Fleet Planning Flashcards
Three main drivers of the Air Transport Industry
- The economy - if a country’s economy is performing well then there is growth in investment, jobs, consumer confidence and spending power. The recession and 9/11 both had huge effects on the air transport industry
- Capacity of the industry - measured by ASK’s (Available Seat Kilometres). RPK’s (Revenue Passenger Kilometres) - shows an airline’s ability to fill up their seats. More RPK = more revenue
- Fuel price - Go up = fares go up
As the economy improves, the demand for travel increases.
Why is fleet planning so important?
- Airlines need to know that their routes and destinations can be serviced with their fleet
- Airlines need to know if they can finance a fleet and the secondary costs like training, hiring of crew, maintenance etc
- Fleet planning dictates the airline’s business model, strategy and destinations it can serve. LCCs= high load factors for all of its usable life, short-medium range, uniform fleet. FSCs= short, medium and long range, feeder craft, available ASKs
4 core components of fleet planning
- Which aircraft would suit the network
- Which aircraft are needed by when - placing an order and receiving a delivery in a timeframe
- How many of each type are required
- Will the new aircraft replace older aircraft, or add more capacity for the network
LCCs operating a single model fleet
Reduces costs
Streamlines maintenance
Reduces training and crewing costs
Reducing and simplifying the spares holding (parts for repairs) and interchangeability of aircraft
Managing the in-flight product and service delivery
Purchasing aircraft
- Hugely capital intensive
- Largest single investment an airline can make
- Decision has to be planned and taken in advance as order and delivery takes years. The industry is constantly changing and so this can have implications for the airline
- Airlines can choose between buying new/old or leasing
- Aircraft are bespoke - custom made:
Price goes up:
Dependent on design weights (payload range relationship), engine choices and level of customisation
Price goes down:
Dependent on number of units ordered and state of the marketplace
Depreciation- planes lose value. This is shown on the balance sheets of the airline only if they are own
Fleet planning process
An evaluation is needed to assess the impacts of new aircraft
- Traffic and yield forecasts used to estimate revenues
- Planning average load factors to work out ASKs therefore number of aircraft needed
An airline needs to decide what aircraft is suitable for its network considering current and future projections of traffic, load factor and revenue.
Financial impacts/considerations:
-Initial investment
-Depreciation
-Cost of borrowing money
Fleet planning is very important as part of an airline’s long term strategic plan
Ryanair Case Study
Straight after 9/11: Ryanair approached Boeing and bulk purchased some 737s
Ryanair has a standardised fleet to minimise costs
Ryanair can benefit from a smaller spares holding and less crew costs/maintenance costs
Ryanair’s crew and fleet are extremely interchangeable
Leasing
Allows the airline to have flexibility in case of changes in the industry and the market
Top Down (Macro) Approach to Fleet Planning
Taking an overview look at the network
Totalling the demand and the costs at present
Averaging the load factor
Using this to find the “capacity gap” = future ASKs-existing ASKs
IAG Case Study
Fleet Goals:
1. Lowest Costs
Purchase and operating cost
2. Reduced Capital Intensity
Lower long term maintenance cost, future modification cost
3. Greatest Flexibility
Ability to shift assets between the airlines of IAG with minimum time and expense
Network Efficiency impacts Airline Utilisation
A way of increasing capacity (ASKs), some airlines (usually LCCs) utilise their aircraft more throughout the day. This increases productivity and may mean less of a fleet is needed
Fleet Composition
Getting the right fleet is essential for the long term strategic decision of the airline Considerations: -Acquisition costs -Operating costs -Maintenance costs -Ability to serve specific airports
Aircraft Selection (TEMPE)
T - Technical and performance characteristics
E - Economics of operations and revenue generation
M - Marketing and environmental issues
P - Political and international trade concerns
E - Environmental considerations
Selection is constrained by:
Existing fleet, ability to dispose of older aircraft and availability of future delivery slots
Bottom Up (Micro) Approach to Fleet Planning
More detailed evaluation of routes and aircraft requirements
Forecasts are detailed:
- Future route networks and schedules must be generated
- Airline’s market share of the total market is assumed
- Forecasts of traffic demand and revenues by origin-destination market are then allocated to each future flight
Macro vs Micro
Macro:
-Allows for rapid expansion of new aircraft assuming:
Changes in traffic forecasts and operating costs
Airline structural changes
Micro:
- More detailed analysis of each route on the network
- Very difficult to incorporate future competitors strategies
Simple Macro approach is used as 10-15 year scenarios are increasingly speculative
