Economic Factors

Obviously the single greatest economic factor effecting change within the airline industry itself has been the regional deregulation of the airline industry. Although the pace or state of deregulation varies greatly from region to region, the effects have nevertheless been monumental in changing the structure of the industry as a whole. As stated above deregulation rapidly increased competition, which necessitated restructuring in order to adapt to the changing competitive environment and to refocus a cut cost strategy.

(Eaton 82) “As both domestic and international markets have become liberalized, competition and especially price competition has intensified. In virtually all markets average yields per passenger kilometer have tended to drift downward in real terms. This had reinforced pressure to reduce unit costs. ” (Doganis 101) Market control Besides cutting costs airlines have had to find other ways to “secure” markets.

The formation of alliances and code sharing agreements, which allows airlines to expand the number of flights offered at only a low incremental cost, will become increasingly important as the global market changes. (Chang:493) “Without the protected position of national airlines brought about by deregulation, building alliances as a strategy became necessary for many airlines to stay competitive and gain access to a global market too huge for any existing airline to dominate. ” (Johnstone, 1996 in Chang: 492) Cyclical Nature of the airline industry (Hi??

tty/Hollmeier 2003) Air traffic growth rates show a high degree of cyclicity which correlates with economic growth cycles measured by GDP. Economic downturns are felt by the industry immediately without delay. A great challenge for airlines will be how to maintain the necessary flexibility to cope with these fluctuations. Profitability of the airline industry (Doganis) The airline industry is no stranger to hard times. It is an industry that despite immense growth, even in the most prosperous times, has only managed to be marginally profitable.

The industry currently finds itself if a catastrophic state with profitability levels at an all time low. The major external factors representing challenges for the industry include: The change within the airline industry has drastically affected the duties expected from its employees. Air personnel are now expected to not only to provide the waitering service but also to act as a sales representatives with many companies offering commission in order to encourage the sales of duty free, food and drinks. As Eaton 1992 describes, “…

the task for human resource management has been to reconcile though action by senior management to cut jobs with the need for motivation to increase productivity and maintain quality of service, even as the numbers employed fall… Real pay and conditions for many categories of airline personnel have deteriorated. Among flight attendants in particular, now and in the conceivable future, it will be hard to find one to describe the job as either glamorous in the old sense or as well-paid with reasonable conditions as it was in the past. ”

Technological: The events of September 11th 2001 and the threat of further terrorist attacks have had a huge impact on the technological aspect of the industry. This has led to the introduction of proposed increased security measures such as criminal database cross-checks, tightening of cockpit security, and the introduction of sky marshals. Other measures include the introduction of iris scans to speed up turnaround time for passengers in terminals and the introduction of aircraft capable of faster flight with a greater number of passengers.

Environmental: Noise has historically been the principal environmental issue for aviation. Its impact is not a lasting one on the environment, but people living under flight paths will strongly contend that noise has significant detrimental effects, including: interference with communication, sleep disturbance, annoyance responses, noise induced hearing loss, learning acquisition, performance effects and cardiovascular and psychophysiological effects. Legal Issues

Competition regulation in the US as well as abroad has become an increasingly important factor in attempting to achieve a competitive advantage in the post-deregulation environment, prohibiting cartels and restrictive agreements, monopolies and mergers and state aid or subsidies to producers. (Doganis:67) This is important in lieu of constraints concerning foreign ownership and the complex networks of code sharing alliances which have materialized, which are crucial in securing markets in an environment which prohibits mergers of scale.

(Chang) “If the aim of transport deregulation and open skies is to encourage much greater competition, competition rules appear to be necessary to ensure that the increased competition is effective and is not undermined by anti-competitive practices or the abuse of dominant market positions. Hence the parallel development in the European Union of an ‘open skies’ regime and a raft of competition rules. ” (Doganis 69) Another important legal factor is the prohibition of state aid or subsidies.

(Doganis) Fierce competition and the current economic situation is making it increasingly difficult for certain airlines to remain in operation. Without government subsidies many ailing airlines have and will continue to disappear from the skies if they are unable to make a quick turnaround. The terrorists’ attacks of September 11th have also raised serious issues concerning security and insurance which directly effect the operations of the airline industry as a whole. (Hi?? tty/Hollmeier 2003) 2. Analyse the typical HR strategy pursued by the leading firms in that industry.