Short-term profitability evaluation in Schedule Management (2/2)

A tactical profitability evaluation is a powerful support for schedule management departments to evaluate the profitability contribution for schedules that are near the publication or closeout date. The second part of this blog sequence will give more insights about this important commercial topic.

 

Welcome back to part 2 of this blog sequence. In the first part, I explained why a tactical profitability evaluation in schedule management is necessary. In this following blog will provide you with a detailed description of the following needed in- and output data to evaluate the profitability contribution for schedules that are near the publication or closeout date:

1.         Flexible cost evaluation data

2.         Up-to-date revenue data

3.        Actual operational schedule data

4.        Fast and easy to understand output data

 

1. Flexible cost evaluation data

The basis for a short-term profitability evaluation is a flexible cost model. Flexible, because it must allow defining the costs according to the airline's (changing or use case related) requirements. The flexible cost model contains the user-defined definition of cost items based on a set of pre-determined cost drivers, and cost unit values. This means in detail:

  • Cost items: The flexible cost model is built from user-definable cost items, such as "fuel", "aircraft insurance", "maintenance", "catering", "start/landing fees", etc.  Cost items may also be clustered into user-definable cost groups, such as "fixed costs", "variable costs", "flight dependent costs", "passenger dependent costs", etc.
  • Cost drivers: Pre-determined cost drivers such as “available seat kilometers”, “block time”, “distance”, “onboard passengers”, etc. define the cost items.
  • Unit cost value: The unit cost value is applied based on a set of pre-determined leg attributes (so-called key dimensions) that are defined with the cost item, such as "departure city", "departure region", "arrival city", "arrival region", "aircraft owner", "cockpit crew employer", "aircraft type", etc.

The flexible cost model is calculated by the variable costs per leg by multiplying for each cost item the cost driver with a unit cost value. Fixed costs may be calculated for the entire set of legs and distributed to the individual legs proportionally by means of the cost driver defined for a fix cost item. Moreover, change costs should be taken into consideration.

This generic approach caters for all requirements from a simple, high-level cost model, down to a very detailed cost model with many individual cost items.

 

2.  Up-to-date Revenue data

Ideally, such a profitability evaluation evaluates the profitability impact of a fully dated schedule. The schedule manager should have access to the best available passenger forecasting and booking data and yield information. Passenger demand data should at least be based on leg and compartment level; yield data on sector and compartment level per passenger.

 

3. Actual operational schedule data

A tactical profitability evaluation should be based and therefore integrated tightly with its underlying schedules or schedule scenarios, as it shall allow to:

  • read the schedule information directly from the core application, and
  • implement easily the results of the profitability evaluation into the official schedule.

 

4. Fast and easy to understand output data

Even if the flexible cost model is the alpha and omega of each schedule profitability evaluation, the output has to be particular meaningfully visualized for fast decision support. It is important that the schedule manager has a comprehensive overview by quick and easy to read cost, revenue and profitability reports.

A very efficient option for evaluating two different schedule scenarios is displaying the difference between the original scenario and the variant in a user-friendly visualization, maybe by the use of coloring. This will make the evaluation particularly fast. However, it shall always be possible to drill down to full details about the original scenario, the variant, and the difference between the two.

 

Summary: Why doing short-term profitability evaluation in schedule management:

A tactical profitability evaluation should be standard at any airline of any size and any business model. It is powerful support for schedule management departments to evaluate the profitability contribution for schedules that are near the publication or closeout date. Tactical schedule management allows the profitability evaluation of multiple (what-if, experimental) scenarios in minutes – and not days or weeks, so that flight schedulers are not constrained by waiting time for evaluating the impact of changes that have been made to the schedule. The benefits of a tactical profitability evaluation are obvious:

  • A quick and efficient short-term profitability analysis can add the short-term cost and revenue perspective for schedule evaluation - meaning: a profitability evaluation of the schedule near publication.
  • It provides powerful decision support based on feasible schedules and best passenger data, as the evaluation of the profitability impact is based on a ”fully dated" schedule and not a standard week anymore.

What are your thoughts about this very important topic? I look forward to hearing your feedback either here or please write me an email.

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