how a small airline copes with change as a way of life 2001 agifors reservation and yield management...

How a small airline copes with Change as a way of life

2001 Agifors Reservation and Yield Management Conference

Thomas Kingsbury

Blackcreek, Ltd.

AGIFORS Bangkok, 2001 2

As an OR person

• I tend to focus on the high tech stuff– Do we have the perfect Forecasting tool?– Are we using the right Allocation method?– How is the overbooking?– Exactly what is our precision?

• So does the airline– The first question when a system is installed is,

“How accurate are the forecasts?”


The focus• We need to focus on what makes the system work

for the airline– Is the data from the Reservation system correct

(GIGO)?

– Is the RM system doing what we want it to do? (What, exactly, do we want it to do?)

– Is the RM system keeping up with the changes within the airline?

• How does the RM system continue to function?– Change is the only constant in the airline business


What should the system do?• One airline said it had been looking for an RM

system for 5 years -- still trying to buy ‘the perfect system’ (which doesn’t exist)

• What are the airline’s goals?– More profit?

– Higher load factor?

– Keep everyone happy; the frequent flyers, group sales, marketing, and ‘the most important customer’?

– Sell the right product at the right price to the right person at the right time?


An off-the-shelf system can work

• Most small airlines do not have the time, expertise, or money to develop their own RM system

• Most smaller airlines use a system developed by or for another airline

• Will this system work for you?• Does your airline know what it is getting?• How much ‘blue sky’ is involved?


Any RM system has the potential to help an airline to:

• Clean up and review its data• Determine its goals• Open internal communications• Determine what makes it profitable (The

President/CEO still says ‘We have to increase the Load Factor!’)


A vendor system• The airline has to know:

– What it wants– What the system does– What the system requires in the way of

• Market analysts

• Support

• Data

• Management

• Dedication


A vendor system• How changeable is the RM system?

– Is the system manageable?– Who ‘owns’ the system?– Can the airline make changes to the system?– Is it well documented?– Will it stay up-to-date?– Does it work error-free?– Who fixes the ‘bugs’?– What is the cost -- fees and operating costs?


A changing airline

• The airline business changes drastically and rapidly. Does the RM system?– Who specifies the changes?– Who makes the changes?– Who tests the changes?– Who suffers when the changes don’t work?– Is there a dedicated team to work with change?


Many changes to an RM system

• The RM system must keep pace with the airline. Recent changes include:– Alliances

– Internet sales to a specific campaign class

– Code share -- multiple types

– Flexible aircraft/moveable curtains

– Y2K (remember that?)

– Opening up lower classes


Conceptual changes to the airline• Who is in charge here, anyway?

– The market analysts?– The OR department?– The IT department?– The vendor?– The marketing department?– The group department?– Nobody/everybody?


Changes -- Alliance and classes• Classes were changed

• Descriptions, uses, and nesting order

• Nesting was not in average fare order -- fares are averaged by class over the past 4 months

• A change had to be made in the Reservation system to change the nesting order by flight/market

Nested not in fare order Nested in fare orderClass Fare Demand Non-nested

AULsNestedAULs

Class Fare Demand Non-nestedAULs

NestedAULs

Y 1000 10 10 100 Y 1000 10 10 100B 700 15 15 90 B 700 15 15 90Q 300 40 20 75 M 600 35 35 75M 600 35 35 55 K 500 20 20 40K 500 20 20 20 Q 300 40 20 20


Low load factors• With low load factors, the lower classes were

automatically closed when the system was first installed

• Too many complaints, so an automatic method was installed to open all classes in this situation

Normal Allocations With lower classes opened upClass Fare Demand Non-nested

AULsNestedAULs

Class Fare Demand Non-nestedAULs

NestedAULs

Y 1000 10 30 100 Y 1000 10 30 100B 700 5 15 70 B 700 5 15 70M 600 15 45 55 M 600 15 45 55K 500 10 10 10 K 500 10 10 50Q 400 0 0 0 Q 400 0 0 50H 250 0 0 0 H 250 0 0 50E 50 0 0 0 E 50 0 0 50


Moveable curtain• The moveable curtain was introduced and had to be

controlled/optimized– The configuration allows for 6 seats/row in coach and 5 seats/row

in business

– Then the planes were re-configured

– How to solve this? A table of possible configurations was created

Config # Eqpt Type Capacity 1 Capacity 2 Option101 AB1 15 101 A102 AB1 20 95 A103 AB1 25 89 A104 AB1 30 83 A. . .201 AB1 15 107 B202 AB1 20 101 B203 AB1 25 95 B204 AB1 30 89 B. . .


Code sharing (1)• There are different types of code shares:

– Hard blocks

– Free sale

– Soft blocks

• When operating the flight, the Res system displays the airline capacity only (without the blocked CS seats)


Code Sharing (2)

• The moveable curtain and code share/blocked seats have to be combined?– But moveable curtain flights must contain the entire

capacity to match the configurations

– The RM system optimized all possible settings that met the protection parameters (blocked seats and materialization of booked passengers)

– RM then selected the setting with the highest revenue


Internet sales• A change to sell discounted seats for the following

weekend over the internet– Seats are sold in one class only

– A limited number of seats are allocated for the quick buy program

– A limited number of markets and flights

– How to restrict sales within the Res system?• The class was removed from nesting

• Minimum and maximum limits were set to specify the number of seats to be sold


Additional changes• Flights with domestic and international legs

have different classes– Write a separate program to work with it

• Code share agreements change– Old hard block agreements become Free Sale– There is new demand on these classes/flights– What to do about it?


A change machine

• An airline is a change machine

• The RM system has to change with the airline

• The airline’s concepts have to change

• And the forecasts still have to be as good as possible!

how a small airline copes with change as a way of life 2001 agifors reservation and yield management...

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