From Lose to Profit

From Lose to Profit

By:

Mohammed Salem Awad

Consultant

Outlines

1- Introduction

2- Defining The Problem

3- Sequence of the analysis.

4- Data Collections.

5- Defining Demand

6- Fleet Repositioning

7- Fare Analysis

8 .Competitive Fare Strategy.

9 .Redefining Opt. Network

10 .Profit Maximization

11 .Redefining Seat Config.

12 .Summary

13 .Source

14 .Contact

Introduction

Al-Mukalla

Defining The Problem

Defining The Problem

Sequence of The Analysis

1. Point To Point Approach - to define the right seat bus configuration.

2. Multi stops Approach – to improve the network and Maximize the profit.

3. In

Data Collection

Data Collection :

Defining Demand

U Curve Technique

Input Data

Distances , Passengers and Fares

Optimum Operating Curve

Typical Seat Configuration Vs Typical Operating Cost

Final Outcome

1. Typical Seat Configuration ( 50 seat )

Fleet Repositioning

Using step function idea, we draw and develop an optimum operating curve, that reflects all the level of costs.

Fare Analysis

Mapping Analysis

Fare Analysis :

Based on the U curve analysis and by manipulate the input fares by percentage the table will reflect two possible out comes that

1- based on minimize the cost, the program will act to change the values of frequencies, so to reduce the impact of increasing cost , so it will reduce to 1. ( RED COLOR )

2- If the values of fare percentage has positive impact on cost, this will lead to increase the numbers of frequencies which represented by GREEN COLOR

Four routes are out of control and above 100 % Fare percentages ( indicated by long red lines )

Setting Fare Strategy

Setting Fare StrategyIn the previous slide, the analysis shows many of the routes are subjected to loses, so will develop a competitive fare strategy to response the competitive market fare. The analysis will be in two directions

-Omitting losing routes and develop a profitable Margin of the Fare Structure. ( 5 %)

-Dealing these loses routes with multi-stops operation approach, so these routes are subsides by another profitable routes ( optimum network slide )Which shows we can reduce the overall percentage Fare structure by 5 % without effecting our profit margin (off course will reduce but still we are in the profit margin range). The company can set up an individual fare policy, and apply the right fare until it phase out the other competitors.

Opt. Network & Profit Max.

Profit Maximization

In Fare Analysis slide some sectors profitable and the other sectors are unprofitable, we apply 0.95 fare competitive strategy for profitable sectors ( SANA'A-TAIZ , SANA'A-ADEN , TAIZ-ADEN , ADEN-MUKALLA ) while Fare of unprofitable sectors is unchanged i.e remain at the level Market Fare as shown by Yellow strips ( SANA'A-MUKALLA , TAIZ-MUKALLA).

So by considering a 45 seat and optimum cost at 0.0125 cent/ASK, While the demand of unprofitable routes remain unchanged, but demand of profitable routes can be adjusted to take only the share that maximize the profits, in multi stops operation while the remaining profitable routes can be treated as direct operating service between the cities (point to point approach – as it is a profitable routes)

Profit Maximization

Even SANA'A – MUKALLA and TAIZ – MUKALLA are unprofitable sectors, but the overall results of Multi stops operation is profitable one = 18,830 USD.

Also the cost of one trip by this case = total cost / no. of frequency = (171217)/(291) = 588.375 USD

And that is done at 34 (inch) pitch (distance between the heads of two seats in sequences).

While the load factors of the cabin of the bus is always greater than 90 %. i.e the cabin load factor ( annual operation )= SANA'A-TAIZ = 97% TAIZ-ADEN = 99% ADEN-MUKALLA = 93%

Redefining Seat Configuration

Summary

The problem of local transportation is solved by implementing and defining the right assets to operate and designing a profitable operating network, based on two approaches or scenarios

First : point to point and

Second : multi stops operation ,

bearing in minds the cost driver in a transportation situation which is ASK ( Available Seat Kilometer ), a multi stop operation a marginal decision factors play an important rule in maximizing the profit i.e seat allotment ratio, which is based on demand , market fare and cost, deriving to get a maximum cabin load factor with a high yield.

Summary

While in point to point approach , companies can easily positioning their fleet by using optimum operating curve to achieve high performance and they improve it by targeting the cost.

Also a competitive market fare strategy is developed based on U curve techniques and mapping a frequency factor to define Favorite and Un-favorite percentage range of Market fare which consequently defining the profitable and loses routes in the network.

Source

The study can be get on the web

from :

Welcome In The Club

Thanks!

Contact

Mohammed Salem Awad Consultant Tel: 00967 735222692 Email: mohammed.hadi@yemenia.com

smartdecision2002@yahoo.com