The concepts of yield management in the airline industry have an impact on customer feelings of price fairness, also affecting customer loyalty. Website: tts.com Blog: blog.tts.com Facebook: facebook.tts.com Linkedin: linkedin.tts.com Google Plus: googleplus.tts.com Youtube: youtube.tts.com

1. YIELD MANAGEMENT
IN THE AIRLINE INDUSTRY

2. • Originally as an airline industry concept
• Adopted by service organizations across all
spheres
• Limited research on its exact effects on
business-to business relationships
• Limited knowledge about how feelings of
price fairness affect loyalty
YIELD MANAGEMENT
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3. The main goal of yield management is to maximize
the revenue with the help of effective management
of three essential domains:
• Pricing strategy
• Control of availability: total number of empathy seats on
board of the aircraft
• Inventory control: depends on the availability of resources
such as aircraft, gasoline and employees
DEFINITION by Wang & Bowie
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4. • Most airlines who began to practice the concepts
of yield management saw a direct increase of
3-7% in revenue
• Success cases: American Airlines, Delta, Marriot
Hotels, among others
• Also used by travel agents who used it to
generate the maximum possible revenue from
their holiday packages
PROFITABILITY
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5. So how does the
yield management
system work?
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6. EXAMPLE
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A flight that has two fare buckets: discount price and full price. The flight has
200 seats that are available for an early morning flight on February 16th.
The flight should easily be able to sell off all seats at a discounted price, but it
understands that an increasing number of customers will be willing to pay
full price for seats as February 16th gets closer.
To make things easier, we further assume that the leisure demand occurs
before business demand. The next thing to do is to determine how many seats
the airline should sell at leisure fare and how many seats should it protect for
people who would pay full price.
If the airline ends up protecting too many seats, it faces the risk of flying with
empty seats. On the other hand, if very few seats are protected the airline
might end up losing out on extra revenue that is usually generated from the
business fliers.

7. In order to differentiate between the two groups, the airline often introduced
barriers or “fences” between the two market segments.
For example, the airline might phase in the full fare seats as the flying date
gets closer and phase out the discounted seats. Since holiday fliers are
expected to reserve their itineraries in advance, they are more than likely to
make the most of the discounted fares. On the other hand, a majority of the
business trips are decided within a week or two from the date of travel. This
allows the airline to collect full fares from business fliers.
The same example can be used in the case of a hotel - read it here!
EXAMPLE
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8. How does it impact on
customer feelings
of price fairness and
customer loyalty?
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9. IMPACT
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• Customers consider the price to be unfair
when they realize that the airline is using
price strategies to generate profit
• Ends up having a negative effect on leisure
travelers because business travelers are
less price sensitive
• Price fairness is not a proper predictor of
loyalty, there are other factors at stake

10. ULTIMATELY…
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• Yield management works best in situations where
demand exceeds supply
• It allows the industry to choose the demand it wishes
to address in order to maximize the revenue
• However these systems can also be used when supply
exceeds demand to phase out bookings in a manner
that allows the company to achieve the best possible
revenue generation, given its constraints

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