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Analysis Of The Airline Industry

Analysis Of The Airline Industry. Introduction. Deregulation in the US 1978 UK and Netherlands followed with deregulation in 1984 The economic boom of 1989/90 Followed by the recession of 1990/91 The airlines had a tough time in the early 1990’s mainly due to aircraft orders in the pipeline

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Analysis Of The Airline Industry

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  1. Analysis Of The Airline Industry

  2. Introduction • Deregulation in the US 1978 • UK and Netherlands followed with deregulation in 1984 • The economic boom of 1989/90 • Followed by the recession of 1990/91 • The airlines had a tough time in the early 1990’s • mainly due to aircraft orders in the pipeline • The effect of the current economic climate

  3. International Passengers Source: British Airways Annual Report 1998-1999

  4. PEST • Political • Deregulation as the market increases in size, therefore economies of scale may arise. • Liberalisation of skies • Ownership rules relaxed, EU and US forcing this through increasing the size of the market.

  5. PEST • Economic • Decrease in passenger numbers • Competition from low cost airlines • Consolidation leads to alliances rather than mergers where possible • Increase in cost i.e. Insurance • Deregulation has exposed airlines, previously operating at inefficient cost levels • Many airlines in serious financial trouble e.g. Aer Lingus, Swiss Air • Supplies also experiencing sharp downturn, e.g. Rolls Royce

  6. PEST • Social • From September 11th • Reluctance to fly • Need to rebuild confidence in air travel • Sub losses with knock on social affect

  7. PEST • Technological • Economies of scale in production due to expanding market size • E-commerce method of selling tickets, therefore less infrastructure required, overhead savings

  8. Five Forces Framework • Internal Rivalry • Price competition especially from no frills carriers • Competition for airport landing/departure slots • Therefore barriers to entry at major hub airports • Passenger demand declining/static in most countries • Regulation barriers decreasing, therefore increasing competition in Europe (Ownership rules still protect to a degree)

  9. Five Forces Framework • Entrants • Since flights between countries, must have majority ownership or the operator in one of the two countries, threat of entry is not currently global • This could change with three to five years if “open skies” agreements are brought in, therefore potential future threat.

  10. Five Forces Framework • Substitutes • Travel by sea or land is not always convenient • Spend leisure money on alternatives or domestic holidays

  11. Five Forces Framework • Customer Power • Loyalty from Frequent Flyer Program • Supplier Power • Fuel prices are a major cost with no substitute, therefore powerful hold on airlines.

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