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Airport capacity extension, fleet investment, and optimal aircraft scheduling in a multi-level market model: quantifying the costs of imperfect markets

Airport capacity extension, fleet investment, and optimal aircraft scheduling in a multi-level market model: quantifying the costs of imperfect markets
Airport capacity extension, fleet investment, and optimal aircraft scheduling in a multi-level market model: quantifying the costs of imperfect markets

We present a market model of a liberalized aviation market with independent decision makers. The model consists of a hierarchical, trilevel optimization problem where perfectly competitive budget-constrained airports decide (in the first level) on optimal runway capacity extensions and airport charges by anticipating long-term fleet investment and medium-term aircraft scheduling decisions taken by a set of imperfectly competitive airlines (in the second level). Both airports and airlines anticipate the short-term outcome of a perfectly competitive ticket market (in the third level). We compare our trilevel model to an integrated single-level (benchmark) model in which investments, scheduling, and market-clearing decisions are simultaneously taken by a welfare-maximizing social planner. Using a simple six airports example from the literature, we illustrate the inefficiency of long-run investments in both runway capacity and aircraft fleet which may be observed in aviation markets with imperfectly competitive airlines.

Long-run investments, Market design, Mixed-integer optimization, Multilevel optimization, OR in airlines
0171-6468
367-408
Coniglio, Stefano
03838248-2ce4-4dbc-a6f4-e010d6fdac67
Sirvent, Mathias
1ac727aa-ec13-412a-ab2f-71e1716074dc
Weibelzahl, Martin
0296b152-f895-4b46-b813-ee0ec10af11d
Coniglio, Stefano
03838248-2ce4-4dbc-a6f4-e010d6fdac67
Sirvent, Mathias
1ac727aa-ec13-412a-ab2f-71e1716074dc
Weibelzahl, Martin
0296b152-f895-4b46-b813-ee0ec10af11d

Coniglio, Stefano, Sirvent, Mathias and Weibelzahl, Martin (2021) Airport capacity extension, fleet investment, and optimal aircraft scheduling in a multi-level market model: quantifying the costs of imperfect markets. OR Spektrum, 43 (2), 367-408. (doi:10.1007/s00291-021-00621-4).

Record type: Article

Abstract

We present a market model of a liberalized aviation market with independent decision makers. The model consists of a hierarchical, trilevel optimization problem where perfectly competitive budget-constrained airports decide (in the first level) on optimal runway capacity extensions and airport charges by anticipating long-term fleet investment and medium-term aircraft scheduling decisions taken by a set of imperfectly competitive airlines (in the second level). Both airports and airlines anticipate the short-term outcome of a perfectly competitive ticket market (in the third level). We compare our trilevel model to an integrated single-level (benchmark) model in which investments, scheduling, and market-clearing decisions are simultaneously taken by a welfare-maximizing social planner. Using a simple six airports example from the literature, we illustrate the inefficiency of long-run investments in both runway capacity and aircraft fleet which may be observed in aviation markets with imperfectly competitive airlines.

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Accepted/In Press date: 30 January 2021
e-pub ahead of print date: 5 May 2021
Published date: June 2021
Additional Information: Funding Information: We acknowledge funding through the DFG SFB/Transregio?154, Subproject?A05. Many thanks go to the members of the International Conference on Operations Research (Berlin, 2017) and the annual meeting of the Airline Group of the International Federation of Operational Research Societies (London, 2017). Finally, we thank Richard Schumacher from Lufthansa AirPlus Servicekarten GmbH for valuable comments and discussion. We would also like to thank three anonymous referees, whose comments have helped us improve the quality of the paper, extending and clarifying its results. Funding Information: We acknowledge funding through the DFG SFB/Transregio 154, Subproject A05. Many thanks go to the members of the International Conference on Operations Research (Berlin, 2017) and the annual meeting of the Airline Group of the International Federation of Operational Research Societies (London, 2017). Finally, we thank Richard Schumacher from Lufthansa AirPlus Servicekarten GmbH for valuable comments and discussion. We would also like to thank three anonymous referees, whose comments have helped us improve the quality of the paper, extending and clarifying its results. Publisher Copyright: © 2021, The Author(s).
Keywords: Long-run investments, Market design, Mixed-integer optimization, Multilevel optimization, OR in airlines

Identifiers

Local EPrints ID: 447121
URI: http://eprints.soton.ac.uk/id/eprint/447121
ISSN: 0171-6468
PURE UUID: 8fe351fb-b9d3-4933-9f52-e66ead32da76
ORCID for Stefano Coniglio: ORCID iD orcid.org/0000-0001-9568-4385

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Date deposited: 03 Mar 2021 17:32
Last modified: 29 Oct 2022 04:03

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Contributors

Author: Mathias Sirvent
Author: Martin Weibelzahl

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