Modeling Applications in the Airline Industry

Ahmed Abdelghany, Khaled Abdelghany

• Publisher: Routledge
• Year: 2016
• ISBN:
  9781317094890
• Edition: 1
• Topic: Negocios y empresa
• Subtopic: Industria del transporte

Modeling Applications in the Airline Industry explains the different functions and tactics performed by airlines during their planning and operation phases. Each function receives a full explanation of the challenges it brings and a solution methodology is presented, supported by numerical illustrative examples wherever possible. The book also highlights the main limitations of current practice and provides a brief description of future work related to each function. The authors have filtered the rich literature of airline management to include only the research that has actually been adopted by the airlines, giving a genuinely accurate representation of real airline management and its continuing development of solution methodologies. The book consists of 20 chapters divided into 4 sections: - Demand Modeling and Forecasting - Scheduling of Resources - Revenue Management - Irregular Operations Management. The book will be a valuable source or a handbook for individuals seeking a career in airline management. Written by experts with significant working experience within the industry, it offers readers insights to the real practice of operations modelling. In particular the book makes accessible the complexities of the key airline functions and explains the interrelation between them.

Chapter 1
Introduction to Airline Management

Introduction

Aviation provides the only transportation network across the globe and it is crucial for global business development and tourism enrichment. Air transportation is one of the most important services to offer both significant social and economic benefits. By serving tourism and trade, it contributes to economic growth. It also provides jobs and increases tax revenues. Air transportation is essential for the fast movement of people and cargo shipments around the world. Finally, air transportation improves the quality of people’s lives by broadening their leisure and cultural experiences. It gives a broad choice of holiday destinations around the world and is an affordable means to visit distant friends and relatives (ATAG 2005).

The use of commercial aviation has grown significantly over the last few decades, estimated to be more than seventy-fold since the first jet airliner flew in 1949 (ATAG 2005). This rapid growth is attributed to a number of factors. First, rising disposable income and quality of life in many parts of the world have encouraged more people in these areas to travel and explore opportunities overseas. Second, deregulation of aviation laws, and bilateral and open-sky agreements between governments have opened new markets for airlines, which make travel easier and cheaper. Third, demand is increasing because of growing confidence in aviation as a safe mode of travel. Fourth, increased efficiency and increasing competition have reduced world airfares and the cost of travel. Finally, globalization has increased the average distance traveled, as people do business in countries which now have improved political and social environments. The impact of these factors is expected to continue, however, at different levels in different parts of the world. The number of air travelers and the volume of air cargo is expected to continue to grow, increasing the pressure on all the contributors to the air transportation service to take advantage of opportunities and efficiently manage their service.

A major player in the air transportation industry is the airline. Current records indicate that there are more than 900 commercial airlines around the world, with a total fleet of nearly 22,000 aircraft (ICAO 2006). Commercial airlines serve nearly 1,670 airports through a route network of several million kilometers. These airlines transport close to 2 billion passengers annually and 40 percent of interregional exports of goods (by value). Also, an estimated 2.1 million people are employed by airline or handling agents: for example, as flight crew, check-in staff, and maintenance crew (ICAO 2006). Airline services are categorized as being intercontinental, continental, regional, or domestic, and may be operated as scheduled services or charters. In terms of size, airlines vary from those with a single airplane carrying mail or cargo, through full-service international airlines operating many hundreds of airplanes. In many parts of the world, airlines are government-owned or supported. In recent decades, however, the trend has been to move toward independent, commercial public companies by giving more freedom to non-government ownership of airlines.

The increasing number of commercial airline companies has put more pressure on their management to continually seek profits, reduce cost, and increase revenues. Increasing demand for air transportation service has compelled airline management to take advantage of opportunities in different markets. At the same time, increasing competition among airlines necessitates that airline management seek efficiency in all their decisions to promote their profit. It is no surprise that many airlines throughout aviation history have been unable to remain in business, and in most cases, it is agreed that the demise of these airlines has been attributable to deficient management.

Airline management practice has evolved significantly over the past three decades. The development of this practice has contributed to recent advances in computation and communication technologies and, more importantly, the need to reduce costs and increase revenues. Nowadays airlines seek to perform efficiently in a competitive environment that only provides marginal profits. The airline business is characterized as being one of the most complex, involving multiple conflicting decisions that all need to be optimized at the same time. Several tactics have been developed and used to better plan and operate airlines. These tactics bank on scientific approaches available in operations research and mathematics literature to optimize airlines’ decision-making processes, and are usually modeled within computerized systems that can automate decision making. Therefore, these scientifically-based tactics promise an easier decision-making practice for the airlines. The need for these tactics becomes more crucial as the size of the airline increases, and making decisions based on individuals’ judgment or experience becomes more difficult. The next section highlights the main challenges of airline management that elaborate the complexity of the airline decision-making process.

Challenges of Airline Management

Impact of Other Players in the Industry

Airline management does not work independently of other players in the air transportation industry. Indeed, the decisions of airline management are very much affected by these other players. Figure 1.1 depicts the different entities that interact with airline management and affect decisions concerning government, airports, customers, alliances, suppliers, unions, and competitors.

Figure 1.1 The different players in the air transportation industry

First, airline management must comply with the regulations of the airline’s home country. It must also take into consideration and comply with the regulations of the governments of the countries where the airlines fly to and from, and whose airspace they cross. Governments typically watch competition between airlines and control airlines’ strategic decisions, such as merging, acquisition between carriers, market entry or exit and pricing, environmental regulations, security regulations, maintenance, and safety requirements. Second, airline management should carefully consider the terms of their agreements with the different airports they serve. Several factors affect these agreements, including available infrastructure (gates, runways, baggage handling, and so on), expected traffic, airport charges and incentives, competition from nearby airports, available landing slots, congestion, and operational curfews. Third, an airline should consider the needs and preferences of its potential customers, the travelers. For instance, the airline should consider schedule convenience, competitive fares, onboard services, punctuality, and efficient customer service. Failing to fulfill the needs and preferences of customers might lead to losing them to other competing carriers or other modes of transportation. Fourth, in many cases, an airline participates in one or more alliances to expand its network coverage or share resources with other airlines. Several forms of alliance are available that reflect the level of cooperation between participating airlines. It is important for an airline to decide which alliance to participate in and how to share its resources efficiently with each member in the alliance to promote profitability. Typically, the airline has to maintain a certain level of operating standards to serve within a worldwide alliance.

Fifth, suppliers are crucial to the continuation of the airline’s operation. Airlines depend on suppliers to provide important items such as aircraft, fuel, spare parts, meals, employee uniforms, and so on. Also, in many cases, airlines outsource to vendors some of their jobs and services, such as aircraft maintenance, aircraft cleaning, ground handling, and sales. Therefore, an airline has to keep healthy relationships with its suppliers to continue operating successfully. Another entity in the air transportation industry that an airline has to deal with is unions. Different groups of workers form unions to achieve stronger negotiation power with airline management in terms of salary, benefits, or working rules. Keeping a good relation with labor in order to guarantee smooth operation of the business is one of the main objectives of airline management. Conflicts with unions might typically lead to negative actions by the unions, such as work slowdown or strikes, which usually impair the airline’s operation significantly. Finally, in most markets, there is tough competition between several airlines. Typically, airlines continuously monitor the decisions of their competitors that relate to providing capacity, fare levels, fare restrictions, and departure times. In many situations, the decisions of the competing airlines proceed in a leader-follower pattern, where one airline takes an action and the other competing airlines try to find the best way to respond to this action.

Interacting Layers of Decisions

Like many other businesses, airlines management faces three levels of interacting decisions. These levels, as shown in Figure 1.2, include strategic, planning, and operations decisions. Strategic decisions typically require a long lead time before implementation and require a considerable monetary investment. They are also expected to have a significant impact on the form of the airline in the long term. Examples of strategic decisions include growth and expansion, fleet sizing (aircraft orders), hub locations, merging with other airlines, alliance participation, and location of maintenance facilities. Planning decisions are within a few months horizon, and can be defined as the process of efficiently using airline’s available resources to maximize its revenue. The resources available to an airline include the facilities and the personnel that operate the business, including, for example, aircraft in different fleets, pilots with different qualifications, flight attendants, maintenance facilities, mechanics, gates, customer service agents, and ramp agents. The planning decisions include forecasting the demand between every origin-destination (OD), flight schedule development, assignment of flights to the different aircraft fleet (if the airline has more than one fleet type), aircraft routing across the different airports’ with its maintenance consideration, planning the line of flight for pilots and cabin crew, crew accommodations, flight-gate assignment, and catering. Other planning decisions include the number of staff required to operate flights at different airports including customer service, ramp agents, baggage handlers, and so on. They also include decisions regarding fare levels in each OD market, fare restrictions, and seat inventory control for each flight. It should be mentioned here that these planning decisions are very dependent on each other, which makes the planning process complex.

The operations decisions for the airlines are those decisions that need to be verified or updated on an hourly or maximally on a daily basis. They include, for example, the response to unanticipated incidents such as adverse weather conditions, flights delays and cancellations, aircraft breakdown, and absence of crew or staff due to illness. Operations decisions also include watching revenues, bookings, and anticipated demand levels in the different markets, matching prices with competitors, and managing seat inventory on each flight on a daily basis.

Figure 1.2 Decision levels of airline management

Strategic decisions are expected to impact on planning decisions, which, in turn, affect the operations decisions. In addition, there is a reverse feedback from the operations phase to the planning phase, which also, in turn, may provide feedback to the strategic decisions phase. For example, the observation of a frequent delay of a certain flight waiting for its inbound aircraft might alert schedule planning to alter the schedule of this flight to give enough connection time for its inbound aircraft. Also, strong demand forecasting in markets might call for a change in the strategic plan regarding expansion and increase of fleet size. As explained in the next section, this book covers in detail the tactics currently practiced by airline management for the planning and operations phase. Strategic decisions are considered to be beyond the scope of this book.

Surrounding Events

The air transportation industry is characterized by the effects of rapid and significant impacts from surrounding events and economic and social changes. The negative impact on air transportation of factors such as wars, civil unrest, terrorist actions, increasing fuel prices, and epidemics has been clearly observed in several areas across the world. These events necessitate that airline management respond quickly and efficiently to study the impact of these events and take actions to alleviate their impact. To survive in business, in many situations, airlines may be forced to cut schedules, reduce fares, lay off employees, and cut salaries and benefits. For example, Figure 1.3 shows impacts on passenger demand, revenue, average fare, and average yield (revenue per seat mile) for airlines in the domestic US markets following the September 11, 2001 (9/11) terrorist attack. It is clear that these four measures were affected significantly because of this event. At that time, most domestic airlines considered significant actions such as cutting capacity, lowering fares, and discharging employees to respond to these market changes.

Figure 1.3 Changes in the main market characteristics due to the 9/11 terrorist attack in the domestic US market

Many Groups to Contribute

Another challenge of airline operations is the interaction process among several groups of workers who work together to operate the flights. The product that an airline generates is a passenger seat or a space for cargo. This passenger seat or cargo space is typically a part of a flight that connects between two airports. The number of flights that an airline operates depends on the size of the airline. For large air carriers, the number of flights reaches a few hundred flights a day. Operating each flight requires significant cooperation among several groups of workers who all share the same objective of making the flight ready for departure on time. There are about 12 different groups who work on each flight before its departure. These groups include pilots (cockpit crew), flight attendants (cabin crew), maintenance crew, ramp agents, baggage-handling crew, cargo agents, fueling agents, customer service agents, gate agents, catering agents, aircraft cleaning agents, and operations agents or dispatchers. While the personnel in these groups differ in their qualifications, nature of work, workloads, and salary, they are all equally important for the departure of the flight. It is important for airline management to adequately set the work plan for each group, facilitate their work, and alleviate any possible conflict between them.

A pilot is a certified person who flies the aircraft of a certain aircraft fleet. Typically, each type of aircraft requires a certain number of pilots with certain specified qualifications. Flight attendants are airline staff employed primarily for the safety of passengers onboard. Their secondary function is the care and comfort of the passengers. The maintenance crew (maintenance) is responsible for servicing and repairing the aircraft to make sure that it is operational. Typically, maintenance performs several pre-specified mandatory service checks on the aircraft before departure, as specified by the manufacturers. Maintenance also performs several scheduled service checks on each aircraft in operation. Ramp agents help guide the aircraft to taxi in, park, and taxi out at the gate. Baggage handlers and cargo agents transport, load, and unload baggage and other cargo to and from the aircraft. Fueling agents provide fuel to the aircraft before departure or at intermediate stops in the flight. Customer service agents assist passengers with check-in, seat assignments, seat upgrades, and itinerary changes. Gate agents ensure that only authorized persons and passengers have access to the aircraft. Catering agents provide meals and beverages to be consumed on the flight. Aircraft cleaning agents clean the aircraft and the lavatories. The operations’ agent or dispatcher coordinates the flight plan, weight, fuel requirements, and any weather-related or operations delays that are issued to the flight.

Airline Planning and Operations

As mentioned earlier, t...