Aviation CaseEssay Preview: Aviation CaseReport this essayKey Performance MatricesSuccessful Risk Management Strategies to maximize operating margins: To minimize the impact of volatility of oil, strong fuel hedging strategies need to be used as a profit protection tool, in both enhanced and depleted supply demand conditions.
Diversification & expansion of operations across identified sectors and locations: Constantly identify and expand operations in prospective sectors with huge demand.
Low Cost or No Frill Model: Airlines operating on this model have shown exponential growth vis-à-vis the legacy carriers.Unionization: The airline business is labor intensive. Most of the employees are unionized. Human resource management measures like proactive industry oriented performance management process and compensation management for all employees, regular employee satisfaction surveys etc. Failure to do so may lead to work stoppages or strikes, hampering operations.
Ancillary Revenue: A number of supplementary revenue streams helped the airline industry gain ground in 2010 after two years of drought. The airline companies enforced fees on reservation change, pet travel, food and beverage, freight charges to add to their revenue streams.
Consolidation: Airline companies are consolidating in order to restore profits. The first consolidation in the industry was Delta Air Lines successful acquisition of Northwest Airlines in 2008. The merger catapulted Delta to the position of the second largest airline in the world, generating significant cost savings for both the airlines. In October 2010, United Airlines merged with Continental Airlines and formed a new company — United Continental Holdings Inc. This is the second merger that has created the worlds largest airline, overtaking Delta Air Lines.
Technology Upgrades: Air carriers are involved in numerous technology upgrades and system automation for various activities such as airline reservation system, flight operations system, website, maintenance and in-flight entertainment systems. These upgrades enable companies to perform better, lower costs and enhance customer service.
Baggage policy for Legacy Carriers: Introduction of initiatives like “Bags Fly Free” in order to attract a bigger share of business.Baggage policy for No Frill Carriers: The goal of airlines was to reduce the weight on the plane to cut fuel costs, so how would not charging checked bags help solve their problem? Reducing the weight limit of the first bag can help the airlines accomplish their goal. Charging for bags that weigh more than the limit should reduce the size. Charging even more for a second bag will reduce the overall luggage. If they were to follow this logic, airlines will now have less carry-on bags, and revenue from three different areas; carry-on bags, first bags that are over the weight
Consulting With Baskets: The CTO of the LCA recently asked why they chose to offer carry-on bags as a way to reduce costs to other airlines. “There are several reasons, however, why this is the best approach to dealing with a cost sensitive airline,” he explained. “First, the company does not need to invest in a huge buyout or to pay huge upfront sales prices for the first 100 bags (and over 50 percent of the bag weight).”
In addition to the costs associated with paying large pre-insurance premiums (which the CTO said has never happened before), the company does not really need to take on any debt to avoid the hefty premium increases. CFO Michael Tisdale added: “I think that is a great point…it makes sense to keep the company, but it also pays off the costs caused by the expense of a CFO’s office. We really hope the company can continue to do that job well, as it is always difficult to change things in the new environment.”
The current carrier policy is designed for all carriers, and a carrier which is more than a third of the size would not have a deal in place anyway.
While the carrier is looking into the possibilities of changing the policy, it has developed a “redefined price” and a better deal than the current one. It will be interesting to see which carrier achieves that strategy, and on how much the current deal represents.
The decision to not charge a second bag on top of the first is an important part of the airline’s strategy.
At the moment, it appears that the CTO will be talking to airlines as they decide how to implement the change. This will allow the airline to continue keeping its current price as a carrier’s goal, before switching to a more current one.
The airline can set different price levels, but it will ultimately become more complex, since they will want to find ways to balance cost and flexibility between buying bags and managing luggage. This can be done through different ways, but it will probably take a long time.
Carry-on bags in most situations are not a huge deal for airlines, so if they were a lot higher priced, it may still be possible to keep track of the amount of baggage in a bag.
Some airlines have been discussing this change as a way to reduce excess baggage load, instead of being forced to charge for it.
I encourage other carriers to take note of this move to increase their fares on those bags.
As mentioned,