Managing Airline Networks

Design, Integration and Innovative Technologies

Markus Franke

• Publisher: Routledge
• Year: 2020
• ISBN:
  9781000336122
• Edition: 1
• Topic: Technologie et ingénierie
• Subtopic: Aviation

Managing Airline Networks: Design, Integration and Innovative Technologies is a fully comprehensive description of state-of-the-art network management practices at airlines. Designed as a compendium on current practices and future trends in the field, the book offers an instructive guide through the complex world of non-linear production systems.

Written by a renowned consultant and aviation expert, the book discusses the impact of network management on airline resource planning and performance, and examines the interplay between network management and adjacent functions. The book includes a practical case study and is enriched with academic perspectives. Discussing upcoming trends in the sector, the book provides an outlook on advanced technologies that may play a role in next-generation network management.

Features include:

• 
  
  

• a description of basic network types, performance indicators for profitable networks, efficient processes and success factors for network management, and common optimisation models and tools;
• descriptive overviews, supported by practical examples, and leading to a deep-dive case study;
• a section on trends in network management, outlining new demand forecasting models, 'big data' applications, machine learning and AI use cases, and alternative optimisation models for airlines.

Managing Airline Networks: Design, Integration and Innovative Technologies is designed as a comprehensive compendium and is essential reading for both aviation practitioners and students of airline management.

Part I

State-of-the-art network management at airlines

The first part of this book draws a picture of current network management practices as they are executed today at leading airlines. The description includes chapters on network types, success factors and profit calculation schemes, related processes (from long-term to short-term) and optimisation models (including dedicated tools). Furthermore, the impact of network decisions on the commercial results and operational stability of an airline is discussed, and a simplified case study on typical network planning scenarios is provided.

1Introduction

1.1 Definition of networks

In technical terms, the term ‘network’ refers to a physical (tangible) or virtual (intangible) structure consisting of ‘nodes’ and ‘edges’. Examples of purely physical networks are computer LAN structures, utility networks (for power supply), railway systems and traditional landline telecommunication infrastructure; purely intangible networks are, for instance, private and professional relationships.

There are also hybrid networks, such as mobile telecommunication and air transportation systems. In both cases, the ‘node’ is a physical infrastructure (a transmitting station or a mobile phone, an airport), while the ‘edge’ represents a virtual connection between two nodes.

This book deals with air transportation networks. Networks are a core production factor of airlines, accounting for the majority of all revenues and costs generated in the course of airborne transportation.¹ There are various assets and resources needed to operate the network, such as aircraft, crews, airports and airspace for airlines. There are two characteristic aspects of a transportation network:

•the production model within the network is non-linear; and

•the involved assets and resources are highly interdependent.

Thus, a meaningful definition of a transportation network could be the following:

The non-linear interplay of interdependent assets and resources to move passengers or cargo from various origins to various destinations.²

Linear production models, such as car manufacturing, can be broken down into single, sequential production processes or value chains: raw materials are transformed step by step into intermediate products, and, ultimately, into finished products. At a certain stage of development, the amount of raw materials cannot be changed, nor can the sequence of the value-adding steps. On a higher level, there are in any case network-like structures (e.g., various production plants in different geographies), providing the management with different options for where and when to allocate resources to generate the desired output. At the ‘atomic’ level, however, there are no choices once the production technology and process have been determined.

1.2 Non-linear production models

This is clearly different in non-linear production models. The smallest conceivable transportation system would be the connection between two points (for airlines: two airports, one route). Even in this embryonic ‘network’, the management would have a variety of non-trivial options as to how to allocate resources:

•the number of services offered per day/week/month (‘frequency’);

•the timing of services offered;

•the size/seat capacity of aircraft;

•the seat configuration within aircraft (cabin classes); and

•the service components offered on board and on the ground.

These options are, on the one hand, positive, since they allow adjustments to concrete market environments and customer needs. On the other hand, this variety comes at a price, since it creates planning complexity.

Another complication is caused by the permanent real-time effect of competition on the production process of an airline. While a car manufacturer will realise the effect of competing products no earlier than its cars are finished and offered in the market (not during the production process), transportation companies – and particularly airlines – experience a permanent interaction between their own production process and those of other airlines. For instance, if a competitor decides to depart 15 minutes earlier on a certain route, and deploys a different aircraft (smaller or larger), this may alter the production model of an airline on that route from initially efficient to inefficient – without any internal change.

Adding just one single node to the above-mentioned embryonic network of two nodes increases the inherent complexity, since it adds more options – not to speak about dozens or even hundreds of nodes as offered by major airlines. As a tendency, the number of dimensions to be tackled in a production plan shows at least parabolic growth with the number of nodes, since the number of potential routes r in a network can be calculated as r = n ∙ (n–1) / 2 (with n being the number of nodes). In practice, the correlation can even be exponential, since there are many more influencing parameters than just the number of nodes.

Network-like structures exist in many industries, as well as in private domains – including the current mega-trend of social media networks. What are the characteristics of airline networks? There are many definitions, but the constituting element of all transportation structures, including airline networks, is the interdependence between core resources. Consequently, these resources cannot be planned separately, but in conjunction with related resources, which causes complexity.³

The complexity is also impacted by the business model chosen by a certain airline, however. For low-cost carriers (LCCs), for instance, the parabolic correlation between number of nodes and number of routes is fully valid, since this model relies on simple point-to-point (P2P) connections. The interdependence of assets and resources is limited, though, since low-cost carriers try to avoid situations in which one aircraft rotation depends on another one. In total, the complexity inherent in the network of low-cost carriers is lower than that to be mastered by hub and spoke airlines.

In the business model of the latter, nodes are not all equal: one central airport, the so-called hub, is specifically designed to cumulate demand and feed all other nodes (referred to as ‘spoke airports’ or ‘outstations’). Consequently, hub and spoke carriers are able to cover n nodes with only n–1 routes, which establishes a much simpler (i.e., linear) correlation than in the case of the point-to-point network. On the other hand, the reduced complexity through a lower number of routes is replaced by the increased complexity within the hub, whereby the resources are highly interdependent (the impact of the chosen business model will be detailed in Chapter 2).

1.3 Definition of network management

In essence, non-linear production models entail significant complexity, driven by the fast growth of dimensions, and the interdependence of assets and resources. This leads to a highly complex mathematical and operational optimisation problem. Since there is no fully integrated mathematical solution for this problem so far, airlines apply a sequence of stepwise-designed paradigms and planning algorithms to ensure appropriate fleet structures, attractive route patterns, competitive service levels and efficient airport operations.⁴ In addition, network scenarios will be compared and refined until the network contribution appears to be optimal.

Since there is not a single ideal network design, the scenario evaluation needs to take into account the specifics of each airline, such as the regulatory framework, home market and shareholder structure. Potential conflicts between short-term and long-term objectives have to be carefully managed. Shareholders and managers will definitely aim for sustainable profits, but also for satisfied travellers, attractive jobs and ecological sustainability. Considerable regulation, as well as structural overcapacity in the markets, reduces the leeway in this exercise and imposes an additional burden on airline managers.

Concluding this chapter, the following definition of network management addresses all relevant aspects:

The allocation of scarce, interdependent resources to a complex transportation process under uncertainty.⁵

The following chapters will build on this definition. In particular, the three concepts ‘interdependence’, ‘complexity’ and ‘uncertainty’ are fundamental and indispensable for an understanding of airline network management.

1.4 Value of network management for airlines

Before airlines are able to offer any kind of air transport services to their clients, they need to foresee upcoming demand for airborne mobility, and define a certain number of flights on specific routes they intend to operate. As stated earlier in this chapter, one of...