Project Management
2011
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Project Management
2011
COMPANY PROFILE
The British Airways group consists of British Airways plc and a number of subsidiary companies including British Airways Holidays Limited. British Airways is one of the world‟s leading airlines with a network that provides passenger and freight services to 149 destinations in 72 countries. In 2004/05, British Airways carried over 35 million passengers and nearly 900,000 tones of cargo. Its airline network is centered on the United Kingdom, where 85% of its 47,500 workforce is based. The mission of the group is to deliver service that matters for people who value how they fly.
1) CSR (corporate social responsibility) responsibility) i.e. climate change Programme To realize this, British Airways recognizes the importance of working in partnership with its stakeholders. This has influenced its approach to corporate social responsibility (CSR). Its approach has also been influenced by the recognition that airlines generate major social and economic benefits, but also have significant impacts on the environment (for example, through noise and air quality) and on communities around airports. There are several reasons why British Airways chose to engage in CSR. The first is because it is a tool to help achieve the company‟s long term strategic goals in providing growth opportunities around Heathrow airport. Secondly, improving business efficiency and reducing costs through waste and energy programmes provided a strong business case for CSR. 2) Revenue management Revenue management was developed by the airlines to improve revenue performance in the face of increasing competition. 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 business and leisure travelers. Business passengers tended to make their travel arrangements close to their departure date and stay at their destination for only a short time. There was usually
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little flexibility in their plans, and they 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 plans. They would often decide not to travel rather than pay high fares, and flights often departed with empty seats. The challenge to the innovators of revenue management was to devise a plan that would make the empty seats at the lower fare while preventing passengers who were willing to pay the higher fare from buying low-fare seats. Since low-fare passengers typically book in before higher fare customers, the revenue management system must forecast how many business passengers will want to book on a flight. Then it must set aside or protect these seats so that they will be available when the business passengers request them. Revenue Management is the process of analysing and forecasting consumer demand in order to optimize inventory and pricing levels to maximize profitability.
Analyse and Forecast Remaining Demand
Optimise Inventory and Pricing Levels
Maximise Profitability
Fig 1 Process of RM In other words, to constantly analyse and forecast the remaining demand for a certain future product or event and subsequently adjusting the pricing levels in order to sell the right product at the right price to the right customer at the right time to maximize profitability. profitability. It is important to note that Revenue Management addresses the revenue side of the equitation, not the cost cost side. There exists an inverse proportionality proportionality between Load Factor (Units Sold) and Average Yield (Unit Revenue) and Revenue Management will thus find the optimum balance between these factors in order to maximise Revenue or Income.
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Climate change Programme Climate change emerged as an issue for business in the 1990s. The growing evidence led to the establishment of potential damaging impacts of carbon emissions leading to the establishment of the UN Framework Convention for Climate Change and the Kyoto Protocol. Climate change is increasingly relevant to British Airways as aviation is a growing contributor to global carbon dioxide emissions, a main greenhouse gas, and consequently to climate change. The increase in emissions – stimulated by a rise in passenger and freight travel – coincides with many politicians and civil society groups calling for industry to reduce carbon emissions. “This presented a problem for British Airways, especially when it seeks to be a leading player in the industry for environmental issues.
Solution In response to this driver British Airways‟ board decided to develop a Programme of work on Climate Change. The Programme first sought to identify ways in which the company could reduce its own impacts. By auditing its emissions and energy use, targets for reduction in these areas were developed – for example, a fuel efficiency target of a 30% improvement between 1990 and 2010. To date this represents a saving of 50m tonnes of carbon dioxide (CO2) emissions. A second strand to the Programme evolved from its interaction with the UK Government, to promote long-term solutions for the industry based on trading carbon emissions. In 2001 British Airways joined the UK Emission Trading Scheme (ETS). The company was asked by the UK Government to set voluntary emission reduction targets covering its domestic air services and UK facilities. (The carbon emissions saved can then be sold to another company, which needs to go above its carbon emission allowance).
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British Airways agreed to participate as it provided an excellent opportunity to get some firsthand experience in one of the world‟s first emission trading schemes. The government also pays an incentive so that companies in the scheme make the best voluntary reduction possible. British Airways set a target of total reductions in annual emissions of 125,000 tonnes of CO2, to be achieved over the five years 2002-2006. In 2004 the company agreed with the UK government to increase the voluntary target. Since September 2005 and as part of the Programme, British Airways has been piloting a carbon offsets project. This allows passengers to offset the carbon expenditure caused by their travel, by investing in carbon offsets projects. Take-up so far has been slow, although BA has been active in promoting the scheme with a press launch, emails to executive club members and articles in magazines. One inhibiting factor has been the increase in fuel surcharges, which may have made passengers less interested in paying for other additional costs. Another strand to the Programme arose from the lack of knowledge in atmospheric science and the relationship between aviation, the atmosphere and climate change. For example, what are the effects of aircraft induced cirrus clouds on climate change? British Airways participates in the European Commission‟s research programme (IAGOS), which was established in April 2005. As part of the research, British Airways will look at the feasibility of fitting special instruments to the outside of its planes to measure and monitor the atmosphere during during flights. In developing its Climate Change Programme, British Airways has had to overcome several challenges, some of which still remain. The political environment in which the company operates harbours many different views on climate change and there are different levels of awareness surrounding the topic. This means that airlines take different views, as do governments. In the UK the government (through its White Paper on aviation) has made it clear that expanding the aviation industry will mean that the industry has to deal with environmental issues. However, the governments of many European countries have not gone through such detailed consultation and analysis and may not have such clarity on the issue. Another challenge to the company was the cost implication of taking action when others within the industry were not. British Airways has attempted to deal with these challenges by improving understanding of the issues, proactively leading and stimulating the debate through direct advocacy with government and participation at various fora.
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Business Benefits
Feedback from government and from experts on the environment has revealed that the Climate Change Programme has positioned British Airways as a responsible airline. By becoming more involved in the debate, it has been able to steer that debate towards (in its view) the most sensible proposal of emission trading, rather than other interventions that could be expensive for the industry. In this way, British Airways has been better able to manage its risks. The investment community has acknowledged this, and because of this it has enabled British Airways to attract investment. A final benefit has been that, owing to its and other companies‟ attitudes to environmental sustainability, there is a genuine prospect of expansion at Heathrow Airport offering new opportunities for growth to British Airways.
Why CSR? The Climate Change Programme is CSR because it is about taking actions to reduce its impact on the environment. Climate change is a growing threat to the environment and to societies everywhere. British Airways‟ actions on climate change go beyond compliance, demonstrating that it is taking voluntary actions to reduce its contribution to carbon emissions and better understand its impact on climate change.
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Revenue Management Objectives
Produce a demand forecast based on market data, commercial objectives, and calendar-related events. Adjust demand forecasts based on environmental changes, management guidelines, and performance metrics. Set up and manage an allocation strategy using the revenue management system tools in a systematic and efficient manner. Prioritize administrative administrative tasks .
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Research Methodology This research is Analytical with qualitative approach. In Analytical research, the researcher has to use facts or information already available, and analyze these to make a critical evaluation of the material. Based on the information and various secondary sources, I go through the revenue management scenario worldwide and able to analyze its current and futuristic trends. Also find new Revenue Management Strategies and challenges and to some extent try to predict future of the Revenue Management based on the industry experts views. the basis of data collected from from the primary and secondary Sources the Key Areas of Revenue Management are 1) Forecasting: F orecasting orecasting is an important component of planning in any enterprise; but it is particularly critical in airline revenue management because of the direct influence forecasts have on the booking limits that determine airline profits. Forecasting for airline revenue management system is inherently difficult. Competitive actions, seasonal factors, the economic environment, and the constant fare changes are a few of the hurdles that must be overcome. In addition, the fact that most of the historical data is censored further complicates the problem 2) Pricing: Pricing has been around as long as people have traded. Pricing of product or services represents the knowledge and understanding of their product and ultimately determines the growth prospectus of the organization. If product and /or service is not exclusive or not providing the desired satisfaction to the customer or unable to give value for money, will not succeed. On the other hand if product and/or service has high level of customer satisfaction and high manufacturing /operating costs it will lead to increase in the time period of reaching its breakeven point and loss of revenue. Thus price is to be determined in such a way that firm can reap the profit of increase in demand and let customers to take the advantage of availability of product and/or service
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3) Seat Inventory Control : Inventory control system basically means the procedure by which the product or the finished commodity is being controlled in the market. The system depends upon the commodity that is being offered by the producer, if the commodity is perishable the inventory system is different from that of for durable goods. But when we talk about service industry we don‟t think of a commodity rather we think of a service, for e.g. like in Aviation industry. They don‟t offer a tangible commodity rather they offer a product which can be experience but can't be touched or felt. As we talk about FMCG market we get a tangible commodity in hand but when we compare it with Aviation sector we get an intangible commodity in terms of experience.
4)Overbooking : The travel industries industries in particular are plagued by the problem of “no-shows” – people who book inventory and then do not show up to use it (or pay for it). The attachments of cancellation penalties to airline discount fares are attempts to mitigate this problem, which have met with some success. To compensate for no- shows, travel firms “overbook” their capacity, trading off the possibility of empty units if they don‟t overbook enough against the ill will and out-of-pocket compensation to customers that occurs when customers are “bumped” (airlines).
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Future of Revenue Management What will drive the future of RM? Pricing transparency Computing power and database manipulation Understanding of consumer behavior (especially web analytics) Consumer tolerance for being „RM‟d‟.
Pricing transparency has grown quickly over the past several years. From the days when pricing was transparent only to the travel agent, to the advent of online agencies like Expedia, Travelocity and Orbitz, to the creation of information conduits, like Kayak and Sidekick. Such transparency has made the other airline‟s selling price much more relevant to the determination of my optimal selling price, such that RM systems will need to get much better at knowing the competition‟s price and incorporating it into the calculation of future demand and the elasticity of demand. I expect that airlines will figure this out, gradually, over the next ten years. Computing power will make the incorporation of competitive prices viable. It will also enable more tailored offerings (such as genuine one-to-one pricing), as airlines learn how to use what they know about a customer to alter the offering.
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Conclusion
“Revenue management techniques provide tools to use consumer surplus through dynamic pricing‟. Nevertheless there is little doubt that dynamic price discrimination is economically important. The pricing system by most major airlines is opaque to the customer. The only thigh which customer came to know about the airline is the quality of service. By applying the dynamic pricing techniques and by providing best services to the customer, airlines can increase the revenue and also the loyalty of the customer to the brand. “
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