The European air traffic network experiences significant demand-capacity imbalances, which create large costs for airlines and ultimately passengers. Researchers found that these imbalances can be reduced by steering demand for air traffic services using so-called flexible trajectory products. Offering these products does not only reduce delays and re-routings if priced accordingly, but also establishes a balance of power between airlines and the central network manager.
Air traffic control ensures the safety of flights by separating them sufficiently such that collisions are avoided. To do so, flights sometimes need to be re-routed or artificiallydelayed. For example, around 3.6 percent of flights were affected by such delays, resulting in delay costs of around 550million euros in 2017. This is a bit surprising as demand for air traffic control services exceeded capacity only 7percent of the time, whereas sector load, meaning the proportion of flights having entered the sector within a given period of time relative to the sector’s maximal allowable flight capacity, was below 60percent half of the time. By this, significant unused spare capacity was created.
One problem which leads to this unnecessary cost is the lack of central coordination in Europe. A group of senior experts, the WisePersonsGroup, recommended a stronger role for a central network manager in routing decisions and to “rely on a market-driven approach wherever possible”.
A scientific simulation study has now investigated, to which extent a new coordination model could improve this in the future: airlines would buy a bundle of potential flight trajectories for each upcoming flight from the network manager, who in turn would then allocate them to the respective trajectories on short notice. The charge of such a bundle would depend on the degree of flexibility that the airline is willing to grant the network manager: the more certainty on when and where they are going to fly, the higher the charge. The overall aim of the network manager is to reduce the total cost of re-routings and delay, which would ultimately benefit the passengers since they indirectly pay for these costs with their flight tickets.
Using this new concept showed surprisingly strong results in the simulation study conducted at WHU – Otto Beisheim School of Management. The study suggests that using these flexible trajectory products in combination with dynamic pricing leads to cost reductions almost to the same degree of having the network manager entirely decide on the trajectory of every flight. The latter approach would be ideal from a cost perspective, but airlines would not accept this approach in practice.
As such, this concept appears to provide an excellent trade-off between freedom of choice for the airlines, who can choose between different trajectory bundles at varying charges, as well as central control, design, and control of the trajectory bundles by the network manager.
Tips for practitioners
- Imbalances in demand and capacity (both physical and service capacities) are omnipresent, not only in logistics. To reduce them, you, as a decision maker, should either plan capacities in anticipation of demand, or steer demand in line with capacity.
- Once decided, capacities are rather static and can only be adjusted over a long period of time. For short-term adjustments, you need to resort to demand management actions instead.
- Reflect on ways to incentivize customers to grant you more flexibility at a time when you have more information to exploit it; this can be very powerful. This idea of “flexible products” has been recently applied in different domains, such as airline tickets that allow the airline to flexibly re-allocate a passenger to another flight at short notice without penalties, or grocery home delivery slots that are flexibly assigned to customers shortly prior to the delivery day.
- Dynamic pricing is one of the most powerful mechanisms to steer demand, but you need to keep in mind that its performance depends on how well the prices reflect the opportunity cost that a product creates (meaning the cost of lost opportunity to potentially sell other products in the future using these resources that are now tied to this product sale).
Literature references and methodology
The study is part of a wider research project called CADENZA funded by the European Commission (Horizon 2020). The project is a joint endeavour with various partner universities, Eurocontrol, and advisors from industry.
- Künnen, J.-R./Strauss, A. (2021): The value of flexible flight-to-route assignments in pre-tactical air traffic management, not published yet.
Jan-Rasmus Künnen is a research assistant at the Chair of Demand Management & Sustainable Transport at WHU. His research interests lie in applying quantitative methods (optimization, game theory, modeling) to transportation and logistics problems. With his PhD, he focuses on developing mathematical models to balance demand with capacity in European air traffic management. He worked previously as a consultant with McKinsey & Company, specializing in supply chain and operations transformations.
Prof. Dr. Arne K. Strauss
Prof. Dr. Arne K. Strauss holds the Chair of Demand Management & Sustainable Transport at WHU – Otto Beisheim School of Management. He specializes in the application of mathematical models to business problems, with a particular focus on the area of demand management and transport. Previously, he held positions as Associate Professor of Operational Research in the Operations Group at Warwick Business School and as Turing Fellow at the Alan Turing Institute in London. He has won several awards for his research, and he currently serves on the Strategic Advisory Team (Mathematical Sciences) of the British Engineering and Physical Sciences Research Council.