Revenue Management The origin of Revenue Management Roberto Alvarez López Rooms Division Management July 2010

Revenue Management The airline Industry in the 70’s The airlines offered standard prices If you find the same prices for the same product… How do you pick your choice?

Revenue Management Which flight would you prefer?

Revenue Management But… 1978 Airline deregulation act New airlines, new competition, lower prices, and a better market for consumers Lower labort costs, simpler operations= Prices much lower than the majors

Revenue Management Lower prices = new and vast market segment: PRICE-SENSITIVE TRAVELERS

Revenue Management Price-sensitive travelers left, bussiness travelers stayed Low cost airlinesLarger airlines

Revenue Management The people switched from driving to flying ‘s goal … Bring the price-sensitive travelers back Compete by using the same fares? How?

Revenue Management Robert Crandall Chairman of AA We must compete by using our surplus seats! We will set lower prices on the seats that are usually empty

But there´s a problem… Ensure that business costumers don’t switch and buy low cost seats Revenue Management

Purchase restrictions : 30 days in advance of departure Non refundable Capacity-controlled fares: AA limited the number of discount seats sold on each flight Revenue Management We must control the way we sell tickets

1978. American Super Saver Fares AA was able to match or undercut the lowest fares on the market Revenue Management