Table Of ContentManagement for Professionals
Ben Vinod
The Evolution of
Yield Management
in the Airline
Industry
Origins to the Last Frontier
Management for Professionals
The Springer series Management for Professionals comprises high-level business
and management books for executives. The authors are experienced business
professionals and renowned professors who combine scientific background, best
practice,andentrepreneurialvisiontoprovidepowerfulinsightsintohowtoachieve
businessexcellence.
Moreinformationaboutthisseriesathttp://www.springer.com/series/10101
Ben Vinod
The Evolution of Yield
Management in the Airline
Industry
Origins to the Last Frontier
BenVinod
CharterandGo
Grapevine,TX,USA
ISSN2192-8096 ISSN2192-810X (electronic)
ManagementforProfessionals
ISBN978-3-030-70423-0 ISBN978-3-030-70424-7 (eBook)
https://doi.org/10.1007/978-3-030-70424-7
#TheEditor(s)(ifapplicable)andTheAuthor(s),underexclusivelicensetoSpringerNatureSwitzerland
AG2021
Thisworkissubjecttocopyright.AllrightsaresolelyandexclusivelylicensedbythePublisher,whether
thewholeorpartofthematerialisconcerned,specificallytherightsoftranslation,reprinting,reuseof
illustrations, recitation, broadcasting, reproduction on microfilms or in any other physical way, and
transmission or information storage and retrieval, electronic adaptation, computer software, or by
similarordissimilarmethodologynowknownorhereafterdeveloped.
Theuseofgeneraldescriptivenames,registerednames,trademarks,servicemarks,etc.inthispublication
doesnotimply,evenintheabsenceofaspecificstatement,thatsuchnamesareexemptfromtherelevant
protectivelawsandregulationsandthereforefreeforgeneraluse.
The publisher, the authors, and the editorsare safeto assume that the adviceand informationin this
bookarebelievedtobetrueandaccurateatthedateofpublication.Neitherthepublishernortheauthorsor
theeditorsgiveawarranty,expressedorimplied,withrespecttothematerialcontainedhereinorforany
errorsoromissionsthatmayhavebeenmade.Thepublisherremainsneutralwithregardtojurisdictional
claimsinpublishedmapsandinstitutionalaffiliations.
ThisSpringerimprintispublishedbytheregisteredcompanySpringerNatureSwitzerlandAG.
Theregisteredcompanyaddressis:Gewerbestrasse11,6330Cham,Switzerland
Innovation distinguishes between a leader
and a follower
Steve Jobs
To my wife, Ann, who never complained over
the years when I traveled around the globe
visiting customers.
Foreword
Thisisabookabout“howto”createandoperateayieldmanagementsystem.Itwill
likely be used by companies in a variety of businesses who seek to sell whatever
service or product they offer at the highest price consistent with maximizing their
totalrevenue.
Inyearspast, Iknewagooddealabout thetechniques ofyieldmanagement.In
recentyears,however,thepracticehasbeenverysignificantlyrefinedandimproved,
and I can no longer claim either detailed knowledge or mastery of the techniques.
Thereadershouldunderstand,however,thatitreallyworks.
I think it is fair to say that American Airlines, while I was its chief executive
(1985–1998),appliedyieldmanagementmorecreativelyandaggressivelythanother
airlines, and that our use of the technique contributed very materially to our
competitive success. In the beginning, our effort was a pen-and-pencil effort to
overcome the obvious fact that we were selling seats for less than people were
willingtopayforthem.Whilethereweremanyexamplesofthatproblem,theoneI
foundmostoutrageouswasseeingsignsonLondon’ssidewalksadvertisingtripsto
New York for very nominal amounts of money. In those days, travelers could buy
thecheapseatsandturninticketsalreadypurchasedforarefund.
That was not, of course, the only example. In the early 1980s, companies like
Americancame under pressurefromnew entrantairlines thatpaid theiremployees
lessandusedthesavingstoofferlowerprices.Inresponse,Americancameupwith
theideaofsellingseatsatmatchingpricesbutrequiringtravelerstostayawayfrom
home for a specified amount of time, thus preventing business travelers, who paid
the highest prices and had demanding schedules, from using the lower fares.
Business travelers were unwilling to either use the services of the new entrants,
which were generally of lower quality, or tolerate the minimum stay requirements
associatedwithourmatchingfares.
We were also frustrated by our inability to appropriately match supply and
demand. We often found, for example, that we were dispatching partially filled
aircraftonlong-haulinternationalroutesdespitethefactthatcustomersincitieson
our network wishing to fly to those international destinations were unable to reach
thehubcityfromwhichtheinternationalflightwasdeparting.
Aswegotintoourstudy,itbecameobviousthattheproblemwasfartoocomplex
tobesolvedwithoutfindingwaystoassessthemanywaysinwhichagivenseatona
vviiii
viii Foreword
particularaircraftmightbecombinedwithindividualseatsonotheraircrafttocreate
variousproducts.Aswebegantounderstandthepossibilities,webuiltmathematical
models to identify options and the computational capabilities to massage and
evaluatethecombinations.
Astheyearspassed,wehiredalotofverysmartpeopletobuildthemodelsand
program the computers. Tom Cook was the officer who led the effort, and Ben
Vinod, the author of this book, was one of the many people who helped build our
industry-leadingcapability.
My colleagues and I at American were proud of what Tom and his team
accomplished, and I am confident that those interested in this subject will find
Ben’sbookrewarding.
PresidentandChiefExecutiveOfficer, RobertL.Crandall
AmericanAirlines(1985–1998)
Gloucester,MA,USA
October6,2020
Foreword
I joined the American Airlines Operations Research (OR) group as a Director in
1982.BenVinodjoinedtheteam4yearslaterasanORanalyst.TheORGroupwas
relatively small at the time with several dozen people. At that time, the group was
concentratingondevelopinginnovativeOR-basedsolutionsforafewlimitedfunc-
tional areas of the airline; most important among them was revenue management
(RM). The RM team was developing American’s RM system called DINAMO.
American Airlines won the 1991 Edelman Award from INFORMS for the best
application of OR (revenue management) in the world. From 1982 to 1987, the
AAORgroup grewrapidly increasing itsimpactintomany functional areas ofthe
airlineincludingmarketing,capacityplanning/scheduling,crewplanningandsched-
uling,airportoperations,maintenanceandengineering,systemsoperationscontrol,
andothers.Inaddition,thegroupexecutedseveralstrategicstudiessuchaswhether
to build an additional 1-billion-dollar terminal in DFW to enable the growth of
American’s largest hub. These studies and the OR-based decision support systems
thatwereleading-edgesolutionsintheairlineindustrywereoftensponsoredbythe
CEORobertL.Crandallwhomanythoughtwastheindustry’sbestCEO.
In 1987, American Airlines Decision Technologies, AADT, was formed as a
wholly owned subsidiary of AMR Corp. (parent company of American Airlines)
with the charter to provide OR-based solutions to organizations external to
AA. Robert Crandall’s only restriction for AADT was to make a profit in the first
year and not to engage with direct airline competitors. AA remained AADT’s
primary client but grew very rapidly. AADT’s first external client was Amtrak,
andtheprojectwastobuildaRMsystem.AADT’sgrowthwasexplosivewithmany
external clients worldwide and many of the larger engagements were to install or
buildaRMsystem.Airlines (notdirectAAcompetitors),hotels, ClubMed,Royal
Caribbean Cruise Lines, Ryder Truck, the French National Railroad (SNCF), and
eventheU.S.NavyweremajorRMclients.BenVinodwascriticaltothegrowthof
AADT and the evolution of the science of RM in the airline industry and other
important types of business during his tenure at AA, AADT, and SABRE and is
uniquelyqualifiedtowritethisbook.
Intheearly1990s,AADTandSABREweremergedandsubsequentlyspunoff
from AMR. After I left SABRE in 1999, Ben Vinod continued to lead at SABRE
providing both management and intellectual leadership applying RM and more
iixx
