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 1990s

mainly due to aircraft orders in the pipeline

The effect of the current economic climate

International Passengers
International passengers carried
passengers (millions)
500 400 300 200 100 0

Source: British Airways Annual Report 1998-1999

19 70 19 72 19 74 19 76 19 78 19 80 19 82 19 84 19 86 19 88 19 90 19 92 19 94 19 96
year

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.