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The Global Airline Industry
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Table of Contents

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

About the Author

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

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