How Will Continental and United Merge Their OR Methodologies?

A recent article in the USA Today Travel section highlights an aspect of the Continental Airlines/United Airlines merger that hasn’t received much press yet: How will the third and fourth largest carriers merge their OR and revenue management practices? In a press release,  United announced several new routes for 2011 as part of its effort to “optimize the combined route networks” of the two airlines. But the two airlines can’t truly optimize their new combined network unless their revenue management methodologies are incorporated into a single optimization strategy.

Continental may be leading the way in this aspect of the merger. Continental CEO Jeff Smisek, who will serve as President and CEO of the merged airline, presented some initial Continental optimization analysis at a federal hearing on whether the merger would increase fare prices. Continental executives also seem to be taking charge of the new airline’s revenue management departments with Continental executives (Leon Kinloch and Greg Hart) chosen as SVP of pricing/ revenue management and network planning/ scheduling for the new airline. Choosing executives for these two positions from the same airline could allow the new airline to focus on implementing Continental’s current revenue management strategy, which may be faster and more effective than trying to combine two disparate strategies.

Rather than combining their revenue management methodologies or choosing one over the other, Customer Strategist Dietrich Chen suggests that the merger is the perfect time for the new airline to rethink the industry’s revenue management philosophy by including flier loyalty in revenue management decisions. The current industry practice is to price seats based on current and expected demand. But the algorithms generally fail to consider the loss in future business if a loyal customer is priced out of a seat for the benefit of a less loyal customer at a later time.

As Continental and United more forward with their merger, they must consider whether the best approach for creating a global optimization strategy for their new network is merging two separate revenue management and optimization policies or choosing the existing policy that best fits the new airline. They should also consider whether it is enough to successfully combine their existing practices or whether they should really be creating a new methodology that could shape the airline industry’s revenue management future.

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2 Responses to How Will Continental and United Merge Their OR Methodologies?

  1. Barry Render says:

    Another very interesting application of revenue management that I came across recently is major league baseball. It turns out that some teams are now pricing tickets based on demand. I blogged about it at my daily OM site for profs. Its Then click on Ch.15.

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