Strategic Management in the Aviation Industry - Essay Example

Table of Contents Title Page Introduction……………………………………………………………………………….….2 Body…………………………………………………………………………………………..3 Conclusion……………………………………………………………………………………..7 References……………………………………………………………………………………..8 The Aviation Industry Introduction The present world economy is composed of quite a number of industries that all play a vital role in propelling the world forward. These industries operate in different environments as per the goods or services that an industry has a specialization. Furthermore, the various firms that put together each industry all have various policies and strategies that they employ in order to dominate their respective industries and maximize their profits (Delfmann 2005, p. 231). Apart from the issues within the companies’ scope, some industries are faced with concerns that tend to be beyond their control. Such topics globally affect the performance of an industry and all the industry’s firms must act in unison to overcome such crises for the overall benefit of the entire industry (Turnbull 2008, p.78). In the analysis of the world economy, all industry players have to be taken into account and their niche be critically scrutinized to ensure the best position is reached at, and for the analysis to give the best position of an industry (Auerbach 1989, p.102). This is due to the disparities in the diverse industries composing the world economy. Considering this, such analyses unearth inside make-up of these industries that assist in their in-depth knowledge. Consequently, this exhaustive understanding of such industries results in better positions for tackling the contentious issues and trending topics that affect the specific industries and extend to the world economy (Barnhat 2011, p. 87). Body In light of this, an industry for consideration would be the aviation business. The aviation industry is composed of all companies, private or otherwise, that partake in the air transport. This includes both passenger travel and cargo freight. It is a rapidly growing industry and being the fastest means of transport, it is the most preferred by many. The airline industry is demarcated into various sub-sections consisting of commercial passenger transport, private charter firms, cargo freight companies and, more recently the introduction of emergency flying doctor services. Due to this, the delineation of boundaries for this industry poses a number of challenges to the industry players. As such, rifts may occur among industry players with each firm only associating themselves with their niche and generally avoiding interaction with others outside their scope (Delfmann 2005, p. 201). Considering this, the negative impact comes evident when a firm supposedly offers services in a niche not considered its specialization. The other companies in that specialty would view this as territorial infringe. This often puts different industry players at war against each other. Moreover, the establishment of national air space also sets an avenue for differences among countries (O’Connor 2001, p. 89). Considering these, the delineation of boundaries in the aviation industry curbs affable relations among the industry players and this eventually means limited opportunities for progress, and at times keeping the consumers stuck with services that are not top-notch, hence it hampers competitiveness in the sector. Apart from the above, certain structural factors form the interplay of the industry leaders in an industry. Among these are advancements in technology. Therefore, in the aviation industry, technological dynamism is a critical factor that plays a significant role. The majority, if not all, of customers or air travel fanatics are only thrilled by the prospect of boarding a state-of-the-art plane. As such, most airline companies invest huge amounts of capital outlays in upgrading their fleet to the most recent planes to appeal to most passengers (Barnhart et al 2009, p. 98). What’s more, advancements in technology have resulted in more fuel efficient and easy to maintain aircraft. These aircraft can carry a significantly higher number of passengers or goods and travel a long distance over a shorter period compared to earlier aircraft (Lumpe 2008, p. 211). This advancement in technology has also led to improved operations at airports and other aircraft facilities through the introduction of modern equipment. This ultimately saves time and results in more passengers and cargo being handled within a shorter period (Delfmann 2005, p.125). Furthermore, the operational costs are brought down by the use of such modern equipment and the quality of their work is commendable. In addition, passengers are also assisted by technology as booking of flights is now done online thereby saving time from the queues previously relied upon. Consequently, advancements in technology result in improved profits and growth in the aviation industry (Muir & Harris 2005, p. 212). The competitiveness of the aviation industry largely depends upon the criteria adopted by the firms in the industry. The industry is highly dynamic, and as such, the dynamism criteria adopted by most firms keep the industry cutthroat. The reliance of the industry on technology for most of its operations results in rapid dynamics in the sector to keep up with the rate of technological advancements (Muir & Harris 2005, p. 99). Therefore, the industry players have no room for being static lest they are knocked out of the competition by their components. Moreover, adopting a static criterion would mean increased operational costs due to reliance on aged aircraft that would require more maintenance. The whole process would be slow hence hindering progress (Muir & Harris 2005, p. 187). Moreover, the aviation industry is a safety sensitive one and any company always relies on the safest operational means possible. These safe modules change from time to time still due to technology. Furthermore, no company would risk neither their clients’ life nor that of their employees through indulgence in unsafe practices as being static to change (Lumpe 2008, p. 198). In fact, static operational criterion would undermine all the benefits of technology hence the sector would be stuck in the past and growth would be evitable. From the above, it is notable that a static criterion undermines the aviation industry and only the dynamic means can keep the industry up to standards (Cento 2008, p. 232). The state of competition has grown over the years that aviation industry has been a mainstream economic activity. The expansion of the aviation industry hit a fast growth streak after the First World War when the global economies were building up following the devastations of the war (Barnhart et al 2009, p. 163). During these formative years, the industry was still uncompetitive due to the economical status of most countries back then. Over the years, the industry has rapidly grown to be one of the most competitive in the world (Muir & Harris 2005, p. 122). The increase in the competitiveness of the industry over that period can be attributed to a number of factors, most importantly being rapid technological advancement coupled with stability of world governments in terms peace and cordial relations (Shaw 2011, p. 148). In the aviation industry, large firms have a competitive edge inherently accruing to them by virtue of their economic might, and in some cases, they set up policies that increase the competitiveness in the sector (Cento 2008, p. 176). As such, the large firms in the aviation industry enjoy efficient operational costs compared to smaller firms. Running a variety of operations in the aviation industry has a long-term effect of reduction in the costs of operations since similar operations could be consolidated into the same system (Muir & Harris 2005, p. 158). This means instead of forming different departments for the various operations, the business subdivides its operations into larger similar subsections like keeping the flights to one continent in one portal. This results to lesser staff and improved operations (Barnhart et al 2009, p. 262). Apart from reduced operational costs, large firms also enjoy market domination as in most cases they are the market leaders. Due to this, large firms at times employ certain tactics in order to increase competitiveness in the industry. They may keep their prices low compared to smaller industry players due to their reduced operational costs (Goddard et al 2009, p. 172). This could be related to price discrimination, as the smaller firms have to work harder in order to retain their market share (David & Scherer 1990, p. 123). The aviation industry tends to face more price discriminations the more competitive it becomes. Most perfectly competitive markets generally lack the market power to discriminate against prices (O’Connor 2001, p. 231). On the other hand, monopolies have the ability to practice price discrimination provided they have thorough knowledge of the market and customer preferences (Vedder 2008, p. 123). Despite this, most airline companies neither are in the perfectly competitive market nor are they monopolists. This puts them at a position that they cannot practice proper price discrimination (Barnhart et al 2009, p. 127). Studies show that price discrimination rises with corresponding increase in the competitiveness of the industry. Some studies also show more presence of price discrimination in a duopoly compared to that in a monopoly (Cento 2008, p. 96). Moreover, higher market concentration has the effect of lowering the price discrimination in the aviation industry (Muir & Harris 2005, p. 192). Therefore, price discrimination in the aviation industry is more of a competitive behaviour than an indication of a monopolistic environment (Lumpe 2008, p. 198). This is due to the limited possibility for the existence of a monopoly in the airline industry. Conclusion: The aviation industry continues to be a defining factor in the world economy. This is due to its various attributes that make it revered the worldwide (Vedder 2008, p. 282). Being the fastest and safest means of transport, it is a sector that is actively involved in the world economics (Barnhart et al 2009, p. 177). Despite this, factors such as terrorism tend to negatively affect the trend of the industry. Moreover, it is heavily reliant upon fuel and a change in fuel costs always destabilizes the industry (Cento 2008, p. 243). Furthermore, a downturn in the global economy such as a recession reduces revenue especially for leisure flights. Despite all these, the airline industry remains one of the most efficient sectors in the transport industry (Lumpe 2008, p. 211). References Delfmann, W 2005, Strategic Management in the Aviation Industry, Ashgate Publishing Ltd, Hampshire. Goddard, J, Wilson, J & Lipczynski, J 2009, Industrial Organization: Competition, Strategy, Policy, Prentice Hall, Edinburgh. Lumpe, M P 2008, Leadership and Organization in the Aviation Industry, Ashgate Publishing Ltd, Hampshire. David, R & Scherer, FM 1990, Industrial Market Structure and Economic Performance, Rand McNally, Chicago. Cento, A 2008, The Airline Industry: Challenges in the 21st Century, Springer, Heidelberg. Vedder, H 2008, Strategic Alliances in the Aviation Industry: An Analysis of Past and Current Developments, GRIN Verlag, Norderstedt. Harvey, G 2008, Management in the Airline Industry: Human Resource Management and Pilots, Routledge, New York. Muir, CH, Harris, D 2005, Contemporary Issues in Human Factors and Aviation Safety, Ashgate Publishing Ltd, Hampshire. Auerbach, P 1989, Competition, Basil Blackwell, Oxford. Turnbull, K F 2008, Interagency-aviation Industry Collaboration on Planning for Pandemic Outbreaks, Transportation Research Board, Washington DC. Shaw, S 2011, Airline Marketing and Management, Ashgate Publishing Ltd, Burlington. Barnhart, C 2011, Quantitative Problem Solving Methods in the Airline Industry, Springer, London. O’Connor, WE 2001, an Introduction to Airline Economics, Greenwood Publishing Group, New York. Read More