Commuter Airline
Instructions:-
Select one of the topics below and write a minimum 1000 word document using APA formatting (double space, cover page, header, reference list). You must also use at least three (3-5) academic references. Sources such as Wikipedia, Yahoo-answers and blogs are not acceptable academic resources. References must be no more than 5 years old.
TOPIC: Discuss the structure of major US air carriers that use commuter airlines in their business model.
Sections of the paper should include:
1. Introduction — What event did you choose and why was it theoretically interesting?
2. Relevant theories — Which theories did you choose for your “short list” and why?
3. Event description — What happened?
4. Theory selection — Which theory “fits” the event best? Why? What makes the theory you chose better than your other options? Explain the theory in this section.
5. Theory evaluation — What are this theory’s strengths in helping you to observe, describe and explain the event? Would the theory help you predict what might happen in similar events in the future? How so?
6. Critique — What are the limitations of your observation? What are the limitations of the theory? What ideas for further research and theory-building do these limitations introduce?
Solution
Commuter Airline
Introduction
Adopting the commuter business approach has become an aspect of personal fascination due to the substantial adoption across the US. As such, the commuter approach has enabled various carriers to offer services to a large market and continue to represent a fundamental part of the US airline industry. Nonetheless, the definition of commuter airlines has become blurred in the recent years. The traditional strategy of turboprop aircraft is not a comprehensive representation of the sector. From the analysis of the US airline sector, the widespread adoption of the approach in the 1980s led to a widespread threshold of the distances that a commuter airline company could operate hence increase the potential of the sector. Therefore, this paper will examine the structure of major US air carriers that incorporate commuter airlines in their business model.
Relevant Theories
In the airline industry, maintenance of competitive advantage has become an aspect of concern for various large companies. As such, adapting the commuter airlines, also known as the regional airline, has been a challenge to various large organizations in the airline sector. Therefore, to ensure that sustainability and profitability prevail through the commuter approach, the large airline companies have been adopting the hybrid model of operation. In reference to Steven, Yazdi & Dresner, (2016) the hybrid model denotes using already established regional airlines as their subsidiaries and adopting the Low-Cost Carrier (LCC) approach. Through the analysis of the major US carriers, the hybrid model seems to have been effective towards establishing a market share in the various regions of operation. As such, the adoption of a subsidiary approach has been cost saving to the large US carriers due to the potential to avoid the costs of setting operations, marketing and rebranding (Borenstein & Rose, 2014). On the other hand, the LCC model has been effective for the major US carriers in their focus towards maintaining a heightened level of market penetration in various regions.
Event Description
The Airline Deregulation Act 1978 set forth a need for strategic change for the major US carriers in their business model. The concept that the government would significantly reduce its regulations against the airline industry entailed a renewed form of freedom to operate (Vasigh & Fleming, 2016). Hence, it was imperative for the major US carriers such as Republic Airways Holding, Trans States Holdings and Delta Air Lines to encompass various strategies to capture the regional markets. With the Airline Deregulation Act 1978 evident and leading to the opening up of various markets, the major airline carriers opted for the acquisition approach to capturing the regional markets. Companies such as Delta Airlines and Trans States Holdings purchased Endeavor Air and GoJet respectively with the aim of penetrating the regional markets that the carriers operated (Borenstein & Rose, 2014). Making the local air carriers proved to be a beneficial strategy in a market whereby the operations of the airline carriers were not extensively scrutinized or under the government control. The large companies had the freedom to undertake various operational models such as Low-Cost approach which is prevalent in the current environment.
Theory Selection
Through an in-depth analysis of the major US carriers, the LCC model is the most effective approach towards capturing the commuter industry. Despite the focus on acquisitions, the LCC model has proven to be the most innovative and strategic approach to capturing the regional market. In reference to Steven, Yazdi & Dresner, (2016) the LCC model excels at streamlining operations coupled with maintenance of low costs. As such, in the market penetration into the regional locations such as Lower 48 in Alaska, there is needed to develop an incentive based approach towards capturing the potential customers. Therefore, among the beneficial outcomes of the LCC include:
Decrease in Revenue Dilution and Increase in Revenue
Ensuring that the subsidies adopt the LCC model has led to the revenue management solutions that emanate from a mutual partnership among the different stakeholders. As such, development of a dynamic environment whereby revenue is accrued through low fare ticket strategies coupled with advanced forecasting is evident (Borenstein & Rose, 2014). The major US careers provide the small regional airlines with support towards both market and route evaluation.
Improvement in Competitor Insight
Through consideration of the competitor data emanating from the large US carriers, there is the development of confidence in the revenue management process. A parent-subsidiary partnership entails access to vital information about the competitors (Vasigh & Fleming, 2016). The accessibility to the vital information can translate into effectiveness in the revenue management process to compete effectively with the rivals.
Theory Evaluation
Meeting the needs of the ever-changing customer expectation is an issue of concern in the commuter industry. As such, airline carriers that adopts the LCC model benefit from various customer solutions that give them the prospect of flexibility in responding efficiently and hastily to the customer tastes and preferences (Steven, Yazdi & Dresner, 2016). As a clear example, from the analysis of Delta Airline’s Endeavor Air, there is the provision of complete end-to-end customer sales coupled with services solution (Williams, 2017). As such, the regional airline through the LCC model provides and delivers effective distribution, sales and ensuring fulfillment of the needs of the customers. From merchandising, e-commerce and an innovative reservation system, the LCC model funded by the holding company has been effective towards customer acquisition (Borenstein & Rose, 2014). Therefore, from the analysis of the theoretical approach by the large US carriers, it is evident that soon, the companies are bound to:
- Gain extensive market share in the local routes and expand the business capability. The LCC model offers organizations with the potential to leverage the traditional partnership characteristics. As such, there will be the prevalence of airline-to-airline connectivity between the subsidiary and holding company.
- Ensure accessibility of customer information from both regional and national points. Through the LCC model, there is the development of access to a wide berth of customers. Therefore, the comprehension of their tastes, preferences from a local and national level will be beneficial to the major US carriers.
Critique
Despite the beneficial outcomes of the LCC model, there is equally the potential for increased competition. The LCC model focuses on developing customer-centric products and services based on the acquisition approach of the major US carriers of the small regional airlines (Borenstein & Rose, 2014). Nonetheless, the business model does not exude significant barriers of entry for the rivals. As such, Williams, (2017) emphasizes that the deregulation Act of 1978 despite being a beneficial regulation may pose a challenge to the LCC model. The market entry of various global airlines such as Qatar and the Fly Emirates will pose a challenge to the businesses due to the evident financial strength that they exude and can easily adapt the business model.
Conclusion
The success in the airline industry
is through the adoption of various business models that translate into
profitability and capture of the potential customers. From the above analysis,
the major US carriers have adopted the hybrid approach that entails acquiring
the small commuter airlines and incorporating the LCC model. Most importantly,
the LCC model has become a source of competitive advantage for the large US
carriers. However, with the reduced level of barriers to entry, the future may
become challenging for the commuter sector due to rivalry from the global
brands.
References
Borenstein, S., & Rose, N. L. (2014). How Airline Markets Work… Or do They? Regulatory Reform in the Airline Industry. In Economic Regulation and Its Reform: What Have We Learned? (pp. 63-135). University of Chicago Press.
Steven, A. B., Yazdi, A. A., & Dresner, M. (2016). Mergers and Service Quality in the Airline Industry: A Silver Lining for Air Travelers. Transportation Research Part E: Logistics and Transportation Review, 89, 1-13.
Vasigh, B., & Fleming, K. (2016). Introduction to Air Transport Economics: From Theory to Applications. Routledge.
Williams, G. (2017). The Airline Industry and the Impact of Deregulation. Routledge.