Overview: Network Profitability and Performance Measurement ndrew Jay Blackburn Principal Consultant 11 January, 2006
Focus BC viation Consultancy offers expertise in the development and enhancement of airline network profitability and performance measurement processes While the focus of BC 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. n easy to use IT solution that full functionality to support the needs of any airline s reporting and analysis situation Page 2
Business and Industry Overview Page 3
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: Onboard Passengers Flight Leg H For flight leg -H: Passenger Traffic Onboard Passengers Passenger Revenue Segment Prorated Revenue for the -H segment, only Costs Onboard Flight Leg Costs Page 4
Current Industry Situation: Measuring irline 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 HUB How can you measure the contribution of a flight to the airline s network? Page 5
Most irlines Report and nalyze Profitability Contribution Using an Onboard llocated Orientation Measuring the contribution of flights for a network that supports connection passenger traffic presents a more difficult situation Onboard Passengers Flight Leg HUB HUB Onboard Passengers Flight Leg B For flights -H H-B: Passenger Traffic Onboard Passengers -H Onboard Passengers H-B Passenger Revenue Prorated Revenue for the Segment -H Prorated Revenue for the Segment H-B [Onboard llocated Revenue -H] [Onboard llocated Revenue H-B] Costs Onboard Flight Leg Costs -H Onboard Flight Leg Costs H-B With only Onboard llocated revenue and traffic data, the interaction between flight H with other flights is not apparent Page 6
Opportunity for Enhanced irline 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 ORD ZRH ORD ORD-ZRH Onboard Passengers Flight Leg 1 ZRH DXB ZRH ZRH-DXB Onboard Passenger Flight Leg 2 DXB Page 7
Enhanced irline Performance Monitoring Can Be chieved by Mapping Passenger Network O-D Itinerary ctivity n alternative measure of flight performance is the revenue contribution from Passenger O-D Itineraries to the airline s network This performance measure is essential, where there is connection passenger traffic The performance for a flight leg is usually measured as follows: Example of an O-D Passenger Itinerary ORD-DXB Connection Passengers ORD Flight Leg 1 ZRH Flight Leg 2 DXB 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 llocated Costs Page 8
Mapping Passenger Network O-D Itinerary ctivity Enhances Monitoring of Code-share ctivity 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 codeshare relationship? O-D Itinerary Monitoring IH-ORD IH Onboard Passengers Flight Leg 0 Code Share ORD IH ORD ZRH DXB ORD-ZRH ORD Onboard Passengers Flight Leg 1 Operational ZRH ZRH-DXB ZRH Onboard Passengers Flight Leg 2 Operational DXB Page 9
The True Contribution of Flights to the irline s Network Must be Based on Effective Mapping of O-D Itinerary ctivity This O-D itinerary measure is more insightful when all available passenger coupon data are included dditionally, code-share information can be included in the itinerary mapping to provide more comprehensive network analysis Example of an O-D Passenger Itinerary IH-DXB Connection Passengers IH Flight Leg 0 Code Share ORD Flight Leg 1 Operational ZRH Flight Leg 2 Operational DXB For flight leg ORD-ZRH: Passenger Traffic Passenger Revenue Passenger Cost Mapping of all passenger O-D itineraries that flow via the flight leg [e.g.: Onboard passengers traveling the itinerary IH-ORD-ZRH-DXB] 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 IH-ORD-ZRH-DXB] Onboard llocated Costs Page 10
Measuring the Contribution Provided by Passenger O-D Itineraries 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 For a Given Network... Potential High-Value O-D Itineraries supported by Route H Local Rev Pax L OB Passengers L -X -Y -Z H -X -Y -Z X Y Z Flow Rev Pax Flow Rev Pax Flow Rev Pax H H H H X Y Z Local O-D Passengers Flow O-D Passenger Itineraries, via the Hub Page 11
Network-based Profitability Measurement: Provides Enhanced Monitoring, nalysis and Performance Reporting for irline Networks Effective profitability and performance measurement of an airline makes use of both Network O-D Itinerary and Onboard llocated mapping of passenger activity Passenger O-D Itinerary ctivity for the Flight Leg Onboard Pax Local Rev and Pax HUB X Flow Rev and Pax Y Flow Rev and Pax Z Flow Rev and Pax Onboard Pax Onboard llocated Flight Leg ctivity Onboard llocated Rev HUB Page 12
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 Flight Leg or City Pair (Market) H Region -to -Region Region N- Region EU ny Defined Entity Defined Entity Page 13
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 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 Network Costs Data ctual Costs Direct Costs Estimated Costs Costs Modeling Module (llocation) llocated Unit Costs Variable Costs Passenger Fuel Crew Direct Maintenance Service ircraft Ownership Overhead and Other Page 14
The IT Support System: Has In-Depth Performance Monitoring and nalysis Capability Information queries can be performed for any defined entity and pre-defined constraints Drill-down Network Region Market Flight Leg BY Constraints Origination Destination O-D Bundle Focus Point Page 15
Overview of BC viation Consultancy Page 16
Overview of BC viation Consultancy GmbH BC is an aviation consultancy based in Zurich Switzerland that is specialized in the following management functions: irline Strategy Development Network Planning Flight Scheduling and Implementation irline Profitability nalysis Network nalysis and Performance Measurement Market Potential nalysis Passenger Demand Forecasting Support for Development of IT-based Decision Support Systems Management Training Workshop and Seminars dditionally, BC has established an alliance with Industrial Optimizers, an IT supplier of innovative airline schedule management and optimization solutions BC delivers the depth and breadth of network management knowledge that is essential to its clients Page 17
Contact ndrew Jay Blackburn Principal Consultant BC viation Consultancy, GmbH Lindenbachstrasse 12 CH-8006 Zürich Switzerland Telephone: +41 44 350 5862 Mobile: +41 79 540 1286 Email: ajblackburn@bac-av.com URL: www.bac-av.com BC viation Consultancy has an affiliation with vconet viation Consultancy Network. These contact details are as follows: viation Consultancy Network, Frankfurt irport, Cargo City South/Bldg. 664c, D-60549 Frankfurt; Telephone: +49 69 70792037; URL: www.avconet.net Page 18