MKT 100: Porter Airlines

Executive Summary

This report traces the Porters external and internal environment based on the imperatives of Safety, Security, and Environmental pressures. Tremendous changes have taken place in aviation because of increasing technological complexity and growth in air traffic, this adds pressure on the infrastructure consisting of airports, air traffic control and management, maintenance and flying crew of the aircraft. Changes in technology and management practices have sought to alleviate these problems and added pressures on the human element of the business increasing chances of accidents due to human error. With major economies of the world facing a meltdown, the pressures on the aviation industry are likely to increase fewer people and cargo uses their services putting severe downward pressures on revenues and operating margins.

The major airlines are feeling the impact of large aircraft and low-cost carriers, as is the requirements to reduce noise and CO2 emissions. In this scenario, it is evident that current trends indicate very difficult times ahead.

Marketing

The growth of this company is mainly due to the marketing strategies employed.

Charges: This is a crucial mix; the price for air tickets should be competitive. To be able to demand these, the market needs to emphasize of the quality, safety and convenience of the services. The price should be elastic depending on the supply and demand rule. If the supply of e.g. fuel is high due for it been in season i.e. its availability the price should be lower compared to when it’s not easily available.

Promotion: they undertook aggressive awareness through adverting. This was done through website where consumers are continually informed and updated about the current air travel trends in the company.

Placement:-More markets have been established and this has enabled consumers to see different services under Porter’s airline and hence decides to use the services.

Human Resource Capability

More than ever, the human resource strategies, objectives, systems and processes of the organization must be integrated and synchronized with the overall Porter’s Airways strategies, objectives, systems and processes and the rest of the organization. Human resources as one of the key success factors in implementing the blue ocean strategy must be able to support and not detract the company from it. Hence, the personnel selection, training and development, and performance appraisal processes should be seamlessly integrated into the whole organizational structure ad systems to ensure that all these systems are working towards the same goal: creating uncontested market space and making the competition irrelevant.

Mondy & Noe defined recruitment as the “process of attracting individuals on a timely basis, in sufficient numbers, and with appropriate qualifications, and encouraging them to apply for jobs with an [organization]” (2005, p. 199). The objective of the selection process for any type of [organization] is selecting the best “individual suited for a particular position and the organization” (Mondy & Noe, 2005, p. 162). Hence, for Porters Airline the goal of the organization’s selection process should be selecting the best individual suited for the vacant position and have the necessary capability to help the company in its quest in making the competition irrelevant.

What had Porter’s airways done for its worldwide human resource management is admirable – it developed HRM practices to sustain the Porter’s airways. However, today it is no longer enough. It is time that Porter’s airways human resource management practices to sustain the growth strategy. The four goals as promoted by the company’s existing human resource management practices are “employee commitment, workforce flexibility and adaptability, quality’’.

Organizational culture is one of the basic factors that determine the behavior of human resource within the Organization. Organizational culture shows Organization values belies and assumptions that are consistent with the Organization’s goals mission and visions. Organizational culture gives the people an opportunity to focus on the opportunities available for the company. When change is being introduced to the Organization especially change of culture it may be resisted if employees are not well trained to accept the change. The company introduced Organizational culture change after the September 11 2001, and this Organizational cultural change was embraced by the human resource. Leadership that was embraced in training the human resource on the abilities of accepting change. The human resource employed by Organization comes from diverse character and they have assisted the company to grow.

Operational Capabilities

Currently the Porter’s airline has a very large share of both the domestic and international market. In the domestic market, the airline has destinations and booking points at various locations in the country.

The airline has introduced some features to tourism and business class seats which include adjustable to flood beds to make the customer more comfortable and adjustable to the new comfort. This idea initially was started by virgin and Atlantic airways and it has been adapted by many airlines. The class with this type of seat has a variety of facilities such as selection of the wine to take, meals and type of comfort they want. They have purchased aircrafts Boeing that this facility has been installed, the customers have accepted this facility especially the business class has been making quite substantial amount of money out of this service.

The company’s website is the most preferred website within the country among the many citizens of this country. The airline website has many features including destinations that the airline takes their flight routes of fleet, and the time when airlines are living to various destinations.

Financial

Looking at Porter’s financial position, one finds that the company’s revenues have grown at a consistent pace over the years outpacing the industry average. However, consolidation in the aviation industry is resulting in large and competitive entities that are capable of slicing away its market share.

For the year ended Dec 31 2007, income from continuing operations increased 22% from a year earlier. The company is optimistic with its 2009 outlook regarding the growth rates in business class segment and sales growth rates in its tourist class services despite the potential for continued pricing pressure in certain markets. This indicates that Porter’s Airline capability and ability to utilize its assets fully. Moreover, the planned 2009 capital investment, which excludes investments in aircrafts and equipment and research and development expenses reflect a decline in Porter’s Airline. This decline is the first for the company which has been steadily increasing its capital investment and R&D expenses from 2004 to 2008.

These indicators may or may not show that the internal effectiveness and efficiency of the company is declining. The conclusion is not yet firm because other indicators such as Porter’s Airline service provision increased during the year. Or these indicators might support the conclusion that such effectiveness and efficiency are really in the decline. From this, the researcher concludes that there is urgency for Porter Airline to adopt strategies as outlined in this paper.

PEST

Political factors

Political factors will affect the company because it will have to adjust and fit into the political situation of the foreign country. Some of the political barriers will be vastable governments which have bad officials who award businesses with corruption to highest bribers instead of lowest bidders. Other governments will impose high tariffs to protect their home industries. Poor political environment will make the countries to place many regulations on the entering country to scare it off. Political environment is also inclusive of laws, government agencies and pressure groups that will form a barrier to entry into a particular country. There is however hope because some political factors can also create some opportunity to countries. The company must therefore know all the major laws protecting competition, consumers and the society of the country that it wants to enter, before they decide to expand into the country.

Social: – cultures of people in different countries can affect the marketing strategies that a company will use as it enters new international markets. The company has to consider vary many factors of the new international, market place, some of these are political factors, social factors, economic and technological factors. Looking at the social cultural factors ethnocentricity is a major factor especially if the new marketplace is in a country with diverse cultures. This is a major challenge because most of these people hold so much to these cultures that it is very difficult to make them adopt your product and your marketing strategies. The cultural activities of these people desires and their likes and preferences, equip the individuals of the communities with certain value systems and on the other hand compel individuals and the community to comply with certain demands and participate in certain activities.

Ethnocentricity has also a great impact on the type of media to use in communication of the product preferences to people of diverse cultures i.e. the way the company will advertise its products and services in Britain will be different from the way the product will be advertised in Britain and the advertising media to use. The advertising Medias range from print visual, audio-visual, billboards and small adverts did in between movies i.e. in between football matches. In France and Britain the best media to use are the print media and audiovisual like T.Vs. However, billboards can also be used especially if they are to be set up in roundabouts in towns to remind the people on the product. China and Japan on the other hand need entirely advertisements over the Radio because this is the best media to reach a large number of people.

Economic factors: – How the people spend their money, their power to purchase products and the income distribution among the people in the foreign country. Some people also have different patterns of savings and borrowings. This should be taken to serious consideration also. Some countries also have huge foreign debts, high inflation and high unemployment of its people. This leads to foreign exchange problems that will lead to foreign economic instability and the decrease of the currency of the country in value, hence the country should focus on these factors in order to make decisions whether to go international or not. Some of these factors may lead to threats or opportunities.

Competitive Factors/Trends Analysis

• New Entrants: Due to the industries demand, the profit margin is increasing, and hence new entrants which should result in reducing profit. This can be regulated by use of barriers to entry. These could arise from use of high brand loyalty by the consumer.
• Substitute services: These include cheaper sea travels and road transports available, hence the demand becomes more elastic affecting he consumption of air services. This has forced the industry to reduce their prices so as to effectively compete with them.
• Rivalry: The intensity of the rivalry is increased in this industry because there are numerous strong or aggressive competitors for the same customers; hence the customers enjoy flexible prices with the offering of good quality services.
• Bargaining power of customer: This increases when the customer who determines the price of the services are able to be ‘organized’ with others providing similar services, incur low switching costs especially when they change vendors within the competition.
• Bargaining power of suppliers: The may be able to dictate price and influence availability of the services.

SWOT Analysis for Porter’s Airline

Strengths:

• Improved security for passengers
• Cheaper and affordable air tickets.
• Customer loyalty.
• The company has a regular market demand.

Weaknesses:

• Weak brand awareness to the customers.
• Hugely affected by climatic changes.
• Few suppliers of fuel.

Opportunities:

• Profit margins will be good.
• Enlarging of the target market.
• Increasing awareness of people about cheaper and quick services.
• Increasing demand for air traveler.

Threats:

• Rising prices of fuel and current financial crisis
• Environment changes of climate.
• Stricter policies for air safety.

Future product development in the airline industry

New aircraft such as the Airbus A380 and Boeing 787 will have implications for the pattern of airport use and as demand grows and runway capacity remains unchanged, congestion will develop (Forsyth, 2007).

Success Map

The larger aircraft will reduce pressure on the tarmac but the problems on the ground will worsen for the larger airports as airlines switch to use of hub and spokes systems to utilize the advantages offered by the larger aircraft.

One finds two views on the affect of the events of September 11, one view is that the impact was severe and the aviation and tourism suffered badly (e.g. Blake and Sinclair, 2003), while the other view is that the impact was minimal and the reduction in air traffic is a continuation of an existing downward trend (e.g. Giglio, 2002). Literature has yet to address the affect of the downturn in world economy led by the US. All present trends thus indicate a slowdown of fleet modernization, ground facility improvement and airport infrastructure enhancement.

Aviation Trends

In the past few years, tremendous changes have taken place in aviation because of increasing technological complexity and growth in air traffic. While military aviation faces these changes more and, arguably, drives the changes, this essay addresses the trends in civil aviation. Trends in complexity of the technology deployed and the growth in traffic raise concerns for safety, cost and convenience for travelers, and environmental protection that the aviation industry has to address. This essay discusses the trends in modern aviation driven by each of these concerns, and concludes with a summation of what these trends hold for the future of civil aviation.

Safety

Growth of air travel and population densities in proximity of airports (since 70% of air accidents occur around airports according to Boeing, 2006) continues to highlight safety concerns in aviation. This adds pressure on the infrastructure consisting of airports, air traffic control and management, maintenance and flying crew of the aircraft. The organization consists of a complex network of human operators, computer aided systems, and technical systems all operating in an environment finally controlled by nature difficult to predict, making it difficult to provide safety.

The need to improve safety in the skies and on the ground involves improvement in aircraft design, systems that provide pilots and air traffic control better information about traffic, weather, and terrain conditions, and systems that improve the turnaround and reliability of aircraft in the air and on the ground. These improvements aim to:

1. Reduce incidents known to precede accidents through analysis and change in aircraft, operating systems, ground equipment, and operation and maintenance procedures.
2. Design aircraft less prone to failures resulting from technical and human errors, and those that can ensure safety of passengers even when a failure does occur.
3. Improve access and quality of information on weather, terrain and traffic for pilots and the ground staff.

The three most frequent causes of accidents is the collision with terrain, pilot error, and loss of control due to technical or weather related problems. Boeing (2006) puts human error on top of the list. This brings the need for new and better ground proximity equipment, better training of all human components of the system and advanced air traffic control and management equipment and systems; and above all the procedures and practices that inform their individual and joint operation. The situation is already complex and will become more so in the future.

This challenge has brought new technologies designed to improve safety. Enhanced cockpit systems that increase automation and lower dependence on human input, upgraded controller systems that use satellite-based navigation and positioning capabilities, the synthetic vision equipment, aircraft vortex spacing, lateral spacing systems and many others are examples of how the aviation industry has responded to safety issues. All these systems have evolved around the basic requirements of ability to fly in all weather, with higher density of traffic to use airspace more efficiently, processing aircraft quickly through and around airports, and above all by safety concerns.

In a comprehensive study of the size and diversity of aircraft composing the fleet of the top twenty airlines of the world, Kilpi (2007: 88) shows that “the uniformity of airline fleets has been steadily decreasing, while the average fleet scale has been steadily increasing”. This not only affects the airlines’ operational performance but also causes concerns for safety as traffic controllers, and ground systems find it difficult to keep abreast of different aircraft types, their capabilities and limitations.

The increasing reliance on advance technology may hold new threats to safety as well. For example, intentional jamming of GPS signals can be a major hazard (Corrigan et al, 1999). In addition, increasing sophistication in the cockpit increases the workload of pilots and increase chances of human error, as experts find the human-machine interface is the true source of human errors (Hughes & Dornheim, 1995).

Environmental Concerns

Changes in the aviation industry, to some extent, are also because of the need for environmental protection especially as relates to emission norms. Continued increase in fuel prices and the increasing pressure to reduce global CO₂ emissions has brought focus on aviation since this sector promises the maximum growth combined with a limited potential for reducing emissions (Morell, 2008, in press). Choice of fleet composition, design and life of aircraft and length of flight depends on fuel prices and need to reduce CO₂ emissions, as the industry will increasingly see heavier taxes and emission caps in the coming years. Improvements in fuel efficiency, implying lower cost and emissions, result from better design to get improved specific fuel consumption, improved lift to drag ratio, load factor, and seating capacity (Lee et al, 2001, in Morell, 2008). Considerable improvement has taken place in terms of units of traffic (passenger-km) with present levels reaching 80% in 2006 compared to 67% in 1990s, this is not likely to exceed a level of 85-90% in future (Morell, 2008, in press). Therefore, airlines shall have to find other ways to reduce the amount of fuel consumed and reduce CO₂ emission per unit of traffic per kilometre travelled. One method is to build better aircraft and the other to retire older ones. Aviation Strategy (2006, in Morell, 2008) reports that replacement of a 20-25 year old aircraft gives a one off saving of 20-25% in fuel consumption. Such strategies are of limited value since the growth of traffic more than neutralises the 1% gain per year achieved.

Morell (2008) demonstrates that a move to larger aircraft with single aisles, for higher seat density, improves fuel efficiency especially on the medium and shorter routes. Introduction of intermediate stops on the long flights also helps. However, it is evident that the industry has not been able, so far, to find a solution to the problem of CO₂ emissions and with growth in traffic – this will continue to create problems in future.

The amount of noise has significance in location of new airports since there is a marked difference in levels of noise likely to produce annoyance in newer communities exposed to noise than those exposed to high levels of noise over long periods (Weinstein, 1976. European airports enforce some of the strictest regulations for noise reduction and this makes it a problem for expansion of existing airports and setting up of new ones (Griffins, 2005, in Girvin, 2009). This has led the aviation industry to seek measures to reduce the noise produced by aircraft. The Cambridge-MIT institute’s work on the ‘Silent Aircraft Initiative’ (2003) is working on a mandate that seeks to “discover ways to reduce aircraft noise … to the point where it would be virtually unnoticeable to people outside the airport perimeter’’. The success of the different initiatives so far is that, using aircraft built in 1965 as a baseline, modern aircraft are only one third as noisy (Girvin, 2009). Boeings 787 (Hawk, 2005 in Girvin, 2009) promises to set the trend in silent aircraft design for the future.

Security

Airports face growing number of passengers, aircraft handled every day, pressures to reduce costs, further complicated by the cases of hijackings, highlighted by the events of 9/11 resulting in increased security requirement. This is placing airport infrastructure under pressure, affecting everything from access and car parking to the runways and terminal buildings. At the same time, the revenue used to improve these facilities is also under threat: low-cost airlines are seeking to reduce landing charges and airport retail revenues have dropped. These trends have raised the need for efficient airport management that addresses these concerns in a sustainable manner.

References

Blake, A., Sinclair, M.T. (2003): Tourism crisis management – US response to September 11, Annals of Tourism Research 30, 813–832

Boeing Commercial Airplanes (2006): Statistical Summary of Commercial Jet Airplane Accidents: Worldwide Operations 1959–2005. Boeing Commercial Airplanes, Seattle

Civil Aviation Authority (2006): No-frills carriers: revolution or evolution? A study by the Civil Aviation Authority, CAP 770, London, The Stationery Office

Corrigan, T. M. et al. (1999): GPS Risk Assessment Study: The Final Report, Johns Hopkins University Applied Physics Laboratory, January 1999, p. 1-1

Forsyth, P. (2007): The impacts of emerging aviation trends on airport infrastructure, Journal of Air Transport Management, 13, 45–52

Giglio, J.M. (2002): The impact of September 11, Transportation Quarterly, 56, 19–25

Girvin, R. (2009): Aircraft noise-abatement and mitigation strategies, Journal of Air Transport Management, Vol. 15: 14–22

Graham, B. Shaw, J. (2008): Low-cost airlines in Europe: Reconciling liberalization and sustainability, Geoforum, 39, 1439–1451

Hughes, D. and Dornheim, M.A. (1995): Accidents Direct Focus on Cockpit Automation, Aviation Week & Space Technology, January 30, 1995.

Kilpi, J. (2007): Fleet composition of commercial jet aircraft 1952–2005: Developments in uniformity and scale, Journal of Air Transport Management 13, 81–89

Morrell, P. (2008): The potential for European aviation CO₂ emissions reduction through the use of larger jet aircraft, Journal of Air Transport Management.

Porter’s Airline. Web.

Weinstein, N.D. (1976): Human evaluations of environmental noise, in: Craik, K.H. and Zube E.H. (eds.) Perceiving Environmental Quality, New York, NY: Plenum Press; 229-252