Essay: The airline industry

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  • Subject area(s): Business essays
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  • Published on: December 11, 2019
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  • The airline industry
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Question 1

1.1.) For a long time air industry seems to be a brilliant prospect, but the entire industry has been suffering from financial problems due to the economic crisis. The role of the airline business has been vital for the world economy because it has crucial impact to the contribution of its globalization. In the external environment of the businesses we can detect a lot of aspects such as political, economic demographic and technological which are affecting the whole community (www.marketrealist.com).In order to understand the key challenges in the airline business we must analyze the environment that they are working in.

Airlines work in a political environment which sometimes wants to have the absolute control and it’s making restricted intervention on economic operations (international trade, tax policy, competition, war, terrorism, and the outbreak of diseases) (www.marketrealist.com). Economic factors such as the fluctuation in oil prices also contribute in the airlines’ profitability. Furthermore the demographic factors affect the forecasting demand in which we can notify a change in travel preferences among the latest generation. Companies in the air sector are working in an intense competition and because of that they must have a competitive advantage in order to distinguish from the other associations. This advantage can come out from the use of the latest technology. The adaptation of the technology could help the businesses in lower fuel consumption, reduce costs, improve efficiency and limit the cost of airline. International Airline Transport Association’s has notice the use of technological systems as one of the four pillars under the world plan that can help in order to eliminate the effects of the climate change (www.iata.org).

If we want to make a formal grouping for the categories of the airlines we could say that they are classified, mainly in two groups, including their size and what they transport. Lufthansa is one of the few profitable airlines world widely, despite of the problems that it has deal because of the adjustments that it has achieved through the years. Additionally, business environment is full of opportunities and challenges, which pushes Lufthansa to identify relative solutions and adopt more effective ways to respond. The basic objective goal for Lufthansa is to be the first choice for customers, employees, shareholders and partners (www.lufthansa.com). The basic element in the airline business environment is how they can customize the appropriate solutions which can be beneficial for the corporations into a continuously varying system.

One of the best practises in the airline union is the creation of an alliance which can help to expand the industry without making investments in an economically unsustainable way. Strategic alliances can reduce the cost and risk but also it help getting more profit for the businesses. Lufthansa the year 1997, cooperate with four other airlines(Air Canada, Scandinavian Airlines, Thai Airways, United Airlines)  founded Star Alliance (www.lufthansagroup.com), for the purpose of providing customers with better service, worldwide. The aspects of the environment in which Lufthansa operating are affecting by global challenges, such as population growth, climate change and processes of political transition. The company has innovative human resources processes supported by flexible and innovative procedures which are the basis for the contribution that human resources can make to the success of a company (www.lufthansa.com). Lufthansa have the appropriate experience (know-how) and the needed excellence in expertise for successful and innovative management of the business (www.lufthansa.com)

1.2) For every successful company an effective salary system is a vital part of human resource management. Especially it helps organization, measure the impact on strategic performance and may give the guide for reaching the goal of maintaining or improving profitability by stimulating employee performance. By a literature view according to Daft, the meaning of compensation includes:

(a) all monetary payments and

(b) all goods or commodities used instead  of money to reward employees.

For a company it is crucial to develop an effective compensation programme because it will be a reason to bring more talented worker and be beneficial for the remaining staff. Lufthansa operate in an extremely competitive industry which has been negatively affected by the recent economic and political progresses, such as the 9-11 and the rising oil prices. Despite the fact that Lufthansa has been very successful in cutting costs in spite of rising wages, it still needs further efforts from the top management in order to make the required restrictions at the fuel costs and a direct control at labour costs.

Although Lufthansa is one of the biggest companies in Europe, it has started an effort to modify and limit costs in order to face the competition of low cost carriers such as EasyJet and Ryanair (www.theguardian.com). The type of measures that Lufthansa tried to create has resulted to the longest strike in the history of the company which causes a cancelation in the flights for more than 4,600 during seven days, affecting more than 540,000 passengers(www.reporter.gr). This was not the first strike that it took place in the company (in the year 2014, the 5,400 pilots of Lufthansa, which represents the union Cockpit, carried out 13 strikes from April 2014 until September 2015, causing the cancellation of 12,800 flights) (www.reporter.gr) and this is something that it must increase the interest of the top management in order to reconsider the orientation strategy of the human resources plan.

The conflict between management and employees over the company’s plans to change early retirement system target the strategy of Lufthansa to further develop its low-cost operations, due to the face of competition from low-cost companies. The union was protesting mainly over cuts to their pension but the management complain that costs must be cut and that the company can no longer afford the wages and social security for its employees, because their cheap airlines benefit from cheaper airport charges, lower fuel costs and, above all, from their wages(www.bloomberg.com) Lufthansa tried to customize its strategic plans and goals restructuring them to a better way(www.centreforaviation.com). The key effort for the company was the European expansion, which give them the advantage in spite of owning its low cost subsidiary, to make operations with Swiss and Austrian airlines. Also Lufthansa operated with SunExpress , a 50/50 joint venture company co-owned by Turkish Airlines (www.centreforaviation.com).. Those arrangements, when approved by competition authorities, help companies who take part, to create a new platform of prices which potentially improve its cost efficiency.

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