Commercializing Aviation Fuel from Algae - Term Paper Example

Introduction The era after 9/11 brought many important changes in the business world with more adverse affects on airline industry. Most of the industry experts believe that 9/11 brought fundamental changes into the way business, in airline industry, was done besides offering an opportunity to undertake more innovative measures to ensure that the organizations protect themselves against the external risks such as 9/11. The current trends in industry suggest that that service providers are experiencing rising costs whereas on the other hand consumers increasingly prefer low cost travel thus the industry is facing a dual challenge of managing the existing base of customers as well as reducing and managing costs to remain competitive. The security concerns shown by many passengers and increasing surveillance by the security agencies not only mean scheduling delays but airlines are also facing a general increase in the overall discontent of the customers. What will be the future of airline industry and how it will shape itself into future is a big question for strategists as well as futurologists as the fast changing business environment envisages completely new and revolutionary changes into it. However, before discussing what changes may take place in airline industry as well as well as the individual business practices of different airline firms. This paper will present an analysis regarding the future of airline industry and how it shape into future and what course of action industry will take over the different external as well as internal issues which industry is currently facing. Current Trends in Airline Industry It is being argued that the US airline industry is the victim of its own past success. The industry thrived on intense competition to lower the fare to attract as much passenger traffic possible however due to lack of government support in terms of increasing the overall capacity of the airports and runways, the increasing passenger demands were not adequately met due to which industry started to suffer a sharp decline from its previous position. The event of 9/11 aggravated the situation further by adding other dimensions to the overall air travel and that was of safety. There are many issues which are of concerns for most of the industry experts regarding the future of airline industry including the increasing concerns over customer services, safety of the customers which has become an increasingly important concern, changing technology as well as overall economics of doing the business. Further, due to safety concerns, the demand for the private jets especially light jets is increasing. The use of lightweight jets are predicted to be used air taxies to cover short distances at relatively low costs and more accuracy without loss of time. Apart from above factors, globalization, shifting of economic activity to countries such as China, Brazil, Russia etc, current credit crunch in most of the developed countries, ageing population with lesser requirements of air travel, corporate social responsibility as well as ethical consumerism are all the different factors which are said to be contributing towards defining the future shape of airline industry. The above graph1 suggests that the recent activity in airline industry is decreasing with the passage of time. Not only passenger traffic is consistently decreasing but the freight is decreasing too due to high oil prices. It is also because of this reason that most of the airlines have started charging baggage surcharge as well as reduced the amount of meals served in order to remain competitive in the face of reduced passenger and freight traffic. The above scenarios suggest that different factors which have been mentioned above are already taking their toll over the progress and growth of the industry. Corporate and Social Responsibility Corporate social responsibility is not a new concept and its relevance to the airline industry is as long as the concept itself. What is important however is the fact that corporate and social responsibility is increasingly viewed as a strategic tool with the potential to re-shape the overall orientation of organizations working in any industry It is argued that the corporate and social responsibility in airline industry will focus on business sustainability; emission as well as passenger safety is the issues which are falling within the purview of corporate social responsibility. EU has already taken measures to control the carbon emission from the planes as well as taken other measures which require airlines to adopt to certain industry standards. Future of airline industry will therefore largely depend upon how the organizations respond to the increasing regulations as well as how much they allow corporate and social responsibility to be used as a strategic tool to get not only greater market acceptance but also increased support from the regulatory authorities also. Today's customer is becoming more sensitive and savvy in nature because of increasing concerns being shown regarding the potential damage which modern businesses are doing to the environment therefore the future of almost every organization including airline industry will largely depend upon how such organizations respond to these challenges. Sustainable Business- Ethical Consumerism Apart from the corporate social responsibility, the new dynamics of international business suggest that the customers will focus more on using the goods and services of the organizations which are engaged into sustainable business practices. According to UN estimates, the CO2 emission will grow to 3% and airline industry is considered as one of the most critical contributors to this phenomenon. It is also important to note that research is already under way where, with the collaboration of scientists and researchers, airline industry is investing into developing alternative fuel from algae which is to be used Kerosene oil.( SustainableBusiness.com.2008).This suggests that the industry has already set its foot on adopting sustainable business practices. Globalization Airline industry witnessed strong consolidation in recent past. Due to strong economic shocks as well as intense competition, small players in the market were not able to withstand the pressure required to sustain in the industry. This consolidation not only helped vendors to further reduce the opportunity cost but also provided an opportunity to globalize the industry both from manufacturing side as well as the market side. The continuous progress towards achieving economies of scales in manufacturing, the giants of aviation industry shifted their manufacturing facilities towards most cost effective locations whereas the airline industry also initiated a process of outsourcing most of their processes in order to gain an opportunity to focus on their core competencies. Apart from that, increasing globalization brings new technology and increase the overall pace of introducing the new technologies. Since, airline industry is already passing through a phase where most of the technological change is taking place in bringing in fuel efficient technologies however as the industry becomes more globalized, the variety of technologies will increase therefore the overall breadth and depth of airline industry, in terms of having cost efficient operations will increase. This will not only keep them competitive but will also increase the competition within the industry which will ultimately benefit consumers. It is also critical to understand that with the globalization of businesses, most of the business and economic growth is being witnessed in BRIC i.e. Brazil, Russia, India and China with some extent in Middle East thus this shift into the dynamics may force airline firms to increase their penetration into these markets as most of the large players never tried to penetrate into these market especially China and Middle East. In order to assess where globalization is good or bad for the industry and how it is going to shape the overall future scenario for the industry, it is critical than that we must view globalization from two different perspectives. One perspective shall be the globalization of technology which mostly involves emergence of new technologies such as innovative and cheap fuel, lightweight jets, more safe technology whereas the second phase or aspect of globalization shall be the globalization of the operations of industry itself. The fundamental changes which are taking place within international business suggest that the future no longer will stick with US and other developed countries therefore the level of economic activity and resultantly increasing air travel patterns will shift towards those countries. This therefore would also mean larger market share for most of the airline firms if they decide to diversify themselves into those markets. However, on the other hand, it is also critical to remember that new airliners may emerge from emerging markets too with an attempt to capture the domestic market therefore for international firms; the market space may not be the same as they may expect. Thus the impact of globalization and the question that whether globalization is good or not depends largely on how the international business patterns shift and how the resultant change into air travel patterns also take place. Technological Change As discussed above that the globalization also brings a rapid change into the technology therefore firms working into a globalized market tend to enjoy the benefits at much larger scale however it is also critical to understand and visualize as to what kind of technological changes can take place which can shape the overall future of airline industry. First of all there is a great effort which is currently being made in terms of inventing alternative fuel technologies. Biodiesel as well as other alternative means of fuel are still in the rudimentary stages of commercial production therefore down the line for next 10 years, the technology to bring in alternative fuel may help reduce overall operational cost for the airline industries. The reduced expenditure on fuel would allow international airline firms to diverge funds to develop other core competencies such as improved customer services, improved e-ticketing services etc. Most of the airline industries offer internet services too therefore as the communication technologies improve, the management of travel patterns of consumers may greatly enhance the capability of airline firms to further improve their image in terms of customer service and facilitation. The providence of critical services such as online ticketing, boarding etc would further enhance the capability of the firms to broaden their scope. Similarly, the use of lightweight jets is altogether opening up a new avenue for small airline firms offering private services. It has been predicted by many that the domestic markets for most of the airline firms would be a battle ground because of the increasing importance that lightweight jets would get as alternative for travelling short distances. The technological innovation has allowed the development of such lightweight jets which will be most preferred by business class because they can be hired as private planes for short trips at extremely low costs. Lightweight jet companies enjoy the dual benefit of fuel efficiency as well as low cost of maintenance and operation therefore the future patterns in airline industry might shift towards the use of such jets at least in domestic markets. Bigger firms are not yet into this business however sooner they make an entry into this market, better it would for them to enjoy early mover advantages because due to their size and economies of scale they manage and run such kind of business at extremely low cost by serving domestic markets. Current Challenges According to one report of BBC, by 2025, about one third of UK population will be over 55 years of age. (Jeavans, 2004). This graph suggests the projections of the movements into the structure of the UK population which might take place from year 2003 to 20041. What is most important is the fact that with the ageing population, the necessity to travel decrease too as many prefer to live a retired life. This fact suggests that there will be an overall decrease into the demand for airline firms. Apart from this, there are pension woes for most of the pensioners in UK therefore with consistent constrained income level, an ageing population, which is also a greater part of the total population; the overall demand patterns would again suggest that the airline firms may not expect a booming future in terms of travel patterns of consumers. Apart from this, most of the developed world is currently facing strong economic crisis due to ongoing financial turmoil. The credit crunch has not only reduced the flow of credit to the mainstream industry but also resulted into a vicious circle of economic meltdown which has reduced the purchasing power, economic activity as well as the number of jobs available. This therefore is going to hurt airline industry at least in short run because job cuts would ultimately reduced the demand especially from high worth, frequent travelers who travel for their business or professional purposes. Scenario Planning The above facts suggest that there may emerge two scenarios in future for airline industry. First, based on technological advances, airline industry may transform itself into a low cost high efficiency industry with a lot to offer. This would mean that the airline firms will not only diversify their business but will also focus on offering associated benefits such as internet facilities, travel and vacation planning etc. Further, as they gain more efficiencies and cost effectiveness, the domestic markets may be served by through the lightweight jets and the long routes may be served through traditional airplanes. This would also mean that the future of airline industry may transform itself into a private jet journeys suited most to the business professionals who would like to reach on time at lowest costs. A second scenario which may emerge, considering the current globalization trends as well as demographical changes, which indicate that the domestic operations of the firms may further squeeze down and the new an unconventional markets may be served by most of the giants of the industry. The ageing population would mean low travel requirements therefore low domestic demand therefore what is left are the markets which are growing i.e. BRIC. These countries are witnessing the emergence of a new middle class belonging to white collar workers therefore if airline industry is willing to survive than it must target the rising class of BRIC and other emerging market countries by offering services on the long as well as short routes. Conclusion The future of airline industry depends upon two things i.e. the development of alternative technologies as well as tapping new and unconventional markets. The airlines of future would be offering lightweight jets not only for private purposes but also to be used as air taxis. Similarly, those firms which have restricted themselves to serving only EU and US market would come out of their rabbit holes to serve much larger markets such as China as its domestic airliners. References 1. SustainableBusiness.com. (2008). ASU Commercializing Aviation Fuel from Algae. Available: http://www.sustainablebusiness.com/index.cfm/go/news.display/id/16681. Last accessed 12 November 2008. 2. Christine Jeavans. (2004). Welcome to the ageing future. Available: http://news.bbc.co.uk/1/hi/uk/4012797.stm. Last accessed 12 November 2008. Read More