Pest Analysis

The use of PEST analysis can be seen effective for business such as their strategic planning, marketing, and product development. Furthermore, PEST ensures that company`s performance is aligned positively with the powerful forces of change that are affecting business environment (Porter, 1985). PEST have four factors which are Political, Economic, Social, and Technological. However, we use these factors to check how they interplay to the business or the activity of an organization.Using PEST analysis is important when a company decided to enter its business operation into new markets and new countries. In this case, using PEST will help to adapt effectively to the realities of the new environment and to make contingency plans for threats by preparing business and strategic plans (Byars, 1991; Cooper, 2000).

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Therefore, in the short term, if the outlook of the economy stays gloomy, spending may reduce by the customers, and less travel for the purpose of pleasure and tourism. This will put a damp on the demand of air flights at Virgins Atlantic. Moreover, the suffering of the economy, individuals might move towards airline operators that are cheaper. (Tierney et. al., 2008). Also, when there is a time of recession, consumers tend to be very careful with how they spend, whereby Virgins Atlantic will see a drop with the volume of

However, despite the correct decision to privatize, the company continued to have troubles. The financials of the newly privatized airline were unreflective of the successful stock offerings. “Air Canada reported losses of C$74 million in 1990 and C$218 million in 1991, and it reported that it had nearly two million fewer passengers in 1991 than in the previous year.” These failures were blamed on the effects of the economic recession and the decrease in travel due to the war in the Persian Gulf. However, it was clear that competition with international carriers was a major cause. To elaborate, the airline industry is considered to be a cyclical industry, meaning that it is directly affected by the business cycle. As such, during times of

More than 5,000 flights were cancelled as a result of pilots going on strike ( Washington Post, 2000 ). United’s schedule was on standstill for 29 days when their pilots went on strike in 1985 resulting in severe losses and a downward plunge in customer confidence ( www.alpa.org, 1985

The terrorist attacks of September 11th caused many changes in our country. Although there were many after effects of the September 11th attacks, the airline industry was most impaired. This paper will explain two factors related to the airline industry that were most affected, the American people and the economy.

The economic factors like slow economic growth, low disposable income, and fluctuation in the price of oil have been responsible for weak performance of Southwest Airlines. There are no adverse political effects. Southwest Airlines has been positively affected by the increase in consumer interest in leisure travel. The leisure segment is an important segment for low cost airlines. The net income has declined from $459 million in 2010 to $178 million in 2011.

The situation of the U.S airlines has been affected by a number of factors through time and is not a secret that has been passed by moments difficult, especially in the economic part. One of these factors were the terrorist’s attacks of 911. No other event in history has changed the way of doing business that the fateful events of September 11, 2001. Apart from the significant human loss, the millionaire impact to the economy of New York and in the United States and multi-million dollar expenditure associated with the global war against terrorism, attacks on the World Trade Center (World Trade Center or WTC) in New York and the Pentagon trembled the authority of the United States, at a time when it was going through a recession. All this made

Prior to those events, the industry was already facing challenges due to a weak economy. Fuel cost had risen sharply, and had therefore increased the operational cost of Delta and the airline industry on a whole. Consequently, long distance travel has significantly decreased since September, 11th. Companies started changing the way they do business. Instead of face to face meeting, companies either chose to conduct their business through video conferencing and/or teleconferencing. Another reason why business travel experienced a reduction was because of lower travel budgets of companies. In fact, with the lower travel budgets, companies had to find cheaper means of flying. Companies that chose to fly to transact their business were more often choosing discounted airfares and use of the internet to find low cost flights. Thus, as travelers chose discounted airlines for business travel, smaller carriers such as Jet Blue, Southwest, and Air Tran were all striving at the expense of Delta and the other major airline companies. The September 11th, 2001, terrorist attacks and threat of further terrorist attacks caused a decline in vacation travel. In the years after September 11th, the Iraq war and health concerns such as SARS and the avian flu, were additional reasons for the decline in vacation travel. This accumulated drop in demand for travel, both business and personal, pushed some airlines closer to chapter 11 bankruptcies.

Airlines must operate within a low-margin, high-fixed-cost environment, making profitability particularly sensitive to decreases in volume, either from environmental factors (e.g., the September 11,2001 attacks) or from competition. Moreover, the airline business is labor-intensive. Labor costs as a percentage of revenues ranges from a low of about 25 percent for the low-fare airlines to almost 50

Since the airline industry is a direct product of market conditions, it is greatly affected by all externalities. Many people noticed a decline in travel after the September 11th tragedy occurred due to safety concerns. When there is a huge increase in fares that definitely interferes with the demand for travel; it causes the price of tickets to continue to rise since a clear correlation between supply and demand exists. When the economy is doing well in terms of the employment rate, and when the dollar is strong people have the tendency to travel more (Jerram,1998).

Economy airlines suffer during down economies and reduce their orders, and the industry has become dependent on the Middle East and Asia in recent years to offset this (Crooks & Weitzman, 2010).

3. The economic downturn in the late 1990s had severe consequences on the airline industry that the demand for air travel dropped leading decrease in flights and revenues; increase liquidity concerns.

On the other hand governments support aviation industry by building airports, roads and hotels near airports, because they recognize this industry as an important ingredient for economic well-being. In addition governments arrange security at the airports to ensure safe journey. The terrorist attacks of September 11, 2001 have had negative implications for the industry. Over the years, all the airlines have changed their routes, marketing tactics and prices; they are also making an effort to reduce the fear and negative image associated with air-planes. Governments have imposed strict security checks on air travel passengers in order to avoid any unforeseen terrorist activity.

Thinking about airlines, the first thought which probably comes to mind would be luxury and comfort. However, there is much more to the airline industry than just that. Yes, most of the airlines worldwide are facing a cycle of rising operating costs and declining profits and margins. Now, passengers may not be able to observe these characteristics, but after extensive research it is quite apparent the global airline industry is in disarray.