Smaller Aircraft for More Profits? A Preliminary Examination on Airlines' Fleet Size Decision with Fare and Demand Distributions
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.
Air transportation, Demand, Fares, Marginal costs, Operating costs, Profits, Revenues, Small aircraft
Business Administration, Management, and Operations | Strategic Management Policy | Transportation
Strategy and Organisation
Eno Foundation for Transportation
Fan, Terence Ping Ching.
Smaller Aircraft for More Profits? A Preliminary Examination on Airlines' Fleet Size Decision with Fare and Demand Distributions. (2002). Transportation Quarterly. 56, (3), 77-94. Research Collection Lee Kong Chian School Of Business.
Available at: http://ink.library.smu.edu.sg/lkcsb_research/2134