Problem-Solving Methods in the Airline Industry - Piedmont Airlines - Case Study Example

Introduction

This portfolio is a comprehensive look of piedmont airlines, a subsidiary of American airlines, including its history, finances, personnel, marketing strategy, cargo management, fleet scheduling, and route structure. In each of the sections, I evaluate the efficiency that has been attained as the corporations strives for excellence. Piedmont airlines is set to expand even more as they acquire more routes, increase cargo services and continue to make smart and reasonable financial decisions. Investors are encouraged to come aboard and share in this success story.

History

Piedmont airlines is the brainchild of Richard A. Henson, a pioneer in aviation who in the year 1931 began a company that provided support services for other operators under the name Henson aviation in Maryland. Their first flight that saw passenger services commence between Washington and Hagerstown was in 1962 (Borenstein, 1992). The firm joined with Allegheny airlines in 1967 and its route structure became more developed as a result of this merger.

The company originally operated Boeing 737, N751N and 767, which are better than other airplanes in terms of passenger capacity. After two years, however, they purchased dash 7 aircrafts, which had a capacity of carrying 50 passengers. Piedmont airlines acquired a more modern and regional look in the 80’s as more equipment were brought in. The company would later grow into USAir and this saw Henson planes repainted to bear the name USAir Express, a reflection of the new identity. Later on, Henson was also renamed to Piedmont Airlines to retain the identity of the USAir groups.

Piedmont airlines currently has more than 1700 workers. Whilst most airlines were downsizing their workforce in the late 2000’s piedmont was experiencing a rapid growth. Piedmont airlines acquired a true coast-to-coast company status as they expanded to numerous locations including Alaska and western United States (Kole, & Lehn, 2000). The company continues to set trends as they were first to have a complete program for pilot training. Piedmont was also the first airline company to be certified for use of the TCAS anti-collision systems (Smith, Grimm, Gannon, & Chen, 1991). More opportunities for in routes, customer service areas and fleet size opened up piedmont group after their parent company US airways merged with American airlines in 2013.

Financial Status

As piedmont, together with PSA airlines and Envoy air, is a subsidiary of American airlines its revenues and profits go directly to the parent company. American airlines refers to these three subsidiaries as regionals and their financial performance is usually under one financial report. The regionals collectively brought in revenues in excess of 40 million dollars for American airlines. Below is a basic financial report for mainline and regionals for 2014 and 2015. (See appendix 1).

Cargo Management

Slumps in volumes brought about by the recession has forced airlines to explore more avenues of enhancing profitability. Apart from passenger services, piedmont airlines are also involved in the cargo business. The company has flights to almost 55 destinations within the United States and Canada and these are used to also ship cargo. The merger between American airlines and US Airways has also seen an expansion of the amount of destinations they ship cargo to. For the year 2014, American airlines announced that revenues from cargo for the period January to October were $643 million. This represented a 6.7 percent increase from the previous year (Portillo, 2014).

Route structure and airport hub strategies

Piedmont Airlines operates the hub and spoke route structure and the main hub operating in Charlotte NC. A hub and spoke network enables an airline to grow revenues as they have an advantage based on revenue per RPM as well as load factors. The hub and spoke route structure entails transportation that enables the local airlines like Piedmont offering flights to other central airports for international or long-distance trips. The airline has hubs at Philadelphia Airport and Charlotte Douglas airport where the main operations and constant trips are made (Bontekoning, 2006). The benefit of the hub and spoke route structure is that it enables the connecting flights to operate at reduced costs, depending on the demands of the passengers. However, the problem of the structure may entail the climatic conditions, mechanical breakdown or chaos that may force scheduling of flights at the last minute, causing outcries from the trusted clients.

Table 1: Piedmont (US Airways express) top six airports

Daily Departures at Major Airports

Flights

Pittsburgh International Airport (HUB)

257

Charlotte/Douglas International Airport (HUB)

204

Philadelphia International (HUB)

175

New York LaGuardia

149

Ronald Reagan Washington National

99

Boston Logan International

38

Source: (GRA, 2003)

*Totals include the entire US Airways Express network.

Marketing strategy

Piedmont’s marketing strategy is dependent on their parent company, American airlines’ marketing strategy. American airlines marketing strategy involves a campaign that provides customer involvement through call-action marketing and email marketing that persuade customers via email to book flights on their web page.

American Airlines is running a new advertising campaign underlining its years of service on its main routes. The campaign started on websites and later in consumer publications. It features stylish actors who were and are carried in these routes including Grace Kelly. American Airlines has introduced flights on new airbus A321 from Kennedy international airport to Los Angeles and San Francisco airports the new flights features; first class service, and Premium class.

Pricing schemes and fare wars

American Airlines has a strategy of price matching. Pricing pressure came up due to growth of number of low-cost carriers. This is to see the company become more aggressive .The new advertisement features two four and eight page spreads. The colors in the advertising print are red white and blue American Airlines logo (Levere, 2014). Digital advertising includes 15-second videos. Indeed, with these strategies that American Airlines has, will help it maintain its top positions in airline services.

Personnel

Piedmont through their parent company, American airlines always strive to have a satisfied work force. This is because satisfied workers are more likely to serve customers better thereby leading to customer satisfaction. An additional benefit of a satisfied work force is low employee turnover and thus less expenditure on training new staff. Ultimately, maintaining good employee relations contributes to the success of a company and American airlines is well aware of this as they have the highest percentage of unionized workers in the country (Reed & Reed, 2014). Employees at piedmont are always encouraged to assist in other tasks as long as they are not required to have a license for that task. This reduces labour cost and contributes to a more cohesive team.

Fleet management

Piedmont Airlines operate leased aircraft and owns the other planes. Leasing aircrafts is advantageous to a company in that the transaction can be recorded as a rental, but no assets or liabilities are recorded. This means that the company is a less risky venture for an investor as there are few liabilities and the lower the assets reported, the higher the return on asset ratio (Kimmel, Weygandt, & Kieso, 2011). The fleets serve different functions depending on their passenger and cargo capabilities. The airline expanded its fleet with the acquisition of the new Embraer-145 regional jets that started operations this year (Piedmont Airlines, 2016). Similarly, the American Eagle Airlines leases fleets to Piedmont to enable them to dominate the regional market under the American Airlines Conglomerate. In this regard, Piedmont Airlines’ main hub is Charlotte, NC, with several routes connecting to 95 other airports across the country. Both the leased and the owned aircrafts fly the same routes carrying passengers to the different hubs (Piedmont Airlines, 2016).

The average age of Piedmont Airline’s fleet is between 30 and 32 years with the oldest flight acquired in 1984. The company bought 27 de Havilland Dash 8-100 fleets in 1984 to carry 37 passengers each then acquired 11 more planes in the next edition of the same model (Proctor, Machat & Kodera, 2010). The de Havilland Canada Dash 8-300 acquired in 2001 carries 50 passengers, and this implies that the company was expanding its capacity to accommodate more clients (Proctor, Machat & Kodera, 2010). The latest acquisition is the Embracer ERJ-145 that also ferries 50 passengers, but with sophisticated features and services that match the current customer requirements. Piedmont Airlines owns a total fleet of 39 planes with a sitting capacity of 137 passengers minus the consideration of the leased airplanes.

Table 2: Piedmonts fleet matrix

Retired

Current

Aircraft

Introduced

Retired

Replacement

Aircraft

Orders

Passengers

Beechcraft model 99

1967

1987

Short 330

De Havilland Canada dash 8-100

_

37

Short 330

1977

1989

De Havilland dash 8-100

De Havilland Canada 8-300

_

50

De Havilland dash 7

1979

1997

De Havilland dash 8-300

Embraer ERJ-145

15

50

total

39

17

De Havilland dash 8-200

1996

2008

Source: (Plane spotters, n.d)

Scheduling considerations

Airline scheduling is a complex process that requires a proper balance between various factors including equipment, facilities and crew. Scheduling is vital to the success of an airline as it is the function that determines efficiency. The staff at piedmont are well trained to handle maintenance schedules that are a major contributor to flight delays.

There are however numerous factors like weather in some locations that can contribute to delays. To overcome these anticipated airport delays piedmont airlines adds more time when scheduling for flights in locations that are prone to extreme weather conditions and airports where facilities are inadequate. This may include some additional minutes to account for expected weather delays or to beat an airport curfew.

Good scheduling allows time for aircraft maintenance and affords the crew ample time to rest. Breaking airport curfews due to poor scheduling attracts hefty fines and results in reduced asset utilization (Barnhart & Smith, 2012). All successful airlines like piedmont are keen to eliminate scheduling errors as they have a direct impact on operating revenues.

Table 3: Delays likely to affect scheduling

Location

Factor

Reason

Charlotte

other

congestion

Philadelphia

Other

Congestion and ship crossing area

La Guardia

Other

Congestion

San Diego

Weather

Evening fog

Burbank

Weather

High winds around mountains

Orange county

Other

Airport curfew

Source: (Southwest Airlines, 2009)