Introduction to the aviation industry


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Introduction to the aviation industry

  1. 1. INTRODUCTION TO THE AVIATION INDUSTRY<br />The aviation industry encapsulates the development, operation and management of aircrafts. While the common perception about the sector is that it’s only about pilots and airhostesses, there are numerous other, equally significant job options that the industry cannot function without; from in-flight trainers and aircraft maintenance engineers to baggage handlers and reservations agents. <br />Performance <br />The economic slowdown which began in 2008 hit the global aviation industry severely, with many airlines such as United and British Airways in the red. This was due to falling passenger numbers and increasing competition from low-frills airlines coupled with rapidly rising fuel costs. Despite passengers now resuming air travel, the increase has been very gradual. In fact, International Air Transport Association (IATA) Director General and CEO, Giovanni Bisignani, in December 2009, stated the global economic crisis “has cost the aviation industry 2 years of growth… as the improvement that has started since passenger traffic hit rock-bottom in March 2009 is similar to the pace of growth in 2006-2007.” <br />Growth Potential <br />In India, the industry sector continues to look promising. The liberalization of the Indian aviation sector in the mid-nineties resulted in significant growth due to the entry of private service airlines. There was, and continues to be a strong surge in demand by domestic passengers, due primarily to the burgeoning middle class with its massive purchasing power, attractive low fares offered by the low cost carriers, the growth of domestic tourism in India and increasing outbound travel from India. In addition, the Government has also focused on modernizing non-metro airports, opening up new international routes, establishing new airports and renovating existing ones<br />Unfortunately, most major airline operators in India such as Air India, Indian Airlines, Jet Airways and Kingfisher Airlines have reported large losses since 2006, due to high aviation turbine fuel (ATF) prices, rising labor costs and shortage of skilled labor, rapid fleet expansion, and intense price competition. The problem was also compounded by new players entering the industry even before the existing players could stabilize their operations. As a result of the already weak domestic scenario, the airlines suffered even further when the recession, which exacerbated all these factors, hit. Suffice to say, though that the Indian aviation industry has been more resilient than its global counterparts. Despite many private airlines being in the red, the industry itself remains robust. <br />According to Kapil Kaul, CEO India & Middle East, Centre for Asia Pacific Aviation (CAPA), India's civil aviation passenger growth is among the highest in the world. “The sector is slated to cruise far ahead of other Asian giants like China or even strong economies like France and Australia. The number of passengers who will be airborne by 2020 is a whopping 400 million.” To keep pace with this accelerated demand, existing players have been trying to increase fleets and widen their footprint to regional destinations as well. There has also been increasing attention from international low cost airlines such as Air Asia (Malaysian) and JetStar Asia (Australian) to capture part of this lucrative opportunity. <br />Future Prospects <br />As a result of the strong growth trajectory of the industry, there is likely to be a massive need for skilled personnel to helm this growth. India is already experiencing a shortage of pilots and is likely to face similar shortages across the wide direct and indirect employment pool. <br />INTRODUCTION TO JET AIRWAYS<br />Background:<br />Jet, with its headquarters in Mumbai, India, began as an air taxi operator in April 1992 and started its commercial operations a year later, in 1993. It operated with just 24 flights across 12 destinations initially, but showed exceptional growth with more than 357 daily flights to about 62 domestic and international destinations in 2008. <br />It was first listed in the National Stock Exchange (NSE) in the year 2005. As of June 2008, it operated over 370 daily flights to about 68 destinations both in India and abroad including San Francisco, New York, Toronto, Singapore, Brussels, London (Heathrow), Hong Kong, Shanghai, Kuala Lumpur, Colombo, Bangkok, Kathmandu, Dhaka, Kuwait, Bahrain, Muscat, Abu Dhabi, Dubai, etc…<br />In May 1974, Naresh Goyal founded Jet air (Private) Limited with the objective of providing Sales and Marketing representation to foreign airlines in India. <br />In 1991, as part of the ongoing diversification programme of his business activities, Naresh Goyal took advantage of the opening of the Indian economy and the enunciation of the Open Skies Policy by the Government of India, to set up Jet Airways (India) Private Limited, for the operation of scheduled air services on domestic sectors in India. <br />Jet Airways has emerged as India's largest private domestic airline and has been acclaimed by frequent travelers as the most preferred carrier offering the highest quality of comfort, courtesy and standards of in flight and ground service and reliability of operations. It currently has a market share of 46.7% per cent and operates a fleet of Boeing and ATR72-500 turbo-prop aircraft. <br />Jet Airways has been voted India's 'Best Domestic Airline' consecutively and won several national and international awards, including the 'Market Development Award' for 2001 awarded by Air Transport World. <br />ISSUES<br />» The HR problems faced by Jet Airways in 2008.<br />» Various concepts related to hiring, firing, and compensation management.<br /> Jet’s decision to lay-off employees and the reasons behind its later decision to take back the sacked employees.<br />» Understand the importance of communication in an organization and analyze whether there were any loopholes in Jet’s organizational communication network.<br />» Understand the rationale behind the pay cuts initiated at the company.<br />» Understand how environmental variables could affect a company’s HR policies.<br />Introduction:<br />In October 2008, Jet Airways (India) Limited (Jet), one of India’s leading domestic airlines, decided to lay off more than 1,000 employees to streamline its operations. The retrenchment was the second phase of its trimming operations.<br />The first phase, which took place a day earlier, saw the airline showing the door to 850 cabin crew members. <br />The second phase of retrenchment included employees from all operations – cabin crew, pilots, ground staff, airport services staff, and employees from management departments.<br />The sudden decision not only took the employees by surprise but also caused alarm in the Indian aviation sector. Amidst great furor and opposition by various organizations and political parties, Naresh Goyal (Goyal), chairman of Jet, reinstated the employees a day later amidst great emotional drama. He was quoted as saying he had been appalled by the retrenchments of his employees, which he claimed, he had come to know only through media reports.<br />He added that he would “not be able to live as long as he lives” with the tough decision his management had taken and clarified that he was taking back the employees as they were “family to him and as head of the family he would take care of them.<br />A month later – in November 2008, Jet announced that it would consider serious salary cuts for its staff to handle the aviation crisis.<br />While many industry analysts were surprised by the turn of events that had led to the reinstatement of the sacked employees, they opined that Jet had been forced to take drastic decisions such as laying off employees or initiating pay cuts because of the turbulent phase through which the aviation industry was passing.<br />In September 2008, the International Air Transport Association (IATA) had predicted that world over the aviation industry would lose about US$5.2 billion based on an average jet fuel price of US$140. The rise in fuel prices had pushed the fuel bills of the aviation industry to US$186 billion by the end of the year 2008.<br />HR Issues, Management and Decision Making at Jet<br />According to the company, Jet paid the utmost importance to the composition of its senior management and its human resources with emphasis on teamwork as a key success factor. Being in the service-based industry, Jet gave priority to high quality, professional service to its customers…<br />The Retrenchment Drama Unfolds<br />The retrenchment drama unfolded on October 16, 2008, when Jet announced that it would lay off nearly 1,100 of its staff a day after it had already laid off around 800 of its cabin crew members.<br />The second phase of 1,100 employees included those from departments like management, flight attendants, and the cockpit crew.<br />The company decided to lay off these employees with no prior notice but offered them a month’s remuneration…<br />Reasons for Retrenchment<br />The growing challenges in the Indian aviation industry were the main reason for the layoffs at Jet.<br />Turbulent Times for the Indian Aviation Industry<br />The Indian aviation industry was one of the fastest growing aviation industries in the world. The Air Corporations (Transfer of Undertakings and Repeal) Act 1994 opened the Indian skies up to private operators. Apart from government-owned airlines, the aviation industry was flooded with private operators and low cost carriers…<br />The Debate Leading to the Reinstatement of Employees<br />Jet received criticism from several quarters for retrenching its employees. Many of its employees protested against the decision to oust them without prior notice. Most of them had paid substantial amounts to receive training at major Aviation Training institutes…<br />Massive Salary Cuts Follow<br />In the last week of November 2008, Jet decided on a 20% cut in the salaries of its pilots, engineers, and some other staff. The company planned a 5 percent to 10 percent cut in the salary of top officials who drew a salary above Rs. 75,000.<br />Under the compromise reached today, the two sides agreed to form an internal grievance redressal mechanism which would exist alongside NAG. This panel would look into issues raised by pilots and other employees and would consist of five members of NAG and five from the management, including two board members, two senior flight operations officials and the CEO.<br />Disputes in domestic and multinational companies in India are on a rise since 2008. Citing a plethora of faults with employers, the labor community, represented by various organizations ranging from local trade unions to officers' associations have engaged in many strikes and protests. <br />While Jet Airways' pilots went on a strike for five days, there were millions of passengers who landed up in trouble. <br />The result was? <br />Bad reputation for— the company and the employees plus great monetary loss. <br />While India's age-old labor laws stand safeguarding the interests of the supposedly less powerful `employee' community with a few amendments over the years, ironically, the labor unrest is growing in the country.<br />Description<br />On September 8, 2009, around 650 pilots of Jet Airways, India's largest private airline company, took a mass sick leave as a protest against the management that sacked two of its pilots for joining a union. <br />The pilots' union named National Aviators Guild (NAG), was formed in August 2009. <br />Thousands of passengers were stranded because of the flash strike which lasted five days and forced the management to cancel around 900 flights. The strike is an added woe to the already ailing Indian aviation industry.<br /> But surprisingly, aviation industry is not the only industry which suffered from labor discontent in recent times. Multinational companies in India — Nestle, Hyundai and others — also suffered from similar labor disputes adversely affecting their operations. As Indian economy bets heavily on labor-intensive service industry, India's age-old labor laws might need a modification.<br /><ul><li>One of the main issues that have got sidetracked in the Jet Airways versus its own pilot’s controversy is whether pilots of Jet Airways have a right to form a trade union. </li></ul>This Jet Airways confrontation will be a litmus test for corporate India's campaign to water down the labour laws of the land and to ensure that workers have no collective bargaining rights in a 'globalised' world. Jet Airways have been surreptitiously shedding staff in many other departments during 2009, despite Mr. Goyal's tears of retribution during Diwali 2008, after his airline with one fell swoop made hundreds of cabin crew redundant.<br />Airline pilots in India are probably the only group of individuals who have the right to confront the unbridled corporate and governmental reach of the Jet airways management. These pilots, scions of political bigwigs, have the economic wherewithal to sit-out a lock out as well as the political network to counter the political machinations of Naresh Goyal. <br />