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2021 | Book | 1. edition

Origins Read chapter Read first chapter

The Evolution of Yield Management in the Airline Industry

Origins to the Last Frontier

Author: Ben Vinod

Publisher: Springer International Publishing

Book Series : Management for Professionals

Part of: Springer Professional "Wirtschaft+Technik" , Springer Professional "Wirtschaft" , Springer Professional "Technik"

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About this book

This book chronicles airline revenue management from its early origins to the last frontier. Since its inception revenue management has now become an integral part of the airline business process for competitive advantage. The field has progressed from inventory control of the base fare, to managing bundles of base fare and air ancillaries, to the precise inventory control at the individual seat level. The author provides an end-to-end view of pricing and revenue management in the airline industry covering airline pricing, advances in revenue management, availability, and air shopping, offer management and product distribution, agency revenue management, impact of revenue management across airline planning and operations, and emerging technologies is travel. The target audience of this book is practitioners who want to understand the basics and have an end-to-end view of revenue management.

Table of Contents

Frontmatter
1. Origins
Abstract
This chapter discusses the origins of central reservations systems (CRS), Global Distribution Systems (GDS) and yield management in the airline industry. Entities and organizations that support the airline industry are reviewed, describing their roles and what they do.
This chapter introduces the marketing planning process, the travel value chain, consumer direct and indirect channels and the role of the travel agent. The role of yield management in the marketing planning process is discussed from its inception after airline deregulation to the current day with the major trends that are reshaping airline distribution. Impacts on yield management systems, the agency workflows and reservations systems processing are also reviewed.
Ben Vinod
2. Airline Pricing
Abstract
Managing public and private fare products is called fare management. Fares are a fundamental input to determining revenue management controls by leg/segment or origin and destination. Traditional reactive pricing that is focused on a fare response to a competitor’s actions and proactive pricing for price leadership in a market are reviewed. The fundamentals of airline fare management are introduced including customer segmentation, fare categories, journeys, itinerary pricing, constructed fares, and special prorate agreements. The implications of an ineffective fare management process caused by fare overlaps between booking classes and its detrimental impact on revenue management that can result in revenue dilution and potential loss of market share are reviewed. Branded fares and ancillary pricing are covered in this chapter.
Ben Vinod
3. The Airline Spill Model
Abstract
The airline spill model is a fundamental building block for yield management. Spill model measures and various applications of the airline spill model are discussed. Spill models based on the normal distribution (Boeing Spill Model) and gamma distribution are reviewed for the coach cabin. Based on the higher degree of uncertainty of demand for premium cabins, alternate spill models are proposed to estimate spilled passengers and flight closing rates.
Ben Vinod
4. Revenue Management of the Base Fare
Abstract
This chapter provides an end-to-end overview of revenue management of the base fare. The decision support models assume that demand is considered independent from one booking class to the next. Overbooking models based on quality of service constraint and the economic model are reviewed. Demand untruncation is the first step toward forecasting unconstrained demand. Traditional demand forecasting methods and customer choice modeling approaches are reviewed. Discount allocation controls with leg/segment revenue management and origin and destination revenue management are examined in detail. The discussion on expected marginal seat revenue and network optimization models are followed with a discussion of inventory control methods supported in airline reservations systems. Various types of nested inventory controls, virtual nesting, and continuous nesting are discussed. Connectivity, a key enabler for revenue management from the agency channel, defined by the level of participation by a carrier in a GDS, is reviewed followed with a discussion of airline alliances, and the importance of accurate seat availability. The chapter concludes with a discussion on revenue management of groups, the role of revenue integrity, and the impact of revenue management on adjacent travel verticals and other industries.
Ben Vinod
5. Low-Cost Carriers and Impacts on Revenue Management
Abstract
Low Cost Carriers (LCC) introduced unrestricted tariffs leading to the core assumption of independent booking classes being no longer true. This chapter begins with a discussion on value pricing followed with restriction free pricing and lightly restricted tariffs practiced by the LCCs and its impact on network carriers. Alternative models to address restriction free tariffs to set inventory controls are reviewed. Co-existence of inventory controls for regular restricted tariffs and unrestricted tariffs for network carriers are also discussed.
Ben Vinod
6. Offer Management
Abstract
With the growth in ancillary sales over the past decade, an area of increasing importance for airlines is offer management, which is creating the right bundle for the right customer at the right price at the right time. This entails the creation of dynamic, custom, personalized offers consisting of a flight itinerary and air ancillary products. This chapter introduces the concept of trip-purpose segmentation, to segment customers based on the context for travel. Recommendation engines to create offers by persona and offer engines to determine the dynamic price of an offer with dynamic discounting based on total spend are discussed. Test and learn experimentation, a core building block for generation of offers, is described. Besides offer management for leisure customers, offer management is also discussed in the context of managed corporate travel. This chapter also introduces the concept of an universal profile and an universal data exchange to promote a seamless customer experience.
Ben Vinod
7. Competitive Revenue Management
Abstract
Competitive revenue management looks beyond leveraging historical data to forecase demand and set inventory controls. Prevailing competitive selling fares in the marketplace is a key input to determine how seat inventory should be managed. There are two alternate models for decision making with competitive revenue management. Overrides to existing inventory controls in real time is called dynamic availability. Dynamic pricing is a real time adjustment to the filed fare, based on prevailing market conditions and the selling fares in the market. The pros and cons of both approaches are reviewed.
Ben Vinod
8. Agency Revenue Management
Abstract
This chapter discusses revenue management tools required for travel agencies to generate incremental revenues based on their negotiated contracts with airlines. Optimizing front end commissions, back end commission (also known as override commissions) and markup of net fares are reviewed. Agency productivity can be enhanced by managing the screen real estate for the agency desktop and normalizing hotel products from multiple sources for quick comparison shopping are reviewed. Optimizing travel spend for corporations by agencies is reviewed.
Ben Vinod
9. The Last Frontier: Individual Seat Pricing
Abstract
Since its inception, revenue management has evolved from flight leg and flight segment based inventory controls to origin and destination inventory controls. Advances in revenue management have always focused on more granular inventory controls to maximize revenues. Revenue management of individual seats is the most granular level of inventory control by customer segment or individual customer. This chapter also summarizes all the major milestones in revenue management leading to the last frontier - the inventory control of individual seats.
Ben Vinod
10. Influence of Revenue Management on the Airline Business Process
Abstract
As a discipline revenue management has matured with well-defined business processes over the past three decades. Revenue management has played a larger role and been a key influencer in decision making across airline planning, airline operations and airline marketing. This chapter reviews the influence of revenue management to improve decision making across a range of airline functions including reservations, network planning and scheduling, demand driven dispatch, fare management, air shopping, loyalty programs, optimizing screen displays, offer management, air ancillary pricing, inflight catering, interactive marketing, and airline operations.
Ben Vinod
11. Artificial Intelligence and Emerging Technologies in Travel
Abstract
Over the past four decades Operations Research (OR) has played a key role in solving complex problems in airline planning and operations. More recently, Artificial Intelligence (AI) has seen rapid adoption in travel that covers everything from robotic process automation, cognitive insight to cognitive engagement. This chapter discusses the role of AI in travel, its potential to address travel complexity, solve a range of problems, and create new value propositions. This chapter also covers the role of Big Data and block chain technology in travel. Big Data and blockchain are explained with a range of use cases.
Ben Vinod
12. Future State
Abstract
The final chapter discusses the future of revenue management starting with recovery of the airline industry in a post COVID-19 world. A new business model to transform the current GDS model into a open marketplace is proposed as an essential step to stay relevant in a rapidly changing business and technology landscape. It is predicted that the lines will blur between travel and non-travel in the future and it remains to be seen who will own the consolidated order.
Ben Vinod
Backmatter
Metadata
Title
The Evolution of Yield Management in the Airline Industry
Author
Ben Vinod
Copyright Year
2021
Publisher
Springer International Publishing
Electronic ISBN
978-3-030-70424-7
Print ISBN
978-3-030-70423-0
DOI
https://doi.org/10.1007/978-3-030-70424-7