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Willingness to pay - define, represents what?

- Basically how bad an individual wants something

(NDC)

New Distribution Capability

(GDS)

Global Distribution System

Diversion & Revenue Dilution - what occurs?

- Airlines want to control the offering of the discounted fare products - Worried about Diversion - how many of the "high paying" passengers will move to take advantage of lower fares - Which leads to Revenue Dilution - losing revenue as the passenger who may be willing to pay more is able to take advantage of the situation to acquire a lower fare

FSNC - if "true" first Long Haul standards

- At Front of plane if keeping a "true" First Class upgrading for the high value traveler - Long haul service with suites & seat beds that need up to 90 inches of space

Why LCC uses a GDS?

- GDS usage & airline business strategy? some LCC & ULCCs using a GDS to get higher fare business fliers who must book through TMCs or corporate systems who use a GDS (Exs: Ryanair, EasyJet & JetBlue)

Densification Long Haul - how done; examples

- In Long Haul / Dual Aisle planes by adding extra seat to row in economy; smaller width seat - 787: early models 8 seats in economy; airlines shrunk seats and aisle for 9 across - 777 for years at 9 across EX: Singapore - 777 - Now 10 Across: UA - 777 / Emirates - 777 - Many airlines now 10 across in 777 - Airbus 330: AA at 8 across; Air Asia X at 9 - Airbus trying to save A380 demonstrated an economy section of 11 across

OTA

Online Travel Agency

Agency channel - past % of tickets sold?

â Agency Relationship - an indirect channel â Past: travel agency system responsible for 90% of all tickets (early 1990s) â NOW - Direct selling efforts lowering this %, with many ULCC's using only direct channels

Prices - when tough to raise / when can raise

è Tougher to raise prices in competitive markets with multiple carriers, especially LCC & ULCCs è Large hubs with limited competition give airline market power to raise prices

Current state of Rev Mngt Systems?

ï NOW - network carriers use O&D RM systems; maximizing revenue over the hub & spoke system.

Differential pricing - what selling?

- Not selling a seat, but a service - Recognizes that passengers may be paying different fares for different service options o Options such as time of day, flexibility of service arrangements, seat availability

Pandemic effects on RM? Why?

- Pandemic has wrecked RM systems as no historical precedent for current situation. Mostly leisure travel, very few business travelers, people booking at the last minute

Ancillary Revenue defined and ID the 5 types

- Revenue beyond the sale of tickets that is generated by direct sales to passengers, or indirectly as a part of the travel experience. -A la Carte Features - commission -based products -frequent flier program -Advertising sold by the airline Fare or product bundle

Key Aspects of the "Premium" cabin layout

- now a 4 class cabin: Int'l Premium Economy (PE) with wider seats; more leg room and some seat recline

(APIs)

Application Program Interfaces

(CRS)

Computer Reservation System

Int'l Carriers - how PE is different than US domestic?

PE - a 4 class cabin - with wider seats; more leg room and some seat recline US DOMESTIC - seat a bit wider - 8 across, not 9

PNR - is? Represents what

PNR's > Passenger Name Records become major income stream for the GDS

(TMC)

Travel Management Company

Densification Single aisle plane - how done? (4 steps)

Use of 'Slimline Seats' or 'Skinny Seats' from a variety of manufacturer's EX: Recaro & Mirus lower seat pitch once new seats in plane remove first class seats that usually did not sell; were filled with upgrades Gallery (removed or shrunk) & Lavatory moved and shrunk

Why uniform wrong? What would happen?

Why? Passengers do not all have the same need, even though they sit in the same class ◦ Many business passengers need much more flexibility than the leisure passenger - Without different fare products, attracting the leisure passenger, service would go down and prices would go up - Airlines need the marginal revenue from discounted fares leisure passengers provide

2 pricing tactics now allowed by NDC - define

] In US & EU - Government mandated fees & taxes that must be paid have to be included in the prices shown online and in ads ] EX: security costs, taxes, airport fees, airline tariffs, surcharges that increase price; sometimes up to 25%

When price in US deregulated? Brought about?

] Today deregulation in U.S. domestic market, along with the EU liberalization, allows pricing freedom ] With freedom came the growth in Low Cost Carriers and later "Unbundling"

What airlines want from channels?

revenue

GDS Booking fees - are? Charged how?

v Airline owners allowed to charge a "Booking Fee" for reservations to other airlines v How GDS charged changes from Net Bookings to "transactions" allowing booking & cancellation fees charged v Per Flight Segment Booked v Booking fees paid by airline

Rev Mngt Systems based on? Balances between?

v Rms are Sophisticated IT systems for managing the sales of seats & cargo space v Key - historical booking patterns known, adjustments are made based on current booking levels & market conditions

Why some argue for a Uniform Pricing policy?

v TO passengers, argument is one of "fairness" v See seats as a commodity, no difference in the seat, so all seats should be priced the same in the same cabin. A one price policy for the same cabin. v Business Passenger View - airline high fares is price discrimination against business passengers

Channels - Direct vs. Indirect - difference

} Direct Channels: the producer markets the product to final consumers without the help of an intermediary v Airlines in the past: Call Centers, at Airport & Ticket Shops } Indirect Channels: have intermediaries, general forms are Wholesalers / Distributors & Retailers (Travel Agents)

Distribution today - what airlines want / why?

¥ Airlines want customers to go direct to Web site or even better > Use the App! ¥ Why? Costs savings; Get customer data and sell ancillaries

Synonyms for what creates / makes a fare product

¥ Multiple booking classes across the airplane, in the same section, especially in economy, and consumers do not understand the varying price points for the "same" seats ¥ Allows for multiple fare products with varying restrictions, conditions or terms of sale

Premium Economy - why created?

¯ The premium economy was created to: due to After Great Recession in late 2000's many firms in US and EU not willing to pay for 1st class domestic / short haul (5 hours or under) flying

Typical class layout for US FSNC single aisle plane

¯ With other trends occurring now a 3 class airplane for FSNCs single aisle US domestic & short haul service. Typical layout: Domestic 1st / PE / Econ ¯ US - Domestic PE on single aisle planes mostly extra leg room and some service benefits; seat still the same width as economy seats (see maps)

Relationship to fences/fare products/price differentiation Most common restriction today

¹ Advanced Purchase - must book and pay within a defined minimum period in advance; most common restriction today ¹ Common forms: 7, 14 or 21 day requirement

"fences" are / synonyms

¹ as called in the RM literature ¹ synonyms: Restrictions, Conditions, Terms of Sale

LCC & ULCC - typical # of classes & seat pitch

Ø LCC mostly have 1 class of service to carry as many seats as possible Ø Absolute minimum: some Ultra LCC's at 28 inches to 29 inch Seat Pitch

GDS Cost Issues - who pays?

à Booking fees paid by airline à Agents using system, & getting generous rewards, driving up airlines costs à Created a market share battle paid for by the airlines subsidizing the GDS development ¤ Agents with no costs, taking actions and making reservations to drive "transactions" that cost the airline