Faculty of Economics
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, …show more content…
If an inventory unit cannot be occupied for a specific time period, it perishes. This kind of inventories cannot be stored and sold later. For example, hotels cannot store tonight's rooms for use by tomorrow night's customer. Other examples are empty airline seats or empty advertising space.
4. Appropriate Cost and Pricing Structure4 A cost structure that indicates high fixed costs and low variable cost is required for firms using yield management. Variable costs and some fixed costs must be covered by enough revenue created by companies. The relatively low variable costs give capacity-constrained industries an opportunity for some pricing flexibility such as decreasing prices during low-demand times.
5. Time-Variable Demand5 Customer demand usually differs depending on the time of year/ month/ week/ day. Some industries like hotels, airlines may have higher demand on weekends or in summer months. Time-related demand must be predicted by managers so that pricing and allocation decisions can be made effectively. And also, the service duration used by a customer has to be forecasted by the firms. For example, in restaurants if managers can correctly predict the length of lunch or dinner for a customer, they can organize reservations more properly and inform walk-in customers about estimated waiting times.
C. The Strategic Levers of Yield Management The