Airline Industry Analysis
Analysis of the
Airline Industry
Marketing Management
Fall II
December 8, 2003
Table of Contents
Environment . .. 3
Demand . .. 6
Competition .. .. 7
Product .. .. 9
Pricing . 11
Placement/Distribution .. . 14
Promotion 16
Conclusions . 17
References ... 19
The airline industry is facing one of its most challenging environments in history. A global economic recession coupled with the terrorist attacks of September 11, 2001 have led to a decrease in passenger traffic, reduction in revenue per mile flown, and rising labor costs. Additionally, a collapse in pricing power and a shift in the buying behavior of business travelers, coupled with fierce competition from low cost airlines, are forcing major airlines to restructure their operations or face the prospect of going out of business. The airline industry has responded to this difficult environment by taking measures to reduce their costs. Airlines announced layoffs involving more than 100,000 employees immediately following the attacks. To make matters worse for the industry, the Federal Aviation Administration (FAA) predicts only a gradual recovery in passenger traffic during the coming years.
Environment
The U.S. airline industry went through a deregulation process in 1977. Prior to deregulation, 34% of all passengers did not have a choice of selecting an airline and domestic carriers transported 240 million passengers annually (TIA.org website). After deregulation, 85% of all passengers in the U.S. had a choice of two or more carriers and traffic increased to 640 million passengers annually (TIA.org website). The growth in the number of passengers flying can be attributed to increased competition, innovations in marketing & operations resulting in lower
Airline Industry
Marketing Management
Fall II
December 8, 2003
Table of Contents
Environment . .. 3
Demand . .. 6
Competition .. .. 7
Product .. .. 9
Pricing . 11
Placement/Distribution .. . 14
Promotion 16
Conclusions . 17
References ... 19
The airline industry is facing one of its most challenging environments in history. A global economic recession coupled with the terrorist attacks of September 11, 2001 have led to a decrease in passenger traffic, reduction in revenue per mile flown, and rising labor costs. Additionally, a collapse in pricing power and a shift in the buying behavior of business travelers, coupled with fierce competition from low cost airlines, are forcing major airlines to restructure their operations or face the prospect of going out of business. The airline industry has responded to this difficult environment by taking measures to reduce their costs. Airlines announced layoffs involving more than 100,000 employees immediately following the attacks. To make matters worse for the industry, the Federal Aviation Administration (FAA) predicts only a gradual recovery in passenger traffic during the coming years.
Environment
The U.S. airline industry went through a deregulation process in 1977. Prior to deregulation, 34% of all passengers did not have a choice of selecting an airline and domestic carriers transported 240 million passengers annually (TIA.org website). After deregulation, 85% of all passengers in the U.S. had a choice of two or more carriers and traffic increased to 640 million passengers annually (TIA.org website). The growth in the number of passengers flying can be attributed to increased competition, innovations in marketing & operations resulting in lower
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