To survive in any type of business its essential to remain consistent with forward movement when encountering profits and losses. Finding new ways to save money throughout the year to conserve end of year revenue is up to clever strategies, which are not always straightforward. Unfortunately, aviation business has gained a popular trend where it cost alot of money to make money and potential losses compliment the end of year revenue. Hence, the cliche' "to make a small fortune in aviation, you must first start with a very large fortune." Which does not mean a business cannot be successful in aviation, the business has to be able to create strategies to push through the times with losses to eventually gain profit overall. The bigger the business, the greater operational cost with larger potential losses. United Airlines, the biggest airline since it's merger with Continental Airlines in 2010, shows a great example of conflicts that aviation businesses can encounter especially with the advanced technology that airlines have accumulated over the years and are constantly challenged to support, sustain, and update. In 2012, United delivered it's second Boeing 787 Dreamliner with a flight from Seattle to Chicago, but before the flight departed, a glitch in one of the airlines computer systems delayed 250 flights around the world for a couple hours. In business, time is money and at this level it can be a substantial amount of money. Mouawad states that United Airlines has the worst operational record amoung the nation's top 15 airlines (2012). He goes on to mention that while most large airlines reported profits this year, United has lost $103 million in the first three quarters of 2012, with revenue up just 1 percent to $28.5 billion (Mouawad, 2012). Asian Airlines has surfaced in the limelight recently with multiple mishaps and accidents with many fatalities. They are not only facing there own challenges for errors they seem to generate, but also with the demand for pilot training they seem to lack and could potentially be the root to there problem. Mayerowitz and Koenig state that boeing projects that the Asia-Pacific region will need 216,000 new pilots in the next 20 years, the most of any part of the world, accounting for 40 percent of the global demand (2014). In addition to Asia Airlines current demand for training, a global demand this large will be essential to have solid training for pilots to be out flying in the industry. Fast growing carriers such as AirAsia, Indonesia's Lion Air and India's Jet Airways, doesn't have enough training programs to produce all the pilots it needs, said David Greenberg, a former Delta Airlines executive who also oversaw pilot training and safety at Korean Air (Mayerowitz & Koenig, 2014).
Business in aviation is highly demanding and unforgiving with valuable equipment and highly skilled personnel. The organization and strategies for a business in aviation to become successful relies on leadership and management that is utilized throughout the company. Of course there are other factors that play a role in structuring success for an aviation business such as overall business operation cost that includes training pilots and management, maintaining regulations, consistent progression in technology, and unforeseeable direction of fuel costs, etc. Although, the overall success of an aviation business remains in how effective the leadership and management deploys all factors. In the aviation industry, fuel cost reflected by the price per barrel of oil is a fundamental change. Falling fuel prices are encouraging airlines to keep less efficient aircraft in service for longer but they are also likely to see growth in air travel as airlines pass on the benefit to passengers in the form of lower fares (Wall, 2015). It would be ideal for a company to assume higher fuel rates in their daily operation considering airlines collectively high percentage of fuel operating costs, which would compensate for changing fuel prices to properly prepare for a rise and to alleviate the hit. A decade ago, the world's airlines spent $44 billion on jet fuel, accounting for 14% of operating costs. Today, the collective fuel tab is $211 billion, a whopping 31% of operating costs (Michaels, 2014). A company also needs to focus in on certain areas that attract customers for a positive outcome. Southwest Airlines has developed several tools and product evolutions to tailor it's product to business travelers, which is in an attempt to offset rising costs. Furthermore, Southwest is noted for it's strong management-labor relations, which has positive and negative impacts. On the one hand this strategy minimizes the risk of labor strife and increases employee satisfaction, which Southwest believes has a positive impact on service and the travel experience (Bhaskara, 2014). The combination of a few factors has led to "double-digit growth" year-after-year in managed corporate bookings according to Southwest's Chief Operating Officer Robert Jordan. The reason Southwest Airlines has turned increasingly to business traffic is rooted in its cost structure. For much of the last two decades of the 20th century, Southwest was growing at a rapid pace. When an airline is growing rapidly it can offset cost increases on its existing network by spreading fixed costs across more flights, aircraft, and destinations (Bhaskara, 2014). Highly successful aviation companies, whether if it's a start-up or an expanding business understand that getting new customers to buy the commodity is what strives the business to success. Keeping an existing customer is probably more important, but that is something competitive pricing and a good service will establish for your business.
Business in aviation is highly demanding and unforgiving with valuable equipment and highly skilled personnel. The organization and strategies for a business in aviation to become successful relies on leadership and management that is utilized throughout the company. Of course there are other factors that play a role in structuring success for an aviation business such as overall business operation cost that includes training pilots and management, maintaining regulations, consistent progression in technology, and unforeseeable direction of fuel costs, etc. Although, the overall success of an aviation business remains in how effective the leadership and management deploys all factors. In the aviation industry, fuel cost reflected by the price per barrel of oil is a fundamental change. Falling fuel prices are encouraging airlines to keep less efficient aircraft in service for longer but they are also likely to see growth in air travel as airlines pass on the benefit to passengers in the form of lower fares (Wall, 2015). It would be ideal for a company to assume higher fuel rates in their daily operation considering airlines collectively high percentage of fuel operating costs, which would compensate for changing fuel prices to properly prepare for a rise and to alleviate the hit. A decade ago, the world's airlines spent $44 billion on jet fuel, accounting for 14% of operating costs. Today, the collective fuel tab is $211 billion, a whopping 31% of operating costs (Michaels, 2014). A company also needs to focus in on certain areas that attract customers for a positive outcome. Southwest Airlines has developed several tools and product evolutions to tailor it's product to business travelers, which is in an attempt to offset rising costs. Furthermore, Southwest is noted for it's strong management-labor relations, which has positive and negative impacts. On the one hand this strategy minimizes the risk of labor strife and increases employee satisfaction, which Southwest believes has a positive impact on service and the travel experience (Bhaskara, 2014). The combination of a few factors has led to "double-digit growth" year-after-year in managed corporate bookings according to Southwest's Chief Operating Officer Robert Jordan. The reason Southwest Airlines has turned increasingly to business traffic is rooted in its cost structure. For much of the last two decades of the 20th century, Southwest was growing at a rapid pace. When an airline is growing rapidly it can offset cost increases on its existing network by spreading fixed costs across more flights, aircraft, and destinations (Bhaskara, 2014). Highly successful aviation companies, whether if it's a start-up or an expanding business understand that getting new customers to buy the commodity is what strives the business to success. Keeping an existing customer is probably more important, but that is something competitive pricing and a good service will establish for your business.
References
Bhaskara. V. (2014, April 22). Forbes. Southwest airlines opens for business - customers. Retrieved from http://www.forbes.com/sites/airchive/2014/04/22/southwest-airlines-opens-for-businesscustomers/
Graystone Advisors. (n.d.). 7 keys to success in business aviation. Retrieved from http://www.graystoneadvisors.com/7-keys-to-success-in-business-aviation
Juwel, D. (2012, May 18). Aero News Network. Any pilot can fly an aviation business. Retrieved from http://www.aero-news.net/AnnTicker.cfm?do=main.textpost&id=e1bdcebc-f425-4b88-9417-09cabb0d0dcf
Mayerowitz, S. & Koenig, D. (2014, December 30). Business Insider. Asian airlines are struggling to keep safety standards on par with growing demand. Retrieved from http://www.businessinsider.com/asian-airlines-struggle-to-keep-safety-standards-on-par-with-demand-2014-12
Maxon, T. (2014, September 22). Seven U.S. carriers among the world's most profitable airlines. Retrieved March 30, 2015, from http://aviationblog.dallasnews.com/2014/09/sevem-u-s-carriers-among-the-worlds-most-profitable-airlines.html/
Michaels, K. (2014, January, 13). Aviation Week. Opinion: How Cheaper Oil Could Help, Hurt Aviation. What lower fuel costs would mean for aviation. Retrieved from http://aviationweek.com/awin/opinion-how-cheaper-oil-could-help-hurt-aviation
Mouawad, J. (2012, November 28). The New York Times. Business Day. For united, big problems at biggest airlines. Retrieved from http://www.nytimes.com/2012/11/29/business/united-is-struggling-two-years-after-its-merger-with-continental.html?_r=0
Wall, R. (2015, January, 19). The Wall Street Journal. Lower jet fuel prices shake up aircraft market. Retrieved from http://www.wsj.com/articles/lower-jet-fuel-prices-shake-up-aircraft-market-1421676374
"The bigger the business, the greater operational cost with larger potential losses"
ReplyDeleteI agree with you on this one. When you take any airline into consideration, it costs them millions of dollars to operate daily and also in benefit to that, the profit is big. But when fuel prices change or anything that causes loss, they will go down in loss at large amount.
"Falling fuel prices are encouraging airlines to keep less efficient aircraft in service for longer but they are also likely to see growth in air travel as airlines pass on the benefit to passengers in the form of lower fares (Wall, 2015)."
ReplyDeleteThe fact is airlines are continuing to operate as if they had high fuel costs, and are not lowering fares. This is a smart decision as companies are reinvesting the profits into infrastructure and their operations. I doubt that fares will be lowered anytime soon as long as demand is constant.
I think that it is smart for an airline to take advantage of the low fuels prices and reinvest their profits into infrastructure. Infrastructure is something that has been lagging in many aspects of the aviation industry. Also you never know when the fuel prices might go back up again.
DeleteI believe that none of the US carriers have deferred any orders of more fuel efficient aircraft, a solid plan since fuel prices are unlikely to stay low.
DeleteHard to blame the airlines for not dropping fares with the lower fuel costs. Fuel costs are too unpredictable and profit margins are too low to risk it. Infrastructure is another issue, some of our previous blog posts mentioned how foreign carriers could benefit from improved infrastructure funded by governments.
ReplyDeleteI agree fuel cost are too unpredictable that's why they are not dropping fares who know next month they could sky rocket and they will need the profit they had made to off set the additional costs. That's why southwest could fly so cheap for so long they were paying 50% less for their fuel than the rest of the industry because they made a huge fuel hedging gamble that paid off
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