Scheduling and Revenue Management Process Integration: Benefits and Hurdles

1
Scheduling and Revenue Management Process
Integration Benefits and Hurdles
Timothy L. Jacobs, Elizabeth Hunt and Matt
Korol Operations Research and Decision
Support American Airlines May 2001
2
Presentation Overview

• Process Integration - What theory tells us.
• Practical First Steps and Their Impact
• Consistent Scheduling and Revenue Management
  (OD FAM).
• OD-based Demand Driven Dispatch (D3)
• Benefits and Hurdles to Implementation
• Summary

3
Airline Business Overview
4
Typical Scheduling and RM Process
5
Proposed Integrated Process
OD Network Planning
OD-based Scheduling
Near-term Aircraft Assignment (D3 Process)
Flight Scheduling
Controls/Capacities
Revenue Management Process Controls
Revenue Management
Forecasts
Forecasts
OD Forecasts/Capacities
Steady-State Industry Forecast
OD Daily Forecast
OD Time Series Forecast
Forecasting
Forecast Data and Control Information
Data Sources
Causal Effect Data
Date Specific Data
12 Months
9-6 Months
DOD
3 Months
45 Days
Time
6
Consistent Scheduling and RM Benefits - OD Fleet
Assignment

• Provides a better balance between supply and
  demand and improves current practice by
  explicitly considering passenger flows in the
  scheduling process.
• Multiple ODs
• Multiple Classes
• Consistent with Yield Management seat allocation
  and controls
• Extensible to consider network recapture and
  pricing effects

7
Consistent Scheduling and RM Benefits - Theory
Integrated Scheduling Revenue Management
Process
Revenue Management Only
No Revenue Management
Reference Jacobs, Ratliff and Smith1997, 2000
8
Extension to Consider Pricing Effects
OD Fleeting, RM Pricing
OD Fleeting and RM
OD RM Pricing
OD RM
No RM
Reference Jacobs, Ratliff and Smith1997, 2000
9
OD Fleeting and RM Benchmark Process - Practice
OD Forecast

• Estimate OD market forecasts.
• Fleet schedule with a Segment-based Fleet
  Assignment Model (Leg-FAM).
• Improve fleeted schedule using OD FAM
  application.
• Evaluate Leg-FAM and OD FAM schedules using the
  OD revenue mix model.

Leg FAM
OD FAM
OD Evaluation Revenue Mix
10
OD Fleeting and RM Benchmark

• General Information
• 4,500 flight legs.
• 26 sub-fleets.
• 800 aircraft.
• 150,000 total OD markets (Including
  International Markets).
• No Jet-Prop Swaps.
• International Fleeting Maintained.

11
OD Fleeting and RM Benchmark Results
12
Observations and Conclusions

• Benchmark results using existing forecasting
  methods and a consistent OD Fleeting and RM
  approach illustrate significant potential
  benefits over segment-based FAM.
• Additional benchmarks showed annual improvements
  ranging from 0.54 to 0.77 of revenue.
• OD Fleeting and RM process provides a better
  balance between available resources (capacity)
  and the OD-based demands.
• OD Fleeting produces a schedule fleeting
  consistent with the RM process used to manage the
  seat inventory. This provides better
  opportunities to increase the overall schedule
  yield.
• Potential benefits from a consistent OD Fleeting
  and RM process will increase as forecasting
  capabilities improve.

13

OD-based Demand Driven Dispatch (D3)

• Objective Increase overall profitability by
  making strategic near-term aircraft swaps between
  crew compatible equipment.
• Driving Forces
• Paradigm shift Many airlines fleet the schedule
  using leg-based methods while managing the seat
  inventory using OD-based methods. This leads to
  an inconsistent matching of supply and demand.
• Daily forecast variability D3 exploits
  opportunities created by the systemic daily
  variation of ODF demand flowing through the
  network. These effects are not captured when
  schedules are built using typical day forecasts.
• Forecast Error D3 improves schedule
  profitability by using improved forecast data
  nearer the day of departure.

14
Demand Driven Dispatch (D3) Process

• Obtain remaining OD Fare Class (ODF) demand
  forecasts, firm reservation holds, capacities and
  itinerary fares from RM for a specific reading
  day and departure date.
• Improve fleeted schedule using OD FAM and
  allowing only crew compatible RJ swaps.
• Evaluate resulting schedule using the RM model
  and forecast data.

RM Model
OD FAM
Evaluation Revenue Mix
15
Demand Driven Dispatch Benchmark

• Benchmark Information
• Reading Day 13.
• Potential swaps 566 candidate flight legs.
• 4800 total flight legs in schedule.
• 115,000 total OD fare classes (Including
  International Markets) considered in analysis.
• All other fleets held constant.

16
D3 Benchmark Results - Max Profit
Measure
Input Schedule
D3 Solution
Incremental Profit Gain ( of Revenue)
0.64
114
Switched Flights
Segments Flown
RJ3 RJ4
230
198
368
336
Utilization
937
1031
RJ3 RJ4
1002
1014
All measures are for a daily schedule
17
D3 Parametric Analysis Results - Swap Limit
Swap Limit
Daily Profit Increase ( of Revenue)
Cumulative Percent of Total
25 50 75 100 114
0.25 0.35 0.50 0.60 0.64
39 56 78 94 100
18
A Closer Look - 25 Swap Limit
Flight No.
Profit Change ( of Rev)
1 2 3
0.01 0.02 0.03
19
D3 Benefits and Timing - What the theory tells us.
20
D3 Benefits and Timing - The Practice
21
D3 Summary

• Results clearly illustrate the potential benefit
  associated with D3 swaps of crew compatible
  aircraft near the day of departure.
• D3 effectively exploits the daily variations in
  ODF demand forecasts to identify revenue
  opportunities not realized during the schedule
  planning process.
• D3 provides an added degree of freedom to the RM
  process. This added flexibility allows the
  airline to adapt to better forecasts near the day
  of departure.
• A portion of these benefits are likely due to
  inconsistencies between the scheduling and RM
  processes (Leg-based planning vs. OD-based
  control).
• Must account for ME, crew and operational issues.

22
Benefits and Hurdles to Integration

• Benefits
• Consistent scheduling and RM processes can
  uncover significant revenue opportunities not
  realized in todays process.
• Implementation facilitates a natural and
  systematic feedback mechanism between scheduling
  and RM processes.
• Provides opportunities for further process
  integration (pricing, ME, Crew).
• Hurdles
• Paradigm shift will require analysts to think
  about the scheduling problem in a much different
  way.
• Process integration raises a host of process and
  schedule ownership issues that must be resolved.
• Integration puts added emphasis on the importance
  of forecasting at the Leg and OD level.
• Timing of D3 highly dependent on ability to
  market added capacity.