lect16 - Airline Fleet Planning Models 16.75J/1.234J...

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Airline Fleet Planning Models 16.75J/1.234J Airline Management Dr. Peter P. Belobaba April 10, 2006
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Lecture Outline Fleet Planning as part of Strategic Planning Process Airline Evaluation Process Approaches to Fleet Planning “Top-down” Capacity Gap Analysis “Bottom-up” Detailed Analysis Airline selection criteria for aircraft acquisition Technical/performance characteristics Economic and financial impacts Environmental regulations and constraints Marketing considerations Political realities
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Airline Fleet Composition Fleet composition is critical long-term strategic decision for an airline. Fleet is the total number of aircraft that an airline operates, as well as the specific aircraft types that comprise the total fleet. Each aircraft type has different technical performance characteristics e.g. capacity to carry payload over a maximum flight distance, or “range.” Affects financial position, operating costs, and especially the ability to serve specific routes. Huge capital investment with a long-term horizon: US $40-60 million for narrow-body 150-seat airplane $180+ million for wide-body long-range 747-400 Depreciation impacts on balance sheet last 10-15 years Some aircraft have been operated economically for 30+ years
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Fleet Planning Process Fleet planning requires an evaluation process for assessing the impacts of new aircraft (see next slide): Traffic and yield forecasts used to estimate revenues Planning ALF determines ASMs and number of aircraft required Aircraft acquisition has financial impacts in terms of investment funding, depreciation, and interest expenses Operating cost and revenue forecasts provide profit projections Used to predict effects on balance sheet, cash flow, and debt load This planning process is ideally an ongoing effort that requires input from many sources within the airline: A critical component of a long-term strategic planning process
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Airline Fleet Planning Evaluation Process AIRPLANE OPERATING COST ANALYSES INVESTMENT REQUIRED TRAFFIC FORECAST OPERATING REVENUE FORECAST LOAD FACTOR ASM REQUIREMENT AIRPLANES REQUIRED (BY TYPE) INPUT TO TRAFFIC FORECAST INPUT TO YIELD FORECAST PROCESS OPERATING COST FORECAST DEPRECIATION OPERATING LEASE INSURANCE NET INCOME BEFORE/AFTER TAX FORECAST YIELD ANALYSES YIELD FORECAST INTEREST COST SALE OF EQUIPMENT OTHER INCOME/EXPENSE LOAN REPAYMENT OPERATING PROFIT TARGETS NON-OPERATING INCOME/EXPENSE FORECAST CASH FLOW FORECAST DEBT TO EQUITY FORECAST
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“Top-Down” (Macro) Approach
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This note was uploaded on 11/08/2011 for the course AERO 16.72 taught by Professor Hansman during the Fall '06 term at MIT.

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lect16 - Airline Fleet Planning Models 16.75J/1.234J...

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