Abstract
Because the airline industry is so effective as a form of travel, it is unlikely that the industry will unravel at the seams anytime soon—global business relies on the airline industry. However, there are significant challenges that will be faced by the airline industry in coming years, and each of these challenges must be addressed by the industry as they arise. Without constant adjustment and restructuring, airline companies will have difficulty surviving in such a difficult market. Understanding that the airline industry is not necessarily like other businesses or industries is important for an overall development of understanding—there are complications in the airline industry that do not exist in the automotive industry, for instance. The global forces that have shaped the airline industry have changed slightly over the years, but they have primarily remained the same: airline carriers, unlike the rest of the airline industry, often struggle to turn a profit.
Introduction
The airline industry is one of the few truly global business industries in the world today. There are a number of unique challenges posed by the airline industry today, however; as the global concern for security rises, so too does the role of the airline industry in maintaining security and safety during the traveling process. More people than ever before are going on planes; even two decades ago in the United States, it was possible—even likely—to meet someone who had never been on an airplane before (Belobaba, Odoni, & Barnhart, 2015). Today, it is much more unlikely, as more people than ever before are traveling and using airline industry structures.
The airline industry, then, has a number of unique challenges when it comes to marketing strategy and building a global image. Although the airline industry has grown in scope in recent years, it seems likely that with the new geopolitical situation in the world—particularly with the destabilization of countries like Syria and the changing nature of the Russian government—that there will also be changes to the airline industry’s marketing and service strategies. The purpose of this discussion will be to discuss the current marketing strategies for the airline industry, and examine the way geopolitical tides and structures affect this globalized industry.
Because the airline industry is so effective as a form of travel, it is unlikely that the industry will unravel at the seams anytime soon. However, there are significant challenges that will be faced by the airline industry in coming years, and each of these challenges must be addressed by the industry as they arise. Without constant adjustment and restructuring, airline companies will have difficulty surviving in such a difficult market.
The Triple Bottom Line: Problems for the Commercial Airline Industry
For many companies, profit was, at one time, the primary concern; however, changes in the market structure in the United States since the 1970s has generally changed the way that business values are considered. While the current accounting system in the United States is not perfect, the triple bottom line structure of accounting—the valuation of people, planet, and profit rather than just profit—has become the overarching paradigm for many businesses. While profit is still one of the most important facets for consideration for businesses as a whole, particularly for airline companies, whose margins are slim, companies must also consider the stakeholders in their company and the planet when making business decisions. This is largely due to external pressures on the airline industry—and on consumer-based industries as a whole (Lynes & Dredge, 2006). The triple bottom line, while not a perfect metric, is an excellent way to gauge a company’s—or an industry’s—interaction with the market. Changes and evolution in the values and emphasis within the subsections of the triple bottom line for an industry can also be used to extrapolate potential futures for that industry as a whole.
People
The stakeholders of an organization are varied, and for the airline industry, the people that are affected by the actions of the industry are spread around the globe. The airline industry is bound to enact fair and beneficial internal structures, with the intention of building positive relationships with employees and the community as a whole. Commercial airlines have long struggled with the “people” portion of the bottom line: when a company is tasked with safely packing hundreds into a metal tube and moving that tube thousands of miles through the air, safety often becomes a priority over comfort. However, customer service perception varies throughout the airline industry, and customer services provided are only one facet of the discussion of the people affected by the commercial airline industry.
Commercial airlines based in the United States—which are the primary concern for this discussion—also have a responsibility to impact their community and their employees positively. However, as will be discussed later, these companies tend to make minimal profit, if they make any at all: this leaves commercial airline companies unable to enact the same kind of community care initiatives that other companies might be able to enact (Shaw, 2011; Pi & Huang, 2011; Martín-Consuegra & Esteban, 2007).
Planet
The sustainability of the commercial airline industry is also of constant concern in the United States. The airline industry relies on non-renewable fuel resources, and is responsible for significant amounts of pollution added to the atmosphere each year (Lynes & Dredge, 2006; Tsikriktsis, 2007). The use of fossil fuels is currently unavoidable for the commercial airline industry in the United States and globally, but the industry often comes under fire by environmental groups for the amount of pollution that the industry is responsible for (Lynes & Dredge, 2006; Tsikriktsis, 2007). Lynes and Dredge (2006) write, “A critical aspect of ensuring the success of environmental policy-making is the role of leadership that is projected In the case of SAS, it became clear during the interviews that several positive environmental decisions had been the result of a few ‘environmental visionaries’ who put internal pressure on top management. In one particular case, it was the CEO of the airline Younger employees at SAS are also putting more emphasis on environmental issues in their day-to-day decisions such that environmental considerations are becoming part of the airline’s corporate culture” (Lynes & Dredge, 2006). While airlines are struggling to make better decisions regarding sustainability, the third aspect of the triple bottom line—the profit aspect of the bottom line—is what is limiting the ability of the industry to truly adapt and change its internal structures to reflect a more sustainable business path.
It is likely that the airline industry will continue to face outside pressure from the community at large in terms of sustainability practices, however. The concerns about global climate change have become significantly more pronounced in recent years, and companies that are unable or unwilling to make the necessary changes to adhere with social and societal norms are likely to face significant losses as the national paradigm regarding sustainability and ethical business practices changes. Changes in the social perception of the importance of sustainability is a relatively recent occurrence; as such, the airline industry has not had significant time to react to these changes and develop new structures to respond to customer demand. However, as Lynes and Dredge (2006) note, there have been changes made, and some commercial airlines are attempting to change the institutional values of their organizations by placing individuals in management who value sustainable business practices over wider profit margins in the short term.
Profit
Profit is, undoubtedly, the largest concern for the airline industry. While ethical business practices are of a concern for all industries, to truly develop a sustainable business model, a company or industry must be stable and making a significant profit. Although many parts of the commercial airline industry make a profit—airports, aircraft manufacturers, and even air traffic control are all able to make a profit in the airline industry—commercial carriers have been struggling for many years to make a profit (Tsai, Chou & Leu, 2011; Shaw, 2011). This has caused many airlines to take drastic action and cut services; many of the services that were free at one time are now quite costly (Erdil & Yıldız, 2011; Tsai, Chou & Leu, 2011; Shaw, 2011).
Commercial airlines often have massive costs associated with production and service. Aircraft alone are significant investments, and a fleet of aircraft must be made available for a commercial carrier to succeed in the current economic structure. Commercial air carriers need to have adequate numbers of aircraft to serve all the potential locations that their customers might need around the world. Because the logistics of this kind of global network would be difficult for a single airline to accommodate, many airlines have chosen to engage in strategic alliances to protect their global routes. Alliances between airlines have been a way for each individual airline to insure themselves against profit loss from competition, although there have been some accusations that global alliances lead to noncompetition between airline companies (Belobaba, Odoni, & Barnhart, 2015). The importance of strategic alliances for the protection and integrity of the airline industry as a whole will be discussed in further depth in the following section; however, it is important to note that strategic alliances between airline carriers are insulating these carriers against the harsh competition that arises within a truly global economy on a truly global scale.
The Importance of Strategic Alliances
The airline industry has largely survived due to the presence of strategic, global alliances formed within the industry itself. While some would suggest that these alliances are a form of noncompetition, the profit margins within the airline industry are generally so small that global alliances provide a way for the industry to survive (Belobaba, Odoni, & Barnhart, 2015; Shaw, 2011). Strategic alliances present airlines with unique opportunities to better serve their potential global clientele, and the opportunity to serve this clientele without investing further in a larger fleet and more personnel. Understanding that the airline industry amasses huge costs that cannot be offset by profits gives analysts a better understanding of how and why global alliances are formed (Belobaba, Odoni, & Barnhart, 2015; Shaw, 2011).
Global alliances between different airlines provide the consumer with a number of important benefits. First and foremost, the consumer benefits from a seamless travel experience; a carrier is able to place a customer on any carrier within their alliance. The same customer can experience more significant benefits from an extended frequent flyer program as well (Belobaba, Odoni, & Barnhart, 2015; Shaw, 2011). It seems that, within reason, the existence of global alliances is positive for both the client and the airline industry; however, the potential for a noncompetitive airline industry looms large, and it is something that all countries must remain aware of for the continued health and success of the global airline industry (Belobaba, Odoni, & Barnhart, 2015; Shaw, 2011).
Analysis: The Future of the Commercial Airline Industry
The airline industry has already seen remarkable changes due to changing technologies and changing customer demands. Although customers are currently willing to work with the commercial industry on issues of security, many customers seem to be trending towards airlines that offer lower costs and better service (Belobaba, Odoni, & Barnhart, 2015). Low cost carriers seem to be doing excellent business in the current economy, particularly in places like Europe; customers want to be able to control their travel more readily and be less at the mercy of high prices (Belobaba, Odoni, & Barnhart, 2015; Shaw, 2011). More and more consumers are using mobile devices and internet technologies to book their travel, and this is changing the nature of airline travel as well (Tsai, Chou & Leu, 2011; Gerardi & Shapiro, 2009). Competition is likely to increase, but not between different airline companies: instead, it is likely that competition will increase between airline alliances, which function to ensure that airline companies are able to glean a regular profit.
One thing that more commercial airlines also seem to be trending towards is payment for premium services. Premium services vary based on airline—for low-cost carriers, a premium service is beverage service; however, for more traditional airlines, upgraded meals and other in-flight services like expanded legroom are potential in-flight paid premium service options (Belobaba, Odoni, & Barnhart, 2015). For the consumer, these premium options may allow companies to lower the base price of a ticket, while charging willing consumers for any “add-ons” to their service that they require. This has already been seen on many American domestic flights: a perfect example is the new rule regarding payment for checked baggage, while checked baggage used to be a free service provided by the airline (Belobaba, Odoni, & Barnhart, 2015). All of these changes will bring about changes in the airline industry—however, commercial airlines have a lot of power despite their problems with profit margins. Should the airline industry crumble, international business would take a significant hit as well.
The Perception of Security
For the consumer, security is a primary concern. Terrorism is a rare event, but when terrorism occurs, the result is devastating; as such, the airline industry must also contend with issues associated with the security of the consumer. It is not enough for the consumer to be safe; the consumer must also perceive that he or she is safe when he or she travels, or faith in the commercial airline system is lost (Erdil & Yıldız, 2011; Tsai, Chou & Leu, 2011; Shaw, 2011). Many commercial airline companies have instituted their own safety procedures for flights to and from the United States; however, the management of safety protocol is another problem associated with the globalization of the airline industry as a whole. While security usually falls on the shoulders of the ground staff, airline companies need to be seen to be responsible for the safety of their passengers—without the perception of safety, customers are less likely to travel as a whole.
Discussion and Conclusions
The airline industry has grown immensely in the past few decades, but with this growth has come a new set of challenges for the future. Much of the growth within the airline industry as a whole seems to be coming from low-cost carriers; carriers like RyanAir, Norwegian Air, and other carriers that are focused on transferring passengers from point A to point B without any frills or services provided as complementary (Belobaba, Odoni, & Barnhart, 2015). Indeed, the research suggests that low cost carriers now control approximately 25% of the current global airline market. This is an immense share of the profits for the airline industry, and it is cutting significantly into the profits for traditional carriers.
Because the barrier for entry into the airline industry is so high and specialized knowledge so fundamental to even the smallest amount of success in the industry, seeing new and successful airlines emerge without partnerships is quite rare. The resulting market is one that is not only globally linked, but also made up extensively of alliances; the alliances that form the airline industry have made the growth of the industry possible (Doganis, 2009; Gerardi & Shapiro, 2009). However, the levels of regulation in the airline industry give carriers very few options insofar as profit maximization is concerned; this is another reason that partnership and alliances between the different carriers is quite important. Understanding that the airline industry is not necessarily like other businesses or industries is important for an overall development of understanding—there are complications in the airline industry that do not exist in the automotive industry, for instance. The global forces that have shaped the airline industry have changed slightly over the years, but they have primarily remained the same: airline carriers, unlike the rest of the airline industry, often struggle to turn a profit.
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