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REVENUE MANAGEMENT: Flying the Friendly Skies for Tips BY AASHISH DALAL


Good business practice by the airlines?You bet. Over the past 25 years, airlines have perfected the art of


R


charging different passengers different prices for a seat on their planes. It’s a strategy called revenue management (RM), also known as yieldmanagement or price optimization.As defined by Wikipedia: “Revenue management is the process of understand- ing, anticipating and influencing consumer behavior in order to maximize revenue or profits from a fixed, perishable resource.” There are three essential conditions forRMto be applicable: 1. There is a fixed amount of resources available for sale


(i.e., there are only 100 seats on the plane). 2. The resources to sell are perishable (i.e., once the plane


takes off, any unsold seats are lost revenue opportunities). 3. Customers are willing to pay a different price for using


the same resources (i.e., the person sitting next to you on your flight paid half of what you did). Today, businesses such as hotels, car rental agencies, restaurants and more have followed the airlines’ lead, using the


EMEMBER THAT TIME YOU thought you got a good deal on an air- line ticket, only to find out that the guy sitting next to you bought his for half the price? Maddening? Sure.


RM strategy to maximize revenues. One notable industry omission – parking. In speaking with parking operators about RM, conditions 1


and 2make sense. However, condition 3 iswhere they are skepti- cal. In fact, a large number of parking operators fix their rates simply based on their expenses and the expected profit that they would like to generate, with no reference to the market condi- tions whatsoever.That is a bigmistake. Imagine for a moment that you operate a 100-space parking


lot near Cowboys Stadium, home of the Dallas Cowboys, in Arlington, TX. Let’s say you charged $20 per space and sold out your lot the first game, resulting in $2,000 of revenue. Given how fast your lot sold, you wonder if there’s an opportunity to gener- ate additional revenue the next game. Essentially, you have three options: 1. Increase your per-space price from $20 to $30. 2. Make no change. 3. Call your loyal customers two days before the game and


offer them a Reserved space for an additional $10. So which is best? If you chose option 3, kudos! As you may have deduced, option 1 is risky business. There


is no guarantee you will be able to sell more than two-thirds of your lot at $30 a space. Anything less than that and you will be making less money than the week before. Option 2 is the status quo and does not improve your ability to generatemore revenue.


52 NOVEMBER 2010 • PARKING TODAY • www.parkingtoday.com


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