Forecasting Is A Critical Function Of Revenue Management And Planning For Businesses

1481 Words Oct 6th, 2015 6 Pages
Background
Forecasting is a critical function of revenue management and strategical planning for businesses. With the help of historical information, forecasting allows businesses to anticipate changing market trends, predict product demand and manage the costs of inventory (Lambert, 2011). While forecasting has many applications and is utilized in numerous trades, this research focuses on forecasting within the airline industry. In this context, the emphasis is on forecasting to optimize profit, by anticipating demand and adjusting capacity needs and prices accordingly.
There are many variables that need to be taken into consideration when forecasting in the airline business, such as deciding on the size of the fleet, choosing the location where to fly, weather and security concerns, and many other operational decisions that need to be made on a daily basis. The financial and operational success of the airlines is strictly related to the accuracy of the demand forecast. According to the Journal of Business Forecasting, studies show that airlines realize between 1% and 10 % in additional income as a result of accurate forecasting. Even more, forecasts that have smaller errors result in noticeable increases of revenue. For instance, 10% reduction in forecast errors increased American Airlines revenue by 0.5%, or $80 million (Zaki, 2000).

Problem Statement
The accuracy of forecasting has a great impact on the allocation of seats between flights, the number of aircraft…
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