Commercial aviation

Introduction turn over management post be described as the collection of processes, techniques officed by air hoses to make its customers pay as a lot as possible for their sit downs, while primary(prenominal)taining load-factor., (Alderighi et al, 2012). Mittal et al (2013) added that it has become near impractical to sustain a commercial enterprise without affective yield management, in particular when capacity is constrained. It was also noted that growthd competition by dint of low-cost carriers has created an environment where yield management must be monitored to ensure carriers apprize compete in effect on price, (Vila, 2011). This assignment go out consider how airlines use yield management as a shaft to meet management strategies, providing samples to support research. The strategies that emerge from this use impart also be considered along with their effectiveness.The briny strategy of the airline is to maximize revenue from its available document of stock (its seating argona). The strategy is to sell the justly seats to the right people, (Kimes, 1989). The airline must find a trade-off between discounting its seat to add-on sales and fill its inventory, while selling full-fare tag ends to generate profits its trading operations, (Vila, 2011). airways Fixed CapacityThe reasoning piece of tail the need for yield management is the rooted(p) capacity faced by airlines. Airplanes have a fixed capacity (seating) and so will attempt to generate the greatest income from the availability. Further much, airlines must also consider that their operations face a high-level of fixed costs in terms of staffing, fuel etc. give this, the airline needs to manage capacity to ensure profitability, (Sheehan, 2013). The equation for yield management could be shown asThe formula above compares the revenue achieved with the maximum potential revenue. For example, take an aircraft with 200 seats, which could each sell for ?100, adding up to maximum p otential revenue of ?20,000. However, the carrier has only sold 150 seats at an mediocre of ?80 (total ?12,000 revenue) per seat given early discounts and last-minute go games. Given this, the equation will be commercialize SegmentationWith the above, airlines have gener on the wholey been successful given their ability to segment the foodstuff with a identification derive of strategies. Firstly, airlines have adapted their strategies to offer a number of ticketing options, all(prenominal)owing them to recount prices, also facen in the hotel sector in terms of room offering, Dunbar (2003). One main factor is flexibility around consumers will prefer the lowest-cost ticket with non-cancellation or change, while some will be willing to pay more for the same seat given the flexibility to cancel/change their involvement. Another example could be the timing of flights some consumers will be willing to pay more for daytime flight than an everyplacenight flight, while again, som e consumers will be willing to pay more for a direct flight than a flight with many changes, (Shaw, 2012).However, airlines are able to use connection flights as a way to restrain inventory by flying consumers to a hub airport, where they can then fill up other flights capacity. For example, take a trip from capital of the United Kingdom Heathrow to Tokyo a consumer could either fly direct with British Airways for around ?900/ return or fly with Emirates, with a connection in their Dubai hub, for around ?650/ return, with Emirates benefitting from filling up inventory on its flights, (Expedia, 2014) Online.Finally, ace the most common forms of segmentation is different classes available on flights. While some of the cheaper airlines only offer standard class to focus on the price-sensitive consumers, study airlines have developed a number of classes to differentiate pricing. For example, a consumer could fly economy, premium economy, extra-legroom, backing-class and first-clas s, which all over a slightly different inspection and repair, allowing the airline to get off a different price as well as appealing to different customers, (Belobaba et al, 2009).InventoryTo airlines, their inventory is their seat capacity, which could be seen as perishable if the plane departs with empty seats, the capacity is lost and no revenue can be derived. Again, this brings into question a trade-off, between selling advanced tickets at a let down price to ensure a desired load-factor, while also saving capacity in the swear that a higher-paying customer will purchase. This brings into question fluctuating demand by time and season. publication worry may be used as a tool to smooth the demand pattern, which may see some airlines fares change by the hour/ day, (Alderighi et al, 2012). For example, an airline may increase its business line class seats during the week, working hours given the main demand for this offering will be business travelers, who would be more lik ely to make the booking during the working week. Furthermore, an airline may also increase its price during breaker point seasons, given the higher underlying demand, leading to increased revenue, which could then be used to support land prices in the low season to entice customers. Airlines will respond to increased demand by upping prices an example could be seen with flights from the UK to Brazil for the upcoming World Cup (Clarke, 2013) Online.According to Lufthansa Systems (2014 1) OnlineTodays airline business is evolving into a two-tier industry global fusions are reaching worldwide coverage and no-frills carriers are gaining market share with a low-cost, point-to-point product. No-Frills airlines increase competition The continued expansion of no-frills airlines coupled with the current-fashioned economic depression has combined to dampen demand for study carriers such as British Airways (BA), KLM on some routes, (Alderighi et al, 2012). This move has been supported by untried, more fuel-efficient aircraft and also festering of infrastructure, which has allowed these low-cost carriers to operate from new hubs, (Weiss, 2014) Online. For example, in London, the majority of major international carriers such as BA, Emirates, Virgin operate predominantly from London Heathrow, however, the development of Stansted airport has nominate greater capacity for Ryanair and EasyJet, at lower costs, while the infrastructure development has allowed the airport to be a viable option for customers throughout London and the southbound, (Neufville, 2008).Closer Integration to moderateIn a offer to counter increased competition and improve capacity efficiency, airlines are go on to integrate and form alliances, (Merkert, 2012). For example, BA recently merged with Spains Iberia, given it greater access to South American routes, (BBC stage business, 2010) Online, while also acquire smaller regional UK carrier BMI, to take control over its Heathrow landing slo ts, (CAPA, 2013). Furthermore, BA is also part of the OneWorld alliance, with other airlines such as American Airlines (AA) among others, (OneWorld, 2014) Online. Apart from OneWorld, Star-Alliance and SkyTeam are the other major alliances.These alliances allow airlines to share capacity, reducing the need for direct competition on a number of routes, which could then lower price. According to IATA (2013), customers immediately demand a from anywhere to anywhere service, which is impossible for one airline to supply efficiently, increasing the need for connection flights and multiple carriers. On their own, few airlines would be able to generate the needed traffic to justify a daily non-stop service furthermore some airlines may be constricted by availability of infrastructure and flight capacity, (CAPA, 2013). For example, take BA, the airline is soon restricted by capacity at Heathrow airport, which may restrict its opportunity to serve each US route however through joining with AA in the alliance, BA could offer services a selected number of major US hubs, where AA could then fly customers onto their final destination, (Wu, 2014). This will also reduce the need for major capital deployment into new aircraft from BA, BA could focus these resources on new routes and emerging markets for example.Research from Brueckner and Spiller (1994), Bailey and Liu (1995) and Brueckner and Whalen (2000) all concluded that consumers put great emphasis on price and network scope. Network scope is more and more relevant for business travelers as globalization opens up new markets and opportunities, increasing the need for services to a wide range of destinations. Network depth, with a choice of convenient timings for travel, is also important for these passengers, (IATA, 2013).However, not all airlines have adopted alliances, instead moving on with major expansion plans, with the main example Emirates. The airline has increased its fleet in a bid to expand routes rapidly however, this has been supported by major capacity at its Dubai hub coupled with a favorable location between the growing African and Asian markets. Furthermore, backing from Dubai, who are pushing to turn the emirate into a major tourism destination are back up major capital outlays on new aircraft, also allowing the carrier to undercut on prices, (Arabian gold, 2013) Online.TechnologyCarriers can also use technology in a bid to aide yield management. For example, carriers can use a Computer Reservation System (CRS) to track purchases of seats in terms of time, price. As more sales move online and onto carrier websites, carriers will find it easier to track demand for their flights. With this information, carrier ay do best times to sell higher-priced tickets or levels at which to discount to attract sufficient demand to fill the plane. Carriers could also utilse information from Global Distribution Systems (GDS) such as Galileo Desktop, which isGalileo Desktop is a sophisticat ed global reservation, business management and productivity system that gives you vast content options, accurate pricing capabilities, and highly capable booking tools. (Travelport, 2014) OnlineThese systems could be used along with information from Passenger Name Records (PNR) to analysis customer behavior and buying habits to ensure greater achieved revenue. For example, a carrier such as Ryanair may use the data to determine its optimal pricing, given the focus on price for low-cost airlines. This may prevent the carrier from over-discounting on tickets, increasing achieved revenue. The more information that a carrier can collect on customer behavior, the greater chance they have of determining a pricing strategy to achieve the greatest revenue, (Wensveen, 2011)Concluding RemarksFrom the treatment above, the issue of yield management has gained greater emphasis as the continued expansion of No-Frills airlines and a more price-sensitive consumer have led to greater need to contro l costs.In a bid to control their revenue, airlines have adopted a number of methods, with market segmentation continuing to be a main point. Airlines have focused on splitting the market, offering new seat/booking options to justify a differing price to add, with the deliveries of the new Airbus A380s, a number of airlines are increasing the top-market offerings such as individual cabins and lay-down beds to increase revenue from the business/first-class segment, allowing them to compete more effectively for the price-sensitive consumer in economy class.Furthermore, airlines are now concentrating on joint ventures and alliances to further increase efficiency and reduce costs in a bid to maintain yields as increased competition put little potential for price increases. The discussion has shown that these ventures provide great potential for airlines when faced with capacity and infrastructure issues.ReferencesAlderighi, M, Nicolini, M and Piga, C (2012) Combined Effects of fill up Factors and Booking Time on Fares Insight from the Yield Management of the Low-Cost Airline, Italy, Italy, Fondazione Eni.Alderighi, M, Cento, A, Nijkamp, P and Rietveld, P (2012)1 opposition in the European aviation market the entry of low-cost airlines, journal of Transport Geography, 24, pp223-233.Arabian Money (2013) Online Seat sale as Emirates expands aggressively for market share, Available at http//www.arabianmoney.net/business-travel/2012/02/08/seat-sale-as-emirates-expands-aggressively-for-market-share/, Accessed 04/03/2014.Bailey and Liu (1995) Airline Consolidation and Consumer Welfare, easterly Economic Journal, 21 (4), pp10-24.BBC Business (2010) Online British Airways and Iberia sign merger agreement, Available at http//news.bbc.co.uk/1/hi/8608667.stm, Accessed 04/03/2014.Belobaba, P, Odoni, A and Barnhart, C (2009) The Global Airline Industry, USA, Wiley.Brueckner and Spiller (1994) Economies of Traffic Density in the Deregulated Airline Industry, Journal of Law and Economics, 379.Brueckner, J and Whalen, W (2000) The Price Effects of International Airline Alliances, The Journal of Law and Economics, 43 (2), pp42-56.CAPA (2013) Heathrow Airports slot machine, UK, CAPA.Clarke, D (2013) Online England fans warned to expect high-prices in Brazil, Available at http//www.direct-travel.co.uk/travel-insurance-news/england-fans-warned-to-expect-high-prices-in-brazil-801650475, Accessed 05/03/2014.Dunbar, I (2004) Market segmentation How to do it, how to profit from it, USA, Elsevier Publications.IATA (2013) The economic benefits generated by alliances and joint ventures, USA, IATA.Kimes, S (1989) Yield Management a tool for capacity-considered service firms, Journal of Operations Management, 8 (4), pp348-363.Lufthansa Systems (2014) Online revenue Management and Pricing, Available at https//www.lhsystems.com/solutions-services/airline-solutions-services/commercial-solutions/revenue-management-pricing.html, Accessed 05/03/2014.Merkert, R and Morrell, P (2012) Mergers and Acquisitions in aviation-management and economic perspectives on the size of airlines, Logistics and Transportation Review, 48 (4), pp853-862.Neufville, R (2008) Low-Cost Airports for Low-Cost Airlines, Transportation be after and Technology, 31 (1), pp35-68.OneWorld (2014) Online Member Airlines, Available at http//www.oneworld.com/member-airlines/overview, Accessed 04/03/2014.Mittal, P, Kumar, R and Suri, P (2013) A Genetic Simulator for Airline Yield Management, International Journal of Engineering Research & Technology, 2 (9).Shaw, S (2012) Airline marketing and management, UK, Ashgate Publishing.Sheehan, J (2013) Business and Corporate Aviation Management Second Edition, USA, McGraw Hill Professional.Travelport (2014) Galileo Desktop, Available at http//www.travelport.com/Products/Galileo-Desktop, Accessed 04/03/2014.Vila, N and Corcoles, M (2011) Yield management and airline strategic groups, Tourism Economics, 17 (2), pp261-278.Voneche, F (2005) Yield Man agement in the Airline Industry, USA, Berkeley.Wensveen, J (2011) Air Transportation A Management Perspective, London, Ashgate Publishing.Weiss, R (2014) Online Lufthansa targets lower costs on new aircrafts fuel use, Available at http//www.bloomberg.com/news/2014-01-10/lufthansa-targets-lower-costs-as-new-aircraft-help-savings-plan.html, Accessed 04/03/2014.Wu, C and Lee, A (2014) The impact of airline alliance terminal co-location on airport operations and terminal development, Journal of Air Transport Management, 36, pp69-77.