In 1978 , The Airline Deregulation Act ended the U . S . Government ’ s control of airfares , flight routes and other aspects of the airline industry . American Airlines was ready . Since the mid- 1960s , the company had been conducting research to determine how they might maximize revenue from their inventory of flight reservations . Such planning is , of course , critical in the airline industry . Every time a flight leaves its gate with unfilled seats , the revenue those seats represent is gone forever , so ensuring that each flight is as full as possible is key to any airline ’ s financial success . When the Airline Deregulation Act was passed , airlines suddenly had the power to adjust fare pricing to reflect demand and alter flight routes to serve a greater volume of customers .
American Airlines recognized the opportunity inherent in this newfound freedom , and they took full advantage , increasing their profitability ( and , crucially , offering flyers more options ) by raising fares on flights during peak times and offering greater discounts on less popular or off-peak flights . The results were extraordinary . Fewer flights took off with empty seats , more customers were served and the company captured hundreds of millions — and eventually billions — of dollars ’ worth of revenue that would have otherwise been lost .
This strategy of analyzing demand for a product or service and managing the pricing and availability of those products or services to increase revenue and better serve customers is all part of the practice broadly referred to as “ revenue management ,” and the airline industry is far from the only sector where it has been successfully applied . The hotel industry adopted the practice decades ago , and the spa industry has begun to follow suit , albeit slowly . Recent ISPA Snapshot Surveys indicate that nearly two-thirds ( 63 percent ) of spas do not in any way adjust service pricing or availability based on guest demand .
The spa industry ’ s hesitancy to fully embrace the strategies of revenue management may be rooted in several factors , from the perceived — and actual — complexity of developing a revenue management system to concerns that guests will respond unfavorably to any such changes . Those concerns are certainly valid , but they can also be overcome through education and careful planning , which brings us to the point of the series of articles , starting with this one , that will appear in Pulse over the next couple of months : to demystify the concepts behind revenue management , assess its potential within the spa industry and help spa leaders determine how — or whether — to apply its principles to their businesses .
KEY TERMS AND CONCEPTS
Before any spa leader can determine the extent to which revenue management practices are a fit for their business , however , it ’ s important to have a thorough , accurate understanding of the various concepts that underpin revenue management strategies in general . The entries below provide the definitions of and distinctions between a number of terms and ideas key to developing that understanding .
● Dynamic Availability : adjusting the availability of certain services ( massage or facial appointments , for example ) based on customer demand , in real time .. Typically , higher-margin items or services are made more available ( or even exclusively available ) during peak demand periods , while lower-margin items or services are offered during off-peak periods .
● Dynamic Pricing : adjusting service prices based on real-time demand . Hotels and airlines use dynamic pricing strategies often , which is why room and flight prices change based on how full the hotel or flight is ( or is likely to be ) at the time of booking . When there are more rooms or seats available , prices tend to be lower than when few rooms or seats remain . Rideshare services such as Uber and Lyft also practice dynamic pricing as well , increasing fares during periods when drivers are in particularly high demand .
● Static Pricing : service prices remain constant , regardless of demand .
● Variable Pricing : adjusting service prices based on the day of the week or time of day . Under a variable pricing model , a service may
“ Massage appointments may not “ perish ” in the way that a loaf of bread or a banana does , but every hour that a treatment room sits empty or for which a service provider is not booked represents lost revenue that cannot be recovered .”
AUGUST 2021 ■ PULSE 15