...What are the challenges associated with managing in a business with high fixed costs like airlines? One of the challenges associated with managing in a business with high fixed costs, like airlines, is how to generate enough revenue during the peak season to reduce the effect of losses during off-peak seasons. Airlines must generate enough seasonal revenue during heavy travel periods, predominantly the summer months, to offset losses experienced during other seasons when profits from travel are low and costs remain the same. One way that airlines are doing this is through an additional fee structure for extra baggage or flight changes. Another challenge that airlines face is the threat of employee strikes, such as the Iberian Airlines pilot strike, which often have detrimental effects on the airlines profits by causing changes in flight schedules and increases in employee pay (Chen, Iberian Airlines and the Implications of High Fixed Costs). As a recent Wall Street Journal article, "Delta Air's Profit Up on Business Travel Gains", reports airlines are increasing their profits this quarter as a result of increased business travel. The article further points out that while the demand for trans-Atlantic flights by banking sector business travelers is down, the demand for those flights by consulting and business-services travelers is up (Carey, 2011). The airline industry's largest costs are salaries, fuel and planes. Using larger airplanes could be a method to neutralize...
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...SWOT analysis for Air China The airline industry has undergone significant restructuring in recent years.Airlines, formerly rivals in a highly regulated industry, have become opportunisticseekers of co-operation. In today's world, mega-carriers and small airlines areworking together rather than competing with one another. Forms of co-operation include sub-contracting, code sharing, franchising and theformation of global marketing networks. Such alliances allow firms to focus on their respective core competencies, while drawing the benefits of scale economies. In essence,co-operation among rivals has led to increased competitiveness. This has accelerated thetrend of joint marketing, and the airline industry has become characterized by the desireto belong to a global network. The tendency has been to strive for a global presence. The case of Air China Air China was founded on the 1st of July 1955. Its headquarters is based in Beijing. Itengages in international and domestic passenger and cargo flight services. To unify itsfacility image and simplify its repairs and maintenances, its fleet of 118 aircraftexclusively consists of Boeing models. It has established hub-spoke style passenger andcargo transport network. The hub of this network is Beijing International Airport.The company is operating 339 routes, which consists of 53 international and 286domestic, operating more than 1,000 scheduled flights on weekly basis, serving 29 citiesin 19 countries. About 66 per cent of its...
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...1: Case Study European Airline Industry Strategic Management Contents |Main Body |4-10 | |1 Introduction |4-5 | |2 Summary of macro-environment analysis |5-7 | |3 Summary of industry environment analysis |7-8 | |4 Other critical factors for the airline industry |8-9 | |5 Future directions/recommendations |9-10 | | | | |Appendices |11-26 | |1 Macro-environment analysis |11-16 | |2 Industry environment analysis |17-26 | Reference List 27 Main Body 1. Introduction The European airline industry is a vigorous industry with changing trends that relate to the overall European economy. Traditionally, the European airline industry was mainly comprised of full-service carriers, such as Lufthansa and British Airways. Nevertheless, this situation changed quite swiftly (Datta & Chakravarty n.d.). Government deregulations freed European airline markets from restrictions...
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...The main cause that makes a company have to make changes is the external environment. It usually forces organizations to make changes to its mission, culture, leadership, and operating strategies. Changes in the 12 drivers bring a series of change to the overall structure. Changing anyone of the 12 “pillars” will influence the adjoining ones. But, changing the entire structure may or may not affect the entire system. These changes are influenced by the motivation of the individuals. They will impact the change to the entire organization. They all interact with each driver on the model. The Burke-Litwin Model has these basic parts that make up an overall change for a company. Change effect one part and then affect the overall performance of the model. 1. External environment: The key external cause on the organization must be identified and clearly established. 2. Mission and Strategy: The overall “vision” should be seen through the eyes of the employee. 3. Leadership: Leadership should be understood. 4. Organizational Culture: This should understand implied rules, regulations, customs, principles, and values. 5. Structure: The function based structure should be understood, such as responsibility, authority, communication, decision, making, and control structure. 6. Systems: This includes all the policies and procedures. 7. Management Practices: How the management accepts and conforms to the overall concept of the organizations strategy. ...
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...299 – Competitive Strategy Southwest Airlines Introduction The domestic US airline industry has been intensely competitive since it was deregulated in 1978. In a regulated environment, most of the cost increases were passed along to consumers under a fixed rate-of-return based pricing scheme. This allowed labor unions to acquire a lot of power and workers at the major incumbent carriers were overpaid. After deregulation, the incumbent carriers felt the most pain, and the floodgates had opened for newer more nimble carriers with lower cost structures to compete head-on with the established airlines. There were several bankruptcies followed by a wave of consolidation with the fittest carriers surviving and the rest being acquired or going out of business. Analysis of the airline industry To determine the profitability of the airline industry, we will do an industry analysis using Porter’s five-forces framework. This industry analysis will help us in understanding the size of the Potential Industry Earnings (PIE), and how much of this the different participants can extract. Rivalry among competitors There is intense rivalry among different airlines. In the pre-deregulation days, airlines competed mostly on things like service, meals and in-flight movies etc., since prices were mandated by the Civil Aeronautics Board. In the post-de-regulation era, this rivalry has taken on the form of severe price competition, with airlines ruthlessly undercutting each other with fare...
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...The Airline Industry In this brief report I will be analyzing the airline industry up to date and I will also look at various aspects including Porters five Forces diagram, key customers and products of the airline industry. The reason for analyzing this brief report is to give the reader with a wider knowledge of the topic. The porter five forces model can be used to assess the competitiveness of the Airline industry. It can also review the competitive within the industry, it also checks for the threat from outside. Key points of Porters five forces model: • Supplier Power: The power of suppliers to drive up the prices of your inputs. Supplier power is reasonably high in airline industries because of the specialist nature of the goods required • Buyer Power: The power of your customers to drive down your prices. The bargaining power of buyers in the airline industry is quite low due to the high cost of switching planes. • Competitive Rivalry: The strength of competition in the industry. Highly competitive industries generally earn low returns because the cost of competition is high. • The Threat of Substitution: The extent to which different products and services can be used in place of your own. Substitutes to the airline industry only carry a small level of risk to existing companies within the sector. • The Threat of New Entry: The force of new entrants is relatively low in the industry. The ease with which new competitors can enter the market if they...
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...Discuss the trends in the U.S. airline industry and how these trends might impact a company’s strategy Airline industry is a clearly structured industry. Trends in the U.S airline industry have an impact the strategies of the airlines especially the Jet Blue airline. U.S airline industry trends including increased crude oil prices, new technology advancement and the impact on post 911 aviation securities. Technologies place an important role in the airline industry today. Technology helps to develop great convenience offer to the customers. Internet as a way to book flights, check in, and check flight status. After the terrorist attack of the 911-airline industry have security systems protecting for the passengers. There are some main changes in the airline industry after attack of 911 such as baggage screening and passenger screening. After 911 federal government increased the air passenger safety. Screening procedures for passengers and their baggage including requiring passengers to remove their shoes and limiting carrying fluids on to the plane. Finally crude oil prices impact a company strategies in the airline industry. Crude oil prices increased dramatically and caused airlines to struggle. When the crude oil price increase they began to increase passenger fees for heavy bags, snacks and even blankets and pillows. Discuss Jet Blue’s strategic intent Discuss Jet Blue’s financial objectives and whether or not the company has been successful in achieving...
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...Southwest Airlines provides short haul, high frequency, point-to-point, low-fare services to and from 58 cities across the United States. The company is known for its low-cost fares and superior customer service in the airline industry. The company was started in 1971 with a motto still lived by today, "If you get your passengers to their destinations when they want to get there, on time, at the lowest possible fares, and make darn sure they have a good time doing it, people will fly your airline." This motto has been effective for the company because they recently reported their 58th straight quarterly profit. SWOT Analysis The SWOT analysis describes the internal strengths and weaknesses, opportunities and threats of a company. The strengths of Southwest include its market leadership, its low-cost business model, and its strong financial performance. Weaknesses are the poor short-term liquidity situation, having only one established alliance, and the declining passenger revenue yields. Opportunities for the company include its new services, the new code-sharing agreement with ATA Airlines, and the overall positive outlook for the airline industry. Threats to Southwest include the increasing jet fuel costs, uncertainty in demand, and an increase in competition. Corporate and Business-level Strategies Southwest's corporate level is to focus on obtaining more of the low-fare market of the airline industry rather than to enter into other aspects of the airline industry...
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...Delhi Business Review X Vol. 5, No. 1, January - June 2004 STRATEGIC INDUSTRY STRATEGIC ISSUES IN THE AIRLINE INDUSTRY AND SINGAPORE INTERNATION THE ROLE OF SING APORE INTERNATIO NAL AIRLINES Amit C. Kamath * Jonas Tornquist ** I NTRODUCTION THIS case study investigates the strategic environment of the airline industry operates. In particular, the role of Singapore International Airlines (SIA) in the global airline industry is considered. The study uses the concept of the “Three Ring Circus” (KCI , 2002), as an overarching framework, whereby the Past, the Present and the PFuture is used for studying the strategic issues in the airline industry and SIA. The past focuses on the key strategic drivers in the airline industry over the past 10-20 years and provides a historic industry overview. The present serves the role of looking at the airline industry and SIA’s present strategic drivers and what is important to consider in this environment. The Possible Futures, or PFutures, looks at what potential drivers or strategic advantages may be present in future, and how SIA is responding to some of these issues. The research in this project is mainly qualitative. It is based on interviews with key people within the airline industry, government officials, industry analysts and stakeholders. The analysis is also based on a review of the airline industry literature as well as the personal reflections of the authors in drawing together some key issues and insights that may...
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...Commercial airlines provide a bevy of services to customers and often differentiate ever so minuscule to win customers from rival airlines. Not only are airlines competing amongst one another for customers but adverse situations such as adverse weather, equipment failures and Transport Security Administration (TSA). Airlines are competing with each other while the customers are debating if they want to deal with the stress of flying. Airlines offer services or amenities to make it more appealing to use their services. All planes fly from point A to point B, but what goes on in between makes the difference in the customer’s commercial flying experience. With so many services provided by airlines it's best, to look at the big picture and not select certain services per say but the categories those services belong to. The key service categories are comprised of responding to the customer’s needs, connecting with customers through technology and adjusting to the customer. Customer needs are obvious in the commercial airline business. Customers want to from one place to another. Air travel even with all the nuances is the fastest means to get to another city, state or country. Customers may choose airlines based on price, recommendations of others, travel route or a number of other reasons. However, Perreault (2009 p. 192) says what companies are really selling is the satisfaction, use, or benefit the customer wants. Customers are looking for what makes their lives easier when...
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...Week Three: Classic Airlines University of Phoenix MKT/571 The economy, increasing fuel costs, and strict security measures lead to intense competition in the airline industry. In attempts to remain profitable and successful, airline company management is challenged to reinvent continually company strategies to remain competitive. Classic Airlines is currently the fifth largest airline company with a fleet of more than 375 jets, serving 240 cities, and more than 2,300 flights daily. To maintain and potentially grow profits and market share, Classic Airlines, and its more than 32,000 employees, will make complex and risky decisions in an attempt to implement problem-solving strategies. The terrorist attack on September 11, 2001 immediately affected the profitability of the airline industry. Leisure travel has been significantly affected because of initial fear of flying and continued increase in security measures. To date, Classic Airlines, although subject to a 10% decrease in market share price, remains profitable. However with low employee morale and decreasing customer loyalty, evident in a 19% decrease in the number of reward members and a 21% decrease in flights of current members, the executive leaders of Classic Airlines elect to reduce costs over an 18-month period. Challenges of reducing expenditures, increasing employee morale...
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...We are a company that set out to be the most competitive company in the airline industry, whose plan was to take advantage of specific areas in the short-haul domestic travel market. The existence of low cost service and the demand for passenger travel on selected routes indicate that a new entrant airline could be expected to capture a significant portion of current air travel business .News Airlines, which stands for North, East, West, and south, we choose the name to express our routes, out destinations and what we stand for, which is considered to be a normal market. News Airlines mission statement is to meet expectations of customers and employees, as well as, providing a safe customer oriented air transportation environment. We specialize in, efficient, friendly, and prompt service. We are committed to meeting the expectations of valued customers. Our motto is Customer Service business and focus. What we hope to accomplish is to provide airline transportation to individuals, throughout the United States with the highest quality of air service. Our goal is to have the widest selection of destinations possible, while we are modernizing our fleet and maintaining our position as the largest air carrier in the industry. In our decision-making we struggled with strategizing and making decisions that would keep us from loosing. We tried coming up with is to become the most profitable airline, which we emphasize on providing competitive rates for all customers. Striving...
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...Interamerican University of Puerto Rico School of Aeronautics Airline Deregulation a Failure Jose Manuel Lopez Team 4 AWCS 2000 Prof. Ocasio Airline deregulation is a failure while the commercial airliner industry has sky rocketed in safety, lower fares. But the industry itself has seen many companies merge and this has made the top 5 airline companies have more power in the market than before the 1978 Airline deregulation act. If we look at them now their control in the market is at an 80% with normal traffic fares and the International fares all together. This make it so the top 5 airline companies have more control than they did before giving these airlines more control of routes and this created a series of unforeseen problems at the time the high congestion of air traffic, delays of flights, overcrowded airports that made the airports targets for terrorist attacks which made air travel more difficult, how this would affect the workers of these companies in making, and customer unsatisfactory, and “The limited Reemergence of monopoly power” stated by Alfred E. Khan Professor of Political Economy, at University of Cornwell, and former economic advisor to President Carter and chairman of the Civil Aeronautics Board. Airline deregulation while it blossomed in some areas it started to create a growing problem where companies started to exclude competition and this would create an industry that more and more airlines would have to merge with the bigger companies to be able...
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...Classic Airlines: The Situation University of Phoenix MKT/571, Marketing Classic Airlines: The Situation Problem Solution: Classic Airlines In order for Class Airlines to overcome its current conditions, the company must undergo a very structured problem solving process. The nine-step problem solving process is just the process that Classic Airlines need. The nine step process consists of the following: • Step 1: Describe the Situation, o Involves identifying key concepts, issues, and opportunities in order to determine the overall focus of the project (McNeese, 2004). • Step 2: Measure the Problem, o Requires that baseline data be collected on the present processes and that the problem be observed and analyzed from a broad perspective so that many problem solving possibilities may be examined (McNeese, 2004). • Step 3. Set End-Goals, o This step will help provide vision and direction and help make choices as to which path Classis Airlines should take (McNeese, 2004). • Step 4: Identify Alternative Solutions, o Allows Classic Airlines the opportunity to look at other companies as benchmarks in order to develop techniques that will help the company conquer disadvantages (McNeese, 2004). • Step 5: Evaluate Alternatives/Strategies, o Allows Classic Airlines to examine the best strategy that will solves the company’s current problems and avoid future occurrences (McNeese, 2004). • Step 6: Identify and Assess Risks, o Allows Classic Airlines to develop...
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...Introduction Although it has been classified as the fifth largest airline, Classic Airlines like many others in the airline industry is struggling to maintain competitive advantage within its market. A key component of the business model affecting both competiveness and profitability is the structure of the marketing portfolio within the company. The scenario revolves around Classic Airlines, a company that provides air travel, which has seen a dramatic fall in their client base, (University of Phoenix, 2010). Now senior management must devise a plan that will reverse this trend while reducing cost by 15 percent. The direction the staff has chosen is using different marketing concepts, which will be discussed in this paper. According to the New York Times (2010), “The airlines industry is expected to have collective losses of $2.5 billion in 2009, according to a forecast from an airline trade association” (Para. 3). Business Dictionary defines the marketing concept. Fundamentally, all companies want to endure and prosper, which is accomplished by meeting the needs and wants of the customer. To be successful, a company must sell the product it offers. In other words, selling focus on the seller while marketing focus on the buyer, this makes sense, the buyer will not buy something he or she does not want or need, (Kotler & Keller, 2006). Competitors, technology, social and economic environments that an organization needs to overcome or try to match its capabilities, affect...
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