Trend Line Of The Airline Industry

The Airline industry is a large and constantly growing industry. It facilitates economic growth, international investment and world trade and is therefore central to other industries as well for globalisation. There are various forces which lead to globalisation in airline industry. Key drivers of change are forces likely to affect the structure of an industry; sector or market. (1).

This is an analysis of the Airline Industry in Europe. The paper will cover the current market situation, including financials and market volume. Following this will be a Five Forces analysis on the factors that affect industry competition. The paper will conclude with key insights into the profitability of the industry and a SWOT analysis of one of the industry’s best performers and what rivals and possible future entrants can learn from their success.

Rising fuel prices has a huge impact on the airline industry. In an article published by the New York Times in 2007, oil prices were hovering ‘near $100 a barrel’ which caused the International Air Transport Association (IATA) to ‘slash’ their predicted profits for 2008 from ‘$7.8 billion to $5 billion’ (Clark, 2007). In 2008 high fuel prices were ‘dominant factor’ in the losses that faced the industry, and continued to same effect in 2009 (Dunn, 2009). Diagram 2 shows how fuel price has increased and fallen over the last 5 years.

JetBlue’s is societal aspects that are affected by external forces as well. I would break it down into four categories to mainly focus on this societal area. They are listed as follows: Economic, Technological, Political-Legal and Sociocultural. Looking at the economic aspect, the economy has gotten much better since 2008-2009. There is more income being dispersed around the country. Also, if you are looking at the current price for oil, that should not be an issue for airlines right now. The technological aspect shows us how well the ticketing and self-service check-in are doing. Another thing that could be helpful is even allowing credit cards to be used on flights for more purchases. The Internet has become a great tool for our society. It allows us to even search around and find the cheapest flights around. The political-legal aspects that have an effect could be the fear of terrorists. I know since 9/11, airplanes have been one of the safest ways of transportation with all the rules and regulations. Another important part that of this aspect is the effect on oil because of certain internal wars over in the Middle East. Finally, the sociocultural aspect shows us that people have different opinions on certain topics. For example, I know many people are probably worrying about the Zika Virus if they are on a plane that has come from a country that is known for having it or if they are traveling to one of those countries. People want to be updated and know that they are in

• • • • • • • • • • • • • • • • Low standards (safety, environment) Airlines do not contribute to regional economy Slow

6. What are the factors driving change in the airline industry? How are they likely to impact the future attractiveness of the industry?

American airline industry is steadily growing at an extremely strong rate. This growth comes with a number economic and social advantage. This contributes a great deal to the international inventory. The US airline industry is a major economic aspect in both the outcome on other related industries like tourism and manufacturing of aircraft and its own terms of operation. The airline industry is receiving massive media attention unlike other industries through participating and making of government policies. As Hoffman and Bateson (2011) show the major competitors include Southwest Airlines, Delta Airline, and United Airline.

1. There are a few trends in the US airline industry. One is consolidation, wherein existing players merge in an attempt to lower their costs and generate operating synergies. The most recent major merger was the United Continental merger, which is still an ongoing affair, but has created the largest airline in the United States by market share (Martin, 2012). Another trend is towards low-cost carriers. In the US, Southwest has been a long-running success and JetBlue a strong new competitor, but in other countries this business model has proven exceptionally successful. The third major trend is the upward trend in jet fuel prices, and the increasing importance that this puts on hedging fuel prices and capacity management (Hinton, 2011).

Over time many transactions have changed. For example, as previously mentioned within the tourism industry the supply and demand varied within different sectors of those markets. As a result, many third party companies saw opportunities to expand their companies by providing travel assistance. As the price decreases, the supply for flights will decrease and the demand for flights will increase. These third party companies negotiate deals with the various airlines that will be most beneficial for the parties involved. Of course, there have been different trends that have grown based on vast time periods. The impact is measured based on the supply that

After six consecutive years of profitability, the U.S airline industry was descended into a downward spiral. The number of passengers flying dropped from 56 million in August 2001 to 30 million in September with no passengers for two days after the attacks (Poling). It took three years for the airlines to reach the 56 million passenger mark again. The impact on the travel industry, specifically the airlines, was more severe than in other areas.

3,4- The Airline industry and the market The airline industry is large, specially in the United States, mainly due to the “ Deregulation” of the industry. In 1938, the Civil Aeronautics Board was created to control the growth of the air transportation industry. This board had the authority to control entry, exit, prices and methods of competition. In the late 1970 this structure was found inefficient and in 1978 deregulation took place. Due to the deregulation of the industry competition intensified, prices dropped, and the number of people travelling increased. Many new companies emerged and regional airlines saw deregulation as an opportunity to expand. Due to the rise in competition, by 1986 mergers started to take place and in 1987 64.8% of the market was controlled by the four largest airlines. The demand for air travel is determined mainly by price, studies revealed that half of the leisure travellers and on quarter of business travellers did not have a preference for a particular airline, which means that prices determined the

The airline business is a highly competitive industry. According to Morningstar article Southwest Airlines Co Analyst Report, the airline industry has many barriers to entry, which creates an intense industry rivalry. This claim is backed up by the text Attention All Passengers by William J. McGee, which states “Air travel has become a commodity, and the airlines themselves an oligopoly.” (McGee) Therefore, a sustainable cost advantage is the only way to survive in this cutthroat industry. (Dihora) Furthermore, the same Morningstar article claims that the airline industry is not growing. This is because the top four airline carriers control approximately 80% of the domestic market in 2015. This can be compared with results from the year 2000, when around 9 carriers controlled as much. (Dihora) This statistic shows that the number of organizations in the market is in fact

Since the airline industry is a direct product of market conditions, it is greatly affected by all externalities. Many people noticed a decline in travel after the September 11th tragedy occurred due to safety concerns. When there is a huge increase in fares that definitely interferes with the demand for travel; it causes the price of tickets to continue to rise since a clear correlation between supply and demand exists. When the economy is doing well in terms of the employment rate, and when the dollar is strong people have the tendency to travel more (Jerram,1998).

The growth of airline industry in any country is directly proportional to its GDP growth; the greater the business activity, the more air travel and the higher the GDP of the country. The demand

Thinking about airlines, the first thought which probably comes to mind would be luxury and comfort. However, there is much more to the airline industry than just that. Yes, most of the airlines worldwide are facing a cycle of rising operating costs and declining profits and margins. Now, passengers may not be able to observe these characteristics, but after extensive research it is quite apparent the global airline industry is in disarray.