Airline Industry Value Chain Analysis
Every organization has three main strategies that it applies to business. These include the information strategy, the organizational strategy and the business strategy. The value chain is a brilliant strategy that incorporates all the three. The value chain is a set of activities that an organization in a specific industry uses to operate their businesses (Grant, 2010). Every activity within an organization has to go through the value chain of the organization. It is a concept of business that was brought up by Michael Porter in a book he wrote about creating and sustaining superior performance in an organization. The value chain framework by Michael Porter helps firms look at specific activities, which they can incorporate. This helps them create value and competitive advantage (Porter, 1998). This framework involves certain standards, including the firm structure, human resource management, technology development and procurement. The primary activities of this model include operations, outbound logistics as well as inbound logistics, service to customers and sales, and marketing.
Inbound logistics concerns receiving goods, storage of goods, inventory control and scheduling of transportation (Porter, 1998). In the airline industry, there are extremely many companies that come into play in order to make it a success. These include aircraft manufacturers, food service companies, airports, local transportation service, fuel companies, aircraft leasing companies and labor unions. In case there is a breakdown in the accessibility, supply and storage of items from any of these above-mentioned companies, then there can be a break down in the airline industry. Efficiency in all companies, which involves proper supply and storage around each other, ensures a sustainable airline industry that makes maximum profits. If the fuel companies are not able to get their fuel to the aircrafts on time, then it means that the aircrafts cannot operate.
This has to do with everything that concerns equipment maintenance, assembly, packaging, testing and every other activity that transforms inputs to the end product (Porter, 1998). These include maintenance of the aircraft and constant repair as well as replacement of the worn out parts. There is a need for efficient operations in the airline industry. It should be efficient and technologically superior. Airlines employ specific companies that assemble their equipment and do follow up for purposes of maintenance. These must be specialized companies to ensure efficiency and safety of the airlines. They must coordinate, control and manage their repair work all around the world. This should not only be for equipment, but also for airport services, the runway and the service training for workers. This kind of management keeps the performance of the airline industry very high. These operations are mainly activities that prepare people for the transformation of the raw material into the final product.
These are the activities that must be undertaken to enable the finished product to reach the customer (Porter, 1998). For the airline industry, these include services such as making sure that those customers who order tickets on the phone or on the internet receive them, ensuring transport for customers who land at the airport to their homes, and distributing branches of the same airline evenly around the world so as to make life easier for customers. This also includes warehousing. Furthermore, it comprises receiving of goods or customers, inspection for the legitimacy of the goods and customers, verification, storing and retrieval of goods when needed in the future.
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Marketing and Sales
These are the activities that the airline industries take to ensure that the buyers purchase their products. They include such factors as the promotion of the product, retail management, which deals with the small-scale customers, and the channel selection (Porter, 1998). Marketing and sales also include pricing and selling of commodity through advertising. The development of using the Internet as the major distribution channel of the airline services has resulted in multiple benefits. A lot of tickets are sold through the direct online sales. The airline companies also have a lot of online marketing for their services. These are highly efficient because as one logs on to other pages on the internet, these advertisements pop up on the screen. These adverts are able to meet very many potential customers. Selling tickets online has certainly helped the airlines significantly cut distribution costs. Customers are also able to compare the products and the fares of different airlines. Customers can even evaluate the safety of the airline and their punctuality reputation through the internet. Such strategies help promote the product, and many opt to use the air as their preferred means of transportation.
These are activities that are aimed at enhancing the value of the product, support of the customer, repair of services, installation of new plans, in-service training, spare parts management and upgrading of the existing systems to the level of the current technology available elsewhere (Porter, 1998). Every airline company in the industry is making a substantial effort to maintain their standards. Upgrading of systems begins with the internet upgrades to the latest applications available. These include the online purchase of tickets, keeping records of tickets sold online and proper communication with the customers that enable the organization to meet all its needs effectively. There is also upgrading of equipment used in flying. Very many innovations are emerging every day, and all airlines make an effort to have the latest technology possible.
Customer support helps the customers receive the right service that they are going for. Most airlines have employed customer service providers who are available on the phone and online for any questions that customers may have. The airlines also incorporate the in-service training of their personnel whenever they bring in some new form of the machine or technology. This increases the efficiency of the airline industry (Hitt, 2010). Pilots, technicians, hostesses, office assistants and mechanics have continuous training so that they can keep with the technological advancements.
Procurement deals with the acquisition of raw materials, service providers, spare parts, machines and buildings. Raw materials are bought when a plan for their use becomes prepared. This ensures that all that is bought is relevant to the industry, and wastage is minimal (Porter, 1998). Spare parts that are purchased by the airlines are compatible to the type of aircrafts that they have. These are better purchased when the market prices are fairly affordable. Those that become employed in the airline industry should be professionals who have adequate training in the field that they are working; this is more so for the pilots. An airline cannot gamble with pilots, they must ensure that all their pilots have undergone intensive training that will ensure safety and punctuality for them. Technicians who handle aircrafts must also undergo rigorous training to avoid faulty airplanes in the air. The airline buildings should be located at strategic points. These should be easily accessible and should also be a bit far from the towns, so that when the planes land or take off, they have enough airspace to do so. This is because the majority of the urban areas have skyscrapers.
Research and Development
In the airline industry, there must be continuous research on new things that are coming up so as to ensure the improvement of the sector. This also is done so as to ensure continuity of the industry and to keep the customers interested in their services (Grant, 2010). Research also leads to development when the airlines come up with faster and easier ways of doing things. Every industry has a section for research, and the airline industry is not to be left behind.
Human Resource Management
This deals with everything related to recruiting, retention, and compensation of employees and managers. Without employees to operate the machines, the airlines cannot work efficiently. Recruiting, remuneration and retention of employees are extremely critical aspects of ensuring maximum production of goods and services. Therefore, the airline industry works extremely hard to satisfy the employees as much as the customers.
Planning and management in an organization is also extremely influential. Airlines ensure that the legality, finance, accounting and public affairs are all managed properly so as to ensure productivity (Hitt, 2010). Proper planning and management leads to profit-making in an organization.
Profit Pools of the Airline Industry
These are all the profits earned by the airline industry's value chain at all points. In order to survive and make a profit in the tough environment, airlines manipulate three key variables: cost, which is calculated by dividing of the total operating expenses by ASM (available seat miles); yield, this is calculated by dividing of the total operating expenses by the RPM (number of revenue passenger miles); and load factor, which is derived from the ratio between ASMs and RPMs and serves as a measure of capacity utilization.
The airline industry is able to make large profits and maintain them. This is because they have laid down a strategy to enable them to be able to do so. They possess the latest technology, machines and manpower. Employees' skills and attitudes ensure quality service and a lasting profit pool (Sekhar, 2009). The company's designs are also extremely attractive, and this enables them to maintain customers. For example, the planes are spacious and comfortable and offers for drinks as one travel keeps many customers coming back. This enables them to maximize profits.
They have the advantage of speed, which makes them extremely convenient for the customer. This also makes them earn enormous profits and maintain them. Majority of the airlines are also like alliances. This is because at the airport, their offices are generally next to each other and they also share the runways at the airports. This helps them to share ideas or even resources, for example, when repairing the runways. Less competition in this industry will mean that everyone can sustain their profit fairly well. The profits made by the airline industries are, therefore, substantial and sustainable, according to the Michael Porter value chain.