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Airline market uncertainty: 4 risks to watch

March 26, 2020

In an ever-changing market landscape, the sticky economic points of supply and demand present the ultimate game of Risk to […]

In an ever-changing market landscape, the sticky economic points of supply and demand present the ultimate game of Risk to airline planning and revenue management.

At Cirium, we develop new analytics on top of hundreds of connected data points from over 930 airline schedules. However, we know schedules are only one piece of the puzzle. After acquiring Innovata SSIM and the schedules analyzing tools Diio Mi and SRS Analyser, we have worked to connect all our foundational sets for a more complete picture. And we learned a lot from the process.

Information—such as passenger traffic, air travel consumer demand, airline fleet management, fair share metrics, and so on—is essential for rounding out your view of leading indicators. All that rich data has lived mostly in silos, locked up with limited access. Benefitting from Big Data starts with being able to access and manipulate information to uncover new relationships each time you dive into the details.

Monitoring industry changes for commercial planning follows a similar flow. To study the right details, analysts have to keep monitoring the same data, looking for the changes and identifying the emerging patterns. In addition to the day-to-day monitoring, many are also watching for early signs of disruption entering the market.

The most recent real life examples from the Boeing Max 737 suspension and coronavirus are proof of just how volatile the market can be. The variables impacting a global economy, and travel specifically, are growing exponentially. How then, do you develop profitable plans despite the uncertainty?

Prioritize your data strategy. Focus on the changes that matter. Some of our customers say they are focused on creating more targeted models and metrics. We know many are looking to build in more time to review and respond to change. For example, more targeted monitoring of schedule changes can increase time to adapt. More time to adapt means having contingency plans ready.

In addition to monitoring the daily changes to airline schedules, you can fortify your data-driven decision making by avoiding these 4 key risks.

Risk #1: Ignoring consumer behavior

Gone are the days when an airline could focus exclusively on the network as their primary unit of data analysis. The key to attracting and retaining travelers in the future is to drill down into the individual who is making consumer choices.

For example, merchandizing requires appealing to the consumer in the moment. The calculation has to include the context of their current situation, previous interactions and buying behaviors.

Low cost carriers (LCCs) face a situation now where adding a new cabin class to compete in long-haul flights makes business sense. Capacity and demand figures suggest the opportunity is there. But will they be able to appeal to buyers in the right way with the right package and price?

If airlines want to increase revenue, they need to expand their unit of analysis to include the needs and behaviors of their target audience.

Risk #2: Collecting too much of the same data

Airlines are constantly looking for differentiation to set themselves apart from their competitors. This has created an appetite for additional data that can accurately depict the changes in the market landscape.

 “Similar to other data rich industries, sometimes airlines fall into the trap of trying to build the magic data set to provide all the answers,” said Steve Lappenbusch, Principle Product Manager at Cirium. “In trying that approach, they have to wade through mountains and mountains of data. With the increase of mergers and joint ventures among airlines, more customers buying directly from airlines, and airlines selling more ancillary products to more customers, there is actually too much data coming together. The challenge that emerges is not just ‘information overload.’ Airline planning is too complex for that simplification. The issue is both compiling all that data and then being able to easily compare it to your competitors. It’s not like looking for a needle in a haystack; more like looking for one in a hayfield.”

Focusing on providing actionable competitive insights compared to your competitors becomes extremely valuable. You need to trust that you not only have good data, but that you can easily compare performance and that the source of those comparisons has earned your trust. Moving away from simply looking at large amounts of the same type of data and transitioning into diversifying the data in the analysis. Airlines shouldn’t be deciding if they should look at “this or that,” it’s more important to look at “this AND that.”

That said, airlines traditionally have a few data sets they are accustomed to using but are craving more and more information. That is why they need to look across internal departments for other flavors and varieties of data that could be of value. And they need to leverage expertise on how to compare it competitively.

For example, the marketing department may have the one data set that they’re using or different data sets that they’re using that sales, network planning or revenue management don’t have or aren’t using. Ultimately, all these departments need to be reading from the same playbook and drawing from the same pool of data.

“If each department is doing its analysis in their functional silo, they’re very likely to miss the underlying problem they’re having and not come up with a good solution,” said Jim Ogden, Aviation Market Expert at Cirium, in a recent Expert Insights webinar. “It’s not just the planning department, it’s the operational departments as well. Everybody needs to be included in many of these problems the airlines are having.”

Risk #3: Not making your data and insight easy to integrate

If you want to prepare your team for handling change, make getting new data as easy as possible. To make information more accessible, it needs to be updated across multiple systems. Your focus should be on scaling the data you have and getting it in the best format to use across departments.

Data timeliness is a key part of increasing accessibility. For example, schedules are constantly changing, driving a need for constantly running reports and looking for changes. Alerting is just as important to planning as it is to in-flight operations. The timing of a change impacts not only those analyzing the data; it can be a time suck to keep communicating competitor changes to teammates or stakeholders. Signaling to them when to watch for more changes versus when they don’t need to can be a huge timesaver.

In the end, you’ll be saving time for the down line people needing to take action, and for the analysts who need to stay focused on assessing the landscape.

Risk #4: Missing the data connections

There are new industry innovations being introduced regularly— such as biofuels and a more regulated air traffic control across Europe. How each airline and airport respond and adapt to these changes is based on that unique combination of their business model and their ability to read the landscape. You have to be prepared to think outside of the problem or opportunity in front of you and extend your analysis to related areas you may not have considered before.

For example, finding an unexpected change in equipment could be a one-off instance, with no need for further action. But how can a planner know when it’s more? Since equipment also impacts ancillary revenue and cargo revenue, monitoring for a change in seats with equipment could signal when to investigate further.

Fleet optimization has its own set of challenges. Both in balancing the capacity across all routes and in suiting specific aircraft amenities to the right market.

The Cirium Fleet Forecast shows 46,460 aircraft, worth $3.1 trillion, forecasted to be delivered between 2018-2037. As a driving force, all the aftermarket reconfigurations can create both an opportunity to seize a market advantage, or create a weakness in a schedule if significant changes are missed.

A final example is EuroControl looking to further standardize the industry, which could impact a large portion of flight operations. Changes in timing and reporting may not immediately require adjustments in upline planning. Looking further out into seasonal patterns could uncover opportunities to capture the delays from those less on-time or those with less flexibility built into their schedules.

What is next? Buy versus build

As you shape your data strategy to address risk and prepare your team for market change, there is an important decision you will have to make: buy or build the tools you need to implement your strategy. Your teams’ data analysis becomes more in sync with the right infrastructure of data flowing throughout the company and the right systems to deliver that data.

You can create your own solutions in-house, or you can work with third-party providers to bring in the best from several areas of expertise. Either way, you’ll need to ensure your solution can scale with your business growth and accommodate the massive processing power required for deeper analysis. Most importantly, you need to be absolutely certain that the analytics are built by people who know the industry and understand how to accurately and reliably compare across airlines.

If you’re interested in learning more about how we can help drive the success of your data strategy, you can find more content here. You can also interact with Cirium’s aviation data and analytics–covering global fleets, airline schedules, aviation asset values and flight status– visit Cirium Ideas.

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