AIRLINE ROUTE AND FLEET PLANNING

AIRLINE ROUTE AND FLEET PLANNING

By (Name)

Course

Professor’s Name

University’s Name

City, State

Date

Airline Route and Fleet Planning

Air travel can be defined as a form of travel that utilizes vehicles such as jet aircraft, helicopters, gliders, hot air balloons, airplanes, blimps, hand gliders as well as parachuting or any other thing that can sustain flight. In the past few decades, air travel has dramatically gained momentum, and statistics show that between the mid-1980s and 2000, air travel doubled across the globe. Air travel can be classified into two; domestic or national air travel as well as international flights. The domestic flights are those flights that take place from one place to the other within the same country, while those flights from a point in one country to an end in another country are known as international flights.

Within a travel class on an airplane, it is usually divided into two, three, or a four-class model services. Domestic flights in the U.S, for example, are generally split into local first class and economy class. In contrast, the international flights have the economy class, business class, first-class as well as premium class. Air travel plays a significant role in both domestic and international or global economy. Air travel offers the only global transportation network making it very substantial for tourism and global business. Air travel facilitates economic growth, most notably within the developing nations. Research shows that air transport helps in the transportation of two billion passengers per year as well as accounting for 40% of all the value of interregional exports of goods.

About 40% of all the international tourists usually travel by air, and all these enable the air transport industry across the globe to generate jobs summing up to 29 million through catalytic, direct, induced, and indirect impacts. The global economic impact of the aviation industry, either catalytic, direct, induced, and indirect, is approximated to be US$ 2960 billion, which is equal to 8% of the gross domestic product of the world. Across the globe, 900 airlines have a total fleet of almost 22,000 aircraft serving in 1670 airports by route network of numerous million kilometers that are managed by about 160 air navigation service providers. Across the globe, 25% of all sales by companies mainly depend on air transport. This paper is a report about FlyDubai airline and how an introduction of a new fleet would impact the revenues of the airline as well as the economy at large. The fleet to be introduced is from Dubai to Visakhapatnam in Andhra Pradesh using a Boeing 737-800 aircraft.

Fly Dubai is a Dubai airline that is owned by the government and has its flight operations and head office in Terminal 2 of the Dubai International Airport. Currently, the airline serves 95 destinations within middle East, Europe, Africa as well as Asia from Dubai. The airline was established by the Dubai government in July 2008 and was supported by the Emirates groups, although currently, it is not part of the group. The airline signed a firm order with Boeing, an American aircraft manufacturer for 50 Boeing 737-800s at the Farnborough Air Show with a total value of US$3.74 billion on July 14^th 2008. The order also had an option of a more extended and more extensive range Boeing 737-900ER based on the demands of the airline.

The aircraft manufacturer delivered the first aircraft on May 17th, 2009. The first flight services were scheduled to Jordan, Beirut, Amman, and Lebanon, which commenced on June 1st, 2009. The remote network of the airline has expanded mainly to the current 95 destinations internationally. Flydubai later announced being in talks with Airbus and Boeing on February 13th, 2013, for an order of 50 aircraft. The airline then added the business class flight services within its operations on June 19^th, 2013. The business class cabin featured 12 seats between the window and the aisle, a business class lounge, three-course meals, Italian leather seats, and 12-inch televisions to cater to the business travelers in the emirates. These power outlets are fit for plugs from over 170 nations as well as access to over 200 films.

After the Max 737 aircraft by Boeing was grounded across the globe in March 2020, the airline suffered significant losses. According to the airline, the grounding had affected its growth strategy greatly since it had 11 of the grounded aircraft as well as over 200 others on order. Ghaith Al-Ghaith, the company, said that Boeing made an interim settlement compensation agreement for a specific compensation; however, the details within the agreement remained confidential. The airline is owned by the Dubai government who also owns Emirates Airlines, yet, the two companies have nothing in common apart from being own by the same government.

Flydubai has been successfully running independently even though it got some help from the Emirates airlines initially. The chief executive officer of the Flydubai airline is an experienced individual who once worked for the Emirates airlines for over 22 years. Flydubai shares a standard chairperson with the Emirates airline, Ahmed bin Saeed Al Maktoum. Below is a table showing the major business trends of Flydubai airline as of December 31st from 2012 to 2017.

By May 2017, the airline served over 90 destinations, and the airline had one hub where it operated within Dubai International Airport at Terminal 2. From October 25th, 2015, Flydubai started operating its flights from Al-Maktoum International to accommodate for the expansion and growing airline at DXB. The company began with 70 flights every week to Kuwait, Amman, Muscat, Chittagong, Kathmandu, Beirut as well as Doha operating from Al-Maktoum International or the DWC. By November 2019, the airline consists of the aircraft on the table below.

Flydubai was the first airline in the Middle East to make the largest Boeing single-aisle purchase in 2013 after it committed itself to purchase Boeing aircrafts worth about US$11.4 billion. Ever since then, the company has been signing contracts with Boeing to purchase their aircraft from the Boeing 737 MAX 8s to the next new generations, including Boeing 737 MAX 9 and 10, as well as the Boeing 737-800. By 2017, Flydubai Airlines was the first airline in the Middle East to operate a Boeing 737 MAX 8. The airline commits to the purchase of 225 aircraft from Boeing, making it the first Middle East airliner to commit to the largest single-aisle jet purchase in history.

Some of the inflight features within the Flydubai airline include the economy class, which provides full meal services to some of the African and European destinations. Customers can purchase additional snacks as well as alcoholic beverages after the main service is finished. At the same time, other flights operating within the network allow passengers to pre-book a hot meal, and the airline offers a full menu of sandwiches and wraps for those fights over three hours as well as other shorter flights. The purchases of these products are made from the crew off from the personal touch of the screens on each seat. The business class on the airline was introduced in June 2012, and about 85 destinations of the airline had the business class service by June 2015.

Every flight with a business class cabin has 12 seats with a pitch of 42 inches. Other than the wider seats on the airline, there is a choice of snacks, blankets, and pillows, meals and drinks, noise-canceling headphones, a power outlet as well as access to over 200 films. The business class services by the Flydubai airline are also extended at designated airports where they provide priority check-in as well as a fast track through the security checks. At Dubai International Airport, the airline announced the opening of their business lounge on July 6th, 2014 a lounge that is located in Terminal 2 and has snacks, free Wi-Fi as well as refreshments.

In 2018, Flydubai reported annual revenue of $1.7 billion, which is equivalent to AED 6.2 billion, which was much higher than the 2017 annual revenue of 1.5 billion (AED 5.5billion). This was a 12.4% increase in annual revenue from 2017 to 2018. The annual loss of the airline nevertheless was $43.5 million (AED 159.8 million) despite a second-half profit. According to the airline, the loss resulted from an increase in jet fuel that was experienced during that period. The airline transported 11 million passengers across their network in 2018, experiencing a moderated year to year increase since, in 2017, the airline transported 10.9 million passengers. In 2018 also the airline took delivery of 7 new Boeing 737 MAX 8 as well as Max 9 airplanes.

2018 Revenue and Cost Performance of Flydubai

The cash equivalents position, as well as the closing cash of the airline, including the pre-delivery payment of all the future airplane deliveries, stood at AED 2.1 billion a lower amount compared to the AED 2.4billion in 2017. EBITDAR was 21.1% of the annual revenue. The costs of fuel were 29.8% in all the annual costs of operation as compared to 25% in 2017. This indicates that the fuel costs played a role in increasing the total operating costs of the airline in comparison to the capacity increase. The yield of the airline increased by 8.4% compared to the same period’s yield in 2017.

The ancillary revenue, which is revenue from inflight sales, baggage as well as cargo, led to 9.4% of the revenue in comparison to 11.9% in 2017. Fare bundling also contributes to the overall growth in revenues; however, it is considered to contribute less to the ancillary revenue. In 2018 alone, the airline was able to close two financing structures to support the delivery of three Boeing 737 MAX 9 as well as four Boeing 737 MAX 8 aircraft. Currently, Flydubai has seen its growth in the air travel industry in the Middle East and the global or international air travel industry. The airline, in collaboration with the Emirates, aims at reaching a track of 240 destinations by 2022.

In this target, I would like to suggest one fleet destination that the airline can go for by analyzing the impact of the new fleet on the entire operations and revenues of Flydubai. The fleet that I would recommend is the fleet from Dubai to Visakhapatnam in Andhra Pradesh. Visakhapatnam is the most populous and the largest city in Andhra Pradesh, and it serves as the headquarters of the Visakhapatnam district. The city has a population density of 2,035,922 people, according to 2011 statistics data. This makes it the fourth most populous city in South India and the 11^th largest city in India. The city has an output of US$43.5 billion, making it the 9^th largest contributor to the gross domestic product of India as of 2016. The city has the Visakhapatnam international airport that also operates as a civil enclave on INS Dega, an Indian Navy air base.

The airport is located among the city localities of Gajuwaka and NAD Cross Road, and it has received substantial growth ever since its founding at the start of the 21^st century with the construction of a new runway, a terminal and the start of global flights. Visakhapatnam international airport covers an area of 350 acres. The airport has a passenger capacity of 700 departings and 300 arriving passengers and has 11 parking bays. The airport has a runway of 10/28: 3,050 by 45 meters that is ILS equipped. The passenger terminal that was launched in 2009 is said that I can handle a total of 2 million passengers in a year. The terminal has three aerobridges, 20 checks in counters that include nine custom and 11 immigration counters. The table below shows the passenger traffic as well as aircraft movement within the Visakhapatnam airport since 2009 up to 2018.

Visakhapatnam international airport is among the three international airports in Andhra Pradesh India, the other two international airports include Tirupati International airport and Vijayawada international airport. The distance from the Dubai International airport to Visakhapatnam international airport is 2993 kilometers while the distance from Al-Maktoum International airport to Visakhapatnam International Airport is 3008 kilometers. This means that Flydubai can operate flights from any of their operating terminals in either Dubai International or from Al-Maktoum International airports. Currently, there are about twelve flights that are flying daily from Dubai to Visakhapatnam of which all of them are connecting fights through the route. The major airlines that serve this route include Jet Airways, Air India, Emirates Airlines, Qatar Airways, Gulf Air as well as Indigo. Out of all the 12 flights along this route, Air India takes a maximum of six flights, Spicejet has two daily flights on the route and HAHN AIR SYSTEMS has four flights daily. The Flydubai flight might serve the following destinations.

Based on the different reasons for people to travel from Dubai to Visakhapatnam and vice versa be it for business purposes, for leisure and competition, the estimate of the number of pax was estimated per year for every O-D traffic combination as shown in the table below.

All the above estimates are when most of the passengers are assumed to have bought a return fare.

Schedule

Flydubai has a Boeing 737-800 that has a narrow-body divided into business and economy class and has a capacity of 162 seats. Assuming that the Boeing 737-800 aircraft will be the one taking the route from Dubai to Visakhapatnam and vice versa, to accommodate an average of 21,000 passengers in a year while carrying a capacity of 75% L.F of 162 passengers, the airline will need to take 21,000/122 flights every year which sums up to 173 flights. This averages to 4 flights each week meaning that the airliner can schedule 4 flights each week for the Visakhapatnam route. A direct flight from Dubai to Visakhapatnam takes 5 hours 30 minutes this means an average of 16 hours 30 minutes per week.

The pax in a year from Dubai to Vizag is 13,000 and based on the 173 flights that the route would take in a year, this would mean  75 pax per flight and when this is split into 12 pax via business class while 63 pax travel through economy class per flight hence the revenue generated in these market segments can be worked out. The average amount charged by most airlines from Dubai to Visakhapatnam for the economy class is US$264 but this is mostly after connecting between the route however Flydubai could charge a fair cost of $280 for a one way direct flight from Dubai to Visakhapatnam and vice versa, for the round trip the airline could charge a fair price of $530 with tickets being bought on the airline’s online website as well as in the two international airports.

For the business class Flydubai could charge a fair amount of $380 on the route for the one way and for the round trip, it would charge a fair price of $720. Hence the revenue of this routes ticket is therefore averagely $380 per business class passengers and $280 for each the economy class passenger. Hence the total revenue that is generated by 20 Dubai to Visakhapatnam business class passengers will be 12× $500 = $6,000 while the economy class passengers on the same flight can generate 63×$280 = $17,640. A flight carrying a capacity of an approximate 122 passengers whom 12 are on business class while 110 are on economy class, the entire flight will generate a revenue of 12×$500=$6,000 for business class and for economy class, 110×$280= $30,800 adding the total revenue of the entire flight on one way to $36,800. Four flights in a week would mean a revenue of $147,200 per week and $7.7 million in a year.

Cargo Revenue

The fact that this flight is a new route, it would first be appropriate to deal with the transportation of passengers across the route then as time goes by and when the flights on the route start developing and expanding, then Flydubai will consider also shipping cargo between the two destinations. On this case, my new flight will have no commercial cargo opportunities.

Costs

Despite the generated revenue by the new flight destination, the flight will incur a number of costs to ensure the fleet from Dubai to Vizag is successful and some of these costs include; aircraft costs that include aircraft depreciation and leasing or purchase, aircraft engine maintenance costs, the Airport cost including arrival and departure; the cost of fuel for the trip as well as the cost of operating crew.

Cost of Fuel

The Boeing 737-800, is a fuel-efficient jet that is powered by two fuel efficient as well as low noise CFM56-7 engines. The aircraft flies at a cruise speed of Mach 0.785 ranging to over 3000 nautical miles. The engines burn 850 gallons of jet fuel in every hour. Boeing 737-800 burns 4.88 gallons of jet fuel per seat in every hour. Using Boeing 737-800 on the route and assuming the price of jet fuel per gallon is $3, the aircraft will take 5hrs 30minutes to end the trip and if the flight burns 850 gallons per hour then it means that a one way flight will burn 4675 gallons of fuel which will cost the airline $14,025 in a single flight. In a week the airline will spend $56,100 in all flights on the route and per year, the route will cost a total of $2.9 million to complete all the flights.

Aircraft Maintenance Costs

On November 15th 2011, Flydubai signed an aircraft maintenance costs agreement worth $20 million with Honeywell to offer maintenance services for the auxiliary power units installed on its Boeing 737-800 passenger aircraft. The contract was a 10-year contract which shall expire in 2021. This means that the airline has reduced costs related to unscheduled airframe grounding and ad-hoc maintenance cost and it is able to expand its operational availability of the fleet.

Airport Charges

Air Traffic Control Costs

ATC fee = U×D×W

U= is the unit rate (country specific).

D = is the distance flown/100km

W = is the square root of the (MDTOW/50)

For the Boeing 737-800 taking the route;

U = 130

D = (3000/100) = 30

W = (√79.015/50) = 0.18

ATC = 130×30×0.18 = USD$702

Landing Fee

If the airline has a fixed landing fee of $1200 and a variable fee of $7× (MTOW – 50)

Landing fees will be equal to fixed fee + variable fee

$1200 + 7× (79.015 – 50) = 1403.105

Hence landing fee=$1403

Crew Costs

Some of the cost elements that will be considered for the flight deck crew include basic salary, pension funding, flight pay, leave passage allowance, transport allowance, layover, housing allowance, healthcare allowance, training costs and school fees. Per year Boeing 737-800 will fly 5200BH and will require 14 cabin crews as well as 2 flight decks working at 800-1000BH per year. If the airline manages to fly their flight deck crew at 800BH in a year and the crew fly 850BH in a year, the flight deck ratio = 5200/800 to get 6.5 while the cabin crew ratio will be 5200/850 to get 6.12.

If the airline has a budget of $150 000 per flight deck crew including all costs and a $50,000 per the cabin crew the crew cost per hour is equal to; flight deck costs per year= flight deck ratio × flight deck budget × the number of flight decks per crew set.

6.5×150,000×2= $1,950,000

Flight deck costs per BH = 1950000/5200 = 375 USD/BH

Cabin crew costs = 6.12×50,000×14 = $4,284,000

Cabin crew costs per BH = 4284000/5200 = 824 USD/BH

Financing Costs

Assuming the plane is on lease for 15 years with an interest rate of 7% per year and the loan to be paid for the aircraft is $31m, the annual payment formula being 3,403,633 per year the financing costs will be.

Feasibility Check

Assuming that the flight will generate a total revenue of $36,800, the revenue per ASK will therefore be $36,800/122 seats × 3000km= $0.1005 per ASK.