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Commercial and Operational Planning for Revenue Growth and Cost Reduction Dr Emre Serpen, Intervistas Consulting Group

EVP


Intervistas team members have extensive airline strategy and network design assignments worldwide

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InterVISTAS Offer Extensive Experience and Expertise with Improving Airline Strategy, Tactics, and Functional Effectiveness Improving Revenues and Reducing Costs

InterVISTAS has extensive experience and expertise with improvements in airline commercial operations. Driving in revenue growth and cost reduction for airlines. Revenue Growth

Cost Reduction

Network Optimisation

Benchmarking and diagnostic assessment

Hub optimisation

Route performance and restructuring

Fleet utilisation

Crew Productivity Improvement

Pricing

MRO cost reduction and outsourcing

Revenue Management

Distribution

Ground handling cost reduction and outsourcing

Cargo optimisation

Operations Control Centre Improvement

Distribution cost reduction

Staffing and administrative costs

InterVISTAS offers industry data, optimisation tools, and former airline experts whose approach is analytical with a focus on delivery of benefits. 3

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Strategic Planning for Airlines - Overview

1

2 Strategic Intent

Global Continent/Region Country Specific Segment

3 Strategic Assessment

Demand Supply SWOT Market Forecasting

4 Network Design and Fleet Planning

Long Term Short Term Hub Design Fleet Planning

44

5 Business Model Alignment

Commercial Operational Subsidiaries Organisational

Business and Implementa tion Planning

Business Plan Implementation Plan

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Identify markets that drives best prospects for profitable operations

High Potential Markets 1. Evaluation of share gap and identification of opportunities where market growth exceeds marketshare growth 2. Identification of markets with fast and high yield growth opportunities

Source Intervistas Analysis

3. Identification of Airline market share: 1. 2. 3. 4.

market share growth in growing markets market share loss in growing markets market share growth in shrinking markets market share loss in shrinking markets

4. Relationships between market, market share and pricing changes 5. Dominate own catchment area/Hub

Source Intervistas Analysis

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Market Forecasting

Forecast and focus on markets with growth and yield yield

Market forecasting

Top down = GDP/capita X Elasticity Bottom Up = MIDT/PAXIS/DIIO Analyse forecast results to identify specific market forecast insights: 1.

Sort by market size

2.

Sort market growth rate

3.

Sort by yield

4.

Sort by circuitry

5.

Sort by Size x growth rate x yield x circuitry

6.

Destinations Airline is not flying

Source Airbus

Under represented markets identified in the market forecast will be used in scenario formulation Realizing the vision together


Network improvement for revenue maximisation Key Steps 1.

Calibration, Scenario Development

2.

Unconstrained long term view

3.

Maximise commercial opportunity

4.

Market Forecast, Average Fares, Costs, Schedules

5.

Test different scenarios, network optimisation

6.

Network that maximises Route Level Variable contribution – Improve Fleet utilisation

7.

Differential revenue from connecting passengers Determine changes in connectivity, passenger numbers and yield for long haul pillar flights, medium haul flights, regional flights, short haul domestic flights.

8.

Improve Airline ’s market share in fast growing, high yield markets with good Hub circuitry

DME

7

SVO

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Short term Route Profitability Improvement

Key Steps

Example: Constraints with Impact on Profitable Network Growth

1. Objective is an optimised short term hub design, including improvements in connecting markets and incremental financial performance compared with the current schedule. 2.

A list of potential new destinations and frequencies identified for immediate implementation

3. Evaluate current near-term operational constraints at Hub (airspace, aircraft movements during peak hours, bilaterals, slots, curfews, gate space restrictions) which may prevent increase of frequency/capacity of flights or the introduction of new flights.

Example: Evaluation of Flights According to Route Profitability and Revenue Performance

4. Analyse Airline ’s capability in consistently delivering aircraft turn times (critical for optimal hub performance). 5. Focus on time of day changes to maximise number of meaningful connections between markets as these could be implemented without much operational impact 6. Sort flights according to contribution and take action for improvements in system wide variable contribution

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Selection of the right fleet plan, and improvement of fleet utilisation Example: Fleet Operating Costs Analysis

Key Steps . 1. Develop optimal fleet plan supporting the long term network plan

2. Provide recommendations for redeployment of fleet plan 3. Review current Airline fleet including age, maintenance requirements/costs, onboard product, range, fuel burn and fleet commonality. 4. Review current fleet orders and compare it against the optimised long term network requirements maximizing route profitability and fleet utilization.

Example: Fleet Optimisation Analysis

5. Apply fleet plan to proposed passenger forecast and schedule to assess the optimal types/mix of aircraft that will most efficiently operate the route network.

6. Assess how the fleet plan will evolve over the forecast period taking retirements and new deliveries into consideration. 7. Ensure that fleet utilization is optimised 8. Develop optimal narrow body and wide body fleet ratios in the near term, considering optimal requirements for the Hub 9. Buy versus lease calculations Intervistas Analysis

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Intervistas uses Industry Trusted Sources And Professional Network Optimisation Tools . The modelling tool uses discrete choice methodology, an advanced form of the QSI passenger market share forecasting method.

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Turkish Airlines: Development of Istanbul Ataturk Hub Structure THE NEED Description: Emre Serpen and InterVISTAS team worked with Turkish Airlines (TK) to design a hub structure at Istanbul Airport. The scope of the project included: •

Market Analysis – analysis of demand and supply, changes in the market place, share gap, opportunities to identify fast growth and high yield markets to take advantage of Istanbul Hub.

Best Practices – analysis of wide hub design best practices worldwide, comparison of different hub structures, hub design principles and learning's from successful and capacity constrained hubs.

Market Forecasting – execution of a market forecast taking into account long-term/top-down forecast driven by GDP growth and travel propensity of TK’s current and projected markets, as well us bottom up analysis including MIDT pax flown data. Further to market forecast comprehensive analysis of fast growth and high yield markets taking into account circuitry advantages of Istanbul Airport.

Hub Design and Analysis and Implementation Plan – development of hub growth and bank structure development scenarios leveraging results of the previous activities. Scenarios are discussed and analysed using sophisticated network optimization tools working closely with TK network management team. Focusing on scenarios maximising long term contribution.

THE RESULT Project needed extensive market analysis and scenarios. The team had to convince TK of the scenario’s an approach. More than 70 optimisation runs were executed using specialist tools. The project delivered $500 million and TK was very pleased. Project also contributed to the decision of establishing the Third Istanbul Airport, reported to be largest worldwide.

Lead Consultant: Dr. Emre Serpen 11

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Pricing and Revenue Management Improvement Approach to Improve Revenues, Load Factor and Yield

Diagnosis

Solution Development

Implementation Support

Testing & Evaluation

Improved Revenue Results

Market and Revenue Share versus Expected

Market Segmentation : use of Fare Rules and Booking classes

Development of detailed processes and working methods

Liaise with systems suppliers

Effective use of systems, tools and data

Hands on and class-room training

Organisation structure and interaction with Sales, Airports

Coaching

Review and Assessment of results

Processes and working methods

KPIs & Performance Management

“Use of time” analysis

12

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Revenue Management Improvement Illustration – Analysis of Fare Structures and Use of RBD’s

Key Steps 1.

Review of fares, competitors, Matrix

2.

Strategic pricing

3.

Target LF profiles

4.

Critical flight management

5.

Longer term focus

6.

Effective sales interactions

7.

Overbooking management

8.

Standard processes, KPI’s

9.

Commercial plan do review

Analysis of fare usage is important to understand where there are potential opportunities: • Mismatch between actual yield and published fares: abuse or pro-ration issues? • Fares in wrong class, Overlap of RBD’s, Over or under use of RBD’s • Exchange rate impacts? Inconsistent fare conditions? • Poor inventory controll, Revenue Leakage ? 13

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Example: Implementation a New “Revenue Planning & Delivery” Process Month Market

Year To Date

Revenue

RPKs

(SAR) EUROPE

% vly

ASKs (000s)

% vly

Seat Factor Rev/ASK (000s)

% vly % pts vly

Rev/RPK

% vly

Revenue

% vly

RPKs

(SAR)

% vly

ASKs (000s)

% vly

Seat Factor (000s)

% vly

%

Rev/ASK Rev/RPK

pts vly

% vly

% vly

102,724,572

20

159,911,765

11

302,091,494

6

622

9

8.95

2

3.73

4

102,724,572

20

159,911,765

11

302,091,494

ABU DHABI

2,682,202

5

3,377,248

0

4,662,372

6

72

-4

0.79

5

0.58

-1

2,682,202

5

3,377,248

0

4,662,372

6

BAHRAIN

1,165,241

-21

1,431,846

-19

3,579,906

15

40

-17

0.81

-3

0.33

-32

1,165,241

-21

1,431,846

-19

3,579,906

15

6

DOHA

1,289,804

-4

1,675,258

-3

2,862,860

0

59

-2

0.77

0

0.45

-4

1,289,804

-4

1,675,258

-3

2,862,860

0

DUBAI

42,116,594

2

48,871,655

4

83,360,580

28

59

-13

0.86

-3

0.51

-21

42,116,594

2

48,871,655

4

83,360,580

28

KUWAIT

11,876,004

46

11,982,368

20

24,159,752

40

50

-8

0.99

22

0.49

4

11,876,004

46

11,982,368

20

24,159,752

40

MUSCAT

981,779

-12

1,663,635

-51

3,050,168

-40

55

-13

0.59

81

0.32

46

981,779

-12

1,663,635

-51

3,050,168

-40

SHARJAH

458,376

4

642,805

7

1,638,824

0

39

3

0.71

-3

0.28

4

458,376

4

642,805

7

1,638,824

SALALAH

0

123,949

0

179,072

0

1,916,761

0

9

9

0.69

0

0.06

0

123,949

0

179,072

0

1,916,761

0

60,693,949

3

69,823,887

-5

125,231,223

6

382

-6

6.21

12

3.02

0

60,693,949

3

69,823,887

-5

125,231,223

6

AMMAN

10,322,184

-16

12,355,468

-21

21,392,468

-18

58

-2

0.84

6

0.48

2

10,322,184

-16

12,355,468

-21

21,392,468

-18

AHWAZ

0

0

3,796,926

31

4,455,570

49

85

-12

0

0

0

0

0

0

3,796,926

31

4,455,570

49

YAZD

0

0

12,279,325

191

14,598,325

233

84

-12

0

0

0

0

0

0

12,279,325

191

14,598,325

233

GULF

BEIRUT

7,871,040

-66

8,560,142

-64

20,036,136

-52

43

-14

0.92

-5

0.39

-29

7,871,040

-66

8,560,142

-64

20,036,136

-52

16,539,085

-11

23,901,938

-15

37,596,418

-22

64

5

0.69

5

0.44

14

16,539,085

-11

23,901,938

-15

37,596,418

-22

ISFAHAN

0

0

8,449,787

-41

9,911,620

-35

85

-8

0

0

0

0

0

0

8,449,787

-41

9,911,620

-35

KERMAN

0

0

15,262,146

254

18,418,470

319

83

-15

0

0

0

0

0

0

15,262,146

254

18,418,470

319

MASHAD

19,737,648

44

DAMASCUS

179,930

23

16,697,264

37

19,737,648

44

85

-4

0.01

-11

0.01

-15

179,930

23

16,697,264

37

URMIEH

0

0

4,080,250

0

4,809,750

0

85

85

0

0

0

0

0

0

4,080,250

0

4,809,750

RASHT

0

0

11,131,965

0

14,424,480

0

77

77

0

0

0

0

0

0

11,131,965

0

14,424,480

0

SANAA

2,921,776

-32

3,799,827

-37

11,000,481

14

35

-28

0.77

8

0.27

-40

2,921,776

-32

3,799,827

-37

11,000,481

14

SARY

0

0

16,275,054

119

18,056,040

132

90

-5

0

0

0

0

0

0

16,275,054

119

18,056,040

132

SHIRAZ

0

0

13,580,796

444

15,677,440

514

87

-11

0

0

0

0

0

0

13,580,796

444

15,677,440

514

TABRIZ TEHRAN ZAHEDAN MIDDLE EAST

0

0

5,850,390

19

6,375,980

26

92

-5

0

0

0

0

0

0

5,850,390

19

6,375,980

26

20

62,757,134

11

75,952,362

23

83

-9

0.48

8

0.39

-2

29,961,031

20

62,757,134

11

75,952,362

23

0

80

80

0

0

0

0

0

0

5,046,722

0

6,309,800

0

77 1214

8

3.71

1

1.98

-4

67,795,046

-5

223,825,134

58

298,752,988

77

0

0

5,046,722

0

6,309,800

-5

223,825,134

58

298,752,988

Annual Shared Sharedtargets targets --Pricing, Pricing,YM YMand and Sales Sales

0

29,961,031 67,795,046

Revenue Revenue Budget Budget

Revenue Revenue Delivery DeliveryPlan Plan Seasonal Revenue RevenuePlan Plan Workshops Workshops Output Output==Numbers Numbers ++Actions Actions

Action Action

Daily, Weekly, Monthly RM RM&&Sales Sales review review variation variationvs vsplan plan -agree -agreeactions actions

Joint Jointactions actions agreed agreed&& coordinated coordinated

Forecast Forecast Monthly Airline AirlineExec ExecTeam Team Understands Understands where where Revenue Revenueisisgoing going

Department Short term schedule and a/c adjustments

Network & Scheduling Product

Support Pricing Promotions

Marketing & Advertising

14

Monitoring Monitoring

Yield Management

Targets for R/ASK by Route, Overbooking

Tariffs & Pricing

Targets for Revenue and Yield by Market. Pricing Strategy. Pricing Policy & Guidelines.

Route and Market Joint Planning Sessions to decide actions required to meet targets.

Set and review seat availability versus new bookings, schedule

Request capacity changes. Adjust seat availability and overbooking

Input to forecast

Monitor market and competitors fares. Identify Price Opportunities

Approve & file new fares.

Input to forecast

Input to IATA

Sales & Distribution

Targets for Revenue by Market. Agents targets

Monitor market and competitor actions – price, product, promotion. Agent performance.

Communicate new fares & product. Manage agents.

Input to forecast

Finance

Budget Creation

Revenue Accounting

Revenue Accounting

Create Forecast

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An Example of How a Leading Latin American Carrier Improved its Revenues Through a Commercial Change Management Program Kept fare differential with competitors Fine tuned pax mix

1. 2. 3.

Worked with promotions Opened economic classes Unsold group blocks released

AM YOY Change in RASK 30%

MEXVSA

MEXVER

MEXTIJ

MEXPVR

MEXMTY

MEXMID

MEXMIA

LAXMEX

HMOMEX

GDLTIJ

GDLMEX

GDLLAX

0%

CUNMEX

10%

BJXLAX

20%

ACAMEX

% Change, 2002 to 2003

1. 2.

Q1 Q2 Q3

-10%

THE RESULTS • • • • • •

Improvement of revenue during project Significant knowledge development Adopt PRM policies and procedures Adopt performance measures Excellent teamwork with sales Effective use of RM tool

Lead Consultant:

-20%

-30% Market

Syste m Tota l Flights Tota l Passe ngers Tota l Capacity Loa d Fa ctor Tota l Reve nue RASK Ave rage Fa re

Managed ManagedFlights’ Flights’LF LF should approx. 90% shouldbe be approx. 90% Low Yield Spill High Yield Spill Overb ook ing Levels Low Overb ook ing Levels High

Ma na ge d Flights Ma na ge d Flight - % of TTL Ma na ge d Flights' LF Poste d Flights Poste d Flights - % of TTL Poste d Flights' LF De nied Boa rdings DBs per 1000 pa x Ma na ge d/Posted Flights

2226 171434 272927 62.8%

2174 163862 264816 61.9%

2140 170296 261146 65.2%

2129 165571 260323 63.6%

2155 157237 263648 59.6%

2144 155198 262129 59.2%

2109 158447 257723 61.5%

441 19.8% 82.5% 91 4.1% 91.5% 283 1.65 4.8

395 18.2% 82.3% 73 3.4% 94.3% 165 1.01 5.4

406 19.0% 82.4% 68 3.2% 92.1% 242 1.42 6.0

352 16.5% 82.8% 62 2.9% 95.9% 155 0.94 5.7

320 14.8% 79.0% 39 1.8% 91.0% 108 0.69 8.2

369 17.2% 78.7% 50 2.3% 91.7% 130 0.84 7.4

418 19.8% 78.7% 57 2.7% 89.2% 195 1.23 7.3

Posted PostedFlights’ Flights’ LF LF should shouldbe be approx. approx.95% 95%

Dr.. Emre Serpen 15

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Copa Airlines Revenue Management Needs Study THE NEED In 2005 Copa Airlines had grown to a size and network complexity where they needed a sophisticated revenue management system to manage the diverse markets and mix of local and connecting traffic. The airline was unfamiliar with the science behind the various systems and needed guidance in selecting a solution that would address their needs. THE SOLUTION InterVISTAS performed a requirements analysis study to define the airline’s critical RM needs from which an RFI and RFP where developed and distributed to the prospective vendors. InterVISTAS coordinated evaluation of the vendor responses leading to a sound system recommendation. InterVISTAS applied its revenue management simulation model to demonstrate the value of increased forecast accuracy and provide the justification for the system investment. Additionally, InterVISTAS identified a number of opportunities for process and policy improvements necessary to maximize system benefits and provided a comprehensive revenue management concept training program to better focus the efforts of the RM controllers. THE RESULT

As a result of the study, Copa Airlines selected and implemented a sophisticated revenue management system that recovered its costs within the first three months of implementation and contributed substantially to the airline’s ability to maintain a yield premium versus their competitors.

Lead Consultant: Nigel Brownlow 16

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Cost savings thru improving distribution Mix Decreasing distribution costs

Key Steps

Leisure Business Decreasing distribution costs

1. Determine the current channel mix, identify distribution processes, revenue and cost by channel, and find improvement opportunity 2. Develop future distribution channel mix including specific processes, costs, and margins 3. Reduce distribution costs

On-Line Airlines’ own websites

Direct

Airlines’ websites for corporate bookings Orbitz “Supplier Link” Internet travel agents such as Expedia, Travelocity

Indirect

Off-Line Call Centres ATO/CTO Corporate Implants GSA’s Retail Travel Agents Wholesale Travel Agents

Portals linked via GDS such as Opodo and Orbitz (other)

Corporate Travel Agents

4. Review channel mix 1. 2. 3. 4.

current distribution channel mix, segments, unit revenues, unit costs per channel, including benchmarking GDS fares, particular high yield segments, first and business class sales

5. Channels to include Travel Agency/GDS, ATO/CTO, online corporate, call centre, website

17

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Distribution cost reduction

Source Intervistas Analysis

Realizing the vision together 18


Oman Air: Distribution Strategy THE NEED Description: Oman Air wanted to improve its distribution cost structure and take advantage of direct distribution as well as achieving better reach to high yield business passengers. Team led by Dr. Emre Serpen developed a distribution strategy executing following project activities: •

Interviews and information capture on channels, segments per channel, unit revenues and costs per channel

Develop ‘as is’ distribution mix where segments per channel, and channel costs are identified

Review distribution industry best practices

Develop ‘to be‘ distribution mix expanding share of direct distribution and other measures

Develop financial model identifying the benefits of the new distribution mix where the distribution costs are reduced and access to high yield customers is improved

Benchmark ancillary revenues and develop ancillary revenue improvement strategy

Define specific projects and implementation plan for execution of the proposed distribution strategy

THE RESULT Distribution strategy was approved and currently being implemented by Oman Air. Project identified significant opportunities for reduction of distribution costs.

Lead Consultant: Dr.. Emre Serpen 19

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Crew Optimisation Approach to Improve Cockpit and Cabin Crew Productivity and Cost Reduction

20

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Cost reduction thru operations planning – reduce crew costs

Key Steps 1. Alignment of the operational activities support business model changes – Review cost structure, assess changes to the operational costs, productivity improvements 2. Determine improvements in performance targets to support the business model changes 3. Determine target CASK to support business model 4. Review current cost structure, direct and indirect

5. Direct costs include 1. Fuel, MRO, Ground Handling, Catering,

6. Determine initiatives for productivity improvement and unit cost reduction to meet target CASK 7. Alignment of the operational activities support business model changes- Crew and integrated operations control improvements 8. Alignment of organisation and performance measures 9. Projects and initiatives for reduction of operational costs and improvements in productivity This will include major cost items such as Fleet (Utilisation), maintenance, crew, ground handling costs, overheads and other areas

21

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Example: Crew Manpower Plan Dec-10 Crew Demand Block Hours Scheduled Block Hours--Crew Month Pay & Credit Percentage Credit Hours Total Hours to Crew Crew Utilization (per line) Crew Required: Scheduled Flying Crew Required: Reserves for IrOps Sick Leave Extended sick Vacation--Committed Vacation for new captains Recurrent Training Miscellaneous Absence Crew Required: Total

Jan

Feb

Mar

Apr

May

Jun

Jul

Aug

Sep

Oct

Nov

Dec

4713 4561 7.39% 337 4898 75.9 64.6 6.5 4.4 1.0 5.4 0.0 4.4 1.0 87.1

4609 4938 7.69% 380 5318 78.0 68.2 6.8 4.6 0.9 9.0 0.0 4.5 1.0 95.0

5205 5037 7.69% 387 5424 79.5 68.2 6.8 4.7 0.8 9.3 0.0 4.7 1.0 95.6

5225 5225 7.69% 402 5627 79.5 70.8 7.1 4.9 0.7 4.6 2.5 4.9 1.0 96.4

5924 5924 7.69% 456 6380 79.5 80.2 8.0 5.1 0.7 13.3 0.0 5.1 1.0 113.4

6278 6278 7.69% 483 6761 79.5 85.0 8.5 5.1 0.7 9.4 1.1 5.0 1.0 115.9

6121 6121 7.69% 471 6592 79.5 82.9 8.3 5.0 0.7 10.7 0.8 5.0 1.0 114.4

6368 6368 7.69% 490 6858 79.5 86.3 8.6 5.0 0.7 13.4 0.0 5.0 1.0 120.0

6234 6234 7.69% 479 6713 79.5 84.4 8.4 5.0 0.7 10.5 0.8 5.0 1.0 115.8

6302 6302 7.69% 485 6787 79.5 85.4 8.5 5.0 0.7 11.1 0.7 4.9 1.0 117.2

6279 6279 7.69% 483 6762 79.5 85.1 8.5 4.9 0.7 4.3 2.6 4.9 1.0 112.0

5836 5836 7.69% 449 6285 79.5 79.1 7.9 4.9 0.7 8.2 1.5 4.9 1.0 108.1

110.0 0.0 5.0 0.6 114.5

114.5 0.0 5.0 0.6 118.9

118.9 0.0 5.0 0.6 123.3

123.3 0.0 5.0 0.6 127.7

127.7 0.0 0.0 0.6 127.0

127.0 0.0 0.0 0.6 126.4

126.4 0.0 0.0 0.6 125.8

125.8 0.0 0.0 0.6 125.1

125.1 0.0 0.0 0.6 124.5

124.5 0.0 0.0 0.6 123.9

123.9 0.0 0.0 0.6 123.3 Year Avg

123.3 0.0 0.0 0.6 122.6 123.6

1.8 0.0 0.0 5.0 3.0 9.8 0.0 104.6

1.9 2.5 0.0 5.0 3.0 12.4 -2.5 109.0

2.0 7.5 0.0 5.0 3.0 17.5 -7.5 113.3

2.1 10.0 0.0 2.5 3.0 17.6 -10.0 120.1

2.1 5.0 0.0 0.0 3.0 10.1 -5.0 121.9

2.1 0.0 0.0 0.0 3.0 5.1 0.0 121.3

2.1 0.0 0.0 0.0 3.0 5.1 0.0 120.7

2.1 0.0 0.0 0.0 3.0 5.1 0.0 120.0

2.1 0.0 0.0 0.0 3.0 5.1 0.0 119.4

2.1 0.0 0.0 0.0 3.0 5.1 0.0 118.8

2.1 0.0 0.0 0.0 3.0 5.1 0.0 118.2

2.1 0.0 0.0 0.0 3.0 5.1 0.0 117.6

Surplus / Shortfall

17.5

14.0

17.7

23.7

8.5

5.4

6.2

0.1

3.6

1.6

6.2

9.5

Hard Hours per Line Crewmember Crews / Aircraft Number of Aircraft

43.6 5.8 20

45.3 6.2 20

44.5 6.0 20

43.5 6.2 20

48.6 5.6 22

51.8 5.1 24

50.7 5.1 24

53.1 5.0 24

52.2 5.0 24

53.0 4.9 24

53.1 4.9 24 Year Avg

49.6 4.9 24 5.4

Crew Availability

Initial Headcount New Hire Captains (qualified) New Upgrade Captains (qualified) Attrition Revised Headcount Training Captains Trainer (simulator, line check) Line Captain covered by FO IOE Displaced Captains from FO IOE Line FO covered by Captain IOE Management Pilots Total Training Captain FTE's Adjustment: Training Capt. As Capt. Headcount Available (for line duty)

110.0

0.0 0.0 2.5 2.5 0.0 107.5

22

Realizing the vision together


40 million USD benefits through better operational planning THE NEED Client saw an opportunity gain efficiencies through restructuring its airline operations management, including production planning. Emre Serpen and team of consultants (in a previous role) were engaged to lead the project. THE SOLUTION Emre Serpen’s team examined the prevailing crew resource, maintenance and engineering management. A new process and procedural model was developed which the team then helped to implement. Job specifications were devised and assistance given with staff selection and appointments. Human resource capability was expanded. Training and coaching was given to support the model.

Source: Mercer Report

THE RESULT Following implementation of the recommendations, client achieved an average of a 10% increase in productivity across key resources.

Airline Business Strategy Feature Oct 2002 Lead Consultant: Dr.. Emre Serpen 23

Realizing the vision together


Typical IOC Program Overview to Reduce Costs, Protect Revenue and Customer Service Diagnostic and new IOC vision

Process and organization change implementation

IOC Systems implementation

 Review of the Business Strategy  Collect and review existing information

 Develop and implement processes complementing selected system solution

 Systems integration plan and interfaces

 Diagnostic review of the current Hub/Operations Control and Systems

 Industry best practices and OCC benchmarking Future Blueprint Including • Proposed concepts, analysis and recommendation • Functional representation and key processes, Organisation, layout • Information requirements

 Co-location of new functions in OCC  Develop and implement organisation and job specifications  Develop and implement key performance measures

 Staff selection, development centre appointments and implementation of the organization  Change management and communications program  Training and support

 Benefits Case  Program Management  Implementation Plan

 Preparation of RFI

 Development of the technical specification and RFP  Evaluation of bids and recommendation  Negotiation Support

 Process mapping and description of systems configuration  Map interfaces and define information flow  Coordinate support for the development of facility, and infrastructure  Program Monitoring

24

Realizing the vision together


Calculation of Costs and Lost Revenue Driven by Bub-optimal Operations Control Decisions Engineering Airports

Crew

IOCC 

Overlap in roles and responsibilities Communications

Sub-optimal Business Decisions

11 identified incidents in 8 months resulting in :

6500 Delay minutes 4300 affected passengers over $1.5 million cash outlay over 150 written complaints

  

Lack of early, relevant data Limited collective Understanding

Total length % Delay minutes Disruption costs % No. of pax Disruption costs of delay recoverable recoverable Cash outlay recoverable affected recoverable (IOC) (mins) from IOC (IOC) from IOC

Incident CX880 / 10 Aug 96

152

100%

152

693

56,550

100%

CX888 / 10 Aug 96

99

100%

99

716

38,688

100%

56550 38688

CX251 / 06 Dec 96

925

0%

0

480

264,000

100%

264000

CX289 / 15 Dec 96

171

0%

0

248

144,742

0%

0

CX400 / 23 Jan 97

461

30%

138

1,044

120,744

100%

120744

CX767 / 27 Jan 97

851

30%

255

395

6,600

0%

0

CX103 / 01 Feb 97

1,640

100%

1640

469

610,000

100%

610000

CX719 / 04 Apr 97

315

30%

95

457

7,780

0%

0

575

100%

575

2,360

100%

2360

1,259

100%

1259

298,900

100%

298900

CX508/ 04 Apr 97 CX2468 / 04 Apr 97 CX007 / 29 Nov 96 Total

6,448

25

4,213

248 4,750

1,550,364

1,391,242

Realizing the vision together


Deliver benefits thru effective IOCC OCC has good functionality and an operationally sound design. The physical structure of the building presents many limitations, however. This emphasizes the importance of ensuring that an appropriately sized facility is secured, with the proper dimension to facilitate a proper layout from conceptualisation.

Strengths  Cost-effective  

Lead Consultant:

Good cross-functional coordination Focus on passengers and service

Weaknesses  Long, thin room limits communications  Operational responsibility spread across multiple buildings

Dr.. Emre Serpen 26

Realizing the vision together


Effective integration of the commercial and maintenance plan processes drive the greatest downstream improvement value

M&E considerations in the design of the schedule, selection of fleet, heavy and line maintenance centres

 Determine heavy check Strategy and location

 Determine line maintenance

 Strategy  Determination of maintenance costs

 Schedule design to be optimised for maintenance costs

Value lost in commercial and Maintenance Activity coordination

 Cross-functional Production planning

 Team to have both Network and maintenance Representation

 Regular meetings and forward management of the plan and changes

Value lost in ineffective Representation of Maintenance Control Activity in day-to-day operations control locations

 Colocate MCC in OCC

Expected Savings (e.g., one A-check per aircraft per year)

 Design of KPIs avoid  ‘Delay code’ problem

Expected savings in man hour cost: 450 man hours per Acheck * 50 USD per hour $ 22,500 saving per A-check

 Savings in delay minutes due increased

 Stability of aircraft allocations

 Improvement action (e.g., colocate MCC with OCC)

 Benefit is gained efficiency due to better coordination

Expected savings in material cost 3000 USD per material costs per A-check Total savings, 25,500 per A-check Prorate to total fleet for 100 fleet airline, 2.5 million saving impact on the bottom line

Realizing the vision together


Reduce Line Maintenance Costs and Improve Productivity 1.

Selection of Line Maintenance Bases: Line maintenance base should considered against the schedule to minimise costs

2.

Airline Staffing Comparison

Maintenance Program: Ensure the transit checks and overnight checks are performed in compliance with program

3.

Planning:

Material Kitting: Prepare Line Check kits consisting of all material (rotables and consumables) required to perform their jobs efficiently

6.

OA3

OA4

160

123

93

126

88

84

70

74

% Of Direct Staff

55%

68%

75%

59%

% of Indirect Staff (Overhead)

45%

32%

25%

41%

Number of Aircraft

12

22

17

36

Ratio Technicians/Aircraft

7.3

3.8

4.1

2.1

13.3

5.6

5.5

3.5

Total Staffing in Technical Dept

Shift Optimization: Staff according to aircraft maintenance demand –

5.

OA2

Direct Staffing (Technicians)

Carefully manage maintenance yield of Line checks –

4.

OA1

Outstation Contracts:

Ratio Total Staffing/Aircraft

Pro-actively negotiate and establish on-call contracts for low traffic cities

7.

Insource Contracts: Become the dominant supplier of Line Maintenance services in your hub cities

Realizing the vision together Source: InterVISTAS Knowledge Base


Extensive MRO specific data, processes Maintenance Spend, 2007 USD Billions

60.0 Africa Asia / Pacific

50.0

Latin America Europe & Mid East

40.0

US & Canada

30.0

20.0

10.0

.0 1991

2,000,000

2001

2006

2011

2016

4,000

MD11 MD-90 EMB 170/175 A318/319/320/321 777-2/300 747-400 747-1/2/300

1,600,000 1,400,000

3,600 3,200 2,800

1,200,000

2,400

1,000,000

2,000

800,000

1,600

600,000

1,200

400,000

800

200,000

400

-

Total FTEs

1,800,000

Total MHs

1996

2007

2008

2009

2010

2011

2012

2013

2014

2015

29

Realizing the vision together


Significant cost reduction and productivity improvement

THE NEED • Extensive participation including 120+ management and mobilization days including 3500+ Turkish Technic staff • Diagnostic Assessment, Benchmarking, Design of Processes, Organization, Job Specifications, Performance Measures recommendations implemented with successful results • Customer Service processes and organisation • Development of Long term maintenance plan

• Supply Chain is driven by material forecasts as defined in long term maintenance plan rather than previous years usage • Acceptance of accountability by Body, Engine Shop, Component Shops to develop their own short term production plans with delivery accountability • Engineering spending more time at the shop floor, with engineers gaining practical experience and contributing their engineering knowledge • Increased productivity Turkish Technic is supporting 100 aircraft with the same workforce (20+ Aircraft) and with significantly increased third party revenues • Implementation of performance measures

THE RESULT

Lead Consultant:

Improved engine TAT Widebody improved utilisation Narrowbody improved utilisation Volume discounts Labour productivity

$XM

Improved engine TAT Widebody improved utilisation Narrowbody improved utilisation Volume discounts Labour productivity

Dr. Emre Serpen 30

Realizing the vision together


Cargo Revenue Growth, Belly and Freighter Revenue Improvement and Cost Reduction

31

Realizing the vision together


Improving cargo profitability

CGK-HKG (V.V.) by A330 Freighter

2012

Total Operating Revenues Scheduled Full Freighter Revenue Cargo Charter Revenue Other Revenue Passenger (belly) Revenue Total Revenue CGK-HKG (V.V.)

4.009.805 4.009.805

2013

2014

2015

2016

6.879.467 4.121.705 11.001.173

6.879.467 4.233.606 11.113.073

10.319.201 4.345.506 14.664.707

10.319.201 4.469.619 14.788.820

4.872.671 487.267 584.721 1.533.989 63.916 608.920 93.054

7.309.006 730.901 877.081 2.300.983 95.874 913.379 139.581

7.309.006 730.901 877.081 2.300.983 95.874 913.379 139.581

Direct Operating Cost (including Ownership) Fuel Cockpit Crew Maintenance Depreciation Insurrance ATC/LDG charges Sales Commision

-

4.872.671 487.267 584.721 1.533.989 63.916 608.920 93.054

Total Direct Operating Cost Total Indirect Operating Cost Total Full Freighter Operating Cost

-

6.553.578 1.690.959 8.244.537

6.553.578 1.690.959 8.244.537

9.830.367 2.536.438 12.366.805

9.830.367 2.536.438 12.366.805

Charter Operating Cost Passenger (belly) Operating Cost

0 5.371.896

0 5.525.471

0 5.679.046

0 5.832.622

0 6.002.598

Total Operating Cost CGK-HKG (V.V.)

5.371.896

13.770.008

13.923.583

18.199.427

18.369.403

-1.362.090

-2.768.835

-2.810.510

-3.534.720

-3.580.583

-34%

-25% -19,8%

-25% -19,8%

-24% -19,8%

-24% -19,8%

Profit (Loss US$) Profit Margin Profit Margin Freighter

32

Realizing the vision together


Proprietary analysis tools Example: Project Approach Example: Route Analysis

Example: Freighter and Belly Business Plan SAR (Millions)

2006 Baseline

2007 Year 1

2008 Year 2

2009 Year 3

2010 Year 4

2011 Year 5

2012 Year 6

2013 Year 7

Total Operating Revenues (Net) Total Cargo Scheduled Revenue

Example: Diagnostic Analysis

488

569

622

749

799

844

880

918

8

15

15

15

15

15

15

15

49

49

49

49

49

49

49

49

544

633

685

813

863

907

944

981

30 51 47 7 12 56 2 7 6

38 142 100 4 13 55 2 5 11

47 181 124 6 16 65 3 5 11

57 220 147 7 19 75 3 6 11

59 227 153 7 19 79 3 6 11

60 233 157 7 20 81 3 6 11

61 237 160 7 20 82 3 6 11

62 240 162 7 21 84 3 7 11

Total Aircraft & Other Lease Costs

218

370

458

544

564

580

589

598

Total Indirect Operating Costs

307

269

282

306

306

312

313

312 910

Cargo Charter Revenue Other Revenue Total Revenue Aircraft & Other Lease Costs (Incl. Ownership) Flight Crew Employment Cost Fuel Direct Maintenance Landing Fees Overflight Aircraft, Engines & Components Depreciation Insurance Passenger Operating Costs Charter Operating Costs

Total Operating Costs Profit (Loss) Profit Margin

Example for illustration 525

639

740

850

870

892

901

19

-6

-55

-37

-8

15

42

71

4%

-1%

-8%

-5%

-1%

2%

4%

7%

-26 8,173 517 63,649 8.6

-26 9,623 596 70,161 9.0

-34 11,859 734 77,818 8.8

-38 13,757 884 92,531 8.8

-40 14,073 905 98,483 8.8

-42 14,454 919 105,357 8.6

-42 14,454 922 109,794 8.6

-42 14,454 926 114,426 8.6

-6.0 76.9% 1.05 0.42 1.02 66,613 26,705 64,272

-7.1 64.5% 1.06 0.62 1.07 65,776 38,497 66,431

-6.7 55.4% 0.93 0.62 1.01 57,786 38,640 62,444

-7.0 58.5% 0.92 0.62 0.96 59,065 39,566 61,786

-6.8 59.4% 0.95 0.62 0.96 61,304 40,075 61,854

-6.6 62.0% 0.99 0.63 0.97 62,771 40,133 61,699

-6.6 64.6% 1.02 0.64 0.98 65,279 40,736 62,370

-6.6 67.3% 1.06 0.65 0.98 67,896 41,349 62,969

Operating Metrics Freighter Fleet at Year-End 12/31 Total Weekly Departures (both directions) Total Block Hours Total Available Ton Kilometers (Millions) Total Cargo Carried (000s) Average Rate per Kilogram Comparative Metrics Average Daily Utilization (Block Hours) Average Block Hours per Flight System Load Factor (Belly/Freighter Combi) Total Operating Revenues per ATK Total Direct Operating Costs per ATK Total Operating Costs per ATK Total Operating Revenues per Block Hour Total Direct Operating Costs per Block Hour Total Operating Costs per Block Hour

33

Realizing the vision together


Our Airline Practice Lines are Focused on Airline Strategy & Airline Performance Improveme nt Strategy and Finance

Performance Improvement

Strategy – Develop strategy, feasibility studies and

Commercial Improvement – Airline Revenue

business planning

Improvement

‒ Market Forecasting (Airline, Airport, MRO, Cargo)

‒ Pricing and Revenue Management

‒ Start up Airline and MRO feasibility and business plan ‒ Mergers and acquisitions planning ‒ Product strategy

‒ Marketing, Sales and Distribution ‒ Technology solutions supporting revenue growth ‒ Product, Customer Service, CRM

Network and Fleet Planning – Develop and

Operations Improvement – Airline Productivity

optimise airline network and route plans

Improvement and Cost Reduction

‒ Route Planning and Schedule Development, Alliances

‒ Diagnostic and Cost reduction

‒ Hub design and optimization, slot remarketing ‒ Fleet planning , Aircraft leasing and remarketing

‒ MRO productivity improvement ‒ Crew Resource Management

Financial Services – Evaluate airline investment

‒ Integrated Operations Control

opportunities

Restructuring & Change Management – Airline

‒ Due diligence (Airline, Airport, MRO, Cargo, GH) ‒ Privatization and spin-off and financing of Airline, MRO, Pilot School, GH, Cargo

Transformation and Turnaround ‒ Restructuring (Airline, MRO, Cargo, Aerospace) ‒ Start up Implementation

IT Strategy – Assess IT strategy and infra-

‒ Performance management

structure

‒ Organisation improvement and change management.

‒ Information systems and corporate data warehouse ‒ Passenger service systems and distribution

IT Implementation – Project Management ‒ IT project management, Systems Integration ‒ Supplier negotiation and implementation management

34

Realizing the vision together


Delivering financial improvements through revenue growth and cost reduction for 70+ airlines Dr. Emre Serpen

Turkish Airlines

South African Airways

Temasek (SQ)

 Market evaluation, capacity assessment, SWOT analysis  2016 and 2012 network design, hub design, and schedule  Business plan associated with the strategy

 Marker assessment  Strategy for maximizing share in Africa  Selection of hub locations in west and central Africa  Network design and fleet plan  Business plan

 SWOT analysis of Singapore Airlines  Market forecasting  Identify growth opportunities  Develop strategy for medium and long haul network and fleet

Lead Consultant: Dr. Emre Serpen

Executive Vice President, Head of Airline Practice • 20+ years, 70+ airlines in 50+ countries

Lead Consultant: Dr. Emre Serpen

Lead Consultant: Dr. Emre Serpen

Malaysian Airlines

EgyptAir

LOT Polish Airlines

 Evaluated the feasibility of a premium service in conjunction with another airline  Market Forecasting  Route Design  Commercial Workshops  Joint Venture/Codeshare Benefits

 Company-wide strategy and turnaround  Development of network, Cairo hub, and schedules  Improvements in sales, marketing, organization, IT  Fleet & Business Plan

 Multiple network optimisation projects  Alliance strategy analysis and decision for LOT to joined Star Alliance  Develop Asian strategy and network for LOT  Evaluate joint venture with Indian partner

Lead Consultant: Dr. Emre Serpen

Lead Consultant: Dr. Emre Serpen

Lead Consultant: Dr. Emre Serpen

Realizing the vision together


Our delivery team include experts from leading airlines and aviation consultancies worldwide

Realizing the vision together


Thank You Please contact Emre Serpen for queries eserpen@intervistas.com

+447944163891

Commercial and Operational Planning for Revenue Growth and Cost Reduction  

Presented by Emre Serpen at the Regional Aviation of Russia and CIS 2013 Conference in Moscow, Russia on October 16 & 17, 2013.

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