Assessing The Role of Operating, Passenger, and Infrastructure Costs in Fleet Planning Under Fuel Price Uncertainty

Assessing the Role of Operating,
Passenger, and Infrastructure Costs in

Fleet Planning under Fuel Price
Uncertainty
Megan Smirti, Mark Hansen

University of California, Berkeley
Presented at ATM 2009, July 2009
1
Presentation roadmap
Research background
and motivation
Research objective
Literature review
Research approach
Cost comparison for
specific aircraft
Conclusions
2
Research background
and motivation
Research objective
Literature review
Research approach
Cost comparison for
specific aircraft
Conclusions
3
New considerations in planning air

transportation services
Organizations involved with aviation system
planning are facing a mix of challenges and
opportunities
Challenges
Fuel price uncertainty
Future Air Traffic Management (ATM) charging
mechanisms uncertainty
Opportunities: The introduction of new and

redesigned aircraft
4
Fuel Price
Energy Information
Agency (2009)
Month-Year
Jul-09
Feb-08
Oct-06
May-05
Jan-04
Sep-02
Apr-01
Dec-99
Weekly US Regular Conventional Retail

Gasoline Prices (/Gallon)

450
400
350
300
250
200
150
100
50
New considerations in planning air

transportation services
Organizations involved with aviation system
planning are facing a mix of challenges and
opportunities
Challenges
Future Air Traffic Management (ATM) charging
mechanisms uncertainty
Opportunities: The introduction of new and

redesigned aircraft
6
ATM charges
ATM Charges
Robyn (2008)
Marchi (2007)
Odoni and de Neufville (2003)
Evaluate the merits of collecting ATM fees

as a percentage tax of each ticket sold and
a fee based on aircraft weight
The structure of fees which both capture
revenue and use congested airports more
efficiently are discussed
Review airports that have implemented
alternative ATM charges, such as flat
landing fees or minimum landing fees
Research objective, method, and

previous work
Objective: Determine how short haul fleet mixes
might be configured in response to changing fuel
costs and ATM charging mechanisms
Method: Evaluate the minimum cost fleet
composition to serve a single origin-destination pair
under varying travel distance and fuel price
combinations
Cost Modeling
Douglas and Miller (1974)
Oster and McKey (1994)
Levinson et al (1996)
8
Parametrically evaluate aircraft

operating cost over varying distances
Compare interregional vehicle operating
costs, passenger costs, and environmental
costs over a corridor
Research background
and motivation
Research objective
Literature review
Research approach
Cost comparison for
specific aircraft
Conclusions
9
Aircraft details
Aircraft Category
Details of Representative Aircraft

Turboprop
Regional Jet
Narrow Body Jet
Aircraft Model
ATR 72-200
ERJ 145
B737-400
Manufacturer
EADS & Alenia

Aeronautica
72
Embraer
44
The Boeing
Company
137
1,408 m
1,951 m
2,012 m
50,265
44,070
149,710
Number of Seats
Runway Length
Requirement
Maximum Takeoff
Weight (lb)
Cost calculation for specific aircraft

Consider three key cost groups for each aircraft
Operating cost
Fuel consumption relationship
Crew, maintenance averages
Passenger cost
Travel time relationship
Disutility of flying on turboprops
Schedule delay
Air Traffic Management charges
Compare fleets of homogeneous aircraft types and evaluate

if differences arise in minimum cost fleet due to fuel price
and distance
Operating costs alone
Operating and passenger costs
Operating and passenger costs with varying ATM fees
11
Cost calculation for specific aircraft

Consider three key cost groups for each aircraft
Operating cost
Fuel consumption relationship
Crew, maintenance averages
Passenger cost
Travel time relationship
Disutility of flying on turboprops
Schedule delay
Air Traffic Management charges
Compare fleets of homogeneous aircraft types and evaluate

if differences arise in minimum cost fleet due to fuel price
and distance
Operating costs alone
Operating and passenger costs
Operating and passenger costs with varying ATM fees
12
Fuel consumption and flying time per

passenger
Relate fuel and travel time to
stage length (up to 1000 miles)
Aircraft Model
Aircraft Category
Alpha
Beta
Fuel Consumption per Passenger

Narrow Body
Regional Jet
Turboprop
Block Time per Passenger
13
Narrow Body
Regional Jet
Turboprop
Example presentation of results
Stage Length (miles)
Percent difference in cost contour plot

1000
900
800
700
600
500
400
300
200
100
0
Percent Difference in Cost per Passenger
1 1.5 2 2.5 3 3.5 4 4.5 5 5.5 6 6.5 7 7.5 8 8.5 9

Fuel Price ($/Gallon)
Red line represents equal cost per passenger

Below the red line represents the fuel price-stage length region
where a turboprop has a lower cost per passenger
Above the red line represents the fuel price-stage length region
where the incumbent aircraft has a lower cost per passenger
14
Research background
and motivation
Research objective
Literature review
Operating Cost Alone
Research approach
Cost comparison for
specific aircraft
Conclusions
15
Operating and
Passenger Cost
Operating, Passenger,
and ATM Cost
First comparison: operating cost alone

Regional jet and turboprop
Narrow body and turboprop
16
Operating cost per passenger

Distance vs. Fuel Price Comparing Regional jet (RJ) and Turboprop
(PR) Operating Cost per Passenger
1000
50%
800
600
RJ Total Cost is 50%
higher than PR
400
200
0
1.00
1.50
2.00
2.50
17
3.00
3.50
4.00

Distance vs. Fuel Price Comparing Narrow Body (NB) and Turboprop
0%
1000
900
800
700
600
500
400
300
200
100
0
10%
10%
NB Total Cost is 10%

higher than PR
NB Total Cost is equal
to PR
lower than PR
1.00
2.00
3.00
4.00
5.00
6.00

Distance vs. Fuel Price Comparing Narrow Body (NB) and Turboprop
0%
1000
900
800
700
600
500
400
300
200
100
0
10%
10%
November
2008 fuel
price

higher than PR
NB Total Cost is equal
to PR
July 2008
fuel price
1.00
2.00
3.00
4.00

lower than PR
5.00
6.00
Second comparison: operating cost and

passenger costs (without schedule delay)
combined
Regional jet and turboprops
Narrow body and turboprops
20
Passenger preference cost

Passenger disutility for flying turboprops (compared
with jets)
Passenger value of time cost for flying time
Passenger
Segment
Disutility for Turboprops

Percent of
($/Flight)
Passengers Compared with Compared with
Regional Jets Narrow Body Jets
Cost of Flying
Time ($/hour)
Cost of
Schedule
Delay ($/hour)
Business
43%
40.0
32.1
69.7
30.3
NonBusiness
57%
21.0
21.0
31.2
4.8
Source Adler et al., 2005
The passenger costs are added to the operating cost
Operating and passenger cost per passenger

Distance vs. Fuel Price Comparing Regional Jet (RJ) and Turboprop (PR)
Operating and Passenger Cost per Passenger
1000
20%
0%
20%
800
higher than PR
600
400
RJ Total Cost is
equal to PR
200

lower than PR
0
1.00
1.50
2.00
2.50
3.00
3.50
4.00
4.50
5.00
5.50
6.00

1000
800
November
2008 fuel
price
20%
0%
20%
July 2008
fuel price

higher than PR
600
400
RJ Total Cost is
equal to PR
200

lower than PR
0
1.00
1.50
2.00
2.50
3.00
3.50
4.00
4.50
5.00
5.50
6.00

Distance vs. Fuel Price Comparing Narrow Body (NB) and Turboprop (PR)
1000
10%

higher than PR
NB Total Cost is
equal to PR
lower than PR
800
600
400
0%
200
10%
0
4.00
6.00
8.00
10.00
24
12.00
14.00
Third comparison: operating cost and

passenger costs (with schedule delay)
combined
25

including schedule delay
The regional jet has a smaller seat capacity, its use necessitates
more frequency service than the turboprop
As market density increases the region where the turboprop offers
a lower cost per passenger increases because discrepancy in
frequency delay is decreased
Regional Jet Comparison Market Densities:
26

including schedule delay
The narrow body has almost twice the seats of a turboprop, it
serves the same market density with less frequent service
As market density increases, the cost impact of frequency delay
decreases and the region where a turboprop offers a lower cost per
passenger shrinks and tends toward higher fuel prices
Distance vs. Fuel Price Comparing Narrow Body and Turboprop
Narrow Body Comparison Market Densities:
27
Fourth comparison: operating cost, passenger

costs (with schedule delay), and ATM charges
(fixed and variable)
28
Air Traffic Management costs

Terminal airspace air traffic navigation charges
En route air traffic

navigation charges
Variable Landing Fee

(Current)
Variable Ticket
Tax
(Current)
Fixed Ticket Tax

(Future)
Flat Landing Fee

(Future)


navigation charges

(Current)
Variable Ticket
Tax
(Current)
Fixed Ticket Tax

(Future)
Based on vehicle size

and vehicle weight
Flat Landing Fee

(Future)


navigation charges

(Current)
Flat Landing Fee

(Future)
Variable Ticket
Tax
(Current)
Fixed Ticket Tax

(Future)
Based on narrow body

size and narrow body
weight
Total cost per passenger with ATM Charges

Distance vs. Fuel Price Comparing Regional Jet and Turboprop

Equal Operating, Passenger, and ATM Cost per Passenger Curves
1000
900
800
700
600
500
400
300
200
100
0
2.00 2.20 2.40 2.60 2.80 3.00 3.20 3.40 3.60 3.80
32
Market Density of 125 passengers/day

Both infrastructure charging schemes increase the fuel price stage length
space where the turboprop offers a lower cost per passenger
Variable: Turboprop gains an advantage due to similar landing fees
Fixed: Turboprop has the largest lowest cost region due to a greater capacity
High market densities diminish the importance of schedule delay
Distance vs. Fuel Price Comparing Regional Jet and Turboprop
1000
900
800
700
600
500
400
300
200
100
0
2.00 2.20 2.40 2.60 2.80 3.00 3.20 3.40 3.60 3.80
33

Variable: Turboprop gains an advantage due to smaller landing fees
Fixed: Narrow body has an advantage due to greater capacity
High market densities diminish the importance of schedule delay
Distance vs. Fuel Price Comparing Narrow body and Turboprop
34
Conclusions: Fuel price

Regional jets and turboprops
At summer 2008 record level fuel prices, regional jets
have a higher operating cost and operating and passenger
cost per passenger for all stage lengths compared with
turboprops
In contrast, at fuel prices seen in late 2008, there are
many routes for which the regional jet has a lower cost
per passenger
For certain stage lengths, it is only a spike in fuel price
that makes the turboprop a more attractive option over
regional jets
At fuel prices below $3.00/gallon, airlines are encouraged
to adopt less fuel efficient aircraft (regional jets) in order
to keep passenger costs low
Conclusions: Fuel price

Narrow body jets and turboprops
At summer 2008 record level fuel prices, narrow

body jets have a higher operating cost per
passenger for all stage lengths compared with
turboprops
When passenger preference cost is considered,
the narrow body jet has a lower cost per
passenger over almost all fuel price-stage length
combinations
If operating cost is the principle concern, the
turboprop will minimize cost
Conclusions: ATM charges

Fixed ATM charges would favor larger jets
as well as a move toward turboprops
Variable ATM charges would encourage
smaller aircraft, especially in the absence of
a fuel price increase, because smaller jets
would continue to have an advantage under
variable charging schemes
37
Final conclusions
The fleet selection decision is sensitive to fuel
price, passenger costs, market density, and ATM
charging
Results of this study indicate that the following
rationalize the adoption of fuel efficient aircraft,
despite higher passenger cost
High fuel prices
Fixed ATM charges
Implications for greenhouse gas emissions and

other environmental policy
Thank you for your interest and attention.
Nothing re-ignites interest in new turboprops faster than a

good old-fashioned fuel crisis. Aviation international News
Megan Smirti, Mark Hansen

University of California, Berkeley
[email protected]
Backup Slides
40
Aircraft Differences
Fuel
Consumption
Aircraft Model
Narrow Body
Regional Jet
Turboprop
Block Time
Narrow Body
Regional Jet
Turboprop
(Standard Error)
265.29
(20.67)
188.62
(7.56)
44.66
(0.19)
0.6657
(0.071)
0.7429
(0.069)
0.3090
(0.00207)
(Standard Error)
2.11
(0.022)
1.91
(0.010)
0.646
(0.00015)
0.001989
(6.79E-05)
0.001883
(0.00013)
0.004895
(2.2E-06)
Aircraft Model
Adjusted R-Square
Observations
0.99934
0.99985
0.99999
0.972796
25
0.941697
14
0.999999
Aircraft Category
Alpha
Beta
Fuel Consumption per Passenger

Narrow Body
2.576213
0.0200372
Regional Jet
5.6446821
0.0564468
Turboprop
0.8169935
0.011801
Block Time per Passenger

Narrow Body
Regional Jet
Turboprop
41
0.0063928
0.0219846
0.0056282
1.908E-05
5.594E-05
8.896E-05
Aircraft Operating Cost

Aircraft Category
Aircraft
Model
Fuel Price
(FP)
Coefficient
SL*FP
Coefficient
Stage Length (SL)

Coefficient
Constant
Per Operation
Narrow Body
2.7*102
2.1
2.6
8.8*102
Regional Jet
1.9*102
1.9
1.2
4.8*102
Turboprop
4.5*101
6.5*10-1
3.8
2.4*102
Per Passenger
42
Narrow Body
2.5
2.0*10-2
2.5*10-2
8.4
Regional Jet
5.6
5.7*10-2
3.6*10-2
1.4*101
Turboprop
8.1*10-1
1.2*10-2
7.0*10-2
4.4
Operating and passenger cost
Aircraft
Model
43
Fuel Burn
(FP)
Coefficient
Narrow Body
Regional Jet
Turboprop
2.7*102
1.9*102
4.5*101
Narrow Body
Regional Jet
Turboprop
2.5
5.6
8.1*10-1
Aircraft Category
Stage Length
SL*FP
(SL)
Coefficient
Coefficient
Per Operation
2.1
1.3*101
1.9
4.2
-1
6.5*10
1.7*101
Per Passenger
2.0*10-2
1.2*10-1
5.7*10-2
1.3*10-1
1.2*10-2
3.0*10-1
Constant
4.2*103
1.7*103
2.6*103
4.0*101
5.0*101
4.8*101
Operating, passenger, and variable

ATM cost
Aircraft
Model
FP
Coeff.
Narrow
2.8*102
Body
Regional Jet 2.0*102
Turboprop
4.8*101
Narrow
2.7
Body
Regional Jet 6.0
Turboprop
8.7*10-1
44
Aircraft Category
SL*FP
SL
Coeff.
Coeff.
Per Operation
Const.
1.3*101
5.6*103
2.1
4.3
-1
7.0*10
1.7*101
Per Passenger
1.9*103
3.1*103
2.3
2.2*10-2
1.2*10-1
5.4*101
6.1*10-2
1.3*10-2
1.3*10-1
3.1*10-1
5.7*101
5.6*101
Operating, passenger, and fixed ATM

cost
Aircraft
Model
Narrow Body
Regional Jet
Turboprop
Narrow Body
Regional Jet
Turboprop
45
Aircraft Category
FP
SL*FP
SL
Coeff.
Coeff.
Coeff.
Per Operation
2
2.8*10
2.3
1.3*101
2.1*102
2.1
4.4
1
-1
6.5*10
8.0*10
1.7*101
Per Passenger
2.7
2.2*10-2
1.2*10-1
6.2
6.1*10-2
1.3*10-1
1.2
1.5*10-2
3.1*10-1
Const.
5.6*103
2.2*103
3.4*103
5.4*101
5.8*101
5.7*101

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Assessing the Role of Operating,

Passenger, and Infrastructure Costs in

Megan Smirti, Mark Hansen

New considerations in planning air

Opportunities: The introduction of new and

Weekly US Regular Conventional Retail

Fuel price uncertainty

New considerations in planning air

Opportunities: The introduction of new and

Evaluate the merits of collecting ATM fees

Research objective, method, and

Parametrically evaluate aircraft

Details of Representative Aircraft

Narrow Body Jet

EADS & Alenia

Cost calculation for specific aircraft

Air Traffic Management charges

Compare fleets of homogeneous aircraft types and evaluate

Cost calculation for specific aircraft

Air Traffic Management charges

Compare fleets of homogeneous aircraft types and evaluate

Fuel consumption and flying time per

Fuel Consumption per Passenger

Block Time per Passenger

Example presentation of results

Stage Length (miles)

Percent difference in cost contour plot

Percent Difference in Cost per Passenger

1 1.5 2 2.5 3 3.5 4 4.5 5 5.5 6 6.5 7 7.5 8 8.5 9

Red line represents equal cost per passenger

First comparison: operating cost alone

Operating cost per passenger

Stage Length (miles)

Operating cost per passenger

Stage Length (miles)

NB Total Cost is 10%

Fuel Price ($/Gallon)

Operating cost per passenger

Stage Length (miles)

NB Total Cost is 10%

Fuel Price ($/Gallon)

NB Total Cost is 10%

Second comparison: operating cost and

Passenger preference cost

Disutility for Turboprops

Source Adler et al., 2005

The passenger costs are added to the operating cost

Operating and passenger cost per passenger

Stage Length (miles)

RJ Total Cost is 20%

Fuel Price ($/Gallon)

Operating and passenger cost per passenger

Stage Length (miles)

RJ Total Cost is 20%

RJ Total Cost is 20%

Fuel Price ($/Gallon)

Operating and passenger cost per passenger

Stage Length (miles)