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Factors Influencing Airline Industry Performance In Europe Tourism Essay

2991 words (12 pages) Essay in Tourism

5/12/16 Tourism Reference this

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The airline transportation industry started in Europe with KLM the Netherland national airline which was founded on 7 October 1919, making it the oldest carrier in the world and the company is still operating under its original name, although the company stopped operating during the Second World War – apart from the operations in the Dutch Antilles in the Caribbean. The first KLM flight was on 17 May 1920, from Croydon Airport, London to Amsterdam carrying two British journalists and a number of newspapers. [1] 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 state-sponsored. Examples include British Airways, Lufthansa, Swiss International Airline, SN Brussels, Alitalia, Iberia, Air France KLM and many others which are still the major airlines carrier in Europe today.(Debarshi Datta and Subham L. Chakravarty, 2006) [2] We cannot talk about the airline industry without mentioning the IATA (International Air Transport Association). IATA is an international trade body, created in 1944 by a group of airlines. Today, IATA represents some 230 airlines comprising 93% of scheduled international air traffic. The organization role is also to represents, leads and serves the airline industry in general. All the rules and regulation in the airline industry are set by IATA. The main aim of IATA is to provide safe and secure transportation to the passengers. [3] 

Over the years, the airline industry has grown from an experimental mode of transportation to a major part of the world’s transportation system, carrying an estimated 1.5 billion passengers annually. Airline industry today is facing multiple difficulties and most of the traditional airlines today are having losses. IATA said airlines Carriers have suffered losses of $50bn over the past 10 years, and still face a series of risks which are the factors that directly causes these bad performances. We have identified those factors in the European airline industry ranging from international financial crisis, terrorism threats, alternative transport mode, foreign competition fuel cost fluctuation to the presence of low cost carrier.

Fuel cost fluctuation

Today airlines companies face many problems there are many factors that contribute to these problems and the unstable fuel cost is one of them. The value of a barrel of oil has a direct impact on airliners within the European aviation industry. With the current political disputes in Eastern Europe between Ukrainian oil and gas company Naftohaz Ukrainy and Russian gas supplier Gazprom over natural gas supplies, numerous European countries that depend on Russian natural gas transported through Ukraine. The unrest in Nigeria with pipelines attacks, kidnapped petroleum company employees and in the Middle East with Iraq war and Iran nuclear ambitions, all this influence the oil production in these countries therefore the cost of oil is likely to rise as is the unstable nature of this resource and industry in general. According to the statistics from the General Aviation Bureau, due to the fuel price surge, the cost of fuel has accounted to 31% of the cost of major business of airline companies in the first half of the year 2008 from 22%. The whole airline industry has afforded additional cost expenditure of $200 million for the same period. Increases in fuel prices affect the airlines in many ways, first the cost of fuel has an obvious and direct impact on the cost of operation, and secondly fuel cost increases have repeatedly triggered economic recessions, which in turn result in a substantial decline in demand for air travel and air cargo. Fuel price increases have a particularly adverse impact on airlines because even in good time fuel costs constitute around 10% to 12% of their operating expense. Every penny increase in the price of jet fuel costs the airline industry $180 million a year. [4] In the absence of pricing power, the ability to pass these costs along in the form of higher airfares -these increases comes right off the bottom line of these companies. [5] The airlines are doing everything they can to conserve and reduce their fuel consumption. With the evolution of commercial aviation, airlines have insisted upon the most fuel-efficient aircraft possible and have worked with airframe and engine manufacturers to reduce fuel consumption but still the fuel price is an incontrollable factor that they have to deal with.

Terrorism threats

The impact of the terrorism on the Airline industry is still present few years after September 11, 2001. This continues to have a strong influence on the air travel industry. Some airlines did not survive the financial wreckage immediately after 9/11 – most laid off workers, and it seemed that other terrorist plots were uncovered or thwarted in an age of security alerts. [6] The September 11 bombing has a very negative effect on all the airlines companies due to the fact that many people start to fear for their security, with the final result of a decline of the people wish to travel by plane and therefore airlines sales. Because of the recession in the airline industry at that time many companies have gone bankrupt. [7] The most recent terrorist attack in a plane was in Christmas day December 25, 2009, Oumar Farouk Abdulmutallab travelled to Amsterdam, where he boarded Northwest Airlines Flight 253 en route to Detroit, Michigan while reaching he tried to blow up the plane with and explosive but he was stopped by the passengers. This attempt shows that the terrorism threat is still present. Today, there are new security checks before boarding the latest one is the scanner. The others were implement after 9/11.Some of these check up are very outrageous Shoes and belts off, Laptops out. Hands up Standing in an especially long security queue, passing through the metal detector, dogs. All liquids, gels and aerosols must be in 100ml or smaller containers. Larger containers that are half-full or toothpaste tubes rolled up are not allowed. All liquids, gels and aerosols must be placed in a single, quart-size, zip-top, clear plastic bag. Gallon size bags or bags that are not zip-top such as fold-over sandwich bags are not allowed. Each traveler can use only one clear plastic bag. [8] Many others other restrictions make passengers even more uncomfortable. All this mix with the fear of a potential risk of terrorist attack in a plane because they have seen what happen before make people change their way of travelling. That is one of the reasons why there is a reduction in the flight ticket sales in European countries.

Financial crisis

The International Air Transport Association (IATA), which represents most of the airlines worldwide, reported in December 2008 that international air passenger traffic fell 4.6% year-over-year, and only about 74% of plane seats were sold. International air cargo volume fell an unprecedented 22.6% year-over-year, a sign of the slowdown in world trade and plummeting consumer spending. [9] This is the first time in memory that airlines in virtually every region of the world have been simultaneously hurt by falling ticket sales and cargo loads. The international financial crisis make a lot of company went bankrupt and the one which didn’t close cut down their workforce to face multiple difficulties. Many people today spend less money for their travel and leisure time because they earn less and some family even suspend totally the travels to use the money for other purposes. People like to conserve money to cover the essentials of life such as food, shelter and family necessities. Europe had been hit by the crisis and millions of person lost their jobs. There has been a marked reduction in business activities and consumer spending, and this affects the airline industry, as business travel slows, and discretionary spending on leisure travel goes down. Companies such as British airways, Air France KLM, Alitalia and many others are facing financial difficulties. With millions euro of losses since 2008 company like British airways even ask the employee to work for free a week or more than that to save the company.

Foreign competition

Airlines is a very competitive industry most of the countries around the world have their national airline company and apart from that there are private owned Airlines all over the world. Air transport within the EU has been liberalised through three successive packages of directives and regulations. The effects of these different steps taken have been to extend the principle of the “single market” to air transport within the EU. The liberalisation process of the European airline market (open skies) has led to stronger competition with an increase in the supply of air transport and lower tariffs, especially on routes where airlines compete. (J.F.Pons, December 1999) [10] apart from this, there are others agreement that European countries had signed with Asian, African and American countries to allow their companies to operate in Europe. All these agreements make the European market the toughest in term of competition. The competitors of European companies are Singapore Airlines, Emirates, American Airline, Continental and others. But the most aggressive competitors come from the Middle Eastern airline such as Etihad Airways and Qatar Airways these two companies are not making any profit since their creation there are granted by their respective government therefore their quick expansion. Qatar Airways only operate with more 82 planes and has 220 planes in order for more than $40 billion worth and Etihad airways operate with 56 planes and has 106 planes in order the company is planning to double the number of cities Etihad services to 100 and to fly 25million passengers by 2020. [11] These goals will be supported by Etihad’s $43 billion shopping spree at the UK’s Farnborough Air Show at which it purchased 55 Airbus aircraft and 45 aircraft from Boeing. [12] This show that the competition in the European market will be more difficult with time to come therefore the European airlines carrier must be ready to face it.

Alternative transport mode

The evolution of technology today brought various ways of travelling and ameliorates the existing transportation mode. There are many alternative way of travelling without taking a plane such as bus, train, boat and many others. The building of new infrastructure had reduced the travel distance. Today the main alternative transportation mode that we can consider as a potential concurrent is the high speed train with the constructions of the tunnel under Manche Sea to link Britain with mainland Europe. Eurostar (high speed train) operate this route linking London to Paris and Brussels. [13] The time that it takes to link London to Brussels in Belgium with the high speed train is just 1hour 51 minutes and it is two times cheaper than the flight ticket. With a multilingual staff, their aim is to offer integrated high-speed rail travel between major European cities and to compete with airlines on punctuality, environment, pricing and speed. A high-speed rail network a cross seven countries in Europe will soon compete with airlines as the most convenient way to travel. The intercity network will mean that a passenger will be able to hop on a train travelling from London to Frankfurt in just five hours for as little as £69. Passengers will also be able to travel between France, Germany, the Netherlands, Belgium, Switzerland and Austria without leaving the ground in the year 2007 15 millions person use this train and they are planning to have more than 25 million passengers by 2010. All this level we can see that the high speed trains are serious concurrent because they are targeting airline passengers as their potential future customers. [14] 

Presence of Low Cost Carrier (LCC)

Low cost carrier are those airlines which offer low fares for all the destinations where they are operating and charge for food, priority boarding, seat allocating, and baggage’s. This type of company lowers their operating cost. With just a single class and more seats in the plane and a multi task for example flight attendants also cleaning the aircraft or working as gate agents, simplified routes, emphasizing point-to-point transit instead of transfers at hubs. This help the company to considerably reduce it operation cost and therefore sells it flying ticket at a low price. The major low cost carriers in Europe are Ryanair, Easy jet, Germanwing and Tulfly. On March 2010, The European Low Fares Airline Association (ELFAA) announced that last year its members carried 162.5 million passengers and accounting for over 35% of scheduled intra-European Air traffic, representing an 8.7% increase on the previous year. [15] . A Low cost Carrier like Ryanair make a profit of €105 million at the year ended 2009 compare to British Airways a traditional airline carrier which make a loss of £358 million at the year ended 2009. [16] We can see that the low cost carriers are growing very fast and they have a control over their operating cost. That is why they are the only Airlines which make benefits today although the airline industry is in crisis. Low cost carriers’ fares are one of the reasons why traditional airlines are facing difficulties today and these LCC are therefore attracting the passenger of the traditional carrier.

Research frame work

Independent variables dependent variable

Fuel cost fluctuation

Terrorism threats

Financial crisis

Foreign competition

Alternative transport mode

Presence of Low Cost Carrier

Airline Industry performance in Europe

Research objectives

To examine how fuel cost fluctuation affect the airline industry performance in Europe

To determine the effect of the terrorism threats on the airline industry performance in Europe

To survey the impact of financial crisis on the airline industry performance in Europe

To analyse how the foreign competition influence the airline industry performance in Europe

To identify the alternative transport mode and his effect on the airline industry performance in Europe

To understand how presence of low cost carrier impacts the airline industry performance in Europe

Research methodology

1-Target respondent: our target respondent in this research will be the management people of the Airlines companies and in certain measure the customers. We choose these persons because they are the one directly concern by our research and they can give their feedback which is what we are looking at.

2- Types of data

Secondary data: are information from secondary sources, it is not directly compiled by the analyst and could include published or unpublished work based on research that relies on primary sources of any material other than primary sources used to prepare a written work. Here we have to show the sources of the secondary data used in our research we exploit; Websites, Journals and books.

Primary data: Are information that has been collected at first hand. Theses specifics information’s are collected by the person who is doing the research. Primary data collection involves measurement of some sort, whether by taking readings off instruments, sketching, counting, or conducting interviews (using questionnaires). To interview our respondent, we will use the personal interview for the management people of the Airlines companies because they will be few and to have an accurate answer. For the customers, we will be using the telephone interview because it is the one that we will have a direct access to the customers and therefore they will be less chance of having a mistaken answer from the respondent. Our research here doesn’t use primary data but this is the questionnaire that can be used when interviewing the persons involves (respondent).

3- Measurement

Variables

Measurement

The industry performance

-Passengers loading

-profitability

Fuel cost

-World fuel price

Terrorism

-Number of incident and places

Financial crisis

-Economic data GDP

Foreign competition

-Number of foreign Airlines

Alternative transportation

-Number and types of different alternative transportation

Low cost carrier

-Number of Low cost carrier

Time scale:

Gantt chart

Task

Month1

Moth 2

Moth 3

W1

W2

W3

W4

W1

W2

W3

W4

W1

W2

W3

W4

Writing of proposal

Submission of proposal

Proposal defense

Data collection

Organization of data

Analysis of data

Writing of dissertation

Submission of dissertation

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