It’s a new world out there in the airline industry. Inexpensive point to point flights offered with few or no purchase restrictions have become the norm in many airline markets. It seems that every week sees the launch of a new low-cost carrier or the lament of a traditional carrier that the low-cost carriers are ruining their financial performance.

Air travel consumers are growing more sophisticated and more informed in their direct buying behavior. Price is becoming all important as a differentiating factor, and the low-cost carriers are poised to capitalize on this in a major way.

Gone are the old standard seven day or Saturday night stays, advance purchase restrictions, round trip requirements, non-combinable fares. It seems that the only purchase rule left is whether or not a seat still happens to be available at that price level.

Revenue Management is even more critical… but traditional approaches won’t work

Traditional marketing approaches may have worked reasonably well with the old rules and a reasonable control capability in the CRS. But automation and mathematical analysis are more important than ever.

Traditional Revenue Management optimization mathematics assume that there are distinct market segments attracted to differently structured travel products and that the members of these market segments can be prevented from “buying down” to cheaper products through the use of “fences” or fare rules and restrictions based on market segment characteristics. In this environment, all fare levels could theoretically be open at any given time without diluting revenue through unwanted sales of discount seats.

In the new low-cost, no rules environment, however, you cannot keep a low fare open any longer than necessary to sell exactly the number of seats you want. You must decide just when it is appropriate to close that discount fare in time to avoid dilution of higher-yield bookings, but not so soon as to spill low-yield traffic. Fare rules and CRS controls will not help like they did before.