Because services cannot be stored, temporary imbalances between demand and supply present a difficult challenge for managers of service organisations (Cronin and Shemwell, 1994). Aiming at managing demand and supply is rather important factor for airline development. The managing demand and supply plays an important role in the development and growth of airline through competition Aviation industry has become more and more difficult since the competition grew in recent decades. Furthermore, affect as credit crunch aviation industry is in difficult times at present.
This report is based on assignment 1, which has described two airlines service marketing aspects. The report analyses and discuses the demand and supply management through British Airways operations. The company is considered in terms of the positive and negative factor they faced, which will affect airline’s demand and supply levels. Next, it will go into deep analysis of British Airways’ demand and supply management. A recommendation and an appropriate solution are then made with special respect to the impact of service management and current economic situation.
British Airways is overdependence on the European market for its revenues (DATAMONITOR, 2009, 7). It drives about 62.5% of its revenues from European market (DATAMONITOR, 2009, 8).
Compare with low cost airlines:
Short routes flight is cost more than other budget airlines, such as Ryanair and EasyJet (BA, 2010). This affected by their market positioning which already described in assignment 1 (Appendix III).
Airport location and flight route:
Some flights are not directly flying to Birmingham, such as Beijing to Birmingham. It has to change the flights twice to get to the Birmingham International Airport.
British Airways were paying more attention to their executive club members more than economic class passengers.
Managing Demand and Supply
The common strategy use in demand management by many service organisations is offering their service to customers through reservation or appointment (Haksever, 2000). It is common that most of airlines are using IBM’s reservation, check-in and boarding system and British Airways is no exception. The function of system include reservations, management information, flight planning, ticket issuance, fright billing, market research and location control (Copeland and McKinney, 1988). The increase in demand for scheduled air travel is being driven by the international segment. Between 2004 and 2008, passengers uplifted on international flights raised by 37.7% to 83.8 million and include included a 5.1% rise in 2008. Domestic scheduled air travel, by comparison, reached a 5-year peak of 23.1 million passengers uplifted in 2005; since then the trend has been down. In 2008, 20.9 million passengers were used domestic scheduled flights in the UK, a 5.2% fall on 2007 (Key Note, 2010). The reservation in airline is all too often. Only a few people buy ticket at the airport. It is efficient that in making decisions in managing both demand and supply.
According to above statistics, airline can take action into manage their capacity in order to match demand. Therefore, the scheduled air traffic is easy to control and manage their capacity. It will easy to stretch and shrink, such as offer inferior extra capacity at peaks and using the related data to extend or cut hours of service. (Martins, 2010)
It is true that almost nobody likes to wait at the airport (Martins, 2010). In response, many firms are made a variety of plan to enhance customers’ waiting experiences. These plans are based on either superior operations or on creative management of customers’ perceptions of time (Larson, 1987). However, customers in bad felling who are experiencing the condition may with for time to pass quickly and thus may either be less patient waiting for service (Laroche, 2005). Moreover, reducing waiting time may be a critical component of both demand and supply management. Some techniques are available for organisation to reduce waiting time and its negative impact on customers and service organizations (Haksever, 2000). Therefore, many airlines are offering online check-in service in 24 hours before flight departure time. British airways provide a special check-in service, such as check-in through mobile phone. It is available to all customers with a mobile-enabled phone and it requires no downloads or software and also allowing families to choose seats together (BA, 2010). According to assignment 1, there is a blueprint for British Airways. There is a lot of process until passengers boarding. In this report, there is a specific blueprint for online check-in service of British Airways in appendix 1.
Finally, Information is useful for demand and supply management strategies, such as historical data on demand level and composition, segment-by-segment data, meaningful location-by-location demand variations and customer opinions of quality at different levels of capacity utilization (Martins, 2010). Therefore, airlines have to analyse and plan by historical data and learn how it performs under different conditions.
Understanding customers and their needs
According to Hakserver et al., (2010, p.294) the simplest to managing demand effectively is trying to understanding customers and their needs. A service organisation must collect customer’s demographic characteristics information, such as sex, age, annual income and occupation, lifestyle and their requirements, or any other relevant data that can be found (Hakserver et al., 2010).
According to British Airways presentation, they think it is quite important to understand what customers think about their service and products in different markets and customer segments, on different routes, at different airports, and even at different times of the day, in order to keep increasing their capacity to match customers demand (BA, 2010). Furthermore, British Airways using internet members register process to collect customers’ data and some characteristics. According to analyse customers’ data, they may try to sort out customers into different level then adjusting capacity to match demand.
Service capacity and demand in random changes
The heavy demand will result from insufficient capacity. On the other hand, insufficient demand will result from excess capacity. According to this inference, the overbooked airline flight is the result of too few sits on the aircraft (Fisk et al., 2004). Furthermore, natural disaster is also affecting demand level, such as Icelandic volcanic eruption happened last week. Icelandic volcanic ash cloud lead to a million of travellers stranded at the airport.
Airlines’ demand affected by a lot of things, such as weather, health problems, accidents, fires, crime and natural disasters (Martins, 2010). Therefore, all of those are unpredictable events that most of airlines will not be able to avoid it.
Icelandic volcanic ash cloud is the biggest influence for aviation industry at this time. It affects not only United Kingdom but also almost whole Europe. The International Air Transport Association (IATA) conservative estimate the Icelandic volcanic eruption get financial impact on airlines is in excess of US$200 million per day in lost revenues. In addition to lost revenues, enormous added costs is a disaster for airlines, such as re-routing of aircraft, some fixed costs, care for stranded passengers and stranded aircraft at various ports (IATA, 2010). Moreover, there is 1.2 million passengers a day were affected by volcanic ash cloud. (BBC, 2010)
Unfortunately, British Airways affected by volcanic ash cloud. This cost them a lot of money and revenue. BA chief executive Willie Walsh (2010) said: “This is an unprecedented situation that is having a huge impact on customers and airlines. We continue to offer as much support as we can to our customers. However, these are extraordinary circumstances that are beyond all airlines’ control.”
It is an unpredictable factor for all airlines because airlines capacity could not match Customer’s fast-growing demand. The airlines can do anything about it. The numbers of plans are down to the bare minimum. It is easy to operate airlines when under normal circumstances. However, the airline is back to the normal and over loaded aircraft transportation will make another chaos.
First of all, British Airways have to improving their check-in service at each of airport in UK (Martins, 2010). Secondly, public infrastructure has to improve. For example, they may have to provide foods and comfortable lounge for stranded passengers. Thirdly, start to use new Boeing Dream liner can also help them solve the problem. Finally, they can extend the hours of service to transport the stranded passengers (Martins, 2010).
Strategies for demand and supply management
Demand of service market influenced by many factors, such as price and competitors’ offerings and prices, income level of customers, accessibility, and so on (Hakserver et al., 2010). In normal situation, overall demand for airlines in Europe is fixed, because airlines have a lot of scheduled air traveller at peak and off-peak time. Therefore, advertising and sales promotion can be used to extend demand of potential passengers. Moreover, adjusting capacity to match demand is necessary for airlines, such as schedule downtime during periods of low demand, use part-time employees, renting airplanes and so on. (Martins, 2010)
It is true that aviation industry is a big investment industry and maintenance costs are also in a quite high level. “â€¦an airline only invests heavily if it sees sustained growth and high utilization” (Costa et al, 2002). In the other words, airlines have to cost more money to improving their capacity. It is the way to match customers demand. Therefore, each strategy the airline made will cost a lot of money. For example, BA bought 12 Airbus A380 Superjumbos and 24 Boeing 787 Dreamliner, to be delivered between 2010 and 2014, an order which has a list price of £4.1bn (BBC News, 2007). Furthermore, the Concorde was a big investment and the anticipated high costs of improvements may result in the Concorde never flying in regular service again. It was a lot of people’s dream to fly with Concorde from London to New York, because it just takes three hours to be there. Although price of the ticket is quite expensive, it was completely meet some customers demand. More than 2.5 million passengers have flown supersonically on British Airways’ Concorde until it retired (BA, 2010) However, the reason of Concorde’s early retire was the enormous maintenance cost, nose from aircraft takes off and lands, poor fuel economy and the accident happened at Roissy Charles de Gaulle Airport, which cause 109 persons died in the airplane (Concorde, 2000). Overall, the simplest method to expand airline’s capacity is to invest money on purchase airplane.
The ticket price is the main reason for demand reduction. On the other hand, fast-increasing air travellers will definitely increase the price of ticket. Icelandic volcanic ash cloud causes a lot of people stranded at the airport. The airlines capacity will over-load and some air travellers may face extra charges for flights they rebook due to the ash cloud (BBC News, 2010). British Airways has the lowest fuel hedging system in comparison with the biggest European carriers. Indeed, the airline was one of the big casualties of the high oil price in the beginning of 2008 when its shares fell below £2 for the first time in five years. This has resulted in the reduction of its winter capacity, grounding of old aircraft such as Boeing 747s, 767s and 737s, an increase of ticket prices and schedule adjustments. The increase in fuel prices naturally led to a increase in airlines’ costs through soaring jet fuel prices, which doubled over 2008 (Euromonitor International, 2009). According to this, the oil price increases in fuel surcharge has not been finish. It will inevitably lead to a rise in air fares. Therefore, Equilibrium wages and prices are the wages and prices that equalize supply and demand. That is to say, when prices climb, the demand decreases, and when prices fall, the demand grows.
First of all, the over dependent on Europe market is a big issue for British Airways. According to Beckford (2008) the number of Chinese students study at British universities has risen by fifty percent in a year. It is a quite big and attractive market that British Airways have to pay more attention. The peak-time for Chinese student make reservation is summer and winter holiday. They can plan more flexible routes and cost effective service during summer and winter holiday to attract Chinese students.
Compare with competitors in Europe aviation market, British Airways’ price is bit higher than others. There are many reasons, such as cost effectiveness. In addition, British Airways opened its new Terminal 5 at Heathrow Airport. However, the company experienced serious problems due to inappropriate testing and training of staff, which caused the cancellation of flights, missing luggage and a non-operational computer system. Moreover, the significant additional resources for the move to Terminal 5 further influenced the performance of British Airways (EBSCO, 2009). In response, British Airways may have to cut down further the numbers of employees.
The service quality of economic class has to improve, because the most numbers of passengers are travelled by economic class. It will affect British Airways potential customers. On the other words, it will lose demand from potential customers.
According to current economic situation and Icelandic volcanic ash cloud, British Airways’ capacity is being tested once again. No one knows what going to happen in future. However, according to analyse the historical data and provide cost effective service is the best way to improving their capacity and potential customers demand. Overall, some service marketing management, especially demand and supply management method is necessary for effectively managing airlines’ demand and capacity.
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Appendix I: British Airways’ Specific blueprint of online check-in service
(Source from: British Airways’ web page)
Appendixâ…¡: Service market positioning of British Airway
BREADTH OF SERVICE OFFERINGS
(Everything for everyone)
(Service and market focused)
British Airways is more fully focused
Market positioning of British Airways is not too high price in economy class but provide wonderful service experience for passengers. It provides a relatively high price but quality service.
Main products and services of British Airways
Club World London City
Premium Economy class
British Airways’ Service range:
UK and Ireland, Europe,
Middle East and South Asia
Far East and Australasia
Caribbean and South America
North America, Africa.
Appendix IV: British Airways’ service blueprinting
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