Airline Revenue Management Strategies

This assignment delves into the complex world of airline revenue management. It examines various strategies employed by airlines to optimize revenue generation, such as dynamic pricing models, seat allocation techniques (illustrated with a 'Buckets' concept), and the role of financial statement analysis in evaluating performance. The focus is on understanding how these interconnected elements contribute to an airline's profitability.

The Travel and Tourism
Business Toolkit

Table of Contents
INTRODUCTION...........................................................................................................................1
PART 1............................................................................................................................................1
Presenting the key principles of revenue management and its application............................1
PART 2............................................................................................................................................4
Presenting the performance management plan.......................................................................4
PART 3............................................................................................................................................4
Describing the potential impact of legal and ethical consideration on British Airways........4
PART 4............................................................................................................................................5
Presenting the importance of suitable financial data for British Airways..............................5
CONCLUSION..............................................................................................................................11
REFERENCES..............................................................................................................................12

INTRODUCTION
Travel and tourism are the most important sector that contributes the biggest part for the
growth of economy and tourism is travel for business and a practise of touring in which their
business is to attract wide range of visitors. The report main aim is to understand the business of
tour and travel and it is based upon British Airways which is one of the largest UK airlines and
offer luxurious services to their passengers. The report present the key principles of revenue
management and its application to the airline industry. Further, report describe the HR life cycle
and the importance of HR plays in each stage and then it develops the performance management
plan in order to support the job role. Moreover, through article report presents the potential
impact of regulation, legislation and ethical principles on decision making in airline industry.
Lastly, through different financial data, report presents importance of those documents in airline
industry.
PART 1
Presenting the key principles of revenue management and its application
Revenue and Yield Management: Both the terms indicate the income management and
it is the capacity management system whose aim is to maximize the business volume. Further,
this is basically designed in order to control the capacity in such a way that helps to get high
return (Shihab and et.al., 2019). On the other side, revenue management in travel and tourism
industry is the application of price discrimination in which it demands of service which varies
seasonally.
Principles of Revenue management:
 In airline industry, the capacity is fixed and due to this the number of accommodation is
also fixed.
 Customers are also made reservation in order to book their seats.
 The demand is higher at weekend times and summer holidays as well.
 The cost of the offered services are fixed and as the booking in British Airways are done
on online which means that they earn high amount of percentage (Capocchi, 2019).
There are different ways which are applied by airline industry in order to use revenue
management tools for maximizing profit and some of them are as follows:
Capacity Utilization: Yield per management is the effective tool that is mostly used by
the airline industry whose main aim is to maximize the revenue of the company and it has three
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essential domains such as pricing strategy, control of availability and inventory control. For
example, British Airways use this strategy in order to attract visitors such that they offer the seats
at discounted rates and during holidays time, the customers are willing to pay whole amount. On
the other side, when the dates are come closer the airlines, goes up their prices and it helps to
maximizing the profit and help to generate the revenue (Pricing strategies for airlines, 2018).
Discount allocation: This is another strategy which is used by the industry in which they
determine the number of seats to allocate for discounted fare versus full fares. Such that British
Airlines, makes some reserve for discounted prices and some seats are of full fares because when
some seats are protected and some are vacant it means that the company bear loss. That is why it
makes discount strategy.
Late booking strategies: In this strategy, British Airlines also adopt this strategy in
which when the booking dates are come closer than the company raise the fares of the seats and
the customers have to pay such amount. This strategy is consider one of the most important and
effective strategy in order to generate higher profit as compared to others.
The airline industry also uses different variety of differentiated pricing strategy in order
to generate high revenue and even it is also analyses that most of the airline including British
Airlines also used differentiated pricing to sell their air services at different prices to different
segments (Capocchi, 2019). Moro ever, the carriers also attain it by dividing each of the cabin
into number of travel classes for pricing purpose and this is called buckets at higher and when
the dates come close, its price are raise higher.
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However, it has been critically evaluated that now the airlines industry are focus on some
strategies to maximize the revenue and it can be derived from the available capacity in given
time in order to determine the optimal mix of fares and volume of business to sell each flight.
There are different pricing strategies which are used by the Airline industry such as:
Last minute Travel deals: In this strategy, the company goes their flight fares high from
last two days of bookings. It Is further analyzed that airline do hold some spare seats which are
sell at premium to last minute business travelers who are not enjoyed from any discounted prices
(Capocchi, 2019). Thus, in this way, British Airways also book some tickets and earn better
amount. This creates positive impact upon the business and helps to maximize the profit margin
for British Airways.
Two to Go deals: It is one of the easiest way for airlines to make additional profit In
order to differentiate between leisure travelers and business travelers. Such that leisure travelers
are price sensitive and they did not willing to pay high price while on the other side, business
travelers do pay. Thus, the airline make differentiate from two classes and get to maximize the
profit from business travelers without losing as a customer.
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Illustration 1: Allocation of Seats (Buckets) with Ticket Price

PART 2
Presenting the performance management plan
Covered in PPT
PART 3
Describing the potential impact of legal and ethical consideration on British Airways
Legal and ethical consideration on British Airways
All regulations, standard and standard are three different terms but they share a close
relationship between each other such that they all provide specific laws and regulations that
have to be followed by the firm. Further, as standards make things wok by providing specific
guidelines for the system while regulation provide a detailed instruction on how the laws can be
carried out and this is mandatory for the business to adhere with it. On the other side, the laws
are the system of rules and statutes which are made by the government and everyone has to
follow (Holloway, 2017). Thus, this shows the clear relationship between each other such that a
firm has to adhering all the things.
There are some laws which should be followed by British Airways, such that
 Civil Aviation Act, 1982: This act is deal with the safety of passengers.
 Civil Aviation Authority Regulations 1991: This act is supervising the issuing pilots,
licensing and testing the equipment. Further they also train the air traffic engineers in
order to maintain airports.
 Air carrier Liability Regulations 2004: This states that it is the responsibility of airline
that they responsible for safety and security of the customers.
Company, employment and contract law has creates a potential impact upon the business
decision making in an airline industry such that all the company have to keep adhering all the
laws so that it helps to sustain the company brand image and make good reputation for
customers and employees. For example, if British Airways follows Employment Act, then the
workers who work in the company are happy because the firm comply with all laws related to
wages, working hours etc. this leaves a positive impression upon them. Apart from this, if the
company also follow the contract law and also fulfill those terms and condition which are
signed by both the person, then it also creates a positive impression upon the customers because
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they fulfilling all the conditions on which both parties are mutually agreed (Bartlik, 2016).
From the above, it has been analyzed that the impact of regulation, standardization and laws
creates positive impact upon the decision making such that it helps to create trust among the
peoples that the business in which they are deal are safe and secure (Button, 2017). On the other
side, if the company have good reputation in market, then it also has a good customer base and
as a result, peoples are easily attracted towards it and as a result, the decision automatically
affected in positive way.
For example, if British Airways follow all the law such as Employment Act, company law,
contract law etc, then this helps to make them happy and feel comfortable in working
environment and on the other side, if the firm keep adhering all the laws and regulations then
the chances of selling a ticket will be more, because people are more concern about the health
and safety. That is why the firm make sure that it follow all laws whenever it changes (Dijkstra,
2017).
It shows the potential impact of laws and standards are positive in business decision making
process but on the other side, there are some ethical principles also which should be following
such as privacy, confidentiality, honesty and fairness should be maintained. Apart from this, the
action which the firm should take will be taking responsibilities, meeting the obligations and
telling the truth. However, it has been critically evaluated that if the British Airways did not
follow some ethical principles then it further creates negative impact upon the business and also
it will not sustain its brand image in market.
PART 4
Presenting the importance of suitable financial data for British Airways
Different types of financial statement: In travel and tourism industry, there are
basically four types of financial statement such as:
 Income statement: This report specify the financial performance of a firm for a specific
period such that it starts with a sales and then subtract all the expenses which are incurred
in order to arrive the net profit (Williams and Dobelman, 2017). Therefore, it describes
one of the most important statement because it reveals performance and it is also known
as profit and loss statement.
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 Balance sheet: This statement shows the financial position of the firm and it contains the
information such as assets, liabilities and equity. Further, the line items in the assets and
liability and their classification are also presented in the order of liquidity such that many
of the liquid items are also stated and it is one of the most important financial statement
 Statement of cash flows: This report shows the cash inflow and outflow which is
experience by the company during a particular period and this are further classified into
operating activities, which specify the cash flow from primary activities, investing
activities, which shows the cash flow from the purchase and sale of assets except than
inventories and financing activities that shows the cash flow generated and spent on
raising (Robinson And et.al., 2015).
 Statement of changes in equity: This statement shows all the changes in equity for a
particular period and these changes includes the issue or purchase of shares, dividends
issued. But this is not included in the financial statement but it is useful to management
team.
Importance and value of budget: Budgeting identifies the current available capital and
also provide an estimation of overall expenditure and anticipates the incoming revenue. Even the
budget is also ensured that the resources are available for initiatives that helps to support the
growth of a business (Guay, Samuels and Taylor, 2016). Further, it also enables the business
owner to concentrate on cash flows, reduce the cost and improve profit as well. Further,
budgeting in British Airways also helps in both planning and control the finance of a business
and on the other side, if there is no control over spending, planning is not made then the business
objectives are also not achieved.
Identifying the variance: To identify the variance, the following formula is used which
is as mentioned below:
Variance = Actual value – Expected value
For example: in British Airways, it spent £80000 during the past month on manufacturing the
plane and it expected value is £65000 then the variance is £15000 such that
Variance = 80000-65000
= £15000
Calculation of profitability: it is the total or net profit generated by the business in particular
period such that in year 2017, the British Airways net income is £1190 millions.
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Calculation of liquidity: It is the ratio that tells the ability in order to pay off its debt as and how
quickly the company can convert the current assets into a cash.
The liquidity ratio of company is 0.28 which is comes by adding cash and marketable
securities that is further divided by the current liabilities.
Calculating the investor ratios: These are the ratio which is used to assess the performance of
the company's share such as price earning ratio, earning per share and earning yield which can be
calculated by :
Ratio on equity = Profit after tax/ Equity
Dividend cover= Profit after tax/ Dividend
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Balance sheets of British Airways of the year 31st December 2017
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Interpretation: From the above balance sheet it has been interpreted that the profit of the
year is £1190 million and as compared to previous year, the firm generated more profit.
Balance sheet of Iberia, 2013
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Interpretation: From the above balance sheet it has been interpreted that company's total
liability is 4121 and total equity and liability is 5102. The profit of the firm is also increases from
past year.
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From the above, it is also realised that the company meet the target objectives of the firm
because the profit margin of the company is increases and as a result, the defined target will be
achieved as well.
CONCLUSION
By summing up above report it has been concluded that travel and tourism have their
own importance in the growth of economy. In the same way, the report also concluded some
principles of revenue management for British Airways and different pricing strategies which are
used by the firm in order to generate more revenue. Further report concluded through Hr life
cycle the role of revenue manager and also design the performance management plan. The study
further concluded through an article that the laws, legislation and regulation should be adhering
by British Airways in order to creates positive impact upon decision making. Lastly, report
concluded the importance of financial statement and value of budget by using examples of
British Airways' financial statements.
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REFERENCES
Books and Journals
Bartlik, M., 2016. The impact of EU law on the regulation of international air transportation.
Routledge.
Budhwar, P. S., 2016. International human resource management. Edward Elgar Publishing
Limited.
Button, K., 2017. Airline deregulation: international experiences. Routledge.
Capocchi, A., 2019. Revenue Management from a Business-Economics Perspective.
In Economic Value and Revenue Management Systems (pp. 101-119). Palgrave
Macmillan, Cham.
Capocchi, A., 2019. Revenue Management Systems Based on Dynamic Pricing. In Economic
Value and Revenue Management Systems (pp. 121-139). Palgrave Macmillan, Cham.
Capocchi, A., 2019. The Measurement of Revenue Management Policies: RevPAR and Yield
Rate. In Economic Value and Revenue Management Systems (pp. 167-189). Palgrave
Macmillan, Cham.
Dijkstra, A., 2017. Safety management in airlines. In Resilience Engineering (pp. 183-203).
CRC Press.
Guay, W., Samuels, D. and Taylor, D., 2016. Guiding through the fog: Financial statement
complexity and voluntary disclosure. Journal of Accounting and Economics.62(2-3).
pp.234-269.
Holloway, S., 2017. Airlines: Managing to make money. Routledge.
Iles, P. and Hayers, P., 2016. 12 Enhancing Global Learning and Change in. Organizational
Strategy and Technological Adaptation to Global Change, p.215.
Kimes, S.E. and Wirtz, J., 2015. Revenue management: Advanced strategies and tools to
enhance firm profitability. Foundations and Trends® in Marketing.8(1). pp.1-68.
Robinson, T. R. And et.al., 2015. International financial statement analysis. John Wiley & Sons.
Shaw, A. and Tasker, P., 2017. The Development of a UK National Strategy for Through-Life
Engineering Services: Rationale and Process. In Advances in Through-life Engineering
Services (pp. 17-23). Springer, Cham.
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Shihab, S. A. M. and et.al., 2019. Towards the Next Generation Airline Revenue Management:
A Deep Reinforcement Learning Approach to Seat Inventory Control and
Overbooking. arXiv preprint arXiv:1902.06824.
Williams, E. E. and Dobelman, J. A., 2017. Financial statement analysis. World Scientific Book
Chapters, pp.109-169.
Online
Pricing strategies for airlines. 2018. [Online]. Available
through:<https://www.singsaver.com.sg/blog/pricing-strategies-from-airlines>.
HR life cycle. 2018. [Online]. Available through:<https://smallbusiness.chron.com/human-
resources-life-cycle-62078.html>.
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