Lesson 1.1 The Birth of Yield Management
Summary
TLDRThis lesson explores the origins of revenue management, starting with its development in the 1970s airline industry. Ken Littlewood's mathematical approach to pricing led to yield management, which maximized revenue by varying seat prices. The 1978 Airline Deregulation Act intensified competition, prompting American Airlines to pioneer yield management technology. Their system forecasted demand, optimized pricing, and increased profits by 48%, setting a precedent for dynamic revenue optimization strategies.
Takeaways
- 📚 Revenue management has its roots in the airline industry in the early 1970s.
- 🧮 Ken Littlewood developed a formula to evaluate pricing strategies at British Airways.
- ✈️ The 1978 Airline Deregulation Act in the U.S. led to increased competition and the birth of yield management.
- 💹 Yield management aims to maximize revenue and profit by selling seats at different prices or promotions.
- 🤖 American Airlines was a pioneer in using technology for yield management, focusing on forecasting, inventory control, and overbooking.
- 🚀 American Airlines' yield management system led to a 48% increase in profits.
- 📈 The system forecasts demand and anticipates empty seats by analyzing data.
- 🎯 Optimal rate positioning and offer creation are dynamic and regularly re-evaluated.
- 🚫 Offers are restricted to target specific segments to avoid revenue dilution.
- 🛫 Yield management maximizes revenue per available seat.
Q & A
What is the main focus of Lesson One in the transcript?
-Lesson One focuses on the history of revenue management, its origins, the problem it was designed to solve, its first application in the hospitality industry, and the levers and processes involved.
In what industry were the earliest principles of revenue management developed?
-The earliest principles of revenue management were developed in the airline industry in the early 1970s.
Who is credited with creating a formula to evaluate the performance of special rates versus regular rates?
-Ken Littlewood of British Overseas Airways Company, now known as British Airways, is credited with creating such a formula.
What was the impact of the 1978 Airline Deregulation Act on the airline industry?
-The 1978 Airline Deregulation Act led to an unprecedented competitive environment in the airline industry, resulting in less controlled fares and more complex pricing structures.
What does yield management refer to in the context of the airline industry?
-Yield management in the airline industry refers to the practice of maximizing revenue and profit by selling different seats at different prices or through different promotions.
Which airline was a pioneer in investing in technological approaches to manage yield?
-American Airlines was the main airline that invested in technological approaches to manage yield.
What was the objective of the yield management system implemented by American Airlines?
-The objective was to maximize profit by increasing revenue through inventory control and related data analytics.
What was the 'ultimate super saver' rate launched by American Airlines in 1985?
-The 'ultimate super saver' was a non-refundable advanced purchase rate for trips involving a Saturday night stay over and subject to controlled capacity.
How did the yield management system help American Airlines increase its profits?
-The system helped by forecasting demand, anticipating empty seats, and testing the optimum rate positioning of offers to create incremental revenue.
What was the result of implementing yield management practices at American Airlines?
-American Airlines saw a 48 percent increase in profits over the next years due to the implementation of yield management practices.
How did the yield management system ensure that revenue was not diluted?
-The system ensured that revenue was not diluted by fencing offers in terms of restrictions, targeting specific segments of passengers with similar behaviors.
Outlines
📚 Introduction to Revenue Management
Lesson one delves into the history of revenue management, explaining its origins and development. It highlights the key inventors and the problems they aimed to solve. The lesson also covers the first applications of revenue management in the hospitality industry. It introduces the concept of revenue management levers and processes, emphasizing their evolution over time. The earliest principles of revenue management are traced back to the airline industry in the 1970s, where basic mathematical models were used to optimize pricing. Ken Littlewood's formula for evaluating special rates is mentioned as a precursor to modern revenue management systems.
🛫 The Birth of Yield Management
The 1978 Airline Deregulation Act is identified as a pivotal moment that led to increased competition and complex pricing structures in the airline industry. This act spurred the development of yield management practices, which aimed to maximize revenue and profit by selling seats at varying prices or through different promotions. American Airlines is noted as a pioneer in this field, investing heavily in technology to develop forecasting, inventory control, and overbooking capabilities. The implementation of a company-wide yield management system allowed them to increase revenue through dynamic rate positioning and targeted offers. The success of American Airlines' yield management system is evidenced by a 48% increase in profits.
📈 Demand Forecasting and Revenue Optimization
American Airlines' yield management system is further explored, detailing how it used data analytics to forecast demand and anticipate empty seats. The system tested various rate positioning strategies to create incremental revenue, with a focus on optimizing offers dynamically and regularly. The strategy included restricting offers to target specific segments of passengers, such as those traveling during a specific period, to avoid revenue dilution. The result was a maximization of revenue per available seat, showcasing the effectiveness of yield management in the airline industry.
Mindmap
Keywords
💡Revenue Management
💡Ken Littlewood
💡Airline Deregulation Act of 1978
💡Yield Management
💡American Airlines
💡Inventory Control
💡Data Analytics
💡Overbooking
💡Non-refundable Advanced Purchase Rate
💡Demand Forecasting
💡Rate Positioning
Highlights
Revenue management history and its evolution over the years.
Invention of revenue management systems in the airline industry.
Problem it intended to solve: rationalizing pricing and maximizing revenue.
Ken Littlewood's formula for evaluating special rates versus regular rates.
1978 Airline Deregulation Act as the catalyst for yield management.
American Airlines' investment in technological approaches to managing yield.
Implementation of a company-wide yield management system at American Airlines.
Objective of yield management: maximizing profit through inventory control and data analytics.
Launch of a non-refundable advanced purchase rate by American Airlines.
Increase in sales and revenue due to yield management practices.
Use of yield management system to sell empty seats by repositioning discounts.
48 percent increase in American Airlines' profits due to yield management.
System to forecast demand and anticipate empty seats by analyzing data.
Dynamic optimization of rate positioning and offers for incremental revenue.
Restriction of offers to target specific segments to avoid revenue dilution.
Yield management's role in maximizing revenue per available seat.
Transcripts
in lesson one we are going to look at
revenue management history who invented
revenue management systems
what problem was it intending to solve
how and when was it first applied to
hospitality
what are the revenue management levers
and processes
this lesson will help you understand the
evolution of revenue management over the
years
now
the earliest history of revenue
management principles involved the
airline industry
in the early 1970s some airlines had
already started using basic mathematics
to rationalize their pricing
ken littlewood of british overseas
airways company now known as british
airways
came up with a formula to evaluate the
performance of special rates versus
regular rates on revenue forecasting
the 1978 airline deregulation act caused
an unprecedented
competitive environment in the airline
industry
before this act was enforced airfares
were controlled which led to less
competition and less complex pricing
structures
this act was therefore the driving force
behind the birth of yield management
practices
yield management in the airline industry
refers to the maximization of revenue
and specifically profit by selling
different seats at different prices or
different promotions
american airlines was the main airline
that invested in technological
approaches to managing yield
the airline implemented a company-wide
system
which came to be known as yield
management
the objective was to maximize profit by
increasing revenue through inventory
control and related data analytics
american invested heavily in technology
to primarily develop forecasting
inventory control and overbooking
capabilities in order to support yield
management processes
in 1985 american airlines launched a
non-refundable advanced purchase rate
valid for trips involving a saturday
night stay over and subject to
controlled capacity
the ultimate super saver
this led to an increase in sales and
revenue analysts across the industry
used the american yield management
system to sell empty seats by
repositioning and restructuring
discounts whenever needed
over the next years american airlines
profits were up 48 percent
in essence american airlines had created
a system to forecast demand and
anticipate empty seats by analyzing data
the system would then test the optimum
rate positioning of offers so it would
create incremental revenue the
optimization is dynamic as it was
re-evaluated as regularly as possible
these offers would be fenced in terms
restricted
so it would only target a specific
segment
passengers sharing a similar behavior in
this case
people traveling on a need period of
flights to avoid dilution of revenue
as a result
yield management maximized revenue per
available seat
浏览更多相关视频
How do airlines price tickets? | CNBC Explains
Lesson 1.2 Yield Management in the Hospitality Industry
Revenue management in the hotel industry- Basics
The Economics of Airline Class
What is Price Discrimination? (With Real World Examples) | From A Business Professor
Data Science PROJECT: Airline Booking Demand Forecasting and Dynamic Pricing Optimization App
5.0 / 5 (0 votes)