A Study on Supplier Diversification of Aircraft Fleet by Low-Cost Carrier

Abstract

In recent years, there were cases where a significant defect was found that caused the entire aircraft fleet to be shut down, which can be critical to a low-cost carrier(LCC) operating a unified fleet. The LCC may consider to purchase a new type of aircraft as an alternative, but it incurs a fixed cost. Considering this trade-off, we study a decision-making problem of a LCC operating a single fleet and examine whether the LCC that purchases a new aircraft should purchase the same type of aircraft as the existing aircraft or a new type. The main results are as follows. First, the benefit of purchasing a new type is maximized when the ratio of new purchases is at an intermediate level, and when the AoG probability and fixed cost of a new type is low. Second, even when the AoG probability of a new type aircraft is higher than that of an existing aircraft, purchasing the new type can be the optimal decision despite the fixed costs. Third, when fixed costs are low and the new purchase ratio is high, LCCs can reduce costs by introducing mixed purchases.