Demand driven dispatch and revenue management in a competitive network environment

Daniel Fry and Peter Belobaba
Additional contact information
Daniel Fry: Alaska Airlines Corporate Office
Peter Belobaba: MIT International Center for Air Transportation

Journal of Revenue and Pricing Management, 2016, vol. 15, issue 5, No 6, 380-398

Abstract: Abstract Demand Driven Dispatch (D3) is the reassignment of aircraft to flights close to departure to improve operating profitability, primarily by utilizing improved knowledge of expected demand from the airline’s revenue management (RM) system. Previous studies of D3 have not incorporated competition and have typically ignored or significantly simplified RM. In this study, the implementation of D3 is tested with complete representations of RM systems in a network environment with competition. Results are from the Passenger Origin Destination Simulator, where stochastic demand by market chooses between competing airlines with alternative schedules and fare products. Findings include important competitive feedback effects from D3 and insights about relationships between D3 and both RM and pricing. Our findings indicate that the benefits of D3 can be estimated at operating profit gains of 0.04–2.03 per cent, revenue gains of 0.02–0.88 per cent, and changes in operating costs of −0.08 to 0.13 per cent. However, use of D3 may harm competitor airlines more than it aids the implementer. D3 swaps early in the booking process can lead to heavy dilution. Late swaps lead to smaller increases in loads but substantial increases in revenue. The relationship between revenue-maximization and cost-minimization in profit-maximizing D3 is highly influenced by the timing of swaps and revenue estimation.

Keywords: demand driven dispatch; revenue management; airline competition; airline networks; PODS; close-in refleeting (search for similar items in EconPapers)
Date: 2016
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DOI: 10.1057/rpm.2016.29

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