Airline Industry Is Poor At Earning Its Cost Of Capital

The Airline industry is a large and constantly growing industry. It facilitates economic growth, international investment and world trade and is therefore central to other industries as well for globalisation. There are various forces which lead to globalisation in airline industry. Key drivers of change are forces likely to affect the structure of an industry; sector or market. (1).

This is an analysis of the Airline Industry in Europe. The paper will cover the current market situation, including financials and market volume. Following this will be a Five Forces analysis on the factors that affect industry competition. The paper will conclude with key insights into the profitability of the industry and a SWOT analysis of one of the industry’s best performers and what rivals and possible future entrants can learn from their success.

In today’s business industry, the globalization process has become an important aspect and fundamental force. The elements that contribute to globalization is the environment, culture, regulation and technology and production. While the advancements globalization has increased greatly, so has the advancements in airline industry with their aircraft (Shevell, 1999). Globalization also provides a great amount of potential profits to nations and their corporations (Button, 2008). Air transportation has evolved into a major industry (Kroo, 1999). The airline industry’s continuously grows and is facilitated through its international investment, tourism, world trade and economic growth (Kroo, 1999).

The risk of entry into the airline industry by potential competitors is low due to the “liberalization of market access, a result of globalization. According to the IATA (International Air Transport Association), about 1,300 new airlines were established in the last 40 years,” (Cederholm, 2016). The cost structure of businesses in an industry is a determinant of rivalry. In the Airlines Industry, fixed costs are high, because before the organization can make any sales, they must invest in air crafts, fuel and service employees. These items come attached with hefty price tags. Industries that require such enormous amounts of start-up capital as predicted by many analysts

American airline industry is steadily growing at an extremely strong rate. This growth comes with a number economic and social advantage. This contributes a great deal to the international inventory. The US airline industry is a major economic aspect in both the outcome on other related industries like tourism and manufacturing of aircraft and its own terms of operation. The airline industry is receiving massive media attention unlike other industries through participating and making of government policies. As Hoffman and Bateson (2011) show the major competitors include Southwest Airlines, Delta Airline, and United Airline.

The aviation industry of any nation acts as a contributor to its economic growth, helps in globalisation and creating an international image. It is the best in terms of the fastest, safest and convenient mode of travel. Even though it is an expensive one, it is expanding its markets across the middle-class who are ready to spent money on leisure trips. Thus it is truly stated that aviation forms a vital core infrastructure area without which a country economy is handicapped.

The other factor that leads to the success of the airline had adequate capital to start the

Discuss how the jet engine revolutionised the world of commercial aviation and how future innovations will continue to shape the industry.

Airlines Industry is large and growing, it is also the most fiercely competitive sector. It facilitates international trade, world economy growth, tourism and international investment. The airline industry has over time with the use of modern technology been able to take advantage of the short haul, high frequency and gained a competitive advantage over other forms of travel, such as buses and railroad travel. Additionally, the airline industry still holds the market for global travel at a low cost and convenient way to travel. The aviation industry gives a good contribution to the GDP which includes the following: airline services, general aviation, civil airport operations, aircraft manufacturing, and

Airlines use a formula of combining their yield and inventory costs to determine ticket prices. While it is imperative to focus on the idea of being profitable, the focus is to maximize the cost of the flight revenue. One huge factor that encourages an increase in the cost of tickets relates to a customer ordering a ticket close to the departing date, define this as a risk factor because they need to make up for all unsold seats. A high percentage of the revenue is dedicated to overhead costs such as fuel and labor. When a ticket price is higher with one airline than the other, the customer interprets this as being an excessive cost. The demand is greatly affected by the external market

This paper discusses the external economic factors affecting the strategic decision of airline industry and how this decision in turn, affect the market forecast of the aircraft manufacturing industry. Various business issues affect airlines operation either directly and indirectly, and

The growth of airline industry in any country is directly proportional to its GDP growth; the greater the business activity, the more air travel and the higher the GDP of the country. The demand

Airline industry is a growing and a challenging industry across the globe and it is becoming more competitive on quality, pricing and most prominently safety in the contemporary world.

The September 11 attacks left a major impact that the airline industry is yet to recover from. Extended recession and increasing oil prices are the other major factors affecting the growth of the airline industry. At this scenario, the airlines operating with unoccupied seats make huge losses and sometimes the airliner even goes bankrupt; for instance, the kingfisher airlines in India has gone bankrupt due to failure in managing the unoccupied seats and inefficient management in their ticket pricing strategies. Even the recent disappearances of aircrafts from Malaysian airlines have unfavorably affected the global airline industry leaving airlines operating with vacant seats.

The commercial passenger aviation industry currently supports over $2.4 trillion economic activity. Growth of aviation industry is highly correlated with GDP of the countries. Increase in GDP leads to the rise in disposable income levels and hence increasing the propensity to fly. With IHS predicting a 6.5 percent GDP CAGR till 2030, Indian aviation is one of the fastest growing industries in the world. (Exhibit1).