Tuesday, November 29, 2011

American Airlines Chapter 11: An OR Opportunity within a crisis

The news of American Airlines' Chapter11 may sadden some members of the OR community given their pioneering work in revenue management apart from their amazing impact on the overall ORMS practice in the airline industry. However, this crisis is also an opportunity for O.R. The company will be taking a close look at their business model as well as their more tactical operations and ring in a chain of meaningful improvements. Speaking from a similar 'chapter 11' experience during the last decade, this filing represents an opportunity for OR practitioners that must be grabbed. This situation highlights what this tab has talked about before: having a well trained ORMS team with domain expertise is invaluable and i'm sure AA has retained a lot of their experts.

Specific example
The renegotiation of the existing collective bargaining agreements (CBAs) with various unions is a great application example that can generate significant 'true dollar' returns. OR can be gainfully used to analyze rule changes that significantly improve efficiency while also improving the quality of work life of stakeholders to produce win-win deals. During 2003-2006, OR folks at a similar legacy US carrier were able to quantify and successfully redefine a set of highly complex work rules that ensured better utilization and compensation without sacrificing quality of work life. What's more, such feedback can help prevent CBA negotiations from stalling and win some trust from both sides of the table. In such situations, the management is likely to be more flexible in 'opening up' old rules, allowing the full use of powerful solvers and large-scale optimization models to determine the maximum level of improvement possible by replacing such legacy constraints with more sensible ones. Every  (deterministic) dollar saved during such stressful times is precious and is highly appreciated. In short, Chapter-11 is a time when OR folks on the ground can make their presence felt and directly contribute to the bottom-line. A friend in need is OR indeed.

update: some typos fixed

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