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Few inventions have changed how people live and experience the world as much as the invention of the airplane. During both World Wars, government subsidies and demands for new airplanes vastly improved techniques for their design and construction. Following the World War II, the first commercial airplane routes were set up in Europe. Over time, air travel has become so commonplace that it would be hard to imagine life without it. The airline industry, therefore, certainly has progressed. It has also altered the way in which people live and conduct business by shortening travel time and altering our concept of distance, making it possible for us to visit and conduct business in places once considered remote. (For more on the airline industry, read Is That Airline Ready For Lift-Off?)
The airline industry exists in an intensely competitive market. In recent years, there has been an industry-wide shakedown, which will have far-reaching effects on the industrys trend towards expanding domestic and international services. In the past, the airline industry was at least partly government owned. This is still true in many countries, but in the U.S. all major airlines have come to be privately held.
The airline industry can be separated into four categories by the U.S. Department of Transportation (DOT):
International – 130+ seat planes that have the ability to take passengers just about anywhere in the world. Companies in this category typically have annual revenue of $1 billion or more.
National – Usually these airlines seat 100-150 people and have revenues between $100 million and $1 billion.
Regional – Companies with revenues less than $100 million that focus on short-haul flights.
Cargo – These are airlines generally transport goods.
Airport capacity, route structures, technology and costs to lease or buy the physical aircraft are significant in the airline industry. Other large issues are:
Weather – Weather is variable and unpredictable. Extreme heat, cold, fog and snow can shut down airports and cancel flights, which costs an airline money.
Fuel Cost – According to the Air Transportation Association (ATA), fuel is an airlines second largest expense. Fuel makes up a significant portion of an airlines total costs, although efficiency among different carriers can vary widely. Short haul airlines typically get lower fuel efficiency because take-offs and landings consume high amounts of jet fuel.
Labor – According to the ATA, labor is the an airlines No.1 cost; airlines must pay pilots, flight attendants, baggage handlers, dispatchers, customer service and others.
Key Ratios/Terms
Available Seat Mile = (total # of seats available for transporting passengers) X (# of miles flown during period)
Revenue Passenger