Using Var For Strategic Capacity Allocation: An Airline Perspective

Keywords

Airline; Capacity; OLS; Ordinary least squares; Portfolio theory; Regression; Resource allocation; Route networks; Services; Transportation; Value-at-risk; VAR

Abstract

We consider a value-at-risk (VAR) approach to allocating seat miles for airlines. The US global airline industry is used to demonstrate this approach. Using OLS regression, we estimate the expected profit and the variance of profit based on the seat miles allocation. A non-linear optimisation model is then used to devise a portfolio of available seat miles distributed to global regions using the mean-value-at-risk technique. A comparison between the results and actual airline operating profits is conducted. Given the substantial operating profit improvements observed, there is promise in pursing this method for strategic airline seat allocation.

Publication Date

1-1-2015

Publication Title

International Journal of Services and Operations Management

Volume

21

Issue

2

Number of Pages

127-149

Document Type

Editorial Material

Personal Identifier

scopus

DOI Link

https://doi.org/10.1504/IJSOM.2015.069376

Socpus ID

84929576944 (Scopus)

Source API URL

https://api.elsevier.com/content/abstract/scopus_id/84929576944

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