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Commercial aviation management functions - Essay Example

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In order to deal with competition, airlines came up with the concept of yield management principally to maximize revenue per flight. This aim of this paper is to critically…
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Commercial aviation management functions
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Download file to see previous pages This approach to pricing management came about as a response to the liberalization of air transport that led to high competition among service providers. Aviation companies realized that they could increase their revenues by selling the same seats in an airplane to customers based on what they were willing to pay, “as opposed to using unit cost as the only factor in pricing” (Shy, 2008, p.23). Yield management started as an analysis of variable demand but it grew to an advanced stage of complexity where it now seeks to determine how customers respond to pricing (Hayes & Miller, 2010).
Yield management brings about a number of related benefits to commercial aviation. First, it increases revenue without increasing the cost of providing services (Quain & LeBruto, 2010). The revenue comes from selling units produced but not consumed under the unit based pricing model. The second advantage of yield management is that it brings about increases in profits, and not just gross sales (OFallon & Rutherford, 2010). In fact, the overall increase in gross sales in usually marginal compared to the percentage increase in profits. Without it, the seats sold under yield management would bring in zero revenue. The third advantage of using yield management is that it makes it possible for commercial aviation to “maximize revenue from available capacity” (Rouse et al., 2010, p.57). Commercial airlines sell seats that they would have flown unoccupied at low cost hence they get extra revenue. Finally, it assures revenue despite cancellations when one of the conditions for low fare tickets includes a non-refund policy (Button, 2010). Under most unit-based costing systems, refund policies lead to loss of revenue if buyers request for a refund.
Yield management in commercial aviation has two objectives. These are, “to get the best average fare (‘yield’) possible”, and secondly, “to fill ...Download file to see next pagesRead More
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