The Global Airline Industry

Editors Peter Belobaba, Amedeo Odoni and Cynthia Barnhart Massachusetts Institute of Technology (MIT), USA

Notes on Contributors xiii

List of Contributors xix

Series Preface xxi

Acknowledgments xxiii

1 Introduction and Overview 1
Peter P. Belobaba

1.1 Introduction: The Global Airline Industry 1

1.1.1 Deregulation and Liberalization Worldwide 4

1.1.2 Industry Evolution Since 2000 6

1.2 Overview of Chapters 13

References 17

2 The International Institutional and Regulatory Environment 19
Amedeo R. 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 25

2.3.3 Typical Content of Bilateral and Multilateral ASAs 26

2.3.4 The Unified EU Market and Other Major Developments 29

2.3.5 The Role of Airline Alliances 32

2.4 Airports 33

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 41

2.6.1 International Organizations 41

2.6.2 Organizations in the United States 43

2.7 Summary and Conclusions 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 52

3.3 Origin–Destination Market Demand 55

3.3.1 Dichotomy of Airline Demand and Supply 55

3.3.2 Factors Affecting Volume of O–D Demand 57

3.3.3 Quality of Service Factors 57

3.3.4 Total Trip Time and Frequency 58

3.4 Air Travel Demand Models 60

3.4.1 Elasticity of Air Travel Demand 60

3.4.2 Air Travel Demand Segments 62

3.4.3 O–D Market Demand Functions 64

3.5 Airline Competition and Market Share 67

3.5.1 Market Share/Frequency Share Model 67

3.5.2 “S-Curve” Model Formulation 69

3.5.3 Quality of Service Index (QSI) Models 70

3.6 Summary 71

References 72

4 Airline Pricing Theory and Practice 75
Peter P. Belobaba

4.1 Airline Prices and O-D Markets 75

4.1.1 Regulated versus Liberalized Pricing 76

4.1.2 Theoretical Pricing Strategies 77

4.1.3 Price Discrimination versus Product Differentiation 79

4.2 Differential Pricing 79

4.2.1 Market Segmentation 81

4.2.2 Fare Product Restrictions 82

4.2.3 Airline Fare Structures 83

4.3 Recent Trends in Airline Pricing 89

4.3.1 Branded Fare Families 90

4.3.2 Unbundling and Ancillary Revenues 91

4.4 Airline Pricing Strategies 93

4.4.1 Factors Affecting Fare Structure in an O-D Market 93

4.4.2 Competitive Fare Matching 96

References 98

5 Airline Revenue Management 99
Peter P. Belobaba

5.1 Computerized Revenue Management Systems 101

5.2 Flight Overbooking 103

5.3 EMSR Model for Flight Leg Revenue Optimization 108

5.4 Network Revenue Management 112

5.4.1 O-D Control Mechanisms 113

5.4.2 Network RM Optimization Models 118

5.4.3 Revenue Benefits of O-D Control 120

5.5 Revenue Management for Less Restricted Fare Structures 121

5.5.1 Demand Forecasting by Willingness to Pay 122

5.5.2 Marginal Revenue Optimization: Fare Adjustment Theory 123

References 125

6 Airline Operating Costs and Measures of Productivity 127
Peter P. Belobaba

6.1 Airline Cost Categorization 127

6.1.1 Administrative versus Functional Cost Categories 128

6.1.2 Cost Drivers by Functional Category 132

6.2 Operating Expense Comparisons 133

6.2.1 Percentage Breakdown of Operating Expenses 133

6.2.2 Aircraft Operating Cost Comparisons 134

6.2.3 Low-Cost Carriers 140

6.3 Comparisons of Airline Unit Costs 145

6.3.1 Total Operating Costs versus Unit Costs 145

6.3.2 Legacy versus Low-Cost Carrier Unit Costs 148

6.4 Measures of Airline Productivity 153

6.4.1 Aircraft Productivity 153

6.4.2 Labor Productivity 156

References 158

7 The Airline Planning Process 159
Peter P. Belobaba

7.1 Fleet Planning 160

7.1.1 Airline Fleet Decisions 161

7.1.2 Fleet Planning Methods 166

7.2 Route Planning 170

7.2.1 Hub Economics and Network Structure 170

7.2.2 Route Planning and Evaluation 175

7.3 Airline Schedule Development 180

7.3.1 Frequency Planning 181

7.3.2 Timetable Development 182

7.3.3 Fleet Assignment and Aircraft Rotations 185

7.4 The Future: Integrated Airline Planning 186

References 187

8 Airline Schedule Optimization 189
Cynthia Barnhart and Vikrant Vaze

8.1 Schedule Optimization Problems 190

8.2 Fleet Assignment 191

8.2.1 The Fleet Assignment Model 195

8.2.2 Fleet Assignment Solutions/Impacts 198

8.2.3 Extending Basic Fleet Assignment Models 198

8.3 Schedule Design Optimization 203

8.3.1 Modeling the Optimization of Flight Retiming and Fleet Assignment Problems 206

8.3.2 Importance of Modeling Competition in Schedule Design 207

8.4 Crew Scheduling 209

8.4.1 The Crew Pairing Problem 210

8.4.2 Crew Scheduling Problem Solutions and Impacts 215

8.5 Aircraft Maintenance Routing and Crew Pairing Optimization 215

8.5.1 Modeling and Solving the Extended Crew Pairing Problem 217

8.5.2 Modeling and Solving the Restricted Aircraft Maintenance Routing

Problem Based on the Solution to the Extended Crew Pairing

Problem 218

8.6 Future Directions for Schedule Optimization 219

References 221

9 Airline Flight Operations 223
Alan H. Midkiff, R. John Hansman, Jr., and Tom G. Reynolds

9.1 Introduction 223

9.2 Regulation and Scheduling 224

9.2.1 General Regulatory Requirements 224

9.2.2 Flight Crew Regulation and Training 224

9.2.3 Flight Crew Scheduling 226

9.3 Flight Crew Activities during a Typical Flight 227

9.3.1 Flight Crew Sign-In 228

9.3.2 Operations/Planning 228

9.3.3 Preflight 233

9.3.4 Predeparture 240

9.3.5 Gate Departure 242

9.3.6 Taxi-Out 243

9.3.7 Takeoff 244

9.3.8 Terminal Area Departure 245

9.3.9 Climb 246

9.3.10 Cruise 247

9.3.11 Descent 250

9.3.12 Terminal Area Arrival 253

9.3.13 Final Approach 254

9.3.14 Landing and Rollout 256

9.3.15 Taxi-In 257

9.3.16 Parking 258

9.3.17 Postflight 259

9.4 Summary 259

List of Abbreviations 260

References 262

10 Irregular Operations: Schedule Recovery and Robustness 263
Cynthia Barnhart and Vikrant Vaze

10.1 Introduction 263

10.2 Irregular Operations 264

10.2.1 Managing Irregular Operations: Airline Operations Control Centers 266

10.2.2 Options for Schedule Recovery from Irregular Operations 267

10.2.3 Schedule Recovery from Irregular Operations: Objectives and Process 269

10.2.4 Evaluating the Costs of Recovery Options: The Challenges Imparted by Uncertainty and Downstream Effects 278

10.3 Robust Airline Scheduling 279

10.3.1 Robust Schedule Design 280

10.3.2 Robust Fleet Assignment 281

10.3.3 Robust Aircraft Routing 281

10.3.4 Robust Crew Scheduling 283

10.4 Directions for Ongoing and Future Work on Schedule Recovery from Irregular Operations 284

References 285

11 Labor Relations and Human Resource Management in the Airline Industry 287
Jody Hoffer Gittell, Andrew von Nordenflycht, Thomas A. Kochan, Greg J. Bamber, and Robert B. McKersie

11.1 Alternative Strategies for the Employment Relationship 288

11.2 Labor Relations in the US Airline Industry 289

11.2.1 Regulatory Framework for US Labor Relations 291

11.2.2 US Airline Responses to Cost Pressures Postderegulation 293

11.2.3 US Labor Relations Post-September 11, 2001 299

11.3 Labor Relations in the Airline Industry in Other Countries 302

11.3.1 The International Regulatory Framework for Labor Relations 302

11.3.2 Summary of Airline Labor Relations Strategies: What Works? 310

11.4 Human Resource Management at Airlines 312

11.4.1 Hiring and Training for Relational Competence 316

11.4.2 Flexible Boundaries between Jobs 316

11.4.3 Supervisory Coaching and Feedback 317

11.4.4 Performance Measurement at the Process Level 318

11.4.5 Conflict Resolution 318

11.4.6 Boundary Spanning Roles 319

11.4.7 Partnering with Other Key Players 320

11.4.8 Leadership 321

11.5 Conclusions 322

References 323

12 Aviation Safety and Security 327
Arnold I. Barnett

12.1 Safety 328

12.1.1 Safety Is No Accident 328

12.1.2 Measuring Air Safety: Some Hazards 329

12.1.3 The Q-Statistic 331

12.1.4 Some Calculated Q-Values 332

12.1.5 Other Approaches to Safety Measurement 333

12.1.6 Are Some Airlines Safer Than Others? 334

12.1.7 The Last Century 335

12.1.8 A Collision Risk Assessment 337

12.1.9 Midair Collision Risk 340

12.2 Security 341

12.2.1 September 11 in Context 341

12.2.2 Some Costs of Aviation Security 342

12.2.3 Some Security Procedures 343

12.2.4 Is It Worth It? 349

12.2.5 Two Economic Paradigms 349

12.2.6 A European Dilemma 351

12.2.7 More Security Dilemmas 353

12.2.8 Final Remarks 358

References 359

13 Airports 361
Amedeo R. Odoni

13.1 Introduction 361

13.2 General Background 363

13.3 Physical Characteristics 366

13.3.1 Airside Design Standards 366

13.3.2 Geometric Configuration on Airside 369

13.3.3 Typology of Passenger Buildings 372

13.3.4 Assessing Passenger Building Concepts 374

13.3.5 Ground Access 376

13.4 Capacity, Delays, and Demand Management 377

13.4.1 Airside Capacity 377

13.4.2 Airside Delays and Their Mitigation 379

13.4.3 Landside Capacity and Level of Service 381

13.5 Institutional, Organizational, and Economic Characteristics 384

13.5.1 Airport Ownership and Management 384

13.5.2 Airport User Charges 385

13.5.3 Economic Regulation 389

13.5.4 Financing Capital Projects 391

References 392

14 Air Traffic Control 395
R. John Hansman, Jr. and Amedeo Odoni

14.1 Introduction 395

14.2 The Generic Elements of an ATC System 396

14.2.1 Communications Systems 397

14.2.2 Navigation Systems 397

14.2.3 Surveillance Systems 402

14.2.4 Flight and Weather Information Systems 404

14.3 Airspace and ATC Structure 405

14.4 ATC Operations 408

14.5 Standard Operating Procedures 410

14.6 Capacity Constraints 411

14.7 Congestion and Air Traffic Flow Management 417

14.8 Future ATC Systems 420

References 420

15 Air Transport and the Environment 423
Karen Marais, Philip J. Wolfe, and Ian A. Waitz

15.1 Introduction 423

15.2 Limiting Aviation’s Environmental Impact: The Role of Regulatory Bodies 425

15.3 Airport Water Quality Control 426

15.3.1 Effects of Deicing Fluids 428

15.3.2 Managing Airport Water Quality 429

15.4 Noise 430

15.4.1 Effects 432

15.4.2 Noise Measurement 433

15.4.3 Noise Trends 435

15.4.4 Noise Controls 436

15.4.5 Emerging Issues 438

15.5 Air Quality 439

15.5.1 Effects 442

15.5.2 Emissions Measurement 443

15.5.3 Emissions Trends 443

15.5.4 Emissions Control 447

15.5.5 Emerging Issues 448

15.6 Impact of Aviation on Climate 449

15.6.1 Effects 449

15.6.2 Measurement 451

15.6.3 Greenhouse Emissions Control 452

15.7 Alternative Fuels 453

15.8 Summary and Looking Forward 455

References 456

16 Information Technology in Airline Operations, Distribution and Passenger Processing 461
Peter P. Belobaba, Cynthia Barnhart, and William S. Swelbar

16.1 Information Technology in Airline Planning and Operations 461

16.2 Airline Distribution Systems 464

16.2.1 Evolution of Computer Reservations Systems 464

16.2.2 Alternative Airline Distribution Channels 469

16.3 Distribution Costs and e-Commerce Developments 475

16.3.1 Internet Distribution Channels 477

16.3.2 Electronic Ticketing 481

16.3.3 Implications for Airlines and Consumers 481

16.4 Innovations in Passenger Processing 482

References 485

17 Critical Issues and Prospects for the Global Airline Industry 487
Peter P. Belobaba, William S. Swelbar, and Amedeo R. Odoni

17.1 Evolution of US and Global Airline Markets 488

17.1.1 Evolution of US Airline Markets 488

17.1.2 Recent Developments in Global Airline Markets 491

17.2 Looking Ahead: Critical Challenges for the Global Airline Industry 494

17.2.1 Strategies for Sustained Profitability 495

17.2.2 Infrastructure and the Environment 498

References 500

Index 501