JY takes on yield management at the airlines. 

Do you know Yield Management ? I didn't. Qantas states that “Airlines adopted yield management systems, also called revenue management systems, to maximise seat sales at the optimal (not necessarily highest) price – to maximise revenue return from each flight”. Here is another piece that explains Yield Management In The Airline Industry : “Last month on a trip to Brussels from Chicago, I almost had my 8-hour neighbor have a heart attack when I told him that I bought my ticket for $380. In fact, the gentleman, a business traveler, had to pay $1,500 for the same tourist-class round-trip ticket…”. Finally I have an explanation for one of the consequences of Yield Management : Overbooking. We can read an explanation of my trip experience with Air France on the site of Air France Consulting: ” In the last five years, the company has gone through important changes as […] implementation of new Revenue Management techniques and systems.”

Yield management makes the price of airline tickets overly complicated and impossible to understand.  It is anti-customer. 

That is one of the reasons that the airline industry got into trouble earlier this year.  The delta in the price between business travelers and economy fares reached its highest level in January.  This would be like Walmart charging a person five times as much for a toothbrush because they are wearing a business suit.  Business travelers, tired of being squeezed into middle seats at five times the price of the people on either side of them and facing a squeeze on expense accounts, decided not to travel.   If they did travel, they booked 3 weeks in advance (the airlines moved that advance booking time to 3 instead of 2 weeks to put more pressure on business travelers). 

Business travelers were generating 2/3rds of the profits at most major airlines before this year.  The rapid loss of these customers drove the industry into deep losses in Q1.  In effect, business travelers were wrongly subsidizing economy fares and getting nothing in return for their higher cost tickets.  I think the airlines are in for a difficult future due to the rise in the use of video conferences and collaboration tools as a substitute for overly expensive tickets. [John Robb's Radio Weblog]

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