Book Review
The Future of Pricing: How Airline Ticket management (filling seats) to revenue manage-
Pricing Has Inspired a Revolution, by E. An-
drew Boyd. Palgrave MacMillan, New York,
New York. 2007. Pp. 192.
ISBN-13: 978-0-230-60019-5; ISBN-10: 0-
230-60019-0. $45.00.
Written,by a leading authority on pricing,
The Future of Pricing presents a view of airline
pricing practices from the inside. The author's
stated goal is to teach using interviews, exam-
ples, history, and personal experience. This ap-
proach helps make his book readable and Boyd
does accomplish his goal of teaching the basics
of the science of pricing to the average reader.
The stories used as examples range from Socra-
tes to Las Vegas casinos. While interesting,
these anecdotes often do not seem relevant to
the subject matter.
After providing background about airline
pricing in Chapter 1, the author clearly explains
yield management and introduces the concept
of perishability of airline seats in Chapter 2.
This is followed by clear descriptions of the
long haul, hub-and-spoke systems of the legacy
carriers and the shorter haul, point-to-point op-
erations of the low-cost carriers.
Chapter 3 is one of the most interesting and
informative in the book. It examines the evolu-
tion of airline reservations systems from man-
ual booking to card and chalkboard systems,
followed by mechanical systems and present-
day computerization. As reservations systems
evolved, airlines learned to use them as a com-
petitive advantage. Travel agents and airlines
also began the practice of co-hosting, or shared
displays on reservations systems. Anecdotes in
this chapter show how management practices
and airline inefficiencies have often led to dilu-
tion of revenue. This created the need, after
deregulation, for passive reservations booking
groups to morph into sales teams.
Chapters 4 and 5 are dense and mathematical
but do illustrate the big challenges faced by
airlines. The main points are that it is difficult
to convert reservations systems from inventory
ment (maximizing yield). This is further com-
plicated by uncertainty of demand and high
costs of airline infrastructure. Some examples
of pricing terminology in this section include
nested fares, pseudo fares, and fare class
buckets.
Chapter 6 continues the discussion of de-
mand forecasting by using lengthy examples
of card-playing strategies. The author is enthu-
siastic about poker and blackjack but the con-
nection to scientific pricing is not made clear.
The chapter describes four forecasting con-
cepts: Unconstraining, Buy-down, Competi-
tive Price Data, and Consumer Choice.
The applications of revenue management in
the hotel, car rental, and cruise ship industries
are explored in Chapter 7. The examples used
here do reflect the travel experiences of the
average reader, making this chapter especially
effective in communicating the effect of scien-
tific pricing on revenue management. The busi-
ness problems of these travel companies are
similar to those of airlines. All face the pres-
sures of perishable inventory. Competition for
market share demands that revenue manage-
ment not necessarily result in price increases.
In Chapter 8, the author invokes Aristotle
and Socrates to introduce the concept of "just
pricing." Oil company profits, along with rap-
idly changing fuel prices, are widely seen as
unjust. Airline fares are associated with miles
flown by the average consumer. Actual costs,
however, are the result of both high fixed costs
and uncertainty of demand. This makes it diffi-
cult to establish what a fair and reasonable price
should be for any particular flight. Accounting-
based pricing attempts to recover costs plus
some profit, while science-based pricing
charges according to demand and willingness
to pay. A big issue for companies using sci-
ence-based pricing is that they run the risk of
offending the sense of justice of their custom-
ers. Frequently changing prices takes away our
idea of a just or reasonable fare.
Chapter 9 consists of a rather uninteresting
story about some of the major players in the
2008 BOOK REVIEW
world of scientific pricing. Boyd emphasizes
that the point of operations research in business
is to increase profits. This may be anathema
to those ' 'pure'' scientists who wish to do re-
search for its own sake. This view, according
to Boyd, hinders the growth of scientific pric-
ing due to the researchers' unwillingness or
inability to communicate the science in busi-
ness terms. Chapter 10 provides examples of
pricing done "by the seat of the pants" in
some industries.
Chapter 11 is intended to illustrate how pric-
ing is slowly evolving through the use of sci-
ence. It includes a lengthy anecdote about con-
tract pricing in health care and is supported by
55
graphs. This chapter is confusing and difficult
to connect to the topic of airline pricing. The
book concludes with Chapter 12, making a
strong case for customer-centric pricing as the
way of the future.
This book, while not recommended to the
average reader or airline passenger, will cer-
tainly be of value to pricing professionals in
airlines and other industries.
Mitch Kostoulakos, CTL
Adjunct Instructor - Supply Chain
Northem Essex Community College
Haverhill, Maryland 01835