Air Canada and WestJet
Operations Management Case
September 25, 2010
For an airline, what are the advantages of having new modern planes? What are the disadvantages?
One advantage of having modern planes is that the new technology can result in subsequent cost savings due to better fuel efficiency, faster response times and ease of automated processes. Fuel is the greatest cost for airlines. A further advantage in line with technology is the ability to provide passengers with different amenities such as internet access and other in-flight services that passengers will be agreeable in paying.
Better technology is allowing planes to remain in the air for longer and this allows an airline to expand into international destinations. Superior safety features compared to older models are another advantage along with the expected decrease in downtime due to fewer mechanical issues.
One definite disadvantage is the cost of the aircraft and the capital outlay needed. In this volatile industry the return on capital could end up being very different than originally calculated, resulting in negative repercussions.
Another disadvantage is the required training that must be given to the pilots and crewmembers.
Replacement parts for modern planes are more expensive than replacement parts for older planes. Additionally, when aircrafts are de-commissioned, these huge metal carcasses have a detrimental effect on the environment.
What are some of the difficulties in long-term forecasting for air travel?
The airline industry is a volatile industry. This is due to a vast array of socio-economical factors around the world, such as: economic downturn, terrorism threats and/or attacks and government intervention. These factors have significant impact on both air travel demand and operating costs. Weather patterns, notoriously unpredictable, must be considered as well.
There is also the threat of new competition, labour union interruptions, determining profitable routes, foreign exchange fluctuations as most airlines accept payment in many currencies.
Another difficulty in long-term forecasting is the ability to hedge against oil and the impact this has on profitability.
What are some of the difficulties in workforce planning and change for Air Canada?
Air Canada’s challenge in workforce planning was how to successfully merge two different corporate cultures and work forces, each with its own agenda, labour unions and demands. Pilots, maintenance mechanics, flight attendants, ramp/cargo employees, and sales & service agents all had different unions representing them. Labour negotiations impaired planning and added costs that could have been directed and utilized elsewhere.
Another difficulty was how to keep the current work force happy, effective and efficient while minimizing the negative effects of restructuring. Although Air Canada’s intention was to increase job numbers, soft demand forced them to actually reduce its workforce by 4,000 jobs.
Were the introduction of Tango and Zip a good idea? Explain
It could be argued that the introduction of Tango and Zip was a good idea in 2002 because it was meant to enable Air Canada to expand into another target market and respond to increased competition from new discount airlines, such as West Jet. Since both Zip and Tango were dissolved 2 years later, it is possible that the idea wasn’t marketed well, or implemented at the right time: in 2002 the demand for air travel was soft, due to the dot.com bust and 9/11 terrorist attacks.
The restructuring costs were enormous – over $1 billion dollars. Air Canada should have considered either reducing their fares to increase demand and to effectively compete with West Jet pricing or focus on improving their core competencies and find efficiencies that way. Instead, Air Canada ended up with three competitors offering better prices instead...
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