As planes go up, Costs come down

[Groucho]

Aviation Week and Space Technology recently released an article concerning network carrier groud times and productivity vs. the LCC point to point carriers.

The author maintains that saving as little as 30 min of gorund time and improving utilization could mean the difference between profit and loss. The current method of average 66 minute turn times is costing the network industry $7 billion per year or $21 per emplaned passenger.

"It is no secret that unit costs in any industry go down when asset utilization increases." "For airlines, unit seat-mile charges for aircraft owenrship as well as those for ground asset ownership, facility, certain administrative and other tixed sependitures are directly tied to the number of hours per day each aircraft flies."

"The biggerst structural barrier to increasing aircraft productivity at U.S. network carriers is the ground time needed to connect passengers through a large hub."

"JetBlue's aircraft are the mnost productive of the U.S. fleet, operating nearly 14hr. per day. "On average point-to-point carriers' aircraft are at the gate for only 30min during normal daytime operations." "For network carriers this amount is nearly 66 min."

My question to management is: How will you increase utilization of our fleet to miniminze costs? American is de-peaking its hubs, will we follow suit? Therre appears to be a lot of savings on the operational side but the only thing that past managements have looked at are employee costs. My counter part at Southwest makes more than me as do Southwest employees in many different type jobs. The command this higher pay because of productivity. The creation of high productivity in any business is a management function.

Again how can this managment team increase aircraft utilization and productivity?

 

[john john]

Aviation Week and Space Technology recently released an article concerning network carrier groud times and productivity vs. the LCC point to point carriers.

The author maintains that saving as little as 30 min of gorund time and improving utilization could mean the difference between profit and loss. The current method of average 66 minute turn times is costing the network industry $7 billion per year or $21 per emplaned passenger.

"It is no secret that unit costs in any industry go down when asset utilization increases." "For airlines, unit seat-mile charges for aircraft owenrship as well as those for ground asset ownership, facility, certain administrative and other tixed sependitures are directly tied to the number of hours per day each aircraft flies."

"The biggerst structural barrier to increasing aircraft productivity at U.S. network carriers is the ground time needed to connect passengers through a large hub."

"JetBlue's aircraft are the mnost productive of the U.S. fleet, operating nearly 14hr. per day. "On average point-to-point carriers' aircraft are at the gate for only 30min during normal daytime operations." "For network carriers this amount is nearly 66 min."

My question to management is: How will you increase utilization of our fleet to miniminze costs? American is de-peaking its hubs, will we follow suit? Therre appears to be a lot of savings on the operational side but the only thing that past managements have looked at are employee costs. My counter part at Southwest makes more than me as do Southwest employees in many different type jobs. The command this higher pay because of productivity. The creation of high productivity in any business is a management function.

Again how can this managment team increase aircraft utilization and productivity?

Each RJ takes at least 10 minutes to due the weight and balance. They sometimes fudge the out times to show O.T. so they can start getting paid I have seen 25 minute taxis with no ATC problems existing. No since of urgency! All this adds up in paid and stage length of the line of flight.

 

[BoeingBoy]

Here's the chart that accompanied the article Groucho cited:

View attachment 3851

Sorry folks, wrong chart the first time. This is the correct chart showing average LCC utilization vs network carriers.

Jim

And the full article:

Arrivals
Streamlined Ground Time Can Help Airlines' Profits
Aviation Week & Space Technology
12/05/2005, page 56

Steve Lott

Printed headline: As Planes Go Up, Costs Come Down

U.S. network airlines know it is in their best interest to keep aircraft flying more hours during the day, but many don't know that saving as little as 30 min. of ground time and improving utilization could mean the difference between profit and loss.

If network airlines do nothing to reduce aircraft turn time at major hubs, this limited utilization is costing them nearly $7 billion annually or $21 per enplaned passenger, according to a new analysis by Aviation Daily and partner Eclat Consulting. While many traditional hub-and-spoke airlines will continue to improve fleet productivity, it may be structurally impossible for these carriers to increase utilization to the standards set by their low-cost, point-to-point rivals.

It is no secret that unit costs in any industry go down when asset utilization increases. For airlines, unit seat-mile charges for aircraft ownership as well as those for ground asset ownership, facility, certain administrative and other fixed expenditures are directly tied to the number of hours per day each aircraft flies.

The biggest structural barrier to increasing aircraft productivity at U.S. network carriers is the ground time needed to connect passengers through a large hub. As the number of potential connections to a single outbound flight increase, the complexity of transferring passengers and baggage also expands. Additional time serves as a cushion to accommodate the higher likelihood for schedule interruptions with so many flights arriving and departing within a small window.

The analysis looks only at aircraft utilization and does not include potential improvements in other productivity measures, such as gate use and labor allocation. The analysis also doesn't consider how carriers will accommodate the additional capacity resulting from the increase.

On average, aircraft flown by point-to-point, large-market carriers operate 1 hr. 41 min. longer per day than their hub-and-spoke competitors. JetBlue's aircraft are the most productive of the U.S. fleet, operating nearly 14 hr. per day. Both network and low-cost carriers (LCC) have boosted aircraft utilization since the Sept. 11, 2001, attacks, but LCCs have rebounded more quickly and now have the same utilization rates as in 2000.

The difference in aircraft utilization is partly due to the increased ground time necessary for operating large hubs. Eclat tracked the scheduled itineraries of nearly 3,500 single-plane services operating with the same flight number through potential connecting points. On average, point-to-point carriers' aircraft are at the gate for only 30 min. during normal daytime operations. Network airlines' aircraft are at the gate twice as long, sitting on the ground for 66 min. The 36-min. difference can add up to 1 hr. 48 min. per day if multiplied by the average four departures per day.

If U.S. network carriers improved aircraft productivity to the point-to-point carrier average, they could potentially cut unit costs by 1.5 cents per available seat mile and reduce overall costs by more than 12% annually. However, a portion of this utilization deficiency is structural and is an integral network cost that can't be trimmed (AW&ST Nov. 7, p. 56).

Editor's note: Arrivals is a collaborative effort between Aviation Daily, a sister publication of Aviation Week & Space Technology, and partner Eclat Consulting. It is dedicated to analyzing critical airline industry issues, and appears monthly. Comments and suggestions for future topics should be sent to Aviation Daily Editor Jim Mathews at [email protected]. Readers seeking more information on Aviation Daily can contact Denise Almond at [email protected].

Steve Lott is assistant managing editor of the Aviation Week Group's Aviation Daily. Eclat analyst Aaron Taylor contributed to this report. Steve Lott is assistant managing editor of the Aviation Week Group's Aviation Daily. Eclat analyst Aaron Taylor contributed to this report.

 

[gonzo]

The quality of aircraft maintenance has a great deal to do with the productivity of the aircraft. Time has shown that maintenance done by the employees of the airline is of better quality and reliability. The maintenance can be done in a timely manner as well as cheaper in costs. The "line" maintenance required by an aircraft that has had a "heavy" check done by other than the airline will be very apparent when a quick turn is required at the jetway.

Often the aircraft returning from a "heavy" check will not be put directly into revenue service it will make a "hangar" stop before being taken to the line for revenue passengers. The reason behind this is often "deferred" items that need to be worked and have expired during the "heavy" check time period.

 

[legacy-to-LCC]

how about introducing ("introduce" a foreign term to the new management team) an ambitious overnight schedule connecting major destinations distinct from the "red eye" schedule?!? Coordinate early am arrivals in significant markets; boost capacity in the carribean, perhaps. a/c utilization will improve; and, you have an arsenal of dormant crews, f/a primarily, eager to work in phl.
incidently, i am being only half sarcastic...there my be something to an around-the-clock schedule?

 

[BoeingBoy]

On a somewhat related note, this is the article I mistakenly first posted the chart from. It discusses the difference in "handling" costs between network and low cost carriers. "Handling" cost in this case includes on-ground handling of both passengers & aircraft. Again, due to the lag in BTS data availability, the accompaning chart shows both US (old or East) and HP.

Jim

Arrivals
Hub Networks Hurt by Handling Capacity
Aviation Week & Space Technology
11/07/2005, page 56

Steve Lott


Printed headline: Hub Networks Hurt By Handling Capacity

A traditional hub-and-spoke network may offer an extensive system of routes and destinations to passengers around the country, but it may also prevent network airlines from cutting their structural expenses to the level enjoyed by point-to-point carriers.

A new analysis by the Aviation Week Group's Aviation Daily and partner Eclat Consulting shows that cost to handle passengers in a hub-and-spoke-dominated system is as much as 45% higher than in a point-to-point system, a disparity that costs airlines billions of dollars annually.

Simple logic indicates that it takes more dollars to process a connecting passenger than a point-to-point one: connecting through a hub, passengers board and deplane twice, receive two snacks and may ask twice as many questions; their bags are handled four times.

At the same time, as passenger yield premiums at U.S. network carriers continue to fall, these cost differentials become more apparent and exaggerated. At first glance, it is easy to describe the higher handling costs of traditional hub-and-spoke carriers as "normal," assuming all costs at the network providers are higher. However, when passenger-handling costs are broken out and compared individually, it is apparent that some of the disparity is structural.

View attachment 3852

The cost of loading bags is just one aircraft and passenger handling expense that will remain higher in a hub-and-spoke operation.

Specifically, handling costs are tied to passenger service--activities contributing to comfort, safety and convenience. They also cover aircraft servicing--from compensation for ground crews to landing and parking aircraft--and traffic servicing, moving aircraft and passengers on the ground.

On average, handling costs at the six U.S. network carriers represent nearly 37% of total expenses, excluding fuel and regional capacity. Conversely, passenger and aircraft handling costs at traditional U.S. LCCs represent only 31% of the total. A more striking comparison is the network and low-cost differential between handling and other costs.

The analysis shows that U.S. network carriers' handling costs are 70% higher than those of their low-cost competitors, while all other costs, excluding fuel and regional capacity, are only 22% higher. Using these differentials, it is safe to estimate that the handling cost of a hub-and-spoke-dominated system is 30-45% higher than that of a point-to-point system.

Assuming that average handling costs to run a hub-and-spoke operation are 38% higher, network carriers collectively spend about $3.2 billion annually to provide the network service. The additional structural cost equates to $7-9 per enplaned passenger, or $11.90-15.30 per one-way ticket.

Over the past five years, nonstop yields have fallen at a much greater rate than connecting yields, with nonstop down 18.1% and connecting yields down 11.0%. Similarly, nonstop passenger numbers declined 4% and connecting passenger numbers 2.4%. This may seem like positive news for network carriers, but it actually equates to a shift in dependence on connecting revenue.

Steve Lott is assistant managing editor of the Aviation Week Group's Aviation Daily. Eclat analyst Aaron Taylor contributed to this report.

Editor's note: Arrivals is a collaborative effort between Aviation Daily, a sister publication of Aviation Week & Space Technology, and partner Eclat Consulting. It is dedicated to analyzing critical airline industry issues, and appears monthly. Comments and suggestions for future topics should be sent to Aviation Daily Editor Jim Mathews at [email protected]. Readers seeking more information on Aviation Daily can contact Denise Almond at [email protected].

 

[Groucho]

Gee, it looks like I hit the nail on the head. Good posts from all.

My guess would be that if someone were to place this argument in front of past managements the result would be a nice pat-on-the-head and a reference to how cute employees are when they try to understand airline marketing and operations.

The textbook "Airline Management for the 21st Century"
Dempesy /Gesell used in my Aviation Masters curriculium states that "Hubs generate higher revenue, and can create barriers to market entry." The other cost side of the equation, the impact is quite different. (pg.61) "Both O&D and connecting passengers pay yield premium for the frequent service hubbing allows."(pg. 208) "Nevertheless, hubbing sacrifices equipment and labor utilization and consumes more fuel that a linear route system."(209)"Southwests half hour less ground time translates into enhanced aircraft utilization, 22% higher than the industry norm.

This text, published July 1997, is now outdated as it did not have any significant information on web based ticket sales which have made the old style mainframe reservation systems obsolete. Yield management is now in the hands of the "dumbest competitor" and internet sales via. Orbitz, and travelocity are the norm not the exception. The rise of LCC's and further growth of Southwest will continue to erode yields. We are paid less than they are. The company must operate more efficiently.

Southwest, again, has made this transition work for them. The only way to buy a Southwest ticket online is at their website and they are often a few bucks more. That few bucks, multiplied by millions of passengers is real money.

RJ's, the mantra of Wolf and Ganghwal, after the debacle of Metro Jet, are not turning out to save the company or the industry. It's simply a cheaper and inferior product and it is being overused. Complaints about the accomidations on these aircraft are the norm and they were orginally touted to replace "turboflops", as past presidente Red Dot described them.

Out on the west coast an airline called Horizon operates the Dash 8-Q400. They have quietly chased several RJ operators out of some markets. How, by price. Everone wants to ride on the jet but if you drop the price enough they ride the turboprop. This is new aircraft with active noise cancelling, and 300+knot speed. It is no more uncomfortable than an RJ. This aircraft, priced right, stimulates demand and places the RJ's and their parent companys in a bind. An RJ that costs .$20 a mile to operate is going to have a tough time with a turboprop at $.08 per mile if they use the cost advantage to price right.

This company will not get another chance, they must operate the airline effeciently first and make it a habit to find more operational savings.

The cultural change that must occur, must happen at the upper middle level. I believe Mr. Parker wants to change and improve, but there is an "entrenched click" from Crystal City that would be happy to just let things go one as they have and blame labor.

Here endith the lesson.

 

[Kev3188]

Out on the west coast an airline called Horizon operates the Dash 8-Q400....
... This is new aircraft with active noise cancelling, and 300+knot speed.

Not to mention the free beer they serve on board!

 

[N965VJ]

The author maintains that saving as little as 30 min of gorund time and improving utilization could mean the difference between profit and loss. The current method of average 66 minute turn times is costing the network industry $7 billion per year or $21 per emplaned passenger.

<SNIP>

Again how can this managment team increase aircraft utilization and productivity?

Does anyone remember Project Highground in the early or mid 90’s?

This included cleaners coming on board at the rear on the aircraft and working up right behind exiting pax to decrease turnaround time. There were other parts to this as well.

 

[hula-flyguy]

I was just thinking the same thing! It evolved in to Metro Jet, USAirways attempted counter attack on WN.

 

[RowUnderDCA]

I think that all airlines, with legacy hub and spoke carriers the most vulnerable, are suffering from a period of increased communication transparency, where customers can view and select amongst a great variety of carriers, schedules and fares, BUT the carriers themselves have not learned to do the reverse: BUILD connecting opportunities across the system from a BASE of an efficient operation.

Since, we've determined that customers don't care how they get to a destination, when faced with fare and schedule parameters, wouldn't a carrier like the OLD U try to take advantage of its proximital hubs to create connecting opportunities across various hubs that are served more efficiently according to the local market.

I mean to say don't think of a singe city hub complex in isolation from the rest of the system. If U had decided it was going to be the top carrier at PHL, PIT, BWI, DCA, BOS and LGA, couldn't it schedule its flights to efficiently serve those O and D markets and then tweak ALL the resulting schedules to accomodate specfic connecting opportunities that are attractive markets. I suspect that you'd focus on creating, cross-airport, high-frequency connecting opportunities on the higher-yield markets and end up serving leisure markets with less, but non-stop frequency.

Is this unrealistic? Are we just in that awkward period where the communiciation and marketting technology is more advanced than the analytical technology? Or have all airline managers at legacy carriers forgotten how to manage an air carrier for efficiency?

It still seems to me that the new LCC is a good candidate for this kind of approach, despite loosing BWI from the system as a dominated market.

I say FLOW connecting passengers through proximate (nearby) focus cities that you wish to dominate with O and D and efficient operations, filling in the gaps with over-fly markets where needed.

That's why I think that LCC's system could still use a new merger partner with dominant hubs at medium-sized cities. Places where LCC can institute this system without already fighting off established p2p carriers with low costs.

Flow connecting pax through largely O and D focus cities that near each other, but that within which you can get and hold FF'ers and still attract some leisure fliers with low fares when needed.

 

[ringmaruf]

In their defense, they really did a good job in improving utilization with the February schedule, that saw the rolling of the PHL hub, along with some other improvements. June traffic still had a small increase in ASMs, and July only saw a very small decrease in ASMs, and this was while the fleet was losing lots of planes.

And then they went and re-banked PHL and gave away most of that increased utilization. I've yet to hear one even remotely plausible explanation as to why that was a good idea.

 

[legacy-to-LCC]

And then they went and re-banked PHL and gave away most of that increased utilization. I've yet to hear one even remotely plausible explanation as to why that was a good idea.

why? revenue dilution mitigation!

 

[Groucho]

why? revenue dilution mitigation!

I don't know what revenue dilution mitigation is but I do know the SW isn't going away and they will continue to depress yields. We will probably see WN in ClT in 2006.

The company cannot continue to chase non-existant yields. They must pay more attention to operational efficiencies.
It's is the only way, in the long run to stay in business.

The ERJ190's lower pay rates for pilots etc, won't do it, and RJ's won't do it.

If you can't lower ground times significantly at the hub airports try to at least do it at the outlying airports. If we could save time there that would at least be a partial savings and an increase in utilization.