current revenue management at vietnam airlines

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LIST OF FIGURES
Figure 1.1 Research Procedure 11
- Secondary data: 13
3.2.4. Overbooking application 38
Alliances 64
- Secondary data: 13
3.2.4. Overbooking application 38
Alliances 64
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TERMINOLOGIES
In the thesis, there have been some Airlines terminologies. In order to agree upon
the meaning of these technical words and avoid misunderstanding, the following
words are understood as follow:
Airlines Alliances: is an agreement between two or more airlines to cooperate on a
substantial level. (The three largest passenger alliances are the Star Alliance,
SkyTeam and Oneworld).
Cancellation: guests make reservations for flight but then cancel the reservation.
Denied Boarding passenger: Passenger have confirmed ticket and reservation but
airlines can not arrange seats on flight due to overbooking and all seats of flight
occupied at departure times of flight.
Forecast: the process of predicting events and trends in business
Load factor: is a measure of the amount of utilization of the total available capacity
of a commercial transport vehicle. It is useful for calculating the average occupancy
on various routes of airlines.
Low-cost airlines :( also known as a no-frills, discount or budget carrier or airline)
is an airline that offers generally low fares in exchange for eliminating many
traditional passenger services
No show: a guest who made a reservation but not show up at check-in counter for
departure.
Overbooking: accepting more reservation than the seat of flight available.
Over-selling: Selling more seats on flight than those available.
Spoilage: results from the inability to sell seats for a certain period of time and thus
causes the permanent loss of revenue for that period.
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EXECUTIVE SUMMARY
Airlines have faced with the empty seats after flights departure due to the no-
shows and cancellations of passengers at last minute, the empty seats of flight will
cause the loosing revenue of airlines. With a fixed cost that airlines have to spend
for every flight (fuel, aircraft…), filling up the seats and the load factor, fare mixes
and selling up are necessary requirements for the airlines to maximize the revenue
and lead to gain optimal profit. And to solve these problems, airlines apply the
Revenue management system. Airlines management (or yield management) is
defined as to maximize passenger revenue by selling the right seats to the right
customers at the right time.
In this thesis, base on the theory of revenue management and knowledge of
operation management subject studied, I analyzed Revenue Management activities
at Vietnam Airline.
Vietnam airlines have deployed the revenue management system for years in
its operation, such as forecast demand, seats inventory control, fare mix and
overbooking application, these also brings a given success for Vietnam airlines.
However, there some problems such as still exist the empty seat on plane after plane
takeoff although the booking system had sold over capacity of airplane or existing
the cases that forced to deny boarding passengers due to can not arrange seats for
them because of deploying overbooking policies, this happened has affected to the
revenue and bad image of Vietnam airlines.
After analyzing the situations at Vietnam airline in terms of history, staffing,
facilities and specially the RM activities from fare structure, overbooking policies
and seats inventory control, annual reports gained from 2005 to 2008, and the
interviews with the experts and manager working at revenue management, the
research has identified some problems and shortcomings that Vietnam Airline is
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facing as follow: 1) Unreasonable overbooking in low frequency routes , 2)
Revenue management Control system, 3) Flight Report system, 4) Unstable
schedule leads to difficult for forecasting demand and collecting data, 5)Lack of
capacity in peak season, 6) Compensation policy for denied boarding passenger, 7)
Human resources.
These problems and shortcoming have influenced the effective operation of
Vietnam airline especially in maximizing revenue and profits.
To help solves these problems and shortcomings some recommendations were put
forward. They are: 1)Applying appropriate overbooking ratio, 2) Increasing
compensation for denied boarding passenger,3) Maintain the stable flight schedule,
4)Good capacity and demand forecast, 5)Training human resources, Improving
sufficient and efficient information database system, 6)More flexible fare-mix
policies.
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CHAPTER 1. INTRODUCTION
1.1 Rationale of research
For airlines industries, revenue management plays a very important role for
existence and development. With a fixed cost that airlines have to spend for every
flight (fuel, aircraft…), filling up the seats and the load factor, fare mixes and
selling up are necessary requirements for the airlines to maximize the revenue and
lead to gain optimal profit.
Vietnam airlines have deployed the revenue management system for its
operation such as controlling space and applying fare mixes in sale system
especially in applying the overbooking policies on reservation system, and its also
brings a given success for Vietnam airlines. However, there some problems such as
still exist the empty seat on plane after plane takeoff although the booking system
had sold over capacity of airplane or existing the cases that forced to deny boarding
passengers due to can not arrange seats for them because of deploying overbooking
policies, this happened has affected to the revenue and bad image of Vietnam
airlines.
So, there need to have an analysis revenue management to evaluate how well
it has been applied and has worked, to identify if there are ways for improvement or
necessary adjustment.
1.2 Research problem
The research is designed to analyze the revenue management system at
Vietnam airlines especially in operation as overbooking, Fare structure, and
Demand forecast, control revenue management system fields to identify possible
improvement or adjustment for that system operating more efficiency.
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1.3 Research objectives
With the identified problem, the following objectives are set for the research:
• Provide an overview of Vietnam airlines business activities related to
Revenue management system.
• Analyze the revenue management at Vietnam airlines in operational field.
• Find out the problems of the existing Revenue management at Vietnam
airlines
• Propose some recommendations for improvement to revenue management of
Vietnam airlines.
1.4 Research scope and limitation
The research focuses on the working or revenue management in the period
from 2005 to 2008
Time and budget is limited, and the data collection in Vietnam airlines HDQ
from 2005 to 2008.
1.5 Research methodology
Figure 1.1 Research Procedures
Source: Author’s Summary
Secondary Data
report, statistic, publication,
previous study
by VNA
Secondary Data
report, statistic, publication,
previous study
by VNA
Primary Data
Qualitative: 4 deep
interviews, obrervation
Primary Data
Qualitative: 4 deep
interviews, obrervation
Analysis &
Findings
Analysis &
Findings
Recommendations
for improvement
Recommendations
for improvement
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Research method
In this thesis, for the nature of the study about the operation of a system,
qualitative research method was used intensively. The data were collected from
secondary and primary sources. Qualitative method applied to find out perception,
process and evaluation about Revenue management at Vietnam airlines. The
following sections presents in details the way of collecting and analyzing the data
sources used in this study.
Data collected
- Primary data:
To assist in the identification of causes mentioned earlier, 4 in depth
interviews with experts and managers in airline industry and RM system technicians
are to be done, the first interview with Ms Nguyen Minh Hien – Helpdesk Manager
of Space control center- Vietnam airlines, the second interview Mr Nguyen gia Loc
– Director of Space control – Vietnam airlines, the third interview Mr Hoang Thanh
Quy – deputy Director of Marketing and sales Department – Vietnam airlines, the
forth interview Mr Dang Anh Tuan – Director of Noibai Operation center –
Vietnam airlines.
The purpose of the interviews is to get the experts’ ideas and opinions about
the revenue management system of Vietnam airlines, what they have deployed for
the revenue management system and how they run the system and how it has
operated.
The interviews shall not go into technical aspect but to the managerial aspect
of using the system for decision making.
The interviews also aim at getting ideas from experts on strategies and
consideration in order to apply RM effectively.
With my ten years experiences working in Vietnam airlines at operational
field, I have analyzed about the revenue management system and discovered some
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the limits and disadvantages of Vietnam airlines revenue management system need
to improve.
- Secondary data:
The second data composes a wide range of information published in relevant
material. The main source is from internal records of Vietnam airlines. Especially it
includes: Sales report, revenue management report and statistics collected by VNA
Space control center, RM department in five year (2005-2008).
1.6 Research Structure
Besides the parts of introductions, conclusion, reference and appendix, the
content of this thesis includes 3 main chapters starting from chapter 2
Chapter 2: Theoretical Background
In this chapter provide the concept of revenue management, definition of
revenue management, the process of revenue management in airlines industry’s
application. These the basic for analyzing the revenue management activities in
Vietnam airlines at chapter 3
Chapter 3: Current Revenue management at Vietnam airlines
In this chapter, provide the overview of Vietnam airlines business, revenue
management activities that Vietnam airlines have implemented, such seats
inventory control, fare structure, reservation system, overbooking application, the
organization of revenue management of Vietnam airlines. Provide identifications
problem in Vietnam airlines revenue management activities
Chapter 4: Recommendation to improve revenue management at
Vietnam airlines
In this chapter, provide the overview of strategic of Vietnam airlines to 2020
and draw the recommendation to improve revenue management activities
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CHAPTER 2.THEORETICAL BACKGROUND
2.1 Concept of Revenue Management
2.1.1 Definition of Revenue Management
There are several definitions of revenue management (also refer to as yield
management) in the literature. American Airlines (1987) defined the goal of yield
management as to “maximize passenger revenue by selling the right seats to the
right customers at the right time.”[1, p22-p25] Pfeifer (in1989) described airline
yield management as “process by which discount fares are allocated to scheduled
flights for the purposes of balancing demand and increasing revenues.”[7, p149-
p157] From the hotel industry’s perspective it have been defined as “charging a
different rate for the same service to a different individual” [5] and “controlling the
trade off between average rate and occupancy” [6].
Weatherford and Bodily (1992) have concluded from the above definitions
that the term yield management is too limited in describing the broad class of
revenue management approaches.[11] After analyzing situations in which yield
management was used. They concluded that these situations had the following
characteristics in common:
• There is one date on which the product or service becomes available and
another after which it is either not available or it spoils. The product cannot
be stored for significant periods of time-it eventually perishes. In the grocery
store example, the fruit would spoil.
• There is a fixed number of units. Capacity cannot be charged in the short
term. In the hotel example, there are so many rooms that may be sold at a
given property location.
• There is the possibility of segmenting price-sensitive customers. In the
airlines example, vacation travelers are much more sensitive to price than
business travelers.
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Weatherford and bodily proposed the term perishable-asset revenue management to
define this class of problems and described it as “the optimal revenue management
of perishable assets through price segmentation”
2.1.2 Origin of Revenue Management
The root of modern revenue management can be traced back to the early
days of the U.S. airlines industry. Prior to the Airlines Deregulation Act of 1979,
fares for airlines travel in the United States were regulated by the Civil Aeronautics
Board (CAB). The CAB ensured that the airlines operated in a highly controlled
environment designed to serve the public convenience and necessity.[2] The CAB
required economic justification for any fares proposed by the airlines. Thus, there
were few fares for customers to choose from. In the 1930’s all airlines offered all
seats on a flight for the same price. But it was obvious to the airlines that passengers
could be divided into two broad categories, based on their travel behavior and their
sensitivity to prices. There were business travelers and leisure travelers. Business
passengers tended to make their travel arrangement close to their departure date and
stay at their destination for only a short time. There was little flexibility in their
plans and were willing to pay higher prices for tickets. Leisure travelers, on the
other hand, booked their flights well in advance of their travel date. They stayed
longer at their destinations and had much more flexibility in their travel plans. They
would often decide not to travel rather than pay high fares. Since there was only on
fare offered to both types of passengers, many of leisure passengers chose not to fly,
and many flights departed with empty seats.
Airlines managers saw an opportunity to increase revenue by lowering fares
in certain markets. The first experiment to offer low-fare service occurred in
California on the San Francisco – Los Angles route in 1994[2]. United airlines
began its Sky Coach Service using 10-passengers Boeing 247s and charging a one-
way fare of $13.90. The CAB approved the low fares based on the lower operating
cost of the B-247s and fewer amenities offered on board. The experiment was a
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