Meissner Research Group

The Kingsman Prize for 2010 has been awarded to Management Science PhD graduate Arne Strauss. The prize was established in memory of the long-standing scholar of Management Science, Professor Brian Kingsman.

Arne has completed his PhD in three years after obtaining a MSc in Mathematics at Virgina Tech and a Diploma in Mathematics from the University of Trier in Germany. His supervisor, Dr Joern Meissner, identifies him as the most capable PhD student he has worked with so far.

Arne Strauss receiving his Kingman Prize award from Mike Pidd (Head of the Department of Management Science)

Arne’s thesis advances state-of-the-art models in revenue management (RM), an application area concerned with maximising expected revenue from the sale of products that use perishable resources. For example, products might refer to flight tickets and resources to flight legs in an airline network. RM approaches also arise in many other practical industries such as train, hotel, car rental, etc. For any application, a decision maker needs to formulate a decision rule (policy) that determines which products to offer at any point in time throughout the selling horizon. In recent years, increasing effort has been devoted to incorporating the choice behaviour of customers into network RM since demand for a particular product is often observed to be dependent on the offered alternatives. In this context, Arne’s thesis addresses important optimization questions that lead to improved policies by taking the dependence of the offered products into account. His research is of great practical importance and has already attracted the interest of revenue management professionals, leading to a project with Lufthansa Systems.

At the recent OR 52 Conference at the Royal Holloway University of London, the Operational Research Society prize “for the most distinguished body of research leading to the award of a doctorate in the field of OR in the UK” for 2009 was awarded to LUMS Management Science PhD Graduate Arne Strauss, who has since been appointed at LUMS under a PhD Plus Fellowship and will soon start a position as Research Associate under the LANCS Initiative. Arne was supervised by Joern Meissner.

Arne Strauss (right) receiving his OR Society award from Richard Egelese (President of the OR Society) at the Royal Holloway, University of London

In his dissertation, Arne pursues various research objectives within revenue management of a network of resources where customers choose between available product alternatives. Accounting for customer choice behaviour is necessary to accurately represent demand in markets where customers choose between several product alternatives, as it is particular the case if fare products have been simplified so that fare restrictions cannot properly segment customers any more. Such situations occur in many industries that use revenue management, for example airlines, trains, car rentals or hotels. It is therefore important to incorporate customer choice into the optimisation models, however, it also causes the resulting optimisation problems to be highly complex and difficult to solve. Arne develops in his dissertation approximate methods to tackle such problems.

In a recent interview with German business newspaper Handelsblatt, Lufthansa’s Deputy Chairman Christoph Franz mentioned that the airline will implement several strategies so far employed by flow cost competitors (Lufthansa will Billigflieger kopieren, Handelsblatt, November 17, 2009). On certain short routes, the pitch between seats will be reduced. Kitchen and wardrobes will be completely removed to create more space for passengers. Franz mentioned that Lufthansa will have to let go of the old strategy that the profitable long haul business is subsidizing the less profitable short haul routes.

Most importantly, Franz admitted that Lufthansa has underestimated the competition by the low-cost carriers. After some initial panic following the arrival of Ryanair, Easyjet, Air Berlin and others on the scene, most incumbent full-service airlines had settled on the thought that low-cost passengers are a different bread and that their current customers will stay with them not matter what. They now realize that this leniency is dangerous.

For us this is good news, as this might spark some renewed industry interest in choice modeling in network revenue management. Doctoral candidate Arne Strauss and I have been working on improvement in this area for some time now. See for example our articles ‘Pricing Structure Optimization in Mixed Restricted/Unrestricted Fare Environments’ and the upcoming ‘Improved Bid Prices for Choice-Based Network Revenue Management.’