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OM in the News: How Airlines Match Capacity to Demand

March 2, 2012

When we think of capacity issues at airlines, it is often in the context of buying enough planes to meet forecast demand.  But the Wall Street Journal (Feb.29, 2012)  makes the important point that “many fewer people fly in the winter than during school breaks, major holidays and summer vacations.” In fact, US airlines filled  just 77% of their seats last January, compared to 87% in July. Basically, for decades, airlines have earned a lot of money in summer and then lost it in winter when they had too many planes, gates, and employees.

What OM strategies can airlines use to break the cycle?  Here are 4 ideas: (1) Schedule more airplanes for maintenance and renovations during winter months; (2) Offer workers voluntary leaves; (3) Fly the planes fewer hours; and (4) Trim the number of daily flights to many destinations.

With fuel prices hitting record highs ( fuel is more than 1/3 of  operating expenses), “it becomes more and more important not to fly that airplane if there’s no demand,” says Alaska Air’s VP-Revenue Management.  Delta has made a goal of providing 20-25% less capacity in winter than in summer–a big oscillation by industry standards.  But seasonal downsizing is tricky. Airlines can’t afford to park their planes in low season, and union contracts don’t allow them to impose staff cuts.

Alaska Air smoothed out it schedule recently when it added flights to Hawaii from its Seattle hub in winter. Delta loads up on sports charter flights and adds more flights to the Caribbean, Mexico, and Australia in the slow season. US Airways offers red-eye flights from its Phoenix hub in summer, squeezing more hours  a day out of its planes, then discontinues the flights in winter. Ryanair, Europe’s big discount carrier, simply parks 80 of its 280 planes from November to March. It still bears the ownership costs, but doesn’t have to fuel up.

Discussion questions:

1. Discuss each of these capacity strategies. Which is best?

2. What other cost-saving ideas can students suggest to deal with seasonality?

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