Yield Management

Abstract

Historically, airlines have operated in a tightly regulated environment. This environment has been regulated by governments and self-regulated through organizations such as the International Air Transport Association (IATA) The early airline policy for the fare activities was based on offering all the seats on the airplane (or in the coach of the airplane) at the same rate. When the industry entered the 1960s with bigger and faster planes, new types of fares were being approved by the Civil Aeronautical Board (CAB) on certain routes, including lower-night coach fares, and tour-basing fares. There were no capacity controls on these fares. All of the seats were up for grabs and were sold on a first come, first-served basis, provided only that the conditions of the fares were met. By the end of the sixties, airlines were looking at day-of-week load factor patterns and introduced midweek and weekend fare differentials to stimulate new demand for low load factor flights. High-season and Low-season differential fares were also in place. At the same time as these new fares were being implemented, the move toward deregulation of the economic aspects of the airline industry was gaining speed. By the mid-1970s the carriers were aware that deregulation was going to happen. Intra state carriers like Southwest Airlines in Texas and Pacific Southwest in California, which were not subject to federal fare regulations, were filling up their planes with a low-cost, low-fare product and making money doing it. This caught the attention of consumers, legislators and regulators alike.