Yield Management and other thoughts

The take-off

The plane just took off from Montreal toward Philadelphia. It’s always magic during those seconds where the plane is accelerating on the ground and when it starts to elevate in the air very slowly as if it was pulled by an invisible power. The physical forces are magic and the fact that we, human beings (not all of us of course) can understand them and use them to achieve air transportation could sound exactly like science fiction for many humans that lived ages ago.

What is Yield Management?

Many of my friends and family members know that I work in the field of Yield Management and I wanted to take this opportunity of having a flight of 1h30 to explain what it is.

First of all, let me tell you that this is the first time I take such an empty plane! We are exactly 8 passengers! And there is a flight attendant, a pilot and a co-pilot. In the plane, there is a total capacity of 26 seats (it’s a small one). The occupancy of the aircraft is then 8 / 26 x 100 which makes 30,77%.

The question is: Is this flight profitable?

Well, I paid exactly 280$ to take this plane, then another one from Philadelphia to Charlotte and a third flight from Charlotte to Costa Rica. If I divide the 280$ by 3 flights, I would have paid 94$ only for this flight, minus airport taxes. If you calculate the gas, the wages of the crew members and the depreciation of the aircraft, it would really surprise me if US Airways is making money with only 8 passengers.

The practice of Yield Management has been exactly created for those situations where you sell a product or a service that you cannot stock and resell the day after (same thing for hotels rooms). It’s too late now for US Airways to make this flight more profitable because it already took off.

The job of the Yield Manager is to determinate at which price the plane would have been full or at least busier. Imagine for example that US Airways made a last minute special and advertised few days ago tickets for Philadelphia at only 40$. Combined with an offer of a partner hotel in Philadelphia with the same logic, they could have advertised a package at a very low rate. If the other 18 seats have been filled at 40$ each, that would have made 720$ more in the pocket of US Airways. Maybe the flight would still be deficient but at least much less.

The problem in doing that (well known by marketers) is to undermine the image of the service. Selling seats at 40$ would not only create a suspicion of quality and security within the potential customers, but also would give them a new habit: We should just wait till we can buy a plane ticket at 40$. Marketing strategists use a lot of ways to try to distribute their discounted service / product through different channels then the official one, so that they don’t harm their brand image. And the wise customer is the one who can find those channels and take advantage of them.

How does everyone choose his seat?

When you board a plane, you generally have an assigned seat number and everybody respects this seat number so that the situation doesn’t transform into “chaos”. The plane tonight is almost totally empty, but US Airways still offered us to add 15$ on their Web site and to choose the seat we want! Isn’t that stupid? They also charged us 25$ for every luggage we had ; isn’t that stupid too?

When we, the 8 passengers, entered the aircraft, I think that everybody took the seat he wants regardless of the assigned seats we had. I saw two people sitting next to each other though and I thought : Oh they are probably traveling together. But seconds after, I just saw them seating in two separate places. I guessed that they respected their assigned seats in the beginning and then changed their minds as they saw how the situation was.

The question is: Why in this situation, people seat alone and separated instead of taking this opportunity to be together and talk with each other? Is that due to human nature or to any cultural factors like Western individualism? Would the situation have been the same if we were all Chinese, or all Latinos, etc.?

During that time, there was a unidirectional communication: US Airways was talking to us and imposing us their rules, while we were separated, with a very poor negotiation power and thus giving our money to the airline company. This is maybe the sign that we live within a strong system where we are not unified to face it!