Case Study Of Yield Management

As the nature of the good is a seat on a plane, clearly capacity constraints are present in the form of the limited seating on aircraft, as well as the inability to in the short run increase output beyond full capacity. During the setting of price, clear communication will most likely result in a non-static equilibrium. As well as this, the symmetry in terms of the market and cost structures has played a part in creating a successful cartel. Each firm produces a relatively homogenous good in terms of economy, business or first class, with a limited amount of features it can differentiate itself from its competitors. As well as this, using Figure 1, which will be discussed later on, demonstrates that the main costs to an airline are those which cannot be easily reduced or offset, most notably the cost of fuel and aircraft maintenance. Therefore both firms have near perfect knowledge of the cost structure and revenue through observing prices, and will aid in choosing a certain pricing strategy.

Southwest Airlines is a company that is known for its low ticket prices and profitability despite the highly risky industry in which it operates. This essay examines the cost behavior, cost volume profit (CVP), activity based costing (ABC), budgeting process, costing and decision making policies of the firm. The essay will discuss how the airline integrates these concepts in its daily operations.

70% of seats are sold at the lowest two fares.30% of seats are charged at higher fares. The last 6% are sold at the highest fare

The airline industry has long attempted to segment the air travel market in order to effectively target its constituents. The classic airline model consists of First Class, Business Class and Economy, and the demographics that make up the classes have both similarities and differences to the other classes. For instance there may be similarities between business class travellers on a particular flight, but they will not all be travelling for the same reason. An almost-universal characteristic of air travel is that customers do not fly for the sake of flying; the destination is the important element and the travel is a by-product, a means-to-an-end that involves the necessity of an aircraft that gets the customer from point A to point B.

Accordingly, the corporation can capitalize either to buy over any of the existing airways or transfer a section of its fleet to the budget jetliners. In this context, the rear one is preferable to distribute the available resources. Ultimately, it must manipulate and screen the execution of the scheme.

A discourse community follows Swales’ six characteristics: members share common goals, has a form of communication, a form of feedback, genres, a specific lexis, and has a level of expertise all within the group (Swales 25). I believe the Future Farmers of America is a great candidate for this topic for that it falls in to the categories listed by Swales. The start of Future Farmers of America came in 1900s in the state of Virginia. Adolescent to teenage males were not interested in farming and did not want to take over the family farms. This led to a homegrown farmer becoming the supervisor of Agriculture Education and set out to fix this problem, Walter Newman. With the help of Edmund C, Magill, Harry W. Sanders and the most influential Henry

147 (1) Assume that BlueSky purchases three identical aircraft. How many coach seats should BlueSky order for the three new aircraft? (2) Now suppose that the three aircraft can be different sizes, between 240 and 380 coach seats. (a) How do you think the three aircraft should be allocated among the six routes? In other words, should the same aircraft always fly the same routes? Why or why not? (Hint: You do not need an optimization model to answer this question). (b) How many coach seats should BlueSky order for each of the three new aircraft? (3) Because it is cheaper to manufacture three identical planes, Airbus is offering BlueSky a one-time, $5 million discount if it will order three identical aircraft. Should BlueSky take the discount? In deciding this, you may assume that BlueSky operates 3 banks per weekday through Houston, and that the revenues and demands for every bank on every weekday are equal to the demands in Tables 1 and 2 of the (A) Case.

The Primary marketing objective is to achieve a 4-7% increase in fares per route flown by the increase of ticketing prices even with fewer seats on the aircraft. Status matching will be offered to competing airline frequent flyers to encourage them to travel more with American than their current choose airline. Airlines represents a $783 billion a year industry (Fact Sheet: Industry Statistics, 2014). Being able to expand the market to the high-end segment would create an attraction to a unique service not offered by other major US airlines. Break even cost would be the first year goal while there would be an increase in cost to retrofit aircraft.

There are constraints on capacity management and these are normally Time and Capacity. Time may be a constraint where a customer has a particular required delivery date. In this situation, capacity managers often "plan backwards". In other words, they allocate the final stage (operation) of the production tasks to the period where delivery is required; the penultimate task one period earlier and so on. This process helps identify whether there is sufficient time to meet the production demands and whether capacity needs to be increased, albeit temporarily.

Over the years, company sustained low operation costs and tickets prices following well-developed strategy. Among other measures, it was able to keep prices low by flying only one airplane type, minimizing service and maintenance expenses, and convincing employees to cut gate turn-around times and make the airline more efficient (Fitzpatrick, 2005).

• Airline’s profitability hinged on the fraction of its flown seats occupied by passengers- load factor

Airlines use a formula of combining their yield and inventory costs to determine ticket prices. While it is imperative to focus on the idea of being profitable, the focus is to maximize the cost of the flight revenue. One huge factor that encourages an increase in the cost of tickets relates to a customer ordering a ticket close to the departing date, define this as a risk factor because they need to make up for all unsold seats. A high percentage of the revenue is dedicated to overhead costs such as fuel and labor. When a ticket price is higher with one airline than the other, the customer interprets this as being an excessive cost. The demand is greatly affected by the external market

We have analyzed the existing booking policy of TransAtlantic Airlines and identified potential cost saving.

Netessine, S., & Shumsky, R. (2002). Introduction to the theory and practice of yield management. INFORMS Transactions on Education, 3(1), 34–39. 
Retrieved from http://archive.ite.journal.informs.org/Vol3No1/NetessineShumsky/

a. Increase the productivity of yield-management specialists and the reduction in work load can allow them to spend more time reviewing only critical flights thus making better revenue decisions.