External Factors affecting the Aviation Industry
The Aviation Industry has contributed to a lot of improvements in our daily lifestyle. It helps connect firms to their consumers, and breaks the barrier of time and distance. It is considerably impacted by changes in the external market environment. PESTEL analysis is used to monitor the external marketing factors that impact an industry. These factors aren’t in anyway controlled by the industry or the firms involved. The companies are, in fact forced to modify their business models and strategies to serve to the demands of their consumers.
1. Political Factors:
Airlines operate in a political environment that’s very regulated and restricted. Government intervention can be necessary to protect the passengers’ interests and airline operations’ safety measures. Issues like war, terrorism, and the outbreak of diseases—such as Swine Flu are serious matters that cannot be regulated by airport staff or the passengers. Hence, they require government intervention.
The terrorist attack in 2001, for example, impacted the global aviation industry drastically. It took the industry five years to recover from the losses incurred after September 2001. Financially weak companies went under bankruptcy during the period.
Another example of political factors impacting the industry is the outbreak of diseases. The fear of infection causes disorder and disruption in the transportation sector. Taking the recent case of Ebola outbreak, the costs of airplane tickets increased because of the inspections and clearance tests taken at the airports.
2. Economic Factors:
Economic Factors include GDP, per capita income, level of business, consumer confidence, industrial production, etc. Like any other industry, the airline industry is affected by the economic cycle’s peaks and troughs. The ongoing growth in developed economies has resulted in a rise in international trade, business confidence, and industrial production. These results act as catalysts for airline industry.
Changes in real disposable income have a severe impact on the level of consumer spending on goods and services. Consumers with higher income will likely spend more on leisure travel. When the industry is hit with period of low demand, businesses prefer cheaper means of transport.
Fuel is an airline’s largest cost component. Currently, it accounts for more than 30% of total operating expenses. Back in 2014, the fuel costs per gallon went down by 6.4%. This decline benefits the airline industry significantly. If all the other factors remain constant, and we consider that the industry doesn’t have any major debts to pay off, this decline in fuel prices would improve the aviation industry’s profit margin by almost 2%.
3. Social Factors:
Air travel demand has significantly risen over the years. This goes on to stipulate the changing travel preferences among the latest generation. Categorizing generations according to the year of birth provides insight into the changing trends in the travel and tourism industry. Companies can use this knowledge to select their target segments before introducing a new feature. They can also use this information to predict the change in sales and profitability which will be brought upon by the aforementioned changes.
Demographic factors play an important role in forecasting demand and future travel preferences. Studies have shown that with each new generation, the willingness to spend more money on leisure travel has gone up. This means that on an average, a person from the millennial generation will easily spend as much as 13%more than a non-millennial on business travel. A study by Boston Consulting Group has found that millennials are 60% more likely to upgrade their seat to more spacious ones. They are also more likely to spend extra money on amenities such as in-flight entertainment and Wi-Fi.
Therefore, knowledge of the travel preferences of different segments of people helps companies plan their strategies in accordance with the target segment that they want to cater to.
4. Technological Factors:
Advancement in technology has been the driving factor for the improvement of airlines’ operational efficiency. To survive the vigorous competition in the aviation market, companies need to be up to date with their use of latest technology- especially with their consumption of fuel and efficiency operations. Airlines need to be able to reduce costs and improve operations by using advanced aircraft engine technology, IT solutions, and mobile technology.
• It has been found that the new aircraft, Boeing 787,747-8, etc. have reduced fuel consumption by 14%, which is an improvement from the older ones, which reduced it by 8%.
• Some of this technology that’s used for fuel efficiency, has also resulted in noise reduction by 30%
Various other airline operations like engineering and maintenance and in-flight operations, have also improved considerably by using innovative technology solutions. The technology has created better connectivity and enhanced passengers’ travel experience.
5. Environmental Factors:
Annually, the global airline industry consumes more than 250 million tons of fuel. The recent rise in demand for air travel and the increase in crude oil prices impact the industry’s CO2 emissions. This also impacts the sustainability.
•The global aviation industry is responsible for over 2% of all human-induced CO2 emissions. Air travel is processes 12% of the total emissions from the transportation industry.
•Alternative fuels are expected to reduce the aviation industry’s carbon footprint of fuel by 80%.
•80% of the CO2 emissions are from flights longer than 900miles (Approx.1400km) kilometers. No alternative mode of transport is available for such long distance travel.
This has resulted in the airlines being forced to be more responsive to the concerns of the environmentalists. Furthermore, social responsibility initiatives are becoming more pronounced and are closely scrutinized as consumers and activists turn a critical eye towards the airlines and their corporate social responsibility.
6. Legal Factors:
In the recent years, number of lawsuits filed against various airline companies from both customers as well as employees has risen. Further, the regulators are being less lenient with the airlines. This means that they have to be increasingly cautious about their strategies, and should implement their strategies only after they are absolutely sure that they are not violating any laws.
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