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Increased Competition: A direct result of the opening of what were once restricted markets dominated by national carriers, airlines must now compete with foreign carriers permitted to enter their traditional markets. |
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Most under pressure are high yield city pair markets and FBT (Fringe Benefit Tax) |
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Volumes Technologies Complexities: Relentless growth in air travel volumes. |
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Development of the hub and spoke networks allow for airlines to increase frequencies and city pairs. Unfortunately this has locked multi-hub mega-airlines into costly, mean and inflexible service models.
Alienation of the FBT has become a significant worry and challenge |
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Globalization: The airline industry is consolidating and building global networks. |
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The initial trend is market-driven - toward large alliances with a regional or global reach, and similar service offerings.
The second wave will seek operating synergies, delivering cost savings |
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Higher Fixed and Variable Costs: Fuel and labor costs outpacing market growth. |
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High interest rates on asset purchases, including aircraft and terminal (large hub) facilities, have severely affected the bottom lines of airlines since deregulation.
In an effort to reduce costs, airlines turn to franchises and fleet rationalization and outsourcing |
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Business Cycle Sensitivity: Downturns in local and international economies directly impinge airline profitability. |
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Examples include the economic downturn in the early 1990’s, the Asian economic crisis of 1998 which adversely affected airline operating margins |
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Safety and Security: September 11 has had a major impact upon operations, and risk management is now a major focus of boards of directors, and CXO level management. |
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Global alliances pose significant risk management issues for airline boards.
Airport costs are rising and customer service will remain a focus during transition to safer skies |
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Economy and business: Economic conditions remain difficult, forcing travel providers to focus on cost control. |
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Competition from low-cost providers forces change to business models.
There is a growing need to mitigate reduction in demand by better revenue management. |
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| Continued pressure to reduce distribution costs: Travel agency commission from airlines in Europe is a token 1 percent. |
