Executive summary
In this paper, our main focus was on airline industries and how it is being managed. The point of interests was on the challenges that are being faced in the industry and what the concerned authorities are doing to solve the problem. From the discussion we discovered that the areas of challenge in the industry are costs of establishing and maintaining it, unpredictable weather conditions, security issues and frequent changes in technology.
All this issues have either made the airlines spend more money on maintenance or loose some of their trusted clients (Goeldner, 2000). As a solution most airlines opted for mergers which have proved to be a profitable move. By entering into mergers, the company is able to venture into other development activities that enable them earn extra money for development. They are also able to effectively counter attack the challenges that come with the industry. As many companies have entered into merger, there are still others that are finalizing their merger business and others making it a top consideration.
Introduction
The need for air transport which is considered to be the fastest means that can be used to travel between regions has also led to an increase in its demand. Compared to the past when there were fewer airlines, the current economic world has realised an increase in the establishment of airlines to meet the demands of the day. Some decades ago, airlines were public corporations which led to a control in the number in which they could be established.
It was however deemed necessary for the entities to also be privatised because the need was also arising (Lelieur, 2003). Air transport was not common in the past and was only favourable for people of a certain class who were capable of affording it. However, modernization and improvements in the field of technology has made air transport vital for everyone. As demand for air transport increased, there was also an increase in supply which reduced its transportation costs substantially. As the number of airlines increased, some that could not keep up with the competition closed down as others looked for clever ways of counter attacking it.
Many resolved to enter into mergers and acquisition, a practice that has become common in the airlines industry. In this paper, we take a critical look at the challenges that are being faced by the industry and the different strategies that are being employed to counter the same.
Challenges of air market
Cost
Air market is not an easy industry to manage compared to other business establishments in the world. It involves a specialized kind of staff to manage its activities and also invest in sophisticated machinery and equipments. The technology that is uses to manage its activities is unique and hence requires heavy investments. The industry needs a huge amount of starting and operating capital for its activities to run effectively.
Most companies that may invest heavily in the industry may get disappointed when their trading activities are not generating them enough capital to pump back into the business. Most of the employees of the industry are so demanding due to the specialized skills that they have (Doganis, 2006). This has hence not made it easy for most airline industries that have not received adequate customers. Airlines also require a large space to run its activities, getting a convenient place to establish an airline is not easy or cheap. They hence have to part with a big amount of money of which they may not be sure whether it will be recovered.
Due to a lot of demand for land in the urban centres, they may not be able to get a considerable size even if they were ready to part with such an amount. Available spaces are in remote areas where they will not be guaranteed of customers.
Leasing an aircraft is not easy, let alone buying it, the expenses of obtaining such may be unmanageable unless the company is assured of the frequent flow of customers. This is never predictable as most of the frequent clients of airlines are business tycoons who form a small percentage. Other promising customers are usually tourists, students and government officials who travel seasonally. There are hence specific seasons of the year when the airline industry is assured of a regular flow of customers. Airlines also have to be involved in frequent training of their employees to be at par with the changes that are taking place in the field of technology (Derdak, 1996).
This will serve as a procedure that will ensure that they don’t loose customers due to the use of outdated technology. This is an area that also requires a good substantial of money. It is an ongoing procedure which also requires the company to set aside a regular amount to cater for the services.
Security
Security has been a major drawback that has been of great challenge to the airline industry. This is a factor that makes customers to prefer certain airlines and choose not to travel with others. Even though there are security measures that are observed at the airports, technology is making such measures unworkable. People in form of travellers smuggle dangerous equipments into the planes which they may use to hijack or scare passengers.
Increased terrorist threats have also been a major security issue to airlines which has made them to invest more in information technology. With developing technology, it may never be easy for them to know the next strategy that may be used by the terrorists to attack planes or airlines. U.S airlines and other plane plying the rout have been the major targets for the terrorist; this has cause a lot of phobia among passengers who resolve to reduce on the regularity of their travels (Wall, 1980).
This affects the passenger turn out at the airlines especially when a certain rumour of an attack has been reported. This in turn affects the amount of profit that is generated by the airlines. For passengers to embark on their travelling plans, they need a lot of assurance from the airlines that they will be safe through their journey which is not an easy thing.
Weather
Unpredictable climatic conditions have been a major drawback to the airline industries. Airlines mostly depend on the reports that they receive from the readings on the satellite which may not be reliable. Activities of man have made it difficult to predict the whether as it keeps changing on a regular basis. There have been instances when flights have been delayed or cancelled due to bad whether conditions. This has coasted the airline industries that have to compensate the affected customers. In case of long delays, they are also obliged to provide accommodations and at times food for the customers as they wait for the climate to change.
Some customers that may cancel the flight will make the planes to fly almost empty which does not in turn minimize on their travel costs. A flight may also be encountered by unpredictable climatic changes while it is in the sky, this may tamper with ground communication which may cause a lot of panic among the passengers. Taking care of a bunch of scared individuals in the sky is not always an easy task for the aircraft crew considering the dilemmas that they are also faced with. Some customers that may not understand the cause of such breakdown may blame it on industry and hence vowing not travel with it next time.
Technology
Changes in technology have also been a major challenge to airlines. They can not always rely on a similar technology at all the time no matter how recent it is and the amount they used in making such an investment. They need to be at par with the frequent changes and apply them accordingly to manage the tight competition. Aircraft passengers are so sensitive to technology and will be attracted to industries that use the most recent technology.
Investing in a newer technology every now and then is not a cheap exercise which is making the industries to incur more in operating capital. As technology changes, the industry has two options at their expense (McIver & Jackson, 2006). One is to train their employees to adapt to the same and two is to employ individuals that are skilled in it. Technology in itself may not be a guarantee as it is faced with certain hitches that can cause communication breakdown.
Most customers resolve to online services that need to be frequently upgraded and updated by the company. Any hitch in this area even for one minute will make a potential client to try out on another reliable online service. Technology has also made customers to have a wide variety of options to choose from which has denied most of the ancient airline industries their loyal customers. They can easily identify some of the existing airlines and compare prices and services. They will hence resolve to economical airlines.
Remedies to the challenges: merger
Merger has been considered to be the best solution that has been adapted by the airline industries. There are many airlines that were established when the government gave licences to private entrepreneurs. There was a lot of demand at the moment that made many organisations to invest in the same. However, as the days went by, they realized that it was not an easy business to invest in. There was a lot of competition that send most airlines to be almost idle (Botten, & McManus, 1999).
This was due to lack of maintenance cost or simply because they were located in areas that could not be accessed by clients. Since they had some of the equipments that were required to run the airline, they decided to merge with other airlines to boost their performance. Merger has been considered to be the best alternative as it involves merging of recourses and skills which is required for good performance. It enables the merging companies to have the ability of maximizing their resources and hence providing their clients with high quality services.
Merging also helps the airlines to use lesser human resources and increase their productivity. They will use the experiences that they have had in their various services and be able to maximize on their activities. They are also able to bring in different ideas basing on their experiences, this enables them to avoid making some mistakes that they probably made in the past and avoid them (Schilling, 2007).
They are also able to adapt the most workable strategies that enable them make informed decisions. As they merge, they also merge their stakeholders and thus being able to grant them reliable services. They are also able to venture into other development activities like establishing aviation schools which enables them to generate more income for expansion. Most airlines that have resolved into mergers have been able to record a substantial growth (Rhoades, 2003).
Conclusion
The airline industry was a booming industry shortly after the activities were privatized. It was considered to be a good investment project considering the good profit it was generating. Everything changed abruptly when more companies ventured into the industry. There were more airlines than were actually required which made them to reduce on the airfares to manage the competition (Clark, 2007). Reducing on such charges was making the companies to experience even more losses considering the amount that was needed to manage them. Some airlines were also located in areas that were not frequently visited and hence being idle.
The companies hence decided to partner in their efforts to maximize on their resources and also improve on their earnings. So far most companies have merged and there are still others that are considering going the same way.
Reference List
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