The success of any business largely depends on the conditions of the external environment. This paper seeks to analyze the domestic and international environments of US Airways Group Inc. and suggest a strategy that would be used to optimize its returns. It begins by outlining how government regulations affect both domestic and international environments of the company’s operations, hard and soft technologies used by the company, political and legal barrier, socio-cultural factors and a strategy that would be applied in the context of the above environmental factors backed by the appropriate economic theory. A PESTEL analysis shows that US Airways Group Inc. has been an victim of regulation and economic meltdown and could consider forming a merger with a bigger company such as Delta.
Domestic Environment and Government Regulations
Due to the nature of the industry, airline companies are highly regulated by law in the United States of America. The domestic environment of the company is mainly the U.S. The company is headquartered in Temple, Arizona. It operates about 340 aircrafts through its subsidiaries as well as the members of the Group comprising of the U.S. Airways Express, U.S. Airways Shuttle and U.S. Airways. The company traces its domestic operations from the late 1930’s when it began to offer airmail delivery in the Ohio Valley and Western Pennsylvania. To-date, the domestic environment is regulated by government agencies such as Transportation Security Administration (TSA), Federal Airways Administration (FAA), Equal Employment Opportunity Commission (EEOC) and the U.S. Department of Justice (USDOJ) (Czemy, 2008).
Government regulations variously affect the way the airline operates in the country. Some of effects are positive. For instance, with increased cases of terrorism, there has been a need to enhance passenger and cargo screening. Therefore, government efforts to regulate the procedures of being cleared at airports and airstrips has somewhat saved the aircraft revenues that would otherwise been lost, for instance, in times of bombing. Specifically, TSA’s regulations have led to more times spent in queues (Heskett, 1986). This is because the agency provides for intensive physical screening of all persons and cargo by TSA’s over 50, 000 officers. Other than time wastage, the company has also incurred additional costs in maintaining the aircraft in order to live up to the standards of TSA. FAA supervises the construction of aircrafts to the required standards. FAA has also led to US Airways Group Inc.’s efficiency because it manages traffic in airports thus rendering the company more effective in handling huge and small numbers of passengers. In general, these regulations touch on traffic control, security, scrutiny of merger and acquisition efforts, business practices and integrity issues surrounding aircraft practice; the effects are both enhancing and inhibiting.
International Environment and Government Regulations
US Airways Group’s international environment includes all its other locations outside the U.S as well as its regional subsidiaries. The company has international presence in Europe, Middle East, Central America, Caribbean, South America and Mexico. In addition, US Airways Group has regional presence in Canada. This network makes it the 5th largest Airline in the country.
Government regulation has variously affected the operations of the airline in the international scene. First, all the government agencies mentioned above have almost the same effects on both international and domestic flights and carriages. Some authorities see these regulations as facilitators of business yet others see them as hurdles; thus extrapolating further the debate of efficiency and increased costs of operation. In addition to these regulations are those that emanate from labor laws, consumer protection and travel restrictions. After the September 11 attacks, rigid travel inspections were launched on top of customers’ preferences of more popular aircraft brands to less popular ones (Warren, 2008). As a result, one of the members of the Group, U.S. declared bankruptcy in 2002. Government policy on free market led to high fuel prices that led to the company’s decision, in 2005, to merge with America West in 2005. In 2008, after it was realized that FAA was not strict as was required, Congress has since then proposed several regulations regarding inspections. This is has led to increased costs on the part of US Airways Group. Increased taxation and consumer protection has led to difficulty setting air fares.
Hard and Soft Technology for the Company
Aircrafts are essentially providers of services not only travel but also those services that make the travel experience thrilling. In order to effectively deliver services to the clients’ satisfactions, there is a need to have a good mix of hard and soft technologies. Hard technologies are basically the tangible elements while soft technologies are the intangible ones. Examples of hard technologies for airline companies are computers, scanning equipment, x-ray and screening equipments. Soft technologies may include data bases, processes of management or systems of information flow such as Wi-Fi among others.
With increased technological advancements, US Airways Group can effectively make use of several innovative ways of customer service. The first proposed hard technology is improved cargo handling processes through automation (Mudie & Cottam, 1999). This way, the company will make the work of the personnel easier and faster; time is saved and energies are redistributed to other tasks. Secondly, US Airways Group could also standardize its services through soft technologies such as establishing and making effective databases and client as well as employee information systems, designing softwares that would help in the scheduling of lights and delivery functions. If US Airways Group adopts or strengthens these technologies, it will save more time, become more effective and even become the desired airline of choice; courtesy of its service to the customers for both domestic and international destinations.
Political and Legal Barriers of the Company
Politics and law in the U.S. have always affected businesses in general and those in the airlines industry. Since it is the industry that connects America to the rest of the world, it is determined by policies on foreign affairs and immigration. Specifically, the congress is known to come up with resolutions that affect US Airways Group and other airlines. Since the decisions by the Congress are translated into law, Congress represents the intersection between politics and law. Perhaps the best example to cite is the enactment of the perimeter rules that forbid incoming flights that exceed 1500 miles and outgoing flights that exceed 1250 miles (Czemy, 2008). For US Airways Group, this meant that they had to use Dulles and JFK Airports of Washington and New York thus reducing profitability. This is based on the fact that compulsory landing in Washington or New York increased fuel used thus reducing the margin of profits to be realized.
In order to successfully operate in both domestic and international environments, there is a need to apply Michael Porter’s forces. In this regard, US Airways Group should focus on the bargaining power of buyers who are the clients. This means that in order to offset the discrepancy created by the need to use the two airports, the company could focus more on domestic flights within U.S. as well as work on a scheduling plan that makes sure that outgoing flights are always filled (Warren, 2008). Outsourcing is also a good way or reducing operation costs for US Airways Group.
These are factors that have to do with the customers both at home and abroad. Viewed from this distinction, salient differences are evident. First of all, the middle class segment of the population has most clients whether in the U.S or abroad. However, there are significant attitudinal differences between middle class people in U.S. and other nations especially from the East and South. Due to entrenched capitalism in the U.S. there is a deep sense of consumerism and spending. As a result, U.S. citizens would want to fly even over short distances but international clients may only be beneficial only when coming in and going out of the U.S.; inside the U.S., they use other modes of travel such as train (Warren, 2008).
Economic Theories that can explain the Company’s Situation
The domestic situation can be explained by Regional Economic Theory (Warren, 2008) while the international situation can be explained by the Modern Economic Theory (Soekkha, 1997). With reference to the perimeter law in the U.S., the regional economic theory explains that the move by the Congress to require aircrafts to use Washington and New York airports is merely geared towards making sure that the region or the federal government benefits from the private airline companies operating in the country (Warren, 2008). In other words, the companies should not just benefit other airports out there while the origin country does not benefit. According to the theory, New York and Washington had to remain regional leaders in aviation. On the other hand, the Modern Economic Theory effectively explains the fact that even without regulation; airline companies are able to offer security to its clients. This is because according to Soekkha (1997), modern economic theory provides for clients, in the context of high competition, would prefer to select the aircraft with the best package, safety included, as the choice means of transport.
With regard to the nature of the domestic and international environment, as well as the legal, political, social, economic and cultural factors, there is a need for US Airways Group to adopt a strategy that would propel it to greater heights of profitability. With regard to the early 2000’s where bankruptcy was imminent and later mergers, US Airways Group should consider forming yet another merger with a successful carrier such as Delta airways. However, the company should not be completely acquired by the other company. It brand identities should be preserved for the benefit of the new merger.
Both domestic and international environments of US Airways Group’s operation are challenging. At home, there is a lot of regulation which affects international flights. In addition, the ever-fluctuating fuel prices have made the international market very difficult since clients expect not-so-high air fares to be charged. To solve this, US Airways Group should focus on the bargaining power of buyers and consider merging with a bigger company such as Delta.