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Title A decision making model for aircraft resources management

Author(s) Cheng, Tak-kin.;

Cheng, T. []. (1996). A decision making model for aircraft

resources management. (Thesis). University of Hong Kong,
Citation Pokfulam, Hong Kong SAR. Retrieved from

Issued Date 1996

URL http://hdl.handle.net/10722/37921

The author retains all proprietary rights, (such as patent rights)

Rights and the right to use in future works.


C H E N G Tak K i n

A Dissertation Submitted to

School of Business

The University of Hong Kong

in Partial Fulfillment of the Requirements for the Degree o f


Supervisor : Dr M U I Hak Wan

Title : Associate Professor
Department of Management Science,
City University of Hong Kong.

August 96

This dissertation is a result of many months of research and numerous people have
contributed to make it possible. Their positive and unfailing support have given me
great motivation.

I am especially indebted to my dissertation supervisor, Dr H W Mui, whose

assiduous care was invaluable in helping me to formulate the write-up.

I would also like to thank Mr. Richard CaterMr. Edward Hui and Mr. Michael Yuen
for providing valuable and sensitive insight into the Airline Planning Industry,
guidance and advice throughout this ordeal.

Furthermore, I would like to express my gratitude to all airlinesboth in and out of

Hong Kong, for their support with completing questionnaires and giving interviews.

Most important of all, I thank my family, especially my wife Dollafor their fully
support and care to me.

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In the contemporary era of explosion and drastic changesincreasing recognition is

made to resource scarcity. This is especially so in the aviation business in which
managing the expensive and scarce aircraft resources, to provide available seats on
time, is fundamental to the success of airlines.

In the absence of tools for decision making in aircraft resources management, the
latter tends to be inconsistent and human task orientedvesting at the sole discretion
of the decision makers. In this dissertation, a research is conducted for ten top
airlines, like Singapore AirlineBritish Airways and Cathay Pacific Airways, as to
how they prioritize major factors relevant to the decision making of aircraft resources
management. The factors will be prioritized in accordance with the corporate
objectives of airlines.

The results of research will be incorporated into a set of models on aircraft resources
management for the top performance airlines at different planning time spans. In a
wordhigh performance airlines regard flight safety and profit optimization as the
most important issues in aircraft resources management at all times. In the short run
airlines rank operational factors highly, whereas economic and strategic factors
prevail in medium and long term planning.

By manipulating the modelsairlines optimize utilization of resourceswhich in turn

maximizes company profits and strengthens the competency of airlines in the
dynamic business world. Thusthe aircraft resources management models form the
yardstick for decision making in aircraft resource allocation beneficial to all.

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Statement of Problem
Project Objective
Project Scope
Outline of Dissertation


Decision Making Process
Characteristics of General Models 17
Resources Management 20
Strategic Planning 21


Airline Analysis 25
Market Analysis 25
Operational Analysis 27
Equipment Analysis 27
Economic Analysis 27
Financial Analysis 28
Marketing Strategies 28
Business Market Strategy 28
The Leisure Market Strategy 29
The Total Market Strategy 30

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Decisive Factors For Aircraft Resource Allocation 31
Strategic Factors 31
Operational Factors 32
Social Factors 35
Economic Factors 36


Research Design 38
Sampling 39
Structured Questionnaires 42
Unstructured Interviews 43
Results and Analysis 44
Short Term Planning 46
Medium Term Planning 48
Long Term Planning 50
Strategic Factors 52
Operational Factors 53
Social Factors 55
Economic Factors 55
Fleet Size 57
Domestic Versus International Operators 60
Research Limitation 63


Developing Basic Model 64
Model for Short Term Planning 68
Model for Medium Term Planning 70
Model for Long Term Planning 73


Summary and Conclusions 76
Recommendations 79
Future Development 80

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Figure 1 Banfe's Diagram for Environments of Airline Innovation 6
Figure 2 The Rational Problem Solving (Decision-Making) Process Model 10
Figure 3 Mintzberg's General Model of Strategic Decision Process 12
Figure 4 Hickson's Model of Decision Making 15
Figure 5 Banfe's Interrelated Steps of Strategic Planning 22
Figure 6 A n Overview of Airline Analysis 26
Figure 7 Chart of Aggregate Sales of Worldwide Airlines 40
Figure 8 Chart of Aggregate R T K of Worldwide Airlines 40
Figure 9 Chart of Summary of Research Results 46
Figure 10 Chart of Research Results for Short Term Planning 47
Figure 11 Chart of Research Results for Medium Term Planning 49
Figure 12 Chart of Research Results for Long Term Planning 51
Figure 13 Chart of Research Results for Strategic Factors 53
Figure 14 Chart of Research Results for Operational Factors 54
Figure 15 Chart of Research Results for Social Factors 55
Figure 16 Chart of Research Results for Economic Factors 56
Figure 17 Chart of Summary of Research Results - By Fleet Size 60
Figure 18 Chart of Summary of Research Results - Domestic V s International.... 62
Figure 19 Basic Decision Making Model for Aircraft Resource Allocation 67
Figure 20 Decision Making Model for Short Term Planning 69
Figure 21 Decision Making Model for Medium Term Planning 72
Figure 22 Decision Making Model for Long Term Planning 74

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Table 1 List of Selected Airlines 41

Table 2 Summary of Research Results 45
Table 3 Summary of Research Results - By Fleet Size 59
Table 4 Summary of Research Results - Domestic Vs International 61

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One of the common major problems faced by airlines is how to manage their aircraft
resources in an efficient and effective way. Airplane is expensive and is the core
asset of air transportation business. For examplesthe current fair market value1 of a
jumbo Boeing 747-400 with 380 seats manufactured in 1993 is about US$ 132.2
milliona new Airbus A330 aircraft with 295 seats made in 1994 is valued at about
US$ 85.5 million and the newest Boeing model B777-200 carrying 375 seats join in
service in 1995 is priced at US$109.0 million. A list of market value of aircraft is
attached in Appendix I for more information about other aircraft model.

In factairlines generally invest heavily in aircraft and related equipment, such as,
spare engines and parts. Take the three most profitable commercial airlines2, namely
Singapore AirlineBritish Airways and Cathay Pacific Airwaysas examples. The
ratio of aircraft related assets to total net asset employed for the three airlines are
about 73%, 76% and 68% respectively. It is therefore a high priority issue for airline
to manage aircraft resourceswhich representing about 70% of their total assets,
efficiently and effectively.

In the contemporary competitive airline business worldairlines are competing each

other in various aspects such as flight routes, schedules, frequency and equipment,
customer services, pricing, marketing, distribution network and advertising. Yet the
basic service offered to customers is seats traveling from place of origin to place of

Euromoney Publication, Aircraft Economics Yearbook 1995.
Source from Airline Business Journal, September 1995 issue.
Source from the 1994/1995 annual reports of the airlines.

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Chapter 1 Introduction

destination. Assigning aircraft to produce seat capacity at the appropriate time is of

utmost importance to airlines. It is also the fundamental competitive power for the
success of airline business.

In the process of plan development, an airline analyzes and selects target markets at
the first place. Hence it forecasts the future traffic flows and drafts up an ideal set of
flight schedules, which are consist of flight routings, frequency, departure and arrival
timings, to match the anticipated demand. The problem will then come to the reality
that there are many constraints to restrict the ideal plan. Base on their resources
availability, the airline adjust the ideal plan and determine an operationally feasible
plan which can optimize returns.

It is general that airlines set up separate teams of specialists to handle these kinds of
problems. Some computer packages on decision support systems are available in the
market for designing flight schedules to help them. For examples, Airline Resource
Planner" system by Resource Management, a Sweden software house and the
MachUp system by SABRE/AADTa subsidiary of American Airline are the well
known software for this application. These systems are generally microcomputers
based with graphic displays. They provide functions to capture the desired flight
schedules and generate charts showing aircraft rotations. They can also optimize
aircraft usage and calculate the minimum number of aircraft required to operate the
inputted flight schedules. In case where the number of aircraft required exceeds the
resources availablethe systems create artificial aircraft and give warning signal to
users. Planners are required to decide how to solve problem and adjust the inputted
flight schedules separately.

However, most of the available computer systems focus on providing tools to capture
flight schedule data and to optimize the aircraft usage. Few of them aim at helping
planners to make choice on trading off excessive flights in order to achieve the
optimum returns. Airline planners have to make decision according to their personal
experienceand subjective judgments for aircraft resources allocation. Decisions
made may be different from time to time and person to person unless a set of
consistent policies for the decision making is applicable.

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Chapter 1 Introduction


It is definitely a key function of managing aircraft resources for airlines to manage

about 70% of the total assets. How to make use of limited aircraft resources to satisfy
traffic demand within the boundary of internal and external constraints and to
optimize returns? Although some computerized systems are available to assist airline
planners to keep track of aircraft activitiesthey seldom are applicable to the
management of conflicts of aircraft usage.

Whenever there is problem of shortage of aircraft resource to satisfy all the market

demand, part of ideal plan will have to be sacrificed. Some changes of flights will be

necessary such as switching aircraft typesflight retiming or even flight

cancellations. Chain effects may be occurred to affect other flights upon on one flight

change, for instance, if one flight is delayed in port of departure, the arrival timing in

the destination will be deferred also, then the departure timing of next flight may be

delayed also, or even canceled. Consequently, some flights remain unchanged and

some other flights are moved. Effectively, the operations of remaining unchanged

flights are on the expenses of other affected flights. In the sense that airlines aim at

maximizing profits in both short and long runs, they have to ensure the net gain from

the changes must be optimized.

In long term planning, capital of airlines will limit the aircraft resources. Airlines
with shortage of aircraft resources will have the dilemma of going for one market and
give up the others. For instance, if an airline predicts that port A and B are potentially
profitable marketsbut the aircraft time does not allow the airline to serve both, then
it has to decide to serve either port A or B in its long term plan so that the net of the
gain from the port it serves and the opportunity cost foregone for giving up the other

has to be maximize.

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Chapter 1 Introduction

In the short runflight schedules have already published. Aircraft shortage may be
encountered because unpredictable events occurred. The events may be the irregular
engineering problems, sudden increase traffic demandunpredictable shortage of
other resources like technical crew and so on. I n this situations, the original flight
schedules must be revised and airlines have t o decide to trade-off among flights
involved in the critical time periods. Againairline has to either maximize returns
from extra demand or minimize loss due t o irregularity of flights.

For each decision madeairlines are i n the dilemina of gain by going for one market
and paying t h e opportunity costs at the same t m e . Gain may come from the earning
by increasing flights to a market and loss may b e in the form of short term profits
foregonelong term market share or social image. How can the conflicts be resolved
at the optimum o f both short and long term benefits to airlines? What are the key
factors to be considered? How to prioritize them?

The decision making process is relying on airline planners. Airline planners make
decision b y basing some criteria in their mind and together with their knowledge and
experience. Planners with good knowledge and experience will make correct
decision. Conversely, inexperience planners may take longer time to decide and the
decision m a d e may not be the best and not always in line with the criteria which in
line with the company benefits.

Competingi n the dynamic airline business world, it is important for airline that its
planning personnel can make decisions rapidly i n accordance with criteria which are
constantly in line with the corporate objectives. Thus, the airline can make sure that it
is consistently moving toward its goals.

How can this goal be achieved? Can we have a decision making model to summarize
the issues such that the decisions made would b e speed up and consistently in line
with the corporate objectives? These are the popular and important problems in
commercial airline business.

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Chapter 1 Introduction


This dissertation aims at building up a conceptual decision making model for an

airline to allocate aircraft resources to the network of the airline in a way consistently
in line with its corporate goals.

This model will focus on one part of traditional decision making framework - the
selection section (refer to Figure 3Mintzberg's model which will be discussed later).
In the modelthere will be comprehensive critical factors for aircraft resource
allocation. Airlines can modify this model with their own requirements by prioritize
various in accordance with their corporate goal. Thus, its planners can share a
common model in which same principles of managing aircraft resource will be
applied. They can also have separate models for different time span in the
perspectives of short term (within a month), medium term (up to one year) and long
term (more than one years). It can help to communicate the company goals and
polices throughout the planning teams and to ensure each decision made is aligning
with the corporate goals.

To enrich this dissertation, a research will be conducted to find out how airlines with
outstanding performance set priorities over the mentioned factors in their normal
business at different time span of planning. This is expected to serve as generally
applied decision making models for aircraft resources management by successful


The environments of airline business can be viewed at various dimensions, namely

marketing, financing, operation and competition (please refer to chart in Figure 1 in

next page).

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Chapter 1 Introduction

Appraisal of corporate
COMPANY resources: financial,
Highest and best use
experience, skills and
o f firm's total

Search and research to

identify demand, sizeand Optimal market
competition for niche best segment, resources
suited to resources. and action in

COMPETITION Present capacity and service, Constant feedback

competitive strengths, niche on competitive
market share, risk and growt reaction to market
A Proposed Business niche served.
Airline Plan

Equipment in inventory and

aircraft needed. Technical
Maximization o f
skills appraised. Evaluation
present resources in
OPERATIONS of operations resources to
equipment, skills
and experience t o
serve desired

Finamcial resources of the

FINANCE firm, debt/equity ratio, Maintain financial
opportunity costs, and yiabilityl have
funding sources. funds available to
meet schedules.

Figure 1 Banfe's Diagram for Environments of Airline Innovation

This dissertation would focus on the portion of maximization of present resources in

equipment, technical know-how and experience to serve desired markets.

Furthermore, this dissertation would discuss on the conceptual perspective instead of

leaning just on mathematical optimizing model. It includes only decisive factors

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Chapter 1 Introduction

which are significant to aircraft resources management of commercial airline

business. It does not aim at building up a model which is universally applicable to all
cases in all airlines. Instead, this dissertation will recommend a set of conceptual
models which summarize the opinions of the top performance airlines in the world.

There are presumptions that this model is applicable only i f other relevant
information are available, such as, accurate market forecasts are in hand and the
solutions suggested by the model are operationally viable.


There are totally six chapters in this dissertation. Chapter one serves as an
introductory section to describe the background of this dissertation, what are the
problems and the project scope.

Chapter two will be the literature review section. In this chapterbooks and past
articles relating to decision making processthe development of models, discussion
in resources management and strategic planning will be referred to. Some of the
theories, principles and suggestions are very useful for and become part of this
dissertation. Chapter three introduces the relevant matters about airline business and
the essence to be considered in aircraft resource allocation.

This dissertation's description of the methodology of research will be covered by

chapter fourin which the design of research including how to select the samples of
respondents, what are the contents of structured questionnaires and unstructured
interviews will be described in details. Hence results of the research will be listed and
the analysis are followed.

A basic decision making model for aircraft resource allocation will be developed in
chapter five. By applying results of the above mentioned research, the basic model
would be modified to model applicable to shortmedium and long term planning.

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Chapter 1 Introduction

Finally, the whole dissertation will be concluded in chapter six. On top of overall
summary, recommendations and a list for further development will be included in
this chapter.

A glossary section that provides brief explanation for specific term used in airline
industry is after the chapter six. Bibliography which lists all the reference books and
articles is followed. At end, there are two appendices consist of a table of market
value of aircraft and a sample set of questionnaires for the research of this

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This dissertation aim at developing a decision making mode for aircraft resources
management. Literature are reviewed to look for previous books and papers studying
in the similar topic. However, it is found that there are very few past studies directly
working on the topic of decision making process of aircraft resource allocation.

Alternatively, there are many discussions about decision making process, models
airline management and resource management. These discussions are very useful in
making up this dissertation. In the following sectionswe shall review the literature
about decision making processes, general characteristics of modelstrategic planning
and resource management.


A simplified basic model for decision making process is found in the book
"Management" by StonerJames A.F.and Freeman, R. Edward4 as shown in Figure
2 of the next page. Decision making is described as the process of identifying and
selecting a course of action to solve a specific problem. Thusin the modelthere are
four basic stages in sequence : investigate the situation, develop alternatives,
evaluate alternatives and select the best one and finally implement and follow up. In
additiona feedback path from the forth stage to the beginning of the process.

At the initial stage, it is fundamental for a decision maker is to define what the real
problem is. No solution will come up if there is no problem at all or the problem is
not realized. Causes of problems may not be apparent sometimes and what can be

Stoner, J.A.F.and Freeman, R.E. (1989)Management, Prentice-Hall

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Chapter 2 Literature Review

seen are the symptoms only. The real problems cannot be solved by curing the
symptoms solely. To define the problem is the first step for solution.


D e f i n e problem Seek creative A N D SELECT T H E Plan
alternatives BEST ONE implementation
Identify decision
objective D o n o t evaluate Evaluate I m p l e m e n t plan
yet alternatives
D i a g n o s e causes Monitor
Select best implementation a n d
alternative m a k e necessary

Figure 2 The Rational Problem Solving (Decision-Making) Process Model

Once the problem has been definedit is required to identify the decision objectives.
Decision maker has to list outin line with the organizational objectives, a set of
criteria in which the "musts" and "shoulds" conditions are distinguished.

Secondly, a series of alternative solutions have to be developed. At this stage, the

alternatives need not be evaluated yet. This is to prevent the decision maker from
concluding too quicklyand encouraging him to generate other viable alternatives.

At the third stage of decision making process, decision maker may evaluate the
developed alternatives to see how effective they are. Effectiveness can be measured
by two criteria : onehow realistic the alternative is in terms of the goals and
resources of the organizationand twohow well the alternative will be in solving the
problem. Each alternative must be judged in light of the goals and resources of the
organization, as well as its consequences to the organization. In addition, the

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Chapter 2 Literature Review

alternatives must also be evaluated in terms of how well it can achieve the musts
and "shoulds" of the problem.

Once the best available alternative is selecteddecision maker must make plans to
cope with the requirements and problems that may be encountered in putting it into
effect. Resources must be acquired and allocated as necessary. Budgets and time
schedules for actions will have to be developed. Actions taken to implement a
decision must be monitored with messages feed back to the beginning stage of
decision making as inputs for the next round.

Mintzberg et a/. 3 define decision as a specific commitment to action (usually a

commitment of resources) and a decision process is a set of actions and dynamic
factors that begins with the identification of a stimulus for action and ends with the
specific commitment to action.

By referring the book Human Problem Solving (1972) of Newell and Simon
Mintzberg et al agreed that individual decision making relies largely on eliciting the
verbalizations of decision makers' thought processes as they try to solve simplified,
fabricated problems. These are then analyzed to develop simulations of their decision
processes. The result of the research indicates that decision maker tends to break a
complex unprogrammed decision into sub-decisions to which he can apply general
purpose, interchangeable sets of procedures or routines. In other wordsthe decision
maker deals with unstructured situations by factoring them into familiar, structurable
elements. Furthermore, the individual decision maker uses a number of problem
solving shortcuts - satisficing instead of maximizingnot looking too far ahead
reducing a complex environment to a series of simplified conceptual "models".

Mintzberg et al conclude from the studies of individual decision making that

decision processes are programmable even if they are not in fact programmed :
although the processes used are not predetermined and explicit, there is strong

Mintzberg, H. et al (1976), "The Structure of "Unstructured" Decision Processes"

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Chapter 2 Literature Review


If If
Search JT Screen
j^uJ du dg gmmeenntt

t /Choice ,

f Recognition A nn a l y s i s :

Choice )



Figure 3 Mintzberg's General Model of Strategic Decision Process

evidence that a basic logic or structure underlies what the decision maker does and
that this structure can be described by systematic study of his behaviour.

Despite the complexity and dynamic nature of strategic decision making processes
Mintzberg et al have developed a conceptual model of decision making process as
shown in Figure 3 of the following page.

In Mintzberg's model, there axe seven basic routines. The main line" passing
through the center horizontally from left to right represents the main flow of decision
process. In the main flow of decision process, there are only two major routines,
namely, the recognition routine and the evaluation-choice routine and the others are
side routines. The evaluation-choice routine comprises three modes - judgment,
analysis and bargaining (shown beyond point E in Figure 3). Generally speakingthe
most basic decision process involves recognition of a given solution and then the
evaluation of it and making choice.

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Chapter 2 Literature Review

Some decision processes may go through formal diagnosis procedure and some other
may skip it. In the modeldiagnosis is a branch routine which take the process off the
main line from point A and return to point B. Routines of recognition and diagnosis
are equivalent to the identification process in the traditional decision making model.

At point Cdecision maker will have to choose whether to go into the search and
screen routine to find ready-made solutions and screen for applicable ones, or the
design routine to develop a tailor-made solution. In most cases, the flow is not once
off but repetitive in cycle. No matter the initially proposed solution is by the search
or the design routine, modification may be necessary after the evaluation process,
thus, the decision flow goes back to point C from point F.

The evaluation routine has three modes - judgment, analysis and bargaining. In the
judgment modean individual makes a choice in his own mind with procedures that
he does not or cannot explain. In the bargaining mode, selection is made by a group
of decision makers with conflicting goal systemseach exercising judgment. Lastly
in analysis mode, factual evaluation is carried out and followed by managerial choice
by judgment or bargaining.

Mintzberg et al find that judgment seems to be the favorite mode of selection. They
comment that perhaps because it is the fastestmost convenient, and least stressful
one among the three. Bargaining appears in more than half of the decision processes
-typically where there are some kinds of outside control or extensive participation
within the organization and the issues are contentious.

Some decisions may require authorization while other not. Evaluated decision may
go direct from point G to point H where final decision will be made, otherwisethe
proposed decisions will go through the authorization routine before determination.

At the stage of point G and point Hit is possible to go back to the previous routines
for re-diagnosismodification and reconsideration. This process occurs repetitively
until the most acceptable decision (and thought as the best) is identified.

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Chapter 2 Literature Review

In many cases, strategic decision processes involve interrupts of one kind or another.
The three most common ones are shown in the model. At point Minternal or
political interrupts occur, where there are disagreement as to the need of making
strategic decision in the identification phase. Such interrupts originate from within
the organization. They resist the decision processes from flowing smoothly in the
recognition and diagnosis routines. At point Pexternal interrupts will be
encountered in the selection phase. These interrupts probably end up in modification
of the design so as to bring the latter in line with the difficulties encountered, to
complete redevelopment of a new solution if necessary, or to bargain for direct
confrontation with the resistance.

Another type of interrupt is new option interrupt which occur typically in the
development phase or during evaluation-choice routine. It leads the process either
back to redesign, elaborate or modify the new optionor directly to evaluation-choice
to select or reject immediately.

FinallyMintzberg et al conclude that strategic decision processes are immensely

complex and dynamichowever, they are amenable to conceptual structuring, at the
same time.

Hickson et al6 explains that decision making is at the heart of what administrators
and managers do. It is not something they do individually when it concerns major
strategic mattersthey do it as part of a social process with many others that may
become drawn out over a long period. It is neither something that always succeeds in
achieving what was intended, nor is it clear on what was intended, but nevertheless
strategic decisions are milestones in the fortunes of organizations.

Hickson, DJ.Butler, R.J Cray, D.MalloryG.R. and WilsonD.C. (1986), Top Decisions :
Strategic Decision-Making in Organizations, Basil Blackwell

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Chapter 2 Literature Review

Hickson et al suggest that the process of decision making is a response to the

problems and interests inherent in the matter for decisiona response to their
complexity and politically. Figure 4 below depicts the decision making processes
ensuing from the degree of complexity of decision problems and that of politicality
of decision interests. That isdecision making processes may be different because of
the problems being dealt with and different interests accommodated. The interest
implicated by one topic may differs from those drawn in by another. It is hard to say
that some matters are much more political, in the generalized non-party-political
sensethan the others.

The kinds of problems raised and the kinds of interests implicated will be shaped by
the organizational setting. The ultimate framework of power differs in various
sectors of business, and it determines the "rules of game". These fix - within certain
time period what topics for decision are allowable and what are not. Its norms or
'rules' govern what is mentionable and unmentionable which interests matter and
how things should be done.


INTEREST ('rules o f the MAKING
(labelled by
(Power) game,) PROCESS



Figure 4 Hickson's Model of Decision Making

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Chapter 2 Literature Review

Oxenfeldt explainsin his book Cost-Benefit Analysis for Executive Decision
Making, that there are two basic types of decision which executives in business
organizations usually encounter. The first one, as termed by Oxenfeldt
comprehensivecoherentor integrative decision, represents sets of decisions
of which decision makers select combinations of actions out of a huge number of
possibilities and to determine how far to pursue each of them. Budgets and plans are
the examples of comprehensive decisions in organizations. To prepare them,
executives require an extremely broad perspective with an awareness of all feasible
alternative actions and available resources. The goal is to make the best possible
match of the two. The conceptual basis for comprehensive decisions is different from
that employed to make single decisions (going to describe below)even though both
pursue the same goal - the optimum use of resources.

The second type of executive decisions is termed "single" or ad hoc" decisions. In

contrast to comprehensive decisionssingle decisions are usually occasioned by the
unexpected occurrence of a problem or the emergence of an opportunity, and must be
made in a relatively short time. They have to be constrained by the budgets or plans
of the whole organization though they are independent to a certain extent..

Cost-benefit analysis is one of the methods used in single decision making. The
essence of cost-benefit analysis is the "worth" of any actionprojectinvestment, or
strategy equals to the excess of the benefits it yields over the costs it entails.
Consequently, to pick the best of the alternatives available, a decision maker should
estimate the net benefits of each and select one offering the greatest net benefits.

Oxenfeldt, Alfred Richard (1979)Cost-Benefit Analysis for Executive Decision

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Chapter 2 Literature Review


This dissertation aim at building a conceptual model for decision making in terms of
aircraft resource allocation. It is worthwhile to make reference to literature
concerning about models - what is the main function of model and how it assists
decision makers to solve problemswhat key factors for a good model and what are
the limitations.

Oxenfeldt (1979) defines that a model is a simplified replication of reality that

identifies its main components and indicates how they are interrelated. It can
illuminate relationships of different things and indicate how they fit together. It can
also explain how they function so that model users know better how to cope with
them or to forecast their behaviour.

The followings are several key elements of a model:

a model is a simplified version of a more complex reality; the degree of

simplification varies according to the use for which it intends.

its purpose is to illuminate a real life phenomenon; some simplification is

required for ease and clarification of understanding.

although simplifiedthe view of reality presented by a model does include the

main elements and their interrelationships; simplification eliminates the non-
essentials only

the model depicts reality for a particular purpose and a particular audience; the
best model for a purpose to an individual may be quite different from that to
another person. Even the same person would find illuminating in thinking about
the same phenomenon for a different purpose.

a model is an intellectual toola device that assists in the thinking process; its
value therefore is to be assessed primarily by the validity of the conclusions or
decisions to which it leads.

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Chapter 2 Literature Review

a model can be expressed by a wide variety of media

[Oxenfeldt: 1979]

Facts alone will not settle issues. An individual needs a model to identify and
consolidate the available evidences to match what is in his mind explicitly.
Moreover, by making them explicit, he can invite others to evaluate them - a process
that usually helps to strengthen and clarify them.

Model may be in any form that illuminates to the user and helps him to reach valid
conclusions. The common forms include modified analogychecklists, flow
diagrams, organization charts, matricesiconic and symbolic models.

For decision making modelschecklists and flow diagrams are commonly used.
Checklist usually contains a catalog of factors to be considered in the course of
making a decision. While it is intended to guide a decision maker's behaviour by
telling him what items to considerit also conveys a crude picture of the
phenomenon about which his is trying to make a decision. However, checklist is
primitivethey may bewilder rather than enlighten the decision maker in some cases.
Moreoverthey do not indicate the relationships among elements.

Flow diagrams do not simply indicate what elements are involved but indicate where
they fit into the picture; they position elements in a way that a simple list cannot.
Flow diagrams vary widely in their complexity, yet they contain the key features of
an organization chart with sequences and priorities shown. Lines of different
thickness, texturesolidity, or color can be used to designate the nature of the role
played by different parties or steps in a process. The addition of arrows and other
elementary devices (dots, underlines and the like) can contribute additional
dimensions and illumination. In generalflow diagrams are used to provide models
of processes like planningproduction, scheduling and communicating.

Decision making is a mental process which reflects and depends on the working of
the brain. The brain works by constructing an internal version of the outside world; it
conducts experiments, makes detailed examinations ofand reasons about the

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Chapter 2 Literature Review

internal version of the outside world. Its conclusions reflect that internal version
rather than the actual outside world; the validity of its conclusions depends largely
upon whether these internal representations accurately mirror the outside world.

The validity of our decisions depends upon our perception and understanding of
reality. Good decisions require good models, and the caliber of our decisions reflects
the quality and validity of our models.

A model is helpful i f it indicates relationships not recognized before and eliminates

elements and discards relationships that were mistaken. For a model to do these, it
must be valid - that is, reflect the reality reasonably well. It must incorporate the key
elementsidentify the main relationships operatingand it must be in a form readily
intelligible to the user.

Any model that adds to a decision maker's understanding is of value because it

contributes to better decisions. But a model which illuminates for one individual may
not do so for another individual. Accordinglythe evaluation of model is highly

The following key questions are useful to test the effectiveness of a model:

Can it be understood and applied without lengthy preparation and practice?

Can the model incorporate many variables, if desired?

Does the model permit the introduction of changes over time?

Does the model permit easy incorporation of interdependencies among some of

the variables?

Does the model permit visualization as well as mental conception?

[Oxenfeldt: 1979]

Model building is a relatively specialized ability. Without thorough understanding of

the phenomenon being modeledmodels built will be of little value no matter how

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Chapter 2 Literature Review

great one's model building ability is. Combined with that understanding and skill in
the building of models can clear, flexible, and powerful models be produced.


Oxenfeldt (1979) states in his book Cost-Benefit Analysis for Executive Decision
Making that in order to utilize resource efficiently, an organization requires a clear
identification of the ends or goalsknowledge of what resources are available, and
knowledge of how these resources can best be used to produce what is desired.

Executives typically use concrete measures of both input and output; these are dollar
amounts of costs and outputs. Although some intangible inputs and outputs are
translatable roughly into dollars, they do not initially and directly take the form of
dollars. There are some common methods employed to allocate resources by
business executives as stipulated below :

Set priorities. Find the most significant activity and work to the fall"; do the
next most significant activity and so on.

Do everything in the same proportion. Determine what you want of all things
and cut back each in the same proportion, depending on how much the resources
can produce.

Allocate your resources according to the traditional percentage. Stick to the

proportions prevailing in the past.

Decide on an ad hoc basis. Decide each issue separately as it arises rather than
view all needs and resources as a cohesive whole.

Keep on doing what you have been doing until it becomes clearly unsatisfactory.

[Oxenfeldt: 1979]

Though above methods do not require much information and can be applied easily,
they rarely produce a valid decision in complex and volatile environments.

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Chapter 2 Literature Review

Another method to allocate resources efficiently is based on the equimarginal

principle. It requires much more information and involves complex processing of
the collected information. The principle developed along on the principle of
diminishing marginal utility. It helps decision maker to think constructively about
the allocation of resources by directing him to consider shifts of small lumps of
resources from one use to another and estimate whether the shift will improve or
worsen the situation.


A strategic plan is the allocation of resources, over time, that will optimize the airline

position and maximizes profitability. The planning process includes definition of the

ends to be achieved, a time frame with milestones to measure progressand a

description of how the airline can meet those milestones.

Strategic planning is systematic and should be formalized. It is optimal when written.

It must take into account the power, political, and social forces confronting the


Planning strategically is broad and conceptual, consisting of policy-making. It

establishes corporate philosophyexpectations and goals. The strategic plan (three to

five years) includes a tactical plan for the short term (one year). It is objective

oriented and an operational function. Sub-plans are aggregated to provide data for

tactical and strategic plans. In factthe description on strategic plan is

oversimplified, it serves as an outline only.

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A coherent set of appraisal, mission, planning, and execution functions defines the

scope of a strategic plan. A n appraisal and mission statement are both essential

before launching into the strategic planning process. Planning and execution are

application oriented. Appraising the corporate identity is the first step in the planning

process, with appraisal centers around the question "Who are we?

It is axiomatic for airline management to identify strengths and weaknesses : (who

they are, in what business they are, and what available resources are) before

determining what business they want to be in and how they are going to get there.


Appraisal Mission Planning Execution

Resources Goals Strategy Tactics

Figure 5 BanfeInterrelated Steps of Strategic Planning

Specific resources are physical assetsequipment (both ground and flight), routes,
landing rightsgate positions, people, skillscompetitive advantagesbarriers to entry
to competitionmarketing, operations and finance.

Nonspecific resources are the corporate culture, changing goals, operating variances,
competitive responses, hostile environments, operational limitations, government
regulationsassets management, the unpredictable economy and the irrational
behaviour of competitors in the future.

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Developing the mission or purpose of the company is the second step in the planning
process. The question to be answered is "Where are we going?"

A mission statement underscores long-range goals. It is a holographic description of

what the airline is all about. Foremost, a mission statement must target an achievable
horizon, not the blue sky. Extolling a euphoric mission in a twilight zone filled with
pipe dreams rather than hard-hat reality can lead to frustration, sub-optimization
angstand trigger a serious shortfall.

The intended outcome of the mission statement is to arrive at mutual understanding

and consensus. Similar to the Calvinist convenants that bound early New England
communities tightlymission statements nurture pride and loyaltyand create a sense
of oneness. Given these notionsit is not uncommon for the formulation of a mission
statement to take longer than writing the strategic plan. Perhaps this is what Dwight
D. Eisenhower meant when he wrote : "Plans are nothing; planning is everything."

In a lighter veinone of the all-time great mission statements could be found on the
wall of a cobbler's shop in venerated Harvard Square. The framed statement
weathers the test of the passing years : "We are dedicated to the saving of soles,
heeling, and administering to the dying."

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James George W. (1982) defines that the airline industry consists of a vast network
of routes that connect cities within a country and cities in different countries. Over
this network, a large number of airline companies carry passengers and cargoes on
scheduled services. The network of scheduled service is supplemented by flights that
are chartered for individual trips.

Airline business is a capital intensive and costly industry. Airlines must seek for high
return in order to survive. The competitions among them are severe. The competitive
environments, such as politicaleconomical, socio-cultural, technology and
customers' needsare volatile and dynamic. It is a very critical task for an airline to
understand the surrounding environments such that policies can be made to adapt the
sophisticated environments. Airlines have to conduct situation analyses on various
aspects constantly. This chapter will discuss the analyses of market, operational
equipmenteconomic and financial in the perspective of aircraft resources

Marketing functions are a significant issue of airline business. To capture customers

in huge market by limited production, successful airlines should have an excellent set
of marketing strategies. Marketing strategies may focus on one particular market
segment such as businessmentourists or cargoesor capture the total markets in
certain regions. The way of managing aircraft resource allocation should be matched
with the marketing strategies in order to get optimal results.

James George W. (1982)Airline Economics, Lexington Books.

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Chapter 3 Competitive Variables Analysis

Furthermore, this chapter will discuss the major considerations of aircraft resources
allocation. They are categorized into four groups according to their nature, namely
strategicoperational, social and economic factors.


The competition for airlines in the dynamic world is extremely fierce. The needs of
customers and economic environments, the level of technology and the rules
restricting operations are changing from time to time. In order to survive or succeed,
an airline must be aware of the environment around it and hence set out strategies to
fit in. Airlines should conduct analyses constantly to understand the environment.
There are generally five major types of analyses - market, operational, equipment,
economic and financial analysis.

Market Analysis

In the dynamic world with fierce competition and constantly changing customer
needs, an airline has to formulate plans for future development by analyzing and
forecasting market change and the trends of other key factorssuch as the overall
trend of the whole air transport industrythe expected growth of the airline itself, the
traffic flows of both passengers and cargo by origin and destination city pairs.

Moreover, to understand the seasonality factors on certain market is highly essential

for optimizing the utilization of major resources such as aircrafttechnical crew and
cabin attendant. A target for future time can be set in market analysis.

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Chapter 3 Competitive Variables Analysis

Industry traffic forecast
Airline growth rate forecast
Traffic forecast by origin and
destination - passenger and cargo
Seasonality factors
Load factor objective


Frequencies and itineraries Revenue analysis
Time scheduling Yield trend analysis
Transit times Class mix
Turnaround times Cargo and other revenue
Departure/arrival times Cost analysis
Flight separation Direct operating costs
Fleet assignment Cockpit crew and cabin attendant
Fleet composition Aircraft maintenance philosophy
Fleet size/configuration Indirect operating costs
Aircraft utilization Capital and introductory costs
Load factor Asset costs

Operating empty weight FINANCIAL ANALYSIS
Permissible takeoff and landing weights Route Profitability
Fuel uplift and consumption Cash flow
Block time Investment analysis
Payload Loan requirements
Aircraft maintenance requirements

Figure 6 An Overview of Airline Analysis

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Chapter 3 Competitive Variables Analysis

Operational Analysis

Internallyan airline has to measure its capability and resource availability to assess
whether it can achieve the target set in previous analysis. Operational analysis is
required to formulate an operational plan which the airline is capable to manage. The
plan will include flight schedules involving flight frequencytimings for flight
departure, arrival and transit. Furthermore, fleet assignment (aircraft capability e.g.
flight rangemaximum load can carry etc.) and seat configuration are essential
elements of the plan. Other resources such as technical crew and cabin attendants will
be taken into consideration as well.

To be successful, an airline should develop a plan achieving target sales by minimum

resources. Planners of airline are trying to optimize the usage of each key resource
which is usually scare and expensive. An operational plan will be created in this
analysis and the following economic analysis.

Equipment Analysis

Equipment analysis is vital for operational analysis especially for cases in which
capability of aircraft is critical. For examples, for ultra long haul route as Hong Kong
to Los Angel non stopthe flight range is so long that not all aircraft type is able to
operate. Besidesthe available capacity for payload is also critical for some flights.
Some aircraft can fly for long range, but with more fuel which occupy some of the
total load aircraft can carry, then the available load for sale is limited and not
economically sensible to operate with these aircraft types.

Economic Analysis

Base on the operational planrevenue and costs can be projected. Revenue is

projected by forecasting the demands obtained from market analysis together with
the predicted yield trend. Costs will be broken up according to their nature such as
direct operating costscrew costsaircraft maintenance costs and capital asset costs.

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Chapter 3 Competitive Variables Analysis

Predicted net returns can be identified by consolidating both revenue and cost

In case an airline is incapable of operating all the desired routes, some of the routes
will have to be dropped out. Justification in term of net benefits can be done by
conducting economic analysis of the related routes. The overall benefits will be
maximized i f the plan includes all optimum routes.

Financial Analysis

Financial analysis is a key analysis that an airline is able to ensure its continuity.
Profits from operations provide cash in flow to airline. Accumulative retained profits
are available for future investments and loan raising.


Business Market Strategy

A n airline selecting this strategy will enjoy the advantage available to any airline
focusing on one single segment of demand. A l l resources of the company from top to
bottom can be devoted to the requirements of one segment of the market. In case of
business traveler, these requirements are well-understood. The strategy is therefore
easy to designimplement and communicate to staffwith all advantages focused on
one direction.

Comparing to leisure market, the yields per passenger-kilometer of business market

may be much higher, though with the corresponding high production costs. The
business travelers needs a high frequency of service. This means airlines often have
to use a relatively small aircraft and losing the economies of scale potentially
available for larger ones The businessmen also sometimes require a last minute seat
to be availableand 'no penalty for no-show option. Such requirements are to be
metwill result in airlines operating with more empty seats and lower load factors

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Chapter 3 Competitive Variables Analysis

thereby raising units costsThe business travelers also want to have extravagant
standard of service in many other areas, though they do not really need fictitious to
believe that high yields in the business travel market corresponds to high profits.

The basic need of the short haul business travelers is basically a high frequency of
convenient flights, The point-to-point passenger is traveling to another city where he
will conduct his business and then return home. To hima high flight frequency will
enable him to minimize idle time and enjoy greater degree of flexibility. Similarly
connecting passengers will be ensured of fast and convenient connections to and
from his long-haul flight by a high frequency of flights on the short haul part of his

Flight timings are important to both point-to-point passenger and connecting

passenger. Demand from short-haul point -to-point passengers tends to peak early
and late of the day as passengers seek to maximize their working day. Demand from
the connecting passengers, on the other hand, does not. Long-haul flights out of hub
airports leave at different times of the dayaffected by the requirements of passenger
convenience as well as factors like time zone differences and airport curfews. The
connecting passengers must be able to travel to make connections easily, at whatever
time their long-haul flight depart.

The Leisure Market Strategy

A leisure market airline has the advantage that it is targeting the part of the total
market of air travel where growth prospects are most promising. It is therefore
benefit to an increasing share of the total market. The only problem is that yields
from leisure travel are always relatively lower. Leisure passengers are paying for
their ticket fare out of own pocketthey naturally select the airlines with the lowest
prices. Low yields are thus expected.

Fortunately, the leisure market airlines' problem of yield is undermined by the fact
that they can keep relatively low costs. The leisure travelers are usually not sensitive
to both flight frequency or flight timings. As a resultairlines can serve the clustered

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Chapter 3 Competitive Variables Analysis

leisure markets with large aircraftthereby reaping the greatest economies of scale.
They can also work their aircraft hard, so as to obtain lower costs through higher
utilization. On board the aircraft, lower service standards can be offered in compare
to that of the sophisticated business traveler. In addition, many leisure passengers are
willing to sacrifice their seating comfort at the lower price. This allows airlines to
reduce seat pitch and thereby to lower unit costs substantially by placing more seats
in the aircraft than airlines targeting at the business travelers.

The Total Market Strategy

Demand forecasting in aviation is very difficult and that there is genuine uncertainty
about what future growth will be. An airline serving a number of markets is always
best placed to exploit growth, and to weather the problems caused by a downturn in a
particular market. Other reason being that such an airline will enjoy numerous
opportunities to obtain a beneficial synergy between the different markets. Peaks and
troughs in demand will tend to even each other out, and cash-flow will be steadier. It
may be possible to serve extra routes too - especially those lacking sufficient demand
in any one market, but where a viable service can be mounted by an airline
combining all types of demand. Such an airline will be able to maximize the size of
its operation, gaining the full benefit of such scale economies as are available.
Finally, we have already noted the relatively cheaply-available opportunities to
participate in the cargo market which passenger aircraft belly-holds can provide.

Yetno matter how substantial these advantages arethey cannot alter the fact that
total market optionin various aspectsis the most challenging and difficult strategy
to pursue. It involves enormous commitment of resources. It also will result in a
confusing management task. The business marketleisure market and all-freight
strategies each involves only one major set of customers, whereas the total market
airline is setting itself the task of providing different products to very different
customersoften against the competition of specialist airlines. Not only will it be
difficult to ensure that product standards are sufficiently high, but building a suitable

corporate image will also be difficult.

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Strategic Factors

A ) Market Expansion and Market Share

Strategicallyairlines look for long term existence with good returns. The
development of market position by expanding existing marketdeveloping new
market and increasing market shares compared to other competitors in the same
markets. In achieving the goalthere are three ways to allocate aircraft resource by
increasing frequency, growing up capacity (use larger aircraft type) and developing
new destinations. However, market will be expanded at the costs of short term
opportunity for profit optimization. Aircraft resource may be occupied by some
immature markets under expansion scheme

B) Customer Loyalty and Company Image

Customer loyalty and company image are important to airline. Frequent flyers are the
key markets that many airlines focus on. Loyal frequent flyers provide to an airline
certain amount of constant demand for air transport services and contribute a fixed
amount income over time. The more loyal frequent traveler, the more stable the
revenue base will be. Company image is essential as well. A good company image of
offering safecomfort and on time air transport service will always be an attractive
element for passengers who look for high quality of service and less price sensitive.
They may be also frequent travelers.

Aircraft resources management therefore is direct to the success of delivering the

schedules. It helps to improve customer loyalty and company image largely by
minimizing the inconvenience caused to loyal customers. For exampleto allocate
aircraft type with high standard equipment to routes of frequent travelersand to
avoid cancel or delay of those flights. Besidesextra flights may be operated to carry
the denied boarding customers to destinations without economic justification.

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C) Traffic Rights

Flying between two countries and overflying other territories involve international
agreements. Airlines have to obtain these rights of traffic before they can mount the
services. Traffic rights are usually granted by governments under mutual agreements
between two countries. When there are more than one airlines in a country, the
appointment of traffic right is subject to the discretion of the local government.
Therefore, it is a must for an airline to obtain the traffic rights for certain routes
before operating the latter..

Once a traffic right is obtained, an airline may strategically exercise it at the right
time, otherwisethe potential competitors within the country will ask for the rights. If
the rights is lostfuture re-possession is difficultor even impossible. It follows that
airlines may prefer to operate the routes at the expense of initial loss in order to
secure the right granted.

D) Right of Using Airport Slots and Facilities

Similar to the traffic rightsthe rights of using slots of runway, boarding gate and
other airport facilitiessuch as check-in counters, baggage handling lines and waiting
rooms, at particular time are difficult to reclaim in future. Therefore, airlines will
protect the slots concerned by operating flights which may not be profitable in short

Operational Factors

A) Schedule and Schedule Integrity

Like the meal menu of restaurants, flight schedule is a summary list of an airline
displaying all services available to the customers. Customers will check through the
flight schedules of various airlines to look for those that offer the most convenient or
preferable routing and timings of flight departure and arrival. The better the
schedules to customers' needs, the higher the demand for flight service will be.

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Chapter 3 Competitive Variables Analysis

To the airlines, flight schedules represent their operational capability. Operational

personnel regard flight schedules as their work plans and that it is their responsibility
to operate flights according to the flight schedules. They have to overcome any
operational difficulties which upset the accuracy of the flight schedule. They will
expect more slack time between flights to ensure proper operations.

Airline planners strive to maintain a delicate optimal balance among aircraft

resources management, operations and marketing while aircraft resources
management aims at maximizing the daily utilization of aircraft hoursminimizing
down timeand lowering operating costsoperations side always desire more slack
time but this will reduce the utilization of aircraft. Marketing, on the other hand
seeks for a more competitive flight schedule offered to customers which in turn will
impose pressure on operations. It is therefore essential for airlines to formulate an
optimal flight schedule to customers balancing the three. Furthermore, airlines must
ensure schedule integrity, that is having the published schedules fully observed by
actual operations, otherwise customers will be reverted to their counterparts..

B) Aircraft Rotation

Aircraft flies from one station to another at scheduled timings. It stays at the second
station until departure of next flight. It is essential for airline planners to work out
how many aircraft are available at particular time and station in order to secure
aircraft for the next flight. Aircraft rotation chart is used to depict the activities of
each aircraft including flying, staying on ground and under engineering checks over a
certain time period (usually a week or a month's time).

Airline planners are responsible to ensure flight schedules are aircraft rotationwisely
feasible before announcement to public. The task gets more difficult gradually as the
planning period becomes shorter. In long term planningflight schedules are
designed for planning purpose rather than for public announcement. They are flexible
and adjustable if necessary. The aircraft rotation issue is not so critical.

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Chapter 3 Competitive Variables Analysis

For medium term planning, the planned flight schedules have to be published and
disclosed for airport slots application. Thereforethe schedules must be aircraft
rotationwisely workable.

In short term planning, the predetermined flight schedules may have to revised due to
unexpected events such as planes shutdown, unpredictable boom demand or shortage
of crews. The major task for short term planning team is to ensure flight schedules fit
for aircraft rotations.

C) Flight Safety

The chance of passengers having a fatal accident in a major carrier is about 1 in 3

million in year 1985 (referring to Air Transportation - A Management Perspective by
Alexander Wells, 1994). No matter how remote the chance of a serious flight
accident isit is still essential for passengers to note. Passengers are sensitive to the
historical records of airlines, aircraft typeair traffic control and safety standard of
individual airport. One serious accident can jeopardize an airline tremendously.
Therefore, flight safety is of utmost importance to company reputation.

There are international and local flight safety rules on aircraft and engine
maintenance, crew operational conditions, air traffic control procedures, survival
equipment and procedures etc. that airlines are required to follow. Yetflight safety
policies of individual airline may vary - some are very strict while others are more
lenient covering just the minimum standard of government requirements. This is
especially so when flight safety procedures are costly.

D) Engineering Requirements

Aircraft maintenance is necessary in fulfilling the requirements of flight safety

regulationto ensure aircraft fleet in proper conditions and to reduce the rate of
depreciation of expensive airplane assets. Regular engineering checks of airplanes
axe compulsory after operation for a certain hours and cycles. Thusairplanes are
required to be temporarily out-of-service.

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Chapter 3 Competitive Variables Analysis

Aircraft utilization will be reduced by the out-of-service engineering time. The slacks
for engineering requirements included in the operation plan should be minimized. A
good plan is necessary to achieve optimal the aircraft utilization on one hand and
maintaining high efficiency of engineering works on the other by alleviating
workload and maximizing the utilization of engineers and equipment.

Social Factors

A ) Human Factors

Airline services are manpower intensive. Being one of the major factors of resources
managementhuman resources should not be overlooked by management. On the
operation sideboth technical crew and cabin attendant play dominant role in services
provided to customers. In factmany international rules have been imposed on
operation crew. On top of theselabor unions pursue continuously for improvement
of working conditions and other fringe benefits..

Aircraft resources management may be affected by human factors. For example

operating crew may complain on the turnaround time just covering the allowable
minimum being too short for rest. Alternativelythey may prefer other port of
overnight and so on. In handling these complaints, scheduled flights may have to

B) Social Responsibility

For public carriers, social responsibility to maintain must be observed at normal

traffic capacity at all time. Sometimesairlines may cancel certain less profitable at

expenses of other flights.

C) Environment Protection

With the launching of environment protection campaignsthere are increasing

recognition on the issue. Although investments in environmental protection is costly

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Chapter 3 Competitive Variables Analysis

especially in short runthey keep booster up company image and customer loyalty. In
factsome aspects of environmental protection are legally bound.

Economic Factors

A) Profit Optimization

Profit optimization is a general goal for commercial organization. To airlines, profits

can be optimized by cutting costs to the lowest level as far as possible and
maximizing revenue by raising load factor and yield.

B) Load Factor and Yield

Load factor is a percentage indicating how many percent of seat capacity being
occupied by passengers. It reflects real market demand and market share. The higher
the load factor, the more the seats being sold and revenue earned. Other element of
similar importance is the yield - fare paid by passengers.

Yield is defined as the air transport revenue per unit of traffic carried. It is an average

income of various types of faresnamely, normal fares, common fares, joint fares and

promotional fares. Normal fares are the backbone of the fare structure in that they

apply to all passengers at all times and are the basis for all other fares. Separate

normal fares are provided for each class of service : firstbusiness, and economy

class. Common fares are an unusual application of normal fares in that they apply a

specific fare to points other than the points between which the fare is determined..

A joint fare is a single fare that applies to transportation over the joint lines or routes
of two or more carriers and that is determined by an agreement between them.
Promotional fares are discounted fares that supplement the normal fare structure.
They are always offered with some kind of restriction, such as minimum length of

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Chapter 3 Competitive Variables Analysis

stayday of the weekor season. Restrictions serve to benefit associated with the fare

The average yield of passengers carried is the result of the mix of different types of
fares. The more normal fare passengersthe higher yield will be. Converselya
greater portion of promotional fares, the yield will become lower. In peak seasonthe
demand for seats is high, majority passengers are holding normal fares to confirm
seat available. On the other handmore promotional fares will be issued to stimulate
demand in low seasons. Thus, both the load factor and yield will be high but airline
has to decide go for high load factor or keeping high yield in low season.

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Having typical targets and problemsindividual airline has its own different
philosophies in managing the utilization of aircraft. It is not practical to create a
model which is universally applicable to all airlines. Individual airline can create
their own models by prioritizing decisive factors in the model according to their
particular requirements.

In this dissertation, it is interested in researching how airlines of high performance

prioritize the key decisive factors in making decisions for aircraft deployment. The
collected data would be summarized and analyzed in this chapter. The consolidated
results would be applied to form decision making models of high performing airlines
in the world.


To achieve the objectivesamples will be taken from airlines for research purpose
and data will be collected directly from them. Data can be collected by direct
personal interview with the executives of the selected airlines responsible for aircraft
resources management, or by mailing set of structured questionnaires to airlines for


Sampling methodsstructured questionnaires and directed questions for unstructured

interviews are designed specifically for this research and would be discussed in the

following paragraphs.

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Chapter 4 Rcsccirch Methodology And Analysis


The target respondents are airlines. There are more than four hundred airlines over
the world. In order to get the most representative results out of the limited time and
resources available, purposive sampling method is adopted to this research. Only
airlines considered to suitable for the research purpose will be included in the survey.

Referring to the Airline Business journalSeptember 1995 edition, a list of one

hundred top airlines (based on 1994/1995 results) evaluated in terms of sales amount
is found. For this research the first forty out of the hundred airlines are selected as the
purposive samples. It is estimated that these forty selected airlines would represent
about 70% of the total air transport industry in the world since the one hundred
airlines giants, as declared by the Airline Business journal covered nearly 80% of the
total population, while the forty selected airlines aggregated to amount of 85% sales
of the former (that is70% of the whole industry). A similar revenue tonne-kilometer
percentage can be calculated. Figure 7 and Figure 8 in following page depict it

In additionthe forty selected airlines have their home base spreading over major
regions of air transport of the world, including AsiaEuropeAmerica, Australia and
South Africa. Data collected would a fair representation of different backgrounds,
cultures and environments of the world.

Moreoverthe forty selected airlines include twenty with highest operating profits as
rated by Airline Business journal. This ensure that high performing airlines are
included in this research.

All selected air carriers are surveyed in the form of structured questionnaires except
Cathay Pacific Airways for which a personal unstructured interview is conducted, as
it is based in Hong Kong. The two large Hong Kong based airlines, Cathay Pacific
Airways and Dragon Airare selected for structured interview. This two airlines
represent 100% passenger traffic and almost all cargo traffic of Hong Kong home

base air carriers.

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Chapter 4 Research Methodology And Analysis

Sales of Worldwide Airlines I

400 100%


M Aggregate Sales

M1 ...... Aggregate %


0 40 80 120 160 200 240 280 320 360 400 44C
20 60 100 MO 180 220 260 300 340 380 420
Number o f A i r l i n e s

Figure 7 Chart of Aggregate Sales of Worldwide Airlines

Revenue Tonne-Kilometers Flown Of Worldwide Airlines



^H I
_ Aggregate R T K

...... Aggregate %
H 40%


0 40 80 120 160 200 240 280 320 360 400 440
20 60 100 140 180 220 260 300 340 380 420
N um ber o f A i r l i n e s

I Source : Airline Business Journal, September 1995 issue. ||

Figure 8 Chart of Aggregate RTK of Worldwide Airlines

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Chapter 4 Research Methodology And Analysis

Table 1 List of Selected Airlines

Ranking9 Airlines Response Ranking Airlines Response

1 A M R C o r p (American) No 21 Trans W o r l d Airlines No

2 U A L C o r p (United) No 22 Iberia No

3 D e l t a A i r Lines Questionnaires 23 A i r Canada No

4 Lufthansa Group Questionnaires 24 Japan A i r System No

5 British Airways Questionnaires 25 Varig No

6 Japan A i r l i n e s No 26 Southwest A i r l i ne s No

7 A i r France Group No 27 Saudia No

8 Federal Express No 28 Thai A i r w ays International No

9 A l l Nippon Airways Questionnaires 29 L T U Group No

10 Northwest Airlines Corp No 30 Canadian Airlines C o r p No

11 U S A i r Group No 31 Garuda Indonesia No

12 Continental Airlines No 32 Ansett Australia Holdings Questionnaires

13 K L M R o y a l DutchA L No 33 Airborne Freight C o r p No

14 Swissair Questionnaires 34 Mal aysi a A i r l i ne s Questionnaires

15 Singapore Airlines Questionnaires 35 Sabena Group No

16 Qantas No 36 C h i n a Airlines No

17 Alitalia No 37 A i r N e w Zealand No

18 S A S Group No 38 United Parcel Service No

19 Korean A i r Lines No 39 A m e r i c a West A i r l i ne s No

20 Cathay Pacific Airways Interviewed 40 Finair No

Dragon A i r Interviewed

Source from Airline Business Journal September 1995 issue. Ranking by sales size in year 1994.

Prepared by T.K. Cheng Page 41

Chapter 4 Research Methodology And Analysis


Set of questionnaires have been dispatched to the thirty-nine overseas airlines as

listed in Table 1 shown in previous page. A set of sample questionnaires are listed
out in Appendix II for reference.

The questionnaires are divided into two main portions. In the first portion, questions
concerning information about the background of the airlines are raised, with which
better understanding on the airline can be achieved. Question one asks for the true
owners of the corresponding airlines who determine the company objectives and
direction to go. For instancethe corporate objective of private companies would be
to optimize returns on investment and minimize investment risks. Conversely,
government owned airline would concern about the normal traffic flow or even the
employment opportunities offered to citizens.

Question two and three try to get an insight on the competitive environment
confronted by airlines. A hub of airline network represents a key strategic
competitive point where the airline invested significantly in operational equipment
sales officescorresponding personnel and so on. For some airlines, their
headquarters are near the hub. The number of hubs of an airline indicates the degree
of competition it is in. It comes to no wonder that the strategies of large airline would
be differ from that of a smaller scale airline.

In questions four and fivewe try to understand how large of the responding airlines
are in terms of fleet size and operational measurement - number of flight legsblock
time flown, aircraft distance flown and available seat kilometers. Besidesdomestic
flights and international flights are reported separately, so as to identify the major
markets in which the responding airlines engaged.

From questions six to eight, attempts are made to investigate the management of
flight scheduling by the responding air carriers - what methods and tools are being
used, how many staff employed for flight scheduling as well as whether there are

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Chapter 4 Research Methodology And Analysis

standard guidelines for the aircraft allocation process exist and are communicated
throughout the relevant parties.

Finallyquestion nine is designed for understanding the importance of each decisive

factors which would be probably affect the decision making in aircraft allocation
process. It has been divided into three time frames - short term planning (within one
month)medium term planning (less than one year) and long term planning (more
than one year). In each time framesame factors of concern are asked that the impact
of change in a particular time frame can be seen.


Two personal interviews have been conducted with the senior executivesthe General
Manager Airline Planning of Cathay Pacific Airways and the General Manager
Airline Planning and International Affairs of Dragon Airhad been conducted. After
the opening remark and brief introduction of this dissertation, some pre-set open-
ended questions were raised leading to discussions on the topics relevant to this
dissertation. This opened the first part of the interview. In these face to face
discussions, valuable opinions and information have been obtained from the two key
airlines based in Hong Kong.

The executives explained their philosophy in the management of aircraft resources

allocationflight scheduling and long term fleet planning. They further expressed
their opinions on how to synchronize corporate strategies with the aircraft
deployment policies.

In the second part of the interviews, similar sets of list of decisive factors in aircraft
resources allocation as question nine and ten of aforementioned structured
questionnaires were displayed to the executives who were requested them to rate the
importance of each decisive factor in each of the shortmedium and long term
planning. The executives completed the rating in front of the interviewerhence

Prepared by T.K. Cheng Page 43

Chapter 4 Research Methodology And Analysis

immediate clarification on question were possible. In factadditional discussions

were made on some points.


Out of the thirty-nine structured questionnaires dispatched to the airlines in May

1996eight returned with duly completed questionnaires. A detail list of these eight
airlines in Table 1. Together with Cathay Pacific Airways and Dragon Airten
airlines in total have participated in this survey. The response rate is about 25%.

Among the ten responding airlines, six of them are in the list of top twenty airlines
with highest sales (according to Airline Business, September 1995), they are Delta
Air Lines, Lufthansa Group, British Airways, All Nippon Airways, Singapore
Airlines and Cathay Pacific Airways. MoreoverSingapore Airlines, British Airways
andCathay Pacific Airways are three top airlines in terms of highest net profits
whereas Lufthansa Group, Ansett Australia Holdings and Malaysia Airlines are
ranked the ninth, seventeenth and eighteenth respectively.

As far as the home base distribution of the participating airlines is concerned, they
spread widely over the world in major regions like EuropeAustralia, United States,
Northeast and Southeast Asia. The historical, political, cultural, technological and
economical backgrounds of the participating airlines differ totally from each others.
This attributes to various philosophies in managing airline business for the survey.

Since most of the responding airlines covered by this research are the top class
airlines of the world with outstanding performance. The results obtained from this
research reflect to a large extent opinions applicable to high performance airlines.

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Chapter 4 Research Methodology And Analysis

Table 2 Summary of Research Results

Short Medium Long

Strategic Factors Mean / Mode Mean / Mode Mean / Mode
Expansion on existing market 2.50/2 5.75/7 6.38/7
Keep customer loyalty 4.00/4 5.38/6 5.75/6
Maintain company image 3.13/4 4.88/4 5.63/6
Protect traffic rights 3.38/4 6.25 / 6 5.63/6
Protect the rights to use airport slots 4.63/6 6.38/7 6.00/6
Market Share 3.75/4 4.63/4 5.75/6
Relationship with agents 3.38/3 3.38/3 4.38/5
Match competitors 3.50/4 4.00/4 4.50/6

3.53/4 5.08/4 5.50/6

Operational Factors
Maintain schedule integrity 5.63/7 5.75/6 5.75/6
Fitness of aircraft rotation 5.63/7 5.25/6 5.25/5
Flight safety 6.50/7 6.25 / 7 6.13/7
Engineering requirements 5.13/7 4.63 ! 5 5.00/5
Fleet Size / Operating Constraints 5.38/7 4.25 / 5 3.25/3
Operational Necessity 5.50/6 4.25/4 1.25/1
Spot Demand 5.38/5 4.38/4 0.50/1

5.46 / 7 4.96/6 3.88/5

Social Factors
Human factors - e.g. the preference of crew 3.13/1 2.75/4 2.13/1
Labor union's pressure 2.63 / 1 2.13/1 1.50/1
Social responsibility - e.g. supply normal traffic
capacity disregard money return, provide job 3.25/4 2.63/4 2.63/3
opportunities etc.
Protection of environment 2.00/1 3.00/4 4.00/4

2.75 / 1 2.63/4 2.56/1

Economic Factors
Optimize profitability 6.25 / 7 6.88/7 7.00/7

Achieve high yield 4.63/4 6.25/7 6.38/7

Achieve high load factor 4.88/4 6.38/7 6.25 / 6

Minimize risk 5.00/7 4.63 / 5 5.13/5

5.19/7 6.03/7 6.19/7

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Chapter 4 Research Methodology And Analysis

Research Results
Average Score for Relative Importance (n=10)

Long 1 1

Strategic Factors
s Operation Factors |
B Medium
a> 'mmmmm Social Factors
E _ Economic Factors

Short 5.43


Ave rage Score

Figure 9 Chart of Summary of Research Results

Details of the results are listed in Table 2 and Figure 9 shown on the previous page
and above respectively. Factors relating to decision making of aircraft resource
deployment are classified into four related groups - strategicoperational, social and
economic. Factors are rated by respondent with the relative importance in the scale of
one (the least important) to seven (the most important) for the three time frames -
short (within one month), medium (less than one year) and long term planning (more
than one year). Results have been consolidated with mean and mode of the
population list out in the tables and charts in following pages. In addition to the
overall results, tables and charts are further classified into subgroups in terms of fleet
size and nature of operation (domestic and international operator) to see whether the

two factors are relevant to aircraft resource deployment.

Short Term Planning

In short term planning, the planning period is assumed to be less than one month. In
this periodairlines can forecast market demand with more operational information,
for examples, how many and what types of airplanes are engineencably fit for
operationsare there sufficient crews to operate all the scheduled flights. A summary

n f the consolidated results of opinions from the responding airlines is depicted in

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Chapter 4 Research Methodology And Analysis

Figure 10 below. Not surprisingly, the highest rated factor is the operational factors,
that is flight safetyfitness of aircraft rotation and operational necessity. The mean
point is 5.57 and the mode is at point 7. This indicate that most of the responding
airlines regard operational factors as the most critical point of consideration in the
justification of aircraft allocation.

Economic factors group comes second following the operational factors group in the
priority of consideration in short term planning. The mean and mode values are 5.19
and point 7 respectively. Similar to the sampling methodthe target respondents are
those commercial airlines with top sales volume and outstanding performance
measured in term of profits. Optimizing returns on investments and minimizing risks
are definitely the prime objectives of the participating airlines. To achieve these high
load factor with high yield would be the main tasks in airline business. With no
doubt, the process of aircraft resources allocation would be matched by prioritizing
those routes with high demand and yield.

Short Term Planning

Average Score for Relative Importance (n=10)

0 Strategic Factors (mode = 4)

B 5 S7
0 Operational Factors (mode = 7)

E O Economic Factors (mode = 7)


Average Score

Figure 10 Chart of Research Results for Short Term Planning

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Chapter 4 Research Methodology And Analysis

Strategic factors is the third group in short term planning. The mean and mode value
are 3.53 and point 4 respectively. These results indicate that the participating airlines
regard strategic factors as moderate important issues in short term planning. The
strategic issues became lower priority compare to the operational constraints in short
run . For example, i f there are problems of maintaining proper aircraft rotation, the
strategy for expansion on existing market will become less important.

Social issues are of the lowest priority consideration in the short term since
commercial airlines aim at maximizing benefits for their owners, while social factors
have neither immediate nor direct linkage to owners5 benefits. Moreoverairlines
could not do much about social issues by allocating aircraft resource differently,
especially in the short run. For exampleprotecting environment and human factors,
such as purchasing aircraft and engines with lower noise level and fuel consumption,
using recycle inflight equipment and material as well as setting up policies for human
management and so on, are not likely to be solved in a short span of time

Medium Term Planning

Medium term planning involves operating plans within one year. Two seasons
summer and winterare typical to the airline business. Before new season start,
airlines work on the flight schedules for next season. Some operational constraints
can be resolved or improved bysay, applying for the rights of using airport runway
and facilities at particular timingsincreasing certified technical crews and cabin
attendants by training and acquiring new equipment

Furthermore, airlines can have more update information on the trend of market
demandand can adjust their airplane utilization plan to fit market changes or to
develop new destinations. Corporate strategies have to be taken into consideration in
building up this plans to ensure that the whole company is moving in the same

direction and at the same pace.

The summarized research results for medium term planning are plotted onto chart
shown in Figure 11 on next page. Obviouslythey differ from that of short term

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Chapter 4 Research Methodology And Analysis

planning. The economic factors group turns out to be the most important
consideration factors in medium term planning with mean score of 6.03 and mode at
point 7. Most of respondents set high priority in optimizing profits by achieving high
load factor and high yield.

Medium Term Planning

Average Score for Relative Importance (n=10)


0 Strategic Factors (mode = 4) |

0 Operational Factors (mode = 6)
Medium Social Factors (mode = 4) |

03 Economic Factors (mode = 7)



Average Score

Figure 11 Chart of Research Results for Medium Term Planning

Strategic factors group appears to be the second critical issue and it is slightly ahead
of the operational factors group. The high ratings for the factors of protecting traffic
rights as well as rights of using airport runway slots and ground facilities reflect that
these are the key tasks of mcdiuni term planners. As mentioned before, flight
schedules are spilt into sumnier and winter seasons. It is a universal practice that
airlines apply for airport runway, parking space and arrival/departure gate slots few
months before the commencement of new season. It is crucial for airlines to secure
the required slots for next season in order to implement the medium term plan


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Chapter 4 Research Methodology And Analysis

Comparing to short term planning, other strategic factors such as expanding existing
market, maintaining customer loyalty and company image become more critical in
medium term planning. To match with these strategies, flight scheduling is
complicated by the dimensions of what aircraft types are fit for particular market in
terms of airplane capability, inflight equipment, seat or cargo capacity, and seat
configuration for different traveling class mix. Nevertheless, timings for flight
departure, arrival and connection to meet the need of customers are the major
contribution to target achievement.

Operational factors are the more determining factors in medium term planning. The
average rating of the group is 5.05 and the mode is point 6. Owing to scarcity aircraft
resourcesairlines put stress on effort in maintaining schedule integrity and smooth
rotation of aircraft, which are the significant elements in decision making of aircraft
allocating in the medium term time frame. Besides, most of the responding airlines
set extremely high priority to maintaining flight safety maintenance..

Once again, social factors are of least consideration in medium term planning. The
average point is only 2.69 while the mode is point 4. Comparing to that in short term
planning, the mean point is slightly higher and the mode is better. This indicate that
some airlines are gradually taking social factors, such as protection of physical
environment, into consideration in the long run.

Long Term Planning

Airlines generally outline future development in their long term plan. Goals are set
up to achieve company mission and objectives. Corporate strategies and tactics will
be formulated in line with the goals set. Strategies and tactics covering the whole
organization and major departments will be involved in long term planning.

Long term plans include market planningsales forecastingengineering planning,

financial planning, schedule planning and fleet planning. Each of the planning
process is interrelated and all of them should be directed towards the achievement of

company goals.

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Chapter 4 Research Methodology And Analysis

Among all the major parts of long term corporate planningplans for managing
aircraft resources are typically significant for the success of airlines. As mentioned
before, aircraft is the core tool for revenue generation and the lead time for new
aircraft acquisition is rather long, an accurate long term fleet plan is highly essential
to airlines.

Figure 12 below shows the summary of research results for long term planning.
Economic factors are still the most focused issue in long term planning with mean
point 6.19 and mode at point 7. Profit optimization (mean : 7.00 and mode : 7please
refer to Table 2 for details) is the key to survival and success of almost all responding
airlines. It is understandable and needs no explanations.

Long Term Planning

Average Score for Relative Importance(11=10)

@ Strategic Factors (mode = 6)

B 3.88 1 1
0 Operational Factors (mode = 5
i 1
(U Social Factors (mode = 1)
S 2.^6

1 m Economic Factors (mode = 7)

Average Score

Figure 12 ng Term Planning

Chart of Research Results for Lo

Strategic factors group which supports to the achievement of the ranks second.
Expanding current market (mean : 6.38 and mode : 7) is the most high priority task in
long term planning. Corresponding to market expansion, securing the rights to
occupy slots for airport runway and gateway (mean : 6.00 and mode : 6) in the
targeted airports is the key elements outside the control of airlines. Other factors like

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Chapter 4 Research Methodology And Analysis

maintaining customer loyalty (mean : 5.75 and mode : 6) and company image (mean
.5.63 and mode : 6) also rank high, only that they represent the marketing issues
more in compare to that of aircraft resources management.

Operational constraints become less important in long term planning. This is because
some of constraints in short term might have been resolved in long term. Resources
including airplanes, crews and other equipment can be increased by acquisition,
recruitment or training. Similarlyengineering requirements can be made good by
equipment renewal and advanced technology.

Social factors are still the least important ones comparing to other issues. Yet it is
obvious that the rating for protection of environment is getting more prominent (from
point 2 in short term planning to point 4 in long term planning). This indicates that
environment protection is induced long term issue not to be ignored.

To concludeoptimizing returns on investments is vital to the survival and even

success of commercial airlines. In the short term, focuses will be on economic and
operational issues. In medium and long term speaking, economic issues are still the
most critical point of consideration of airline management and longer term strategies
will be to achieve future objectives. Operational constraints are the barriers in short
term though some of them can be resolved or overcome in longer term planning.

After analyzing the research results by time frame, let us turn the view to analyze the
nature of each group of factors. It aims at observing the characteristics of each group
of factor across each time frame and seek for the extremely important elements
which override any factors at any time horizon planning.

Strategic Factors

Strategic factors in this dissertation include expansion on existing market,

maintaining customer loyalty and company image, securing the rights of traffic and
rights of occupying slots of airport runway and gateway at particular timings
maintaining specific market shares, developing distribution network by building up

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Chapter 4 Resecirch Methodology And Analysis

good relationship with travel agents and keeping eyes on potential competitors so as
to develop defensive policies.



Strategic Factors
_ Average Score for Relative Importance (n=10)


Long term (mode =6)

I 5.08 Medium term (mode = 4)
j U S i o r t term (mode =4)
1 3.53

Ave rage Score

Figure 13 Chart of Research Results for Strategic Factors

Figure 13 above shows the relative rating of importance in consideration of

allocating aircraft resources allocation by the responding airlines across the three
time frames. It can be observed that the importance of strategic factors is increasing
over time. This indicates that corporate strategy is long term in nature. Howeverit
does not means that strategic factors can be ignored in the short run. The lowest
average rating in this survey is 3.53 with mode at point 4. The strategic factors are at
least of moderate important at all time. It is true that long term strategies and tactics
have to be implemented in actual operations, otherwiseit would be meaningless to
set up strategies and tactics.

Operational Factors

In contrary to strategic factors, operational factors are going inversely with the time
range. Operational factors involve the issues of schedule integritymaintenance of
feasible aircraft rotation, flight safetychecking up engineering requirementsfleet
size constraints and satisfying operational necessities.

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Chapter 4 Research Methodology And Analysis

The Figure 14 below shows the research results of operational factors. In short term
operations, many expected issues may come out, for examples, the accidental
shortage of airplane or crews due to unforeseeable engine shut down and crew
sickness, or the sudden increase in demand due to other carriers' problems (such as
engine shut down or crew strike). Short term planners have to handle such ad hoc
situations within very short time, and most operational constraints are unlikely to be
changeable. They have to keepas far as possibleflight operations intact according
to the announced schedules with available airplanes.

Operational Factors
Average Score for Relative Importance (n=10)

3 . 8 8

"3 E Long term (mod

| 1 5 . 0 5 Medium term (n
II O Short term (mod

5 . 5 7

Average Score

Figure 14 Chart of Research Results for Operational Factors

Among all the operational factorsensuring flight safety is the highest priority issue.
The mean score is consistently above point 6 and the mode at point 7 across all the
time range. This means that most participating airlines in this survey regard flight

safety as extremely important.

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Chapter 4 Research Methodology And Analysis

Social Factors

Social factors are the always low priority jobs in aircraft resources management. The
highest average score in any time frame does not exceed point 3 (please see Figure
15 below). The only factor with increasing importance over time is environment
protection (from point 2 to point 4please refer Table 2).

Social Factors
Average Score for Relative Importance (n=10)


g Long term (mode =1)

Medium term (mode = 4)
03 Short term (mode = 1)

Average Score

Figure 15 Chart of Research Results for Social Factors

Economic Factors

Unlike the social issueseconomic factors are in the high rated group all the times.
The lowest mean score is 5.19 and the mode is always at point 7. It is not surprising
as all respondents are commercial organizations, to obtain huge economic rewards is
the core of normal business. Yet the overall rating of economic factors is lower in
short term plaiming than in longer tcrrn. ploiuiing. In the short runadapting

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Chapter 4 Research Methodology And Analysis

operational environment is of prime importance so as to form a stabilized foundation,

for long term high profits.

Economic Factors
Average Score for Relative Importance (n=10)


^ Longterm (mode =7)


6.03 Medium term (mode = 7)

O Short term (mode = 7)


Average Score

Figure 16 Chart of Research Results for Economic Factors

Profit optimization is the high rated element at all time (mean : consistently above 6
and mode at point 7 always). It is regarded as extremely critical for aircraft resources
management to success in the airline business correspond to achieving high returns,
looking for high yield customers is essential This involves active marketing
strategies and keen competition with other carriers. Managers in charge of aircraft
resources have to work cohesively with other departments such as marketing
distribution, and sales teams. Although this is a long term complicated issue, it is

important at any time.

After allthe four groups of decisive factors have their own characteristics. Strategic
factors are long term issue determinate by higher level of management and involve
various departments of an organization. In short termcomparing with other
elements, they are of lower priority in decision making. Howeverit can hardly be
ignored at all time. Operational factors, on the other handare highly prioritize in
short term business ran. They are the most important elements for airlines to

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Chapter 4 Research Methodology And Analysis

maintain normal business. Yet, the importance of operational factors reduces

gradually over the planning time range.

Social factors are regarded as elements of low priority at all times in aircraft
resources management. Contrary to these social factors, economic factors are
consistently critical in the commercial airline business.

To summarize, flight safety and profit optimization are the two key factors that
airlines rate highly. In factthey are indispensable in aircraft resources management.

Fleet Size

Another analysis is to measure the average rating by groups of airlines with different
fleet size and to see whether the fleet size would affect decision making in aircraft
resources allocation. Firstlythe responding airlines are classified into three groups in
accordance with their fleet size. Airlines with less than 100 aircraft belong to the first
group (Group A) . Airlines with fleet size from 101 to 200 aircraft are grouped in the
second group (Group B) while the third group (Group C) comprises of airlines of
more than 200 aircraft. For each group, the mean scores of each decisive factor at
time frame are re-calculated. Detailed figures are listed in Table 3 in page 59 and
Figure 17 on page 60..

In short term planning, the operational and economical factors are still the two most
critical factors among three groups. It is interesting that the rating of Group C airlines
are generally lower than that of Groups A and B. For examples, in determining the
decisive factor of fitness of aircraft rotationthe smaller airlines rate 6.50 while the
large airlines rate only 4.00. Engineering requirements are at importance of 6.25 for
small airlines but at 4.00 for large airlines. This implies that aircraft resources are
more critical for small airlines which have limited slack for backup while larger
airlines have rooms for schedules re-arrangement and engineering checks.

Strategic and social factors are comparatively less important in short term planning.
The social factors are consistently rated low. However, it is surprising that the

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Chapter 4 Research Methodology And Analysis

smaller airlines in Group A pay more attention at social responsibility (score 4.00)
than the large airlines (1.50), such asmaintaining normal traffic capacity regardless
of money return. They also consider the human issues as considerable factors in short
term planning, and score them higher than the other two groups of airlines.

The Group B airlineswith medium fleet sizefocus more in the strategic aspects
especially protection of rights of using scarce airport resources and rights for traffic
than the others..

In medium and long term planning, airlines with different fleet sizes have similar
pattern. The most critical thing is to maximize yieldload factor and hence profits.
Secondly, airline focus on strategic policies and are ready competition for future
existence and progress. Thus, operational considerations appear to be more remote in
medium and long term planning. Of course the problem of designing good flight
schedules coping customer needs within the realm of airline capability becomes the
key tasks of aircraft resources management.

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Chapter 4 Research Methodology And Analysis

Table 3 Summary of Research Results - By Fleet Size

Group A Group B Group C

Fleet size < 100 Fleet size 101 to 200 Fleet size > 200
Short Medium Long Short Medium Long Short Medium Long
DECISIVE FACTORS Term Term Term Term Term Term Term Term Term
Strategic Factors Mean Mean Mean Mean Mean Mean Mean Mean Mean
Expansion on existing market 1.50 6.00 6.75 4.00 5.50 6.00 3.00 5.50 6.00
Keep customer loyalty 3^75^5 . 5 0 6 . 0 0 SJO 5^05.50 3^50 _ _5.50_
Maintain company image 2.75 5.50 6.25 4.50 4.50 5.00 2.50 4.00 5.00
Protect traffic rights 2^25^ 6 . 2 5 5 . 0 0 5.50_6^0-6.50 3 _ 5 0 _ 6.00^ ^.00_
Protect the rights to use airport
3.25 6.50 5.75 6.50 6.50 6.50 5.50 6.00 6.00
Market Share 4255.75 4.505^0150 J100_J.00_ _6.00_
Relationship with agents 4.00 3.75 4.75 3.00 3.00 3.50 2.50 3.00 4.50
Match competitors 3.50 4.25 5.25 4.00 4.00 3.50 3.00 3.50 4.00
3.03 5.25 5.69 4.63 5.06 5.25 3.44 4.75 5.38
Operational Factors
Maintain schedule integrity 5J5 6.25^ 6.25 5.50 5.50 5.50 5.50 5.00 ^5.00^
Fitness of aircraft rotation 6.50 6.00 5/75 ^504^0 4.50 400_ 5.00
Flight safety 7J)0 7.00^ 5.75 7.00 7.00 7.00 5.00 5.50 6.00^
Engineering requirements 6.25 4.75 5.00 5.00^5^0 ^50 41)02-^L 4.50
Fleet Size/Operating Constraints 5J5 4.0_ 3.75 4.50 4.00 3.00 4.00 4.00 2.50_
Operational Necessity 5.50 4.50 LOO 5150_J-:00 ZOO 5^50 4.00_ 1.00
Spot Demand 5.50 4.50 0.25 5.00 4.00 1.00 5.50 4.50 0.50
6.04 5.36 3.96 5.43 4.86 4.07 4.79 4.64 3.50
ocial Factors
Human factors - e.g. the 3.75 2.75 1.50 3.00 4.00 4.00 2.00 1.50 1.50
preference of crew
Labor union's pressure 32U.0_1.25 3.00^Z502.50 U30 _1^0 LO.0^
Social responsibility e.g.
supply normal traffic capacity 4.00 2.50 2.25 3.50 2.50 2.50 1.50 3.00 3.50
disregard money return, provide
job opportunities etc.

Protection of environment 1.75 2.50 4.00 2.50 4.00 4.00 2.00 4.00 4.00

Economic Factors





Optimize profitability ,00 7.00



"do 63O


MM. MM wmmm MP. mmmm




Achieve high yield



mmm, mmm wmmmrnmmm *>* *


'50 7^00 .5(



Achieve high load factor




mtmrn * _
'50"430 .0(

Minimize risk



9 25 3.7 .6

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Chapter 4 Research Methodology And Analysis

Research Results - By Fleet Size

Average Score for Relative Importance (n=10)

5.38 """""

i I

Long/10 1-200 IIMLL

Long/< 100

_|I'l'11.1" Hill||WiW.WLiiui_nil'-Iiiuii,lull!uml'ih1,111]
II Strategic Factors |

IWIBMLL_^IEB' QOperational Factors

iiiiiiiiiiiiii I11 5 . 6 3 i l S o c i a l Factors |


ID Economic Factors \
_ Mlil



Medium/< 100

Average Score

Figure 17 Chart of Summary of Research Results - By Fleet Size

Domestic Versus International Operators

Nowit is turn to analyze responding airlines by their geographical scope of

operations : that is whether they are domestic operators or international carriers. As
the rules imposed on domestic operations in particular countries differ considerably
from that of the international flight operationsresponding airlines are classified into
two groups according to nature of their operations. Airlines with more than 50%
operations within their own country are classified as the "domestic flights > 50%

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group, otherwise they are considered as the other group "international flights >
50% . Therefore the term domestic operator" here does not mean airlines of 100%
domestic operation.

Table 4 Summary of Research Results - Domestic Vs International

Domestic flights > 50% International flights > 50%

Short Medium Long Short Medium Long
DECISIVE FACTORS Term Term Term Term Term Term
Strategic Factors Mean Mean Mean Mean Mean Mean
Expansion on existing market 2.50 5.75 6.75 2.50 5.75 6.00
Keep customer loyalty 4.25 5.00 5.25 3.75 5.75 6.25
Maintain company image 3.00 4.50 5.25 3.25 5.25 6.00
Protect traffic rights 3.00 6.25 5.00 3.75 6.25 6.25
Protect the rights to use airport
5.00 6.25 5.75 4.25 6.50 6.25
Market Share 3.00 4.25 6.25 4.50 5.00 5.25
Relationship with agents 2.75 3.00 4.00 4.00 3.75 4.75
Match competitors 3.25 4.25 4.50 3.75 3.75 4.50
3.34 4.91 534 3.72 5.25 5.66
Operational Factors
Maintain schedule integrity 5.00 5.50 5.50 6.25 6.00 6.00
Fitness of aircraft rotation 4.75 4.50 4.75 6.50 6.00 5.75
Flight safety 6.00 6.25 5.25 7.00 7.00 7.00
Engineering requirements 4.75 4.00 4.50 6.00 5.75 5.50
Fleet Size/Operating Constraints 4.75 4.25 3.25 5.25 4.25 3.25
Operational Necessity 5.50 4.00 1.50 5.50 4.50 1.00
Spot Demand 5.50 4.25 0.50 5.25 4.50 0.50
5.18 4.68 3.61 5.96 5.43 4.14
Social Factors
Human factors - e.g. the
preference of crew 2.75 3.25 2.00 3.50 2.25 2.25
Labor union's pressure 3,50 3.00 1.75 1.75 1.25 1.25
Social responsibility - e.g.
supply normal traffic capacity 4.00 3.25 2.75 2.50 2.00 2.50
disregard money return, provide
job opportunities etc.
Protection of environment 2.00 3.25 2.75 2.00 3.25 5.25
3.06 3.19 2.31 2.44 2.19 2.81
Economic Factors
Optimize profitability 5.50 6.75 7.00 7.00 7.00 7.00
Achieve high yield 4.00 6.25 6.50 5.25 6.25 6.25
Achieve high load factor 4.00 6.25 6.25 5.75 6.50 6.25
Minimize risk 4.75 3.75 4.75 5.25 5.50 5.50
4.56 5.75 6.13 5.81 6.31 6.25

Prepared by T.K. Cheng Page 61

Chapter 4 Research Methodology And Analysis

Research Results - Domestic vs International Carriers

Average Score for Relative Importance (n=10)

7 y 14
\ 2l81 :

i j l 1 1 1 1 1 1 1 1 1 1 - i W M ;

Strategic Factors

| Operational F a c t o r s :

LLLILILLILIY 54.3 | E3 S o c i a l F a c t o r s
O Economic Factors

".. -i
M 30.6




1 4.89
Short / D o m

Ave rage Score

Figure 18 Chart of Summary of Research Results - Domestic Vs International

Table 4 on previous page and Figure 18 above list the mean scores of each decisive
factor in three time frames grouped by main domestic and main international
operators. The sequence of importance for the four major decisive factors for
domestic and international carriers are similar. Yet the international carriers
generally rate higher than the domestic operators. International carriers set higher
priority on tasks of keeping flight safety, engineering requirements and schedule
integrity than the domestic operators at time frames especially in the short term. This

Prepared by T.K. Cheng Page 62

Chapter 4 Research Methodology And Analysis

implies that stricter rules of safety requirements are imposed on international

operations than domestic operations.

It is interesting that the ratings for the factor of social responsibility and optimizing
profitability by domestic operators differ completely from the international operator
group in the short term time frame. The domestic operators rate point 4.00 for social
responsibility and point 5.504.00 and also 4.00 for factor of optimizing
profitabilityachievement high yield and high load factor respectively (please refer to
Table 4). The international carriershoweverrated high score for optimizing profit
(score 7.00)load factor (score 5.75) and yield (score 5.25) but low priority in social
responsibility (score 2.50). This indicated that domestic carriers have paid more
attention for social responsibility for its own country.


This research has been conducted at the constraints of time and resources. It is regret
that most data are collected by structured close-end questionnaires with two direct,
interactive interviews carried out. It is assumed in this research that the respondents
have same understanding on the questionsand replies are made on the same basis as

Moreover, the results of research is confined to apply for large commercial air
carriers as defined by the samples.

Prepared by T.K. Cheng Page 63


In this chapter, a decision making model will be developed. This model is

particularly designed for the purpose of aircraft resources allocation in commercial
airlines. Factors that are significant in the consideration of how to utilize limited
aircraft resources to achieve company objectives will be included. To begin with a
basic model will be built up applicable to managing scarce aircraft resources.
Secondly, the basic model will be modified to fit a particular time frame and cater for
exceptionally important factors.


Referring to the model of decision making by Mintzberg et al in 1976 (please refer

to Figure 3 and discussion in Chapter Two of this dissertation), decision making
process composes of three major stages - problem identification, alternatives
development and selection of the best choice. In making decision of allocating
limited aircraft resources to various markets, the processes of problem identification
and alternatives development should have been undertaken. The difficulty at this
stage is how to trade-off benefits especially those unquantifiable items. This process
is referred to as "selecting the best choice" in the model of Mintzberg et al

Within the process of selecting the best choicethere axe five sub-processes, namely,
screening, judgment, analyzing, bargaining and authorization. Aircraft allocation is
relevant to the core components - judgmentanalysis and bargainingof the selection


Airline managers who look after the aircraft resources management will repeatedly
go through the three processes in their daily works. How to allocate the limited
aircraft resources to trcincndous demand of air transport services snd at the some

Prepared by T.K. Cheng Page 64

Chapter 5 Model Development

time to achieve the goals of the airlines they are working for? Obviously, no one
airline can satisfy all the air-travel demand. Managers must make decisions to trade
off the benefits out of the constraints. They exercise their own judgment in making
decision by analyzing costs and benefits, and in the case of conflict with other groups
sharing the resources, for exampleoperating crew and cabin attendant, or regular
engineering checksthe managers have to resort to bargaining.

In considering the strategic factorssuch as maintaining customer loyalty or good

relationship with travel agents, it is difficult or impractical to quantify the impacts of
aircraft allocation on them. Final decision rests on the preference and judgment of the
managers in charge of aircraft allocation. For examples, in order to preserve the
customer loyalty and to build up good company imagean airline may operate an
extra flight regardless of the operational costs for the overbooked passengers rather
than inducing customer frustration by denying their boarding. Passengers will be
attracted by its service and come to it next time. Strategic factors look for long term
returns rather than short term benefits, howeveruncertain and difficult to be
predicted. Moreover, decision making depends mainly on personal judgment,
experience and knowledge as well the strategic guidelines laid down by the company.

Similarlysocial factors are long term issues and not easy to be quantified as well.
The benefits obtained from satisfying human factorssocial responsibility and
protection of environment cannot be worked out in absolute figures. Againdecision
making relies on the judgment of management.

In considering the economic factors such as yield and load factor, analyses can be
made by converting costs and benefits into countable dollar value. Decision can be
made by the analyzing process. However, judgment by individual manager is still
required when the analyses involve forecasting future trends and uncertainties.

Operational factors can be analyzed by special tools, for example, Machup is a

kind of computer model for aircraft rotation and some model for crew scheduling and
rostcring and so on. Yet in some casesiMinual judgmciit is essential for decision


Prepared by T.K. Cheng Page 65

Chapter 5 Model Development

Nevertheless, it is not so simple in the real world. Managers in charge of managing

other resources will be in conflict with aircraft resources utilization. For examples
engineers and ground handlers may request for longer time of aircraft checking on
the ground for engineering checksaircraft maintenance and ground handling works
howeverthis will reduce the aircraft utilization and will incur opportunity costs
which the planners are not preferred. Bargaining among departments will be occurred
in the decision making process as mentioned by Mintzberg et al" The problem may
involve what Hickson et al. suggests that the rale of gamedecision problem and
decision interests" (mentioned in Chapter 2 of this dissertation)

To consolidate the above discussionsa basic model of decision making for aircraft
resources management is depicted in Figure 19 in the following page. In the middle
portion of the modelthere is a funnel shape drawn in dark solid lines. This
represents the process like inputs are put into a funnel, only a small amount of inputs
can be passed through the narrow bottle neck of the funnel. It is referring to a
decision making process for trade-off constraints and benefits - some inputs are
passing through the narrow bottle neck and others are traded out.

The inputs are the decisive factors described earlier, including strategic, operational,
social and economic factors. All factors are preferably satisfied and passed through
the funnel. However, the internal (resources limitation) and external constraints
narrow the path of passing through. All the factors have to be scanned through the
processes of judgmentanalysis and bargaining by managers of the airlines.

Prepared by T.K. Cheng Page 66

Chapter 5 Model Development


Strategic Operational Social Economic

Factors ,Factors , Factors Factors

External constraints Bargaining
Resource Limitation




Control Target

Figure 19 Basic Decision Making Model for Aircraft Resource Allocation

Prepared by T.K. Cheng Page 61

Chapter 5 Model Development

Managers analyze the case and make judgment for those unquantifiable factors by
their knowledge and experience. In case conflicts among departments occur, they
have to bargain each other and resolve the problem. In this process, just like the filter
in a funnel, certain amount of inputs that cannot pass through and will be given up.
The critical factor for success is whether the decision made here is in line with the
direction of corporate objectives.

After the decision making process, decision will be concluded and hence actions will
be taken to implement the decision. The result of the decision made will be compared
against the target set. Feedback information will be passed back and become the
inputs for next decision making process.

This basic model is applicable to aircraft resources allocation situations in general. It

does not involve importance of each inputs. For particular situations, the input factors
have different level of significance. As some input factors will be dropped out, it is
preferably to leave the more important elements such that benefits can be optimized.

This basic model is going to be modified to adoption at different time frame of

planning. The modifications are based on the research results of this dissertation. As
mentioned before, the results are the aggregated opinions from the commercial
airlines with outstanding performance. The following suggested models are
applicable to commercial airlines only.


According to our research results for short term planning, the sequence of importance
of the four major groups of decisive factors for aircraft resources allocation is
operational, economic, strategic and social. Among alltwo outstanding factors are
always rated at extremely high level, namely the flight safety and profit optimization.
These two factors are regarded as most critical for success of commercial airlines.

Prepared by T.K. Cheng Page 68

Chapter 5 Model Development

f Feedback > Medium/Long Term Planning

Strategic Factors

Economic Factors

Operational Factors

Most critical factors:

^jrofit optimization
f l i g h t safety r

External constraints Bargaining;
Resource Limitation




Control Target

Figure 20 Decision Making Model for Short Term Planning

Page 69
Prepared by T.K. Cheng
Chapter 5 Model Development

Base on the basic model of aircraft resources allocation shown in Figure 19a
modified model for short term planning is depicted in Figure 20. In this modified
modelthe input factors are re-arranged into different vertical levels in the funnel.
The lower portion near the neck of the funnel will go through the narrow neck first
and conversely, the elements in upper portion will go through later. Factors put in the
lower position are the more significant issues and will be considered first.

In Figure 20it can be observed that the lowest position just above the neck of the
funnel are the "Most critical factors which include flight safety and profit
optimization. It means that these two factors are always to be considered at first
insight. Any decision made have to go through this two tests before other
considerations. For the two elements themselves, the flight safety issue prevail in
short term profit in critical case.

Secondly, the operational factors including flight schedule integrity, logistic of

aircraft, engineering requirements and other operational necessitywill be considered.
Following the operational factors are strategic and social factors..

The possible decisions in short term planning may include revision of flight
schedulesswitching aircraft types among routes, adding extra flights or canceling
scheduled flights. Constraints in short term operations are rather rigidfor examples,
the availability of internal resources such as crews and airplane, the availability of
airport slots and facilities and so on. The feasible alternatives solutions are inflexible
and the resultant decision made are difficult to measure. Yetfeedback and
experience are very useful and significant for future planning no matter in short,

medium or long term planning.


Similar to model in short term planninga model specifically designed for medium
term planning is drawn in Figure 21 shown in page 72. The shape of model is exactly
the same as in the short term model. The only differences are the sequence of

Prepared by T.K. Cheng Page 70

Chapter 5 Model Development

decisive factors. In medium term planning, other than the more critical factors (flight
safety and profit optimization), the most important factors are in the economic group
including the achievement high yield and load factor. Markets with high forecast
demand and yield get allotment of aircraft resources prior to other markets with
lower demand.

Hence aircraft allocation process has to be matched with the strategic issues such as
campaign to retain customer loyalty and improve company image. Protection for the
rights of traffic and slots of airport facilitiesespecially those busy airportsfor
example, London Heathrow, Tokyo Narita and Hong Kong airports, is also a key
issue for proper business running and future development. It must be included in the
medium term aircraft deployment plan.

The narrow bottle neck of the funnel is restricted by the limited resources and
external constraints. In medium term planning, part of the constraints may be
resolved or loosenfor examples, new airplanes join in service or new airport slots
obtained. The diameter of the bottle neck may increase a lot. Of coursemarket
demand will expand while the narrow bottle neck is always there.

Again, feedback are very crucial inputs to medium term planning. Feedback from
historical information, experience, and information from long term planning will
definitely help medium term planners to draw up the most appropriate plan.

Prepared by T.K. Cheng Page 71

Chapter 5 Model Development

Feedback Short/Long Term Planning

Social Factors

Operational Factors

Strategic Factors

Economic Factors

Most critical factors:

^ j r o f i t optimization
\ flight safety /

External constraints Bargaining
Resource Limitation




Control Target

Figure 21 Decision Making Model for Medium Term Planning

Prepared by T.K. Cheng ^ ^

Chapter 5 Model Development


The model for long term planning is shown in Figure 22 in the following page. This
model is similar in the order of decisive factors for aircraft allocation to that of
medium term planning. The sequence of the factors are flight safetyprofit
optimization, economicstrategic, operational and social.

Unlike fleet planning model, long term planning model involves process of
deploying limited airplanes to markets with revenue forecasts. The number of
airplanes available in the fleet will be determined by the fleet planning model and
this number will become the limited resources to form a narrow bottle neck for
aircraft allocation.

External constraints are assumed to be fixed in these model. Any predicted additional
traffic rights, airport slots and new technology are taken into consideration as
available but in limited amount.

Feedback are flown among planning processesincluding fleet planning, in different

time frames. When there are significant unbalance of market demand and the number
of aircraft, there is a message to fleet planning. For examples, if market demand
exceed the available capacity significantly, it may imply that the airline has
insufficient capacity and lose the opportunity for earnings and vice versaor if the
demand for particular aircraft type (may be because of aircraft capability or inflight
equipment etc.) is extremely highfleet planners to have to select the appropriate

flight equipment, and so on.

Prepared by T.K. Cheng Page 73

Chapter 5 Model Development

Feedback Short/Medium Term Planning

and Fleet Planning
Social Factors

Operational Factors

Strategic Factors

Economic Factors

L Most critical factors :

p rprofit
o f i t optimization
f lflight
i g h t safety
safety f

External constraints Resource Limitation
(Fleet Planning)




Control Target

Figure 22 Decision Making Model for Long Term Planning

Prepared by T.K. Cheng Page 74

Chapter 5 Model Development

To sum upthis chapter, a basic model for decision making on aircraft resources
allocation has been developed with reference to the decision making process model
of Mintzberg et al. in 1976. In the basic model, all major factors are grouped into
four, namely the strategic, operational, social and economic factors. These factors
will pass through the processes of judgmentanalysis and bargaining with decision
concluded eventually. Constraints and benefits are traded-off in these processes.
Feedback and experience are always essential for the improvement of future decision

The basic model is hence modified into three time frame planning - the short,
medium and long term planning. In each of them, the order of decisive factors for
considerations will be fit into the research results of this dissertation.

Page 75
Prepared by T.K. Cheng


The environment for air transport business is highly competitive and dynamic. To
manage the expensive and restrictive aircraft asset efficiently and effectively is one
of the key factors for success of an airline. Although there are other functions that an
airline has to tackle, such as forecasting market demand, developing comprehensive
distribution network and reservation systemyet it is fundamental and most
important that there are aircraft available to provide air transport service at the right
place and time.

Of no wonder, an airline cannot provide sufficient capacity to satisfy all the market
demand. There are always the problems of allocating limited aircraft resources to
capture part of the total market so as to maximize returns. Some computerized
mathematical algorithms have been developed to assist airlines to optimize the usage
of aircraft for given markets. Howeverthese models are not capable of evaluating
unquantifiable factors and to suggest optimum feasible solutions. Airline planners
are necessary to make decision base on their own knowledgeexperience and even
personal preference. Decisions made depends on personal characteristic and might be
inconsistent from time to time.

It is difficult to ensure aircraft resources are always utilized in the way attributable to
the achievement of company goals. Moreoverin the highly competitive airline
business world, accurate and rapid responses are crucial for success. It is obvious
that airlines need a tool to assist in the making of decision for allocating their

significant assets.

This dissertation has suggested a conceptual model of decision ni3fcing for aircraft
resources allocation. It is useful for airline to formulate consistent policies for

Prepared by T.K. Cheng Page 76

Chapter 6 Conclusions and Recommendations

aircraft resources management. It serves as a tool consisting of guidelines or rules for

planners to follow in the aircraft usage planning process. It is also a communication
medium through which planners of organization may have mutual understanding on
the criteria of selecting markets. In this waydecision made will be based on same
process and similar criteria. If the rules are clearly and accurately in line with the
company goalsthe results can be predictable.

A basic model has been firstly created (shown in Figure 19 of page 67). Factors
which are relevant to aircraft resources allocation are classified by nature into four
groups, namely strategic, operational, social and economic factor groups. In the basic
model, decision making process has been described as the process of pouring liquid
materials into a funnel with filter in the bottle neck. Part of the inputs can pass
through the narrow neck and some other not. This can be reflected by the selection
process in Mintzberg et al:
are screened through the judgmentanalysis and bargaining routines. In this initial
model, input factors are in the same level of priority for consideration.

In order to make the model useful, a research has been conducted to collect opinions
from the world class airlines with outstanding performance. Forty largest airlines in
the world have been selected as the target samples. As a result, ten of the target
samples have contributed their valuable opinions. These ten respondents consists of
the most profitable airlines as ranked by the Airline Business lomndl, such as
Singapore AirlineBritish Airways and Cathay Pacific Airways. Furthermore, they
comprise large airlines with home bases spreading over AsiaEurope, America and


The purpose of this research is to identify what criteria are used by the outstanding
airlines in allocating their aircraft resources and how they prioritize various
prominent factors in the decision making process. Criteria are classified into three
different time frames.. The results of this research will be used to enrich the initial
model developed previously to generate a set of models of outstanding airlines at
different time span as shown in Figure 2021 and 22.

Prepared by T.K. Cheng Page 77

Chapter 6 Conclusions and Recommendations

In each modelthe priority of the considerable factors at different time frame of

aircraft resources planning is presented according to their sequence to passing
through the narrow bottle neck.. Factors at the lower portion of the funnel shape near
the bottle neck are of high priority whereas factors at the upper portion of the funnel
shape are of lower priority.

In short term planning, it is general for high performing airlines to rate the
operational factorssuch as maintaining flight safetykeeping flight schedule
integrity, compliance with engineering requirements, as the criteria of highest
priority. In the economic factor group, optimization of profitload factor and yield,
come second in term of the priority of considerations just after the operational factor
group. It justifies the top airlines by their net operating profits. As to the strategic
factor group, its long term nature and social factors not directly related to airline
performance render it a lower priority in short run.

In the short mnit is important for airlines to keep operations running smoothly and
avoid sudden interruption. Therefore, airlines generally focus on operational
considerations of short term planning. Yetmaximizing returns is always one of the
key objectives of commercial airlineshence, looking for optimum profits by
maximizing load factor and yield becomes a high priority criterion.

In medium and long term planningoperational factors become less important and
are dropped to the third position whereas economic and strategic factors emerge their
significance. Social factors are always the least important group. Pressure from
operational constraints is comparatively lower without impacts. After all
commercial airlines seek high return in both short and long runs, hence, the
economic factors of maximizing returns and the strategies of making rooms for
future development are the two most significant issues for airlines in medium and

long term planning.

Judging from the research results, it is found that two single factors are extremely
important among all other factors in aircraft resources nxanagement of outstanding
airlines. They are the issues of flight safety and profit optimization. All the

Prepared by T.K. Cheng Page 78

Chapter 6 Conclusions and Recommendations

responding airlines consider them to be the key for success of commercial airline
business. Flight safety is important because it is the most basic and significant
requirement in air transportation. One single traffic accident is sufficient to
jeopardize the short term profit and long term reputation as well as profits, which
are fundamental to the survival and success of commercial airlines. Optimization of
profiton the other hand, is the natural needs of airlines.

To conclude, airlines need a comprehensive decision making model of aircraft

resources management to increase its competencyensure compliance with corporate
goals consistently and speeding up process. The model consists of decisive factors
subject to judgment, analysis and bargaining process. Each decisive factor has been
prioritized in accordance to the airline strategies and goals.

A set of models of high performance airlines have been developed. High

performance airlines regard flight safety and profit optimization as the most
important issues in aircraft resources management at all time frames. In short run, the
airlines set highest priority for operational factors which are critical in keeping
smooth daily run. Finally, economic and strategic factors are rated as the more
important factors than others in medium and long term planning.


A basic model is suggested in this dissertation to improve aircraft resources

allocation decision making and communication among planners. Together with the
inputs from high performance airlines, a set of three models have been developed for
short, medium and long term planning. Each of the models comprises valuable
opinions and experience of success. Airlines can make use of the models to increase
competitive advantage by making quick, consistent and accurate decisions in
response to the dynamic and competitive business world.

It is recommended that airlines may make use of the suggested models for short
medium and long term planning of aircraft resources allocation. Adjustments can be

Prepared by T.K. Cheng

Chapter 6 Conclusions and Recommendations

made in accordance with their typical requirements, goals and specific situations.
Moreover, further study and development will be necessary in order to obtain better


In response to the sophisticated and rapidly changing world, quick and accurate
reactions are definitely advantageous. To ensure speedy and accurate decision
making process, the followings are worth considering :

1. The decision making process of aircraft resources allocation should be

computerized by advance technology, such as, artificial intelligence. Rules and
guidelines for decision making as well as the information of resources can be
inputted to the computer, which will generate feasible suggestions to planners for
concluding final decisions, hence, the processing time would be shortened.

2. These models form only part of the whole system in the airline business. Linkage
with models of other specific functions, such as revenue forecastsseat
reservationflight schedule optimizer, cost projection, financing and other
financial functions are worth-developing to provide a unique computerized
airline system.

3. A comprehensive information system would be an advantage for communication

among functional units within the airline. The storage and retrieval of more up-
to-date information can be shared and obtained within shorter time span. It
facilitates not only the efficiency and effective management of company
resources 5 but also strengthen the competency of airlines in the dynamic world,

4. Undoubtedly, no matter how powerful the computer is, the final decision rests on
human judgments. A team of well trained and qualified specialists is essential for
aircraft resources management is not to be ignored. A good training system in
this area will definitely back up the whole airline business.

Prepared by T.K Cheng Page 80

Chapter 6 Conclusions and Recommendations

Above all, the decision making process involves trade-off benefits among
different functional departments, the coordination in resolving conflicts and
ensuring good communications among all units are crucial to success. In sum
airline should consider building up a structure delegated with appropriate
authority to come across departments to ensure compliance of the overall the
company direction and to avoid any sub-optimization effect within the functional

Page 81
Prepared by T.K. Cheng

Airborne time

The time computed from the moment that an aircraft leaves the ground until it
touches the ground at next point of landing.

Available seats

The number of seats installed in an aircraft, exclusive of any seats not offered for
sales to the public by the carrier, and inclusive of any seat sold.

Available seat kilometer (ASK)

The total of the products of aircraft kilometers flown and number of available seats
on each flight stage, representing the total passenger carrying capacity offered.

Available tonne kilometer (ATK)

The aggregate of the products of the aircraft kilometers flown on each flight stage
multiplied by the available aircraft capacity tonnes for that flight stage, representing
the traffic carrying capacity offered

Block time

The time elapsed from the moment an aircraft first moves under its own power for
purposes of flight until it comes to rest at next point of landing. It includes taxi time
before takeoff and landing timeas well as airborne time.

Flight stage or Flight leg

A single hop of a plane from one station to another, with no intervening stops. It is
the basic entities in. a schedule.

Hub and spoke route system

A system that feeds air traffic from small communities through larger communities
to the traveler's destination via connections at the larger community.

Load factor

The ratio of revenue passenger kilometers to available seat kilometers


The actual or potential revenue-producing portion of an aircraft's takeoff weight in

passengers, baggagefreight and mail.

Prepared by T.K. Cheng Page 82


Revenue passenger kilometer

The number of revenue passengers multiplied by the number of kilometers each

passenger is flown

Revenue tonne kilometer

The number of revenue tonnes, including passengers and deadloadmultiplied by the

number of kilometers each passenger or deadload is flown

Taxi time

The time between the moment that an aircraft first moves under its own power for a
flight until it takes off from the ground.


The air transport revenue per unit of traffic carried in air transportation. May be
calculated and presented in revenue per passenger or revenue per passenger-

Page 83
Prepared by T.K. Cheng

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Page 85
Prepared by T.K. Cheng

Aircraft Model Year of Typical Fair Market Monthly Lease

Manufacture Capacity Value Rate (US$000)
Wide Body
Boeing 747-400 1993 380 132.2 1,200
Boeing 747-100 1974 360 150.0 150-200
Boeing 747-200B 1977 360 28.4 225-300
Boeing 747-300 1985 360 52.1 450-550
Boeing767-200 1984 181 22.7 200-250
Boeing 767-200ER 1987 181 33.4 275-325
Boeing 767-300 1991 218 57.2 450-500
Boeing 767J00ER 1992 218 66.8 475-550
Boeing 777-200A 1995 375 109.0 1,000
McDonell Douglas 1993 298 87.9 750-900
Airbus A330 1994 295 85.5 750-850
Airbus A340-200 1994 262 89.2 800-900
Airbus A340-300 1994 295 93.5 850-950

Narrow Body
Boeing 757 1990 211 38.3 325-375
Airbus A319 1996 134 30.7 250-300
Airbus A320 1991 164 28.2 275-325
Airbus A3 21 1995 200 40.0 350-400
Boeing 737-300 1989 141 23.5 200-225
Boeing 737-400 1992 159 29.0 225-265
Boeing 737-500 1993 122 25.2 175-200

Source from : Euromoney PublicationAircraft Economics Yearbook 1995

Prepared by T.K. Cheng Page 86


Please circle the most appropriate choice or fill in the blank where applicable.

1 Who is the major owner of your company?

a) Public (majority shares listed in stock market)
b) Private individual or company
c) Nation or State Government
d) Othersplease specify

2. How many hubs within your flight networks

a) One
b) Two
c) Three
d) Four or more

3. How many other air carriers using the same hubs as your airline
a) One
b) Two
c) Three or more

4. How many aircraft does your company have? Please provide the number of aircraft
by seat capacity and flying range capability.

Flying Range Capability (in nautical miles)

Short Haul Medium Haul Long Haul
Seat Capacity below 3,000 nm 3,001-5,000 nm 5,001-7,000 nm Above 6,000 nm
Below 200

Above 350


For your easy referencethe follows are some examples of aircraft model for
each flying range :

Short Haul Medium Haul Long Haul

below 3,000 nm 3,001-5,000 nm 5,001-7,000 nm Above 6,000 nm
Airbus: Airbus : Airbus : Airbus :
A321, A320, A319 A200-600, A330 A310-300 A340-200, A340-300
Boeing: Boeing : Boeing :
B767-200/ 300, B747- B747-400,
B777-200 100/200/300/SP B767-300ERY
Other: B767-300ER/200ER Other :
D C1 0 - 1 0 ,L 1 0 n - l Other : MD-ll
L1011-500, DC-10-

Prepared by T.K Cheng Page 87

Appendix II

5. Based on your latest schedule, how many flight legs are being operated per week?
What are the weekly block timeaircraft kilometers and available seat kilometers

Number of Block time Aircraft Available
flight legs (hours) Distance seat
(kilometers) kilometers

6. How does your company prepare flight schedule

a) By manual method - hand written aircraft rotation chart and flight schedules
b) By manual method - supported by computer system named
c) By fully automatic computer system named
d) Other method, please specified

7. How many schedulers / planners to tackle short term (within one month), medium
term (less than one year) and long term plan (more than one year)?

Number of staff
Short term Medium term Long term
Domestic flights
International flights

8 Are there any standard guidelines for planners / schedulers to make decisions in
aircraft allocation process
a) Yes - please circle onetwo or three of the following
i) for short term planning
ii) for medium term planning
iii) for long term planning

b) No

Prepared by T.K. Cheng Page 88

Appendix II

In planning process, when there is not sufficient aircraft resources to operate all
desired flights, you may have to decide to trade-off among flights. The follows are
some decisive factorsplease rate the importance of each factor in two perspectives -
short term and medium term planning, (assume all other resources are available).

9 a) For short term planning (within one month)

Please circle the most appropriate one
1) Expansion on existing market 1 2 3 4 5 6 7 0
2) Keep customer loyalty 1 2 4 5 6 7 0
3) Maintain company image 1 2 3 4 5 6 7 0
4) Protect traffic rights 1 2 3 4 5 6 7 0
5) Protect the rights to use airport slots 1 2 3 4 5 6 7 0
6) Maintain schedule integrity 1 2 3 4 5 6 7 0
7) Fitness of aircraft rotation 1 2 4 5 6 7 0

8) Flight safety 1 2 3 4 5 6 7 0

9) Engineering requirements 1 2 3 4 5 6 7 0

10) Human factors - e.g. the preference of crew 1 2 4 5 6 7 0

11) Labor union's pressure 1 2 3 4 5 6 7 0

12) Social responsibility - e.g. supply normal 1 2 3 4 5 6 7 0

traffic capacity disregard money return,
provide job opportunities etc.
13) Protection of environment 1 2 3 4 5 6 7 0
14) Optimize profitability 1 2 3 4 5 6 7 0

15) Achieve high yield 1 2 3 4 5 6 7 0

16) Achieve high load factor 1 2 3 4 5 6 7 0

17) Minimize risk 1 2 3 4 5 6 7 0

Others :
18) Relationship with agent 1 2 3 4 5 6 7 0

19) 1 2 3 4 5 6 7 0

Other comments (if any):

Prepared by T.K. Cheng Page 89

Appendix II

9 b) For medium term planning (less than one year)

Please circle the most appropriate one
1) Expansion on existing market 1 2 3 4 5 6 7 0

2) Keep customer loyalty 1 2 3 4 5 6 7 0

3) Maintain company image 1 2 3 4 5 6 7 0

4) Protect traffic rights 1 2 3 4 5 6 7 0

5) Protect the rights to use airport slots 1 2 3 4 5 6 7 0

6) Maintain schedule integrity 1 2 3 4 5 6 7 0

7) Fitness of aircraft rotation 1 2 4 5 6 7 0

8) Flight safety 1 2 3 4 5 6 7 0

9) Engineering requirements 1 2 3 4 5 6 7 0
10) Human factors - e.g. the preference of crew 1 2 3 4 5 6 7 0

11) Labor union's pressure 1 2 4 5 6 7 0

12) Social responsibility - e.g. supply normal 1 2 3 4 5 6 7 0

traffic capacity disregard money return,
provide job opportunities etc.
13) Protection of environment 1 2 3 4 5 6 7 0
14) Optimize profitability 1 2 3 4 5 6 7 0
c 6 7 0
15) Achieve high yield 1 2 3 4

16) Achieve high load factor 1 2 3 4 5 6 7 0

17) Minimize risk 1 2 3 4 5 6 7 0

Others :
18) Relationship with travel agent 1 2 3 4 5 6 7 0

19) . - 1 2 3 4 5 6 7 0

Other comments (if any):

Page 90
Prepared by T.K. Cheng
Appendix II

9 c) For long term planning (more than one year)

Please circle the most appropriate one

1) Expansion on existing market 1 2 4 5 6 7 0

2) Keep customer loyalty 1 2 3 4 5 6 7 0

3) Maintain company image 1 2 3 4 5 6 7 0

4) Protect traffic rights 1 2 3 4 5 6 7 0

5) Protect the rights to use airport slots 1 2 4 5 6 7 0

6) Maintain schedule integrity 1 2 3 4 5 6 7 0

7) Fitness of aircraft rotation 1 2 4 5 6 7 0

8) Flight safety 1 2 3 4 5 6 7 0

9) Engineering requirements 1 2 3 4 5 6 7 0

10) Human factors - e.g. the preference of crew 1 2 3 4 5 6 7 0

11) Labor union's pressure 1 2 3 4 5 6 7 0

12) Social responsibility - e.g. supply normal 1 2 4 5 6 7 0
traffic capacity disregard money return,
provide job opportunities etc.
13) Protection of environment 1 2 3 4 5 6 7 0
14) Optimize profitability 1 2 4 5 6 7 0

15) Achieve high yield 1 2 3 4 5 6 7 0

16) Achieve high load factor 1 2 3 4 5 6 7 0

17) Minimize risk 1 2 3 4 5 6 7 0

Others :
18) Relationship with agent 1 2 3 4 5 6 7 0

19) ....--- 1 2 3 4 5 6 7 0

Thank you very much for your valuable information. I would sincerely ask for your
particulars :
Your name Job title :
Postal address : Contact telephone number :

Fax number :

Prepared by T.K. Cheng Page 91