Revenue Management for Airline Industry โดย รศ.ดร.กาญจ์นภา อมรัชกุล ในงาน THE FIRST NIDA BUSINESS ANALYTICS AND DATA SCIENCES CONTEST/CONFERENCE จัดโดย คณะสถิติประยุกต์และ DATA SCIENCES THAILAND

1. Revenue Management for Airline Industry
The First NIDA Business Analytics and Data Sciences Contest/Conference
วันที่ 1-2 กันยายน 2559 ณ อาคารนวมินทราธิราช สถาบันบัณฑิตพัฒนบริหารศาสตร์
•What is Revenue Management?
•Revenue Management in Airline Industry
-Market segmentation
-Capacity allocation/Booking control
-Overbooking - Forecasting
•Research topics & Future trends
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รศ.ดร.กาญจ์นภา อมรัชกุล
สาขาวิชา Logistic Management
คณะสถิติประยุกต์ NIDA
นวมินทราธิราช 3003
วันที่ 2 กันยายน 2559 9.30-10.00 น.

2. AIRLINE
REVENUE MANAGEMENT
Kannapha Amaruchkul
Logistics Management Program,
School of Applied Statistics, NIDA
2016-09-02 9:30-10:30 Rm3003

3. WHAT IS REVENUE MANAGEMENT (RM)?
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4. WHAT RM?
Other synonymous names are
 Yield management
 Pricing and revenue optimization
 Demand-chain management
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Credit: http://en.wikipedia.org/wiki/Demand_chain

5. LOGISTICS NETWORK (SUPPLY CHAIN)
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Source: Simchi-Levi, D., & Kaminsky, P., & Simchi-Levi, E. (2007). Designing and Managing the Supply Chain: Concepts, Strategies and Case Studies. Boston: McGraw-Hill.

6. SUCCESS OF AIRLINE RM
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 In 1985, American Airlines (AA) was threatened on its
core routes by the low-fare carrier PeopleExpress, after
deregulation
 AA developed RM program
 PeopleExpress lack of a strong computer reservation
system and went out of business.
 The AA team won 1991 Edelman Prize for best
application of management science.
Source: http://airwaysnews.com/html/timetable-and-route-maps/

7. 7

8. PRICE OPTIMIZATION
Price-response function
d(p) = 1000 – 2p
ต้นทุนต่อหน่วย c = 30 THB
1. Single-price opt กำไร 110,540
2. Two-price กำไร 130,600
กำไรที่ได้จำกกำรตั้งสองรำคำที่ 300 และ 230 บำท
3. Three-price กำไร 138,450
กำไรที่ได้จำกกำรตั้งสำมรำคำที่ 300, 265, 230 บำท
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กำญจ์นภำ อมรัชกุล. (27 ธันวำคม 2557). Traditional Pricing ของตั๋วโดยสำรรถทัวร์ versus Dynamic Pricing ของตั๋วโดยสำรเครื่องบิน Low Cost หนึ่งกลยุทธ์เชิงรำคำของกำรจัดกำรรำยได้ (Pricing & Revenue Optimization), [ระบบออนไลน์],
managerOnline: http://www.manager.co.th/Daily/ViewNews.aspx?NewsID=9570000149055

9. MARKET SEGMENTATION IN AIRLINE INDUSTRY
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Source: Simchi-Levi, D., & Kaminsky, P., & Simchi-Levi, E. (2007). Designing and Managing the Supply Chain: Concepts, Strategies and Case Studies. Boston: McGraw-Hill.
Sensitivity to
duration/flexibility
High ? ?
Low ? ?
Leisure
Business
Low High Sensitivity
to price

10. 10
Pricing and
Revenue
Optimization
Pricing
Price
Optimization
Price
Differentiation
Revenue
Management
Capacity
Allocation
(Single-Resource)
Network
Management
Overbooking

11. “FENCING” BY RESTRICTIONS
 Business travelers typically do not
want to stay over Saturday night, so they
will not buy M or Q
 RM system determines how many seats
to protect for Y and B
 Impose booking limits on M and Q
MIT Open Courseware (http://ocw.mit.edu/) Airline RM: Flight Leg and Network Optimization. P. Belobaba.
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12. CAPACITY ALLOCATION:
EXPECTED MARGINAL SEAT REVENUE (EMSR) Full fare 𝑝1 = 987 Discount fare 𝑝2 = 650
 Full-fare demand 𝐷1 Poisson with mean 45.
Discount-fare demand 𝐷2 Poisson with mean 75
 Find an optimal protection level. Capacity = 100 seats.
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Protection level,
y 𝑃 𝐷1 ≥ 𝑦 )
Expected Marginal
revenue for class 1,
𝑝1 𝑃(𝐷1 ≥ 𝑦)
20 1.0000 986.99
30 0.9927 979.76
40 0.7916 781.33
41 0.7445 734.78
42 0.6927 683.69
43 0.6372 628.94
44 0.5792 571.66
45 0.5198 513.07
46 0.4605 454.48
47 0.4024 397.16
48 0.3468 342.29
49 0.2947 290.84
50 0.2468 243.59
60 0.0187 18.41
70 0.0003 0.33
Yes: keep y units for class 1
No: Sell to class 2 now
𝒑 𝟏 = 𝟗𝟖𝟕
Increase protection
level from 29 to 30?
𝑷(𝑫 𝟏 ≥ 𝟑𝟎)
𝑫 𝟏 ≥ 𝟑𝟎
0
𝒑 𝟐 = 𝟔𝟓𝟎
𝑷(𝑫 𝟏 < 𝟑𝟎)
Increase protection level for class 1, 𝑦1, as long as 𝑝2 < 𝑝1 𝑃 𝐷1 ≥ 𝑦1

13. NETWORK RM
 A carrier might have 1000 daily
departures.
 A320 with 200 seats per flight leg.
 200*1000 = 200,000 seats per network day.
 365 network days
 At any given time, airline inventory is
365*200,000 = 73,000,000 seats.
Managing inventory is challenging due
to volume
http://img.photobucket.com/albums/v94/kyrul/airliners/airasia.gif
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14. BID PRICE NETWORK CONTROL
ODF Bid price 350 2010 1690
Product
bid price AvailabilityOrigin Destination
Fare
Class Fare AB BC CD
B C Y 4500 0 1 0 2010 Yes
B C M 3200 0 1 0 2010 Yes
B C B 2250 0 1 0 2010 Yes
B C Q 1950 0 1 0 2010 No
A C Y 5200 1 1 0 2360 Yes
A C M 3430 1 1 0 2360 Yes
A C B 2600 1 1 0 2360 Yes
A C Q 2300 1 1 0 2360 No
A D Y 5820 1 1 1 4050 Yes
A D M 3790 1 1 1 4050 No
A D B 3020 1 1 1 4050 No
A D Q 2690 1 1 1 4050 No
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15. BID PRICE CALCULATION: DETERMINISTIC LP
ODF Fare Leg1 Leg2
1 AB full fare 145 1 0
2 AB discount fare 100 1 0
3 BC full fare 130 0 1
4 BC discount fare 75 0 1
5 AC full fare 255 1 1
6 AC discount fare 170 1 1
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Remaining capacities: Leg 1, 10; Leg 2 12
Forecast demand is shown on the RHS

16. FUTURE TRENDS
Big data
 “For the airline industry, big data is cleared for take-off”
 Intelligence market segmentation
 Amazon and Netflix have been renowned for successful recommendation algorithms E-commerce
 Increased personalization in inflight merchandising and advertising.
 Create value propositions based on real-time information about customer preferences and needs
 Local transport from/to airport
 Special occasion
 For business travelers, Priority immigration clearance, WiFi, extra legroom
 For family-vacation booking, entertainment bundle
Predictive analytics
Unbundled revenue, strongly pushed by the price-competitive low-cost carriers (LCCs)
Optimize the total revenue, including ancillaries.
Predict customer behavior on the two decisions: 1) airfare and 2) ancillary purchases
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17. RM APPLICATIONS: BUSINESS ENVIRONMENT
Traditional application areas
Airline
Hotel
Car rental
Tour operators
Cargo
Cruise
Non-traditional application areas
Broadcast
Healthcare
Manufacturing
Apparel
Restaurants
Golf
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Capacity is limited and immediately perishable.
Commitments need to be made when future demand is uncertain.
Firm can differentiate among customer segments.
The same unit of capacity can be used to deliver many different products or services.
Firms are profit-oriented and have broad freedom of action.