Case Study Operations Management

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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 and cover in no way the emotional distress these passengers go through most of the time. Customers are therefore losing time and money, as these vouchers come with restrictions, such as black out dates, most of the time. The perception then becomes that the airline ruined their vacation, which, in the end, no amount of marketing can fix. Overall, bumping passengers off of planes decreases customer satisfaction significantly.

    In order for an airline company to readjust the consumer’s perception of being “bumped”, they need to accommodate them properly. Vouchers and coupons can be offered, and they shouldn’t have an expiry date on them. Also, on their next trip, the airline can bump these passengers into first class for the same fare, or offer them in-flight paid services for free. Last but not least, when an airline company is faced with an overbooking situation, they can offer an incentive to all passengers that show up at the gate to check-in. By doing so, the passengers who willingly accept to be bumped in return for that incentive have the perception that it was their decision and will accept the delay, however long may be, a lot easier.

Question 2
i) The single-server checkout counter is the most common method to use by small and new businesses. This method does not cost much and is easy to implement. These businesses do not necessarily have a lot of customers and their budgets are limited. As the demand is low, they can satisfy it in a matter of time.  Also, by having a single-server counter, it adds a personal touch to the business since it is mostly the same person who is at the counter. It creates a relationship with the client and allows to increase customer satisfaction and loyalty.  Moreover, there is less confusion and misunderstanding because there is only one counter working. For certain customers, a short waiting line is a sign of a bad business and a long waiting line indicates that the business is good and it demonstrates the loyalty of...
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