1Page 1Demand ManagementAmedeo R. OdoniMassachusetts Institute of Technology1.231J/16.781J/ESD.224J Airport Systems 1.231J/16.781J/ESD.224J Airport Systems ––Fall 2007Fall 2007Page 2Demand ManagementDemand Managementw Objective– Review the characteristics, advantages and disadvantages of alternative approaches to demand management w Topics– Motivation for Demand Management– International Practices– Description of Fundamental Approaches– Examples– Lessons Regarding PoliciesReference: Chapter 122Page 3Objective and Application of Demand Mgt.Objective and Application of Demand Mgt.Help maintain efficient operations at congested airports by:reducing total demand and/orshifting demand from peak to off-peak periods“Access control”Application involves:use of non-capital alternativesmitigation in the short and medium termspeak-period problemsPage 4Basic PreceptBasic PreceptCapacity expansion should be the fundamental means for accommodating growth of demandDemand management should be considered only when capacity expansion • becomes unreasonably expensive; or• is faced by insurmountable political, social or environmental barriersIn such cases, the forms of demand management that should be considered are the ones that will interfere the least with a deregulated and competitive market3Page 5The The ““Do NothingDo Nothing””AlternativeAlternativew Allow unlimited access to airport; as delay grows, more and more aircraft operators will decide not to schedule flights; an equilibrium will eventually be reached w Problems:w Encourages users with the lowest value of time to use the airportw The equilibrium level of delay (and of demand) will be higher (possibly much higher) than it would have been if each operation had to pay for the marginal delay costs it imposes on othersPage 6Demand Management ApproachesDemand Management Approachesw Administrative [Slot Allocation]• “Schedule Coordination”• Lotteriesw Economic • Congestion pricing (peak-period pricing, marginal cost pricing, etc.)• Minimum landing feesw Hybrid • Slots plus peak period pricing • Slot auctions• Buy-and-sell of slots4Page 7Administrative ApproachesAdministrative ApproachesBased on the notion of a “slot” (= a time interval available for scheduling an arrival or departure)Each airport has a declared number of slots per hour; this number is determined by the capacity of the most restricting element of airportPotential allocation criteria:• Historical precedent• Stimulating competition (“new entrants”)• Access to new markets• Regular vs. occasional service• Size of market to be servedPage 8IATA Schedule Coordination ProcessIATA Schedule Coordination Processw Level 1 (“non-coordinated”)w Level 2 (“schedules facilitated”) (~ 75 airports)w Level 3 (“fully coordinated”)w ~ 140 international airports (practically all busiest ones outside US)w Coordinator appointed by appropriate authority, usually assisted by a coordination committeew IATA Schedule Coordination Conferences (SCC); in June and November for subsequent seasonw Attended by 300 air carriers, airport reps, airport coordinators, etc.5Page 9IATA Schedule Coordination Process [2]IATA Schedule Coordination Process [2]Air carriers must submit slot requests 27 days before SCC During SCC and post -SCC, coordinators resolve conflicts, finalize schedulesHistorical precedent is primary criterionCarriers may exchange slotsUse-it-or-lose-it clause (80% use required)New entrants obtain up to 50% of “free” slotsSeveral restrictive clauses re. “new entrants”Other allocation criteria: size and type of market, length of period of operation, curfews, etc.Note: Declared capacities determined at local levelPage 10Slot Availability at LHRSlot Availability at LHRHOUR Mon Tue Wed Thu Fri Sat Sun HOUR Mon Tue Wed Thu Fri Sat Sun0600 0000010 0600 0000031207000000001070000000090800 0000003 0800 00000000900 0000000 0900 0000000100000000001000000000011000000011110000000001200 0000001 1200 00000001300 0000011 1300 000000014002120304140000000001500 0110000 1500 00000001600 0000000 1600 000000017000001000170000000001800 0000000 1800 00000001900 0000020 1900 00000002000 0000030 2000 00000402100000001512100811001202200 43122123 2200 0221050ARRIVALS DEPARTURESSource: Manager, Slot Coordination, Airport Coordination UK for Summer, 20016Page 11Slot limits at selected international airportsSlot limits at selected international airportsAirports Limit of Scheduled Movements Per Interval (2001) 1 day 3 hrs 1 hr 30 min 15 min 10 min 5 min London Heathrow 79-851 As long as average delay < 10 min Tokyo/Narita 3674 26-321 Daily limit is a noise constraint Frankfurt/Main 78 43 16 Seoul/Incheon 372 Sydney 803 21 8 Osaka/Kansai 81 30 Page 12Schedule Coordination Committees: Experience in USASchedule Coordination Committees: Experience in USAw Met biannually from 1969 to allocate slots at 4 “High Density Rule” (HDR) airports (JFK, LGA, ORD, DCA)w Dept. of Transportation and of Justice observersw Private negotiations between airlines or exchanges of slots not allowedw Unanimous approval of schedules required w Process criticized as anti-competitivew Impasse in deregulation era; abandoned in 1985w Buying-and-selling of slots at HDR airports since 1985w Adjustments were made at LGA and ORD in early 2000sw HDR expired on January 1, 2007, with exception of DCA; in absence of solution, HDR has essentially been extended at LGA, ORD; DOT/FAA looking for long-term alternatives7Page 13Congestion Pricing: A Key ObservationCongestion Pricing: A Key Observationw The marginal congestion cost associated with an airport user has 2 components:– Cost of delay to that user (internal cost)– Cost of additional delay to all other users (external cost)• At congested airports, this second component can be very large -- often much more than $1000 per aircraft movementCongestion pricing aims at increasing the efficiency of resource utilization by forcing users to “internalize external costs” by paying a congestion tollPage 14Fundamental PrincipleFundamental PrincipleOptimal use of a congested transportation facility cannot be achieved unless each additional (marginal) user pays for the delay costs that (s)he imposes on all other users(Vickrey, 1967; Carlin + Park, 1970) Application to airports is complicated by difficult