This paper talks about airline management in general. What factors affect airlines, and how they can be handled. An excellent understanding of the airline finance, cost, and revenue and how they are managed. It also compares the full-service carrier and low-cost carriers and their effects on commercial airline performance. Generally, for the airline industry to perform well, they do not just use one carrier method. Comping the two but considering the low-cost carrier makes a significant positive change on the commercial side of view. Moreover, the labor cost should be controlled effectively, while in the case of fuel cost, they should imply a structure in the time interval in their operation to minimize that cost greatly.
Airline Finance, Cost and Revenues
Airline finance is the act of financing for the buying and catering of all aircraft operations, which mostly share several characteristics with the project finance. It could be a private or commercial aircraft wherein private aircraft a primary transaction for small personal or maybe a corporate takes place. In contrast, in the retail sector, planes are costly and are operated by the airline. In airline finance, there are three typical schemes: direct lending, operating leasing, and finance leasing (Morrell, 2021).
The airline industry is most encountered with costly expenses that cut across labor costs and fuel costs where labor cost is primarily fixed in the brief term with fuel cost swinging violently on oil prices. Since fuel cost changes randomly, a plane can operate at a loss or profit depending on the number of people in the plane. In the case of labor cost, it tallies for 35% approximately of the total airline’s operating figures while fueling about 10% to 12% of the operating costs (Swidan, 2019, pp.70-77).
Airline revenues are those incomes generated by the airline industry from its business activities, including retail concessions, car parking, property, real estate, advertising carried on, car renting, and many more. Airline revenue management can be used efficiently in improving the commercial performance of the airline industry through several ways, which may include: Revenue on car parking is increased by discouraging parking of vehicles outside authorized parking areas like outside the facilities with imposing a heavy fine to the owners of those vehicles wrongly parked. Retail and maybe restaurants pay a fixed amount to the airline industry to obtain a permit to operate within the premises. To those tax and bus service providers within the airport, deductions pay a fixed amount of money as revenues. Lastly, passengers with lounges pay rent to use the space in the airport terminals.
Full-service network carrier versus low-cost network carrier
Airline ratings are based on several factors, collectively categorized as the full-service network carrier and the low-cost carrier. The full-service page usually offers its passengers in-flight meals, beverages, entertainment, and comforts like pillows and blankets at the ticket rate. Their seats have more sprawl and legroom for passengers. They offer travelers the choice of economy or business class travel and quality economy and first-class on the same flight. On the other hand, the low-cost carrier offers entirely different products on typically far shorter routes, with most of the booking being online where the frills do not matter as much. There are described as cheaper with no budget airlines.
Since most people aim at reaching their destination quickly and economically, they opt to use low-cost services rather than a full-services carrier. Simply because they do not have enough money for luxurious services offered on the full-services page. Therefore, low-cost carriers seem to perform better commercially than complete services since more people use low-cost rather than full-service carriers (Soyk, 2018, pp.47-65).
Financial metrics are the factors that are used to measure the gain of a project. These core financial metrics are categorized into five categories, namely; profitability, valuation, solvency, liquidity, and efficiency. These performance measures include net profit margin, working capital, current ratio, inventory turnover, return on equity, operational cash flow, and many more. Each of these metrics contributes and provides a different insight into the operational efficiency of a company.
Let us say we had ABC Airport, which deals mainly in the full-service carrier, and another airport called XYZ Airport, which on the other hand, deals mainly on low-cost airlines. The performance of these two different airports will be different. Looking mainly at rates of return, XYZ Airport will have high rates of return since many people will afford to pay ticks that are cheaper than ABC Airport, which deals with complete services that offer luxurious flights. Therefore, XYZ Airport will experience high profits as compared to ABC Airport.
Taking another metric, say gross profit margin determined by subtracting the cost of sales from the revenue and dividing it with the revenue multiplied by 100. XYZ Airport will have performed better than ABC Airport since XYZ revenues percentage will be high compared to the ABC Airport. Generally, an airport that deals mainly or extensively on low-cost carriers performs better than that which takes more keenness to full-service network carriers.
Airline Revenue and cost management
Airline revenue management permits one to automate portfolio control to increase loads on low-demand flights and increase the rate of returns on high-demand airlifts. Since flight demand increases from one generation to another, the revenue management system enables the airline to provide decision support for the retailing and merchandising facets of their operation, which assists airline personnel in understanding their passengers’ needs.
Several things add up to the total cost of a flight, which depends on the type of the craft, maintenance of aircraft, and depreciation costs. Airlines manage cost by controlling several things, including optimizing aircraft fleet dispatch, improving planes fuel-saving performance, optimizing flight speeds, scheduling reasonable flight hours for flight crew, and many others (Shihab, 2019). The airline uses a revenue and cost structure to manage them, divided between operating and non-operating issues.
Economics that Underpin Airlines
There are several economic factors that affect the growth of the airline industry. Economic elements include income per capita, inflation, ticket prices, exchange rates, and industrial production index. National income per capita and industrial production index positively affect the aviation field, while ticket prices, inflation, and exchanges rates hurt aviation. Therefore, the federal income per capita and industrial production index supports airlines and grows the airline industry.
Factors that drive airline performance
Like any other firm, the airline industry is also distressed by changes in its outward environment. These external factors may bring about positive change in the airline industry while others bring about adverse changes. These factors cut across political, economic, social, technological, environmental, and legal aspects. More specifically, things like weather, natural calamities, labor shortage, wage inflation, union strike, and fluctuating oil prices widely affect the airline industry’s performance.
How commercial airline performance may be improved
To improve the commercial performance of the airline, one should base on improving things like team performance to reduce union strikes, improve customer services to attract more customers, and use a good time structure for their operation (Volk, 2017, pp.967-987). Customers should be treated well and listened to clearly, and their needs catered to. They should have interacted with the friendly and personalized way to create a good picture for them, attracting more customers and improving the rate of return. The airline should also cover for the panic in the customers created by the number of accidents and ensure that those accidents do not occur. When there is panic about casualties among the customers, they fear purchasing tickets for their travels.
Morrell, P.S., 2021. Airline finance. Routledge
Shihab, S.A.M., Logemann, C., Thomas, D.G. and Wei, P., 2019. Autonomous airline revenue management: A deep reinforcement learning approach to seat inventory control and overbooking. arXiv preprint arXiv:1902.06824
Soyk, C., Ringbeck, J. and Spinler, S., 2018. Revenue characteristics of low-cost long-haul carriers (LCCs) and differences to full-service network carriers (FSNCs). Transportation Research Part E: Logistics and Transportation Review, 112, pp.47-65
Swidan, H. and Merkert, R., 2019. The relative effect of operational hedging on airline operating costs. Transport Policy, 80, pp.70-77.
Volk, M.S., 2017. Improving team performance through simulation-based learning. Otolaryngologic Clinics of North America, 50(5), pp.967-987