lect11 - Route Planning and Evaluation 16.75J/1.234J...

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Route Planning and Evaluation 16.75J/1.234J Airline Management Dr. Peter P. Belobaba March 15, 2006
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Route Planning and Evaluation Given a fleet plan, the process of route planning and evaluation involves the selection of routes to be flown Economic considerations dominate route evaluation: Forecasts of potential passenger and cargo demand (as well as expected revenues) for planned route are critical to evaluations Origin-destination market demand is primary source of demand and revenues for a given route, but far from the only source In large airline hub networks, traffic flow support to the new route from connecting flights can make it profitable Airline’s market share of total forecast demand for the new route depends on existence of current and expected future competition The fundamental economic criterion for a planned route is potential for incremental profitability in the short run, given the opportunity cost of taking aircraft from another route
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Route Evaluation Issues Practical considerations can be just as important: Technical capability to serve a new route depends on availability of aircraft with adequate range and proper capacity Performance and operating cost characteristics of available aircraft in the airline’s fleet determine economic profitability If the route involves a new destination, additional costs of airport facilities, staff re-location, and sales offices must be considered Regulations, bilaterals, and limited airport slots can impose constraints on new route operations, to the point of unprofitability Strategic considerations can overlook lack of route profit: Longer term competitive and market presence benefits of entering a new route even if it is expected to be unprofitable in short run
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Route Planning Models Route planning requires a detailed evaluation approach: Demand, cost and revenue forecasts required for specific route, perhaps for multiple years into the future Assumed market share of total demand based on models of passenger choice of different airline and schedule options Depends to a large extent on presence and
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lect11 - Route Planning and Evaluation 16.75J/1.234J...

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