Monday, July 30, 2007

New planes and causality

Unfortunately, I have not been able to post as much I would like to. Currently, I am attempting to become smarter by attending the Essex Summer School in the UK, and learning more about causality. Very interesting method that I intend to apply, qualitative comparative analysis (QCA), which has not been looked at before in the airline industry. Briefly, it analyzes particular paths an airline can choose to achieve profitability. For example, the literature on LCCs suggests that success depends on a number of simplistic elements (single fleet, no GDS, no FFP, no amenities, one-way pricing, no network integration, etc.), however observers point at the outlying LCCs which follow a slightly different path and yet are successful (diversified fleet, GDS presence, FFP, network integration, primary airports, etc.), and authors usually say something to tune of, "yeah, well, they're different" or "they operate in a different environment." What research lacks is a study that analyzes which unique combinations do actually lead to success, maybe a successful LCC that does have network integration requires a GDS presence, or if you have a diversified fleet then an FFP should be an option. This is what QCA can be used for. So, as the results come pouring in then I will be sure to post them.

In other news...IATA has released its recent figures, which shows that load factors, worldwide, were 75.7%, which is a slight improvement compared to the previous year, yet the planned growth may shift this load factor figure. The worldwide fleet will accept 1800 new aircraft over the next 18 months, which is 10% of the world's fleet! Of course, many of these are replacement aircraft, however growth in the Asian region will require additional aircraft units, while in the EU and US, the growth plans are lower, however still positive. The dilemma with the industry is that airlines often place orders for new/replacement aircraft when times are good; the accountants and forecasters see that growth is planned for the future and need additional capacity. However, it takes time to rivet an aircraft (or mold, in the case of the 787) and deliveries are often years ahead of actual orders, and in the meantime the industry has taken a nose dive and delivered aircraft arrive at an inappropriate time. This capacity increase just adds fuel to the fire and planners must accommodate these additional seats the best they can. So, it will be interesting to see how this reoccurring theme will be played out this time. This is shown in the slide below.

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