Emirate Airline: Airline Industry Analysis

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Table of Contents

Handle flight control (controlling the filling of the flight)
Revenue management (achieving targets)
Setting targets
Yield Management Responsibilities
Passenger Revenue Optimization Fare and Inventory: Trade-up (Profit)

Handle flight control (controlling the filling of the flight)

Airlines have found Yield Management to be extremely useful in most of their operations. This was after the realization that a lot of revenues were lost due to cases where a plane would leave with some seats unoccupied. The management of Emirate airlines has a duty of ensuring that all the planes leave at the scheduled time.

Passengers should not be kept waiting because a flight has been rescheduled or such other related cases. The management has no mandate to extend the schedule. The product offered by the airlines is highly perishable. When a flight goes without some of the seats being occupied, the value of the seats would be lost because it is not possible to store this product for future use.

Yield management gained popularity in mid 1980’s. This was a blessing to this firm. During this time, the management of the plane was struggling to ensure that fixed assets of the firm were put in maximum use. Airline companies realized that their profits were reduced. This was because some of the seats were not utilized in some flights. They wanted to mechanisms through which they could reverse this trend in the market without hurting their customers in the market.

Yield Management is highly beneficial in understanding consumer behaviour in the market. The airline management must be able to anticipate, understand and influence the behaviour of the consumer in the market. This is done with the aim of ensuring that the profits of the organization is maximised out of the fixed asserts.

Proponents of this policy hold that Yield Management is concerned with the management of revenues out of the inventories of a firm. They argue that Yield management is not only beneficial to the airline firms. A number of other industries also directly depend on Yield Management for proper management of their products. For yield management to be applicable, the following concepts must apply.

Presence of a fixed volume of resources available for sale.
The resources on sale must be perishable. In this respect, the products on sale must have a timeline beyond which the product would lose its value.

Given the above characteristics, it is evident that an airline would have substantial benefit from Yield Management because it has the above three value. The seats in a plane available for use by the travellers are fixed. The management can neither reduce nor increase this volume.

The seats are highly perishable. If the plane leaves without passengers occupying all the seats, the value for the seats would be lost. For instance, a traveller from London to Manchester city who has urgency would be willing to pay premium prices when using a flight. On the other hand, a traveller from the same place to the same destination who has no urgency would only be convinced to use the plane if it charges a lower fee.

Given the above criteria, it is apparent that such other industries like hospitality, Car rentals and intercity buses would also find yield management highly relevant in maximizing their profits. This study focuses on the airline industry, with Emirate Airlines being the study company.

Revenue management (achieving targets)

Yield management is always extremely crucial in circumstances where the variable costs are less than fixed costs. This is the case in the airline industry. When a plane leaves New York City to Chicago, the fixed costs may not be reduced or increased on the basis of the number of passenger on the plane. The cost of fuel, the salary of the pilot and other attendants, the value of depreciation of the plane and such other fixed charges will not be varied because of the reduced or increased number of passengers on board.

Emirates Airline has had varied profits because of the varying seasons for the travellers. One of the widely used strategies in managing the seasonality in this industry has been the reduction of the number of flights when the season is low, and increasing it when the season is high. Although this strategy has helped firms reduce their cost.

This has helped firms in the management of revenues during the low seasons as the fixed costs are reduced. However, the current world is highly competitive, and every firm must try to ensure that they take care of the interests of their employees. Post purchase dissonance should be avoided totally.

Yield Management brings together three main departments of a company together. The marketing department, finance department, and operations unit would be brought together. These departments must work in unity in order to ensure success of this process.

The finance department would try to reduce costs and maximise the profits. In this regard, it would recommend reducing the number of flights that do not have enough customers. This may involve reducing the number of flights during the low seasons. However, this may not work well with the marketing department. The marketing department would want to see all the flights operating normally. This would make it easy to convince the market that the airline is reliable.

It will be able to convince customers that the firm is not profit-cantered, but customer oriented. The operations department would want to see efficiency in the operation of the flights. These interests must be harmonized. While the finance department will be justified to cut down the operation costs by reducing the number of flights during low seasons, this should not be done at the expense of the firm’s reputation in the market.

The marketing department is justified in its quest to ensure that the firm operates normally and that the image of the firm is enhanced through continuous service to customers. This must be done in a realistic manner. The firm should be able to sustain these activities within the budget it has set aside. This way, the firm will remain relevant in the industry.

Setting targets

Setting of targets is always beneficial. Yield Management is a way though which firms can reduce lost revenues resulting from perished products of the company. It is a system though which the company would try to avid loses that would result from lack of sale of a perishable product.

Firms must avoid the temptation of considering this as a strategy though which they can make abnormal profits. Sustainability is one of the most significant pillars in a firm. It is crucial for a business unit to make substantial profits as this would enhance its growth within the industry.

However, this profitability should not harm the image of the firm. When customer realize that an airline has been charging them abnormally and using self-cantered strategies in order to get more profits, they may consider using other airlines in the future as they will feel robbed. The firm may be faced with the threat of losing its customers to the competitors. This would reduce its profits in the market.

It is highly beneficial to set target. The firm should set a target of getting just enough to support its operations and make normal profits during low seasons and high seasons respectively. The current market is highly competitive as various firms try to fight for the limited market.

Customers have also gotten increasingly knowledgeable through the constant advertisements and other sources of information. When they realize that another firm is offering similar products at better terms, they may consider switching their loyalty. The objective set by the firms must be financially realistic and customer friendly.

Yield Management Responsibilities

Criteria used in decision-making

The management must have a clear criterion of making a decision in their operations. The firm will have the challenge of trying to balance the need for maximum profits and customer retention. During peak seasons, Emirate Airlines always make maximum profits. This is because of reduced cases of flights with empty seats.

The management strategy taken during this period should be different from that taken during other seasons. When the season is low, different criteria must be employed. This is because the firm will be struggling to maximize the consumption of the products. It is necessary to take into consideration, the following factors.

Season (peak season, low season)

The seasonality of the industry is always affecting the way this firm operates in various markets from which it operates. In the airline industry, peak and off-peak seasons are the two main seasons.

Peak season

The peak seasons always come during the holidays. December is the best high season for Emirate airline. During this time, there are many people travelling to various parts of the world. The flights are always overbooked, and it is exceedingly rare to find a scenario where a flight takes off with some seats unoccupied.

Taking the principles of Yield Management, Emirate Airlines should maximize on this and ensure that the profits gained during this season are able to sustain the business during the low season. However, the management should avoid any temptation of making abnormal profits.

It is factual that during the peak period the industry would be charging higher prices for the ticket because of the demand push. The customers also appreciate this fact and would be comfortable with the price. However, this should not be taken as an opportunity to abuse the privilege to charge beyond normal prices. It is during this period that the firm can develop a remarkably strong customer base by charging prices that would be seen as fair to customers.

During this time, many customers will be looking for airplane companies that are fair in their pricing. This company can take this advantage to develop a pool of loyal customers, by charging slightly below average prices. In so doing, the firm should avoid a scenario where the move would precipitate price wars in the market. When price wars emerge in the market, Emirates Airline may incur heavy losses that may affect its operational activities in the industry.

Low season

Yield Management would come in handy during the low season. The firm has fixed asserts with fixed costs that the firm has to fulfil. There are employees that the firm has to take care of during peak and off-peak seasons. Their salary is constant, and management of the airline may not bring in the excuse that the company is making low profits due the reduced number of customers. When a plane leaves one station to any destination, the cost may not differ much based on the number of passengers on board. The cost of fuel in both cases will not differ, and nor will many other fixed costs. The only difference may come in when the number of attendants is varied based on the number of passengers. However, this cost is negligible, as compared to the fixed costs.

The firm may consider lowering the ticket price when it has confirmed that the plane is most likely going to leave with lesser passengers.

The management of the Emirates Airline should consider having two ticketing fronts. There should be the normal ticketing procedure where the firm would charge travellers the average market price. This should take the normal ticketing procedure. The second front should wait till the last minutes before the departure of the plane. The management should then allow charge travellers lower ticket prices just to ensure that the plane does not travel with some seats empty.

The rationale behind this is that the company would be ensuring that the seats do not perish. The seats will be charged at lower rates. This will help the firm to recover the costs used during the trip. It will be like sharing the cost of the perished product. The firm would consider all the seats charged below the normal rates as perished products. The rationale behind this is to share the costs.

The customers paying lesser fee will be reducing the percentage loss for the firm. This strategy is better than reducing the flights. When flights to various destinations are reduced, some customers will be inconvenienced. This way, they may consider taking the option of looking for alternative airlines that offer the product they desire. Such customers can easily transfer their loyalty to the competitors of this firm.

Point of sale

During low season, airlines always try to ensure that they regulate the number of flights in order to minimize cases where planes would travel without passengers. They would try to identify markets that are attractive during this period and provide them with the products as per the demand of the market.

On the other hand, the company would consider reviewing downwards those destinations that are not highly attractive. There are two ways of determining the attractiveness of a market in the airline industry. The first and most obvious is the number of passengers who are willing and able to travel by air. When a given market segment has the capacity to pay premium prices for the products they take, they will be considered attractive even if their size is relatively small.

During low seasons, airplanes would prefer going to those destinations where passengers will be willing to pay an extra fee in order to take care of the value of seats that would have to perish during the flight. Emirates have always considered cancelling or delaying subcontinent passengers, while offering continues services to the European markets.

Day of week

Day of the week is another crucial factor that airlines must consider when using Yield Management policy. During weekdays, most people are at their workplaces, and they tend to travel less. Most travellers during this season are business travellers. However, the weekends are always characterized with increased flights even during the low season.

During such times, most families travel to be together with other family members. Others travel to take a short holiday over the weekend just to change the environment. The management of Emirates Airlines should balance their flights in a way that would help it reap maximally during the weekends.

Class Mix Management

Class mix management is managing a flight’s classes and subclasses. The classes and subclasses are controlled according to the market environment and demand, so as to achieve two main targets:

Filled flights
High revenue

As stated above, the management would be aiming at having all the flights filled. It would try to eliminate any form of flights that go with some seats being vacant. The vacant seats are additional overhead costs to the firm that should be avoided. The next aim is to ensure that the revenue is maximised.

The process of maximizing the revenue may involve selecting routes that are attractive because of the ticket prices they attract, or the number of regular travellers on that route. It is a fact that the ultimate aim of the company is to ensure that profits are maximized, while still retaining a healthy sustainable relationship between the airline and its customers.

Point Of Sale Strategy

Point of sale refers to the place where booking of tickets takes place. There should be a clear and elaborate system in which various points of sale in different regions are centrally managed. A traveller flying from South Africa to New York via London may consider booking the flight from London to New York while in South Africa.

The system should read that this is a seat that it already booked and should not be assigned to another traveller. This way, there would no confusion in the flights. This is also crucial in regulating the bookings. It helps in eliminating cases where there is overbooking. It also eliminates scenarios where there is over expectation by the airline management. The management may have too high expectation of travellers from one station, using their flights to connect to their final destination.

Understating the point of sale strategy

It is crucial to understand the point of sale strategy. This is because it helps in the management of this system. The system should allow for smooth coordination of offices. This will ensure that there is harmony at all points of sale. This strategy will also help avoid overbooking by the company. The company can use the point of sale strategy in ensuring that the firm manages the booking of the seats within various stations where this firm operates.

The points of sale will have a clear instruction to attract low-end customers in cases where a flight is likely to leave with a limited number of passengers. The department should be able to sway the behaviour of travellers who were not having the idea of using the plane to do so. The strategy is also meant to attract customers loyal to other airlines. The firm should ensure that the new customers are treated well so that they will consider using the airline in future.

The firm may take this opportunity to retain such customers by offering value to them. However, this practice should be done in a way that will not encourage travellers to wait till rush hours in order to pay less. They should not be convinced that paying in rush hours would mean paying less. Such customers may be perennial late bookers so that they may benefit from this incentive. This may have a devastating effect on the profitability of the firm.

Understating the methodology

Given the above challenge, the points of sale officers have the responsibility of coming up with a mechanism through which it would avoid perennial late bookers. It can devise a way through which this offer would be made to be unpredictable to the customers. Travellers should not develop the habit of paying less during off-peak seasons, as opposed to peak season.

This way, it will be a risk for travellers to wait till last minutes before purchasing tickets. The management has the main aim of maximizing the profits of the airlines by minimizing the cost associated with rendering the service, and maximizing the sale of its products.

Inasmuch as the sale of the products should be high, the price at which they are sold also matters. When the ticket price is below the industry average, the management of this firm should focus on break-even strategies. There are times when a firm may be forced to lower their prices below the industry’s average. This decision should be made when there is no any other alternative available for the firm.

In such cases, the firm should ensure that the prices of the tickets will be able to cover all the fixed costs and the variable costs of offering the service. There is where a firm may be forced to run at a loss because of the need to serve loyal customers and retain the company’s sustainability in the end. However, this should not run for long periods because the firm may be subjected to the eminent danger of being forced out of the market.

Traffic Load Summary

Aircraft traffic load refers to the load passengers and their luggage, and the load of the cargo. The airline must closely control the traffic load to various destinations for the purpose of security of the travellers. The International Air Transport Association has its regulations concerning the traffic load that must be observed by various airline companies. The regulation must be done at the ticketing stage of the airline.

The concerned authorities of the airline should ensure that they do not book the cargo beyond the maximum allowable weight for every flight. Passengers will also come with their luggage, and they also weigh differently. These factors must be put into consideration during the booking process. There should never be a scenario where there is an overbooking on the flight, because this may not only attract penalties from the regulatory board, but also a possible fatal accident which would perish the lives of the travellers and destroy the plane.

Target.com

It is always crucial for the management to generate forecast of the possible number of travellers both by origin and destination. This can be done with the help of a daily newspaper for the outstation. Checking of the outstations’ real targets can be done through a number of ways.

The targets can be done based on the number of bookings made per station, the number of passengers, the average fare, or per station. The management must always ensure that the target is met in one way or the other. For instance, the management can consider grouping the agents as friendly agents, unfriendly agents, and top agents in the industry. The booking should be done based on the desirability of the destination.

Promise

The management should ensure that it can meet customers expectation in the market. It is normal that an airline such as Emirate Airlines would want to make attractive promises to their customers. However, this promise should be within their reach. They statements they make in the television commercials and other advertising channels should be realistic and easily tenable.

When customers come to the airline, they come with the expectation of the promise they were given by the firm. There are only two options that this firm can take. The first option will be to give the quality of service as was promised to the customers. The other option would be to exceed the customer expectations through offering quality beyond what was promised. This way, the firm will ensure that customers who use its facilities will be retained within the firm.

Space

The airline should always balance the space availability of the flights in a way that would give them maximum profits. This should be based on the Yield Management strategies. The firm should ensure that available space is maximally availed to the high priced tickets, before considering awarding the low priced tickets.

Attractive destinations should be awarded maximum tickets and the trips should be set at maximum. The firm should make the most out of this strategy. However, care should be taken to avoid the possibility of other competitions considering that the less attractive markets are vacant and lack enough players.

Passenger Revenue Optimization Fare and Inventory: Trade-up (Profit)

General overview of profit

The profitability of an airline firm depends on its ability to optimize the use of its fixed asserts in a way that will reduce costs associated with the perishable products. The airline should eliminate all the possible cases where an airline is forced to fly without enough passengers that can take care of the flight.

The firm should always try to make the most out of customers, in cases where this is possible. This will enhance profitability of the airline. The inventory should be put under maximum utilization. As has been explained above, the airline should avoid the possibility of being seen to exploit its customers, by putting interests before the interest of the customers.

Understanding the concept of RMG and RMT

It is extremely crucial to understand the concepts of revenue management group and revenue management table. When calculating profits for the airline, it should be based on the value availability. The seats in a plane do not perish within a single flight. It will still remain in decent shape, except for the natural wear and tear.

However, the value of the seat when it eaves from one station to a destination will be perished if the seat is unoccupied. Demand distribution should be determined. The inventory should be put under proper control in order to maximize revenue from a single flight. Late night booking markets should be exploited to increase the revenue of the flight. The numerical value that is calculated on half return air ticket should take into consideration all other relevant variables.

Managing of compartments

Three compartments should be well balanced in the management of the flights. The three compartments include First Class, Business Class and the Economy class. The Revenue Booking Designator should be responsible in balancing the three classes in order to maximize profits.

Majority of the travellers uses economy class. It is considered as the most attractive segment, in terms of the population of the customers. The first class customers are always willing to pay premium prices, a fact that makes them also attractive. There should be a balance between the two contradicting scenarios. While it will be attractive to have more customers, there is a need to tap from the high-end customers who are always willing to pay an extra fee.

Group Management

The revenue management unit would always be concerned with reconciling the accounts as they come in from various booking stations. When coding the fares, those that were discounted must be given their own code in order to ensure make the concerned officers understand the reason behind the lower pricing. Group Yield Management should be provided to the travel agents to handle a large number of requests.

Revenue integrity

Revenue integrity is extremely beneficial for an airline like Emirate Airlines. Leakages should be minimized, or better still, eliminated completely. The following tools are extremely valuable in controlling leakages.

GDS cost
Lost seats
Impact flight

The above tools will enable the auditing officers determine lost seats that were not used during the trip, premium prices charged on some customers in other trips and any other relevant information concerning every single flight.

Revenue costing

The following concepts are extremely beneficial in proper management of revenues. The concerned authorities should deeply understand them.

Direct Operating Costs. This should closely be compared with the fixed operating costs.
The management should ensure that Yield per ASKM is set at maximum as possible. The value of the seats would determine the overall profitability of the firm.
Concept of memorizing of revenue should be embraced. The revenue management unit should trace the history of the firm’s revenues.
Depending on the season, the revenue authorities should advise the booking stations on the Upgrading down grading of the ticket prices in a way that would result in the maximization of the profits for the firm.
Extra section costing is critical to the Emirate Airline, especially when the airline has to resort to Yield Management strategies in order to make concrete profits.
Reading of the green sheet is crucial in the determination of what a passenger would pay per kilometre.
Calculation of the average fare would help in the determination of the total revenue per given period. Weighted average fare is always used in the calculation of revenues per given desirable period.

Revenue planning

All the departments in the Emirate Airline should be closely coordinated to ensure that all the resources are used carefully. The finance department has the responsibility of planning for all the resources of this firm. The first step in the management of the company’s finance should be the determination if all the revenues of the firm.

The management should have a clear knowledge of all the revenues of the firm within a particular financial period. Within this period, the management should determine the amount of money that should be spent on various activities. All the departments must prepare their budget at the beginning of a given financial period. The financial department will then fund the budgets of all the departments based on the estimates they deliver and the availability of finance.

At the end of a financial period, all the departments would have to draw another budget showing all their expenditure within that period. This way, it will be possible to trace all the finances of the organization and eliminate all forms of fraud.

The finance department would then consider reimbursing the departments based on the amount of money spent in the previous financial year. The top management of this firm will be given a report by the finance unit on how the firm has spent its finance. The top management would also receive proposals from all departments.

It would have the final decision on whether or not; the amount each department would be requesting is justifiable. It can be concluded that skills are hard to fetch but are easy to maintain. Members of the organization were supportive in ensuring that employees acquire adequate skills and knowledge. However, this task should not be left to one department. It is important that the management come out strongly to counter the factors that impede skill development

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