Thomas Bertram, Delivery Director - Revenue Management Consulting, Sabre Airline Solutions.

Two weekends ago there were two big swimming events: the FINA World Championships and the somewhat less famous Northern Virginia Swim League All Star meet for kids 18 and under. What do these two very different meets have in common? They both illustrated the proliferation of expensive high-tech swimming suits.

While it shouldn't seem unusual that world-class swimmers in Rome would be garbed in the latest technology to eke out a hundredth of a second, what shocked me was the number of 12 to 15 year olds in Northern Virginia with these very expensive suits. At this age level, these suits are worth about, at best, one-tenth of second. So it got me thinking: what are some parents willing to pay to have their teenager improve one-tenth of a second in time?

These new high tech suits cost over $500, about 5 times the cost of a traditional racing suit. A swimmer can get roughly 8 swims out of the high-tech suit, versus 24 for the traditional suit. Assuming 24 races a year, the parent with the high-tech suit will have paid roughly an additional $58 per race versus the normal suit.

So, the value these parents attribute to their kid swimming one-tenth of a second faster in a race is $58.

So, what does all this have to do with revenue management? In addition to travel, airlines also sell time. Revenue management is practically based on how much a customer is willing to trade time against cost. That was illustrated on my recent family trip to China: by connecting rather than flying non-stop, we added 4 hours to our trip, but collectively saved $1,500. For us, it wasn't worth $375 per hour to fly non-stop.

In revenue management we think of booking classes and fare basis codes, but the above example is how an airline customer thinks when purchasing a ticket. What is the price I'm willing to pay, and how much will I compromise my schedule to get that price. Note that I didn't say "want" to pay; everyone wants to pay the lowest price possible.

Understanding this customer elasticity is important in all markets, but is especially so in markets with restriction-free pricing.

Without fare rules to create customer segments, inventory availability becomes the method of price segmentation. Revenue Management analysts need to study and understand their demand at different price points and days to departure, so they know when is the right time to open or close a booking class at the price a customer is willing to pay.

This is the basic logic for the LFM module in AirMax Revenue Manager.

So, when managing your markets, be sure to understand your customers, and what they are willing to trade-off for a better price. As for my daughter's swim meet, she finished 5th in one of her events using a traditional racing suit; another tenth of a second faster, she would have finished third. Was that worth $58? You can probably guess what customer segment that I'm in.

Yeoh Siew Hoon, one of Asia's most respected travel editors and commentators, writes a regular column on news, trends and issues in the hospitality industry for 4Hoteliers.com.

Siew Hoon, who has covered the tourism industry in Asia/Pacific for the past 20 years, runs SHY Ventures Pte Ltd. Her other writings can be found at www.thetransitcafe.com

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