The Significance and Challenges of the Airline Industry

Introduction

The airline industry represents one of the most significant industries across the globe, not only for its economic benefits but also for the inherent social benefits it has on humanity and various practices and activities indulged in. According to ATAG (2018), the Airline industry is currently the only worldwide transport network, making it essential for global interaction in form of business and tourism. This impacts a vital contribution in the growth and development of developing countries all across the world. ATAG (2018) further confirms that the industry provides up to 65.5 million jobs all around the world with these roles being distributed within the airline industry itself, airports, civil aerospace and air navigation as well as other jobs supported by air travel including businesses and bookings and holiday services. Iata.org (2018) highlights that the world’s airlines carry over four billion passengers a year and nearly 62 million tons of freight amounting up to US$ 2.96 Trillion which makes up about 8% of the global Gross domestic Product (GDP). However regardless of the significant performance of the industry as a whole, this is not true for all airlines. IATA.org (2018) confirms that a majority of Airlines are in fact operating on the brink of collapse with just a dozen or so airlines making profits off their competitive advantage practices. Twin (2019) describes competitive advantage as the unique factors a company or entity has that allows them to develop and produce cheaply than others. These factors allow the productive entity to generate more sales or superior margins compared to its market rivals. Amadeo (2019) emphasizes that competitive advantage is what makes an entity's products or services superior to all of customer's other choices thereby impacting consumer choice in their brand.

Norwegian Airline

Norwegian Airline is not only the largest airline company in Norway, but also holds the sixth position internationally when it comes to low cost carriers and air travel across the globe. Despite it’s founding in 1993 the company through development and adoption of low cost flights and other competitive advantages, has rapidly developed in the last 2 decades to become a key airline within the global transport market. Norwegian.com (2018) points out that the airline currently owns about 150 airplanes, all of which average about 4 to 5 years of operation, making the airline one of the world’s youngest and greenest fleets. Providing up to 500 routes of choice for travelers, the airline flies to more than 150 destinations in North America, Europe, the United States, Asia, the Middle East, the Caribbean and South America. According to Powley and Milne (2017) of the financial times, the Norwegian airline is a fast growing airline company that has become a disruptive force in the European Airline industry not just because of the new and young fleet they possess but also because of their reduction of travel cost due to the use of high-fuel efficiency airline that are cheaper and more environment friendly in the long run. However Fouche and Jessop (2017) premise that the companies strategies of fitting more passengers on fuel efficient aircrafts impacts increasing operation costs without corresponding high returns. Given the company’s rapid development into the top 10 airline industry however, it is evident the airline poses significant competitive advantages over other airlines.

Management Practices

Throughout its last two decades of practices, Norwegian airline has invested in strategic goals and practices to be able to achieve a market share and solidify their market within the international airline market. Through effective management practices and decision making, the company has established itself as one of the major airline companies in the globe transporting up to 50 million individuals yearly across Europe and international boundaries. Among the Key management practices and strategies that has afforded the company a significant competitive advantage over the years includes: Investing in low cost carriers, information management and practices, Consumer satisfaction practices.

Investing in Low cost carriers

Maintaining low travel cost for their customers has been a major competitive advantage practice for which Norwegian Airlines has succeeded and grown upon through the last two decades of its operations. Ambrose (2016) points out that within the last five years, Norwegian airlines have embarked in practices and strategies to enable effective low cost transatlantic flights leading to investment in fuel efficient fleet of modern aircrafts. The Norwegian Annual Reports (2016) confirms the companies purchase and introduction of long-haul, low cost airlines that not only allow the company to save significantly in fuel for the flights but also reflect this cost in air travel prices leading to significantly lower traveling cost compared to other competitors like Rynair and Etihad airlines. This has given the company a competitive advantage over the last five years impacting its rapid growth and development into the most successful airline company in Europe

Kazin, (2018) highlights that with the purchase of new 737-800 Boeing aircrafts, passengers are capable of traveling cheaply and more comfortably to their various destinations while receiving the highest quality of customer service and satisfaction. This further enabled the company’s expansion of its size in terms of the number of fleet, increasing them from just 68 flights doing 330 routes in 2012 to up to 250 fleet doing more than 500 routes in 2017 (Dagenborg, 2016). The expansion of the company’s fleet also enables their venture and exploration of new markets through introduction of direct flights linking major cities around the world. Increased flights per day and direct flights further cut down costs for consumers leading to constant increase of their passengers. Over the last ten years the Norwegian airline has recorded an increase of up to 22 million passengers, from an average of 7 million passengers in 2007 to almost 30 million passengers in the year ended 2016 Norwegian Annual Report (2016).

Corporate Social Responsibility

Pollution impacting climate change is among the major issues of international concern currently. According to Wilkes (2019), the airline industry is currently third after energy production and agriculture with a 1.3% share of all human caused greenhouse gases. With the current rate of emissions from air travels increasing significantly, it is predicted by UN agencies that the airline industry will be the leading carbon dioxide emitter in three decades. In a race to limit pollution as such companies are taking up strategies to minimize green house gases emissions in corporate social responsibility strategies. This represents a competitive advantage practice that significantly influences association with customers.

Goldstein (2019) points out that in the current market, consumers are critically conscious of contributing to the limitation of greenhouse gases and climate change effect from pollution and are as such subscribed to companies taking steps towards environmental conservation and protection measures. The introduction of the fuel efficient fleet of aircrafts by Norwegian airlines as such, in addition to impacting low cost travels for their passengers, also impact the airlines contribution towards the minimization of carbon dioxide emissions by airlines giving them a competitive advantage over other airlines.

Information Management

Unlike many companies including airline companies and otherwise, Norwegian airlines has significantly invested in information collection, management and use to impacts increased customer services and efficient practices. Noakes (2017) highlights that in addition to the regular management and maintenance practices carried out by the airline in all its assets and operation activities, the company also significantly react and use consumer feedback with regards to enhancing consumer satisfaction during the air travels. Airline customers include tourist as well as business persons who are frequent travelers and as such are not only looking for cheap costs of travel but also safety, comfort, convenience and a good overall experience.

Based on Bhaskara (2015) an audit on the Norwegian Airways confirms an active e-commerce website that is frequently updated so as to interact with and respond to consumer needs and inquiries in a bid to improve consumer experience. Through technological use and indulgence, a direct channel of communication between the consumers and the company is effectively opened, enabling consumer’s to search and access any relevant information required at the comfort of their homes including booking for flights. The company consequently uses these sites to enhance consumer satisfaction and experience which affords them significant competitive advantage over other airlines. Goldstein (2019) highlight that the Norwegian Air shuttle provides effective and remarkable customer services and hospitality from a widely selected staff range including employees from more than 120 countries for any cultural interactions and exquisite flight experience.

Productive partnerships

Despite the recent performance drawbacks of Norwegian airline as pointed out by Johnson (2016) the company has continued thriving and maintaining advantage over its competitors given effective partnership developments as well as financial management strategies. Goldstein (2019) confirms that within a short time the company’s significant purchase of air craft and rapid growth has impacted its eventual success and competitive advantage. Despite the fact that rapidly growing airlines often put significant pressure and tension on their infrastructure and operations management, Goldstein (2019) confirms that the companies strong alliances and partnerships have enabled it consistent growth and management as well as ample infrastructure to support its rapid growth.

The wide range of partnerships including Boeing and Airlines for Europe (A4E) enabled effective operations and ample assets and infrastructure to manage the companies rapidly increasing fleet, according to the Local (2018) the strategic partnership for infrastructure enables the company to operate effectively and efficiently with the new aircrafts to increase revenue and market share. Increased airline numbers and operations due to ample infrastructure enhance increased flights significantlyinfluencing customer convenience and providing a competitive advantage to the company.

Financial Management

According to Boutin et al. (2017), effective balancing of operation tradeoffs require development of essential commitments towards the achievement of effective overall operations and company performance and subsequently investing in, and developing analytical capabilities to help weigh the tradeoffs. According to the Norwegian Airline Annual report (2016) some of the operation costs managed by the company include: international operation costs as well as Aircraft and airport maintenance. The reports indicate that while the operations revenue increased by 16% leading to an annual operations revenue of NOK 26,055 million, its corresponding operations cost also increased to NOK 22,938 Million, this excluding the cost of depreciation and fuel cost for each single aircraft unit.

Goldstein (2019) further highlights possible partnership with Rynair or Lufthansa to further impact a financial increment and effective performance of the Airline. The company’s financial management practices over the last two decades have been significant in its effective rapid growth and competitive advantage over its competitors. The financial management practices and decisions have further been significant in strategic decisions including investing in long haul, low cost flights leading to the companywinning the award for world best long haul, low cost airline for two consecutive years Norwegian Annual Report (2016). This further adds on to the company’s reputation and operation goodwill, significantly impacingt their competitive advantage.

Conclusion

Given the high costs of international travels through airline companies all across the world, the development of low cost, long haul flights by the Norwegian airline in addition to the rapid increase of the number of flights and routes all across the world significantly impacted the company’sadvantage over other airlines subsequently impacting eventual increase in Market share. Further, the management practices involved in the company over the last two decades with regards to operations and financial use impacted significant competitive advantage that impacted its rapid growth. Through effective partnership, the company secured effective financing to expand as well as infrastructure for their increasing fleet numbers affording the company increased capacity for more travels which subsequently impact competitive advantage. The companies inherent involvement in e-commerce as well as utilization of consumer feedback and inquiries enabled effective service and subsequent satisfaction of consumer needs and experience thereby affording the company competitive advantage over other airlines.

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References

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Boutin N., Jhunjhunwala P., Molenaar D. M., Ramos P. and Bosch F. (2017). Inside Airlines’ struggle to Balance Profitability and Performance. Available at https://www.bcg.com/publications/2017/aviation-operations-inside-airlines-struggle-balance-profitability-performance.aspx [Accessed 27 April. 2020]

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Wilkies, W., 2019. Airlines Were Supposed To Fix Their Pollution Problem. It’S Just Getting Worse. [online] Bloomberg.com. Available at: