The Art and Science of Marketshare Models:

How to forecast passenger demand in a competitive environment ?

Agenda
Marketshare Models for Travel Demand Forecasting

Correlations: Red and Blue Busses

A Practical Example

Summary and Outlook

May 30th, 2004 Chart 2

Presentation

Marketshare models: Forecasting marketshares

NYC
JFK EWR

15%

LHR
20%

FRA
18%

MUC ...
x%

TXL

BER

May 30th, 2004

Presentation

Marketshare Models Why ?

n Support for Scheduling and Network Decisions in its own right

Scenario studies for Re-timings Frequency changes Equipment changes Codeshares and Alliances ...

LED

ORD FRA SVO ZRH VEN

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Marketshare Models in Scheduling and Strategic Planning

n Goal function for Optimizers, such as ... ... Timing Optimization ... Fleet Assignment ... Codeshare Assignment Hub Optimizer Route Optimizer Fleet Assigner Codeshare Assigner

n Why: One model throughout the company ! Consistent evaluation for

Passenger Demand Forecast

e.g., re-fleeting and and re-timing scenarios ! Save calibration and data preparation efforts
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Requirements
n Reliability Accuracy of Forecasts Taking into account all relevant effects appropriately n Scenario capability account for all relevant business cases (re-timings, equipment changes, codeshares, ...) n Speed Optimizers require lots of evaluations Convenience for users (spend time on analysis rather than generating numbers)

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Presentation

Marketshare Models How do they work ?

n Mathematical measure for itinerary quality, for example:

u (i ) = ConType * xConType + el .Time * xel .time + Airline * x AirlinePref + ...

n Account for all relevant effects that have an impact on passengers choice Departure/arrival time preference Airline preferences Connect type Elapsed time ...

LED ORD FRA SVO ZRH VEN

May 30th, 2004 Chart 7

Presentation

QSI models
Mathematical measure for itinerary quality, for example:

u (i ) = ConType * xConType + el .Time * xel .time + Airline * x AirlinePref + ...

Is related to marketshare for itinerary i:

u (i ) share(i ) = u( j )
j

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Presentation

Random utility theory Logit and Probit

n Utility maximisation theory:

Decisions are made such, that the utility for the decision-making individual is maximised .
n How to measure utility ? non-rational/non-parametrisable influences non-observable influence taste variations ...

V (i ) = u (i ) + (i )

= 1 * x1 (i ) + 2 * x2 (i ) + ... + (i )

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Presentation

Parametrisation of the stochastic term

n Logit:

(i ) ~ exp[ exp( (i ))]* exp( (i ))

Gumbel distribution Independent alternatives Analytical integration possible n Probit:

r r r ~ exp[ ]

Gau distribution Correlated alternatives numerical solutions only time consuming !

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Presentation

Stochastic contribution to the utility

V (i ) = u (i ) + (i )

= 1 * x1 (i ) + 2 * x2 (i ) + ... + (i )

0.4

0.3

Gumbel Gauss

density

0.2

0.1

0.0 -5 -4 -3 -2 -1 0 1 2 3 4 5

May 30th, 2004 Chart 11 Presentation

Agenda
Marketshare Models for Travel Demand Forecasting

Correlations: Red and Blue Busses

A Practical Example

Summary and Outlook

May 30th, 2004 Chart 12

Presentation

Correlation effects: Red Bus-Blue Bus paradox

Bus

OOO

DDD

Car
Introducing Blue Bus with identical attributes as Red Bus model forecast: decreasing marketshare for Car
May 30th, 2004 Chart 13 Presentation

Correlation effects: Timings

OOO

DDD
Introducing blue service affects marketshare of red service differently depending on timing !

No add. service Morning service Afternoon service Add. service 50 % 50 % 0%

Add. morning service 25 % 50 % 25%

Add. afternoon service 50% 25% 25%

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Presentation

How to deal with this ?

In the standard Logit and the QSI theory no accouting for correlation/coupling effects ! Have a look at the Probit approach:

V (i ) = u (i ) + (i )

(i ) ~

exp ii i2

* exp i ij j j

Bi-linear term accounting for correlations

May 30th, 2004 Chart 15 Presentation

Extended Logit approach

Include bi-linear terms into the Logit approach:

V (i ) = u (i ) + (i )

(i ) ~ exp[ exp( (i ))]* exp( (i )) * ( i , j , k ,...)

Define a suitable expression to account for coupling between alternatives

May 30th, 2004 Chart 16

Presentation

Agenda
Marketshare Models for Travel Demand Forecasting

Correlations: Red and Blue Busses

A Practical Example

Summary and Outlook

May 30th, 2004 Chart 17

Presentation

Example
European regional market n Short haul, high frequency market
n Mainly nonstop services of different airlines n Elapsed time and connect type no relevant choice parameter ! n Choice parameters are n Arrival/departure timing n Timing competition n Airline competition/correlation

Nr. Dep. Time Blocktime Airline Stops 1 06:50 75 2 0 2 07:45 65 3 0 3 08:15 70 1 0 4 09:55 75 2 0 5 10:00 70 1 0 6 10:30 65 3 0 7 14:40 65 3 0 8 17:15 70 1 0 9 18:40 65 3 0 10 20:20 65 3 0

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Presentation

Influence of Correlation/Coupling
n Example: Correlation of departure times: competitive coupling leading to decrease in marketshare n Example: Correlation of operating/marketing airline of schedule alternatives: competitive coupling (I want to fly with airlines xyz !) synergistic coupling due to better overall service

Determine overall coupling parameter for two alternatives:

Bij = 1 * z1 xi , x j + 2 * z2 x2 , x2 + ...

Weights
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Attributes

Results - I
80 70 Passenger (Forecast) 60 50 40 30 20 10 0 1 2 3 4 5 6 7 8 9 10 Itinerary

Legend: n Observed bookings n Standard Logit forecast n Extended Logit forecast

Extended Logit Good correlation Peaks and valleys adequately represented Standard Logit Essential properties of market not represented adequately
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Results II
Values of Coefficients:
n Timing Correlation: negative contribution parameter (TC = - 0.976 ) Significant competition present between trip alternatives Itineraries close in departure time compete for the same passengers

n Airline Correlation: positive contribution parameter ( AC = + 0.102 ) Synergistic effect outweighs competition High marketpresence gives competitive advantage

May 30th, 2004 Chart 21

Presentation

Agenda
Marketshare Models for Travel Demand Forecasting

Correlations: Red and Blue Busses

A Practical Example

Summary and Outlook

May 30th, 2004 Chart 22

Presentation

Summary + Outlook

n More sophisticated model leads to higher accuracy of forecasts Getting around pitfalls of previous models A better understanding of highly competitive O&Ds n Suitable for scenario studies n Combine speed of Logit with accuracy of Probit Fast evaluation Also suitable as goal function for optimization

All requirements for a good model fulfilled

May 30th, 2004 Chart 23 Presentation