Understanding The Concept of
Airline Yield Management

Have you ever wondered how airlines make a profit on their flight tickets? Or how
the price of the same ticket varies from customer to customer? Next time when you
are on a flight, ask different passengers and you will know how the airline charges
different fares from different customers. But why does it do it?
It is called the yield management strategy. An airline yield management is a
strategy to maximize revenue by effectively utilizing the three domains: pricing,
availability control, and inventory control.
While it may seem unfair to many, this is how airlines make money and stay
relevant in the market.
So how does the airline yield management work?
Let’s take an example to understand the concept in a much simpler way.
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A flight with 2 fare buckets: discounted price and full price, has 300 tickets to offer. It can
easily sell all 300 tickets at a discounted price, but it doesn’t. An airline knows that there will
be a set of customers who will be willing to pay full price as the flight’s departure date gets
closer.
The next it does is to determine how many seats to save for these sets of customers. Because
saving extra comes with the risk of flying with empty seats. But, if they don’t save much, there
is a risk of losing that extra revenue. This is where yield management comes in. It calculates,
and analyses demand and allows airlines to allocate a certain number of seats in the most
profitable manner. In simpler words, airlines make assumptions about what their different set
of customers would be willing to pay.
Note that it is not always that these assumptions and predictions are right. Sometimes,
airlines fail to sell these full-price tickets. That’s when they launch a special discount
promotion plan.
If you understand the concept of airline yield management, you will always secure yourself
the best price on tickets.
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Ultimately
An airline yield management strategy works best in a situation where
consumer demand exceeds the airline’s supply. It gives airlines the
flexibility to pick the demand segment they wish to address to maximize
their profit. But as said, it is not always that they go right about it. When
supply exceeds demand, it plans bookings in a manner that allows airlines
to have the best revenue generation. Now that you know how airline yield
management works, plan your trip in a way so that you can secure the best
prices.
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