LV Thạc sĩ_Revenue Management at Vietnam Airlines

1 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 … 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 college 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 LIST OF ABBREVIATIONS VNA RM CRM PAX JL SQ CX O-D Vietnam airlines Revenue Management Customer relationship management Passenger Japan airlines Singapore airlins Cathay pacific airways Origin - Destination LIST OF AIRLINES TERMINOLOGIESLIST OF FIGURES AND TABLES 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: Cancellation: guests make reservations for flight but then cancel the reservation Forecast: the process of predicting events and trends in business No show: a guest who made a reservation but not show up at check-in counter for departure 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 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) 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 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 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 TABLE OF CONTENTS Page - Secondary data: 10 Source: VNA’s RM department 36 3.3.4 Overbooking application 40 Alliances 58 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 subject operation management 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 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 facing as follow: 1) Unreasonable overbooking in low frequency routes , 2)Controlling system, 3)Reporting 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) Focus on maintaining the core market, 2) Training human resources, 3) Building sufficient and efficient information database system, 4) Good capacity and demand forecast, 5) More flexible fare-mix policies, 6) Appropriate overbooking ratio, 7) Improving services system CHAPTER INTRODUCTION 1.1 Rational 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 and objectives: 1.2.1 Research problem: The research is designed to analyze the revenue management system at Vietnam airlines especially in operation as overbooking, Fare structure, Demand forecast, control revenue management system fields to identify possible improvement or adjustment for that system operating more efficiency 1.2.2 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 1.3 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 1.4 Research methodology Secondary SecondaryData Data report, report,statistic, statistic,publication, publication, Previous studies Previous studies by byVNA VNA Primary PrimaryData Data Qualitative: Qualitative:44deep deep interviews interviews Analysis Analysis & & Findings Findings Recommendations Recommendations 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: 10 To assist in the identification of causes mentioned earlier, in depth interviews with experts and managers in airline industry and RM system technicians are to be done 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 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) 1.5 Structure of thesis Besides the parts of introductions, conclusion, reference and appendix, the content of this thesis includes main chapters starting from chapter 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 51 APPENDIX APPENDIX LIST OF INTERVIEWEES FOR THE STUDY 1, Ms Nguyen Minh Hien, Help-desk Manager, Space control center, Vietnam airlines, 200-Nguyen son road, Long bien dict, Hanoi 2, Mr Nguyen Gia Loc, Director of space control center, Vietnam airlines, 200Nguyen son road, Long bien dict, Hanoi 3, Mr Hoang Thanh Quy, Deputy Director of Marketing and sales department, Vietnam airlines, 200- Nguyen son road, Long bien dict, Hanoi 4, Mr Dang Anh Tuan, Director of Noi bai Control center, Vietnam airlines, Noi bai international airport 52 APPENDIX Domestic route map of Vietnam airlines 53 APPENDIX Worldwide route map of Vietnam airlines 54 APPENDIX Europe route map of Vietnam airlines 55 APPENDIX Boeing 777-200ER seat map With seating of more than 300 seats, the state-of-the-art fleet of B777 makes your travel an ultimate experience on Europe, Australia, Northeast Asia and domestic routes Number of Seats: 307 Business: 25 Deluxe: 54 Economy: 228 56 APPENDIX Airbus A330-322 seat map The modern A330 fleet with seating capacities of 250 to 320 serves on North East Asia and domestic routes Number of Seats: 320 Business: 36 Economy: 284 57 APPENDIX Airbus 321/320: Flying widely around South East Asia and Hong Kong, China and domestic trunk and tourists routes with the convenience offered by Airbus 320/321of 160 ~180 seating capacity 58 APPENDIX Alliances Membership and market data for the largest airline alliances (as of December 2008) Passengers per year Destinations Revenue (Billion US$) Market share Participants¹ Star Alliance 26 members Founded 1997 SkyTeam 11 members Founded 2000 586.60 million 1071 462 million 905 Rest of Industry oneworld (selected major 11 members non-aligned Founded 1999 carriers) 328.63 million 489 million 673 141.71 97.9 99.78 113 23.2% Members (AA) American Airlines (founder) (BA) British Airways (founder) (CX) Cathay Pacific (founder) (AY) Finnair (1999) (IB) Iberia (1999) (JL) Japan Airlines (2007) (LA) LAN (2000) (MA) Malév (2007) (MX) Mexicana (2009) (QF) Qantas (founder) (RJ) Royal Jordanian (2007) 26.9% Americas (AR) Aerolineas Argentinas (AS) Alaska Airlines (AV) Avianca (CU) Cubana (G3) Gol Transportes Aéreos (TA) Grupo TACA (HA) Hawaiian Airlines (B6) JetBlue (WS) Westjet Europe / C.I.S (EI) Aer Lingus (VV) Aerosvit (AB) Air Berlin (KM) Air Malta (CY) Cyprus Airways (FI) Icelandair (JU) Jat Airways (DY) Norwegian Air Shuttle (OA) Olympic Airways (FV) Rossiya 29.3% 20.6% Members Members (JP) Adria (SU) Aeroflot Airways (2004) (2006) (AC) Air Canada (AM) (founder) Aeroméxico (CA) Air China (founder) (2007) (UX) Air Europa (NZ) Air New (2007-associate) Zealand (1999) (AF) Air France (NH) ANA (1999) (founder) (OZ) Asiana (AZ) Alitalia Airlines (2003) (2001) (OS) Austrian (CZ) China Airlines (2000) Southern (2007) (KF) Blue1 (2004) (OK) Czech (BD) BMI (2000) Airlines (2001) (SN) Brussels (DL) Delta Airlines (2009) Northwest (CO) Continental (founder) (2009) (KQ) Kenya (OU) Croatia Airways (2007Airlines (2004) associate) (MS) EgyptAir (KL) KLM (2008) (2004) (LO) LOT Polish (KE) Korean Air Airlines (2003) (founder) (LH) Lufthansa (founder) Future Members (SK) SAS (RO) TAROM (founder) (2010-associate) 59 (FM) Shanghai (VN) Vietnam (UN) Transaero Airlines (2007) Airlines (2010) Future (VS) Virgin (SQ) Singapore Members Atlantic Airlines (2000) Former Members (S7) S7 Africa & Middle (SA) South (CO) Continental Airlines East African Airways Airlines 2004- (2010) (AH) Air Algérie (2006) 2009 (W3) Arik Air (JK) Spanair (CM) Copa Former (LY) El Al (2003) Airlines 2007- Members Airlines (LX) Swiss 2009 (EI) Aer (EK) Emirates International Air Lingus 2000- (ET) Ethiopian Lines (2006) 2007 Airlines (TP) TAP Portugal (CP) Canadian (EY) Etihad (2005) Airlines 1999- Airways (TG) Thai 2001 (GF) Gulf Air Airways (QR) Qatar International Airways (founder) (ME) Middle (TK) Turkish East Airlines Airlines (2008) (SV) Saudi (UA) United Arabian Airlines Airlines (founder) Asia (US) US Airways (CI) China (2004) Airlines (MU) China Future Members Eastern Airlines (A3) Aegean (GA) Garuda Airlines (2010) Indonesia (AI) Air India (HU) Hainan (2010) Airlines (JJ) TAM Airlines (9W) Jet Airways (2010) (IT) Kingfisher Airlines Former Members (MH) Malaysia (AN) Ansett Airlines Airlines 1999(PK) Pakistan 2001 International (MX) Mexicana Airlines 2000-2004 (PR) Philippine (RG) Varig 1997Airlines 2007 Network Capacity Within North America Within South America 23% 28% 15% 34% 1% 2% 14% 83% 60 Within Europe 20% Within Middle East 2% Within Africa 23% Within Asia 35% Within Oceania 11% Between N America 27% and Europe Between N America 9% and S America Between Europe and 20% S America Between N America 41% and Asia Between Europe and 36% Asia 16% 0% 10% 11% 0% 11% 3% 4% 9% 32% 53% 95% 63% 45% 57% 34% 21% 18% 29% 40% 22% 28% 22% 30% 29% 10% 20% 22% 19% 23% 61 APPENDIX Sabre reservation system of Vietnam airlines 62 APPENDIX 10 Booking system on flight HA NOI to PARIS(VN535/27DEC09) HAN 2355 CDG 0700 28DEC 777 SI HAN CL AC AU SA BSS ABS LLP C 25 25 18 D 25 18 J 22 18 I 54 54 42 12 Z 54 42 Y 228 248 176 72 W 243 174 K 241 173 0 S 241 173 G 240 173 0 B 239 172 0 H 238 171 X 229 167 0 L 227 165 M 216 159 0 T 216 159 16 O 199 158 0 N 192 151 36 R 152 147 Q 137 135 0 E 95 93 0 P 95 93 0 A 95 93 0 F 95 93 0 U 10 0 V HANCDG* C SS WL LP D SS WL LP J SS WL LP I SS WL LP Z SS WL LP Y SS WL LP W SS WL LP K SS WL LP S SS WL LP G SS WL LP 63 B SS WL H SS WL X SS WL L SS WL M SS WL T SS 16 WL O SS WL N SS 36 WL R SS WL Q SS WL E SS WL P SS WL A SS WL F SS WL U SS WL V SS WL TTL 91 TTL LP LP LP LP LP LP LP LP LP LP LP LP LP LP LP LP TTL 64 APPENDIX 11 Reservation System 65 ... (Source: Vietnam Airlines, 2005) 42.88 59.60% Note: International refers to all international flights that Vietnam Airlines operates at that time Flight routes Vietnam Airlines now operates 26... CHAPTER 3.CURRENT REVENUE MANAGEMENT AT VIETNAM AIRLINES 3.1 Overview of Vietnam airlines 3.1.1 Core business of Vietnam airlines Vietnam Airlines is a state-owned corporation established according... 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