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.     

Measuring the environmental efficiency of the global aviation fleet

This research analyses the environmental footprint of the airline industry in an attempt to highlight potential paths for improvement. We develop a directional economic-environmental distance function (DEED) which accounts for the production of both desirable and undesirable output and the potential for constrained increases in input utilization. This research applies the modeling framework to analyze the potential to reduce noise and airborne pollutants emitted by aircraft–engine combinations given the current state of aeronautical technology. The global aircraft–engine market is viewed from the regulatory perspective in order to compare the single environmental and operational efficient frontier to that of the airline carriers, and environmental objectives. The results of DEED are then applied in order to substitute the fleets serving Schipol, Amsterdam and Arlanda, Stockholm airports in June 2010 with the benchmark aircraft. The results highlight the inefficiencies of the current airline fleets and that the IPCC values of externalities are a magnitude of TEN too low to encourage changes in the global fleet hence the need for government intervention.     

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.     

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’s choice of aircraft size – Explanations and implications

When facing a growth in demand, airlines tend to respond more by means of increasing frequencies than by increasing aircraft size. At many of the world’s largest airports there are fewer than 100 passengers per air transport movement, although congestion and delays are growing. Furthermore, demand for air transport is predicted to continue growing but aircraft size is not. This paper aims to investigate and explain this phenomenon, the choice of relatively small aircraft. It seems that this choice is associated mainly with the benefits of high frequency service, the competitive environment in which airlines operate and the way airport capacity is allocated and priced. Regression analysis of over 500 routes in the US, Europe and Asia provides empirical evidence that the choice of aircraft size is mainly influenced by route characteristics (e.g. distance, level of demand and level of competition) and almost not at all by airport characteristics (e.g. number of runways and whether the airport is a hub or slot coordinated). We discuss the implications of this choice of aircraft size and suggest that some market imperfections exist in the airline industry leading airlines to offer excessive frequency on some routes and too low frequency on others.     

Improving airline fuel efficiency via fuel burn prediction and uncertainty estimation

Reducing fuel consumption is a unifying goal across the aviation industry. One fuel-saving opportunity for airlines is the possibility of reducing discretionary fuel loading by dispatchers. In this study, we propose a novel discretionary fuel estimation approach that can assist dispatchers with better discretionary fuel loading decisions. Based on the analysis on our study airline, our approach is found to substantially reduce unnecessary discretionary fuel loading while maintaining the same safety level compared to the current fuel loading practice. The idea is that by providing dispatchers with more accurate information and better recommendations derived from flight records, unnecessary fuel loading and corresponding cost-to-carry could both be reduced. We apply ensemble learning techniques to improve fuel burn prediction and construct prediction intervals (PIs) to capture the uncertainty of model predictions. The upper bound of a PI can then be used for discretionary fuel loading. The potential benefit of this approach is estimated to be $61.5 million in fuel savings and 428 million kg of CO₂ reduction per year for our study airline. This study also builds a link between discretionary fuel estimation and aviation system predictability in which the proposed models can also be used to predict benefits from reduced fuel loading enabled by improved Air Traffic Management (ATM) targeting on improved system predictability.     

Fueling for contingencies: The hidden cost of unpredictability in the air transportation system

The aviation community is increasing its attention on the concept of predictability when conducting aviation service quality assessments. Reduced fuel consumption and the related cost is one of the various benefits that could be achieved through improved flight predictability. A lack of predictability may cause airline dispatchers to load more fuel onto aircraft before they depart; the flights would then in turn consume extra fuel just to carry excess fuel loaded. In this study, we employ a large dataset with flight-level fuel loading and consumption information from a major US airline. With these data, we estimate the relationship between the amount of loaded fuel and flight predictability performance using a statistical model. The impact of loaded fuel is translated into fuel consumption and, ultimately, fuel cost and environmental impact for US domestic operations. We find that a one-minute increase in the standard deviation of airborne time leads to a 0.88 min increase in loaded contingency fuel and 1.66 min in loaded contingency and alternate fuel. If there were no unpredictability in the aviation system, captured in our model by eliminating standard deviation in flight time, the reduction in the loaded fuel would between 6.12 and 11.28 min per flight. Given a range of fuel prices, this ultimately would translate into cost savings for US domestic airlines on the order of $120–$452 million per year.     

Estimating fuel burn impacts of taxi-out delay with implications for gate-hold benefits

The aviation community is actively investigating initiatives to reduce aircraft fuel consumption from surface operations, as surface management strategies may face fewer implementation barriers compared with en route strategies. One fuel-saving initiative for the air transportation system is the possibility of holding aircraft at the gate, or the spot, until the point at which they can taxi unimpeded to the departure runway. The extent to which gate holding strategies have financial and environmental benefits hinges on the quantity of fuel that is consumed during surface operations. A pilot of an aircraft may execute the taxi procedure on a single engine or utilize different engine thrust rates during taxi because of a delay. In the following study, we use airline fuel consumption data to estimate aircraft taxi fuel consumption rates during the “unimpeded” and “delayed” portions of taxi time. We find that the fuel consumption attributed to a minute of taxi-out delay is less than that attributed to minute of unimpeded taxi time; for some aircraft types, the fuel consumption rate for a minute of taxi delay is half of that for unimpeded taxi. It is therefore not appropriate, even for rough calculations, to apply nominal taxi fuel consumption rates to convert delayed taxi-out time into fuel burn. On average we find that eliminating taxi delay would reduce overall flight fuel consumption by about 1%. When we consider the savings on an airport-by-airport basis, we find that for some airports the potential reduction from reducing taxi delay is as much as 2%.     

System for assessing Aviation’s Global Emissions (SAGE), Part 1: Model description and inventory results

In early 2001, the US Federal Aviation Administration embarked on a multi-year effort to develop a new computer model, the System for assessing Aviation’s Global Emissions (SAGE). Currently at Version 1.5, the basic use of the model has centered on the development of yearly global inventories of commercial aircraft fuel burn and emissions of various pollutants to serve as the basis for scenario modeling. This paper describes the algorithms and data used in the model as well as the results from initial validation assessments. SAGE results indicate that global fuel burn and nitrogen oxide (NO_x) emissions decreased by over 6% from 2000 to 2001 (fuel burn and NO_x), and then steadily increased to over 12% (fuel burn) and 15.5% (NO_x) above 2000 levels in 2005. Comparisons to the results from previous studies have shown that SAGE tends to agree more closely with fuel burn and NO_x than with CO and HC. Validation assessments have shown that SAGE can predict per flight fuel burn to within 3% on an average basis with no apparent bias, when compared to about 60,000 flight’s worth of data from a major US airline and about 20,000 flight’s worth of data from two major Japanese airlines.     

Assessment of carbon emission costs for air cargo transportation

This study presents a set of models that calculate carbon emissions in individual phases of flight during air cargo transportation, investigates resultant carbon footprints by aircraft type and flight route, and estimates increases in transportation costs for airlines due to carbon taxes imposed by the EU ETS. The estimated results provide useful references for airlines in aircraft assignment on different routes and in aircraft selection for new purchases. Validation of the model is conducted by simulating the potential impact of the implementation of the EU ETS on costs of air cargo transportation for six routes and six types of aircraft. Results show that the impact may be subject to various factors including unit carbon emissions per aircraft, aviation emission allowances per airline, and carbon trading prices; and that increases in costs of air cargo transportation range from 0% to 5.27% per aircraft per route. Therefore, the implementation of the EU ETS may encourage airlines to cut down their operating costs by reducing their carbon emissions, thereby ameliorating greenhouse gas pollution caused by air cargo transportation.     

Environmental charges in airline markets

Over the last two decades many airline markets have been deregulated, resulting in increased competition and use of different types of networks. At the same time there has been an intense discussion on environmental taxation of airline traffic. It is likely that an optimal environmental charge and the effects of a charge differ between different types of aviation markets. In this paper, we derive optimal flight (environmental) charges for different types of airline markets. The first type of market is a multiproduct monopoly airline operating either a point-to-point network or a hub-and-spoke network. The optimal charge is shown to be similar in construction to an optimal charge for a monopolist. We also compare the environmental impact of the two types of networks. Given no differences in marginal damages between airports we find that an airline will always choose the network with the highest environmental damages. The second type of market we investigate is a multiproduct duopoly, where two airlines compete in both passengers and flights. The formulation of the optimal charge is similar to the optimal charge of a single product oligopoly. However, we also show that it is, because of strategic effects, difficult to determine the effects of the charge on the number of flights.     

A canonical correlation analysis of carrier financial strategy: The case of airline deregulation

This study investigates U.S. airline managements' perception of deregulation's impact upon the industry's financial risk by analyzing the airlines' risk management behavior. Specifically, canonical correlation analysis is utilized to ascertain key asset-liability/equity interrelationships and to identify changes in airline risk management as indicated by changes in financial structure. A control sample of nonregulated firms in various service industries is used to separate the effects of general economic conditions from those of deregulation. The results indicate that the airline industry adjusted its financial structure to reduce the industry's exposure to risk as the industry became deregulated. The industry decreased its financial leverage through greater use of equity vis-à-vis debt to finance its long-term assets while simultaneously increasing its liquidity. Definitive conclusions concerning the industry's perception of financial risk after deregulation had been in place a few years are precluded by two external events which occurred in 1978—the requirement that leases be capitalized on the balance sheet and the rapid fuel price increases spurred by the Iran-Iraq war. However, the results clearly show the industry perceived greater financial risk during the early years of de facto CAB deregulation.     

Airline industry deregulation and changes in systematic risk

Deregulation of U.S. Airline Industry may have lowered systematic risk because pricing freedom and route flexibility improved airline management reaction to various economic conditions. Reduced systematic risk offers lower cost of equity capital for the industry as a whole as well as for individual carriers. Previous research has had mixed results in identifying a relationship between deregulation and airline industry cost of capital. This study plots airline industry Beta coefficients across the years 1963 to 1987 and clears up previously conflicting research findings. Beta coefficients had been falling since the fuel crisis of 1974 and continued to fall through 1980. Fluctuations since deregulation have been relatively minor and systematic risk has leveled off at a significantly lower value than before deregulation. Studies which concentrate on the fluctuation in Beta since 1978 are dependent on the exact time period of analysis, and their conclusions that deregulation raised or lowered systematic risk are likewise suspect. A broader view of systematic risk changes in the deregulatory era shows airline Betas peaking from 1971 to 1973 and a gradual decrease as deregulation was being discussed, implemented, and legally mandated. This gradual decline from 1974 to 1980 may be attributed to such factors as fuel prices, interest rates, general inflation as well as deregulation. In any case systematic risk of the U.S. Airline industry has been lower since deregulation than in decades before.     

A bi-objective dynamic programming approach for airline green fleet planning

Ensuring a fleet of green aircraft is a basic step in mitigating aviation pollution issues that are expected to be worsen in the coming years due to rapid air traffic growth. This study proposed a novel methodology in green fleet planning in which both profit and green performance of airline are considered simultaneously and explicitly. To do this, a Green Fleet Index (GFI) is derived as an indicator to quantify the green performance of airline’s fleet. It measures the degree of airline compliance with a standard requirement in terms of emission, noise, and fuel consumption. A bi-objective dynamic programming model is then formulated to find optimal aircraft acquisition (lease or purchase) decision by minimizing GFI and maximizing profit. Several interesting results are obtained: (1) considering environmental issue as secondary objective yields a greener fleet; (2) airline’s profit is affected, but could be recovered from environmental cost savings; (3) increasing load factor is an effective operational improvement strategy to enhance airline’s green performance and raise profit level. It is anticipated that the framework developed in this study could assist airlines to make a smart decision when considering the need to be green.     

An environmental assessment of air traffic speed constraints in the departure phase of flight: A case study at Gothenburg Landvetter Airport,Sweden

This paper considers the environmental effects of air traffic management speed constraints during the departure phase of flight. We present a CO₂ versus noise trade-off study that compares aircraft departure procedures subject to speed constraints with a free speed scenario. A departure route at Gothenburg Landvetter Airport in Sweden is used as a case study and the analysis is based on airline flight recorded data extracted from the Airbus A321 aircraft. Results suggest that CO₂ emissions could be reduced by 180 kg per flight if all departure speed constraints were removed at a cost of increased noise exposure below 70 dB(A).     

Airline market share and customer service quality: a reference-dependent model

Traditional models that explain the nature of the relationship between customer service quality and airline demand assume that the relationship can be approximated by using smooth or differentiable curves. Suzuki and Tyworth, however, recently argued that this assumption may not be valid, and that, if it is invalid, the model performance can be improved by using non-smooth functions to represent the relationship (Suzuki, Y., Tyworth, J.E., 1998. A theoretical framework for modeling sales-service relationships in the transportation industry. Transportation Research E 34 (2), 87–100). We use their framework to develop a model that represents the relationship between service quality and market share in the airline industry and then empirically compare its performance with conventional airline demand models. The results indicate that the relationship is characterized by a non-smooth curve and that our model provides a significantly better goodness of fit than other conventional demand models.     

A fuel tankering model applied to a domestic airline network

This paper presents a linear programming model designed to determine the optimum fuel loading quantities along a route network for a Brazilian domestic airline. Assuming that there are no volume purchase or storage capacity restrictions on each station, the analysis is carried out for one aircraft on one day of its schedule. Results are extrapolated for a monthly and yearly basis. Through the proposed model, it is seen that such a fuel tankering technique leads to a 5% economical saving, but produces a 1% additional fuel burn. A discussion on the environmental impact for this procedure is also proposed. Copyright © 2011 John Wiley & Sons, Ltd.     

Comparison of emerging ground propulsion systems for electrified aircraft taxi operations

Aviation is a mode with high fuel consumption per passenger mile and has significant environmental impacts. It is important to seek ways to reduce fuel consumption by the aviation sector, but it is difficult to improve fuel efficiency during the en-route cruise phase of flight because of technology barriers, safety requirements, and the mode of operations of air transportation. Recent efforts have emphasized the development of innovative Aircraft Ground Propulsion Systems (AGPS) for electrified aircraft taxi operations. These new technologies are expected to significantly reduce aircraft ground-movement-related fuel burn and emissions. This study compares various emerging AGPS systems and presents a comprehensive review on the merits and demerits of each system, followed with the local environmental impacts assessment of these systems. Using operational data for the 10 busiest U.S. airports, a comparison of environmental impacts is performed for four kinds of AGPS: conventional, single engine-on, external, and on-board systems. The results show that there are tradeoffs in fuel and emissions among these emerging technologies. On-board system shows the best performance in the emission reduction, while external system shows the least fuel burn. Compared to single-engine scenario, external AGPS shows the reduction of HC and CO emissions but the increase of NO_x emission. When a general indicator is considered, on-board AGPS shows the best potential of reducing local environmental impacts. The benefit-cost analysis shows that both external and on-board systems are worth being implemented and the on-board system appeals to be more beneficial.     

A three-stage least squares approach to the analysis of airline strategies for aircraft size and airline frequency on the north Atlantic: an airline case study

In response to increasing demand, airlines may increase capacity by increasing the frequency of flights or they may choose to increase aircraft size. This may yield operating cost economies. If the airports they operate from are capacity constrained, they will be limited in the extent that they can change frequency which will limit their ability to compete with the number of frequencies offered. This article focuses on this trade-off and pays particular attention to the practices of a specific airline. Conclusions are offered on the impact of inter alia competition, changes in aircraft technology, 9/11 and the impact of slot constraints. It appears that changes in size are more important than frequency, which is consistent with the presence of slot constraints and there is a significant impact of competition. As the concentration of carriers increases, so aircraft size falls. 9/11 also has a significant impact on traffic whereas the introduction of the Boeing 777, as an illustration of a change in technology, does not.     

Operating cost sensitivity to required time of arrival commands to ensure separation in optimal aircraft 4D trajectories

Trajectory optimisation has shown good potential to reduce environmental impact in aviation. However, a recurring problem is the loss in airspace capacity that fuel optimal procedures pose, usually overcome with speed, altitude or heading advisories that lead to more costly trajectories. This paper aims at the quantification in terms of fuel and time consumption of implementing suboptimal trajectories in a 4D trajectory context that use required times of arrival at specific navigation fixes. A case study is presented by simulating conflicting Airbus A320 departures from two major airports in Catalonia. It is shown how requiring an aircraft to arrive at a waypoint early or late leads to increased fuel burn. In addition, the efficiency of such methods to resolve air traffic conflicts is studied in terms of both fuel burn and resulting aircraft separations. Finally, various scenarios are studied reflecting various airline preferences with regards to cost and fuel burn, as well as different route and conflict geometries for a broader scope of study.