With its high fixed and low marginal cost, the airline industry by design is greatly dependent on revenue (or yield) management techniques to optimize profits. For decades, airlines have been trying to sell seats at the right price through either accepting or rejecting a booking request based on revenue forecasts. This accept-reject decision has become a question of valuation: what is the value of selling the seat now, versus the expected value of selling the seat later? Answering this question has become the raison d’être for the bid pricing functionality that traditionally guides revenue management decisions.
Traditional revenue management approaches optimize the right mix of fares and load factors without accounting for the value of customer relationships. In a customer-centric approach to revenue management, by contrast, selling decisions also incorporate the data points that predict the peripheral or associated value of individual customers. What is the likelihood that a customer will purchase ancillary revenue products? What is the customer’s predicted lifetime value? These are a few of the questions central to customer revenue management.
A better understanding of customer value will enable airlines to develop and offer products, features, and communications that match customer needs. To obtain this understanding, airlines must borrow a page from retailers who have become adept at mining customer data for insight to build sustainable customer relationships that in turn drive more profitable results from tactical offers. Customer revenue management offers airlines both greater opportunity in traditional revenue management, as well a chance to explore new avenues of profit. For airlines looking to break out of the traditional yield management box, it may offer the optimal final approach.