Expanding the revenue management frontier: Optimal air planning in the cruise industry

Abstract

Applications of revenue management usually focus on the sale of products to customers. This paper shows how revenue management can also be applied to a company's purchase of services. We focus on the cruise-line industry, where the purchase of airfare for cruise passengers can exceed 20 per cent of revenues. An outline for an optimal air planning programme is proposed, with emphasis on decision support for routing passengers on flights and negotiating contract fares with the airlines. Benefits of such a programme include improving both customer service and relationships with airlines and reducing airfare expenses by 5–8 per cent.