Book Review: Foundations of Airline Finance by Bijan Vasigh

From frequent flyer programs to fuel hedging, this new book on airline finance provides you with a foundation in finance and in the application of these methodologies to various topics in airline industry practice.

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Ready for Take-Off? Financing New High-Tech Ventures in the Aviation Industry. The case of the Mainport Innovation Fund.

mainport_innovation_fund“In the rapidly evolving airline industry, emerging technologies could play an increasingly critical role in the delivery of real and perceived customer value” (Taneja, 2010). Taneja, the author of highly interesting books on the aviation business like “Airline survival kit” (2003), “Simpli-Flying” (2004) and “Flying ahead the airplane” (2008) pointed out that innovation is of major relevance for the aviation industry worldwide. Innovation means that new products, services, processes and business models will be introduced successfully to the market. In the field of aviation innovation can be related to the aircraft (e.g. new materials used, avionics and engine technologies) but not necessarily. Innovation is also the introduction of check-in kiosks at airports, new revenue models of the low-cost carriers, the use of social media by airlines and techniques for the decrease of perceived ground noise.  In this short article we discuss why it is not easy to bring an innovative product or service to the market related to the aviation business. But we describe also a venture capital fund initiated in The Netherlands that will support emerging technologies in this domain and speed up innovation: the Mainport Innovation Fund. The introduction of this fund could decrease the hurdles of starting entrepreneurs in the aviation business.

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See also the below presentation held by Ignaas Caryn, director Innovation & Venturing at KLM, about the Mainport Innovation Fund (in Dutch):

Airport Punctuality, Congestion and Delay: The Scope for Benchmarking

Airport performance benchmarking increasingly requires level-of-service (LoS) indicators for afair comparison among members of the same peer group. For a true performance analysis such inclusion of quality measures is necessary to differentiate airports with similar pure output quantities, i.e. number of aircraft movements. Since variation of scheduled times versus actual times could substantially cause accumulating operating costs for carriers and could furthermore pose the risk and inconvenience of missed connections for the passengers, this article examines determinants of flight delays at airports, and thereby developing performance indicators such as slot capacity utilization, queueing time and punctuality. The essence of underlying phenomena in queueing theory such as Little’s Law, arrival and departure distributions, and cumulative throughput and demand diagrams are briefly explained. This work’s aim is the exploration of ways of measuring and observing performance quality from actual flight schedules with a focus on usability for subsequent airport benchmarking and traffic modeling.

Aerlines from Past to Present

“Sharing International Air Transportation Research: The Short Haul Between Academics, Students and Professionals”

By Hubert Croes, Bram du Saar & Willem-Jan Zondag

To celebrate the 50th Issue of Aerlines Magazine, the editorial team has decided to give you a glimpse behind the scene of the development of Aerlines since its foundation in 1994. This article consists of three elements, sketching our scene behind the screen. One about the history, the second about our missions and goals and the third is about three small interviews with people important to Aerlines.

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Qantas 2011: its Agenda and its Future

Qantas CEO Alan Joyce delivered a speech to the Melbourne Press Club early February 2011 to unveil his agenda 2011 for Australia’s national airline Qantas. As he has to cope with though competition, economic downturn and terrific natural disasters, it seems quite difficult for him to actually fufil his proposed agenda. This short story provides you with a summary of his February speech as well as a recent embedded video interview with the 7.30 television program broadcasted by ABC Australia.

Navigating the Recovery
Starting his speech, Joyce said: “I’ll begin with the recovery. The Qantas Group is a portfolio business. Our premium and low fares airlines, loyalty program and freight business all contribute to our success. Together the two airlines form a natural hedge for our business. They help us succeed through the upswings and the downturns. Now we are in recovery but, like many of our customers, we remain cautious about prospects ahead. The Australian economy is performing well, relative to the rest of the globe. Of course, the economic impact of the Victorian, NSW and Queensland floods- not to mention the devastating impact of Tropical Cyclone Yasi – is not yet clear.”

“Domestically we are strong. We are holding and building upon our 65% market share across our two airlines, which are the most profitable in Australia. Business and corporate travel has rebounded for us.”

Positioning the Group in Asia.
“We all know that Australia’s future is tied up with Asia, and with China in particular. The Qantas Group plans to contribute to Australia’s Asian future, and also benefit from it. We are already laying the groundwork with Jetstar. But it is not only Jetstar that has a lot of potential in booming Asia. We think premium airlines will also have a role to play. We are looking closely at all opportunities to participate in the Asian opportunity and benefit ourselves, our customers and shareholders, and Australia.”

Securing the Future for Qantas International
Joyce continues: “Obviously the incident last year and the subsequent grounding of our A380 fleet was a major setback for us. But the issue has now been fully resolved to the satisfaction of the manufacturer, Rolls-Royce, all the authorities and our own experts.”

“This was the engine manufacturer’s issue, and we are currently in dialogue with them. In September we commence our fleet reconfiguration program to translate those premium A380 features across our B747 fleet. Our aim is to have a consistently excellent international offering in-flight and on the ground. We are now looking to get our first B787 for the Group towards the end of next year. Capacity has flooded into Australia from China, the Middle East and elsewhere. To give you an idea, total growth in direct aviation capacity to Australia between 2003 and 2009 was 39%. Meanwhile total inbound passenger growth was only about 10%. So that tells us these carriers are not growing the market, but simply taking existing demand. And the result is that Qantas International market share has fallen from 35% to 20%. As an end-of-the-line carrier, serving a market of 22 million people, in a marketplace flooded with so much capacity that our competitors aren’t even using their full quota, we face severe limits to growth. If we continue on our current path, there will be a real question mark over the viability of Qantas International. And I have no intention of letting our flagship business decay through lack of action.”

CEO Alan Joyce concluded his speech: “The Qantas Group has made an annual profit every year since 1995, a claim only two other major full service carriers can match: Singapore and probably Emirates, both operating under very different models. We have new aircraft arriving, with many more to come. Our Australian domestic base is very sound. We have a skilled and stable workforce. And we are laying the groundwork to maximize the enormous opportunities of Asia.”


Investigating Airports’ Market Power

airline_gameBy Volodymyr Bilotkach and Andreas Polk

The ongoing liberalization process in aviation affects all segments of the industry. Nowadays we are used to thinking about airlines as competitive firms as if the industry had not been regulated, and airlines had never been state-owned monopolies. But liberalization is more than that. It also affects the upstream production stages, such as the provision of ground-handling services or the supply of airport infrastructure. Whereas the former services are liberalized to a certain extent, airports are subject to regulation in most countries. The argument made here is that airports are regional monopolies and – as they provide necessary infrastructure to the airlines – they need to be regulated. But do airports in fact have market power? And if so, does market power exist with respect to all services an airport provides? If we were asked to evaluate whether a particular airport has market power, how are we to proceed with the analysis? In order to address these questions, it is necessary to apply general economic ideas to the context of the aviation industry. Due to particularities of airport markets, this is not a straightforward task. To address these issues, we first discuss how the assessment of market power of airports relates to the institutional contexts of the hosting countries. We then turn to some of what we think are the most important economic issues for the assessment of the market power of airports, and how these factors might affect the analysis of market power in a particular context of an airport under review.

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Can low-Cost Long-Haul Flight Operations be Profitable?

By Jost Daft and Sascha Albers

Hitherto, sustainably profitable low-cost operations can only be observed among short- to medium-haul airlines. Even though various carriers have launched attempts to extend the low-cost carrier (LCC) business model to long-haul flights (LHF, see the subsequent chapter for a definition), most of them failed before flight operations were initiated or went bankrupt after three to five years if flight operations started. However, the frequency with which new low-cost LHF airlines are founded is still considerable (see Tab. 1). Entrepreneurs as well as established airlines seeking new growth paths are among those in the industry that follow what seems to be a trial-and-error process in launching and operating LCC LHF airlines. This is not particularly surprising, since little systematic guidance on preconditions for and design options of a LCC LHF business model have been advanced. Rather, the scholarly literature has given only scant attention to the challenge of adapting the low-cost model to LHF, and the question of whether the low-cost long-haul model is economically viable has not been unanimously answered yet.

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