overview: network profitability and performance measurement

Overview: Network Profitability and Performance Measurement

Andrew Jay BlackburnPrincipal Consultant

11 January, 2006

Overview: Network Profitability andPerformance Measurement Process

Focus

BAC Aviation Consultancy offers expertise in the development and enhancement of airline network profitability and performance measurement processes

While the focus of BAC is on management consultancy, we offer the support of integrating IT systems that support the management business processes

The combined business process definition and IT support system provide the following benefits:

−Supports monitoring, analysis and reporting of airline profitability and operating performance, on an O-D itinerary basis

−Provides comprehensive coverage of network planning and performance measurement requirements in the base functionality, regardless of the airlines’ network structure.

−An “easy to use” IT solution that full functionality to support the needs of any airline’s reporting and analysis situation


Business and Industry Overview


Current Industry Situation

Many airlines monitor the operating performance of flights based on the “isolated” activity observed for either the flight legs or the market segments in the network

This performance measure is often referred to as on onboard allocated activity for the flight

The onboard allocated performance for a flight is usually measured as follows:

For flight leg A-H:Passenger Traffic Onboard Passengers

Passenger Revenue Segment Prorated Revenuefor the A-H segment, only

Costs Onboard Flight Leg Costs

Flight Leg

Onboard Passengers

A H


Current Industry Situation:Measuring Airline Profitability and Performance

Monitoring the performance of a flight based purely on onboard allocated data may be insufficient for airlines with a “hub-oriented” network structure with connection passengers

− For example, for a flight HUBA

How can you measure the contribution of a flight to the airline’s network?


Most Airlines Report and Analyze Profitability ContributionUsing an “Onboard Allocated” Orientation

Measuring the contribution of flights for a network that supports connection passenger traffic presents a more difficult situation

For flights A-H H-B:Passenger Traffic Onboard Passengers A-H Onboard Passengers H-B

Passenger Revenue Prorated Revenue for the Segment A-H Prorated Revenue for the Segment H-B[Onboard Allocated Revenue A-H] [Onboard Allocated Revenue H-B]

Costs Onboard Flight Leg Costs A-H Onboard Flight Leg Costs H-B

Flight Leg

Onboard PassengersHUBA

Flight Leg

Onboard PassengersHUB B

With only Onboard Allocated revenue and traffic data, the interaction between flight A H with other flights is not apparent


Opportunity for Enhanced Airline Profitability Measurement and Performance Monitoring

For example, a passenger travels onboard a flight ORD-ZRH, and on continues on a flight ZRH-DXB…

− Is the performance of ORD-ZRH dependent on passenger activity from flight ZRH-DXB?

− What other dependencies are there within the airline’s network for passenger traffic flows?

Flight Segment Monitoring

ZRH

DXB

ORDFlight Leg 1

ORD-ZRHOnboard Passengers

ZRHORD

Flight Leg 2

ZRH-DXBOnboard Passenger

ZRH DXB

Flight Segment Monitoring

ZRH

DXB

ORDFlight Leg 1

ORD-ZRHOnboard Passengers

ZRHORD

Flight Leg 2

ZRH-DXBOnboard Passenger

ZRH DXB


Enhanced Airline Performance Monitoring Can Be Achieved by Mapping Passenger Network O-D Itinerary Activity

An alternative measure of flight performance is the revenue contribution from Passenger O-D Itineraries to the airline’s networkThis performance measure is essential, where there is connection passenger trafficThe performance for a flight leg is usually measured as follows:

For flight leg ORD-ZRH:Passenger Traffic Mapping of all passenger O-D itineraries that flow via the flight leg

[e.g. Onboard passengers traveling the itinerary ORD-ZRH-DXB]

Passenger Revenue Revenue Contribution from all passenger O-D itineraries that flow via the flight leg for the “Home” carrier[e.g. O-D revenue from itinerary ORD-ZRH-DXB]

Passenger Cost Onboard Allocated Costs

Example of an O-D Passenger Itinerary

Flight Leg 2DXB

Flight Leg 1

ORD-DXB Connection Passengers

ZRHORD


Mapping Passenger Network O-D Itinerary Activity Enhances Monitoring of Code-share Activity and Operational Performance

With Code-share and Marketing Partners, monitoring the passenger activity presents and additional challenge...

−What impact does the code-share carrier have on the “Home Carrier’s” network?

−Can the Home Carrier obtain reasonable information to evaluate the impact of the code-share relationship?

O-D Itinerary Monitoring

ZRH

DXB

ORD

IAH

IAH-ORDOnboard Passengers Flight Leg 0

Code Share

IAH ORD

ZRH-DXBOnboard Passengers Flight Leg 2

Operational

DXBZRH

ORD-ZRHOnboard Passengers Flight Leg 1

Operational

ZRHORD


The True Contribution of Flights to the Airline’s Network Must be Based on Effective Mapping of O-D Itinerary Activity

This O-D itinerary measure is more insightful when all available passenger coupon data are included

Additionally, code-share information can be included in the itinerary mapping to provide more comprehensive network analysis

Example of an O-D Passenger Itinerary

Flight Leg 0Code Share

IAHFlight Leg 2Operational

DXBFlight Leg 1Operational

IAH-DXB Connection Passengers

ZRHORD

For flight leg ORD-ZRH:Passenger Traffic Mapping of all passenger O-D itineraries that flow via the flight leg

[e.g.: Onboard passengers traveling the itinerary IAH-ORD-ZRH-DXB]

Passenger Revenue Revenue Contribution from all passenger O-D itineraries that flow via the flight leg ORD-ZRH for the “Home Carrier”[e.g.: O-D revenue from itinerary IAH-ORD-ZRH-DXB]

Passenger Cost Onboard Allocated Costs


Measuring the Contribution Provided by Passenger O-D Itineraries

A flight’s contribution to the network is dependent on the value of the Passenger O-D Itineraries via the Flight Leg

The O-D flight performance measure includes the impact made by the value of both local and flow [connection] passenger itineraries

HA

XA H

YA H

ZA H

Local O-DPassengers

Flow O-DPassengerItineraries,via the Hub

Potential High-Value O-D Itinerariessupported by Route HA

For a Given Network...

OB Passengers

Z

Y

X

L A-X A-Y A-ZA H

L

LocalRev Pax

FlowRev Pax

FlowRev Pax

FlowRev Pax

A-Y

A-Z

A-X


Network-based Profitability Measurement: Provides Enhanced Monitoring, Analysis and Performance Reporting for Airline Networks

Effective profitability and performance measurement of an airline makes use of both “Network O-D Itinerary” and “Onboard Allocated” mapping of passenger activity

Passenger O-D ItineraryActivity

for the Flight Leg

A

Y

X

Z

FlowRev and Pax

HUB

LocalRev and PaxOnboard

PaxFlowRev and Pax

FlowRev and Pax

Onboard AllocatedFlight Leg Activity A HUB

Onboard PaxOnboard Allocated Rev


Network Contribution Measurement Can Be Based on “Bundling” of O-D Itinerary Information

Network Contribution Decision-making can be based on bundling of O-D itinerary information via a specific flight leg, market, region or any defined entity

Flexible O-D Itinerary Data Mapping

A H

DefinedEntity

Flight Leg orCity Pair (Market)

Region -to -Region

Any Defined Entity

RegionN-A

RegionEU


IT Support System: Will Have a Flexible Cost Modeling Module

Effective cost modeling is essential for proper monitoring of an airline’s network profitability performance

A flexible Cost Modeling Module for the IT support system facilitates easy and transparent allocation of costs from standard cost reporting systems

The systems interface supports…−Easy modification of unit allocation rates−Manual inputs of costs estimates, when required

CostsModelingModule

(Allocation)

Network Costs Data

Actual CostsDirect Costs

Estimated Costs

Allocated Unit CostsVariable Costs

PassengerFuelCrewDirect MaintenanceService

Aircraft OwnershipOverhead and Other


The IT Support System: Has In-Depth Performance Monitoring and Analysis Capability

Information queries can be performed for any defined entity and pre-defined constraints

Drill-down

Network

Region

Market

Flight Leg

BY

Constraints

Focus Point

Destination

Origination

O-D Bundle


Overviewof

BAC Aviation Consultancy


Overview of BAC Aviation Consultancy GmbH

BAC is an aviation consultancy based in Zurich Switzerland that is specialized in the following management functions:

− Airline Strategy Development

− Network Planning

− Flight Scheduling and Implementation

− Airline Profitability Analysis

− Network Analysis and Performance Measurement

−Market Potential Analysis

− Passenger Demand Forecasting

− Support for Development of IT-based Decision Support Systems

−Management Training Workshop and Seminars

Additionally, BAC has established an alliance with Industrial Optimizers, an IT supplier of innovative airline schedule management and optimization solutions

BAC delivers the depth and breadth of network management knowledge that is essential to its clients


Contact

Andrew Jay BlackburnPrincipal ConsultantBAC Aviation Consultancy, GmbHLindenbachstrasse 12CH-8006 ZürichSwitzerland

Telephone: +41 44 350 5862Mobile: +41 79 540 1286Email: [email protected]: www.bac-av.com

BAC Aviation Consultancy has an affiliation with Avconet Aviation Consultancy Network. These contact details are as follows:Aviation Consultancy Network, Frankfurt Airport, Cargo City South/Bldg. 664c, D-60549 Frankfurt; Telephone: +49 69 70792037; URL: www.avconet.net

overview: network profitability and performance measurement

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