Wait or Buy? The Strategic Consumer: Pricing and Profit Implications

Using tools from operations research, airlines have, for many years, taken a strategic approach to pricing the seats available on a particular flight based on demand forecasts and information. The result of this approach is that the same seat on the same flight is often offered at different fares at different times. Setting of these prices using yield-management approaches is a major activity for many airlines and is well studied in the literature. However, consumers are becoming increasingly aware of the existence of pricing strategies used by airlines. In addition, the availability of airline travel pricing on the Internet affords consumers the opportunity to behave more strategically when making purchase decisions. The onset of the information age makes it possible for an informed consumer or a third party, such as a travel agent, to obtain demand information similar to that used by the airlines. In particular, it is possible for consumers or travel agents to purchase historical data or to obtain it by monitoring the seats that are available at various prices for a given flight. If a consumer understands the pricing strategy and has access to demand information, he/she may decide to defer purchase of a ticket because they believe that a cheaper seat may yet become available. If consumers were to make use of this information to make such strategic purchasing decisions, what would be the impact on airline revenues? The purpose of this paper is to investigate these impacts. This work indicates that use of standard yield management approaches to pricing by airlines can result in significantly reduced revenues when buyers are using an informed and strategic approach to purchasing. Therefore, when airlines are setting or presenting prices, they should investigate the effect of strategic purchasing on their decisions

An integrated fuzzy-stochastic model for revenue management: The hospitality industry case

Revenue management aims at improving the performance of an organization by selling the right product/service to the right customer at the right time. This task is very dependent on uncontrollable external factors. In the hospitality industry, rooms of the hotel represent perishable assets and fixed capacities at the same time. Therefore, in the case of a stochastic process for customers calling in reservations prior to a particular booking date, a common problem for hotels is to devise a policy for maximizing the total expected profit conditional on the set of bookings. We propose a fuzzy model for the hotel revenue management under an uncertain and vague environment. Fuzziness of objective and constraint functions have been incorporated into a stochastic booking model considering multiple-day stays to show the effect of uncertainty on the optimal demand. By changing the relaxation parameters of the objective function, we have found a set of optimal solutions with, in most of the cases, a value of the objective function equal to the optimal solution of the stochastic model, providing several alternative optimal room allocations

Examination of air transportation trip time variability

Scheduled air transportation is required to provide a service that is safe, consistent, and dependable, with reliable trip times and delays managed within acceptable limits. High trip time variability and delay in the current system are driven by multiple factors; The study objectives were: (1) to develop a comprehensive database for individual major U.S. airline domestic trips between 1995 and 2005; (2) to explore the central tendency and variability of airline gate-to-gate trip times and delays; (3) to develop values for unconstrained, or unimpeded, trip times, and (4) to develop traveler and airline delay and variability costs relative to unimpeded trip times; The research used U.S. Department of Transportation (U.S. DOT) data for scheduled domestic airline trips reported by major U.S. air carriers between 1995 and 2005. For valuing air carrier cost savings, this research estimated variable costs for individual trips, based on individual carrier financial reports to U.S. DOT; The research used reported trip times as a primary indicator, unimpeded trip times as a reference, and attached a cost to the excess of reported trip time over unimpeded trip time at the individual flight level. This approach represents a process for evaluating the time savings and operating cost impacts of measures for increasing capacity and reducing impedance in U.S. domestic scheduled air transportation; Areas in which trip time variability and delay impose a high penalty on travelers and airlines were identified. The most important study results concerned disproportionately higher delays and costs relative to: (1) origin and destination airports and corridors; (2) times of day; and (3) the days with highest delays. The main areas were arrivals and departures at leading airports (40 percent of flights and 55 percent of costs), flight departures and arrivals between noon and early evening (50 percent of flights and 60 percent of costs), and during the 40 percent of days in which there were heavy system wide delays (55 percent of costs) costs appropriate to time changes on individual trips, the magnitude of penalties incurred by impeded trips were estimated relative to unimpeded trips. These were: 150 million annual excess traveler hours per year; {dollar}8 billion annual excess air carrier operating costs; with 400 million annual gallons of excess jet fuel consumption. The costs of impeded trips added about 10 percent (or about {dollar}3.4 billion annually) to airline variable operating costs during the study period