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Analytics, Optimization and the Asia Travel Boom

By Amit Parekh

Over the last few weeks, the world has been transfixed by the baffling mystery of the Malaysia Airlines jet. One particular article on on March 21 caught my atttention, Missing Malaysian Airlines flight MH370 ‘won’t stop Asia travel boom’. The article took an interesting look at the airline industry itself and the transformation occurring in Asia. The backdrop is compelling even if far removed from the headlines, so I thought I would share with you some of the most interesting points from the article.

Air travel in Asia is surging as the middle class gets bigger, discount airlines proliferate and business ties with the rest of the world deepen.  According to the Association of Asia Pacific Airlines, the biggest demographic shift for Asia in the past 20 years has been the sheer number of people who have been lifted out of poverty into that middle income segment of $10-$100 of disposable income a day.

The International Air Transport Association has forecast airline passengers to grow by 31 percent worldwide between 2012 and 2017. For Asia, that will mean the number of passengers increases an average of 6.3 percent each year, nearly three times as fast as the US.

Routes within or connected to China will be the single largest driver of growth, accounting for nearly a quarter of the additional 300 million passengers during those six years.

Given the demographics, it is actually the low-cost carriers who are the hungriest players. In Asia alone, Airbus has 1375 unfilled airplane orders or about a quarter of its worldwide order book. Malaysia-based AirAsia and its affiliate AirAsia X together have orders for 385 new planes. Indonesia’s Lion Air has an order for 234 jets from Airbus and another 301 from Boeing.

Further north in China, not only are new low-cost carriers about to take flight, but airport construction is most rampant in China, with authorities in the world’s second-biggest economy authorizing the construction of dozens of new airports and the expansion of others.

To keep up, Asian governments are scrambling to build new terminals and runways. Singapore expects additions to its airport will within a decade more than double the number of passengers it can handle yearly to 135 million, while several airports in the region are already operating near or at capacity, including Hong Kong, Bangkok’s Suvarnabhumi Airport, Manila, Jakarta and Beijing.

This travel boom is contributing to a need to model and solve complex problems with analytics and optimization, in order to improve operations and deliver safe and reliable transportation to millions of passengers. At FICO, our optimization tools are used to help airlines make critical decisions around fleet planning and scheduling, tail assignment, MRO (maintenance, repair and overhaul) planning and scheduling, capacity planning, flight planning, crew allocation, yield and revenue management, and operational controls.

So as Asia’s skies get busier, the airline industry continues to grow intensely competitive. Sometimes the difference between a flight being profitable or losing money comes down to just a couple of unsold seats. That's why airlines are increasingly turning to analytics to build efficiency into every part of their operation.

To keep up with this boom, modern optimization tools are continuously  improving performance and computational speed.  In fact, based on recent calculations on our airline test set, we observed an improvement in performance of nearly 300-400 percent in the last decade. If you factor in the increased hardware speed, this means that for a medium-sized airline, a typical crew planning optimization run takes only a few minutes compared to an hour or more just ten years ago.

While this may not seem like a big deal to outsiders, the ability to optimize key operational decisions on the fly (no pun intended) has become critical for the Asia travel industry. It is one small way the airline industry continues to invest to improve operations and keep pace with the travel boom.

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