airport management - economics of air travel

Economics of Air Travel

Wing Commander Prof Dr A Kamalakar, PhD, PMP

12 Jul 2015

Copyright @ Wg Cdr A Kamalakar 2015

Economy

The state of a country in terms of the production and consumption of goods and services and the supply of money.


Indian Economy 1. 9th largest by GDP 2. US$ 1.7 trillion GDP (106 56 925 lakh cr)

3. Per capita income Rs 74,920/- 4. Income per month Rs 7378/- Feb 15 5. Population 123 cr 6. GDP growth @ 7.4 %


GDP per capita is the sum of gross value added by all resident producers in the economy. 2014 India US $ 5833 GDP per capita


1. Air Transportation is a market of suppliers of transport services and users of these services. 2. Mature transport market Supply = Demand needs for mobility are satisfied. 3. Transport system supports numerous activities

located in different areas generates movements 4. Infrastructure sans mobility is useless 5. Mobility sans infrastructure does not occur.


Supply 1.Infrastructure i.e., capacity 2.Services i.e., frequency 3.Networks i.e., coverage


Demand 1.People 2.Volume or tons per unit of time and

space 3.Generated by economy persons institutions and Industry 4.Generates movement of people and

freight Copyright @ Wg Cdr A Kamalakar 2015

Air Travel Demand

=

Traffic

+ Rejected Demand


Rejected Demand or Spill Passengers unable to find seats to fly


Transport Needs 1.Productive needs i.e., supply chain 2.Consumptive needs i.e., Going for a

drive


Transport Demand

1. No of Pax or tons of freight 2. Distance 3. Fluctuates in time and space 4. Complex 5. Seasonal


Transport Demand Function

1. For passengers, demand is a

function of a) demographic attributes of the population like income, age, std of living b) modal preferences.

2. For freight, demand is function of

a) the nature and the importance of economic activities like GDP, commercial surface b) life and value of product


Air Transport Supply -Demand Relationship

1.Equilibrium at Supply = Demand 2.Price change changes level of demand 3.Shifts to other modes, other times or

other routes 4.Entry costs are high i.e., cost of running

one unit 5.Govt control and ownership of air travel

infrastructure Copyright @ Wg Cdr A Kamalakar 2015

5. When demand < Supply, transit times are stable and predictable

6. When demand > Supply, transit times increase and are unpredictable

7. When demand increases, load factor increases till Supply level is reached


Load Factor = Seats Filled / Seats Available


1. Willingness to Pay (WTP)

2. Consumer Surplus (CS)

3. Generalized Cost (GC)


WTP is the maximum amount of money an

individual is willing to pay for the change in

his/her circumstances,

e.g to make a trip from A to B

If the price (P) < WPT makes the trip.

If P is > WTP, options are weighed

Changes 1. Mode

2. Time

3. Route

4. Decision Copyright @ Wg Cdr A Kamalakar 2015

Air Transportation Products


1. Product is the core thing which every enterprise tries to deliver.

2. Air transportation product is the service that airlines offer to the travellers. They form the market.

3. Airlines must offer what market wants. 4. The airline product is quite a complex. Includes

tangible and intangibles. 5. Physical features and quality of service are very

important. 6. The airline product includes of two types of services: a) On the ground services b) In-flight services.


1.The design and décor of ac

2.Style of service

3.Courtesies

4.Punctuality

5.Quality of Delivery of Services

6.Frequency

7.Procedures

8.Policies for Refund

9.Baggage Handling

10.Special Assistance for Disadvantaged

Passengers

11.Information Copyright @ Wg Cdr A Kamalakar 2015

On-the-Ground Services 1. Airport with car parking facilities, 2. Duty free shopping 3. Quick and efficient checking of

baggage 4. Efficient service at reservation counter 5. Transport to the airport 6. Courteous and efficient service


The Supplementary Services

1. Connecting flights,

2. Through check-in,

3. Tele-check in,

4. Food on board, and

5. Complimentary gifts

6. Concessional Fares

7. In Flight entertainment . First

by SIA


1. Jet Lite, for example, offers its passengers a

„business-plan‟ on two-way economy class ticket,

which includes a night‟s stay with breakfast, STD

facility for 3 minutes and boardroom facility at the

Park Hotel, New Delhi.

2. To Delhi based fliers to Mumbai, it offers a night‟s

stay with breakfast, airport transfers and VIP

amenities at The Orchid, Mumbai. For business

class, the plan includes a stay at The Leela, with

buffet breakfast and late checkout.


The Augmented Service 1. Online booking 2. Showers in business class in BA 3. Auction on board. 4. Gambling and body massage on board

in Virgin, 5. Cab service, by Emirates


Nature of Air Transport Supply

1. Capital intensive 2. Long gestation period 3. Strategic in nature 4. Highly skilled human capital 5. Demand driven


6. Long break even period 7. High entry costs 8. Low profit margins 9. Fixed at a given time


Transportation Yield Management

The process of managing the usage price of a transport asset, such as the fare paid by users, in view of continuous changes in the demand.


Yield Management

1. Capacity is fixed. 2. Demand varies 3. Unused capacity is a potential loss 4. Transport users are willing to pay

different rates for the same service

5. They value transportation differently

based upon their priorities

and time preferences.


Aeronautical Revenues

1. From airlines, ac owners and FBO 2. Includes a) ac landing and take off fee b) ac parking charge c) Passenger service fee d) User development fee


Non Aeronautical Revenues


Aeronautical Non-Aeronautical

Landing

charges

Passenger

service fee

Aero Related

Cargo handling

Aircraft refueling

Aircraft

maintenance

Catering services

Commercial

(Terminal)

Advertising

fee

Revenue from

concessionaires

Rental from

airlines,

business, shops

Car parking,

public

admission fee

Commercial

(Other)

Real estate

development

Hotel, business

and industrial

parks

Retail and

entertainment,

residential

Parking charges

Airport Operator Revenue Streams

[Source: Communication from GMR, 2006]


Airport Operating Costs 1. Cost of human capital 2. Repairs and maintenance 3. Marketing 4. Advertisement 5. Supplies and materials 6. Contractual services 7. Insurance 8. Claims and settlements 9. Overheads


airport management - economics of air travel

Documents