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RE V : MA Y 1 , 2 0 0 3

V.G. NARAYAN AN

Delays at Logan Airport: Problem Set

Problem #1
In the Delays at Logan Airport case, we discussed various proposals for reducing congestion at Logan Airport. One method for mitigating the impact of delays was peak-period pricing. In the case, normal, good weather operational capacity (i.e., both arrivals and departures) hovered around 120 planes per hour. Assuming (as is customarily the case) that the number of arrivals roughly equals the number of departures, this implies an average arrival capacity of 60 planes per hour. Though three runways total are in operation during good weather, only two are used for arrivals, which implies that each arrival runway has an hourly capacity of 30 planes per hour. During the peak period, arrival rates generally range from 44.5 planes per hour to a little over 60 planes per hour. The Federal Aviation Administration (FAA) has estimated that delays cost airlines around $348 on average per plane per hour in both airplane operating costs and extra ground crew time for a 19 seat turboprop plane, and $1,585 for a representative 150-seat plane. Assume that the corresponding cost for regional jets is $640 per hour. This number does not, however, include the costs to airline passengers created by delays (such as missed meetings, events, or inconvenience), some of which may be borne by airlines in terms of foregone revenue, as frustrated passengers shift to alternative means of transportation or forego travel altogether. The Air Transport Association (a major airline industry group), has, however, used a $25.70 per hour estimate as the value of a passenger's time in its estimates of annual costs delay costs. The FAA also only deems a flight delayed if the flight arrives or departs more than fifteen minutes past schedule.
a.

Assume normal, good weather capacity, and a 70% passenger load factor. Using the attached Excel exercise, what are the per plane delay times and operational and passenger delay costs associated with arrival rates of 50 planes per hour, for all three types of planes mentioned? At 55 planes per hour? At 59? definition of delay appear more or less reasonable?

b. How would your answers to a. change if we used the FAAs definition of delay? Does this

c.

Based on your analysis, do you believe peak period pricing, by reducing arrival rates during periods of heavy demand, might represent an effective means of reducing the costs of over scheduling?

Problem #2
Clearly, peak periods exist for a reason; that is, they are not random fluctuations but rather exist due to passengers desires for landings and takeoffs at certain choice periods during the day. As such, for fear of angering their customers, airlines will only shift flights to different period during the day if the costs of incurring peak charges outweigh the costs (in terms of lost revenue) of shifting flights to off-peak periods. An operating expense breakdown for three airplane classes is listed in Exhibit 1. In addition, per passenger revenue for different aircraft sizes is listed in Exhibit 2. Assume all planes fly with 30% of passenger seats empty (i.e., assume a 70% load factor).
a. For which airplane types listed above (conventional jet, regional jet, and turboprop) would a

peak-period landing fee of $100 have a significant economic impact? What about a $150 fee? What about $200?
b. Based on your answer to 2(a), whether peak period pricing has a significant effect on the

magnitude of delays may depend on the particular mix of airplane classes utilizing Logan during a peak hour. Do you believe peak period pricing would have a significant effect if the typical airplane mix were 40% turboprop, 18% regional jet, and 42% conventional jet, as it approximately currently stands at Logan? What about 20% turboprop, 30% regional jet, and 50% conventional jet, as one future scenario for 2015 envisioned by Massport/FAA has it?
c. To what extent might savings in delay costs that result from demand management offset peak

period fees?

Problem #3
In the case, we learned that adverse weather conditions are the primary cause of delays at Logan Airport. When weather conditions deteriorate, or when winds from the northwest become moderately strong, Logans capacity drops from three runways (where one runway handles both arrivals and departures, one runway only departures, and one runway only arrivals) to two (where two runways handle both arrivals and departures). Arrival capacity in the former case averages around 60 planes an hour, and in the latter case (a situation that occurs on average 30 days a year), 45 planes an hour. When weather conditions are particularly severe (a situation that occurs on average 10 days a year), only one runway for both arrivals and departures is in operation at Logan, and total arrival capacity drops to 30 operations an hour. In the Queueing Theory Technical Note, we discussed what happens when arrival rates exceed service rates. We also know that during periods of inclement weather, arrival rates at Logan regularly exceed runway capacity.
a.

What would you expect to happen if arrival rates exceeded service rates during any one period at Logan? Delays at Logan Airport case, with arrival rates composing half of the operations per hour shown. For normal, good weather capacityi.e., capacity of 60 arrivals per hourwhat are the estimated delay times and delay costs for a plane landing at hour 17? What if Logan drops to two total runways in operation (each with an average capacity of 22.5 arrivals per hour each)? What if only one runway (with an average capacity of 30 arrivals per hour) is in operation? You will need your Excel spreadsheet to answer this question.

b. Assume Logans weekday peaking pattern resembles the 2000 case shown in Exhibit 8 of the

Exhibit 1

Comparative Operating Profits of Three Airline Types (all amounts in thousands)

Major Airline As a Percentage of Operating Revenues Expenses and Costs $19,352,000 Regional Jet As a Percentage of Operating Revenues Expenses and Costs $480,021 Turboprop As a Percentage of Operating Revenues and Costs Expenses $146,000

Total Revenues Salaries, Wages, and Benefits Aircraft Fuel Landing Fees Aircraft Maintenance Depreciation & Amortization Aircraft Rentals General and Other Operating Expenses Operating Profit

6,877,000 2,511,000 959,000 698,000 1,058,000 919,000 3,965,000 $16,987,000 $2,365,000

40.5% 14.8% 5.6% 4.1% 6.2% 5.4% 23.3% 100.0%

137,427 84,988 31,644 48,823 15,370 22,151 86,796 $427,200 $52,821

32.2% 19.9% 7.4% 11.4% 3.6% 5.2% 20.3% 100.0%

41,000 16,000 4,000 11,500 6,000 32,000 30,500 $141,000 $4,000

29.1% 11.3% 2.8% 8.2% 4.3% 22.7% 21.6% 100.0%

Source: Adapted from UAL Corporation 2000 SEC 10-K Filing; Midwest Express Holdings, Inc., 2000 SEC 10-K Filing; Mesaba Holdings, Inc. 1997 SEC 10-K/405 Filing.

Exhibit 2 Estimated Revenue per Passenger for Different Aircraft Classes

Seating Capacity Estimated Revenue per Passenger

Aircraft Class

Market

Carrier

Turboprop Regional Jet Conventional Jet

Source:

Portland, Maine Philadelphia San Francisco

U.S. Airways Express Delta Connection United

19 50 150

$230 $154 $402

FAA/Massport; <www.expedia.com>.