Wow Air and the thin line of airline profitability

What is Wow Air?

Wow Air is an ultra-low-cost carrier based out of Reykjavik in Iceland.

I am sure most of you have heard the recent news that Wow Air will be offering flights from U.S./Canada to Iceland for $99. Furthermore, they will have $149 flights from U.S./Canada to Europe via Iceland. Obviously, this sounds like a very good deal for travelers going from a major city in one continent to a major city in the other. The rest might just have to take a 2+ stop flight, which might not be so bad considering the price. But Wow Air knows how to make their passengers smile.

Deep Dive 

Network: Wow Air has been operating to and from Europe since 2011. They use a hub-and-spoke model. As of late 2014, they had a substantial reach into Europe with Dublin, Amsterdam, London-Gatwick, Copenhagen, Paris, Barcelona and more as destinations. It began operations to USA this year with Boston and Baltimore. Adding to their network, they will start flights to Montreal and Toronto in 2016. Not bad for an ultra-low-cost carrier in terms of progression.

Fleet: Wow Air operates 3 Airbus A320 aircraft to Europe and operates 2 Airbus A321 aircraft to North America. As of today, they do not have any more aircraft on order.

Schedule: A fleet of 5 aircraft is not too difficult to manage in terms of schedule optimization. Wow Air operate out of Keflavik airport close to Reykjavik and not surprisingly, slots are not a problem.

Pricing: As most ultra-low-cost airlines do, Wow Air has very low base price on all tickets which include absolutely no frills. They charge fees for luggage, seat preferences, in-flight meals and other extra benefits. The most important aspect of pricing that is noteworthy is the dynamic pricing model. The prices increase based on the proximity of the travel date.

Outlook

Although the business model has had a turbulent history in North America with the demise of airlines like JetsGo and Canada 3000, discount airlines like Ryan Air, Aer Lingus, EasyJet and others have had success offering short-haul flights between destinations in Europe.

Only recently have discount carriers started expanding their reach across oceans.

Canadian carriers WestJet and Air Canada have both announced plans to offer more and cheaper flights to European destinations.

With a strong start and the required financial baseline, Wow Air has the momentum to transition from a startup to a stable business. But will they? That depends on their medium-term and long-term strategies. Their competition with respect to network and pricing will get stronger in the next 2 years. After that, it’s about value proposition and competitive product placement. At that time, it will be critical that they have consistent net profits in every quarter in order to survive.

Strategy

Wow Air’s strategy, like most airlines trying to operate on an ultra-low-cost business model, will have to be centered on optimal pricing and revenue management. Their flights obviously seem attractive for travelers that like to plan their trips well in advance. But for those who need to plan their trips 2-3 months in advance, the prices will be comparable to most other (probably more direct airline fares)

As they add more routes, they will also have to keep a very close eye, and I cannot stress this enough, on scheduling. With 4-5 destinations in each continent, it is very easy to optimally align schedules to minimize travel duration for customers. But once those destinations increase, so do the routes, which lead to slot management issues and scheduling headaches.

In 2016, they will absolutely need to focus on obtaining high load factors. Why? Because that’s the only way they will come close to being profitable. Pricing models cannot be altered in 2016 after months of advertising for rock-bottom prices. Once they achieve high load factors, most airlines make the mistake of expanding and adding more routes. This is a big no-no for Wow Air because it will not only increase their debt but it will also increase their market competition. At this point, they will need to focus on customer retention, customer service and optimal pricing adjustments. After a consistent performance in 2017, they should have travelers in other cities begging and wishing for them to start operating from there. That’s when they should expand, very cautiously and only to cities where demand is on the higher side. This is the easy part. The hard part is their medium-term strategy, and that can only be well-defined once they actually have some initial numbers coming in after they begin operations.

With current momentum, largely driven by somebody’s deep pockets and endless PR initiatives, Wow Air should be successful in North America in the operational months of 2016. But the word successful is a very relative term in this case, especially since it could range from achieving high-load factors to meeting investor expectations. It is in 2017 that Wow Air and the rest of the world will realize on which side of the line they are treading on – the thin line of airline profitability for an ultra-low-cost airline.

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The codes in your Boarding Pass

The next time you’re thinking of throwing away a used boarding pass with a barcode on it, consider tossing the boarding pass into a document shredder instead. Two-dimensional barcodes and QR codes can hold a great deal of information, and the codes printed on airline boarding passes may allow someone to discover more about you, your future travel plans, and your frequent flyer account.

Earlier this year, I heard from a longtime KrebsOnSecurity reader named Cory who said he began to get curious about the data stored inside a boarding pass barcode after a friend put a picture of his boarding pass up on Facebook. Cory took a screen shot of the boarding pass, enlarged it, and quickly found a site online that could read the data.

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An older Delta boarding pass with a bar code that does not include a frequent flyer number. Source: IATA.

“I found a website that could decode the data and instantly had lots of info about his trip,” Cory said, showing this author step-by-step exactly how he was able to find this information. ‘

“Besides his name, frequent flyer number and other [personally identifiable information], I was able to get his record locator (a.k.a. “record key” for the Lufthansa flight he was taking that day,” Cory said. “I then proceeded to Lufthansa’s website and using his last name (which was encoded in the barcode) and the record locator was able to get access to his entire account. Not only could I see this one flight, but I could see ANY future flights that were booked to his frequent flyer number from the Star Alliance.”

The access granted by Lufthansa’s site also included his friend’s phone number, and the name of the person who booked the flight. More worrisome, Cory now had the ability to view all future flights tied to that frequent flyer account, change seats for the ticketed passengers, and even cancel any future flights.

The information contained in the boarding pass could make it easier for an attacker to reset the PIN number used to secure his friend’s Star Alliance frequent flyer account. For example, that information gets you past the early process of resetting a Star Alliance account PIN at United Airline’s “forgot PIN” Web site.

After that, the site asks for the answer to a pre-selected secret question. The question in the case of Corey’s friend was “What is your Mother’s maiden name?” That information can often be gleaned by merely perusing someone’s social networking pages (e.g., does your aunt or uncle on your mom’s side have your mother’s maiden name as their last name? If so, are they friends with you on Facebook?)

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The readout from the barcode on Cory’s friend’s boarding pass (redacted).

United Airlines seems to treat its customers’ frequent flyer numbers as secret access codes. For example, if you’re looking for your United Mileage Plus number, and you don’t have the original document or member card they mailed to you, good luck finding this information in your email correspondence with the company. When United does include this code in correspondence, all but the last three characters are replaced with asterisks. The same is true with United’s boarding passes. However, the full Mileage Plus number is available if you take the time to decode the barcode on a boarding pass.

Interested in learning what’s in your boarding pass barcode? Take a picture of the barcode with your phone, and upload it to this siteThis blog on the same topic from several years back includes some helpful hints on how to decode the various information fields that get dumped by the barcode reader.

Finally, the standards for the boarding pass barcodes are widely available and have been for years. Check out this document (PDF) from the International Air Transport Association (IATA) for more on how the barcode standards work and have been implemented in various forms.

A380 Waste Management System

A recent meeting held at York University brought forward the criticality of one of the real-time systems onboard the Airbus A380 – the waste management system.

The Airbus A380 is the world’s largest passenger airline and it flies long distances. As such its human waste management systems have to handle a large volume of material.

Of course the material that ends up in the system was on the plane from the moment in took off but at the moment of takeoff the weight is distributed throughout the plane while the longer the flight continues the more of that weight gets concentrated in the waste management system.

More than that – the plane is getting lighter all the time – because it is burning fuel – so not only does the weight get shifted to a more confined region of the plane, it is relatively more important.

Hence the software on the A380 that manages the toilets is a safety critical system – and has to meet some quite exacting standards.

 In Toulouse, France, three-quarters of the waste collected and sorted at the area’s Airbus sites is recycled or sent for material recovery, with the rest used for energy-generation purposes. These facilities produce as much non-hazardous refuse as a town with 3,400 households; during 2010, 500 tonnes of wood, more than 400 tonnes of paper and 1,100 tonnes of metal scrap and chips were recycled thanks to a new “sorting attitude.” 

The sorting rules are the same in the offices at Airbus’ headquarters and its design/production operation: everything that can be recycled – including paper with a coloured background – must be thrown away in designated blue dustbins; paper with a white background in shredders or baskets; and waste that requires incineration in yellow dustbins.

Airport Activity Module

The Flight Routing & Scheduling Model generates aircraft trips according to segmented passenger and freight flows. Based upon the passenger and freight flows coming from the Air Transport Demand Module, this model outputs aircraft trips, in the form of a flight schedule, to the Aircraft Movement Module and to an internal LTO Operations Model. Aircraft classes used are also output to the Aircraft Technology & Cost Module, which returns costs and emissions (the latter to the internal LTO Operations Model). The generation of the schedule includes identification of aircraft sizes, flight frequencies, departure times, and passenger load factors, by flight segment. These factors are modelled as a function of passenger and freight demand, segment length, and in future developments of the model, average delay (from an internal Delay Calculator) and aircraft cost (from the Aircraft Technology & Cost Module) to capture airline response behaviour. These relations are derived from current and historic schedules, demand data, load factors, delays, and aircraft class and size statistics.

Alternatively to the Scaled Routing Model in the Air Transport Demand Module, the Flight Routing & Scheduling Model also simulates the airline response to capacity constraints. By maximizing airline profits, i.e., the aggregate difference between airline revenues and costs for each possible flight segment, a linear optimization routine allocates passengers to various routes in different periods of the day, subject to the available aircraft fleet. This model will reproduce the global routing structure in the base year and endogenously adjusts the routing structure to capacity constraints, eventually resulting in a changing air traffic network over time. The formulation of this model has just begun and first tests based upon a limited set of airports are promising.

The internal LTO Operations Model includes two functions: modelling aircraft ground operations; and modelling landing and take-off operations. The outputs of these models are LTO path, taxi and flight times, and emissions (calculated relative to emissions by class input from the Aircraft Technology & Cost Module), which are direct inputs to the Local Air Quality Module. The modelling of ground operations includes simulating taxi demand and unimpeded taxi times. Taxi demand is defined by the flight schedule input from the Flight Routing & Scheduling Model, and airborne delay input from the Aircraft Movement Module. Unimpeded taxi times are obtained directly from data for airports in some regions (e.g. US, EU), whilst parametric modelling based on other airport characteristics is required for those regions for which it is not available.

*Courtesy: Univ of Cambridge

AOCC Processes and Resources

An airline operations control center (AOCC) is the focal point of all operations. It is an environment that includes different decision-making entities like the PAX Manager, Crew Manager, A/C Manager, Operations Superviser, etc. The interaction between these entities requires processes and the decisions taken must utilize all pertinent information. The following are the processes and resources that need to be considered when taking operational decisions in real-time.

1) Operation Monitoring: The flights are monitored to check if anything is not going according to the plan. The same happens in relation with crew members, passenger check-in and boarding, cargo and baggage loading, etc.

2) Take Action: If an event arises, such as, a crew member being late or an aircraft malfunction, a quick assessment is performed to check if an action is required. If not, the monitoring continues. If an action is necessary then there is a problem that needs to be solved.

3) Generate and Evaluate Solutions: Having all the information regarding the problem the AOCC needs to find and evaluate the candidate solutions. Usually, a sequential approach is adopted when generating solutions. First, the aircraft problem is solved. Then, using this partial solution, the crew problem is solved and, finally, using the previous solutions the passenger problem is also solved. It is understandable that the AOCC adopts this approach. Without good computer tools, it is difficult to handle the problem, considering the three dimensions (aircraft, crew and passengers) simultaneously. Although there are several costs involved in this process, we found that the AOCC relies heavily on the experience of their controllers and in some rules-of-thumb that exist on the AOCC.

4) Take Decision: Having the candidate solutions a decision needs to be taken.

5) Apply Decision: After the decision was taken, the final solution needs to be applied in the environment, that is,
the operational plan needs to be updated accordingly. An example of a solution to be applied is: exchange aircraft
between two flights, call a reserve crew member to replace an absent one and send a disrupted passenger in another
flight.

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Crew Costs: the average or real salary costs of the crew members, additional work hours and per diem days to be paid, hotel costs and extra-crew travel costs.

Flight Costs: airport costs (approach and taxiing taxes), service costs (cleaning, handling and line maintenance services, etc.), average maintenance costs for the type of aircraft, ATC en-route charges and fuel consumption.

Passenger Costs: passenger airport meals, passenger hotel costs and passenger compensations. Finally, there is a less easily quantifiable cost that is also included: the cost of delaying or cancelling a flight from the passenger point of view. Most airlines use some kind of rule-of-thumb when they are evaluating the impact of the decisions on passengers. Others just  assign a monetary cost to each minute of delay and evaluate the solutions taking into consideration this value.

In a fast-paced decision-making environment like an AOCC, it is critical to use all available resources at hand to make the most optimal decision, every one of which affects the financial bottom line of an airline.