North American and European Airline Industry Essay -- Business Managem

North American and European Airline Industry INTRODUCTION The Airline industry is one of the world’s largest industries generating over $300 billion in revenues in 2001 alone and additionally has the second highest industrial growth rate, after the computer industry, with typical growth rates of 3-5% per annum over the last 20 years (Humphreys, 2003; BA Fact book, 2002). For the purpose of this assignment, freight/cargo airline activities will not be considered as freight travel consists of only 2 % of total airline activity (see figure 3.1 and appendix 1) (BA Fact book, 2002, ICAO, 2003). Furthermore, due to the nature of the airline industry and the Asian market being a lot smaller and internally focused, we will concentrate on the North American and European markets which between them, account for 65% of the market (see figure 3.1 and appendix 1) (ICAO, 2003). Section 1:The main forces shaping the airline sector’s global business environment. The past two years has seen an unprecedented number of airlines, worldwide, filing for bankruptcy and many more would have followed suit had it not been for government intervention (Economist, 2002a). The main factors leading to their demise and to the problems currently faced by the airline industry in general, have their roots in the existing economic and political climate, which according to IATA (2002) continue to remain challenging. 1.1 Economic Forces facing the airline industry Since the performance/profitability of the airline industry is closely connected to the economic cycle (BA Fact Book, 2002), the importance of the global economic environment and the impact that it has on the industry cannot be underestimated (see figure 1.1). This is evident from the performance of the industry during the late 1990’s as profitability soared on the back of a buoyant world economy (characterised by the hype generated by the technological revolution; record levels of corporate activity etc) which fuelled demand for air travel. It is not surprising that the subsequent slump in air travel which began in the USA towards the end of 2000 and slowly spread to other parts of the world (Economist, 2001), corresponded to a change in the economic forces as the knock on effects of the US economic slowdown infiltrated the global economy. One of the main consequences of the g... ... flights and the introduction of ‘World Traveller Plus’ – a new business and economy product. These two markets of business and economy are perceived to be the most demanding and profitable in the future and therefore BA have additionally positioned itself well to take advantage of these developments (Economist, 2002b; BA Fact book, 2002). Therefore, the penetration and consolidation of markets, cost management and refocusing of culture and infrastructure assisted by the collaboration available within its OneWorld Alliance are placing BA in a healthier position to survive the turbulence that lies ahead. FINAL THOUGHTS The future of BA and that of many other airlines is going to depend on the highly volatile political and economic situation facing the world as seen in section 1. War in Iraq is creating an increased sense of panic in the world’s industries and therefore, an accurate forecast as to the airline industry development is somewhat convoluted and complex due to the overwhelming sense of uncertainty that prevails. Therefore, BA’s future positioning and its subsequent success within this sector is going to be decidedly susceptible to the worlds events.