Airline Network-Based Modeling Aspects Sambulo Matema 1

Contents Airline Business Network Management Network planning Fleet Management Scheduling Forecasting QSI

Who am I ? Aerospace Engineer: graduated from TU Delft in 2013 Also studied at Cranfied University Independent Aerospace Transport and Operations consultant Part-time lecturer and research trainer Airline Management Trainer, IATA Founder of CASSA and CASSA Aviation Solutions 3

Airline Business Planning Processes Network Schedule Fleet Maintenance Crew Marketing Sales Handling / Ground OPS Flight Catering Training Product Pricing & Rev Man Financial etc 4

Network Management Network strategy Fit in the airline’s strategy Determine an attractive market Market potential (incl. competition analysis) Network type 5

Network plan Route Feasibility Check Route Demand Estimation Operational aspects- permits, run way length, infrastructure Availability of traffic rights and slots Critical aspect investigation - Availability fleet-, crew- and ground handling Route Demand Estimation Competition Analysis Market Share Simulation Network Optimization Non-stop- vs. multi-stop service Connections at the hub Frequency, passenger & cargo mix 6

Network Management Sensitivity analysis Timing of introduction 7

Fleet Management Initial aircraft design OEM Markerting Exchange info Airline and OEM Analyze concepts on payload, range & economics OEM Markerting Obtain latest cost and performance figures Connections at the hub Decision making Compare cost info, performance Ananlyze network scenario’s Prepare decision making 8

Fleet Management Contracting Secure performance and retention Service Make buy/lease decision Negotiate contract Secure performance and retention Safeguard fleet flexibility Service Manage assets Monitor fleet performance Address contract issues 9

Scheduling Frequency planning or optimization Determination of the routes to be served Frequency of service Departures times determination Time-of-the day variability of demand Possible connections of flights Departure times checked for operational feasibility Aircraft rotation planning (number of aircraft necessary) 10

Scheduling strategy Structural Characteristics Route structure Market Structure (density, volume and elasticity of demand) 11

Schedule evaluation Estimate costs and revenues incurred flying the proposed schedule Identify costly features of the schedule A more precise demand function Punctuality inherent in the schedule Cockpit and cabin crews Ground crews and ground facilities Aircraft maintenance requirements 12

Product, pricing & revenue management Revenue Management is an approach taken by airlines that want to optimize their revenue stream. This is achieved through a thorough understanding of the marketplace that manipulates product demand, timing and targeting to maximize yield 13

Demand forecasting Forecast market share to make long term plans Market share determines Aircraft scheduling Maintenance planning Advertisement and sales campaigns To determine the market share the Quality Service Index (QSI) can be used, which is a tool for analysing market share and traffic levels on individual routes. 14

Quality Service Index (QSI) QSI is a tool for analyzing market share and traffic levels it indicates on individual routes and in aggregate the change in total traffic the change in quality of service the level of traffic carried QSI attempts to forecast consumer behavior by quantifying the relative attractiveness of different flight options 15

QSI Methodolgy Determine which factors passengers consider when choosing a flight among several options Apply coefficients to each factor, for each flight option Multiply the coefficients and weightings to calculate a QSI score for each flight option Compare the relative QSI scores to estimate the market share that each flight option will achieve 16

QSI Methodolgy The QSI model assigns a score to each carrier based on a range of factors Connectivity - non-stop, single-connect, double-connect, interline? Aircraft type -turboprop, RJ, narrow body, mid body, wide body? Frequency - weekly, day of week, daily, 3 x daily, shuttle? Elapsed travel time Time of day - pre-dawn, morning, noon, after meetings? Day of the week - Sunday conference reception, Mon-Thu, weekend getaway Carrier Preference City presence 17

QSI Methodolgy 18

QSI Methodology

Review Implicit assumption that all passengers along the Y-axis are of the same value Model is predicated on desire to gain market share to Capture best traffic Frequency dominance will bring high yield business traffic Deter entrants Dominate distribution channels FFP Earn abnormal profits But on long haul routes the various routings (e.g LON-SYD via DXB, BKK, HKG, SIN, etc.) mean that market share cannot be protected

So to review… In growth phase of cycle, airlines tend to adopt a market share strategy An indirect service at low seat cost can afford to carry lower value traffic and will capture market share (but at increasingly lower yields) perhaps enabling market dominance in some markets. But a carrier that puts a direct service or restricts capacity is likely to capture yield although costs may be higher In a downturn airlines tend to adopt a market share strategy Again the carrier with the smaller aircraft and the more direct service is going to capture better yielding passengers The carrier with the larger aircraft may lose passengers unless they drop fares further. Low seat costs are not very worthwhile if you have no one sitting in the seat.

Final review…

The end… Questions?