Challenges Facing Airlines and Solutions to These Challenges - Literature review Example

The paper "Challenges Facing Airlines and Solutions to These Challenges" is an outstanding example of a management literature review. Part A of the assignment clearly outlines and analyses the problem and offers some of the possible solutions. This section intends to review some of the methods used in analyzing the issue. In part C, the paper also attempts to identify some methods of identifying a solution to the problem at hand. Some of the solutions discussed in this review include fuel reduction, the formation of strategic alliances, privatization, increased competitiveness and improved organizational culture.

Challenges Facing Airlines

The establishment of an airline industry often involves various challenges which include relying on short term credit as the main source of funds with a repetitive need for large amounts of money. There was an increasing dependence on insurance because of the rapid technical development of facilities and equipment as well as the arrival of jets which implied more seats to be sold. Presently, the costs have assumed a new form. According to Jet Blue Airlines et al (2007), security and safety measures are vital variables in the airline industry.

Terrorism is known to have caused a great setback on airlines where individuals opt for other means of transport instead of aeroplanes. Additionally, the ever-rising fuel costs also lead to very high operational costs and high labor costs to take care of, hence negatively affecting profits. In the aviation industry, fuel comprised of 20% of the total operating expenses. This was a sharp rise from 10% to 20% in 2004. 2005 saw the airline sector experience an increase of 30% while 2006 recorded a 35% rise in fuel prices. Evidently, the fuel prices in the aviation sector have been steadily rising up to date (Barney & Hesterly, 2010). Most of the companies hedge their costs of fuel whereby they make early purchases of fuel as a fixed cost for delivery at a future date in order to protect themselves from shock due to sharp and sudden fuel price fluctuations.

It is also worth noting that the political instability that is experienced in oil-producing countries plays a major role in the rise of fuel prices in the aviation industry (Keynes, 2009). For instance, Libya in Africa is one of the major oil-producing countries in the world. The country has been facing a lot of political instability that in turn causes fuel prices to skyrocket. This cost can be seen in the income levels as well as prices of other products in the market. With the aforementioned challenges, there is a rapid change and unforeseeable airline environment turbulent. It is therefore critical for the managers in the industry to predict and plan for the unpredictable changes in order to enhance their performance (Chang & Yen 2007).

High fuel costs

According to Tolkin (2010), there are numerous factors which determine the jet fuel price. These factors include environmental regulations; interrupted refinery processes; flows of regional demand; seasonal changes in demand; supply interruptions due to natural disasters; market speculation; and geopolitical events or military conflict. Whereas management may not plan effectively for natural disasters such as Hurricane Katrina, they may tactically plan for the regional differences in jet fuel costs. As per the GlobalAir that monitors the present jet-fuel pricing, West Coast of the US is experiencing higher fuel prices by 20 to 40% as compared to the East Coast or Midwest. It is for this reason that the fuel has to be conveyed to the West coast. Consequently, the operations and management departments work tirelessly to lower the fuel prices and at times load an airplane with surplus fuel for a specific flight since fuel could be expensive in the target destination (Rejimon, 2015).