Airline network optimization. Lufthansa Consulting s approach

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2 Airline network optimization Lufthansa Consulting s approach

3 A thorough market potential analysis lays the basis for Lufthansa Consulting s network optimization approach The understanding of the relevant market demand is the most important part of market potential analysis simulation Depending on the airport and its location, different demand sets will be relevant True booking and flight demand data (incl. leakage): Ground transportation demand (e.g. ferry, car, train) In unserved or underserved markets an individual Gravity Model will be required to derive true air travel demand Additionally other effects can be modeled as market stimulation effects, route specific development trends, etc. Hypothesis regarding potential flight have to be defined (carrier, capacity, frequency) to estimate number of passenger a new service can generate on a potential route - 3 -

4 We use our in-house Gravity Model to evaluate unconstrained* potential for international and domestic traffic per catchment area Population Catchment area population Based on national statistical offices, only refers to the city, where the airport is located Passengers The number of passengers travelling to a certain airport is considered based on national statistical data Gravity Model The catchment area covers the vicinity of an airport and its population within a certain driving time (e.g. 60 minutes) GDP per capita The GDP per capita is derived from the total gross domestic product of a country divided by its total population Buying power index Other parameters The buying power index is based on an airport s catchment area and the disposable income Examples Business activity indicators Infrastructure development indicators Internet penetration rate etc. Based on socio-economic modeling, LCG Gravity model relates air traffic to population, GDP, industry, passengers, and numerous other socio-economic factors Once calibrated it is able to calculate the true potential for air traffic in an unserved or underserved market Note: * unconstrained means sheer potential if a good air service is offered Source: Lufthansa Consulting - 4 -

5 We have access and use extensively renowned external databases and state-of-the-art aviation specific tools for data derivation and calibration External databases Network simulation tool Data collection / calibration Source: Lufthansa Consulting - 5 -

6 Lufthansa Consulting network planning uses the Netline suite to produce schedules, simulate them and evaluate the profitability route by route 1 Market model Profitability model Recommendation OAG schedule Market size calibration Revenue Database Risk Analysis Connection Generator Passenger itinerary Market share model O&D market sizes Itinerary Share share Direct and connect itinerary demand O&D revenue Unit Costs Route result estimation effect Business model evaluation Preferred network model Scenario Passenger preferences Cost database SWOT / TOWS Source: Lufthansa Consulting - 6 -

7 Lufthansa Consulting evaluates various scenarios by producing schedules, simulating them and evaluating the profitability route by route 1 Each scenario is a feasible schedule satisfying all constraints The what-if scenarios considered the following options based on the analysis of current route profitability, market potential and aircraft economics Add or cancel legs Increase or decrease frequencies Test pilot mini-hubs Upgauge or downgauge capacity Retime flights The model applied current constraints such as airport restrictions, available slots, fleet, no major changes in the count of stations (no new stations, one existing cancelled) The optimization process will focus on a model week Source: Lufthansa Consulting - 7 -

8 Contact Lufthansa Consulting GmbH Von-Gablenz-Str Cologne Germany Tel.: +49 (0) Fax: +49 (0) mail@lhconsulting.com Sales efficiency check-up - 8 -