from o&d bid price control to package bid price control agifors reservation and yield management...

From O&D Bid Price Control to Package Bid Price Control

AGIFORSReservation and Yield Management Study GroupAnnual Meeting, Bangkok, May 8 - 11, 2001

Klaus Weber Senior Scientific Analyst

AGIFORSReservation and Yield Management Study Group Annual MeetingMay 8 - 11, 2001

Chart 2

Agenda

The Package Bid Price Control Problem

Current Booking Control in Tour Operator Market

O&D Bid Price Control

Unified Control Approach

Booking Classes, Contribution Buckets and Other Details

System Approach for Package Bid Price Control

Conclusions

Motivation


Chart 3

Motivation

Many airlines do not sell flights only, but also

beds, hired cars and get additional revenue from it.

packages

packages

!!! Many tour operators control

control inventory manually(no revenue management system)

control flight load factors only !!!

Tour operators sell

flights, beds, and supplementary services.

!!! Airlines usually control flights only !!!


Chart 4

Agenda







Conclusions

Motivation


Chart 5

O&D Bid Price ControlReview

TIP

FRA

GOJ

MAD

CPH control level:

itinerary

controlparameter levelleg

BPper nesting block


Chart 6

O&D Bid Price ControlReview (cont.)

Why bid price control?

MUC

SAO

WAW

ATH

10

15

20

22

5

15

8 Booking request for

itinerary (SAO-MUC-ATH) of given value

is decided by comparison of

itinerary value and sum of leg bid prices

BP(SAO-MUC) + BP(MUC-ATH)

16

segment demand

remaining leg capacity


Chart 7

Hints for package bid price control

separate control level from control parameter level

divide packages to be controlled in smaller units

compute bid price for each unit

decide booking requests based on

package value bid prices of package units



Chart 8


Problem

Bid price computation for O&D control is

costly difficult

Requirements

ODI demand forecast (ODIF POS)“problem of small numbers”

adequate optimisation method

Probabilistic Bid Price [1][2]

(iterative proration, EMSRb) RevMaxx [3]

(dynamic programming [4])

adequate inventoryBooking histories etc. on ODI level

adequate CRS, interfaces ...

more difficult thanAU level computationfor booking classeson leg level

Reason

Leg bid price has to reflectdisplacement,i.e. how much it costs to sell a seat on a leg with regard to the whole airline network


Chart 9

“problem of small numbers” even worse (?)

Package bid price control even more difficult (?)

Hints for package bid price control

additional inventory


displacement has to be considered for

beds hired cars supplementary services

forecast on package level required

adequate inventory etc.


Chart 10

Agenda







Conclusions

Motivation


Chart 11

Tour OperatorsAirlines

The Package BP Control ProblemUnits / Packages / Package Tours

units packages package tours

flight(seats)

single flight roundtrip flight roundtrip flight

+ rental car roundtrip flight

+ excursion

accommodation(beds)

7 nights Hotel A 12 nights Hotel B 5 nights Hotel A

+ rental car

supplementaryservices

roundtrip flight+ 12 nights Hotel A+ rental car

roundtrip flight+ 7 nights Hotel B+ rental car+ diving course

roundtrip flight+ 14 nights Hotel C

outward flight+ excursion (incl.accommodation)+ return flight

fuzzy border


Chart 12

The Package BP Control Problem Package Displacement

Competition for seats

t

Tue Tue Tue Tue

Sat Sat Sat Sat

package 1package 2

package 3package 4

package 5package 7package 9

package 8package 10

package 6

Competitionfor beds

3 nights 4 nights

1350€

1170€

HAM-PMI 7 days Hotel A

7 days Hotel B

Package 1

Package 2

5

4

10

Competition for beds and seats


Chart 13

Why Package BP Control?Differences to Airline Bid Price Control 1

Airline(flights only)

Tour operator

Variable costs neglectable control quality: revenue

Variable costs not neglectable control quality: contribution

(Almost) full controlover (self-owned) inventory

Seats and beds partly / mainly foreign-owned

manage guaranteed andnon-guaranteed inventory(deadlines!!)


Chart 14

Why Package BP Control?Differences to Airline Bid Price Control 2

Airline(flights only)

Tour operator

Value differentiation throughbooking classes

wide range of values

Value differentiation flights: few booking classes,

if any beds: same hotel

usually same comfort class few differences

(sea view / land view) different brand

usually narrow range of values

Great differences from country to country

Global distribution systems

Airline(packages)

Japan BlockManagement

Challenges andSolutions

Chris Amenechi& Charles Duncan

March 22, 2000New York, NY


Chart 15

Agenda







Conclusions

Motivation


Chart 16

Current Booking Control

often control inventory manually

often

seek to maximiseload factors

throughduration allotment control

From airline revenue management we know

maximal seat load factor

maximal revenue

Tour operators


Chart 17

Current Booking ControlDuration Control

outbound flights

homebound flights

1

1

1

2

2

2

weeks 1 2 3 4 5

3 weeks stay

2 weeks stay

1 week stay

3

3

3

cap

cap

11

1

2

2

23

4

4

4

3

4

Result

sub-optimal

‘first approximation’


Chart 18

Agenda







Conclusions

Motivation


Chart 19

Unified Control ApproachMain Idea

Airline RM Analogy Tour operator RM

Control levelorigin destination itinerary

Control levelpackage

Control parameter levelleg

Control parameter levelpackage unit

Control parametersleg bid prices

Control parametersunit bid prices

... calculation based onOD itinerary demand forecast

... calculation based onpackage demand forecast

Booking request decided by comparison of

sum of leg bid prices value of OD itinerary

Booking request decided by comparison of

sum of unit bid prices value of package

“small number problem” demand aggregation

e.g. OD itinerary leg

“small number problem” demand aggregation

e.g. hotel resort


Chart 20

Unified Control ApproachBid Price Control

Competition for beds and seats

Bid-price control treats beds and seats in a unified way

t

Tue Tue Tue Tue

Sat Sat Sat Sat

Hotel A

Hotel B

Outbound flight

Homebound flight

180€ 255€ 155€ 240€ 165€ 180€ 140€ 195€

170€ 290€ 155€ 255€ 185€ 185€ 165€ 210€

60€ 65€ 65€ 75€ 65€ 50€ 55€ 60€ 60€

105€ 110€ 115€ 110€ 80€ 135€ 125€ 130€ 115€


Chart 21

Unified Control ApproachExample

t

Tue Tue Tue Tue

Sat Sat Sat Sat

Hotel A

Hotel B

Outbound flight

Homebound flight

Package 1: contribution = 600€



155€ + 75€ + 65€ + 50€ + 55€ + 165€ = 565€

155€ + 75€ + 65€ + 185€ = 480€

255€ + 115€ + 110€ + 80€ + 185€ = 745€

180€ 255€ 155€ 240€ 165€ 180€ 140€ 195€

170€ 290€ 155€ 255€ 185€ 185€ 165€ 210€

60€ 65€ 65€ 75€ 65€ 50€ 55€ 60€ 60€

105€ 110€ 115€ 110€ 80€ 135€ 125€ 130€ 115€


Chart 22

Agenda







Conclusions

Motivation


Chart 23

Booking Classes, ... other DetailsBooking Classes & Packages

Booking classes

partitioning of itinerary values means for history based demand forecasts airlines RM systems based on booking classes

No similar partitioning for tour operator packages

flights booking classes not uniform e.g. charter flights have few booking classes only - if any

hotel categories not uniform e.g. European tourist hotels usually have one room category

differentiation by brands different brands access same inventory different values

Common approach: Virtual nesting package contribution buckets


Chart 24

Booking Classes, ... other DetailsContribution buckets

Contribution Buckets

cb2 = [0, 199]

cb1 = [200, 399]

cb0 = [400, 599]

package components contribution

outbound flight 100 €

outbound flight + homebound flight 170 €

outbound flight + homebound flight+ hotel A (4 units)

370 €

outbound flight + homebound flight+ hotel B (4 units)

420 €

outbound flight + homebound flight+ hotel A (8 units)

550 €

outbound flight + homebound flight+ hotel C (4 units)

500 €

outbound flight+ hotel A (2 units)

220 €

outbound flight+ hotel B (2 units)

250 €

bookings

demand forecast


Chart 25

Booking Classes, ... other Details“Small Number Problem”

rarely booked packages “problem of small numbers”i.e. booking history too sparse to deliver sufficient forecast accuracy

Solution

aggregation of units bid price computation on aggregated level

DC

A B

Hotel A

Hotel C

Hotel B

Hotel D

Beast’sParadise

Forecast more accurate Inventory value less accurate


Chart 26

Agenda






Package Bid Price Control System

Conclusions

Motivation


Chart 27

Package BP Control SystemSystem Overview - Optimiser

substitutes

Optimiser

Bid-PriceServer

Controller

UnitManager

CRS

packageforecast

contribution bucket sizes EMSR curves bid price matrices

packagebid price

bid pricerequest

bookingrequest

decision: accepted denied +

(recommendation)

Inventory

RecommenderSystem

(no) recommendation availability request accepted booking

information availability request update decision

availability booking information

unitforecast

bid-price request

package bid-price

recommendation request

substituterequest

availability


Chart 28

Package BP Control SystemController

Booking request for package p with contribution c

Optimiser

Bid-PriceServer

Controller

UnitManagement

CRS

on-sale inventory

RecommenderSystem

ControllerCRS

RecommenderSystem

UnitManager

Bid-PriceServer

Require bid-prices BP(p)from bid-price server

Take bid-price and compare:

IF ci BP(pi) THEN accept booking request

Take availability information;if all units available continue:

ELSE deny booking requestand require adequate substitute

Pass booking denial and substitute to CRS

Require availability for all units in p


Chart 29

Package BP Control SystemRecommender System

Optimiser

Bid-PriceServer

Controller

UnitManagement

CRS

on-sale inventory

RecommenderSystem

RecommenderSystem

Bid-PriceServer

on-saleinventoryController

Take recommendation request (package p with contribution c not available)

Take bid price(s) BP(s1) (BP(s2), ..., BP(sn)) and compare:

IF c BP(si) THEN keep substitute

Take substitute(s) s1 (s2, ..., sn) and request for bid price(s)

ELSE reject substitute

Pass set of substitutes to controller(set may be empty)

Request substitute(s)(appropriate / somehow similar to p)


Chart 30

Optimiser

Bid-PriceServer

Controller

UnitManager

CRS

on-sale inventory

RecommenderSystem

on-saleinventory

Controller

UnitManager

unitforecast

risk-oriented modelP[Xtr,td(ui) capguaranteed(tr)]

Package BP Control SystemUnit Manager Heuristics

case 1: sell capnon-guaranteed first, then capguaranteed

case 3: sell x non-guaranteed units first,then capguaranteed

case 2: sell guaranteed units only

xx = capblocked

For given risk factor ,the system automaticallychoses capblocked appropriately.

contribution-oriented modelweighs up extra contribution vs. costs of unsold inventory

Begin ofbkg period

trelease tdept

capnon-guaranteed

capguaranteed


Chart 31

Package BP Control SystemUnit Manager Working Mode

Optimiser

Bid-PriceServer

Controller

UnitManager

CRS

on-sale inventory

RecommenderSystem

on-saleinventory

Controller

UnitManager

unitforecast

Take accepted booking information for package pwith Up = {u1, ..., un}

Compare:IF capnon-guaranteed - capnon-guaranteed(t) < capblocked THEN book non-guaranteed unitELSE book guaranteed unit

Take number of remaining non-guaranteed units, capnon-guaranteed(t)

Calculate capblocked

For all units uj do:


Chart 32

Agenda







Conclusions

Motivation


Chart 33

Conclusions

There is a need for package bid price control

Airlines: flights + supplementary services Tour operator business

sub-optimal RM (e.g. duration control) no RM system at all

Bid price methodology

can be transferred properly to package control allows control of seats, beds, supplementary services in a

unified way is superior to “duration control” keeps its difficulties, e.g. small number problem ... which can be solved!


Chart 34

Conclusions

Differences between O&D bid price controland package bid price control

require modifications (e.g. contribution buckets) require additional system components

(e.g. due to non-guaranteed units)

Starting point

Many tour operators start from zero Airlines need system extension

Good experience: ProfitLine*Tour

Thank you for your attention!Any questions?

from o&d bid price control to package bid price control agifors reservation and yield management...

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