Strategic Marketing Course: Global Airline Size The 2013 global passenger airline industry is estimated to be a $539 billion industry with an additional $68 billion generated by these same firms through cargo transports. The key measure of units for the industry is expressed as revenue passenger kilometer or RPR. This Is defined as the actual kilometers flown by revenue paying passengers 10 and Is estimated to be approximately 5. 6 trillion for 20136.
A final primary measure of the Industry size Is scheduled number of passengers. This is forecasted to be 3. 1 billions. These passengers are carried through more than 2000 airlines utilizing over 23,000 aircraft to complete more than 28 million flights to over 3700 locations 9. Global Airline Performance and Growth The industry will transform this $539 billion into $22. 3 billion of operating profit (3. 3%) and $10. 6 billion In net profit (1. 6%)9. An additional measure of efficiency performance Is passenger load factor or PELF.
This Is the measure of % of available seats used (In kilometers). The 2012 global PELF was 79. 1% which Is a result off intended steady improvement in efficiency for the past five years (2008 = 75. 0%)2. The industry has grown steadily in RPR at a CARR of 4. 7% over the past 20 years and 5. 1% over the past five years. As population, air travel per capita and globalization continues, the industry is forecasted to double in RPR over the next 1 5 years 6,8. Total revenue growth for the past 10 years has been steady at 7. %, outpacing general GAP, while net profits are highly varied year over year, ranging from net losses to returns of 4. 0%9. The most significant drivers to profitability are cost side elements and specifically jet fuel costs. As industry has become both more efficient in general costs and more effective at hedging variable fuel costs, the past three years have demonstrated stable, favorable and growing profit returns,6,8. To be sure, the Industry is far from secure with 41 bankruptcies filed by US based airlines alone In the past decades 2.
Industry Segmentation In Dalton to aforementioned segmentation by cargo and passenger mileage, the industry can be segmented geographically and by service area. Geographically, the global market share is divided (via RPR) as Asia-Pacific 31 . %, North America 25. 3%, Europe 25. 1%, Middle East 9. 1%, Latin America 6. 8%, Africa 2. 6%2. The Industry is also defined by international versus domestic travel. Domestic travel is often further subdivided Into regional versus national or major airlines. Within the 5. 3% growth In travel represented 4. 0% growths.
The industry is not significantly removed from the period of terrorist attack induced economic shock that ran from 2001 to 2005 in which the US airline industry posted net losses of $40 billions. Most dramatically, this consolidation has occurred through mergers which have created four dominate players controlling more than 75% of the total addressable markets. These include: Delta (with Northwest), United (with Continental), Southwest (with Raritan), and American (with US Airways). Additionally, establishment of partnerships and alliances have been utilized to create competitive advantage through cost sharing and increasing flexibility.
Major examples include the Star Alliance of United, US Airways and Continental and the Sky Team Alliance of Delta, Northwest and Air Alaskan. With continued competitiveness and cost efficiency improvements, today’s mean airfares remain at approximately half of 1978 fare values. This has led to a significant market share shift from the legacy majors operating hub and spoke strategies to low cost carriers operating point-to-point strategies. Low cost carrier share has increased fourfold throughout the first decade of the sass now comprising more than 25% of the total markets.
Raritan, Getable and Southwest are clear examples of players succeeding at this type of strategy. With low-cost carriers operating at utilizations as much as 46% higher than legacy majors and employee cost per available seat mile as much as 25% below, network carriers have had to utilize Chapter 11 or the threat of it to downsize, renegotiate abort contracts and perform other significant cost cutting measures to remain viable. Threats Many external influences continue to threaten the viability of the industry. Most notably, these include the aging infrastructure of both airports and the fleets.
With demand outpacing the capacity of runways and air traffic control systems, airlines face allocation restrictions, congestion charges and increased cost from taxes levied to upgrade the system. Additionally, the increased hassle factor associated with current security measures combined improvements to telecommunications in segments. Maintaining the business traveler base is critical for airlines as the average business traveler ticket is five times that of the leisure travel while remaining significantly more inelastic to price increases .
Regulations Several key regulations pepper the dynamics of the US airline industry. The first is the FAA dual purpose mandate which charges this national organization both with overseeing the safety of the industry and promotion of the industry itself. This creates a conflict of interest that can leave loopholes for competitors to exploit without rigorous self policing of safety standards. Additionally, the Railway Labor Act, which has Jurisdiction over the airline, industry prevents industry workers from striking. However, this does not preclude them from taking collective bargaining measures.