Strategies of Industry of Low Cost Airlines - Term Paper Example

INTRODUCTION The economic reforms have always contributed towards the steady growth of any company, but the element of liberalization has broadened the scope of economic activities, and has added further dimensions to it, which are likely to contribute towards the expansion and growth of the economic activities. Liberalization has introduced numerous advantages to the Americans and world-wide travelers, both in terms of higher quality offered by airlines and drastic price reduction. In the current period, where the oil prices have raised significantly, and it is expected that the fuel prices are likely to retain a positive slope, one of the main and most interesting aspects of the free market i.e. based on variance of services, has been the entry in the industry of Low Cost Airlines. SOUTHWEST AIRLINE The Southwest airline initially started its operation with short-haul destinations i.e. less than 1,500 km, and at present the company has increased its activities beyond the initial values. It has introduced new airplanes into operations, but initially it was particular number of airplanes which were on continuous run. The performance of the Southwest airline has been encouraging due to adoption of effective techniques, the company recorded net profit of USD 413 million in 2001, which is lower than in 2000, but the company was the only profitable airline in United States in 2001. Southwest has planned to create more than 4,000 jobs in 2002. The company at retained low unit costs (costs per ASM): 7.66 cents in 2001, against the cost of 7.73 cents in 2000. DUSCUSSION: COURSE OF STRATEGIES The Southwest Company has kept safety as important criteria for the evaluation of its operations, and this is an important aspect of management with reference to Health and Safety, the practice is not widely popular among other low cost airlines, and therefore the Southwest has successful to retain maximum market shares. According to Carlton, the company has complied by the International and National standards of safety and operations, and has invested sufficient amount in this regard. The company's most important management has been its adherence to quality service, and this is termed as an important strategic element for the company. The company purchased Boeing 737 to capsulate required stand-by crews, lower training and maintenance cost. The company has involved its aircraft into continuous operations i.e. higher aircraft utilization. As a result, South West's utilization rate is 7.1 hours. (Carlton, 2000) Southwest has adopted different and effective mode of service, which is of great relevance, the airline has introduced an innovation distribution system through Internet, and telephone and travel agency i.e. traditional modes. The airline has further adopted strategies based on horizontal product differentiation that has proved to be important competitive element for the Southwest. The horizontally differentiated products have no classification of the particular product and brand in terms of qualities. The success of the Southwest Airline has been the function of its ability to introduce and maintain minimum operating cost, and implementation of pricing strategies which have attracted different segments of consumers and have increased the load factors of carriers, which has further contributed towards sustenance of minimum cost. According to Clemons, the airline has preferred its operations in the regional airports, and which is based on strategic considerations, and subsequently the price factor. (Clemons, 2001) Southwest is considered to be the leader among the Low Cost Airlines, and the airline has professional edge over its competitors. The airline has adopted following measures to ensure that the traveling cost can be reduced significantly, for the convenience of the traveler and company's expenses. IN Varian has appreciated the plan, according to which, the Airline offers no meals, drinks, and snacks for free, and narrow seating arrangement has been adopted, the company offers no services for the purpose of seat reservation and free seating, and the company has no special scheme for the frequent flyers. (Varian, 2000) Also, the company doesn't classify the travelers into traditional domains i.e. non-business passengers, leisure traffic and price-conscious business passengers. The airline ascertain that the adoption of short-haul-point to point traffic with high frequencies. According to Kahin, the airline is involved in aggressive marketing. The airline prefers the utilization of the landing services of secondary airports. The company offers low wages, and is sanctioned lower airport fees, because of its minimum stand-by status. The airline has further ensured that it is able to secure high resource productivity, which can be availed through short ground waits due to simple boarding processes, no air freight, no hub services, and short cleaning times. (Kahin, 2000) The company has recently revealed its strategy, according to which, the company is likely to offer services beyond flight operations, and the company has expressed its intention to offer services for the reservation of hotels, insurance schemes for the travelers, car-rental service. The company has adopted the so far strategy due to he fact that there is phenomenal growth in the number of companies offering low fares. Therefore there was need of such scheme which is likely to provide different entity to the company. STRATEGIES: THE PLAN The new CEO of the Southwest Airline, James Parker renewed the company's commitment towards its employee and the customer. The company views employees as significant contributor towards the profitability of the airliner. Barrett, the secretary of Parker contributed towards improving the company's customer service culture. The company's current policy is based on the policy initiated and adopted by the former CEO of Southwest airline, Herb Kelleher. The company's core objective revolves around the employee, later focused on the customers. The company has built strong finances for itself, and has avoided heavy debts. The company shares maximum cash liquidity, and irrespective of political, social and economic constraints the company has performed miraculously. (Claudio, 2001) The company has adopted liberalized recruitment policy, where employee is purely recruited on the basis of his skills and attitude. Offers training programs to the recruited employees, previously the employees were suppose to enroll for 100 hours of training period. The employees on the basis of their experience, expertise and skills are offered promotion. The hiring and recruitment for the major designations is internal. The employees are offered benefits and other incentives apart from their basic salary. (Kahin, 2002) The company has adopted devoted and strong working environment where fun and related activities are encouraged. The company during its launch promoted itself with campaign of LOVE, each and every offerings of the airline was branded with LOVE, the policy of LOVE enhanced the image of the airline, and company even after 35years of its inception adopts the same image of LOVE and FUN. Southwest has influenced the profitability ratios of the other airline industry. The company has used its justified means, appropriate research and resources to compete and gain supremacy over the competitors. The company has successfully won major legal suits against the rivals, and have proven as credible corporate in an environment of professional envy. (Hotelling, 2002) The Southwest Airline has stressed on providing quality customer service. The customers are offered various deals according to their limitations. The customers are offer favorable flight schedule, flight destination and airfares. The customers are offered different flight packages depending according to their requirements. The Southwest Airlines offers all possible packages to the different groups of the customers. The company has further expressed its intention to expand its services to the maximum number o destinations across the North America. The airline is already in agreement with Southwest Airlines for the purchase of certain airplanes, to improve and sustain its performance and customer's satisfaction. The company has further planned to evolve an effective advertising campaign to renew spirit, and furthermore the company has expressed its ability and interest in achieving strong measures to achieve the desired level of development in lieu with the expectations of the customers. (Smith, 2002) The company has tried to improve its staff at managerial level, and the recruits are possessed with leadership qualities which have contributed towards excellence, success and achievement of the company, the company has been able to employ strong strategies, in accordance with the requirement of the situation and the company's concerns and ability. The company has adopted a cautious approach with reference to the proposals, and has introduced decisive techniques to ascertain the policies The core values with reference to the safety and comfort of the customer has been the foremost priority of the company, the organization has enforced exceptional attention span, relational, synergistic thinking that have contributed significantly towards the increased growth of the company. REFERENCES 1. Carlton, D.W. and Perloff, J.M. Modern Industrial Organization. 3rd Edition. Addision Wesley Longman Inc. 2000. pp.142 2. Clemons, E.K., Hann, I. and Hitt, L. M. The Nature of Competition in Electronic Markets: an empirical investigation of Online Travel Agent Offerings. University of Pennsylvania. 2001. pp.124 3. Hotelling, H. Stability in competition, Economic Journal. 2002. pp.56 4. Smith, M.D., Bailey. J. and Brynjolfsson, E. Understanding Digital Market: Review and Assessment. MIT Press, Cambridge MA. 2002 .pp.245 5. Brynjolfsson, E and Kahin, B. Understanding the Digital Economy. MIT Press, Cambridge MA. 2002 .pp.36 6. Claudio A. P, Nicola F., Enrico B. Booking and Flying with Low Cost Airlines. Prentice Hall. 2001. pp. 14-18 7. Varian, H. Market Structure in the Network Age. The MIT Press, Cambridge MA. 2000. pp.25 8. Kahin, B. Understanding the Digital Economy. The MIT Press, Cambridge MA. 2000, pp.125 Read More