current revenue management at vietnam airlines

TABLE OF CONTENTS Page - Secondary data: 13 3.2.4. Overbooking application 38 Alliances 64 ACKNOWLEDGEMENT I am pleased to send our sincerest thanks to all organizations and individuals who have enthusiasm for helping the authors carried out and completed this thesis. I would like to give my grateful appreciation to all the lectures, tutor; classmate who helped me during my studying times at the EMBA program of Business school of the national economy University. Especially, I would like to express the deep gratitude to Doctor Tran Thi Hong Viet for her enthusiastic guidance and encouragement that inspired the author a lot during the process of writing the thesis. I would like to acknowledge my colleges and experts; managers of departments of Vietnam Airlines for providing the material needed for the thesis. I owe a great deal to my family, relatives and friends, especially to my parents, my wife and my children for their valuable encouragement and unceasing supports in my academic pursuits 3 ABBREVIATION CRM Customer relationship management CX Cathay pacific airways HAN Ha Noi JL Japan airlines O-D Origin – Destination PAX Passenger PNH Pnompenh REP Siem Reap city RM Revenue Management SGN Ho Chi Minh city SQ Singapore airlines VNA Vietnam airlines 4 LIST OF TABLES - Secondary data: 13 3.2.4. Overbooking application 38 Alliances 64 5 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 6 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. 7 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 8 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. 9 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. 10 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 11 [...]... 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. .. 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... domestic market, Vietnam Airlines have to compete with airlines such as Jetstar Pacific, Indochina Airlines, but Vietnam airlines still occupy large market share In international, Vietnam airlines have to compete with big airlines such as: AirFrance, Singapore Airlines, Aeroplot, Japan airlines, Thai Airways, Cathay Pacific… 3.1.5 Flight network of Vietnam airlines Vietnam Airlines now operates 26 domestic... remain unsold • Optimization formula: In order to get optimal revenue, Vietnam airlines has deployed flowing formula to calculate revenue for flights OPTIMIZATION FORMULA Where: t – total revenue of flight network (j=1,2, ,m); x - seat; (i=0,1,2, ,n: capacity); f - fare (grouping by booking class) 3.1.7.2 Revenue Management organizations in Vietnam airlines In Vietnam airlines, Revenue management is determined... 150 aircraft in 2020 3.1.7 Philosophy and organization of Vietnam airlines Revenue Management 3.1.7.1 Philosophy of Vietnam airlines revenue management Philosophy in revenue management of Vietnam airlines are: • FARE MIX: Variety of price levels and calculate probability: EMSR = TTC * probability of bookings Where EMSR is stand for Expected Marginal Seat Revenue TTC is total trip contribution 33 Fare... Myanmar 248.3 Brunei 178.5 Source: Asean statistics(2007) 29 CHAPTER 3 .CURRENT REVENUE MANAGEMENT AT VIETNAM AIRLINES 3.1 Overview of Vietnam airlines 3.1.1 History and Core business of Vietnam airlines Vietnam Airlines is a state-owned corporation established according to the Decree 04/CP of the Prime Minister It was shifted from subsidy-based mode of operation to market-based service in 1986 and officially... a special important role in maximizing Revenue; it plays the key position in every activity of VNA In the following chart indicates the roles of revenue management of Vietnam airlines 34 Table 3.3 Revenue management organization of Vietnam airlines Scheduling Database co Distribution Systems Space Control Center Airport Service Revenue Management Pre -revenue management departmant Fare Derp Control... to available path fare combination 21 according to their decision window and budget All information is then input back into Revenue management optimizer as historical data to be used by the airlines for future flight departure 2.2.2.2 Seat inventory control Seat inventory control problem in airlines revenue management concern the allocation of the finite seat inventory to the demand that occur over... 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 13 the limits and disadvantages of Vietnam airlines revenue management system need to improve - Secondary data: The second data composes a... the recommendation to improve revenue management activities 14 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 . overview of Vietnam airlines business activities related to Revenue management system. • Analyze the revenue management at Vietnam airlines in operational. basic for analyzing the revenue management activities in Vietnam airlines at chapter 3 Chapter 3: Current Revenue management at Vietnam airlines In this chapter,