Quality Control Group Project Company Overview US Essay

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Quality Control Group Project

Company Overview

US Airways Group Inc. is one of the major U.S. airline companies that delivers air transportation services for cargo and passengers. The company is the 5th largest airline company in the United States as being measured by available seat miles and revenue passengers. The U.S. Airways Group was formed in 2005 through its merger with former U.S. Airways Group and American West Holdings. The company scheduled passenger services for approximately 3,100 flights daily to more than 200 communities in the United States, Europe. Canada, Mexico, Central & South America, and the Middle East. U.S. Airways is owned by the U.S. Airway Group with headquarter in Tempe, Arizona, and the company uses 1,818 U.S. Airways Express and 1,210 U.S. Airways Mainline for its daily flight operation. The U.S. Airway is a member of Star Alliance Network that utilizes fleet of 285 regional jet, 346 mainline jet aircraft and turbo-prop aircraft. As of January 2013, the U.S. Airline employs approximately 32,213 people globally. The challenges facing the airline industry in the last few years has extremely affected the U.S. Airway Group. In 2008, the company recorded the annual operating loss of $1.8 billion. Although, the company recovered between 2009 and 2012, however, the company net income was still behind the TTM (Trailing Twelve Month) figures.

Objective of the report is to use the DMAIC (Define, Measure, Analyze, Improve and Control) methodology to solve the problem facing the U.S. Airways. To identify the key problems facing the company, the report carries out a comprehensive audit using DMAI model.

Define the Problem

The purpose of this section is to clearly articulate the business problem facing the U.S. Airways Group. The section defines the problem, and the customer's voice that is critical to the quality of the service delivered by the company.

Starting from 2000, the U.S. Airways Group has suffered from the financial decline due to a reduction in the number of air passengers. After September 11, 2001, there has been a drastic reduction in the number of air passengers forcing the company to declare bankruptcy in 2002. Unlike other airline companies that recover and emerge stronger following the introduction of Chapter 11 protection, however, the U.S. airway never recovers until 2009. The combination of tough labor negotiation and fuel costs has forced the company into the financial problems. In June 2007, a Consumer Report survey of approximately 23,000 readers revealed that U.S. Airway ranked as the worst airline that delivered customer satisfaction. A follow-up survey also revealed that U.S. Airways remained in last place making the company to be rated as the worst airline in the United States. Typically, the U.S. Airway scored 5/30 for food, 10/30 for comfort, 15/30 for the online reservations system and 10/30 for service. (Farolino, Gathje, & Hudes, 2008). The U.S. Airways has been accused of constantly delaying and cancelling air schedule that irritate customers.

Similar problem facing the company is that the U.S. Airway ceased to provide its passenger with complimentary beverages in 2008. The company also requires passenger to purchase soda or bottled water for $2. Customers were also asked to pay $1 for tea or coffee. However, the company resumed serving complimentary drinks to passengers in 2009. The overall problems made the U.S. Airway to be ranked last out of the 20 major domestic Airlines in the United States in 2007. In 2008, the U.S. Airway ranked seventh in term of on-time arrivals. Moreover, the U.S. Airways has a very poor record of addressing client's complaints, and the company has been accused of answering only 50% of the telephone calls directed to the customer service department. The company also has higher record of customer delay. According to the U.S. Department of Transportation (2013), the company records 234 flight delay in the September 2013.

The entire issues make the company financial record to be deteriorated. In 2009, the U.S. Airway incurred a net loss of $205 million, which represent 90% reduction in the company net income. In 2008, the company lost $2.22 billion from its entire revenue of $12.12 billion. The company also faces a stiff competition from low cost airlines. Major competitors of the U.S. Airway include:

American Airlines (AMR),

Delta Air Lines Inc. (DAL),

United Airlines (UAUA),

Continental Airlines (CAL),

Southwest Airlines Company (LUV),

JetBlue Airways (JBLU), and AirTran Holdings (AAI).

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The high cost of fuel has also been the major problem facing the company. Over the years, there has been a constant fuel rise making the company to record the increase in the cost of operations. Richard, & Carl (2006) argue that the U.S. Airway has not been profitable since 1999, and since 2002, the company filed for bankruptcy twice. The company has faced the external obstacles such as rising in the cost of fuel. The increase in the fuel costs has made the U.S. Airway business to become less profitable.

" Similar to most airlines, rising crude oil prices pose a significant risk to U.S. Airways' profitability, as unhedged fuel costs now account for more than 20% of the firm's expenses. The company also faces financial covenants and significant commitments over the coming years, which could result in future equity raises. Additional risks include government regulation, terrorist activities, and inclement weather." (Morning Star, 2011 P. 2).

The increase in government regulations has also been the major problem facing the company. The Federal Aviation Administration (FAA) is a federal government agency in charge of monitoring the airline companies operating the United States. The constant increase in the government regulations has made the company to incur cost of operation in order to comply with the regulations. The excessive government taxes are becoming a burden to the industry. The company is forced to pay 7.5% from air tickets as tax. Airports also impose PFCs (passenger facilities charges) of up to $4.50 on each passenger who board at the airport. These taxes are excessive on the company because they lead to the rise in the cost of operations.

Apart from particular problem facing the U.S. airline industry, the recessional industrial cycles also cause problem to the airline companies. Starting from 2000, travelers are seeking for alternative solutions to travel due to constant increase in airfares. The 9/11 terrorist attack also contributed to a decline in market opportunities within the airline industry making the industry to record a net loss of $30 billion starting from 2005.

Borenstei, (2011) contributes to the argument by point outing out that the U.S. airline industry has secured a total loss of $60 billion as of 2009 in the domestic market. The problem has been attributed to the market deregulation; fuel costs shocks, and competition from low cost airlines. Between 2000 and 2002, the airline industry suffered a drop of 20% in the overall demand. By 2009, the demand was 11% lower. The overall problem within the industry makes the U.S. Airway to record a drop in the market demand. The identification of the problems facing the company makes the report to establish the basis for improvement.

Measure

This step establishes current baseline for the improvement of the U.S. Airway Group, and the step collects data by which the report establishes the performances baseline. The report compared performances baseline with the performance metric and make a decision on the appropriate method for improvement.

To create a performance capacity baseline for the U.S. Airways Group, the report collects the financial data of the group and compares with the airline industry data. The report collects the 5-year financial data of the group to present financial outlook of the company and identify the areas where there are problems. Crook, et al. (2003) argues that data collection is the method to access a company strategic position. "To assess a firm's strategic position, managers must collect and interpret data regarding the firm itself, its competitors, its stakeholders, and the industry." (Crook, et al. 2003 p44). Equipped with the necessary information, "the management must use the information to develop market and non-market strategies by matching internal resources with external opportunities." (Crook, et al. 2003 p44).

Between 2007 and 2012, the company has recorded the increase in the total revenue. In 2007, the company recorded the increase the total revenue from 2007 to 2012 fiscal years making the company to record an increase in the gross margin from 2007 and 2012. Despite the increase the gross revenue over the past 5 years, the company recorded a huge operating loss of $1.8 billion in 2008. (See Table 1 and Fig 1). The operating loss that that the company recorded at the end of fiscal year 2008 made the company to record the operating margin loss of 14.9%. Similarly, the company.....

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