Chances are that you’ve read something somewhere in the news about flights being canceled or rescheduled as the airline industry adjusts to changing demand levels.
Behind the scenes a lot of schedule management is done by the network planning teams. In our latest 101 article, here, we will walk you through the basics of the practice.
Defining Airline Network Planning
Let’s start with a basic definition of network planning to establish a baseline understanding. Network (or route) planning is a process of designing, creating, refining and optimizing an airline’s flight schedule to maximize profitability and satisfy traveler demand.
It’s both one of the most complex and most important drivers of commercial success for an airline as it defines the balance between travel product supply and demand across all the O&D (Origin and Destination) markets being served.
Revenue managers might hate to admit it, but the reality is that network planning is arguably the most important commercial function within an airline 😜
"The economic objectives of a network plan must be pursued while also meeting a host of scheduling constraints that can pose difficult tradeoffs."
A carrier’s network plan involves leveraging first party data, third party industry data, and other economic and socio-political trends to develop a profitable revenue-driving network strategy.
Network planners anticipate revenue opportunities within the airline's network strategy by forecasting changes in travel demand, fare prices, competition, route connectivity, as well as other factors.
The economic objectives of a network plan must be pursued while also meeting a host of scheduling constraints that can pose difficult tradeoffs. Indeed, the potential of a flight schedule often takes a step back when resource availability limitations are considered.
Staffing levels for flight crews, ground crews, and maintenance can often dictate aircraft utilization limits. Other factors such as slots, gates, curfews, and others can further interfere with the network’s original goals.
And some objectives can even conflict with one another, as can be the case when maximizing on-time performance holds back the sellable journeys produced by a schedule. An airline’s flight schedule typically reflects a plethora of tradeoffs and compromises between economic optimality and logistical feasibility.
An airline's network design can reveal a lot about its strategy and business model. An airline's network can provide the following:
- Brand identity: The network’s breadth (destination diversity) and depth (density of departure frequency) define the scope of the airline’s appeal to travelers.
- Drive Revenue: It is the spectrum of destinations offered and the convenience of flight schedules that can make one airline more appealing than others.
- A Competitive Strength (or Weakness): An airline’s network is something that competitors must choose where to challenge and where to avoid.
- Drive Costs: Network design and schedules are critical elements that drive resource utilization and help determine an airline’s cost structure.
- A Hedge Against Conditions: Designed properly, a network can be scheduled for greater resiliency against disruptive weather events, economic cycles, etc.) that can impact some markets more than others.
When developing a network there are four primary pieces involved, which make up network management — network strategy, network design, alliances and schedule planning.
When it comes to selecting new routes there are four primary categories:
Investment: Accept short-term losses in order to achieve long-term strategic objectives.
- Low value: Defer entry until circumstances change.
- Strategic & Profitable: An airline’s primary growth focus.
- Opportunistic: Deploy capacity to reap profit.
This is depicted in the quadrant below:
Designing an Airline Network
There are two common airline networks — point-to-point and hub-and-spoke. A point-to-point network originates from one or a few airports, from which the airline begins service to its main destinations.
Destinations and routes can be added, but it is unlikely it will reach the ideal point-to-point network configuration where all the airports are connected to one another. This is because:
- There is not enough demand to justify the operation of unprofitable flights.
- It can be difficult to obtain slots at airports.
- The logistic costs to rotate the fleet are too high.
The pros of a point-to-point network include:
- Where there is decent passenger demand, non-stop flights are the least expensive means to serve destinations.
- Eliminating a connecting stop provides an average savings of about 30%.
- It Reduces the total travel time for the traveler.
- Aircraft turn times can be minimized, allowing for increased utilization.
The cons of a point-to-point network include:
- A limited reach – most small and mid-sized cities have insufficient demand to support more than a few non-stop flights.
- Routes that tend to have enough demand to support non-stop service are also the most competitive, which can be a drag on yields.
- Demand varies significantly – it is challenging to balance route-specific demand variations with a point-to-point network design.
Now, let’s discuss the hub-and-spoke network. A hub is a central airport through which flights are routed. Spokes are flights that route in and out of the hub airport.
Passengers traveling between two or more spoke cities need to connect through a hub. Hubs are effective in concentrating passenger traffic and flight operations at the hub airport.
Frankfurt (FRA) and Amsterdam (AMS) are examples of international hubs.
Just like the point-to-point network, the hub-and-spoke network has its own pros and cons. Its pros include:
- The ability to serve a network with the fewest number of routes (and the fewest number of aircraft).
- The ability to serve many cities of varying sizes.
- Adding a new city requires only one additional route but can potentially provide access to every city in the airline’s network.
- Major carriers can dominate operations in their hub cities, effectively creating a barrier to entry.
The cons of a hub-and-spoke network include:
- High operating costs, with extensive facilities and personnel required to accommodate connecting passengers.
- Varying aircraft models are sometimes required to match supply (capacity) with demand.
- Aircraft and crew scheduling becomes more difficult and constrained as fleet complexity increases.
- It's highly susceptible to delays.
- Revenue management can become more complex.
Network planning can be very complex even in the best of times, never mind the number of variables airlines are currently faced with. If you’d like expert guidance or simply another set of capable hands, reach out to our Advisory team for help!