The airline industry is one of the most challenging to operate in. This is due to the various issues, for example, those that affect operations of Air Canada. These challenges include stiff competition from other industry players, the global financial crisis, government regulations, fluctuating world fuel prices, unpredictable weather conditions and volcanoes.
Despite these challenges, the airline has been able to develop a strategy which has seen it grow and expand. However, it is vital for Air Canada to expand extensively to other areas in order to exploit new markets to increase annual sales. More so, it is crucial for airline to sign agreements with major credit providers in order to be cushioned against annual losses.
Background & statement of the problems/issues
The company in the case study is Air Canada, involved in air travel. It is a Canadian company ranked as the fifth largest airline in the world. The airline operates mainly in North America.
The company has faced numerous challenges including having been declared bankruptcy in the year 2004, terrorist attacks in America (9/11) and poor relationships with stakeholders. Other problems faced by Air Canada include stiff competition, unpredictable weather, financial crisis and fluctuating world fuel prices.
Summary of background/situation
Air Canada faces a number of problems in its field of operation, that’s the airline industry. These problems include:
A fluctuation in the world oil prices has greatly affected the operations of Air Canada. This has lead to a rise in the ticket prices thus lowering the profits from the airline. This was especially evident during the global recession in 2008. Thus, there was a decrease in tourist in tourist and business travel.
Increased competition in the airline industry has been a serious problem to the operations of Air Canada. Some of the rival players in the industry that are eating into the profits of Air Canada include WestJet, Air France-KLM, Air Transat, British Airways and JAL.
Unpredictable weather has played a major role in the airline operations. Delays and travel disruptions here are caused by severe thunder showers, snowstorms, severe winds and icy weather. Such delays cause cancellation of flights thus causing frustrations among passengers. The volcano that occurred in April 2010, in Iceland, halted air travels in Europe. This led to cancellation of over 100,000 flights.
Government policies in terms of regulation have been a major problem to the operations of Air Canada. These are in terms of high security charges, airport improvement fees and excise taxes charged on fuel.
Situation analysis of Air Canada
Formation of alliances by Air Canada has been a major strength to the airline. Air Canada is one of the founding members of Star Alliance. By being a member, Air Canada passengers do connect with other partner airlines who are members of Star Alliance. For instance, passengers in flights who are members of Star Alliance do share airline lounges while in airports world wide.
Additionally, the extension of partnerships by Air Canada with United, Lufthansa and Continental to create Atlantic-Plus-Plus is strength to Air Canada. The partnership enables Air Canada to integrate routes thus giving it the capacity to compete in the transatlantic segment. Moreover, the creation of new agreements with suppliers and major credit providers has also been strength to Air Canada.
Unpredictable weather has played a major role in the airline operations. Delays and travel disruptions here are caused by severe thunder showers, snowstorms, severe winds and icy weather. Such delays cause cancellation of flights thus causing frustrations among passengers. The volcano that occurred in April 2010, in Iceland, halted air travels in Europe. This led to cancellation of over 100,000 flights. This is a major weakness to Air Canada.
Launching of new direct services to five popular European gateway cities is a major opportunity to Air Canada. These cities include Geneva, Brussels, Athens, Copenhagen and Barcelona. Additionally, the extensive expansion of Air Canada in 1995 opened up more destinations for the airline.
There is increased competition in the airline industry. This has significantly reduced the profitability of Air Canada. Some of the major players in the airline industry include WestJet, Air France-KLM, Porter, Air Transat, British Airways and JAL.
Air Canada operates in an extremely challenging environment. At home, it faces competition from WestJet, as well as other smaller airlines. These airlines eat so much into the profits of Air Canada by reducing the number of passengers that can use Air Canada. On the international front, the competition for passengers comes some of the well established airlines like Air France-KLM, Porter, Air Transat, British Airways and JAL. These are large companies with a good reputation in the airline industry commanding a good market share.
Government policies in different countries have had adverse effects on the operations of Air Canada. This is through the introduction of levy charges that do reduce the company’s profits. For instance, there higher security charges, fees for improvement of the airport, excise taxes on fuel charged by the federal and provincial government. It has been said that the annual fees paid to the federal government for airport rent amounts to over $300 million.
Consequently, it becomes even expensive for Air Canada flights to land in Canada. From the given information, it can be seen that it costs Air Canada $3400 to land an Airbus 320 in some of the largest airports in Canada. On the other hand, the U.S government only charges $1650 for the same kind of planes landing in U.S.A. It means that it costs half the amount of what the Canadian government charges.
Analysis of alternatives
Air Canada can start an extensive expansion program in order to beat the competition that is existing currently. This expansion program could help in opening up new markets in other continents like Asia, South America and Africa in order to increase its annual sales. Such areas present unexploited opportunities which the airline can take in its strategy to compete with other established airlines.
Air Canada can increase its chances of competing effectively on the global market through extending its partnerships. By so doing, Air Canada would be able to integrate its current routes allowing it to compete in other new market segments. Partnerships are vital in overcoming issues related to the effects of the global crisis.
The company has to undertake an extensive expansion program to new areas like Africa, parts of Asia and South America. These are areas that Air Canada does not currently operations or in case they are present, they are on a small scale basis. Opening new markets could give the airline a competitive advantage through increased passenger numbers.
Air Canada can sign agreements with major credit providers so that they can cushion against times disasters. There have been numerous disasters that end up causing delays in flight hence resulting into high losses in the airline industry. These include terrorist activities, unpredictable weather caused by severe thunder showers, snowstorms, severe winds and icy weather, as well as volcanoes.
This condition has ended up causing major delays to flights causing flight cancellations. Airlines have recorded losses during such times. Consequently, signing agreement with major credit providers would protect Air Canada against losses in case of such disasters.