Yeild Managment VS. Price Transparency
August 6, 2008
(Image showing India’s static Airline pricing structure. From the Boot - Thanks Tim and Ram)
Robert Crandall, former Chairman and CEO of American Airlines, has called yield management “the single most important technical development in transportation management since we entered deregulation.”
The world is getting smaller, and travel pricing information is easier to acquire then ever before, much to the chagrin of revenue management analysts. With trends towards openness and transparency, the question has to be asked, can the travel industry maintain its elaborate yield management structures, or will consumers be able to circumvent their efforts?
Yield Management -
Yield Management has, since approx 1990 when airfares were deregulated, effectively raised revenue margins. It is fundamentally accomplished by separating price points based on demand and consumers willingness to buy. It is most effective when a good is perishable, being that it has no value after a specific time (when the tour bus leaves, empty seats are lost).
You can see this in effect in most businesses in the travel industry, most notably the Airlines, Rental car, Hotel industry, and it is also starting to appear in the destination activity vertical. You have probably seen this in effect. Consider the last time you booked a flight online; The general rule of thumb is the further out you book a flight, the cheaper it will be (I know there are many exceptions), the closer the flight is, the less availability there is, and the demand is therefore increased as is the price.
How is the Internet changing this?
While elastic pricing will be around for some time, the ability for consumers to track pricing and trends is also increasing. The simple example from Cleartrip at the top of this post demonstrates how easy it is becoming to track the historic price point of every major carrier in India. Yapta is also making waves in the industry for giving consumers a tool that will essentially counter price fluctuations in the Airline industry. It tracks specific routes of interest, and allows you to buy at a historically ‘cheap’ price point, then if the rate drops further, Yapta connects you will a rebate cheque from the airline. So this is the first step in equalizing price points across different demand points.
A glimpse into the future
The ever secretive travel industry is starting to evolve; with the prominence of Internet booking, and supplier direct reservation capabilities, consumers are now given more choices as to where they can purchase their travel products and packages at the best price. Taking these trends towards transparency, it is my opinion that the age of the multi-tiered, dynamic segmentation are going to start to fade. This will be facilitated by the increased focus on upselling of ancillary product as proven effective by Ryan Air.
However, those last minute flights are sure to cost you an arm and a leg 
So for now the responsibility is still on the consumer to plan ahead, and it is easier then ever to do so.
What do you see? Will consumers always be subject to an every fluctuating price scheme?
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Phil · Filed Under Travel Distribution
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