Airline Route PlanningAirline Route PlanningPlanning a journey that could Planning a journey that could

optimize airline profit while optimize airline profit while bearing the costsbearing the costs

Balancing the demands and Balancing the demands and capacitiescapacities

IntroductionIntroduction

• This is where airlines deal with the application This is where airlines deal with the application of forecasting method in determining the costs of forecasting method in determining the costs of a route of one flight from one destination to of a route of one flight from one destination to another eitheranother either– Domestic orDomestic or– International International

• In terms of …In terms of …– Flight personnelFlight personnel– Fuel consumptionFuel consumption– Facilities and Airport costFacilities and Airport cost– Passenger Movement and Air CargoPassenger Movement and Air Cargo

Its significanceIts significance

• Determine the feasibility and possibility to flyDetermine the feasibility and possibility to fly• Determine what is required and what can be Determine what is required and what can be

offeredoffered• Determining the kind of costs and expensesDetermining the kind of costs and expenses• Determine ways to gain profitDetermine ways to gain profit

Determine the FEASIBILITYDetermine the FEASIBILITY

• The 9 freedoms of the air in airline business: The 9 freedoms of the air in airline business: The The Freedoms of the airFreedoms of the air are a set of are a set of commercial aviation rights granting a commercial aviation rights granting a country's airline(s) the privilege to enter and country's airline(s) the privilege to enter and land in another country's airspaceland in another country's airspace

Freedom 1Freedom 1

• It was also known as It was also known as technical freedom.technical freedom. The The right to overfly a country without landing. It right to overfly a country without landing. It grants the privilege to fly over the territory of grants the privilege to fly over the territory of a treaty country without landing. a treaty country without landing.

• Member states of the International Air Member states of the International Air Services Transit Agreement are granting this Services Transit Agreement are granting this freedom (as well as the Second Freedom) to freedom (as well as the Second Freedom) to other member states,other member states, subject to the transiting subject to the transiting aircraft using designated air routesaircraft using designated air routes

Freedom 2Freedom 2

• It was also a It was also a technical freedomtechnical freedom. The right to . The right to stop in a country for refueling or maintenance stop in a country for refueling or maintenance on the way to another, without transferring on the way to another, without transferring passengers or cargo.passengers or cargo.

Freedom 3Freedom 3

• It was the First It was the First Commercial Freedom.Commercial Freedom. The The right to carry passengers or cargo from one's right to carry passengers or cargo from one's own country to another.own country to another.

Freedom 4Freedom 4

• The right to carry passengers or cargo from The right to carry passengers or cargo from another country to one's own.another country to one's own.

• Third and fourth freedom rights are almost Third and fourth freedom rights are almost always granted simultaneously in bilateral always granted simultaneously in bilateral agreements between countries.agreements between countries.

Freedom 5Freedom 5

• It is also called a It is also called a connecting flightconnecting flight. The right to carry . The right to carry passengers from one's own country to a second country, and passengers from one's own country to a second country, and from that country to a third country. An example of this could from that country to a third country. An example of this could be Emirates Airlines flights originating in Dubai, then going on be Emirates Airlines flights originating in Dubai, then going on to Bangkok, and then from Bangkok to Sydney, where tickets to Bangkok, and then from Bangkok to Sydney, where tickets can be sold on any or all sectors.can be sold on any or all sectors.

• Two sub-categories exist. Two sub-categories exist. Beyond Fifth FreedomBeyond Fifth Freedom allows the allows the right to carry passengers from the second country to the third right to carry passengers from the second country to the third country. country. Intermediate Fifth FreedomIntermediate Fifth Freedom allows the right to carry allows the right to carry passengers from the third to the second country.passengers from the third to the second country.

The Silk Road extending from Southern Europe through Arabia, Somalia, Egypt, Persia, Pakistan, India, Bangladesh, Java and Vietnam until it reaches China. Land routes are red, water routes blue

Freedom 6Freedom 6

• The right to carry passengers or cargo from a second country The right to carry passengers or cargo from a second country to a third country by stopping in one's own country.to a third country by stopping in one's own country.

• Cathay Pacific Airways, Thai Airways, Malaysia Airlines, Cathay Pacific Airways, Thai Airways, Malaysia Airlines, Singapore Airlines and other airlines in Asia use sixth-freedom Singapore Airlines and other airlines in Asia use sixth-freedom rights extensively to fly passengers between Europe and rights extensively to fly passengers between Europe and Australasia. Likewise, American Airlines connects passengers Australasia. Likewise, American Airlines connects passengers from Europe and Asia to other countries in the Americas via from Europe and Asia to other countries in the Americas via U.S. ports, and British Airways commonly tickets passengers U.S. ports, and British Airways commonly tickets passengers from America to Asia via London. Icelandair sells tickets from America to Asia via London. Icelandair sells tickets between Europe and North America via Iceland, Finnair sells between Europe and North America via Iceland, Finnair sells tickets from North America to Asia via Helsinki.tickets from North America to Asia via Helsinki.

The Kangaroo Route traditionally refers to air routes flown by Qantas between the countries of Australia and the United Kingdom, via the Eastern Hemisphere.

Freedom 7Freedom 7

• The right to carry passengers or cargo between The right to carry passengers or cargo between two foreign countries without continuing service two foreign countries without continuing service to one's own country.to one's own country.

• The seventh freedom is rare because it is usually The seventh freedom is rare because it is usually not in the commercial interest of airlines, except not in the commercial interest of airlines, except in Europe where an EU open sky has seen many in Europe where an EU open sky has seen many carriers, particularly low cost carriers, operate carriers, particularly low cost carriers, operate flights between two points, with neither of flights between two points, with neither of them being in their home country. them being in their home country.

Freedom 8Freedom 8

• The right to carry passengers or cargo between The right to carry passengers or cargo between two or more points in one foreign country. two or more points in one foreign country.

• The eighth freedom is also known as The eighth freedom is also known as cabotagecabotage, , and is extremely rare outside of Europe. and is extremely rare outside of Europe.

• The main real life example of eighth-freedom The main real life example of eighth-freedom rights is the European Union, which has granted rights is the European Union, which has granted such rights between all of its member states.such rights between all of its member states.

Freedom 9Freedom 9

• The right to carry passengers or cargo within a The right to carry passengers or cargo within a foreign country without continuing service to foreign country without continuing service to or from one's own country.or from one's own country.

• Sometimes also known as Sometimes also known as stand alone stand alone cabotagecabotage. It differs from the aviation . It differs from the aviation definition of definition of true cabotagetrue cabotage, in that it does not , in that it does not directly relate to one's own country.directly relate to one's own country.

• The EU agreements mentioned above also fall The EU agreements mentioned above also fall under this category.under this category.

Freedoms of the airFreedoms of the air

Determine the DEMANDSDetermine the DEMANDS

• Passenger Demand: Passenger Demand: – How many? How many? – How many seats available?How many seats available?– The kind of aircraft to be used?The kind of aircraft to be used?– The kind of facilities needed? (i.e., catering, The kind of facilities needed? (i.e., catering,

baggage handling, airport facilities)baggage handling, airport facilities)• Fuel: Fuel:

– How much is the consumption?How much is the consumption?– How far is the journey?How far is the journey?

Determine YOUR CAPACITYDetermine YOUR CAPACITY

• Cabin CrewsCabin Crews• Facilities-Airport servicesFacilities-Airport services• Ground Handling-MROGround Handling-MRO

Determine the COSTSDetermine the COSTS

• Remember the categories of costs in airline Remember the categories of costs in airline business?business?– Two major costsTwo major costs– Direct, indirect and non-operating costsDirect, indirect and non-operating costs– Major and unpredictable costsMajor and unpredictable costs

DIRECT COSTSDIRECT COSTS

• Expenses associated with and dependent on Expenses associated with and dependent on the type of aircraft being operated, including all the type of aircraft being operated, including all flying expenses such asflying expenses such as– Flying operations costsFlying operations costs

• Flight crew expensesFlight crew expenses• Fuel and oilFuel and oil• Airport and en route chargesAirport and en route charges• Aircraft insurance costsAircraft insurance costs• Other flight-operations expensesOther flight-operations expenses

– MRO costsMRO costs

INDIRECT COSTSINDIRECT COSTS

• Those costs that will remain unaffected by a Those costs that will remain unaffected by a change of aircraft type because they are not change of aircraft type because they are not directly dependent on aircraft operations such directly dependent on aircraft operations such asas– Station and ground expensesStation and ground expenses– Reservations, sales and promotional costsReservations, sales and promotional costs– General and administrative costsGeneral and administrative costs

Non-operating costsNon-operating costs

• Those expenses and revenues not directly Those expenses and revenues not directly related to the operation of an airlines’ own related to the operation of an airlines’ own air transportation services likeair transportation services like– Gains or losses raising from the retirement of Gains or losses raising from the retirement of

property or equipmentproperty or equipment– Interest paid on loans, banks or depositsInterest paid on loans, banks or deposits– Gains or losses raising from an airline’s Gains or losses raising from an airline’s

affiliated companiesaffiliated companies– Direct gov. subsidies and paymentsDirect gov. subsidies and payments

Costs for Cargo AirlineCosts for Cargo Airline

• CommoditiesCommodities• Containers (if any)Containers (if any)• MRO (Overnight)MRO (Overnight)• FuelFuel• Crew Expenses (Pilot and Co-Pilot)- Lesser Crew Expenses (Pilot and Co-Pilot)- Lesser

than passenger airlinethan passenger airline

PROFITS GAINPROFITS GAIN

• Service chargeService charge• Ticket PricingTicket Pricing

– DestinationDestination– FuelFuel– SeatSeat– CateringCatering

• InsuranceInsurance• Airport TaxAirport Tax

Example of CalculationsExample of CalculationsCOSTS PROFITS

DIRECT COSTS

Fuel Fuel Charge

Labor

MRO MRO Charge

Ground Handling Baggage Handling

Airport Charges Airport Tax

Insurances Passenger Insurance

INDIRECT COSTS

General and administrative costs Service Charge

Flight planning and weather Service Charge

Reservations, sales and promotional costs Service Charge

TOTAL =A TOTAL =B

TOTAL PROFITS: B – A= C

Exercises (Quiz 5)

• Airline Route Planning deal with the deal with the application of forecasting method in application of forecasting method in determining the feasibility of a route of one determining the feasibility of a route of one flight from one destination to another. flight from one destination to another. Discuss in your own words the Freedoms Discuss in your own words the Freedoms of the air and provide a route example at of the air and provide a route example at each freedoms.each freedoms.