Revenue Management In KLM:WhyAndHowWeDifferentiateInTicketPricesAndOverbooking

Date: 2011-04-14

Time: 11:00

Room: BBL 201

Speaker: Jules van Kempen

Title: Revenue Management in KLM, Why and How We Differentiate in Ticket Prices and Overbooking

Abstract

First of all, in this talk I will try to show you how the techniques that you can learn in university can be applied in the industry, and which parts are most important in the Air France / KLM business. KLM has a specialised Revenue Management department that uses highly sophisticated systems and skilled analysts to ensure that tickets are sold at the right price to the right customer at the right time. To determine the optimal selling price per flight and per date a complex mathematical model is used. Roughly, this model matches forecasted demand to open seats such that the highest revenue possible is achieved. It comes down to a Linear Programming model in which inputs on flight capacity, bookings already sold, a demand forecast, the price the demand wants to pay, and many more other inputs are combined. In this presentation the linear programming model, as well as its complexity will be discussed in more detail. Also, additional parts that could be integrated (i.e. overbooking costs, stochastics), but turn the model into an Integer Linear Program and therefore infeasible to solve are presented together with the sub-optimal ways in which they are currently being worked around.

Still, in reality the most important part is not to solve the model to perfection, but to have the inputs as correct as possible. So, this talk will also focus on the business complexity around the technical models.