Otto-Friedrich Universität Bamberg
YIELD MANAGEMENT
Seminar Paper
Ismail Akar
Faculty of Economics
1716171
akarsmail@gmail.com
Price Management
Prof. Dr. Björn Sven Ivens
July 30, 2013
Table of Contents
Introduction Yield management is an important form of price variation for revenue maximization, especially in airline and hotel businesses. When 'yield management' is researched, mostly American Airlines is shown up due to the origin of yield management. The starting point for yield management was the deregulation of the US airline industry in the late 1970s. A new airlines company called People's Express entered the market with low ticket prices. Major airlines, such as American and United,
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There are two kinds of capacity: physical and non-physical. The number of seats in a plain, the number of room in a hotel or the number of square meter in a golf area are examples of physical capacity. Non-physical capacity is usually based on time and connected to physical capacities, such as nights-hotel rooms, hours-restaurant table, and time-golf courses. Although capacity in these industries is mostly fixed, and it is difficult or costly to increase in the short term, some firms can change their capacity. For example, airline companies can increase the size of their plains and add more seats, or restaurants can add more tables or use outdoor seating during summer.
2. Predictable Demand2 In order to maximize the revenue, managers of capacity-constrained firms should predict different forms of demand: the customers who make reservations and walk-in customers. It is important to find the most profitable combination of customers. Information on the percentage of reservations and walk-ins, customers' desired time periods and likely service duration are required to forecast and manage this demand. To acquire this information, firm needs some effective reservation systems which are computerized or manual.
3. Perishable Inventory3 One element that has been often
The United States carries over one third of the globe’s total traffic, where Over 1.5 billion passengers fly annually. Over the past 20 years, air travel has grown at an average of about 5% per year, the reason for annual change is usually differences in economic growth, and of course other environmental factors, such as the current war. As a rule, the annual growth in air travel has been about twice the annual growth in GDP. Deregulation, liberalization, and competition have essentially altered the management strategies and practices of airlines. Productivity improvements and cost management have been two of the greatest concerns for US airlines for the past twenty years. As a whole, the airline industry must continue to improve their specialization in terms of fleet utilization, pricing and revenue management, and schedule optimization.
The program of study i chose is Agriscience. Agriscience is the application of science to agriculture. It will involve studying animals and farming techniques. Agriscience relates to small animals and large animals and eventually veterinary science. Eventually if i take my freshman year Agriscience and then the my sophomore year small animal and then junior year large than i will eventually take veterinarian science that will put me on the path to be a veterinarian. Agriscience will also give me the opportunity to work with animals and learn how to take care of them and treat their illness with medical science. Agriscience is designed for you to be able to test and see how you like the veterinarian and animal science. In Agriscience i will learn about many ways to use agriscience. Crop rotation and how to improve crops are some examples of things i
Capacity is the maximum amount capable of producing. Another why to expand the capacity is to consider outsourcing. Outsourcing would come into play when they cannot set up the equipment and they need to produce product to satisfy an order. Some things to consider are the cost of making the product, such as labor, raw materials, and overhead.
The right system would have shown them who all had reservations that night. It would also have shown them who was their regulars, so they could have taken a little more care when handling them. Think of the endless potential opportunities that could come with the right systems. For instance, if they had the data system set up to show them transactional information on every customer it would have been a little less hectic for both parties and a lot more profitable. The “how” factor of having this system in place would have increased their response time in handling their regulars and the newbies. This way it would have establish loyalty and maximize their
Vicky was in jail for a year due to selling drugs to an undercover cop. For nine years, the reporter (maternal grandmother) raised the children. When Vicky got out of prison, the judge ordered the children back to her. She has been out for a year and a half. According to the reporter, Vicky is using crack. It was unknown if she uses it in the presence of the children. Vicky has been gone from the home for five days, leaving the children home alone. She would go to the neighborhood of William and Son, behind the Four Season Produce, which is a drug area. Vicky would also leave the children home alone for week. Ron (older sibling to the victims) took the children food and noticed the power was off. The power was off because of a power shortage
his case article summarizes two case series. Each case series includes three subcases and has an associated teaching note. These six short cases introduce many of the concepts that underlie the practice of airline revenue
Market structure can be defined as patterns of behaviour by enterprises in an effort to adjust to the markets in which they operate (buy or sell). Pricing strategies and collusive behaviour mergers are a few dimensions of market conduct. It is the industry norm for a legacy carrier to offer service to most popular destinations; Delta reducing routes to a similar schedule as the low-cost airlines is not an option in the multi-billion dollar industry. In order to gain market share from low-cost airlines, Delta must create a value proposition that differentiates itself from its competitors. Many customers will pay a premium if the level of service provided is higher than the low-cost, no-frills
At the onset of the airline industry in the United States, major network airlines were the sole providers of air travel. This multifaceted industry was a difficult industry to break into as a consequence of “sophisticated customer segmentation, hub-and spoke models and costly information systems for reservations, fare wars and intense competition” (Thompson 2008). Shrinkage in airline ticket prices augmented the demand for airline travel. Many markets were simply deserted or over-looked by major network airlines; this is a region a fresh “second tier of service providers” could enter into. This endeavor proved to provide a consumer savings of billions per year. Thus in June of 1971, after a tumultuous battle with other Texas-based
Capacity is a factories ability to produce items explained as follows, consider a factory that has a capacity of 10,000 " machine hours" in each 40 hour week. This factory should be capable of producing 10,000 "standard hours of work" during a 40-hour week. The actual volume of product that the factory can produce will depend on:
The airline industry has always been a fiercely competitive sector. Since the invention of low-cost carriers, also known as no-frills or
In April 1992, American Airlines launched "Value Pricing" -- a radical simplification of the complex pricing structure that had evolved over more than a decade following deregulation of the U.S. domestic airline industry. American expected that the new pricing structure would benefit consumers and restore profitability to both American and the industry as a whole. The critical issue raised is: Would American's bold initiative work?
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
The center of the case is to come to a decision as to the 60 additional rooms reservation is to be accepted. How managers are to maximize revenue capacity and predict efficient forecasts to make good decisions when handling reservations in the case of demand increasing forecasting and overbooking decisions if they are detrimental to customer loyalty.
*One method of adjusting the demand is that the airline company can reduce the price or offer promotions during the low peak season to attract
The success of budget airlines forced traditional operators to lower their prices by adapting internet sales and yield management techniques. However they still struggle to compete with low prices offered by the LCCs. Further reductions in traditional airline ticket prices are expected.