THE GLOBAL AIRLINE INDUSTRY

THE GLOBAL AIRLINE INDUSTRY

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 1 1.1.1 Deregulation and Liberalization Worldwide 5 1.1.2 Recent Industry Evolution 6 1.1.3 Looking Ahead: Industry Challenges 12 1.2 Overview of Chapters 13 References 17 2 The International Institutional and Regulatory Environment 19 Amedeo Odoni 2.1 Introduction 19 2.2 Background on the International Regulatory Environment 20 2.2.1 The Chicago Convention 20 2.2.2 "Freedoms of the Air" 21 2.3 Airline Privatization and International Economic Regulation 24 2.3.1 Airline Privatization 24 2.3.2 Types and Critical Aspects of Air Service Agreements (ASAs) 25 2.3.3 Typical Content of Bilateral and Multilateral ASAs 26 2.3.4 The Unified European Union Market and Other Major Developments 30 2.4 Airports 32 2.4.1 Restrictions on Airport Access 33 2.4.2 Airport Ownership and Management 36 2.5 Air Traffic Management 39 2.6 Key Organizations and Their Roles 40

vi Contents c 2.6.1 International Organizations 41 2.6.2 Organizations in the USA 43 2.7 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 47 3.1.1 Basic Airline Profit Equation 49 3.2 Air Transportation Markets 51 3.2.1 Typical Air Passenger Trip 51 3.2.2 Spatial Definitions of Airline Markets 53 3.3 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 Air Travel Demand Models 60 3.4.1 Elasticity of Air Travel Demand 61 3.4.2 Air Travel Demand Segments 62 3.4.3 O-D Market Demand Functions >. 65 3.5 Airline Competition and Market Share 67 3.5.1 Market Share/Frequency Share Model 68 3.5.2 S-curve Model Formulation 70 3.6 Chapter Summary 70 References 71 4 Fundamentals of Pricing and Revenue Management 73 Peter P. Belobaba 4.1 Airline Prices and O-D Markets 74 4.1.1 Regulated vs. Liberalized Pricing 74 4.1.2 Theoretical Pricing Strategies 75 4.1.3 Price Discrimination vs. Product Differentiation 77 4.2 Airline Differential Pricing 78 4.2.1 Market Segmentation 79 4.2.2 Fare Product Restrictions 80 4.2.3 Traditional Airline Fare Structures 82 4.2.4 Recent Trends in Airline Pricing 84 4.3 Airline Revenue Management 88 4.3.1 Computerized Revenue Management Systems 90 4.3.2 Flight Overbooking 93 4.3.3 EMSR Methods for Flight Leg Revenue Optimization 98 4.3.4 Network Revenue Management 101 4.3.5 Revenue Management for Less Restricted Fare Structures 108 References 111

vii 5 Airline Operating Costs and Measures of Productivity 113 Peter P. Belobaba 5.1 Airline Cost Categorization 114 5.7.7 Administrative vs. Functional Cost Categories 114 5.1.2 Cost Drivers by Functional Category 119 5.2 Operating Expense Comparisons 119 5.2.1 Percentage Breakdown of Operating Expenses 120 5.2.2 Legacy vs. Low-Cost Airlines 122 5.2.3 Flight Operating Cost Comparisons 132 5.3 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 5.4 Measures of Airline Productivity 146 5.4.1 Aircraft Productivity 146 5.4.2 Labor Productivity 148 References 150 6 The Airline Planning Process 153 Peter P. Belobaba 6.1 Fleet Planning ~ 153 6.7.7 Airline Fleet Decisions 154 6.7.2 Fleet Planning Methods 159 6.2 Route Planning 162 6.2.7 Hub Economics and Network Structure 163 6.2.2 Route Planning and Evaluation 168 6.3 Airline Schedule Development 173 6.3.1 Frequency Planning 174 6.3.2 Timetable Development 175 6.3.3 Fleet Assignment and Aircraft Rotations 178 6.4 The Future: Integrated Airline Planning 180 References 180 7 Airline Schedule Optimization 183 Cynthia Barnhart 7.1 Schedule Optimization Problems 184 7.2 Fleet Assignment 185 7.2.7 The Fleet Assignment Model 188 7.2.2 Fleet Assignment Solutions/Impacts 192 7.2.3 Extending Basic Fleet Assignment Models 192 7.3 Schedule Design Optimization 197 7.3.1 Modeling the Optimization of Flight Retiming and Fleet Assignment Problems 199 7.4 Crew Scheduling 201 7.4.7 The Crew Pairing Problem 202 7.4.2 Crew Scheduling Problem Solutions and Impacts 206

7.5 Aircraft Maintenance Routing and Crew Pairing Optimization 207 7.5.7 Modeling and Solving the Enhanced Crew Pairing Problem 208 7.6 Future Directions for Schedule Optimization 210 References 210 8 8.1 8.2 8.3 8.4 8.5 Airline Flight Operations Alan H. Midkiff, R. John Hansman and Tom G. 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 8.3.2 8.3.3 8.3.4 8.3.5 8.3.6 8.3.7 8.3.8 8.3.9 8.3.10 8.3.11 8.3.12 8.3.13 8.3.14 8.3.15 8.3.16 8.3.17 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 213 213 214 214 214 216 217 217 218 223 230 231 233 233 234 236 237 240 242 243 246 246 247 248 249 250 251 9 Irregular Operations: Schedule Recovery and Robustness 253 Cynthia Barnhart 9.1 Introduction 253 9.2 Irregular Operations 254 9.2.7 Managing Irregular Operations: Airline Operations Control Centers 256 9.2.2 Options for Schedule Recovery from Irregular Operations 257 9.2.3 Schedule Recovery from Irregular Operations: Objectives and Process 259 9.2.4 Evaluating the Costs of Recovery Options: The Challenges Imparted by Uncertainty and Downstream Effects 268

ix 9.3 Robust Airline Scheduling 269 9.3.1 Robust Schedule Design 270 9.3.2 Robust Fleet Assignment 270 9.3.3 Robust Aircraft Routing 271 9.3.4 Robust Crew Scheduling 272 9.4 Directions for Ongoing and Future Work on Schedule Recovery from Irregular Operations 273 References 274 10 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 276 10.2 Labor Relations in the US Airline Industry 277 10.2.1 Regulatory Framework for US Labor Relations 278 10.2.2 US Airline Responses to Cost Pressures Post-deregulation 281 10.2.3 US Labor Relations Post-9/11 285 10.3 Labor Relations in the Airline Industry in Other Countries 287 10.3.1 The International Regulatory Framework for Labor Relations 288 10.3.2 Summary of Airline Labor Relations Strategies: What Works? 296 10.4 Human Resource Management at Airlines 297 10.4.1 Hiring and Training for Relational Competence 301 10.4.2 Flexible Boundaries Between Jobs 302 10.4.3 Supervisory Coaching and Feedback 302 10.4.4 Performance Measurement at the Process Level 303 10.4.5 Conflict Resolution 304 10.4.6 Boundary Spanning Roles 305 10.4.7 Partnering with Other Key Players 306 10.5 Conclusions 307 References 308 11 Aviation Safety and Security 313 Arnold Barnett 11.1 Safety 314 11.1.1 Measuring Air Safety: Some Hazards 314 77.7.2 The Q-statistic 316 11.1.3 Some Calculated Q-values 317 11.1.4 More Calculated Q-statistics 318 11.1.5 Are Some Airlines Safer Than Others? 319 11.1.6 A Collision Risk Assessment 321 77.7.7 Midair Collision Risk 324 11.2 Security 325 77.2.7 September 11 in Context 325 11.2.2 Some Costs of Aviation Security 326 11.2.3 Some Security Procedures 327

11.2.4 Is It Worth It? 332 11.2.5 Two Economic Paradigms 332 11.2.6 A European Dilemma 334 11.2.7 More Security Dilemmas K 336 77.2.S Final Remarks 340 References 341 12 Airports 343 Amedeo Odoni 12.1 Introduction 343 12.2 General Background 345 12.3 Physical Characteristics 349 72.5.7 Airside Design Standards 349 12.3.2 Geometric Configuration on Airside 352 12.3.3 Typology of Passenger Buildings 355 12.3.4 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 12.5 Institutional, Organizational and Economic Characteristics 367 12.5.1 Airport Ownership and Management *" 367 72.5.2 Airport User Charges 368 12.5.3 Economic Regulation, Single Till and Dual Till 372 12.5.4 Financing Capital Projects 374 References 375 13 Air Traffic Control 377 7?. John Hansman and Amedeo Odoni 13.1 Introduction 377 13.2 The Generic Elements of an ATC System 378 13.2.1 Communications Systems 378 13.2.2 Navigation Systems 379 13.2.3 Surveillance Systems 384 13.2.4 Flight and Weather Information Systems 387 13.3 Airspace and ATC Structure 387 13.4 ATC Operations 389 13.5 Standard Procedures 392 13.6 Capacity Constraints 393 13.7 Congestion and Air Traffic Management 398 13.8 Future ATC Systems 403 References 403

xi 14 14.1 14.2 14.3 14.4 14.5 14.6 14.7 Air Transport and the Environment Karen Marais and Ian A. Waitz Introduction Limiting Aviation's Environmental Impact: The Role of Regulatory Bodies Airport 14.3.1 Noise 14.4.1 14.4.2 14.4.3 14.4.4 14.4.5 Surface 14.5.1 14.5.2 14.5.3 14.5.4 14.5.5 Impact 14.6.1 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 Emissions Controls Emerging Issues of Aviation on Climate Effects Measurement., Greenhouse Emissions Controls Summary and Looking Forward References 405 405 407 408 409 412 414 415 417 419 420 421 424 425 425 429 430 431 431 433 434 435 436 15 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 441 15.2 Airline Distribution Systems 444 15.2.1 Evolution of Computer Reservations Systems 445 15.2.2 Terminology and Capabilities of Reservation Systems AA1 15.2.3 Alternative Airline Distribution Channels 450 15.2.4 Impacts of Alliances and Code Sharing on Distribution 452 15.2.5 IT Challenges of Evolving Distribution Channels 453 15.3 Distribution Costs and E-commerce Developments 455 15.3.1 Internet Distribution Channels 458 15.3.2 Electronic Ticketing 461 15.3.3 Implications for Airlines and Consumers 462 15.4 Innovations in Passenger Processing 463 References 465

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 468 16.1.1 Implications for the Global Airline Industry 470 16.1.2 Government Policy and International Liberalization Al 1 76.7.5 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 16.2.2 Infrastructure and the Environment 476 References 478 Index 479