Airline Industry Challenges: A Multi-Week Article Critique Series

Introduction to General Aviation

General aviation is an aspect of life for millions of people in America who own aircraft or fly recreationally. According to an article published by the Aircraft Owners and Pilots Association, general aviation is defined as any type of civilian air travel except for scheduled passenger flights. According to this source, general aviation includes many different activities, including the monitoring and spraying of crops, wildlife surveys, and emergency medical evacuation.

The article also explains that nearly 70% of general aviation flights are related to public services or business. The author insists that airplanes are often needed in these instances because they are more flexible than other forms of transportation, and air travel is also the fastest form of transportation. These civilian flights are also more convenient than commercial passenger flights because they do not have the same restrictions with regard to schedules or security.

Overall, the article is clear in defining what general aviation is and what it is not. The author also points out that general aviation is vitally important to the carrying out of tasks that many take for granted but that improve the quality of life of citizens. This is the case as it pertains to airborne traffic reporters who hover over traffic in helicopters to broadcast the traffic situations of busy highways and intersections. This description of general aviation brings to the forefront the need for general aviation and the ways in which it can be preserved.

Fuel Costs and Industry Economics

In recent months, there has been a great deal of emphasis on the increased costs associated with traveling by air. Much of this additional cost has been blamed on the increase in gas prices. An article published in the Wall Street Journal entitled "Northwest Posts Loss On Rising Fuel Prices" explains this phenomenon. According to the article, Northwest Airlines lost $377 million in the second quarter, much of which was due to the increase in gas prices. The author makes it clear that the airline's fuel costs for the second quarter—$1.2 billion—increased by 41% when compared to one year prior. To deal with this increase in fuel costs, Northwest will reduce the airline's mainline capacity by as much as 9.5% during the fourth quarter. In addition, 2,500 people will lose their jobs, and nearly 50 aircraft will be grounded.

As it relates to the oligopoly that is the airline industry, the article points to the anticipated merger of Northwest with Delta Airlines. The article is straightforward in the manner it explains the special nature of this merger, which would make the airline the largest in the world. The author explains that the merger is supposed to occur by the end of the year once the two airlines have met all requirements established by the government.

Overall, the article is informative in explaining why fuel prices have affected Northwest and the airline industry in general in such a negative way. The article also explains that in order to deal with this problem, Northwest will take certain measures including offering fewer seats and grounding flights to reduce the cost of fuel. The cascading effects of fuel price increases demonstrate the vulnerability of carriers to commodity market fluctuations and underscore the urgency of exploring alternative operational strategies.

Forecasting is an essential aspect of air transport and other industries such as travel and hospitality. Forecasts allow the airline industry to know or have some idea about the number of passengers it can expect in any given year or quarter. The projections allow airlines to make decisions concerning rates and fees. An article entitled "2008 Forecast: Will the Luck Hold?" discusses airline forecasts for companies as it pertains to different regions of the world.

This particular article was written in January 2008, before fuel prices skyrocketed to all-time highs. In the article, the author alludes to the idea that airlines would be as profitable as they were in 2007. Although the article mentions the downturn in the American and global economy, the author does not seem to have a grasp on the severe nature of the economic conditions that have manifested themselves over the following months. These conditions have greatly impacted the forecasting that took place at the end of 2007 and the beginning of 2008.

Demand, Forecasting, and Market Dynamics

As it pertains to forecasting and various regions of the world, the article focuses on Europe and Asia. According to the article, forecasts for European airlines predicted that the region would not be affected by the credit crunch. The forecasts were not particularly rosy for Europe, but they were not dire either. Forecasts for Asia were also presented in this article. The author asserted that the Asia/Pacific region has been disappointing as it relates to profitability. The author attributes this disappointment to growing pains associated with new and emerging economies in the region and attempts to adapt the correct business models.

Airline passenger demand and the elasticity of demand are of utmost concern to airlines in these difficult times for the industry. If airlines raise their rates too much, consumers will stop flying. Many have already begun opting to take the train as opposed to dealing with the time-consuming and costly endeavor that air transportation has become. An article entitled "Bleak Times Carry the Seeds of Future Strength While Airlines Struggle" explains that as consumer spending keeps dropping in the United States and other developed economies, business travel outlays—the most profitable by far for airlines—could easily fall by $2 billion to $3 billion over the next 12 months, which adds up to a strong likelihood of further airline bankruptcies.

In essence, the author is explaining that the demand for air travel among the most profitable fares is decreasing rapidly. The article goes on to state that this decrease is due to the increase in the price of fares and also to the increased availability of private and corporate airplanes that business travelers are choosing. The article also explains that most of the fares sold in the United States—approximately 90%—are discounted fares. The emphasis on newer airplanes with fuel-efficient technologies suggests that capital investment in fleet modernization may be necessary to lower operational costs and restore pricing competitiveness.

The manner in which airlines utilize marketing can make or break the company. According to an article entitled "Most airlines shun marketing as way to fly through storm," the marketing strategies of many airlines have changed drastically in recent months. The author contends that in the midst of bad times for the airlines, many have opted to reduce the large number of costly ad campaigns. However, the author contends that this shift in marketing strategy could prove detrimental for the airlines. The author points out that poor customer service, increases in fees, and the decrease in the number of flights available to travelers could mean that airlines will continue to experience significant losses.

The article does explain that although most American airline companies have opted to reduce the number of large ad campaigns, Southwest Airlines has not succumbed to such measures. Southwest is the only major American airline company to remain profitable even with the increase in the price of fuel. Southwest has even managed not to charge passengers additional fees for checked luggage. To this end, new print and television ads for the company highlight the fact that it does not charge such fees.

Marketing Strategies and Competition

The author of this particular article insists that the internet age has also played a key role in marketing through word of mouth. The article points to the power and significance of blogs and online rating systems that allow consumers to share their experiences with others over the internet. Such ratings can influence consumer choice as it pertains to choosing an airline to fly with. Overall, this article provides a great deal of insight into the current state of marketing strategies in the airline industry. Through this article, the author exposes the strengths and weaknesses of marketing strategies in the industry.

Airline competition during this period reflects deeper strategic divergence. According to an article published by the Brookings Institution, the airline industry in America celebrated 30 years since the passing of the Airline Deregulation Act of 1978. While this act has been successful for many reasons, including safer travel and more efficient business models, there is much to be desired within the industry. The author asserts that the deregulation act greatly affects the manner in which airlines compete.

The various airlines have attempted to address this issue by changing the strategies by which they compete. For instance, the article explains that many airlines have been able to enhance the efficiency of their networks and expand both international and domestic flights to improve their routes. Other airlines, such as Northwest and Delta, have opted to merge and form a single airline. The author asserts that such mergers allow the once-competitors to pool their resources to form a united company that is more efficient.

Overall, competition among airline companies will continue. For the most part, companies that are consistent with customer expectations and the services they offer tend to have repeat customers. Those airlines that choose to charge consumers exorbitant fees are becoming less popular. For instance, part of the reason Southwest has remained popular is because it hedged its fuel costs, and as such, it has not been affected by the increased cost of fuel to as severe a level as many other carriers. As such, the airline does not have to increase fares in the same manner other carriers have been forced to; this gives the company a substantial competitive advantage.

Issues associated with traffic flow have been at the forefront of discussions involving the airline industry. To address this problem, some airlines have adopted the use of new technologies. One such airline is Continental. Continental and other airlines recognize that when flights are left to idle on a runway, costly fuel is wasted and the loss cannot be recovered. An article entitled "Sensis service reduces airplane idling time" explains the need and the benefits associated with improving air traffic flow.

The article explains that the airline's use of the Aerobahn service began three months prior in Houston. The service works by collecting operational flight data from the Sensis system. Once the data is collected, Aerobahn alters the information into a form that is beneficial to the airline. The system utilizes information from the aircraft and the airport to formulate information that gives airline operators the details needed to improve air traffic flow.

Operational Innovation and Traffic Flow

The author explains that having access to this information also assists the airline in improving customer service. The information tells the airline whether delays are substantial, and if delays are substantial, customers are not boarded onto the plane. In doing this, customers are more comfortable because they are not forced to sit on the tarmac for hours waiting to take off. The article also explains that this technology is useful because it provides airlines with information not previously available to them. The technology is also appealing because it provides real-time information to airline workers. It is apparent that the author believes such technology will play a key role in improving air traffic flow in addition to customer service.

The airplane selection process can be a daunting task for both manufacturers and individual carriers. The manufacturer wants to produce an aircraft that is unique and competitive, and the airline wants an aircraft in which customers will be comfortable and the carrier will be able to maintain in a cost-efficient way. As such, a great deal of dilemma is often present during the selection process. An article entitled "The Road to Profitability" explains the issues that faced a Pakistani carrier when selecting planes for a fleet.

According to the article, Pakistan International Airlines made a commitment to renew its fleet in an endeavor to increase profitability. Out of this endeavor, the Boeing 777 emerged as an ideal selection for the carrier. In this article, officials representing the carrier describe Boeing—the manufacturer—as a partner. The article explains that Boeing made a concerted effort to provide the airline with an aircraft that would be efficient and therefore increase profitability.

Aircraft Selection and Fleet Management

In addition, the article exposes just how much work was involved as it pertained to Boeing working with the Pakistani government and the airline to ensure that the plane met the standards established by the government. Boeing also had to ensure that the plane was consistent with the airline's desire to accommodate customers while reducing costs associated with fuel efficiency and maintenance. The article describes the relationship formed as a long-term partnership. Both the manufacturer and the carrier recognize the need for open communication to ensure that the selection process runs smoothly and that the relationship formed between the two organizations will continue to flourish.

Both the starting and the maintaining of an airline are very costly endeavors. These costs are associated with the purchase and upkeep of a fleet of vehicles, safety regulations that take place at the airport and on the airplane, and the costs associated with unexpected events such as a hijacking or terrorist attacks. According to an article entitled "FAA Funding Debate," the manner in which the federal government offers funding to the airlines has become increasingly bothersome to airlines. The FAA is the organization in charge of regulating aircraft safety among other factors within the United States. In some instances, the FAA has been at odds with the airlines.

The author explains that the problem between the airlines and the FAA has to do with modernization plans. Both the FAA and the airlines recognize the need to revamp airports and aircraft systems to accommodate the growing number of aircraft; however, they disagree on the manner in which to fund the modernization. According to the article, airlines want a funding scheme that frees them from having to pay fuel taxes and decreases the taxes they collect from passengers—all at the expense of general aviation. Many of these principles are included in Senate Bill S.1300, the Senate's funding proposal. The airlines also want to dominate any FAA-industry decision-making panels contained in legislation.

Regulatory Frameworks and Industry Organization

Generally, it appears that the airlines want greater control. Overall, the author is clear and precise in explaining why this debate exists. Every year throughout the world, there are conferences and conventions held for individuals and companies who compose the airline industry. One of the premier organizations in the industry is the International Air Transport Association (IATA). The IATA organization is a trade body responsible for monitoring the global airline industry. The organization was started by 23 airlines and at the current time serves more than 200 airlines.

According to an article published by the organization, it has several goals associated with its mission. These goals are associated with representing, leading, and serving. As it pertains to representing, the organization hopes to improve communication and understanding among players in the airline industry. It is believed that the enhancement of such communication will be a benefit to airlines throughout the world. In terms of leadership, the goal of IATA is to assist airlines in simplifying processes so that they operate in a more efficient manner. Finally, IATA has a goal of serving the airlines through the services that it provides throughout the world. IATA understands the need and the desire of airlines to serve customers well while also ensuring profitability.

Overall, IATA appears to be an international organization dedicated to the global airline industry. The organization is dedicated to ensuring that airlines throughout the world are operating in a manner that is efficient and optimal. IATA is well respected by the industry and by the governments of various countries. An article on worldwide air freight asserts that there is a great deal of optimism in the air freight segment of the industry, although there are economic woes throughout the world. This optimism is attributed to the fact that many air freight carriers have begun to switch to newer, more fuel-efficient aircraft that also have higher payloads.

According to IATA forecasts, international air freight volumes through 2011 will continue to be dominated by Asia Pacific. Within Asia Pacific, between Asia Pacific and North America, and between Asia Pacific and Europe will account for 57% of the 36 million tonnes of international air freight in 2011, up from 55% in 2006. The majority of this growth will be from the outbound leg from Asia Pacific.

Conclusion

This series of weekly article critiques reveals an airline industry undergoing simultaneous pressures and transformations. From foundational concepts like general aviation's role in American infrastructure to the complexities of deregulation, fuel cost management, and international competition, the critiques demonstrate the interconnected nature of airline challenges. Economic pressures—particularly volatile fuel prices—cascade through every operational and strategic decision, from fleet renewal to marketing approaches to regulatory negotiations.