Aviation Management Service Quality and Customer Satisfaction

Question: Discuss about the Aviation Management for Service Quality and Customer Satisfaction. Answer: Introduction The current report revolves around the aviation management of full service network and low cost carriers. It is evident that airline industry has been increasingly developing with the record of carrying around 3.5 billion passengers on its scheduled services. It is observed that the industry is characterised by multiple key airline business models. However, two most effective model is the full service network (FSNC) as well as low cost carrier (LCC). In this context, De Neufville et al. (2013) commented that a distinction was observed in between the scheduled traffic that is comprehensively regulated and non-scheduled traffic in the realm of commercial air transport. On the other side, Shapiro and Varian (2013) also commented that low cost travel has now become one of the most effective ways of flying within Europe. At the e same time, it is notable that the figures of low cost-growth has also become stunning. Nevertheless, it has also been identified that there are some sorts of slowdown in the organic development of the low cost carriers (LCC). This is because of the decreasing average frequencies as well as increasing average route distance. The current report provides an insight regarding the revenue and the cost structure of the full service network and low cost carriers. Likewise, it also describes how the airline services in Australia and New Zealand implements the approaches to increases the revenue and use the cost structure of FSNC and LCC. Describing the revenue and the cost structures of full service network and low cost carriers (LCC) It has been identified that a legacy or the full service network is airline that usually focusses on providing a vast range of pre-flight as well as the on-board services, involving multiple services classes and the connecting flights. In this context, Dobruszkes (2013) commented that since the beginning of FSNCs operation on the hub-and-spoke model, this group of airlines are generally referred to as hub-and-spoke airlines. The below mentioned table 1 shows different types of sources that Full Service Network has been developing to maximise the revenue. This means FSC usually carries freight and it signs the contracts of the governments to carry mail, duty-free on- board to maximise the revenue as well as rent lease equipment to other airlines (Thompson et al. 2013). Revenue Account Medium Revenue Account Medium Passenger Passenger Traffic Charter Available Aircraft Time Freight Freight Traffic Duty-Free On-board Sales Mail Contracts of the government Services Maintenance handling for other airlines Excess Baggage Passenger Traffic Lease Income Lease of Equipment to other airline service Table 1: FSNC Revenue sources (Source: Lee,Seo and Sharma 2013) Likewise, the below mentioned tables demonstrate the airline as well as the aircraft operational expense. In order to minimise the expense, FNCS needs to develop the strategies for short-haul as well as the long-haul flight. Direct Operational Costs (DOC) Flight Operation The salaries and the expenses of the flight crew, the expense of fuel and oil, route charges and other expenses related to aircraft insurance, rental and lease of flight equipment Maintenance and overhaul Cost of engineering staff , spare parts consumed and administration and maintenance Depreciation and amortization Equipment of the flight, ground equipment and the property, the cost of development and crew training Station and ground expense Building, equipment, transport, maintenance costs paid to others and ground workers Passengers services The salaries of the cabin crew and expenses, service costs of other passengers and the insurance of the passengers Table 2: Airline operation cost (Source: Daft and Albers 2013) Discussing the approaches that have been considered to increase the revenue and minimise the costs by full service network and LCCs The cost structure of the FSNC model appears to be no longer an effective business model as they are implementing Low cost carriers operations strategies to decrease the fares as well as compete against the low-cost airlines. In fact, FSNC could continue to exist; they provide widely valuable services to large number of customers. The Full Service Network model could implement the strategies applied by LCS that may not affect the quality of services that they provide to the passengers such as frequent scheduling, inter-flight flexibility. The services also include like comfort on-board, in-flight entertainment, free mail and drinks. Furthermore, it has been observed that FSNCs strategies are designed to reduce the labour cost and increase productivity, transfer services to regional partners and build franchises. The FSNC model also uses the approaches to hire the new staff on less substantial contracts and outsource more activities. As commented by Baker (2013) FSC has been changing much of the techniques into a low-cost carriers. On the contrary, Timmins and Ham (2013) mentioned that a head to head strategy is implemented when FSC airlines implements the low-cost approaches in the particular routes in competition. Therefore, it can be mentioned that FSNs could have a control over the slots at the hub facilities or the ability to keep LCCs away of the hub operation. Cutting out the labour: It is evident that labour cost is one of the major concerns that airline organizations have to manage. In such situation, it is effective to cut down the workforce and adopt technology to get the work done quickly. For example, auto baggage check in could save a lot of time and the passengers would not have to stand on the queue for long. Hub and spoke structure: As mentioned by MacDiarmid (2013), Hub and spoke structure proves to be useful in FSNC, where they can have several spokes as well as a single hub. For example, while considering the Singapore Airline, Singapore being the hub, which has several spokes. Costs associated with the Ancillary: People who travel by air come from different culture and economic background. Some people may not compromise on their luxury. Thus, due to this reason, the airline has to develop different seat capacity. For example, the first class experience in aircraft feels the same as comfortably sitting in the couch at home. In addition, first class passengers get the full access to the luxury lounges in the airport where they could spend time with all facilities. Thus, first class tickets are very costly than any other categories. Therefore, it can be mentioned that selling one first class ticket could be equal to almost four economic tickets. Furthermore, it has also been identified that the majority FSN airlines have not applied the reduction of the flight and cabin crew at the low cost; rather the crew have to work early to flight from the other countries to minimize the accommodation cost. Conversely, Semple et al. (2013) commented that to resolve this issue, FSN are ceasing the secondary airports operations. A number of variables have been found that largely affect the FSNs operation being include the allocation of the seat, number of handle baggage as well as the use of loading bridges as they often delay the turn-around time of the aircraft. Assessing and reporting on the revenue sources and importance of ancillary revenue for Air New Zealand Group (2007-2015) It is observed that Air New Zealand recorded a net profit of $327 million for 2011 to 2015, which is considered as the 24% increase from the previous year. As put forward by Ramasamy, Sabatini Gardi and Kistan (2014), Air New Zealand has attributed to its strong financial performance to maximise the customer demand as well as additional capacity, lower fuel price and effective initiatives to minimise the cost. According to the recent published report, sales as well as marketing costs increased by 8.3% to $303 million, as the outcome of marketing new routes. Another increase of 3.6%o in labour cost has also been experienced. Regional coverage- Behind such excellent financial performance and increased revenue some domestic operation of Air New Zealand Group has also been identified. As mentioned by Gardi Sabatini Ramasamy and Kistan (2014), Air New Zealand operates flights to 42 towns as well as the cities across New Zealand. The studies indicate that Air New Zealand has maintained its services in some particular regions at considerable cost. It has also been identified that over the last few years, Air New Zealand anticipates that it has spent almost $1 million in a month for the providing services to the cities and towns. Furthermore, it has also been identified that Air New Zealand has the best regional network of any country. They provide the services to the towns with the population of 20000 people. Thus, it can be mentioned that the organization increases most of its revenue from the domestic services. Asian market: It is also observed that the number of visitors who travel from China to New Zealand has increased by 138% between 2007 to 2015. However, Ager et al. (2014) provided the sources that revenue for derived from the Asian market by Air New Zealand has decreased from 22% of the revenue generated in 2009 to 2011 to 18% in 2014/2015. It is also observed that Air New Zealand deals with a tough competition from Chinese airlines. Nonetheless, the organization closely work with the Tourism New Zealand. This helps the organization to attract Chinese demographics that adds better value to New Zealand tourism. In addition, due to the healthy climate and beautiful natural view of the country, people across the globe prefer to visit to New Zealand. Air New Zealand tend to attract wealthier people or the visitors who prefer to stay longer and travel across the country. Apart from the above-mentioned sources, some significant sources are there in which, the organization collects the revenue in terms of ancillary. The sources are such as Sustainability Framework, Environmental sustainability, Virgin Australia Alliance and Service out of Wellington. Analysing and describing different Air New Zealand Group cost (2007-2015) It has been identified that Air New Zealand operates its business in a very competitive market and developing the ways to minimise the operational costs, increase the rate of passenger satisfaction. The airline group is determined to differentiate themselves from this stiff competition. The operations involved in the airline services provided by Air New Zealand widely influence the financial performance positively and negatively. Some cost determinants are there in which Air New Zealand invests a large amount. However, there is a cost gap exists in each region of across a degree of cost categories. In this context, Strohmeier et al. (2014) commented that in 2008, there was 36% cost gap in respect of the operational cost. The operational cost of Air New Zealand can be categorised in different sector such as global operation cost, aircraft operation cost, fuel operational cost. It has been observed that the biggest source of unit cost advantages of New Zealand is in labour costs, which accounts for almost $51,435 annually per employee. Labour cost: Air New Zealand has lost more than 5% of its equity on labour cost management. Air New Zealand due to its strong operation both in domestic as well as global market, it has implemented the practice. Air New Zealand has a two-tier tax-free salary system as well as sourced from cheap Asian markets. Fuel cost: It is also observed that fuel cost has usually replaced the labour cost as the largest expense operating the airline services. As mentioned by Dobruszkes (2013), Air New Zealand saved almost 21% as well as 14% more fuel costs than the competitors in the airline industry. Analysing and discussing the year on year trends in the Air New Zealand Group fuel cost (2007-2015) It is evident that fuel cost strategies of the airline organizations have always been developed based on the current trends. As put forward by Lee, Seo and Sharma (2013), there has been a direct reduction to operate the costs with the reduction of fuel expense. It is identified that the rise in the fuel prices in the recent time has dramatically changed the equation of the airline business model as well as it has caused the unexpected demand for the more effective and efficient aircraft. It can be mentioned that decrease in the fuel price could influence the operation of airline service positively. Year Domestic International Consumption (million Gallons) Cost Million Dollars Cost per Gallon Consumption (million Gallons) Cost Million Dollars Cost Million Dollars 2012 1128.0 677.5 0.67 387.0 313.8 0.81 2014 1076.8 789.6 0.72 366.1 267.9 0.81 2015 1176.0 876.0 0.75 446.8 336.9 .083 Table 4: Year on Year on fuel cost (Source: Baker 2013) Identifying and discussing the fuel conversation strategies defined and implemented by the Air New Zealand Group (2007-2015) Environmental sustainability: Air New Zealand acknowledge admits that the aviation industry is one of the big hydro-carbon consumer as well as the polluter. Thus, the airline focuses promoting New Zealands 100 pure image in their collaborative partnership with the department of Conservation. Since the people in the country are doing the Great Walks of New Zealand, the partnership has increased. This enables the organization to develop the services and provide the unique experience to the customers. This eventually influence the financial performance. Commitment to the environment: Air New Zealand is considered as the world-leader in investigating the every aspect of flight operations to minimise the carbon emission by applying the technique of saving fuel. The Air New Zealand makes sure that it could predict fuel usage with the highest range of confidence as well as it could measure the progress appropriately. The Air New Zealand cut fuel consumed by 15% (Lee, Seo and Sharma 2013). Sustainable Bio Fuel: The organization has successfully accomplished worlds first commercial aviation test flight, which is powered by sustainable second-generation bio fuel jatropha. This has played a crucial role in the certification of the aviation bio fuel for the airline internationally. This initiative enables the drive for more sustainable air travel for forthcoming generation. Assessing and explaining the Air New Zealand Group annual profitability trends (2007 to 2015) It has been identified that Air New Zealand has announced its earning for the year 2014-2015, which is more than $805 million compared to $456 million in the year previous years. According to the financial statement recently published, it has been identified that the passenger revue of Air New Zealand has increased to $3765 in 2014 compared to $3876 in 2014 (Airnewzealand.co.nz.2016). However, the revenue from the cargo operation is observed to be $296, which is decrease to $ 287 in 2014. Likewise, the revenue from the contract services decreased to $277 in 2015 from $388 in 2014 (Airnewzealand.co.nz.2016). On the contrary, it has also been identified that the earning before the finance costs and taxation was $634 in 2012; however, it is decreased to $309 in 2014. Conversely, in 2014, it has increased to $ 405. The outcome indicated that in 2012 and 2013, the financial performance or the overall income of Air New Zealand was better than the performance of the recent year. Options 2015 2012 2009 2007 Operating Revenue $3876 $3765 $31689 $30973 Revenue from the contract services $277 $203 $287 $290 Earnings before finance cost and taxation Finance income $403 $309 $675 $432 Table 3: Trends in the financial profitability of Air New Zealand (Source: Airnewzealand.co.nz.2016) Identifying and explaining the key financial performance drivers of Air New Zealand Group (2007 to 2015) From the long-term operation of the New Zealand, some significant drivers have been identified that could largely influence the financial performance of the airline service. Global market presence: The Air New Zealand Group has focused on increasing the global presence, the initiative directly influence the financial performance of the organization. By developing its services, Air New Zealand has created a strong influence in the Asian market. As mentioned by Ramasamy et al. (2014), millions of people from India and China visit New Zealand for education, work, and trip and for other reasons. Thus, the profit margin of Air New Zealand has been increasing, which positively influence the financial performance of the organization. Customers: The Air New Zealand has gained the popularity for long-effective services. The airline service provider delivers a consistent as well as personalised customer experience throughout the journey. The Air New Zealand is determined to persistently applying the innovation in the customer service such as providing seamless check in process and increased loyalty programme membership. Thus, the customer base of Air New Zealand is increasing, which has the impact on the financial performance. Conclusion On the completion of the report, it can be mentioned that there have many factors that could large affect the operation and the financial performance of the airline service. It is also observed that trends and features of airline business model could change based on the current demands of the services. In addition, three more passenger airline business models have been found including the Full Service Network and Low-Cost Carrier and the charter model. In order to decrease the operational cost, increase profits, these business models could use some core strategies such as cost leadership, differentiation and focus strategy. Reference list: Ager, A.A., Day, M.A., McHugh, C.W., Short, K., Gilbertson-Day, J., Finney, M.A. and Calkin, D.E., 2014. Wildfire exposure and fuel management on western US national forests. Journal of Environmental Management, 145, pp.54-70. Airnewzealand.co.nz. (2016). Results Centre - Annual and Interim Results. 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