An optimal aircraft fleet management decision model under uncertainty

Decision planning for an efficient fleet management is crucial for airlines to ensure a profit while maintaining a good level of service. Fleet management involves acquisition and leasing of aircraft to meet travelers' demand. Accordingly, the methods used in modeling travelers' demand are crucial as they could affect the robustness and accuracy of the solutions. Compared with most of the existing studies that consider deterministic demand, this study proposes a new methodology to find optimal solutions for a fleet management decision model by considering stochastic demand. The proposed methodology comes in threefold. First, a five‐step modeling framework, which is incorporated with a stochastic demand index (SDI), is proposed to capture the occurrence of uncertain events that could affect the travelers' demand. Second, a probabilistic dynamic programming model is developed to optimize the fleet management model. Third, a probable phenomenon indicator is defined to capture the targeted level of service that could be achieved satisfactorily by the airlines under uncertainty. An illustrative case study is presented to evaluate the applicability of the proposed methodology. The results show that it is viable to provide optimal solutions for the aircraft fleet management model. Copyright © 2013 John Wiley & Sons, Ltd.     

Differences in air passengers’ buying behaviour: findings from Korean and Australian international passengers

Abstract

This paper investigates how air passengers’ expectations, ticket price, airline service quality, value, passenger satisfaction and airline image determine their buying behaviour. To test the conceptual frameworks, path analysis was applied to data collected from Korean and Australian international passengers to examine differences between these two groups. Further analyses were undertaken on different passenger segments between national and foreign airline passengers. The results of the path analysis reveal that air passengers’ buying behaviour differs significantly between Korean and Australian international passengers. Results also reveal that the determinants of air passengers’ buying behaviour differ by airlines.     

Measuring the energy efficiency for airlines under the pressure of being included into the EU ETS

In 2008, European Union (EU) announced that from 2012, each international flight taking off and landing in EU would be given an emission permit. Therefore, the period of 2008–2012 can be regarded as a buffer period for global airlines. Although EU formally decides to exclude non‐EU airlines from the EU Emission Trading System on March 4, 2014, it is necessary to investigate the impacts of the policy on airline energy efficiency in this period. Airline energy efficiency is divided into three stages—operations stage, service stage, and sales stage—and Greenhouse gas emission is treated as an undesirable output of service stage. Two models, network range‐adjusted measure model with weak disposability and network range‐adjusted measure model with strong disposability, are established to evaluate the efficiencies of 22 international airlines from 2008 to 2012. The results show that (i) most airlines' efficiencies have decreased in the period, and the EU Emission Trading System is not effective for the efficiency improvement; (ii) the average efficiency of European airlines is almost the same as that of non‐European airlines; and (iii) the model with weak disposability is more reasonable in distinguishing efficiency differences, while strong disposability is a more reasonable way in treating undesirable outputs. Copyright © 2016 John Wiley & Sons, Ltd.     

Airline emission charges: Effects on airfares,service quality,and aircraft design

This paper explores the effect of airline emissions charges on airfares, airline service quality, aircraft design features, and network structure, using a detailed and realistic theoretical model of competing duopoly airlines. These impacts are derived by analyzing the effects of an increase in the effective price of fuel, which is the path by which emissions charges will alter airline choices. The results show that emission charges will raise fares, reduce flight frequency, increase load factors, and raise aircraft fuel efficiency, while having no effect on aircraft size. Given that these adjustments occur in response to the treatment of an emissions externality that is currently unaddressed, they represent efficient changes that move society closer to a social optimum.     

Airport and airlines competition: Incentives for vertical collusion

This paper develops a model of airport and airline competition in a three-stage game. We analyse incentives for vertical collusion between one airport and one airline that compete with another airport and another airline, by means of static and dynamic games. We find that incentives for collusion exist when airports and airlines have different market sizes and, under certain conditions, also when secondary airports and low cost airlines compete with main airports and full service airlines.     

A heuristic model for frequency planning and aircraft routing in small size airlines

The flight schedule of an airline is the primary factor in finding the most effective and efficient deployment of the airline's resources. The flight schedule process aims at finding a set of routes with associated aircraft type, frequency of service and times of departures and arrivals in order to satisfy a specific objective such as profit maximization. In this paper, we develop a two‐phase heuristic model for airline frequency planning and aircraft routing for small size airlines. The first phase develops a frequency plan using an economic equilibrium model between passenger demand for flying a particular route and aircraft operating characteristics. The second phase uses a time‐of‐day model to develop an assignment algorithm for aircraft routing.     

Airline energy efficiency measures using the Virtual Frontier Network RAM with weak disposability

In this paper, airline energy efficiency is divided into three stages: the operations stage, the services stage and the sales stage. Greenhouse gas emissions are treated as an undesirable output of the services stage. This new three-stage strategic operating framework is a modification of existing models. A new model, Virtual Frontier Network Range Adjusted Measure with weak disposability, is proposed to evaluate the efficiencies of 22 international airlines, from 2008 to 2012. The results show that the new model can establish more reasonable rankings and confirm new benchmarking airlines and that inclusion in the European Union’s Emissions Trading Scheme has had little influence on the improvement of airline energy efficiency.     

Airline energy efficiency measures considering carbon abatement: A new strategic framework

In this paper, airline energy efficiency is divided into two stages: Operations Stage and Carbon Abatement Stage. This new two-stage operating framework is a modification of existing ones. Then the model, Network SBM with weak disposability, is presented to evaluate the efficiency of 22 international airlines from 2008 to 2012. The results show that: (1) Most airlines’ energy efficiencies have not declined in the period. (2) The average efficiency of European airlines is higher than that of non-European airlines. (3) Non-European airlines have smaller advancements in efficiency score than European airlines. (4) Most airlines’ efficiencies in Operations Stage are higher than Carbon Abatement Stage.     

An aggregate demand model for air passenger traffic in the hub-and-spoke network

In this paper, we build an aggregate demand model for air passenger traffic in a hub-and-spoke network. This model considers the roles of airline service variables such as service frequency, aircraft size, ticket price, flight distance, and number of spokes in the network. It also takes into account the influence of local passengers and social-economic and demographic conditions in the spoke and hub metropolitan areas. The hub airport capacity, which has a significant impact on service quality in the hub airport and in the whole hub-and-spoke network, is also taken into consideration.Our demand model reveals that airlines can attract more connecting passengers in a hub-and-spoke network by increasing service frequency than by increasing aircraft size in the same percentage. Our research confirms the importance of local service to connecting passengers, and finds that, interestingly, airlines’ services in the first flight leg are more important to attract passengers than those in the second flight segment. Based on data in this study, we also find that a 1% reduction of ticket price will bring about 0.9% more connecting passengers, and a 1% increase of airport acceptance rate can bring about 0.35% more connecting passengers in the network, with all else equal. These findings are helpful for airlines to understand the effects of changing their services, and also useful for us to quantify the benefits of hub airport expansion projects.At the end of this paper, we give an example as an application to demonstrate how the developed demand model could be used to valuate passengers’ direct benefit from airport capacity expansion.     

Airline productivity redefined: An analysis of U.S. and European carriers

Productivity, in terms of net value added per man-year of labor and capital input, provides a more useful yardstick of airline efficiency than the widely used indices representing average unit costs or labor productivity. Large variations in productivity between airlines, in particular between U.S. and European airlines, can be explained almost entirely by differences in level of service, demand patterns and route characteristics. A regression model calibrated on 1975 data for fourteen U.S. and fourteen European scheduled airlines indicates that productivity could be increased by changes in network shape though a more liberal exchange of traffic rights, greater specialization (in particular the limited involvement of scheduled airlines in the very low yield charter market) and consumer choice — by offering higher frequency, multi-city services.     

Airline competition and network structure

This paper studies airline networks and their welfare implications in an unregulated environment. Competing airlines may adopt either fully-connected (FC) or hub-and-spoke (HS) network structures; and passengers exhibiting low brand loyalty to their preferred carrier choose an outside option to travel so that markets are partially served by airlines. In this context, carriers adopt hubbing strategies when costs are sufficiently low, and asymmetric equilibria where one carrier chooses a FC strategy and the other chooses a HS strategy may arise. Quite interestingly, flight frequency can become excessive under HS network configurations.     

The impact of strategic management and fleet planning on airline efficiency - A random effects Tobit model based on DEA efficiency scores

As a result of the liberalisation of airline markets; the strong growth of low cost carriers; the high volatility in fuel prices; and the recent global financial crisis, the cost pressure that airlines face is very substantial. In order to survive in these very competitive environments, information on what factors impact on costs and efficiency of airlines is crucial in guiding strategic change. To evaluate key determinants of 58 passenger airlines’ efficiency, this paper applies a two-stage Data Envelopment Analysis (DEA) approach, with partially bootstrapped random effects Tobit regressions in the second stage. Our results suggest that the effects of route optimisation, in the sense of average stage length of the fleet, are limited to airline technical efficiency. We show that airline size and key fleet mix characteristics, such as aircraft size and number of different aircraft families in the fleet, are more relevant to successful cost management of airlines since they have significant impacts on all three types of airline efficiency: technical, allocative and, ultimately, cost efficiency. Our results also show that despite the fuel saving benefits of younger aircraft, the age of an airline’s fleet has no significant impact on its technical efficiency, but does have a positive impact on its allocative and cost efficiency.     

Is it the labor unions’ fault? Dissecting the causes of the impaired technical efficiencies of the legacy carriers in the United States

Data envelopment analysis is used to evaluate the technical efficiencies of a number of major passenger airlines in the United States at transforming their inputs (labor, fuel and fleet-wide seating capacity) into available seat-miles. A tobit regression model is then used to identify the underlying drivers of airline efficiency, as measured by the data envelopment analysis efficiency score. The impact of unionization on airline efficiency is found to be statistically insignificant, controlling for the influences of other hypothesized determinants of airline efficiency: the average age of an airline’s fleet, the average size of its aircraft, its average stage length, the extent to which the airline relies of hubbing within its route structure, the percent of its passenger enplanements that are international, and whether the airline is a legacy carrier. The statistically significant drivers of airline efficiency, at a ten percent level of significance, are average aircraft size, average stage length and the extent to which the airline relies on hubbing and connecting flights within its route structure. The stage length variable is not significant at a five percent level of significance, however. An increase in average aircraft size or in average stage length enhances an airline’s efficiency whereas an increase in hubbing reduces it.     

Airline network choice and market coverage under high-speed rail competition

While the existing literature has focused on the short-term impacts, this paper investigates the long-term impacts of high-speed rail (HSR) competition on airlines. An analytical model is developed to study how an airline may change its network and market coverage when facing HSR competition on trunk routes. We show that prior to HSR competition, an airline is more likely to adopt a fully-connected network and cover fewer fringe markets if the trunk market is large. Under HSR competition, the airline will, for a given network structure, have a greater incentive to cover more fringe (regional or foreign) markets if the trunk market is large, or the airline network is close to hub-and-spoke. Further, the airline will, for any given market coverage, move towards a hub-and-spoke network when the trunk market is large, or the number of fringe markets covered by the airline network is large. Both effects are more prominent when the decreasing rate of airline density economies is large. We further show that HSR competition can induce the airline to adopt network structure and market coverage that are closer to the socially optimal ones, thereby suggesting a new source of welfare gain from HSR based on its long-term impacts on airlines. Implications for operators, policy makers and specific countries (such as China) are also discussed.     

Asymmetric response model for evaluating airline service quality: An empirical study in cross-strait direct flights

In this paper we propose a framework to investigate service quality asymmetrically. An asymmetric response model within structural equation framework is developed to study the relationship between service quality and the passenger’s behavioral intention in the cross-strait direct flight (Taiwan–Shanghai). The results reveal that service quality in the loss region has more impact on behavioral intention than service quality in the gain region. Hence, attention should be paid to the service quality of important attributes in the loss region and strategies should ensure service quality of those important attributes that meet passenger’s expectations.     

Competition and public service obligations in European aviation markets

This paper analyzes the effect of universal service policies on the airline markets of five European Union countries (France, Germany, Italy, Spain and the United Kingdom) in the period 2002–2010. Results show that airfare discount schemes for island residents raise demand and positively affect competition and the number of flights at the route level. These effects are evident in France and Italy, but are particularly marked in Spain. By contrast, public service obligations (PSOs) reduce competition on the protected routes, while their effect on the number of flights differs depending on national regulations. In Spain, routes protected with PSOs have greater flight frequencies than those on unprotected routes of similar characteristics, but in France, Italy and the UK the opposite result is found. The empirical model also finds that on routes with low-cost airlines market concentration is smaller and there is a larger number of flights. This result is relevant for the design of universal service policy, since in recent years low-cost airlines have entered a number of thin routes and have increased access to air transportation.     

Evaluating competitiveness using fuzzy analytic hierarchy process—A case study of Chinese airlines

With the development of a national market economy, the Chinese aviation industry is now confronted with international competition. Therefore, it is necessary to research the competitive status of Chinese national aviation, as well as advice on how to enhance the competitiveness of the Chinese aviation industry. The main objective of this paper is to propose FAHP as an effective solution for resolving the uncertainty and imprecision in the evaluation of airlines' competitiveness. In this paper, we review the research of industrial international aviation competitiveness at both home and abroad, discuss a theoretical framework for the study of aviation competitiveness, establish an index system with five first‐order indicators and 17 second‐order indicators, set up a Chinese aviation competitiveness model based on simple fuzzy numbers from the fuzzy analytic hierarchy process, and evaluate the competitiveness of five major Chinese airlines. The results showed that this model and these indicators are scientific and practical, with a wide range of application prospects for the purpose of improving and increasing Chinese airline competitiveness in the international market. The effective approach presented in this paper is especially applicable when subjective judgments on performance ratings and attribute weights are not accessible or reliable, or when suitable decision makers are not available. Copyright © 2011 John Wiley & Sons, Ltd.     

Airline competition and market frequency: A comparison of the s-curve and schedule delay models

We compare two common ways of incorporating service frequency into models of airline competition. One is based on the so called s-curve, in which, all else equal, market shares are determined by frequency shares. The other is based on schedule delay—the time difference between when travelers wish to travel and when flights are available. We develop competition models that differ only with regard to which of the above approaches is used to capture the effect of frequency. The demand side of both models is an approximation of a nested logit model which yields endogenous travel demand by including not traveling in the choice set. We find symmetric competitive equilibrium for both models analytically, and compare their predictions concerning market frequency with empirical evidence. In contrast to the s-curve model, the schedule delay model depicts a more plausible relationship between market share and frequency share and accurately predicts observed patterns of supply side behavior. Moreover, the predictions from both models are largely the same if we employ numerical versions of the model that capture real-world aspects of competition. We also find that, for either model, the relationship between airline frequency and market traffic is the same whether frequency is determined by competitive equilibrium, social optimality, or social optimality with a break-even constraint.     

Airline hubbing and airport economics in the pacific market

Transpacific hubbing over Tokyo's Narita airport, which is beset by severe capacity problems while serving a high proportion of nonlocal passengers, is explored from both a historical and an economic standpoint. Tokyo developed into Asia's dominant transpacific gateway because it was within range of the continental U.S. for the first generation of transcontinental jets. Its dominance continued after the introduction of the B747, while a more dispersed pattern of service developed on the U.S. side of the transpacific route system. Reasons for Tokyo's continuing dominance include its strong local market and the liberal fifth freedom rights of U.S. airlines out of Tokyo. A model of airline network competition is applied to the U.S.-Asia market. The model simulates the behavior of profit-maximizing airlines with different network types and hub locations, finding states of Cournot equilibrium. In a baseline run corresponding to the 3rd Quarter, 1985 system, the predicted transpacific network corresponds quite closely to the actual one. The impacts of demand growth, high terminal costs at Tokyo, and strengthened connectivity of alternative Asia hubs are then explored. Tokyo traffic is found to increase at a somewhat slower pace than overall demand as new non-stop services become feasible. Connecting traffic through Tokyo is found to be highly price sensitive because of the availability of alternative routings. Strengthening the connectivity of alternative Asian hubs, on the other hand, has a fairly modest effect on the distribution of traffic in the system. The results point to the need for Japan to carefully assess the costs and benefits of its role as Asia's dominant transpacific gateway.     

The federal republic of Germany: the federal ministry of transport

The continued liberalization of the airline market in the European Community offers the prospect of competition in terms of price, frequency of service and many other attributes. Understanding these factors that influence passenger demand and incorporating them into a demand function poses a substantial theoretical and empirical challenge. A basis for estimating demand functions is the logit model. This paper examines the value of a logit share model in explaining how the share of airlines between airports varies as a function of measured and unmeasured attributes. It shows how demand functions are necessary for understanding a competitive market and evaluates the progress to date in identifying accurate coefficients of the logit function.