1 Copyright © 2002 by PROS Revenue Management Fare class rationalization is the process of...

1Copyright © 2002 by PROS Revenue Management

Fare class rationalization is the process of aligning fares within fare classes so that leg/class revenue management systems can operate to their fullest potential.

This new fare class structure is created by considering network displacement costs, point of sale attributes, business policies and alliance requirements.

We introduce the basic premise behind fare class rationalization and describe practical experiences in applying it.

AbstractAbstract

2

Experiences with Fare Class Rationalization

Experiences with Fare Class Rationalization

Antonio RuggieroApril 18, 2002


AgendaAgenda

Rationalization Concepts Process Difficulties Encountered

Simulation Results Summary and Questions


RationalizationConcepts – The Business ProblemRationalizationConcepts – The Business Problem

Inventory Control –

Leg/SegmentPricing -

O&D

Demand - O&D

Sales - Regional

Integrates Pricing, Planning, Sales, and Inventory Control to

maximize network revenue

Rationalization



Point-of-sale Alliance agreements Currency Commercial

modifiers

Negotiated deals Interline proration Codeshare proration Travel agency

Fare product values in a booking class may be different due to:



Itinerary proration to the leg-fareclass

AAA

BBB

CCC

DDD EEE

$1200

$800

$350

$600

Itinerary Itinerary Fare Y FareclassAAA-DDD-EEE $1200 $650BBB-DDD-EEE $800 $550CCC-DDD-EEE $600 $500

DDD-EEE $350 $350

DDD-EEE Leg Proration


Problems with an improperly rationalized fare class structure. Fare products in a Fare Class get same protection

Limit availability of highly valued seats to low paying demand

Not placing appropriate protection on fare products.

Highly protecting itineraries of low network value. Not giving enough protection to itineraries of high

network value.

Fare overlap among fare classes reduces Revenue Management’s effectiveness

RationalizationConcepts – Business ProblemRationalizationConcepts – Business Problem


RationalizationConcepts – Business SolutionRationalizationConcepts – Business Solution

Rationalization Uses O&D revenue accounting data and

leg capacity information to determine the value of itineraries in the network

The objective is to group itineraries of similar value into buckets or fare classes

Provides a better understanding of network demand flows

Provides improved leg fares


Y

B

M

Q

$350 - $650

$250 - $550

$150 - $450

$110 - $290

Open

Open

Closed

Closed

$500

$400

$300

$200

Avg Fare Value

Range of Fares

Availability Status

A $450 ‘M’ passenger would get rejected, but a $250 ‘B’ passenger would be accepted. Potential lost revenue because of fare overlap.

RationalizationConcepts – Leg ExampleRationalizationConcepts – Leg Example


Y

B

M

Q

$530 - $650

$390 - $530

$250 - $388

$110 - $249

$590

$465

$325

$186

Avg Fare Value

Range of Fares

Open

Open

Closed

Closed

Availability Status

RationalizationConcepts – Leg ExampleRationalizationConcepts – Leg Example

A rationalized fare class structure.

A very involved process when all itineraries in a network are considered


AgendaAgenda

Rationalization Concepts Process Difficulties



Data InputData Input

RationalizationRationalization

ReviewReviewOutputOutput

RationalizationProcessRationalizationProcess

Leg Fare Input FileLeg Fare Input File

History RealignmentHistory Realignment

Fare RefilingFare Refiling

OptimizationOptimizationNetwork OptimizationNetwork Optimization

Clustering AnalysisClustering Analysis

Peak Season/Non-Peak Season


RationalizationProcessRationalizationProcess Network Optimization model

Maximizes network revenue Determines leg-compartment displacement costs

Displacement cost is the revenue gain from adding one seat to the leg-compartment

Determines optimal itinerary allocation Calculate each itinerary’s network value

Obtain Desirability Index(DI) for each itinerary Rationalization:

Cluster itineraries into desired fare classes based on the Desirability Index of the itineraries


RationalizationProcessRationalizationProcess Information provided (O&D, Leg)

Stressed(Bottleneck) legs High Displacement Cost Desirability Index is less than the Fare Demand is greater than capacity

Non-Stressed legs Displacement Cost = 0 Desirability Index is equal to the Fare Capacity is greater than demand


RationalizationProcessRationalizationProcess Pure Rationalization Results

Peak/Non-Peak seasons Decide DOW; no DOW; Midweek/Weekend

Business Constraints/Requirements Define “New” fare class structure

Alliance compliance


RationalizationProcessRationalizationProcess Business Requirements

Direct re-mappings Frequent Flier ID/AD – discount fares Child/infant products Group fare class General consideration

Min/Max constraint Same structure constraint Round trip constraint


RationalizationProcess – Results Carrier A: O&D Market


Top revenue producing market Market with greatest uplift

DI Distribution for O&D market with DOM-INTL

0

5,000

10,000

15,000

20,000

25,000

30,000

1 2 3 4 5 6 7 8* 9* 10*New Fare Class

Up

lift

/Pas

sen

ger

s

-100

-50

0

50

100

150

200

DI

Uplift DI




Fare Distribution by Old Fare Class for DOM-INTL

0

10,000

20,000

30,000

40,000

50,000

60,000

1 2 3 4 5 6 7 8 9 10Old Fare Class

Up

lift

/Pas

sen

ger

s

0

50

100

150

200

250

300

Far

e

Uplift Fare Fare Distribution by New Fare Class for DOM-INTL

0

10,000

20,000

30,000

40,000

50,000

60,000

1 2 3 4 5 6 7 8* 9* 10*New Fare Class

Up

lift

/Pas

sen

ger

s

0

50

100

150

200

250

300

Far

e

Uplift Fare


RationalizationProcess – Results Carrier B: O&D Market


Market is approximately in the middle in terms of revenue and/or uplift

DI Distribution by New Fare Class for DOM-INTL

0

1,250

2,500

3,750

5,000

1 2 3 4 5 6 7 8 9New Fare Class

Up

lift

/Pas

eng

ers

0

100

200

300

400

DI

Uplift DI



RationalizationProcess – Results Carrier B: O&D MarketFare Distribution by Old Fare Class for DOM-INTL

0

1,600

3,200

4,800

6,400

8,000

1 2 3 4 5 6 7 8 9 10 11Old Fare Class

Up

lift

/Pas

sen

ger

s

0

100

200

300

400

500

Far

e

Uplift Fare Fare Distribution by New Fare Class for DOM-INTL

0

1,600

3,200

4,800

6,400

8,000

1 2 3 4 5 6 7 8 9New Fare Class

Up

lift

/Pas

sen

ger

s

0

100

200

300

400

500

Far

e

Uplift Fare


RationalizationProcessRationalizationProcess Leg Fare Input file

Populate leg fare class fares

History Realignment File Realign the historical demand to the new

structure

Fare Re-filing File Provides the details to re-file a fare

product


AgendaAgenda




RationalizationDifficulties EncounteredRationalizationDifficulties Encountered

Data Critical issue

Deciding on the business constraints Iterative process

Handling strange business constraints Considerable degrees of freedom in the

rationalization process Implementation

Getting all departments on board


AgendaAgenda




Simulations Simulations

Simulation Environment Based on rationalization input data provided Entire Network, not just connections to the hub Generated 30 booking request streams based on

client data Used 10 booking request streams to get average ODIF

demand forecasts Used 20 booking request streams to test revenue

improvements Tested Old fare class structure with EMSRb Compare revenue performance over No RM control

(FCFS)


SimulationResults – EMSRb ControlSimulationResults – EMSRb Control

Client# Old Fare

Classes

Old Fare Class Structure Load

Factor

# New Fare Classes

New Fare Class Structure Load

Factor

Revenue % Improvement of Rationalized/EMSRb

versus EMSRb only

Carrier A 8 86 12 87 1.1

Carrier B 12 79 16 78 1.5

Carrier C 16 79 14 78 1.8

Carrier D 13 76 9 76 2.7

Average improvement by

Carrier1.8


AgendaAgenda




Summary and Questions Summary and Questions

Rationalization is the process of: determining the network value of itineraries grouping similar network valued itineraries into a

pre-defined fareclass hierarchy Rationalized Fare Class Structure provides:

Segmentation of fare products into the fare classes Ability to protect for the higher valued products Minimized fare overlap of fare classes

Revenue Simulations indicate a real benefit The End


The End.The End.

1 Copyright © 2002 by PROS Revenue Management Fare class rationalization is the process of...

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