Air Transport Operations - Thesis Proposal Example

Air Transport Operations An airline company can be certain of success through customer satisfaction. Customer satisfaction is achieved by the company successfully segmenting the market. Then the company makes an offer to the customer. The company then exceeds the customer’s expectation consistently. Introduction .The case study deals with the industry as it seeks to be competitive in a recessionary world economy. It deals with it from the concept of a free market. The market is free in the sense that it allows for the capitalist system. Such a system allows for the free flow of economic activity. The activity is undergirded by necessary limited government intervention... Virgin Atlantic Background There was no mention of this. It is significant. Here are two significant items. Virgin Atlantic from the start has been a fierce competitor against British Airways. Virgin Atlantic has survived the recession of the 1990s. This was achieved no doubt by the in put of the British government. This is with reference to the fact that British Airways had a major foot hold on Heathrow airport and also Gatwick. The law was changed. This gave them access to these two major airports (McMenemy, K., & Dodds, G. 2006). It provided a more even operating capability. British Airways had also entered into alliances abroad. One example is the arrangement with American Airlines. This gave British Airways a huge marketing advantage. The combined arrangement gave the two more than fifty percent of the UK USA market. The other missing information is that the airline has sold part ownership to Singapore Airways. This arrangement has provided Virgin Atlantic a huge injection of cash. The cash infusion obviously helped in relieving the pressure of fuel purchases. It also made it possible to acquire aircraft and advertising more easily. The foreign ownership component is an asset. The airline will receive different treatment with that country. Even though it is not a national carrier it will have a national advantage. This should greatly compensate for the impact of the British Airways and American Airlines cooperation. Virgin Atlantic Marketing Virgin Atlantic has used creativity to its advantage. It is likely to do so in the future. The host mentioned the in flight movies at the start of Virgin Atlantic. This is an important aspect. It was an added service to the traveling public. It is important to observe that this is considered standard on the regular carriers. Little was said about this. The company has been able to capture the high end portion in direct competition with British Airways. And at the same time be able to capture a portion of the market from Easy Jet at the low end. In addition they are able to catch the middle market. It is a simple and brilliant strategy. It is built right into the pricing of the product. They have the economy, premium economy, and upper class. The wording is important. The economy is used not cheap or low cost. At the top they do not say luxury but upper class. This is a good play on words especially if you are operating a B747. This aircraft is known for its upper flight deck from many years ago. Both Easy Jet and Virgin Atlantic mentioned the importance of the timing of aircraft purchases (Greenslet, E. 2003). They did not talk about the type of aircraft or the manufacturer. It is obvious that Virgin Atlantic has given serious thought the matter. Virgin Atlantic has roughly half and half units between Boeing, a USA company, and Airbus a European company. In addition they have possible orders for the B787 aircraft. This is the most modern aircraft coming into service in 2012. This aircraft can give them another important marketing advantage against British Airways. British Airways has very little on order. It is a very efficient aircraft. It has less impact on the environment. One example is that it is a very much quieter aircraft. One requirement is the need to observe noise abatement requirements (van der Merwe, J., & von Holdt, D. 2005). . The noise abatement relates to two aspects. First is the geographic location. This is fixed. The second is the timing of the day. In aviation the day is counted in the twenty four hour clock. Most other businesses generally consider twelve hours for the day. The clock aspect makes the abatement requirement somewhat movable. It is possible to operate air craft in some cases in the restricted area successfully because of the time of day. This is at the same time it is the biggest aircraft. Airbus does not have a similar aircraft in production. This is important because of the naming of the aircraft. The aircraft is called the dream liner. Such a term will have good appeal to the traveling public. This is regardless of how much they pay for the ticket. Both Easy Jet and Virgin Atlantic spoke of the need for efficiency of operation. They indicated it is important to keep down the cost of tickets. This way it would make it possible for more people to use air travel. They agreed this can be easily achieved by making sure the seat capacity is there per unit. Then they said it is important to have the aircraft operate always at near full capacity. They are saying that this will keep down operating cost and at the same time keep down the cost of the ticket to the traveling public Easy Jet Background This company started with limited equipment and limited financing. Ti used the lease method of financing which conserved cash. It had only two aircrafts while Virgin Atlantic had only one. The difference is that Easy Jet started operating within the UK. Its growth is based on its ownership philosophy. The ownership here is in investing in business ventures to make a profit... It grew by the acquisition process. It therefore bought competitors. It international operation was enhances once again by acquisition. It bought interest in a Swiss charter airline. Easy Jet Marketing The company has a simple plan. It intends to offer the service at a low price. They promote the concept of no frills. They had no interest in using travel agents. They encouraged the public to use the phone system to make their own bookings. The strategy has worked. They all agreed it has to do with the general education of the public and the increased availability of technology in the home. In addition the airline seeks out business customers. They can do this because they fly to major airports. They also offer earlier flights with out penalty. This offer is a great help to the business traveler. There is always the stress of timing of meeting. Those meetings are sometimes canceled or changed for some other reason. These two aspects were not mentioned in the program. They benefit from some limited use of Gatwick. It is noticeable that they do not have access to Heathrow. Even with this arrangement they carry more than half of the passenger traffic in the UK. They should have mentioned that they need to operate from Heathrow. They should have also asked Lord Digby Jones for help in getting into Heathrow. It is fair to believe this would greatly help their bottom line. It has given Virgin Atlantic the needed platform to compete with British Airways. It is surprising that this airline has been using only regular sized jets. They have no wide body or jumbo jets. In addition they have none on order. There is a special advantage to operating the smaller aircraft. This way it is possible for them to operate flights close to full capacity. Fewer empty seats per flight results in lower cost of operation. The lower cost saving can be easily passed on to the passenger. Both of them mention the green operation need. They believe it is the duty of the airline industry to reduce its carbon emissions. They both said they are committed to the idea. Easy Jet has made a commitment to acquire Eco Jet units in 2015. Such an aircraft I made of special materials. The engines use different fuel. The engines are more efficient. This over all reduces the emissions in the atmosphere. The airline has stayed out of the North Atlantic market. This is significant because it is considered a vey important market in the aviation business. There is also another truth. The North Atlantic route has been known to hurt many airlines. This airline can improve its earnings by offering other services. They have first offered lower cost for online bookings as compared to telephone bookings. In addition they are offering things like hotel booking services. This way the customer gets to choose the desired level o service. Then to pay only for what is need and where it is needed. British Airways Background and Marketing This airline goes back many, many years before either of the other two. It has been recognized as the world’s most profitable airline. This is a major achievement. Some mention should have been made of the fact that Virgin Atlantic’s success was due to the decision to fight against British Airways control of the market. The company has been making use of technology. The automation system is heavily used for the cargo business. It is possible for the company to handle special cargo with great efficiency. This is a world wide operation airline. . The world wide operation accommodates cargo activity. Maybe the corporate structure has been a help in the process. The cargo business is handled by a separate subsidiary. A subsidiary is a part of a business with a special arrangement. The arrangement is an accounting al legal structure. The business is owned by the holding company ( Perrett, B. 2007). . The company is called a subsidiary. The subsidiary has its own separate legal identity. In addition it has its own separate accounting operation and reporting. There is still control. The composition of the board of directors is determined by the holding company. This ensures policy is followed. The earnings of the subsidiary is the property of the holding company., this is because of ownership. The cargo business is operated by British Airways World Cargo. When you consider the content of the interview it is possible to see why it was not mentioned. Many would say it is a separate company operating with a separate product. Balance Businessman Lord Digby Jones does not own an airline. He however sees the big picture. This is no doubt due to his involvement in the government in the past. He thought that the role of government was critical to the success of the industry and the wider industry as a whole. It was agreed that the technology between the companies and the public was a problem. They agreed that it was possible to benefit. The announcer wondered if it was a good thing. They pointed out it depended on the company. There was the example of dong the online and or automated booking. Then the customer arrived at the airport to find the need to stand with the other customers. They thought it was wasteful if the company also had a physical person there to assist with the check in exercise. An interesting bit of information was the analysis of the passenger needs. They saw that one third of the passengers had only carry on luggage. The question was asked if they should have to pay the same as those other two thirds who need other luggage services. They felt the cost to the customer should be based on the level of service used. This led to the idea that the coming legislation is going to have an impact. UK Economy The three men felt that the question of labor cost was not that much important to the airline industry. This was in considering the question of cutbacks in general in the country. In particular they mentioned British Airways seeking as much as a month off in salaries from workers. They were quick to point out that such cost is about ten per cent of the operating cost of operation. It was clearly stated that the cost of fuel was the most important cost factor. Looking at Both Companies. It was clearly recognized that in the UK the industry operates without government subsidy. This is unlike many countries. Many countries are committed to subsidizing their own national airline industry. Both companies have done well in recent times. They both seem committed to the idea that the aviation industry is good for the world economy. In addition they think is good for promoting understanding between people in different parts of the world (Adey, P., Budd, L., & Hubbard, P. 2007). The general tone gives the impression that they believe it is the duty of the industry to become an instrument of progress in the current global recession. Easy Jet has been around since 1995. The ownership is based on the strict entrepreneur out look. The owner sees this as one of many possible business ventures. The object is to make a profit as to if the owner had made some other industry choice. Their commitment is to capturing the lower end market. They are prepared to use automated phone systems and online services where ever possible. In this way hey will be using technology to keeps the cost o operation low. They seem willing to pass the savings on to the customer. This company was able to make money by correctly timing the purchase of aircraft. The timing allowed it to manage the cash flow. The funds were then available for the higher fuel costs. In the case of Virgin Atlantic, they were around since 1985. They were interested in the personal touch. They were less inclined to automated phone systems. However, they were willing to use them up to the comfort level of the customer. They therefore have an easy default system. This makes it easy for the customer to leave the system and quickly reach a live operator. This company recognizes its financing approach as important. They mentioned that they started with one aircraft. What is important is that they were quick to point out that they had leased the aircraft. This is an effective way to conserve cash. Air Transport Operations and Profits in the Future. Competition There if freedom of choice for goods and services. The market forces of supply and demand controls what is available in the market place. Such an economic arrangement is to the benefit of the consumer. The consumer is able to exercise choice. The interview hears from two different types of companies. Both are successful. Easy Jet offers a no frills product. Virgin Atlantic offers the personal touch service. The pricing structure will of necessity be different. Both companies are able to serve the targeted segment of the market successfully. They seem to be targeting the passenger market only. The corporation has to first determine how it will operate in a particular industry. In the case of aviation there are two main areas. The area depends on the service being provided. They are two services. The transportation of people called passengers. The other is moving of goods and products. This is called cargo. In some cases the corporation will decide if to operate exclusively in one area or if there should be some combination. This combination is called the product mix. The product mix is general used to maximize profit per operation British Airways was mentioned in passing. They simply said thy made money because BA had problems. What is important here is that British Airways is a major competitor. It is the number one British airline in terms of aircraft, flights and international destinations. British Airways is a major airfreight carrier. The air freight makes it possible for the aircraft to increase profitability. This is called the product mix. Simply put, it is possible to fly passengers, and at the same time to fly cargo. The mix of cargo to passengers per flight significantly increases revenue (Murphy, P., Dalenberg, D., & Daley, J. 1989). In addition British Airways has a separate cargo service. This service is for cargo only. British Airways over all, moves about fifty percent of air freight in the UK. This is a smart move providing a valuable service and quietly holding a significant part of the market. The interview gives the impression that both Easy Jet and Virgin Atlantic have little or no interest in the airfreight part of the industry. This should be investigated to ascertain if this is so. Market place There are market place constraints. This is based on economic theory. All business activity is governed by it. A quick definition is the management of scarce resources. First is the question of geography. This means determining if the business will operate within a country or between one or more states. The next constraint is to meet the requirements of the law. Aircraft Finance Virgin Atlantic was specifically mentioned in this area. They confirmed that they started with one aircraft. They mentioned that the aircraft was with lease financing. The economic decision is to recover investment and to keep operating cost low to earn a profit (Williams, Victoria; Noland, Robert B.; Toumi 2002). One financing method is to purchase the aircraft. This is mostly done for private operations. It is possible for commercial ownership. The reason is that aircraft costs are very high. A catalog price in this case can be higher than US$ 80 million. The cost is generally too high for private ownership. Leasing is the next option. There are three possibilities. First is the direct lending then operating leasing and third is finance leasing Acquisition by direct lending is possible because of the financial climate. The group of banks provides the funds. The banks then hold a security interest in the aircraft. This is usually used for short term financing. Short time in the industry is considered to be ten years or less. Finance leasing or capital leasing as in accounting language is for the long term. This is somewhat complicated because the aircraft is bought by investors. The buying process gives a special ownership to the buyer. This is because the buyer uses equity and debt to acquire the vehicle. The aircraft is now made available to the airline for operation.. Technology It is necessary to look at what is available. The availability has to do with the manufacturer’s product available. Next is the cost of the product. And how will the financing be provided. There are two general ways of financing. First there is the possibility of buying the aircraft. The other alternative is to lease the aircraft. This second method of financing has some additional constraints. The airline company should consider available technologies. Then decide where to apply them. It is a sure way to increase profitability. Of course there should be careful planning. There are generally worthwhile technologies. There is the automated phone system for passenger business, containerization for cargo and airport services for both. Automated Phone System In the interview both airlines express dissatisfaction with how the phone systems in general work. Easy jet seems to prefer it. Virgin Atlantic seems inclined to offer the personal touch. They seem interested in giving the customer the option of using the automated option up to the user’s comfort level. Intermodal Containerization The most important element today is the need to move cargo efficiently. The containerization of cargo makes this possible. The ULD is the most important tool in the operation of air freight. The Unit Load Device is a type of container designed for the aircraft industry. It reduces handling as the cargo is inside the device. The workers actually move the device instead of directly handling the cargo. The UDL are standard. The advantage is that it is possible to calculate the number of units efficiently. Airport Hub The interview did not deal with the airport reality. British Airways was mentioned only as it related to that airline's problems with the new terminal building at Heathrow. Virgin Atlantic stated that they made money in the situation. British Airways probably thinks the airport resource is important. They have streamlined their operations from Heathrow as the major economic point in the UK. Then they have Gatwick as a minor operation point. The ultimate economic production point for them (passengers, cargo and the aircraft) is on the ground. This means landing at an airport. There is quite often a fee for landing. The fee is not set. It is based on whatever factors the particular airport chooses. Some pricing components are weight, time of day, aircraft operator or type of aircraft. In some cases there are no fees to land. This may or may not have an additional charge for services after landing. The busyness of the airport may influence the amount of fees charged. There should be good management. It may be possible to manage efficiently the number of landings. These landing fees could add up. Such management can contribute to the lowering of operating cost over a thirty day period. Input Cost Factors The second factor is economics. This aspect is two fold in application. This is because it is directly linked to fuel consumption. Fuel consumption has to do with aviation economics. The other part of the economics is the personnel side. The personnel have to have specific training. In addition they must meet stringent health and life style conditions. Today we are faced with high energy prices. In addition the prices fluctuate widely and suddenly. It is important for the airline operator to be able to manage the fuel costs. The effective management of the fuel cost makes the airline profitable. In the process the cost of the operation is lower (Dennis, W., & Mathews, N. 2003). The lower operating cost improves the marketing to the passengers. Open Skies This is a concept that was encouraged by the USA. Simply it is the idea of accepting only market forces for the operation of commercial aircraft (Murphy, P., Dalenberg, D., & Daley, J. 1989). The operators are free to decide capacity and fee structure. The operators would recognize a mechanism for settling disputes. The operators would be also free to enter into cooperative agreements as they so desire. The government involvement would be limited. In most cases the government would provide security and safety. The government could also authorize a third country of operation. The intent would be to establish fairness without restricting trade. Cabotage Cabotage rights are the rights to operate with in the territorial area of a country. This was first applied to travel on water. The concept has been transferred to aircraft operation. In this case it would be the use of airspace and airport facilities. Airline companies may be able to gain an advantage by providing service for developing countries. The airline companies could help spur international trade. It would be hardly any increase in operating cost. The operating cost would be kept low because of the ULD technology. The country dictates how cargo is moved within its borders. The restrictions would affect not only shipments but also trans-shipments. Deregulation Entry into the market is easier than in the past in the USA and Europe. The same regions are the major producers of aircrafts. The regions also have high demand for the cargo service. Many think of deregulation as only in the USA. It exists in the European market. The complication exists because Europe is made up of different countries. Nationalism Over the years British Airways has been called the UK national airline. The airline industry serves almost all sectors of the modern economy. In addition the airline industry is served by many different sectors of the economy. One major sector is that of government. The national and military impact is directly impacted. In addition the airline industry is a collector of tax revenue for the governments. This includes the national government and the foreign government where the airline operates. Air Cargo There is the need to move products quickly and efficiently to the destination (Reed, D. n.d.). Today we have standardization. This has been facilitated by the use of computer technology. As a result cargo is moved by containerization methods. The added technology of computerization is another help to the operation of the AIRBUS. Bar coding can be read by the computer. The placement and movement of the containers now allows for easier tracking. Past There was economic recession. There was deregulation. The deregulation was happening in two major segments of the world market. There was strong deregulation in the USA. This is the home country of the Boeing aircraft. Then there was the deregulation in the European market. This is a major market in terms of business activity to earn revenue. It is also important because it is the place of major rival competition in aircraft production. The rival is the Air Bus. In the case of Europe there is the added problem in that the entire aviation market environment is dominated by government. This is particularly necessary since there are several sovereign nations in the European market. This is in contrast to the USA which is a single country or state. Easy Jet and Virgin Atlantic uses aircraft from both manufacturers. Easy Jet operates a newer fleet. At the same time it has chosen to stay away from the wide body aircraft. Such a product would not fit its marketing philosophy. Future Again there is recession. This is more severe as this is a world wide recession. Air travel is mostly used for passenger traffic. The need to move people quickly and in comfort is the key factor. Aircraft cost are high in acquisition costs. This means that newer units will tend to be used for passenger traffic. The void will be filled by the use of no frills airline companies. The Era The aircraft industry is a very new industry.. The jet engine is very new. The materials being used in aircraft production are also new. . At the same time, the movement of people and goods is as old as the hills. Economics The economic factors have been the strongest driver. It has given the no frills a firm footing in the future aviation market. .. The market place has changed for ever. The air passenger market will be dominated by larger and more efficient airliners. .The no frills airline operator has a secure future. Secure should be understood in the sense that it has to depend on what happens in the other parts of the global economy (Smith,B.1997). An increase in passenger travel will reduce the availability of airliners with the combined passenger freight configuration. A reduction in fuel cost will keep it in the competitive range. A fall off in over all capacity will impact financing. Fewer people will be willing to finance new aircraft activity. . In the finance world it would be said to be reducing investment risk in an uncertain financial economic system. Conclusion There is much that was said in the interview. The main thing said it the use of the concept of ensuring customer satisfaction for success. There is much more relevant information that was not said. The host mentioned that fact. The aviation industry is very complex. It has to conform to government guidelines. It was good that they pointed out that the labor cost is not that significant. They agreed that the labor cost is about ten percent of the cost of operation. This means they do not have the cost impact when compared to other businesses. The host mentioned that the recession economy has resulted in layoffs in different parts of the economy. She also pointed out that that British Airways is offering the idea for workers to give up a months pay. This means that Easy Jet and Virgin Atlantic are in a better position as they are newer airlines. It is more likely that British Airways may have a special labor cost component. The reason is that there are legacy costs. Simply put, the company was in existence many years ago. In addition it is the result of the pooling of many older companies. In that arrangement, the new company would have taken over labor contracts of the past. Over time, British Airways will have new employees. The legacy cost will be reduced. Then the lower operating cost will be realized. The fuel cost will be vigorously managed. The fuel type and source will be important. The industry will have to pay close attention to the advances in technology. The industry will have to hope to benefit from the development done by others. The reason is that the airline industry will not be able to be a major contributor to the development of fuel. The development costs are very high. The industry does not have the cash to support such activity. It is obvious there is a commitment to technology advances. They were speaking against the background of the Paris Air Show. This is an old and world wide recognized event. It shows what is available and what is coming in the world of aviation equipment. Presence at the events makes it possible for people to meet. The business world still operates with the interaction of people. Relationships are the glue material of success in business. They believe that the customer should use technology. They think the technology should be used for efficiency. They believe the customer should feel that the technology is there to help the customer. Then the customer should be able to identify where the technology has actually benefited them. In addition they think the technology should reduce operating cost. The example given has to do with the check I clerk. The point was made that the booking can be made on line. They showed if the customer has done the work, and there is a clerk here to also check on the customer. Then there is no saving of operation because the clerk is still being paid. There is also a loss of time due to the unnecessary interaction with the clerk. Both companies believe they are on to a good future. They both seem committed to servicing their existing markets. They seem committed to maintaining their commitment to the capital structure. Of course it would be unwise to disclose strategic plans. This is especially true if they are reasonably sure they will benefit with the new implementation. 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(Nov 2002)Transportation Research: Part D Vol. 7 Issue 6, p451, 14p; (AN 7883971) Database: Retrieved July 24, 2009, from Academic Search Premier database Read More