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

The strategies of the functional areas of an organisation, Discuss the ways...

Discuss the ways in which the strategies of the functional areas of an organisation should support the other levels of strategy. In describing how the functional strategies sup

Market segmentaion, how to write an assignment on market segmentaion

how to write an assignment on market segmentaion

Strategy development processes-vision and mission, Strategy development pro...

Strategy development processes Vision and mission statements There was no announcement about Aldi's mission statement, but it's vision relates to offer its customers in

Procedural history - sample case briefing, Procedural History: The pl...

Procedural History: The plaintiff filed an action for negligence under Texas law  and  the trial  court granted summary judgment in favor of the defendants.  All you are d

Show the example on residual income, Q. Show the example on residual income...

Q. Show the example on residual income? Division A makes and sells a single product and is assessed by the residual income it earns, the head office of the group uses a 10% cos

Quantitative analysis, how has quantitative analysis changed the current sc...

how has quantitative analysis changed the current scenario in the management world today?

Genentech after the acquisition by Roche, apply a five forces analysis how ...

apply a five forces analysis how would you describe Genentech competitive position

Managing strategy and change, Taking into account the industry dynamics and...

Taking into account the industry dynamics and characteristics of the automotive industry, discuss the rationale (reasons for)the collaborative partnership between Renault, Nissan a

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