Operations management assignment on: Challenges by airlines & aviation industry

Challenges or pressures which have been faced by the airlines & aviation industry for the past many years have made the airlines to rethink about their businesses in terms of both financially as well as in the operational level. Most the airlines have faced many types of challenges which have resulted in successfully reinvention of the same. Though there has been a consistent rise in the fuel prices but still the airlines are in a profitable situation as there has been a rise in the air travel (Yilmaz, 2008).Restructuring & cost cutting has been the major challenges which are being faced by the Asian & European Airlines. Rethinking about the same would help both the airlines to secure them in long run. The aviation industry has come through one of the toughest periods in the past 30 years. North American airlines have been quite slow in order to accept the various challenges & face major cost cutting which led to a decrease in the overall efficiency. The aviation industry is in an excellent position to face the challenges which might come in the future years.

These days one of the major pressures being faced by the airlines industry refers to higher cost pressures. It has been seen that large airlines such as Kingfisher Airlines, South West Airlines, etc have been facing this problem from quite a long time. To support this fact, Kingfisher Airlines could face an additional cost pressures as the insurance premium may become harden for the airlines. According to the reinsurance brokers, the airlines have claimed $17 million for the heavy amounts of loss which has occurred when the airline flew from Bhavnagar to Mumbai. According to the officials, Kingfisher Airlines, the air plane skidded off the run way while landing at Mumbai. The regulator in the aviation industry classified this damage as an accident rather than classifying it as incident. This accident has led to push the insurance premium by approximately 10% & has led to the factors which referred to high cost pressures (Bisignani, 2006). According to one of the sources of Kingfisher Airlines, the marginal increase in the cost of insurance was due to an increase in the wide spread aircraft deployment. The co insurers for this renowned aircraft are Bajaj Allianz & ICICI Lombard. The share of the co insurers varies from 10%-30% respectively for the respective airlines as well. The total annual premium paid by the domestic airlines of Kingfisher has been estimated to be approximately $60 millions. The insurance would include the hull of the aircraft, liability of the passengers, damager of property, etc. The premium for the same would vary from 0.5% to 2.5% depending upon the value of the aircraft. The number of accidents in case of the aviation sector has been rising since last year (Phadnis, 2011).  All across the globe, the entire amount for the liability premium has increased & crossed %2 billion in the year 2010. This indicates that the rate of insurance is still quite hard to accept & repay. It has also been seen that, the total premium for the entire aviation sector has been on a rise & has touched $ 1.9 billion as compared to $ 1.6 billion in the year 2010. After the 9/11 attacks, the rate for reinsurance have been on rise & has led to high cost pressures for the aviation sector (JetAviator, 2011).Unprecedented pressures have been faced by the airlines industry for the past many years from now. To quote an evidence for the same, Southwest airlines have been known as the star of the airlines with high levels of growth & enormous amounts of profits as well. In the year 2009, this airline had incurred a loss of approximately $176 million. The airlines is trying to retreat the airlines by cutting up its flights, slowing down the flow of new developments in the existing airlines, further expansion in the industry, etc (Yilmaz, 2008). The Southwest Airlines used a fuel hedge program which helped the airlines to have an added advantage over its competitors. This program turned out to be a huge flop when the price of the fuel was pushed. Known as low cost airlines, Southwest airlines have incurred high levels of expenses. The share for these particular airlines has been declining. The approximately rate by which the shares have been declined is 40%. The evidences also show cases that, there has been a dip of 18% in a day in the price of its shares thereby making it one of the largest dip for the organization. The Southwest Airlines is in a transformation stage. This means that the organization has been hit by some real challenges (Bisignani, 2006). The Southwest Airlines has been discounting the fares of the airlines in order to grasp more customers & pay off its dues. The sales of the tickets for these particular airlines have not been up to the mark as compared to the previous years. Though the airlines is well prepared for the tough times & plans to begin a low fare alliance the main focus was upon the business travelers & the various strategic moves for its customers. Southwest airlines have been regarded as one of the most formidable competitors amongst the aviation industry. The Southwest airlines have made significant progress in doubling its money. It has teamed up with a Canadian airline in order to create a low fare airline. This would help in order to compete amongst the various competitors prevailing in this industry. The Southwest airlines are also trying to move some of its resources to different areas in order to generate high levels of revenues. In addition to this, the Southwest airlines have also highlighted its balance sheet with high amounts of finances in the recent years. The airlines have drawn $400 million from its credit facility & at the same time raise approximately $400 million through loan & collect $173 million form a lease back deal of the aircraft (Star Telegram, 2009). The airline has also approximately $ 1.8 billion to recover from all the losses. Hence, in order to meet the unprecedented profits or growth, Southwest airlines have revamped its Rapid Rewards flier program in order to make it more attractive to the business travelers along with the regular travelers. They also hope to provide a wireless internet facility to all its fliers free of cost. The airlines have also focused to transform the entire airlines in order to attain a strong position amongst the aviation industry (Zea, 2008).Competition, cost of fuel has been the leading challenges amongst the aviation industry. Air Pacific has been hit by such kind of pressures. The evidences states that, after completing two long years being the low cost airlines, Air Pacific has taken up a right path to meet the level of competition (Global Airlines Industry Program, 2011). The low cost airlines have been referred to as one of the major competitors but their primary focus is to focus upon the well established routes rather than focusing upon the pioneering work. In addition to this, Air Pacific has decided to remain as one of the full time service airlines. Air Pacific is finding quite difficult to maintain viability due the excessive competitive pressures prevailing in the aviation industry. According to one of the evidence, once the airlines had achieved $16 million before tax in its current fiscal year, the fuel bill rose up to 35% out of its total expenditure (Island Business, 2011). The amount of profits earned by the airlines dipped by 40% as compared to the last financial year. The Air Pacific has been losing its competitive positioning in the various locations such as destinations of Asia, Pacific, etc. Thus, increase in the levels of competition, excessive fuel cost pressure on Air Pacific led to major challenges for the same. At the time when, airlines had reduced its airfares & were struggling through tough times there were many ways through which profits could be raised. But, it was not convenient for the airlines to make an investment & kill the goose that lays golden eggs (Bisignani, 2006).Thus, the various challenges or pressures’ being faced by the aviation sector has led them to slow their pace of growth. Restructuring & cost cutting has been the major challenges which are being faced by the Asian & European Airlines. Rethinking or revamping about the same would help both the airlines to secure them in long run. The aviation industry has come through one of the toughest periods in the past 30 years.

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