Simulating the flavors of revenue management for airlines

Abstract

While today’s revenue management systems are increasingly sophisticated, there is no one-size-fits-all solution. An airline must regularly re-evaluate its business model against the many options available and invest time, effort and money to move from one mode of revenue management to the other. Each airline has its own specific business model and network structure, so estimating ‘return on investment’ from changes in revenue management methods based on academic literature or case studies from other airlines may not be fully applicable. This article describes how the authors successfully employed simulation analysis tools to estimate the impacts of various revenue management methods when applied to an airline’s specific network and fare structure. For the six airlines considered in this study, the estimated revenue benefits of moving from leg-based to full-O&D controls ranged between 1 and 6 per cent improvement, and the simulation results helped us gain better insights into the factors affecting those benefits.