Professional Documents
Culture Documents
Political
Drawing on the political factors in PESTEL performed
on airline industry. There are three major components that have bought change to this industry. Those are
Deregulation War and Terrorists.
Deregulation
The US airline Deregulation Act 1978 and Air
transportation Deregulation in Europe 1978- 1997 In the aftermath of deregulation, the development of airline industry rises dramatically. Especially for the low cost airline, there are hundred of them were found in the US. One of the winners was Southwest Airline- today American s most profitable airline. In Europe, low cost airline carriers such as Ryanair and EasyJet are expanding very rapidly.
War
After few years of deregulation in the US the world
airline industry recovered. However, Gulf war strongly hit the airline industry. From 1990 to 1993 the air carriers suffered four years of losses totalling over US$ 22 billions (The World Airline Industry Case Study). People were afraid of flying, which led to a decline in passenger traffic.
Terrorists
The world airline industry was severely shaken by the
terrorist events of 11th September 2001 After that, the security level was increased at all the airport, that result in high cost put into airline industry, due to more personnel and further expensive security applications. More security leads to increase waiting times, makes air transportation less attractive.
Economical
Economical can be another major factor for the airline
industry.
Due to the rate of war and terrorist event, the growth
rate of economy dramatic slowdown, capacity in Europe outstrips demand, which gains the low yield to the airline industry.
Moreover, oil prices increase also affect their profits
Social
The social sector, which are strongly from employment
struggled but also most European airlines laid off thousands of people during the past year.
Technological
Technology in airline industry is fast moving, however
Ecological
Ecological factor consist of recycling, the level of
important.
In the early of this year, London Heathrow Airport
announced, third runway and the sixth terminal will be built up and they will be operated by 2020.
Legal
Legislation for the airline consist of employment laws,
continues to be the two major external environmental drivers influencing the airline industry.
From 2004 until present, airline industry recovered
with business area, which low cost airlines do not have. This is can be an advantage for the major airline.
concerning security, services, quality and alliances with other companies, in order to attract more customers.
states that a company offering a low price product to a small and specialized group of buyers or the company, seeks a cost advantage.
A single passenger class Single aircraft (airbus A320or boeing737) Unreserved seating Secondary Airport No-frills service Point to point and short-haul flight and more frequency Online ticket booking Fast turnaround time
cost advantage.
The low cost airline structure can be defined by three
Simple product
Position
For low cost airline they are positioned on non-
business class.
Short-haul and point to point traffic with high
frequencies.
Using secondary airport
advantage.
Cost item
Cost per seat reduction (a discount from the operating cost per seat of a conventional scheduled carrier)
Product design Use cheaper secondary airports Minimal station costs and out-sourced handling No free in-flight catering Higher seating density Process design Higher aircraft utilization No agents commissions -3% -8% -6% -10% -6% -16%
-3%
-2%
-59%
Competitive Strategy
Porter (1980) has described three general types of
strategy that are often used by businesses. These three strategies are defined along with two dimensions
Strategic scope Strategic strength
Cost Leadership
Low cost airline has a distinct business model, which
carriers
cost airlines need to have as many seats on board as possible, to fill capacity as much as possible, and to fly the aircraft as often as possible.
Further more, some of the low cost airline such as
Ryanair run the unique ticket less phone and internet booking system to reduce the agencies cost. It saves cost for both company and passengers.
significant leading position in price and cost which the major airline can not compete with.
In Europe, most successful low cost airlines have
operated primarily in domestic, it currently hold one third of the airline industry market share.
Europe and still new players enter in low cost competition, it will result in the supply over the demand, therefore some of the player will be out of the competition.
It is very hard for them to expand by adding long-haul
existing business model and take the cost advantage to compete with major airlines.
However by increasing the size, low cost airline will
lose their cost advantage, therefore low cost airline will have to fight hard to persist in the future
Conclusion
The outlook for the airline industry is one of aggressive
growing sector. External environment could directly affect its profitability and operation. PEST analysis through Macro-Environment identify the major external environment drivers, which influence the air line industry. Technology in airline industry is fast moving, it will bring the changes in the future
holds many challenges. The emergence and growth of no frills, low cost airline have radically altered the nature of competition within the industry. For low cost airline should continue maintain the existing business model by reduce the cost to improve their product.
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