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1. An evaluation of the budget airline sector since deregulation of the European airline industry in 1992. ...
Introduction
Prior to the EU passing legislation to deregulate the European airline industry in 1992, the industry was dominated by relatively few firms, the national ‘flag carriers’. The significant barriers to entry within this oligopolistic industry maintained a very stable industry structure and the flag carriers were, in effect, protected from competition by their individual countries.
Deregulation meant that virtually anybody with the means to start up and develop an airline could enter the industry, with the ability to fly from and to any destination and demand take-off and landing slots at any airport. This industry discontinuity altered the structure of the airline industry and since deregulation a number of low-cost ‘no-frills’ airlines have appeared within the European airline industry, providing considerable competition for the flag carriers. ...
The Irish airline Ryanair was the pioneer of low-cost air travel in Europe. Developed from a traditional airline, Ryanair became a no-frills carrier in the early 1990s. ...
An Analysis of the European Airline Industry
Changes in the Industry Environment and Structure since 1992
Grant (1991) suggested that it was vital for the firm to understand three things – its customers, its suppliers, and its competitors – which constitute its industry environment. After deregulation of the airline industry in 1992, the increase in air travel providers as regulative barriers to entry were reduced resulted in the industry environment undergoing considerable changes. ... Up until the start of deregulation, the industry had seen a steady increase in the number of air travellers. This increase became more pronounced after deregulation, with the entry into the industry of additional airlines. The aggressive marketing strategies employed with the entry of the budget airlines into the industry, and the fall in prices as airlines tried to capture the expanding leisure travel sector, stimulated interest in air travel among customers who would ordinarily not have considered travelling. Prior to deregulation, the business travel sector had been more attractive to the national flag carriers, with organizations less price conscious with regard to air travel than the leisure traveller funding their own travel.
The business travel sector of the market was therefore the most attractive to the traditional airlines. After deregulation, the leisure travel sector was also targeted, primarily by the budget airlines but closely followed by the national airlines in response to the added competitive pressure. ... The increasing numbers of airlines after deregulation also led to increasing competition among industry suppliers, namely aircraft manufacturers and the airports providing landing slots. ... For any airline wishing to expand, ownership of take-off and landing slots at these airports was vital. With the growing air travel industry filling slots in the more popular airports, such as London’s Heathrow and Gatwick, new entrants were forced to look elsewhere for slots, and ‘out of town’ airports such as Stansted and Luton had to be considered.
By using only one type of aircraft, the Boeing 737, budget airlines were able to develop a partnership with one of their main suppliers. ... Competition within the industry increased as the number of air travel providers grew and budget airlines began drastic cost-cutting measures, passing savings on to their customers and therefore competing strongly with the national carriers.
The entry of low-cost ‘no-frills’ airlines into the airline industry started to change the industry structure. Aimed at the cost-conscious leisure traveller and concentrating on short-haul flights to UK and European cities, these low cost airlines gradually began to compete for short-haul business with the traditional airlines, therefore impacting on existing organizations’ profitability and arousing concern among the flag-carriers over the rise in competition. The market, in effect, split into various segments, with the budget short-haul traveller being attracted by the new no-frills airlines and the business traveller continuing to use the traditional airlines.
The Attractiveness of the Budget Airline Sector
An analysis of the attractiveness of the budget airline sector can be made using the ‘five forces of competition’ framework developed by Michael Porter in 1980.
Approximate Word count = 3321
Approximate Pages = 13.3
(250 words per page double spaced)
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