COMAIR Regional Airlines - Case Study Example

GROWTH AND EARNINGS OF COMAIR In terms of the overall industry outlook for US airlines, Fitch Ratings d that the magnitude of the anticipated decline in jet fuel costs for 2009 will help U.S. carriers in manage liquidity. However, persistent problems such as the expected softening in traffic, the evolving yield and unit revenue patterns limits opportunities for credit quality and ratings improvement. Hence, Fitch gave a negative rating for the US airline industry outlook for 2009. (Fitch, 2008) Despite this bleak outlook which was projected by an international ratings agency, COMAIR is ready to experience positive revenue and profit targets for 2010. The regional airline COMAIR, a subsidiary of Delta Air Lines, which serves routes in the United States, Canada and Europe is poised to become very competitive and profitable in 2010. COMAIR currently has 5,800 dedicated aviation professionals and services 511 daily flights to about 77 international and domestic destinations. The COMAIR is the preferred airline of choice by most business travellers and frequent travellers as it offers affordable airfares. COMAIR has gone from strength to strength by rapidly rolling out international routes and additional services for the customers. Another important cost factor for regional airlines is the national and local taxes imposed by the US government. Most countries treat airlines like cash cows by levying national prerogatives and taxes on them that results in higher costs of doing business. Another positive trend is that inspite of the US recession, the regional airlines do offer the safest form of transportation. Although US airlines carry 3.5 million passengers annually, the accident rate is very low compared to the accident rates of motor vehicles and maritime vessels. Another interesting and positive development is that air travel has improved its safety record over time. New US airline jets have more safeguards and safety measures which help minimize untoward accidents on air and on the ground. Among the interesting market players in the US airlines industry is COMAIR. For instance, COMAIR has been effective in four general areas of operations: 1) winning customers; 2) maintaining its fleet in excellent condition; 3) close relations with its pool of human resources, 4) keeping its finances viable. In general, COMAIR's is able to grow its equity over time (McCabe, 1998) COMAIR has increased international capacity by 15 percent in 2008 to address increasing demand. (International Herald Tribune, June 4, 2008) The company has consistently upgraded its fleet on a yearly basis. As regards its salary expenses, Comair's flight attendants have approved a US$7.9 million dollars in wage cuts intended to help the company recover from its financial difficulties. Fourth, COMAIR has been able to manage its finances well. The company has managed to keep unit revenues up and unit costs down. The airlines fly all their available seats, hence, the company managers try to increase their unit revenues on a quarterly basis. The COMAIR managers understand that most of the airline's costs are fixed. Approximately ten percent of costs go to services such as airport fees and air navigation services fees. Labor costs take up an average of 38 percent in the United States. Hence, the COMAIR managers have focused on decreasing the unit cost to bring down operations cost. In addition, the managers continue to manage near-term liquidity pressures. Cash collateral posting requirements had a material impact on its unrestricted cash positions since 2008. Delta Air Lines, stated on Dec. 2, 2008 that its projected cash collateral posting requirement at Dec. 31, 2008 would be approximately US $1.1 billion dollars. In response to the situation of the parent company, COMAIR is focused on improvements in free cash flow as the key to liquidity preservation. In addition, the company has scaled-back aircraft financing commitments and has implemented fleet plan adjustments to put aircraft capital spending at modest levels. (Daytona Business Journal, January 9, 2008) Another key factor is that the employees have doubled their productivity in terms of airline capacity per employee. This means that the employees worked together in providing the physical service of getting passengers from one place to another. In terms of morale, the COMAIR employees have improved their morale as the company moved to save jobs instead of reduce them during the company crisis. (Bisignani, 2007) Income and Growth Strategy Comair's main hub is at Cincinnati/Northern Kentucky International Airport. In 2007, Comair transported about 9.6 million customers.' Comair serves Delta's major areas in Atlanta with 15 daily departures and Cincinnati. The airline has a concentrated focus in the Northeast markets of New York's Washington, D.C.'s and Boston's International Airport . The Comair has consistently garnered the US Federal Aviation Administration's (FAA) Diamond Award which highlights the airline's strong commitment to up-to-date aircraft maintenance and training. The company also operates a price structure sculpted to reflect demand. It is able to decrease maintenance costs and simplify operating procedures. The COMAIR has strong ties to Delta Air Lines, Atlantic Southeast Airlines, Chautauqua,'Freedom, Pinnacle, SkyWest and'Shuttle America. (COMAIR website) In terms of air fleet profile, COMAIR has a total of 218 Canadian Regional Jets, 48 Embraer 120 Brasilia jets and 19 Saab 340 jets. All of these aircrafts continuously undergo an excellent maintenance and upkeep program which is done by the professional set of ground crew members. (Dayton Business Journal, January 9, 2008) The current top management profile at COMAIR showed excellent stewardship of adequate company resources. John Bendoraitis has managed COMAIR emphasizing on on-time flights and flight completion. The company has reduced its operating costs considerably setting US $30 million in savings in 2008. Dave Soaper, Senior Vice President of Aircraft Operations leads 3,000 Comair employees who are in charge of Flight Operations, Training and Crew Resources, and Inflight Services and Planning and Performance. Dan Dixon, the Chief Financial Officer manages the airline's financial reporting and financial planning processes by focusing on revenue enhancement strategies. Melissa Johnson, Chief Information Officer and Vice President of Information Technology makes use of new technology and re-engineered the business processes to streamline airlines operations. Allen Messick, Vice President of Maintenance oversees the Maintenance operations. Karla Russo, Vice President of Human Resources Karla leads the crucial Human Resources department staff in ensuring the creation of a positive work environment and good work-life balance for all employees. Codeshare agreements with other airlines In its linkages with other US airlines, COMAIR offers a regular flyer loyalty scheme, business and first class section, and complimentary onboard meals and drinks. The company also aggressively marketed its electronic ticketing facility through its Internet website. Its frequent flyer plan (FFP) had recorded an annual increase in membership since its inception. The COMAIR seeks to serve markets where they exist, to merge or consolidate where it makes sense, and to make more money through an expanded consumer demand in the international travel markets. (Doganis, 2002) Recent developments such as the move of key airport hubs to add grand shopping malls to its main terminal facilities have resulted in less costly service landing fees for the international airlines. Furthermore, the evolving adjustments in the cost structure of the airports will ultimately help US airlines remain viable and profitable. (Doganis, 2002). The downward adjustments in oil prices, the decrease in landing fees of airport facilities and the increased consumer demand for air travel has worked for the best interests of COMAIR. Revenue and profit estimates for COMAIR will significantly improve in the coming years. References Doganis, Rigas. 2002. Flying Off Course: The Economics of International Airlines. London: Routledge. Fasig, Lisa B. "Comair cutting fleet, flights." Dayton Business Journal. January 9, 2008. McCabe, Richard M. "Why Airlines Succeed or Fail: A System Dynamics Synthesis." (Ph.D. diss., Claremont Graduate University, 1998). Thompson, Arthur A., Jr., A. J. Strickland, and John E. Gamble. (2005). Crafting and Executing Strategy: The Quest for Competitive Advantage - Concepts and Cases. Boston, et al.: McGraw-Hill Irwin. Bisignani, Giovanni Bisignani. (2007). Airlines: Bankruptcies, Terrorism, and High Oil Prices Have Rocked the Airline Industry. Customers Complain about Bad Service and Long Lines. Are Airlines Doomed' Not a Chance. Foreign Policy, No. 152. Fitch: Airlines: Weakening Demand, Liquidity Pressures Cloud 2009 Industry Outlook. 2008. Business Wire. Online sources Air Transport Association of America, Inc. Economics; Annual Revenue and Earnings. Retrieved 19 October 2006, from http://www.airlines.org, selected years. Airline Industry Information. (2006) Comair flight attendants approve USD7.9m in wage cuts and concessions COMAIR Website. Comair seeks licence to operate daily flights on London route. Available at URL: http://www.travelwires.com/wp/'p=1164. Read More