Friday, 31 January 2014

Holiday prices

There is an electronic petition being submitted to the UK government which reads:

Family time is so much more essential in the current working world, but so many people cannot afford holidays in school holidays. A break at home is not the same as getting away from it all where there isn't any house work or DIY to get done, instead focus is on family. Its time to stop the holiday companies cashing in on school holidays and let parents have some guilt free family time! Enforce action that caps the percentage increase on holiday prices in school holidays.

This is a long standing concern for many families in this country.   The prices of air tickets to popular holiday destinations increase during school holidays, and so do the prices of package holidays.  As an example, I checked out the current prices for a week's holiday in Benidorm, Spain, starting in successive weeks.  If you went for a week, starting on February 18th, at the start of a few school half-terms, you would pay £229 per person.  Go one week later, which would be in the middle of the general school half-term, and each adult would pay £296.  A week after that, and the price has dropped to £258, and the following two weeks find prices of £253 and £278 per adult.  So, taking your week's holiday in the school half-term rather than a week earlier means that you will pay nearly 30% more.  That gives us a set of prices to think about.  It is easy to find examples where the percentage increase is much greater than this.  (Flights from London to ski in Grenoble are on offer as follows: February 8th £53, February 15th £337, February 22nd £39.)

So why don't the holiday companies and airlines even out their charges so that there is no penalty for taking a break during the half-term holiday?  Because they are using operational research!  It might be in the form of economics, and the laws of supply and demand. And they are operating aircraft and hotels whose capacity is fixed - and they have to run those planes all the year round, and the hotels have to stay open all the year round as well.  Both hotels and flights should be as fully used as possible

Suppose that the price of that week in Benidorm was fixed for all those five weeks.  What should it be?  The average cost is £262.8 - say £263.  So we have another set of five prices for a week in Benidorm - £263, £263, £263, £263, £263.  Travellers in two weeks will pay less, and in the other three will pay more.  If the hotel/holiday were to be fully booked under both sets of prices, then the company revenue would be the same.  But what is more likely is that in those two "expensive" weeks, the holiday was fully booked; however, the higher prices in the other three weeks would deter some customers, so there would be space on those weeks, and the company revenue would fall.  What would the company do if they had to hold all five weeks at the same price?  They would raise the price from £263.  Which would put off more people from the three "cheaper" weeks, so the price would rise again.  Eventually the airline and holiday company would find that to keep their revenue constant, the price charged per week would be more than £300.  The proposal of the e-petition could well boomerang on the proposers. 

Now, I have taken a very simple example, and ignored the e-petition's suggestion of a percentage cap on increases.  Operational research at the airlines and holiday companies has found prices which fill the capacity of the holidays.  It's called yield or revenue management.  Those prices mean that the half-term holiday makers are subsidising those who go a week earlier, but as the previous paragraph has tried to explain, a fixed price for all weeks would probably lead to more expensive holidays for everyone - including the half-term holiday makers.  It seems a shame, but the economics of the travel and holiday industry mean that prices will always rise at times of high demand and fall when demand can be stimulated by low prices. 

Monday, 20 January 2014

Road signage decisions (1)

Until the 1970s, Exeter was known for the regular congestion on the by-pass every summer.  Because the main roads to the south-west of England converged on the city, and the by-pass was constricted by a narrow bridge over the Exe and the Exeter Canal, traffic queued for hours.  Today, the congestion and queues are not so severe, and generally there is good flow of traffic. 

One section of the “old by-pass” (as many people know it) is blocked by a roundabout (at Countess Wear, for UK readers).  There traffic is controlled by lights, to ease the flow of commuters.  There are two lanes from the north-east, one for traffic going left and ahead, one for traffic going right.  (Remember, we Brits drive on the left!)  A couple of hundred yards before the lights, there is a sign advising motorists of this division of the lanes.  Unfortunately, most evenings, the traffic backs up for a greater distance.  Regular users of the road know that they must get in the correct lane as soon as possible, but the stranger does not have this knowledge, and often there are scenes where a driver has to force his or her way into the other queue, when the error is discovered.

So here is a planning or decision problem.  Where should the advance signs for traffic lanes be placed?  And how many should there be? 

And there is a deeper question.  Many road signs are only relevant to a minority of road users.  Regular users of a stretch of the highway will know which lane to use, and what is ahead of them.  They will concentrate on driving, because the route, and its condition, are familiar.  The visitor, the stranger, the newcomer, these are the people who need the information.  But, the regular user needs to be told when there is a change.  So how do you communicate information to those who need it?