Most of us follow new route announcements, and the more outlandish they seem, the more they spark our curiosity. Two recent examples include Bamboo Airways announcing Prague as its first long-haul destination from Hanoi and Kuwait Airways launching flights to Sarajevo, Bosnia (both routes are affected by COVID-19).
You may sometimes get the feeling those route decisions are made arbitrarily as if the airlines are randomly throwing darts at a world map. While there are cases where route decisions are made hastily, without much thought, usually they are made deliberately as part of a process called Network Planning.
What is Network Planning, and why do airlines do it?
The heart of an airline is its network, a collection of routes that the airline operates. An airline’s primary product is its schedule, not the seats, meals, or onboard amenities.
Passengers generally want to travel to and from specific points as efficiently and affordably as possible. Airlines try to match this passenger demand by offering a schedule that is both operationally feasible and profitable. Airlines forecast and measure the profitability of specific routes as well as the entire network as a whole.
Network Planning is an extensive, strategic process. For example, when evaluating new routes, the Network Planner must determine the following as part of their business case:
- What are the target markets for the new route?
- How many days per week should the route be served?
- At what time of day should a route be served?
- What type of aircraft should be used to serve the route?
- Who will be my main competitors?
- What costs and revenues do I expect when operating the route?
Airlines evaluate potential schedule changes such as new routes in the form of business cases, where a profitability figure is assigned to the schedule change. Analyzing the effect of a schedule, including its impact on the competition, is a complicated task.
As Network Planners get more advanced, they try to figure out how their key competitors will react to their schedule change and anticipate possible competitive reactions. They will also analyze the opportunity cost of deploying the aircraft to the new route under evaluation versus other opportunities in the airlines’ network. This means an already complex task is becoming even more complicated!
How software helps airlines to do Network Planning
Network Planning is a core business function and a critical success factor for every airline. If not done correctly, airlines can and will bleed a lot of money. It is not surprising that airlines in 2020 do not have to rely on throwing darts at maps when deciding about new routes. Most of the medium to large-sized airlines today use a Network Planning Tool to evaluate their business cases.
These range from simple homegrown tools with an underlying model that dates back to the 1960s (google Quality of Service Index if you are interested to learn more) to extremely powerful tools that utilize state of the art research and technologies (google Nested Logit models if you really want to deep dive into the topic). Lufthansa Systems’ NetLine/Plan is one example of such a powerful tool.
“For every complex problem, there is an answer that is clear, simple and wrong” H.L. Mencken.
Network Planning in 2020 is more complex than in the 1960s. There are still airlines relying on simplistic tools with an underlying methodology that dates back to a time when commercial aviation was heavily regulated and low-cost carriers or hubbing was virtually non-existent. One might wonder why these simplistic tools are still used. The answer is Expertise & Money.
Sophisticated Network Planning tools require investment, and in an industry, with razor-thin margins, this can be a challenge, especially when another simple tool costs a fraction and does the same thing. Or does it?
The answer is no. Sophisticated Network Planning Tools outperform the simple ones in speed, transparency, and, most importantly, forecasting accuracy. A state of the art Network Planning tool will equip the planner with the latest science to back up his or her business cases in the hypercompetitive and dynamic airline industry we see today.
A fool with a tool is still a fool…
Network Planning is both a science and an art. Planning tools such as NetLine/Plan should be operated by skilled people that understand the inner works of such a tool and also have an in-depth understanding of their airline, markets, and competitors.
Experienced Network Planners will have a good feel for the market behavior, but a Network Planning tool provides a valuable check against “gut-feel” Network Planning. The challenge for many airlines is finding, developing, and maintaining these highly skilled people. Even if an airline has the most powerful tool, it will deliver limited value if it does not have the right people using it.
Network Planners do it with Models
Advanced and straightforward Network Planning tools try to achieve the same thing: a forecast into the future. Planning tools incorporate historic supply (i.e., airline schedules) and demand data (i.e., booking data). Advanced tools use machine-learning algorithms to calibrate their underlying models based on historical data. This occurs in two essential components of a Network Planning tool – the Connection Builder and the Market Share Model.
The Connection Builder Model will forecast what, and how many, itineraries are available for a passenger to choose from on a given market in the future. The Connection Builder Model is calibrated on millions of historic passenger itineraries analyzing the parameters of reasonable and feasible connections that existed.
The Market Share Model will forecast the attractiveness of the different itineraries on a given market in the future. The Market Share Model is calibrated on millions of historic passenger itineraries analyzing relevant parameters such as airline preference, departure time, connect time, and detour factor.
Properly calibrated models are the foundation for any advanced Network Planning tool. They empower the Network Planner to analyze and scrutinize business cases, including testing various related scenarios.
Let’s assume a Network Planner is evaluating a business case for a new direct flight from Frankfurt (FRA) to Calgary (YYC) in Summer 2020.
With a tool like NetLine/Plan, he/she can determine and analyze:
- How many booking options are offered on the route being evaluated?
- How many direct and transfer connections are there?
- How large is the market and the average market turnover?
- What are the passengers’ preferred arrival and departure times?
- Do the preferred flight times fit into the hub system?
- Are there any codeshare partnership scenarios that should be considered?
- Who are my main competitors on the route?
- How many passengers and how much market share will I capture?
- What costs and revenues will this new flight generate?
Successful Network Planning
The network is the airline’s backbone, and changes to it can make or break the airline. Given these stakes, airlines should use a Network Planning tool to simulate and evaluate changes before actually implementing them. Airlines that use advanced tools and have skilled Network Planners have an advantage over their competitors.
They make better network decisions and avoid costly mistakes. While it is certainly possible to make the right decision by coincidence, sophisticated Network Planning should be based on the combination of Art and Science, using tools like Lufthansa Systems’ NetLine/Plan.