Case Study Operations Management

Topics: Airline, Avianca, Overbooking Pages: 4 (1105 words) Published: February 23, 2013

Presented by:


March 28th 2012

Question 1
i) Airline Company Revenue

The impact of overbooking and thus bumping passengers off of flights affects both airline and customer. Since the demand for services vary frequently, there are unique aggregate planning problems. Airlines overbook and by doing so, services with reservation systems lose money when passengers fail to make it on the flight. Between 10-30% of aircraft seats are vacant upon takeoff, which can lead to significant loss of revenue. When there are too few overbooked, there is a low capacity utilization and therefore a loss of profit. If there are too many seats overbooked, flights are at over capacity, which results in “bumped” customers. Furthermore, there is partitioning demand into fare classes. Ticket prices differ from class to class and so there needs to be a balance when allocating seats with specific fares. If there are too many high-priced seats, there is a lost in customers. However, if there are too few, there are lower profits. Airlines are becoming greedy and are too focused on the depth of their pockets rather than their customers. If they persist in this manner, they will lose their customers, their only source of revenue.

ii) Customer Satisfaction

When passengers get to the airport, they are looking forward to their trip and expect a smooth check-in process. By bumping passengers, airlines increase the chances of customers seeking another airline for their next travel. This has a direct impact on the airline’s customer retention ratio and also results in a loss of revenue in the long-run. What’s more, if families travel together and some members get bumped, total chaos ensues. Customers are very dissatisfied and highly annoyed if they have to take a later flight, which either shortens their vacation or results in missing work the next day. Though airlines offer vouchers to bumped passengers, the vouchers usually aren’t always of equal monetary value...
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