AVIAPRO CONSULTING BLOG

 

Intelligent Network Planning

28 December 2023

Most airlines consider network and fleet planning to be a never-ending cycle.  When it comes to assessing the viability of introducing new services in any market, planners must look at multiple factors such as the market size, the competition, and the different passenger segments of the market.  Analyzing and simulating the demand for air travel means getting to grips with origin and destination demand flows, market segmentation, price elasticity, the effects of demand spill, Quality of Service Indices, S-curves and market share estimates, and transfer demand potential.  Planners also need to investigate the costs of operating the route, airport charges and incentives to best model the profit potential.  A good plan will incorporate different scenarios, especially those linked to varying traffic growth rates. 

The journey of SkyConnect Airlines is a great example of an airline that has enabled , data-driven strategies to revolutionize route planning. Faced with expansion challenges, SkyConnect harnessed the power of comprehensive data analytics and market insights. Triangulating sources and employing advanced forecasting methodologies, the airline not only accurately forecasted demand but also identified untapped opportunities.  This data-driven approach didn't stop at historical data; SkyConnect pioneered the use of advanced forecasting methodologies like gravity models, demand un-truncation, and capacity forecasting. The result? A remarkable enhancement in route profitability and an agile response to market dynamics. Today, SkyConnect stands as a testament to the transformative power of intelligent network planning, proving that strategic decisions, rooted in robust data analysis, can propel airlines into new heights of success. 

Thus, an intelligent decision can only be based on data-driven analysis with multiple sources of data. Moreover, efficient planning activities require a robust system that encompasses all required resources in one easily accessible and functionally intuitive platform.

Comprehensive evaluation hinges on well-developed processes

Route development for airlines and airports is not just about computing data and producing presentations.  There should also be focus on applying proven methodologies, such as triangulation of different data sources, from MIDT to Civil Aviation and socioeconomics, triangulation of the forecasting methodologies to estimate future demand, building a true Profit & Loss statement, and ultimately delivering a detailed analysis to help fully manage your competitive environment.  These activities form the backbone of any market assessment process, allowing a well-informed decision on the potential of a new route.

Data Sources and Validation

New air services that are based on market creation only imply modelling demand with limited historical data.  Even with some historical data, analysts only have ‘backward’ information of what was sold, and not the market potential of what could be sold.  Moreover, relying only on MIDT or BSP means missing out on data from online portals, direct and internet sales, other allotments, and groups which now represent a huge part of the market.  However, even with various sources available, validation of the data through cross verification from more than two sources is essential and can be referred to as the triangulation of different data sources.  This involves testing the consistency of findings obtained through different instruments thereby increasing the chance of assessing and controlling some of the risks influencing the forecasts.

Forecasting Methodologies

To further reduce the operational, commercial, and financial, risks in launching a new route, the triangulation of forecasting methodologies should also be used.  This is done by cross-referencing the results of various methodologies that are best practice in the industry.  These include various modelling techniques such as gravity models, demand un-truncation, capacity forecasting, price elasticity, S-curves, and like markets.  Employing more than one methodology to build market studies results in multiple estimations that facilitate more robust results.  Armed with these results, analysts can then determine the proper aggregation level between each model, calibrate Quality of Service Index to determine the potential local and flow traffic demand, and then allocate economic variables to complete Profit and Loss analysis.

Delta Air Lines and Southwest Airlines exemplify the success of employing multiple forecasting methodologies in their route expansion strategies. Delta, a major carrier, leverages a proprietary blend of forecasting models, industry-standard methodologies, and machine learning algorithms, integrating macroeconomic indicators and historical trends. Southwest, renowned for strategic expansion, incorporates econometric models, demand un-truncation methods, and proprietary algorithms. Both airlines cross-reference results from various methodologies, enhancing their ability to precisely predict market demand and make informed decisions in route planning, showcasing the effectiveness of multifaceted forecasting approaches in diverse operational contexts.

AirAsia, operating primarily as a low-cost carrier in Asia, has successfully expanded its network through a combination of market research and diverse forecasting techniques.  AirAsia is known for leveraging big data analytics, historical trends, and demographic insights. The airline's expansion into secondary airports and the introduction of new point-to-point routes reflects a nuanced understanding of market demand gained through various forecasting approaches.

 

AirPMx Solution

In route development and commercial planning, the AIRPMx platform is the new reference for a Scheduling, Pricing, Market Intelligence, Forecasting, and Network Planning tool. The system is supported by 380 data sources for traffic and revenue, 20 years of historical data, 25 macroeconomic data types, and 6 forecast methodologies.  The scope and depth of global data available allow for a more robust triangulation to build a more accurate picture of market demand and revenue potential. The forecasting models encompass not only macroeconomic indicators such as GDP evolution, historical capacity, traffic and revenue trending, transportation demand and other indicators, but also meso- and microeconomic indicators to determine, for each route, the specific seasonalized demand and revenue forecasts.

AIRPMx currently features the following modules:

• Scheduling, allowing an airline to develop a fully routable schedule incorporating operational and commercial constraints.
• Business Intelligence, providing airlines with a full reporting once their PSS (Passenger Service System) system is connected.
• Market intelligence; leveraging external industry data.
• Route Development & Route Profitability, to support the analysis of potential new routes.
• Budgeting and costing.
• Forecasting (30 years); with 6 concurrent forecasting models.

Intelligent network planning also implies efficient schedule viewing and manipulation, multiple scenarios, and comparative analysis capabilities; all within a user interface that allows you to push different levels at the same time in a coordinated fashion, thus enabling command and control of planning activities in an agile manner.

Conclusion

Airlines need the flexibility to respond to external challenges in their network planning process.  Doing so in an efficient and intelligent manner will be highly dependent on being able to utilize a single end-to-end platform that fully integrates data, forecasts, scheduling, pricing, planning and intelligence. AIRPMx provides Scheduling, Market Intelligence, and Network Planning modules all in one single application to help turn data into insights, and insights into actions.

For more information on the AIRPMx solution, visit the related promotional page.

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