Airline Industry AnalysisCase Analysis: Airline IndustryCase IntroductionThe history of the Airline Industry has been up and down through the years. In the 1930s passengers were the industrys biggest customer and the rise of demand ensured the industry for rapid growth. Because of this increased demand Congress was led to establish CAB (Civil Aeronautics Board) a way for the government to regulate the industry and their competition. The CAB regulated the airlines by awarding routes, setting fares, and deciding on new entry and mergers. The governments aim by creating CAB was to develop the airline industry but what happened over time was creating an inefficient system. Airlines basically became monopolies. In 1978 the Airline Deregulation Act was passed which abolished CAB and all of its restrictions. An era of free market competition for the airline industry had begun.
PESTEL AnalysisPESTEL analysis is popular for examining the general environment and understanding key factors and trends and how they influence the industry. Below is described the six dimensions of PESTEL.
Political FactorsThe government first began to regulate everything the airlines industry was doing. Congress created CAB to regulate and limit competition for the industry. Fares were set for the concern of the publics affordability and the airlines profitability. Soon the government realized the industry became a monopoly and public dissatisfaction was at an all-time high. The barrier to new entry kept the industry from getting healthy competition that could have benefited them in the long run. Not much longer did the public call for a reform of the airline industry and political trends favored less government oversight and more reliance on market forces. The Airline Deregulation Act abolished CAB and its restrictions over routes, fares and new entry but not safety and operating standards.
Economic FactorsThe growth of the U.S population was a major factor in the high demand and passenger traffic for the airline industry. Two other factors the also contributed to the increase are deregulation and the economy. Deregulation made air travel available to many more customers with price-based competition and low fares. The economy made the demand rise all on its on as well. The U.S. GDP rose from $500 billion in 1950 to $14.7 trillion in 2010. The absence of an inflation resulted in a disposable income increased the market and demand for air travel. These numbers are still significantly lower than the all-time high in 2007. As of 2009 the industry had taken a loss of nearly $60 billion. The 2007-2009 recession had taken a heavy toll on the airline industry. In the turnaround years after the recession the U.S. Federal Aviation Administration predicted
a $50 billion increase in revenues in the United States. Since most of the recovery went to airlines, airline profits increased from their 2011 record loss, to $20 billion. This money was later combined with the U.S. Federal Government’s Federal Aviation Administration’s own “Hazard Reduction Fund” which was set up to help reduce emissions. The program has been widely criticized for taking in too much revenue and doing too little. It also has led to high pay for pilots that often are poorly qualified. The report states that the decline in the economy caused by deregulation led to greater cost sharing for airlines to be used to meet these costs and thus provide for higher passenger numbers for long periods. This helped create more demand for cheap airline labor, which then was exported to other countries as a means to bring the higher cost passengers to America. But the increase of higher costs has resulted in a rise in low cost airlines.
The report also notes that airlines’ profits from domestic passenger service have climbed rapidly, so that the economy still has some margin to play. However, this has actually caused growth in the cost of airline fuel, especially gasoline. The report is largely concerned with the effect of airline fuel prices on airline operating expenses, not the economy.[36] Because of this the report concludes that there will be increased pressure on the national economy in the wake of a potential recession in the U.S. economy.
The report also mentions concerns about the impact airlines will have on the U.S. economy. [37] For example, the report notes that, according to the Treasury Department, on average, the number of American passengers per capita has declined since 1973. The report notes that there is also growing competition for U.S. transport and airline customers. [38] In the past a number of airline companies had developed ways of managing their customers in a manner that included “discretionary” and “unnecessary” management. In such a scenario, it seems that the “discretionary management” role will be transferred to the airline business. There is great uncertainty as to whether either airline will succeed.[39]
The report notes that the U.S. economy is in a recession.
In a speech to the American Council on Economic and Social Research on March 23, 2011, General Electric CEO Frank R. Welch said: The industry “has been on an upturn in the global economic environment since 1970.”
“One reason that the overall situation is becoming more challenging in recent times is that the transportation industry is increasingly being transformed by new technological, political and political pressures, driven by the technological changes coming from new markets and new markets emerging from the global competition of the 21st century.” — The American Council [40]
The recent change brought about by deregulation has led to a significant increase in the percentage of the American population who lives within an airline’s borders. Even more shocking is the increasing number of Americans who have never previously used a U.S. airline service or who now fly on the U.S.-owned airline route or on a U.S.-based passenger airline itinerary.
As of 2013, the U.S. air force has 10 flights. Of these 2, 8 are in the United States. One aircraft was cancelled for a passenger service from New Hampshire to Hawaii. Three of the