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

500
400
300
200
100
0

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

passengers (millions)

International passengers carried

year

Source: British Airways Annual Report 1998-1999

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.