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Airline Demand Analysis and Spill Modeling
16.75J/1.234J Airline Management
Dr. Peter P. Belobaba
February 2006
Stochastic and Cyclical Nature of Demand
•
The total demand for a particular flight even at a given time of day fluctuates by day
of week and season of the year.
In addition to these more predictable or “cyclical”
fluctuations in demand, there are also less predictable or “stochastic” variations in
demand around the mean or expected value for a flight:
–
We can represent the total uncertainty of demand for a future flight departure with
a probability distribution (density) of expected demand.
–
Historically, a Gaussian (Normal) distribution of demand has been assumed, with
a mean and standard deviation that depend on the market being studied and on the
nature of its traffic.
–
Based on many empirical studies of actual airline data, the standard deviation of
total demand for a flight relative to the mean demand is typically between 0.20
and 0.40.
This measure is also known as the “coefficient of variation
” or “k
factor
” of demand, defined as:
kfactor = standard deviation / mean demand
–
The “kfactor” of demand for a given flight will depend on the variability of
demand over a series of days, weeks or months.
Leisure markets typically will
have higher kfactors of demand than business or mixed travel markets with more
stable demand patterns.
•
It is important to understand that, in practice, it is difficult if not impossible to
observe the actual “demand” for a flight.
This is especially true if at least some of the
departures of a series of flights on the same route at the same time of day and/or day
of week depart full:
–
Airlines have no way of keeping track of how many requests for bookings on a
given flight departure were turned away or rejected if there was not enough
space on the aircraft to accommodate all passengers that wished to travel on the
flight.
–
The notion of “total demand” for a particular flight or set of flights operated
over a period of time is therefore a theoretical concept.
Thus, the analysis of
“total demand” (as opposed to the number of passengers who actually were
transported) requires models and assumptions, as described below.
1
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View Full DocumentTerms and Definitions
•
DEMAND
: The total number of potential passengers wishing to make a reservation
on a particular scheduled flight leg.
In line with our definition of “demand” for an
origindestination market in Air Transportation Economics, the “demand” for a flight
leg reflects a maximum potential, independent
of the capacity being offered on the
flight.
•
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: The total number of passengers who are actually carried on the flight leg.
Because the demand for a flight can sometimes be greater than its capacity, it must be
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 Fall '06
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