Revenue Management and Financial Analysis Report for British Airways

This report delves into the application of revenue management principles within the travel and tourism sector, specifically focusing on British Airways. It begins by defining yield and revenue management, emphasizing variable pricing strategies and their impact on profit maximization. The report then explores the rationale and principles of revenue management, including value, distribution channels, direct booking strategies, and demand forecasting. It further examines various revenue management tools, such as capacity utilization, duration control, and discount allocation, and analyzes the effects of differential pricing strategies. The report also addresses the potential legal and ethical considerations, along with the impact of legislation and standards on British Airways' operations. Finally, it outlines financial record management, statistical record maintenance, and budget management, covering key financial statements and reporting mechanisms to provide a comprehensive overview of revenue optimization within the airline industry.

The Travel and Tourism
Business Tool Kit

TABLE OF CONTENTS
INTRODUCTION...........................................................................................................................1
PART 1............................................................................................................................................1
Definition of yield and revenue management.............................................................................1
Rationale and principle of revenue management........................................................................2
Applying revenue management tools..........................................................................................3
Impact of differential pricing strategies......................................................................................3
PART 2............................................................................................................................................4
PART 3............................................................................................................................................4
PART 4............................................................................................................................................5
References........................................................................................................................................8

INTRODUCTION
Travel and tourism industry is very large service industry which is related to act of
travelling to various locations either for pleasure or business purposes. It has become one of the
largest civilian industry of the world as per the statistics as one out of 10 person forms the part of
travel and tourism industry. Travel and tourism services includes food and drinks, lodging,
transportation etc. In this report British Airways is taken as an organisation, which is airline
company of UK which has got its headquarters at Waterside, Harmondsworth. Present report
discusses the key principles of managing the revenue of travel and tourism industry also, this
report includes managing Human Resource life cycle. This report also discusses the potential
impact of legal and ethical consideration on the business and managing of budgets and
maintenance of financial and statistical records within the organisation.
PART 1
Definition of yield and revenue management
Yield management can be defined as variable pricing strategy which is based on the
understanding as well anticipating and influencing the customer behaviour to gain more revenue
and profit from fixed or limited resource for example airline seats bookings. It simple terms yield
management is when a company prices its products or service in order to make most money by
offering the right price at the right time (Dzhandzhugazova and et.al., 2016). It is very common
tactic which is used within the travel and travel tourism industry in order to gain profits. With the
help of yield management British Airways can focus on optimising its selling and pricing
strategy for their single most important resource which is booking of airline seats.
Revenue management can be defined as applying disciplined analytics that helps in
predicting the behaviour of the consumer in the micro-market levels and maximising the product
availability as well as maximising the growth of the revenue. Revenue management in Airline
company can be very tactical but is an essential tool for the company. So, British Airways with
the help of this tool can gain a competitive advantage over others. Also, with the help of revenue
management British Airways can manage their various revenue models like subscriptions,
products and services and help in generating more revenue for the organisation. Revenue
management also allows the company to be more consistent across the different channels and to
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be more customer friendly as well as more efficient which is important for the Airline company
to generate revenue.
Rationale and principle of revenue management
Revenue management can be really important for British Airways as it can help the
company to lower the costs and with revenue management strategy in place it will not only help
the company to determine the best rate for pricing airline seats but also enables the company to
plan ahead through optimisation of human resource at the periods of higher demand. It will also
allow the company to avoid the over staffing in the organisation at the period of lower demand
(Altinay, Paraskevas, and Jang, 2015). Revenue management can help the company to predict
the consumer demand for maximising the inventory and optimising the pricing availability to
maximise the revenue growth for the organisation. It can also help British Airways in achieving
the best possible financial results which can help the company in gaining the competitive
advantage over its competitors.
There are various principles of revenue management which can be explained below:
Principle 1-Value: While managing the airline revenue company must understand that it is all
revolving around a value, it is not only about the value that company advertises but also includes
the perceived value that can be collected from feedbacks as well as surveys.
Principle 2-Distribution Channel: Distribution channel is only a marketing channel for the
company, marketing budget for the company are very limited when there is a thing to provide
resources to marketing department. So, it is here where the manager has to pick perfect
marketing channel for the organisation.
Principle 3-Direct booking: As company already knows that customer can book air tickets by
contact any of the external partners, so there is the high chance of company's customer becoming
loyal to company' partner instead of the company. So, British Airways should develop a pure
booking strategy by providing the external services to customer who books the ticket directly.
Principle 4-Demand forecasting: It is the most important part for Airline revenue management,
so for not exceeding the budget limits manager of the organisation has to know the project
revenues costs and needs. It can be done by mapping the origin of demand and identify the
booking trends.
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Applying revenue management tools
Various revenue management tools which can be applied by British Airways are as
follows:
Capacity Utilisation: It refers to a measure of extent to which productive capacity of the
business is being used. In technical terms it can be defined as total capacity that is achieved in a
given period (Talón-Ballestero and et.al., 2018). Capacity utilisation is measured by using the
passenger load factor which is normally derived by dividing the traffic numbers by capacity
numbers.
Duration Control: This tool places time constraints while accepting the bookings to protect the
sufficient space for different day requests which represents the high level of revenues.
Discount allocation: British Airways can offer discount fares within the specific class of service
which can help the company to stimulate the demand (Tom, 2019). There are three distinct class
of services such as 1st class, business class and economy, all these classes are distinguished by
identifiable features like size, seat pitch, meal service etc for which customer is willing to pay
higher price.
Late booking Strategies: Company can also develop a late booking strategy for the customers
which can help the company in generating more revenue from the single flight.
Impact of differential pricing strategies
Differential pricing may be defined as the process of charging different prices for
different customers for the same product and it is also called price differentiation or price
discrimination. This pricing strategy is mostly used in airline industry where prices keep on
fluctuating for booking air tickets. It can have a strong impact on the revenue management of the
company it allows to expand to company's existing target audience towards new groups which
can bring more revenue for the organisation. It also helps the company to make its business to be
more attractive which attracts different type of customer towards the products by offering
different prices depending on the customer's paying ability (Brondoni, 2016). It is the best way
for generating revenue for the company. Differential pricing can provide a company to build
loyal customers which can help the company generate higher levels of revenue for the company.
Differential pricing may also result in the decrease in revenue of the organisation either
permanently or temporarily. Sometime customer may perceive the cost high due to which
company may lose their customers as they may not be able to afford these prices. So, it is
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important for the British Airways to set a proper differential pricing for the various services
offered to customer which has the capability for generating more revenue for the company.
PART 2
COVERED IN PPT
PART 3
Potential Impact of legal and ethical considerations on British Airways
There is a strong relationship between regulations, legislation and standards, ,regulation
is the detailed instruction of how laws are enforced which are often referred as rules which are
to be followed by the organisation various. While as standards helps in making the things work
by providing the guidelines for offering the products and services. Standards can help the
organisation in ensuring the safety, quality and efficiency of the work performance of the
organisation. Legislation is the set of laws which are set by the government and made official
by the parliament of the country (Navío-Marco, Ruiz-Gómez and Sevilla-Sevilla, 2018). The
relationship that exists between regulation, standards and regulation is that legislative body of
the country pass laws and then government agencies develop regulation in order to implement
the laws and then development agencies create as well as approve the accredited standards. So,
there is a step by step relationship between the three. A specific legislation which British
Airways has to follow is Civil Aviation Act 1982, which deals with the trespassing of aircraft,
aircraft noise, aircraft insurance. etc. There is a huge body of secondary UK legislation which is
concerned with civil aviation. So according to these legislations British Airways have to adhere
various policies like it has to follow the safety regulations for the customer and has to establish
various safety standards while travelling. British Airways also has to generate licensing for
using a particular aircraft and to generate such licence it has to follow all the rules and
regulation formulated by Civil Aviation Authority (Joppe, 2018). It has also take into
consideration the passenger rights which are essential for the company to follow. Also,
company has to adhere the rules of accident investigations. It is also be noted that there is a
strong impact on the decision making process of the company due to company itself,
employment and contract law. Being aviation company British Airways has to take decisions
which is best for the company for example it has to adhere all the rules and regulation of CAA
in order to operate business smoothly. Company has to take decision how to gain licensing and
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how it has to follow the safety standards etc. Similarly employment equally impacts the
decision making for example HR. Manager has to decide how to recruit the suitable employees
from and has to take decisions how to keep them retained in the organisation. Contract law also
have a strong impact on decision making as there are some terms in the contract which are
compulsory for the organisation to follow for example termination of contract with aircraft
manufacturing company and then company has to take decision whether to extend the contract
or to sign the contract with another aircraft manufacturing company.
PART 4
To,
The Finance Manager
British Airways, United Kingdom.
Sir,
This report discusses about the how to manage the financial records, maintain statical
records and budget management for British Airways. There are various types of financial
settlements which can be used by the company are:
Balance Sheet: It is also known as statement of financial positions, it is the one of the major
important financial statement that every business needs (Barr and McClellan, 2018). It can help
the company to look at its financial position of the business at a specific period of time.
Income Statement: It is also the very important financial statement, it provides the company a
view of company's financial performance in given period of time.
Cash Flow Statement: With the help of cash flow statement company can understand how
well British Airways is maintaining its cash flows in the business.
Statement of Owners Equity: It shows the company's business retained earning i.e. the profits
to be retained in the business rather form distributing to owners at the end as well as beginning
of specific reporting period.
Also, there are three type of reporting mechanism which can help the company in
preparing the appropriate business reports they are as follows:
Operational Reporting: Main purpose of operational reporting is to provide British Airways
with the information of the company's current operational efficiency (Ross, Yan and Johnson,
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2015). For example profit gained from the proposed and closed sales.
Business intelligence reporting: The main purpose of business intelligence reporting is that to
give the company a much better and broader information perspectives as compared to
operational reporting by combination of data from many sources (David, 2016. ). This reporting
mechanism have changed over the years and can help the company in providing effective
business reports.
The financial statement of British Airways are as follows:
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It can be interpreted from the above balance sheet that the profit for the year of 2017
was 1,190 million Euros and 2016 it was 2,218 million Euros, so there is a decline in the profit
of British Airways.
CONCLUSION
It can be concluded from the above report that revenue management plays a crucial role
in the organisation and it can help the organisation in gaining profit margins. In order to manage
the revenue in the organisation company can apply various revenue management tools in order to
generate maximum profitability for the company. Present report also concludes that there are
various stages of HR. life cycle and HR. can play an important role in retaining and developing
the talent in the organisation. It can also be concluded from the above report that there is a
specific regulation which organisation has to adhere in order to operate smoothly and it can have
a strong impact on the decision making process of the company. Present report also concludes
that there are different types of financial statements as well as reporting mechanisms which can
be used by the organisation in financial reporting.
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References
Books and Journals
Altinay, L., Paraskevas, A. and Jang, S. S., 2015. Planning research in hospitality and tourism.
Routledge.
Barr, M. J. and McClellan, G. S., 2018. Budgets and financial management in higher education.
John Wiley & Sons.
Brondoni, S. M., 2016. Global Tourism Management. Mass, Experience and Sensations
Tourism. Symphonya. Emerging Issues in Management.(1), pp.7-24.
Dzhandzhugazova, E. A and et.al., 2016. Business administration in hotel industry: problems and
solutions (by the example of the Russian Federation). International Journal of Applied
Business and Economic Research.14(14). pp.651-660.
Joppe, M., 2018. Tourism policy and governance: Quo vadis?. Tourism management
perspectives. 25. pp.201-204.
Navío-Marco, J., Ruiz-Gómez, L. M. and Sevilla-Sevilla, C., 2018. Progress in information
technology and tourism management: 30 years on and 20 years after the internet-
Revisiting Buhalis & Law's landmark study about eTourism. Tourism Management. 69.
pp.460-470.
Ross, J., Yan, W. and Johnson, C., 2015. The public financing of America's largest cities: A
study of city financial records in the wake of the Great Recession. Journal of Regional
Science. 55(1). pp.113-138.
Talón-Ballestero, P and et.al., 2018. Using big data from customer relationship management
information systems to determine the client profile in the hotel sector. Tourism
Management. 68. pp.187-197.
Online
David, E., 2016. Three Types of Reports – every Travel Company Needs. [Online]. Available Through:
<https://w3.accelya.com/blog/airline-revenue-management-strategy-101-its-all-about-
alignment>.
Tom, B., 2019. Airline Revenue Management Strategy 101: It's All About Alignment. [Online].
Available Through: <https://w3.accelya.com/blog/airline-revenue-management-
strategy-101-its-all-about-alignment>.
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