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AIRLINE MANAGEMENT BASIC CONCEPTS (Budd, L. & Ison, S., 2017)
The Aviation Value Chain
The aviation value chain has many parts in which the airline is a part of it. The chain begins with manufacturers,
infrastructure, and services providers and ends with the distribution of services for passengers and cargo. In
between are airlines, which is one (1) component of the value chain that connects the whole.
Figure 1 shows an illustration of the aviation value chain.
Service provider:
Manufacturers: Infrastructure: • Insurance providers
• Aircraft • Airports • Airport services
• Engines • Air Traffic Control provider
• Other components • Communications • Catering
• Maintenance
Airline
Distribution (Passengers):
• Global Distribution Distribution (Cargo):
Systems • Freight forwarders (FedEx,
• Travel Agents/Tour DHL)
Operators
Figure 1. The Aviation Value Chain
Source: Air transport management, 2017, p. 24
Airline Market Demand
In general, the demand for air travel can be simply characterized as derived demand. Derived demand means
that it is a consequence of the demand or a need for something else. Demand for air transportation arises
from a desire or a need from an individual to reach a certain destination.
However, the derived demand for air travel is affected by other factors as well. One (1) is the collective results
of different economic activities worldwide, such as the lifting of trade restrictions between nations, economic
growth, urbanization, and growing economies, among others.
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The air travel market is so diverse that its market segments react differently to the factors that affect the
demand. Figure 2 shows the different market segments for air travel.
Figure 2. Market Segments for Air Travel Demand
Source: Air transport management, 2017, p. 27
Each market segments have their sensitivity in price and service quality, and their responses may vary to the
factors that affect the demand. For example, the demand for international business travel in short-haul routes
tends to spend less on airfare and accept lower in-flight service quality compared to its counterpart
(international business travel in long-haul routes).
Airline Market Supply
Airline products are mostly perishable, meaning that in a single flight, a vacant seat cannot be sold again. Most
airlines are challenged by the proper allocation of their products to minimize cost and maximize revenue. For
example, airlines under the FSNC business model (discussed in the previous module) usually offer multiple
seat classes (first, business, and economy) on a single aircraft so they can tap into different market segments.
Airlines usually do joint production, which is defined as a situation in which two (2) products/services are
created at the same time in the production process as another way to maximize revenue. For example, on a
flight from Manila to Singapore, there may be passengers who came from overseas in Manila and needed to
fly to Singapore. Other passengers might need to fly to Singapore to reach a farther destination via connecting
flights. It means that airline products may serve more than one (1) purpose/demand.
The supply in the airline industry tends to exceed the demand, and its capacity is rarely used at 100 percent.
It is probably one (1) of the reasons why airlines with fully booked flights are capable of moving passengers to
other flights. If not, passengers just move to another airline. Airlines increase the supply to have a competitive
advantage in terms of frequency.
Airlines that have a higher frequency of trip is more likely to offer the preferred departure time for passengers.
This, in turn, is considered as a good quality of service and results in a bigger share of the air travel market.
Route Structure (Cook, G. & Billig, B., 2017)
Among the strategic choices of airlines with regards to satisfying air travel market demand are the destinations
and routes it will offer to passengers. These decisions are affected by other fundamental strategic decisions
such as the target market and how the airline intends to have a competitive advantage against its
counterparts. There are three (3) generic route structures that airlines can offer, which are the following:
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• Point-to-Point – This route structure is a simple approach to connecting the destinations that the
airline wishes to offer. Non-stop flights are usually used in this route, and all passengers embark from
their origin and disembark at their destination.
It is a fast, cheap, and independent system that provides the shortest time for travel. The non-stop
flights make it independent as it doesn’t have to synchronize with other flight schedules compared to
other routes that are connected, which makes it simple and straightforward. It is cheap or cost-
effective because it allows for the shortest flight distance possible to reach a destination.
Its reach is limited to only several air travel market segments, for there are only a few paired
destinations that can be profitable and cost-efficient for point-to-point services operations.
• Linear – This route is a simple extension of the point-to-point structure where after reaching a
destination, the flight may continue to one (1) or several destinations. This route structure allows for
the boarding of passengers from the origin and the destinations along the route and deplane at their
respective destinations.
Like the point-to-point structure, linear routes are independent as disruptions on one (1) route don’t
affect the other, and schedules are simplified. Also, because this route structure is a combination of
paired destinations, the combined demand from different air travel market segments allows the
offering of services in between cities.
However, its downside is that there are multiple stops in a single trip. This means that there may be
conflicts with the passenger’s desire to have a quick, direct, and convenient flight experience. Distance
between stops in this route structure tends to be short, which adds to the operational costs for each
time a flight reaches a destination.
• Hub-and-Spoke – This route is usually utilized by large airline companies in the world. Its design and
operation are very complex compared to the previous two (2) route structures. This route structure
works best for serving wide geographical areas and many destinations. It has many variations
depending on the destination.
The hub-and-spoke route structure can be simply described in this way, the hub is the main airport of
operations or the hub city/airport, and the spokes are the different routes that the airline serves from
its hub. The hub-and-spoke structure is advantageous in terms of the following:
o It has total connectivity through a smaller number of trips – Since it has a main hub, fewer
trips are required to have total connectivity compared to the point-to-point structure.
Figure 3. Total Connectivity Comparison between Point-to-Point and Hub-and-Spoke
Source: Airline operations and management, 2017, p. 68
o Expansion of city pairs – A single hub-and-spoke network can connect more destinations that
comprise several pairs of destinations. For example, an airline that offers flights from New
York as its origin and Manila as its destination can access more city pairs in the Philippines
(Manila-Cebu, Manila-Davao, Manila-Ilocos).
o Consolidation of demand – Since the hub-and-spoke structure can connect more destinations,
it can also cater to almost every airline demand market segment.
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o Passenger convenience – An airline that utilizes the hub-and-spoke structure provides
convenience to passengers in terms of easier transactions, single check-in for multiple
destinations, easier gate and facility locations, and a structured flight schedule, among others.
o Hub dominance – Airlines can take advantage of the market within their hub by establishing
their dominance in the local market.
o Competitive strength – Airlines that use this structure are usually prioritized in terms of
utilization of the hub airport’s facilities.
o Widespread distribution – Hub airlines reach a wider share of the global market due to the
huge number of routes it serves.
o The hub-and-spoke structure also has its disadvantages, which are as follows: Infrastructure
and labor – Hub airlines require intensive labor and extensive facilities to sustain operations
within this structure. The nature of the hub-and-spoke structure, which has complex
connections, makes the infrastructure and manpower assets idle during connecting times.
o Flight operations expense – Hub-and-spoke structured airlines technically have the highest
operational costs because of the number of routes it serves.
o Harder pacing of flights – The spokes’ distance in the hub-and-spoke structure varies greatly,
that it’s a challenge for airlines to structure their trips that will optimize passenger
convenience.
o Crowded hubs – As the hub-and-spoke structure gets the largest part of the air travel demand
market, it tends to crowd hubs, especially in the events of delay and cancellations. Passengers
are stuck in the terminals, and aircraft are stuck in the parking ways, taxiways, and runways.
o Mixed fleet requirement – The structure serves cities of different sizes and demands. From
small to big cities, their airports have different capacities. To reach a wider market, hub
airlines must have different types of aircraft to be able to operate in different types of the
airport.
o Delays – Hub-and-spoke structured airlines are always susceptible to flight delays. A delay in
a spoke may result in the delay of other routes.
BASIC AIRLINE OPERATIONS MANAGEMENT (Cook, G. & Billig, B., 2017)
Airline schedule and resource planning
This focuses on the optimization of resources through proper scheduling of airline activities. The resources in
operating an airline, such as aircraft and flight crew, are expensive and costly to employ, respectively.
Resources need to be synchronized as well in airline operations, for most airline resources cannot operate
independently. For example, an aircraft is selected to serve a route but needs the services of a flight crew to
operate. Airline schedule and resource planning are comprised of three (3) main tasks, which are the
following:
• Schedule/timetable generation – The airline must determine not only the departure times of flights
on different routes but also the frequency of daily flights. Many airlines apply the basic rule of “the
more frequent a flight is, the more it is appealing to passengers.”
• Fleet assignment and routing – After setting a timetable, the airline needs to allocate its available
aircraft to the right routes. The choice of which aircraft to utilize for a specific route is usually based
on the tentative forecast. The task is to choose the right type of aircraft for the right route that will
meet the demand and maximize potential revenue. There are four (4) general constraints in the fleet
assignment:
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o Flight coverage – Each flight must be assigned to one (1) aircraft type.
o Aircraft flow balance – The total number of incoming aircraft at an airport must be equal to
the total number of outgoing aircraft in addition to the aircraft remaining on the ground.
o Fleet size – The number of aircraft used must be less than or equal to the total fleet size.
o Slot allocation – The availability of desired parking slots at all destination airports must be
adequate to handle the fleet assignment accordingly.
An aircraft then is given a tail number, which is a unique identification or registration number that
helps the identity of which route assignment the aircraft belongs to. This is done to identify individual
aircraft and their respective maintenance requirements to ensure that the right aircraft is used for
the right route.
Aircraft tail assignment must take into account the performance and maintenance history of an
aircraft. This is to make sure that the airlines still meet the legal safety requirements for aviation.
• Crew scheduling – After routes are assigned to aircraft, the next step is to design a work schedule for
the flight crew who will operate the flight. This process is done through two (2) components which
are the following:
o Crew pairing – This is a work schedule that is designed in a sequence of flights that begins and
ends at a crewmember’s base/headquarters. The length of flight in a crew work schedule can
span multiple days. Pilots can only fly one (1) aircraft type, while cabin crews are usually
qualified to serve any type in the fleet.
Crew pairing includes intervening rest periods (usually overnight) and should meet legal
working conditions for the crew to ensure the safety of the entire aircraft operations. It is
important to take note that the actual names of crew members in this component are not yet
identified and are designed to determine the number and type of crew required for a specific
fleet type.
o Crew rostering – After the work schedule for crew members is designed, the crew pairings
will be assigned to the crew members. A crew roster ensures that the employment conditions
for the crew are met, such as annual leave entitlements, training, and leave requests, among
others. It also makes sure that a flight has enough qualified crew on board.
Most airlines use a system that enables crew members to bid for their preferred work
schedule. The crew members register their preferences, and the system fills the roster with
crew pairings that meet their preferences. In the bidding system, senior cabin crew members
tend to obtain work schedule that is aligned with their preferences, which leaves the
undesired schedules to junior cabin crews.
Airline Operations Control Center (AOCC)
The people involved in an airline operation are scattered across the airline’s route system. In nature, airline
employees often report to different managers who are assigned to handle different areas of the operation.
This often results in conflicting priorities and poor communication with other functional departments.
This led to the development of the Airline Operations Control Center, which is the single operations center for
all daily operations managers and staff. The name may vary depending on the airline, but the concept is the
same. It is considered as the solution to improve coordination, communication, and tactical decision-making
for airline operations.
The AOCC contains one (1) or more operation controllers that monitor several functional areas such as the
following:
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• Dispatch – This is responsible for the flight planning, issuing flight plans to captains, and following
each flight’s progress. Dispatchers are licensed professionals who ensure the safe operation of the
flight along with the pilot. They often work alongside load planners who track and give instructions in
the loading of passengers, baggage, and cargo. Load planners provide the computation of the total
weight and center of gravity to the captain.
• Crew scheduling – This tracks crew members’ movement through the airline’s route network, checking
their status, and calling in reserve crewmembers, or readjusting their schedules as the need arises,
especially during disruptions.
• Maintenance control – This coordinates with line mechanics for aircraft maintenance, especially
during technical issues. They make sure that the required parts and repair equipment are available to
meet aircraft maintenance policies and troubleshoot malfunctions.
• Fleet planning – This tracks individual aircraft to make sure that their schedule would allow for their
required maintenance.
• Customer service – The front-liners who are in charge of ensuring the proper flow of the passenger
check-in up to the boarding process belong to this functional area. They also make sure that schedule
changes are communicated to station personnel and passengers and accommodate all the required
needs of affected passengers.
Disruption Management
The nature of airline operations is that it is full of uncertainties. The airline is a business that is always subject
to disruptions, which the most common are flight delays and cancellations. Airlines do their timetabling with
the presumption that the daily operations will be performed without any schedule changes. However, this is
hardly the case; that is why disruption management is implemented. It is a decision-making process taken by
the airline to minimize the consequences and impacts of operational disruptions.
Delays and cancellations often result in higher than expected operational costs, and airlines try their best to
execute operations closer to the planned timetable. Disruption management can be done in two (2) ways
which are the following:
• Schedule recovery – This is a reactive form of intervention made by airlines to return the operations
to their normal schedule. It is usually applied in the events of disruptions in the original aircraft
routing, crew pairings, and even passenger itineraries. The following are some techniques applied in
schedule recovery:
o Delaying or canceling flights
o Rerouting of aircraft and/or crew to operate other flights
o Using additional/reserve crew to operate and avoid exceeding crew work limits
o Transporting crew as passengers (deadhead crew) who will operate flights out of other
airports
These recovery techniques depend on the nature of the disruptions and may have significant impacts
and conflicts on all people and resources affected. The schedule recovery process should also involve
the following measures:
o Generate an updated flight schedule
o Reroute aircraft to operate the updated flight schedule
o Allocate crew who will operate to the rerouted flight schedule
o Design new itineraries that will ensure the arrival of disrupted passengers to their intended
destinations
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• Robust planning – This is a proactive approach to disruption management that is planned during
timetabling to avoid or minimize the impacts of operational disruptions before they could even
happen. There are ways on how robust planning can be done which are the following:
o Increase time for aircraft turnaround/aircraft unloading and departure preparation on the
ground to have a buffer for delays.
o Determine expected delays and come up with contingency plans to return to schedule as
quickly as possible.
o Prepare for the possibility of aircraft swapping/switching.
References:
Budd, L., & Ison, S. (2017). Air transport management: An international perspective. Routledge
Cook, G., & Billig, B. (2017). Airline operations and management. Routledge.
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