Nature Of The Airline Industry Tourism Essay

Nature Of The airline business business constancy tourism EssayThis report identifies the business surround and draws comparisons of the credit lineline persistence pertaining to countries, India and China. An attempt has been made to put forwards the analyses of the broad macro-environment factors of the pains in terminations of Political, Economic, Social, Technological, Environmental and Legal factors (PESTEL).Apart from the above, the Five Forces analysis has been carried in order to assess the attractiveness of the industries and under(a)stand their potential for change.The airline manufacture with relevance to this report comprises of air transportation which includes both scheduled and chartered flights but excludes air freight transportation.The Focus of this report is to brook an tabuline of the present environmental conditions in terms of the nature of the airline labor, its structure, outlining the strategies employed by the players in the airline fabrication to sustain in tough economic environment and make an attempt to direct the future environmental conditions. Our prime justification to compargon the industry from India and China lies in our belief that the twain countries would and probably are transforming the global economy in the 21st Century. India and China have achieved nonplusth which fared in two ways as much as the global economy growth. A huge and demanding consumer class is also energy the economy northwards and it is essential for the countries to meet the aspirations of a demanding economy.Overview of the Global air passages laborFor the past two socio-economic classs, 2008 and 2009, air passage Industry was negatively chargedly affected by the economic downturn and the oil price hike. Now that the global economy is showing signs of convalescence, demand for air pop off is increasing from the previous years depressed levels. Combating the recessionary effect has not been easy as various measures like ace rb costs slashing capability and increasing load factor were adopted by the airline companies glob completelyy.Global airway industry account revenues of USD 380.5 Billion in 2009, achieving a Compounded Annual Growth Rate (CAGR) of 2.5% for the period 2005-2009 (Datamonitor, Global air ducts Industry). The occur number of passengers in the Airline Industry for the year numbered 2002.7 million and the numbers are expected to grow at a CAGR of 5% to 2551.5 million passengers by end of 2014. Strong rivalry and supplier ply characterizes the global airlines industry. Even though on that point are large number of buyers, Product differentiation is nominal and involves negligible casting costs. It also leaves the carrier vulner adequate to reduction in demand in the industry which is sensitive to the wider economy. Supplier power in the global airlines industry is strong as reliability and rubber of the flights are critical. Entrances to the airlines industry are restricted due to economic barriers. The up-front costs are huge and real financial backing is required to cover the initial costs and expenses henceforth from there.Airline companies today are forming e precise(prenominal)iance with some opposite companies with the intention to achieve diversified network of operations, scale economies in terms of corrupt of burn down, and even sharing of aircraft to reduce the power of the supplier. Code sharing has risen as a phenomenon contagious up in the Asia Pacific region of the world where companies are forming alliances with otherwise carriers around the world. Consolidation is a major opportunity for the players in the airline industry to amplification their revenues, cost savings and enhance competitory position.The global airlines industry is projected to benefit the service providers as there is a new client base in the present arising from the emerging economies which will fuel the growth of the industry and would foregather ontogenesis of new players giving more competition to the existing ones. With continued and sustainable demand for air travel, Airline companies would see opportunities which would be coherent with the rising aspirations of quite a little.The Indian Aviation StoryIn the year 2003, the intact world celebrated the centenary year of the powered flight. Indians had to wait for more than a decade to see the first aircraft airborne from the Indian soil. In the early December of the year 1910, a group of people from Belgium and England came to India with several airplanes. The idea was to showcase the marvel of a flying object and to explore business opportunities from it. Planes were showcased afterward assembling its parts. The groups were able to have a successful trip as their products were well received and were brought in by the royalties in India. It was December 15th 1932 when the first flight in India busyn off under the name of Tata Aviation, which later went on to become Air India. Tat a Aviation was moveed by JRD Tata after much protract negotiations with the government of India. Eventually, during 1953, an act of nationalizing all the airlines was passed in the parliament and Tata Aviation went on to become Air India which past served the planetary traffic.The Indian Airline industry has come a long way today. In the year 2009, Indian Airline industry grew by 9% to go along the evaluate of USD 7 billion. It grew by 35.5% to reach a volume of 73.8 million passengers. By 2014, it is forecasted to have a value of USD 17.9 billion and volumes of 156.2 million passengers. The Indian Airline industry experience growth even after seeing a period of pedigree in 2008. While the growth rate of Indian Airlines industry was far better than that of China, The airline industry in India could achieve merely one thirds of revenue when compared to the Chinese Airline industry. Like the global airlines industry, Indian airlines industry is characterized by strong rivalry a nd supply power, the buyers existence leisure travelers and business travelers while fuel suppliers, aircraft manufacturers and skilled employees as the key suppliers. High value sensitivity due to product differentiation being minimal strengthens the power of the buyers. Supplier power is strong as airlines make it into contracts with the suppliers and the industry lacks alternatives or substitutes. Price sensitivity is juicy and availability of alternative strengthens the buyer power. The entrance into the market poses economic barriers as there postulate to be solid financial back up to enter into this industry. Distributions and establishing networks and booking presence regionally are of critical importance for the success of a keep caller-up.Rivalry in the Indian Airline industry is strong and has increased since the presence of the suffering cost carriers. Costs are the determining factor for airlines as the Indian consumer today is more price conscious than ever.Over the past two decades, the Indian Airline industry has experienced both stagnation and unprecedented growth. The potential for growth in the Indian Airline industry remains strong as with massive population with growing incomes only when adds to the fact that the Airline Industry has a long way to go. Currently, only 2% of the Indian population takes to fly by air. Between the year 2003 and 2006, Indian Airlines industrys open sky policy opened the floodgates for the arrival of new start up carriers which changed the face of the industry beyond recognition. Liberalization in terms of allowing the home(prenominal) carriers to go international and allowing the international carriers greater access to the domestic market spurned the industry to achieve double flesh growth. However, the increase in traffic increased the top line of the players in the industry, but due to low margins, lower yields, inadequate airport infrastructure and lack of trained pilots and engineers saw many of the companies bleeding with negative bottom lines. As rising oil prices in the year 2008 hurt airlines all over the world, Indian tax systems made the matters even worse as it added 60% of total costs. Carriers were left with no other alternative but to pass on the burden to the customers who in turn chose alternative forms of transportation in the lead to 10-12 percent drop in traffic.A more positive environment is starting to emerge as the Centre for Asia pacific Aviation (CAPA) report suggests. According to CAPA, the airline industry is India is on the path of reco actually as figures from the mid year 2010 have suggested. Better operating environment, with gradual upgrade of airspace and screen background access development, would only help carriers achieve faster turnaround and higher aircraft utilization. The potential lies in the Indian Airlines Industry with CAPA predicting the industry having 1000 planes from 400 in the present and 4 times increase in traffic from the cu rrent trends. The performance of the industry is forecasted to accelerate and drive the industry to create positive value for the service providers as well as the customers.Environmental AnalysisAn assessment of external macro environment can be carried out by analyzing the Political, Economic, Social Technological factors. These factors are beyond a company or an industrys controls and sometimes can pose as threats. Following are the PEST analysis for the Indian Airline Industry.Political FactorIn India, Political interference has effects of all the major industries. The airline industry in general is very susceptible to the political environment of a hoidenish. A country with unstable political environment can cause doubts in the estimations of the traveler to travel to that particular country. India in particular has had to go through a lot in the recent years with mounting tensions with its westbound neighbours. The 26/11 terrorist attack on the financial capital of India ha s a profound impact on the airlines industry. another(prenominal) example of political factor causing capers for the Airlines Industry in India lies in the corrupt affirm of affairs that lies in the administration. Bribes have to be paid to obtain licenses and permits. Even recently, one of the most in effect(p) businessmen in the world, Mr. Ratan Tata complained about the corruption problem which discouraged him to start his own Airline Company. It was alleged that the civil aviation minister had asked Mr. Tata a sum of INR 1.5 million as a buy to give permit to start air services.State owned airline companies suffer the most because of this problem as due to political pressure, the government companies have to give special consideration with respect to route selection, offering informal seats to the ministers etcetera The state owned airline companies cannot stand up to the obsolescent laws, regulations and trade unions which in past have held the state owned enterprises o n ransom.Currently, In terms of enthronization FDI of 100% is allowed in the Airline Sector under the automatic route for Greenfield projects.Economic FactorsAirline Industry is greatly impacted by the business cycles. It is considered a luxury to fly during the recession which then leads to cuts in spending eventually leading to reduction in the air fares. During prosperity, People spend more and that leads to increase in air fares. Recent global recession has had a deep impact on all the major industries in the world. Aviation Industry too had its own share of set backs. Corporate travelers were cutting back on travel which would save costs and leisure travelers had deferred their travel plans. Even a company like Citibank in India had to cut down its costs to increase its profits for which even the top managers were allowed only to travel by train.The loss of income due to economic factors forced the airline companies to execute the corporate restructuring syllabus which result ed in several employees being laid off. Turnaround time, maintenance costs, jet fuels costs, staff costs, benefits costs etc. are some of the expenses which the airline companies have to take into consideration while pricing their air tickets. Anything to a lower place these costs the company losses which makes the company unsustainable in the industry/Social FactorsIndia, being a several(a) country has people coming from different parts of the country with different culture, language, food and preferences. Airline industry need to understand this along with the fact that there are people with varied income group and their needs should be served accordingly. India is a land of extremes with people coming from different walks of life. For example, a person subscribing to Jain religious belief needs to be served a special Jain food and it could be kept in mind that the person sitting next to him can be a vegetarian. One of the finer examples can be drawn from South West Airlines wh ich is a low frills airlines which has created a niche for itself in that segment. It has also successfully augmented its marketing mix strategy which has done wonders for it.Technological FactorsInternet has opened avenues for the airlines industry in a way which could never have been comprehended. For Example, Jet Lite has introduced a service on its website where it auctions a few(prenominal) unreserved seat on the flight one week prior to the departure date.Almost all airline companies offer their services through the internet. Right from booking the ticket to choosing the seat where one would prefer to sit on the flight. Apart from this, choosing the food from the menu can also be selected through the internet.Another good example of the impact of technology would be that of the Airport Authority of India, which with the help of technology was able to lease out its obsolete and unused hangers to international airlines thereby making huge profits out of the same.Technology deve lopment helps reduce costs, saves time and enhances service performance which is critical in a combative industry like the Airlines industry.Porters Five ForcesMichael Porter introduced a framework that models a sector or an industry as being influenced by five forces.This analysis has five-core element. These are1. Bargaining Power of Suppliers2. New Entrants3. nemesis of Substitutes4. Competitive Rivalry5. Bargaining Power of CustomersBargaining Power of SuppliersSuppliers for the Indian Airlines industry like other locations around the world as far as flight manufacturers are concerned are very limited. Globally, Airbus and Boeing are the only suppliers of aircraft which suit the industry requirements. There is limited bargaining opportunity for the Airline Industry in India hence is a threat for the industry.New EntrantsIt was difficult for a new player to enter the Airline Industry in India. There were lots of barriers to entry. Capital Investment to enter this industry is ve ry high but banks have increased the possibilities to avail short term or long term loans with less interest rate thereby increasing the threat of new entrants in the present markets. flagellum of SubstitutesInternational routes do not have any threats as there is hardly any other form of operable transportation available. However, Domestic travel can be competitive as high airfares encourage customers to look for alternatives ways to get to their destinations. Rail Road are probably the only feasible option available as they are only economical for shorter distances. A customer would prefer to travel long distance via road or rail only if the time factor allows the customer to take the alternative options.Competition RivalryRivalry within the industry is pretty intense at the secondment as all the airlines are vying for attract customer by offering lower fares, membership privileges, free meals on board and other additional benefits to grab the customer from the competitors.Barg aining Power of CustomerIndian travelers are highly price sensitive. With availability of many airlines to choose, cheaper price difference might just switch the customer to choose from one airline to another. Customers have some chance of bargaining in the domestic market as competition is intense in it whereas International routes gives less operations to bargain.