improving revenue by system integration and cooperative optimization reservations & yield...

Improving Revenue bySystem Integration andCooperative Optimization

Reservations & Yield Management Study Group

Annual Meeting Berlin 16 - 19 April 2002

UNIVERSITY of PADERBORNUNIVERSITY of PADERBORN

Georg Kliewer Sven Grothklags

Klaus Weber

19.04.2002Slide 2

Grothklags, Kliewer, Weber: Improving Revenue by System Integration and Co-operative OptimizationAGIFORS Reservations & Yield Management Study Group Annual Meeting 2002

Motivation - Planning Processes

FleetAssignment

AircraftRotation

CrewPairing

CrewRostering

OperationControl

NetworkDesign

MarketModeling

RevenueManagement

19.04.2002Slide 3


Agenda

Business Process

Mathematical Model

Optimisation Algorithm

Fleet Assignment Problem

O&D Revenue Management

Current System Integration

System Integration Approaches

Conclusions

19.04.2002Slide 4


Fleet Assignment - Business Process

Find most Profitable Subfleet Assignment Use a Subfleet that is Feasible for each Leg Use the Existing Fleet and no extra Aircraft Obey Blocktime and Groundtime Constraints

SchedulingActivity

NetLineApplication

Fleet Assignment

weekly fully-dated

NetLine/Plan

NetLine/Sched

NetLine/Ops

OperationsControl

Development

19.04.2002Slide 5


Fleet Assignment - Business Process (cont)

19.04.2002Slide 6


Strategic Profitability Evaluation Model

Strategic-PEM is a forecasting model that measures the network profitability contribution of each schedule scenario

The Strategic PEM forecasts are developed on an O&D basis for a representative week for a schedule period

Input Data: average revenue for the O&Ds market demand for the O&Ds cost model fleeted schedule

Output Data: overall schedule profitability profit information for each leg-subfleet combination

19.04.2002Slide 7


Strategic Profitability Evaluation Model (cont)

Fleet AssignmentProfitability Evaluation Model

objective function for fleet assignment

assignment

SimulatedAnnealing

Market Share Model

Connection Builder

Spill & Recapture

Revenue & CostEstimation

constrained passenger flow

prelim. capacity assignment

scheduleav. revenues

market demand

itineraries

unconstrained demand

19.04.2002Slide 8


Fleet Assignment - Mathematical Model

PAD

MUC

FRA

ground arc (v-,v)

xl,f

yv,v+

v v+v-

flight event

leg l xl,f=1 leg l is assigned to subfleet f

yv,v+: aircraft flow on the ground

19.04.2002Slide 9


Fleet Assignment - Optimisation Algorithm

Fleet Assignment

fleetschedule

restrictions

Accept/Reject

GenerateNeighbor Solution

UpdateSolution

finalassignment

SimulatedAnnealing

Objective Function

Profitability Evaluation Model

19.04.2002Slide 10


Fleet Assignment - Optimisation Algorithm

S = initial solutionT = warming_updo

do

Snew = neighbor solution (S)

cost = cost(Snew) - cost(S)

if (cost < 0 or accept(cost,T) )

S = Snew

until equilibrium

T = update(T)

until frozen

Heuristic solution method based on local search

1

Frozen

P

Equilibrium

19.04.2002Slide 11


Fleet Assignment - Results

0,01

0,1

1

10

100

1000

10000

100000

116x2 3337x4 4558x8 4477x9 4452x11 17387x10

problem size (legs x subfleets)

Tim

e (

se

c)

Hill-Climber Simulated Annealing Mixed-Integer Program

Algorithm Hill-Climber Simulated Annealing

Mixed-Integer

Program

-solution quality 98,5% 99,7% >99,9%

19.04.2002Slide 12


Agenda

Business Process

System Overview

O&D Control Parameters





Conclusions

19.04.2002Slide 13


O&D Revenue Management – Business Process

Application

NetLine/Plan

NetLine/Sched

NetLine/Ops

NetLine/Price

ProfitLine

BusinessActivities

OperationsControl

Pricing

Revenue Management

Development

19.04.2002Slide 14


O&D Revenue Management – System Overview

O&D Forecast Engine

O&D Optimiser

ForecastInterface DB

OptimiserInterface DB

Inve

ntor

y

GDS

GDS

GDS

GDS...

Forecast Building

Demand Forecasts

ControlParameters

O&D Optimiser

ForecastInterface DB

OptimiserInterface DB

Inve

nto

ry

GDS

GDS

GDS

GDS

...

Market Shares

Demand Forecasts

ControlParameters

Market Size Forecast

Price Elasticity Model

Market Size

Bookingswith Fare

InformationFareBuckets

Forecasts based oneither booking histories

or market model and

price elasticity model

or both

e.g. ODIF POSbooking limits

e.g. fare buckets

19.04.2002Slide 15


O&D Revenue Management – O&D Control Parameters

EMSR varieties

booking class limits per leg / compartment

on various granularity levels, e.g. ODIF POS

bid prices derived from EMSR curve or approximation

fare bucket limits per leg / compartment

revenue bucket limits per leg / compartment

Dynamic programming

bid prices per leg / compartment

booking class limits derived from bid prices

Parameters to beused by fleetassignment process

Reflect demand demand variability estimated fares

Œ

O&D control parameters depend on type of optimizer

19.04.2002Slide 16


Agenda

Cooperative Approach





Conclusions

19.04.2002Slide 17


Current System Integration - Cooperative Approach


Market Share Model

Connection Builder

Spill & Recapture


constrained passenger flow

capacity assignment

itineraries


Fleet Assignment

Accept/Reject

Fleet Changeon a Leg Sequence

UpdateSolution

1

2

3 SimulatedAnnealing

FinalAssignment

Objective Function

4

5

6

19.04.2002Slide 18


Current System Integration - Cooperative Approach (cont)

Strategic PEM + Fleet Assignment NetLine/Plan

Tactical PEM + Fleet Assignment NetLine/Sched fully-dated schedule

Basic O&D Fleet Assignment

Approximative revenue estimation

Fast evaluation loop: essential for Simulated Annealing

even faster with internal feedback by passenger flow model

State

19.04.2002Slide 19


Agenda

Internal Feedback

External Feedback by O&D Revenue Management System

System View





Conclusions

19.04.2002Slide 20


System Integration – Internal Feedback

Fleet AssignmentProfitability Evaluation Model

Accept/Reject

Passenger FlowLP-Model

Dual Variablesfor Legs

Fleet Changeon a Leg Sequence

UpdateSolution

FinalAssignment

1

2

3

SimulatedAnnealing

Market Share Model

Connection Builder

Spill & Recapture


passenger flow

capacity assignment

itineraries


Objective Function

4

5

19.04.2002Slide 21



System Integration – External Feedback by O&D RMS

Fleet Assignment

Accept/Reject

Fleet Changeon a Leg

Sequence

UpdateSolution

SimulatedAnnealing

FinalAssignment


O&DForecast Engine

O&D Optimiser

O&D Forecasts


RevenueEstimation

Objective Function

Capacity Assignment

Market Share Model

Connection Builder

Spill & Recapture

CostEstimation

passenger flow

capacity assignment

itineraries


19.04.2002Slide 22


System Integration – System Details

1000 950 850 700 670 650 550 510 430 400

1: FRA-TXL, A2: JFK-FRA-TXL, A

3: FRA-TXL, B4: GRU-FRA-TXL, A

5: GRU-FRA-TXL, B6: JFK-FRA-TXL, B

7: FRA-TXL, C8: GRU-FRA-TXL, C

9: JFK-FRA-TXL, C10: FRA-TXL-SVO, A

ODIF-value

1 2 3 4 5 6 7 8 9 10

AU

-Lev

el

1000 950 850 700 670 650 550 510 430 400






ODIF-value

1 2 3 4 5 6 7 8 9 10

AU

-Lev

el

Iterative Proration (ProBP)


O&DForecast Engine

O&D Optimiser

O&D Forecasts

Capacity Assignment

JFK

GRU

FRA

TXL

SVO

JFK

GRU

FRA

TXL

SVO

ODIF POS buckets


19.04.2002Slide 23


System Integration – System Details (cont)

1000 950 850 700 670 650 550 510 430 400






ODIF-value

1 2 3 4 5 6 7 8 9 10

AU

-Lev

el

1000 950 850 700 670 650 550 510 430 400






ODIF-value

1 2 3 4 5 6 7 8 9 10

AU

-Lev

el


O&DForecast Engine

O&D Optimiser

O&D Forecasts


RevenueEstimation

Capacity Assignment

Estimated revenue = sum of EMSR values

1000950

850

700670 650

550510

430400

1 2 3 4 5 6 7 8 9 10 Seats

reve

nue

EMSR curve

19.04.2002Slide 24




O&DForecast Engine

O&D Optimiser

O&D Forecasts

Capacity Assignment


Dynamic Bid Price (DynBP)models revenue management as multistage decision process

Bid price matrix per compartment

time to departure

vaca

nt s

eats

Rt-1(x) = max[fi + Rt(x-1), Rt(x)] = max [ufi + Rt(x-u)] u{0, 1}

Rt-1(x) = Rt(x)

t t-1

x

x-1Rt-1(x) = fi + Rt(x-1)

19.04.2002Slide 25



C

Increase

..

.

147.3 146.5

149.5

151.8

145.8

148.7

150.8

147.9

150.1

currentoptimizationpoint

Decrease

remainingcapacity

nextoptimizationpoint

C-1

C-2

t t-1 t-2

time to deptarture

Bid price matrix per compartmentO&D Revenue Management

O&DForecast Engine

O&D Optimiser

O&D Forecasts


RevenueEstimation

Capacity Assignment

Estimated revenue = sum of bid prices

19.04.2002Slide 26


System Integration – Discussion

two loop system revenue estimation loop fleet assignment loop significant runtime

differencescoordination of loops

capacity dependency of revenue management optimization

runtime! Approximation?

partly overlapping system functions (market model, OD-Forecast)

redundancy, requires further integration

forecast uncertainty and actual fares taken into account

simple interfaces between fleet assigner and revenue management system

more accurate revenue estimation

State Challenges

19.04.2002Slide 27


O&D Revenue Management System



Agenda


Conclusions

19.04.2002Slide 28


applied in Fleet Assignment Systems of ...

Conclusions - Fleet Assignment in Practice

Simulated Annealing-based Fleet Assignment Optimization

substantial part of commercialFleet Assignment tool

Cooperative Approach

Integrated Approaches

prototype

19.04.2002Slide 29


Conclusions - Summary

Integration of Fleet Assignment and Revenue Management can improve overall revenue

Facets of the fleet assignment problem introduced:business, mathematics, simulated annealing

Substantial part: Profitability Evaluation Model (PEM)

Revenue management system introduced:particularly important for integration: control parameters

Current state of integration: Cooperative Approach with PEM (without integration of RMS) - successfully used by three airlines

System integration prototype:

based on internal passenger flow model (deterministic LP)

based on external link to O&D RMS: EMSR-based, dynamic programming

good

better

almost perfect

19.04.2002Slide 30


Conclusions - Ongoing Work, Outlook

Ongoing tests of system integration prototype

Market Model used in FA is also used in Pricing

further Integration possible

Integration of the Passenger Flow Model in Fleet Assignment

optimization approach for enhanced O&D Fleet Assignment

Usage in short-term → pre-implementation phase:

booking dependent (demand driven) fleet assignment

Thank you for your attention!Any questions?

UNIVERSITY of PADERBORNUNIVERSITY of PADERBORN [email protected]

[email protected]

[email protected]

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