Spill_C-Factor.DOC - (Cfactor)FORSPILLMODEL Summer1992...

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SELECTING EFFECTIVE CAPACITY (C-factor) FOR SPILL MODEL Summer 1992 Introduction The Spill Model predicts how much demand is turned away due to  high load factors on a group of flights.  Within the Spill model, the Effective Capacity of an aircraft limits the usable capacity. Because of conservatism in the reservations system, the Effective Capacity of an aircraft is always a little below the numerical  seat count.  The difference between seat count and average  boarded load for a flight which is sold out is often called  "spoilage."  Effective Capacity is seats minus spoilage. There are two reasons for spoilage.  The earliest reason was to  prevent denied boardings.  Normally, reservations in excess of  capacity are allowed, to adjust for the no-show rate at the gate. This is "overbooking."  But too much overbooking is bad.  For  instance, it would be a disaster if the average number of people  who show up at the gate equaled the number of seats.  Half the  time passengers at the gate will be above average, and denied  boardings will occur.  To prevent this, reservations are limited  so that the average demand at the gate is slightly below the  capacity.  This means denied boardings will seldom happen.   Flights with a 15% no-show rate used to be booked so that the  departure load factor averaged around 95%.  That is, with 5%  spoilage, and 95% effective capacity. Further conservatism in reservations systems occurred as yield  management became more effective.  Effective yield management  preserves seats for late booking high fare demand by denying  reservations to some discount demand.  The denied discount  bookings are spill, but the high fare demand does not always  materialize.  Because the high fares are much more profitable,  yield management systems are willing to take the chance.  Extra  spoilage is a consequence of this calculated risk.   For these two reasons, the Effective Capacity is less than the  actual seat count.  Effective Capacities can run from 85% for a  small aircraft with deep discounts and a high denied boarding  cost to 98% for a large aircraft with a single fare and low  denied boarding costs.  The revised spill model provides a parameter which can be used to characterize the particular mix of fares, denied boarding costs,  and yield management strategies, and fare discipline which  applies for an airline in a group of markets.  The parameter is  named "C-factor."  It adjusts the spoilage rate.  This gives the  Effective Capacity for any particular aircraft size.
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What Causes C-factor Values The parameter for Effective Capacity has been named "C-factor."  
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