Capstone Experience In Integration Strategy B6028 TA02 M2 A

Capstone Experience In Integration Strategy B6028 T A02 M2 A2

Capstone Experience in Integration & Strategy | B6028-T A02 | M2 A2 | Eric Speechley In the first module I choose to discuss the airline industry. This has been something that I am passionate about as well as have studied for the last 5 years. Using firsthand experience, management guidance and research on the web, I will continue this paper for the external environmental scan. As a potential future leader of the company, it is important to evaluate many factors of business to remain successful. Economic, geographical, technological, social, and political trends are all a concern when a leader of a successful business.

This will be imperative to profiting from an industry that already has very low profit margins. Let’s get started. First we are going to look at the current economic trends of the airlines as a whole. Reading the last document, we have established that the airlines are the first to show recession and the last the recover. Since the tragic day of September 11th the economic factors of the airlines has decided.

Since then the aviation market has returned to a profitable business. There has been a 20% increase in domestic flight traffic since 2010. With over 87,000 flights a day air travel is the way to go. Although less than half of those fights are commercial, that equates to 1.73 million passengers a day. The economic trends have continued to claim and over the next 5 years aviation is projected an additional 27% increase. (Notis, 2015) Political factors affect every profession.

In the airlines it has been a problem. The biggest political issue that is facing the airlines today is Federal Aviation Regulation. In 2009 Colgan Air 3407 crashed killing all 50 people on board. The National Transportation Safety Board released a statement stated that it was pilot error due to inexperience. The FAA then changed pilot regulation from pilots needing 495 Hours of total flight time to 1500 hours to get in entry level position in the airlines.

This has created a problem because 4 year graduating pilots only have about 300 hours. Every position requires more hours which makes it difficult for young pilots to join the airlines. With an increase in air travel and decrease in pilots due to regulation it has created a pilot shortage. Since September 11th there has been a further decrease in pilots as they were furloughed and found other positions. With changing politics and pilots from Desert Storm ready to retire, political trends have created a major shortage over the next 5 years.

Currently regulation and political factors drive part of the societal trends. Due to the recession and change in regulation. There have been political changes. Due to low profit margins the attacks on the twin towers put commercial aviation into a tailspin. Not only has that but more recently, the Malaysia Airlines effected how people see air travel.

Airlines have been merging to stay profitable and it really takes a huge toll on customer relations. The top 5 U.S. carriers are under the top 40 and the world. This is because most of the U.S. carriers have merged within the last 15 years and haven’t fully recovered from September 11th followed by the most recent recession (Staff, 2015). United is a perfect example of this. Their merger was in 2010 and now in 2016 they are finally producing a profit.

Customer relations were not good, landing them last in the U.S. market in social factors after the merger. Since 2001 there have been some major upgrades that have made air travel safe and more comfortable. A prime example of this technology is the new Boeing 787. According to Boeing these planes are currently on back order for the next 5 years. These new aircrafts are a prime use of innovation and comfort.

The new 787 planes are now equipped with Direct TV in each seat and onboard Wi-Fi satisfying the needs of the customers. Now customers can stay connected wherever they go at 35,000ft in the air. These planes are also now able to be pressurized at a lower altitude allowing more passenger comfort. Lower pressurization allows the body to not work as hard adapting to the change in pressure, eliminating jet lag. It has the ability to pressurize the aircraft to the altitude of Denver, which was not the case with older planes.

These aircrafts are a reason that passengers have strong loyalty with companies that have the most of these aircraft. Unfortunately, for some, the companies that didn’t believe in this $220 million technology now have to wait 6 years to get their hands on one. (Ausick, 2015) Geographical trends play a huge part of the airlines. Currently United Airlines is the world’s largest in relation to destinations served. This isn’t an easy thing to do and stay profitable. There are daily evaluations on routes to make sure they are profitable.

United Airlines runs constraint programming for analyzing routes in order to squeeze out every cent of profit from each trip. Once a trip becomes unprofitable, the route is then changed or canceled and picked up by a competitor. Looking at Porter’s five forces with airlines being so large, there really isn’t a threat of new competition. The profit margins are so small that if anything, companies are margin and going bankrupt. It will take too much money to enter the ring with larger competitors.

Regulation has allowed smaller airlines to emerge, which are great for low-time pilots for getting their hours. Currently, airlines can leverage their debts and assets to create major buying power. Although rivalry will keep prices down, destinations serviced will keep airlines apart. For the aviation industry, many things are changing. If nothing is done, we may see the next fall of the airlines.

Paper For Above instruction

The airline industry has been a cornerstone of global transportation and economic development for over a century. Its evolution has been shaped by numerous external environmental factors, including economic, political, technological, social, and geographical trends. Analyzing these factors is crucial for current and future industry leaders to navigate challenges, leverage opportunities, and sustain profitability in a sector characterized by low profit margins and intense competition.

Economic Trends Impacting the Airline Industry

Economic fluctuations profoundly influence airline operations. Post-September 11, 2001, the aviation industry experienced significant downturns due to declining consumer confidence and increased security concerns (Notis, 2015). However, the industry demonstrated resilience, with domestic flight traffic increasing by approximately 20% since 2010, driven by economic recovery and burgeoning business travel demand. Today, the U.S. airline sector conducts over 87,000 flights daily, transporting roughly 1.73 million passengers (Notis, 2015). The projection of a 27% increase in air travel over the next five years underscores ongoing growth, yet profit margins remain narrow, necessitating strategic management.

Nevertheless, economic downturns, such as recessions, exert downward pressure on airline revenues. Combined with rising operational costs and fluctuation in fuel prices, profitability remains a persistent challenge. To counteract these pressures, airlines have engaged in mergers and alliances to consolidate market share and reduce costs. For example, United Airlines’ merger in 2010 exemplifies strategic attempts to sustain profitability amid economic volatility. Such mergers often bring operational efficiencies but pose challenges related to customer relations and service consistency (Staff, 2006).

Political and Regulatory Environment

Political factors play a critical role in shaping the airline industry. Federal regulations significantly influence operational standards and safety protocols (Staff, 2015). The 2009 crash of Colgan Air Flight 3407 catalyzed stricter pilot qualification requirements, elevating minimum flying hours from 495 to 1500. While enhancing safety, these regulations inadvertently contributed to a pilot shortage, impacting airline capacity and service levels (Bagbe, 2016). The pilot shortage is compounded by retiring pilots from the Desert Storm era and furloughs after the economic downturn, posing a looming challenge over the next five years (Niadu, 2016).

Moreover, security concerns, political sentiments, and global events influence passenger confidence and travel patterns. The aftermath of the 9/11 terrorist attacks led to an overhaul of security protocols, costing airlines billions and altering customer perceptions of air travel safety. Recent incidents involving Malaysia Airlines have further affected passenger confidence, emphasizing the importance of stringent safety and security regulations.

Technological Advancements and Innovation

Technological innovation has transformed airline operations and customer experience. The introduction of the Boeing 787 Dreamliner exemplifies major technological progress aimed at improving comfort, efficiency, and profitability. These aircraft feature direct TV, onboard Wi-Fi, and lower pressurization levels, which reduce jet lag and enhance passenger well-being (Ausick, 2015). Such technological upgrades are expensive, costing approximately $220 million per aircraft, yet they are essential for attracting loyal customers and maintaining a competitive edge.

Moreover, airlines are increasingly leveraging constraint programming and data analytics to optimize route profitability. United Airlines, for instance, employs sophisticated route analysis to ensure operational efficiency, adjusting or canceling unprofitable routes (United, 2016). These technological tools enable airline management to adapt swiftly to market fluctuations and improve operational decision-making.

Social and Geographical Trends

Societal trends influence airline marketing strategies and service offerings. Targeting middle and upper-class business travelers, United Airlines emphasizes premium services with their fleet of Boeing 787s. Customer satisfaction is bolstered through amenities such as onboard Wi-Fi, direct TV, and lower-altitude pressurization (Ausick, 2015). Such offerings foster customer loyalty and differentiate airlines in a competitive landscape.

Geographical considerations are equally vital. United Airlines is the largest carrier by destinations served, employing route optimization strategies to maximize profitability (United, 2016). The airline dynamically evaluates routes to ensure they are financially viable, employing constraint programming to minimize losses. Barriers to entry into this large-scale industry are high due to substantial capital costs and regulatory hurdles, limiting threats from new competitors. However, smaller airlines have emerged, tapping into niche markets and providing opportunities for low-time pilots to gain experience and entry into the industry.

Conclusion

The airline industry's external environment is complex and multifaceted, with economic health, political stability, technological progress, societal preferences, and geographical strategies all interplaying to shape its trajectory. For industry leaders, understanding these factors and adapting accordingly is essential for long-term success. While challenges such as regulation, pilot shortages, and high capital costs persist, technological innovation and strategic mergers are vital tools for maintaining competitiveness. As the industry continues to evolve, agility and proactive management will be crucial in navigating uncertainty and harnessing growth opportunities in the global aviation sector.

References

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• Notis, K. (2015, November 12). Airline Travel Since 9/11. U.S. Department of Transportation.
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