Lufthansa Update on LH´s Path of O&D Control AGIFORS, New York, March 2000 Werner Tauss

Pricing & Yield Management, Page 2 Lufthansa The Business Process in Network Management Strategic and tactical decisions - 3 Years - 1 Year- 6 Months- 3 MonthsDeparture Flight Planning and Pricing Policy Planning the flight schedule Basic price structures (tariffs, conditions) Control parameters revenue management Tactical Decisions Allocating and adjusting capacities Proactive pricing / reactive pricing Strategic Decisions /Development Fleet planning

Pricing & Yield Management, Page 3 Lufthansa YM & Pricing - Where do we come from ? Forecast Fares OptimizationInventory Leg BP 1 ForecastPricingOptimizationInventory Fares Constraining

Pricing & Yield Management, Page 4 Lufthansa YM & Pricing - Where do we want to go ? BP 2 Forecast Fares OptimizationInventory

Pricing & Yield Management, Page 5 Lufthansa YM & Pricing - Where do we want to go ?... BP 2 A LH STAR- Partner... Forecast Fares OptimizationInventory Forecast Fares OptimizationInventory

Pricing & Yield Management, Page 6 Lufthansa Passenger Mix Historical no-show behaviour Max. limit Overbooking: Capacity + x Seats Departure Actual No-shows or DBs Days prior to departure Overbooking an important object of reengineering

Pricing & Yield Management, Page 7 Lufthansa Passenger Mix Historical no-show behaviour Max. limit Overbooking: Capacity + x Seats Departure Actual No-shows or DBs Days prior to departure - Special events - Seasonalities - Frequencies - Time range - Cultural impacts - Visa regulations Overbooking an important object of reengineering - Operational issues - Customer behaviour - New sales channels - Agent behaviour - Airport procedures - Force Majeure influences

Pricing & Yield Management, Page 8 Lufthansa Tools in Pricing & Yield Management A glance at the future O&D Forecast Forecast of booking demand per Origin & Destination and Point of Sale Alliance Revenue Management Harmonization of all Star Alliance systems in Pricing & Yield Management PNR Pro Using PNR-information to improve forecast of noshows Pricing DSS Investigation of how price changes affect booking demand O&D Optimization Optimization of booking demand per Origin & Destination and Point of Sale

Pricing & Yield Management, Page 9 Lufthansa Bid Price II - Definition of a New Project Targets: Implementation of Married Segments Control Implementation of Improved Forecasting O&D-Forecasts No Shows Possible paths to O&D-Optimization Timeline:July January 2001

Pricing & Yield Management, Page 10 Lufthansa Overview Reporting DB O&D Forecaster RES Leg Optimizer PROS 5 Group Management PROS GRMS Pricing (optional) Budget Planning Market Information Flight Schedule Basic Data Simulation DB PNR DB Fares DB

Pricing & Yield Management, Page 11 Lufthansa Problems to solve and possible solutions Definition of O&D – Sales View versus Net View – Handling of Code Share, Interline and Groundtransport – What does the passenger really want ? Small Numbers – Shadow O&Ds – Aggregations and disaggregation Mathematics – Concurrent calculations of different methods – Validation and mix

Pricing & Yield Management, Page 12 Lufthansa Problems to solve and possible solutions Unconstraining – Use Bid Price data and logic Special Events – learning system – interface for expert input in the right level – process support for user Schedule Changes – use planning data – (and vice versa) PNR-Processor for NoShow and Cancellation Forecasting

Pricing & Yield Management, Page 13 Lufthansa Bid Price II - O&D-Optimization Check possible Solutions –Rev Maxx (Taluri) –“Iterative Prorating” - (Belobaba) Criterias: –Performance in Revenue Improvement –Robustness –Complexity –

Pricing & Yield Management, Page 14 Lufthansa Managing an Alliance Network - 3 Alternatives central shared connectedt Local ? central model versus cooperative solutions central model versus cooperative solutions cooperation

Pricing & Yield Management, Page 15 Lufthansa Thank You any questions ?