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5 Breaking Down Willingness-to-Pay in RM www.pros.com The PROS RM Advantage forecasting methodology is based on the Bayesian Hierarchical model. The implementation of these concepts was done by PROS specifically for the airline demand forecasting environment. It has been further extended to other industries through other PROS products. It continues to outperform other methods for forecasting. The key design considerations of the PROS Bayesian model are the following: "Drift" Setting • Controls the speed at which the system learns from new observations • Helps detect between noise and new signal Data Collection Points (DCP) • Ranges of days prior where the demand arrives uniformly • Each DCP is forecasted separately to determine the expected arrivals within that period DCP Correlation • The relationship between the DCPs • This setting is used to determine the amount of sharing across the DCP periods Seasonality • Automatic capturing of seasonality as a covariate in the model • The seasonal shape of the historical observations is captured as part of the model, not requiring any multiplicative factors to be applied Holidays and Special Events (HSE) • Periods during unusual demand patterns • These periods are excluded from the base forecast, so the observations do not impact the remaining periods Willingness-to-Pay Forecasting A multiplicative factor is calculated based on the impact the HSE period will have on the base forecast With the framework established in the Bayesian model, it serves as the baseline methodology for forecasting passenger demand within the PROS RM Advantage product. The next step in the process is using this framework to forecast the price sensitivity of the demand. In the PROS WTP model, the system assumes that all demand within a set of classes (called a class block) is price sensitive. This means that within a given set of classes, all the demand will buy down to the lowest available class. The definition of the set of these classes, called a class block, is based on criteria set by the airline, where the only difference between the classes is the price. The block represents the product, while the classes represent the price points for the product. Once these are established, the system will generate the price sensitivity at the class level. This configuration is completed during the implementation of the WTP model. In the PROS RM Advantage product, the price sensitivity of the demand is modeled as an exponential price/ demand curve. In this formulation, demand is a function of price with two parameters to control the shape and height of the exponential:

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