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Direct and indirect costs of flight delays: Punctuality as a cost factor

Moscow, August 6th, 2011

Content

1. Dream or Reality: Delay Cost Management 2. Delay Cost Modeling Delay Costing Practices 3. The Future: Delay Opportunity Cost Performance Management 4. Discussion

Delay Cost Matter Ground Handling Conference Moscow, 2011

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The majority of delays are airline related while the second largest delay driver is Ground Handling according to Eurocontrol data

Primary delay causes 2010

74
IATA delay codes

1. Technical Delays 2. Ground Handling 3. Flight Ops and Crewing

5% 42% 33%

Airline Security Misc. Other Weather

11%

6%

3%

ATFCM Other Airport

Source: Eurocontrol. CODA Digest. Delays to Air Transport in Europe. Annual Report 2010.

Delay Cost Matter Ground Handling Conference Moscow, 2011

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Delays matter! Delay cost matter!


Individual Airline Delay Cost US Airline Industry Delay Cost

Cost to US Airlines

Cost to US Passengers

8.3 Billion US$

16.7 Billion US$

Cost to US from Lost Demand

3.9 Bill. US$

Impact on GDP

4.0 Billion US$

TOTAL COST

32.9 Billion US$

Source: Lufthansa Consulting Research.

Source: National Center of Excellence for Aviation Operations Research: Total Delay Impact Study. A Comprehensive Assessment of the Costs and Impacts of Flight Delay in the United States. Final Report October, 2010.

Delay Cost Matter Ground Handling Conference Moscow, 2011

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The theory is straight forward: There is a correlation between customer satisfaction performance and productivity

Performance Productivity Customer Satisfaction

Teaming up for Excellence

On time Performance

$$$$
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According to customer satisfaction delays made it to the internet: more and more internet service providers track & benchmark OTP

Scheduled Airline Departure On Time Performance 2010 within 15 min (UK) OTP
100 95
Eastern Airways

90 85 80 75 70 65 60 55 50 0

BMI Regional SAS BMI BA Cityflyer Swiss Bmi baby Lufthansa American Airlines Virgin Atlantic Monarch Emirates Iberia Ryanair British Airways Flybe

80% 2009 72.8% 2010


Easyjet

71.2% 2008

68.6% 2007

50000

100000

150000

200000

250000

300000

Source: FLIGHTONTIME.info. Airline punctuality at uk airports


Delay Cost Matter Ground Handling Conference Moscow, 2011

Number of departures
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Today the lawn is cut: handling fees shrink. Airlines have introduced tight service level agreements So whats next ?
SLA Airline & Ground Handling / Airport System Partnership

? End of history ? today ? ?

Purchasing Ressource allocation Handling fees


OCC HCC

. . . 20%

..

. 10 %

1996

25%

Cost Cutting

Too high costs

Delay Cost Matter Ground Handling Conference Moscow, 2011

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IATA delay codes are the element for performance management But delay costing and delay cost management is still in its infancy
Performance / OTP

Customer Satisfaction 478*


sub-delay codes

Tomorrow 3
Analytics, Forecasting ABC ABM BI

82*
IATA delay codes

BU
e.g. MIDT or CRM

MIS

1 Airlines DOC COST

Dash Boards Cockpits, etc. Unit Cost Budget


* Airline sample

Cost elements

Teaming up for Excellence


Delay Cost Matter Ground Handling Conference Moscow, 2011

Profitablity
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Content

1. Dream or Reality: Delay Cost Management 2. Delay Cost Modeling Delay Costing Practices 3. The Future: Delay Opportunity Cost Performance Management 4. Discussion

Delay Cost Matter Ground Handling Conference Moscow, 2011

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Delay cost models target unit costs per delay minute or hour based on annual / quarterly / monthly accounting figures
Westminst er Report 2004 Fuel Maintenance Crew Airport Charges Aircraft Ownership Direct Operating Cost (DOC) Extra Gates and Ground Staff Passenger Compensation Passenger Opportunity Cost ATA US Carriers 2009 Airline Business Case ITA Study 2000

X X X X X

X X X X X
60,99 $

X X X X X

X X X

40 66

X X X
72 98,55 $

X X X X
66 87 126

Total Unit Cost / delay minute

With delays airlines loose more than an image and customers - delays cost money This is why stable operations pays off by all means

Delay Cost Matter Ground Handling Conference Moscow, 2011

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The leading cost models applied at airlines (e.g. EUROCONTROL University of Westminster) get more and more sophisticated
Tactical & Strategic Delays Length and Situation of Delays

Source: EUROCONTROL Cost Benefit Analyses. Edition Number: 4.0. October 2009

Extra Gate and Ground Staff


ATA US Carriers 2009

+ +

Unit Cost Cost element Budget

Cost element

DOC COST

Delay Cost = f(..) CXX Cost = f(..)


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Delay Cost Matter Ground Handling Conference Moscow, 2011

In general the cost models apply delay cost as an additive function of cost the cost of each delay event are defined as a linear function

Source: EVALUATING THE TRUE COST TO AIRLINES OF ONE MINUTE OF AIRBORNE OR GROUND DELAY. Report Commissioned by the Performance Review Commission: Unicersity of Westminster. May 2004

Delay Cost Matter Ground Handling Conference Moscow, 2011

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The cost of cancelation are defined as follows

CXX cost in EUR 50 seat narrow body aircraft 120 seat narrow body aircraft 400 seat wide body aircraft Per CXX

Cancelation Cost service recovery costs (passenger vouchers, drinks, telephone, hotel) interline costs (rebooking revenue) loss of future value (individual passenger delay expressed in value) operational savings (fuel, enroute charges, crew facilities, handling outstations, lounges outstations, board supplies) Costs not included are ground handling costs, missed connection compensation, denied boarding compensation and luggage delivery costs.

3.400 16.000 75.000 7.000

CXX Cost = f(..)


Unit Cost Cost element Budget

DOC COST
Delay Cost Matter Ground Handling Conference Moscow, 2011

Source: EUROCONTROL Cost Benefit Analyses. Edition Number: 4.0. October 2009

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The reality on delay costing . we talk Scheingenauigkeit (apparent accuracy) we talk legacy systems and methods
Cost Element Accounting 1328 627 ERP Systems 250 4

Cost Center Accounting 765 180


Department Station Projects Tools or Ept. Services .

Cost Object Accounting Route Profitability Aircraft 4

HOLDING & Approach Deviations: Fuel Consumption

3 calc

Technical cost

Unit Cost Budget

Personal cost Maintenance: fixed maintenance, direct var. maintenance, reserves, Personal: cockpit cost, cabin cost, station cost, handling cost, fuel, material DOC (catering, landing, parking, etc.), .

Miss Connex Cost (irregularities, loss of revenue, drop in yields, dispo HCC, staff luggage service, sations included

Block time cost

DOC COST 72

Station handling overtime Flight irreg. / luggage Delivery delayed baggage

+
. Interviews

+ +

Delay Cost = f(..)


Delay Cost Matter Ground Handling Conference Moscow, 2011

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Content

1. Dream or Reality: Delay Cost Management 2. Delay Cost Modeling Delay Costing Practices 3. The Future: Delay Opportunity Cost Performance Management 4. Discussion

Delay Cost Matter Ground Handling Conference Moscow, 2011

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Delay cost management is about managing complexity airlines establish Hub Control Centers to reduce delay cost
Spoke Airport En-route Hub Airport En-route Spoke Airport

On-Blocks Off-Blocks Take-Off

Off-Blocks Take-Off Touchdown On-Blocks

Touchdown Ground Event

Outstation / Representation

Outstation / Representation

Hub Control Center

Baggage Handling

Passenger Handling

Turnaround Management

Airport ATC

Customer Satisfaction

Connectivity

Profitability

Punctuality

Delay Cost Matter Ground Handling Conference Moscow, 2011

This was the starting point: Ground OPS was a black box

Minimum Ground Times

on blocks

off blocks

?
Ground Handling Activities

Delay Cost Matter Ground Handling Conference Moscow, 2011

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The objective was to manage and anticipate delay drivers to plan preventive actions and take recovery measures

REFERENCE MODEL
Hub and ground handling activities

on blocks

off blocks

Recovery Prediction of delay followed by preventive action

Recovery Prediction of delay followed by preventive action

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A core activity of the HCC is to monitor and manage the turnarounds


Spoke Airport En-route Hub Airport En-route Spoke Airport

On-Blocks Off-Blocks Spoke Airport Take-Off Spoke Airport Touchdown

Off-Blocks Take-Off Touchdown Spoke Airport On-Blocks Spoke Airport

On blocks Crew Dock bridge / stairs Disembarking Catering Cleaning Refueling

Last opportunity to report irregularities / last orders 25

Turnaround Mgmt First passenger on board


20

Off blocks

max. 1 min. max. 5 min. max. 10 min. max. 8 min. max. 12 min.
Last bulk freight/mail at the A/C

5 doors in park

Cargo unloading / loading

max. 14 min.

max. 12 min.
Contact position: First passenger on board

Positioning / Removal Activity

Gate, embarking Remove bridge / stairs

max. 14 min.
Remote position: Arrival of the first bus at A/C Remote position: Last bus at A/C

40 min

35

30

25

20

15

10

Airplane Characteristics Airbus A320


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Delay Cost Matter Ground Handling Conference Moscow, 2011

The building blocks of Hub Management at Lufthansa

Steering Passenger & Baggage Connection

Turnaround Management

Real-Time KPI Management

Source:

Delay Cost Matter Ground Handling Conference Moscow, 2011

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Based on real-time delay forecasting the ground events are managed by speeding up the processes where needed
Turnaround Management

Turnaround Manager

Steering Activities
Quick Cleaning Increase Cleaning Crew Leave Bag Behind Increase Loading Crew High Speed Catering Increase Catering Crew

Production

Real-Time KPI Management

Real-time Analysis Steering Action Time Stamps

Delay Cost Matter Ground Handling Conference Moscow, 2011

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The Passenger and Baggage Connection Management classifies passengers based on rules and automatically calculates and suggests steering actions

Approach Priority Gate Direct Service Ramp Direct Service Electrical Car Service Connex Delay x> 10min Connex Delay x>10 min New Position Roll Priority ..

Steering Passenger & Baggage Connection

Steering Activities

Real-Time KPI Management

Real-time Analysis Steering Action Time Stamps

Delay Cost Matter Ground Handling Conference Moscow, 2011

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Delay management needs to do a profit and loss analysis based on a delay opportunity cost analysis

Delay Opportunity Cost Profit and Loss Analysis Cost Benefit Analysis Delay Cost Classic DOC Holding & a approach deviations Flight irreg. / baggage Delivery delayed baggage PAX compensation Transit Missed Connex

PAX Revenue SLA Malus

Steering Cost + Steering Unit Cost OCC


Aircraft

Connex Steering Unit Cost HCC


Approach

Turnaround Steering Unit Cost HCC Quick cleaning Increase cleaning Crew Leave baggage behind Increase loading crew High speed catering Increase catering crew

Reserves Block time buffers Version Change Aircraft Change Equipment Change Diversion Re-Routing Cancellation

priority Ramp transfer Gate direct Cart connex Delay aircraft New position Roll priority

Delay Cost Matter Ground Handling Conference Moscow, 2011

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Delay management will need to forecast / simulate the effects of the steering actions plus a deviation analysis plan vs. actual efficiency
Cost

CXX HCC Delay Cost Reduction Measures Approach Priority Ramp Transfer Gate Direct New Position Roll Priority

Quick Cleaning Leave Bag behind Leave Bag behind Increase Catering Crew OCC Delay Cost Aircraft Change Reduction Measures

Equipment Change

Version Change

Crew Change

Steering Cost + Opportunity Cost Delay Cost Drivers 1h 2h 3h 4h 5h 6h 7h 8h 9h Time


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Delay Cost Matter Ground Handling Conference Moscow, 2011

Content

1. Dream or Reality: Delay Cost Management at Airlines 2. Delay Cost Modeling Delay Costing Practices 3. The Future: Delay Opportunity Cost Performance Management 4. Discussion

Delay Cost Matter Ground Handling Conference Moscow, 2011

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Any questions ?

Thank you very much for your attention!

Contact

Gesine Varfis
Managing Consultant Lufthansa Consulting GmbH Von-Gablenz-Str. 2 6 50679 Cologne Germany Tel.: +49 (0)221 826 8107 Fax: +49 (0)221 826 8260 Mobile: +49 (0)151 58940507 e-mail: Gesine.Varfis@lhconsulting.com

Askhat Torshin
Permanent Representative Russia, CIS and Baltic States Lufthansa Consulting GmbH Tsvetnoy Blvd. 25, bld. 3, 6th floor Moscow 127051 Russia Tel.: +7 495 7987729 Fax: +7 495 680 6304 Mobile: +7 903 798 7729 e-mail: Askhat.Torshin@lhconsulting.com www.lhconsulting.ru

www.lhconsulting.com

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