Airline pricing strategies and revenue management

1. Airline Pricing Strategies
and
Revenue Management
 ANEESH T A

2. Revenue management
 Revenue management is a technique to
optimize the revenue earned from a fixed’
perishable resource. The challenge is to sell
the right resources to the right customers at
the right time.
 RM implements the basic principles of supply
and demand economies in a tatical way to
generate incremental revenues

3. Key capabilities of airline
revenue management
 Forecasts demand, cancellations and no-shows
for each of the market segments
 Forecasts customers demand sensitivity to
price
 Offers optimization solutions for setting optimal
selling prices or optimal inventory allocation
depending on business requirements
 Allocates inventory so you do not turn away the
most valuable customers or fly with empty
seats when demand exist for them

4.  Quickly responds to competitive changes in the
market place
 Manages overbooking of inventory to balance
the risk of displacing passengers against the
risks of flying with empty seats
 Monitors the overall revenue performance of
the controls in order to explain results and
future decisions

5. Key capabilities of cargo
revenue management
 Generates enhanced revenue and profit
throughout your trading network
 Provide reliable demand forecasts
 Optimize routings for each request
 Supports sales by providing rapid response to
booking requests
 Supports operations by checking loadability at
booking acceptence time

6. Pricing Strategies
 There are a variety of pricing strategies in
existence. Each strategy is used in a different
set of circumstances. Some of the things to
consider when choosing the best strategy for
your situation are your cost ; both short term
and long term sales and profit goals ;
competitors activities; and customer life time
value

7. Popular pricing strategies
 Premium pricing
 Penetration pricing
 Economy pricing
 Price skimming or Creaming
 Competition based pricing
 Cost plus pricing
 Market oriented pricing… etc..

8. Pricing and Demand
 A fundamental characteristics of demand is that
as price falls, the corresponding quality
demanded rises ; alternatively, as price
increases, the corresponding quantity
demanded falls. In short, there is an inverse
relationship between price and quantity
demanded.

9. Major non-price
determinants of demand in
the Air travel market
 Preference of passengers
 The number of passengers in a
particular market
 The financial status and income levels
of the passengers
 The competitors and related travel
expenses
 Passenger expect respect to future
prices

10. Changes in Demand
 Preference of passengers
 Number of passengers
 Financial status and income levels of
passengers
 Prices of competitors and related
travel expenses
 Passengers expectation with respect
to future prices