Airlines bank on yield management

September 10, 1995|By Suzanne Wooton | Suzanne Wooton,Sun Staff Writer

The $215 round trip fare to Atlanta looks good. You call the airline but discover that seats are no longer available at that price. You can buy a ticket for $274. Or you might call back next week and find the $215 fare available after all.

Confused? Blame it on technology -- and the airlines' urgency to squeeze the most money out of each flight.

On thousands of flights every day, computers constantly crunch data to help carriers figure out how many tickets to sell at what price and how many to overbook.

The trick for the airlines in allocating fares and seats is making sure they don't get too greedy -- and that they don't sell too cheaply.

"It's not a case of gouging the consumer. It's a case of managing the product," said Kenneth R. Stephens, president and chief executive officer of Behavioristics Inc., a small College Park firm that provides software for USAir Group's revenue management program.

"Just by selling the seats a little smarter, USAir saved $140 million last year," he said.

Pioneered by American Airlines nearly two decades ago, revenue management techniques have been adopted by a wide range of industries, including long-distance telephone carriers, cruise ship lines, hotels, even opera companies.

In the airline industry -- where profit margins are paper-thin even in the best of times -- the tool is critical, saving the nation's airlines hundreds of millions of dollars each year. Indeed, some analysts believe USAir's lag in developing a sophisticated revenue management system is partly to blame for the airline's huge losses since 1988.

Last week, USAir, the largest carrier operating at Baltimore-Washington International Airport, said it expected to make a profit this year, its first since 1989. And its yield, or income per passenger, has increased -- the result of a higher percentage of seats filled by people paying relatively higher fares.

"This is the airlines' main tool for optimizing their revenues," said Jon F. Ash, managing director of Global Aviation Associates, a Washington aviation consulting firm. "Absent a yield management system, you forfeit the ability to maximize revenues."

The reason is simple: once the plane leaves the gate, every empty seat is revenue lost forever.

Airlines need to sell as many seats as they can all the time. But they try to fill the plane with the greatest number of high-paying passengers before freeing up seats to those who pay less.

"People may find it frustrating to call one day and get one fare, then another fare another day," Rocky B. Wiggins, USAir's senior director of inventory management, said. "They say the airline is playing games with me. But in order to make money, we have to have a mix on the plane."

As a result, passengers on the same flight can pay a half-dozen or more different fares. And for many consumers, that's perplexing.

"Some of the savvy travelers understand, but most people don't," says B. J. Cook, assistant manager at Roland Park Travel in Baltimore.

She taps the keyboard on her computer terminal, searching for the best deal from Baltimore to Atlanta on Oct. 23. An array of 13 different fare categories darts across the screen, ranging from $219 to $813 for seats on the same Boeing 737.

What Ms. Cook doesn't see is how many seats are available at any given fare. That information is closely guarded by every airline and available only to insiders, like reservation agents.

But experience tells Ms. Cook what the computer doesn't.

On a Friday afternoon flight between Washington, D.C., and New York, for instance, airlines rarely sell discount seats. Likewise, Dec. 23 flights to San Juan, the Caribbean connecting point, are rarely discounted.

"But a flight to Minneapolis during the winter? A whole different story," Ms. Cook says.

Bookings change from day to day, even hour to hour. Typically, airlines will free up more discount seats if the plane is undersold closer to departure.

Ms. Cook, for instance, recently tried to book a $179 one-way excursion fare from Baltimore to Tampa on a 4:30 p.m. flight. No seats were available at that price, but she was able to nab the fare on an 8 p.m. flight. A week later, she discovered seats were available for the price she wanted on the flight she first sought.

Discounts are scarce

Confusing or not, airlines don't give up discount seats frivolously.

"You sell too many lower-fare levels, you don't make money," Mr. Wiggins said. "You don't meet your costs and you've taken up seats that last-minute, high paying passengers might need."

Without yield management, he says, prices would be much higher. "The system really benefits the traveling public to a great degree. . . . It allows the airlines to offer more cheap seats with confidence."

Typically, the least expensive tickets carry the most restrictions -- such as advance purchase requirements and no refunds. Passengers pay a premium to get tickets with no strings.

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