lect26 - MIT International MIT ICAT ICAT Center for Air...

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M I T I n t e r n a t i o n a l C e n t e r f o r A i r T r a n s p o r t a t i o n M I T I n t e r n a t i o n a l C e n t e r f o r A i r T r a n s p o r t a t i o n MIT MIT ICAT ICAT WILLINGNESS TO PAY AND COMPETITIVE REVENUE MANAGEMENT Peter P. Belobaba With help from the MIT PODS Team: Maital Dar, Valenrina Soo, Thierry Vanhaverbeke 12 th PROS Conference Houston, TX March 5-8, 2006
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MIT MIT ICAT ICAT 2 Traditional RM Systems Are Struggling Under Fare Simplification y Simplified fare structures characterized by ± One-way fares with little or no product differentiation, priced at different fare levels ± Existing RM systems employed to control number of seats sold at each fare level y But RM systems were developed for restricted fares ± Assumed independent fare class demands, because restrictions kept full-fare passengers from buying lower fares ± Time series forecasting models used to predict future demand based on historical bookings in each fare class ± Given independent demand forecasts, top-down protection for highest classes, extra seats made available to lowest class
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MIT MIT ICAT ICAT 3 30,000 35,000 40,000 45,000 50,000 55,000 60,000 65,000 Fully Restricted Remove AP Remove Sat Night Min Stay Remove All Restr, Keep AP Restr and AP Revenue Impacts of Fare Simplification with Traditional RM Models - 0 . 5 % 2 9 6 4 1 8
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MIT MIT ICAT ICAT 4 Traditional RM Models “Spiral Down” without Product Differentiation 0 10 20 30 40 50 60 70 80 90 100 Fully Restricted Remove AP Remove Sat Night Min Stay Remove All Restr, Keep AP Remove All Restr and AP FC 6 FC 5 FC 4 FC 3 FC 2 FC 1 81.6 87.8 79.8 82.7 88.1
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MIT MIT ICAT ICAT 5 Existing Airline RM Systems Need to be Modified for Changing Fare Structures y Without modification, these RM systems will not maximize revenues in less restricted fare structures ± Unless demand forecasts are adjusted to reflect potential sell-up, high-fare demand will be consistently under-forecast ± Optimizer then under-protects, allowing more “spiral down” y Current RM system limitations are negatively affecting airline revenues ± Existing systems, left unadjusted, generate high load factors but do not increase yields ± Many legacy carriers are using “rule-based” RM practices y RM forecasting models must be changed to reflect passenger willingness to pay (WTP)
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MIT MIT ICAT ICAT 6 Forecasting by Willingness to Pay y With undifferentiated fares, forecasting must focus on demand by willingness to pay higher fares ± Approach is to “transform” all historical bookings at different fares
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This note was uploaded on 11/08/2011 for the course AERO 16.72 taught by Professor Hansman during the Fall '06 term at MIT.

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lect26 - MIT International MIT ICAT ICAT Center for Air...

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