Launching an Airline: Operations and Management

The aviation sector is one of the most competitive industries not only in the United States but also in other countries around the world. The industry is characterized by many other challenges such as fluctuations of oil prices in the global market, terrorism and insecurity, strict government regulations, and the need to assure customers of their safety (Barnes, 2017). When launching an airline company, it is important to understand the market and develop a plan that will enable the new firm to achieve competitiveness despite the existence of some of the identified challenges. This report is divided into three main phases.

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The first phase focuses on planning. It identifies what the team needs to do before the launch of the project. The second phase focuses on execution. At this stage, the proposed plan will be implemented to ensure that the new airline company starts its operations. The third phase is the evaluation of the implemented project. The team will analyze the outcome of the plan to determine if the project is running as per the expectations and if there are changes that may be necessary to improve the overall performance of the new firm.

Phase I- Planning

Launching an airline in the United States requires adequate planning. According to Bachrach, Bendoly, and Wezel (2015), a company that intends to launch an airline company in the country must understand that purchasing the plan and other necessary equipment and personnel is just one stage of the preparation. The firm must satisfy several government entities that it can safely carry passengers without exposing them to any significant threat. In this section, the focus is to discuss the planning process that the management of this firm must consider before the launch of the company.

Identifying and Developing Processes

During the planning phase, it is necessary to identify and develop processes. The current team responsible for the planning of this project should define the production management based on what they plan to deliver to the market. It should also determine whether the firm would embrace waterfall or agile management process.

Production management and planning

At this initial stage of preparation, the current management unit should define the production approach that will be used once the firm commences its operations. Production management and planning in a firm that offers services involve putting systems and structures in place in readiness to serve customers. In this case, this firm should purchase the needed plans, hire pilots and cabin crew, and ensure that all other services needed by the passengers are made available.

In the aviation sector, safety of the passengers is one of the most important factors that define the popularity of a brand. Other critical factors include comfort, hygiene, and other onboard services. At this planning stage, the management should identify firms that offer services such as catering and others that can install entertainment systems within the plane. The goal is to ensure that by the time the airline is launched, everything will be ready.

During this planning phase, it is important for the management to develop a name, company logo, slogan, and appropriate colors for identification of the firm. It should also find a brand ambassador, a personality known in the country. As Cook and Billig (2017) note, the name should be simple and memorable. The slogan should also be memorable. When developing a logo, factors that should not be ignored include the color, images, and words used. The primary goal is to have a unique identification that reminds customers of the superiority of the product that will be offered. This firm can use the following proposed logo in figure 1 below:

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Proposed company name and logo.
Figure 1. Proposed company name and logo.

Waterfall management process

The management must determine the most appropriate management process between waterfall and agile processes. Figure 2 below identifies steps that that should be taken depending on the model that is chosen. Although the agile model is more recent, this project should embrace the waterfall, which is a traditional approach of initiating a project. It starts with the conception. Once an idea is conceived, the next step would be the initiation where it is put to test.

The team would then conduct an analysis to determine its appropriateness before developing a design that can be used in large-scale deployment. The next step is the construction, then testing, before the final deployment (Guggilla, 2017). The advantage of using this model is that it emphasizes on addressing every single issue at each stage before moving to the next stage. Although it may be time consuming, it would be appropriate for this project because of the sensitive nature of the business involved.

Waterfall and agile models
Figure 2. Waterfall and agile models (Hill & Hill, 2018).

Establishing Tools/Resources Required

When planning to launch an airline company, one of the most important steps that should be taken by the management is to establish tools and resources required to achieve goals and objectives of the new firm. Cost is one of the factors that should be defined in clear terms. In this case, cost includes money needed to purchase airplanes, install necessary entertainment systems on them, pay all the employees and suppliers, and run the company successfully before it becomes self-sustaining.

According to Khanna (2015), a small passenger jet such as Boeing 737 costs $ 50 million. Assuming that this company will target the domestic aviation industry, the firm will purchase small to medium jets. The total cost of purchasing about ten such jets will be about $ 850. Factoring in other costs defined above, this new start-up will need $ 1.4 billion to start its operations in the domestic market. All the necessities should be made available to avoid cases where the firm is denied license by relevant government authorities.

Getting the necessary permits is the next step that the management should focus on after purchasing the needed equipment. According to Lee and Tang (2018), a firm that seeks to offer air transport services in the United States must obtain two authorizations from the Department of Transport. The first certification is the Economic Authority that is issued by the Office of the Secretary of Transport mandating the firm to carry passengers and cargo from one state to another or from the country to foreign nations and back (Robinson, Fallon, Cameron, & Crotts, 2016).

The second certification is the Safe Authority, which is issued by the Federal Aviation Administration (FAA), often known as Air Carrier Certification and Operations Specifications (Rangarajan, Sharma, Paesbrugghe, & Boute, 2018). It is issued when FAA is satisfied that the new airline is safe enough to take to the sky. The management team must ensure that all the standards set by these authorities are met to get the necessary certifications that would enable the airline company to start its operations.

Key personnel required

Once the needed structures are put in place, the next step would be to assemble the right personnel that would deliver relevant services to customers. The group of employees needed is the cabin crew. They include qualified and experienced pilots, flight engineers, and airhostesses. The firm can hire a reputable catering company to offer food and related products to customers during the flight. Then there will be the maintenance crew responsible for ensuring that all planes are airworthy.

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These services can be outsourced. Finally, there should be the ground operation crew, which includes the marketing and ticketing unit, finance department, emergency management unit, and other relevant units within the firm. The company should focus on recruiting and retaining highly skilled and experienced workforce.

How to become and remain competitive

Gaining a competitive edge in this industry may not be easy. Some firms use pricing strategy to attract customers while others focus on quality. To ensure that this firm remains competitive in this industry, the management should integrate the two strategies. It should strive to offer high quality products at competitive prices. Once it starts its operations, it should maintain its reputation. Miller (2017) warns that one of the factors that can ruin the image of a firm in the market is high rates of accidents.

Once travelers are not assured of their safety, they are likely to avoid using such an airline. It means that while this firm is using mass and social media to promote its brand, it should avoid scandals and issues that may affect its reputation. The following flowchart illustrates the steps with the selected management process.

Steps towards starting operations.
Figure 3. Steps towards starting operations.

As shown in figure 3 above, the process starts with market assessment. The investors should hire a marketing firm to assess the market with the primary goal of identifying needs and gaps. The strategy will enable this company to understand segments, which it should target and how it can position its brand. The next step is to purchase aircrafts and other necessities that would most appropriately serve customers in the identified segment.

The team will make the necessary preparations in readiness for the approval by relevant authorities and the beginning of operations. The next phase is to get the relevant approvals from government agencies. As indicated above, the department of transport is responsible for issuing the needed permits to enable this firm to start operations. When the approvals are obtained, the firm should hire personnel responsible for various duties within the form.

When everything is put in place, the firm can then start its operations. Perils and contingencies based on flowchart are discussed in the section below. Using critical path method (CPM) shown in figure 4 below, it is expected that the project that the project will take about 4 months to complete. Each stage will take about 4 weeks, with some of them conducted concurrently as shown in the figure.

CPM diagram based on the flowchart.
Figure 4. CPM diagram based on the flowchart.

Other potential challenges and contingencies

It would be necessary for the management to be prepared to deal with various challenges that may arise during its operations. One such challenge is a possible denial of permit by the government for a given reason. The management should ensure that all the conditions set by the management are set to avoid such circumstances. Another challenge may be the inability to recruit and retain a team of highly talented employees. (Starr & Gupta, 2017) advises that a firm should not only offer attractive salaries but also create a workplace environment where employees feel comfortable, respected, and able to achieve career growth. Stiff competition is expected in this market. Having a team of dedicated employees and the ability to understand customer needs and deliver products expected would help it overcome this challenge.

Phase II- Executing

The most important phase is the execution of the developed plan. At this stage, the main assumption is that the firm has acquired the needed aircrafts and only needs to hire skilled workers to enable it start operations. It is also assumed that the team is also ready for inspection by government agencies so that it can get the necessary permits that would authorize its activities in the aviation industry. The following steps should be taken at the execution stage:

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Hiring Talented Employees

At the execution stage, the owners of this project would need to start by hiring talented employees who can undertake various duties within the firm. The government is always keen on ensuring that a firm has the right team of employees before licensing a firm to operate in such a sensitive industry (Subramanian et al., 2017). The best approach that owners of this firm should take is to hire recruiting firm and specify skills and experience needed of every employee. The firm will make the advertisement, shortlist candidates, interview them, and recommend those with the right qualifications to the firm.

Before approving the recommended list, the current management unit will conduct a background check for each employee to determine their records of accomplishment, especially pilots, engineers, top managers, and those who will be trusted with sensitive position. The background check will determine if they have any criminal past, reasons why they left the previous jobs, their performance at the previous jobs, mental health status, especially for pilots and engineers, and any other relevant fact. If the management is satisfied, the recommended candidates will sign the contract with the firm. The next step would be to take them through some form of training so that they can understand vision, mission, and values of the firm. Pilots and engineers will need some training to understand how the new planes function.

Getting the Permit

As discussed in the planning stage, this firm will need two permits from the Department of Transport. The first step is obtaining Economic Authority from the Secretary of Transport. Just like any other company, the owners of this firm must convince the department that its operations will have economic benefits to the country. Turner (2015) explains that authorization cannot be given to a firm whose operations may pose threat to national security or the economy of the country. Proving the economic benefits of the firm may not be challenging. Company lawyer should draft the document. Once this authorization is obtained, the Federal Aviation Administration will need to assess the physical assets, especially the planes and human resource, which will be used in the normal operations.

The firm has to meet the standards set by this authority in terms of the quality of the planes, the number of pilots per plan, and hours that each pilot is allowed to fly per day. The firm should also specify routes that the airline would cover.

This requirement is necessary because the new firm will need to rent a hanger, at different airports, and especially in its primary airport. FAA officials will have to visit these airports to ensure that the needed space is available for the new company and that it is willing and capable of paying the requisite fee. When FAA is convinced that these conditions are met, it will provide the needed permit to allow the firm to start its operations.

Promotion of the Brand in the Targeted Market

Promotion of the brand will be one of the critical activities just before launching the operations of the airline. Unlike other products available in the shop, that one can easily pick based on its physical attributes, customers in the aviation industry often go for a brand they trust. Reed and Reed (2014) explain that it is rare for a traveler, even those using the economy class, to buy a ticket from an unknown company.

As such, awareness campaign will have to be conducted in the market as soon as all the necessary permits are obtained. As the firm takes the employees through some training and finalizing on its operations, it should use the social and mass media to promote the brand. Brand positioning is critical because it defines the kind of customers who will be attracted. The researcher recommends that the management should emphasize on quality of the products other than pricing. During the initial stages of operations, it should set its ticket price based on the market average. However, it proposition should be based on quality. The campaign should explain routes covered by the airline, where customers can buy tickets, and make consultations with the firm’s representatives.

The suggested name for the new airline is Immaculate Miami Air. The name should not only be memorable but also musical, as Mills (2016) suggests. The assumption is that Miami Immaculate Air will use Miami International Airport as its headquarters for its operations. It is also evident that two celebrities, Rihanna and Brad Pitt have been used as brand ambassadors. Given the fact that this company is not known in the market, the selected pair of celebrities would be appropriate because they are popular not only in the United States but also in other countries around the world. They are also known to use air transport services frequently. Their endorsement of the brand would be crucial in making customers accept the brand.

Launching Operations

Once everything is set, the firm will need to launch its operations. During the first one week of its operations, the researcher recommends that the airline should charge its customers half the normal price of tickets as part of its promotion plan. During the launch, it would be appropriate to have both celebrities present in the first flight as an endorsement of the brand. The launch should be covered in both the social and mass media. The uniqueness of the services should be evident during the launch to confirm to the customers that this firm offers the best services in the market. The operations manager, working closely with the marketing director, should ensure that they choose a busy route when making the launch.

Phase III- Evaluation

The next phase is the evaluation, where the marketing department will analyze the performance of the firm during the initial days of the launch. According to Guggilla (2017), such evaluations are often conducted to determine whether goals set when launching the project are on course. The top management unit will determine if the firm is operating optimally. Such assessments help to identify areas of weaknesses that need to be changed to improve the firm’s performance. The following factors will have to be considered at this stage.

Customer Satisfaction

The ability of this firm to satisfy customers’ needs would define its ability to remain viable in the market. The marketing director will have to ensure that the airline is keeping the promise made to its customers in terms of pricing of tickets, comfort, safety, security, timeliness, and respect to customers among such related factors. Outside marketing scorecard is an appropriate tool that can be used to assess the level of customers’ satisfaction.

The scorecard focuses on what the customers believe based on what was promised against what was delivered. When the products meet the expectations, customers will be happy. In case it exceeds expectations, they will be thrilled and will develop loyalty to the firm. Barnes (2017) explains that such clients become evangelists to the brand. However, what the firm fails to deliver on its promise, they will be dissatisfied.

Ticket counter scorecard is another measure that can be used to determine the level of customer satisfaction. The term should ensure that customers could book their flights and have access to electronic tickets without having to visit physical premises of the firm. The steps should be simple to follow and the website secured to protect clients and the firm from cybercriminals. Marketing and customer service in terminal scorecard is the third tool that should be used when evaluating customer satisfaction.

Effective marketing and customer service in the terminal would strengthen the brand name and image in the market. The assessment will focus on determine the number of those who know the brand and their perceptions towards it based on their personal experiences and what they have heard from others. When using this third tool, participants who will be interviewed will be travellers who have flown in the routes covered by this airline.

Product Satisfaction

The next area of assessment is product satisfaction. It is important for the firm to ensure that the aircraft and other equipment used to offer services to customers are properly maintained in a cost-effective way. Inventory and maintenance management scorecard is an important concept that should be used in this assessment. It assesses how well the inventory is maintained, how much it costs, and how they compare with best practices in the market.

The assessment team will propose areas of weaknesses that should be addressed. Supplier scorecard is another tool that will be used in the assessment. The supplier scorecard will look at the relationship that the firm has developed with its customers. The main areas of focus will be the reliability of the suppliers, quality of the products they deliver, timeliness, and cost. The assessment team can make suggestions on areas that may need adjustments.

Employee Satisfaction

The management of this new airline must understand that success in the market goes beyond having a large pool of satisfied customers. Satisfaction of employees is equally important. In fact, one of the first steps of ensuring that customers are satisfied is to ensure that employees are happy with the workplace environment.

The attitude of employees often reflects the kind of services they will offer. Using manager/supervisor/employee relation scorecard, the assessment team will look at the relationship that exists between the management unit and junior employees. It would be appropriate to have a system where top managers interact regularly with junior employees. There should be mutual respect and trust along the chain of management.

Manager/supervisor/employee communication scorecard on the other hand determines the effectiveness of communication within the firm. Many firms in the United States are embracing the open-door policy of communication. In this model, most of the communications follow the set protocol, often from a junior employee to a supervisor, then mid-level managers before reaching the top management unit. However, when there is an important issues that an employee feels can only be addressed by the chief executive officer, he or she is at liberty to contact the highest authority. Using this communication scorecard, the team will determine the effectiveness of communication system within the firm with the goal of eliminating possible barriers.

Analyze and Access Data

It is important to have data that will help the management team to understand the cost of operations and the income that is generated from it. Preparing data for reassessment based on the information provided during the plan in phase I will be necessary. The table below shows expenses, income, and profits (hypothetical) in the first year of operation.

Table 1. Income and Expenses.

Cost (Initial + Operational ) The First Year $ Income $
Purchase of Planes & other equipment 850,000,000 Sales 980,100,000
Permits and related costs 13,500
Salaries 55,000,000
Catering cost 5,000,000
Security 3,500,000
Landing, Parking, and overflying 110,000
Fuel 1,000,000
Total 914,623,500 Total 980,100,000
Profit 65476500

Historical data from other companies may help the management of this new airline to compare its financial strength against some of the regional or global competitors. According to Miller (2017), historical data of a firm defines how well or otherwise it has been performing in the market to determine its sustainability. The historical data can be provided for the last three to five years of operation. The following table 2 below is a historical data for Virgin Atlantic for four consecutive years.

The data should financial growth that this firm has registered within the period. It is evident that in 2004, the firm made a loss. However, the three consecutive years from 2003 to 2005, the firm made profits.

Table 2. Virgin Air Income Statement.

Income Statement
£ 2002 2003 2004 2005
Number of Aircraft 2 5 7 9
Load Factor 51% 59% 67% 68%
Total Sales 30,550,315 77,046,634 164,108,039 218,156,052
EBITDAR 11,804 16,701,194 50,804,281 72,763,402
EBITDAR Margin 0.00% 21.70% 31.00% 33.40%
EBITDA -4,984,748 5,825,332 30,197,385 45,204,782
EBITDA Margin -16.30% 7.60% 18.40% 20.70%
Net Income -4,323,273 5,616,514 20,701,527 31,719,327
Net Margin -14.20% 7.30% 12.60% 14.50%

Compare Successful and Failing Airline

The airline industry is highly competitive and it is easy for a firm to be forced out of the market if it fails to meet the expectations of customers or in case it makes several mistakes in the industry such as poor customer service. Some firms have been forced in the market because of poor performance. In October 2018, Cobalt announced that it was suspending its operations because its operations were no longer sustainable (Topham, 2018).

Air Belgium is also reported to be struggling with its operations in the market and may be forced to shut down operations because of huge losses. While these firms register heavy losses, others are recording impressive profits. Qatar Airways, Lufthansa, Etihad Airways, and KLM are some of the best performing airlines. According to Millington (2018), one of the most important similarities among the best performing airlines is that they score highly in quality service, unlike the failing ones that emphasize on low cost. Punctuality is another common characteristic among the best performing firms, as opposed to those that are underperforming.

Conclusion

Launching an airline requires a deep understanding of the market forces. The industry has many challenges, from stiff competition, to fluctuating oil prices, and policies that may hurt profitability of a firm. As shown in the paper, while other airlines are registering impressive performance, others are forced out of the market because they cannot withstand the market forces. When launching this new company, care should be taken to avoid the path taken by the failing firms.

The management of this company should emphasize on quality of services delivered over any other issue. It is evident that although customers may desire to pay low prices, they value quality over any other thing when traveling by air. They also prefer airlines that keep time. Once they are informed that the plane should be leaving at a given time, they should not delayed, unless there is a genuine reason to do so. The management should also ensure that its employees are satisfied.

References

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Barnes, D. (2017). Operations management. London, England: McMillan Publishers Limited.

Cook, G. N. & Billig, B. (2017). Airline operations and management: A management textbook. New York, NY: Routledge.

Guggilla, A. (2017). ServiceNow IT operations management: Demystifying IT operations management. Birmingham, England: Packt.

Hill, A., & Hill, T. (2018). Essential operation management (2nd ed.). London, England: McMillan Education.

Khanna, R. B. (2015). Production and operations management (2nd ed.). New Delhi, India: Prentice-Hall of India.

Lee, H. L., & Tang, C. S. (2018). Socially and environmentally responsible value chain innovations: New operations management research opportunities. Journal of Management Science, 64(3), 983-1476.

Miller, M. (2017). Leaders made here: Building a leadership culture. Oakland, CA: California Berrett-Koehler Publishers, Inc.

Millington, A. (2018). Ranked: The 13 best airlines in the world in 2018. Business Insider. Web.

Mills, G. (2016). The Airline Revolution: Economic analysis of airline performance and public policy. New York, NY: Routledge.

Rangarajan, D., Sharma, A., Paesbrugghe, B., & Boute, R. (2018). Aligning sales and operations management: An agenda for inquiry. Journal of Personal Selling & Sales Management, 38(2), 220-240.

Reed, T., & Reed, D. (2014). American Airlines, US Airways and the creation of the world’s largest airline: The converging histories of American Airlines and US Airways. Jefferson, NC: Jefferson NC McFarland & Company, Inc., Publishers.

Robinson, P., Fallon, P., Cameron, H., & Crotts, J. C. (Eds.). (2016). Operations management in the travel industry (2nd ed.). Oxford, England, CAB International.

Starr, M. K., & Gupta, S. K. (Eds). (2017). The Routledge companion to production and operations management. New York, NY: Routledge.

Subramanian, N., Gunasekaran, A., Jose, C., Jabbour, C., Yusuf, Y., & Azapagic, A. (2017). Sustainable global operations management and frugal innovative sustainable production methods: Advancing theory and practice for a truly sustainable society. Sustainable Production and Consumption, 11(7), 1-4.

Topham, G. (2018). After Cobalt, will any more European airlines go bust? The Guardian. Web.

Turner, D. A. (2015). It’s my pleasure: The impact of extraordinary talent and a compelling culture. Boise, ID: Elevate Publishing.

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