Air Algerie: A Study on Performance and Restructuring Plan

This thesis aims to identify the reasons for Air Algerie's low performance compared to its competitors and suggest a restructuring plan to improve its position in the market share. The study includes an internal analysis of Air Algerie's financial performance, market share, cost control, fleet size, network, and marketing strategy. It also examines the airline industry's history and Africa and Algeria's air transportation.

Chapter one : Background of Air Algerie
1.1 Objective of the study
The objective of this thesis is to identify the reasons of the relatively low performance of Air
Algerie compared to its competitors in terms of financial performance, market share, cost
control, fleet size, network and marketing strategy, and what are the determinant factors to
enhance its performance. And finally to suggest some changes as restructuring plan, to improve
its current position in the market share.
Our thesis will be basis initially from an internal analysis data, from the last three years of Air
Algerie’s Balance Sheet and Income Statement. Especially for the performance ratios
identification from: risks and solvency, international airlines comparison (financial ratios), sales
and lease back, Foreign Exchange (risk management), fuel price exposure (commodities risk),
fleet use optimization, network development, determinants of airlines cost (leasing) and the
strategy behind of the Government.
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1.2 Method of analysis
After this initial and internal survey, we will identify the macro vision reasons of their low
performance compared to other two competitors: Royal Air Maroc and Royal Jordanian, are the
real competitors with same size.
According to the reasons and facts observed, will we verify the options to become a better place
as airline and changes against the research of other two airlines under restructuring plan
influenced by economic factors. Would be the case of: South African Airways and Kenya
Airways which both are in restructuring plans with some financial issues, aggravated by 2008’s
stock market crash and oil price collapse since 2015, respectively.
We will collect all the examples above mentioned and used them to support us to identify of new
restructuring plan to Air Algerie. Including also the challenge to find the passenger profile, what
they are envisioning, the destination, and the Air Algerie’s culture, for converting in one big
picture of the company in values and proposals.
In conclusion, after this research, we will finally be able to form our opinion of what would be
the next steps of internal changes and external ones, to place an Air Algerie in better position in
the market share.
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In this analysis, both primary and secondary data will be collected from Air Algerie’s data from
websites and air journal. Analysis of the Profit & Losses from 2016, 2017 Balance sheet.
Questionnaire and interview will be used to collect the primary and secondary data.
1-Internal Data
2-Direct Observation, based on competitors an another restructuring plans.
3-Consulting
1.3 The Airline industry history and Africa and Algeria's Air transportation
Aviation began early in the 20th century entered the modern age after WWII. Began a trend
toward deregulation in 1978. Became a mass market product that spread internationally ever
since. Airlines are a tool for economic development, it is a 500+b industry that’s essential to the
modern-day economic system.
The airlines must follow the safety regulations (EASA, FAA, ICAO, IATA,…) and
environmental regulations, airport restrictions.
In the Airlines there are many different stakeholders as: passengers, workers, airports, financiers,
suppliers, governments, air navigation providers, marketing partners, etc.
The main airline industry’s characteristics are:
 Commercial systems
 Booking and reservation systems
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 Revenue and pricing management
 Customer management
 Social media
 Scheduling systems
It is a business where losses are more common than profits. Where the vast majority of start-ups
fail. Everyone who fantasizes about starting an airline knows the risks. Yet there are always
entrepreneurs eager to send them aloft and investors willing to gamble on the venture. They are
driven by the very human aspiration to succeed where others have failed
The systems to management, planning and control:
Flight Operations systems:
 Crew planning and scheduling
 Flight planning; OCC: (flight tracking; hub control; weather)
Airport systems:
 Departure control (check-in, load sheet, weight and balance)
 Airport flight information and customer systems
Maintenance planning and control
Financial systems and accounting
In this market, which is an equipment very expensive, most of employees are unionized and the
inventory is spoiled every time a flight takes off with unsold seats, the bottom line is very
vulnerable to GDP growth and the price of fuel.
With relatively minimal profit margins, the financial condition of the airline industry is highly
dependent on the global economic conditions. During times of economic boom, profits soar and
in times of recession airlines are forced to reduce capacity. Prior 1978, the industry was
relatively stable based mainly on the government's enforcement of non-competitive regulation
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and pricing. In the post-deregulation era, the industry took on the more cyclical nature of a
competitive industry, where periods of financial results could followed by a turbulent economic
period. The financial condition of the air transport industry is relevant to the economic growth,
so it is therefore not surprising that the airline industry suffered when the economy stalled.
Before deregulation, domestic traffic was organized according to the rule established by each
country, for each country the local authority was responsible to determine which carriers could
fly what routes, specified what capacity each approved carrier could offer on each route and what
fares were to be charged.
In the United States the Civil Aeronautics Act of 1938 was introduced to regulate and control
competition between US domestics carriers, the lawless competition had led to anarchic
economics conditions, little security to investors and low safety margins.
Three arguments were used to justify the implementation the Civil Aeronautics Act of 1938, the
first one was, the absence of any regulation of market entry, would lead to a destructive
competition. The fact that the industry has non differentiated product and relative low barriers
for new entrants, the small new entrant airlines would not have a cost disadvantage when
competing against much larger incumbents, those new entrants into particular market would try
to establish themselves by under-cutting existing fares, causing price war with dramatic
consequences for the air transportation industry.
The second argument favoring regulation was that air transport is a public utility, arising
economic, social and political benefits, and regulation is more than needed in order to ensure that
the benefits were not endanger, the public utility of air transport was considered so important that
most countries except the United States launched their flag carriers with direct government
participation. "The same carrier often operated domestic services and acted as the designated
foreign carrier , it was a natural extension of this point of view to believe that free and
unregulated competition on international air routes would endanger national interests because it
might adversely affect that national state owned airlines" (Doganis 2010).
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The third argument supporting regulation of international air transport, rapid development of
charter flights, it was argued that scheduled traffic was relatively thin, for even a small loss of
traffic might jeopardize the continuation of scheduled operations.
During the 1960s economist began to question the benefits of regulation and argued the
advantages of deregulation and free competition, explaining that the existing regulation limited
pricing freedom, restricted capacity growth and excluded new entrants. If deregulation was
implemented, a more competitive environment would provide more benefits to the consumers in
terms of fares, and some inefficient airlines would be forced to leave some market or even the
industry, lower fares would force the airlines to review their costs and to improve their efficiency
and productivity.
Economist explained that the airline industry was not different from the other industrial and
service sectors, so neither the airlines nor the consumers needed special protection, and the anti-
monopoly regulation is sufficient to protect the consumer interest, if due to bad management the
incumbents airlines went bankrupt, others would position in the market.
In 1978, the newly elected president Carter, who made support for consumers a key part of his
election platform, signed the Airline Deregulation Act into law on 24 October. This set off a
chain of events which over the next 30 years were to transform international air transport from a
protected and highly regulated industry into one which is more truly open and competitive
industry (Stephen Shaw 2010) .
The deregulation came to Europe more than 10 years later, before the deregulation introduction,
European air transport was dominated by state owned carriers or flag carriers. Protected by their
respective government, their networks were immune to competition some airlines had seldom
recorded a profit during their entire existence, relying fully on government subsidies.
In 1987, the European Commission introduced its three phases ten- years reform process. The
EU airlines were gradually granted rights to operate on any route in the EU, including flight
wholly within another country (Cabotage). In late 1992, the European Union (EU) had passed
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legislation deregulating the airline industry. By January 1993 the European airlines had free
access to all international routes in the EU and could set their own fares. The step following the
deregulation Act was the open skies agreement. In 1993 the US and the Netherland Government
negotiated an open sky agreement followed by a large number of agreement between the US and
others Governments. Allowing to each side designate the number of airlines, these airlines are
then free to fly to any city with no limitations on their capacity and pricing decision.
Following the increasing number of air services agreement between individual European
countries and foreign countries, the European Court published a judgment on 5 November 2002,
the Court considered that any individual member governments of the European Union offended
against EU competition law if they signed Air Services Agreements with other countries that
limited the use of traffic right purely to airlines were owned and controlled by their citizens.
Such rights should had potentially to be available to all EU airlines. If they were not, such
discrimination was an infringement of the competition articles in the Treaty of Rome. The
outcome of this judgment was a completely new system, the European Commission would take
over the negotiation of external aviation relationship with other countries on behalf of all EU
members’ states.
In less than 30 years, from 1992 to 2010, the airline industry had known an amazing change,
many of the airlines that dominated the industry during a long period of time, such as Panama,
TWA, Sabena or Swissair declared bankruptcy and ultimately ceased operation others like Delta
and Northwest and United and Continental survived bankruptcy but merged post-bankruptcy.
Low cost airlines had appeared as major players in the market, they began to make their mark
with lower prices and new routes, recording a high growth in North America, Europe and Asia,
however, the established airlines maintained control over their regional hubs. New entrant
carriers had only limited access to landing slots at major airports and the importance of
secondary airports started to grow.
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The most significant transformation in the airline industry after the deregulation remains the
airline alliances. It was estimated that in 2010, more than 95% of all airline passengers had
boarded a flight that was operated as part of an alliance. Airline alliances are known as the
innovative efforts which helps in providing suitable assistance to its customers and also tried to
improve the level of customer satisfaction.
The large number of members of global alliances can increase their negotiating power, when
dealing with suppliers, Iatrou and Oretti (2007) mention fuel, spare parts, maintenance, catering,
airports, charges or cabin crew training as potential sources of cost reduction they can also
reduce the cost of labor by sharing the sales office and bases, members can use cheap labor force
(pilots, flight attendants) of its allies from the other nation without reducing the service quality
and the same time reducing the cost (Iatrou 2004).
After African countries became independent, national governments established their own
airlines. Many newly independent countries desired to have their own flag carriers to showcase
their independence, and those countries wanted large jets like DC-10s and 747s even if the air
demand did not warrant those jets. Some airlines, like Air Afrique, were jointly sponsored by
multiple governments. Some joint carriers, such as Central African Airways, East African
Airways, and West African Airways, were established when the United Kingdom colonized parts
of Africa.
The knowledge of aircraft, the airline industry, and financial capital, originating from the
Europeans, was used to establish the new African carriers. Aircrafts in Africa tend to be older.
As of 2010, 4.3% of all aircraft in the world fly within Africa. Of older aircraft, 12% fly within
Africa. While older aircraft have low prices, they have higher fuel consumption rates and
maintenance costs than newer aircrafts.
Because many African airlines have low credit ratings, Africa has a low level of leasing
contracts. 5% of leased aircrafts in the world fly in Africa.
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In general, the outlook of the airline industry felt to be positive with Boeing (2012) predicting an
average growth of 3,2 % over the next 20 years, reaching 5.2 per cent and 5% for cargo and
passenger traffic respectively, which shows that airline business is an expanding business for the
aviation industry. The profit to revenue ratio is small, and airlines are still depending on global
events and the vagaries of the global economy, which have impact for airline business, such as,
profitability, revenue, oil price and bankruptcies, the 9/11 was the example of the event that can
destroy the aviation business development.
In Algeria, “Air Algérie is the flag carrier of Algeria. It is the national airline owned by the
government with almost no competition on domestic routes while its international competition is
based on bilateral agreements. As such it has significant advantages to grow and become a
leading carrier.
Strategic advantages - Algeria is a country that became independent in 1962 and since 2002
enjoys relative political stability and developing into an emerging economy - the largest country
in Africa and the Mediterranean - 41 million of population that grows at 1.5% annually - Almost
3.5 % average annual GDP growth (for the last 10 years) - 30% of population under 15 years
old - 6th largest natural gas producer in the world - One of the top suppliers of oil and natural
gas to Europe - Largest Francophone country in the world after France - Location between
Europe and West Africa
Challenges After airline deregulation started taking place, there have been a few countries
where state/government owned airlines have proven to be among the best in the world regarding
operational excellence, customer service and profitability. In many cases, however, government
ownership has led to intervention in the airlines’ functions resulting in corruption and
bureaucracy.
Air Algérie, as the national carrier, can strongly capitalize on Algeria’s strategic advantages.
The identification, rationalization and materialization of clear strategic objectives (such as:
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financial performance, customer service, operational excellence, support of communities etc.)
and the business plan and strategies to achieve them is a must for Air Algérie.
Usually, it is very challenging for any Government to develop appropriate framework that allows
a government airline to develop its full potential. There is quite a number of examples of state
owned airlines that struggle to compete in today’s business environment. Most of them have
faced and underwent tremendous and severe changes (Alitalia, JAL, SAA etc.). Some of them had
to totally disappear as they could not keep up with the changes in the airline business landscape
(Olympic, Sabena). AH and the Algerian government face such a challenge and very quickly
have to decide to make the necessary changes to adapt to the new business environment.”
(Source: IATA’s Report, Aug, 2010, page 24)
1.4 The foundation and beginning of Air Algerie
Public economic joint stock company EPE/SPA with a share capital of DZD60MM, created in
1962, Air Algérie is the national airline. Air Algerie has produced an acceptable commercial
performance, according to the Medium-Term plan; it carries more than 6.1 million passengers
annually with a fleet of 59 aircrafts.
Air Algérie development process is constantly and substantially envolving in order to be in tune
with international airlines standards, by modernizing management tools and information systems
as well as leveraging activities to standards in an ever-changing air industry environment and
competitive landscape.
Air Algérie (IATA code: AH, code OACI: DAH) is the Algerian national airline. It was created
in 1947, when the Compagnie Générale de Transport (C.G.T.) was formed, whose network was
mainly oriented towards France.
Air Algérie operates from Houari Boumediene Airport in Algiers flying to 28 countries in
Europe, Africa, Asia, North America and the Middle East. It also serves 32 destinations in the
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Algerian territory. She is a member of the International Air Transport Association, the Arab Air
Carriers Organization and the Association of African Airlines.
Air Algérie is a joint stock company with a capital of 43 billion Algerian dinars (approximately
403.4 million euros) wholly owned by the Algerian.
1.5 Organizational structure of Air Algerie (organigram)
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1.6 Strategic plan of Air Algerie
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1- Company restructuration by creating four subsidiaries (Catering, Ground handling, Tour
operator and Maintenance)
2- The implementation of the training center.
3- Upgrade the maintenance base by introducing up to date technologies in order to reduce the
outsourcing cost.
4- The implementation of Algiers Hub in partnership with SGSIA
5- Performance enhancement and increasing market shares.
6- Optimization of the operating schedule
7- Implementation of the software development plan.
8- Development of internal and external communication.
9- Infrastructure improvement and properties development.
10- An alliance integration.
Air Algerie launched its Catering subsidiary in 2015, but the Ground handling. Tour operator and
the Maintenance are still in the project stage.
The implementation of the Algiers Hub was delayed until 2019 , date at which the new terminal
of Algiers Airport will be operational, Algiers HUB will benefit from privileged location ,
perfectly positioned between the wealthy economies of western Europe and the emerging
African market, Algiers Airport (ALG) is competing with Casablanca Airport (CMN) for
transfer passengers between Europe and Africa ,for the market share Air Algerie has increased
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its market share by 38 % between 2014 and 2018, in terms operating schedule optimization,
Air Algerie has improved its on time departure rate from only 45% in 2013 to 75% in 2018.
At the end of 2018 only 30% of the 5 years strategic plan will be achieved.
1.7 Destinations and fleet
Air Algerie flies to 43 international destinations: 11 in France, 17 in Europe except France, 6 in
Asia, 8 in Africa and 1 in North America.
Exhibit 1.1 International Destinations
France Europe Middle east &
North Africa Africa Long Haul
Paris Orly
Paris CDG
Marseille
Lyon
Metz
Lille
Nice
Bordeaux
Toulouse
Montpelier
Bâle-Mulhouse
Madrid
Barcelona
Palma
Alicante
Milan
Roma
London LHR
Frankfurt
Brussels
Geneva
Vienna
Budapest
Lisbon
Moscow
Dubai
Amman
Beirut
Cairo
Jeddah
Casablanca
Tunis
Abidjan
Bamako
Dakar
Nouakchott
Niamey
Ouagadougou
Beijing
Montreal
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Budapest
Istanbul
Luxembourg
Air Algerie had a total of 59 aircraft: 58 passenger aircraft and 1 dedicated cargo planes, for
domestic flights, Air Algerie maintains a fleet consisting of Boeing 737s and ATR72. For
international passenger services, the company primarily used Airbus 330s, Boeing 737s and
B767s for the cargo services the company uses the Loockeed382G and Boeing737/700. The
average age of the entire fleet is 11.40 year (Exhibit 1.2 shows the composition of Air Algerie's
fleet and its average age at the end of June 2018)
Exhibit 1.2
Aircraft types Nbre of aircrafts Seats nbres/versions Average age
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Passengers fleet
Airbus A330
Boeing B767-300
Boeing B737-800
Boeing B737-600
Boeing B737-700
ATR72
8
3
25
5
2
15
269/251
253
162/144/148
101
112
66
9.49
27.86
9.18
16.09
1.93
10.88
Sub Total 58 - 10.97
Cargo Fleet
Locked 382G 1 Cargo 36.00
Sub Total 1 - 36
Total 59 - 11.40
1.8 Competitors
Air Algerie competitor in domestic routes is Tassili Airlines which began its operation in 1999,
owned by Sonatrach (the state owned Oil Company). Tassili Airline is operating 4 Boeing 737-
800 and 4 Dash 8 (Bombardier aircraft), few years ago Tassili Airlines started operating to some
destination that are not operated by Air Algerie.
Air Algerie is competing also against Air France, Aigle Azur, Vueling, Emirates, Qatar Airways,
Lufthansa, British Airways, Iberia, Tunisair Royal Air Maroc, Royal Jordanian, Saudia, Alitalia,
Egypt Air and Air Canada Rouge. For example, a search on the net for trip from Montreal in
Canada to Algiers in Algeria for two weeks in August 2018 produced a price of 526 Euros with
Star Alliance's Airlines Air Canada and Lufthansa with one stop at Frankfurt during the return
flight, with connecting time of 2 hours and 35 minutes whereas Air Algerie rate was 866 Euros
for a nonstop flight. For the traffic between Algeria and France Aigle Azur remains the main
competitor, as Aigle Azur is connecting several city-pairs between the two countries while Air
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France is only operating between Paris Charles de Gaules and Algiers Houari Boumediene and
recently replaced Aigle Azur in the route between Montpelier and Algiers.
The Market between the two countries represents more than 5 million passengers per years,
where Air Algerie has a market share of 2 576 857 passengers, representing a ratio of 50% of
total market.
Another competitor for African passengers connecting Via North Africa is the Royal Air Maroc
RAM, Competing Via its Casablanca's HUB, for a flight from Paris to Dakar in Senegal, the
lowest fare in the RAM's website was 726 USD , where the lowest fare for in the Air Algerie’s
website was at 520 USD.
Exibit 1.3 shows Air Algerie's Competitors.
Exibit 1.3
Airlines Headquarte
r
Sales
Euros
Year sales
growth
Net Income
Euros
Fleet
Size
Alliance
member
Aigle Azur Paris 290Million -1.2Million 10 No
Ram Casablanca 1.3 Billion + 7.3% 21 Million 58 No
AH Algiers 650Million +3.4% 40 Million 59 No
CHAPTER TWO: PERFORMANCE
2.1 Introduction
Fundamental figures discharged by the air Algrie demonstrated that the aggregate number of
travelers carried on planned administrations achieved 6.3 million out of 2016, Global activity,
communicated as far as aggregate booked income traveler kilometers (RPKs), posted an
expansion of around 6.0%, while (GDP) development in 2016 was relied upon to be at around
2.0%
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Aircraft traveler limit by organize relationship had a total level of 67.5%. The air Algerie
announced that aircrafts travelers limit with regards to residential explorers had a level of
69.75% while for the global travelers the limit rate was 67.14% a reasonable sign that there was
a positive 2.61% for the voyagers who went with the nation when contrasted with the ones who
went outside the nation. ( Maertens, Grimme and Jung, 2014).
For 2016, global area by number of the planes where 38247 while for the residential the
aggregate number by segment was 32618 which is around 17.26% less, this is a reasonable sign
that the year ascribed to increment in economy and trade rates that could had frustrated all the
more going outside the nation were always kept up. From a territorial point of view traveler
development in 2016 quickened in areas, for example, France which had 22,131 number plane
development from Algeria to France and back. In any case, the "drowsy" financial development
and the topical wellbeing and security concerns have added to a log jam of development in
Africa ( Button, Leidi, Martini and Scotti, 2017) with surmised development number of planes
being 1,924.
The reason for the principal segment of this report is to:
• Examine the execution of the worldwide and provincial business air travel movement for
the year 2016.
• Identify the key drivers of air activity development.
• Summaries the projections for air transport development at a territorial and worldwide
level, and also its suggestions
• Analyze the execution of carriers air terminals and.
2.1.1 Drivers of air traffic growth
Different components impact the area's air-travel development which can be assembled into three
classifications: financial action, simplicity of movement, and nearby market factors. These
gatherings clarify both the request and supply effect on air travel.
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Sales
Tourism
National/Regional GDP
Exchange Rate and Fuel Pricing
Per capita income
International trade and
investments
population trend
2.2 Overall performance of Air Algerie
Performance
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Performance is seen as the degree to which any given social framework satisfies its work,
individuals and hierarchical structure destinations, execution can be assessed as an association's
capacity to use the two its outside and inward condition utilizing restricted assets to achieve its
coveted objectives. With a specific end goal to give an account of an association's execution
level, at that point the genuine outcomes ought to be measured and assessed against the normal
outcomes. In particular, execution administration ought to have the capacity to gauge climate an
association has made an outcome situated culture. This will help raise worker execution,
cultivate their individual improvement and increment general hierarchical adequacy. Hierarchical
execution envelops three distinct results in particular money related, item showcase execution
and partner's profits.
At the point when vital quality management is analyze in terms of performance, four levels or
measurements of firm performances are significant and these are financial performance,
customer satisfaction, organizational effectiveness and employee satisfaction. Different levels of
examining performance identify with decrease of operational cost, enhancing efficiency,
accomplishing higher piece of the overall industry and benefits, and advancement improvement.
( Redondi, Malighetti and Paleari, 2011)
The table below shows performance of travellers to other region from Algeria for the year 2016,
worldwide traveler airplane terminal throughput was 67.9%, with yearly travelers of 4,277,590.
From a local point of view, France had the best travelers' development ( Doganis, 2013) of
around 40.9%. While European activity a level of around 12.5%, which was negative 28.4%
when contrasted with France, this means the Algeria nation economy was very supported by
France air movement development. ( Bettini and Oliveira, 2008)
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Regions Total
number of
passangers
per
Regions
% Total
number of
passangers
per
Regions
France 2,576,857 40.9258328
Europe 786,366 12.4891228
Long
courier
153,990 2.44568053
M.M.O 667,048 10.5941055
Africa 93,329 1.48225806
Zone 01 1,187,975 18.8675065
Zone 02 354,947 5.63729441
Zone 03 475,895 7.55819946
Total 6,296,407
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France
Europe
Long courier
M.M.O
Africa
Zone 01
Zone 02
Zone 03
0 5 10 15 20 25 30 35 40 45
% Total number of passangers per
Regions
% Total number of
passangers per Regions
2.2.1 Airport Connectivity
Connectivity has gone from being a specialized word solely related to telecoms and IT, to one
with a far more extravagant importance in the globalized universe of today. Given the
phenomenal office that air transport offers by connecting cities, regions and countries – the word
'connectivity' is a fitting depiction of the value it generates ( Paleari, Redondi and Malighetti,
2010).
One of the topics that are drifting over the most recent five years in air transport is the fortifying
of global and residential center air terminals around the globe. This marvel has been for the most
part ascribed to the union in the aircraft business, as being seen in Algerie residential market; it
additionally features the rise of the super connector carrier demonstrate. As Algerie carriers
converge to shape intense gatherings, it can combine its tasks inside its fundamental airplane
terminal center points. This enables it to offer expanded administrations from the individual
center points and increment its gainfulness and its yields while working inside the air terminal
"fortifications". Thus, the criticalness of associating travelers has been developing, as Algerie
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carrier and airplane terminals target administrations to travelers picking the center as a stopover.
( Kazemi, Mostafa and ,امیر حسین باقریه مشهدی2014 ).
The solid development of Algerie Airport and center points has changed the movement practices
of moving travelers as of late and furthermore influenced the offer of exchange travelers at
France center airplane terminals(Redondi, Malighetti and Paleari, 2011) . This is because of their
gainful land area amongst France and Africa and eminent legislative help. The tables below
illustrate the travelling capacity of transfer passengers at Air Algerie.
Region PKT SKT
France 3108337125 4242084520
Europe 897416244 1398939654
Long
courier
1100482120 1570253042
M.M.O 1709986614 2723305911
Africa 272596136 623962448
Zone 01 425071757 604318471
Zone 02 201625282 288165311
Zone 03 549428849 793820607
Total 8264944127 12244849964
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France
Europe
Long courier
M.M.O
Africa
Zone 01
Zone 02
Zone 03
0 2000000000 4000000000 6000000000 8000000000
PKT
SKT
The aggregate travelers' ability from Algeria to other locale recorded at PKT segment
8264944127 while at SKT area was 12244849964 a change of 67.5%, with more noteworthy rate
and number of development to France. As appeared on the chart above.
Contrasting activity execution on an area by locale premise, France by and by drove all areas
with high year on year movement development, outpacing monetary development, helped by a
strong residential market execution, while travelers' ability to district of zone 02 was the last.
Transporters in Africa to zone 03 saw slower development in 2016 traveler limit this could be
because of gentler item costs that affected financial execution, and also expanded political
difficulties (Button, Martini, and Scotti, 2017)
With respect to models, ( Burghouwt and Redondi, 2013) it is winding up progressively hard to
recognize between full administration/mainline and minimal effort conveys, in any event on
short pull flights where a large number of the highlights of the ease plan of action have been
imitated by full administration administrators and the other way around. Be that as it may,
utilizing Flight Global groupings a 67.14% of universal traveler limit was recorded in 2016,
while household voyaging traveler's ability was 69.75%.
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2.3 Financial performance
Add up to incomes of Air Algerie on 2016 came to 88,280,044,954, an articulating increment
from the principal professional form a ten months; this outcome was accomplished with lessened
limit (ASK) by around low rate, as arranged, and an expansion in the general load factor from
around half to a rate above it. The diminishment comes about because of system improvement
and the fitting of exercises based on showcase request, halfway counterbalance by some extra
exercises and the dispatch of new courses in the residential market.
Solidified Earnings before premium, assessments, devaluation and amortization in the initial ten
months of 2016 was an expansion contrasted with a negative Earnings before premium,
expenses, deterioration and amortization in the principal genius forma ten months of 2015; the
weakening in execution somewhat mirrored the profoundly negative market viewpoint and the
unfavorable execution of exogenous factors (Dollar/Fuel) and was additionally halfway because
of nonrecurring charges, for example, exchanges and arrangements for prosecution, redesign
costs, charges for early air ship conveyance and different possibilities.
Profit before Interest and Taxes in the initial ten months of 2016 added up to an expansion
contrasted with an Earnings before Interest and Taxes in the main star forma ten months of 2015.
This outcome incorporates the exceptional compose downs of the armada because of the normal
transfer of possessed flying machine as per the New Business Plan and the record of Goodwill
because of the hindrance test (Heinz and O’Connell, 2013).
At 31 October 2016, the Group had a positive combined net value, while the Parent Company
Air Algerie had too a positive value. In such manner, the Board of Directors on 26 February
2017 chose to approve the President of the Board of Directors and the Chief Executive Officer,
acting severally, to assemble the remarkable Shareholders' Meeting on 29 April 2017 for the
selection of the measures according to the Algeria Civil Code.
The normal number of FTE representatives of the Group in the initial ten months of 2016
(barring staff under the transitory excess store - CIGS) was 1,475 (994 for the parent Air
Algerie), altogether diminishing from the 2,108 workers in the principal genius forma 10 months
of 2015 because of the huge utilization of the brief repetition subsidize - CIGS.
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2.4 ASK and RPK analysis
Available Seat Kilometers (ASK) is the total flight traveler limit of a carrier in kilometers. It is
acquired by multiplying the aggregate number of seats accessible for scheduled passengers and
the aggregate number of miles in which those seats were flown (Lozano and Gutiérrez, 2014) .
Aircrafts need to attempt to arrange supply with enthusiasm for explorers' leeway. While absence
of seats will consistently achieve higher airfare, abundance limit can prompt diminished edges
because of higher settled expenses. So an expansion in limit is sure just if it's upheld by a
satisfactory ascent sought after for air travel.
ASKs give airline senior administration a reasonable sign of their ability. Larger legacy carriers
normally work limited sorts of air ship with various seating designs. Henceforth, the ASK assist
in qualifying the aggregate number of accessible seats and the sum of each seats will fly.
RPK is each kilometer a paying passenger has flown.
Regions KMS
PARCOURUS
TOTAL
PAX
PAYANTS
RPK
France 25992545 2553690 6.63769E+13
Europe 9925470 777080 7.71288E+12
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Long
courier
6197902 153460 9.5113E+11
M.M.O 11196331 661836 7.41013E+12
Africa 4476755 92658 4.14807E+11
Zone 01 6667718 1160320 7.73669E+12
Zone 02 3266291 347669 1.13559E+12
Zone 03 6779913 463722 3.14399E+12
Total 9.48821E+13
Hence, Air Algerie has 9.5E+13 Revenue Passenger Kilometers per flight leg
Load factor
RPk (Which is the number of revenue passenger kilometer) is expressed as a percentage of
ASMs, either on a specific flight or for the whole framework. Load factor represent the portion
of carrier yield that is really expended. To ascertain this figure, divide RPk by ASMs. Load
factor for a single flight can likewise be computed by partitioning the quantity of travelers by the
quantity of sea
Passenger’s yields
Yield is the ordinary affirmation per explorer per mile(Smith, Leimkuhler and Darrow, 1992) .
Explorer salary is determined by expanding RPK (or revenue passenger kilometers) with yield.
Yield vacillates in light of intrigue and supply factors. Since enthusiasm for air travel is general,
yield is higher in the midst of best seasons. ( Belobaba, and Wilson, 1997)
Yield furthermore changes for different market segments and various seat classes—top notch,
business class, or economy class ( Belobaba, P.P., 1987). Airplanes grasp esteem division and
27

thing partition techniques to charge differing sections in light of voyagers' essentials and capacity
to pay. Business pioneers, for example, will pay higher confirmations as a final product of better
organization and settlement appeared differently in relation to the cost cognizant relaxation
voyager.
2.5 Productivity
Higher profitability of aircraft industry is the way to quicker financial development of an
economy. In this background, this investigation gauges and looks at normal representative
profitability of Algeria International Airline (Ray and Mukherjee, 1996)
Labour productivity
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The labor productivity index in this is figured by separating a file of gross yield by the work
input file, which is a measure of hours worked by the different specialists noticeable all around
transportation industry. ( Brandolini and Cipollone, 2001).
Multifactor productivity
Multifaceted efficiency is characterized as a list of genuine yield partitioned by a file comprising
of the accompanying genuine joined sources of info: capital (K), lobor (L), energy (E), materials
(M), and administrations (S) ( Sveikauskas, 1981).
Multifaceted profitability ( Triplett and Bosworth, 2006) gives a more total bookkeeping of
carrier industry and efficiency development than does either work profitability or some other
single-factor efficiency approach. ( Duke and Torres, 2005)
Domar weights
Utilizing the previous Domar weights and development articulations, and conglomerating all
ventures in the economy, yields economy wide factor commitments to GDP development, from
which industry commitments to national profitability development and to national factor input
development can be effectively decided.
29

2.6 Risk management
Cyber threats
One developing region of enthusiasm for some industry purchasers has been assurance against
digital assaults. Digital dangers have turned out to be omnipresent crosswise over most, if not all,
industry verticals, and aeronautics is no special case. It isn't hard to envision the sorts of harm,
and not simply money related, that could be caused by a noteworthy security break at a carrier or
airplane terminal. As the rate and complexity of cybercrimes and the danger of digital fear based
oppression develop, the hazard profiles of carriers and air terminals are changing, and industry
purchasers are altering their hazard administration systems to suit those progressions. Various
organizations in the protection business, including AIG, have reacted by giving various
contributions to help meet this developing needs.4
Notwithstanding digital dangers, chance supervisors in the avionics business are trying to expand
their scope in different regions also. These range from potential liabilities identifying with
contamination from de-icing and fuel stockpiling to circumstances including, for instance, the
loss of GPS satellite interchanges information, which aircrafts depend on for route and territory
mapping.
Importance
One developing region of enthusiasm for some industry purchasers has been assurance against
digital assaults. Digital dangers have turned out to be omnipresent crosswise over most, if not all,
industry verticals, and aeronautics is no special case. It isn't hard to envision the sorts of harm,
and not simply money related, that could be caused by a noteworthy security break at a carrier or
airplane terminal. As the rate and complexity of cybercrimes and the danger of digital fear based
oppression develop, the hazard profiles of carriers and air terminals are changing, and industry
purchasers are altering their hazard administration systems to suit those progressions. Various
organizations in the protection business, including AIG, have reacted by giving various
contributions to help meet these developing needs.
30

Notwithstanding digital dangers, chance supervisors in the avionics business are trying to expand
their scope in different regions also. These range from potential liabilities identifying with
contamination from de-icing and fuel stockpiling to circumstances including, for instance, the
loss of GPS satellite interchanges information, which aircrafts depend on for route and territory
mapping.
Fuel Hedging
The meaning of Hedging in the domain of Finance exhibits a risk organization method which is
used to calm or balanced probability of torment incidents in view of changes in the expenses of
products, money related structures, or securities. (Adams and Gerner, 2012) To achieve the
objective the instrument, which basically credits protection against sudden events, for the most
part incorporates the purchase of securities that move the other path than the advantage being
guaranteed.
Supporting techniques are generally utilized via carrier organizations as a benefit security
apparatus to adapt to the rising fuel costs ( Berghöfer and Lucey, 2014). Supporting is most
common among minimal effort transporters. They are very presented to the swings in fuel costs
as every single other cost are lessened to the base level by these bearers.
A standout amongst the most pervasive subordinates to support chance is prospects contracts.
The agreement happens between the purchaser and the dealer and essentially commits the two
gatherings to purchase or offer a benefit at the cost settled upon at the time the exchange.
Conveyance and installment happen at a future determined date. The agreements between the
gatherings, used to alleviate their hazard exposures to possibly rising oil costs, are consulted on a
fates trade. (Turner and Lim, 2015)
Additionally, carrier organizations likewise influence utilization of a fuel to swap to support their
presentation to the vacillations in fuel costs. A stream fuel swap alludes to an assention between
two gatherings which guarantees that a skimming (advertise) cost is traded at a settled cost over a
31

particular era. In addition, alternatives, costless collars and call choice spreads are other
supporting methodologies used via bearers to shield themselves from unstable fuel costs ( Carter,
Rogers and Simkins, 2006).
2.6.1 Exchange rate volatility
Strong airline pricing and revenue administration methodologies include the analysis and
representation of some basic factors and their long haul conduct. These factors influence the
ideal costs and inventory allocation specifically or by implication, in sometimes complex ways
and considerable amounts
The universal idea of the Air Algerie implies that aircrafts are presented to cash variance chance.
Most transporters bring about the two expenses and incomes in various monetary standards, and
the way that a portion of these money streams require change into an alternate cash frames the
premise of a carrier's remote trade (FX) hazard. In 'ordinary' times, yearly changes in return rates
are normally generally little, and can be either moderated or to a great extent consumed via
bearers.
Nevertheless, the solid valuation for the US dollar over the previous year or so has been felt all
the more broadly; for sure, thus, Air Algerie USD-named costs have ascended by 10-15% by and
large in neighborhood money terms.
Consumer Decision
Changes in return rates can affect the synthesis of traveler demand.4 how much this happens will
contrast on a course by-course premise, and will rely upon a scope of interest attributes,
including:
• The adjust of movement on particular courses.
• Degree of substitutability.
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2.6.2 Fuel price exposure
A Fuel costs address one of the best expenses for the avionics and flying machine wanders. All
around, fuel costs speak to 29% of each working expense and 27% of the general aircraft
industry wage. Since the fuel costs per gallon declined by 6.4% of each 2016, the reduction
assembles to the transporter business' fundamental concern. In the event that there is finished go
through and every single other factor stay steady, the 6.4% decrease in the cost of fuel enhances
the overall revenue for the carrier business by just about 1.7% in total terms. In any case, the fuel
cost reserve funds as a rule don't accumulate completely and promptly since aircraft bearers
frequently consent to forward buy arrangements that fix the fuel value a couple of years ahead of
time.
For the aircraft business, stream fuel speaks to one of the greatest cost things close by other non-
fuel costs, for instance, air terminal charges, flight group expenses and plane support. Aircraft
bearers’ sign buy contracts with oil refinery administrators, which refine oil into stream fuel. Oil
is the primary segment in the creation of fly fuel, so the cost of oil and the cost of stream fuel are
decidedly related. As the cost of oil decays, so does the cost of fly fuel.
The degree to which the declining fuel cost influences gainfulness in the aircraft business relies
upon the extent of fuel cost in the aggregate carrier industry's incomes ( Blanchard, O.J. and
Gali, J., 2007). In 2016, stream fuel costs represented just about 27% of the carrier business'
income, while the overall revenue was 2.7%. In the event that there is a quick go through of fuel
costs funds to the aircraft business, the 6.4% decrease in stream fuel expenses would bring about
the overall revenue enhancing from 2.7% to right around 4.4% (0.27*0.064 + 0.027).
The fuel cost decay is very improbable to bring about prompt change in the aircraft business'
gainfulness proportion. Aircraft administrators regularly fence their presentation to vacillations
in fly fuel costs a couple of years ahead of time by locking into a specific settled cost. On the off
chance that an aircraft organization locks into a support with a value that ends up being
significantly higher than the future value, it can't take full favorable position of bringing down
fly fuel costs. Thusly, the go through of declining fuel costs is far beneath 100% and the aircraft
business gathers the advantage of the 6.4% decrease in fuel cost over numerous years in
increases.
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Rather than supporting plane fuel costs, certain aircraft administrators take exceptional measures
of putting resources into their own particular stream fuel creation. In 2016, Air Algerie put $150
million into an oil refinery, bypassing the fly fuel market and taking full control over its fuel
generation. Thusly, aircrafts can take full favorable position of declining fuel costs, which
enhances their productivity considerably quicker contrasted with long haul supporting. Be that as
it may, such a system does not function admirably when the oil cost increments since it
influences the fly fuel to cost high. For this situation, supporting the stream fuel value works
better.
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Chapter Three : Determinants of Air Algerie Costs
3.1 The need of costing
In the course of the past five years, air Algirie has developed significantly. The rate of
technology change has been remarkable resulting to lower expenses and costs, which have
invigorated a quickly developing, demand for the air Algerie services. Most air industries and
organizations that have a persistent and quick development for their services or products have a
significant increase in their benefits. This doesn't occur with the airlines. Since they generally
have a low benefit.. The deregulation procedure of business sectors and expanding opportunities
for competitors have created abundance limit in numerous business sectors that causes lower
rates, even with its increasing expenses.. The vital costs administration and additionally their
conduct under various impacts can bring upper hand over players. Cost reduction into the
market-based industry is a critical method for being focused when confronting costs reduction. In
this way, reduction to cost is important however the impact of every segment on add up to cost
relies upon factors that are connected or not to carrier activity. Air transportation industry is
portrayed by being dynamic, with fast changes in a large number of its highlights. Consequently,
the reasonable information of the costs included and its determinants is basic for basic leadership
of business. Considering the air Algeria common flying business sector, it has been project that
its growth has highly increase. Air Algerie travelling sector had an expansion in the supply of
available seat kilometers (ASK) in the domestic market.
In this situation, new organizations developed in the market and others quit working. Some of
them embrace the minimal effort show. The lower of operation activities rates animated a
developing interest for air transport, which competes for passengers with customary modes as
road transport. The more markets are aggressive the more is vital to be proficient. In this specific
circumstance, methodologies to decrease working expenses are ending up critical. The choice
about the importance of one cost is certainly not a simple issue. The adequacy of reduction of
everything that makes the aggregate cost out of aircraft can change after some time, contingent
35

upon both the plan of action and the phase of the organization, and additionally outside
components. In this situation this research plans to decide the principle factors that impact the
procedures of reducing air Algerie expenses. Moreover, the proposition is to build up a chain of
command of these variables as per their significance. It could be important for helping the
managers when confronting choices about measures of costs reduction and productivity
centering their endeavors and set need activities.
3.2 Direct operating cost
3.2.1 -Flight operation cost
The income and cost structure for an air Algerie is customarily classified as either operating and
non-operating issues.
It should be noted that in terms of non-operating elements always have significant effect on their
money related performance.
On the operating factors expenses can be further be classified into indirect and direct. under the
category of direct cost, one ought to incorporate all costs that rely upon the sort of aircraft, for
instance, cost of flight which include the cost of crew and fuel), all maintenance and overhaul of
aircraft and devaluation costs. In the indirect expenses are incorporated all the costs that stay
unaltered with the difference in plane, that is, the costs that are most certainly not specifically
subject to airplane activities.
This cost component involves every cost which is specifically connected with the flight. The
accompanying items are summed to give the aggregate flying expenses every hour:
1. Flight cost
2. Oil and fuel utilization
3. Navigation and landing charges and also costs of crew.
These incorporate the compensations for both the flight and cabin staff. Team profitability has
expanded in the course of the most recent ten years with the expanded acknowledgment of two-
36

pilot task. The quantity of team is directed via airworthiness models and worker's organization
assentions. Ordinarily there will be two flight group for littler air ship voyaging shorter stages,
three for heavier air ship and for long-run flights it is once in a while important to have in excess
of one arrangement of flight team on the flight.
The quantity of lodge staff is related with the quantity of travelers (30-50 travelers for each lodge
orderly is commonplace). Yearly use of group shifts relying upon staff contracts. Eight hundred
hours multi year is commonplace for a medium size local fly flying machine activity. Wage rates
contrast amongst carriers and between air ship compose so it is hard to for the most part evaluate
group costs. The accompanying relationship can be utilized: group costs = (yearly cost of flight
team part x number of flight team + yearly cost of lodge staff part x number of lodge staff) x
(flight square hour)/(group use every year) Note, flight and lodge staff use is probably going to
appear as something else, lodge staff having a higher usage.
Team cost will incorporate overheads for authorized stop-overs on long-extend plans. These
costs are here and there regarded as a general working expense and along these lines considered
as roundabout expenses.
Fuel and oil The cost of fuel and oil is generally simple to assess giving the cost of fuel can be
precisely anticipated. Beside deterioration, fuel cost speaks to the most noteworthy cost
parameter in the plan. A recorded study of fuel cost over a 20-year time span demonstrates the
trouble of making this expectation. Figure 12.7 shows how the cost of fuel has changed
somewhere in the range of 50 and 350% of the pattern an incentive in just a 20-year time span
(due for the most part to the inconvenience of cartel exchanging by the oil providers in the late
1970s). With such fluctuation it is hard to unquestionably anticipate fuel cost later on
3.2.2 -Maintenance and overhaul cost
Air Algerie prediction of maintenance costs is confounded by the absence of definition for items
to be incorporated under this heading. Setting up an maintenance office is a costly expense for
the carrier. Some such offices keep running as a different business. The capital cost of structures,
the organization costs and the cost of unique hardware might be viewed as a roundabout cost on
the aggregate support activity and incorporated into the IOC assessment. This suits the airplane
producer as the assessment of DOC would be proportionately decreased. The attribution of the
upkeep overhead weight shapes the greatest inconstancy in the distinctive standard techniques
37

for evaluating DOC. A few carriers contract-out their flying machine and motor support to
different aircraft or particular upkeep organizations. In these cases the aggregate charge for
support will be naturally set against DOC as the cost will be straightforwardly inferable from a
particular flying machine. Maintenance charges incorporate work and material expenses related
with routine examinations, adjusting and upgrade (for airframe, motors, aeronautics,
frameworks, adornments, and so on.). There will likewise be some non-income flying included
and this will be charged to the upkeep account. Summed up estimation of the aggregate costs
included has dependably exhibited challenges because of the fluctuation of support assignments
for various flying machine and the varieties in the sorts of activity. All the standard DOC
strategies incorporate techniques for evaluating support costs yet mind must be taken while
adjusting these institutionalized techniques to specific outlines. Usually practice to partition the
maintenance errands into airframe and motor segments giving: that is, maintenance cost = cost
of airframe maintenance + cost of engine maintenance + upkeep trouble (overhead cost) The
airframe and engine maintenance costs are further sub-isolated in the process of childbirth and
material segments, for instance: airframe maintenance cost = cost of labor+ cost of materials
Furthermore, every segment cost is thought to be the total of a cost for each (flight overhead) and
the cost per flying hour (intermittent charge). For instance the cost of airframe labor maintenance
is characterized as: airframe work cost = (labor cost per organize + labor cost per flying hour x
arrange time) x labor rate The aggregate support load is regularly in view of a standing charge to
take care of the overhead expense of giving the support benefit in addition to a hourly cost, as
demonstrated as follows: support trouble = standing expense + hourly charge x square
time/organize
Henceforth the parts of the maintenance cost are:
1. Airframe maintenance labor cost per stage
2. Airframe maintenance labor cost per flying hour
3. Airframe maintenance material cost per arrange
4airframe maintenance cost per flying hour
5. Engine maintenance labor cost per arrange
6. Engine maintenance work cost per flying hour
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7. Motor maintenance material cost per arrange
8. Engine maintenance material cost per flying hour
9. Support trouble standing charge
10. Maintenance trouble hourly (flying) charge
Engine (labour + materials) = $ 190 / hr / engine
Labour cost $660/hr
Cost of material $218 / hr
Total maintenance cost = (2 x 190) + 660 + 218 = $1258/hr
3.2.3- Depreciation and amortization cost
Depreciation will be reliant on numerous components including the capital included, the carrier
acquiring arrangements, the bookkeeping practices of the monetary advance organizations, the
opposition for capital and the general world financial conditions at the time the airplane is
bought. As the air carrier is constantly kept up to a completely airworthy condition for the
duration of its life, it will have an identifiable value when sold. Similarly as with any capital
item, the lingering worth will lessen as the air scarrier ages. The depression time frame will be
reliant on the bookkeeping approach of the carrier and the normal improvement of the courses
for which the airoplane is purchased to benefit. Ordinarily, a airoplane might be thought to be
toward the finish of its helpful life following 15-20 years with zero remaining worth. With
common air carrier plan strategies achieving a develop innovation express the valuable existence
of air ship is continuously stretching out with 20-30 years prone to wind up more typical in the
following decade. The decision of devaluation period and the estimation of persistent value is
made by the obtaining aircraft. The fundamental parameter in the assessment of devaluation is
the aggregate cost of the air ship. The underlying flying machine cost utilized as a part of the
assessment of devaluation will incorporate a stipend for the capital required to accommodate
saves holding which is commonly 10-15% of the airoplane introductory cost.
In this manner,
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Airplane starting cost = industrial facility cost of the flying machine + saves cost.
The level of the principal cost of the air carrier to be deteriorated every year can be resolved as:
[(initial cost — persisted value)/beginning price]/(devaluation period/100).
For instance for the situation above
The air Algerie condition will give: [(P - 0.15P)/P]/[12/100] = 7.08% where P = airplane
producer's cost (counting airframe, motors, frameworks and online hardware).
The estimation of airplane cost is entangled by numerous non-designing elements for example,
economic situations, competition, legislative issues, off-set exchange assentions, universal joint
effort on produce.
Nevertheless the cost of a aeroplane must be adequately high to permit a sensible rate of return
for the maker and adequately low to permit a satisfactory profit for the buy speculation made by
the administrator. A pessimistic perspective of this procedure is to express that the underlying
cost of the airplane is set at what the client will pay and not identified with the specialized
assembling factors. This may not be precisely valid but rather it is realized that the underlying
deals costs of another air scarrier rights are constantly set low to empower the producer to pick
up advertise infiltration. Likewise, when the air carrier write is old the producer will cite low
costs against contending new eroplane, in the information that the advancement costs for his
airplane have been recouped. The aircraft will arrange airframe and motors by isolated contract
and will can hope for the best cost for each from various providers. The information recognize
the present market cost for the air carriers and not the cost of assembling the air carriers.
Notwithstanding, the information can be utilized to decide air carrier cost in the undertaking
configuration stage. With the many-sided quality and vulnerability of variables related with the
market cost for air ship it is amazing that there isn't greater fluctuation in the cost of airplane per
pound of air ship void mass (OEM). Such a rough plot ought not be utilized for specific air ship
investigation as the scope of flying machine measure secured is excessively broad (100-500
travelers). A more definite examination ought to be made around the span of air ship under
thought (e.g. on the off chance that lone air ship under 200 000 Ib were examined on the
information over an alternate normal line would have been drawn). There is a solid contention
for utilizing airplane parameters other than OEM for deciding air ship cost (e.g. greatest take-off
mass, air ship speed, number of travelers, and so on.). Each outline study ought to consider
which parameter is generally fitting. There are a few information sources accessible from which
40

airplane value data can be acquired. These ought to be utilized to construct a database for the
specific plan. Care must be taken when utilizing value information to standardize the qualities to
represent swelling and the depreciation of monetary standards. In some cost assessment
strategies there is an alternative to take into account renting of air ship to be substituted for
obtaining. There are a few techniques accessible for deciding air ship producing costs from the
design and framework points of interest. The aggregate cost can be considered as the entirety of
the outline costs (which is an element of the specialized multifaceted nature of the plan), the
overhead cost of improvement (which is a non-repeating cost free of the quantity of air carrier
delivered) and the creation cost (which is specifically identified with the quantity of
air carrier delivered, the unpredictability of the plan and the quantity of co-working assembling
organizations). The plan and overhead expenses happen in the early long periods of the outline
and make cycle. In the early years these expenses will be a substantial segment of the business
cost, however as the plan develops and deals increment the outline and improvement cost will be
reimbursed and inevitably frame a moderately little component in the deal cost. For a consistent
generation volume, the assembling expense will begin low (since a portion of the early creation
cost will be viewed as improvement) however rapidly balance out to a steady esteem. The capital
prerequisites for each cost will rely upon the sort of air ship, the many-sided quality of the plan
and the strategy for make. Another flying machine configuration will include more outline and
improvement capital than a subordinate (e.g. extended) air ship. The MD contemplate for a 150
seat territorial stream specified before demonstrated the assessed add up to program cost for
another and inferred configuration. The overhead cost might be viewed as a little piece of the
aggregate cost just if adequate quantities of air ship can be delivered (and sold). Isolating the
aggregate cost related with the outline, improvement and assembling cost, by the number
delivered gives the unit cost (airplane make back the initial investment cost). This examination
decides the normal cost of delivering every air ship, assessed toward the finish of the profitable
existence of the plan. The issue for the makers is that they don't know toward the beginning of
the task what number of flying machine will be created so the normal value consider isn't utilized
as a reason for settling the underlying air carrier cost. Setting a steady cost for another flying
machine deal ($57M and $50M on the above figure) permits an earn back the original investment
generation amount to be anticipated (i.e. around 250 and 350 air ship individually). One flying
41

machine fabricating organization president remarked that the earn back the original investment
creation esteem for an air ship write was constantly around 100 more than your present deals
The earn back the original investment esteems are utilized to draw the program trade stream
graphs. The irregularity in the bends in the third year emerges from the receipt of stores for
future deals choices. A client will be requested to pay a little store to anchor an alternative
position (date) on the creation line. Around two years in front of conveyance the maker will
request dynamic stage installments up to around 33% of the deal cost. These money inputs help
with the producers income and show altruism from the client. Note, in the above investigation
the producer's income make back the initial investment point lies somewhere in the range of six
and nine years from the beginning of the venture. The inconstancy is caused by the vulnerability
in the quantity of air ship created. A settled generation volume will just emerge after around six
years from the beginning of the creation procedure. The contrasts amongst new and determined
plans in the above investigation designs the inconstancy in the appraisal of aeroplane generation
cost. Albeit steady deals cost was expected in the investigation, encounter demonstrates this isn't
the ordinary market hone. As said before, the normal cost will be marked down toward the begin
and towards the finish of the creation run. The main decide that appears apply to the cost of
flying machine is that it is set to suit the market and not as a count from the outline and creation
cost. Be that as it may, overall, the maker needs to make a benefit from the deals to remain in
business and the carrier must make a benefit from the buy. In a few investigations it is attractive
to incorporate the motor cost as a different thing from the air ship cost. Thusly the ideal flying
machine plan (from an airplane DOC angle) can be resolved. Motor cost is generally reliant on
the take-off push with a little overhead to represent non-push subordinate cost segments
3.3 Indirect operating Cost
3.3.1 Cost of passenger services
The low cost air Algerie is comprehended to be an aircraft that works a point-to-point network,
pays representatives underneath the business normal wage, and offers no nonsense
administration. The two most main minimal low cost carrier airlines are, JetBlue and air Algerie ,
both have work costs 30% to 40% lower than the mainline bearers (Jarach, 2004). A customary
42

real transporter frequently has various instruments available to its, which it can use to dissuade
passage or diminish the intensity of late participants. These apparatuses incorporate savage
estimating, steadfastness projects, and clog at the country's most prominent airplane terminals.
However, these apparatuses are not compelling against minimal effort bearers with point-to-point
systems. A minimal effort aircraft can participate in Bertrand rivalry, with a staggering expense
contender, without evaluating at its own minor cost. The ease transporter can effectively kill the
strength of its rivals, by contending on cost. The lower cost structure can be measured by
accumulating the cost funds of point-topoint systems, wage investment funds, and reserve funds
from not giving various extra administrations. While work costs are the biggest single cost thing
for aircrafts, there are numerous different expenses
The lower cost structure of a point-to-point organize is a result of various variables. They
include: Airport clog, which causes expensive deferrals at center points and isn't as pervasive at
air terminals utilized by point-to-point bearers (O'Connell and Williams, 2005). For each real
metropolitan air terminal there are regularly a few optional air terminals. Ease bearers can
accomplish quick turnarounds and pay less to lease airplane terminal offices at optional air
terminals like TF Green air terminal outside Providence, Rhode Island. Low air terminal rent
rates and entryway costs additionally add to the lower cost structure of ease bearers. Under used
optional airplane terminals regularly collect lower charges for the utilization of their offices
3.3.2 Ticketing, sales and promotion cost
World has seen the most innovative boom over the latest fifty years, with the headways in each
field made possible currently to make the human life less difficult and more pleasing. Carrier
industry has formed into a champion among the most perplexing and enchanting endeavors of
today. airline industry has made the dream of flying of the general population into a reality in
less than a century. Today, an expansive number of people fly every day. This has invigorated
the economies of spots and related people and social orders. The progress of development has
incited immense progress in the game plan of flight ticket booking consistently. Tickets are the
chronicles that confirm purchase and confirmation a seat on the plane for the picked travel.
Tickets are required as a proof to get the ticket at the plane terminal, which is required
remembering the ultimate objective to stack up the flying machine. The standard tickets on the
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start of air travel were made of paper and were to be assembled from the development
workplaces or airplane office in the wake of purchasing. Nearby globalization and the headway
of aeronautics industry, the system of ticket getting has moreover changed. Since the brisk
improvement and use of web since the 2000s, ticket getting has been possible on the web.
Lessening number of people are directly using the standard paper ticket while each and every
genuine bearer have given the probability of online tickets, frequently known as e-ticket. A ticket
today contains the information of the voyager's name, date of development, the flight number,
objective and origination of development, toll, charges, things information, controls on changes
and rebates, kind of portions and the authenticity of the ticket.
During the time with the presence of web, online ticket holding for transporter travel has been
dynamically outstanding. The essential point of convergence of air ship associations today has
been in the satisfaction of customers. The associations are doing this by making wanders
possible in a totally compact and social condition with the watchful use of colossal measures of
data to pass on honest to goodness organization and operational upgrades. The tweaked usage of
phones and web by customers is depended upon to increase unquestionably, with the estimation
of 90% flying machine associations offering flexible enrollment by 2015.
Online business is the business trade of stock and ventures done over the web. With the approach
of web, online business has been growing rapidly in the past couple of years. It is getting the
chance to be hard to imagine a world without web business today. Numerous genuine business
associations around the world directly offer their customers choice of picking and acquiring the
stock and ventures at the comfort of their homes. Diverse plans of correspondence and
association rules are used as a piece of web business as archive trade, email and shopping bins.
Online business makes it possible to buy items and endeavors round the clock which is possible
from any bit of the world through a PC related with the web. Online shopping isn't simply more
supportive than the customary style of physically taking off to the stores, yet also offers a more
broad assurance of things and extraordinary accessibility.
The customers of air Algerie are without a lot of a stretch on purchasing an e-ticket by
embarking to the ticket bargain website, looking and picking the objective, entering the purposes
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of enthusiasm, for instance, name, strategy for development, outfit information and dates
ultimately making the portion by methods for bank cards, bank trade or through online portion
associations. The e-ticket is then informed or informed on the telephone of the customer. While
as of now travel administrators and flying machines helped customers in making ticket
purchases, today with the improved web structure, it is getting less complex and less requesting
to book the flights without any other individual. After the customer makes the purchase, the
electronic record and the unpretentious components of the ticket are saved into air ship's
database. The database is facilitated with the voyager advantage structure, which is then
connected with the air terminals, bearers, travel workplaces for sharing ceaseless information.
(Crosby 2007.)
3.3.3 General and administrative cost
Web design is a basic part in the advancement of site and application of web. Web outlining
particularly is about the front-end of the page that the clients see. The fundamental part of any
site pages is with two distinct things: one is with the front-end, which means what the clients can
see and how they can cooperate while the other one is the back-end of the page where every one
of the information, functionalities and data are put away. A website specialist can plan how the
page looks to the client utilizing fundamental markup dialects, for example, HTML among
others. There are additionally numerous different angles related with the tremendous region of
web planning. A designer needs to remember numerous things, for example, appearance of the
page which could possibly appear to be identical on various programs, the information of screen
sizes, show settings and the intelligence and dynamism of the site. In spite of the fact that it is a
dull and generally difficult employment, web outlining offers boundless open doors on the
advancement of website pages. (McGuigan 2015.)
Cost of crew per hour = (2 x 360) + (9 x 90) = $1530
Charges for landing = 0.006 x 243 200 = $1459
Assume grounds Handling charges of $11 per passager per flight. For a 300-passenger aircraft
this gives:
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Grounds Handling = 11 x 300 = $3300
Total airport charge = 1459 + 5640 + 3300 = $10399 per flight
Chapter four : Solution and implementation
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4.1.1 Online ticket sales
Web based business utilizes the electronic portion structure for the trades. The cash related
paperless system has completely changed the substance of overall trade in perspective of its
straightforward and profitable workplaces, unimportant written word on requesting and
inconsequential work and association costs. The most generally perceived methodologies used to
pay online are credits cards, charge cards, bank trade and through various associations, for
instance, PayPal. On account of the development in web business and its straightforward, trouble
free e-installment system, various associations, including aeronautic industry, have dependably
moved toward becoming consistently. (Ueland 2013.) Online ticket booking is one of the various
features of web business. A bigger number of people are flying than some other time in late
memory, and straightforward online ticket purchase system is one of the critical benefactors in
the development of the travelers using air Algerie travel. In present days, to book a transporter
ticket for wherever on the planet, one basically needs to sign onto the web address of the air
carrier association (now and again unique destinations which looks the best flights for client),
interest and purchase.. The enlistment ought to in like manner be conceivable online in numerous
noteworthy bearers and the ticket can be direct printed before taking off to the plane terminal.
(Atkinson 2015.)
4.1.2 Increased competition
The inspiration driving why a regularly expanding number of people are securing their flight
tickets online is an aftereffect of the various positive conditions and solaces online flight booking
system conveys to the table. Limited to the standard technique for purchasing tickets through
development pros office, web booking today gives the passageway to a few flight ways, their
expenses and diverse organizations at the snap of a catch. This can be basic for the customer with
a particular ultimate objective to find the best course of action and the most supportive
affiliation. Online game plan of booking flight tickets gives more control to the customers to the
extent their excursion masterminding and energizes them settle on taught decisions. The plan of
glancing through the flights is anything but difficult to the point, that anybody with a computer
and web access can without quite a bit of a stretch chase affiliations, consider expenses and
purchases any affiliation they wish to. This, and this procedure is altogether more snappier, less
47

requesting, trouble free and accommodating. Many flight associations these days in like manner
give diverse organizations, for instance, air terminal trade, accommodation organizations, auto
contract and air terminal halting. The customers can in like manner take purposes of enthusiasm
of normal discounts, headways and distinctive offers from the bearers through purchasing in to
their email or basically by study their site. The clients can in like manner totally think about the
distinctive procedures of the association, for instance, crossing out, stuff standards and others.
additionally, can without a lot of a stretch make usage of those organizations. Online flight
booking not simply gives basic and brisk organizations to the customer from the settlement of
PC from wherever on the planet, yet every now and again in like manner gives organizations at
more sensible expenses. (GazetteLive 2011.) Majority of bearers associations moreover give the
organizations of online enlistment after which the customer can without quite a bit of a stretch
print the ticket at home and extra great time and pesters at the plane terminal.
4.2 Managing passengers demand
4.2.1 Time of day and of week
Selection of seats and cabin is done in done up to 24 hours, before the plane flight, through
provision of passangers name and the booking reference.
4.2.2 Schedule changes
The schedule change can only be done under crucial circumstances which can not be
avoided, like weather of a particular section of it destination or castratrophic phenomena that
may have occurred on the air Algerie destination.
4.2.3 Time of booking
Booking of air Algerie is done online, where one can addd or edit the information, order a meal
on 48 hours before the departure time, and selection of seats and cabin is done in done up to 24
hours, before the plane flight, through provision of passangers name and the booking reference.
4.2.4 Cancellations and no show
The flight cancellation can be a major issue and can surely be sufficient to ruin someones
vocation or disturb ones plans for an imperative conference. It is a smart thought to become more
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acquainted with the air traveler rights to which all EU part states are entitled. Air Algerie make it
less demanding to guarantee flight postpone remuneration effectively without confronting any
challenges.
Remuneration can be asserted for a postponement of more than 3 hours. However, on the off
chance that you are offered an alternative route and the someone delay to arrival does not surpass
2 hours, your remuneration could be reduced by up to half.
Air Algerie are the principal decision for customers looking for an expert specialist provider for
representing the customers while asserting remuneration for flight delay as well as scratch-off.
We give you a la mode data guaranteeing that you are completely educated consistently amid
your cases procedure. one can get the pay that he or she merit without contributing any
significant time and cash. Air Algerie Flight Compensation Calculator do takes 3 minutes to
assert remuneration for your cancelled or postponed flights. Also, this unique apparatus will
figure the measure of remuneration one is really owed for postponed or cancenceled flights.
4.2.5 Price
In the event that you were delayed by three hours or more, EC Regulation 261/2004 entitles you
remuneration at the range of 250 and 600 Euro. with a condition that one had travel through EU
air terminal, or through an EU managed aircraft to an EU air terminal. Postponement ought not
be caused because of outstanding conditions. It ought to be air Algerie blame for the bother
caused. With their flight delay remuneration calculator, it is possible to calculate the sum
aircrafts owes someone.
at the point the air Algerie takes the responsibility for delaying passangers, travelers have the
privilege to guarantee pay. The pay for a flight delay relies upon the separation of your flight.
For a separation of under 1,500 km, you are qualified for remuneration of up to 250 Euros. On
the off chance that the course remove is somewhere in the range of 1,500 and 3,500 kilometers,
400 Euros can be asserted. Also, more than 3,500 kilometers, you can assert up to 600 Euros
49

4.3 Operation leading practices
4.3.1 Fuel saving
A Fuel costs address one of the best expenses for the avionics and flying machine wanders.
All around, fuel costs speak to 29% of each working expense and 27% of the general aircraft
industry wage. Since the fuel costs per gallon declined by 6.4% of each 2016, the reduction
assembles to the transporter business' fundamental concern. In the event that there is finished go
through and every single other factor stay steady, the 6.4% decrease in the cost of fuel enhances
the overall revenue for the carrier business by just about 1.7% in total terms. In any case, the fuel
cost reserve funds as a rule don't accumulate completely and promptly since aircraft bearers
frequently consent to forward buy arrangements that fix the fuel value a couple of years ahead of
time.
For the aircraft business, stream fuel speaks to one of the greatest cost things close by other non-
fuel costs, for instance, air terminal charges, flight group expenses and plane support. Aircraft
bearers’ sign buy contracts with oil refinery administrators, which refine oil into stream fuel. Oil
is the primary segment in the creation of fly fuel, so the cost of oil and the cost of stream fuel are
decidedly related. As the cost of oil decays, so does the cost of fly fuel.
The degree to which the declining fuel cost influences gainfulness in the aircraft business relies
upon the extent of fuel cost in the aggregate carrier industry's incomes ( Blanchard, O.J. and
Gali, J., 2007). In 2016, stream fuel costs represented just about 27% of the carrier business'
income, while the overall revenue was 2.7%. In the event that there is a quick go through of fuel
costs funds to the aircraft business, the 6.4% decrease in stream fuel expenses would bring about
the overall revenue enhancing from 2.7% to right around 4.4% (0.27*0.064 + 0.027).
The fuel cost decay is very improbable to bring about prompt change in the aircraft business'
gainfulness proportion. Aircraft administrators regularly fence their presentation to vacillations
in fly fuel costs a couple of years ahead of time by locking into a specific settled cost. On the off
chance that an aircraft organization locks into a support with a value that ends up being
significantly higher than the future value, it can't take full favorable position of bringing down
fly fuel costs. Thusly, the go through of declining fuel costs is far beneath 100% and the aircraft
50

business gathers the advantage of the 6.4% decrease in fuel cost over numerous years in
increases.
Rather than supporting plane fuel costs, certain aircraft administrators take exceptional measures
of putting resources into their own particular stream fuel creation. In 2016, Air Algerie put $150
million into an oil refinery, bypassing the fly fuel market and taking full control over its fuel
generation. Thusly, aircrafts can take full favorable position of declining fuel costs, which
enhances their productivity considerably quicker contrasted with long haul supporting. Be that as
it may, such a system does not function admirably when the oil cost increments since it
influences the fly fuel to cost high. For this situation, supporting the stream fuel value works
better.
4.3.2 Fuel hedging
The meaning of Hedging in the domain of Finance exhibits a risk organization method which
is used to calm or balanced probability of torment incidents in view of changes in the expenses
of products, money related structures, or securities. (Adams and Gerner, 2012) To achieve the
objective the instrument, which basically credits protection against sudden events, for the most
part incorporates the purchase of securities that move the other path than the advantage being
guaranteed.
Supporting techniques are generally utilized via carrier organizations as a benefit security
apparatus to adapt to the rising fuel costs ( Berghöfer and Lucey, 2014). Supporting is most
common among minimal effort transporters. They are very presented to the swings in fuel costs
as every single other cost are lessened to the base level by these bearers.
A standout amongst the most pervasive subordinates to support chance is prospects contracts.
The agreement happens between the purchaser and the dealer and essentially commits the two
gatherings to purchase or offer a benefit at the cost settled upon at the time the exchange.
Conveyance and installment happen at a future determined date. The agreements between the
gatherings, used to alleviate their hazard exposures to possibly rising oil costs, are consulted on a
fates trade. (Turner and Lim, 2015)
51

Additionally, carrier organizations likewise influence utilization of a fuel to swap to support their
presentation to the vacillations in fuel costs. A stream fuel swap alludes to an assention between
two gatherings which guarantees that a skimming (advertise) cost is traded at a settled cost over a
particular era. In addition, alternatives, costless collars and call choice spreads are other
supporting methodologies used via bearers to shield themselves from unstable fuel costs ( Carter,
Rogers and Simkins, 2006).
4.3.3 Ancillaries revenue
At 31 October 2016, the Group had a positive combined net value, while the Parent Company
Air Algerie had too a positive value. In such manner, the Board of Directors on 26 February
2017 chose to approve the President of the Board of Directors and the Chief Executive Officer,
acting severally, to assemble the remarkable Shareholders' Meeting on 29 April 2017 for the
selection of the measures according to the Algeria Civil Code.
4.3.4 Optimization of aircraft utilization
Enhancing of airplane usage is vital for a air Algerie. Through accumulation of more hours of
flight, coordinate working expenses for each hour of flight can be decreased. In many aircrafts,
support checks are performed in foreordained interims and upkeep undertakings which basically
are provided in upkeep program are performed amid these support checks. Though, technique
remains deficient to avert prior achievement of maintenance tasks. Because of the unbending
structure of maintenance checks, such aircrafts are subjected to gigantic loss of material, man
hour and so forth... In the technique enhanced in this paper, a more adaptable structure has been
developed to play out the support amid intermittent checks as well as at whatever point the air
Algerie is on the ground for any reason. In this technique, a solitary errand situated maintenance
idea has been proposed and this idea has been upheld by the fuzzy AHP investigation approach
(Angus, Dawei, 2005) which has been developed to encourage the allotment of work assets.
Hence a more adaptable model has been developed to deal with these assets and play out the
52

support in each open door when the air Algerie is on the ground. In this adaptable system all the
maintenance errands are accomplished on time and elimination of losses are consequently done.
4.4 Sale and lease back
For purpose of accountancy, at times identified with local tax assessment approaches, air Algerie
is forced to lease their flying airplane from an outsider in inclination to outright purchase. The
cost technique reflects this alternative by disposing of the standing charge component and after
that calling the DOC value a 'cash DOC
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