Airline Yield Management 2009
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AIRLINE YIELD May MANAGEMENT 2009 VKRB Frau Prof. Schusteritsch Julius Neubauer, 5BT Kärntner Tourismusschulen Warmbad Villach Airline Yield Management 2009 I. PREFACE As the global financial crisis continues to expand, it becomes increasingly important for companies of each economic sector to ensure and optimize its revenues. Airlines already recognized this in the late 70s, when the airline deregulation act was signed into law by the President of the United States of America. The purpose of this act was to remove governmental control over fares, routes and the market entry of new airlines. This led to an oversaturation of capacities in this market because within a few years many new private airlines emerged. In this time they were constantly keen on improving their cost structures to remain competitive. This was yield management’s hour of birth. Yield Management enabled airlines to dynamically adjust fares according to demand and to appeal to different target groups by offering customized rates. The basic consideration of Yield Management is to sell goods or services for the highest price a customer is willing to pay. To achieve this it utilizes several techniques, all explained in detail in the course of this skilled work. I decided to choose Yield Management because I think it’s one of the most important processes for airlines. Being in proper use, it enables companies to stimulate demand, adjust fares and make crucial decisions on seat allocation. During my research I read several books and dissertations which gave me a many-sided insight on this matter. It was very interesting to compare the different points of view of each author and hence draw my own conclusions. But I also encountered a few problems. In search of information for a case study on how airlines actually imply yield management, I figured out that this information is considered confidential. So, all airlines that I was in correspondence with rejected my requests. To prove this, I decided to attach two emails in the appendix. II. DECLARATION OF INDEPENDENCE With these words I am declaring that I have written this skilled work on my own, that I have just used the stated records and that I have submitted this skilled work nowhere else for examination purposes. Villach, May 2009 Julius Neubauer Julius Neubauer 2 Airline Yield Management 2009 III. TABLE OF CONTENTS I. PREFACE ....................................................................................................................................... 2 II. DECLARATION OF INDEPENDENCE ................................................................................................ 2 III. TABLE OF CONTENTS .................................................................................................................... 3 IV. TABLE OF FIGURES ........................................................................................................................ 4 V. PASSENGER AVIATION IN GENERAL .............................................................................................. 5 1. EUROPEAN BEGINNINGS ....................................................................................................................... 5 2. AMERICAN BEGINNINGS ....................................................................................................................... 5 3. AIRLINES TODAY ................................................................................................................................. 6 4. STRATEGIC ALLIANCES .......................................................................................................................... 8 A. Development ............................................................................................................................. 8 B. Alliances today .......................................................................................................................... 8 I. Star Alliance ......................................................................................................................................... 8 II. oneworld ............................................................................................................................................. 9 III. SkyTeam .............................................................................................................................................. 9 C. Aims and benefits of strategic alliances ................................................................................. 10 5. CODE SHARING ................................................................................................................................. 10 A. Advantages ............................................................................................................................. 10 B. Disadvantages ........................................................................................................................ 11 VI. YIELD MANAGEMENT 101 .......................................................................................................... 11 1. DEFINITION ..................................................................................................................................... 11 2. DEVELOPMENT ................................................................................................................................. 12 3. REQUIREMENTS FOR THE IMPLEMENTATION OF YM................................................................................. 13 VII. INSTRUMENTS USED BY YIELD MANAGEMENT ...................................................................... 14 1. MARKET SEGMENTATION ................................................................................................................... 14 2. PRICE DIFFERENTIATION ..................................................................................................................... 16 3. CAPACITY MANAGEMENT ................................................................................................................... 19 A. Price/Quantity Management .................................................................................................. 20 I. Demand Management ....................................................................................................................... 20 II. Data Acquisition and Forecasting ...................................................................................................... 21 III. Allocation ........................................................................................................................................... 22 1. Limiting curves ............................................................................................................................. 23 2. Constant allocation ...................................................................................................................... 24 3. Nesting ......................................................................................................................................... 25 4. Network Yield Management ........................................................................................................ 26 B. Overbooking Control ............................................................................................................... 28 VIII. SOFTWARE - NAVITAIRE “SKY PRICE” ..................................................................................... 31 1. COMPANY OVERVIEW ....................................................................................................................... 31 2. “SKYPRICE” ..................................................................................................................................... 32 IX. CONCLUSION .............................................................................................................................. 33 X. APPENDIX ................................................................................................................................... 34 XI. BIBLIOGRAPHY ........................................................................................................................... 39 Julius Neubauer 3 Airline Yield Management 2009 IV. TABLE OF FIGURES Figure 1: US Airline route structure before the Second World War. ........................................... 5 Figure 2: US-Airline development from 1914 to 1928 ................................................................. 5 Figure 3: Development of airlines compared to strategic alliances.............................................. 8 Figure 4: Member airlines ranked by passenger numbers ........................................................... 9 Figure 5: Aims and benefits of strategic alliances ....................................................................... 10 Figure 6:Boarding Pass of a code shared flight: .......................................................................... 11 Figure 7: Basic idea of yield management .................................................................................. 11 Figure 8: Correlation between marketing and YM ..................................................................... 12 Figure 9:US-Airline route structure after deregulation in 1978 .................................................. 13 Figure 10: Typical timeline of reservations of private and business travelers ........................... 16 Figure 11: Developement of passenger volume in Germany, sorted by occasion ..................... 16 Figure