The structure Aviation industry

The structure Aviation industry has been changed greatly during the past decades. New regulations and technology forced carriers to introduce new methods of business performance.

Deregulatory period which took place between 1978-1983 resulted in changes in economic and organizational structure of full service airlines.  Some companies were unable to see strategies changes as a long-term opportunity and ignored restructuring of business. For a small airline it was necessary “to have a large proportion of high traffic point-to-point routes, like New York-Miami, with CAB-protected market share and profitability” (Byrnes, 2004).

The only opportunity for larger carriers “was to have a large number of long distance routes, like San Francisco-Hawaii, with high schedule frequency, dominant market share, and a distance-tapered fare structure” (Byrnes, 2004).

Most successful full-service airlines changed their service structure and customer support services. The main changes were hub systems with schedule frequency, frequent flier programs, reservation system (Byrnes, 2004). It means taking steps to assess and satisfy future people needs and to enhance and develop the inherent capacities of people – their contributions, potential and employability – by providing continuous development opportunities. Scheduling plays a crucial role because it the process in which objectives resource commitments to these team objectives are translated into specific team programs and goals.

Traditional structure of full-service airlines was changed in order to meet new market conditions and requirements. For instance, “limited scope and regional concentration were also defensible” (Byrnes, 2004) after deregulation period.

United Airlines decided to increase long-haul routes and decrease unprofitable feeder routes; Delta and Northwest chose a strategy of low operating costs and strong regional hub systems.   Profitability management was the core of airlines allowing the companies to evaluate current situation and find new methods of cost reduction.

Changes in technology involve developing a new vision of technology and its impact on all areas of an airline industry, its members and their activities. New technological changes influence the structure of management and include: goods and services; production processes; information and communications; transport and distribution; society, politics and economics (Bassett, 1992).

Developments in IT have led to interactive communication tools being used to complement less interactive mechan­isms such as mail or media advertisements. Internet became the main strategic tool for airlines. Greater access to informa­tion, growth in self-assisted services, and the widespread change from a sellers’ to a buyers’ market, are just a few of the drivers of consumer empowerment (Doganis, 2002).

This connection between good levels of customer service and good levels of customer satisfaction and retention underpins the common association of customer service with keeping, rather than winning, customers.

Two Ticket Distribution Strategies allow airlines to save costs and attract new customers proposing effective payment system based on high standards. “Organizations are being restructured, costs cut, networks and schedules rearranged around the hub concept, investment made in yield-management systems to capture the most profitable traffic, and frequent-flyer programs” (Bouvard, Somosi, 1997).

Today, many airlines offer full service form a single source. Infrastructure changes and new IT solutions allow full-service airlines to reduce operational costs and improve service quality.  Efficiency and customer service is improved by using IBS’s Passenger Services System Designed to Replace Legacy Technologies (Cendant Travel Distribution Services. 2004).

In sum, restructuring and changes in full-service airlines were aimed to improve service quality and allow companies to compete on the market. Strategic changes and vision of new market opportunities helped many carriers to adapt to severe economic conditions.
References

1.      Airline Deregulation: Lessons for Telecom (2004). Retrieved from: http://hbswk.hbs.edu/item.jhtml?id=4173&t=dispatch

2.     

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Bassett, G. (1992). Operations Management for Service Industries: Competing in the Service Era. Quorum Books.

3.      Bouvard, F., Somosi, A. (1997). Europe’s Airlines Choose between Two Ticket Distribution Strategies. The McKinsey Quarterly, No. 1, p. 173.

4.      Cendant Travel Distribution Services, IBS Software Services Reach Agreement to Develop And Promote “iRES” To Global Airline Industry. (2004) Retrieved from: http://www.galileo.com/galileo/fr-ca/news/Press/Releases/iRes+release.htm

5.     Doganis, R. (2002). Flying off Course: The Economics of International Airlines.  Routledge.

6.      Gujarathi, M.R., Mcquade, R.J. (2003). Sun Airlines, Inc.: Financial Reporting of Point and Loyalty Programs. Issues in Accounting Education, Vol. 18, p. 359.

 

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