FEATURE ARTICLE like any other , can see external events impacting future demand . Falling coal prices , a WA AFL team playing in a Melbourne Grand Final or even a cyclone can have dramatic effects on the demand for travel . This is why the human element of market knowledge is so important in the revenue management process .
On busy routes , the time of day that people choose to travel can be a way of differentiating between passengers . In general , an early morning flight that arrives just before the work day starts will cost more to travel on than a middle of the day lunchtime flight . Again , this is matching the needs of travellers with their willingness to pay .
So , with all that analysis and sophistication , why do airlines go on sale at prices that are less than the cost of the taxi ride to the airport ? After all , it ’ s not cheap to operate an aircraft , there ’ s the cost of fuel , crew , ground staff and airport and government taxes to be paid . The answer starts with the fact that a seat on a flight is perishable . Once that plane has taken off with an empty seat , that seat can never be sold again . So , you ’ re better off selling that seat at a low price than getting nothing for it at all . The difficulty lies in making sure that the passengers who buy those super-cheap seats aren ’ t downtrading from a higher fare . That is , the airline needs to sell to new travellers , not ones who were going to travel at a higher fare anyway . Otherwise , the airline could be worse off as a result .
Besides , selling a cheap fare also gives the airline the chance to get some supplementary revenue . Nowadays , booking your ticket isn ’ t the last time you have to get out your credit card . You could be charged for anything from meals , baggage , credit card surcharges , lounge memberships and even fees to access the in-flight entertainment . All of this can easily add up to more than the cost of that unbelievably cheap fare !
Revenue management is a well-developed concept in the Airline Industry , with teams of experts devoted to optimising revenue . Revenue Management principles also apply to other sectors , with differing levels of sophistication . ‘ Earlybird specials ’ in a city parking lot , half price tickets to see a show , or last minute discounts on a cruise line are some obvious examples .
So the next time you are at an airport , have a look around you at the different types of travellers , and have a guess at how deep their pockets may be .
© September 15 , 2015 www . revenuemanagement . com . au
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