Cost Benefit modelling for ASAS Applications With a

Cost Benefit modelling for ASAS Applications With a particular emphasis on airline specific modelling T E Johnson ASAS-TN 2 Workshop#1, 26 -28 September 2005

Cost Benefit Modelling for ASAS Applications Introduction – This presentation considers three different approaches to cost benefit evaluation. - General Cost Benefit Models - Particular Cost Benefit Models - Specialised Cost Benefit Models – Each approach will be explained and reviewed – Specific examples will be considered for the latter two approaches applied to ASAS applications. ASAS TN 2 Workshop#1, September 26 -28 2005 2

Cost Benefit Modelling for ASAS Applications General Cost Benefit Model – Top-down high level analysis for broad classes of stakeholder Determine aggregate description of stakeholder operations Derive aggregate estimates of costs and benefits Evaluate business case for the combined set of stakeholders - Example: EMOSIA Model (Eurocontrol) ASAS TN 2 Workshop#1, September 26 -28 2005 3

Cost Benefit Modelling for ASAS Applications General Cost Benefit Model – Characteristics of General Cost Benefit Model - Provides broad view of business case viability - Compact and not over complicated - Simple to adapt - Wide area analysis can minimise geographic boundary problems - Generic approach allows use of standard methods and standard values - Only broad costs and benefits can be modelled - Coarse model for benefit distribution - Competitive advantage will average out over a set of stakeholders - Use of average values can mask wide variations - Average values are not amenable to all mathematical calculations - Sensitivity analysis can only be applied at the aggregate level ASAS TN 2 Workshop#1, September 26 -28 2005 X 4

Cost Benefit Modelling for ASAS Applications Particular Cost Benefit Model – Bottom up analyses for individual stakeholder operations Establish a description of a particular stakeholder operation Derive specific estimates of costs and benefits Evaluate business case for the particular stakeholder - Example: ATOBIA Model (BAE Systems) - Will be further described later ASAS TN 2 Workshop#1, September 26 -28 2005 5

Cost Benefit Modelling for ASAS Applications Particular Cost benefit Model – Characteristics of Particular Cost Benefit Model - Specific stakeholder characteristics can be modelled - Specific stakeholder business case can be addressed - Competitive advantage can be modelled where appropriate - Common benefits can be discounted where appropriate - Modelling assumptions are more transparent - Can identify specific investment cases - Analysis is less compact - Analysis may be over detailed - Analysis is less flexible - Detailed data may not be available - Detailed data may not be of good quality - Detailed characteristics may be less stable over time - Model capacity may limit modelling capability ASAS TN 2 Workshop#1, September 26 -28 2005 X 6

Cost Benefit Modelling for ASAS Applications Specialised Cost Benefit Model – Purpose analysis tailored for specific scenarios Identify a scenario that can be modelled as a standalone operation Derive estimates of costs and benefits from the scenario characteristics Evaluate business case for the particular scenario - Example: Hub Model (BAE Systems) - Will be further described later ASAS TN 2 Workshop#1, September 26 -28 2005 7

Cost Benefit Modelling for ASAS Applications Specialised Cost Benefit Model – Characteristics of Specialised Cost Benefit Model - Can provide good compact models where appropriate - Can address high value scenarios where these exist - Can address specific scenarios where these exist - Can identify useful investment opportunities - Models are very specific - Limited applicability ASAS TN 2 Workshop#1, September 26 -28 2005 X 8

Cost Benefit Modelling for ASAS Applications Cost Benefit Model for a Passenger Hub The BAE Systems ‘Hub and Spoke’ cost benefit model is an example of a Specialised Cost Benefit Model The model can address Passenger or Cargo Hubs where a sequence of arrivals is followed a sequence of departures (a “wave”). Passenger hubs will be addressed here. ASAS TN 2 Workshop#1, September 26 -28 2005 9

Cost Benefit Modelling for ASAS Applications Cost Benefit Model for a Hub – Hub and Spoke operations in the airline industry can allow a large number of city pairs to be serviced efficiently Conventional Network Hub and Spoke Network ‘n’ cities connected by ‘n(n-1)/2’ return flights ‘n’ cities connected by ASAS TN 2 Workshop#1, September 26 -28 2005 ‘n-1’ return flights 10

Cost Benefit Modelling for ASAS Applications Cost Benefit Modelling of a Hub Potential Benefits from the Introduction of ASAS into a Hub Network – Reduced Fuel Consumption - from improved horizontal and vertical approach paths – Reduced Maintenance Costs - from reduced approach times – Improved Predictability of Arrivals - (benefit quantification not yet addressed) – More Contingency Time or Reduced Spoke-to-Spoke Journey times - from reduced flight times, reduced approach spacing and decreased chance that one of the cohort aircraft is delayed Notes: - A reduction in aircraft utilisation is not necessarily beneficial since stand down times are common in hub operations. - Aircraft arrive in a wave. The turnaround time is determined by the worst case arrival. - Efficiency improvements arise from the better accommodation of ‘modest’ delays, larger delays are not appreciably altered. ASAS TN 2 Workshop#1, September 26 -28 2005 11

Cost Benefit Modelling for ASAS Applications The “Hub Effect” for Aircraft Spacing – Passenger journey times would be minimised if all ‘n’ aircraft in a hub interchange could arrive simultaneously at the hub. – In practice, the aircraft must arrive at ‘T’ minute intervals. - The passengers on the first aircraft must arrive (n-1)*T minutes earlier than the last aircraft and their journey times are increased accordingly. - The total amount of ‘early arrival time’ over all aircraft is 0 + T + 2 T +. . (n-1)T - This amounts to T*n(n-1)/2 minutes. – Any reduction in aircraft inter-spacing time can reduce total aircraft early arrival time by an amount proportional to the square of the number of aircraft involved. This is the “hub effect”. ASAS TN 2 Workshop#1, September 26 -28 2005 12

Cost Benefit Modelling for ASAS Applications Contingency Time versus Journey Time – ASAS improvements could be realised as – Either more contingency time at the hub - more resilience to delays - less peak loading of transfers – Or reduced spoke to spoke journey times. The benefits of more contingency time are specific to a particular hub. For a generic hub, a reduction in journey time can be more easily modelled. To value journey time reductions, it is necessary to assign a value to passenger time - The passenger perception of a hub journey is influenced by the total travel time. - A passenger travelling via a hub is often trading travel time against cost. - a higher fare can be charged if the journey time can be reduced. - Total journey time (including any delay) can influence repeat business. The cost benefit model values passenger time in order to evaluate reduced journey times (in preference to an assessment of increased contingency time). ASAS TN 2 Workshop#1, September 26 -28 2005 13

Cost Benefit Modelling for ASAS Applications Passenger Hub Cost Benefit Model Screen Shot of Input Data Sheet ` ASAS TN 2 Workshop#1, September 26 -28 2005 14

Cost Benefit Modelling for ASAS Applications Passenger Hub Cost Benefit Model – In the example, the following parameters are specified on the input data sheet - 1 minute reduction in approach flight times from ASAS applications - 0. 25 minute reduction in flight arrival separations from ASAS applications - Value of passenger time 20 Euro per hour. - 14 hub interchanges per week - 20 aircraft per hub event (but 25 aircraft are equipped) - Average 138 passengers per aircraft of which 75% travel onwards - Fuel burn rate 50 Kg per minute - Cost of fuel 1. 5 US dollars per US gallon - Equipage cost per aircraft including installation costs and training etc 160000 Euro - Equipment Maintenance costs per aircraft per year 4000 Euro - Equipment warranty period 2 years - Incremental aircraft maintenance cost per flight minute 2. 5 Euro ASAS TN 2 Workshop#1, September 26 -28 2005 15

Cost Benefit Modelling for ASAS Applications Passenger Hub Cost Benefit Model Screen Shot of Calculation Sheet For example Cost of Fuel Saved = Flight Time Reduction x Aircraft per Hub x Hubs per Week ……………………… x 52. 14 x Fuel per Minute x Cost of Fuel ASAS TN 2 Workshop#1, September 26 -28 2005 16

Cost Benefit Modelling for ASAS Applications Passenger Hub Cost Benefit Model Costs and Benefits for the given Input Parameters – The Net Present Value (NPV) and Internal Rate of Return (IRR) can be computed from the net benefits using standard functions – For the given input parameters: – The total net return on investment (Net Present Value) is 5. 9 M Euro - (At 10% discount rate p. a. on future earnings from an initial equipage cost of 4 M Euro. ) – The rate of return on the investment (Internal Rate of Return) is 47% ASAS TN 2 Workshop#1, September 26 -28 2005 17

Cost Benefit Modelling for ASAS Applications Passenger Hub Cost Benefit Model – In addition to the basic calculation of net benefits, it is possible to – Perform a sensitivity analysis for the values of the input parameters. - Specify 10% and 90% limits for values of the input parameters - Price of fuel could vary from 50 cents per USG to 200 cents per USG - Minutes saved per flight could vary from 0. 5 minutes to 1. 5 etc - Using standard tools, it is possible to provide graphical outputs showing - which input parameters are most critical for determining the net benefit - probability limits for the outcome of the net benefit. – Perform trade-off calculations to look at the underlying assumptions of the model - What if no value was attached to passenger time? An example of a trade-off calculation will now be considered. ASAS TN 2 Workshop#1, September 26 -28 2005 18

Cost Benefit Modelling for ASAS Applications Passenger Hub Cost Benefit Model – Tradeoffs ASAS TN 2 Workshop#1, September 26 -28 2005 19

Cost Benefit Modelling for ASAS Applications Cost Benefit Model for an Airline Operator “ATOBIA” Air Transport Operators Benefit Incentive Analysis Model A Brief Overview The BAE Systems ‘ATOBIA’ cost benefit model is an example of a Particular Cost Benefit Model ASAS TN 2 Workshop#1, September 26 -28 2005 20

Cost Benefit Modelling for ASAS Applications ATOBIA Cost Benefit Model – Focuses on airline operators. - Analysis is performed for one operator or two co-operating operators. – Addresses ASAS benefits – Uses ‘bottom-up” approach to benefits and cost estimation. – Uses specific airline operating characteristics rather than ‘typical values’. – Applies the analysis to the specific route network of the operator. - or a (regional) subset thereof. – Takes (approximate) account of operator fleet mix. ASAS TN 2 Workshop#1, September 26 -28 2005 21

Cost Benefit Modelling for ASAS Applications ATOBIA Cost Benefit Model ASAS TN 2 Workshop#1, September 26 -28 2005 22

Cost Benefit Modelling for ASAS Applications ATOBIA Benefit Evaluation – The following benefits can be addressed – Percentage reduction in Horizontal Inefficiency - Inefficiency is excess distance flown over direct route – Fixed reduction in Horizontal inefficiency – Reduction in Vertical Inefficiency - Possible removal of climb or descent steps – Reduced delays at departure airport due to en route capacity improvement – Percentage Reduction in Buffer Time - Buffer time is excess padding in the schedule to accommodate delays – Percentage of Flights that can be maintained at VFR due to ESVA - “Visual Flight Rules due to Enhanced Successive Visual Approaches” – Incentives - Increased availability of airport slots - Reduced navigation fees. ASAS TN 2 Workshop#1, September 26 -28 2005 23

Cost Benefit Modelling for ASAS Applications ATOBIA Cost Benefit Model Example: – An exploratory analysis has been undertaken for a specific predominant operator in an operational area covered by six ANSPs. – The effect of a one minute reduction in flight time from ASAS was considered for illustrative purposes. – It was assumed that benefits would only be achieved by the operator on routes where the number of its own equipped aircraft exceeded a threshold percentage of all aircraft operating on the route. - Example: percentage threshold is 30% - Operator can expect benefit on a route where it operates 40% of flights. - Operator cannot expect a benefit on a route where it operates 20% of flights. – It was assumed that the operator attempts to match aircraft equipage to beneficial routes. - Minimise equipped aircraft on routes where less than 30% of flights are operated. - An exact match is not possible so a fixed “over-equipage” ratio is assumed. ASAS TN 2 Workshop#1, September 26 -28 2005 24

Cost Benefit Modelling for ASAS Applications ATOBIA Cost Benefit Model Example continued: – The higher the benefit threshold, the fewer the routes that are beneficial. – The fewer routes that are beneficial, the fewer the aircraft that need be equipped. – The absolute return (Net Present Value) is less at the higher threshold level but the relative return (Internal Rate of Return) is relatively unchanged because benefits and costs are both proportionately lower. – As far as possible, the operator should try to match aircraft equipage to routes that provide a good level of benefit. ASAS TN 2 Workshop#1, September 26 -28 2005 25

Cost Benefit Modelling for ASAS Applications Summary – The characteristics of three types of cost benefit model have been compared. – A General Cost Benefit model can allow an assessment of the overall case for a proposed ATM improvement, such as a set of ASAS applications. – Examples have been presented here of Particular and Specialised Cost Benefit Models that can used to assess specific cases for implementation. BAE Systems would be interested in working in partnership with airline operators to further develop cost benefit analyses based upon specific operating scenarios. terry. johnson@baesystems. com ASAS TN 2 Workshop#1, September 26 -28 2005 26

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