Divergent modeling with United Airlines: Building driver-based models with synthetic rates and variance reports
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United Airlines’ Airport Operations system encompasses 160 global stations and has a multi-billion dollar value. Join Cato Hagen and John Karantonis from United Airlines to hear how their Anaplan deployment optimizes company performance through proper changes in forecasting, and learn how to do driver-based modeling and variance reporting in Anaplan.
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Divergent modeling with United Airlines: Building driver-based models with synthetic rates and variance reports
- 3. #AnaplanHub16 Divergent Modeling with United Airlines Building driver-based models with synthetic rates and variance reports
- 4. #AnaplanHub16 Cato Hagen Sr. Finance Manager John Karantonis Sr. Finance Analyst
- 6. #AnaplanHub16 CONFIDENTIAL6 Certain statements included in this release are forward-looking and thus reflect our current expectations and beliefs with respect to certain current and future events and financial performance. Such forward-looking statements are and will be subject to many risks and uncertainties relating to our operations and business environment that may cause actual results to differ materially from any future results expressed or implied in such forward-looking statements. Words such as “expects,” “will,” “plans,” “anticipates,” “indicates,” “believes,” “forecast,” “guidance,” “outlook” and similar expressions are intended to identify forward-looking statements. Additionally, forward-looking statements include statements that do not relate solely to historical facts, such as statements which identify uncertainties or trends, discuss the possible future effects of current known trends or uncertainties or which indicate that the future effects of known trends or uncertainties cannot be predicted, guaranteed or assured. All forward-looking statements in this report are based upon information available to us on the date of this report. We undertake no obligation to publicly update or revise any forward-looking statement, whether as a result of new information, future events, changed circumstances or otherwise, except as required by applicable law. Our actual results could differ materially from these forward-looking statements due to numerous factors including, without limitation, the following: our ability to comply with the terms of our various financing arrangements; the costs and availability of financing; our ability to maintain adequate liquidity; our ability to execute our operational plans; our ability to control our costs, including realizing benefits from our resource optimization efforts, cost reduction initiatives and fleet replacement programs; our ability to utilize our net operating losses; our ability to attract and retain customers; demand for transportation in the markets in which we operate; an outbreak of a disease that affects travel demand or travel behavior; demand for travel and the impact that global economic conditions have on customer travel patterns; excessive taxation and the inability to offset future taxable income; general economic conditions (including interest rates, foreign currency exchange rates, investment or credit market conditions, crude oil prices, costs of aircraft fuel and energy refining capacity in relevant markets); our ability to cost-effectively hedge against increases in the price of aircraft fuel; any potential realized or unrealized gains or losses related to fuel or currency hedging programs; the effects of any hostilities, act of war or terrorist attack; the ability of other air carriers with whom we have alliances or partnerships to provide the services contemplated by the respective arrangements with such carriers; the costs and availability of aviation and other insurance; the costs associated with security measures and practices; industry consolidation or changes in airline alliances; competitive pressures on pricing and on demand; our capacity decisions and the capacity decisions of our competitors; U.S. or foreign governmental legislation, regulation and other actions (including open skies agreements and environmental regulations); labor costs; our ability to maintain satisfactory labor relations and the results of the collective bargaining agreement process with our union groups; any disruptions to operations due to any potential actions by our labor groups; weather conditions; the possibility that expected merger synergies will not be realized or will not be realized within the expected time period; and other risks and uncertainties set forth under Item 1A, Risk Factors, of UAL’s Annual Report on Form 10-K, as well as other risks and uncertainties set forth from time to time in the reports we file with the SEC. Safe Harbor Statement
- 7. #AnaplanHub16 60 countries served 5,000 flights per day $39B annual revenue 138M customers per year 90M MileagePlus members 1.2B+ pounds annual cargo 84,000 co-workers 373 destinations 1,220 aircraft 193 Star Alliance Countries served Who is United Airlines?
- 8. #AnaplanHub16 Snow Removal Wheelchairs Interrupted Flight Ground Handling Security Cabin Cleaning Deicing Inflight Passenger Supplies Maintenance & Repair Services Office Supplies Types of Airport Operations expenses? Utilities Communications
- 9. #AnaplanHub16 9 Airport operations budget process pre-Anaplan was Excel based, with common pain points: • Separated forecast and budget process • Painful budget season during several months once a year • 18 month rolling forecast updated each month – quite difficult with multiple excel files • Unbearable volume of Excel spreadsheets emailed back and forth • Version control and complexity of maintenance of updates, error prone • Difficult to standardize process
- 10. #AnaplanHub16 10 Airport operations budget process with Anaplan • Centralized control and build; decentralized input • Standardized process across all global stations • Ownership of budget/forecast throughout the year; increased visibility • Instantly accessible through the web • Easy maintenance, minimal calculation errors • Forecast and Budget process morphed together • Budget season no longer needed!!
- 11. #AnaplanHub16 11 Forecasted expenses based on flight schedule: Basic Ground Handling, Cabin Cleaning, Security Basic Case: Rate * Volume
- 12. #AnaplanHub16 12 Forecasted expenses based on flight schedule: Weighted Weighted Rate: Calculated rate based on exceptions Different rate by location, 40% for gate boarding, 40% for tarmac loading, 20% if aircraft is on gate and tarmac
- 13. #AnaplanHub16 13 Forecasted expenses based on flight schedule: Tiered 1 2 3 4
- 14. #AnaplanHub16 14 Forecasted expenses based on synthetic rate • Need to forecast future expense rates • Wheelchairs • We need 3 components – Past expenses – Past statistics – Future statistics
- 15. #AnaplanHub16 15 Prior Expenses Prior Statistics Future Statistics Forecasted expenses based on synthetic rate
- 16. #AnaplanHub16 16 Variance B(W) Rate Volume Rate of Exchange Out of Period Other Total 258,517 (11,941) 85,190 149,253 36,015 258,517 Variances broken into rate/volume/forex/other
- 18. Q A
Editor's Notes
- Introduction by Anaplan: United Airlines’ Airport Operations system encompasses 160 global stations and has a multi-billion dollar value. Join Cato Hagen and John Karantonis from United Airlines to hear how their Anaplan deployment optimizes company performance through proper changes in forecasting, and learn how to do driver-based modeling and variance reporting in Anaplan.
- Cato Hagen: Cato has worked in finance for United and Continental Airlines for 15 years and has for the last year managed the implementation of Anaplan for the Airports Division within United. He holds a Bachelor and a Master degree in Finance from Texas A&M University, and an international MBA from Johannes Kepler University in Austria. John Karantonis: John serves as a Sr Financial Analyst at United Airlines and is responsible for the implementation and maintenance of Anaplan for the Non-Labor group of Airport Operations. John earned his Bachelors at the United States Naval Academy and an MBA from the University of Illinois Urbana Champaign.
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- It was painful and the pain lasted for several months Budget and monthly forecast p were two separate process: Budget once a year, fully bottoms up for all accounts 18 Month rolling forecast every month. We used a mix of excel based models we controlled, and excel files sent out to all the stations to capture their input. Massive amounts of files back and forth I am sure you all know the issues with this; Keep control Maintain, update multiple files Now the pain is gone
- NEED TO BE UPDATED With Anaplan it has changed: Now, we in finance control and build the models, and Anaplan gives all the station access to our model to do their input. And of course, the benefits I am sure you are familiar with as well: And the big positive impact: Budget/forecast has morphed together in such a way and all we need is our drivers flight schedule to be loaded into Anaplan for the next two years for Anaplan to forecast our expenses. This year we do not expect to have a budget season. A key prerequisite was that Anaplan had to be flexible enough to calculate a variety of ways a vendor’s contract is structured. And with that I will turn it over to John. For you We have three main sections for calculating our forecast. Flight schedule based, Synthetic, and Fixed.
- Issue: Need to create a database which will store the basic calculation of combining different rates by aircraft type by the frequency of that particular aircraft by month. There could be added complexity by having different rates by aircraft type, type of service provided, time aircraft is on the ground, etc. Solution: A basic solution inside of Anaplan was provided where we can enter different rates by aircraft types. We then are able to enter rates by all the different designations to calculate what our future forecast should be
- Issue: Some vendors’ contract are structure to have variable pricing due to the location of where the aircraft is when it is worked. Because of this added complexity, we needed to add the flexibility in Anaplan to allow us to weight our different rates per location. Solution: Weighting the rates in Anaplan allows us the flexibility to come out with a different rate of aircraft type by month in order to get to a more accurate forecast.
- Issue: Our most complex situation occurs when a vendor’s contract is set up in a manner in which we provide payment based up on the number of aircraft worked each day. Since we only have flight information by month, we needed to increase our creativity. Solution: We began with the number of forecasted flights for each month at specified locations and then found the number of days in the month. By utilizing simple calculations, we were able to find both the number of base flights for each day. The majority of the time, we would also have remainder days, which are days that had one more flight worked than the other flights. In order to find the rate per aircraft for the entire month, we needed to type in a simple formula into Anaplan. After the formula was written, we had our rate per aircraft type for the month. This average rate can change by month.
- Issue: Some of our accounts do not have a particular rate associated with them. One of these accounts are wheelchairs. Some of our vendors charge us a fee per push. We are unable to forecast how many pushes we will have in the future, so we have to develop a rate. We need three components to effectively develop the rate. Those three components are what our past expenses were per month, any particular past statistic we choose to select (domestic passenger, domestic departures, international RONs, etc.), and future statistics.
- State the issue first
- Another main goal for us was for Anaplan to help us with Variance explanations. Example of variances. This for Forecast vs Plan. In ground Handling we have a variance of 258K. Without Anaplan we had to research the variance Here we can see that the variance is caused by FX, Volume, Rate and a smaller part Other. Saves time. And add the scalability. Do this for Quarter, YOY, Next year to this year, last year to this year, bottom cost center, to top cost center. To do this require: Plan and forecast must be calculated at bottom level by rate and volume drivers. You need dimensions like Current forecast, prior forecast, plan etc. Summary: So Anaplan has helped us achieve a greatly improved forecast\budget process. It is much more accurate, easy to maintain and update, more engaging for the stations, and it will save us a hugh amount of time. Time previously spent on process of low-value, can now be spent on analysis, gain insight etc…