1

i li Airline Routes
& Network Management
Hisar M. Pasaribu
Aircraft Design, Operation and Maintenance Group
Faculty of Industrial Technology
Institut Teknologi Bandung
Airline Routes and Network
The Central Question
What network structure to operate and city-pairs to be served? p y p
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2
Airline Routes and Network
Demand is where the
passengers want to go ...
B H
Airline network is where the
airline flies ...
B H
E
D
C
A
B
F
G
H
E
D
C
A
B
F
G
H
SCHEDULE
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D
1 - 100
100 - 200
200 - 400
400 - 750
750 - 1200
Passenger Demand
D
ERJ 145
Boeing 737-500
Boeing 737-700
Boeing 767-200
Boeing 747-400
Aircraft Types
Airline Routes & Network Should Meet O-D Demand
True Origin and Destination
Demand
O & D Traffic can flow
via Many Paths
Australia - UK Market
Australia - UK Market
London
LA
Sydney
Bangkok
Singapore
Hongkong
London
Sydney
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Direct Flights (Point to point):
LON - SYD
Indirect Flights (One or more stops):
LON SIN SYD LON BKK SYD
LON HKG SYD LON LAX SYD
3
Airline Network Structure
LI NEAR NETWORK
A
D
C
B
Each point is connected by a route
Longer travel time since each point should be visited
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GRID NETWORK
Airline Network Structure
D
E
A
B
C
D
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B
Each point is connected by a direct route
Minimum travel time since no transit is necessary
4
HUB AND SPOKE NETWORK
Airline Network Structure
Spoke
Spoke
Hub
Spoke
Spoke
Spoke
Spoke
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A point acts as a hub to connect surrounding points (spokes)
The number of city-pairs is increased by permutation
Efficient use of fleets, but higher operational cost due to extra cost and
time at hubs
Spoke
Airline Network Structure
A F
B G
C H
I D
A
B
C
D
F
G
H
I
X
(hub)
No. of
Spokes
No. of Connected
Markets
No. of City Pairs
n

2
1 n n
2
1 n n
I D
J E
D
E
I
J
Linear Routes
(5 city pairs)
Routes via a Hub
(55 city pairs)
2 1 3
6 15 21
10 45 55
50 1225 1275
75 2775 2850
100 4950 5050
Source: Hanlon, Pat.
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5
Two Models of Airline Hubs
HOURGLASS HUBS HI NTERLAND HUBS
Flights are operated from one
geographical area to another
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geographical area to another
Usually in two directions, the
outbound flights and the return
flights, normally using the same
aircraft type
Short-haul flights feed the long-
haul flight
Through the hub, passengers are
distributed in multi-directions,
usually using different aircraft
types
Characteristics of a Hub
A central location
A large catchment area
Shortest possible walking distances
Large amount of slots and aircraft stands available at peak hours
No time wasted for security / passport control
The Ideal Hub Airport
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No transfer check-in necessary
Attractive environment and offers for passengers with longer waiting times
Instant adaptation to airline needs
And all that at lowest possible costs
6
Reasons for Hubbing
Market Demands Business Demands
Generating additional connections
Market demand vs. production view
Seamless Travel
Entrance to smaller market
segments
Cost effectiveness
Concentration of business and of
production factors
Economics of scale
Market dominance
Earning a price premium for
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attractive connections
Wave System
Connecting flight opportunities are created by building connect
banks at hub airports:
Scheduling the arrival of many individual flights from various origins during
a short period of time
After allowing a sufficient transit time for passengers and baggage to After allowing a sufficient transit time for passengers and baggage to
change airplanes, the flight departures are scheduled within a short period
to various destinations
The period of time between the arrival wave and the departure wave is
called the connecting window.
Outgoing
flights
Incoming
flights
Minimum Connecting Time (MCT)
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Time of day
flights
flights
Connecting Window
Arriving
Passengers
Departing
Passengers
Baggage
Transfer
7
Wave System: An Example
Amsterdam
Copenhagen
Athens
Vienna
Europe
Singapore Airlines (SQ) schedules at Changi Airport
SINGAPORE
Arrivals
1600-1800
Departures
2000-2130
Departures
2300-2345
Arrivals
2030-2130
Sydney
Aucland
Brisbane
Darwin
London
Paris
Rome
Zurich
Frankfurt
Berlin
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Perth
Melbourne
Adelaide
Sydney
Aucland
Christchurch
South West
Pacific
Network Management
The underlying principle of a network management is maximizing
airline profit through
optimization of O/ D revenue of the network, and
minimizingcost
Steps to follow:
minimizing cost
Strategy
Network &
Planning
Schedule
Mgt.
Pricing
Yield
Mgt.
Controlling
Budgeting
Markets Shell Size Feasibility Active Nesting Budget
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Tools
Data, Analysis, Research & Information Systems
Partners
Aircraft
Production
Platform
Hubs
Rotations
Change
Mgt. Reactive
Equipment
Change
Forecast
Actual
8
Pricing
What products, fares and restrictions for each O-D market?
Differential pricing by airlines is universal:
o Classes of service (First Business Coach) o Classes of service (First, Business, Coach)
o Different fare products within the coach cabin, with different
restrictions, at different prices
o Virtually every airline in the world offers multiple price points
(even low-fare carriers with simplified fare structures)
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Economic trade-off in pricing decisions:
o Stimulation of new demand; increased market share for airline
o Diversion of existing demand to lower fares; reduced revenues
o Recent pricing difficulties of network airlines due in part to greater
diversion of revenues than stimulation of demand
Network Analysis
Estimate total O/DTraffic.
Calculate Traffic based on Market Share and Routing
Quality
C l l i di id l F Sh
Quality Routing Share Capacity Total
Quality Routing Share Capacity
Share Market Estimated

Non-stop 1,10
1Stop(AsABasis) 100
Routing Quality
Calculate individual Frequency Share
Yes
Frequency share
=market share?
Estimate Load Factor
No
Change market share
Frequency Weekly Total
Frequency Weekly
Share Frequency
ASK
RPK

Distance Capacity Seat
Distance Passenger
SLF

1Stop(AsABasis) 1,00
2Stop 0,90
1StopWith1Connection 0,80
2StopWith1Connection 0,70
2StopWith2Connections 0,60
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Yes
Estimate Capacity Share based on utilized aircraft mix
Capacity share
=market share? No
No
Flight / Capacity Seat Frequency Weekly Total
Flight / Capacity Seat Frequency Weekly
Share Capacity

Profitability Analysis
ASK Distance Capacity Seat
ATK
RTK

Distance Capacity Payload
Distance Load
LF

9
Route Profitability Analysis
Opening a new route may not have an immediate impact on
profitability.
At first the new route may not be able to cover all costs incurred,
but has the growth potential that promise a profit in the future.
Therefore, an airline needs a tool that consider all components
and provides indicators for decision making.
The tool organizes cost components relating to route operation
in such a way that distinguishes the short term and long term
cost recovery goals
Hence, the tool can also be used for different purposes such as:
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1. Route evaluation
2. Aircraft selection
Introduce the Airline Cost
and Revenue structure
before proceeding to the
next slide
Route Profitability Tools
Contribution Margin 1
Profit indicator obtained from the difference between total route revenue
and direct traffic cost plus direct flight cost. Direct costs may also be called
as cost contribution 1 (CC 1)
CM 1 = Route revenue Direct traffic cost Direct flight cost
This indicator is useful for analyzing the efficiency of the route in short term
and become a decision basis for establishing the lowest fare level.
The costs included:
Direct traffic cost:
Cargo insurance, catering, board services, passenger fees, reservation,
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commission and other passenger related costs
Direct flight cost:
Fuel, landing fees, handling, ATC and navigation charges, legal insurance,
flight and cabin crew travel costs, flight and cabin crew variable costs,
variable maintenance cost
10
Route Profitability Tools
Contribution Margin 2
Profit indicator obtained from the difference between total route revenue
and direct cost (CC1) plus indirect costs. These costs may also be called as
cost contribution 2 (CC 2 = CC1 + indirect costs)
CM 2 = Route revenue (Direct cost +Indirect cost)
This indicator is useful for analyzing the efficiency of the route in medium
term and become a decision basis for changing the program in the route or
to find a new market goal.
The costs included:
Direct costs
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Indirect costs:
Fixed flight and cabin crew costs, flight and cabin crew training costs,
fixed maintenance
Route Profitability Tools
Contribution Margin 3
Profit indicator obtained from the difference between total route revenue
and cost contribution 2 (CC2) plus fleet costs. These costs may also be
called as cost contribution 3 (CC 3 =CC2 +fleet costs) called as cost contribution 3 (CC 3 CC2 + fleet costs)
CM 3 = Route revenue (Direct cost +Indirect cost + Fleet costs)
This indicator is useful for analyzing the efficiency of the route in long term
and become a decision basis for changing the whole route structure.
The costs included:
Direct costs
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Indirect costs
Fleet costs:
Cost of ownership, aircraft insurance
11
Route Profitability Tools
Route Result
Profit indicator obtained from the difference between total route revenue
and cost contribution 3 (CC3) plus overhead costs.
Route Result = Route revenue (Direct cost +Indirect cost +
Fleet costs + Overhead Cost)
This indicator indicates the total efficiency of the route.
The costs included:
Direct costs
Indirect costs
Fl t t
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Fleet costs
Overhead costs:
National sales organization costs, foreign sales organization costs, station
costs (passenger, cargo, aircraft), marketing and administration
500000
Network Analysis - Example
DemandAnalysis
Objectives
To analyze the performance of Garuda Indonesias European network utilizing
Dubai as a hub.
1
50,000
100,000
150,000
200,000
250,000
300,000
350,000
400,000
450,000
500,000
Demand Analysis
-
Spain 19,260 20,030 20,832 21,665 22,531
Austria 106,430 110,687 115,115 119,719 124,508
Scandinavia 109,600 113,984 118,543 123,285 128,216
Italy 155,550 161,772 168,243 174,973 181,971
France 291,357 303,011 315,132 327,737 340,846
Benelux 300,040 312,042 324,523 337,504 351,004
Germany 338,304 351,836 365,910 380,546 395,768
UK 371,520 386,381 401,836 417,909 434,626
03 04 05 06 07
Source: IATA and BPS
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1
Miranda V. A. Yusuf, Studi Dubai Sebagai Alternatif
Network Hub Indonesia-Eropa Pada Pembukaan Kembali
Rute Eropa Garuda Indonesia, Tugas Akhir S1, ITB, 2004
12
Annual Passengers
Origin-Destination
Cargo Volume
(kg)
Demand Analysis
Network Analysis - Example
Origin-Destination
2000 2001 2002 2003
CGK-DXB 21,608 23,831 36,760 45,018
DXB-CGK 23,107 25,082 39,962 49,389
(kg)
CGK-DXB 2,000
CGK-EUR 5,000
DXB-EUR 2,000
DXB-AMS 85,029 98,838 77,202 90,014
AMS-DXB 82,809 99,962 77,022 84,582
DPS-DXB 1,000
DPS-EUR 4,000
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Network Analysis - Example
O-D Geographical Analysis Distance in kilometers
9534
5,425
5,082
5,769
10,505
10,364
10,863
9,171
9,057
9,534
7,493
6,871
883
1,670
2,348
2,980
Singapore
Bangkok
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13
Network Analysis - Example
Constraints: Traffic Rights
Weekly Frequency
Destination
Point
Weekly Frequency
Aircraft Type
Third/Fourth
Freedom
Fifth
Freedom
AMS 14 14 Free
FRA 15 15 Free FRA 15 15 Free
LON 7 7 Free
DXB 16 3 Free
Source: Network Planning, Garuda Indonesia
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Network Analysis - Example
Route Weekly Frequency
Total
Freq
Estimated
Share(%)
CGK-DXB
(ORDXB-CGK)
GA EK GF I Y SQ
23
7 7 7 2 7 30
DPS-DXB
GA BI MH
58
Source: OAG Travel Planner
Frequency Share
(ORDXB-DPS)
58
7 2 3 12
CGK-LON
(ORLON-CGK)
GA BA CA CX GF MH SQ
16
7 7 2 7 7 7 7 44
DPS-LON
(ORLON-DPS)
GA BI CX MH SQ
25
7 2 7 5 7 28
CGK-FRA
(ORFRA-CGK)
GA BI CA CI LH MH SQ
19
7 2 2 4 7 7 7 36
DPS FRA
GA BI CI CX MH SQ
DPS-FRA
(ORFRA-DPS)
GA BI CI CX MH SQ
23
7 1 4 7 5 7 31
CGK-AMS
(ORAMS-CGK)
GA CI KL MH SQ
20
7 7 7 7 7 35
DPS-AMS
(ORAMS-DPS)
GA CI CX MH SQ
23
7 7 5 5 7 31
DXB-AMS
(ORAMS-DXB)
GA BA KL TK
18
7 18 7 7 39 Hisar M. Pasaribu/ 23
14
Network Analysis - Example
Aircraft Selection
Leg
Stage Length
(km)
CGK DXB 7169
Aircraft Type
B747-
400
B767-
300ER
A330-
200
CGK-DXB 7169
DPS-DXB 7780
DXB-LHR 6421
DXB-FRA 5669
DXB-AMS 6010
DXB-CGK 7138
Design Range (km) 13,450 11,306 12,350
Capacity (seat) 416-524 218-269 253-293
MTOW (ton) 396.9 172-186 230-233
No of Engines 4 2 2
Cruise speed
912 851 860
DXB-DPS 7645
LHR-DXB 5687
FRA-DXB 5010
AMS-DXB 5369
Source: Airbus and Boeing
(km/h)
912 851 860
Fuel Capacity
(liter)
216,840 90,770 139,100
First Flight 1988 1985 1997
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Network Analysis - Example
Capacity Share
Route Type and Capacity of Aircraft
Total
Capacity
Estimated
Share (%)
GA EK GF IY SQ
CGK-DXB
(OR DXB-
CGK)
GA EK GF IY SQ
26 332 772 320 310 772
293 380 129 201 288 8,032
DPS-DXB
(OR DXB-DPS)
GA BI MH
75 332 320 734
293 150 134 2,753
CGK-LON
GA BA CA CX GF MH SQ
Source: OAG Travel Planner
(OR LON-
CGK)
15 332 744 74E 744 340 772 772
293 367 303 389 236 278 288 13,563
DPS-LON
(OR LON-DPS)
GA BI CX MH SQ
29 332 320 330 734 772
293 150 293 144 288 7,138
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15
Network Analysis - Example
Capacity Share
Route Type and Capacity of Aircraft
Total
Capacity
Estimated
Share (%)
CGK-FRA
(OR FRA CGK)
GA BI CA CI LH MH SQ
19 332 757 737 AB6 744 330 744
Source: OAG Travel Planner
(OR FRA-CGK)
19 332 757 737 AB6 744 330 744
293 150 134 258 368 278 380 10,833
DPS-FRA
(OR FRA-DPS)
GA BI CI CX MH SQ
25 332 320 AB6 330 734 772
293 150 258 311 144 288 8,146
CGK-AMS
(OR AMS-CGK)
GA CI KL MH SQ
19 332 AB6 74M 330 772
293 265 405 293 288 10 808 293 265 405 293 288 10,808
DPS-AMS
(OR AMS-DPS)
GA CI CX MH SQ
26 332 AB6 343 734 772
293 265 249 144 288 7,887
DXB-AMS
(OR AMS-DXB)
GA BA KL TK
24 332 320 777 737
293 150 390 134 8,419
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Network Analysis - Example
Market Share
Route
Estimated Market Share (%)
Pax per
Year
Pax
per
Week
GA Est. Pax Per Flight
GA BA BI CA CI CX EK GF IY KL LH MH SQ TK True + 55% SLF Adj.
CGK-DXB 28 37 9 5 20 47,204 908 37 62 62 ,
DPS-DXB 80 9 11 20,230 389 45 50 50
CGK-LON 19 17 4 20 11 14 15 248,918 4,787 131 194 170
DPS-LON 34 3 27 9 26 122,602 2,358 114 187 177
DXB-LON 0 0 67 67
CGK-FRA 22 2 2 9 27 16 22 209,748 4,034 124 182 170
DPS-FRA 30 2 12 25 8 23 128,556 2,472 105 174 174
DXB-FRA
0 0 67 67
CGK-AMS 22 14 30 17 17 189,025 3,635 113 167 167
DPS-AMS 31 19 15 11 24 115,854 2,228 98 161 161
DXB-AMS 28 26 37 9 87,298 1,679 67 67 67
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16
Network Analysis - Example
Profitability Analysis
Route Pax Rev.
CGO
Rev.
CC3 CC3/BH TC TC/BH CM3 RR
SLF
(%)
Yield Pax CGO
CGK-DXB-FRA-
DXB-CGK
216,140 17,600 228,918 7,590 244,916 8,121 4,822 (11,176) 78.0 3.86 598 18,000
CGK-DXB-LHR-
DXB CGK
223,250 17,600 238,657 7,510 256,092 8,058 2,193 (15,242) 78.1 3.77 598 18,000
DXB-CGK
, , , , , , , ( , ) ,
DPS-DXB-FRA-
DXB-DPS
220,500
14,800
239,358 7,751 255,434 8,272 (4,058) (20,134) 77.0 3.70 582 14,000
CGK-DXB-AMS-
DXB-CGK
212,290 17,600 234,699 7,583 251,268 8,119 (4,809) (21,378) 76.4 3.77 588 18,000
DPS-DXB-LHR-
DXB-DPS
230,250 14,800 249,506 7,677 267,152 8,220 (4,456) (22,102) 78.1 3.70 588 14,000
DPS-DXB-AMS-
DXB-DPS
209,970 14,800 245,107 7,739 261,421 8,255 (20,337) (36,651) 72.7 3.73 556 14,000
Route Pax Rev CGORev Period TC/BH CM3 RR SLF CGO Route Pax Rev. CGO Rev. Period TC/BH CM3 RR SLF CGO
DPS-SIN-FRA-LGW VV 120,857 24,222 J an - Oct 2002 8,908 4,983 (26,360) 57.2% 11,414
CGK-SIN-AMS-SIN-CGK 124,920 12,835 J an - Aug 2004 N/A (6,818) (37,215) 69.5% 8,076
DPS-BKK-LGW-BKK-DPS 126,460 9,802 J an - Oct 2002 11,323 3,360 (46,366) 68.6% 6,080
Network performance improves, although route results are still negative for all routes.
Only two routes promise a profit potential in the future: CGK-DXB-FRA-DXB-CGK and
CGK-DXB-LHR-DXB-CGK
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Network Analysis - Example
Profitability Analysis
Further improvement in network potential is possible if average yield can be
increased.
A minimum average yield of US 4.10 should be achieved if positive route
Route
Pax
Rev.
CGO
Rev.
CC3 CC3/BH TC TC/BH CM3 RR
SLF
(%)
Yield Pax CGO
CGK-DXB-FRA-DXB-CGK 229,340 17,600 228,931 7,591 245,589 8,143 4,311 1,351 78.0 4.10 598 18,000
CGK-DXB-LHR-DXB-CGK 235,210 17,600 238,669 7,510 256,702 8,077 5,056 (3,892) 78.1 3.97 598 18,000
CGK-DXB-LHR-DXB-CGK 244,180 17,600 238,678 7,510 257,160 8,092 5,393 4,620 78.1 4.12 598 18,000
results are expected in the near future.
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17
Route Profitability Analysis
Good Best
High
Worst
Good
Average
Yield
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Average Load Factor
Low
Low High
Average Yield =
Net Revenue
RPK