Block 5 Airline Business, Airline Networks.
Airline business, Week 1:
§1.1 Airport potential forces
Every airport has two potential forces which are relevant for the airline.
The two potential forces:
Hub potential = quality = via
O+D potential = attractiveness + catchment area = to and from
For your home airport to become a hub potential, the hub quality needs to be exploit. It becomes a
via home product. For example at DTW, Detroit, the passengers only transfer at this home airport.
This makes it a hub potential.
For your home airport to become an O+D potential, the attractiveness and the catchment area need
to be exploit. It becomes a from and to-home product. For example, EIN, Eindhoven, the passengers
depart and arrive at this home airport. There are no transfer options so this makes it a O+D Potential.
In some situations the two potentials are combined for one airport. The airport is an O+D potential
and has also grown out to be a hub Potential. For example, AMS, Schiphol or LHR, London Heathrow.
The passengers see both airports as destinations but also as transfers. If this is the case, the airport
has to exploit quality, attractiveness and the catchment area.
The hub potential airport has a good geographic location. A few things are very important to give it
that sort of potential:
- Airway routing
- Directionality
- Capacity
- Time zone
- Connecting airlines
,§2.1 FCO O+D potential airport
The O+D potential airport, FCO has a good catchment area. A few things are very important to give it
that sort of potential:
• Population size
• Economic activity
• Wealth
• Accessibility
• Surface alternatives
• Surrounding airports
This potential also has a radius of 250 km and at least 12 million people living in this specific radius.
The airport of Rome, FCO has 40,9 million pax which are 45% intra EU and 25% domestic. FCO is
attractive to different markets (sort of passengers):
FCO also has direct competitors:
LEISURE MARKET EFVR MARKET BUSINESS MARKET
TO HOME Air transat Delta, united Skyteam
FROM HOME Blue panorama, United, American Skyteam
Neos airlines
Meridiana
,Airline business, Week 2:
§1.1 Airline economics, cost management
TOC = Total operation costs.
An airline produces many rotations operated by many aircraft. The challenge is to manage all these
different costs. The cost management depends on two factors:
• Cost allocation
• Cost control
Allocation = toewijzing
For cost allocation a few things are important to consider:
• Where do we generate which cost? → management dashboard
• What do we get from those costs? → cost effectiveness
• Are we cost competitive? → cost comparison
These questions are all required for optimizing the operation.
𝑻𝒐𝒕𝒂𝒍 𝒇𝒊𝒙𝒆𝒅 𝒄𝒐𝒔𝒕 + 𝒕𝒐𝒕𝒂𝒍 𝒗𝒂𝒓𝒊𝒂𝒃𝒍𝒆 𝒄𝒐𝒔𝒕 + 𝒕𝒐𝒕𝒂𝒍 𝒊𝒏𝒅𝒊𝒓𝒆𝒄𝒕 𝒄𝒐𝒔𝒕 𝒑𝒆𝒓 𝒚𝒆𝒂𝒓 = 𝑻𝒐𝒕𝒂𝒍 𝒄𝒐𝒔𝒕
𝑻𝒐𝒕𝒂𝒍 𝑪𝒐𝒔𝒕
= 𝑼𝒏𝒊𝒕 𝒄𝒐𝒔𝒕 (𝑪𝑨𝑺𝑲)
𝑻𝒐𝒕𝒂𝒍 𝑷𝒓𝒐𝒅𝒖𝒄𝒕𝒊𝒐𝒏 (𝑨𝑺𝑲′ 𝒔)
CASK is a commonly used measure of unit cost in the airline industry. CASK is expressed in
cents to operate each seat mile offered, and is determined by dividing operating costs by ASK’s.
This number is frequently used to allow a cost comparison between different airlines or for the
same airline across different time periods. A lower CASK means that it is easier for the airline to
make a profit, as they have to charge less to break even. A low CASK, however, is by no means
a guarantee of profitability.
CASK = Cost available seat kilometres.
, §1.2 Cost Allocation
(𝑻𝒐𝒕𝒂𝒍 𝒇𝒊𝒙𝒆𝒅 𝒄𝒐𝒔𝒕 𝒘𝒊𝒅𝒆 𝒃𝒐𝒅𝒚 𝒇𝒍𝒆𝒆𝒕 𝒑𝒆𝒓 𝒇𝒍𝒊𝒈𝒉𝒕 𝒉𝒐𝒖𝒓 ∙ 𝒇𝒍𝒊𝒈𝒉𝒕 𝒕𝒊𝒎𝒆)
+𝑻𝒐𝒕𝒂𝒍 𝒗𝒂𝒓𝒊𝒂𝒃𝒍𝒆 𝒄𝒐𝒔𝒕 𝒇𝒐𝒓 𝒕𝒉𝒊𝒔 𝒇𝒍𝒊𝒈𝒉𝒕
𝑻𝒐𝒕𝒂𝒍 𝒊𝒏𝒅𝒊𝒓𝒆𝒄𝒕 𝒄𝒐𝒔𝒕 𝒑𝒆𝒓 𝒚𝒆𝒂𝒓
+( ∙ 𝑨𝑺𝑴 𝒑𝒓𝒐𝒅𝒖𝒄𝒆𝒅 𝒃𝒚 𝒇𝒍𝒊𝒈𝒉𝒕) = 𝑪𝒐𝒔𝒕 𝒑𝒆𝒓 𝒇𝒍𝒊𝒈𝒉𝒕
𝑻𝒐𝒕𝒂𝒍 𝑨𝑺𝑴
𝑻𝒐𝒕𝒂𝒍 𝒄𝒐𝒔𝒕 𝒇𝒍𝒊𝒈𝒉𝒕 𝑩 𝒕𝒐 𝒉𝒐𝒎𝒆 𝑻𝒐𝒕𝒂𝒍 𝒄𝒐𝒔𝒕 𝒇𝒍𝒊𝒈𝒉𝒕 𝒉𝒐𝒎𝒆 𝒕𝒐 𝑭
+ = 𝑪𝒐𝒔𝒕 𝒑𝒆𝒓 𝑷𝒓𝒐𝒅𝒖𝒄𝒕
𝑵𝒓. 𝒐𝒇 𝒔𝒆𝒂𝒕𝒔 𝒏𝒂𝒓𝒓𝒐𝒘 𝒃𝒐𝒅𝒚 𝑵𝒓 𝒐𝒇 𝒔𝒆𝒂𝒕𝒔 𝒘𝒊𝒅𝒆 𝒃𝒐𝒅𝒚
𝑴𝒂𝒙𝒊𝒎𝒖𝒎 𝑼𝒕𝒊𝒍𝒊𝒛𝒂𝒕𝒊𝒐𝒏 − 𝑨𝒄𝒕𝒖𝒂𝒍 𝒖𝒕𝒊𝒍𝒊𝒛𝒂𝒕𝒊𝒐𝒏 𝒐𝒇 𝒑𝒓𝒐𝒅𝒖𝒄𝒕𝒊𝒐𝒏 𝒄𝒂𝒑𝒂𝒄𝒊𝒕𝒚 = 𝑪𝒐𝒔𝒕 𝒐𝒇 𝒄𝒐𝒏𝒏𝒆𝒄𝒕𝒊𝒗𝒊𝒕𝒚
Airline business, Week 1:
§1.1 Airport potential forces
Every airport has two potential forces which are relevant for the airline.
The two potential forces:
Hub potential = quality = via
O+D potential = attractiveness + catchment area = to and from
For your home airport to become a hub potential, the hub quality needs to be exploit. It becomes a
via home product. For example at DTW, Detroit, the passengers only transfer at this home airport.
This makes it a hub potential.
For your home airport to become an O+D potential, the attractiveness and the catchment area need
to be exploit. It becomes a from and to-home product. For example, EIN, Eindhoven, the passengers
depart and arrive at this home airport. There are no transfer options so this makes it a O+D Potential.
In some situations the two potentials are combined for one airport. The airport is an O+D potential
and has also grown out to be a hub Potential. For example, AMS, Schiphol or LHR, London Heathrow.
The passengers see both airports as destinations but also as transfers. If this is the case, the airport
has to exploit quality, attractiveness and the catchment area.
The hub potential airport has a good geographic location. A few things are very important to give it
that sort of potential:
- Airway routing
- Directionality
- Capacity
- Time zone
- Connecting airlines
,§2.1 FCO O+D potential airport
The O+D potential airport, FCO has a good catchment area. A few things are very important to give it
that sort of potential:
• Population size
• Economic activity
• Wealth
• Accessibility
• Surface alternatives
• Surrounding airports
This potential also has a radius of 250 km and at least 12 million people living in this specific radius.
The airport of Rome, FCO has 40,9 million pax which are 45% intra EU and 25% domestic. FCO is
attractive to different markets (sort of passengers):
FCO also has direct competitors:
LEISURE MARKET EFVR MARKET BUSINESS MARKET
TO HOME Air transat Delta, united Skyteam
FROM HOME Blue panorama, United, American Skyteam
Neos airlines
Meridiana
,Airline business, Week 2:
§1.1 Airline economics, cost management
TOC = Total operation costs.
An airline produces many rotations operated by many aircraft. The challenge is to manage all these
different costs. The cost management depends on two factors:
• Cost allocation
• Cost control
Allocation = toewijzing
For cost allocation a few things are important to consider:
• Where do we generate which cost? → management dashboard
• What do we get from those costs? → cost effectiveness
• Are we cost competitive? → cost comparison
These questions are all required for optimizing the operation.
𝑻𝒐𝒕𝒂𝒍 𝒇𝒊𝒙𝒆𝒅 𝒄𝒐𝒔𝒕 + 𝒕𝒐𝒕𝒂𝒍 𝒗𝒂𝒓𝒊𝒂𝒃𝒍𝒆 𝒄𝒐𝒔𝒕 + 𝒕𝒐𝒕𝒂𝒍 𝒊𝒏𝒅𝒊𝒓𝒆𝒄𝒕 𝒄𝒐𝒔𝒕 𝒑𝒆𝒓 𝒚𝒆𝒂𝒓 = 𝑻𝒐𝒕𝒂𝒍 𝒄𝒐𝒔𝒕
𝑻𝒐𝒕𝒂𝒍 𝑪𝒐𝒔𝒕
= 𝑼𝒏𝒊𝒕 𝒄𝒐𝒔𝒕 (𝑪𝑨𝑺𝑲)
𝑻𝒐𝒕𝒂𝒍 𝑷𝒓𝒐𝒅𝒖𝒄𝒕𝒊𝒐𝒏 (𝑨𝑺𝑲′ 𝒔)
CASK is a commonly used measure of unit cost in the airline industry. CASK is expressed in
cents to operate each seat mile offered, and is determined by dividing operating costs by ASK’s.
This number is frequently used to allow a cost comparison between different airlines or for the
same airline across different time periods. A lower CASK means that it is easier for the airline to
make a profit, as they have to charge less to break even. A low CASK, however, is by no means
a guarantee of profitability.
CASK = Cost available seat kilometres.
, §1.2 Cost Allocation
(𝑻𝒐𝒕𝒂𝒍 𝒇𝒊𝒙𝒆𝒅 𝒄𝒐𝒔𝒕 𝒘𝒊𝒅𝒆 𝒃𝒐𝒅𝒚 𝒇𝒍𝒆𝒆𝒕 𝒑𝒆𝒓 𝒇𝒍𝒊𝒈𝒉𝒕 𝒉𝒐𝒖𝒓 ∙ 𝒇𝒍𝒊𝒈𝒉𝒕 𝒕𝒊𝒎𝒆)
+𝑻𝒐𝒕𝒂𝒍 𝒗𝒂𝒓𝒊𝒂𝒃𝒍𝒆 𝒄𝒐𝒔𝒕 𝒇𝒐𝒓 𝒕𝒉𝒊𝒔 𝒇𝒍𝒊𝒈𝒉𝒕
𝑻𝒐𝒕𝒂𝒍 𝒊𝒏𝒅𝒊𝒓𝒆𝒄𝒕 𝒄𝒐𝒔𝒕 𝒑𝒆𝒓 𝒚𝒆𝒂𝒓
+( ∙ 𝑨𝑺𝑴 𝒑𝒓𝒐𝒅𝒖𝒄𝒆𝒅 𝒃𝒚 𝒇𝒍𝒊𝒈𝒉𝒕) = 𝑪𝒐𝒔𝒕 𝒑𝒆𝒓 𝒇𝒍𝒊𝒈𝒉𝒕
𝑻𝒐𝒕𝒂𝒍 𝑨𝑺𝑴
𝑻𝒐𝒕𝒂𝒍 𝒄𝒐𝒔𝒕 𝒇𝒍𝒊𝒈𝒉𝒕 𝑩 𝒕𝒐 𝒉𝒐𝒎𝒆 𝑻𝒐𝒕𝒂𝒍 𝒄𝒐𝒔𝒕 𝒇𝒍𝒊𝒈𝒉𝒕 𝒉𝒐𝒎𝒆 𝒕𝒐 𝑭
+ = 𝑪𝒐𝒔𝒕 𝒑𝒆𝒓 𝑷𝒓𝒐𝒅𝒖𝒄𝒕
𝑵𝒓. 𝒐𝒇 𝒔𝒆𝒂𝒕𝒔 𝒏𝒂𝒓𝒓𝒐𝒘 𝒃𝒐𝒅𝒚 𝑵𝒓 𝒐𝒇 𝒔𝒆𝒂𝒕𝒔 𝒘𝒊𝒅𝒆 𝒃𝒐𝒅𝒚
𝑴𝒂𝒙𝒊𝒎𝒖𝒎 𝑼𝒕𝒊𝒍𝒊𝒛𝒂𝒕𝒊𝒐𝒏 − 𝑨𝒄𝒕𝒖𝒂𝒍 𝒖𝒕𝒊𝒍𝒊𝒛𝒂𝒕𝒊𝒐𝒏 𝒐𝒇 𝒑𝒓𝒐𝒅𝒖𝒄𝒕𝒊𝒐𝒏 𝒄𝒂𝒑𝒂𝒄𝒊𝒕𝒚 = 𝑪𝒐𝒔𝒕 𝒐𝒇 𝒄𝒐𝒏𝒏𝒆𝒄𝒕𝒊𝒗𝒊𝒕𝒚
