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Environmental Analysis of the Airline Industry

Essay by   •  April 11, 2017  •  Research Paper  •  2,395 Words (10 Pages)  •  714 Views

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Introduction

        The airline industry has impacted travel as we know it today because it allows people and goods to be transported quickly over great distances and all over the world. Airlines can create comfort and convenience to consumers but what makes the airline industry appealing to all demographic groups. To analyze this complex industry I used reliable resources to get an in-depth understanding of what drives it. To understand the broad environment, I began my analysis by utilizing the PESTEL framework but I only hit on the PEST aspect of it. Then I looked at Porter's five-forces to get an understanding of the competition within the industry and whether it would be profitable. After my analysis, I was able to conclude whether it was an attractive market or not and why.

PESTEL

One of the most relevant political factors affecting the airline industry today is President Donald Trump’s travel ban. He created complete chaos for the entire airline industry and has disrupted the lives of thousands of people, both in and out of the country. Trump’s immigration ban is directly affecting international travel. This may lead to a decline in enrollment of American universities. America is a dreamland for some other countries. Foreign students may be discouraged to enroll in American universities due amid the uncertainty. Several colleges are advising foreign students and scholars who might be impacted by the ban to avoid traveling outside of the U.S. until there is more clarity about the policy, according to ABC News. Our education systems generate a lot of revenue as well as provide education for the future leaders of America. This ban not only affects American institutions that recruit internationally for foreign talent but also restricts and decreases international travel. This has long-term consequences on America’s visitation numbers and tourism as well. Foreigners may feel unwelcomed and fear the uncertainty. This fear of uncertainty is creating chaos at various airports due to large crowds of protesters, which in turn increases threat for airport security. This is exactly why the government puts such strict regulations over the airline industry, to ensure protection of passengers and safety of the airline operations too. This leads back to the whole point of deregulation. The government exercised too much power in the past so the act of deregulation was point into action. Now Trump turns deregulation back into regulation with this ban.

Rising fuel costs are one of the biggest if not the most important economic cost drivers in this industry. Increases in fuel prices affect the airlines in two ways; the cost of fuel has a direct impact on the cost of operation, and fuel cost increases result in a decline in demand for air travel. My analysis has lead me to believe that an increase in the price of fuel will cause an increase in the overall costs of the airline industry. Fluctuating oil prices not only affect the economy but almost every industry there is. As oil prices rise so do food prices, gas prices, and airfares which directly affects the consumers and airlines. Airlines try to insure themselves by adding fuel surcharges to the airfare so they don't bare the high fuel costs alone. When fuel prices decrease, airlines are able to eliminate this fuel surcharge but airlines would rather reap this benefit than pass it along to customers. High-ticket prices hurt consumer demand, so it is key for airlines to have competitive yet friendly pricing strategies.  Following the oil price fluctuations, Asia Pacific is taking a lead, with the Civil Aviation Department (CAD) in Hong Kong announcing that, as of 1 February 2016, the fuel levy for outbound travel will be abolished (Euromonitor International, 2016). By doing this, it is expected to drive more demand for travel, increase price wars, and further boost competition in the market that potentially benefits the passenger. As the economy continues to grow, there has to be room to adjust for inflation. Inflation also has major implications to the way the airline industry does business. It increases the price of goods and services while it decreases the purchasing power of customers. Therefore, it will cause an increase in the cost of fuel which we already know results in higher ticket prices and even cancellation of routes in the airline industry.

Social factors have a profound impact on businesses. As society changes, so must the business if it wants to survive. Demand for air travel has increased significantly over the last few years, which suggests changing travel preferences in the latest generation. Although the millennial generation isn’t the core customer group of airline companies yet, it will be in the next five to ten years. Because of this I believe that the demographics of this group shapes the future of how people will buy travel. The Internet, technology and social media have completely turned this generation upside down. They no longer plan far ahead for travel. With less discretionary income to spend, millennial passengers are going for airlines that provide more services for less money. They are spontaneous and make last minute decisions and are more about the experience rather than material things. This means some millennials won’t book their hotel until they arrive at their destination, find better deals elsewhere, or use some third party travel websites such an Airbnb. Millennials generally no longer go to the airline or hotel website to book it, but use something like TripAdvisor instead because of how important reviews are to this generation. This will shape the future for the travel industry and how it will capture the attention of future travelers.

Technology is another one of the biggest drivers of change in this industry and our world. Airlines today have had to embrace several technological changes in their services to survive the already tough environment. My analysis suggests that most passengers now prefer to access ticketing and check in services via mobile devices. It is all about convenience and time. Airlines now have to carry out advertising campaigns over social media in order to attract more consumers due to the digital evolution. Failure to be technologically savvy can cost an airline their business. Let’s not talk about the Kodak fiasco and their failure to stay innovative. Some consumers are willing to pay more for amenities such as Wi-Fi on-board so they can continue their business while on flight or even keep children entertained for the next few hours. Not only is technological advancement important to the consumer but also to the airlines. Emerging technologies in aircraft cannot only lower fuel consumption but as well as the cost of airline operations and improve efficiency.

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