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1
Revenue Management System
In
Airline Industry
Submitted By:
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Phone No : xxxxxxxxxx
2
Revenue Management System
In
Airline Industry
2. Introduction to topic .
4. Research Methodology.
5. Literature review.
6. Limitations
7. Bibliography.
3
Revenue Management System
In
Airline Industry
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2. INTRODUCTION
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Fig 1 Process of RM
In other words, to constantly analyse and forecast the remaining demand for a certain
future product or event and subsequently adjusting the pricing levels in order to sell the
right product at the right price to the right customer at the right time to maximize
profitability.
It is important to note that Revenue Management addresses the revenue side of the
equitation, not the cost side. There exists an inverse proportionality between Load Factor
(Units Sold) and Average Yield (Unit Revenue) and Revenue Management will thus find
the optimum balance between these factors in order to maximise Revenue or Income.
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3 .OBJECTIVE OF THE STUDY:-
Set up and manage an allocation strategy using the revenue management system
tools in a systematic and efficient manner
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4. RESEARCH METHODOLOGY
Research Methodology
This research is Analytical with qualitative approach. In Analytical research, the
researcher has to use facts or information already available, and analyze these to make a
critical evaluation of the material. So, here in this project I have collected data, mainly
from the secondary sources. In primary source, I have talked to one Revenue
Management expert, Mr. Suresh Menon, Official of Revenue Management Training
group, in Jet Airways. Based on the information from Mr. Suresh and various secondary
sources, I go through the revenue management scenario worldwide and able to analyze its
current and futuristic trends. Also find new Revenue Management Strategies and
challenges and to some extent try to predict future of the Revenue Management based on
the industry experts views. the basis of data collected from the primary and secondary
Sources the Key Areas of Revenue Management are
2) PricingPricing has been around as long as people have traded. Pricing of product or
services represents the knowledge and understanding of their product and ultimately
determines the growth prospectus of the organization. If product and /or service is not
exclusive or not providing the desired satisfaction to the customer or unable to give
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value for money, will not succeed. On the other hand if product and/or service has
high level of customer satisfaction and high manufacturing /operating costs it will
lead to increase in the time period of reaching its break even point and loss of
revenue. Thus price is to be determined in such a way that firm can reap the profit of
increase in demand and let customers to take the advantage of availability of product
and/or service
3)Seat Inventory Control Inventory control system basically means the procedure by
which the product or the finished commodity is being controlled in the market. The
system depends upon the commodity that is being offered by the producer, if the
commodity is perishable the inventory system is different from that of for durable goods.
But when we talk about service industry we don’t think of a commodity rather we think
of a service, for e.g. like in Aviation industry. They don’t offer a tangible commodity
rather they offer a product which can be experience but can't be touched or felt. As we
talk about FMCG market we get a tangible commodity in hand but when we compare it
with Aviation sector we get an intangible commodity in terms of experience.
4)Overbooking The travel industries in particular are plagued by the problem of “no-
shows” – people who book inventory and then do not show up to use it (or pay for it).
The attachments of cancellation penalties to airline discount fares are attempts to mitigate
this problem, which have met with some success. To compensate for no-shows, travel
firms “overbook” their capacity, trading off the possibility of empty units if they don’t
overbook enough against the ill will and out-of-pocket compensation to customers that
occurs when customers are “bumped” (airlines).
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5 LITRATURE REVIEW:
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Andy Boyd,2003,‘One-way airlines segregate customers is by imposing advance
purchase requirements and Saturday night stays for cheap tickets. These restrictions act
as ``gates'' that separate price-sensitive leisure travelers from time-sensitive business
travelers. The challenge for other industries is to find the right gates’. The sensitivity of
demand can be controlled to some extent if an airline has a good no of loyal customers
and an ability to attract new customers even at the time of low demand.
Sengupta A,2006,‘Airlines that use revenue management periodically review
transactions for services already supplied and for services that are to be supplied in
future. They may review information such as past statistics, up coming events like sports,
holidays, festival or unexpected past events such as terrorist attacks and other information
SUCH as competitive information (including prices), seasonal patterns, and other
pertinent factors that affect sales.’ The success of an airline depends upon the capability
of the air line to forecast the future and deploy the maximum capacity on the routes with
comparatively high demand but by taking the cost of operation into consideration.
Belobaba 2003, ‘Airline who is busy in maintaining its load factors by decreasing its fare
with analyzing that it can harm its future policies. These airlines are more susceptible to
go out of the picture.” Revenue management system provides enables airlines to satisfy
customer and made profits to the greater possible extent without any lose of image.
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6. Future of Revenue Management
What will drive the future of RM?
Pricing transparency
Pricing transparency has grown quickly over the past several years. From the days when
pricing was transparent only to the travel agent, to the advent of online agencies like
Expedia, Travelocity and Orbitz, to the creation of information conduits, like Kayak and
Sidekick. Such transparency has made the other airline’s selling price much more
relevant to the determination of my optimal selling price, such that RM systems will need
to get much better at knowing the competition’s price and incorporating it into the
calculation of future demand and the elasticity of demand. I expect that airlines will
figure this out, gradually, over the next ten years.
Computing power will make the incorporation of competitive prices viable. It will also
enable more tailored offerings (such as genuine one-to-one pricing), as airlines learn how
to use what they know about a customer to alter the offering.
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