AIRTECOMMAN - QUIZ 3 Reviewer

Airline as Oligopolist

Oligopoly is a market dominated by a few firms producing similar or differentiated products.

Characteristics:

1. High Barriers to Entry:

- Challenges include terminal space at hub airports, financial risks, and competition with established carriers.

- Major carriers benefit from extensive networks, making it hard for new entrants to compete.

2. Substantial Economies of Scale:

- Larger operations result in lower long-term average costs.

3. Growth Through Merger:

- Mergers increase market share, economies of scale, and resource efficiency.

4. Mutual Dependence:

- Actions by one firm significantly affect others, resembling strategic games like chess.

5. Price Rigidity and Nonprice Competition:

- Firms avoid frequent price changes, relying on advertising, customer service, and loyalty programs.

Airline Passenger Load Factor

- Definition: Load factor measures the relationship between available seat-miles and revenue passenger miles.

- Significance:

- High load factors lower costs per passenger and enable lower fares.

- Approximately 65% of airline costs are fixed, independent of passenger count.

- Equipment utilization directly impacts profitability.

Capacity Versus Demand

- Cyclic Nature:

- Demand varies by time of day, week, season, and economic conditions.

- Discretionary leisure travel peaks in summer, boosting third-quarter load factors.

- Macro Factors:

- Economic growth and consumer confidence increase demand and profitability.

- Recessions lead to postponed travel, reduced demand, and lower profits.

- Challenges:

- Last-minute cancellations and no-shows can lead to empty seats.

- Overbooking offsets no-show probabilities by anticipating passenger behavior.

Pricing in Relation to Load Factor

- Off-Peak Pricing:

- Promotional fares fill seats during low-traffic periods.

- Benefits both passengers and the industry by increasing load factors during slack periods.

- Effective in managing demand and maximizing revenue.

Management and Organization

- Goals:

- Profitability, market share, growth, quality of service, and community image.

- Functions of Management:

- Planning, Organizing, Staffing, Directing, Controlling.

- Complexity:

- Large organizations have longer communication lines and complex decision-making processes.

- Effective structures enhance efficiency and competitiveness.

Levels of Management

1. Top Management:

- Sets objectives, recommends goals to the board, and includes roles like President and Senior Vice Presidents.

- President often handles external relations, while executives focus on operations.

2. Middle Management:

- Develops operational plans and oversees departmental activities.

- Includes vice presidents and directors heading departments and divisions.

3. Operating Management:

- Executes plans and ensures day-to-day operations.

- Includes managers, supervisors, and section chiefs.

- Pyramid of Authority:

- Board of Directors → Top Management → Middle Management → Operating Management.

New Corporate Structure

- Low-Cost Carriers:

- Employ lean organizational structures for efficiency.

- Middle management often eliminated to reduce costs.

- Key Roles:

- President/CEO: Oversees overall operations and external relations.

- Vice President/General Manager: Manages daily operations.

- Advantages:

- Smaller management teams reduce costs and improve communication.

- Certification (e.g., FAR 121) requires positions like Director of Safety and Chief Pilot.

Functions of Management

1. Planning:

- Sets global, departmental, and individual goals.

- Includes policy and procedure creation.

2. Organizing:

- Groups activities, assigns authority, and ensures efficient workflows.

- Establishes efficient lines of responsibility and authority.

3. Staffing:

- Defines workforce needs, recruits, and trains employees.

- Involves compensating and developing employees.

4. Directing:

- Assigns tasks and communicates objectives clearly.

- Tailors instructions based on employee experience.

5. Controlling:

- Monitors performance, compares against standards, and corrects deviations.

- Steps: Set standards, compare performance, take corrective action.

Principles of Organization Planning

- Key Principles:

1. Unity of Objective: Align all departments with company goals.

2. Span of Control: Limit the number of subordinates per manager.

3. Departmentalization: Group tasks and functions for specialization.

4. Delegation of Authority: Empower lower management to make minor decisions.

5. Levels of Management: Minimize layers for effective communication.

6. Defined Duties: Clearly outline job responsibilities to avoid overlap.

7. Flexibility: Adapt to changing conditions, both internal and external.

8. Communication: Ensure uninterrupted two-way information flow.

The Organizational Chart

- Purpose:

- Depicts authority relationships and communication channels.

- Boosts morale and clarifies roles.

- Limitations:

- Static representation; requires periodic updates.

- Reflects departmentalization based on carrier size and operations.

Line and Staff Responsibilities

- Line Personnel:

- Directly involved in producing and selling air transportation (e.g., pilots, flight attendants).

- Staff Personnel:

- Provide specialized support and advice (e.g., finance, legal, HR).

- Staff Departments:

- Finance: Manages revenue, accounting, and procurement.

- Information Services: Maintains data systems and supports operational efficiency.

- Personnel: Handles employee relations and training.

- Medical: Provides health services and sets hiring health criteria.

- Legal: Addresses claims, regulatory issues, and compliance.

- Corporate Communications: Manages public relations and legislative lobbying.

- Economic Planning: Oversees long-term forecasts and financial control.

- Line Departments:

- Flight Operations: Ensures safe and efficient aircraft operation.

- Engineering and Maintenance: Maintains equipment to safety standards.

- Marketing and Services: Includes advertising, market research, and in-flight services.