Air Carriers

Significance of the Industry

Employed approximately 587,000 in 1997 Average compensation about $65,000 Transports roughly 0.5% of all intercity ton-miles Specialize in hauling high-value, perishable or emergency cargo

Changes in Passenger Miles Flown

Changes in Air Ton Miles

Inbound Freight Shipments 2003

Outbound Freight Shipments 2003

Inbound Passenger Flights 2003

Outbound Passenger Flights 2003

Types of Air Carriers

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

Types of Air Carriers

For-hire
Provides services to the public & charges a fee for the service No longer economically regulated by the Federal Government Can be classified by annual revenues & type of service offered Annual Revenues Classification
Majors more than $1 billion Nationals $75 million to $1 billion Regionals less than $75 million

Major Air Carriers

Annual revenues of more than $1 billion Provide service between major population centers
New York, Atlanta, Chicago, Dallas, Miami, LA, etc

Typically use high-capacity aircraft Also service some medium-sized population centers
Toledo, Ohio; Oklahoma City, Birmingham, etc

Delta, US Airways, American

National Air Carriers

Annual revenues between $75 million - $1 billion Provide service between less populated areas and the major population centers Fly shorter routes with smaller aircraft Southwest Airlines, Northwest Airlines, Air West

Regional Air Carriers

Annual revenues less than $75 million Operate within a particular region of the country Similar to national carriers, feed passengers to the majors from smaller population areas Air Wisconsin, Alaska Airlines

Air Carrier Summary: Schedule T-2 Sum : All Services, Revenue Ton Miles, Total by CarrierGroup
1998 1999 2000 2001 2002 2003

Unknown

5,558,512

4,059,557

1,110,314,806 Regional Carriers (including Large, Medium, Commuter, Small Certified)

1,104,182,114

2,499,030,342

5,167,335,220

1,984,738,533

2,314,617,353

National Carriers

9,562,976,593

9,535,457,500

9,992,791,311

9,794,603,900

10,267,619,155

9,725,704,747

Major Carriers

80,548,545,328

84,899,370,156

89,986,673,007

83,098,573,385

82,331,863,339

60,614,364,765

Domestic Only All Cargo Carriers

184,580,025

518,024,210

All rows (including those not displayed)

91,221,836,727

95,539,009,770

102,478,494,660

98,060,512,505

94,774,359,564

73,176,770,632

Air Carrier Summary: Schedule T-2 Sum : All Services, Revenue Passenger Miles (000), Total by CarrierGroup
1998 1999 2000 2001 2002 2003

Unknown

55,158

40,187

3,736,342 Regional Carriers (including Large, Medium, Commuter, Small Certified)

4,623,514

4,439,093

62,133,700

7,944,181

11,076,315

40,893,350 National Carriers

44,278,675

48,760,706

52,512,980

53,738,140

54,822,242

591,165,468 Major Carriers

621,876,945

655,562,178

610,380,816

589,631,599

436,287,576

Domestic Only - All Cargo Carriers

635,795,160 All rows (including those not displayed)

670,779,134

708,761,977

725,027,496

651,369,078

502,226,320

Classifying by Type of Service

All-cargo carriers
Transport cargo only

Commuter air carriers

Typically only transport people Technically regional carriers

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

General Service Characteristics

Passenger transport accounts for 73% of revenues Freight transportation accounts for about 10% Remainder from emergency shipments Typically transport high-value, perishable, or emergency cargo Typical cargo
Mail Clothing Communications equipment Jewelry Human organs

General Service Characteristics

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

General Service Characteristics

Length of Haul & Capacity
Average freight haul length = 1400 miles Average passenger haul length = 1000 miles Average Capacities
Wide-body, 4-engine jets
Passengers exclusively: average of 375 Cargo exclusively: average of 90-100 tons Combined: reduces cargo capacity to about 50 tons

Regular-body, 4-engine jets

Passengers exclusively: average of 290 Cargo exclusively: 35-40 tons Combined: reduces cargo capacity to about 20 tons

Typically regional carrier uses jets with 100-150 capacity & all-cargo of 90100 tons Commuter airlines typically use aircraft with 10-40 passenger capacity

Cost Structure
High variable, low fixed cost structure 80% variable; 20% fixed Governments own & operate air carriers terminals Use of facilities paid with landing fees (variable)

Air Carrier Financial: Schedule P-7 Sum : 00380 - Total Operating Expense (000) by CarrierGroup
1999 2000 2001 2002 2003

1998

898,436

1,215,296

1,164,447

1,195,214

1,212,943

1,897,633

National Carriers

93,234,896

98,742,880

110,853,869

114,275,776

104,825,900

78,073,864

Major Carriers

94,133,333

99,958,176

112,018,316

115,470,990

106,038,843

79,971,497

All rows (including those not displayed)

Labor
Represents over 1/3rd of total operating expenses Wide variety of skills
Pilots Flight engineers Flight attendants Communication personnel Mechanics & ground crews Baggage handlers Counter personnel Office personnel & management

Fuel
Roughly about 10% of operating costs Fuel cost per hour is high 747: $3,268 DC-10: $1,260 DC-9: $801 Function of current cost per gallon and aircraft fuelefficiency Use of smaller aircraft on low-density routes

Air Carrier Summary: Schedule T-2 Sum : Aircraft Fuels (gallons) by CarrierGroup
1998

1999

2000

2001

2002

2003

326,715,459 Regional Carriers (including Large, Medium, Commuter, Small Certified)

385,128,958

256,990,586

637,195,626

208,612,715

219,762,551

2,189,586,415 National Carriers

2,221,862,447

2,333,545,065

2,338,450,480

1,980,951,971

1,459,586,177

16,821,664,587 Major Carriers

17,454,503,128

18,383,362,335

17,144,535,877

15,813,482,658

10,942,055,186

19,337,966,461 All rows (including those not displayed)

20,061,494,533

20,973,897,986

20,120,181,983

18,003,047,344

12,621,403,914

Air Carrier Financial: Schedule P-7 Sum : 00020 - Aircraft Operating Expenses (000) by CarrierGroup
1999

1998

2000

2001

2002

2003

379,483

614,082

626,015

644,088

676,040

1,144,827

National Carriers

38,051,798

40,645,515

49,391,072

50,255,110

46,623,813

33,985,268

Major Carriers

38,431,281

41,259,597

50,017,087

50,899,197

47,299,854

35,130,095

All rows (including those not displayed)

Operation Ratio
Use same operation ration as motor carriers Typically operation ratio between 92 94 Also use Load Factor
Measure of percentage of planes capacity that is utilized Divide number of passengers by number of seats & multiply by 100 Average Load Factor pre-9/11: 70 Average Load Factor immediately after 9/11: 30 Current Average Load Factor: 71 Directly impacts average operating cost per passenger Used to help determine most appropriate equipment for each scheduled route Also used to help determine viability of particular routes

Load Factor Example

Assume route with 1 hour transit time Airline uses a B747
Cost to operate per hour $5,946 Passenger capacity = 402

Assume average demand of 261 Load Factor = 261/402 x 100 = 65 Average operating cost per passenger
$5,946/261 = $22.78

If demand drops to 80 passengers

Load Factor = 80/402 x 100 = 19.9 Average operating cost per passenger = $5,946/80 = $74.33