The Airline Industry: Strategy as Action Research Paper

Abstract

The airline industry is one of the lucrative but very risky entities to undertake. When well planned, it leads to the high returns on investment. But it is a very risky entity because the cost of pulling from the business is very high. Therefore, the business requires the management to come up with a very good strategy to achieve the goals of the organization. The very the challenges issues in this sector are the environments that management has little or no control.

Introduction

An organization has both the internal and external environment that directly or indirectly affects its operation. It’s therefore important for a strategic manager to analyze these environments to know the position of the firm. The Analysis is based on the SWOT (strength, weakness, opportunity, threat) analysis. Strength and weakness are internal environments while the opportunities and threats are external environments. These are beyond the control of the firm. External environment are divided into remote, industry and operating environment.

Remote environment is made up of factors that originate beyond and irrespective of any single firms operating situation. They include economic, political, social, technological and ecological factors.

Industry environment deals mostly with the nature and degree of competition in an industry that mostly originates from forces such as:

• Threat of new entrants
• Bargaining power of suppliers
• Threats of substitute products
• Jockeying for position among contestants, and
• Bargaining power of customers

Operating environment is also known as the competitive or task environment. It comprises of factors that affects a firm’s success in acquiring needed resources or in profitably marketing its products. These factors include a competitive position, customer profile, suppliers and creditors and the nature of labor markets.

Jet Blue Airlines

Vision

“To be an airline that guarantees quality services and safety to customers.”

Mission

To ensure maximum returns on the investments through;

• ensuring maximum cooperation with employees
• putting customers needs first
• participating in social responsibility

Long term Objectives

• To be the leading and safest airline industry.
• To be the best customers’ care service provider in the continent.

Environmental analysis

“… environments do not control people or organizations by enforcing certain types of response as positions might argue instead what happens is that people construct images of their environments and then respond to those images as though they were a controlling influence,” (Holloway, 2003, p5). In airline industry as any other business, despite the many expectations from both the external and internal stakeholders, the most important objective is profit maximization. Therefore although the other factors such as conflict and politics in the organization cannot be ignored, the main objective of the organization (as an individual) has to be considered.

Political influence on airline industry arises for instance from globalization. According to Joseph A. Clougherty (The Journal of International Business Studies, vol. 32, 2001),

1. globalization undermines domestic airline competition policy autonomy,
2. Government institutions mediate globalization’s impact.

Globalization and increased privatization in the public sector has lead to an increased competition in the airline business. Since the privatized companies do not depend on the government for it’s financing, they now have to put on mechanisms like the other private industries to be on the competitive business In such cases, “success or failure, employment or unemployment will depend on the joint efforts of employees and management,”(Dogain Rigas 2006, p. 235). In many cases the government being majority shareholders of the public airlines it imposes obligations that bring an effect down to the private sector. The effect might be either positive or negative depending on the situation.

In the privatized scene, the government might bring onboard professional management with clear business aims and assure them of free political interference. This will also mean changing the means of management style whereby management decision are devolved to senior managers and middle level managers. In such a case the once public airline will end up having a boom in the business sector increasing the competition in the other private sectors.

“The airline industry is a paradox. In terms of its operations it is the most international of all industries, yet in terms of control it is almost exclusive national,”(Dogans Rigas 2006, p 22.). The industry is the most highly regulated in terms of economic technical and safety measures. The economic regulations spurs effects on the issues such as market entry pricing policy and output decisions. Thus, this has an increased competition in the industry. Due to the failed minimal regulations on the airline sector, the three pillars that are in control of the sector are bilateral air services agreements(ASAs), the inter-airline commercial or pooling agreements and the tariff fixing machinery of the International Air Transport Association (IATA).

In general, these pillars have an effect which is beyond control of JetBlue airlines. This is more so because for instance the ASAs agreements are between governments and not airlines. Therefore, the government will decide on issues such as tariffs to be paid at each point whether on aircraft spare parts, airports charges etc. Other decisions also include number of aircrafts to be designated to a certain country and routes to use. If the decision is not in favor of the industry, then there is bound to a problem in the sector.

With the Inter-airline pooling agreement, it’s main purpose was to allow for the airlines to share the revenues generated on routes they served depending on the seat capacity each offered in that market. The issue of revenue sharing has been very complex and at a time reduced competition as the airline could have found itself giving unlimited funds to the other because the agreement was open ended. With time, there has developed bilateral agreements where by an airline is allowed to purchase rights from one airline by paying royalties.

In the industry environment, Porters model brings in the analysis of buyers and suppliers bargaining power, threats of new entrants, threats of substitute products and the overall industry rival.

The main aim of the airline is profit maximization. Profit will only be maximized if the customers feel satisfied and thus have as many customers as possible within our airline. The customers in the firm will include the individual flyers and corporations. Corporation flyers have substantial bargaining power and because of their enormous purchasing will get a lower price. Though individual flyers won’t receive this kind of leverage, they will be able to benefit from full information and low switching costs from the airline. The pricing information will be obtained from the internet; while switching costs can be relayed to the customers through flyer programmes and advertising.

The other issue in the industry environment is substitutes. “Amtrak’s rail passenger service carries many customers in the eastern corridor Washington- Philadelphia, New York, and Boston – and is considered a viable alternative to flying,” (Curtis, Ken & Hun, 2005 p56). This has become threat to the short flight within the region. The development of teleconferencing has also become a substitute some of the business travels.

With the operating environment, there stiff competition expected from airlines that have solidified their positions in the industry. For instance, Virgin Atlantic is entirely a long haul airline. It has an advantage of being based in London, a place that many of the air travelers originate. “Airlines such as British Airways, based in London, Air Force in Paris or Cathay Pacific in Hong Kong are especially well placed….”(Rigans Dogans,2006 p 265). All these Airlines have established themselves in long haul services. Therefore to take a competitive position that will enable JetBlue airlines to be also in such competitive environment, we will under take the strategy of mergers with other airlines. This will ensure reduction of other serious players while strengthening our positions in the markets, hence market, power and lower operating costs.

Looking at the labor market of the operating system, the labor market mostly determines how the work will be done. Because of the unionsable of the employees, the regulations ties down competition in the industry. Thus to ensure that the staff is offering a good service to the customers, the rule of the union will be followed. This will also include following the concept of crew resource management (CRM), threat and error management (TEM) as well as risk management training. Due to the union’s activities, there is an increased cost in the firm because of rent shifting and creation.

Since most of the regulation rules have been abolished, there is an increased competition of pricing in the industry. Therefore, to beat other competitors, the best strategy to use is to increase quality service to customers instead of engaging in price competition.

Conclusion

As far as the business environment is concerned the art of cut throat competition is coming to an end and the art of strategizing for business success taking place.

To therefore set up a business that is concrete and more successful in the society it is a matter of proper planning, forecasting, customers capture and objective setting that will ensure success in the business world.

Works Cited

1. Grimm Curtis. M, Ken G Smith, Hun Lee: Strategy as Action: Competitive Dynamics and Competitive Advantages; ISBN 01951161440: Oxford University Press, US, 2005.
2. Holloway Stephen; Straight and Level; Practical Airline Economics; ISBN 0754619303; Ashgate, 2003.
3. Doganis Rigas; The airline Business: ISBN 0415346142: Routledge, 2006
4. Dismukes Key R, Benjamin A. Berman, Loukia D. Loulopoulos; The Limits of Expertise: Rethinking Pilot Error and the Causes of Airline Accidents; ISBN 0754649652; Ashgate 2007.
5. People James: Regulatory Reforms and Labor Markets: ISBN 0792380657; 1998.