North American and European Airline Industry

North American and European Airline Industry

INTRODUCTION

The Airline industry is one of the world’s largest industries

generating over $300 billion in revenues in 2001 alone and

additionally has the second highest industrial growth rate, after the

computer industry, with typical growth rates of 3-5% per annum over

the last 20 years (Humphreys, 2003; BA Fact book, 2002).

For the purpose of this assignment, freight/cargo airline activities

will not be considered as freight travel consists of only 2 % of total

airline activity (see figure 3.1 and appendix 1) (BA Fact book, 2002,

ICAO, 2003). Furthermore, due to the nature of the airline industry

and the Asian market being a lot smaller and internally focused, we

will concentrate on the North American and European markets which

between them, account for 65% of the market (see figure 3.1 and

appendix 1) (ICAO, 2003).

Section 1:The main forces shaping the airline sector’s global business

environment.

The past two years has seen an unprecedented number of airlines,

worldwide, filing for bankruptcy and many more would have followed

suit had it not been for government intervention (Economist, 2002a).

The main factors leading to their demise and to the problems currently

faced by the airline industry in general, have their roots in the

existing economic and political climate, which according to IATA (2002)

continue to remain challenging.

1.1 Economic Forces facing the airline industry

Since the performance/profitability of the airline industry is closely

connected to the economic cycle (BA Fact Book, 2002), the importance

of the global economic environment and the impact that it has on the

industry cannot be underestimated (see figure 1.1).

This is evident from the performance of the industry during the late

1990’s as profitability soared on the back of a buoyant world economy

(characterised by the hype generated by the technological revolution;

record levels of corporate activity etc) which fuelled demand for air

travel. It is not surprising that the subsequent slump in air travel

which began in the USA towards the end of 2000 and slowly spread to

other parts of the world (Economist, 2001), corresponded to a change

in the economic forces as the knock on effects of the US economic

slowdown infiltrated the global economy.

One of the main consequences of the g...

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... flights and the

introduction of ‘World Traveller Plus’ – a new business and economy

product. These two markets of business and economy are perceived to be

the most demanding and profitable in the future and therefore BA have

additionally positioned itself well to take advantage of these

developments (Economist, 2002b; BA Fact book, 2002).

Therefore, the penetration and consolidation of markets, cost

management and refocusing of culture and infrastructure assisted by

the collaboration available within its OneWorld Alliance are placing

BA in a healthier position to survive the turbulence that lies ahead.

FINAL THOUGHTS

The future of BA and that of many other airlines is going to depend on

the highly volatile political and economic situation facing the world

as seen in section 1. War in Iraq is creating an increased sense of

panic in the world’s industries and therefore, an accurate forecast as

to the airline industry development is somewhat convoluted and complex

due to the overwhelming sense of uncertainty that prevails. Therefore,

BA’s future positioning and its subsequent success within this sector

is going to be decidedly susceptible to the worlds events.