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Strategy in seat inventory control : an empirical research at KLM on improving initial steering strategies

Lohmann, W.M. (2011) Strategy in seat inventory control : an empirical research at KLM on improving initial steering strategies.

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Abstract:In the airline industry it is long recognized that different passengers are willing to pay different prices for the same seat on a plane. Substantial revenue can be captured by exploiting these differences. Airlines continuously try to serve the passengers willing to pay the highest price and quote them exactly that price: a process called revenue management. Research motivation: At KLM, revenue management controls are calculated by an automated system. The heuristics used by the system rely on the assumption that demand is segmented, i.e., that KLM is able to force passengers to buy at the maximum price they are willing to pay. However, as this assumption has become increasingly invalid – passengers search for the cheapest ticket available – the system results (called steering controls) are not optimal. Analysts therefore adjust the steering strategy manually. Currently, no structured process exists to help analysts choose the best suited steering strategy in each situation. Specifically, to help analysts set the initial steering strategy six months before departure. Research goal: This research aims to gain insight in the performance of different strategies, ultimately helping analysts to make informed decisions. The difference between strategies reviewed constitutes only their initial aggressiveness: the degree to which cheap tickets are made unavailable early in the booking window to force passengers to buy expensive tickets and ensure enough seats remain for high-yielding passengers who book close to departure.
Item Type:Essay (Master)
KLM, Amsterdam, the Netherlands
Faculty:BMS: Behavioural, Management and Social Sciences
Subject:85 business administration, organizational science
Programme:Industrial Engineering and Management MSc (60029)
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