Future Performance

Reading In The Future (3)Case Study

83 % Mohammed Salem AwadhAviation Consultant

Date of issue: 14 July 2015

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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

• Introduction – Airline Market Segmentation – Key Performance Indicators For Airlines– Errors Vs KPIs

• Forecasting – Basic concept of forecasting Model– Model Constrains– Max.& Min Signal Tracking Analysis– Accuracy Forecasting Matrix

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Outline 2/2

• Case Study : ( IAG ) – Basic Data Base ( Three years data )– Passengers Forecasting 2015– RPKs Forecasting 2015– ASKs Forecasting 2015– Load Factor Forecasting 2015– Results– Market Segments– Analysis

• Summary• Contact

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Reading in the future : Looking Forwards Vs Looking Backwards, The main message of this presentation, is to highlight the benefits of Setting Goals and Targets, thus company can developed an effective KPI System instead of looking backward – using month by month approach - to compare current performance with past performance instead of achieving targets. Reading in the future, is addressing the best forecasting scenario approach for setting targets and developing the level of key performance indicators for Airlines, as Load Factor, ASK, and RPK, as demonstrated by airline investors monthly /annually reports.

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Airline Market SegmentationTo facilitated business, the business units define by their Market Segments, International Airlines Group ( IAG ) addressing six regions / areas , As , 1- Domestic ( UK, Spain & Italy ),2- Europe, 3- North America, 4- Latin America & Caribbean, 5- Africa, Middle East &Asia, 6- Asia Pacific. Defining by two main performance factors, RPK, and ASK.So most of airlines working on a clear objectives and that’s come with clear targets which lead us to set a clear picture of forecasting process. Based on that, our objective is to develop a clear massage for top managements for the key performance figures of the airline, not just to compare month by month approach but to develop the right path ( time series ) in the future to set the right targets which consequently develop K.P. I for the airlines .

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K.P.I For Airlines

• Key Performance Figures• Capacity = ASK( available seat kilometers )

• Traffic = RPK ( revenue passenger kilometers )

• Load Factor ( LF ) = RPK/ASK

Traffic

Capacity

Targets & KPIs

Load Factor

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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 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)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 : (about IAG)International Airlines Group is one of the world's largest airline groups with 466 aircraft flying to 248 destinations and carrying 77.3 million passengers each year. It is the third largest group in Europe and the sixth largest in the world, based on revenue.Formed in January 2011, IAG is the parent company of British Airways, Iberia and Vueling. It is a Spanish registered company with shares traded on the London Stock Exchange and Spanish Stock Exchanges. The corporate head office for IAG is in London, UK.IAG combines the leading airlines in the UK and Spain, enabling them to enhance their presence in the aviation market while retaining their individual brands and current operations. The airlines' customers benefit from a larger combined network for both passengers and cargo and a greater ability to invest in new products and services through improved financial robustness.The airline industry is moving gradually towards consolidation though some regulatory restrictions still prevail. IAG's mission is to play its full role in future industry consolidation both on a regional and global scale.British Airways and Iberia are members of the oneworld alliance.

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Basic Data Base ( Three years data: 2012-2014)

36 months data files

83 %

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Passengers Forecasting

2015

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Passengers Forecasting 2015Total Passengers

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Passengers Forecasting - 2015 1- Domestic ( UK, Spain & Italy )

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Passengers Forecasting - 20152- Europe

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Passengers Forecasting - 20153- North America

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Passengers Forecasting - 20154- Latin America & Caribbean

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Passengers Forecasting - 20155- Africa, Middle East &Asia

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Passengers Forecasting - 20156- Asia Pacific

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Passengers Forecasting - 2015Accuracy Matrix ( Passengers )

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RPKs Forecasting

2015

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RPKs Forecasting - 2015Total RPKs

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RPKs Forecasting - 20151- Domestic ( UK, Spain & Italy )

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RPKs Forecasting - 20152- Europe

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RPKs Forecasting - 20153- North America

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RPKs Forecasting - 20154- Latin America & Caribbean

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RPKs Forecasting - 20155- Middle East & Asia

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RPKs Forecasting - 20156- Asia Pacific

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RPKs Forecasting - 2015Accuracy Matrix ( RPKs )

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ASKsForecasting

2015

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ASKs Forecasting - 2015Total ASKs

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ASKs Forecasting - 20151- Domestic ( UK, Spain & Italy )

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ASKs Forecasting - 20152- Europe

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ASKs Forecasting - 20153- North America

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ASKs Forecasting - 20154- Latin America & Caribbean

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ASKs Forecasting - 20155- Middle East & Asia

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ASKs Forecasting - 20156- Asia Pacific

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ASKs Forecasting - 2015Accuracy Matrix ( ASKs )

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Load Factor (L.F)Forecasting

2015( Future Performance )

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Airline Performance

• Load Factor = RPK / ASK • PASK (Profit/ASK) = RASK - CASK

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Load Factor Forecasting – 2015 (Results)

Load Factor can be found by divided RPK/ASK, its shows the capacity utilization for airline fleet, in other wards it measure the airline performance.IAG have 6 segments The following table shows the forecasted values of Load Factor based on the forecast values of RPK and ASK for 2015.

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Load Factor Forecasting - 2015Total Market

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Load Factor Forecasting - 20151- Domestic ( UK, Spain & Italy )

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Load Factor Forecasting - 20152- Europe

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Load Factor Forecasting - 20153- North America

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Load Factor Forecasting - 20154- Latin America & Caribbean

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Load Factor Forecasting - 20155- Middle East & Asia

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Load Factor Forecasting - 20156- Asia Pacific

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Results

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Market Segments – Traffic - 2015

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Market Segments – RPKs - 2015

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Market Segments – ASKs - 2015

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Analysis – Three Parameters IAG Addressing their performance

• Traffic : - in terms of Number of Passengers. • Demand : in terms of Revenue Passengers Kilometers (RPKs) • Capacity :- in terms of Available Seat Kilometers (ASKs)• Load Factor :- it is the outcome of RPK/ASK.

– By referring to segments business market share for passengers, we found that, about 78% ( 50 + 28 ) of represents domestic and regional market (Core Business), while only 22 % for other 4 segments.

– Only 34% (25+9) represents operational capacity (ASKs) for domestic and regional markets.

– Yield analysis for each segment should be hold to define the best level of income. – IAG should setup competitive strategy (for low cost carriers), if their operation

addressing regional sectors.– IAG performance define by RPKs/ASKs, for each operational segment.– The results shows all segments have positive trends except Latin America &

Caribbean has negative trend.

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Summary• Reading in the future, it is the third forecasting study concerning IAG, it

is addressing the best forecasting scenario approach for setting targets and developing the level of key performance indicators for Airlines, as Load Factor, ASK, and RPK, as demonstrated by airline investors monthly /annually reports.

• While the message of this study is to highlight the benefits of Setting Goals and Targets, thus airlines can developed an effective KPI System instead of looking backward – using month by month approach - to compare current performance with past performance instead of achieving targets.

• By using the concept Max/Min Signal Tracking Approach, the forecasting data will have one answer, no trail and errors. It is define by the main elements of the forecasted model, i.e Displacements and Directional.

• Most of the segments are fairly forecast except two, Africa, M.E & Asia and Latin America & Caribbean segments

• The expected performance of total Market for 2015 (load factor) = 79.65 %

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Welcome In The Club

Thanks !

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Contact

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