THE APPLICATION OF YIELD MANAGEMENT AT AMERICAN AIRLINES
Yield management is widely used today in the airline industry to maximize revenues and profits. American Airlines was
one of the first companies to use yield rat engagement to (a) establish prices, (b) determine for a given flight what percentage of capacity it should allocate to each price, and (c) determine the restrictions necessary to segment the markets. Listed below is a sampling of the different prices for a round-trip flight between Boston, Massachusetts, and London, England.
example, airlines usually require a 21-day advance purchase for their super-sax er fares. which offer the lowest prices; similarly, organizations holding conferences usually reserve 0 hotel rooms years in advance of their meeting, again at substantially reduced rates. At the same time, however, the service manager does not want to turn away a last minute customer who usually pays the full rate because the capacity had been previously sold at a discounted rate. When this happens, opportunity costs are ir.curred. The methodology or determining the percentage of capacity to allocate to each market segment or prices referred to as yield management or revenue management. By using yield management.the service manager is Samuel nervously managing both the supply and demand for the firms capacity. Demand is controlled by the different price rises: 1 er prices increase demand;higher prices decrease demand. Supply is controlled by limiting the capacity available at each of the different price structures. As an illustration of how a service firm will use pricing to manage demand, the accompanying OM in Practice provides a sampling of the different airfares that American Airlines offers between Boston, Massachusetts, and London, England, and the restriction .