The Power of Airline - Term Paper Example

The aviation sector plays a key role in the tourism industry. In the light of low cost carriers they have opened up many new tourist destinations. Using examples and tourism statistics discuss and analyse how airline carrier contribute to the success or failure of tourist destinations. Further to that, examine the importance of discovering route / new destinations for airlines. Table of contents 1. Introduction 3 2. Airline carriers and new destinations 3 2.1 Airline carriers – role in the success or failure of tourist destinations 3 2.2 Importance of discovering new destinations for airlines 5 3. Conclusion 7 References 7 Appendix 9 1. Introduction Airline carriers have a key role in the development of tourism worldwide; their contribution to the development of destinations is related primarily to the increase of profits of local businesses; however, the development of a place as a cultural destination could be also achieved through the airline carriers – without which the visiting of the above place would be extremely difficult. Indeed, airline carriers have offered the chance to travellers to be informed on the existence of places, which are distinctive in terms of their commercial or cultural tradition. In practice, it has been proved that airline carriers are also benefited by destinations; these benefits can be either direct, i.e. increase of profits, or indirect, i.e. increase of popularity/ awareness of brand name. In other words, a two-way relationship seems to exist between the airline carriers and the tourism industry (as a key part of the economy of destinations); however, in certain cases, the terms of their cooperation are not clear or equal. The power of airline carriers to choose their destination has led to the development of an unfair competition among destinations; this problem has been effectively faced through the low cost airlines, even if these carriers also can harm destinations – mostly through their practice to ask for low airport fares, in the context described below. 2. Airline carriers and new destinations 2.1 Airline carriers – role in the success or failure of tourist destinations Airline carriers offer the chance to their customers to visit destinations that may not be quite known to the public, i.e. destinations which are not developed as tourism destinations. From this point of view, airline carriers can contribute to the growth of a place as a tourism destination, a fact that would also lead to the gradual increase of the number of passengers of local airports. Particular emphasis should be given on low cost carriers which can significantly affect the development of tourism destinations, a fact highlighted in the study of Fageda et al. (2009); after analysing a series of Spanish routes, the above researchers came to the conclusion that ‘low-cost carriers have a moderate but still significant effect on prices and increase alternatives even in low-density routes’ (Fageda et al. 2009, p. 36). Moreover, in accordance with an article published in the Wall Street Journal (2010), the development of low cost carriers can increase the number of passengers, a fact that would lead to the increase of profits in destinations; in the above article, reference is made to the case of India and the significant increase in the number of passengers since the entrance in the market of the low cost airline carriers – it is noted that due to these carriers ‘the number of annual fliers was doubled, reaching the 44.5 million in 2009 from 22.3 million in 2005’ (The Wall Street Journal 2010). It should be also noted that low cost carriers help to resolve the following problem: there are routes and destinations which are abandoned by large carriers, as being considered non-profitable, as the level of profit is set in large carriers; through the low cost carriers, passengers are given the chance to have access to these destinations, in a low fare (Business Traveller 2009). If such chance would not be given by low cost carriers, then, the number of visitors/ travellers in these destinations would be significantly decreased, a fact that would cause severe losses to local enterprises. From another point of view, airline carriers can have a negative influence on the potentials of a place as a tourism destination. Reference is made specifically to the low-cost carriers. The low fare of these carriers allow the increase in the number of visitors of tourism destinations but under certain terms; because the contracts of these carriers with local airports are usually characterized by low aeronautical revenues,’ the pressure on small airports – which face difficulties in competing for their business – can be extremely high’ (Francisa et al. 2003, p.267). At this point of view, the rules used by large airports regarding their contracts with low-cost airlines are critical – taking into consideration the fact that these airports focus on the development of contracts offering increased number of passengers. In this context, a differentiation in the terms of these contracts is required; ‘the development of preferential contracts with low cost carriers’ (Francisa et al. 2003, p.267) should be carefully reviewed as having the power to cause severe problems to small airports, a fact that would further negatively influence the relevant destinations – in case that one or more of these airports have to terminate their operations. The direct relationship between the airline carriers and the business life of destinations can be identified in Tables 1 & 2 (Appendix); in Table 1, the number of passengers of the 10 major airline firms – internationally – is presented; it is clear that these firms contribute significantly to the increase of profits for businesses in destinations – taking into consideration the needs of passengers/ travellers either for services and goods of various types. The above assumption is further verified through the figures presented in Table 2 – Appendix; that during the above periods travellers are likely to spend money on leisure/ shopping offering significant financial support to local businesses. 2.2 Importance of discovering new destinations for airlines New destinations can lead to the improvement of the position of an airline carrier within its industry; indeed, the new destination will help to the expansion of the firm’s customer base – a fact that would lead to the increase of the organizational profits, not just in the short term but also, mainly, in the long term. It is for this reason that airline carriers try to continuously enter new markets, adding destinations, either directly, i.e. adding the route in their flight schedule, or indirectly, i.e. through another airline carrier, which already operates in the specific route. An indicative example of this strategy is the case of Lufthansa; in the beginning of March 2011 the firm announced that it will operate in ‘four new destinations and eleven new routes; (MaltaToday 2011); the above strategy will lead to the increase of the firm’s destinations to 211 – compared to 204 of last year (MaltaToday 2011). The ‘interline agreements between JetBlue Airways, New Yorks hometown airline, and LAN Airlines S.A.’ (ETN 2011) also prove the importance of new destinations for airline carriers worldwide; in the context of these agreements the above airline carriers can offer to their customers more destinations – in fact, the customers of each airline would need just one electronic ticket in order to have access to the destinations of both carriers (ETN 2011). The potential benefits from adding destinations are also reflected in the decision of ‘the Indian private carriers Jet Airways (India) Ltd and Kingfisher Airlines Ltd’ (The Wall Street Journal 2010) to add international destinations to their flight schedule. Aiming to achieve such benefits, managers in American Airlines decided to increase the firm’s routes by developing, in 2010, a relevant agreement with British Airways and Iberia (Reed 2010). At the same time, an agreement has been developed between American Airlines and JetBlue Airways; in the context of this agreement, customers of American Airlines will have access to destinations included in the flight schedule of JetBlue Airways (Boehmer 2010). 3. Conclusion In accordance with the issues discussed above, airline carriers can offer significant support to the tourism industry; these benefits are usually related to the profits of businesses in destinations. However, other benefits could also resulted from the availability of airline carriers for visiting a particular place; this place is likely to be developed – both as a tourism and a business destination – even if it is not known to the public; the above benefit is achieved through the low cost carriers which are mostly involved in the growth of destinations – as explained above. On the other hand, destinations would be also suffer damages because of their dependency on airline carriers; this issue is made clear to the following cases: when large carriers decide to eliminate certain routes from their flight schedule or when low cost carriers ask for extremely low airport fares – a fact that could lead to damages for the local airport, a phenomenon common in small airports which cannot afford to offer too tow airport fares – as large airports which focus on the number of passengers rather than the level of the airport fare. It is clear that the review of rules related to the agreements developed in the airline industry would be necessary so that the activities of these firms to serve more effectively the public interest. References Boehmer, J. (2010) AA Stakes N.Y. Claim: New Routes, JetBlue Pact. Business Travel News [online] Business Traveller (2009) Budget carriers fill vacuum in air routes [online] ETN – Global Travel Industry News (2011) JetBlue Airways partners with LAN Airlines [online] Fageda, X., Fernandez-Villadangosa, L. (2009) Triggering competition in the Spanish airline market: The role of airport capacity and low-cost carriers. Journal of Air Transport Management. Volume 15, Issue 1, pp.36-40 Francisa, G., Fidatob, A., Humphreys, I. (2003) Airport–airline interaction: the impact of low-cost carriers on two European airports. Journal of Air Transport Management. Volume 9, Issue 4, pp. 267-273 GSA (2010) GSA Adds New Carriers and Destinations to City Pairs [online] MaltaToday (2011) Lufthansa to increase destinations and flights this summer [online] Reed, D. (2010) American Airlines expands European alliance. USA Today [online] The Wall Street Journal (2011) Indian carriers increasingly add international routes to their flights [online] Appendix Airline company and origin: Number of passengers transported (2008): 1. SouthWest Airlines 101,92 million 2. American Airlines 92,77 million 3. Delta Airlines 71,84 million 4. United Airlines 63,07 million 5. China Southern Airlines 57,96 million 6. Ryanair 57,64 million 7. US Airways 54,77 million 8. Lufthansa 54,69 million 9. Air France 50,44 million 10. NorthWest Airlines (NWA) 49,67 million Table 1 – Passengers of 10 major airline firms internationally (Source: < http://www.planeticketsnow.com/airlines/index.htm>) 1. Christmas Week (Dec. 19 – Dec. 25) 2. August, First Week (Aug. 1 – Aug. 7) 3. June, Fourth Week (June 20 – 26) 4. June, Third Week (June 13 – 19) 5. March, Third Week (Mar. 14 – 20) Table 2 – The 5 most busy weeks for the airline carriers Read More