Topic 1 The Air Transport System

RMIT Classification: Trusted
Introduction to
Aviation
AERO2377/AERO2483
Topic 1:
The Air Transport
Industry
Nic Connelly
1
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RMIT University©2015 2
2
Acknowledgement of Country
RMIT University acknowledges the people of the Woi

wurrung and Boon wurrung language groups of the
eastern Kulin Nation on whose unceded lands we
conduct the business of the University. RMIT University
respectfully acknowledges their Ancestors and Elders,
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Traditional Custodians and their Ancestors of the lands
and waters across Australia where we conduct our
business.
3
Source: Pexal
Topic 1: Air Transport System.
4
Objectives
• Recognise and interpret a
range of important practical
aspects of the aviation
industry.
Source: Pexal
5
Source: Pexal
Topic 1.1:
The Air Transport System.
6
The airport transport industry

The air transport industry is the
global network of commercial
aircraft operators, airports, air
navigation service providers and
manufacturers of aircraft and
their components. It is
responsible for connecting the
global economy, providing
millions of jobs and making the
modem, internationally
connected quality of life
possible. www.atag.org
Source: iStock
Global Aviation Industry Segments

 Aviation is broadly
defined into three
distinct categories
 The focus of this Commercial Military
course is on the latter, Aviation Aviation
which is often referred
to as ‘air
transportation’.
General Aviation
RMIT University©2015 School of Aerospace, Mechanical

8 & Manufacturing Engineering

Air transportation has
been defined as ‘the
carriage by aircraft of
persons or property as
a “common carrier” for
compensation or hire’
(Dempsey & Gesell
1997, p. 6).
Source: iStock

A “common carrier” is a
firm that transports
people and goods and
makes its services
readily available to the
general public (Beatty &
Samuelson 2010, p.
487).
Source: iStock

Commercial airlines
may operate services
on a scheduled or non-
scheduled basis.
Airlines may operate
over local, regional,
national or international
routes.
Source: iStock

Airlines may also focus
their business on the
carriage of passengers,
air cargo transportation,
or a combination of
both
Source: iStock
Source: iStock
Domestic Airlines
Source: iStock
14
Domestic Airlines
Carry passengers and
air cargo transportation
between points in a
single country.
For example, Tiger

Airways in Australia
Source: iStock
Regional Carriers
Source: iStock
16
Regional Carriers
Are also called
commuter or feeder
airlines; generally
restrict their flights to a
geographically defined
area
Source: iStock
International Airlines
Source: iStock
18
International Airlines
Operate cross-border
services primarily on a
point-to-point basis.
The majority of
passengers and air
cargo often either
commence or complete
the journey in the home
country
Source: iStock
Global Airlines
Source: iStock
20
Global Airlines
Would be free to
operate an integrated
network of services
throughout the world,
including major and
associated feeder
markets.
Source: iStock
Source: Pexal
Topic 1.2
The Global Air Transport Industry
22
Factors influencing the industry
Regulations
Airspace and EXTERNAL Legal

ATM Business
Model Human
Pricing
resources
Environment
ORGANISATIONAL Political
Marketing
Safety
Economic
ICT
activity Security
Security
Scheduling
Finance
External Infrastructure
Safety
shocks
Aircraft
manufacturing

Economic and social benefits

 Air transport is a major contributor to global economic
prosperity
 Air transport is a major global employer
 Air transport invests substantially in vital infrastructure
 Air transport provides significant social benefits
 Air transport is working to mitigate its environmental
impact
Source: iStock
Global economic prosperity
Source: iStock
25
Global economic prosperity
 Aviation provides the only rapid worldwide

transportation network, which makes it essential for
global business and tourism.
 It plays a vital role in facilitating economic growth,
particularly in developing countries.
 Airlines transport over four billion passengers annually,
with revenue passenger kilometres totalling nearly eight
trillion in 2017
Source: iStock
26
Global employment
Source: iStock
27
Global employment
 Employment opportunities contribute to the social
welfare of citizens at a local, regional and federal level,
improving life styles and the standard of living.
 Improves living standards and alleviates poverty

through tourism
 The air transport industry supports 62.7 million jobs

globally
Source: iStock
28
Vital infrastructure
Source: iStock
29
Vital infrastructure
 Unlike other transport modes, the air transport industry
pays for a vast majority of its infrastructure costs
(runways, airport terminals, air traffic control), rather
than being financed through taxation and public
investment or subsidy (as is typically the case for road
and railways).
 In 2016, airports invested nearly $64 billion in
construction projects, creating jobs and building new
infrastructure.
Source: iStock
https://aviationbenefits.org/media/167143/abbb20_full.pdf
30
Social benefits
Source: iStock
31
Social benefits
 Aviation broadens people’s leisure and cultural
experiences via wide choice/ affordable access to
destinations across the globe
 Improves living standards and alleviates poverty
through tourism
 Often serves as the only means of transportation to
remote areas promoting social inclusion
Source: iStock
32
Social benefits
 Contributes to sustainable development by:
 Facilitating tourism and trade
 Generating economic growth
 Creating jobs o Increasing tax revenues
 Facilitates the delivery of emergency and humanitarian

aid relief
 Swift delivery of medical supplies, organs for

transplantation
Source: iStock
33
Environmental benefits
Source: iStock
34
Environmental benefits
 Companies across the sector are collaborating to
reduce emissions
 Modern jet aircraft are 75% quieter than the models
that first entered service, and each new generation of
aircraft continues this downward trend.
 By 2020, it is expected that a million passenger flights
operating partially on sustainable aviation biofuels will
have taken place.
 It is also expected that shifting to alternative aviation
fuels could reduce CO2 as much as 80% compared
with traditional jet fuel.
Source: iStock
35
Air transport facts

Air It connects people, countries and cultures
transport
drives
It provides access to global markets
economic
and
social It generates trade and tourism
progress
It forges links between developed and
developing nations
It contributes to sustainable development

36
Scope of Aviation
Source: Aviation Benefits h

37
Social Development
Source: Aviation Benefits

https://aviationbenefits.org/media/16671
3/abbb18_factsheet_global.pdf
38
Source: Pexal
Topic 1.3
The Global Air Transport Value Chain
39
The Air Transport Industry Value Chain
MRO :Maintenance repair and overhaul

OTA: online travel agent
ANSP: Air Navigation Service Provider
Source: Tretheway and Marklvida (201$0

40
Upstream sector
The upstream sector of the aviation value chain consists of:
• Aircraft and aircraft component manufacturers
• Leasing firms and other sources of capital
• Aviation infrastructure providers
• Airports
• Air navigation service providers (ANSPs)
• Aviation communication providers (air-to-air,
between ground stations, etc.)
• Other suppliers
• Caterers
• Fuel suppliers
• Insurance providers
• Ground services providers
• etc.
41
Downstream sector
The downstream sector of the aviation value chain consists
of:
• Distribution of the airline product – passengers
• Global distribution systems (GDS), formerly
computerised reservation systems (CRS)
• Travel agents (online and brick & mortar)
• Travel integrators (tour operators packaging air
ticket with hotel and/or other travel service)
• Distribution of the airline product – cargo
• Freight forwarders
• Cargo integrators (companies packaging air lift
with trucking pick-up and delivery, and/or customs
services, etc.)

42
Manufacturers
Source: iStock
43
Manufacturers
Airbus & Boeing
Commercial Airplanes
extremely high capital
requirements,
Dynamic economies of
scale, a high research and
development (R & D)
Generally quite long periods
between initial investment
and returning cash flows
from aircraft sales Source: iStock
How can industry affect Value Chain

• What event has recently occurred that will have
a major impact on the value change, and the
way the industry was heading?
• What else happened in 2019????

• HINT!!

45
Source:: iStock
Topic 1.4
Business Models
46
Business Models
A Business Model is
“a description of the
roles and relationships
among a firm’s
consumers, customers,
allies and suppliers that
identifies the major
flows of product,
information, and money,
and the major benefits
to participants” (Weill &
Vitale 2001).
Source: iStock
RMIT University©2015
47
Business Models
- Regional
- Holiday
- Low cost
- Full service
Source: iStock
48
Regional Airlines
• Are also called commuter or
feeder airlines; generally use
smaller aircraft (20-100 seats)
and restrict their flights to a
geographically defined area
• Some operate independently
and focus on decentralised
point-to-point flights between
smaller airports
• Some operate as feeder
airlines for FSNCs and
connect their partner airline’s
hub with regional airports Source: iStock
49
Holiday Airlines
• Airlines that focus on the
transportation of tourists
• Many holiday flights are
operated as scheduled, albeit
often seasonal services
• Direct point-to-point services
using a homogenous fleet of
medium to large aircraft with
high density seating
• Offer full tourist class onboard
services: meals, drinks,
newspapers/IFE
Source: iStock
50
Low Cost Airlines

• A “low cost carrier” is an airline
that focuses on operating
point-to-point, no frills, intra-
regional scheduled services
with no interlining (Hanlon
2009, p. 59).
• Strong cost minimisation focus
• Single class service
• Most tickets sold via the
internet
Source: iStock
51
Full Service Airlines

• A “legacy” or “full service
network carrier” (FSNC) is an
airline that focuses on
providing a wide range of pre-
flight and onboard services,
including different classes of
services, and connecting
flights
• Most FSNCs operate a hub-
and-spoke route network and
are also often referred to as
hub-and-spoke airlines
Source: iStock
52
Business Models
• The emergence of the Low
Cost Carrier (LCC) has
brought about a revolution in
the passenger airline
industry and are challenging
the traditional face of the
industry and the established
“Legacy Airline”
• Established by Southwest
Airlines of Dallas in 1971,
there are now over 100
LCC’s around the world
Source: iStock
53
Business Models
• Originally only an irritant to
established airlines, rising
fuel costs and growing
competition have forced
competition.
• LCC’s are now evolving into
Value Based Airlines (VBA’s)
• The VBA challenges the
Legacy carrier more than
the LCC and is likely to be
the business model of the
future
Source: iStock
54
FSC versus LCC Airlines
Product
Distribution Schedule
SERVICE
Strategy Operation
Business model element FSNCs LCCs

Operate different types of both narrow
Generally operate one type of narrow-body
(single aisle) and wide-body (two aisles)
Aircraft fleet aircraft, such as the Boeing 737 or Airbus
aircraft according to the route flown and
A319/320.
required capacity.
Lower than LCCs, due to delays, connecting
Aim for 11+ hours utilization per aircraft per
flights, consolidating passengers at hub
day through short-haul operations (1–2 hours
Aircraft utilisation airports, time zones on long-haul operations
flight time) and fast and efficient 25–30
leading to dwell time, including crew rest
minute turnarounds.
periods.
Operate a hub-and-spoke network to and
Operate point-to-point services between
from (more expensive and often congested)
Route network cheaper and less congested secondary
major airports. Transfers and interlining are
regional airports. No transfers or interlining.
common.
Offer two, three or four-class cabin
configurations according to route and
One-class all-economy configuration, narrow
demand. Seat pitch in economy is generally
seat pitch (28–30 inches; 71–76cm); some
32–34 inches (81–86cm).
Product offering and in-flight service LCCs apply no pre-allocated seating.
Meals and in-flight refreshments are usually
Meals/refreshments and in-flight
included in the ticket price (especially in
entertainment are offered as pay-for extras.
premium cabins), as are headsets for in-flight
entertainment.
Corporate accounts, business and
government travel.
Medium- and long-haul markets (all classes of
Predominantly leisure travelers and less time-
Target market travel).
sensitive travelers. Some business travel.
Leisure travellers prepared to pay a fare
above LCCs for perceived service
enhancements.

56
Business model element FSNCs LCCs
Flexible fares set high, catering for corporate
accounts and business and government
Simple fare structures. Offer one-way fares
travel. Other fares set according to day of
Pricing strategy and use promotional offers to stimulate
week/time of day/holiday periods. Have to
demand.
offering one-way fares in response to LCCs.
evolved from round-trip fares
Most major airlines – with some exceptions – Usually remain independent, although some
Strategic alliances belong to an alliance to enhance operational subsidiaries of larger airlines do belong to an
and marketing position and to gain traffic. alliance.
Up to 23kg free in economy. More for Hold baggage typically incurs an added
Checked baggage allowance
business and first class. charde.
Brand image and reputation is very
important.
Message is simple – a destination, a price and
FSNCs may use desirable aspects of national
Advertising and promotion a brand stereotyping (such as punctuality,
stereotyping (such as punctuality, reliability,
reliability, good
good food and hospitality) in their
advertisements.
Online bookings are encouraged, but travel Use new technologies to handle online
Distribution agencies and corporate bookings (which reservations and avoid commissionable
charge commission) remain important sources.
Most offer a loyalty programme to reward
frequent travel and incentivise repeat Not usualy offered
Frequent flyer programs purchases
Often have legacy agreements that specify Pay lower wages and try to avoid collective
job functions and govern the rate of pay and union bargaining. Greater use of outsourcing
overtime. Often highly unionised and contracting to lower costs. Workforce
Labour and industrial relations typically less unionised
Most major airlines – with some exceptions – Usually remain independent, although some
Strategic alliances belong to an alliance to enhance operational subsidiaries of larger airlines do belong to an
and marketing position and to gain traffic. alliance.

57
“Dual Brand” strategy: Qantas & Jetstar
School of Aerospace, Mechanical

58
Jetstar follows basic LCC Principles

59
Source: Pexal
Topic 1.5
Major Global Aviation-Related Institutions
60
Key Stakeholders

61
International Air Transport Association

• IATA
• Established 1945 in
Havana, Cuba
• Represents airline interests
• 250 members (84% of world
air traffic) (IATA 2015)
Source: iStock
62
Global Aviation-Related Institutions

• Role is to provide services
for safe and efficient air
transport services
• Regulatory and monitoring
function
• Examples, United States
Federal Aviation
Administration (FAA) & Civil
Aviation Safety Authority of
Singapore (CAAS)
Source: iStock
63
National Public Institutions

Regulatory and monitoring
function
• Examples, Eurocontrol in
Europe
Source: iStock
64
Private Institutions
• Airlines4America (previously
Air Transport Association of
America)
• Association of European
Airlines (AEA)
• US Regional Airline
Association
Source: iStock
65
Airports Council International

• Formed in 1991, global body
representing airport
interests
• Works closely with ICAO on
international air transport
standards
• Advances/protects airport
interests in airport policy
changes (charges and
regulation).
Source: iStock
66
Topic 1 – What did we cover

Topic 1.1: The Air Transport System
Topic 1.2: The Global Air Transport Industry
Topic 1.3: The Global Air Transport Value Chain
Topic 1.4: Business Models
Topic 1.5: Major Global Institutions
Any questions??
Please me if you have any
questions.
68

Topic 1 The Air Transport System

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RMIT Classification: Trusted

RMIT University acknowledges the people of the Woi

Topic 1: Air Transport System.

The airport transport industry

Global Aviation Industry Segments

RMIT University©2015 School of Aerospace, Mechanical

Global Aviation Industry Segments

Global Aviation Industry Segments

Global Aviation Industry Segments

Global Aviation Industry Segments

For example, Tiger

Airspace and EXTERNAL Legal

RMIT University©2015 School of Aerospace, Mechanical

Economic and social benefits

Global economic prosperity

Global economic prosperity

 Aviation provides the only rapid worldwide

 Improves living standards and alleviates poverty

 The air transport industry supports 62.7 million jobs

 Facilitates the delivery of emergency and humanitarian

 Swift delivery of medical supplies, organs for

Air transport facts

RMIT University©2015 School of Aerospace, Mechanical

Source: Aviation Benefits h

RMIT University©2015 School of Aerospace, Mechanical

Source: Aviation Benefits

The Air Transport Industry Value Chain

MRO :Maintenance repair and overhaul

Source: Tretheway and Marklvida (201$0

RMIT University©2015 School of Aerospace, Mechanical

RMIT University©2015 School of Aerospace, Mechanical

How can industry affect Value Chain

• What else happened in 2019????

RMIT University©2015 School of Aerospace, Mechanical

Low Cost Airlines

Full Service Airlines

FSC versus LCC Airlines

Business model element FSNCs LCCs

RMIT University©2015 School of Aerospace, Mechanical

RMIT University©2015 School of Aerospace, Mechanical

“Dual Brand” strategy: Qantas & Jetstar

School of Aerospace, Mechanical

Jetstar follows basic LCC Principles

RMIT University©2015 School of Aerospace, Mechanical

RMIT University©2015 School of Aerospace, Mechanical

International Air Transport Association

Global Aviation-Related Institutions

National Public Institutions

Airports Council International

Topic 1 – What did we cover

Topic 1.2: The Global Air Transport Industry

Topic 1.3: The Global Air Transport Value Chain

Topic 1.4: Business Models

Topic 1.5: Major Global Institutions

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