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Operations Management: Session 17: Introduction To Revenue Management and
Operations Management: Session 17: Introduction To Revenue Management and
Increasing Revenue
$
Revenue
Management
Profits
Session 17 Operations Management 4
Revenue Management
capacity forecasting
control
market optimization
segmentation
pricing
overbooking
‘Selling the right seats to the right customers at the right prices and
the right time.’ (American Airlines 1987)
-1,000,000+5*2,000*170=0.7M
New
Traditional -500,000+5*2,000*100=0.5M
red -500,000+5*2,000*100=0.5M
Traditional
orange -500,000+0=-0.5M
Decision
Scenario
w/o dye
delayed
with dye
delayed
approved $50×5-$150
contract now 0.9 =$100 million
not approved
-$150 million
0.1
contract later
0.9× (50×5-P) million
0.9×100-0.1×150=75>0.9× (50×5-P),
83.33 > 250-P
or P>166.67 in order that contracting now is more profitable.
later
Decision trees
How to value the option of delaying decisions to
collect information
Next class, we will study revenue management
tools based on decision trees
Still upcoming … simulation game explanation.
Homework 4 due.
Game report 1 due.