Sunshine International Airline is a public limited company which has been in operation for fourteen years having been established in 1996. The firm’s headquarters are located at Anytown in the United States. Over the past decade, the firm has had superior performance within the U.S. airline industry. The firm was established with the objective of capitalizing on the gap that existed in the airline industry with reference to low cost carriers. In addition, demand for air travel in Anytown was increasing. Over the past few years, the U.S. airline industry has been chaotic. As a result, it has become paramount for firms operating within the industry to develop efficiency in their operation. This will play a significant role in the survival of the firms as going concern entities.
Outline of approach
The management has decided to prepare a five year corporate plan for the airline business, to help it stay competitive in the industry. The outline of approach that has been adopted by the company is that of taking the techniques for the five year plan, as the central issues affecting the operation and competitiveness of the airline industry, and describing what they entail. Secondly, it will look at the problems associated with these techniques, or what challenges face them as of now (currently) that requires to be re-looked at. Lastly, it proposes possible solutions that will be instituted in the airline business so as to mitigate the current problem(s) in these techniques, over the next five year period, and a brief conclusion for the same. The purpose for this kind of an outline is to help the airline (Sunshine) in developing strong tactics to be able to operate and remain competitive in the airline industry.
Strategies/Techniques in the context of outline of approach
Understanding customer demands
For the firm to survive in the long-run, it is paramount for the management team to integrate the concept of customer centric. Tseng and Piller (2003, p.7) define customer centric to include the process through which all the firm’s operations are aimed at delivering value to the customers. By being customer centric, Sunshine Airline Company will be able to utilize its resources optimally. In addition, efficiency in resource utilization will culminate into the firm maximizing its returns. This is due to the fact that the services delivered by the firm will result into a high level of customer satisfaction.
The major problem with the customer demands and expectations has been the fact that there have been a lot of generalizations in the airline industry (Doganis, 2007, p. 94). The needs are not addressed well as the industry has been generalizing the different needs of customers, in the view of reducing the costs. This has reduced the number of passengers in the airline, over the last couple of years. Different customers have different needs and they are supposed to be addressed appropriately for effective operation and maintenance of the customers.
As a result it is proposed that the Sunshine airline will conduct extensive market research over the next couple of years relating to customer demands, expectations and satisfaction. The research will be aimed at identifying the passengers travel demand. Considering the fact that consumer demands are dynamic, understanding customer value will contribute towards the firm attaining a high level of efficiency in delivering the service (Nigel & Anne, 2003, para. 4). Understanding customer demands will enable the firm to be effective in incorporating the concepts of customization and personalization in designing the travel packages. Tseng and Piller (2003, p.7) defines product or services customization as the process through which a firm modifies its products and services so as to meet specific customer needs. On the other hand personalization entails creation of an optimal interaction between the firm and the consumers. Personalization will be attained by selecting and filtering market information in relation to a given customer profile. Due to differences in passenger demand, Sunshine Airline Company will consider the passengers demand by identifying variables such as journey purpose, travel time and length of stay (Done, 2005, para. 6). Understanding customer demand will be attained by incorporating the concept of electronic Customer Relationship Management (e-CRM). Jiang (2001, para. 1) asserts that this is achieved by utilizing the internet in obtaining passenger travel requirements. By understanding the market demand, it will be possible for the firm to develop a travel package that suits the market requirements.
Product planning is all about fitting the different needs and tastes of the customers in line with their expectations. It has to be planned in a way that will reflect the expectations of the customers and this will be assisted by prior research that will have been conducted about the market situation.
The major problem that has been arising in product planning has been related to lack of proper information regarding the different expectations of different customers. It has, therefore, been a custom to again, generalize the products and most of the time they did not fit the customers’ expectations. The Sunshine airline, just as the other airline companies, has been packaging the products to have the best of benefits in terms of profits while overlooking customers’ benefits.
After identifying the passengers demand, it is proposed that the firm will plan the travel package in accordance with the market needs. This will be attained by employing ingenuity in the firm’s operation. For instance, the management team will guarantee seats to passengers even if it means that the flights have to take off with a single paying passenger. The firm’s air shuttle flights will be scheduled to takeoff within a time span of two hours within the short distance destinations. The hourly air service will enable the firm to satisfy the travel needs of passengers with limited time such business parties (Lehman, 2010, para. 4).
Looking at the customers’ satisfaction will be the major concern so that the clients will take the first priority and by so doing the airline will increase its customer base and benefit more as the customers will be permanent, due to the high standards of services offered.
Airline pricing entails the fixing of charges of the flights according to different classes and needs as per the stipulation and tastes of the customers. Pricing has to be charged in an appropriate manner so that it can reflect value for money to the customers in the long-run.
Airline pricing has face a problem of exploiting the customers due to the generalization that it is only the high class earners in the country who afford to travel by air. The pricing has therefore, been fixed at prices that are not very friendly to people who belong to the middle and lower class earning profiles. However, according to research this has been proved otherwise as different needs and necessities have been pushing for faster and convenient means of transport, that is, air transport.
It has, therefore, been proposed, that Sunshine Airline Company will be conducting its operation from a single hub. The firm’s operation will be designed to ensure that it attains price advantage. An overall price competitive advantage will be used in serving its niche market. This will enable the firm to attain efficiency in limiting the probability of new entrants (customers belonging to the middle and lower class earning profiles) succeeding in the niche market. By adopting a low pricing strategy, it will be difficult for the large firms to compete with the firm.
The firm’s price competitiveness will be attained by eliminating food services within the firm. Bisignani (2010, para.5) asserts that such an action is a cost saving strategy. This is due to the fact that it results into saving the cost per seat for every flight with $ 3. In addition, eliminating food services with the flight will culminate into an increment in the airplane’s utilization rate. This is due to the fact that catering needs while in the port will not be required.
In order to maximize on its revenue levels, it is proposed that the aircraft’s seating will be configured by having 165 seats. Those will enable the firm to maximize on its revenue receipts from the short haul flights.
Revenue maximization will be attained by integrating the Frequent Flier Programmes (FFPs). According to Minazzi (2003, p.9), FFP’s are loyalty schemes specific to the airline industry. The objective of integrating FFP in the firm’s operation results from realization of the fact that a high cost is involved in acquiring new customers compared to the revenues received from existing customers (Foss & Stone, 2005, p.380). The firm will collect data on the miles collected so as to determine the allowance to be offered to the customers. Through the FFPs, customer loyalty within the firm will be enhanced. This is due to the fact that it will be possible for the firm to establish a long term relationship with the customers. A part from free flights, the FFPs will also acknowledge the status of the customers.
In designing its FFP, the management team of Sunshine Airline Company will incorporate an unsophisticated segmentation system. This will enable the firm to manage its customers more efficiently. The frequent fliers will be segmented into two categories which include customers with loyalty cards and the others. This will enable the firm to manage its frequent fliers more efficiently. Additionally, low prices will increase the number of customers and ultimately the airline will be very competitive.
Airline scheduling relates to the arrangement of flight schedules to have timely departures and arrivals. The assignments of flights and the flight crew scheduling is also involved in airline scheduling.
Lack of proper integration in scheduling has led to inefficiency in the Sunshine airline. Underutilization of scientific methods in the analysis of schedules has also resulted to failure in the company as regard to demand expectations in the market.
It has, therefore, been proposed that for the firm to be competitive, it will be paramount for the management to integrate effective airline scheduling. To attain this, Sunshine Airline Company will ensure that there is a market balance against operational constraints. The firm will improve its planning process by integrating full schedule optimization. This will be conducted by incorporating mathematic concepts and innovative technologies. In addition, Airline scheduling will be conducted by integrating effectiveness in flight assignment, aircraft maintenance rotation and crew scheduling. The firm will integrate contingency allowances so as to cope with the changes across different time zones. In addition, airline scheduling will contribute towards the firm attaining efficiency in dealing with changes in market demand (Tron, & Tzieropoulos, 2009, p/.7).
It is paramount for firms in the airline industry to develop effective and efficient operational strategies. One of the ways through which Sunshine Airline Company can cope with the market changes is by developing its competitive advantage. This can be attained by understanding the passengers’ demands. As a result, the firm will be able to develop travel package that meets the market requirements. Amongst the strategies that the firm should consider in order to serve the market efficiently include airline pricing, product planning and airline scheduling. These strategies/techniques have been analyzed in the context of the adopted outline of approach in the five year corporate plan of Sunshine Airline Company.
Currently, the airline industry is faced with numerous challenges which originate from the external environment. Some of these challenges include fluctuation in fuel prices, increase in terrorism, environmental changes and deregulation by of the industry by the government.
Coping with terrorism
Over the past few years, the airline industry has been faced with increased risk of terrorism. According to Atef and Wes (2004, p.1), terrorism is defined as the violent process through which social change is expressed. It entails use of violent and criminal techniques by a given agent of a given country with the objective of achieving political ends. The rise in the rate of terrorism has resulted into airline companies experiencing great losses. Atef and Wes (2004, p. 2) asserts that this has often culminated into airline companies running into bankruptcies. To minimize the probability of loss occurring as a result of terrorism, comprehensive security strategy will be formulated. The strategy will entail undertaking a thorough check on the passengers and cargo before the flight takes off. In addition, the firm’s premises will be installed with the current security surveillance systems. The security program will be amended according to how the security issues change. In an effort to mitigate the effects losses from terrorism, the firm’s management team will take an insurance policy to cover terrorism risk. Due to increase in the rate of terrorism, aviation insurance companies have increased the cost of their insurance premiums. In addition, there is a high probability of the premium cost increasing considering the looming chances of U.S. experiencing such terrorism attacks in the future. To deal with this challenge, the firm’s management team will ensure that it reserves a significant proportion of its revenue so as to be able to pay the premiums.
Atef and Wes (2004, p. 2) asserts that the airline industry is sensitive to changes oil prices. This results from the fact that the airline industry is mainly depended on oil. During the current economic crisis, there has been an upsurge in the price of oil. This has culminated into a reduction in the level of profits for firms within this industry (Done, 2005, para. 6). Most of the firms which have been affected by increase in oil prices include those which operate in countries which are net importers of oil such as the U.S. This culminates into an increment in the degree of vulnerability of firms in these countries. Considering the fact that oil prices are very unstable, the firm will ensure that it maintains a sufficient amount of oil. This will be achieved by building a large number of oil reservoirs in which the firm can store sufficient amounts of oil. A large volume of oil will be purchased during the period when the price of oil declines.
The US airline industry has undergone rampant deregulation by the government. As a result, there has been an increment in the number of firms’ entering the industry. In addition, the deregulation enabled firms in the industry to set prices according to the market needs that they serve. This poses a challenge for these firms in operating in an open market. In addition, the airline firms are experiencing increased competition from alternative forms of public travel such as the electric trains. To cope with the increase in competition, Sunshine Airline Company will incorporate the concept of differentiation so as to enable the firm deliver a high level of utility to the customers. In addition, the firm will tailor the features of its travel package and fares charged to meet the different passenger classification (Jones, 2004, p. 23).
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