Yield management is the process through which an organization understands, anticipates and reacts to consumer behavior to maximize revenues. Companies which are focused on profits more than sales use yield management as a strategy (Brown, 2006). The internet is used to monitor the market trends and alert the management about the expected consumer behavior. Computer yield management systems are used to develop the strategies for improving the revenues of the company (Vojdani Sloboda, 2008).
In the airlines industry, yield management is used to monitor how seats are being reserved. When it appears as if there will be vacancies, discounts are offered to fill them. The yield management software alerts the management of the airline companies when to increase or decrease discounts according to the market behavior (Wyrige, 2007).
The yield management system enables the business review the transactions for the services which have been supplied and the ones to be supplied in the future. The factors that affect the sales of the industry are determined to establish the market patterns (Miller Chen 1994). Information about the past events as well as unexpected events which have occurred in the past is recorded to predict the future market behavior. The demand for the products is focused by the market segments, price points and any other criteria to determine the future trends of the customers (Vojdani Sloboda, 2008).
The highest possible revenue is evaluated to estimate the possible strategies that the firm can use to increase revenue. Optimization is done to predict the highest revenues and the lowest costs that can be incurred using certain strategies (Miller Chen, 2007). Optimization increases the ability of the firm to adjust prices as well as allocate the capacity of the resources available. Optimization is done through selecting the different market segments with the aim of maximizing the expected revenues (Wyrige, 2007).
In the airline industry, optimization is done by the seat allocation, all seats on a flight or by the routes the airline flies. Yield management strategies are applicable with perishable products, that is, products which expire within a given period of time (Bailey, 2006). Firms with a fixed capacity can use yield management successfully. The buyers purchase the products depending on their sensitivity to price changes. The firm uses flexibility in pricing and the demand categories of customers to capture different groups of customers (Doganis, 2007).
Advantages of using yield management as a way of maximizing airline revenue
Yield management in the airline industry reduces overbooking by the customers. The customers with urgent needs are the only ones who book particular flights. When there is high demand customers tend to overbook flights causing a shortage in the number of seats to allocate to customers. When prices are increased for certain flights some customers tend to decline and wait for cheaper flights when the demand is low (Bailey, 2006).
Airline companies are able to maximize revenues through the use of demand forecasting as well as the difference in demand for the different customer groups. Higher prices are charged to different categories of customers. This increases the revenues collected by the companies (Whitelegg, 2009).
To reduce the loss of vacant seats, the airline companies issue discounts when they realize that the plane will fly with some empty seats. This has increased the output of the airline industry through minimization of the losses which would occur due to vacant seats in the airplanes. Optimization of the output by the airline companies has been achieved through the reduction in losses and cost of the vacant seats that would occur (Clougherty, 2010).
Customer satisfaction increases since the customers buy the products which fit their financial capacities. The airline companies are able to satisfy the different groups of customers by delivering products according to their demand. Customers are the most valuable assets and increasing their satisfaction levels creates more value to the company (Jackson Schuler, 2008).
However, yield management raises a lot of ethical questions among the different categories of customers. It appears as if the customers are being penalized for conditions which they cannot avoid. Many customers are not satisfied by the price discrimination that airline companies use (Jackson Schuler, 2008). Yield management is a form of price discrimination which has many negative effects to the customer satisfaction. Although the system increases revenues to the airline companies, it has negative impacts to the customers. Customer loyalty to the brands of a company reduces as the companies exercise price discrimination (Brwon, 2009).
How different airlines have used yield management as a means of gaining competitive advantage
The regulations in the airline industry were reduced in the mid 1980s and this encouraged airline companies offer discounted fares for air travel. Yield management was used as a strategy to improve the profitability of the industry. Since the industry could segment the customers into groups of customers who were willing to pay different prices for the same commodity. The main intention of the airline companies was to sell the right seat to the right passenger at the right time at the right price. The American airline industry has benefited a lot from deregulation and yield management has brought more advantages to the companies. The American airline industry has generated more than 1.4 billion in a period of three years. It is estimated that 500 million per year will be generated in the near future (Vojdani Sloboda, 2008).
British America has established the World Traveler and World Traveler Plus economy classes. The different classes of travelers pay differently according to the current demand. The business class of customers is given higher priority in the pricing of the different seats. Since the business people are time conscious, they tend to demand speed deliveries. The airline companies charge higher prices for such seats. The business class are not price sensitive and all what they require is speed in the delivery of the services by the airline companies (Vojdani Sloboda, 2008).
Ryanair also uses price discrimination when allocation the seats to different customers.
Other customers such as tourists are very sensitive to price changes. They have no speed in their delivery requirements. They demand the seats with low prices irrespective of the time of delivery. The airline companies have realized that they need to create different price categories for these customers since they can clash with the business people (Schuler, 2006).
How yield management will be developed for future airline competition strategies
The increasing technology will create better ways of developing customer demand for the different services offered by the airline companies (Cetron Owen Davies, 2010). The business people tend to become more time sensitive and the airline companies should provide products which increase speed of delivery at a premium price. This will create more advantage to the customers as well as increase revenues to the airline companies (Whitelegg, 2010).
The airline companies can create special seat allocation to special groups of customers at different prices. Different customers have different preferences and they require their needs satisfied accordingly. The airline companies should develop strategies to identify the different customer segments and provide services which match their demands (Whitelegg, 2010).
Competition in the airline industry has increased due to the establishment of the system of yield management. Airline companies have increased the strategies of identifying the different customer segments in the market and delivering products according to their demand. Airline companies have been very innovative to differentiate their product lines according to the current demand in the market. This has increased competition in the industry as each company strives to achieve a competitive advantage in the market (Lee Luengo-Prado, 2008).
Yield management is a new management science which has enabled the airline industry optimizes its production. Revenues have increased in the industry due to the improved system of identifying different customer segments and fulfilling their needs accordingly. The strategy has also reduced losses in the industry by reducing the number of vacant seats in each flight. Yield management has been challenged on several bases since it is seen as a means of promoting price discrimination. The use of internet and computing technology has created the improvement in the airline industry. Advancement in technology has made the companies succeed in the development of the yield management strategies.
In the airlines industry, yield management is used to monitor how seats are being reserved. When it appears as if there will be vacancies, discounts are offered to fill them. The yield management software alerts the management of the airline companies when to increase or decrease discounts according to the market behavior (Wyrige, 2007).
The yield management system enables the business review the transactions for the services which have been supplied and the ones to be supplied in the future. The factors that affect the sales of the industry are determined to establish the market patterns (Miller Chen 1994). Information about the past events as well as unexpected events which have occurred in the past is recorded to predict the future market behavior. The demand for the products is focused by the market segments, price points and any other criteria to determine the future trends of the customers (Vojdani Sloboda, 2008).
The highest possible revenue is evaluated to estimate the possible strategies that the firm can use to increase revenue. Optimization is done to predict the highest revenues and the lowest costs that can be incurred using certain strategies (Miller Chen, 2007). Optimization increases the ability of the firm to adjust prices as well as allocate the capacity of the resources available. Optimization is done through selecting the different market segments with the aim of maximizing the expected revenues (Wyrige, 2007).
In the airline industry, optimization is done by the seat allocation, all seats on a flight or by the routes the airline flies. Yield management strategies are applicable with perishable products, that is, products which expire within a given period of time (Bailey, 2006). Firms with a fixed capacity can use yield management successfully. The buyers purchase the products depending on their sensitivity to price changes. The firm uses flexibility in pricing and the demand categories of customers to capture different groups of customers (Doganis, 2007).
Advantages of using yield management as a way of maximizing airline revenue
Yield management in the airline industry reduces overbooking by the customers. The customers with urgent needs are the only ones who book particular flights. When there is high demand customers tend to overbook flights causing a shortage in the number of seats to allocate to customers. When prices are increased for certain flights some customers tend to decline and wait for cheaper flights when the demand is low (Bailey, 2006).
Airline companies are able to maximize revenues through the use of demand forecasting as well as the difference in demand for the different customer groups. Higher prices are charged to different categories of customers. This increases the revenues collected by the companies (Whitelegg, 2009).
To reduce the loss of vacant seats, the airline companies issue discounts when they realize that the plane will fly with some empty seats. This has increased the output of the airline industry through minimization of the losses which would occur due to vacant seats in the airplanes. Optimization of the output by the airline companies has been achieved through the reduction in losses and cost of the vacant seats that would occur (Clougherty, 2010).
Customer satisfaction increases since the customers buy the products which fit their financial capacities. The airline companies are able to satisfy the different groups of customers by delivering products according to their demand. Customers are the most valuable assets and increasing their satisfaction levels creates more value to the company (Jackson Schuler, 2008).
However, yield management raises a lot of ethical questions among the different categories of customers. It appears as if the customers are being penalized for conditions which they cannot avoid. Many customers are not satisfied by the price discrimination that airline companies use (Jackson Schuler, 2008). Yield management is a form of price discrimination which has many negative effects to the customer satisfaction. Although the system increases revenues to the airline companies, it has negative impacts to the customers. Customer loyalty to the brands of a company reduces as the companies exercise price discrimination (Brwon, 2009).
How different airlines have used yield management as a means of gaining competitive advantage
The regulations in the airline industry were reduced in the mid 1980s and this encouraged airline companies offer discounted fares for air travel. Yield management was used as a strategy to improve the profitability of the industry. Since the industry could segment the customers into groups of customers who were willing to pay different prices for the same commodity. The main intention of the airline companies was to sell the right seat to the right passenger at the right time at the right price. The American airline industry has benefited a lot from deregulation and yield management has brought more advantages to the companies. The American airline industry has generated more than 1.4 billion in a period of three years. It is estimated that 500 million per year will be generated in the near future (Vojdani Sloboda, 2008).
British America has established the World Traveler and World Traveler Plus economy classes. The different classes of travelers pay differently according to the current demand. The business class of customers is given higher priority in the pricing of the different seats. Since the business people are time conscious, they tend to demand speed deliveries. The airline companies charge higher prices for such seats. The business class are not price sensitive and all what they require is speed in the delivery of the services by the airline companies (Vojdani Sloboda, 2008).
Ryanair also uses price discrimination when allocation the seats to different customers.
Other customers such as tourists are very sensitive to price changes. They have no speed in their delivery requirements. They demand the seats with low prices irrespective of the time of delivery. The airline companies have realized that they need to create different price categories for these customers since they can clash with the business people (Schuler, 2006).
How yield management will be developed for future airline competition strategies
The increasing technology will create better ways of developing customer demand for the different services offered by the airline companies (Cetron Owen Davies, 2010). The business people tend to become more time sensitive and the airline companies should provide products which increase speed of delivery at a premium price. This will create more advantage to the customers as well as increase revenues to the airline companies (Whitelegg, 2010).
The airline companies can create special seat allocation to special groups of customers at different prices. Different customers have different preferences and they require their needs satisfied accordingly. The airline companies should develop strategies to identify the different customer segments and provide services which match their demands (Whitelegg, 2010).
Competition in the airline industry has increased due to the establishment of the system of yield management. Airline companies have increased the strategies of identifying the different customer segments in the market and delivering products according to their demand. Airline companies have been very innovative to differentiate their product lines according to the current demand in the market. This has increased competition in the industry as each company strives to achieve a competitive advantage in the market (Lee Luengo-Prado, 2008).
Yield management is a new management science which has enabled the airline industry optimizes its production. Revenues have increased in the industry due to the improved system of identifying different customer segments and fulfilling their needs accordingly. The strategy has also reduced losses in the industry by reducing the number of vacant seats in each flight. Yield management has been challenged on several bases since it is seen as a means of promoting price discrimination. The use of internet and computing technology has created the improvement in the airline industry. Advancement in technology has made the companies succeed in the development of the yield management strategies.
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