Industry Analysis Essay Example

Another source from Alglas predicts that between 2000 and 2010, the industry would have grown at a rate of 5% per year (http://www.alglas.com/airline_industry_market_dynamics.html).

The airline industry is expected to see substantial expansion in developing nations, particularly in the Asian/Pacific area. This growth is driven by increasing domestic prosperity. Although still recovering from the impact of 9/11, passenger figures are slowly rebounding and might exceed 1 billion by 2015.

According to http://www.alglas.com/airline_industry_market_dynamics.html, the number of passengers in US airlines increased from 642 million in 2003 to 690 million in 2004. Airbus predicts that global passenger traffic will grow by an average of 5.3% annually for the next two decades. The industry has witnessed a rise in low-cost and regional airlines, leading to a 40% increase in traffic from 200 to 269.5 million in 2004, as well as acquiring a market share of 43%.

Customers have had more air transportation options and lower fares since the industry was deregulated in 1978. Furthermore, technological advancements have facilitated customers in gathering information, resulting in a considerable rise in airline travel. Through the Internet, customers can easily access flight schedules, make reservations, and compare prices from various airlines.

Due to the rise in airline travel, many other airlines are no longer being granted licenses. In China, for instance, the Civil Aviation Administration of China (CAAC) has announced that it will not be accepting any new airline applications until 2010 due to the growth of airlines within the country. Despite experiencing significant growth and a 16.7 percent increase in domestic passenger numbers during the first half of 2007, as reported by (link), the Chinese airline industry has implemented this ban. The regulatory

body believes that this ban is necessary in order to ensure safety and promote organized and healthy development within the airline industry.

Every industry has its own major competitors striving to become leaders. The airline sector, renowned for its global competitiveness, features predominantly privately owned companies in the United States. Numerous factors like company culture, management decisions, technology, and operational capacity influence the success of thriving airlines. Technological advancements have simplified access to information for customers, resulting in a surge in air travel.

Online platforms have made it convenient for customers to access flight information, reservation services, and book airline tickets. Additionally, customers can compare prices from various airlines, enabling them to make well-informed decisions. As a result, the airline industry has become highly competitive, with companies that possess advanced technology gaining a substantial advantage. Consequently, due to this intense competition, airlines are unable to set excessively high ticket prices.

One reason why airlines like Southwest Airlines continue to be profitable is because of their low prices. Customers prefer Southwest because it offers lower prices compared to other airlines. According to Andreoli (2003), pricing in the airline industry has become more complex due to deregulation, but competition has led to a standardized "follow the leader" pricing structure. In order for an airline to survive in the industry, it must set its prices at the same level or even lower than its competitors. To counter competition, some airlines have taken certain measures. For example, United Airlines, the largest carrier, has faced financial and management problems and has formed alliances with other airlines to remain in the market. According to Inc. (2003), United Airlines had revenue passenger miles of over

109 billion in 2002, which accounted for approximately 18.4% of the market. However, their total revenue decreased by 11.4% in 2002 and they have experienced economic losses since 2001." (Ferugia, D'Elia & Fransisco, 2003)

Southwest Airlines is renowned for its financial success, having remained profitable since its establishment. When comparing the operations of Southwest with those of United Airlines, Ferugia, D'Elia, and Fransisco (2003) argue that Southwest has never incurred any financial losses.