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Aviation 176: Airline Operations and Management

Aviation 176: Airline Operations and Management. 1) Pick a major airline of your most interest. Please provide a summary of this airline such as: history, headquarter, management structure, organization, hubs, business markets, fleets, business strategy and other basic facts.

The total length should be less than 5 pages.

2) Explain the concepts of ASM, RPM, RASM, profit, load factor, yield and briefly discuss the importance of these economics indices in measuring airlines’ performance.

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3) For the airline you choose in the first question, find its economics performance data (such as ASM, RPM, RASM, profit) in recent years and if possible, provide a graphical history profile to capture the changes of these indices for this airline or the whole airline industry. You can use data from any source such as internet, newspapers, magazines and reports.

4) Based on the framework of the “Five Forces” in the airline business introduced in the classes, pick a low cost carrier of your interest, and describe how this airline’s business strength from these five aspects: demand, supply, competition with other carriers, competition with other travel modes, and internal management.

The total length of the paper should be less than 5 pages.

5) Multiple Choices

Please write your answers on the answer sheet, the last page of this handout.

Airline Economics

1. “Mutual dependence” means that:

a. each firm sells a product similar to but not identical with the products of

its rivals.

b. each firm sells a product identical to that of its rivals.

c. each firm must consider the reactions of its rivals when it determines its

price policy.

d. each firm has unlimited demand for its product.

2. Which of the following would not be considered a barrier to entry into the airline business?

a. capital requirements.

b. availability of aircraft.

c. certificate of public convenience and necessity.

d. technical personnel.

3. Labor specialization means that:

a. each worker performs a large number of tasks.

b. unskilled workers outnumber skilled workers.

c. airline labor is geographically segmented.

d. workers specialize in various production tasks.

4. Which of the following is not a reason why carriers have merged?

a. to acquire an entire route structure.

b. to eliminate competition.

c. to acquire personnel.

d. to eliminate bankruptcy.

5. Load factor expresses the relationship between:

a. available seat miles and revenue passenger miles.

b. revenue aircraft miles and available ton miles.

c. revenue ton miles and revenue passengers enplaned.

d. available seat miles and revenue passengers enplaned.

6. Within limits, the total number of flights flown on a given day can be varied to

adjust capacity to forecast demand. However, there are limiting factors. All of

the following are limiting factors except that:

a. some routes have too little frequency to permit much leeway.

b. demand does not vary in a precise, predictable manner.

c. the schedule pattern on any one route is interrelated with others.

d. once a schedule pattern is set, it takes too many man hours to change it.

7. Economies of Scale means:

a. cross-utilization of workers.

b. lower costs per unit of output.

c. lower total cost.

d. none of the above.

8. Which of the following economic characteristics applies to the airline industry?

a. Large number of unskilled workers.

b. Labor costs represent a small percent of total operating expenses.

c. Sensitivity to economic fluctuations.

d. None of the above apply to the airline industry.

9. All of the following are considered barriers to entry into a particular market, except:

a. terminal capacity.

b. airspace capacity.

c. long-term leases held by incumbent airlines.

d. preferred relationships with travel agents around the hub airport by incumbent airlines.

10. During the 1980s:

a. Northeast was acquired by Delta.

b. Ozark was acquired by Northwest.

c. Midway Airlines ceased operations.

d. Republic was acquired by Northwest.

11. Pan Am’s Pacific division was acquired in 1985 by:

a. Continental. c. United.

b. American. d. USAir.

12. Selling flight simulator time during off peak periods to other carriers is an example of:

a. volume output. c. cross-utilization.

b. a by-product. d. mutual interdependence.

13. The U.S. airline industry:

a. is not as sensitive to business cycles as other industries because of its public utility nature.

b. is no longer closely regulated by government agencies since deregulation.

c. has led all other industries over the past three decades in capital spending.

d. pays almost double the average wage of all other industries.

14. All of the following are barriers to entry into the industry, except:

a. financial requirements.

b. frequent-flier programs.

c. incumbent carriers’ economies of scope.

d. aircraft availability.

15. The number of landing and takeoff slots and the gate capacity at a particular

airport are:

a. economics of scale. c. barriers to entry.

b. factors affecting ASM’s. d. not important economic factors.

16. All of the following factors can lead to economies of scale, except:

a. labor specialization. c. by-product utilization.

b. computer reservation systems. d. extensive cross-utilization of personnel.

17. Which of the following statements is not correct?

a. In today’s market we see evidence of oligopoly pricing and extremely competitive pricing.

b. Discounted fares normally come with a number of restrictions.

c. Only about one-half of the total passengers enplaned pay the full fare.

d. A carrier with excess capacity may enter a market and price its services at or just above marginal cost.

18. New entrant carriers benefit from all of the following, except:

a. lower labor costs. c. lower quality service.

b. out sourcing. d. more flexible schedule planning.

19. Airlines have historically produced excess capacity because of:

a. the competitive importance of schedule frequency.

b. the fact that carriers have very high fixed costs and there is an incentive to

fly their aircraft as much as possible.

c. a and b.

d. none of the above.

20. There are a number of factors limiting a carrier’s ability to adjust daily seats to

daily traffic demand. They include all of the following, except:

a. many routes have too little frequency to permit canceling trips on a particular day without damaging the overall pattern.

b. competitive forces sometimes necessitate excess capacity on a particular route.

c. the day-of-week pattern of demand does not vary in a precise, predictable, or fully consistent manner.

d. the scheduled pattern on any one route is too interrelated with those of other routes to permit an erratically scheduled operation from day-to-day.

Aviation 176: Airline Operations and Management