Pressures faced by the airline industry in the 21st century

Introduction

The present assignment focuses on the pressures faced by the budget airline industries in the present times. There are a number of inherited challenges which the industry has been coping with for many years. It is highly dependent on a number of internal and external factors, such as economic cycles, commodity prices and security issues (Belobaba et al., 2015). Internally, an airline company manages a significantly high-cost bases and usually it has to operate for many years before it achieves breakeven (Morrison and Winston, 2010).

Business Models in the Airline Industry

As explained in the introduction of this assignment, one of the main challenges faced by the sector is that it operates with a high fixed cost base. In this respect, to achieve profitability, the airliners need to continuously attract customers and have their plane seats occupied (Cento, 2008). Moreover, airliners are also facing a challenge related to applying a differentiation strategy. As the services which they provide are comparatively similar across the sector, it is hard for these companies to identify market niches and target audiences to outperform competitors with an innovative strategy (Ben-Yosef, 2006).

The high costs of operations are not the only natural barrier which new entrants are facing. Market knowledge, access to talent and even customer loyalty are important factors to be considered (Snider and Williams, 2015). For example, a pilot training programme is a complex and expensive endeavor and with the growing number of new airline companies targeting the market, there are growing shortages of staff (Mavin and Murray, 2010).

Moreover, even though it can be proposed that brand loyalty is hard to achieve especially across budge carriers, many airlines are trying to gain recognition by offering a great service consistency (David, 2013). For example, leaving and arriving on time, allocated baggage allowance and customer loyalty points, are some of the few approaches which airline companies employ.

Budget Airline Industry Pressures

There are a number of other pressures which can be identified in the industry associated with the aircraft manufacturing, availability and price of commodities. The costs and efforts of manufacturing an aircraft are significant, and therefore any failure in the quality of the product would not only have substantial cost implications but it would put the life of passengers at risk. This was the case with Boeing’s 737 Max, which is a new resource-efficient airplane which was the cause of two crashes and hundreds of fatalities. This has resulted in great losses not only for Boeing but also for the many airline companies which made orders for these airplanes which are currently grounded and under investigation (Boeing, 2021).

Corporate Governance and Environmental Sustainability

An area which airlines have received a significant pressure from is related to their corporate governance and environmental sustainability. Many carriers are criticised for the negative impact they have on the environment and global communities (Cowper-Smith and Grosbois, 2011). One approach for improving their environmental sustainability is by increasing their efficiencies and improving their fuel consumption.

Another approach to increasing corporate social responsibility would be noise reduction which is usually seen as a primary complaint by communities based near airports. Although these initiatives would require certain levels of investment, they are important strategic decisions which would improve the longevity of the whole industry and wellbeing of passengers (Kuo et al., 2016).

Another strategy to improve their corporate governance and contribution to global communities is by participating in charitable initiatives and contributing with donations. In addition, they can work on engaging their passengers in donations and cooperate in social initiatives (Fenclova and Coles, 2011). This would improve brand recognition and can also lead to better customer loyalty. For example, British Airways collects donations from passengers on board of their airplanes for UNICEF (Balmer et al., 2009).

Covid19 Pandemic

The Covid19 pandemic is one of the most significant global health events of recent times. It has affected a great number of industries and hundreds of businesses ceased their operations (Fabeil et al., 2020). The pandemic has affected the airline industry which resulted in job losses, shares value decline and bankruptcy of carriers. The industry was grounded for almost a period of one year with severe disruptions still taking place.

In 2021, the pandemic is far from over and there is a growing complexity associated with travel in Europe and internationally, such as passengers’ vaccination status, Covid19 testing, countries they are flying from and to, as well as quarantine requirements (Budd et al., 2020). Although there is a growing demand for travel for business and leisure, many customers are becoming reluctant due to the growing compliances expectations they are expected to follow (Dube et al., 2021).

Brexit and Travel Impacts

The UK’s transition from the European Union is another significant event which has impact the travel and airline industry. As a result of the UK’s departure of the EU, travel restrictions and new visa requirements for European and British citizens are expected to have a negative impact on the airline industry (Bouoiyour and Selmi, 2018). This would not only increase the costs of travel due to the need of additional travel documentation but would also reduce the regularity of airline travel too (Abdul-Kadir et al., 2020).

This is likely to impact the budget carriers more severely as they are relying on consistent high volumes of regular trips across Europe (Dobruskez, 2019). City breaks and weekend trips to popular destinations which offered convenient and cost-effective travel for passengers might become a thing of the past.

Conclusion

In conclusion, the airline industry is facing a number of internal and external pressures which make these business significantly complex and challenging to operate. Although the rewards of servicing customers get to any places in the world is satisfying for carriers, their business models and profitability is at risk, nowadays than ever before.

The high costs of operating an airline industry, combined with growing demands for good corporate governance and environmental sustainability has been a key strategic focus for these companies. In addition, the intensified pressure coming from budget and long-haul competitors with seemingly different strategies and ambitions are creating even further obstacles for this business.

Finally, the global Covid19 pandemic and geopolitical events such as Brexit have created further frustrations in the industry. Growing commodity prices and reduce availability; passenger travel restrictions; the risks of further lockdowns, are some of the pressures which airlines would need to cope with and remain resilient to sustain their existence in the future.

References

Abdul-Kadir, A., Sadat, A.A. and Sadick, A.A., 2020. Global strategies of the airline industry: a case study of Ryanair, Emirates, NetJets, and Thomas Cook. StudNet, 3(3), pp.204-217.

Balmer, J.M., Stuart, H. and Greyser, S.A., 2009. Aligning identity and strategy: Corporate branding at British Airways in the late 20th century. California Management Review, 51(3), pp.6-23.

Belobaba, P., Odoni, A. and Barnhart, C. eds., 2015. The global airline industry. John Wiley & Sons.

Ben-Yosef, E., 2006. The Evolution of the US Airline Industry: theory, strategy and policy (Vol. 25). Springer Science & Business Media.

Boeing. 2021. 737 Updates. Available at: https://www.boeing.com/737-max-updates/?gclid=Cj0KCQjwkbuKBhDRARIsAALysV44I5a4MIt2V7D_VdWIFZaFTrsr23kUTbNOqkuveOh822cRpOFMdfsaAt2LEALw_wcB [Accessed 22/09/21].

Bouoiyour, J. and Selmi, R., 2018. Are UK industries resilient in dealing with uncertainty? The case of Brexit. The European journal of comparative economics, 15(2), pp.277-292.

Budd, L., Ison, S. and Adrienne, N., 2020. European airline response to the COVID-19 pandemic–Contraction, consolidation and future considerations for airline business and management. Research in Transportation Business & Management, 37, p.100578.

Cento, A., 2008. The airline industry: challenges in the 21st century. Springer Science & Business Media.

Cowper-Smith, A. and de Grosbois, D., 2011. The adoption of corporate social responsibility practices in the airline industry. Journal of Sustainable Tourism, 19(1), pp.59-77.

Dobruszkes, F., 2019. Air services at risk: The threat of a hard Brexit at the airport level. Environment and Planning A: Economy and Space, 51(1), pp.3-7.

David Mc A, B., 2013. Service quality and customer satisfaction in the airline industry: A comparison between legacy airlines and low-cost airlines. American Journal of Tourism Research, 2(1), pp.67-77.

Dube, K., Nhamo, G. and Chikodzi, D., 2021. COVID-19 pandemic and prospects for recovery of the global aviation industry. Journal of Air Transport Management, 92, p.102022.

Fabeil, N.F., Pazim, K.H. and Langgat, J., 2020. The impact of Covid-19 pandemic crisis on micro-enterprises: Entrepreneurs’ perspective on business continuity and recovery strategy. Journal of Economics and Business, 3(2).

Kuo, T.C., Kremer, G.E.O., Phuong, N.T. and Hsu, C.W., 2016. Motivations and barriers for corporate social responsibility reporting: Evidence from the airline industry. Journal of Air Transport Management, 57, pp.184-195.

Morrison, S. and Winston, C., 2010. The evolution of the airline industry. Brookings Institution Press.

Snider, C. and Williams, J.W., 2015. Barriers to entry in the airline industry: A multidimensional regression-discontinuity analysis of AIR-21. Review of Economics and Statistics, 97(5), pp.1002-1022.