WestJet Charles Project

Environmental ScanAir line Industry

Course: MKTG-417Prepared for: Charles Chuck Prepared by: Razi ShoaibStudent ID: 300519073Dated: April 13, 2009

Environmental Scan of Airline Industry

A company’s business environment comprise of its external influences that affect internaldecisions and performances. Depending on the environmental conditions, managers andexecutive decision makers are greatly influenced by the industry’s framework such aseconomical, social, technological, competitive & regulatory factors. To prevent negativeinfluences companies engage in environmental scanning to identify desirable and undesirablefactors to retain cost effectiveness and reduce inefficiency. More importantly the purpose of environmental analysis is to distinguish one’s business from the others by analyzing resources;unique products and service differentiation opportunities; factors for creating value chain andmeans to dissociate from competitors. The airline industry thus can be analyzed from thefollowing perspectives:

Economic

Business travelers will spend more in 2009 on their trips, but the rate of increase will be held incheck by current economic conditions, says American Express in its annual global businesstravel forecast released today.The average cost per domestic trip in North America will increase by 1.2% to $1,002 in 2009,the company estimates. Last year, American Express estimated a 3.9% increase for 2008.The average cost per international trip for North American business travelers will increase by3.5% to $3,452. Last year, American Express estimated a 7.8% increase for 2008."Travel costs will not change significantly in 2009," says Hervé Sedky, vice president of American Express, Global Advisory Services.While the cost increase in 2009 will be more "steady," corporate travel managers will continue toscrutinize their spending patterns closely, he says. "Savvy organizations are making sure thattravel not yielding revenue is eliminated or substituted by use of technology."American Express's results mirror other travel survey findings. Earlier this month, the NationalBusiness Travel Association released a survey that underscored travel managers' concern over rising costs. Its members who responded to the survey said domestic trips now cost $140 to$175 more than at the end of 2007. International business travel costs have increased $315 to$400 per trip since December. More than 50% also said new airline fees are encouraging lessair travel and are eliminating all non-essential corporate travel.KDS, a travel and expense management firm, also said a recent survey of "hundreds of clients"revealed that 54% of respondents believe that the financial crisis will force cuts in travelbetween now and March 2009. More than one-third said they have had to cancel booked trips.

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Economy airfares for domestic trips could either fall by 5% in 2009 or increase up to 5%.International fares in business class could rise 1% to 6%. American Express couldn't further narrow the forecast ranges because "the economic conditions that we are facing in the last fewmonths are unprecedented," says Frank Schnur, vice president of American Express, GlobalAdvisory Services North America.The airlines' reduced capacity, ticketing restrictions (such as the Saturday-night stay rule) andadditional fees for checking bags and other ancillary services will drive overall air travel costshigher. But sluggish demand and potentially falling fuel prices will keep the rate of increase incheck, according to American Express.2008 has been a really interesting year for aviation. If we look at the airlines we see manyairlines on the verge of bankruptcy and several different strategies to deal with this. Some arelooking to raise airline fares and add in extra fees for nearly every possible extra they can thinkof, and this is having an adverse effect on customer loyalty and satisfaction. Other airlines arelooking to consolidate and merge with rivals; some are adding fees and looking to merge. It's afree for all.The discount airlines i.e.

Westjet

are doing okay, but no airline these days can claim to be breakthe sound barrier. The fuel costs are prohibitive and even if all the airlines raise fares, there is aticket price where much of the flying public will just stop flying. And this can be seen as manyairlines are retiring their less efficient aircraft and thus, taking capacity out of the market. Thesupply and number of airliners is being reduced out of prudent business decisions to cut non-profitable routes.This could be an ugly year for the Airlines and we might see a major carrier file bankruptcy,perhaps several. The Online Think Tank agrees with this and believes some carriers may holdout until 2009 or 2010, but the shakeup in the industry will continue and major bankruptcyannouncements are indeed forthcoming.One of the most important aspects that have greatly affected the world’s transportation systemis the high fuel prices. Rising fuel prices has increased jet fuel prices even more than crude oilprices. In March 2008 cost of crude oil was $105/barrel. Apart from taxes jet fuel prices havebecome more costly than crude oil costs which has greatly affected the bottom-line for manyairlines.However, Hurricane Katrina and 9/11 lone events cannot be held responsible for the downturnof the industry. The airline industry may have paved way for mature transportation industry theworld over but the fact remains that the industry has been evolving for the worse over the pastdecades. Airline industry is expected to post a total of $8 to 10 billion loss due to high fuel pricesand lessened air travellers. The major airlines have been hard hit as they have widespreadfleets, staffs and investments in technologies which are costly to the companies’ bottom-lineprofit and investments.

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