Airline Industry Analysis

Case Analysis: Airline Industry

Case Introduction

The history of the Airline Industry has been up and down through the years. In the 1930's passengers were the industrys biggest customer and the rise of demand ensured the industry for rapid growth. Because of this increased demand Congress was led to establish CAB (Civil Aeronautics Board) a way for the government to regulate the industry and their competition. The CAB regulated the airlines by awarding routes, setting fares, and deciding on new entry and mergers. The government's aim by creating CAB was to develop the airline industry but what happened over time was creating an inefficient system. Airlines basically became monopolies. In 1978 the Airline Deregulation Act was passed which abolished CAB and all of its restrictions. An era of free market competition for the airline industry had begun.

PESTEL Analysis

PESTEL analysis is popular for examining the general environment and understanding key factors and trends and how they influence the industry. Below is described the six dimensions of PESTEL.

Political Factors

The government first began to regulate everything the airlines industry was doing. Congress created CAB to regulate and limit competition for the industry. Fares were set for the concern of the public's affordability and the airline's profitability. Soon the government realized the industry became a monopoly and public dissatisfaction was at an all-time high. The barrier to new entry kept the industry from getting healthy competition that could have benefited them in the long run. Not much longer did the public call for a reform of the airline industry and political trends favored less government oversight and more reliance on market forces. The Airline Deregulation Act abolished CAB and its restrictions over routes, fares and new entry but not safety and operating standards.

Economic Factors

The growth of the U.S population was a major factor in the high demand and passenger traffic for the airline industry. Two other factors the also contributed to the increase are deregulation and the economy. Deregulation made air travel available to many more customers with price-based competition and low fares. The economy made the demand rise all on its on as well. The U.S. GDP rose from $500 billion in 1950 to $14.7 trillion in 2010. The absence of an inflation resulted in a disposable income increased the market and demand for air travel. These numbers are still significantly lower than the all-time high in 2007. As of 2009 the industry had taken a loss of nearly $60 billion. The 2007-2009 recession had taken a heavy toll on the airline industry. In the turnaround years after the recession the U.S. Federal Aviation Administration predicted