Doughnut Industry

The doughnut market is extremely competitive. In the United States, the competitiveness is a function of the sheer number of doughnut stores; while abroad the sector is competitive because of the smaller size of the market. Regional doughnut chains such as California-based Winchell’s Donut House and Rhode Island–based Bess Eaton Coffee Shop & Bakery are generally slightly smaller than Krispy Kreme and have actually been using this insurgent company as a model for their own operations. While these companies often have a significant presence in their niche markets, they are often left in Krispy Kreme’s shadow.

On the national level, Tim Horton’s and Dunkin’ Donuts hold 29 and 54 percent, respectively, of the overall market share, compared to Krispy Kreme’s 12 percent share. The company also purports to compete with companies such as Starbucks and Einstein Brothers Bagels and with local supermarkets. What do these doughnut companies have been competing against with? According to Morey & Miller (2004) operation time of each store has a significant impact on doughnuts companies’ success. There are stores that offer a 24 hour drive thru, and most stores are open in time for breakfast.

According to a study, it stated that consumers opt for donuts for their breakfast Price of the donuts remained to be competitive. Companies’ gives several options when buying in volume has kept the donut market fresh What does it mean? People generally will buy in bulk to save. The more people buy an increase in profits for the company. Start with creating an experience that customers really value (Woolstencroft et. al. , 2005).

Customer service makes any brand stay on top. Staff is very important to a companies’ success because they are the fore front of the stores. Importantly, they are the ones who deal with customers. As customers value reliability and consistency with doughnuts brand (Woolstencroft et. al. , 2005), they often associate the product and customer service altogether. There should be a clear distinction of having the right and quality product with the services offered by the company.

Dunkin Donuts

Dunkin’ Donuts, owned by Allied Domecq, is clearly the doughnut king.

Its 5700 stores (though not all are stand-alone) dwarf the several hundred owned by Krispy Kreme. Nonetheless, in 2001, Dunkin’ Donuts began to take notice of the underdog from North Carolina. When Krispy Kreme signaled its intention to expand into the Boston area, Dunkin’ Donuts’ home market, the move generated a “tremendous amount of discussion” (Peters, 2001) among executives at the giant doughnut firm, even though Dunkin’ Donuts had more stores in Boston alone than Krispy Kreme had in the whole country. Dunkin’ Donuts is an enormous challenge for the insurgent Krispy Kreme.

With nearly $3 billion of sales in 2002, Dunkin’ Donuts dominates Krispy Kreme in many categories. More specifically, the Boston-based goliath spends more money on advertising and has better name recognition, better coffee, lower-fat doughnuts, and more product offerings (Peters, 2001). However, Dunkin’ Donuts’ CEO Ken Kimmel has noted that, “While we are the biggest player in the doughnut business, that’s not the sole focus on our business “(Peters, 2001). Dunkin’ Donuts’ product line extensions and co-branding strategies are actually being used as a model for Krispy Kreme today.

And while much of the hype in the doughnut community continues to focus on Krispy Kreme, the company is well aware that Dunkin’ Donuts is “thriving in their [Krispy Kreme’s] backyard. (Peters, 2001) Another great idea from Dunkin Donuts is payment cards. They are making big inroads at Dunkin’ Donuts, but efforts to get cash-wedded franchise owners to take plastic have a way to go, and contactless payments remain on the horizon. CardTechSecurTech 2006 conference in San Francisco this week.

Dunkin’ Donuts likes cards because customers make purchases without wondering if they have enough cash, help the chain better understand buying habits, and build loyalty programs though stored value gift cards. (CardLine, 2006) Krispy Kreme Most people who own doughnut shops consider bakeries, coffee shops, and grocery stores that sell doughnuts as competitors. Not Krispy Kreme. Despite the fact that Krispy Kreme spends an incredible amount of money building its own stores (twice as much as Dunkin’ Donuts), the company bends over backwards to foster relationships with would-be competitors, turning them into “off-premises partners.”

Krispy Kreme used this unconventional approach to build a thriving “off-premises partner” program to supply doughnuts to its competitors. Each Krispy Kreme store features a live factory tour, where visitors can watch doughnuts being made, which is part of its overall goal of creating a captivating experience. Watching the dough going in one end of the machine and freshly baked doughnuts coming out the other is an impressive sight. Creating this “doughnut theater” isn’t cheap—the doughnut maker alone costs $350,000, and with all the other costs associated with building and operating a store, it can cost up to $1.4 million for each location (Business Week, December 9, 2002) With that kind of investment, you would think both the company and the franchisee would be fiercely protective of their store locations. It might come as a surprise to learn that every Krispy Kreme location has a thriving wholesale business, selling doughnuts “off premises” to supermarkets, bakeries, convenience stores, and even college campuses. Krispy Kreme Doughnuts creates customer evangelists because: (McConnell & Huba, 2003)

• It starts with a hot product.

• It’s not just fried dough; it’s an experience.

• Customer communications drive product development.

• The company’s roots are in grassroots marketing.

• It gives away doughnuts so that people will buy them.

References:

McConnell,B. ; Huba, J. (2003) Creating Customer Evangelists: How Loyal Customers Become a Volunteer Sales Force Kaplan Professional © 2003

Morey, D. ; Miller, S. (2004) The Underdog Advantage: Using the Power of Insurgent Strategy to Put Your Business On Top McGraw-Hill © 2004

Peters, P. (2001) “Sugar Rush: Krispy Kreme Rises, Challenges Segment,” Nation’s Restaurant News, July 9, 2001. Woolstencroft et. al., The keys to success. Marketing Magazine, 11964650, 6/20/2005, Vol. 110, Issue 22

Salisbury, K. Western Michigan University Student Pages, “Marketing Situation Analysis,” http://homepages. wmich. edu/~k9salisb/assign2. htm.

CARDS GAINING AT DUNKIN’ DONUTS, BUT CONTACTLESS A HARD SELL. , CardLine, 2006, Vol. 6, Issue 19 His Doughnut Stores Are His Children,” BusinessWeek, December 9, 2002.

Internet sources: “Doughnuts Statistics and Trends” available online at https://www. aibonline. org/resources/statistics/doughnut. html accessed March 30, 2007 http://homepages. wmich. edu/~k9salisb/assign2. htm

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Essay On Cosmetics Industry

The cosmetics industry manufactures’ products that help people to achieve a way of perfecting there flaws; while also, making a hefty profit. The top competitors in the beauty industry are L’Oreal, and Estee Lauder. Beauty products such as perfumes, toiletries cosmetics, and personal grooming products are manufactured by these top five companies worldwide. The cosmetics industry is a multibillion dollar industry. The small amount of companies in this particular industry makes for less completion; so these top four companies make billions and billions of dollars just from their beauty products alone. This industry is still flourishing with growth in the past 5 years and always will for the sole purpose that people are very particular about the way the look and express themselves.

The L’Oreal Group is the world’s largest beauty and cosmetic industry. It’s over all net worth is about $100 billion. L’Oreal specializes in hair color, skin care, sun protection, facial make up, perfumes and hair care. The company was founded in Paris, France by Eugene Schueller in 1909. Eugene was young chemists who use to manufacture and sell his hair products to local hairdressers. He then started making profit, and developed his small business into a large corporation. In today’s day and age the CEO of L’Oreal is Jean Paul Agon. Agon joined the company in 1978. He has a vast knowledge for marketing and cosmetics. The successful entrepreneur worked his way up through the top by creating new ideas, tackling massive challenges and economic crises toward the business. He also created new cosmetic lines such as L’Oreal studio line, which is a commonly popular line of products. In 2006 Agon was appointed to become CEO of the company and still promotes L’Oreal’s successes today. Within the past year, L’Oreal’s sales have been booming. Jean Paul even quoted that L’Oreal has the means to buy out the famous Swiss chocolate company nestle by 2014. Since the company is at a $100 billion dollar shot, it is possible for this company to raise stock as much as 35 billion Euros. L’Oreal has come a long way, and will certainly keep soaring high if they invest smartly.

Estee Lauder was a company co founded by a woman named Josephine Esther Mentzer in 1906 with her husband Joseph Lauder. When Estee was growing up, she helped her uncle’s business; which was where she started selling beauty and skin care products to young women and friends. Lauder demonstrated and sold her different types of skin creams to local beauty parlors. Soon enough, Estee created her own co-founded company called “Estee Lauder” and is now one of the leading cosmetic and beauty companies in the world. Estee Lauder products specialize specifically in makeup, nail care and skin care products. The current CEO of Estee Lauder is Frabrizio Freda, who has been the CEO since 2009 of Estee Lauder. The company has a net worth of $8 billion and has grown rapidly since the year 2011. The years 2011 profits were consisted of 42% skin care, Make up 38%, Perfumes 14% and hair care 5%. This year, Estée Lauder jumped up to 84% fiscal profit this year which shows that Estee lauder is still a very progressive company.

These two well respected company’s represent the cosmetic industry in a positive way. The growth from the past years seem to be progressing which shows how important the cosmetic industry is to the average person. I hypothesize that the beauty industry will forever be successful because of the changes it could make on people’s lives.

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Advertising Industry

Table of contents

As part of my HND Make up artistry year one course I have been asked to write a 1500 word essay on principles & practices of selling (PPS for short). In this essay I will research and explain the following:

  1. The use of advertising.
  2. Sales promotion.
  3. Personal selling.
  4. Public relations.
  5. Direct marketing.

I will also look at and explain the roles of selling in a business to business point of view as well as a business to customer. Once I have explained all of the above I will then go back and relate it to the brand illamasqua and explain how they use advertising and promotions within their company.

The use of advertising

Advertising is used to get the target market interested in a product. A lot of money is spent each year on advertising in both large and small businesses. The key for a good advertising campaign is to use ‘AIDA’ which stands for AWARENESS, INTREST, DESIRE and ACTION.

  • A – Awareness. This is key as you need to make the target market knowledgeable about the product and its key details. You also need to attract attention for the advertising to be a success.
  • I – Interest. You need to raise a lot of interest in order for both your advertising campaign and you product to be a success. Focus on all the benefits the product has, ask celebrity’s to endorse the product, this is will raise interest from their fans.
  • D – Desire. You need to make sure the advertising campaign makes the product desirable to the target market, make the target market feel like they NEED this product.
  • A – Action. Making the product desirable will lead the target market to take the action to buy the product. Make the advertising campaign make the target market need the product. Offer email sign-ups for the product release.

The overall aim of marketing is to get the public and target market to desire the product advertised regardless of budgets, a big budget can make a campaign amazing but a smaller one can work just as well. You need to make people aware of the brand as well as the product.

Sales promotions

Sales promotions often happen with most brands, this is usually to increase profits and to avoid the loss of a customer to another rival brand. For example in Superdrug they sell lots of brands of makeup and you will often see promotions such as 3 for 2 or free gifts. These are to encourage you to buy from that brand and not their competitor. There are a lot of sales promotions around today such as:

  • Money off vouchers / coupons.
  • Loyalty cards.
  • Combination offers (3 for 2 etc.).
  • Free gifts.
  • Buy one get one free.
  • Spend X amount and be entered into a lottery or raffle free.

Sales promotions help sell products because people love a deal, if people think they are getting something for nothing (something extra) they will for example buy 2 to get the 3rd free. This can then lead to brand loyalty as they are getting good value for money. Sales promotions are usually heavily advertised to gain more interest.

There are 3 main types of sales promotion:

  • Consumer promotions – This type of promotion is used to target the consumer and convince them to buy the product. This type of promotion is usually for a limited time only. Eg introductory discount price for new products, 3 for 2, free samples with purchase.
  • Trade promotions – This type of promotion is between the wholesaler and retailer. This can be anything from free gifts to special price discounts. The main reason for this is to get higher stock levels into the retailer. Eg free staff training, free samples.
  • Personnel promotions – This is when an employee of the brand are highly trained in what they are selling and are rewarded by the company if they make X amount of sales. They can be rewarded with free products.

Personal selling

This is one of the most important and most expensive parts of selling, it relies on the employee using their knowledge and experience to close a sale. New products to the store can require full training to get the staff up to scratch. To be able to sell the product successfully you need to be able to understand the product you are selling, establish a relationship with the customer, answer any questions about the product, show your knowledge, close the sale and the next time to see them follow up.

If they return to the store the following week ask them how they are finding the product, do they like it? Would they recommend it or buy it again?

Public relations

Public relations is often referred to as PR work, there are many different types of PR work one of the most popular being celebrities endorsing products on their social media and getting products out there. Celebrities are usually paid a commission for this and often have a unique discount code for the subscriber. See picture below.

Another type of PR is unpaid forms such as local and national television and radio. This creates exposure to a wider audience. PR can also be done by posting or handing out flyers with for example discounts on.

Direct marketing

Direct marketing is a form of direct communication. The company sends direct marketing e.g. Leaflets, vouchers etc. Direct to the consumer by things such as post, email, text message etc. Direct marketing is used to get the consumer aware of the product and build a relationship between the brand and target market.

Direct marketing should never be confused with advertising as PR is paid TIME + MATERIALS + EXPENSES. EG time taken to do the form of promotion, materials used e.g. premises, props, clothing and then expenses e.g. the makeup artist and photographer. PR needs to work alongside all the other elements of the promotional mix as alone PR wouldn’t sell products.

Business to business selling

Business to business selling is when a independent brand such as MAC want to sell there product to another company such as Debenhams for them to sell on behalf of MAC. Sales representatives work with the business to sell products.

Business to customer selling

Business to customer selling is when the company such as Debenhams sells the Mac product to the customer. PR and advertising can be used to draw interest to the customer and make the product desirable to have which in turn will close the sale. The business representative or seller needs to be knowledgeable of the product they are trying to sell and be confident in its ability.

Illamasqua and how PPS is used by the brand.

Illamasqua was set up 11 years ago by a man named Julian Kynaston, during this 11 years Illamasqua has grown from just an idea to the multimillion pound brand it is today. Illamasqua advertises their brand very well, they have tons of photos using products, lots of info on their website and sites in which they are sold. They have lots of advertising for the new campaigns.

They advertise this in a way that is gender neutral so for both females and males Julian wanted to create a brand that everybody could use. They advertise having free samples of skin base with purchases. Currently Illamasqua have a promotion on that if you spend £50 or more you get a free make up bag full of goodies plus 20% off your order.

Illamasqua are very good at promotions they always send samples with purchases and have offers as well as having a pro account and offering student discount. Illamasqua have an academy where you can train in make up with them. As well as having the academy in London they also go into colleges and educate make up students on their products and show them ways to use them.

There are various locations throughout the UK that sell illamasqua so you can go into the shops and get skin matched or ask any questions you need to. Illamasqua send PR packages to you-tubers, bloggers and makeup artists for them to review and give their honest opinion on. These are usually sent out before the general release of the product. By doing this they raise awareness and hype for the product release. Illamasqua uses direct marketing regularly by sending out emails if you’ve previously purchased from them offering you deals and promotions.

As well as selling independently Illamasqua is sold through other makeup venders and website one being Beauty Bay, Beauty Bay sell Illamaqua on their sight for the same price. Although it’s sold at the same price the deals and promotions offered by Illamasqua are not valid as beauty bay has their own. This role is known as business to business selling.

Business to customer selling is Illamasqua making the product desirable to somebody like myself and me going on to buy the product following the advertising and hype around it. Overall Illamasqua are great at creating a buzz about their products with their advertising. Illamasqua are a high end brand you can not only tell this by their products but by how much spend on advertising overall.

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Home Appliance Industry

Table of contents

Industry structure

In the home appliances industry, there are important underlying market structures that tend to largely affect the manner in which Whirlpool conducts its operations. Some of the underlying structures in the home appliances industry include perfect competitions, monopolies, oligopolies as well as monopolistic competition.

In view of these structures, the market is fragmented in a manner that yields high profitability or low profitability. In many aspects, whirlpool is largely operating in an oligopolistic market since there are few companies with significant market share in the home appliances industry. For instance, whirlpool, General Electric, and Electrolux are the only few top three companies in the home appliance industry.

Whirlpool’s oligopolistic driven market has pros and consequences. In this kind of market, there are few players that are interdependent. This means that the action of one player affects the actions of another (Vives, 2001). For instance, it is illegal to fix prices in the United States but lowering of prices is allowed. The characteristic nature of this market is a strategic determination of the possible reaction of one company in relation to the strategies of another.

Price wars

If one company in the oligopolistic market lowers the prices of its goods and services in order to attain optimal sales, other companies in direct competition will also do the same and thereby ensuing into price wars. The price war competition from firms like Electrolux, Samsung, as well as LG have made Whirlpool to carry out research in order to match is at par with them scheme by scheme.

Moreover, in products that are less competitive, Whirlpool is making use of penetration pricing strategy as well as pricing strategies that are linked to value added to products based on the notion that consumers are now becoming aware of high quality branded products. In addition, to hedge itself against price wars, Whirlpool has channeled a huge allocation of its budget for research purposes in order to improve the quality of their products.

In addition, the companies in this market structure including Whirlpool emphasizes on massive advertising in order to show case the superiority of their products as compared to those of competition. Therefore, whirlpool endeavors to understand the market they are operating in and are cautious in every of their strategic move not to provoke adverse reactions from other players in the industry.

New entrants

Whirlpool Corporation has established itself as a dominant market player apart for other few three-tier companies like General Electric. The oligopolistic nature of the home appliances industry limits the penetration of new entrance into the market. Typically, big industry players such as whirlpool have made significant presence in the industry and they offer premium products and services that other small new entrants may not match up with.

Therefore, new prospective companies that ventures into home appliance industry find it difficult to break into it. Besides, oligopolistic market requires massive financial outlays to operate in. Whirlpool being a market leader is able to take advantage of huge economies of scale because of its large capital base. This enables them to operate at a much lower overheads as compared to other small companies in the home appliances market.

It is important to also note that new entrants have limited capacity to leverage on the industry economies of scale because of their low funding capacity (Klepper, 2002). Therefore, the oligopolistic nature of Whirlpool’s market is a struggle to break into as it require he capital outlays.

Brand identity and advertising

Whirlpool’s market dominance has been largely a consequence of its established brand name. Through in-depth market analysis and concise strategy formulation, the company has managed to successfully pass a strong brand message to its market. Whirlpool has massive campaigns the project the uniqueness of their products. For instance, Whirlpool campaigns ads depicts their products as compact in sizes, faster in operation and occupy less space.

Moreover, the campaign ads also brings out a strong message latest technology applications which includes energy saving modes as well as ability to last for durably long. In addition, the contents of the ads includes the fact that over five hundred of Whirlpool’s products have been selected for ”Energy Star Label”. Further, beside Whirlpool providing eco-friendly products and various services to its customers, most of whirlpool’s home appliances come with one year warranties that cover parts and labor.

For instance, if your product gets damage upon delivery, the company will take full responsibility to replace with a new one. Therefore, whirlpool has remained a competitive household brand. Moreover, with the emergence of environmental concerns, whirlpool is now strategizing to become a brand of the future that meets both changing environmental and market dynamics.

Whirlpool has also used celebrity campaigns that have caused them to enter into contract with celebrity couple Ajay Devgan and his wife as their brand ambassador. This is seen in most Whirlpools’ television advertisements, magazines and also on radio.

Market conduct

The oligopolistic nature of the home appliance industry has seen companies like Whirlpool enter into mergers and collusions with other industry players. Company mergers in the market bring two or more different market players together in order to eliminate competition and thereby leading to high profits at the expense of consumers (Porter, 2001). For instance, companies may collude in setting levels of output or price levels. Many a time the mergers have taken the form of acquisition of controlling interests in other companies.

For instance, market penetration in the oligopoly market is quite cumbersome. In a bid to penetrate into overseas markets such as European home appliance market, Whirlpool acquired a controlling stake in the Dutch electronics company, Philips. This created a joint synergy for Whirlpool-Philips to produce products for the international markets. The acquisition made Whirlpool-Philips to be the world’s largest home appliance company. Whirlpool’s aggressive international ventures are a clear indication that the company is seeking to increase overseas sales in order to plug its domestic flat market.

Further, the interdependence of firms in this market structure is quite high. Every player in this industry keeps an eye on what the competition is doing. Decisions made by one firm in this kind of structure affect the decision of another firm. For instance, Whirlpool has focused on non-price competition strategies in order to avoid possible adverse reaction from other market competitors. The company has majored in product differentiation, advertising as well as collaborating with other companies to prevent new entrants into the industry.

Industry performance

Whirlpool started strategizing to go beyond its borders by first entering markets like Canada and Brazil. In Europe for instance, Whirlpool has made significant inroads into the huge European home appliances market and is currently controlling a huge market than its closest competitor General Electric. Among the strategies that Whirlpool employed in order to penetrate into European market is by first entering into joint ventures with other home appliances companies such as Philips and later own acquired full ownership.

In the United States, Whirlpool undertook segmentation of its brands in accordance with consumer needs with an aim of achieving differentiation and loyalty. Whirlpool uses competitive pricing strategy in most of its products that has enabled them to establish a strong customer base. However in areas such as European markets, Whirlpool used price discrimination strategy in order to appeal to all segments of the market.

Moreover, in a move to achieve better economies of scale, Whirlpool came up with a pan-Asian brand targeted for the Asian market. Market segmentation brings out different customer clusters in the market with similar purchasing attributes and thereby makes it easy to formulate strategies for a specific market (Wedel et al, 2012). Comparing with other competitors in the industry, Whirlpool undertakes segmentation of its market with brands for each market segment.

This is contrary to what other companies in the home appliance industry does, for instance, Electrolux strategy for globalization is by keeping one brand for the entire global market. Therefore, Whirlpool enjoys a high competitive edge in the home appliance industry as compared to other players.

References

  • Klepper, S. (2002). Firm survival and the evolution of oligopoly. RAND journal of Economics, 37-61.
  • Porter, M. E. (2001). Competition and antitrust: toward a productivity-based approach to evaluating mergers and joint ventures. The Antitrust Bulletin, 46(4), 919-958.
  • Vives, X. (2001). Oligopoly pricing: old ideas and new tools. MIT press.
  • Wedel, M., & Kamakura, W. A. (2012). Market segmentation: Conceptual and methodological foundations (Vol. 8). Springer Science & Business Media.

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Problems and Prospects of Ship Breaking Industries of Bangladesh

Table of contents

In the context of increased importance of ship breaking activities in Bangladesh, specially contribution to construction & structural development (>80%); and in national economy & employment opportunity for the poor. But indiscriminate and haphazard ship breaking activities in once biodiversity rich coastal area of Sitakunda, Chittagong is now a barren field. The area is severely degraded with loss of its physical, chemical & biological characteristics.

There is very little information on the present status of biodiversity in the area and impact of ship breaking on fisheries and biodiversity. Verbal reports from fishermen indicate that there is a drastic reduction in fish catches which is likely to be due to this ship breaking activities. Ship breaking activities has not yet been recognized as ‘industry’ and still there are no separate guidelines or rules for ship breaking activities in Bangladesh. As a result, there is often accident, loss of valuable human lives & serious violation of human rights & labour rights, including very low wages.

On the other hand, impact of ship breaking on the biodiversity is also matter of exploration. But to assess the impact of ship breaking on biodiversity & fishery resources, a research or study is urgently needed not only for the conservation of fishery resources but also to implement a sustainable & eco-friendly policy for ship breaking in Bangladesh. Key words SBRI = The Ship Breaking and Recycling Industry. Shipbreaking: Shipbreaking is the process of dismantling an obsolete vessel’s structure for scrapping or disposal.

Conducted on a pier, dry dock or dismantling yard, it involves a wide range of activities. From removing all the gear and equipment that are on the ships to cutting down and recycling the ship’s infrastructure. Shipbreaking is a challenging process, due to the structural complexity of the ships and the environmental, safety and health issues involved. Recycling: The process of taking a ship apart; term preferred by the shipping industry. When procedures to safeguard the environment and workers’ health and safety are applied, known as “green recycling”.

Executive summary The ship breaking and recycling industry (SBRI) converts end-of-life ships into steel and other recyclable items. Ship recycling offers the most environmentally sustainable way of disposing of old vessels, with virtually every part of the hull and machine complex being reused or recycled as scrap metal. Although the industry is beneficial from a life-cycle assessment point of view, over the years it has gravitated toward countries with low labor costs, weak regulations on occupational safety, and limited environmental enforcement.

The “global shift” in the industry to countries with comparatively weaker regulatory systems is of particular concern as ships contain many hazards that can have significant detrimental effects on humans and the environment if not dealt with properly. Currently, the global center of the ship breaking and recycling industry is located in South Asia, specifically Bangladesh, India, and Pakistan. These three countries account for 70–80 percent of the international market for ship breaking of ocean-going vessels, with China and Turkey accounting for most of the rest.

Only about 5 percent of the global volume of such vessels is scrapped outside these five countries. This study focuses on the SBRI in Bangladesh and Pakistan to get a better understanding of the economics of the industry and the environmental impacts arising out of such activity and to explore possible ways in which such environmental effects may be mitigated. 1. 0 Introduction Bangladesh has a long coastal belt of about 710 km which is enriched with natural resources specially fish and other aquatic species of different varieties and has been the focal point of different economic activities.

Most of these seashore areas are situated in Chittagong. Sitakund is a seashore area situated a few kilometers north of Chittagong where most of the shipsbreaking yards are concentrated. Shipbreaking industry has not been developed in a day. It has been developed gradually in Bangladesh passing through various stages of its development at an international level. Though the shipbreaking in Bangladesh started in sixties; commercially it started in late seventies. The only shipbreaking industry of the country has been developed in Sitakund areas, Chittagong.

There are about 20 forward and backward linkage industries based on this shipbreaking. Now, there are about 20 shipbreaking yards in Sitakund where thousand and hundreds of labour are working. The workers are all engaged in dangerous physical labor but they don’t have safety equipments like helmets, goggles, gloves, boots and work suits, medical facilities and moreover financial security. Over the last twenty years more than 400 workers have been killed and 6000 seriously injured according to the Bangladeshi media.

The explosion of the Iranian tanker TT Dena on 31 may 2000 alone is said to have caused 50 deaths. To this toll must be added thousands of cases of irreversible disease which have occurred and will occur in future due to the toxic materials that are handled and inhaled without minimum precautions or protective cares. 1. 1 Objective of the Study The ship breaking industry provides great advantages. It’s probably the most environmentally sustainable way of disposing of old vessels, it creates jobs and supply a substantial quantity of scrap steel for the iron and steel industries (e. , it contributed to about 50% of Bangladesh’s steel production). However, the hazardous waste and associated occupational health hazards pose a significant national and global concern. The main objective of this report is presenting an overview of this industry through analyzing the prospect and the environmental problems arise form this industry.

1. 2 Methodology of the Study

There are two types of Assignment method available and they are conclusive and exploratory. Considering the subject topic I have chosen exploratory method.

1. 2. 1 Primary Sources

I have not conducted any survey, rather I have given emphasize on secondary sources.

1. 2. 2 Secondary Sources:

In order to complete my assignment work, I depended on the secondary data more than primary data. I got the refined secondary data from the Internet by surfing huge web pages. I downloaded many WebPages, files ; related other things which were very much helpful for me to complete this assignment.

1. 3 Limitations

  1. Time limitation is one of the problems to make this assignment.
  2. Amount of data collection is not very huge because only websites are not sufficient to complete this assignment.
  3. Data collection process was irregular.

2. 0 Body of the report

2. 1 Prospect of ship breaking industry

The ship breaking and recycling industry plays a significant economic role in Bangladesh and Pakistan, supplying a substantial quantity of re-rollable scrap steel for the iron and steel industries. SBRI provides more than half of Bangladesh’s steel supply, for example, making it a strategic industry in that country.

The industry also creates hundreds of thousands of direct and indirect jobs for some of the poorest and most marginalized segments of the population in those countries. The work force in each country varies with the volume of ship breaking but may range from 8,000–22,000 workers in the ship recycling yards to 200,000 in the supply chain, shops, and re-rolling mills—with dependents in extended families estimated to reach over 500,000 in Bangladesh. Shipbreaking plays an important role in the national economy for a number of reasons:

2. 1. Production of steel

The scrapping of ships provides the country’s main source of steel and in doing so saves substantial amount of money in foreign exchange by reducing the need to import steel materials. Bangladesh needs 8 million tons of building materials per year, of which iron is a major component. The iron from recycled ships supplies iron materials in the country. This does mean however, that the owners have more power and control over the amount of steel that is sold and the price it is sold at.

2. 1. 2 Green industry (if properly recycled)

In some ways it can be considered a “green industry”. Almost everything on the ship and the ship itself is recycled, reused and resold. The scrapping of ships supplies raw materials to steel mills, steel plate re-manufacturing, asbestos re-manufacturing as well as providing furniture, paint, electrical equipment and lubricants, oil to the number of businesses that have spouted up specifically as a result.

2. 1. 3 Source of revenue

It generates large amounts of revenue for various Government authorities through the payment of taxes. Every year the Government collects almost 9000 million taka in revenue from the shipbreaking industry through import duty, yards tax and other taxes.

2. 1. 4 Employment Opportunity

Despite the conditions that the workers are employed under, this is an industry that employs more than 20,000 people directly. It provides employment for some of the poorest people from the north of Bangladesh who would otherwise have no employment. These mainly economic benefits have made shipbreaking a powerful industry. But these economic benefits should be considered together with the social and environmental costs. Together, with better regulation shipbreaking can also bring social and environmental benefits.

2. 2 Environmental Impact

2. 2. 1 Pollutants discharged from shipbreaking

Though shipbreaking has earned a good reputation for being a profitable industry in developing countries there are a number of environmental and human health hazards. Depending on their size and function, scrapped ships have an unladened weight of between 5,000 and 40,000 tons (the average being 13000+), 95% of which is steel, coated with between 10 and 100 tons of paint containing lead, cadmium, organotins, arsenic, zinc and chromium.

Ships also contain a wide range of other hazardous wastes, sealants containing PCBs, up to 7. 5 tones of various types of asbestos and; several thousands liters of oil (engine oil, bilge oil, hydraulic and lubricants oils and grease). Tankers additionally hold up to 1,000 cubic meters of residual oil. Most of these materials have been defined as hazardous waste under the Basel Convention. In Bangladesh, ships containing these materials are being cut up by hand, on open beaches, with no consideration given to safe and environmentally friendly waste management practices.

Ships are not properly cleaned before beaching. Generally, an eyewash test is carried out to certify that a ship is free from dangerous chemical and fumes. Ship breaking activities is a threat to both the terrestrial and marine environment as well as to public health. It is like a mini version of a city that discharges every kind of pollutants a metropolis can generate like liquid, metal, gaseous and solid pollutants.

2. 2. 1. 1 Persistent Organic Pollutants (POP’s)

POPs are chemicals that are highly toxic, remain intact in the environment for long periods, become widely distributed geographically, bioaccumulate through the food web, accumulate in the fatty tissue of living organisms and pose a risk of causing adverse effects to the human population, wildlife and the environment. There has been a realization that these pollutants, upon exposure of human population, can cause serious health effects ranging from increased incidence of cancers to disruption of hormonal system. Shipbreaking activities are a source of lethal POPs. 2. 2. 1. 2 Asbestos

Asbestos was used in old ships as a heat insulator. As there are no asbestos disposal procedures, during scrapping, workers and the surrounding environment are exposed to the asbestos fibers. Exposure to asbestos fibers (even in very low concentrations) especially through inhalation may cause cancer and asbestosis. On the shipbreaking beaches, asbestos fibers and flocks fly around in the open air. Workers take out asbestos insulation materials with their bare hands. It has also proven to be one of the most lethal, as inhaling asbestos fibers can lead to a wide range of pulmonary roblems such as asthma and asbestosis – and can also be the direct cause of mesothelioma.

2. 2. 1. 3 Heavy metals

Heavy metals are found in many parts of ships such as in paints, coatings, anodes and electrical equipment. These are taken apart with no protective measures in place and reused. Exposure can result in lung cancer, cancer of the skin, intestine, kidney, liver or bladder. It can also cause damage to blood vessels.

2. 2. 1. 4 Polluted oil

As a result of breaking the ships, oil residues and the other refuses are being spilled, mixed with the sea water and left floating along the entire seashore.

Oil may cause serious damage in different ways, such as a reduction of light intensity beneath the water surface which inhibits photosynthesis. Oil films on water reduce the exchange of oxygen and carbon dioxide across the air-sea interface which is harmful to aquatic life. It also causes damage to the bird population by coating their feathers with oil which causes buoyancy and insulation losses. Sometimes spilling may cause wide spread mortality amongst the population of fish, mammals, worms, crabs, mollusks and other water organisms.

2. 2. 2 Impact on physiochemical properties of seawater

Ship scrapping activities pollute the seawater environment in the coastal area of Fauzdarhat to Kumira of Chittagong, Bangladesh. As a result, toxic concentration of ammonia, marine organisms found in seawater had an increase in PH levels. Extensive human and mechanical activities accelerate the rate and amount of seashore erosion and results in higher turbidity of seawater. Critical concentration of DO and higher BOD were found with an abundance of floatable materials (grease balls and oil films) in the seawater. 2. 2. 3 Impact on inter-tidal sediments and soils

In shipbreaking areas various refuse and disposable materials are discharged and spilled from scrapped ships and often get mixed with the sand. The scraps from the ships are staked haphazardly on the sea shore, leaving behind an accumulation of metal fragments and rust (particularly iron) in the soil. These together with extensive human and mechanical activities often go on as matter of routine work resulting in the beach soil losing its binding properties and this accelerates the amount of shore erosion and increase the turbidity of sea water and sediments in the area. . 2. 4 Impact on biodiversity Shipbreaking activities contaminate the coastal soil and sea water environment mainly through the discharge of ammonia, burned oil spillage, floatable grease balls, metal rust (iron) and various other disposable refuse materials together with high turbidity of sea water. The high PH of the seawater and soil observed may be due to the addition of ammonia, oils and lubricants. High turbidity of water can cause a decrease in the concentration of DO and substantially increase the BOD.

Furthermore, oil spilling may cause serious damage by reduction of light intensity, inhibiting the exchange of oxygen and carbon dioxide across the air-sea water interface, and by acute toxicity. As a result the growth and abundance of marine organisms especially plankton and fishes may seriously be affected. Indiscriminate expansion of ship breaking activities poses a real threat to the coastal inter-tidal zone and its habitat. 3. 0 Recommendation Considering the positive role of ship breaking in national economy ship breaking can not be stopped.

Rather a sustainable approach should be taken to minimize the negative consequences of ship breaking activities in our coastal zone. Government should formulate and implement a national policy and principles for safe and sustainable shipbreaking after having consultation with relevant organizations, employers and workers. Both owner and contractors have to take the responsibility in providing compensation, treatment and security for the labours. Adequate compensation for victims of accident and their families, social security…etc. should be ensured.

Finally, it could be said that, the ship breaking operation involves serious environmental hazards. If the ship breaking industry is to develop in the country, the same may only be allowed ensuring minimization of pollution effect. A longer stretch along the seashore is in no way justified for continuation of this business; rather a certain separate zone like a dockyard should be selected by the competent authority. Preventive measures against environmental and health hazards inherent in the process of ship breaking should be undertaken at the right time, before it is too late.

Bibliography

  1. Hossain, D. M. M. M. , Islam, M. M. , 2006, Ship Breaking Activities and its Impact on the Coastal Zone of Chittagong, Bangladesh: Towards Sustainable Management, Young Power in Social Action (YPSA) http://en. wikipedia. org/wiki/Ship_breaking http://www. shipbreakingbd. info/
  2. Mamun, A. A. , Akther, M. , Ali, M. , Sumaia, K. , Alam, A. , 2005, Worker in Ship Breaking Industries: A Base Line Survey of Chittagong(Bangladesh), Young Power in Social Action (YPSA) Maria, S. , Frank, S. L. , Milen, D. , Robin, B. , Susan, W. , Roy, W. , 2010, Ship Breaking and Recycling Industries in Bangladesh and Pakistan, Report No 58275-SAS

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An example of Change Management in Gypsum Industries

The organisation chosen is Gypsum Industries. (see Appendix 4) A number of years ago Gypsum Industries (G. I. ) typified what Mintzberg (1991) described as a machine bureaucracy with rules and regulations to maintain tight control of the entire operation. There was high formalisation and standardisation, centralised authority and functional departments. Morgan described this type of structure as rigid bureaucracy suited to a more stable industry, which indeed the building industry was in which G. I. operated in.G. I was a large, mature organisation at the end of Greiner’s model (1972) (see appendix 5)

However, with increasing competition from abroad, rising production costs due to overtime shifts to meet the high growth Irish construction market, benchmarking with other firms in the group and the diverse needs of customers it was imperative that changes were required. This matches with a proactive organisation scanning its internal and external environments for potential triggers for change as described by Senior (2002).

The objective was to create a more flexible, or as Morgan describes “a more organic” organisation, that would be able to cater for the diverse needs of customers and of course exploit all cost advantages to remain competitive in the marketplace. There was no doubt that changes were being forced upon the organisation but G. I. were in fact taking proactive steps to ensure they maintained the position as market leader in their chosen market. The principal change agent in the programme was the Chief Executive (Mr Kieran Millar), with assistance from an outside consultant to facilitate in the change process.

It was recognised as a messy problem characterised by its complexity. To implement effective change in both the formal and informal aspects of the organisation it was fundamental that the change agent identified with the status quo as most individuals had satisfaction with it. Only by doing this would effective change be achieved. (Burnes, 1992) Focusing on the formal aspects of organisational life, such as structure, gives only part of the explanation of why and how organisations choose to change and if they do so what form that change might take.

French and Bell (1990) used the Iceberg Metaphor to illustrate the difference between the overt and covert aspects of organisational life. The more informal or covert aspects of organisational life must be addressed, that is the prevailing value, attributes and beliefs about what should be done and how – the culture which is part of and surrounds organisations, and the politics which are equally important in any examination of organisations and change.

(Senior, 2002: Dawson, 2003 ) Morgan (1997) argues that the culture and politics of many organisations constrain the degree of change and transformation in which they can successfully engage, even though such change may be highly desirable for meeting the challenges and demands of the wider environment. In other words regardless how well change is planned in terms of the formal aspects of the organisation it will be the informal aspects that will hinder it. Johnson and Scholes (1999) introduced the concept of the “Cultural Web” to illustrate how the different aspects of the organisation and its culture impacts upon the organisation paradigm.

It is thought that cultural risk should be assessed in order to ascertain where management are likely to meet resistance in terms of strategy and culture. Remembering that changing a culture can create several problems such as many people may not be as open to change and may display a degree of cynicism towards the new culture. Therefore management should assess the cultural risk and then decide whether they can ignore, change the culture or manage around it. Beer et al (1990) advocate that trying to change attitudes and beliefs directly are futile.

First bring about behavioural change and this will bring about desired changes in attitudes and values. Beer et al (1990) argue for changing organisational context (people’s roles, responsibilities) first will result in the desired changes in attitudes. Gypsum Industries were at this time a power culture as described by Handy (1989) which were typical of bureaucratic structures. Rather than radically transform the culture the change agent believed the best way was to take the best aspects and add to it. In other words he wanted to manage around the current culture.

Mabey and Salaman (1995) consider a number of perceptions about the management of change that will affect reactions to it. Amongst these factors is whether change is perceived as “deviant or normal” and “threatening or desirable. ” (Mabey and Salaman, 1995:73) Change judged as deviant will be perceived as imposed and outside prevailing cultural norms. This is likely to generate resistance at various levels. Change seen as threatening is also likely to meet resistance and this will require careful implementation to overcome the fear associated with the perception.

(Thornhill et al, 2000) Perceptions about the nature of change and the need for it will therefore affect reactions to it. The methods used to implement change will have an important role in affecting the nature and strengths of those reactions. By methods we refer to whether change is implemented as a top-down or bottom-up approach, whether its intention is transformational or incremental and whether it is a rapid or gradual process. There are clearly links between these facets of the implementation of change.

Choice between these approaches will affect perceptions about the degree to which change is accepted or resisted and whether it is seen as imposed or controlled or, to some extent, participative. . Top-down change is associated with the strategic planning approach designed and driven by the organisations senior management. Lupton (1971) argues that this approach is best used to bring about a radical change in an organisation. Mabey and Salaman (1995:105) suggest another advantage of this approach linked to the provision of a “clear, sustained direction that is well resourced and co-ordinated.

” However where this approach is associated with a transformational approach to change its impact and effectiveness are frequently criticised. Beer (1980) and Pettigrew and Whipp (1991:176) are amongst those who criticise this type of approach to change because they believe that its use is not effective. They do not believe that simply changing organisational structures and imposing new systems will generate intended change. The change that is realised will not be that which was intended. The bottom-up approach is associated with the emergent or processual approach.

(Dawson, 2003) It is bottom-up in the sense that, according to Beer et al (1990) the change process commences in an operational part of an organisation away from its corporate centre and is led by the operating of its general manger rather than the corporate management. This in turn spreads out to other functions creating a new learning organisation. This process is less likely to create resistance to change as it is created and driven by the actual operators of the new systems as well as developing commitment through ownership and involvement.

Quinn (1993) refers to incremental change as a continuous process, without any discernible beginning or end. Quinn also states that there is likely to be influences from the top in what is apparently a bottom-up and incremental approach to strategic change, in order to affect its direction. To implement change incrementally was viewed by the change agent as being too slow for Gypsum Industries in relation to the Celtic Tiger pace of activity. For this reason, a transformational approach was regarded as the only alternative to gain momentum

As we know individuals by their nature actively resist change, having a sense of belonging with what they are used to. There are many reasons why people resist major changes in organisations according to Connor (1995). (see appendix 7) In Gypsum Industries case the employees in the manufacturing plant were refusing to accept any change in their working patterns being supported by the unions. To create dissatisfaction and unrest (Lewin’s unfreeze phase), the change agent decided to stop supplying the Northern Ireland market with products from Cavan and began to service it from one of the plants in England.

This of course greatly reduced the level of demand for the Cavan plant that led to reduction in overtime and levels of staffing. Although this was a dramatic event it created the necessary unrest among employees that the organisation could in fact still function and service their markets. The fear factor caused by this action and the potential loss of the Southern market (which was never in mind) resulted in employees realising that they would have to accept some form of change.

Of course, from a top management perspective this was only the starting point on a continuous journey to ultimately creating a learning organisation, which was flexible to adapt to ongoing change. There were various symbolic events that took place such as relocation of the head office. The old offices were based in a large Victorian house in an upmarket area of Dublin. This was viewed as giving the wrong impression to customers and offices were moved to an Industrial Park more representative of an organisation in the building industry.

In addition reserved parking slots at the factory were removed and all levels of staff, from top management to floor operatives used the same canteen. The symbolic gestures spoke volumes, as individuals would interpret them differently without management actually stating anything formally. The results of the change process are continuing to surface but can be measured in certain aspects. Absenteeism in G. I has fallen dramatically from 16% in 1980 to now only 7%. The structure has moved to a more organic, fluid one with decentralised authority and empowerment with new pay and reward systems in place to recognise performance.

We have illustrated through the literature and a real-life organisational example that the management of change is a complex and dynamic concept. It is debateable that it is a practical tool given the extreme turbulence in today’s business environment. (Bennis et al, 1974) It could well be argued that organisational change is a constant, continuous process that happens sub-consciously and deliberately trying to plan change is a futile exercise as organisations are already changing just by existing in their environments. Only if people and organisations learn from the experience of change, can effectiveness be achieved and sustained.

Only if transitions are managed effectively can learning and change occur. This also acts as a constructive constraint on the politics of change which can so easily run out of control. (Carnall, 1990) Hamlin et al (2001) argue that all too often, organisational change programmes fail “because management fails to rise to the challenge which change brings. ” From the weight of evidence one must conclude that the process issues associated with organisational change and development are far more complex and difficult to manage successfully than is often supposed, and that managers are generally insufficiently skilled in change agency.

(Mento et al, 2002) That such a high proportion of organisational change programmes fail is somewhat surprising given the plethora of “best practice” advice and guidance on the “how to” of change management available in the management literature. These range from straightforward, plainly written “practical guides” and handbooks written by consultants from their everyday practical experiences as practitioners, through to textbooks written by academics mainly for the education market. Bennis et al (1974) has contemplated that the reasons for this are reflected in the leadership of the organisation.

Managers are not trained to be leaders. Bennis et al (1974) states “… most organisations are under led and over managed…… ” Due to the very complex nature of change, this is not enough. The ability to develop a new shared vision, to get it accepted and implemented takes leadership, not management. To be effective at planning organisational change, a leader must be able to draw others to them, not because they have a vision but because they can effectively communicate it and hold peoples attention.

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Airline Industry

Table of contents

The bilateral agreements specified the traffic rights for each operating carrier, the number of airports in which they operate, the number of carriers, and the recurrence of flights between the fixed airports. Those airlines were, in practice, the national flag carriers of each country (state-owned). Since 1947 the International Air Transport Association (DATA) has had the authority to set the ticket prices charged by international airlines at the worldwide international DATA conference.The national carriers, national governments, and the national airports dominated international air- transport until 1978.

In 1978, the United Stated domestic market started to become liberalized. In the sass and sass many international bilateral agreements were hanged (see Diagnosis 2001). Almost 25 years after the US market deregulation, Anderson et al. (2005) The carriers can compete freely on routes, frequencies, prices, and service levels. In addition, previous limitations on cross-border mergers within the EX. were removed. Thus, the old state- owned carriers, which belong to single countries, can be replaced by a broader private ownership structure, despite the national borders. However, much of the extra-E network is still regulated by bilateral agreements and this still has a significant impact on the network structure of the carriers.

The deregulation effects on the industry have been broadly analyses by several authors in terms of network development, pricing behavior, airlines-airports relations, and alliances. Some examples are Bernstein (1989, 1992); Dresser and Winded (1995); Button et al. (2000); urn et al. (2000); peels (2000); chipper (1999) and Barrett (2004). In the US, the deregulation has resulted in two main effects on network strategy. First, a large number of truckling’ carriers have reorganized their network structures from a point- to-point (UP) system into a hub-and-spoke (HAS) system.

Second, (see Gillie and Morrison, 2003) there has been an increase in the adoption of UP systems by low-cost, no-frills airlines such as Southwest Airlines. In the ELI, the deregulation produced a slow and rather small effect on routes and fares (see Bracken and Peels, 2003) in the initial stage, but during the late sass the changes gradually became bigger. The first change was the rise of the international airlines’ alliances. The reasons behind the emergence of alliances are demonstrated (I. E. The economic globalization has created demand for intercontinental flights) and supply-related.

A Brief Analysis of the Economic Factors Behind the Alliances’ Development

The second effect was the further development of the HAS strategy by the former flag carriers. The HAS configuration was already the predominant structure in Europe before the deregulation. However, Bracken and Peels (2003) questioned whether these networks were functioning in the HAS manner.

geographical size of the European countries and the fact that the flag carriers were connecting all major cities with price and capacity regulated by bilateral agreements, the potential for connecting traffic within Europe was limited. At an earlier stage of the EX. deregulation, Bergmann and De Wit (1996) addressed a potential regulation effect which still seems to be still latent in the market.

Their research question was: ‘… In a profit maximizing environment if airlines are free to enter and exit the market, design their networks and set fares and level of services, which West European airports will they favor as their main hub?… ‘. The study was carried out in 1996 when the EX. liberalizing was not yet finalized but one of its conclusions was that the airlines would intensify the use of the HAS system and would select a specific hub so as to maximize their profits.

Bergmann and De Wit concluded that, in he immediate future, national carriers in the EX. will continue to operate in their national home base for a substantial part of their products, but they will probably take the opportunity of a liberalized market by developing a secondary Euro-hub complementary to their national hub. Finally a concentration in the internal market will take place thus creating room for enhanced HAS operations.

While the concentration and development of the HAS system is widely documented as the main effect of deregulation, the selection of a specific hub by airlines is not evident. Most of the carriers still have their hubs in their original country. However, this aspect raises the questions whether the EX. deregulation has effectively created sufficient market liberalizing, as simulated by the Bergmann and De Wit model or whether it was able to diminish the role of hubs as entry market barriers. The third effect was the growth of low-cost carriers such as Ryan and asset.

They experienced fast growth after 1999 and often compete with full-service carriers on the same routes and for coincident segments, and they did not suffer as much from the crisis in the air transport industry after September 1 1, this is because the low fare levels still attract many passengers, and the air traveling publics fearing of flying to sensitive regions (North America and Asia) diverted passengers to fly intra-Europe. The deregulation and the increased competition have reduced the air fares.

Thus some effects on the charter operations are possible given that the gaps between the charter fares and the scheduled low-cost carrier fares are being reduced.

The Open-Skies Agreement Between the Ex. and the Us

On 30 March 2008, the most ambitious air service deal ever negotiated, took effect. European airlines can now fly without restrictions from any point in the EX. to any mint in the US. The new ELI-US agreement is expected to increase competition and reduce the airfares in the biggest international air transport market.

The Open-skies agreement contains numerous positive elements but three key elements seem decisive in the future of the worldwide air traffic.

Airline Business Models

  • 17 companies are classified identically without discrimination based on their country of origin (if in the ELI).
  • Flights now possible between any point in the EX. to any point in the US: the airlines will be able to fly from any European airport to any US estimation.
  • Flights now possible beyond the US towards third countries: European companies will also be allowed to go beyond the US and provide destinations using the US as a stopover.

With respect to the operation of cargo flights between the US and third countries: freight will follow the same above-mentioned rules as passenger traffic. This will allow flights from any European airport to any US airport with any European or US company. This major improvement will equalize the rights of all EX. Member States which previously did not have a bilateral agreement with the US and hush enhance the destination possibilities for many Europeans. Some other key factors of the agreement provide for cooperation in fields such as security, safety and environment.

  1. Security: The EX. and the US will work towards compatible standards and practices for entering territories in order to facilitate air regulation.
  2. Safety: A consultation procedure will be set up to consider safety concerns on either side, and there will be recognition of the development of safety responsibilities at EX. level.

Environment

The US airlines may be subject to taxation of aviation fuel on routes between Member States. This agreement represents only a first step in the process of metallization of the European and US sky. Both the EX. and US agreed to engage a second phase of negotiations after May 2008 aimed at tackling the following issues: facilitating foreign investments; fostering the development of liberalizing. Indeed the deal leaves in place some key limitations:

  • Ownership and the control of the airlines. Foreign entities remain limited to owning no more than 25 percent of the voting shares in a US carrier-49 percent in an EX. carrier- and foreigners can not exercise actual control on US carriers. The US domestic market remains entirely closed to foreign airlines, and sabotage in the US remains prohibited under the ‘Fly America’ policy. Most important of all, the US carriers will finally enter London Heathers, the key getaway airport in Europe for the US to full compete with the EX. carriers.
  • The emerging forms of business models in the airline industry are presented in terms of how the carrier generates revenue, its product offering, value-added services, revenue sources, and target customers.
  • The deregulation and new competitive interactions between firms always result in mom adjustment of the player’s own business model to that of the competitor.

Three main sets of airline business models that will be described in the next sections are:

  1. Full-service carrier or FCC
  2. A low-cost carrier or LLC
  3. Charter carrier or FCC

A full-service carrier (FCC) is defined in this study as an airline company developed from the former state-owned flag carrier, through the market deregulation process, into an airline company with the following elements describing its business model:

  • Core business: Passenger, Cargo, Maintenance.
  • Hub-and-spoke network: This has as TTS major objective the full coverage of as many demand categories as possible (in terms of city-pairs ) through the optimization of connectivity in the hub.
  • Global player: Domestic, international and intercontinental markets are covered with short-, medium- and long-haul flights from the hubs to almost every continent.
  • Alliances development: No individual airline has developed a truly global network. Thus the network is virtually enlarged by interlining with partner carriers and become part of multi-HAS systems.
  • Vertical product fermentation: This is affected through in-flight and ground service, electronic services (Internet check-in) and travel rules to cover all possible market segments.
  • Customer relationship management (CRM): Every FCC has a loyalty program to retain the most frequent flyers. The frequent flyers programs (OFF) have became part of a broader strategy called CRM. The general purpose of CRM is to enable carriers to better manage their customers through the introduction of reliable processes and procedures for interacting with those customers.

The final aim of the CRM is to enhance the passenger’s buying and traveling experience in order 6 Airlines’ demand can be divided into: primary need, or the need for a passenger to travel from A (origin) to B (destination) and back at a certain time on a certain day. The use of the ‘cityscape market’ or ‘O market’ derives from this reason; and secondary need or the preference for a certain airline, compared in terms of product quality, brand, and pre-and post-sales customer services, etc.. The term CRM is used to describe either the software or the whole business strategy oriented to customer needs.

The main misconception of CRM is that it is only software, but actually it is the whole business strategy. Major areas of CRM focus on automated service processes, personal information gathering and processing, and self-service. It attempts to integrate and automate the various customer-serving processes within a company. 19 to personalize the carriers’ services. In this perspective, the CRM is an extra tool to differentiate the airline product. Yield management and pricing: To support product differentiation, pricing and yield management is sophisticated, with the aim of maximizing the network revenues.

Multi-Channel Sales

Sales channels are divided into indirect off-line (intermediate travel agencies) or indirect on-line (web intermediate electronic-agents); direct on- line: the passenger buys the tickets directly via the airline’s Internet sites ; direct off- line: the passenger buys the tickets directly via the airline’s call centre, the airlines city office (COT), or the airline’s airport office (TAT). The FCC cover all of these above is technologically supported by external companies called Global Distribution Systems (Gags). Among the most diffused Gags are: Galileo, Amadeus, Worlds, Saber.

Low-Cost Carriers

The concept of ‘low-cost carriers’ or LLC originated in the United States with Southwest Airlines at the beginning of the sass. In Europe, the Southwest model was copied in 1991, when the Irish company Ryan, previously a traditional carrier, transformed itself into an LLC and was followed by other Laces in the I-J (e. G. asset in 1995). In the literature, there are several similar definitions of an LLC, also known as a low fare or no-frills airline (see Appendix II for a complete list of LLC existing in Europe).

In this study an LLC is defined as an airline company designed to have a competitive advantage in terms of costs over an FCC. 9 In order to achieve this advantage, an LLC relies on a simplified business model (compared with the FCC), a model which is characterized by some or all of the following key elements:

  • Core business: This is passenger air-service despite the ancillary offers are increasing and becoming part of the LLC core business. ;
  • Point-to-point network: The network is developed from one or a few airports, called ‘bases’, from which the carrier starts operating routes to the main destinations. Destinations are only continental within the EX. or the US. No connections are provided at the airport bases, which function as aircraft logistics and maintenance bases.
  • Secondary airports: City-pairs are connected mainly from the secondary or even tertiary airports – such as London Alton – that are less expensive in terms of landing tax and handling fee and experience less congestion than the larger ones

Some authors have analyzed the e-commerce market in the airline industry (see Roy and Filtrated, 1998; Unashamed, 2000; Carjack, 2002). 9 Riley (2003) defines the LLC as an airline that ‘… Aims to keep operating costs significantly lower than the traditional flag-carrying airlines… ‘ .  Small airports will strive to gain the LLC’ operation and the usual way is to reduce airport charges. Similarly, air transport activity generates welfare that is a multiple of the airports’ activities, inducing regional economic and social development. Local authorities recognize that the LLC operation is a potential driver for social and economic developments, and are willing to provide financial help The reduced airport fees can be understood as an incentive, as most of these secondary airports are public.

These incentives can be quite relevant and can be deemed to contravene the Ex.’s competition rules.

  • Single aircraft fleet: In general, the LLC operates with one type of aircraft such as the Boeing 737 series with a configuration of 149 seats. The fleet composition also depends on the fact that they operate on only short- or medium-haul routes.
  • Aircraft utilization: The aircraft is in the air, on average, more hours a day compared with Offs that have to respect the connectivity schedule.
  • No-frills service: The product is not differentiated as they do to offer lounge services at airports, choice of seats, and in-flight service, and they do not have a frequent flyer program. Fare restrictions are removed so that the tickets are not refundable and there is no possibility to rebook with other airlines.

Minimized Sales/Reservation Costs

All tickets are electronic and the distribution system is implemented via the Internet or telephone sales centre (only direct channels). Passengers receive an e-mail containing their travel details and confirmation number, when they purchase.

The LLC does not intermediate the sale with travel agents and nor does it outsource the distribution to GAS companies. Ancillary services: LLC increasingly have revenue sources other than ticket sales. Typical examples are commissions from hotels and car rental companies, credit card fees, (excess) luggage charges, in-flight food and beverages, advertising space. The potential growth of this revenue comes from telephone operations and gambling on board. Minute (2006) reported that Ryan’s revenue from sources other than ticket sales contributed IEEE million to its net profit of IEEE million.

Those revenues already represent 16 percent of the aerie’s total revenue. For easy Jet, that kind of income originally represented only 6. 5 percent of the airline’s total revenue, but it increased by 41. 3 percent from 2004. Not every low-cost airline implements all of the points mentioned above. For example, in 2005 Air Berlin started the UK domestic services as feeders to its German services out of Standee, exploring the hub-and-spoke operations. The differences between the FCC and LLC business models are multifaceted (see, e. G. , Laddering et al. , 2004).

The significant structural cost gap between the two models results from these monumental differences.  Overall, the LLC model can operate at 49 percent of FCC costs. In particular, 37 percent out of a total 51 percent of costs difference can be attributed to explicit network and airport choices (or business place and process complexity); another 9 percent of the LLC cost advantage comes from the distribution system and commercial agreements (costs which are narrowing with the elimination of commissions and GAS). A remarkably

Airline Business Models

The LLC has 51% cost advantages in relation to he FCC (Source: Diagnosis, 2001) Cost reduction Full-service carrier Low-cost carrier Operating advantages Higher seating density Higher aircraft utilization Lower flight and cabin crew costs Use cheaper secondary airports Outsourcing maintenance/ single aircraft type Product/service features Minimal station costs and outsourced distribution No agents or GAS commissions Reduced sales/reservation costs Other advantages Smaller administration and fewer staff/offices.

Laces have successfully designed a focused, simple operating model around nonstop air travel to and from high-density markets. On the other hand, the FCC model is cost-penalized by the synchronized hub operations (e. G. Long aircraft turns, slack built into schedules to increase connectivity) that implicitly accept the extra-time needed for passengers and baggage to make connections. In addition, the FCC business model relies upon highly sophisticated information systems and infrastructure to optimize its hubs. Franken (2004) stated that the most relevant success factors of Laces are their network configuration and their streamlined production processes in relation to Offs.

Charter Carriers

A charter carrier (C) is defined, in this study,10 as ‘an airline company that operates flights outside normal schedules, by a hiring arrangement with a particular customer’. Al Charter flights have acquired the more specific meaning of a flight hose only function is to transport holidaymakers to tourist destinations. However, 10 Studying the charter business model does not come within the scope of the study. However for the sake of completeness, we have decided to include a concise description of this model here. 11 The CSS are defined in contrast to scheduled flights even though they also operate to regular schedules (not always published). Tickets are not sold directly by the charter airline, but by tour operator companies who have chartered the flight.

Although charter airlines typically carry passengers ho have booked, individually or as small groups to beach resorts, historic towns, or cities where a cruise ship is waiting for them, sometimes an aircraft is chartered by a single group, such as members of a company, a sports team, or the military. In includes flights, accommodation and other services. In the past, this was a regulatory requirement. With the EX. deregulation the flight-only packages’ can now be sold only to those who want to travel to the destination. Most European charter airlines now form part of vertically-integrated organizations, incorporating a tour operator, travel agency chain, airline and, more often hotels and ground transportation companies. Some examples of vertically-integrated charters are Britannic Gumbo, Condor, Air Jet, and Virgin Sun. Some Offs have set up charter divisions: for example, CALM owns Martin Air or Lufthansa owns Condor.

For a detailed description of the charter market, we refer to Diagnosis (1991). Furthermore, CSS frequently operate from airports, or dedicated terminals, where there is no scheduled service. Much of the traffic through small- and medium-sized airports in the United Kingdom consists of harder flights, and the survival of these airports often depends on the airline landing fees they get from the charter companies. The economy of density pursued by CSS requires that the flights should operate on the basis of near 100 percent seat occupancy, and the standard of seating and service may be lower than on scheduled airlines. reveal that in 1997 the two largest Laces in Europe, asset and Ryan, had unit costs more than double those of the largest I-J charter airlines. CSS were divided into the ones that Oromo part of vertically-integrated tour operating groups and those that remain independent.

The sources of cost advantage that the two types of charter airline have over the Laces were analyses and identified as the following:

  • Larger aircraft and longer-haul destinations;
  • Higher load factor, aircraft utilization and labor productivity
  • Lower distribution costs, landing fees, aircraft leasing costs, and admit & finance costs.

Williams (2001) provides a brief overview of the charter carrier business model and its vertical integration in the ELI.He addresses the question whether Rupee’s charter carriers will be replaced by Laces and his answer is negative.

Competition between Business Models

Competitive interactions between firms always result in adapting the player’s own business model to that of the competitors, and this is also occurring in the airline industry. The LLC sector continues to grow strongly, and as it does so the business.

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