Category: Airlines

Introduction

The airline industry is one of the first industries to have gone global. It is also one of the most heavily regulated sectors on the market worldwide. In this short report, we will try to analyze the situation of Qantas, the major domestic airline of Australia. The company is also an important global market player since it became a member of the ‘One World’ alliance, one of the two biggest alliances in the airline industry worldwide.

In order to evaluate adequately the company, we have to first assess the primary drivers for revenue and profit and the KPI’s (key performance indicators) that support these drivers in the airline industry. KPI’s are the ‘tools’ that are used to measure profitability in the airline industry.

There are two types of basic services that drive revenue for airline companies: passenger air transportation and air freights. Like many other services, passenger air transportation is a function of price and volume (or number). There are many financial KPIs in support of the services mentioned above such as passenger traffic and capacity, but there exist many other non-financial KPI’s also. Customer satisfaction and positive brand name recognition are among the most important of them.

They have a direct impact on the sales and marketing and customer loyalty business processes of the company. Sales and marketing have the duty to attract customers to the company in order to guarantee a continuing revenue opportunity. Instead, the customer loyalty process allows it to keep a certain level of revenue from existing customers. Both relate to a certain level of cash flow that the company needs to have for its operations. Customer satisfaction and positive brand recognition directly affect, first, customer loyalty and then create a negative impact on the public by damaging sales and marketing. This way the flow of cash needed for the daily operations of the company would be negatively influenced. The solution for many airlines has been merging or the formation of worldwide alliances.

One-World alliance

Globalism has led many business companies and corporations to believe that the way of gaining more from it is to collaborate with each other instead of ‘fiercely’ competing with each other (Gomez-Mejia et al., 4). In our case, the ‘One-World’ alliance between the various well-known airline companies aims to make them benefit more from this globalized market than they would do if continue to compete with each other. There are various benefits for all of them. In our case, Qantas airlines would be able to enter markets it previously did not serve in an easier way. This way it will be able to gain even more customers and thus, increase its sales. The increase in sales has a direct impact on the company’s revenues and profits. Also, another important factor to be mentioned here is the cutting of costs. By being a member of the ‘One World’ alliance Qantas will have the opportunity to use the routes and services of other companies, which are members of this alliance, instead of setting up new ones on its own. For example, one of the advantages for Qantas of the ‘one world’ alliance is its ability to provide one-stop flights to a host of European cities serviced by alliance member Cathay Pacific which is a former competitor. The usage of other members’ resources will impact Qantas’ revenues positively while retaining the costs at a low level.

But there are not only positive things to mention regarding the membership in this alliance. And this could be especially true for Qantas. Its financials could suffer more from losses than benefits from gains. We mentioned before the participation in new markets which would give to the company the possibility to serve new customers, thus, increase its sales. But Qantas could also lose customers from this new alliance it has joined and thus, decrease its revenues. The company’s two most valuable assets are its customer base and very good brand name and recognition. Participating in the alliance creates significant changes for Qantas customers. An example would be the fact that a customer purchasing an around-the-world ticket from Qantas might fly with any of the ‘One World’ alliance member airlines. If the quality of the flight experience (which may include the aircraft, checking-in procedures, airline personnel, catering, delay, and baggage handling) were below expectation, customer satisfaction may be adversely impacted. And Qantas would suffer the consequences of a low-quality service offered from some other member of the alliance. This would have an impact on the decrease of sales and so revenue for the company.

Financial considerations for Qantas

During the last years, Qantas has managed to have a gradual increase in its sales revenues, operating profit, and net profit. A major achievement for Qantas has been the managing of costs. For example, during the 1998 fiscal year, it managed to gain $475 million in cost reductions and cost avoidance. That is exactly 15.57% of the total liabilities which for the fiscal year 1998 were $7396.4 million. If there is a rise in jet fuel costs then it would have an impact (negative of course) on the total liabilities of the company. The increase of liabilities will impact the operating profit and before tax profit. In turn, this would decrease and thus influence the decrease of the net profits.

More specifically, the increase in jet fuel costs would impact ‘provisions’ under ‘current liabilities’ (as shown in the financial statement). An increase in jet fuel costs would increase the amount of company spending for provisions. As we have mentioned before, the company aims to increase the number of customers it serves, by passenger transportation or air freight of goods, in order to increase its profits. But this situation means that the company has to increase the number of flights and thus, increase the supply of jet fuel. In the statement of cash flows, this would influence the amount increase of the ‘payments to suppliers and employees. If this amount is increased, then the ‘net cash from operating activities’ would result lower than the one we already have. Subsequently, the net operating profit would result lower and so on (like a Domino effect) until we will have as an end result in the decrease of the net profits.

The decrease in the net profits will have negative consequences beyond the financial ones. We will discuss these negative consequences below after considering one more case.

Another important factor of expenditure for an airline company is its aviation fleet. Here there are a few possibilities that should be considered. First of all, if Qantas has its current fleet above the average age of the industry this means it has to spend more for maintenance and amortization than other companies. This situation also means that it has to invest in the near future for new aircraft because the existing ones would come out of service sooner than other companies’ fleets would do. Also, in the financial statements of Qantas, we would see a huge increase in expenditure in the form of investments and a decrease in operating expenses.

This net investment would cut funds for other necessary operations such as sales and marketing, brand imaging, and customer satisfaction programs. Other companies could take advantage of this situation and the operating cash flow generated mainly from the sales activities could decrease gradually. In the current situation, Qantas is in (and the whole industry is in with it) it should think twice before making such a big investment expenditure.

Another possibility is that Qantas decides to update its air fleet with new aircraft. As mentioned above this means that its ‘cash flow from investment activities’ would increase significantly especially under the voice ‘payments for property, plant, and equipment. In turn, this will impact the ‘net cash used in investing activities’ by increasing it significantly. The end result is that cash at the end of the financial year would suffer from this investing activity and show a low value, certainly much lower than without it. But this investment has its positive aspects also. If Qantas manages to get a contract with its carrier provider (like British Airways did with Boeing) it could significantly decrease its aircraft maintenance and utility costs.

This would be an investment for the future as next year the cash flow from investing activities would return to be normal and, furthermore, the costs of maintenance and provisions would decrease favoring a better net operating profit. If the net operating profits are increased then the net after-tax profits will also increase.

Conclusions

In conclusion, it must be noted that the airline industry is a very complex industry in which a company should be very careful to two major trends: expenditure and customer satisfaction. The only way for an airline company to increase its profits is by making more customers fly to a destination or send their cargo to a specific destination with this company.

Works Cited

Gomez-Mejia, Raul, et al. Management: People, Performance, Change, 3^rd edition. New York: McGraw-Hill, 2008.

Introduction

The perspectives of the UK airline industry and airline carriers are far going in the contemporary development of the world’s relationships provided by the Government of the country. In this respect, the factor of operation standards as for control and supervision are significant for further growth of the airline sphere of the national economic stability and improvements. The growth of the airline segment of the economics shows in recent years the constant tendency toward facilitation of the branch coloring and shaping in technical and service evaluation. The paper observes the featuring of this very segment of economic stability in the UK in terms of the prior objective and activities of operation control and supervision.

Body

First of all, it is vital to mention that the airlines in the UK have a very broadened and well-equipped technical and material base. The main contributor to this is the government and its initiatives to provide low-cost routes all over the country and abroad (Griffiths & Wall, 2007). Second, the airline infrastructure tends to concentrate more attention on the terms of control and supervision in the strategic urge for the provision of high-level services in the domain of the airline industry within British airline companies.

Security in air space of the British air routes is regulated based on Aviation Security Act 1982 TRANSEC (Transport Committee & Dunwoody, 2005). In this respect, the issue of safety before during, and after the flight is of great significance for all airlines which are concentrated under the law of the UK. The British government keeps a strict eye on the airline carriers. The supervision is maintained by the operation control manager. This is why one of the objectives is to develop proper professional relationships in the managerial team of this range. Moreover, such standardization of laws as for the regulations and supervision of the flights of different distances presupposes the compliance and relation to the international airline authority, namely the International Airline Transportation Association. According to this very association, the UK signed under the requirements for the major airline carriers to participate also with the governmental structures in accordance with so-called six-point safety plan:

• Infrastructure safety;
• Safety data management and analysis;
• Flying operations;
• Integrated airline management systems;
• Cargo safety;
• Safety auditing (IATA, 2007, p. 6).

Thus, the question of the security and safety within the objects for which the airline services are responsible provides the major background for the primary objectives and activities of the airline carriers. The interpersonal relationships maintained in the personnel of the airline companies in the United Kingdom are to be correlated by the HRM: “Individualism in HRM style might be expressed by management through genuine recognition of the highly technical, safety-critical and fundamental role of pilots within airline operations” (Harvey, 2008). On the other hand, in terms of the privatization of the British Airports Authority, the government still has some controversies as to making more facilities for better control and supervision (Hanlon, 1999).

Conclusion

To sum up, the UK airline industry is a well-shaped and greatly-equipped branch of the British economy. In its domain, the issues of operation control and supervision are subordinate to the law acts and norms prescribed and adopted by the Parliament and executed by the government. The operation control and supervision have the major objective, i.e. “the development of a coherent and coordinated air traffic control system” (Europa Publications Limited 760). Safety and security remain the major objectives for airline carriers.

Reference

Griffiths, A. & Wall, S. (2007). Applied economics (11^th ed.). Upper Saddle River, NJ: Pearson Education.

Hanlon, P. (1999). Global airlines: competition in a transnational industry (2^nd ed.). Oxford: Butterworth-Heinemann.

Harvey, G. (2008). Management in the airline industry. Vol. 19. London: Routledge.

IATA. (2007). The Complexity of Aviation Safety Manajgement: Putting Ideas into Practice – International Conference. Hong Kong. Web.

Transport Committee & Dunwoody, G. (2005). UK Transport Security – Preliminary Report: First Report of Session 2005-06; Report, Together with Formal Minutes, Oral and Written Evidence. London: The Stationery Office.

Introduction: brief data about airline business

Nowadays, airline business encounters the peak of crisis thus losing enormous amounts of money. This is a burning problem for the whole world due to the increase of large-scale catastrophes in the twentieth century and at present time. The above greatly affected the airline industry, as the security matter is the major challenge this business encounters. In improve the present situation, it is necessary to consider the new strategies and the way they influence the plane industry and services. Now, there exist the six airline companies that are considered as the most powerful businesses in the world. Among them are: American Airlines, United Airlines Northwest Airlines, US Airways and Continental Airlines. These six Airlines based in the USA were founded in the beginning of the twentieth century (Johns 2001).

Main body

As the any corporate business, it has subsequent stages of implementation of this type of strategy. Airline business approach to corporate strategy has certain steps beginning from formulating the strategy up to it implementation. In particular, it is necessary to shape the corporate strategy and to distribute them among different functional areas. Then, after the analysis of the results of those areas such as marketing, finance and distribution, it is necessary to unites all the functional strategies in one goal and resort it to project unit strategy again (Miltenburg 2005). These companies are the most successful in developing the corporate strategy.

Considering the corporate long-termed business strategy for the airline business, it should be stressed that it has many advantages. There are several techniques used in long-range strategies. To foster the fulfillment of the plan, it is necessary to make a plan of some ideas that could grant a better understanding of the situation. It is worth mentioning that the presentation of ideas should be given separately. The isolated ideas would more objective so that the final decision would more up to the point. Another effective technique is the distribution of obligation that could make the process more efficient. Finally, the most effective part of the strategy is discussion, and negotiation that could generate the alternative decisions (Miltenburg 2005).

Conclusion

Currently, the corporate planning process of present airline companies varies due to numerous factors. To start with, as companies’ are located in different areas, the geographical also greatly influences the market segmentation and aircraft utilization. Second, each company has its own image and aircraft standards that captured the credence of their clients. Here, the social factor plays a significant role in increasing the level of respectability of the company. Next, as the companies have unequal market segmentation, and different distributors, companies’ revenues also differ. That fact is closely connected with the capital investments and further strategy planning of the companies. Considering the present situation, business airlines are more concerned with security and safety of their passengers due to the terrorist acts and recent disasters. In order to preserve the high level of service and to guarantee the appropriate level of security, each airline company should plan its corporate business strategy taking into consideration the social and geographical factors. In that regard, the corporate long-range strategy provides the businesses with favorable conditions to work out the project that could not only preserve the might of the company at the high level; it also give the opportunity to reconstruct the organization. Finally, this type of strategy is more relevant to the aircraft field, as the airline industry is rather time-consuming and complicated.

Reference List

Johnsm, G. (2001). The big Six: US airlines. US: Zenith Imprint.

Miltenburg, J. (2005). Manufacturing strategy: how to formulate and implement a winning plan. US: Productivity Press.

Background of the Company

Singapore Airlines Limited (SIA) started its journey as Malayan Airways in 1937 and its fleet had grown significantly by 1955; in addition, this company went public in 1957 and changed its name to Malayan-Singapore Airlines (MSA) in 1966. It shifted headquarters, exhausted its fleet, and began to introduce service in new routes; however, SIA formed in 1972 (the government hold 57% stock) while MSA ceased its operation because of political deviation between Malaysia and Singapore. At the initial stage, it had no domestic routes to serve though it operated in international routes; however, it experienced intense competition though it operated the largest Boeing 737s and 707s to its fleet.

Market Conditions

According to the given case study, Singapore Airlines was one of the most successful airlines in the globe in 2004; however, it was popular to the business travellers on long flights due to the best customer service and performance of the employees. However, it had flown about 16 million travellers in 2004 and won many “best of” awards for the outstanding performance though it faced severe challenges as well.

However, it carried 15944 thousands passengers in 2004/05 and 13278 thousand in 2003/04; in addition, it had 104,662.3 million available seat-km and 77593.7 million revenue passenger kilometres in 2004/05. According to the given case study, it was the sixth largest airline in the globe considering international travelers-km carrying individuals; however, the given case study mentioned that SIA would have been even bigger. On the other hand, Skytrax had ranked this company in fourth position and it reported that the competitors changed and upgraded their market position.

Pricing Strategy

It asked higher price for the service because it spent at least 10% higher than industry averages; however, It had increased ticket surcharges thrice in 2005, which assisted maintain the highest point among the competitors; therefore, it gained yield or sales revenue per travellers/ km flown increased by 6.20% to 10.30 Singapore cents. On the other hand, net profit of SIA had decreased by 7.9% in the first quarter of 2005 since low cost service providers designed cheap pricing strategy while it asked ten percent higher than industry averages.

SWOT Analysis

Strengths

• It had the second largest capitalization;
• It has long experience to hold market leading position as it originally established in 1937;
• In addition, it has enough financial capabilities to reach organisational goals;
• Number of passengers is one of the key success factors;
• Innovation, genuine quality and outstanding customer service;
• Product/service differentiation strategy and it introduced hot meals, free alcoholic and non alcoholic beverages;
• The employees particularly girls of Singapore are the main strengths of SIA;
• It operated youngest fleet of aircraft and replaced older aircrafts;
• Consistency had been the hallmark of SIA’s management;

Weaknesses

• It had to layoff 1.5% employees to overcome financial risks;
• At the same time, it was difficult to control costs due to increase of fuel price; in addition, it spent $9.4 million for wine spirits;

Opportunities

It planned to spend $100 million to develop cabin for the long-haul route and it had an unequalled reputation for service and luxury; therefore, it had opportunity to attract additional customers particularly business travellers;

Threats

• In 2003, this company had experienced hard economic crisis due to global decline; moreover, in 1998, it faced challenges because of Asian crisis;
• Because of intense competition, it was difficult to getting access to airports and securing flights or landing rights;
• In addition, it was very hard task to attract customers;
• To maintain luxury in crisis period adversely affected financial statement;
• It faced a threat from low cost airlines though the CEO Chew Choong Seng ensured that the passengers kept flying SIA in spite of intense competition;

Impact of globalization on decision-making process

The strategic decision of the company based on the globalisation impact, and the CEO Cheong Choong had considered different routes, for instance, in 1990s, the services were extended to Africa when it introduced flights in South Africa, the CEO shifted capacity routes with the area to flourishing long-haul routes to the US, Australia and Europe. Furthermore, it was subjected to heavy competition since its inception for which it competed with international airline for routes; however, in 2004, it introduced first non-stop air service (the longest commercial flight in the aviation history) between Singapore and the US. On the other hand, he cancelled a $3.10 billion order to McDonnell Douglas, as that project had no prospect for the development the performance in long-haul performance; however, he opted for Airbus A 340-300.

Forecasting/management tools to achieve goals

At the time of Asian economic crisis, the CEO Cheong Choong had controlled the company efficiently, for instance, he developed new alliances, and invested $300 million to upgrade its services for which Fortune Magazine selected him as Business of the Year for 1998. Vedpuriswar and Thadamalla pointed out in the case study that the management of this company had considered high price for the services though SIA faced challenges from low cost service providers; therefore, this decision was ineffective in some extent while net profit decreased because of this decision.

Internal and external (government) constraints and overcome

The internal and external government had passed bilateral air service agreement (included both liberal and restrictive) in 1944 to allow travellers and cargo to be carried in particular destinations; however, the CEO Cheong had pushed the internal government to enter a bilateral open-skies contract with the US in 1997. However, this company envisaged financial risks because of the post 9/11 situation while the US government had changed policy for the aviation industry, for instance, access to the route of trans-Atlantic sector had stopped by the government for which Virgin Atlantic (49% acquired by SIA) struggled to restructure its business.

Risk and mitigation process

The case of Vedpuriswar and Thadamalla stated that Cheong Choong controlled this company for 19 years and Chew Soon Seng became new CEO of SIA in mid 2003, but he worked for the company from 1972. However, the new CEO had faced severe challenges while numbers of travellers decreased due to SARS epidemic (Severe Acute Respiratory Syndrome) and high fuel price; on the other hand, global financial downturn hit the airlines industry and SIA experienced highest lose in the history of last 31 years.

According to the given case study, the new CEO had capability to understand the situation and handle risks, for instance, he decided to cut the job of 500 employees and 22% salary of senior managers though the employees were reluctant for such unfriendly behaviour. In addition, the new CEO decided to acquire 8.3% equity stake in Air New Zealand to develop Australasia market though this was not a fruitful decision for this company; however, the alignment of this company with other companies was effective in some extent like acquisition of 49% of Virgin Atlantic.

From 2003, the purchasing power of the people decreased and business travellers increased to use low cost airways both new entrants and existing Airlines, for example, Emirates Airlines expended business in new hub and targeted the front cabin travellers flying between Asia and Europe.

Airline Industry

In 1994, there were only 10 million passengers travelled by air each year, which increased significantly over time, for example, more than 1.5 billion passengers travelled by air in 2003 though this industry had gone through a major shakeout during 2011 to 2004. On the other hand, low cost carriers influenced customers’ behaviour for which business travellers along with leisure travellers switched off the company; however, it was difficult to enter merger and acquisition agreement due to the provisions of bilateral air service agreement.

The industry struggled in general to create economic value; however, Chew stated that the tumultuous economic cycles (for instance, GDS, oil companies, hotels, airport franchises, etc.) and catastrophes adversely affected the market demand. Chew further stated that the future of airline industry is prospective, but it has to overcome the constituent; however, Vedpuriswar and Thadamalla mentioned that SIA had addressed the risk factors and handle successfully.

Financial statement analysis

According to the income statement of SIA, the sales revenues of this company was $12012.9 million in 2004/05 whereas it was $9761.9 million, $10515 million and $9382.8 million in the fiscal year 2003-04, 2002-03, 2001-02 accordingly; however, this indicates that sales revenue increased $2630.1 from 2001-02 to 2004-05. At the same time, total expenditure was too high from its inception as it ensured quality service; however, total cost was $10657.4 million, $9081.5 million and $9797.9 million in the fiscal year 2004/05, 2003-04, and 2002-03 accordingly; these figures show that total expenditure amplified by $1575.9 million from 2003/04 to 2004/05 (Exhibit 1).

On the other hand, operating profit was $1355.5 million in 2004/05, which was $680.4 million in 2003/04; however, this figure increased significantly by $675.1 million from the previous year; here, it is important to note that net income increased by $540 at this period due to increase operating profits (Exhibit 1).

Financial ratio analysis

Exhibit 2 demonstrates working capital of SIA as it indicates efficiency and short-term financial health; however, the working capital was $1042.3 million in 2004/05 and $62 million in 2003/04; as a result, it had enough short-term assets to cover its short-term debt in 2004/05, but this position was completely different in previous year. On the other hand, SIA had not enough short-term assets to cover its short-term debt in 2002-03; however, it had faced financial problem to invest for new project in 2001 while its current liabilities was greater than current assets (Exhibit 2).

The given case study provided information regarding current assets and liabilities from where exhibit 3 calculated current ratio (ability to pay debt); however, exhibit 3 shows that current ratio was 1.51 in fiscal year 2003/04 where as it was 1.27 in 2004/5; however, this ratio was 1.04 and 1.51 in 2002-03 and 2001-02 accordingly. At the same time, the figures of current ratio pointed out that SIA had ability to pay 1.51 times its current liabilities in 2004/05 and it had capacity to pay $1.27 times its current liabilities in 2003/04, which specified that SIA had more power in 2003/04 (Exhibit 3).

The analysis of Return on total assets of the Singapore Airlines presented the ratio of its earnings before interest and taxes in comparison with total assets, which were 6.3613802, 4.248624, 5.550459, and 3.399819 for the analyzed four years; here the increasing ROTA indicates that the company is quite efficient to utilizing its assets with a rising profitability (exhibit 4).

Gross profit margin of the Singapore Airlines represents the ratio of gross profit and its net sales revenue, which were 11.283703 in 2004-05, 6.96995 in 2003-04, 6.819781 in 2002-03, and 9.854201 in 2001-02, and it represent that profitability ratio as well as financial health of SIA is gradually improving and determines proportion of sales revenue has converted into gross profit. (Exhibit 5)

Here the net profit margin of SIA represent the percentage of income outstanding later than total operating costs, interest, taxes and dividends paid deducted from its total sales revenue, which were 11.57% in 2004-05, 8.70% in 2003-04, 10.13% in 2002-03, and 6.73% in 2001-02, the shareholders of SIA would be interested to the net profit margin as it is increasing. Analysing about net profit margin of the four year, the investors of SIA would find that the company has increased its net profit margin from 2.5% to 3.5% in every year, by using this data the investors would be capable to compare SIA with other companies in the airlines industry (exhibit 6).

Here the total assets turnover of Singapore Airlines is the ratio of its total sale and total assets including current and fixed assets and it represents the capability of SIA to utilize its resources and capabilities to boost sales successfully, which were 0.5500513 in 2004-05, 0.488339 in 2003-04, 0.548113 in 2002-03, and 0.504984 in 2001-02 (Exhibit 7). Among the four years analysis in 2003-04, the total assets turnover of SIA was lowest, it indicates that there are some difficulties in the asset class integrating with total assets, its inventory, receivable account, or including fixed assets; other than these areas the difficulties could arise from current or fixed area.

The Return on Shareholders Fund (ROSF) of the Singapore Airlines were 11.171509 in 2004-05, 7.414165 in 2003-04, 9.943224 in 2002-03, and 6.415412 in 2001-02 which are calculated by the ratio of net profit after taxation along with preference dividend and total ordinary share capital with reserve and then multiplying with 100 for SIA (exhibit 8). The Return on Shareholders Funds (ROSF) of Singapore Airlines are the most significant ratio that investors needed to analyze to measure the historical profit trend of the company for an assessed period, here the highest ROSF was in 2004-03 and it indicates that here are more profits are available for shareholders of the Singapore Airlines.

The ROE of the Singapore Airlines indicates ratio of net income of the company and its shareholders equity, which were 8.90308689 in 2004-05, 5.905627 in 2003-04, 7.743775 in 2002-03, and 4.73833 in 2001-02, the presented ROE indicated the profitability of SIA by pointing how much profit has produced during the framed time by using money of shareholders (Exhibit 9). For the investors of the Singapore Airlines, ROE of the company is a very significant factor that they always take into account to compare its profitability with other players in the industry.

Here, the four years comparison of debt to equity ratio of Singapore Airlines illustrates it was 0.40 in 2004/05, 0.39 in 2003/04, 0.39 in 2002/03, and 0.39 in 2001/2; these figures show that SIA was able to generate enough cash to satisfy its debt obligations (exhibit 10).

Conclusion

From the above discussion, it can be said that SIA had strong financial position in the fiscal year 2004/05 in spite of SARS epidemic, Asian financial crisis in 1998, global economic downturn 2003, high fuel price, competition from low cost airlines, and so on. The high working capital balance in 2004-5 indicates SIA’s short-term solvency and the company is capable of paying its current liabilities, while negative working capital in 2001-02 indicates its managerial competence in its business operation by means of lower inventories along with accounts receivable, although negative working capital is a symptom of bankruptcy or serious financial trouble.

Exhibit 1.

Exhibit 2.

Exhibit 3.

Exhibit 4.

Exhibit 5.

Exhibit 6.

Exhibit 7.

Exhibit 8.

Exhibit 9.

Exhibit 10.

Summary Overview

In the airline industry, fuel consumption is one of the most significant challenges companies have to deal with. Therefore, controlling fuel costs can give an airline a relatively high competitive advantage in the market. One such move to counter this problem is the hedging program derived from the implemented financial risk procedures (Liu et al., 2016). As such, they have saved substantially from the earlier anticipated losses through the strategy.

It depends on purchasing contracts to acquire oil at a relatively lower price than that in the market when demand goes high. The principal challenge to the agreement is when there is a drastic decrease in oil market prices, such as the one experienced by China Eastern Airlines and Southwest Airlines (Liu et al., 2016). It warranties a response or a different type of agreement to handle such scenarios due to uncertainties. The case study is conducted to analyze the effectiveness and value of fuel hedging by airlines and the potential adjustments that can be made for higher profitability.

The Procurement Methods

Various airlines have designed a strategy to successfully apply the hedging technique to control their fueling prices, hence staying competitive. Several challenges face the industry, such as its sophistication, excessive government regulation, high capital intensive with fixed revenue requirements, destructive competition, and a volatile working environment. China Eastern Airlines has substantially benefited from the hedging strategy by turning to the financial derivatives market. It has continuously utilized option contracts instead of oil futures contracts (Manuela et al., 2016). Thus, it secures prices at their desired level by buying long-term options while simultaneously selling significant amounts of put options. On the other hand, Southwest Airlines used the futures option and were substantially affected by the fall in fuel prices.

Considerations Relevant to the Hedging Strategies

Various internal and external factors affect airlines’ decisions to hedge fuel prices. One such consideration is the fluctuation in fuel prices, mostly due to the limited energy source, jet fuel. Every company has to purchase jet fuel regardless of the current market price, which is continually varying. Thus, it makes the industrial complex and unpredictable necessitating counter mechanisms to manage the issues. A company cannot compete with prices since they risk losing clients in ensuring stability and predictability of transport charges (Turner & Lim, 2015). The solution to gaining a competitive advantage over other firms is through cutting jet fuel costs, thereby minimizing expenditure.

Airlines also consider the decision because of stiff and uneven competition ground within the industry. The robust global economies have created a great demand for consumer travel; hence, firms invest in more routes and options for travelers. However, competition stiffens, and some companies are forced to choose between flight prices, sacrifices in customer experience, and other cost-saving moves versus losing clients to other companies.

Moreover, global carriers are established and hence have an advantage in the market. Similarly, airports are facing congestion as demand rises higher, raising other concerns for carrier companies (Dafir & Gajjala, 2016). The data-driven tech world is equally transforming, potentially undermining the almost outdated infrastructure of most airlines. Other companies opt to merge with others, such as Southwest and Air Tran coming together to cut costs (Manuela et al., 2016). The technique prompts others to utilize counter moves such as fuel hedging.

Evaluation of the Relative Effectiveness of Each Airline’s Approach to Hedging

Hedging approaches can result in different outcomes, either predictable or unpredictable. In the case of Southwest, it risked a three-year contract which could potentially result in either profit or loss depending on market fluctuations. The logic behind the decision is based on the notion that the hedge price will remain lower than market prices (Swidan & Merkert, 2019). It was an effective means which sustained it through the Great Depression while other firms experienced massive losses.

It successfully adopted the futures contract alternative throughout the period while absorbing shocks in the market. On the other hand, China Eastern chose an approach commonly referred to as “suspicious like speculation” (Liu et al., 2016, p.76). It signed a contract with an international investment bank agreeing on certain conditions subject to predictions, which was a considerable risk had there been a shift in oil market price.

The Most Successful Method and Lessons Learnt from the Hedging Efforts

The two cases provide an overview that helps to understand the logistics required to balance the situation. One of the most critical lessons is the need for flexibility. A strategic sense and effective risk management can result in high value, although any bias toward the risks can have fatal outcomes. Thus, it is necessary to have an efficient information processing unit to analyze such strategies to minimize losses (Abbey, 2016). The most effective hedging plan was done by Southwest China Airlines, although they all failed during the drop in fuel prices. They did not prepare for the decrease because of their success which generated bias. They could not determine any potential risks in their cost reduction efforts.

Conclusion

The airline companies will be likely to continue using fuel hedging in the coming months and years. They survived the previous decades through the technique and beat their competitors while making consistent profits. It essentially implies that although it has proved to be risky as well, the methodology can still work to minimize losses in the future effectively. However, it is critically noteworthy to recognize that such moves should be carefully evaluated. The market price volatility is a factor that is out of the control of most firms; thus, the only speculation is best suited to inform the decision-making process. Consequently, the focus should not be on cutting down costs; instead, it should be about limiting the effects of price fluctuations.

References

Abbey, D. R. (2016). The Relationship between Fuel Hedging and Airline Profitability. Northcentral University. [Master’s thesis, Northcentral University]. ProQuest Dissertations Publishing.

Dafir, S. M., & Gajjala, V. N. (2016). Fuel Hedging and Risk Management: Strategies for Airlines, Shippers and Other Consumers. John Wiley & Sons.

Liu, Chin-Yen A., & Jones, K.J. (2016). Integrated risk management on fuel hedging program: A case study on Southwest and China Eastern airlines. Academy of Business Research Journal, 2, 74-85.

Manuela Jr., W.S., Rhoades, D.L., & Curtis, T. (2016). An analysis of Delta Air Lines’ oil refinery acquisition. Research in Transportation Economics, 56, 50-63.

Swidan, H., & Merkert, R. (2019). The relative effect of operational hedging on airline operating costs. Transport Policy, 80, 70-77. Web.

Turner, P. A., & Lim, S. H. (2015). Hedging jet fuel price risk: The case of US passenger airlines. Journal of Air Transport Management, 44, 54-64. Web.

Introduction

Before starting collecting data and writing the methodological part of the paper, it is an integral step to determine how the research design of the paper will look like. In the initial steps, there was the elaboration of a proper topic statement and research questions. Although the major hypotheses of the paper were not fully formulated yet, there is a sense of thinking about the possible methods that will be used in the research. Conventionally, scholars choose between qualitative, quantitative, and mixed research strategies. In the area of my study (proactive hazard identification and line maintenance in commercial aviation), it is beneficial to use quantitative methods rather than qualitative ones.

Methods used in the Related Literature

The proper way to understand which methods are applicable is to analyze the academic literature that is associated with the main topic of the study. Because the scope of research is quite specific, there is no requirement to search articles with the same type of study. In fact, the articles for consideration can discuss different aspects: causes of accidents in aviation, analysis of the effectiveness of issues reporting systems, risk assessment models, etc.

Concerning qualitative research papers, it should be clarified that this type of method can also be associated with numbers. In fact, it is a stereotypical view that if a paper has complicated tables with coefficients and numbers, it is a quantitative research design. For example, Qualitative Comparative Analysis (QCA) is also associated with numerical work, but it helps to use medium number of cases if there is no possibility to incorporate full-scale quantitative research with a big sample (Kan et al., 2020). Concerning sources, Bağan and Gerede (2019) in their study of outsourcing of aircraft maintenance operations used qualitative method by conducting interviews with experts and coding their answers to underscore arguments repeated in experts’ answers. Habib and Turkoglu (2020) trying to understand the influence of aircraft maintenance on aircraft accidents used content analysis. They analysed accident reports case by case without making any general big samples for analysis. Thus, the qualitative type is quite popular in the area under study because it allows understanding the problem deeper and avoiding the problem of lack of cases for large-n analysis.

As for quantitative research, intuitively it seems that in the topic of aircraft safety and aviation in general, the quantitative approach will be popular. However, the existing modern literature demonstrates that it is not the fully correct view (Zimmermann & Mendonc 2021; Sun & Zhang, 2021). This sphere is related to the analysis of managerial practices, not with the mathematical calculation of any formulas how people can think. As for data, it is hard to create a dataset that will have many observations and cases of proactive hazard identification. Nevertheless, there are articles that effectively use quantitative methods that contradict my point of view. For example, Kumar et al. (2021) in their study of go-around effectiveness for safety conducted his empirical work on the basis of 890 flights in San Francisco. In other words, they found a sufficient number of observations for the use of the quantitative approach. In the article written by Patriarca et al. (2019), a method similar to the text-as-data method is applied. They analyse the different regulation papers of hazards management in aircraft, focusing on the repeatable concepts and rules.

All in all, scholars in the field of airplanes safety management use both quantitative and qualitative methods. The fundamental question is the availability of data for the research (Disman et al., 2017). A quantitative approach will be effective for small-n comparisons, medium n size samples, and case studies (Bryman, 2017). If a researcher wants more generalized and verified answers to research questions and hypotheses, she needs to collect as much valid data as possible. In the case of the research on the impact of proactive hazard identification and reporting in line and hangar maintenance on commercial aviation accident trends, I can collect the cases when proactive hazard identification showed positive/negative results for safety on airplanes.

Why Use Quantitative Research Approach

Quantitative research is the most common form of research due to its ability to standardize data collection and analysis. It also helps researchers effectively generalize, summarize, and conclude study findings (Queirós et al., 2017). The research method has several pros, such as replication, the ability to analyze large samples, direct result comparisons, and its ease in testing hypotheses. The different advantages are discussed in the following sections.

Firstly, it is easy to repeat a given study as the data collection tools, and apparatus are standardized. For instance, interview questions and questionnaires can be reproduced and given to another population sample. It implies that the same research can be repeated after a long period without losing touch on the data collection methods and tools. It enables the research to avoid chances of bias by exposing all respondents to the same set of questions which helps generalize the results.

Secondly, quantitative researches are designed to analyze large data sets using consistent and reliable procedures. The reliability of quantitative research depends on the accuracy in choosing sample size. Unless the right mechanisms are employed in sample selection, the results may be biased. However, if the sample size represents the target population properly, the results are entirely effective and reliable (Rahman, 2020). This makes it easy for researchers to study large populations by just focusing on the selected sample sizes.

Lastly, the research makes it easy for researchers to test the study hypothesis with established and formalized procedures (Rahman, 2020). The researchers are able to carefully analyze, interpret and present their data prior to making conclusions (Rahman, 2020). The procedures help researchers detail their data collection and testing approaches, study variables and predictions in a statistically accountable manner which help them formulate conclusions (Savela, 2018). The conclusions either support or denounce the study hypothesis, which is also the study’s main conclusion.

Specific Implications of Quantitative Method for Research Topic

It will be beneficial for my study to use quantitative methods. For example, I as a researcher can collect data on how proactive hazard identification helped the airplanes to become safer. One of the ideas is to use an imaginary experiment by considering two samples: cases with the use of proactive hazard identification and reporting in line and cases that have not used such techniques. The statistically significant relationship will show the validity of dependency of planes’ safety from proactive hazard identification and reporting in line. Nevertheless, it will take a lot of effort to collect such a specific type of data. The proper collection of appropriate data will play a major role in the success/failure of my research.

Conclusion

The two main research methods applicable in safety studies are quantitative and qualitative. Quantitative research collects, analyses, interprets, and presents statistically quantifiable data. The data is collected using established tools such as interviews and questionnaires. Qualitative research uses standard theories to analyze and conclude on non-numerical data. Safety management systems operate on numerical data that is analyzed for better decision-making and conclusions. Conventionally, the safety of airplanes is measured by analyzing the frequency of occurrence of an accident or incident, which can only be analyzed quantitatively. Quantitative research is chosen over the qualitative approach because of its pros which include: ease of testing hypothesis, replication, ability to study large populations, and its suited for numerical and statistical analysis.

References

Bağan, H., & Gerede, E. (2019). Use of a nominal group technique in the exploration of safety hazards arising from the outsourcing of aircraft maintenance.Safety Science, 118, 795-804.

Bryman, A. (2017). Quantitative and qualitative research: further reflections on their integration. In Mixing methods: Qualitative and quantitative research (pp. 57-78). Routledge.

Disman, D., Ali, M., & Barliana, M. S. (2017). The use of quantitative research method and statistical data analysis in dissertation: An evaluation study. International Journal of Education, 10(1), 46-52.

Habib, K. A., & Turkoglu, C. (2020). Analysis of aircraft maintenance related accidents and serious incidents in Nigeria. Aerospace, 7(12), 178.

Kan, A. K. S., Adegbite, E., El Omari, S., & Abdellatif, M. (2016). On the use of qualitative comparative analysis in management. Journal of Business Research, 69(4), 1458-1463.

Kumar, S. G., Corrado, S. J., Puranik, T. G., & Mavris, D. N. (2021). Classification and analysis of go-arounds in commercial aviation using ADS-B data. Aerospace, 8(10), 291.

Patriarca, R., Di Gravio, G., Cioponea, R., & Licu, A. (2019). Safety intelligence: Incremental proactive risk management for holistic aviation safety performance. Safety Science, 118, 551-567.

Queirós, A., Faria, D., & Almeida, F. (2017). Strengths and limitations of qualitative and quantitative research methods. European Journal of Education Studies, 3(9). Web.

Rahman, M. S. (2020). The advantages and disadvantages of using qualitative and quantitative approaches and methods in language “testing and assessment” research: A literature review.

Savela, T. (2018). The advantages and disadvantages of quantitative methods in schoolscape research.Linguistics and Education, 44, 31-44.

Sun, R. S., & Zhang, N. (2021). Study on Flight Training Safety of Fuyun Airport in Xinjiang Province Based on Threat and Error Management. In The 2021 3rd International Conference on Big Data Engineering (pp. 144-149).

Zimmermann, N., & Mendonca, F. A. C. (2021). The Impact of Human Factors and Maintenance Documentation on Aviation Safety: An Analysis of 15 Years of Accident Data Through the PEAR Framework. The Collegiate Aviation Review International, 39(2).

Introduction

An exploration into the dynamic approaches regarding the operational hub and spoke and direct routing systems renders an in-depth insight into airlines’ business strategies. The contrast significantly contributes to an understanding based on competence outliers that airlines utilize to increase the profit pool while integrating with an essence of sustainability. Air transportation system involves an interplay of different processes that encompass communicating the networking routes based on convenience and an airline’s main objectives. While the hub and spoke routing system improves the connectivity of airlines and passengers across the country, the point-to-point airport routing system provides an eco-friendly but less profitable business operational mainframe.

Relevant Theories

Different theoretical foundations support the ideological concept concerning the margin between the hub and spoke and direct routing systems. According to Yirgu and Kim (2021), there is an increase in passenger leakage from small to large airports. The main reason encapsulates convenience based on costs and eco-friendliness. Yirgu and Kim (2021) further argue that despite small airports offering direct routing systems for passengers, there are lesser offer services and a reliability quotient. Small-scale airlines focus on maximizing profit margin hence compromising the customers’ satisfaction quotient. On the other hand, large airports and airlines optimally prioritize the client’s loyalty and satisfaction. As a result, large airports and airlines deliver competent services. In this case, Yirgu and Kim (2021) agree that the hub and spoke routing system renders a higher quotient on air transportation services to clients than the direct routing system mainly used by small-scale airports and airlines. An elaborate network system in the air transportation industry fosters intensified safety and reliability regarding the quality of services.

Over the decades, the corporate market experienced a paradigm shift concerning consumer behavioral moiety. In the research by Pels (2021), the scholar indicates that the hub and spoke and direct routing networks pose dynamic effects on the environment. One of the consequences involves the expansive essence of the operations by the hub and spoke routing structure. The system focuses on the intensification of air transport operations hence the bulk movement of the airplanes across the American air space while prioritizing the needs of the indirect over the direct passengers. The initiative is unsustainable based on the increased costs of reducing environmental pollution. The hub and spoke system fosters a solution regarding profit maximization while offsetting the expenses in an attempt to reduce environmental pollution. Therefore, Pels (2021) depicts that the direct routing network is an advocate for environmental sustainability due to limited air transportation operations despite the incurrence of high managerial costs. Primarily, the increase in airports to intensify functionality of the hub and spoke network leads to an amplification of environmental resource exploitation.

Event Description

Air transportation operations involve the coordination of the different airlines and airports hence the importance of an intensified communication and networking system. Pels (2021) postulates that ineffective management of the hub and spoke risks significant negative impacts, such as discordance and accidents. Professionals operating the hubs and spoke prioritize indirect passengers over direct passengers mainly because of the higher revenue margin. Therefore, Yirgu and Kim (2021) establish that the key advantage of a direct routing system involves reduced regional operations hence lesser environmental impact. However, a significant percentage of airlines and airports utilize the hub and spoke based on the accrued dynamic benefits. The comparative compound between the hub and spoke and direct routing systems is a framework encompassing an intersection of environmental sustainability, business profit maximization, and customer satisfaction quotient.

Theory Selection

One of the global topical issues involves the implementation of capitalistic ideologies with conservative environmental resource exploitation. After the onset of the COVID-19 pandemic, the American government initiated lockdown and restriction of movement. In this case, Bouwer et al. (2020) argue that the event caused a profound decrease in the volume of air transport activities. Despite the generalized impact, the hub and spoke structure encountered a profound challenge due to the reduced volume of travelers. The hub system functions based on a banking structure, therefore, the reduced number of indirect passengers risks the incurrence of losses for the airlines. As a result, Bouwer et al. (2020) indicate that it is the responsibility of the managerial team to implement policies that improve the sustenance of the hub and spoke routing structure. However, the direct routing system proved profitable and sustainable during the COVID-19 pandemic due to the convenience and lesser operational necessities. The theoretical construct on the preferential baseline of the hub and spoke than the direct routing system fosters an apt insight into the sustenance of modern business strategy.

Theory Evaluation

Technological advancement triggered a profound paradigm shift in the consumer market and behavioral perspective. In this case, Debbage and Debbage (2019) stipulate that consumers affiliate with institutions promoting environmental sustainability. However, there is a major controversy regarding the contrast between the hub and spoke and the direct routing system in air transportation operations. On the one hand, the hub and spoke ensure an optimal trickle-down effect due to the distribution of activities across different regions. Debbage and Debbage (2019) depict that the core foundation of the hub enshrines elevating the accessibility of different and diverse tourist destinations across the U.S. However, in different research by Pels (2021), the optimality of the hub poses a significant environmental threat. As a result, different stakeholders in the air transportation industry must invest in modern technology that reduces gas emissions and disruptions of the environment’s biodiversity. Ideally, the hub and spoke routing system is an emblem of improving tourism operations due to the profound accessibility quotient to different regions.

Critique

The topical issue concerning the exploration of the hub and spoke and direct routing system engulfs the intersection of recommended guidelines and the determination of effective implementation procedures. Despite the derivation of major insights regarding the operationalization of the different network structures, there is minimal criticism of stakeholders’ involvement. It is recommended that further research focuses on the utilization of technology to boost different entities’ involvement in the advancement of operations. The core mandate of the corporate sector encompasses implementing project strategies that enhance intensified accrued benefits on environmental resource exploitation. Therefore, the study is limited to the comparative baseline of the two systems against the remedied framework on sustainability. The limitations of the observation involve an evaluation of respondents’ overviews concerning the issues of air transportation activities. However, it is recommended that further research explores the dynamism of international operations and the impact on routing systems.

Conclusion

In conclusion, the hub and spoke routing system poses a significant positive impact than the direct routing system in the American air transportation industry. The main reason involves the advocacy for optimal trickle-down effects. A significant percentage of passengers access different regions for business and tourism purposes. As a result, the increased cash flow across different areas attributes to the growth and development of the remote areas. However, the intensified and distributed air transportation activities contribute to the overexploitation of environmental resources including elevated air pollution. Therefore, it is the responsibility of the dynamic stakeholders to establish initiatives to ensure the establishment of effective solutions. Direct routing system, on the contrary, fosters minimal environmental pollution due to lesser disturbance despite the reduced profit margin and opportunities to corporate entities and remote communities.

References

Bouwer, J., Krishnan, V., & Saxon, S. (2020). Will airline hubs recover from COVID-19. McKinsey & Company.

Debbage, K. G., & Debbage, N. (2019). Aviation carbon emissions, route choice and tourist destinations: Are non-stop routes a remedy?. Annals of Tourism Research, 79.

Pels, E. (2021). Optimality of the hub-spoke system: A review of the literature, and directions for future research. Transport Policy, 104, A1-A10.

Yirgu, K. W., & Kim, A. M. (2021). Aviation fuel and emissions in air markets with interregional passenger leakage. Transportation Research Part D: Transport and Environment, 101, 103092.

Pilots battled an automatic system that continually pushed a Boeing jetliner’s nose down due to a defective sensor until they lost power and crashed into Indonesia’s Java Sea. Boeing observed that the day before the flight, other crew had responded appropriately to the automated nose-down pitch and operated the jet manually (Report faults safety failures, 2018). The Indonesian safety commission’s investigation did not conclude how the pilots lost all plane control. Still, it reiterated previous suggestions that pilots be more familiar with emergency plans and mindful of past aircraft difficulties. The pilots appear to have responded by manually directing the nose higher, failing to realize what was occurring, and failing to follow the standard process for combating improper autopilot activation. The personnel of the tragic flight was allegedly not notified about past flying difficulties, and the Lion Air plane was not adequately fixed following those flights.

Regarding the airlines cutting costs on safety, it could be claimed that safety precautions raise expenses without boosting income. Pilot training, for instance, is costly, particularly simulator preparation, and is being cut due to rising mechanization, in which pilots increasingly operate the plane’s software rather than the aircraft itself (Robinson pilot safety course, 2022). Hence, when new safety concerns arise, airlines should cut their profit and, as a result, the wages of their employees. For this reason, I think companies in the industry might want to protect their workers. Moreover, the COVID-19 crisis has been especially harsh on the airlines. As a result, the multiple people working in the flight firms were jobless for a long time. Thus, the airlines try to compensate for the period of absence of pay by cutting costs on safety and providing wages to employees.

References

Report faults safety failures, defects in Lion Air crash. (2018). AP NEWS.

Robinson pilot safety course. (2022). Robinson Helicopter Company.

Speed, efficiency, and reliability have emerged as the competing factors brought about by the integrated express carriers, in addition to the more traditional factors of competition-size and weight of the parcels (Zondag; cited in Air Cargo Asia-Pacific, 2006). Integrators have used their own routes and equipment such as trucks and automated handling and storage facilities (Massimo & Shepherd, 2009) in order to gain these competitive edges. Integrated express cargo handlers have gained advantage over other types of airlines because of the ability to ‘own’ the customers as they provide transport services for goods at local specific areas (door-to-door). In essence, they have been able to come into contact with the customer more than other types of airlines in a specific coverage area. They are able to ‘duplicate’ the airline cargo chain in addition to usage of management tools that airlines do not have (Zondag; cited in Air Cargo Asia-Pacific, 2006). Integrated express market has grown to capture more of the international air cargo traffic with time. For example, it has grown from 5% coverage in 1993 to 11% in 2003 according to the aforementioned author. In particular, the market share has grown to 60% coverage in the U.S. cargo carried in thirty years preceding 2002 (Massimo & Shepherd, 2009).

Integrated express operators have a more favorable market position than other airlines and cargo handlers because the former have taken over business in the end-customer quadrant, a sector that has been described as more attractive. While the all-cargo airport-airport operators have specialized in the provision of cargo services between two points, they do not have an exclusive experience with the customer as do have the integrated express cargo service providers. Third party logistics has been described to be a field that is more rewarding, and by the fact that integrators operate in these routes, they have a competitive edge over all other types of airlines (Zondag; cited in Air Cargo Asia-Pacific, 2006).

All-cargo airport to airport handlers stand at a position of competitive advantage over other types of cargo handlers because they capitalize on operations between the airports which are the biggest place of operation for international cargo transport. They therefore are better placed to serve international markets and regional markets because they may also specialize in offering transport services at a certain region. Thus they can gain advantage in terms of offering services in a more open market rather than local operators. They are better placed to serve international and local businesses such as those operating across the borders because they may have aircrafts fitted for these purposes (for cargo requirements such as weight). They are best fitted to offer transport services for businesses interested in effective distribution to various point as a means to sell more.

The future of both the integrated express cargo airlines and all-cargo airlines (Wraight, 2008) is increasingly being threatened by the expansive efforts of international airline operators to occupy even the remote areas and offer cargo services. The growth of multinational corporations seeking one-stop-logistics solutions will particularly offer a competition for the services where integrators have flourished. With expansion of services such as franchising and company acquisition (to gain local competitive advantages), the future for integrators does not appear as bright. Particularly, network forwarders; have emerged as competitors for these cargo services. These provide expertise in air and sea cargo and road transport and have several offices in the local settings (Zondag, cited in Air Cargo Asia-Pacific, 2006). Airport-to-airport all-cargo operators are also faced with the governmental and traffic rights regulations which also bind their passengers. There are many restrictions touching the aircraft all-cargo business, such as night flight bans, environmental penalties and restrictions among others (Wraight, 2008) which may impede all-cargo operations.

References

AirCargo Asia-Pacific. (2006). Airlines vs Integrators — is it open an open and shut case for IE? Web.

Massimo, G., and Shepherd, B. (2009). Liberalizing air cargo services in APEC.Munich Personal RePEc Archive. Web.

Wraight, S. (2008). Cargo airlines & the industry issues. Air Cargo India 2008. Web.

Introduction

Available scholarship underscores the need for players in the air transport industry to always ensure safe, secure, competent and ecologically sustainable operations as they engage in the business of transporting passengers and cargo within and outside the boundaries of their respective countries (International Civil Aviation Organization, 2014). In the United States, all safety, security and customer protection issues within the air transport sector are overseen by several constitutionally-formulated institutions such as the National Transportation Safety Board (NTSB), Federal Aviation Administration (FAA), and the Department of Transportation (Weensveen, 2012). This paper reviews and discusses one safety recommendation by the NTSB and one consumer protection by the Department of Transportation, with the view to demonstrating how safety and consumer protection issues are entrenched within the United States airline industry.

NTSB’s Safety Recommendation

The NTSB routinely releases safety recommendations that are usually expected to address specific issues or challenges raised in the course of undertaking a study or discovered upon successful completion of an investigation involving an air transportation catastrophe (Weensveen, 2012). Upon successfully investigating the 2013 accident involving a Boeing 777-200ER operating as Asiana Airlines flight 214, the NTSB came up with the Safety Recommendation A-14-037 with the view to not only ensure that all safety concerns relating to the accident were addressed, but also to avoid future recurrence of such accidents. The accident, which led to several fatalities and life-threatening injuries among passengers and crew, was likely caused by lack of adherence to standard operating procedures, lack of adequate training on the airplane’s autoflight system, compromised design complexity, as well as other operational and airplane design deficiencies (National Transport Safety Board, 2014).

The recommendation made to FAA by the NTSB upon successful completion of the investigation required Boeing, the manufacturer of the airplane, to consider developing “enhanced 777 training that will improve flight crew understanding of autothrottle modes and automatic activation system logic through improved documentation, courseware, and instructor training” (National Transport Safety Board, 2014, para. 1). Other recommendations arising from the accident include

1. developing design requirements for context-reliant low alerting systems for commercial airplanes,
2. undertaking research with the view to investigating the injury potential to occupants in accidents with substantial lateral impacts and implementing the findings, and
3. undertaking research with the view to investigating the dynamic that generates high thoracic spinal injuries in commercial aviation accidents and implementing the findings.

The FAA responded to this set of recommendations by arguing that

1. it would have been less effective to merely redesign the procedures for Boeing 777 but fail to consider other plane models that had their own potential vulnerabilities associated with design and operation, and
2. there was an urgent need to develop comprehensive guidance on critical issues such as mode awareness and training for pilot monitoring.

On redesigning the aircraft, the FAA argued that it was far more plausible to persuade carriers to amend their own procedures rather than having to deal with one particular type of aircraft (National Transport Safety Board, 2014).

DOT’s Consumer Protection Requirement

It is indeed true that the U.S. Department of Transportation (DOT) has over the years imposed a myriad of consumer protection requirements on the country’s airline industry with the view to addressing various safety concerns associated with the aviation sector. In 2013, for example, the DOT developed and implemented the Airport Safety Management System with the view to not only enhancing airport safety through conformance with best practices in risk management, but also facilitating integration of formal risk management processes through promoting international harmonization with the International Civil Aviation Organization (ICAO) standards (United States Department of Transportation, 2015). This legislation represented a paradigm shift in consumer protection by moving away from an overreliance on past accidents in formulating corrective actions towards a proactive approach to risk management through the use of international best standards aimed at making the country’s airports safer and secure.

The expectations arising from this requirement have immense benefits for consumers and airport industries as they not only enhance the safety of airports, but also ensure that safety efforts within the U.S. airline industry become a fully integrated component of the business operation. Additionally, it is evident that the legislation adopts a systems approach to safety management instead of laying focus on analyzing past accidents to formulate future preventive interventions. This implies that the Airport Safety Management System provides the necessary capability for every segment and level of the U.S. airline industry to become an important player in enhancing a safety culture which underscores and practices risk reduction (International Civil Aviation Organization, 2014; Weensveen, 2012). Lastly, the requirement by the DOT promises immense benefits to consumers, particularly in terms of improved safety capability for respective carriers and reduced fares for passengers as a result of harmonized business processes.

Conclusion

This paper has reviewed and discussed the NTSB’s safety recommendation A-14-037 and the DOT’s Airport Safety Management System, with the view to demonstrating how safety and consumer protection issues are entrenched within the United States airline industry. Overall, it can be concluded that the NTSB and the DOT play an appreciably important role in ensuring that air transportation in the United States is operated within a safe and secure framework.

References

International Civil Aviation Organization. (2014). Safety report. Web.

National Transportation Safety Board. (2014). Safety recommendation A-14-037. Web.

United States Department of Transportation. (2015). Report on DOT significant rulemakings. Web.

Weensveen, J. (2012). Air transportation: A management perspective (7th ed.). Burlington: Ashgate Publishing.