Analysis of Airline Industry after “911” Event
...vely weak. For long-distance travel, there are almost no close substitute. For short-distance travel, travel by sea or by train is possible but it is much more timely. Environment Facing Airline Industry The competitive structure of airline industry is continuous to change due to the changing environment, both externally and internally. External Environment 1. In last three years, most airplane division were in a remarkable turnaround . Several carriers, including Continental Airline and U.S Airways, are staring at bankruptcy. The truth is that there are too many airlines chasing too few passengers, despite the growth in demand for air travel. Sept. 11 terrorist hijackings made the situation worse. Without doubt, the US attacks have had a damaging and unforeseen impact on aviation, but it seems to understand also that the consistent failure by many airlines to make money has little to do with terrorism. 2. Less airplanes are needed after terrorist attack. Prior to the attack, Boeing and rival Airbus industries were scheduled to supply 900 aircraft in 2002, about 200 more than the industry really needed. However, now most airlines are lining up to push back delivery of their airplanes, even telling Boeing they can’t take some planes that were scheduled for this year. That is because the economy already was beginning to weaken, and airline capacity was dropping, reducing the demand for new aircraft. 3. After terrorism attack, public pay more attention to the security of airline industry, while the airline companies just focus on good service, various routes before terrorist attack. Now they should turn their promotion to build up security image to bring back their customers’ confidence. 4. Need for consolidation arises. Especially in the European airline industry .it is said that airlines can benefit fully from the single European market after consolidation. At present, BA stepped up plans to consolidate the European airline industry on Oct. 20 when it confirmed alliance talks with Dutch Carrier KLM. Internal Environment 1. Most airlines will receive governments’ bail-out. The reason is that many government view national flag carriers as status symbols to be treasured and parade before the world, while at the same time avoiding awkward confrontation with entrenched interests. For example, US airline is receiving a $15 bn(10 bn) government bail-out following the terrorist attack. In fact, government bail-out was bound to happen sooner or later. A succession of unprofitable national flay carriers have been itching for an opportunity to seek a bail-out from their government before 911 attacks. Maybe the terrorist attacks gave them a good chance to receive government bail-out. 2. Cost cutting is carrying on in most airlines. Most have announced staff reductions, route cuttings, the mothballing of aircraft, wage freezes, and even wage cost. Boeing mad the decision on Sept. 18 to cut 20% to 30% of 96,600 people employed by Boeing commercial airplane unit this translates into 20,000 to 30,000 workers in the Seattle area. And more than 160,000 job cuts have been announced by international airlines and aerospace companies in European in the past two weeks. British Airways said it was cutting services by 190 flights a week in response to the rapid decline in demand following the terrorist attacks. 3. Airline companies will postpone their airplane development program to preserve some of its cash flow and keep its operation margins up during the worst of the downturn. During the Persian Gulf War, merely the threat of terrorist action sent passengers fleeing from airlines. It took 15 months for main carriers to fill up planes again. It is said that the impact of 911 terrorism attacks will be similar to the Gulf War. So we wonder how long will it take the airline to recover this time? Key Factors for Competitive Success In order to survive and maintain its market share in such a competitive market environment, airline business should sustain and develop its competitive advantages. 1. Customer service Fundamentally, the airline business is a service industry. Therefore, the key factor for success should be to make breakthrough in customer service. For example, the basic idea of United Airlines is that “ we are not going anywhere until we get our customer where they are going first!” To give the customers the respect, courtesy, fairness and honesty, they expect and deserve, the airlines should: 1) Extend network ----establish new routes, offer a wider range of destinations and higher frequencies; 2) Implement electronic services----book tickets on line and offer self-service check-in system; 3) Improve the customers’ travel experience----give more leg room; improve the condition of the airport such as baggage claim services----quicker and safer; 4) Offer more entertainment----both in airport and aeroplane. EG: Continental Airlines’ Business first Class is offered on international flights. The service aims award and are ranked among the best international service for both U.S. and international carriers. It offers a superior level of comfort and service and provides much more than just all the pampering the customers will receive. Every business first customer has his or her own personal entertainment system built into the armrest console of a luxurious sleeper seat. For instance, American Airlines ranked in the second place by IATA (International Air Transport Association), puts emphasis on customer service. They carried out a Customer Service Plan from 15th Dec 1999 and covered the following topics: · Lowest Fare Available; · Delays, Cancellations and Diversion Events; · Baggage Delivery; · Baggage Liability; · Guaranteed Fares; · Ticket Refunds; · Accommodation of customers with Special Needs; · Flight with Oversells; · Other Travel Policies; · Service with Domestic Code Share Partners; · Handling of Customer Issues. This plan will be enhanced on 2nd Nov 2001. Unfortunately, we cannot get the latest edition. 2. Enhance the reliability 1) Arrive and departure on time; a. Schedules; b. On-time departure; c. Baggage handling; d. Accurate up-to-date information for customers. 2) Maximize the use of entire fleet----matching aircraft to our schedule of daily flight; 3) Mobile chariot----harness high tech solution to resolve customers’ problems at the airport duty-irregular departure. For instance, Northwest takes “on time operations” as the foundation of its reliability. l It ranked first or second in on-time arrivals among the nation’s network carriers, for nine of the 12 months in 2000, according to U.S. Department of Transportation (DOT) data. This consistent performance also simplifies day-to-day operations and reduces operating costs. l In a composite measure of operational integrity for on-time performance, involuntary denied boarding, consumer complaints and mishandled luggage, Northwest ranked first among the U.S. network carriers in both 1999 and 2000. l A key part of our mission is to provide a prompt and appropriate response if something goes wrong. Accordingly, Northwest has complemented its solid operational performance with industry leading service recovery initiatives under the banner of its Customer First Program. 3. Merge or corporate with other airlines 1) To be stronger in competition; 2) To endure more financial pressure in price competition; 3) To establish a global transportation network; 4) To build automation infrastructure so that different computer systems can talk to each other; 5) To increase productivity, simplification and other efficiency. For example, Northwest Airlines and its global alliance partners serve more than 785 destinations in over 120 countries on six continents, offering truly global scope. Its alliance partners include American Eagle, America West Airlines, Continental Airlines, Japan Air System, KLM UK, Malaysia Airlines, Swisswings and Air China, fortunately. And core benefits offered to Northwest customers through its alliances include: · One-stop reservations and ticketing; · One-stop check-in providing seat assignments, boarding passes, and luggage check to final destination; · Co-ordinate flight schedules providing more flight choices with quick and easy connections. 4. Solve the infrastructure problems----To make co-operation among business, community and political leaders. To change: 1) Outdated air traffic control system; 2) Inadequate airport capacity and runways; 3) Lack of resource, crowded conditions. For example, Detroit hub Operations will shift later this year to a new $1.2 billion terminal, the largest single public works project in the history of Michigan. This will serve Northwest Airlines and its alliance partners, which together are forecasting 560 daily departures in 2001. The new terminal will offer international-to-domestic connections within the same facility, which will include a new 400-room hotel projected for a 2002 completion. Other airport improvements will include a fourth parallel runway that will enable a 25 percent increase in capacity and dual, simultaneous takeoffs and landings, even in inclement weather. 5. Perfect employee relations----make a better work condition. 1) Provide more job opportunities; 2) Simplify the work process; 3) Apply new tech tools; 4) Promote performance through network. For instance, Northwest is investing in more training for managers and front line customer service personnel, more frequent communication about goals and results, improved employee facilities and meaningful recognition programs. Northwest’s leading position in ‘Customers First’ reports from the Department of transportation is a measure of how well its employees have been trained and equipped to work together. United Airlines launched Customer Service info (CS INFO), a new technology that allows front-line employees to quickly access vital operational information and provide it to the customers they service. Conclusion Airline industry, which has a considerable high fixed cost and a comparatively low profit margin, has two dominant characteristics: 1) Labor intensive, which means th...