What are the benefits of Network Management Consulting Services? Put simply – more money.
Sep 20, 2018
Network planning is at the core of airline business
The questions below are routinely asked by the senior airline executives of their direct reports:
- Which new routes can we profitably add to my network?
- How will changes made by competitors affect our network profitability?
- Is our current schedule performing at its most profitable?
Answering these questions is a function of the Network Planning department and this puts Network Planning at the core of any airline business. Airline consultants, in course of their customer projects, have a privilege of seeing many different airlines and many different business practices. Assuming that every airline has the same level of experience or expertise in their business would be wrong. Network Planning departments are not exempt from this and answering the questions above becomes a challenge when the expertise and experience is simply not there.
While many do have experience in their teams, only a minority of Network Planning departments could be considered “advanced” in their understanding of network planning methodologies or optimal use of the available tools and data. Very few use advanced market share models (e.g. Nested Logit), while most still dabble around with excel spreadsheets and outdated 1960’s QSI (Quality Service Index) based “tools” (actually, once again excel spreadsheets) to model outcomes of multi-million dollar decisions. This is where a small bit of consulting, as small as a couple of weeks, can help bring in some big $$$ for the airline!
The obstacles: Network management tools and expertise
There are some good network planning tools out there. “Some”, at the latest count is actually only two…maybe three. We are talking about Nested Logit market share models/ tools that use professionally calibrated market demand models. If by now you don’t know what this means, then this it is probably time for you to look into it (and while you are doing so, look up Econometrics and Discrete Choice models). Otherwise, get in touch with a consulting firm that specializes in network planning and uses these tools in their projects. But do make sure to check what type of tool this consultancy uses. If you hear words “QSI” and “Excel”, then these are not the right people for the job. This is not to say that they are not good consultants or do not have expertise. This is just to say that they are not cutting edge and that they cannot leave anything behind that you can use in a long run.
So why don’t all airlines use Nested Logit based tools? The reasons are sometimes very simple:
- Firstly, they are not cheap. They are complex pieces of software and they need a whole bunch of very smart people (data scientists and coders) to be developed and calibrated. This is why we only have two or three on the market.
- Secondly, they are, what is known as “expert tools”. And that on its own means you need to have a specific type of expertise to use them. They are not built to automate the work that network planners do. They also do not make the work simpler. They, if anything, create more work. But “more work” has here a positive meaning: Where you were evaluating one business case for one flight change (new route, schedule change, etc.), and that took you a week to do, now you can do the same thing with 2000 flights and evaluate the whole network impact of any (or many) changes. But to do that, you have to be pretty good: So to say an expert that can use an expert tool. And unless you are someone who has natural talent for operations research, econometrics, and discrete choice models or holds a graduate degree in any of these fields, then, like the rest of us mortals, you have to be taught how to do it. Oh, and one more thing….you need to be able to explain to your management what happened when you produce a business case from the “black box”. This is often the hardest part and this is another thing that you need to learn (hopefully not the hard way, like some of us did in our airline careers).
The consequence: No network management or the use of oversimplified tools and methodologies”
Smaller airlines, start-ups and Low Costs Carrier tend to focus on schedule management and flight operations topics. This is a consequence of pragmatism and practicality many of these carriers have that in their corporate DNA – they focus on what they can see and feel and what is happening right now. Wrong network decisions only come to light months later, when someone looks at the balance sheet. Even some big established airlines still lag behind in the way they plan their network. With large airlines, this is usually consequence of hierarchy, politics and legacy of being big and thinking you can do no wrong. More often, it is simply inertia and resistance to change. In either case, or many airlines, network planning is an afterthought rather than something that needs to be at the root of everything airline does.
But let’s cut the negativity here and say that many airlines do have tools and apply specific methodologies in network planning evaluations. A lot of them are doing it with previously mentioned QSI “tools”. Which would be fine, if it was 1960,70,80 or 90….but since the airline industry is no longer regulated and there are many different business models (LCCs for example), you can no longer determine your market share simple based on “Quality Service Index”. Which basically means assigning certain weighting to your capacity/frequency share. Passengers will not choose your airline just because you have direct service or because you have shortest elapsed time on the route and this is more or less the limit of QSI evaluation (although some may claim that not all QSI models are so basic). To model passenger behavior we need to apply something more sophisticated and this is where Nested Logit models come into play. These models are able to determine passenger choice based on multitude of variables (e.g. airport preference, frequent flier programs, aircraft type, airline perception, etc.). The trick is, the model coefficients need to be calibrated from the historical data about passenger behavior. And once again, this is not an easy task and is best left to the professionals (i.e. people who make these tools).
The result: Profitability-decline due to wrong network decisions
Both conditions – no network planning at all or use of oversimplified methodologies and tools – combined with lacking expertise in network planning usually have the same result: Wrong decisions or decisions that sacrifice network profitability by focusing on single flight or single route. Both can cost the airline a lot of money – by some estimates this might be at least 15-20 Mio. Euro per year (for a mid-sized network carrier). This is money that should have never been lost off the balance sheet
The solution: Short-term, first-step, Network Management Consulting
This unnecessary profit loss can be prevented by simply having experienced network management experts supporting with a short-term project to get the more profitability out of your network. So get yourself the right partner who will be prepared to transfer their expertise to your network planning team. We know some and will gladly tell you all about them!
How could Network Planning consulting project look like?
This largely depends on what your airline needs and what your network planning department is already capable of. These projects can las several weeks or several months. They can focus on an isolated problem (e.g. turning around bunch or underperforming routes/flights) or can be as complex as developing five years network and fleet strategy (which is essential if you are planning to grow). In any case, knowledge transfer to your network planning experts needs to be part of such project for you to benefit in a long term. But here are some specific things that can be looked at in a course of network planning consulting project:
- Profitability analysis on leg /route/ market and network level
- Measuring the impact of what-if scenarios on your own and competing airlines
- Investigating / Reporting network effects of schedule changes
- Evaluation of the impact of partnership agreements, alliance partners or alliance changes
- Restructuring and improvement support of airline’s hubs
- Hub connectivity improvement by adjustment of flight timings
- Optimization of the deployment of available aircraft
- Identification of the optimal fleet mix
What are the benefits of Network Management Consulting Services?
Put simply – more money. In fact these projects tend to pay for themselves many times over. I am yet to witness one network planning consulting project where the benefit for the airline was less than what they paid for the project. Usually, these projects result in 3-5% profitability improvement for an airline in the first 12-24 months after the project.
These projects also result in a lasting change. Network Planners and their management, once they are exposed (and trained) how to do the network planning using advanced methodologies and tools rarely go back to their old practices.
When to start best with such a Network Consultancy project?
Network Planning is a core business function a critical success factor for any airline. If not done properly, airlines can (and do) lose a lot of money. In case an airline doesn’t have the right tools or right experts, short-term consulting project can help to yield significant improvements to an airline’s network profitability.
When to start with a network consultancy project? There is never a bad time to do it and sooner is better. But in case you would like to have more specific advice for your specific situation, please contact me here or via my email: . I will be happy to answer your questions.