A value chain describes the activities that take place in a business and then add value to the operations of the business in order to gain competitive edge over the competitor. There are two types of activities that are analyzed under the value chain analysis, first are Primary activities and the second one is Support activities.
For this paper we will only focus our concern towards the inbound logistics and procurement that comprise of all the activities concerned with the storing and receiving of all materials that our outsourced from external resources (Madsen, 2007). This report will include two companies separately that are Southwest Airlines and American airlines. Starting with Southwest airlines, the inbound logistics involve acquisition of aircraft, flight scheduling, crew scheduling, route selection and flight regulation systems.
In the question of aircraft we have seen that south west airlines was the launch airline to acquire all standardized airplanes which are one of the most fuel efficient aircrafts up t date. Moreover due to standardization, the company has cut down it’s maintain ace cost to a great extent. As far as the route selection is concerned, the airline focuses on frequent and short flights between secondary airports and mid-city airports in large cities.
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There is no such thing as hub and spoke system in south western airlines; rather, there is a point to point convenience service system in action which allows no further time delays in connecting flights. The recruitment and scheduling of personal in the airline is done with extreme efficiency in order to enhance productivity and this is the reason why the plan only takes 15 minutes to get ready and turn around for the second flight because the more time the plane spends on the ground, the greater is the cost the company incurs.
Pilots of Southwest airlines fly more hours per average week then the rest of the flights and still earn half the money earned by pilots in other airlines. Unlike other airlines, the airline does not offer a range of tickets, on board classes or discount opportunities, but it only offers a low fare and off peak package to its customers.
With convenient online ticketing system, south west airlines book most of their customers online and reduce the cost of ticketing by only having reservation centers on airports and not in the inner cities. E-ticketing terminals in the cities serve as much as an entire ticketing centres of other airlines. Coming on to the American airlines, we see that American airlines are one of the largest airlines operating today with an exemplary and effective management system.
Due to such a large scale, American airlines are one of the biggest buyers of the Boeing Company and thus it holds purchasing power to quite good extent interns of low price contracts as compared to other companies and also first production preference that results in quick delivery of new planes. Also with a variety of classes on board seating, the company has to differentiate between the seating classes in terms of facilities that it offers to them unlike south west airlines which have only two seating classes.
According to statics, American airlines saved around $400000 by decreasing one olive per meal and this is an example of how the airline aims to reduce its costs by cutting down its expenses on its daily supplies (Madsen, 2007) . The company has a lot of other operations to look after daily therefore it has outsourced its kitchen to different companies on different geographical locations because the company thinks that these external sources can do the job better then the company itself.
As far as the reservation system of American airlines is concerned, the number of air travelers it has on daily bases and simultaneously the reservations are fare greater then South west airlines, therefore the company cannot rely on e-ticketing terminals and airport ticketing counters only, thus it has franchised its ticketing system to many travel agents around the world on commission basis to carry reserve tickets on behalf of the airline.
However, to promote the online ticketing services of the company, the company especially gives out discounts to those who book tickets online in hope that one day most of the customers would start reserving their tickets online and the companies cost that it pays to the agents will decrease. As far as the pilots are concerned, they travel on comparatively longer routes then the south west airlines, therefore they have to compensate more and are not to be burdened so much on a daily or weekly basis according to the aviation rules.
Also to reduce costs of maintenance, the airline cannot turnaround each of its aircraft shortly after it lands because most of the companies flights are made on larger routes and the aircrafts also need a resting time after long running time in air. The cost of maintenance of aircrafts would be relatively higher other wise if the air planes are turned quickly rather then keeping them on a resting period. Conclusion
Both the companies add value to their services in different manner because of difference in scale of operations therefore we cannot say that one is better and the other one is in efficient. However, no matter American airlines is one of the largest best managed airlines in the world, still to the very large scale, the company does experience some in-efficiencies which is not the case with South West. These are also called dis-economies of scale.
Madsen, B (2007). The New Industrial Revolution: The Power of Dynamic Value Chains. LitePoint Books
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