How Low Cost Airlines Gain Competitive Advantage

June 27, 2016 | Author: CheapestPapers | Category: Types, Research, Business & Economics
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Introduction Airlines companies have lost millions of dollars in the past number of years; some of them are even facing bankruptcy and no idea how to salvage what they have lost. Southwest Airlines, however, has a passion of maintaining costs low and taking care of its staff as well as managing the company in times of boom. This is the secret to its triumph. This paper looks at how airlines like Southwest gain competitive advantage by operating at low cost. Low cost carrier This feature comprises of low flight fares and fewer on board comforts. To recover money lost in reduced ticket prices, extras like food, luggage, is charged separately. In spite of this operating model, this feature should not be confused with any service short flight policy. Several airlines promote themselves as low budget airlines to keep their clients, at the same time preserving products related to the conventional key carrier services like beverages, audio as well as video entertainment, and wifi internet and so on. Publicizing itself as a low budget or discount helps to access many travelers to appear cheap and affordable to all (Button, 2011). General practices An airline practicing the low cost carrier feature operates with an aircraft constructed to handle just a single class of passengers. Formerly they used old aircrafts like older models of Boeing 737, however, since 2001; smaller, new fuel efficient aircrafts are being used.( Neufville, 2008). These comprise the Airbus A320. This move has led to reduced costs in training as well as servicing the aircrafts. Operation of aircrafts with



minimum equipments that are optional leads to low acquisition, as well as maintenance costs hence maintaining aircraft weight at a low level, therefore saving fuel. In the history of south west airlines, luggage is not transferred from one aircraft to another even though both flights belong to south west air lines. This move encourages the travelers to get tickets for direct flights. South west airlines operate a point to point service their centre of attention being towns which act as mini hubs for traveler connections to other cities, for instance, southwest airlines control the market in California, managing many flights in northern, as well as southern California, for a low ticket price of $30. This is a strategy to increase destination coverage as well as preserve its market. It offers an uncomplicated fare system for instance charging one way tickets half the price of return tickets. Normally, ticket prices increase as the plane continues to fill up, but early reservations are compensated (Evans, 2011). The airlines employees in most cases carry out several roles for instance, cleaning the air craft, or manning the gate hence cutting down on personnel expenses, southwest airlines are an example of fuel equivocation so as to decrease fuel costs. Employee perception Treating employees well does not mean giving them enormous paychecks. At southwest, some of the workers earn lower salaries than those working for competitor companies, the stocks are available to everyone working at the company, not just the executives. This enables them to share in the company’s financial success. In addition, the company has a policy to give its employee’s job security. Having happy employees saves money as handling employees in a satisfactory manner results to a range of non financial



actions. Officers at southwest, when receiving a pay raise, the amounts are no larger, proportionately than those of other employees; more so during recession reduction of salaries is fair to all in the company. Employees at southwest airlines have the freedom to go beyond their responsibilities in their work, for them to deliver professional customer service. The staff generates quality service to the airline’s clients Due to this hierarchy (Swan, 2006). Marketing Through insistent marketing approach, the airline differentiates itself from the rest, by corresponding with clients on the quality of service they offer. However, lowering ticket prices is not enough competitive advantage. If an airline competing with southwest announces increase in fare prices, southwest is obligated to act in response to these developments, it has to do this at the same time preserve its existing low cost of tickets and still raise its daily profits. Southwest airline can raise its existing tariff by half what the competing company is offering, to accomplish this goal (Freiberg, 2001). The airline advocates itself, as the best in the industry by offering, low cost safe as well as reliable exceptional services. Instead of competing for customers with other airlines, southwest identified two kinds of client, leisure price sensitive and time oriented clients. Its goal is to satisfy the two kinds fully and retain them. (Morrell et al, 2006). Client reward system Southwest Airlines operate a reward program to its staff. The program is based on how often a passenger travel’s with the air line, and not the number of miles a passenger flies, in that the more a client uses the airline, he gets a bonus, for instance paying half price for a return ticket, as well as transportation to the preferred hotel from the airport,



more so winning fully paid family vacations, same day delivery service, The dedication to this assurance earns the company acknowledgments well as an excellent client contentment record (Gittell 2005). Client satisfaction Southwest airlines mission is high quality service delivery to its clients with the wisdom of company spirit and friendliness. The airline has successfully met the most essential needs of their clients, for instance, at ticket counters, travelers do not wait in queues. The airline has online ticket purchasing where one can make a reservation at home, purchase and print the ticket. More so if a client would want to reschedule a flight, the airline makes it easy and convenient. (Pfeffer, 2009) Southwest airline, unlike other airlines, offers spectacular low travel rates to its clients, and guarantees them a safe plus secure moreover a time departure and arrival. The airline offers excellent connectivity amid the passenger’s destination. In addition, customers with unique needs such as disability are well taken care of until they get to where they are going. Security is the key to every being. At southwest airlines, every plane departing is assigned qualified air marshals who uphold security details on air. This move has guaranteed that travelers get to their destination safe as well as having all their belongings with them. More so cases of terrorists, hijacking are managed effectively. Long haul flights Airbus A380 can hold up to 900 travelers in an all economy design, hence allowing a low price long haul service. Though per seat costs of such a plane would be cheaper than those of a contending airline there are a few possible low cost investments in a long haul process. An operator of such a process would find it almost impossible to distinguish itself



from a conservative airline. Low cost carrier normally flies their planes longer on daily bases scheduling departure first in morning times and arrivals at night.Longer flights indicate less capacity to enhance aircraft operation by adding short flights every day (Whitelegg, 2005). Cultural aspect South west airline uses its time on cutting costs as well as constructing a tradition of people who want to convey excellent client service (Ott, J 2004). This culture takes action as the driving vigor for the staff to bring out an outstanding customer service. This culture being the center of attention, the airline is able to exercise it as a competitive advantage. Conclusion As much as south west airlines is faced by labor and fuel cost challenges from other low cost carriers joining the industry, it still has a competitive advantage over them. These new airlines would have to operate at equal or lower costs for them to grow. South west airlines stand out as in August 2007 it was reported to have carried more travelers than any other US airline.

HOW LOW COST AIRLINES GAIN THEIR COMPETITIVE ADVANTAGE Button, K., Costa, A., Costa, F., & Cruz, C. (2011). Problems of cost recovery by European airlines since market liberalization. Transportation Planning & Technology, 34(2), 125-138. doi:10.1080/03081060.2011.554703 De Neufville, R. (2008). Low-Cost Airports for Low-Cost Airlines: Flexible Design to Manage the Risks. Transportation Planning & Technology, 31(1), 35-68. doi:10.1080/03081060701835688 Evans, J. (2011). Quality and performance excellence : management, organization, and strategy. Mason, OH: South-Western Cengage Learning. Freiberg, K. (2001). Nuts. New York Londres: Texere. Gittell, J. (2005). The Southwest Airlines way : using the power of relationships to achieve high performance. New York: McGraw-Hill. Morrell, P., & Swan, W. (2006). Airline Jet Fuel Hedging: Theory and Practice. Transport Reviews, 26(6), 713-730. doi:10.1080/01441640600679524 Ott, J. (2004). Big Tests for Discounters. (Cover story). Aviation Week & Space Technology, 160(26), 40-43. Pfeffer, J. (2009). Competitive advantage through people : unleashing the power of the work force. Boston, Mass: Harvard Business School Press. Shaw, S. (2011). Airline marketing and management. Farnham, Surrey Burlington, VT: Ashgate. Whitelegg, D. (2005). Flying for peanuts: the rise of low-cost carriers in the airline industry. Journal Of Transport History, 26(2), 125-129.


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