Airline Costs

REVENUE
MANAGEMENT
Capt: Paul Mwangi
9th May 2014

KCAA/MOI UNI/EMBA/PK/9th May 14

OVERVIEW OF REVENUE
MANAGEMENT
MISSION
Maximize network revenue per Available Seat
Kilometer for a given schedule.

KCAA/MOI UNI/EMBA/PK/9th May 14

Why Revenue Management?
To maximize revenue income!

KCAA/MOI UNI/EMBA/PK/9th May 14

How?
“cherry picking”
Overbooking

KCAA/MOI UNI/EMBA/PK/9th May 14

“Cherry Picking”
Flight NBO – LON available seats: 8
Passengers who wants to travel:
AOS
UK
SA
KE
TZ
KE

Route
KGL-LON
JNB-LON
NBO-LON
ZNZ-LON
MBA-LON

# PAX Fare (USD)
3
1500
5
1000
2
1600
8
800
2
1300

KCAA/MOI UNI/EMBA/PK/9th May 14

“Cherry Picking”
That is what Revenue Management is all about: Accept those passengers that maximize our revenue income!

KCAA/MOI UNI/EMBA/PK/9th May 14

Several options:
Option 1
8 pax ZNZ-LON
= 6.400 USD

Revenue: 8 * 800

KCAA/MOI UNI/EMBA/PK/9th May 14

Several options:
Option 2
3 pax KGL-LON +
1.500 = 4.500 USD
5 pax JNB-LON
1.000 = 5.000 USD

Revenue: 3 *
Revenue: 5 *
Total:

9.500 USD

KCAA/MOI UNI/EMBA/PK/9th May 14

Several options:
Option 3
3 pax KGL-LON +
4.500 USD
2 pax NBO-LON
USD
2 pax MBO-LON
USD

Revenue: 3 * 1.500 =
Revenue: 2 * 1.600 = 3.200
Revenue: 2 * 1.300 = 2.600
Total:

USD

KCAA/MOI UNI/EMBA/PK/9th May 14

10.300

Overbooking
Why do we overbook?
On average 13% of the booked passengers do not show up at the check-in counter!
As a result we leave with empty seats!

KCAA/MOI UNI/EMBA/PK/9th May 14

Overbooking
E.g.
Capacity = 221 seats
With no overbooking 221 seats are sold
No-show = 13%: 29 passengers will not show up! Revenue loss of 29 seats * 150 USD =
4.350 USD per flight!

KCAA/MOI UNI/EMBA/PK/9th May 14

Why do we have denied boardings?
The no-show percentage is an average based on historical data.
But market changes influences the no-show percentage. KCAA/MOI UNI/EMBA/PK/9th May