1. Biography for William Swan Chief Economist, Seabury-Airline Planning Group. Visiting Professor, Cranfield University. Retired Chief Economist for Boeing Commercial Aircraft 1996-2005 Previous to Boeing, worked at American Airlines in Operations Research and Strategic Planning and United Airlines in Research and Development. Areas of work included Yield Management, Fleet Planning, Aircraft Routing, and Crew Scheduling. Also worked for Hull Trading, a major market maker in stock index options, and on the staff at MITs Flight Transportation Lab. Education: Masters, Engineers Degree, and Ph. D. at MIT. Bachelor of Science in Aeronautical Engineering at Princeton. Likes dogs and dark beer. (bill.swan@cyberswans.com)bill.swan@cyberswans.com © Scott Adams

2. Cost Reductions Keep Coming

3. Product Differentiation May be about Airports Cruise time is only half of total activity per trip –For short-haul stage lengths Airline frustrations are at airport –Hub focus on connect processes –Low Cost focus on turn processes If airline prices mirror airline costs: –Ticket prices are $151 plus $0.03/mi –Only 17% of prices are distance dependent at 1000 mi.

5. Boeing Cost Thinking Misses Airport Costs Ownership is 30% of airplane costs –At 1500 km, turn is 30% of ownership time –Ownership alone makes turns = 9% of costs –But this is not the way we present it Same turn times and work rates for all airplanes Same gate and servicing costs for same size airplanes Transformation of trips/year needed to break out turn times For comparison: –Fuel is 10% of airplane costs –A 3 ½ minute reduction in turn time > A 5% reduction in fuel burn

7. Airport Time Savings are Big A 2-minute reduction in block time –Is a 1% cost savings at 1500 km stage length –Roughly a 20% increase in taxi speed –Compare to an 10% reduction in fuel burn A 7-minute reduction in turn time –Is a 1% cost savings from ownership alone –Ignores ground labor/gate savings Turn times go up 7 minutes per 61 seats –Bigger planes take more time to turn

8. The Plan: Make a Turn-Friendly Airplane Differentiate product Create Value Obsolete current designs Deal with customer itches Package of design improvements Hope to find patentable part

9. Homework First Get Marketing agreement on cost methods –What is truly a saving: gates, people, capital –What can be documented and sold –Design trade-offs against cost Gather existing knowledge –Boeing, Majors, Southwest, LCCs, Airports Explore cross-functional cost savings –Airports, Airlines, ATC –Within Airlines: schedule, gate, fleet, crew, ground Do industrial engineering, operations research –On processes

10. Research Involves Several Disciplines Research involves observing at airports Research involves working with airlines –Airport managers –Operations controllers –Schedule planners Research involves prototype modeling & testing Backgrounds needed: 1.Industrial Engineering (system process design) 2.Airline Operations Research (schedules, reliability) 3.Math modeling including simulations (programming) 4.Administration and Customer relations skills

11. Project in not a Slam-Dunk Estimated 50% chance of a good answer –Low-hanging fruit: airport time as a system has been neglected –Airport has been everybody's interface, nobodys problem Estimated 50% chance of us finding it –We will focus on airplane-related stuff, mainly –Boeing is not experienced in this kind of work Cost is significant –Requires dedicated team of 4-5 headcount? –Requires time (a year?) –Few obvious benchmarks for early termination

12. Success Could Be High Value Specify Trade-off Values for Designs Differentiated Boeing Short-haul product Might make airports Boeing advantaged Could motivate earlier fleet retirements Might have patent protection

13. High Value Research Add ground system costs to OpCost –OpCost history focuses on airplane cash –All airplanes have same turn time and cost Preliminary data increases large plane costs –Slower turn times –More ownership time and cost per trip –Higher gate times and costs/seat Suggests maximum efficient airplane size Gets value for designs that reduce ground time May establish brand preference for Y1/Y0 designs

14. Ground Costs Hit over 200 Seats

15. Turn Time Rises With Distance

16. Turn Time Rises with Seats

17. Define S = airplane seat count D = the distance in statute miles of the flight segment preceding the turn T = the turn time, in minutes Then T = 24 + 0.115 · S + 0.0142 · D

18. William Swan: Data Troll Story Teller Economist