Impacts of yield management in competitive airline markets

Abstract

This paper presents the results of the first known study of the impacts of airline yield management (YM) under competitive market conditions, taking into account the YM capabilities of competing airlines. This study makes use of a simulation model that includes both passenger choice behavior and the actual functions of airline yield management systems. We used this simulation model to evaluate the impacts of YM systems on the market shares, traffic and revenues of each competitor in a hypothetical market, as well as on the market as a whole. The simulation results confirm that effective yield management results in revenue increases for the users of YM in virtually all competitive situations. We found that there is a significant ‘first mover’ advantage for the airline that implements a YM system before its competitor, and that this implementation can actually lead to a revenue decrease for the airline without YM. We also examine some scenarios in which the airlines have differing schedules in the market, and conclude that there is an important interaction between the revenue benefits of YM and the relative schedule strengths of the competing airlines.