Internal and External Issues in the Airline Industry

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Table of Contents

Introduction
Internal Factors
External Factors
Opportunities and Risks
Conclusion
List of References

Introduction

Aviation industry is one of the fastest growing economic sectors in the world. It connects the whole world and augments numerous businesses globally. The air transportation results in economic and social benefits both of which contribute to economic growth of countries.

Tourism and international trade sectors benefit enormously from the aviation industry. The rapid transportation of passengers and goods is another contribution of airlines worldwide. Finally, the aviation industry employs many people and contributes highly in terms of tax revenues (Dobbs 2009, p. 32). The industry has experienced tremendous growth in the recent years. There are a number of factors that have led to the high growth of this industry.

The increase of peoples’ earnings, improvements in life styles, and enhancement in people’s confidence in the use of aircrafts for movements have led to the witnessed rapid growth. The bilateral agreements among governments and the open sky agreements have also led to the increase in the use of commercial airlines. Competitions among airlines coupled with increased efficiency in airlines and airport operations have had the effect of fare reduction making air travel affordable.

Finally, globalization has opened the world and people want to experience life in different areas of the world. However, the management of airlines has been faced with various internal and external factors that affect the operations and the management. These factors have great pressure on the profits of the airlines (Wald 2011, p. 27).

This paper discusses the effects of these factors on the operation and the management of various airlines. It also explains the opportunities that exist in the aviation industry and risks that the businesses are likely to face. The paper is divided into four main sections namely introduction, internal factors, external factors, opportunities and risks, and finally conclusion.

Internal Factors

Factors affecting the operations and management of airline organizations are both internal and external. One of the internal factors affecting management is the existence of multiple levels of decision-making. The levels of decision making in many airlines are varied and interact at certain levels. The strategic, planning and operations departments are decision making levels that always interact and affect the operations of the airline.

The airlines strategic decisions usually take a lot of time before their implementation. They also do require a lot of capital investment and a lot of research work.

The strategic decisions are usually made to influence the direction of the company. Growth and expansion plan is an example of a strategic decision that an air line can make. Precisely, there are bountiful impacts of internal and external factors on the operation and management of an airline. Additionally, there are associated opportunities and risks to the business following its nature of operation.

Conversely, planning decisions are made to enhance optimal use of the airlines resources. Aviation industry has a lot of resource which include aircraft, flight attendants, human resources, and buildings among others. The management has to plan on how these resources are to be used optimally.

In the airline, planning decisions relate to issues such as forecasting of demand, flight scheduling, assignment of flight pilots/crews to different flights, aircraft maintenance, and planning for the accommodation of crews (Albers, Auerbach, Baum, & Delfmann 2005, p. 105).

Other decisions that require planning are the number of workers required to manage a flight such luggage handlers, customer care officers, and so on. The decisions are also on the amount to be charged as fare and the availability of seats. All these decisions are related and this makes the whole planning a very complicated process.

The operation decisions are those that are made daily and are reviewed regularly. Some examples of operation decisions may include responses to incidents such as adverse weather conditions, delays in flights, cancellation of flights, mechanical problems with an aircraft and non attendance of a staff due to issues like illness. The strategic decisions that have been made always affect the planning decisions that are to be made.

The planning decisions on the other hand influence the operation decisions that are made. The feedback also comes following the sequence. The operations stage provides the planning stage with feedback and the planning stage further provides the strategic stage with the feedback.

The other internal factor that affect operation and the management of airlines is the interaction of different groups of workers who must operate together to ensure success of flights.

The size of the airline normally dictates the number of flights that it can operate. If the airline is a large one, then it will operate hundreds of flights in a single day. A considerable number of workers of different departments and professions must interact together to ensure the success of each of these flights.

They have to cooperate with all having the single objective of ensuring that there is no delay in flight and that everything moves efficiently (Haberberg & Rieple 2008, p 186).

Some of the different groups of workers that interact are the cock pit crew, the cabin crew, the maintenance crew, the ramp crew, the baggage handlers, cargo agents, fuelling agents, the customer care crew, the catering agents, the air craft cleaning agents and the dispatchers. These workers are of different qualifications, workloads and pay grades but their contribution is vital in the process of preparing for the departure of flights.

The airline management has to make a proper and implementable work plan for workers so as to ensure efficiency (Wu 2009, p.159). The work plan must ensure that there are no conflicts between the different groups. Such can easily lead to delays and possibly accidents. These different groups interact at different levels. The pilots are the ones to fly the plane and there must be certain number of pilots to fly large planes.

The flight attendants ensure the security of the passengers onboard and also reassure them. The maintenance crew repair and maintain the aircraft and they do this regularly while the ramp agents on the other hand usually direct the aircraft and assist in parking it. The baggage handling crew usually load and off-load baggage while their fuelling counterparts assist in ensuring that the aircraft has enough fuel for the flight.

The customer service agents are responsible for assisting passengers before boarding with their queries, check-in, assignment of seats and any other issue. The gate agents usually ensure that any unauthorized person does not gain access to the aircraft. Meals and drinks to be taken in the aircraft are provided for by the catering agents.

The description above shows how these groups of people interact for the success of the flight and conflict between them has effects that can impact negatively on the airline. The management of the airline therefore has to ensure that each of these groups do their work smoothly to avoid any adverse incident.

The other internal factor that impacts on the management and operation of airlines is the training and skills of the airline staff. The management has to ensure that the staff is well trained and qualified to work for the air line and that the crew in the aircraft are qualified to operate the flight.

There are certain set of skills and knowledge that an expert in the aviation industry must have. The activities involved in the aviation business such as piloting is complex thus people with ability to make quick and accurate decisions are needed.

The management must ensure that the training of the staff be an on-going activity and should be incorporated in the culture of the company. The skills and training that the airline staff get is necessary to ensure security and effectiveness of the flight and thus make the operation and management of the airline easier.

External Factors

Competition is one of the external factors affecting the aviation industry. This incorporates the activities of other contenders (Wald 2011, p. 342). It is impossible for the management of the airline to work effectively without considering the actions of the other industry players.

The actions of competitors affect the actions of the management. Governments of various countries have regulations, which any airline organization must comply with in order to operate. The airline managements are also keen on the agreement terms that they make with the airports that serve them as these affect them.

The agreements affect the airline through various factors such as airport congestion. The preferences and the needs of the customers also affect the management and the operations of the airline. Issues such as competitive fares, quality of customer care, reliability and services provided on-board are of great impact on the airline.

The failure of the airline or other the management has negative impact on the airline. Finally, suppliers are important for the airline as they ensure continuation of the operations of the airlines activities. They thus affect the management of the airline since they provide crucial items such as gas, spare parts, meals and uniforms for the employees.

Policies are the other external factors that impact on the operations and management of airlines. Government policies usually have direct impact on the industry. Certain policies for example excise taxes on the tickets have the effect of increasing the prices for the consumers and hence lowering demand. A policy that seeks to protect the consumer by expecting the airlines not to take much time with the customers on the tarmac due to bad weather has the effect of increasing the rate of flight cancellation.

Interest rates are affected by monetary policies and these affect the airlines’ ability to acquire new aircrafts (Uwagwuna 2011, p.10). These policies affect the management and it therefore must act to avoid or limit the adverse effects that are associated with these legislations. Fuel policies also greatly affect the operations of airlines. Policies that affect the supply and the price of fuel have an influence on the profitability of the airline. Such policies may include oil suppliers’ decisions, expansions of refinery by an oil company and so on.

Finally, the other external factors that affect the management of airlines are the social, political, and economic occurrences. Economic and social developments are usually rapid and have great impact on the aviation industry. Political events such as terrorist actions, wars and coups always have negative effects on the airlines.

The management of the airlines must always be ready to take necessary actions whenever such events occur to help reduce their impacts on the airline. Airlines usually respond in various ways to survive such events and stay in business. Some of the ways that the management uses to survive such situations are among others the laying off of some staff, reduction of fares, cutting of employee salaries and reduction of the number of flights that it operates.

Opportunities and Risks

The existence of these internal and external factors brings a lot of challenges to the management of an airline. The industry itself usually faces a lot of challenges such as slow down in economies and this greatly affects the operations of airlines. However, they do present the management with opportunities for further development that enable the airline to continue staying in business.

The environment in which airlines operate is competitive, risky, unstable and dynamic. Issues such as fuel price changes, wars, customer service and the skills of the airline staff have impact on the ability of the airlines survival. They however bring the need for the management to put in place a proper corporate sustainability model so that it may stay in business.

Aviation industry has risks associated with operations, finance, human capital, technology, and social. Management has to effectively handle these risks. The industry has to adopt a corporate sustainability system that focuses on optimal use of resources, saving costs, improving capacities, and that enables fast response to changes (Triant & Ayse, 2011, p.111). The portfolio of the model should include plans on how to manage network, crew and the handling of codes.

Additionally, it should include how pricing is to be done, how the prices can be distributed and how the revenue is to be managed. The portfolio has to be guided by the research that the management has done. This is a vital consideration in the context of research and its ultimate impacts on the aviation industry.

The management must have the capability to know the risks that the internal and external factors bring. It must control and manage the risks successfully to enable sustainability. Concurrently, management has to improve on security, convenience, customer satisfaction, and also offer competitive prices. It can do this through an effective and well-structured corporate sustainability management model (Upham 2003, p. 28).

The workers in the airline too must understand the need for risk management and its benefits. The model that enables airlines to operate sustainably must have a cross department risk management method that monitor issues such as fuel price changes, exchange and interest rates changes and demand trends. The model also assists in elimination of issues such as conflicts between various groups of workers.

The challenge of competition is a threat to an airline but it offers an opportunity for the management to design a proper way of presenting itself to the market. The management has to take into consideration the market when designing a method of tackling competition, customer satisfaction and new territories. The factors that must be taken in to consideration include transport, communication, logistics, advertising and information among others.

In presenting itself to the market, the airline must recognize its target customers (Shaw 2011, p. 172). In this way, the management will be able to know the customers’ requirements and thus will satisfy customers and make the airline succeed in competition. The recognition of the target market also enables the airline to know how to structure its marketing and advertisements. The recognition of the customers is what has enabled the France-KLM, the largest company in the airline industry.

Technological advancements that have taken place in the recent years also have the capacity to assist the management of airline organizations deal with internal and external issues that affect the airline company. Computer technology/IT can assist in crew and flight scheduling and in general planning for different activities in the operations of the airline and this helps the airline save on time. The improvement in technology that is used in building of aircrafts currently enables airlines to save on fuel costs.

This is so because the current technology in use enables the creation of fuel efficient aircrafts. A good percentage of the ground services are also automated due to technological advancements and this further helps in cost savings. The current technology used in the airline industry also enables airlines increase their revenues. The availability of services such as in-flight access to internet and entertainment among others leads the customers to pay more hence increased revenue for the airline.

The other internal factor that impacts on the management and operation of airlines is the training and skills of the airline staff. This gives the management opportunity to determine the training requirement for the staff of the airline. It is the management of the airline that can effectively determine the set of skills that are needed for efficient operation of the airline (Fojt 2006, p.27). The management must ensure that the training of the staff be an on-going activity and should be incorporated in the culture of the company.

Airlines face various threats and these can greatly impact on the operations, efficiency and profitability of the airline. Cyber crime or attack is one of the threats that airlines face and this greatly affect the security of the airline and the passengers and the baggage.

The security level of airlines and airports have been greatly increased since September 2011 but the threats of cyber attack still exist and are likely to occur if the management does not put in place proper monitoring. This is a critical provision in various contexts. It is crucial to comprehend various operational aspects in the airline industry.

The other threat that is extremely risky for the airlines is the increase in oil prices. The failure of the management to take into consideration price changes in oil when forecasting their profits of the year can be disastrous to the airline. Such changes in the oil prices can be due to policies of oil marketers or the government. The increase in the oil prices may lead to increase in fare which further affects the demand.

The failure of the management to properly make a work plan for the workers is the other risk that may face an airline. The workers of an airline perform different activities and they interact in their duties. However, their duties should never conflict as such can lead to flight delays and cancellations. The delays in flight can greatly affect the way customers view the airline and this will influence the efficiency and performance of the airline.

Conclusion

The airline industry is one of the fastest growing industries worldwide and it contributes immensely to economic growth of various countries. However, the management of airlines has been faced with various internal and external factors that usually affect the operations of the airlines. The internal factors include existence of multiple decisions making levels, the interaction of different groups of workers and the skills and training of the workers.

On the other hand, external factors affecting the management of the airlines include competition, political provisions, economic factors, and policies enacted by governments and fuel suppliers. This is a critical provision when considered in both economic and operational contexts.

The existence of these factors gives the aviation industry numerous opportunities to improve its operations. Airlines may use corporate strategic models and the improvement in technology to tackle issues such as scheduling of workers in a way that there are no conflicts.

The actions such as competition also challenge the management to design proper advertising and marketing plans. Finally, the paper recognized the risks that may occur due to the airlines should the management fail to tackle the internal and external issues that face them. Some of the threats that may occur due to poor handling of the internal and external issues include cyber attack, loss of revenue, and loss of consumer confidence in the airline.

List of References

Albers, S., Auerbach, S., Baum, H & Delfmann, W 2005, Strategic management in the aviation industry, Ashgate, London, UK.

Dobbs, D 2009, Aviation Industry Performance A Review of the Aviation Industry in 2008. Diane Pub Co, Darby, PA.

Fojt, M 2006, The airline industry, Emerald Group Pub, Bradford, UK.

Haberberg, A & Rieple, A 2008, Strategic management: theory and application, Oxford University Press, Oxford, UK.

Shaw, S 2011, Airline marketing and management, Ashgate, Aldershot, UK.

Triant G & Ayse, Y 2011, Risk Management and Corporate Sustainability in Aviation, Ashgate Publishing Group, Aldershot, UK.

Upham, P 2003, Towards sustainable aviation, Earthscan Publ., London, UK.

Uwagwuna, C 2011, How the Macroeconomic Environment of the Airline Industry Affects the Strategic Decision of Boing Vs Airbus A Case Study, GRIN Verlag GmbH, München.

Wald, A 2011, Introduction to aviation management, LIT, Berlin.

Wu, C 2009, Airline operations and delay management: insights from airline economics, networks, and strategic schedule planning, Ashgate, Farnham, Surrey.

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