The Airline 

Industry in the
US

MERIZAK Yassine
 Introduction

• 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.

• So, what factors are affecting the industry? And more importantly, how is the
industry coping with them? Here is a PEST analysis for airline industry to give you
a better idea.
 Political factor
• The airline industry operates in a highly regulated political environment where
passengers are favored over the airlines. This is due to the fact that passenger
safety is paramount.

• Passengers are in a position where they can push for lower prices and amenities.
 Economic factors

• The 9/11 attacks left a major impact that the airline industry is yet to recover
from. The prolonged recession, fluctuations in oil prices and an imminent global
slowdown are other debilitating factors that are affecting the growth of the
airline industry. Airlines have to cope with declining passengers, high fuel prices,
competition from low-cost airliners, labor demands and soaring operating and
maintenance costs. In addition, events such as the recent Malaysian airline
disappearance, is also adversely affecting the global airline industry.
 Social factors
• Over the years, the millennial generation’s emergence into the consumer class
has resulted in major social changes, more importantly in terms of service, where
consumers have become much more demanding. Therefore, to meet the
increasing demands of this segment, airlines have to stabilize their costs.
Additionally, the passenger profile has changed as well with there being more
economically minded passengers. When it comes to business class passengers,
improved communication facilities have reduced the need to fly down for
meetings.
 Technological factors

• With intense competition in the airline industry, latest technology must be

adapted by airliners in order to survive in the already tough environment.
Additionally, the use of latest technology in aircrafts would not only lower fuel
consumption, but also the cost of airline operations and improve efficiency.
 Overview on the PEST Analysis

• So, this PEST analysis for airline industry has highlighted 

four important factors that are affecting its external macro
environment. By keeping these factors in mind, we have come to the
conclusion that the increased costs of doing business, strict rules and
regulations imposed by regulators, competition from low-cost
airliners, changes in passenger profile, in addition to the recent airline
related deaths, all have affected the viability and profitability of the
global airline industry badly. It will require a lot of patience and hard
work for the industry to find its way back to the right track.
 Porter’s Five Forces Analysis
• New entrants to an industry
• In the world today, the airline industry is so saturated that there is hardly space
for newcomer to enter the market. The airline industry is one of the most
expensive industries, due to the cost of buying and leasing aircrafts, safety and
security measures and customer service.

• Bargaining power of buyers

• This clearly demonstrates that buyers represent a competitive force because they
can bid down prices, demand higher quality or more services, and play
competitors off against each other.
 • Bargaining power of suppliers
• Suppliers within the airline is dominated by Boeing and Airbus as the main
suppliers. Suppliers can exert a competitive force in an airline industry by raising
prices or reducing the quality of the goods they sell.

• The availability and threat of substitutes

• It refers to the likelihood that customers may switch to another product or service
that performs similar functions.
• Substitutes for air travel include travelling by train, bus or car to the desired
destination. The degree of this threat depends on various factors such as money,
convenience, time and personal preference of travellers.

• Rivalry between existing competitors

• In the airline industry, this takes the familiar form of jockeying for position using
tactics like price competition, advertising battles, product introductions and
increased customer service.
 Key success factors of the airline industry
• Airlines are in part service businesses. To be successful, an airline must be
effective in four general areas:
• 1) attracting customers;
• 2) managing its fleet;
• 3) managing its people
• 4) managing its finances.