Technical Program
RM
Presentations ( Based on submitted
abstracts to date* )
The Six C’s
Scott Nason, VP of Revenue Management
American Airlines
Upgrades and Upsells in Revenue Management
Guillermo Gallego
and Catalina Stefanescu
Columbia
University and London School of
Business
Capacity providers often experience a mismatch between
supply and demand that can be partially alleviated while improving revenues
by allowing for product upgrades. When prices are fixed and demands are
independent, the problem is to decide which customer demands to upgrade to
which products and when. We show that a fairness constraint can be imposed
without loss of optimality under mild conditions. We also investigate a
model that limits upgrades to the next higher quality product and provide
necessary and sufficient conditions for its revenues to be as high as that
of any less restricted upgrade model. Resellers of capacity also have an
incentive to use upgrades as a mechanism to entice customers to higher
quality products with higher commission margins. We show that this practice
can be very profitable and that the profits can be much larger than direct
commissions from sales would indicate. This suggests that primary providers
may be in a more powerful position to negotiate commissions or impose sales
volume constraints. We then investigate the case where sellers have pricing
flexibility and customer demand is driven by a choice model. We derive
pricing formulas under the assumption that demand for products follows a
multinomial logit model. For this model we show that neither upgrades nor
upsells can improve profits when margins are homogenous and there is
complete freedom in selecting prices. However, upgrades can improve
revenues significantly when margins are heterogeneous and sensible business
constraints on prices are imposed.
Revenue Management Simulation at American
Airlines
Scott Chandler, Sunny Ja and Judy Pastor
American Airlines
Simulation has been a key technology supporting research
in revenue management (RM) forecasting, optimization and performance
measurement. It requires significant effort and expertise to calibrate the
model. American Airlines (AA) has been a member of Sabre Simulation Club
since 2004 and the objective of this partnership is to develop a pool of
demand and funding sufficient to support the use of the RM simulation
model. This presentation will discuss how the model works and include a
case study at AA.
We will
also present a multi-cabin simulation that demonstrates the
interaction between coach and Premium cabins, modeling both RM controls and
the special rules that govern the “most valuable real estate” on the
aircraft. The balance between true revenue versus upgrade value and
customer service can be explored using this tool.
A
column generation algorithm for choice-based network revenue management
Gustavo Vulcano
New York University
During
the past few years, there has been a trend to enrich traditional revenue
management models built upon the independent demand paradigm by accounting for
customer choice behavior. This extension involves both modeling and
computational challenges.
One way to describe choice
behavior is to assume that each customer belongs to a “segment”, which is characterized
by a “consideration set”, i.e., a subset of the products provided by the
firm that a customer views as options. Customers choose a particular
product according to a multinomial-logit criterion, a model widely used in
the marketing literature.
In this paper, we consider the
choice-based, deterministic, linear programming model (CDLP) of Gallego et
al.(2004), and the follow-up dynamic programming decomposition heuristic of
van Ryzin and Liu (2004). We focus on the more general version of these models,
where customers belong to overlapping segments. To solve the CDLP for
real-size networks, we need to develop a column generation algorithm. We
prove that the associated column generation sub-problem is indeed NP-Hard,
and propose a simple, greedy heuristic to overcome the complexity of an
exact algorithm. Our computational results show that the heuristic is quite
effective, and that the overall approach leads to high quality practical
solutions.
Competitor Fare Availability monitoring and usage
Gert Hartmans
KLM
KLM
has now a number of year experience in monitoring competitor fare
availability as published by airlines on their web-sites. This is a step
further than just monitoring published fares. Presentation will provide
issues in data collection and proposes common policies to avoid overloading
web-sites with requests. Presentation and usage of the data will be described.
Survey Results from Airlines
using Revenue Management Software Systems
Larry
Weatherford
University of
Wyoming
We surveyed airlines from
around the world with regard to their RM Systems. Over 25 major and smaller carriers have
responded already. We will present
aggregated results showing the percentage who use different vendors vs.
having built their own in-house system, and their average satisfaction with
the software.
We will also present how
many carriers have switched RM vendors and why. Finally, an analysis will be done on the
percentage of flights that are managed by the RM system and how many
analysts carriers have (as a function of their overall revenue).
Multi-flight
Demand Untruncation: Simulation Results
Richard Ratliff
Sabre Holding Inc.
This talk provides an overview of a
multi-flight demand untruncation approach with recapture using customer
choice models. Results from applying this method in an
O&D simulation are discussed.
Evaluating Forecast Efficacy or How
Do I know if This Thing is Working?
Edward Kambour
PROS
There is much said and done
regarding forecasting models. It is a challenge, however, to monitor
forecasts, particularly in an O&D setting. In this presentation
we will cover some of these challenges and investigate approaches for
looking at and judging forecast efficacy.
A Simulation Based System for
Evaluating Demand Forecasts
Catherine Cleophas
University of Paderborn
While it is important for an
airline's revenue management strategy, measuring forecast quality is not
trivial. In the real world, controlling the influence factors for demand is
impossible. The presentation introduces the implementation of a
simulation-based approach including a realistic airline network and demand
model. Advantages and challenges of approaches to emulating a revenue
management system are discussed as well as the simulation's reaction to the
long-term use of a static forecast. Finally, outlooks toward a sensitivity
analysis of the interaction of forecast and optimization and an analysis of
the forecast quality opportunity of different customer models will be
presented.
Pricing of parallel flights
Christopher Alder
Clausthal University of Technique
Traditional forecasters and
optimizers in airline revenue management assume independent demand between
booking classes. This assumption is far from reality, as passengers may buy
cheaper tickets if available. At the moment, airlines make an effort to
implement new forecasters and optimizers that take this fact into account.
But they are not at the end of the line, as demand is not just dependent
between several booking classes, but also between flights that serve the
same O&D. The presentation shows a concept of how to solve the problem
of pricing parallel flights by the use of dynamic programming.
Conceptual
Model and Processes of Customer Value Based Revenue Management
Tobias von Martens and Andreas Hilbert
TU Dresden / Germany
This paper proposes a
conceptual model of revenue management with regard to customer value. Based
on an integration of transaction-focused inventory control and customer
relationship management, this approach aims at utilizing capacity resources
efficiently while establishing profitable customer relationships at the
same time. The model classifies the tasks of inventory control and suggests
a framework for objectives and strategies. Afterwards, process models are
developed for the operational tasks. Finally, the conceptual model is
evaluated with the help of simulation studies before concluding remarks and
an outlook on remaining research are given.
Strategic
timetabling in airline revenue management
Andy Philpott, Gerard Cachon, Golbon
Zakeri, and Amir Joshan
The University of Auckland and Wharton
We consider a two-stage game between airlines operating over a network of
itineraries. In the first stage the airlines choose flight departure times
and at a later stage they allocate capacities to the flights. The choice of
departure times has the effect of a prior commitment that certain
itineraries will not be offered. We study the Nash equilibrium in some
simple versions of this game and investigate conditions under which it
coincides with the equilibrium in which airlines simultaneously choose
departure times and seat capacities.
Revenue
Management and Exchange Rates Fluctuations, ATN PoS Control
Mathieu Bechonnet and Jean Michel Chapuis
Air Tahiti Nui and University of French Polynesia
Since the €/$ exchange rate
fluctuates, the question is how to manage booking limits within the same
bucket according to exchange rate? Starting a brief discussion of nesting
techniques, we present the impact of exchange rates fluctuations on point
of sales controls in terms of revenues. Then we search for a dynamic way to
close Pos/fare class without re mapping the fare structure.
Impact of Internet on
the marketing mix of traditional airlines: the case of France
Andre Boyer and
Béatrice Labourdette
University of
Nice, France
After presenting
the current development of airlines, taking into account the fact that this
is an activity in difficulty on a worldwide level, the unstable
geopolitical environment, and a very heavy regulation, we deal with the
context of the marketing of airlines specifying the case of France.
This case
involves two constraints:
-
One
of increasingly aggressive competition with low costs and the role of rail,
forcing the development prospects for the establishment of alliances and
shifting of activities to the Long Haul.
-
The
second constraint is linked to the strategic management of costs, which
includes vital economy plans economy vital for sustainable development and
the features of "High costs" of European airlines and
distribution costs to be optimized.
We therefore
analyze the contribution of the Internet strategy of airlines, which
includes:
-
A
response to the aggressive pricing of low costs.
-
A
communication policy as the basis for a global showcase.
-
A
new breakdown of the distribution.
-
The strengthening
of supply to customers.
-
Optimizing
overall distribution costs, the role of the Internet.
We conclude by
showing that the Internet is more than just a new medium of communication.
It is indeed a new marketing leverage innovation but also a vehicle for
strategic change because of its impact on an economic and commercial level
and also on changing professions.
Cargo Presentations ( Based
on submitted abstracts to date* )
On
Optimizing Cargo Rates to Improve the Bottom Line
Ben Vinod
Sabre
Holding Inc.
The
fundamental problem that has plagued the air cargo industry, over the past
two decades, has been that of declining yields. This presentation
provides a framework for optimizing cargo rates based on a customer's
willingness to pay and the underlying market strategy. By addressing
cargo rates, which are a fundamental input into the revenue management
process, cargo yields can be improved by determining the optimal published
rate tariff structure for commodities.
Product
Management in the Cargo Industry
Adam Dudar
Air Canada
The
air freight industry over the last year has come under significant pressure
to maintain its status as a preferred method of transportation. As such, new revenue opportunities need
to be sought as well as the need to maximize the existing revenue streams. Current revenue enhancing strategies have
primarily focused on push strategies through the use of bid price. In this discussion, we will review
various product management and distribution strategies that could be
deployed in the cargo environment.
Exploring how marketing could develop new products that exploit new
revenue opportunities by leveraging the experience of the RM team and
demand management systems.
Understanding
the inter-dependencies between product, price and propensity to pay over
laid by demand are critical to such success. Ensuring that sufficient differentiation
is maintained, yet achieving value to the customer base.
Benchmarking Organizational Efficiency for
Cargo RM
Jamison Graff
JDA
Participants will consider measures of productivity and
cost/benefit ratios employed in other industries, discuss their application
to air cargo revenue management, and propose metrics tailored to air
cargo requirements.
Workshop
Customer
Relationship & Revenue Management – CR2M
Facilitated
by Dr. Ricardo V. Pilon
IBS
Software Services (P) Inc.
Marketing’s
fundamental goal has always been to identify and satisfy customer needs and
wants. We manage this by focusing on the core product, expected product and
aim to create loyalty around the delivered product. For long, this required
(micro) market segmentation, and pricing’s role has been to establish
optimal price points for today’s bundled and increasingly unbundled
products. However, today Revenue Management still controls the availability
of products on a short-term transactional basis, often severely conflicting
with customer relationship goals, or worse, customers’ perception of what
customer loyalty goals should be.
With
traditional loyalty management reaching saturation levels and next
generation loyalty management closing in on transactional analytics, all components
within marketing and revenue management need to be re-aligned under
consistent objectives, practices, and business processes.
This
workshop will focus on the innovation in the wider marketing domain that
can or should be expected, including its components and its integration
with RM. Various teams, assuming different roles, will work together to
facilitate group learning, while various solutions resulting from the
workshop will be presented at the main forum. They will then be recommended
for further research.
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