Airline Economics and Fleet Planning Essentials
Key Concepts in Airline Economics and Fleet Planning
1. The Inverse Relationship Between Price and Quantity Demanded: The Law of Demand states that there is an inverse relationship between price and quantity demanded.
2. Non-Price Determinants of Airline Economics:
- The preferences of passengers
- The number of passengers in a particular market
3. Determinants of Airline Passenger Elasticity:
- Competition
- Travel distance and related price
4. Passenger Price Sensitivity: Leisure/pleasure passengers are elastic to price, whereas business travelers are inelastic.
5. System-Related Costs for Airlines:
- Advertising and publicity
- Taxes
- General and administrative
6. Noise Reduction in Stage Two Jet Aircraft:
- Hush-kitted aircraft
- Re-engined aircraft
7. Costs and Output: Costs that do not vary with changes in ASM (Available Seat Miles) are called Fixed Costs, whereas costs that increase with the level of output are called Variable Costs.
8. Financial Resources:
- Internal: Net earnings, Depreciation
- External: Leasing, Equity financing
9. Net Earning Calculation: Net earning = Gross revenues – (Taxes + Interest + Depreciation + Other expenses).
10. Attributes of a Fleet Plan:
- Adaptability
- Continuity
- Flexibility
11. Outside Forces Affecting Fleet Planning:
- Unions
- Manufacturers
- Airports
- Environmental activities
- Government regulations and taxes
12. Depreciation: Depreciation is a non-cash expense.
13. Concerns with Aging Aircraft:
- Noise
- High fuel consumption
14. Investment in a Raw Project or Idea: This is called venture capital.
15. Value of Assets Pledged in Case of Default: This is called collateral value.
16. Credit Rating and Loan Costs: A good credit rating decreases the basis points of the loan.
17. Public Sale of Stocks and Bonds: The sale of stocks, bonds, and other equity in the company to the public is called equity financing.
18. Factors Affecting Fleet Planning Decisions:
- Route structure
- Labor cost
- Insurance
- Availability of used aircraft and prices
19. Abbreviations:
- LIBOR: London Inter-Bank Offered Borrowing Rate
- CASM: Cost Per Available Seat Mile
20. Investment Evaluation: The calculation used to determine whether a proposed investment is wise and how well it will repay the investor is called Return on Investment (ROI).
21. Short-Term Loans: Loans up to 48 months are called short-term loans. FALSE
22. Aircraft Design Evolution: At least a decade after first deliveries of a new model aircraft such as A-320/100, mostly begins will be relaxed and design weights will be increased for improved take-off, payload, and performance. TRUE
23. Passenger Ticket Purchase Timing: Passengers with higher future price expectations will purchase their tickets later, whereas passengers with lower future price expectations will purchase their tickets today. FALSE
24. Regional Jet Costs: Regional jets have low unit costs and high total costs to operate. FALSE
25. Unrestricted Fare: A fare without restrictions is called a Normal Fare.
26. Multi-Carrier Fare: A fare that involves transportation over the joint lines or routes of two or more carriers is called a Joint Fare.
27. Restricted Fare: Fares that always have restrictions, such as time of travel or day of stay, are called Promotional Fares.
28. Factors Affecting Used Aircraft Availability: Today’s air transport environment sees the availability of many modern used aircraft and prices due to: All of them (Bankruptcies, High Turnover in Technology, Rationalization).
29. Regional Pricing: Destinations might be grouped, with each region carrying the same price (e.g., the Florida market). This is called Zone Pricing.
30. Upgrade Pricing Tactic: If purchasing a coach ticket upgrades you to the next class of service or provides extra frequent flier miles, this pricing tactic is called Value Added.
31. Non-Airplane Related Cost: Reservations
32. Non-Traffic Related Cost: Aircraft Service
33. System-Related Cost: Advertising and Publicity
34. Regional Aircraft: None of them
35. Direct Operating Cost Item: All of them
36. Non-Operating Cost or Revenue: Interest Paid on Loans
37. Family Concept in Fleet Planning: ERJ-170/ERJ-195
38. Non-Characteristic of Operating Leases: Long Term
39. Characteristic of Capital Leases: Airline is Responsible for Maintenance
40. Maintenance Fee Items in Fleet Planning Leases: The airline is responsible for demand.
41. Financial Table Showing Assets and Liabilities: Balance Sheet
42. Financial Table Showing Earnings Per Share: Income Statement
43. Financial Table Showing Payment Ability: Cash Flow Statement
44. Airline Established as Venture Capital: FedEx
45. Government-Owned Financial Institutions Assisting Exports: These are not the Federal Reserve Bank. These are Export-Import Banks.
46. Reacquired Stock: Stock that was issued by a company but later reacquired is called Treasury Stock.
47. Equity with Voting Rights: Equity representing ownership with voting rights in a corporation is called Common Stock.
48. Promissory Note with Maturity Date: A promissory note with a maturity date is a Bond.
49. Information Exchange: Fleet Planner and Flight Operations Director: Crew Requirements
50. Non-Information Exchange: Fleet Planner and Commercial Director: Depreciation