Importance Of Fleet Planning In Airline Industry – Commercial Report Analysis

How fleet planning considerations are linked to airline strategy

This report will mainly focus on several different aspects of airlines industry along with their fleet planning process, challenges faced in aircraft buying and commercial operations. According to Rosskopf et al. (2014), fleet planning is known as one of the most significant steps in the planning process of airlines companies. Through fleet planning process it is possible to understand the number of aircrafts of the same type and the presence of same aircraft family or the same manufacturer in the fleet. This fleet planning is major strategy in airlines industry and its importance is shown in the report. On the other hand, with expansion, it significant for the airline companies to buy news aircrafts (Doži? and Kali? 2015). However, both purchasing and leasing new aircrafts is not an easy task to do. There are several considerations to make by the managers while buying new aircrafts or leasing the existing ones. On the other hand, the managers have to consider several things while getting aircrafts from other organizations on lease. Those considerations are also mentioned in this report. Most importantly, every theory provided in this report is backed by proper examples from different airline companies.

A fleet planning process of an airlines organization includes several sub-decisions such as aircraft evaluation, comparison, route analysis, aircraft acquisition and matching supply to demand. A good example of a proper fleet planning process can be taken from British Airways. The management of British Airways has stated that fleet planning process of the organization is responsible for its successful fleet strategy. The management of the organization also stated that before they can implement fleet planning process, they consider several aspects such as size and operational cost of the aircrafts, operational flexibility they will get by expanding their operations in a new route along with considerations of future value and lease versus purchase and a mix of these two. One of the major strategies of British Airlines is to find out whether the organization needs to acquire new aircrafts or have to dispose the existing ones. It not only helps the organization to gain operational excellence but also helps to reduce maintenance cost. Now it is not possible for the management of British Airlines to determine these facts without a proper fleet planning strategy. Fleet planning processes are also responsible for the organization to make sure that they have the right amount and right quality of fleet to meet the network requirement (Liasidou 2013). Network planning which is another aspect of fleet planning process is also an important factor for the airlines organization. For British Airlines network planning is helping the organization to establish their schedule to maximize their network profitability and the plan that the organization follows for managing infrastructure and slot portfolio across the network. Therefore, from the example of British Airlines, it is clear that fleet processing is extremely important in airline companies as it plays a major role in developing an accurate and effective airline strategy.

It is found that nearly half of the passenger airplanes that are now operating are leased by airlines from big plane leasing companies. For example, Quora Airways purchased 5 aircrafts from Boeing for nearly 500 million dollars. However, the airlines organization gained tremendous popularity among the consumers that has increased their demand (Wu and Cheng 2013. On the other hand, as it was the vacation season, especially in India, they had enough demand to operate with 9 aircrafts. However, the management was in no position to buy new aircrafts as they already bought 5 from Boeing. This is when; the organization was provided with aircrafts on lease to manage the spike in the demand (Hsu et al. 2013). However, just because the demand is high and it is important to manage the additional consumer flow, the airline companies do not buy or lease aircrafts without considering some factors. Those factors are hereby mentioned below.

Address the long and short-term planning considerations needed to be taken by airline managers when purchasing/leasing new aircraft

Shaping the mission:

In this factor, the main question is whether the aircraft fits a pilot’s mission or not. Several numbers of recommendations are there that can help to find an aircraft that fits mission of an airline company. Among those several recommendations Australian Airlines such as Qantas Airlines is following 90/10 rule which means their aircrafts meet the mission of the organization 90% times and they rent or borrow something for other 10 percent (Pantuso et al. 2014).

Cost to maintenance:

The only question in this factor is” how much is it going to cost to maintain the aircraft in a legal and operational state?” Before buying any new or used aircraft, airlines companies must have an idea about what the annual inspection will cost after purchasing.

A pass on inspection:  

Any airline company must not finalize a deal without insisting that the plane must first go through a rigorous pre-purchase inspection (Khoo and Teoh 2014). The president and CEO of Essex Aviation Group always recommend his clients that inspection must be done at a facility or in a place that constantly maintains the aircraft.

The main problem for the airlines companies related to purchase decision and commercial operation is coming from excessive demand of the aircrafts. For example, an airline company orders 5 new aircrafts to meet the upcoming consumer flow for 3-4 months. However, they are supplied the aircrafts after 6 months when the pick time is already gone.

According to Boeing, over the next 10 years there will be a requirement for nearly 39,000 airplanes which will be valued more than $6 trillion. Most of these aircrafts will be delivered at Asia Pacific regions (Dray 2014). From this data, it is clear that all the organizations that will be handling this demand of the new aircrafts will have to develop additional manufacturing units to meet this huge amount of orders. Single-aisle airplanes will buy nearly 27,000 of these new aircrafts. Therefore, it is obvious that the management will face a timeline gap between purchase decision and commercial operations (Raubenheimer et al 2014)

Mainly two types of fleet planning models are used which are Top-Down or Macro approach and Bottom-Up or Micro approach.

In this fleet planning model, financial impacts of aircraft options for a defined hub system, area or route is evaluated by aggregate demand and cost spreadsheets. Some major factors within this approach are hereby mentioned below.

Planning load factor is a factor that helps to develop ASMs requirement to accommodate forecast RPM growth.

Capacity gap is another major factor that is defined as needed future ASMs minus current ASMs and planned retirements.

In this fleet processing model, assumptions are done about the average aircraft stage length along with daily exploitation that determines “aircraft productivity” per day (Canca et al. 2016. This factor is mainly useful to understand how many aircrafts are required.

Based on these factors, it is then possible to estimate operating cost aircraft to compare economic performance of dissimilar types of aircrafts.

The main challenges associated with aircraft purchasing based on the extensive timeline between purchase decision and commercial operation

                           

Figure 1: Capacity Gap analysis

(Source: Yu et al. 2013)

Through this approach, it is possible to provide detailed evaluation of routes and aircraft requirements. This method also allows what-if analysis; however, requires detailed future scenarios. In order to use this fleet processing model, it is important to find out future route networks and schedules (Borenstein and Rose 2014). It is also important to generate airline’s share of total market demand. After this, it would be feasible to predict demand and revenues by origin destination market.

Bottom up approach is provides much more detailed inputs and also much more detailed outputs. On the other hand, top down approach allows an airline organization for rapid evaluation of new aircraft types and provides high level of postulation about alterations in traffic forecasts and operating cost. It also helps to understand structural changes. Bottom up approach on the other hand is capable to provide more details on sustainability. It helps to bring changes in individual route characteristics by providing precise evaluations. However, it is difficult to integrate future competitors’ strategies.

Conclusion:

In the end, it can be concluded that airlines companies that are successful in the aviation industry are following appropriate fleet methods. Not only that, companies like British Airways has stated that fleet planning methods are their vital airline strategy that is helping the organization to gain competitive advantage over its rivals. On the other hand, through this report, it is also seen that the airline companies should not purchase new aircrafts or lease aircrafts without getting sure about their quality. In the end, a comparison is provided between two common fleet planning models. From the comparison it can be stated that bottom up approach will be more useful for the airlines companies than top down or Marco approach as bottom up approach not only provides more input but also helps to gain more outputs.

References: 

Borenstein, S. and Rose, N.L., 2014. How airline markets work… or do they? Regulatory reform in the airline industry. In Economic Regulation and Its Reform: What Have We Learned? (pp. 63-135). University of Chicago Press.

Canca, D., De-Los-Santos, A., Laporte, G. and Mesa, J.A., 2016. A general rapid network design, line planning and fleet investment integrated model. Annals of Operations Research, 246(1-2), pp.127-144.

Doži?, S. and Kali?, M., 2015. Three-stage airline fleet planning model. Journal of Air Transport Management, 46, pp.30-39.

Dray, L., 2014. Time constants in aviation infrastructure. Transport Policy, 34, pp.29-35.

Hsu, C.I., Chao, C.C. and Huang, P.S., 2013. Fleet dry/wet lease planning of airlines on strategic alliance. Transportmetrica A: Transport Science, 9(7), pp.603-628.

Khoo, H.L. and Teoh, L.E., 2014. An optimal aircraft fleet management decision model under uncertainty. Journal of Advanced Transportation, 48(7), pp.798-820.

Liasidou, S., 2013. Decision-making for tourism destinations: Airline strategy influences. Tourism Geographies, 15(3), pp.511-528.

Pantuso, G., Fagerholt, K. and Hvattum, L.M., 2014. A survey on maritime fleet size and mix problems. European Journal of Operational Research, 235(2), pp.341-349.

Raubenheimer, P.D., Spears, J.M. and Taylor, C.J., 2014 United Services Automobile Association,. Systems and methods for managing fleet services. U.S. Patent 8,712,909.

Rosskopf, M., Lehner, S. and Gollnick, V., 2014. Economic–environmental trade-offs in long-term airline fleet planning. Journal of Air Transport Management, 34, pp.109-115.

Wu, H.C. and Cheng, C.C., 2013. A hierarchical model of service quality in the airline industry. Journal of Hospitality and Tourism Management, 20, pp.13-22.

Yu, W.A.N.G. and Hong, S.U.N., 2013. Heuristic algorithm to incorporating robustness into airline fleet planning. Systems Engineering: Theory and Practice, 33(4), pp.963-970.