Airlines industry is a huge and growing industry. It is known as a services provider industry. Airline is not just only the airplane; it includes many elements like business aircraft, military program, and recreational aircraft and it provides services to passenger or cargos. The outcome of growing and the working of airlines industry are always unexpected because it is full of challenge and variables conditions.
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Air travel industry is a special industry to the global, because it is always grow along with the economics. Somebody describes the importance of airlines industry as “no airlines, no globalization, and no new era”, this has showed how much is the importance airline industry to us. Airlines industry is a complicated industry; we briefly say that airlines industry is under an oligopoly market structure. The explanation of oligopoly is an economic condition that only few service or product suppliers in the market and one of the supplier actions can perceive significant impact from its competitor in the same market. Thus, since a firm of carriers provides a new action and it will always taken by competitors, and soon affect the outcomes of whole market, therefore, firms in this industry are interdependent and airlines industry is a high competition market.
It is also one of the most fragile industry, many things can affect their performance from SARS, 911, economic crisis and even weather conditions.
The airlines industry has seen some positive effect currently which resulted in them forecasting a better forecast. Many factors could have affected the changes; we will discuss some of it below
Changes in economic conditions and effect to airlines industry.
As the world pick up from the economic crisis the traffic increases significantly. The demands for business travelers to individual travelers went up. During the economic crisis most carriers gone through restructuring and implement cost cutting measures so when the business pick up they will see that their profit margin is better than what they use to have before the crisis. Currently, the economy is expected to post up a profit of 2.5 billion for 2010 as it is recovering from the two years of ailing business. This is due to the increase of passengers, increase of cargo trade and effective cost measures taken my responsible parties to encounter the problem. Which means there is an increase in people’s standard of living as they can afford to travel; therefore there is a tremendous increase in the tourism industry which positively affects the air travel demand. Previously, industry prediction predicted that the economy would encounter a loss of 2.8 billion because assumption made that in 2009 and 2008 which was during the year of economic downturn, there was a loss of 9.9 billion and 16 billion respectively. However, the result was a positive one in 2010 for the airline industry. Passengers traffic has actually increased up to 7.1 % when it was predicted only an increase of 5.6% and that the demand grew twice as the supply. For example, a venture of C$1,805 million at Vancouver airport was approximate to have led to a 5.4% boost in connection with Canada as a whole. Therefore, airline deregulation can help sustain an increase in air transport connectivity as it is spread to industrialize world affecting domestic air travel. The increase in airline operation and services provides a growth of 5 % per year and also an increase of GDP twice as much. Moreover, it’s also expected to grow for the next ten to fifteen years. It also provides the flexibility for airlines to adjust capacity properly to meet changes in the market demand. By way of example, the expansion in air services between Poland and the UK since 2003 has increased connectivity as a percentage of GDP by 27% for Poland, whereas the increase in the UK was a much smaller 0.5%. This shows that there is a long term boost of 634 billion and 45 billion for both countries respectively.
Another positive factor which affected the changes in airline industry is the price of fuel. Although there is an increase in fuel price, several airlines such as the southern west airline company does not seem to allow this worldwide issue to affect its company profit and revenue. As the tourism industry is starting to boom and growing faster, travelers and passengers are using flight services very often and if they raise the price of the air ticket, passengers will have to look for another cheaper transportation mode. Therefore, the airline company choose to dissolve their problem by minify the loss through management reinforcement, cost lowering and efficiency improving, but not simply raise the price. Airlines also took the approach differently by looking at similar measures to solve the problem of the increase of price fuel. Today’s collection of aircraft is nearly three times more fuel-efficient than the olden day’s aircraft we were operating at the time of the first OPEC fuel crisis. In fact, our fuel conservation efforts have resulted in most fuel-efficient automobiles. Therefore, there were changes in cruise speed, use of flight simulators, complicated flight planning systems, increasing load factors and the introduction of newer, more aerodynamic aircraft designs combined with modern engine technology as alternative measurements. With the high technology the world has created, this problem could be solved in different ways and means. Another good example is China encounter the problem of increase of fuel price by reducing domestic fuel price as 80% of their flights are domestic flying. This results in a lower profit and also a lower operating cost and also helps boost the nation airlines.
Changes in Government Policies and effect to Airlines Industry
Worldwide deregulations and liberalization
In the past of the era, air travel industry is strictly controlled by government. No matters what the country is, government always involved in this industry, airlines almost operates and owns by government.Government used to decide how much is the airfares, control the route networks, and other requirements for each airlines company in the country. Now the time goes by, JAPAN, UK, US government start to deregulation their airlines to make the airlines market negotiate the price of ticket and operational requirements as a large free and manage these according to the demand of market. For example, united stated of American has hundred new airline firms enter the market due to result of deregulation. Hawaiian airlines, Delta Airlines, Alaska airlines and Frontier airlines are the airlines available in American State of America. The global deregulation policy to the airlines industry has because the barriers to this industry become lower and make more qualified air travel company to enter the market. The competition in this market has increased and pricing freedom. Therefore, the supply has increase, will cause the price decrease and demand will increase, because the firms in airlines industry provide better service and incentive to attract the consumer choose airlines service to increase their profit.
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Despite the deregulation, global government has a trend to [open skies] agreement. These agreement is talking about between the country has a concord that air travel has the rights to fly over the country intermediate and beyond point. From the 1990’s, this agreement has become more common. At the April of 2007, United State of American has open skies agreement with European Union and this agreement have provided the right to transport passengers to a foreign country or international, under USA and EU open skies agreement, any airlines from EU and USA will be allow to fly from any city point within the European to any city in United State of American. This agreement has grounds the maximum flying flexibility to the airlines firm that has relevant and alliances because they can cut down their flying cost that include fuel fare, service cost and other opportunity cost.
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Changes in technology and effects to airlines industry.
The changes in technology are provides a obvious effect in airlines industry, the common of internet use has help the airlines company to promote their service and make their air ticket selling become easier to air travelers. In the 80s till 90s, the revenue of Airlines Company was depending on travel agent. Consumers no need to go to airlines company agent to buy ticket, in the past, customers are expected to wait at least three days to get the proceed of air ticket. In this era, they can make the booking on airlines company internet, the only they need to do is print out a page and pass to counter at airport. The buying processes can be done in an hour. Airlines Company can save the operation cost in selling ticket. Despite the internet convenience, the technology in design and aero plane engineering has been improved, more safety in flying. To this result, air travelers do prefer to take a fly as because it is more safety than past. Due to the convenience and safety in flying, consumers has bigger willing to choose air travel as their transport.
Demand and Supply curve: show the improvement in technology has increase the demand for airlines service.
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