Reflection – Piedmont Airlines

Reflection – Piedmont Airlines

Company Overview

Piedmont is a regional airline headquartered in Salisbury, Maryland, operating across North America. The airline operates under the American Eagle brand, which is the regional brand representing American Airlines. Unlike most other airlines that represent American Airlines, Piedmont Airlines only uses planes belonging to American Airlines. The airline makes 440 daily departures to 72 cities across Eastern America and Canada. The airline exclusively flies the ERJ-145 aircraft. Passengers seeking to travel with the airline can access flight details through the American Airlines online website. Piedmont currently employs around 9000 aviation staff. The company is known to offer its employees the best wages compared to other regional airlines. It also extends favorable discounts and other perks to other American Airlines partners. Piedmont’s airport hub is Charlotte Douglas International Airport that is located in North Carolina (Piedmont Airlines, 2021).

Financial and Economic Performance Evaluation

There are many things an airliner must do well to be successful financially and economically. A failure to do well in a few of these areas may not necessarily result in overall business failure. However, doing poorly in one or two of these areas will result in the airline’s collapse. Being a service business, an airline ought to do well in the following areas: finances, safety, customer attraction, fleet management, and managing people.

Safety vs. Profitability

There is a direct link between airline safety and profitability. Airlines with low accident rates are likely to be profitable. Constraints in the airline industry and stiff competition sometimes force airlines to abandon safety measures to maintain a profit margin (Huang et al., 2021). Therefore, an airline can use accident history as a measure of its financial wellbeing. Essentially, airlines that are performing below their aspirations exhibit a negative relationship between profitability and safety. On the other hand, airlines that are doing well demonstrate a positive relationship between safety and profitability.

Debt vs Equity

Piedmont can also analyze its financial wellness based on its debt level relative to equity capital. Healthy organizations ought to have an appropriate balance of debt and equity (Dempsey 2008). Equity is important because it allows corporations to survive during economic downturns. Unlike debts that the organization has to service even during economic downturns, the organization can postpone dividend payments or abandon them if it is not doing well financially.

Equity essentially acts as a cushion during economic downturns that have recently become a common phenomenon among American airlines. It also leads to reduced risks for lenders who might have extended loans to a company since the company can focus on servicing the debts from equity savings (Dempsey 2008). Also, preferred stock holdings are a vital indicator of financial performance. Preferred stock is less risky than debts but riskier than common stock.

Another factor that makes debt unattractive is the fact that it has to be serviced frequently. Considering the cyclical nature of the airline industry, servicing debt might be burdensome for the organization. Therefore, a company should avoid debt and instead go for equity options to perform well financially.

Supply

On the economic front, supply capacity is also a good measure of airport performance. Excess capacity is inevitable among airlines, but sometimes it can be so large that it may hurt the business. Most airlines rarely attain an overall capacity of over 70%, reflecting on an airline’s poor economic performance (Dempsey 2008). Sometimes, about one quarter to one-third of an airline’s capacity remains unoccupied, leading to a dip in profitability. What is worse is the short inventory life that is associated with the airline industry. Once the plane takes off with some empty seats, they are lost forever. While evaluating its economic performance, Piedmont should consider its performance against industry standards. Although this performance metric plays a part in determining its success, Piedmont should not perceive itself to be failing if it encounters excess capacity issues as it is a common phenomenon in the industry.

Demand

The demand for airline services is also indicative of an airline’s economic performance. There are short-term and long-term dynamics that play a significant role in the air transport business. Demand for airline services changes depending on the time of the year, seasons, month, or even every week. The need for air travel is usually high during summer, during the second and third quarters of the calendar year (Fardnia et al., 2020). However, traffic is typically poor during the first quarter of the calendar year (Fardnia et al., 2020). Based on these industry dynamics, Piedmont can decide whether its current performance indicates success or not.

People

A company’s employees are a critical ingredient towards its success. That is because people are core to any developments that could occur in the organization. Businesses need to ensure that their employees are satisfied on various fronts. Satisfying employees helps them, and the company will benefit from increased productivity from a motivated workforce (Ghobrial & Soliman, 1992). Besides, successful companies know that they have to help employees grow too.

One of the key business success factors that emanate from an organization’s people is ensuring that they have qualified individuals. Piedmont Airlines hires employees based on their skills and qualifications. Employees who understand their roles and responsibilities are also a precursor to organizational success (Fardnia et al., 2020). An organization’s employees should contribute towards the business’ economic and financial wellbeing.

Even biblically, a business ought to provide good customer service to be successful. Leviticus 19:18 states, ‘Love your neighbour as you love yourself.’ The verse essentially means that the company should put itself in the customers’ shoes to treat them appropriately. When applied to Piedmont’s case, the company should prevent issues such as lost luggage, noise problems, and housekeeping issues. Upholding the biblical recommendations will help the business attain short term and long term business goals.

Negative Business Factors

Bankruptcy filings are common in the airline industry. Various American airlines have filed for bankruptcy from time to time because they could not sustain their businesses. For instance, American Airlines and Delta airlines have filed for bankruptcy on a few occasions (Fardnia et al., 2020). However, the two companies went on to survive despite their adverse filings. One of the contributing factors towards their eventual survival was their decision to merge with other industry players. However, others are not so lucky to survive the turbulent economic conditions in the air transport sector. The sector is associated with some negative forces that, if not managed well, can lead to the eventual failure of the entire airline.

The factors that affect the financial and economic wellbeing of airlines include the high fixed costs and variable costs. The leading contributor to the high cost is the high cost of large planes (Fardnia et al., 2020). The planes have a limited life of 25-30 years which means that airlines have to incur the expenses after some time. Another contributor to the high costs is unavoidable labor wages. Piedmont is one of the highest regional payers, and the company parts with a significant amount of its revenue as payment to its employees. Also, the volatility of oil prices contributes to the high costs, especially when the costs are high. Besides, the security arrangements adopted after 9/11 have burdened airlines with extra expenses that they have to meet to succeed. Only a few airlines can surmount the formidable.

External factors that affect demand in airlines can also affect the profitability of these organizations. External factors such as political unrest, pandemics, and natural disasters can lead to the closure of air transport, leading to huge losses. For instance, a volcanic eruption in Ireland in 2010 occasioned the closure of much of European airspace, leading to over $2 billion in losses. In 2001, in the aftermath of the 9/11 attacks, American airlines also lost over $7.7 billion in revenue despite the huge government support. The recent COVID-19 pandemic led to the complete global airspace closure, with so many aircraft being grounded (Salman et al., 2020). The massive revenue losses and job losses resulting from the recent closure were huge. Airlines are so vulnerable to external factors that a few triggers can occasion the closure of an entire business.

Addressing Negative Business Factors

Airlines should consider aligning airport operations with terminal and flight activity to cut the high costs that have bedeviled airlines in the recent past. Piedmont Airline should consider closing down terminals either partially completely. Other areas that could be closed to reduce costs include air bridges, aprons, and the parking area, among others. For example, Changi Airport in Singapore closed terminal 2 at some point to cut costs. Even the renowned Heathrow Airport closed a runaway to reduce operational costs. Airlines can also consider flying fewer planes to reduce operating costs. Downsizing by targeting unnecessary crew members can also help airlines significantly lower costs to survive economic downturns.

Piedmont must also address the issue of falling passenger numbers as a result of the COVID-19 pandemic. Before the pandemic, most airlines were registering a steady rise in passenger numbers. Attaining the numbers, post-COVID-19 has proven to be a hurdle due to reducing passenger confidence (Salman et al., 2020). These conditions require airlines to take action to boost passenger confidence.

Recommendations

Piedmont can address the falling passenger numbers by adopting prediction and assessment analytics. Such tools will help the business realize the frequency at which flights can operate sustainably during economic downturns. Also, the tool can help airlines curb losses in operational routes.

The airline should also adopt customer care transformation. That includes enforcing automation and self-service tools such as chatbots to address simple customer inquiries. In the end, that will enable fast customer responses, leading to a better customer experience.

Reference

244. Huang, C. (2021). Assessing the financial performance of airlines in the Asia-Pacific region. Investment Management and Financial Innovations, 18(2), 234–244. https://doi.org/10.21511/imfi.18(2).2021.19

Dempsey, P. S. (2008). The financial performance of the airline industry post-deregulation. Hous. L. Rev., 45, 421.

Fardnia, P., Kaspereit, T., Walker, T., & Xu, S. (2020). Financial performance and safety in the aviation industry. International Journal of Managerial Finance, 17(1), 138–165. https://doi.org/10.1108/ijmf-03-2019-0095

Ghobrial, A., & Soliman, S. Y. (1992). An assessment of some factors influencing the competitive strategies of airlines in domestic markets. International Journal of Transport Economics/Rivista internazionale di economia dei trasporti, 247-258.

Huang, C. C., Hsu, C. C., & Collar, E. (2021). An Evaluation of the Operational Performance and Profitability of the U.S. Airlines. International Journal of Global Business and Competitiveness. https://doi.org/10.1007/s42943-021-00031-x

Piedmont Airlines. (2021, November 30). Home. Piedmont Airlines. https://piedmont-airlines.com/

Salman, D., Seiam, D., & Fayaz, E. (2020). How Can the Aviation Sector Survive after COVID-19? Virtual Economics, 3(4), 91–105. https://doi.org/10.34021/ve.2020.03.04(5)

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Reflection Paper

1. Choose a company or an organization that you are currently affiliated with (student/employee, vendor, potential employer, etc).

2. Applying some of the concepts, principles, and theories learned in this course, write a 5-7 reflection pages that should include the following:

a. Provide a brief overview of the company or organization chosen.

b. Outline and evaluate a plan that the company or organization could use to evaluate its financial and economic performance. Consider all the key drivers of performance (including biblical principles) and the fundamental manner in which each factor influences managerial decisions.

c. Determine and discuss two (2) likely factors that might cause a negative change, and predict the primary manner in which these changes would likely impact business operations in the dynamic business environment.

d. (I) Recommend key actions that the company or organization could take in order to arrest the negative changes to improve its profitability and/or service delivery to its stakeholders.

(II) Outline, in brief, a plan to implement your recommendations.