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

 The effect of the current economic climate

 International Passengers

International passengers carried

500
passengers (millions)

400
300
200
100
0

9 70 9 72 9 74 9 76 9 78 9 80 9 82 9 84 9 86 9 88 9 90 9 92 9 94 9 96
1 1 1 1 1 1 1 1 1 1 1 1 1 1
year

Source: British Airways Annual Report 1998-1999

 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.
 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
 PEST

 Social

– From September 11th

• Reluctance to fly
• Need to rebuild confidence in air travel
• Sub losses with knock on social affect
 PEST

 Technological

– Economies of scale in production due to

expanding market size
– E-commerce method of selling tickets,
therefore less infrastructure required,
overhead savings
 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)
 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.
 Five Forces Framework

 Substitutes

– Travel by sea or land is not always

convenient
– Spend leisure money on alternatives or
domestic holidays
 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.