Airline industry

Introduction The global airline industry has always been an integral part of the world economy due to its major economic force for transportation, manufacture, technology and other sectors in modern society (Business Vibes, 2012). Development of worldwide aviation transportation has meant that the industry has been able to cover virtually every country in the world since 1905. The Airline industry now consists of over 2000 airlines operating more than 23,000 aircraft that provide service to over 3700 airports.

(Businessvibes, 2012) The International Air Transport Association (IATA) suggested that profits where reduced to $4 billion in 2011. Scope & Size Of the Industry In 2011, over 2. 8 billion passengers were carried between the world’s airlines. This demonstrates the mass appeal to transportation by air and the fact that it allows employment to over 56 million people worldwide in aviation and tourism. (ATAG, 2012). To put the airline industry into perspective, it would rank 19th in the world generating $539 billion dollars GDP per year.

This is considerably larger than some G20 countries, estimated similarly to the same size as Switzerland. (ATAG, 2012). It is forecast that by 2026, the industry will contribute $1 trillion to world GDP (ATAG, 2012). Despite the fact there is over 2000 airlines, each airline generally relies upon either one of the two-airline manufactures. These are Boeing or Airbus, both that are extremely wealthy companies. Boeing & Airbus are extremely competitive against each other and often have court disputes against each other.

The most recent dispute was dated in May 2011, where both companies claimed victory after the World Trade Organisation overturned the ruling in which saw Airbus receive billions of Euros in illegal subsidies. (BBC News, 2011). The US complained to the WTO as they thought the $18 billion subsidiary was deemed to ‘cause serious prejudice’ to US interests (BBC News, 2011). Growth Rate The Airline Industry woes are expected to continue, with humble profits produced mainly by limiting capacity.

Both Boeing & Airbus already have a backlog of orders due to carriers deferring their orders due to the poor growth in clientele and falling flight prices. (The Economist, 2012). Other factors that are damaging the threat of growth in the Airline industry are the threat of terrorism & increase in fuel prices. Are these factors putting people off? In 2009, there was an immediate decline in air travel by 30% (ehow) after the attack on the twin towers. The drastic decline maybe explained by the fact many feared there could be another terrorist attack in the nearby future.

Rising fuel prices in 2012 are set to have an enormous impact on the industry and set to shrink profit margins awfully tight. The industry’s global trade body has warned that annual profits have been cut by $500m (Financial Times). Due to the Increase in fuel prices, many airlines have decided to provide the A380 aircraft, which carries roughly 500 people depending on the configuration. This has helped achieve economies of scale for many companies. Market Share The Airline Industry is incredibly competitive and diverse globally so it is difficult to summarise market share of companies.

However, because of this reason returns are usually lower than expected. This can result in difficultly at times of economic recession. The supply in airline industry is very limited and dominated by Boeing & Airbus, which means there is very little aggressive competition. It is very unlikely to see a supplier vertically integrated. This means it is highly unlikely that Boeing or Airbus would start offering flight services. The bargaining power of airline companies is surprisingly very low.

This is because the majority of aircraft are very similar and airliners struggle to offer added value to their service, unless of course you pay for an upgrade. Some of the major leaders of the Airline Industry are: International Airlines Group Emirates Lufthansa Qantas Virgin FedEx (Cargo) Delta Airlines Conclusion Despite the growing concern in the Airline industry due to reasons explored in this report and the vastly competitiveness it presents, it is evident that the airline industry is a global interest throughout the world, allowing people to travel & allow business transactions to be easily completed.

Word Count: 701 References ATAG (2012). Facts & Figures. Retrieved 25 Novemeber 2012 from http://www. atag. org/facts-and-figures. html BBC News (2011). WTO Airbus ruling leaves both sides claiming victory. Retrieved 25th November 2012 from http://www. bbc. co. uk/news/business-13443055 Business Vibes. (2012), Global Airline Industry Overview. Retrieved 25th November 2012 from http://www. businessvibes. com/blog/global-airline-industry-overview Ehow (2012). The effects of 9/11 on Airline travel.

Retrieved 25 November 2012 from http://www. ehow. co. uk/facts_7292639_effects-9_11-airline-industry. html Financial Times (2012). Fuel prices put pressure on airline profits. Retrieved 25 November 2012 from http://www. ft. com/cms/s/0/aa028df6-727e-11e1-9c23-00144feab49a. html#axzz2DK6walrG The Economist (2012). Ghost at the Feast. Retrieved 25 November 2012 from http://www. economist. com/node/21556960 The Economist (2012). Travel & Tourism. Retrieved 25 November 2012 from http://www. economist. com/news/21566577-travel-and-tourism