Airline Industry Overview

Parichehr Haghzare10049978

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Executive Summary

‘Over the past decade, the airline industry has faced significant changes in its operating environment, including high and volatile fuel prices, an economic recession and extreme climate conditions that have reduced demand for travel. As a result of these factors the industry has experienced considerable financial strain and has challenged the industry’s ability to sustain itself’ (Scovel III, 2012).

This paper is an evidence-based report providing an overview of the airline industry, drawing attention to its current affairs, challenges and key players. It will also look to examine the extent to which trends are successful in restoring profits and sustainable in ensuring survival.

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Contents

1.0 Airline Industry Overview, Page 1 1.1 The Double-Dip Recession, Page 11.2 Severe Climate Conditions, Page 11.3 Aircraft Demand, Page 21.4 Mergers, Page 31.5 Airline Profits, Page 41.6 Fluctuating Currency, Page 5

2.0 UK Airline Industry Overview, page 52.1 Impact of Global Events on UK Airline Industry, page 52.2 Mode of Transport, Page 62.3 Consumer Flying Behavior, Page 72.4 Number of Entrants, Page 8

3.0 Dominating Industry Airlines, page 84.0 Industry Trends, page 9

4.1 “No Frills”, Page 94.2 Consumers and their Preferences, Page 9 4.3 Increased Consumer Awareness on the Environment, Page 10

4.4 Correlation between air travel and air freights, Page 105.0 Industry Challenges, Page 11

5.1 Growth of the Industry, page 115.2 Alternative Modes of Transport, page 115.3 Seasonal Profits, page 125.4 Eco-Consciousness amongst Consumers, page 125.5 Consumer Confidence, page 125.6 Rise in fuel Prices, page 12

6.0 Industry Strategy, page 136.1 Technological Developments, Page 136.2Holiday Deals, Page 136.3 Increasing Demand for Short City Breaks, Page 13

7.0 Conclusion, Page 148.0 Suitability for Employment, page 149.0 References, page 1610.0 Appendix, page 18

Appendix A, Porters Five Forces……………..…………………………Page 18Appendix B, PEST Analysis………………………………………..……Page 19Appendix C, SWOT Analysis…………………….………………………Page 20

1.0 Airline Industry Overview

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‘Over 56 million people are employed worldwide in aviation. Global aviation

generates $539 billion of GDP per year. Globally, the average occupancy of aircraft

is around 79% greater than other forms of transport. Air transport carries around 5%

of the volume of world trade shipments. The global aviation industry produces around

2% of all human induced carbon dioxide (CO2) emissions. By 2026, it is forecasted

that aviation will contribute £1 trillion to world GDP.’

.

(Air Transport, 2012)

1.1 The Double-Dip Recession

The global economic recession started in late 2007 and took a steep downward turn

the following year, bringing a slowdown in the demand for international travel from

late 2008. The downward trend was exacerbated in some countries due to the

outbreak of H1N1 influenza virus (swine flu) and UK residents were also discouraged

from travelling by weak currency exchange rates.

Business travel in particular was hit hard. From a peak of 9.1 million visits in 2006,

UK residents going abroad on a business trip declined to 6.9 million by 2009.

Likewise, the number of overseas residents to the UK on a business trip fell from a

record high of 9 million in 2006 to 6.6 million in 2009.

1.2 Severe Climate Conditions

Shortly after the recession, the airline industry was hit by yet another challenging

ordeal; the volcanic ash cloud. In April 2010 the North Atlantic Eyjafjallajokull volcano

eruption released up to 570, 000 sq km of ash across the North Atlantic Ocean

(Kinver, 2013).

Figure 1.0, Monthly Growth In Air Passenger Transport, 2009-2010

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and 2010-2011

Source: European Commission, (Euro Stat, 2012)

The impact of the volcanic ash cloud can be illustrated by figure 1.0 where a -15%

plunge in demand for air travel (in Europe) is evident in April 2010.

The crisis shut down almost 30% of the globes aviation activities (Keynote, 2011)

and put the UK airline industry under severe pressure as they lost 3% in revenue

(see appendix B).

Further problems arose in late 2010 and early 2011, when a bout of severe winter

weather swept down the country, disabling airports and aircraft and costing UK

airlines billions in lost revenue (keynote, 2011).

On the busiest weekend for travel of the year, hundreds of flights were cancelled or

delayed. Heathrow and Birmingham airports had to close their runways for most of

the day after blizzards left the runways covered in snow and ice (Daily Mail, 2010).

1.3 Aircraft Demand

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Figure 2.0, Order demand for Airbus and Boeing aircrafts 2000-2010

Source: Stout Risius Ross, (Global Financial Advisory, 2011)

The recession took its toll on aircraft production also. At first the effects of the global

downturn were not positive as aircraft demand dropped significantly towards the end

of 2007, having faced record breaking demand as illustrated by figure 2.0. However,

aircraft manufacturers experienced gradual growth in sales post 2009, in particular

Airbus. The leading aircraft supplier launched the most successful aircraft to date in

late 2010 to which caused a direct impact (decline) on Boeing order volumes. Airbus

A320 Neo offers 15% more fuel efficient engines (Range and El-Tahch, 2011), an

investment airlines were willing to make at the time of the recession considering the

moderate rise in fuel prices. The idea that appealed to airlines at the time of the

recession was that in the long run, airlines operate more cost efficiently having

invested in fuel efficient engines, saving on expenditure.

1.4 Mergers

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The airline industry in 2013 is forecasted to experience an increase in the number of

merges between airlines. Although merging can benefit both parties (such as the

potential merging of US Airways and American airlines), it is not deemed favorable

for the consumer as it most often instigates a rise in airfares (Karp, 2013).

1.5 Airline Profits

Figure 3.0, Global Commercial Airline Profitability 1998 -2013

Source: Smart Planet

After experiencing a two-year dip in profits, the global airline industry is expected to

see profits grow this year (Falk, 2013). The International Air Transport Association, a

trade association representing carriers that account for 84 percent of global air traffic,

revised its 2013 estimated profit margin to $10.6 billion (1.6 percent), up from a

previous estimate of $8.4 billion (1.3 percent).

Passenger demand is expected to grow by 5.4 percent and cargo demand is is also

expected to grow. Since the beginning of 2013, share prices have also risen 7

percent despite the fact that fuel costs have gone up 5 percent (Falk 2013).

1.6 Fluctuating Currency

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Although sterling strengthened slightly from 2009 against the Euro and the US dollar,

currency exchange rates were substantially less favorable for UK residents travelling

abroad (and vice versa for overseas residents visiting the UK) than they were a few

years earlier.

(FALK, 2013)

2.0 UK Airline Industry Overview

The UK aviation industry contributes £11.4 billion to UK GDP and employs 186, 000

people. Over 520, 000 jobs in the UK in total depend on the aviation industry.

Overseas visitors arriving by air contribute over £12 billion a year to UK tourism.

2.1 Impact of Global Events on UK Airline Industry

The UK is a major destination for overseas visitors. Those arriving by air, who

account for 73% of visits to the UK, contribute over £15.6 billion to the economy or

nearly 84% of foreign visitor spending each year (BATA, 2013).

Figure 4.0 Visits to and from the UK

Source: Travel Trends

Barnes and Smith (2010, p.12) provide an analysis of the UK industry, stating that

‘travel to and from the UK has grown substantially over the past 50 years (with the

notable exception of the past few years). Despite overall growth, there have been a

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number of short term slow downs impacted by a variety of factors, Figure 4.0 plots

the number of visits to the UK and abroad together with some of the key UK and

global events which may have influenced travel during the past 50 years.’

2.2 Mode of Transport

Figure 5.0, Visits to and from the UK by mode of transport

Source: Travel Trends

The above (figure 5.0) illustrates the change in mode of transport taken by UK

residents and overseas residents. Barnes and Smith (2010) claim air travel was not

much more common than sea travel in 1961. However, factors such as the

emergence of cheaper air fares and quicker access to local airports have given rise

to substantial increases in air travel. This contrasts with visits completed by sea

which have shown only limited growth since the 1980s. In 1980, 40 per cent of visits

to and from the UK were completed by sea.

2.3 Consumer Flying Behavior

Figure 6.0, Overseas visits to the UK

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Source: Travel Trends

Figure 7.0, UK Residents’ visits abroad

Source: Travel Trends

By comparing figure 6.0 to figure 7.0, strong growth in visits abroad by UK residents

is apparent mainly for the purpose of a holiday whilst overseas visits to the UK are for

a combination of purposes such as business trips or to visit friends and family.

However, a combination of factors such as difficult economic conditions and

unfavorable exchange rates had contributed to a decline (Barnes and Smith, 2010)

over the period of 2008 to 2010. Despite progressive growth in passenger volumes,

Overseas visits to the UK experience a decline in 1997 – 2002. Research undertaken

by Barnes and Smith (2010) provides further analysis of the contributing factors such

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as; The Asian financial crisis (1997), the outbreak of foot-and-mouth disease (2001)

and the terrorist attacks (2001) were major events that occurred within this period.

2.4 Number of New Entrants

Figure 8.0, Number of New Airlines Formed

Source: Travel Trends

The number of new entrants into the airline industry took a significant drop in the

year 2008 and statistics continue to remain low even till today. Figures could

have been affected by numerous events that may have occurred, however the

recession is the most influential of these events to have had such a significant

and direct impact on all areas of the industrial activities. The fall in the number of

new entrants is to the benefit of existing industry airlines as it eradicates the need

to lower airfares to attract customers to their services and detracts them from any

new competition. Fewer firms within the industry insinuate reduced potential

competition.

3.0 Dominating Industry Airlines

‘The European airline giants dominate the aviation industry. British Airways

reported annual revenues of GBP8,593 million in 2008. Lufthansa reported annual

revenues of Euro22.4 billion in 2007. Qantas, Australia’s largest airline, reported

annual revenues of A$12.6 billion for 2007. The other major passenger airlines

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include Cathay Pacific, the Emirates, US Airways, Japan Airlines, Air France-KLM

and Southwest Airlines. Cathay Pacific won the 2009 Airline of the Year title in the

famous World Airline Awards, replacing Singapore Airlines as the 'world's best

airline.' Among the freight carriers, FedEx is the world’s largest, with total

revenues of US$ 37.953 billion in 2008.’

(Economy Watch, 2010)

4.0 Industry Trends

4.1 ‘No Frills’

‘Most customers are keen to make cost savings on the journey component of their

trip & are prepared to sacrifice comforts to some extent in exchange for cheaper

fares (Worthington, 2012).

Research shows that ‘58% of adults choose “Im happy with a reduced service on

board if it makes the flights cheaper”. 33% say: I like the low cost airline price

structure” (Worthington, 2012).

These trends suggest that onboard comfort has become less significant/critical than

in the past, even on longer flights. (Worthington, 2012)

4.2 Consumers and their Preferences

Consumers aged 35 and below are more willing to trade on board services for

cheaper airfares. On the contrary, consumers aged 55 and above favor quality

service over cheap airfares (Worthington, 2012).

Industry analysis has found that ’the number of travellers aged 55+ has increased to

23%, while 35% are in the 15-34 age category and 42% are aged between 35 and

54’ (Berlin, 2012). These statistics suggest that a greater proportion of UK

consumers within the airline industry are more concerned with onboard service

experience than cheap airfares.

‘Holidays remain the dominant reason for taking an international trip (71%), ahead of

business travel 16% and other reasons such as visiting friends and relatives (13%)’

(Berlin, 2012).

4.3 Increased Consumer Awareness on the Environment

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Research shows that one in four adults are concerned with the environmental impact

of flying (Worthington, 2012) and an increase in eco-consciousness amongst

consumers aged 16-34 (Berlin, 2012)

Only 2% of fliers take environmental efficiency of the airline into account when

seeking which airline to travel with (Worthington, 2012) and sacrifice service

experience for more eco friendly travel.

With a growing concern for the impact of flying on the environment, airlines must

invest in more eco-friendly technology to ensure consumer satisfaction. Failure to do

this will result in the loss of ‘green’ consumer groups.

4.4 Correlation between air travel and airfreights

Figure 9.0, Total Air Travel and Air Freight Volumes

Source: IATA (Pierce, 2013)

Figure 9.0 demonstrates ‘strong divergence between a robust expansion in air travel

& the shrinkage of air freights since peaking in early 2010, after rebounding sharply

from the recession’ (Pierce, 2013).

Even though there is growth in air travel, air transportation of goods has declined.

This could suggest that consumers are opting for other cheaper alternative modes of

transportation for their goods.

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5.0 Industry Challenges

‘Aviation now confronts a range of challenges, likely to be around for the long term:

high fuel prices & taxes (discouraging travel further afield), the rapid growth of high

speed rail infrastructure & services in the short haul market, the growth of video

conferencing as a replacement for less essential business travel (see appendix C),

uncertainties over airport development, and carbon constraints’ (Worthington, 2012)

5.1 Growth of the Industry

There is little potential for growth in the UK airline industry as (domestic) airports

such as Heathrow, Gatwick and Stansted approach full capacity (Keynote, 2013).

The addition of runways is ‘the most popular means of expansion among businesses

and airlines’ (Keynote, 2013). Aviation companies will look to invest elsewhere but

the UK, where there is already near enough optimal growth [see appendix C].

5.2 Alternative Modes of Transport

‘Free luggage transportation makes trains/ferry’s increasingly attractive compared to

low cost flying where baggage costs are perpetually rising’ (Worthington, 2012) [see

appendix A].

Car journeys accounting for three quarters of all domestic holiday trips. However,

even though travel by car consumes less fuel compared to airfares

Even though the fuel cost incurred by consumers who choose to travel by car is

relatively less than that of airfares, the expenditure on fuel is nevertheless rather

high. Consumers also need to take upon themselves the burden of parking if they

choose to travel domestically via car. With high fuel prices adding to the cost of travel

(Worthington, 2012), consumers are less inclined to go on short city breaks [see

appendix A].

5.3 Seasonal Profits

Airline revenues vary heavily depending upon seasons. Airlines experience

maximum incline in revenue during peak periods such as summertime and the

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Christmas holidays. The remaining periods throughout the year are not promising in

generating profits. This is a disadvantage to holiday locations and businesses

heavily dependent on tourism (Worthington, 2012) as they face issues in regards to

employment and revenue [see appendix C].

5.4 Eco-consciousness Amongst Consumers

Research shows increased consumer awareness on the environmental impact of air

travel. Passengers have become more conscious as a result which in turn affects

demand for airline services and the airlines image [see appendix B].

40% of consumers agreed that taking regular short breaks by plane is

environmentally irresponsible (Worthington, 2012).

5.5 Consumer confidence

Great number of passengers lost the confidence to fly post September 11 th where the

aircrafts were hijacked and flown into the Twin Towers (Worthington, 2012) [see

appendix B].

5.6 Rise in fuel prices

Due to the 2008 economic recession, airlines have experienced an increase in

expenditure. Airlines who had chosen not to increase airfares in an attempt to

recover some of the costs incurred will have eaten into the airlines profit margins.

Other airlines however who increase the price of airfares (to cover additional costs)

experience a drop in demand.

6.0 Industry Strategy

6.1 Technological Developments

As highlighted previously, the airline industry consumers are becoming more aware

and concerned about the environmental impact of air travel. As part of their CSR

(corporate social responsibility), airlines should take into account consumer values

and invest in R&D to develop more eco-friendly technology and schemes

(Worthington, 20120) [see appendix B]

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‘Efficiency savings achieved through developments in aviation technology are a big

incentive for companies, helping to keep costs under control’ thus more competitive

(Worthington, 2012) [see appendix B].

One of the main technological developments that have contributed to growth within

this industry is the accessibility of air travel services through consumer mobile

devices. ‘This growth is almost entirely due to the increased use of smartphones and

tablet devices, which are owned respectively by 56%. In order to ensure that they

maintain market share over 2012 and 2013, online travel-based resources or booking

facilities will need to offer a dedicated mobile experience as browsing from mobile

devices becomes more frequent and the cost of using mobile data across’ (Gee,

2012)

6.2 Holiday Deals

Group buying services such as Groupon who offer holiday packages contribute to

passenger demand of air travel services during off peak seasons. Both the consumer

and carrier benefit from such a service as it means consumers can go on holiday at a

cheap price and airlines are likely to be guaranteed a fuller flight. This can be to the

benefit of the consumer as well as the airline; as it means a guaranteed full flight.

6.3 Increasing Demand for Short City Breaks/ Domestic

With the recession effecting employment and personal disposable income of

consumers, the demand for international flights has seen a drop. Domestic holidays

on the other hand have not seen a negative impact as such, infact demand has

increased.

Discounted short domestic breaks helps spread business throughout the year more

evenly (Worthington, 2012). The issue that arises however is that ‘parents with

younger kids are less likely to go on short breaks/ holidays without their children’ thus

attracting these groups offers good long-term possibilities for both short & longer

holidays.

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7.0 Conclusion

The economic downturn has caused a depression on international and domestic

tourism and as a result a downturn on the financial performance of airlines.

However airlines have responded to the situation by cutting capacity, abandoning

unprofitable routes and imposing a pay freeze on employees.

‘Efficiency savings achieved through development in aviation technology are a big

incentive for companies, helping to keep costs under control’ (Worthington, 2012).

However there is great hope for growth within the UK industry as research

undertaken by Keynote (2013) forecasts a healthy year of growth following through to

2015 due to improvements in macroeconomic factors and an increase in terminal

passenger numbers.

Increased industrial production, business confidence, and passenger demand are

indicators an improved global economic forecast for the airline industry in 2013 (Falk,

2013).

8.0 Sustainability for Employment

The airline industry requires candidates who can steer airlines towards a long term

sustainable growth strategy, a skill I acquire as I have carried out strategy modules

throughout my Business Management degree. Due to the constant changes within

the industry, candidates must be able to forecast unforeseen events and create

solution problems to any challenges that the airline(s) may incur. Again this is an

area in which I am qualified for.

Due to the heavy stress and pressure of global competition, candidates should also

be able to perform under pressure and must require a passion for the industry,

otherwise they can break under pressure. The airline industry has always seemed

appealing and I am driven to break into the industry and sustain a career within it.

Enriched experience from previous employment within retail has provided me with

outstanding communication, problem solving, management and team skills. The

possession of these traits will enable me to be successful in my career within the

airline industry.

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9.0 References

Air Transport, 2012. Facts and Figures. [Online] Available at:

http://www.atag.org/facts-and-figures.html [Accessed 7th May 2013].

BATA, 2013. Welcome to the British Air Transport Association. [Online] Available at:

http://www.bata.uk.com/ [Accessed 7th May].

Barnes, W. and Smith, R. 2010. Travel Trends. Office for National Statistics. Crown:

London. [pdf] Available at: <www. ons .gov.uk/ ons /rel/ott/ travel -

trends /2010/ travel - trends ---2010.pdf > [Accessed 7th May 2013]

Berlin, M., 2012.ITB World Travel Trends Report 2013/2013. ITB. Messe Berlin

GmbH: Germany.

Daily Mail, 2010. Misery At The Airports As Heavy Snow Hits The Getaway. [Online]

Available at: < http://www.dailymail.co.uk/news/article-1339632/Misery-airports-

Heathrow-remains-closed-sun-forecast-tomorrow.html> [Accessed on 7th May

2013]

Econmy Watch, 2010. Aviation Industry Information. [Online] Avaliable at:

http://www.economywatch.com/world-industries/airline-industry-aviation-

industry.html [Accessed 7th May 2013].

Falk, T. 2013. Global Airline Industry Expects Rising Profits. Smart Planet. [Online]

Available at: http://www.smartplanet.com/blog/bulletin/global-airline-industry-

expects-rising-profits/15591 [Accessed 7th May 2013]

Gee, S., 2012. Holiday on the Internet: Issues in the Market. [pdf]

Karp, G., 2012. Airlines’ Plans For 2013 Up In The Air. Chicago Tribune: Business.

[Online] Available at: <http://articles.chicagotribune.com/2012-12-30/business/ct-

biz-1230-outlook-airlines-20121230_1_consumer-travel-alliance-airline-fees-rick-

seaney> [Accessed 7th May 2013]

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Keynote, 2011. Airlines Market Report 2011. [Online] Available at:

<http://www.keynote.co.uk/market-intelligence/view/product/10470/airlines-

update?utm_source=kn.reports.browse> [Accessed 1st May 2013]

Keynote, 2013. Airport Market Report 2013. [Online] Available at:

http://www.keynote.co.uk/market-intelligence/view/product/10672/airports?

utm_source=kn.reports.browse [Accessed 7th May 2013]

Kinver, M. 2013. Iceland Volcano Ash Cloud Triggers Planktom Boom. BBC News.

[Online] Avaliable at: http://www.bbc.co.uk/news/science-environment-22045941

[Accessed 7th May 2013]

Range, G. P., and El-Tahch, A. 2011. Aerospace Industry and Overview. Stout Risus

Ross. [Online] Available at: <http://www.srr.com/article/aerospace-industry-

overview-and-update> [Accessed 7th May]

Scovel III, C. L., 2012. Aviation Industry Performance: A Review of the Aviation

Industry, 2009-2011. [Pdf] Available at: <

http://www.oig.dot.gov/sites/dot/files/Aviation%20Industry%20Performance%5E9-

24-12.pdf > [Accessed 7th May 2013]

Worthington, J., 2012. Airlines: Issues in the Market. Mintel. [pdf]

Worthington, J., 2012. Short City Breaks: Issues in the Market. Mintel. [pdf]

10.0 Appendix

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Appendix A, Porters Five Forces

Threat of New Entry - High probability of new entrants if finance is

easily accessible.

- Currently high barriers to entry in the airline

industry as there is a lack of financing (by banks)

due to the recession.

- Brand loyalty by frequent fliers makes it difficult

for new firms to successfully break into the

market.

- Great profits and low barriers to entry attract new

entrants and as a result the industry will become

concentrated; driving prices down as the

competition becomes intense.

- Deregulated/ liberalized environment.

Bargaining Power of Suppliers Fuel suppliers have the power to charge high

prices, as there are very few suppliers to the

industry.

- Supplier concentration.

- Access to capital.

Threat of Substitutes With increasing prices in fuel and the economic

downturn having a knock on effect on airline

expenses; ticket prices rise also detracting

passengers to fly via air travel. Passengers opt in

for cheaper alternatives of travel such as sea or

land.

- Telecommunications.

- Video conferencing.

Bargaining Power of

Consumers

Frequent flyers can benefit from loyalty programs

offered by airlines; this can include discounted

tickets, permitted excess baggage, upgrade on

flight seats (bargaining leverage).

- Substitute products.

- Price sensitivity.

Rivalry Among Existing - Concentrated industries tend to generate little

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Competitors returns (as the prices are dropped) due to heavy

investments in competing with rivals.

- Deregulation of the industry thus increasing

competition in Europe.

- Budget airlines offering ‘no frills’ service reducing

the cost incurred by passengers. The cheap

service triggers price competition between existing

industry airlines.

Appendix B, PEST Analysis

Political/ Legal Recent rise in air passenger tax by the government in November

2010 has led to hike in prices of air travel. This substantial rise in

prices may discourage passengers opting for air travel, directly

affecting the airline industry. ( Fulton.J, 2010)

Some governments provide subsidies that provide an unfair

advantage and prices lower than market conditions which affects

the functioning of airline industries directly and

Global environmental policies regarding emissions and

international route deregulation may affect airline operations in

present as well as in future.( Fulton.J, 2010)

Economic - Lack of funding by banks to existing and new firms, due to the

recession. As a result the industry had become less competitive

as there was less threats of new entrants.

Social - Great number of passengers lost the confidence to fly post

September 11th where the aircrafts were hijacked and flown into

the Twin Towers.

- Increased consumer awareness on the environmental impact of

air travel. Passengers have become more conscious as a result

which in turn affects demand and airline image. As part of their

CSR (corporate social responsibility), airlines take into account

consumer values and invest in R&D to develop more eco-friendly

technology and schemes.

- Short term growth in sales due to the Olympic games in the

summer of 2012

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Technological - Advanced methods of purchasing tickets (via the internet),

electronic tickets that can be accessed through mobile devices,

as well as advanced technological self check in services; all of

which save time and money (on labour).

- High demand resulting in market growth; accessible to greater

economies of scale.

Environmental - Disrupted flights throughout the globes aviation industry due to

the volcanic ash cloud in 2010.

- Further problems arose in late 2010 and early 2011, when a

bout of severe winter weather swept down the country, disabling

airports and aircrafts and costing UK airlines billions in lost

revenue.

Legislation - Tax paid for flights increases as distance increases thus long

flights become more expensive reducing the number of

passengers on those routes.

Appendix C, SWOT Analysis

Strengths

- Parents with young kids most often

travel as a family. Families frequently go

on short city breaks during half term as a

get away for their school children. This

helps spread business more evenly

throughout the year.

- Even though the recession had caused

a decline in international travel, it has not

stopped consumers from going on

domestic holidays.

- Increasing fuel costs discourages road

trips and car travel. The money spend on

petrol can instead be used to purchase a

flight. However, domestic travel via plane

is regarded as ‘environmentally

irresponsible’.

Weaknesses

- Slow economic growth/ Unstable

economy due to the economic

downturn in 2008

- Little consumer disposable income

thus passengers are unable to fly as

frequently.

- Increase in unemployment thus less

consumer demand for air travel

services.

- Little potential for growth in the UK

airline industry as (domestic) airports

approach full capacity. Aviation

companies will invest elsewhere but

the UK where growth is ensured.

- Demand for air travel varies

depending highly on the season.

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- A strong pound against the euro,

despite the economic crisis is

encouraging for consumers to a) go on

holiday as they have ‘purchasing power’

with their currency (sterling) and b) to go

on holiday to Europe.

- Short term growth in sales due to the

Olympics.

- Great demand for cheap for affordable

flights to & from Europe.

- One of the positive outcomes from the

financial crisis is the lack of funding

available to potential new start up firms.

Usually during the summertime and

the New Year, airlines experience

high demand. However throughout the

remainder of the year, airlines

experience a drop in revenue and

demand.

Opportunities

- Economic growth forecasted by 2015,

improving passenger numbers year on

year foreword.

- Group buying services such as

‘Groupon’ provide holiday packages with

cheap flights to consumers. This can be

to the benefit of the consumer as well as

the airline; as it means a guaranteed full

flight.

- Advances in aviation technology allow

airlines within the industry to operate

more efficiently, saving them money.

- Cutting Capacity, abandoning

unprofitable routes and imposing a pay

freeze on employees.

Threats

- Rising fuel costs applying pressure on

ticket prices and eating into profit

margins.

- Unforeseen climates causing

disruptions in air travel services.

- Free luggage transportation makes

trains/ ferry’s increasingly attractive

comparing compared to low cost flying

where baggage costs are perpetually

rising.

- Advanced technology (such as video

conferencing) has reduced the

requirement of business travel.

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