Is the Sky the Limit? An Examination of the Airline Industry

By Sumantra Banerjee (New York University) & Sarah You (Western University)


Table of Contents


Synopsis:

  1. Briefly introduces the airline industry and addresses key players

Industry analysis:

  1. Part 1: External analysis: external factors around the world that influences performance of the airline industry using PESTLE analysis

  2. Part 2: Internal analysis: examines strengths and weaknesses within airline industry using Porter’s Five Forces model

Significant trends:

  1. Identifies major recent and ongoing trends that influence the airline industry

I. Impact of COVID-19

  1. The COVID vaccine and implications on the airline industry

  2. Differences in performance recovery across nations

II. Impact of oil prices

Conclusion:

  1. Summarizes main points discussed in this report and gives overall judgement on outlook


Synopsis


The airline industry is pivotal to the global economy by enabling and facilitating tourism and trade, having contributed to over 87 million jobs globally and $3.5 trillion (around 4.1 %) to the World’s GDP. Unfortunately, the ongoing COVID-19 pandemic has undoubtedly significantly limited corporate and individual travel, threatening airlines and their ability to generate revenue, employee retention, and market position. Additionally, the industry is deeply tied with oil prices, which is fluctuating almost on a whim.



External Analysis


To analyze external factors impacting the airline industry the PESTLE model was used. This framework is useful in understanding the macro environment of the landscape by scrutinizing political, environmental, social, technological and legal drivers.


Politics plays a key role in travel and tourism, as in many countries, airlines operate in an environment with stringent regulations. These regulations are often tightened by trade policies, war, terrorism, and disease outbreaks such as COVID-19. Government intervention is thus required in aviation to maintain passengers’ safety.


Moreover, following 9/11 and the subsequent recent terrorist attacks, airlines have increased security measures to assure customers about their safety. These measures may inconvenience customers considering they require earlier arrivals to airports and more buffer time spent between entering the airport and reaching the gate. While inconvenient, airlines cannot afford to compromise on security measures following the significant losses from events such as 9/11.


In order to reduce the financial burden the pandemic has brought to the airline industry and workers, the US government issued $58 billion in grants and loans to major airlines as part of its CARES (Coronavirus Aid, Relief, and Economic Security) Act, passed in March 2020. European airlines have sought over €42 billion in relief funding as of January, with German airline Lufthansa receiving €7 billion, the greatest amount out of any European airline.


Economically, most of the air travel industry is heavily dependent on traffic from individuals. This makes the industry as a whole quite cyclical, meaning the industry depends on global economic performance. If a country enters a recession, airlines face significant losses in revenue. As world economies remain unstable following the COVID-19 pandemic, revenues of these airline companies are likely still going to be stifled.


As profits began decreasing due to the maturity of the industry, a new model of delivering flight services emerged.