As described in Pricing it Right in the February issue of Airline Business, O&D yield management is the current frontier in airline marketing planning.
In addition to the direct revenue benefits to be gained by controlling the mix of passenger itineraries flowing over an airline's route network, the concept of employing 'revenue opportunity costs' in the marketing decision making process also holds the key to the next frontier in airline marketing planning - the effective harmonisation of the goals and methodologies of the entire marketing planning discipline, encompassing yield management, scheduling and sales.
At present, most airline yield management programmes fall far short of realising their theoretical potential. One of the key reasons for this failure is the conflicting goals and methodologies pursued in the three sub-disciplines listed below:
Yield management: attempts to maximise revenue per available seat mile by rejecting booking requests which produce less revenue than the opportunity cost of the seat requested.
If each of these sub-disciplines of marketing planning based their decisions and objectives on the revenue opportunity cost of marginal seats - the 'bid prices' produced by the newest generation of yield management systems - their goals could be harmonised and the effectiveness of the overall marketing effort would be greatly enhanced.
I recently wrote a paper for International Journal of Technology Management which sought to explain the concept of 'holistic yield management' based upon revenue opportunity costs. It could well provide the basis for a follow-up article to your story on O&D yield management. Many of those quoted in that piece would also be qualified to address this subject as well.
Steve Elkins,
Elkins Economics,
Minneapolis,
USA.
Source: Airline Business
