Airline Operation - The Global Airline Industry - Assignment Example

Assignment 2- Individual Research and Formal Analytical Report Name: Tutor: Subject: Date: Executive Summary Air industry is highly dynamic and competitive, and therefore organizations need to cope with the changes to sustain themselves in the market. To attain its development goals, Australia’s international aviation sectors needs to expand. For the past 20 years, Australian international aviation capacity grew by approximately 4.5 percent (Duval, D.T., 2016). The current routes for Australian airline are international routes to and from Sydney. This report analyses the market opportunity for Australian International Airline (AIA) which is currently operating on low-cost scheduled passenger flights using A330-200 airbus. AIA wants to shift to full-time carrier service in the future, and therefore they require a new aircraft which is more appropriate for full-time services. This report is divided into two parts. The first part describes the characteristics of the recommended Boeing 787-9. Opportunities for increasing the frequencies of the existing routes are also highlighted together with possible new routes that AIA can utilize. Current major competitors of AIA are analyzed including their previous networks. Part two of the report is a proposal for AIA. This proposal explains in detail in-flight and on-ground recommends for Boeing 787-9 such as cabin configuration, entertainment, menu, and convenience. It also suggests the business strategy for AIA which will enable them to compete effectively in the market. For example, to build its brand in the air industry, AIA will have to invest in advertisement. Market analysis for the global airline industry is also included in this report indicating the main opportunities that AIA can take advantage of. The opportunities for AIA will be achieved when the airline engage on a full-time basis. The research methodology for this study will be content analysis involving a review of written materials such as journals, books, and publications. Part 1: Route Opportunities for Boeing B787-9 Aircraft Boeing 787-9 Boeing 787-9 Dreamliner is one of the Boeing’s 787 families. Boeing 787-9 is more efficient than 787-8, and it saves up to 20 percent of the fuel. 787-9 made its first flight on September 17, 2013, and Air New Zealand had a license for the first delivery in 2014. Payload refers to the carrying capacity of a plane including the passengers, cargo, and the extra fuel. The optimal payload range of Boeing 787-9 is 8500 nm. The aircraft can carry 280 passengers, and it contains good customer characteristics such as reducing jetlag and spacious cabin which allows the passengers to see outside through the window (Airplanes, B.C., 2013). Therefore, Boeing 787-9 is more suitable to Australian International Airline. By adopting Boeing 787-9, Australian International, Airline can expand and develop new air routes by engaging in partnerships with other international airlines. The following are some of the new possible routes that can be utilized by the AIA: Sydney-Tokyo route by forming a partnership with Japanese airline ANA and the frequency can be up to 5 times a week. Los Angeles-Melbourne route by a partnership with United Airline with a frequency of 4 times a week. Abu Dhabi-Perth route with a maximum of 3 flights a week. Changsha-Sydney route in China 2 times in a week. Darwin-Dali route two times a day. Current Australian International Airline (AIA) overview Current Australian International Airline uses 10 leased Airbuses A330-200, the all-economy cabin of 260 seats. A330-200 provides good range of cargo capacity because of its double engine wide body. The advantage of A330-200 fuselage is that it has a large under-floor capacity which can hold cargo such as LD3 side by side. This characteristic makes the Airbus one of the most preferred carriers worldwide. In addition to the fuselage, A330-200 is good for long-distance The A330-200 aircraft operates in both international and domestic routes. The following are international routes for AIA; Sydney-Auckland (3 times a day), Sydney-Christchurch (2 times a day), Sydney-Bali (daily), Sydney-Nadi-Fiji (daily), Sydney-Noumea (daily), and Sydney-Wellington (daily). AIA needs to increase its frequency on the existing network in order to compete effectively with the major competitor in this network. The major competitor for current AIA network is Air New Zealand. However, to expand the business, AIA requires intensive capital to invest in the business. The current 10 A330-200 airbuses that AIA is operating are under lease, and this affects the success of the business. They need intensive capital in order to purchase their airbuses. Banks such as Commonwealth Bank of Australia can offer loans that the airline can use to fund their business. AIA should generate high cash flow in order to pay their debts and to acquire new aircraft such as Boeing 787-9. This will be possible if the airline increase frequencies in their current routes. in addition to these, optimizing the revenue of AIA is equivalent to increasing the number of passengers. One of the routes that the airbus can expand its network is Beijing-Guangzhou-Sydney which was previously operated by A330-300 airbus three times a week. The other route for airbus A330-200 is Mauritius-Perth 3 times a week. Perth-Qatar is another route, and the airbus A330-200 will make three flights per week. Some of the domestic routes include Melbourne-Perth and Sydney-Perth. Main competitors The major competitor of current AIA, A330-200 is Qantas Airways Limited. Qantas airline is the largest carrier and fleet in Australia for both international and domestic flights. Qantas is based in Sydney Airport and a report on 2014 indicates that Qantas Airline had a domestic market share of 65% and about 14.9% of all international flights. Qantas has established partnerships with other airlines such as Jetstar, Solomon Airlines, Emirates, Air Tahiti, and Fiji Airways among many others. Through the partnership, Qantas has a total of 11 destinations from Australian gateways. Local destinations of Qantas include Sydney, Melbourne, Brisbane, Perth, Auckland, Wellington, Christchurch, and Queenstown. Island destinations include Fiji, Tahiti, Solomon Islands, Vanuatu, and Papua New Guinea (Whyte, R., 2015). The other major competitor of AIA is Jetstar which is based in Melbourne, and it is a low-cost airline. This airline is owned by Qantas as a subsidiary, and it was developed in order to respond to the threat created by Virgin Blue which is a low-cost airline. Some of the routes for Jetstar are Adelaide-Singapore, Melbourne-Hong Kong, and Melbourne-Japan. Domestic flights are mainly for New Zealand, and it is recorded that it can make up to 120 flights per week. Major destinations include Auckland, Wellington, Christchurch, Queenstown, and Dunedin (Whyte, R., 2015). Virgin Australia Airline Ltd formerly known as Virgin Blue Airlines is the big competitor of AIA and the second largest airline after the Qantas. The airline is currently based in Brisbane, and it became the second largest after the collapse of Ansett Australia in 2001. At first, the airline operated as a low-cost carrier but later it improved its services so that it can compete effectively with Qantas in the air travel business. Virgin Australia made flying agreements with international airlines such as United Airlines in the United States, Malaysia Airline, Emirates Airline, and Hawaiian Airlines. Virgin Australia operates mainly from Western Australia and makes international flights from airports in Perth, Sydney, Melbourne, and Darwin. In 2011, the Virgin Australia entered into the top world’s alliances with Delta Airlines and two other airlines to offer Trans-Pacific Services. Virgin Australia’s routes include Australian-US about ten times a week, Australia-Singapore, Australia-Bangkok, and Australia-Mexico. Despite the competition, AIA can take advantage of some of the routes which its competitors have withdrawn. In 2013, Jetstar closed its base in Darwin because of the stiff competition from the Asian carriers to Darwin Airport (Whyte, R., 2015). Therefore, AIA can make a partnership with Northern Territory Government to make Darwin International Airport its hub. This is because Darwin is within Australia and it only takes a short period to fly. The other route which Jetstar withdrew from is Tokyo-Manila and AIA can grab this chance to operate 787-9 airbus. In 2014, Qantas also pulled out of Perth international services because of economic difficulties. Some of the routes left by the airline are Perth-Singapore, Perth-Abu Dhabi, Perth-Hong Kong and Perth –Bangkok. Then AIA 787-9 can use this route to increase its competitiveness by taking the former customers of Qantas in Western Australia. Through these routes, AIA can increase its flights to Asia and Europe. Also in 2015, Virgin Australia withdrew from the international networks from Australia to Bali and Thailand after experience losses amounting to $69m. These routes include Adelaide-Bali, Melbourne-Bali, and Perth-Bali. This is a good opportunity that AIA must utilize on its new Airbus Boeing 787-9. There is high competition in the domestic routes, and they are dominated by Qantas and Virgin Australia Airlines. A report by Common Wealth in the ending financial year 2015/2016, Melbourne-Sydney was the busiest route which recorded about 8.8 million customers. It was followed by Brisbane-Sydney and Brisbane-Melbourne respectively. These top routes are operated by Virgin Australia and Qantas. For example, Virgin Australia made a profit before tax of about $110m from domestic flights. This is because domestic markets are not regulated as international market. The proposed possible routes for AIA 787-9 above are also competitive. Tokyo-Sydney route is dominated by Qantas airline, and thus it is the major competitor that AIA will face. To compete strategically, AIA can make an alliance with Japanese Airline in the route taking into account the fact that Jetstar withdrew from Tokyo-Manila route. The current cabin configuration of AIA A330-200 is an all-economic configuration of 260 seats. For the new Boeing 787-9, AIA should adopt a mixed cabin configuration such as that of United Airlines but with more seats. The seating configuration can be as follows: Cabin class Seat pitch Number of seats Business First 78 50 Economic plus 35 90 Economic 35 120 The other thing that will attract customers to AIA is employing the most efficient crew in all travel classes. In-flight entertainment should be a background music which will make the passengers relax. Each seat should also be equipped with personal IFE monitor with audio or video, universal electric outlet, charging port, on-demand entertainment, and personal reading lamp. There should be able to access a wide variety of media ranging from movies, TV programs, music collection, video games, among many other things. The meals provided by AIA should be delicious and healthy. A menu for the economy and economy plus classes can include the following; main meals can include; rice, pasta, and chicken. Drinks: water, wines, and beer. Dessert: ice cream, cheese, and crackers. Drinks should be provided throughout the flight by the flight crew. The menu for the business class should include the following: starter meal can be appetizer, salad or soup according to passenger’s choice, next is the main meal such as beef fillet, grilled chicken, grilled fish or salmon, Zucchini and rice. After the main meal, the dessert is served including ice-cream, Seasonal berries, butterscotch, and cheese. Part 2: Proposal for Australian International Airline (AIA) Background information Australian International Airline is a low-cost carrier (LCC), and it is based in Sydney, Australia. The airline is currently operating passenger scheduled services using ten leased aircraft in an all-economic cabin configuration of 260 seats on international routes. The CEO and Board of the airline wish to change their business to be a full-time service network. To do this, the management would like to expand their current network and the product so that they can optimize profitability and market opportunities. Australian International Airline needs to be competitive in the market because air market is facing stiff competition. AIA also should create a strong brand name in the market to attract more customers. The airline plans to retain current aircraft A330-200 for the next 2-3 years and then acquire 20 new aircraft of Boeing 787-9. Therefore, there is need to develop a marketing strategy for AIA future network. Research questions 1. What is the best product design for AIA? 2. Is there any new market for AIA? 3. How will AIA compete effectively in the air industry? Literature review Airlines in the world are faced with risks and uncertainties which affect operations. AIA is also experiencing challenges, and one of the major challenges is that it operates passenger scheduled services as a low-cost carrier. Operating efficiently is one of the success features for air industry. Operating efficiently is beneficial to airline operators in some ways. One is that it reduces costs as customer needs are met. The other is that it ensures passengers are checked-in on time and receive best in-flight services. AIA operates on LCC, and the disadvantage with this is that take-off and landing normally happen in secondary airports and not in the main airports. This requires the management to include in their budget the cost of getting customers to and from the city center. The other demerit is that low cost will not include in-flight services such as catering and this will affect long flight passengers. This influences negatively on the profitability of the company. Most of the like take a flight from the main airport which in most cases are accessible. Also, in the current air market, passengers prefer full-service carriers because once they pay, they receive all services including meals or snacks. The other important factor in airline today is the fuel price which is continuously increasing. For the last five years, the price has risen by 50 per cent. Therefore, airlines are adopting new aircraft which are fuel efficient to minimize this cost. Despite the fact that current AIA’s A330-200 Airbuses are fuel efficient, there are others which are more efficient than that. Boeing 787-9 can save up to about 20 percent of fuel, and this makes it the most efficient airbus. Apart from fuel, cabin configuration is another important factor for passengers. There are passengers who are well off financially and like luxurious flights, and there are those with low budgets. It is important to take this fact into consideration and cabin classes should be developed according to individual’s choice. AIA operates only ten airbuses, and this means that it is not well known in the market. To develop its brand in the competitive market, the company need to establish its market strategy. AIA should create a budget for marketing. Marketing should then take the form of multi-media advertising campaigns which aimed to promote the airline. The largest competitors of AIA such as Qantas are using advertisement to attract their customers, and therefore AIA will also benefit from the campaign. Some of the things to be included in the advertisement include better fares, good meals for all travel classes and best in-flight services such as meals and entertainment. Air industry is highly dynamic and competitive, and therefore organizations need to cope with the changes to sustain themselves in the market. To be able to do this, AIA should make a proper planning on matters such as staff motivation and their level of involvement, investments needed and also a good knowledge of their competitors and their environments. When staffs are motivated, the airline is likely to be successful because employees who are satisfied makes the customers be also satisfied and the chain of satisfaction will extend to the shareholders (Shield, 2009). Justification of literature Opportunity The current low-cost carrier (LCC) does not make AIA competitive enough. Most of the airline companies are becoming cost conscious, and they have developed strategies to stiffen budgets. Australia International Airline can create full-time carrier services to improve its profitability. Sydney Airport is ranked the most popular airport and busiest in Australia, and it offers the best opportunities. AIA should target this airport since it is currently located in Sydney. Sydney International Airport is easily accessible due to good transport infrastructure since it the capital city of State of New South Wales. The high population density in Sydney also offers a good market for AIA. Sydney is the most populated town in Australia and Oceania region. Sydney-Tokyo route – AIA should strategize to start competing in busiest international routes and to share the market to gain profitability. This initial trial for AIA in this route will start with about 5 per cent using Boeing 787-9. This small share will enable the airline to test the reaction in the market and later it will increase the share. Japanese ANA recently launched its flights to Sydney using Boeing 787-9, and this will be the best opportunity for AIA to form a merger with ANA. In Australia, Qantas is the only airline which is using the route, and this means that Australian International Airline will only face direct competition from Qantas. Melbourne-Los Angeles route is another new route that AIA should enter once it acquires Boeing 787-9. Melbourne International airport is ranked second after Sydney, and it is growing quickly in Australia. AIA can operate this route by forming a partnership with United Airline. Other routes available for AIA include Perth-Abu Dhabi, Sydney-Changsha and Darwin-Dali route. Abu Dhabi is the capital city of United Arab Emirates and Abu Dhabi International Airport is growing fast and currently standing at the second position in the United Arab Emirates. Currently, there is no airline operating Perth-Abu Dhabi route, and therefore AIA can make an alliance with Abu Dhabi Airlines. Product design Most of the airlines have first class in the services especially the major competitors such as Qantas and Virgin Australia. This means that reduced fares are only in the economy class. AIA can take advantage of this fact and expand their existing network by discounting fares. However, operating all-economic class services make the passengers experience fatigue and discomfort because the cabin is cramped. To eliminate this problem, AIA should acquire Boeing 878-9 which is wide and longer thus offering luxurious travel to the passengers. The following feature will be provided on Boeing 787-9: The cabin configuration for the new aircraft can be divided into three travel classes including business first, economic plus and economy. The seat pitches to be 78, 35, 35 respectively and the number of seats to be 50, 90 and 120 respectively. AIA can also explore new international airline routes in order to be competitive. Comfort: Boeing 787-9 will provide high tech and comfortable environment for the passengers. The seats should be designed by well-known designers in the market. Entertainment: In- Each seat will be equipped with personal IFE monitor with audio or video, universal electric outlet, charging port, on-demand entertainment, and personal reading lamp. Menu: drinks, desserts, main dishes will be provided in all travel classes as it is inclusive in the ticket cost. Convenience: Australian International Airline will prioritize high-quality services beginning with a booking time to in-flight services by cabin crew. The passengers will be able to book their tickets online through e-ticket services. The spacious on board accommodates large luggage, and this is good news for business passengers. Frequent flight plan: The top competitors in the air industry are retaining their customers because they of their frequent flyer which offers them a range of benefits including airport lounges, nutritious meals, entertainment, and the internet. AIA should establish partnerships with many international airlines to be able to fly often. In addition to the in-flight service, AIA can also offer other services like airport launch. Australian International Airline should strive to establish a lounge in every major airport in Australia such as Sydney Airport, Melbourne, and Perth. This will enable them to offer best services to their selected passengers that are not available in airport terminals such as quiet environment, the internet, and private rooms among many other benefits. AIA can also reduce their fares to the major destination as a competitive advantage over its competitors. The following is a fare tariff overview for the new destinations for AIA Fare ($) Route Business class Economy-plus class Economy class Sydney-Tokyo 1000 740 600 Melbourne-Los Angeles 3900 1990 1200 Perth-Abu Dhabi 1000 840 750 Darwin-Singapore 3000 699 639 Market analysis The global airline industry is characterized by high fixed costs used for operating the business. AIA will develop low-cost business base so that they compete effectively. AIA will also focus on personalized customer services on top of forming partnerships with other international airlines. This is because almost all major airlines in the industry are making alliances and therefore prioritizing customer service will be an added advantage for AIA. In most cases, customer satisfaction is not achieved because of the mergers between airlines, and this is a chance that AIA should grab. Star Alliance is still the best alliance in the transatlantic market. The major competitor is British Airways, Qantas, Finnair and American Airlines. AIA will not engage in such big alliances because of large alliances such as Star present opportunities for small business such as that of AIA. Top 10 fast growing destination for Australia. Source: Australian Bureau of Statistics (2015) Destination Number of passengers Percentage growth (%) Nepal 19,000 37 Japan 189,000 34 United Arab Emirates 49,000 24 Pakistan 20,000 17 Singapore 332,000 16 Croatia 23,000 15 Cambodia 44,000 15 Mexico 13,000 14 Sweden 15,000 12 Chile 15000 12 Conclusion The airline industry is growing very fast as more and more airlines are entering the market. However, the market is experiencing major challenges. AIA is therefore exposed to such challenges especially from well-established airlines such as Qantas. Some small airline companies were unable to compete effectively and they ended up being out of the industry. It is important for a new business to investigate the air market and to develop good knowledge so as to remain competitive. Some of the factors for new airline business or those who plan to expand include economic fluctuations, costs, flight frequencies, aircraft capacity, competition, aircraft models, etc. In the current airline market, Boeing 787-9 is the best model which offers luxurious services and at the same time saves fuel cost. This is the best model for AIA as it also flies for long distance hauls. References Airplanes, B.C., 2013. Airplane Characteristics for Airport Planning. Australian Bureau of Statistics, 2015. Fastest-growing destination. Available at: http://www.news.com.au/travel/travel-updates/australian-bureau-of-statistics-data-shows-australians-took-a-record-number-of-overseas-trips-in-the-past-year/story-e6frfq80-1226690392522 Duval, D.T. ed., 2016. Air Transport in the Asia Pacific. Routledge. Pezak, L. and Sebastianelli, R., 2013. Service Quality In The US Airlines Industry: Factors Affecting Customer Satisfaction. Pennsylvania Economic Association, 132. Whyte, R. and Lohmann, G., 2015. The carrier-within-a-carrier strategy: An analysis of Jetstar. Journal of Air Transport Management, 42, pp.141-148. Read More