Air Transport - Airline Scheduline - Term Paper Example

«Air Transport - Airline Scheduline» Table of Contents Abstract 2 Introduction 2 What fleet best suits this new business and how should aircraft be acquired for the fleet? 3 How should the fleet be scheduled? 7 What factors should be considered when choosing airport(s) for this airline business? 10 Conclusion 13 Reference 15 Abstract A new Singapore-based company has entered the aviation industry with a startup capital of US$ 500 million. The company has its operation in Australia, Singapore, Thailand and Vietnam. Being a greenhorn, it is yet to learn the subtle nuances of aviation industry. Henceforth, it needs sound advice on certain areas of operational planning and activities. The operational planning of the new airline business includes fleet planning, aircraft acquisition, fleet scheduling and airport selection. Such advices are provided on the basis of analysis and discussion aimed at reducing the operational cost of the company. Introduction Aviation or airline industry is one of the fastest growing industries. In recent years, the demand for air travel has increased significantly. The airline industry plays very vital role in shaping the global development. This sector is known to support various allied industries like travel and tourism, hospitality etc. It is instrumental in the growth and development of economy, international trade and investments. Growth of the airline industry is inextricably linked with that of globalization. The current market position of this industry is quite strong indicating a promising future. The last 20 years saw a massive evolution in this industry and the frequency of the air travel had multiplied manifold. There are many factors that have contributed to the rapid growth of this industry. Technological development in the field of aviation is the one that demands special mention. Increasing disposable income of people is another factor that has contributed to the high profitability of this industry. People are able to afford the expenses of air travels for their tours and businesses. Due to internationalization of trade and business, the business travels has increased considerably. Geographical boundaries have blurred as multinational companies are opening their units in different locations. This has in turn has increased the number of air travel. This report will suggest some useful recommendations to a start airline venture. This Singapore–based airline company has started its business with US$500 million as initial capital investment. The company needs advice primarily on three areas. The first section will discuss on fleet planning for the new business and will also discuss ways to acquire the aircrafts. Next section will focus on proper scheduling of fleet. Finally, the last section will discuss about the factors that need to be taken into consideration while choosing the airports. The entire analysis and discussion will be summed up in the conclusion. What fleet best suits this new business and how should aircraft be acquired for the fleet? This section will deal with the fleet planning process for the new Singapore-based airline company. Fleet planning is important for formulating the operational strategy of any airline company. According to the Paul Clark, “fleet planning is the process by which an airline acquires and manages appropriate aircraft capacity in order to serve anticipated markets over a variety of defined periods in time with a view to maximizing corporate wealth” (Clark, 2007, p.2). Therefore, fleet planning of an airline company must be designed in a manner so that it generates higher revenue. Fleet planning should take into consideration factors like the current market scenario and the latest technology available in the market. In the aviation industry, operating costs are higher as compared to other industries. In aviation industry, the operating cost involves the direct operating cost and cost for operating equipments. Therefore, while the choosing the operating equipments like aircrafts; the company must follow a set of appropriate strategies so that it incurs lower direct operation cost. Some of them are discussed below. Technical performance and characteristics: Technological knowhow forms the primary criteria for selection. There are certain parameters based on which the aircrafts are chosen. These are engine technology, seating capacity, fuel capacity and design etc. These factors affect the operational costs and activity of airline business. The technology accessed must ensure the safety of the passengers. Economic and financial aspects: The new Singapore-based company has US$ 500 million as its investment capital, which is enough for purchasing a decent number of aircrafts. However, during the peak seasons, the company must lease some aircrafts as it will be not able to afford costs for more operating equipments at initial level. Environmental regulations and constraints: The aircrafts must comply with environmental regulations. For example, its policies must include air and the noise pollution act. Marketing considerations: In order to attract the passengers, the company should buy the latest aircrafts that offer extra-ordinary comfort level and safety. Political realities: The Company is based in Singapore and therefore before acquiring the aircraft it must take into account the airline trade issues acts. For example, in many countries, the government forces the airline companies to purchase the aircrafts from the government owned airplane manufacturers (Belobaba, 2006). The following figure represents the aircraft selection criteria as per their importance. Figure 1: Aircraft Selection Criteria (Source: Harasani, n.d.) The above figure concentrates on the DOC (direct operating cost) and aircraft price, thereby indicating operational cost as the most important factor. A number of aircraft manufacturers, like Airbus, Boeing, Fokker, Embraer, offer various models of airplanes. However, the company will focus primarily on the passenger carrier aircrafts. The model that bests suits the above mentioned criteria is ‘A318’. The A318 is manufactured by Airbus, a leading aerospace company of France. The passenger capacity of A318 is 107 with two class cabin layout. There are eight seats for first class and the rest are for economical class (Airbus-a, 2010). The performance specification of this aircraft is best suited for this new company. It provides high fuel efficiency and economical trips with average price ranging around US$59 to US$60 million. The company can use this aircraft to provide low cost air services and hence, the company must buy at least three A318. Cost of acquiring three A318 will be around US$ 180 million. ‘A319’ is another aircraft that suits the company’s requirements. The performances and design of this aircraft is better as compared to A318. “The A319 has the exceptional range of 3,700 nm/6,850 km that offer true transcontinental non-stop capability, whether routes are primarily business travel or leisure and holiday travel” (Airbus-b, 2010). The average price of A319 (with 124 passenger carriers) is around US$ 70.3 million and the company must buy at least three A319 aircrafts which will costs around US$ 211 million. During the peak season, if the company finds that the existing fleet (three A318 and three A319) is not sufficient to meet the market demand, then it must lease two or more aircrafts. The leasing will be on contractual basis and temporary in nature. However, while leasing the aircrafts, the company must take into account important features like operating cost, performance and seating capacity etc. How should the fleet be scheduled? Planning for operational activities is another major task that any airline company must undertake. In aviation industry, operational planning includes fleet scheduling and fleet planning. Operational activities should be optimally organised and planned so that operational cost remains low. In order to do so, the company must focus on certain factors like “the assignment of the aircraft type to flights” and “the construction of sequences of flights assigned to particular aircrafts” (Sosnowska & Rolim, 2001). The Singapore-based airline company will buy three A318 and three A319 and these aircrafts will fly between Australia, Singapore, Thailand and Vietnam. The south eastern Asian airlines are some of the busiest aircraft route. Fleet scheduling of the company must analyse the frequency of aircraft flying between Singapore, Australia, Thailand and Vietnam. Due to low cost services, the flying frequencies have been increased in the ASEAN airline regions. South East Asia aimed for “12 hours’ utilization of their aircraft per day in order to increase flight frequency” (Damuri & Anas. 2008). Such facts should be borne in mind by the company while formulating its fleet planning and scheduling. The use of technology for operational research in the aviation industry is very crucial for airline fleet scheduling. Fleet scheduling and planning groups of the new Singapore-based company must decide an optimal route for its fleet that maximizes the total revenue and minimizes the operating cost. At the same time, fleet scheduling must resolve all the constraints arising during operational activities. In order to schedule the airline, the company must follow a model that includes various stages in fleet scheduling. Figure 2 presents the airline scheduling model. Figure 2: Various stages in the generation of an airline schedule (Source: Ahuja &. Orlin, 2002) The above figure includes four models that aim to resolve the several constraints of various stages in airline scheduling. The first stage is the fleet assignment that decides the schedule for each type of aircraft. This company has two types of aircrafts i.e. A318 and A319, each of these has its own specifications like seating capacity, speed, fuel efficiency, landing weights, maintenance cost etc and therefore improper allocation of these aircraft fleet will cause loss of revenue. The new company is in its growing stage with limited budget of US$ 500 million. Hence, it must carefully assign the fleet. In this process, the company is likely to face the ‘time-line network’ problem. Every airport maintains a time line network that determines the arrival and departure of the aircraft in chronological order. Each flight is also provided with a similar time-line chart (Griva, Nash, & Sofer, 2009, p.18). Yan, Lo, and Chen developed a single fleet time space network model to ensure optimal scheduling of the aircrafts. Figure 3 shows the model. Figure 3: The single-fleet time-space network (Source: Yan, Lo, & Chen, 2005) In the above model, the horizontal axis (city 1, 2, 3 & 4) represents airports and the vertical axis stands for the time period. Each node denotes particular airport along with time and shows the operational activity of the company. The model also shows different arcs like flight arc, ground arcs, position arcs etc. The company can follow this model for its fleet scheduling. For fleet scheduling, the company must use the mathematical models. Many mathematicians have suggested basic mathematical model for daily fleet scheduling. The basic mathematical models has three constrains. These constrains are given below. Aircraft balance: The Company must strike a balance between the similar types of airlines. It means that there should be equal number of aircrafts present in the airport and flying out. Flight coverage and aircraft integrity: There must be one type of aircraft assigned for each flight so that it optimizes the airline usage. Fleet size: While assigning a particular type of aircraft for each flight, it must ensure that it matches the availability of aircrafts (ReVelle & McGarity, 1997, p.441). The above constrains can be resolved by applying the basic mathematical model. This model is quite complex but has been widely used by many airline companies. What factors should be considered when choosing airport(s) for this airline business? Airport is another important factor that the new Singapore-based airline company must take into consideration. Proper selection of airport will help the company to run its operational activities smoothly and to reduce the operational costs. Airports must have proper arrangements to carry out its operational activities. Primarily, the geographical position influences the quality and efficiency of an airport. However, there are many other factors that must be considered while choosing the airport for the new airline business. Before choosing the airports, the company must understand the choice of the customer in selecting their airports. In this context ‘Simulation model’ is useful to understand passengers’ motive of travel, location preference, utility perception etc (Steverink, n.d). Figure 4 portrays the simulation model. Figure 4: Simulation Model (Source: Steverink, n.d.) This model identifies three areas for airport selection based on consumer preferences. Firstly, the airport arrangement and facilities must suit the airline strategy. Secondly, the consumer behavior includes utility perception and awareness of the consumer in selecting the airport. Thirdly, the decision core helps to determine the share of passengers in a particular airport. The company can follow this modelling process in order to choose the most profitable airport for its new business. According to Transport Research Centre and International Transport Forum, there are certain factors that influence airport choice of passengers. Some of them are given below. Check-in facility: The check-in facility of the airport must be organized logically and should be convenient for passengers. Shopping/lounge/restaurant facilities: Nowadays, these facilities have become inevitable. Passengers are very particular about the presence of such facilities in an airport. Therefore, the company must choose an airport that provides these facilities. Baggage/customs/immigration facilities: For an international airport, customs and immigration processes are mandatory. These processes must be conveniently organized for the passengers. Accessibility of airport: This is another important criterion for choosing an airport as it includes access cost, access time, parking facility and security (Transport Research Centre and International Transport Forum, 2009, p.142). The above discussion reveals the preferences of passengers in selecting the airport. Therefore, the company must consider these factors while choosing the airports as it determines the availability of the passengers. Other factors include airline business perspectives, which must be taken into account by the company before selecting an airport. Some these factors are discussed below. Location: Proper location decides accessibility of market, availability of technology, weather condition etc. Airport quality: Airport quality decides the flow of operational activities and cost, security, runway space, convenient facilities, terminal facilities etc. Third party influence: Third party influence implies airport authorization, legislation, agreements, influence of the government and political parties etc. Other factors: Other factors include influence of the competitors, urbanization economies, localization economies etc (Gardiner, 2006). The new Singapore-based company must conduct an analysis to check the availability of these factors before choosing its airport. Conclusion The airline industry is one of the most rapidly growing industries. Globalization has led to an increase in disposable income which in turn has further accelerated the growth of this industry. The new Singapore-based airline company has entered the aviation industry with little experience. The first priory of this company should therefore be fleet planning and aircraft acquisition. With the help of US$ 500 million it can easily acquire three A318 and three A319 as these aircrafts will incur lower operational costs. During peak seasons, it can acquire two or more aircrafts by leasing it on a contractual basis. For fleet scheduling it can follow single-fleet time-space model or basic mathematical model. These two models are useful in optimizing the process of fleet scheduling thereby lowering the operational cost. Selection of appropriate airports is very necessary for the new airline business. Availability of passengers is the most important criteria for choosing the desired airports. The company will thereby focus on consumer behavior before taking the final decision. Other factors like location, quality of airport and third party influence also influence the profitability of the company. Reference Ahuja, R. K. and Orlin, J. B. 2002. 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Available at: http://www.aseansec.org/aadcp/repsf/docs/04-008-FinalLCCs.pdf. [Accessed on September 19, 2010]. Gardiner, J. 2006. An international study of the airport choice factors for non-integrated cargo airlines. [Pdf]. Available at: http://www.tiaca.org/images/tiaca/PDF/An%20International%20Study%20of%20the%20Airport%20Choice%20Factors%20for%20Non.pdf. [Accessed on September 19, 2010]. Griva, I., Nash, S. G. and. Sofer, A. 2009. Linear and Nonlinear Optimization. 2nd Edition. SIAM. Harasani, W. No date. Saudi Association for Aerospace Science: Airline Fleet Planning, Overview. [Pdf]. Available at: http://engg.kau.edu.sa/SSAS/planing4.pdf. [Accessed on September 18, 2010]. ReVelle, C. and McGarity, A. E. 1997. Design and operation of civil and environmental engineering systems. Wiley-IEEE. Sosnowska & Rolim, 2001. Fleet Scheduling Optimization: A Simulated Annealing Approach. [Online]. 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