North American airline industry Recovery Needs
However, the recent global economic recession saw many airlines revenues plummeting as a host of factors worked together to impede their profitability. As such, there is a dire and urgent need for airlines to reinvent themselves if they are to go back to sustainable profitability. This paper discusses some of the possible ways through which airlines in North America can achieve such an economic recovery so that they can be in a position to become profitable once again. This profitability ought to be sustainable so that there is not experienced a case where there are seasons of profitability alternating with seasons of loss-making.
The Global Economic Crisis
Although the recent economic downturn had worst effects in the financial sector where it began, the effects poured over to the air transport sector as well. There are many factors that have made air transport a very volatile sector, including but not limited to the intense competition among the players in the industry. The other factors that impact air travel and which are in need of addressing if there is to be witnessed a steady recovery of the industry include the world economic cycle, weather and climatic patterns, the order of world politics, fuel prices, interest rates, cost management approaches, among others. Although these factors have been in play over time, their effects to airlines has been greatly felt in the recent economic recession. To achieve traffic growth once again, these factors will have to be examined and acted upon appropriately.
External Factors in Play
There are a number of factors outside the industry which have a hand in the overall performance of the industry. These include the following
The Political Climate
There has been a recent rise in calls for airlines to do more to reduce their air pollution levels. While this is a good move environmentally, it is ill-timed and can cause a lot of harm to aircrafts because right now they need more income to restructure and so have no way of investing in green fuels. In fact, the issue of fuel ought to be addressed on its own. The very high fuel prices are hindering the profitable performance of the airlines.
Regulation and Deregulation
Although the airlines have enjoyed more freedom in their operations since the Airlines Deregulation Act was enacted, the move has created a lot of unnecessary competition and it is time the federal government considered regulating the industry again to shield the existing players from unfair competition, especially from airlines from outside North America. Regulation will also ensure that there is assigning of routes to specific carriers, a move which will effectively make airlines to specialize and so maximize on those particular routes instead of the current trend where they are driven into markets that are not viable, resulting in losses.
Internal Factors
There are other factors discussed next which are within the industry itself and which affect their operations
Cost Management
The ability for airlines to effectively manage their costs can go a long way in ensuring that they are able to operate fairly well without incurring undue costs which are difficult or impossible to shoulder. Every airline ought to have a cost management structure that ensures that its total costs are kept at a minimum so that, keeping other factors constant, profit margins can be expanded. This is a time for airlines to restructure themselves by reviewing their budgets for the future. Among the specific measures they can adopt include cutting on recurrent costs by ensuring that they have no more staff, including cabin crew, than they are actually in need of.
A firm cost discipline is what it will take for many airlines to re-emerge form the current struggle to cope financially. While revenue collection ought to be emphasized as well, it is necessary that all costs are kept at a minimum. Other possible ways through which costs can be cut include reducing or even halting operations on routes that are not profitable enough or that are unsustainable seeking to have more fuel-efficient aircrafts and those that are cheaper to maintain and enhancing their use of information technologies so that services like ticketing, booking, checking in, luggage inspection and loading can be done electronically.
Improve Customer Service
The customer is the target of every airline and the more airlines are able to attract more customers the faster they are likely to recover. Attracting and retaining customers is paramount and depends on how well they are treated and served. In order for airlines to recover from the financial crisis, they need to do a lot more targeted marketing and also seek to keep the existing customers. Market segmenting can best allow airlines to understand individual customer needs and so serve them better. Establishing relationships with customers will go a long way in helping airlines to cope with reduced demand. Data mining is also a very important factor in improving knowledge on customers, which in turn helps improve service delivery. As much information as possible about customers - especially information collected through direct interviews - is important in ensuring that there is an understanding of their needs.
Employee Welfare
The place of employees can never be taken over whatsoever, even if technology is widely applied. The crisis which airlines are experiencing now is partly due to failure to treat their employees as required. As a result, constant squabbles and crises between employees or their unions and the airlines has caused a lot of revenue losses due to delays or cancelation of flights due to strikes or other forms of industrial action.
Airport Charges
Another very critical factor that has been affecting the profitability of airlines is the levies charged at airports. Airports located in main cities have been particularly responsible for charging high levies as fees for using them. Although all models of airlines have been affected by this trend, low-cost airlines have particularly been affected, forcing most of them to operate on routes which are less popular and to use airports in smaller towns and cities where such levies are comparatively lesser. If there will be a recovery of airlines, therefore, it is critical that these levies are somewhat lowered or charged to airlines commensurate with their revenue bases. Otherwise, governments in the USA and Canada ought to consider waiving these charges and fees especially to airlines that have been worst hit by the recent economic crisis and are still struggling.
Monopolistic Tendencies
In the past, there has been a tendency for airlines in North America to have a form of dominance of certain routes and to have certain hub airports where other airlines have nor been so welcome. This has impacted negatively on the need for free operations. Airlines are to be more competitive and to venture in routes which are historically dominated by certain airlines. In essence, there has to be an expansion program in which airlines seek to have more areas of operation.
Economies of Scale and Scope
Expansion ought also to include the provision of other services andor goods which will make airlines more competitive and serve as an additional source of revenue. Low-cost airlines are particularly prone to low revenue collections by virtue of their business model. If they can hope to compete effectively and increase their revenue base, then they will have to invest in a lot more revenue-generating services and products. These might include charging customers for services like drinks, foodstuffs, and many other onboard services.
That aside, there are many benefits that are associated with economies of large scale production. Airlines ought to seek to expand their operations both in scale and scope so that they can enjoy such benefits. With a world that is increasingly embracing globalization, economies of scale and economies of scope ought to be tapped for profitability to be attained and sustained. Established airlines have throughout the recession proved to be least affected by the effects of a slackening economy when compared to smaller, emerging aircrafts. Therefore, it ought to be the goal of every airline to seek to grow and become large in size and scope. The need for airlines to stay afloat as far as their profitability is concerned is very important because as a sector that is critical to the national economy, air travel ought to be kept flourishing.
Conclusion
The need for airlines to return to profitability after a long spell of unprofitability caused by the recent economic crisis is an urgent one. Although a number of airlines in North America have already returned to profitability, others are still struggling to deal with the effects of the economic crisis. It is paramount that airliners are able to achieve sustained profitability and avoid a repeat of such a phenomenon in the future because the economies of the region are largely dependent on the industry. All efforts from both within and outside the air transport industry ought to be used to ensure that all impediments to the prosperity of the airlines are removed, their place taken over by forces deemed capable of bringing about profitability. The faster these measures are able put in place, the higher the prospects for a quicker recovery and subsequent return to profitability.