What Will It Take to Be an Airline Industry Leader in 2015 - Case Study Example

Strategic management What will it take to be an industry leader in 2015? Who way it be? Airline industry is under the fast changing spell where companies are declaring lay offs due to several reasons. The global economic stagnation catalyzed for burning the issues some more powerfully. In fact, airline industry is struggling to get balanced in this world of stiff competition. It is very clear that those who hold the supremacy can no sustain it unless there is no strategic management. Obviously, those who are not using their strategic policies wisely cant come with the ever-changing tend. It is very evident that the hospitality sector is very sensitive and highly volatile for many reasons. Hence we can say that those companies maintaining a well balanced portfolio would be there in the scene in 2015.the strategic management techniques are the following. 1. Introduction – current situation The major airlines usually earned their major profits from their long routes. Their short-routes were rather less profitable. On the long-haul routes, they were able to charge high prices because of special programme deals that existed between individual countries. They carved up the long markets between countries - like U.K to Italy - between a limited numbers of airlines. For some airlines the long route market was particularly important. ln addition, each European country controlled flight access to its major airports and gave preferential treatment to its own national carriers thus reducing competition and raising prices. Now, in the next few years, the open skies policies still persisted but were likely to come to an end. Between the members the outcome was still not entirely clear and was associated with political negotiations.(Bradshaw, Bill, and Helen Lawton Smith, eds.  Privatization and Deregulation of Transport.    MacMillan Press Ltd., London, 2000. Freedom to Move.  Ottawa, 1985.) 2. Analysis 2.1 Summary of Macro- environment Customers and market segmentation The European airline market can be broadly divided into two main market segments - business customers and leisure/ Domestic customers. 80 per cent of all customers fall in to the latter category. The fact is that they are traveling for holiday reasons such as study or visiting relations. They are important to fill the aircraft but do not represent the most profitable segment of the airline market. As per many staff of various companies, its low cost is the winner. Everyone wants the cheapest price. It should be on time and cheap. It’s just like a bus service, its transport. Others are business customers. They are paid for by their companies and are engaged on business related activities. They are ready to pay for full-fare tickets and travel in greater comfort. Hence, the business customers are therefore the most profitable. There is some recent evidence that business customers are increasingly under pressure from their companies to travel on budget airlines. The budget European airlines threat with strategy Throughout Europe Low-price flights have been available for many years: the holiday charter air companies offered them by taking groups of tourists on holiday using special flights and dedicated aircraft. However, such flights were not available to the general public at scheduled times. This all changed with the regulation of the European airline market in the 1990s'. The last 10 years survey is given here in appendix 1 from which an average industrial scene can be seen. If the proper strategy is applied, Air France will be the leader in 2015.It has some impressive figures rather than others. Though it is under threat from easy Jet at Paris/Orly it announced merger with KLM to cut costs but I is not fully operational for several years. However, with an effective strategic management this can be sorted out and come forward as a pioneer leader in the future. For that as any other hospitality organization, they have to focus on the following: Individual and team competencies Individual and team competencies are the vital aspect of an organization. Without individual competencies, team competency cannot be achieved effectively. In fact, both of them are inter- linked with each other. Individual and team competencies constitute a potential part to deliver a better performance, without which it becomes null and void. Reviewing Performance As an efficient employer, one should review the matter regularly. Proactive reviews should be done methodically. The employer has to appreciate them and conduct employee performance appraisal and reviews every year. In order to ensure excellent performance of the employees and to make the m more productive, the following steps can be used so effectively: Learning and Development As the hospitality system is concerned, one should be a constant learner by all means. He should be ready to focus on the assimilated facto all the time. In fat, he should be willing to learn regularly. Employee motivation and thereby self improving the organization can be done positive results to the firm. He should be ready to take positive aspects from everywhere and negative points from nowhere. This proactive step will help him to enhance the performance both of his employees and organization alike. Rewarding Performance Rewarding performance must be motivated by giving proper appreciation, awards etc. Scholars have defined motivation from different perspectives. Some of the important efforts are presented in this sub-section. Need disposition theory: A basic assumption in the motivation theory is that an organism behaves in order to reduce its needs. A need is a requirement that must be met for optimal adjustment of an organism to the environment. Need disposition theory presents the point of view that people are motivated to take action and invest energy in pursuit of three motives, 1. Achievement, 2. Affiliation and 3. Influence. Summary of Industry Because the lessons of "deregulation" that took place in 1978 have not been learned there is no doubt that billions of dollars annually are lost to taxpayers and the economy although the total cost of these and other misguided federal policies may not be calculable. The authorities refuses to release its iron grip nearly 30 years after a growth spurt introduced innovation and competition into the industry and brought the convenience of flying to the masses. Then only the creative energies of super brains once again are released to the benefit of travelers and the global economy alike. 3. Other Issues Recent Problems The airline industry is lost more than $30 billion during the past four years, including an estimated $7.5 billion in 2004; the industry is expected to lose at least $2 billion more in 2005.The ongoing flow of red ink from the industry's balance sheets, and the decision by the airline industry to drop $9.8 billion in pension obligations leaves no doubt that the airline industry remains among the most troubled sectors in economy. Although investors in so-called legacy carriers have fared poorly since deregulation took place in 1978, discount carriers have gobbled up market share in the industry has not been inadequate demand. There has been a steady increase in the demand for airline flights over the decades and the number of airline passengers has far exceeded population growth. The best estimates indicate that deregulated fares have been 10 to 18 percent lower, on average, than they would have been under the previous regulatory formulas. The total net benefit to travelers has been $20 billion per year. The deregulation of 27 years ago was only the first step in creating a freer market in aviation. the rise of security as a major new cost component and the limited scope of the original deregulation model and have preserved and extended the role of the government within the aviation sector, thus hindering efforts to turn a profit. Security The most obvious manifestation of government micromanagement of aviation is the most obvious manifestation of government micromanagement of aviation is undoubtedly in the government's self interest to ensure that terrorists cannot easily board commercial jets and use them to commit problems, the highly visible Transportation Security Administration (TSA) is. TSA is notoriously inefficient and incompetent. it has failed to stop teenagers from sneaking weapons and other dangerous items through security checkpoints On multiple occasions,. Induced Overcapacity The most airlines have been unable to kick the subsidy habit. Since WTC, the government has provided no less than $9.5 billion to the airline industry in the form of grants, loan guarantees, and tax waivers. Although one could argue over the fairness of such a bailout given what occurred at WTC and the ensuing fallout, the reality is that industry analysts cite excess capacity caused by too many airlines competing for the same routes as being among the industry's major problems. Aviation Protectionism Many Americans mistakenly believe that protectionist laws are designed only to "protect" farmers, textile producers, and automobile manufacturers from cheap imports, but the level of protectionism in aviation is stunningly high. (House of Commons Standing Committee on Transport.  Sixth Report.  Issue No. 47.  Freedom to Move:  Change, Choice, Challenge.  Ottawa, 1985.) Federal Micromanagement In addition to the industry-wide issue areas highlighted in this paper, the federal government imposes restrictions on specific airports around the country that warp the marketplace and cost passengers time and money in the process. First and foremost, in a misguided effort to use command and control techniques rather than market tools – like pricing – to reduce congestion at certain major airports, the FAA has since 1969 limited the number of takeoffs and landings that can occur at Chicago O'Hare, Washington National, and New York's LaGuardia and Kennedy airports. Although most passengers would question whether these federal restrictions have really alleviated congestion at the aforementioned airports, there is no question that such restrictions have served to keep discount carriers out of the nation's busiest airports and most important cities. (Dom, T. H., and M. Tretheway.  Monopoly Versus Duopoly in Airline Industry:  Policy Alternatives and Consequences.  Centre for Transportation Studies, University of British Columbia, 1991.) Recommendations The following strategies have t be applied in order to stabilize the fluctuating airline industry. 1, Airlines' Competitive Strategies has to be strengthened in order to maintain good results along with the leading brands. 2, Adequacy of Competition Law in its Application to the Airline Industry timely needed 3. The Scope of Airport Charges has to be revised but of course, it should be reasonable 4. Airways Services is to be beautifully marketed since the hospitality sector needs a lot of effective service marketing strategies. 5. Airport Infrastructure needs significant development then only all customers can be attracted by some or other means effectively 6. Privatizationof all firms or depts. for the reason is that It would be more accountable (Reschenthaler, G. B., and B. Roberts, eds.  Perspectives on Airline Regulation.  Institute for Research on Public Policy, Montréal, 1979) Conclusion How to better manage and improve air transport safety on the continent; it is the topic everywhere. The following strategies have to be adequately sticking on to resolve he problems in an effective way. . (2) How to harmonize competition rules in order to avoid the emergence of sub-regional blocs and enable the uniform implementation. (3) how to create an enabling environment for the participation of the private sector; (4) how to establish innovative financing mechanisms for the development and strengthening of the aviation industry, including the idea of establishing a leasing company; (5) how to remove non-physical barriers, including visa restrictions; (6) how to promote strong alliance and cooperation among African airline companies in order to remain competitive in the global market place; and (7) How to strengthen the cooperation between airlines, member States and specialized agencies in the development of airport infrastructure and equipment. Reference 1. Bradshaw, Bill, and Helen Lawton Smith, eds.  Privatization and Deregulation of Transport.    MacMillan Press Ltd., London, 2000. Freedom to Move.  Ottawa, 1985. 2. House of Commons Standing Committee on Transport.  Sixth Report.  Issue No. 47.  Freedom to Move:  Change, Choice, Challenge.  Ottawa, 1985. 3. Dom, T. H., and M. Tretheway.  Monopoly Versus Duopoly in Airline Industry:  Policy Alternatives and Consequences.  Centre for Transportation Studies, University of British Columbia, 1991. 4. Reschenthaler, G. B., and B. Roberts, eds.  Perspectives on Airline Regulation.  Institute for Research on Public Policy, Montréal, 1979. Appendix 1 Macro Environment Airline Country of origin Long-haul share of total turnover for Airline (%) Short-haul turnover of total turnover for Airline (%) British Airways UK 63 37 Air France France 57 43 Lufthansa Germany 48 52 Alitalia Italy 35 65 lberia Spain 32 68 SAS Sweden, Denmark, Norway 15 85 Appendix 2 -Industry environment detail Comparing he leading European airlines - the budget airlines manage with far fewer employees Airline Country country Revenue US$ million, year 2003 Employees ('000), Passengers Strategic comment Lufthansa Germany 19 100 67 45 Picking up strategies from budget airlines - flexible pay, moving to internet ticket sales, etc. British Airways UK 13 800 53 3B Withdrew some operations in 2002 and still cutting back in 2O04 Air France France 16 497 72 43 Under threat from easy Jet at Paris/Orly - announced merger with KLM to cut costs but not fully operational for several years KLM Royal Dutch Netherlands 7 500 28 20 Merging with Air France in complicated share deal over several years sAs Sweden, Denmark and Norway 6 000 20 24 Real competition from Ryanair and easy Jet to new destinations in Denmark and Sweden - some high domestic prices: see text Read More