Airline Industry Analysis & Case Studies

This assignment delves into the complexities of the airline industry by exploring various aspects like airport efficiency, cost optimization, and risk management through derivatives. Students are tasked with analyzing a proposal for reducing misplaced baggage at an airport, comparing different options, and ultimately recommending the most viable solution. The assignment further investigates Air Norfolk's decision to utilize swap contracts for hedging against fluctuating oil prices. Students must analyze market trends and economic factors to assess the potential profitability of this strategy.

OPERATIONAL AND
PROJECT MANAGEMENT

TABLE OF CONTENTS
(B) Case of Harvey Talbot..........................................................................................................3
(c) Case study of Denton Grange hotel.......................................................................................4
(d) Case of Mustang airways......................................................................................................5
(e) Turista charters......................................................................................................................6
(g) Bagage handling problems at Denton airport........................................................................7
(h) Case study on Air Norfolk ...................................................................................................7
INDEX OF TABLES
Table 1: Estimation of cost to the firm due to free night service....................................................4
Table 2: Projected figure of revenue for Mustang airlines..............................................................5
Table 3: Computation of profit on various alternatives...................................................................7

(B) Case of Harvey Talbot
There are two alternatives and one of them is buying goods in bulk quantity which will
reduce cost of procurement for the firm. The second alternative which firm can use is EOQ for
inventory control. In order to identify viability of these two alternatives, it is necessary to
evaluate it. Same are discussed below. EOQ- It is a technique which is used to control stock at the workplace. By using EOQ
formula quantity that company needs to keep in its warehouse in order to meet demand of
custoemers on time is determined. When that inventory comes to an end inventory
manager places an order for purchasing of raw material. Hence, in this way stock holding
cost gets reduced for the firm. Use of this technique will indirectly lead to control cost of
procurement for the firm. If the firm will order raw material when required then it will be
in the position to purchase raw material up to that quantity which is appropriate for it in
order to meet demand of customers. Hence, firm will not purchase coffee bins in extra
quantity and in this way this method will indirectly help the company in controlling its
procurement cost. Bulk purchase- This is another alternative that can be used by the firm for controlling its
procurement cost. Under this, companies purchase raw material in huge quantity from
suppliers and get a discount on the same. Hence, if firm adopt this method then it will get
discount from its suppliers and this will lead to low cost of procurement for the firm. So,
both these methods will be beneficial for the firm.
Merits and demerits of these methods EOQ- The main merit of this method is that it is easy to apply this technique and same
helps in determining a quantity that firm must order to meet its requirements. The main
demerit of this method is that with change in time, demand also changes and some time
sharp increase or decrease is observed in the same. Hence, if firm strongly rely on this
method then some time stock may be excessive in the warehouse or vice-verse.
 Bulk purchase- The main merit of this method is that no big calculation is required and it
saves cost for the firm. If raw materials are purchased in bulk then firm is not required to
place order frequently. On other hand, it is getting discount on bulk purchase which lead
to low procurement cost. Hence, huge amount is saved if firm follow this alternative, but
the only limitation of this method is that sometimes it can be happened that firm

purchased raw material in bulk and suddenly demand fall. In such a situation due to low
demand large amount of stock will remain unused and storage cost of the firm will
increased.
Hence, there are benefits and limitation of both methods and it will be better to purchase material
in bulk because chances of sudden decline in demand are very less in the business.
(c) Case study of Denton Grange hotel
Table 1: Estimation of cost to the firm due to free night service
Charge 80
Number of guests 250
Total cost 20000
Number of guest (Late check in) 5
Free service cost 400
Actual profit 19600
Here, assumption is made that 5 people due to late check-in in the hotel will get an
opportunity of free night. If this happens then firm will bear cost of £ 400. Hence, firm will earn
less profit. In implementing this scheme, hotel may face lot of practical problems like it may be
difficult to determine whether the customer check-in time in the hotel. Suppose, there are two
persons one is guest and other is hotel officer. There is a minor difference in the hotel manager
and customer in terms of time in their mobiles. In such a situation there may be mis
understanding among both and customer may claim that he get delay in check in the hotel. Thus,
he will demand free night service from the hotel. On other hand, hotel manager will say that
there was wrong time in the guest watch and thus, hotel is not responsible to give free room
service to the guest. Thus, such situations may occur in the hotel which may lead to confusion
among the hotel management and prospective guest. If the matter gets stretched for hour then
image of the hotel will tarnish among the people even it is not in fault. Hence, it can be said that
this scheme instead of benefiting an organization may create problem for itself.
The second main disadvantage of this method is that under discount will be given to the
guests which will result in declining hotel profit to some extent. On other hand, cost of hotel will
increase. Hence, from this side also firm will face loss in its business. In peak season, hotel can
take some of steps to improve performance. Like it can establish multiple counters where at least

four employees will complete all formalities related to guest check-in in the hotel. By doing this
in single time period many gusts can check-in in the hotel and guest waiting time for check in
will also reduce. Firm can also use Que management techniques to manager Que at the
workplace. Third alternative is that hotel can give a specific room to the guests and can start their
check in process. Hence, guests will not get tired and all formalities in respect to check in of
guests will be completed in a proper manner.
Case of Mustang airways
Table 2: Projected figure of revenue for Mustang airlines
Peak and medium season
Passengers 300
Ticket price 200
Revenue 60000
Income from extra service 22.5
Expected customers that may take
service 160
Total extra revenue 63600
Low season
Passengers 300
Ticket price 140
Revenue 42000
Income from extra service 22.5
Expected customers that may take
service 112
Total extra revenue 44520
There are three seasons high, medium and low and price for the tickets are same in these
sessions. The only difference is that at the same price different customers are visiting in different
pick seasons. Hence, the main characteristic of the competitor that comes in light is that they are
not changing price of their tickets even season get changed. In order to influence customer

demand and to maximize revenue firm can determine two price levelswhich will be 200 and 140.
In the peak or medium season airline company will charge price of 200. In case of peak season,
people will identify that firm is giving services at a medium price and due to this reason they will
prefer to take benefit of services given by the airplane company at the low price. In the peak
season, firm will receive huge number of travelers for different destinations. On other hand, in
case of medium season also firm will keep same price and will earn huge profit relative to
competitors because its word of mouth marketing is already happen among the people during
peak season. This create good image of airplane among the people and at the same price in the
medium season firm will earn good profit. In case of low season, price will be 140 because there
is low demand for service in the market. By doing so, airline will be able to give tough
competition to competitors in the low season. In this way, firm will influence customer demand
and will earn profit in the business.
(e) Turista charters
The main issue in front of Turista charters is that in what proportion they should keep a
permanent and temporary employee. In order to determine this it is necessary to consider
employee cost factors and merits and demerits. In order to compare employee cost following
table is given below.
PA salary to permanent employees 32000
Per month salary
2666.66666
66667
Salary on contract basis 700
Salary on per month contract basis 2800
Minimum staff required in each airplane 5
For three airplane 15
Per month salary 40000
Salary on per month contract basis 42000
Regular 6
Temporary 9

From facts it can be seen that cost of permanent employees is lower then temporary
employees. In the each and every airplane there will be 5 crew members means 15 in three
airplanes. Drivers of airplane are very important people and it is necessary to keep drivers that
are permanent. By doing this cost can be kept low and firm will be able to ensured that it have
best pilots in its airplanes. Firm if take pilots from other agency then there may be security
concerns because it does not know about their working quality. But managers know about the
efficiency level of those who are working in the firm for long time (Belobaba, Odoni and
Barnhart, 2015). Hence, by keeping in mind security concerns pilot of company are taken in
airplane. Remaining three members of crew will be those who will serve the guests in the
airplane. These type of people does not need any specific professional skills of higher level.
Hence, such kind of employees can be taken on contract basis. High level of hospitality is
necessary in airplane because it is service of the firm by which employees get satisfied. If any
employee that is providing hospitality service leave an organization then quality of service in the
airplane can get disturbed easily which may lead to inconvenience to the people. If service is
taken on contract basis and one leave an organization then contract agency will immediately
provide another employee. Hence, in this way hospitality service will not get disturbed in the
airplane even someone leave an airplane. Due to this reason pilots are kept permanent and other
crew members are kept temporary.
(g) Bagage handling problems at Denton airport
Table 3: Computation of profit on various alternatives
Number of bags misplaced in a year 250
Cost for misplacement of bags 125
Total cost payable by airport 31250
Proposal 1
Fall in defect by 50% 125
Savings for Airport 15625
Proposal 2
Fall in defect from 70-90% 200

Savings for Airport 25000
Proposal 3
Fall in defect by 0.1% 0.25
Savings for Airport 31.25
There were three alternatives that were available to airport under first proposal there is a
probability that chances of defect will decline by 50%. Suppose if in a year 250 bags misplaced
in a airport then it means that same is paying a compensation which amounts to 31,250. If first
proposal is applied then in a year firm can save £15625. On other hand, if second proposal is
followed then savings will be £25,000 which means that savings are very high in case of second
option. Third, proposal is saving very small amount for airport and due to this reason it can not
be said that this option is viable for the firm. Second, alternative seems to be good for the firm.
(h) Case study on Air Norfolk
Derivative is an instrument that is used to hedge current positions that are hold in the spot
market. Crude oil is a natural resource whose price increase with increase in demand. Economy
of USA is in recovery stage and gradually world economy will also come on track. Hence,
demand for crude oil will increase across the world and this will lead to increase in price of
crude oil. Currently, market price of oil is 0.99 and there are strong chances that its price will
increase in future. Swap contract spot price is 1.04 per liter and current price is 0.99 which
means that firm requires that price of oil must at least jump by 5.05%. Current month is July and
up to November month prices can easily increase by 5.05%. hence, there is a very high
probability of earning a profit on the Swap contract. Hence, it will be better to accept fixed price
contract from Bronx.

REFERENCES
Books & journal
Aguirregabiria, V. and Ho, C.Y., 2012. A dynamic oligopoly game of the US airline industry:
Estimation and policy experiments. Journal of Econometrics. 168(1). pp.156-173.
Belobaba, P., Odoni, A. and Barnhart, C., 2015. The global airline industry. John Wiley & Sons.
Carlino, G.A., 2012. Economies of scale in manufacturing location: theory and measure.
Springer Science & Business Media.
Clausen, J., et.al., 2010. Disruption management in the airline industry—concepts, models and
methods. Computers & Operations Research. 37(5). pp.809-821.
Myers, D. and CEcD, M.A., 2015. economies of scale. Economic Development Journal. 14(3).
p.11.