|Type of paper:
|Management Aviation Airline industry
The management approach is the way different people consider management as well as managerial activities at an organization. Normally, the management approach is the active method of seeing and dealing with managing at an organization. This paper discusses two management approaches (Porter five industry forces and yield management) how they are used in airline companies as well as how they can be used to the aviation industry. It also discusses the importance of the management approaches and how they can help Aviation industry maintain its position, compete effectively with its rivals and increase profitability.
Porter Five Industry Forces
Porter's five industry forces is a model that defines and analyzes five competitive forces that pave each organization and helps an organization determine its weaknesses and strengths. The model is mostly used to define a structure of an organization to determine corporate policy; the model may be useful to any section of the economy to look for profitability and attractiveness (Dalken, 2014). The Porter model is a simple but very essential element for understanding the competitiveness of an organization's environment, as well as for determining the potential profitability of the business. The model is useful, because, it assists industry to understand the forces of its environment that may positively or negatively impact its profitability then be able to improve its strategy accordingly. Porter created this tool to encourage organizations to not only watch closely on their competitors but also to look beyond their competitor's actions and search for other elements that could affect the environment of the business. Porter defined five forces that form the competitive environment. These five forces can also erode the profitability of an organization. The porter's five forces include:
Competitive rivalry focuses on the number and strength of the rivals of an organization i.e. the number of competitors an organization has, who they are, as well as how the quality of their services and products compare with ones of the organization (Indiatsy, Mwangi, Mandere, Bichanga, & George, 2014). Where competition is powerful, businesses can attract customers with price cuts that are aggressive and high-effect marketing campaigns. Even, in markets where competitors are many, the buyers and suppliers of an industry may go elsewhere when they feel a business is not giving them a good deal. Meanwhile, in a market where the rivalry competition is minimal, and there is no other industry doing what you do, you will likely have great strength and healthy profits.
Supplier power is ascertained by the difficulty of industries' suppliers to raise their prices i.e. the number of potential suppliers that the organization has, the uniqueness of the service or product that it offers, and how costly it will be changed from one supplier to another (Indiatsy, Mwangi, Mandere, Bichanga, & George, 2014). The more suppliers a business choose from, the more it becomes easier to change to a cheaper alternative and the fewer suppliers and organization have, and the more the business requires their help, the studier their position and their potential to charge the business more. This can affect the profit of the industry.
The buyer power force defines how easy it is for the customers of a business to take down the prices. It determines the number of buyers in an organization, the number of their orders, how costly it would be for them to change from the services or products of the business to those of the competitors, as well as the strength of the buyers to dictate terms to the business (Mathooko, & Ogutu, 2015). When a business deals with only little shrewdness buyers, they possess more power, but if the business has many customers then its power increases.
Threat of Substitution
It indicates the likelihood of the buyers to look for a different method of doing what a business does. In a market where there are close substitute products, it upsurges the likelihood of buyers changing to substitutes in response to the rise of the price (Mathooko, & Ogutu, 2015). This lowers both the attractiveness as well as the influence of suppliers of the market. An alternative that is cheap and easy to make may shake the position of an industry and also threaten its profitability.
The threat of New Entry
New entrants can be attracted by a profitable market, which erodes the profitability of an airline business. The threat of new entrants can make the airline industry less attractive and lead to a weakening position and decreased profits in the industry. Lest the industry has firm and long-lasting barriers to entrance, for example, government strategies, capital requirements economies of scale or patents, then profitability will decrease to a competitive level (Zhao, Zuo, Wu, Yan, & Zillante, 2016). The position of a business can be impacted by the ability of new individuals to enter the market. If the rivals can take little effort and money to access the market and rival efficiently, or if an organization has little security for its key technologies, then competitors can quickly come into the market and decline the position of the organization. If the business has firm and long-lasting barriers to entrance, then it can reserve a satisfactory position and take just benefit of it.
The aviation industry can use the porter's five forces to understand the elements that affect its profitability and assist in decisions connecting to whether to increase its capacity, whether to come into a specific industry and also create competitive strategies. The aviation industry can also use the porter's five forces to determine and also describe the economic forces that pave its competitive intensity, profitability potential, and attractiveness.
Yield management is a way of controlling capacity profitability, and it has lately obtained a widespread acceptance in the hotel and airline industries. This is a practice adopted by service organizations across the world. It formally began as a concept of the airline industry, but recently emerged in other organizations as well (Alderighi, Nicolini, & Piga, 2015). Yield management is mechanisms that can assist an organization sell the correct inventory unit to the appropriate type of buyer, at the appropriate time, for the correct price. Organizations that involve in yield management normally use computer management systems. These organizations review transactions for services or goods already supplied and for services and products to be supplied in the future. This strategy is most concerned and focused only on the volume of sales as well as the selling price so that it can achieve the best possible income. The basic idea behind the yield management is that particular resources that are fixed and time-limited can be sold for diverse prices, depending on the level of demand, the time of the year as well as a huge number of external factors. The same product or service can be sold to another buyer for wholly different prices due to the number of variables engaged in the process. The yield management approach uses a data-driven approach to ensure that pricing is improved to examine business outcomes (Wang, Fan, Fu, & Zhou, 2014). The airline industry is the best for demonstrating the yield management strategy. Yield in the airline industry means yield per income passenger mile or yield per seat mile. Airlines normally provide various classes like super-savers, maxi-savers as well as full-fare.
The aviation industry can use the yield management approach to monitor its operations such as keeping a particular number of seats in reserve to supply to the credible demand high-fare seats, the fewer seats reserved for a certain class as well as the normal price for each seat. The aviation industry can also use the yield management approach to maximize the amount of income they make from a determined number of products and services, which requires to be sold by particular times. With the help of past performance data and general trends of the industry, the managers can forestall demand and respond correspondingly. The aviation industry can also use the yield management strategy to optimize the pricing and selling a policy of their single most essential resource. This will enable the industry to obtain the basics of their business correct, by maximizing revenue from the goods and services they offer. Since the yield management uses computer systems to do so, the aviation industry can use specialized software to track and manage the way seats reserved then react correspondingly.
In conclusion, the two management approaches, Porter's five forces, and the yield management are very essential for the aviation industry for they can help the organization know its environment, make strategies to compete with their rivals and create a chance of maximizing their revenue.
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