Scheduling and Revenue Management Process

Integration: Benefits and Hurdles

Timothy L. Jacobs, Elizabeth Hunt and Matt Korol
Operations Research and Decision Support
American Airlines
May 2001

Presentation Overview

Process Integration - What theory tells us.

Practical First Steps and Their Impact

Consistent Scheduling and Revenue Management (O&D FAM).

O&D-based Demand Driven Dispatch (D3)

Benefits and Hurdles to Implementation

Summary

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Airline Business Overview

LongTerm

Scheduling

Strategic

Product Pricing
Yield Management
ShortTerm

Sales and Distribution

Tactical

Customers
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Typical Scheduling and RM Process

Network Scheduling
& Planning

Flight
Scheduling
(Leg-based)

Informal Feedback

Flight Demand Forecasts

Data Source

Revenue Management Process & Controls

Revenue
Management
(O&D-based)

Capacities / O&D Forecasts

O&D Demand Forecasts

Data Source

12+ Months 9-6 Months

3 Months

45 Days

DOD

Time
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Proposed Integrated Process

O&D
Network
Planning

Flight
Scheduling

O&D-based
Scheduling

Near-term Aircraft Assignment

(D3 Process)
Controls/Capacities

Revenue
Management

Revenue Management Process & Controls

O&D Forecasts/Capacities

Forecasting

Steady-State
Industry
Forecast

O&D Daily
Forecast

O&D Time Series Forecast

Forecast Data and Control Information

Data
Sources

Causal Effect Data

Date Specific Data

12+ Months 9-6 Months

3 Months

45 Days

DOD

Time
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Consistent Scheduling and RM Benefits - O&D Fleet

Assignment

Provides a better balance

between supply and
demand and improves
current practice by
explicitly considering
passenger flows in the
scheduling process.

Multiple O&Ds
Multiple Classes

Consistent with Yield

Management seat
allocation and controls
Extensible to consider
network recapture and
pricing effects
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Consistent Scheduling and RM Benefits - Theory

18

16

Integrated
Scheduling & Revenue Management
Process

Revenue Contribution (%)

14

12

Revenue Management Only

10

No Revenue Management

0
60

65

70

75

80

Load Factor (%)

Reference: Jacobs, Ratliff and Smith;1997, 2000

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Extension to Consider Pricing Effects

20

18

O&D Fleeting, RM & Pricing

16

O&D Fleeting and RM

Revenue Contribution (%)

14

O&D RM & Pricing

12

O&D RM

10

No RM

0
60

62

64

66

68

70

72

74

76

78

80

Load Factor (%)

Reference: Jacobs, Ratliff and Smith;1997, 2000

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O&D Fleeting and RM Benchmark Process - Practice

O&D
Forecast

Estimate O&D market forecasts.

Fleet schedule with a Segmentbased Fleet Assignment Model

(Leg-FAM).

Improve fleeted schedule using

O&D FAM application.

Evaluate Leg-FAM and O&D FAM

schedules using the O&D
revenue mix model.

Leg
FAM

O&D FAM

O&D Evaluation: Revenue Mix

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O&D Fleeting and RM Benchmark

General Information

4,500 flight legs.

26 sub-fleets.
800 aircraft.
150,000 total O&D markets (Including International Markets).
No Jet-Prop Swaps.
International Fleeting Maintained.

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O&D Fleeting and RM Benchmark Results

1.4

1.2

Schedule Improvement (% of revenue)

0.33 %
Improvement
1

0.8
0.41 %
Improvement

Leg-FAM
O&D FAM

0.6
0.46 %
Improvement
0.4

0.2

0
Winter

Summer
I ATA

Annual

Schedule Season

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11

Observations and Conclusions

Benchmark results using existing forecasting methods and a consistent

O&D Fleeting and RM approach illustrate significant potential benefits
over segment-based FAM.

Additional benchmarks showed annual improvements ranging from

0.54% to 0.77% of revenue.

O&D Fleeting and RM process provides a better balance between

available resources (capacity) and the O&D-based demands.

O&D Fleeting produces a schedule fleeting consistent with the RM

process used to manage the seat inventory. This provides better
opportunities to increase the overall schedule yield.

Potential benefits from a consistent O&D Fleeting and RM process will

increase as forecasting capabilities improve.
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12

O&D-based Demand Driven Dispatch (D3)

Objective: Increase overall profitability by making strategic nearterm aircraft swaps between crew compatible equipment.

Driving Forces:
Paradigm shift: Many airlines fleet the schedule using leg-based
methods while managing the seat inventory using O&D-based
methods. This leads to an inconsistent matching of supply and
demand.
Daily forecast variability: D3 exploits opportunities created by the
systemic daily variation of ODF demand flowing through the network.
These effects are not captured when schedules are built using typical
day forecasts.
Forecast Error: D3 improves schedule profitability by using improved
forecast data nearer the day of departure.

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Demand Driven Dispatch (D3) Process

Obtain remaining O&D Fare Class

(ODF) demand forecasts, firm
reservation holds, capacities and
itinerary fares from RM for a
specific reading day and
departure date.

Improve fleeted schedule using

O&D FAM and allowing only crew
compatible RJ swaps.

Evaluate resulting schedule

using the RM model and forecast
data.

RM Model

O&D FAM

Evaluation: Revenue Mix

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Demand Driven Dispatch Benchmark

Benchmark Information

Reading Day 13.

Potential swaps: 566 candidate flight legs.
4800 total flight legs in schedule.
115,000 total O&D fare classes (Including International Markets)
considered in analysis.
All other fleets held constant.

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D3 Benchmark Results - Max Profit

Measure*

Input Schedule

D3 Solution
0.64

Incremental
Profit Gain
(% of Revenue)

114

Switched Flights
Segments Flown
RJ3
RJ4

230
336

198
368

10:31
10:02

9:37
10:14

Utilization
RJ3
RJ4

* All measures are for a daily schedule

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D3 Parametric Analysis Results - Swap Limit

Swap
Limit

Daily Profit Increase

(% of Revenue)

Cumulative
Percent of Total

25

0.25

39%

50

0.35

56%

75

0.50

78%

100

0.60

94%

114

0.64

100%

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A Closer Look - 25 Swap Limit

Flight
No.

Reservation
Fleet
Holds
Input Output

Incremental Traffic Total Traffic Profit Change

Input Output
Input Output
(% of Rev)

RJ4

RJ3

14

15

0.01

32

RJ3

RJ4

36

41

0.02

33

RJ3

RJ4

10

36

43

0.03

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D3 Benefits and Timing - What the theory tells us.

1.8

Operationally Feasible D 3 Zone

Increental Profit (% of Revenue)

1.6
Operationally Infeasible Zone

Steady-StateForecast Zone

1.4

1.2

Gains due to Improved Booking

and
Forecast Information

0.8
Gains from
Inconsistent Scheduling
and RM Processes

0.6

0.4
Systemic Daily Variability
0.2
Forecast Error

0
0

50

100

150

200

Reading Day

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D3 Benefits and Timing - The Practice

0.9

Incremental Profit (% of Revenue)

0.8

0.7

0.6

0.5

Likely trend without

Schedule Changes
between RRD 97
and RRD 69

Incremental Profit
from D3 alone
on RRD 13

0.4

RRD 69 included a number of

schedule changesnot present
in RRD 97 and 118

0.3
Incremental Profit likely due
to Differences in the Scheduling
Approach and D3 process on
RRD 118 due to daily variations
and forecast error

0.2

0.1

0
0

20

40

60

80

100

120

Reading Day

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D3 Summary

Results clearly illustrate the potential benefit associated with D3 swaps

of crew compatible aircraft near the day of departure.

D3 effectively exploits the daily variations in ODF demand forecasts to

identify revenue opportunities not realized during the schedule planning
process.

D3 provides an added degree of freedom to the RM process. This

added flexibility allows the airline to adapt to better forecasts near the
day of departure.

A portion of these benefits are likely due to inconsistencies between the

scheduling and RM processes (Leg-based planning vs. O&D-based
control).
Must account for M&E, crew and operational issues.
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Benefits and Hurdles to Integration

Benefits:
Consistent scheduling and RM processes can uncover significant revenue
opportunities not realized in todays process.
Implementation facilitates a natural and systematic feedback mechanism
between scheduling and RM processes.
Provides opportunities for further process integration (pricing, M&E, Crew).

Hurdles:
Paradigm shift will require analysts to think about the scheduling problem in
a much different way.
Process integration raises a host of process and schedule ownership issues
that must be resolved.
Integration puts added emphasis on the importance of forecasting at the
Leg and O&D level.
Timing of D3 highly dependent on ability to market added capacity.
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