International Business Decision-Making - Essay Example

The airlines business is dynamic and politically unstable. For the business to grow up, each individual airline had to try push up its own yields. The Marketing strategies have to be more attractive and the marketing segments should target passengers and cargo market as well. There are aging fleets and aircrafts in airlines which cannot be used for operating. However it is seen that the decisions taken in most of airlines managements are very slow and the state owned airlines are mostly characterized as beaurocratic and over centralized management which has complaints of overstaffing, frequent management changes and political interference, under the circumstances managers are not ready to take decisions and decision making gets concentrated at the top of the pyramidical management structure. One or two decisions makers are however given the decision taking authority but limited with number of decisions to be taken. Because of this most of the decisions are delayed and memos seeking claims are passed slowly gathering signatures on the way. This slow process is however adversely affecting the airlines in today's competitive environment, where decisions are to be taken fast. The State airline employees are however not customer oriented; the managers are not ready to adopt the new ideas and practices for staying in the market of tough competitions. (Doganis 2001, p.224). Airlines have a great deal of experience in using dynamic pricing systems to allocate scarce resources when the object is maximizing ticket revenue paid by consumers. In the air transport sector, there is lots of uncertainty which largely depends on consumer behavior. The logics used for estimations of operations and environments are not very clear. Under this sector, many important decisions like the supply of services etc. are based on these estimates and therefore a clear decision has to be taken. The carrier's supply decision making process is investigated, first when the demand function is obtained through classical methods then when it is given by a fuzzy function. (Charfeddine 2005, P.8). However, there are different interesting equipments set up by Airlines for convenience of their customers, while waiting for the flight arrival, and if there is a long gap between flights and have to stay at airport for quite a long time for uncanny reasons. Few of them are given below: The American Airlines Admirals Club at DFW has a kid's room with computer games and cartoons. O'Hare got a play zone under Terminal Two operated by the Chicago Children's Museum. San Francisco has Kids' Spot in Terminal 3. Vancouver's international terminal has a man-made stream that leads to an aquarium filled with 850 sea creatures and 1000 jellyfish tank. Singapore's Airport was named best airport in world for past 2 decades by Business Traveler magazine. It contains exotic gardens, two house tour nearby Singapore, napping rooms as also a movie theatre. All these facilities can attract the customers and are made in the interest of customers who have to wait for long hours for their flights to arrive and have nothing to do, can take advantage of all these beautiful arrangements. There are online travels shopping services available by airline through which you can track airline ticket pricing for leisure as well as business travels; the website helps the travelers easily compare the flight options and airfares. (The inside on how airlines set fares and make decisions. 2007). "Airline transport is a quite booming industry with an expected yearly growth rate of 6% for the 5 coming years. But airline transport is also a difficult industry, particularly for old European companies with heavy management structures, unionized personnel, and poor flexibility." The to and fro operations of the company takes place from Brussels airport. Here there are different options of operating more lines and with high efficient aircrafts, both in Europe and intercontinental, as additional traffic is generated by transfer passengers flying between their origin and destination via a connection in this base. Here there are competitions between the direct flights and those using two flights to reach the destination. Market point of view, Airline is a complex business. There are two kinds of people using this service, one or business trips, for whom time is important, they may be ready to pay high rates, but same time prefer quality service (like food etc. on board), they would choose flights which are frequent in all routes. Second are people opting leisure trips, for whom money is priority and they will prefer low cost flights. (Use of a business plan to build company strategy) Route decisions: Route planning in Airlines has to be done with detailed evaluations considering points like the demand by public, costs, revenue forecasts needed for said routes for coming years etc. Also the assumed market share of total demand based on passengers choice of different airlines and time schedules are to be taken into account. The competitor's entries into the same route and their schedules and responses also effect the route decisions. (Belobaba 2006) Even though the traditional airways is clogged with services from new and existing airlines, new routes are now being available due to opening up of new markets as a result of globalization. This has given a breath of life to many airlines. At present the condition of the airline industry is precarious with most major airlines showing losses year after year. Most airlines use data of passenger traffic as a method of finding out the feasibility of new routes. Another factor that determines whether to accept a new route is the practice of start-up-aid to airlines for scheduling a flight to an airport. This is to enable a newly started airport to pick up traffic and is done to airlines as a compensation for the lower facilities available at that airport. This is also done to enable airports to achieve a critical mass that will enable them to break even. Another reason is to ease traffic congestion in large airports. By opening up new airports near to the large airports and diverting traffic with the help of such aid schemes will help to bring doen the traffic congestion at the larger airport. There have been guidelines regarding this formulated by the European Commission in 2005. "In September 2005 the European Commission adopted "Community guidelines on financing of airports and start-up aid to airlines departing from regional airports." (Questions on State aid for Airports and start-up aid to airlines. 2007). g level of industrialization or tourism is also a factor by which airlines plan new routes. With the opening up the global market, some countries like India, China, Brazil and Russia have been able to take advantage of it and hence have opened up new opportunities and routes to airports in these countries. This practice is allowed only for short period of time. Services: Almost all major airlines offer services that are quite uniform. These include more comfortable seats and slumberettes, online booking facilities, mileage points that can be exchanged for a free flying miles, airport transfers, a wide variety of food and wines, in-flight entertainment etc. but more and more airlines are finding it difficult to maintain this due to huge losses incurred by them. Still some companies like Singapore Airlines have managed to stay profitable and continue offering more and more amenities. For example, airline offers the widest beds in the airline industry. It also offers each passenger on demand in-flight entertainment. Per passenger expenditure on food and beverages is higher by at least 10% when compared with other major airlines. It offers such world class facilities that passengers, especially businessmen are willing to pay more for traveling on Singapore Airways. "All this spending seems to work its intended magic: attracting plenty of business travelers willing to pay more than what other airlines charge." (Donelly 2003). How airlines try to beat competition: The airline industry in the United States and elsewhere has seen an explosive growth in recent years. This is good news for passengers, but means intense competition for the airline companies. Both big and small companies are coming up with innovative ideas to beat the competition by wooing passengers to fly with them. There are two major factors that passengers are looking at when selecting an airline. One is price and the other is service. Since providing service is costly, decreasing ticket price could affect the quality of service. But there are certain overriding factors which both low cost airlines and the traditional carriers have to provide which will ultimately determine the revenue they can generate. So, for an airline to generate long term revenue has to give extreme importance to the factors mentioned above. Of primary importance is the safety record of the airline followed by punctuality and correct baggage delivery. The next importance is for smooth and hassle free flight transfers whether between the same airline company or between others airlines. "As soon as one or more of these go wrong or even is perceived to go wrong, then customers will go elsewhere regardless of price and service offered." (Fojt 2006, p.6). If all the above factors exist, the average passenger will naturally look at the price. The concept of the low cost airline no frills airline was started in the US by Southwest Airlines in 1971. The concept became such a landmark event in the aviation industry and has been copied by many airlines in the US and Europe and recently in Asia. The boom in such a concept in the US came after the deregulation of the skies in 1978. It appears that the price tag is an important factor if one takes into account the situation in US. None of the traditional airlines have shown a profit in the last 5 years and if it continues, many of the airlines will face bankruptcy. This has been compounded by labour issues and rising fuel prices. What the lost cost airlines have done is to bring in a new class of passengers, those who travelled by road or train. Another strategy employed by some airlines is to be somewhere in the middle of the traditional airlines and the low cost ones. Companies like Jet Blue and Air Trans are offering the same service of traditional airlines at 60% of the price. But to compensate, they are offering low salaries and cutting overheads. Some airlines in this category like Debonair, one of the first low costs ones in Europe, could not make ends meet and have since collapsed. Some of the traditionalists are now trying their hand at running low cost airlines too. Ted formed by United Airlines and Silk Air and Tiger by Singapore Airlines are examples. Contingency Plans: Like any other major industry, the air travel industry too is subject to many unseen emergencies. It is only prudent that they evolve a contingency plan to counter such emergencies. Contingencies that do not involve physical harm to passengers include stranded passengers due to delayed of cancelled flights, lost or misplace luggage, airport strikes etc are common and most airlines have worked out their own measures to counter them. Contingences that involve physical injury include terrorist attacks and hijacks, maintenance problem of the aircraft etc. the first two contingencies will have to be tackled by the airport security while maintenance is the responsibility of the airline company. Decision making methods: there are several effective methods or techniques for the airlines in making decisions. They include Pareto analysis, paired comparison analysis, grid analysis, decision trees, PMI, Force field analysis, six thinking hats and cost/benefit analysis. a. Pareto Analysis: This is a simple analysis which focuses on 20% of activities that will give you 80% results. This is considered to be a universal rule and can be applied in all walks of life or business. For example 80% of the work in an office will be done by 20% of the staff. b. Paired Comparison Analysis: This is very useful if you are faced with more than one option for doing something. It is more effective when the options are having conflicts among each other. c. Grid Analysis: This is used in the opposite circumstance given above. When faced with more than one options which all appear to be good, using grid analysis is preferred d. Decision tree analysis: this option is a more advanced version than grid analysis. A more detailed picture with its inherent risks and rewards can be obtained by using this system. e. PMI (Plus/Minus/Interesting: This is a simple tool that requires the user to note down all the plus, minus and interesting points about the decision about to be made. Under the heading 'interesting' note down all factors that are positive, negative or uncertain. f. Force Field Analysis: This is a technique that analysis that could work for and against the decision about to be made. After identifying the possible for and against factors, steps can be taken to strengthen the for factors and bring down the effectiveness of the against factors. g. Six Thinking Hats: This is a powerful tool that will helping to minimize errors in decision making. The idea is to think about the decision in more than one perspective. In this technique a problem is viewed rationally, emotionally, intuitively, creatively or negatively. After an analysis a decision is made. h. Cost benefit analysis: This is an analysis that has a financial basis to the decision. Since decisions, especially major ones have financial implications a study of the financial costs and benefits are conducted and a net value is obtained, which will decide the course of action. These are some of the techniques that can be used to assist airlines in arriving at a good decision. There are also other tools like the Delphi Benefit, Avoiding Group think and Impact Analysis that can be used. Bibliography Doganis, Rigas, (2001). The Airline Business in the 21st Century. P.224. [Online]. Routledge: Taylor & Francis Groups. Last accessed 25 March 2008 at: http://books.google.co.in/booksid=_GT7FXsHIn8C&pg=PT208&lpg=PT208&dq=how+airlines+take+decisions&source=web&ots=V9sdViVDWi&sig=6MPk1hwGPYb944Yb5ec55VPs6o0&hl=en#PPT240,M1 S, Charfeddine., et al (2005). A fuzzy approach of decision making for an airline. Vol.14-16. P.8. [Online]. IEEE Xplore. Last accessed 25 March 2008 at: http://ieeexplore.ieee.org/Xplore/login.jspurl=/iel5/10447/33171/01562917.pdfisnumber=33171&prod=CNF&arnumber=1562917&arSt=+8+pp.&ared=&arAuthor=Charfeddine%2C+S.%3B+Mora-Camino%2C+F.%3B+Zbidi%2C+K The inside on how airlines set fares and make decisions. (2007). [Online]. A Briggs passport and visa travel blog. Last accessed 25 March 2008 at: http://www.abriggs.com/articles/labels/travel-agents.html Use of a business plan to build company strategy: Hub and Spoke: the Belgian Syndrome, (2004). [Online]. Solvay business school. Last accessed 25 March 2008 at: http://solvay.ulb.ac.be/cours/alle/CaseSabena.doc Belobaba, Dr. Peter P, (2006). Route planning and evaluation, [Online]. Last accessed 25 March 2008 at: http://ocw.mit.edu/NR/rdonlyres/Aeronautics-and-Astronautics/16-75JSpring-2006/6B8788FB-F4B9-48B0-8D69-193AF2FDD4F0/0/lect11.pdf Questions on State aid for Airports and start-up aid to airlines, (2007). [Online]. Press Releases. Last accessed 25 March 2008 at: http://europa.eu/rapid/pressReleasesAction.doreference=MEMO/07/285&format=HTML&aged=0&language=EN&guiLanguage=en Donelly, Sally B, (2003). Fly Above the Storm, [Online]. Mercedes-Benz. Last accessed 25 March 2008 at: http://www.time.com/time/magazine/article/0,9171,423520-2,00.html. Fojt, Martin, (2006). The Airline Industry: Can the Aviation Industry claw its way out of price-wars and into profit: Assessing the Long Term Future of the Aviation Industry, P.6. [Online]. Emerald Group Publishing. Last accessed 25 March 2008 at: http://books.google.co.in/bookshl=en&id=usBLqylqi0QC&dq=airline+industry&printsec=frontcover&source=web&ots=Pbl3VrUhuG&sig=7RmWK9l8zLy2O6Nkne09XrugWWM#PPA6,M1 Read More