Tero Taskila, tells us why network and revenue management has become so important in the aviation industry.
The markets are experiencing consolidation. The purpose for the consolidation is to remove capacity from the market in order to manage the yield. If only life would be so easy for the airline executives. Consolidation is a nice word to describe acquisition (and slow or fast disappearance of competitive brand and choice for customer). Consolidation poses many challenges to the executives in the field of IT, leadership and corporate culture etc. I am focusing now on the routes and capacity.
As stated earlier, consolidation means reduction of capacity. The airlines need to be able to answer two questions immediately – what do I do if someone else adds capacity to the market I just reduced mine from? Where do I put the capacity which was considered excess on a certain market?
Many airlines (and airports) have sophisticated systems to model market changes and competitive behaviour. Some have better tools and data than the others. Many airlines (and airports) don’t have anything. They tend to follow a happy-go-lucky approach and try out a route and see what happens. This can be expensive. Also, the airlines who have the tools, make expensive mistakes by not using them properly.
There is a saying: garbage in – garbage out. If you plan your business with wrong, outdated or misunderstood data, you will make mistakes. In recent years, airlines have been trimming their resources (data, people) to reduce overhead costs. This approach tends to be good in short term, but will become expensive in long term.
The typical network planning steps are:
- Long Term Plan (- 2 years and longer in future)
- Medium term Plan (planning and designing of next similar season and fleet plan)
- Short term Plan (Planning and designing next season considering the committed fleet)
- Capacity optimization (-3 days to – 6 months from operating day) within season
In each step, the aim is to optimize the future profits. Long term plan includes such decisions as a fleet (aircraft size and numbers), crew numbers, maintenance and crew bases in case of multi-hubbing and route structure. Medium term plan focuses on fleet and crew allocation, pricing policies and schedule structure. The short term plan and capacity optimization is all about managing the inventory, price and efficiency.
We are living in the world of Big Data. The leaders are under the pressure to make timely, but well informed decisions. Gut-feeling has been romanticised in decision-making. The complexity of aviation due to regulation, constant changes in aviation need proper modelling and data. The truth is, that only those with best data, tools, people and processes will be the ones making sustainable and correct decisions on how to best design your ultimate product (schedule) and how maximize the sale of the perishable asset (airline seat).
What do you think?
Tero Taskila currently works as an airline consultant and lecturer for several businesses and universities worldwide. Prior to this, he was the CEO of Estonian Air. He started his career with Finnair working in the company’s key divisions such as ground handling, IT and network planning. Later, he moved to Gulf Air as its Chief Strategy Officer and in 2009, he was the Chief Commercial Officer of airBaltic before joining Estonian Air.
Mr Taskila is a frequent speaker at conferences, seminars and universities on strategic and commercial issues. He is a regular lecturer at London City University about strategy development, low-cost airlines and optimal business models for airlines and respected analyst for media on aviation related matters in Nordic countries.
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