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Business Environment Airlines Industry - Essay Example

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Business Environment Airlines Industry

some of the recurring costs that an airlines industry requires to survive. The airlines industry is a complex one. It is a high risk industry as is known after the incidents of 9/11, yet it is a highly lucrative industry with potential of high profits. Huge investments, high risks, squeezing profit margins, growing competition are some of the major barriers to entry in this industry. The global economic downturn has also severely affected the expansion of the airlines industry worldwide. As a result of decreasing profit margins and to consolidate their position, a major trend within the global airlines industry has been for companies to seek strategic alliances with other airlines and benefit from synergies in operations. The success of low cost airlines and the increasing airline alliances has in general resulted in contributing towards improvement in the airline industry (Datamonitor, 2005). With the opening of economies and market driven forces taking over the business prospects, the customer has become the real king in the airline industry. Now companies do everything possible to invite the customer towards them by offering them good bargains, club memberships, loyalty programmes, sumptuous meal and goodies on board. The customer relationship management (CRM) has to play a key role in managing and retaining the customer as the customer has become very demanding, and resorts to bargain prices before purchasing the ticket. The top 10 leading names which have successfully made use of this trend are shown in the table below;
Table: Top 10 group operating margins - 2005
Rank
Airline Group
Operating margin 2005
Operating margin 2004
1
FL Group
43.1%
10.1%
2
GoI Transportes Aereos
23.3%
29.4%
3
Jet Airways
22.3%
29.3%
4
Ryanair
21.8%
24.9%
5
Republic Airways Hldgs
17.5%
14.1%
6
Middle East Airlines
15.9%
16.3%
7
Kenya Airways
15.0%
14.0%
8
ASTAR Air Cargo
12.5%
14.2%
9
Evergreen Int'l Airlines
12.1%
0.0%
10
Emirate
11.5%
14.6%
Source: In brief, Airline Business, 02687615, Sep2006, Vol. 22, Issue 9


With more low cost airlines dotting the airspace, the industry is further reaching towards saturation. Brand name and frequent flier point programmes also play a role in the Airline industry1. An airline with a strong brand name and incentives can usually be enough to lure a customer (even if their prices are higher). The figure below lists some of main customer satisfaction determinants (Ipsos MORI, 2007).


Owing to innovative marketing techniques and strategic tie-ups the airlines industry in the last five years have been able to tackle the unprecedented deceleration experienced after the events of 9/11. The associated economic slowdown had a profound effect on the global airlines industry, which experienced slow rates of growth. Nonetheless it is worthwhile here to mention that after 9/11 in 2001, almost all airlines were in the red, reporting huge losses, but credit must go the agility of the airlines industry it has come out of this gloomy scenario, thanks to combined efforts of governments, business & tourism industry with airlines industry. In terms of market value the global airlines industry grew by 5.7% in 2004 to reach a value of $293.2 billion and market value forecast for 2009 says that the global airlines industry is to have a value of $368.2 billion, i.e. an increase of 25.6% since 2004. US, worst hit by the 9/11 terrorist attack has been able to maintain the ...Show more

Summary

Airlines industry is the kind of industry which requires huge investments yet the level of competition is such that airlines often keep investing for years together and keep waiting for break even. The industry is investment intensive from the beginning, and requires continuous replenishment throughout the operational activities as well…
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