Route and Network Planning

Route and Network Planning

• Given the airline’s choice of aircraft and a fleet plan that determines the availability of aircraft with different capacity and range characteristics, the next step in the airline planning process is to determine the specific routes to be flown.

Route and Network Planning

• In some cases, the sequence of these decisions is reversed, in that the identification of a profitable route opportunity might require the acquisition of a new aircraft type not currently in the airline’s fleet.

Hub Economics and Network Structure

• Economic considerations and expected profitability drive route evaluations for most airlines. Route profitability estimates require demand and revenue forecasts for the period under consideration. In large airline networks,

traffic flow support from connecting flights can be critical for route profitability.

Hub Economics and Network Structure

Hub-and-spoke network structures allow airlines to serve many O-D markets with fewerflight departures, requiring fewer aircraft generating fewer ASK at lower total operatingcosts than in a complete point-to-point route network.

Hub Economics and Network Structure

Consider a simple connectinghub network with 20 flights into and 20 flights out of a

single “connecting bank” ata hub airport, “connecting bank” refers to a hub

operationin which many aircraft arrive at the hub airport,

passengers and baggage are movedbetween connecting flights, and the aircraft then depart

with the connecting passengersand baggage on board.

Hub Economics and Network Structure

Connecting banks last from approximately 1 hour in smaller domestic hub networks to 2–3

hours in larger international hub networks.

Hub Economics and Network Structure

In this example of a connecting bank with 20 arriving flights followed by 20 departing

flights, each flight leg arriving or departing the hub simultaneously serves 21 O-D

markets – one “local” market between the hub and the spoke, plus 20 additional “connecting”

markets, if we assume a single direction of passenger flow.

Hub Economics and Network Structure

This single connecting bank thus provides service to a total of 800 O-D markets

Routing both flights and passengersthrough a connecting hub is more profitable for

the airline if the cost savings from operating fewer flights with larger aircraft and more passengers per flight are greater than the revenue loss from passengers who reject connecting service and choose a non-stop flight instead, if one exists

The hub airline’s ability to consolidate traffic from many different O-D markets on

each flight leg into and out of the hub allows it to provide connecting service even to

low-demand O-D markets that cannot otherwise support non-stop flights.

Consolidation ofO-D market demands further allows the hub airline

to provide increased frequency of connectingdepartures, as it likely operates several connecting

banks per day in each directionat its hub airport. In fact, several connecting departures per day (via the hub) in these O-Dmarkets may be more convenient for travelers

than a single daily non-stop flight; that is,“total trip time” is lower, when schedule

displacement time is included

The hub airline’s ability to consolidate traffic from many different O-D markets on

each flight leg into and out of the hub allows it to provide connecting service even to

low-demand O-D markets that cannot otherwise support non-stop flights. Consolidation of

O-D market demands further allows the hub airline to provide increased frequency of connecting

departures, as it likely operates several connecting banks per day in each direction

at its hub airport.

In fact, several connecting departures per day (via the hub) in these O-D

markets may be more convenient for travelers than a single daily non-stop flight; that is,“total trip time” is lower, when schedule

displacement time is included

Large hub networks result in market share advantages that translate into increased revenue

for the airline (in addition to the reduced operating costs described above). With

the potential for the airline to offer greater (connecting) departure frequency in many

O-D markets, more convenient schedules (less schedule displacement) can lead to higher

market shares against competitors.

With larger hub networks,the airline can offer greater frequent-flyer program

earning and reward options for passengersgiven greater network coverage and online service

to many O-D markets. At thesame time, schedule dominance of “local” markets

into and out of the hub may lead topricing and revenue advantages for the hub airline

in those markets.

Hub-and-spoke airline networks are by no means limited to the US airline environment.Over the past 25 years, the vast majority of

large international airlines have also developed

hub networks, including Lufthansa at Frankfurt, KLM at Amsterdam, Cathay Pacific

atHong Kong and Singapore Airlines at

Singapore, to name but a few examples.

Largeairlines that operate hub networks depend

heavily on the revenues generated by connecting

traffic, especially at hubs located in cities with low levels of local O-D demand.

In fact,international airlines such as KLM (Amsterdam

hub) and Singapore Airlines (Singaporehub) with relatively low populations around

their home bases would not have been able togrow to their current level of operations

without focusing to a large extent on connecting

passengers (also known as “Sixth Freedom traffic”) through their hubs.

Operational Advantages and Incremental Costs of Hubs

The consolidation of an airline’s operations at a large hub airport has several operational and

cost advantages. The airline will generally require fewer “base” locations for its aircraft maintenance and crew domiciles, resulting in

reduced crew and maintenance expenses.

• Hub networks also offer some potential aircraft and crew scheduling advantages for

the airline. The establishment of fixed connecting bank times at the hub allows for

simplified aircraft and crew scheduling, in that the “best” arrival and departure times at the hub airport are in essence predetermined by

the connecting banks.

• It also provides more opportunities for “swapping” aircraft in response to delays, cancellations and irregular operations, given that a large number of aircraft are on the ground simultaneously during a connecting bank. To the extent that many of the aircraft

are likely to be of the same fleet type, this further increases flexibility for the airline to exchange aircraft from one flight to

another, as required.

Advance planning for aircraft swaps at the hub in response to changing demand for different flights, also known as “demand-

driven dispatch” is another advantage of a hub operation. Different-size aircraft from the same fleet family (e.g., A319, A320 and A321) can be assigned to specific flight departures as little as 2–3days

before departure, to better match seat capacity to booking demand.

In a hub network, the fact that most aircraft fly routings “out and back” from the hub to

the spoke allows for greater opportunities for such aircraft interchanges.

On the other hand, there are incremental costs to the airline associated with a hub network. For

example, hub operations can lead to reduced aircraft and crew utilization, compared to point-to-point networks. Although aircraft and crew scheduling may be simplified, hub operations can lead to reduced flexibility in scheduling of departures, and aircraft rotations due to the fixed timing of connecting banks at the hub.

An aircraft thatserves a spoke city closer to the hub usually has to sit longer

on the ground at the spoke,awaiting the next connecting bank (in the other direction) at

the hub. Because the revenuebenefits of hub networks depend on load consolidation and

feeding of connecting banks,it makes little sense to fly the aircraft back to the hub during

a non-bank time. As a result,the average aircraft utilization (block hours per day) can be

reduced by this effect.

Another negative impact on aircraft utilization related to hub networks is the need for

increased ground (“turnaround”) times for aircraft transiting the hub, to accommodate

passenger and baggage connections. A connecting bank consists of a closely scheduled

set of arriving flight legs followed, after a short period of time, by a set of closelyscheduled departing flight legs.

The rationale for this structure is that it allows arriving

passengers (with many different origins) to connect with little waiting time to departing

flights, to their destinations. Providing this short connection time service, however, has

its costs. Aircraft arriving at a hub must stay on the ground, typically beyond the time

at which the aircraft is ready to depart, to allow all connecting passengers adequate time

to disembark their arriving flights and walk to the gate at which the aircraft is parked.