Professional Documents
Culture Documents
November 2002
Barry C. Smith
Overview
2
Airlines Make Money Only When They
Match Supply and Demand
3
The Problem is Large and Dynamic
4
Effective Planning and Marketing is a
Continuous Process
5
There Should be Continuity
7
Yield Management Objectives
8
YM is Essential to Airline Profitability
9
YM Controls
Overbooking
Revenue Mix
Discount allocation
Traffic flow
Groups
10
Yield Management Evolution
1960’s:
Overboo
king
Deep Revenue
+2%,
Discount 300k
11
Revenue Mix Problem – Flight Leg
Sell out
High-Value Profit
Hold for
Higher-Value
Customer
Unsold Product
$0
12
Yield Management Evolution
1960’s:
Overboo
king
Deep Revenue
+2%,
Discount 1990’s: Bid 300k
Price
Rev +6%
1 MM 13
Revenue Mix Problem – Network
Max ∑ Pax
ODF
ODF * Re vODF
Subject to :
PaxODF = f ( AllocationODF , DemandODF )
∑ Pax
ODF
ODF ≤ Capacity Flight
Allocations ≥ 0
14
Passengers = f (Allocation, Demand)
Mean Demand
Passengers Carried
σ = 0
σ > 0
Allocation
15
Revenue Mix Approaches
16
Yield Management Evolution
2000’s:
Mult.
1980’s: Value of Last Seat Channels
OD CRM 1970’s:
Rev +5% Class
Origin-Destination Market
High Value Low Value Code
30 MM
Rev +4%
Full Fare 3 MM
Class Code
1960’s:
Overboo
king
Deep Revenue
+2%,
Discount 1990’s: Bid 300k
Price
Rev +6%
1 MM 17
Fleet Assignment – FAM
18
Basic FAM Formulation
Max ∑ ∑ x f , a (R f , a −C f , a )
a ∈ Aircraft f ∈Flights
Subject to
∑ x f , a =1 ∀f ∈Flights
a ∈ Aircraft
∑ ya,0, s ≤ PCa∀a∈Aircraft
s∈Stations
x f , a ∈{0,1} ya, t, s ≥ 0
19
FAM Extensions
20
Leg Revenue Modeling Approaches
21
Improving Revenue Modeling in FAM
Allocations
For each flight leg allocate space to each passenger path
Piecewise linear approximation for traffic/revenue on
each path
Solve the OD YM model inside of FAM
Model size explodes -- There are 150,000-500,000
passenger paths in a typical problem for a major carrier
Decomposition
Solve yield management model outside of FAM
Incorporate model results into FAM
22
Integration of FAM and YM
FAM YM
Π Capacity Bid Price Π Capacity
23
Revenue Function Approximation:
One Leg, One Cut
Bidprice, λ ($/seat)
Revenue ($ US)
R 0 f λ f ∗C A Pf ≥ R C A Pf
R0
24
OD FAM Master
Max RTotal − ∑ ∑ x f , aC f , a
a ∈ Aircraft f ∈Flights
25
Revenue Function Approximation:
One Leg, Multiple Cuts
Revenue ($ US)
R0
26
Planning and Marketing Integration
27
Ideal Planning
28
Planning Reality
Sales Pricing
Yield Management
Distribution
Customers
29
Airline Pricing
30
Sales and Distribution:Multi-channel
Res Office
On Tariff -- GDS
Airline AL.com
Capacity Distressed Inventory
Forecast of
TA.com Customers
Demand and
Free Market
FFP Burn/Earn
Value Corporate
Tour/Cruise/Cons
Partners
31
Bid Prices Support Integration
Sales Pricing
Yield Management
Distribution
Customers
32
Unsolved and Under-solved Problems
Operations
Competition
33
The Evolving Environment
software providers
Current: The current market conditions have reduced the ability of major US
carriers to support significant new development
Future: The marketplace for new optimization applications will be
dominated by the requirements of the emerging carriers – low-cost,
alternative business models
Simple
Flexible
34
Optimization in
Airline Planning and
Marketing
November 2002
Barry C. Smith