Revenue Management

The origin of Revenue Management

Roberto Alvarez López

Rooms Division Management

July 2010

Revenue Management

The airline Industry in the 70’s

The airlines offered standard prices

If you find the same prices for the same product…

How do you pick your choice?

Where did RM come from?

Revenue ManagementWhich flight would you prefer?

Revenue ManagementBut…

1978 Airline deregulation act

New airlines, new competition, lower prices, and a better market for consumers

Lower labort costs, simpler operations= Prices much lower than the majors

Revenue ManagementLower prices = new and vast market segment:

PRICE-SENSITIVE TRAVELERS

Revenue Management

VS

Price-sensitive travelers left, bussiness travelers stayed

=

Low cost airlines Larger airlines

Revenue ManagementThe people switched from driving to

flying

‘s goal…

Bring the price-sensitive travelers back

Compete by using the same fares?

How?

Revenue Management

Robert CrandallChairman of AA

We must compete by using our surplus seats!

We will set lower prices on the seats that

are usually empty

But there´s a problem…

Ensure that business costumers don’t switch and

buy low cost seats

How to do it?

Revenue Management

Purchase restrictions :30 days in advance of departure

Non refundable

Capacity-controlled fares:AA limited the number of discount seats sold on each

flight

Revenue Management

We must control the way we sell tickets

• 1978. American Super Saver Fares

•AA was able to match or undercut the lowest fares on the market

Revenue Management

What was the effect?

People Express had a loss of over $160 million by 1986, went bankrupt and was sold to Continental Airlines.