477. Vulnerability to economic and international political shifts is the third feature of the air transport industry. The Gulf crisis and the economic recession at the beginning of the 1990s resulted in a decline in air traffic, in fact, according to statistics compiled by the ICAO (International Civil Aviation Organisation), world airline traffic fell by 3.5 per cent. The industry was particularly unstable throughout the 1980s; consequently, several major airline companies have disappeared, including the American companies Pan Am and Eastern.

478. The demand for air transport increased considerably with the introduction of the first jet aircraft. Since 1950, passenger receipts from commercial aviation have multiplied 60 times, a much greater growth rate than that of other modes of transport. This also implies a change in the travel pattern of tourists.

479. The economic analysis of passenger traffic and freight traffic reveals that their exceptional growth can be attributed to the elasticity of demand with respect to price. The fare structures adopted by airline companies prove that there is strong price elasticity for leisure travel demand and weak price elasticity for business, and, to a lesser extent, personal travel demand.

480. Cost Structures of Airline Companies

481. The total operating cost of airline companies is made up of direct operating costs and indirect operating costs. Scheduled and charter airlines have different cost structures. The growth of non-scheduled air transport (or charter) is a result of the low prices charged for its services.

482. The main difficulty for scheduled airlines competing on routes used by charter airlines is determining the price levels which will satisfy tourism demand while ensuring a high enough load factor to guarantee the profitability which will allow the company to develop.

483. They must also take into account a number of variables: competition, differences in inflation rates with competing destinations, fluctuations in the exchange rate, costs, political risks, the success of promotional marketing efforts, client satisfaction with the tourism product, the destinations and so on.

484. The difference between the pricing policies of charter and scheduled airlines show that, for the same overall cost, the charter airline can offer lower fares as long as they achieve a high load facts and enough flight- hours.

485. Direct Operating Costs

486. There are two categories of direct cost.

487. The direct cost of the flight, which includes the cost of flight crews, fuel and oil, insurance and airport costs.

488. The variable cost of material, for instance, maintenance and overall costs, depreciation and amortization, and rental of equipment. These costs constitute approximately half the total cost. Fluctuations will come from changes in the price of fuel which is dependent on the price of oil and the type of airplane and engine used. The latest technologically advanced aircraft are economical in fuel.

489. Indirect Operating Cost

490. These are mainly marketing and administrative costs, which for the larger companies can be very high. Their spending on marketing and public relations includes promotional and publicity campaigns, points of sale at major commercial outlets in large cities around the world and rental and maintenance of exclusive areas at airports. There are four types of indirect operating costs.

491. Stopover costs which include station and ground costs, handling fees-and airport taxes.

492. Passenger service cost which includes in-flight catering, cabin crew salaries and expenses; overnight, accommodation costs for cabin crew and transit passengers and the cost of insurance.

493. Reservation cost which includes ticketing, the cost of retail shops and offices and commissions paid to travel agencies.

494. General and Administration Costs

495. Gradually, the stopover cost and the marketing cost have increased significantly while airline companies have been following a policy of reducing general and administration costs.

496. The cost structure of airline companies is heavily dependent on the price of fuel. Fuel is the largest expenditure incurred in operating an airline, followed by the stopover cost.

497. Labour Costs

498. Labour is an increasing cost for the airline companies. This is partly a result of the high wages paid to flight crews, particularly pilots, but also due to the restructuring of companies which has increased the number of administrative staff.

499. International tourism development: problems of equipment and infrastructure

500. Aircraft, equipment and infrastructure have to be constantly updated to cope with the growth of the international tourism industry.

501. As a result, many problems arise while adapting the fleet to the strong demand for tourism during the high season.

502. Adding jumbo jets to the fleet does not solve the difficulties caused by too rigid a supply and a very elastic demand. One solution to this is to hire and use aircraft from companies in other countries, even in other regions of the world. This is, however, a very, expensive option and can raise survival problems. For instance, the welcome and the in-flight service are not always consistent with what the tourist expects from the company he had bought the services from. For example, you can imagine a German airline hiring an aircraft from a French or Spanish company which provides a non- German-speaking cabin crew for the flight.

503. Ground and Station Equipment and Hospitality Services

504. Many Third World countries cannot accept night flights because they lack ground and station equipment or staff.

505. Certain airline companies and certain airports are not able to provide adequate guarantees of security to satisfy insurance companies and consequently, they are not insured. In these circumstances, they are not used by tourism organisations and do not contribute to international tourism development.

506. Air Fare Tariffs

507. The fares charged by airline companies directly influence international tourism flows. International tourism development is hampered because airlines in some areas in the world (Africa, for instance) suffer from high operating costs resulting from their low productivity. In contrast, South East Asian airline companies have very high productivity and succeed in keeping their prices low.

508. While some countries and regions apply protect ion i si policies which keep the prices high, others have an Open Skies policy to encourage competition and keep prices low. Several countries allow a certain amount ol competition but still regulate the industry to ensure that prices remain relatively high. This is normally to prevent the arrival of too many tourists, particularly if their presence is resented by the local population.

509. Available and efficient transport structures are key conditions for the development of international tourism. Air transport is vital to countries far from generating markets, the medium- and long-haul destinations. Restrictive regulation of the market has in many cases impeded tourism development.

510. The deregulation of the air transport industry has created considerable upheaval, first in the United States and on routes to North America, then on all international routes. By focusing the process of deregulation on free access to the market, the industry has become very competitive with many new companies catering the market. As a result, prices have substantially fallen and many countries now have the opportunity of becoming important tourism destinations. It is important to find ways of encouraging cooperation between the tourism sector and the air transport sector. In particular, issues associated with the commercialisation and the computerised distribution of tourism products and flights must be studied in detail.

511. For instance, will the development of global distribution systems (GDS) bring opportunities for the tourism sector or will hotel and tourism companies become dependent on the strategic aim of the airline companies?

512. These concerns determine the sales and marketing strategies of companies selling tourism products.

513. (adapted from International Tourism)

514. Task 1. Answer the questions.

1. Why is transport significant to the growth of international tourism?

2. What makes air transport so vital for the creation of new tourism markets?

3. What are the three conditions which characterised air transport in the 1990s?

4. What are the main features of each of them?

5. What does the economic analysis of air transport reveal?

6. Why are cost structures different for scheduled and nonscheduled airlines?

7. What do direct operating costs include?

8. What are indirect operating costs?

9. What kinds of indirect operating costs does the text mention?

10. Why are labour costs increasing?

11. What problems of air transport are associated with international tourism development?

12. What are the ways of solving them?

515. Task 2. Sum up the information you’ve learned from the text

516. Task 3. Comment on the following issues.

1. What do you know about cooperation of air transport and tourism sector in Russia?

2. What are the advantages and disadvantages of travelling by air in Russia?

3. Is there any competition between Russian and Western airlines? What do you know about it?

4. Does Russia participate in any international agreements on air transport? What do you know about such agreements?

5. What are the main problems facing Russian airlines?

6. What are the ways of solving these problems?