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significantly increased costs. Moreover, a finely tuned, optimized solutions typically achieve increased utilization through the removal of slack time, allowing crews less time to connect between flights and aircraft less time on the ground between flying. This can translate into a less robust schedule, requiring frequent adjustments and potentially expensive changes. Schedule disruption can also have disproportionate impact on flights that serve high revenue passengers. Impact of changes in air transportation service availability: The expected restructuring of the airline industry may result in significant changes in air transportation services. The pricing structures, networks, and levels of service will change if some of the major airlines either fail or reinvent themselves, and as the low-fare carriers evolve. Over the past three decades the economy and social structure of the US has developed under the implicit assumption that inexpensive, high quality air service would be available throughout the nation. If several major airlines fail at the same time then significant service disruptions will occur. Even if this is avoided, the level of service to some of the smaller communities in the nation will either be reduced or will become more expensive. This effort seeks to understand and, when possible, quantify the national dependence on air transportation to help guide airline strategy and national policy decisions.
Pricing Strategies
Airline pricing strategies are critical determinants of their profitability and financial viability. Price responses to entry by LCCs can have dramatic implications for short-term profits and market shares of incumbents, and for long-term viability of new entrants. We continue dataintensive analysis in the closely interrelated areas of pricing and revenue management, which we consider more vital than ever in the current industry environment. Revenue management: Led by Dr. Belobaba, a recognized expert in the development and use of airline revenue management tools, we have been active in this research area. We have developed enhanced tools to forecast current demand patterns and to suggest the airline responses that could maximize revenue. The tools are used to provide both MIT students and airline managers with deeper insights into optimal responses to the challenges raised by strategic alliances, competition from low-fare carriers, and changing price-sensitivity on the part of travelers. The revenue management research completed within the PODS (Passenger Origin-Destination Simulation) research consortium at MIT has had major impacts on the revenue management development operations of its seven airline members, in addition to other airlines from around the world that have attended the more than a dozen conferences at which our PODS research findings were presented.
Impacts of productivity on survival: Productivity plays a vital role in the profitability and longterm viability of airlines. Our work suggests that labor productivity is far more strongly correlated with airline profitability than might be expected and, moreover, that changes in compensation do not produce consistent changes in productivity. Rather, there is considerable variation in the effects of pay changes both within and across airlines. Network structure and productivity: As noted, airlines are rethinking their hub operations. The questioning of traditional hub operations - with their characteristic "banks", or "waves", of flights - raises numerous questions and opportunities for significant research contributions. The past economic difficulties associated with hub operations may diminish if hubs are operated somewhat differently in the future. We hope to quantify what productivity gains and cost reductions can realistically be anticipated.