1 us airways, inc. copyright 2003 all rights reserved bid price control at us airways: benefits and...

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US Airways, Inc.Copyright 2003

All Rights Reserved

Bid Price Control at US Airways: Benefits and Costs of O&D Revenue

Management

Rick Zeni

AGIFORS Honolulu 2003

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Overview of RM at US AirwaysOverview of RM at US Airways

Early 1990’s-installed segment based RM systemEarly 1990’s-installed segment based RM system 1998-Converted to Sabre’s AirMax O&D1998-Converted to Sabre’s AirMax O&D 2001-Upgraded to AirMax 4.02001-Upgraded to AirMax 4.0 2003-Upgraded to AirMax 5.32003-Upgraded to AirMax 5.3

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Prior to O&D at US AirwaysPrior to O&D at US Airways

US Airways operated a segment-based RM systemUS Airways operated a segment-based RM system InvestigatedInvestigated

Remain on segmentRemain on segment Virtual NestingVirtual Nesting Displacement adjusted virtual nestingDisplacement adjusted virtual nesting Various approaches to O&D (LP, NLP, DP)Various approaches to O&D (LP, NLP, DP)

Sabre Outsourcing AgreementSabre Outsourcing Agreement

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Sabre OutsourcingSabre Outsourcing

All 200+ Major Systems ConvertedAll 200+ Major Systems Converted Company-wide Fixed Cutover DateCompany-wide Fixed Cutover Date 11 month timeline 11 month timeline Knife-edge Cutover With No FallbackKnife-edge Cutover With No Fallback RM group recently relocated from INTRM group recently relocated from INT 75% of Staff < 1 Year of Experience75% of Staff < 1 Year of Experience

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Bid Price ControlBid Price Control

A fare class is open for bookings on an itinerary A fare class is open for bookings on an itinerary if the fare is greater than the bid priceif the fare is greater than the bid price

Allocations are not stored in SABRE. Allocations are not stored in SABRE. Availability is calculated in real timeAvailability is calculated in real time

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US Segment System vs. O&DUS Segment System vs. O&D

Previous SystemPrevious System Individual flights reoptimized Individual flights reoptimized

at any timeat any time Segment forecastsSegment forecasts System not available during System not available during

optimizationoptimization Segment-based allocationsSegment-based allocations

O&DO&D Entire route network on Entire route network on

optimizedoptimized Leg and O&D forecastsLeg and O&D forecasts Current day not available Current day not available

during optimizationduring optimization O&D Bid PricesO&D Bid Prices

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Process ComparisonsProcess Comparisons

Previous SystemPrevious System Focus on allocationsFocus on allocations Flexible planning horizonsFlexible planning horizons Instant feedback on Instant feedback on

inventory controlsinventory controls Forecasts final demandForecasts final demand

O&DO&D Focus on forecasts-there Focus on forecasts-there

are no allocationsare no allocations Regimented planning Regimented planning

horizonshorizons ““Delayed” feedback on Delayed” feedback on

inventory controlsinventory controls Forecasts remaining Forecasts remaining

demanddemand ““Small numbers” O&D Small numbers” O&D

forecastsforecasts

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First Steps to Implement O&DFirst Steps to Implement O&D

Learned about the systemsLearned about the systems Initiated staff participationInitiated staff participation Started thinking in O&DStarted thinking in O&D Prepared for change Prepared for change

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Implementation PhilosophyImplementation Philosophy

Keep it simpleKeep it simple Focus on things with largest paybackFocus on things with largest payback No organizational changesNo organizational changes Full better than emptyFull better than empty Monitor trendsMonitor trends Contingency planContingency plan

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TrainingTraining

Conducted by Sabre with US Airways Conducted by Sabre with US Airways participationparticipation

Scheduled to build to cutover dateScheduled to build to cutover date Chronologically by system from least to most Chronologically by system from least to most

complexcomplex Focused on how to use systemFocused on how to use system

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O&D Business ProcessesO&D Business Processes

Use O&D system “as is”Use O&D system “as is” Change business process to fit O&DChange business process to fit O&D Assessed the model’s abilities and limitationsAssessed the model’s abilities and limitations Compared current business process with Compared current business process with

perceived future processperceived future process Determined key business dependencies Determined key business dependencies

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Preliminary Business ProcessPreliminary Business Process

Leg demand first, class demand secondLeg demand first, class demand second Adjust itinerary classes with significant demandAdjust itinerary classes with significant demand Focus on forecasts, not allocationsFocus on forecasts, not allocations O&D forecast hierarchyO&D forecast hierarchy Daily prioritization left up to the analystsDaily prioritization left up to the analysts Review process after cutoverReview process after cutover

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Performance MeasurementsPerformance Measurements

SABRE/APOLLO bookings SABRE/APOLLO bookings CRS market shareCRS market share Build trends by classBuild trends by class Ticketed revenueTicketed revenue Service class availabilityService class availability Overbooking levelsOverbooking levels Flights selling out too soonFlights selling out too soon Award seat liabilityAward seat liability Bid Price trends for key regionsBid Price trends for key regions

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Performance MeasurementsPerformance Measurements

Analyst/MarketAnalyst/Market Discount allocations on low load factor flightsDiscount allocations on low load factor flights Percent of flights on Y stop salePercent of flights on Y stop sale Y Stop Sale Load FactorY Stop Sale Load Factor Voluntary/Involuntary denied boardingsVoluntary/Involuntary denied boardings

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Post ImplementationPost Implementation

““Experts” to answer analysts questionsExperts” to answer analysts questions Monitored exception reportsMonitored exception reports Inquiries from other departmentsInquiries from other departments Assessment of business processesAssessment of business processes O&D Flight ChallengeO&D Flight Challenge

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O&D Flight ChallengeO&D Flight Challenge

Challenged preconceived notions of flight Challenged preconceived notions of flight managementmanagement

Select flights for controlled experimentsSelect flights for controlled experiments Analysts compiled data and presented resultsAnalysts compiled data and presented results Gain more confidence in the systemGain more confidence in the system Better ways to use the systemBetter ways to use the system

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System DaySystem Day

System vs. analystsSystem vs. analysts System had complete control for a single System had complete control for a single

departure datedeparture date Analysts add up to 3% incremental revenueAnalysts add up to 3% incremental revenue We must give analysts adequate tools to be We must give analysts adequate tools to be

productiveproductive

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Post-cutover ChallengesPost-cutover Challenges

Still thinking availabilityStill thinking availability Still overly reliant on Bid Price overridesStill overly reliant on Bid Price overrides Hesitancy to modify O&D forecastsHesitancy to modify O&D forecasts Lack of analyst ‘control’Lack of analyst ‘control’ Fixing problems…or are they problems?Fixing problems…or are they problems?

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Thoughtful IntrospectionThoughtful Introspection

High marks for…High marks for… Being proactively involved in the processBeing proactively involved in the process Preparing staff and others for changePreparing staff and others for change Willingness to basically start overWillingness to basically start over

With 20/20 hindsight vision, we would have...With 20/20 hindsight vision, we would have... Had a more structured analyst processHad a more structured analyst process

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Is It Worth It? (Example)Is It Worth It? (Example)

Flight segment X to YFlight segment X to Y 40% local, 60% connect40% local, 60% connect Two walk-up fares in local market Two walk-up fares in local market Y fare $100 more than H fareY fare $100 more than H fare Shutting down H class impacted connecting flowsShutting down H class impacted connecting flows

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B

A

C

D

Y=$156H=$56

H=$205

H=$150K=$110 Pre-O&D, shutting off the H fare Pre-O&D, shutting off the H fare

in A to B meant shutting off all in A to B meant shutting off all the H and K fare connections.the H and K fare connections.

After O&D, the local H can be After O&D, the local H can be closed and the connect H and K closed and the connect H and K can be open.can be open.

Example

Why does US Airways use O&D Control?

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Is It Worth It?-Limitations of O&D Is It Worth It?-Limitations of O&D

Much more difficult for analysts to useMuch more difficult for analysts to use Lack of immediate feedback makes it harder Lack of immediate feedback makes it harder

to build intuition and learn best practicesto build intuition and learn best practices No allocationsNo allocations O&D’s overlap legs-organizational issuesO&D’s overlap legs-organizational issues Measuring performance at the O&D levelMeasuring performance at the O&D level

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Is It Worth It?-Limitations of O&D Is It Worth It?-Limitations of O&D

O&D level forecastingO&D level forecasting Small numbersSmall numbers O&D forecast adjustments are time-consuming O&D forecast adjustments are time-consuming

and inaccurateand inaccurate Fares also need to be forecast at the O&D levelFares also need to be forecast at the O&D level

ProcessingProcessing If entire network must be optimized-resources If entire network must be optimized-resources

are spent processing flights that are not are spent processing flights that are not critical critical

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Is It Worth It?-Limitations of O&DIs It Worth It?-Limitations of O&D

GDS has not kept pace with O&D technologyGDS has not kept pace with O&D technology O&D control is undermined when itineraries are O&D control is undermined when itineraries are

sold based on leg availability creating O&D sold based on leg availability creating O&D “disconnects”“disconnects”

BUF PHL MCO

V Closed BUF-MCO

V Open V Open

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Is It Worth It?-Codeshare DisconnectsIs It Worth It?-Codeshare Disconnects

O&D availability requests may be evaluated at the O&D availability requests may be evaluated at the leg level for virtual codesharesleg level for virtual codeshares Lower fare is obtained by booking the marketing Lower fare is obtained by booking the marketing

carrier for an identical itinerarycarrier for an identical itinerary

Marketing Carrier CRS

Operating Carrier CRS

Request for O&D Availability

Response

O&D Controls

Leg Controls

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Solutions to O&D Disconnects?Solutions to O&D Disconnects?

Journey DataJourney Data Evaluate each leg request to see if it forms an O&DEvaluate each leg request to see if it forms an O&D

Price as BookedPrice as Booked Price itinerary according to how the inventory was Price itinerary according to how the inventory was

obtainedobtained

Codeshare RoutersCodeshare Routers Route requests directly to the operating carrierRoute requests directly to the operating carrier

Cascading Availability RequestsCascading Availability Requests Pass through the marketing carrier’s CRS and evaluate Pass through the marketing carrier’s CRS and evaluate

availability request in the operating carrier’s CRSavailability request in the operating carrier’s CRS

All are complex and have some drawbackAll are complex and have some drawback

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Is It Worth It?-Limitations of O&DIs It Worth It?-Limitations of O&D

Some of the theoretical gain from O&D Some of the theoretical gain from O&D control is lost due to these practical control is lost due to these practical considerationsconsiderations

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Business Process ChallengesBusiness Process Challenges

Move to an O&D focusMove to an O&D focus Make adjustments to model inputs rather than outputsMake adjustments to model inputs rather than outputs Develop better O&D performance metricsDevelop better O&D performance metrics Develop better O&D reporting toolsDevelop better O&D reporting tools Organizational changesOrganizational changes

Align along O&D’s?Align along O&D’s? Support and development teamSupport and development team Reallocation of resourcesReallocation of resources

Refine and structure analyst processesRefine and structure analyst processes Recurrent training on business processRecurrent training on business process

1 us airways, inc. copyright 2003 all rights reserved bid price control at us airways: benefits and...

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