Revenue Management Flashcards
In Revenue Management what are the 6 major areas?
Inventory Control, Nesting, Forecasting, Optimization, Overbooking, Pricing, Market Segmentation
How does Inventory Control work?
keeps VFR (visiting friends and relatives) and Business class separate, to make sure to save seats for the last minute passengers
How does Nesting work?
Nesting prevents high-fare booking classes being sold out when lower-fare booking classes are still open (its like a box within a box within a box and etc.) the inner box is cheaper and has a limit and outer edge is the expensive
How does Forecasting work?
Airliners takes in historical bookings and plots them into a chart (such as causal model) then determines what routes can be establish in the near future or what’s their short-term, medium-term and long-term plans are they going to do.
What are the types of Forecast and what do they do for each?
Short-term : covers day-to-day operations, evaluating current competitive situations in the market and equipment’s needed
Medium-term : one to five years, route planning decisions due to the change in immigrant and customs
Long-term : five to ten years, fleet planning decisions and financial commitments
What are the process of Forecasting?
- Analysis
- Planning
- Control
How does Optimization work?
Evaluating multiple options on how to sell your seats to the customers and to whom you sell it to according to the type of class. Also involves in optimizing a/c and revenue.
Involves in using the booking curve (as the demand is high, the price is higher, as the demand is lower, the price is lower) note: x is booking days prior to departure, y is capacity
How does overbooking work?
Balancing the spoilage and demand boarding’s
Demand is high, Price is high
Demand is low, Price is low
Overbooking curve: y is expected loss, x is capacity and booking limit, centre is total cost, left spoilage and right denied boardings
Only Full Cost Carrier does overbooking (its good)
How does Pricing work?
three types of pricing:
Penetration (introducing a new product to the market, new route, forming your own image)
Status Quo (same, % of the market is the same)
Skim (high brand value = high price, when your product is superior, the brand supports it)
Goal is to adjust the demand to the “fixed” capacity
“Selling the right seats to the right customers at the right price and the right time”
How does Market Segmentation work?
x is capacity and demand, y is price
shows a curve going down and within the curve there are boxes
each segment of the price represents classes (1st, Business, Economy)
What is the Pricing Scheduling?
3 Years: Strategic Decisions
1 Year: Flight Planning and Pricing Policy
6 Months: Tactical Decisions
How are the six major areas apply to the airport?
Inventory Control - separating passengers into categories (domestic, international, transborder)
Nesting - Co-operating with airliners in terms with pricing
Forecasting - predicting the future of passengers coming into the airport and the orientation of the airport itself
Optimization - using the booking curve to have enough spaces for passengers in the airport
Overbooking - demand high = high price, demand low = low price
Pricing - having a low cost terminal (big costco house)
Market Segmentation - the noise level close to residential areas
What are the 8 unique characteristics of Full Cost Carrier (LCC)? Explain them.
- Flexibility - a/c type, time and day, destinations
- Service - service classification, entertainment
- Frequent Flyer Program - earning miles, reward miles
- Sales and marketing - discounts to passengers with membership
- Capacity - multiple aircraft type, high price
- Overheads - alliance, complex governance
- IT - complex yield management
- Hub to hub and is a flag carrier
What are the 8 unique characteristics of Low Cost Carrier (LCC)? Explain them.
- Capacity - single a/c type
- Sales & Marketing - No discounts, No Frequent Flyer Program
- Services - Free Seating
- Flight Ops/ MRO - simple patterns
- IT - simple network, simple core applications
- Overheads - no alliance, simple rasm & casm accounting
- point to point
- Buy on Board (BOB)
What are the 8 unique characteristics of Hybrid? Explain them.
Both LCC and FCC
What is an Open Skies agreement?
A “bilateral agreement” between two or more countries that can fly any route they wish between the countries
What is Cabotage?
What happens when a foreign operator carries passengers between 2 domestic points of another country
Give an example of Cabotage?
Vancouver to LA (drops and picks up pax from LA)
LA to Mexico (drops and picks up pax from Mexico)
and so on
What is Economies of Scale?
Also known as EOS
The more you produce, the per unit cost decreases.
Give an example of Economies of Scale in major carriers?
A320 versus A380
A320 travels point to point , pays more in landing and departing fees
A380 travels from one point to another (longer destinations), pays one in landing and one in departing fees
What are two types of passengers in an airline industry?
Lots of money = No time
No money = Lots of time
What is Law of Demand?
Demand increases = Price increases = Lower volume pax
Demand decreases = Price decreases = Higher volume pax
In Law of Demand, are they different for Business and Leisure?
Yes, Business has good time slots whereas Leisure picks wherever is cheap
What is Elasticity of Demand? Give example.
A decrease in price = increase in total revenue
An example : Competition (routes), Travel distance and related price, Business vs. Pleasure, Time (when to travel)
What are the characteristics of oligopolies? (hint: 6)
- A few firms produce either similar or differentiated products
- High barriers to entry
- Substantial EOs (Economies of Scale)
- Growth through merger
- Mutual Dependence
- Price rigidity and non-pricing competition
How does oligopolies apply to the airline industry?
Class, Service, Price, Image, Naming their own aircraft
What is bilateral agreement? How does it work?
Between two countries in an agreement. Example: two people signing the rates and fleets
What is High Barriers to Entry?
$125 million to start Airline Takes 6-8 months to plan routes Plot time 5 year Revenue Loss Licensing required (a lot of it) Bilateral Agreement
What is Mutual Dependence?
An airline cannot live without: computer reservation system (CRS), airport, hotels, rentals
What is Bucket of Seats?
Same as nesting but in terms with seating arrangements rather than money.
What is First In Strategy?
settle rules, game plan, develop in the first place
What is Second in Strategy?
copies from First in and modifies it to something better
