Transportation & Logistics

Spirit Airlines (SAVE) follows a simple business model of reducing base airfares as much as possible. All its other services are charged separately.

While a section of the market is readying itself for a rate hike in the upcoming meeting of the FOMC, there are others who don’t believe that a rate hike would be implemented and instead, are focused on falling inflation.

United Parcel Services (UPS) announced its agreement to acquire Coyote Logistics. It’s a Chicago-based logistics firm with contract carrier companies.

Southwest is known to be the pioneer of low cost travel in the industry. Its 42-year record of profitable operations is enough to prove the success of the company’s business model.

Smaller ETFs that provide exposure to the courier services industry include Buyback Achievers (PKW), the First Trust Capital Strength ETF (FTCS), and the MSCI Industrials Index ETF (FIDU).

The e-commerce industry is poised to grow rapidly in the future. With this growth will come the need for package delivery.

Some of UPS’s key strengths that keep it ahead of its competitors include an integrated global network, leading-edge technology, a strong brand name, a strong culture, and impressive financials.

In the recent past, there has been a surge in the use of e-commerce across the globe. The impact of this new form of commerce has been felt in each and every industry.

Standard courier services involve collecting the parcels, sorting the parcels, and transferring the parcels to the closest depot to the delivery location.

The US courier and parcel delivery services industry consists of about 7,500 companies both large and small, which have combined annual revenue of about $90 billion.

The growth in e-commerce among various economies across the globe has helped shape the highly competitive courier service industry that we know today.

UPS has the highest sales among its peer group with $58.2 billion in sales in 2014. Rival FedEx wasn’t far behind with $47.45 billion in sales.

United Parcel Service is the world’s largest package delivery company and a leading global provider of specialized transportation and logistics services. It forms the largest holding of 7.6% in IYT.

FedEx has been in the marketplace for over 40 years. It has established a huge network spread across more than 220 countries and territories worldwide.

Salaries and employee benefits form the highest cost for FedEx. They account for ~36% as a percentage of revenue. Salary costs rose 6% for fiscal 2015.

FedEx’s (FDX) financial performance during the last few years has been extraordinary. It successfully bounced back from the recessionary downturn.

By 1983, FedEx (FDX) had become the strongest delivery business in the nation. It started a string of acquisitions in order to grow more.

FedEx has assembled a portfolio of solutions, from express and freight forwarding to critical inventory logistics, that can solve any global commerce challenge.

The idea behind FedEx (FDX) started off as a term paper by undergraduate Frederick W. Smith in 1965 at Yale University. The company started operations in 1973.

Currently, FedEx is the global leader in the express delivery market. It offers delivery to and from individuals and businesses. It has various business units.

Capacity utilization has improved from the lows of ~57% in the 1970s to ~76% in 2014 and 81.88% in year-to-date 2015.

UTC offers some products and services through UTC Building & Industrial Systems, a combination of two segments, Otis and UTC Climate, Controls & Security.

The Boeing 737 is the best-selling commercial airliner in history. Reliable and economical, the 737 dominates the short- and medium-haul markets.

Wide-body aircraft fly transoceanic routes, can accommodate 200–500 passengers, and often transport commercial cargo across the globe.

When Boeing bought McDonnell Douglas in 1996, the acquisition helped Boeing overtake Lockheed Martin as the largest defense contractor.

The airline industry is widely impacted by regulations and restrictions related to international trade, tax policy, and competition. It’s also impacted by issues like war, terrorism, and the outbreak of diseases—such as Ebola. These issues are political. As a result, they require government intervention.

In order to find out what makes Embraer successful, we need to look at its major strengths and what the company has done right.

Rising costs impacted China Eastern’s (CEA) operating margins, which declined from 5% in FY09 to 1.8% in FY13.

More than half of China Southern’s total operating expenses in FY13 were related to flight operating expenses.

Using a single aircraft type reduces disruption of operations due to maintenance efficiencies. The airline reduces training costs with standardized pilot training and maintenance routines.

Gol’s operating income turned positive in FY13 after reporting losses for two consecutive years.

SARS was another disease outbreak in 2003. SARS caused a panic similar to the current Ebola outbreak. SARS was a viral respiratory illness.

According to IATA (or the International Air Transport Association), the global airline industry passenger volume and capacity increased by 5.3% year-over-year in July 2014. Freight volume increased by 5.8%. In July load factor (or capacity utilization) for passengers was 82.3%, and for freight, it was 44.4%.

The second largest cost component for airlines is salaries, wages, and benefits. Employment in the U.S. airline industry has increased in the last couple of years when the U.S. economy recovered from the recession and demand for air travel picked up.

Yield is the average fare per passenger per mile. Passenger revenue is calculated by multiplying RPM (or revenue passenger miles) with yield. Yield varies based on demand and supply factors. Since demand for air travel is seasonal, yield is higher during peak seasons.

Load factor is a measure of capacity utilization. It indicates the percentage of total capacity that is utilized by an airline. Since airlines are capital intensive and have high fixed costs, the efficiency with which they utilize their assets is key to generate adequate return on investment.

Available seat miles (or ASM) is the measure of airline capacity. It’s calculated as the total number of seats multiplied by the total distance travelled. While RPM (or revenue passenger miles) is a measure of demand, ASM is the measure of supply.

The global aviation industry consumes over 200 million tons of fuel per year. The rising demand for air transport and the rising crude oil prices could impact the industry’s carbon emissions. The environmental impact could also influence sustainability.

Technological advancement has been the driving factor for improving airlines’ operational efficiency. Airlines have been able to reduce costs and improve operations by using advanced aircraft engine technology, IT solutions, and mobile technology. The technology has created better connectivity and enhanced passengers’ travel experience.

The Boston Consulting Group researched the millennial generation’s travel preferences in the business and leisure segment. This will provide a better understanding of how social and demographic factors influence air travel. It will also show how the factors influence company strategies to adopt to the changing trends.