What is yield management
Download
1 / 9

what is yield management - PowerPoint PPT Presentation


  • 551 Views
  • Updated On :

What is Yield Management?. Experienced overbooking by an airline? American saved $1.4 billion from 1989 to 1992 (50% more than its net profit) Management Science Technique to maximize revenue or profit Started at American in early 1970s. Decision Technologies Group

loader
I am the owner, or an agent authorized to act on behalf of the owner, of the copyrighted work described.
capcha
Download Presentation

PowerPoint Slideshow about 'what is yield management' - paul


An Image/Link below is provided (as is) to download presentation

Download Policy: Content on the Website is provided to you AS IS for your information and personal use and may not be sold / licensed / shared on other websites without getting consent from its author.While downloading, if for some reason you are not able to download a presentation, the publisher may have deleted the file from their server.


- - - - - - - - - - - - - - - - - - - - - - - - - - E N D - - - - - - - - - - - - - - - - - - - - - - - - - -
Presentation Transcript
What is yield management l.jpg

What is Yield Management?

Experienced overbooking by an airline?

American saved $1.4 billion from 1989 to 1992 (50% more than its net profit)

Management Science Technique to maximize revenue or profit

Started at American in early 1970s.

Decision Technologies Group

“Single most important technique since the airline deregulation” – CEO of American Airline


Slide2 l.jpg

Components of Yield Management

  • Overbooking

  • Discount seat allocations

  • Management of traffic through hub airports


Slide3 l.jpg

Overbooking

  • Passenger no-shows

  • Direct loss of $50 million for typical majors

  • Maximize passenger load factor by accepting reservations beyond seat capacity

  • MR vs. MC of accepting reservations.

  • Customer re-capture rate

  • Customer satisfaction

  • Linked with CRS (SABRE)

  • Sophisticated mathematical algorithm


Slide4 l.jpg

Discount Seat Allocation

  • How many seats should be sold at reduced fare?

  • Major concept is to extract consumer surplus

  • Full fare vs. discount fare probabilities

  • Sell-up probability.

  • Remaining time till departure

  • Highest-revenue seats are always available

  • Stop selling discount seats when the MR of discount seat = expected future revenue of full-fare

  • Initiated by British Airways


Slide5 l.jpg

Hub Traffic Management

  • Which flight combinations should be available and at what price?

  • Connecting passengers generate more revenues

  • Round-trip passengers generate more revenues

  • Seat allocation by fare must also be considered

  • Extremely complex problem, as there are very large number of possible combinations!!!

  • “Virtual Nesting” technique by American


Slide6 l.jpg

Hub Traffic Management

  • Groups seats of different flights with similar fares (buckets)

  • Tickets sold only if all legs in the itinerary have available seats in the bucket of interest.

  • The highest-fare combinations are always available until flight closed.

  • Total of eight buckets are used by American

  • Mixed-Integer and dynamic programming techniques


Slide7 l.jpg

Performance Measures

  • Method by American – Define the range of Best and Worst revenue (revenue opportunity)

  • Overbooking = 90% of revenue opportunity.

  • Seat allocation + traffic management = 50% of revenue opportunity


Slide8 l.jpg

Future of Yield Management

  • Understand customer behavior

  • Customer choice model is particularly important.

  • Airline choice, fare-class choice, sell-up choice, airport choice, re-capture rate, reaction of bumping.

  • Combine current technique with customer behavior models to enhance revenues.


Slide9 l.jpg

Discussion Questions

  • What is the goal of yield management?

  • As a passenger do you like yield management by airlines?

  • What are the disadvantages of using yield management?

  • What is the future direction of yield management? What additional factors should be considered?

  • Can the concept of yield management be applied to Supply Chain Management?


ad