Logan Airport Case

Executive Summary

Logan Airport is an international airport located in East Boston currently facing capacity planning problems. The airport is constantly experiencing delays during peak hours principally due to bad weather conditions and overscheduling. In order alleviate this problem, two solutions are considered in this paper: the implementation of a new runway and peak period pricing.

In the short run, peak period pricing will help manage runway demand and reduce delay times, however the increasing demand and the mix of airplane types make the effectiveness of PPP questionable in the long run. As Logan is already operating above capacity, and as demand is forecasted to grow, a new runway should be built to increase arrival capacity and smoothen operations. This new runway combined with PPP, which decreases the number of smaller airplanes, will significantly reduce delays, and Logan Airport will finally be able to keep up to pace with the increasing number of airplanes operating on its runways.

Problem Analysis

With increasing demand for air travel, delay-ridden service was growing increasingly difficult for airlines and airports. In 2001, Boston’s Logan airport was ranked as the fifth most significantly delayed airport in the country.

The main problems Logan Airport faces are present during adverse weather conditions. Located in the Eastern Boston area, the airport suffers from the region’s harsh climate. As weather conditions worsen, the number of available runways also decreases. The strong winds disable up to two out of three available runways, causing operations to shift and airlines to adapt to the new schedules created due to the change in weather condition. Another reason why the shift in weather so heavily affects the airport’s operations is its irregular airplane mix. Smaller aircraft fly slower and have to maintain a distance from larger craft due the wind vortexes they throw off. This problem is slowly being eradicated through the shift to larger aircraft adopted by U.S. aviation.

Overscheduling appears to be another problem that causes delays and customer dissatisfaction. The increasing demand for air travel has spiked up annual passenger numbers from 27.4 million in 2000 to 37.5 million projected in 2015. Overscheduling is a major issue in the winter, as delays already occur due to weather conditions and the capacity of operations is limited.

Therefore, the Federal Aviation Administration (FAA) has to direct its efforts on tackling these issues of increased delays.

Recommendations

While considering solutions, arrival rates and capacity issues must be looked at. Under good weather conditions, three runways can be in operation, two of which are used for arrivals. Using a 65% passenger load and an arrival rate of 50 airplanes per hour, delay time can be calculated to be 6.54 minutes. At 55 airplanes per hour, delay time increases to 12.52 minutes. Most importantly, delay time increases to 60.50 minutes when 59 airplanes arrive per hour. Therefore, an increase in delay time of around 54 minutes occurs with a rather small increase of 9 arrivals per hour.

Delay costs are affected by operational costs, which vary depending on the type of airplane (similar to passenger costs). Against this background, a small increase in arrival rates results in a proportionally larger increase in costs. For example, when the arrival rate for turboprops is 50, the delay cost is $71.32 and when the rate goes up to 55 an hour, it results in a delay cost of $136.32. Therefore, peak-period-pricing, which involves charging users higher rates during periods of high capacity utilization would be a potential solution in order to reduce the cost of overscheduling and smooth runway demand. According to FAA definition, only flights that arrive fifteen minutes past schedule are officially delayed, thus delay costs would only occur with an arrival rate of 59 minutes. However, this does not mean the delay costs under fifteen minutes are not significant. There are three levels of peak-period landing fees being considered: $150, $200 or $250. By calculating the percentage of the fees over the revenues for each type of airplane with each fees, it was found that conventional jets would not feel a significant economic impact with percentages of 0.38% for $150, 0.51% for $200 and 0.64% for $250. However, turboprop and regional jets have smaller revenues and are therefore more affected by landing fees. Thus, PPP could reduce the arrival rates of these planes during a peak hour resulting in lower delay costs. The total cost, including delay costs and PPP fee will then be different to each kind of airplane. Therefore, the turboprop and regional jet would prefer a fee of $200 since it produces the lowest total cost ($249.77 and $327.67 respectively) while the conventional jet would prefer a fee of $250, which produces the lowest total cost of $526.16. Setting the fee at $200 will be the most appropriate in terms of social welfare, as it minimizes the total delay costs ($1133.02). Setting the fee at $250 would benefit the conventional jet more, but would negatively affect other aircraft types and cause even more uproar from airline companies about cancellation of operations and loss of jobs due to the pricing policy. From the analysis above, it can be said that PPP's effect on delays will depend on the particular mix of airplane types during a peak hour. If there are 40% of turboprop, 18% of regional jet and 42% of conventional jet then the airplanes that are mostly affected by the fees (turboprop and regional jet) make up 58%, thus accentuating PPP’s effect. However if the mix is 10% turboprop, 30% regional jet and 60% conventional jet, then PPP would not have as significant of an effect since the majority of the airplanes are not dissuaded by the fees.

Keeping this in mind, it is recommended that Logan Airport initiate a peak-period pricing demand management technique in order to reduce arrival rates and hence decrease costs associated with this. The airport has implemented a PPP method in the past, which "significantly discouraged the use of smaller aircraft, since fixed landing fees were spread over smaller seating capacity".

That being said, the effect of PPP on delay times can be seen as limited, as demand for air travel will continue to increase over the next few years. Therefore, it is important to consider other alternatives, one of which being the investment in a new runway. Constructing a new runway will cost the FAA $100 million. The main goal of the runway will be to increase Logan's capacity and thereby decrease delay costs. Taking