When Skybus Airlines announced that it was stopping its operations after declaring its bankruptcy status recently, it became apparent that the industry’s prospects are headed downhill since it became the third airline to shut down its operations within a record one week (Yousfi 13). The preceding airlines that had their operations grounded are Aloha Airlines; Columbus- based company and ATA Airlines Inc. (O’Sullivan 19)
What are the problems facing the industry? The airline industry’s problems did not start recently, but can be traced back to almost three decades ago, when the economic turmoil as a result of the Airline Deregulation Act of 1978 coupled with labor unrest engulfed the industry, leading to huge losses and one of the highest levels of employee turnover in the history of any industry (Doganis 206).
Recently, a host of problems and challenges have seen many of the industry players considering other options of investment opportunities. The industry under siege has experienced challenges from all its corners of operations, led by the recent stinging rise in fuel cost and the economic turmoil that has cut into the major world’s economies’ growth domestic products (Baker 3). Furthermore, the efforts by the major operators to increase cost efficiencies through mergers and acquisitions have been fiercely resisted and even blocked by labor unions, stakeholders, and consumer groups (Greg 4112).
For instance, the planned merger deal between United Airlines and US Airways in 2000 was canceled after resistance from the regulatory sentiments, just before the Department of Justice ruled against the merger on the grounds of antitrust arrangements (Highfield 2). With the looming pilot strike during the same period, United Airlines incurred very high operational costs partly attributed to the high salary hikes for the pilots (4).
The Airline companies seemed to have been battling with the five-year slump prompted by the infamous 9/11 terrorist attacks, a period in which airlines recorded a whopping $35 billion loss (Greg 4115). However, the demand for the airline as a means of transport has remained high despite the revelation that passenger satisfaction is at its historical low (4117). According to the most recent Airline Quality Rating study, the operational performance, which entails areas ranging from one-time arrival to lost luggage, is at its lowest point in two decades (O’Sullivan 19).
One fundamental question would be: how can the airline industry pull itself off from the challenges and start raking profits? Despite the “strategic marketing” fad in the industry, research has shown that there are some core expectations that customers are not willing to cede ground on (Ansoff 121). This study revealed that any serious airline must get right its safety issues, punctuality, baggage delivery, a seamless transfer from one flight to another, and areas touching on scheduling (123).
Deregulation of the airline industry by many governments has significantly affected the industry environment. As studies have indicated, the industry environment has a direct impact on the strategic competitiveness of a firm and affects the average returns of a firm (Doganis 311). The past two decades have seen many countries like Australia, the United Kingdom, the United States, Mexico, Japan, and Brazil deregulating their respective airline market (314).
This has created low barriers to market entry resulting in unprecedented competition and price wars in the industry, attributed to the entry of small players like Tiger Airways threatening the dominance of established Qantas Airlines and Virgin Blues Airlines (Greg 4118). However, the recent intervention efforts by respective governments and regional bodies are seen to be the only way out to protect the airline industry from the verge of collapse. For example, the European Union’s strict barriers to trade for non-member states and the United States’ “protectionism” approach to trade, especially in the Airline Industry has been observed as a desperate effort to save the troubled industry (Yousef 67).
Yousfi, J. Troubled Global Airline Industry Battered by Fuel Costs, Labor Problems, New York Times, 2008. Print.
O’Sullivan, M. Qantas Still Cautious About a Recovery, The Sydney Morning Herald, 2009. p.19-37. Print.
Highfield, B., Retaining the Competitive Edge, Australian Human Resources Institute. 2005. Web.
Greg, J.B. Marketing Strategies and Labour-Market Behaviour of Full-Service and Low-Cost Airlines- an Australian Study, Griffith University, Queensland, Australia, 2006, pp.4111- 4119. Print.
Doganis, R. The Airline Business in the 21st Century. New York, Routledge. 2001. Print.
Baker, M. The Strategic Marketing Plan Audit. 2008. P.3. Print.
Ansoff, I. Corporate Strategy, New York, McGraw Hill. 1965. Print.