Revenue Management continued.
Yield management, also known as revenue management, is a strategy to maximize revenue from existing capacity and customers using consumer data, customers’ behavior, and historic demand and buying trends interacting with a disciplined sales force. Most large travel industry retailers use computer software to determine pricing which is dynamic and ever-changing.
If you have customers flying to your destination, understanding these pricing strategies may help you help them find affordable fares.
Airlines adopted yield management to survive by maximizing revenues from the seats available for sale and by eliminating flights that were not profitable. The lodging industry initiated yield management in the early 1980’s to increase revenues. As a result, that industry was better prepared to endure the cutthroat discounting that erupted when the economy tanked and travel internet portals focused the consumer on discounting as the primary reason to book through their portal. There is no question implementation of Revenue Management strategies have helped some companies survive a down market. Delta Airlines cites “strong revenue performance” as a key to their improved profits ($1.2 billion in 2011).
Understanding revenue management strategies can help you and your customers lower your travel costs and perhaps improve your own revenues.
Although most airlines with whom you book directly claim to offer the lowest available fare, ticket pricing is actually determined by computer software and data sets that seek to maximize revenue. How much the airline knows about you can also impact the price you pay. For example, your zip code, time of travel, day of travel, whether you are traveling on business or leisure will quickly, through computer algorithms, determine your fare. One major provider of revenue management for the airline industry states on their website that their program is about revenue maximization and not revenue management. So, beware of low fare guarantees.
U.S. News and World Report outlined some ways to get the lowest possible airfares in their April 10 article. Signing up for Airfarewatchdog.com is one strategy they recommend using.
For a company to adopt yield management, a paper on Wikipedia says there are three essential conditions:
• “That there is a fixed amount of resources (seats or capacity) available for sale.
• That the resources sold are perishable (there is a time limit to selling the resources, after which they cease to be of value).
• That different customers are willing to pay a different price for using the same amount of resources.”