Alaska airlines - Statistics Project Example

Alaska Airlines Alaska airlines Introduction Alaska Airlines is based in SeaTac’s Seattle suburb, Washington, US. It traces its origin to McGee Airways back in 1932. The Airline came to be known as Alaska Airlines in 1944 after a series of mergers and acquisitions. It currently serves multiple air routes in the United States, Canada, Hawaiian Islands, and Mexico. It is rated as the 7th largest airline in the United States, according to traffic. Its largest hub is in Seattle–Tacoma International Airport. As a matter of fact, it has been a dominant player the U.S. West Coast air. The carrier has long been known for offering friendly and highly comfortable services. Additionally, Alaska Airlines is reputed as having embraced innovative technology towards improvement of customer experience. However, in the recent past, it has faced stiff competition, more especially from South West Airlines, that has seen it loose a substantial portion of its clients. This paper seeks to establish the major areas where competitors have banked on to infringe into Alaska Airlines and further narrow down to the important ones that should be accorded greater importance to protect the market from further infringement. Pareto analysis is used to achieve this. 2. Description of the Problem Environment The services offered by Alaska Airlines extend beyond just getting onto a plane and getting seated, awaiting flight to the next destination. It also offers a range of other services including freight transportation and Food and Beverage Services. The airline’s food and beverages line offers hot and fresh meal for purchase in almost all flight durations exceeding two and a half hours. Passengers are allowed to make on-board purchases using Visa® branded cards, MasterCard®, American Express®, and Discover® brand logo cards. Debit and gift cards are included. To accommodate passengers who do not have debit or credit card, $6 vouchers are offered for purchase at all ticket counters. 3. Problem Description The main problem addressed in this paper is loss of clients by Alaska Airlines. For some time now, Alaska Airlines staff reports they have been experience a considerable decline in the number of clients, a problem they seem to attribute to entry of competitors into Alaska Airlines typical routes. A close spot check has revealed that competitors are charging lower processes, offering lots of discounts, and more comprehensive loyalty programs. Although it has not been proved that these are the causes for the decline in clients, they have been touted in a number of board meetings as the possible causes of the loss in clients. Additionally, it has been noted that the new airlines into the traditional Alaska Airline markets offer higher on-board luggage limits, ad recently modernized their flights, sacrificed comfort for price, and have put in place extra security measures, other than those offered by the respective airports. These have been touted as the possible causes for the loss in clients. While it is estimated that in the first quarter of last year, Alaska Airlines experienced client increase of 10%, within the same period this year, a decline of 2.5% has been recorded creating an alarming situation amongst the management team. Ongoing trends reveal that in the second quarter, passenger volume might decline by up to 7%, if measures are not put in place to curb the decline. However, the management is in a quandary as to which particular areas need to be immediately addressed and which ones can be addressed on a long-term basis. Due to financial limitations, not all problems can be addressed immediately. Additionally, the management requires proof that the loss of clients being experienced by Alaska Airlines is not only an issue that can be addressed internally, but also is not a product of the recent harsh economic conditions. Conventionally, such conditions are accounted for a fall within acceptable limits and hence it is important for the management to see proof that the current losses and beyond acceptable limits. Such proof would warrant release of funds for remedial actions to be taken. Three models are used to achieve this, that is, Pareto analysis for identifying the few problems that result into huge losses and hence warrant immediate action, control charts which seeks to establish if the losses being exhibited exceed acceptable limits, and envelop analysis, which sought to establish if the losses were limited to specific branches or if it was across the board. The problems facing Alaska Airline service business are further illustrated in the fishbone diagram below, 4. Model Development Pareto analysis The Pareto analysis as applied in this project, presumes that 20% of the problems identified results into loss of 80% of the clients. As a matter of fact, the technique helps in narrowing down on the few issues that result into loss of a majority of the clients. As a result, it assists in identifying the areas which should be given optimal attention. As already mentioned, it is presumed that 20% of identified issues are the reason for 80% of the lost clients opting to use competitors’ services over Alaska airlines. This is based on Pareto principle that states that 80% of issues in end product/service are attributed to 20% of problems in production/service processes (Yin, 2003; Snee & Hoerl, 2005). Control charts Control charts are statistical tools which distinguish between process variations resulting from either common causes or special causes (Pande et al., 2000). It offers graphical display of the stability or instability of a process over time. Some variation result from normal causes while others result from causes not normally present in the process (Bruttin & Fraser, 2005). Such non-normal causes are referred to as special cause variations. Control charts assist in obtaining process stability. Consistency is attained by data streams which fall within the control limits which are normally based on standard deviations from the centre-line referred to as ‘3 sigma’ (Carleysmith, Dufton & Altria, 2009: 97). The control limits represent the variation limits for as long as the process is within a statistical control state. A process is said to be within statistical control if all its variations are a result of the commonly known causes and hence affect the entire production in similar manner (Johnson, 2006). In general control charts provide the following benefits to quality assessment in the company; Process variation monitoring over time. Differentiation of normal cause and special cause variations. Assessment of changes effectiveness in process improvement. Communication of process performance during a given time. To monitor a service, random samples of the output from the service are taken and examined to check if the service process is in control. This is nothing but a hypothesis test with the hypotheses formulated as H0: The process is in control Ha: The process is out of control Data envelop analysis Data envelop analysis provides an opportunity to relate performance of various branches or operation locations where the airlines operate. While the airline operates in various locations, only a few selected locations are considered. Conventionally, a problem such as loss of clients to competitors is not a blanket occurrence but rather is limited to specific branches or locations. The efficiency of operations of various airports is considered on the assumption that the lower the efficiency, the higher the number of clients lost on the particular location and hence the location should be accorded special attention. 5. Model Results Pareto chart Three issues are identified as being of great importance to the airline as they contribute to 80% of the lost clients. These include low travel costs offered by other airlines, loyalty programs, and advertisements. In the recent past, competitors have engaged Alaska Airlines in price wars. Most of the clients shifted allegiance to other airlines which offered lower prices and those that had loyalty programs which came with additional benefits. Additionally, advertisement seemed to play an important role in determination of the airlines people chose for their travels. The Pareto shows that while there are other causes of loss of clients to competitors, 80% + clients were lost mainly due to these three reasons. In terms of travelling costs, South West Airlines seemed to be the biggest beneficiary due to its low cost airline services. The other airlines also seemed to have heavily invested in advertisements and enticing loyalty programs. Control charts Some anomaly happens during the sampling 12 and 13 with the process of production because. Because of the 13 sample mean is near at the upper limit, and the standard deviation of the 12. Sample is above the upper control limit. It is reasonable to inspect the service delivery. Data envelop analysis   Income in USD (in 000s) Staff Ratio Efficiency Rank Alaska 246 457 0.54 0.65 5 California 181 234 0.77 0.93 3 Georgia 24 45 0.53 0.64 6 Hawaii 56 112 0.50 0.60 8 Montana 62 118 0.53 0.63 7 Washington 102 148 0.69 0.83 4 Canada 65 78 0.83 1.00 1 Mexico 45 56 0.80 0.96 2 The efficiency frontier is included below, The results report findings with respect to various destinations of Alaska Airlines flight. The most efficient branch in terms in income generation to staff ratio is Canada, followed by Mexico, and California. Alaska which is its major market comes at a distant fourth. This is alarming a clear indication that although Alaska contributed to a big portion of the revenues, competitors are slowly encroaching into the market and as such impeding its productivity. Analysis The results reveal multiple problems of concern to Alaska Airlines. In the control chart, the upper limits are exceeded affirming that in deed, Alaska Airline’s loss of client’s problem is of great concern and requires special consideration. More details provided by Pareto analysis and date envelop analysis. The Pareto analysis chart reviews multiple causes of loss of clients at Alaska Airlines. The aim is to find the few problems which results to loss of most clients. While low travelling costs, flight schedule delays, fleet modernization delays, increased security concerns and risk concerns, customer experience challenges, cargo transportation problems, inadequate advertisements and non-comprehensive loyalty programs are identified as the main cause of client losses, only three are identified as causing loss of a majority of the clients. These include higher travelling costs compared to competitors, non-comprehensive loyalty programs, and inadequate advertisements. Notably, the company as for years offered conmfort nair travel at substantially high costs, thanks to the oil rich market from which it taps. However, the findngs reveals that this could be an undoing in the highly dynamic airline market. New airlines nnave banked on the high pricing nstrategic thinking of Alaska Airlines and are offering low cost travel options. This is no doubt woking to the andvanatge of Alaska Airlines competitors . incidentally, more and more clients are prefereing cheaper airlines over the hig cost, comfortable airlines offered by Alaska Airlines. This emphasizes the need for a cange in pricing strategy by the Airline. Other than low cost airlines offered by competitors, another cause for loss of many clients is loyalty programs offered by competing airlines. Using low price as an entry technique, the airlines have gone ahead to offer comprehensive loyalty programs which ensure that clients who experience its service remain loyal to it while still pursuing Alaska Airlines market share of clients. This emphasizes the importance of Alaska Airlines reviewing its loyalty program and aligns it to the needs of the modern airline client’s market. The other major problem identified as causing loss of clients is lack of sufficient advertisements. While Alaska Airlines continues to ride on its previous glory, new market entrants have heavily invested in advertising campaigns which are yielding benefits as more and more Alaska Airlines opt to try out their services. In essence, it is high time Alaska Airlines heavily invested in relevant marketing campaigns. Data envelop analysis dissects the problem of client loss from a regional perspective. It attempts to evaluate whether this problem is confined to specific routes taken by the airline or if it affects the airline in its entirety. Based on this approach, it is evident that airlines performance varies across its operational areas. The most efficient branch in terms in income generation to staff ratio is Canada, followed by Mexico, and California. Alaska which is its major market comes at a distant fourth. This is alarming a clear indication that although Alaska contributed to a big portion of the revenues, competitors are slowly encroaching into the market and as such impeding its productivity. Conclusion In a market previously characterized with prestige travellers, thanks to booming oil business, Alaska Airlines find himself in an unfamiliar territory. Losing clients due to availability of low cost travelling can therefore be attributed to fare wars that have plagued the industry since deregulation. This has come to the delight of travelers but to the dismay of industry stakeholders. The truth is, airline industry is not the sole U.S. industry plagued with price wars. The top presses have routinely featured stories on price wars in supermarkets, consumer electronics, as well as service industries; wars which break out when different firm attempt to dispossess others of their market share. However, the price wars in this industry is rather unique and of great interest. Firstly, the wars are a part of the airline industrys turbulence and continuous adjustment to deregulation, a reality that calls for policymakers attention at a time when all other top industries such as communications and electricity are faced with significant deregulation. Secondly, the industrys technology and investment trends, unpredictable demand, as well as complex patterns of competition invite multiple competing theories about the reasons why airlines engage in fare wars, and further provide a rich laboratory for testing of the theories. Lastly, industry executives, a number of whom are ready to believe that fare wars are a temporary measures rather than permanent occurrence, and policymakers, most of whom continuously scrutinize industrys financial performance, fail to realize that this ultimately impacts on the airline’s profitability and have a rippling effect on other operations of the airline. This, as is revealed in the Pareto chart, is an important are the airline needs to look into. Another area which is observed to make the Airline’s client vulnerable is the loyalty program. For instance, an article by Tierney (2013) reflected on changes made by South West Airlines to its loyalty program. The article read in part, “Southwest Airlines Listens to Its Customers and Makes Changes in Rapid Rewards Loyalty Program.” An important question then is, “has Alaska Airlines listened to its clients in developing its loyalty program?” Answering this question could potentially open new doors to understanding how to solve the problem of such losses. Alaska Airlines must not allow its competitor’s loyalty program to look more attractive than its own which is restricted to specific flight numbers. Advertisement is also another area where the Airline should most definitely focus on. Brands like Coca Cola, Pepsi and British American Tobacco have largely thrived on advertisements through they keep brand imposed in the minds of many (Steiner, 2009). This is definitely required of Alaska Airlines. The airline must use advertisements to continuously remind clients of the services offered the Airline. In general, over the recent past, the airline industry has undergone extensive changes. Since the mid-90s, new airlines have emerged, some low cost while others expensive and luxurious (Lowa, 2012). Some have been able to stay afloat while others have gone under a short while after being commissioned. In essence, the mixed fortunes are indicative of the delicate airline industry market and hence it is important that any proposed new airline gains an understanding of the market prior to entry if it is to achieve success The airline’s pricing is vital to its growth. It is rated as one of the high cost airlines in United States of America. The airline should provide convenient, low cost flights to clients of all origins. This has enabled it to maintain a strong client base even in the worst of times when other airlines faced tremendous passenger decline. The South West airline’s website describes the airline as having the lowest cost structures in the domestic airline industry through consistent provision of low and simple fares (South West Airlines, 2011). Basically, this approach can facilitate increased sales. Feedback from contact person Mixed reactions were recorded from the contact person with respect to the results recorded in this paper. While the contact person is in agreement with the identified causes of loss of clients and the fact that most losses are attributed to the war in prices, seemingly the contact person disagrees with the finding that Canada is the best performing destination. However, he agrees that encroachment of Alaska with competing airlines, alongside the price wars presented by the competing airline has largely placed the airline at a cross-road and hence an issue that needs to be addressed. He further notes that this is a big challenge considering they have heavily invested in luxury and comfort as compared to the low-cost competitors. Service blueprint Future research and recommendations The current research rather shallow and fail to take into consideration a number of factors including the effects of multiple factors working and in hand. Additionally, it presumes that the challenges facing the airline are a making of its own. While this can be true, there is a need that future research undertakes a comparison of what other airlines do to what Alaska Airlines do before appropriate conclusions can be made. References Antony, J. et al. (2003). “Lean Sigma”, Manufacturing Engineer, pp. 40-42. Bruttin, F. & Fraser, H. (2005). “The metamorphosis of manufacturing: From art to Science”, An IBM Institute for Business Value executive brief, pp.1-35 Carleysmith, S. W., Dufton, A. M. & Altria, K. D. (2009). “Implementing Lean Sigma in pharmaceutical research and development: a review by practitioners”, R & D Management, pp. 95-106 Johnson, A. (2006). “Lessons learned from six sigma in R &D”. Managers at work, pp. 15-19 Lowa, S. (2012). Supply and demand metrics for airline industry. Journal of Supply and Demand, 14 (3), pp. 45-52. Magnusson, K. Krsolid, D. & Bergman, B. (2003). Six Sigma: The Pragmatic Approach. Lund: Studentlitteratur. Montgomery, D.C (2005). Design and Analysis of Experiment. New York: John Wiley and Sons Pande, P. S. et al. (2000). The Six Sigma Way- How GE, Motorola and other top companies are honing their performance. McGraw-Hill Snee, R. D. & Hoerl, R. W. (2005). The Six Sigma-Beyond the factory floor: Deployment Strategies for Financial Service, Health Car and the Rest of the Real Economy. Person Prentice Hall. Steiner, P. O. (2009). Markets and Industries. Crowell Collier and MacMillan Inc.: New York Tierney, J. (2013). Southwest Airlines Listens to Its Customers and Makes Changes in Rapid Rewards Loyalty Program. Daily News, Sep 26, 2013. Yin, R. K. (2003). Case Study Research: Designs and methods. Sage Publications Inc. 6.3 Reports. Read More