Merger is a corporate strategy in which two companies are come closer for making a joint venture and seen as a single enterprise at marketplace in order to improve their financial situations or to enhance operational strength (Grosbois, 2012). Now-a-days this policy is adopted by 'n' number of association due to various reasons such as; to reduce their business risk, maximization in profit, financial support etc. Therefore, it has been observed that in airline industry numerous of mergers are taking place for overcoming challenges or threats which is faced by them. British airways is a second largest airline company in UK and later on it merged with Iberia, creating “international airlines group (IAG)”. Hence, this assignment is going to identify various challenges and threats encountered by aviation industry while operating their business.
Overview of industry:- Aviation sector of UK is consider as a fourth largest national airline industry across the globe as well as third largest in European market by having almost 6.4% global market share in 2016 (Belobaba, Odoni and Barnhart, 2015). In fact number of domestic airline companies are emerges in British aerospace industry for example; Hybrid Air vehicles, Rolls Royce (Worlds second largest innovator of defence aero engines) , Britten-Norman, Cobham, GKN, British airways etc. Basically, UK aircraft sector has made many more significant contributions in the chronicle stories because they are solely liable for growth and introduction of first plane by having enclosed cabin.
Thus it has been identified that its not easy to survive in this competitive world due to increment in complex airline network; thus to deal with these kind of problems entrepreneur of aerospace companies requires to adopt effective strategies. Thus, two major schemes which is utilized by British companies of aerospace sector are explained as follows:-
Low carrier model:- In the starting of this era, aircraft companies are trying to identify different concept of flying and techniques for capturing attention of customers. Therefore, in order to adopt something new, managers of an organization go for “low cost carrier” (LCC) in which there is absence of foods, frills, drinks, spacious seats but charge a very minimum fare. After introduction of this tool, competition increases between full services aircraft and LCC and later on it become a major issue in this industry as well as have a greater impact on a entire sector or European market. However, not every low cost carriers get succeeded in bringing benefits, only few of leading operators are capable in earning consistent level of returns on their investment due to their effective planning.
Origin of LCC:- Initially, this technique is used in around 1949 at United states and after that “Pacific south-west airlines” became a benchmark in aerospace industry. In today's world “south-west airline operating” which was started with small “Texas airline” named when it was established but later on this organization developed to become one of best aviation company in united stated by having almost 3100 regular flights in almost 62 cities and registers nearly 80 millions customers in a single year (Cowper-Smith and de Grosbois, 2011).
Significant features of LCC model :- This strategy is growing in a fastest way due to its simplex process with full of additional facilities on extra charges. Most of the successful and well settled companies are using this technique for increasing their sales in a minimum time period as well as trying to gain customer trust. Therefore, useful or different features of LCC model are expressed as follows:-
(Source :- De Groote, 2005)
After analysing all the essential facts or figures about this model it has been identified that, company using this tool have to face few challenges which have a greater impact on their success or return (David, 2011). Therefore, Doganis had observed four different issues of low cost carrier which are described below:-
Instead of LCC model another strategy which might be used by aviation industry to control their business risk is merger technique by which an individual company may create a collaboration with another organization.
(Source:- Paul, 2017)
As per above diagrammatic representation it has been observed that fuel and labour is most important component for airline industry as compare with other elements.
Major examples of merger in all over the world are shown below:-
All these above are seen as a famous mergers which was occurred in past and believes in further collaboration for attaining maximum benefits by attracting millions of domestic as well as foreign passengers. According to these companies mergers is an appropriate method or strategy for overcoming issues or problems which helps in reducing obstacles which was faced by aviation industries during their business operations.
However, aerospace companies have also another option or tool for reducing their visible and invisible issues that is; Porter's competitive strategy model in which scholar has described three different kinds of schemes which are mostly used by other businessmen. Therefore these strategies are detailed as follows:-
At the end it has been understood that airline industry have various choices for overcoming their challenges and appropriate strategies to deal with maximization in network (Giannetti and Laeven, 2012).
Energy is a very indispensable or significant for human life because without this modernization is not possible. After 19th century demand of fossil fuel increases day by day due to maximization in usage. However, fuel have a greater impact on life of the individual, climate, entire surroundings, geographical area, animals etc. but the major fact is that survival without fossil fuel is not possible. Hence, “Aviation industry” is an appropriate example of this element because this sector is entirely depend on fuel and its presence. Along with this, around 30% of the overall cost of aerospace companies are incurred in kerosene. Therefore, aerospace industries are going through various challenges or issues while operating their business (Hall, 2010). Thus, these are highlighted as follows:-
(Source:- Diesel fuel prices, 2017)
Instead of all these above various factors are present which creates problems to airline industry during operational management are detailed below:-
External:- Components which affect company from outer world are comes under this category; these are-
Internal:- Elements that influence industries within the corporate world falls under intrinsic ; these are explained below:-
Hence, it has been understood that these above challenges and issues are faced by aircraft industry.
Competition increases day by day due to emergence of number of companies in airline industry for earning maximum benefits. Along with this, few organizations is going to make coalition of two enterprises due to number of reasons like; to reduce financial problems by increasing shareholders, share business risk or liability, to generate maximum revenue in a minimum time period. Basically, various aviation companies response competitive environment in their way and act according to the situation by coming up with various strategies in current economic conditions.
Aviation industries responded in various ways which are explained as follows:-
Hence, as per survey of international air transport association it has been observed that aerospace is increasing day by day by bringing various ideas of dealing with difficult situations.
(Source:- Davitt, 2015)
It means, employees of this companies trying to make plans or strategies to overcome barriers which create problems during management of entire association. In fact due to the lowering of crude oil price have a greater impact on a revenue of industries because overall success is depend on fuel. However, various companies are trying to respond in their way as per situation by considering relevant facts and figures as well as by collecting accurate information or data which is used by companies during decision making process (Davitt, 2015).
From the above project it has been summarised that airline industry growing very fast by coming up with different ideas of serving people in more efficient way. In fact, aerospace sector is growing in a fastest way due to increment of demand which have a greater impact on minds of firms and it resulted in a introduction of more facilities. Main objectives of this assignment is to express highlight major drawbacks, benefits and problems which was faced by various airlines while operating their business. Therefore, fuel is identified as a major challenging factor as overall success or revenue is depend upon this only. Hence, project covers accurate information about all the relevant facts and figures which are linked with aviation industry.
Books and Journals
Grosbois, D., 2012. Corporate social responsibility reporting by the global hotel industry: Commitment, initiatives and performance Journal of Hospitality Management.31(3).pp.896-905.
Belobaba, P., Odoni, A and Barnhart, C. eds., 2015. The global airline industry. John Wiley & Sons.
Cowper-Smith, A. and de Grosbois, D., 2011. The adoption of corporate social responsibility practices in the airline industry. Journal of Sustainable Tourism.19(1).pp.59-77.
David, F.R., 2011 Strategic management: Concepts and cases. Peaeson/Prentice Hall.
Franke, M. and John, F., 2011. What comes next after recession?–Airline industry scenarios and potential end games. Journal of Air Transport Managemen. 17(1).pp.19-26.
Giannetti, M. and Laeven, L., 2012. The flight home effect: Evidence from the syndicated loan market during financial crises. Journal of Financial Economics.104(1).pp.23-43.
Hall, C.M., 2010. Crisis events in tourism: subjects of crisis in tourism. Current issues in Tourism.13(5).pp.401-417.
Hares, A., Dickinson, J. and Wilkes, K., 2010. Climate change and the air travel decisions of UK tourists. Journal of transport geography.18(3).pp.466-473.
Liou, J.J., 2012. Developing an integrated model for the selection of strategic alliance partners in the airline industry.Knowledge-Based Systems.28.pp.59-67.
Namukasa, J., 2013. The influence of airline service quality on passenger satisfaction and loyalty: The case of Uganda airline industry. The TQM Journal.25(5).pp.520-532.
Sheldon, P.J. and Park, S.Y., 2011. An exploratory study of corporate social responsibility in the US travel industry. Journal of Travel Research.50(4).pp.392-407.
Weaver, D.B., 2012. Organic, incremental and induced paths to sustainable mass tourism convergence. Tourism Management.33(5).pp.1030-1037.
Davitt, 2015. [Online]. Available through<https://www.moodiedavittreport.com/lower-oil-prices-economic-growth-and-passenger-demand-buoy-airline-profits/>[Accessed on 2nd November, 2017]
De Groote, 2005. [Online]. Available through <http://www.lboro.ac.uk/gawc/rb/rb174.html>. [Accessed on 2nd November, 2017]
Paul, 2017. [Online]. Available through<https://people.hofstra.edu/geotrans/eng/ch3en/conc3en/airlinecosts.html> [Accessed on 2nd November, 2017]
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