Business operations of American airlines and British airways - Essay Example

BUSINESS OPERATIONS OF AMERICAN AIRLINES AND BRITISH AIRWAYS INTRODUCTION Airlines today operate in a competitive global environment, where every minute there are thousands of take-offs and landings across the world. International airlines like British Airways and American Airlines, which have dominated the skies for many decades now, operate with minimum possible margins, use innovative measures to keep their competitive edge over others, manage operations with hectic minute to minute schedules, somehow retain their trained manpower in this expanding aviation sector and still stay afloat to perform better in the next year. All these aspects require herculean efforts from the HR, operations and executive management where one adverse report or an accident/incident can permanently damage to the reputation of an airline and throw it off the markets in matter of months. AIM This essay aims to bring out salient aspects affecting operations management of American Airlines and British Airways and suggest some recommendations for the future. AIRLINE PROFILE - AMERICAN AIRLINES American Airlines, the world's largest airline is a fully owned subsidiary of AMR Corporation founded in 1934, based in Texas and operates a passenger airline within North America, the Caribbean, Latin America, Europe and Asia. With about 86,600 employees on its payroll, the airline covers 250 destinations and also operates air freight service. The AMR Company also connects America's eight important cities to smaller destinations throughout the US, Canada, Mexico and the Caribbean through two subsidiaries with other names of American Eagle and American Connection. As on Dec 06, AMR's fleet included 697 American Airlines aircraft and 306 American Eagle aircraft. AMR Company with over 4000 daily flights contributes $ 150 billion to US economy and holds 17.8% market share. In 2006, the airline carried over 98 million passengers. On an average day, American Airlines alone will:1 Fly about 270,000 passengers Receive more than 220,000 reservations calls. Handle more than 344,000 pieces of luggage. American's award winning website provides customers with all possible facilities at the click of a button including online reservations, news, destination information and assistance, connections with other airlines and various other offers. Financial Position: Year Revenue Profit/Loss 2006 $22.56 billion $231 million 2005 $20.71 billion - $861 million 2004 $18.65 billion - $761 million 2003 $17.44 billion - $1.23 billion 2002 $17.30 billion - $3.51 billion 2 AIRLINE PROFILE - BRITISH AIRWAYS British Airways is the leading international airline from the United Kingdom, and one of the largest airlines with a great reputation in the market. The airlines has its bases at Heathrow and Gatwick, London, and the airline is the flag carrier of the UK. With about 48070 employees on the payroll, the Company also operates a worldwide air cargo business along with its scheduled passenger services. As in Mar 07, the company operates to about 147 destinations in 75 countries and carried over 33 million passengers during previous year. BA has holdings in many international airlines and business partnerships with many other airlines from various countries creating 'Oneworld' alliance. It aims to be a transnational airline. Financial Performance:3 Year 2006 2005 2004 2001 2000 Net Operating revenues* 7,813 7,560 7,688 8,340 9,278 Net Profit* 251 130 72 -142 114 * in million(s) of Pound Sales per Geographical Area United Kingdom 49 Europe: 63% Americas: 20% Rest of the World: 17% Areas data as of 31/03/2007 Considering importance of new technologies available for consumers at the click of a button, BA also has a well developed internet site offering various attractive services to its customers besides online reservations. IMPACT OF LIBERALIZED ECONOMY AND AVIATION SECTOR Recently, a study was conducted to study impact of liberalization of economy and aviation sectors on the airlines performance which came out with astounding results. It brought out the fact that liberalization brings about significant additional opportunities for consumers, employees and direct and indirect entities. Conversely, restrictive bilateral agreements lead to reduced air travel, adverse impact on tourism, business and loss of employment opportunities.4 Based on such inputs, there has been tremendous growth of aviation sector in many Asian giants like China, India and other smaller regions. This has created a kind of vacuum in airline employment in these regions which is now sucking resources from all over the world, and consequent offering of explosive pay packets for aviation professionals. Salient aspects of the research are given below: Liberalization of air services agreements lead to a growth in traffic by about 12-35%. In exclusive scenarios, the annual growth recorded was in excess of 50% and even 100% in very few cases. A likely scenario of new 320 country-pair open markets would see an annual growth of 63%, create 24.1 million jobs and generate $490 billion in GDP, which equals to economy almost size of Brazil. Single European aviation market doubled the growth rate during liberalization between 1995-2004 and produced 1.4 million new jobs. Full liberalization of US-UK aviation market alone would produce 29% increase in traffic. These would be due to lower fares, non-stop services and better connectivity. This would create additional tens of thousands of jobs and GDP increment of about $7.8 billion. Considering the market shares of American Airlines and British Airways in the region, this sector alone would look after growth plans of these airlines for next few years. These airlines operate in global scenarios, where any policy revision towards liberalization directly affects the market growth substantially. The restrictive factor is mostly the available infrastructure on ground than initiatives from these airlines leading to stunted or slow growth and difficulties in planning due to policy reversals by many countries to safeguard interests of domestic airlines. OPERATIONS MANAGEMENT ISSUES Essentially, operations cover all aspects of resources planning, operations planning and in-flight services. Operations control looks after day-to-day control of the airline operations, emergency and other contingency plans. This requires a number of specialists working together to cover all aspects of the 24 hour, 365 day a year operation - flight crew controllers, cabin crew controllers, operations controllers, customer service controllers and planners. The corporate contingency planning team is responsible for anticipating potential operational disruption, from the effects of bad weather to industrial action, and developing plans to handle it. It is also responsible for emergency planning for crisis situations, such as an aircraft accident.5 Certain important issues normally affecting airline operations are as given in succeeding paragraphs. Hub and Spoke systems. Like most other international airlines, these airlines face a dilemma as to how many hubs to have and how to manage them. The problem becomes acute in international scenarios since most competitive airlines are not willing to share the infrastructure, and with limited hubs, operations management becomes more difficult and the expansion process gets inhibited. Minihubs have been implemented in many bases so as to facilitate crew change, basic servicing requirements, passenger and baggage handling and cargo operations. Since establishing new hubs requires investments worth millions of dollars, cost-benefit analysis needs to be accurate and applicable over an extended period during the year for it to be profitable for an airline. Lack of Infrastructure. Lack of adequate infrastructure like terminals, parking bays and even parallel runways/taxi-tracks lead to an avoidable congestion in many countries, thereby directly affecting airline operations. Any delays due to avoidable reasons like unserviceability and unavoidable ones like weather/cyclones further add to this congestion leading to hapless passengers and crew being stranded, suffering from fatigue and crew timing limitations. Fuel Prices Fuel prices differ from country to country leading to a requirement of extensive planning on the part of operations officers. Every penny saved adds to the airline's margins, and can make a difference in contemporary market conditions giving better managed airline a competitive advantage. Crew Retention. Due to rapid expansion in aviation industry, qualified licence holders are in great demand. Recent survey by IATA has predicted a requirement of about 17000 pilots every year during the coming decade. Hence, it is extremely important to keep the crew in these airlines happy and content to dissuade them from seeking greener pastures. In fact, pilots' salaries are known to be the biggest liability of an airline's expenditure. International Ticketing. This aspect was a big challenge before the internet. Few agents used to manage ticketing requirements of the airlines across the globe and considerable investments used to be necessary for airlines to fill-up their aircraft optimally. With excellent state of the art websites being managed by these airlines providing a host of services at minimal investment, this problem has been resolved. But the aspect of competition has become worse due to many newer low cost airlines mushrooming all over the world directly eating into profits of these airlines. Consequently, these airlines have invested into major airlines of the world or formed profit sharing alliances, thereby improving their network and reach across continents with quality of service as their main thrust areas. Landing Slots. With congestion at most international airfields becoming acute by the year, getting landing slots has become a challenge in itself. Further, due to heavy penalties due to overstaying, delays or unserviceabilities, on time arrival and departure is a bigger requirement for airlines than for the passengers. Reputation. All these operational and other aspects, if better managed by the staff can make a lot of difference to the reputation of an airline, which alone would attract a new customer to an airline. And with such heavy investments being incurred by both American Airlines and British Airways, they cannot afford to take a chance. The balance sheets of the airlines show a favorable turnabout in past few years, and this is a direct outcome of tremendous boom in the aviation market around the world. To continue these improvements, more and more innovative measures would need to be employed by marketing people of these airlines, especially to tackle the rising competition globally. OPERATIONAL RISK MANAGEMENT Professional operational risk management techniques are being employed by these airlines to cut down the operating costs, better customer satisfaction through on-time arrivals and departures, better managed passenger lounges, variety in services offered and prompt grievance handling to ensure reputation of an airline. Well-structured, organized, and consistent operations management is the key to success of an airline today. Any decision regarding operations is taken keeping global nature of the airline and stiff competition in mind. Success in these directions has led to various awards won by these two airlines consistently. Market intelligence has been a critical contributor in success of these airlines. With more and more choice available to customers today, these airlines could not have had a gigantic market share without timely decisions of expansion (and even withdrawals), latest technological innovations like customer friendly websites, feedbacks from passengers regarding overall service, implementing valid suggestions from customers and thereby ensuring their satisfaction. In a fast moving world of aviation, the dynamism of operations manager has consistently made the difference of the ink color to be used in balance sheets. While recent boom has certainly helped, the very fact of having a fleet of hundreds of aircraft flying safely across the continents requires some herculean effort. The correct advise on industry issues, quality standards, and solutions by field managers needs to be incorporated judiciously by managers for an overall improved efficiency. This aspect assumes gigantic proportions in global atmosphere. That these airlines have evolved so after taking inputs from diverse Asian, European, Australian and American social, political, geographical as well as psychological cultures is a testimony to the fact that something terribly right has taken place here. THE FIVE PRIMARY PERFORMANCE OBJECTIVES Quality. This is one aspect both airlines have done fairly well. While British Airways has much better reputation in this regard, as is evident from the awards won internationally and regionally, American Airlines definitely needs to pay more attention to passenger feedbacks and ratings despite its awards. With advent of many luxury airlines across the world, American Airlines has to improve its reputation which may be more difficult due to its size. Or it will be doomed to be treated like a low cost airline. This is also more practicable now after having shown profits after many years, and improved aviation sector across the world.6 Speed. One airline cannot boast much of speed over others! Nevertheless, again here, reputation of British Airways to urgently handle issues affecting their operations is a bit better worldwide, probably due to its flag bearing nature and support from the government. Issues like wages or operational inadequacies have seldom made headlines, which have been always under public scrutiny in the US. Dependability. On time performance, baggage handling and support services essentially decide the dependability aspect of an airline. Current reports do suggest better performance of British Airways over American Airlines. However, some recent technological innovations have been introduced by American Airlines to avoid delays, passenger inconveniences due to unplanned diversions, assistance to overcome subsequent difficulties faced by passengers and such other measures.7 Flexibility. It seems that American Airlines score marginally better in this regard due to its larger fleet and some IT innovations in operations planning. Further, since most of their operations are concentrated in North and Latin America and trans-Atlantic region, more flexibility can be exercised by slightly modifying their routes whereas aircraft of British Airways are operating more in isolation across the world. Cost. In this competitive age, all airlines resort to cost reduction down to lowest possible margins. Both American Airlines and British Airways offer competitive rates comparable to markets. RECOMMENDATIONS While both American Airlines and British Airways have a history and a present to boast off, their future in contemporary aviation market shall be dependent on some well known attributes of quality, dependability, cost-effectiveness and reach. While technological advancements have a direct bearing on the output of any organisation, their survivability in future shall be ensured by one single reason: the satisfaction level of the customer. And with many airlines willing to give them a good competition, just volume and statistics won't suffice. To retain their competitive edge in aviation market, these airlines shall have to continuously evolve, provide better quality service despite infrastructure, stiff competition and associated problems globally. While the current fact sheets are encouraging, these should form the basis for improving customer satisfaction and for reducing gaps for better efficiency and thereby keep the flag flying high. BIBLIOGRAPHY 1. AMR Corporation American's Parent Company. 2007. Available at http://www.aa.com/content/amrcorp/corporateInformation/facts/amr.jhtml. 2. Facts About American Airlines. 2007. Available at http://biz.yahoo.com/ap/071007/american_airlines_facts.html.v=1 3. Company Profile: British Airways. 2007 Available at UK.finance.yahoo.com. 4. Economic Impact Of Air Service Liberalization. 2007. Available at http://www.intervistas.com/4/reports/2006-06-07. 5. British Airways Fact Book 2007 6. American Airlines 3 star Airline, 2007 Available at http://www.airlinequality.com/Forum/am_aa.htm. 7. Airlines Work To Improve On-Time Performance, 2007 Available at http://cbs11tv.com/consumer/airline.performance.American.2.592511.html 8. Company Profile: British Airways. 2007. Available at http://uk.reuters.com/investing/quotes/companyProfilesymbol=BAY.L. 9. AMR Corporation. 2007. Available at http://Finance.yahoo.com. Read More