Latin American Airline Industry

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Latin American airline industry TAM Airlines is the largest airline in Latin America in terms of number of annual passengers flown. [16]Along the first countries to have regular airlines in Latin America were Colombia with Avianca, Chile with LAN Chile (today LAN Airlines), Dominican Republic with Air Dominicana, Mexico with Mexicana de Aviacion, Brazil with Varig, and TACA as a brand of several airlines of Central American countries (Honduras, El Salvador, Costa Rica, Guatemala and Nicaragua). All the previous airlines started regular operations before World War II.

The air travel market has evolved rapidly over recent years in Latin America. Some industry estimations over 2000 new aircraft will begin service over the next five years in this region. These airlines serve domestic flights within their countries, as well as connections within Latin America and also overseas flights to North America, Europe, Australia, Africa and Asia. Just one airline, LAN (Latin American Networks) has international subsidiaries: Chile as the central operation along with Peru, Ecuador, Argentina and some operations in the Dominican Republic.

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The main hubs in Latin America are Sao Paulo and Rio de Janeiro in Brazil, Bogota in Colombia, Caracas in Venezuela, Guayaquil in Ecuador, Lima in Peru, Mexico City in Mexico, Panama City in Panama, Buenos Aires in Argentina, Santiago in Chile and Santo Domingo in the Dominican Republic. [edit] Regulatory considerations [edit] National Pakistan International Airlines Boeing 747-300. The Government of Pakistan is the majority stake-holder in the country’s flag carrier. Many countries have national airlines that the government owns and operates.

Fully private airlines are subject to a great deal of government regulation for economic, political, and safety concerns. For instance, governments often intervene to halt airline labor actions in order to protect the free flow of people, communications, and goods between different regions without compromising safety. The United States, Australia, and to a lesser extent Brazil, Mexico, the United Kingdom and Japan have “deregulated” their airlines. In the past, these governments dictated airfares, route networks, and other operational requirements for each airline.

Since deregulation, airlines have been largely free to negotiate their own operating arrangements with different airports, enter and exit routes easily, and to levy airfares and supply flights according to market demand. The entry barriers for new airlines are lower in a deregulated market, and so the U. S. has seen hundreds of airlines start up (sometimes for only a brief operating period). This has produced far greater competition than before deregulation in most markets, and average fares tend to drop 20% or more.

The added competition, together with pricing freedom, means that new entrants often take market share with highly reduced rates that, to a limited degree, full service airlines must match. This is a major constraint on profitability for established carriers, which tend to have a higher cost base. As a result, profitability in a deregulated market is uneven for most airlines. These forces have caused some major airlines to go out of business, in addition to most of the poorly established new entrants. [edit] International Singapore Airlines Airbus A380 lands at Changi Airport.

The Singapore Airlines was the first international airline to operate the A380, the world’s largest passenger airliner. [17]Groups such as the International Civil Aviation Organization establish worldwide standards for safety and other vital concerns. Most international air traffic is regulated by bilateral agreements between countries, which designate specific carriers to operate on specific routes. The model of such an agreement was the Bermuda Agreement between the US and UK following World War II, which designated airports to be used for transatlantic flights and gave each government the authority to nominate carriers to operate routes.

Bilateral agreements are based on the “freedoms of the air,” a group of generalized traffic rights ranging from the freedom to overfly a country to the freedom to provide domestic flights within a country (a very rarely granted right known as cabotage). Most agreements permit airlines to fly from their home country to designated airports in the other country: some also extend the freedom to provide continuing service to a third country, or to another destination in the other country while carrying passengers from overseas. In the 1990s, “open skies” agreements became more common.

These agreements take many of these regulatory powers from state governments and open up international routes to further competition. Open skies agreements have met some criticism, particularly within the European Union, whose airlines would be at a comparative disadvantage with the United States’ because of cabotage restrictions. [edit] Economic considerations Juan Trippe, the founder of Pan American World Airways, surveying his globe. The collapse of Pan Am, an airline often credited for shaping the international airline industry, in December 1991 highlighted the financial complexities faced by major airline companies.

Historically, air travel has survived largely through state support, whether in the form of equity or subsidies. The airline industry as a whole has made a cumulative loss during its 120-year history, once the costs include subsidies for aircraft development and airport construction. [18][19] One argument is that positive externalities, such as higher growth due to global mobility, outweigh the microeconomic losses and justify continuing government intervention. A historically high level of government ntervention in the airline industry can be seen as part of a wider political consensus on strategic forms of transport, such as highways and railways, both of which receive public funding in most parts of the world. Profitability is likely to improve in the future as privatization continues and more competitive low-cost carriers proliferate. Although many countries continue to operate state-owned or parastatal airlines, many large airlines today are privately owned and are therefore governed by microeconomic principles in order to maximize shareholder profit. edit] Ticket revenue Airlines assign prices to their services in an attempt to maximize profitability. The pricing of airline tickets has become increasingly complicated over the years and is now largely determined by computerized yield management systems. Because of the complications in scheduling flights and maintaining profitability, airlines have many loopholes that can be used by the knowledgeable traveler. Many of these airfare secrets are becoming more and more known to the general public, so airlines are forced to make constant adjustments.

Most airlines use differentiated pricing, a form of price discrimination, in order to sell air services at varying prices simultaneously to different segments. Factors influencing the price include the days remaining until departure, the booked load factor, the forecast of total demand by price point, competitive pricing in force, and variations by day of week of departure and by time of day. Carriers often accomplish this by dividing each cabin of the aircraft (first, business and economy) into a number of travel classes for pricing purposes.

A complicating factor is that of origin-destination control (“O&D control”). Someone purchasing a ticket from Melbourne to Sydney (as an example) for AU$200 is competing with someone else who wants to fly Melbourne to Los Angeles through Sydney on the same flight, and who is willing to pay AU$1400. Should the airline prefer the $1400 passenger, or the $200 passenger plus a possible Sydney-Los Angeles passenger willing to pay $1300? Airlines have to make hundreds of thousands of similar pricing decisions daily. Lufthansa Boeing 747-400.

The advent of advanced computerized reservations systems in the late 1970s, most notably Sabre, allowed airlines to easily perform cost-benefit analyses on different pricing structures, leading to almost perfect price discrimination in some cases (that is, filling each seat on an aircraft at the highest price that can be charged without driving the consumer elsewhere). The intense nature of airfare pricing has led to the term “fare war” to describe efforts by airlines to undercut other airlines on competitive routes. Through computers, new airfares can be published quickly and efficiently to the airlines’ sales channels.

For this purpose the airlines use the Airline Tariff Publishing Company (ATPCO), who distribute latest fares for more than 500 airlines to Computer Reservation Systems across the world. The extent of these pricing phenomena is strongest in “legacy” carriers. In contrast, low fare carriers usually offer preannounced and simplified price structure, and sometimes quote prices for each leg of a trip separately. Computers also allow airlines to predict, with some accuracy, how many passengers will actually fly after making a reservation to fly.

This allows airlines to overbook their flights enough to fill the aircraft while accounting for “no-shows,” but not enough (in most cases) to force paying passengers off the aircraft for lack of seats. Since an average of ? of all seats are flown empty[citation needed], stimulative pricing for low demand flights coupled with overbooking on high demand flights can help reduce this figure. This is especially crucial during tough economic times as airlines undertake massive cuts to ticket prices in order to retain demand. [20] [edit] Operating costs An Airbus A340-600 of Virgin Atlantic Airways.

In October 2008, Virgin Atlantic offered to combine its operations with BMI in an effort to reduce operating costs. [21]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) In contrast, Southwest Airlines has been the most profitable of airline companies since 1973. citation needed] The widespread entrance of a new breed of low cost airlines beginning at the turn of the century has accelerated the demand that full service carriers control costs. Many of these low cost companies emulate Southwest Airlines in various respects, and like Southwest, they are able to eke out a consistent profit throughout all phases of the business cycle. [citation needed] As a result, a shakeout of airlines is occurring in the U. S. and elsewhere. United Airlines, Continental Airlines (twice), US Airways (twice), Delta Air Lines, and Northwest Airlines have all declared Chapter 11 bankruptcy.

Some[who? ] argue that it would be far better for the industry as a whole if a wave of actual closures were to reduce the number of “undead” airlines competing with healthy airlines while being artificially protected from creditors via bankruptcy law. On the other hand, some[who? ] have pointed out that the reduction in capacity would be short lived given that there would be large quantities of relatively new aircraft that bankruptcies would want to get rid of and would re-enter the market either as increased fleets for the survivors or the basis of cheap planes for new startups.

Where an airline has established an engineering base at an airport then there may be considerable economic advantages in using that same airport as a preferred focus (or “hub”) for its scheduled flights. [edit] Assets and financing The ‘Golden Lounge’ of Malaysia Airlines at Kuala Lumpur International Airport (KLIA). The airline has ownership of special slots at KLIA giving it a competitive edge over other airlines operating at the airport. Airline financing is quite complex, since airlines are highly leveraged operations.

Not only must they purchase (or lease) new airliner bodies and engines regularly, they must make major long-term fleet decisions with the goal of meeting the demands of their markets while producing a fleet that is relatively economical to operate and maintain. Compare Southwest Airlines and their reliance on a single airplane type (the Boeing 737 and derivatives), with the now defunct Eastern Air Lines which operated 17 different aircraft types, each with varying pilot, engine, maintenance, and support needs.

A second financial issue is that of hedging oil and fuel purchases, which are usually second only to labor in its relative cost to the company. However, with the current high fuel prices it has become the largest cost to an airline. While hedging instruments can be expensive, they can easily pay for themselves many times over in periods of increasing fuel costs, such as in the 2000–2005 period. In view of the congestion apparent at many international airports, the ownership of slots at certain airports (the right to take-off or land an aircraft at a particular time of day or night) has become a significant tradable asset for many airlines.

Clearly take-off slots at popular times of the day can be critical in attracting the more profitable business traveler to a given airline’s flight and in establishing a competitive advantage against a competing airline. If a particular city has two or more airports, market forces will tend to attract the less profitable routes, or those on which competition is weakest, to the less congested airport, where slots are likely to be more available and therefore cheaper.

Other factors, such as surface transport facilities and onward connections, will also affect the relative appeal of different airports and some long distance flights may need to operate from the one with the longest runway. [edit] Airline partnerships A Japan Airlines Boeing 777-300 with special Oneworld livery. Oneworld is the third largest airline alliance after Star Alliance and SkyTeam. Code sharing is the most common type of airline partnership; it involves one airline selling tickets for another airline’s flights under its own airline code.

An early example of this was Japan Airlines’ code sharing partnership with Aeroflot in the 1960s on flights from Tokyo to Moscow: Aeroflot operated the flights using Aeroflot aircraft, but JAL sold tickets for the flights as if they were JAL flights. This practice allows airlines to expand their operations, at least on paper, into parts of the world where they cannot afford to establish bases or purchase aircraft. Another example was the Austrian- Sabena partnership on the Vienna-Brussels-New York JFK route during the late ’60s, using a Sabena Boeing 707 with Austrian colors.

Since airline reservation requests are often made by city-pair (such as “show me flights from Chicago to Dusseldorf”), an airline who is able to code share with another airline for a variety of routes might be able to be listed as indeed offering a Chicago-Dusseldorf flight. The passenger is advised however, that Airline 1 operates the flight from say Chicago to Amsterdam, and Airline 2 operates the continuing flight (on a different airplane, sometimes from another terminal) to Dusseldorf.

Thus the primary rationale for code sharing is to expand one’s service offerings in city-pair terms so as to increase sales. A more recent development is the airline alliance, which became prevalent in the 1990s. These alliances can act as virtual mergers to get around government restrictions. Groups of airlines such as the Star Alliance, Oneworld, and SkyTeam coordinate their passenger service programs (such as lounges and frequent flyer programs), offer special interline tickets, and often engage in extensive codesharing (sometimes systemwide).

These are increasingly integrated business combinations—sometimes including cross-equity arrangements—in which products, service standards, schedules, and airport facilities are standardized and combined for higher efficiency. One of the first airlines to start an alliance with another airline was KLM, who partnered with Northwest Airlines. Both airlines later entered the SkyTeam alliance after the fusion of KLM and Air France in 2004. Often the companies combine IT operations, buy fuel, or purchase airplanes as a bloc in order to achieve higher bargaining power.

However, the alliances have been most successful at purchasing invisible supplies and services, such as fuel. Airlines usually prefer to purchase items visible to their passengers to differentiate themselves from local competitors. If an airline’s main domestic competitor flies Boeing airliners, then the airline may prefer to use Airbus aircraft regardless of what the rest of the alliance chooses. [edit] Environmental impacts Main article: Aviation and the environment MODIS tracking of contrails generated by air traffic over the southeastern United States on January 29, 2004.

Aircraft engines emit noise pollution, gases and particulate emissions, and contribute to global warming[22][23] and global dimming,[24] even though it is one of the least-polluting forms of travel in the world. Modern turbofan and turboprop engines are considerably more fuel-efficient and less polluting than earlier models. However, despite this, the rapid growth of air travel in recent years contributes to an increase in total pollution attributable to aviation, offsetting some of the reductions achieved by automobiles. In the EU greenhouse gas emissions from aviation increased by 87% between 1990 and 2006. 25] CO2 emissions from the jet fuel burned per passenger on an average 3200 kilometers (1992 miles) airline flight is about 353 kilograms (776 pounds). [26] Loss of natural habitat potential associated with the jet fuel burned per passenger on a 3200 kilometers (1992 miles) airline flight is estimated to be 250 square meters (2700 square feet). [27] In the context of climate change and peak oil, there is a debate about possible taxation of air travel and the inclusion of aviation in an emissions trading scheme, with a view to ensuring that the total external costs of aviation are taken into account. 28] The airline industry is responsible for about 11 percent of greenhouse gases emitted by the U. S. transportation sector. Boeing estimates that biofuels could reduce flight-related greenhouse-gas emissions by 60 to 80 percent. The solution would be blending algae fuels with existing jet fuel:[29] Boeing and Air New Zealand are collaborating with leading Brazilian biofuels maker Tecbio and Aquaflow Bionomic of New Zealand and other jet biofuel developers around the world. Virgin Atlantic and Virgin Green Fund are looking into the technology as part of a biofuels initiative. 30] [edit] Call signs Each operator of a scheduled or charter flight uses an airline call sign when communicating with airports or air traffic control centres. Most of these call-signs are derived from the airline’s trade name, but for reasons of history, marketing, or the need to reduce ambiguity in spoken English (so that pilots do not mistakenly make navigational decisions based on instructions issued to a different aircraft), some airlines and air forces use call-signs less obviously connected with their trading name.

For example, British Airways uses a Speedbird call-sign, named after the logo of its predecessor, BOAC, while SkyEurope used Relax. [edit] Airline personnel The various types of airline personnel include: Flight operations personnel including flight safety personnel. Flight crews, responsible for the operation of the aircraft. Flight crew members include: Pilots (Captain and First Officer: some older aircraft also required a Flight Engineer and or a Navigator) Flight attendants, (led by a purser on larger aircraft) in-flight security personnel on some airlines (most notably El Al) Groundcrew, responsible for operations at airports.

Ground crew members include: Aerospace and avionics engineers responsible for certifying the aircraft for flight and management of aircraft maintenance Aerospace engineers, responsible for airframe, powerplant and electrical systems maintenance Avionics engineers responsible for avionics and instruments maintenance Airframe and powerplant technicians Electric System technicians, responsible for maintenance of electrical systems Avionics technicians, responsible for maintenance of avionics Flight dispatchers Baggage handlers Ramp Agents Gate agents Ticket agents

Passenger service agents (such as airline lounge employees) Reservation agents, usually (but not always) at facilities outside the airport. Airlines follow a corporate structure where each broad area of operations (such as maintenance, flight operations(including flight safety), and passenger service) is supervised by a vice president. Larger airlines often appoint vice presidents to oversee each of the airline’s hubs as well. Airlines employ lawyers to deal with regulatory procedures and other administrative tasks. [citation needed] [edit] Industry trends

Map of scheduled airline traffic in 2009The pattern of ownership has gone from government owned or supported to independent, for-profit public companies. This occurs as regulators permit greater freedom and non-government ownership, in steps that are usually decades apart. This pattern is not seen for all airlines in all regions. [citation needed] The overall trend of demand has been consistently increasing. In the 1950s and 1960s, annual growth rates of 15% or more were common. Annual growth of 5-6% persisted through the 1980s and 1990s[citation needed].

Growth rates are not consistent in all regions, but countries with a de-regulated airline industry have more competition and greater pricing freedom. This results in lower fares and sometimes dramatic spurts in traffic growth. The U. S. , Australia, Canada, Japan, Brazil, Mexico,India and other markets exhibit this trend. The industry has been observed to be cyclical in its financial performance. Four or five years of poor earnings precede five or six years of improvement. But profitability even in the good years is generally low, in the range of 2-3% net profit after interest and tax.

In times of profit, airlines lease new generations of airplanes and upgrade services in response to higher demand. Since 1980, the industry has not earned back the cost of capital during the best of times. Conversely, in bad times losses can be dramatically worse. Warren Buffett once said that despite all the money that has been invested in all airlines, the net profit is less than zero. He believes it is one of the hardest businesses to manage. [citation needed] As in many mature industries, consolidation is a trend. Airline groupings may onsist of limited bilateral partnerships, long-term, multi-faceted alliances between carriers, equity arrangements, mergers, or takeovers. Since governments often restrict ownership and merger between companies in different countries, most consolidation takes place within a country. In the U. S. , over 200 airlines have merged, been taken over, or gone out of business since deregulation in 1978. Many international airline managers are lobbying their governments to permit greater consolidation to achieve higher economy and efficiency. [edit] See also Aviation portal Air ferry Air safety Airline complaints Airline timetable

Airliners. net Airlines of North America (book) Airport security Beyond rights Cargo airline Charter airline Federal Aviation Administration Flight planning FlightAware Government contract flight IATA – industry standards organization Low-cost carrier Red-eye flight Regional airline Transportation Security Administration [edit] Airline related lists Airline codes Airline liveries and logos List of airlines List of accidents and incidents on commercial airliners List of airline holding companies List of airline mergers and acquisitions List of defunct airlines List of hub airports List of largest airlines List of low-cost airlines

List of national airlines List of regional airlines Timeline of airline bankruptcies Special Service Request (SSR) Codes [edit] External links Chasing the Sun – History of commercial aviation, from PBS Global Aviation Markets Whitepaper on global markets for airlines [edit] Notes ^ Scheduled Freight Tonne – Kilometres ^ Scheduled Passengers Carried ^ The DC-3 Genesis of The Legend ^ http://www. centennialofflight. gov/essay/Commercial_Aviation/atlantic_route/Tran4. htm ^ http://www. centennialofflight. gov/essay/Commercial_Aviation/Bankruptcy/Tran9. htm ^ http://ostpxweb. ost. dot. gov/aviation/Data/stabilizationact. df ^ http://www. gao. gov/new. items/d04725r. pdf ^ http://www. oig. dot. gov/StreamFile? file=/data/pdfdocs/aa20011024. pdf ^ http://www. oig. dot. gov/StreamFile? file=/data/pdfdocs/cr2003092. pdf ^ http://www. dot. gov/affairs/carrierpayments. htm ^ http://www. treas. gov/offices/domestic-finance/atsb/ ^ Above the Pacific, by William Joseph Horvat, 1966, ISBN-13: 978-0816800001 ^ Jane, Jane’s airlines & airliners By Jeremy Flack, First Edition, 2003, ISBN-13: 978-0007151745 ^ AN INTORDUCTION TO TRAVEL AND TOURISM By PRAN NATH SETH, SUSHMA SETH BHAT ^ International Environmental Law By Bhatt Top 10 Airlines in Latin America By Arlene Fleming ^ http://www. singaporeair. com/mediacentre/pacontent/news/NE_1608. jsp ^ Wings of Desire, Guardian, Thursday February 23, 2006 ^ Airlines and the canine features of unprofitable industries Financial Times, September 27, 2005 ^ http://news. cheapflights. co. uk/flights/2009/05/recession-prompts-surge-in-cheap-flights. html ^ http://business. timesonline. co. uk/tol/business/industry_sectors/transport/article5037731. ece ^ International Civil Aviation Organization, Air Transport Bureau (ATB) (undated). Aircraft Engine Emissions”. http://www. icao. int/icao/en/env/aee. htm. Retrieved 2008-03-19. ^ Enviro. aero (undated). “What is the impact of flying? “. http://www. enviro. aero/Impactofflying. aspx. Retrieved 2008-03-19. ^ Travis, David J. (2002). “Contrails reduce daily temperature range” (PDF). Nature 418: 601. doi:10. 1038/418601a. http://facstaff. uww. edu/travisd/pdf/jetcontrailsrecentresearch. pdf. ^ EU press release (2006-12-20). “Climate change: Commission proposes bringing air transport into EU Emissions Trading Scheme”. Press release. ttp://europa. eu/rapid/pressReleasesAction. do? reference=IP/06/1862. Retrieved 2008-01-02. ^ “carbon-footprint-calculator”. TerraPass. com. http://www. terrapass. com/carbon-footprint-calculator/methodology-popup. html. Retrieved Feb 19, 2008. ^ “environmental impact of airline flights”. ecofx. org. http://ecofx. org/wiki/index. php? title=Airline. Retrieved Feb 19, 2008. ^ Including Aviation into the EU ETS: Impact on EU allowance prices ICF Consulting for DEFRA February 2006 ^ A Promising Oil Alternative: Algae Energy – washingtonpost. om ^ [http://seattletimes. nwsource. com/html/boeingaerospace/2003858756_boeingenergy30. html Boeing/aerospace | To go green in jet fuel, Boeing looks at algae | Seattle Times Newspaper KLM has made the first commerciel flight with bio-fuel in 2009. ] [edit] References “A history of the world’s airlines”, R. E. G. Davies, Oxford U. P, 1964 “The airline encyclopedia, 1909–2000. ” Myron J. Smith, Scarecrow Press, 2002 “Flying Off Course: The Economics of International Airlines,” 3rd edition. Rigas Doganis, Routledge, New York, 2002.

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