Industry Analysis

Length: 1097 words

An industry is a segment of the economy that is concerned with the production of goods and services. In the airline industry, production is mostly of the aircrafts and the related spare parts. Producers of the aircrafts must first understand the customer’s who will be using the planes being produced. For instance, the customers of the commercial aircrafts of this industry are the airlines companies. The airline companies provide transportation services to its different customers. There are various airlines competing in this transportation industry.

For instance, Southwest Airlines, Jet blue, Northwest, Southwest, and United Airlines, among others. The airline industry is either public owned or private owned. NAISC code system provides a common industry definition for the US, Mexico and Canada industry. This system contains codes that are replacing the SIC system and vise versa. Some of the codes in the airline industry are; 336411- Aircraft manufacturing, 336412-Aircraft Engine and Engine Parts manufacturing, 488111-Air Traffic Control, 611512-Flight training, (Lyle, 2007). Market. Airline industry is the largest and continuously growing industry.

It is an industry that facilitates economic growth, world trade, and thus providing a good avenue for the globalization-taking place (http://adg. stanford. edu/aa241/intro/airlineindustry. html). The airline business has grown by 7% in the

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past decade. Traveling for business purposes and leisure have increased. According to the report in (http://adg. stanford. edu/aa241/intro/airlineindustry. html) “in the leisure market, the availability of large aircraft such as Boeing 747 made it convenient and affordable for people to travel further to new and exotic destination.

” In the developing countries, there have been increased tourism growths. This growth has lured tourists from as far countries to go to such countries, thus contributing to the growth of the airline traveling industry. The airline traveling industry has also grown due to the fact that airline companies involved in this sector have “become increasingly international in terms of their investment, their supply and production chains and their customer”. (http://adg. stanford. edu/aa241/intro/airlineindustry. html).

The world trade has also grown in terms of trading in goods and services, thus contributing to the air transport increment. The airline industry was projected to grow by an average of 5% a year from 2000 to 2010, (http://www. alglas. com/airline_industry_market_dynamics. htm). The growth rate is expected to be more in countries that are still developing the airline industry than the already developed areas of Europe and North America. The areas that are expected to have a tremendous growth are in the Asian/Pacific region, because of the rising domestic prosperity.

The airline industry is still recovering from the 9/11. The passenger levels in the airline industry are returning to the pre-9/11, possibly exceeding 1 billion by 2015. According to (http://www. alglas. com/airline_industry_market_dynamics. htm), “US airlines increased passengers numbers from 642 million in 2003 to 690 million in 2004. Air bus predicts worldwide passenger traffic to grow at an average of 5. 3% per year over the next 20 years. ” There has been increased growth of low cost and regional airlines in the industry.

This has led to the rise in traffic by 40% from 200 to 269. 5 million in 2004 with a 43% shares in the market (http://www. alglas. com/airline_industry_market_dynamics. htm). Since the industry’s deregulation in 1978, there have been many options within the industry, making customers to face lower fares in the air transportation. Airline travel has also seen a lot of increase because of customers being able to access information easily, due to technological changes.

Many customers are able to check flights, book and make reservations of airlines through the Internet. They can also easily compare the costs of various airlines before deciding on which to use. The increases in the airline travels have seen the ban of issuing of licenses to many other airlines. For instance, the growth of airline in China has led to the Civil Aviation Administration of China (CAAC), to announce that it will not accept any new airline applications until 2010. According to the report retrieved on (http://www. hothousemedia.

com/ltm/ltmbackissues/nov07web/nov07travelnews. htm), “the ban comes at a time when the Chinese airline industry is experiencing phenomenal growth and despite domestic passenger numbers growing by 16. 7 per cent in the first half of 2007, the regulator believes the ban is a necessary one”. This regulation issue was aimed at guarantying safety, and ensures good, quality healthy and well-ordered development of the airline industry. Major competitors In all business sectors, it is a dream of every businessman to become number one in that sector.

Airline industry is one of the most competitive business sectors in the world. In the United States, most of the airline companies are privately owned. Many successful airline companies have different factors that have made them to succeed. For instance, company culture, management decision, technology, as well as level of operation. Airline travel has also seen a lot of increase because of customers being able to access information easily, due to technological changes. Many customers are able to check flights, book and make reservations of airlines through the Internet.

They can also easily compare the costs of various airlines before deciding on which to use. This of course has increased a lot of competition among airline industries. Those with a better technological development stands out to be on the competitive advantage. Due to high competition, it is not possible for an airline to put ticket prices just exorbitantly. This is because price is one determinant that has made airlines like the Southwest to continue making profits, as many customers prefer it because of its low price.

According to Andreoli, (2003) “Pricing in the airline industry has become more and more complex due to deregulation; however, pricing follows a standardized ‘follow the leader’ structure because of competition”, (Ferugia, D’Elia & Fransisco 2003). Therefore, for an airline to survive in the industry, it must put the price at the same level or even below as the other airlines. Several airlines have up certain measures to counter the competition. For instance, United Airlines (the largest carrier) has been experiencing many financial and management problems, and has thus undertaken Alliances with other airlines so as to remain in the market.

Inc. “In 2002, the company’s revenue passenger miles were over 109 billion … which is approximately 18. 4% of the market … In 2002 the total revenue was down by 11. 4% and since 2001 the company has experienced economic losses”, (Ferugia, D’Elia & Fransisco 2003). Southwest is the airline considered to have not lost any money since its inception. Comparing the operations of Southwest with that of United Airlines, Ferugia, D’Elia & Fransisco (2003) asserts that,

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