The Airline Industry Pre and Post 9/11

Topics: Airline, Airport, Avianca Pages: 5 (792 words) Published: December 3, 2013

1. Analyze the attractiveness of the airline industry pre 9/11. How attractive was the industry before 9/11? Was it profitable? Was there growth? Was there strong competition or not? If so, in what sectors?

PESTEL Analysis of the Airline Industry Pre 9/11

Political
Government support for national carriers (Johnson, Gerry. 2011, pg51) Security Controls (Johnson, Gerry. 2011, pg51)
Investment support
Restrictions on migration (Johnson, Gerry. 2011, pg51)
Deregulations (try to cut down airfare prices)

Economic
National growth rates (Johnson, Gerry. 2011, pg51)
Fuel prices (Johnson, Gerry. 2011, pg51)
High costs associated with the Full Service Carrier business model Liberalization of markets
Increasing world trade and investment

Social
Rise in travel by elderly
Student international study exchanges
Changing life styles
Increase in the number of educated people
Globalization

Technological
Fuel-efficient engines and airframes
Security check technologies
Teleconferencing for business
Consolidation
Alternative fuels

Environmental
Air pollution controls
Noise pollution controls
Energy consumption controls
Land for growing airports

Legal
Employee work hours
Restrictions on mergers
Preferential airport rights for some carriers

Porter’s five forces analysis for pre 9/11
Threat of Entry
High regulations
Capital intensive
Requires high level of experience and knowledge
It has a high barrier entry
Monopoly in some cities’ airports

The Threat of Substitutes
Busses, ships, rail industry
In Europe, Russia rail is the preferred transportation mode
In US rail and road are the mode of transportation for goods Prices are regularly low comparing to airfares in Europe for within Europe and Russia Ships are being used for transportation of goods in bulk to continents But for individual transportation for long distances mostly airlines are preferred.

The Power of Buyers
Almost 50% increase within a decade, due to increase in the number of retirees. Also rise in the world GDP. Increasing number of airline companies gives more choice to select from to the buyers. Customer loyalty highly depended on airfares. Price sensitive. So bargaining power of the buyer is high.

Technological innovations give advantages to business travelers (skype, conference calls…etc)

The Power of Suppliers
Pilot’s unions, “there is no good alternative to a well-trained pilot in the cockpit”. The supply is mainly being done by Boeing and Airbus, Aramco, Gazprom All of the suppliers have high power. (Fuel, maintenance, labor).

Competitive Rivalry
Low margin cost (1-2% net profit)
Increase in the number of airlines
High costs
High exit barrier

As per the case study “analysts were predicting that the US airline industry world lose some $.5bn because of the slowing economy combined with a large decline in business travel.” So the decrease and losses were already happening, due to technological, mismanagement and economic reasons. 9/11 may have given good reasons for mistakes.

2. Analyze the attractiveness post 9/11.
The decrease hit the bottom with the terrorist attacks. People preferred other ways to travel.

PESTEL Analysis of the Airline Industry Post 9/11

Political
Government support for national carriers (bailout money $4bn) Tax break for the next five years (national carriers)
Security Controls increased (3 hours early check in)
Restrictions on migration (Johnson, Gerry. 2011, pg51)

Economic
Lay offs
Cost increase due to security increase
Supplier’s suppliers were affected
Probable increase in the demand for metal detectors and security items Increase in the insurance cost
Increase in the airfare but after 2007 airlines are raising against each other, prices are going down

Social
Fear against flights
No trust to...

References: Johnson, Gerry. Exploring Strategy. 9th edition. Pearson Education Limited, England.(2011). Pg 51
Porter, Michael E. ‘The Five Competitive Forces That Shape Strategy’. Harvard Business Review. January 2008. Pg. 78-93
Ward, Rodney. September 11 and the Restructuring of the Airline Industry. 2002. Source: http://dollarsandsense.org/archives/2002/0502ward.html. Accessed on [October 5, 2013]
*Wensveen, John, Ph.D. THE AIRLINE INDUSTRY: Trends, Challenges, Strategies. Dean, School of Aviation Dowling College, New York, USA http://sydney.edu.au/business/__data/assets/pdf_file/0010/67789/johnw-presentation.pdf. Accessed on [October 5, 2013]
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