Capacity planning and pricing, Strategic Management

Assignment Help:

During early 1981 People Express (PX) became one of the ?rst new entries into the deregulated interstate airline industry. PX's entry strategy was to offer a uniform low-price, no frills, high-frequency regionwide service to 13 peripheral mid-Atlantic cities using a hub and spoke system out of Newark, New Jersey. By unbundling all services, adopting quick turnaround times, working longer crew shifts, and convert- ing all ?rst-class and galley space into additional coach-class seats, PX achieved a 31 percent reduction relative to the industry average in direct ?xed costs per ?ight (e.g., crew costs) and a 25 percent reduction in variable costs per seat (e.g., cabin service). Having secured the lowest operating cost structure in the industry, PX set out to attract customers who saw air travel as a commodity and would regularly ?y rather than drive. The prototypical target customer was a manufacturer's trade representative who often needs to travel on short notice, but is seldom on the company expense account.

In essence, People Express created a new segment of the market not previously served by much more expensive and infrequent Mohawk and Allegheny ?ights (the predecessors of US Airways). As a result, inverse intensity rationing of the cheap ca- pacity ensued; that is, the new low-willingness-to-pay customers attracted into the market by PX's discounting quickly secured all of PX's capacity, leaving almost  none available to other air travelers. As a result, PX failed to take regular customers away from the higher-priced incumbents. Figure WD.1 displays the strategy game this entry presented to the mid-Atlantic regional airlines. The incumbents had to decide whether to match PX's deeply discounted fares or accommodate PX by maintaining high fares. PX had to decide whether to enter with a large-capacity 120-seat Boeing 737 or a small-capacity 30-seat deHavilland 128.


Related Discussions:- Capacity planning and pricing

Threat in swot analysis , Threat: Arpanaa has very few competitors who are...

Threat: Arpanaa has very few competitors who are sprouting slowly and hence it is very important to keep the services updated based on the latest technology according to the needs

Solve this question as soon as posibble, Tangy spices Ltd, the countries’ ...

Tangy spices Ltd, the countries’ biggest spices marketer has decided to launch a hostile bid for Italy’s major spice marketer Chilliano. This is a rare case of an Indian company ma

What are the six steps in strategic planning, Question: (a) Explain, w...

Question: (a) Explain, with an example of your choice, why providing more resources on a project does not always lead to completion of the work earlier than scheduled or getti

Benefits of using balanced scorecard, Benefits of using balanced scorecard ...

Benefits of using balanced scorecard (BSC) - BSC encourages a long-term view of improving performance through time. - BSC considers both non-financial as well as financial m

e-strategy in organisations, 1 - Describe the Benefits of Having an E-Stra...

1 - Describe the Benefits of Having an E-Strategy in Organisations. 2 - Estimate the Contribution of an E-Strategy to the Achievement of an Organisation's Objectives. 3 - Tal

30137341, #questatra is the world''s third oldest car company, and produced...

#questatra is the world''s third oldest car company, and produced a number of rather advanced streamlined cars during the course of its production run. Because spare parts and manu

Targeting , targeting strtegics with live examples

targeting strtegics with live examples

Explain the reliability centred maintenance approach, Question: (a) The...

Question: (a) The prevailing business environment is continuously changing with respect to the emerging complexities in the development and use of new equipment, technologies a

Open communication , 1. Encourage open communication among team members to ...

1. Encourage open communication among team members to support team development 2. Demonstrate ways of resolving conflict among team members

GE matrix, Characteristics of each component of GE matrix

Characteristics of each component of GE matrix

Write Your Message!

Captcha
Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd