Essay on Yield Management

3539 Words Feb 2nd, 2014 15 Pages
Otto-Friedrich Universität Bamberg

Seminar Paper

Ismail Akar
Faculty of Economics

Price Management
Prof. Dr. Björn Sven Ivens
July 30, 2013

Table of Contents

Introduction Yield management is an important form of price variation for revenue maximization, especially in airline and hotel businesses. When 'yield management' is researched, mostly American Airlines is shown up due to the origin of yield management. The starting point for yield management was the deregulation of the US airline industry in the late 1970s. A new airlines company called People's Express entered the market with low ticket prices. Major airlines, such as American and United,
…show more content…
There are two kinds of capacity: physical and non-physical. The number of seats in a plain, the number of room in a hotel or the number of square meter in a golf area are examples of physical capacity. Non-physical capacity is usually based on time and connected to physical capacities, such as nights-hotel rooms, hours-restaurant table, and time-golf courses. Although capacity in these industries is mostly fixed, and it is difficult or costly to increase in the short term, some firms can change their capacity. For example, airline companies can increase the size of their plains and add more seats, or restaurants can add more tables or use outdoor seating during summer.
2. Predictable Demand2 In order to maximize the revenue, managers of capacity-constrained firms should predict different forms of demand: the customers who make reservations and walk-in customers. It is important to find the most profitable combination of customers. Information on the percentage of reservations and walk-ins, customers' desired time periods and likely service duration are required to forecast and manage this demand. To acquire this information, firm needs some effective reservation systems which are computerized or manual.
3. Perishable Inventory3 One element that has been often
Open Document