1. From O&D Bid Price Control to Package Bid Price Control
AGIFORS
Reservation and Yield Management Study Group Annual Meeting, Bangkok, May , 2001
Klaus Weber Senior Scientific Analyst

2. Agenda Motivation O&D Bid Price Control
The Package Bid Price Control Problem
Current Booking Control in Tour Operator Market
Unified Control Approach
Booking Classes, Contribution Buckets and Other Details
System Approach for Package Bid Price Control
Conclusions

3. Motivation Many airlines do not sell flights only, but also beds,
hired cars
and get additional revenue from it.
packages
!!! Airlines usually control flights only !!!
Tour operators sell
flights,
beds, and
supplementary services.
!!! Many tour operators control
control inventory manually (no revenue management system)
control flight load factors only !!!

4. Agenda Motivation O&D Bid Price Control
The Package Bid Price Control Problem
Current Booking Control in Tour Operator Market
Unified Control Approach
Booking Classes, Contribution Buckets and Other Details
System Approach for Package Bid Price Control
Conclusions

5. O&D Bid Price Control Review
GOJ
control level: itinerary
CPH
control parameter level leg
BP per nesting block
FRA
MAD
TIP

6. O&D Bid Price Control Review (cont.)
WAW
Why bid price control? 5 16 15 22
MUC 15 20
ATH 8 10
Booking request for
itinerary (SAO-MUC-ATH)
of given value
is decided by comparison of
itinerary value and
sum of leg bid prices BP(SAO-MUC) + BP(MUC-ATH)
SAO
remaining leg capacity
segment demand

7. O&D Bid Price Control Review (cont.)
Hints for package bid price control
separate control level from control parameter level
divide packages to be controlled in smaller units
compute bid price for each unit
decide booking requests based on
package value
bid prices of package units

8. O&D Bid Price Control Review (cont.)
Problem
Bid price computation for O&D control is
costly
difficult
Requirements
ODI demand forecast (ODIF POS) “problem of small numbers”
adequate optimisation method
Probabilistic Bid Price [1][2] (iterative proration, EMSRb)
RevMaxx [3] (dynamic programming [4])
adequate inventory Booking histories etc. on ODI level
adequate CRS, interfaces ...
more difficult than AU level computation for booking classes on leg level
Reason
Leg bid price has to reflect displacement, i.e. how much it costs to sell a seat on a leg with regard to the whole airline network

9. O&D Bid Price Control Review (cont.)
Hints for package bid price control
additional inventory
displacement has to be considered for
beds
hired cars
supplementary services
Package bid price control even more difficult (?)
forecast on package level required
“problem of small numbers” even worse (?)
adequate inventory etc.

10. Agenda Motivation O&D Bid Price Control
The Package Bid Price Control Problem
Current Booking Control in Tour Operator Market
Unified Control Approach
Booking Classes, Contribution Buckets and Other Details
System Approach for Package Bid Price Control
Conclusions

11. The Package BP Control Problem Units / Packages / Package Tours
Airlines
Tour Operators
fuzzy border

12. The Package BP Control Problem Package Displacement
1350€ 5 4 10
HAM-PMI
7 days Hotel A
7 days Hotel B
Package 1
Package 2
Competition for seats
Competition for beds and seats
1170€ t
Tue
Sat
Competition for beds
package 1
3 nights
4 nights
package 3
package 2
package 4
package 5
package 6
package 7
package 8
package 9
package 10

13. Why Package BP Control? Differences to Airline Bid Price Control 1
Airline (flights only)
Tour operator
Variable costs neglectable
control quality: revenue
Variable costs not neglectable
control quality: contribution
(Almost) full control over (self-owned) inventory
Seats and beds partly / mainly foreign-owned
manage guaranteed and non-guaranteed inventory (deadlines!!)

14. Why Package BP Control? Differences to Airline Bid Price Control 2
Airline (flights only)
Tour operator
Value differentiation through booking classes
wide range of values
Value differentiation
flights: few booking classes, if any
beds: same hotel
usually same comfort class
few differences (sea view / land view)
different brand
usually narrow range of values
Airline (packages)
Global distribution systems
Great differences from country to country

15. Agenda Motivation O&D Bid Price Control
The Package Bid Price Control Problem
Current Booking Control in Tour Operator Market
Unified Control Approach
Booking Classes, Contribution Buckets and Other Details
System Approach for Package Bid Price Control
Conclusions

16. Current Booking Control
Tour operators
often control inventory manually
often
seek to maximise load factors
through duration allotment control
From airline revenue management we know
maximal seat load factor
maximal revenue

17. Current Booking Control Duration Control
Result
sub-optimal
‘first approximation’
outbound flights
cap
3 weeks stay 3 1 2 4 1 3
2 weeks stay 2 4 2
1 week stay 1 3 4
weeks 1 2 3 4 2 3 1 1 2
cap
homebound flights

18. Agenda Motivation O&D Bid Price Control
The Package Bid Price Control Problem
Current Booking Control in Tour Operator Market
Unified Control Approach
Booking Classes, Contribution Buckets and Other Details
System Approach for Package Bid Price Control
Conclusions

19. Unified Control Approach Main Idea
Airline RM Analogy Tour operator RM
Control level origin destination itinerary
Control level package
Control parameter level leg
Control parameter level package unit
Control parameters leg bid prices
Control parameters unit bid prices
... calculation based on OD itinerary demand forecast
... calculation based on package demand forecast
Booking request decided by comparison of
sum of leg bid prices
value of OD itinerary
Booking request decided by comparison of
sum of unit bid prices
value of package
“small number problem”
demand aggregation e.g. OD itinerary è leg
“small number problem”
demand aggregation e.g. hotel è resort

20. Unified Control Approach Bid Price Control
Competition for beds and seats
Bid-price control treats beds and seats in a unified way
180€
255€
155€
240€
165€
180€
140€
195€ Q
Outbound flight
170€
290€
155€
255€
185€
185€
165€
210€ Q
Homebound flight t
Tue
Sat
Hotel A
60€
65€
65€
75€
65€
50€
55€
60€
60€
Hotel B
105€
110€
115€
110€
80€
135€
125€
130€
115€

21. Unified Control Approach Example
180€
255€
155€
240€
165€
180€
140€
195€ Q
Outbound flight
170€
290€
155€
255€
185€
185€
165€
210€ Q
Homebound flight t
Tue
Sat
Hotel A
60€
65€
65€
75€
65€
50€
55€
60€
60€
Hotel B
105€
110€
115€
110€
80€
135€
125€
130€
115€
Package 1: contribution = 600€ J
155€ + 75€ + 65€ + 50€ + 55€ + 165€ = 565€
Package 2: contribution = 450€ L
155€ + 75€ + 65€ + 185€ = 480€
Package 3: contribution = 900€ J
255€ + 115€ + 110€ + 80€ + 185€ = 745€

22. Agenda Motivation O&D Bid Price Control
The Package Bid Price Control Problem
Current Booking Control in Tour Operator Market
Unified Control Approach
Booking Classes, Contribution Buckets and Other Details
System Approach for Package Bid Price Control
Conclusions

23. Booking Classes, ... other Details Booking Classes & Packages
partitioning of itinerary values
means for history based demand forecasts
airlines RM systems based on booking classes
No similar partitioning for tour operator packages
flights booking classes not uniform
e.g. charter flights have few booking classes only - if any
hotel categories not uniform
e.g. European tourist hotels usually have one room category
differentiation by brands
different brands access same inventory è different values
Common approach: Virtual nesting è package contribution buckets

24. Booking Classes, ... other Details Contribution buckets
bookings
demand forecast
cb0 = [400, 599]
cb1 = [200, 399]
cb2 = [0, 199]

25. Booking Classes, ... other Details “Small Number Problem”
rarely booked packages è “problem of small numbers” i.e. booking history too sparse to deliver sufficient forecast accuracy
Solution
aggregation of units
bid price computation on aggregated level
Hotel A D C A B
Hotel B
Beast’s
Paradise
Hotel C
Hotel D
Forecast more accurate Inventory value less accurate

26. Agenda Motivation O&D Bid Price Control
The Package Bid Price Control Problem
Current Booking Control in Tour Operator Market
Unified Control Approach
Booking Classes, Contribution Buckets and Other Details
Package Bid Price Control System
Conclusions

27. Package BP Control System System Overview - Optimiser
forecast
Optimiser
contribution bucket sizes
EMSR curves
bid price matrices
bid-price request
CRS
Bid-Price
Server
Recommender
System
package bid-price
package
bid price
bid price
request
booking
request
recommendation request
Controller
substitutes
decision:
accepted
denied + (recommendation)
(no) recommendation
availability request
accepted booking information
availability
substitute
request
availability request
update decision
unit
forecast
Unit Manager
Inventory
availability
booking information

28. Package BP Control System Controller
CRS
Recommender
System
Unit
Manager
Bid-Price
Server
Optimiser
Bid-Price
Server
Controller
Unit Management
CRS
on-sale inventory
Recommender
System
Booking request for package p with contribution c
Require availability for all units in p
Take availability information; if all units available continue:
Require bid-prices BP(p) from bid-price server
Take bid-price and compare:
IF ci  BP(pi) THEN accept booking request
ELSE deny booking request and require adequate substitute
Pass booking denial and substitute to CRS

29. Package BP Control System Recommender System
Bid-Price Server
on-sale
inventory
Controller
Take recommendation request (package p with contribution c not available)
Optimiser
Bid-Price
Server
Controller
Unit Management
CRS
on-sale inventory
Recommender
System
Request substitute(s) (appropriate / somehow similar to p)
Take substitute(s) s1 (s2, ..., sn) and request for bid price(s)
Take bid price(s) BP(s1) (BP(s2), ..., BP(sn)) and compare:
IF c  BP(si) THEN keep substitute
ELSE reject substitute
Pass set of substitutes to controller (set may be empty)

30. Package BP Control System Unit Manager Heuristics
Begin of
bkg period
trelease
tdept
capnon-guaranteed
capguaranteed
case 1: sell capnon-guaranteed first, then capguaranteed
on-sale
inventory
Controller
Unit Manager
unit
forecast
Optimiser
Bid-Price
Server
Controller
Unit Manager
CRS
on-sale inventory
Recommender
System x
case 3: sell x non-guaranteed units first, then capguaranteed
x = capblocked
case 2: sell guaranteed units only
risk-oriented model P[Xtr,td(ui) £ capguaranteed(tr)] £ e
For given risk factor e,
the system automatically
choses capblocked appropriately.
contribution-oriented model weighs up extra contribution vs. costs of unsold inventory

31. Package BP Control System Unit Manager Working Mode
on-sale
inventory
Controller
Unit Manager
unit
forecast
Optimiser
Bid-Price
Server
Controller
Unit Manager
CRS
on-sale inventory
Recommender
System
Take accepted booking information for package p with Up = {u1, ..., un}
For all units uj do:
Calculate capblocked
Take number of remaining non-guaranteed units, capnon-guaranteed(t)
Compare: IF capnon-guaranteed - capnon-guaranteed(t) < capblocked THEN book non-guaranteed unit ELSE book guaranteed unit

32. Agenda Motivation O&D Bid Price Control
The Package Bid Price Control Problem
Current Booking Control in Tour Operator Market
Unified Control Approach
Booking Classes, Contribution Buckets and Other Details
System Approach for Package Bid Price Control
Conclusions

33. Conclusions There is a need for package bid price control
Airlines: flights + supplementary services
Tour operator business
sub-optimal RM (e.g. duration control)
no RM system at all
Bid price methodology
can be transferred properly to package control
allows control of seats, beds, supplementary services in a unified way
is superior to “duration control”
keeps its difficulties, e.g. small number problem
... which can be solved!

34. Conclusions
Differences between O&D bid price control and package bid price control
require modifications (e.g. contribution buckets)
require additional system components (e.g. due to non-guaranteed units)
Starting point
Many tour operators start from zero
Airlines need system extension
Good experience: ProfitLine*Tour

35. References
[1] Bratu, Stephane: Network Value Concept in Airline Revenue Management. M.Sc. Thesis, Dept. of Aeronautics and Astronautics, MIT, May 1998.
[2] Belobaba, Peter: Forecasting and Optimization Impacts on RM Revenue Gains. Presentation at 12th Int. IATA Revenue Management Conference, Atlanta, October 2000.
[3] van Ryzin, Garrett; Talluri, Kalyan: An Analysis of Bid-Price Controls for Network Revenue Management. Management Science 44, pp (1998).
[4] Bellman, Richard: Dynamic Programming. Princeton University Press, 1959.

36. Thank you for your attention! Any questions?1