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The events occurring outside the boundaries of business organizations bear significant influence not only on their growth and survival, but also on their competitiveness and appeal. The reading demonstrates how such external events have had a substantial impact on Air Canada despite the fact that it still controls the majority of the domestic market.
This analysis aims to demonstrate some of the alternatives that Air Canada can attempt to digest as it looks for viable ways to circumvent the myriad of constraints brought forth by changes occurring in the airline’s external environment.
It is enviable to note that Air Canada’s major constraints revolve around issues of uncertain operating environment (e.g., major spikes in fuel costs; global recession), stiff competition from local, regional, and global players, unfriendly government regulations, and, finally, the vagrancies of weather. Consequently, the alternatives discussed below will center on how to resolve these issues.
Comprehensive Forecasting and Planning
As has been suggested in the reading, the airline’s business is always extremely complicated by virtue of the fact that it is shaped by an intricate web of relationships involving many stakeholders. One dysfunctional cog in this intricate web implies that the whole system will be affected, most probably in a negative way, if adequate proactive measures are not applied to counter the challenge.
Consequently, Air Canada should use its previous and current experiences in environmental uncertainty to predict the future course of the environment and plan appropriately to diminish its unfavorable impact. For example, based on the current trajectories of fuel cost, the airline can forecast future costs and plan ahead by hedging fuel with major oil companies and distributors for its future use.
Hedging fuel will imply that the company buys the fuel it will consume in the future using today’s prices, but the fuel will be delivered over the long-term. However, this kind of arrangement requires careful forecasting and planning. Additionally, forecasting and planning will allow the airline to have a glimpse of the global financial trends and allow for proactive responses to critical variances such as financial crisis and recessions.
Fostering Alignments & Route Integration
Owing to the extremely complicated nature of the airline business, along with the high level of competition involved, it would be plausible for Air Canada to continue fostering alignments with other regional and global airlines not only to reduce operating costs but also to expand its presence.
From the reading, it appears that the alignments which Air Canada has had with regional partners (Jazz) and global players (Star Alliance) have began to pay dividends, and the route integration effort with other players, including Continental, United, and Lufthansa, has been critical in enabling them to create the transatlantic segment and secure the route from competitors.
Consequently, fostering alignments and route integration represent a practical approach through which the airline will be able to beat stiff competition and remain afloat in these turbulent times. Of importance to note here is that the creation of more inter-organizational alliances will enable Air Canada to share resources and collaborate with other regional and global airlines in a bid to control cost and minimize risk.
Securing the Domestic Market
Air Canada should rally behind a philosophy that underlines the fact that the domestic market is as important as the international market. Although it continues to control the majority of the domestic market, its share is at stake due to stiff competition from Westjet and a host of smaller players.
It is proposed here that the best alternative to win over the domestic market is to operationalize a business strategy of low-cost fares to effectively compete in the low-frill, budget travel segment. It is a well-known fact that Westjet successful business model was structured around the capacity to provide travelers with low-cost fares, a model that Air Canada could adopt and possibly refine and redefine to stump its foothold in the domestic market.
Dealing with Local Government Regulations
Although the Canadian government has been instrumental in assisting Air Canada to venture into European gateway markets though it’s various agreements with the European Union (EU), it still stands accused of making it impossible for the airline to become profitable due to its exorbitant security charges, airport improvement fees, and fuel excise taxes.
It is suggested that Air Canada should streamline its operations in Canada to reduce overhead costs as it is often strenuous to circumvent government regulations due to their universalistic nature. As such, the best solution would come from the airline’s internal environment – reduce operating costs.
Investing in Insurance
It is always a tricky affair to deal with the vagrancies of weather as it is equally impossible to forecast some weather-related uncertainties such as the April 2010 volcanic eruption in Iceland, which caused massive flight cancellations and subsequent slump in profits for many global airlines. Due to the nature and scope of this type of environmental change, it is suggested the Air Canada should consider insuring its fleet for weather-related vagrancies to minimize loss in such an eventuality.