Challenges and Strategies in The Aviation Industry

As stated in the case study, the aviation industry is a rapidly growing and dynamic industry. Although very lucrative, profits are hard to achieve in the long run. Despite this fact, the airline industry has doubled its revenue in the last decade as reported by the International Air Transport Association (IATA). This growth is largely in part due to Low-Cost Carriers LCCs who own 25% of the global market, through entry into emerging markets. Additionally, the case study mentions that growth was born from stable ongoing profits. For all intents and purposes, the aviation industry appears flawless and extremely profitable, however it is riddled with numerous challenges choking the success and survival of the industry. This essay aims to discuss the challenges faced by the aviation industry as well as answering the query of whether the strategy of localization is viable in this industry. Firstly, the issues suffered in this industry will be discussed and then categorized as either external and internal challenges. Further, this essay will define localization, its importance and whether it is a feasible strategic plan for the industry or not. Lastly, in summary, this essay will state whether it agrees with the airline industries common strategy and any potential recommendations for the industry.

According to the case study, one major challenge that the aviation industry faces is a failure to breakeven- which is an external challenge. External challenges to an industry or business are those issues that firms in the industry have no control over and as such can only react to them. This struggle arises from high degrees of regulation imposed on this industry by the relevant authorities. Mhlanga (2017, as cited in Bailey & Panzar, 1981), infers that regulation makes markets non-contestable which means that entry into the market is not only expensive but difficult. Additionally, it entails that sunk costs are higher than they should be and that the risks of entry are inadequate to hinder competitive incumbents from entrance into the market. Furthermore, the government competing for customers with private airlines causes a large conflict of interest, in that, the governing body is now forced to simultaneously be a judge and a contestant in the market. Legislation from government authorities is a crucial hazard to the airline industry due to the costly nature of abiding by the rules set by authorities. Henceforth, some forms of regulation exist to protect national airlines over LCCs and as such poses a threat and thus making the air transport industry unprofitable. According to Walulik (2018), “the current international regulatory is still fragmented and prohibits emergence of truly global enterprises, market, and competition known from other sectors'. The regulations imposed on the aviation industry not only hinder the profits to be gained but go against the very nature of this particular transport sector-aviation.

Furthermore, as the case study states, external challenges such as price pressure influences the average price of a ticket. When average prices drop airlines struggle to make adequate profits while keeping up with the increasing costs associated with this industry, thus failing to breakeven each period.

As stated in the case study, the airline industry is extremely lucrative but suffers from razor-thin profits, in part due to increased consumer demands that are not being met sufficiently. In order to continuously attract customers, the airline would have to improve upon its planes and all other relevant technology. This is very costly because an upgrade in machinery could easily set the company back millions. These millions could very well be used to develop other aspects of the business like consumer desires. For instance, an airline that already owns functioning planes may want to buy Boeings newest plane in order to attract fliers but this expense is not necessary as there are other options for success. The airline could use the millions to buy a new plane on improving the marketing, advertising and general image of the airline. This would promote the brand image as one that wants to reach its customers personally and not just attempting to impress them with new aircraft.

According to the case study, the aviation industry faces expensive fuel and increasing operational costs. This is due to costly fuel prices across the board. It’s becoming much costlier to run an airline because fuel prices are constantly changing and increasing. It is more efficient these days to own a fuel-efficient aircraft that will save the airline millions in fuel expenses. Singh, Sharma, and Srivastava, (2018), state that obtaining a brand new plane results in improved competencies of the airline. Ensuring that the aircraft is well maintained over a period of time will reduce the costs of fuel and maintenance significantly. Henceforth, increasing profits by squashing costs and inefficiency. The single issue with acquiring these efficient aircraft is that they are way more expensive than the ordinary plane. As such the airline must be ready to brave the high costs of maintenance and procurement in order to eventually reduce expenditure drastically in the long run. Singh et al (2018), presumes that costly airline measures to subsequently decrease costs- introducing new aircraft- will cause the major issue of time lag. In that new technology is continuously being developed, thus the airline will constantly be one step behind innovation in trying to keep up. The airline should decide whether it will grow from the acquisition of new technologies or internally boost their organizations' customer focus initiative in order to increase profits.

From the case study, it is noted that costs can be saved and minimized through the implementation of organizational structure, improved production costs and changes in the operations plan. As noted in the case study, it is observed that older airlines have complex systems that are more expensive to run than the smaller LCCs. Older, as well as national airlines, should look to hasten their operations process in order for it to be swift and cheap and not complicated and expensive.

In the case study, it is observed that LCCs trying to enter established markets may be unsuccessful. This is due to existing customer loyalty which is difficult to shift. Additionally, the struggles experienced by LCCs can be attributed to their failure to properly understand the market in which they operate and the costly nature of the business.

In keeping with the case study, the issues faced by the aviation industry are many and complex. In light of this, the case study recommended that airlines ought to incessantly give attention to the innovative growth of their products or continue to receive decreasing profits in the long run. The case study, in addition, recommends that airlines make customer needs a major factor in the ingredients for the success of this industry. (Hout, Porter, and Rudden, 1982, p.98). For these reasons, airlines should look at their strategic plan as a guide to improving the products and services offered. Most airlines (or LCCs) use global strategies of management due to the fact that they operate in the global market with the intention of increasing their sales and making profits across nations (Iftikhar, 2018). One global strategy that the airline may intend to use is the localization strategy.

Localization strategy centers on creating customized products for a firm in order to match the consumers wants and needs in that particular environment and to make the profit, (Nzonzo, 2019). Localization aims to increase the local responses of customers in their indigenous area. This happens through ensuring that products are custom-made, that the marketing plan is innovative and well thought out. Moreover, the localization strategy needs to be integrated thoroughly into the national environment in order to attract locals to the product- thus making profits. Through research and development (R&D) of new products and innovations, the airline industry would be able to create customized or specialty products and services suited for the local customers' desires (Barrosoa, Giarratanab & Pasquini, p.13. 2019). For instance, an Airline that does not consider the cultural, religious or economic standpoints of its fliers is liable to make great mistakes with regard to product creation, marketing and managing of production systems for that particular region. Localization entails that products suit the desires of the consumer while making innovative and profit pulling products. As such, consumers must be able to see value in the new specialized product being offered in order to increase sales. Other disadvantages of this strategy would be that the customization of products sometimes restricts the sharing of information and skill that legacy airlines have over their smaller counterparts. This results in wasted capital and increased costs.

As stated by the case study, the airline industry is costly to operate in and suffers from low customer responsiveness to aid in better understanding the company. For that reason, it experiences low-profit margins. In order to be lucrative, the airline industry should employ the transnational strategy. This a strategy that concurrently strives to minimize costs, setting apart the product offering throughout various markets while adopting a flexible and sharing approach of skills across the firm’s global branches, as discussed previously ((Nzonzo, 2019).

The transnational strategy takes advantage of the vacantness of the world, by permitting brands and companies to extend their worldwide impression within the offering of their products and services. This occurs whilst taking into consideration the social and societal disparities shaping customers in that particular local environment. A transnational strategy is beneficial because it allows for resources to be shared across nations, it allows for less restricted coordination and lastly it aids a company increases its revenue by entering new markets, thus expanding their clientele (Meyer and Su, 2014). However, when not excited properly, this strategy can result in management conflicts across different companies. It is also extremely difficult to implement let alone to be successful in.

For example, that an airline from Malaysia joined with an airline from France may intend to enter the South African market, however, it should consider how well their products will fit into the South African market, how to promote these products and market them to a new group of customers. With the transnational strategy, a company must be fully prepared to enter the industry with all its costs and limitations. Failure, to correctly establish themselves through thorough research would be the downfall of the global airline industry.

The aviation industry is riddled with numerous problems as mentioned in the case study. According to the case study, most of the challenges experienced are attributed mostly form failure to breakeven and continuously keep up with consumer wants and competition within the industry, as well as the high costs to operate in such a complex industry. In order to stifle these profit-hindering issues, the aviation industry should not only look at its management strategy but at its research into new technology and maintaining and growing market share. This essay, additionally looked at the localization strategy-which follows the idea of 'think local, act locally'- in terms of finding ways to customize customer desires in a particular region to raise profits. However, the transnational strategy –which follows the 'think local, act global' idea- looks to lower costs while simultaneously attempting to dominate the global market, through specialized products and sharing of vital data across country borders. In light of the issues discussed in the essay, the transnational strategy better suits the aviation industry because it is a globally operating industry with extremely high profits and costs. A good strategy enables a company to plan better for the future, prevent operational and management problems while guiding the company on the best ways to produce and be lucrative. Adopting the transnational strategy would result in a more successful aviation industry, full of competing prices and happy fliers with numerous options at their disposal.

Reference List

1. Mhlanga, O. (2017). Impacts of deregulation on the airline industry in South Africa: A review of the literature. African Journal of Hospitality, Tourism and Leisure, Volume 6 (3) - (2017) ISSN: 2223-814X Retrieved from: http://www.ajhtl.com/uploads/7/1/6/3/7163688/article_8_vol_6__3__2017.pdf
2. Walulik, J.(2018). Harmonizing Regulatory and Antitrust Regimes for International Air Transport. Routledge Research in Competition Law, Routledge. Retrieved: https://books.google.co.za/books?id=Z4V7DwAAQBAJ&pg=PT5&dq=regulation+hindering+aviation+profit&source=gbs_selected_pages&cad=2#v=onepage&q=regulation%20hindering%20aviation%20profit&f=false
3. Nzonzo, J. MGS3401: Strategic Management, week 5, session 5 notes [PowerPoint slides], Monash South Africa.
4. Singh, J. Sharma, K.S Srivastava, R.(2018). Managing Fuel Efficiency in the Aviation Sector: Challenges, Accomplishments, and Opportunities. FIIB Business Review. Retrieved from: https://journals.sagepub.com/doi/full/10.1177/2319714518814073#_i21
5. Hout, T., Porter, M., E.&Rudden, E. (1982) How Global businesses win out. Retrieved from: file:///C:/Users/USER/Downloads/How%20global%20companies%20win%20out,%20T%20Hout,%20M%20Porter,%20E%20Rudden-1982%20(1).pdf
6. Barrosoa, A. &M. S. Giarratanab. &Pasquini, M. Portfolio performance in new foreign markets: The EU trademark dual system. Research Policy. Retrieved from: https://reader.elsevier.com/reader/sd/pii/S0048733318301781?token=83F4FEE5BB6EFC0C0B37532E8CC656F50E7A93D55EE645B3DEDFFD5D0F61AF628D8EB394D4AC1CC6C6914F53952B44D5Iftikhar, Z.(201
7. The Impact of strategic marketing management in the airline Industry-Case study of BA and Easyjet. Retrieved from:https://www.academia.edu/5806542/THE_IMPACT_OF_STRATEGIC_MARKETING_MANAGEMENT_IN_THE_AIRLINE_INDUSTRY_-_CASE_STUDY_OF_BA_AND_EASYJET
8. Meyer, K. E.& Su, Y. (2014). Integration and responsiveness in subsidiaries in emerging economies. Journal of World Business. Retrieved from: http://www.rcmewhu.com/upload/file/20150528/20150528095512_6108.pdf