Browsing by Author "Suwandechochai, Rawee"

Now showing 1 - 2 of 2
  • Thumbnail Image
    Analysis of Decision Postponement Strategies for Aircraft Assignment under Uncertainty
    Suwandechochai, Rawee (Virginia Tech, 2002-04-14)
    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.
  • Thumbnail Image
    Capacity Investment, Flexibility, and Product Substitution/Complementarity under Demand Uncertainty
    Suwandechochai, Rawee (Virginia Tech, 2005-12-15)
    We provide a comprehensive characterization of the relationship between optimal capacity and the degree of product substitution/complementarity under price/production postponement, considering different business practices (holdback versus clearance, negative price policies) and different demand models. Specifically, we consider a firm that produces two products, which can be substitutable or complementary. The demand of each product is a linear function of the prices of both products (with the relationship depending on the substitution/complementarity structure), and is subject to an additive stochastic shock. We consider two types of linear demand functions that are commonly used in the economics and operations management literature. The firm operates in a monopolistic setting and acts as a price-setter for both products. Overall the firm needs to make three sets of decisions: capacity, production quantities, and prices. While the capacity investment decision has to be made ex-ante observation of demand curves, price and/or quantity decisions can be postponed until after demand curves are observed. We consider two postponement strategies: price and quantity postponement, and price postponement only. We characterize the optimal pricing/production/investment decisions for each postponement strategy. Using these characterizations, we show that product substitution/complementarity is a key demand characteristic, which has a large impact on the optimal capacity. Our results show that how the optimal capacity behaves in substitution/complementarity parameter is quite similar under both postponement strategies, and under holdback and clearance. However, this behavior depends highly on other underlying assumptions (i.e., whether or not negative prices are allowed) and on the demand model used.