
(Iabor and equipmenl) lo achieve lhe advanlages of
speciaIizalion and a chain of command.
Organizational chart a diagram shoving posilions
and lheir reIalionships lo one anolher in an
organizalion.
Organizing lhe grouping of componenl aclivilies
lhal assigns each grouping lo a manager and
eslabIishes aulhorily reIalionships among lhe
groupings.
Origin and Destination Survey a domeslic (aIso
inlernalionaI) origindeslinalion survey of airIine
passenger lrafc, a 10-percenl sampIe of passengers
origins and deslinalions in air lransporlalion based
on an anaIysis of seIecled ighl coupons.
Other accrued taxes accruaIs for laxes, excIusive of
federaI income laxes, consliluling a charge borne by
lhe air carrier.
Other aerospace products and services aII
conversions, modicalions, sile aclivalion, olher
aerospace producls (incIuding drones) and services,
basic and appIied research in lhe sciences and
in engineering, and design and deveIopmenl of
prololype producls and processes.
Other current and accrued liabilities accruaIs
for IiabiIilies againsl lhe air carrier for personneI
vacalions, dividends decIared bul unpaid on capilaI
slock, and olher misceIIaneous currenl and accrued
IiabiIilies.
Other current assets prepaymenls of renl,
insurance, laxes, and so forlh, vhich if nol paid in
advance vouId require lhe expendilure of vorking
capilaI vilhin one year, and olher currenl assels nol
provided for in specic ob|eclive accounls.
Other deferred charges unamorlized discounls
and expenses on debl: unamorlized capilaI slock
expenses: and debils nol provided for eIsevhere,
lhe naI disposilion of vhich musl avail receipl of
addilionaI informalion.
Other deferred credits an unamorlized premium on
debl and credils nol provided for eIsevhere, lhe naI
disposilion of vhich musl avail receipl of addilionaI
informalion.
Other investments and receivables noles and
accounls receivabIe nol due vilhin one year and
inveslmenls in securilies issued by olhers excepl
associaled companies.
Other noncurrent liabilities IiabiIilies under
company-adminislered empIoyee pension pIans and
for inslaIImenls received from company personneI
under company slock purchase pIans, advances from
associaled companies, and noncurrenl IiabiIilies.
Other nonoperating income and expenses
net capilaI gains or Iosses or reliremenl of
nonoperaling properly and equipmenl and
inveslmenls in securilies of olhers, inleresl and
dividend income, and olher nonoperaling ilems
excepl capilaI gains or Iosses on operaling properly
and inleresl expense.
Other paid-in capital premiums and discounls
on capilaI slock, gains or Iosses arising from lhe
reacquisilion and lhe resaIe or reliremenl of capilaI
slock, and olher paid-in capilaI.
Other temporary cash investment securilies and
olher coIIeclibIe obIigalions acquired for lhe purpose
of lemporariIy invesling cash, olher lhan lhose issued
by lhe U.S. governmenl or associaled companies.
Other transport revenues misceIIaneous revenues
associaled vilh lhe air lransporlalion performed by
lhe air carrier, such as airIine empIoyees, ofcers and
direclors, or olher persons, excepl minislers of reIigion
vho lraveI under reduced-rale lransporlalion:
reservalion canceIIalion fees: and olher ilems nol
specied in olher lransporl revenue accounls.
Overall aircra revenue hours, scheduled
service lhe airborne hours compuled from lhe
momenl an aircrah Ieaves lhe ground unliI il louches
lhe ground al lhe end of lhe ighl.
Overall capacity per aircra lhe average overaII
carrying capacily (lons) oered for saIe per aircrah
in revenue services, derived by dividing lhe overaII
avaiIabIe lon-miIes by lhe overaII aircrah miIes ovn
in revenue services.
Overall ight stage length lhe average dislance
covered per aircrah hop in revenue service, from
lakeo lo Ianding, incIuding bolh passenger/cargo
and aII-cargo aircrah. Oblained by dividing lhe
overaII aircrah miIes ovn in revenue services by
A I R T R A N S P O R TAT I O N 5 4 0
lhe number of overaII aircrah revenue deparlures
performed.
Overbooking lhe saIe of (or lhe acceplance of
reservalions for) more space (passenger seals) lhan is
acluaIIy avaiIabIe on a ighl. A praclice lhal is used
somelimes by lhe air carriers as an aIIovance for lhe
hisloricaI percenlage of passengers vho faiI lo uliIize
lhe space lhey have reserved. In lhose cases in vhich
lhe acluaI number of passengers vilh purchased
lickels exceeds lhe avaiIabIe space, lhe carrier is IiabIe
for denied boarding compensalion lo lhose passengers
nol accommodaled on lhe ighl or on comparabIe air
lransporlalion.
Overight a scheduIed ighl lhal does nol slop al
an inlermediale poinl in ils scheduIed roule because
(1) lhe poinl is cerlied as a ag slop, and lhere is no
lrafc lo be depIaned or enpIaned: (2) lhe carrier has
received aulhorily lo suspend service lo lhal poinl
lemporariIy: (3) vealher condilions or olher safely
and lechnicaI reasons do nol permil Ianding: or (4)
for any olher reason. The aircrah need nol y direclIy
over lhe poinl.
Passenger enplanements lhe lolaI number of
revenue passengers boarding aircrah, incIuding
originaling, slopover, and on-Iine lransfer
passengers.
Passenger mile one passenger lransporled one
miIe. Iassenger miIes are compuled by muIlipIying
lhe aircrah miIes ovn on each ighl slage by lhe
number of passengers lransporled on lhal slage.
Passenger mile, nonrevenue one nonrevenue
passenger lransporled one miIe.
Passenger mile, revenue see Revenue passenger
mile.
Passenger, revenue a person receiving air
lransporlalion from lhe air carrier for vhich
remuneralion is received by lhe air carrier. Air carrier
empIoyees or olhers receiving air lransporlalion
againsl vhom loken charges are Ievied are considered
nonrevenue passengers. Infanls for vhom a loken fare
is charged are nol counled as revenue passengers.
Passenger, revenue per aircra lhe average
number of passengers carried per aircrah in revenue
passenger services, derived by dividing lhe lolaI
revenue passenger miIes by lhe lolaI aircrah miIes
ovn in revenue passenger services.
Passenger revenue ton-mile one lon of revenue
passenger veighl (incIuding aII baggage) lransporled
one miIe.
Passenger service expenses cosls of aclivilies
conlribuling lo lhe comforl, safely, and convenience
of passengers vhiIe in ighl and vhen ighls are
inlerrupled. IncIudes saIaries and expenses of cabin
aendanls and passenger food service.
Paern bargaining bargaining lhal lakes pIace
vhen each airIine negoliales ils ovn agreemenl vilh
a Iabor union. Iach union seeks lo beer lhe mosl
recenl agreemenls signed by olher airIines, lhus
eslabIishing a paern.
Payload lhe acluaI or polenliaI revenue-producing
porlion of an aircrahs lakeo veighl in passengers,
free baggage, excess baggage, freighl, express, and
maiI.
Payload-range diagram a diagram lhal shovs lhe
reIalionship belveen payIoad (number of passengers
and cargo) and lhe dislance lhe aircrah can y.
Personal ying any use of an aircrah for personaI
purposes nol associaled vilh a business or profession,
and nol for hire. This incIudes mainlenance of piIol
prociency.
Physical performance faclor used in lhe eel-
pIanning process lo denole lhe acluaI ighl
performance of an aircrah under consideralion.
IncIuded are such ilems as payIoad-range capabiIily:
lakeo, Ianding, cruise, and approach speeds: runvay
requiremenls: noise performance: and ighl handIing
characlerislics.
Piston plane an aircrah operaled by engines in
vhich pislons moving back and forlh vork upon
a crankshah or olher device lo creale rolalionaI
movemenl.
Place lhe eIemenl in lhe markeling mix lhal
incIudes aII inslilulions and aclivilies lhal conlribule
lo deIivering lhe producl al lhe limes and lo lhe
pIaces consumers desire: in olher vords, a convenienl
faciIily or saIes oulIel vhere cuslomers can purchase
lhe service.
Planning lhe funclion of managemenl lhal
delermines vhal shaII be done, hov il shaII be done,
vhy il shaII be done, and vho shaII do il.
Policy and procedures manual guideIines lhal
empIoyees musl foIIov in making decisions. Iach
ma|or adminislralion vilhin an airIine has poIicies
and procedures regarding lhe managemenl of ils
specic operalions.
Positioning ights ighls designed lo pcsiiicn or
pul an aircrah in a Iocalion for a heavy bank of ighls
G L O S S A R Y 5 4 1
al a popuIar limefor exampIe, Iale-evening ighls
inlo a Iarge hub.
Preferred stock a share in lhe ovnership of lhe
company lhal carries a xed annuaI dividend lhal
musl be paid before dividends can be decIared on
common slock.
Price lhe consideralion or IeveI of remuneralion
eslabIished by lhe seIIer for a producl or service.
Primary-use categories calegories deveIoped
by lhe IAA lo calegorize generaI avialion aircrah
by use as reporled by aircrah ovners in an annuaI
survey. The primary-use calegories incIude business,
commerciaI, inslruclionaI, personaI, and olher.
usiness ying has lvo divisions (execulive and
business): commerciaI has lhree (air laxi/commuler,
renlaI, and aeriaI appIicalion and observalion and
olher vork).
Priority mail maiI bearing poslage for air
lransporlalion on a priorily basis al air maiI service
rales.
Priority reserved air freight freighl service
designed for shippers of heavy or buIky freighl vho
need lhe advanlage of reserved space on a specic
ighl.
Privately owned airport an airporl ovned by a
privale individuaI or corporalion.
Private-use airport an airporl lhal is nol open for
lhe use of lhe generaI pubIic.
Procurement lhe process vhereby lhe execulive
agencies of lhe federaI governmenl acquire goods
and services from enlerprises olher lhan lhe federaI
governmenl.
Product lhe physicaI enlily or service lhal is oered
lo lhe buyer, pIus a vhoIe group of services lhal
accompanies il. Ior exampIe, lhe airIine producl
incIudes nol onIy a seal deparlure bul aIso frequency
of deparlures, in-ighl cabin services, ground services
incIuding lickeling and baggage handIing, aircrah
lype, and even lhe carriers perceived image. The
saIe of a generaI avialion aircrah incIudes nol onIy
lhe aircrah ilseIf bul aIso ils avaiIabiIily, melhods of
nancing, mainlenance requiremenls, and so forlh,
vhich markeling peopIe refer lo as exlensions lo lhe
producl.
Production certicate a cerlicale issued by lhe IAA
lo an aircrah manufaclurer aher lhe lype cerlicale
and onIy vhen lhe manufaclurers capabiIily lo
dupIicale lhe lype design has been eslabIished. The
aircrah is lhen ready lo go inlo produclion.
Production-oriented period lhe period of airIine
markeling before WorId War II during vhich lhe
markel demand for air lraveI vas |usl sufcienl
lo absorb lhe avaiIabIe capacily provided by lhe
carriers.
Prot in ordinary accounling lerms, lhe excess
of saIes revenues aher aII reIaled expenses are
deducled.
Prot sharing an incenlive syslem vhereby
empIoyees can share in lhe prols of lhe company.
Progress payments paymenls lhal an airIine
makes lo a manufaclurer vhiIe an aircrah is under
produclion.
Projected industry environment pro|eclion used
in lhe eel-pIanning process lo denole lhe nalionaI,
induslry, and companys economic oulIook over lhe
nexl 1-, 5-, and 10-year periods.
Promotion parl of lhe markeling mix: persuasive
communicalion belveen lhe carrier and lhe cuslomer.
This communicalion can be made in various vays,
bul lhe lvo mosl imporlanl forms of promolionaI
communicalion are a!tcriising (somelimes referred lo
as nass sc||ing) and pcrscna| sc||ing. In a broader sense,
everylhing lhe company does has a promolionaI
polenliaI: lhe courlesy of empIoyees and uniform
slyIing can promole saIes.
Promotional fares see Fare, discount.
Promotion and sales expenses cosls incurred
in promoling air lransporlalion generaIIy and in
crealing a pubIic preference for lhe services of
parlicuIar air carriers. IncIudes lhe funclions of
seIIing, adverlising and pubIicily, making space
reservalions, and deveIoping laris and ighl
scheduIes for pubIicalion.
Publicly owned airport an airporl lhal is ovned by
a cily, slale, or counly or by lhe federaI governmenl.
Public service revenues (subsidy) paymenls by
lhe federaI governmenl lhal provide for air service
lo communilies in lhe Uniled Slales vhere lrafc
IeveIs are such lhal air service couId nol olhervise
be supporled.
Public-use airport an airporl lhal is open for lhe
use of lhe generaI pubIic.
RAA (Regional Airline Association) a lrade
organizalion of regionaI and commuler air carriers.
A I R T R A N S P O R TAT I O N 5 4 2
R & D see Research and Development.
Railway Labor Act a speciaI federaI Iav appIicabIe
onIy lo lhe airIines and lhe raiIroads. This acl
vas passed lo provide a cIear series of sleps lo lhe
seIemenl of lransporl Iabor dispules.
Rate of return, corporate (return on investment,
or ROI) an overaII rale of relurn on inveslmenl
represenling a relurn on lhe air carriers lolaI
operalions, incIuding nonlransporl venlures. The
corporale rale of relurn is oblained by dividing lhe
nel income aher laxes pIus inleresl expenses on debl
by lhe lolaI inveslmenl in lhe carrier.
Regional air carriers a cIass of cerlicaled air
carriers. AirIines are cIassied as large regional air
carriers if lheir annuaI gross revenues are belveen
$10 miIIion and $75 miIIion and as medium regional
air carriers if lheir annuaI gross revenues are under
$10 miIIion.
Regional Airline Association see RAA.
Related products and services aII nonaircrah,
nonspace vehicIe, and nonmissiIe producls and
services produced or performed by lhose companies
and eslabIishmenls vhose principaI business is
lhe deveIopmenl or produclion of aircrah, aircrah
engines, missiIe and spacecrah engines, missiIes, and
spacecrah.
Research and Development (R & D) research is
lhe syslemalic sludy direcled lovard fuIIer scienlic
knovIedge or underslanding of lhe sub|ecl sludied.
Research is cIassied as eilher basic or appIied,
according lo lhe ob|eclives of lhe sponsoring agency.
Basic research has lhe ob|eclive of gaining fuIIer
knovIedge or underslanding of lhe fundamenlaI
aspecls of phenomena and of observabIe facls
vilhoul specic appIicalions lovard processes or
producls in mind. Applied research has lhe ob|eclive
of gaining knovIedge or underslanding necessary
for delermining lhe means by vhich a recognized
and specic need may be mel. Development is lhe
syslemalic use of scienlic knovIedge direcled lovard
lhe produclion of usefuI maleriaIs, devices, syslems,
or melhods, incIuding design and deveIopmenl of
prololypes and processes.
Reservation lhe agreemenl belveen an airIine and
a cuslomer lhal assures lhal lhe cuslomer viII have a
seal on lhe ighl(s) he or she vanls. Il may be sub|ecl
lo requiremenls for dale or lime of lickel purchase.
Reserves for depreciation accruaIs for deprecialion
of properly and equipmenl.
Reserves for obsolescence and deterioration,
expendable parts accruaIs for Iosses in lhe vaIue of
expendabIe parls.
Reserves for overhaul accruaIs for overhauIs of
ighl equipmenl.
Reserves for uncollectible accounts accruaIs for
eslimaled Iosses from uncoIIeclibIe accounls.
Responsibility lhe crealion of an obIigalion on lhe
parl of subordinales for salisfaclory performance.
Restricted-use airport an airporl vhose use by lhe
generaI pubIic is prohibiled, excepl in lhe case of a
forced Ianding or by previous arrangemenl.
Retained earnings corporale prols lhal are nol
paid oul in cash dividends bul are reinvesled in lhe
company lo fosler ils grovlh.
Retained earnings adjustments charges or credils lo
unapproprialed relained earnings, olher lhan
dividends, lhal reecl lransfers lo paid-in capilaI
accounls or approprialions.
Retained earnings, appropriated relained earnings
segregaled for conlingencies and olher speciaI
purposes, incIuding relained earnings segregaled in
conneclion vilh seIf-insurance pIans.
Retained earnings, unappropriated lhe cumuIalive
nel income or Ioss from operalions of lhe air carrier
Iess dividends decIared on capilaI slock and amounls
approprialed for speciaI purposes.
Return on investment see Rate of return,
corporate.
Revenue compensalion or remuneralion received
by lhe carrier.
Revenue aircra departures performed lhe number
of aircrah lakeos acluaIIy performed in scheduIed
passenger/cargo and aII-cargo services.
Revenue aircra miles lhe lolaI aircrah miIes ovn
in revenue service.
Revenue passenger see Passenger, revenue.
Revenue passenger mile (RPM) one revenue
passenger lransporled one miIe in revenue service.
Revenue passenger miIes are compuled by summalion
of lhe revenue aircrah miIes ovn on each inlerairporl
ighl slage muIlipIied by lhe number of passengers
carried on lhal ighl slage.
G L O S S A R Y 5 4 3
Revenue ton-mile one lon of revenue lrafc
lransporled one miIe. Revenue lon-miIes are
compuled by muIlipIying lons of revenue lrafc by
lhe miIes lhis lrafc is ovn.
ROI (return on investment) see Rate of return,
corporate.
Route a syslem of poinls lo be served by an
air carrier, as indicaled in ils cerlicale of pubIic
convenience and necessily. A roule may incIude aII
poinls on a carriers syslem or may represenl onIy
a syslemalic porlion of aII of lhe poinls vilhin a
carriers lolaI syslem.
Route, certicated a Iisling of poinls lo vhich an
air carrier is aulhorized lo provide air lransporlalion,
sub|ecl lo lhe lerms, condilions, and Iimilalions
prescribed in a carriers cerlicale of pubIic
convenience and necessily.
Routine scheduled maintenance reguIar scheduIed
mainlenance aclivilies, usuaIIy in lhe form of a Ieer
checkA lhrough DaII performed al reguIar inler-
vaIs and invoIving dierenl IeveIs of mainlenance
requiremenls.
RPM see Revenue passenger mile.
Safety recommendation lhe naI recommendalion
made by lhe NTS foIIoving a ma|or accidenl. Safely
recommendalions are made as soon as a probIem is
idenlied, nol necessariIy upon compIelion of lhe
invesligalion.
Sales, aerospace saIes nel of relurns, aIIovances,
and discounls: lhe doIIar vaIue of shipmenls
Iess relurns and aIIovances, incIuding deaIers
commission, if any, lhal have passed lhrough lhe
saIes accounl See aIso Aerospace sales.
Sales-oriented period lhe airIine markeling period
foIIoving WorId War II vhen lhe air carriers capacily
increased and many companies began lo lake an
aclive roIe in convincing consumers lo purchase lhe
nev services oered. Il vas referred lo as a sholgun
approach lo markeling: convincing peopIe lo y
ralher lhan drive or lake lhe raiIroad.
Scheduled aircra miles lhe sum of lhe airporl-lo-
airporl dislances of aII ighls scheduIed, excIuding
lhose operaled onIy as exlra seclions lo accommodale
lrafc overov.
Scheduled aircra miles completed lhe aircrah
miIes performed on scheduIed ighls, compuled soIeIy
belveen lhose scheduIed poinls acluaIIy served.
Scheduled service lransporl service operaled over
an air carriers cerlicaled roules, based on pubIished
ighl scheduIes, incIuding exlra seclions and reIaled
nonrevenue ighls.
Schedule, published an ofciaI scheduIe of an air
carrier pubIished in lhe Ojcia| Air|inc Gui!c (OAG)
or lhe ABC Wcr|! Airuaus Gui!c shoving aII ighls
lhal viII be operaled by lhe air carrier belveen
various poinls and lhe lime of arrivaI and deparlure
al each poinl.
Schedule types four basic scheduIe lypes used
by lhe air carriers: (1) skipslop, (2) IocaI service, (3)
cross-conneclion, and (4) nonslop.
Scheduling lhe arl of designing syslemvide ighl
paerns lhal provide oplimum pubIic service, in bolh
quanlily and quaIily, consislenl vilh lhe nanciaI
heaIlh of lhe carrier.
Scheduling department lhe deparlmenl, generaIIy
under lhe markeling adminislralion, charged
vilh lhe responsibiIily of deveIoping syslemvide
scheduIes. The deparlmenl vorks cIoseIy vilh aII
olher deparlmenls and eId slalions in carrying oul
ils responsibiIilies.
Seasonal trends changes in an economic index lhal
are caused by or reIaled lo changes in lhe seasons of
lhe year.
Seat-mile one passenger seal lransporled one
slalule miIe. Used lo reporl avaiIabIe passenger-
carrying capacily on an aircrah: hovever, vhen
lhe seal is occupied by a revenue passenger, lhe
measuremenl unil is referred lo as a revenue
passenger mile (RPM).
Seat-miles, available lhe aircrah miIes ovn on
each ighl slage muIlipIied by lhe number of seals
avaiIabIe for revenue use on lhal slage. See aIso
Available seat miles (ASMs).
Sensitivity of schedule salability lhe highIy
sensilive nalure of even minor changes in scheduIed
deparlure and arrivaI limes. ScheduIe convenience
ranks high among lhe compelilive eIemenls aecling
lhe passengers choice of an airIine: consequenlIy,
even minor changes can aecl saIabiIily.
Short-term loan a Ioan negolialed for seasonaI
needs or for vorking capilaI and paid back vilhin
one year.
Show-cause order an order soIiciling parlies lo
presenl lo lhe DOT reasons and consideralions as lo
A I R T R A N S P O R TAT I O N 5 4 4
vhy a parlicuIar DOT order reIaling lo lhe lness of
a carrier shouId nol be pul inlo eecl.
Shule service a reIaliveIy Iov-fare, no-friII
service. The Iover fare is based on lhe cosl savings of
high-densily sealing, no reservalions, and no meaI or
beverage service. This service is usuaIIy oered onIy in
high-lrafc markels and may aIso require passengers
lo carry lheir ovn baggage lo lhe boarding gale.
Sidewalk check-in a service lhal enabIes cuslomers
lo check baggage oulside lhe lerminaI enlrance. This
aIIovs lickeled passengers lo proceed direclIy lo lhe
gale.
SOC see System operations control.
Sovereignty of airspace lhe conlroI or aulhorily
of each nalion over lhe airspace above ils borders.
The principIe of sovereignly of each nalion over lhe
air above ils lerrilories and lerriloriaI valers vas
afrmed al lhe Iaris Convenlion of 1919.
Space available a lerm appIied lo passengers vho,
for Iack of reservalions or for reduced-rale charges,
musl avail lhe boarding of olher passengers and viII
nol lhemseIves be boarded unIess lhere is addilionaI
space avaiIabIe on lhe aircrah.
Space vehicle an arliciaI body operaling in ouler
space (beyond lhe earlhs almosphere).
Span of control lhe number of subordinales a man-
ager can eecliveIy supervise. Somelimes caIIed span
cj nanagcncni.
Special air freight services services air carriers pro-
vide shippers, such as assembIy service (consoIidaling
shipmenls), dislribulion service (dislribulion lo
dierenl cuslomers), pickup and deIivery service, and
olher speciaIized services, such as armed guards and
shipmenl of human remains and reslricled arlicIes.
Special funds funds nol of a currenl nalure and
reslricled as lo generaI avaiIabiIily. IncIudes ilems such
as sinking funds, pension funds under lhe conlroI of
lhe air carrier, equipmenl purchase funds, and funds
segregaled as parl of a pIan for seIf-insurance.
Special income credits and debits, net (special
items) exlraordinary credils and debils lhal are of
sufcienl magnilude lhal incIusion in lhe accounls
for a singIe year vouId maleriaIIy dislorl lhe lolaI
operaling revenues or lolaI operaling expenses.
Special income tax credits and debits, net income
laxes appIicabIe lo speciaI income credils or debils and
olher exlraordinary income lax ilems nol aIIocabIe lo
income of lhe currenl accounling year.
Specic commodity rate speciaI air freighl rale
eslabIished for unusuaIIy high-voIume shipping of
cerlain producls belveen cerlain cilies.
Speed package service smaII-package, fasl-deIivery
service, airporl-lo-airporl, vilh cerlain carriers on
lheir syslem. Iackages are accepled al lhe airporl
passenger lerminaI, al lhe baggage check-in posilion,
or al lhe air freighl ofce.
Spoils Conference a series of meelings heId in
Washinglon, D.C., in May 1930 belveen Ioslmasler
GeneraI WaIler IoIger rovn and lhe heads of lhe
Iarger airIines vilh lhe purpose of eslabIishing lhree
lransconlinenlaI lrunk air maiI roules. The spoiIs
venl lo Uniled Air Transporl, TransconlinenlaI and
Weslern Air Ixpress, and American Airvays.
SST see Aircra, supersonic transport.
Sta departments deparlmenls lhal assisl lhe Iine
deparlmenls in carrying oul lheir responsibiIilies.
They faII under lhe foIIoving adminislralions:
nance and properly, informalion services, personneI,
communily reIalions and pubIicily, economic
pIanning, IegaI, and medicaI.
Stafng lhe posilions provided for by lhe
organizalionaI slruclure.
Sta personnel lhose vhose orders and aulhorily
do nol ov in a slraighl Iine dovn from lhe lop of
lhe organizalion. Sla personneI reporl lo a specic
person in lhe organizalion: hovever, lhey may al
limes perform vork for peopIe al IeveIs above or
beIov lhem. Ohen referred lo as ncn-tc|unc-rc|aic!
pccp|c because lheir numbers are generaIIy nol
direclIy reIaled lo some voIume such as ying hours
or deparlures.
Stage, ight see Flight stage.
Stage length, average see Overall ight stage
length.
Station ploing chart a visuaI Iayoul of lhe
scheduIe al a parlicuIar slalion. AII ighls are pIoed,
porlraying sequence and scheduIe lime of operalion
and uliIizing cerlain slandards and codes. The charl
shovs lhe lime an aircrah requires lo maneuver inlo
a gale posilion, lhe scheduIed arrivaI lime, lhe period
of lime il is al lhe gale, ils scheduIed deparlure lime,
and lhe Ienglh of lime needed lo cIear lhe gale.
Stockholder equity lhe aggregale book vaIue of
slock heId by aII slockhoIders in lhe company.
G L O S S A R Y 5 4 5
STOL an aircrah capabIe of laking o and Ianding
in a shorl dislance.
Subsidy see Public service revenues (subsidy).
Supersonic transport (SST) see Aircra, supersonic
transport (SST).
Supplemental air carrier a former cIass of air
carrier hoIding a cerlicale of pubIic convenience and
necessily issued by lhe CA, aulhorizing il lo perform
passenger and cargo charler services suppIemenling
lhe scheduIed service of lhe cerlicaled roule
air carriers. SuppIemenlaI air carriers vere ohen
referred lo as ncnskc!s (nonscheduIed carriers). The
remaining former suppIemenlaI carriers are nov
cIassied as nalionaI or as Iarge or medium regionaI
air carriers.
Surplus, capital an increase in an ovners equily
nol generaled lhrough lhe companys earnings.
Surplus, earned an archaic lerm for relained
earnings.
System constraints lhe conslraining faclors lhal
a carrier musl lake inlo consideralion in lhe eel-
pIanning process. External constraints mighl incIude
faciIily requiremenls, incIuding runvay, gale, and
lerminaI capacily. Internal constraints mighl incIude
Iack of funds and mainlenance and crev-lraining
faciIilies.
System operations control (SOC) a cenlraI
operalions deparlmenl lhal dispalches and
coordinales aII aircrah movemenls syslemvide.
Tari lhe nolice of fares and rales appIicabIe lo
lhe lransporlalion of persons or properly, and lhe
ruIes reIaling lo or aecling such fares and rales of
lransporlalion. Ieclive Ianuary-1, 1983, lhe CA no
Ionger approved lari Iings by lhe carriers.
Taxable income for federaI income lax purposes,
lhe amounl of income, Iess exemplions, on vhich
income lax is delermined.
Tax write-o an inveslmenl Ioss lhal can be osel
againsl gross income vhen delermining ad|usled
gross income.
Thrust lhe driving force exerled by an engine,
parlicuIarIy an aircrah or missiIe engine, in propeIIing
lhe vehicIe lo vhich il is aached.
Ticket a prinled documenl lhal serves as evidence
of paymenl of lhe fare for air lransporlalion.
GeneraIIy, lhis lakes lhe form of lhe slandard Air
Trafc Conference lickel, vhich is composed of an
audilors coupon, agenls coupon, ighl coupons, and
passengers coupon. Il aulhorizes carriage belveen
lhe poinls and via lhe rouling indicaled and aIso
shovs lhe passengers name, cIass of service, carriers,
ighl numbers, dale of lraveI, and aII condilions of
lhe conlracl of carriage.
Time-series analysis lhe oIdesl, and in many cases
sliII lhe mosl videIy used, melhod of forecasling air
lransporlalion demand. Ohen referred lo as ircn!
cxicnsicn. il consisls of inlerpreling lhe hisloricaI
sequence and appIying lhe inlerprelalion lo lhe
immediale fulure. HisloricaI dala are pIoed on a
graph, and a lrend Iine is eslabIished. IrequenlIy, a
slraighl Iine is exlended inlo lhe fulure.
Time zone eect an imporlanl faclor aecling
scheduIe deveIopmenl: lhe facl lhal ve gain lhree
hours on lhe cIock going veslbound coasl lo coasl
bul Iose lhree hours coming easlbound has a ma|or
impacl on scheduIing a |el eel.
Ton a shorl lon (2,000 pounds).
Ton-mile one shorl lon lransporled one slalule
miIe. Ton-miIes are compuled by summing lhe
aircrah miIes ovn on each inlerairporl ighl slage
muIlipIied by lhe number of lons carried on lhe ighl
slage.
Total general services and administration
expenses passenger service, aircrah and lrafc
servicing, promolion and saIes, and generaI and
adminislralive expenses.
Total number of employees lhe number of fuII-
and parl-lime empIoyees, bolh permanenl and
lemporary, during lhe pay period ending nearesl
lo December-15. Air carriers vilh more lhan one
operalion (domeslic or inlernalionaI and lerriloriaI)
generaIIy do nol reporl a breakdovn of lolaI
empIoyees corresponding lo lhese operalions: lhus,
empIoyee counls do nol provide a reIiabIe basis for
measuring average produclivily per empIoyee in
such separale operalions.
Tour, inclusive a round-lrip lour lhal combines
air lransporlalion and Iand services and lhal
meels addilionaI requiremenls of minimum days
of accommodalions and olher Iand services lo be
incIuded in lhe price of lhe lour.
Tour package a |oinl service lhal gives a lraveIer a
signicanlIy Iover price for a combinalion of services
lhan couId be oblained if each vere purchased
separaleIy. Thus, lhe lolaI price of a package lour
mighl incIude a round-lrip pIane lickel, holeI
A I R T R A N S P O R TAT I O N 5 4 6
accommodalions, meaIs, severaI sighl-seeing bus
lours, and lhealer lickels.
Trade balance lhe dierence belveen lhe vaIue of
U.S. goods exporled lo olher counlries and foreign
goods imporled inlo lhis counlry. The lrade baIance is
generaIIy regarded as favorabIe vhen exporls exceed
imporlsa lrade surpIusand unfavorabIe vhen
imporls exceed exporlsa lrade decil.
Trafc, air lhe passengers and cargo (freighl,
express, and maiI) lransporled on any aircrah
movemenl.
Trafc density lhe lolaI amounl or unils of lrafc
lraveIing or carried belveen lvo poinls, over a roule,
over a roule segmenl, or on a ighl.
Trafc ow passengers making connecling ighls al
each slalion lhal aIIovs for adequale Ioad faclors over
an enlire roule slruclure vilh inlermediale slops.
Transport-related expenses expenses from services
reIaled lo air lransporlalion, such as in-ighl saIes of
Iiquor, food, and olher ilems: ground, reslauranl, and
food services: renlaI expenses as Iessor: inlerchange
saIes: generaI service saIes: muluaI aid: subslilule
service: and air cargo service (olher lhan acluaI air
movemenl).
Transport-related revenues revenues from
lransporlalion by air of aII cIasses of lrafc in
scheduIed and nonscheduIed service, incIuding
charlers.
Treasury stock lhe cosl of capilaI slock issued by
lhe air carrier lhal has been reacquired by il and nol
relired or canceIed.
Trend a direclion of movemenl, as shovn in a lrend
Iine.
Trend extension see Time-series analysis.
Trip in common usage, lhe lerm irip incIudes bolh
lhe going and relurning porlions of a |ourney. In
airIine usage, il is imporlanl lo dislinguish belveen
lrip used in a one-vay and a round-lrip sense.
IubIished slalislics on average Ienglh of air lrips
aImosl aIvays use one-vay dislances, because il is
virluaIIy impossibIe lo delermine from reporled dala
vhal lhe round-lrip dislance is. Iares, on lhe olher
hand, are somelimes quoled as one-vay prices and al
olher limes as round-lrip prices, and lhe round-lrip
price is nol aIvays equaI lo lvice lhe one-vay price.
Trunk carriers a former cIass of cerlicaled roule
air carriers receiving originaI cerlicalion under lhe
so-caIIed grandfalher cIause of lhe CiviI Aeronaulics
Acl of 1938 and vhose primary operalions vere
in domeslic scheduIed passenger service belveen
medium and Iarge hubs. These carriers are nov
cIassied as ma|or air carriers.
Turbine (turbo) a mechanicaI device or engine lhal
spins in reaclion lo a uid ov lhal passes lhrough
or over il.
Turbine-powered aircra see Aircra, turbine.
Turbofan planes see Aircra, turbofan (fan jet).
Turbojet planes see Aircra, turbojet.
Turboprop planes see Aircra, turbo-propeller
(turboprop, prop jet).
Twelve-ve rule refers lo lhe slandard (12,500
pounds) lhal lhe CA sel in 1938 lo dislinguish
belveen Iarge and smaII aircrah. Those carriers
operaling smaII aircrah vere deemed air laxis and
lhus exempled from cerlicalion requiremenls under
Seclion 401 of lhe CiviI Aeronaulics Acl.
Two Freedoms Agreement lhe InlernalionaI Air
Services Transil Agreemenl lhal arose oul of lhe
Chicago Conference of 1944 proposing lhal each
conlracling slale granl lo lhe olher conlracling slales
lhe foIIoving freedoms of lhe air vilh respecl lo
scheduIed inlernalionaI air services: (1) lhe priviIege
of ying across ils lerrilory vilhoul Ianding, and (2)
lhe priviIege of Ianding for nonlrafc purposes.
Two-tier wage structure a vage scaIe in vhich
nevIy hired vorkers are paid considerabIy Iess lhan
currenl vorkers for simiIar |obs.
Type certicate a cerlicale indicaling lhal a nev
aircrah prololype has passed an exlensive series of
IAA ground and ighl lesls and meels IAA slandards
of conslruclion and performance.
Uncontrollable variables cerlain markeling
condilions over vhich lhe company exercises IiIe or no
conlroI bul vhich lhey musl recognize and respond lo.
These incIude (1) cuIluraI and sociaI dierences, (2) lhe
poIilicaI and reguIalory environmenl, (3) lhe economic
environmenl, (4) lhe exisling compelilive slruclure, and
(5) resources and ob|eclives of lhe company.
Unfair competition lhe use of compelilive melhods
lhal have been decIared unfair by slalule or by an
adminislralive agency.
Unicom frequencies aulhorized for aeronaulicaI
advisory services lo privale aircrah. OnIy one
G L O S S A R Y 5 4 7
such slalion is aulhorized al any Ianding area. The
frequency 123.0 mHz is used al airporls served by
an airporl lrafc conlroI lover or a ighl service
slalion, and 122.8 mHz is used for olher Ianding
areas. Services avaiIabIe are advisory in nalure,
primariIy concerning lhe airporl services and airporl
uliIizalion.
Uniform system of accounts and reports a
slandardized syslem of nanciaI and lrafc reporls
lhal lhe cerlicaled air carriers musl submil during
lhe year lo lhe DOT.
Unity of objectives lhe idea lhal each adminislralion,
deparlmenl, division, seclion, group, and unil of a
company musl conlribule lo lhe accompIishmenl of
lhe overaII goaIs of lhe rm. This is one of lhe basic
principIes of organizalion pIanning.
Universal Air Travel Plan begun in 1936, one of
lhe vorIds oIdesl credil cards. The UATIs Air TraveI
card loday is good for lransporlalion on praclicaIIy
aII of lhe vorIds scheduIed airIines. Iarlicipaling
airIines nov number more lhan 200. The conlracling
airIine biIIs lhe subscriber on a monlhIy basis for aII
air lransporlalion used, regardIess of lhe number of
airIines invoIved.
Unused (dormant) authority a cerlicale issued lo
lhe rsl carrier lhal quaIies vhen an air carrier lhal
is aulhorized lo provide round-lrip service nonslop
each vay belveen lvo poinls faiIs lo provide al
Ieasl a minimum of service, as prescribed by lhe
AirIine DereguIalion Acl of 1978. Unused aulhorily
may aIso be issued lo an air carrier belveen poinls
vhere service is being provided if lhe service is being
provided by no more lhan one olher carrier.
U.S.-ag carrier (American-ag carrier) one of
a cIass of U.S. air carriers hoIding cerlicales of
pubIic convenience and necessily or olher economic
aulhorily issued by lhe former CA or lhe DOT
and approved by lhe presidenl aulhorizing air
lransporlalion belveen lhe Uniled Slales and/or ils
lerrilories and one or more foreign counlries.
U.S. mail revenues revenues from lhe lransporlalion
by air of U.S. maiI al service maiI rales eslabIished
by lhe U.S. IoslaI Service. IncIudes priorily and
nonpriorily maiI revenues.
Utility aircra an aircrah designed for generaI-
purpose vork.
Utility Airplane Council formerIy under lhe AIA:
lhe forerunner lo lhe GAMA.
Utilization lhe average daiIy use of aircrah for a
period of lime, usuaIIy monlhIy or yearIy. Oblained
by dividing lhe lolaI hours ovn by lhe number of
aircrah and lhen dividing lhe resuIl by lhe number of
days for lhe lime period.
Variable costs lhose cosls lhal increase or decrease
vilh lhe IeveI of oulpul or avaiIabIe seal-miIes lhal
an airIine produces.
Venture capital money invesled in business
enlerprises lhal generaIIy do nol have access lo
convenlionaI sources of capilaI. Venlure capilaIisls
are parlicuIarIy inleresled in silualions lhal viII
uIlimaleIy produce sizabIe capilaI gains.
Very Large Aircra (VLA) lerm used for lhe nev
generalion of Iarge vide-body aircrah.
VFR see Visual ight rules.
Visual ight rules (VFR) ruIes specied by a
quaIied aulhorily eslabIishing minimum ying
aIliludes and Iimils of visibiIily lo govern visuaI
ighl.
VLA see Very Large Aircra.
Volume-related personnel see Line personnel.
V/STOL an aircrah capabIe of laking o and
Ianding verlicaIIy or in a shorl dislance.
VTOL an aircrah capabIe of laking o and Ianding
verlicaIIy.
Weight, allowable gross lhe maximum gross
veighl (of lhe aircrah and ils conlenls) lhal an aircrah
is Iicensed lo carry inlo lhe air on each ighl slage.
Weight, maximum certicated takeo lhe
maximum lakeo veighl aulhorized by lhe lerms of
lhe aircrah airvorlhiness cerlicale. This is found in
lhe airpIane operaling record or in lhe airpIane ighl
manuaI, vhich is incorporaled by reguIalion inlo lhe
airvorlhiness cerlicale.
Weight, maximum gross takeo lhe maximum
permissibIe veighl of an aircrah and ils conlenls al
lakeo. IncIudes lhe emply veighl of lhe aircrah,
accessories, fueI, crev, and payIoad.
Working capital inveslabIe funds lhal are nol
currenlIy lied up in Iong-lerm assels: currenl assels
minus currenl IiabiIilies. The excess of currenl assels
over currenl IiabiIilies, or lhose funds used lo nance
day-lo-day operalions.
A I R T R A N S P O R TAT I O N 5 4 8
Work stoppage an incidenl of Iabormanagemenl
slrife arising from dispules over vages, benels,
hours, ruIes, or condilions of vork, as veII as from
|urisdiclionaI probIems of crah represenlalion of
airIine empIoyees: a slrike or Iockoul. Such incidenls
may nol aecl normaIIy scheduIed services.
Yield lhe air lransporl revenue per unil of lrafc
carried in air lransporlalion. May be caIcuIaled and
presenled severaI vays, such as passenger revenue
per passenger miIe, per aircrah miIe, per passenger
lon-miIe, or per passenger.
G L O S S A R Y 5 4 9
This page intentionally left blank
INDEX
ABC Air Cargc Gui!c 163
ABC Wcr|! Airuaus Gui!c 163
ACARS (ARINC communicalions
addressing and reporling
syslem) 102
accidenls
Army pIanes 36
generaI avialion 139
hislory 38, 40, 41, 42
invesligalion 94-95, 98-100, 190
accruaI 430
A-check 229, 230, Ta||c 12-1
acquisilion cosls 391
Adam Aircrah Ta||c 4-5
adminislralion, dened 202-3
Advanced GeneraI Avialion Trans-
porlalion Ixperimenl
(AGATI) 128
advance purchase requiremenls
301
adverlising 123, 266, 267, 280, 302
adverlising deparlmenl 234
Advisory CircuIars 92
aeriaI adverlising 123
aeriaI appIicalion 112, 122-23,
Ta||c 4-3
aeriaI observalion 123, Ta||c 4-3
aeriaI olher calegory 123, Ta||c
4-3
AerilaIia 66
Aero Design and Ingineering 69
aeromedicaI research 93, 94
AeronaulicaI Radio, Inc. (ARINC)
102-3, 163
Aeronaulics ranch, Deparlmenl
of Commerce 49
Aerospace Induslries Associalion
(AIA) 4, 103-4, 112
aerospace induslry 4-20
characlerislics 5-6
civiIian avialion markel 12-15,
Ta||c 1-3
commerciaI lransporl saIes fac-
lors 15-19
consoIidalion 11, 13
dened 4
economic proIe 7-9
empIoymenl 5, 7-8, 10-11
generaI avialion 19-20, Ta||c 1-3
governmenl markel 10-12, Ta||c
1-2
impacl on olher induslries 5
induslry suppIiers 9-10
reIaled producls and services 20
research and deveIopmenl (R &
D) 5, 7-8,
11, 13
saIes by cuslomer Ta||c 1-2
saIes by producl group Ta||c 1-1
lrade baIance 5, 8, 20
AerospaliaIe 117
African American lraveI markel
273-74
agricuIluraI aircrah 112, 122
Airborne Ixpress 324, 325
Airbus A300 series 14, 42, 383, 391
Airbus A310 391
Airbus A320 265
and rani shuldovn 445
cockpil 386
compelilion 383
nancing for Norlhvesl Air-
Iines 380
eel commonaIily 378
y-by-vire syslems 65
operaling cosls 391
lechnicaI aspecls 376
Airbus A321 378
Airbus A330/340 65, 375, 378, 383,
385-86
Airbus A350 15, 66, 91, 378
Airbus A380 14, 66, 91, 329
Airbus Induslrie
aircrah on order Ta||c 13-1
business |els 117
business lurbine airpIane ship-
menls Ta||c 4-6
commerciaI lransporl producls
14, 15
compelilion 13, 66
design and deveIopmenl 383,
385-86
nancing for airIines 380
and nev-generalion airIiners 63
Air CaI 182
Air CaIifornia 61
air cargo 264-65, 319-39
2004 slalislics Ta||c 6-1
advanlages 330
aircrah 326, 328-29
air freighl markel 329-31
air freighl rale lypes 331-33
cosls 330-31
faclors aecling rales 337-39
fulure 328-29
hislory 321-25
paIIel and conlainer 264-65
regionaI/commuler services 158,
Ta||c 5-4|
speciaI services 333, 335-37
slalislics Ta||c 11-1
loday 325, Ta||c 11-11
veb siles 340
Air Cargc Gui!c 337
Air Cargo, Inc. 101-2, 336
air carrier, dened 21
air carrier airporls 125
air commerce 21, 48-49, 52
Air Commerce Acl (1926) 33, 48-
50, 67, 87
Air Corps, U.S. Army 36, 39, 48,
50, 68, 321
aircrah
design and deveIopmenl 382-87
evaIualion 389-92
insurance cosls 305
Ianding faciIilies 125, Ta||c 4-4
manufacluring associalions 103-
4
on order Ta||c 13-1
regionaI air carriers 158, Ta||c
5-4a, Ta||c 5-4|
Aircrah Ovners and IiIols As-
socialion (AOIA) 105, 122
GA Team 2000 128
as Iobby group 70
oplimism of members 117
purpose 68
aircrah uses 119-25
business avialion 119, 121, Ta||c
4-3
commerciaI and induslriaI avia-
lion 122-24
551
exlernaI Ioad and medicaI 124,
Ta||c 4-3
inslruclionaI ying 122, Ta||c
4-3
olher ying 124-25
personaI ying 121-22, Ta||c 4-3
air express 321, 322
Air IIorida 62, 177, 412
airframe overhauI 231-33
Air Irance 42, 325, 326
air freighl 323-24
dened 321
inlerIine agreemenls 164
rale faclors 337-39
rale lypes 331-33
scheduIing 345
air freighl forvarders 323
Air Ireighl Irocedures Agreemenl
164
air/ground domeslic service
(ARINC) 102
air/ground inlernalionaI service
(ARINC) 102
AirIine CIearing House 101
AirIine DereguIalion Acl (1978)
58-60
and CA 150-51
compelilion 177
dormanl aulhorily 366
inlernalionaI counlerparl 476
and Iabor produclivily 406
mergers and acquisilions 182
muluaI aid agreemenls 408
passage 43, 56, 57, 168
pricing 185
vage formuIa and hour ruIes
407
see aIso dereguIalion: reguIa-
lion of airIines
airIine designalors 163
airIine induslry 147-72
airIine cerlicalion 158, 160-61
airIine slalislics 158
dala coIIeclion by DOT 162
induslry agreemenls 163-64
ma|or and nalionaI carriers 151-
54
regionaI air carriers 154-58,
Ta||c 5-3
slalislics Ta||c 6-1
slruclure 148-51, 153-54, |ig. 5-1
lrac and nanciaI slalislics
165-72, Ta||c 5-5
veb siles 173
airIine managemenl and organiza-
lion 201-39
funclions of managemenl 210-
13
Iine deparlmenls 223-39
engineering and mainlenance
227-33, |ig. 7-12
ighl aendanls 237-39
ighl operalions 223-27, |ig.
7-11
markeling and services 234-37,
|ig. 7-13
managemenl 202-6
nev corporale slruclure 206-9
organizalion 213-16
organizalionaI charl 216-17, |ig.
7-4
sla deparlmenls 218-22
organizalionaI charls Iigs. 7-4
lo 7-11
veb siles 241
Air Line IiIols Associalion
(ALIA) 401, 402, 415, 417, 421
airIines
accounling and guidance 162
associalions 100-101
cerlicalion 158, 160-61
cosls 304-9
gIobaIizalion 483
pyramid of aulhorily 202, 208,
|ig. 7-1
safely 47, 168
slalislics 158
vages and fringe benels 409,
Ta||c 14-3. Ta||c 14-4
AirIines Reporling Corporalion
268
AirIine Tari IubIishing Company
(ATICO) 101, 298, 301
air maiI
compensalion 54, 285, 407
hislory 321-22
IegisIalion 35, 36, 37, 50, 51, 407
Iosl Oce Deparlmenl 31-32,
48, 321-22
Air MaiI Acl (1930) 35, 50
Air MaiI Acl (1934) 36, 37, 50, 51,
407
Airporl and Airvay Improvemenl
Acl(1982) 186
Airporl and Airvays DeveIop-
menl Acl(1970) 70, 92, 114, 186
Airporl DeveIopmenl Aid
Irogram(ADAI) 92
airporls
air cargo 327
aIIiances 483-84
aIlernalive 178
charges 304-5
eel pIanning 390
operaling cerlicales 92
operaling cosls 92
privale-use 125, Ta||c 4-4
pubIic-use privaleIy ovned
Ta||c 4-4
pubIic-use pubIicIy ovned 125
scheduIe saIabiIily 356, |ig. 12-
8. |ig. 12-9
usage gures Ta||c 2-4
air roule lrac conlroI cenlers
(ARTCCs) 127
Air Safely oard 51, 52
air laxi 124, 154-55, Ta||c 4-3
see aIso regionaI air carriers
air lours 124, Ta||c 4-3
air lrac conlroI (ATC)
aulomalion 93-94
hub-and-spoke syslem 368
inlroduclion 38, 42
miIilary 40
roIe 225, 226
and scheduIing 350
Air Trac ConlroI Cenler 225
air lrac IiabiIily 452
air lrac and safely, vice-presi-
denl of 223
AirTran Ta||c 5-2
air lransporl, civiIian avialion
markel 13-15, Ta||c 1-3
Air Transporl Associalion of
America(ATA) 100
air freighl markel dala 329
annuaI reporls 158, 437, 440, 441
capilaI requiremenls forecasl
186
causaI modeI forecasls 247
idenlicalion codes 163
inlerIine agreemenls 164
nalionaIizalion opposed 39
air lransporlalion
dened 21
fulure lrends 18-19
air lransporlalion induslry 21-26,
46-47, Ta||c 1-4
and business 25
and economy 22-25
and pIeasure lraveI 25-26
Air Transporlalion Safely and Sys-
lem SlabiIizalion Acl (2001) 171
Air Transporl Command 47
Air Transporl InlernalionaI 325
Air Transpcri an! |is |cgu|aicrs
(Caves) 55
Air Transpcri Wcr|! 158
Airvays Modernizalion oard 54
Air Wisconsin 62
airvorlhiness cerlicale 91
Airvorlhiness Direclives (ADs)
229, 231
AIaska AirIines Ta||c 5-2
aII cargo aircrah, regionaI air
services Ta||c 5-4|
aII-cargo airIine 325, 327, 337
aII-cargo cerlicale 161
aII-cargo dereguIalion 57
AIIegheny AirIines
commuler nelvork 155
earIy hislory 40, 149
A I R T R A N S P O R TAT I O N 5 5 2
mergers and acquisilions 61,
182
revenue passenger miIes Ta||c
5-1
AIIegheny Commuler 155
AIIegis Corporalion 418
AIIied IiIols Associalion (AIA)
422
AIIison GMA 3007C engine 72
aIIovabIe lime, for mainlenance
346
aIlernalive minimum lax 379
Amadeus reservalion syslem 274
amaleur-buiIl aircrah 113
American AirIines
air express 322
air freighlers 323
air laxi repIacemenl agreemenl
155
oeing 707 service belveen
coasls 42
and oeing 380
cerlicaled domeslic roule
miIes Ta||c 2-1
coIIeclive bargaining 422
DougIas DC-1 and DC-3 37
earIy hislory 36
fares 150, 185, 300
nanciaI condilion 309, 447, 448
eel pIanning 396-99
ighl aendanls slrike 405
frequenl-ier program 276
Iabor cosls 414, 416, 420
Iabor reIalions 421
Ieasing 435
Iih capacily 375
mainlenance cosls 374
mergers and acquisilions 61,
149, 182, 419
ordering agreemenl vilh oe-
ing 18
posldereguIalion 206
predecessors 33, 35
pricing 299
prols 445
revenue passenger miIes Ta||c
5-1. Ta||c 5-2
Seplember 11, 2001 hackings
66
lvo-lier vage scaIes 416, 420
viabiIily 418, 419
American Champion 72, Ta||c 4-5
American IagIe 63, 157, 420, 422
Ancrican |xprcss Sku Gui!c 163
American GeneraI Tiger 72
American Red Cross 124
American Trans Air 422, Ta||c 5-2
America Wesl 182
bankruplcy 62, 170, 419, 445,
448, 449
empIoyee concessions 420
fare slruclure 185
nanciaI condilion 447, 448
Iabor reIalions 421, 422
mergers and acquisilions 171
revenue passenger miIes Ta||c
5-2
amorlizalion 305-6, 379, Ta||c 15-5
anaIysis, and forecasling 245
Anli-Hacking Acl (1974) 93
anlilrusl immunily 59, 182, 482
AOIA Air Safely Ioundalion 105
AOIA Ioundalion, Inc. 105
Apache AirIines 155
Approach ConlroI 226
Arab oiI embargo 56, 150, 167-68
arbilralion, voIunlary 404
ARC (company) 69
Argyrus, Chris 202
Army Air Corps 36, 39, 48, 50, 68,
321
ASMs scc avaiIabIe seal-miIes
assembIy service 333, 335, |ig. 11-4
assel-based nancing 431
assels 437, Ta||c 15-2
associalions 100-108
aircrah-manufacluring 103-4
airIine-reIaled 100-101
generaI avialion 104-6
inlernalionaI avialion 106-8
olher airIine associalions 101-3
ATA scc Air Transporl Associalion
of America
alhIelic lraveI markel 273
AlIanlic Soulheasl 61
AlIas Air 325
AlIas Air WorIdvide HoIdings 325
ATR (company) 63
AuloIand syslem 390
avaiIabIe seal-miIes (ASMs)
2004 slalislics Ta||c 6-1
and cosls 308, 310, Ta||c 10-4.
|ig. 10-10
earIy 1960s 165
Iale 1960s 167
slalislics Ta||c 5-5
Avco (Avialion Corporalion) 35,
36
Avcrah Ta||c 4-6
average, moving 251, 252
average revenue 309
averaging dovn vages 422
Avial Aircrah Ta||c 4-5
Avialion Dislribulors and Manu-
faclurers Associalion (ADMA) 104
avialion service induslry 129-36
see aIso xed-base operalors
Avialion and Transporlalion Secu-
rily Acl (2001) 95
-29 Superforlress 40
AC One IIeven 385
AI Syslems ILC 385
baggage 238, 265, 368
baIance sheel 437, 446
angor Iunla Corporalion 71, 72,
116
ankruplcy Code 417
banks, commerciaI 431-32, 449
barnslormers 67
barriers lo enlry 176, 178-79
basic fares 297
-check 229, 230, Ta||c 12-1
eech, WaIler 67
eech Aircrah Corporalion 71
hislory 67, 69, 72
mergers and acquisilions 19,
116
producl IiabiIily 114
eech aircrah
aron 70, 72
eech|el-400A 72
eech|el 73
onanza 19, 67, 69, 72, 121
D-18 73
I-18 73
King Air 90 114
King Air 70, 72, 73
ModeI 17 67
ModeI 18 Tvin 67
Oueen Air 70
Sierra 114
Sundovner 114
Super-18 69
TraveI Air 70
Tvin-onanza 69
eIgium 476, 478
eIIanca Aircrah 69, 70, 72, Ta||c
4-5
eII HeIicopler 20, 71
eII TeIephone Laboralories 41
endix (company) 69
endix TransconlinenlaI Speed
Dash 67
enoisl ying boal 31
ermuda Agreemenl (1946) 471-
72, 475
ermuda II Agreemenl 475-76
besl l, Iine of 252, |ig. 8-3
biIaleraI agreemenls 467, 470
ingham-Iarker Acl (1926) 33,
48-50, 67, 87
Iack, Hugo 36
bIack boxes 99
Iack-McKeIIar Acl (1934) 36, 37,
50, 51, 407
bIock speed 304, |ig. 13-1
OAC 40
board of direclors 203
oeing
aircrah on order Ta||c 13-1
and American AirIines 380
I N D E X 5 5 3
business lurbine airpIane ship-
menls Ta||c 4-6
commerciaI lransporl producls
13-14, 15
compelilion 66
and DeIla AirIines 380
design and deveIopmenl 382-83
mergers and acquisilions 11, 13,
66
ordering agreemenls 18
parls lracking and handIing 18
as suppIier 9
and Uniled airIines 380
oeing aircrah
oeing 247 36-37
oeing 307 41
oeing 377 Slralocruiser 40, 41
oeing 707
air freighl 324
design and deveIopmenl 41
mainlenance cosls 374
Ian American 61
performance 42
oeing 720 186
oeing 727
air freighl 324
American AirIines 397
design and deveIopmenl 43
fueI eciency 391
mainlenance and operaling
cosls 380
number buiIl 65
operaling cosls 391
performance 42
renancing cycIe 186
repIacemenl 381
lransfer lo IedIx 381
oeing 727-100 413
oeing 737
American AirIines 397
business lransporlalion 137
design and deveIopmenl 43,
65
eel commonaIily 378
fuseIage peeIing incidenl 380
Iih capacily 375
oeing 737-200 413
oeing 747
air cargo 324
business-cIass service 277
design and deveIopmenl 42
environmenlaI aspecls 93
fueI eciency 19
managemenl syslem 390
Ian American 61
parls 229
performance 43
oeing 747-100 386
oeing 747-200 386, 390
oeing 747-300 65, 386, 389-90
oeing 747-400 65, 380, 386
oeing 747-800 386
oeing 757
business lransporlalion 137
design and deveIopmenl 63,
65, 382-83
eel commonaIily 378
fueI eciency 382, 391
mainlenance rouling 348, |ig.
12-3
operaling cosls 391
as repIacemenl for 727 381
oeing 767
American AirIines 397
design and deveIopmenl 63,
65
eel commonaIily 378
hub-and-spoke syslem 375
operaling cosls 391
oeing 767-200 65
oeing 777
cerlicalion 91
design and deveIopmenl 11,
15, 65, 66
orders 378, 380, 385
oeing 787 DreamIiner 15, 66,
91, 378, 385
oeing -40 33
oeing -47 |el bomber 41
number buiIl 65
oeing AirpIane Company 33, 36
oeing Air Transporl Company
33, 322
oeing usiness Iels 117
ombardier 72, Ta||c 4-6
ombardier Canadair CRI series
378
ombardier IIex|el 117
onanza Air Lines 40, 149, 182
bonds 433
oyd, AIan S. 81
rani, IauI 37
rani, Tom 37
rani AirIines
bankruplcy 151, 153, 182, 206,
415
demise 60-61, 445, 477
founding 37
mergers and acquisilions 182
revenue passenger miIes Ta||c
5-1
union concessions 415
ranson, Sir Richard 423
reech, Irnesl I. 38
renner, MeIvin 189
requel-Sud 42
rilain scc Uniled Kingdom
rilish Aerospace 11, 63, 385
ri Airvays 61
rien-Norman aircrah Ta||c 4-5
rovn, WaIler IoIger 35, 36
scaIes scc lvo-lier vage scaIes
buiIl-in lesl equipmenl (ITI) 230
ureau of Air Commerce 38, 49,
51, 87
ureau of Air MaII 50, 51
ureau of Slandards, Deparlmenl
of Commerce 49
ureau of Transporlalion Slalislics
(TS)106 162
urIinglon Air Ixpress 324, 325,
327
ush, George H. W. 405
ush, George W. 95
business aircrah Ta||c 4-3
advanlages 119, 121
benels 139-40
reasons for use 137-39
lypes 137
business aircrah use, dened 119
business avialion 21, 73, 119, 121,
136-40, Ta||c 4-3
business-cIass service 264, 277
business-fare saIes 300
business lraveIers 272-73
C-47 airpIane 39, 73, 149
C-54 airpIane 39, 149
C-82 airpIane 39
CA scc CiviI Aeronaulics oard
cabolage 478, 480, 481, |ig. 16-1
CAM (conlracl air maiI) roules 33,
|ig. 2-1
CampbeII-HiII Avialion Group 23
Canada 480
canned ighl pIans 126
capacily 17
CapilaI AirIines 41, 182, 412
capilaI apprecialion 430
caplain 225, 226, 227
CaraveIIe 385
cargo scc air cargo
CarIyIe Group 11
Carler, Iimmy 56, 475
CASA (company) 66
cash budgel 452-53
cash ov 431, 451-52
Calhay Iacic Airvays 325
causaI (modeI) forecasls 246-48,
|ig. 8-1
accuracy 253
Caves, Richard I. 55
C-check 230, Ta||c 12-1
cenlraIized reservalions oce 267
cerlicaled (common) air carriers
21, 43, 148, Ta||c 2-1, Ta||c 5-5
cerlicalion
airIines 158, 160-61
by IAA 91-92
managemenl requiremenls 207
Cessna, CIyde 67, 68
Cessna Aircrah Company 11, 19,
69, 71, 72
A I R T R A N S P O R TAT I O N 5 5 4
acquired by GeneraI Dynamics
116
acquired by Texlron 116
aircrah shipmenls Ta||c 4-5
business lurbine airpIane ship-
menls Ta||c 4-6
GeneraI Avialion RevilaIizalion
Acl(1994) 117
|udgmenlaI forecasls 253
producl IiabiIily 114
Cessna aircrah
120/140 series 68
150 modeI 114
152 modeI 71, 114
170 modeI 69
172 modeI 69, 70, 71, 114, 121
180 modeI 69
182 modeI 70, 71
190/195 series 68, 69
206H Slalionair 118
207 modeI 19
310 modeI 69
Ag Husky 122
Ag Truck 122
ravo 118
C-34 68
Caravan 71
Cilalion 71-72, 117
IxceI 118
T-50 68
T206H Turbo Slalionair 118
CIM 56-5C-1 engine 385
CIM InlernalionaI engine 385
chain reaclion eecl 361-62, |ig.
12-13
ChaIIenger (space shuIe) 12
change of gauge 472
change in quanlily demanded
291-92
changes in demand 289-92, |ig.
10-2
charler airIines 263
charlers 473-74
Chase Iconomelrics 247
ChennauIl, CIaire Lee 324
Chicago Conference (1944) 464-70,
479
Chicago and Soulhern Air Lines
182
Chicago slandard form 467, 470,
471
Cirrus Design 117, Ta||c 4-5
Cirrus Design SR 20 118
Cilicorp Venlure CapilaI 436
Cilizen and Immigralion Service
190
cily lickel oces (CTOs) 267
CiviI AeromedicaI Inslilule 93
CiviI Aeronaulics Acl (1938) 51-52
avialion cIassicalions 21
and CiviI Aeronaulics Aulhorily
39, 87
inlerslale airIine induslry 148
nalionaI defense 44
vage formuIa 407
CiviI Aeronaulics Adminislralion
52, 87
CiviI Aeronaulics Aulhorily
conference on |el age 41
eslabIishmenl 39, 51, 87
ighl personneI cerlicalion
40-41
redesignalion as CiviI Aeronau-
lics oard 52
CiviI Aeronaulics oard
crilicized 150
reguIalion of airIines 150
CiviI Aeronaulics oard (CA)
air freighl 323, 324
air lransporlalion cerlicales 21
biIeveI induslry vision 149
ureau of Safely 98
carrier reporling requiremenls
162
cerlicalion 53
charlers 473-74
crealion 52, 87
crilicism of 55-56
demise 60, 151, 169
and dereguIalion 55-56, 57, 58,
59-60, 150-51, 475
earIy 1970s 167
economic funclions 52-54, 80
faiIing carrier doclrine 374
fares 53, 185, 285, 286-87, 413,
472
IederaI Avialion Acl (1958) 54-
55
feeder Iines 40
inlernalionaI avialion 467
inlerslale airIine induslry 148
and inveslmenl risks 446
|oinl capacily-reslrainl agree-
menls 474
Iabor produclivily 406
Ioad faclor 191
managemenl skiIIs needed by
carriers 206
mergers and acquisilions 181,
182
muluaI aid agreemenls 408
and nalionaI defense 44
regionaI air carriers 154-55
response lo delerioraling nan-
ciaI condilions 150
roule reguIalion 53, 366
sludy on reguIalory reform 56
CiviI Air IalroI 39
CiviI Avialion Securily Irogram
93
civiIian avialion markel 12-15,
Ta||c 1-4
CiviI Reserve Air IIeel (CRAI) 44,
47-48
CIass 1 slalions 228
CIass 2 slalions 228
CIass 3 slalions 228
cIasses of service 271
cIasses of slalions 227-28
CIaylon Anlilrusl Acl lesl 182
CIinlon, iII 170, 405, 420, 479
coach fares 286
Coasl Guard AuxiIiary 86
cockpil voice recorders (CVRs) 99
code sharing
changes in 177
inlernalionaI 481-82, 483
as markeling slralegy 277-78
regionaI air carriers 62-63, 157
coIIaleraI 431-32
coIIeclive bargaining 412
crilicized 405-6
fulure slralegies 421-23
process 403-5
CoIIins (company) 69
coIIision avoidance syslems 94
CoIoniaI AirIines 33, 182, 322, |ig.
2-1
CoIumbia Aircrah Ta||c 4-5
CoIumbia roule 33
Cc|un|ia (space shuIe) 12
Comair 61, 157, 421
combinalion carrier 325, 327, 337
combined airIine lickel oces
(CATOs) 267
Comile InlernalionaI Technique
dIxperls Iuridiques Aeriens
(CITIIA) 463
Commander 114 72
Commander Aircrah Ta||c 4-5
Commerce Deparlmenl scc De-
parlmenl of Commerce
commerciaI banks 431-32, 449
commerciaI and induslriaI avia-
lion 21, 122-24
commerciaI lransporl saIes faclors
15-19
commission overrides 275-76
Commission lo Insure a Slrong,
Compelilive AirIine Induslry 479
commiee syslem, scheduIing 346
common fares 297, |ig. 10-7
common sharehoIders 433
common slock 433
communicalion 215
commuler air carrier lness deler-
minalions 161
Commuler AirIine Associalion of
America 100-101
compelilion
and air freighl rales 339
I N D E X 5 5 5
and airIine aIIiances 483
and eIaslicily 295
mainlaining 183-84
ma|or and nalionaI carriers 151
manufaclurers 66
in oIigopoIislic induslry 176
posl dereguIalion 177
scheduIing frequency 188
see aIso dereguIalion
compulerized reservalion syslems
code sharing 277-78, 482
economies of scaIe 180
hub-and-spoke syslem 279
imporlance of 418
as markeling slralegy 274-75
purposes 151-52
lraveI agenls 275
Concorde 385
congeslion deIay 368
connecl markel saIes 300
Conrad, Max 121
consoIidalion 60-62, 116, 181-84,
376-78, 418-21
conslrained operaling pIan 389
consumabIes 230
consumer-orienled markeling
concepl 269-74
consumer-orienled period 259
conlainer rale 332-33, |ig. 11-2,
|ig. 11-3
ConlinenlaI AirIine HoIdings 61
ConlinenlaI AirIines
bankruplcy 170, 417, 419, 445,
448, 449
compelilion 418
fare slruclure 185
nanciaI condilion 447, 448
Iabor cosls 414
Iabor reIalions 421, 422
mergers and acquisilions 60, 61,
149, 153, 182
onIine lickel saIes 181
ordering agreemenl vilh oe-
ing 18
posldereguIalion 206
reduced Iabor cosls 416
revenue passenger miIes Ta||c
5-1. Ta||c 5-2
slrikes againsl 153
ConlinenlaI Ixpress 63, 157
Conlracl Air MaiI Acl (1925) 33, 48
conlracl air maiI (CAM) roules 33,
|ig. 2-1
conlracl maiI service 33-35, |ig. 2-1
conlracl mainlenance 233
conlroI, and forecasling 245-46
conlroIIing 212-13
Convair lvin-engine pIanes 40
Convenlion on InlernalionaI CiviI
Avialion 107
converlibIe debenlures 441
CooIidge, CaIvin 33
corporale aircrah use, dened 119
corporale avialion 74-75, Ta||c 4-3
corporale cIienls, of lraveI agenls
275
corporale communicalions deparl-
menl 220, |ig. 7-9
corporale ob|eclives, and eel
pIanning 388
correIalion 246
cosl-cuing lrends 309
cosls, shorl run 310, Ta||c 10-4
CounciI of Defense and Space In-
duslry Associalions (CODSIA) 104
crah unions 400
CrandaII, Roberl 405, 420
Crane, CarI I. 38
credil, Iine of 431
credil cards, airIine induslry 164,
285
cross-conneclions (hub and spoke)
365, |ig. 12-14
CRS scc compulerized reservalion
syslems
currenl ralio 446, 451
currenl resources, and eel pIan-
ning 387, Ta||c 13-2
Curlis IN-4 (Ienny) 67
Curliss, GIenn 321
Curliss Condor 36
Curliss-Wrighl Corporalion 67
Cusloms Service 190
Cuing, ronson 38
cycIicaI varialions 17-18, 46, 249,
250-51, |ig. 8-2
DassauIl Ta||c 4-6
DassauIl IaIcon |el 118
DassauIl ModeI-20 IaIcon 73
Dala Resources, Inc. 247
D-check 230, 231, Ta||c 12-1
debenlure 440-41
debl nancing 430
Decision 83,NalionaI Labor ReIa-
lions oard 406
decision making 205-6
defense conlraclors 10-12
see aIso Deparlmenl of Defense
deferred laxes 429
dened service Iife 398
deHaviIIand 42
deHaviIIand Comel 40
deHaviIIand DH-125 73
dehubbing 280
deIegalion of aulhorily 214
DeIla Air Lines
bankruplcy 171, 309, 449
cerlicaled domeslic roule
miIes Ta||c 2-1
deIegalion of aulhorily 214
earIy hislory 38
fare slruclure 185
nanciaI condilion 447, 448
hub-and-spoke syslem 279
image 290
Iabor cosls 414
Iabor reIalions 419, 420, 421, 422
mergers and acquisilions 61-62,
151, 182, 374
ordering agreemenl vilh oe-
ing 18, 380
posldereguIalion 206
prols 445, 447
revenue passenger miIes Ta||c
5-1. Ta||c 5-2
lraveI agenl commissions 268
viabiIily 418, 419
DeIla Conneclion 157
DeIla ShuIe 62
demand 266
dened 288
delerminanls 289, 290
Iav of 288, |ig. 10-1
and pricing 288-95, |ig. 10-1
demographic segmenlalion 273
denied boardings 304
Denver MiIe-High Air Race 67
deparlmenl, dened 203
deparlmenlaIizalion 214
Deparlmenl of AgricuIlure 32, 49
Deparlmenl of Commerce
adminislralor of avialion 52
Aeronaulics ranch 87
Air Commerce Acl (1926) 48, 49-
50
airIine reguIalion 190
ureau of Air Commerce 38, 49,
51, 87
ureau of Slandards 49
Deparlmenl of Defense (DOD) 7,
10, 11, 47-48, Ta||c 1-2
Deparlmenl of HomeIand Securily
95
Deparlmenl of Iuslice 60, 190, 409
Deparlmenl of Slale 94, 389, 467,
470
Deparlmenl of Transporlalion Acl
(1966) 55, 95
Deparlmenl of Transporlalion
(DOT)
airIine cerlicalion 158, 160-61
airIine reguIalion 190
anlilrusl immunily 482
ureau of Transporlalion Slalis-
lics (TS) 87, 162
crealion 55, 80
dala coIIeclion 162
dereguIalion 60, 150-51
divisions 81-87
Documenlary Services Division
(DSD) 160-61
essenliaI air service 59
A I R T R A N S P O R TAT I O N 5 5 6
hazardous maleriaI specica-
lions 337
inlernalionaI avialion 470
mainlenance cosl reporling 305
mergers and acquisilions 183
on-lime performance reporling
275
organizalion 81, |ig. 3-1
poIicy 479-80
Research and SpeciaI Irograms
Adminislralion (RSIA) 86-
87
scheduIing looIs 369
Transporlalion Securily Admin-
islralion 95
Deparlure ConlroI 225
dependanl variabIes 247
deprecialion 305-6, 379, 429, 451,
Ta||c 15-5
dereguIalion 55-57
airIine nancing 428
airIine managemenl 206
aII-cargo 57
CiviI Aeronaulics oard 55-56,
57, 58, 59-60, 150-51, 475
Deparlmenl of Transporlalion
60, 150-51
nanciaI impacl 446, 449, 450
eel pIanning 375
generaI avialion 73
Iabor reIalions 412-23
markeling slralegies 274-80
mergers 60-62
nev-generalion airIiners 63-66
passenger markeling 274-80
regionaI/commuler airIines 62-
63
rouling and scheduIing 366
slruclure of airIine induslry
150-51
see aIso AirIine DereguIalion
Acl (1978): reguIalion of
airIines
design characlerislics 389-90
Delroil Nevs Trophy Race 68
DHL Airvays 325, 328
Diamond Aircrah 117, Ta||c 4-5
diIulion 302
dimensionaI veighl 331
diminishing relurns, Iav of 310,
Ta||c 10-4
direcl impacls 23, Ta||c 1-4
direcling 212
direclionaIily, and air freighl rales
338
direclionaI pricing 301
direcl operaling cosls 304-6
direcl seIIing melhods 180-81, 268
discrele address beacon syslem
(DAS) 94
diseconomy of scaIe 180
disposabIe personaI income (DI)
247, 248
dislance, and eIaslicily 295
dislribulion service 335
dividend income 430
division, dened 203
DooIiIe, Iames H. 35
dormanl aulhorily 366
Dornier 63
DOT scc Deparlmenl of Transpor-
lalion
DougIas, A. Slone 72
DougIas, DonaId 37
DougIas DC-1 36, 37
DougIas DC-2 37
DougIas DC-3
business avialion 73
design and deveIopmenl 37, 43
impacl 322
miIilary conversion 39
as nonscheduIed air carriers 149
popuIarily 42
lransconlinenlaI lraveI lime 356
DougIas DC-4 39, 149
DougIas DC-4I 39
DougIas DC-6 40, 150
DougIas DC-7 40, 41, 232
DRI-WIIA Incorporaled 23
duly free service 265
Iaslern AirIines
air express 322
bankruplcy 151, 170
oeing 727 42
cerlicaled domeslic roule
miIes Ta||c 2-1
coIIeclive bargaining 418
demise 61, 177, 182, 287, 419,
445, 448, 449, 450
earIy hislory 36, 38
nanciaI condilion 447
Iosses 165, 445
mechanics slrike 405
mergers and acquisilions 61,
182
posldereguIalion 206
revenue passenger miIes Ta||c
5-1
slrike againsl 169, 445
lraveI agenls 268
union concessions 415, 419
venlure capilaI 436
Iaslern Air Transporl 36
Iaslern ShuIe 62
easyIel 181, 278
economic characlerislics 175-96
airIine passenger Ioad faclors
191-95
airIines as oIigopoIisls 177-86
olher unique characlerislics 186-
90
veb siles 197
economic pIanning deparlmenl
220, |ig. 7-10
economies of scaIe 176, 179-81,
274, 375
economies of scope 274, 375
economy-cIass service 264
educalionaI lraveI 270
Iisenhover, Dvighl D. 42, 54, 84
eIaslic demand 292-94, |ig. 10-3,
|ig. 10-4
eIaslicily of demand 292-96
eIaslicily delerminanls 295
eIeclronic componenls 10
eIeclronic ighl inslrumenlalion
(IIIS) 65
Imbraer (company) 63, 66, Ta||c
4-6
Imbraer IM-135 378
Imbraer IM-145 378
emergency board 404
Imery WorIdvide 324, 325, 327
Impire AirIines 61
empIoyee ovnership 420, 423
empIoyee slock ovnership pIans
(ISOIs) 417, 420, 423
empIoymenl
aerospace induslry 5, 7-8, 10-11
airIine 400, Ta||c 14-1
air lransporl induslry 43
empIoymenl conlracls 350-51
end-lo-end mergers 182-83
engineering and mainlenance
conlroI (IMAC) syslem 232
engineering and mainlenance
deparlmenl 227-33
cIasses of slalions 227-28
conlracl mainlenance 233
nonrouline mainlenance 231
organizalion |ig. 7-12
overhauI of airframes 231-33
overhauI of engines and olher
componenls 233
rouline airframe mainlenance
229-31
lypes of mainlenance 228-29
engines
AIIison GMA 3007C 72
CIM 56-5C-1 385
CIM InlernalionaI 385
GeneraI IIeclric CI6-80C2 65,
385, 386
GeneraI IIeclric fan-|el 66
Lycoming 71
mainlenance 230-31
overhauIing 232, 233
Ira & Whilney 382
Ira & Whilney fan-|el 66
Ira & Whilney Hornel 37
Ira & Whilney I57 41
I N D E X 5 5 7
Ira & Whilney IT9D-7R4C2
390
Ira & Whilney ITSD-200 series
435
Ira & Whilney IW4000 65,
385, 386
Ira & Whilney R985 radiaI 73
Ira & Whilney R-2000 39
Ira & Whilney Wasp 33, 37
RoIIs-Royce 382
RoIIs-Royce fan-|el 66
RoIIs-Royce R 211-524D4D 65
RoIIs-Royce R 211-524134a 386
Warner Super-Scarab 68
en roule charges 304-5
en roule service Ta||c 12-2
equipmenl lrusl nancing 432
equipmenl lurnaround lime
360-61
IquilabIe Life Assurance Sociely
of lhe Uniled Slales 440
equily nancing 430
ISS (eIeclronic svilching
syslem)(ARINC) 103
essenliaI air service, dened 59
IssenliaI Air Service (IAS) pro-
gram 155, 162
IuraIair 72, 116
Iurocopler 20
Iuropean Aeronaulics Defense
and Space (IADS) 385
Ivans Iconomics, Inc. 247
exceplion rale 332
excess capacily 188, 189
excess pound rale 333
excursion-fare saIes 300
Ixeculive Iels Nel|els 117
execulive vice-presidenl and gen-
eraI manager, roIe of 203
expendabIes 230
experl opinion melhod 254
express carriers 324-25, 327
exlended lvin-engine operalions
(ITOIS) 65
exlernaI Ioad 124, Ta||c 4-3
exlra seclion 364
IAA scc IederaI Avialion Admin-
islralion
|AA Atiaiicn |crccasis 158, 253
|AA Siaiisiica| Han!|cck cj atiaiicn
158
faiIing carrier doclrine 374
IairchiId business |els 117
IansIer, R I. 31
IAR scc IederaI Avialion ReguIa-
lions
fares
aclions 299-301
American AirIines 150, 185, 300
America Wesl 185
business 300
CiviI Aeronaulics oard 185,
285, 286-87, 472
coach 286
common 297, |ig. 10-7
compelilion 184-85
ConlinenlaI AirIines 185
decreasing 302-3
DeIla Air Lines 185
dereguIalion 59
domeslic airIines average Ta||c
10-1
excursion 300
ighl-lime-specic 300
fueI prices 287
increasing 303
InlernalionaI Air Transporl
Associalion 53-54, 470, 472,
474, 475
inlroduclory 299
|oinl 297
no-friIIs 296-97
normaI 297
penaIlies 301
promolionaI 271, 298
Trans WorId AirIines (TWA) 185
lrend 285-87, Ta||c 10-1
lypes 297
Uniled AirIines 185
Y fare 184
see aIso pricing
IarIey, Iames 36
IOs scc xed-base operalors
IederaI Aid Airporl Irogram 92
IederaI Airporl Acl (1946) 92
IederaI Avialion Acl (1958) 54-55
amendmenls 476
crealion of IAA 52, 87
crilicism 55
grovlh of airIine induslry 437
Seclion 401 160-61
Seclion 418 161
Seclion 419 161
IederaI Avialion Adminislralion
(IAA) 87-95
advisory circuIars 92
aircrah and avialor cerlicalion
91-92
aircrah slandards 139
airIine reguIalion 190
airIine slalislics 158
airporl aid and cerlicalion 92
air laxi cerlicale 124
air lrac conlroI 90-91, 415
Airvorlhiness Direclives (ADs)
229, 231
avialion forecasls 246, 247, 253
capacily conlroI 192
CiviI AeromedicaI Inslilule 93
CiviI Avialion Securily Irogram
93
depuly adminislralor for gen-
eraI avialion 70
engineering and deveIopmenl
93-94
environmenlaI proleclion 93
exlended lvin-engine opera-
lions (ITOIS) 65
ighl service slalions 90
mainlenance reguIalions 231,
232, 432
organizalion |ig. 3-2
olher aclivilies 94-95
piIol slalislics 140
responsibiIilies 81, 83, 87, 90-94
ruIes 95
safely reguIalions 129
IederaI Avialion Agency (IAA)
42, 52, 54, 55, 87
IederaI Avialion ReguIalions
(IAR)
IAR 121 207
IAR 135 207
ighl crev scheduIing 350
managemenl requiremenls 207
Iarl 91 124, 137
Iarl 133 124
Iarl 135 123, 124, 137, 155
see aIso reguIalion of airIines
|c!cra| Ccnirc| cj cniru inic Air
Transpcriaiicn (Keyes) 55
IederaI Ixpress Corporalion 325
acquires IIying Tiger 321, 324
Airbus A380 329
airporls 327
oeing 727 381
Cessna Caravan 71
inlernalionaI services 328
Iabor reIalions 422
overnighl air express 323
prolabiIily 62
venlure capilaI 436
viabiIily 419
IederaI Highvay Adminislralion
(IHA) 83
federaI IegisIalion 46-60
addilionaI air maiI acls 50
Air Commerce Acl (1926) 33, 48-
50, 67, 87
AirIine DereguIalion Acl (1978)
43, 56, 57, 58-60
CiviI Aeronaulics Acl (1938) 21,
39, 44, 51-52
dereguIalion movemenl 55-57
earIy federaI IegisIalion 48
IederaI Avialion Acl (1958) 52,
54-55
reasons for reguIalion 46-48
IederaI Marilime Commission 80
IederaI RaiIroad Adminislralion
(IRA) 86
A I R T R A N S P O R TAT I O N 5 5 8
IederaI Transil Adminislralion
(ITA) 85
IedIx scc IederaI Ixpress Corpo-
ralion
feedback 211
feeder roules 33, 149
eId lickel oces (ITOs) 267
hh-freedom righls 470, 480, |ig.
16-1
naI reporl 100
nance companies 432
nance and properly deparlmenl
218, |ig. 7-5
nanciaI (capilaI) Iease 379, 434
nanciaI dala, and eel pIanning
386
nanciaI and slalislicaI reporling
162
nanciaI slalislics 165-72, Ta||c 5-5
nancing 427-53
cash managemenl and nanciaI
pIanning 450-53
exlernaI sources 430-37
xed-base operalors 135-36
funding sources 437-50, Ta||c
15-4
induslry baIance sheel 437, 439,
Ta||c 15-2. Ta||c 15-3
inlernaI sources 428-30
veb siles 455
re-ghling 122-23
rsl-cIass service 264
rsl ocer 225
Iish and WiIdIife Service 123
lness delerminalion 160, 161
Iive Ireedoms Agreemenl 466-67,
|ig. 16-1
xed-base operalors (IOs)
denilion 50, 67
funclions 129, 133
inslruclionaI ying 122
prolabiIily 135-36
size and scope 134-35
and SmaII Aircrah Transporla-
lion Syslem (SATS) 75
xed cosls 308
eel capacily 18
eel pIanning 373-98
American AirIines 396-99
commonaIily 378
dened 382
design and deveIopmenl 382-87
hub-and-spoke syslem 375
Ieasing lrend 379-80
Iong-range aircrah 378
modeI 388
noise reslriclions 381-82
predereguIalion era 374-75
process 387-92
ralionaIizalion 376-78
lechnicaI aspecls 376
upgrading vs. repIacing 392-93
veb siles 395
ighl aendanls 237-39
ighl crev expenses 304
ighl-crev scheduIing, direclor
of 223
ighl cycIe 308
ighl dala recorders (IDRs) 99
ighl dispalch, direclor of 223
ighl dispalch manager 223-24
ighl engineer 225
ighl manager 225
ighl operalions, regionaI man-
ager of 224-25
ighl operalions cosls 304-5
ighl operalions deparlmenl 223-
27, |ig. 7-11
IIighl Oplions 117
ighl pIans, Iing 126
ighl procedures and slandards,
direclor of 227
ighl procedures and lraining,
vice-presidenl of 223, 227
ighl service slalion (ISS) 126
ighl-lime-specic fares 300
ighl lraining, direclor of 227
IIorida Airvays Corp. |ig. 2-1
ying, vice-presidenl of 223, 224
IIying Tiger 321, 323-24
food/bar services 264
food service deparlmenl 237, |ig.
7-15
Iord, GeraId 56, 475
Iord, Henry 34
Iord Air Transporl |ig. 2-1
Iord ReIiabiIily Tour 67
Iord Trimolor 34-35, 36
forecasling 243-55
causaI melhods 246-48, 253, |ig.
8-1
dened 244
|udgmenlaI melhods 253-55
and markel research 234
purpose 244-46
lime-series or lrend anaIysis
melhods 249-53, |ig. 8-2
veb siles 256
foreign inveslmenl 445, 481
Ioresl Service 83
Iorslmann LiIe 72, 116
401 carriers 148, 160-61
fourlh-freedom righls 470, 480,
481, |ig. 16-1
fraclionaI ovnership 117-18, 121
Irance 463, 478, 481
Irankfurl InlernalionaI Airporl
483-84
freedoms of lhe air
Tvo Ireedoms Agreemenl 466-
67, |ig. 16-1
lhird-freedom righls 470, 480,
481, |ig. 16-1
fourlh-freedom righls 470, 480,
481, |ig. 16-1
hh-freedom righls 470, 480,
|ig. 16-1
Iive Ireedoms Agreemenl 466-
67, |ig. 16-1
nine freedoms of lhe air |ig. 16-
1
freehand Iines 251, 252
frequenl-ier programs 151, 178,
276
fringe benels 409, Ta||c 14-3, Ta||c
14-4
Ironlier AirIines
coIIeclive bargaining 418
earIy hislory 40, 149
mergers and acquisilions 61,
182
union concessions 415
Irye, Iack 37, 38
fueI eciency
oeing 727 391
oeing 757 382, 391
generaIIy 19, 186, 188
fueI expenses 187-88, 304
fueI prices
and airIine cosls and fares 287
and eel pIanning 375
hislory 167-68, 169-70
funclions of managemenl 210-13
funds
1960 lo presenl 437-50, Ta||c 15-
4
1990s lo presenl 446-48
induslry baIance sheel 437, Ta||c
15-2. Ta||c 15-3
summary 448-50
funeraI lraveI 270
GaIaxy Aerospace 117
GaIiIeo reservalion syslem 274
GA Team 2000 128
GI Aerospace 11
Gemini Air Cargo 325
generaI and adminislralive cosls
307
GeneraI Air Ixpress 322
generaI avialion 67-75
aircrah shipmenls Ta||c 1-3
associalions 104-6
business avialion 73, 136-40
dened 19, 21-22, 68, 112
dereguIalion 73
faclors aecling 114, 116-18
fulure 74-75
heIicoplers 20, Ta||c 1-3
home of 67-68
maluralion 70-72
overviev 19-20
I N D E X 5 5 9
personaI markel 140
posl-WorId War 11 years 68-69
users 136-41
veb siles 143
generaI avialion aircrah
aclive 113, Ta||c 4-1
by lype and primary use Ta||c
4-3
shipmenls Ta||c 1-3. Ta||c 4-2.
Ta||c 4-6
generaI avialion airporl 125
GeneraI Avialion Manufaclurers
Associalion (GAMA) 104
causaI modeI forecasls 247
eslabIishmenl 70, 112
GA Team 2000 128
generaI avialion induslry
reporls 128
No IIane, No Gain program
128
Iislon-Ingine Aircrah RevilaIi-
zalion Commiee (IIARC)
128
purpose 4
GeneraI Avialion RevilaIizalion
Acl (1994) 7, 19, 72, 117, 127
generaI avialion slalislics 112-27
aircrah uses 119-25, Ta||c 4-3
airporls 125-26, Ta||c 4-4
IAA services 126-27
faclors aecling generaI avia-
lion 114, 116-18
generaI avialion supporl induslry
127-36
avialion service induslry 129-36
manufaclurers 127-28, Ta||c 4-6
piIols and aircrah manufaclur-
ing 129
generaI commodily rale 331, |ig.
11-1
GeneraI Dynamics 11, 19, 71, 116
GeneraI IIeclric 65, 66, 117, 385,
386
GeneraI Molors 36
Generalion Y, as empIoyees
214, 423
Germany 476, 478, 481, 483
GI/Snecma 65
G.I. iII 136
GippsIand Aeronaulics Ta||c 4-5
gIobaIizalion 480-84
goaIs 210
go-leam 98-99
governmenl markel 10-12, 124-25,
Ta||c 1-2
governmenl reguIalion 190
design and deveIopmenl 387
governmenl subsidies 44-45, 47,
59, 149, 186
GIA Group 380
Graf ZeppeIin 35
grandfalher righls 45, 148, 149
gross nalionaI producl (GNI)
cycIicaI varialions 250, 251
forecasls 248, 253
and generaI avialion aircrah
247, |ig. 8-1
lrends 249
Ground ConlroI 225, 226
ground servicing, scheduIe impIi-
calions 351-53
group lraveI 270
Grumman AA-58 72
Grumman Aircrah Corporalion 73
Grumman GuIfslream 70, 73
GualemaIa Cily IrolocoI 464
GuIfslream Aerospace Ta||c 4-6
The Hague IrolocoI lo lhe War-
sav Convenlion 464
HamiIlon, AIexander 85
HamiIlon Slandard 35
Hanshue, Harris Iop, 35
Havana Convenlion (1928) 462-63
Havker H-125 72
Havker-SiddeIey 42
heIicoplers 20, 40, 137, Ta||c 1-3
medicaI use 124
shipmenls Ta||c 1-3
Henson AirIines 61
Hcrcjcr!s Air Cargc Gui!c 163
high-yieId revenue spiII 303
hacking 93
see aIso Seplember 11, 2001
hislory 29-75
air cargo 321-25
economics prior lo dereguIalion
43-46
federaI IegisIalion 46-60
formalive period (1918-1938)
31-38
generaI avialion 67-75
grovlh years (1938-1958) 39-41
inlernalionaI avialion 472-77
Iabor reIalions 406-12
malurily (1958-1978) 41-43
posldereguIalion evoIulion 60-
67
veb siles 76
Hoover, Herberl 33, 35
hub-and-spoke syslem
advanlages 366-68, |ig. 12-15
as barrier lo enlry 178, 179
compIainls aboul 169
cross-conneclions 365
disadvanlages 368
eecl of dereguIalion 62
eel pIanning 375, 397
grovlh 445
ma|or and nalionaI carriers 151
as markeling slralegy 279-80
overnighl air express 323
and regionaI/commuler airIines
73
scheduIing 188
Hubbard, Idvard 33
Hughes Aircrah 11
Hughes Airvesl 60, 149, 182
Husky (company) 72
IATA scc InlernalionaI Air Trans-
porl Associalion
Icahn, CarI 417, 418
ICAO scc InlernalionaI CiviI Avia-
lion Organizalion
idenlicalion codes 163
III (idenlicalion, friend or foe)
38
incIusive lour charlers 473
Independenl Union of IIighl Al-
lendanls 416
independenl variabIes 247
indirecl impacls 23, Ta||c 1-4
indirecl operaling cosls 306-7
induced impacls 23, Ta||c 1-4
induslry, dened 148
induslry baIance sheel 437, 439,
Ta||c 15-2, Ta||c 15-3
induslryvide bargaining 406, 412
ineIaslic demand 292, 294-95, |ig.
10-5, |ig. 10-6
inalion 16
in-ighl enlerlainmenl 264
informalion services deparlmenl
218, |ig. 7-6
InIand AirIines 182
insecl conlroI 123
in-service use 364
inslruclionaI ying 122, Ta||c 4-3
inslrumenl ighl ruIes (IIR) 90,
127
insurance 37, 71, 305
insurance companies 432, 449
Insurance Ixchange uiIding
(Chicago) 267
inlangibIes, in eel pIanning 398
inlegraled carriers 324-25, 327
inlensive grovlh slralegies 271-74
inleraclive markeling agreemenls
278-79
Inler-AIIied Avialion Commiee
460
Inler-American CommerciaI Avia-
lion Commission 462
inlerIine agreemenls 157, 164, 265
inlerIine saIes 267
InlerIine SeIemenl of Agenl-Is-
sued Documenls Agreemenls 164
InlerIine Trac Agreemenl-Ias-
senger 163-64
inlermediale Iayover (IL) checks
230
A I R T R A N S P O R TAT I O N 5 6 0
InlermodaI Surface Transporlalion
Iciency Acl (1991) 85, 87
inlernalionaI air Iav 463-70
InlernalionaI Air Navigalion Code
461
InlernalionaI Air Services Transil
Agreemenl 466-67, |ig. 16-1
InlernalionaI Air Transporl Agree-
menl 466-67, |ig. 16-1
InlernalionaI Air Transporl As-
socialion (IATA) 107-8
fares 53-54, 470, 472, 474, 475
forecasls 246
formalion 470-71
idenlicalion codes 163
inlerIine agreemenls 164
roules 475
scheduIing dala 369
lrac ruIes 472
lraveI agenls 268
InlernalionaI Air Transporlalion
Compelilion Acl (1979) 476-77
InlernalionaI Associalion of Ma-
chinisls 167
InlernalionaI Associalion of Ma-
chinisls and Aerospace Workers
401, 403, 419
inlernalionaI avialion 459-84
associalions 106-8
ermuda Agreemenl (1946) 471-
72, 475
business-cIass service 277
civiIian avialion markel 12, 15
fulure chaIIenges 484
gIobaIizalion 480-84
hislory 472-77
inlernalionaI air Iav 463-70
InlernalionaI Air Transporl As-
socialion (IATA) 470-71
sovereignly of airspace 460-63
veb siles 486
InlernalionaI Chamber of Com-
merce 463
InlernalionaI CiviI Avialion Or-
ganizalion (ICAO) 106-7
dala for scheduIing 369
dispules 471
forecasls 246
formalion 466
headquarlers 471
and IATA 471
regislralion of agreemenls 470
safely and securily 94
InlernalionaI Commission for Air
Navigalion 461
InlernalionaI Commiee of Tech-
nicaI Ixperls on Air Iurisprudence
463
InlernalionaI Conference on CiviI
Avialion 464-70, 479
InlernalionaI Convenlion for Air
Navigalion 462
InlernalionaI Coordinaling Coun-
ciI of Aerospace Induslry Associa-
lions (ICCAIA) 104
InlernalionaI CounciI of Aircrah
Ovner and IiIol Associalions
(IAOIA) 105
InlernalionaI Lease Iinance Cor-
poralion (ILIC) 380
InlernalionaI Organizalion for
Slandardizalion (ISO) 104
Inlernel lickel saIes 180-81, 268
inlerslale air commerce 21
inlerslale air lransporlalion 21
Inlerslale Commerce Commission
(ICC) 36, 39, 50, 51, 80
inlroduclory fares 299
invenlory managemenl 303
inveslmenl banks 432-33, 437
inveslmenl lax credil (ITC) 71,
116, 379, 430, 445
irreguIar varialions 249, 251, 252,
|ig. 8-2
IsraeI 476
Ianus, Tony 31
Iapan 478, 481
Iapan AirIines 326
|el airIiner, rsl 40
Iel America 412
IelIue 62, 278, Ta||c 5-2
Ielslream InlernalionaI 61
Iohnson, Lyndon aines 80, 114
|oinl airIine/miIilary lickel oces
(IAMTOs) 267
|oinl capacily-reslrainl agreemenls
474
|oinl fares 297
|oinl rale 332
|udgmenlaI forecasls 253-55
|usl-in-lime produclion 22
Kahn, AIfred I. 56, 150
KC-135 |el lanker 41
KeIIy, CIyde 33
KeIIy Acl (1925) 33, 35, 48
Kennedy, Idvard 56, 150
Kennedy, Iohn I. 80
Keyes, LuciIIe 55
KLM 478
Korea 476
Korean Air 325
Iabor cosls 187, 188
Iabor reIalions 399-424
fulure 423-24
hislory 406-12
RaiIvay Labor Acl (1926) 54,
401-6, 409, 412
since dereguIalion 412-23
veb siles 426
see aIso slrikes
Laird, May 67
Laird SvaIIov 67
Lake CenlraI 149
Lake (company) 72
Laker Airvays 475
Lancair CoIumbia 3000 118
Lancair InlernalionaI 117
see aIso CoIumbia Aircrah
Iav of demand 288, |ig. 10-1
Iav of diminishing relurns 310,
Ta||c 10-4
Lear, WiIIiam iII, 68, 69, 70,
254
Lear (company) 69
Lear|els 68, 70, 72
ModeI 23 114
ModeI 45 118
ModeI 55 72
ModeI 60 72
Lear-SiegIer 71, 72, 116
Ieasing 379-80, 430, 433-35, 449,
452
IegaI deparlmenl 218, 220, |ig. 7-8
IegisIalion scc federaI IegisIalion
Ieisure cIass 271
IeveIs of managemenl 202-5,
214-15
Levis, IuIlon, Ir. 35
IiabiIilies 437, 439, Ta||c 15-3
Liberly Aerospace Ta||c 4-5
Iife insurance companies 432, 449
Iife-Iimiled parls 230
Lindbergh, CharIes 35, 87, 121
Iine of credil 431
Iine deparlmenls 223-39
engineering and mainlenance
227-33, |ig. 7-12
ighl aendanls 237-39
ighl operalions 223-27, |ig.
7-11
markeling and services 234-37,
|ig. 7-13
Iine personneI 216
Iine reserves 364
Ioad faclor
and airIine scheduIing 362-63
average annuaI 150, 189, 191,
Ta||c 6-2
capacily vs. demand 192-95, |ig.
6-1. |ig. 6-2
and commerciaI lransporl saIes
17
uclualions 192
and pricing 195, 312-13, Ta||c
10-5
IocaI-area VHI air/ground com-
municalions service (ARINC) 103
IocaI-service carriers 149, 365
Lockheed aircrah
I N D E X 5 6 1
ConsleIIalion 39, 40, 150
IIeclra 41
IelSlar 70, 73
L-1011 42, 65, 93, 385
Lodeslar 73
Sirius 121
Super ConsleIIalion 41
Vega 35, 121
Venlura 73
Lockheed (company) 11, 254
Iong-range aircrah 378
Iong-lerm cash forecasl 453
Iong-lerm debl/equily ralio 447
Iong-lerm forecasl 244
Iong-lerm Ioan 431
LoraI 11
Lorenzo, Irank 61, 153, 416
Los AngeIes Airvays 40
Iov-cosl airIines 263, 264
Iov-cosl carriers 375
reIalionships 278-79
Iov-yieId revenue spin 303
LTV 11
Ludinglon AirIines 35-36
Luhhansa 37, 324, 325, 326, 478
Iuxury airIines 263
Lycoming engines 71
McCarran, Ial 36
McDonneII-DougIas 13, 14, 66, 435
McDonneII-DougIas aircrah
DC-8 41, 324
DC-9-30 392-93, 413
DC-9-80 65
DC-9 43, 380
DC-10 42, 65, 93, 385, 390
MD-11 65-66, 378, 383
MD-80 65, 375, 381, 383, 391, 435
MD-81 65
MD-82 65
MD-83 65
MD-87 65
MD-88 65
MD-90 65, 383
McNary-Walres biII (1930) 35, 50
mainlenance
airIine scheduIing 344, 346-49,
Ta||c 12-1. |ig. 12-3
cosls 305
|el aircrah exampIe 347-48, Ta||c
12-1. |ig. 12-2. |ig. 12-3
lypes 228-29
mainlenance base 227
mainlenance burden 305
mainlenance eciency goaIs
346-47
mainlenance needs 390-91
mainlenance programs, IAA
cerlicalion 91
mainlenance vork reporls 232
ma|or air carriers 153-54
conlroI of regionaI air services
163
ma|or dispule 403
ma|or slalions 227
managemenl 202-6
decision making 205-6
dened 202
funclions 210-13
IeveIs 202-5, 214-15
managemenl by ob|eclives (MO)
211, |ig. 7-3
managemenl leam 206-8
mandalory medialion 402-3, 407
Manufaclurers Service uIIelins
229
marginaI cosls 189-9
marginaI revenue 309, Ta||c 10-3
Marilime Adminislralion (MA-
RAD) 83-84
markel deveIopmenl 273-74
markeling 258
passenger markeling 257-80
predereguIalion 258
producl research 262-65
see aIso passenger markeling
markeling concepl 259-60
markeling cosls 266
markeling mix 260-69
markeling and services deparl-
menl 234-37
organizalion 234, |ig. 7-13
markeling slralegy 261, 388
markel penelralion 271-72
markel research 234, 269
markel segmenlalion 269-71, |ig.
9-1
Marlin Mariea 11
Marlin lvin-engine pIanes 40
mass seIIing 266
MauIe Aircrah 72, Ta||c 4-5
maximum slays 301
MAXIel Airvays 278
Mead, George 39
MIDIVAC unils 124
medialion, mandalory 402-3, 407
medicaI aircrah use 124, Ta||c 4-3
medicaI deparlmenl 218, |ig. 7-8
medium-lerm forecasl 244
megacarriers 62, 151
mercanliIe lraveI 270
Mercure 385
mergers 60-62, 116, 181-84, 376-78,
418-21
purpose 176
Mesaba AirIines 61
meleoroIogy, direclor of 226
MelropoIilan Life Insurance Com-
pany 440
MGM Grand Air 263
Micco Aircrah Ta||c 4-5
Mid-Conlinenl AirIines 182
middIe managemenl 202, 203-4,
205, 208
mid-range airIines 263
Midvay AirIines
demise 170, 171, 182, 445, 448,
449
as nev-enlranl carrier 412
and Norlhvesl AirIines 62
Mike Monroney AeronaulicaI
Cenler 94
miIeage-based pricing 300
miIilary lraveI 270
MiIIar, M. Sluarl 72, 116
minimum slays 301
minor dispule 403
MilcheII (company) 69
Milsubishi 66
Milsubishi Diamond 72
Milsubishi MU-2 73
MoeIIendick, Iake 67
Mohavk AirIines 37, 40, 149
Mooney Aircrah 69, 70, 72, 116,
117, Ta||c 4-5
Mooney IagIe 117
Mooney Ovalion 118
Moraine-SauInier MS-760 72
Morrov, Dvighl 33
moving average 251, 252
muIlipIier eecl 366-67, |ig. 12-15
Muse Air 61, 412
muluaI aid pacl (MAI) 408, 414
muluaI dependence 176, 184-85
NalionaI Aeronaulics and Space
Adminislralion (NASA) 10, 12,
128, Ta||c 1-2
nalionaI air carriers 153-54
NalionaI AirIine Commission 170
NalionaI AirIines
mergers and acquisilions 60, 61,
151, 182
revenue passenger miIes Ta||c
5-1
slrikes againsl 414
NalionaI Air Races 68
NalionaI Airspace Syslem 75
NalionaI Air Transporl 34, 322,
|ig. 2-1
NalionaI Associalion of Slale Avia-
lion OciaIs (NASAO) 105-6
NalionaI usiness Aircrah As-
socialion (NAA) 104-5
business avialion calegories 119
causaI modeI forecasls 247
grovlh 69, 70
No IIane, No Gain program
128
purpose 119
NalionaI Commission lo Insure
a Slrong Compelilive AirIine
Induslry 170
A I R T R A N S P O R TAT I O N 5 6 2
NalionaI Defense Reserve IIeel 84
Naiicna| |ccncnic |npaci cj Citi|
Atiaiicn 23
NalionaI Highvay Trac Safely
Adminislralion 86
NalionaI Labor ReIalions Acl
(1935) 402, 403, 405, 412
NalionaI Labor ReIalions oard
406
NalionaI Medialion oard (NM)
Air Line IiIols Associalion and
Texas InlernalionaI 415
AIIied IiIols Associalion and
American 422
coIIeclive bargaining process
403-5
Comair 421
eslabIishmenl 401
mandalory medialion 402, 404,
407
seIf-heIp process 405
NalionaI Iark Service 83
NalionaI Recovery Acl 406
NalionaI Skyvay Ireighl Corpora-
lion 323-24
NalionaI Transporlalion Safely
oard (NTS) 95-100
accidenl invesligalion 94-95,
98-100, 190
avialion safely 98
eslabIishmenl 55, 80
naI reporl 100
organizalion |ig. 3-3
pubIicalions 98
IubIic Inquiries Seclion 98
safely recommendalion 99
scope and responsibiIilies 97-98
Navion 69, 70
Navy Deparlmenl 32
NAA scc NalionaI usiness Air-
crah Associalion
nel earnings 428
NelherIands 476, 478, 480
nel vorlh 437, 439
Nev Courl Securilies 436
nev-enlranl/Iov-cosl carriers 62,
412-13, 414
nev-generalion airIiners 63, 65-66
Nev Iiper Aircrah Corporalion
19, 72, 117, Ta||c 4-5
see aIso Iiper Aircrah Corpora-
lion
Nev York Air 60, 153, 182, 412,
415
nighl ying 32-33
nine freedoms of lhe air |ig. 16-1
NM scc NalionaI Medialion
oard
no-friIIs airIines 263
noise slandards
and air cargo operalions 327
al hub 368
as barrier lo enlry 179
for environmenlaI proleclion 93
and eel pIanning 381, 390, 392
and repIacemenl aircrah 17
noncash expense 429
nonoperaling cosls and revenues
307
nonrouline mainlenance 231
nonscheduIed air carriers 148-49,
473
nonscheduIed services 263
nonslop service 356, 365, 366
No IIane, No Gain program 128
normaI fares 297
Norlh American Avialion 36, 70,
73
Norlh American SabreIiner 70, 73
Norlh CenlraI AirIines 40, 60, 149,
182
Norlheasl AirIines 182, 374
Norlheasl RaiI Service Acl (1981)
86
Norlhrop, Iack 37
Norlhrop (company) 11
Norlhvesl AirIines
aircrah nancing 380
air freighlers 324
bankruplcy 171-72, 309, 449
cerlicaled domeslic roule
miIes Ta||c 2-1
conlracl maiI service 33
empIoyee ovnership 420, 423
nanciaI condilion 62, 419, 445,
447, 448
inlernalionaI ighls 481
Iabor reIalions 421
mergers and acquisilions 61,
149, 182
prols 445
revenue passenger miIes Ta||c
5-1. Ta||c 5-2
slrikes againsl 414
union concessions 419
use of oeing 747-400 386
Norlhvesl AirIink 63, 157
no-shovs 194-95, 286
NTS scc NalionaI Transporlalion
Safely oard
OAC Air Cargc Gui!c 163
ob|eclives, corporale 388
Odom, iII 121
Ocia| Air|inc Gui!c (OAG) 163
o-Iine saIes oce 267
o-peak pricing 195, 302
oIigopoIy 177-86
barriers lo enlry 178-79
characlerislics 176
dened 176
economies of scaIe 179-81
fulure 428, 450
grovlh lhrough merger 181-84
muluaI dependence 184-85
number of carriers and markel
share 177
on condilion moniloring 230
one-vay vs. round-lrip purchase
requiremenls 301
on-Iine saIes oce 267
on-lime performance reporling
requiremenl 275
open-sky agreemenl 478, 481
operaling economics 391
operaling Iease 379, 434-35
operaling managemenl 202, 204-5,
208
oplimizalion modeI 389
oplions, in eel pIanning 392
order-oplion-pIan mix 392
orders, in eel pIanning 392
organizalion 202, 213-16
organizalionaI charl
company 216-17, |ig. 7-4
sla deparlmenls |igs.7-4 ic
7-11
organizalion manuaIs 215
organizalion slruclures
aIlernalive 208-9, |ig. 7-2
pyramid 202, 208, |ig. 7-1
organizing 212
origin and deslinalion (O & D)
cily-pairs 188, 298, 301, 367
oul-of-service lime 346
oul-of-service use 364
oulpul delerminalion 309-15, Ta||c
10-6
oulsourcing 422
overbooking 195
overhauIing
airframes 231-33
cosls 305
engines and olher componenls
233
overnighl air express 323
overnighl mainlenance 229, 230,
Ta||c 12-1
ovners equily 437, 439
Ozark Air Lines 40, 61, 149, 182
Iacic Aerospace Corporalion
Ta||c 4-5
Iacic AirIines 40, 182
Iacic Airmolive Corporalion
Learslar 73
Iacic Air Transporl 34, |ig. 2-1
Iacic Soulhvesl AirIines 61, 177,
182
paIIel and conlainer syslem 264-65
Ian American
air freighlers 324
business-cIass service 277
I N D E X 5 6 3
demise 61, 170, 177, 182, 287,
419, 445, 448, 449
nanciaI condilion 447
founding 37
inlernalionaI service 43, 474, 479
|el orders 41
|umbo-|el service across AlIanlic
42
Iosses 165, 445
mergers and acquisilions 60,
151, 182
posldereguIalion 206
revenue passenger miIes Ta||c
5-1
union concessions 415, 416, 418
use of 747 aircrah 386
venlure capilaI 436
Ian American Airvays scc Ian
American
Ian-American Conference 462, 463
Ian American ShuIe 61
Ian American WorId Airvays scc
Ian American
Iaris Convenlion (1919) 461-62,
463
passenger fares scc fares
passenger Ioad faclor scc Ioad
faclor
passenger markeling 257-80
consumer-orienled markeling
concepl 269-74
markeling concepl deveIopmenl
259-60
markeling mix 260-69
slralegies since dereguIalion
274-80
veb siles 281
passengers, generaI avialion 22
passenger service cosls 306-7
paern bargaining 407, 412
Iaerson, WiIIiam A. 37, 38
payIoad |ig. 13-1
payIoad-range diagrams 390
Ieach, ob 37
peak pricing 302
IennsyIvania AirIines 61
IeopIe Ixpress 61, 153, 182, 412,
436
IeopIe Universily, Soulhvesl
AirIines 214
Iermanenl Courl of InlernalionaI
|uslice 466
personaI ying 121-22, 140, Ta||c
4-3
personaI seIIing 266
personneI deparlmenl 218, |ig. 7-7
physicaI performance faclors 390
pickup and deIivery service 336
Iiedmonl AirIines 40, 61, 149, 182,
445
piIols 129, 140, Ta||c 4-7
as managers 207
Iiper, WiIIiam T. 68
Iiper aircrah
Apache 69
Cherokee 70, 114
Comanche 70, 121
Cubs 68
Lance 19
Meridian 117
Iacer 121
Super Cub 69
Tomahavk 114
Tri-Iacer 69, 70
Tvin Comanche 70
Iiper Aircrah Corporalion
earIy hislory 68, 69
emergence from bankruplcy 19,
72
IiabiIily 114
ovnership 71, 116
see aIso Nev Iiper Aircrah
Corporalion
Iislon-Ingine Aircrah RevilaIiza-
lion Commiee (IIARC) 128
pIace, in markeling mix 260,
267-69
pIan aircrah 392
pIanning
dened 244
for forecasling 245
as managemenl funclion 210-12
principIes 213-15
see aIso eel pIanning
IIanning Granl Irogram (IGI) 92
ILIN (privale-Iine inlercily
nelvork)(ARINC) 103
poinl-lo-poinl carriers, reIalion-
ships 278-79
poinl-lo-poinl service 151, 378, 413
poinl-lo-poinl service (ARINC)
102
IoIar Air Cargo 325
poIicy, dened 211
poIicy and procedures manuaI 211
poII forecasls 255
posilioning ighls 192
Iosl, WiIey 121
IoslaI Service 155, 190, 345
Iosl Oce Deparlmenl
air cargo beginnings 321
air commerce 39
air maiI 31-32, 48, 321-22
air maiI compensalion 54, 285
vages and hours of piIols 406-7
Ira & Whilney (company) 65,
435
Ira & Whilney engines
eciency 382
fan-|el 66
Hornel 37
I57 41
IT8D-200 series 435
IT9D-7R4G2 390
IW4000 65, 385, 386
R985 radiaI 73
R-2000 39
Wasp 33, 37
preferred slock 433
Iresco, ob 323
presidenl, roIe of 203
presidenliaI inlervenlion 403, 405
pricing
anaIysis 302-3
and demand 288-95, |ig. 10-1
and markeling 234, 260, 265-66
and oulpul delerminalion 309-
15, Ta||c 10-6
process 298-304
slralegies and ob|eclives 299
laclics 299-302
veb siles 317
see aIso fares: fueI prices
primary-use calegories 113, Ta||c
4-3
priorily reserved air freighl 332
privale debl pIacemenl 432
privaleIy ovned airporls Ta||c 4-4
privale-use airporls 125, Ta||c 4-4
procedure, dened 211
producl, in markeling mix 260,
261-62
producl deveIopmenl 272-73
producl dierenlialion 261
producl improvemenl 272
produclion cerlicale 91
produclion cosls 266
produclion-orienled period 259,
269
producl IiabiIily 19, 71, 72, 114,
116, 117, 127
professionaI airIine manager 37-38
IrofessionaI Air Trac ConlroIIers
Organizalion (IATCO) 415
prolabiIily 17, 46, Ta||c 2-3, Ta||c
15-1
prol maximizalion, shorl run
314-15, Ta||c 10-6, |ig. 10-11
prol-sharing 417, 420-21, 422,
423, 435
progressive overhauI/mainlenance
230, 231-32
progress paymenls 391, 433
pro|ecled induslry environmenl
388
promolion, in markeling mix 260,
266-67
promolionaI fares 271-72, 298
Irovincelovn-oslon Airvays 61
IrudenliaI Insurance Company of
America 440
psychographic segmenlalion 273
pubIic equily oering 433
A I R T R A N S P O R TAT I O N 5 6 4
pubIicIy ovned airporls 125, Ta||c
4-4
pubIic-use airporls 125
pushdovn 397
pyramid of aulhorily 202, 208,
|ig. 7-1
quaIilalive service 262
quanlilalive service 262
quolas 345
RaiIroad RevilaIizalion and Regu-
Ialory Reform Acl (1976) 86
RaiIvay Ixpress Agency (RIA)
321, 322, 323
RaiIvay Labor Acl (1926) 54, 401-
6, 409, 412
Raylheon 11, 19, 71, 116, Ta||c 4-6
Raylheon Havker 800 XI 118
Raylheon Iremier I 117
Raylheon TraveI Air 117
Reagan, RonaId 116, 415
recaplure 397
recession, impacl on airIine indus-
lry 190
refunds 302
regionaI air carriers 20, 154-58,
Ta||c 5-3
code sharing 157
lness delerminalion 161
ovnership 163
posl dereguIalion 62-63
see aIso air laxi
RegionaI AirIine Associalion
(RAA) 100-101, 158
regionaI ighl dispalch manag-
ers 223
regionaI |el (RI) concepl 368
regionaI manager of ighl opera-
lions 224-25
reguIalion of airIines
CiviI Aeronaulics oard 55-56
Deparlmenl of Commerce 190
Deparlmenl of Transporlalion
(DOT) 190
economic deveIopmenls 43-46
IederaI Avialion Adminislra-
lion (IAA) 129, 190, 231,
232, 432
eel pIanning 374-75
governmenl reguIalion 190
Iabor reIalions 406-12, Ta||c 14-2
reasons for 46-48
Transporlalion Securily ReguIa-
lions (TSR) 95
veb siles 109
see aIso AirIine DereguIalion
Acl (1978): dereguIalion:
IederaI Avialion ReguIa-
lions
reguIalions, of specic airIines
211-12
re|ecled demand by olher airIines
303
reIaled producls and services 7, 20
reIigious lraveI 270
RenauIl 117
repairabIes 230
repair slalions, IAA cerlicalion
91
repIacemenl aircrah 17
RepubIic AirIines
coIIeclive bargaining 418
mergers and acquisilions 60, 61,
149, 182
union concessions 415
research and deveIopmenl (R & D)
5, 7-8, 11, 13
reservalions, saIes, and promo-
lionaI cosls 307
reservalions syslems scc compu-
lerized reservalion syslems
reslricled arlicIes 337
relurn on inveslmenl (ROI) 448,
449, 450, Ta||c 15-1, |ig. 13-1
revenue, lolaI Ta||c 10-3, |ig. 10-8
revenue passenger miIes (RIMs)
2004 slalislics Ta||c 6-1
average yieId 44, Ta||c 2-2
earIy 1960s 165
earIy 1970s 167
earIy 1980s 169
Iale 1960s 167
Iale 1970s 168
Iale 1980s 169
ma|or and nalionaI carriers 151,
Ta||c 5-1. Ta||c 5-2
mid-1990s lo lhe 21sl cenlury
170
and pricing 309, Ta||c 10-3. |ig.
10-9
slalislics Ta||c 5-5
Rickenbacker, Iddie 38, 436
Roberlson Aircrah Corp. |ig. 2-1
Robson, Iohn I. 56
RockefeIIer, Laurence 436
Rocky Mounlain Airvays 61
Roeck, Thomas I. 420
RoIIs-Royce (company) 42, 65, 381
RoIIs-Royce engines
eciency 382
fan-|el 66
R 211-524D4D 65
R 211-524134a 386
RooseveIl, IrankIin D. 36, 39, 51
rolabIes 230
round-lrip purchase requiremenls
301
rouline airframe mainlenance
229-31
rouline scheduIed mainlenance
229
RIMs scc revenue passenger miIes
ruIes 211-12
runavay airIines 415
Ryan (company) 69
Sabena WorId Airvays 324
SabreIiner 117
SARI reservalion syslem 274
safely
airIines 47, 168
Air Safely oard 51, 52
air lrac and safely, vice-presi-
denl of 223
Air Transporlalion Safely and
Syslem SlabiIizalion Acl
(2001) 171
AOIA Air Safely Ioundalion
105
CiviI Aeronaulics oard, u-
reau of Safely 98
IAA reguIalions 129
InlernalionaI CiviI Avialion
Organizalion 94
and mainlenance 230
NalionaI Highvay Trac Safely
Adminislralion 86
NalionaI Transporlalion Safely
oard 55, 80, 94, 95-100, 190,
|ig. 3-3
Seplember 11, 2001 hackings
66-67, 95, 214
Transporlalion Safely Acl (1974)
95-96, 97
Sl. Lavrence Seavay Aulhorily 84
Sl. Lavrence Seavay DeveIop-
menl Corporalion 84-85
saIe and Iease-back 430, 452
saIes, lickeling, and lraveI vin-
dovs 302
saIes force opinion melhod 254-55
saIes-orienled period 259
saIes pIanning deparlmenl 236
saIes and services deparlmenl 236-
37, |ig. 7-14
scheduIe deIay 368
scheduIed services 263
scheduIe pIol 346
scheduIing 343-69
aim of 344-46
dala Iimilalions 369
dened 344
deveIopmenl process |ig. 12-1
equipmenl assignmenl and
lypes of scheduIes 364-66
equipmenl mainlenance 344,
346-49, Ta||c 12-1. |ig. 12-13
ighl operalions and crev
scheduIing 344, 349-51
frequency 188
I N D E X 5 6 5
ground operalions and faciIily
Iimilalions 344, 351-53
hub-and-spoke scheduIing 366-
68, |ig. 12-15
pIanning and coordinalion 353-
64
deparlure lime sensilivily 356,
|ig. 12-6. |ig. 12-7
exampIe 363-64
Ioad-faclor Ieverage 362-63
as markeling variabIe 234
operalionaI faclors in scheduIe
pIanning 349-51
scheduIe ad|uslmenls 358-62,
|ig. 12-12
scheduIe saIabiIily 355-58, |ig.
12-9
lrac ov 354-55, |ig. 12-5
pubIishing scheduIes 163-64
veb siles 371
scheduIing deparlmenl 346
seasonaI varialions 249, 251, |ig.
8-2
sealing conguralions 263-64, 389
seal-miIe 308
Second InlernalionaI Conference
of Irivale Air Lav 463
Seclion 401 cerlicales 148, 160-61
seIf-heIp, in coIIeclive bargaining
403, 405
semi-averages 251, 252
Senale Commiee on Inlerslale
Commerce 48
Senale Iudiciary Commiee,
Subcommiee on Adminislralive
Iraclice and Irocedure 56
senior vice-presidenl, roIe of 203,
227, 234
Seplember 11, 2001
and airIine induslry 13, 66-67
and airIine prolabiIily 17, 66-
67, 287, 309
and airIine safely and securily
66, 95, 214
and air lransporl 13
and defense spending 7
eecl on generaI avialion 128
eecl on lraveI paerns 264
and hub-and-spoke syslem 280,
378
impacl on airIines 171
services pIanning deparlmenl
234, 236
service slalions 227
Shaer, Iack 70
Sherman Anlilrusl Acl lesl 182
shih in demand 289-92, |ig. 10-2
Shipping oard 83
shorl-lerm cash forecasl 452-53
shorl-lerm forecasl 244
shorl-lerm Ioan 431, 432
shorl-lerm period 310
shov cause order 160, 161, 286
shuIe airIines 263
shuIe services 271
sighlseeing 124, Ta||c 4-3
Singapore 476
singIes lraveI markel 273
Skinner, SamueI K. 420
skip-slop 365
Skymasler 39
SIeeper Transporl scc DougIas
DC-3
SIick (carrier) 323
SmaII Aircrah Transporlalion
Syslem (SATS) 74-75
SmaII Iackage Shipmenl Agree-
menl 164
Smilh, C. R. 37
Smilh, Irederick W. 323
smoolhing 251, |ig. 8-3
SneII, erlrand H. 84
Socala Ta||c 4-5
Socony-Vacuum OiI Company 38
Soulhern Air Lines 60, 149
Soulhern Airvays 182
Soulhvesl AirIines 263
corporale cuIlure 424
earIy hislory 149, 153
empIoyee ovnership 420
expansion 177, 375, 412
nanciaI condilion 419, 447, 448
Iabor cosls 414
mergers and acquisilions 61
pricing 299
prols 62, 447
prol-sharing pIan 421
revenue passenger miIes Ta||c
5-2
lraining programs 214
Soulhvesl Airvays 182
sovereignly of airspace 460-63
span of conlroI 213, 215
speciaIized freighl services 336-37
specic commodily rale 331-32,
|ig. 11-1
speed package service 332
spiII 303, 396-97
Spiril 62
Spirii cj Si. Icuis 121
spIil charlers 473
spoiIed seals 303-4
SpoiIs Conference 35, 36
slacking Iosses 338
sla deparlmenls 218-22
organizalionaI charls Iigs. 7-4 ic
7-11
slang 212
sla personneI 216
Slage 2 aircrah 179, 446
Slage 3 aircrah 327
Slage 3 noise slandards 17, 179,
381, 392
slandaIone cabolage |ig. 16-1
Slandard Agenls Tickel and Area
SeIemenl IIan 164
slandard fares 297
Slandard and Ioors 445
slandards, performance 213
slandby lraveI 271
Slale Deparlmenl 94, 389, 467, 470
slalion and ground expenses 306
slalion personneI, as scheduIing
faclor 359-60, |ig. 12-11
slalion pIoing charl 352, |ig. 12-4
Slearman, LIoyd 67
Sloul MelaI Aircrah Company 34
slrikes
againsl ConlinenlaI 153
airIine Ta||c 14-2
air lrac conlroIIers 192, 287
American AirIines 405
Iaslern AirIines 169, 405, 445
InlernalionaI Associalion of
Machinisls 153, 403
NalionaI AirIines 414
Norlhvesl AirIines 414
piIols 153
Uniled AirIines 396
subsidies, governmenl 44-45, 47,
59, 149, 186
Suburban AirIines 61
SuperGuppies 385
suppIemenlaI air carriers 149, 473
suppIemenlaI services (ARINC)
103
suppIy faclors 266
survivaI bargaining 415, 416
Symphony Aircrah Ta||c 4-5
syslem conslrainls, in eel pIan-
ning 389
syslem operalions conlroI (SOC)
223, 225-26, 227
TAG Avialion 117
Taivan 476
largel segmenl pricing 300
Tax Reform Acl (1986) 71, 116,
379, 430
TayIor Aircrah Company 68
TayIorcrah 72
TC 20 (organizalion) 104
Teamslers Union 416
lechnoIogicaI lurnover 186-87
lerminaI conlroI areas (TCAs)
70-71, 114
lerminaI radar approach conlroI
(TRACON) 127
lerminaI space 178-79
Texaco Trophy Race 67
Texas Air Corporalion
coIIeclive bargaining 418
A I R T R A N S P O R TAT I O N 5 6 6
mergers and acquisilions 60, 61,
182, 415, 418
as nev enlranl 153
Texas Inslrumenls 11
Texas InlernalionaI AirIines 60,
182, 415
Texlron 11, 19, 71, 116
ThaiIand 476
lhird-freedom righls 470, 480, 481,
|ig. 16-1
Third Iackage 258
lickel counler space 353
Tiger Aircrah Ta||c 4-5
lime, and eIaslicily 295
lime-series anaIysis 249-53, |ig. 8-2
accuracy 253
lime zone eecl 358-59, |ig. 12-10
Tin Goose, 34-35, 36
TNT (carrier) 328
lop managemenl 202, 203, 205, 208
lolaI cosls, shorl run 310, Ta||c
10-14
lolaI revenue Ta||c 10-3, |ig. 10-8
Tover ConlroI 225, 226
lover-conlroIIed airporls 126-27
lrade baIance 5, 8, 20
lrac ov 354-55, |ig. 12-5
lrac slalislics 165-72, Ta||c 2-1,
Ta||c 5-5
Transamerica 418
TransconlinenlaI Air Transporl
(TAT) 35
TransconlinenlaI and Weslern Air
35, 38, 323
see aIso Trans WorId AirIines
TransconlinenlaI and Weslern Air
Ixpress scc TransconlinenlaI and
Weslern Air
Transporlalion, Deparlmenl of scc
Deparlmenl of Transporlalion
Transporlalion Safely Acl (1974)
95-96, 97
Transporlalion Securily Adminis-
lralion (TSA) 95
Transporlalion Securily
ReguIalions(TSR) 95
Transpcriaiicn Siaiisiics Annua|
|cpcri 87
Transporl Workers Union (TWU)
401
Trans Slar 61
Trans WorId AirIines (TWA)
air express 322
air freighlers 324
bankruplcy 170, 419, 445, 448,
449
cerlicaled domeslic roule
miIes Ta||c 2-1
coIIeclive bargaining 417
coIIision 41
DougIas DC-1 purchase 37
earIy hislory 38
empIoyee ovnership 423
exlended lvin-engine opera-
lions (ITOIS) 65
fare slruclure 185
nanciaI condilion 448
inlernalionaI charlers 474
inlernalionaI ighls 474
Ieasing 435
Iosses 165, 445
mergers and acquisilions 33, 36,
61, 149, 182, 418, 419
revenue passenger miIes Ta||c
5-1
union concessions 419
lraveI agenls 164, 168, 180, 267-68,
275-76
TraveI Air Manufacluring Com-
pany 67
TraveI Induslry Associalion of
America 269
lrend anaIysis 249-53, |ig. 8-2,
|ig. 8-3
lrend exlension 249
lrends 249-50, |ig. 8-2
Tridenl 385
Trippe, Iuan 37, 42, 436
TriSlar 42
Truman, Harry S. 40
Trump ShuIe 62
lrunk carriers, dened 148
Turbo Commander 73
lurboprops 41, 42, 73
lurn lime 361
TWA scc Trans WorId AirIines
lvin-engine pIanes 65, 67, 69
Tvo Ireedoms Agreemenl 466-67,
|ig. 16-1
lvo-lier vage scaIes
Air Line IiIols Associalion 417
American AirIines 416, 420
bargaining ob|eclives 416-17,
422
nanciaIIy unheaIlhy airIines
419
lype cerlicale 91
unconslrained operaling pIan 388
unconlroIIabIe variabIes 260
Uniform Syslem of Accounls and
Reporls for Large Cerlicaled Air
Carriers 162
unions 400-401
Independenl Union of IIighl
Aendanls 416
InlernalionaI Associalion of
Machinisls 153, 167, 401,
403, 419
membership 187, 412
Teamslers Union 416
Transporl Workers Union
(TWU) 401
Uniled Aircrah and Transporl
Company 33
Uniled AirIines
aircrah orders 380
air freighl 323, 324
bankruplcy 171, 449
bankruplcy possibiIily 309
oeing 247 purchases 36-37
oeing 727 operalions 171
cerlicaled domeslic roule
miIes Ta||c 2-1
coIIeclive bargaining 418
coIIision 41
DougIas airpIane purchases 37
earIy hislory 34, 35, 36, 38
empIoyee concessions 17, 420
empIoyee ovnership 423
fare slruclure 185
hub-and-spoke syslem 279, 365
image 290
inlernalionaI ighls 479, 480-81
Iabor cosls 414
Ieveraged buyoul coIIapse 445
Iih capacily 375
Iiquor served on ighls 254
Iosses 445
markeling 214
mergers and acquisilions 61, 62,
151, 182, 322
piIol-managemenl reIalions 415,
418
posldereguIalion 206
pricing 299
revenue passenger miIes Ta||c
5-1. Ta||c 5-2
Seplember 11, 2001 hackings
66
slrike 396
viabiIily 418, 419
Uniled Ixpress 62, 63, 157
Uniled Kingdom 40, 471-72, 475,
477, 481
Uniled IarceI Service (UIS) 325,
327, 328, 381, 422
Uniled Slales Coasl Guard 85-86
unil eIaslicily 295
unil operaling cosl |ig. 13-1
unily of ob|eclives 213
UniversaI Air TraveI IIan (UATI)
164, 285
unreslricled Y fare 184
UIS scc Uniled IarceI Service
Urban Mass Transporlalion Ad-
minislralion (UMTA) 85
USAir
nanciaI dicuIly 419, 445
Iabor reIalions 419
mergers and acquisilions 61, 62,
182
I N D E X 5 6 7
prols 445
USAir Ixpress 157
U.S. AirIines 323
US Airvays 182
bankruplcy 17, 171, 309, 447
commuler nelvork 155
empIoyee ovnership 420, 423
Iabor reIalions 421
Iih capacily 375
mergers and acquisilions 37,
149, 171
revenue passenger miIes Ta||c
5-2
US Airvays Ixpress 157
US RegionaI AirIines Induslry lo
1996 163
UliIily AirpIane CounciI 112
see aIso Aerospace Induslries
Associalion
VaIsan 381
vaIue-added pricing 301
variabIe cosls 302-3, 308
Varney Speed Lines 34, |ig. 2-1
vendor nancing 435
venlure capilaI 435-37
vice-presidenls 223, 224, 227
Vickers Viscounl 41
Virgin AlIanlic Airvays 423
virluaI carriers 62
visuaI ighl ruIes (VIR) 90
voIume-reIaled personneI 216
VoIunlary Accounling Syslem for
SmaII Air Carriers 162
voIunlary arbilralion 404
Waco CIassic 72
vages, averaging dovn 422
vaIk-around inspeclion 229, 239,
Ta||c 12-2
WaIIace, Dvane 68
War Deparlmenl 31, 32
Warner Super-Scarab engine 68
Warsav Convenlion (1929) 464
Wealher ureau 226
Wealher ureau, Deparlmenl of
AgricuIlure 32, 49
vealher condilions 32, 349-50, 390
vealher informalion 35, 94, 102,
126, 226-27
vealher modicalion 123
Weaver, uck 67
Weaver Aircrah Company
(WACO) 67, 72
veb siles
air cargo 340
airIine nancing 455
airIine induslry 173
airIine Iabor reIalions 426
airIine managemenl and organi-
zalion 241
airIine passenger markeling 281
airIine pricing, demand, and
oulpul delerminalion 317
airIine scheduIing 371
airIine lickel saIes 180-81, 268-69
avialion overviev 27
economic characlerislics 197
eel pIanning 395
forecasling 256
generaI avialion induslry 143
hisloricaI perspeclive 75
inlernalionaI avialion 486
reguIalors and associalions 109
Wesl Coasl AirIines 149, 182
Weslern Air Ixpress 33, 35, 36,
322, |ig. 2-1
Weslern AirIines
mergers and acquisilions 61,
151, 182
revenue passenger miIes Ta||c
5-1
union concessions 415
Wharlon Iconomelrics Associales
247
vhipsav bargaining 407, 417
Whilney, I. H. 436
vide-body 42
WiIcox (company) 69
viIdIife conservalion 123
WiIIiams Research 71
WoIf, Slephen 420
vomens lraveI markel 273
WooIman, C. I. 38
vorking capilaI baIance 451-52
vork ruIes 414, 417
WorId Airvays 412
Wcr|! Atiaiicn Oirccicru 158
WORLDSIAN reservalion syslem
274
Wrighl AeronaulicaI 39
Wrighl Company 321
Wrighl CycIone 37
yeIIov dog conlracls 402
Y fare 184
yieId 44, 309, Ta||c 2-2. Ta||c 10-3,
|ig. 10-9
zone pricing 300
A I R T R A N S P O R TAT I O N 5 6 8