Friday, July 18, 2008

Airline Revenue Management in India - one price to rule them all

I have been enjoying my regular email and phone exchanges with Ram Badrinathan of PhoCusWright on the online travel market in Asia. Our last few chats have been on the Indian travel market because 2008 has been such a boom year for the industry there and he recently put together a special report on the region.

Yesterday he sent me through this fascinating screenshot from a Cleartrip flight price tracking graph. It shows over a three week period the prices for flights from Mumbai to Chennai. The different colours show the different airlines (ie Black is Spicejet with the cheapest price and Red is Magenta is Kingfisher with the most expensive).

The reason this is fascinating is that there is virtually no change in price regardless of the departure date. Each of the airlines has effectively set themselves price for the flight regardless of day of week, day of departure, competitors price or days out from departure. Revenue management has been thrown out the window and replaced with a single price strategy. Badrinathan contrasts this to October 2007 when he was putting together his report. During this time he noticed wild variations in pricing including dramatic decreases in price the closer customer's booked to the date of departure. Clearly the industry is trying to find a strategy to mitigate against the exploding costs of fuel. It has swung from constant and almost irrational change to no change.

You have to believe that the best strategy for an airline to survive staggering fuel costs would be to improve and increase revenue management activity rather than to adopt a one price to rule them all approach. Thanks to Ram for sending this through.


Anonymous said...

What if by using a constant price, they are actually getting more business? It might sound a little strange, however the airline knows its return per day (can't hurt for forecasting profit in an otherwise volatile market) and the consumer knows what to expect (as opposed to flipping a 20 sided die and hoping that the 1 side that offers reasonable pricing comes up).

Anonymous said...

I have some friends working with a major airline in India who have said that they use only a very small component of the RM (revenue management) software that they have purchased. Any RM being done is most basic and therefore surely a lot of money and hence profits are being left on the table!

Xotels said...

Fascinating post... They surely will be leaving money on the table. But I like the fact that they dare to simplify.

Continueed a discussion in line with this with hoteliers. Are hotel price structure becoming to complex, impossible to manage effectively and efficiently? Should hotel price stuctures be simplified?

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