The Problems Faced by the Airline Industry

On September 4th, 2011, Posted by author

Last modified: October 26, 2015

The Airline industry, especially in the US, has been facing a lot of challenges even in its very survival ever since the deregulation in 2000 and the 9/11 tragedy. The industry, on the whole has been encountering

financial problems with many airlines going bankrupt. Other elements that added to the problem are the recession, conditions in the gulf countries, globalisation, and partnerships. Although the numbers of passengers have increased, the freight revenues have decreased, with older companies encountering rigorous competition from the newer and smaller low budget companies proffering minimal passenger amenities and thereby attracting more customers. (Grant R. M., 2005; Air Transport Association 2009 Economic Report, 2009; Borenstein & Rose, 2007), (see figure 1 below). In order to obtain sustained profitability, airlines have to review and evaluate the options available to them.

Figure 1 Real operating cost of Legacy and LCC firms (Source: Borenstein & Rose, 2007)

Good outcomes like increase in the volume of services to popular destinations, greater passenger numbers, and average lower fares have been offset by negative factors such as uncertainties in the financial and employment areas, decline in quality with fewer flights and higher tariffs to less popular destinations. The most unpleasant after-effects were the bankruptcy of many high profile carriers (Goetz & Vowles, 2009; Tiernan, Rhoades, & Waguespack Jr, 2008).

A pilot study on the airline industry using PEST, SWOT, Porter’s Five Forces, GAP and FAR to evaluate the issues in the sector in the recent years, including competition and rivalry brought out the following recommendations for facing the challenges: 1. Controlled deregulation as against the present unrestricted deregulation that is the key to the present problems and reducing fuel taxes, thereby reducing the fuel costs; 2. Formulation of norms by a vested authority to determine the appropriate fares and service quality; 3. Sharing of resources and competencies by the sick enterprises, thus reducing costs and improving efficiency; and 4. Appointment of a vested regulatory body that can apply the recommendations and act as monitors.

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