Airline Administration Test - Assignment Example

Airline Administration Test BY YOU YOUR SCHOOL INFO HERE HERE Southwest and American Operations Referencing Porter’s Value Chain Southwest maintains its operational competitive advantages by, first, avoiding the high costs of operating a hub system like other competition in this oligopoly. Southwest works under the premise of short-haul flights, with 85 percent of them fewer than 500 miles, in order to provide low pricing that has led to an ROI of 15 percent through this strategy (Seal & Kleiner, 2004). This airline maintains a point A-to-point B operating philosophy that provides more on-time flights and instant departures from regional and international airports. This reduces not only labor expenses, but the operational costs of crew rostering, capacity planning, ground handling and scheduling of flights (Knorr & Zigova, 2005). Networking consists of utilization of the Pricing and Revenue Optimization System, an algorithmic application that determines pricing based on customer information and yieldable demand stored electronically (Riddell, 2006). That satisfies elements of process automation to avoid labor expenditures associated with manual pricing strategists and determines logistical solutions for better service delivery associated with ticket pricing. Southwest further utilizes the Varolii Interact Platform, an electronic system by which managers interact with pilots using SMS text messages to ensure on-time flight scheduling and overall operational cost reduction (Close Up Media, 2011). This improves logistics on the value chain framework, both inbound and outbound. Organization and management at Southwest are highly decentralized, offering a horizontal flow of information, culture and input from empowered employees. Southwest conducts “Rocking Chair Sessions” where impending retirees share their history and cultural experiences with Southwest to expose new-hires to the Southwest team-focused philosophy (D’Aurizio, 2008). Decentralization and cultural unity provide first-class customer service and employee motivation, thus improving human resource management in the value chain. American Airlines conducts food service research and development, spending between $1 and $75 per customer on these efforts for coach and first-class passengers, respectively (Smyth, 2003). This provides greater service quality as well as affecting procurement for raw food purchases to provide superior on-board meals. Strategic alliances and incentives provision are the most valuable marketing and sales commodity for American Airlines. This airline often partners with other airlines or well-known brands to improve its market visibility. Incentives improve service delivery under the value chain as well by providing its current price match guarantee for customers who book flights, cars, hotels, or other vacation packages and find lower prices on another website within one day (PR Newswire, 2011). The positive enhancements to the business profitability are improved service delivery and variety. Strategic alliances provide access to external talent and capital, thus also improving revenue production and marketing brand recognition/loyalty. Financial controls at American are witnessed through their hedging strategies to offset rising fixed costs of fuel and oil (Birkner, 2008). Hedging is a process of investing capital in market-based strategies for return on investment and protect its financial position against fixed cost absorption. This is a value-creating activity that provides American Airlines with greater capital and the ability to expand operations internationally; avoiding capital losses. Stakeholder Analysis Stakeholder interdependencies for the purpose of this analysis will include shareholders, customers, and employees. Shareholders demand a return on investment when they purchase stock in these airlines. They provide capital to the airlines and also demand that executive leadership perform operations and strategic controls to maximize profitability and provide higher dividends and stock returns. In 2008, Southwest Airlines received a record fine of 10.2 million dollars from the Federal Aviation Administration for failing to comply with plane inspection protocol when cracks emerged in the fuselage of several planes (Wade, 2008). Southwest was accused of being lax in their safety practices which greatly impacts the inter-dependencies between all stakeholders. Investors lose confidence in operational efficiency and also have their ROI expectations affected each time the company loses capital due to operational failures. Inspection failures also jeopardize customer and employee safety, which could lead to further risks associated with legal fees for lawsuits and impact employee security needs which are fundamental to their emotional and motivational loyalties. Southwest also puts a great deal of emphasis into collecting and analyzing customer complaints as part of their service delivery model (Horngren, Sundern, Stratton, Burgstahler & Schatzberg, 2009). This provides more quality of service to the customer stakeholder and better marketing presence, but maintains potential impact on employee job security and career development. Customer complaints isolate specific flights or employees that have contributed to customer perceptions of poor service, thus targeting employees for disciplinary action. The inter-dependency between customer service provision and employees is obvious as the customers’ needs can easily supersede more effective training and career development potential. The hedging operations conducted by both airlines to offset fuel prices also impact the relationship inter-dependencies between shareholders and employees. These are decisions made at the highest tiers of executive leadership and, if not properly assessed for risk or potential gains, it can impact the share price of both airline companies. At the same time, customers are potentially impacted by these hedging and other investment decisions at the executive level if failure provides limited capital for better research and development, new hub destinations development, or price increases to offset poor investment strategies. Furthermore, the procedures utilized in human resources for top talent impacts the relationship between all key stakeholders. If the recruitment and retention models are not benchmarked against successful HR strategies from similar industries, motivation and loyalty are affected in employee groups. If service begins to become inferior or experience failures due to personnel problems at the psychological level, customer word-of-mouth as part of post-purchase regret can impact revenue production and share prices. Confidence in the business’ longevity and profitability are determined by sales volume and revenue production, thus the shareholders’ needs sometimes require supercedence over that of internal strategy development related to personnel relationship development or vice versa. Sometimes the horizontal hierarchy that empowers employees requires a short-term set of controls to ensure compliance and cooperation in service delivery to satisfy shareholder profit demands. Job Role Competencies Team spirit and team cooperation is one necessary core competency in the airline industry. Southwest utilizes a recruitment strategy that tests individuals psychometrically to ensure they maintain these standards of cooperation and enthusiasm for group work. The test utilized is founded on PIP that views specific personality traits related to extroversion, drive, social sensitivity, and structure (Aaron Wallis, 2008). Because airlines operate in a structure that requires logistic scheduling and broad-based service provision, it requires a systems approach where each job role is inter-dependent on another for smooth operations. When service provision and customer service are main marketing features and differentiation strategies for airlines, only team-based attitudes fit the culture of customer relationship management needed. Another core competency is understanding how to audit and minimize risks. For pilots, baggage handlers, and maintenance crews, safety concerns are paramount to their job roles. Risk assessment cannot be easily classified and documented in policy since it is a broad concept. Thus, it is largely interpretive and based on decision-making prowess and inherent sense-making talents (Macrae, 2009). In order to find the right fit, recruitment testing is required to ensure that individuals maintain inherent problem-solving skills and can solve real-time risk management scenarios based on their level of cognitive functioning and reasoning abilities. Customer safety and business profitability require the expertise of risk mitigating individuals. Another core competency is customer relationship management, a service oriented individual, especially true in flight services and in-house booking areas where considerable customer interaction is present. Especially true at Southwest which is renowned for its service devotion through soft HR policies is the need for a service-based leader. Both airlines attempt to provide value to customers as part of their vision strategy and this is linked invariably with customer satisfaction achievement (Cronin, Brady & Hult, 2005). It is necessary to recruit individuals with servant leadership traits based on specific values of altruism, visionary leadership, humility, and one who can empower through inherent leadership skills (Andersen, 2009). To provide excellence in service, an individual must be able to handle a diverse customer demographic with varying ethnicities, cultures, and socio-economic backgrounds with a service-based philosophy. The last core competency required in this industry is the ability to communicate successfully. Pilots require ongoing, clear communications with management, schedulers and the air traffic control tower, maintaining professionalism and clarity in their interactions. In-flight service providers, such as stewards, must be able to maintain professional decorum with diverse clients who might be cooperative or difficult depending on their personality and socio-economic backgrounds. Efficiency in the boarding areas and ticket provision require individuals that can guide customers and provide effective information without creating conflict or in other ways harming the business reputation through inferior discussion. The brand and marketing reputation of the airline depends on clear, concise and friendly interventions with clients. Porter’s Five Forces The first force is threat of entry, concern that competitive forces can grow due to the ease of market entry for potential rivals. Airlines can actually create barriers to new competitive entry through the production of loyalty cards or by maintaining hub philosophies by offering more choice to customers (Del Vecchio, 2000). To the advantage of American and Southwest Airlines, market entry in this oligopolistic structure is quite difficult as it requires considerable capital investment for fleet procurement and other operational costs. By adding barriers to entry, the airlines maintain their competitive position. The next force is bargaining power of suppliers. Suppliers have a dominant power in the supply market since only a few manufacturers of fleet equipment exist for procurement. This prevents airlines from being able to leverage pricing and other negotiated factors over them, thus giving suppliers more flexibility to command higher prices or determine the schedule of outputs related to fleet purchases. This might force airlines to invest more training to executive managers in conflict and negotiation knowledge as a means to build effective supply relationships with these dominant suppliers and therefore invest more in human resources to develop these skills. The next force is bargaining power of buyers. Buyers, too, in this market have considerable buying power since they have considerable choice related to competition and many different pricing structures to choose from to fit their needs. The advent of Internet bookings also provides customers with more bargaining power as they can explore multiple flights and discounting quickly and determine which carrier provides the most value for their needs. To lessen bargaining power of suppliers requires airlines to conduct environmental analyses related to pricing structures of rivals and set pricing that reduces options in this category. The fourth force is availability of substitute products and services. This is a major concern for airlines as customers have substitute transportation options including their own vehicle, train systems, or even waterway transport as a means to save money. Airlines know, however, that their services represent faster and more efficient travel and thus buyers do not have a great deal of leverage if their demands include rapid transport without significant time delays. Airlines can utilize marketing to play on these psychological traits as a means to reduce dependency on substitute travel options. Finally, the last force is competitive rivalry, a major concern and guiding force for operations (especially marketing) in an oligopoly like the airline industry. Some airlines are better than others at promoting their brand, using psychographic targeting as a tool to gain loyalty with buyers. In the oligopoly, competition often mimics the activities of others in order to ensure one major player does not achieve significant competitive advantages. Promotion, service offerings, discounting and many other strategies are utilized in this market structure to reduce the positive impact of competitive tactics. This requires ongoing industry and external analyses of what competitors are developing to rival the brand and then develop new operational procedures or advertising strategies to counteract competitive behaviors that could, over time, erode market share or brand reputation. Competitive rivalry is one of the most significant concerns for airlines and there are virtually unlimited methods by which a competitor airline company can differentiate its offerings to customers to gain advantage. The goal is to establish a comparative advantage in a key area and then attempt to exploit it to secure market position. References Aaron Wallis (2008). “Psychometric Tools”, Aaron Wallis Skills Testing. Retrieved November 10, 2011 from http://www.psychometrictools.co.uk/pip_profiling.php Andersen, J.A. (2009). “When a Servant-Leader comes Knocking…”, Leadership & Organization Development Journal 30(1), p.4. Retrieved November 10, 2011 from www.proquest.com. Birkner, Christine. (2008). “Hedges in Flight”, Futures, Chicago. 37(10), pp.68-70. Retrieved November 10, 2011 from www.proquest.com. Close Up Media. (2011). “Southwest Airlines Deploys Varolii Interact Mobile Communications for Pilot Scheduling”, Wireless News, October 6. Retrieved November 10, 2011 from www.proquest.com. Cronin, J., Brady, M. & Hult, G. (2005). “Assessing the Effects on Consumer Behavioral Intentions in Service Environments”, Journal of Retailing 76(2), pp.193-218. Del Vecchio, John. (2000). “Analyzing Industries”. Retrieved November 9, 2011 from http://www.fool.com/research/2000/features000309.htm D’Aurizio, Patricia. (2008). “Southwest Airlines: Lessons in Loyalty”, Nursing Economics 26(6), pp.389-392. Horngren, C., Sundem, G., Stratton, W., Burgstahler, D. & Schatzberg, J. (2008), Introduction to Management Accounting, 14th ed. Prentice Hall. Knorr, A. & Zigova, S. (2005). “Competitive Advantage through Innovative Pricing Strategies: The Case of the Airline Industry”, Institute for World Economics and International Management, p.9. Retrieved November 10, 2011 from http://ww.iwim.uni-bremen.de/ Publikationen/pdf/b093.pdf Macrae, C. (2009). “Making Risks Visible: Identifying and Interpreting Threats to Airline Flight Safety, Journal of Occupational and Organizational Psychology 82(2), p.273. Retrieved November 11, 2011 from www.proquest.com PR Newswire. (2011). “American Airlines Vacations Launches ‘What’s the Deal?’ Online Booking Promotion Featuring Largest-Ever Selection of Offers”, October 10. Retrieved November 10, 2011 from www.proquest.com Riddell, John. (2006). “Adopting a Customer View: Moving from Yielding to Pricing”, Journal of Revenue and Pricing Management 5(2), pp.167-169. Retrieved November 10, 2011 from www.proquest.com Seal, Janis & Kleiner, Brian H. (2004). “Managing Human Behavior in the Airline Industry”, Management Research Review 22(2/3), p.1. Smyth, Whit. (2003). “The NRN 50: R&D culinarians, Nation’s Restaurant News 37(4), pp.104-108. Wade, Jared. (2008). “You are now Free to Worry about your Safety”, Risk Management 55(5), p.14. Read More