Network Planning Innovations
Next Generation Of Route Forecasting And Optimization
The commercial airline industry is continuing to grow at a healthy rate. IATA predicts global passenger traffic to grow by more than 2.5 percent per year for the next several years, with some regions such as Southeast Asia growing in excess of more than 3.5 percent annually.
During the three-year period of 2012 through 2014, more than 9,600 new commercial aircraft have been ordered by airlines in all categories (traditional, low-cost carriers, hybrid, regional and start-ups). The three-year period represents the highest aircraft order backlog during the past 20 years.
While some of these aircraft are for fleet replacement, many present significant network opportunities, as well as high risks and financial challenges for an airline’s balance sheet. The new-growth aircraft can provide an airline with opportunities to fly new routes, linking new cities into connecting hubs and/or up-gauging existing markets being served, as well as expanding codeshare markets with alliance partners.
The risks and financial challenges include higher fixed operating costs (stemming from the lease of aircraft) without potential passenger revenue to offset, along with misidentification of network strategies driven by inaccurate industry data and antiquated forecasting/optimization technology.
There are several important market problems in network planning departments today.
The first is not having top-quality industry data and technology to create a network plan with insight at the cabin level (first, business, premium economy and economy) to unlock additional revenue that may be spilling to competitors, while also influencing aircraft re-configuration initiatives.
Having flight-level forecasts and extrapolating down to cabin level manually can lead to forecast inaccuracies. Compounding this is the fact that many leading airlines have evolved from operating just IATA winter/summer schedules, to four major schedules and now monthly schedules with day-of-week network adjustments. Hence, increasing pressure is placed on network-planning teams to design and deliver maximum profit-generating networks and schedules.
The second major market problem is the network planning solutions’ ability to proactively and correctively inform network planners about which markets to commence services, which markets to exit and which markets to add frequencies to at the best times.
The third large market problem is determining which markets an airline should codeshare on with its partners for maximum revenue opportunity.
Network Planning Innovations
Network-planning data, technology and processes have progressed during the past 30 years from a strictly manual network planning process in quadrant 1 to reactive network planning in quadrant 3. The ever-increasing competitive industry is forcing data and technology to transition to responsive network planning as shown in quadrant 4.
Current network-planning business processes to manage these three market problems is time consuming and labor intensive, causing slower market-reaction times and errors in analysis, ultimately resulting in lost revenue. However, during the past 10 years, data improvements and technical advancements have been made toward more automation.
Network planning data, technology and processes have clearly evolved during the past 30 years, moving from strictly manual network planning to automated network planning. The ever-increasing competitive industry is forcing data and technology to move toward responsive network planning.
In this environment, airlines have fully adopted industry-leading data and technology to be more responsive to industry trends and sudden market and competitor changes, with a far higher degree of network-financial-performance predictability.
Sabre Airline Solutions® has invested in its network planning and scheduling technology to solve the three problems previously identified so airlines can achieve responsive network planning. These next-generation forecasting and optimization innovations in industry data sets and technology fully unlock and optimize an airline’s online and codeshare revenue and couple it with the speed and accuracy for timely strategic network decisions.
In addition, manual adjustments and analysis performed for cabin-level forecasting used to consume hours for each forecast. With the latest technology, available in August 2015, they can be performed in minutes, with a much higher degree of accuracy and insight at all four main cabin classes. Benefits of cabin-level forecasting include selecting new markets through comparative route forecasts with first-, business-, premium economy- and economy-class passenger demand, as well as making more informed fleet re-configuration decisions to reduce revenue spill.
This merely scratches the surface of these new innovations.
The historical high-level codeshare market evaluations are soon to be an automated process, driven by specific codeshare agreements based on bi-laterals that an airline analyst inputs. Algorithms will identify the top codeshare O&Ds based on passenger demand, fares and incremental revenue opportunity. This industry-leading capability will be available in June and is designed to aid in strategic codeshare decisions.
In the near future, new market-identification and frequency optimization for an entire network will be an automated and a proactive process based on a combination of the operating airline’s schedule, competing itineraries, total passenger demand, fares, available aircraft and operating costs. Airlines can expect the advanced capabilities for market-identification and frequency optimization in 2017. This ground-breaking capability will greatly reduce time-consuming planning cycles, while making the best market and frequency trade-off decisions, holistically across a network.
These new innovations are what traditional, low-cost, hybrid, regional and start-up airline planners across the globe have needed for years to make their work day more productive, generate more analyses and create forecasts with a much higher level of detail. All of these innovations directly impact network decisions, as well as generate higher passenger revenues and profitability.