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 1990’s
– mainly due to aircraft orders in the pipeline

The effect of the current economic climate
International Passengers
passengers (millions)
International passengers carried
500
400
300
200
100
0
70 9 72 9 74 9 76 9 78 9 80 9 82 9 84 9 86 9 88 9 90 9 92 9 94 9 96
9
1
1
1
1
1
1
1
1
1
1
1
1
1
1
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.