Research Korner: Reward Systems in Organisations

Airline Marketing of Air Canada

Table of 	Content 	 	 TOC \o "1-3" \h \z 	 	 	1      	Executive Summary. 	PAGEREF _Toc50826264 \h 3 	 	 	 	2      	Introduction. 	PAGEREF _Toc50826265 \h 3 	 	 	 	3      	Air Canada. 	PAGEREF _Toc50826266 \h 3 	 	 	 	3.1            	Introduction. 	PAGEREF _Toc50826267 \h 3 	 	 	 	3.1.1            	Fleet 	PAGEREF _Toc50826268 \h 4 	 	 	 	3.1.2            	Route Network. 	PAGEREF _Toc50826269 \h 4 	 	 	 	3.1.3            	Service. 	PAGEREF _Toc50826270 \h 5 	 	 	 	3.1.4            	Air Canada’s Subsidiaries. 	PAGEREF _Toc50826271 \h 6 	 	 	 	3.2            	Operating Performance and Financial Status. 	PAGEREF _Toc50826272 \h 6 	 	 	 	3.2.1            	Canada Domestic. 	PAGEREF _Toc50826273 \h 7 	 	 	 	3.2.2            	Canada-U.S. Trans-border. 	PAGEREF _Toc50826274 \h 7 	 	 	 	3.2.3            	Other International 	PAGEREF _Toc50826275 \h 8 	 	 	 	3.2.4            	Cargo. 	PAGEREF _Toc50826276 \h 8 	 	 	 	4      	Environment 	PAGEREF _Toc50826277 \h 9 	 	 	 	4.1            	Market 	PAGEREF _Toc50826278 \h 9 	 	 	 	4.2            	Profitability. 	PAGEREF _Toc50826279 \h 10 	 	 	 	4.3            	Industry Outlook. 	PAGEREF _Toc50826280 \h 11 	 	 	 	5      	SWOT Analysis. 	PAGEREF _Toc50826281 \h 11 	 	 	 	5.1            	Strength. 	PAGEREF _Toc50826282 \h 11 	 	 	 	5.1.1            	Network. 	PAGEREF _Toc50826283 \h 11 	 	 	 	5.1.2            	National Carrier. 	PAGEREF _Toc50826284 \h 12 	 	 	 	5.2            	Weakness. 	PAGEREF _Toc50826285 \h 12 	 	 	 	5.2.1            	High Personnel Cost 	PAGEREF _Toc50826286 \h 12 	 	 	 	5.2.2            	Fleet Arrangement and Aircraft Dispatch. 	PAGEREF _Toc50826287 \h 12 	 	 	 	5.2.3            	Geographic Location. 	PAGEREF _Toc50826288 \h 13 	 	 	 	5.3            	Opportunity. 	PAGEREF _Toc50826289 \h 13 	 	 	 	5.3.1            	Asia-Pacific Region. 	PAGEREF _Toc50826290 \h 14 	 	 	 	5.3.2            	Cargo. 	PAGEREF _Toc50826291 \h 14 	 	 	 	5.3.3            	Low Price No-Frill Market 	PAGEREF _Toc50826292 \h 14 	 	 	 	5.4            	Threat 	PAGEREF _Toc50826293 \h 15 	 	 	 	5.4.1            	Competition. 	PAGEREF _Toc50826294 \h 15 	 	 	 	5.4.2            	High Cost 	PAGEREF _Toc50826295 \h 15 	 	 	 	5.4.3            	Fleet Arrangement 	PAGEREF _Toc50826296 \h 15 	 	 	 	5.4.4            	Oversized Organization. 	PAGEREF _Toc50826297 \h 15 	 	 	 	6      	Three Year Strategic Plan. 	PAGEREF _Toc50826298 \h 16 	 	 	 	6.1            	Marketing Planning. 	PAGEREF _Toc50826299 \h 16 	 	 	 	6.1.1            	North American Market 	PAGEREF _Toc50826300 \h 16 	 	 	 	6.1.2            	International Market 	PAGEREF _Toc50826301 \h 17 	 	 	 	6.1.3            	Cargo. 	PAGEREF _Toc50826302 \h 17 	 	 	 	6.2            	Cost Reduction. 	PAGEREF _Toc50826303 \h 17 	 	 	 	6.3            	Organization Restructuring. 	PAGEREF _Toc50826304 \h 17 	 	 	 	7      	Conclusion. 	PAGEREF _Toc50826305 \h 17 	 	 	 	8      	Reference. 	PAGEREF _Toc50826306 \h 17 	  	1          	Executive 	Summary 	 	According to IATA’s (International Air 	Transport Association) report the total numbers of distance flown, 	passengers carried, freight tons carried and the revenue of world airlines 	have steadily increased in the past decade yet the yields have a trend of 	shrink since 2001. It may be the reasons of the macro economy of the world 	and the impact of 911 to whole aviation industry. No matter whatever the 	reason might be, it obviously demonstrates what worldwide airlines facing 	now: competition, uncertainty and shrinking profit. 	 	The emergences of low cost, no-frills 	airlines and their successes point out a possible course to airline 	operators; such as Easy Jet in Europe, West Jet in Canada and Southwest 	Airlines in the U.S. for instance. These low cost airlines and their 	marketing strategies have successfully competed with their rivals in intense 	competitions and achieved admirable financial reports. 	 	Low cost, no-frills type operations 	will be a new model to airline business, especially in those areas with high 	competition, de-regulatory environment and anti-trust implications like 	North America and West Europe markets for example. Full service airlines 	with a broad range of service span and higher expenses are getting more 	difficulties to survive in those markets. SARS, 911, economic slump have 	worsen the situation even more but made low-cost airlines more striking. 	Elements in airline marketing are seen and well practiced in low cost 	operations. Networking, pricing, product and distribution are four major 	pillars of low-cost type operators. Aviation macro-environment, low cost 	operations will be discussed and a 3-year marketing plan will be depicted 	based on the environmental influences and low-cost concepts. 	2          	Introduction 	 	This is an application report 	assignment of AERO2174 Airline Marketing. Air Canada is the research object 	in this report. The market environment, airline performance, market forecast 	are the main areas to look at and a SWOT (strength, weakness, opportunity, 	threat) analysis is used to summarize this topic. A 3-year market plan is 	constructed based on the analysis for Air Canada as its future marketing 	strategy and an action plan is designed to carry it out; measures and 	benchmarks are included to check the achievement of the plan. 	3          	Air Canada 	3.1         	Introduction 	 	Air Canada was established in 1937 	under the name of Trans-Canada Airlines (TCA). By 1964 TCA had become 	Canada’s largest and national airline and changed its name to Air Canada 	(AC). Air Canada was fully privatized in 1989; and it merged Canadian 	Airlines International, the second largest airline in Canada. AC employs 	approximately 40,000 people worldwide and is a full service, top tier 	carrier and the 10th largest airline in the world today. 	3.1.1      	Fleet 	 	AC has 330 aircraft in service now. 	The aircraft type and number are shown as table 1 below. 	 		 			 				 				 				Wide-body jets 				 				 				   				 				 				Narrow-body jets 				 			 			 				 				 				6 				 				 				Boeing 747s 				 				 				47 				 				 				Airbus A319s 			 			 				 				 				47 				 				 				Boeing 767s 				 				 				51 				 				 				Airbus A320s 			 			 				 				 				9 				 				 				Airbus A340-300s 				 				 				13 				 				 				Airbus A321s 			 			 				 				 				8 				 				 				Airbus A330-300s 				 				 				24 				 				 				Boeing 737s 			 			 				 				 				  				 				 				25 				 				 				Canadair Regional 				Jets 			 			 				 				 				70 				 				 				Total 				 				 				160 				 				 				Total 			 			 				 				 				 				* Including the Air Canada Jazz fleet of 100 aircraft. 			 		 	 	 	Table 1: Air Canada’s fleet.     	                     Source: Air Canada website 	3.1.2      	Route Network 	 	AC has direct service to 22 domestic 	cities, 33 U.S. destinations and 51 cities in Europe, Asia, Australia, 	Caribbean region and South America. AC is also a member of Star Alliance, an 	airline alliance consisting of Lufthansa, SAS, Thai Airways International, 	United Airlines, VARIG, Air New Zealand, All Nippon Airways, Austrian 	Airlines Group, Singapore Airlines, Mexicana, bmi British midland, Asiana 	Airlines and Spanair, provides extensive global network and aggrandized 	services to 700 airports in 128 countries. Following 3 figures illustrate 	AC’s global, U.S. and domestic network. 	 	Figure 1: Air Canada’s 	Worldwide 	Network.                                                                 	Source: Air Canada website 	 	Figure 2: Air Canada’s 	U.S. 	Network.                                                                           	Source: Air Canada website 	 	Figure 3: Air Canada’s 	Domestic Network.                                                       	           Source: Air Canada website 	3.1.3      	Service 	 	Air Canada has been recognized as a 	global leader in air transportation and ranked as the safest airline in the 	world. In 2002, AC was voted the best airline in North America and its best 	frequent flyer program, Aeroplane, the best in the world. 	 	AC provides a newly designed first 	class service, International Executive Class, comfort, elegance and 	consideration with business price. 	 	AC is a full service, top tier 	airline. It offers add-value services such as: 	 	 	W   	Personalized Concierge service 	to Executive First and Aeroplane Super Elite customers. 	 	 	W   	Maple Leaf Lounge available to 	Executive First and Executive Class ticket holders, Aeroplane Super Elite 	and Elite members, Star Alliance Gold cardholders and Diners/enRoute Maple 	Leaf Club cardholders. The lounges offer a selection of newspapers, 	magazines as well as complimentary beverages. State-of-the-art business 	centers offer a complete range of leading-edge business equipment and 	computers, modern furnishings and high-speed Internet accessibility etc. 	 	 	W   	Freshing-up facility in London 	and Vancouver airports for passengers after long flight. These lounges have 	private shower rooms, valet services for clothes pressing and shoe cleaning, 	business centers, dining areas for continental breakfast and quiet, private 	rest areas. 	 	 	W   	Aeroplane, the most popular, 6 	million members, frequent flyer program in Canada. Members can earn miles 	from AC flight service, its regional and worldwide partners and Star 	Alliance carriers. Aeroplane members can also earn miles through extensive 	networks of car rentals, hotels, telephone and credit card companies. 	3.1.4      	Air Canada’s Subsidiaries 	 		 			 			 			Airlines 			 			 			Air Canada Cargo, Tango, Zip, Air Canada Jazz, Air Canada Jetz 		 		 			 			 			Internet Travel Services 			 			 			Destina.ca 		 		 			 			 			Travel Agent 			 			 			  		 		 			 			 			Maintenance Service 			 			 			Air Canada Technical Services 		 		 			 			 			Tour Company 			 			 			Air Canada Vacations 		 	 	 	Table 2: Air Canada 	Family.                             Source: Air Canada website 	 	Table 2 above shows a variety of 	business and service subsidiaries of Air Canada like airlines, travel 	agents, technical service and IT service companies. 	3.2         	Operating 	Performance and Financial Status 	 	AC’s operating performance will be 	viewed into 3 categories: domestic, Canada-U.S. Trans-border and other 	international. 	3.2.1      	Canada Domestic 	 	Before 2001 AC enjoyed continuous and 	progressive growths in domestic sector. However, after the 911 event AC 	suffered, like all other rivals in North America, a loss of passengers due 	to the fears of flying. The weak economy and war in Iraq also delayed the 	recovery. 	 	  	 	 	 	Figure 4: Domestic Passenger 	Revenue.             Source: AC website 	 	Figure 4 above shows a flat increase 	in AC’s domestic operation. 	3.2.2      	Canada-U.S. Trans-border 	 	 	 	Likewise, AC’s Canada-U.S. trans-border was affected more 	severely from the 911 event. It has been declined 8% from 2001 as shown in 	figure 5 below. Increased competition and harsh environment make this sector 	harder to recover and back to before 2001 level. 	  	 	Figure 5: Canada-U.S. Trans-border 	Passenger Revenue.        Source: AC website   	  	  	  	  	  	  	3.2.3      	Other International 	 	 	 	Other international routes comprising trans-Atlantic, 	trans-Pacific and Caribbean enjoyed strong growth because of demand and 	yield increasing even with the same disadvantageous factors in other two 	sectors. 	  	 	Figure 6: Other International 	Passenger Revenue.    Source: AC website 	 	Figure 6 above points out the strong 	growth of other international destinations in spite of the slump of North 	America market. 	  	  	  	  	  	  	  	3.2.4      	Cargo 	 	Cargo operation and revenue seemed not 	affected by 911 and economic difficulties at all. It enjoyed strong growth 	in 2001, especially in the Asia-Pacific region notwithstanding a slight 	decline in the domestic market. Figure 7 below illustrates the cargo 	operations of 2000 and 2001. 	 	 	 	Figure 7: Cargo 	Revenue.                                    Source: AC website 	  	  	  	  	  	  	  	  	 	To summarize all, AC’s recovery in 	some specific region is not powerful enough to offset the loss in others. 	Shrinking revenues and expanding costs, mainly due to the rising insurance 	fee and fuel price, made Air Canada lost 1,315 and 828 millions in 2001 and 	2002 respectively. Figure 8 below demonstrates the income (loss) of AC from 	1998 to 2002.   	 	 	 	Figure 8: AC’s Income 1998-2002.                     	Source: AC website 	  	  	  	  	  	  	  	  	  	 	Air Canada obtained an order from the 	“Ontario Superior Court of Justice” on Apr. 1st 2003, which 	providing creditor protection under the “Companies’ Creditors Agreement Act” 	(CCAA). Under current situation, Air Canada’s future and outlook will be 	depending and determined by the CCAA and the restructuring plan. At this 	crucial moment, the success or failure of AC transforming to a leaner, lower 	cost, more efficient airline will decide AC’s tomorrow. 	4          	Environment 	4.1         	Market 	 	 	According to IATA (International Air 	Transport Association) statistics the worldwide passenger traffic and 	airline industry had a consistent growth of approximately 6 to 8 percent 	over the last three decades regardless economic cycles. The booming markets 	in Asia and the Middle East have been the leaders of international airline 	business even after the turmoil of 911 and SARS. These two regions are also 	forecasted to maintain high growth in the future 10 years. Figure 9 below 	demonstrates the average growth of the past and figure 10 illustrates the 	traffic trend categorized by regions. 	 	 	 	Figure 9: Passenger Traffic 	Growth           Source: ICAO website 	 	 	 	Figure 10: Market Trend By Region, 	2002              Source:IATA 	 	Contrastingly, regions like Europe and 	North America however suffered a business decline from 2001, and these two 	areas are not forecasted to revive very soon due to strong competition and 	the shadow of war and dispute. 	4.2         	Profitability 	 	Figure 11 and figure 12 below show a 	tendency of shrinking profit and increasing cost observed from IATA’s 	analyses too. Again it is because of the increased competition and insurance 	expenses after 911 and the uncertainty of its repercussions. Airlines are 	becoming more sensitive to international affairs and geopolitical events, 	which augments the difficulty of planning and lessening yields. 	 	 	 	Figure 11: Airlines’ 	Profitability               Source: IATA website 	 	 	 	Figure 12: Airlines’ 	Profitability                             Source: IATA   	4.3         	Industry Outlook 	 	Since 2001, airline industry has 	suffered from weak economy, excess capacity, less demand and lower fares 	from competition. Increasing security measures, insurance fees and high fuel 	prices etc. lead to inevitable costs augmentation as well. The future of 	airline industry remains uncertain resulting from the concerns over security 	and international conflicts and disputes. Several major North American 	airlines commenced bankruptcy protection in 2002. To the North American 	market, adverse conditions and unexpected events are still looming in the 	future. 	5          	SWOT Analyses 	 	SWOT (Strength, Weakness, Opportunity 	and Threat) model is an analytic tool for strategic-planning and 	decision-making. It helps managers to review current environment where 	organizations existing and self-conditions thus outside opportunities or 	threats can be identified and internal characteristics can be examined. We 	would use SWOT model to analyze Air Canada’s case as the following. 	5.1         	Strength 	 	Air Canada’s strength would be focused 	on the domestic market and the majority of Canadian public traveling in and 	out of Canada. AC is the national carrier and it would be Canadians’ first 	choice provided other considerations are same. Flying the aircraft carrying 	a logo of maple leaf, Canada’s national icon, and national flag would make 	all Canadians feel proud and home alike. 	 	In addition, the domestic market is 	dominated by AC as well due to its scale and almost monopolized routes 	structure in Canada. Canada’s small population scattering over such vast 	continent makes airlines hard to survive and new joiners higher financial 	entry qualifications to compete. This will prevent new airlines from 	entering into Canada’s relatively small market. AC’s strong points include: 	5.1.1      	Network 	 	Compared with other competitors, AC’s 	service network may be the most valuable and powerful strength over other 	rivals. AC has a full service network to Canada domestic and international 	destinations. Besides, AC has many regional partners or subsidiary airlines 	in the domestic market to form an integrated service network. Plus the 	membership of Star Alliance, AC can provide a worldwide network to 	passengers through other alliance members. 	5.1.2      	National Carrier 	 	To be the biggest, longest and 	full-scale-service airline in Canada, AC has become Canada’s national 	symbol. It would be Canadians’ first selection to fly with if fairs are 	reasonable. This would make AC more advantageous over other foreign 	competitors. 	5.2         	Weakness 	5.2.1      	High Personnel Cost 	 	 	 	Perhaps AC’s weakness comes from too much support from 	the government, which makes AC rigid, inefficient, over sized and less 	competitive. From figure 13 below we can see that personnel cost (salaries, 	wages and benefits) counts up to 31% of AC’s total cost. It is a huge 	portion! 	  	 	Figure 13: AC’s 	Cost                                           Source: AC website 	 	Unionized employees such as pilots, 	flight attendants and mechanics make AC bearing heavy personnel burdens of 	salaries, wages, benefits and pensions. High personnel expenses compel AC a 	high cost airline, which would be a serious problem from now on. 	  	  	  	  	  	  	  	  	5.2.2      	Fleet Arrangement and Aircraft Dispatch 	 	Many of AC’s airplanes are wide-body 	ones. These wide-body airplanes play a major role in domestic and North 	American markets. With the horrible business depression after 911, war and 	SARS adverseness load factors have been decreased to a record low. Many 	seats are empty and operating performance deteriorated further as passengers 	scare of flight; thus the revenue becomes less notwithstanding the operating 	cost remains the same. It turns into negative numbers on the financial 	report eventually. Nevertheless, costs and losses could be minimized and 	mitigated if flights are consolidated on some low load factor routes, or a 	better usage and management of smaller, narrow-body airplanes. However, this 	cannot be done immediately. It needs a deliberated plan for future airplane 	purchase and fleet designs. Current fleet and airplane types in AC may not 	be suitable when business goes down or any similar crises encountered. 	5.2.3      	Geographic Location 	 	Canada shares the longest peaceable 	border in the world with her neighbour in the south-U.S.A. Yet Canada’s 	population, economic scale and business energy are not comparable with the 	U.S. Locating so closely to the world’s super power means advantageous as 	well as threatened. More or less, Canada’s importance and role to the world 	is diluted by the existence of the U.S. from the south. In addition, any 	economic chills or industrial occurrences will affect Canada’s performance 	too. 911’s impact is the best example, which explains the effects of the 	close tie between Canada and the U.S. and the harm of over-dependence. The 	unilateralism and new conservatism emerge in U.S. foreign policies towards 	the world would, and have, drawn unpredictable outcomes to U.S. itself 	socially, economically and psychologically and surely hammer Canada too. 	5.3         	Opportunity 	 	 	 	There still are some opportunities although the 	environment is not friendly for airline industry, especially the North 	American market. Yet other international markets still have positive 	growths. Asia-Pacific, West Europe, South America and Caribbean regions 	experienced strong revenue growth in 2002. Figure 10 above reveals the 	potential markets waiting to be explored, in which Asia-Pacific, Latin 	America and Middle East would be most possible opportunities to AC. 	  	 	Figure 14: Passenger Revenue Change By 	Region.  Source: AC website 	 	Figure 14 above shows the passenger 	revenue changes classified by region. Non-U.S. international market revenues 	bounced the highest number from 2001. It is worth to give it a shot!            5.3.1      Asia-Pacific Region IATA has forecasted that the Asia-Pacific region would be the fastest growing market in the next 15 to 20 years. Areas like Mainland China, India and South East Asia are future’s locomotives of world economy. Canada just happens to receive huge numbers of immigrants from these areas. The economic ties, passenger traffic and cargo transportation between Canada and these areas are promising opportunities to Air Canada. The biggest west coast city, Vancouver, would become the transportation hub to the Asia-Pacific region and the demand increasing would be foreseen as well. 5.3.2      Cargo Cargo operation has always been lucrative and stable relatively regardless of external interferences. AC still had cargo revenue growths in 2001 and 2002 in spite of passenger business drop then, for example. IATA also predicts the world’s freight traffic average growth of 5.3% from 2002 to 2006 as figure 15 shows. The highest rate of growth was forecasted to be within Asia and on Trans-Pacific routes. Again, it points out potential market and opportunities to Air Canada. Figure 15: IATA’s Freight Forecast.                               Source: IATA 5.3.3      Low Price No-Frill Market Low fare, no-frill operations may be another option for Air Canada. There are several successful examples of this kind of operation around the world, for instance, Easy Jet in Europe, VirginBlue in Australia, Southwest Air in the U.S. and WestJet in Canada. The secret of the success is very low cost, compared to full-service, top-tier airlines. By the utilizations of IT, Internet technology, spoke-to-spoke hub operation, appropriate airplane type (usually narrow-body, short to medium range aircraft), flexible revenue and price management and slim organization make this type of airlines profitable, pliable and very competitive in regional markets. They can lower the ticket prices to a level that full-service airlines cannot possibly offer. North America’s vast continent and scattered metropolises in Canada and the U.S., with ranges vary from 2 to 6 flight hours, is suitable for this type of operation. 5.4         Threat Air Canada is facing imminent threats under present conditions, both from internal financial pressure and externally industrial environment. 5.4.1      Competition North America is a totally deregulated, liberalized and free competitive market. Canada and the U.S. also impose anti-trust regulations on enterprises to protect consumers’ interests. Airlines cannot practice any forms of associated, consolidated or pre-agreed behaviour to manipulate, control or monopolize the market. Therefore, competition is fierce in this free market as well as those areas and countries with similar “open sky” agreements and regulations. AC has difficulties to compete with those lower cost airlines from Asia, Europe and the U.S. to win the market shares. 5.4.2      High Cost AC’s operating cost is high, especially expenses in salaries, benefits and pensions. Unionized work force makes AC strenuous to downsize the organization and reduce personnel expenses. For example, employee benefits expenses rose $80 million or 15%, and future benefits rose $44 million in 2001 due to higher pensions and increased health care costs. Workers’ compensation liability rose $23 million in 2002 as well. With lessening revenues but increasing cost, AC is encountering tremendous challenges ahead. 5.4.3      Fleet Arrangement As mentioned before, AC needs to adjust its fleet and aircraft type in order to meet the requirements of load factor and efficient aircraft usages. Fly a wide-body airplane to the less-demanded routes will not do any good to the company but decreases the load factor and economic efficiency instead under recent turbulence. However, most AC’s fleets are wide-body airplanes excluding its subsidiary airlines. This would put AC into an adverse position during demand and business downed. 5.4.4      Oversized Organization The organization has been expanded and oversized after Air Canada acquired Canadian Airlines International in 2000. Yet the operating performance has not been multiplied after the merge. Moreover, AC either had to pay extra compensations to layoff Canadian Air employees or kept their positions preserved to prevent labour disputes. This causes AC overweight and carrying heavy cost loads. 6          Three Year Strategic Plan To cope with the business crisis and save Air Canada from bankruptcy, a strategic plan is needed to deal with: W   Market Planning W   Cost Reduction W   Organization Restructuring These three elements are actually aiming at the same target and strive for the same goal: redefine the airline market after those strikes and reduce operating costs to compete. 6.1         Marketing Planning Airline business has been totally changed after Sep 11, 2001. Passengers become suspicious to take air travel, depressed economy makes passengers more sensitive to prices and reduces business travellers, and, minute and complicated security measures are time and patience consuming to passengers. Airlines cannot do much about the security examination procedures because governments have managed most examination and check jobs since 911. Therefore, airlines can only lower their fairs and initiate market incentives and stimulants to attract more passengers, and persuade general public that airplane still is the safest, fastest and most comfortable vehicle for transportation. Low –cost and no-frill airlines have been popular among the public, especially during market recession periods. This type of airline is fitting in deregulated, liberalized and high competition markets such as North America and Europe. The operating cost is at least 1/3 lower than full-service airlines. Low-cost airlines can use flexible and low fair pricing strategies to fill up every seat. They also encourage passengers utilize direct Internet access for seat booking, ticket purchasing and other services requests. Hub-to-hub, spoke-to-spoke type routing structures provide airlines better airplane usage and enhance dispatch efficiency. All these operating features can reduce the costs further thus ticket prices can be lowered more. 6.1.1      North American Market At this crucial moment, Air Canada should transform its market targets to and focus on low-cost, no-frill sector to vie the market share particularly in the North America. Actually Air Canada has noticed the popularity of low-cost airlines and launched no-frill subsidiary ones like Tango, Jazz, Air Canada Jets, and Zip. Air Canada should continue to enhance this low-cost airline operations and work on prices reducing. 6.1.2      International Market Air Canada should grasp the growth opportunity and explore the Asian market, and introduce more flights and services to the booming areas such as China, South East Asia, Japan, India and Korea. AC also can take the advantages of the large number of Asian immigrants and their ties in the region to expand its business. 6.1.3      Cargo Cargo operations can be gradually shifted from the weak North American area to the promising Asia region. Based on previous statistics and future forecasts from IATA, Asia has the highest demands and growth rate in the world. This giant economic plate must not be ignored at all. 6.2         Cost Reduction 6.3         Organization Restructuring 7          Conclusion 8          Reference Air Canada, <http://www.aircanada.ca/>, July 2002 Accessed Airline Business Magazine, <http://www.airlinebusiness.com/>, July 2003 Accessed ICAO, <http://www.icao.int/>, Aug 2003 Accessed IATA, <http://www.iata.org/index.htm>, Aug 2003 Accessed

Airline Marketing of Air Canada

Table of Content TOC \o "1-3" \h \z 1 Executive Summary . PAGEREF _Toc50826264 \h 3 2 ...

The airline industry

The airline industry  Inevitably growth was much faster in the 1950s and 1960s when aviation was a new industry than it is today when it is reaching maturity. But growth rates are still impressive. In the 1950s and 1960s the world's air traffic grew on average at around 14-15 per cent each year. For the last fifty years it has been characterized by continued and rapid growth in demand for its services. Yet it has remained only marginally profitable. Inevitably growth was much faster in the 1950s and 1960s when aviation was a new industry than it is today when it is reaching maturity. But growth rates are still impressive. In the 1950s and 1960s the world's air traffic grew on average at around 14-15 per cent each year (Doganis 2002).  In the decade 1970-79 the annual growth was close to 10 per cent. This still meant that air traffic, and the airlines with it, doubled in size every seven years or so. In the following ten years to 1989 growth declined to around 6 per cent annually and in the decade up to 1999 growth was down slightly at 5.2 per cent. In absolute terms, because of the much higher base, a 5 per cent jump in recent years represents a much greater surge in demand than a 10 per cent annual growth thirty years ago (Doganis 2002).     The airline industry appears to be cyclical and this inevitably impacts on growth rates. Nevertheless the underlying trend has been one of declining but consistently good growth in demand. Most businesses faced with continued and high growth of demand for their products or services would be basking in substantial profits. Not so the airlines. This is the paradox. The financial performance of the world's airlines taken as a whole has been very marginal, even in the years when the industry was highly regulated and largely protected from internal competition. The traditional measure of profitability cannot be applied to the airline industry as a whole (O'Connor 1995). This is because of the difficulty of estimating real asset values for airlines with varied depreciation policies, using varying proportions of leased equipment and often receiving direct or indirect government subsidy in a variety of forms (O'Connor 1995).   A measure of profitability commonly used among airlines is the operating ratio, which is the annual operating or net profit or loss expressed as a percentage of the total annual revenue. The cyclical nature of the airline industry is clearly evident. Four to five years of poor or bad performance are generally followed by an upturn and five or six years of improving results (Doganis 2001). However, even in the good years profit margins are low. The net profits after interest and tax rarely achieve even 2 per cent of revenues. Airlines can be low-cost and very unprofitable or high-cost and financially sound. Unit costs or unit revenues are not critical in themselves (Doganis 2001).  The airline industry as a whole has made a cumulative loss during its history. The airline industry's capacity to gain profitability is likely to improve in the future as privatization continues and more competitive low-cost carriers proliferate. Although many countries continue to operate state-owned airlines, many large airlines are privately owned and are therefore governed by microeconomic principles in order to maximize shareholder profit   Industry life cycle Corporations and industries usually progress through various categories pertaining to birth until death. This trek is the industry life cycle. The first stage of the industry life cycle is the venture capital. As the industry life cycle treks forward through the venture capital stage, the relatively few successes become obvious. The image of an industry and market served is more focused, if not completely defined. Their common stock may be sold to the public, if not already offered. The venture capital stage is left behind. These corporations enter the rapid growth stage.  The second stage of the industry life cycle typically witnesses the venture capital firm progressing into a period of rapid growth. The product or service has been developed and marketed to the point of consumer acceptance. The untapped market envisioned by the entrepreneur begins to be tapped. The third stage is the mature stage. Companies in the mature stage of the industry life cycle are entrenched in the economic mainstream (Bolten 2000).  Their products, brands, distribution channels, and other aspects of their operations are established (Bolten 2000).    Mature firms must depend on reaching the more marginal customers at competitively low prices, replacing and updating sales to prior customers, and most importantly, sustained general economic growth. The fourth stage is the shakeout stage. The end of the rapid growth stage is typically marked by the shakeout. The flood of new competitors, the accompanying product or service price deterioration, the introduction of superior technology and distribution, and/or any other circumstances that lower entry barriers eliminate the superior profitability and diminish earnings growth prospects (Balmer & Greyser 2003). Companies in the stable/declining stage of their industry life cycle exhibit steady to declining expected earnings. Investors emphasize expected dividends in their valuation (Balmer & Greyser 2003).   An industry is considered to have its own life. An industry after it was invented rises and provides various products and services to people; it then matures and provides better product and service.  The life cycle of the airline industry begins in the introductory/venture capital stage where the purpose of the industry and its goals are made known. This is the stage where the industry initialized its planned actions and adjust to the different players and factors in the environment.  The second stage of the life cycle of the airline industry is the rapid growth stage. In this stage some of the goals have been achieved and the industry has achieved a smooth entry into the market. In the second stage the industry has shown to the public the products and services they can provide to the clients. The third stage is the mature stage where the products and services are known in the market and they already have a unique identity.  In this stage the relationship between the airline industry and their clients have already blossomed. The last stage is the shakeout stage wherein the industry experiences more problems and the stability and longevity of the industry is questioned. This stage focuses on changing strategies whenever a problem that cannot be easily solved comes out. PEST Political The airline industry will not get any good reputation, trust and success if it will not be aware of what is happening in the political sector of the country. The airline industry and companies within it have made sure that they were aware of the political situation of every country they have operated in and the industry has its position with regards to political issues. . The airline industry and companies within it is continuously prepared for any problems concerning the political sector. The airline industry and companies within it makes sure that it follows the different laws of a country they engage transaction in. The airline industry and companies within it also makes sure that the different local and international transportation laws are followed in any trips made by an airline company. The airline industry and companies within it doesn’t want to risk their client’s welfare by breaking local and international transportation laws.  The airline industry and companies within it follows the international air travel laws that provide regulations for different things like the route allowed for every flight   Economic . The airline industry and companies within it can be said to be economically stable for the past years. Its economic stature is doing fairly well that’s why they try to improve their products to give the best to their clients. It is not only the internal economic situation of the airline industry that should be taken note of but also the economy of the country, the industry checks first the economic status of the country they are operating in before making decisions because making decisions during a difficult time on the economy of another country may cause catastrophe for the industry. The economy of a country can help boost the sale of the products and services of the airline sector. Because of the good economy of the country they are operating in, people can have the financial resources to buy the airline industries’ products and services.   Social The airline industry and companies within it makes sure that the service they offer and the technology they use to tender their services will be accepted by the public. The airline industry and companies within it does not authorize the delivery of some services they know will cause outbursts or complains from different group in the society. The entertainment provided in flights will not contain anything that will cause problems with the passengers. The airline industry and companies within it also engages in social activities that tend to develop a better relationship between them and the clients. These activities can be in the form of outreach programs and free tickets to special people.    Technological The airline industry and companies within it offered new innovations in its technological aspect and introduced new concepts with regards to its industry. Since technology rapidly changes. The airline industry and companies within it makes sure they are updated to what is happening and they can adjust to these changes. The airline industry and companies within it makes sure that the services they offer are updated with regards to what technology is used to tender their services.  If other companies use new technologies to provide services, the airlines company has the technology capable of competing with such technologies.   Porter’s five forces Potential Entrants             The airline industry has been around for a quite some time and the industry is not greatly affected by the new entrants. The influence of potential entrants to the sector is weak. But to ensure that no other problem arise the industry and the ticketing and booking system used by Airline companies maintains low cost for the different expenses they make, this helps in making sure that the new entrant will not have advantage over them and it makes sure that the airline industry and companies within it cannot be outrun by any new competitor.   Competitive rivalry             Competitive rivalry highly influences the airline industry and companies within it. Different things are done by the airline industry and companies within it particularly on the ticketing and booking system used by the Airline companies. This ensures that they have advantage over their competitors. One thing done by the airline companies is the use of a strategy wherein they give the best kind of service to clients. This kind of strategy gives the company a better relationship with the clients. The airline industry and companies within it also offer unique flying experience to the clients thus giving the rival industries additional worries and concern for each of their future.   Substitutes  Substitutes exist when a certain market has a situation of high prices. In this industry clients look for a company that can offer lower prices for their products or services. Substitutes can also be in the form of alternative services that a client deems appropriate for his/her need and capabilities. Substitutes give high influence to the airline industry and companies within it since substitutes can make the airline company lose the clients it has. The airline industry and companies within it make sure that the substitutes won’t give them much problem. They do this by proving that the service they offer and the technologies they use to provide the service are the best quality and are better than substitutes.   Bargaining power of buyers  The bargaining power of buyers is a standard of how the client can put the business in a tight spot wherein the client dictates the price of a product. The bargaining power of buyers highly influences the airline industry and companies within it. It shows how the industry tries to create good relationships with clients. As much as possible the airline industry and companies within it maintains reasonable prices for their fares, they also have promos and discounts that intend to make the clients have second thoughts on purchasing tickets from other companies. When the clients try to dictate lower prices the company tries to know whether it is reasonable and it isn’t it has no choice but let the client go.   Bargaining power of sellers The bargaining power of sellers is a measure of how suppliers can dictate the price of materials needed by the company. The bargaining power of sellers highly influences the company. The company makes sure that their suppliers have high bargaining power through helping them show their importance in the industry.  The company makes sure that the price being asked for a material has the same value as the same materials’ quality and durability. This will ensure that budgets will not be wasted.   Strategic analysis A key challenge for any organization in the twenty-first century is to seek to maintain and improve its performance in an increasingly complex and competitive global operating environment, where change pressures appear to offer the only certainty. Despite the pursuit, over the last two decades, of Total Quality Management (TQM), Business Process Reengineering (BPR) and more recently Enterprise Resource Planning (ERP), to name only three of the more popular management holy grails, there remains, nonetheless, a prevailing sense of failure in fully realizing hoped-for levels of improvement. In this context then, it is not surprising that there should be some sense of cynicism when it is argued that, by focusing upon identifying, valuing and managing information and knowledge (IKM) assets, there are significant opportunities to achieve more effective organizations and to improve their efficiency by reducing the amount of wasted time, effort and lost opportunity through better and more integrated use of both tangible and intangible organizational resources (Beckford 2002). The challenge presented here is to move to define such assets, particularly in relation to a public sector context, and through an investigation of the benefits which can accrue from the successful management of information and knowledge, to dispel much of the disquiet and cynicism surrounding this potentially important area of organizational improvement (Beckford 2002).   Companies cannot survive without an effective competitive strategy; an effective competitive strategy gives a company an easier chance of attaining its goal with lesser focus on the problems they have. A company that is wiling to use a competitive strategy must create changes in its internal environment. In doing this every aspect of the business can be checked before the strategies can be used for success in the firm. The service strategies will depend on the situation in an environment and the different barriers that may hinder the delivery of an effective strategy. The service strategy may go into waste if there are still certain barriers and environmental condition left unsolved since the effect of the strategy may not be felt by clients. The airline industry makes use of the best service strategies that intends to make an identity separate from the competitors. It concentrates on providing excellent service to clients. Companies in the airline industry have a code of service that the company and its employees use whenever they are having conversations with their clients. This code makes sure that any transaction done between the client and the company will be in good taste and it will make the relationship between the company and the client stronger.   The situation in the airline industry is different from the situation in the manufacturing industry, fast food industry, retailing industry or other kinds of industry. The airline industry needs to make sure that the best service can be given to the clients. It also has to make sure that the best technologies will be used to serve the clients. To avail the services of airline companies, clients have to pay more. The payment of the clients should be replaced with the equivalent service. Therefore the strategies of Airline companies should aim to provide the same worth as the prices of accommodating their services. Airline companies are forced to make sure that their services and the technologies they use will be in the same level as the payments made by the clients. Their strategy on their service and the technologies they use will then be improved further to meet clients’ expectations.   The airline industry has a responsibility to make sure that the welfare of the clients is being taken care of thus airline companies need to make sure that they have strategies that pertain to the responsibility of the industry to take care of its clients. Whenever there are untoward incidents or situations while the service is being rendered, Airline businesses need to make use of a different set of strategies that will make sure that nothing will happen to the clients under an unexpected situation. Businesses can succeed in a certain industry that for them looks unpromising. With proper strategies they can survive in an industry that no one wants to engage business in and no one wants to be a part of.  Building market share should not be priority of business rather the company should have a strong competitive advantage before they can have market shares. Resources should not be always a concern for the company since success can be achieved if there are limited resources   Conclusion The airline industry is has its own share of problems over the years, this does not mean that companies in this industry should be affected by such situation. The key forces at work for the industry include its ability to make proper use of technologies and service strategies to provide proper delivery of service to clients.  The use of proper technologies and strategies can give the industry a better chance to improve its economic stature.  The underlying forces in the airline industry is the external environment, once there is radical change in the external environment it would prove to be catastrophic for the industry.  This would be prevented through constant monitoring of the external industry and through creating back up plans to counter a sudden change.  Another underlying force for the airline industry is its economic status. If the economic status drops then the industry will have to find alternative means to provide service to their own set of clients.   References Balmer, JM & Greyser, SA 2003, Revealing the corporation: perspectives on identity, image, reputation, corporate branding, and corporate-level marketing an anthology, Routledge, New York.   Beckford, J 2002, Quality, Routledge, London. John, J 2003 Fundamentals of customer-focused management: competing through service, Praeger, Westport, CT.   Bolten, SE 2000, Stock market cycles: a practical explanation, Quorum Books, Westport, CT.   Bortolotti, B & Siniscalco, D 2004, The challenges of Privatization: an international analysis, Oxford University Press, Oxford.   Doganis, R 2002, Flying off course: the economics of international airlines, Routledge, London.   Doganis, R 2001, The airline business in the twenty-first century, Routledge, London.   Mansell, R & Wehn, U (eds.) 1998, Knowledge societies: information technology for sustainable development, Oxford University Press, Oxford.   Milner, EM 2000, Managing information and knowledge in the public sector, Routledge, London.    O'Connor, WE 1995, An introduction to airline economics, Praeger Publishers, Westport, CT.    Reinalda, R & Verbeek, B (eds.) 2004, Decision making within international organizations, Routledge, New York.   Schminke, M (ed.) 1998, Managerial ethics: moral management of people and processes, Lawrence Erlbaum Associates, Mahwah, NJ, pp. 158-160.   Sköldberg, K 2002, The poetic logic of administration: styles and changes of style in the art of organizing, Routledge, London

The airline industry

The airline industry Inevitably growth was much faster in the 1950s and 1960s when aviation was a new industry than it is today when it...