Air New Zealand Airline’s Operations Management

Introduction

Air New Zealand is a global airline with operations in passenger and cargo transport in the semi-premium market category. Its main operations are located in New Zealand and Australia (Deloitte Limited, 2017). However, it also has other operations in the United Kingdom (UK), the Pacific Islands, Asia, and North America. The company is mostly state-owned (by the New Zealand Government), and it is known throughout the aviation industry as the only airline that circumnavigates the world. It has a fleet of about 100 aircraft and employs thousands of employees throughout the world (Deloitte Limited, 2017).

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This paper analyzes the internal and external environment of Air New Zealand with a view to understanding the main factors influencing its operational plans. Key sections of this report explain the role of production and operations management of the airline, its various decision-making techniques, and the processes involved in formulating its operations system design plans. This report also explains the airline’s nature and techniques of aggregate planning, production controls, and the importance of quality assurance standards to the organization. An analysis of the internal and external environmental factors affecting the business forms the background of this analysis.

External Factor Analysis

In this paper, the external environment of Air New Zealand is analyzed through a PEST analysis below.

Political Factors

Since Air New Zealand operates in different countries, it is exposed to different kinds of political risks. For example, high levels of corruption in some countries could influence regulatory policies and affect the country’s operational plans. Some countries favoring specific trading partners could also affect the airline’s profitability because it may prevent the airline from accessing certain markets. At the same time, the political stability of host nations could affect the company’s operations because instability often leads to operational disruptions, which could affect the airline’s business.

Economic Factors

The quality of infrastructure in host markets could affect the operations of Air New Zealand because it dictates the kind of services it could offer and the kinds of equipment as well as technical expertise available for its maintenance operations. Labor costs and productivity standards in the economy could also influence the airline’s operations, and so is the skill level available in the market to support the company’s services. The economic growth rate of emerging markets also influences the kind of operations the airline would be willing to venture into and the zeal at which it would be doing so.

Social Factors

Social factors could also have an impact on Air New Zealand’s operations because they affect its passengers’ tastes and preferences of services. Similarly, cultural factors that influence gender roles and social conventions would affect the company’s labor practices in the same manner as leisure interests would affect passenger traffic numbers. Class structures and the hierarchy of power would also influence management and power structures in the airline.

Technological Factors

Technology changes in Air New Zealand affect the product offerings of Air New Zealand. For example, the kinds of entertainment services offered in its aircraft are a product of technological advancement in the airline industry. Technology also affects the company’s cost structure and value chain processes. Thus, inventory management and similar operational plans are influenced in the same regard.

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Internal Factor Analysis

An analysis of the internal environment of Air New Zealand yields the following SWOT analysis.

Strengths

Air New Zealand has strong quality standards to govern its operational plans. The company’s operational model also creates a strong competitive advantage for the airline because it bolsters its efficiency (Air New Zealand Limited, 2018b). Consequently, its operations are faster and more efficient than its rivals. Lastly, Air New Zealand’s operational plans are designed to be sustainable. This management principle is enshrined in the company’s operational principles, which strive to make the organization efficient and more sustainable (Air New Zealand Limited, 2018a).

Weaknesses

The powerful role of unions in the operations of Air New Zealand weakens the airline’s operations management plan because such organizations have opposed some of management’s restructuring proposals to the detriment of the airline. For example, in 2005, the union renegotiated a deal with the airline’s management, which was intended to lay off 600 employees in an organizational restructuring effort (Das, 2015).

Stemming from the negotiations, the management chose to rescind its decisions and maintained all the employees. This example shows how unions dilute management’s efforts to streamline the organization’s operations. Another weakness of Air New Zealand is its low focus on research and development, which should help to bolster its operational processes. Consequently, the company rarely innovates or comes up with new technology to improve its operational plans.

Opportunities

Air New Zealand could improve its operational plans by nurturing a continuous improvement mindset among its employees. This strategy should enhance the effectiveness of its quality standards and support its environmental and safety records. Lastly, Air New Zealand needs to limit the code-sharing agreement it shares with other airlines to apply to unprofitable routes only because the current model inconveniences customers who may not know they are being transferred to another airline. Doing so could improve its customer satisfaction standards.

Threats

Increased competition in the aviation industry poses a threat to Air New Zealand operations. Fundamentally, it affects the returns on investments because a lot of competition often yields low margins because its operational processes are also costly to the organization. High fuel costs also pose a threat to Air New Zealand’s operations because it increases the airline’s cost of doing business. At the same time, it affects its profitability and undermines its potential to increase its market share because passengers often shy away from paying high fares in an industry that has many substitute products.

High labor costs also pose a threat to the airline’s operations because they increase its cost of doing business. This threat highlights the difficult position Air New Zealand finds itself in because, on the one hand, it is forced to adjust its fair prices according to increased competition from other airlines; on the other hand, it has to upgrade its salary payments to workers who are always demanding for more money. The SWOT analysis highlighted in table 1 below summarizes these findings.

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Table 1. SWOT Analysis.

Strengths
  • The high-quality standard of operations
  • Development of competitive advantage centered on heightened efficiencies of its operational model
  • Sustainable operational plans
Weaknesses
  • Union actions
  • Limited focus on research and development
Opportunities
  • Nurturing a continuous improvement mindset
  • Limit the code-sharing agreements
Threats
  • Increased competition
  • High fuel costs
  • High labor costs

Production and Operations Management

Operations management is a key process that characterizes the activities of Air New Zealand. It is one of the three major functions of the airline’s operations (Nahmias & Olsen, 2015). The others are marketing and finance. This section of the report explains the role of production and operations management at the airline.

Role of Production and Operations Management at Air New Zealand

Air New Zealand’s production and operations management processes are central to its operations because it fosters innovation. In the past, its operational and production plans have helped it to adopt better cost, quality, and delivery standards (Nahmias & Olsen, 2015). The operations and management standards have ideally helped the airline’s managers to have better control of innovation services in the organization.

According to Das (2015), the production and operations management structure of the company has helped it to choose the best technology, process flows, and job designs to improve the efficacy of its internal processes and customer experiences. The company’s procurement and supply processes are a key area where the company has effectively deployed effective operations and production processes to order goods in the right quality, quantity and price. At the same time, the process has helped it to track customer experience (Nahmias & Olsen, 2015).

The production and operations management processes at Air New Zealand are also instrumental in making sure employees understand what is needed to provide the best goods and services to customers. This process also allows them to identify who needs goods and services as a justifiable measure of ordering or procuring goods and services. This way, the production, and operations processes at Air New Zealand help the managers to forecast and identify bottlenecks in their operational plans. In this regard, the production and operations management processes of Air New Zealand help to keep its business fresh and aids in the creation of new products and services (Das, 2015).

Productivity Challenges the Business Faces Today

Air New Zealand’s main productivity challenge is making sure that its processes are sustainable. This issue is presented in the company’s sustainability management report prepared by Deloitte Limited (2017). The report says that the airline is struggling to make its processes more sustainable, socially, economically, and environmentally. For example, the airline has struggled to draw a link between its quest to meet the airline’s demand through fleet expansion because it means increased fuel use and degradation of the environment.

Another sustainability challenge experienced by Air New Zealand is the balance needed in creating value for its shareholders at home (New Zealand) and its clients abroad (Air New Zealand Limited, 2018a). The same challenge manifests through the careful balance needed by the organization to make profits for the organization and create value for local communities in New Zealand and the other markets it operates in. The company’s international operations also mean that it needs to promote diversity as a core principle of its operations because the airline strives to be a world-leading employer that promotes diversity in the workplace.

Decision-making Techniques

A Board of Directors generally controls Air New Zealand’s decision-making systems. The chair of the board is an executive non-director (Deloitte Limited, 2017). The organization adopts a bottom-up leadership style because it lays a lot of emphasis on the people as the main engine of the company. This view is supported in an excerpt of the work of Deloitte Limited (2017), which showed that Air New Zealand’s employees often work in an environment that values employee contribution to organizational activities. This leadership mantra was recently demonstrated by the airline’s management, which gave 11,000 of its workers a day off to celebrate its excellence (Airline of the year) award (Air New Zealand Limited, 2018a).

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The same value system is replicated in its decision-making processes because the company’s management often includes workers in its decision-making processes (Deloitte Limited, 2017). This approach comes as no surprise for the New Zealand Company because it is a service-oriented business and the motivation of its workers is a top priority for its operations. Consequently, employee input is a critical part of its decision-making process.

Operations System Design

Appraisal of the Processes

Air New Zealand prefers to outsource most of its large-scale operations to third party players (Air New Zealand Limited, 2018a). The aim of doing so is to minimize the costs of doing business and to make its operating system designs leaner and more efficient (Cook & Billig, 2017). This operations system design plan is appropriate for the proper functioning of the company because the minimization of operations cost is a critical component of the airline’s ability to remain competitive in the long-term.

Product Strategy

Air New Zealand’s product strategy is informed by a market segmentation plan, which is premised on the principle that different customers have unique needs that need to be met exclusively. The company’s product strategy plan is categorized into three market segments: premium market, frequent-flyers, and ordinary customers (Air New Zealand Limited, 2018b). The premium market segment is often characterized by the provision of premium products and services (such as the Air New Zealand Lounge for its VIP customers).

Similarly, the frequent-flyer program is characterized by unique products, such as the frequent flyer program, which rewards customers for the accumulation of miles traveled. Generally, its product strategy is informed by economic considerations, which pivot on the need to provide its clients with goods and services they need and at a set price point that is acceptable to them.

Process and Capacity Strategy

Air New Zealand’s process and capacity strategies are largely informed by technology change because the company always strives to use such advancements as a tool for solving its process and capacity problems. For example, in the past, it has relied on a strategy of buying new aircraft that are more efficient to save on fuel costs (Deloitte Limited, 2017). This strategy is partly informed by its recent quest to upgrade its A320s fleet to 787s. Its capacity is also supported by the fact that the company exploits seasonal differences to maximize the economic potential of each market cycle. Collectively, the company has about five of six operational frequencies that exploit varying market potentials (Deloitte Limited, 2017).

Forecasting

Air New Zealand’s operational forecasts are informed by prevailing market conditions and internal assessments by experts and the management team. The organization also strives to exploit market opportunities prevalent through the reorganization of business strategies and the emergence of market opportunities that are brought about by legislative changes and similar shifts in market dynamics (Wu, 2016).

Generally, the company’s forecasting plans are a combination of midterm and long-range forecasts. The midterm forecasts seem to dominate most aspects of the airline’s business operations because most of its operational plans are set to be implemented within three years or less. For example, the medium-term planning structure has been used in production planning and budgeting processes. At the same time, the company has used the same framework for the analysis of different operational plans.

The reason for the dominance of the medium-term forecasting structure on the company’s operational goals could be informed by the volatile nature of the aviation market, which makes it difficult for airlines to have a long-term forecast of their operations. Nonetheless, Air New Zealand’s company reports still show that its long-term forecasting capabilities have been used to develop new products, introduce new routes in new markets and plan for facility expansion processes (Deloitte Limited, 2017). Its research and development initiatives have also been informed by the same forecasting plans.

Facility Location

Auckland Airport is Air New Zealand’s main operational location. This facility is ideal for the organization because it is the largest aviation hub in the country and has immense passenger and cargo traffic. Annually, the Auckland Airport handles customer traffic of more than 19 million people. Furthermore, 71% of passengers who come to New Zealand use this hub (Fodor’s Travel Guides, 2016). The location is also strategically placed to support the organization’s fleet expansion strategy because it can handle Boeing 747 and Airbus A380 aircraft, which form most of the company’s fleet.

Facility Layout

Air New Zealand’s facility layout is modeled on the sequence analysis platform, where the operation’s planning processes are modeled from a computer-generated design (Air New Zealand Limited, 2018b). The activities are often sequenced out and then arranged in a circular or straight line, depending on the kind of operations undertaken at a given point in time. Since most of the airline’s operations are maintenance-related and most of the aircraft are large, space is a significant consideration at the facility. Space is central to the facility’s design because it is integral in promoting the safety of the workers and for the proper functioning of processes and technology (Air New Zealand Limited, 2018b).

Job Design

The job design technique adopted by Air New Zealand is the job simplification model, which allows for the specialization of duties and responsibilities among workers. This job design is not only synonymous with the airline because other companies also use it because of the specialized nature of airline operations (Cook & Billig, 2017). Within the model, jobs are simplified into different subparts and assigned to an individual employee or a group of workers (Cook & Billig, 2017).

Methods Analysis

The methods adopted by Air New Zealand are modeled on the operational process chart, which provides a bird’s eye view of the entire operations of the airline. Therefore, only the major activities and inspections are recorded in the operations plan (Cook & Billig, 2017). This outline ensures that the technicians visualize the entire sequence of operations and inspections while at the same time understanding how critical processes fit into their entire organization’s vision and goals.

Work Measurement

Air New Zealand often uses a time and motion study, which combines aspects of standard times and techniques for improving work methods. The method is not only applied at Air New Zealand but also applicable in other areas, including service organizations, banks, and hospitals (Wu, 2016).

Procurement

The procurement process at Air New Zealand is supported by an annual budget of about $1.2 billion to support a global supply chain system (Air New Zealand Limited, 2018b). This money is spent through restricted tendering, where the airline limits its procurement processes to only a few suppliers, contractors, and service providers. The airline has adopted this technique as a quality safeguard of its operations.

Nature and Techniques of Aggregate Planning

The techniques of aggregate planning adopted by Air New Zealand contain different types of information relating to the overall operations of the airline. Key parts of this information include desired production levels, inventory levels, and even future sales forecasts. This aggregate planning technique is designed to reduce the impact of short-term daily scheduling challenges (Wu, 2016). Overall, the organization easily balances demand and capacity in a way that overall costs of operation are minimal. Air New Zealand also uses a chase strategy, which is premised on the organization’s ability to maintain a high level of flexibility to match demand and capacity needs.

Seasonal changes normally inform this strategy because during certain times of the year, the capacity is increased to keep up with the demand, and at other times, it is reduced to minimize the same. This strategy has posed various operational challenges to the organization because, in certain times, it has led to the emergence of industrial action as it lays off some of its employees because of capacity changes. However, it is regarded as an effective way of minimizing operational costs (Wu, 2016).

Inventory Management

Measures for Operating and Controlling Production Operations through Inventory Management

Since Air New Zealand is a service-oriented business, it does not have huge stocks of goods to support its operations. Perhaps the most notable stock is food, which is served to passengers on-board. Based on this nature of operations, the company’s inventory management process appears to follow the First-In-First-Out (FIFO) method, which means that the oldest stock is used first, and the newest stock is saved for a later date. This inventory management technique is not only used in the airline but also for other companies that engage in perishable products.

Materials Requirement Planning, Scheduling and Projects Management, Including Applying Appropriate Techniques for Execution

The material requirement planning technique adopted by Air New Zealand is demand-driven. It also contains five key tenets that include strategic inventory positioning, buffer profiles and levels, dynamic adjustments, demand-driven-planning, and a highly visible and collaborative execution plan (Air New Zealand Limited, 2018b). The execution plan is designed to integrate the materials requirement planning process with the execution plan. The scheduling and process management framework is informed by the need to undertake changes within specified timeframes and a rating system that promotes better and routine decision-making processes. This way, scheduling and project management processes are influenced at both the planning and execution levels.

Quality and Quality Assurance

Importance of Quality and Quality Assurance

Quality assurance is a key part of Air New Zealand’s operations because it is the tool used by the organization to assess whether its products and production systems align with its goals and objectives. Most importantly, the airline uses the quality assurance process to identify areas of weakness and those that require further improvements. At the same time, the platform has helped its managers to scrap areas of operation that do not conform with the company’s service quality standards (Air New Zealand Limited, 2018b).

In the past, the company has also relied on quality assurance measures to improve time efficiency by identifying areas that lead to time wastages. This system has helped to identify areas of redundancy and streamline inspection services, such that unnecessary work is eliminated from the overall production and service plan (Air New Zealand Limited, 2018b).

The quality assurance process is also critical to the operations of Air New Zealand because it has helped the airline to improve employee morale in the wake of industrial actions organized by some of the union workers. Indeed, the company has had multiple episodes in its operational history where workers have been demoralized by the threats of layoffs and wage cuts, which have, in the long-run, affected their morale. However, quality assurance processes in the company have helped it to mitigate this situation by boosting employee morale because the airline’s workers are actively involved in total quality management. Their role is magnified because they become important stakeholders in the realization of organizational success.

Methods and Techniques for Controlling Quality

Air New Zealand uses quality assurance as to the main technique for controlling quality. The system works by preventing mistakes or defects in the service delivery process. ISO 9000 defines this type of quality assurance system as that which guarantees that the measure will be safeguarded and always guaranteed (Bazargan, 2016). This type of system differs from other quality controls applicable in the service industry because it is preempted.

In other words, it focuses on making minor shifts in quality because most of the processes associated with the task were adjusted earlier in the quality management system. This model is understandably used in the aviation sector because of the high levels of safety associated with aviation services (Wu, 2016). Furthermore, the industry operates within some of the highest service standards in the transport sector because of the sensitive nature of the business.

Nonetheless, at Air New Zealand, quality assurance is seen as an offshoot of product assurance. The quality assurance process is also treated with a lot of importance because management has allocated it an independent budget, and quality assurance managers only report to the highest offices in the company (Air New Zealand Limited, 2018b). In this regard, the company’s project assurance processes stand at the same level as project management systems; however, it is different from the latter because it hinges on the customer point of view.

Maintenance and Reliability of Air New Zealand’s Assets

The main assets for Air New Zealand are its aircraft. They are maintained at the Auckland base, which has been recently expanded to include a multi-aircraft docking base. The engineering department oversees the maintenance operations of the airline’s aircraft (Air New Zealand Limited, 2018b). The department offers a one-stop maintenance shop for such activities, which includes a full maintenance system and configuration management for all its major assets.

Routine checks are commonly done under this framework, as well as airworthiness maintenance checks. Big data management processes and the experience involved in undertaking such processes have been leveraged by Air New Zealand to improve the operational goals of this process (Air New Zealand Limited, 2018b). For example, the use of large scale data and monitoring processes have been used as tools for identifying which assets need to be maintained and which ones could be worked on at a later date.

Reliability data and cost controls are also available at the one-stop-shop, which is also a major supplier of aircraft parts. Key activities that are done at the facility include maintenance, repair, and overhaul services. These services are not only limited to New Zealand operations only but also in other markets, including Australia, Asia, and the Americas (Air New Zealand Limited, 2018b).

Lastly, one of the most integral functions associated with the maintenance and reliability of Air New Zealand’s assets is the process of ensuring that the same assets comply with airworthiness directives. It is also important to note that the entire process is highly regulated to make sure that safety standards are upheld for the proper functioning of operations. The national regulatory standards that oversee such operations are often coordinated under international standards. International bodies, such as the International Civil Aviation Authority, are part of the regulation and enforcement framework that supports the same activities (Air New Zealand Limited, 2018b). The personnel involved with the maintenance process are also closely watched and regulated, particularly concerning their qualifications and licenses to carry out the maintenance activities.

Conclusion

This paper has highlighted different aspects of Air New Zealand’s operation management plans. Key sections of the current study show that its Auckland base is integral to its operations because this is where most operational plans are made and implemented. The engineering department also emerged as an integral organ to Air New Zealand’s operations because it oversees most of its repair and maintenance works. Similarly, key tenets of this paper show that the demand for products and services is at the center of the airline’s procurement, planning, and scheduling processes. Furthermore, they show that similar to other companies, the Board of Directors remains the most powerful decision-making organ, which guides or influences many aspects of the airline’s operational plans and strategies.

Nonetheless, supported by the analysis of the company’s internal and external environments, sustainability remains a fundamental challenge for the airline’s operations. Future research should investigate how the organization could redesign some of its operational plans to address this problem.

References

Air New Zealand Limited. (2018a). Sustainable sourcing. Web.

Air New Zealand Limited. (2018b). Engineering & maintenance. Web.

Bazargan, M. (2016). Airline operations and scheduling. London, UK: Routledge.

Cook, G., & Billig, B. (2017). Airline operations and management: A management textbook. London, UK: Taylor & Francis.

Das, A. (2015). An introduction to operations management: The joy of operations. London, UK: Routledge.

Deloitte Limited. (2017). Independent assurance report on the Air New Zealand group 2017 greenhouse gas emissions inventory report to the board of directors of Air New Zealand Limited. Web.

Fodor’s Travel Guides. (2016). Fodor’s essential New Zealand. London, UK: Fodor’s Travel.

Nahmias, S., & Olsen, T. (2015). Production and operations analysis (7th ed.). New York, NY: Waveland Press.

Wu, C. (2016). Airline operations and delay management: Insights from airline economics, networks and strategic schedule planning. London, UK: Routledge, 2016.

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