Production & Operations Management

16 Pages 4013 Words

ns- wherein the focus is on maximum utilization of existing resources, while maintaining on-time departures and convenient flexible schedules confirming to best aviation safety and service standards and secondly Revenue-wherein the focus is on maximization of revenue being a trade off between flexible capacity and the existing capacity constraints. Low cost airlines are making a big impact on the profit margin of large carriers so in the uncertain environment and injection of private airlines in the aviation business increasing, the subject of profitability management becomes ever more important. The term yield management has been coined in the airline industry and its objective is to manage the product inventory in such a way as to maximize revenue. The intelligent use of the yield / revenue management concepts and principles is to increase profitability in service industries.

One of the greatest potentials for profit improvement comes from improved management of airline's capacity (seat inventory). A typical airline's annual seat inventory is worth over $ 1 billion. Hence a mere 1 % improvement in the effective utilisation of inventory would be worth a $10 million annually.
(Source Managing Uncertainty- Airline Business Magazine)
Capacity can be defined as the maximum level of value-added activity over a period of time that the process can achieve under normal operating conditions. (Slack et al 2004).

Markets determine the way organizations need to manage capacity. If the market is strong the organization could be working at peak output and still not able to meet the demand whereas if the market is strong then most organizations try to evolve a new product or enhance the product thereby slowing the supply effectively managing capacity.
Capacity planning if managed effectively can result in maximizing revenue and profits.
An appropriate balance needs to be maintained between capacity and demand which can generate high profi...