OPERATION FLOW IN-FLIGHT that enable trolleys to be rolled on

CATERING and off aircraft.

 At the heart of the flight catering
system is the flight production unit,
 “Flight catering system is probably which is part warehouse, part food
one of the most complex operational manufacturing plant, part kitchen,and
systems in the world.” part assembly belt (the layout and
design.

TOPIC 4: AIR INDUSTRY L| -

These facts and others like them make AIRLINE COMPANIES, AIRCRAFTS
flight catering unlike any other sector of AND REVENUE MANAGEMENT
the catering industry.
 For instance, a large-scale flight  Popular commercial Airline
catering production unit may employ companies: names, codes, route
over 800 staff to produce as many as  Types of aircrafts used by
25,000 meals per day during peak commercial airlines; capacity;
periods. classes of service
 A large international airline company  Overview -Fundamental Airline
may have hundreds of takeoffs and Revenue management,
landings every day from just their Airline Costs considerations.
main hub.
 While the way food is served on Airline companies using optimally its fleet
trays to airline passengers bears (aircraft owned or leased) will define the
some resemblance to service styles in kind of product and services offered in this
restaurants or cafeterias, the way highly competitive industry.
food is prepared and cooked
increasingly resembles a food  Maximizing all the elements will
manufacturing plant rather than a guarantee good revenue and good
catering kitchen. business standing.
 The way food and equipment is
stored resembles a freight  Familiarize with these elements- the
warehouse, and the way meals and airline company
equipment are transported and
supplied has a close affinity to  IATA Codes and city hub, the
military-style logistics and aircrafts -different categories and an
distribution systems. overview of airline revenue
 In response to forecasts of passenger management and airline cost
numbers on any given flight, the considerations.
production unit follows a series of
complex steps to produce trayed
meals and non-food items ready for
transportation to the aircraft.
 Transportation is usually carried out
by using specialist high-loader trucks
AIRLINES - CODES AND HUBS

 Air transportation, specifically commercial airlines, plays a crucial role in tourism

growth. Airlines may offer scheduled, chartered, low-cost or regional services operating
to/from their country.

There are numerous airline companies and city hubs at this age worldwide. IATA has assigned
airlines ,that passed requirements, a 2-letter designator code and a numeric 3-digit code for ticket
accounting purposes .These codes appear on passenger tickets and on cargo airway bills
(tracking document for air freight) to identify the carrier that is providing transportation. A
complete list of the airlines designators are available in the IATA Passenger Air Tariff -General
Rules Handbook. IATA City codes and Airport codes are also assigned.

II. AIRCRAFTS
  Part of airline planning, a crucial step in airline business, are the decisions faced in fleet
planning. "What type of aircraft to acquire, when and how many of each?"

 Passenger aircraft vary, but mostly they are categorized in most recent times, by defining
the aircraft type's 'range' and 'size'. In the industry, these technical details are aircraft
performance statistics. The "range" of an aircraft refers to the maximum distance that it
can fly without stopping for additional fuel, while still carrying a reasonable payload of
passengers and/or cargo while the "size" of an aircraft can be represented by measures
such as its seating and/or cargo capacity, as indicators of the amount of payload that it
can carry.

 If aircraft types have the same size and range, the industry will take it as competing
aircraft types such as A320 and B737, as both are single-aisle, twin-engine with around
150 seat capacity, and most of all, with similar range capabilities.

A more general way of aircraft type classification is by dividing the aircraft types into two
broad categories:
1. narrow-body
2. wide-bodv aircraft
Narrow-body aircraft have one walking aisle down the center with two or three seats on each
side. Wide-body aircraft have two walking aisles and thus a middle section of seats in addition
to the two sets of seats on each side.
 TYPES OF COMMERCIAL AIRLINERS (BASED ON BODY SIZE AND RANGE)

1. WIDE-BODY JETS (LONG RANGE) : The largest airliners,, also known as a twin-aisle
aircraft, is an airliner with a fuselage wide enough to accommodate two passenger aisles with
seven or more seats abreast .

Example: Boeing 747-767 & 777, Airbus A300/A310, Airbus A330, Airbus A340, Airbus
A380(which can hold up to 800 passengers)

2. NARROW-BODY JETS ( MEDIUM RANGE) : Single-aisle aircraft, permitting up to 6-

abreast seating in a cabin below 4 metres (13 ft) of width. Smaller airliners, generally used for
medium-distance flights with fewer passengers, i.e., destinations within continent.

Example: Boeing 717,737 & 757, Airbus A320 family McDonnell Douglas DC-9 & MD-
80/MD-90 series,

3. REGIONAL AIRLINERS( SHORT RANGE) : Seat fewer than 100 passengers, short
flights serving small markets and feed hub airports.

Example:Bombardier CRJ series and ATR 42/72

 AIRBUS AND BOEING, are the two main players manufacturers of the wide-body and
narrow-body jet airliners, while Bombardier and Embraer concentrate on regional
airlines.
 Airbus is based in Europe with its headquarters in Toulouse, France and has 12 sites in
Europe located in France, Germany, Spain and UK.The main products are A-series
 A320,A330,A340,A350 and A380. Around 2019 Airbus displaced Boeing as the largest
aerospace company by revenue.
 Boeing, the oldest aircraft manufacturer, is based in USA with its headquarters located in
Chicago. The main commercial product that Boeing manufacturers are the 737, 747,
767,777 amd 787 families of airplanes and the Boeing Business Jet, with nearly 9,000
commercial jetliners in service worldwide (about 50 percent of the world fleet).
Embraer is based in São José dos Campos, Brazil and currently are based in Brazil. Embraer
continues to lead the industry with its innovative regional and commercial jet product lines.

Bombardier Aerospace is the world's third largest civil aircraft manufacturer and are leaders in
the design and manufacture of innovative aviation products and services for the business,
regional and amphibious aircraft markets.Their headquarters are in Montréal.

As future travel practioners, we need to learn how we can increase passenger satisfaction by
knowing the product. If you happen to be a travel agent or an airline reservation officer, or a
customer service representative,your passenger will expect you to find them their preferred seats.
The configuration of a plane is the layout of seat and row identifications and the location of the
plane's galleys(kitchens), closets, and lavatories.

Seat maps are displayed in the airline reservation computer systems. When selecting seats, we
use seat maps to identify seat locations and availability. Each row is assigned a letter and
number. A common seating preference is an aisle or window seat. Bulkhead seats are positioned
fronting the wall or plane partition. Baby bassinets are also usually positioned at the bulkhead
area. Availability of these seats will be seen using the GDS (Global Distribution System)
reservation system or the airline computer reservation system (CRS). Here is a seat configuration
sample of A320.
SEAT ASSIGNMENTS. When a specific seat is reserved for a passenger, it is called a seat
assignment. Seat assignments will have a row number and seat letter: 4A is the fourth row back
from the front, with seat A being a window seat on the left side of the aircraft facing forward.
For full-service carriers, advance seat selection is an important part of an airline customer service
or a travel-agency customer service.

AIRLINE REVENUE MANAGEMENT - OVERVIEW

"The main objective is to arrive at pricing strategy, ensuring that optimum number airline seats
(inventory) are available on different fare levels based on the forecasted customer demand.
Pricing in the context of airline revenue management, is the process of determining the fare
levels, combined with various service amenities and restrictions, for a set of fare products in an
origin-destination (OD) market.
• While Revenue Management (RM) is the subsequent process of determining how many seats to
make available at each fare level on a flight given a fare structure in which a variety of different
prices with different characteristics for travel are offered in the same origin-destination (O-D)
market." -Belobaba, et al., 2016.

If you viewed the video of Dr. Zeni, it is clear that revenue management or sometimes referred to
as Yield Management, involves balancing of supply (available seats per miles) and demand
(seats per miles ready for sale in inventory ).

• Pricing as defined here is focused on full-service carriers. A fundamental task of revenue

management, also known as yield management is to find a trade-off among full fare (business)
passengers and the various other discount passengers (Smith, Leimkuhler & Darrow, 1992;
Belobaba, 1987).
  If this balance is achieved, the airlines will be in a position to satisfy all of their
passengers' needs, while simultaneously maximizing their yield.
 In revenue management, airlines play around the consumer's willingness to trade-off
between high priced fares (which has high levels of service offerings and flexibility) and
the lower-priced fares (which is restricted and level of service offerings not as high).
 Thus, for each Origin-Destination (OD) market or point A to B flight segment, there will
be different price levels which will be available for sale at different selling periods, i.e.,
typically lower fares will be open earliest at a very limited selling period.
 In contrast, the most flexible fares such as normal fares (which are more expensive) for
the same flight segment, will also be open from the start of sale up to the last day before
departure date. In other words, the flexible fare (the more expensive fares) are always
open for booking to protect availability of the higher yield fares.

differential pricing practices in which the same seat on a flight can be sold at different prices.

 Both leisure (discount) and business (full fare) consumers typically prefer to travel at the
same time and compete for seats on same flights (e.g., Friday afternoon and Sunday
afternoon peak periods).

 Without "capacity controls" (booking limits) on discount fare seats, it is more likely that
leisure travelers will displace business passengers on peak demand flights."

THEORETICAL PRICING STRATEGIES

 In theoretical terms, for determining the prices to charge in an O-D market, airlines can
utilize one lot the following economic principles (Simpson and Belobaba, 1992):

1. COST-BASED PRICING -pricing is based on the cost of operations; this is more api for
other product offerings but not in a dynamic industry such airline business.

2. DEMAND-BASED PRICING - pricing is based on the demand per segment -the

principle of "demand-based" pricing is based on consumers' "willingness to pay," as
defined by the price demand curve in each O-D market. The basic belief is that there are
some consumers who are "willing" to pay a very high price for the convenience of air
travel, while others will only fly at if they can fly on budget prices. Under this approach,
airlines charge different prices to different consumers with different price sensitivity.

 Price discrimination- is the practice of charging different prices for the same (or very
similar) products that have the same costs of production, based solely on different
consumers' “Willingness to pay".Demand-based pricing is categorized by economists as
price discrimination.
 Market Segmentation- the successful use of differential pricing principles depends on
the airline's ability to identify different demand groups or segments. In theory, total
revenue in an O-D market (or even on a single flight) is maximized when each customer
pays a different price equal to his or her WTP. -
  Service-based pricing - pricing is based on the service provided. The third theoretical
pricing principle uses differences in the quality of services (and, in turn, in the cost of
providing these services) as a basis for pricing.

 Service distinctions were allowed in airline pricing structures (i.e., first class vs. economy
class) due to the different costs to the airlines of providing them. In theory (and in
practice), the notion of fare product differentiation can be extended beyond this simple
first- class vs. economy-class distinction. Because higher-quality services generally cost
the airline more to produce, this approach cannot be considered "price discrimination" but
more of "Product differentiation."

PRODUCT DIFFERENTIATION involves charging different prices for products with

different quality of service characteristics and therefore different costs of production.

 Service-based pricing is categorized as 'product differentiation' by economists.

 In practice, most airline pricing strategies reflect a mix of these theoretical principles.
 As mentioned, prices are also highly affected by the nature of competition in each O-D
market.

AIRLINE REVENUE MANAGEMENT TERMS AND METRICS

Airline Economics
 To be able to understand how airline performance are measured, there are standard
measures or ways to gauge passenger traffic and airline output.
 Airline traffic consists of both passengers and cargo, but here we focus on passenger
service.

Airline fares are defined for an Origin- Destination (O-D) market, not for an airline flight leg.
That is, airline prices are established for travel between origination point A and destination point
C, where AC (or CA) is the relevant market

 TRAFFIC refers to enplaned passengers, as opposed to "demand," which includes both

those consumers that boarded the flights) and those who had desire to travel on the flight
but could not be accommodated due to insufficient capacity (this is the rejected demand
or the 'spill)

 AVAILABLE SEAT MILES/KMS (ASM or ASK) is the measure of airlines

capacity .The measure of the number of seats that the airline have which is multiplied by
the number of miles/ kilometers that the airline travels rather than just take the sum of the
no. of seats or no. of planes- the real inventory is the no. of miles/kms that they will fly in
their seats. ASM is one available seat flown per mile /km airline output.

 REVENUE PASSENGER MILES/KMS (RPM/ RPK)Passenger airline traffic can be

measured in terms of the number of passengers transported, but the most common
measure of airline traffic is a revenue passenger kilometer (RPK) or, alternatively, a
 revenue passenger mile (RPM). RPM, in simple terms, is the actual number of passengers
flown multiplied by the number of miles they are flying. If on that 100 mile flight, you
had 100 seats capacity but only 75 passengers actually flown in those seats,

RPM = 75pax seats transported x 100miles = 7500 revenue passenger miles.

 LOAD FACTOR (LF) Load factor refers to the ratio of traffic to airline output,
representing the proportion of airline output that is sold or consumed

 We combine the two terms ASM and RPM, we divide RPM with ASM. For example
here, if it was just one flight for the airline, 7500 RPM /10000 ASM= our load factor
would be 75 percent .

 A simplified way doing this would just be to say take the 75 pax flown divided by the
100 seats and on a per flight basis you would get the same answer, as here 75%, i.e.,
LF = 75 paxs transported/ 100 paxs seat capacity = 75%

 However, airlines want to know there how full their entire network . Since different
flights have different distances this is the way they sort of normalize the load factor
across the network. But the real deal is not to get 100% load factor, we need to look at the
next term.

 YIELD is a measure of the average fare paid by all passengers per kilometer (or mile)
flown, in a market, on a set of routes, or a region of operation for an airline- Yield in
simple terms, is a measure of how productive airlines are using their inventories.

 Look at the total number of passengers flying divided by the number of miles those
customers are flying. Thus, if you had those 75 paxs, get the total revenue that they are
generating say

USD18000 divided by the number of seat miles they are taking out of inventory then
you would get a measure of yield or how much the airline is getting for each unit of
inventory.

On a per flight basis you may be more interested to take a look at the average fare that each
customer is paying. However, when it comes to airline performance, the average fare that each
customer is paying on a network level will be more relevant. It means we consider all the flights
of the airlines on a certain period, here the Yield is more important on a network level.

Let us simplify illustration, in our previous example, the flight (say there is only one flight) with
RPM 7500 generates USD18000, this is the total revenue for the flight, the Yield is computed by
dividing total revenue USD18000 by RPM 7500, thus Yield = 18000/7500 =2.4 USD per RPM.

'Regardless whether Load Factor is 100%, meaning all seats taken and flown, if the Yield is quite
low, if you are selling seats at the cheapest and no full fare sales were taken, this will result to a
very low Yield. Thus, Yield is more relevant in terms of airline output rather than Load factor.
But the best airline performance, of course, is a balance of Load Factor and Yield.

Computerized Revenue Management Systems

 RM involves the tactical control of an airline's seat inventory for each future flight
departure.
 To maximize revenue, RM systems try to fill each available seat on each future flight
departure with the highest possible revenue.
 The size and complexity of airline seat inventory control problems require the use of
computerized RM systems by airlines.
 Without "capacity controls" (booking limits) on discount fare seats, it is more likely that
leisure travelers will displace business passengers on peak demand flights.
 This is due to the fact that leisure travelers tend to book before business travelers.
REVENUE MANAGEMENT TECHNIQUES

1.FLIGHT OVERBOOKING - accept reservations in excess of aircraft capacity to overcome

loss of revenues due to passenger 'no-show' effects.

 The objective of the flight overbooking component of airline revenue management is to

determine the maximum number of bookings to accept for a future flight departure with a
 given physical capacity (in seats).
 As part of a revenue management system, effective overbooking has been shown to
generate as much revenue gain as fare class mix optimization.

ONERBOOKING TERMS

Physical capacity (CAP): The actual number of seats on the flight or in the designated
compartment that can be filled with passengers at departure. Usually, this is the maximum
capacity of the aircraft.

Authorized Capacity (AU): The maximum number of bookings that the airline is willing to
accept, given a physical capacity of CAP.

Confirmed bookings (BKD): The total number of passenger reservations accepted by the airline
for a specific departure, counted just before the check-in process for the flight begins. Generally,
we expect BKD to be less than or equal to AU.

No-show rate (NSR): The mean proportion (percentage) of passengers with confirmed bookings
that do not show up

Denied Boarding (DB) : lioo many reservations are accepted and more passengers show up at
departure time than there are physical seats, the airline must deal with the costs and customer
service issues of denied boardings.

The costs of a denied boarding on a given flight can include a variety of elements some of which
are not readily quantifiable in monetary terms:
 Cash compensation paid to involuntary denied boardings
 Free travel vouchers as incentives for voluntary denied boardings
 Meal and hotel costs for displaced passengers
 Space on other airlines to accommodate displaced passengers
 Costs of lost passenger goodwill

OVERBOOKING TERMS

Spoilage (SP) : On the other hand, if not enough reservations are accepted for the flight and the
no-show rate of passengers is greater than that expected by the airline, there are costs associated
with the lost revenue from empty seats that could otherwise have been occupied, known as
spoilage.

Spoilage Costs- loss of revenue from seat that departed empty.

1. WL - waitlisted passengers
2. GS - Go show passengers
3. SB - standby passengers
4. NS - no show passengers
5. PAX - passengers
 6. VOLDB - voluntary denied boarding.

2.FARE CLASS MIX- determine revenue-maximizing mix of seats available to each booking
(fare) class on each flight departure.

 The most common technique associated with Revenue Management (RM) systems is the
determination of the revenue-maximizing mix of seats available to each booking (fare)
class on each future flight leg departure.
 Virtually all airline RM systems were developed with the capability to optimize fare class
mix as their primary objective.

3.ORIGIN-DESTINATION (O-D) Control ( also known as Network optimization) - further

distinguishing between seats available to short-haul (one leg) vs long-haul (connecting)
passengers, to maximize total network revenues.

 O-D control gives the airline the capability to manage its seat inventory by the revenue
value of the passenger's origin-destination itinerary on the airline's network, not simply
with fare class booking limits calculated separately for each flight leg.