Trends and developments in the airline industry

10283 Words Apr 9th, 2014 42 Pages
Table of Content

1

Introduction ............................................................................................... 1

2

What are the characteristics of the airline industry? ................................. 2

3

Which were the most important trends and developments in the airline industries’ past shaping the current future? .............................................. 4

4

Which trends and developments can be identified in the current airline industry that will shape its future? ........................................................... 10

5

Conclusion .............................................................................................. 19

REFERENCES
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Closely linked to economy - The airline industry can be described as highly cyclical since it has a high sensitivity to the economic cycle (Doganis, 2006). The profit margins of the airline industry are rising and falling in accordance with the World’s economic growth which again is impacted by unforeseen factors like a crisis (see appendix I). So demand for air traffic decreases during times of economic distress or simply when the growth slows down. This causes overcapacity and therefore lower fares and yields. The effects of the change in the industry, however, might show lagged in time. Also the factor causing the industry’s downturn can intensify or lengthen it (Doganis, 2006).
High fixed costs and marginal profitability - Also characterizing features of the airline industry are the generally low profit margins and high fixed costs. The fixed costs manly results from personnel and fuel. The low profit margins arise from the circumstance that there is no significant variation between the expenses of an aircraft flight and the number of carried passengers.
Therefore already a small change in passenger numbers can negatively impact the financial result (Doganis, 2006).
Dependence on oil prices - As already mentioned the fuel prices are one of the two greatest fixed costs in the airline industry. As the aviation fuel price is closely linked to the oil price, the
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