revenue & yield management, page-8

At the risk of being called a crawly bumlick I read the entire piece Bacchus - read it over a week ago actually but really didn't have too much to say. The piece is a pretty workable description of the principles of revenue and yield management but it would be nice to get some of your thoughts on how an airline can do a better job managing yield.

For instance the paradox of the "perishability of seats". It actually applies to a great deal of industries - sporting events for instance. I say paradox because if your local grocer had apples which were about to go off he'd lower the price closer to their expiry - airline prices go up. Only in well behaved aviation markets such as ours where the travelling public have been well trained and all the airlines play ball. In markets like India and Indonesia prices often fall closer to day of departure and there is red ink everywhere. Indonesian airlines have their own unique revenue management technique where they build out a schedule at about 120% of their capacity and then cancel the poorly performing flights 1 - 2 days from day of ops. Madness. How can airlines fill those last minute seats without diluting the message to customers "buy early for the cheapest fares"?

The other challenge is you say there is no way of knowing what the maximum price an individual passenger is willing to pay. Really? Why not? The problem is that the restrictions airlines used to use to differentiate their passengers are pretty much all gone - so the 9.00 am SYD-MEL flight tomorrow I would pay up to $300 for because I have to be in a meeting, I buy for $120 because the airline doesn't know me and I might be just checking if I can afford to visit aunty mavis who is in hospital. Other industries know their customers well - check out Amazon they reccommend books based on what you've bought and looked at, why not price accordingly (they may well already), or how about casinos - those guys consider the full lifetime value of a customer when they offer pricing for their hotels etc.

Solve some of those questions for the industry and you'll get a HD on your next paper!

Thanks for the post.