Gulf Airways – A Study of Airline Market Competition
Gulf Airways – A Study of Airline Market Competition
THE EXECUTIVE SUMMARY:
The airline industry is passing through the challenging phase of its life cycle.i.e. Maturity. Into days world where the only thing constant is the change. So every business needs to continuously review its plans and strategies. it does not mean that a long vision is not required and only short –term policies are needed. Rather this scenario has profounded the importance of long-term strategies.
Long-term survival calls for a well-defined, clear and distinct path. A path that leads to a long-term goal. And long-term goals are not possible without a well-defined mission statement. Lack of clear-cut objectives cause distractions and distortions. Every department and every individual tend to have its own goals and objectives, which may not be congruent with others. When there is no unanimity in an organization it is bound to face difficulties. There should be a sharing of vision and long-term objectives for continuous growth and survival.
People always had the dream to reach for the sky, to fly like birds do. Since the dawn of time, there were many plans and efforts implemented in order to achieve this. However, it wasn’t until 1903, with the Wright brothers, that man finally succeeded into reaching for the sky, and flying. Ever since, flight developed rapidly, taking huge steps at small amounts of time, until its present form, today.
Nowadays there are hundreds of airlines in the world, specializing in different segments of the market, a big part of them into carrying passengers and cargo. The passenger-carrying sector has seen a large increase over the past 30-40 years increasing in volumes that no one could imagine. However over the last decade or so, the airline sector seems to be stagnant. Airlines increase their fleets, but with airplanes that are either existent models or modifications in older ones. Traffic volumes increase rapidly and there seems to be a shortage of facilities to cater for this increase. Ticket prices remain stagnant if not decreasing in small volumes, whereas maintenance costs remain high if not increasing. There are only a few new destinations and people seem to get fed up with the existent range.
Well, a new concept might be able to shed some new light and improve this situation. Space Tourism is a concept, gradually receiving more and more attention that seems to offer many solutions to the problems that airlines face these days. Space Tourism will create new markets, will decongest these huge traffic volumes, and will lead to the development of new technologies and concepts that airlines can only benefit from.
The Commercial Airlines:
The Airline Industry is a new and well-developed industry that has evolved mostly after the 2nd World War. The development of technologies for the war, that after the end of it became obsolete, boosted the development of the Airline Industry. Especially after the development of the jet engine, the Airline Industry had an increase that no one could imagine.
Nowadays, the Airline Industry is a colossal business, that is responsible for the transportation of millions of people every year and the generation of billions of US$ of income. The network of flights to destinations all over the world has got bigger and bigger every year.
However, over the last 5 to 10 years, the conditions have started to change. The market of commercial airlines has started becoming stagnant. The number of passengers still increases, but not at the same levels as it used to some years ago. Maintenance and operation costs seem to stay at the same level if not increasing. Therefore the margins for profit become smaller and smaller.
Apart from that, the number of destinations remains stagnant, since it is not easy or cost effective to create either a new destination or new facilities at a destination in a short term period. Also the fact that although good plans for development exist, due to a large number of factors, which are not of current interest, they are usually not implemented properly. All these, in conjunction with the fact that airplane designs did not go through any drastic changes over the last 10-20 years, thus forcing the airlines to use airplanes that are old designs or modifications of already existent designs, leads to the conclusion that the airline industry goes through a stagnant phase.
By many, including IATA and many national organizations, this was anticipated and measures of overcoming this phase successfully have been planned. A common practice in many of the major airlines of the world, is to create strategic alliances that will help them increase their market share and find ways of overcoming phases like these and preventing crises before happening. Others just try to create or modify their level of services at a unique level, which will attract specific segments of the market, thus specifying in some and leaving other segments out.
Whatever the measures, people in the airline industry are afraid that these will only be countermeasures of simply stalling and not providing solutions to a problem that seems to become more evident every year. In order for the airline industry to overcome such a situation and move onto a new era, drastic measures are needed.
Therefore, it is imperative to identify the problems faced and develop strategies and measures that will help the airline industry overcome this phase.
A solution proposed is the development of a completely new market, a “virgin” market with a share for everybody, the so-called “Space Tourism” market. People in the scientific community have been proposing this solution for the problems of the Airline Industry, for a long time, but to no result. Therefore the connection between Space Tourism and the Airline Industry is not something new.
The Facts About The Air line Industry:
- The world scheduled air transport industry has grown… from an estimated 9 million passenger journeys in 1945… to about 1.5 billion in 1999. The volume of freight transported by the world’s airlines has risen… from a few thousand tonnes in 1945 to 25 million tonnes today.
- Around 40 percent of the world’s manufactured exports, by value, are transported by air.The average consumer…of scheduled airline products…is paying 70 percent less…in real terms…than he or she was paying 20 years ago.
- And much of that growth…and market expansions …have taken place since de-regulation and liberalization.
- For most airlines…in most parts of the world…de-regulation and liberalization have worked…
- Liberalization has worked for the airlines… and for anyone involved in this industry… except perhaps for shareholders… who have not done as well as they should.
- It has worked for the economy of the world… but it has worked above all for the airline consumer.
- Now…if we look at the airline industry…and of its economic impact…we can see…
- In 1998 the industry provided at least:
- 28million jobs for the world’s workforce.
USD 1,360 billion in gross annual output.
- Far from having achieved maturity… international air transport is still today… one of the fastest growing sectors of the world economy.
- Passenger and freight traffic are expected to increase… at an average annual rate of around 5 percent between 1999 and 2010, …significantly greater than the growth of global GDP.
By 2010 the number of passenger journeys by air… could exceed 2.3 billion each year.
- In an increasingly global society, the economic and social contribution of this industry to the world is highly significant… and continues to grow.
- By the year 2010… aviation’s economic growth impact could exceed USD 1,800 billion… and provide the basis for over 31 million jobs.
- During the next 20 years, …airlines are likely to buy 16,000 aircraft, worth USD 1,200 billion. … And we estimate that infrastructure providers… airports and air traffic services… will need to spend USD 350 billion to accommodate the growth in air traffic.
- But that’s not all-international aviation is the prime engine of travel and tourism, which presently contributes more than USD 3,500 billion to the world economy…or nearly 12 percent of the total.
- More than 192 million jobs are generated…8 percent of the total.
- Capital investment for travel and tourism is at present USD 733 billion a year…and this represents more than 11 percent of the world total.
- That’s a proud record…and an enormous potential…
- The critical question is…can the potential be realized?
- To attempt an answer to that…it helps to look at the major challenges facing us at the start of this new millennium….
- Those challenges are:
- Reconciling the benefits of globalization and growth with our need to retain local identity and individuality.
- Protecting against sudden and damaging worldwide financial shocks.
- Protecting our natural environment.
- Dealing with the potential use and misuse of “interconnect ability.”
- Re-defining the role of the state in the modern economy.
- There is today…among the world’s nations and the airlines…a very wide consensus that the WTO approach to air transport globalization …is simply not appropriate.
- There is ample opportunity…as evolution proceeds…for like-minded groups of nations…and airlines… to associate and trade…in a spirit of respect for each other’s concerns….
- The answer to the challenge of globalization…in the context of aviation…is to encourage flexible and increasingly liberalized developments…everywhere.
- over the next 20 years our total fleet requirements could amount to some 16,000 aircraft… and USD 1,200 billion. An improved match of aircraft entering service with traffic demand growth… would do wonders for our profitability!
- Aviation is a major source of economic and social wealth
- Demand for it is strong…worldwide
- Aviation is consumer driven
- There remains a danger of re-regulation via the back door…in the name of consumer rights… and excessive environmental concerns.
- Infrastructure must be made to respond to the realities of the market place…just as airlines have responded…over the past 10-15 years.
- We need adequate safeguards on safety…watchdog powers on infrastructure price abuse…but …beyond that…let the market place decide the destiny of individual components of our great industry!
The History of the Company:
It is always necessary to take the first step to show one’s existence. The Gulf Airlines was registered on the 24th March 1950 as a private holding company. No one is born with all the needs fulfilled. For the sake of satisfaction of one’s inner self one has to strive very hard as the rule says that there is only survival of the fittest. In this race of survival the company has a long history. The company has come a long way in 50 years – from small-scale commuter service to major international airline – the national carrier of Bahrain, Oman, Qatar and Abu Dhabi (UAE). The world is not static and it must change but there are few things that do not change with the passage of time. In this case they are the latest technology in the field of Aviation and the traditional Arab hospitality and caring for the customers.
1949 – 1950 British aviator Freddie Bosworth generated interest in the concept of flying with his seven-seater Anson Mark 1, providing sight-seeing trips around the islands of Bahrain, as well as the thrill of a new experience. Local residents began to rely on his aircraft for a commuter service between Bahrain, Doha and Dhahran. Several local businessmen recognized an investment opportunity in Bosworth’s activities and became partners with him. The Gulf Aviation Company was registered on the March 24, 1950 as a private share holding company. First aircraft purchases included a De Havilland Dove and an Auster. Bahrain was the headquarters and maintenance center. Charter contracts with oil companies helped the early growth of the company.
The First Decade:
BOAC, (British Overseas Aircraft Corporation), became a major shareholder in Gulf Aviation, contributing operating capital, qualified pilots and technicians. Four-engine long range De Havilland Herons were added to the fleet, substantially increasing passenger and freight capacity. Abu Dhabi, Al Ain, Kuwait, Muscat and Sharjah joined the network.
The Second Decade:
Fleet comprised Douglas DC3s, Herons and Doves, until Fokker F27 turbo prop aircraft replaced older aircraft in 1968. The same year saw the introduction of onboard service, with cabin attendants and in-flight meals. The acquisition of a BAC1-11 saw GF enter the jet age and services to London commenced using a VC10 in April 1970. Bander Abbas, Bombay, Dubai, Karachi, Salalah, and Shiraz were launched.
The Third Decade:
The governments of Abu Dhabi, Bahrain, Oman, and Qatar purchased BOAC’s shares in 1973. With the Foundation Treaty of January 1, 1974, Gulf Aviation Company became Gulf Air, the national carrier of the four states. L-1011 TriStars and B737s joined the fleet in 1976. Staff numbered 4,000 by the end of the decade. Amman, Amsterdam, Athens, Baghdad, Bangkok, Beirut, Cairo, Colombo, Delhi, Dhaka, Hong Kong, Jeddah, Khartoum, Larnaca, Manila, Paris, Ras Al Khaimah, Riyadh, Sanaa added to network.
The Fourth Decade:
In 1981, Gulf Air became a member of IATA. By 1985, Gulf Air employed 4,500 staff, comprising 41 nationalities speaking 23 languages. The airline introduced a three-class cabin configuration on long haul flights – First, Falcon Business and Golden Economy Class. The Gulf Aircraft Maintenance Company (Gamco) opened in Abu Dhabi in 1987. Boeing B767 joined the fleet in 1988. Frankfurt, Istanbul, Damascus, Dar es Salaam, Fujairah and Nairobi launched and services to Shiraz and Baghdad resumed
The Fifth Decade:
GF’s 40th anniversary. The current Balenciaga-designed uniform was introduced. Falcon reservation system introduced in conjunction with Sabre. Beginning of a new five-year US$ three billion investment programme, to increase network, expand and renew fleet and improve products. Singapore, Sydney and Trivandrum launched. Beirut resumed.
1992: GF is first Arab airline to fly directly to Johannesburg and Melbourne. Amsterdam and Manchester launched. Tehran resumed. Airbus A320 joined the fleet (May). New Bahrain Headquarters opened in December.
1993: GF Flight Simulators Center opened in Qatar (February), offering training for GF and other airline’s pilots on B767s, Tri-Star L10-11s, A320s and A340s. Casablanca, Entebbe, Jakarta, Kilimanjaro, Madras, Rome, Sanaa, Zanzibar and Zurich launched.
1994: The state-of-the-art Airbus A340-300 joined the fleet in May. A new multi-channel in-flight entertainment system was installed on the entire long-haul fleet. The FALCON Frequent Flyer Programme was introduced in December. GF carried 4,8 million passengers (+ 6%) and 140,407 tones of cargo (+ 27%).
1995: Passenger uplift broke five million barriers for first time in GF’s 46-year history, (+4%). August saw more than half a million passengers carried for the first time in a single month, averaging more than 18,000 each day. GF won ‘Best Passenger Service Award’ from Air Transport World magazine.
1996: H.E. Shaikh Ahmed Bin Saif Al Nehyan took over the position of President and Chief Executive of Gulf Air. Shaikh Ahmed is the first UAE national to hold this position.
1997: Gulf Air opened its official Internet homepage at: http:/www.gulfairco.com
Today’s Business Philosophy For The Dynamic Global Market:
In today’s world of global business and markets every organization needs to have a direction. The companies need the direction as well as the well-defined strategies, policies, planes and long term as well as short objectives. The mission statement provides the direction for the company. The mission statement is a declaration for an organization’s “reason for being”. It answers the pivotal question, “what is our business?” A clear mission statement is essential for effectively establishing objectives and formulating the strategies.
A business mission is the foundation for priorities, strategies, plans and work assignments. It is the starting for the design of managerial jobs and above all, for the design of managerial structures. Nothing may seem simpler or more obvious than to know what a company’s business is. Actually, “ what is our business?” is almost always a difficult question and the right answer is usually anything but obvious. The answer to this question is the first responsibility of strategists. Only strategists can make sure that the answer makes sense and enables the business to plot its course and set its objectives.
The mission statement is important because
- It ensures the unanimity of purpose within the organization.
- It provides the basis, or standard for allocating organizational resources.
- It establishes a general tone or the organizational climate.
- It facilitates the translation of objectives into a work structure involving the assignments tasks to responsible elements with in the organization.
Unfortunately after all my discussion and after raising the points in the favor of mission statement I am going to announce that I have not come across the business mission of the organization. Although the Gulf Airlines is quite a big organization and it has expanded its operations in the past ten or fifteen years. The organization seems to lack the culture, which leads to the success in this global world where the boundaries are disappearing day by day. I would like to suggest a mission statement for the company. i.e.
“We are committed to being the best in the global market in bringing the people closer to their dear ones by combining the state of the art technology, our experienced staff and the centuries old Arabian hospitality.”
The External Analysis:
Every organization must be responsive to its external environment. Because the external environment is not under the control of the organization so it must be agile, alert and act according to the demands of the external stimulus. The external audit reveals and uncovers factors including demographic changes, demand patterns, economic situation, political situation, legal barriers, social and cultural variables.
Product or Services:
Identifying the demand for new products/services in time and to respond before competitors is the key to success. The organizations encapsulate itself rather it must analyze the services of the current market leader as well as the services of its competitors. In this case the competitors are Emirates Air lines, Saudi Airlines and all those, which operate in the gulf region as well as in all those parts of the world where the Gulf Air is operating. Understanding the strategies of the competitors about the products and services and about the launch of new services is very vital for the existence in the global markets.
The Gulf airlines should have the proper knowledge of competitors’ market development, product development, market penetration, forward and backward integration strategies as well as diversification strategies and strategic alliances.
An effective promotion strategy enlivens a company. There are different means of promotion for products and services. The most popular in the today’s world is the Internet, Television and the Newspapers. The website of the company should be very attractive as well as user friendly and carry all the necessary information. The website of the Gulf Air line is attractive but there is room for improvement. The language usage needs improvement but I don’t mean to say that it should be difficult words or those words, which are not in common use. The words should be eye catching and magnetic. Presently there is a spelling mistake and it does not create a good impression on the visitors. These kinds of mistakes should be eliminated. Research on consumers behavior has shown that one dissatisfied customer on average tells 14-19 other potential customers about his/her dissatisfaction. The website of Gulf Air line needs to be improved.
The other way of advertising is through the television. I haven’t seen the ads of Gulf Airline on the local channels in Pakistan. A large number of expatriates watch channels like Ptv and especially during Mid-East time. The main focus should be on the international channels but 10-15% of the advertising budget should also be spent on the local channels.
If the product or service is of premium quality and it has been successfully positioned in the minds of the consumers then the organization should go for the premium pricing strategy. As Gulf air is targeting First Class passengers so it should follow The High Active Strategy. The company should emphasize the high standards of services and the price because it reflects the standards.
If the company is focusing the business class then it should stress upon the high standards of quality but the price should not be too obvious. This is the High Passive Strategy. When the company is targeting that class of passengers who are price conscious but they don’t want to compromise on the quality of the service then the best strategy would be the Low Active Strate
There are many pricing strategies to follow. But the wise decision is to see the going competition and the purchasing power of the customers. One approach is to follow the market leader. The second is pricing the product or service according to the prices of the competitors. The other approach is cost + pricing. As the world is shrinking day by day and the distances between the markets are disappearing. So the need of the time is to have a sensible look at the pricing strategies of the competitors. The other thing, which is also very important, is the economic situation and the purchasing power of the customers. These facts are ineluctable and inevitable. Pricing strategies are very important because they convey the signals about the product or the service and most of the times about its quality.
Price is also an important tool of the marketing mix as it
- Signals to the buyer.
- It is an instrument of competition.
- It improves the financial performance of the organization.
- It is a marketing mix consideration.
- The only “P” that brings in the revenue.
Deciding which buyers to target and how to position the firm’s services for each target are the foundations of the marketing strategy. These decisions set the framework within which the marketing program is developed and implemented. Good targeting and appropriate positioning strategies offer the company an opportunity for superior performance. Selecting a good market target is one of the management’s most demanding challenges. For example, should the organization attempt to serve all people who are willing and able to buy a particular product or service or instead selectively focus on one or more subgroups? Study of the product market, its buyers, the organization’s competitive advantages, and the structure of competition are necessary in order to make this decision.
Targeting and positioning strategies consists of
- Identifying and analyzing the segments.
- Deciding which segments to target.
- Designing and implementing a positioning strategy.
The following targeting approaches may be very helpful.
If the segments are clearly defined and the firm is interested in extensive targeting then the organization goes for “ multiple segments”
If the segments are clearly defined and the organization is interested in selective targeting then the organization goes for “ selected niche”. When the segments are difficult to identify, even though diversity in preferences exists, companies may appeal to buyer through product specialization or product variety. If the company is after the extensive targeting then Product Variety should be followed and if the organization is interested in selective targeting then the Product Specialization Strategy is appropriate
Open Skies Is the Future:
“Open Skies” a term that refers to the process of deregulating the air transportation services is gaining currency through out the world. It proved its success in the 1990’s. In 1995, the USA and Canada signed a new bilateral air services agreement. The deal allowed for unlimited non-stop air service between two thirds of the 100 largest U.S cities and any major Canadian cities that previously did not have air service. The new agreement will greatly expand air traffic between the two countries. The open sky is the strategic step, which the developed nations are undertaking and it should also be followed by the big airlines of the world. I think that the Gulf Air Line should have open skies with all the Muslim countries where the operation are successful. I think that it will also lead to the cost cutting and expansion of operations of the Gulf Air further. The agreement should be signed with all those countries where the situation is favorable and by considering all the long-term policies, objectives and strategies. Gulf Air should go for such agreements, but only after the careful study and feasibility report. The agreement will also help in the European countries. This is a horizontal integration strategy and it may be helpful. The call of the hour is the strategic alliance between the larger firms. The large firms usually join hands and cut costs and increase the standards of their services and thus increase prices, which lead to their increased profitability. The two such alliances are STAR ALLIANCE, which has 15 members, and the other is SKY TEAM, having 4 members. The Gulf Air should consider a strategic alliance.
The Meaning of Quality Service:
GULF AIR‘S main goals and objective for each area of Airport Services has been defined and action plans implemented both at head-office and all airports, to ensure customer services is provided to the highest level possible with the resources provided.
Quality + Care = Service
Striving for continuously improving Customer Services at all stations to ensure GULF AIR always provides a better service than the rest..
The aim should be to provide the highest level of service to valued customers.
- The service must be superior to competitors, and the service offered should be of a personalized nature,
- As Gulf Air’s major service asset is based on its culture, infrastructure and staff, it is in a position to offer a friendly personalized service so that it’s customers really do experience a ‘World of Difference’.
Gulf Airline aim within Customer Relations is to maintain a relationship with it’s customers after they have travelled, and to ensure they wish to travel with Gulf Air again. It should endeavor to respond quickly and appropriately, whilst providing other departments within Gulf Air with the feedback needed to improve it’s services.
The main role of Customers relations team should be to have fully trained and experienced professionals to respond to comments and concerns about passengers
E-ticket is the paperless electronic ticket from an airline company. It’s paperless because when a passenger books an e-ticket the details are safely stored on the booking system so there is no need to sending a paper ticket. It is easy to get an e-ticket. Now its time for Gulf Airline to think about new innovations in services.
The Overseas Offices:
The overseas offices are very important and should be filled by those people who are very responsible as well as hardworking. The sales and marketing are the two key departments in this kind of a service industry. For any organization to succeed the marketing and sales department in the overseas offices should be very strong. The importance of overseas departments is doubled as they are representing the organization in a foreign market. I think the organization needs to develop and improve its departments of marketing and sales in the foreign countries (specially in the Pakistan).
Interlining is an agreement between two carriers to facilitate connecting traffic, and involves them charging less for a combined ticket than for two tickets purchased separately. The carriers also facilitate baggage handling and ticketing for connecting service. Interline agreements should be on commercially reasonable terms and conditions.
Customizing the Services According to the Customers’ demands and expectations:
The successful organization is that which is very much responsive to the demands, needs and expectations of the customers. The customers usually care about the following things.
- Telephone and on line booking facilities.
- The customers want enough time on the telephone booking so that they could compare the airfare of the different companies.
- The complete information in case of delays.
- The complete information of the policies of the airline, which can affect the customer’s journey.
- The customers want customized facilities and services for the disabled persons.
- The customers also want a sense of responsibility and caring by the organization when they are sending their children all alone.( under 10 years of age).
- The complete information about the refund policy of the Airline.
- The entertainment facilities during the flight.
- The leg space and a comfortable seat.
- User-friendly websites.
The Performance Of Asian Airline Industry
The Asian airline industry suffers from the same over-formal organizational structures, which slow down decision-making shared by the industry as a whole, but also maintains several distinct negative factors.
The first is the “fat” which has built up over several years of fast growth and government patronage. Profits in Asian airlines benefited by the general strength in foreign investment in Asia, a soaring domestic tourism market fuelled by the new wealth of the Asian middle class, and increasing intra-regional business travel and freight. The even more dramatic decline in the value and magnitude of these sectors has found strategic and contingency plans wanting.
Secondly, most Asian airlines debt is in US dollars. With currencies devaluing across the board in the preceding 12 months from 90% at the high end to 20-30% at the low end, debt in at least one case has become impossible to service and in almost all cases a major drain on finances.
Garuda recently announced it would not be able to operate from January 1999 without a major cash injection. Indonesian domestic carrier Sempati, one of Tommy Suharto’s playthings flew its last sector 10 days ago.
PHILIPPINE AIRLINES has been dealt a major blow by a pilots’ strike, which grounded flights for an extended period. While the flash point was the forced retirement of a senior pilot during a staff restructuring exercise, the Rat’s insider suggests the major issue was the pilot’s unwillingness to take a package that included a stake of ownership in the airline in lieu of a portion of salary.
If so, this is does not augur well for not only the whole industry but also for Asian business as a whole. Any form of employee participation, of which shared ownership is a high value option, is extremely foreign to most Asian business and organizational designs. Few exceptions exist, one successful model being ACER in Taiwan. It requires a massive turnaround in values and expectations. Just as the populace let governments take major control in return for salary goodies, the same politics rules in organizations. The boss’s profits were not questioned. In return for rising standards of living via pay packets, employees gave loyalty (for as long as they couldn’t find a higher paying job) and all care… but little responsibility. Turnover rates soared and training and development was given a low priority, as training investments would be lost on the departure of an employee. Employees became commodities and not partners in a business. Smart global minded businesses will increasingly ask for increased responsibility from employees, and this is a big ask in traditional Asian paternalistic organizations. Employees are not as used to taking responsibility for performance as they are with “serving”.
Almost airlines have cut routes and are discounting heavily to retain the share of a dwindling customer base. Cathay Pacific continue to make staff cuts, Thai Airways are looking for investors, (not only due to the crisis but also government privatisation initiatives), and Malaysian Airlines are on the defence after what is widely seen a botched restructuring job.
In amongst all of the trauma, Singapore Airlines are not only weathering the crisis well, but will come out the other end with substantial increases on their already strong market lead.
Some of the reasons… a flexible organizational structure, due to cutting levels of management over the past 10 years allowing decisions to be made as fast as possible in response to an unexpected crisis, increasing accountability, and Singapore’s more global strategies which have come to roost as globalization starts to take its toll of more insular economies.
Many of Singapore’s enterprises had done a good deal of work making their organizations leaner and more flexible, after realizing their exposure as a small country, even though with a large economy, to the fast growing economies of their neighbours and those outside the region. Partly by design, they were better prepared for any crisis. Organizational and strategic change is a long term and sometimes-painful process. These companies are well on the way, while many of Asia’s crisis-beseiged companies, they are caught in a Catch-22. There is neither money nor security for planned organizational and marketing changes, but change is essential.
Singapore Airlines WILL take a major stake in Thai… take it from the Rat!
Knowledge Management In The Airline Industry
Knowledge management in the airline industry has been radically evolving over the past decades. Information technology solutions have transformed the industry more than was ever imaginable. All functional areas of the industry have been affected by the transformation in some way, shape, or form.
Information technology management is critical for the airline industry of today. From as soon as a customer buys a ticket, to when that passenger leaves the plane, information technology is being used to make his/her trip more satisfying. The airlines use the information they collect from many different facets of the world in order to deliver their product in a more timely, correct, and satisfying manner. Today’s airlines would be crippled without their information technology.
When a passenger buys a ticket, the computer tracks everything the traveler does in relation to the airline. Airlines use such information for many purposes. One good reason to track that knowledge is to monitor profit. An airline can look at the past ticket sales for a given flight and see if it is profitable to continue to offer that flight. If only a small number of people are traveling that route, it may be economical for the airline to use a smaller plane for that route or to cancel the route altogether; thereby eliminating the costs associated with it.
Passenger information can also be tracked and analyzed to find key trends. For example, during the holidays the airlines expect to have over 30% of their yearly business. So airline management knows not to have any large percentage of employees out at that time, all planes should be functioning, all terminal repairs should be complete, and any extra hiring needed to handle the increased workload should be trained and ready to go for the holiday rush.
When the airlines have price wars, as in the late eighties, how does that affect ticket sales and overall profits? The data from the past can help answer those questions. Management, from the firms, can look at how changes in price from the past had affected sales and can draw conclusions of how a current price will affect demand. If demand is not greatly price elastic, then raising the price of a ticket will result in a small loss of volume but greater overall revenue. These are just a couple examples of how knowledge management can be used in the airline industry.
Many airlines use large database computers to track sales, flight capacity and usage, and scheduling. The knowledge in these systems is vitally important to the operations of the airline companies. The database allows the airlines to gather information, which can be used as a competitive advantage.
If an airline knows who flies when and when they fly, airlines can run special promotions and do focus advertising to those people who are most expected to travel. Different forms of advertising can be used to encourage those who do not normally fly to use the airline’s services. For example, United Airlines saw that their international flights to the UK were not fully booked during the holiday season. So to encourage people to travel during that time, United offered low cost tickets and a free rental car for two days to encourage people to fly the less popular route. By the use of that knowledge, United was able to generate profits on a route that would otherwise be losing money.
The travel agents that use the system experience some of the best benefits of the system. They are able to serve their customers in the best possible capacity by being able to access multiple airlines’ flight schedules and find the best ticket match for the customers’ needs. There is no longer any need for travel agents to be cross-trained in multiple systems since all the schedules are consolidated onto one platform. Communication costs, for both the travel agencies and the airlines were reduced because large data-transfers could be batched and sent in a single transaction. The agents also gained the ability to better coordinate multi step trips for the passengers. He/she could access multiple flight schedules simultaneously and find the best match to their customers’ needs. The knowledge in the computer systems allows the travel agencies to provide better service to their customers; which gives them a competitive advantage over the agencies that did not use one of the systems.
Another use of past trend analysis is to assist with scheduling. US Air developed a simulation model where a computer accessed ticket sales of the past ten years and used the information to forecast future sales demand. Then the expected demand was matched up against current flight capacity to find out where flights needed to be added or scaled back.
SABRE SOLUTIONS – AIRLINE PRICING SYSTEMS
SABRE Group Holdings is one of the most productive Information Technology firms in the world. They provide knowledge management systems to many of the Fortune 500 transportation firms. The company specializes in information technology for travel agencies, thirty-five thousand hotels, and fifty car rental companies. It is this information power that has propelled the SABRE Group to the top in information technology for travel use.
The star product in the SABRE Group’s product line is the SABRE Airline Solutions system. A vast network of seventeen mainframe computers with over 15.3 terabytes of storage power is responsible for the prices of millions of tickets. It is one of the most widely used airline reservation systems in the world and is the backbone for such airlines as American Airlines, US Air, and Canadian Airlines. It is a total control system to handle ticket pricing, flight scheduling, luggage handling, reservation logging, and cargo transport.
One of the biggest advantages of the SABRE package is the Air Price fares management system. It is a ticket price management tool that lets users analyze airline prices and adjust their own prices to take advantage of any demand fluctuations. The decision support tool shows the particular airline in question where there are price differences that may provide an opportunity for change that can result either in minimizing loses or maximizing revenues.
In such a fiercely competitive industry such as airlines, it is necessary to distinguish a company from all others in some way to stay alive. Knowledge management provides for this competitive advantage in the marketplace.
The knowledge management solutions for the industry have been evolving over time. Solutions are available for a great deal of business functional areas. Some of the major functional areas often controlled by knowledge management are airline pricing, flight scheduling, and crew/staff scheduling.
Before the introduction of information technology into the industry, such people as operations managers, to make decisions, used many tactics. Whether these decisions they made were appropriate or not is hard to say. The managers would often rely on past experience and specialized knowledge is used to make decisions. An example of this is in the area of flight scheduling. One slight miscalculation, especially in a flight schedule, can cost money or worse yet, lives.
In analyzing knowledge management solutions in general, we can use a SWOT analysis format. The following table shows some of the relevant strengths, weaknesses, threats, and opportunities of using knowledge management systems in the airline industry:
Although the above table offers both positive and negative aspects of IT in the airline industry, we believe that the positive factors definitely outweigh the negatives. Knowledge management solutions have become practically imperative to any sizable airline.
Beyond the advantages to the airline companies themselves, the use of knowledge management is also passed on to the ultimate consumer. Information technology translates into more efficient operations, thereby lowering prices and allowing for better customer service. The airlines that can provide customers with the best value, while also maintaining a high level of quality, will ultimately control a greater potion of the market for airline services. Knowledge management systems have transformed the airline industry into a highly efficient and competitive enterprise. The ultimate result of these systems according to SABRE will be “thoroughly informed managers making better decisions form the front office to the front line of daily operations”.
The competition with the Air India is on the high rise and the policies of the Air India should be studied and the management should adopt the appropriate and aggressive marketing strategies to get hold on the market share. The current situation of the Air India is as following.
- BOEING 747-400 (6)
- BOEING 747-200 (4)
- BOEING 747-300 COMBI (2)
- AIRBUS 310-300 (8)
- AIRBUS 300-B4 (3)
Air-India also has plans for induction of four more A-310-300 aircraft on dry lease effective December 2000.
- India: Ahmedabad, Amritsar, Bangalore, Calcutta, Chennai, Delhi, Goa, Hyderabad, Kochi, Kozhikode, Mumbai, Thiruvananthapuram;
- UK: London;
- Europe: Paris;
- Asia Pacific: Tokyo, Osaka, Bangkok, Hong Kong, Kuala Lumpur, Singapore and Jakarta;
- Gulf & Middle East: Doha, Abu Dhabi, Bahrain, Jeddah, Kuwait, Muscat, Riyadh, Dhahran and Dubai;
- USA & Canada: New York and Chicago;
- Africa: Nairobi and Dar-es-Salaam.
Our Turnover (1999-00)
Rs. 4662 Crores – (One Crore = 10 Million)
Our Code Share / Block Seat Partners
|Airline||Flights Per Week||Type of Aircraft||Sector|
|Swiss Air (SR)||4||MD11||BOM(Mumbai)-Zurich-BOM|
|Swiss Air (SR)||3||A330||Delhi-Zurich-Delhi|
|Austrian Airlines (OS)||3||332||Delhi-Vienna-Delhi|
|Bellview Airlines (B3)||1||AB3||BOM-Nairobi-Lagos-Nairobi-BOM|
|Scandinavian Airlines (SK)||5||767||Delhi-Copenhagen-Delhi|
|Asiana Airlines(OZ)||1||767||Seoul-San Francisco-Seoul|
|Singapore Airlines (SQ)||Daily||747-400||Singapore-Los Angeles-Singapore|
|Air France (AF)||1||343||BOM-Delhi-Paris-Delhi-BOM|
|Virgin Atlantic (VS)||2||747||Delhi – London -Delhi|
|Aeroflot (SU)||3||B-777||Delhi – Moscow – Delhi|
|Emirates (EK)||4||A-310-300||Dubai – Chennai – Dubai|
|Kuwait Airways (KU)||4||310/306||TRV(Thiruvananthapuram)-Kuwait-TRV|
|Air Mauritius (MK)||3||767/A34/744||BOM-Mauritius-BOM|
For the feedback purpose and to see the consumer satisfaction level a small research was done the Gulf Airlines. The questionnaire was designed to see what customers want and what they think about the services and the quality of the services. The questionnaire revealed many facts, which are the main cause of the slow business of the airline in the Pakistan.
Please encircle the appropriate answer.
- Do you travel by air?
- No (if no, then please do not proceed further).
- How many times do you travel in a year?
- Once a year
- Between two and four times.
- Five times or more than five.
- Your major portion of the traveling lies in the
- Domestic Traveling.
- International traveling.
- Please write the name of the Airline you travel when you are going abroad.
5.Have you heard about the Gulf Airlines?
- Did you ever travel by Gulf Airlines?
- If yes then how many times
- Three times.
- More than five times.
- Which of the following factors are in your mind when you are selecting Gulf Airlines?
- Easy Access.
- Services offered.
- Large number of flights.
- Large area coverage.
- Do you think that the telephone and on line booking facilities offered by Gulf Air line are satisfactory.
- Strongly agree
- Do not agree
- Strongly disagree.
- Do you think that Gulf Air line give you enough time on telephone booking to compare the air fare of different companies.
- Strongly agree
- Do not agree
- Strongly disagree.
- The Gulf Airline provides you the complete information in case of delays.
- Strongly agree
- Do not agree
- Strongly disagree
- The Gulf Airline provides you the complete information about its policies, which can affect your journey.
- Strongly agree
- Strongly disagree
- Does the Gulf Air line provide the customized services for the disabled persons?
- Will you allow your children less than 10 years of age to travel alone through the Gulf Airlines?
- Are you satisfied by the refund policy of the Gulf Airlines.
- The entertainment facilities provided during the flights are satisfactory.
- Strongly agree
- Strongly disagree.
.16. The Gulf airline takes actions against the customers’ complaint within
- Two weeks
- One month
- Three months
- Six months
- What is the best thing you like most about the Gulf Airlines?
- How would you describe the “Gulf Airlines”?
Yearly Income: (optional)
- Below Rs.250, 000
- Below Rs.400, 000
- Below Rs. 600,000
- Above Rs.800, 000
The above questionnaire revealed many areas of improvement. the results are as following.
Those who travel once a year by an airline: 33.92%
Those who travel between two and four times: 39.28%
Those who travel five times and more: 19.64%
Pakistanis use following airlines mostly:
SAUDI ARABIAN AIRLINES
Those who have traveled once by Gulf Airlines: 51.61%
Those who have traveled three times by Gulf Airlines: 22.58%
Those who have traveled more than five times by Gulf Airlines: 25.81%
%age of people who select Gulf Air lines because of the cost: 56.09
%age of people who select Gulf Air lines because of the easy access: 31.71
%age of people who select Gulf Air lines because of the services offered: 39.02
%age of people who select Gulf Air lines because of the larger number of flights: 21.95
%age of people who select Gulf Air lines because of the larger area coverage: 7.31
Telephone and online booking:
Strongly agree: 5.26%
Strongly Disagree: 10.52%
The complete information about delays:
Strongly agree: 10.52%
Strongly Disagree: 7.89%
The company provides complete information about its policies:
Strongly agree: 7.69%
Strongly Disagree: 10.25%
More than 50% of the customers said that they would not allow their children to travel alone on the Gulf Airline
Customers satisfied by the refund policy: 22.22%
Entertainment Facilities Satisfactory:
Strongly Agree: 15.78%
Strongly Disagree: 13.15%
The Best things about the Gulf Airline are its competitive fares, servicing and accessibility
Most of the customers described the Gulf Airline as “The Economical, Average and convenient for all kinds of customers.”
Suggestive Analysis of the results:
The percentage of people who travel by the Gulf Air Lines more than five times in a year is very low i.e.25.81% as compared to the percentage of those who travel three times. i.e.22.58%. The highest percentage is that of those who travel once in a year i.e.51.61%. So there is a need to develop and improve the services, which are provided to the customers. During the research, many customers complaint about the behavior of the reservation and ticketing staff. The larger percentage of that group consisted of the well-educated people with vast exposure. For the betterment of the Gulf Airline it is suggested that the Airline should try to maintain good relations and should keep its existing, past and the potential customers fully satisfied by its customer service programs and with a continuous feed back from its customers.
The important and competitive edge with the Gulf Airlines is its competitive prices, which are the needed tools for the company to strive for its larger share of the market in today’s competitive environment. During the research it was revealed that 56.09% of the customers always go for the competitive prices of the Gulf Airlines. The most liked issue about the Gulf Airline is its services offered during the flight. But many people also complaint about the food. i.e. the food is not appropriate. The telephone and on-line booking facilities are not satisfactory so they should be improved. Because only 5.26% strongly agreed that on-line booking and telephone booking facilities are satisfactory. This ratio should be improved. One of the ways is to improve the attractiveness of the website as well as making it more user friendly. There were 10.52% customers who strongly disagreed with the satisfaction of the telephone and on-line booking facilities. The customers are also not fully satisfied by the information given about the delays. The larger percentage of the customers is indifferent about the information about the delays. It means that company is not providing complete information and the information is also not provided in the effective way. 34.21% customers are indifferent about this issue and the 15.78% customers are dissatisfied with the information provided. 7.89% customers strongly disagree with the provision of the information.
When the customers are asked whether they would allow their children under 10 years of age to travel alone through the Gulf Airlines then 42.10% of the customers refused and said that they wont allow their children to travel alone. And 57.89% told that they would allow their children to travel alone. The conclusion of this issue is that there is still a room for improvement of the service provided during the flight. The entertainment facilities are good and if they are improved the results will be very good and the sales will increase.
The improve the sales of the Gulf Airlines in Pakistan specially the management must improve its customer services and the behavior of the ticketing and reservation staff must be made customer friendly and that staff must be considerate, kind, caring and thoughtful to the customers.
The positioning should be strong and advertising budget for Pakistan should be increased. The company must know its competitors’ strategies to counter them according to the need of the hour. The must have strategic alliance with other international Airlines.
Suggestions and Recommendations:
- There should a proper emphasis on the working and progress of the overseas offices, especially in those countries where the volume of sales is quite considerable.
- The company should improve its customers services in Pakistan for the betterment of its positioning.
- According to well-educated customers the company’s positioning is very weak as compared to its competitors.
- The company should have a proper mission and vision as well.
- The company must have a watch on the strategies of its competitors.
- The company must consider for having a strategic alliance with other international airlines as well as the airlines of the Muslim countries.
- The positioning strategies should be carefully developed and carefully implemented.
- The company should also consider for the strategic forward integration with the hotels and tourism agencies.
- The company must keep on improving its customers’ relations.
- The company should continuously get a feedback from its customers, so that it may improve the services.
- The company must go for those services, which are offered by its competitors.
- The websites must be made attractive and be very user-friendly.
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