Title

Smaller Aircraft for More Profits? A Preliminary Examination on Airlines' Fleet Size Decision with Fare and Demand Distributions

Publication Type

Journal Article

Publication Date

6-2002

Abstract

At the confluence between traditional revenue-maximizing frameworks premised upon fixed aircraft seat capacity, and fleet assignment integer programming paradigms premised upon deterministic demand and uniform fares, this paper explores the use of profit-maximization as a strategic decision criterion for optimizing aircraft fleet sizing, based on fare, demand and operating cost distributions. A preliminary application indicates that the potential improvement in using operating profit as the objective function compared with using total revenue or combined operating and spill costs can be between 0.6% and 21%. In general, the profit-maximizing framework tends to recommend smaller aircraft size in view of a sharply decreasing expected marginal seat revenue profile.

Keywords

Air transportation, Demand, Fares, Marginal costs, Operating costs, Profits, Revenues, Small aircraft

Discipline

Business Administration, Management, and Operations | Strategic Management Policy | Transportation

Research Areas

Strategy and Organisation

Publication

Transportation Quarterly

Volume

56

Issue

3

First Page

77

Last Page

94

ISSN

0278-9434

Publisher

Eno Foundation for Transportation

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