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Airline Revenue Management and Customer Loyalty Essay

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Updated: Mar 22nd, 2022

Introduction

Airline loyalty programs have become the most important tools for customers’ satisfaction. Frequent flyer program (FFP) is the current strategy being used by airline companies to expand the industry and build consumers’ loyalty. The program has achieved its strategies on loyalty-building and the major focus now is to maximize profit. Airline frequent flier miles nowadays gather much of its earnings from frequent buyers other than frequent fliers (Holloway 2008). This is in regard to credit cards, hotel accommodations, and mortgage as well as real estates agents. The issue of extra earnings has led to the generation of excess airline miles that exceed demand. This strategy reflects both success and failure of the program. In most cases, airlines normally allocate fewer seats per flight to give space for award travel redemption, thus focusing on maximization of revenue.

Frequent flyer program

Frequent flyer program has enjoyed tremendous growth of 13.5 percent each year, which is relatively higher than that of the airline industry, which is 10 percent. The major aim of FFP is to promote loyalty other than focusing on profit only (Doganis, 2001). The program has established alliances with other sectors such as credit cards companies, finance companies, and mortgage lenders to form grocery shops. In this regard, airlines benefit by selling their miles to these mergers at 1-2 cents per mile. This is the reason why most frequent flyer miles are earned outside an airplane.

Airline revenue management’s aim is to discourage sales of vacant seats or redemption of miles strategies; in return, it has given sales revenue the first priority. The airline industry has experienced a large pool of unredeemed miles forcing most airlines to abscond the move (Holloway 2008). Nowadays, airlines allocate less than 6 percent of loyalty redemption seats compared to 9 percent in earlier periods.

Another thing that is of importance in revenue management is class mapping, which comes to effect when a codeshare agreement is reached. Due to low access of class mappings, the airline finds it hard to determine the most appropriate route for the alliance to maximize profit (Doganis 2001). However, the wrong class mapping will limit the success of codeshare, thus minimizing revenue. Optimizing fares can also help airlines to realize adequate revenue with respect to codeshare, hence regulating demand that reflects codeshare bookings, flight firming, and good code share reporting.

Better revenue depends on merging airlines and the overall brand available. In this case, if one carrier has mid-west customers and the other west coast, the combined carriers consequently have advance exposure in the entire country (Holloway 2008). In addition, when carriers obtain customers from diverse locations, more distribution channels are established. This leads to high demand and thus more revenue; it subsequently changes the revenue management image.

Conclusion

When two companies combine, the result will be the improvement of the revenue management department. Different companies may have distinct revenue management styles; however, the challenge arises while determining the best revenue management style to adopt. Though both carriers may have perfect systems, it is important to evaluate both and adopt the most appropriate one. In order to improve the revenue management sector, it is always important to find revenue management metrics that actually reflect its performance with respect to the pricing environment. Nevertheless, airline companies should choose the right supplementary selling model that would maximize total revenue.

References

Doganis, R (2001). The airline business in the twenty-first century. NY: Routledge publishers.

Holloway, S. (2008). Straight and level: practical airline economics. Minneapolis: Ashgate Publishing LLC.

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IvyPanda. (2022, March 22). Airline Revenue Management and Customer Loyalty. https://ivypanda.com/essays/airline-revenue-management-and-customer-loyalty/

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IvyPanda. "Airline Revenue Management and Customer Loyalty." March 22, 2022. https://ivypanda.com/essays/airline-revenue-management-and-customer-loyalty/.

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IvyPanda. 2022. "Airline Revenue Management and Customer Loyalty." March 22, 2022. https://ivypanda.com/essays/airline-revenue-management-and-customer-loyalty/.

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IvyPanda. (2022) 'Airline Revenue Management and Customer Loyalty'. 22 March.

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