Aircraft Fleet Planning - Essay Example

?Aircraft Fleet Planning Introduction The aviation sector is one of the major industries around the world and plays a key role in a country’s trade. Airports are considered to be the gateways to the world, and the success and failure of the business in this sector is directly or indirectly affects on other industries such as tourism, hotel and airline manufacturing industries. Aviation sector is facing many challenges now, and the factors such as increasing fuel prices, environmental issues, the emergence of low cost airlines, deregulation, introduction of more efficient aircraft, development in technology, trend of mergers and acquisitions are pressuring the airlines to review their business model in order to adequate their structure to the new requirements of the industry. Understanding the fundamentals of all these factors are essential to successfully managing the operations of an airline (The Global airline industry program, 2009). Tendency of fleet planning is becoming more market oriented as the airlines are placing more emphasis on the financial matter other than technical side of business. Aircraft acquisition planning is more challenging now than earlier with more new models on the market and countless pre-owned aircraft and refurbishment packages to choose from. So, airlines have mainly focused on following factors while implementing their fleet planning strategy. ???Costs: As like in other industries, in aviation also cost is a major factor towards a company’s success. The knowledge and control of the costs provided by the latest aircraft models, engines and fleet universality are the important aspects in the assessment of future fleet necessities. Along with fuel price hike airlines are also encountered with high input costs. Increasing manpower costs due to shortage of trained and skilled technical personnel exerts more burdens on aviation. Management has to provide high salaries and other benefits to employees to retain talented employees which cost more on them. The cost levels incurred by the airline will affect the ability to achieve profits from the operations and will determine the service level provided to customers, depending of the airline model. Officials have to take all these costs into account while planning their flight strategies. ??Price: Many airlines are applying low cost strategy in their fleet planning. Because, passengers preferred low fares than other facilities. Low cost carriers making available the air travel to people who were unable to travel by plane in the past. Pricing reflects the high levels of competition of the market. ??Demand: Demand is another factor where the strategy makers considered at the time of aircraft fleet planning. The demand by the customer regarding the services provided and the fares offered would be the main aspect in ascertaining the appropriate fleet for a company. ??Capacity: Seating capacity and its utilisation would also to be looked upon by the companies. The seats available for each route would be depending on the demand, frequently offered the type of aircraft to be deployed and specific characteristics of the routes. There are some regulatory issues which could reduce the capacity of an airline to operate on certain routes between two countries. These are implemented by respective countries in order to protect their national carriers or strategic routes. After evaluating all these factors, a reasonable profit earning fare would be fixed by the airline companies. They base their evaluation on a cost benefit analysis based on these factors when comparing the different available options for the fleet planning. At last, costs and revenues play their major role in deciding their strategy (Paul Clark, 2007). ??When adding more aircraft of the same The biggest revenue/cost saving of adding more aircraft of the same type is the compatibility and similarity. For example, The Boeing 777-200 is a long range jet airliner, and the world’s largest twinjet having a seating capacity of over 300 passengers. The Boeing 777 aircraft has the similar range capability to the 747-400 aircraft (Wail I. Harasani., 2009). Airbus in marketing their aircraft claims that commonality exists, and having a fleet of Airbus aircraft would less the time needed in training pilots, and allow pilots to fly more than one type of aircraft for the same airline. Adding, it also takes less time in training maintenance manpower (Example: A 320 and A 340). Since the systems are similar, the operations such as refuelling, or baggage handling would have a big effect on the operational costs. When an airline added the more aircraft of the same type, the supply of seat and cargo capacity offered by the airline will increase. When more aircrafts are added to the fleet in order to open new routes or increase frequencies, revenue also increases. Even though the expenses increase due to the higher number of aircraft, decision will benefit from cost savings coming from economies of scale and crew complement, using the same pilots and licenced engineers with no requirement for transition and from fleet commonality, because the same type of engine and spares. Adding, airlines could benefit from higher discounts provided by suppliers and manufactures due to the increase of purchase of their services (Wail I. Harasani., 2009). On the other hand it has its own limitation also. If the airline has the whole fleet of the same type of aircraft, it may difficult for them to change and would not be in a good position in the negotiation for a new aircraft with the manufacturers. If they have a mix fleet, then they can buy one type or another that would help them to get a better price of the aircraft needed. ??When replacing a fleet of older aircraft with fleet of new aircraft of a similar size When the management decides to replace an older fleet with newer aircraft, the public perception plays an important role. They may feel more comfortable and reliable when they fly newer and state-of-the-art aircraft. The older aircraft usually experience higher maintenance costs and often encountered age related problems resulting in delays and flight cancellations in frequent manner results in decreasing customer’s satisfaction level. They are also less efficient in terms of fuel efficiency and environmental requirements compared to newer aircraft. Generally the replacement of new aircraft with older one would leads to an increased preference by customers towards that particular airline company. But, the companies look towards other factors such as minimum maintenance and overhauling costs, more fuel efficiency, technological advancement, higher insurance costs, and reduced carbon emission whenever they take a decision to replace the new aircraft with older one (Aircraft Analysis and fleet planning, 2005). The company has to invest a lot of money to buy a new aircraft which would require a long time to extract its cost out of the profit earned for that particular airline. Adding, to purchase new aircraft company needs finance. If the interest rates are high, it would cost more for the company. For example, the 787 series is a proposed replacement for the 767 series, A310-300 and A 300-600, the A 340-200. A 350 has been launched to compete against 787. The 787’s cost saving advantage over other aircraft mainly comes from its maintenance costs and fuel burn. Moreover, higher fuel price would increase the 787’s advantage (Aircraft Analysis and fleet planning, 2005). The Airbus A320 family is a short to medium range commercial passenger which can accommodates up to 220 passengers. On the other hand, following the success of Boeing 737-200 advanced; company has decided to increase capacity and range incorporating commonality with previous 737 variants. New generation aircraft provide airlines with the opportunity to reduce operating costs, but have the high financing charges. New aircraft enjoying maintenance ‘honeymoon’ for their initial years of operation, but their high finance charges make their total unit costs higher than the older aircraft they are replacing. ??When replacing with aircraft of larger size Larger aircrafts are fitted with more seats compared to smaller aircrafts. As a result they provide a lower cost per seat kilometre. Adding, larger aircraft has higher operating cost but lower cost per seat. So, when we take overall cost for a year, larger aircrafts are less expensive. Generally, large aircrafts are expensive in terms of total fuel burn, increasing navigation and landing fees, crew expenses, catering for extra passengers, engine maintenance and inspections in case of aircraft with four engines fitted such as the Airbus 380, A340 or Boeing 747. Additional handling equipment and airport facilities are also required for these aircrafts. But they carry more passengers at a time which is the biggest economic advantage (Dani Alonso., 2007). For example, the A380 delivers lower costs and gives a 50% increase in seats as it carries more passengers at a time. Operational costs are less as one third less flight crew would be needed than 747. Probably it needs 20-30% less flight attendants, one third less ground crew and 20-30% less catering and cleaning crews than 747s. Landing fees would also be little less. Maintenance and fuel costs are less while operating fewer planes. It proves how an A380 can seriously lower operating costs on a route versus flying flocks of smaller planes. But, large aircrafts have some disadvantages. Not all routes required large aircrafts as they have less number of seat capacity. At key airports where aircraft cannot get any more runway capacity it becomes the only way to grow its market if they are already running B744s. It is more a traditional airplane in terms of operation, and needs two crew members. B744’s weight will be significantly lower and will burn less fuel when the planes it replaces. Landing fees are lower, and its lower weight will allow loading more cargo which will help to generate more revenue. A380 uses its size to make it cheaper to run fewer of them than smaller planes, and B744 makes the plane significantly cheaper to operate when compared to older plane with a similar size. There are a number of routes which need the aircraft of the capacity of A380. On the other hand, some other routes that do not need an A380, but could use a more efficient version of what they are flying now, which is why the B744 would be a success (Brandy Madison, 2009). The airbus A380 is a double deck, four engine airliner, and is the largest aircraft in the world. It is manufactured by Airbus, the European corporation, and made its maiden flight on 27th April, 2005. It has plans for an enlarged version, the A380-900 which would have a seat capacity of 650 passengers in standard configuration, and of around 900 passengers in economy-only configuration. The new airbus is sold in two models as A380-800 was designed to carry 555 passengers in a three class configuration or 853 passengers in a single class economy configuration. In May 2007, airbus began marketing the same aircraft to customers with 30 fewer passengers, and future variants may include an A380-900 stretch seating about 656 passengers. The Boeing has a maximum of 568 passengers while the Airbus can host 840, which means Airbus have the maximum capacity of passengers to go to almost the double than Boeing (PlaneSpottingWorld.com, 2010). ??When replacing with or adding aircraft of longer range Aircraft with longer range have more costs compared to shorter range due to increase in expenses such as more fuel consume, catering for the whole duration, additional reserve pilots, increase in navigation fees required to perform longer routes and their higher acquisition price. But, there is cost savings due to the higher annual utilisation of the aircraft lowering the costs allocated per flying hour related to acquisition costs. Moreover, revenues can improve as new longer routes and new destinations can be offered to passengers (William Gibson, 2007). Airline profits are very sensitive to the factors such as fuel costs, average fare levels and passenger demand. The main competitive factors in the airline business are fares, customer service, routes served, flight schedules, types of aircraft, safety record and reputation, code sharing relationships, capacity, in-flight entertainment systems and frequent flyer programmes. Revenue factors such as the number of miles flown by revenue passengers, the average amount one passenger pays to fly one mile, the average one-way fare paid per flight segment by a revenue passenger and the load factors are needed to be evaluated when replacing with or adding aircraft of longer range. Load factor is the percentage of aircraft seating capacity that is actually utilised. Higher number shows that an airline is operating efficiently and closer to capacity. Fuel cost is the largest single cost for an airline, and the average fuel cost per gallon is one more factor considering when replacing with or adding aircraft of longer range (Paul Clark, 2007). ??When choosing between two aircraft of similar size and range Price is an influential factor when choosing and selecting between two aircrafts of similar size and range. The prices of two similar size aircrafts can be different. So, the company's own affording capability would be its priority. For example, the aircraft of Airbus A350, and the Boeing B737NGs. Besides the price, the airline operator may have their own preference of the aircraft company. In a recent move, the British Airways has favoured the Airbus (Brisbanetimes.com, 2010). Apart from this, quick and responsive service provided by the company after the sale is another factor that could charm the buying trend of any particular aircraft. Adding, issues such as purchase price of the aircraft, extra services offered from the manufacturer regarding transition costs, performance guarantee and warranties and the residual value of the aircraft in case of a future sale have to be considered during the particular evaluation in order to select two models of similar performance and characteristics. Conclusion In recent times fuel has emerged as the single largest expense, surpassing labour costs in aviation industry. Along with these other outside influences led to the conclusion that the airline business has been irrevocably changed, and new operating models and approaches are necessary. Most airlines are implementing cost effective measures to maintain profitability. Tendency of fleet planning is becoming more market oriented as the airlines are placing more emphasis on the financial matter. As a result, costs and revenues play their major role in deciding their strategy. At the same time they are not in a position to compromise on safety. So, aircraft fleet planning is now becoming more and more challenging than earlier.   Reference Aircraft Commerce. 2005. Aircraft Analysis and fleet planning [Online] (Updated March 2005) Available at: http://www.aircraft-commerce.com/sample_articles/sample_articles/fleet_planning_sample.pdf [Accessed 07 January 2011]. Brandy Madison, 2009. The Airbus A380, Head and Shoulders Above the Boeing 747 [Online] (Updated 3 July 2009) Available at: http://www.associatedcontent.com/article/1888244/the_airbus_a380_head_and_shoulders.html?cat=16 [Accessed 07 January 2011]. Brisbanetimes.com.au, 2010. British Airways chooses Rolls-Royce engines for A380s [Online] (Updated December 2010) Available at: http://www.brisbanetimes.com.au/travel/travel-news/british-airways-chooses-rollsroyce-engines-for-a380s-20110107-19i15.html?from=brisbanetimes_sb [Accessed 07 January 2011]. Dani Alonso., 2007. Airbus A380 vs Boeing 747 [Online] (Updated 24 November 2007) Available at: http://ezinearticles.com/?Airbus-A380-vs-Boeing-747&id=849142 [Accessed 08 January 2011]. Olivier Bonnassies, 2010. Aircraft [Online] (Updated 7 July 2010) Available at: http://www.flightglobal.com/articles/2010/07/07/344137/talking-scrap.html [Accessed 07 January 2011]. Paul Clark, 2007. Buying the big jets: fleet planning for airlines [Online] (Updated July 2007) Available at: http://books.google.co.in/books?id=AY2Ad3aUWmUC&pg=PA54&lpg=PA54&dq=Paul+Clark [Accessed 07 January 2011]. Plane Spottingworld. Com, 2010. Airbus A380 [Online] (Updated 15 February 2010) Available at: http://plane.spottingworld.com/Airbus_A380 [Accessed 08 January 2011]. The Global airline industry program, 2009. Airline Industry Overview [Online] (Updated June 2009) Available at: http://web.mit.edu/airlines/analysis/analysis_airline_industry.html [Accessed 07 January 2011]. Wail I. Harasani, 2009. Evaluation and Selection of a Fleet of Aircraft for a Local Airline [Online] (Updated 11 October 2009) Available at: http://www.kau.edu.sa/files/320/researches/52703_23009.pdf [Accessed 07 January 2011]. William E. Gibson, 2007. Airline Fleet Planning and Aircraft Investment Valuation [Online] (Updated 2007) Available at: http://www.scribd.com/doc/24714346/William-Gibson-Airline-Fleet-Planning-and-Aircraft-Investment-Appraisal [Accessed 06 January 2011]. Read More