Airline industry is the topic I researched in this analysis. Companies in this industry provide scheduled domestic and international passenger transportation, mail and freight transportation. Major US companies include American Airlines, Delta, Southwest, and United Continental, as well as the air operations of express delivery companies such as FedEx and UPS. The industry key survival factors are efficient operations, reliability of services, and safety. The drivers of change are internet economy, globalization, and low cost competition. Based on the key survival factors and drivers of change, large companies enjoy economies of scale in purchasing and the ability to provide more extensive services. Small airlines can compete by serving local or regional routes. All the information was collected from online journals, news, and research and report papers. The sources include industry reports such as Hoover, Bloomberg, and Forbes. The data was organized by folders and then summarized into Words before putting in the paper. Each source was written in a separate Word file every time it was used. The analysis uses the Porter’s 5 forces and PEST analysis.
Key Survival Factors
In airline industry, demand depends highly on the health of the economy, which affects spending on business and leisure air travel. Since many costs are fixed, efficient operations act as a core factor to determine the profitability of airlines companies. The basic operations of airlines include acquiring and maintaining airplanes and airport facilities, acquiring passengers and/or freight, managing staff, and operating flights. The flight equipment (airplanes) that an airline uses is crucial to efficient operations. The next key survival factor for airline industry is safety. Air traffic is growing rapidly, airports are more congested, and “with two million passengers in the United States boarding more than 30,000 flights every day, maintaining that safety record will be a challenge.” Therefore, all airline companies should have a procedures encompassing the theory, investigation, categorization of flight failures, and the prevention of such failures through regulation, education, and training.
The company could have lost the public image if they don’t have a procedure in advance to response quickly enough in case of emergency. Last but not least, reliability of service is another key survival factor for airline industry. A positive public image could be developed among customers due to a reputation for reliable services, which can lead to more repeat business. Reliability in the airlines industry includes: reports of mishandled baggage, the on-time arrival of flights, involuntary boarding denials from overbooking flights, and passenger complaints. Those airlines that are able to control these elements could provide better service to the customer, and thus offer more reliable service.
Drivers of Change
The internet and e-commerce has completely altered the airlines distribution (the booking and ticketing of passengers for air travel). Nowadays, travelers can book e-tickets on their flights through the airlines’ websites or a third-party website. This has allowed airlines to eliminate paperwork, reduce operational expenses, and bypass travel agent commissions. Moreover, the potential in the global travel market makes airlines companies focus more on globalization. To facilitate international growth, U.S. airlines are lobbying for “open skies” treaties between the U.S. and other nations.
These treaties are bilateral agreements that essentially deregulate travel between the involved countries, thus opening up certain markets to competition. “The U.S. currently has signed more than 60 open skies treaties with nations around the globe.” Finally, the rise of the low-cost carriers has forced a change in the competitive environment of the air travel industry. Southwest, and JetBlue implement low-cost strategies that allow them to offer relatively low airfares. These low fares change the entire industry and force rivals to lower their costs and decrease their fares in order to stay competitive.
The airline industry is currently not very attractive. Both business and tourist travel are reduced when the economy slows. “Global aviation traffic typically rises and falls at twice the pace of economic output, so a change in the economy can double the impact for airlines.” Because of relatively high fixed costs of airplanes, airport facilities, and labor, airlines can’t easily adjust to reduced passenger traffic. Based on the financial results on Hoover’s database, the industry has a very low growth rate of personal consumption expenditures as of 2014, and it was forecasted to grow at an annual compounded rate of 4 percent between 2014 and 2018.
Mouawad, Jad, and Christopher Drew. “Airline Industry at Its Safest Since the Dawn of the Jet Age.” The New York Times. The New York Times, 11 Feb. 2013. Web. 16 Feb. 2015. . “Competitive Environment of the Airline Industry.” Competitive Environment of the Airline Industry. Web. 16 Feb. 2015. . “Good times for the Airline Industry.” The Economist. The Economist Newspaper, 27 Dec. 2013. Web. 16 Feb. 2015. . Fulton, Jeff. “Airline Industry Key Success Factors.” EHow. Demand Media, 29 July 2009. Web. 16 Feb. 2015. .