71. PICKUP MODELS

OBJECTIVE

Forecast the demand for the next periods.

DESCRIPTION

Pickup models are advanced forecasting models used in revenue management, and they can be applied in businesses that book the service in advance (airlines, hotels, theaters, etc.). The forecast is calculated using the current bookings for a certain future period and estimating the incremental bookings (pickup) from now until this future period (i.e. departure date, check-in date, etc.).

The pickup is calculated using past data, and it can be the average pickup with a specific anticipation (x days before) if we are summing it with the current bookings or it can be an average pickup ratio (total bookings / bookings x days before) if we are multiplying it by the current bookings:

In the first formula (additive pickup), the bookings on anticipation day 0 (B_DB0) are equal to the current bookings (B_DBX) plus the average pickup bookings between anticipation day x and anticipation day 0 (PU_DB(X,O)). In the second formula (multiplicative pickup), the forecast is calculated by multiplying the current bookings by the average pickup ratio (PUR_DB(X,0)).

To estimate good forecasts, it is very important to calculate carefully either the average pickup or the pickup ratio. Take as an example an airline company. If we are using the average pickup, then we should take into consideration seasonality at different levels: time of the day, day of the week, month, holidays, and so on. The amount of incremental bookings depends heavily on the demand for a specific departure time, so we should calculate the average using similar days. However, if we are using the average pickup ratio, we do not have this problem but may discover that the booking pace is different for different departure periods; for example, more people are anticipated to book during summer periods. In this case it is important to calculate the average pickup ratio from similar departure periods.

We can also take a step further and expect that the booking pace may change over time, either because the customer behavior has changed or because we have widened the booking horizon. For example, we can calculate a trend in the pickup ratio and adjust it for the prediction of future periods.

TEMPLATE

Download the Pickup Models Template