Operation Management - Cinemas Face the Perennial Problem of Unused Capacity - Assignment Example

Capacity Planning Luxury Seating in UK Movie Theaters Course Code Student’s Name Date of Submission Capacity Planning UK based Cinema chains face the challenges of ever advancing technologies in home entertainment and are trying to keep up with the pace by making the cinemas and movie theaters look more like home. Spacious reclining seats are becoming one of the best methods used by exhibitors to increasingly allure movie lovers to a night at the movie theater. Bigger seats and broad aisles are eliminating the constricted left space and provide elbow rooms that sometime make movie going more irritating than enjoyable (Marich, 2005). Alternatively, patrons have the opportunity to relax and put his focus on the film. Enhanced seating is embracing the counter-spontaneous strategy of slashing the number of seats in theaters to attract maximum attendance. While in the right place, the method has been found to be paying off. Some of the major UK movie theaters have showed positive results from the upgrades. The differential noticeable in the cinemas shows a remarkable power of research programs that have revealed that most patrons are not only attracted by the slate of employees but also the experiences of watching the movies with relaxation and elegance (Parson, 2006). Typically the attendances of the audience have increases even though the numbers of seats that are available have been reduced by two-thirds. Eventually, chains are beginning to charge higher prices for the luxury seats. Odeon Cinemas has made a step further to install seats with 4D motion in small movie theaters. While teaming up with other companies, the company used technology to reduce mobility, trail, smog or disposition lighting in relation to the big-screen images. Moreover, the cinema owners look at luxury seats as one of numerous ways. For instance, graded food choices and booked seating have been implemented to enhance the experience of the customers and increase the revenue generated. The move has been hurled by the decline in tickets to 1.32 billion last year from the highest entry of 1.48 billion. This strategy is one of the major efforts to restructure cinemas seating since multiple screen cinemas changed to the stadium style during the 1990’s. Most theaters are based on the assumptions that they remain Lucrative in the right location. According to Milstein (2011) luxurious in the correct locations, prestige seats may never change to be the customary of the cinemas. The main reason is that auditoriums with high capacities in regions that frequently get customers, opulence seating is the best option for auditoriums that wishes to serve most aged or well pocketed patrons. First-class seating is beyond simple market segmentation and expanding the demand (Cinemark Holdings, 4). In most cases, theaters are at a higher opportunity of increasing growth after conducting a market segmentation procedure. As noted by Hill and Athique (2013), the trend on the introduction if the luxury seats are not possible to disregard. Almost all presentations of investor from UK’s largest exposition chains are found to highlight the enhancement of the seating choices as the suitable ways of maintaining a competitive advantage in the movie market. Upgrading cinema seats have quickly become a basic of today’s exhibitions world as both big circuits and native players are improving customer comfort. Luxury seating attracts an investment of up to $10 million dollars in the first-class characteristics across the circuit, such factor that has encompassed the large screens and expansion of the concepts of food and drinks. Companies continue to expand their seating options after which the first-class loungers have been catalysts for enhanced productivity in the theaters. Most cinemas have deployed recliner seats across their cinemas within UK. Seating manufactures have also contributed to the story and have a significant role in the recent era. Seating concept has been a concept that has many years of veteran in first class seat manufacturing but only started to receive attention during the past three years. Vogel (2004) argue that the seating notion was initially widely known among exhibitors who actively participate in first-class offerings. However, with time, premium services is attracting and spreading all over the UK The UK movie market has shown interest in the luxury cinema seating, most researchers have been focusing on the need for luxury seats and loungers. Other cinemas are following the big cinemas by adopting the development of luxury seats after realizing that first-class process does not simply imply being the current fad (The Howard Hughes, 10). The reality for most cinema channels in the current methods of operations methods is either do it now or give room for the competitors to do it before you and lose your share of the market share. Cinemas are faced with the pressure of keeping pace with the competition has influenced the minor exhibitions that are recuperating from the costs connected with the technological development (Baglieri & Zambolin, 2012). Following a dedication of a larger investment amount to keep pace with the large companies at the forecast booth, indigenous exhibitions are currently faced with the problems of upgrading their seating to maintain a competitive edge. According to Hill and Athique (2013) the theaters with medium size have become more advantageous because there are less aggregate seats with a cozier environment. An upgrade to luxury seating considers occupancy rates, city costs and concepts to become more appealing to the customer. The luxury seating is gaining popularity in the UK auditoriums due to the sardonic cyclic vibrancy between theatrical markets and home media. Exhibitors bring the coziness of home to the movie theaters. However, the seating arguments do not end with a rocking chairs and loungers. These dimensions bring a completely new experience to the ostentatious experience. Various cinemas and studios have made constant efforts to drive movie lovers to the theaters (The Howard Hughes, 10). By building battles against an ever increasing home-based entertainment opinions and are continuously seeking for consumer- propelled developments and technologies to assists in improving the theatrical encounter (Vogel, 2004). The overall success of the luxury seating introduction has attracted an increased pursuit for the set-up in the UK. Moreover, the partnership with other companies has fairly advanced the luxury searing to become one of the factors that attracts them to the mobile theaters. Enhanced seating forms a significant part of leading the UK exhibitors’ commitment to premium offerings. Luxury seating in UK airlines The British Airways Boeing 787-9 Dreamliner has 42 club world seats. The seats are located at the front of the plane straight behind the First Class seats in an intimate cabin of just 14 seats and then in a second larger Business Class cabin with 28 seats, that is separated from the intimates cabin by 1 exit door, 3 Business Class toilets and 4 galley stations (Baglieri & Zambolin, 2012). Both Club World cabins are set in a 2-3-2 layout such that all the seats except the middle one in the center of the place and the window seats, have easy and direct access to the aisle, although access is not one of the major issues because there are corridors behind and in front of the seats so a passenger can squeeze to the aisle without much problem. The central seats are labeled ‘E’ and are some of the worst/uncomfortable seats in both cabins. Seats labeled 6A, 6K and 7L are among the Business Class seats on the British Airways Boeing787-9 Dreamliner. However, the seats are towards the window, have access to the Aisle and the passenger faces towards the front; 6B and 7J are other great seats because they are not newer the toilets and are in the intimated front cabin. The First Class Cabin on the Boeing 787-9 Dreamliner aircraft feels more private and have only 8 seats compared to the 14 seats commonly found in BA’s other aircraft types such as B747, B777, and A380. The eight seats are arranged in two rows in a 1-2-1 herringbone configuration, all having a direct access to the aisle. The 4 First Class seats on the sides are ideal for single travelers while the 4 seats in the middles are perfects for those who travel with a companion. The first Class cabin features a beautiful, contemporary, and minimalistic design. It feels luxurious and dark and light neutral colors create a relaxing ambience of wellbeing and comfort. Specifically created for the Boeing 787-9, the First Class suite is an upgraded version of the old product found on BA’s other long-haul planes and is currently the best BA has to offer regarding cabin comfort. The BA B787-9 First Class seat features have an open design although it have its own cocoon and feels totally private (Athique, 2011). The seta are spacious, with a generous pitch of 73 inches and width 22 inches, the seats features a dark, leather stitched upholstery that provides the passenger with the feeling of being seated in a luxury car. The seats together with the ottoman can easily be transformed in a very comfortable fully lie-flat bed. It is 78 inches long, 38 inches wide because the arm rests down as well when the seat is flattened. Apart from the seats, the fixed screen has an advantage as it provides the passengers with the advantage of not having to stow the screen during takeoff and landing. Passengers can enjoy watching a movies and the gate to gate entertainment. Capacity planning decisions Owners of cinema chains involve various activities when conducting a capacity planning. These activities include evaluating the currently capacity, predicting capacity requirements, ascertaining other ways to enhance capacity, and evaluation of the financial, economical, and technical capacity alternatives. Owners of cinema chains use capacity planning when determining the facility location and when choosing the process technologies, and finding out a new for a new of improved facilities by evaluating the capacity (Gaermain, 2005). Lack of conduct capacity planning may lead to a sequence of undesirable events such as poor service delivery, increased work-in-process and dissatisfaction of customers. Therefore, decisions to improve or create new products and services cannot be possible without capacity planning. One of the strategies that cinema chain owners apply when making capacity planning decisions is the lead and lag strategy. The lead strategy enables the cinema owners to add capacity in an anticipation of increase in demand. Stuart & Tax (2004) define the lead strategy as an aggressive strategy that has the goal of luring customers from watching, movies in their homes by improving the service level, creating high levels of experience and reducing lead time. The strategy also aims at reducing the stock out costs. In most cases, large capacity does not mean that there are high levels of inventory. It means that the cycle stock costs have increased. Implication of luxury seating to capacity The major implication of luxury seating to movie theatre capacity is that it reduced the capacity to half the initial capacity. For instance, when Odeon Cinemas added luxury seating, it reduces its capacity to less than half at 562 seats. In average the capacity becomes less than 100 seats per screen. Odeon cinemas have opted to apply competitive prices on you of the line seats with two different motors operating the backrest and the footrest independently. In addition, Odeon is installing larger screen in other cinema chains. The shrinking audience capacity implies that the cinemas are losing hope of ever growing the market of cinema goers and simply want to move with the decline. The implementation of first-class seating comes with different encounters for exhibitors. Approximately 60% of a standard theater space is minimized with the fixing of full lounges (Epstein, 2005). For instance, luxury lounges need more parallel space than the typicalstandard lounges. The additional space necessity widens the conventional floor and platform dimensions. However, there are two important factors that arise; the current structure that allows the insertion of extra weight and the broadening floor that need to be extended by having a material that is lighter in weight to be used. It is, however, difficult to determine whether the existing structure of the movie theaters allow the establishment of extra weight. Moreover, the installation of the recliners luxury seats has resulted to wider floor/platforms using the lighter-weight material. Most cinema owner agrees that light-weight forms are good materials to establish the configuration of the floor or platform with minimal use of weighty concretes. Richard Murphy, the president of Stadium Savers, argue that the middle-seized theaters functions best when having the recliners while at the same time arguing that auditorium of any size can be changed to improved seating (Cinemark Holding, 0003, May). The mid-seize theaters are desirable as they has aggregate seat loss with a better cozy milieu. While most companies continue to grow, the average attendance in theaters with luxury seats increased by 75 percent despite having a seat loss of 63%. Luxury seats need more horizontal space hence, the dimension of the floor or platform has to be established and widened. In average, one luxury seat replaces two conventional seats. Break Even Point i. Break Even Point= Fixed Costs÷ (SP-VC) =£1,000,000 ÷£ (10-6) =250,000 ii. Profit= Total Revenue – Total Cost Total Revenue = SP x Quantity =£10 x 300,000 =3,000,000 iii. Total Costs = Fixed Costs + Variable Costs =£ 1,000,000 + (V.P units x Number of units) =£ 1,000,000 + (6 x 300,000) =£ 1,000,000 + 1,800,000 =£ 2,800,000 iv. Gross Profit per Month =£3,000,000 – £2,800,000 =£200,000 a. Price per Ticket will be £11.5 Total Revenue = (11.5 x 4 x 500 x 300) =£6,900,000 Total revenue will increase by £900,000. This will increase the gross profit hence increase in price of ticket affects the total revenue. b. If the show are increased to 5 shows =£ (10 x 5 x 500 x300) =£ 7,500,000 If the number of shows is increased, it will increase the gross profit margin in a year to £7,500,000. Thus, gross profit in a year will be; =£ {7,500,000 – [1,000,000 + (6 x 5 x 500 x 500)]} =£ (7.5-5.5) M =£2,000,000 Increases in the number of shows affect the variable cost. The variable costs reduces to £5.5 M Total Revenue = (10 x 4 x 500 x 300) =£6,000,000 Total Cost= £ [1,000,000 + £ (5.5 x 4 x 500 x 300)] =£3,300,000 + 1,000,000 =£4,300,000 Gross Profit=£ (6,000,000 – 4,300,000) £1,700,000 Decrease in variable costs per unit increase the gross profit because of a reduction in the total costs c. New breakeven point =£1,000,000 ÷ (12-6) =166,667 units Sensitivity Analysis Grounds for forecasts - control figures 1st scenario-a 15% fall in occupancy rate 2nd scenario- 40% increase in film hire 3rd scenario- 15% increase in Net ticket price to $11.5 Occupancy rate 20% 15% 20% 20% Net ticket yield £6 £6 40% £11.5 Aggregated Annual perfs 900 900 900 900 Number of seats 300 300 300 300 Yearly charges 49000 37000 49000 49000 Profit and Loss account £ £ % Sales at the Box office (net of V.A.T) 2,890,000 2,170,000 2,890,000 2,500,600 Less film hire 1,020,000 970,600 1,169,200 880,360 G.P 1,870,000 1,400,400 1,720,800 1,620,240 less fixed cots 1,500,000 1,500,000 1,500,000 1,500,000 Net Profit/loss 370,200 -100,000 220,800 120,240 In conclusion, various stores are now offering intermediary solutions for movie auditoriums that wishes to take more careful steps into the costs linked with luxury seating. However, affordability of the implementation of the luxury seats in movie theaters vary by the capacity and product type of the auditorium. Cinema owners contend that they are pushing higher use by focusing the concerns of the customer to drive higher revenues. It does not matter whether the seats rocks back, reclines, or vibrates. The focus on luxury seating in the movie theater will continue to exist in the exhibition market for several years to come. References Athique, A. (2011). From cinema hall to multiplex: A public history. South Asian Popular Culture, 9(2), 147-160. doi:10.1080/14746681003798037. Baglieri, E., Zambolin E., e Karmarkar, U. (2010), The future of service, factory or theatre?, Working paper, SDA Bocconi School of Management, Milano. Baglieri, E., Zambolin, E. (2012), Industrializzare i servizi, EGEA 2012, Milano Cinemark Holdings, I. (0003, May). Cinemark Features Luxury Lounger Recliners in Remodeled Theatre in Grand Prairie, TX. Business Wire (English). Cinemark Holdings, I. (4). Cinemark to Unveil New Recliner Seating and Remodeled Auditoriums in Fort Worth and Hurst Theatres. Business Wire (English Epstein, E. J. (2005). The big picture: the new logic of money and power in Hollywood. Random House. New York Germain, D. (2005). Americans prefer watching movies at home. ABC News Entertainment @ http://abcnews.go.com/Entertainment/wireStory?id=856088&page=1 Hill, D., & Athique, A. (2013). Multiplexes, corporatised leisure and the geography of opportunity in India. Inter-Asia Cultural Studies, 14(4), 600-614. doi:10.1080/14649373.2013.831198. Marich, R. (2005) Marketing to Moviegoers. Focal Press. Oxford, U.K. pp 198-199 Milstein, M. (2011). Luxury Box Seating. Archaeology, 64(1), 10 Parson, T. (2006). Put your message in their pocket Ad News Nov. 3, p. 22 Stuart, F. I., & Tax, S. (2004). Toward an integrative approach to designing service experiences: lessons learned from the theatre. Journal of Operations Management, 22(6), 609-627. The Howard Hughes, C. (10). The Howard Hughes Corporation® Welcomes iPic Theaters to the Seaport District as Manhattan’s First Location for the Premier Cinema Operator. Business Wire (English). Vogel H. (2004). Entertainment Industry Economics. 6th Edition. Cambridge University Press. Zion, L. (2004) Disc Fever The Australian 30 Sept. 2004 p17 Read More