Airline Portfolio 1. Brief history. National Cargo Airline was established in 1993 by James Smith. The company started its operations from U.S. on May 20, 1994. The first operation was started overnight with Dassault aviation. The Dassault connected twenty five cities in U.S. At start, NCA (National Cargo Airline) provided services overnight and two-day package. However, few years after inception, the company faced financial difficulties. The crises were so severe that the company faced loss of almost one million USD in a month. At that time James somehow managed to arrange around $80 million from USA’s risk venture capitalists. The company became the most highly financed new company in U.S history, in terms of venture capital. As time passed, NCA expanded its services to further 60 cities of United States. In 2003, the company also started to compete with the postal service of U.S and added document shipping in its portfolio. In 2006, its sales topped with $1 billion for the first time. National cargo Airline continued its expansion and started its services internationally with its hub at different countries. 2. Financial performance: Financial Performance for previous 10 years is presented in the table; The graphic presentation of the performance is satisfactory. Initially the firm faced issues but soon the position was recovered. 3. Route structure and airport hub strategies NCA fulfilled the carrier needs of its customers. Its customer base is not only U.S citizens but international customers as well. NCA flies to 60 domestic and 83 international destinations in 39 countries. There are different hubs and some airlines use only a single hub. These hubs are used for both passengers and cargo flights. A hub is more effective because it connects traffic more easily. Passengers want a one-stop route or a two stop routes.
Point to point:
It is a network system in which an airline focused on Origin and Destination traffic. In this model airline is more interested in transportation of low cost carriers from one city to another but it did not connect any other city through any point.
Hub and Spoke
It is a network system in which airline will not only plan transportation between two points but it also connects two distant cities via its hub. 4. Aircraft fleet management and selection Disruptions in operations causes complexity in routine processes. As a result of this disruption the cost per flight increases and effects passengers satisfaction. However, the important factors that causes deviation to planned flight schedule occur for one reason or another. NCA fleet scheduling and management system minimized the effects of flight disruptions. Latest software have been used to help the airline to quickly and effectively communicate the information with stakeholders within business. The “I” Flight operations will keep the flight operation on track and will highlight the problems as early as possible. The “I” Flight operations can be changed according to the needs of individual airline. “I” Flight operations will help the airline in following ways:
It will reduce the effects of operational disruptions.
It helps to improve aircraft utilization.
It enhanced the operational efficiency.
5. Personnel issues Like every organization, the firm suffers with various issues related to personnel. Manpower management is required to achieve the optimum use of qualified pilot and cabin crew resources. This will ensure the cost minimization of overall crew resources and aligns the crew supply chain. The manpower management also ensures the robust system of crewing operations. One of the main feature of man power management is that it will help the company to response quickly to an airline’s forward crew management. Manpower management helps the company to maximize crew efficiency. It ensures right number of qualified crew in right place at right time. It also reduces the efforts which are required in crew planning process. 6. Pricing schemes and fare wars NCA’s main objective is to serve quality services at competitive rates. The pricing schemes depends upon following:
U.S. Domestic rates
U.S. Export rates
Fuel and security surcharge
The fuel price index is based on the methodology of fuel surcharge on a weekly assessment of average price per gallon of kerosene. The kerosene type jet fuel price is fixed by U.S. Gulf Coast spot market. 7. Marketing and distribution Now a days, the airline industry provides fast services and huge benefits to many other societies. So it is one of the most important industry which is supporting the internationalization and globalization. Following are some of the plans which are followed by NCA for marketing and distribution:
Differentiation; NCA made its services more professional by providing three classes of its services.
Social Media- NCA used social media to target its customers in a highly active way
Marketing Campaigns- NCA launches a very competitive marketing campaign to compete with its rivals. It helps the company to expand its customer base by creating more value to its customers through diversified and effective services.
8. International operations The international operations at NCA ships 11.5 pounds packages pee day with the help of 18 international hub airports and local airports. Currently the company has robust international shipment network through which packages can be reliably and quickly shipped. Following are the international hubs that helps in distribution of packages throughout the worlds:
Newyark, NJ, USA
Oakland, CA, USA
These hubs reside in the influence zones and provide services to entire area. The company uses Zero Transshipments through which international hub packages are delivered directly to other international hub. 9. Cargo management To maximize the cargo revenue it is required that the company is matching its demand with its capacity efficiently. The company manages its cargo through following steps;
Forecast the cargo sales to identify the up selling and cross selling opportunities.
Plan the allotment of cargo to maximize the cargo profits by improved cargo space and profitability evaluations
Increase the turnover of collection of inter billing through accounting tools
Airport and Airspace Capacity Case Airport Capacity and Congestion: Now a days different airports face problems of hubs and network structure problem. Hubs are used for connecting traffic from different world origins. The problems at international level hubs is much more severe than local problems. Hub congestion causes many organizational breakdowns at airport like flight delays, cancellations etc. Airport capacity and congestion problems mainly arise due to growing demand of air travel. Air travel offers low cost carriers system and legacy carriers at competitive response. To meet this increasing demand expansion of airport capacity required a lot of physical constraints. Airports of different cities are hub centers as well as servers of large local markets. Neighboring countries’ hubs face a lot of competition from each other. In order to assess the future demand for airport capacity, different network carriers’ strategies and alliances are needed to be taken into account. Different world markets faced different patterns of airport capacity demand in future. Thus the decision of expanding London’s airport mainly depends upon these future demand patterns which requires to fulfill the expansion needs in short, medium and long term. So, UK airport commission is considering to expand capacity at Heathrow (largest London airport) and replaced hub airport at Thames Estuary. Expanding the airport capacity in urban areas require a tradeoff between economic and environmental goals. Economic goal can be fulfilled by providing additional airport capacity which can be accessed by central business units. On the other hand environmental goals achieved by expansion of airport capacity away from population. Thus expansion of airport capacity requires:
Development of new distant airport
Expand the capacity by using innovative technologies.
Splitting the two hubs through different techniques.
Future Airport Demand: Aviation results show increased air travel signals which result in increased congestion and capacity problems. Thus the expansion requires long term planning and construction. Following are some of the consideration that must take into account, while planning for expansion:
Analyzed the past growth drivers such as regulatory reforms, airline business models etc.
Understand the link between long term trends of income, trade with oil prices.
Access the historic link between income and air travel demand.
Hub Economies: In order to get economic benefits from competitive airline networks, hub economies is one of the most important factor. Hubs provide high density at low cost to flow of passengers. It also ensures broader level of air service to less dense markets. For additional airport capacity, there are following investment implications:
London has particularly strong local demand whereas expanding the airport capacity is based on an additional uncertain future demand.
Hub economies provides a link between connectivity, economic benefits and additional airport capacity.
Airline transportation is very much difficult to handle. It is an interactive system that consisted of vehicles, airports etc. The air transportation is evolved by incremental changes in technological and operational systems. U.S has always been a world leader in air transportation. The industry annually operates 63.1 million. It is forecasted that within 10 years, there will be 1.1 billion air travelers per year in London airports. Thus, this growth in travelers puts a lot of substantial pressure on airport infrastructure. Most of the airports faced congestion problems due to limited possibilities for expansion. Improvement in aircraft and air space system may not be sufficient to efficiently meet U.S. transportation need. The main area which is needed to be addressed is congestion management. Congestion management thus included new runways, improved technology and demand management in order to manage delays and congestion. Impacts of Airport Expansion: The impacts of airport expansion are beyond then economic impacts. The expansion plans most of the time received numerous social and environmental displeasure. Lawsuits are filled for the expansion of major airports. The main reason for filling suits are overriding local zoning rules and noise or air pollution. Following are the main issues in airport capacity expansion:
Displacement and Compensation of people and businesses:
The London airport expansion will cause the relocation of 5680 people including 2333 households. It also results in acquisition of 1900 residential property. The expansion also required 75 businesses to relocate. So in order to mitigate these disruptive effects, NCA planned to design a service for the education, information and responses of those affected people. Some homeowners will be forced for selling their property thus they will be not pleased with the airport expansion. Usually in such cases, it is required that the affected party will be compensated. These compensation are determined by the market forces. Sometimes the people think that buyout prices are quite low because the homes are near ro the airport expansion and will suffer noise pollution.
Environmental Issues: Noise
Airport expansion causes an additional noise pollution in the surrounding area of airport. Although some of the area is acquired by the airport for expansion but to the extent of residential area, it must face increased noise pollution. So it is required that these residents and home owners should be compensated.
The increased amount of capital is required to expand the airport capacity. But there is another solution through which the capacity of airport can be expanded. This alternative solution recommends the efficient use of existing capital. This can only be possible through congestion-based pricing landing fees. The problem of airport congestion arises during peak hours because there are too many aircrafts operators who are waiting runways for use. The congestion based landing will make more efficient use of airport. In world, moat of the pending fees are depends upon aircraft size and runway capacity that is to be allocated to aircraft. Under this system, the air crafts completely ignores the cost which the society bears due to land at an already busy airport. With the help of congestion based pricing model, the owners will pay the landing fees based on the marginal damage that is suffered due to runway delay. The fees will be vary and depends upon the time of day. Another solution to the airport congestion is route structuring. Through this technique the aircrafts will move from the traditional hub and spoke route structure. Due to route restructuring most of the hub and spoke will become a rolling hun where passengers will wait for planes to arrive instead of planes waiting for passengers. South west airline is one of the example which successfully launches the route structure and if NCA (National Cargo Airline) adopts this route structuring then there could be possibility of removal of congestion issues at hubs. Airline Performance Report 1. Current Airline Financial Performance: Currently almost 300,000 team members of NCA working tirelessly to serve customers. They are also creating value for share owners. FY 14 financial results showed an outperformed returns to investors. With almost 95 % world customers living out of U.S, NCA has been planning to expand in countries where there is chances of business growth. Strategic mergers and acquisitions, new hubs and customized services helps the company to strengthen the links between different emerging countries. This step will help the company to provide opportunities to customers. In April 2014, NCA opened advanced distribution center in Latin America. This hub provides trade and jobs opportunities to country’s economy. The new distribution center expands the range of solutions and provides more than 500 shipping locations for direct access to markets with in the country. It also results in fastest access to worldwide opportunities. In 2011, mergers in fast growing regions results in fairly two way trade between Mexico and U.S. This trade earned almost total $ 1 billion. NCA group operates across six continents of world. It has 75000 strong multinational team. During the financial year 2013-14, growth strategy includes 24 wide bodied air crafts. This results in 5.9 ton KM capacity. Nine new destinations have been opened in five contents and additional 164 thousand tons cargo carried 5.8 million more passengers than previous year. In 2014, company earned a profit of $ 3.3 billion showing a substantial 42.5% increase over last year’s profit of $ 2.3 billion. Costs grew at a slower rate than revenue therefore it results in higher profit. The main factor of growth is lower unit costs and a stable yield on expanded capacity. Profit margin so improved by 4% and showed a positive result given expansion of airline capacity. In two years the airline capacity has been increased by 30%. Whereas operating profit showed a tremendous increase of almost 50%. Operating coat grew by 10% results n $78.4 million. This increase in coat is relatively less as compared to the revenue expansion. The main reason of this growth is due to weak currency exchange which had a positive impact on costs. Jet fuel cost is also lower than the capacity increase in the airline. The strategy of jet fuel prices has been paid off in the current year. The continuous assessment of global economy reflects a balanced risk which results in downside of historic high jet fuel price levels. NCA has been seen revenues which remains relatively flat such as $44.3 billion to $ 45.6. Although company always remain able to grow with net income from $ 1.6 billion. As a reduction in sales, the cost of goods sold also decreases from 75% to 72%. 2. Recommendations: Soon after the 2014 fiscal year the company started significant efforts to reduce cost in the segment of company’s express. The efforts have been designed ro improve $1.5 billion profitability during the following three years. The company has planned ro achieve majority of benefits by fiscal year 2015. The company is also planning to improve information technology function to serve as a factor of reducing cost. Following are some of the plans through which the company can get maximum benefits:
NCA has planned to earn $700 million targeted amount through domestic and international networks. The future plan also included replacement of 5000 delivery trucks.
Through modernization of aircraft fleet, the company can earn $300 million and there is also a chance to gain $400 from back-office function consolidation.
Consolidation of driving routes and domestic express pickups can contribute $10 billion saving
Through European expansion, the yield management and pricing can get $150 million cost reduction.
A voluntary buyout plan will help the company in cost reduction roughly by 40 % of the 3000 employees.
Thus except all above positive points the company will have more pressure due to base erosion which will result in $ 1.6 billion annual saving. NCA will expand its international Express service more as compared to previous efforts. This will help the company to continue its growth. The international economy service contributed 15% annual gain in revenue whereas the international priority will be slightly declined. The company is planning to reduce its domestic cost network, fleet development and efficiency of staff functions. There are a lot of growth opportunity for NCA in IE, as it helps the company in diverting the freight to other networks. As customers are moving down the service ladder to lower yielding product, the product trade down in international express gained a hot topic. NCA decided to replace two of its Boeing 777s with smaller Boeing 766 for providing continued growth international like in Asia to U.S. This step will help the company to reduce jet fuel cost and AA a result profit will be maximized. NCA is now a days competing with unites parcel service which performed frequently through large transit routes. So in order to compete the united parcel services, NCA needs a formal plan which will help to reduce cost of carrier in a best possible way 3. Future Forecast: In U.S. the growth trends shifting towards consumer now because of lower gas prices. Other factors such AA improved labor markets, purchasing power and incomes also support the current trend. The expected growth for real GDP is around 3% average for coming years. So this strong consumer demand will support business investment. Thus the increases demand will result in greater use of air travel. NCA is forecasting following demand trend which will boost up its sales revenue and as a result profit will be maximized. The graphical presentation of data is as follows; The trend line of profit of the firms is satisfactory. Firm is in firm position to expand its position and be the parts of new horizons.