European Airline Industry – Strategies for the New Millennium

Topics: Airline, Southwest Airlines, Star Alliance Pages: 25 (7200 words) Published: November 22, 2010
European Airline Industry – Strategies for the New Millennium

European Airline Industry – Strategies for the New Millennium Debarshi Datta, Analyst, Airline Vertical with Subham L. Chakravarty, Asst. Manager, Airline Vertical

This paper depicts the current scenario in the European Airline Industry through in-depth analysis and appropriate case studies and suggests restructuring, along with the implementation of modern IT systems as an effective tool in the struggle for survival.

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European Airline Industry – Strategies for the New Millennium

Structural Evolution of the Airline Industry in Europe
Case Study of a Flag Carrier: British Airways
British Airways is UK's largest international scheduled airline, flying to over 550 destinations to the bestlocated airports. Traditionally, It has always remained one of the top major airlines of the world by its infrastructure and services. Recently, the airlines has signed an agreement with Iberia to develop a joint business on key routes between London and Spain that includes revenue and cost sharing on flights between London Heathrow and Madrid and Barcelona. British Airways extensively focuses on customer loyalty, and for this reason, it is implementing a series of self-service kiosks along with e-ticketing to provide its flyers a faster, hassle-free mode of check in. Stats show that the ASK of British Airways in Dec 2004 was higher by 3.9% from Dec 2003. The traffic, measured in RPK grew by 3.2% from the previous year. The European airline industry is a dynamic industry that changes its trends in accordance to the general European economy. The overall air transport market in Europe is expected to grow substantially in the coming years. The International Air Transport Association along with few leading bodies like AEA and ATI estimate that the number of international scheduled passengers traveling between countries in Europe will grow from 233 million in 1999 to 302 million in 2005, reflecting an average annual growth rate of 4.9%. By contrast, the low-fare segment of the market is expected to grow at a significantly higher rate. It is estimated that low-cost airlines which carried 6.3% of all domestic and international passengers within Europe in 1999 will increase that to a share of 16-18% by 2005 making them a formidable unit in the European air travel market. The European airline sector has historically been dominated by national flag carriers who together account for over 70% of civilian passenger traffic. These airlines came up after the Second World War and were state-owned or statesponsored. Examples include British Airways, Lufthansa and Air France.

Intra EU Airline Market Shares in 2001
SAS KLM 6% 4% Others 45%

Alitalia 7%

Iberia 7%

Air France 8% British Lufthansa Airw ays 12% 11%

However, the scenario has changed very rapidly. With the deregulations taking effect, the European airline industry took a turn towards the most optimal model of operations i.e., the low cost sector. Low-cost airlines are the order of the day in Europe. Their extremely affordable fares along with their range of destinations from the Scandinavian countries to places like Paris or Berlin provide a handful package for the previously airsick passenger market. Average airfares in the low-cost airlines sector account for just 3% of the average monthly EU industrial wage. In Europe more than 100 airports now have low-cost services. The low cost carriers are going on an overall expansion starting from an increase in the fleet size. The larger airlines are gradually responding to this low-cost boom and they are considering a change in their strategies as well. These dynamics would definitely define the state of the market in future. The major carriers were already...
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