JANUARY 24-26, 26, 2010 www.aci-na.og on twitter: #aciair# Quality of Service Index Fundamentals Jordan Kayloe Vice President Diio Diio, LLC Vienna, Virginia +1 (703) 748-5307 www.diio.net
Agenda QSI Fundamentals QSI Values QSI Share Calculations QSI Forecasts QSI Adjustments QSI Model Options 2
QSI Fundamentals 3
QSI Fundamentals What exactly is this QSI thingamabob?!?! QSI stands for Quality of Service Index QSI is a method to make qualitative analyses more quantitative QSI assigns relative values to the likelihood of consumer behavior options Airlines use QSI analyses extensively to predict passenger behavior QSI theory goes that when choosing among Schedule options: Passengers prefer non-stop itineraries over connections Passengers prefer larger aircraft over smaller aircraft QSI theory generally assumes all other things being equal QSI models exist to help people perform complex QSI analyses 4
QSI Fundamentals Does QSI theory work? Let s take a survey How many of you flew to LAS on non-stop flights? How many of you flew to LAS on connecting flights? How many of you connectors had non-stop options? How many of you flew on turboprops? How many of you connectors had other options? Don t be shy this is research! 5
QSI Fundamentals How do airlines use QSI analyses? Airlines try to predict which Schedule itineraries passengers will choose QSI can help airlines predict market shares using the concept of fair share Airline sales teams use fair shares to determine sales targets and incentives Share Gap analyses compare performance to fair shares Airline route planners use QSI models to forecast performance of new flights QSI analyses help an airline answer questions about routes like: Load Factor How many passengers will board the flight? Origin and Destination Will the passengers be local or connecting? Revenue How much will these passengers pay? Cannibalization Are the passengers new to the airline? 6
QSI Fundamentals How would an airport use QSI analyses? Assuming that you d like more passengers and flights at your airport You can also analyze a proposed flight s passenger composition Identify new route opportunities for airline meetings like JumpStart Justify the validity of your business case just like the airline would QSI analyses would also help an airport answer questions like: Load Factor How many passengers will board the flight? Origin and Destination Will the passengers be local or connecting? Revenue How much will these passengers pay? Cannibalization Are the passengers new to the airline? Merely stating Thousands live / vacation here does not an airline convince! 7
QSI Fundamentals What are the steps involved in using QSI to analyze new flights? 1. Determine the factors that passengers value when choosing flights Typical QSI analyses use Number of Stops and Aircraft Type Passengers prefer Schedule options with less stops and bigger aircraft 2. Assign QSI values or coefficients to the different possibilities for each factor 3. Calculate the QSI shares for each possibility in a scenario 4. Add a new (set of) flight(s) to the scenario and forecast shares using QSI 5. Adjust the QSI forecast results to account for all other things being equal 3 parts straight math, 2 parts art! 8
QSI Values 9
QSI Values QSI analyses assign coefficients to key consumer choice factors The underlying principle of QSI analyses is to quantify the qualitative Airline passengers base their Schedule decisions on such factors as: 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? Travel time non-stop, en route connection, backhaul? Time of day pre-dawn, morning, noon, after meetings? Day of week Sunday conference reception, Mon-Thu, weekend getaway? Frequent flyer program? Analysts look at historical data like U.S. DOT O&D to observe behavior 10
QSI Values How would you rank the options to fly here to LAS from BOI on Sunday? WN 2 x 0-stop Narrow WN 3 x 1-stop Narrow WN 4 x 1-cnx Jet-Jet DL 2 x 1-cnx Jet-Jet DL 3 x 1-cnx RJ-Jet DL 2 x 1-cnx RJ-RJ UA 6 x 1-cnx RJ-Jet US 2 x 1-cnx AS 1 x 1-cnx Jet-Jet Turbo-Jet Source: apgdat, the Internet-based aviation market intelligence hub from Diio; Flights for Sunday, 24 Jan 2010 11
QSI Values Determining the relative values for QSI factors is its own analysis For this discussion, we ll use default values from a commonly-used tool The Non-stop Narrow Body forms the basis of the other values: 1.0 All other values are derived from comparative likelihood in historical data Source: apgdat, the Internet-based aviation market intelligence hub from Diio 12
QSI Values So how do the various options for BOI-LAS rate relative to each other? To determine the QSI values, simply lookup the values on the previous chart Airline Stops Aircraft QSI Value Comment WN 0 Narrow 1.00 QSI Base Value WN 1 Narrow 0.20 WN CNX Jet-Jet 0.05 DL CNX Jet-Jet 0.05 DL CNX RJ-Jet 0.04 DL CNX RJ-RJ 0.03 UA CNX RJ-Jet 0.04 Backhaul US CNX Jet-Jet 0.05 Backhaul AS CNX Prop-Jet 0.04 Backhaul What units do the QSI values represent? QSI values do not have units, they are just coefficients They only have meaning in relation to each other, which we ll see soon Source: apgdat, the Internet-based aviation market intelligence hub from Diio 13
QSI Values Wasn t assigning the QSI values pretty easy? Yes, but we actually ignored many potential BOI-LAS itineraries Many backhaul itineraries exist over hubs like DEN, MSP, and ORD The number of interline possibilities is also quite substantial Tedious would describe the task of counting all the schedule possibilities History shows that 95% of travelers take non-stop or single-connect routings Thankfully, computers are our friends, and QSI models handle the remainder Source: apgdat, the Internet-based aviation market intelligence hub from Diio 14
QSI Share Calculations 15
QSI Share Calculations How do we go from assigning QSI values to calculating QSI share? The coefficients allow us to compare the factors as part of the whole Again, the QSI values themselves have no units We established the QSI values to be meaningful in relation to each other So if a route has two flights, one wide body and one narrow body: Aircraft Value Share Wide 2.00 67% Narrow 1.00 33% Total 3.00 100% Pretty basic math at its core! 16
QSI Share Calculations How would you calculate QSI shares for COS-LAS on Sunday? G4 1 x 0-stop Narrow DL 2 x 1-cnx RJ-Jet UA 7 x 1-cnx RJ-Jet F9 5 x 1-cnx Turbo-Jet Source: apgdat, the Internet-based aviation market intelligence hub from Diio; Flights for Sunday, 24 Jan 2010 17
QSI Share Calculations Same QSI values apply to this analysis For this discussion, we ll use default values from a commonly-used tool The Non-stop Narrow Body forms the basis of the other values: 1.0 All other values are derived from comparative likelihood in historical data Source: apgdat, the Internet-based aviation market intelligence hub from Diio 18
QSI Share Calculations So how do the various Sunday options for COS rate relatively? 1. Look up the QSI values for each itinerary on the previous chart 2. Account for Frequency by simply multiplying by the QSI value 3. Add up Totals by Airline to get the Total QSI for the route 4. Calculate QSI shares by comparing the Airline Total to the Total QSI Airline Stops Aircraft QSI Value Freq Total Share G4 - Narrow 1.00 1 1.00 64% UA DEN RJ-Jet 0.04 6 0.24 15% F9 DEN Turbo-Jet 0.04 5 0.20 13% DL SLC RJ-Jet 0.04 2 0.08 5% UA LAX RJ-Jet 0.04 1 0.04 3% Total 1.56 100% Did we account everything here in the QSI total? Backhaul itineraries are probably not realistic options Need another decimal place to include interline and double-connect itineraries Source: apgdat, the Internet-based aviation market intelligence hub from Diio; Flights for Sunday, 24 Jan 2010 19
QSI Forecasts 20
QSI Forecasts How do we go from QSI market shares to QSI route forecasts? Schedule data help us look at the options available to passengers In order to forecast the passenger on a route, we also need Traffic data Possible data sources, covered in earlier presentations, include: U.S. DOT Origin and Destination (DB1B) data Ticketing (ARC/IATA) or Booking (MIDT) data These sources usually also come with fare data We already know the Fair Shares for each possible schedule option Traffic data tells us how many passengers want to travel from AAA to BBB We therefore allocate passengers to itineraries based on their Fair Shares 21
QSI Forecasts Let s say we want to approach AirTran about new SNA-MKE service This map represents FL s MKE schedule for June 2010 23 destinations Connections to the Western U.S. are circuitous and unlikely in this scenario Source: apgdat, the Internet-based aviation market intelligence hub from Diio; Flights for June 2010 22
QSI Forecasts Are we tackling the same problem as before, calculating QSI shares? We need to calculate FL s fair share of the SNA-MKE local market But what about these 16 remaining connecting points beyond MKE? Source: apgdat, the Internet-based aviation market intelligence hub from Diio; Flights for June 2010 23
QSI Forecasts How do we go from itinerary share calculations to segment forecasts? For QSI share, we analyzed flying from A to C with potential connections B Specifically, we looked at COS-LAS, connecting over DEN, LAX, and SLC For a new route, we look at A to B, but also consider potential destinations C The actual flight segment itself is called the local market The potential destinations C are called beyond points Theoretically, there are behind points as well, especially if A is also a hub So we have to calculate QSI shares for each of 17 potential itineraries OMG!!! That s lotsa math! 24
QSI Forecasts While the forecast is indeed lotsa math, it s the same problem each time QSI models are set up to iteratively: 1. Determine legitimate connecting itineraries on either end of the new flight 2. Calculate the QSI values for each potential legitimate itinerary 3. Calculate the QSI shares of each new itinerary compared to existing routes 4. Allocate passengers to each new itinerary based on traffic data and fair share Analysts need to provide at least a few inputs into the QSI model 1. Industry schedules, on which the QSI fair shares will be based 2. Industry traffic and fare data, on which the pax and rev data will be based 3. And, of course, the details of the new flight(s) 25
QSI Forecasts So how do we forecast FL SNA-MKE? To forecast the new route, we selected these options as the main inputs: 1. Schedule: Summer 2010, which gives FL reasonable lead time to add the flight 2. Market Size: the most recent U.S. DOT data file, for the Year-Ending Q3 2009 3. Flight Schedule: based on FL s existing LAX-MKE flights, daily: Airline Orig Dest Aircraft Seats Dep Dep FL MKE SNA 73G 137 0855 1110 FL SNA MKE 73G 137 1155 1740 We also selected these options in the QSI forecasting tool: 1. Online connection windows from 30 minutes to 4 hours 2. Medium circuity to allow slight backhauls to DSM, MSP, OMA, and STL Source: apgdat, the Internet-based aviation market intelligence hub from Diio; Flights for June 2010 26
QSI Forecasts Before looking at the results, which connections do we expect to see? Schedule-wise, these are FL s eastbound connections within 4 hours Hub Time Dest Arr Time Flight Equip Seats 1810 ATL 2112 491 717 117 1850 BWI 2141 608 73G 137 1850 BOS 2159 736 717 117 1855 IND 2055 3075 CRJ 50 1900 DCA 2200 221 73G 137 1905 LGA 2214 514 73G 137 1919 MCO 2258 209 73G 137 1955 STL 2105 3044 CRJ 50 1955 OMA 2123 3090 CRJ 50 2000 DSM 2110 3117 CRJ 50 2000 MSP 2113 738 717 117 Source: apgdat, the Internet-based aviation market intelligence hub from Diio; Flights for June 2010 27
QSI Forecasts What about the market sizes? Will this flight draw passengers? SNA s annualized daily market sizes and fares to FL s reachable destinations Dest PDEW Fare East CNX West CNX Deps Seats ATL 181 211 1 0 4.1 655 MSP 140 200 1 1 2.7 334 MCO 122 153 1 0 - - STL 108 146 1 1 0.1 12 LGA 104 149 1 1 - - IND 95 141 1 1 - - DCA 93 170 1 1 - - BOS 84 185 1 1 - - PIT 76 140 0 0 - - BWI 73 174 1 1 - - OMA 69 119 1 1 - - TPA 67 175 0 0 - - MKE 54 129 - - - - DSM 42 124 1 1 - - CAK 9 172 0 0 - - Source: apgdat, the Internet-based aviation market intelligence hub from Diio; Data for Year-Ending Q3 2009 28
QSI Forecasts What are the Eastbound results of the number-crunching QSI model? The first line shows locals almost half the QSI gets almost half the traffic Subsequent lines show traffic to beyond destinations The load factor ends up 39% less than ideal O&D Org O&D Dst Service Type Aircraft Type Ind Pax Ind Fare $ O&D QSI Value Ind QSI Total QSI Fair Share Seg Pax Seg Rev $ O&D Rev $ SNA MKE Nonstop Narrow 54.2 129 1.00 2.12 47.2% 25.6 3,304 3,304 SNA MCO Online Sng Narrow -Narrow 120.3 152 0.05 1.52 3.3% 4.0 337 601 SNA LGA Online Sng Narrow -Narrow 101.5 148 0.05 1.41 3.5% 3.6 322 531 SNA IND Online Sng Narrow -RJ 95.2 141 0.04 1.35 3.0% 2.8 290 398 SNA DCA Online Sng Narrow -Narrow 92.7 168 0.05 1.71 2.9% 2.7 284 455 SNA STL Online Sng Narrow -RJ 106.0 145 0.04 1.80 2.2% 2.4 240 342 SNA DSM Online Sng Narrow -RJ 42.0 124 0.04 0.73 5.5% 2.3 201 286 SNA BOS Online Sng Narrow -Narrow 82.4 186 0.05 1.96 2.6% 2.1 230 391 SNA OMA Online Sng Narrow -RJ 68.5 118 0.04 1.32 3.0% 2.1 163 244 SNA BWI Online Sng Narrow -Narrow 72.1 173 0.05 2.01 2.5% 1.8 193 311 SNA ATL Online Sng Narrow -Narrow 179.6 210 0.05 5.70 0.9% 1.6 204 331 SNA MSP Online Sng Narrow -Narrow 138.6 202 0.05 4.44 1.1% 1.6 223 315 SNA MKE Other 89 0.9 83 150 SNA MKE Total Load Factor = 39.0% 114 53.4 6,073 7,659 Source: apgdat QSI, the Internet-based aviation market intelligence hub from Diio 29
QSI Forecasts Have we completed our route FL SNA-MKE forecast yet? The Westbound direction forecasted similar results The QSI model has forecasted fair shares for hundreds of markets for us The QSI model really doesn t have much common sense, however The model still forecasts with all other things being equal For example, itineraries that only connect one-way should be pared We still need to factor in real-world issues that affect this market That s the math time for the art 30
QSI Adjustments 31
QSI Adjustments How do we inject these adjustments into the QSI forecasting process? Every factor we ve discussed can generally be fine-tuned to some degree At what points in the process do we make these adjustments? The first opportunity is to adjust the raw data itself Many issues can also be addressed after obtaining results from the forecast QSI models also generally contain features to adjust for certain data points 32
QSI Adjustments What should we change about the raw input data? Well, our market size files are always historical, and we re looking forward Tweaking for overall economic conditions is usually the first item to address This adjustment usually affects both traffic and fare numbers Industry schedule files can also be modified Remove a carrier that is going out of business Remove a flight that is getting canceled QSI models generally have functionality to support these adjustments 33
QSI Adjustments What about other inputs into the QSI Forecasting tool? The QSI values assigned earlier were pretty straightforward As mentioned earlier, continuous QSI helps with varied aircraft configurations Time of Day adjustments can favor a 0800 flights versus a 1100 flight Day of Week adjustments can allocate business versus leisure passengers Longer connection times can be penalized Code share flights can have different factors than regular flights Dominance at an airport can gain QSI bonuses for presence Experimenting with the new flight information is also key Adjusting the flight times can optimize connectivity on either end Tinkering with the aircraft type can affect QSI values, load factors, and costs 34
QSI Adjustments What types of adjustment options do QSI Forecasting tools support? QSI values Connection time windows and circuity Metro areas Historical data for cities with more than one airport generally separates the figures Combining the airport traffic numbers would more accurately reflect demand Code sharing Would the new flight have code share passengers from partner airlines? If so, factoring those passengers in could have a significant boost And most importantly, traffic stimulation 35
QSI Adjustments What about adjusting the market size information itself? Analyzing what the level of stimulation should be is a topic in and of itself The main two reasons to stimulate traffic are proven in historical data Simply adding capacity makes it easier to travel, and more passengers follow If a flight will curb leakage to another airports, traffic should also increase Local and connecting traffic generally stimulate at different levels Entry by an LCC usually stimulates the market different than legacy additions LCCs generally enter markets with the intent of lowering fares Decreasing fares usually increases traffic more people fly if it s cheaper QSI models generally have functionality to support stimulation effects But it is also quite common to perform complicated stimulations in Excel models 36
QSI Model Options 37
QSI Model Options How can you get your hands on QSI analyses? There are a limited number of QSI vendors QSI models can be quite expensive due to their sophisticated nature The tools are heavily math-intensive and include various adjustment options Additionally, periodic updates to Schedule and Market Size inputs are necessary Many large legacy carriers have built their own forecasting models These carriers generally employ small departments that support the tools full-time These folks spend their time calibrating the values and updating the inputs Some Air Service Development consultants have QSI modeling capabilities Some vendors offer slimmed-down QSI models for use by airport personnel 38
Questions? 39