The European Low Cost Airline Industry Essay Example

EU nations. The demand for air travel in Europe has increased threefold since 1980 and is expected to double by 2020. Initial predictions suggest a 7.5% rise in air traffic across Europe in 2004.

The European airline industry is facing challenges as full-service carriers struggle to regain their 2000 traffic levels. Meanwhile, budget airlines are experiencing growth rates exceeding 10% annually with few obstacles in their path. This report aims to examine the marketing environments of the industry and analyze the key factors that will shape its future, particularly the impact of low-cost airlines.

According to Kotler et al. (1997), an organization's marketing environment refers to the external actors and forces that affect its marketing management function and its ability to maintain successful transactions with customers. To conduct a comprehensive analysis, three perspectives must be taken into account: the macro-environment, micro-environment, and internal environment. See Figure 1 at http://www.marketingteacher.com/Lessons/lesson_marketing_environment for a visual representation.

The European airline industry consists of more than 130 airlines and roughly 450 airports, with approximately 60 air navigation services providers. The Short-haul Airline sector in Europe is recognized for its cut-throat competition and is considered as one of the most fiercely competitive markets for air travel worldwide. This market sees a considerable number of passengers traveling to and from the United Kingdom.

In 2030, it is predicted that the airline industry will have a considerable increase in growth and passenger numbers, projected to go from 180 million passengers in 2000 to an estimated 500 million. The European Airline Industry encompasses five distinct types of carriers, ranging from major international airlines like Lufthansa and Air France to smaller national airlines.

Currently, the aviation industry comprises global

airlines such as Iberia and Alitalia, local competitors like Span air and British Midland, regional firms, and charter carriers. However, research suggests that by 2010 there will be a major overhaul resulting in three primary sectors. The AEA, IATA, Mercer analysis* diagram below illustrates this transformation:

Source: AEA, IATA, Mercer analysis*

The expected segments are network carriers/alliances comprised of significant international carriers strengthening their positions as leaders in these alliances. Regional and second tier airlines are anticipated to collaborate with these network carriers to provide feeder/shuttle services to hubs and other supplementary offerings. According to Mercer's study findings, roughly one-third of flag and second tier carriers may eventually discontinue operations.

Low-cost airlines will capture a substantial part of the leisure and budget-conscious business travelers' intra-European air market. However, charter carriers will experience minimal growth and may lose market share to their low-cost counterparts on intra-European routes. To safeguard their niche package tour sector, they will have to enhance their connectivity with leisure groups.

The comparison between the European and US airline industries is depicted in the diagram below. It illustrates how state funding is granted to US carriers, which doesn't happen in the European Union, leading to potential imbalance in competition. The non-reimbursed costs and hand-outs to US government amount to 800 million Euros or USD 3 billion, as seen in Figure 3 from IATA Legal Symposium 2004. This figure also indicates that security expenses create further distortions in the competition between European and US airlines.

European airlines face added pressure from intra-Europe competition and a future transatlantic competitive landscape that favors non-European airlines.