The variation in customer demand is inevitable in almost any business.
When it comes to the services industry, the supply and demand varies greatly. When supply and demand are not matched, inefficiency issues occur. It is hard to measure the level of customer satisfaction, resulting in ambiguous forecast for the future needs. Addressing this issue is critical to a company’s strategy as they create strategic plans to capture customers’ value. One example of services industry that can be analyzed is the airline industry. Airline traffic congestion throughout the world has become a growing problem. Delayed and cancelled flights due to congestion disrupts global connectivity as people’s travel increases. Future aviation initiatives should focus on addressing this problem, while also considering the side effects such as environmental impact.
Developing countries such as China, India, and Indonesia have the highest growth in aviation demand, translates into demand for new planes. As a result, Boeing has increased the production of 737 from 42 aircraft per month to 57 per month by 2019. It is predicted that it will reach up to 8.2 billion in 2037 according to The International Air Transport Association featured in Forbes. This vast growth will impact lots of aspects and encourage airlines to act, including modernizing and adding new fleets. However, airline companies’ perception in increasing plane capacity may be flawed. Airline companies try to acquire larger number of customers by purchasing planes that have bigger capacities. Nevertheless, it was found that competing airlines have a better strategy in achieving the same outcome by flying smaller planes more frequently on the same routes and having them at full capacity, resulting in a higher number of departures. On the other hand, increasing frequency of departure can cause congestion at airports, as more planes are demanded to fly.
Alexandre de Juniac, IATA’s Director General and CEO said: “The world stands to benefit greatly from better connectivity. However, at this rate, airports and air traffic control will not be able to handle demand. Governments and infrastructure operators must strategically plan for the future. Decisions made now will have an impact on the value created by aviation for their regions.” The vast growth of travelers pays roll in congested airports these days. As a result, planes spend more time waiting to take off and wait for an open gate at the terminal when they land. The level of delayed and cancelled flight is also increasing due to high traffic in the airport. According to an article in CNBC, on-time arrivals fell to 73.3% in June, down from 76.4% a year earlier. Overall, airlines canceled approximately 15,000 flights in June, 19% more than a year before. Problems like this does not stop humans from innovating. Now, new tools help passengers anticipate delays and guide them in making connections. Startup industries are growing to work on this problem, one of them is LUMO which uses algorithm combining aviation data sources. ConnectionSaver, a new software program also act to coordinate connecting flights by automating the late arrivals considering gate availability, baggage transfer time, and other factors.
Earl Sasser in Match Supply and Demand in Service Industries mentioned some ways to manage the demand are altering demand, controlling supply, and seeking the best fit. By altering demand, it means that the aviation company implements a different pricing scheme during peak periods and non-peak ones, that might increase demand for the non-peak ones to avoid high traffic at the airport. Controlling supply can be done by maximizing efficiency. Examining the peak tasks to discover if certain skills are lacking or inefficiently used can bring the system to its full capacity. Increasing customer participation such as self-check-in or electronic ticketing service can also be done to control the supply. Solving the aviation traffic is not a simple job but does not mean it is impossible. Finding the best fit between demand and capacity by making forecast of demand and breaking down the system delivery into component parts will give a picture of a reasonable estimate of what the use of each component will be.
When thinking about solutions to the supply demand issues in the aviation industry and as they try to develop new fleets of airline to meet the demand, companies should consider the effects it brings such as the environmental impact. Commercial aviation accounts for 2 percent of global carbon pollution, a figure projected to grow to between 3 and 4.7 percent by 2050 without concerted action to curb emissions. As de Juniac continued: “Commercial aviation is one of the only global industries to take on such comprehensive environmental targets. With mandatory emissions reporting beginning on 1st January 2019 under the Carbon Offsetting and Reduction Scheme for International Aviation (CORSIA), this will help rally the industry to invest in more fuel efficient aircraft and sustainable aviation fuels.” The growth will generate massive amount of new routes, airports, planes, and pilots. Such increase would also be accompanied by the emission of greenhouse gases linked to climate change, so the industry is doubling down on efforts to improve fuel efficiency and curb emissions. Sustainable aviation fuels have a two-fold positive impact with their use resulting in lower emissions that contribute to global climate change as well as air quality. Searching alternative for a sustainable aviation fuel will from an agreement of long-term offtake agreements between airlines and biofuel producers. It also encourages countries to subsidize the ongoing research and development needed to support the commercialization of novel advanced aviation biofuels which can unlock the potential to use agricultural residues and municipal solid wastes. The demand of fuel efficient aircraft will affect aerospace industries. Boeing has revealed a design for a far more fuel efficient than anything flying today. The Dutch airline KLM is funding the development of a V-shaped plane designed to seat passengers in its wings to make it more fuel-efficient, while can fit the same gates, runways, and hangars carrying 314 passengers.
Increasing number of airplanes demands air and ground operations in the airport more efficient. The U.S. Federal Aviation Administration is implementing a new air traffic management system called NextGen. Different than the previous radar-based system, NextGen use a satellite based system similar to that of GPS technology. This allows traffic free and more detailed communications between the air traffic control from the ground with pilots in the sky, which acquire greater distance. It is also more efficient and time saving by simplifying the decision making in the air and translate into more direct routing between departure and arrival. By implementing this new system, the aircraft spacing is more effective and it avoids congestion in traffic at airports.
- Cho, S. J., & Olson, R. (2017, June 22). As Billions More Fly, Here’s How Aviation Could Evolve. Retrieved from https://www.nationalgeographic.com/environment/urban-expeditions/transportation/air-travel-fuel-emissions-environment/.
- Garcia, M. (2018, October 24). Air Travel Projected To Double In 20 Years, But Protectionism Poses Threat. Retrieved from https://www.forbes.com/sites/marisagarcia/2018/10/24/iata-raises-20-year-projections-to-8-2-billion-passengers-warns-against-protectionism/#7948de5b150f.
- Lesliejosephs. (2019, August 16). Bumped, canceled and delayed: Airline passengers facing a rocky summer travel season. Retrieved from https://www.cnbc.com/2019/08/15/more-us-airline-passengers-are-facing-canceled-and-oversold-flights.html.
- Sasser, W. E. (2014, August 1). Match Supply and Demand in Service Industries. Retrieved from https://hbr.org/1976/11/match-supply-and-demand-in-service-industries.
- Zipkin, A. (2019, September 16). You’re Right. You’re Spending More Time Sitting on That Plane. Retrieved from https://www.nytimes.com/2019/09/16/business/airlines-flights-delays.html.