Aviation Logistics and Supply Chain Management 1st

JUST SAY IT

Aviation Logistics and Supply Chain ManagementMAE FAH LUANGUNIVERSITY Aviation Logistics Business Program

TABLE OF CONTENTS AVIATION LOGISTICS WORLD OF AVIATION Logistics Activities Technology in Air Transport Intro to aviation business Other Transportation modes The aviation system Characteristics of Airline Industry THE VIABILITY OF AIR FREIGHT GLOBALISATION TRENDS The environment of Air Transport Value of goods, Urgency product, Global Aviation Business Cost, Weight, Dangerous goods Market Trends in Aviation Business Demand for Air Travel AVIATION LOGISTICS AND SUPPLY CHAIN Intro to Aviation LCM Flows of LCM Value Chain Management SUPPLY CHAIN AND AVIATION BUSINESS Air Transportation Categories of need Trends of Air transportiii

AIRLINES COSTS ANALYSIS Typical costs break down Cost distribution Unitising cost DataAIRLINE PRICING AND REVENUE Airline Pricing and Strategy Revenue Management Fleet and Costs/RevenueLCM’S STRATEGY What’s SWOT Analysis Instruction (How do they do) Checklist for more questionsSTRATEGY DEVELOPMENT Case Study Group Discussion Aviation Logistics and Supply Chain Management iv

CHAPTERWORLD OF AVIATION Intro to aviation business The aviation system Characteristics of Airline Industry

Aviation at the centre ofFUTURE JOURNEYS Aviation Logistics and Supply Chain Management 006

HISTORIES OF TRANSPORTATION Source: Thomas Friedman 1492 - 1800 EU 2000 - Today Globalisation 1.0 EU, USA, ASIA Sea, VESSEL Globalisation 3.0 Sea port Air, AIRPLANE River, Canal, SHIP Airport city River port GLOBALISATION EU, USA Globalisation 2.0 Railway, TRAIN Sea port Road, TRUCK River port 1800 - 2000007

GOVERNMENT Government Transportation dept. IAnvdiuatsitorny AIRPORT Airport management Ground handling Fuel suppliersRELATED AIRLINESORGANISATIONS Airline Aircraft Manufacturers IT providers Equipment manufacturers Catering MRO Provider ATC Aviation Logistics and Supply Chain Management 008

COMPONENTS OF AVIATION INDUSTRY Source: Andreas Wittmer, 2011 Government Airports Airlines Government Airport management Airline Transportation dept. Ground handling IT providers Fuel suppliers Catering Providing Infrastructure Economic Regulation, Providing Nodes of Air transport Flying (flight operation) Aerospace planning and systems, Facility Operation, Handling passengers and Management Air Transport Service Freight (Cargo) International Affairs as State009

Related Organisation Regulators Customers Aircraft Manufacturers ICAO Passenger Equipment manufacturers IATA Freight MRO Provider FAA ATC DCA (Thailand) Customers Tour OperationProviding Aircraft Safety Oversight Business customersProviding Aircraft maintenance License Oversight Travel ServiceProviding air traffic controlProving necessary information Aviation Logistics and Supply Chain Management 010

THE AVIATION SYSTEM Economic SystemSource: Bigger, Wittmer Social System SUPPLY SIDE DEMAND SIDE Aircraft GroundManufactures Services MARKET Consumer Tour Customers OperationsAirlines Industry Associations Business Travel Customers ServicesAirports Regulators Political/ Regulatory Ecological System Technological System System011

WHY AIR TRANSPORTATION WORKSSource: Ian Martin Jones When speed of delivery over a long distance is the most important factor in the global transportation of commercially valuable cargo, then using an Aircraft to move the raw materials or goods is the only answer. Speed to Market Aviation Logistics and Supply Chain Management 012

AVIATION BUSINESS +5.72013 % YEARLY TRAFFIC GROWTH Source: Demand Forecast, IATA, 2014 over the past 30 years Aviation business Annual growth in air travel 2,000 Twice Annual growth in GDP Airlines companies Expected to double over next 23,000 Aircrafts operating 10-15 Years Providing service to over 3,700 Airports In 2010, there were; >28 Million scheduled flights Carried over >2 Billion passengers013

WORLDWIDE COMMERCIAL FLIGHTOVER a 24 HOURSSource: National Air Traffic Service Aviation Logistics and Supply Chain Management 014

CHARACTERISTICS OF AVIATION INDUSTRY Source: Prof. Dr.Yoo Kwang Eui, 2015 Impact of Technological Development High growth rate Marginal Profitability015

CHARACTERISTICS OF AVIATION INDUSTRY Source: Prof. Dr.Yoo Kwang Eui, 2015Impact of Technological Development High speed and wide body aircraft Lower fuel consumption due to engine technology Lower unit costs; Popularisation Financial Pressure; Procuring New Technology Aircraft Aviation Logistics and Supply Chain Management 016

CHARACTERISTICS OF AVIATION INDUSTRY Source: Prof. Dr.Yoo Kwang Eui, 2015 High growth rate Higher growth rate than any other industry and any other mode of transport Relatively Young Industry; Popularisation in 1970 Increasing Income, Decreasing Fare Globalisation – International Long Distance Travel Increased Desire To Travel – Leisure, VFR Safety and Smoothness of Flights Deregulation: Competitive, Entry, Fare, Operation017

HIGH GROWTH RATE ForecastSource: Prof. Dr.Yoo Kwang Eui, 2015 YEARPASSENGER MOVEMENTS (MILLIONS)300250200 Actual150100 50 01991 - 92 1993 - 94 1995 - 96 1997 - 98 1999 - 00 2001 - 02 2003 - 04 2005 - 06 2007 - 08 2009 - 10 2011 - 12 2013 - 14 2015 - 16 2017 - 18 2019 - 20 2021 - 22 2023 - 24 2025 - 26 2027 - 28 2029 - 30 Aviation Logistics and Supply Chain Management 018

CHARACTERISTICS OF AVIATION INDUSTRY Source: Prof. Dr.Yoo Kwang Eui, 2015 Marginal Profitability Vulnerable to risk on security (war, epidemic, etc.) Price Competition caused by deregulation High Financing Costs for New Aircraft 5-6 years reasonable profit, 2-4 years of losses Unstable due to new development and constraints; Regulatory, Operational and Technological Vulnerable to Overall Economic Environment019

MARGINAL PROFITABILITYSource: Prof. Dr.Yoo Kwang Eui, 2015Trends in unit operating costs on service of ICAO scheduled airlines, 1960-1988US CENTS PER AVAILIBLE TONNE-KM120100 Constant 1985 value 806040 Current values200 YEAR 1960 1965 1970 1975 1980 1985 1990Note: Current values adjusted to constant 1985 values using OECD Consumer Price Index (excluding Turkey)Source: Compiled using ICAO data. Aviation Logistics and Supply Chain Management 020

021

CORE PRODUCTSource: IATA, 2014 64% 36%Passenger Service Freight Service Aviation Logistics and Supply Chain Management 022

TOP 10 NETWORK CARRIES AIRLINE (THOUSANDS PASSENGERS) Source: IATA, 2014 American Airlines 129,433 Southwest Airlines China Southern Airlines PASSENGERS United Airlines 129,087 Delta Air Lines PASSENGERS Ryanair China Eastern Airlines 100,683 EasyJet PASSENGERS Lufthansa 90,439 Air China PASSENGERS 87,830 PASSENGERS 86,370 PASSENGERS 66,174 PASSENGERS 62,309 PASSENGERS 59,850 PASSENGERS 54,674 PASSENGERS023

Aviation Logistics and Supply Chain Management 024

TOP 10 CARGO CARRIES(MILLIONS FREIGH TONNE)Source: IATA, 2014 FedEx Express 16,020 Emirates SkyCargo TONNE UPS Airlines Cathay Pacific Cargo 11,240 Korean Air Cargo TONNE Lufthansa Cargo Singapore Airlines Cargo 10,936 Qatar Airways Cargo TONNE Cargolux China Airlines Cargo 9,464025 TONNE 8,079 TONNE 7,054 TONNE 6,019 TONNE 5,997 TONNE 5,753 TONNE 5,266 TONNE

Aviation Logistics and Supply Chain Management 026

CUSTOMER Source: Polina Grushanskaya, 2011 Experience/ Quality Comfort and excellent service Convenience In-flight Entertainment Food and Beverage Perceived value for money Cost, no loyalty End-to-end passenger process027

COMPETITION Source: F.A.Airline companiesCOMPETITION among airlines business,especially in the low cost airline segment, hasbecome more aggressive.5Years agoLow cost airlines increased their competitive capacitiesas seen from the significant market share.2013-2015Revenues for low cost players grew at a higher pace.2015Sky Policy will increase regional competition andinvestment in Thailand's airline industry, Aviation Logistics and Supply Chain Management 028

GLOBAL AIRLINE ALLIANCES MEMBERSHIP Source: CAPA Center for Aviation, 2011 SKY TEAM FOUNDED: 2000 Korean Air Vietnam Airlines KLMAeroflot Russia Airlines TAROM Air France CSA Czech Airlines China Southern Airline Kenya Airways Delta Airlines Air Europa Aeromexico Alitalia STAR ALLIANCE FOUNDED: 1997 ONE WORLD FOUNDED: 1999 Continental Airlines Span air South African Airways Air China Turkish Airlines Lufthansa Aegean Airlines Swiss International Airlines Japan Airlines TAP Air Brussels Airlines Croatia Airline Royal Jordanian Cathay Pacific LOT Polish Airlines Air Canada Asiana Airlines American Airlines S7 Airlines Austrian Airlines Singapore Airlines Iberia Finnair British Airways Adria Airways Air New Zealand Blue Airlines QantasMalev Hungarian Airline LAN Thai Airways British Midland Airlines United SAS Scandinavian Airlines US Airways Egyptair TAM Linhas Aereas All Nippon Airways029

WORLDWIDE NETWORKSource: www.ausbt.com.au STOCKHOLM MOSCOW LONDON BERLIN BRUSSELS MILAN LAS VEGAS NEW YORK PARIS ROME SEOUL OSAKASAN FRANCISCO CAIRO DUBAI BEIJING TOKYO LOS ANGELES MUMBAI HONG KONG HONOLULU BANGKOK KUALA LUMPUR SINGAPORE RIO DE JANEIRO BUENOS AIRES JOHANNESBURG PERTH SYDNEY Aviation Logistics and Supply Chain Management 030

TOP 10 AIRLINES BASE ON 2.9 BILLION NET PROFITS U.S. DOLLARS Source: Statist, 2014 1.5 BILLION American Airlines Emirates U.S. DOLLARS Japan Airlines 1.3 BILLION IAG U.S. DOLLARS Southwest Airlines United Continental Holdings 1.3 BILLION Ryanair U.S. DOLLARS Turkish Airlines 1.1 BILLION Easy Jet Air China U.S. DOLLARS031 1.1 BILLION U.S. DOLLARS 1.1 BILLION U.S. DOLLARS 0.8 BILLION U.S. DOLLARS 0.7 BILLION U.S. DOLLARS 0.7 BILLION U.S. DOLLARS

WORLD OF AVIATION HISTORIES OF CHARACTERISTICS OF TRANSPORTATION AVIATION INDUSTRY Sea transport, Road Technology development,transport, and Air transport Hight growth rate, Marginal COMPONENTS OF profitability AVIATION INDUSTRY GLOBAL AIRLINES Government, Airports, Airlines, Related Customer Competition Organisations, Regulators, Alliance membership Customers TOP 10 CARRIERS CORE PRODUCT Passenger carrier Passenger services, and Freight carrier Cargo services Airline highest profit