The evolution of airline distribution channels and their effects on revenue management performance

Abstract

Over the past ten years, the development of more advanced computer systems and the growth in the use of the Internet have led to numerous changes in airline ticket distribution strategies. For example, the use of websites for booking and ticketing air travel continues to increase, and the Internet is often cited as the preferred model for a low-cost distribution channel. At the same time, Network Revenue Management methods are now viewed as a key tool for airlines to maximize revenue in an increasingly competitive marketplace. These new systems and tools have helped the airlines achieve record profits in the strong economy of the late 1990s, but these profits may have masked hidden costs of using the new technology. Examples of hidden costs include the added computational burden of increased search engine requests to the computer reservations system as well as the increased opportunity for automated systems to bypass the booking limits set by the revenue management system. Such costs have yet to be examined and quantified in an academic research effort. The purpose of this thesis research is to understand a variety of issues related to how the technologies of more advanced distribution channels and more sophisticated revenue management systems interact with each other and impact air travel providers.

(cont.) First, an empirical analysis of ticketing data is used to demonstrate that there are significant differences in ticket purchasing behavior among customers who use different distribution channels. Second, a review of previous experiments showing the negative revenue impacts of Inventory Control Bypass are presented, together with a discussion of some of the more promising solutions to Bypass. Next, these prior results are compared to a new set of experiments covering both path-based and leg-based Caching techniques. The new experiments show that the negative revenue impacts of Caching are at least as serious as those of Bypass, and may be more serious, depending on an airline's choice of how to interface with distributors who cache.