THE GLOBAL AIRLINE INDUSTRY

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1 THE GLOBAL AIRLINE INDUSTRY

2 List of Contributors Series Preface Notes on Contributors Acknowledgements xiii xv xvii xxiii 1 Introduction and Overview, t 1 Peter P. Belobaba and Amedeo Odoni 1.1 Introduction: The Global Airline Industry Deregulation and Liberalization Worldwide Recent Industry Evolution Looking Ahead: Industry Challenges Overview of Chapters 13 References 17 2 The International Institutional and Regulatory Environment 19 Amedeo Odoni 2.1 Introduction Background on the International Regulatory Environment The Chicago Convention "Freedoms of the Air" Airline Privatization and International Economic Regulation Airline Privatization Types and Critical Aspects of Air Service Agreements (ASAs) Typical Content of Bilateral and Multilateral ASAs The Unified European Union Market and Other Major Developments Airports Restrictions on Airport Access Airport Ownership and Management Air Traffic Management Key Organizations and Their Roles 40

2 Overview of Chapters 13 References 17 2 The International Institutional and Regulatory Environment 19 Amedeo Odoni 2.1 Introduction 19 2.

3 vi Contents c International Organizations Organizations in the USA Summary and Conclusions v. 45 References 46 3 Overview of Airline Economics, Markets and Demand 47 Peter P. Belobaba 3.1 Airline Terminology and Definitions Basic Airline Profit Equation Air Transportation Markets Typical Air Passenger Trip Spatial Definitions of Airline Markets Origin-Destination Market Demand Dichotomy of Airline Demand and Supply Factors Affecting Volume of O-D Demand Quality of Service Factors Total Trip Time and Frequency Air Travel Demand Models Elasticity of Air Travel Demand Air Travel Demand Segments O-D Market Demand Functions > Airline Competition and Market Share Market Share/Frequency Share Model S-curve Model Formulation Chapter Summary 70 References 71 4 Fundamentals of Pricing and Revenue Management 73 Peter P. Belobaba 4.1 Airline Prices and O-D Markets Regulated vs. Liberalized Pricing Theoretical Pricing Strategies Price Discrimination vs. Product Differentiation Airline Differential Pricing Market Segmentation Fare Product Restrictions Traditional Airline Fare Structures Recent Trends in Airline Pricing Airline Revenue Management Computerized Revenue Management Systems Flight Overbooking EMSR Methods for Flight Leg Revenue Optimization Network Revenue Management Revenue Management for Less Restricted Fare Structures 108 References 111

3 Origin-Destination Market Demand 55 3.3.1 Dichotomy of Airline Demand and Supply 56 3.3.2 Factors Affecting Volume of O-D Demand 57 3.3.3 Quality of Service Factors 58 3.3.4 Total Trip Time and Frequency 59 3.

4 vii 5 Airline Operating Costs and Measures of Productivity 113 Peter P. Belobaba 5.1 Airline Cost Categorization Administrative vs. Functional Cost Categories Cost Drivers by Functional Category Operating Expense Comparisons Percentage Breakdown of Operating Expenses Legacy vs. Low-Cost Airlines Flight Operating Cost Comparisons Comparisons of Airline Unit Costs Total Operating Costs vs. Unit Costs Legacy vs. Low-Cost Airline Unit Costs Unit Cost Comparisons in Europe, Asia and Worldwide Measures of Airline Productivity Aircraft Productivity Labor Productivity 148 References The Airline Planning Process 153 Peter P. Belobaba 6.1 Fleet Planning ~ Airline Fleet Decisions Fleet Planning Methods Route Planning Hub Economics and Network Structure Route Planning and Evaluation Airline Schedule Development Frequency Planning Timetable Development Fleet Assignment and Aircraft Rotations The Future: Integrated Airline Planning 180 References Airline Schedule Optimization 183 Cynthia Barnhart 7.1 Schedule Optimization Problems Fleet Assignment The Fleet Assignment Model Fleet Assignment Solutions/Impacts Extending Basic Fleet Assignment Models Schedule Design Optimization Modeling the Optimization of Flight Retiming and Fleet Assignment Problems Crew Scheduling The Crew Pairing Problem Crew Scheduling Problem Solutions and Impacts 206

3 Comparisons of Airline Unit Costs 136 5.3.1 Total Operating Costs vs. Unit Costs 136 5.3.2 Legacy vs. Low-Cost Airline Unit Costs 138 5.3.3 Unit Cost Comparisons in Europe, Asia and Worldwide 142 5.

5 7.5 Aircraft Maintenance Routing and Crew Pairing Optimization Modeling and Solving the Enhanced Crew Pairing Problem Future Directions for Schedule Optimization 210 References Airline Flight Operations Alan H. Midkiff, R. John Hansman and Tom G. Reynolds Introduction Regulation and Scheduling General Regulatory Requirements Flight Crew Regulation Flight Crew Scheduling Flight Crew Activities During a Typical Flight Flight Crew Sign-in Operations/Planning Pre-flight Pre-departure Gate Departure Taxi-out Takeoff Terminal Area Departure Climb Cruise Descent Terminal Area Arrival Final Approach Landing and Rollout Taxi-in Parking Post-flight Summary Appendix: List of Acronyms References Irregular Operations: Schedule Recovery and Robustness 253 Cynthia Barnhart 9.1 Introduction Irregular Operations Managing Irregular Operations: Airline Operations Control Centers Options for Schedule Recovery from Irregular Operations Schedule Recovery from Irregular Operations: Objectives and Process Evaluating the Costs of Recovery Options: The Challenges Imparted by Uncertainty and Downstream Effects 268

Reynolds Introduction Regulation and Scheduling 8.2.1 General Regulatory Requirements 8.2.2 Flight Crew Regulation 8.2.3 Flight Crew Scheduling Flight Crew Activities During a Typical Flight 8.3.1 8.

6 ix 9.3 Robust Airline Scheduling Robust Schedule Design Robust Fleet Assignment Robust Aircraft Routing Robust Crew Scheduling Directions for Ongoing and Future Work on Schedule Recovery from Irregular Operations 273 References Labor Relations and Human Resource Management in the Airline Industry 275 Jody Hoffer Gittell, Andrew von Nordenflycht, Thomas A. Kochan, Robert McKersie and Greg J. Bamber 10.1 Alternative Strategies for the Employment Relationship Labor Relations in the US Airline Industry Regulatory Framework for US Labor Relations US Airline Responses to Cost Pressures Post-deregulation US Labor Relations Post-9/ Labor Relations in the Airline Industry in Other Countries The International Regulatory Framework for Labor Relations Summary of Airline Labor Relations Strategies: What Works? Human Resource Management at Airlines Hiring and Training for Relational Competence Flexible Boundaries Between Jobs Supervisory Coaching and Feedback Performance Measurement at the Process Level Conflict Resolution Boundary Spanning Roles Partnering with Other Key Players Conclusions 307 References Aviation Safety and Security 313 Arnold Barnett 11.1 Safety Measuring Air Safety: Some Hazards The Q-statistic Some Calculated Q-values More Calculated Q-statistics Are Some Airlines Safer Than Others? A Collision Risk Assessment Midair Collision Risk Security September 11 in Context Some Costs of Aviation Security Some Security Procedures 327

Gittell, Andrew von Nordenflycht, Thomas A. Kochan, Robert McKersie and Greg J. Bamber 10.1 Alternative Strategies for the Employment Relationship 276 10.

7 Is It Worth It? Two Economic Paradigms A European Dilemma More Security Dilemmas K S Final Remarks 340 References Airports 343 Amedeo Odoni 12.1 Introduction General Background Physical Characteristics Airside Design Standards Geometric Configuration on Airside Typology of Passenger Buildings Assessing Passenger Building Concepts Ground Access Capacity, Delays and Demand Management Airside Capacity Airside Delays and Mitigation Landside Capacity and Level of Service Institutional, Organizational and Economic Characteristics Airport Ownership and Management *" Airport User Charges Economic Regulation, Single Till and Dual Till Financing Capital Projects 374 References Air Traffic Control 377 7?. John Hansman and Amedeo Odoni 13.1 Introduction The Generic Elements of an ATC System Communications Systems Navigation Systems Surveillance Systems Flight and Weather Information Systems Airspace and ATC Structure ATC Operations Standard Procedures Capacity Constraints Congestion and Air Traffic Management Future ATC Systems 403 References 403

3.4 Assessing Passenger Building Concepts 357 12.3.5 Ground Access 358 12.4 Capacity, Delays and Demand Management 360 12.4.1 Airside Capacity 360 12.4.2 Airside Delays and Mitigation 362 12.4.3 Landside Capacity and Level of Service 364 12.

8 xi Air Transport and the Environment Karen Marais and Ian A. Waitz Introduction Limiting Aviation's Environmental Impact: The Role of Regulatory Bodies Airport Noise Surface Impact Water Quality Control Effects of Deicing Fluids Effects Noise Measurement Noise Trends Noise Controls Emerging Issues Air Quality Effects Emissions Measurement Emissions Trends Emissions Controls Emerging Issues of Aviation on Climate Effects Measurement., Greenhouse Emissions Controls Summary and Looking Forward References Information Technology in Airline Operations, Distribution and Passenger Processing 441 Peter P. Belobaba, William Swelbar and Cynthia Barnhart 15.1 Information Technology in Airline Planning and Operations Airline Distribution Systems Evolution of Computer Reservations Systems Terminology and Capabilities of Reservation Systems AA Alternative Airline Distribution Channels Impacts of Alliances and Code Sharing on Distribution IT Challenges of Evolving Distribution Channels Distribution Costs and E-commerce Developments Internet Distribution Channels Electronic Ticketing Implications for Airlines and Consumers Innovations in Passenger Processing 463 References 465

6.1 14.6.2 14.6.3 Water Quality Control Effects of Deicing Fluids Effects Noise Measurement Noise Trends Noise Controls Emerging Issues Air Quality Effects Emissions Measurement Emissions Trends

9 xii Contents 16 Critical Issues and Prospects for the Global Airline Industry 467 William Swelbar and Peter P. Belobaba 16.1 Evolution of US and Global Airline Markets Implications for the Global Airline Industry Government Policy and International Liberalization Al Evolution of Global Airline Markets All 16.2 Looking Ahead: Critical Challenges for the Global Airline Industry Strategies for Sustained Profitability ATS Infrastructure and the Environment 476 References 478 Index 479

7.5 Evolution of Global Airline Markets All 16.2 Looking Ahead: Critical Challenges for the Global Airline Industry 473 76.2.7 Strategies for Sustained Profitability ATS 16.

MIT. Global Airline Industry Program. AIRLINE INDUSTRY CONSORTIUM November 4, 2010

MIT. Global Airline Industry Program. AIRLINE INDUSTRY CONSORTIUM November 4, 2010 MIT Global Airline Industry Program AIRLINE INDUSTRY CONSORTIUM November 4, 2010 Interdisciplinary Faculty Team 2010 Prof. Arnold Barnett Prof. Cynthia Barnhart Dr. Peter Belobaba Prof. R. John Hansman