2. Aviation: An Overview
Aviation has a rich and interesting history. During the past century we have
seen great accomplishments in the aerospace industry. Whether it is
transporting people or cargo, we benefit from the service of hundreds of
thousands of people who make a daily contribution to the industry. A strong
and viable aviation industry is essential to our way of life.
AVIA 105
Introduction to Aviation & Aerospace
Arnold Huntley
3. Aviation: An Overview
• Aviation is vital to our economy, especially in the following areas:
– Trade Balance
• Records a large trade surplus
– Employment
• One of the nation’s largest employers (625,000 workers at the end of 2005)
– Research and Development
• Finding safer and more efficient air operations
– Impact on other industries
• Hundreds of other industries benefit from aviation activity
• The Department of Defense (DOD) is a major player in the aerospace
industry
– Accounted for 56 percent of total aerospace business in 1987, but decreased
after the end of the Cold War
– Slight increase after September 2001, but continues to encounter challenges
AVIA 105
Introduction to Aviation & Aerospace
Arnold Huntley
4. Aviation: An Overview
• Suppliers
– Aerospace suppliers are predominantly US companies
– Economic activities mainly occur between themselves
• Thousands of multi-faceted activities (assemblies and components)
• The government is a major purchaser of aviation goods and services
– Procurement, Request for Proposals (RFPs)
– Department of Defense
– National Aeronautics and Space Administration (NASA)
• Streams of consolidation among aerospace companies and providers
during the past several decades
– Economic challenges
– Improve production processes
– More expansion outside of military specialization into the civil market
• More application of military technology into the civil sector
AVIA 105
Introduction to Aviation & Aerospace
Arnold Huntley
5. Aviation: An Overview
The Civil Aviation Market
AVIA 105
Introduction to Aviation & Aerospace
Arnold Huntley
6. Aviation: An Overview
• The US has the largest civil aviation market
– Good domestic sales
• Mainly airline transport aircraft
• Replacement of aging and less efficient aircraft
– Good international sales (over $55 billion in 2005)
• 70 percent commercial transport and civil helicopter
• 40 percent general aviation
• Dozens of aircraft manufacturers prior to World War II, but drastically
reduced over past few decades
– Two prime manufacturers today of aircraft over 100 seats: Boeing and Airbus
• Approximately 60 percent market share for Boeing
• Airbus is Boeing’s top competitor
– Ongoing industry debate between Boeing and Airbus
• Debate concerning Boeing’s support by DOD through military procurement
• Debate concerning Airbus’s support by the European consortium (France, Germany,
United Kingdom, and Spain
AVIA 105
Introduction to Aviation & Aerospace
Arnold Huntley
8. Aviation: An Overview
• The phenomena of business cycles applies to the air transportation industry
– Economic Growth
• Flourishing economies escalate business activity
– Inflation
• Affects economic growth
– Low interest rates encourages investment and expansion
– Increased interest rates curtails aircraft purchases
– Increase in labor and fuel cost can raise fares
– Fleet Capacity
• A result of load factor (number of passengers flown to available seats)
• Increased load factor may affect the purchase of more aircraft
– Replacement Aircraft
• Replacement of aging and inefficient aircraft
– Airline Profitability
• The ability to make money during up and down economies
AVIA 105
Introduction to Aviation & Aerospace
Arnold Huntley
9. Aviation: An Overview
• General Aviation (GA) is a significant segment of the aerospace industry
– Economic cycles significantly impact GA activity
• Mergers (Cessna acquired by General Dynamics and Textron; Raytheon and Cessna
concentrating on multi-engine/jet equipment)
• Piper re-emerged from bankruptcy and became the New Piper Aircraft Corporation
– The General Aviation Revitalization Act of 1994 was key in bringing back general
aviation manufacturing
• Limited product liability law suits involving older aircraft
– Increase in corporate aviation due to fuel efficiency and business advantages
– Increase in short route travel via commuter aircraft
AVIA 105
Introduction to Aviation & Aerospace
Arnold Huntley
10. Aviation: An Overview
• Summary of Economic Contributions
– Contribution to not only aviation-related businesses, but non-aviation businesses
• Hotels
• Restaurants
• Rental Cars
• Construction
• Many others
– Direct Impacts
• Financial transactions linked to the provision of air passenger and air cargo services and the provision
of aircraft
– Airport and aircraft manufacturing firms
» Expenditures by airlines, airport tenants, air cargo firms, Fixed-Based Operators (FBOs), ground transportation firms,
flight schools, airport concessions
– Indirect Impacts
• Financial transactions linked to the use of aviation
– Expenditures by travelers, travel agents, business aviation
– Mostly occur at off-airport locations
– Total economic impact calculated at $903.5 billion for the year 2000
• 9.2 percent of Gross Domestic Product (GNP)
• 11.2 million jobs
AVIA 105
Introduction to Aviation & Aerospace
Arnold Huntley
11. The Airline Industry
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Introduction to Aviation & Aerospace
Arnold Huntley
12. The Airline Industry
The airline industry is one of the most fascinating yet one of the most
challenged industries in the world! It moves people all over the world and
brings the world close together. It is an integral part of our society.
Whether it is business or pleasure, the airlines enables us to make the
world much smaller.
AVIA 105
Introduction to Aviation & Aerospace
Arnold Huntley
13. The Airline Industry
• Establishment of the industry
– Scheduled airlines began operating under the CAB in the late 1930’s
• Originally 23 ‘trunk carriers” (medium and long-haul routes)
• Small non-transport carriers (services upon request, no schedules
– Advent of DC-3 (C-47) and DC-4s (C-54s)
• No fixed routes or schedules (“non-skeds”); operated without regulation
AVIA 105
Introduction to Aviation & Aerospace
Arnold Huntley
14. The Airline Industry
– Congress amended the Civil Aeronautics Act after World War II
• Required carriers to have certificates; categorized as “supplemental air carriers”
• Implemented “feeder routes” (local service carriers that were not allowed to compete
with trunk carriers)
• Several airlines emerged, but could not compete according to routes and schedule due
to CAB control
– Competed on service offerings instead (meals, comfort, entertainment)
– Airlines continued to grow through technological advances under CAB control
• Jet engines revolutionized the industry
AVIA 105
Introduction to Aviation & Aerospace
Arnold Huntley
15. The Airline Industry
• Creating the atmosphere for deregulation
– Airlines could not compete on the basis on air fares and routes
• Found another way to compete
– Compensated by flying more flights, reducing seats, and upgrading services
– Procured wide-body aircraft, but could not fill them
– Lower load factors and higher fares hurt the industry
• Air travel largely limited to business travel and “upper class” citizens
• Feeder/intra-state airlines operated with fares significantly lower than trunk carriers
• Caught the attention of Congress
– Air travel under the CAB proved to be inefficient while keeping the cost high
AVIA 105
Introduction to Aviation & Aerospace
Arnold Huntley
16. The Airline Industry
• Deregulation
– Led by CAB Chairman Alfred Kahn
• Tested deregulation by allowing American Airlines to offer “super
saver” discount; subsequently allowed other airlines to do the same
• Congress passed the Airline Deregulation Act of 1978
– Some airlines went bankrupt (competed out of existence)
• Hub-and-spoke broke weaker airlines
• Frequent flyer programs kept travelers loyal
• State-of-the art reservation systems
• Allowed airlines to frequently micro-manage and manipulate air fares
according to passenger route preferences and demand)
• Created price wars
• Passenger rewards for early booking
– Created “mega-carriers”
AVIA 105
Introduction to Aviation & Aerospace
Arnold Huntley
17. The Airline Industry
• Advent of the “low cost” carriers
– People’s Express
– New York Air
– Southwest and Texas Air
• Key competition factors
– No unions
– Fewer employees
– Lower wages
• Low-cost carriers
– Caused some airlines to restructure
– Sent more airlines to the bone yard
AVIA 105
Introduction to Aviation & Aerospace
Arnold Huntley
18. The Airline Industry
• The “Regionals”
– Sometimes called “commuters” or “air taxis”
– Typical up to 400-mile routes at lower altitudes
– Filled the gap when mega-carriers flocked to hubs
– Worked around CAB requirements by using small aircraft yet increasing
payloads in short-hauls
– Gradually left service to smaller communities
• Caused the Essential Air Service program to keep service in small communities
– Approximately 9 out of 10 airports are served by regionals
AVIA 105
Introduction to Aviation & Aerospace
Arnold Huntley
19. The Airline Industry
• Code Sharing (Regionals)
– Regionals/commuters heavily networked with major carriers
– Links small communities to larger primary commercial service airports
• Usually under the operation and paint scheme of a major carrier, but separate
companies
– US Air Express
– United Express/Sky West
– Continental Express
– American Eagle
– Continental Express
– Delta Connection (Comair)
– Northwest Airlink
– Seamless ticket processing
• “Read the fine print”
– “Synchronized” arrival and departure times with associated major carrier
– Frequent flyer credit with major carriers
AVIA 105
Introduction to Aviation & Aerospace
Arnold Huntley
20. The Airline Industry
– Regionals are profitable
• Increased purchase of more modern aircraft (Embraer, CRJ, etc.)
• More outreach to smaller communities
• Code Sharing (Major Carriers)
– Usually happen between carriers within their alliance/partnership
– Half of the top 25 regionals are owned/partially owned by national or major
carriers
• Examples
– Star Alliance
– One World
– Carriers share seats on another partner’s airline
• For example, some seats on a United aircraft can be shared with US Airways, vice-
versa
• Two flight numbers on one ticket
• “Read the fine print”
– Rude awakening for some passengers to don’t pay attention to details, especially when
partners are not in the same terminal (however, most of the time, they are)
AVIA 105
Introduction to Aviation & Aerospace
Arnold Huntley
21. The Airline Industry
• Certification
– Office of the Assistant Secretary for Policy and International Affairs under the
Department of Transportation
• 401 Certificates (3 types)
– Fitness Determinations
» Must be fit to operate
– Public Convenience and Necessity Determinations
» Carriers wishing to provide foreign service
– Continuing Fitness Reviews Under Section 401(r)
» Carriers who do not certify within one year
AVIA 105
Introduction to Aviation & Aerospace
Arnold Huntley
22. The Airline Industry
Summary
Through its ups and downs, the airline industry as a whole has demonstrated
the ability profit tremendously in the good times, and survive in the worst of
times. It has shown amazing resiliency through technological advances and
innovative business strategies. It is an extremely competitive industry that
stands the test of economic cycles, as we will see in the next lesson.
AVIA 105
Introduction to Aviation & Aerospace
Arnold Huntley
24. Air Cargo
In addition to passenger travel, the air transportation industry has another
significant side – Air Cargo. This aspect of the industry is also instrumental
and touches our lives in many ways, often without the attention of
passenger travel. A vast majority of the goods and commodities we use
have an air cargo connection.
25. Air Cargo
• Air Cargo History
– As we have discovered earlier, cargo in the form of airmail was the beginning of
air commerce
• Air Express
– Railway Express Agency (REA)
• The original air cargo “middle-man”
• Offered “express” shipping by air, although rail was their business
• Initially the only organization coordinating cargo distribution
• Warded off competition from General Air Express, who wanted all-air operation and
expertise
– Some passenger airlines also carried express cargo
• Airlines pursued passengers more than express cargo, minor effort towards cargo
revenue
• REA went bankrupt in 1975; its demise gave way to a better express cargo system
26. Air Cargo
• Federal Express
– Founder, Fred Smith
• Considered an American success story
• Revolutionized and made the express shipping business what it is today
– No longer did express shipping have to wait until next business day
– Shipped express cargo by night and created “next day” service
– Created the classic hub-and-spoke operation in Memphis, Tennessee
27. Air Cargo
• Key Cargo Terminology
– Air Mail (simply the transport of common mail by air)
– Air Express (expedited transport, usually in 1 day)
– Air Freight (transport of extra large or specialized shipments)
• Air Freight
– Came into its own after World War II after CAB changes
• Established air freight middle-men (Air Forwarders)
– Consolidated shipments for air carriers
– Increased marketing and sales efforts
• Established 3 all-cargo air carriers
– Slick, US Airlines, and the famed Flying Tigers
28. Air Cargo
• Advent of Modern Cargo Aircraft
– B-747
• Originally a great advantage for the air cargo industry
– Carried large containers and lots of weight (over 100 tons per trip)
• Disadvantages
– Competed against passenger planes that could carry cargo for less (“combi’s”); often preferred
by freight forwarders
29. Air Cargo
• Cargo Carrier Types
– Integrated
• Operates entire shipping operation from start to finish (pickup/delivery, vehicles, hubs,
information systems, etc.)
– FedEx, UPS, DHL
– Combination (“Combi”)
• Carries passengers and cargo
• Most passenger carriers operate as combi’s
– All-Cargo
• Nothing but cargo
• Operate point-to-point for air forwarders
• Gemini or Polor Air Cargo
• Revenues
– Surpassed by passenger carrier revenues
• Costly to ship by air; cheaper shipping by surface (truck, boat, or rail)
– Impacted by type of aircraft
• Planes built for passengers, not cargo
30. Air Cargo
– Cargo seen as not as profitable by air transportation executives
• Little or no investment into cargo business
– In recent years, increase in cargo activity
• Companies reducing inventories and moving them quickly
• Increase in international shipping
– Until current recession, express carriers have been profitable
• Efficient and reliable services on a large scale
• Shipping guarantees
• Tracking capability
• Choice of delivery times (2-day, 3-day, ground, etc.)
31. Air Cargo
• Impact on Airports
– Increase in all-cargo carrier activity
– Need for cargo aircraft parking and operations
• Stationary at airports for longer periods of time
– Noise factor
• Large aircraft, heavier loads, night-time flight
– Key cargo hubs
• Memphis
• Indianapolis
• Anchorage
• Dallas-Forth Worth
• Philadelphia
• Ontario
32. Air Cargo
• How Air Cargo Affects You
– Shipment of major commodities
– Key cargo factors
• Perishable
• Quick obsolescence
• Need it now!
• Handling and storage cost
• Unpredictable, infrequent, seasonal demand
• Distribution risks (theft, breakage, deterioration, special handling)
• Cargo Rates
– General Commodity Rate
• Basic price across a broad spectrum
– Special Commodity Rate
• High-volume shipping between certain cities
– Perishable fish products from Alaska, etc.
– Exception Rate
• Special handling (higher rates)
– Animals
33. Air Cargo
• Container Rates
– Owned by airlines or shipper
– Advantages
• Filling container saves money
• Protects products (less shifting around in container if nearly filled or filled)
• Reveals tampering
• One single unit, not scattered parts
• Easier inventory
• Profitability Factors
– Volume of traffic
• Determines maximum net revenue realized
– Directionality
• Moving cargo on major routes
• Reduced rates for off-direction shipping (to help fill containers)
34. Air Cargo
Summary
Air cargo plays an integral role in our lives. The services it provides brings us
the goods our society relies on, and delivers them quickly and efficiently.
Air cargo is a growing industry in the global economy and worth keeping an
eye on in the future.
36. Airline Labor Relations
Labor relations and collective bargaining is one of the biggest challenges within
the airline industry. The relationship between labor and management is
very sensitive and disagreement between the two can significantly impact
the success of an airline.
37. Airline Labor Relations
• Railway Labor Act (RLA) of 1926
– Created to
• Prevent interruption of service and promote industry stability
• Ensure the rights of workers to organize and bargain collectively
• Provide complete independence of organization by both parties
• Assist in the prompt settlement of disputes or grievances arising out of interpretation or
application of existing contracts
– Consistent with its history, the airline industry were subject to railroad laws
– Still applies to the railroad and airline industries
– Followed by the National Labor Relations Act in 1935 (that applies to the rest of
the nation)
– RLA and NLRA Comparison
RLA NRLA
•Mandatory mediation subject to the control of NMB •Mediation is voluntary and non-binding
•Unfair labor practices not spelled out; parties must •Prohibits unfair labor practices and enforces it
seek court action for relief
38. Airline Labor Relations
• Collective Bargaining
– The process of mediating and settling disputes
• Union and management exchange proposals
• Agree on a time, date, and place to collective bargain within 10 days
• Must begin talks within 30 days between representatives from both parties
• No time limit, but talks can end with union members vote on a new contract
• National Mediation Board (NMB)
– Amendment that strengthened the RLA
• Aimed to facilitate settlements of major disputes through mediation and common ground
• 3 members appointed by the President
– Used when collective bargaining is unsuccessful
• Mediation must begin within 10 days of after a deadlock
• NMB assigns a mediator
• No time limit; but mediator determines when to quit
39. Airline Labor Relations
• Voluntary Arbitration
– Required if no previous agreement was reached
– Both sides must agree to abide by results before an arbitration board is
appointed
– Arbitration board
• One-third chosen by management
• One-third chosen by labor
• One-third chosen by carrier-labor arbitrators
• Once both parties agree to arbitration, the decision is legally binding
• Emergency Board
– Used if arbitration is refused
– No changes can be made in the conditions that prevailed at the time the dispute
arose
– If a strike leads to a national emergency, the President must be notified and may
create an emergency board
• 30 days to investigate and give findings to President
• Findings not enforceable
• An additional 30 days can be added, which can postpone work stoppage and create a
60-day cooling off period
• Union must decide to accept management’s offer or go on strike
40. Airline Labor Relations
• Presidential Intervention
– Usually taken if public opinion does not influence a settlement
– President may allow the strike to occur or ask Congress for emergency
legislation
• Historical Benchmarks
– Pre-Jet Age
• Great Depression created a society of worker’s rights and a decent standard of living
• Industry-Wide Bargaining
– Basic negotiations between labor and management where the results would apply to the entire
industry
– Decision 83
» Established minimum wages and maximum hours for pilots across the industry (Shortfall – limited to pilots)
• Pattern Bargaining
– Carriers negotiated their own agreements with labor unions; created a “pattern” (successive
negotiations that were better than the previous – “leapfrogging)
– Created ever-increasing wage rates and benefits after each contract expiration
– Management forced to match or exceed the results of other carrier contracts
41. Airline Labor Relations
• Impact of Craft Lines
– 1950s era
– Increased industry specialization (pilots, mechanics, flight attendants, flight
engineers, dispatchers, and many others)
– Created an increasing pool of potential union recruits
• Jet Age
– Advanced technology bolstered air travel, but created even more labor challenges
• Required more skills and training on new aircraft, navigation systems, jet engines, etc.
• Made workers who worked on less advanced systems feel insecure
• Resistance to change among workers
• Perception that carriers was not sharing increased profits with labor
42. Airline Labor Relations
• Mutual Aid Pact (MAP)
– “Strike insurance” formed by the airlines in 1958
• Carriers in the pact sharing their revenues with a carrier experiencing a strike
• Labor fought against the MAP for many years until deregulation ruled in void
• Employee Compensation Factors
– Labor received steady increases prior to deregulation (rates above all US
industries)
– Increase in the demand of more fringe benefits relative to wage increases
• Fringe a tax-free benefit
• Inflated operating cost of carriers
– Perks
• Increased pay and allowances for being away from home, company paid hotels,
transportation (flight crews)
– As labor contracts increased and carrier operational cost increased, the CAB
simply passed on the cost through air fare increases – to preserve peace
43. Airline Labor Relations
• Post Deregulation
– Onslaught of new entrant airlines
• Benefited from less employee seniority
• Lower pay scales
• More productivity through non-unionization
• Greater operational flexibility
• Utilization of contract and part-time workers
• Utilization of smaller “2 + 2” aircraft (2 pilots – 2 engines)
– Greater competition, fare wars
– Heavy investments into new equipment and hubs
• More industry instability
– Routine mergers, bankruptcies, reorganization
• Wage and benefit cuts, lost jobs
• Outsourcing
– Two-tier pay system
• Made famous by American Airlines
44. Airline Labor Relations
• “A” and “B” scale
– A-Scale
» Established, higher paid employees
– B-Scale
» New, lower paid employees
» Often favored by management over A-Scale (as a cost control measure)
46. International Aviation
The ability to span the globe via the airlines has enabled millions of people from
different countries to visit other countries than their own. A country’s airline
is a strong symbol to other nations, representing the country’s global reach
and prosperity.
47. International Aviation
• The Question of Sovereignty of Airspace
– The air is free and is available to anyone (except in times of war)?
• Will promote international commerce and peace?
– Individual countries have rights to airspace above their soil?
• Will violate national sovereignty and pose a security threat?
• Paris Convention of 1919
– International Commission for Air Navigation and Code
• Absolute sovereignty of airspace above its territory
• Freedom of international air navigation subject to the principle of sovereignty
• No discrimination according to nationality
• Aircraft must be distinctively associated and registered with its country
• Other “desirable” provisions
• Havana Convention of 1928
– Formally adopted the principals of Paris Convention
48. International Aviation
• Warsaw Convention of 1929
– Defined international transportation as
• Any transportation between two points in different contracting countries, irrespective of
an interruption of the transportation or transshipments
• Transportation between two points in the territory of one state when a stop is made in
another country or countries en route
– Held air carriers liable for death and injury, loss or damage of baggage or goods,
and loss as a result of delay ($8,300 maximum)
– Amended at the Hague in 1955 (double monetary liability maximum to $16,600)
• Chicago Conference of 1944
– Established the application of customs regulations and national traffic rules to
aircraft in international flight
• Rights of countries to do reasonable searches of arriving and departing aircraft
• Aircraft in transit and their normal supplies made safe from seizures and local duties
• Required aircraft in international flight to carry certificates of registration, airworthiness,
crew licenses, logbooks and cargo manifests
49. International Aviation
– Formation of the International Civil Aviation Organization (ICAO)
• Headquartered in Montreal, Canada
• One member from each contracting state (close to 200 members)
• Air transport committee, air navigation commission, publications on international air
services, reporting of infractions, adoption of international standards and practices
– Superseded the Paris and Havana conventions
– Two Freedoms Agreement
• Granted privileges of flying across territories without landing
• Privilege to land for non-traffic purposes
• The US wanted to implement Five Freedoms, but was rejected
– Today’s Nine Freedoms
1. A carrier must fly over the territory of another nation without landing
2. A carrier may land in another nation for non-traffic –related purposes
3. A carrier may pick up passengers in another nation and carry them back to its own
country
4. A carrier may drop off passengers from its own country in another nation
5. A carrier may pick up passengers from a state other than its own and deliver them to a
third state, also not its own
50. International Aviation
6. A carrier may carry passengers from one state through its home country to a third state
7. A carrier may carry passengers from one state to a third state without going through its
home country
8. A carrier may operate domestic services in a foreign country with continuing services to
or from one’s own country
9. A carrier may operate within a foreign country without continuing service to or from
one’s own country
• Bilateral Agreements
– Primary purpose of obtaining satisfactory operating and traffic rights to be
exercised by certificated US airlines on their foreign routes
– Policies that work within the context of the freedoms
• Bermuda Agreement of 1946
– Allowed ICAO to settle disputes
– Collateral understandings on the operation and development of air transportation
services between the traffic of two countries
51. International Aviation
• Affects of Deregulation
– President Ford called for the regulatory reform of international aviation in 1975
– Britain threatened to terminate the Bermuda Agreement due to the US’
dominance in North Atlantic routes
• Both countries agreed to continue with Bermuda when both could prescreen schedules
and approve fares
– President Carter saw Bermuda II as unfair and protectionist against the US
• Pushed for free-market system
– Increase competition for better pricing and to meet the needs of passengers and shippers
– Loosening charter operations and rules
– Eliminated restrictions on capacity, route, and operating rights
– Eliminated discrimination and unfair competitive practices experienced by US carriers
– More gateway cities and improved integration of domestic and international service
– Development of competitive cargo services
• International Air Transportation Competition Act of 1979
– International counterpart to the US’ Airline Deregulation Act of 1978
• Strengthen US carriers to equality with foreign carriers
• US carriers freedom to offer consumer-oriented fares
• Fewest possible restrictions on charter air transportation
52. International Aviation
• Ability to shift with market demand
• Eliminated operational and marketing restrictions
• Integrate domestic and international air transportation
• Increase number of nonstop US gateway cities
• Provide foreign carriers the opportunity to increase their access to the US points if
exchanged for benefits of similar magnitude for the US carriers or passengers and
shippers
• Eliminate discrimination and unfair practices
• Promote, encourage, and develop civil aeronautics and US air transportation industry
• International Liberalization (1978 – 1983)
– Some countries wanted increased US flights to their countries; some did not
– US carrier mergers and bankruptcies concerned some countries
– Intense competition among US carriers for international routes caused the US
government not to wholeheartedly pursue more routes
53. International Aviation
• Open Skies
– Effort to allow carriers to fly any route they wish between countries and continue
those flights into third countries, although cabotage (foreign carrier carrying
passengers between two domestic points of another country) is still not permitted
– Got off to a slow start in late 1970s – early 1980s due to low international traffic
– Traffic picked up in the mid-1980s with large US carriers flying internationally
from hubs
• Impact of Globalization on International Aviation
– Difficult for US carriers and foreign carriers to establish hubs in foreign countries;
a consequence of the fifth-freedom (A carrier may pick up passengers from a
state other than its own and deliver them to a third state, also not its own)
– US actively seeking expanded third- and fourth-freedom service (A carrier may
pick up passengers in another nation and carry them back to its own country and
A carrier may drop off passengers from its own country in another nation)
– The pursuit of international code-sharing has had a major impact
• Allows passenger connections and the ability to operate on an inter-line basis (to
countries where authority has been granted)
54. International Aviation
• For foreign carriers to the US, allows for the alliance with one or more US carriers and
gain access to virtually the entire US
• Enables transparent coordination among schedules and ground operations
• Code-shares can market jointly but not set fares jointly (unless given antitrust immunity)
– Under antitrust immunity, carriers can establish incremental costs that will be divided amount
the carriers)
– Ownership restrictions
• Governments restrict the share of an airline that can be owned by foreign citizens
– In US, foreign ownership limited to 49% with a maximum of 25% of voting rights
– Alliances
• Cost reduction through competition and provides advantages
– Marketing: Increased size of networks give more exposure
– Nationality and Ownership Rules: Restrictions on purchasing other airlines that keeps
competitive advantage in check
– “Managed” Competition: Mutual agreements eliminates the need to compete with each other
– Provides a diversity of travel options and services for passengers
55. International Aviation
Star Alliance One World Alliance Sky Team
Air Canada American Airlines Aeroflot
Air China British Airways Aeromexico
Air New Zealand Cathay Pacific Air France
ANA Finnair Alitalia
Asiana Airlines Iberia China Southern Airlines
Austrian Japan Airlines Continental Airlines
bmi LAN CSA Czech Airlines
EGYPTAIR Maley Hungarian Airlines Delta Air Lines
LOT Polish Airlines Quantas KLM Royal Dutch Airlines
Lufthansa Royal Jordanian Airlines Korean Air
Scandinavian Airlines Northwest Airlines
Shanghai Airlines Air Europa
Singapore Airlines Copa Airlines
South African Airways Kenya Airways
Spanair
SWISS
TAP Portugal
THAI
Turkish Airlines
United
US Airways
Regional Members
Adria Airways
Blue1
Croatia Airlines
56. International Aviation
Summary
Internationalism and globalization have made the world smaller, and
international aviation facilitates many aspects of international interaction.
Whether it is transporting passengers for a vacation in a foreign land or
transporting heads of state to major meetings, the ability to move from
country to country depends on the cooperation of many departments and
agencies across the globe.
