|Type of paper:||Essay|
|Categories:||Aviation Airline industry Strategic management|
The aviation industry connects people, cultures, and businesses across the globe and remains to be one of the most dynamic industries in the modern world. The history of aviation dates back to hundreds of years ago with kites being the earliest forms of aviation. Since the ancient days, the aviation industry has gone through lots of innovation and turning points to enhance connectivity and connect businesses across the globe (Petrescu et al. 2017). Often, pilots and flight attendants are the most visible occupants of the aviation industry with little focus put into a lot more aspects of the industry such as management and operations that go on behind scenes in the fast-pacedindustry.
Strategic management plays a significant role in the growth and development of airlines operating in the aviation industry. With lots of innovation and automation in the industry, strategic management for airlines are determinant factors for competitiveness and success (Best, de Valence & Langston, 2007). Enhancement in-flight experience for passengers, provision of reliable high-end services and adopting changes to meet the ever-growing demands for consumers are among important issues addressed through airline's strategic management processes. Extents to which strategic management suit requisites for consumers influence levels of consumer loyalty and therefore the success for airlines (Belobaba, Odoni& Barnhart, 2015).
Spirit Airline and American Airline are among airlines whose differences in strategic management processes have led to different performance outcomes. Spirit Airline pulls ahead of American Airline with the differences in performance linked to differences in strategic management systems. Although the American Airlines is a legacy carrier, the emergence of the new competitor, Spirit Airline, outweighs it on operational performance and other relevant metrics including handling of baggage, on-time arrivals and annual rates of complaints. In the years 2016 and 2017, Spirit Airlines was the second last in rankings but then surged to fourth place in 2018 making it a rising star (Forbes, 2019). According to Airline Quality Rating (AQR), Spirits airlines had the largest improvement. Compared to American Airlines, credit for Spirit Airlines is tied to exemplary performance in on-time arrivals; a category in which the airline was ranked number one in the country.
American Airlines have recorded poor performance in the recent past with operational challenges being a primary factor. Precisely, operational challenges relating to the organizations merger to United States Airways and legacy systems into operational flows are primary factors for the poor performance. Operational issues and flight disruptions due to integration issues and the sheer size of the American footprint have contributed to the decline in performance (Forbes, 2019). The essay explores Spirit Airline as an exemplary performer and American Airline as a poor performer in the aviation industry. The differences are attributed to variations in strategic management systems
Spirit Airline versus American Airline
American Airline Historical Background
History of American airline dates back to 1926 when the first flight was made from St. Louis to Chicago. After eight years of mail routes, American airlines switched its source of revenue from mail to passengers; a move that began shaping the airline into what it is today. Over the years, the airline expanded greatly and developed into an international carrier from a domestic airline. The revolution into becoming a passenger airline helped the company become the first airline to earn profits solely on passengers while other airlines struggled to carry both mail and passengers. Until 1970, American Airlines was the first company to build an airport in New York City. It became the first long-haul airline for international flights (Kim &Singal, 1993). In 1970s American airlines was regarded as the most innovative company in the aviation industry. It ranked top in terms of initiation of the aviation industry's major competitive developments that included computer reservation systems, two-tier wage scales, and frequency flyer loyalty systems. Until September 11th, 2005 when flights for American airlines got involved in attacks, an attack that changed the aviation, the company was doing great(Ito & Lee, 2005). However, after the attack, American airlines have faced continuous declination in revenue generation. Amid lots of mergers such as the merger with American West Airlines, the company remains to struggle in the aviation industry; a factor that has contributed to the poor ranking by the Airline Quality Ranking agency. Strategic management remains a concern for American Airlines and unless appropriate intervention is made to improve its performance, it is subject to decline further in Airline Quality Rankings.
Spirit Airline Historical Background
The history of Spirit airlines, also termed as the most successful small carrier, dates back to 1964 when the company was founded as a Clippert Trucking Company. After ten years, the Michigan based company changed its name into Ground Air Transfer Company and in 1983, the company began operating as Charter One. The company provided travel packages to entertainment destinations until 1992 when it adopted the title 'Spirit Airlines'. Jet equipment was brought into the fleet and the company began adding scheduled passenger service destinations such as New York and Los Angeles (Brock, 2000). With the addition of markets, Spirit Airlines experienced expansion, growth, and developments. By the year 2001, the airline adopted a 'beyond Coast-to-Coast' campaign in which it implemented a fully integrated Spanish language customer service plans. It also established a website as well as a dedicated reservation line. A year later, the airline expanded services to almost every market.
Investments made in the years 2004 and 2005 into Spirit Airlines served as the turning points for the company. With the investment funds managed by Oaktree, it brought about change in business strategy as well as the positioning of Spirits Airlines. The airline transformed into a low-cost carrier with a primary objective of expanding its routes into markets in Latin America and the Caribbean.Further expansion into the markets was aided by the adoption of Ultra Low-Cost Carrier (ULCC) business model (Rosenstein, 2013). New flights were added into different regions. The gradual growth for airline saw it adopt an all-Airbus Fleet. The 2018 Airline Quality Rankings state that Spirits airlines are the largest improved airline. Compared to American airlines, credit for Spirit Airlines is tied to exemplary performance on on-time arrivals; a category in which the airline was ranked number one in the country.
The business philosophy for Spirit Company fosters the growth and development of the airline. The business strategy for the company is oriented towards penetrating into new markets. For instance, the marketing strategy for the company, based on colours, is an indication of a business philosophy that aims at making the company a top service provider company in aviation. With the colours such as caliente-red-pointing at low fares, environmental green indicating on-time services and reliability, sunshine yellow depicting clean new planes and ocean blue indicating friendliness of staff, it remains a top priority airline compared to American Airlines.
Mergers and Acquisitions
Businesses often operate on an idea that the sum of two entities is likely to be greater than individual parts. Mergers and acquisition is, therefore, an integration strategy in which businesses acquire other businesses that were previously competitors, buyers, suppliers or sellers to improve on own businesses. Mergers and acquisition are based on the possibility of synergy. A merger consolidates businesses that were operating in independent entities to create a larger business whereas acquisitions refer to the purchase of assets of another business while allowing the company to continue operations lie before (Cartwright & Cooper, 2012). Not all mergers and acquisitions are successful. However, the business integration strategy is meant to increase the capabilities of business by gaining competitive advantages or having larger market shares and diversified product services.
American Airlines has a rich history of acquisition and merger as a business strategy of gaining competitive advantages and large market shares. In 1971, a successful acquisition process of Trans Caribbean Airways made American achieve profits through increases routes. American Airlines became a leader in New York-Puerto Rico route besides gaining entries into other markets in Aruba, Curacao and Port Au Prince (Hanlon, 2006). Acquisition of the Trans Caribbean Airways is among the successful acquisitions that expanded business for American airlines. In 1987, American airlines engaged in another acquisition that saw them take over Air California. In 1990, American airline also used the acquisition business strategy to acquire Eastern Airlines route network that connected Miami to Latin America and the Caribbean (Hanlon, 2006). Similar acquisitions by American airlines took place in 1997 when they acquired Reno Air and 2001 when they acquired Trans World Airline. The acquisitionsstrategy proved fruitful in terms of expansion of business and gaining competitive advantages in the aviation industry.
The September 11th, 2005 attack that saw two planes from American Airline get involved in attacks changed the fortune of the company. The company has been subjected to a continuous declination of revenue generation(Ito & Lee, 2005).. Instead of the acquisition business strategy, the challenges that the company faced forced it into a merger with the world's largest carrier; US Airways. Between the years 2013 and 2015, American airways merged with US Airways; a merger that came at a time that American Airways had undergone a decade of financial uncertainties and bankruptcy. Unlike acquisitions, the merger has not been fruitful for the company. Up to 2018 rankings, the company is reported to be struggling to keep competing with other airlines. It is ranked almost bottom in following lots of aspects including extreme delays, cancellation of flights, mishandling of baggage and on-time arrivals.
Growth, development, and performance for Spirit Airline contrast that of American Airline. Unlike American Airline, Spirit Airlines has evolved into becoming a reliable airline through improvements in own operational performances and improvement of consumer satisfaction(Rosenstein, 2013). The level of scale that Spirit Airline enjoys in the aviation industry is attributed to own strategy improvements rather than mergers and acquisitions. For instance, instead of the company rely on acquisitions to expand business routes into new markets, it utilizes a business-oriented approach such as Ultra Low-Cost Carriers. A merger and acquisition business strategy are still distant for Spirit Airlines following the plans by the company to chart its own course in the aviation industry.
Mergers and acquisitions do not guarantee success for an organization. Unless an insightful approach is taken during the process, friction and internal competitions become adversity (Hitt, Harrison & Ireland, 2001). There is although the likelihood of flexibilities getting limited. For instance, the merger between US Airlines and American Airlines was aimed at improving performance for American Airlines but the company has remained to struggle. Success for businesses is therefore dependent on strategic management processes. The exemplary performance by Spirit Airlines is attributed to exemplary strategic management processes that have seen the company succeed.
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