Regional airline management - Term Paper Example

Regional airline management Abstract The global airline industry is presently reeling under some of the worst times with dip in demand, credit crunch, increased burden of taxes and skyrocketing fuel prices. The present strategy would focus upon Great Lakes Airlines that is a regional carrier based and listed in USA and analyse its operational and financial aspects. In the course of the study an analysis of the different cost parameters would be highlighted so as to analyse the current standing of the company. These would be used to link up with different growth strategies that if incorporated would generate long term sustainable advantage for the organization. Introduction The airline industry is one of the most capital intensive industry segments that have been under severe pressures from the prevailing macro economic scenarios. The recent economic crisis had a major impact on the profitability of the airline companies with almost all the major airline companies facing the heat of the economic recession and the shortfall in demand. According to a report by IATA the airline companies incurred a loss of about 9.9 billion US dollars with both passenger as well as cargo segments falling short of the expected demand. The average yields of airline companies dipped by about 14 percent in the year 2009. The revenue of the total industry was quoted at 479 billion US dollars registering a dip of 15 percent. In addition to this the airline companies have also been hit by the burgeoning oil prices that have skyrocketed in the year. Global crude prices have shot up to about 90 US dollars in April 2010 against 62 US dollars in the corresponding month of the previous year (IATA, 2010, p.8). All these aspects have called upon a need to ensure better competitive practices that can help reap strategic advantage for the organization. About the Company The company chosen for the present study is Great Lakes Airlines which is a US based regional airline company headquartered in the USA. The company began its operations in the year 1977 with flights in Iowa. The company since then has expanded with a present fleet size of 38 aircrafts and covering about 64 destinations across the US. The company went public on April 1994 and its stocks are presently listed and actively traded on the bourses of the NASDAQ stock exchange (Great Lakes Airlines, n.d.). The company mainly uses the Beechcfart 1900D aircraft that has a capacity of 19 seats. The airline mainly operates in the regional markets of the US (Great Lakes Airlines-a, n.d.). The company focuses on service quality and punctuality to gain strategic competitive advantage in the market. The coming sections would analyse the competitive and growth strategies of the airline towards generating a favourable position in the highly competitive business segment. Competitiveness Cost Structure Cost for Available Seat Mile The competitive factors for an airline can be analysed from some of the key operational and financial figures. The cost for available seat mile (CASM) value that shows the net of the operational expenses upon the total seat based miles flown by the airlines. The value of the CASM for Great Lakes Airlines in 2011 is pegged at 32.7 cents that represents a 4.5 percent increase from its corresponding figures last year (Great Lakes Airlines-b, 2011, p.15). A higher value of CASM implies that a firm would be easily able to reach the breakeven point (Kundu, 2010, p.105). In this regard the increase in value over the last year represents a scenario in which the company has fared poorly in the present year that is indicated by the higher figure of CASM. Revenue per Available Seat Mile Another significant factor includes the Revenue per Available Seat Mile (RASM) which denotes the average figures for the total operational revenue for each seat mile that is available with the airline. The figure for Great Lakes Airlines is about 32 cents that is a net increase of about 1.6 percent from its corresponding figures quoted last year (Great Lakes Airlines-b, 2011, p.15). A higher value of RASM figures shows a better profitability of the airline (Yu, 1998, p.69). The rise in the RASM figure for Great Lakes Airlines represents a better picture for the airline in terms of profitability and operational excellence of the organization. This figure also shows that the airline has the capacity to reduce its losses in the coming years. Certain other key elements of cost structure for the selected organization are shown in the figure below: Figure 1: Key Elements of Cost Structure (Source: Great Lakes Airlines-b, 2011, p.15) The figure above shows that key elements of the cost structure like Available Seat miles and Revenue passengers carried by 1.4 percent and 10.1 respectively. However the numbers of total flown departures have registered a net decrease by 4.9 percent from its values in the previous year. This aspect remains a cause of worry for the airline as it shows that the number of departures has decreased significantly. However the length of passenger trips has increased that shows a good indication for the organization. However the fact that revenue per available seat miles has reduced in comparison to the cost per available seat miles shows a negative indication for the organization. High cost of fuel that has skyrocketed in the year has also added to the list of issues or the organization. The analysis of the cost structure reveals certain critical areas that must be significantly improved so as to maintain sustainability of the airline and to bring the firm back on the path of profit making. Current Earnings The total asset base of Great Lakes Airlines decreased to 24,961,626 US dollars in 2011 that is a net decrease from its corresponding figures stated last year. The total of other assets also reduced to 81139727 US dollars in 2011. Operating expenses for the company in the first quarter of the year 2011 however showed a net increase from their figure last year that is being pegged at 29690713 US dollars in 2011. The company posted a net loss of after deducting taxes at 577406 US dollars that is much higher than the loss figures posted last year (204540 US dollars). The net loss per equity share for the present quarter of 2011was pegged at 0.04 US dollar per share that is also significantly higher than the corresponding figures of 0.01 dollars quoted last year (Great Lakes Airlines-b, 2011, p.1-3). Management The top management o the company comprises of the Chief Executive officer Chrles R Hornwell IV. In addition to the CEO Mr. Michael O Matthews is the Chief Financial Officer of the organization. The company also has a set of independent board members in addition to the board of directors (Great Lakes Airlines-b, 2011, p.30-33). The top decision making team comprises o the CEO, CFO and Mark Shwab who is the chief officer of the alliance between the airline and United airlines that is a major partner in the organization. Fleet Size Great Lakes Airlines has a fleet size of 38 aircrafts catering to 55 airports spread over fourteen states in the US. The company has seven operating hubs spread across the nation. The fleet of the company is largely comprised of 6 Embraer EMB 120 Brasilia and thirty two Beechcraft 1900D aircraft (Great Lakes Airlines-b, 2011, p.6). Code Share Agreements Code-sharing agreements is one of the latest trends in the aviation industry in which passengers using two separate airline networks appear as a common unit in the reservations list that would appear as if the two airlines are a single entity. Code sharing helps in generating better coordination and promotes consolidation in the airline industry. This assumes significance considering the high level of competition in the market (Iatrou & Oretti, 2007, p.70-71). Great Lakes Airlines has code-sharing agreements with United Airlines and Frontier Airlines in USA. The code sharing agreements also includes smooth transfer of baggage as well as inclusion of free air miles that is a loyalty program of the company. This strategy has enabled Great Lakes Airlines to generate greater profitability as well as increase in the value proposition of the service offering so as to generate competitive advantage (Great Lakes Airlines-b, 2011, p.12). The analysis reveals that presently the firm is not in a viable position however on account of recovery in the economy that is expected to boost up demand it is very likely that the firm can bounce back on the path of profits in the future years. Growth Strategy The company is presently reeling under a loss and the management aspires to reduce the losses and push the firm back into profitability. The company would try to augment its present services by providing greater value to the customers with better service delivery standards. A market penetration strategy would also be used to enter the more profitable areas. The company would also revaluate its present routes and discard the potential los making routes. It also plans to close down some of the unviable hubs in the nation in an attempt to reduce operating expenses. The company would use the code share agreement and the EAS program to generate greater revenues for the firm so as to maintain sustainability and generate profits (Great Lakes Airlines-b, 2011, p.12). The company would also include a program that would help in generating better relationships with the customers. Inclusion of a loyalty program would also help the firm to retain existing customers and generate better customer relationships. The aspect of repeat purchase would help in not only generating passenger loads but would also improve upon the operating revenues of the airline. An effective marketing communication plan would also be used to reach out to the target market segments. Incorporating these strategies along with augmentation and better utilisation of the fleet size would help generate profits for the organization. Conclusions The analysis of the financial and operational aspects of Great Lake Airlines shows that the company is presently not in a very favourable position. This can be stated largely due to the prevailing market competition, dip in demand following the economic recession and surging oil prices. The company however can emerge as a profitable entity by ensuring modifications in the existing strategies. This would include better management of fleet as well as discarding non profitable routes and adding more profitable routes in its air map. The company must also try to leverage upon the code-sharing agreements that would help in generating a better positioning of the brand. Finally the company must also use an effective marketing communication that would seek to ensure proper communication so as to generate long term sustainable competitive advantage for the organization. References Great Lakes Airlines. (No date). History. Retrieved June 7, 2011 from http://www.flygreatlakes.com/. Great Lakes Airlines-a. (No date). Our Fleet. Retrieved June 7, 2011 from http://www.flygreatlakes.com/. Great Lakes Airlines-b. (2011). Form 10Q. Retrieved June 7, 2011 from http://www.flygreatlakes.com/financial/2011/Docs/Great%20Lakes%2010Q%202011%20quarter1.pdf. IATA. (2010). Annual Report 2010. Retrieved June 7, 2011 from http://www.iata.org/pressroom/Documents/IATAAnnualReport2010.pdf. Kundu, A.K. (2010). Aircraft Design. Cambridge University Press. Iatrou, K. & Oretti, M. (2007). Airline choices for the future: from alliances to mergers. Ashgate Publishing, Ltd. Yu, G. (1998). Operations research in the airline industry. Springer. Read More