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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.
1. Strategies adopted by airport planners to deal with increasing dynamic airline network
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:-
- Simple products:- According to this element, passengers may demand extra facilities by paying charges as per their requirement for example; food is served on immediate order, planes with flexible seating without having any other services instead of basic needs.
(Source :- De Groote, 2005)
- Positioning:- As per this component every persons haver their services according to their
- Minimum operating prices.
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:-
- Problem regarding capacity.
- Minimization in average price.
- Regulation and control on costs.
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:-
- Air Berlin :- Acquired DBA in almost 2006, LTU in nearly 2007, LGW, Belair.
- British airways and Iberia:- In approximately 2010 both these companies comes together for merger and become “International airline group”.
- US airways :- Begins as “All American aviation company” in around 1938 and later on in almost 1957 their name was changed as “Allegheny airlines”
- Trans world airlines:- Initially started as Western air express and around 1927 Maddux was founded or so on.
- South-west airlines:- In almost 1985 acquired Muse air, around 1993 merge with Morris air, later on gain few assets of bankrupt ATA airlines (Franke and John, 2011).
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:-
- Strategic scope :- This term shows the demand as well as assessed the size of target marketplace
- Strength:- It highlight the overall power or potentiality of a firm and throw light on supply dimension which seems as a core competency.
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).
2.Challenges and opportunities faced by airline industry
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:-
- Fuel factor:- Price or charge of a fuel is one of the biggest topic which is faced by aerospace industry in today's advanced world because entire profit or success of this sector is depend on this. It means there is a inverse relation between supply and price of fuel because if there is decrease in supply then fare may get higher but if supply get increases then there is no affect on price. Therefore, it has been identified that there is major connection between stock of airlines and on prices of crude oil. For instance, Singapore aircraft has already announced that fare of fuel is consider as major challenge for entire aviation industry (Hares, Dickinson and Wilkes, 2010). Apart from this non governing companies such as jet blue and British airways have number of other barriers on which they need to focussed as charges of oil remains high in their list.
(Source:- Diesel fuel prices, 2017)
- Competitiveness:- Due to increment in customer demand, various firms wanted to extend their business which resulted in emergence of numerous of airline companies as well as joint ventures (Liou, 2012). Therefore, due to introduction of new brands at a European market maximize the level of competition. In fact if there is any alteration in GDP then it automatically reflected in costing of fuel. However, most prominent example of competitiveness is IAG and Iberia because it influence strategies of an organization.
- Over capacity:- With the help of survey number of airlines companies like TWA have already quit this business due to overcapacity and they are struggling to cope with continuous changes. Thus, as a result of this component aircraft is suffering from number of problems like rock bottom fares, something which may delay flights etc. and these issues directly influence revenue of an organization.
- Introduction of low cost carriers (LCC):- Problems occurred to those operators who are gaining benefits from this model due to strikes or protest by employees of air France.
- Labour unrest:- Last but not the least, employees are consider as a valuable or most significant asset for corporate world because task and activities are managed by them only. Therefore, sometime airline industry suffered obstacles due to walkouts of pilots, termination of air hostess and other employees whosoever is performing their job for organization.
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-
- Competition in aerospace sector:- Contention increases due to difference in fare pricing, services, long or short routes and schedules of flights. In fact, in airline industry number of rivalry is taking place between various competitors for example; Jet blue is going to withdraw their services or offering from Atlanta and New York after emergence of Delta aerospace and American aircraft due to price war (Namukasa, 2013).
- Political and economic issues:- Modification in government policies, norms, values, rules and regulations create problems for companies while operating their functions and management.
- Safety and security:- Management of airline industry needs to make impressive plans or policies for protecting passengers from terrorist attacks or aerospace accidents. Therefore , number of reputed companies like British airways make safety measures by appointing skilled labours and required to conduct training sessions before taking off of flights.
Internal:- Elements that influence industries within the corporate world falls under intrinsic ; these are explained below:-
- Management of airline:- Direction of ownership, proper allocation of resources and maintenance of sessions of aerospace fleet.
- Labour management:-Related with employee training and managing of workers.
- Requires to follow appropriate strategy by maximizing frequency of flights.
- Maximize the usage of internet services for reducing sales and dispersion costs.
- Encourage towards utilization of advanced technology like baggage handling.
- Charge for additional benefits.
- Major threats which is faced by entire airline industry is increment in competition.
- Rising in price of fuel.
- Economic issues or safety measures (Sheldon and Park, 2011).
- Maximum supplier minimize the options as well as availability of airlines.
Hence, it has been understood that these above challenges and issues are faced by aircraft industry.
3.Asses the response of airline industry towards competitive environment
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:-
- LCC(Low cost carrier):- First and foremost techniques which is utilized by this sector is that they introduce this model to deal with different situations by lowering the price of flights by removing additional benefits. Along with this, they offers other services by additional charges during journey and try to satisfied their customer in more appropriate way (Weaver, 2012).
- Merger and acquisition:- Making collaboration with another companies is another tool of surviving in a competitive marketplace which helps both the organization in minimizing their business risk. Basically merger is a technique in which two companies come closer for making a joint venture.
- Modification in current policies:- Industry need to alter their plans or strategies and facilitate their customers as per their demand or requirements (De Groote, 2005.Paul, 2017).
- Usage of advanced technology:- According to this factor they need to adopt modern equipments for completing their task in more efficient way for example; introduction of online bookings, instant reply by mails, immediate payment by paytm etc.
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]