Question

Explain how an airline’s inventory management system and revenue management system must be linked.

Answer 1

Yield management approach- is a strategy based on the basic idea that inventory is perishable & all consumers aren't created identical. American Airlines nearly 4 decades ago concentrated on revenue maximization via an analytics-centric inventory method in an attempt to encounter an augmenting threat in the marketplace at that point in time — the arrival of the low-cost & low-charging competitors.

By using a combination of this inventory management strategy and a novel variable pricing tactic centred on comprehending, predicting & inducing consumer behaviour, American Airlines was able to augment its profitability from a perishable resource (i. e aircraft seats) & was able to directly compete with the low-cost rivals.

This method spread across the airline sector rapidly. Yield management is especially apt while selling commodities which are rendered unsellable at a moment in time (for instance airline tickets right after an aircraft takes off). Effective yield management augments revenue generation for the same amount of units, by taking advantage of the anticipated high & low demand phases, effectually moving demand from high demand phase to low demand phase & by taking a premium on late reservations .