UNIVERSITY OF MUMBAI PROJECT REPORT ON AIRWAYS AS A MODE OF TRANSPORTATION IN LOGISTIC MANAGEMENT SUBMITTED BY XYZ
DECLARATION I XYZ, STUDENT OF XYZ COLLEGE HEREBY DECLARE THAT I HAVE COMPLETED THIS PROJECT ON 14th SEP 2009 TITLED AS AIRWAYS AS A MODE OF TRANSPORTATION IN LOGISTIC MANAGEMENT THE INFORMAYION SUBITTED IS TRUE & ORGINIAL TO THE BEST OF MY KNOWLEDGE
SIGN OF STUDENT
CERTIFICATE I HERE BY CERTIFY THAT SHWETA KASARE STUDENT OF XYZ COLLEGE HAS COMPLILED A PROJECT ON AIRWAYS AS A MODE OF TRANSPORTATION IN LOGISTIC MANAGEMENT IN THE ACADEMIC YEAR 2009 -2010. THE INFORMATION IS TRUE & ORGINAL & OF MY KNOWLEDGE
SIGN OF PROJECT GUIDE
SIGN OF CORDINATOR
SIGN OF PRINCIPAL
o I would like to thank the University Of Mumbai for giving me an opportunity to undertake the project on AIRWAYS AS A MODE OF TRANSPORTATION IN LOGISTICS MANAGEMENT o I am grateful to my project guide Prof XYZ for giving me vital information and also guiding me throughout the project. o I would like to thank our Principal XYZ, Coordinator Prof. XYZ and all the faculty and support staff of XYZ COLLEGE for supporting me in this project. o I would also like to thank my family and friends for always being on my side throughout this project.
EXECUTIVE SUMMARY In the first chapter logistics is explained in that it is the art& science of managing &controlling the flow of good, energy, information &other resources like product, services &people from the source of production to the market price In the second chapter transportation is explain in that it plays a vital role in economic success by allowing for the safe &efficient distribution of good& service throughout thee supply chain In the third chapter air transportation is explain in that it is one of the best prototypes of the future world where all human activities will be integrated including administration, company &contractor. An optimal air transportation system must combine conflicting interest like safety, low fares &noise acceptable for an airport neighbors In the fourth chapter civil aviation is explain in that is main function is ton over seeing the provision for airport facilities, air traffic service carriage of passenger &good by air, safe guarding civil aviation operation regulation of air transport service etc In fifth chapter cargo airline are explain in that cargo airlines are those in which good are transported, there notable cargo airline like European air transport ,ups blue dart aviation air bridge cargo etc In sixth chapter air cargo securities plays a very important role in this due to the malpractices &other illegal things securities is necessary to over come all this con sequences conclusion both domestic international cargo are poised to grow according to the projection the major reasons are increase in over seas trade, Indian economic policies inventory concerns etc
INDEX SR NO 1 2
TOPICS LOGISTIC MANAGEMENT TRANSPORTATION
CARGO AIR LINES
AIR CARGO SECURITY
QUESTIONARIES ON AIRCARGO CONCLUSION BIBLOGRAPHY
CHP 1- LOGISTICS MANAGEMENT
INTRODUCTON Logistics is the art and science of managing and controlling the flow of goods, energy, information and other resources like products, services, and people, from the source of production to the marketplace. It is difficult to accomplish any marketing or manufacturing without logistical support. It involves the integration of information, transportation, inventory, warehousing, material handling, and packaging. The operating responsibility of logistics is the geographical repositioning of raw materials, work in process, and finished inventories where required at the lowest cost possible Logistics is concerned with getting products and services where they are needed and when they are desired. In a modern society most if the customers take excellent logistics service from company as granted and tend to notice logistics only when there is a problem. For Example- Non availability of goods and services which they need very badly, when they visit retail store they expect goods to be in good condition, for ex- fresh fruits, meat, vegetables and the like. It is difficult to visualize accomplishing any manufacturing and marketing actively, efficiently and effectively without any logistical support. Logistics is a broad far reaching function, having a great impact on the standard of living of a modern society.
TYPES OF LOGISTICS Business Logistics- It is the part of the supply chain process that plans, implements and controls the efficient flow and storage of goods and services from point of origin to point of use or consumption. Military Logistics- The design and integration of all aspects of support for the operational capability of the military forces and their equipments to ensure readiness, reliability, and efficiency Event Logistics- The network of activities, facilities and personnel required to organize, schedule and deploy the resources for an event to take place. Service Logistics-The acquisition, Scheduling, and management of the facilities personnel and material to support and sustain a service operation or business. Logistics Management Logistics management is a process of planning, executing, and controlling the efficient, effective, flow and storage of goods and services, and related information from point of origin to point of consumption for the purpose of conforming to customer requirement.
Objectives of Logistics Management • • • •
To make available the right quantity of right quality products at the right place and time in right condition. To offer best service to consumers. To reduce the cost of operations. To maintain transparency in operations.
Functions of Logistics • • • • • •
Products are ordered, billed/invoiced, handled, packaged, packed, wrapped, bundled, sorted, crated, and braced. Products are assembled and stored, warehoused, loaded, unloaded, shelved, displayed and crossdocked. Products are shipped by air, railways, waterways, pipelines, and containers. Products are exported, imported, documented marked and consolidated. Products are traced, tracked, recycled and disposed. Logistics customers service standards are set(time, availability, errors etc)
Other Functions • • • • • •
Breaking Bulks Accumulating Bulk Creating Assortments Transaction Efficiency Credit Facilities Risk Taking
Introduction Transportation plays a key role in economic success by allowing for the safe and efficient distribution of goods and services throughout the supply chain. Transportation links the various integrated logistics activities. Without transportation, the integrated logistics system breaks down. Some view transportation as the glue that holds the entire system together. Without the transportation link raw material cannot flow into the warehouses and plants, nor can be finished product flow out of the plant to field warehouses and finally to the customer. If a product is not available at the precise time it is needed, there may be expensive repercussions, such as lost sales, customer dissatisfaction, and production downtime, when the product is being used in the manufacturing process.
Transportation Functionality Transportation is the most visible of all functions of logistics and high contributor to logistics cost. We can see trucks, containers and wagon loads of material being moved from place to place as an activity directly associated with trade and business. We should also appreciate that this is an activity that adds highest amount of cost to the activity of making inputs and outputs available to consumers. Transportation function moves the products to meet customer expectations at minimum cost.
PRODUCT MOVEMENT :
What is moved? Raw material, semi finished items, WIP, finished goods, packaging material, rejected material movement is required up or down the supply chain. How is this done? What resources are used? Resources used by transportation: a. Temporal -- product is locked up during transit, hence inaccessible. We have to spend a positive amount of time in transporting material. Time is a resource [temporal resource] that is expended in transportation. During the time the product is locked up costs are incurred in proportion to the time. b. Financial -- several cost elements like administration costs, salaries, maintenance costs are expended. Loss on account of product loss and damage also needs to be accounted for. c. Environmental -- Fuel consumed is a big cost in transportation. This activity is a fuel guzzler, eats up natural fuels like oil, directly and indirectly. 67% of all domestic fuel usage in the US is by transportation activity. Creates congestion, air pollution and noise pollution. Environmental cost is tangible and sustainability intangible. As transportation utilizes temporal, financial and environmental resources items must be moved only when product value is enhanced.
B. PRODUCT STORAGE : Temporary storage in stationery vehicles kept moving on a circuitous route. Product storage is expensive in a transport vehicle. But some times keeping overall cost in mind this is adopted. a. When unloading and loading is more expensive than storage. b. When storage space is limited. [situation when inventory levels
are very high
Principles of Transportation
Economy of scale
It is common knowledge that per unit transportation cost comes down as the bulk of the items transported increases. Hence in order to gain benefits in terms of reduction in transportation costs logistician tries to consolidate the bulk and then ship the consignment rather than shipping half truck loads or half container loads. This benefit is Economy of scale. The fixed costs in transportation includes administrative costs of taking the transportation order, time to position the vehicle for loading and unloading, invoicing and equipment cost. These do not vary with the volume of shipment. The administrative cost of shipping 1 kg of goods and 1000 kg of goods is same. When scale increases, the economies in scale are achieved because fixed expenses associated with moving a load are spread out, thereby decreasing costs per unit of weight. E.g. suppose the cost to administer a shipment is $ 10.00. Then the 1-pound shipment has per a unit of weight cost of $10.00, while the 1,000 pound shipment has per a unit of weight cost of $0.01. Thus, it can be said that an economy of scale exists for the 1000-pound shipment.
Economy of distance
The transportation cost per kilometer comes down as the distance moved increases. Hence transportation is planned in a single long lap rather than number of short laps to reach the destination. The fixed costs and costs like overheads of loading and unloading are spread over the distance through which the load is moved. E.g. a shipment of 1000 miles will cost less than two shipments (of the same combined weight) of 500 miles. Transportation economy of distance is also referred to as Tapering principle since rates or charges taper with distance. The rationale of distance economies is similar to that for economies of scale. Longer distances allow the fixed expenses to be spread over more miles, resulting in lower overall per mile charge. When alternate transportation strategies are evaluated to meet customer service expectation, economy of scale and economy of distance are fundamental. Participants & transportation Normal commercial transaction has limited number of parties to the business decision. They are seller, buyer and directly or indirectly government. But a transportation decision has number of parties to the decision. These parties have
very important roles to play in transportation environment. Parties to a transportation decision are those who have a stake in transportation. They are 1. Shipper: shipper (or Consigner) is a party who wants to transport the goods to his customer in a business transaction. â€˘ â€˘
Consignee is the party to whom the goods are sent Carrier is the service provider who carries the consignment from shipper to consignee.
2. Government has a role to play as they are keenly interested in transportation and have a stake in it. Transportation makes business happen which is fundamental to the economy of any society. Economic prosperity to the society is the objective of the government of the day. Government also collects tax on the transaction. Government represents general public whose interest they have to protect. 3. General public is another party who has a large stake in the transaction involving transportation. Public want goods produced at different parts of not only country but also world. Their demand can not be met without transportation.
Impact of transportation mode on other costs associated with transportation. (Or Important elements of Transportation that adds to
Transportation costs.) a. Modal Movement costs: cost of power to drive the vehicle of transport depends on the mode selected. b. Inventory costs: it is quite clear that inventory holding costs are temporal costs and are directly proportional to the transit time. Longer the inventory is in transit, larger are the costs. Transit capital remains blocked during transit time and unavailable for use. Mode of transport determines the transit time and thereby influences these costs. c. Obsolescence: Specially, when the transit time is quite large, the inventory can become redundant when it arrives at the point of use. We know that in the changed environment, product life cycles are shrinking and hence this costs becomes highly relevant. Other situations are product deterioration time & expiration date of the product. d. Packaging: These costs are mode dependent as bad road condition needs robust packaging and smooth transit does not need such packaging. This will also depend on handling system. e. Insurance: this cost obviously proportional to risk of damage and loss in transit as this is liability of carrier.
f. Breakage: this depends on smoothness of transit and handling system associated with the mode. g. Pilferage: this cost can be eliminated by switching to options like container transport. h. Customer Service Costs: shortage of product when demanded by the customer leads to customer dissatisfaction and thereby loss of sale for the company. So customer service should be raised to be able to meet customer expectations. When we try to raise customer service level costs are incurred. Conventionally, companies stockpile to raise service level. But the current thinking is to increase response time to customer need rather than increase the stock, as stock of inventory are well understood. This is done by improving information flow to anticipate demand and reduce transit time by changing to faster mode of transport. The second method is cheaper than the conventional. But rise in customer service beyond a certain level does not result into increased revenue. In other words it is only cost and not value.
Transport Infrastructure Infrastructure is the main facilitator for any activity to take place. For transportation to take place a strong infrastructure is primary. If this infrastructure is inadequate transportation gets slowed down resulting into a major obstacle in the growth of trade and business in that area. ďƒš Elements of transportation infrastructure 1. Terminal facilities: well maintained loading unloading facilities, space for movement of vehicles, platforms railways yards. 2. Vehicles: trucks, ships or wagons depending on the mode. Their size, shape & speed. 3. Right of way: passage to move on. Rails, roads, airways, limitations on speed, weight, height etc. if we use this particular passage. 4. Prime movers: the power houses moving the vehicle of transport shortage of which seriously affect transportation. Shortage of good locomotives impairs the utility of railway as a mode of transport. 5. Carrier organizations: are the transportation service providers in business. Transportation is their core business. Good service provides a vital fillip to business and trade. Railways, roadways, airlines, shipping lines are service providers.
Modes of Transportation There are five major modes of freight transportation, airlines, motor carries, pipelines, railroads and water carriers. Each of these modes has distinct characteristics that give them advantage over the others. Which mode is the best depends on the freight hauled cost, speed, reliability, capacity, length of haul and flexibility.
Rail Network Rail network is fully owned and operated by government of India. This major step for facilitating movement of goods throughout the country at a very low cost for promoting trade and business in the country. Rail network stands for maximum tonne kilometers moved in India now, thereby being an important mode of transport in the country. Rail network accounts for 226 billion tonne kilometers and 55.8% of total tonne kilometers moved in 1982 in India. Rail network needs a high capital investment due to the right of way, switching yards, terminals but it operates with low running costs. To capitalize on this basic advantage, railways focus on specific products rather than on broad range. In the US, inter modal transport by railways through alliances and acquisition is practiced to provide hassle free service to customers. We can see an example of this practice in their courier business.
Various modes of transport are used for taking the parcel to the addressee by this business.
Advantages of Rail Transport • • • •
Capability to efficiently transport large tonnage over long distances. Speed of operation. Useful for heavy and bulk products. Intermodal operations have also expanded through alliances. Rail roads are even concentrating on development of special equipment. There are unit trains where the entire train carrying the same commodity, which are bulk products such as coal or food grains. Unit trains are faster, less expensive to operate and quick as it can bypass rail yards and go direct to the products destination. There are also various types such as articulated cars for extended rail chasis, double stack railcars, having two levels of containers, thereby doubling the capacity of each car.
Disadvantages of Rail Transport • • • •
Not effective for small loads and short distances. Less flexible. Moves only on specific routes. Secondary transportation is needed. In India, certain items are moved on priority – particular items might not be on priority list. (food, oil, coal, steel etc. are on priority list)
Cost in Rail Transport • • •
Railroad operations incur high fixed costs because of expensive equipments, right of way. (Railroads must maintain their own track), switching yards and terminals. Rail experiences relatively low operating costs. The replacement of steam by diesel power reduces the railroads variable costs. Electrification offers potential for more reductions. New labour agreements have reduced work force requirements, further decreasing variable costs.
Road Transport Road transport is rapidly pulling the carpet from under the feet of railways, as we saw earlier, post world war. Its popularity is growing everyday. In India, 179.2 billion tonne kilometers were moved by roadways in 1982. This is 44.2% of total tonne kilometers moved by all modes as against 55.8% by railways.
Important features of this mode of transport are discussed below:•
• • •
High flexibility and speed: - this is the strength of roadways. No other mode can connect any given pair shipper consignee as roadways. Neither any other mode can handle the variety as roadways do. As there is no need for shunting and waiting for as in railways, road transport reaches the goods to the consignee very fast. Ultimate mode transport: - irrespective of the mode chosen ultimately the consignment reaches the doorsteps of the customer by road. Low capital costs as compared to railways: - railways obviously need huge amount of capital for setting up the infrastructure in view of the need of rails for movement. This feature along with flexibility forms the formidable strength of this mode.
Operating costs are higher: due to fuel requirement and higher labor requirement. This feature makes roadways ideal for small shipments over short distances. Occasional fuel shortages: as the fuel is not available in full measure in the country internally scarcity is experienced once in a while. Disputes with government: on account of conflicting interests between the parties to transportation decision. We have experience transportation contractors or carriers going on strikes to project their problems with the government. Vehicle availability: limited availability trucks pose a constraint to this business. Now as more and more truck manufactures have come into business this facility is likely to be short lived. Maintenance and spares costs and availability of service facilities: as the road networks quite extended and reaches deep in the rural India non availability of such services is a problem. Octroi: is along standing grouse of carriers. Octroi posts are notorious for delays and harassment of carriers. Old motor vehicles act: the legislation that controls movement of vehicles on the roads is an important law for this business. There is a feeling that this law is now outdated and new legislation should made to tackle the challenge of current business environment. Bad and unsafe road conditions: pathetic condition of our roads a major stumbling block for business which causes delays, accidents and damage. Restrictive permits: carriers resent restrictive regime of permits and licenses imposed by the government all over the country.
Problems faced by Road Transport •
Pathetic road conditions
Shortage of quality fuels (adulteration problem).
Increasing cost of accessories and components.
Wastage of time at octroi check post in doing formalities.
Restriction of movement of vehicles on all India basis.
Requirement of specific road permits.
Non availability of professional persons.
Non recognition from industry.
Advantage of Road Transport •
Door to door service to customer which neither rail nor sea nor air transport can offer.
Very flexible as they can operate on all types of roads.
Transport is quite speedy.
Highest availability since they can drive directly from origin to destination.
Highly suitable for short distances.
Disadvantages of Road Transport •
Delays in transit time due to bad road condition and climatic hazards
Unsuitable for very heavy and large size loads.
Unsuitable for very long distance.
More chance of accidents and damages to goods.
Costs in Road Transport In companies to railroads, motor carriers have relatively small fixed investment in terminal facilities and operate on publicly maintained highways. Although the cost of license fees, user fees, and tolls are considerable, these expenses are directly related to the number of units and miles operated. (On per unit basis, the cost of making a road is 1/6th that of laying a railway line.) 1. Capital investment in case of roadways is much less than railways designed to carry equivalent quantum of traffic. •
2. The variable cost per mile for motor carriers is high because a separate power unit and driver is required for each trailer or combination of tandem tailors.
Water Transport This mode is the link between countries separated by water. Business is known to have existed between far off lands for long time in the past. Sailing vessels existed since that far away times. Example: Mechanized water transport came into being in the form of steam ships since 1800; diesel driven ships came into existence since 1920. Water transport is classified into deep water transportation and navigable inland water transportation or domestic water transportation on lakes, rivers or canals. Main advantage of water transportation is its capacity to move extremely large shipment at a very low cost. Inland water transport is not used to its full potential in India although we have used mechanized Inland Water Transport [IWT] since early 1800. Lack of clarity in thinking receding water levels in rivers and tough competition offered by other modes of transport appear to the hurdles.
Main features of water transport are the following: • • • • • • •
Low capital costs and low operating costs. Low speed. Capacity to carry huge bulk. Limitation due to availability of harbor. Maneuverability is low due to size. Deep water ships designed for ocean and lakes are limited to deepwater ports. Shallow water vessels like diesels towed barges are flexible but are limited by their range of operations and speed.
Advantages of Water Transport • • •
The main advantage of water transportation is the capacity to move extremely large shipments. Suitable for long distances and large volume shipments. The capability to carry very high cargo at an extremely low variable cost places this mode of transport in demand when low freight rates are desired and speed of transit is secondary consideration. Regularity in sailing.
Disadvantages of Water Transport • •
The main disadvantage of water transport is the limited range of operation and low speed. Unless the port and destination are adjacent, supplementary haul by rail or truck is required.
Labour restrictions on loading and unloading at docks create operational problems and tend to reduce the potential range of available traffic.
Costs in Water Transport •
Water transport ranks between rail and motor carrier in the fixed cost aspect. Although water carriers must developed and operate their own terminals, the right –of – way is developed and maintained by the government and results in moderate fixed costs as compared to railways and highways. Though operating costs are high, it is spread over large volumes and hence the cost per unit is low.
Air Transport Generally, this transport mode is used in emergency rather than in normal times.
Main features of this mode of transport • • • • • •
Speed of transport is highest. Fixed costs are lower than rail or road or pipeline. But operating costs are highest. Air transport brings distant market closer perishables market in gulf countries. Overcomes the hassle and cost of setting up depots and service centers overseas. Full potential of peak seasonal demand can be exploited moving entire facility to meet peak demand. Test marketing is easy. Product can be shipped directly from the factory as time of high importance.
Advantages of Air Transport • • • • • • • •
Brings distant and new market within the reach Extends export market Meets seasonal demand at fastest rate Reduces time of delivery for urgent needs Flexibility in carrying goods of varied nature Minimum handling of cargo and hence less damages Low insurance premium due to less transit time Helps in meeting committed delivery time.
• • •
Minimum handling of cargo & hence less damages Low insurance premium due to less transit time Helps in meeting committed delivery times.
Disadvantages of Air Transport • • • • •
Comparatively costly mode of transport Caters on primary transport [airport to airport only] Certain categories of items are not allowed to be transported [hazardous goods as specified by IATA] Facilities not available through out the country Shipping space available is limited
Cost in Air Transport • •
The air transport costs are highest The fixed cost of air transport is low as compared to rails, water & pipeline. In fact Air transport ranks second only to highway with respect to low fixed cost. Airways & airports are maintained by governments [airport authority]. Thus fixed costs of airfreight are associated with aircraft purchase & requirement for specialized handling systems and cargo containers. The variable cost, however is extremely high as a result of fuel maintenance & lab our intensity of both in flight and ground crews.
Pipeline Transport Pipelines What is transported in a pipeline? Generally liquids like oils, crude, petroleum products are transported in a pipeline. In India pipelines are extensively used for transporting crude and petroleum products. More than 5000km of pipeline exists in India for crude and petroleum products. In addition to the products above slurries, gases, vapors and solids in powder form are also transported in pipelines. Slurries-coal slurry, iron-ore, lime, huge quantity of water is necessary which a concern is for an environment is. In India pipeline is used for transporting iron ore. Gases and vapors- natural gas, LPG, in India LPG pipeline in existence.
Main Features of this Mode of Transport
Reliable all weather means of transport •
Low energy consumption o o o
Pipeline being under ground space occupation in minimal Pipeline operates all the time except when it is shut down for maintenance No empty container or wagon to be brought back
Highest fixed costs, due to right of way and laying of pipeline, and lowest operating costs [ not labor intensive]
• • •
Not flexible by nature. Pipelines are stationery Physical state of the commodity to be transported is limitation. This mode of transport can release capacity of other modes for transport for essential commodities.
Advantages of Pipeline Transport •
Reliable & Continuous Mode o o o o o o o
All Seasons- All Whether Mode of Transport Low Energy Consumption & hence Low Cost Lower Operating & Maintenance Cost Under Ground hence No Additional Space Required Can Reach To Remote & Distant Places Transit Losses Are Minimum Cheapest Mode Of Transport
Disadvantages of Pipeline Transport
Ideal only For Continuous Operations (Bulk Products) Only For Bulk Liquid & Gas Transportation So Far Restricted To Very Few Route National Consensuses Are Required Continuous Vigilance Is Required
Costs in Pipeline Transport
Pipelines have highest fixed cost and lowest variable cost among transport modes
High fixed costs results from right- of – way, construction and requirements for control stations, and pumping capacity.
Since pipelines are not labour intensive, the variable operating cost is extremely low once the pipeline has been constructed.
Rope Ways Transport Used for transporting materials in hilly and otherwise inaccessible area. Fruits produced in hilly area are brought to low land for further transportation to consumption centers. This mode is good when gradients are steep as road or rail would take a very long route to negotiate the gradient. Ropeways cause minimum ecological imbalance. Ropeways connect point of supply & demand by shortest route.
Advantages of rope ways transport • • •
Transports bulk materials over short distance Lower capital costs Ideal for Hilly areas
Disadvantages of rope ways transport • •
Limited scope of operations Slowest mode of transport
Intermodal Operators Intermodal operators: They use two or more carriers of different modes in the through movement of a shipment, to take advantage of the inherent economy of each mode. Piggyback / TOFC: (Road + Rail) The best-known and most widely used Intermodal system is the trailer on a flatcar (TOFC). Piggyback or trailer- on flatcar (TOFC) is a specialized form of containerization in which rail and road transport coordinate.
In piggyback, the carrier places the carrier trailer on a rail flatcar, which moves the trailer by rail for long distances. A motor carrier then moves the trailer for short-distance pickups and deliveries. This service combines the long haul, low-cost advantage of rail with accessibility of motor. Road – Railers or Trailer – Trains: (Road + Rail) using single vehicle They combine motor & rail transport in a single piece of equipment. The road-railer resembles a conventional motor carrier (truck) trailer. However, the trailer has both rubber truck tiers & steel rail wheels. Over highways, tractor power units transport the trailers in the normal way, but instead of placing the trailer on a flatcar for rail movement, the wheels of the trailer are retracted & the trailer rides directly on the rail tracks. The advantages of this inter modal form of transport are that rail flatcars are not required & that the switching time to change wheels on the trailer is less than loading and unloading the trailer from the flatcar. The major disadvantages of road-railers are the added weight of the rail wheels, which reduces fuel efficiency & results in higher movement costs in addition to the higher cost of the equipment. The disadvantages have tended to outweigh the advantages, resulting in very low usage of this inter modal option.
Container on Flat Car (COFC) Railways offer double – stack cars, which allow two containers to be transported on one railcar. This type of service allows a shipper to transport goods over water and surface without having to waste time and money unloading and reloading trailers or railcars. COFC allows for inexperience and efficient transportation of a wide variety of goods. Fishy - back There are two 1) Train – ship & 2) Container – ship. These are examples of the oldest form of Intermodal transport. They utilize waterways, which is one of the least expensive modes for line – haul movement. The fishy back train – ship and containership concept loads a truck trailer, railcar, or container onto a barge or ship for the line haul move. Birdy - back It is a combination of Air & Truck Movement.
A variant of this Intermodal option is the “LAND BRIDGE” concept, which moves containers by a combination of sea and rail. The Land Bridge concept is based on the benefit of ocean and rail combination that utilize a single tariff, which is lower than the total cost of the separate rates. The goods can be transported by water transferring the shipment to surface transport and again finish by water transport. E.g. A container coming to JNPT from a foreign destination will be placed on a rail car and transported to Chennai from where it will again be loaded on a vessel for transferring to say port Blaire. The other two international options are Mini Land Bridge and Micro Bridge. Mini Bridge Mini Land Bridge is a variant of land bridge in which freight movement is only water – land movement. Mini – land Bridge (also called as Mini Bridge) is a special case of land bridge where foreign cargo originates or terminates at a point within the same country.
Micro Bridge It is a relatively new service being provided by ports in contrast with mini bridge. This service provides door-to-door rather than port-to-port transportation. The big advantage of micro bridge is that it provides a combined rate, in clubbing rail and ocean transportation on, in a single tariff that is lower than the sum of the separate rates.
Transport Formats In addition to classifying transportation by mode, another common grouping is the legal status or format of carrier operating authority. From an operating authority perspective there are four carrier classes: Common, Contract, Private, and Exempt
COMMON CARRIERS: The basic foundation of public transportation system is the common carrier. Common carriers have the responsibility to offer service at nondiscriminatory prices to the public. They have the right to transport all commodities, or it may limit transport to specialized commodities such as steel, specified and indicates if such service is to be on a scheduled or unscheduled basis. E.g.: BEST bus or Auto rickshaw is a type of common carrier-with regulations on area of operation, rates, number of passengers etc.
CONTRACT CARRIERS: Contract carriers provide transport services for select customers. Although, contract carriers must receive authorization, requirements are normally less restricted than common carriers operating authority. The basis for the contract is an agreement between a carrier and a shipper [customer using the service] for a specified transportation service at a previously agreed cost. PRIVATE CARRIERS: A private carrier consists of a firm providing its own transportation. Private carriers are not for hire and are not subject to economic regulation, although they must comply with regulations concerning hazardous goods movements, employee safety, vehicle safety, and other social regulations established by government agencies.The firm must own or lease the transport equipment and provide managerial direction, regarding transportation operations. The primary distinction between private and for-hire carriage is that the transportation activity must be incidental to the primary business of the firm to qualify as private carrier. Earlier, the private carrier was required to own a product it transported that is no longer the case. Now pvt. Carriers can transport goods for another company to reduce â€œempty milesâ€?.
EXEMPT CARRIERS: Exempt carriers, as their name implies, are not constrained by economic regulation. The traditional exemption was for specified, commodities hauled or market served. Typical exempt commodities include unprocessed agricultural products and extracted raw materials. Typical exempt markets include unprocessed agricultural products and extracted raw materials. Typical exempt markets include the zones around airports or metropolitan areas. Exempt carriers, however must comply with the licensing and safety laws of the states in which they operate. If the exempt carrier is engaged in interstate movement, rates must be published.
CHP-3 AIR TRANSPORTATION
Objective Air Transport Industry is one of the best prototypes of the future world where all human activities will be integrated including administrations, companies and contractors. In that respect Air Transport Industry gives an idea of the world for which PageBox has been designed. This document does not explain how to travel at a bargain price. However it also gives background information that can help you making clever choices.
Why Air transport is special To provide its service Air Transport Industry must combine the effort of: • • •
people who sell the service, for instance Travel Agents; people who operate aircrafts, airlines; people who operate airports;
• • •
traffic controllers; customs; police;
Because this service is provided across countries, it also requires the cooperation of governments. Aircrafts are one of the most blatant applications of military research to civil needs. A company that knows how to make civil aircrafts also knows how to make military aircrafts. A civil aircraft can be used to carry troops. A pilot can pilot a military aircraft. For these reasons Air Transport activities have been subsidized, protected and heavily regulated. Aircrafts are one century old. In the first half century progress has been extremely fast with frequent breakthroughs. In the second half century progress has been much smaller. Aircraft speed did not increase; the most significant changes, wide body and turbo fans took place at the same time as the legacy organization described below. On the other hand this is only then that Air Transport changed people life. Like computers and Internet now, aircrafts used to incarnate modernity and to trigger the same kind of passion. Air Transport did not have to be profitable. Air Transport early became a global industry requiring the cooperation of independent organizations, private companies of different size and civil servants. These organizations communicated in a B2B model well before the 2000’. Another aspect is the weight of the legacy. With so many involved countries with so different resources, interests and timetables the big bang is never an option. The Air transport system must remain compatible with 20-years old equipments. As a consequence the Air Transport system is increasingly complex and maybe the main contribution of the computers has been to enable this growing complexity. An optimal Air Transport system must combine conflicting interests like safety, low fares and noise acceptable for Airport neighbours. The involved organizations are different lifecycles. You can create a Travel Agency in a couple of days and an Airline in a couple of months but you must plan a new Airport twenty years in advance. Such a system needs regulations and the problem is to identify which regulations are needed and which regulations actually protect special interests.
Legacy organization We chose to start with the Air Industry organization put in place in the 70’s and the 80’s. This organization has roots in the Convention relating to the Regulation of Aerial Navigation signed in Paris, October 13, 1929 and in the Convention for the Unification of Certain Rules Relating to International Transportation by Air signed at Warsaw, October 12, 1929. For an update of the Warsaw convention, just read a passenger ticket. A regulation authority was put in place, the IATA that stood for International Air Traffic Association between 1919 and WWII and stands for International Air Transport
Association since 1945. See the IATA history pages for the whole story. IATA has two functions: 1. trade Association (technical, legal, financial, traffic services and most agency matters); 2. tariff Coordination (passenger fares and cargo rates, agents' commissions). There are three things to keep in mind: 1. The scope of IATA encompasses all Air Transport activities. 2. IATA only controls International flights. However because they must comply with the IATA processes the involved parties tend to apply the same processes to domestic flights. 3. However do note expect to find anything for free. Nowadays much of the IATA's revenues come from selling its products and services to Member airlines, to other airlines and to other companies involved in the travel, transport and tourism industry. Some companies were created. The most important in an historical perspective are SITA, OAG and ATPCO. Society International des communications aeronautiques (SITA) handles shared communication means, including network and devices. For instance when you check-in or board the PC and the device used to print and process the boarding pass does not belong to the Airline. For the next departure from the same gate another airline will reuse those PC and device. Such shared equipments are often installed and maintained by SITA. Computer Reservation systems, later called Global Distribution Systems (GDS), were created by Airlines to allow Travel Agents to make online bookings. Then four GDSs emerged from a consolidation phase, which account for 85% of CRS terminals, Saber created by American, World span created among others by Delta and Northwest, Galileo and Amadeus created by European airlines. These super GDSs are huge transactional systems that process around 5000 requests per second from 40000 to 50000 terminals. They operate mainframe clusters running Operating Systems from IBM (TPF) and Unisys (OS/2200). They initially operated only hierarchical networks with protocols like X25 and character data streams. Now they also support TCP and Internet access. GDSs allow making booking on airlines that accept to pay a booking fee. GDSs are more and more independent of their founding companies. OAG stands for Official Airline Guide. This book is published by the homonymous company and contains the airline schedule information, so for every flight essentially: â€˘ â€˘
the departure and destination airports, the departure and arrival times,
the flight number.
Today the OAG maintains an airline schedules database, which holds flight details for 1000 airlines and more than 3000 airports and is updated around ten times a second. Airline Tariff Publishing Company (ATPCO) is a fare distributing company. This paper presents its work. On this diagram we see that airlines publish their fares as well as application rules. A rule can specify that a fare only applies if the traveler stays on the destination on Saturday night. Rules are written in a format that can be processed by computers. For an entertaining presentation of the Air Transport regulations and Authorities play the Journey Flash file on UK Civil Aviation Authority site.
International Air Transport The Paris convention has been superseded by the Chicago Convention signed on December 7th 1944. You can find a printable excerpt that contains the most interesting articles here. Here is the most important: Each contracting State grants to the other contracting States the following freedoms of the air in respect of scheduled international air services: (1) The privilege to fly across its territory without landing; (2) The privilege to land for non-traffic purposes; (3) The privilege to put down passengers, mail and cargo taken on in the territory of the State whose nationality the aircraft possesses; (4) The privilege to take on passengers, mail and cargo destined for the territory of the State whose nationality the aircraft possesses; (5) The privilege to take on passengers, mail and cargo destined for the territory of any other contracting State and the privilege to put down passengers, mail and cargo coming from any such territory. Governments bargain with each other for (3), (4) and (5) to protect the market shares of their national airlines. There are three other freedoms that were not defined by Chicago convention. The 6th freedom is the freedom to carry traffic between two foreign states via the state in which the airline is registered. Depending on its location a country has or does not have
good opportunities to carry 6th freedom traffic. For instance European countries have good opportunities and Australia virtually none. The 7th freedom is the freedom to operate a service between two foreign states. The 8 th freedom is the freedom to operate domestic flights in foreign countries. It is also called cabotage and is almost never granted. Europe is a special case. EU airlines were granted the 5th and 7th freedom on international routes throughout the Union in 1973 and 8th freedom in 1997. The European Commission would like to negotiate bilateral agreements between EU and foreign countries.
Airlines We recommend reading How an airline can find efficiency with Unix of Paul Murphy. This paper describes the IT business of airlines with its combination of simple issues like booking and complex problems like resource scheduling. Resource scheduling consists in defining when the aircrafts must take off to go where with the following constraints: 1. The aircraft must flight. 2. The aircraft must take off at time convenient for customers. 3. The aircraft and crew must be available at the right place. A crew in Bangkok cannot help if a flight is needed from London. This problem is especially hard to solve. To the opposite of machines people need to sleep and recover. Things never go as planed because machines never stop breaking down, Air transport is still very sensitive to weather conditions, etc... The system involves third parties such as Aviation Authorities. For instance aircrafts queue before taking off thank to ground-hold strategies because the aircrafts would not be allowed to land when they would arrive if they were allowed to take off. Paul Murphyâ€™s paper describes a company with a business model close to a Low Cost Carrier (see below.) Traditional airlines are Network air carriers and generally operate a hub-and-spoke network. In this model an important objective of resource scheduling is to maximize the number of useful connections. A connection is useful only if arrivals precede departures in a sufficient time to permit the transfer of baggage from inbound to outbound flights. However if the connection time is too long the schedule no longer attracts the customer. So there is a balance to find.
Hubs and spokes Network air carriers moved to a hub-and-spoke network during the deregulation at the end of 70â€™s. Hub and spokes network was not entirely new because of international transport constraints and because of technical constrains. A long-range aircraft like a Boeing 747 carries more passengers than a short-range aircraft like a Boeing 737. To fill the large aircrafts that were flying between international airports airlines needed to fly aircrafts
from smaller airports to those international airports. In the same way to fill the shortrange aircrafts in the smaller airports commuters were using even smaller aircrafts. Air lines are just a special form of network. Because aircrafts differ in range and in capacity this network is partially hierarchical. Because customers want to go from an origin to a destination it is also partially a peer network. A well-known method to reduce the number of connections between nodes is to set up a concentrator: In the first case we need 10 connections whereas in the second case we only need 4. Obviously it does not come for free: to go from A1 to A4 we need to first go in A5. A computer network carries many messages per second almost instantly. Aircrafts are much slower and the network throughput is much slower. Furthermore aircrafts cannot board the same gate at the same time. Passengers must go from the arrival (terminal, gate) to the departure (terminal, gate.) Therefore a hub and spokes network works more like blood circulation. Between T1 and T2 aircrafts fly from the spokes to the hub to feed it. Between T2 and T3 employees clean the aircrafts, move the luggage, load the food and drinks and maybe fill the tanks. Passengers walk from their arrival gate to their departure gate. Between T3 and T4 aircrafts fly from the hub to the spokes. Then the process starts again with other passengers. You can see potential drawbacks of hubs: â€˘ â€˘
All aircrafts have to take off and land at the same time. The drawback is augmented because usually the first take off happens at 7am and the last landing at 11pm. Furthermore to maximize the number of useful flights (with passengers) aircrafts should park at the spokes, which is bad for the crew that often has to go to the hotel and which complicates the aircraft maintenance.
On the other hand there are many airlines and a hub airport is usually the hub of only one airline and often a spoke of other airlines. Hub airlines have a strong marketing power on the routes to and from their hub because of the flight frequencies. For business travelers living close to a hub airport the airline that owns the hub is the most convenient. Therefore these business travelers join the ownerâ€™s Frequent Flyer Program and become a sort of captive market for the owner that can increase its fares. The only network carriers to make money on a route between two hubs are the hub owners. It is not to say that hubs are bad. Hubs have not reduced the number of direct flights. They have dramatically increased the number of online connections (connections without airline change) and reduced the number of interline
connections (connections with an airline change). They allowed increasing flight frequencies.
Ticket price There are two kinds of passengers: 1. Leisure travelers: Passengers who want to travel and pay their tickets. They agree to plan their travel well in advance to get a better price. 2. Business travelers: Passengers who do not want to travel and do not pay their tickets. They often must travel under a short notice. Airlines therefore define different fares for the same seat. Normally less restrictive are the rules that apply to a fare higher is the fare. The problem for the airlines is: 1. to fill the aircraft; 2. to sell the seats at the highest price; They sell sets of tickets to consolidators well in advance. Then they sell discount tickets but they keep seats for business travelers that typically book a couple of days before the flight. Depending on the fare rules a ticket can be transferable and even refundable. For the business traveler the only inconvenience if he does not show on time is that he is moved on the waiting list of the next flight. Therefore no-shows are frequent. Overbooking consists in selling more tickets than seats because experience shows that there will be a number of no-shows. Revenue management (a.k.a. Yield management) was developed with a considerable success to automate the overbooking and conditional selling process. Here is roughly how it works: The revenue management reads the number of seats sold and available from the Inventory and uses these numbers, historic data and a prediction model for instance to compute a bid price. If the customer or the Travel asks for a ticket at a price lower than the bid price a comparator returns â€œSorry, we do not have seats at this price on the flightâ€? even if there are still suitable seats. This page explains how Revenue management is working. Today revenue management systems are operated by Airlines. Therefore it works the same for the travel agent and for the end consumer using a booking site on Internet. Revenue management used to be an advanced area of the Operational Research and Airlines tent to hide their secrets. Things seem to change. Revenue management improvements have a diminishing return on investment. Revenue management could become a commodity. For instance Navitaire partnered with Manugistics to offer a Revenue management in an Application Service Provider model. In that case Revenue management is an adaptation to Air Transport industry of an Operation Research infrastructure also used in supply chain management and planning. Revenue Management
is becoming affordable not only to smallest Airlines but also for Hotels, resorts and Car rental.
Slots When it starts being congested an airport introduces departure and arrival slots: an aircraft can take off only if its airline owns a departure slot and land only if its airline owns an arrival slot. Local scheduling committees exist to coordinate airline requirements at slot-controlled airports. A document of the International Chamber of Commerce (ICC) presents this IATA based system: "This system of slot allocation acknowledges an incumbent airline's grandfather right to a particular slot time at an airport where that slot was used in the previous equivalent season. These grandfather rights continue until an airline ceases to utilize a slot or surrenders it back to the Scheduling Committee coordinator. Slots, which are not grandfathered are allocated by the Scheduling Committee coordinator in accordance with priorities set out in the IATA guidelines in a non-discriminatory manner. That is, the nationality of the airline plays no part in the decision of the coordinator allocating the slot. Slots allocated in this way become grandfathered once they have been used." The system has worked rather well to date and both airlines and their governments have accepted it as fair and reasonable. However now in some regions (USA, EC, Japan) large airports are more and more congested for the following reasons: • • •
environmental concerns; safety regulations - aircrafts cannot be to close; increasing traffic.
In some cases the airport is full, which means that its slot number cannot grow anymore. Look at the Slot Pool page of Airport Coordination Limited. It allows comparing the London airports, Heathrow (congested), Gatwick and Stansted (plenty of slots available). Local scheduling committees usually give priority to international flights over domestic flights for new slots or slots surrounded by incumbent airlines. The drawback of this system is that it favors the incumbent, non-growing airlines. “Once an airport is operated at maximum capacity, flexibility is lost, new entrants are denied access and incumbents are denied growth.” A new entrant (for instance a Low Cost Carrier) has often no choice but to use non-congested airports or to buy an incumbent airline. An airline can exchange slots with another airline. Because some slots have more values than others there is a gray market where airlines can pay a fee in case of slot swap or even acquire slots. Proposals were made for the creation of a secondary market in airport slots. You can read the document of the UK Civil Aviation Authority (CAA). A secondary market would at least introduce some transparency.
The comments of the US Department of Justice for the American Airline and British Airways alliances recommend a market-based allocation system that would allow entrants to purchase divested slots. Authors note however that under a market-based allocation system many valuable slots have to be made available. The US Federal Aviation Administration put a system in place to reallocate slots at the last time using a Collaborative Decision Making (CDM) paradigm. In this system airlines and airspace operators (FAA) share information and collaborate in determining the allocation of the arrival slots. The idea is that if each participating airline knows the needs of other airlines and agrees to trade its slots in real time then the average delay will be smaller. In some cases the system can avoid running a Ground Delay Program (Ground hold aircrafts.) You can find a description of the system here.
Frequent Flyer Programs Frequent Flyer Programs (FFPs) are a kind of Loyalty Scheme. Loyalty schemes are used a lot in retailing (supermarket chains, bookshops.) By granting a discount after a given amount of purchases a loyalty scheme aims to attract customers to a service or good that they would not buy at its tag price. It is what marketing experts call reducing price elasticity. FFPs are a special kind of Loyalty Scheme because: â€˘ â€˘
It is not necessarily easy to spend the granted miles. The number of unused miles represents now a huge amount of money. Usually the traveler who is granted miles is a business traveler who did not pay the ticket.
An article of the May 2nd, 2002 issue of the Economist called "One of the world's main currencies is heading for a fall" explains that Frequent Flyers miles is the second-biggest currency, now worth $500 billion. Furthermore airlines sold roughly $10 billion worth of miles to partners, such as credit-card firms. As a consequence almost 50% of miles are earned without even leaving the ground. In America you can even get miles on your income-tax payments, if you pay by credit card. "The total number of miles awarded each year by airlines worldwide has doubled over the past five years, but miles redeemed have increased by only one-third. In 2001, more than four times as many miles were earned as were redeemed, and miles do not expire so long as members have earned or used them in the past three years." Economist editors conclude, is that airlines have been printing too much of their currency. Eventually the value will fall. And the clear lesson: "Use your miles while you can." Except in USA, airlines tend to award miles only for travel at premium fare (business or full economy) that leisure travel buy only in exceptional circumstances. Therefore FFPs programs primarily target business travelers. Business travelers do not pay their ticket but
usually choose the airline. In such conditions they are influenced by their FFP membership in choosing the flights of a particular airline and they choose their FFP in order to fulfill two conditions: 1. frequent and convenient flights to their business flights to earn miles; 2. flights to their leisure destination to use their miles. Therefore FFPs can be considered as anticompetitive and even as “a barrier to entry for new entrants with a small network.” Governments could hardly prohibit FFPs because other loyalty schemes were allowed before FFPs. They considered taxing the rewards as non-pecuniary income but this tax raises implementation difficulties. It is fair only to tax used miles and it is not easy to track miles granted for business trips. We also believe that governments missed a point in this case like in stock option case: executives are not the only ones to travel. Aircrafts are full of consultants who spend their life far from home and companies are desperately looking for cheap incentives to keep them on the road. As we have seen airlines with few routes or routes within one particular geographic area cannot attract Frequent Flyers with their program. However they can address the issue by linking their FFPs with those of other carriers: miles earned on a flight of a carrier can be used on a flight of another carrier. FFPs played an important role in the creation of global alliances. There is at least a site dedicated to frequent flyers problems, http://frequentflier.com. You can find on this site a 3-part series on global airline alliances titled “Global Airline Alliances Dominate Travel Landscape”, “Global Airline Alliances Offer Real Benefits for International Travelers” and “Global Alliances, Mergers & Acquisitions, and Miles.”
Alliances Airline alliances can cover many areas: •
• • • • • •
Code sharing. Code sharing is an agreement between two airlines under which an airline that operates a flight allows another airline to offer that flight under its own flight code. Block spacing. Block spacing consists for an airline in allocating a number of seats to another airline on some of its flights. Links between FFPs. Joint sales and marketing. Joint ventures in catering, ground handling and aircraft maintenance. Joint passenger and cargo flights. Joint purchasing and insurance.
On one hand you find technical alliances, for instance ventures in catering, ground handling and aircraft maintenance. This sort of tactical alliance is created to reduce costs. For instance in one area a couple of airlines can agree to specialize their maintenance teams. One airline maintains 747 aircrafts and another A330 and A340 aircrafts.
The most famous alliances are strategic alliances created to handle code sharing, FFPs and some marketing programs. They do not only consist in a commercial agreement. Participants agree to adapt their schedules to increase the number of useful connections inside the alliance. These alliances aim to increase the marketing power of their members in order to successfully meet the challenges of globalization. In that respect it is interesting to compare founding members of GDSs with members of alliances created ten or twenty years later. GDS were created to interface travel agent market with airlines. Therefore GDSs were regional. For instance Amadeus was created by Air France, Iberia, Lufthansa and at the beginning SAS. Alliances aim to provide a global offer to international travelers. The trick in alliances is to have a member in each market. Air France is in Skyteam, Iberia in Oneworld and Lufthansa in Star Alliance. It has also to be said that even if airlines wanted to create regional alliances in order to dominate a market governments would not allow it. It is interesting to read the comments of the US Department of Justice for approval and antitrust immunity of OneWorld and Star alliances. This fascinating paper discusses many issues described on this page. Bermuda II bilateral agreement refers to an agreement following the rules of the Chicago convention. Open Skies is a regime without regulatory constraints on pricing and entry. The US Department of Transport would like to get Open Sky as compensation to allow alliances. Interestingly enough the governments have to give something to airlines because they want to abrogate a bilateral agreement that was also a kind of privilege. However this bilateral agreement does not matter so much for incumbent airlines. First alliances allow airlines to circumvent the bilateral agreements. Second on congested airports grandfathered slots are a safe way to forbid new entrants. Third not only is airside capacity scarce, it is also difficult to obtain aircraft parking space and terminal facilities in some airports. Fourth new entrants are possible only if the economy enables their creation. As we noted above it is very difficult to compete on a route from or to a hub except if you own the hub on the other side. A great section of the DOJ comments starts with “In essence the parties (BA/AA) would have DOT (Department of Transport) believe that the complicated pricing structures and sophisticated yield management systems that the carriers have constructed (at great cost) to allow them to segment demand and discriminate between business and leisure passengers are ineffective.” A bit further authors note “Several characteristics of the airline industry increase the ability of carriers to engage coordinated interaction. More importantly carriers have almost instantaneous knowledge of competitors’ fare changes and the ability to quickly respond to any change.” Airlines may have even better systems in the future. A patent application assigned to Sabre, 20020059101 illustrates what can be the future of airfares. This application describes an improvement of power pricing or Low Fare Search (LFS). When you use an online booking system you basically enter the itinerary origin and destination and the departure and return dates. The LFS returns a list of fare availabilities sorted by growing price or by convenience (time between departure and arrival.) By the way the list illustrates a questionable feature of code sharing: it allows screen padding. You often need to scroll or go to a next page because the same flight is displayed more than once with different codes.
To return the list the LFS queries a large number of airlines for their fares and availabilities, the number of queries being somewhat reduced by sophisticated caches. The airlines’ Revenue managements return fares whose bucket is not empty. Because airlines’ Revenue managements do not talk to each other, LFS acts a bit like a reverse auction system. The customer expresses her intent to buy a flight seat and the airline whose fare is the lowest wins the bid. The Sabre’s invention aims to give a second chance to airlines that are member of the system. Before returning the availability list to the customer the Sabre LFS queries member systems. The member system that may have to be hosted on the LFS system for performance reasons receives the wining bid price. If its airline returned unavailable or an overpriced fare the system determines whether to make seats available at a price deemed to be competitive. Conversely the system can raise the fare if the airline fare was much lower than any of its competitors. The Sabre’s invention has a couple of weaknesses. First this is us who add this concept of member airline. In the examples there is only one member, American Airline and one Online Booking system, Travelocity. However other airlines would not easily accept that sort of unfair competition except if they are also members. Second the member system must have access to the airline inventory to make sensible decisions, which is a problem if the member system has to be hosted in the LFS environment. However this invention might be important in two respects: 1. Dynamic pricing. 2. In fine re-pricing could become a sort of Revenue Management and impact conventional Revenue management. The conventional LFS looks like First price, sealed bid auctions. The Sabre’s invention unseals the participants’ bids. There is another approach of interest, the Priceline "name your own price" apparatus. The traveler enters the origin and destination airports, the departure and arrival date, the number of passengers, her credit card data and the price she is ready to pay for the flight. Then two things can happen: 1. An airline is interested in selling a seat at this price. Then she is booked and charged. 2. No airline is interested in selling a seat at this price. Then she is not booked and not charged. Through her credit card the traveler expresses a commitment to buy at the named price. However "name your own price" is not a reverse auction system. In a reverse auction system (widely used in procurement) buyer inform that they need a given good or service. Sellers make bids and the sale is awarded to the seller who makes the lowest bid. Priceline secured "name your own price" with a dozen of patents, including 6,510,418 that aims to prevent buyers - or intermediates - to use the apparatus to determine the market price.
Before closing the discussion about the DOJ comments we must mention two points of interest. It is true that for a while carriers have almost instantaneous knowledge of competitors’ fare changes and the ability to quickly respond to any change. This fact had a considerable influence on the 80’s deregulation. Deregulation promoters believed that the theory of contestable markets could apply to the Airline industry. According to this theory, firms in oligopolistic industries will price at the same level as they would in more competitive industries, provided that a threat of competition exists. A threat is credible if: 1. There is no barrier to the entry of new firms to the market. For instance an entrant does not have to pay something that incumbents do not have to pay. 2. A firm must be able to go on the market, make profit for a short period of time and go out of the market without losing a lot of money. 3. The time it takes to incumbents to change their price is longer than the time the new firm needs to make its entry profitable. Actually before the deregulation there were few fares that were not changing often just because there was no need. But because of computer improvements incumbents were able to change their fares extremely quickly when firms like People Express entered the market. The DOJ comments also observe that today global “alliances do not entail comprehensive (or any) revenue pooling The operating carrier gets almost all the revenue from a flight with the partner getting a commission for any ticket sold under their code.” In the same way alliance members do not pool or exchange slots. The three main global alliances are:
One alliance, Qualiflyer founded by Swiss Air died on December 31, 2002. The first alliance, Wings, founded by Northwest and KLM no longer exists though its core companies, Northwest, Continental and KLM still cooperate. See the Worldperks page for more information. Global alliances will continue to change both in composition (it is easy for an airline to change of alliance) and responsibilities (for instance Star Alliance has an IT hub.)
Online booking With the advent of Internet three types of online booking sites were created: 1. Airline booking engines 2. Low cost carrier booking engines
3. Multiple carriers booking engines Online booking is used to shortcut a part of the traditional distribution system:
Airline booking sites Because an Airline online booking site is just a HTTP interface to the existing Airline system it is easy to develop. For the Airline the benefit is that it does not need anymore to pay a booking fee to the GDS and a commission to the Travel Agent. Airline sites were not very successful: • • • •
Airlines cannot however offer better prices than Travel Agents because it would be an unfair competition. For the same reason airlines may not want to aggressively promote their sites. Customers do not perceive airlines as able to provide the best fares. Customers like comparing prices.
Low cost carrier booking sites Low Cost Carriers (LCCs) use a different business model: • • •
They target end consumers, not Travel agents. They do not use the GDS distribution channel and they refuse to pay a booking fee. They often do not even use tickets. Passengers making a booking are given a confirmation number, which is enough for baggage handling and flight check-in. At check-in passengers are given a reusable boarding pass. Their booking system is similar to hotel and car hiring systems and simpler than systems presented above.
Because they spare on wages, catering but also on distribution costs low cost carriers can offer lower fares than traditional airlines. Thank to their marketing effort customers know their URLs. Therefore their sites are quite successful. Because LCCs sell direct flights: • •
They have no concern about connecting flights, which simplifies their resource scheduling They can avoid large airport (typically the hub of a large airline) because they are congested and expensive. A shuttle to the city is often cheaper than the airport taxes. However in Europe at least this is often inconvenient for the traveler: secondary airports being farer from the cities and larger airports having better public transportation systems.
LCCs operate almost only domestic flights (partially because of the government agreements on International flights), which also means that they are less affected by political events. LCCs also operate less airports and city pairs than traditional airlines. In 2003: LCC
For instance EasyJet sold flights on 100 city pairs when a GDS can propose 500,000 city pairs. LCCs do not try to replace traditional airlines; however because they concentrate on high traffic links LCCs hurt the interest of even large Airlines. They carry more passenger than many Network air carriers. United faces competition from low-fare carriers on about 70 percent of its routes, including Southwest Airlines Inc. in many locations and Frontier Airlines at its Denver hub. Therefore large U.S. network air carriers consider starting low-fare units to compete with low-cost carriers, with two ideas: 1. Target price-sensitive leisure travelers. 2. Integrate their low-cost unit into their hub-and-spoke network. Large carriers might be wrong and their low-cost units can actually cut their revenues on the most profitable customer segment, the business travelers: â€˘ â€˘ â€˘
Business travelers look for convenience and are more and more price sensitive. In some cases LCC schedules and even airports are more convenient. Low cost carriers do not set complex rules and penalties on one-way flights.
As a consequence a significant number of LCC passengers are actually business travelers. Some European airlines made the experience: 1. British Airways created Go in 1998 and sold it in 2002 to Easyjet notably because Go has competed with its parent on several European routes. 2. KLM founded Buzz in 1999 and sold it in 2003 to Ryan Air. The press release said that "KLM's decision to sell Buzz follows a strategic review of this business
in light of the increasing competition in the European low cost arena over the last few months." As a matter of fact traditional airlines often create low cost subsidiaries with old aircrafts and employees they do not need anymore. Then LCCs happily buy these subsidiaries once the Airline gives up for the slots. They keep only few employees and do not even want the aircrafts. Large carriers have higher structural costs. For instance LCCs see IT as a commodity and often do not even develop or operate their reservation system. Many LCCs use the Navitaireâ€™s Open Skies Reservation system. Some others use AirKiosk from Sutra. There is a good presentation of AirKiosk here. Because LCC operate fewer routes with almost no rules and fewer fares, a simpler Information system satisfies their needs. However their system still includes a sort of revenue management. LCCs sell the first few seats at a special promotional rate, often very low, but thereafter prices can increase substantially.
MARKET SHARE Domestic market share of Indian air carriers by passengers carried as of April, 2009 Current market share of Indian carriers in the domestic aviation market is shown below: Kingfisher Airlines and Kingfisher Red (previously Air Deccan) Jet Airways and Jet Lite (previously Air Sahara) Air India and Indian (previously Indian Airlines) IndiGo SpiceJet GoAir Paramount Airways MDLR Airlines
28% 25% 16% 14% 12% 3% 2% 0.004%
CHP-4 CIVIL AVIATION
The Ministry of Civil Aviation is responsible for the formulation of national policies and programmes for development and regulation of civil aviation and for devising and implementing schemes for oderly growth and expansion of civil air transport. Its functions also extend to overseeing the provision for airport facilities, air traffic services, carriage of passengers and goods by air, safeguarding civil aviations operations, regulations of air transport services, licensing of aerodromes, air carriers, pilots and aircrafts maintenance engineers. The ministry also administratively controls the institution of Commission of Railway Safety, which is responsible for the safety in rail travel and operations in terms of provisions of the Railways Act. India has been a member of the International Civil Aviation Organisation (ICAO) and is also on the Council of ICAO since its operations. The civil aviations sector has three main functional divisions - regulatory, infrastructural and operational. Cargo : Airports Authority of India (AAI) has established integrated cargo terminals at metro airports viz Delhi, Mumbai, Kolkata and Chennai, wherein all the regulatory and facilitating agencies have been housed under one roof in order to faciliate faster porcessing/movement/clearance of international cargo. The management of Delhi and Mumbai Airports have been taken over by the two seperate JVCs namely Delhi International Airport Limited and Mumbai International Airport Limited respectively, with effect from 3rd May 2006. Airports Authority of India : Airports Authority of India (AAI) was constituted on 1st April 1995 by merging erstwhile National Airports Authority (NAA) and International Airport Authority of India (IAAI). The integration of NAA and IAAI was aimed to derive the synergy of merger and build a new organization to take up upcoming challenges in competitive environment. Civil aviation, world over, has gone a sea change and the Airports Authority of India (AAI) is ready to meet these challenges both at national and international levels.
Training : AAI imparts trainings at its own Civil Aviation Training College, Allahabad on various operational areas like Air Traffic Control, Radars, Communication, etc. It maintains the National Institute of Aviation Management and Research (NIAMAR) at Delhi for imparting various aviation management training programmes and refresher courses. In addition there is a Fire Service Training School at Narayanpur near Kolkata and the Fire Training Centre at New Delhi for imparting training and conducting refresher courses on fire fighting rescue services.
CHP-5 CARGO AIRLINES
Introduction Cargo airlines (or airfreight carriers, and derivatives of these names) are airlines dedicated to the transport of cargo. Some cargo airlines are divisions or subsidiaries of larger passenger airlines.
Logistics Air transport is a vital component of many international logistics networks, essential to managing and controlling the flow of goods, energy, information and other resources like products, services, and people, from the source of production to the marketplace. It is difficult or nearly impossible to accomplish any international trading, global export/import processes, international repositioning of raw materials/products and manufacturing without a professional logistical support. It involves the integration of information, transportation, inventory, warehousing, material handling, and packaging. The operating responsibility of logistics is the geographical repositioning of raw materials, work in process, and finished inventories where required at the lowest cost possible. Aircraft used
FedEx Express DC-10 Larger cargo airlines tend to use new or recently built aircraft to carry their freight, but many use older aircraft, like the Boeing 707, Boeing 727, Douglas DC-8, DC-10, MD-11, B 747#747-200F, Ilyushin Il-76. Examples of the 60-year-old Douglas DC-3 are still flying around the world carrying cargo (as well as passengers). Short range turboprop airliners such as the An-12, An-26, Fokker Friendship, and British Aerospace ATP are now being modified to accept standard air freight pallets to extend their working lives. This normally involves the replacement of glazed windows with opaque panels, the strengthening of the cabin floor and insertion of a broad top-hinged door in one side of the fuselage. A number of cargo airlines carry a few passengers from time to time on their flights, and UPS once unsuccessfully tried a passenger charter airline division.
Notable cargo airlines European Air Transport (EAT) Airbus A300B4F. EAT is a subsidiary of DHL Aviation, one of the world's largest cargo airline companies. UPS Worldport Air Hub at Louisville International Airport.
All-cargo • • •
ABX Air Aerologic Aeromodal Cargolifter
• • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • •
AirBridge Cargo Airnet Express Air Hong Kong American International Airways/Kalitta Aloha Air Cargo Atlantic Airlines (United Kingdom) ATRAN Cargo Airlines Nippon Cargo Airlines Atlas Air Arrow Airways Inc. Australian air Express Blue Dart Aviation Burlington Air Express Capital Cargo International Airlines Cargo 360 Cargojet Airways Cargolux Challenger Air Cargo China Cargo Airline DAS Air Cargo Emerald Air Emery Worldwide European Air Transport (branded "DHL") Evergreen International Airlines FedEx Express Fine Air First Flight Flying Tiger Line Gemini Air Cargo Heavylift Cargo Airlines Jade Cargo International K-Mile Air
All-cargo subsidiary Air India Cargo plane. Loading a Singapore Airlines Cargo Boeing 747 from the front . • • • • • •
Aeromexpress Air India Cargo Air France Cargo Alaska Air Cargo Avianca Cargo British Airways World Cargo
• • • • • • • • • • • • • •
Delta Cargo-Delta operated hercules airplanes on cargo only routes during the 1970s KLM Cargo LAN Cargo Lufthansa Cargo MASkargo Northwest Cargo Pan Am Cargo SAS Cargo Group Singapore Airlines Cargo SriLankan Cargo Swiss WorldCargo World Airways Cargo Qatar Airways Cargo Royal Jordanian Cargo
Non-separate entity • • • • •
Cathay Pacific China Airlines Emirates Sky Cargo Iran Air Cargo Japan Airlines (JALCARGO)
World's largest freight carriers by scheduled freight tonne-kilometres flown 2004 total scheduled freight tonne-kilometers flown 1. FedEx Express 14.579 million 2. Korean Air 8.264 million 3. Lufthansa Cargo 8.040 million 4. United Parcel Service 7.353 million 5. Singapore Airlines Cargo 7.143 million 6. Cathay Pacific 5.876 million 7. China Airlines 5.642 million 8. Eva Airways 5.477 million 9. Air France 5.388 million 10. Japan Airlines 4.924 million
2004 international scheduled freight tonne-kilometers flown 1. Korean Air 8.164 million 2. Lufthansa Cargo 8.028 million 3. Singapore Airlines Cargo 7.143 million
4. Cathay Pacific 5.876 million 5. China Airlines 5.642 million 6. FedEx Express 5.595 million 7. Eva Airways 5.477 million 8. Air France 5.384 million 9. British Airways 4.771 million 10. Cargolux 4.670 million
2004 domestic scheduled freight tonne-kilometres flown 1. FedEx Express 8.984 million 2. United Parcel Service 4.260 million 3. Northwest Airlines 0.949 million 4. China Southern Airlines 0.860 million 5. American Airlines 0.576 million 6. Delta Air Lines 0.557 million 7. Air China 0.531 million 8. United Airlines 0.525 million 9. Cargojet Airways 0.517 million 10. China Eastern Airlines 0.458 million
The Indian Air cargo Market The growth of air cargo in India has also been manifold though it might not have kept pace with the progress made all over the world. Table 1 shows how both international and domestic air cargo traffic has increased, reflecting an overall year on year growth. Table 1: Trends in cargo traffic at five international airports in India. (Figures in '000 tonnes) Period
Total Percentage Increase
(Source - Transport India 2000)
CHP-6 AIRCARGO SECURITY
Definition of Terms * “Air Cargo” = any property carried or to be carried on an aircraft except mail or other property carried under terms of an international postal convention, or baggage carried under a passenger ticket and baggage check (def. adopted by IATA) * “Transportation Security” = Enusring the delivery of cargo in good condition to its planned destination as well as the preventaion of any unauthorized use of the cargo or the transport means. (Make distinction between transportation safety and security: while both have as common goal the protection of passengers, crew, cargo and aircraft from harm, safety focuses on protection from unintentional harm, while security focuses on intentionalharm)
Questions Raised * Why is air cargo security becoming an increasingly important item on the aviation security agendas around the world? * What approaches and specific measures have been adopted by various for a and countries? * What appear to be the best practices in ensuring air cargo security? * What are the perceived challenges in implementing air cargo security measures: costs, impact on the flow of trade, appropriate party responsible for implementation
Why is Air Cargo Security Important? * Transportation of goods by air has become an essential component of today’s world economy, especially in the high-value, “just-in-time” supply chain that serves many other industries (e.g., in the year 2000, surpassed only by maritime shipping – with 37%) * Airlines are financially dependent on cargo transportation, which carries, on average, higher profit margins than passenger traffic, accounting approximately for 15% of total traffic revenue. * Air carries transport billion of tons of cargo each year and the volume of air cargo is expected to steadily increase, at a faster pace than the number of passengers, thus adding to the growing importance of cargo
Air Cargo Security: Why Care? * In this context, vulnerabilities in air cargo security place at risk the entire air transportation system and could have devastating consequences for the international economy (loss of life and property, interruption of trade, costs of diverting traffic) * In the wake of September 11, 2001, the fact that enhanced security measures have focused almost exclusively on passenger air travel has left the air cargo system more vulnerable and a likely target for terrorists (while 100% of baggage is required to be screened, only a relatively small amount of cargo transported by is currently subject to screening and inspection
Air Cargo Industry Characteristics * The air cargo industry differs considerably from passenger carriers as well as from carriers using other modes of transportation * In most cases, it has an intermodal nature (including land transport segments) * Air cargo system is a complex distribution network that handles a vast amount of freight and involves many participants, including manufacturers and shippers (some of whom are routinely engaged in international trade, others only occasionally), freight forwarders who consolidate shipments and deliver them to the air carriers, and providers of storage facilities that accommodate cargo until it is placed aboard an aircraft.
Potential Measures to Mitigate the Risks and Address the vulnerabilities * Currently, there are two main position regarding air cargo security - One holds that full screening of air cargo would be too costly and to disruptive to allow for successful implementation - The other claims that full screening and enhanced security measures are needed to minimize as much as possible the risks associated with air cargo * At the present time, it is generally accepted that any type of physical inspection or electronic screening of all cargo would and logistically feasible without adversely impacting air cargo operations (TSA computer models estimated that if full physical cargo screening is implemented, only 4% of the daily volume freight at airport could be processed). * Thus, most experts agree that a practical approach would involve the use of risk-managed cargo profiling procedures to identify shipments that may be considered of elevated risk and the application of physical inspection on so selection shipments.
Technology and operational initiatives to Enhance air cargo security * Technology proposed for improving air cargo security includes: explosive detection systems and other cargoscreening devices and technology; tamper-resistant and tamper-evident packaging and containers; blast-resistant cargo containers and biometric systems for worker identification and access control to air cargo facilities * Operational initiative include proposals to impose mandatory advance cargo information, expand the use of “authorized economy operator” and “secure supply chain”, improve physical security of air cargo facilities, increase oversight of air cargo operations, provide training for cargo workers, and tighten controls over access to aircraft during cargo operations.
General Comments regarding Air Cargo Security Initiative Above * Some governments have taken steps to enhance aviation security through, among others, requirements for advance cargo information and providing for government-business partnership in various forms. * It appears though that these initiatives are not pursued with equal determination by all states and, in some cases, do not follow sufficiently similar approaches allowing for an easy harmonization of air cargo security measures in the near future. Something the government-business partnership entail different approaches to risk assessment of traders and shipments, making the prospect of mutual recognition of status of authorized trader less likely at the moment.
Best Air Cargo Security Practices * Since inspection 100% of air cargo currently impossible due to limited technology and infrastructure, “flow of commerce” and finite resources, many experts agree that the most practical approach is based on a risk-management technique which enable the authorities to identify high-security risk shipments on which to concentrate control. * Selected best practice to enhance cargo security: - Procedures to ensure physical security of air cargo facilities and operations (e.g., periodic inspections and oversight of air cargo facilities, providing training for air cargo personnel, and increasing control over access to aircraft and cargo facilities) - Advance electronic information requirement: information that allows identification of high-risk consignments as early as possible in the supply chain - Government-Business partnerships, the “Authorized Economic Operator” and “Secure Supply Chain” Concepts: Based on the assumption that accredited service providers present a lower risk, they would benefit from less controls and fewer delays. The issue of adequacy of procedure for auditing and monitoring “known shippers” and the lack of a basis for mutual recognition of authorized status. The “secure supply chain” means that the cargo is properly protected from interference at every stage of its transportation. The underlying ideas is that the supply chain is as secure as its weakest link and a desire the degree of security in transport can be achieved only by targeting the entire supply chain.
Implementation Challenges * Most security regulation can result in a significant adverse impact upon the air cargo industry, especially given their debilitating effect on shipment transit time in an industry characterized by time-sensitive realities: The main challenge is how to achieve a secure air cargo transportation system without unduly burdening the flow of cargo itself. * Also, the issue of costs of implementing such security measures needs to be taken into account.
Long term solution: A Comprehensive Risk-Management Approach * A comprehensive security plan must manage various security in a cost effective manner and must adopt a multimodal vision that provides an efficient security framework that is risk-managed, adequately addresses vulnerabilities in the system, is fiscally responsible and does not unduly impede the flow of commerce * Suggested risk management includes: - An assessment of threats to air cargo security in a particular region, based on such factors as capabilities, intentions and past activities; - An assessment of vulnerabilities to those threats, which implies identifying particular weaknesses that may be exploited and proposing measures to address these vulnerabilities; and - An assessment of relative importance of addressing the identified vulnerabilities, given their on public safety and the economy.
Funding the Implementation of Air Cargo Security Measures * The implementation of air cargo security must be based on a partnership where each participant must bear its fair share of costs. Yet, such cost can be quite onerous to both government and the air cargo industry. * Some have suggested that a fee schedule be established to be charged to all shippers to cover coast associated with screening cargo, fee that would be similar to the security service fee imposed on airline passengers and the US.
Concluding Remarks * Air cargo security has become one of the major global security concerns given its recognized vulnerabilities which make air cargo possibly the easiest target for terrorists. In recent years, several states have adopted measures aimed at enhancing air cargo security and such requirements are imposed on inbound carriers from other countries. Thus, the need the security of air cargo transport becomes a reality for all countries involved in international commercial aviation.
CHP-7 CASE STUDY
FedEx Express FedEx Express is a cargo airline based in Memphis, Tennessee, USA. It is the world's largest airline in terms of aircraft and in terms of freight tons flown. It is a subsidiary of FedEx Corporation and delivers packages and freight to more than 375 destinations in nearly every country each day. Its headquarters are in Memphis with its global "SuperHub" located at Memphis International Airport; with regional hubs at Indianapolis International Airport, Fort Worth Alliance Airport, Oakland International Airport, Newark Liberty International Airport, Ted Stevens Anchorage International Airport, Paris-Charles de Gaulle Airport, Guangzhou Baiyun International Airport, Toronto Pearson International Airport, and Miami International Airport. FedEx Express has hubs under construction at Piedmont Triad International Airport and Cologne Bonn Airport.
Early history First FedEx aircraft, on display at Steven F. Udvar-Hazy Center FedEx Express was founded as Federal Express by Fred Smith in Little Rock, Arkansas in 1971. After a lack of support from the Little Rock National Airport, Smith moved the company to Memphis, Tennessee and the Memphis International Airport in 1973. The company started overnight operations on April 17, 1973 with fourteen Dassault Falcon 20s that connected twenty-five cities in the United States. Services included both overnight and two-day package and envelope delivery services, as well as Courier Pak. Federal Express began to market itself as "the freight service company with 550-mileper-hour delivery trucks". However, the company began to experience financial difficulties, and when it was unable to get a loan Smith flew to Las Vegas and won $27,000 at the black jack tables to keep the company afloat Federal Express installed its first drop box in 1975 which allowed customers to drop off packages without going to a company local branch.  In 1976, the company became profitable with an average volume of 19,000 parcels per day.
Rapid growth A McDonnell Douglas MD-11 in the livery used until 1994
The 1977 Airline Deregulation Act (Public Law 95-163) removed restrictions on the routes operated by all-cargo airlines, and enabled Federal Express to purchase its first large aircraft: seven Boeing 727s. In 1978, the company went public and was listed on The New York Stock Exchange. The following year it became the first shipping company to use a computer to manage packages when it launched “COSMOS” (Customers, Operations and Services Master Online System), a centralized computer system to manage people, packages, vehicles and weather scenarios in real time. In 1980 the company implemented “DADS” (Digitally Assisted Dispatch System) to coordinate oncall pickups for customers; this system allows customers to schedule pickups for the same day In 1980, Federal Express began service to a further 90 cities in the United States. The following year the company introduced the overnight letter, and allowed document shipping for the first time. Later in 1981 it started international operations with service to Canada, and officially opened its “SuperHub” at the Memphis International Airport. Federal Express' sales topped $1 billion for the first time in 1983.  In the same year the company introduced ZapMail, a fax service that guaranteed the delivery of up to five pages in less than two hours for $35. ZapMail would later become a huge failure for the company, costing it hundreds of millions of dollars. In 1986, the company introduced the “SuperTracker”, a hand-held bar code scanner which brought parcel tracking to the shipping industry for the first time. Federal Express continued its rapid expansion in the late 1980s, and opened its hub at Newark Liberty International Airport in 1986 and at Indianapolis International Airport and Oakland International Airport in 1988. In 1989, the company acquired Flying Tiger Line to expand its international service, and subsequently opened a hub at Ted Stevens Anchorage International Airport to accommodate this new, expanded service. As the volume of international shipments increased, Federal Express created Clear Electronic Customs Clearance System to expedite regulatory clearance while cargo is en route. FedEx era A FedEx Express delivery truck, showing the dual branding, both "FedEx" and "Federal Express" that the company used from 1994 to 2000 In 1994, Federal Express adopted the "FedEx" name, formalizing the abbreviation that until then was unofficial. Also that year, FedEx launched Fedex.com as the first transportation web site to offer online package tracking, which allowed customers to conduct business via the internet. In 1995, the company acquired air routes from Evergreen International to start services to China, and opened an Asia and Pacific hub in Subic Bay International Airport in the Philippines. In 1997 FedEx opened its hub at Fort Worth Alliance Airport and in 1999 opened a European hub at Charles de Gaulle International Airport in France. In 2000, the company officially dropped the “Federal Express” name and became “FedEx Express” to distinguish its express shipping service from others offered by its parent company FedEx Corporation.
In 2001, FedEx Express signed a 7-year contract to transport Express Mail and Priority Mail for the United States Postal Service. This contract allowed FedEx to place drop boxes at every USPS post office, and has recently been extended until September 2013. USPS continues to be the largest customer of FedEx Express. In December 2006, FedEx Express acquired the British courier company ANC Holdings Limited for £120 million. The acquisition added 35 sort facilities to the FedEx network and the company introduced Newark, Memphis, and Indianapolis routes directly to UK airports instead of stopping at FedEx's European hub at Charles De Gaulle Airport.  In September 2007, ANC was rebranded as FedEx UK. FedEx Express also acquired Flying-Cargo Hungary Kft to expand service in Eastern Europe.
Economic downturn A DC-10 landing at San José The Late-2000s recession and the Financial crisis of 2007–2009 hit parent company FedEx Corporation and its express division hard. Many companies looking for ways to save money stopped shipping or moved to cheaper alternatives, such as surface shipping. FedEx Corporation announced large network capacity reductions at FedEx Express, inculding retiring some of its oldest and inefficient aircraft such as the McDonnell Douglas DC-10 and the Airbus A310. FedEx also announced layoffs and work hour reductions at some of its hubs. In December 2008, FedEx postponed delivery of the new Boeing 777 Freighter, four will be delivered in 2010 as previously agreed, but in 2011, FedEx will only take delivery of four, rather than the 10 originally planned. The remaining aircraft will be delivered in 2012 and 2013. FedEx Express closed a hub for the first time in its history, when operations at its AsianPacific hub at Subic Bay International Airport ceased on February 6, 2009. The operations were transferred to Guangzhou Baiyun International Airport in southern China. FedEx Express had planned to open the new Chinese hub in December 2008 but in November 2008, the company delayed the opening until early 2009 citing the need to fully test the new hub. On June 2, 2009, FedEx opened the new hub building at Piedmont Triad International Airport in Greensboro, North Carolina. FedEx announced in December 2008, that it still intended to open the building on time, despite the bad economy. The hub's operations would be scaled back from 1,500 employees to only 160, the size of the previous operations at the much smaller sorting facilty. FedEx gave no timeline as to when the hub will be operating at expected hub levels. The hub had been delayed many years since FedEx first picked the airport to be its Mid-Atlantic U.S. hub back in 1998. FedEx had to fight many complaints from nearby homeowners about the anticipated noise generated by its aircraft, because most of its flights take place at night. A third runway was built to accommodate the hub operation and the extra aircraft.
Future plans In 2008, FedEx Express broke ground on its Central and Eastern European hub at Cologne Bonn Airport which is due for completion in 2010. The Cologne hub will incorporate a 1.4-megawatt solar power system.
Fleet The FedEx Express fleet consists of the following aircraft as of September 22, 2009 FedEx Express fleet Aircraft
Airbus A300-600 71 Airbus A310-200/300 54 Boeing 727-200 77
Exiting service: 8 in 2010, 3 in 2011, 3 in 2012 Exiting service: 4 in 2010, 9 in 2011, 17 in 2012, 13 in 2013, 20 in 2014, 11 in 2015 Replacement aircraft: Boeing 757-200 Fitted with hush kits Entering service: 6 in 2010, 16 in 2011, 8 in 2012 used Replacing Boeing 727-200
30 (30 orders) Boeing 777 Freighter 1 Entry into service: 2009-2019 (29 orders) Entering service: 4 in 2010, 4 in 2011, 3 in 2012, 3 (15 options) in 2013, 3 in 2014, 3 in 2015 McDonnell Douglas 5 Exiting service: 5 in 2010 DC-10-30 McDonnell Douglas 58 MD-10-10 McDonnell Douglas 12 Entering service: 5 in 2010 MD-10-30 (5 used Exiting service: 1 in 2012, 2 in 2013, 3 in 2014 orders) McDonnell Douglas 59 MD-11 ATR 42-300/320 26 Operated as FedEx Feeder ATR 72-200 13 Operated as FedEx Feeder Cessna Caravan 208A 10 Operated as FedEx Feeder Cessna Caravan 208B 242 Operated as FedEx Feeder A Boeing 727-200 in Portland, Maine The Boeing 757-200 entered the FedEx fleet in 2008
An Airbus A310-200 on approach to San JosĂŠ FedEx Express operates the world's largest civil fleet with 658 aircraft, and is the largest operator of the Airbus A300, Airbus A310, ATR 42, Boeing 727, Cessna 208, McDonnell Douglas DC-10/MD-10, and the McDonnell Douglas MD-11. The company took delivery of the last Boeing 727 built in September 1984 and the last A300/A310 built in July 2007. To be able to respond to changing freight demand quickly, FedEx Express tends to keep a number of empty planes in the air. In 2007, FedEx revealed plans to acquire 90 Boeing 757-200s. Because production ended in 2005, FedEx was left with no choice but to acquire secondhand aircraft from other airlines at a cost of US$2.6 billion to replace its aging Boeing 727 fleet. The 757's debut for revenue service was on May 28, 2008. FedEx Express was to have been the launch airline for the Airbus A380 freighter, having ordered ten for delivery between 2008 and 2011 with options on ten more. The company had planned to introduce the first aircraft into service in August 2008 for use on routes between hubs in the United States and Asia. Faced with A380 delays of more than two years, FedEx canceled these orders and replaced them with an order for fifteen Boeing 777 freighters with an option for fifteen more, to be delivered from 2009 through 2011. FedEx has said that Airbus will allow it to transfer its nonrefundable deposits to purchases of future aircraft, and has stated it may consider the A380F when the A380 program is less affected by construction delays. In December 2008, FedEx postponed delivery of some of the 777s: four will be delivered in 2010 as previously agreed, but 2011 deliveries will be only four, rather than the 10 originally planned. Five more will arrive in 2012, and two in 2013 In January 2009, FedEx exercised its options to buy 15 more 777 freighters and acquired options for a further 15. With the world's biggest fleet, FedEx Express is the largest member of the United States Civil Reserve Air Fleet in terms of aircraft pledged.+ The very first Dassault Falcon 20C delivered to FedEx (N8FE) is on display at the Steven F. Udvar-Hazy Center of the National Air and Space Museum at the Smithsonian Institution.
FedEx Feeder An ATR-42 operated by Air Contractors FedEx Feeder is the branding applied to all FedEx Express propeller aircraft which feed packages to and from airports served by larger jet aircraft. In the United States and Canada, FedEx Express operates FedEx Feeder on a damp lease program where the contractor will lease the aircraft from FedEx fleet and provide a crew
to operate the aircraft solely for FedEx. All of the feeder aircraft operated in the United States and Canada are owned by FedEx and because of this; all of the aircraft are in the FedEx Feeder livery. Just like regional airlines, the contractor will operate the aircraft with their own flight number and call sign. Outside of the United States, the contractor will supply their own aircraft, which may or may not be in the FedEx Feeder livery. Depending on the arrangement with FedEx, the contractor may be able to carry cargo for other companies with the FedEx cargo. List of contract carriers: Air Contractors Baron Aviation Services Corporate Air CSA Air Empire Airlines Merlin Airways Morningstar Air Express Mountain Air Cargo West Air Inc. Wiggins Airways
Environmental initiatives Delivery fleet In 2003, FedEx Express introduced hybrid electric/diesel trucks into its fleet. At the time the company had hoped to replace its entire 30,000 W700 delivery truck fleet with the hybrid, but in June 2009 only 170 were on the road. Ninety-three of these operate in the United States in New York, Tampa, Sacramento and Washington, D.C.; the rest operate in Tokyo, Toronto, and Turin. FedEx blamed the low number on a lack of investment from other major companies in hybrid technology. It had hoped that other companies would order hybrid trucks, and that tax credits would be issued by the United States government to reduce the cost. FedEx claimed that the hybrid truck in the 2003 test decreases soot by 96 percent and emissions by 65 percent. It also claimed that the truck gets more than 50% better gas mileage while still having the same cargo capacity as a conventional truck. In 2009, FedEx Express partnered with Iveco and started a new test program of hybrid electric/diesel vans. The test program will consist of 10 hybrid vans deployed in Milan and Turin, Italy. FedEx claims the new vans will have a 26.5% reduction in fuel consumption and a decrease in CO2 emissions of 7.5 tons when compared to FedEx's standard vehicle. The trial will continue until May 2010 and after the program's conclusion, FedEx will evaluate if the vans should be deployed on a larger scale.
In July 2009, FedEx Express partnerd with Freightliner and Eaton Corporation to convert 92 delivery trucks into hybrids. The conversions boosted FedExâ€™s fleet of hybrid-electric vehicles by more than 50 percent to 264. The trucks were placed into service in Los Angeles, San Diego and San Francisco In November 2009, FedEx Express purchased 51 gasoline-electric hybrid vehicles from Azure Dynamics. The new trucks will be put into service in The Bronx, New York City. The Bronx will be FedEx's first all hybrid station. The addition will bring FedEx Expressâ€™ fleet of hybrid electric and electric vehicles to 325
Air fleet FedEx Express has set a goal of getting 30 percent of its jet fuel from petroleum alternatives by 2030 FedEx is currently in the process of phasing out Boeing 727s for its fleet in favor of newer Boeing 757s, the airline says the 757s are 47 percent more fuel-efficient. FedEx will soon switch from MD-11s to Boeing 777s for its long-range, international routes, freeing up the MD-11 fleet to fly shorter routes currently flown by the DC-10.
UPS Airlines UPS Airlines is a worldwide cargo airline owned by United Parcel Service Inc. (NYSE: UPS). The company is headquartered in Louisville, Kentucky. Its home airport is located at Louisville International Airport.
Destinations UPS Airlines flies to more than 200 countries.
Fleet UPS Airlines has a fleet size of 263 aircraft, making it the 9th largest airline in the world: UPS Fleet
Aircraft Airbus A300-600RF Boeing 747-400F Boeing 757-200PF Boeing 767-300F McDonnell Douglas MD-11F
Total Orders 53 0 10 4 75 0 33 26 38 0
McDonnell Douglas MD-11 UPS Airlines had ordered ten Airbus A380 freighters and had options on ten more. As part of the deal, the airline reduced an existing commitment for ninety Airbus A300 freighters to fifty three. But, in March 2007, UPS canceled their A380F orders. UPS has yet to announce a replacement order in place of the A380Fs. It has been rumored that UPS will order Boeing's 777F. UPS has also ordered eight Boeing 747-400 freighters to increase capacity on its major "trunk" routes to Europe, Asia, and North America. These are expected to be delivered in June 2007 and go on through 2008. UPS Airlines placed a firm order for 27 additional Boeing 767-300 Freighters in February 2007 to be delivered 2009 to 2012. Most UPS Airlines flights go through the UPS Worldport at Louisville International Airport.
Use of Continuous Descent Approach (CDA) to save fuel UPS Airlines is experimenting with a Global Positioning System based landing procedure,called Continuous-Descent Approach at the Worldport, replacing the traditional holding pattern and step-wise descent. CDA is used to reduce the time and fuel needed to approach a runway and land by eliminating the need to alternatively reduce and increase throttle to descend and level off. UPS Airlines estimates that this procedure saves an average of 250 to 465 lbs (110-210 kilograms) of fuel per flight. CDA is part of the Federal Aviation Administration's long-term "Next-Gen" air traffic control plan.
CHP-8 QUESTIONERIES ON AIR CARGO
Logistics/Supply Chain - cargo management Question: how does actual cargo management procedure take place with respect to airline? An Airline (as well as other modes of transportation) provides that supply line within the supply chain. Cargo, is one of the elements of the world trade process and there are several entities that get involved in the supply chain. The interaction with an airline can happen in many ways â€“ most of the traditional airlines get cargo delivered to them at an airport ready for carriage by freight forwarders or freight agents. Once the cargo is received at the airport, it's screened and either stored pending loading on pallets or bulk as the case may be for a particular flight. This is basically the departure process, similarly on the other end, it goes through arrival process (this can differ from country to country) and made ready for delivery to the customer or his agent. There are several many processes that have to be managed for smooth movement of cargo as there are government agency are involved and the physical process and information process have all got to be orchestrated to perform in synch. There airlines who also provide total solutions on a door to door basis. Or airport to door basis. Ideally, they offer lots of variations that can be customized to suite a customer's requirement.
who are involved besides customer and airline? In the air cargo business there are sever elements of the industry that are involved. It starts with the shipper, forwarder, brokers, customs, banks, insurance agencies, and many other government agencies like municipality, ministry of health, agriculture and fisheries etc. etc. â€“depending what commodities are being shipped.
what does Air waybill (AWB), House AWB, Master AWB consists of?
An airway bill is a contract between the carrier and customer for the transportation of goods. This is a document which spells out the â€œconditions of carriageâ€? and explains the liability/responsibility of all involved in the transportation. The Airway bill is the document issued by the airline or its appointed agent for the air transportation of goods. Master airway bill is the document issued by an airline where as house airway bill is contractual document issued by a forwarder to his customer. In this case the forwarder acts in the capacity of a carrier. The forwarder would then take a number of shipments (HAWB) and consolidate this under an airline MAWB in order create larger volumes and be able to negotiate better rates from the airline. The forwarder is also able to club low volume shipments with density ones and there by improve its profitability as they would charge the customer based on volume and only have to pay for actual weight to the airline.
what does manifest consist of? A manifest is a high level detail of the total cargo that is going to be carried on an airplane. It'll have
a listing of all airway bill numbers, commodity, number of pieces, weight, origin/destination and special remarks.
how cargo tracking is performed? Most airlines have automated systems to manage the various processes of air cargo transportation. The main tracking source is the airway bill number. Emirates, however, have also included tracking by job reference number which allows them to track/book cargo much before the airway bill process â€“ at procurement levels. when are the customs levied? Customs get involved at both export as well as import levels. Usually customs levy a processing/clearance charges at origin and the customs duties (which varies from country to country) are levied at the time of final clearance at destination.
how is weight, volume specifications of cargo used to manage different cargos in an aeroplane? The calculation of weight volume is based on the standard benchmark of 1 kilogram of cargo displaces 6000 cubic centimeters of volume. (we generally call it 1:6 in airline jargon). The chargeable rates is based on weight or volumetric weight whichever is higher. The calculation of volumetric weight is derived by multiplying the length X breadth X height and the sum of this is divided by 6000 (1:6 ratio) ( and if there are more than one piece of cargo â€“ multiply the total number of pieces also)
CONCLUSION Future projections reflect that the air cargo industry both in the domestic sector and the international sector will continue in its upward trend of growth. Fig.1 reflects that the domestic air cargo will continue at a somewhat steady rate of growth whereas the international air cargo movement as illustrated in Fig.2 shows a steeper rate of growth indicating that international air cargo trade will flourish at a higher rate of growth.
(Source - Transport India 2000) Both Domestic cargo and International cargo are poised to grow according to the projections. The major reasons, which can be attributed to this increase, are 1) Increase in overseas trade 2) Indian economic policies 3) Customer service orientation 4) Inventory concerns
BIBLOGRAPHY References – logistic management- satish. c. ailawadi Rakesh singh (Himalaya publication) Journals/articles – logistics/supply chain management Websites – www.transportation .com
www.airtransportation.com www.aircargo.com www.civil aviation.com www.cargo airlines.com
Published on May 21, 2012
Published on May 21, 2012
PROJECT REPORT ON AIRWAYS AS A MODE OF TRANSPORTATION IN LOGISTIC MANAGEMENT SUBMITTED BY XYZ DATE-14\09\2009 SIGN OF STUDENT I XYZ, STUDENT...