Introduction
Airline companies offer air transport services and freight. An airline company may lease or own an aircraft for business purposes. The governmental aviation body is responsible for issuing air operating certificate or license. There are many companies operating in the Airline Industry, in US and UK. This implies that there is high competition in order to maximize on the market share. The macro environment factors involve the factors which are not within the control of the organization. The organization or a business will adjust itself in order to remain relevance in the market. Every organization must employ certain factors in order to build long term relationship with their customer. The macro-environment plays a very noteworthy role in shaping the success of the product in the market. The macro-environment factors affecting marketing are summarized by an acronym SPELT .
A SPELT analysis is an external strategic tool which is used by organizations and businesses in understanding the changes in the market. In this case, a SPELT analysis of the airline industry will be carried out. This involves analyzing the market for potential external opportunities and internal threats. The tool is relevant when an organization joins a new market. A SPELT is an acronym which refers to social-cultural factors political factors, economic factors and technological factors. Economic and political climate in American Airline industry provides favorable conditions for businesses to carry out their operations. The airline industry was deregulated in US in 1978.
In the recent years, there has been a tendency to privatize the airline industry. Majority of the airlines are owned by individual sectors or organizations. The trend has been facilitated by the greater freedom permitted by the airline regulators. There has been an increase in demand for the airline services across the world. This has led to manufacturing of a new generation airplanes. Some of the notable airline companies in the airline industry include American Airline (AA), Virgin Airline, China Pacific and Delta. The study will focus on SPELT analysis of the airline industry.
- Socio-cultural factors
The socio-cultural factors play a crucial role in the airline industry. The social factors in the airline industry include the safety measures employed by the airline companies in the airline industry in order to maintain competition. The population growth affects the airline industry. The reluctance to fly by some passengers and the need to rebuild confidence among the passengers in air travel is a major socio-cultural factor which affects the airline industry operations. The social effect on the airline industry contributes significantly to the amount of the profit earned by the companies in the industry. The quest for efficiency and high quality services is a source of competitive advantage. This has become a major concern for a majority of the airline companies. China airlines, for example, have been on the constant development of product innovations in order to provide the most comfortable and convenient services for its customers. The China Airlines have professional chefs who offer world-class cuisine. The airline also hires highly skilled and specialized staff. Recruits into the company must attend International Aeronautic Institute. These are some of the social cultural factors that have a significant effect on the airline industry .
- Political factors
The political factors involve the legal and regulatory factors affecting the airline industry. The airline industry was deregulated in 1978. The main reason behind the deregulation process was to increase market share and thus the economies of scale. This would help to promote competitiveness in the airline industry. The deregulation process was also meant to allow the United States airline companies to compete against each other through venture capital. The political stability in United States provides favorable conditions for the operation of Virgin Atlantic and American airlines. Virgin Airline has its headquarters located in the United Kingdom. The country has a good political climate. This facilitates the operations of Virgin Airlines. Airline companies are also liable to pay taxes for landing in different countries. Fuel taxation also needs to be paid. These are examples of the political factors that have an impact on the airline industry. The liberalization of skies led to increase in competition, in the airline industry. The ownership rules have been relaxed by the aviation regulatory body. Liberation was mainly in the European Union countries and in United Sates. This has led to an increase in market size .
- Economic factors
These are the economic growth trends in different countries. United Kingdom, United States and China have good economic climate. The high rate of economic growth has led to the growth of the airlines in the airline industry. However, the airline industry faces high competition from low cost airlines such as Ryan air limited. The low cost airlines attract a large number of customers. This leads to decrease in passenger numbers, in the airline industry. There has been an increase in cost, in the airline industry. The main cost is the insurance cost and fuel taxes. The deregulation process in 1978 has exposed the airlines to financial trouble. The airline companies mainly form alliances rather than mergers. The airline industry is located in countries with high growth rates. The countries are the world leader in terms of nominal GDP and the purchasing power parity. This provides favorable conditions for their operations. The airline industry is made up of large companies. The companies have a significant market share in the airline industry. This helps to ensure constant demand for their services.
- Technological factors
The technological factors that have an impact on the airline industry include inventions, new discoveries and research and development. High technology is a major source of gaining competitive advantage over the rival firms. New technology helps to create barriers to entry into the industry. The airline industry is made up of firms with high economies of production. The companies occupy a large market size. Virgin Atlantic, for example, is the seventh largest airline in United Kingdom in terms of passenger volume. The merger of the American Airlines and US Airways will lead to the creation of the largest airline in the world. The companies use E-commerce to sell their freight tickets. This is evident that the companies have been using technological changes in order to increase competition. Companies in the airline industry have high demand for their services. This leads to an increase in the industry growth. The Virgin Airline cabin classes are divided into three namely the economy class, premium economy and upper class. The upper class is fitted with in-seat laptops and power leads for iPods. The airline also offers its passengers with new touch screen AVOD system on the back of every seat. The system is for entertainment purposes .
Competitors
The growth of the airline industry has been facilitated by the deregulation of the aviation business in Europe and United States. The airline industry faces high competition from low cost strategy airlines operating across the world. The low cost strategy contributes to the success of the competitors. Ryan air limited, an example of low cost airlines, covers 176 destinations across the world. The airline industry faces stiff competition due to the presence of many other low cost airlines which have been formed. Approximately 60 low cost airlines were formed in 2006. This led to an increase in competition for the available customers. Other competitors include JetBlue Airways, ATA Holdings and Aritran Holdings Inc. To minimize competition, the airline industry offers differentiated products from their rivals. Such services include entertainment and cabin classes in the aircraft. The table below shows a summary of key statistics of the rival companies.
The number of destinations determines the size of the company. The companies in the airline industry under consideration operate in many countries across the world. This helps to enhance their competitive position in the market. The low cost airlines do not have a significant market share in the airline industry. However, they are able to attract a large number of customers due to their friendly prices .
Recommendation
The airline industry is very competitive. Product differentiation and cost reduction are the main strategies that are used to fight competition in the market place. Airline industry provides a good investment opportunity. However, large initial capital will be required in order to reduce the barriers to entry. The large capital would help to create new destinations across the world. The airline industry will be the world leader in the next five years. This is because of the expansion and growth strategies the industry is adopting.
References
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James Cadle, D. P. (2010). Business Analysis Techniques: 72 Essential Tools for Success. Swindon: BCS, The Chartered Institute.
