Business of Aviation Assignment

The Business of Aviation

            The airline industry is a vital piece of the global economy. Despite their necessary function, airlines have historically performed poorly in terms of profits and return on investment. One issue is the extravagant cost of operation. Airplanes are expensive to obtain, expensive to operate, and expensive to maintain. Stiff competition keeps fares low, resulting in profit margins that average just a few dollars per passenger. While recent relief from exorbitant fuel prices has been a boon for US carriers, the number of large flag carriers has dwindled as poor management, inflexible costs, and inefficient structure have resulted in bankruptcies and mergers. By reorganizing under bankruptcy law the airline can ideally shed some debts and emerge a more efficient organization.

            Start-up airlines with a large enough fortune to seek that small fortune do have some advantages. First of all they are not saddled with an existing infrastructure that might have grown inefficient as the economy evolved. While perhaps more expensive up front, a fancy new B737 or A320 is more alluring and fuel efficient than a 25-plus year old MD-80. Allure is exactly what a start-up airline needs to gain enough market share to stay afloat. Keeping fares as low as possible is probably the biggest lure to grab market share, but some airlines have found a niche with offering better in-flight service. The problem with a niche is that you almost necessarily have to carve it out of the existing flying population, and if you get it wrong there is a high probability of failure. The interior of an airplane can be rearranged, but matching the most effective aircraft for the job is key. If you plan for too much capacity you will lose money flying half-full aircraft. If you plan too small you miss out on potential revenue.

References:

4 Reasons Why Airlines Are Always Struggling. (2010, May 18). Retrieved March 30, 2015, from http://www.investopedia.com/financial-edge/0510/4-reasons-why-airlines-are-always-struggling.aspx

Maxon, T. (2014, September 22). Seven U.S. carriers among the world's most profitable airlines. Retrieved March 30, 2015, from http://aviationblog.dallasnews.com/2014/09/sevem-u-s-carriers-among-the-worlds-most-profitable-airlines.html/

Mouawad, J. (2012, May 25). The Challenge of Starting an Airline. Retrieved March 30, 2015, from http://www.nytimes.com/2012/05/26/business/start-up-airlines-face-big-obstacles.html?_r=0

Perkins, E. (2014, April 30). Start-up Airlines You Probably Haven't Heard of (Except for the Zombie Ones). Retrieved March 30, 2015, from https://www.yahoo.com/travel/start-up-airlines-you-probably-havent-heard-of-except-84334605327.html

Pisa, K., & Hobbs, T. (2014, June 3). How airlines make 'less than $6 per passenger' - CNN.com. Retrieved March 31, 2015, from http://www.cnn.com/2014/06/03/travel/how-airlines-make-less-than-6/

Why airlines make such meagre profits. (2014, February 23). Retrieved March 30, 2015, from http://www.economist.com/blogs/economist-explains/2014/02/economist-explains-5

 

Serious Issues Facing US Airlines

One of the major issues facing the US Airline Industry is the ability of some competitors, namely the three Middle Eastern or Gulf carriers (Emirates, Etihad, Qatar), to utilize the US Government sponsored Export-Import Bank to finance the purchase of excessive numbers of wide-body jet aircraft from Boeing at low rates. The purpose of the Ex-Im Bank is to support US businesses by making it easier for foreign companies to purchase US manufactured products. Evidently the Ex-Im Bank is wildly successful, judging by the number of aircraft ordered by the Gulf carriers. The Gulf carriers are using these aircraft by adding massive amounts of capacity and operating at a loss, which is straining the ability of US air carriers to compete internationally. While I understand why the Ex-Im Bank exists, I’m not certain that companies from oil-rich Middle Eastern nations are the intended recipients. Emirates is the largest airline in the world by capacity, while it hails from the United Arab Emirates (UAE) with a population of 9.2 million. Interestingly enough there are a mere 1.4 million citizens and the remainder are expatriates.

The Gulf carriers fielding excess seating capacity as a result of cheap wide-body jets plays into another issue for the US carriers. Emirates, Etihad, and Qatar are all allegedly receiving government subsidies from their respective nations (UAE and Qatar). The Gulf carriers deny these allegations, but the US carriers have requested that the Obama administration investigate the matter. The Air Line Pilots Association (ALPA) has issued a report alleging that the Gulf carriers have collectively received at least $42 billion in quantifiable subsidies over the past 10 years. These include loans with no interest and no commitment to actually repay, governments covering losses from fuel hedging, and prohibiting unions, thereby paying workers substantially less than US carriers. The Gulf carriers claim that there are no subsidies and allege that they are successful because they provide better service than the competition. Regardless of subsidies or whatever discount the US Ex-Im Bank provides, these airlines clearly have deep pockets and are not shackled by silly concerns like keeping the business solvent. The best thing the US carriers have going is US bankruptcy law, which they have used and abused to stay alive in a cutthroat industry with slim profit margins.

Cheap labor is another threat to the US carriers, and the Gulf carriers are a big offender here, but they are not the only ones. Norwegian Air International has recently been in the news because they have acquired an Irish operating certificate in order to skirt Norway’s labor laws and operate a low cost airline by using cheap labor. Labor costs have been driving jobs out of post-industrial societies for decades. I’m not sure how much can be done about it, I think it is up to the consumer to a certain extent to choose an airline that pays its employees a better wage. Of course, given the proliferation of Walmart here in the US, consumers seem to care more about saving a few bucks than supporting businesses that pay employees better.

References:

Carey, S. (2015, February 22). U.S. Airlines Clash Over Rivals From Persian Gulf. Retrieved March 16, 2015, from http://www.wsj.com/articles/u-s-airlines-clash-over-rivals-from-persian-gulf-1424737494

Flottau, J. (2015, February 4). Emirates Says Open Skies Reversal Would Be A 'Shame' Retrieved March 16, 2015, from http://aviationweek.com/commercial-aviation/emirates-says-open-skies-reversal-would-be-shame

Jansen, B. (2014, December 11). Congress pleases both sides in Norwegian airline dispute. Retrieved March 16, 2015, from http://www.usatoday.com/story/todayinthesky/2014/12/11/norwegian-air-international-dot-alpa-afa/20240759/

RESTORING OPEN SKIES: THE NEED TO ADDRESS SUBSIDIZED COMPETITION FROM STATE-OWNED AIRLINES IN QATAR AND THE UAE. (n.d.). Retrieved March 16, 2015, from http://www.alpa.org/Portals/Alpa/PressRoom/PressReleases/2015/Fair_Skies_Launch_030515.pdf

Reed, T. (2014, April 13). Delta, Leader Of The U.S. Airline Industry, Challenges Boeing And Export-Import Bank. Retrieved March 16, 2015, from http://www.forbes.com/sites/tedreed/2014/04/13/delta-leader-of-the-u-s-airline-industry-challenges-boeing-and-the-export-import-bank/

United Arab Emirates. (n.d.). Retrieved March 16, 2015, from http://en.wikipedia.org/wiki/United_Arab_Emirates

UAV assignment

            Potential civilian uses of Unmanned Aerial Vehicles (UAVs) or Unmanned Aerial Systems (UASs) cover a wide spectrum of activities. They could be used in agriculture to help maximize production, to help fight wildfires, to aid in search and rescue operations, or for surveillance and security. Currently the Federal Aviation Administration (FAA) has authorized a number of organizations, mostly larger law enforcement agencies and research universities, to operate UAVs in a limited fashion. The current FAA system of issuing certificates of authorization is not conducive to the widespread commercial use of UAVs so the FAA has just recently released its notice of proposed rulemaking on the regulation of small UAS. Among many proposed regulations are a 55lb weight limit, a 500 ft. above the ground altitude restriction, visual line of sight operations, and registration and certification proposals for aircraft and pilots.

            Congress has mandated that the FAA promulgate regulations for integrating UAS into the national airspace system, and the proposed rules are the FAA’s way of trying to build a paradigm in which UAS can be operated safely with respect to other aircraft and the public at large. Mid-air collisions with manned aircraft (or other UAS for that matter) can be largely mitigated by the proposed rules, but the FAA goes even further to require pre-flight inspections just as they do for manned aircraft. Perhaps this is because the accident rate for Predator drones operated by U.S. Customs and Border Protection (CBP) is seven times greater than the accident rate for general aviation and over three hundred times greater than the commercial aviation accident rate. The CBP Predators are much heavier than 55lbs and would not fall into the proposed regulations, but they are also mature and highly developed UAV systems pioneered by the military. If these well engineered machines are falling out of the sky several times more often than manned aircraft it is no stretch for one to imagine the motley collection of new/cheap/untested UAS about to flood the skies causing havoc with astronomical accident rates.

            The military has a long history of the implementation of UAVs. Since the 9/11 attacks the UAV has become a weapon of choice. Military UAVs are cheaper to operate than manned aircraft, able to stay on station longer, reduce our personnel’s threat of exposure to enemy action, and some models are even equipped with missiles to engage targets. Some of the operations have been outsourced to civilian contractors, most job postings are looking for drone operators (pilots). However, with the forthcoming regulations to implement small UAS into the airspace system there are numerous jobs on the horizon for both pilots and aviation management graduates. Some of the larger aeronautical universities already offer UAS programs.

References:

Bergqvist, P. (2014, June 16). Drone Jobs: What It Takes to Fly a UAV. Retrieved March 1, 2015, from http://www.flyingmag.com/aircraft/drone-jobs-what-it-takes-fly-uav?page=0,3

Carr, E. (n.d.). Unmanned Aerial Vehicles: Examining the Safety, Security, Privacy and Regulatory Issues of Integration into U.S. Airspace. Retrieved March 1, 2015, from http://www.ncpa.org/pdfs/sp-Drones-long-paper.pdf

Garamone, J. (2002, April 16). United States Department of Defense. Retrieved March 1, 2015, from http://www.defense.gov/news/newsarticle.aspx?id=44164

Handwerk, B. (2013, June 6). 5 Surprising Drone Uses (Besides Pizza Delivery). Retrieved March 1, 2015, from http://news.nationalgeographic.com/news/2013/06/130606-drone-uav-surveillance-unmanned-domicopter-flight-civilian-helicopter/

Overview of Small UAS Notice of Proposed Rulemaking. (n.d.). Retrieved March 1, 2015, from https://www.faa.gov/regulations_policies/rulemaking/media/021515_sUAS_Summary.pdf

UAV Pilot, Deployable. (n.d.). Retrieved March 1, 2015, from https://sjobs.brassring.com/TGWEbHost/jobdetails.aspx?partnerid=25539&siteid=5313&jobId=1322842