Airline Industry
Essay Preview: Airline Industry
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On September 11th 2001 tragedy struck the world and in particular the United States of America when commercial airliners where hijacked by terriosts who proceeded to crash the fully loaded passenger planes into the world trade centre and the pentagon. This tragedy had a huge impact on everybody including people and businesses. Although the tragedy of 9/11 has a lot to do with the fall of the airline industry it is not totally to blame according to (Wolf 1995) by the beginning of 2001, the airline industry was already feeling the effects of one of its historical enemies, economic recession. Economic recession exposes overcapacity in the market leading to declines in prices as carriers scramble to fill seats and retain market share. Financially weak (or bankrupt) carriers create further downward price pressure in their attempts to generate revenue.
In this essay I will be discussing arguments for and against the attractiveness of the airline industry pre and post the tragic events of 9/11 followed by discussion on the strategic implications for both low cost airliners and full service carriers in the future. To help me assess the attractiveness of the industry I will be using various models such as Porters 5 forces framework and Swot analysis.
One of the most basic techniques for analysing firm and industry conditions is SWOT analysis. SWOT stands for: strengths, weaknesses opportunity and threats. Swot analysis provides a framework for analysing these four elements of a companys internal and external environment. The strengths and weaknesses portion of SWOT refers to the internal conditions of a firm and opportunities and threats are environmental conditions external to the firm (Dess, Lumpkin, Taylor 2006)
I will start by discussing the opportunities for airlines which were very good in 2001 for many reasons. The most significant opportunity for airlines pre 9/11 was Deregulation which occurred in 1978 which allowed US airlines to choose their routes and set their fares. Prior to this they were told where to fly and when they could fly. This event was one of the turning points in airline history as it led to massive consolidation and the fall of some popular carriers who couldnt cope with new legislation. (Abrams 2004). Another opportunity for the airline industry was that the market for business and leisure travel was on the up with the number of passengers increasing from 450 million to 700 million between 1990 and 2000 (Chaos in the skies; 2005). The other great opportunity for airline industries was the improvement in technologies such as the internet. The internet has allowed airline industries to team up with other travel industries such as hotels and rental cars. Opportunities Post 9/11 for airlines in terms of technology is getting better all the time. Airlines can now allow customers with no baggage to check in, choose their seat and print their boarding ticket out online.
Threats to the airline industry pre and post 9/11 are the emergence of more airlines especially low cost airlines such as Easy jet and Ryanair. The Low cost model has proved successful for some airlines and not so successful for others. It consists of low fares, high frequency flights, no free meals on board and no seat assignment. Other threats more so after 9/11 are the substitutes of similar methods of travel such as train or using their car. According to (Abrams 2004) short haul flights have been greatly affected with passengers now choosing to travel by car for distances less than 500 miles as it now takes a typical 1 hour flight as much as 4 hours with the increased security and waiting times. Another threat to the airline industry is with the growing number of passengers will lead to more congestion and therefore more delays in airports. Airline passengers demand service quality. There are several ways to track and/or measure airline quality. The first method is through surveys conducted by such organisations as Frequent Flyer or Conte Nast who typically question a cross-section of airline frequent flyers to rank airlines on key issues of customer satisfaction. These surveys report that overall airline satisfaction is driven by ten factors: on-time performance, airport check-in, schedule/flight accommodations, seating comfort, gate location, aircraft interior, flight attendants, post-flight services, food service, and frequent flyer programs (Glab, 1998). If you take into consideration all these factors more congestion could lead to a downturn in the amount of passengers passing through the airports.
Strengths for airline industry pre 9/11 were the healthy financial position as most of the carriers were making record profits and many carriers placing orders for new planes. The industry was perceived as they way to travel. In the years following 9/11 a strength to any company is a the company brand. Rhodes and Waguespack Jr suggest that effective branding might mean that some airlines can charge more but still retain their client base.
A weakness for the airline industry before 9/11 was security. It was the lack of surveillance and lazy attitudes of employees that in a way caused the events to happen in the first place. A major weakness after 9/11 for airline industries was the damaged reputation. Passengers perceived the air travel as unsafe and feared repeats.
In order to fully justify the attractiveness of the airline industry pre and post 9/11 you have to take a look at all the stakeholders involved. (Palmer and Hartley 2004) describe a stakeholder as those organisations and individuals who may or may not necessarily have any direct dealings with a company, but who are nevertheless affected by its actions. Stakeholders include suppliers, customers, staff, shareholders and government to name a few. All these stakeholders have been affected in different ways both before and after 9/11.
Shareholders who would have been reasonably happy with share prices pre 9/11 as the airline industry was very profitable and was becoming the only way to travel for most people. They will have been greatly affected by 9/11 as share prices went down dramatically after 9/11 for example Continental Airlines share price dropped 49% (Chaos in the skies; 2005)
Customers of the airline industry will were very much enjoying air travel pre 9/11 as every airline was competing on price in order to fill seats on their planes. Post 9/11 is very different for airline passengers. The September 11 events changed air travel forever and greatly increased security fees. Airlines are the targets of terrorism and are therefore under pressure to improve security
In the airports and on the planes. Some of these expenses are borne by the government but are then passed on to the airlines and passengers