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Air Transportation > Pre-Finals Pt. 1 > Flashcards

Pre-Finals Pt. 1 Flashcards

1
Q

An economic situation in which a small number of large companies dominate the market

A

Oligopoly

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2
Q

An industry composed of a few firms producing either similar or slightly similar products

A

Oligopoly

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3
Q

State the characteristics of an Oligopoly

A
  • High barriers to entry
  • Restricted market share
  • Economies of scale (double output)
  • Growth through merger
  • Mutual Dependence
  • Price rigidity
  • Non-Price Competition
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4
Q

What are the five necessary expenditures for aircraft direct operating costs

A
  • Aircraft ownership costs
  • Labor costs: Flight and cabin crew
  • Fuel costs
  • Maintenance Cost
  • Other direct costs: security taxes,insurance, regulatory/government costs
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5
Q

What are the distinct factors for airline price fares

A
  • Last moment bookings
  • Peak flying periods
  • Frequent flyer miles
  • Aircraft type and size
  • Service amenities
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6
Q

State the advantages of aircraft leasing

A
  • Provides long-term use of equipment (aircraft and engines) without large cash down payment
  • Improves cash flow
  • Improves financial profile by showing less long-term debt to creditors
  • Offers more operational flexibility
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7
Q

State the aircraft leasing disadvantages

A
  • Higher cost than purchasing
  • Loss of residual value of aircraft
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8
Q

State the aircraft purchasing advantages

A
  • Deprecation schedule
  • Residual value of depreciated assets
  • No amortization (if paid in full)
  • Full authority over aircraft
  • Can use for other purpose
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9
Q

State the aircraft purchasing disadvantages

A
  • Requires large initial cash outlays
  • Uncertainty of residual asset value during assumed aircraft life
  • Restricts financial flexibility
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10
Q

State the purchasing vs. Leasing Decision

A
  • Assume that a purchase means obtaining a term loan
  • Most airlines use both purchasing and leasing in some combination
  • Decision is a result of thorough cash flow analysis
  • Ultimately depends on financial capability
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11
Q

This represents 20-25% of major US carriers direct operating expenses

A

Labor Costs

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12
Q

What is the purpose of fuel price hedging

A

Risk management

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13
Q

True or False. Hedging protects against price spikes and reduces volatility

A

True

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14
Q

True or False. New aircraft are 70% more fuel efficient than 40 years ago

A

True

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15
Q

What are the maintenance cost components

A
  • Labor
  • Materials
  • Burden
  • Outsourced costs
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16
Q

What are the other direct operating costs

A
  • Security Costs
  • Tax Costs
  • Insurance Costs
17
Q

What are the unique airline economic characteristics

A
  • Complete pricing and market entry freedom
  • Close government regulation/monitoring
  • Government financial assistance
  • High capital investment, technology driven
  • High labor and fuel expenses
  • Excess capacity
18
Q

Total number of seats times the number of miles flown

A

ASM (available seat mile)

19
Q

How much carrier made spread across ALL the available seats that were available (operating income / ASM)

A

RASM (revenue per available seat mile)

20
Q

The cost incurred by an airline, spread against the available miles that could have been flown (operating cost / ASM)

A

CASM (cost per available seat mile)

21
Q

Total number of seats sold (revenue passengers) multiplied by the number of miles flown

A

RPM (revenue passenger mile)

22
Q

Passenger revenue divided by RPMs and income earned on tickets sold

A

Yield

23
Q

RPMs divided by ASMs and the percent of available seats filled by revenue passengers - measure of capacity utilization

A

Load Factor

24
Q

This affects costs and quality of services offered

A

Load Factor

25
Q

What is revenue a product of?

A

Price and Demand

26
Q

This has greatest impact on passenger demand

A

ticket price

27
Q

Two of the load Factor Effects

A
  1. Capacity vs demand
  2. pricing and ticket sales
28
Q

State the financial strength affects airline’s ability

A
  • To secure capital assets
  • To grow
  • to return profit to investors
  • To secure additional funding
  • To retire debt
  • to retain and compensate employees
  • To gain market share
  • To respond to economic changes and competitive challenges
29
Q

State the aircraft manufacturers risks

A
  • Long lead times for design and production
  • High start-up and tooling costs
  • Must sell hundreds to break even
  • New aircraft must reflect the needs of several airlines
  • Usually need a committed airline “launch customer”

Air Transportation (7 decks)

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