Market Analysis
The aviation industry is a very particular system in which the passenger is transported between two cities or nations at an agreeable price. In this system, there is neither any product sold to the customer, not any inventory is created or stored. In airlines, a specific type of management concepts, tools, and practices are used.
In this industry, the market is analyzed for each flight and also the passenger’s preference is given to be important. If the customer belongs to the business category which covers the small number of seats on the whole plain but the ticket price is high, the rise in comfort will be given to the passenger.
Airline and Airport Management is a study of Management branch that teaches the management of airport and airlines. This gives a deep understanding of various operational and commercial priorities which also impact the decision making at the airport.
Airlines and Aviation are a part of international supply chain network. According to a report, the growth of the industry on an annual basis will be 5.6%. It is equally distributed between developed and developing country (Burbidge, 2016).
When the area comes for budgeting and tracking airport expenses, Airports are subjected to various state, country, and municipal requirements and Airlines also focus on the aspect of financial management as the opportunity lies in its improvement. For the management of airline, it is essential to maintain all aspects regarding the flight, passenger, and other details.
The managers of all airports have to follow varied responsibilities which cover everything from operations to regulations so that stakeholders can be convinced. Generally, Airline management is fully covered under automation and updated technology which eases the manager’s tasks. Also, it can be seen that the development in aviation management is rising over time with the changing concept of pricing, yield and revenue management.
In this report, two of the major strategies are being discussed which are cost leadership and quality leadership strategy and it differs from country to country. For gaining the deep knowledge, two business models are also discussed below in the report (Wittmer, et al., 2012).
The growth of airlines is continuously rising in the past few years due to the demand for passenger travel and this also increase the profitability in the industry. The new trends in the commercial aviation are the rise of premium economy and many airlines not see as a downgrade for business class but as an opportunity which helps them to achieve competitive advantage. The features of premium economy seats are the support for laptop and connectivity which help the passenger to work in fights.
Airport and Airline Management
Due to the presence of various airline in the market, the demand of the passenger is also increases and so many passengers’ demands for more premium seats and this customization need in the alteration of the hardware part of the plain like making available various USB ports, or providing PED holder.
Robot helpers are now also becoming part of the aviation management who can communicate in different languages according to the countries standing and can give right directions to the foreign passengers. Some robots are categorized into the cleaning field who keeps the airport safe. For example, Air Canada had invested into three robots to clean its aircraft and these robots are developed by a Swedish Company (Wittmer & Douglas, 2013).
Another development in commercial aviation is taking place in the form of growth of low-cost airlines. For example, Air France announced the launch of ‘youth airlines’ which offers low-cost flights to the various cities like Berlin.
- Price Management – Price management plays an important role for any airlines as most of the airline is currently working in the loss. The management needs to make a balance between various aspects like ticket pricing, service offerings, and customer perception and demand. The prices also change according to the seasons or holidays and this is the part where the management needs to focus (Huang & Lu, 2015).
- Yield Management – This is the part where the management can save cost and earn a huge variable of profit. It also attracts transfer passengers. There is also a need for making and framing various strategies related to sales and price. In every period, the management is pressurized in selling the maximum amount of seats under this concept. It is also called a pricing strategy which influences consumer behavior in order to earn the maximum amount of profits (Goals, 2012).
- Revenue Management – Most of the organizations are now thinking of reframing their management practices due to the increase in the percentage of customer spending on airlines. Some of the areas from where these ancillary revenues come are onboard food, selection of premium seats and checked baggage. It can be raised by optimizing total revenue and also by adopting a bundled model which is based on the integration of many approached (Ng, et al., 2008). The management also needs to analyze customer profile which can help in maximizing the total revenue. If the airlines focused on attribute-level customization and spread on various categories of revenues so that to build smarter RM model, then they can create a various potential infinite number of price points.
From past several years, various trends can be seen which force the airline industry to reassess their competitive position and to adopt digitization. Various emerging factors like customer needs and competition affect the management in the Airline Industry. Some of the few trends are –
- Changing the system in revenue generation by focusing on several aspects.
- Social building for attracting new customers and creating brand equity.
- Low-cost airlines.
- Focusing on Digitization.
- Competitiveness positioning by increasing the number of flights with low fares.
- Giving premium feelings to the economic class passenger.
As the airline industry is evolving by leveraging with new and updated technologies like AI for the seamless travel and the above-mentioned trends in airlines emphasis on attracting more customer new customers while retaining the old customer. There is also an improvement in the customer service from the past few decades.
In a business, everything starts with the effective strategic planning which is also a continuous process of management. In the aviation industry, the management has to make several strategies by taking our various aspects into the accounts like customer demand and profitability, market competitiveness, and latest technology operating in the market. It is a disciplinary approach for the industry or company which can make conquer in both sky and global reach. A company also have to hire various marketing professionals or experts for the framing of these plans as sometimes they are irreversible.
Cost leadership strategy – This strategy wants standardization, low prices with convenient travel. For gaining this strategy, one needs to find a cost-efficient way of operations surrounded by innovation and creativity. By cutting of various un-needful services like free meals, entertainment in flights and lounges, the company can make save high cost which they can transfer to the customer side by lowering fares. Generally, the low-cost airline does not maintain high-end relationships with customers but due to the market competitiveness, now they are balancing both sides (Josiah & Nyagara, 2015).
- Niche Carrier strategy (Focus Strategy) – This strategy is based on serving the needs of a limited market segment or customer group for the confinement of cost advantage. This helps the airlines to gain a competitive position in the market by better serving the requirements of the selected segment. Niche carrier should also try to dominate the local marker so that to earn a sustainable profit. This strategy is different from the generic strategy like cost leadership and quality leadership. Most of the airline who are providing niche services are focused on the business traveler as this segment gives them the highest profitability and the airline also serve the high product expectation of this segment (Toften & Hammervoll, 2012).
Emerging Trends in Commercial Aviation
The common business model is a framework which shows the whole path of the airline in earning a money. In general, there is 5 basic model of airlines which are used by the majority of airlines around the globe.
- Low-cost airlines
- Regional Airlines
- Cargo Airlines
- Charter Airlines
- Legacy Airlines
The idea of low-cost airlines was evolved in the United States but it was also started rapidly in Europe. These carriers focused on reducing huge cost and make people believe that they are getting the lowest fare airline. This model is price sensitive and compliances within the airline’s regulations. These carriers do not give any service to the user or charge them for any extra service like In-flight meals, baggage facility and reserve seats (Cook & Goodwin, 2008).
Regional Airline model focus on transporting the people from smaller, regional airports to larger hubs or within the nations. Generally, this is preferred by the frequent travelers and employees of larger organizations. This airline also gets various subsidies from the government so that they can always be economically viable. The operating cost is also very less in these airlines and this was transferred to the customer benefit by making low fares trips.
Cargo airlines business model are based on transporting goods over the globe by big shipping companies. These airlines generally work at night and also there is no costs are linked to the transport of passenger or people. The whole model works on the contractual basis with efficient reliability (Acar & Karabulak, 2015).
Next model is represented by the chartered airline which offers by several organizations offering holiday tours, all over the world. They have a contractual agreement with various travel agencies and the responsibility is also transferred to these travel agencies to fill the plane with passengers. This type of business model is highly dependable on various travel characteristics.
The next business model is followed by legacy airlines which have an advantage of retaining other aviation services such as managing companies at their hub airports, repairing facilities, and the catering companies.
So, these business model describes that how big is the airline industry and how an organization can make huge revenues in this industry but the only issue with the industry is the cost of entry and exit barrier (Martín & Dorta, 2009).
An airline alliance is an arrangement between two or more airline companies who agree to cooperate with each other on a substantial level. Alliances help the organization by providing marketing and branding facilities to the airlines. It also facilitates the member organizations to share the code, and arrangements of blocked space agreements to maintain the profitability of each member organization.
- It provides an opportunity for the national airlines to go global with the help of alliance members.
- It increases the burden of managing the business on the management of an airline.
- It increases the revenue of the airline on the basis of per seat/mile
- The frequent flyers of the other networks can be attracted towards the member alliances.
- The airlines are able to use to resources of each other in order to provide high-quality service to the customers
- Cost saving due to the joining hands of member airlines and using the facilities of each other (Commission, 2016).
Strategic Planning in the Aviation Industry
Warren Buffett had a view about this industry and said that this is a death trap for the new investors and new entrants. But on the basis of the findings and understandings of the concepts, it is clear that his view has not proved right as this industry is providing profitability to the existing as well as the new entrants also.
The aviation industry has adopted many changes after 1989. The major change incudes the introduction of alliances, making strategies based on customer satisfaction instead of profit maximization, providing high quality services at low rates, increase number of customers and customer awareness about the airline services etc. These all changes enforces the investors to invest in this industry.
Strategic reasons are those factors which helps a company or organization to frame its strategies. The main strategic reasons of the airlines are provide better customer experience, maintain current financial position in the changing scenario of the business, to work as per the international and national regulations and implications etc. These reasons covers the aspect of direct financial return but has the main focus on the sustainability of business in long run.
Conclusion
On the basis of the above study, it can be concluded that the aviation industry is continuously developing with the help of new technological advances. However, it has been changed a lot in past three to four decades but still, it is growing faster in comparison to any other industry in the present scenario. It has become a need for the economic growth at the international level. The opinion of Warren Buffet has also proved wrong which can be seen by analyzing the drastic changes in this industry in recent years. The study also concluded that in the present scenario most of the airlines are using cost leadership strategies with the help of alliances. Alliances are the newly emerging concept of the market that is proving beneficial to the firms and hence it is becoming famous also. The report also summarizes some key features and advantages of this concept. Along with this, some new emerging trends of the aviation industry and their implications have been discussed to show that this industry is progressing towards a better and profitable future. The entire report is being prepared on the basis of authorized sources of information so that a true and fair view of the industry can be explained in an effective manner.
References
Acar, A. Z. & Karabulak, S., 2015. Competition between Full-Service Network Carriers and Low Cost Carriers in Turkish Airline Market. Procedia – Social and Behavioral Sciences, Volume 207, pp. 642-651.
Burbidge, R., 2016. Aviation climate resilience: clarifying the impacts and identifying the barriers. International Journal of Aviation Management, 3(2/3), pp. 88-104.
Commission, E., 2016. Annual Analyses of the EU Air Transport Market 2016. [Online] Available at: https://ec.europa.eu/transport/sites/transport/files/2016_eu_air_transport_industry_analyses_report.pdf[Accessed 4 August 2018].
Cook, G. N. & Goodwin, J., 2008. Airline Networks: A Comparison of Hub-and Spoke and Point-to-Point Systems. Journal of Aviation/ Aerospce Education and Research, 17(2), pp. 51-60.
Goals, L., 2012. Yield Management. [Online]
Available at: https://www.economist.com/babbage/2012/02/28/lofty-goals
[Accessed 4 August 2018].
Huang, K. & Lu, H., 2015. A Linear Programming-based Method for the Network Revenue Management Problem of Air Cargo. Transportation Research Procedia, Volume 7, pp. 459-473.
Josiah, N. M. & Nyagara, N. I., 2015. Assessment of the effect of Cost Leadership Strategy on the performance of Liquefied Petroleum Gas Companies in Eldoret town, Uasin Gishu County, Kenya. International Journal of Business and Management Invention, 4(4), pp. 1-17.
Martín, J. C. & Dorta, A. V., 2009. A note on how to measure hubbing practices in airline networks. Transportation Research Part E, Volume 45, pp. 250-254.
Ng, I. C. L., Maull, R. & Godsiff, P., 2008. An integrated approach towards revenue management. Journal of Revenue and Pricing Management, 7(2), pp. 1-18.
Toften, K. & Hammervoll, T., 2012. Niche marketing research: status and challenges. Marketing Intelligence & Planning, 31(3), pp. 272-285.
Wittmer, A., Boksberger, P. & Gerber, A., 2012. The future of ancillary service fees in air travel – an exploratory investigation of budget air travelers. International Journal of Aviation Management, 1(4), pp. 231-241.
Wittmer, A. & Douglas , I., 2013. Challenges in Aviation Management and Regulation. International Journal of Aviation Management, 2(1/2), pp. 1-115.
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