Route and Network P lanning

1. Routeand Network Planning

2. Routeand Network Planning • Given the airline’s choice of aircraft and a fleet plan that determines the availability ofaircraft with different capacity and range characteristics, the next step in the airline planningprocess is to determine the specific routes to be flown.

3. Routeand Network Planning • In some cases, the sequenceof these decisions is reversed, in that the identification of a profitable route opportunitymight require the acquisition of a new aircraft type not currently in the airline’s fleet.

4. Hub Economics and Network Structure • Economic considerations and expected profitability drive route evaluations for mostairlines. Route profitability estimates require demand and revenue forecasts for the periodunder consideration. In large airline networks, traffic flow support from connecting flightscan be critical for route profitability.

5. Hub Economics and Network Structure Hub-and-spoke network structures allow airlines to serve many O-D markets with fewer flight departures, requiring fewer aircraft generating fewer ASK at lower total operating costs than in a complete point-to-point route network.

6. Hub Economics and Network Structure Consider a simpleconnecting hub network with 20 flights into and 20 flights out of a single “connecting bank” at a hub airport, “connecting bank” refers to a hub operation in which many aircraft arrive at the hub airport, passengers and baggage are moved between connecting flights, and the aircraft then depart with the connecting passengers andbaggage on board.

7. Hub Economics and Network Structure Connecting banks last from approximately 1 hour in smallerdomestic hub networks to 2–3 hours in larger international hub networks.

8. Hub Economics and Network Structure In this example of a connecting bank with 20 arriving flights followed by 20 departing flights, each flight leg arriving or departing the hub simultaneously serves 21 O-D markets – one “local” market between the hub and the spoke, plus 20 additional “connecting” markets, if we assume a single direction of passenger flow.

10. Hub Economics and Network Structure Thissingleconnectingbank thus provides service to a total of 800O-D markets Routing both flights and passengers through a connecting hub is more profitable for the airline if the cost savings fromoperating fewer flights with larger aircraft and more passengers per flight are greater thanthe revenue loss from passengers who reject connecting service and choose a non-stopflight instead, if one exists

11. The hub airline’s ability to consolidate traffic from many different O-D markets on each flight leg into and out of the hub allows it to provide connecting service even to low-demand O-D markets that cannot otherwise support non-stop flights.

12. Consolidation of O-D market demands further allows the hub airline to provide increased frequency of connecting departures, as it likely operates several connecting banks per day in each direction at its hub airport. In fact, several connecting departures per day (via the hub) in these O-D markets may be more convenient for travelers than a single daily non-stop flight; that is, “total trip time” is lower, when schedule displacement time is included

13. The hub airline’s ability to consolidate traffic from many different O-D markets on each flight leg into and out of the hub allows it to provide connecting service even to low-demand O-D markets that cannot otherwise support non-stop flights. Consolidation of O-D market demands further allows the hub airline to provide increased frequency of connecting departures, as it likely operates several connecting banks per day in each direction at itshubairport.

14. In fact, several connecting departures per day (via the hub) in these O-D markets may be more convenient for travelers than a single daily non-stop flight; that is, “total trip time” is lower, when schedule displacement time is included

15. Large hub networks result in market share advantages that translate into increased revenue for the airline (in addition to the reduced operating costs described above). With the potential for the airline to offer greater (connecting) departure frequency in many O-D markets, more convenient schedules (less schedule displacement) can lead to higher market sharesagainstcompetitors.

16. Withlargerhubnetworks, the airline can offer greater frequent-flyer program earning and reward options for passengers given greater network coverage and online service to many O-D markets. At the same time, schedule dominance of “local” markets into and out of the hub may lead to pricing and revenue advantages for the hub airline in those markets.

17. Hub-and-spoke airline networks are by no means limited to the US airline environment. Over the past 25 years, the vast majority of large international airlines have also developed hub networks, including Lufthansa at Frankfurt, KLM at Amsterdam, Cathay Pacific at Hong Kong and Singapore Airlines at Singapore, to name but a few examples.

18. Large airlines that operate hub networks depend heavily on the revenues generated by connecting traffic, especially at hubs located in cities with low levels of local O-D demand.

19. Infact, international airlines such as KLM (Amsterdam hub) and Singapore Airlines (Singapore hub) with relatively low populations around their home bases would not have been able to grow to their current level of operations without focusing to a large extent on connecting passengers (also known as “Sixth Freedom traffic”) through their hubs.

20. Operational Advantages and Incremental Costs of Hubs The consolidation of an airline’s operations at a large hub airport has several operationaland cost advantages. The airline will generally require fewer “base” locationsfor its aircraft maintenance and crew domiciles, resulting in reduced crew and maintenanceexpenses.

21. Hub networks also offer some potential aircraft and crew scheduling advantages for theairline. The establishment of fixed connecting bank times at the hub allows for simplifiedaircraft and crew scheduling, in that the “best” arrival and departure times at the hubairport are in essence predetermined by the connecting banks.

22. It also provides moreopportunities for “swapping” aircraft in response to delays, cancellations and irregularoperations, given that a large number of aircraft are on the ground simultaneously duringa connecting bank. To the extent that many of the aircraft are likely to be of the samefleet type, this further increases flexibility for the airline to exchange aircraft from oneflight to another, as required.

23. Advance planning for aircraft swaps at the hub in response to changing demand fordifferent flights, also known as “demand-driven dispatch” is another advantage of a hub operation. Different-size aircraft from the same fleet family(e.g., A319, A320 and A321) can be assigned to specific flight departures as little as 2–3days before departure, to better match seat capacity to booking demand.

24. In a hub network,the fact that most aircraft fly routings “out and back” from the hub to the spoke allowsfor greater opportunities for such aircraft interchanges.

25. On the other hand, there are incremental costs to the airline associated with a hubnetwork. For example, hub operations can lead to reduced aircraft and crew utilization,compared to point-to-point networks. Although aircraft and crew scheduling may be simplified, hub operations can lead to reduced flexibility in scheduling of departures, andaircraft rotations due to the fixed timing of connecting banks at the hub.

26. An aircraftthat serves a spoke city closer to the hub usually has to sit longer on the ground at the spoke, awaiting the next connecting bank (in the other direction) at the hub. Because the revenue benefits of hub networks depend on load consolidation and feeding of connecting banks, it makes little sense to fly the aircraft back to the hub during a non-bank time. As a result, the average aircraft utilization (block hours per day) can be reduced by this effect.

27. Another negative impact on aircraft utilization related to hub networks is the need for increased ground (“turnaround”) times for aircraft transiting the hub, to accommodate passenger and baggage connections. A connecting bank consists of a closely scheduled set of arriving flight legs followed, after a short period of time, by a set of closely scheduleddepartingflightlegs.

28. The rationale for this structure is that it allows arriving passengers (with many different origins) to connect with little waiting time to departing flights, to their destinations. Providing this short connection time service, however, has its costs. Aircraft arriving at a hub must stay on the ground, typically beyond the time at which the aircraft is ready to depart, to allow all connecting passengers adequate time to disembark their arriving flights and walk to the gate at which the aircraft is parked.