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Session 2

Session 2. Transportation. Grading. SEMINARS: Case work ( 3 ) – 15 points ( 5 points for each case ) Presentation of a chosen company – 5 points Seminar work: tourism development in a selected country – 20 points (15 points written report, 5 points presentation). Introduction.

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Session 2

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  1. Session 2 Transportation

  2. Grading SEMINARS: • Case work (3) – 15 points (5 points for each case) • Presentation of a chosen company – 5 points • Seminar work: tourism development in a selected country – 20 points (15 points written report, 5 points presentation)

  3. Introduction • Without transportation, there is no tourism • Modes of transportation are many, but there are 2 broad categories: • Surface (both land & water) • Air Transportationcan be intermodal

  4. Introduction • Different modes of travel 2. Air travel dominates: • Long-distance tourism • Medium-distance tourism 3. Rail travel more limited than in past, but high-speed trains & in inter-city corridors increasing

  5. Introduction 4. Motorcoach travel: • Reaches many communities not served by other modes • Only accounts for small percentage of miles traveled 5. Automobile travel dominates: • Shorter trips • Domestic journeys 6. Inadequate transportation creates unfavorable image for destination & lost potential

  6. Transportation Problems 1. Congestion: • Especially roads & airports during peak travel • Delays cost time & money 2. Security: • Basic requirement for tourism, especially after 9/11 • Adds cost & consumes time • Deters some travelers • Hinders some destinations

  7. Transportation Problems 3. Environment: • Traffic causes harm when it exceeds carrying capacity • When it ignores principles of sustainability • When pollution controls are lacking • Seasonality: • High season creates overcrowding & congestion • Wastes profit potential of high demand • Creates over-capacity during low demand

  8. Cruises • Trans-Atlantic passage was mainly by ship until 1957 • Some ships were converted to cruise ships • But ships specially-built for cruises are more efficient and profitable

  9. Cruise Line Consolidation • Carnival Corporation, world’s largest cruise company • Carnival recently acquired Princess Cruises & already owned: • Cunard, Costa, Holland America, Windstar, & Seabourn • Royal Caribbean is 2nd largest cruise line • Recently acquired Celebrity Cruises 4. Disney now operates cruises also

  10. Passenger Ferries • An important link in transportation systems in many parts of the world • Some are over-crowded • High-speed ferries • Some ferries offer wide variety of services • For millions of people: commuting daily • For tourists: sightseeing or internal transport

  11. Other Ships • Ocean-going freighters, river cruises, yachts, ferry boats • River cruises popular in USA (paddlewheelers with gambling) & many other part of world

  12. Trains Regaining Importance • Many people don’t like hassles of flying or congestion of driving • Airports farther from city center, security waits, arrive 1-2 hours early to check-in, circle for landing, wait for bags upon arrival (hope they arrived too), then connect to city or home • Train stations often in city centers, so easier to reach when departing & easier to final destination when arriving

  13. Trains Regaining Importance • More high-speed trains being built • Trains go during bad weather that grounds flights & stop vehicular traffic • Train passes: convenient & save $$$ EX: Multi-country: W. Europe & beyond EX: Single country: Swiss Pass, Britrail pass 4. Many countries keep RRs under govt control

  14. Specialty Trains • Many trains are tourist attractions themselves • Orient Express: London to Istanbul • Blue Train: Cape Town to Johannesburg • Copper Canyon: Mexico • Palace on Wheels: India • Indian-Pacific: Australia • Rail travel helps boost tourism, especially in Europe with its extensive, easy to use system • World’s largest railways: Russia, India, China

  15. Road Travel: Highways • 1930s, first multilane highway, Autobahn, built in Germany • Cars became most popular form of transport: • Affordable cars available • More & better highways built

  16. Why Travelers Prefer Cars • Cars are relatively inexpensive to buy & use, especially for families • Convenience of having transportation at destination • Ability to alter route & pace of travel • Opportunity to explore new places close-up • Good roads & service/facilities along the way • Easier to carry lots of baggage & other stuff with you in your own car • You control what’s inside, unlike plane, bus, ship, etc. – it’s yours!

  17. Rental Cars • Growth in rental car industry parallels growth in airline industry • Largest fleet: Enterprise • Largest tourism market share: Hertz • Fleet utilization: managers must anticipate demand for rental periods, car types, pickup & return locations, insurance, and fuel options

  18. Rental Cars • Charges added to basic costs can include: • Mileage &/or topping off gas tank • Insurance (liability & collision) • Drop-off (at different location) • Airport fees • Taxes • If you rent car abroad, you may need an International Driver’s Permit • May be minimum age limits: (25) in USA

  19. Buses • Most pervasive form of intercity transportation in the world • Buses also used heavily for multiple-country tours of Europe and throughout USA • Buses are key inter-modal link for pax between home, work, tourism destinations and airports, seaports, and train stations • Intercity bus travel has much better image in Europe & Asia than USA • Customer profile: under age 24, over age 65

  20. Growth Opportunities for Buses • Bus usage is increasing due to popularity with charter & tour operators • Buses are flexible & economic to operate for group travel • As baby boomers age, they become prime targets

  21. Airline Industry Negative aspects of flying: • Airline travel is extremely safe, but accidents are catastrophic • Time is lost going to and from airports, weather delays/ cancellations, circling airports • Flying can be expensive, especially for family • Security hassles • Loss of control of space and routine

  22. Airline Problems • Suffers financially from wars, epidemics, increases in oil (fuel) prices, terrorism, etc. • Tourism needs airlines; without them: • Low-cost carriers • Legacy airlines

  23. Sources of Airline Data 1. ATA Annual Report • Published by Air Transport Association • One of best sources of data on airline industry 2. World Transport Statistics • Published by IATA • Forecasts & financial/traffic statistics 3. World Airline Report • Published by Air Transport World • Covers world’s top 25 airlines & financial data

  24. Airline Alliances • Airlines need strategic partners • Alliances are not M&A, but enhance routes, service, & revenue • 1992: Air France & KLM (first alliance) • 1997: Star Alliance • Originally: Lufthansa, Air Canada, Thai, SAS • Added: United, Varig, Air New Zealand, ANA, Austrian Airways, BMI, Asiana, LOT, Spanair, U.S. Airways, Lauda, Singapore, Austrian Arrows

  25. Airline Alliances 5. SkyTeam: • Aeromexico, Air France, Alitalia, CSA, Delta, Korean Air, Continental, KLM, Northwest 6. Oneworld: • American, British Airways, QANTAS, Cathay Pacific, AerLingus, Iberia, LAN, Finnair

  26. Two New Aircrafts • World’s 2 largest aircrafts manufacturers are: • Boeing (USA) • Airbus (Europe) • Boeing 787 Dreamliner: • Airbus A380:

  27. Airlines Organizations • IATA: International Air Transport Association • Composed of almost all international airlines • Founded in 1919, reorganized in 1945 • Purpose: Facilitate pax & cargo across route structures and foreign borders (one system) • Pax buy 1 tix, fly multiple carriers & countries

  28. Airlines’ Profit Margins • Airlines operate on very thin profit margins • For survival & profitability, concerns are: • Controlling costs & maximizing revenue • Airlines’ biggest expenses are: • Operating costs, i.e. labor & fuel • Equipment, especially aircraft: right size plane for routes & uniformity; regional jets • Costs, except labor, difficult to control • Need high load factor (% of available seats sold) per revenue pax mile on each flight

  29. Airline Hub & Spoke System • Airlines select hubs in major cities • Pax from other cities it serves are funneled through hub to their final destination

  30. Hub Cities of Airlines • Continental Airlines: Houston, Newark, Guam • KLM Royal Dutch Airlines: Amsterdam • Delta Air Lines: Atlanta • Lufthansa German Airlines: Frankfurt • SAS: Copenhagen • Northwest: Detroit, Minneapolis, Memphis • United Airlines: Chicago • British Airways: London Heathrow • Varig: Sao Paulo & Rio de Janeiro

  31. Airline Language Codes • Every airline has a code of 2 letters • American Airlines = AA, Lufthansa = LH • Every city with scheduled pax service has an airport code of 3 letters • Narita International Airport: Tokyo (NRT) • Orlando International Airport = MCO • Airline service has codes of 1 or more letters • First class = F, coach & economy = Y • Advanced purchase exchange = APEX

  32. Airline Language Flights • Nonstop: • Direct (through): • Connecting:

  33. Airline Language Trips 1. One-way: 2. Round-trip: 3. Circle trip: 4. Open-jaw:

  34. Yield Management Basics • YM (RM) requires: • Allocating capacity (seats, rooms, etc.) to customers • At right price • Accomplishing business goals • YM (RM) goals are to: • Maximize revenue (yield) • Enhance customer service (& increase loyalty) • Increase profitability • Improve operating efficiency (lower cost)

  35. Yield Management Conditions • Capacity is relatively fixed or finite: • Demand increases, but airline cannot add more seats (hotels cannot add more rooms) • Demand can be divided into market segments: • Based on customer profiles (needs/demos) • Inventory is perishable: • After plane leaves gate, no more seats can be filled with revenue-generating pax

  36. Yield Management Conditions 4. Services can be sold well in advance (APEX): • Demand fluctuates substantially • Marginal sales costs are low & marginal capacity costs are high:

  37. Technology Helps with YM • Modern technology allows airlines to sell empty seats close to departure date/time • This is done via the airline’s website • Also done via tourism intermediary websites: • This allows airlines to move its “distressed inventory” without advertising price reductions

  38. Example of YM (RM) • 37-seat aircraft (same model for larger planes) • 150-miles flight • From past reservations, we know we can probably sell: • All 37 seats to pleasure travelers who buy APEX fares (37 x $39 = $1,443) • 17 seats to business travelers who buy full-fare coach tix (15 x $98 = $1,666) 4. But – neither of these 2 markets enables us to maximize our revenue for this flight

  39. Example of YM (RM) • But – a combination of both markets would • Plus, in addition to 30-day APEX fares ($37), and the last minute full-fares ($98), we can also offer 14-day APEX fares ($59) • This gives us more flexibility to reach markets • Provides pax better opportunities: • To secure reservations • Or save money 5. Data tells us some pax with reservations will be “no shows”, so we overbook flight

  40. Example of YM (RM) • YM strategy based on computer software analysis of past reservations data is to sell: • 8 of the 30-day APEX fares; 8 x $39 = $312 • 12 of the 14-day APEX fares: 12 x $59 = $708 • 17 of the full fare tix: 17x $98 = $1,666 • If this strategy works, our total revenue for this flight would be: $2,686 • This is almost double what either of the other options would earn on their own • Our target markets also remain diversified

  41. Statistics from Our YM (RM) • ASM (available seat miles): • 150 miles x 37 seats = 5,550 • RPM (revenue passenger miles): • 150 miles x 37 pax = 5,500 • Load factor (RPM divided by ASM): • 5,500 divided by 5,550 = 1 or 100% • 100% load factor is ideal; 60-70% is normal • To be profitable, airlines must know price sensitivity (elasticity) of their target markets

  42. Internet’s Impact on Distribution • All travel distribution channels & sectors have been changed by use of Internet websites • Airlines have been impacted most of all • For airlines, Internet usage has resulted in: • Transparency in inventory • Transparency in pricing • Prior to Internet, travelers bought air tix via: • Airline office • Travel agencies

  43. Online Booking Engines for Air Tix • Marketers created online booking engines allowing travelers to compare airline seat inventories by: • Price (based on class of service, day of week, time of day, time between connections, # of connections, etc.) • Schedule (departure, arrival, routing, duration) • Best prices or best schedule can be listed first • Result: Internet expanded point-of-purchase competition & demand for lowest prices

  44. Other Links • Transportation is also divided into: • External: home-destination (gateway-gateway) • Internal: local transport within destination • Important modes of internal transport are: • Subways & light-rail systems • Trolleys, trams, streetcars • Taxis, limos, rental cars, shuttle buses

  45. Walking & Cycling • Most tourists enjoy walking & do much of it • Go sightseeing, explore the city, pub crawl • Walking paths are part of destination planning • Bicycle tours are also very popular • Many cities throughout the world have both walking & cycling paths

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