This is marketing research on the Airlines industry and can include information on the background, market structure, definitions, competitors, trends and developments of airlines and is related to other topics such as planes, flight, flying and aircraft.

Table of Contents

[edit] Background

Airline industry can be best described as an "intensely competitive market." Air travel remains a large and growing industry. It facilitates economic growth, world trade, international investment and tourism and is therefore central to the globalization taking place in many other industries.

In recent years there has been an industry-wide shakedown having far-reaching effects on the trend of expanding domestic and international services. Originally, the airline industry was either partly or wholly government owned. This is still true in many countries, but in the United States all major airlines are private.

On a global scale and especially in the United States, the airline industry has been in a financial crisis for much of this new century. The problems that started with economic downturn at the beginning of 2001 reached almost disastrous proportions after September 11, 2001. The industry is in the midst of a restructuring that involves fundamental changes. Competitive pressures from low-cost carriers, problems with the air transportation system’s reliability and operating performance, and soaring fuel prices are inhibiting the full recovery of industry.

[edit] Market Structure

Today, the global airline industry consists of over 2000 airlines operating more than 23,000 aircraft, providing service to over 3700 airports. In 2006, the world’s airlines flew almost 28 million scheduled flight departures and carried over 2 billion passengers. The growth of world air travel has averaged approximately 5% per year over the past 30 years, with substantial yearly variations due both to changing economic conditions and differences in economic growth in different regions of the world.

This airline industry is classified into four categories:

1) International - 130+ seat planes that have the ability to take passengers just about anywhere in the world. Companies in this category typically have annual revenue of $1 Billion or more.

2) National - usually these airlines seat 100-150 people and have revenues between $100 million and $1 billion.

3) Regional - companies with revenues less than $100 million that focus on short-haul flights.

4) Cargo - these are airlines whose main purpose is to transport goods. Significant factors affecting airline industry include: Airport capacity, route structures, technology, and costs to lease or buy the physical aircraft.

Other factors that can have a significant impact:

Weather - The problem is that weather is variable and unpredictable. Extreme heat, cold, fog, and snow can shut down airports and cancel flights (which costs money). Weather is also the second-largest cause of flight accidents.

Fuel Cost - on average, fuel can make up 14-16% of an airline's total costs, although efficiency among different carriers can vary widely. Short haul airlines typically get lower fuel efficiency because take-offs and landings consume high amounts of jet fuel.

Labor - it is estimated that 40% of an airline's expenses are used to pay pilots, flight attendants, baggage handlers, dispatchers, customer service, and others.

Airlines also earn revenue from transporting cargo, selling frequent flier miles to other companies, and 'up-selling' in flight services. But, the largest proportion of revenue is derived from regular and business passengers.

[edit] Industry Definitions

• Revenue Passenger Mile = (# of revenue paying passengers) X (# of miles flown during period)

• Air Traffic Liability (ATL) An estimate of the amount of money already received for passenger ticket sales and cargo transportation that is yet to be provided. It is important to find out this figure so you can remove it from quoted revenue figures (unless they specifically state that ATL was excluded).

• Load Factor: This indicator, compiled monthly by the Air Transport Association (ATA), measures the percentage of available seating capacity that is filled with passengers. Analysts state that once the airline load factor exceeds its break-even point, then more and more revenue will trickle down to the bottom line.

• Codesharing: An agreement between airlines to sell space on each other's flights.

• Short Haul: Shorter flights, both in terms of distance and duration.

• LCC : low-cost carrier or low-cost airline (also known as a no-frills or discount carrier / airline) is an airline that offers generally low fares in exchange for eliminating many traditional passenger services. The term originated within the airline industry referring to airlines with a lower operating cost structure than their competitors.

• Travel Arrangement and Reservation Services - This U.S. industry comprises establishments (except travel agencies, tour operators, and convention and visitors bureaus) primarily engaged in providing travel arrangement and reservation services (Airline reservation services and Airline ticket offices). Companies in this industry provide a range of support services to air transportation operators, including re-fueling aircraft on a contract or fee basis, ferrying aircraft between departure gates and taxi-ways, and aircraft maintenance, repair and overhaul. This industry serves domestic and international, and commercial and private air carriers operating out of US airports. Many companies also supply services to the US military. Services provided by this industry do not include fuel wholesaling, the re-building of aircraft, the provision of air traffic control services, and the provision of airline catering services.

[edit] Market Metrics

Worldwide, IATA, International Air Transport Association, forecasts international air travel to grow by an average 6.6% a year to the end of the decade and over 5% a year from 2000 to 2010. In Europe and North America, where the air travel market is already highly developed, slower growth of 4%-6% is expected. The most dynamic growth is centered on the Asia/Pacific region because of fast-growing trade and investment and rising domestic prosperity. Air travel for the region has been rising by up to 9% a year and is forecast to continue to grow rapidly.

From the 2007 outlook, the global economy is expanding and long-term GDP is expected to grow at 3.1%. More countries are deregulating airline markets. Significant growth is expected in RPKs and RTKs, and number of air passengers. Historically, the annual growth in air travel has been about twice the annual growth in GDP. Even with conservative estimates of economic growth over the next 10-15 years, a continued 4-5% annual growth in global air travel will lead to a doubling of total air travel during this period.

Rapidly expanding low-cost airlines will bring affordable air travel within reach of many more people worldwide, accounting for more than a third of the market for new airplanes. More than half the new deliveries will go to traditional carriers, competing with a strong focus on service innovation and network development.

Developing regions are becoming more significant on the world stage. Rapidly developing economies of the world will increase their share of the need for new airplanes. Over the next 20 years, the demand for world airline fleet will move substantially toward the Asia-Pacific region. More than one third of the value of new airplanes delivered will be accounted for by Asia-Pacific, compared with about a quarter for North America and a quarter for Europe and the CIS.

28,600 new airplanes will be delivered over the next 20 years. These new airplanes will make up 80 percent of the 36,400 airplanes in service in 2026.

The high proportion of deliveries accounted for by single-aisle and twin-aisle airplanes means that more people will be able to go direct to their intended destination.

[edit] Industry Players

Delta Air Lines, Inc., together with its subsidiaries, operates as an air carrier in the United States and internationally. It provides scheduled air transportation for passengers and cargo. US Airways Group, Inc. provides air transportation for passengers and cargo. It operates approximately 4,000 flights daily to 240 communities in the United States, Canada, the Caribbean, Latin America, and Europe. Continental Airlines, Inc., engages in the transportation of passengers, cargo, and mail. As of December 31, 2006, it flew to 136 domestic and 126 international destinations, as well as offered additional connecting service through alliances with domestic and foreign carriers. UAL Corporation offers air transportation services. The company, through its subsidiary, United Air Lines, Inc., provides transportation of persons, property, and mail in the United States and internationally. It provides its services through jet aircrafts, as well as smaller aircrafts in its regional operations. AMR Corporation (AMR), through its subsidiaries, operates as a scheduled passenger airline in the United States. Its principal subsidiary, American Airlines, Inc., provides scheduled jet service to approximately 150 destinations throughout North America, the Caribbean, Latin America, Europe, and Asia. American Airlines also operates as a scheduled air freight carrier, providing a range of freight and mail services to shippers throughout its system. Northwest Airlines Corporation, through its subsidiaries, operates passenger and cargo airlines worldwide. It operates approximately 1,400 daily departures, with hubs in Detroit, Minneapolis/St. Paul, Memphis, Tokyo, and Amsterdam. The company serves approximately 900 cities in 160 countries, through a global airline alliance partnership.

[edit] Recent Trends and Developments

For the airlines, the new security procedures have increased operating costs and induced more security-related flight disruptions and delays. As in many mature industries, consolidation is a trend in airline industry. Airline groupings may consist of limited bilateral partnerships, long-term, multi-faceted alliances between carriers, code sharing, equity arrangements, mergers, or takeovers. Since governments often restrict ownership and merger between companies in different countries, most consolidation takes place within a country. Ticketless travel, new interactive entertainment systems, and more comfortable seating are just some of the product enhancements being introduced to attract and retain customers.

[edit] Sources

• Boeing website
• International Air Transport Association (IATA), Fact Sheet: World Industry Statistics
• Global Airline Industry Program – Airline Data Project
• Yahoo finance

[edit] Related ResearchWikis

Aerospace Marketing Research

Aviation Marketing Research

Airlines - Survey 2007

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