The Airline Industry Value Chain
Essay Preview: The Airline Industry Value Chain
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Airline industry value chain
Inbound logistics
Primary activites
Stock control – airlines must store and handle fuel, food, and drinks. Stock is managed to ensure reductions in stock turnover, thus reducing costs and wastage.
Route selection – airlines must choose their flight routes. These will be selected upon desired routes, and deals negotiated with the airports. Airports are selected for their prime location, to allow consumers to get to their desired location. This then entails the scheduling of flights and crew.
Passenger services system – software which allows the airlines to function “comprehensive passenger reservations, inventory control, fares, ticketing, and departure control functions” (AirportTecnology.com 2006). This allows airlines to reduce their costs of wages and paper transactions, and maximize utilization.
Yield management – this allows the airlines to compare their available seats against demand for particular flights to price the tickets accordingly. This has been particularly prevalent in recent years for airlines, particularly low cost carriers such as Ryanair whose prices for a flight vary greatly..
Aircraft acquisition – airlines must negotiate deals with aircraft manufacturers to acquire planes. For instance Ryanair use a standardized airplane which allows them to reduce their staff training costs, as well as their maintenance costs.
Support activities
Firm infrastructure – budgets, accounting, regulatory compliance, legal issues, public relations
Human resources – flight, route and yield analyst training
Technology development – computer reservation systems, in-flight systems, flight scheduling systems, yield management systems
Procurement – information technology communications
Operations
Ticket counters – airlines must operate ticket counters to get their passengers onto their airplanes. Some passengers may find at the counter that they cant get on the flight as the airlines oversell tickets for their flights to allow for passengers canceling or not turning up for the flight. This is aimed to ensure that airlines keep maximum flight capacity. Airlines must compensate any passengers who cannot get on a flight they have a ticket for.
Gate operations – airlines need to get their passengers onto their flights and therefore their planes onto the runway, working alongside airport management. Efficiency and punctuality are key factors determining the effectiveness of gate operations, as passengers wish to spend as little time waiting around as possible. Low cost airlines also need to ensure punctuality as they rely on quick flight turnovers
Aircraft operations – checking and maintenance of aircrafts, spare parts etc. used when and where necessary.
In-flight service – staff supply passengers with service requirements, these include; food, drinks, cushions, assistance etc. The airlines may also have onboard entertainment such as the showing of movies. This is the main focus for customer satisfaction for the traditional airlines, whereas the low cost carriers place little emphasis on the more luxury aspects, charging passengers for any additional services such as food etc
Baggage handling – this is generally a function managed between the airlines and the airports. Baggage handling can be a critical factor for airlines choosing particular airports, as importance for quick movement of baggage is important to ensure passengers are not waiting around, and that the flights are kept on schedule.
Ticket offices – these give airlines the opportunity to make direct sales and transactions with customers. This is an alternative to travel agents cutting out the middleman whilst providing advice and assistance for customers queries.
Support activities
Firm infrastructure – budgets, accounting, regulatory compliance, legal issues, public relations
Human resources – pilot training, safety training
Technology development – computer reservation systems, in-flight systems, flight scheduling systems, yield management systems
Procurement – information technology communications
Outbound logistics
Flight connections – point-to-point routes must be carefully planned to allow for regular scheduled flights to maximize efficiency of fuel, staff and profitability.
Passenger flight connections – Inclusive package deals can be negotiated with railways and taxis to transport passengers once they arrive at their destination.
Car rental/hotel reservation – software packages can be used to manage this function, “the Videcom reservations systems is a sophisticated suite of products and is able to offer customer services such as e-tickets, hotel room reservations, rental car reservations, frequent flyer program mileage, and provision for special meal requests. Airlines use our Reservations System to fully manage there inventory and yield/revenue to maximise their profits” (Videcom 2006). Again the use of e-commerce can allow the airlines to reduce their costs and increase their efficiency.
Support activities
Firm infrastructure – budgets, accounting, regulatory compliance, legal issues, public relations
Human resources – baggage handling training
Technology development – computer reservation systems, in-flight systems, flight scheduling systems, yield management systems
Procurement – information technology communications
Marketing and sales
Promotion – discounted tickets in conjunction with affiliated companies and newspapers.
Advertising – heavy spending on advertisements in newspapers, radio, television, and billboards. Low cost carriers such as Ryanair reduce their advertising costs by advertising on the internet, and make the majority of their sales through their website.
Advantage program – these are strategies used to increase consumer loyalty and repeat purchases. Airlines give their customers free air miles, when purchasing related products, such as flight tickets, or affiliated products/affiliated services