Engineering Management: Asian Airs Thailand - Term Paper Example

 Asian Airs Thailand Asian Airs Thailand is a company that offers Airline services to consumers in Thailand and neighbouring countries. The company provides regular scheduled air transport services both international and domestic from Bangkok as well as other major cities of Thailand. The company is the one of the few low cost airline carriers that serves domestic as well as international clients from Suvarnabhumi Airport, the major hub of the company. The new airline in Thailand faces myriad management issues that could spell its success or failure. Below, we analyze some of the factors that could lead to its success or failure. Factors in the Success of Strategy Asian Airs Thailand operates in a business environment that is as complex as that which other airlines operate in. Understanding and controlling such a business environment fully is challenging. While Asian Airs can be able to manage and deal with internal factors that affect its strategy, the company cannot control external factors in the same manner. Further, the complete impact of the external factors in the business, which may be devastating, may be difficult to quantify. This makes decision-making processes for the organization a daunting job. It is even harder for the management to monitor the business environment to monitor the company’s business environment and respond to its changes appropriately when they take place. Competitive environments also face continual changes from the external environment requiring decision makes to be continually ready. This embroils making strategic variations that bring the internal structure, as well as operations of the organization into line with the changes in the external environment. Airlines operate in business environments that are particularly challenging. Although they experience regular and continuous growth, they may experience huge, destabilizing shocks at times (Kramer 2010). Regulatory authorities such as aviation bodies also affect airlines majorly. The Air Transport Users Council also affects the decisions that the airline company makes or plans to institute in every aspect including in the Engineering option. Further, consumer bodies and national governments may also affect the strategic decisions and plans of the airline company because of their influence. For instance, consumer demands may cause airline industries to make certain strategic decisions. On the other hand, government policies may change leading to changes in airline companies. An understanding of the consumers and the demands of governments will be important in determining the success of the airline company, and failure to do so may lead to failure (Kramer 2010). Airlines carry enormous fixed costs that make it hard for them to alter their position easily to strategic plans that involve either contractions or expansions. Many airlines choose to deal with one single type of aircraft because of costs. Dealing with a single aircrafts also translates into more cost benefits for engineering departments as maintenance and scheduling becomes much easier as compared to a situation where a company deals with more than one type aircraft. In case Asian Airs chooses more than one type of aircraft, ensuring that they all receive proper maintenance and appropriate spare parts will mean that the company has to part with high maintenance and operation costs. Many airlines that do not consider this factor carefully find themselves filing for bankruptcy sooner than later because of the cost implications that dealing with more than one type of aircraft may bring. Although maintaining more than one type of aircraft does not necessarily imply failure, it calls for well-designed strategies that ensure assets are productive, and the needs of the consumers are always met (Keller & Bieger. 2002). The competitive environment that the airline operates in demands identification of the method that can help in improving efficiency. Outsourcing is a common solution, but Asian Airs has to make the right choices regarding the functions that it can outsource. Only non-strategic functions of the business should be outsources. Making the right decisions regarding outsourcing will remove distractions in the airline and allow the management of the company to give major operations in the company the attention they deserve within their core competencies. Deregulation in the airline industry truly calls for innovative methods to bring costs down, increase efficiency, and raise profitability. Outsourcing poses as one of the best ways to do so in the airline industry. However, despite the popularity of outsourcing as a great measure to reduce costs in the airline industry, many companies do not have a clear understanding of the suitable levels of outsourcing, or the functions that they should maintain. If Asian Airs does not identify the levels and functions that it should outsource appropriately, then it stands to lose than gain (Keller & Bieger. 2002). Literature identifies myriad operations in an airline company that are likely or should be outsourced. Various researchers have published huge volumes of anecdotal evidence that guide the various services and operations that an airline company should outsource. The following table shows some of the major functions that an airline company can outsource successfully without causing harm to its performance. Probability of outsourcing Function Very likely Sale and distribution of tickets Leasing of aircraft Handling of airport gates Complimentary Taxi services Food services Handling of baggage Cleaning of the aircrafts Likely Engine rework or engine overhaul Training of maintenance staff Information Systems and Technology Training of pilots Advertisements Moderate Counter workers Airframe maintenance Gate staff Spares inventory Feeder operations Maintenance checks at C and D levels Unlikely Operations and cargo handling Marketing Recruitment and human resource management Very unlikely Strategic management Pilots Accounting Pilots Hanger maintenance In addition to the above list, the grouping of services includes items that an airline company is likely to insource. Although the list of services an airline can insource are not as extensive as the ones that it can outsource, there are various areas that an airline continually insources. The most common services include highly demanding maintenance operations, cargo operations, aircraft leasing, and baggage handling. Given the wide array of operations and services that an airline outsources, a number of issues arise. The most obvious issue regards the factors that lead an airline company to outsource. There are myriad forces both external and internal to Asian Air that influences this decision. One of the factors that are common in airline companies including Asian Air in the outsourcing decision is that of cost. Asian Air must have considered the notion of cost reduction significantly before turning to outsourcing. A carrier in the airline industry is usually seeking for ways to reduce operation costs as much as possible. However, looking at cost reduction as the sole driver of outsourcing is too broad and perhaps too simplistic. There are more specific drivers to the outsourcing decision. Scholars identify at least six different primary factors that drive airline companies to make an outsourcing decision. These factors, which may also cause Asian Air to make the outsourcing decision, include the unionization level of the airline company, the current situation of the economy, the availability of carriers for financing, the ownership as well as composition of the company, and the intricacy of the service requiring outsourcing. Careful consideration of these factors determines the possibility of a company to outsource. The goal of this task is to highlight a working model that provides clarification regarding the factors as well as their impacts on the decision to outsource. The duration an airline company has been in the market determines the level of outsourcing and the services the company will call for through outsourcing. Start-up airlines such as Asian Airs are more likely to outsource functions that established aircrafts will keep insourced or in-house. This is logical considering that the experienced carrier may have acquired expertise and skills in a specific area. For instance, American Airlines, an experienced carrier, insources intricate maintenance functions. An airline that has two or three years may not be able to match the management method used in an experienced carrier and achieve the relevant economies of scale. Start-up airlines may therefore need to outsource to gain the cost control benefits as their mundane strategies encompass presenting budget fares. A specific benefit of outsourcing to a new individual company is that there is a reduction of fixed costs as compared to variable costs. A factor that further breaks down the output level of the start-up Organization Chart in Relation to Best Practices An in-depth study of the airline industry shows that carriers are not experts are not in the business of aircraft maintenance. However, the significance of compliant, quality, and cost effective services in maintenance cannot be exaggerated. Estimates for the entire cost of airline maintenance services are from 10 percent to 15 percent of the airline company’s budget. The Federal Aviation Administration, in 2007, estimated that over sixty percent of major carriers outsourced. If this is the case, it then calls for proper organization and management to ensure that the expense is reduced to manageable levels while leaving the carrier profitable. A study of organizational charts of established carriers in the market provides a clear direction on the appropriate structure. Organizational charts of established carriers show that the heavy maintenance services are outsourced. Engine maintenance outsourcing stands as one of the fastest growing area of maintenance, repair, and overhaul (MRO) in the airline market. On the other side, ground handling, organizational level maintenance, and services are lest outsourced except in some start-up airlines. Among the studies, Al-Kaabi et al. (2007) give the best description for the MRO levels. Kaabi et al. (2007) proposes foul MRO levels: completely integrated, moderately outsourced, frequently outsourced, and fully outsourced. These levels address the complete spectrum of aircraft maintenance. Completely Integrated MRO In this organizational model, the airline does all the maintenance activities of the aircraft in-house. Additionally, the aircraft may decide to trade surplus capacity to other key players in the industry. This practice is mostly common in large airline companies that have extensive route structures and a huge fleet. Moderate Outsourcing MRO This structure implies that the carrier meets a huge portion of its requirements in-house with little outsourcing. This allows the airline to have a good deal of adaptation and flexibility to seasonable loads. The structure works well with airlines that only have a few types of fleet. Mostly outsourced MRO In this case of outsourcing, an airline company outsources critical needs maintenance services while it keeps critical needs in-house. Every carrier defines its own critical needs. For instance, Jet Blue considers line maintenance as one of the critical needs to its airline operations and maintains most of that activity in-house. Entirely Outsourced MRO In this outsourcing model, an airline outsources all its maintenance services. Start-up airlines use this model because of capital strains that limit them from establishing an MRO capability. The best model that will suit Asian Airs Thailand is the entirely outsourced MRO because the airline is a start-up company that does not have sufficient capital to fund its MRO. Marketing Plan A business plan for a start-up airline may be drawn by asking a series of several questions. It involves evaluation of opportunities present for the airline. The airline will specify whether it will offer passenger services, cargo or charter services. Another fundamental aspect is the identification of operating routes, either domestic or international. The business plan will reveal the target consumer group. The target consumer groups can either be businesspersons or tourists groups. The products of the airline can be classified into single, duo or trio passenger products. The frequency of flights by the airline may be determined at this stage(StartupBoeing 2014). The airline ought to make pricing assumptions to be used in charging fare prices. It is useful to make cost assumptions and projections once the airline becomes operational. The prospective market share of the airline must be mapped out. Forecast financial statements may be prepared for the first five years to give the management a clue of expectations of cashflows in initial years. The business plan must also outline the legal aspects of starting an airline. These include the requirements of obtaining an airline certificate and the government –related issues that might hinder the acquisition of the airline certificate. The initial capital outlay required and ways of raising the funds can be described (StartupBoeing 2014). Marketing is a process of creating, connecting and distributing value to consumers and overseeing customer’s relations that yield benefit to the organization. The initial stage in marketing is the planning phase. The primary objective of the planning stage is to create products, formulate goals and carry out market research. Core to the planning stage is the SWOT analysis, which entails analyzing the strengths, weaknesses, opportunities and threats in the environment (Tokhi 2009). Internal marketing is a fundamental marketing strategy in the airline business. Internal marketing entails giving due attention to employee satisfaction. The employees ought to possess the right attitudes, skills and competencies before proceeding to external marketing. There ought to be thorough recruitment programs that ensure proper recruitment, selection, training and communications without which there is no successful service delivery to customers (Tokhi 2009). There are four aspects of product marketing. The famous four P’s are: pricing, product, promotional strategies and place. The four P’s are critical to the success of any organization’s marketing strategies. Each of the marketing variables can be adjusted to enable the organization achieves its marketing objectives. A start-up airline should provide quality services at competitively low prices (Tokhi 2009). The ultimate goal of any start-up airline company is to grow and become the biggest airline provider. SWOT identifies current position of a business in the market. An airline e may obtain a competitive edge above another airline companies without necessarily discounting its’ airline fares. Guerilla marketing is an efficient way of marketing especially for small airline companies that are constrained in terms of resources. It argues that small companies can compete on the same level regardless of the size and financial capabilities of large companies if they possess the right tools and knowledge. Guerilla strategy champions for efficient use of the available limited resources (Tokhi 2009). Creativity and innovation are important in the marketing plans of any company or organization. A start-up airline needs to devise ways of offering incentives to customers for flying with the airline. The customers ought to feel that the firm has their interests and concerns are at heart. The airline should study the relationship between wants and needs of customers. A need is a basic commodity that one cannot do without while a want is a need defined by personal backgrounds such as religion, culture and knowledge. Market segmentation is a marketing strategy that groups customers and prospective buyers according to their needs and wants. Customer relationship management is vital in the airline industry. It involves extracting feedback from customers regarding their satisfaction in terms of service delivery. The feedback obtained should be used to take corrective measures or to improve the current service delivery. Feedback from customers ought not to be understated. Customer service delivery is extremely important for airline businesses because if the quality of service is high then customers will not mind paying an extra amount. The airline must seek ways of establishing long customer relationships that will enable it continually offer un-paralleled service in the industry(Tokhi 2009). Control and Lead Operations In Thailand, the management will have to ensure the Asian Air Thailand conforms to the Civil Aviation Board (CAB) as well as the Department of Civil Aviation (DCA). The CAB works under the supervision of the Ministry of Transport to implement and consider policies, procedures, and regulations for the aviation industry in Thailand. The body also ensures that companies entering into the market conform to the Chicago Convention and the Air Navigation Act 1954 (ANA). The Department of Civil Aviation has a huge role in Thailand as it coordinates and administers both foreign and domestic private and public bodies, in relation to civil aviation security. On the other hand, ANA ensures that companies in the aviation industry abide by the Chicago Convention. Asia Air will have to abide by these laws in order to carry out its operations in Thailand and international skies. In addition to that, the company will also have to acquire an Air Operator’s Certificate to operate international flights. Further, an additional Operating License will be required by the company as it enters the aviation industry (Chaipat Lawsirirat 2007). Slots Asian Air Thailand will need to secure slots for landing and take-off in the various airports it intends to ply in. Importantly, the management will need to set up landing and take-off schedules for their flights in various airports including its base airport. In the initial years, it will maintain the slots in other airports. However, once it gets its own Air Operator’s Certificate, it can transfer its slots to its own airport. Airport Staff In order to have a suitable level of customer service, Asian Air will have to acquire its own staff. Alternatively, the management can ensure that the ground is handling agent that it offers the task has dedicated staff for all the areas of handling that require an association with consumers. For other ground handling aspects, Asian Air Thailand’s management will initially keep up with outsourcing organization until it establishes its own critical mass. Aircrafts There are great options for aircrafts from Boeing that Asian Air Thailand can employ during its start-up period. The Boeing 757-200 stands as one of the best commercial aircraft that has been developed yet. Over 800 such aircrafts are in operation in different parts of the world. Over the recent past, the company has developed another model named B757-300 with promises to develop an aircraft with more capacity. The B757-200 can handle 180 passengers in a configuration that includes two classes. The aircraft has a great level of dispatch dependability (more than 99 percent). The alternate possibility for Asian Air Thailand could have been the wide body aircraft – the B767. In choosing the best model to suit the market that Asian Air Thailand is working on, the management need to consider the reliability and performance of the flight model it is to acquire. The best choice will mean a lot to the company as it will translate into consumer loyalty. Hubs In order to raise the load factors, Asian Air Thailand’s management can consider what other major airlines have adopted. Major airlines have adopted a strategy known as a hub and spoke that entails consolidating flights at a particular airport. This makes the airlines benefit as they are able to have their customers connect to other destinations. This strategy also increases origination and destination points making airlines to benefits through the increased traveling time. Asian Airs Thailand should adopt this strategy and offer its consumers time saving options while capitalizing on opportunities in the market (Lois S. Kramer 2010). High Fixed Costs Asian Air Thailand will avoid high fixed costs that characterize major airlines. High fixed costs come, as a result, of the myriad labor contracts that major airlines employ. Asian Air will attempt to maintain lower bases in terms of costs as much as possible to ensure they have a competitive edge at all times (Ayse Kucuk Yilmaz,& Dr Triant G  2011). Lack of customer focus The management will base the success of Asian Air on costumer focus and individual service. The company will have to be skilful in doing this as it also wants to gain good focus on customers while maintaining the convenience it gains from hubs and alliances (Ayse Kucuk Yilmaz, & Dr Triant G  2011). Consolidation While many businesses consider consolidation through mergers as well as acquisition as a great option, key players in the airline industry do this through minority equity and alliances. Beginning with simple agreements on code sharing and proceeding to major alliances, airline industries all over the world make collaborations that enable them to capitalize on the resources they have to make the most profit. These alliances assist airline companies to get full benefits from each other through their capability and networks. Asian Airs will benefit from such consolidations that will enable it to capitalize on the few resources and make a profit during its initial months (Lois S. Kramer 2010). Conclusion It is evident that the airline industry has myriad challenges for players willing to enter into that market. Asian Airs Thailand will have to grapple with several factors that may spell its success or failure. During the initial stages, the airline will have to identify various ways to become profitable, keep costs low, and make a profit from its operations. This analysis shows that outsourcing is an important way to circumvent the myriad costs that might cause the airline to succeed or fail. Therefore, Asian Air will outsource most of its maintenance services in order to cut the cost of running at its initial stages. Further, analysis of best practices in airlines all over the world shows that an entire outsourcing of maintenance services would be the best option for a start-up airline as it does not have sufficient capital to conduct the operations on its own. Asian Air also has to perform proper marketing and finance forecasting to increase prospects while maintaining possibilities of making profits. Lastly, this report shows that Asian Airs Thailand will require to make necessary management arrangements to ensure that the airline complies with the regulatory forces in the market. . . 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