An Empirical Study of Revenue Management Practices in the Airline Industry

Revenue management has been successfully implemented in the airline industry since the deregulation in 1978. There have been very few comprehensive, rigorous studies of its practices and impact, however. In this paper we examine how revenue management practices affect airline performances such as loadfactor and revenue, and how revenue management practices are implemented in different market structures. Specifically, we use data from the Bureau of Transportation Statistics to empirically examine the pattern of price dispersion in the U.S. airline industry. We also study how operational factors such as capacity, code-share and presence of the hub affect airline pricing, load factor, and revenue. Our results show that these operational factors have significant impacts on price dispersion, load factor and revenue. We use two commonly-used analytical revenue management models to gather insights, and find their predictions largely agree with our empirical findings.

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