As 2020 drew to a close, there was no office party and only a very quiet family Christmas, and I guess many of you working in finance, planning and analytics, (FP&A), teams were glad to see the back of 2020 and were looking forward to getting back to business-as-normal sometime in 2021. As we reached the end of the first quarter it’s now clear that it's not going to be that easy, because in many sectors we're still not really sure what ‘normal’ will be and that is making planning and forecasting particularly difficult.
Sectors where customers are in close proximity, such as hospitality, cinemas and travel, are likely to present the biggest challenges, and while we focus on air travel in this piece, most of the points are equally applicable to the other sectors. According to the International Air Transport Association, IATA, passenger air transport measured as revenue passenger kilometre was down 90% year-on-year in April 2020 and still down 75% in August, during the few months when many governments temporarily lifted Covid restrictions. Even in the USA, which has taken a much more lax attitude to control the virus, the Transportation Security Administration reported that only 1.17 million people flew on the Sunday of Thanksgiving when many Americans head home2, representing a reduction of 59% against the same day in 2019. Meanwhile, although the dip in economic activity affected air freight, tonnage fell almost 30% lower year-on-year in April 2020, quickly recovered but was still 12% lower in August.
Uncertainty about the shape of recovery
Clearly, such shocks put airlines, airports and ancillary service companies under severe financial pressure, so everyone is anxiously awaiting recovery to take off. But airlines and airports face two major uncertainties:
- The first is how much operating costs are likely to increase and whether some of these extra costs could be directly passed on to travelers. Included in this are the costs incurred because of the need to implement extra health and safety requirements, such as hand disinfection and personal protective equipment for staff, and whether social distancing measures could force a reduction in the passenger load factor with perhaps alternate seats being left empty.
- But a far greater uncertainty is that of not knowing what shape the recovery in air travel will take. Continuing travel restrictions, the contraction of economic activity, and a reluctance of cautious consumers to travel may prevent a return to pre-crisis levels of demand even when many countries have lifted local lockdowns and eased back on travel restrictions.
Such uncertainty presents FP&A teams working for airlines and airports with major challenges in the coming years. Running an airport is a complex business at the best of times, with the huge scale and complexity of ever-changing schedules, make passenger forecasting, as well as planning and budgeting for ground operations difficult enough in ‘normal’ times. For the next few years, the bar just gets higher.
Clearly, traditional planning systems that were designed to support annual budgeting do not provide the speed or flexibility those involved in air travel need for the challenge ahead, especially so if technical support is needed to restructure constantly changing planning models. The need for speed, flexibility, and self-management, drove many FP&A teams to build planning models in spreadsheets, feeding huge volumes of data from disparate legacy systems and embedding numerous business rules to model metrics such as headcount requirements.
Not only are spreadsheets prone to errors, they preclude collaboration and are also onerous to work with, especially when manipulating the billions of data combinations encountered in operational planning and budgeting in the airline travel industry. It can take finance teams many days to upload, consolidate and finesse the millions of cells in an array of interlinked planning models,
and weeks to restructure models every time flight schedules change. Such laborious processes preclude doing scenario analysis and hamper productivity at a time when finance teams are endeavoring to do more with less.
Those working in FP&A teams in the airline travel industry know they need a very flexible, very fast, and easy-to-manage system with all the data in a central repository, so that it can be easily shared with remote users at other airports all around the globe. Anyone who has worked with any of the big legacy systems will also know that traditional data architectures struggle to provide the flexibility needed to quickly and easily amend planning models, which is must-have functionality in such a fast-moving environment. As workforce planning is such an important element of planning and budgeting in this industry, the ability for users to write and amend the business rules needed in driver-based models is also a key consideration.
Adopting a planning platform such as that offered by our partner Anaplan is the answer. Anaplan provides a cloud-based planning and modelling platform that enables organisations to automate planning, integrate data, and drive dynamic real-time updates to a myriad of different types of financial and non-financial processes, across finance, sales, marketing, workforce (HR), and the supply chain. This is despite the fact that they may frequently be working on differing time horizons and at vastly different levels of granularity. Connected planning, as our colleagues at Anaplan label their unique offering, brings together all of these previously separate processes, so users from across the business can collaborate around real-time models that share a single data set with enterprise levels of access rights and security.
Some in air travel are already set for take off
Many involved in air travel are already benefiting from Anaplan’s ‘Connected Planning’:
United Airlines was planning and budgeting its ground operations, at the 350+ airports where it operates using spreadsheet models, making for a laborious and tiresome process. But with Anaplan, airport managers and operational partners around the world enter data on an ongoing basis making forecasting, budgeting, variance reporting, and course correction, faster and easier for the entire company.
Gatwick Airport chose Anaplan to optimise passenger forecasting, and create complex demand-based operational plans on a daily, weekly, monthly, and annual basis. With resource planning and budgeting models connected directly into passenger forecasting models, the airport now has the potential to run intricate scenarios in a matter of seconds – exactly the type of capability needed to efficiently navigate the recovery no matter what shape it takes.
And our reputation for rapid implementation, and quick time to value, means there are other European airports set to go live with their Anaplan implementations in the coming months.
Meanwhile, if you are still grounded in spreadsheets and legacy planning systems, we’ll be happy to talk through your requirements and show you how connected planning on Anaplan’s cloud-based planning platform can get you back in the air.