Fly By Wire Air is a one-stop shop for the aviation enthusiast. You will find aviation apparel, RC hobby planes, items for the historic aviation buff and even products and services for amateur pilots. We hope you will enjoy visiting our site. When you think of flying – Fly By Wire.

Tag Archives: Per-Passenger Profits

WHERE ARE WE GOING ?

GOI#1

 

If one were to scan the progress of air travel over the past 100 years, they would view a picture of great progress.  Though at times this progress was made at a slow but steady pace, it often grew by leaps and bounds due to advances in both technology and training.  During this blog, we’ll look at several current aviation trends and their impact upon its future.

While the civil aviation industry continues to maintain both profits and growth, it is still sensitive to a number of market drivers.  For example, the world economy is expected to grow at a mid-range pace over the next twenty years.  Oil prices are now approaching the $70 per barrel price range, but they could reach as high as $100 per barrel by 2030.  Many airlines are now adopting a culture based upon financial management, in which the emphasis is on per-passenger profits.  While discount fare and other incentive programs support revenue growth, they create a situation of a high number of passengers at a low profit per passenger.  To remedy this, airlines in the future will invest in a growing number of right-sized aircraft to increase per passenger profit yields.  Over the past three years, per passenger profit yields have decreased by $3 per passenger, while net profit across the airline industry has decreased by 1% over the past two years.  The use of right-sized aircraft will partially reduce the need for sweeping fare discounts in order to fill an aircraft.

In 2016 approximately 80% of all global air routes were composed of regional air traffic.  The regional air route segment is currently experiencing the greatest growth, with increases of five per cent, per year anticipated over the next twenty years.  While these routes generate the greatest per passenger yield, they are mostly served by older aircraft having a 20 to 60 passenger capacity.  As these aircraft are retired, they will need to upgrade both their technology and capacity.  The latest trend in regional air routes is the paired city concept.  Many aircraft servicing these routes have a capacity of 100-150 seats with relatively high per passenger profit yields.  Globally, regional air traffic has increased by twenty per cent over the past two decades and is projected to increase at least that amount over the next twenty years, according a number of air traffic studies.  In China, the government encourages the city-pair concept to stimulate growth in low volume markets, while Russia and Africa have increased city-pair traffic in recent years.  Hubs will become less important as global point-to-point traffic increases.

Along with changes in aircraft, look for changes in the design of airports.  The staffing of airports could shrink due to improvements in technology and safety.  The future trend for airports is one of a travel experience, as opposed to a mere transit point.  They now offer dining, shopping, and a number of activities.  With the current technology of airport processes, passengers now have more leisure time, and this pattern is expected to increase in the future.  With increased passenger traffic, airports will increase in both size and profitability.  In the United States, the FAA mandated Next Gen system, replacing ground-based airspace navigation to a satellite-based system which uses GPS should offer more precise navigation and traffic control at major airports, streamlining air traffic.

A negative factor of air travel in its environmental impact.  Global aviation is responsible for about two per cent of the world’s carbon dioxide emissions-a situation projected to get worse over the coming decades.  While airlines and governments are acting to reduce some of the impact, limited success has been achieved so far.  However, one must realize that fuel represents 30% to 40% of an airlines operating costs, putting airlines in the position of developing more fuel efficient aircraft.  For example, the Boeing 737 MAX series of jetliners have winglets designed to reduce drag and improve fuel efficiency by as much as 2%.  Such a small amount could add up to millions of dollars over the service life of an aircraft.  Attacking the problem from the other end, an increasing number of airlines have begun to use biofuel mixtures in their operations.  Biofuels, which are both more efficient and emit less carbon than fossil fuels, have been phased into service by several major airlines.  United Airlines partnered with the AltAir refinery to provide biofuel to the airline’s hub at Los Angeles, purchasing fifteen million gallons at a 30% blend over a three-year period.  Though not a substantial proportion based upon current airline usage, the United effort holds promise for the future.

Finally, despite the marketing tools of economy airlines and discounted fares, airlines still generate a healthy profit from business and first class passengers.  By offering the soft amenities such as meal service and amenity kits, airlines are able to market their in-flight experience.  To enhance that experience a number of airlines partner with celebrity chefs, such as Daniel Boulud (Air France) to create specialized menus or contract with outside brands, such as TUMI, to provide upscale amenity kits.  This practice will continue to grow, for those who can afford the tickets, the sky is the limit.

AME#1