Last dissertation

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Introduction to Airline management: Every organization has goals, whether they are profits, market share, growth, quality of products or services, community image, or any combination of these. Management is the process of through the coordinated performance of five specific functions: Planning, Organizing, Staffing, Directing, and controlling. Years ago, when the major carriers were in their formative period, the management process was much simpler. The few employees truly felt that they were part of the team, and they could clearly see how their efforts contributed to meeting the company’s goals. Everyone knew what the objectives of the firm were and how each particular job related to them. The lines of communication and span of control were very short. There was an esprit de corps among the employees, from president to the most unskilled worker. In fact, the president probably knew each employee personally. Today, the major carriers employ as much as 80,000 people. No longer does the president know the men and women on the line, and many workers on the line have as much allegiance to the union they belong to as they do to the company they work for. It is difficult for individual employees to see exactly how their particular jobs contribute to the corporate goals. The lines of communication are long, and the decision making process is complex. The airline tends to assume a remoteness from the individual and to become a“ thing” that exists, survives, and grows not because of the people who compose it, but in spite of them. According to Chris Argyrus, a noted management theorist, “ the organizations emerge when the goals they seek to achieve are too complex for any one man. The actions necessary to achieve the goals are divided into units manageable by individuals- the more complex the goals, other things being equal, the more people are required to meet them”.

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Transcript of Last dissertation

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Introduction to Airline management:

Every organization has goals, whether they are profits, market share, growth, quality of products or services, community image, or any combination of these. Management is the process of through the coordinated performance of five specific functions: Planning, Organizing, Staffing, Directing, and controlling.

Years ago, when the major carriers were in their formative period, the management process was much simpler. The few employees truly felt that they were part of the team, and they could clearly see how their efforts contributed to meeting the company’s goals. Everyone knew what the objectives of the firm were and how each particular job related to them. The lines of communication and span of control were very short. There was an esprit de corps among the employees, from president to the most unskilled worker. In fact, the president probably knew each employee personally.

Today, the major carriers employ as much as 80,000 people. No longer does the president know the men and women on the line, and many workers on the line have as much allegiance to the union they belong to as they do to the company they work for. It is difficult for individual employees to see exactly how their particular jobs contribute to the corporate goals. The lines of communication are long, and the decision making process is complex. The airline tends to assume a remoteness from the individual and to become a“ thing” that exists, survives, and grows not because of the people who compose it, but in spite of them.

According to Chris Argyrus, a noted management theorist, “ the organizations emerge when the goals they seek to achieve are too complex for any one man. The actions necessary to achieve the goals are divided into units manageable by individuals- the more complex the goals, other things being equal, the more people are required to meet them”.

An organization is the framework within which the management process can be carried out. It is a structure that enables a large company to attain the same efficiency or a greater efficiency than a small firm run effectively by a few employees. In the highly competitive airline business, an effective organizational structure may prove to be the necessary advantage one firm has over another.

Management:

Levels of Management:

Terms such as top management, middle management and operating management are commonly used in business to distinguish the levels of management within an organization.

Unfortunately, there is no clear definition of each level, and meanings attached to the terms sometimes differ from one company to another. However, a firm’s top management is generally considered to be the policy making group responsible for the overall direction of the company; middle management is responsible for the execution and interpretation of policies throughout the

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organization; and operating management is directly responsible for the final execution of policies by employees under its supervision.

Figure 7-1 shows a typical airline pyramid of authority including all three levels of management. The nature of activity carried on at each level is illustrated, with examples showing the organizational breakdown of two administrations and the typical titles of individuals heading up each unit. The term administration is generally used to describe a major unit within the company, such as flight operations, marketing, or personnel.

Department are the next major breakdown with administrations; divisions within departments, and so forth.

The board of Directors. The Chief governing body of a corporation is the board of directors, which is elected by the stakeholders. This board ranges in size from 3 to 20 or more members and represents a cross-section of prominent individuals from various fields, including banking, insurance, law, and accounting. Airline boards typically include individuals from the hotel and food-processing industries, as well as former political and military leaders. The board of directors is the Chief policy-making body of the corporation and the forum to whom the president reports. This body decides such broad questions as, should the company be expanded? And should the company diversify into other fields? The board also has the sole responsibility for the declaration of dividends. The basic decision about dividend involves other decisions, such as what percentage of the year’s earning should be retained for company use and whether the dividend should be paid in cash or in stock.

The directors of the corporation are responsible for the appointment of a president, the secretary, treasurer, and other executive officers who handle the actual details of management. Often, the board elects some of its own members to fill these important posts.

Top Management. Top management is the highest level of management in the organization. The job of top management is to determine the broad objectives and procedures necessary to meet the goals established by the board directors. Top management will also make recommendations to the board regarding the goals of the company. What distinguishes top management from middle management is not always clear in a given organization, but the individuals in this group usually have many years of experience in all phases of management. Often called key executives, senior executives, or major executives, they usually bear the title of president, executive vice-president, or senior vice president.

President. This individual is the Chief executive officer of the corporation and is responsible for the proper functioning of the business. In the case of airlines, this individual often is a prominent business or political leader with very little airline experience, because the president’s primary role is to deal with the financial community, various segments of government, community groups, and so forth.

Executive vice president and general manager. This individual generally has years of airline experience and is responsible for the day-to-day operation of the company. Generally, the senior vice-presidents report to this individual.

Senior vice-president. This title generally is reserved for those individuals who head up a major administration, such as flight operations, marketing, or engineering and maintenance.

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Middle Management. Middle management is the second level of management in the organization and is responsible for developing operational plans and procedures to implement the broader ones conceived by top management. Middle management may be given much leeway in the development of plans, so long as the end result is keeping with top management’s requirements. Decisions on which advertising media to use, how many reservations agents are needed, and what new equipment to purchase are examples of those made by middle management.

Middle Management includes individuals who head up departments or divisions within a major administration, such as the advertising department under marketing or the flight procedures and training department under flight operations. Or it might include the simulator division head, who reports to the flight procedures and training department head.

Typically airline titles for individuals in charge of departments and divisions are vice-presidents, directors, and, in the case of maintenance facilities, superintendents.

Operating Management. Operating management is the lowest level in management. It includes managers, assistant managers, section chiefs, general supervisors, and supervisors who head up sections, groups or units that report to division or department heads.

Example might include the manager of display advertising or the general supervisor of the sheet metal shop. Members of the operating management groups are primarily concerned with putting into action operational plans devised by middle management; generally, they do not initiate plans of their own.

Although the direction an airline takes is established by top management, the operating management level is extremely important. Top management makes policies, and middle management makes plans to carry out the policies, but operating management sees that the work the plans call for is done. Top management is secure as long as the profit picture is favorable. When a carrier is in serious trouble financially, the board of directors may make changes in the top echelon. Sometimes, a new president and executive vice-president are employed. When this is done, changes at other management are not always made the new top management, because middle management can still make plans to carry out policy, and operating management can still implement plans.

General managers:

Manage several different departments that are responsible for different tasks, for example, the manager of a supermarket are responsible for managing the entire department within the store. The produce managers, grocery manager, bakery manager, and floral manager all report to general manager. Because general manager manage diverse departments. Their technical skills may not be as strong as the skills of the people they manage, however, they make up for in communication skills. General managers must coordinate and integrate the work of diverse groups of people. They responsible for ensuring that all the discrete parts of their organizations function together effectively so that the overall goals of the organization can be achieved.

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Levels of Management:

Managers exist at various levels in the organizational hierarchy. A small organization may have only one layer of management, whereas a large organization may have several. Consider, for example, the number of levels of management in a single-unit family restaurant versus a large restaurant chain such as Chili’s. While the small family restaurant may have only one level of management( the owner), Cili’s has several layers, such as general store managers, area directors, and regional directors.

In general, relatively large organizations have three levels of managers: First-line managers, middle managers, and top-level managers.

Figure1.3 illustrates these managerial level, as well as the Operatives, or the individuals who are not in the managerial ranks, but who actually deliver the product or service of the organization. The pyramid shape of the figure reflects the number of managers at each level. Most organizations have more first-line managers than middle managers, and more middle managers than top-level managers. As we will see later in this chapter, however, the trend of the 1990s was to reduce the number of employees in organizations in an effort to improve efficiency. The net effect of such downsizing was a significant reduction in the number of middle managers within many corporate structures.

The skills required of managers at different levels of the organizational hierarchy vary just as their job responsibilities vary. In other words, managers at different levels have different job responsibilities and therefore require different skills. The skill necessary for First-line managers to be effective are not the same as the skills needed by middle managers differ from those needed by top-level managers.

While managers at each level must generally possess planning, organizing, leading, and controlling skills, certain job-specific skills are more important at one level than at another.

Top Managers

Middle Managers

First-Line Mnagers

Opretational Employees

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Functions of management:

The main functions of management are planning, organizing, staffing, directing, and controlling. The key tools of management are supervisory skills, which must be learned and practiced.

Planning:

Managers at all levels of the organizational hierarchy must engage in planning. Planning involves setting goals and defining the action necessary to achieve those goals. While top-level managers establish overall goals and strategy, managers throughout the hierarchy must develop operational plans for their work groups that contribute to their efforts of the organization as a whole. All managers must develop goals that are in alignment with and supportive of the overall strategy of the organization. In addition, they must develop a plan for administering and coordinating the resources for which they are responsible so that the goals of their work groups can be achieved.

Planning:

An airline is dependent for its very existence on the ability of its top planners, failure to forecast the demand of air travel and to plan how to meet a rising or shrinking demand spells the difference between success and failure. The management process begins with planning, which sets the stage for what the organization will do, both globally and specifically.

Goals should be established for the company as a whole and for each administration and

department, as well as for individual activities. A goal is anything that an organization or group is seeking to do. Some goals are large, such as buying a hotel chain or building a new kitchen to serve a growing hub airport. Other goals are small, such as getting a report completed by Friday or handling more reservations calls per hour than last month.

Management by Objectives: Many carries operate by a system popularly referred to as management by objectives ( MBO), in which employees at all levels are given tangible goals and are held accountable for achieving them. A strategy might include increasing the number of daily flights, including those serving full meals. In a well-designed MBO program, overall goals and strategies of the company and of individual employees are established through discussions between managers and subordinates. Feedback is provided through follow-up discussions during the period of time set for achieving the goals. Feedback may be in the form of data quantitative results( such as Dollar sales, new accounts, unit costs, aircraft turnaround time, or mechanical delays) or data qualitative results( such as customer complaints, reductions in errors, improvement in image, or development of subordinates) person to person communication, through day to day coaching, is particularly important.

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With MBO, because employees receive timely, accurate, and fairly complete information on their performance results, they are in a position to take a corrective action when necessary.

The whole MBO approach assumes that employees will accept responsibility for achieving of company goals and that they will become committed when the goals are meaningful, attainable, and established through mutual planning.

The final stage of the MBO is the appraisal of results. At the end of performance period, the manager and the employee check the employee’s progress in achieving the goals.

Policy and Procedures as part of Planning:

Every airline has a policy and procedures manual, usually prepared by the personnel department and containing major sections pertaining to each of the administrations. A policy is broadly stated course of action that employees should follow in making decisions. The policy is a guide; employees do have some discretion in its implementation. For example, an employment policy for all staff positions above a certain level might be that “ preference in employment will be given to college graduates with a management background.” Hundreds of policies are in effect at any major carrier, and those of a broad nature are established by top management. Power to make specific policies for the guidance of each department usually delegated to administration or department heads.

A procedure is somewhat like a policy, but it specifies in more detail the kind of action required to handle a specific situation. There are procedures for ordering suppliers, training new employees, fueling aircraft, handling customer complaints, and hundreds of other processes within the various administrations, departments, divisions, and so forth.

Organizing:

The managerial function of organizing involves determining the tasks to be done, who will do them, and how those tasks will be managed and coordinated. Managers must organize the members of their groups and organization so that information, resources, and tasks flow logically and efficiently through the organization. Issues of organizational culture and human resource management are also key to this function. Most important, the organization must be structured in light of its strategic and operational goals so that it can be responsive to changes in the business environment.

Organizing:

Once plans have been made and policies determined, the job of carrying them out becomes one of organization and operation. Organizing involves the division of work among employees and the determination of how much authority each person will have. More specifically, organizing may be defined as the process of logically grouping activities, delineating authority and

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responsibility, and establishing working relationships that enable the employees, and thus the entire unit, to work with maximum efficiency and effectiveness.

Involves stationing people to work in the positions provided by for the organizational structure. It includes defining work force requirements for the job to be done, as well as inventorying, appraising, and selecting candidates for positions compensating employees, and training or otherwise developing both job candidates and current employees to accomplish their tasks effectively.

Leading:

Managers must be also capable of leading the members of their work groups toward the accomplishment of the organization’s goals. To be effective leaders, managers must understand the dynamics of individual and group behaviour, be able to motivate their employees, and be effective communicators. In today’s business environment, effective leaders must also be visionary-capable of envisioning the future, sharing that vision, and empowering their employees to make the vision a reality. Only through effective leadership can the goals of the organization be achieved.

Directing:

Includes assigning tasks and instructing subordinates on what to do and perhaps how to do it. Because the supervisor’s job is to get things done through other people, effectiveness is closely tied to communicating directives clearly and in a way that will bring about the desired action. It is essential that subordinates understand the orders, or they will not be able to carry them out. In directing people it is important to know how much information and what kind of information to give them. Order should be fitted to the receiver; the new employee needs to be instructed in details, but the experiences worker may need to know only the objectives and then be capable of choosing the means to attain them. Orders should be fitted to the receiver; the new employee needs to be instructed in details, but the experienced worker may need to know only the objectives and then be capable of choosing the means to attain them.

Controlling:

Managers must monitor the performance of the organization, as well as their progress in implementing strategic and operational plans. Controlling requires identifying deviations between planned and actual results. When an organization is not performing as planned, managers must take corrective action. Such as actions may involve pursuing the original plan more aggressively or justing the plan to the existing situation. Control is an important function in the managerial process because it provides a method for ensuring that the organization is moving towards the achievement of its goals.

With the four functions of the management in mind, let’s move on to examine the manager.

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Managers are the people who plan, organize, lead, and control the activities of the organization so that its goals can be achieved.

Controlling:

Is the measuring and correcting of activities of subordinates to ensure that events conform to plans. Thus it involves measuring performance against goals and plans, showing where deviations occur and, by putting in motion actions to correct deviations, ensuring accomplishment of plans. Basically, control involves three steps: (1) setting performance standards or the work, (2) comparing actual performance with the standard, and (3) taking corrective action to bring performance in line with the standard.

The process of management:

As mentioned previously, four major functions are associated with the process of management:

1-Planning 2-Organizing 3-Leading 4-Controlling

Figure 1.1 illustrates these functions and shows how they relate to the goal of the organization.

Organization Goals

Planning

Organizing

Controlling

Leading

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Scope of the responsibility:

The nature of the manager’s job will depend on the scope of his or her responsibilities. Some managers have functional responsibilities, whereas others have general management responsibilities.

Functional Managers: are responsible for work groups that are segmented according to function. For example, a manager of an accounting department is a functional manager. So are the managers of a production department.

Business Environment:

Conceptualizing the environment of business:

Business Environment is usually refer to the business external context comprised of the wider social, economic, culture, Legal, political, Technological, and other systems in which businesses operate and internal context comprised of human resources, organization culture...>>>Businesses Environment is varied in settings or contexts{Business organizations operate in different environmental settings or contexts/ Different types of business organization operate in different environmental settings or contexts}.

The external and internal dimensions of the business organization environment are very much related since business decisions (cross over this boundary-they have internal and external aspects.). For example, it worth mentioning that Businesses have to not only ensure recruitment of the right candidates from the external labour market but also to manage them internally to deploy human resource effectively within the organization considering that the quality of internal processes pretty much affecting the speed and effectiveness with which organization counter the external threats and opportunities. Indeed the internal environment may be shaped by the way the organization responds to its external environment.

Environmental Uniqueness:

Each Business organization, even those in the same industry operate in different environment that is, to some extent, Unique. This thought warns against over-generalization when analyzing the business environment, and emphasize that organizations should consider only particular aspects of the environment that affect the organization and the way it respond to changes! However, we shouldn’t take this idea too far- at its extreme it would suggest that business should refer to textbook to get to know how things are in general terms, or that intended to be true in most cases that is useful approach in business and management, since there are general aspects of the environment that influence most businesses, firms should combine between general and particular approach in order to operate successfully.

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How can Business react to the environment:

Responsiveness:

Successful organizations should be able to respond effectively to the environment and be able to counter the threats effectively and take advantages of opportunities or at least, is able to do so as well as or better than its competitors.

Influence:

Nevertheless, business success may depend on the ability of the organization to influence the environment in which they operate. Advertising is a very good example of business activity that is aimed to influence its environment and be able to create new tastes within the society. Changes in consumer preferences and spending behaviour as a result of changes in lifestyles and/or life value, population, income rate, economic growth and prosperity may pose threats or opportunities to which businesses must react.

Choice of environment:

Beyond responding to or influencing the environment, businesses may be able to choose a favourable environment in which to operate. For example, businesses may be able to shift the geographical basis of their operations-moving into more favourable environments and away from unfavourable ones.

When businesses expand into new markets, for example exporting to new countries, open new routes destination they are searching for favourable geographical areas in which to sell their products. The phenomenon of international trade is driven by the geographical expansion of business searching for opportunities for sales in new markets overseas. Whether these new markets will provide favourable trading environments will depends on factors such as culture, consumer tastes and income level within the society.

The nature of the internal environment:

The internal environment concerns all those activities and relationships within the organization that are involved in the transformation of inputs into outputs.

The internal activities and relationships add value to the inputs. A successful business has to manage the internal environment effectively as well as interact with the external environment. Of course, the internal environment is not sealed off from the external one, rather there is an interface or relationship between the two.

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Businesses are, in other words, open systems that interact with their environments, not closed systems. Some internal activities involve relationships with external people and organizations, most obviously suppliers and customers. For example, in a retail business and other services the interface with the external environment in the guise of customers is the core activity of the business. Therefore, managing the internal environment is, in part, concerned with managing their relationship or interface. Further, the internal environment may need to be adopted to suit the particular characteristics of the external environment if the business is to be successful. This means that there might not be just one way of organizing and managing the internal environment, but a variety of possible ways, depending on what works best in the particular situation of the firm. For example, if the external environment is characterized by rapid change or volatility it may be important to ensure flexibility of staffing or tasks within the business. On the other hand in a stable and predictable environment a more rigid, bureaucratic and rules based approach might work well. Just as the external environment of each business is, in some degree, unique, the same can be said of the internal environment.

Analyzing the internal environment involves looking at businesses as particular types of organizations. An organization can be defined as a group of people that comes together for the purpose of achieving a specific goal or objective, and which involves a series of activities and relationships undertaken within a framework of some kind of rules or procedures.

Environmental Analysis:

Undoubtedly, for any Business It is Important to study the surrounding Circumstances and conditions in which they operate. A regular environmental analysis is needed because the environment is changing – it is dynamic. If the environment were static it is likely to plan for future on a basis of what was done in the past- to carry on the same way. But because it is dynamic business must operate under a general assumption that the future is different from the past. And thus it is crucial to understand the way the environment change and be able to take the corrective action to respond or influence these changes in a way that it helps the firm to attain its goals. Bearing in mind the point about environmental uniqueness, some organizations operate in a more unstable environment than others. Therefore, business success depends on dealing with change effectively.

Uncertainty and bounded rationality:

Business can never have knowledge on how the environment will change. There are always limitations on knowledge, and therefore businesses must operate in somewhat uncertain environment. Although businesses may strive to act rationally in monitoring the environment and responding to change in the most effective way, their rationality is always bounded by limited knowledge. It is sometimes said that by the time firms have monitored environment

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change, analyzed their findings and formulate a response it is too late to do anything. If this were true then environmental analysis would be a waste of time. Certainly businesses have to make judgments about the resources and energy they invest in environment analysis in terms of likely benefits of the exercise. However, we return to the point that some level of understanding of the environment is essential to business. The question then is not so much whether but how. In this section we will outline briefly some of the more familiar methods.

PEST and its Variants:

Thinking about the external environment in terms of inputs and outputs is useful but not sufficient. It focuses attention on relationships with sellers or suppliers, competitors, and buyers or consumers. But there are other important types of organizations, processes and relationships in the external environment. The external environment is not just made up of markets but also includes political, legal, social, culture, technological and other factors and influences; it is in other words, multi-faceted and complex.

PEST is a simple framework for environmental analysis that distinguishes four categories areas.

Political:

Terrorism fears/ Political instability:

The years at the beginning millennium are turning out to be some of the most difficult that the aviation industry has ever faced.

The industry was undoubtedly heading for challenging times in any case, but there can be no doubt that the events of September 11 2001 caused unprecedented crisis. Armed hijackers seized four aircraft in the USA, and used these to attack the world trade centre in New York and Pentagon in Washington.

The effects on the airline industry were catastrophic. For four days, the airspace over the eastern USA was closed; resulting in direct loses to airlines (for which admittedly, they have mostly been compensated). More serious still, the fear of further terrorism attacks caused a steep decline in demand, both in the USA, on international routes to and from the US, and to a lesser extent to elsewhere.

The time since the September 11 attacks has seen little improvement further, very serious terrorist attacks have occurred in places as far apart as Mombasa and Balli. The second Gulf war fought in March and April 2003 seemed to have fanned the flames of international terrorism rather than causing the improvement in the situation which it was presumably intended to bring about.

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Assessing the longer-term impact of the fear of terrorist attack on the size of the aviation market is very difficult.

Deregulation and open skies:

Throughout its history, the airline industry has been constrained by decisions made by politicians and governments. Government have controlled where airlines can fly, and aspects of their product planning and pricing policies. They have also had a major involvement in the industry through the ownership of airlines. Finally, political decisions have often affected the extent, nature and geographical distribution of demand.

Almost from the inception of the commercial aviation industry, government regulated airlines. They have always had a role in regulating airline safety standards, a role that remains important and, in principle, relatively non-controversial. Government regulation, though traditionally went very much further than this. For many years, and in almost all aviation markets, government controlled airlines route entry and capacity and frequency decisions. Very commonly too, and astonishingly by today’s standards, governments intervened to stop airlines engaging in price competition.

In recent years, substantial regulatory reform has taken place, giving carriers the challenge and the opportunity of responding to a freer economic environment.

In describing the system of economic regulation of the airline industry, a fundamental distinction has always been between the regulation of domestic services, which are solely under the control of one government and international services, which require the agreement of at least two.

Until relatively recently, almost all domestic travel markets were highly regulated. An extreme case was the USA. Despite the United States supposedly being the home of free market thinking, airlines commercial freedom was constrained by what now seems a very burdensome system of economic regulation. Between the passing of the Federal Aviation Act in 1938 and the Airline Deregulation Act in 1978, carriers could only enter new routes by going through a cumbersome and extremely slow bureaucratic procedure.

Another extreme case of a highly regulated domestic market was those of Australia. For many years prior to 1990, Australia pursued a so-called “Two Airline” policy. Under this, only two airlines were granted access to Australian domestic trunk routes. Ansett Airlines & and Trans-Australia Airlines. Even though these carriers were supposed to compete with each other, in practice almost all the areas where competition might have occurred were regulated, including the question of price levels.

The situation with regards to domestic aviation markets today has undergone substantial change, though in one very important sense we are still (with one exception) very far from true “ deregulation”.

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In terms of regulatory change, the USA led the way with the passing of the Airline Deregulation Act in 1978. This allowed for much greater freedom for airlines to enter new markets and to exploit them free of constraints on capacity or pricing policies. However, one important regulatory limitation remained- that of ownership.

Regulatory reform in the United States has been followed by a similar pattern in many other countries. Today many countries would claim to have deregulated their domestic aviation industries.

The situation regarding regulatory change in international markets has inevitably been more fragmented and diffuse, but even here, the state-of- play is significantly different from the one which prevailed only a few years ago.

For more than fifty years, international aviation has generally been very tightly regulated indeed. Early attempts were made by the USA to establish a liberal environment at the so-called Chicago-Convention of the 1944. These were decisively rejected and in the ensuring compromise, the world fell back on a system of controls through intergovernmental Air Services Agreements.

Until 1978, the U.S. government through the Civil Aeronautics Board , regulated many areas of commercial aviation such as fares, routes, and schedules.

The Airline Deregulation Act of 1978, however, removed many of these control thus changing the face of civilization in the United States.

The deregulation of the airline industry in the European economic area had important implication for tourism. The intensification of competition has often resulted in lower fares and occasionally in improved service quality, highly flight frequency, punctuality and better service on board in the last decade.

Open skies:

Open skies agreements are bilateral agreements between the U.S. and other countries to open the aviation market to foreign access and remove barriers to competition.

They give airlines the right to operate air services from any point in the U.S. to any point in the other country as well as, to and from third countries.

The U.S. has open skies agreements with more than 60 countries, including fifteen of the 25 EU. nations. Open skies agreements have been successful at removing many of the government implemented barriers to competition, and allowing airlines to have foreign partners, access to international routes to and from their home countries and freedom from many traditional form of economic regulation.

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A global industry would work better with a globally minded set of rules that would allow airlines from one country to establish airlines in another country and to operate domestic service in the territory of another country.These agreements still fail to approximate that most industries have when competing in other global markets.

Economic:

The Demand for Air Travel is characterized by a very high income elasticity. Therefore, as the world economy grows, the demand for air travel can be expected to increase too. This continuing growth gives both enormous opportunities and great challenges to the airline industry. The opportunities come with the chance to exploit a growing market, something which would be the envy of managers in many other industries. The challenges are to accommodate the growth through suitable infrastructure development and without unacceptable environmental consequences and to exploit the demand whilst achieving the stable profits which the industry has so often found elusive.

Beside a clear pattern of growth, growth rates are uneven through time. Just as one would expect, air transport industry growth rates are tied closely to those in the world economy. If growth in the economy is rapid in a particular year, so is the increase in air travel demand. Periods of economic stagnation see a significant slowing of the rate of increase in demand.

This pattern has immense strategic and marketing implications. It is not sufficient for carriers to implement policies which allow for profits during prosperous periods if these same policies result in heavy losses or bankruptcy during the downturns in the trade cycle.

Unfortunately, the industry’s past record is not encouraging. Too often, periods of buoyant demand have seen airlines over-invest in additional capacity. They have also commonly given too much emphasis to the first and business class market, a market which tends to be very strong when times are good, but which suffers particularly severely during a downturn when firms require their executives to travel in economy/coach class to save money. A final problem often is that in upswing periods, insufficient attention may be given to the control of costs, particularly labour costs. Pay increases that can easily be financed in good times may turn out to be crippling burden when in downturn, yields are forced down because of an overcapacity situation, to levels which do not allow costs to be covered.

The upswing of the middle and late 1990s illustrated all these shortcomings. Large orders for new aircraft were placed with the aircraft manufacturers, with many of these planes actually delivered in 2000 and 2001 when market conditions were much less favourable. Labour costs were allowed to rise, with some airlines-notably so United Airlines-leading the industry by granting unprecedented increases in wages and salaries to a number of their work groups. Finally, some airlines changed their entire business class strategy during 1997 and 1998, to focus very heavily on the booming market of so-called “premium” travellers in First and Business Class. The flaws in this strategy became very obvious in 2000 and 2001, when recession ended the growth in this market and made its exceptional growth rates in the late 1990s look very

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much an aberration, far above any sustainable long-term level. British Airways is an example of an airline that appeared to make this serious strategic mistake.

Since September 11 2001, there has been a tendency to blame the several financial problems being experienced by many airlines on the New York and Washington terrorist attacks and their aftermath. The impact of these was undoubtedly serve but they merely substantially increased the extent of serious problems which already existed. These problems can be traced to the fundamental error of failure to take adequate account of the trade cycle in setting business and marketing strategies.

The economic environment:

Markets and how they operate:

It is vital for businesses to be able to understand the nature of the market for their products so that they can use this information to their commercial advantage. Microeconomics is fundamentally concerned with developing techniques to understand the operation on individual markets. To build a picture of the individual characteristics of each one would be a nigh on impossible task but the good news is that by using a technique called equilibrium analysis we only need build a model surrounding one commodity and see how that market operates and then using the same techniques applied to that market we can apply this to other markets to see how they behave.

Demand and supply:

In a market there are consumers who demand the product and suppliers who would like to supply it. The first two questions then are:

o What influences a consumer’s decision to demand the product( the determinants of demand)?

o What influences a producer to supply the product(the determinants of supply)?

What are the most likely influences on you if you considered buying a pair of jeans?

Obviously the price of the jeans is the key one but so would your spending power or disposable income, fashion tastes and comfort, the prices and attributes of other types of jeans or trousers in general( or substitute commodities), the cost of going out to socialized ( and other such complementary activities) and your general confidence in future and expectations of the future course of prices.

What about the motives of the producer of the jeans? Well for the private business its primary aim is to make a profit and so its willingness to supply will depend on the price level

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it can get for each pair sold. However, this is not the only influence on supply. The business could supply other types of jeans or different types of product entirely.

Profits depend on the cost of the resources that go into production and costs often depend on the state of existing technology……………………………….<<<<<<<<<<<<<<<<<<<<<<<<<<

Social and Cultural Environment:

In broad terms, social-cultural environment includes everything that is not included in the economy or the political system. Economic life is organized primarily through a market in which individuals relate to one another as buyers and sellers and the purpose is production.

What has it got to do with business? Society, culture and business:

As with other aspects of the environment, the relationship between business, culture and society involves a two-way interaction. Although we tend to think of business as operating according to a distinctive instrumental rationality of profit-and-loss and the ‘the bottom line’ it is also influenced by the social-cultural setting in which it is embedded. At the same time business affects the wider culture and society profoundly. For example, a good deal of what we think of as making up the culture of modern society consists of the outputs of private sector businesses in what might be called the culture industries, such as popular music, films, literature, newspaper and magazine.

Social:

Trends in social factors will have widespread consequences for airline marketing-indeed, in some senses, this is the most significant component of the PEST analysis model as far as marketing policies are concerned.

The Aging population:

In Europe and North America in particular, the average age of the population is now increasing steadily, fewer babies are being born, and improving medical provision is allowing more people to live longer. ( It should be born in mind, of course, that an ageing population is not yet at all characteristic of most countries in the third world.)

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The ageing of the population has some obvious, and some more subtle implications for the airline management. Clearly the product that airline offer will have to evolve, with more provision being made for disabled passengers and those needing helps at the airports, and medical care services will have to be improved. There may also be opportunities for specialist brands to be launched, reflecting the needs and aspirations of older people.

Changing Tastes and fashions in holidays:

Partly but not exclusively, reflecting trends in age and family structures , the modern travel industry is having to adjust to a marked broadening in the range of requirements of vacationers. When holidays by air first began to become popular in the 1960s, most people wanted little more than a relaxing opportunity to sunbath by a hotel swimming pool. This is not so today. Better education, growing experience of air travel and fears about the health risks of excessive exposure to the sun are all meaning that to a greater and greater degree, holidays must reflect a life style based on individual choice. People expect to be able to pursue their hobbies while they are in holiday, with skiing, golf, history and trekking holidays all now well-established sub-segments of the market. They expect to be able to take holidays of different lengths in order to fit in with their available vacation time. They also require opportunities to visit new and interesting often long-haul, destinations.

Overall, the trend in the holiday market is often, and appropriately, described as “ depackaging in the package”. People increasingly want a holiday experience which reflects their own individual requirements. They don’t expect to be treated as part of the herd cattle, to suit the convenience of the travel provider.

Technology and business competitive advantage:

According to Porter in competitive advantage- creating and sustaining superior performance emphasizes the importance of technology in creating the competitive environment at the level of the individual firm( Porter, 1985). He also emphasizes the danger of seeing technology as a goal in itself. Technology is not an end in itself but is best understood as a means to improving competitive performance and boosting profitability. All too often it is easy to assume that any technological change is good and further that the more costly and sophisticated the investment in technology the better this will be. However, as we have seen technological change doesn’t have to be so costly and complicated. Using the concept of value chain, porter shows how every activity of a business in combining value. In practice a firm is a collection of different technologies that can be applied, enhanced or implemented across all the different activities of the business.

A value chain can be seen as consisting of the following technologies:

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Horizontal functions or support services of a business in terms of its basic infrastructure (finance, planning, information systems, office technology), human resources (training and development ), technology development and purchasing departments.

Vertical or primary business operations in terms of inbound logistics ( transport, handling, storage, information systems), production operations ( process, materials, machines, packaging, design and testing) outbound logistics, marketing and sales and finally service.

All these activities together comprise the value chain and each operation involves the use of technology to combine inputs into outputs so there is the opportunity for technological improvement across the range of activities to improve the profit margins of the business.

Case study: EasyJet and the Internet:

Low cost air travel can have many business models. The first low cost carriers tended to use old planes which they either leased or bought to operate on routes with little direct competition. Easyjet broke with this. Helped by changes in the competitive environment as a result of legislation to allow competition on routes, EasyJet used brand new planes which it bought to operate on competitive routes. In order to be competitive and pay the considerable fixed costs of the aircraft and the landing slots provided by the airports used, easyjet explicitly recognized the need to go for economies of scale by using their planes as much as possible and by filling each plane to reduce the average cost of each passenger. It engaged in ruthless cost cutting for all other operations such as not using the services of travel agents or catering services for in-flight meals, i.e. a no frills service.

Originally, it was envisaged that people would book flights over the phone, however, it was to be the Internet revolution that really enabled EasyJet to take off.

Technological change can improve the competitiveness of the firm if it either reduce costs or if it allows a business to differentiate its products or services from that of its rivals. We have seen already the complexity of cause and effect in relation to technology and other factors. Changes in the external market can create the possibility of untapped economies of scale that in turn call for technological response to boosting production.

Technology can’t be ignored by business and it can either boost a firm’s individual position or improve the profitability of the industry in which it operates. Conversely it can lead to a business declining as its competitors develop a technological advantage or technological change boosts alternative industries.

It is important for a business to adopt a technology strategy that enables it to respond to external changes as well as one which allows it to develop a consistent approach in relation to its goals.

A major decision businesses need to make is whether to try and be technology leaders or technology followers. In general terms this requires a balance of risks.

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If it is likely that a business would be able to maintain the technological advantage over time then there is an incentive for firms to innovate and/or develop new products. This can be the case where firms are able to assert their intellectual property right through patents or whether the cost of the research and development is so high as to deter competitors. As we shall see, some firms may try to simply outspend their rivals and then hope that the market appeal of such products is such to allow costs to be more than recouped without the prospect of an alternative using cheaper technology. The rapid pace of technology though means that this might be a possibility.

Moving first can mean that a business is able to establish a reputation that survives even when alternative competitors enter the market. Being first mean that a business can develop a strong lead and help it establish a position that it can set industry standards or develop favourable channels of distribution. Conversely, there is a huge risk in going first. Considerable sums of money can be expended and there is the risk that someone else can learn from your mistakes and develop a learner and fitter product.

Summary: In conclusion,

Successful use of technology improves the performance of business both in terms of performance and productivity. Whilst this can involve new inventions of products and processes more often than not it is technological innovation that is the key.

Technology is a major factor in shaping the forces that affect the competitive advantage of businesses. Businesses can choose to be leaders or followers and need to constantly review how technology impacts across the length of the value chain.

Technology can cause harm as well as good and it is important that we develop an ethical framework in which to analyse its effects.

Technology:

Video conference:

Looking at the possible effect of video-conference on the demand for air transport, the conclusion is that it is unlikely to lead to a decline in the demand for air travel. It will, though, result in future growth rates for business air travel growth which are disappointing by historic standards. Business travel growth will tend to be below the growth rates for GDP rather then above them as has commonly been the case in the past. It will also increase the airline industry’s already very substantial vulnerability to downturns in the trade cycle.

The internet:

The mid-1990s saw the beginning of airline interest in the marketing possibilities opened up by the internet. At the time of writing almost all major airlines have websites which they use for

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promotional purposes, with these sites supplying time table and product information and also having interactive component which allow people make bookings.

Sites are also being used as a way of increasing the attractiveness of an airline frequent flyer programme by permitting programme members to check on their mileage accounts and also by giving the availability of flights with the surplus seats available for redemption.

Surface Transport Investment:

Today, many countries have seen a resurgence of interest in surface-especially railway- transport investment. Railway operators have largely won the battle to be viewed as the most environmentally acceptable form of transport.

Investment is taking place in both new railways to provide fast city centre to city centre links, and in the tunnels to enable railway operators to extend their networks, this investment was especially notable in Europe, where during the 1990s as a whole, investment in railway infrastructure was more than three times as great as that in infrastructure for the aviation industry.

Surface Transport investment provides both problems and opportunities in airline marketing. The problems come from the fact that, beyond question, railway investment can have a significant negative impact on the demand for air transport. The evidence from countries such as France, where new railway developments compete alongside formerly busy air routes, is that once rail can offer a city-centre to city centre journey time of less than three hours, the effect on the air market will be a substantial one.

Worse still, the traffic that is lost tends to be the so-called point to point demand. Those who have been using air services to connect onto a long haul flight at a hub will continue to do so.

The opportunities provided by surface transport come with the options which is opens up for airlines to co-operate rather than compete, with railway operators. The future growth of the airline industry is now being jeopardised by growing shortages of runway and passenger handling capacity. Also for most airlines, short haul services tend only to be marginally profitable. The high incidence of fixed cost such as landing fees has always made it difficult to achieve satisfactory profits on these routes. On the other hand, most long haul routes tend to be more profitable.

The opportunity of surface transport developments is for airlines to lobby for improved public transport links to major airport. And thus train operators will be able to deliver long-haul passengers to airline hubs, and freeing valuable airport slots for further long-haul services.

We have now discussed the essential framework of the airline environment. The next challenge is in formulation of a sound strategy. In one sense, the good news here is that there is no single,

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unique strategy that must be followed in today’s airline industry if success to be achieved. There is a range of possible strategies available. What is essential, though, is that one strategy must be selected from this range, and it must be then implemented well. And continued on long term basis. The aim of the next section is to discuss the type of possible strategies an d their advantages and disadvantages.

Porter’s “ Five Forces” and their application to the airline industry:

in understanding these strategic options, a useful start can be made by looking at some of the ideas of the Harvard professor, Michael porter. Porter states that in different industries, strategic issues are coloured by the interplay of the five forces of the rivalry amongst existing firms, substitution, new entry, the power of the customers and the power of suppliers, which will be examined in details in the following section.

1.1 Threats of Rivalry:

Porter argues that, in many industries, often little of the true competition and the drive or change comes from long established firms. These long established firm often resemble one another in terms of strengths which they have, and in their problems and weaknesses. They therefore can identify benefits from aggressive competition at the margins of their activities.

In the air transport industry, the policies of the long established airlines of Europe illustrate this point only too well, especially in their short-haul markets. There are now no regulatory reasons which preclude intense competition between them. Since April 1997, the airlines of European Union have competed in a single Aviation Market where there have been only the very loosest controls over entry, capacity and fares. Yet, one would hardly know this in those situations where the old established airlines have faced one another in head-to-head competition. They have mostly flown similar aircraft, and placed in them identical or near identical seating configurations. Frequencies and timing have been very similar, with few airline prepared to allow their competitors a frequency advantage. The onboard products have been comparable. Finally and most tellingly, until recently these airlines have pursued an almost identical pricing policy . very high fares >>>>>>>>>???? Change to future tense!!!

1.2 Substitution:

Porter argues that disturbance to the competitive equilibrium set up by the long established firms come from two possible sources, the first of these being that of substitution. Substitution occurs when firm in another industry find a new and better way of meeting the same customer needs as are being targeted by the existing players.

There are number of substitution issues affecting airlines at the present time. Of these, potentially the most serious is the effect of electronic methods of communication on the market for business air travel. Video conference, teleconference and email all have the potential to

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mean that business travellers will travel less, and still satisfy their needs for effective communication.

Surface transport, especially by rail, also raises important substitution issues. Unlike airlines, railways can provide city centre to city centre travel, and have been shown to severely impact on the business travel market once these city centre to city centre journey can be brought down below three hours.

1.2 New Entry

In some industries, new entry is difficult or impossible. In others, it is commonplace. In the modern aviation industry, the later is very much the case, especially in short-haul, point to point markets. This is because of the many possible so-called “barriers to entry”, most have become low or are now non-existent.

A first possible barrier to entry may result from regulatory limitation, it is true that, there are still regulatory barriers to entry in many international markets, and airlines are constrained in their market entry policies by out-of-date and anachronistic limitations on ownership and control. However, it is now the case that many of the largest domestic market such as those in the United States and the European Union, now operate without any significant entry controls, apart from those applying to so-called “Cabotage Rights”.

In other cases, resources may act as barriers to entry. If vital resources are unavailable or very costly, entry will clearly be constrained. In the aviation industry, airport slots provide a classic resource barrier to entry. It will be very difficult for new entrants to gain access to attractively-timed slots at congested hub airports.

Slot constraints may provide some comfort to existing airlines in Europe today, but they can derive little more from the remaining possible resource constraints to entry especially during downturns.

This certainly the case with the question of the aircraft fleet that will be needed by a new entrant airline, in a recessionary period, aircraft manufacturers will be prepared to strike very attractive deals for the white-tailed aircraft which result from order cancellations. Also there will be large numbers of parked aircraft-many of them owned y leasing companies- where the owners will offer extremely low lease rates in order to get their idle aircraft flying once again.

There are several more issues need to be covered in assessing the nature of barriers to entry in the airline business. Some industries are characterized by marked economies of scale, where lower unit costs can be obtained by large scale producers. In the airline business, there are some aspects where existing players are protected against new entry by scale of economies. In particular, hubbing operations where short-haul passengers are collected together in order to feed long-haul services are increased in their effectiveness by being undertaken at a substantial

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scale. It is hard for small new entrants to break in. In point to point markets, however, no such protection for incumbents exists. Economies of scale in areas like pilot training and maintenance quickly run out with increasing size, and are counterbalanced by the bureaucracy and poor staff morale often characteristic of large organizations.

In some industries, incumbents have a lot of protection against new entrants because of so-called “Learning Curve effects”. In these industries, mature firms achieve lower costs than new entrants because the intricacies of the production process mean that substantial experience is required before optimum cost levels can be achieved. Aircraft manufacturers and Aero0Engine production both illustrate this form within the aviation industry, with unit costs of production falling steadily as an airframe or engine family matures. Airlines, on the other hand, seem to show the opposite effect, with the concept of start-up economics a well-established one. Airline often achieve their lowest costs of operation during the first five years of their existence. Later on, cost tend to rise as more staff ascend seniority scales towards higher rates of pay and bureaucracy and declining staff morale start to impact on cost levels.

One final issue with regards to entry into the airline industry is difficult to analyse, but very important. Over the last twenty years, the list of airlines which have entered the industry and then left it again through bankruptcy is a depressingly long one. All the evidence one could possibly require is there to illustrate the point that investing in and setting up a new airline is, at best, highly spectulative, with an overwhelming likelihood of failure. From this, one might assume that new entry into the aviation industry would largely be a thing of the past, especially given the depressed state of the industry in the early years of the new century.

As an overall conclusion, incumbent airlines must prepare themselves for a continuing challenge from new entrants, especially in their short-haul, point to point markets.

1.3 Power Of Customer:

Porter argues that power of their customers will be crucial determinant of profitability for the firms in any industry. In turn, customer power will be related to variables: the number of customers firm has, and the existence-or otherwise-of so-called switching costs.

In principle, the point about the number of customers and some of these defect to the competition, there will still be a large number of customer remaining. If on the other hand, the firm has only two or three customers, the loss of one of them will result in a third or more of its business being lost. In such a situation, customers will have extreme amounts of bargaining power. They will be able to cut deals on terms which are extremely attractive to them, holding down the profits of the companies from which they are buying.

In the aviation industry, a common situation where a customer turns into a competitor occurs when a tour operator grows bigger and bigger, giving larger amounts of business to existing charter airlines. Often, a point arrives where it will make sense for the tour operator to buy it

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own aircraft, in order to set up its own airline to carry its own passengers and perhaps also to compete in the open market for other airlines passengers as well.

The problem for airline is that they don’t have the Switching Cost protection which assists aircraft manufacturers to retain their customer base. An airline may be getting a worthwhile amount of business from major customer as a result of having corporate deal with them. It will be a simple task, though, for another carrier to come along and offer the customer a more attractive level of discount, with the result that the corporate deal with the first airline is cancelled and transferred to the second. Of course, the first airline will hope that its frequent flyer programme will be of some value in fending off predatory attacks by its rivals, in that many people who actually travel for the firm in question will wish to continue to build their mileage balance, and retain their privileged status, within the programme. Overall, the question of power of their customers is very difficult one for the airline to address, and goes a long way towards explaining the poor profit performance of many carriers in recent years.

1.4 Power Of Suppliers:

Porter argues-again, the point is obvious-that when a firm is totally dependent on monopoly suppliers of crucially needed resources, these suppliers will be able to charge prices which ensure handsome profits for themselves, but which severely limit profits of the firms that they supply.

For airlines, the list of suppliers who either actually or potentially have this monopoly power is a depressingly long one. Obviously, suppliers of air traffic control and airport services may have it, with many airlines having no choice but to pay whatever ATC and airport charges are levied on them.

Sometimes, airlines fleet planning can be affected by powerful supplier issues. The Boeing 747 was introduced into airline service in 1970, and was unchallenged by any other aircraft for the next 25 years. If a carrier’s requirement was a long range aircraft with 400+ seats, the 747 was the only option available for them. Not surprisingly, the aircraft became a very profitable project for Boeing. In the future a similar situation may develop with the 555 seat Airbus 380, where it is now clear that there will be no Boeing competitor when deliveries of the aircraft begin in 2006.

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Like any other businesses, airline management faces Three level of interacting decisions, Strategic, Planning and operations decisions.

Strategic decisions : Typically require a long lead time before implementation and require a considerable monetary investment, they are also expected to have a significant impact on the form of the airline in the long term. Example of strategic decisions, include Growth and expansion, fleet sizing ( aircraft orders), hub locations, merging with other airlines, alliance participation.

Mergers, acquisitions and alliances are all equally powerful corporate growth strategies available for companies. The selection of any single approach depends on both internal and external factors. Given the many successes and failures alike experienced by companies worldwide, it would be advisable for companies to primarily understand the strategic implications of each approach and then to diligently evaluate each approach.

As each market and each company is unique. Selection amongst these three approaches would substantially differ. But companies can minimize their risk by following guidelines

Before suggesting a frame work to choose among the three models, it is very important that conceptualizations of these terminologies are terminologies are clear.

Merger: A merger refers to a process in which two companies become one by coming together. In such a case, no one company rules over the other. Usually the management of both companies shares the control of the resultant company and names of both companies are retained for the resulting companies.

Threats of

Rivalry

Threats of new

entrants

Bargaining power of

buyers

threats of substitutes

Bragaining Power od supplier

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Acquisition: Acquisition on the other hand refer to processes in which one company buys the other company. In such situation the buying company absorbs the bought company into the existing company. Acquisitions can be carried out either to eliminate competition by absorbing the competing company or to expand the corporate portfolio by retaining the acquired company as an independent entity under the overall corporate management. The purpose of this conglomerates is to enter a highly lucrative market.

Alliance: Alliance is an approach in which two or more companies agree to pool their resources together to form a combined force in the marketplace. Unlike a merger, an alliance does not involve the emergence of a new combined entity. Each participant in the alliance retains their individual entity but choose to compete against competitors as a unified business force. Joint venture is a very popular form of an alliance.

In today’s competitive environment, airline mergers and acquisition have been a growing trend in several countries across the globe. However, mergers and acquisitions in the aviation industry are highly strategic in nature and are undertaken after taken into consideration several important factors.

While the airline industry remain a highly competitive market, more and more airline around the world have been finding ways to engage in Joint venture, Merger, Acquisition or alliances for their natural benefit and to ensure their long term viability.

Throughout the history of commercial air transport, carriers have after preferred the comfort of cooperative rather than competitive relationship.

The alliance landscape that is now considered common place in the travel industry is actually relatively young. The three major global alliances are; star alliance, skyteam, and one word-each were created in the past 15 years.

Since then, more than 50 individual airlines have partnered with one of these alliances, and more are being added continually. Today, these three alliances account for more than 60 percent of total passenger traffic.

Apart from the basic naming classifications, in practice it can be difficult to determine the difference between airline JVs and alliances, especially because they can be structured differently around the world, and because the many existing partnerships vary in terms of maturity, sophistication, and transparency to the buyer.

The focus for airline in an alliance is to combine their respective footprints to create expanded global networks, to align schedules for maximum efficiency, to engage in some combined marketing efforts, and in some cases to share revenue. Conversely, airline participating in JV are aligned quite closely as part of a narrow relationship that includes fewer total carriers.

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Some JVs consist of just two carriers, whereas others are slightly broader, such as Delta, Air-France, KLM, Alitalia emphasis on transatlantic routes allowing Delta to promote nearly 250 daily flights to nearly 500 destination on its homepage.

JV often share revenue as well as costs and may fly under a shared operating certificate, making the partnership transparent to travel buyers and travellers.

There is one final element of the current alliance scene which shouldn’t be overlooked. Some airlines have not joined any of the global alliances. Virgin Atlantic, South African Airways, and Emirates are all examples. Emirates in particular, has taken a strong position of preffering to maintain its independence rather than become enmeshed in what the airline’s Chief Executive has called the straitjacket of membership of a single alliance.

Deciding factors: (why airlines to engage in M&A or alliance?):

1. Level of competition in the market One of the fundamental reasons that companies engage in either M&A or an alliance is to tackle competition in any market. Companies around the world have to come to believe that consolidation with a market would allow them proportionate market presence and power to claim the leadership position.

2. Barriers to entry M&A are usually resorted to either for increasing scale or cutting costs and alliances are preferred to enter new markets or segments. As such, one of the important factors which should be considered is the level of barriers present for entering a new market. Some markets are characterized by high barriers to entry such as regulatory constraints, established competitors, highly volatile markets that does not justify initial entry investments and so on. In such cases, alliances are the preferred option as they allow companies to leverage the existing knowledge and resources through collaboration. On the other hand, where barriers to entry are low, companies can gain a very strong foot hold in the market either through mergers or through acquisitions.

3. Synergies and resources Along with the previous two factors, synergies and resources are equally important in deciding among the three options available to companies. Mergers and alliances between companies have been proven to work efficiently if there is a high level of synergy between companies that come together. Synergies can be in the corporate culture, product portfolio, strategic goals, and supply chain or logistic systems. When such synergies exist, companies can productively implement the purpose of a merger or an alliance. Similarly, for an acquisition option, an important factor is the availability of financial resources. As acquisitions take place at prices much higher than the book values of the companies being acquired, acquiring companies should possess or have access to considerable resources.

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From the customer point of view merger and Acquisition may lead to increased airfare this is because mergers and acquisitions reduce the number of operators thereby reducing competition and pushing up the price.

Overall, it is clear that the formation and growth of alliances has been a central theme of the airline industry over the last decade, it is not hard to see why? , a combination of theory and practice shows that, potentially, alliances can bring their members significant benefits to their bottom line.

Theoretical principles show that the benefit of greater size-which airline alliances are essentially aiming to tap into- can be divided into two economies of scale, which consist of cost reductions achieved through size, and economies of scope, which reflect the revenue benefits of co=operation, normally brought about by increased marketing muscle power.

In investigating each of these area in today’s aviation industry, we are immediately faced with a difficult question.” What is an alliance?” the word is used very loosely. It can mean anything from the most distant and loose of and control rules allow. It also may, or may not, involve the partner in minority equity stakes.

Having said this, it is clear that airlines which enter into co-operative alliance relationship are seeking forecast reductions as a result of doing so they may engage in joint purchasing activity. A common expedient is co-operation in ground handling, if alliance partners can negotiate together this may increase their bargaining power with the often-intransigent suppliers of airport services.

Like any other businesses, airline management faces Three level of interacting decisions, Strategic, Planning and operations decisions.

Strategic decisions : Typically require a long lead time before implementation and require a considerable monetary investment, they are also expected to have a significant impact on the form of the airline in the long term. Example of strategic decisions, include Growth and expansion, fleet sizing ( aircraft orders), hub locations, merging with other airlines, alliance participation.

Planning decisions: are within a few months horizon, and can be defined as the process of efficiently using airline’s available resources to maximize its revenue. The resources available to an airline include the facilities and personnel that operate the business, including, for example, aircraft in different fleets, pilots with different qualifications, flight attendants, maintenance facilities, mechanics, gates, customer services agents, and ramp agents.

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The planning decisions include forecasting the demand between every origin-destination (OD), flight schedule development, assignment of flight to different aircraft fleet( if the airline has more than one fleet type), aircraft routing across the different airports. With its maintenance consideration.

Other planning decisions include the number of staff required to operate flight at different airport s, including customer services, ramp agents, baggage handlers and so on.

They also include decisions regarding fare level in each OD market, fare restrictions, and seat inventory control for each flight

The operation decisions: for the airlines are those decisions that need to be verified or updated on an hourly or maximally on a daily basis. This include for example, the response to unanticipated incidents such as adverse weather conditions, flight delays and cancellations, aircraft breakdown and absence of crew or staff due to illness.

Operations decisions also include watching revenues, booking, and anticipated demand levels in the different markets, matching prices with competitors, and managing seat inventory on each flight on a daily basis.

Strategic decisions are expected to impact on planning decisions, which in turn affect the operation decisions. In addition, there is a reverse feedback from the operation phase to the planning phase.

Planning decisions: are within a few months horizon, and can be defined as the process of efficiently using airline’s available resources to maximize its revenue. The resources available to an airline include the facilities and personnel that operate the business, including, for example, aircraft in different fleets, pilots with different qualifications, flight attendants, maintenance facilities, mechanics, gates, customer services agents, and ramp agents.

The planning decisions include forecasting the demand between every origin-destination (OD), flight schedule development, assignment of flight to different aircraft fleet( if the airline has more than one fleet type), aircraft routing across the different airports. With its maintenance consideration.

Other planning decisions include the number of staff required to operate flight at different airport s, including customer services, ramp agents, baggage handlers and so on.

They also include decisions regarding fare level in each OD market, fare restrictions, and seat inventory control for each flight

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The Airline Planning Process:

The objective is to provide an overview of the airline planning process, from the longest range strategic decisions involving aircraft acquisition to medium term decisions related to route planning and scheduling.

The most important planning decisions faced by airline managers can be categorized as follow:

Fleet planning: what type of aircraft to acquire, when and how many of each?

Route Planning: where to fly the aircraft profitably, subject to fleet availability constraints?

Schedule Development: how frequently and what times on each route should flights be operated, subject to operational and aircraft limitations?

This section introduces the fundamental decisions required in the airline planning process, including the major trade –offs involved, the interrelationship between these decisions>>>>

Fleet Planning:

Fleet composition is the most important long-term strategic decisions for an airline, in terms of both planning process, and ultimately its operations. An airline’s fleet is described by the total number of aircraft that an airline operates at any given time, as well as specific aircraft types that comprise the total fleet. Each aircraft type has different characteristics related to technical performance, the most important of which its capacity to carry payload over a maximum flight distance, or range.”

Decision made by an airline to acquire new aircraft or retire existing one in its fleet have direct impact on the airline’s overall financial position, operating costs and especially its ability to serve specific routes in a profitable manner. The decision to acquire new aircraft by an airline represents a huge capital investment with long-term operational and economic horizon. The impacts on airline’s financial position of such an investment include depreciation cost that typically are incurred for 10-15 years, as well as increases in long-term debt and associated interest expenses. From an operation perspective, the decision to acquire a specific aircraft type can have an even longer impact, as some commercial aircraft have been operated economically for more than 30 years. For example, early versions of the MCDonnel Douglas DC-9 were introduced in the late 1960s and are totally still operated with proper maintenance and refurbishment by many airlines around the world.

It is therefore somewhat surprising that the decision support tools used to make these very important long term decisions are not sophisticated as one would expect( or as sophisticated as some of the tools available to airlines for more tactical decisions like scheduling and revenue management). The highly uncertain nature of conditions 10-20 years into the future has limited

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the development and use of detailed optimization models for airline fleet planning, instead, most airlines rely primarily on( relatively sophisticated spreadsheet-based financial models to make fleet planning decisions).

The airline fleet decisions:

The fleet planning problem facing an airline is in fact an optimal staging problem. An airline’s fleet composition is defined for a particular point in time, but it changes with every additional aircraft acquired and every existing aircraft that is removed from the fleet. An airline’s fleet plan should therefore reflect a strategy for multiple periods into the future, including the number of aircraft required by aircraft type, the timing of future deliveries and retirement of existing fleet, as well as contingency plan to allow for flexibility in the fleet plan given tremendous uncertainty about future market conditions. The definition of such multi-stage fleet plan must also recognize constraints imposed by the existing fleet, the ability to dispose of older aircraft, and the availability of future delivery slots (i.e planned delivery times) from aircraft manufacturers and/or leasing companies.

Commercial Aircraft Categories and characteristic:

The major categories of commercial aircraft in use today and available for airline acquisition are most commonly defined by the aircraft range and size. The range of an aircraft refers to a maximum distance that it can fly without stopping for additional fuel, while still carrying a reasonable payload of passengers and/or cargo. The size of an aircraft can be represent by measures such as its weight, its seating or cargo capacity, as indicators of the amount of payload that it can carry. Thus, broad categories such as “ small”, “short haul” aircraft can include several different aircraft types, perhaps built by different manufacturers. Because aircraft types within each category can provide similar capabilities to airlines, they are regarded as competitors” in the airline’s fleet planning evaluations. For example, the Airbus 320 and Boeing 737-800 are competing aircraft types, as they are both single-aisle, twin-engine aircraft with approximately 150 seats, each with similar range capabilities.

Historically, it was generally the case that largest aircraft were designed for routes with the longest flight distances. The relationship between aircraft size and range in the 1970s was almost linear, in that an airline wishing to serve a very long-haul non-stop route had little choice but to acquire the largest Boeing 747 aircraft type. Over the past 30 years, the number of range/size product options made available by the principal aircraft manufacturers has increased substantially.

With the emergence of greater competition among both airlines and especially aircraft manufacturers, airlines now have a much wider choice of products by range and capacity in each category.

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The range capability of new aircraft in the small category( 100-150 seats) has increased dramatically, allowing US transcontinental routes to be flown with Boeing 737 and Airbus 320 series aircraft, for example. The sizes of newer “ long-range “ aircraft have decreased, allowing airlines to serve certain low-demand, long-haul international routes non-stop. Example of such operations includes Boeing 757 service (180 seats) from the northeast USA to some European destinations (e.g., Newark to Lisbon) and from the US west coast to Hawaii (e.g. Los Angles to Maui).

The two remaining dominant aircraft manufacturers( Boeing and Airbus) both continue to expand their aircraft product families in order to offer airline as many size/range combinations as possible.

These families of aircraft allow each manufacturer to be competitive in as many aircraft categories as possible, matching the specific performance characteristics of each airline’s fleet requirements. Aircraft families also have the appeal to airlines of the advantages of “ Fleet commonality” as will be discussed.

Fleet commonality with the airline’s existing (or planned ) fleet is a particularly important issue, as it can significantly reduce the cost associated with training pilots and mechanics, as well as the need for new equipment and spare parts inventory for new aircraft types not previously in the airline’s fleet, but also to having closely related aircraft types made by the same manufacturer, as such aircraft will have similar or identical cockpit layouts, and maintenance and spare parts requirements, allowing crews qualified to operate one aircraft type in the family to operate all types in the family. This provides the airline much greater flexibility in crew scheduling, and leads to reduced crew costs.

Route Planning:

Given the airline’s choice of aircraft and a fleet plan that determines the availability of aircraft with different capacity and range characteristics, the next step in the airline planning process is to determine the specific routes to be flown. In some cases, the sequence of these decisions is reversed, in that the identification of profitable route opportunity might require the acquisition of a new aircraft type not currently in the airline’s fleet.

Economic considerations and expected profitability drive route evaluations for most airlines. Route profitability estimates require demand and revenue forecasts for the period under consideration. In large airline networks, traffic flow support from connecting flight can be critical for route profitability. With the evolution of connecting hub networks around the world, very few flights operated by network airlines on a route carry only >>>>

Hub and spoke and network structure:

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What do we exactly mean by Hub and spoke or point –to-point? What are the use cases? And they work for the success of an airline?

Point to point is a typical route network where an airline focuses mainly on its Origin and Destination (O&D) traffic. This means that the airline is more interested in transportation of passengers originating from one city (A) to another (B) and Vice Versa. But not in connecting passengers between C and B via A. Low cost carriers are considered to be pioneers of this paradigm with a classic example being Southwest Airlines of US.

Hub and Spoke is a route network where an airline will not only plan on transporting passengers between two points, but also to connect passengers between two distant cities via its hub. An example of a Hub and Spoke network can be seen from the following diagram.

The airline uses the routes from its hub to other cities as spokes to connect each of them via its hub. The Hub and Spoke model originated with American Airlines, but perhaps the airline that uses it the best in present day is Emirates Airline. A hub and spoke model essentially needs to have different banks of flight departures and arrivals- in order to connect an arrival from city C, with a departure to city B, at the hub A. This paves way for the airline to attract highly lucrative transit traffic, which at some airline contributes more to fill a flight than O&D traffic. However, this model is not without its downsides.

This Saves the airline both time and money while the carrier’s ever increasing network with naturally banked scheduling provides a good amount of connection opportunities. Another LLC that seems to be following this path is FlyDubai which also provides connectivity to/from its big brother Emirates flights on selected routes.

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Many Airlines supplement their hub and spoke model with code-shares, partner flights, or a small commuter airline. For example, it would clearly be rather silly to fly passengers who needed to get to San Francisco from Los Angeles through Dallas. So, these passengers are put on a smaller commuter flight which connects these two locations. These commuter flights may also travel between spokes and less desirable locations which do not need to be connected directly to the hub. The design of a hub and spoke model is highly efficient for a myriad of reasons. The first involves day to day operations of an airline or freight company. By centralizing control, the company can afford a smaller staff which concentrates on management from a central location. In the case of freight, all packages can be sorted at the hub, rather than sorted in multiple locations. This makes the freight company much more efficient, and reduces the risk of error

Hub and spoke network structure allow airlines to serve many O-D markets with fewer flight departures, requiring fewer aircraft, generating fewer ASK at lower total operating costs than in a complete point to point route network. Consider a simple connecting hub network with 20 flights into and 20 flight out of a single connecting bank at a hub airport. A “connecting bank” refers to a hub operation in which many aircraft arrive at the hub airport, passengers and baggage are moved between connecting flights and the aircraft then depart with the connecting passengers and baggage on board. Connecting banks last from approximately 1 hour in a smaller domestic hub networks to 2-3 hours in larger international hub networks. In this example with 20 arriving flight followed by 20 departing flights, each flight leg arriving or departing the hub simultaneously serves 21 O-D markets- one local market between the hub and spoke, plus 20 additional connecting markets, if we assume a single direction of passenger flow.

This single connecting bank thus provides service to a total 440 O-D markets with only 40 flight legs and as few as 20 aircraft flying through the hub. In contrast, a complete” point-to-point” network providing non-stop service to each market would require 440 flight legs and hundreds of aircraft, depending on scheduling requirements. Routing both flights and passengers through a connecting hub is more profitable for the airline if the cost savings from operating fewer flights with larger aircraft and more passengers per flight are greater than the revenue loss from passengers who reject connecting service and choose a non-stop flight instead, if one exists( Morrison and Winston 1986).

The hub airline’s ability to consolidate traffic from many different O-D markets on each flight leg into and out of the hub allow it to provide connecting service even to low demand O-D markets that cannot otherwise support non-stop flights. Consolidation of O-D market demands further allows the hub airline to provide increased frequency of connecting departures, as it likely

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operates several connecting banks per day in each direction as its hub airport. In fact, several connecting departure per day (via the hub) in these O-D markets may be more convenient to travellers than a single daily non-stop flight; that is “total trip time” is lower, when schedule displacement (“wait time”) offered by multiple daily connecting departures through a hub. For example, in the large US domestic multiple daily connecting departures through a hub network operated by Delta, the airline is able to provide over a dozen daily connecting departure between Boston and San Diego. If a new entrant airline were to initiate non-stop flight per day in this market, it might find it difficult to gain substantial market share given the connecting hub competition from Delta and most of the other large network airlines that operate hub networks.

With the potential for the airline to offer greater (connecting) departure frequency in many O-D markets, more convenient schedules schedules(less schedule displacement) can lead to higher market share against competitors. On line connections (i.e between two flights operated by the same airline) at the hub improve passenger convenience, compared to inter-airline connections( between flights operated by two different airlines). With larger hub networks, airlines can offer greater frequent flyer program earning and reward options for passengers given greater network coverage and online service to many O-D markets.

In fact, international airlines such as KLM, Singapore airlines with relatively low populations around their home bases would not have been able to grow to their current level of operations without focusing to large extent on connecting passengers through their hubs.

Operational Advantages and incremental costs of hubs:

The consolidation of an airline’s operations at a large hub airport has several operational and cost advantages. The airline will generally require fewer base locations for its aircraft maintenance and crew domiciles, resulting in reduced crew maintenance expenses. There are fewer locations where passengers or bags can misconnect, and multiple connecting banks each day can reduce the delays associated with such missed connections. The large volume of operations at the hub airport leads to economies of scale in terms of aircraft in terms of aircraft maintenance operations, catering facilities and airport ground handling.

Hub networks also offer some potential aircraft and crew scheduling advantages for the airline. The establishment of fixed connecting bank times at the hub allows for simplified aircraft and crew scheduling, in that the best arrival and departure times at the hub airport are in essence predetermined by connecting banks. It also provides more opportunities for swapping aircraft in response to delays, cancellations and irregular operations, given that a large number of aircraft are on the ground simultaneously during a connecting bank. To the extent that many of the aircraft are likely to be of the same fleet type, this future increases flexibility for the airline to exchange aircraft from one flight to another, as required.

>>>>>>>>>>>>>>>>>>>>>>>>

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Forecasting:

Every day, at all levels of management within all segments of the air transportation industry, decisions are made about what is likely to happen in the future. It has been said that business action taken today must be based on yesterday’s plan and tomorrow’s expectations.

Forecasting is the attempt to quantify demand in a future time period. Quantification can be in of either dollars, such as revenue, or some physical volume such as revenue passenger miles(RPMs) or passenger enplanements.

Plans for the future cannot be made without forecasting demand. Planning also plays an important role in any aviation enterprise, but it should not be confused with forecasting.

Forecasting is predicting, projecting, or estimating some future volume or financial situation –matters mostly outside of management control. Planning, on the other hand, is concerned with setting objectives and goals and with developing alternative courses of action to reach them-matters generally within management’s control.

Not only is forecasting done for a given type of demand independently, but forecast of one type of demand may also be based on other forecasts. Thus, the projection of flying hours for next year is an element in the forecast of future demand for flight personnel, fuel consumption, facilities, and a host of other considerations.

Purpose of forecasting:

Each type of forecast serve a particular purpose. Thus, an airline might make a short-terms forecast of total passenger enplanements between a particular pair of cities to provide a basis for determining station personnel and ground equipment needed, gate availability, and expenses related to these items. Short term forecasts normally span a period of one month to one year and cover such day-to-day operations as staffing stations, evaluating current competitive situations in the market, and projecting short terms equipment needs.

Medium-term forecasts generally span a period of one to five years and involve things such as route planning decisions.

A long-term forecast spans a period of five to ten years and might involve fleet planning decisions and long term financial commitments.

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For example, a light aircraft manufacturer might make a long term forecast of demand for an aircraft specially designed to serve the commuter air carrier market and then plan to meet the projected demand. The various forecasts are used by companies to carry out three important management functions-analysis, planning, and control.

Analysis:

Every company must make choices among the many markets or submarkets open to it, in addition to deciding on the level of service to offer, the type of aircraft to fly on particular routes, and the type of aircraft to purchase. The choice is greatly facilitated by quantitative estimates of demand. For example, a major air carrier is trying to decide whether to purchase the Boeing 787 or the A-350. An estimate of operating cost will be a guided factor.

Planning:

Every firm must make short term decisions about the allocation and scheduling of its limited resources over many competing uses; it must make long-term decisions about rate of expansion of capital equipment and funds. Both short term and long term decisions require quantitative estimate of demand. For example, a line maintenance supervisor for a national carrier in USA wants to identify how many workers will be employed for the next calendar year and need the estimate of the number of departures at his station by month.

Control:

A company’s actual performance (physical volume or revenues) in the market takes on meaning when it is compared to forecasts. The use of these demand measurements for control purpose is illustrated in these examples:

The vice-president of flying for a major carrier asks the administration staff to re-estimate the number of pilots who need to be trained on the Airbus A-380 over the next three years because the former number appears to be too large in view of delays in delivery schedule since the original forecast.

Airline scheduling:

Scheduling is one of the most vital functions in the business-as important as forecasting, pricing, fleet planning or financing. As we can see, a schedule can make or break an airline.

The mission of scheduling:

What is the mission of scheduling? It is as broad as the mission of the airline itself. An airline has the responsibility to provide adequate service to the cities it serves, an airline must also of course, operate efficiently and economically. Therefore, in its scheduling practices, airline

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management must continually search for the balance between adequate service and economic strength for the company.

Airline scheduling can be defined as the art of designing systemwide flight patterns that provide optimum public service, in both quantity and quality, consistent with the financial health of the carrier.

The public service and economic aspects of scheduling must be balanced with other factors, including these:

Equipment maintenance: a separate maintenance routing plan must be drawn up for each type of aircraft in the fleet. All routing plans must be coordinated to provide the best overall service.

Crews: assuming that all captains, first officers, flight engineering, and flight attendants have had adequate training on each type of the airplane and over the routes to be flown, there are always considerations of utilization and working conditions. Certain crew routings must be followed to maintain efficient monthly utilization, crew routings that would require excessive flying without proper rest cannot be used.

Facilities: gate space on airport ramps must be adequate. Terminal capacity including ticket counters, baggage handling areas, and waiting rooms, must be expanded to meet growing market requirements. Airport capacity, including runways, taxiways, and navigational aids, establishes an upper limit on operations.

Marketing factors: include numerous characteristic such as market size, trip length, time zones involved, and proximately of the airport to the market served.

Other factors: seasonal variations in wind patterns require differences in summer and winter flying times on certain routes( usually east-west), however, some airline use constant year-round times on routes where variations in wind components are negligible( usually north-south routes).

Flight operations and crew scheduling:

Because airline schedules, once published, must be flown by the company flight crews, the flight operations department must ensure that flights are scheduled in a fashion that will permit them to be safely and efficiently operated. The following operational factors are important in schedule planning:

- Airport runway lengths- Aircraft fuel capacity- Habitual adverse weather - Air traffic control and routings

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- Crew time limits- Employee agreements

Obviously, airport runway length, aircraft fuel capacities, and so forth affect scheduling decisions. Other less obvious but equally important factor in drafting schedules include weather, aircraft routings, and flight crew scheduling.

In this sense, the term weather is used to describe the type of conditions that occurs ordinarily at a specific locale during certain time of the day or seasons of the year. For example, in winter months, weather may make it inadvisable to overnight an aircraft in a particular northern city where hangar facilities are not available. Although overnighting might facilitate the operation of desirable late evening arrival and early morning departure, the need to remove snow and ice from the aircraft after a storm might make such operation impractical.

A second operational factor concerns air traffic control (ATC). ATC routing often dictate longer flight times between two points than normal. In addition, certain flight segments are subjected to route closures and resultant time-consuming and costly diversion by military actions.

One of the most important and complex factors affecting flight operations is that of crew assignment to specific flights. The working limitations that govern flight crews are found in both the Federal Aviation Regulations (FAR) and employment agreements.

An operation manager’s dream is to be handed a schedule that permits all crews to operate flights on a direct turn around basis with no layover problems or expense. This is manifest not possible, but every attempt must be made on the interest of crew utilization and economy to minimize layovers.

Ground operations and facility limitations:

Ground service can be arranged in any conceivable schedule pattern, provided that there is no limitation on the gate positions, ground equipment, passenger service facilities, and personnel. But, of course, there are limitations. First, it is physically impossible to obtain adequate facilities in many instances within a reasonable period of time. For example, additional gate positions at Fort Lauderdale/Hollywood International Airport are virtually impossible to obtain. Second, there is a matter of cost. The schedule planner must do the utmost to avoid excessive flight congestion. Moreover, the schedule planner should consider all of the following at every station for every proposed schedule:

1- Are there enough gate positions for the number of planes on the ground simultaneously, including a cushion for early arrivals or delayed departures?

2- Is there adequate ticket counter space to handle the passengers expeditiously?3- Is sufficient time provided for on-line or interline transfer of passengers, baggage, mail,

and cargo?

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4- Can the planned flights be handled efficiently by the present level of ticket-counter, ramp, and food service personnel? If not, will additional revenue from the new flights or new connection be sufficient to more than offset the cost of additional personnel?

5- Is the ground equipment of the right type: baggage vehicle, aircraft starter units, cargo conveyors....

These and many other questions must be answered for every station on the system for every schedule change. Any corrective action- and there is always a need for flight adjustments to meet ground service requirements-must be rechecked to determine its effect on the delicate balance worked out to accommodate sales, maintenance, and operational needs and to make sure that corrective adjustments at one station are not creating complications at another.

Normally, the scheduling department measures the physical and personnel requirements with a visual layout of the schedules at each station. All flights are plotted on a station plotting chart that documents sequence and schedule time of operation using certain standards and codes. It shows precisely the amount of time an aircraft require to maneuver into a gate position, the scheduled arrival time, the period of time it is at the gate, its scheduled departure time, and the length of time needed to clear the gate. The chart also shows whether it is originating flight, a trough trip, a terminating flight, or a turnaround.

After posting proposed flight times on this chart, the scheduling department must first determine that it has not exceeded the gate capability. Therefore, the first adjustments are those necessary to bring schedule time into line with available physical facilities.

In fact, the schedule planner contends with a variety of challenges in the ground operations area, many of them conflicting. Scheduling is literally hemmed in by space limitations. Yet planners must find gate positions for the essential flight complexes. They must keep personnel costs at a minimum but at the same time staff for flight connection opportunities to maximize service to the public. And they must avoid new capital outlays for expensive ground equipment yet do everything possible to enable flight peaking at times when passenger demand is greatest.

Revenue Management:

Airlines apply advanced Revenue Management(RM) techniques to maximize the revenue of their flights in different markets. RM is defined as selling the right seat to the right customer at the right price at the right time. The idea behind RM is that travelers have different characteristics and primarily have different requirements for their travel. Basically, travelers can be classified as business travelers and leisure travelers. Business travelers are traveling for work related trip or business meeting. This group of travelers is typically less sensitive to the price of the ticket, because, in most cases, they are reimbursed for the cost of their travel employers,

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business travelers have rigid travel plans that are typically constrained by predefined dates and times that usually span weekdays. They also tend to spend shorter periods of times at their destinations. They don’t book their tickets far in advance and prefer flexible tickets that can be changed or canceled to match any possible changes in their travel plans.

Leisure travelers, as the name implies, travel for recreational purposes or to visit family or friends. These travelers are sensitive to tickets prices. They also have flexible travel plan and tend to spend longer period of time, including weekends, at their destinations.

Given that business travelers are more profitable to the airlines, the objective of RM is to ensure that enough seats are always available for these travelers, while the remaining seats on each flight are filled with low-revenue leisure passengers. The RM process involves three main modules, including pricing, demand forecasting, and seat inventory control. The main objective of pricing is to determine the right price of each market, taking into consideration competition from other carriers in the market. Finally, the objective of seat inventory control is to assign seats on each flight to the different demand streams to maximize total revenue.

Yield management:

Yield Management(YM): this process determines the number of seats to be made available to each “ fare class” on a flight, by setting booking limits on low-fare seats.

Most airlines have implemented YM systems that routinely and systematically calculate the booking limits on each fare class ( or booking class) for all future flight departures. Typically, YM systems take a set of differentiated prices/ products, schedules and flight capacities as given. YM became necessary when airlines began to realize that differential pricing alone is not enough to maximize revenues. Both Leisure (discount) and Business (full-fare) travellers typically prefer to travel at the same times, and compete for seats on the same flights. Without capacity controls( booking limits) on discount fare seats, it is more likely that leisure travellers will displace business passengers on peak demand flight. This is due to the fact that leisure travellers tend to book before business travellers, a phenomenon made worse by advanced purchase requirements on discount fares.

The main objective of YM is therefore to protect seats for later-booking, high-fare business passengers. This is accomplished by forecasting the expected future booking demand for higher fare classes and performing mathematical optimization to determine the number of seats that should be protected from lower fare classes.

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YM is the airline’s last chance to maximize their revenue, but too much emphasis on Yield can lead to too much protection for higher yield passengers and overly serve limits on low fares, resulting in lower overall load factors for the airline. On the other hand, too many seats sold at lower fares will increase load factors but reduce yield and leave inadequate protection for late booking high-yield passengers, with a potential adverse affect on total airline revenues. Therefore, airline need to balance between load factor and yield in order to achieve their goal in maximizing their revenues.

As a result, many airlines now refer to Revenue Management (RM) instead of Yield Management (YM).

To maximize revenue, RM system try to fill each available seat on each future flight departure with the highest possible revenue. The proper RM principle is to sell the empty seats at almost any low fare by not setting stringent booking limits on low-fare classes. This can result in higher average load factors and lower yields for the airline, but higher total flight revenues.

Operations strategy:

Operation strategy is the pattern of decisions and actions that shape the long-term vision, objectives, and capabilities of the operation and its contribution to overall strategy. It is the way in which operations resources are developed over the long term to create sustainable competitive advantage for the business. Increasingly, many businesses are seeing their operations strategy as one of the best ways to differentiate themselves from competitors. Even in those companies they are marketing led( such as fast-moving consumer goods), an effective operation strategy can add value by allowing the exploitation of market positioning.

South west Example:

South west airlines: south west airlines is the only airline that has been consistently profitable every year for over 30 years. It is also now one of the largest airlines in the world by value. Yet back in 1971 it was an upstart three jet airline operating from Dallas, Texas( still its headquarters). The strategy of the company has been consistent since it was founded, to get its passengers to their destination when they want to get there, on time, at the lowest possible fares, and to make sure that they have a good time doing it. Its success in achieving this is down to clever management, a relaxed and employee-centered corporate style, and what was then a unique way of organizing its operations. For over 30 years it has introduced a series of cost-saving innovations. Unlike most airlines it provided simple snacks( originally only peanuts)

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instead of full meals. This not only reduced cost but also reduced turnaround time at the airports. Because there are no meals there is less mess to clear up and also less time is needed to prepare the galley and load up the aircraft with supplies. Passengers were sold tickets without a seat allocation( simpler and faster) and expected to seat themselves ( faster). Originally boarding passes were plastic and reusable and the company was one of the first to use electronic tickets. It was also early in most airlines at the time used a range of different aircraft for different purposes, southwest has consistently stuck with Boeing 737s since it started. This significantly reduce maintenance costs, reduce the number of spare parts needed and makes it easier for pilots to fly any aircraft. Southwest’s maintaining high efficiency and high quality of service, with pilot sharing plans for almost all employees and innovative stock options plans for its pilots. The result has been what some claim to be the most productive workforce in the airline industry.

Operations management:

The term operations management refers to the activities required to produce and deliver a service as well as a physical product.

Operations are the link between the strategy and the customer and also between different functions. The organization’s mission is only really meaningful if, at operational level, the mission is embodied in policies and behaviour standards.

The design of an operations system requires decisions on the locations of facilitates, the process to be used, the quantity to be produced and the quality of the product.

Standards and procedures:

Standards and procedures assist the manager with the planning and control of work.

Policies: are general guidelines for management decision-making, company policies might be for example:

To be price competitive in the market.

That employees in the purchasing department should decline gifts from suppliers( subjects, perhaps, to certain exceptions or purchase limits).

Procedures are logical sequence of required actions for performing a certain task. Procedures exist at all levels of management; even a board of directors will have procedures for the conduct

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of board meetings. However, they become more numerous, onerous, and extensive lower down in an organization’s hierarchy.

The advantages of procedures for routine work are as follow:

Procedure should prescribe the most efficient way of getting a job done. Staff will find jobs easier to do when they are familiar with established procedures. Standardization of work, to ensure all task of a certain type will be done in the same way

throughout the organization. Continuity, the work will be done the same way even when a different person starts in a

job or takes over from previous holder. They reduce the likelihood of inter-departmental friction .

A rule is a specific, definite course of action that must be taken in a given situation. Unlike a procedure, it does not set out the sequence or chronology of event

Quality:

In recent years quality has become the key in determining many organizations positions in respect of their competitive advantage. Unfortunately, quality is difficult to define because it has a wide range of meanings, covering a wide range of businesses and processes.

Quality systems:

The importance of quality in business environment:

The modern business environment is remarkably different from the business environment of a decades or so ago. One change has been the switch in emphasis away from quantity towards quality. Consumers and customers have become more sophisticated and discerning in their requirements. They are no longer satisfied with accepting the late delivery of the same old unreliable products from an organization which doesn’t appear to care for its customers. They want new products, superior on-time delivery performance and an immediate response to their requests. Many organizations are therefore turning to quality to help them to survive the competitive modern business environment.

Quality: has been defined by Ken Holems( Total Quality Management) as the totality of features and characteristics of a product or service which bears on its ability to meet stated or implied

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needs. In ordinary language, quality implies some degree of excellence or superiority. Quality management ( or control) is about ensuring that products or services conform to specifications

Quality system:

Quality systems include all activities that contribute to quality, directly or indirectly. Product quality depends on many variables, such as the caliber of the components or materials used; types of equipment used in design, production, handling, installation, testing,…. Etc…..

Quality Management:

Al l businesses are concerned with quality, usually because they have to come to understand that high quality can give a significant competitive advantage. But quality management has come to mean more than avoiding errors. It is also seen as an approach to the way processes should be managed and more significantly, improved, generally.

If the airline deliver what they promise in terms on issues such as safety, punctuality, aircraft cleanliness and baggage handling they will have achieved a great deal in terms of establishing and sustaining advocate relationship with their most important customers. If they fail to do so they will quickly become known as the airline to avoid.

Quality is conformance to customers’ expectations. Managing quality means ensuring that an understanding of its importance and the way in which it can be improved is spread throughout the business. It is a subject that has undergone significant development over the last several decades, but arguably the most recent and most significant impact on how quality is managed has come from the total quality management(TQM) movement.

There is now widespread recognition that effective quality management comes from the top of the organization, and that it is continuous, never-ending task. Circumstances change, and a continuous adaptation to such things will be needed.

Now is the idea of quality management universally understood and applied:

Quality management is now seen as something that can be universally applied throughout a business and that also, by implication, is the responsibility of all managers in the business. In particular, it is seen as applying to all parts of the organization. The internal customer concept can be used to establish the idea that is important to deliver high quality of service to internal customers. Just as important is the idea that quality also applies to every individual in the business. Every one has the ability to impair quality, so every one has the ability to improve it.

Is quality adequately defined:

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Quality needs to be understood from the customer’s point of view because it is defined by the customer’s perceptions and expectations. One way of doing this is to use a quality gap model. This starts from the fundamental potential gap between customers’ expectations and perceptions and deconstructs the various influences on perceptions and expectations.

Does every person in the organization contribute to quality:

A total approach to quality include every individual in the business. People are the source of both good and bad quality and it is everyone’s personnel responsibility to get quality right.

The cost associated with poor quality:

Mistakes in services are costly, most of us recognize intuitively the highest cost of not meeting customer’s needs; losing the customer! But there are many other costs of poor quality, and service managers need to have a clear understanding of what they are and how to manage them.

Fundamentally, the cost of poor quality is the difference between the actual operating cost and what the operating cost would have been if there had been no errors or failures by either the systems or the staff.

The cost of error is the extra time it took to correct(rectify) the error, which can be calculated as the labour cost, and the aggravation felt by the customers, which could be mitigated by an apology and a positive attitude but which could also negatively affect the customers’ perception of the service provided by the company.

Joseph Juran introduced a framework that defined categories of quality costs because he understood that managers would pay attention to quality if they understood how costly poor quality can be.

Quality control is concerned with maintaining quality standards. The process goes through a cycle of establishing standards and procedures, monitoring actual quality and taking control action when actual quality falls below standard.

Quality assurance, however, is the term used where a supplier guarantees the quality oaltf good supplied and allows the customer access while the goods are being manufactured.

Quality assurance:

Quality assurance is about designing a process of which the end result is guaranteed to be of an acceptable standard, because of the checks that have been made along the way. It goes beyond

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inspection and quality control to embrace the whole organization in trying to ensure that the quality of the product/service is of the required standard. In order to fulfil this objective, a company should have a clear policies on quality together with precise and measurable objectives. In this way all employees will know exactly what is required in terms of product quality. Policies on quality will depend upon what standards the market requires. This means that effective quality assurance depends upon reliable market research to ascertain what the quality requirements of the customer are.

Total quality management, is the term given to programmes that seek to ensure that goods are produced and services are supplied of the highest quality.

Quality standards:

ISO is intended to establish, document and maintain a system of ensuring the output quality of a process. It is the generic term for a series of five international standards( ISO 9000, 9001, 9002, 9003, and 9004) sponsored by the International Organization for Standardisation (ISO), and created to standard quality management systems for manufacturing and service industries worldwide. Each standard addresses a different aspect of quality assurance, depending on the needs of the user. ISO 9000 doesn’t dictate the quality of individual goods and services, but aims to ensure that quality management systems of a suitable standard are in place. The standard doesn’t cover every quality issue; it deals with quality systems. While it provides feedback about performance, it cannot guarantee that control action is taken; it is an indicator of potential, not of achievement.

To gain certification an organization:

Prepare a quality manual which sets out the company’s policy and procedures on quality assurance.

An assessor will visit the client company and review the facility’s quality manual to ensure that it meets the standard and audit the firm’s processes to ensure that the system documented in the quality manual is in place and that is effective.

The certificate is issued if approval is given. ISO 9000 will increasingly influence the choice of suppliers. Customers wish to avoid the cost of inspecting goods inwards.

Once certification is obtained, the certifying body conducts audits of the facility’s quality system to ensure that it continues to meet the requirements of the standard. ISO 9000 certification is a continuous process, and approval can be withdrawn.

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Quality and the competitive edge:

Quality is often considered to be one of the key to success. The competitive advantage of a firm is said to depend on the quality, and value, of its goods and services. In service contexts, quality may be the foundation of the competitive edge, but which quality dimension(what or how) is the vital part of excellent total quality? If this question is not answered correctly, the wrong actions may be taken, and the company would lose its chance to achieve a strong competitive position.

How is service quality perceived? Service quality attributes?

Service quality is perceived has been studied extensively during the past two decades. Most of these studies are based on the disconfirmation notion; that is, quality is perceived through a comparison between expectations and experiences over a number of quality attributes. The best-known and the most influential studies are the one by Leonard Berry and his colleagues related to the development of the SERVQUAL instrument. In the following sections we shall discuss this instrument in some details.

First, one of the earliest studies of aspects of perceived service quality, by British Airways in the 1980s, will be presented. Although this study covered British Airways’ airline services only, the results seem generally to be valid. Although this study is old, it still demonstrates some of the key aspects of the service quality perceptions. The researchers wanted to find out what airline passengers considered most important in their flying experience. The following four aspects emerged.

1- Care and concern: the customer wants to feel that organization, its employees and its operational systems are devoted to solving his problems.

2- Spontaneity: contact employees demonstrate a willingness and readiness to actively approach customers and take care of their problems. They show that they can think for themselves and not just go by the book.

3- Problem solving: contact employees are skilled in taking care of their duties and perform according to standards. Moreover, the rest of the organization, including operational support employees and operational systems, are also trained and designed to give good service.

4- Recovery; if anything goes wrong, or something unexpected happens, there is someone who is prepared to make a special effort to handle the situation.

Two of these factors \, care and concern and problem solving, were explicitly recognized earlier by British Airways, as they probably would be by most service providers. However, the spontaneity and recovery issues were new. They had not been thought of in any concrete manner as characteristics of good service. Here again the importance of the functional quality dimension is stressed. Problem solving is the only technical quality factor; the three other factors are process related. The British Airways study was conducted in order to assess which attributes of service quality customers appreciate

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most. No comparison between expectations and the real experiences was reported. One strength of this study is that it (with only four aspects, or attributes) demonstrates what is at the heart of customer perceptions service quality. It also includes the recovery issue, which has become an important area of research in service management.

Service Recovery:

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Measuring service quality:

Customers’ perception of the quality of service features must, of course be assessed. The natural way of doing it would be to measure customers’ satisfaction with the quality they have perceived. However, a major part of service quality research has been geared towards the development of instruments for measuring service quality directly. In the literature, two types of measurement instruments have been discussed and used.

1- Attribute-based measurement instruments: measurement models based on attributes describing the feature of service.

2- Qualitative measurement instruments: for example, measurement models based on the assessment of critical incidents

Attribute-based models are the most widely used measurement instruments in academic research as well as in business practice. The most well-known instrument is the SERVAQUAL instrument. According to this measurement approach a number of attributes that describe the features of service are defined and after that respondents are asked to rate the service on these attributes.

Qualitative measurement approaches are used to a much lesser extent. Here respondents are asked to describe their perception of service encounters. The critical incident method is the most often used qualitative method.

Problems with expectations/ Experiences Measurements and comparisons:

There has been a considerable amount of debate regarding what kind of expectations the real experiences of a given service should be compared with. In the original SERVQUAL instrument, customers were asked what they expected from the service they had consumed, so the expectations and experiences measurements related to the same service. Later the measurement method was changed so that customers were

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asked what they expected from an excellent or ideal service in the same category as the one they had consumed. The original perceived service quality model from which the expectations/ experiences comparison originates in service quality contexts was developed to help managers and researchers understand how customers perceive features of a given service.

Collecting customer Data:

Service managers need to collect customer data regularly for many reasons. Customer data can be used as an input in the design of new services or in the redesign of existing ones.

It is also important to collect customer data to asses the customer perception of the quality of services the firm is providing.

Surveys:

Project Management:

An organization continue to move towards” project-based” management to get more done with less resources, and as the demand for effective managers continues to grow.

As operating environment for most organizations continues to become more global, more competitive and more demanding, organizations must adapt. They must become more efficient, more productive-they must do more with less, they must continually innovate. They must respond rapidly to a fast-changing environment. But the question is how they can do this in a strategic manner? How they can do this and still have the proper management controls? The answer is that they can do this with effective project management. The strategic value points that effective project management can offer an organization a controlled way to rapidly respond to changing market conditions and new strategic opportunities. Maximizes the innovative and creative capabilities of the organization by creating environments of focus and opened communication.

Every project should contribute value to the organization’s strategic plan, which is designed to meet the future needs of its customers. Ensuring a strong linkage between the strategic plan and projects is difficult task that demand constant attention from top to middle management. The larger and more diverse is the organization, the more difficult is to create and maintain this strong link.

If we look at project management from a more academic level. The project management institute (PMI) defines project management as a set of five process groups : initiation, planning, execution, controlling, closing.

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What we mean by project is the process of defining a project, developing a plan, executing the plan, monitoring progress against the plan, overcoming obstacles, managing risks, and taking corrective actions.

We mean the process of leading a team that has never worked together before to accomplish something that has never been done before in a given amount of time with alimited amount of money.

Project management:

This section is concerned with managing projects, some projects are complex and large in scale, having activities involving diverse resources, and last for years. But other projects are far smaller affairs, possibly limited to one part of a business, and may last only for few days. Yet, although the complexity and degree of difficulty involved in managing different types of projects will vary, the essential approach to the task does not. Whether projects are large or small, internal or external, long or short, they all require defining, planning and controlling.

What is project management:

Project management is the activity of defining, planning, and controlling projects. A project is a set of activities with a defined start point and defined end state, which pursues a defined goal and uses a defined set of resources. It is very broad activity that almost all managers will become involved in at some time or other. Some project are large in scale and complex, but most projects, such as implementation of a process improvement, will be smaller. However, all projects are managed using a similar set of principles.

Is the project environment understood:

The project environment is the sum of all factors that may affect the project during its life. These include the geographical, social, economic, political and commercial environments, and on small projects also include the internal organizational environment.

A project is a set of activities with a defined start point and defined end state, which pursue a defined goal and uses a defined set of resources.. what can be defined as a project can vary significantly from relatively small and local activities.

Project management is the activity of defining, planning, and controlling projects of any type.

The activity of project management is very broad in so much as it encompass almost all the operations and process management tasks. Of course many projects are vast enterprises with very high levels of resourcing, complexity and uncertainty that will extend over many years.

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Such projects require professional project management involving high level of technical expertise and management skills.

At this point it is worth pointing out the distinction between projects and programmes.

A programme, such as a continuous improvement programme, has no defined end point. Rather, it is an ongoing process of change. Individual projects, such as the development of training processes, may be individual projects. Generally, it is a more difficult task in the sense that it requires resource coordination, particularly when multiple projects share common resources.

Stakeholders:

One way of opertionalizing the importance of understanding a project’s environment is to consider the various stakeholders who have some kind of interest in the project. The stakeholders in any project are the individuals and groups who have interest in the project process or outcome. All project will have stakeholders; complex projects will have many.

They are likely to have different views on a projects objectives that may conflict with those of other stakeholders. At the very least, different stakeholders are likely to stress different aspects of a project. So, as an ethical imperative to include as many people as possible in a project from an early stage, it is often useful in preventing objections and problems later in the project.

Product Analysis in airline marketing:

Managing a product portfolio-the “Boston Box”:

The management of product life cycles is important in airline marketing today. It doesn’t, though, provide the sole basis for effective product management. Most firms do not deal in only a single product. Indeed, any that do are probably dangerously over specialised. Many firms have a range or portfolio, of products which may run into hundreds or even thousands of different products. They need a framework which will guide their decision making so that the contribution of each of the products to corporate profitability is maximized.

The classical method of analysing a product portfolio is known as the Boston Box, because it was developed by the US Boston consulting Group, it was first introduced in 1963, and has remained a cornerstone of product management policies ever since.

Market Growth

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WIDCAT STAR

DOG CASH COW

Market Share

Product Portfolio: The Boston Box

The model classifies products using two variables: the size of the total market and the share of the market held by the product of the firm. this allows a division into so-called wildcats/ stars/Cash Cow/ and Dogs. Each of these types of product need to be managed in different way.

Wildcat products are defined as those where the firms product only holds a low share of the market, but the overall market is growing quickly. The message the model gives is clear ; invest, to gain market share. Though such investment will be risky, if it is managed properly a return will be obtained because of the rapid growth taking place in the total market. Investment can be made in the product, to ensure that its specification meets, or preferably overtakes, that of the market leader. Advertising and promotional work can be used to gain market share, or cheaper prices offered. Competitive pricing can be employed. Lastly, the firm’s distribution channel intermediaries can be incentivised to push the product harder through increased commissions or mark-ups. In airline marketing, a very instructive use of Boston Box is to apply it to an airline’s route network. By analogy, this can give some very useful messages as to how a route should be managed.

A wildcat route is one where the traffic as a whole is growing strongly, but where the airline concerned has only a small share of this rapidly growing market. Wildcats require both patience and continuing investment. Patience is needed because in the short term a Wildcat may be a loss-maker.

If the growth prospects of the route are good enough, these losses should be accepted and a presence maintained. This is especially so given the regulated nature of competition in many air transport markets, and the ways in which airport slots are allocated. In international markets, if an airline withdraw from a route, it may loss its status as its government’s designated carrier on the route in question. It may also have to give up its airport slots and risk that these will be given to another airline. The overall effect may then be that when it wishes to re-enter the market it will not be able to do so.

The star situation is one where the overall market is growing quickly and the firm’s product has a good share of the market. Star products are obviously strong ones for the firm in question, and they should be a significant source of profit. They do, though, require intensive and costly

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management. This is because the rapid growth in the total market will provide a continuing incentive for new competitors to enter it. Established firms will therefore have to spend heavily to depend their position. This spending will need to encompass continuing product investment and substantial efforts in the direction of the advertising and promotion. Pricing will also probably very keen, with thin profit margins. All-in-all, star products are often those which provide a high proportion of a firm’s sales volumes, but a significantly lower proportion of its profits.

The aero-engine market illustrates the principle of star products very well. The market for big-fan engines powering large jet aircraft is a large one. The competition between General Electric, Pratt and Witney and Rolls-Royce is extremely intense. All three firms have to spend large amounts on continuous product development and improvement . pricing are so keen that is believed that sometimes engines are sold for less than the cost of producing them. The manufacturers then hope to obtain a return on sales of spares and product support through the lifetime of the engine.

Next, the Boston Box describes the Cash Cow product. This is one where the product in question still has a good share of the market, but where the total market is no longer growing strongly. The fundamental difference between Stars and Cash Cow s is that the Cash Cow market will no longer be an attractive one for new entrants. Established firms will have invested to gain their place in the market, and should be able to continue to exploit it successfully. New entrants, though, will have to spend heavily if they are to challenge the existing players. Entering new market will always be costly. It will be particularly expensive, though, to enter a market which is not growing. A growing market allows a new firm to hope that it will be able to become established on the basis of new demand rather than by having to take existing customers away from their suppliers. This will not be possible in a stagnant market. Success will only be possible for newcomer if it succeeds in taking market share from other firms. However, this may be costly and risky activity, one which is unlikely to yield a return for new entrant.

For the existing firms, of course, Cash Cows should be a major source of profit, because they will not have to protect themselves from the activities of newcomers. The problem will often be that though the milking of Cash Cows may be extremely profitable, the lack of growth in the total market means that these milking opportunities may not continue for long.

The aero-engine market again provides a good illustration. We have already seen that in these market, the big firms have to invest heavily to maintain their position. In recent years, one of the firms in this market, Rolls-Royce, has appeared to have a product which conforms to Cash Cow principles. Alongside its larger engines, Rolls-Royce has offered its Tay product, a small engine of 15,000-17,000 Ibs of thrust. The Tay was itself a relatively un-ambitious investment having been based on the core of an older Rolls engine, the Spey. The Tay, however, has enjoyed a favourable position, because General Electric and Pratt and Witney have offered no engine in this class. The Tay has therefore had a virtual monopoly in three market where it has been

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applied, to the Fokker 100 and Fokker 70. One’s guess is that Rolls has enjoyed very strong profit margins on Tay sales.

The Tay also illustrates the point that Cash Cow products may not be available to milk for very long. The Fokker company went into bankruptcy in 1996, and the production of Fokker 100 and Fokker 70 has now stopped.

For airlines, Cash Cow situation occur on any route where future growth prospect are poor. An example at the moment is the routes between Paris and London Heathrow , London Heathrow and Brussels. These routes are being affected by the railways competition as a result of opening of the channel tunnel.

Because of these poor growth prospects, it would be a very foolish airline that decided to enter these markets today. With little traffic growth they could only establish their position by taking market share from some very strong established carriers. With new entry therefore unlikely, these established airlines are able to exploit the available demand relatively unchallenged. There may come a time though, when the effect of surface competition means that the route changes from a profitable Cash Cow into the next Boston Box category, the Dog.

Dog products are those where the total market is not growing and the firm has only a low share of the existing small market. Once a product has been finally classified as a Dog, there is a clear product management message. It should be abandoned and the resources which might otherwise have been spent in maintaining it and attempts to improve market share should instead be devoted to much more promising Wildcat situations.

For airlines, the use of the Dog category is, by analogy, the route withdrawal decision. Almost all airlines find from time-to-time that they have routes where traffic is not growing, where they have a poor market share, and where losses are being incurred. They must give up service on these routes and take the resources used to serve them to more promising situations.

Balancing Risk and Opportunity- Ansoff Matrix:

The Boston Box allows for some important rules for product management to be defined. One further mode is, though , very useful in the search for complete range of decision-making tools.

All firms have to balance risk and opportunity in their product planning decisions. The model used to guide decisions about risk and opportunity is known as the Ansoff Matrix which illustrated in the next figure.

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ExistingProduct

Existing Market New Market

1 2

NewProduct 3 4

The Ansoff Matix

The Matrix proposes that products can be divided into four categories. The first box is where the firm offers its existing product to its existing customers. In the short terms, this will be a low risk solution. The markets are ones which the firm knows, and the products are presumably proven successes. It doesn’t, though provide a basis for the long-term development and growth of a business. The existing products will go through their life cycle, and will eventually reach the decline phase. At the same time new opportunity will be appearing which the firm will be ignoring. These will be available to the firm’s competitors who will use the to build their strength to eventually challenge the firm in its core activities.

If what is effectively a “ DO-Nothing Case” is unacceptable, firms must do more than simply offer existing products to existing customers. To do so they must balance risk and opportunity in the way described in Boxes Two and Three.

Box Two describes taking existing products and offering them to a new market. For example a firm has a successful range of products in domestic market might decide to move into exporting. Box Three is the situation where a new products are developed for markets where the firm has a sound of knowledge of customer requirements and established customer loyalty.

The most interesting case in the Ansoff Matrix is that described in Box No 4. This is where the firm takes a completely new and unproven product and offer it to a totally new and undeveloped market. It carries almost limitless opportunities, but also usually a very high risk will be incurred. The result is that new businesses which adopt this philosophy sometimes achieve great success. More commonly, though, the risks are unsustainable and the result may be a disastrous bankruptcy.

The federal Express FedEx could be a very good example when an entirely new product(the door-to-door deliveries of small urgent shipments)was offered to an entirely new market,it was a new idea tapping a hitherto unexploited market with a remarkable success story.

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Mr Fred Smith who introduced this idea did, though, take an enormous risk. The fact that he was successful should not be taken as meaning that in all comparable cases, the result would be the same. The concept requires a heavy investment to be made before significant cash flows can be obtained.

The overall message of the Ansoff Matrix is a clear one. To achieve the correct balance between risk and opportunity, firms must have products which fit into each of the four boxes of the matrix. There must be established products and markets which provide for profits in the short term.

Product Development:

By “ product” we mean everything that is used by a firm to provide consumer satisfaction.

A product can be a physical commodity, or a service, a group of either these, or a product service combination.

It is important to bear in mind exactly what a product is to consumer. It is really a package of satisfaction.

The product must be surrounded by value satisfactions, which differentiate your product from others. Developing your product line has to be based on a thorough understanding of the consumer, the market and all the various forces that make an impact upon them.

Product development : Design & Development:

Product development is the process of creating a new product to be sold by an enterprise to its customers.

Design refers to those activities involved in creating the styling, look and feel of the product, deciding on the product’s mechanical architecture, selecting materials and processes, and engineering the various components necessary to make the product work.

Development refers collectively to the entire process of identifying a market opportunity, creating a product to appeal to the identified market, and finally, testing, modifying, and refining the product until it is ready for production. A product can be any item from a book, musical composition, or information service, to an engineered product such as a computer, hair dryer, or washing machine.

The impetus for a new product normally comes from a perceived market opportunity or from the development of a new technology.

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With a technology-pull product, the company first determines that sales could be increased if a new product were designed to appeal to a particular segment of its customers.

With a technology-push product, a technical breakthrough opens the way for a new product and marketing then attempts to determine the idea’s prospects in the marketplace.

With either scenario, manufacturing is responsible for estimating the cost of building the prospective new product, and their estimations are used to project a selling price and estimate the potential profit for the company.

Establishing specifications:

During the development stage, the needs of the target market are identified, competitive products are reviewed, product specifications are defined, and economic analysis is done, and the development project is outlined.

Identify customer needs- through interview with potential purchasers, focus groups, and by observing similar products in use, researchers identify customers needs. Customer needs and product specifications are organized into a hierarchial list with a comparative rating value given to each need and specification.

Analyse competitive products- an analysis of competitive product is part of the process of establishing target specifications. Rather than beginning from scratch and re-inventing the wheel with each new project, traditionally, the evolution of design builds on the successes and failures of prior work.

Establish target and final specifications-based on customers’ needs and reviews of competitive products, for example, consumers may want a product that is lightweight luggage, inexpensive, attractive, and with the ability to expand to carry varying amounts of luggage. Unfortunately, the mechanism needed for the expandable feature will increase the selling price, add weight to the product, and introduce a mechanism the has the potential for failure. Consequently, the team must choose between a heavier, more costly product and one that doesn’t have expandable feature.

Human Resources in the 21st century:

Aviation organizations should realize that people are the biggest asset. “ I am convinced that companies should put their staff first, customers second, and shareholder third. Richard Branson, of Virgin Atlantic airways said.

As 21st century progresses, airlines and other aviation organizations will have to cope with new trends and challenges for the future. Perhaps on the biggest challenges for such organizations will be managing the new generation of employee known as “ generation Y”. Typically, this

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employee will be outspoken, expectation driven, and self-motivated. Organizations will have to learn generation Y’s language and be able to supply such workers with proper tools to get the job done.

Employers must create conditions that attract the best people for the job, meaning that organizations will rethink the role of the core group. Organizations will learn the benefits of building and using a large and diversely skilled talent pool, where employees will be trained quickly to increase the employee’s value to the company.

Perhaps most important, managers will be taught to manage instead of acting as liaisons or enforcers of rules. Efficiency will be enhanced through the support of education and training, creating an organizational environment where personnel growth and development are stimulated.

Aviation organization must learn to identify human resource needs through the formulation of objectives, policies, and budgets. Strategies should be related to human resource needs temporarily and permanently. Specific jobs should be outlined with specific recruitment methods include industry contacts, professional recruiters, employment agencies, colleges and trade schools, and various forms of advertising.

In terms of training, employees should be trained specifically in the area in which they are hired. Such training should permit for more advanced functions within the organization and should be able to address social and economic changes that affect the way the organization must operate.

All training programmes should have some sort of evaluation process to measure performance of the employee and the benefits received by the organization.

There are some barriers or challenges airlines will face in terms of human resources during the 21st century:

1- Skills. Many of the skills used by the airline industry are exclusive to aviation. Such skills are costly and time consuming to acquire. There is a need for constant refinement of regulatory, technological, and market developments. The airline industry is highly cyclical, which leads to overcapacity in human skills and tangible resources.

2- Need for new skills. Increasingly competitive environments generate the need for new skills. To be successful in today’s airline industry, workers will need specific skills. For example, multilingual, culturally sensitive, and responsive customer-contact staff will be in demand.

3- Finding the right staff. Airlines have realized that finding the right staff is no longer sufficient. The delivery of high quality service is based on attitudes and values of employees. For example, much of southwest Airlines’ success is based on a unique corporate culture that promote positive attitudes.

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4- Labour trends. Airlines of the future will find it beneficial to use more part-time and fixed term staff. Charter airlines have been doing this for years, but it is relatively new phenomenon with this scheduled airlines. Which create a challenge for the airline industry.

5- Multi-skilling and flexibility. The focus of discussion at many airlines is changing from why to how and to in return for what? Encouragement of productivity growth through multi-skilling ( the application of multiple skills by one person) and more flexible work practices in highly unionized environments will create a challenge for the airline industry.

6- Control of labour costs. Airline passengers are becoming more knowledgeable and demanding, creating a challenge of how to control labour costs without disrupting customer service. There is a strong argument to place greater emphasis on productivity improvement rather than on salary and benefits cuts.

7- Cross-utilization of human resources. There will be increased cross-utilization of human resources within global alliances. The challenge is that variables relevant to the attraction, utilization, and motivation of talented employees differ widely between cultural settings.

8- Making human resource strategies adaptive. This is the least specific challenges of those introduced, but it is the most significant. Human resource strategies should be as adaptive as corporate and competitive strategies have to be in the face of increasingly complex and turbulent environments.

As indicated, human resource departments are very important to the success or failure of an organization. Paying close attention to the challenges presented will help aviation organizations achieve efficiency and success in the future.

Human Resource Management at Airlines:

LR/HR are two aspects of the employment relationship. LR include the ways that management relates to employees as they are organized to gain representation in decision making, while HR management includes the ways that management uses conditions of employment to influence the work-related behaviours of employees. The effectiveness of HR strategies often depends on their ability to build high-quality relationships.

A critical driver of performance in airlines is the ability to effectively coordinate the work of multiple functions groups involved-pilots, flight attendants, mechanics, ramp workers, customer services agents, and so on. In airlines, employees do not affect service quality and productivity only as individuals, but also collectively as a group.

Given the importance of relational coordination in the airline industry, airlines benefit from adopting HR practices that focus on developing employees as team players rather than as individual functional experts. Because employees in this industry influence performance

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outcomes as team players, they should be hired, trained, monitored, and rewarded not only for individual excellence but also for their ability to contribute to a larger coordination effort.

The following section describe several key HR management practices that are building blocks for achieving relational coordination, which in turn drive high levels of productivity and service quality.

Hiring and training for relational competence:

Because different jobs require different abilities, one of the most important objectives of the hiring process is to find people who best fit the requirement of the job. But the critical skills is to be identified in the hiring process go beyond technical and cognitive realm to include personality traits( Day and Silverman, 1989).

Team work ability can be understood more specifically as relational competence-the ability to relate effectively with others. Particularly when hiring people for jobs that require high levels of expertise, organizations tend to underestimate the importance of relational competence. Yet even people who perform highly skilled jobs(e.g. pilots) need relational competence to effectively integrate their work with their fellow employees.

Supervisory coaching and feedback:

Many contemporary management thinkers have argued that the purpose of supervisors is to perpetuate bureaucracy by controlling and monitoring workers( Selznick, 1949). Today’s competitive environment calls for team work among front-line employees, they argue and supervisors tend to get in the way. Flat organizations with few supervisors should therefore perform better than more bureaucratic organizations( Piore and Sabel. 1984; Walton, 1985; Appelbaun and Batt, 1994). But in the airline industry, this argument was not supported by data.

In the airline industry, the supervisory span was found to vary from one supervisor per 10 front-line employees at Southwest Airlines, to one supervisor per 35 front-line employees at American Airlines( Gittel, 2001). Likewise, the intensity of interaction between supervisors and front-line employees was found to vary from infrequent and arm’s-length at American, to frequent and intensive at Southwest. Higher levels of supervisory staffing at Southwest gave the airline supervisors fewer direct reports, enabling them to engage in more frequent and intensive interaction with their direct reports.

With fewer direct reports, supervisors at Southwest had greater opportunities for working side by side with the front-line employees they were responsible for supervising. Reduce informational and social distance between supervisors and employees enabling them to share goals and accept coaching and feedback given by supervisors.

But at American Airlines, different story emerged, supervision was reduced drastically in the late 1980s to economise on staffing and increase participation by front-line employees, as part of the program called “ committing to Leadership”. The result was that supervisors had arm’s-length

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relationships with their direct reports and played a largely bureaucratic role, relying on impersonal rules to allocate responsibility for late departure and other errors. Their role was to monitor compliance with performance targets set by headquarters, and compliance with basic rules of behaviour such as being on duty at the scheduled times.

It was found that high levels of supervisory staffing were correlated with high levels of relational coordination across functional groups, leading to higher levels of aircraft productivity, staffing productivity and service quality.

Performance Measurement at process level:

Like many organizations in other industries, airlines have traditionally relied on systems of functional accountability. Outcomes of the flight departure process are typically divided into departmental objectives, for which individual departments are held accountable. Each departure delay is traced to the department that is thought to have caused it. Then on daily, weekly and monthly basis, the percentage of on-time departures is calculated for each department.

As total quality management expert J. Edward Deming would have predicted, this system of accountability tends to generate a search for departmental failure( Deming, 1986). Yet because of the task interdependencies in the flight departure process, it is often difficult to determine which department caused a particular delay. One rule of thumb often used is” whoever was off the plane last” if the gate agent who was boarding passengers was last off the plane, it is presumed to be a customer service delay. If the ramp agent loading the baggage were last off the plane last, it is presumed to be ramp delay. And so on. Therefore, the common pattern is a race to finish one’s own assigned task before the other groups finish their tasks, even when cooperation between the group would improve the speed and quality of the process. Worse, participants tended to hide information to avoid blame, thus undermining the potential for learning.

Conflict resolution:

In the flight departure process, conflict is a common occurrence. There is a tremendous pressure to get the aircraft out on time, and at the same time there are multiple functional groups involved, each of which tends not to understand very well the perspective of the other. From the pilots to cabin cleaners, the employee groups whose coordination is essential to achieve performance outcomes in the departure process tend to be divided by the lack of shared goals, shared knowledge and mutual respect. The resulting friction between these groups often contributes to process failures. This should not be a surprise, conflicts are fact of life in interdependent work process that span multiple functions( Lawerence and Lorsch, 1967). Not only are conflicts more likely to occur in highly interdependent process, but those conflicts are also more likely to have intensified effects( Gladstein, 1984).

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Certainly, there are ways to prevent conflicts from occurring. Management theorist Louis Pondy noted in the late 1960s that one way to prevent conflict is to reduce interdependence by : 1) reducing dependence on common resource. 2) loosing up schedules or introducing buffers such as inventories or contingency funds. 3) reducing pressures for consensus.

Airline managers can approach conflict as an occasion for learning( Van de Ven, 1976), and for developing a clear understanding about goals, expectations and behaviours (Van De Ven and Ferry, 1980). When airline managers seek out conflict rather than allowing them to fester, and when the parties are brought together to better understand each others perspectives, the problem-solving and learning process are enhanced.

When managers treat cross-functional conflict as an occasion for learning, they strengthen relationship between employees and boost performance of the work processes in which those employees are engaged.

In conclusion, overall two points stand out from our research. First, of crucial importance is underlying philosophy of treating employees as a valuable resources, rather than primarily as cost to be minimized, in order to build higher quality relationships within the firm. Second, this philosophy should be supported by an integrated set of HR practices that foster teamwork and coordination across the multiple functional groups involved in the airline operations.

International Business:

A fundamental shift is occurring in the world economy, we are moving progressively further away from the world in which national economies were relatively isolated from each other by cross barriers to cross-border trade and investment; by distance, time zones , and language, and by the national differences in government regulation, culture, and business systems.

The rapidly emerging global economy raises a multitude of issues for business both large and small. It creates opportunities for business to expand their revenues, drive down their cost, and boost their profits.

International Business: is business whose activities are carried out across national border. This definition includes not only international trade and foreign manufacturing but also the growing service industry in areas such as transportation, tourism, advertising, construction, retailing, wholesaling, and mass communications.

Globalization Forces:

Why Enter Foreign Market:

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In the previous section, we mentioned briefly some of the reason why foreign investors acquire companies more often than they establish them in the United states. Now let us examine the reasons why international firms enter foreign markets, which are linked to th desire to increase profits and sales or protect them from being eroded by competitors.

Increase profits and sales:

Enter New Markets: Managers are always under pressure to increase the sales and profits of their firms, and when they face a mature, saturated market at home, they begin to search for new markets outside the home country. They find that (1) Markets with a rising GDP per capita and population growth appear to be viable candidates for their operations and (2) the economies of some nations where they are not doing business are growing at a considerably faster rate than is the economy of thir own market.

New market creation: There are many ways in which potential new markets can be identified and assessed. Sources of potential market size and overall market growth rate can be found in publications such as the annual Human Development Report of the United Nations Development Program…..

Obtain Greater Profits: As you know, greater profits may be obtained by either increasing total revenue or decreasing the cost of goods sold, and often conditions are such that a firm can do both.

Test Market: Occasionally, an international firm will test market a product in foreign location that is less important to the company than its home market and major overseas market. This provide an opportunity to make changes, if necessary, to any part of the marketing mix( Product, Promotion, Price, Channel of distribution) or drop the entire venture if the test market should not adversely affect the firm in any of its major markets. Since companies usually monitor their competitors and early warning. Let’s now look at some reasons for going abroad that are more related to the protection of present markets, profits, and sales.

Protect Markets, Profits, and sales:

Protect Domestic Market: Frequently the company will go abroad to protect its home market.

Follow customer overseas: Service companies ( Accounting, Advertising, marketing research…)will establish foreign operations in markets where their principal accounts are to prevent competitors from gaining access to their accounts. They know that once a competitor has been able to demonstrate to top management what it can do by servicing a foreign

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subsidiary, it may be able to take over the entire account. Similarly, suppliers to original equipment ^^^^^^^^^^^^^^^^^^^^^^

Attack in competitor’s Home Market: Occasionally, a firm will set up an operation in the home country of a major competitor with the idea of keeping the competitor so occupied defending that market that it will have less energy to compete in the firm’s home country.

Free Market vs. regulation:

Firms exist as legal entities, which means that they are defined by law, but the private ownership label covers business with different types of legal status. These include sole traders, partnerships, limited companies and cooperatives. The basic idea of private business is that firms are free to manage their own affairs and use their own resources as they choose. In this way private ownership of business may be likened to other forms of private property where the whole point of owing our own property is to use it as we please and for our own benefit or self interest. In business terms this means that business should be managed in the interests of their owners, and this means making a profit. It might be added to this that businesses are best able to judge for themselves how to manage their affairs efficiently, and that by being left to do this there is benefit for the wider public through the resulting innovation economic growth. However, in reality there is no such thing as free market in the sense of businesses being left entirely free to make decisions for themselves. In all market systems the law is used extensively to regulate various aspects of business decisions and behavior.

One of the prime reasons for using the law to regulate business is recognition that free market would have undesirable consequences for certain groups in society. Consumers and employees would be a disadvantage in their dealing with business without various protections afforded by law . in other words, although business pursuing its self-interest produces substantial public benefit such as greater prosperity, there are many ways in which business self-interest and the public interest clash. For example, the minimum Wage Act, requiring all businesses in the UK to pay minimum wage, ensures that profit seeking business facing competitive pressures do not harm vulnerable groups of employees by forcing wages down below a decent level. This means that although we refer to private ownership of business, decisions about managing those businesses are never purely private ones since they involve certain restrictions and obligations defined by law.

Of course, there are different views about how far the law should be used to regulate business and the role of law varies both between different societies and between different governments within each market system.

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A simple model of business in its environment –transforming inputs into outputs:

Business organizations are systems that interact with the external environment in which they operate. Business, in its broad sense, is the activity of transforming inputs into outputs or, in other words, the activity of producing goods and services to meet the wants and needs of consumers. The inputs come from, and the outputs are sent into, the environment. To be successful, businesses have to produce outputs that meet the expectations of consumers, and to do this they have to be able to acquire the necessary inputs at the right time, price, quantity and quality. Thus businesses have to understand the surrounding conditions and circumstances at both the input and output ends of their operations. And in between they have to manage the process of transformation of inputs into outputs( production) within the organization ( the internal environment). This understanding of business interacting with its environment through three stages of activity is shown in figure 1.2.””””””

External and internal Environment:

Although the environment of business mainly suggests the external world” out there” it also has a critical internal dimension concerned with relations and processes within the organization.we have already seen in the transformation of inputs into outputs involoves the stages of production within the organization. But we can get further with the idea of an internal environment if we think of the organization not as a single unified entity but more as an internally differentiated system made up of different parts or sub-systems’

For example, firms typically are made up of specialized sub-systems or departments dealing with particular aspects or functions of the business-Such as production, marketing, finance, human resource and research.

This may be seen as a division of labour within the organization which allows it to draw on the highly specialized knowledge of employees in these distinct functional areas. The other side of this differentiation is, of course the need to ensure coordination so that the individuals and departments are working together effectively to achieve the organization’s goals. That is a key task of managers at the senior level of the organization.