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04/15/2012

Service Marketing - Aer Lingus


 Executive Summary

Airline businesses provide services to people. Airline businesses help an individual to travel from one place to another. One company in the Air line industry is Aer Lingus.  Aer Lingus was the national flag carrier of Ireland. Aer Lingus is the country's second largest airline after Ryanair. Aer Lingus has 4,000 personnel. It acquired revenue of €1.4 billion. Currently Aer Lingus has serviced over 10 million passengers. Aer Lingus encountered a service marketing issue. The service marketing issue for the Aer Lingus is the different air accidents it encountered. Air accidents cause the life of passengers and can dissuade a client to use the airline’s services. Aer Lingus made use of a methodology to solve the problem. The methodology in this research would focus on gathering data from books, journals and internet sources. The sources of data would clear the means to reduce or eliminate the Air accidents encountered by Aer Lingus. 

Aer Lingus

One factor affecting labor productivity is the degree of outsourcing which an airline undertakes. If labor-intensive activities such as flight kitchens, heavy maintenance, aircraft cleaning or IT support are outsourced, then an airline's own staff numbers are invariably reduced and output per employee is enhanced. During the last decade, many airlines, especially in Europe, have begun to outsource key functions, as British Airways has done with its ground transport at Heathrow and Gatwick airports and it’s catering, which was sold to Swissair's Gate Gourmet in 1998. In 1999 Aer Lingus went so far as to sell off its entire maintenance division to FLS Engineering, who would henceforth undertake the airline's maintenance. Low-cost airlines are a much more recent and revolutionary phenomenon in Europe. On the London-Dublin route, where traffic had been stagnant for three years, passenger numbers more or less doubled in the next three years in response to the low fares introduced by Ryanair and to the lower fare forced on Aer Lingus and British Airways. But Ryanair was not profitable. Its unit costs, though lower than those of Aer Lingus, were not low enough to sustain its low fares strategy. Aer Lingus at first tried matching Ryanair's lowest fares, but ended up losing money. Aer Lingus's current strategy is to price its tickets about Sterling £10 to £15 higher than Ryanair's comparable fares, believing that passengers are prepared to pay this differential for the much better in-flight service and for flying into or out of Heathrow (Doganis 2002). After some time Ryanair replaced Aer Lingus as the largest carrier on many of the UK to Ireland routes some years earlier. Becoming a dominant carrier is more difficult to achieve if low-cost airlines enter major dense routes which already boast three or four operators or where two or more low-cost carriers are operating on the same or parallel routes. Nevertheless, becoming the largest or second-largest carrier on most of their routes must be a prime objective for low-cost carriers wishing to ensure their longer-term survival. Aer Lingus's decision early in 2000 to join the Oneworld alliance means that Aer Lingus passengers previously hubbing through Amsterdam to fly to long-haul destinations would be switched to London to transfer onto British Airways. Aer Lingus revenue from a Dublin-London passenger transferring in London would almost certainly be less than from a Dublin-Amsterdam passenger doing the same in Amsterdam. On the cost side, the level of cost reduction through joint activities and synergies of any kind will very much depend on the nature of the agreement between the partners (Doganis 2001). Aer Lingus was the national flag carrier of Ireland. This airline company operates a fleet of Airbus that serves Europe, North Africa and North America. Aer Lingus is the oldest airline in Ireland. Aer Lingus was founded on April 15 1936; they had a starting capital of £100,000.  Aer Lingus is also the country's second largest airline after Ryanair. Aer Lingus joined Oneworld alliance in 2000 but it got out of the alliance in 2007. It still engages in code share with Oneworld, Star Alliance and SkyTeam members.  The company has agreements with Aer Arann and JetBlue airways.  Aer Lingus has 4,000 personnel. It acquired revenue of €1.4 billion. Currently Aer Lingus has serviced over 10 million passengers. Aer Lingus makes use of a mixed business model wherein it operates on low fare services on the European and African routes. In the transatlantic routes it operates on full service for two class flights. Aer Lingus is currently owned by the government of Ireland and Ryanair. 29.4% of the company's ownership belongs to Ryanair while 25.4% belongs to the government.

Service marketing issue

The service marketing issue for the Aer Lingus is the different air accidents it encountered. Air accidents cause the life of passengers and can dissuade a client to use the airline’s services. Because the safety of air travel cannot be observed directly, and a reduction in unsafe air travel is also an improvement in air safety, measures of unsafe air travel have been used as proxies for air safety. Both input and outcome proxies have been used. Input proxies represent actions by airlines, airports, and government that decrease the probability of unsafe air service; outcome proxies represent unsafe outcomes of air travel (Wallis 2003). Aircraft maintenance and pilot training expenditures are examples of input proxies; aircraft accidents and incidents are examples of outcome proxies. Since little is known of the extent to which safety inputs translate into air safety, outcome proxies may be more reliable proxies of air safety than input proxies  thus the rationale for the extensive use of outcome rather than input proxies for air safety. Various outcome proxies for air safety have been used by government, the airline industry, and academia. The particular proxy that is chosen will depend upon the purpose in investigating air safety, for example, comparing air safety over time and across airlines, investigating the probability of passenger fatalities and injuries, and investigating determinants of unsafe air travel (Loeb, Talley & Zlatoper 1994).

An underlying assumption to the argument that market forces promote air safety is that costs of air accidents are of sufficient magnitude to provide an incentive to both airlines and aircraft manufacturers to promote air safety. Because airlines typically carry quite complete aircraft and passenger liability, the primary airline accident-related costs are expected to be increased insurance premiums and reduced demand rather than actual cash outlays. The primary accident-related costs incurred by aircraft manufacturers are expected to be the costs of lost sales rather than actual cash outlays. The typical approach adopted in the literature for investigating accident-related costs borne by both airlines and aircraft manufacturers is to investigate the reaction of the stock market that is, accident related costs are reflected in the decline in the stock market value of airlines and manufacturers (Smith 2004). Since safety of air travel cannot be observed directly, measures of unsafe air travel have been used as proxies. Input proxies represent actions by airlines, airports, and government that decrease the probability of unsafe air travel; outcome proxies represent unsafe outcomes of air travel. Since little is known of the extent to which safety inputs translate into air safety, outcome proxies may be more reliable proxies for air safety. Input proxies include aircraft maintenance and pilot training expenditures; output proxies include aircraft accidents and incidents. The literature has investigated accident-related costs borne by both airlines and aircraft manufacturers by investigating the reaction of the stock market. Since airlines typically carry quite complete aircraft and passenger liability, the primary airline accident-related costs are expected to be increased insurance premiums and reduced passenger demand rather than actual cash outlays (Hood & Jones 1996).

The primary costs incurred by aircraft manufacturers are also not expected to be actual cash outlays but rather lost sales. Accident-related costs for both airlines and aircraft manufacturers are argued to be reflected in the decline in their stock market values. Estimates of average equity losses incurred by airlines involved in accidents range from $12 million to $31 million. The average equity loss for aircraft manufacturers has been estimated to be $21 million. Whether these losses are of sufficient magnitude to provide an incentive for airlines and aircraft manufacturers to promote that is, for market forces to promote air safety is debatable (Mouloua & Parasuraman 1996). Determining causes of unsafe air travel is complicated by the fact that a given unsafe air occurrence seldom has a single unambiguous cause. Safety and security are, in some ways, matters of perception. In an aircraft flying 30,000 above the surface of the earth, passengers have no control over their environment. They are dependent for their safety on the pilot and on the engineers who maintain the aircraft. In these uncertain times, passengers are dependent on the performance of ground staff and security personnel to ensure that no malcontent is able to harm the aircraft and its human payload. Because all these activities are outside the control of passengers, for travelers uncertainty will always exist. But it is within the capability of airline and airport managements to assuage the fears and misgivings of the air traveler. Air companies can raise the perceived level of security to a point where customers accept it as sufficient. Governments may need to push the air carriers in the right direction, although the fiscal penalties resulting from passengers opting not to travel where uncertainty exist may well be motivation enough (Garland, Hopkin & Wise 1999). The need to make sure that clients are secure is vital for Aer Lingus. Clients would want nothing more but an airline company that assures safety as they travel from one place to another. The company needs to determine means to make sure that air accidents and tragedies would be minimized or totally eliminated.

Research Methodology

The methodology of a research endeavor uses various theories to help in understanding the field of inquiry. The methodology makes use of conceptions to determine means to find information that will help in a research or inquiry. Methodologies are known to be ideas that try to deal with different tools in gathering information needed in a research or an inquiry. Methodology is used as a strategy for acquiring needed data. The methodology chapter of a research should serve as the blueprint of a study with notes on how different theories and tools on the research should be used. (Coles 2006). The methodology that would be used by the company would focus on gathering data from books, journals and internet sources. The sources of data would be used to determine the solution to the marketing services issue. The sources of data would clear the means to reduce or eliminate the Air accidents encountered by Aer Lingus.

 

Development of solution

Roles and responsibilities

The solution for the issue is to conduct daily checkups and testing for the airplanes of Aer Lingas. Different individuals play a role in implementing a solution. One of them is the management.  Airline management is about matching the supply of air services, which management can largely control, with the demand for such services, over which management has much less influence (Hopkins & Kauffman 1995). What determines profitability is the airline's ability to produce unit revenues which are higher than its unit costs. Low unit costs are no guarantee of profit if an airline is unable to generate even the low unit revenues necessary to cover such costs. The numerous factors which affect airline operating costs can be grouped into three broad categories according to the degree to which they are under management control. First, one can identify a number of external economic factors over which airlines have little control. Such factors include the prevailing fuel prices, airport and en-route navigation charges and certain distribution costs. An airline has to accept these as more or less given and can only marginally mitigate their impact through negotiations with service providers or fuel suppliers. The levels and patterns of demand that an international airline is trying to satisfy are also largely externally determined by economic and geographical factors beyond its control. Second, there are three major determinants of costs over which airlines have somewhat greater but still limited control. These are staff costs, the type of aircraft used and the pattern of operations for which the aircraft are used. While the latter two of these may seem to be entirely at the discretion of airline management. The geographical location of an airline's home base, the bilateral air service agreements signed by its government, the traffic density on its routes and other such factors will strongly influence the type of aircraft required and the network operated. Management does not have an entirely free hand to do as it wishes. This is particularly true in countries with only one flag carrier, especially if it is majority-owned by the government. The third category of cost determinants is that over which management has a high level of control or even total control (O’connor 2001).

 Marketing, product planning and financial policy fall into this category, as does corporate strategy. In the final analysis one must also consider the quality of management and its efficiency as a cost determinant. It is crucial because management determines the degree to which the impact of the other factors mentioned above, whether favorable or unfavorable, can be modified to the benefit of the airline concerned (Munck 2004). The quality of management affects the efficiency with which the management of an airline brings together the various factors of production at its disposal in order to meet different levels and types of demand in different markets. In theory it is management ability or the lack of it which should explain cost differences between airlines which cannot be attributed to variations in input costs, aircraft types operated, stage lengths or any of the other cost variables. In practice no airline management is likely to be equally efficient or inefficient in all areas of the business. It may well be efficient in one area, such as flight crew scheduling, but relatively inefficient in the organization of maintenance procedures. Thus the total unit cost of an airline may mask wide variations of performance in discrete areas of activity such as flight operations or maintenance management. Ideally, inter-airline comparisons should be on a disaggregate basis, looking at such discrete areas separately (Aharoni & Nachum 2000). The main role of solving the problem of Air accidents lies on the managers of Aer Lingus. The managers will make sure that the air accidents will be minimized or removed. The managers will be the ones that will check if all the solutions have been implemented and if all those involved are doing their part. One of those that will be involved in solving the problem is the engineers and quality assurance group of Aer Lingus. They will be tasked to make sure that the air planes used by the company works well. They will be one of those responsible if Aer Lingus encounters any more air accidents. Another group that will be involved in solving the problem is the marketing and promotion department. They will be tasked to inform the clients about the planned changes. They will be the ones that will assure everyone of their safety as they travel.

Communication issues

In solving the problem of the Aer Lingus communication between those involved would be vital. The managers must make sure that they communicate constantly with the engineers and the marketing team. Both the marketing team and engineers should discuss with each other and the manager about the progress that has been done and the problems that have been encountered. Communication can be done through personal discussion, telephone calls or done with the use of the internet.  The communication issue that they might encounter includes the miscommunication between those involved and the lack of time to discuss things.  This could be solved through initial meetings that will determine the singular mode of communication and the exact time or date of meetings or discussions. In many organizations, communication is recognized as being important but little or nothing is done about it. Organizational communication has been variously conceived as what people who are academic students of communication do, it can be viewed simply as the study of communication in organizations, or the term has been taken to mean the use of communication to describe and explain organizations. Given the breadth of its core concerns, it qualifies to be regarded as a subset of the wider study of organizations (Hargie & Tourish 2004).

One conceptualization of communication is that it is largely a mediating device between management intentions on the one hand and their execution on the other. An alternative perspective is that the dialogic properties of communication systems have a transformative impact on management intentions and fundamental notions of what it means to do business. Here, communication is regarded as an integral part of the entire organizational operation wherein it both reflects and shapes the way business is done. Verbal communication is a primary vehicle organizations use to maintain contact with their internal and external environments. Through the use of oral and written language, organizations and all of their subsystems coordinate, control, and manage individual and group behavior (Harris 2002). Organizations are affected by verbal communication in at least three ways. First, the environment provides extensive information to an organization through verbal communication. Second, individuals use verbal communication to direct, manage, comprehend, and respond. Finally, verbal communication is a principal means for creating and developing organizational intelligence (Taylor & Van Every 2000).  Non verbal communication is considered an essential factor in understanding organizations. In addition to the interpersonal impact, organizations are also keenly aware of the importance of certain nonverbal behaviors, and many corporations go to great lengths to create the desired impression on visitors, clients, and employees through office and building design. Individuals often use their offices as extensions of their own territory. Interpersonal communication is fundamental to obtaining employment, succeeding on the job, and being an effective colleague, subordinate, or manager. Interpersonal communication is a vital part of innovation. Interpersonal communication in organizations is similar to everyday friendships, but two task-oriented characteristics differentiate it. First, organizations are goal oriented with their chief concern being output. Organizations are purposeful and the expectations are that employees will work toward common goals. Second, organizations require a co-orientation of behavior, which involves the elicitation of behavioral coordination among communicators for the accomplishment of commonly recognized goals (Harris 1993).

IS/IT issues

The IS/IT issues would focus on the use of technologies that will check for the safety of Aer Lingus’ planes. There would be IS/IT technologies and systems that would determine the safety levels of the planes. These systems aim to determine the probable problems of the plane. The IS/IT technology technologies and systems would be used to simulate the flight pattern of each plane. This would check if the plane will still be useful. This would incur additional costs but would provide a big help in making sure that the passengers would be safe.

Costs and benefits

Traditionally the cost control systems was the main management function since estimates had been based on fee scales and resources could be selected to match the given fee. However, as a result of the increasing trend toward fee competition, organizations conceded that the data currently used for cost control could be utilized further for estimating future projects The effects of increased fee competition, either through traditional contractual arrangements or through design and build arrangements, against a background of the need for compliance with predetermined quality criteria, will inevitably require a higher degree of accuracy in the selection of necessary design resources and the estimation of design fees for fee bids than had been required under recommended scales of fees. There can however be no certainty that design organizations’ planning and estimating systems, which have been developed over many years during which fees were rigorously controlled by recommended scales, will be adequate for the new competitive environment. It is therefore possible that the inherent quality of construction projects will be influenced as much by the effectiveness of design managers’ planning and estimating systems as by the technical expertise of the designers (Frame 2002).  The creation of the project would entail various costs. The cost would include the payment for the developers of the IS system and other miscellaneous expense. The project will be a success if the proper financing would be acquired. It is vital for the firm to achieve all the necessary finances so that it can be completed at the earliest time possible. The budgets can either come from the parent company or from other sources like stakeholders and investors. The budget will be used to pay for the different expenses of the firm in creating the system.  The expenses will be worth it because once the benefit of the new service shows the company will gain profits to cover the expenses.  The budget will be used to pay for the expenses after the system is fully functioning, the payment for all the individuals that will participate in the creation and implementation of the project, the cost of hiring training the personnel in the use of the system and other costs.  The next part will give a visual representation of the budget.

 

Sources of funds

Company funds                                                              $120,000

Investor contribution                                                          70,000

Bank loans                                                                        30,000

Total Funds                                                                 $220,000

 

Expenses

Expenses on the creation of the system                           $111,000

Overall training cost                                                              60,000

Cost of tests and trials on the system                                     6,300

Miscellaneous expenses                                                         900

Total Expenses                                                             $178,200

 

Total Funds                                                                    $220,000

Total Expenses                                                               178,200

Cash at hand                                                                   41,800

 

Risks

The main risk is the safety of the information being shared on such system. The use of the reservation system would entail security risks and the risk of information being stolen by unauthorized individuals. A risk is the system encountering errors and viruses that would hamper the use of such system. The errors and viruses would cause the delays in the use of the system.

Implementation plan

Project planning and change management

Before creating the project it would be planned and analyzed for its effectivity. The firm will contact the system developers and discuss how the project would look like. The firm will narrate to the developers their requirement for the system, how they want the system to function and what should be the features of the system. The developers will give their own idea of the system and their comments on the requirements of the firm. Once the project is ready for implementation, the firm would discuss its use to the personnel. The firm would let the personnel try the system and learn how it works. The firm would let the personnel check for errors or problems in the system. The personnel will be given two to three weeks to adjust to the system.

Resource allocation

The resources that will be needed include the finances for conducting the study. Finances are important because it will be used to purchase materials. Finances would be used to pay the makers of the system and the trainings of the personnel. Finances would be used for the expenses of the developers and for the miscellaneous expense of both the company and the developers. Another resource would be the source of information such as books and other media that can give explanation on what should be the content of the system and how should the system work for the firm and its clients. A resource would be the personnel who would learn and implement the system.

Review and control

The system and the planned daily checkups of plane would be reviewed and controlled by the management.  The management will make sure that the system works according to its function. The management will see to it that daily checkups of the plane are being done by the engineers. If the system or the checkups still create anymore problems, the management will review all processes and make immediate changes. In reviewing the system and the daily checkups of the plane, the engineers would be allowed to say something and comment on the changes that they have observed. The observation of the engineers would be used to improve the daily checkups and update the system to the needs of the environment.

Evaluation meetings

The evaluation meetings would be done between the management, the engineers and safety personnel, the marketing group and the finance group. The meetings would determine if the daily checkups and the system helped in reducing the air accidents. The evaluation meetings would be used to determine if the clients feel more secure as they ride the planes of Aer Lingus. The evaluation meetings would determine if the firm has improved or reduced income after the daily checkup and system has been implemented.

 

References

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Doganis, R 2002, Flying off course: The economics of

international airlines, Routledge, London.

 

Doganis, R 2001, The airline business in the twenty-first

century, Routledge, London.

 

Frame, JD 2002, The new project management: Tools for an age

of rapid change, complexity, and other business realities,

Jossey-Bass, San Francisco.

 

Garland, DJ, Hopkin, V & Wise, JA (eds.) 1999, Handbook of

aviation human factors, Lawrence Erlbaum Associates, Mahwah,

NJ.

 

Hargie, O & Tourish, D (eds.) 2004, Key issues in organizational

communication, Routledge, London.

 

Harris, TE 2002, Applied organizational communication:

Principles and pragmatics for future practice, Mahwah, NJ,

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Harris, TE 1993, Applied organizational communication:

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Hood, C & Jones, DK 1996, Accident and design: Contemporary

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Hopkins, G & Kauffman, SB 1995, Pan Am pioneer: A manager's

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Munck, R (eds.) 2004, Labor and globalization: Results and

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O’connor, WE 2001, An introduction to airline economics,

Praeger, Westport, CT.

 

Smith, K 2004, Environmental hazards: Assessing risk and

reducing disaster, Routledge, New York.

 

Taylor, JR & Van Every, EJ (eds.) 2000, The emergent

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Wallis, R 2003, How safe are our skies? Assessing the airlines'

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