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Author Topic: Revenue management update - preliminary information  (Read 2816 times)

Offline Sami

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Revenue management update - preliminary information
« on: July 30, 2014, 10:59:17 AM »
The current price management page and tools are still from the "old" user interface, the last ones remaining, and there has been planning going on for a longer time now already to make a large overhaul to these systems. This update of the price management will be similar to the scale of the accounting update - it's a major upgrade affecting all users. This thread is made to discuss the details (if something is missing) and to give preliminary information about the update.


What will change?

- The whole concept of price management. It will be dubbed as 'revenue management' in the future as that's the more correct term. The basic idea is to maximize the airline's ticket income. Currently most users are not managing their prices, there is no active price competition, and generally players will be happy to accept 99% load factors and losing revenue.

- The concept will be slightly similar to staff systems: Players will have the possibility to manage everything manually, or they can have their staff do everything, or split the work (partly manual / partly automatic).

- For manual management there will be a set of powerful tools to search/filter routes and easily multi-manage the prices there.

- For automatic management you will have the option to guide your staff according to your wishes.

- You can freely choose also a split between these two options where you manage part of your routes manually and let the staff handle the rest if you wish (useful for large airlines with some key routes).

- The whole concept of 'default prices' will be removed. If you are running manual revenue/price management you will still have advice on 'proper'/'reasonable' prices given by your staff, similar to used a/c pricing advisor. This is a range of values and 'accuracy' again depends on the quality of your staff on that department.


How it works in practise?

When opening a new route the current pricing dialog at the editor is replaced as follows:

a) choose if you wish this route's prices to be managed automatically or manually
  - manually: opens the current pricing dialogs with staff's price suggestions and possibility to change them

  - automatically: shows the pricing dialog (like with manual settings) and allows you to change/input the starting prices, but also gives you the options for automatic staff's guidance (ie. aim for max. LF, balanced, max. profit, or certain LF%), this will be the revenue automation's future target

Done!

b) Route is now open, and if you wish to do changes:
  - if on manual you can individually adjust this routes's prices by setting the desired $$ price for each class, or adjust the prices by % up/down - like today. You can do this one route at a time or by selecting several routes at once - like today. For manual pricing there will be a new page for price management with lots of search/filters to make it easier (ie. search routes with LF>90%, select all, raise prices by 10%).

  - if on automatic the route will fly on the first given prices for a week-two to gain enough information. Then the revenue management staff will bit by bit change the prices if needed to achieve your requested target. The changes are made gradually (ie. small changes to prices once a week or so) and all the changes are based on the history (LF/sales) of this individual route; it does not try to project the future. The staff will make the changes towards the goal you have set (max LF % for example) but their efficiency will again be depending on the morale/number of that staff group. The automation will also have certain limits and it will not try to push the prices too low for example (these are to be determined).


c) If you wish to do changes to the management mode:
  - from manual to automatic price management: can be changed from the route info page, or multiple routes at once. Again you'll be given the options to guide your staff.

  - from automatic to manual: making any manual price adjustments will drop the route from the staff automation (with clear info of this), or you can just click and drop it with the current prices set by the automation (= no further changes).


d) On settings page you will have the options to choose the defaults for all these options to make it quicker. On admin side there will be also a global game-wide setting to disallow the usage of automated pricing (needed for some special game worlds).



User interface

The revenue management page will be a completely new one. It will have basically two parts, a company wide price management and route level management.

The global part allows you to make changes affecting all your routes:

 - For routes under automated pricing: give orders to your staff to change the targets. I.e. set all routes so that they'd achieve maximum profits.

 - For routes under manual pricing: the same tools as now, +/- % or +/- $ on prices (per class). There will NOT be a global 'reset all' button.

 - Transfer all routes to automatic/manual price management.


The route level management looks a bit similar to route management page, partly overlapping:

  - It lists all your routes showing the pricing info.

  - You can search the routes with various filters. Filters would be at least: free text search, base, fleet, LF, route type (dom/sh/lh), departure time, price management type (auto/manual). Of the search results you can then select all, select one, or select multiple routes and adjust their prices. The adjustment options will be: setting price freely (text input for $), +/- %, +/- certain amount of $ (all per travel class, or all together).

  - If a route is under automatic pricing it shows up on all search results too, and you can on this page adjust the targets of the management (ie. do you wish the route pricing to be targeted towards max LF for example). Or you can here too change the route from automatic management back to manual or vice versa.

The route management page will have the same pricing setting tools but current filters (= the price management page will have filters and data for its particular purpose but the prices can be adjusted elsewhere too).


On route details page:

  - Again the possibility to adjust prices or the automation's targets.

  - Possibly a 'log' of what price changes have been done; however undecided yet (depends on the size of the data).



Price profiles

One item currently still undecided is the introduction of 'price profiles'. Currently there is only one price for each class, but to improve realism the prices per class could be split into several parts. For example 20% of Y class' seats would be sold at $100, 60% at $150 and the rest 20% at $250 - in this order.

Implementing this to the user interface is on the one hand simple, but on the other hand could complicate things too much. We can have a set of pre-created pricing profiles which would be simply: "sell x% of the seats at y% of the price set", and the users can create their own profiles too.

Basically this would mean that if we (ourself or automation) sets the routes Y class base price at $100, and our price profile selected for the route says 20% at 80% price, 60% at 100% price and 20% at 150% price, the final prices would be: 20% of seats sold at $80, 60% at $100 and 20% at $150..

Then later the user could simply adjust this pricing profile (which can be chosen for many routes) to increase the amount of 'cheap seats' on these routes for example.

Adjusting the background seat sale and allocation calculation for this is a questionmark still, and the complication of the user interface and generally making things more complicated is something that doesn't sound good. So for the time being this part is not being actively planned.



Target for this feature is during this autumn. The implementation will be possibly in two levels, first the new manual pricing tools and then the revenue management automation.

Do you see anything missing from the interface or from the general concept? I may have forgotten to write down something too..

Curse

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Re: Revenue management update - preliminary information
« Reply #1 on: July 30, 2014, 11:15:42 AM »
Sounds very good!

I don't see a benefit from different pricing profiles due to the fact AWS isn't real time and the tickets are sold once a day (and not weeks and month in the future).
I would maybe change that and make it possible to sell First class/Business class for Economy class prices if demand is available there, maybe with a bit additional costs as seat upgrade. That would improve LF and would make seat blocking/flying over range more effective.



Are you going to introduce it in running GameWorlds like GW#4?

Offline Sami

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Re: Revenue management update - preliminary information
« Reply #2 on: July 30, 2014, 11:17:57 AM »
Are you going to introduce it in running GameWorlds like GW#4?

Plan is yes, the changes to database structure etc. are minimal. And by default all will simply continue with their current prices and on manual setting, and can then make changes they wish later on.

Curse

  • Former member
Re: Revenue management update - preliminary information
« Reply #3 on: July 30, 2014, 11:26:54 AM »
I'd really love to see that feature in GW#4 as soon as possible. :) Do you plan on making a beta gameworld about it to see in a real environment if it works/if something is missing before? Especially when you intend to implement it to the live gameworlds such a test may be useful?


Maybe something to add:
1) Will there be a filter possibility to price some days higher than others? Mondays/Fridays often can use a higher price, like in real life, than - for example - Saturday. With 7-day-scheduling that's possible to make (did this for a while in GW#4 for example but with the current interface it's a ... struggle).

2) I'd also love some kind of staff order: "Keep prices according to inflation/deflation on the current niveau." The default pricing reduction during the 60s and early 70s where the most annoying things I ever experienced in AWS. ;D Prices changed on a daily basis, sometimes higher, sometimes lower. Would be good if auto-staff would be able to adjust this themselves.

Curse

  • Former member
Re: Revenue management update - preliminary information
« Reply #4 on: July 30, 2014, 11:34:06 AM »
I totally forgot the most important point, sami!


3) Will prices be finally different from country to country?


Right now people in Spain or Brazil earn very low salaries compared to the United States or Singapore for example, but people pay the same for a ticket.

Please change this when you make this change!

Offline weasel

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Re: Revenue management update - preliminary information
« Reply #5 on: July 30, 2014, 11:48:30 AM »
Excellent to hear.

Any chance you could include a possible overbooking of Y/C when working on the revenue management as discussed here: https://www.airwaysim.com/forum/index.php/topic,42607.0.html

« Last Edit: July 30, 2014, 11:52:38 AM by weasel »

Jona L.

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Re: Revenue management update - preliminary information
« Reply #6 on: July 30, 2014, 12:05:59 PM »
Any chance you could include a possible overbooking of Y/C [...]

A) That is not overbooking, overbooking is selling more seats than you actually have, hoping for the average rate of no-show passengers, that book a flight and then cancel or don't fly. (IRL depending on airline between 0% and up to 15-20% on some LCCs)
This would likely be hard to add, since tickets in AWS are sold on a daily basis, and not sold ahead of the date of flight.

B) Selling C seats at Y rates (as discussed in the topic you linked) or -in fact- upgrading passengers has been mentioned by CUR$E before.
[...] and make it possible to sell First class/Business class for Economy class prices if demand is available there, maybe with a bit additional costs as seat upgrade. That would improve LF and would make seat blocking/flying over range more effective.

@ Sami:

Until the automation is fully available (maybe availability could be sped up with a testserver beforehand as suggested above by CUR$E), I'd suggest keeping a possibility for "price reset", as manually going through all your routes once a day is quite an annoying task. And with the current inflation (seemingly above or close to 10%) in GW4 it is neccessary on a daily base (real time speaking).

Will the above mentioned "range of accuracy" be as vague as it is on demands? If so, this would be highly endangering small airlines/new started airlines, as the randomization can be quite harsh.

How often will the staff go over all the routes on automatic mode? This could be interesting in times of heavy inflation, if not all routes are checked often enough lots of revenue may be lost...

--

Overall this feature seems pretty nice. I'd like to volunteer as a tester on a beta server, as with earlier test games. Making this feature live with no previous (larger scale) testrun could end up in
(near) desasters.


cheers,
Jona L.
« Last Edit: July 30, 2014, 12:15:07 PM by [Remover of SkyConnect] Jona L. »

Offline Crazybernie

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Re: Revenue management update - preliminary information
« Reply #7 on: July 30, 2014, 01:20:11 PM »
I would also love to beta test this feature.

It would help doing away with a lot of the spreadsheets that i currently have.

Offline LemonButt

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Re: Revenue management update - preliminary information
« Reply #8 on: July 30, 2014, 02:34:03 PM »
Revenue management IRL involves a lot of complex statistical models.  My undergrad is in applied mathematics and statistics, so I have a lot of ideas on this.

The first problem I see here is setting staff to "maximize profits".  What does that mean exactly?  And I say this based on experience.  I'm running 400+ CRJs in GW2 and when I did the math, it came down to that I simply cannot afford too many empty seats.  So if load factors were low, I dropped prices and vice versa.  The issue I ran into is that dropping prices did not necessarily lead to higher profits because the price elasticity just wasn't there.  So instead of charging $100 and getting 50% load factors I was charging $90 and getting 50% load factors.  The piece of information that was missing was "fair pax distribution" or the number of pax that should be allocated to your airline based on the simple formula pax / flights.

The second problem I faced was that load factors would go through the roof when competitors (or even myself if I had multiple flights/day to a destination) when aircraft went down for maintenance.  So if aircraft went down for maintenance, I got high load factors, bump prices up, then I get low load factors because pricing was too high.

Thus, these two pieces of information need to be accounted for in the revenue management model or else you'll be using bad data and/or creating feedback loops.

IRL Revenue management means that prices are dynamic based on, essentially, supply/demand.  The first seat is going to be the cheapest, likely purchased months in advance, whereas the last seat is going to be the most expensive, purchase days/hours before takeoff.  So in order to make automatic pricing truly automated, pricing needs to be determined right before takeoff taking into account the fair pax distribution.

The simplest way to do this would be create a cumulative distribution function (CDF) that players can manipulate, of which you can take the derivative and produce a probability density function (PDF) which would give you a bell shaped curve where you can see very few cheap/expensive tickets with most tickets being priced in the middle.  The CDF would be a cubic function in the shape of an S-curve (sigmoid) where you have load factor on the x-axis and seat price on the y-axis.  This means when you plug in load factor (x) you get the most expensive seat price (y).

Example: A flight has 100 pax/day and there are 2 flights/day.  The fair pax distribution is 50 seats per flight.  If you are flying a 50 seat CRJ then load factor would be 100% and you would get the highest pricing possible.  If you are flying an F100 with 100 seats, then load factor would be 50% and you would be somewhere in the middle.

Now when you are using PDF/CDF it is based on a value from 0 to 1, or 0% to 100%.  So to set pricing strategy, players could simply manipulate the curve which can be used for all routes.  Since it is a percentage, the staff would plug in the actual "base value" of which they are multiplying by 0-100% based on the fair pax distribution value.  That is, if the example flight with 100pax/day goes from 2 flights/day to 1 flight/day due to maintenance, the pricing staff would adjust the base value higher for that day since they only have 50 seats and their fair pax distribution is 100 pax/day or 200% more than they can provide.

You can go from the PDF to the CDF and back by calculating the integral/derivative.  The beauty of this is that instead of the current system where you calculate revenue by passengers * ticket price, you can take the integral of the CDF and plug in load factor (x) and it will spit out revenue (y).  The integral of the CDF will produce the area under the curve, so you can create an aggregate revenue value without the need to calculate how much each seat cost, which is irrelevant.

So using the example, if you had a load factor of 80% on a 50 seater, you can take the integral of the CDF, plug in x=0.8 and get revenue=R.  You can then do R / (0.8 * 50) = average seat price, which will give an average seat price without ever needing to give values for EACH seat price.

Now obviously the actual pax distribution will still need to account for RI, CI, etc. plus randomness/noise built in, but this would be the easiest way to implement a very complex system IMO.  There would also need to be a similar curve for time of departure where a player can set pricing during the off hours lower than prime time using a continuous curve (i.e. a sine wave or similar).

Now once you have this setup, there would need to be an elasticity value factored in.  That is if you get above your fair pax demand AND 90%+ load factors, by what percent do you increase prices the next day?  If you get below your fair pax demand AND RI=100, then what? There is no easy answer to that...

What a system like this would do is instead of having a static price of X where every seat is the same price, you would have cheap seats in the beginning and more expensive ones in the end.  Thus instead of having an average LF of 75% with values ranging from 50% and 100%, you will end up with average LF of 75% with values ranging from 60% and 90% or in statistical terms, you will decrease variance and standard deviation, resulting in higher precision, which is the goal of revenue management (increased predictability).

So in the end, what a system using PDF/CDF equations (what is done IRL revenue management) will allow you to do is manage revenue for an entire flight versus individual seats, which is what we care about.  If we can get $10k in revenue from a flight, we really don't care if it is 20 pax paying $500 or 500 pax paying $20 (except for pax handling fees lol) as individual seat prices don't matter.

Sorry for the long technical post, but I run an online business heavy into content driven marketing where we use a similar system to manage marketing costs, increasing and decreasing our budgets based on response to smooth the curve and provide greater precision.

Offline Luperco

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Re: Revenue management update - preliminary information
« Reply #9 on: July 30, 2014, 05:40:28 PM »
Hi

Nice feature, but what about competition? In you post you didn't mention it at all.

What about routes where high LF are not reachable? For example with too small planes, technical stops and low demand or oversupply?
Saluti
Emanuele


Offline [ATA] Frimp

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Re: Revenue management update - preliminary information
« Reply #10 on: July 30, 2014, 08:04:14 PM »
looks great new feature when and if it will get implemented.

One concern though.. what would happen if 2 airlines both served 100% of demand on a specific route and both had set the pricing to be based on 75-80% LF.
Would the system just reset the pricing for both airlines on alternate weeks and ultimately lead to a race to zero where they will be running the flights virtually for free.
I think something will need to be incorporated for that, otherwise you will just have the bigger airlines be able to fly and supply the routes and virtually squeeze out everyone around and prevent any new airlines from starting up.

apart from that, I think it would be a great addition to AWS and something we've all been waiting for.


Offline Cardinal

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Re: Revenue management update - preliminary information
« Reply #11 on: July 31, 2014, 12:12:34 AM »
One concern though.. what would happen if 2 airlines both served 100% of demand on a specific route and both had set the pricing to be based on 75-80% LF.
Would the system just reset the pricing for both airlines on alternate weeks and ultimately lead to a race to zero where they will be running the flights virtually for free.

I think this sentence covers that:

The automation will also have certain limits and it will not try to push the prices too low for example (these are to be determined).

Solemus

  • Former member
Re: Revenue management update - preliminary information
« Reply #12 on: July 31, 2014, 03:53:34 PM »
Just an idea, if someone has several leased aircraft, then that person wants to buy one of the leased aircraft, which I know you already can before someone jumps in,  ::) Say the price for that aircraft to buy is, for example, $20,000,000 Is there any way this could be added? The person could make an offer for that aircraft instead of paying the full price, for example, instead of paying the $20,000,000 they could offer $18,000,000 the owner of that aircraft could go away to think about the offer then either say yay or nay.

Or another idea have an auction added for the aircraft, I see a lot of aircraft get stored, it might be an idea for new players that join who don't want to spend a lot of money on used aircraft. 

Jona L.

  • Former member
Re: Revenue management update - preliminary information
« Reply #13 on: July 31, 2014, 11:28:41 PM »
Just an idea, if someone has several leased aircraft, then that person wants to buy one of the leased aircraft, which I know you already can before someone jumps in,  ::) Say the price for that aircraft to buy is, for example, $20,000,000 Is there any way this could be added? The person could make an offer for that aircraft instead of paying the full price, for example, instead of paying the $20,000,000 they could offer $18,000,000 the owner of that aircraft could go away to think about the offer then either say yay or nay.

Or another idea have an auction added for the aircraft, I see a lot of aircraft get stored, it might be an idea for new players that join who don't want to spend a lot of money on used aircraft. 

Wrong topic my friend ;)

Solemus

  • Former member
Re: Revenue management update - preliminary information
« Reply #14 on: August 01, 2014, 05:46:32 AM »
I realized that after I put it in here  ::) I'm ill so you'll have to forgive me  :D my excuse and I'm sticking to it  ;D

Sorry about that

Offline NorgeFly

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Re: Revenue management update - preliminary information
« Reply #15 on: August 01, 2014, 01:01:09 PM »
This revenue management system revamp sounds great to me as currently managing prices can be tedious as airlines get larger.

One thing, which may have already been mentioned, is that any automatic system for adjusting prices based on historic data, will have to take into consideration periods when aircaft are out of service for maintenance. This can often give "false" very high load factors which could lead to prices being raised, only to then require a reduction afterwards. This is not necessarily undesirable but it will depend on response time.

If response time is slow, then just as fares start rising to capitalise on the increased demand for the remaining seats, the aircaft will come back in to service and fares will be too high for a period of time, thus reducing load factors and basically wiping out any potential gains that could have been made.

If the response time is fairly quick, when an aircaft goes out of service/on maintenance, the revenue managers could quickly raise fares (effectively stop selling the cheap seats) on the remaining flights.

This would only really work effectively if response time from the revenue management team was rapid. Therefore, perhaps if the system sees a very rapid/large increase/decrease in LF on a given route over 1-3 days, then the revenue managers should review the fares immediately. This would work well of there is an event that leads to a temporary rise in demand (rail strikes etc).

The alternative would be for any maintenance or events to be completely ignored to smooth out prices, however, that would seem to miss the point of revenue management altogether.

Offline Andre

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Re: Revenue management update - preliminary information
« Reply #16 on: August 01, 2014, 03:15:01 PM »
Sounds very good! And I'm all for price profiles as well.

One thing I'm thinking though, is that we should be able to see everyone else's prices on the routes. For example next to route itself on Route Planning page where you see routes between two airports. That would create competition. In the real world, airlines will know the competitors prices, but maybe not their price profile strategy (which could remain a business secret here too).

Offline bdnascar3

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Re: Revenue management update - preliminary information
« Reply #17 on: August 01, 2014, 03:49:42 PM »
I agree - should be able to see competitor’s pricing but not strategy.

Solemus

  • Former member
Re: Revenue management update - preliminary information
« Reply #18 on: August 01, 2014, 10:45:52 PM »
Sorry I disagree, different airlines charge different prices to attract the pax and should be kept secret because it would generate price wars. The bigger players could afford to undercut the little guy that is struggling for every dollar, which, in my opinion, is so wrong  :-\

chris.abrams67

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Re: Revenue management update - preliminary information
« Reply #19 on: August 02, 2014, 05:42:48 PM »
I think prices should be visible. Airlines spend an awful lot of time and money watching each other. And it's a fairly key indicator.

There should, however be some mechanism for a minimum allowed price - there being a maximum  negative margin or something per flight (which obviously wouldn't be visible to competitors) so smaller airlines can be price competitive and larger airlines can't just mark the flight down to $1 or whatever.

 

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