Air Asia Revenue Management Term Paper

Excerpt from Term Paper :

Capacity Constraints at Air Asia

Air Asia follows a low cost carrier model, offering a range of flights across more than 20 countries and working with associate companies to provide access to more destinations, including long haul flights through Air Asia X. A key success factor for low cost airlines is the efficient use of resources in order to maximize revenues while holding down costs. In any industry there will be capacity constraints; factors which limit the level of production or service provision. Revenue management requires an understanding of capacity constraints in order to manage them in an effective manner. The airline industries, and therefore Air Asia, have some significant constraints, such as the number of aircraft, number of available seat for passengers, availability of staff and constraints due to international aviation regulations. The way constraints impact on operations and revenue management, along with the way in which the firm may reduce or overcome those constraints will all be examined individually.

Aircraft Constraints

The most obvious capacity constraint for an airline is their fleet. Air Asia has a fleet of 123 aircraft, all provided by airbus (Air Asia, 2012). If the airline has only 123 aircraft, the maximum capacity at any point in time will be the number of passengers that the fleet can carry if fully booked; in turn each aircraft will have its own maximum capacity for the number of passengers that it can carry. If an aircraft can only seat 120 passengers, they cannot carry 121, the capacity is fixed. The capacity of an aircraft is fixed at the time the order is placed; aircraft manufacturers provide different potential configurations, which different numbers of seats. For example the Airbus 330 family gives the choice of different seat types ranging from business class seats that are 27 inches wide, to the high efficiency economy seats which have a cushion of 16.7 inches (Airbus, 2013). The smaller the seat size the greater the number of seats in the aircraft (Airbus, 2013). For airlines seeking to maximize capacity, including the low cost carriers, there will usually be a preference for the smaller seats so a flight can carry more passengers. Larger seats reduce the capacity, but when optimizing revenue streams, revenue managers will look at the premium that can be gained for the larger sized seats, to determine the optima mix of seat types.

When examining Air Asia, in line with other well-known low cost carriers, such as the U.S. carrier Southwest Air who developed the low cost carrier model and Irelands RyanAir, the firms all pursue the maximum capacity model, with only one class of economy seats; increasing the number of passengers per flight.

When examining capacity, the number of passengers will not be the only constraint for individual flights, there will also be weight of the loaded aircraft. The weight of the aircraft will be assessed with the use of an average weight for passengers, with the addition of the luggage and any cargo that is carried, and fuel. The longer the flight, the greater the weight of the fuel carried. Weight limits are a constraint, and potentially reduce the number of passengers which may be carried (Pilot Friend, 2013; Joshi et al., 2004). This is the main reason for limits on luggage, and why many low cost airlines, including Asia Air, will charge an additional cost for baggage, charging for both the additional weight and the additional services needed for handling the baggage (Air Asia, 2013).

The weight of the aircraft may also impact on the overall capacity of the number of passengers which may be carried in a specific period of time, the weight of the aircraft, along with the design, will have a direct impact on the velocity it can achieve; increased weight may slow down the speed and reduce the overall capacity on a route over a period of time (Joshi et al., 2004). The design of the aircraft will also impact on the equations that

The capacity is further limited by the operating factors and efficiency of an airline. The greater the proportion of time that an aircraft spends in the air, the higher the potential revenue generation will be. However, to operate aircraft there are other processes which need to be completed, not only the embarking and disembarking of passengers, but the cleaning of the aircraft and preparing them for flight and maintenance requirements. The capacity of an aircraft is further limited, due to the operational requirements. While the number of seats does not change, unless there is a refitting of the aircraft, the airline does have a degree of control over the time taken on the operational tasks. The greater the time taken for these tasks, the lower the potential capacity. Air Asia has limited the potential constraining impact of these factors; the efficient turnabout of aircraft once they have landed increases the amount of time the craft are in the air. Turnaround, which include the disembarkation of passengers once the aircraft has landed, the cleaning and preparation of the plane, including loading of provisions, luggage and refueling, and the boarding of the new passengers is undertaken in an average of 25 minute for Air Asia short haul flights and 60 minutes for the long hauls flights; the fastest turnaround time in the region (Air Asia, 2013).

These are physical constraints, which can place airlines in difficult situations, especially where there are capacity constraints in markets where there is uncertain demand (Dana, 1999). There are also constraints' from the types of tickets sold. The problem is most acute where airline provide flexible tickets allowing passengers to choose a flight after the ticket has been booked. Flexible tickets increase uncertainly as airlines, will need to allow for flexible tickets holders turning up, expecting to board the flight, meaning they will need to hold a number of seats back on each flight to allow for these passengers. The cost of holding back those seats and the impact this may have on the overall capacity is compensated by the higher ticket price. Airlines which offer flexible tickets are also likely to offer standby tickets, which do not guarantee a seat, but generate less revenue. Air Asia has only a minimal issue with this type of constraint, as all tickets are sold for a specific flight. Most tickets are non-refundable, and those who want some flexibility may purchase a ticket with the ability to make changes (at a charge) for a premium price (Air Asia, 2013). This reduces uncertainty regarding demand for a specific flight, and the airline can mange capacity more effectively.

The aircraft are a major constraint, there are ways of minimizing some aspects, such as strategies to discourage luggage and hold down weight, buying aircraft which are configured for maximum utility and reducing time on the ground, but the only way of increasing the maximum capacity is to increase the fleet size, or otherwise gain access to more aircraft.

Staffing Constraints

The aircraft are a primary constraint; for the aircraft to fly the organization needs to have the right staff with the relevant qualifications. If there is a shortage of staff, the airline will have a different constraint and be unable to fully utilize the aircraft.

The capacity constraints due to staff are not limited to simply having the required number of fully qualified staff, but the regulations that have been put into place by the international aviation industry. For example, there are limitation on how many hours can be worked as well as number of take offs and landings by pilots. The hours are limited in a daily, weekly, monthly and even annual basis, with no flight crew allowed to work for more than 60 hours in any consecutive 7 day period, 100 hours duty in a 14 day period and…

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