Yield Management
Otto-Friedrich Universität Bamberg
YIELD MANAGEMENT
Seminar Paper
Ismail Akar
Faculty of Economics
1716171
akarsmail@gmail.com
Price Management
Prof. Dr. Björn Sven Ivens
July 30, 2013
Table of Contents
Introduction Yield management is an important form of price variation for revenue maximization, especially in airline and hotel businesses. When 'yield management' is researched, mostly American Airlines is shown up due to the origin of yield management. The starting point for yield management was the deregulation of the US airline industry in the late 1970s. A new airlines company called People's Express entered the market with low ticket prices. Major airlines, such as American and United, started to offer lower fares for a few seats to compete with People's Express but they kept higher fares on the remainder seats. In this way, they attracted People's Express passengers who wish to pay less for tickets while still keeping their other higher-paying customers (Ingold, McMahon-Beattie, and Yeoman, 2000). As a result of this strategy, People's Express started to lose their passengers. Eventually People's Express founder and former CEO Donald Burr declared bankruptcy, “We were a vibrant, profitable company from 1981 to 1985, and then we tipped right over into losing $50 millions a month. We were still the same company. What changed was American's ability to do widespread yield management … There was nothing left to defend us” (Peterson, 2005). Robert Crandall, former Chairman and CEO of American Airlines, famously said that "yield management is the single most important technical development in transportation management since we entered the era of airline deregulation...'' (Smith, Leimkuhler, and Darrow, 1992). Since then, yield management has become an inevitable method of airlines to preserve market share and profitability, and spread to other travel and transformation companies.
A. Defining Yield and Yield
YIELD MANAGEMENT
Seminar Paper
Ismail Akar
Faculty of Economics
1716171
akarsmail@gmail.com
Price Management
Prof. Dr. Björn Sven Ivens
July 30, 2013
Table of Contents
Introduction Yield management is an important form of price variation for revenue maximization, especially in airline and hotel businesses. When 'yield management' is researched, mostly American Airlines is shown up due to the origin of yield management. The starting point for yield management was the deregulation of the US airline industry in the late 1970s. A new airlines company called People's Express entered the market with low ticket prices. Major airlines, such as American and United, started to offer lower fares for a few seats to compete with People's Express but they kept higher fares on the remainder seats. In this way, they attracted People's Express passengers who wish to pay less for tickets while still keeping their other higher-paying customers (Ingold, McMahon-Beattie, and Yeoman, 2000). As a result of this strategy, People's Express started to lose their passengers. Eventually People's Express founder and former CEO Donald Burr declared bankruptcy, “We were a vibrant, profitable company from 1981 to 1985, and then we tipped right over into losing $50 millions a month. We were still the same company. What changed was American's ability to do widespread yield management … There was nothing left to defend us” (Peterson, 2005). Robert Crandall, former Chairman and CEO of American Airlines, famously said that "yield management is the single most important technical development in transportation management since we entered the era of airline deregulation...'' (Smith, Leimkuhler, and Darrow, 1992). Since then, yield management has become an inevitable method of airlines to preserve market share and profitability, and spread to other travel and transformation companies.
A. Defining Yield and Yield
References: Enz, C. and Withiam, G. (2001). Yield Management. Cornell University: CHR Reports. Ithaca. pp. 6-10. Jones, C. and Val, P. (1993). Accommodation Management. UK: Redwood Books. Lorette, K. (2013). Pros of Revenue Management. Demand Media. Nagle, T.T., and Holden, R.K Smet, T. (2003). Yield Management : Literature review, pp. 1-4. Smith, Barry A., John F Wood, W. J. (1985). "Yield Management", Industrial Management & Data Systems, Vol. 85 Iss: 7/8, p.23 Yousef, D., A