02_Handout_1(2).pdf

TH2105 AIRLINE MANAGEMENT AND OPERATIONS Introduction The term management refers to the people working together to achieve the desired organization's goals a...

TH2105 AIRLINE MANAGEMENT AND OPERATIONS Introduction The term management refers to the people working together to achieve the desired organization's goals and objectives. The functions of management include planning, organizing, staffing, leading or directing, and controlling (Nerkar & Chopde, 2011). Different management styles and management processes have changed over time. Still, the main objective is to lead the employees to attain the goals and uphold the standards and policies of an organization. Both formal and informal approaches in management are being applied due to the dynamic evolvement of the management field. Importance of Management Management plays a vital role in ensuring the success of any business organization. Good management can lead to increased organizational efficiency and effectiveness. The following are what makes management important to every business organization (Juneja, n.d.): It helps in achieving group goals. It utilizes all the physical and human resources productively. It plans to get maximum results through minimum input that leads to reducing costs. It fills up various positions with the right persons, having the right skills, training, and qualifications, establishing a sound organizational structure. It keeps in touch with the changing environment; and It increases the organization's economic production that helps improve the welfare of people. Airline Management Like other businesses, management is also vital in airline operations. According to Chase (2018), commercial airlines serve nearly 1,670 airports and transport close to two (2) billion passengers annually. Airline employees are also estimated to be around 2.1 million. As the number of commercial airlines increases worldwide, there is also an increased pressure on airline management to seek profits, reduce costs, and increase revenues continually. Thus, airline management practices have evolved and contributed to recent advances in computation and communication technologies to efficiently perform in a competitive environment and optimize decision-making processes. The functions or airline management can be identified in the following examples: Airlines need to conduct planning. This is primarily manifested in flight preparations, flight schedules, and the flight reservation process. These tasks must be well-planned to avoid inconvenience and the waste of resources in the future. Organizing is evident in dividing tasks among flight attendants on board, determining how many passengers will be catered to in each flight and how their flight needs will be met. Staffing is necessary for airline operations since the management hires pilots, training captains, cabin crew, cargo operators, and other employees. For instance, airlines need to be particular in selecting, recruiting, and training flight attendants because of the job's complexity. Directing is essential in managing an airline. A senior flight attendant can be seen directing and monitoring new and junior flight attendants to ensure passengers' safety and security onboard. Controlling is manifested in how the management ensures that established plans and objectives are carried out and address uncontrollable circumstances—for instance, addressing canceled and delayed flights caused by various factors like harsh weather conditions. 02 Handout 1 *Property of STI  [email protected] Page 1 of 6  TH2105 Part of the daily plan of airlines, flight attendants, pilots, and aircraft maintenance engineers, is to monitor the weather, check mechanical concerns, deploy, and load "fair" flights to cabin crew members (not to exceed four (4) flights or four (4) legs per day) and to provide memorable flight experience to their passengers. In other words, the nature of employees working for airlines, both serving on the ground and in-flight operations, consists of various airline staff and passenger interactions. Everybody must perform their task to achieve a successful and safe flight. Challenges of Airline Management Impact of Other Players in the Industry Airline management does not work independently of other players in the air transportation industry. Airline management decisions are affected by other entities that it interacts with: the government, airports, customers, alliances, suppliers, unions, and competitors. How these players interact with airline management are detailed as follows (Chase, 2018): First, airline management must comply with the regulations of its home country. It must also consider and abide by the rules of the governments of the countries where the airlines fly to and from and whose airspace they cross. Governments typically watch the competition between airlines and control their strategic decisions, such as merging, acquisition between carriers, market entry or exit, pricing, environmental regulations, security regulations, maintenance, and safety requirements. Second, airline management should carefully consider the terms of their agreements with the different airports they serve. Several factors influence these agreements, including available infrastructure (gates, runways, baggage handling, and so on), anticipated traffic, airport charges and incentives, competition from neighboring airports, available landing slots, congestion, and operational curfews. Third, an airline should consider the needs and preferences of its prospective customers, the travelers. For example, the airline should consider establishing convenient schedules, competitive rates, onboard services, on-time services, and effective customer service. Failure to meet customer needs and preferences can lead to losing them to other competing carriers or other modes of transportation. Fourth, in many cases, an airline is involved in one or more alliances to expand its network coverage or share resources with other airlines. Various forms of partnership reflect the degree of cooperation between the participating airlines. An airline must decide what alliance to participate in and share resources effectively with each alliance member to promote profitability. Typically, the airline has to maintain some operating standards to serve as part of a global alliance. Fifth, suppliers play a crucial role in maintaining the company's operations. Airlines rely on suppliers to provide essential items like aircraft, fuel, spare parts, meals, and employee uniforms. In many cases, airlines contract out specific jobs and services to suppliers, such as aircraft maintenance, aircraft cleaning, ground handling, and sales. Therefore, an airline must maintain healthy relationships with its suppliers to remain successful. Another part of the airline industry that an airline has to deal with are unions. Different groups of workers form associations to obtain greater bargaining power with the airline's management regarding wages, benefits, and work rules. Maintaining good relations with the workforce to ensure the proper functioning of the business is one of the main objectives of airline management. Disputes with trade unions can generally lead to negative actions by trade unions, such as slowdown of work or strikes, which significantly hinder airline operations. Finally, in most markets, competition exists between several airlines. Airlines continuously monitor their competitors' decisions regarding capacity, rate levels, rate restrictions, and departure times. In most 02 Handout 1 *Property of STI  [email protected] Page 2 of 6  TH2105 situations, the findings of the competing airlines lead to a leader-follower pattern, where one airline takes action, and the other competing airlines try to find the best way to respond to this action. Decision Levels of Airline Management (Chase, 2018) Like many other businesses, airline management deals with three (3) levels of interacting decisions. These levels include strategic, planning, and operations decisions. Strategic decisions generally require a long time to be implemented and require a considerable monetary investment. They should also have a significant impact on the company's shape in the long run. Examples of strategic decisions include growth and expansion, fleet sizing (aircraft controls), hub locations, mergers with other airlines, alliance participation, and location of service/maintenance facilities. Planning decisions are made within a few months and can be defined as the process of making effective use of an airline's resources to maximize revenues. The resources available to an airline include the facilities and the personnel that operate the business, including aircraft in different fleets, pilots with other qualifications, flight attendants, maintenance facilities, mechanics, gates, customer service agents, and ramp agents. o Planning decisions include forecasting the demand between every origin-destination (OD), flight schedule development, assignment of flights to the different aircraft fleet (if the airline has more than one fleet type), aircraft routing across the other airports with its maintenance consideration, planning the line of flight for pilots and cabin crew, crew accommodations, flight-gate assignment, and catering. o Other planning decisions include the number of employees needed to operate flights at various airports, including customer service, ramp attendants, and baggage handlers. They also include decisions on rate levels in each OD market, rate restrictions, and control of the inventory of seats for each flight. These planning decisions are very dependent on one another, making the planning process complex. Operations decisions for airlines are those decisions needed to be verified or updated on an hourly or daily basis. They include the responses to unexpected incidents such as adverse weather conditions, flight delays and cancellations, aircraft breakdown, and absence of crew or staff due to illness. Operations decisions also include watching revenues, bookings, and anticipated demand levels in the different markets, matching prices withcompetitors, and managing seat inventory on each flight daily. Strategic decisions are anticipated to impact planning decisions, which affect the operations decisions. In addition, there is a reverse reaction from the operations phase to the planning phase, which may provide feedback to the strategic decisions phase. For example, the observation of a frequent delay of a particular flight waiting for its inbound aircraft might alert schedule planning to change the schedule of this flight to give enough connection time for its inbound aircraft. Also, strong market demand might call for a change in the strategic plan regarding expansion and fleet size increase. Airline Planning and Operations Planning usually starts by identifying the expected airline demand and supply (available resources). This stage involves the following processes: Network Structure. A scheduled airline usually has a predetermined network structure. Selecting a network structure is considered a major strategic decision of the airline. The most common network structures include the hub-and-spoke, point-to-point, and combination of both. These network structures are differentiated as follows: 02 Handout 1 *Property of STI  [email protected] Page 3 of 6  TH2105 o Hub-and-spoke – This network structure is where the airline considers one or more stations in the network to be its hub. The hub station is characterized by having numerous departures and arrivals every day for the airline, while the spoke has only a few departures and arrivals each day. o Point-to-point – This network structure is where airlines operate direct flights between cities, as the name implies. The focus of point-to-point airlines is to serve local traffic between two (2) cities, and less attention is given to the connecting traffic beyond their immediate destinations. These airlines do not depend on any connecting traffic to fill their flights, and they can adjust arrivals and departures at one (1) or more of their stations. Demand Forecasting. Demand forecasting is the process of estimating the expected number of travelers on each flight in the schedule, given the flight schedules of all competitors in the different travel markets. It must predict the number of passengers and the changes in demand due to changes in schedule, pricing, and competition. Current airline resources. These are the available airline resources such as aircraft, pilots, cabin crews, gates, maintenance, and airport operations. After identifying the expected airline demand and supply, then a set of the interrelated planning processes is considered, including schedule planning, time banking, fleet assignment, aircraft routing, crew scheduling, airport facility planning, airport staff scheduling, seat inventory control, and sales and marketing initiatives. These processes are usually completed by a month to a few months before the implementation of the schedule and are repeated regularly. These are further explained as follows: Fleet Assignment. The fleet assignment process is necessary for airlines that have more than one type of aircraft. It is done by assigning the different flights in the schedule to the different fleet types. The process matches the characteristics of the aircraft and the flight to minimize the total cost of the flight to the airline. For example, the aircraft travel range must be consistent with the distance between the flight's origin and destination. Aircraft Routing. It means determining the route for each aircraft. The route of an aircraft consists of a sequence of flights and maintenance activities that extend over a few days (5-7 days). The flights are selected to ensure there is enough time for an aircraft turn or a maintenance activity. An aircraft turn is the time difference between the arrival time of a flight and the departure time of the next flight. It should be long enough for deplaning passengers of the inbound flight, unloading cargo and baggage, cleaning the aircraft, boarding passengers of the outbound flight, loading cargo and baggage, fueling, catering, and exchanging crew. While the maintenance activity is performed either after a few departures, certain flying, or operational hours. Crew Planning. The crew (pilots and flight attendants) must know their traveling schedule ahead of time. The crew's work plan is usually extended over one (1) month. During the month, the crew members will be classified as either line crew or reserve crew. A line crew will be assigned a sequence of predefined trippairs over the month. A trippair represents a sequence of flights (segment), which originates from the crew's home city (domicile) to the last flight, which ends at the domicile. It typically extends over two (2) to seven (7) days, and the layovers will serve as his/her rest day. On the other hand, reserve crew members are not given a line of flight but will serve as a backup in case of system irregularity. The efficiency of crew planning can make considerable savings in airline costs. Airport Facility and Staff Planning. During the planning phase, the scheduler must consider the facilities at the different airports, including gates and baggage-handling facilities. The facilities at the airports should be planned efficiently to accommodate the planned flight schedule with the least cost. The scheduling of airport facilities should take into consideration schedule disruptions that typically result from adverse weather conditions. Airport staff includes customer service agents, gate agents, 02 Handout 1 *Property of STI  [email protected] Page 4 of 6  TH2105 baggage handlers, and ground agents. The staff should be adequate to manage unplanned schedule disruptions at the airport due to weather and other unforeseen factors. Sales and Distribution. Airlines spend significant effort on sales and distribution initiatives to improve their market share and profitability. These initiatives include relations with travel agents, global distribution systems, online ticket distribution channels, travelers' mileage plans, sales agreements with major businesses and promotions, and alliances and code sharing. These initiatives must be proper evaluated to understand their impact on airline profitability. Operations Phase The operations phase concentrates on implementing the planned airline schedule and considering how to recover from unexpected events such as weather conditions, aircraft malfunction, and crew absence. This phase is where decisions are made to recover the airline schedule from flight delays and cancellations, compensate for missing or delayed aircraft and crew, and re-accommodate stranded passengers. It also monitors seat bookings in different markets and updates seat inventory control and pricing decisions. The processes involved in this phase are elaborated as follows: Revenue Management (RM). Airlines apply advanced RM techniques to maximize flight revenue in different markets. RM can be defined as selling the right seat to the right customer at the right price and time. The idea behind RM is to ensure proper allocation of seats to travelers who have different characteristics and primarily have additional requirements for their travel. Business travelers are traveling for work-related trips or business meetings, and they are less sensitive to the ticket price. Leisure travelers travel for recreational purposes or visit family/friends, and they are sensitive to ticket prices. Given that business travelers are more profitable to airlines, the objective of RM is to ensure that enough seats are always available for these travelers, while the remaining seats are for leisure travelers. Irregular Operations Management. Managing irregular operations is done because an airline schedule is rarely implemented as planned. Airline schedules are subject to disruptions due to adverse weather conditions, aircraft breakdowns, crew delays, and security breaches. The airline needs to alleviate the impact of schedule disruption and recover the schedule to return to normal operations. Several objectives are considered by the airline when recovering the schedule. For example, by minimizing flight delays, cancellations, and crew swapping, the airline can reduce the deviation from the planned schedule. Flight Schedule Development and Control The flight schedule is said to be the core product of an airline, designed to meet the traveler's need to travel to a certain destination at a specified time. It lists the destinations or routes operated, the frequency of flight, and the type of aircraft assigned to each flight (Bilig & Cook, 2017). In developing the flight schedule, the planner will attempt to balance four (4) conflicting objectives of flight scheduling, making it a complex task. The following are the conflicting objectives: Revenue – The flight schedule must match flights and capacity with passenger demand to maximize the network revenues. For example, airlines will have to schedule frequent morning and evening flights as needed by the business markets, but they will still have to include off-peak flights to accommodate other passengers. Unit Cost and Utilization – The schedule planner will lower the unit cost by ensuring high utilization of aircraft, crew, and other assets (e.g., gates and ground support equipment), which will also increase revenue. For example, planners will have to schedule an aircraft to have as many flights as possible to maximize its utilization lowering unit costs and increases revenue potential as revenue is only generated when an aircraft is flying. 02 Handout 1 *Property of STI  [email protected] Page 5 of 6  TH2105 Reliability – Airlines must have backup resources in the event of disruptions, such as weather and aircraft mechanical problems, that may cause delays in the flight schedule. Aircraft substitutions and crew reserves will ensure that the airline will be able to provide on-time service. For example, the airline may pull out a reserve crew if one crew member becomes ill before the following flight schedule. Constraints – Planners must consider the limitations, such as airport capacity and crew members' regulations, to have a feasible flight schedule. For example, some airports have takeoff weight restrictions that airlines must consider in planning flight schedules for their aircraft. There are some cases where airlines will need to add a second fleet type to operate a certain flight that has range limits in terms of the altitude and temperature during aircraft takeoff. Crew members are also subject to maximum flight time and rest requirements arising from regulation and contractual provisions. Optimization The schedule draft will be circulated to the operating departments to gather suggestions and approval. Other departments may point out limitations that were not considered during the drafting of the schedule. An iterative process is done to develop the schedule. The inputs from other operating departments will be included in the revisions before the schedule is inputted into the passenger service system. The Passenger Service System (PSS) The PSS is a central information technology containing flight schedules, passenger reservations, frequent flier awards, flight information system, and check-in system customized for each airline. Airline management uses the PSS to generate data needed to check each takeoff's aircraft weight and balance. The PSS also contains interfaces between the PSS and other internal IT systems for daily airline management. For example, the airline's revenue management system allocates the seat inventory to price classes. Airlines extract data from check-in or departure control systems to compute each takeoff's aircraft weight and balance. References: Bilig, B., & Cook, G. (2017). Airline operations and management. Routledge. Chase, S. (2018, June 26). Introduction to airline management. Retrieved June 1, 2021, from https://silo.tips/download/introduction-to-airline-management Juneja, P. (n.d.). Importance of management. Management Study Guide. Retrieved May 31, 2021, from https://www.managementstudyguide.com/management_importance.htm Nerkar, K., & Chopde, V. (2011). Principles and practices of management. Wiley India Pvt. Shaw, S. (2012). Airline marketing and management (7th ed.). Ashgate Publishing. 02 Handout 1 *Property of STI  [email protected] Page 6 of 6