 Contribution
of Operational Research: Practitioners Viewpoints |
| Theodore
C Botimer |
The importance of the Yield Management (YM) system to airlines
cannot be overstated. In an industry with historically low
margins, YM increases returns significantly. The YM system
often makes the difference between a profitable flight and
an unprofitable one.
YM systems control the sale of the seat inventory for the
airline. Coincidence of consumer wants leads to heavy peaking
and a need to efficiently allocate seats. The YM system allows
filling of low demand flights with low fares while protecting
seats for higher fare customers when demand is high providing
flexibility
in all demand situations. Peak load pricing can be approximated
using YM through a market clearing mix of passenger types
effectively "smoothing" realised demand for air
transport.
Overbooking allows a more efficient use of seat inventory
with fewer seats flying empty. Overbooking contributes greatly
to airline profitability, especially when faced with double
digit no show percentages by making full use of airline output.
Yield Management also mitigates the impacts of poor short,
medium, and long term results from different functions within
the airline. Poor market prices, fleet assignment, and fleet
composition can be made less damaging through YM seat inventory
controls. Furthermore, airlines realise greater returns with
YM since the revenue from a "market clearing" price
achievable through YM exceeds that in any single fare environment.
Theodore C. Botimer, Ph.D.
Continental Airlines, Inc. USA
January 1998
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