Commercial Management of an Airline Introduction lesson

Estonian Air Sven Kukemelk Network Planning Manager Tartu, 14. September, 2012

Table of Contents

Introduction to course work Course build up Basics of Airline Business Commercial Management Network planning Sales and charters Marketing and development

Introduction to the course

There are 4 classes and oral examination All of the materials are uploaded to the moodle Homework will provide 50% (12,5% each homework) Exam will provide 50% of the mark To get to the exam one has to have at least 50% of homework points

First homework

Analyse the Airbus Global Market Forecast about growth in and write an essay about it Essay has to have at least 600 words and student has to demonstrate to think and analyze critically. Bring out constructive points and recognize methods used with critical approach to the methods Deadline is 28 September 23.59

Late homeworks will not be accepted!

In second class one has to defend his/her essay in front of a class!

Course build up

Commercial Management, Network Planning and Fleet Management (development) Revenue Management and cooperation methods amongst airlines. Trends in Baltic aviation market Sales and Marketing of various airlines. Examples of marekting and sales tricks and comparison of various airlines.

Trends in European aviation and introduction of various literature sources. Analyzing the news

Basics of Airline business

There are usually 3 divisions: Commercial, Operational and Financial Each division is indispensable President is the clue holding it all together All major airlines have common structure

Introduction to the Network Planning

To survive is to adapt to the constant changing of the business As passengers habits and structure changes, you ned to change flights, times and connections First step for sucess is thural analysis of a route

Basics of Network and Fleet planning

Difference between network carriers, regional carriers and LCCs What is best p2p product?

Who is your customer?

How long plans you have? (1 year, 3 years, 5 years, 10 years? More?) Difference between corporate planning, network planning and network performance Basis for an profitable airline comes from accurate planning

Example

You have a flight on route Tallinn-Vilnius-Amsterdam Tallinn-Vilnius is 533 km, Tallinn-Amsterdam is 1476 km and Vilnius-Amsterdam is 1382 km TLL-AMS 57 pax, TLL-VNO 4 pax, VNO-AMS 61 pax Find load factor for each segment and whole routing Find cabin factor for each segment and whole routing Is multi-leg flight a good thing?!

Alternative methods for route planning

Most commen way for route analysis is taking passenger numbers from MIDT(marketing information data tapes) databases However if you want to open up a route with no previous service, big surface leakage, cultural constraints dissapeared, etc then you have no adequate information Asess the surface leakage Use gravity module Consider difference between online and offline products

Surface leakage

In aviation surface leakage is a phenomen where passengers use alternative airports or alternative transport modes than would be most useful or common For example people from Tallinn take a bus to Riga to fly from Riga to London, in stead of taking a direct flight from Tallinn There can be many reasons for that. Main reasons are: price, schedule, trust (AY-FV), agreements (Georgia-Russia) etc Analyse what can be done to improve the situation

Analyses of transfer traffic

If passengers have multiple ways of getting to the destination then based on analyses they will choose proportionally to the connections offered There is also however the case of market presence, pricing and connection time Some cases people just avoid big hubs for connecting (CDG, LHR, ORD, SVO etc)

Cooperation evaluation

If an airline starts operating a new route (TLL-IST) then Turkish carrier will be more sucessful in Turkish side to attract passengers, Estonian carrier how ever in Estonian side If operators agree to code share, both get better product for p2p passengers and therefore reduce competitors advantages who trasnfer via hubs However partner’s flights might not connect into your or his network The solution between 2 carriers is something that increases new banks and puts irregularities in the schedule

Business Case composition

Management does not want problems!

They need solutions which have been analysed When composing presentation and business case make it simple and appealing You have to believe in the case to be able to sell it Know what you want as an outcome and work your way towards it

Conclusion of network planning

If a route is planned then miscalculations cost extremely much and are not tolerated One small number can change whole scenario outcome Never trust the data and challenge it by calibrating the data based on all the information available to you

What makes a flight profitable

Load factor shows nothing about profitability If 1 person pays for whole flight you don’t need more If all passengers are willing to pay very little, you can still be in minuses If priced normally, traditional airline’s route will become profitable with 70% load factor If priced normally LCC’s route will become profitable with 90% load factor

Conclusion

Airline business is the least profitable area of aviation Airline business is most glamorous part of the aviation sector There will allways be dumping and cross subsidies