Long-range demand planning and capacity management play an important role for policy makers and airline managers alike. Each makes decisions regarding allocating appropriate levels of funds to align capacity with forecasted demand. Decisions today can have long lasting effects. Reducing forecast errors for long-range range demand forecasting will improve resource allocation decision making. This research paper will focus on improving long-range demand planning and forecasting errors of passenger traffic in the U.S. domestic airline industry. This paper will look to build upon current forecasting models being used for U.S. domestic airline passenger traffic with the aim of improving forecast errors published by Federal Aviation Administration (FAA). Using historical data, this study will retroactively forecast U.S. domestic passenger traffic and then compare it to actual passenger traffic, then comparing forecast errors. Forecasting methods will be tested extensively in order to identify new trends and causal factors that will enhance forecast accuracy thus increasing the likelihood of better capacity management and funding decisions.

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The current airline practice is to assign aircraft capacity to scheduled flights well in advance of departure. At such an early stage in this process, the high uncertainty of demand poses a major impediment for airlines to best match the airplane capacities with the final demand. However, the accuracy of the demand forecast improves markedly over time, and revisions to the initial fleet assignment become naturally pertinent when the observed demand considerably differs from the assigned aircraft capacity. The Demand Driven Re-fleeting (DDR) approach proposed in this thesis offers a dynamic re-assignment of aircraft capacity to the flight network, as and when improved demand forecasts become available, so as to maximize the total revenue. Because of the need to preserve the initial crew schedule, this re-assignment approach is limited within a single family of aircraft and to the flights assigned to this particular family. This restriction significantly reduces the problem size. As a result, it becomes computationally tractable to include path level demand information into the DDR model, although the problem size can then get very large because of the numerous combinations of composing paths from legs. As an extension, models considering path-class level differences, day-of-week demand variations, and re-capture effects are also presented. The DDR model for a single family with path level demand considerations is formulated as a mixed-integer programming problem. The model's polyhedral structure is studied to explore ways for tightening its representation and for deriving certain classes of valid inequalities. Various approaches for implementing such reformulation techniques are investigated and tested. The best of these procedures for solving large-scale challenging instances of the problem turns out to be an integrated approach that uses certain selected model augmentations and valid inequalities generated via a suitable separation routine and a partial convex hull construction process. Using this strategy in concert with properly selected CPLEX options reduces the CPU time by an average factor of 7.48 over an initial model for a test-bed of problems each having 200 flights in total. Prompted by this integrated heuristic approach, a procedure for finding solutions within a prescribed limit of optimality is suggested. To demonstrate the effectiveness of these developed methodologies, we also solved two large-scale practical-sized networks that respectively involve 800 and 1060 flights, and 18196 and 33105 paths in total, with 300 and 396 flights belonging to the designated family. These problems were typically solved within 6 hours on a SUN Ultra 1 Workstation having 260 MB RAM and a clock-speed of 167 MHz, with one exception that required 14 hours of CPU time. This level of computational effort is acceptable considering that such models are solved at a planning stage in the decision process. / Master of Science

The ability to effectively match supply and demand can lead to significant revenue benefits in the airline industry. Airline supply management deals with assigning the right resources (i.e., aircraft and crew) to the right routes in the flight network. Due to certain crew regulations, operating characteristics, and constraints of the airline companies, these supply management decisions need to be made well in advance of departures, at a time when demand is highly uncertain. However, demand forecasts improve markedly over time, as more information on demand patterns is gathered. Thus, exploiting the flexibilities in the system that allows the partial postponement of supply decisions to a later time, when more accurate demand information is obtained, can significantly improve the airline's revenue. In this thesis, we propose and analyze the Demand Driven Swapping (DDS) approach that aims at improving the airline's revenue by reducing the supply-demand mismatches through dynamically swapping aircraft as departures approach. This research has been done in collaboration with our industrial partner, the United Airlines Research and Development Division. Due to the proximity to departures, the DDS problem is restricted by two main constraints: 1) the initial crew schedule needs to be kept intact (due to certain union contracts); and 2) airport services and operations need to be preserved to the greatest extent possible. As a result, only a limited number of simple swaps can be performed between aircraft types of the same family (i.e. crew-compatible aircraft types). However, the swaps can be potentially performed on a daily basis given the initial fleet assignments. Clearly, the swapping criteria, frequency, and timing will highly impact the revenue benefits of the DDS approach. When the swapping decisions are made several weeks prior to departures (i.e., 4-6 weeks before departures), they will not cause much disturbance to the operations, but will be performed under highly uncertain demand information. On the other hand, swapping decisions that are delayed to a time later (i.e., 1-3 weeks before departures) will decrease the possibility of bad swaps, but will result in larger costs due to the higher disruptions to airport services and operations. Thus our research objective is to provide guidelines and principles on how the flexible capacity should be managed in the system. For this purpose, we study the effectiveness of different swapping strategies, characterized in terms of their frequency and timing, for hedging against the demand uncertainty. We first study stylized analytical models to gain insights into the critical parameters that affect these benefits. Simulation models are then conducted to test the validity of our analytical findings as well as to analyze more complex strategies and assess the dynamic performance of these strategies. The analytical results indicate that strategies that make the swapping decision early in time (in order to minimize disturbances to the operations) perform very well on routes, where the demand uncertainty is low and the expected demands on the legs are well-balanced. Otherwise, a swapping strategy, which revises the swapping decision over time, should be implemented. Our simulation results, based on real data obtained from United Airlines, confirm the analytical findings. / Master of Science

Thesis (M. of Strategic Studies)--U.S. Army War College, 2006. / Cover title. "15 MAR 2006"--Tech. report doc. page. Includes bibliographical references (p. 14-17). Full text document also available on public STINET.

This thesis examines the determinants of air route profitability in the European Union and the cooperating countries of Norway and Switzerland. Building on the assumption that only profitable routes are served, I develop a set of probit models that specify route service as a function of route characteristics, airline networks' attributes, airline partnerships and competition. Estimation results show that route profitability increases with population size and decreases with flight distance and the time efficiency of car travel relative to air travel. An airline's airport presence, that is, its share of airport operations, exerts a significant, positive effect on its route profitability, and so does airport presence of its group or allied partners. Competitive effects are asymmetric across airline business types. This paper's contribution to existing airline-route profitability studies lies in accounting for airline cooperation, controlling for an alternative mode of transport, and using EU data for estimation.

This research implemented a multiple case study design to investigate the effects of aesthetic and emotional labor in the premium airline context of Emirates, in comparison to the low-cost airline context of easyJet. This was achieved through the conduct of interviews with flight attendants from each airline as they are the frontline employees who are mostly concerned with the implementation of these standards. Even before the recruitment process employees are introduced to the requirements of aesthetic and emotional labor as airlines aim to find those who will best ‘fit’ their organizational culture, and that through training they will be even more equipped to represent the company during their interactions with customers. Thus, flight attendants are regarded as a strategic resource that contributes to the competitive advantage and organizational performance of airlines. Taking into consideration that aesthetic and emotional labor standards define the very nature of flight attendants’ job and that their performance determines the organization’s performance, the potential effects on their performance cannot be disregarded. The main themes that were yielded through the thematic analysis of the empirical findings were found to be parallel to some of the performance factors in Herzberg’s two-factor theory of motivation, while aesthetic and emotional labor were located as components within identified themes. Thus, this provided us with a general theoretical framework that allowed us to further discuss our findings in connection to relevant theory. Results showed that the different operational business models as well as the different cultures of each airline mostly contributed to the differences that were found in regard to the implementation of standards between the two contexts. Aesthetic labor standards were found to have a stronger effect on employees’ performance in the case of Emirates due to the fact their supervision was stricter. In both cases, aesthetic labor standards were not found to have an effect on employees' performance when it comes to their interaction with customers. While easyJet was found to receive a more diverse training when it comes to interaction with customers, in both cases emotional labor standards were found to have an overall positive link to employees’ performance not only when it comes to interaction with customers but also when it comes to dealing with co-workers, managers and the demands of the job in general. However, the aspect of personality was found to be a moderating factor influencing employees’ understanding and following of standards. It should be noted that the results of this research cannot be generalized. Further investigation across different contexts and airlines is suggested so as to conclude whether the results are representative of a specific context.

This thesis tries to prove a functioning of the Blue Ocean Strategy on the case of Europen low-cost air transport. Through the Blue Ocean Strategy´s Analytical Tools and Frameworks, specifically with the help of the Strategy Canvas, the Four Actions Framework and the Eliminate-Reduce-Raise-Create Grid, it is proven that the strategy introduced by the airline Ryanair in the nineties of the twentieth century corresponds to the Blue Ocean Strategy. Through the same Analytical Tools and Frameworks and a comparison of business models of three low-cost airlines also the time validity of the Blue Ocean Strategy is proven in this case. The functioning of the Blue Ocean Strategy on the case of European low-cost air transport was verified.

Revenue Management (RM) is the practice of managing perishable assets by control-ling their availability and/or prices with an objective to maximize the total revenue. Seat inventory allocation falls in the purview of quantity-based RM. The liberalization of the aviation sector and the subsequent entrance of the low-cost carriers saw an ever-increasing customer base for the airline industry. Given the large number of buyers, firms were free to decide the price at which they would sell tickets. The low-cost carriers started to follow a third degree price discrimination and segmentation of the market, charging a higher price to the market with a relatively inelastic demand. Although a lot of work has been done in the area of seat inventory allocation under a monopolistic market scenario, we realized that not a lot of work had been done in a competitive market scenario. This thesis considers the problem of seat inventory allocation and pricing in a duopoly where each of the competing airlines have two fare-classes. We consider the possibility that the same fare-class may be priced differently by the two competing airlines and allow for the over flow of passengers between the airlines in the same fare-class. In the first part of our work, we develop a non-linear mathematical model for setting the booking limits for one of the two competing air-lines such that the revenue earned is maximized. We consider over flow of passengers from one airline to another in the same fare-class in response to a price differential and compare the results obtained from our model with the standard Expected Marginal Seat Revenue (EMSR) model under a monopolistic scenario. The results show that our model gives higher revenues than that obtained from the EMSR model. In the second part of our work, we consider a non-cooperative game between two competing airlines with price cutting as the strategy to increase their demand. Through numerical computations, we identify the pure strategy Nash equilibrium. From the results, we conclude that Nash equilibrium is achieved only when both the airlines follow the same pricing strategy indicating that individual price cutting will not be beneficial. This also indicates that unless the competitors enter into a cooperative coalition with each other, they would not benefit from deep discount offers. In the third and final part, we prove theoretically the existence of pure strategy Nash equilibrium in a two airline, two fare-class problem with price sensitive over flow of customers in the same fare-class that was computationally analysed earlier. The strategy / strategies at which Nash equilibrium is achieved are identified. We show that Nash equilibrium is only achieved when both the airlines price identically. Hence, our thesis concludes that differential pricing does not hold any significance for the competing airlines from an operational perspective.

Le développement de puissantes compagnies aériennes bénéficiant d’un soutien évident d’acteurs politiques qui ont (re)lancé leurs activités vient poser d’importants défis pour le secteur aérien international. De fait, de nombreuses entités politiques perçoivent le transport aérien comme un outil indispensable afin de promouvoir leurs intérêts et s’imposer davantage sur la scène internationale. Les cas des émirats de Dubaï, d’Abu Dhabi et du Qatar, ainsi que de la Turquie illustrent pleinement la façon dont des acteurs politiques utilisent le développement d’une compagnie aérienne localement basée en fonction d’objectifs qui leur sont propres. La croissance inédite d’Emirates Airline, Etihad Airways, Qatar Airways et Turkish Airlines vient toutefois bouleverser l’évolution de la connectivité aérienne mondiale, tandis que les nombreux acteurs de l’aérien peinent à s’accorder sur la mise en œuvre d’un cadre de portée internationale censé garantir l’existence d’une « concurrence loyale » entre les transporteurs, sur fond d’intérêts divergents. Le contrôle de la connectivité constitue en effet un instrument de soft power qui vient renforcer la position des acteurs qui l’utilisent, tout en créant des liens de/d’(inter)dépendance croissants. Les autorités politiques adoptent toutefois des approches différenciées afin de développer leur soft power, tandis que l’Union européenne s’avère être, pour l’heure, en retrait d’une telle dynamique. / The growth of strong airlines benefiting from a large support of political stakeholders who have (re)launched their activities is leading to important challenges for the international air transport sector. Numerous political entities perceive aviation as an essential tool to promote their interests and to gain more international recognition. The cases of the emirates of Dubai, Abu Dhabi and Qatar, but also Turkey are fully showing how political stakeholders use the development of a locally based airline according to their own goals. The large growth of Emirates Airline, Etihad Airways, Qatar Airways and Turkish Airlines is disrupting the air connectivity evolution at a worldwide scale, while numerous aviation stakeholders do not reach to agree on an international framework aiming to safeguard a “fair competition” between air carriers, in a context of differing interests. Thus, the control of air connectivity forms a soft power instrument strengthening the position of stakeholders who are using it while creating in the meantime growing (inter)dependence links. Political authorities adopt however differentiated approaches in order to expand their soft power, whereas the European Union is, for now, staying away of such a dynamic.