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Seminar: Air Cargo Supply Chain

Management and Challenges


Raja Kasilingam
Vice President
Air Cargo Solutions
Sabre Inc.

transporting

Center for Intelligent Supply Networks (C4ISN)

2003 UTD

air cargo
into the future

Agenda

C4ISN

Sabre, Inc. Overview


Air Cargo Industry
Air Cargo Landscape
Cargo Revenue Management Concepts
Cargo Revenue Management Solution

2003 UTD

Slide 2

Center for Intelligent Supply Networks

Sabre at a Glance

Revenues of about $2 Billion

A S&P 500 company


NYSE symbol: TSG
Headquarters in Dallas/Fort Worth,
Texas
Approximately 6,000 employees in
45 countries worldwide

C4ISN

2003 UTD

Slide 3

Center for Intelligent Supply Networks

Sabre Businesses

Travel
Marketing and
Distribution

Airline
Solutions

C4ISN

2003 UTD

Slide 4

Center for Intelligent Supply Networks

Airline Solutions

70 software products
160 products & services clients
70 reservations clients
42 consulting clients
Diversified client list

C4ISN

2003 UTD

Slide 5

Center for Intelligent Supply Networks

The World of Sabre


Europe
4SK 4SU
4AZ 4YW
4IB 4TP
4AF 4OS
4SR 4IW
4SN 4LH
4MK 4SO
4DI 4AY
4OA 47U
4TK 4TU

North America
4US 4AC 4YV4ZV 4QK
4CO 4FL 4F9 4EV 4FH
4HP 4DH 4YX4ED 47F
4NW 4OH 4PA4ZK 4LI
4UA 4QX 4Q24AE 4ED
4AA 4AS 45J 4BW 4QK
4DL 4HA 4XY47G 42K
4NJ 4SY 4OO4XJ 4YX
4UP 4TZ 4JZ 4NJ 49X
4ZX 4JI 4NK4WO 42Y
4DA 4ZW 49N 4EO 4JB
4WN 4ED 49X 4VX 4YJ
Central America
4HQ 4AW 42S
4AM
South America
4MX
4AV
4CM
4AR
4LR
4KK
4TA
4LB
4VH
4LV
4JR
4PL
4RG
4RG
4TR

C4ISN

2003 UTD

Africa
4SA
4AT
4ET
4UY

Slide 6

Middle
East
4KU
4PK
4TK
49W
4AI
4MS

4BY
4BA
4EW
4LO
4BD
4KL
4CY
4LT
4K8

Asia / Pacific
4CZ
4GF
4EK
4CX
4MH
4NZ
4PR
4CA
4TG
4MU
4NH
4TC
4KE
4SQ
4QF
4VT
4OZ
4CI
4BR
4KA
4JL

Center for Intelligent Supply Networks

Airline Products and Services


Pricing /
Yield Management
AirMax
AirPrice
AirPrice Contract
Composer
Availability Processor
Group Management
System

Cargo
CargoMax
CargoRev
Cargo Claims
CargoNet
SabreCargo
CargoPlan

Airport
Finance Systems
Quasar
TravelCard Pro

C4ISN

2003 UTD

FliteSource
Gate Plan
GSE Plan
StaffAdmin
StaffManager
StaffPlan
GateManager

Crew
Management
AirCrews
BLGO
CPOS
CrewPlan
CrewQual
CrewTrac

Planning /
Scheduling
AirFlite
Oasis
ARM
FAM
TAM
CRSSim
DPM
APM
Slot Manager
PC AirFlite
Slide 7

Sales &
Marketing
Traverse
CRSView
ProVision
LiteVision
WiseVision

Flight Operations
FOS
AirOps
AirPath
SteadyState M & E
Maxi-Merlin
FliteTrac
RAPS
Eagle

Dining & Cabin


Services

Customer Service
Qik-Access

AirServ

Center for Intelligent Supply Networks

Air Cargo Industry

transporting

air cargo
into the future
2003 UTD

Air Cargo Industry

C4ISN

The international air cargo market is $40 billion a year


and it is still the combination carriers that dominate.
Growth in air cargo anticipated to exceed passenger
traffic growth in every major regional market
Forecasts anticipate the addition of more than 2,600
freighter airplanes by 2019, as nearly 1,100 current
freighters retire
Customers around the globe are demanding better and
faster products
The air cargo industry has realized that information
technology is key to meet their challenges

2003 UTD

Slide 9

Center for Intelligent Supply Networks

Growth is projected at 6.4%

C4ISN

World airborne cargo will grow at 6.4% per year during the next 20
years.

2003 UTD

Slide 10

Center for Intelligent Supply Networks

Asian cargo markets lead

C4ISN

2003 UTD

Slide 11

Center for Intelligent Supply Networks

Major Traffic Flows

C4ISN

A snap shot of international freight flows as a


percentage of IATA international scheduled freight

2003 UTD

Slide 12

Center for Intelligent Supply Networks

Top 25 Freight Airlines

C4ISN

2003 UTD

Slide 13

Center for Intelligent Supply Networks

Air Cargo Landscape

transporting

air cargo
into the future
2003 UTD

At a very high level

Shipper/Forwarder

Airport/Airline Operations

Consignee

Shipper

Aircraft
Customers
Customers
Forwarder

Terminal

Terminal

Customers
Interline

Interline

C4ISN

2003 UTD

Slide 15

Center for Intelligent Supply Networks

A bit more detailed

Shipper

Integrators

Forwarder
Regional
Hub

Packaging
Own
Termnial
Operations

Airline Trucking/
Off-Airport Trucking

Terminal Operations
Warehousin
g
Own
Ground
Handling

Own Aircraft
E

Customs

Ground Handling

Distribution

Inventory

Airlines

Receiving

S
Airport

C4ISN

2003 UTD

Slide 16

Center for Intelligent Supply Networks

The key players are...

C4ISN

Shipper

Need a commodity sent anywhere in


the world for the lowest cost and meet
the required service level

Forwarder

Act as the middle man between the


shipper and the airline.

Integrator

Operate in business-to-business
markets and specialize in door-todoor transport solutions

Airline Operations

Receive, store, transfer, track, load


and unload cargo; assign and manage
capacity; bill customers.

Consignee

Recipient of the shipment.

2003 UTD

Slide 17

Center for Intelligent Supply Networks

Business challenges

Forwarder

Shipper

C4ISN

Make bookings

Make bookings

Booking acceptance

Negotiate best rates

Negotiate best rates

Bid for space allotments

Preparation of
Documents - Customs,
Insurance

Preparation of
Documents - Customs,
Insurance

Distribution

Track shipments

Track shipments

Invoice shipper

Accept billings and make


payments

Accept billings and


make payments

Interact with multimodal carriers

Place claims and repair


charges

Place claims and repair


charges

Messaging and
Transaction Ability

Speed (time sensitive)

Speed (time sensitive)

Reliability

Reliability

Consolidation of
Shipments

2003 UTD

Slide 18

Warehousing

Center for Intelligent Supply Networks

Business challenges
Airlines / Operations
Schedule cargo flights

Accept /Reject shipments

Shipment prioritization

Plan cargo routes

Maximize Revenue

Shipment re-accommodation

Initialize and open


flights for booking

Improve load factors

Plan Loading of cargo - build,


containerize etc.

Negotiate rates
Publish prices/rates

Accept Bids from


customers

Provide distribution
channels

Allocate Block Space Allotments

Forecast cargo capacity

Resource Management
of Terminal Staff

Segment and forecast


cargo demand
Plan for no-shows,
cancellations and
Overbook
Set-up Bid Prices

C4ISN

Track shipments

2003 UTD

Accept Shipments
Tendered
Dangerous Goods
Control

Unload Cargo
Load balancing
Warehousing
Obtain/Send Flight Manifest
ULD Management - Track,
Inventory, Repairs etc.
Service Reliability
Plan for CAD
Track and re-route Refusals

Package Validation

Slide 19

Center for Intelligent Supply Networks

Business challenges
Airlines / Operations

Airports / Operations

Offer Product Services


- Express, Next Day

Warehousing Storage

Track shipments,
containers

Customs

Invoicing/Billing

Security Clearance

Prorating

Dangerous Goods
Control

Interline billing

Package Validation

Revenue Accounting

Notify Captain

Sales Accounting

Facilitate smooth
cargo operations

Claims Management

Consignee
Track shipments
Accept billings and
make payments
Place claims and
repair charges

Receive/Send updates
on arrival
Receive/Send updates
on delivery
Message Interactions

C4ISN

2003 UTD

Slide 20

Center for Intelligent Supply Networks

Mapping of Business Challenges


Reliability

Maximize Revenue

Negotiate Best Rates

Improve load factors

Bid for Space Allotments

Accept Bids from customers

Schedule cargo flights

Allocate Block Space Allotments

Plan cargo routes


Initialize and open flights for
booking
Negotiate rates
Publish prices/rates
Forecast cargo capacity

Revenue Management

Segment and forecast cargo


demand
Plan for no-shows,
cancellations and Overbook
Set-up Bid Prices
Accept /Reject shipments

C4ISN

2003 UTD

Slide 21

Center for Intelligent Supply Networks

Mapping of Business Challenges


Invoicing/Billing
Prorating

Revenue Accounting

Interline billing
Revenue Accounting
Sales Accounting
Accept billings and make
payments
Make bookings
Message Interactions

Reservations and inventory control

Shipment Tracking
Warehousing
ULD Management - Track,
Inventory, Repairs etc.

C4ISN

2003 UTD

Slide 22

Center for Intelligent Supply Networks

Mapping of Business Challenges


Resource Management of
Terminal Staff
Load / Unload Cargo

Terminal Operations

Staff Schedules
Union Contracts
Shipment Prioritization
Receive Shipments

ULD Tracking

Container Management

ULD Control
Distribution & Warehousing

C4ISN

2003 UTD

Slide 23

Center for Intelligent Supply Networks

Mapping of Business Challenges

Filing claims and repair


charges

Claims Management

Claims processing
Claims tracking

Security Clearance
Embargo / Quarantine

Customs

Dangerous Goods control


Paperwork

C4ISN

2003 UTD

Slide 24

Center for Intelligent Supply Networks

Sabre Cargo Portfolio

Airline Business Area


Revenue Management
Revenue Accounting
Reservations & Inventory Control
Claims Management
Terminal Operations
Customs
Container Management
Warehousing
Other Potential Business Areas
Solutions for Forwarders
Solutions for multi-modal carriers
Auctions
Solutions for Airline alliances (like WOW)
Solutions for Airline Forwarder alliances
Solutions for Integrators

C4ISN

2003 UTD

Slide 25

Sabre
Y
Y
Y
Y
Y

Product
CargoMax
CargoRev
Sabre Cargo, QIK Cargo
Claims Management
CargoPlan, CargoNet

X
X
X
X
X
X
X
X
X

Center for Intelligent Supply Networks

Cargo Revenue Management Concepts

transporting

air cargo
into the future
2003 UTD

Revenue management is ..

Integrated management of pricing and inventory

To maximize total revenue

Key components are

Reduction of spoilage by selling more than available capacity


Match demand and supply (capacity) at network level
Considers routing possibilities
Long-haul displacing short-haul

Key Requirements

C4ISN

By selling the right product (right price) to the right customer at the
right time

2003 UTD

Product/price differentiation exists


Demand exceeds supply
Slide 27

Center for Intelligent Supply Networks

Revenue without and with price differentiation


2.00

Price-Demand Function

1.80
1.60

Rate ($/kg)

Revenue - $96,000

1.40
1.20

80 tons @ $1.20

1.00
0.80
0.60
0.40
0.20
0.00
0

25

50

75

100

125

150

175

200

Demand (tons)
2.00

Price-Demand Function

1.80

1.60

35 tons @ $1.65

Rate ($/kg)

1.40

1.20

45 tons @ $1.20

1.00

0.80

0.60

Revenue - $141,750

0.40

75 tons @ $0.40

0.20

0.00
0

25

50

75

100

125

150

Demand (tons)

C4ISN

2003 UTD

Slide 28

Center for Intelligent Supply Networks

175

200

Passenger vs. Cargo Revenue Management

C4ISN

Capacity is not known and not fixed


Capacity is 2-dimensional
Cargo can be over or under-tendered
Limited number of customers
Relationship based business
Routing in most cases is flexible
Demand is lumpy
Sparse data and poor quality of data
Less sophisticated users
Reluctance to new methods
2003 UTD

Slide 29

Center for Intelligent Supply Networks

Revenue Management Value proposition

Improves revenue and profits (generally 2 to 7%)

Reduces offloads and service failures

C4ISN

Accuracy in capacity forecasts (consistent under forecasting) translates to more space to carry cargo
Better overbooking decisions - more cargo booked to offset noshows and cancellations
Optimal station/customer allotments - low value customers do
not block valuable space
Better rate and density mix - maximize the use of all dimensions
of capacity and protect space for high value cargo
Accuracy in capacity forecasts (consistent over forecasting) translates to less refusals
Better overbooking decisions - improved service reliability when
showup is high
Ensuring operational feasibility through router module

2003 UTD

Slide 30

Center for Intelligent Supply Networks

Critical success factors

C4ISN

Process fit - current processes and process


gaps
Organizational alignment departments aligned
to processes
Technology fit - integrating revenue
management system with existing systems
Data availability - the major data requirements
include post departure data, air waybill data,
passenger bookings, and flight schedule
User acceptance - acceptance and willingness
from the user community
2003 UTD

Slide 31

Center for Intelligent Supply Networks

Cargo Revenue Management Solution

transporting

air cargo
into the future
2003 UTD

Cargo revenue management - Functional


Overview

Medium to long-term allotment management

Short-term capacity and demand management

Capacity forecasting
Showup rate forecasting
Overbooking
Demand forecasting
Route generator
Bid pricing

Reporting and proactive flight management tools

C4ISN

Optimal assignment of space to station/customers

Management reports
Flight workbench (critical flights analyzer)
Performance monitoring
Customer valuation

2003 UTD

Slide 33

Center for Intelligent Supply Networks

Interaction among revenue management


components
Performance
Monitoring

Flight
Manager

Common Functionality

Overbooking

Show-up
Rate
Forecasting

Capacity
Forecasting

Allotment
Management

Bid Pricing

Demand
Forecasting

Value
Determination
Route
Generator

Cargo Capacities
Bid Prices
Space Allocations
Values
Management Reports

C4ISN

2003 UTD

Slide 34

Center for Intelligent Supply Networks

Modeling and Functionality

C4ISN

Focuses on profitability as opposed to load factor


Manages network capacity instead of leg capacity
Focuses on freight mix based on density and revenue
Controls are based on commercial feasibility and
operational feasibility
Capacity segmentation is in terms of time horizon and
products
Allows the capability use bonus or value based on
O&D and customer.

2003 UTD

Slide 35

Center for Intelligent Supply Networks

System Setup

C4ISN

Control values are set several days before


departure and then updated nightly until
departure
Control values are in terms of weight, volume,
and positions
Users have the ability to set default values and
overrides
Monitors performance of forecasts and user
overrides

2003 UTD

Slide 36

Center for Intelligent Supply Networks

Approach to Forecasting

transporting

air cargo
into the future
2003 UTD

Approach to Forecasting

C4ISN

Capacity, showup rate, and demand forecasts


are key inputs
Forecasting is based on historical and current
data
Forecasts are monitored on a regular basis

2003 UTD

Slide 38

Center for Intelligent Supply Networks

Cargo Capacity
Psgr Weight
PAX Weight
PAX Bag Weight
Mail Weight
Other Weight
Extra Fuel Weight

Payload

PAX Bag Volume


Mail Volume

Allotments

Other Volume
Total Cargo
Capacity

Freesale

C4ISN

2003 UTD

Allotments
Freesale

Slide 39

Belly Volume

Total Cargo
Capacity

Center for Intelligent Supply Networks

Capacity Forecasting

C4ISN

A tool for forecasting the capacity available for


cargo by flight leg and departure date
Forecasts flight capacities in terms of weight,
volume, and positions
Interfaces with Passenger Revenue
Management system to obtain expected
passengers on board

2003 UTD

Slide 40

Center for Intelligent Supply Networks

Capacity Forecasting
Bag
Standards
Positions
Stacking
Loss

Payload
Forecast

Capacity
Forecasting
Model

Mail
Forecast

Passenger
Forecast

Capacity
forecasts
by flight leg
and
departure date

Belly
Volume

Fuel
Weight

C4ISN

2003 UTD

Slide 41

Center for Intelligent Supply Networks

Showup Rate Forecasting

C4ISN

A tool for forecasting the booking behavior of


flights by flight leg and departure date
Considers no-shows, cancellations, and
over/under tendering.
Forecasts showup rates in terms of weight,
volume, and positions

2003 UTD

Slide 42

Center for Intelligent Supply Networks

Showup Rate Forecasting

Historical
Tender
Showup
Forecasting
Model

Historical
Booking

C4ISN

2003 UTD

Slide 43

Showup
forecasts
by flight leg
and
departure date

Center for Intelligent Supply Networks

Demand Forecasting

C4ISN

To properly manage cargo profitability,


forecasting needs to be done by demand groups
or rate classes
A rate class should have shipments that are
very similar in density and revenue - to address
density mix and rate mix
Key data requirements include historical
bookings and current bookings

2003 UTD

Slide 44

Center for Intelligent Supply Networks

Rate/Density Clustering (Rate Class)

2.5

Revenue

1.5

0.5

Revenue Class
0
0

10

12

14

16

18

20

Density

C4ISN

2003 UTD

Slide 45

Center for Intelligent Supply Networks

Rate/Density Clustering (Rate Class)


Remaining demand by Rate-Density class
2.00

10

11
5 tons

1.50

5 tons

Rate($/Kg)

9
10 tons

4 tons

6
15 tons

10 tons

0.50

0 tons

8
10 tons

1.00

12

3 tons

2
5 tons

3
4 tons

2 tons

0.00
0

20

40

60

80

100

120

140

160

180

200

220

240

Density (kg/Cu.M)

C4ISN

2003 UTD

Slide 46

Center for Intelligent Supply Networks

Demand Forecasting

Demand
Group
Definition

Forecasting
Model
Parameters

Demand
Grouping

Demand
Forecasting

Historical
Booking

Current
Booking

Demand Forecasts

C4ISN

2003 UTD

Slide 47

Center for Intelligent Supply Networks

Methodology for Optimization

transporting

air cargo
into the future
2003 UTD

Methodology for Optimization

Capacity segmentation by time - allotment


optimization for medium term customer/station
allotments
Overbooking of remaining space to account for
booking behavior
Generate routing options to carry cargo
Match O&D demand to leg capacities
considering routing options and rate/density
classes

C4ISN

Compute bid prices


Determine capacity allocations

2003 UTD

Slide 49

Center for Intelligent Supply Networks

Allotment Management

A tool for managing medium term station or customer


agreements
Contains a network based optimization model that
evaluates competing requests based on:

C4ISN

Promised revenue
Historical utilization
Flight schedule
Available capacity for allotments
A pre-defined set of business rules

The model generates a business-practical solution that


maximizes the revenue for the airline

2003 UTD

Slide 50

Center for Intelligent Supply Networks

Allotment Management
Allotment
Requests
Schedule

Available
Capacity
Container
Data

Allocation
Rules

C4ISN

2003 UTD

Allotment
Management
Model

Allotment
Usage
Model

Recommended
Allotments

Slide 51

Center for Intelligent Supply Networks

Overbooking

C4ISN

Overbooking offsets the effect of cancellations,


no-shows, and over/under-tendering
Based on booking behavior, economic aspects
(maximize net revenue or minimize sum of
offload and spoilage costs), and acceptable
level of service failure
Users can set the maximum acceptable service
failures at flight, entity, or system level
Users have the ability to override the authorized
capacities for specific flight departures
2003 UTD

Slide 52

Center for Intelligent Supply Networks

Spoilage and Offload Costs

Spoilage Costs

Cost

Overbooking Level

Total Cost

Offload Costs
0

20

40

60

80

100

120

140

160

Overbooking Level

C4ISN

2003 UTD

Slide 53

Center for Intelligent Supply Networks

Overbooking

Flown
Air waybills

Costs and
Overrides

Show-up Rate
Model

Overbooking
Model

Booking
Records

C4ISN

2003 UTD

Acceptable
Service
Failure

Authorized
Capacity

Capacity
Forecasts

Slide 54

Center for Intelligent Supply Networks

Routing

Generates routes for the bid price model within


the Revenue Management Module
Determines feasible routes at the time of
processing a booking request

C4ISN

Takes into account operational requirements


Accounts for shipment characteristics
Ensures that the selected routes meet the service
level
Considers cost, time, and distance
Handles the complexity of multi-hub network

2003 UTD

Slide 55

Center for Intelligent Supply Networks

Routing
Schedule
Via/
Not Via

Route Costs
and Times

Connect
Times

Shortest Path
Model
Routes

Service
Level
Shipment
Characteristics

C4ISN

2003 UTD

Slide 56

Center for Intelligent Supply Networks

Bid Pricing / Allocation

C4ISN

Is an O/D based network optimization model


that maximizes network profitability
Matches demand to capacity over multiple
routes by redirecting cargo from high to low-load
factor flights
Leg bid price for a flight leg is (wt BP + Vol
BP/density)
O and D bid price is the sum of the bid prices of
flight legs along the route of the shipment
Bid price gradients enable bid prices to be
adjusted to reflect capacity changes
2003 UTD

Slide 57

Center for Intelligent Supply Networks

Bid Price Example


2.50

Capacity = 15 tons
Bid Price = $1.00/kg

2.00

Rate ($/kg)

3
tons
@
$2.00
1.50

6 tons @ $1.50

Capacity = 25 tons
Bid Price = $0.50/kg

1.00

10 tons @ $1.00

0.50

20 tons @ $0.50

0.00
0

10

15

20

25

30

35

40

Demand (tons)

C4ISN

2003 UTD

Slide 58

Center for Intelligent Supply Networks

Bid Price
Schedule
Authorized
Capacity
Demand
Forecasts

Space
allocation
to Demand
Group
Network Based
Bid Price Model

Connection
Matrix

Bid
Prices

Revenue
and Cost

C4ISN

2003 UTD

Slide 59

Center for Intelligent Supply Networks

Customer Valuation

C4ISN

A tool for assigning relative importance to major


customers
Customer value is used to scale up or scale
down the offered rate when making booking
acceptance decisions
Customer value may vary by segment and
season
Customer value can be based on several
variables: total revenue, space utilization,
commodity shipped, claims history, etc.
2003 UTD

Slide 60

Center for Intelligent Supply Networks

Customer Valuation
User Preferences
Sales

Operations

Revenue
Management

Finance

C4ISN

2003 UTD

Value
Determination
Model

Customer values

Slide 61

Center for Intelligent Supply Networks

Major categories of data

Flight Schedule
Booked and tendered cargo information

Pre and post departure flight information

C4ISN

Mail, bags, passengers, cargo, payload, fuel, etc.

Expected passengers on board


Reference data

Advance and live air waybills

Aircraft, container, station, customer, commodity,


products, etc.

Historical data
2003 UTD

Slide 62

Center for Intelligent Supply Networks

Key interfaces
Cargo Reservation
System
Cargo
Revenue
Accounting

Flown Air Waybills

Post-departure
Flight
data
Operations/
Departure Control Schedule

Bid Price/Allocations
Booked
Air Waybills

Booking Requests and


other updates

Cargo RMS
Reference Data

Passenger
Revenue
Passenger Booking
Management

DB Tables/
User Inputs

Legend:
RealReal-time link
Batch Process

C4ISN

Batch/realBatch/real-time
2003 UTD

Slide 63

Center for Intelligent Supply Networks

Further research is needed

Overbooking model

Demand forecasting

C4ISN

Show up rate distribution


2-dimensionality
Shipment level overbooking
Stability/accuracy of forecasts - Lumpy demand,
multiple rate classes, fewer booking requests
Predicting when to use and when not to use forecasts
Estimating true demand: demand reduction/untruncation

Integrated overbooking and bid pricing


2003 UTD

Slide 64

Center for Intelligent Supply Networks