Meet the Faculty!

As goods and services are produced and distributed, they move through a set of interrelated operations or processes. The analysis and design of these operations for strategic advantage, investments in improving their efficacy, and controlling these operations to meet performance objectives is the domain of Operations Management (OM).  At the methodological heart of OM is Operations Research (OR) or what INFORMS simply calls the „Science of Better“ – an interdisciplinary research area using statistical analysis, mathematical modeling and optimization, as well as computer algorithms to help make better decisions for complex real-world problems of corporations, governments, and the nonprofit sector.

One exciting application area of OM/OR is my current research project on “Airline service design under consideration of the new European trading system” (ASD-ETS). In an effort to help reduce CO2 emissions and mitigate the climate impacts, the EU recently announced that as from 2012 the aviation sector will be included in the ETS. In particular, all flights starting and landing in the EU will be subject to a cap on their emissions. In preparation of this regulation, airlines are spurred to explore how they can improve their service offering and their operations for economic and ecologic sustainability. An airline’s potential response to the ETS may involve various challenging decisions at the interface of operations and marketing such as schedule redesign, fleet renewal and assignment, active demand management through fares and conditions, CO2 emissions allowance buying/selling, etc. These decisions are highly interdependent with regard to their impact on profit and CO2 emissions, and should thus be considered simultaneously. In the ASD-ETS research project, a market-oriented optimization model for airline service design is developed that integrates flight schedule design, fleet assignment and demand management under the ETS. First simulation experiments with the model and demand data from the European market provide interesting insights for both airline managers and regulators:
 
• Passing the cost of buying additional CO2 allowances on to the customer will significantly erode airline profits.
• In the first phase, airlines can recapture a large part of the potential profit loss through improving their current operations, schedules and prices.
• The incentive for an airline to reduce CO2 emissions in the short-term is small; rather, at expected CO2 market prices of several tens of Euros per tonne of CO2, it is optimal to buy the required allowances.
• In the long-term, expected traffic growth and further decreases in the CO2 cap may give incentive to invest in a more efficient fleet. However, the main economic incentive for an airline is fuel cost savings rather than anything else.
• Even under a more efficient fleet the reduction of CO2 is moderate.

--- Cornelia Schön, Professor of Operations Management