Airline Industry - Assignment Example

Airline Industry Executive Summary The European aviation sector is uniquely different from other existing global sectors given the historical, socio-economic and political aspects that have affected the region’s history. Accordingly, varying issues inevitably affect overall competitiveness, cost-effectiveness and target-market capture. From issues of continued deregulation, prime time slots allocation and cost distribution to aspects of market entry and access, short-haul vs. long-haul travel and fleet standardization, all these are factors that must taken into consideration. This entails enhancing overall air travel and market penetration, given the uniqueness of the European market in terms of labor costs, market size, air travel substitutes, deregulation measures and new-play entry prospects. In the introduction section, the report provides a general view of the European airline industry. The report will also include a summary of the PESTLE analysis (in tabular form), opportunities and threats facing the European airline industry. The reflective report section provides the insights into the processes and factors that affect the industry the industry. The conclusion part will provide an overview of the case study (European aviation industry). Table of Contents Introduction …………………………………………………………………..………4 PESTLE Analysis: Factors ……………………………………………………….… 4 Airline Company Operations in Europe: Opportunities and Threats ………………..7 Reflective Report: The European Aviation Industry ……………………………….. 9 Conclusion …………………………………………………………………………..10 Recommendations ………………………………………………………………….. 10 References ………………………………………………………………………….. 12 Introduction Since 1919, countries, especially in Europe, had sovereign rights over the airspace in their territories. National governments took responsibility to regulate the industry. However, from 1944, countries began setting rules touching on economic rights in the aviation industry. For example, the U.S. called for an open skies policy through a multilateral agreement. However, European nations called for the formation of an international regulation authority to regulate issues such as capacity and travelling fees to build the industry. Since then, the European airline industry has changed, thereby promoting competition. PESTLE Analysis: Factors THE EUROPEAN AIRLINE INDUSTRY: PESTLE FACTORS Political A highly political industry affected by the presence of bilateral agreements, increased deregulation and consensus on open-sky policies. Issues pertaining to the link between terrorism and the airline industry The ‘buy and sell’ concept vis-à-vis the financial power of small vs. big airlines (Captain & Sickles, 1997). Social Dynamic class of customers The ever-dynamic fashions and tastes of holiday seasons The increased rate of the female business traveler (D’Aveni, 1995). Economical The macro-economic system: with increased global growth, so does hopefully, both opportunity and demand for air travel Influences on small vs. big airlines such as Airbus and Boeing Economic influences on the need for new classes of services (D’Aveni, 1995). Technological Increased internet and computerized customer and travel service provision Better management and customer service provision, through technology-enhanced applications (Jarach, 2004). Environmental Changes in climate vis-à-vis link with global warming Continued use of oil-based jet-fuel vis-à-vis bio-fuels that are less expensive and environmentally safer (Captain & Sickles, 1997). Opportunities Advanced European aviation industry Market regulation to protect and nurture national carriers Advantageous low cost ‘no-frills’ air travel targeting the conscious spender, service providers and avenues of greater service delivery for minimal costs. Short-haul travel augmented by 1-day trips provides more flights (Thomas, 2013:43). Threats Smaller players may lack ‘clout’ because of continuous reorganization of the European Aviation Industry (European Commission, 2005:12). New entrants endure a lot of pressure given the tax regimes, limited tax exemptions, labor costs, overall operation expenditure and the availability or not of airline ‘slots’. The future projection growth of the major airlines vis-à-vis the smaller airlines is an issue of concern (European Commission, 2014). The influence of geo-politics on overall entry or competitiveness Fuel price instability, Inconsistent customer base (Jarach, 2001:23). Reflective Report Given the diverse issues discussed above, issues specific to Europe’s aviation sector affect the nature of ‘new entry’ airline performance and overall competitiveness. Captain and Sickles (1997) assert that cost implications affect overall airfare, time-utility, overall efficiency and effectiveness of industry players in promoting air travel as the preferred means of transport in Europe. This captures both short- and long-haul travel be it goods, cargo or passenger travel. Therefore, the European airline industry concentrates on the advantages that would be attractive enough for consideration of air travel as opposed to rail and road travel. A significant factor that affects this is how best an aviation industry player attracts a larger customer-base by considering the PESTLE factors vis-à-vis the economic competitiveness. This is affected by the nature of Europe’s aviation industry in terms of its structure, relatively smaller market size and shorter distances. On both sides, points of convergence are available, i.e. the economic sense of air-travel as opposed to rail or road, the presence of time-conscious travelers (especially business travelers), distribution costs required for the reduction of cost expenditure, input of technology and preference of regional airports as opposed to major hubs among other aspects (Captain & Sickles, 1997:32). Jarach (2004) portrays that a customer could make a choice with regard to preferred airlines, the routes to be taken, holiday/business activity schedules and provision of short-haul one-stop trips based on regional airports. This affects localized/ regional travel where customers are more price-sensitive as well as time conscious. Issues such as price attractiveness, time-conscious service provision, greater embrace of technology, cost reduction through distribution strategies and increased cooperativeness between different airlines would be essential aspects to target. Ultimately, the aim would be to gain as much competitive advantages as possible primarily targeting retention of existing customer-bases while continuously expanding to potential market arenas (Jarach, 2004). Conclusion Considerable improvement has been achieved within the strategically important European aviation sector. Despite the historical context of the industry influenced by the gradual deregulation, privatization of the sector has resulted in better service provision for its core local/ regional market as well as the supplementary global market. References Captain, P F & Sickles, R C 1997, Competition and Market Power in the European Airline Industry: 1976-90. Managerial and Decision Economics, 18(3): 209 – 225. D’Aveni, R 1995, Hyper-competition. New York: Free Press. European Commission. 2014, Air Travel: Internal Market. European Commission-Mobility and Transport [Transport Modes], retrieved from: http://ec.europa.eu/transport/modes/air/internal_market/index_en.htm European Commission. (2005). Strengths, Weaknesses, Opportunities and Threats in Energy Research. Belgium: European Commission-Directorate-General for Research and Sustainable Energy Systems. Jarach, D 2004, Future Scenarios for the European Airline Industry: A Marketing-Based Perspective. Journal of Air Transportation, 9(2): 23-39. Jarach, D 2001, The evolution of airport management practices: towards a multi-point, multi-service, marketing-driven firm. Journal of Air Transport Management, 7. Thomas, N 2013, Low-cost airlines have come a long way. But who will win the battle? The Telegraph: Finance-News by Sector [Transport], retrieved from: http://www.telegraph.co.uk/finance/newsbysector/transport/10454522/Low-cost-airlines-have-come-a-long-way.-But-who-will-win-the-battle.html Read More