Global Airline Industry

Editors Peter Belobaba, Amedeo Odoni and Cynthia Barnhart Massachusetts Institute of Technology (MIT), USA

• Notes on Contributors xiiiList of Contributors xixSeries Preface xxiAcknowledgments xxiii1 Introduction and Overview 1Peter P. Belobaba1.1 Introduction: The Global Airline Industry 11.1.1 Deregulation and Liberalization Worldwide 41.1.2 Industry Evolution Since 2000 61.2 Overview of Chapters 13References 172 The International Institutional and Regulatory Environment 19Amedeo R. Odoni2.1 Introduction 192.2 Background on the International Regulatory Environment 202.2.1 The Chicago Convention 202.2.2 Freedoms of the Air 212.3 Airline Privatization and International Economic Regulation 242.3.1 Airline Privatization 242.3.2 Types and Critical Aspects of Air Service Agreements 252.3.3 Typical Content of Bilateral and Multilateral ASAs 262.3.4 The Unified EU Market and Other Major Developments 292.3.5 The Role of Airline Alliances 322.4 Airports 332.4.1 Restrictions on Airport Access 332.4.2 Airport Ownership and Management 362.5 Air Traffic Management 392.6 Key Organizations and Their Roles 412.6.1 International Organizations 412.6.2 Organizations in the United States 432.7 Summary and Conclusions 45References 463 Overview of Airline Economics, Markets and Demand 47Peter P. Belobaba3.1 Airline Terminology and Definitions 473.1.1 Basic Airline Profit Equation 493.2 Air Transportation Markets 513.2.1 Typical Air Passenger Trip 513.2.2 Spatial Definitions of Airline Markets 523.3 Origin–Destination Market Demand 553.3.1 Dichotomy of Airline Demand and Supply 553.3.2 Factors Affecting Volume of O–D Demand 573.3.3 Quality of Service Factors 573.3.4 Total Trip Time and Frequency 583.4 Air Travel Demand Models 603.4.1 Elasticity of Air Travel Demand 603.4.2 Air Travel Demand Segments 623.4.3 O–D Market Demand Functions 643.5 Airline Competition and Market Share 673.5.1 Market Share/Frequency Share Model 673.5.2 “S-Curve” Model Formulation 693.5.3 Quality of Service Index (QSI) Models 703.6 Summary 71References 724 Airline Pricing Theory and Practice 75Peter P. Belobaba4.1 Airline Prices and O-D Markets 754.1.1 Regulated versus Liberalized Pricing 764.1.2 Theoretical Pricing Strategies 774.1.3 Price Discrimination versus Product Differentiation 794.2 Differential Pricing 794.2.1 Market Segmentation 814.2.2 Fare Product Restrictions 824.2.3 Airline Fare Structures 834.3 Recent Trends in Airline Pricing 894.3.1 Branded Fare Families 904.3.2 Unbundling and Ancillary Revenues 914.4 Airline Pricing Strategies 934.4.1 Factors Affecting Fare Structure in an O-D Market 934.4.2 Competitive Fare Matching 96References 985 Airline Revenue Management 99Peter P. Belobaba5.1 Computerized Revenue Management Systems 1015.2 Flight Overbooking 1035.3 EMSR Model for Flight Leg Revenue Optimization 1085.4 Network Revenue Management 1125.4.1 O-D Control Mechanisms 1135.4.2 Network RM Optimization Models 1185.4.3 Revenue Benefits of O-D Control 1205.5 Revenue Management for Less Restricted Fare Structures 1215.5.1 Demand Forecasting by Willingness to Pay 1225.5.2 Marginal Revenue Optimization: Fare Adjustment Theory 123References 1256 Airline Operating Costs and Measures of Productivity 127Peter P. Belobaba6.1 Airline Cost Categorization 1276.1.1 Administrative versus Functional Cost Categories 1286.1.2 Cost Drivers by Functional Category 1326.2 Operating Expense Comparisons 1336.2.1 Percentage Breakdown of Operating Expenses 1336.2.2 Aircraft Operating Cost Comparisons 1346.2.3 Low-Cost Carriers 1406.3 Comparisons of Airline Unit Costs 1456.3.1 Total Operating Costs versus Unit Costs 1456.3.2 Legacy versus Low-Cost Carrier Unit Costs 1486.4 Measures of Airline Productivity 1536.4.1 Aircraft Productivity 1536.4.2 Labor Productivity 156References 1587 The Airline Planning Process 159Peter P. Belobaba7.1 Fleet Planning 1607.1.1 Airline Fleet Decisions 1617.1.2 Fleet Planning Methods 1667.2 Route Planning 1707.2.1 Hub Economics and Network Structure 1707.2.2 Route Planning and Evaluation 1757.3 Airline Schedule Development 1807.3.1 Frequency Planning 1817.3.2 Timetable Development 1827.3.3 Fleet Assignment and Aircraft Rotations 1857.4 The Future: Integrated Airline Planning 186References 1878 Airline Schedule Optimization 189Cynthia Barnhart and Vikrant Vaze8.1 Schedule Optimization Problems 1908.2 Fleet Assignment 1918.2.1 The Fleet Assignment Model 1958.2.2 Fleet Assignment Solutions/Impacts 1988.2.3 Extending Basic Fleet Assignment Models 1988.3 Schedule Design Optimization 2038.3.1 Modeling the Optimization of Flight Retiming and Fleet Assignment Problems 2068.3.2 Importance of Modeling Competition in Schedule Design 2078.4 Crew Scheduling 2098.4.1 The Crew Pairing Problem 2108.4.2 Crew Scheduling Problem Solutions and Impacts 2158.5 Aircraft Maintenance Routing and Crew Pairing Optimization 2158.5.1 Modeling and Solving the Extended Crew Pairing Problem 2178.5.2 Modeling and Solving the Restricted Aircraft Maintenance RoutingProblem Based on the Solution to the Extended Crew PairingProblem 2188.6 Future Directions for Schedule Optimization 219References 2219 Airline Flight Operations 223Alan H. Midkiff, R. John Hansman, Jr., and Tom G. Reynolds9.1 Introduction 2239.2 Regulation and Scheduling 2249.2.1 General Regulatory Requirements 2249.2.2 Flight Crew Regulation and Training 2249.2.3 Flight Crew Scheduling 2269.3 Flight Crew Activities during a Typical Flight 2279.3.1 Flight Crew Sign-In 2289.3.2 Operations/Planning 2289.3.3 Preflight 2339.3.4 Predeparture 2409.3.5 Gate Departure 2429.3.6 Taxi-Out 2439.3.7 Takeoff 2449.3.8 Terminal Area Departure 2459.3.9 Climb 2469.3.10 Cruise 2479.3.11 Descent 2509.3.12 Terminal Area Arrival 2539.3.13 Final Approach 2549.3.14 Landing and Rollout 2569.3.15 Taxi-In 2579.3.16 Parking 2589.3.17 Postflight 2599.4 Summary 259List of Abbreviations 260References 26210 Irregular Operations: Schedule Recovery and Robustness 263Cynthia Barnhart and Vikrant Vaze10.1 Introduction 26310.2 Irregular Operations 26410.2.1 Managing Irregular Operations: Airline Operations Control Centers 26610.2.2 Options for Schedule Recovery from Irregular Operations 26710.2.3 Schedule Recovery from Irregular Operations: Objectives and Process 26910.2.4 Evaluating the Costs of Recovery Options: The Challenges Imparted by Uncertainty and Downstream Effects 27810.3 Robust Airline Scheduling 27910.3.1 Robust Schedule Design 28010.3.2 Robust Fleet Assignment 28110.3.3 Robust Aircraft Routing 28110.3.4 Robust Crew Scheduling 28310.4 Directions for Ongoing and Future Work on Schedule Recovery from Irregular Operations 284References 28511 Labor Relations and Human Resource Management in the Airline Industry 287Jody Hoffer Gittell, Andrew von Nordenflycht, Thomas A. Kochan, Greg J. Bamber, and Robert B. McKersie11.1 Alternative Strategies for the Employment Relationship 28811.2 Labor Relations in the US Airline Industry 28911.2.1 Regulatory Framework for US Labor Relations 29111.2.2 US Airline Responses to Cost Pressures Postderegulation 29311.2.3 US Labor Relations Post-September 11, 2001 29911.3 Labor Relations in the Airline Industry in Other Countries 30211.3.1 The International Regulatory Framework for Labor Relations 30211.3.2 Summary of Airline Labor Relations Strategies: What Works? 31011.4 Human Resource Management at Airlines 31211.4.1 Hiring and Training for Relational Competence 31611.4.2 Flexible Boundaries between Jobs 31611.4.3 Supervisory Coaching and Feedback 31711.4.4 Performance Measurement at the Process Level 31811.4.5 Conflict Resolution 31811.4.6 Boundary Spanning Roles 31911.4.7 Partnering with Other Key Players 32011.4.8 Leadership 32111.5 Conclusions 322References 32312 Aviation Safety and Security 327Arnold I. Barnett12.1 Safety 32812.1.1 Safety Is No Accident 32812.1.2 Measuring Air Safety: Some Hazards 32912.1.3 The Q-Statistic 33112.1.4 Some Calculated Q-Values 33212.1.5 Other Approaches to Safety Measurement 33312.1.6 Are Some Airlines Safer Than Others? 33412.1.7 The Last Century 33512.1.8 A Collision Risk Assessment 33712.1.9 Midair Collision Risk 34012.2 Security 34112.2.1 September 11 in Context 34112.2.2 Some Costs of Aviation Security 34212.2.3 Some Security Procedures 34312.2.4 Is It Worth It? 34912.2.5 Two Economic Paradigms 34912.2.6 A European Dilemma 35112.2.7 More Security Dilemmas 35312.2.8 Final Remarks 358References 35913 Airports 361Amedeo R. Odoni13.1 Introduction 36113.2 General Background 36313.3 Physical Characteristics 36613.3.1 Airside Design Standards 36613.3.2 Geometric Configuration on Airside 36913.3.3 Typology of Passenger Buildings 37213.3.4 Assessing Passenger Building Concepts 37413.3.5 Ground Access 37613.4 Capacity, Delays, and Demand Management 37713.4.1 Airside Capacity 37713.4.2 Airside Delays and Their Mitigation 37913.4.3 Landside Capacity and Level of Service 38113.5 Institutional, Organizational, and Economic Characteristics 38413.5.1 Airport Ownership and Management 38413.5.2 Airport User Charges 38513.5.3 Economic Regulation 38913.5.4 Financing Capital Projects 391References 39214 Air Traffic Control 395R. John Hansman, Jr. and Amedeo Odoni14.1 Introduction 39514.2 The Generic Elements of an ATC System 39614.2.1 Communications Systems 39714.2.2 Navigation Systems 39714.2.3 Surveillance Systems 40214.2.4 Flight and Weather Information Systems 40414.3 Airspace and ATC Structure 40514.4 ATC Operations 40814.5 Standard Operating Procedures 41014.6 Capacity Constraints 41114.7 Congestion and Air Traffic Flow Management 41714.8 Future ATC Systems 420References 42015 Air Transport and the Environment 423Karen Marais, Philip J. Wolfe, and Ian A. Waitz15.1 Introduction 42315.2 Limiting Aviation’s Environmental Impact: The Role of Regulatory Bodies 42515.3 Airport Water Quality Control 42615.3.1 Effects of Deicing Fluids 42815.3.2 Managing Airport Water Quality 42915.4 Noise 43015.4.1 Effects 43215.4.2 Noise Measurement 43315.4.3 Noise Trends 43515.4.4 Noise Controls 43615.4.5 Emerging Issues 43815.5 Air Quality 43915.5.1 Effects 44215.5.2 Emissions Measurement 44315.5.3 Emissions Trends 44315.5.4 Emissions Control 44715.5.5 Emerging Issues 44815.6 Impact of Aviation on Climate 44915.6.1 Effects 44915.6.2 Measurement 45115.6.3 Greenhouse Emissions Control 45215.7 Alternative Fuels 45315.8 Summary and Looking Forward 455References 45616 Information Technology in Airline Operations, Distribution and Passenger Processing 461Peter P. Belobaba, Cynthia Barnhart, and William S. Swelbar16.1 Information Technology in Airline Planning and Operations 46116.2 Airline Distribution Systems 46416.2.1 Evolution of Computer Reservations Systems 46416.2.2 Alternative Airline Distribution Channels 46916.3 Distribution Costs and e-Commerce Developments 47516.3.1 Internet Distribution Channels 47716.3.2 Electronic Ticketing 48116.3.3 Implications for Airlines and Consumers 48116.4 Innovations in Passenger Processing 482References 48517 Critical Issues and Prospects for the Global Airline Industry 487Peter P. Belobaba, William S. Swelbar, and Amedeo R. Odoni17.1 Evolution of US and Global Airline Markets 48817.1.1 Evolution of US Airline Markets 48817.1.2 Recent Developments in Global Airline Markets 49117.2 Looking Ahead: Critical Challenges for the Global Airline Industry 49417.2.1 Strategies for Sustained Profitability 49517.2.2 Infrastructure and the Environment 498References 500Index 501