Research on Passenger Seat Choice Behavior in Airline Revenue. Management. Xixi Zeng and Yue Li

Transcription

1 3rd Internatonal Conference on Management, Educaton, Informaton and Control (MEICI 2015) Research on Passenger Seat Choce Behavor n Arlne Revenue Management Xx Zeng and Yue L College of Musc,Jangx Unverst of Technolog Kewords: Ar transport; Revenue management; Seat control; Consumer behavor; Passenger choce Abstract. Along wth the graduall growng ferce compettons n ar transport market, all large arlne companes are seekng was to ncrease revenues and enhance compettveness, settng bass for applcaton of revenue management sstem n domestc market. Takng revenue management theor as the background and combned wth exstng research results of passenger choce behavor theor, n the thess, explorator researches on arlne passenger seat choce are made. Analss on passenger seat choce behavor from the aspect of consumer behavor theor, and choce preference and choce probablt of passengers under the crcumstance of dfferent seat classes n the same flght are researched. Ths thess ncludes the followng aspects: frstl, revewng hstor of revenue management development, pontng out the man drecton of the research, summarzng theor, research hstor and current status of dscrete choce model and PODS passenger choce model n detals and analzng smlartes and dfferences between applcatons the two models. Secondl, applng dscrete choce model and analtc herarch process to establsh passenger seat choce model and estmatng parameters of the establshed model, then further analzng applcaton of ths model n seat nventor control. Thrdl, dscussng applcaton status of the passenger choce model through nvestgaton, and comparng wth the actual surve results to prove practcablt and valdt of the establshed model. Introducton Chnese cvl avaton realzed actual takeoff after economc reform. Durng the perod from 1980 to 1990, annual average growth rate of ar transport market reached to 19%, and n the frst ears of 1990s, annual average growth even reached up to 27%, meanng Chnese cvl avaton transport went through a honemoon perod. However, along wth changes of nternal and external envronment of avaton market, former management sstem could not adapt to market changes, therefore Cvl Avaton Admnstraton of Chna took measure of prce deregulaton n 1997 whch led to prce wars among all arlne companes and the whole ndustr suffered huge losses of 2.44 bllon Yuan n 1998 as a consequence. In order to elmnate the losses, Cvl Avaton Admnstraton of Chna had to ssue the order of prohbtng dscounts n the whole ndustr n But arlne companes are enterprses after all whose market behavors have ndependent operatonal rules whch are beond the wll of human bengs. So all arlne companes offered dscounts secretl, whch led to compettve chaos n the domestc cvl avaton transport market. Wth our countr jonng WTO and speed up of economc globalzaton, compettons n ar transport are growng more ferce, thus all arlne companes are The authors - Publshed b Atlants Press 1407

2 trng to gan more market shares through seek product dfferences and to obtan more ncomes. Foregn arlne companes mostl adopt revenue management, am advanced management technolog, to enhance compettveness and ncrease revenues. In foregn companes, researches on revenue management are alread wth more than 40-ear hstor, focusng on fve aspects of predctng, overbookng, seat nventor control, passenger behavor and prcng. Lots of famous economsts, operaton research experts, manageralsts and transport experts have joned n ths research feld, whch makes abundant achevements n ths feld. Wheren, passenger choce behavor research s a man development drecton of revenue management research, however, n Chna, there are no researches related to passenger choce behavor. Therefore, analzng passenger characterstcs and researchng passenger seat choce behavor are extremel necessar for domestc arlne companes. In ths thess, based on theores of econometrcs, consumer behavor, operatonal research, probablt theor and statstcs, explorator research on passenger seat choce behavor n the feld of arlne revenue management s carred out n the thnkng mode of rasng questons, qualtatve analss, establshng model and contrastve analss. Econometrc theor s appled n analss of passenger choce model; and n analss of ar passenger seat choce behavor, consumer behavor theor s appled combned wth utlt theor, then utlt of passenger- seat class s ganed as a result. When buldng passenger seat choce model, passenger utlt s consdered as the prmar purpose, operatonal research theor and prncple of probablt and statstcs are appled n buldng passenger seat choce model, and further analzng and verfng accurac and applcablt of the model based on surve data. Development Hstor and Research Drecton of Revenue Management Revenue management (RM) s a market-orented process of determnng best prce and best nventor allocaton strateg to realzng maxmum revenue through subdvdng market and analzng and predctng consumer behavors n each sub-markets. Emergenc and development of revenue management are closel related to developments of theores of operatonal research and management scence, computer technolog, ndustral polc and market. Generall speakng, revenue management shall have three basc condtons: applcaton condton- development of ar transport; theor condton- development of operaton research and management scence; and technolog condton- development of computer and network technolog. Developments of these three condtons are parallel, and ther combnaton s pushng development of revenue management. Revenue management s the spontaneous extenson of management actvtes, prce strateges and seat control of arlne companes, but the fundamental theor s not changed. Along wth changes of nternal and external envronment of ar transport, graduall ncrease of compettors n arlne market and dverstes of passenger demands, complext of revenue management problems becomes ncreasngl hgher. Development process of revenue management approxmatel goes through the followng three stages: Stage of takng advantage of resdual seats to ncrease flght revenue. Due to nherent change rules of passenger demands, there s no possblt for an arlne compan to sell all seats to passengers wth full-far, so resdual seats are nevtable. Therefore, necessar management shall be carred out. Busness operatons of arlne companes nvolve the followng two aspects: one s ncreasng flght revenue makng use of overbookng technolog: n order to reduce resdual seats and mprove passenger seats use rate, overbookng s an effectve wa to ncrease flght revenue. 1408

3 Operatonal approach s to estmate amount of resdual seats accordng to bookng and boardng and seat cancellaton, and then mplement dfferent overbookng methods. Ths method s effectve n bus flghts, whle not good n flghts wth fewer demands. The other one s ncreasng flght revenue wth dscounted tckets: accordng to the premse that passengers wth normal tcket prce can share fxed costs of the flght, so long as prce of the dscount tcket s hgher than costs generated from addng one more passenger, the arlne compan can gan revenue, whch theor provdes bass for arlne companes to ncrease revenue wth dscounted tckets. But ths method s onl applcable to flghts wth hgh denst. Stage of takng advantage of mult-level tcket prce structure to ncrease flght revenue. Along wth changes of passenger behavor and demands features, ar transport market s dvded more detaled ncreasngl, whch s because durng the process of resdual seats management, the more prce levels are, the hgher degree for arlne companes meetng each knd of sub-market demands s, and the hgher revenue arlne companes wll get as well. When arlne companes adopt mult-level tcket prce structure, rsks also exst. Because ths wll cause passengers bung hgh-prce tckets choose to bu tckets of lower level seats, therefore requrng arlne companes to put forward relevant restrcton condtons on purchase and use of cheaper tckets and to provde varous rewards and frst-rate servces for passengers n frst-class cabns and busness class cabns or passengers bung full-fare tckets as well. Stage of takng advantage of flow control to optmze arlne network. Prevousl, when conductng flght economc analss, arlne companes carred out statstcs and analss on bass of leg, strvng to realze maxmum revenue n ths leg. However, maxmum leg revenue nether equal maxmum segment revenue, nor equal maxmum arlne network revenue. Changng arlne network structure to spoke arlne network structure can reduce operatonal costs of arlne companes largel, but large amount of connecton flghts made arlne structure complex, and plus wth release of mult-level tcket prce, revenue management of arlne companes became more complcated. Dscrete Choce Model Dscrete choce model s a ver effectve and practcal market research technolog. Ths model s manl used to see how consumers wll choose dfferent products or servces under actual or smulated market competton envronment. Generall, purchasng behavors of consumers are measured through stmulatng market competton envronment of the products or servces on bass of expermental desgn, thus knowng how consumers would choose under dfferent attrbute level and prces of products or servces. At present, ths technolog s wdel appled nto explorng choce behavors of decson makers under the crcumstance that optons are lmted and dscrete. Bnar choce problems alwas occur n actual lfe. For nstance, to take publc transport means or prvate vehcles to go to work s a problem; whether to bu a commodt or not s a problem; and to accept or refuse a job offer s a problem for a job seeker. All these are bnar choce problems. Felds nvolved n these problems ma be dfferent though, large statstcal researches show that a casual lnk s between factors affectng decson makers and the choces. And revealng the casual relatonshp and applng t nto predcton stud have mportant sgnfcances on economc development of the socet. When researchng passenger seat choces, provded that there are two levels of hgh and low tcket prce and passengers can onl choose from these two seats. A passenger choosng a seat wth hgh prce wll be gven n the formula of =1 and a passenger choosng a seat wth low prce wll be 1409

4 gven n the formula of =0. Data of N passengers can be look nto and based on whch stud relatons between choces of N passengers and factors affectng choces can be made. Gven bnar varable s and =1,2,N, whch represent seat choces of passenger. Hence: When the passenger chooses seat wth hgh prce, then 1 ; When the passenger choose seat wth low prce, then 0. Gven that X means factors affecton passenger seat choces, generall, X s an order vector ncludng r 1, and x X, then: 1 X F x, P βs a r 1 unknown parameter vector, F( x,β) determnes probablt of = 1 under the condton of gven x. Observed decson behavor s defned as a random varable 1 0 f f 0 0 PODS Passenger Choce Model PODS (Passenger Orgn-Destnaton Smulator) s a smulator of passenger orgn-destnaton whch s a computer smulaton tool to surve revenue management technolog of arlne companes. It was frstl put forward b Hopperstad, Berge and Flpowsk of Boeng Compan as an extenson of decson-makng wndow model to research nfluences of flght tme on market shares of arlne companes. As a revenue management experence nstrument, PODS s at the servce of PODS Assocaton whch consttutes MIT (Massachusettes Insttute of Technolog) and seven major nternatonal arlne companes. PODS s conssted of four parts: hstor bookng database, predcton module, seat nventor control of revenue management and passenger choce model. Structural relatons of these four parts are as follows: Hstor data are generated from past bookng records and hstor data of bookng are used to predct future flghts. Predcton demand s the second component of PODS. Predcton personnel shall set bookng lmts for flghts to depart, and people responsble for revenue management optmzaton shall nput predcton demands accordng to data features of revenue management method. Predcton process wll be assumed as seat class demands predcton n the next paragraph and ths process s smlar to route demands predcton. PODS passenger choce model s desgned based on some researches done b Boeng Compan, especall decson-makng wndow model of Boeng. It manl has the followng four steps: frstl, generatng ar travel demands; secondl, defnng characterstc set of each passenger and smulatng hs/her choce preference; thrdl, determnng choce sets of passengers accordng to characterstcs of passengers and seat nventor of arlne companes; and lastl, passengers makng decsons accordng to self characterstcs and opton propertes. Refer to Fg

5 Generatng Demands Characterstcs of Passengers Decson-makng Wndow Model Revenue Management Optmzaton Personnel Passenger Choce Set Passenger Decson Fg. 1 Structure of PODS Passenger Choce Model At present, decson rules of PODS have made dstnctons between monetar factor (maxmum wllngness to pa) and non-monetar factor (dsutlt). Choce on specfc route or seat class s based on these two factors, whle ths choce s lmted b maxmum wllngness to pa, and onl route or seat class lower than maxmum wllngness to pa s effectve n passenger choce set. Applng Consumer Behavor Theor to Analze Seat Inventor Control Consumer behavor refers to behavors of consumers nfluenced b demand motve to decde to purchase, modf purchase plan and accomplsh purchase process. Consumer behavor s a process. Refer to Fg. 2 for ts general model. In the earl stage of consumer behavor, t usuall meant behavors of buer and emphaszed on nteracton effects between consumers and manufacturers when consumers were bung. Now man manufacturers realze that consumer behavor s a contnuous process whch nvolves all matters nfluencng consumers before, at and after purchase, whle not onl the process of consumers gettng commodtes or servces after pang cash or pang b credt card. Consumpton Demands Purchase Motve Purchase Behavor Gettng gratfcaton New Demands Fg. 2 General model of consumer purchase behavor Consumer behavor process s not onl a thnkng and mental process, but also a process of consumers contnuousl takng actons, makng plans and solvng problems. Factors affectng consumer behavor have socal, hstorcal and economc factors whch are extremel complcated. J.M. Kenes once ponted out that consumpton motve or savng motve was a habt generated from assumed economc sstem, economc organzatons, races, educaton, conventons, relgons and prevalent moral deas, and t dffered a lot along wth the resent hope and past experence, number of nvestments and technologcal equpment, present wealth dstrbuton method and establshed lfe 1411

6 stle of all levels of socet. It s the responses of people to products and servces and marketng actvtes related to such products and servces that consumer behavor theor researches. Utlt Theor and Consumer Preference As a ratonal consumer, when choosng from dfferent seat classes, each ar passenger would lke to measure economcall whether consumpton demand gratfcaton degree s n proporton to consumpton expenses wth hs/her own preference, trng to satsf hs/her personal preference and maxmze aggregate utlt as well, and then decde seat class to purchase hereunder. Objectvel, utlt value depends on performance or servce level of commodtes, and subjectvel, t reles on judgments of consumers to servceablt or servce level of commodtes. It s usuall assumed n mcroeconomcs that consumers alwas tend to pursue maxmum utlt when makng choces. The followng two aspects shall be notced when understandng utlt: Frstl, utlt s a subjectve feelng whch totall depends on ndvdual satsfacton degree of consumng some knd of goods. Utlt has nether an ethcs meanngs nor objectve crteron. Utltes of a same commodt to dfferent people at dfferent tme and places are dfferent. Secondl, utlt s a subjectve mental feelng, though when researchng consumer behavor wth cardnal utlt theor, assumed utlt can be measured, therefore, utlt unt s taken to ndcate utlt. Ths measurement unt s selected randoml. In fact, takng some knd of unt to measure somethng s onl for convenence of researches whle not actual measure. When researchng consumer behavor, utlt unt s used as a knd of analss tool. In some sense, measurement unts are all determned artfcall and subjectvel, and no matter unts are specfc or abstract, so long as the are n favor of the analss, all of them can be used. Utlt unt s exactl determned for researches of consumer behavor. Conclusons In ths thess, takng passenger choce behavor n revenue management as prncpal research object, development hstor and results of researches on revenue management and passenger choce behavor are concluded and summarzed, arlne passenger seat choce behavor s analzed from the aspect of consumer behavor theor, passenger choce preference and passenger choce probablt of dfferent seat class are researched under the stuaton of same flght and dfferent seat class, and calbraton model s establshed, and lastl, analss n combnaton of market surve examples s made. Specfcall, major work and nnovaton ponts of ths thess are shown n the followng aspects: Summar of research hstor of revenue management and passenger choce model. Through revewng development hstor of revenue management, future research development drecton s ponted out. Summar of theor, research hstor and present status of dscrete model and PODS passenger choce model s made n detals, and smlartes and dfferences between these two methods durng applcaton s compared. Applng consumer behavor theor to analze passenger seat choces. Researches on passenger seat class choces from the aspect of consumer behavor theor are made. Through analss of passenger utlt and preference, subjectve and objectve and random factors nfluencng passenger seat choces are determned. Necesst to analze passenger sear choce problem from consumer 1412

7 aspect s put forward, and sgnfcances of researches on passenger seat choce are set forth from two aspects of revenue management development and marketng. References [1] Wang Zh, Vews on Cvl Avaton Based on Statstcs (2002), Bejng, Chna Cval Avaton Press, 2002: [2] Yang Slang, Lu Jun, some basc concepts of ar transport revenue management, Cvl Avaton Econom and Technolog, 1998, No. 196, [3] Lu Jun, Researches on Ar Transport Revenue Management and Rsk Decson Theor and Applcatons, [doctoral dssertaton], Bejng, Bejng Unverst of Aeronautcs and Astronautcs, 2000 [4] E.L.Wllamson, Arlne Network Seat Inventor Control: Methodologes and Revenue Impacts,PhD thess, Flght Transportaton Laborator,Massachusetts Insttute of Technolog, Cambrdge, MA, 1992 [5] Lu Jun, Background and Condtons of Revenue Management Development, Chna Cvl Avaton, 2001(2):43-46 [6] Pang Qng, Prmar Explores on Revenue Management of Domestc Ar Transport, [master thess], Shangha, Fudan Unverst, 2000 [7] Xu Gongda, Sh La, Ar Transport Management, Bejng: Avaton Industr Press, 2003: [8] Weatherford L.R, Bodl S.E. A Taxonom and Research Overvew of Pershable-asset Revenue Management: Yeld management, Overbookng and Prcng [J]. Operatons Research, 1994, 40: 831~844 [9] McGll J I, Van Rzn G J. Revenue Management: Research Overvew and Prospects [J]. Transportaton Scence, 1999, 33: 233~256 [10] Zhou Yan, Researches on Recall Sstem of Seat Inventor Control n Revenue Management, [master thess], Nanjng, Nanjng Unverst of Aeronautcs and Astronautcs,