Piedmont Airline: Discount Seat Allocation (A) Case Solution And Analysis, HBR Case Study Solution & Analysis of Harvard Case Studies

DESCISION PROBLEM:

Marilyn Hopes is one of the best strategists in the Piedmont Airlines. Hopes is working in the finance department, and most probably she is considered as the leader in Piedmont Airlines. Piedmont Airlines has been successful for many years due to its lucrative system of revenue enhancement. This process is considered as a huge financial success for the Piedmont Airlines. The fare system adopted by the Piedmont Airlines consists of two different types of fares;theH-fare and Y-fare. The H-fare is a discounted fare while the Y - fare is in full-fledged business class. The business class is one of its most beneficial customers in terms of revenue enhancement.However, the recent deregulations have created many problems for the company. The deregulations restrict the company to have as many discount seats as they prefer, which means that now it can only have a limited number of discount seats. Now the major responsibility is shouldered upon the finance department to take a decision of making an adequate fare policy, which is beneficial for the company with respect to finance, marketing and growth.

DECISION ALTERNATIVES & EVALUATION:

Piedmont Airline has 7 analysts working in their finance department. The main objective of these analysts is to analyse the different possible situation developed by the marketing department of the company in terms of profitability, growth and reputation of the company. The first step before the analysis is to identify the possible different outcomes based on the data given in the data. The marketing department will thoroughly analyze the situation by using different marketing tools that will be discussed later. These expected possibilities will then be used by the finance department to project the sales of each possible outcome.

The company’s decision criteria will be based on the detailed analysis, which include several factors like risk and return analysis of each alternative. This allows the opportunity to maximize the company’s revenue along with having effective controls in place when it comes to seating inventory. Also, it allows to incorporate tradeoffs into the decision-making process as it relates to each fare type.

In addition to this, another factor is the analysis of the types of the customer. There are two types of customers that need to be considered, Stimulator & diverter. The stimulators are those customers, who take a biased decision based on the discount fares. These types of customers always consider to buy those tickets having discount fares attached, while the diverters take unbiased decision. They consider the discount fares only when it is available.

Moreover, yield, load factor, tradeoffs and revenue should be included in the decision-making process as it relates to the possible outcomes.

The criteria for selection is totally linked. The link includes the uncertainty, risk tolerance and linked decisions. The uncertainty is in term of economical market, technology, competitors, and weather etc. Another factor is anchoring, which is defined as the use of historical data to project the forecast.

Piedmont Airline Discount Seat Allocation (A) Case Solution

Several decisions need to be considered for this analysis and which will include all the above discussed factors. The decision alternatives include selection of appropriate quantity based on paired v's unpaired tests of the difference in means, and discounting all seats or none of these types of two decisions.

ANALYSIS OF ALTERNATIVES:

PAIRED VS UNPAIRED OPTION:

Effect of sample size:

The sample size of Piedmont Airlines to determine the discount seat allocation is too small. Out of the 836 daily departures and almost 30,000 flights a month, only one flight was observed to help improve on how many discount fare seats should be allocated.

The scrutiny of flight 224 from Charlotte to Boston was beneficial; however the consequences of analyzing other flight do not seem to be worthwhile for the company. As the data is too small, it will not allow them to produce better results in terms of future prospects. The large size data provides numerous projections, which can be helpful to generate several different alternatives and analysis of their flights. This in turn will also provide them greater opportunities of earning greater revenues, however as the data becomes large, it will also provide more efforts and study to evaluate the results appropriately. The large size data also require proper supervision in order to provide appropriate results which in turn will require further costs to be incurred in this activity..............................

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