Why is network contribution so important to a passenger airline?

23 April 2014

By Steve Benham

Network contribution is the contribution from a flight (“Target”) plus the marginal contribution from passengers joining the flight at a hub from a feeder flight (“Upline”) or leaving the flight at the hub to take another flight (“Downline”).  Most airlines report the contribution to net profit from a route, many report the contribution from an individual flight, and the best report contribution of a Target flight to the network.  They can produce two views of network contribution: Target flight contribution plus Upline feeder flight passenger contributions; and Target flight contribution plus Downline flight passenger contributions.

So, why is this so important?  Imagine a full 747 bringing 400 passengers (revpax) from New York to London, the Target flight.  Of these 120 are transferring to other short haul flights to different European cities.  The Target flight is probably profitable with this number of revpax, but what if it was expected to carry only 200 passengers for the next few months? It will almost certainly make a loss.  Looking only at a flight profitability report there would be pressure to cancel or consolidate the flight.  Such a decision might result in even higher losses because 120 revpax are also making a contribution to the Downline flights.    These decisions are not simple however, and issues such as maintaining landing slots, competition, and alternative network flights need to be considered.  Understanding network contribution is vital MI to support these decisions.

At PwC we have developed a solution which provides network contribution reporting.  Essential ingredients to network contribution include identifying passenger journeys, limiting the complexity to material journeys and understanding when additional analysis such as cabin class would add value. Please get in touch if you’d like to know more.

Steve Benham has 20 years’ experience implementing profitability and cost management solutions with ALG Software, Business Objects and SAP before becoming a founder of Vantage Performance Solutions which was acquired by PwC in 2013.  He is now a Director in the PwC Performance Management team.

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