Flydl2atl From United States of America, joined Aug 2005, 119 posts, RR: 0 Posted (7 years 11 months 5 days 22 hours ago) and read 3535 times:
We always here on a.net someone saying route so and so is doing very well....both the load factor and the yield are very high. I was curious how exactly do airlines determine the yield of a given route given there are so many complex variables.
For example, I just bought a ticket on DL for ATL-SFO for $400. So in this particular case I'm bringing in about 10.7 cents of revenue for each mile flown. And if everything was like this I guess revenue managmenet would be pretty easy. However, if I had chosen to fly DCA-ATL-SFO for $600 I would be bringing in around 9.0 cents of revenue for each mile flown. So how does an airline take these numbers and say whether or not DCA-ATL or ATL-SFO is performing well. How do they determine with connecting traffic how much of the revenue goes for the DCA-ATL segment and how much goes for the ATL-SFO segment.
Commavia From United States of America, joined Apr 2005, 12484 posts, RR: 62
Reply 1, posted (7 years 11 months 5 days 21 hours ago) and read 3512 times:
Quoting Flydl2atl (Thread starter): I was curious how exactly do airlines determine the yield of a given route given there are so many complex variables.
With lots and lots of really smart, really complex computer systems. Airlines have literally invested billions in developing sophisticated algorithms, based on years of historical data that allow them to price specific itineraries -- both nonstop and connections -- at specific levels based on expected demand. This is the "dark art" that has come to be known in the industry as "yield management." It started, at least in its most modern form, with American Airlines' SABRE system in the late 1970s, and today virtually every airline either has their own in-house proprietary system, or an off-the-shelf system from industry-wide vendors like SABRE or Amadeus.
Quoting Flydl2atl (Thread starter): So how does an airline take these numbers and say whether or not DCA-ATL or ATL-SFO is performing well. How do they determine with connecting traffic how much of the revenue goes for the DCA-ATL segment and how much goes for the ATL-SFO segment.
"Profitability" is, at least in most cases, usually more of a gray area than a hard-and-fast black/white thing. Certain routes simply are profitable, and they just are consistently producing positive returns no matter how you cut it (nonstop, connecting, RASM, yield, etc.). That is routes like AA MIA-EZE or JFK-PAP, United ORD-HKG, etc. These flights can be counted on to make money just about every day. But for most routes, "profit" is more "in the eye of the beholder," and can be defined -- as you point out in your post -- in just about any way the airline wants it to. In some cases, airlines set a fairly high threshold for a flight's profitability, and demand that it make money as a stand-alone flight independent of its connections and the revenue contributions it makes to the rest of the network. Many feel AA has for many years taken this approach with new international flights -- if they aren't runaway profitable successes and can't stand up on their own with 6-12 months, they're gone. On the other hand, some airlines take a more macro, "big picture" view, choosing alternatively to define profitability more in terms of the flight's overall financial contribution to the company, and the flight's positive impact on the company's overall network. Delta and Continental have taken this strategy of late by targeting many new, niche markets that previously did not have direct flights to the U.S. and that probably could not sustain frequent nonstop service to the U.S. without connections. But, for these airlines, they have determined that "profitable" may mean a particular flight (or route) losing money but bringing a large volume of new incremental revenue onto the network.