Operations Management: Aer Arann - Case Study Example

Operations and Project Management Introduction Aer Arann is one of the leading regional airline companies in the Europe. Its growth rate is also tremendous over the years and has been successful in times of industry troubles. Its profits are consistent. Though the company has grown with the help of public service obligation routes, it is also a force to reckon with in the commercial routes also. However, the airline company is not immune to challenges and other problems that are typical for airline industry. The macro factors are alarming even though the present conditions are smooth. The company made a humble beginning as a hopping service provider from the mainland to the three islands of the Ireland. The company is also considered as the third largest player in the region and a very efficient low cost operator. Aer Arran was given four out of the six PSO contracts by the Ireland government and that helped the company to become financially stable and consolidate itself. But, later on the company had to survive on commercial routes facing stiff competition from various players and it did not merely survive but excelled in competition. Its profits even during turbulent times indicate the high performance of the company and determination made of stellar stuff. Business strategy of the organisation Aer Arann’s customer segment is basically the business people and the leisure passengers and in the present situation both its major segments are posing a problem to the company. If the global melt down continues for another year or so then the future of the company is at stake. Many experts feel that the current global recession is here to stay with us for some time. The crisis has already prompted low-level instability in countries in Europe and the former Soviet Union, he said, and a deepening recession will lead to growing instability in both developed and developing countries. “Statistical modeling shows that economic crises increase the risk of regime-threatening instability if they persist over a one to two year period,” Blair said in prepared testimony before the Senate intelligence committee” (qtd by Webster, 2009) so, how to tackle recession is going to be one of their major areas of concern at the moment for Are Arran and more so because their customer segments are directly linked to the meltdown. In any scenario, customers do not really want a relationship but companies do. Aer Arann has got trusted and loyal customers. But the present situation could test the loyalty levels of the Aer Arann’s customers as new players are eying the market of the company and especially when the finances are at the all time low with the public customer retention will be a major challenge for the airline company. Building optimum Customer relationship and thereby good customer base is the key for any airlines. “Its underlying principles are well established too - those airlines that can effectively attract, serve and retain the best customers will see significant positive effects on their bottom line profitability.” (Jiang, 2003). Once the airline builds a deeper relationship with the customers, it can look more opportunities and more customers. But, that won’t any easier in the current circumstances “However, with the emergence of e-business and the new economy, the challenges of building strong customer relationships have become even greater” (Jiang, 2003). So, understanding customers and their expectations is crucial to succeed. Global logistical issues for the organisation The airline depends on business and leisure passengers and much of the profitability comes from the traffic that it can generate from the routes. Some passengers go on a quick business trip and seek an evening flight on the same day and hence Ireland is also a major tourist attraction the airline company was sourcing substantial tourists in their kitty. But, the problem that is immediate for the company is the global meltdown and worldwide recession. This is definitely going to be a major bolt in the growth plans and profitability of the company. As the business all around the globe is struggling for profits, more particularly, after globalization its impact on countries is far greater than one imagined. There is a worldwide decline in passenger travel. It all started with the sub prime crisis in the USA and the collapse of the US economy led to problems. Many US based airlines have already accepted the fact that decline in passengers is causing them trouble. The air transport association of America says” passenger revenue in February was down 19 percent from a year ago, the fourth consecutive monthly decline. It also notes 12 percent fewer travelers paid 8 percent less to fly on U.S. airlines, with declines extending beyond domestic flights to transpacific and Latin markets. Compounding softening demand for travel, U.S. airlines saw cargo traffic decline 21 percent from year-ago levels in January, after falling 17 percent in both November and December” (Clabaugh, 2009). Though this is in the US but, the globalization factor is sure to affect the European market also. Every business today is on sustenance mode and cost cutting is the order of the day. Several companies started lay off of their employees. This resulted in fewer business meetings and thereby less travel. Some companies as a cost cutting measure have opted for alternate means of transportation like road and rail. This surely is a major challenge for the airline. This has left with lesser disposable income with the public and leisure is out of question as on date. Aer Arann has few strategic options to continue its success in its business. The WTO factor is sure to put pressure on all the governments to open up their sectors for international players. The airline industry is also expected to see a lot of change. The open sky policy is sure going to affect the market share of Aer Arann because of other players. So the option available for the company is to look for newer routes in the domestic market and it can even look beyond UK also if needed. Aer Arran can learn a few lesions from their counterparts of other countries. Tiger Airways a low cost carrier in south East Asia is already plying on international routes. The company should also improve its technology in booking tickets to check in, lest the competition would make them do those necessary changes. “Supply chains exist in both service and manufacturing organizations, although the complexity of the chain may vary greatly from industry to industry and firm to firm”( Ganeshan and Harrison, 1995). The Supply chain and out sourcing strategies of the company has an enabled them to reap good profits in the past. But, it has the risk of imitation as larger players are also on cost saving mode. Aer Arran is known for its outsourcing ground handling and other activities. The company could charge less from its customers by making ticketing easy and direct by avoiding intermediaries and travel agents. The use of internet and mobile technology has really helped the airline to cut prices and made it successful in attracting more passengers. Quality management relating to the organisation The technology boom in some areas has become a threat to the profits of many transport companies as pointed out by Theodore Levitt that the competition comes from various angles some times from unexpected sources also. The revolution in the web technology has been a major problem for the transport companies as business meetings take place with the help of video conferencing and hence the travel is avoided. The emergence of the Ryan air is also a factor worth considering. It is one of the major competitors for the company and any bold move by Ryan air is definitely a cause of concern. The volatility of the crude oil prices also a major worry for airline companies. Hedging of air turbine fuel has become tough since the prices have become more volatile in the recent past. It is a challenge for the company to hedge the air turbine fuel in a profitable way. The success of Aer Arann is because of it is a niche airline. It acts as a connecter to major points from smaller places. Aer Arann should also attribute its success to the PSO contracts which it got from the Ireland government. It takes care of the business during off seasons. The ability of the airline to negotiate with its oil suppliers also enabled the airline to be profitable. Aer Arann is also focused on its rotes as it says that it s aim is to make the domestic travel seamless. While others are busy keeping their legs at many places Aer Arann was very focused about its market. Direct sale of tickets to its passengers make it more price competitive. Its online sales account for over 25% says it all. The effective outsourcing of ground handling operations also reduces several problems to the company. It caters to a niche segment is one of the major strengths, i.e. the business model itself is a major advantage to the airline. The fact that it has won four of the six PSO contracts from the government is a huge advantage and assured revenues are a boon especially during recessions. Aer Arann’s ability to negotiate better fuel price while buying in bulk and hedging techniques, are surely its major strengths.Its business model itself could be its weakness at times. Being a low cost no frill service provider it can sometimes become difficult to carry along during difficult times. Depending on others for ground handling is also a problem as the employees are not directly under the control of the company. The fall in the crude oil prices is an advantageous position for the company. By passing on the benefit to its customers and increase its market shares. The open sky policy gives Aer Arann an opportunity to explore untouched shores. Expansion is surely an opportunity at the moment as Aer Arann knows how to make profits in a turbulent environment. The alternate mode of transport like rail and road is a huge threat. The distance is less for rail and road to compete with the airline. Another outside threat is the developments in the web technology. Business meetings can take place with web conferencing there by eliminating the need to travel. Other operations management issues that are relevant to the organisation One of the challenges which are already mentioned is the global melt down and its impact on the aviation sector. This particular problem is for all the airline companies but nevertheless it is a matter of grave concern. Another problem that the aviation sector faces is the problem of terrorism and many nations including the developed and the developing face the problems from terrorists and the security factor has actually affected the civil aviation business to a large extent. The flight delays can be attributed to the increased threats from the terrorist and even terrorism is a global phenomenon in the epoch of globalization. The London bombings and the twin tower attack by the terrorists made several airline companies go bankrupt. This is a larger threat that airlines have to keep in mind and the amounts that are spent on such issues are inevitable. Conclusion Air Arann has to take in to account the macro environmental threats at the same time it also should see the opportunity and grab it as it would help their future growth plans. The focus should be given to the internal customers also. Internal customer involves each department and individual understanding the needs, expectations and problems of next-in-queue department or individual. With every organization wanting to expand their reach and make an imprint in various markets, there will be enough opportunities for it, to make that impression. So, when the organization has enough opportunities, it can set targets and formulate various strategies to achieve those targets and thereby beat off the competitors. Every organization’s survival and success, hinges on how it was able to entice the customers and build a strong customer base. So, formulating and implementing strategies to entice the customers is the ‘key’ that opens the door of success and profit. Works Cited Calabaugh, Jeff. Airlines Feeling Recession Pinch. Dallas Business Journal. 20 March 2008. http://dallas.bizjournals.com/dallas/stories/2009/03/16/daily56.html Ganeshan, Ram and Harrison, Terry P. An Introduction to Supply Chain Management . 22 May 1995. http://lcm.csa.iisc.ernet.in/scm/supply_chain_intro.html Kotler, Philip and Armstrong Gary. Principles of Marketing. 11 Ed. Prentice-Hall. 2006. Jiang, Hongwei. Application of e-CRM to the Airline Industry. 2003 http://ausweb.scu.edu.au/aw03/papers/jiang/paper.html Webster, Stephen C. US Intel chief: Economic Crisis a greater Threat than Terrorism. 13 February 2009. http://rawstory.com/news/2008/US_intel_chief_Economic_crisis_greater_0213.html Read More