Research On Application Of Revenue Management In Airlines

With the development of the aviation market globalization, all of the airlines in China participate in the competition in the world aviation market. Meanwhile, Chinese government has deregulated the price controls. Revenue Management (RM) is one of the key strategies to face the competition, and is also one of the key factors to strengthen the competition ability and profit in airlines, but the traditional revenue management model and methods can’t meet the demands of enterprise survival and development of competition, it is necessary to adopt new revenue management theory in the aviation passenger field.RM arose out of the deregulation of the US airline industry in the late 1970’s, when the relaxation of price and route controls led to a dramatic increase in air market competition. RM is a business practice enable companies to increase revenue by accurately matching product availability, pricing to the market demand and selling different product to different type of consumer in different price.In air-transportation term, Passenger Revenue Management is an essential business practice that ensures airlines will sell every seat for the best price in every flight. Theoretically in flight check-in deadline can sell the seat and only may exist only one seat can choose sale, seat utilization rate will reach the maximum, only then has the opportunity to achieve sales revenue maximization.This paper first reviews the history, statue of CAAC, and the characteristic of the air-transportation industry, pointing out the necessity of implementing RM in airlines. The paper introduces the history, development, contents and the basics operation method of airlines’passenger RM, emphasizes the basic method of Overbooking, builds up the model of No-show Rate, defines the cost of Overbooking, and manages Overbooking based on the balance of cost and revenue. The paper also introduces the other method of RM-Inventory control from the point view of differential pricing. It discusses seat distribution:RSL, one of the two key methods (RSL and EMSR) of seat distribution. At last, a case study is carried out on the RM decision analysis for the flights of China Eastern Airlines from Shanghai to Los Angeles, and some useful suggestions about practice of RM in Chinese airlines are given.In this paper, the following conclusions by the research from the aviation passenger transportation:1. Study and application of revenue management is the key factor in Chinese air transport enterprises enhance the management level, strengthening the competitiveness and profit.2. The development of revenue management is based on the practical application, the theoretical basis and technical platform, the basic methods of revenue management include overbooking, inventory control, team management, seasonal management etc..3. Overbooking is the key to the prediction of No-show ratio, different methods of No-show rate prediction is also different, the reasonable overbooking should consider the cost of denied boarding,4. Differential pricing is the foundation for inventory control, and the price protection is the key measure for differential pricing. Inventory control means to distribute the seat to the consumer who pay for higher price and limit the number of the lower price seat through the prediction of the demand and the technical measure of seat control.