Future Performance

Reading In The Future (6)Case Study

Prepared By

Mohammed Salem AwadhAviation Consultant

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The Impact of Capacity Reduction

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“Excellence is never an accident. It is always the result of high intention, sincere effort, and intelligent execution; it represents the wise choice of many alternatives - choice, not chance, determines your destiny.”

― Aristotle

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Outline 1/2• Airberlin – Introduction• Key Performance Indicators For Airlines• Errors Vs KPIs• Forecasting Model– Basic concept of forecasting Model– Forecasting – Trend vs. Seasonality– Model Constrains– Max.& Min Signal Tracking Analysis

• Case Study : ( airberlin ) • Data Base ( Three years data )

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Outline 2/2• Forecasting 2016– Capacity Forecast – ASK Forecast

• Upper level • Trend • Lower level

– Passengers Forecast – Load Factor Forecast– RPK Forecast– Capacity 2015

• Analysis• Summary• Conclusions

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airberlin – Your Investment: a stake in the future market Investing in airberlin shares is a medium to long-term stake in the future air travel sector. Year by year, flying plays a greater part in people’s mobility patterns. The world is becoming more mobile and boundaries are merging together constantly. Air travel represents the fastest geographic connection between regions and continents. The demand for supply is increasing - and with this the demand for services of airberlin. Investing in airberlin shares is moreover an investment in customer services a future promising sector. Here it becomes evident: In competition, only suppliers will maintain in market in the future which are able to meet cusomer’s needs as fully as possible. Therefore as a company, airberlin is setting itself apart from low-cost carriers by combining the elements of premium services of a full-service airline with the best possible price/performance relationship. This offer makes airberlin unique in Germany.With the strategic combination of oneworld and Etihad Airways, airberlin has completed the final stage of its development and can focus on successfully expanding its position as a global full-service airline in the future. By focusing on the hubs in Berlin, Dusseldorf, Vienna, Palma de Mallorca and last but not least Abu Dhabi, airberlin can open up to optimum growth markets in the air travel industry and therefore strengthen its position in the world-wide travel.Aims• Economic: In the short term, airberlin intends to turnaround to operating profitability. Based on this, the value of

the company should increase in the long term.• Strategic: Increasing its growth and securing its future with strategic partnerships. Consciously using synergies of

the existing cooperation with oneworld and Etihad Airways in order to guarantee growth - despite the current difficult market situation.

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( Global Growth )

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( Strategy )

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K.P.I For Airlines

• Key Performance Figures• Capacity = ASM( available seat miles )

• Traffic = RPM ( revenue passenger miles )

• Load Factor ( LF ) = RPM/ASM

Traffic

Capacity

Targets & KPIs

Load Factor

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K.P.I For Airlines• K. P. I for Lufthansa Group:

Each Airline has its own KPIs policy, PAX,

CAPACITY, ASK , RPK, & L/F are main measuring

KPIs for Air berlin

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Errors Vs KPIs

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FORECASTING

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FORECASTING• Forecasting is a unique science, very useful in practice, and use widely in many fields,

especially Aviation.• Today we are concerning on the application of Forecasting for Airlines, and also

Airports. Airlines can define their seasonality, and its impacts on operations and maintenance programs, we have to define the right demand for the right sector in the right segment.

• While most of Investors in Airline Industry are concerned for the performance factors that’s Traffic and Capacity , RPM ,ASM , and Load Factor. They evaluate them by comparing their values in past according to month by month approach. here we look forward, to future to set targets.

• Forecasting is tilling us the future patterns for these factors, which consequently, we can develop and forecast the expected Load Factor which means also define the future performance for airlines.

• There are many methods of forecasting, but the approach of Max/Min Signal Tracking, deliver the best scenario for the data that can be analyzed. No grey region, just in a black and white / Good or Bad based on the constrains that we are applied.

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Basic concept of forecasting Model

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Basic concept of forecasting Model

Directional Displacement

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Model Constrains

Two Main Constrains to get a fair model:

R2 = Coef. Of Determination T. S. = Tracking Signal

R2 > 80%AND

-4 < T.S.< 4

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Max.& Min Signal Tracking AnalysisMaximum & Minimum Signal Tracking Analysis - It is almost as Quality Control Chart, that bond all

values in the control limits, but by adjusting the values of the two basic elements in the forecasting model, (Displacement and Rotational one) we try to satisfies the constrains i.e ± 4 – Accepted Region , if not we have to match the values of max & min as a final solution for best value of R (Coeff. of correlation ).

- By implementing this approach, we can get the best answer ( in black or white no grey answer).

R2 > 80%

AND

-4 < T.S.< 4

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Accuracy Forecasting MatrixBy setting the constrains for Accuracy of Forecasting, Four possible outcomes we can get : Fair, Mislead, Unrelated and Poor

R2 > 80%

AND

-4 < T.S.< 4

Fair : All Constrains are satisfied.Mislead: Even R is GOOD, while T.S. is not, the possibility of Mislead is there, due to displacement effect. (almost Fair – need visual sight)Unrelated : R is poor even T.S. is GOOD. ( no relation )Poor : Both ( R + T.S) are out of the constrains region.

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Case Study :

The Impact of Capacity Reduction

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Capacity Cutting by 5%

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Impact of Capacity Adjustment by airberlin using Quarter by Quarter Approach

Classical Approach - Week by Week- Month by Month- Quarter by Quarter- Year by Year

- Comparison

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Data Base :

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Data Base :

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Capacity Forecast2016

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Capacity Forecast 2016Seats

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ASK Forecast2016

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Available Seat Kilometers - ASKs Forecasting - 2016

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Available Seat Kilometers - ASKs Forecasting – 2016 – Normal ( Upper Part )

Based On The First Two Years Data

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Available Seat Kilometers - ASKs Forecasting – 2016 ( Negative Trend ) Based On Three Years Data& Keeping the seasonality indexes

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Available Seat Kilometers - ASKs Forecasting – 2016 Normal ( Lower Part )

Based On The Last Year Data & Keeping the seasonality indexes

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Passenger Forecast2016

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Passengers Forecasting 2016

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Load Factor Forecast

2016

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Load Factor % 2016

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RPK Forecast2016

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Revenue Passengers Kilometers - RPKs Forecast - 2016

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Accuracy Forecasting Matrix

- The outcomes of Accuracy Forecasting Matrix are :- Load Factor ( Fair )- ASK ( Poor )- Capacity, RPK, Pax, in

(Mislead) but they are almost Fair as R is High and S.T. lay on both sides of trend line as they are greater than ±4 so they lay on the actual data.

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Analysis – Usually the airline performance indicators are addressed in such

Case , as: – Capacity :- in terms of Seats

• Since the strategy Air berlin is to reduce cost by maintaining the right operating capacity to more profitable sectors. They started by reducing 5 % from total seats, this impact the norms of stable distribution curve.

– Traffic : - in terms of Passengers ( Pax )• the traffic passengers is looking to be not stable, but also there is a passengers

losses. (not increases)– Load Factor :- it is the outcome of RPK/ASK.

• Almost stable figure, but it should subjected to incremental increasing level. In classical approach the outcome based on point to point comparison.

– ASK – Available Seat Kilometers. ( 1/2 )• The impact of capacity reduction is clear in graph, the reduction is effected by

frequency adjusted flights operations. Here we get a complete picture. Not point to point decision.

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Analysis Continue …

– ASK – Available Seat Kilometers. ( 2/2 ) – 3 Scenarios : • The Upper Level:

where the first two analysis keeping the seasonality index

• Trend (negative): the whole data are analyzed.

• The lower level: where the last year is analyzed keeping the seasonality Index

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Analysis Continue …

– RPK – Revenue Passengers Kilometers.• According to the law of supply and demand, since there is a heavily reduction

in ASK, there is an increase in RPK as shown in the Graph. We agree with facts. But here is the difference, when airberlin compare, they compare with the past i.e 3rd Q 2015 to 3rd Q 2014, while we are talking about 2016. so we know there will an increase in RPK, THIS IS A FACT. ( Not Reduction )

– The period of 2016 is forecasted for the propose of setting targets .

– The outcomes are almost fairs ( Mislead ) with one ( Poor ) , and one ( Fair ) as shown in the Matrix.

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Results

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Summary• Most of Investors in Airline Industry are concerned for the

performance factors that’s Traffic and Capacity , RPK ,ASK , and Load Factor. They evaluate them by comparing their values in past according to month by month approach.

• This presentation tilling us the future patterns for these factors, which consequently we can develop and forecast the expected Load Factor. ( AIRLINE Performance )

• This also will help the airline to set their targets, and developed the right KPI policy for measuring airline performance.

• The data is fairly fitted, with a minimum errors.• The results shows impact of capacity reduction especially for ASK and RPK for 2016, While

the load factor will be a stable for 2016 which is not fair, as it should logically be increases. • The expected Passengers for 2016 = 30,508,479 Pax• The expected Capacity ( Seat ) for 2016 = 36,981,631 Seat • The expected Load Factor for 2016 = 83.23 %• The expected Available Seat Kilometer for 2016 = 57,999 ASK ( Upper Level )• The expected Revenue Passengers Kilometer for 2016 = 56,413 RPK

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ConclusionsRecently Airberlin reduce their capacity, by concentrating on a more profitable routes, Logically if we are squeezing the capacity (ASK)- SUPPLY , the other part – DEMAND will force to pump out i.e (RPK), then how we can get the complete picture, definitely the load Factor should be increase in normal cases, … for this issue , there are two scenarios or results, first if the load factor increase significantly the Airberlin absorb the pressure of shifting their markets by increase the frequencies on their specific route which also aircrafts assist in this process by accepting more passengers than the usual figure in previous periods.

But if the load factor is stable it means that a part of airberlin market spill to other competitors, and they are losing their markets ,yes the only benefits from this is the revenue or more specifically the YIELD, i.e is Yield is high enough to implement this reduction if so then they are in a safe side. While the cost will comes down due to the reduction in operation, means reduction in the variable cost.

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Welcome In The Club

Thanks !

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Reading In The Future

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Contact

• Mohammed Salem Awad • Chairman Adviser – Yemenia • Tel: 00967 735222692• Email: mohammed.hadi@yemenia.com smartdecision2002@yahoo.com