LV Thạc sĩ_Revenue Management at Vietnam Airlines

Vietnam airlines have deployed the revenue management system for years in its operation, such as forecast demand, seats inventory control, fare mix andoverbooking application, these also

I am pleased to send our sincerest thanks to all organizations andindividuals who have enthusiasm for helping the authors carried out andcompleted this thesis

I would like to give my grateful appreciation to all the lectures, tutor;classmate who helped me during my studying times at the EMBA program ofBusiness school of the national economy University

Especially, I would like to express the deep gratitude to Doctor … for herenthusiastic guidance and encouragement that inspired the author a lot during theprocess of writing the thesis

I would like to acknowledge my college and experts; managers ofdepartments of Vietnam Airlines for providing the material needed for the thesis

I owe a great deal to my family, relatives and friends, especially to myparents, my wife and my children for their valuable encouragement and unceasingsupports in my academic pursuits

CX Cathay pacific airways

O-D Origin - Destination

LIST OF AIRLINES TERMINOLOGIESLIST OF FIGURES AND TABLES

In the thesis, there have been some Airlines terminologies In order to agree uponthe meaning of these technical words and avoid misunderstanding, the followingwords are understood as follow:

Cancellation: guests make reservations for flight but then cancel the reservation Forecast: the process of predicting events and trends in business

No show: a guest who made a reservation but not show up at check-in counter for

departure

Low-cost airlines:( also known as a no-frills, discount or budget carrier or airline)

is an airline that offers generally low fares in exchange for eliminating manytraditional passenger services

Airlines Alliances: is an agreement between two or more airlines to cooperate on

a substantial level (The three largest passenger alliances are the Star Alliance,SkyTeam and Oneworld)

Overbooking: accepting more reservation than the seat of flight available.

Over-selling: selling more seats on flight than those available.

Spoilage: results from the inability to sell seats for a certain period of time and

thus causes the permanent loss of revenue for that period

Load factor: is a measure of the amount of utilization of the total available

capacity of a commercial transport vehicle It is useful for calculating the average occupancy on various routes of airlines

Denied Boarding passenger: Passenger have confirmed ticket and reservation but

airlines can not arrange seats on flight due to overbooking and all seats of flight occupied at departure times of flight

TABLE OF CONTENTS

Page

- Secondary data: 10

Source: VNA’s RM department 36

3.3.4 Overbooking application 40

Alliances 58

EXECUTIVE SUMMARY

Airlines have faced with the empty seats after flights departure due to theno-shows and cancellations of passengers at last minute, the empty seats of flightwill cause the loosing revenue of airlines With a fixed cost that airlines have tospend for every flight (fuel, aircraft…), filling up the seats and the load factor, faremixes and selling up are necessary requirements for the airlines to maximize therevenue and lead to gain optimal profit And to solve these problems, airlinesapply the Revenue management system Airlines management (or yieldmanagement) is defined as to maximize passenger revenue by selling the rightseats to the right customers at the right time

In this thesis, base on the theory of revenue management and knowledge ofsubject operation management studied, I analyzed Revenue Management activities

at Vietnam Airline

Vietnam airlines have deployed the revenue management system for years

in its operation, such as forecast demand, seats inventory control, fare mix andoverbooking application, these also brings a given success for Vietnam airlines.However, there some problems such as still exist the empty seat on plane afterplane takeoff although the booking system had sold over capacity of airplane orexisting the cases that forced to deny boarding passengers due to can not arrangeseats for them because of deploying overbooking policies, this happened hasaffected to the revenue and bad image of Vietnam airlines

After analyzing the situations at Vietnam airline in terms of history,staffing, facilities and specially the RM activities from fare structure, overbookingpolicies and seats inventory control gained from 2005 to 2008, and the interviewswith the experts and manager working at revenue management, the research hasidentified some problems and shortcomings that Vietnam Airline is facing asfollow: 1) Unreasonable overbooking in low frequency routes , 2)Controllingsystem, 3)Reporting system, 4) Unstable schedule leads to difficult for forecasting

demand and collecting data, 5)Lack of capacity in peak season, 6)Compensationpolicy for denied boarding passenger, 7)Human resources.

These problems and shortcoming have influenced the effective operation ofVietnam airline especially in maximizing revenue and profits

To help solves these problems and shortcomings some recommendations were putforward They are: 1) Focus on maintaining the core market, 2) Training humanresources, 3) Building sufficient and efficient information database system, 4)Good capacity and demand forecast, 5) More flexible fare-mix policies, 6)Appropriate overbooking ratio, 7) Improving services system

CHAPTER 1 INTRODUCTION

1.1 Rational of research

For airlines industries, revenue management plays a very important role forexistence and development With a fixed cost that airlines have to spend for everyflight (fuel, aircraft…), filling up the seats and the load factor, fare mixes andselling up are necessary requirements for the airlines to maximize the revenue andlead to gain optimal profit

Vietnam airlines have deployed the revenue management system for itsoperation such as controlling space and applying fare mixes in sale systemespecially in applying the overbooking policies on reservation system, and its alsobrings a given success for Vietnam airlines However, there some problems such

as still exist the empty seat on plane after plane takeoff although the bookingsystem had sold over capacity of airplane or existing the cases that forced to denyboarding passengers due to can not arrange seats for them because of deployingoverbooking policies, this happened has affected to the revenue and bad image ofVietnam airlines

So, there need to have an analysis revenue management to evaluate howwell it has been applied and has worked, to identify if there are ways forimprovement or necessary adjustment

1.2 Research problem and objectives:

1.2.1 Research problem:

The research is designed to analyze the revenue management system atVietnam airlines especially in operation as overbooking, Fare structure, Demandforecast, control revenue management system fields to identify possibleimprovement or adjustment for that system operating more efficiency

• Analyze the revenue management at Vietnam airlines in operational field.

• Find out the problems of the existing Revenue management at Vietnamairlines

• Propose some recommendations for improvement to revenue management

of Vietnam airlines

1.3 Research scope and limitation

The research focuses on the working or revenue management in the periodfrom 2005 to 2008

Time and budget is limited, and the data collection in Vietnam airlinesHDQ from 2005 to 2008

1.4 Research methodology

Research method

In this thesis, for the nature of the study about the operation of a system,qualitative research method was used intensively The data were collected fromsecondary and primary sources Qualitative method applied to find out perception,process and evaluation about Revenue management at Vietnam airlines Thefollowing sections presents in details the way of collecting and analyzing the datasources used in this study

Primary Data

Qualitative: 4 deep interviews

To assist in the identification of causes mentioned earlier, 4 in depthinterviews with experts and managers in airline industry and RM systemtechnicians are to be done The purpose of the interviews is to get the experts’ideas and opinions about the revenue management system of Vietnam airlines,what they have deployed for the revenue management system and how they runthe system and how it has operated.

The interviews shall not go into technical aspect but to the managerialaspect of using the system for decision making

The interviews also aim at getting ideas from experts on strategies andconsideration in order to apply RM effectively

With my ten years experiences working in Vietnam airlines at operationalfield, I have analyzed about the revenue management system and discovered somethe limits and disadvantages of Vietnam airlines revenue management system need

to improve

- Secondary data:

The second data composes a wide range of information published inrelevant material The main source is from internal records of Vietnam airlines.Especially it includes: Sales report, revenue management report and statisticscollected by VNA Space control center, RM department in five year (2005-2008)

1.5 Structure of thesis

Besides the parts of introductions, conclusion, reference and appendix, the content of this thesis includes 3 main chapters starting from chapter 2

Chapter 2: Theoretical Background

In this chapter provide the concept of revenue management, definition of revenue management, the process of revenue management in airlines industry’s application These the basic for analyzing the revenue management activities in Vietnam airlines at chapter 3

Chapter 3: Current Revenue management at Vietnam airlines

In this chapter, provide the overview of Vietnam airlines business, revenuemanagement activities that Vietnam airlines have implemented, such seatsinventory control, fare structure, reservation system, overbooking application, theorganization of revenue management of Vietnam airlines

Chapter 4: Recommendation to improve revenue management at Vietnam airlines

In this chapter, provide identifications problem in Vietnam airlines revenue management activities, draw the recommendation to improve it

CHAPTER 2.THEORETICAL BACKGROUND

2.1 Concept of Revenue Management

2.1.1 Definition of Revenue Management

There are several definitions of revenue management (also refer to as yieldmanagement) in the literature American Airlines (1987) defined the goal of yieldmanagement as to “maximize passenger revenue by selling the right seats to theright customers at the right time.”[1] Pfeifer (in1989) described airline yieldmanagement as “process by which discount fares are allocated to scheduled flightsfor the purposes of balancing demand and increasing revenues.”[2] From the hotelindustry’s perspective it have been defined as “charging a different rate for thesame service to a different individual”[3] and “ controlling the trade off betweenaverage rate and occupancy”.[4]

Weatherford and Bodily (1992) have concluded from the above definitionsthat the term yield management is too limited in describing the broad class ofrevenue management approaches.[5] After analyzing situations in which yieldmanagement was used They concluded that these situations had the followingcharacteristics in common:

• There is one date on which the product or service becomes available and another after which it is either not available or it spoils The product

cannot be stored for significant periods of time-it eventually perishes In thegrocery store example, the fruit would spoil

• There is a fixed number of units Capacity cannot be charged in the short

term In the hotel example, there are so many rooms that may be sold at agiven property location

• There is the possibility of segmenting price-sensitive customers In the

airlines example, vacation travelers are much more sensitive to price thanbusiness travelers

Weatherford and bodily proposed the term perishable-asset revenue management

to define this class of problems and described it as “the optimal revenuemanagement of perishable assets through price segmentation”

2.1.2 Origin of Revenue Management

The root of modern revenue management can be traced back to the earlydays of the U.S airlines industry Prior to the Airlines Deregulation Act of 1979,fares for airlines travel in the United States were regulated by the CivilAeronautics Board (CAB) The CAB ensured that the airlines operated in a highlycontrolled environment designed to serve the public convenience and necessity.[6]The CAB required economic justification for any fares proposed by the airlines.Thus, there were few fares for customers to choose from In the 1930’s all airlinesoffered all seats on a flight for the same price But it was obvious to the airlinesthat passengers could be divided into two broad categories, based on their travelbehavior and their sensitivity to prices There were business travelers and leisuretravelers Business passengers tended to make their travel arrangement close totheir departure date and stay at their destination for only a short time There waslittle flexibility in their plans and were willing to pay higher prices for tickets.Leisure travelers, on the other hand, booked their flights well in advance of theirtravel date They stayed longer at their destinations and had much more flexibility

in their travel plans They would often decide not to travel rather than pay highfares Since there was only on fare offered to both types of passengers, many ofleisure passengers chose not to fly, and many flights departed with empty seats

Airlines managers saw an opportunity to increase revenue by lowering fares

in certain markets The first experiment to offer low-fare service occurred inCalifornia on the San Francisco – Los Angles route in 1994[7] United airlines

began its Sky Coach Service using 10-passengers Boeing 247s and charging a way fare of $13.90 The CAB approved the low fares based on the lower operatingcost of the B-247s and fewer amenities offered on board The experiment was asuccess but ended shortly thereafter when the airline’s fleet was turn over to thearmed forces during World War II.

one-Throughout the next few decades, other discount fares were offered withvarying degrees of success First – class and coach – class became standard on allairlines But the airlines were not permitted to offered different fares within thecoach cabin and prices were set through a cost-plus pricing formula administered

by the CAB Carriers gradually became less efficient at operating their airlines,and coach fares rose over time as average costs increased

During the 1960s, the CAB began approving new types of fares such asnight coach fares and 7-21 day excursion fares based on length of stay However,the airlines placed no limits on the number of seats that could be sold at thesefares, and all were available on a first-come, first served basis

In the early 1970s, the CAB responded to demand for more discount fares

by easing regulations for charter airlines With their lower operating costs, thecharter carriers were able to offer low fares and still earn a profit For example, inthe winter of 1976, passengers could travel from New-York to Florida on a charterfor as little as $99.[8] This fare was less than the average cost for major airlines tofly that market So if the airlines matched the charter fare, then it would losemoney on the flight, even if it filled every seat

This situation caused concern among the managers at the major airlines.Their initial though was to figure out a way to reduce costs so they could remaincompetitive But that was impractical The costs of operating a major airline withits staffing and airport needs were simply much higher than cost of running acharter operation But then the executives at American Airlines realizedsomething On average, their planes were departing with half their seats empty.While the average cost of these seats were higher than the charter fares The

marginal cost was close to zero So if they could find a way to sell just the empty

seats at the charter fares, profits would increase dramatically The challenge was todevise a plan that would make the empty seats available at the lower fare, whilepreventing passengers who were willing to pay the higher fare from buying low-fare seats American airlines’ response to this challenge was the introduction of

“Super Saver Fares” in 1977 With these fares came the beginning of modern dayrevenue management

2.2 Revenue Management in airlines industry.

2.2.1 Role of Revenue Management in airlines

The airline industry is one in which production is very inflexible.Essentially, when committing to fly a flight from A to B, an airline both fixes thelevel of its output (the number of seats) and, for all practical purposes, the totalcost of that output–independent of how many customer actually fly on the flight.It’s unit cost per seat sold, therefore, varies tremendously with the volume of sales,and once the capacity constraint is reached, no more production is possible Worseyet, like all services, output cannot be inventoried, so production of air transportoutput in one period cannot be used to satisfy demand in later periods (e.g., anunsold seat on Monday cannot be used to supply the need of an excess passenger

on Tuesday) All these factors combine to create extreme inflexibility in thetechnology of air transport service, and this is one of the key driving factors in theimportance of RM in this industry to maximize revenue

2.2.2 Process of Revenue Management in airlines

A brief description of the generic operations of a RM system, Thisintroduces the key components and gives an overview of the information flows,controls and design of a RM system

RM generally follows four steps:

1 Data Collection Collect and store relevant historical data (prices, demand,

causal factors, no-show passengers)

2 Estimation and Forecasting Estimate the parameters of the demand model;

forecast demand based on these parameters; forecast other relevant quantities likeno-show and cancellation rates, based on transaction data

3 Optimization Find the optimal set of controls (allocations, prices, mark-downs,

discounts, overbooking limits, scheduling) to apply until the next re-optimization

4 Control system the sale of inventory using the optimized control This is done

either through the firm’s own transaction-processing systems or through shareddistribution systems (e.g., GRSs, GDSs)

The RM process typically involves cycling through these steps at repeatedintervals The frequency with which each step is performed is a function of manyfactors such as the volume of data, how fast business conditions change, the type

of forecasting and optimization methods used, and the relative importance of theresulting decisions For example, most RM systems in airline and hotelapplications stagger the dates (called Data Collection Points (DCPs)) when theycollect data, reforecast and re-optimize, with the cycle occurring more frequently(at least daily) as the service time nears This is because in these industries, asubstantial portion of the reservations occurs during the last few days before thetime of service

Figure 2.1: RM process flow

2.3.3 Concepts of Revenue management in airlines

2.3.3.1 Forecast demand

Forecast demand is play a important role in RM, accurate forecasts arecrucial to a RM system Poor estimates of demand lead to inadequate inventorycontrols and sub-optimal revenue performance Forecast for airlines RM system isinherently difficult Competitive action, seasonal factors, the economicenvironment, and contrast fare changes are a few of the hurdles that must beovercome; in addition, the fact that most of the historical demand data is censoredfurther complicates the problem

The number of seats an airline can sell on a flight is determined by thebooking limits set by the RM system An airline continues to accept reservations in

a fare class until the booking limit is reached At the point, the airlines stopsselling seats in that fare class-it also collecting valuable data Demand for travel inthat fare class may excess the booking limit, but the data does not reflect this Sothe data is censored or “constrained” at the booking limit

Forecast at the level required by RM system is extremely difficult Mc Gilland van Ryzin(1992) list the following factor as contributing to this difficulty:

Seasonality: Passenger are more likely to fly to some destinations based onthe time of year For example, there is greater demand for flight to Europe in thesummer than in the winter

Day-of-week and time of day variations: business traveler are more likely

on weekdays than weekends, Early morning and evening flights are desired bybusiness travelers who want to accomplish a day’ work at their destination andreturn the same day

Special events: Event such as the world cup cause a temporary increase indemand at specific location

Sensitivity to pricing actions: Price increases and decrease result in demanddecreases and increases respectively, but different passenger types have differentelasticity.

Demand dependencies between fare classes: Passenger who book full-fareseat might have met the restriction for lower fare seats But there was noavailability

Group booking: Groups tend to book and cancel reservations in largenumbers

Cancellation: a RM system requires a forecast of how many passengers willbook and travel in each fare class Since som passengers make reservation andsubsequently cancel them, this behavior must be considered

Censoring of historical demand data: An aircraft capacity and bookinglimits constrain the demand seen in the historical data

No-show: some passengers make reservations, decide not to travel and donot cancel their reservation

of total annual domestic air travel or future travel between us and Europe

Passenger choice models attempt to predict future demand by modelingcurrent passenger behavior based on socioeconomic factors and the characteristic

of travel alternative options

Finally, micro level forecasting is used to predict passenger behavior atdisaggregate level such as flight, date, and fare

So, based on historical data, forecast demand for airlines concentrate onthe following types:

• Passengers demand

• Revenue for a flight

• Booking class of flight

• Overbooking ratio of flight

Data for forecasting:

o Past flight data

o Current flight performance

o Market factors

o Other factors affect to demand

POD model:

Figure 2.2 Airlines Passenger Origin Destination simulation flow( POD model)

Sources: Hopperstad, the Boeing Company.

According to POD model, the historical booking database collectsinformation from previous flights and feeds this historical data into the forecaster,whose historical database is manually initialized at the beginning of eachsimulation run The forecaster then uses this data along with booking currently onhand provided by the Revenue management optimizer to forecast future demandfor a given flight These expected future bookings are the fed into the Revenuemanagement optimizer With this data and actual path and class bookings andcancellations, the Revenue management optimizer then determines seat protectionand availability Finally, this data is fed into the passenger choice model, whichuses it to assign new prospective passengers to available path fare combinationaccording to their decision window and budget All information is then input backinto Revenue management optimizer as historical data to be used by the airlinesfor future flight departure

2.3.3.2 Seat inventory control

Seat inventory control problem in airlines revenue management concern theallocation of the finite seat inventory to the demand that occur over time In order

to decide whether or not accept a booking request, the opportunity costs of losingthe seats taken up by the booking have to be evaluated and compared to therevenue generated by accepting the booking request Solution method for seatinventory control problem are concerned with approximating these opportunityand incorporating them in a booking control policy such that expected futurerevenue are maximized

Comeback to “Super saver fare” which American airlines had deployed in1977(referred at beginning of this chapter), the Super saver fare were the firstcapacity-controlled restricted discount fare That is, they were offered in limitednumbers and certain conditions had to be met for the fare to be valid For example,the tickets needs to be purchased at least 21 days in advance of travel and the

itinerary had to include a Saturday night stay These restrictions were meant toprevent the high-fare passengers from purchasing the low-fare tickets It reflectedthe airlines’ belief that business travelers did not have enough flexibility in theirplans to meet the restrictions and, therefore, would continue to pay higher fares.

American began its Super saver fares by offering approximately 30% of theseats on each flight to these fares But they soon found the number of seats needed

to be controlled carefully to increase total revenue If too many discount seatswere sold, then the airlines would turn away late-booking high-fare businesspassengers If too few seats were sold to discount passengers, then the planeswould depart with empty seats The correct number of seats to be allocated to thediscount passengers could only be calculated from an accurate forecast of demandfor high-fare ticket Research thus began to develop the appropriate models toforecast demand and calculate discount seat allocations

Since the first super saver fare appeared on the market, the airlines pricingstructure has changed dramatically Airlines publish a variety of fare in an attempt

to segment the market Their goal is to design what is referred to as fare productsare differentiated by advance purchase restriction, minimum stay requirement andpenalties for refunds The fare products correspond to the price elasticity airlineshave identified among their customers For example, discount passengers whodesire a low price must be willing to purchase their tickets weeks in advance oftravel and stay at their destination for at least one Saturday night If they cancel orchange their plans then they will be charged a penalty On the other hand, businesstravelers place a high value on flexibility They may purchase their tickets at anytime and change their reservation without penalty There are no restrictions on theamount of time they must stay at their destination For this flexibility, the businesstraveler is willing to pay a higher fare than the leisure passenger So while thesetwo types of passengers may be seated next to each other on a flight They arepaying different and receiving different products

Airlines using single letter class codes to distinguish between fare products.For example Y might be used for full-fare class coach, M and Q for discounts Vfor deeper discounts and others classes which vary by airlines There are often sixclass or more different fare classes offered by a singe airlines in a given origin anddestination (O&D) market in the coach cabin of aircraft An example of a typicalairline fare class structure is given in table 2.1

Fare class Fare product type

Y Full coach fare with no restrictions

B Unrestricted discount fares

M Seven-day advance purchase with minimum stay requirement

Q Fourteen date advance purchase with minimum stay requirement

V Deeply discount or industry fare use for airlines staffs

Table 2.1 Typical airline fare class structure

Modern revenue management systems forecast demand for each one of these fareclasses by using historical booking data from the same fare class of similar flightdepartures This data is usually aggregated by departure time, day of week andtime of day These forecast are them used as inputs to optimization models thatcalculate booking limits and control the number of seat available at various farelevels

Obviously, an airline would like to carry as many of the high-fare businesspassenger as possible Only those seats that cannot be sold to business passengersshould be made available to the leisure passengers The problem is that leisurepassengers tend to book their reservation first And even if they did not theadvance purchase restrictions most airlines place on leisure-fare tickets often forcethis behavior So, before any seats are sold, the revenue management system mustforecast how many business passengers will still want to book on a flight after theleisure passengers have made their reservations Then it must set aside or “protect”these seats so that they will be available when the business passengers requestthem

The seat inventory control problem has been approached from a variety ofperspective Seat inventory can be controlled over individual flight legs( take off

and landing of one flight) or over the airline’s entire network Most airlinesmanage seat inventories by fare class at leg level That is they attempt to maximizerevenue on each individual flight leg Reservation request are evaluated by airlinesbased on the availability of a particular fare class on each flight leg A passenger’sentire origin and destination itinerary is not taken into account when the decision

is made

2.3.3.3 Overbooking

Booking limits and Nesting

The objective of a revenue management system is to set booking limit at

different levels of control in an attempt to maximize revenue As noted above, first

a forecast of demand is made, and then optimization is performed to calculateprotection levels Thus, certain number of seats is protected from being sold tolow-fare passengers The logic is that if a certain number of high-fare passengersare expected to book, then seats should be set aside so that they will be availablewhen the request are made For example, suppose there is a forecast for highestvalue fare class(Y) and the subsequent optimization produces a protection level of

40 at least 40 seats should be protected for these Y-fare passengers and not sold toany one else However, that happens if more than 40 Y-fare passengers requestseats? The airlines would not want to deny these requests To eliminate thepossibility of turning away high-fare passengers when there are seats available,

airlines reservation systems usually nest the booking limit.

Nesting allows high-fare passengers to book seats that are available to lower-farepassenger Any seat available at a particular fare also be available at a higher fare

In example in table 2.2 there are 100 seats available to be sold on the flight leg.Forty seats are being protected for Y passenger But the entire inventory ofseats(100) is available to booked by these passengers So the booking limit for Y is

100 to arrive at the booking limit for M, the protection level for Y is subtractedfrom the total capacity on the aircraft(100-40=60) Now suppose the protectionlevel for the Y/M nest is 65, So 65 seats are protected for sale to Y or M passenger

To arrive at the booking limit for V, the Y/M protection level is subtracted fromthe remaining capacity(100-65=35), therefore, the booking limit is given by:

Booking limit i =(C- Ө i-1 ) [ 9, p16]

Where C is the remain capacity in the aircraft canbin and

Ө I is the protection level of the ith fare class

Fare class Total protection level Ө i Nested booking limit(C- Ө i-1)

Formular:

Where:

P(d<x) = Cumulative Probability

x = seats reserved for full fare

d = demand for full-fare tickets

Cu = Lost of revenue associate with reserving to few seats at

• Crowded population (2nd largest ASEAN) long and narrow terrain,ranging from north to south with many mountain passes and advantages

to develop the domestic aviation;

• Developing economy, investment destination safe, attractive

• Potential for tourism development, has the advantage of geographicallocation; a convenient gateway to connect to the main hub in the region;

• Liberalization of aviation sub-region CLMV, U.S Vietnam hasadvantages particularly, improving competitiveness on the Indo-Chinaair routes

Table 2.3 Distance to airlines hub in region.

• Vietnam's economy still in low development level (GDP / capita ranked7th ASEAN)

• Airport infrastructure, tourism weak, there are no effective policies,strong to promote tourism development;

• Labor gray matter, labor scarce specialized aviation; airportinfrastructure is not developed;

Source: Asean statistics(2007)

Tourist arrivals

CHAPTER 3.CURRENT REVENUE MANAGEMENT AT VIETNAM AIRLINES

3.1 Overview of Vietnam airlines

3.1.1 Core business of Vietnam airlines

Vietnam Airlines is a state-owned corporation established according to theDecree 04/CP of the Prime Minister It was shifted from subsidy-based mode ofoperation to market-based service in 1986 and officially formed in 1996 Besidesits core in providing passenger and cargo air transportation services, it offers awide range of business scope as the followings:

• Cargo handling and forwarding

• Computer Reservation System (CRS) and Global Distribution System(GDS)

• Catering (food and non-alcoholic drinks)

• Production of consumer goods

• Advertising, design and printing

• Petrol and oil

In the past decade, Vietnam Airlines has made important strides forward,better meeting international and domestic air-transport needs, making businessprofitable, preserving and developing capital, fulfilling its duty to the State budget.Internationally, Vietnam Airlines has reaffirmed itself as an emerging competitivebrand in the region and has been undergoing rapid expansion for several years

In fact, there were some times when the business situation of VietnamAirlines went down due to a lot of reasons (e.g influence of Asean Financial crisis

in 1997-1998, SARS epidemic in 2003…) Described as an increasingly high riskindustry, airlines companies in the world have been strongly affected byunfavorable changes in the environment However, after turbulence, there werealways signs that passenger volume had picked up again

Chart 3.1: Passenger revenue period 1995-2004

(Source: Vietnam Airlines, 2005)

Vietnam Airlines has maintained the growth at around 10-15% per annumfor the last decade Its achievements include passenger’s volume increasing, fleet

expansion and maintaining market share are indicated in the following charts and

table Human resource:

 Staff: more 18.000 staff

 Management: About three hundred young Vietnam Airlines

managers gained high diplomas from abroad

 Crew: Vietnamese pilots are now operating 80% of the total flight

hours

 Technicians: all aircraft can be made maintenance works in house by

Vietnamese engineers and technicians

Chart 3.2: Passenger Volume 1991 – 2004 period

(Source: Vietnam Airlines, 2005)

Table 3.1: Vietnam Airlines market share 2005- 2008 period

Market Share Domestic International All network

(Source: Vietnam Airlines, 2005)

Note: International refers to all international flights that Vietnam Airlines operates at that time.

Flight routes

Vietnam Airlines now operates 26 domestic routes between 24 destinationswithin Vietnam and offer international connections from Hanoi hub and Ho ChiMinh City hub to 50 cities around the world It is going to offer direct services toone city of America in 2010( see Appendix 1-6)

Air fleets

In 2009, With the fleet of 53 aircraft, including Boeing 777s, Airbus 330,Airbus A320-A321, ATR 72s-500 and Fokker 70s, Vietnam Airlines is quitecapable of meeting the market needs It is also doing its level best to add to thenumber of planes and modernize those planes so that by 2010, Vietnam Airlineswill have 75 aircraft in 2012 and 150 aircraft in 2020

3.1.2 Strategy and vision for development of Vietnam airlines to 2030

General strategic vision to 2020

• Become a powerful economic group - the National Airline, keepingthe leading role in air transport, plays an important role in theaviation industry in Vietnam, contributing to socio-economicdevelopment of local defense and security

• Ranked second in the region and the world's Top 50 basic targets ofthe business - effectively, maintaining safety, quality and popular, is

a member of IATA and the global airline alliances Capital to reach2-3 billion USD, total revenue of about 5-6 billion USD, passengerscarried 30 to 35 million per year

• Fleet of modern, young and effective around 160 aircrafts mainlymade in North America and Europe, including the fleet of dedicatedcargo aircraft, in which the rate of 60% ownership

• Technical infrastructure, trade, operational modern

• Routes covered enclosed destinations of Vietnam and the continent connecting with Route of global alliances (over 900 points), thereare two major HUB Ha Noi and Ho Ho Chi Minh

-• Staffs and workers to reach the international and regional level.Pilots have a team to ensure 80% of demand Staff management andprofessional best qualified to meet all the needs of the Corporation

• Get safe and effective target first, improving service quality andcompetitiveness (Accept healthy competition)