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Economics - Essay Example

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The UK Airline industry, at one time, was government controlled and the large airlines deemed “flag carriers” which were readily bailed out by government in case of financial difficulty (Rodger & MacCulloch, 2009). Competition was non-existent. In the 1980s, however, the…
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Download file to see previous pages... The development of low-cost carriers is attributable to five factors: (1) market liberalization; (2) entrepreneurs; (3) population and relative wealth; (4) airport availability and capacity sold cheap; and (5) internet diffusion for ticket sales, liberating the distribution channel from control of travel agents (Cento, 2009). The greater competition ushered in a market-oriented approach to product optimization (Pels, Njegovan & Behrens, 2009).
Industry structure is deduced from the number and size distribution of buyers and sellers, entry and exit conditions, product differentiation, vertical integration and diversification. For brevity, the more active UK airline companies are provided in Appendix A of this assignment, of which five are full-service, eleven are low-cost passenger, and the remaining five are exclusively cargo airlines. There is one more low-cost airline not shown on the non-exhaustive list, Ryanair, which performance shall be in the performance analysis. The distinction between full-service and low-cost airlines, however, are gradually blurring as several of the low-cost companies have turned hybrid, and full-service have aligned their services closer to the low-cost model (Gray, 2003).
The number of UK airlines is not the determining factor for structure per se, because airline capacities vary in terms of routes and number of flights. Pels, Njegovan & Behrens (2009) provide the data on the following tables that show route distribution and share among the airlines and airports. It is understandable why Pryke (1987) said that considered ‘route-by-route, the airline industry is incurably oligopolistic’ (p.9). The sentiment is echoed by Button (1989, p. 197) when he said, ‘The key point is not how many airline companies serve the market, but rather the degree and nature of competition which exists between them.”
The foregoing tables suggest that airlines operating out of major cities would tend to benefit more from ...Download file to see next pagesRead More
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