Question

What are some distinguishing characteristics of the external environment of a large commercial airline ,such as American Airlines ,Delta,or United?

Answer 1

The Large Commercial airline industry is impacted by changes in its external environment. Let's take PESTEL framework to analyze the distinguishing characterstics of the external environment in commercial airline industry.

PESTEL = Political, Economic, Social, Technological, Environmental, and Legal

Political and Legal

Large Commerical Airlines are widely impacted by regulations and restrictions related to international trade, tax policy, and competition. It’s also impacted by issues like war, terrorism, and the outbreak of diseases. These issues are political and hence require government intervention. Just to take an example, large commercail arilines including Delta (DAL), United (UAL), American (AAL) were negatively impacted by the 2001 terror attack. It took three years for the global airline industry to recover the 6% decline in revenue between 2000 and 2001.

Next comes the deregulation in the US airline industry which led to the entry of low-cost carriers brought airfares down as well as laws and regulations enforced to prevent anti-competitive envirnonment. U.S. Department of Transportation (or DOT) has kept a close watch on the competitive landscape in the airline industry. The government wants to protect consumer interest and prevent monopoly.

Economic factors

Economic indicators, like industrial output and business confidence, directly influence growth in commerical airline passenger and cargo traffic. Like most industries, the airline industry is impacted by the economic cycle’s peaks and troughs. The current growth in developed economies—like U.S. that’s driven by the loosening monetary policy—has resulted in a rise in business confidence, industrial production, and international trade. All of these results act as catalysts for airline industry.

Social and demographic factors

The demand for air travel has increased significantly over the years. It indicates changing travel preferences among the latest generation. Demographic factors play an important role in forecasting demand and future travel preferences. According to the Boston Consulting Group report, millennials spend 13% more than non-millennials per airline ticket. This is on average for business travel mainly in the large commercial airlines. Knowledge of different groups’ travel preferences can help companies plan their target segments. It allows them to study which segment can bring higher returns on investment and increase profitability and allows them to determine and plan future service improvements.

Technological and environmental factors

To survive the intense competition in the airline industry, companies must adopt the latest technology. The use of advanced aircraft technology results in lower fuel consumption. This improves efficiency and the cost of airline operations. Technology is also one of the four pillars under the International Airline Transport Association’s (or IATA) strategy to address climate change. All companies—including legacy carriers like Delta (DAL), United (UAL), American (AAL)—have been replacing their old aircraft with new fuel efficient ones.