WEBVTT

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The overall revenue
management problem

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involves a network of airports
and literally thousands

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of flights.

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Clearly optimization is needed.

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Myopic solutions leave
significant revenue

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on the table.

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Furthermore, revenue
management involves

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tens of different classes that
have different restrictions,

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different characteristics
like mile awards, and fares.

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PEOPLExpress could not compete
with American Airlines'

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Ultimate Super Saver fares.

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Donald Burr, CEO of
PEOPLExpress in 1985,

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notes, "We were a vibrant,
profitable company

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from 1981 to 1985, and
then we tipped right over

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into losing $50 million a month.

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We had been profitable
from the day

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we started until American
came at us with Ultimate Super

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Savers."

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Revenue management
is the science

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of selling the right seats
to the right customers

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at the right prices.

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To illustrate the impact
that revenue management has

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had on American
Airlines, we note

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what Robert Crandall,
CEO of American,

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wrote during the period
that revenue management

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practices were applied.

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"Revenue management is
the single most important

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technical development in
transportation management

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since we entered the era
of airline deregulation.

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We estimate that
revenue management

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has generated $1.4 billion
in incremental revenue

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in the last three years."

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Let us see the impact of
revenue management more broadly.

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Today, American Airlines
has emerged from bankruptcy

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by merging with US Air Airlines.

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However, American
Airlines has spun

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off Sabre Holdings,
the entity that

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built revenue
management for American.

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As of November 2012,
Sabre ranked 133rd

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among America's largest private
companies with $3.15 billion

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in sales, 400 airlines, 90,000
hotels, and 30 car rental

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companies as clients.

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Today, companies prosper
from revenue management.

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Delta Airlines, for example,
increased annual revenue

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by $300 million.

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Marriott hotels increased
annual revenue by $100 million.