Introduction
The intention of this essay is to critically evaluate yield management in application to the commercial aviation sector. Thorough studies and countless definitions of the term yield management will be included in order to deliver on how major airlines utilises this concept as management tool to maximise sales and gain competitive advantage from their competitors.
An introduction of the concept first took place in 1985 when the American airlines commenced facing competition from the low cost airline Peopleexpress,which led the airline to “develop a revenue management program…a key element of this program was yield management” (Hayes and Miller, 2011). This was to help American airlines gain competitive advantage from the low cost carrier.
There are various definitions of yield management applied in academic research for countless different service industries, several studies and reports on business and economics illustrates that yield management is a constituent part of the Revenue management programme.
Huefner (2011) suggest that revenue management encompasses differential pricing and other techniques to influence customer demand for an organisation’s products and services.
The purpose of yield management is as described by Wang and Bowie (2007) “to maximize revenue through the effective management of three main areas: pricing strategy, inventory control and control of availability. Where as (Wall and Griffiths, 2005) Describes more in detail that yield management is “the bringing together of information systems technology market analysis, organisational design, business experience and sector knowledge into an integrated revenue generating strategy”. With countless of definitions of yield management, it is worth no...
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...ales volume.
Reservation negotiation: within other airline firms, better yield can be achieved with the management of prices as well as availability through “upselling of specific areas to higher more expensive products or cross selling to alternative products” (Ingold and Mamahon-Beattie et al (2000). The fact that easyjet operates a single class product, they are restricted. Because the pricing is fixed regardless of the sort or segment of customer.
In the end the use of yield management system proved to have enabled easyjet to operate its low price policy successfully from its conception. In order to allow the yield system to be successfully developed, developing a good forecasting plan and history are highly needed.
Those are the examples of how airlines (easyjet) imply yield management tools in their firms in order to gain advantage or simply increase revenues.
The new trend in airline industry to use fuel efficient, high -tech aircraft is of a major concern for Air Canada. It has been under immense pressure to replace its fleet aircraft with more efficient Boeing 777 aircraft. However, the airline has purchased some Boeing777 aircraft, but these new purchases are used only for more profitable international routes depriving Air Canada’s domestic consumers of the facility. Furthermore, the varied fuel price has affected pricing policy significantly as its promotional policies are more price point based as compare to consumer based.
[6] Colin Drury, Management and Costing Accounting, (7th edition), Chapter 8, Cost-volume-profit analysis, p. 165-173
The basic marketing strategy of Song Airlines was to reduce cost and increase volume through operational efficiencies and hence increase profits.
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. Because the reasons can differ greatly in the motivations for a customer wanting to fly, it can be difficult to divide the market into discrete segments, that is, there is always going to be overlap in the preferences and characteristics of any given segment. With that in mind, the commonalities that are shared between the clientele that make up the respective classes can easily withstand analysis.
...leader. Certainly, it has to take into account the implications of completion from both the direct and the indirect competitors. That is why EasyJet centers on the cost management strategy and the differentiation strategy (Hanlon, 2007). Through an analysis of EasyJet Airplane company strategies and performance, it is clear that they are ambitious and strive for the best. They not only survive in an industry that is intensely competitive, as shown through the analysis by Porter's Five Forces, but also succeed in terms of offering their customers the best that they have to offer in terms of value for money. The advantage this airline gains over its oligopolistic competitors stems from flexible ticketing and complete access to all primary routes. However, in keeping airline industry, there is room for improvement and growth as the analysis using Ansoff Matrix reveals.
Kathleen Hanser, `The Secret Behind High Profits at Low-fare Airlines'. http://www.boeing.com/commercial/news/feature/profit.html [accessed 15 May 2003]
Airline and travel industry profitability has been strapped by a series of events starting with a recession in business travel after the dotcom bust, followed by 9/11, the SARS epidemic, the Iraq wars, rising aviation turbine fuel prices, and the challenge from low-cost carriers. (Narayan Pandit, 2005) The fallout from rising fuel prices has been so extreme that any efficiency gains that airlines attempted to make could not make up for structural problems where labor costs remained high and low cost competition had continued to drive down yields or average fares at leading hub airports. In the last decade, US airlines alone had a yearly average of net losses of $9.1 billion (Coombs, 2011).
In order for companies to maximize profits and productivity, it is important that they implement managerial economics on both a day-to-day and strategic basis. This paper will compare and contrast Southwest and Continental Airlines from a managerial economic perspective. The goal of the paper is to critically analyze both companies on their use of managerial economic practices.
The 'Secondary' of the 'Secondary'. Growth of discounting in the airline industry: Theory, practice, and problems. Order No. 9978379, Georgia Institute of Technology. ProQuest Dissertations and Theses,, 330-330 p. Retrieved from http://search.proquest.com/docview/304592352?accountid=8364. 304592352.
Air India has gone through this process very strongly and it is very committed with society and on every big event, they are providing the reduce price to keep the customers with the company. On the other hand, this airline is providing the huge income to the economy as the tax for which got has recently accounted to provide the less tax on buying new fleets. Company varies with the suppliers as the supply of fleets is not often therefore company focuses on the different suppliers which provide them the best price.
If the company follow this recommendations, it will obtain a profit of $ 531,000 that represents $180,000 more than with seasonal production
When a business aims to be as successful as possible in selling its products and services, it must examine in detail whether or not the products will be attractive and necessary; if the price is optimal; if the product is being distributed in the best locations; and finally, how interest and awareness can be created for the products. In order for a business to target all of these elements to the right people at the right time, it must employ the right type of marketing mix: Product, Price, Place and Promotion. In a dysfunctional time for the airline industry, most airlines, especially major carriers, are adapting the concept of "doing less with more." One low-cost carrier, JetBlue, is changing the domestic aviation landscape in this regard and is defying the odds. Here is a company that has examined each marketing mix elements carefully, has adapted them to its customer’s needs, and is succeeding because of this approach.
Porter stated; “for an airline to succeed in the marketplace, it must have a sustainable competitive advantage” (Porter M. E., 2008). The airline industry is the highest competitive industry, and I believe a sustainable completive advantage is essential to succeed in the future of the aviation industry. The competitive advantages that an airline embrace, needs to be based on the airlines strategy and differentiation to competitors. Emirates displays how it has a strategy and how the airline gets ahead of its competitors through how unique it is.
This concept was challenged by Southwest Airlines by marketing itself as a cost leader. Their entire growth curve in the industry has been attributed to its cost effective strategies which has made it more efficient and successful than traditional airlines.