StudentShare
Contact Us
Sign In / Sign Up for FREE
Search
Go to advanced search...
Free

The Airline Industry - Case Study Example

Cite this document
Summary
This paper "The Airline Industry" discusses analyzes trends and issues that have impacted airlines from October 2006 to November 2008. This paper also evaluates how the airlines should respond to exploit any potential opportunities and reduce any potential threats/risks…
Download full paper File format: .doc, available for editing
GRAB THE BEST PAPER98.1% of users find it useful
The Airline Industry
Read Text Preview

Extract of sample "The Airline Industry"

November 29, 2009 Situation The airline industry is the backbone of the tourism industry. Airlines transported about 2.3 million passengers and 41 billion tons of cargo in 2007, according to the International Air Transport Association (IATA). (http://www.iata.org/pressroom/speeches/2008-06-02-01, Nov. 27, 2008). The industry’s multiplier impact supported economic activities worth $3.5 trillion and employed 32 million workers worldwide. Air travel has become an important part of business and personal lives as fares became more affordable. Trends and issues, however, threaten the financial sustainability of airlines. IATA, which has 230 member-airlines, estimated that net losses of airlines would amount to $5.2 billion this year and $4.1 billion in 2009. This essay seeks to identify and analyze these trends and issues that have impacted on airlines from October 2006 to November 2008. Further, this essay seeks to critically evaluate how the airlines have responded to date and suggest how they should they respond over (a) the next 12 months and (b) next 2 years to exploit any potential opportunities and reduce any potential threats/risks. Government Intervention Government intervention is a long-term influence that affects the well-being of the industry. Many countries protect their carriers through bilateral agreements that allow access and frequency only to country-partners. IATA’s director-general, Giovanni Bisignani, said 3,500 bilateral agreements are a serious problem. http://www.iata.org/pressroom/speeches/2008-06-02-01, Nov. 28, 2008) “We cannot fly to new markets without an international agreement,” Bisignani said. “We cannot look beyond national borders to try new ideas, grow our business, access global capital, or merge and consolidate.” Restrictions on foreign ownership also limited the ability of airlines to raise raising equity from international capital markets. (2) There has been slow progress in liberalisation, nonetheless. In the European Union, Lufthansa of Germany recently moved to take over bmi, a British carrier (The Economist, Freedoms call, Oct 30, 2008, http://www.economist.com/business/displaystory.cfm?story_id=12516973, Nov. 28, 2008) ). IATA cited consolidation success stories. Other examples were LH/Swissair. AF/KLM. JAL with JAS, Air India and Indian Airlines, Air France-KLM or Lufthansa/SWISS, BA’s franchise in South Africa, LAN across Latin America, or the many Virgins: Atlantic, Nigeria, Blue and America. Also examples of success stories are Ryanair and Easyjet in Europe or Tiger and Jetstar in Asia. (http://www.iata.org/pressroom/speeches/2008-06-02-01 Loizos Heracleous, et al (Flying High in a Competitive Industry, p. 10, 11) noted that by the end of 2000, restrictions on foreign ownership were lifted in only 62 carriers although 190 countries had committed themselves to privatization a decade earlier. . Malaysia and New Zealand even bought back their national airlines. To try to liberalize state rules that would allow airlines to operate like any other business, IATA invited 14 pro-liberalisation governments plus the European Commission to an Agenda for Freedom Summit in Istanbul in October 2008. (Note 2, economist). The 15 participants asked IATA to draw up a “multilateral statement of policy” expressing their common thinking and approach to liberalisation and to present it at a second summit early in 2009. IATA could include an avowal by governments that the eventual country-signatories would be indifferent to the “citizenship” of airlines when granting rights to fly to their countries. The waiver could be reinstated after a reasonable period of notice if hoped-for benefits are not achieved. Airports are a problem, too, because government regulations are lax. As monopolies, airports could raise fees like those for landing and parking. Yet these airports are short in cost efficiencies and service quality. Airlines paid the equivalent of 11 per cent of revenues or US$43.5 billion to airports and airport navigation service providers in 2007. It cited the EBITs of key monopolies: Auckland (69%_, Atlanta (63%), Beijing (51.4%), Johannesburg (49.5%), BAA Group (45.2%). “Airlines,” said IATA, “do not make those kinds of margins.” IATA appealed to governments to better regulate airports. In particular, IATA sought negotiations with government over loose or lack of government regulations and delivery of cost reductions in 133 airports, 66 air navigation service providers (ANSPs) and 106 Director General of Civil Aviations (DGCAs). An example is the Heathrow service levels. IATA described Heathrow as a “national embarrassment”. The UK Civil Aviation Authority let Heathrow increase charges by 50% over the last five years, 86% for the next five. The European Commission itself estimated that the airline industry would save at least EUR 5 billion in 2007 annually, the equivalent of 16 million tonnes of CO2, with the operation of Sesar. The project idea has been around since the 1960s. Bisignani stated that “The failure to implement a Single European Sky (SESAR project) is a costly environmental embarrassment that undermines the credibility of Europe’s environmental efforts.” In 2007, airlines incurred 21 million minutes of delays, 468 million kilometres of unnecessary flights and 16 million tonnes of wasted CO2, according to IATA. (http://www.iata.org/pressroom/speeches/2008-11-18-01, Nov. 28, 2008) The European Organisation for the Safety of Air Navigation (Eurocontrol), the civil and military intergovernmental organisation with 38 Member States from across Europe and based in Belgium, estimated that air traffic has grown over the last decade by more than 50%. (The Single European Sky, http://www.eurocontrol.int/ses/public/standard_page/sk_ses.html, November 28, 2008). In Europe, there are now close to 8.5 million flights per year and up to 28,000 flights on busiest days. Even so, airspace capacity has been increased by 80% since 1990.  “Today’s traffic will have doubled by 2020,” said Eurocontrol. Current systems could only handle this increased load until the middle of the next decade. Against the US air traffic system, Europe is noncompetitive. (The Single European Sky, http://www.eurocontrol.int/ses/public/standard_page/sk_ses.html, Nov. 28, 2008), The US controls 13.8 million square kilometres of airspace with one ANSP and 21 en route centres. Europe controls 10.8 million square kilometres of airspace with 36 ANSPs, 47 military airports, and 58 en route centres. The average ATM cost for a European flight is EUR 771, according to IATA. That’s 75% more expensive than the EUR 440 cost in the US. IATA is appealing to President Sarkozy, who heads the European Union now, to push the Single European Sky vision through the political process by the end of the year and align national governments with a target date of 2012. The NexGen has also been long overdue. The goals for NextGen focus on significantly increasing the safety, security, and capacity of air transportation operations and their contribution to economic well-being, according to the Joint Planning and Development Office for NexGen. (Joint Planning and Development Office, Concept of Operations for the Next Generation Air Transport System, NextGen_v2.0.pdf, http://www.jpdo.gov, Nov. 27, 2008) These benefits would be achieved through a combination of new procedures and advances in the technology deployed to manage passenger, air cargo, general aviation (GA), and air traffic operations. The outdated and under-invested system caused the flight delays seen in New York last summer. IATA will be working with the European Union and the United States for decisions to harmonize standards for security, safety and environmental performance under the SESAR and NexGen projects. The global airline industry will bear the costs of an estimated $40 billion, on top of user charges for the investment and operating costs of Sesar and NexGen, according to IATA. The industry could press the next US administration for early, decisive action on NexGen as a measure that would improve economic wellbeing in these uncertain times. Economic The global airline industry is faced with the “perfect storm”: rising oil prices plus weakening global economy. The industry’s total fuel bill in 2008 was expected to be US$176 billion (based on oil at $106.5 a barrel.) “For every dollar that the price of fuel increases, our costs go up by US$1.6 billion,” according to IATA CEO Bisignani. The oil bill this was about 34% of forecast operating costs for 2008. Last year, the ratio was 29% .IATA stated that this year airlines would incur net losses of more thanUS$5.2 billion and $4.1 billion in 2009. (Full Financial forecast, http://www.iata.org/NR/rdonlyres/25AF6DD6-A677-4C7F-86FB-7ECE56DA702C/0/IATAEconomicBriefingFinancialForecastAugust08.pdf) Contagion from the US credit crunch has caused demand for air travel and cargo loads to drastically fall. IATA said that even the cut in oil prices by half of its July 2008 levels would not offset the steep drop in demand. “The deterioration in traffic is alarmingly fast-paced and widespread. We have not seen such a decline in passenger traffic since SARS in 2003,” said Bisignani. Social Airlines are simplifying the business for passengers to make travel safer, more secure, more convenient and faster. . In 2004, IATA planned for 100 % e-ticketing. Currently, airlines convert 235 million tickets to ET. (In 2004, 81 per cent of tickets were paper.) This is equivalent to cost savings of US$3 billion. (http://www.iata.org/pressroom/speeches/2008-06-02-01, Nov. 27, 2008). Airlines also made E-freight a reality. About 135 airlines use bar coded boarding passes and millions of passengers use CUSS kiosks (common use check-in) at 94 airports. IATA is moving ahead with Fast Travel (or fully automated systems with the use of biometrics) to meet customer demand for more self-service options from check-in to baggage tracing and re-booking. With safety as number one priority. governments and industry have been working together to harmonize global standards of safety to transport 2.3 billion people and 44 million tonnes of cargo in 2007. The hull loss rate, however, deteriorated in 2007 from 0.65 (8) to 0.75 hull losses per million flights. This indicates that IATA needs to work harder to make flights safer. An industry-wide safety tool is the IATA Operational Safety Audit (IOSA). Meeting standards are now a condition of IATA membership. IATA is injecting US$8.2 million in Partnership for Safety Programmes and flight data analysis, and another US$22 million to pay for member audits. Sixty non-member airlines are also using IOSA. The IATA Safety Audit for Ground Operations is taking the same approach to improve safety and reduce the US$4 billion cost of ground accidents Passengers are a lot more secure than in 2001. The cost is about US$5.9 billion a year. With this bill, passengers deserve to be spared from duplication, bureaucracy and hassle. Bisignani said every airport has its own process: shoes on or off? laptop in or out? And what do you do with your coat and belt? (http://www.iata.org/pressroom/speeches/2008-06-02-01, Nov. 28, 2008) The answers are different each time. Moreover, governments do not mutually recognise standards. Passengers are screened, and re-screened at each stage of trip. The piles of confiscated duty-free liquids grow higher by the day. Technological According to the World Bank (http://go.worldbank.org/Q2C4X0FZ50), advances in technology continued to alter airline safety and economics. “New engine technologies have significantly reduced fuel consumption per passenger mile,” said the World Bank. Intra-continental travel is now conducted in aircraft with only two engines instead of the traditional three or four. This reduced fuel, maintenance, and initial investment costs.  Computerization of most management functions reduced cockpit staff to two even for the largest airliners. Cockpit workload was also significantly changed by rapid advances in navigation technologies (e.g. GPS) and computerized displays. The World Bank also noted that changes in technology affected both the infrastructure of air transport (e.g. computerization and digitalization of air traffic functions) and the logistics of air carrier operations from advanced reservation systems and paperless ticketing, to package tracking for cargo, or to parts tracking and maintenance scheduling for equipment. Environment Though the industry’s contribution to man-made CO2 emissions is only two per cent, IATA’s vision is a carbon-neutral growth leading to a carbon-free future. Its track record in the last 40 years was an improvement in fuel efficiency of 70 per cent. The target is 25% improvement in fuel efficiency by 2020. (http://www.iata.org/pressroom/speeches/2008-11-18-01, Nov. 27, 2008) This year, fuel efficiency will save 10 million tonnes of CO2. Together with airport service navigation providers, the industry will save US$3 billion in fuel by shortening 395 routes. Since IATA launched its fuel campaign in 2005, airlines saved US$8 billion and 40 million tonnes of CO2. IATA’s four-pillar strategy on climate change is: (a) Invest in new technology b) Operate planes effectively, (c) Build and use efficient infrastructure, and (d) implement positive economic measures. (http://www.iata.org/pressroom/speeches/2008-11-18-01, Nov. 27, 2008) Bisignani stated that the 179 governments that attended an assembly of the International Civil Aviation Organization, and the CEOs of Airbus, Boeing, Bombardier and Embraer, CFM, GE, Pratt & Whitney, Rolls Royce, airports and ANSPS have aligned themselves with the IATA strategy. The industry is facing “punitive economic measures,” however... Netherlands recently introduced a ‘green tax’ that the IATA fought. The tax became a departure tax now costing airlines EUR 2.4 billion. In the UK, government plans to double the air passenger duty to GBP 2 billion annually under a new tax name. Aside from these taxes, European Commission is going ahead with legislation to incorporate aviation into a ‘unilateral and illegal emissions trading scheme to collect at least another EUR 3.5 billion, according to IATA. Airlines, IATA said, supports an emissions trading scheme only if it is fair, global and voluntary. According to the European Commission (http://ec.europa.eu/environment/climat/aviation_en.htm) , “ Like the industrial companies already covered by the EU ETS, airlines will be able to sell surplus allowances if they reduce their emissions and will need to buy additional allowances if their emissions grow.” IATA said airlines would be liable for 6.4 billion Euros. IATA expected that the legislation will inspire legal challenges in other countries yet do little for the environment. It favored tax credits for technology purchases and grants for research into alternative fuels. Labor Another crisis is the shortage of skilled labour. Some 18,000 aircraft will be delivered over the next 10 years. To fly them will require 18,800 pilots each year. The average annual shortfall is 3,600 pilots. (18). The IATA Training and Quality Initiative (19) to fill the gap by attracting more qualified people, and updating training standards. According to Bisignani (http://www.iata.org/pressroom/pr/2007-29-11-01.htm , Nov. 27, 2008) "Increasing the retirement age to 65 will help but it can’t be the only solution. It’s time to ring the warning bell.  We must re-think pilot training and qualification to further improve safety and increase training capacity. Tthe industry is concerned that there are no global standards for training concepts or regulation. Pilot training has not changed in 60 years - we are still ticking boxes with an emphasis on flight hours.” Estimates For The Next 2 to 5 Years Given the high uncertainties in the global economy, IATA’s estimates are only up to 2009. Recession is ‘now the biggest threat’ to the industry’s profitability. (Bisignani, http://www.iata.org/pressroom/pr/2008-11-27-01.htm, Nov. 27, 2008). This year’s loss would at least be $5.2 billion in 2008. Though there was a relief from the record high in oil prices in July 2008, this is expected to be more than offset by the impact on revenues. There was a dramatic downturn in traffic, especially freight. It fell 2.7 per cent in August 2008. The business environment is forecast to deteriorate into 2009. Estimate loss that year would be $4.1 billion. The yearly average cost of fuel prices for this year would be 55 per cent or $50 billion higher than 2007. This estimate was made by IATA as of October 2008. The severely weakening global economy is hitting demand and revenues hard. “Immediate focus of the industry is first aid,” according to Bisignani (iata.org, ceo_brief_october08_3-iata.pdf, Nov. 29, 2008) (a) expanding our fuel efficiency gap analysis, (b) delivering even more savings through simplifying the business, and (c) demand greater efficiencies from airports and air navigation services providers. Notes http://www.iata.org Loizos Heracleous, Jochen Wirtz, Nitin Pangarkar, Flying High in a Competitive Industry, McGraw Hill, Singapore, 2006 The Single European Sky, http://www.eurocontrol.int/ses/public/standard_page/sk_ses.html and http://www.eurocontrol.int/corporate/public/standard_page/org_aboutus.html Joint Planning and Development Office, Concept of Operations for the Next Generation Air Transport System, NextGen_v2.0.pdf, http://www.jpdo.gov The Economist, Freedoms call, Oct 30, 2008  http://www.economist.com/business/displaystory.cfm?story_id=12516973 Air Transport Industry Overview, World Bank, http://go.worldbank.org/Q2C4X0FZ50 ceo_brief_october08_3-iata.pdf http://www.livemint.com/2008/11/28165848/Air-passenger-traffic-falls-in.html http://ec.europa.eu/environment/climat/aviation_en.htm (http://www.iata.org/pressroom/speeches/2008-06-02-01, Nov. 27, 2008). Full Financial forecast, http://www.iata.org/NR/rdonlyres/25AF6DD6-A677-4C7F-86FB-7ECE56DA702C/0/IATAEconomicBriefingFinancialForecastAugust08.pdf, Nov. 27, 2008 http://www.iata.org/pressroom/pr/2008-11-27-01.htm, Nov. 27, 2008 Aviation Industry Needs To Tackle Looming Pilot Shortage, http://www.iata.org/pressroom/pr/2007-29-11-01.htm Read More
Cite this document
  • APA
  • MLA
  • CHICAGO
(The Airline Industry Case Study Example | Topics and Well Written Essays - 2500 words, n.d.)
The Airline Industry Case Study Example | Topics and Well Written Essays - 2500 words. Retrieved from https://studentshare.org/tourism/1718393-you-are-required-to-select-and-investigate-a-particular-sub-sector-of-the-tourism-industry-airlines
(The Airline Industry Case Study Example | Topics and Well Written Essays - 2500 Words)
The Airline Industry Case Study Example | Topics and Well Written Essays - 2500 Words. https://studentshare.org/tourism/1718393-you-are-required-to-select-and-investigate-a-particular-sub-sector-of-the-tourism-industry-airlines.
“The Airline Industry Case Study Example | Topics and Well Written Essays - 2500 Words”. https://studentshare.org/tourism/1718393-you-are-required-to-select-and-investigate-a-particular-sub-sector-of-the-tourism-industry-airlines.
  • Cited: 0 times

CHECK THESE SAMPLES OF The Airline Industry

Risk Management In The Airline Industry

This essay focuses on the element of risk in The Airline Industry.... … This essay explaines the element of risk in The Airline Industry, that could include aspects such as the single loss of aircraft or a collision between two aircraft, terrorist atacks and so on.... This essay also contains some tables on fuel pricing and currency rates throughout recent years and a risk management strategy, that provides the airline with protection against sudden increases in oil prices....
4 Pages (1000 words) Essay

Oil on the Airline Industry

It has been estimated that The Airline Industry contributes around 2% of the greenhouse gases and 11% of the total green house gases emitted by U.... Fuel costs have become largest single cost component of the global airline industry reaching at 29% of the total operating costs in the year 2007 and 34% in 2008 as compared to 13% in 2001 as per IATA calculations (Conrady).... They need to invest in technologies to generate green-fuel which will not only reduce their dependence on fossil fuels but also make this industry a green-industry....
4 Pages (1000 words) Research Paper

The Airline Industry Labor Relations & Deregulation

The paper "The Airline Industry Labor Relations & Deregulation" highlights that Before the deregulation, the union managed to advocate for a wage increase, efficient and friendly working rules and working conditions.... nbsp; While The Airline Industry has become more productive and affordable to its consumers, laborers have lost jobs and wages and benefits reduced (Kaps, 20).... The Airline Industry in the U.... This was commonly used in cutting down transaction costs on The Airline Industry....
1 Pages (250 words) Essay

The Human Factors Implications in the Airline Industry

This essay "The Human Factors Implications in The Airline Industry" presents fatigue as one of the human factors that leads to accidents in the aviation industry and ways to mitigate its impact through the use of various mitigating factors.... It started during World War II where the engineers' and scientists' work revolved around human operations systems, just as it relates to today's aviation industry (Flight Safety Foundation, 2003).... To control the effects of fatigue in the aviation industry, fatigue management mechanisms should be employed....
1 Pages (250 words) Essay

The airline industry in the US

The writer of the essay "The Airline Industry in the US" suggests that the companies in The Airline Industry need to provide the better quality of service - update new technology.... Also, existing companies in The Airline Industry should lower their cost to gain more profits.... The market share concentration in The Airline Industry is medium.... The Airline Industry uses discrimination among the private customers, thus they can charge different price to different customers such as first-class seats and coach seats....
2 Pages (500 words) Essay

Once a Leader in the Airline Industry

n addition to the aforementioned difficulties, environmental issues such as the Persian Gulf War, which drove up the cost of jet fuel, and indeterminate changes in the structure of European economies served to radically increase both fixed and variable costs of running the airline.... It must be the focus of Godfried, before pursuing growth and expansion, to whip the organization into shape to take its place within the competitive industry environment.... Because governmental and union influence so strongly dictated the employment objectives of Sabena, workers were often unproductive and over-paid by industry standards....
8 Pages (2000 words) Term Paper

Risk Management in the Airline Industry

This paper "Risk Management in The Airline Industry" discusses the financial risks involved in the operations of a proposed international airline.... These risks are compounded by the inherent features of The Airline Industry such as i) cyclical demand; ii) intense price competition in both domestic and international markets; iii) heavy capital investments; and iv) high gearing levels.... he airline industry, internationally, is characterized by its exposure to substantial operational and financial risks....
6 Pages (1500 words) Case Study

Competition in the Airline Industry

The paper 'Competition in The Airline Industry' presents new methods of transportation that have come into the role to help individuals in traveling from one place to another.... It is seen that The Airline Industry has expanded ever since its birth and is creating landmarks up to date.... Nowadays with growing competition in The Airline Industry, it is seen that airlines are trying to minimize their expenses such that they are able to survive in the market....
7 Pages (1750 words) Case Study
sponsored ads
We use cookies to create the best experience for you. Keep on browsing if you are OK with that, or find out how to manage cookies.
Contact Us