Aeroflot in a command economy
The past � Aeroflot in a command economy. During the Soviet era, all of the civil aviation industry in the USSR has been state-owned and controlled. It was February 1923 when the Soviet government formerly established the only state-run passenger and cargo giant Aeroflot. During the 1920s, after the end of World War 1, European countries increasingly used aviation for transporting passengers, mail and cargo. Due to the Cold War and a command economy Aeroflot had operated differently to airlines in the Western world and was notorious for its low quality service. In the western model of free or social markets, economic decisions are made by various airline companies in response to demand from customers. Previously, under the command economy of the Soviet Union, government committees of economic planners and political officials have decided how the nation� airline would be used. The central s planning committees have established the prices of transportation and the wages of the pilots and airline staff. These planning committees have made all of the allocation decisions in an attempt to allocate resources more fairly. However the system seems to be more bureaucratic and less able to supply airline services of the right quality and which meets consumer demand. Passengers arriving at an airport have had to queue for hours and tickets for flights have been distributed after considering the passenger� reason for s travel. Under the command economy, Soviet airports have had a reputation of being uncomfortable and unwelcoming places. The planning authorities, in order to take into account the needs of the total system have laid down effective long term strategies. The services of the airline have been vital for the development of the vast areas of the Soviet Union. Aeroflot has been vital in delivering food, scientific instruments, clothes, tents, boats, etc. to remote parts of Russia. To date all civil transportation was performed by Aeroflot. The airline has been responsible for the transportation of passengers and cargo although one of its main responsibilities has been to serve agriculture, the fisheries and industry throughout Russia. Aeroflot has carried out numerous scientific missions, including several flights to the Arctic and to Antarctica and has played a role in the development of defence aircraft. Despite the efforts made by the planning authorities to make decisions about Aeroflot and to reflect the social and political wishes of the people times and the thinking of people change too quickly. The process of communication between Russian citizens and the planners have become so distorted that airline services have fallen well below consumer requirements. Privatisation of Aeroflot and the changing views in Kazakstan. In 1994, Aeroflot was privatised. As part of the privatisation process, many of Aeroflot� regional divisions became independent airlines and these compete with the s Russian national carrier Aeroflot. This is how the Kazakstan government resulted in owning their own airline Kazakstan Airlines. Detailed below are the reasons for failure of the state run airline and the reasons for looking into privatising Kazakstan Air and relaunching it under the new name � Kazakstan International Airlines. It was in the 1970s that problems with a command economy surfaced and economic failure became apparent. Up to 1975 economic growth grew much faster in the Eastern world than the West. High growth rates were achieved by reallocating relatively unproductive agricultural labour to relatively productive industrial employment, and by
utilising previously unutilised natural resources. Kazakhstan is the second largest of the former Soviet republics in territory and possesses enormous fossil fuel reserves as well as plentiful supplies of other minerals and metals. It is also a large agricultural - livestock and grain - producer. Kazakhstan's industrial sector rested on the extraction and processing of these natural resources and also on a growing machine-building sector specializing in construction equipment, tractors, agricultural machinery, and some defence items. Once the labour transfers and natural resource utilisation were completed, further investment was needed to sustain growth, however the command economy cannot deliver these. Now that Kazakstan has taken control of their airline much investment is needed. The main stimulus to investment is competition, the threat that if you do not improve your production or service, your rivals will, and they will take your market share. Therefore as Aeroflot has kept the better planes investment is critical. Even Aeroflot are struggling to compete effectively with the arms and space races with the West and citizens of Kazakstan are coming to realise that standards are much better in the West. Kazakstan has also inherited other problems as a result of Russia operating a command economy: 1. There is no incentive to productivity. In a mixed economy it is necessary to cut costs in order to compete and then set targets that are rewarded. Under a command economy success means achieving the planned target. In the past there has been no rewards for exceeding the target, just penalties for under achieving. If the authorities set a target of scheduling a flight to the other end of Russia every day at a certain time the first job of the airline manager would be to try and reduce this target. In addition the airline would have to provide a flight per day even if the aircraft was not full. 2. Wastage of Resources � Inevitably resources have been diverted into planning rather than actually producing. A whole committee of people were employed to plan how the airline would operate despite their decisions never being adequate. The Kazakstan government now need to reduce this wastage. 3. Over regulation and inflexibility - Plans for flights and working patterns could not be easily adjusted to take into account changing circumstances. The system struggled to find outlets for initiative and ingenuity. As a result the airline was and still is failing to meet targets. 4. Black markets � It has become apparent that wherever wants are unsatisfied i.e. a demand for airline tickets, someone will find a way of supplying them at a price. Now that the problems of a command economy have been identified, together with the problems of a state run airline. It is now time for the Kazakstan government to consider the best way forward for the airline. Although views in Kazakstan are changing it should be remembered that a move to a mixed economy may have an impact on Kazakstan and its airline through the transitional period. The airline desperately needs to reduce costs. This will inevitably cause unemployment. This will cause inequality and a poorer standard of living for some people. People will need to learn new skills and adapt to an economy that concentrates on meeting targets and in which prices of services are determined by demand. For decades the only method of advancement has been through service to the state; there has been no tradition of making good through business. Is important to remember that the economy and the people will not change overnight, the citizens of Kazakstan will have to adapt and that is why it is important to consider the marketing approach.