5. Airline operating costs( Individual work)

In October 2008, Virgin Atlantic offered to combine its operations with BMI in an effort to reduce operating costs.

Full-service airlines have a high level of fixed and operating costs in order to establish and maintain air services: labor, fuel, airplanes, engines, spares and parts, IT services and networks, airport equipment, airport handling services, sales distribution, catering, training, aviation insurance and other costs. Thus all but a small percentage of the income from ticket sales is paid out to a wide variety of external providers or internal cost centers.

Moreover, the industry is structured so that airlines often act as tax collectors. Airline fuel is untaxed because of a series of treaties existing between countries. Ticket prices include a number of fees, taxes and surcharges beyond the control of airlines. Airlines are also responsible for enforcing government regulations. If airlines carry passengers without proper documentation on an international flight, they are responsible for returning them back to the original country.

Analysis of the 1992–1996 period shows that every player in the air transport chain is far more profitable than the airlines, who collect and pass through fees and revenues to them from ticket sales. While airlines as a whole earned 6% return on capital employed (2-3.5% less than the cost of capital), airports earned 10%, catering companies 10-13%, handling companies 11-14%, aircraft lessors 15%, aircraft manufacturers 16%, and global distribution companies more than 30%. (Source: Spinetta, 2000, quoted in Doganis, 2002)

I’ve been in quite a few airports recently, and will be again later this month. While sitting at a gate, listening to a song on my iPod, my mind wandered to the days when I started flying in the ’50s, as a kid.

The world was different then; no iPods or CDs. The transistor radio was just invented. We had vinyl records and vacuum tubes.

There weren’t any jetways at the airport. There were no jets. My first flight was on a DC-7B Golden Falcon on Eastern Airlines. It seemed to take forever to get from Idewild Airport (now JFK) to San Juan. It wasn’t until 1966 that I flew on my first jet, a TWA Boeing 707.

We’ve come a long way since then, but the airlines and the airports are still using 20th century technology. I believe adopting new 21st century technologies would add efficiencies and passenger goodwill, which would have a major payout for the airlines.

The Internet, and cell phones have made portable international communication inexpensive and commonplace. We need the airlines to embrace the use of these communication tools.

We already purchase electronic airplane tickets (e-tickets) via the Internet. We can check into our flights and print boarding passes, via the Internet, but boarding passes can be easily lost, or become crumpled and unreadable. Moreover, while away from home, it’s often impossible to print boarding passes when we check into our flights via the Internet.

American Airlines at Chicago’s O’Hare and Los Angeles International airports has successfully created the e-cell-boarding pass. Rather than have to print a paper boarding pass, the airlines can text or email boarding passes to cell phones. No printer is necessary. A readable boarding pass bar code will show on one’s cell phone screen. What a great “green” initiative. The airlines should make e-cell-boarding passes the standard for everyone who has a cell phone.

Along with e-tickets and e-cell-boarding passes, it’s time for the e-cell-baggage receipt. Those tiny checked-in baggage receipts get lost more often than the baggage itself. The airlines should send the baggage receipt to your cell phone, and simultaneously keep a record in their system in case your cell phone fails.

It’s not just business people taking along laptop computers when they travel, it’s mom and dad, teens and twenty and older somethings too. Laptops are used for business and travel entertainment. Armed with DVDs, they can keep adults and kids entertained for hours, and with email becoming so ubiquitous in the 21st century, more travelers than not want to stay in touch with the office and loved ones at home.

The airlines are beginning to provide WIFI inflight. Many airports have WIFI available throughout most of their facilities. That’s great, but there is a problem. The problem is the same for both airports and airlines: power.

At airport gates you can see more than just a few travelers hunting for electrical outlets to recharge their laptops, cell phones, and other electronic devices. Recently, waiting for my flight at LAX, I counted only three duplex outlets for more than 300 passengers waiting at two adjacent gates.

After reviewing the configuration of domestic airlines’ plane’s configuration, I find that most don’t have nearly enough power outlets in economy to meet passengers’ needs. The airlines need to have at least two power outlets for every three seat set. On flights of more than two-and-a-half hours, many computers will run out of power, especially if they were in use at the airport.

Both airports and airlines need to add many more power outlets at the gate areas and in the planes. The investment in outlets and electricity will pay off handsomely with increased fees from WIFI access.

The airlines need to embrace RFID (radio-frequency identification) technology for checked-in luggage. By putting an RFID tag on each piece of checked-in luggage, and scanning at critical points in the luggage’s journey, the airlines will always know where it is, ensure it’s put on the right plane, and be able to trace it quickly if it goes astray. By reducing lost luggage claims the airlines could net millions from an RFID investment and increase passenger goodwill.

Jim Peters, of SITA (a leading company in air transport communication and IT solutions) said, “RFID is not a universal solution to the problem of mishandled baggage, but if implemented system-wide it could save the industry $750M annually by ensuring origin-to-destination tracking of baggage.”

It’s time the airlines brought themselves all the way into the 21st Century Technology Age.