Fleet dry/wet lease planning of airlines on strategic alliance

Abstract

Airlines form strategic alliances in hope of cost minimisation. This study develops a model that deals with issues regarding fleet purchase, dry/wet leases and disposal of aircraft, taking into consideration the impact of a strategic alliance between airlines on fleet planning. Using dynamic programming to determine the initial optimal number and type of aircraft for dry/wet leasing, purchase and lease, the multi-objective model formulated can achieve minimisation of total fleet planning costs. Further, this study simulates the step-by-step negotiation process between decision-makers of two allied airlines. Through interactive bargaining, the airlines can adjust the alliance-related parameters to narrow the difference in expected profits and reach a final negotiated compromise solution acceptable to both airlines in the strategic alliance. A satisfactory negotiation result aiming for lower post-alliance costs in the best interests of one individual airline may not be the most optimal for the overall interests of the alliance. The sensitivity analysis of aircraft acquisition costs offer airlines a better understanding of the cost range and cost threshold for aircraft owned/held for different durations and acquired by different approaches.

Keywords:

• fleet planning
• dynamic programming
• alliance
• dry/wet lease
• interactive bargaining

Acknowledgement

The authors would like to thank the National Science Council of the Republic of China for financially supporting this research under Contract No. NSC 92-2211-E-009-041.