Domestic Airline Industry

Introduction

Aviation policies and regulations have their respective influences on the domestic airline industry. That is why airline operators and managements are not the only sectors responsible for what transpires within the industry. However, they might agree or disagree with the fact that polices and decisions have a direct or indirect influence on the industry.

Like many other businesses, airlines management requires qualified specialists for different departments in order to make them function properly and efficiently. These individual persons head various departments. All managers inform the head or an overall managing director regarding any issues concerning different circumstances, challenges, market competition and improvement among others.

The airline industry has an increasing demand for services all over the globe. These constant demands reflect the way airlines adapt to the tastes as well as social statuses of the various and big clients looking for services. It also allows an airline’s management to maximize profit and reduce costs where and when necessary. The methods adopted to achieve these objectives and goals depend solely on the airline management team. This means that both the success and failure of an airline, just like any other organization depends on its staffs and the managers.

This research will concentrate on domestic airline management, the processes, challenges faced, regulation and deregulation, customer satisfaction, market competition, and other relevant factors with respect to the US domestic airline industry.

Major Components for Effective and Successful Airline Management

Domestic airline management can be effectively practiced if there is desire to satisfy customers, earn their trust, and exhibit an exceptional ethical practice. Ben Beiske (2002) discussed what he called the “Loyalty Management”. According to his point of view, it is a management perspective that revolves around, and/or is based on earning a customer’s loyalty. This form of approach requires the management of an airline to solely concentrate on most of their efforts, on the quality of the services they provide to customers. In order to properly execute these processes, there are three major components needed to be observed with thorough consideration and implementation, namely:

• sincere and active customer complaint management through simple dialog patterns;
• active customer service with an optimized adaptation procedure of existing and potential customers’ needs;
• frequent–flyer programs.

According to Ben Beiske (2002), these three components, tend to uphold the fact that customer satisfaction is the most important factor for an efficient and successful airline management aside from profit maximization and cost cutting. Observations and experience shows that word of mouth from a satisfied customer to friends, families, and colleagues can be worth more than a million dollar advertisement. Psychologically, every customer feels a sense of dignity and importance when they get the necessary attention and solution to a complaint on time. This, in its turn, leaves a good impression on a client about the airline. Having this in mind, every customer support unit or department of an airline company should be mentally and physically equipped to handle any form of complaints through a professional but friendly dialog with the complainant.

Inefficient management has been one of the factors that resulted in the failure of several airline companies in recent decades. Most of the airline company decisions are usually made by human resources and operations managers. If either or both of these two lacks the competence to assess situations in order to make success–oriented decisions and implement them effectively, a collapse of the airline company is inevitable. The airline industry as well as the aviation transportation market are very competitive. In this regard, policy makers and stakeholders are constantly faced with familiar and new challenges on how to improve the service quality. Decision-making problem are the issues almost every specialist is very familiar with. Since it is a very vital part of their job, airline management professionals now use innovative information technology for improving their ability to study both past and predict future cases. It helps to draw a conclusion whih, in its turn, will lead to what is supposed to be an effective or right decision (Ashgate publishing).

Challenges Encountered in Domestic Airline Management

The aviation industry means are currently used throughout the world. There are also other key players that influence procedures and activities, namely government, airports, alliances or agents, customers, competitors, suppliers, and the aviation union itself.

Compliance with the regulations and policies of the country within which an airline operates is one of the first steps. These normative acts enable the government to monitor some of the strategic and operational decisions made or intended by airlines. Such judgements could be related to safety, maintenance, merging, acquisition, security, pricing, market entry and exit, competition, and other related issues.

Airports and airlines usually have an operational agreement with terms and conditions that should be adhered to strictly by both parties. Regardless of such agreements content, there are several other factors that seem to influence the operations of an airline within the airport’s premises. Some of them may include baggage handling, airport, fees, landing spaces/slot, likely curfews, airport congestion, runway usability/durability, passenger entry and exit gates, as well as airport structure.

An airline must take into consideration the necessary wants and needs its potential customers expect to be fulfilled in order for them to attain utility. These customer wants and needs are always associated with take-off and landing punctuality, attractive or competitive airfare, and impressive on-board services. A pleasant and efficient customer services, as well as convenient flight schedules are the part of inevitable customer inquiries, wants, and needs. Deviating from these typical demands, which  come along with customer satisfaction, could easily lead to losing potential customers to other competing airlines or transport means.

The airline’s ability to form the alliance with other companies and necessary partners, in order to expand its network and share resources, also enhances its market performance. Sometimes, choosing and scrutinizing, which alliance or partners are beneficial or detrimental to business, can be a tough and reliable decision. It is so considered that an airline needs to properly analyze which companies or partners are suitable or compatible for forming an alliance as well as competent for reasonable resources sharing of. Alliances are easier to form in the domestic airline industry than on the aviation global scale (Ashgate publishing).

Every airline cannot operate steadily and efficiently without its various suppliers. They are partly responsible for the success attained by any airline company. Providers bring in all the necessary materials for the smooth running of an airplane as well as on–board staff, and customer products like fuel, food, toiletries, spare-parts cleaning supplies, and sometimes uniforms.

Airline unions are different organizations formed by a particular group of employees looking for the better treatment of such employees with their employers. Their activities include salary and benefits critics or negotiations, jointly upholding the rules of professional airline service with the airline’s management. These unions have an impact on the airline business, as they are capable of interruption the smooth running of services through strikes and slowdown work process if necessary during a conflict. Therefore, it is essential that an airline keeps a good and reliable relationship with the union (Ashgate publishing).

Decision Making in Domestic Airline Management

The decision-making process of an airline’s management includes three aspects. They are:

• strategic decisions;
• planning decisions; and
• operational decisions.

Strategic decisions are made in order to do something that has been done by a competitive airline differently or, trying to introduce/do something that has not been done in the industry by any other domestic airline. It usually takes a long time to conceive and achieve. It can also be very demanding in terms of physical and monetary efforts. Such decisions can be based on the airline expansion, purchase of fleets, maintenance of infrastructure, merging and alliance participation.

Planning decisions are made in order to maximize the usage of an airline’s already existing resources. So, the outcome of such decisions is solely based on generating more revenue. The resources, in this case, are likely to be either of the following: aircrafts, employees, affiliated staff personnel, airport infrastructure and staffs, flight scheduling, departure and arrival forecasts, catering, crew accommodation, customer services, and baggage handling among many others.

Operational decisions are solely based on determining how the results of the strategic and planning decisions play out. This involves the taking into account of revenue inflow, handling of bookings, comparing market flight fares with competitor’s offers, seasonal promotions, and demand forecasts. There is also an information exchange inter-phase between these three decisions, structured to function in a feedback manner (Ashgate Publishing).

Pricing and Demand

According to John G. Wensveen (2011), among all the issues surrounding airline operation, seat reservations and cargo booking, the pricing aspects of these services have been a main point of concentration since deregulation took place. Pricing a commodity or services has been one of the most complex parts of meeting demand with supply. In the domestic airline industry, it is even more complex for companies to determine or adjust airfare prices. It is believed that the transition from being highly regulated to operating as a deregulated industry has enormously influenced the airline industry.

According to the economists, when the price of a commodity or service falls, the demand for such a service or commodity is likely to increase rapidly. Passengers who fly very often will definitely patronize a cheaper and reliable airline in order to save or reduce costs. In other words, airlines with cheap or affordable tickets are likely to sell more tickets than airlines with expensive tickets. This does not necessarily mean that companies offering high-priced tickets would not make sales. They also have some loyal clients who can afford to fly with regards to preference and not pricing, and equally due to an ability to easily afford such high-priced tickets. The motive behind every price is always clear. It is solely either to maximize profit or to generate revenue. Time and purpose of a journey can be influential in the demand versus pricing issues. In order to meet the deadline, a passenger traveling for business purposes will opt for a time-saving airline route, flight departure/arrival time schedule, without giving much consideration to the ticket price. At the same time, a tourist has enough time to scramble the market for tickets marching an estimated budget and destination, long before the intended date except in short–term decision cases.

Dipasis Bhadra & Pamela Texter discussed Southwest airlines as the vivid example of a leading airline, which has been able to balance pricing with demand and supply. “Southewest Airlines was the US largest LCC in 2003 with almost half the total LCC market (48 % of available seat-miles (ASM) and 45 % of revenue passenger-miles (RPM), representing supply and demand, respectively). This airline now ranks second, after Delta Airlines, in terms of US domestic passenger enplanements, accounting for about 10 % of overall domestic ASM and RPM. During the recent decade, Southwest Airlines has expanded its level of activity”. Although, it is surprising to know that its activities accelerated after the 9/11 terrorists attack. At the moment, this company is known as one of the major air transportation players.

Southwest Airlines was able to prove that low-cost tickets increased overall travel demand. This company has influenced the domestic airline industry in the USA so much that it has assumed a leadership by example position among other airlines. After primarily focusing on serving metropolitan regions through secondary airports, it also flies to large hubs, such as Baltimore-Washington (BWI), Phoenix (PHX), Las Vegas (LAS), and Midway (MDW). Therefore, its expanding may have a good influence on hub–to–hub flight connections, which, in its turn, result in increased demand in those networks, thereby improving the market structure (Dipasis Bhadra & Pamela Texter).

Effects of Recession on Domestic Airline Industry

According to Raghavan Parthasarthy & C. Gopinath (2011), United States airlines transported over six hundred and eighteen million domestic flight passengers in 2009. This was just five percent less than the two previous years with an overwhelming all-time record of six hundred and seventy-nine million domestic clients transported. The high impact of the year 2008 recession, which extended into year 2009, caused a fluctuation in domestic airline revenues. The domestic airline industry in the USA was said to be in an accumulative loss of about sixty billion dollars, which surpassed the earnings of the previous years. The uncontrollable and unpredictable costs of running the airlines made some major industry players to file for bankruptcy during this period in order to protect themselves from total loss.

Domestic Airline Industry: Regulation, Deregulation and Competition Regulation

In the early 1920’s, airplanes were operated only for mail transportation purposes. After a decade had gone by, passengers became a main part of the its patronage. However, a large number of people still did not use this new means of transportation due to their safety concerns. As a result of it, the construction of passenger airplanes was gradually improved and made safer to fly on. Once air transportation was considered safe, the demand for service increased rapidly and there was a sudden market growth. This progress then resulted in the formation of the Civil Aeronautics Board (CAB) in 1938. Since then, the Civil Aeronautics Board has regulated the domestic flight industry by awarding routes, determining flight fares, and also decided new entries and mergers. The regulation was operated based on a simple rational logic indicating that air transportation is a public service needed to be available to all interested and guaranteed (Raghavan Parthasarthy & C. Gopinath, 2011). During this period, Airlines were protected from liquidation and unfair competitions. Flight fares were also created and/or determined with the thought of the public’s ability to afford the fares in mind. However, the Civil Aeronautics Board prevented entry and controlled competition among airlines by equally awarding busy routes among the airlines. This method allowed every airline to make enough money to stay in business. This continued for more than sixty years after passenger planes came into existence and exploitation (Raghavan Parthasarthy & C. Gopinath, 2011).

Deregulation

In 1970, the regulative activities of the CAB could no longer influence the quality of service received by the public from airlines. So, operators were reluctant to improve their services and had the low competition rate as well as the assurance that they will constantly get routes awarded to them by the CAB regardless. The regulation of this industry was a part of the government’s plans to develop it gradually and generate steady revenue. Howver, with time it became a paralyzed system of operation for the airline industry. The call for airline industry reforms coupled with new political trends that considered market forces as the solution to the issue if allowed to operate in that direction. The Civil Aeronautics Board was finally abolished in 1978, which lead to the dawn of a new era of uninterrupted competitions between airline companies in the open market. From then on, the airlines made all decisions regarding the improvement of services, fares, entered interested routes freely, and decided airline merging issues as well as procedures themselves. The aviation market competitions became more volatile, and airlines became more vulnerable.

Regardless of the new-found airlines freedom, safety measures controls and certifications remained a federal government supervised activity. Gates, slots, and landing permits are to be obtained from local governments.

Conclusion

The aim of this paper is to analyze the main components of the United States domestic airline industry as well as its current issue, processes involved, challenges encountered, regulation and deregulation, customer satisfaction, market competition, demand, and pricing together with other relevant factors.

The US domestic airline industry has continued to evolve through different times and challenges. Deregulation has also permitted the emergence of a competitive market that led to the airline services improvement. It has also provided the customers with the ability to choose the preferred airline These and many other ground breaking activities have revived the market quickly from the recession it experiences in about half a decade ago. It goes without saying that market is at a point where it will only continue to grow as it is open for entry and management. However, there are no guarantees that existing or new airlines will continue to live or exist during the current market competitions.

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