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Managing operations in the time-shared jet business

Managing operations in the time-shared jet business. Pinar Keskinocak and Sridhar Tayur. Outline. Overview of the time-shared jet business Strategic and operational decisions Scheduling of time-shared jets Objectives and constraints Modeling using linear integer programming

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Managing operations in the time-shared jet business

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  1. Managing operations in the time-shared jet business Pinar Keskinocak and Sridhar Tayur

  2. Outline • Overview of the time-shared jet business • Strategic and operational decisions • Scheduling of time-shared jets • Objectives and constraints • Modeling using linear integer programming • Heuristic solution approaches • What do students learn from this case? • Experiences with the case

  3. Problems with commercial flights • Delays or cancelled flights • In 1996, 38.3 percent of all domestic flights by 10 major airlines were not on time • Being “bumped” from a flight or downgrades due to overbooking • 52,000 passengers on 9 major airlines were involuntarily denied boarding in 1994 • No direct flights between certain cities • Long check-in and connection times • Misplaced or lost baggage • 2.4 million complaints over misplaced baggage in 1996 • Limited first/business class seats

  4. Private planes can save huge amounts of time, and provide comfort, convenience and privacy • Private planes have high costs, operation and maintenance expenses • Gulfstream V $37.5 million • Gulfstream IV-SP $27.5 million • Challenger 604 $21 million • A plausible SOLUTION • Time sharing of jet aircraft. • Become a “partial owner” of a jet. Private aviation

  5. Becoming a fractional owner of a corporate jet • Purchase a portion of a specific aircraft based on the number of actual flight hours needed annually • one-eight-share: 100 hours of flying time per year • one-quarter-share: 200 hours • Access to the aircraft any day of the year, 24 hours a day, with as little as four hours notice

  6. Booking a flight in a time-shared corporate jet Pittsburgh May 5, 10:00 San Francisco May 6, 12:00 Austin May 6, 21:00 DC Positioning leg (empty flight) • Departure time • Departure location • Destination

  7. Leading fractional jet ownership programs • NetJets (operated by Executive Jet Aviation) • offers up to 12 different aircraft types, including Cessna Citation, Raytheon, Gulfstream and Boeing jets • $900 million in revenues for 1998 and climbing at an average rate of 35 percent annually.

  8. Leading fractional jet ownership programs • NetJets • Flexjet (operated by Bombardier Business JetSolutions) • offers Learjet 31A, Learjet 60 and Challenger aircraft • has more than 350 clients, growing at an estimated 100 new fractional owners per year

  9. Leading fractional jet ownership programs • NetJets • Flexjet • Raytheon Travel Air (a subsidiary of Raytheon Aircraft) • offers Beech King Air B200, Beechjet 400A and Hawker 800XP • serving more than 300 fractional owners

  10. Fees of fractional jet ownership • A one-time purchase price for the fractional interest in the plane • Ownership rights usually expire after five years. • Fractional ownership provides tax benefits to the buyer and can usually be sold back after a few years. • A monthly management fee • Covers maintenance, insurance, administrative and pilot costs; and • An hourly fee for the time the jet is used

  11. Fees of fractional jet ownership • Example: Gulfstream IV-SP jet • $4.03 million for a one-eight-share • Management fees are $20,500 a month • Hourly rate is $2,890

  12. Private aviation options • Full ownership • cost-justifiable when the annual flight hours exceed 400 • Chartering • cost efficient for flying less than 50 hours a year • chartering an aircraft whenever needed is not guaranteed • Fractional ownership • best fits the needs of individuals and companies who fly between 50 and 400 hours a year

  13. Who are the participants of time-shared jet programs? • Small to midsize companies

  14. “We are still a relatively small company, so the idea of having an airplane was something we really didn't consider until we learned about NetJets fractional ownership. I never believed that business aviation would be practical or affordable until we became aware of NetJets.” JIM McCANN CEO of 1-800-Flowers.com

  15. Who are the participants of time-shared jet programs? • Small to midsize companies • Corporations looking to supplement their corporate flight departments' requirements

  16. “Our first involvement in fractional ownership stemmed from the number of flight hours that we were doing that involved deadheads. Twenty-five percent of our flying involved deadheads. We took the position that we would use fractional aircraft ownership to do those things that we can't do efficiently.” NORRIS DAVIDSON Aviation Manager The Dow Chemical Co.

  17. “Fractional ownership offers more than just supporting deadhead missions. You can guarantee a seamless transportation to management. If an in-house aircraft breaks down, you don't have to cancel the trip. Also, from a maintenance point of view, it allows us to run our in-house airplanes right up to the hour for scheduled maintenance and still continue to accept schedules.” FORTUNE 100 COMPANY

  18. Who are the participants of time-shared jet programs? • Small to midsize companies • Corporations looking to supplement their corporate flight departments' requirements • Private individuals, celebrities, top executives

  19. "I expect the convenience of NetJets ownership to extend my playing career by a year or two. Buying a NetJets interest was one of the best decisions I ever made.” PETE SAMPRAS Tennis Professional

  20. "As a Jet NetJets fractional aircraft owner, • I had 3 1/2 years to examine the service of NetJets before • Berkshire Hathaway purchased Executive Jet. • We knew we were purchasing the premier provider of aviation • solutions in the world.” • WARREN BUFFET • Chairman and Chief Executive Officer Berkshire Hathaway Inc.

  21. Challenges in managing a fleet of time-shared jets • Strategic decisions • Size and mix of the fleet and crew • Tactical decision • Assigning off-days to crew members • Planned maintenance • Operational decisions • Scheduling and routing of the aircraft • Crew scheduling

  22. Issues in scheduling the aircraft • Major Costs • Operating costs (fuel, maintenance etc.) • Cost of subcontracting • Objectives • Minimize the cost of positioning legs • Minimize the cost of subcontracting • Constraints • Customer requests • Maintenance restrictions of the aircraft: • flight hours, landings, time of availability • Pre-scheduled trips (or maintenance)

  23. 2 4 15 15 13 13 initial location 330 0 100 200 300 400 500 600 700 Time (minutes)

  24. 2 trip 8 Aircraft 1 2 1 trip 13 Aircraft 2 trip 3 4 4 8 8 4 trip 11 11 4 trip 4 6 7 15 trip 6 7 12 trip 7 15 3 15 trip 5 Aircraft 5 4 8 trip 1 5 4 13 trip 10 trip 9 14 10 9 15 trip 12 4 8 trip 2 13 1 5 initial location departure location destination 330 0 100 200 300 400 500 600 700 Time (minutes)

  25. trip 8 trip 13 trip 11 trip 4 trip 5 trip 9 trip 2 Optimum schedule trip 3 trip 6 trip 7 trip 1 trip 10 trip 12

  26. How to construct a feasible schedule? • Which trips can be served by each aircraft? • Which pairs of trips can be served consecutively by the same aircraft?

  27. How to construct a feasible schedule? • Which trips can be served by each aircraft?AT(i,j) = 1, if trip j can be served by aircraft i • Which pairs of trips can be served consecutively by the same aircraft?TT(j,k) = 1, if trip k can be served immediately after trip j by the same aircraft

  28. 2 trip 8 Aircraft 1 2 1 trip 13 Aircraft 2 trip 3 4 4 8 8 4 trip 11 11 4 trip 4 6 7 15 trip 6 7 12 trip 7 15 3 15 trip 5 Aircraft 5 4 8 trip 1 5 4 13 trip 10 trip 9 14 10 9 15 trip 12 4 8 trip 2 13 1 5 initial location departure location destination 330 0 100 200 300 400 500 600 700 Time (minutes) AT(2,11)=0 AT(1,8)=1 AT(6,3)=0 AT(2,3)=1 TT(4,7)=0 TT(3,4)=0 TT(10,9)=1

  29. Student exercises • Determining entries of the AT and TT matrices • Determining whether a given schedule is feasible • Proposing alternative feasible schedules for the example given in the case • Checking whether a given feasible schedule is a “good” one • Determining the type of data needed to create a feasible schedule • Proposing heuristics

  30. Heuristic solution approaches • Develop a heuristic that constructs a (feasible) solution from scratch • For what type of problems would this heuristic work best? • Improvement heuristics: Develop a heuristic that takes a feasible schedule and modifies it to improve the objective function value • Develop a heuristic that takes a feasible schedule and modifies it to satisfy a new trip request

  31. Modeling the aircraft scheduling problem as a linear integer program Variables Sj = 1, if trip j is subcontracted; 0, otherwise Zijk = 1, if aircraft i serves trip k immediately after trip j AT(i,j)=1, AT(i,k)=1, TT(j,k)=1

  32. Modeling the aircraft scheduling problem as a linear integer program Minimize • c1(empty flight hours) + c2(subcontracted hours) Subject to • Each trip must be served by one of the aircraft of must be subcontracted • Maintenance restrictions should be satisfied • Aircraft flow-balance constraints should be satisfied Note that preprocessing takes care of pre-scheduled trip constraints.

  33. Problem P1 Problem P2 Problem P3 Special cases and complexity Maintenance restrictions Scheduled trips NO NO Model as a minimum cost flow problem NO YES NP-complete YES NO NP-complete

  34. Additional considerations • Time windows for departure times • Substituting one type of aircraft for another • Coordinating aircraft schedules with crew schedules • Off-day assignments • Crew qualifications • Crew workday rules • Scheduling with uncertain demand • Creating “robust” schedules

  35. What do students learn from this case? • An introduction to a relatively new business • Understanding and modeling a real world problem • What kind of data do we need? • What kind of assumptions do we make? • The importance of preprocessing data • Alternative solution approaches in solving a model • Linear/integer programming • Construction and improvement heuristics • Advantages and limitations of different solution approaches • Learning how to use a modeling language and a solver • Additional considerations and related problems

  36. Aircraft case in classroom • Tools and Environments for Optimization • Michael C. Ferris, Computer Sciences Dept., University of Wisconsin • Steve Wright,Computer Sciences Dept., University of Wisconsin • Modeling for Management Science Applications • Anuj Mehrotra, Graduate School of Industrial Administration (GSIA), Carnegie Mellon University • Sequencing and Scheduling • Fatma Sibel Salman, GSIA, Carnegie Mellon University • Supply Chain Management • Sridhar Tayur, M.S. in E-Commerce Program (Joint between Computer Science and GSIA), Carnegie Mellon University

  37. Aircraft case in classroom (cont.) • Deterministic Optimization • Pinar Keskinocak, School of Industrial and Systems Engineering, Georgia Institute of Technology • Production Scheduling • Cliff Stein, Department of IEOR Columbia University • Analytical Techniques for Management Consulting • Ignacio Castillo and Abdullah Dasci, School of Business, University of Alberta

  38. Questions Comments

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