The Corporate Aviation Industry - Research Paper Example

Common Social-Political Barriers Corporate Aviation Operators Confront when Attempting to Enter Foreign Markets Introduction Corporate aviation industry is a major and important industry since it acts as a source of wider political, economic and social processes. Corporate aviation uses private or business aircraft such as a Cessna Citation X to transport business executives. It is normally a department within a large aviation company which does not operate as public transport. This specific class of aviation industry operates for business people only. This makes the industry highly susceptible to wider economic and societal factors. An increase in growth in such an industry indicates the rise in income of upper class business individual. The corporate aviation industry can help in the economic development of an entire region or a particular industry such as tourism. But it is also dependent on the latent demand for goods and services. Thus lack of air transport can stymie the economic growth and lead to excesses or inappropriateness in supply. The corporate aviation industry can thus shape the speed and form of globalization and the related processes. With increasing globalization, the air aviation industry is trying to invest in foreign countries to expand their bases. But such a strategy has many ramifications such as migration of labor. Thus corporate aviation needs to carefully strategize its choices so that they can achieve operational efficiency. Research Problem The research problem given is analysis of common social-political barriers which corporate aviation operators face when they attempt to enter foreign markets. With increasing globalization, the national economies have integrated with each other. This has led to flow of trade, capital flows, foreign direct investment, and spread of technology and capital flows. The business aviation industry is an important part of the aviation industry since it caters to the premium segment of the aviation industry. Everything which corporate aviation does basically depends on time and is driven on flexibility. The globalization of trade, supply-chaining, political forces and outsourcing have changed the world for better and worse. In the process of investment in foreign countries a corporate aviation company needs to analyze carefully the political and social factors. This research paper focuses on the social-political barriers which they will face. Information on the Issue The corporate aviation industry is a highly protected and regulated one, and it is done with the intention of utilizing it as a lever for attaining larger economic and political objectives. Initially there was no such demand for such an industry, but slowly as the normal aviation industry grew the corporate aviation industry rose. The need for travel of business class executives grew since they did not have time to book tickets in advance and they needed to cover the same distance in less time (Friedman, 2005). Business jets such as Gates Lear Jet and General Dynamics Gulfstream have two or three engines so that they can fly more quickly. With advancement of engine power and reliability the demand for business jets increased. Most of regular public airlines were converted into luxury business jets. It can be witnessed that there were around 17,721 business jets with around 70% of the fleet based in North America (Businesswire, 2013). It is expected that Europe is the next largest market with emerging economies like Asia, Central America, and Middle East getting more focus in this segment. There are many operators like VistaJet Holding SA which have invested into many countries like India, China etc. There are countries like South East Asia, Middle East and China which is located strategically in proximity to each other. This renders corporate aviation companies to target wealthy individuals and corporate customers which travel in such private jets or chartered jets. According to a study it was seen that in India alone there were a total of 645 private jets in 2013 (Button & Vega, 2008). There was on an average 4,304 average international flying hours by private jets in a single year. There was 165 numbers of registered and non-scheduled operators in India. It can be expected that 400 new private aircraft will emerge in the next five years. The private jet owners faced many perennial obstacles which plagued the corporate aviation industry. Business aviation in countries like India peaked in 2006 because of high growth during that time in Indian economy. It was seen that the number of private jets increased 19% in 2005 as compared to 26% in 2006. (Prabhakar, 2013) But this aviation industry suffered slow growth during recessionary times. With increased import duty by the government the corporate aviation operators faced the tough times in purchasing aircraft. In late 2008, global financial crisis occurred and resulted in drop in demand for the industry. Purchase of the private jets came to a standstill (Button, Costa, & Cruz, 2007, p. 121). During 2009 and 2010, the growth in the number of private jets fell by about 10% (Prabhakar, 2013). The International Air Transport Association had to reduce the import duty. Again during 2010, the demand for corporate aviation services fell due to political unrest in North Africa and Middle East. It was reported that the political unrest resulted in cut in international traffic by 1% (IATA, 2013). So investment in such areas will prove to be disaster. There were another series of incidents which dented the recovery of aviation industry from recession. The civil society unrest in Tunisia and Egypt resulted in spreading of the unrest across North Africa and Middle East. This resulted in lowering of demand growth across the entire region. Though the fundamentals of corporate aviation service are good, but incidents like this have made it difficult for public airline companies to invest in the regions. Following political unrest in 2010, there were widespread ramifications across the world. It was seen that air traffic in Africa in 2011 fell down by around 2.1 % as compared to 2010 (IATA, 2013). Similarly, in countries like Tunisia and Egypt which accounts for 18% of the African market, the political unrest made air traffic in the countries affected. Similar political unrest in Yemen, Bahrain and Syria also had a huge impact on global traffic because these three countries represent about 6% of Middle Eastern traffic (Kirstein & Young PLLC, 2011). The wheel heeded who were initially accustomed to fly in business class paid more to avoid commotion at the airports. Private jets which used separate terminals had to pay huge cost during time of euro zone crisis. The private jet industry has been long affected by high taxes on jet fuel, poor infrastructure, high charges at airport, wobbly regulations, import and operation and time consuming procedures for operation, import and acquisition. There are many social factors which affect investment of a corporate aviation service in a foreign country. Ethnicity is a factor which a corporate aviation operator has to look before investing. If the cultural and social factors of a host country are entirely different from that of foreign country, then the service level will not be good and customer experience will fall. Following the 9/11, perception of business class executives has been a major factor. There has been increasing sensitivity within them for travelling on planes. The terrorist attack in America has created a negative impression on such group of travelers. According to Bloomberg Business week reports it was reported that many business class executives were in constant threat of terrorist attacks (Dorning and Strohm, 2013). Obesity is another factor for business aviation operators to consider. Some corporate aviation operators have charged overweight business class executives because it cost them two seats instead of one. According to a research it was seen that due to such kind of business class executives a corporate aviation operator had to spend additional 350 million gallons of fuel in a single year (Ekstrom, 2013). Security is another important issue. Since 9/11, they have up the ante in their security measures. But though it eases the mind of elites and pilots, the amount of effort and time taken for them may cause harassment to them. This has been the case in countries like US where terrorist attacks have happened. Critical Thinking The social and political factors are critical in the international marketing processes for various industries including the corporate aviation industry. The political laws and regulations pertaining to the many regions may act as barriers for the entry of the corporate aviation companies in specific countries. This industry is more supported in the developed industries and the political rules are established to support the activities of the corporate aviation industries because they contribute a high percentage of the revenues in the economy. The international business of the companies in the corporate aviation industry are highly affected by the political policies and laws made by the state authorities in both the foreign countries as well as the home countries. The different policies related to taxation, Operating restrictions and ownerships controls may create political barriers to the entry of corporate aviation companies in specific countries (Button, 2004). Whole aviation industry is known to indulge in extensive lobbying activities in order to influence the political framework for the successful operation of the companies. The social factors like the level of tourism attractiveness of the foreign country and the trend of travel for business purposes into and out of that country are significant drivers of the social framework of the country in facilitating or restricting the corporate aviation business in the specific country. The modern corporate aviation industry is one that can operate most effectively in a liberal market framework. The governments of different countries are relaxing the control on the market entry factors, capacity levels and airfares prevailing in the industry. Therefore the political barriers are much lessened in the current scenario especially due to the advent of globalization. Also, the international control systems related to the corporate aviation industry are shifting towards the Open Skies agreements which allows for the different countries involved in the formulation to provide their services freely. Since the operations and the supply of the global corporate aviation industry infrastructures have become more driven by the market conditions, the political and social barriers are decreasing with time. The privatization and franchisee mechanisms are gaining popularity in the corporate aviation industry so as to reduce the political barriers. Also, the social landscape is shifting towards more preference for travel in the airlines for passengers as well as cargo. Conclusion The world economy is being characterized by the continuous processes of globalization and internationalization. This has been much driven by the globalization of the social, cultural and political factors of the different countries. The corporate aviation industry is one of the constituent drivers in accelerating these developments. The industry has continuously negated the political and social barriers to entry in the foreign markets through the strategies of meeting the changing demands for the corporate aviation services across the world. Though the whole aviation industry faces many social barriers like the negative attitude of the consumers towards the rising airfares and the focus of the consumers towards the low cost and domestic public airlines, this is not applicable in the case of the corporate aviation industry where cost is a much lesser influencing factor for the customers in the industry. Rather the increasing cost of operations due to the rising fuel costs and the high expenses of arranging for the landing and parking spaces for private flights are more influencing barriers for the international expansion of the companies operating in the corporate aviation industry. The relaxation of different regulatory policies by the governments and the increase in the lobbying activities of the corporate aviation companies have resulted in offsetting the political and social for the companies in the corporate aviation industry for entering into the foreign markets. Recommendations The demand levels in the corporate aviation industry are steadily increasing. The industry should consider the different social and political factors to ensure that the business becomes successful in its operations in the foreign market. The corporate aviation companies should focus on the rising trends of travel practices by the business people in the private flights and the corporate companies’ tie up with the different corporate aviation companies for their business travel purposes. These factors are critical for deciding the entry modes in their expansion process. Since, the global scenario is seeing an increase in the demand among the corporate customers regarding travelling for business purposes, therefore, the corporate aviation companies should concentrate on evaluating these different social and political barriers and opportunities while entering the new foreign markets. Also, focusing on improving the efficiency and lowering the costs of operation and the airfares would be important strategies to overcome the barriers of establishing successful business in the overseas markets. The corporate aviation companies should focus on the shifting trends of the travel in flights for business travel purposes, especially in the regions where the social and political landscapes are suitable for the corporate aviation businesses to enter into (Button & Vega, 2008). The companies should also consider the deregulations in the policies in different regions that facilitate the international expansion of the companies operating in the global corporate aviation industry. References Businesswire. (2013). Research and Markets: The Business Jet Market in Numbers. Retrieved from: http://www.businesswire.com/news/home/20130115005681/en/Research-Markets-Business-Jet-Market-Numbers#.UxFsaeOSxr0. Button, K. J. (2004). Wings across Europe: Towards an efficient European air transport system. Aldershot: Ashgate. Button, K. J., & Vega, H. (2008). The effects of air transport on the movement of labour. GeoJournal, 71(1), 67-81. Button, K. J., Costa, A., & Cruz, C. (2007). Ability to recover full costs through price discrimination in deregulated scheduled air transport markets. Transport Reviews, 27(2), 213-217. Dorning, M. and Strohm, C.2013. U.S. Defends Data-Collection as Legal Anti-Terror Tool. Retrieved from: http://www.bloomberg.com/news/2013-06-07/u-s-defends-data-collection-as-legal-anti-terror-tool.html. Ekstrom, V. 2013. More Efficient Ways to Power our Flights. Retrieved from: https://mitei.mit.edu/news/more-efficient-ways-power-our-flights. Friedman, T. L. (2005). The world is flat: A brief history of the twenty-first century. New York, NY: Farrar, Straus and Giroux. IATA. 2013. Passenger Demand Grew as Air Cargo Declined in 2012. Retrieved from: http://www.iata.org/pressroom/pr/Pages/2013-01-31-01.aspx. Kirstein & Young PLLC. 2011. Washington Aviation Summary. Retrieved from: http://www.yklaw.com/WAS_April11.pdf. Prabhakar,B. 2013. Business of private jet companies budding, but not booming in India. Retrieved from: http://articles.economictimes.indiatimes.com/2013-09-15/news/42062820_1_business-aviation-netjets-india. Read More