Air Transport World

Chasing the 'rational' marketplace.

Revenue managers say their systems can erase the guesswork from most airline decisions

In the 1980s, then-American Airlines chief Bob Crandall tried coordinating price increases with Braniff's Howard Putnam. Putnam reported him to the government. In 1992, Crandall tried the legal route and announced value pricing, designed to produce rational pricing by simplifying the fare mix. But competitors didn't cooperate so value pricing died.

Now, revenue managers say, their systems can deliver a "rational" market, with fares, demand and inventory matched well enough to avoid fare wars. The current versions of RM use sophisticated forecasts to recommend allocations of seats by price, thereby optimizing revenue. And they do it quickly.

John Dabkowski, VP-sales for Sabre Technology Solutions in London, told ATW: "People don't guess anymore. Automation is moving further up the chain. Everyone who's serious is using revenue management, though there are still lots of [examples of] 'irrational' behavior. Automation will come to pricing and

scheduling, too." Talus Chairman Bob Cross says: "Price wars are caused by fear With better forecasts, there's less fear."

Whether the "rational" scenario comes to pass in a downturn remains to be proved. At a recent conference cosponsored by IATA and Talus, Bill Brunger, VP-revenue management for Continental Airlines, suggested the conference should have lowered the emphasis on RM's triumphs in raising revenue when times are good and load factors high, and placed more on how RM could help in a declining travel market. Practitioners say it can, if airlines accept RM recommendations. …

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