Chapter 1

Question 1

What are the three key characteristics of Airline economics?

Answer 1

1. Airline travel is a Derived demand
2. Airline travel is a Homogenous good
3. Airline travel can not be stored

Question 2

Explain and give an example of derived demand.

Answer 2

A demand that arises due to the demand for something else. The demand to be in town for work.

Question 3

How does derived demand effect airline industries? What is the solution? NB

Answer 3

To estimate air travel demand they need to estimate demand for many other industries that require air travel. The solution is to vertically integrate into other industries.

Question 4

What is a homogenous good and how does it affect airline industries?

Answer 4

A good that is very similar to its alternatives. It pushes airlines to differentiate from competitors by service and by price. It creates little barriers to entry (other than capital).

Question 5

What does it mean when it is said that air travel cannot be stored? How does this effect the airline industry?

Answer 5

Empty seats are lost forever.
Airlines go to extreme lengths to minimise wastage by increasing load factors

Question 6

List and describe the five business models of the aviation industry.

Answer 6

1. Point to point - operates locally between two destinations
2. Radial network - operates between various hubs
3. Leisure/charter - provides transport to mainly holiday goers
4. Door-to-door freight - includes road, rail and air in most cases
5. Dedicated cargo - main focus is bulk freight transport

Question 7

List and describe the four reasons for continual airline industry growth.

Answer 7

1. Technological development - jet engines, larger aircraft; increased productivity with decreased unit cost
2. International liberalisation - more and more countries freed from regulation
3. Emergence of low-cost airlines - new routes at low cost
4. Increased household income

Question 8

What drives airline profitability?

Answer 8

generating unit revenues that exceed unit costs

Question 9

What do RASK and CASK stand for?

Answer 9

RASK - revenue per seat-Km
CASK - cost per seat-Km

Question 10

What three factors are behind rapid technological growth?

Answer 10

1. Jet engine development for civil use - efficient and powerful
2. Improved airframes and control systems - improves speed and size
3. Higher speed and larger aircraft - jumps in hourly productivity and economies of scale

Question 11

What are the first 6 freedom rights?

Answer 11

First - the right or privilege, in respect of scheduled international air services, granted by one State to another State or States to fly across its territory without landing

Second - the right or privilege, in respect of scheduled international air services, granted by one State to another State or States to land in its territory for non-traffic purposes

Third - the right or privilege, in respect of scheduled international air services, granted by one State to another State to put down, in the territory of the first State, traffic coming from the home State of the carrier

Fourth - the right or privilege, in respect of scheduled international air services, granted by one State to another State to take on, in the territory of the first State, traffic destined for the home State of the carrier

Fifth - the right or privilege, in respect of scheduled international air services, granted by one State to another State to put down and to take on, in the territory of the first State, traffic coming from or destined to a third State

Sixth - the right or privilege, in respect of scheduled international air services, of transporting, via the home State of the carrier, traffic moving between two other States