QUESTION 1 (25 points)

In the Delays at Logan Airport case, there are different proposals for reducing congestion. One of the methods proposed to tackle the impact of delays was peak-period pricing, PPP.

In the case, good weather operational capacity (i.e., both arrivals and departures) was around 120 planes per hour. Assuming that the number of arrivals approximately equals the number of departures, we obtain an average arrival capacity of 60 planes per hour. Although there are three runways in operation during good weather, only two of them are used for arrivals, which imply that each arrival runway has an hourly capacity of 30 planes per hour. During the peak period, arrival rates generally range from 44.5 planes per hour to a little over 60 planes per hour.

The FAA has reported an estimate for delay costs to the airlines. According to this report, for a 15 seat turboprop airplane it costs the airlines around $352 per plane per hour due to operating expenses and extra ground crew time, while for a representative 150-seat plane these delay cost totals to $1,590 per plane per hour. You can assume that the corresponding cost for regional jets is $672 per plane per hour (regional jets have 50 seats on average).

However this report does not consider the costs to airline passengers created by delays (such as missed meetings, events, or inconvenience). Airlines may suffer more due to these delays in terms of foregone revenue, as dissatisfied customers switch to alternative means of transportation or forego travel altogether. The Air Transport Association (a major airline industry group), has however, used a $30.9 per hour estimate as the value of a passenger’s time in its estimates of annual delay costs. According to FAA definition a flight is delayed only if it arrives (or departs) more than fifteen minutes past schedule.

a)( ) Assume good weather conditions, and a 65% passenger load factor. What are the per plane delay times (assuming the arrival rate to be 50, 55 and 59 planes per hour)? What is the total cost (operational and passenger costs) associated with arrival rates of 50 planes per hour, for all three types of planes mentioned? What are your results if the arrival rate is i) 55 planes per hour? ii) 59 planes per hour?

b)( ) Now resolve the above question using the FAA’s definition of delay? Do you think this definition of delay is more reasonable?

c)If you think the above definition of delay is not reasonable, suggest an alternative.

d)Based on your calculations in part a) and part b), do you believe PPP is a potential solution (by reducing the arrival rates during periods where demand is much higher) to reduce the costs of over scheduling?

QUESTION 2 (30 points)

Once you read the Delay at Logan Airport case it is clear that peak periods exist for a reason. That is, they are not random fluctuations but rather a result of passenger’s desires for landings and takeoffs at certain times of the day. Therefore airlines will shift flights to different periods only if the costs of incurring peak charges outweigh the costs (in terms of lost revenue and customer dissatisfaction) of shifting flights to off-peak periods.

Continue to assume that planes fly with 35% of passenger seats empty (that is, 65% load factor) and also assume that per passenger revenue for different aircraft sizes are as follows; $230 for a turboprop airplane with 15 seats; $154 for a regional jet with 50 seats; $402 for a jet with 150 seats.

a)( ) Which airplane types would feel a significant economic impact by peak-period landing fee of $150? What about $200 fee? What about $250 fee?

b)( ) Assume that $150 landing fee is sufficient to reduce the peak period demand to 55 planes per hour, similarly with $200 fee the peak period demand is 45 planes per hour and with a $250 fee the demand is 40 planes per hour.

i) What level of landing fee is...

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