Competitive Strategies for Airline Business by I14TpTUD

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									Air Transport Logistics




  Chackrit Duangphastra, PhD

               Chackrit Duangphastra, PhD   1
Importance of Air Transport
   Transport network for global business and tourism
   Facilitate economic growth, particularly in developing
    countries
   > 2 billion passengers worldwide use airlines for
    business and leisure travel
   Over 40% of interregional exports of goods (by value) is
    carried by air
   Provides 29 million, direct, indirect and induced jobs
    worldwide, 8% of world GDP
   900 airlines have a total fleet of nearly 22,000 aircrafts
    which are serving 1,670 airports
   25% of all companies’ sales are dependent on air
    transport
   Improve efficiency of supply chain
                                                                 2
                          Chackrit Duangphastra, PhD
Air Transport is a highly efficient user
of resources & infrastructure

   Aviation boasts high occupancy rates of 65 –
    70% which is more than double those of road &
    rail transport
   Air transport entirely covered its infrastructure
    costs. Unlike road & rail, it is a net contributor to
    national treasuries through taxation
   Modern aircraft achieve fuel efficiencies of 3.5
    liters/100 passengers-km.
   The next generation aircraft (A380 & B787) are
    targeting an efficiency of less than 3 liters/100
    passengers-km.
                                                            3
                           Chackrit Duangphastra, PhD
Air transport provides
significant social benefits
   Improve quality of life by broadening people’s
    leisure & cultural experiences
   Improve living standards & reduce poverty
    through tourism
   Only transport means in remote areas
   Generate jobs, revenues from taxes & foster
    conservation of protected areas


                                                  4
                     Chackrit Duangphastra, PhD
Air transport is responsibly
reducing its environment impact
   Aircraft entering today’s fleet are 20 decibels
    (dB) quieter than comparable aircraft 40 years
    ago. (reduction in noise annoyance of 75%)
   A further 50% reduction in noise during take-
    off & landing (minus 10dB) is expected by
    2020
   Enhancement in air traffic management
    reduce fuel burn by 6-12% while operational
    improvement can improve additional 2-6% fuel
    saving
                                                      5
                       Chackrit Duangphastra, PhD
Composition of Air Transport
Industry
   Aviation Sector
     Airlines
           Passenger carriers, air cargo carriers, airline
            ticketing, general aviation
       Airports & services
           Civil airports, general aviation airports, handling &
            catering, freight services, aircraft maintenance,




                                                                    DIRECT
            fueling on site & retail
       Air navigation
           Service provider
   Civil Aerospace Sector
     Airframes
     Engines
     Equipment
     Off site maintenance

                                                                             6
                                   Chackrit Duangphastra, PhD
Composition of Air Transport Industry
   Suppliers
       Off site fuel suppliers
       Food & beverage
       Construction
   Manufacturing
       Computers / electronics
       Retail goods




                                                               INDIRECT
   Business services
       Call centers
       Accountants
       Lawyers, banks
       Computer software
   Others
       Recreation & leisure
       Transport
       Clothing
       Household goods
                                                                          7
                                  Chackrit Duangphastra, PhD
Understanding Basic
     Theories of Air
          Transport




        Chackrit Duangphastra, PhD   8
Principles of Air Transport
Economies

 Cost

 Consumer    Demand
 Airline Pricing

 Airline Marketing

 Airline Route Systems



                                           9
              Chackrit Duangphastra, PhD
Airlines Economics : Cost

   Cost per seat declines with the size of aircraft
   Cost per kilometers flown declines with
    number of kilometers flown
   Cost per passenger decline as the load factor
    increases
   Cost per passenger falls when level of traffic
    increases in a network of a given size
    (Economic of Traffic Density)

                                                   10
                      Chackrit Duangphastra, PhD
Airlines Economics:
Consumer Demand
   In deregulation era, there are at least 2 distinctly
    different types of airline consumer: business
    travelers & leisure travelers.
   Leisure travelers are highly sensitive to price
   First class & business class travelers tend to be
    insensitive to price
   Business travelers is highly sensitive to schedule
    convenience
   The most important convenience attribute for
    business travelers is frequency of airline service
                                                           11
                        Chackrit Duangphastra, PhD
Airlines Economics:
Consumer Demand
   Business travelers tend to book tickets at the last
    minute & need the ability to change flight at a
    moment’s notice, & sometimes “no-shows”
   Leisure travelers always book tickets in advance,
    tend not to change flight plans
   Consumers prefer large network airlines due to the
    ease of obtaining information on schedules & fares
   Consumers prefer same airline service (on-line
    services) to interline service requiring connections
   Consumers are responsive to incentive programs
    such as frequent flyer reward plans
                                                           12
                        Chackrit Duangphastra, PhD
Airlines Economics:
Consumer Demand
   Air freight consists of large items which tend
    to be price sensitive with expected delivery
    time of 24-48 hours.
   Air express consists of small packages which
    are highly service sensitive. The high
    willingness to pay for service combined with
    low weight provide economic justification for
    dedicated overnight cargo aircraft.
   A single nation-wide hub & spoke network
    works well for cargo operation.
                                                  13
                     Chackrit Duangphastra, PhD
Airlines Economics:
Pricing
   Airlines ignored simple uniform pricing policies but in
    favor of complex pricing schemes such as yield
    management
   Yield management system maximizes flight
    revenues
       Reserve many full-fare tickets and sell remaining seats at a
        discount to leisure travelers
       Prevent business travelers from availing themselves of
        discounts by attaching restrictions to discount tickets such
        as required Saturday night stayovers and advanced
        purchase requirement
                                                                   14
                            Chackrit Duangphastra, PhD
Airlines Marketing
   Airline tickets are sold by airline & travel agent
   70% of airline tickets are sold by travel agents
   Most travel agents use a computer reservation
    system (CRS) terminal to access flight & fare
    information
   Order of information is presented to agent on the
    CRS screen strongly influences the choice of air
    carrier
   Frequent Flyer Program create brand loyalty among
    airline consumers
   Large carriers can offer FFP at a lower cost

                                                     15
                      Chackrit Duangphastra, PhD
Understand Current
Development in Air
         Transport




      Chackrit Duangphastra, PhD   16
 Forces Affecting Aviation Industry
                                                                    Infrastructure
      Deregulation /                                                 & Insurance
    government support                  Labor                            cost


                                                                                     Security issues /
                         Liquidity /                                                 uncertain demand
Technology                 Margin
                                                           Low cost
                          pressure
                                                            carrier
                                                          competition
   Consolidation /
       Core                                                                             Yield
     business                                                                      management /
       focus                                                                      Route planning /
                                                         Strategic /
                     Privatization /                     marketing               Distribution system
                       corporate                          alliance
                      restructure




                                                                                                       17
                                       Chackrit Duangphastra, PhD
A380




                                    18
       Chackrit Duangphastra, PhD
Airline Alliances
   Star Alliance (815 destinations in 130 countries)
       Air Canada, Air New Zealand, ANA, Asiana,
        Austrian Airlines, BMI, LOT Polish Airlines,
        Lufthansa, SAS Scandinavian Airlines, Singapore
        Airlines, Spanair, TAP Air Portugal, Thai Airways
        International, United Airlines, US Airways, VARIG
   One World Alliance (550 destinations in 130
    countries)
       Aer Lingus, American Airlines, British Airways,
        Cathay Pacific, Finnair, Iberia, LANChile, Qantas
   Sky Team (450 destinations in 100 countries)
       Aeromexico, Air France, Alitalia, Continental
        Airlines, CSA Czech Airlines, Delta Air Lines, KLM,
        Korean Air, Northwest Airlines

                                                              19
                                 Chackrit Duangphastra, PhD
    Aviation Region in Asia Pacific
   Central Asia
       Kazakhstan, Kyrgyzstan, Tajikistan, Turkmenistan, Uzbekistan
   Northern Asia
       China, Chinese, Taipei, Hong Kong, Japan, Korea, Macau,
        Mongolia, Russia
   South Asia
       Afghanistan, Bangladesh, Bhutan, India, Maldives, Nepal, Pakistan,
        Sri Lanka
   South Pacific
       Australia, New Zealand, Papua New Guinea, Hawaii, and all other
        Pacific
   Southeast Asia
       Brunei, Cambodia, Indonesia, Lao, Malaysia, Myanmar, Philippines,
        Singapore, Thailand, Vietnam                                   20
                               Chackrit Duangphastra, PhD
Major Airlines in Asia Pacific
   Air New Zealand                           Korean Airlines
   ANA                                       Malaysia Airlines
   Asiana Airlines                           Philippines Airlines
   Cathay Pacific                            Qantas
   China Airlines                            Royal Brunei
   Dragonair                                 Singapore Airlines
   EVA Air                                   Thai
   Garuda Indonesia                          Vietnam Airlines
   JAL
                                                                      21
                       Chackrit Duangphastra, PhD
Air Transport in Asia Pacific
   Growth rates accelerating
       Intercontinental flights up 7%
       8% growth in intra-regional services
       China double digit increases drive regional growth
   Low cost business mode (low cost / budget
    airlines / no frills) continues to accelerate with
    further big increases in China flight
   Many main carriers create their own low cost
    version
       Qantas – Jetstar
       Singapore – Tiger Air
       Thai – Nok Air
   All carriers impose fuel surcharge
                                                             22
                                Chackrit Duangphastra, PhD
                             23
Chackrit Duangphastra, PhD
Air Transport in Asia Pacific
   Airports in China lead the way in global
    seat capacity growth
       Beijing Capital Airport
       Shanghai Pudong Airport
       Shanghai Honggiao Airport
       Xiangyang Airport
       Xiamen Airport
       Chongging Jiangbei Airport
       Chengdu Shuangliu
       Dalian Zhoushuizi
       Hong Kong Airport
       Shenzhen Baoan Airpot
       Guangzhou New Baiyun Airport
       Guilin Liangijang Airport
                                                       24
                          Chackrit Duangphastra, PhD
                                 Summary Growth Data
                                      Passengers                  Freight Tonnes
                                 2004               AAGR                     AAGR
ROUTE AREA                                                     2004
                                                   2004-2008               2004-2008
North Atlantic                   7.7%                 5.2%     8.5%           4.8%
Trans-Pacific                    9.9%                 5.9%     10.3%          4.6%
Europe – Asia/Pacific            14.9%                7.1%     11.4%          7.0%
Europe – Middle East             18.9%                7.7%     7.8%           6.1%
Europe – Africa                  7.2%                 5.5%     7.4%           5.6%
Within Asia/Pacific              19.5%                8.3%     12.0%          6.1%
Within Europe                    7.5%                 4.8%     7.8%           5.7%
Within Latin America/Caribbean   9.3%                 5.4%     4.4%           3.7%

TOTAL INTERNATIONAL              11.0%                6.0%     10.1%          6.0%
Total Domestic                   5.9%                 4.5%     N/A            N/A
Total International and          7.6%                 5.0%
                                                               N/A            N/A
    Domestic

                                                                                       25
                                  Chackrit Duangphastra, PhD
   Top 5 Fastest Growing Passenger Markets Over 2004 - 2008
                       Passengers in 2003              2004-2008
                            (millions)                   AAGR
China                           21.9                    12.5%
Poland                            4.4                    11%
Hungary                           4.4                    9.6%
United Arab Emirates            17.7                     9.3%
Czech Republic                    5.9                    9.1%




                                                                   26
                          Chackrit Duangphastra, PhD
                  Top 5 Fastest Growing Freight Markets Over 2004-2008
                                    Freight in 2003              2004-2008
                                     (000 tonnes)                  AAGR
China-Netherlands                           36.9                   23.0%
India-Sri Lanka                             11.2                   21.7%
Philippines-Thailand                        26.2                   18.2%
China-Malaysia                              35.0                   16.2%
Austria-China                                5.1                   14.6%




                                                                             27
                                    Chackrit Duangphastra, PhD
Other Experience of Low Cost
Challenges in USA

   AirTran                                    Pan Am
   American West                              Southeast
   American Trans Air                         Southwest
   Frontier Airlines                          Song Air
   I-Jet                                      Spirit Airlines
   JetBlue Airways                            Suncountry
   Midwest express                            USA 3000

                                                                  28
                   Chackrit Duangphastra, PhD
Other Experience of Low Cost
Challenges in Europe ( 40 carriers)
   Air Berlin                                 German Wings
   Air Finland                                Hapag – Lloyd
   Air Southwest                              Jetmagic
   Baboo                                      Nordic
   Basig Air                                  Norwegian Air Shuttle
   BMI Baby                                   Ryannair
   British European                           Snalskjutsen
   Deutsche BA                                SkyEurope
   Duo                                        Virgin Express
   EasyJet                                    Volare Web
   Evolavia
                                                                        29
                       Chackrit Duangphastra, PhD
Asia’s Low Cost Challenges:
Market Diversification
   Mainline carriers must face up to
    threat from low cost carriers
       Air Asia (Malaysia)
       Freedom Air (Aus + Nz)
       Skymark (Japan)
       Skynet Asia (Japan)
       Virgin Blue (Aus)
       Others will join market in Thailand, the
        Philippines, & Indonesia
                                                     30
                        Chackrit Duangphastra, PhD
Low Cost in Asia Pacific

 Tiger      Airways
    Low fares airline based in Singapore
    Singapore Airlines (49%), Indigo Partners (24%), Irelandia
     Investment (16%), & Temasek Holding Singapore
    Established in 2004 and currently operates from Singapore
     four times daily to Bangkok and daily to Phuket and Hat Yai.
    Tiger Airways was the first airline to commit to Singapore's
     planned new Low Cost Airline terminal.
    The carrier has expanded quickly and is now serving Clark
     Air Base, an emerging low cost alternative near Manila in the
     Philippines
                                                                    31
                         Chackrit Duangphastra, PhD
Low Cost in Asia Pacific

 Thai      AirAsia
    Joint venture between Malaysia's AirAsia Bhd and Thai
     telecommunications company, Shin Corp,
    Commenced domestic services in February 2004 and leases
     aircraft from its Malaysian parent company.
    Operates from Bangkok and Phuket to Singapore.
    Thai AirAsia will launch five new international routes from
     Bangkok to Kunming, Guangzhou, Xiamen, Phnom Penh
     and Hanoi



                                                                   32
                          Chackrit Duangphastra, PhD
Low Cost in Asia Pacific

 Skynet       Asia Airways
    Commenced domestic services in Japan in 2002,
    Encountered financial difficulties and is currently
     restructuring with support from the state-backed
     Industrial Revitalisation Corp.
    Operates five B737s from Tokyo Haneda to
     Miyazaki and Kumamoto.
    Skynet launch Tokyo-Nagasaki services in July
     2005.
                                                           33
                       Chackrit Duangphastra, PhD
Low Cost in Asia Pacific
 One-Two-Go
    Orient Thai Airlines’ no-frills carrier and is the largest
     LCC in Thailand, operating eight B747s and two B757s.
    Launched services in December 2003 and airline
     recently added services from Bangkok to Krabi and
     Surat Thani in Southern Thailand in addition to services
     to Chiang Mai, Hat Yai, Phuket, Chiang Rai, Ubon
     Ratchathani, Khon Kaen and Udon Thani.
    Plans to add more aircraft to its fleet to launch
     international services to Hong Kong, Singapore and
     Kuala Lumpur.

                                                                  34
                          Chackrit Duangphastra, PhD
Low Cost in Asia Pacific
 Nok     Air
    Launched Thai domestic services in July 2004.
    39% owned by Thai Airways and other investors include
     Dhipaya Insurance Plc, Krung Thai Bank Plc, the Thai
     Government Pension Fund and Crown Property Bureau.
    Operates five domestic routes from Bangkok: Phuket,
     Chiang Mai, Udon Thani, Hat Yai and Phitsanulok.
    Plans to launch international services in 2005 and
     destinations under consideration from Bangkok include
     Hong Kong, Shenzhen, Kunming, Macau and Hanoi


                                                             35
                         Chackrit Duangphastra, PhD
Air Transport in Thailand
                               7 international airports:
                                5 are under the jurisdiction of
                                 Airports of Thailand Public
                                 Co., Ltd (AOT), a for- profit
                                 state enterprise;
                                1 is operated by the Royal
                                 Thai Navy (RTN);
                                1 is privately owned by
                                 Bangkok Airways




                                                             36
             Chackrit Duangphastra, PhD
Air Transport in Thailand
                                 Construction of the Second
                                  Bangkok International
                                  Airport (SBIA) is currently
                                  underway.
                                 SBIA is under the New
                                  Bangkok International
                                  Airport Co., Ltd – a for-profit
                                  state enterprise




                                                                37
             Chackrit Duangphastra, PhD
Air Transport in Thailand
                                 In the future, the NBIA
                                  will be absorbed by the
                                  AOT.
                                 Currently, AOT is
                                  publicly listed in the
                                  SET




                                                        38
             Chackrit Duangphastra, PhD
Airport Facilities




                                                  39
                     Chackrit Duangphastra, PhD
Airlines Visiting Thai Airports
 (1) Air Canada (AC)                    (14) China Southern (CZ)
 (2) Spanair (JK)                       (15) SAS (SK)
 (3) Thai Airways Int’l (TG)            (16) Turkmenistan (T5)
 (4) Blue Panorama (BV)                 (17) Aeroflot Russian (SU)
 (5) Delta Airlines (DL)                (18) Aerosvit (VV)
 (6) Druk Air (KB)                      (19) Asiana Airlines (OZ)
 (7) Korean Air (KE)                    (20) Biman Bangladesh (BG)
 (8) Lao Airlines (QV)                  (21) Egypt Air (MS)
 (9) Mohan Air (W5)                     (22) Kenya Airways (KQ)
 (10) Royal Brunei (BI)                 (23) Qatar Airways (QR)
 (11) Srilankan Airlines (UL)           (24) Air Nepal Int’l (SZ)
 (12) Siberia Airlines (S7)             (25) Vietnam Airlines (VN)
 (13) Thai Sky Airlines (9I)            (26) Air Asia (AK)

                                                                     40
                           Chackrit Duangphastra, PhD
Airlines Visiting Thai Airports
 (27) Air Madagascar (MD)               (40) President Airlines (TO)
 (28) American Airlines (AA)            (41) Royal Nepal (RA)
 (29) Ethiopian Air (ET)                (42) Air Astana (4L)
 (30) JALWAYS (JO)                      (43) China Eastern (MU)
 (31) Japan Airlines (JL)               (44) Dragon Air (KA)
 (32) Malaysia Airlines (MH)            (45) Ethihad Airways (EY)
 (33) Pakistan Inter (PK)               (46) LTU Int’l (LT)
 (34) Royal Jordanian (RJ)              (47) Lufthansa (LH)
 (35) Thai Air Asia (FD)                (48) Swiss Int’l (LX)
 (36) Xiamen Airlines (MF)              (49) Tiger Airways (TR)
 (37) Air India (AI)                    (50) United Airlines (UA)
 (38) El Al Israel (LY)                 (51) Air China (CA)
 (39) Israir Airlines (6H)              (52) Air France (AF)
                                                                       41
                           Chackrit Duangphastra, PhD
Airlines Visiting Thai Airports
 (53) Alitalia (AZ)                       (66) Thomas Cook Airlines (DE)
 (54) China Airlines (CI)                 (67) Cathay Pacific (CX)
 (55) Continental (CO)                    (68) Turkish Airlines (TK)
 (56) Gulf Air (GF)                       (69) Valuair (VF)
 (57) KLM (KL)                            (70) Jetstar Asia (3K)
 (58) Northwest (NW)                      (71) Austrian Airlines (OS)
 (59) Uni Air (B7)                        (72) Emirates (EK)
 (60) Air New Zealand (NZ)                (73) EVA (BR)
 (61) ANA (NH)
                                          (74) Orient Thai (OX)
 (62) Bangkok Airways (PG)
                                          (75) Phuket Air (9R)
 (63) Philippine Airlines (PR)
                                          (76) Uzbekistan Airways (HY)
 (64) Siem Reap Airways (FT)
                                          (78) British Airways (BA)
 (65) Singapore Airlines (SQ)

                                                                       42
                             Chackrit Duangphastra, PhD
Airlines Visiting Thai Airports
(79) Finnair (AY)                         (92) Silk Air
(80) Garuda Indonesia (GA)                (93) Trans Asia Airways
(81) Iberia Airlines (IB)
(82) PB Air (9Q)
(83) Qantas (QF)
(84) Bal Air
(85) Britannia (Sweden)
(86) Condor Eludienst (German)
(87) Far Eastern Air Transport
(89) Lauda
(90) Nova Airlines
(91) Premi Airlines
                                                                    43
                          Chackrit Duangphastra, PhD
    Major Travel Markets in Asia Pacific
   Japan was
    the dominant                                      Major Travel Markets in Asia Pacific
    travel market                          250
                      millions passenger
   In future, it                          200
    will be China                          150                                                1999
   In 2014, over                          100                                                2014
    214 million
    passengers                             50
    will travel to,                         0
    from and




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                                                                                             44
                                                 Chackrit Duangphastra, PhD
           Routes Characteristics
   Major medium - term trends (0-999 kms)
       Short haul routes include high density services such as
        those linking Singapore, Kuala Lumpur & Bangkok.
        Growth on these routes is quite robust.
   Medium (1,000 – 3,999 kms) & Long haul (> 3,999 kms) will
    increase rapidly
   Within Asia Pacific, most traffic concentrated in
       Northeast Asia
       Northeast Asia – Southeast Asia
   Intercontinental, most traffic concentrated in
       Europe – Asia
       North America - Asia
                                                              45
                               Chackrit Duangphastra, PhD
Example of Air Asia
“Now Everyone can Fly”
   Airfare from Kuala Lumpur
    Airport to
       Penang = RM 9.99
       Singapore = RM 19.99                             Fleet
       Hatyai = RM 29.99                                • single type of aircraft
       Kota Bharu = RM 29.99                            • Boeing 737-300
       Langkawi = RM 39.99                              • 148 passengers
       Kuching = RM 69.99                               • 792 kilometer/hour
       Brunei = RM 79.99                                • 4,175 km range
       Kota Kinabalu = RM 99.99
                                                         • 2 flight crews
   Nothing more than RM 110                             • 3 cabin crews

                                                                                     46
                            Chackrit Duangphastra, PhD
Example of Virgin Blue

    Operate in Australian hub airports
        Sydney
        Perth
        Canberra
        Also link with Singapore & Papua New Guinea
    Compete with Qantas subsidiary
        QantasLink
        Regional Express
        Horizon
        Aeropelican
        Air Link Airlines
                                                          47
                             Chackrit Duangphastra, PhD
                                    Domestic Transport Volume


                 1,400,000                                                  Air
                 1,200,000
 thousand tons



                 1,000,000
                                                                            SRA
                  800,000
                  600,000
                                                                            Transport
                  400,000
                  200,000
                                                                            BMTA
                        0
                             2540    2541    2542         2543   2544




                                                                          Domestic Air Travel Volume

                                                         7400                                                  10%
                                                         7200                                                  8%
                                                                                                                                   Air




                                                                                                                     Growth Rate
                                                         7000
                                              000 tons




                                                                                                               6%
Air Travel                                               6800
                                                                                                               4%
                                                         6600                                                                      growth
Traffic in                                               6400
                                                                                                               2%
                                                                                                                                   rate
Thailand                                                 6200                                                  0%

                                                         6000                                                  -2%
                                                                 2540      2541         2542     2543   2544



                                                                                                                                         48
                                                                    Chackrit Duangphastra, PhD
                                   Domestic Transport Volume

                                                                               air
                480,000
                460,000
                                                                               coastal
thousand tons




                440,000
                420,000                                                        inland
                                                                               waterway
                400,000
                380,000
                                                                               rail

                360,000
                                                                               road
                340,000
                          Y2539   2540   2541   2542   2543    2544




                                                                                               Domestic Airfreight Volume

                                                                          70                                                      20%
                                                                          60                                                      15%
                                                                                                                                  10%                  air




                                                                                                                                         Growth Rate
                                                                          50
                                                               000 tons




                                                                                                                                  5%
                                                                          40
Airfreight                                                                30
                                                                                                                                  0%
                                                                                                                                                       growth
                                                                                                                                  -5%
Traffic in                                                                20                                                      -10%
                                                                                                                                                       rate
                                                                          10
Thailand                                                                  0
                                                                                                                                  -15%
                                                                                                                                  -20%
                                                                               Y2539       2540     2541     2542   2543   2544




                                                                                                                                                             49
                                                                                      Chackrit Duangphastra, PhD
Aircraft Registered in Thailand 18,382 seat
 Bangkok Airways                                   Thai
      2.2%
                                                   Bangkok Airw ays
                                                   Thai Flying
                                                   Thai Flying Helicopter
                                                   Sichang Flying
                                                   Thai Aviation
                                                   Thai Flying
                                                   Siam Flying
                                                   PB Air
                                                   Sky Eyes
             Thai Airways 95.1%
                                                   Others


                                                                            50
                      Chackrit Duangphastra, PhD
                           Airport C apacity (man/hour)


   Pattani



    T rang



 Nakornsri



   Ranong



   Huahin



Sakonakorn



     Udon
                                                                                      man/hour
     Korat



     Ubon



Phitsnulok



      T ak



 Lampang



Chiang Mai



Chiang Rai


             0   1,000   2,000   3,000   4,000     5,000      6,000   7,000   8,000              51
                                 Chackrit Duangphastra, PhD
 ALL REPORTING AIRPORTS
ORIGIN AND DESTINATION PASSENGERS
BY MAJOR GEOGRAPHIC AREA

                    2000 - DOMESTIC SECTOR
        ATL-O       QC-O         ONT-O             WES-O           NT-O        TOT

ATL-D   452,471     172,011        698,676             312,669      6,090    1,641,917


QC-D    163,046     371,707        903,894             412,871     11,456    1,862,973


ON-D    633,244     799,675      1,530,796             1,968,743   21,286    4,953,743


WES-D   218,201     378,158      2,083,304             6,596,634   188,405   9,464,702


NT-D     2,741       10,454        16,965              161,849     100,710    292,719


 TOT    1,469,702   1,732,005    5,233,634             9,452,766   327,947
                                                                             18,216,05
                                                                             2         52
                          Chackrit Duangphastra, PhD
          Contemporary Airline
           Business Strategy
   Operational                                    Marketing
       Hub & Spoke Networks                           Frequent Flyer
       Standardized Fleets                            CRS+GDS
       Debt Financing                                 Yield Management
       Conservative Growth
                                                   Cost Containment
       Low Wages
       Service                                    Global Alliances
       Auxiliary Services                         Low Cost Carrier
       Bundled Travel                             Change
       Cross industrial best                       Management
        practice

                                                                           53
                           Chackrit Duangphastra, PhD
         Hub & Spoke Networks
   Hub = Consolidation
       Concentrating their operation at
        the large hubs at either end of
        key routes
       Can increase flight frequency
        and use wide body aircraft.
       At some airports, there is
        insufficient capacity to meet
        demand
       Hubbing leads long haul airlines
        to search for marketing alliances
        with feeder airlines.
       Flight synchronization is crucial
                                                        54
                           Chackrit Duangphastra, PhD
         Who are “Customers”?
                                                           Short Haul Traveler
   Passenger Travel Market                               • Separation at check-in
                                                          • Separation on board
       Vacation
                                                          • Type of aircraft
       VFR                                               • Status of airline
                                                          • Connecting flights
       Businessperson                                    • Baggage handling
       Travel agent                                      • In-flight service
                                                          • Seating comfort
       Others


   Airfreight Market                                               Long Haul Traveler
                                                                   • Non-stop service
       Customers with emergency traffic                           • In-flight entertainment
                                                                   • Effective marketing
       Customers with routine non-perishable
        traffic
       Air freight forwarder
                                                                                          55
                             Chackrit Duangphastra, PhD
       CRS - Distribution

                                              Travel Agent

Airlines    CRS
               Mega CRS: Sabre, Galileo, Amadeus, Worldspan
               More Players: CRS/GDS, Airlines, 3rd Parties




                                                  • Accessibility
           Internet                               • Transparency
                                                  • Non-Discriminatory
                                                  • Protect consumer


                                                                         56
                 Chackrit Duangphastra, PhD
Global Trends
Search for Alliances
   To improve access for customers to many final
    destinations as possible in the world
   Benefit from economies of scale
   What does it require?
       Hub consolidation & flight synchronization
       World wide distribution systems
       CRS display to promote best routings
       Intensify frequencies to enhance connecting possibilities
       Global brand identify
       Overcome regulatory constraints
       Deal in most efficiency way with airport & ATC congestion


                                                                    57
                               Chackrit Duangphastra, PhD
Airline Alliances
   Star Alliance (815 destinations in 130 countries)
       Air Canada, Air New Zealand, ANA, Asiana,
        Austrian Airlines, BMI, LOT Polish Airlines,
        Lufthansa, SAS Scandinavian Airlines, Singapore
        Airlines, Spanair, TAP Air Portugal, Thai Airways
        International, United Airlines, US Airways, VARIG
   One World Alliance               (550 destinations in 130
    countries)
       Aer Lingus, American Airlines, British Airways,
        Cathay Pacific, Finnair, Iberia, LANChile, Qantas
   Sky Team        (450 destinations in 100 countries)
       Aeromexico, Air France, Alitalia, Continental
        Airlines, CSA Czech Airlines, Delta Air Lines, KLM,
        Korean Air, Northwest Airlines
                                                                58
                                   Chackrit Duangphastra, PhD
Alliances
   Star Alliances
       Air Canada, Air New Zealand, ANA, Asian Airlines, Austrian
        Airlines, BMI, LOT Polish Airlines, Lufthansa, SAS
        Scandinavian Airlines, Singapore Airlines, Spanair, TAP Air
        Portugal, Thai Airways International, United Airlines, US
        Airways, VARIG
   One World
       Aer Lingus, American Airlines, British Airways, Cathay Pacific,
        Finnair, Iberia, LANChile, Qantas
   Sky Team
       Aeromexico, Air France, Alitalia, Continental Airlines, CSA
        Czech Airlines, Delta Air Lines, KLM, Korean Air, Northwest
        Airlines
                                                                          59
                              Chackrit Duangphastra, PhD
Alliance Features

Customers                                                Company
   Schedule                                                Integrated network
    alignment                                                management
   Lounge access                                           Integrated sales force
   Joint FFP                                               Integrated marketing
   Umbrella branding                                       Integrated revenue
                                                             management
           Financial                                        Integrated product
            Profit sharing                                  development
              Joint fleet decisions
               and investments

                                                                                      60
                            Chackrit Duangphastra, PhD
Alliances & Ethics
Two Critical Issues
   Balancing
    collaboration and
    competition within
    the alliance
                                                         Issue of loyalty
                                                          among personnel
                                                          assigned to the
                                                          alliance



                                                                         61
                         Chackrit Duangphastra, PhD
Opportunities for Low Cost Airline in
Asia Pacific
   Rapid demographic & economic progress in many
    countries
   Treats to survival of conventional models
   Congested & high cost hub airports alongside
    underutilized regional airports, growing difficulties in
    raising capital for new infrastructure.
   Stimulate tourism & trade outside capital cities
   To softly liberalize market to allow access to smaller
    airports


                                                           62
                         Chackrit Duangphastra, PhD
Airline Response: Adopt Low Cost
Carrier Model – Southwest Model
RULES
 One equipment type

 Drive down costs each year

 Turn around aircraft as quickly as possible

 Sell nothing but seats on planes

ADD
 Employ yield management software

 Extend revenue reach

 Point to point only

 3 hours flight maximum

 Internet sales (extra charge for credit card)

 Lower staff costs / increases staff productivity
                                                        63
                           Chackrit Duangphastra, PhD
Airport and Airway Capacity
   Significant progress made in airport
    development to cope with growth in demand
   Region benefits from the opening of new
    airports
       Hong Kong
       Kuala Lumpur
       Shanghai
       Seoul
       Bangkok
       Beijing
       Tokyo – Narita
       Osaka – Kansai International Airport

                                                          64
                             Chackrit Duangphastra, PhD
Airport and Airway Capacity

   9 key air corridors were identified in the
    region
   Main achievement in air space capacity
    development is the increasing availability
    of Chinese and Russian airspace,
    enabling airlines to fly shorter routes &
    reducing congestion on traditional air
    corridors (such as across Northern India)

                                                   65
                      Chackrit Duangphastra, PhD
Air Cargo



  Chackrit Duangphastra, PhD   66
Types of Air Cargo
   Air mail
       letter & postcard
   Air express
       small package having priority of carriage than air
        freight
   Air freight
       freight



                                                             67
                            Chackrit Duangphastra, PhD
Overnight Air Express

   Express Delivery Services
       UPS, FEDEX, DHL, TNT, Airborne
       Door to door service overnight service
       Air express relied almost entirely on passenger flights
        that operate during daylight hours.
       Hub and spoke system, routing all packages and
        aircraft through a hub. Sorting & Loading function at
        night.




                                                                  68
                           Chackrit Duangphastra, PhD
Air Freight

   First air freight started by United Airlines in 1940
    between New York & Chicago
   Air freight received a big boost at the end of
    WW2.
   Air freight forwarders as middlemen between
    shippers & airlines
       consolidate individual shipments
       tender shipments to airlines at large volume rates..



                                                               69
                           Chackrit Duangphastra, PhD
Types of Carriers
   Integrated carriers
       Express carriers, operate door to door freight transport
        network including all cargo aircraft, delivery vehicles, sorting
        hubs, and information systems such as FEDEX, DHL,
        Airborne, DHL, Emery worldwide, Burlington Air express
   Combination carriers
       Passenger + cargo to carry point to point services on a
        wholesale basis
       Relying on freight forwarders for pickup & delivery & sales to
        shippers, and customer services
   All cargo carriers
       operates a variety of cargo services, provide point to point
        services for air freight forwarders.
                                                                           70
                             Chackrit Duangphastra, PhD
Carrying Capacity
   B 747 / 400
       85 cubic meters or 16 tons
   B 747 / 200
       85 cubic meters or 15.1 tons
   B 747 / 300
       85 cubic meters or 14.5 tons
   B 747 / Freighter
       580 cubic meters or 110 tons
   A 300 - 600
       60 cubic meters or 12.5 tons


                                                           71
                              Chackrit Duangphastra, PhD
Carrying Capacity
   A 310 - 200
       51 cubic meters or 7.2 tons
   B 737 - 200
       30 cubic meters or 2.2 tons
   BAE 146
       10 cubic meters or 1 tons
   SH 360
       5 cubic meters or 0.4 tons




                                                           72
                              Chackrit Duangphastra, PhD
Characteristics of Commodity
   When the commodity is
       Perishable
       Subject to quick obsolescence
       Required on short notice
       Valuable relative to weight
       Expensive to handle or store
   When the demand is
       Unpredictable
       Infrequent
       Seasonal


                                                      73
                         Chackrit Duangphastra, PhD
    Markets for Air Freight
   Auto parts & accessories                  Sporting goods, toys
   Machinery & parts                         Live animals
   Printed matter                            Chemicals & compound
   Electronic part                           Metal products
   Fashion apparel                           Photographic equipment
   Footwear                                  Cut flowers
   Tools & hardware                          Plastic materials
   CD, tape, TV, radio                       Medicines
   Computer & software                       Instruments
   Fruit & vegetables                        Food & bakery products



                                                                        74
                          Chackrit Duangphastra, PhD
Types of Air Freight Rates
   General commodity rate
       Rated by weight, as weight of a shipment increases, the per
        pound rate decreases.
       Have general minimum charge, depending on city pairs such
        as 600 Bahts
       < 100 Kgs = 19 bahts / Kg
       101 - 220 = 12 bahts / Kg
       221 - 2,000 = 11 bahts / kg
   Specific commodity rates
   Exception rates (handling with special care)
   Joint Rates

                                                                      75
                            Chackrit Duangphastra, PhD
Factors Affecting Air Freight
   Costs of service
   Volume of traffic
   Directionality
   Value of the services
   Characteristics of the traffic
       size of package, weight of shipment.




                                                       76
                          Chackrit Duangphastra, PhD
Freight Calculation

 Gross Weight                        Volume Weight




       Freight Rate x Weight
                                                     77
                Chackrit Duangphastra, PhD
Example of Calculation
   5 Cartons of Freight
   Volume of each carton = 100 x 80 x 90 cm.
   Gross weight of total 5 cartons = 460 Kgs.


Volume Weight                 = 5 x (100 x 80 x 90)
                                    6,000 cubic cm.

                                = 600 Kgs               > 460 Kgs




                                                                    78
                           Chackrit Duangphastra, PhD
        Porter Competitive Model:
         Airline Industry Analysis

                  Potential
                 new entrants


Bargaining                                     Bargaining
                Intra Industry
 Power of                                       Power of
                    Rivalry
 Suppliers                                       Buyers


                 Substitute
                  Products
                 & services
                                                            79
                  Chackrit Duangphastra, PhD
        Porter Competitive Model
   Potential New entrants
       Foreign carriers
       Regional carriers start ups
       Cargo carriers
   Bargaining Power of Suppliers
       Aircraft manufacturers
       Aircraft leasing companies
       Labor unions
       Food service companies
       Fuel companies
       Airports
       Local transport services
       Hotels
       Governments
                                                            80
                               Chackrit Duangphastra, PhD
        Porter Competitive Model
   Substitute Products & Services
       Alternative travel services such as cruise, fast trains
       Private transportation
       Videoconferencing
   Bargaining Power of Buyers
       Travel agents
       Business travelers
       Pleasure travelers
       Charter service
       Cargo & mail
   Intra-Industry Rivalry
       Thai Airways, PB Air, Air Andaman, Phuket Air, Angle, Thai
        Pacific Air, etc.

                                                                     81
                               Chackrit Duangphastra, PhD
      Business Strategy Model for Airline
                   Industry

                              Markets
Product/Services                                            Routes
                                       Domestic
     Scheduled                                                     Short haul
      passengers                       ASEAN
                                                                    Medium haul
     Charter services                 Northeast Asia
                                                                    Long haul
     Cargo                            South Asia, etc.
     Mail / Air express
                                                           Route Structure
  Company Structure              Fare strategy
                                                                Hub & spoke
         Independent                      Low fare
                                                                Point to point
         Alliances                        Premium fare


  Information & Management Focus
         Passenger, Operations, Logistics


                                                                             82
                              Chackrit Duangphastra, PhD
Airline Industry Value Chain:
Supporting Activities

   Firm Infrastructure
       Financial policy
       Accounting & regulatory compliance
       Legal and community affairs
   Human Resource Management
       Flight, route & yield analyst training
       Pilot training & safety training
       Baggage handling training
       Agent training
       In-flight training

                                                           83
                              Chackrit Duangphastra, PhD
Airline Industry Value Chain:
Supporting Activities

   Technology Development
       Computer reservation systems
       In-flight system
       Flight scheduling system
       Yield management systems
       product development
       Market research
       Baggage tracking system
   Information Technology Communication within
    and between organizations

                                                       84
                          Chackrit Duangphastra, PhD
Airline Industry Value Chain:
Primary Activities

   Inbound Logistics
       Route selection
       Passenger service systems
       Yield management systems (pricing)
       Fuel
       Flight scheduling
       Crew scheduling
       Facilities planning
       Aircraft acquisition



                                                        85
                           Chackrit Duangphastra, PhD
Airline Industry Value Chain:
Primary Activities

   Operations
       Ticket counter operations
       Gate operations
       Aircraft operations
       On-board services
       Baggage handling
       Ticket offices
   Outbound Logistics
       Baggage system
       Flight connections
       Rental car & Hotel reservation systems
                                                         86
                            Chackrit Duangphastra, PhD
Airline Industry Value Chain:
Primary Activities

   Marketing & Sales
       Promotion
       Advertising
       Advantage program
       Travel agent programs
       Group sales
   Services
       Lost baggage service
       Complaint follow up


                                                        87
                           Chackrit Duangphastra, PhD
Case Study of Singapore Airlines
              SIA

   Consistently profitable but experiencing profit
    pressures
   Winner of multiple awards for “Airline excellence”
   An extension of the country strategy to be the
    business & travel gateway to ASEAN
   An impressive travel infrastructure
   Leader of the Orient Airlines Association (OAA)
       Abacus reservation system
       Price collusion on major routes

                                                         88
                            Chackrit Duangphastra, PhD
Success Factors of SIA

   Clarity and commitment to customer service
   Continuous training
   Internal communications
   Consistent external communications
   Connection with customers
   Benchmarking
   Rewards & recognition
   Professional, pride & profits
                                                 89
                    Chackrit Duangphastra, PhD
Case Study of Southwest Airlines

   Commuter airlines that concentrates on city pairs
    (average flight is 400 miles or less and takes less than
    1 hour)
   Best labor relations
   Lowest cost structure in the industry
   Vision is to provide low cost airline service to an
    increasing larger number of people
   Objective to minimize reservation costs
   Underline the importance of “FOCUS” “FOCUS” &
    “FOCUS”
                                                           90
                        Chackrit Duangphastra, PhD
Questions &
 Answers




                               91
  Chackrit Duangphastra, PhD

								
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