Implications of seat assignment flexibilization for airline revenue management

Implications of seat assignment flexibilization for airline revenue management

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Article ID: iaor2017194
Volume: 15
Issue: 6
Start Page Number: 488
End Page Number: 499
Publication Date: Dec 2016
Journal: J Revenue Pricing Manag
Authors:
Keywords: scheduling, combinatorial optimization, programming: assignment, economics, marketing
Abstract:

This paper aims to prompt the airline industry to explore a new way of using existing airline cabin layouts that improves profitability and comfort. The century old paradigm, that passengers take a seat for an entire flight, is a way of utilizing airliner cabins that heuristically means poor comfort for most passengers and low financial returns (Return on Invested Capital – Weighted Average Capital Cost industry wide of −2.3 per cent (2013) and −1.2 per cent (2014), and EBIT of 3.5 per cent (2013) and 5.1 per cent (2014) of revenues Earnings Before Interest and Tax) – Source IATA). The author shows the benefits of allowing a place‐exchange market to operate during flights. This market proves to be a superior value extraction tool and opportunity for airlines, which can substantially increase their profits by enabling widespread comfort to their customers. As a consequence, airline economics are greatly improved. As a corollary, this dramatically increases the amount of viable routes.

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