Airline Empires - Airline and Aviation Articles, Airline Simulation - Dynamic Fleet Planning

Dynamic Fleet Planning - a Regional Application

Written by Courtney Miller
Tuesday, 24 January 2006
Page 1 of 9 1.0 Introduction Especially in the economic conditions of today, much emphasis is placed on managing costs at the airlines. With airlines such as Southwest and JetBlue operating a successful low cost model, pressure has been put on the rest of the industry to reduce costs in order to compete effectively. While not a new concept by any means, the quest to reduce costs is approaching its limits at some major airlines due to high fixed costs. For an established network carrier, fixed costs tend to be even more inflexible due to higher administrative requirements, labor unions, and large infrastructure. While definitely possible, reducing costs to the level of some low cost airlines would be incredibly painful and detrimental to a network carrier. In lieu of this, airlines have looked to the revenue side of the equation to counter rising costs in the form of revenue management (Clark, 274). Not only do airlines have to cope with extraordinarily high fixed costs, they have to counter these costs with a limited commodity that is constantly spoiling. Each seat that is empty on a departing aircraft represents potential revenue that can never be recouped. In response to this unique situation, the airlines have adopted a system of managing prices to accommodate the high-yield passengers while filling unused capacity with lower paying passengers to increase revenue (Clark, 275). Using data compiled from years worth of operations, the airlines can predict, with limited certainty, the demand that will be generated on a flight on any given day. With this information the price is manipulated to control demand (passengers) to fit the finite supply (seats). The airlines constantly try to minimize excess capacity resulting from reserving too many seats for the higher-yield passengers, leaving empty seats that would result in potential lost revenue, while maximizing revenues from the low-yield passengers without selling seats that would have been occupied by the higher yield passenger. The resulting excess in demand is called demand spill. While turning passengers away is not considered good business practice, placing too much supply to ensure it meets every fluctuation in demand has an equally detrimental effect on load factor and profitability. Revenue management was a revolutionary idea, however it has some limitations which are just now being reached. One of the most serious of these limitations is that while revenue management attempts to manipulate price to sculpt demand into the finite supply, it can actually interfere with the original pattern of demand, leaving large areas of revenues untapped. To be able to maximize profits, both price and supply must be manipulated in conjunction with each other. Fortunately for the airlines, computer technology has made it possible to consider supply as a variable they can control. While not entirely flexible, it is possible to move aircraft of different capacities between routes to better match supply with demand. Dynamic fleet planning is the process by which aircraft capacity is matched to demand on a given route. By controlling capacity, dynamic fleet planning can successfully increase revenues, and in result profits, with only a marginal increase in costs. In this paper, we will discuss the requirements and potentials of dynamic fleet planning (DFP), and discuss the different types of systems available. Finally we will apply dynamic fleet planning to Comair Airlines, a regional airline operating Canadair Regional Jets, and discuss the barriers specific to this type of operation. << Start < Previous 1 2 3 4 5 6 7 8 9 Next > End >>