Tuesday, October 4, 2011

The Airline Industry 101

In my first few weeks of work, I've learned a lot about the airline industry, and since I'm an educator to my very soul, I thought I'd pass along some of that learning.

I sat through a 5 day course entitled, " Introduction to Aviation" with an entire group of UAE Nationals. What was most funny about this was the instructor's first question, "What is your opinion of the state of the airlines right now?" In my mind I was thinking "terrible" based on the the last several years of cost cutting by US carriers and increases in all kinds of charges from baggage to food to even water on a flight we recently took to Spain. But, to my surprise, the entire class responded with "great". It was another realization that the airline industry here in the Middle East is booming, while in the US it's going bankrupt. We later learned that what happens to the airlines starts in the US, then moves to Europe, then Asia and finally hits the Middle East. Does this mean Etihad will start charging for baggage? Hard to say - I sure hope not.

The most fascinating thing for me was the whole business of airlines. Due to skyrocketing fuel prices, the margins on a single flight are really very low (industry average puts it at 3-4%). And the costs an airline incurs are mind blowing. You may have read about a new plane that Airbus is currently working on - the A380. It going to be 2 stories with showers, a lounge and they even talked about a small basketball court!! Incredible! And only a mere $350 Million Dollars ... per plane!! Rumor has it Etihad has ordered 10 of them. Makes it sound like a rich company, but it's just not. The margins are so low that it's really hard to make a profit ... at least outside the Middle East. We were told that for British Airways (and I'm sure this is the case for many of the US carriers as well) their pension debt is so high that it's worth more than the airline itself. Back in the day, they gave very generous pensions that are now coming due, and with people living a lot longer, ending up more costly than any one anticipated. Since the Middle East carriers are still so new, even if they offer pensions (which many don't), they won't have to start paying out on them for a number of years yet.

Another fascinating thing (well, to me anyway - are you still awake?) is the timeline airlines have to operate with. Due to a backlog of orders, most airlines wait 3-5 years for their ordered plane(s) to be delivered. Talk about having to plan ahead! Our trainer said the airline industry needs to be always thinking 10-15 years into the future in order to make sound business decisions. What a switch from Telecommunications where you could barely plan 6 months in advance because things are changing so quickly. 

Okay, so that I don't bore you for too long (I do want you to come back after all) I'll end with some interesting tidbits:
  • As many as 20% of ticketed passengers never show up for their flight. This is why most airlines overbook their seats to an extent and why sometimes we're asked to get voluntarily bumped from a flight.
  • Airlines have to pay each country's government for the permission to fly over their airspace. In addition, they have to pay the airport for landing fees based on the size of the aircraft and terminal fees per passenger. No wonder ticket prices are so high!
  • They also have to pay for a 'slot' to land at a given airport. London Heathrow is considered the busiest international airport in the world and a landing slot can cost upwards of $20 Million (yes, that's US dollars!!!) This slot gives you the permission to land one plane at that airport for life. YIKES!
But of course the MOST INTERESTING thing I've learned so far is how to cash in on my employee flight discounts, which includes unlimited flights at 50-90% off the published fare to anywhere Etihad flies ... for me, Brian, my parents and his parents. WOW, what a generous perk - can't wait to start taking advantage!

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