1
00:00:09,500 --> 00:00:11,350
The overall revenue
management problem

2
00:00:11,350 --> 00:00:14,550
involves a network of airports
and literally thousands

3
00:00:14,550 --> 00:00:15,750
of flights.

4
00:00:15,750 --> 00:00:17,550
Clearly optimization is needed.

5
00:00:17,550 --> 00:00:20,530
Myopic solutions leave
significant revenue

6
00:00:20,530 --> 00:00:21,160
on the table.

7
00:00:25,160 --> 00:00:28,480
Furthermore, revenue
management involves

8
00:00:28,480 --> 00:00:31,990
tens of different classes that
have different restrictions,

9
00:00:31,990 --> 00:00:35,080
different characteristics
like mile awards, and fares.

10
00:00:39,800 --> 00:00:43,790
PEOPLExpress could not compete
with American Airlines'

11
00:00:43,790 --> 00:00:46,280
Ultimate Super Saver fares.

12
00:00:46,280 --> 00:00:49,630
Donald Burr, CEO of
PEOPLExpress in 1985,

13
00:00:49,630 --> 00:00:52,700
notes, "We were a vibrant,
profitable company

14
00:00:52,700 --> 00:00:57,620
from 1981 to 1985, and
then we tipped right over

15
00:00:57,620 --> 00:01:00,370
into losing $50 million a month.

16
00:01:00,370 --> 00:01:01,910
We had been profitable
from the day

17
00:01:01,910 --> 00:01:06,360
we started until American
came at us with Ultimate Super

18
00:01:06,360 --> 00:01:08,780
Savers."

19
00:01:08,780 --> 00:01:10,760
Revenue management
is the science

20
00:01:10,760 --> 00:01:13,950
of selling the right seats
to the right customers

21
00:01:13,950 --> 00:01:15,850
at the right prices.

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00:01:15,850 --> 00:01:18,970
To illustrate the impact
that revenue management has

23
00:01:18,970 --> 00:01:22,500
had on American
Airlines, we note

24
00:01:22,500 --> 00:01:25,780
what Robert Crandall,
CEO of American,

25
00:01:25,780 --> 00:01:30,910
wrote during the period
that revenue management

26
00:01:30,910 --> 00:01:32,740
practices were applied.

27
00:01:32,740 --> 00:01:35,229
"Revenue management is
the single most important

28
00:01:35,229 --> 00:01:38,000
technical development in
transportation management

29
00:01:38,000 --> 00:01:41,360
since we entered the era
of airline deregulation.

30
00:01:41,360 --> 00:01:43,550
We estimate that
revenue management

31
00:01:43,550 --> 00:01:47,729
has generated $1.4 billion
in incremental revenue

32
00:01:47,729 --> 00:01:52,050
in the last three years."

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00:01:52,050 --> 00:01:55,120
Let us see the impact of
revenue management more broadly.

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00:01:55,120 --> 00:02:01,250
Today, American Airlines
has emerged from bankruptcy

35
00:02:01,250 --> 00:02:04,370
by merging with US Air Airlines.

36
00:02:04,370 --> 00:02:06,240
However, American
Airlines has spun

37
00:02:06,240 --> 00:02:08,889
off Sabre Holdings,
the entity that

38
00:02:08,889 --> 00:02:12,100
built revenue
management for American.

39
00:02:12,100 --> 00:02:18,000
As of November 2012,
Sabre ranked 133rd

40
00:02:18,000 --> 00:02:23,430
among America's largest private
companies with $3.15 billion

41
00:02:23,430 --> 00:02:29,390
in sales, 400 airlines, 90,000
hotels, and 30 car rental

42
00:02:29,390 --> 00:02:31,560
companies as clients.

43
00:02:31,560 --> 00:02:35,560
Today, companies prosper
from revenue management.

44
00:02:35,560 --> 00:02:38,920
Delta Airlines, for example,
increased annual revenue

45
00:02:38,920 --> 00:02:40,550
by $300 million.

46
00:02:40,550 --> 00:02:44,460
Marriott hotels increased
annual revenue by $100 million.