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 criterio...
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| Format: | text |
| Language: | English |
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Institutional Knowledge at Singapore Management University
2002
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| Online Access: | https://ink.library.smu.edu.sg/lkcsb_research/2134 |
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| Institution: | Singapore Management University |
| Language: | English |
| Summary: | 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. |
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