Real-Time Cost Management of Aircraft Operations

Abstract

An unheralded development in aviation technology has been the evolution of aircraft control systems which enable pilots to engage, in real-time, in the cost management of aircraft operations. Drawing on the specialist aviation literature, we examine the properties of, and potential behavioural problems associated with, the cost-minimisation 'menus' provided in the flight management (cockpit computer) systems of modern commercial airliners. We also analyse problematic measurement issues associated with a key input into these systems, the so-called 'cost index', a ratio capturing relevant-cost information. Using realistic simulations, our analysis provides and unusually detailed description of cost-driver and cost-behaviour information in a non-manufacturing setting in which participants have significant discretion in relation to the employment of cost-optimising solutions.

Keywords: Airline industry; Cost drivers; Optimisation techniques

JEL Classification: M40, M46