Special Issue Papers: Revenue management performance in a low-fare airline environment: Insights from the Passenger Origin—Destination Simulator

Abstract

The growth of low-fare airlines has led researchers and network airlines alike to question the validity of existing pricing and revenue management strategies in the changing competitive environment. Given the less restricted fare structures offered by low-fare new entrant carriers, the revenue benefits of existing revenue management systems are likely to be affected. The Passenger Origin—Destination Simulator (PODS) is used to evaluate the changes in airline revenue management system performance in a hypothetical network served by incumbent network carriers and a low-fare new entrant airline. Simulation results show that, while incumbent network carrier revenues are indisputably reduced by low-fare entry, the incumbents and low-fare new entrant alike realise substantial benefit from the use of revenue management. Furthermore, the incremental revenue gains from the use of network revenue management (relative to leg-based revenue management) are very robust to changes in the competitive environment.