Analyzing Aviation Industry Challenges and Recommending Solutions

This report provides an in-depth analysis of the challenges faced by the aviation industry, with a specific focus on Thai Air Asia X. It identifies key issues such as competitiveness, fuel price volatility, and the need for environmental and financial sustainability. The report explores the competitive landscape, highlighting the impact of pricing strategies, service quality, and consumer satisfaction. It examines the significant impact of fuel costs on airline profitability, including the effects of price fluctuations and hedging strategies. Furthermore, it addresses the importance of sustainability, considering both environmental and financial aspects. The report offers recommendations for Thai Air Asia X, including horizontal agreements to improve competitiveness, strategies to enhance fuel efficiency, and the adoption of modern, fuel-efficient aircraft and sustainable practices like biofuels. This comprehensive analysis aims to provide actionable insights for the airline to operate sustainably and successfully in a challenging market.

Aviation Management

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Table of Contents
Introduction................................................................................................................................3
Problems faced by the industry..................................................................................................3
Competitiveness.....................................................................................................................4
The Fuel Factor.......................................................................................................................5
Sustainability..........................................................................................................................6
Recommendations......................................................................................................................7
Conclusion..................................................................................................................................9
Works Cited.............................................................................................................................10

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Introduction
The Asian airline industry can be characterised through the immense competition
along with the high price pressure which in turn continuously thrust over increasing the
efficiency. On the other hand, the industry grows continuously with more passengers who
travel more often. Since the emergence of the continuous air traffic the airline industry have
demarcated a rigorously high level of growth in comparison with the GNP trend and increase
the productivity (Wang, Tsui,, Liang, & Fu, 2017). There is gradual liberalisation in the
industry which in turn has significantly contributed in its business model. The Asian airlines
and their continuously increasing passengers act as the driving force in the global airline's
industry. The analysts predict that the Asia Pacific airlines will contribute to the half of the
total air traffic increase by the year 2020.
Thai Air Asia X is identified as a low cost, long haul airline company which is based
at Don Meuang International Airport, Bangkok. The company was founded in the year 2014
and since then it is operating quite effectively and efficiently. The airline mainly serves for
the scheduled destinations of Thailand, Japan, China and South Korea(Graham, 2013). As a
manager of the airlines, a business development plan has been developed. In this report, three
key management issues in relation to the airline industry have been discussed and the
recommendations for coping up the issues have been provided. It is expected that this will
help Thai Air Asia X to operate sustainably and successfully.
Problems faced by the industry
Despite the extensive growth, the airline industry faces a number of challenges. These
challenges affect the business adversely which in turn reduces the revenue and profit levels of
the organisations. Here in this report, three key issues will be discussed which is the

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competitiveness, fuel price volatility and the environmental and financial sustainability of the
business.
Competitiveness
In the era of globalization and continuous economic development, the airline's
industry is facing excessive competition from almost every aspect of the business. Thai Air
Asia X is not an exception it is also facing tremendous competition specifically in the context
of pricing. Moreover, the strategic frameworks or expansion of the competitive airlines also
imposes significant threat before the organization as well. Due to this competitive nature, the
airline companies are required to focus more on their pricing mechanism, service quality and
consumer's satisfaction(Solnet, Baum, Kralj, Robinson, Ritchie, & Olsen, 2014).
The Asian airline industry is distinguished by the feature of being extremely
competitive and highly capital intensive. This capital intensive nature of the industry is the
key underlying reason for the higher fixed costs and high barriers to exit. The level of
competition in the airline industry is very intense as there are no such barriers to entry (Yee
Liau & Pei Tan, 2014). The liberalization of market access due to globalization can be held
responsible for this lower level of barriers to entry. As per the data provided by the IATA
(International Air Transport Association) during the last 40 years nearly 1300 new airlines
have been established. The nature of the competitiveness in airlines industry can be
summarized as follows,
The level of competition rises when a new airline with a new set of strategies enters
into the market or the existing airlines try to expand their area of operation by introducing
new service range. However, the strategy of expansion of the existing airlines seems to be
beneficial for them as they can enjoy the benefits of economies of scale and rights over the
airport slots. Therefore it can be stated that the expansion into the new market possesses low

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barriers to entry for the existing airlines compared to the newly entered airline(Robinson,
Ritchie, Kralj, Solnet, Baum, & Ford, 2014).
In order to acquire a new aircraft ample amount of capital is required which may
sometimes discourage the new airlines from entering the market(Tretheway & Markhvida,
2014). However, as presently there is an ease of leasing option and external finance scheme
both of these taken together have me it easier for the new airlines to enter the market.
Moreover, as the switching cost on the part of the consumers is very low, it also
imposes a significant competitive threat before any airline (Pratt & Harrison, 2015). This
sometimes makes it difficult to retain the customers and thereby increasing their loyalty.
The Fuel Factor
The price of fuel is considered to be among the most important issues faced by the
airline industry. As the airlines start incurring higher costs they tend to impose the fuel
surcharges on the customers. Specialists in the industry stated that the constantly increasing
price of fuels will impact the bottom line of any airline (Hapsari, Clemes, & Dean, 2016).
The situation worsens when the economies suffer from a recession. Data projects the fact that
the airline industry had suffered all time low during the recession of 2010. It is a matter of
fact that the government owned airlines do not face the challenges which are faced by the
privately owned airlines, although they also find it difficult to manage the fuel price(Suki,
2014). The volatility in the price of crude oil affects the airline industry in several ways.
Primarily the price of crude oil largely affects the cost incurred by the airline and hence it
affects the price of the air tickets as well. Recently the significant downfall in the fuel prices
has affected the profitability of the airline industry.
As pointed out by the U.S Energy Information Administration, during the year 2015
the price of per gallon of jet fuel was $1.45less than half of what it was in the year 2012. As

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per another report of PwC, the airlines globally were projected to spend $70 billion over fuel
prices in 2015 compared to that of in 2014. It is a matter of fact the total impact of the
reduction or fluctuation in the prices will be unknown until and unless the hedging contracts
held by the airline companies are not finished (Heracleous & Wirtz, 2014). In the short run,
the fuel price volatility may have allowed the airlines to rebuild their balance sheet and again
reinvest after various financial losses. That is more specifically investing on modernising the
aircraft or implementing improvements in the aircraft.
However, in the long term, this price volatility has induced the airlines to redesign
their strategies so as to successfully accrue revenue and increase profits. The strategic reform
will also include the strategies of fuel purchasing and hedging.
Sustainability
The future of the airline industry cannot be guaranteed until and unless it can establish
sustainability. Sustainability is an important issue before Thai Air Asia X because, the
modern day consumers are quite aware of the impact of the business on the
environment(Homsombat, Lei, & Fu, 2014). If they find that other airlines are conducting
flight service which causes low pollution, for the sake of environmental sustainability they
may switch to that airline. in this context, it is also necessary to mention that the switching
cost is also very low in the airline industry. The sustainability in this context may arise from
two perspectives which are namely environmental sustainability and financial sustainability.
Environmental Sustainability
In the modern day environment, each and every industry is required to be sustainable.
However, it is quite difficult for the airline industry because it makes use of the fuel to keep
its aircraft flying (Lin & Yeoh, 2016). Presently, not only the airline industry but also the
value chain has set some ambitious goals. These are from the year 2020, airlines will cap

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their emissions and growth of the industry will be carbon neutral. Afterwards, by the year
2050, they are planning to cut their emission level to half of what they have emitted during
2005.
Financial Sustainability
Another important pillar of the sustainability is the financial profitability. During the
past few years, the industry has remained at a break-even point. Irrespective of the values the
industry has brought forward in the world, in turn, it has also destroyed a huge amount of
capital(Belobaba, Odoni, & Barnhart, 2015). The airline industry is volatile in nature, for
instance when there was outburst of Ebola people were rushing from one place to the other.
At that point of time, the price of the air tickets increased considerably.
Recommendations
Recommendation 1: In order to cope with the extremely competitive environment of
the airline industry horizontal agreements can be made. Horizontal agreements or alliances
are the cooperation agreements carried out horizontally not much like mergers and it poses
increased scope and strengths.
Due to the increased level of competition in the airline industry alliances have
emerged as a key trend. These range from light alliances that incorporate basic interlining and
code sharing to the high-level alliance and agreements of integration that incorporates
coordination over the parameters of competition like prices and capacity, sharing of profits
and costs and thereby acquiring an interest of minority in the allied airlines. Moreover, it can
also be stated that the benefits of economies of scale and the globalized economies are far
behind the strategies of an alliance. The airline that possesses a vast network and a presence
worldwide always enjoys a competitive and comparative advantage over those airlines which

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do not have these. However, it can be stated that for one airline possessing these advantages
is unsustainable and alliance allows the airlines to widen and deepen their network and
thereby sustain in the competitive market. Integration also increases the barriers to entry and
thereby harms the level of competition by increasing the price level (Delbari, Ng, Aziz, &
Ho, 2016). This integration strategy may benefit Thai Air Asia X.
Recommendation 2: Regarding the volatility in the fuel price it can be recommended
that beyond hedging the airlines may also try to increase their fuel efficiency which will, in
turn, become an efficient method of saving in the long run. As the fuel price is increasing
during the past few years airlines have started putting thrust in this area to cope with the
problem.
The emergence of the fuel efficient aircraft has given rise to the introduction of Airbus's
A320 Neo and A330 neo and Boeing 737 Max. Extensions in the wing tip or the introduction
of winglets along with the unusual "split scimitar" version which was adopted by the United
in 2014 had helped to save billions of dollars during the year 2014. With an expense of $1
million for one installation, the devices reduced the aircraft drag and enhanced wing lift.
Winglets are efficient enough to help the airlines to save fuel up to 6 percent per year
depending on the model(15. Arjomandi & Seufert, 2014).
On the manufacturing side, it is also necessary for Boeing, Airbus and other key players to
conduct rigorous research on how the new technologies can be used to develop a more fuel
efficient aircraft, which will help the airlines to reduce their cost of flying an aircraft.
The airlines may also look after for reducing the operating cost by implementing new routes
or expanding the capacity of the aircraft (Graham, 2013). Through this as the fuel prices
dropped it has benefitted those carriers with the low cost of operation, as the non-fuel cost of
those aircraft increased. This may enable the efficient operators to accrue higher revenue by

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maintaining the marginal routes, the introduction of new routes and increasing the capacity of
the existing routes.
Recommendation 3: Introducing modern aircraft are more fuel efficient and they are
committed to reducing the level of emission by 20% to 30% compared to their predecessors.
More precisely the introduction of technology and incorporating the technological aspects in
the airline industry will also help the airline to establish sustainability. That is the use of
biofuels will ensure sustainable operations (Homsombat, Lei, & Fu, 2014). However, the
problem with biofuels is that they are very short in supply as well as expensive. Secondly, it
has been observed that almost all the aircraft have to circle before the air corridor is clear for
landing. If the air traffic control system can be improved it could lead to a reduction in the
fuel consumption as well as emission.
Conclusion
Throughout the report, it has been observed that airline industry is facing different
issues and the most important among them are the competitiveness, fuel price and
environmental sustainability. Therefore, in order to run the airline profitably, it is necessary
for Thai Air Asia X to cope up with these issues. The issue of competitiveness can be
mitigated through horizontal integration or associations which will in turn help to the
company enhance the service quality. On the other hand, the issue regarding fuel price can be
eliminated if more fuel efficient aircraft are used. Finally, in the context of environmental
sustainability infrastructural development is required which will enable the Thai Air Asia X
to satisfy the environmentally conscious customers in a way that their business is
environmentally sustainable.

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Works Cited
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Belobaba, P., Odoni, A., & Barnhart, C. (2015). The global airline industry. John Wiley &
Sons.
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mobility. Environment and Planning A, 48(6), 1004-1011.

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Pratt, S., & Harrison, D. (2015). Tourism in Pacific Islands: Current Issues and Future
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