Introduction
Airline industry in Europe has been in operation for a long period, and its market has continued to increase over time due to air traffic demand. The industry expanded to include destinations in most parts of Europe. The industry has various airline subsidiaries, and operates with other subsidiaries not from the airline business.
It has operations in the insurance business, airline catering business, and maintenance of aircrafts among other business operations. The industry is owned by the government and private investors, which is inclusive of Deutsche Bank and Deutsche Post bank. It also partners with other airlines in other countries such as JetBlue in the U.S., Air India, Air Malta and Luxair among other partners in this business. It also operates a range of aircrafts including Boeing 707, 720 and Airbus A300 among others.
This industry provides airline services within Europe to all class members, which are first class, business class and economy class with proper airbuses used for all these groups of people (Lufthansa, 2013). The trend has changed in the recent past due to insecurity which is caused by terrorist attacks in most cases.
Market structure
The airline industry has ultimate control over air transportation hindering other players to join the industry. It comprises of all passengers who use air transportation either scheduled or chartered, but does not include air freight transport. The International flights have the largest market share in the industry that accounts for 68.9% of the total volume.
Germany accounts for 14% while UK has 12%. People from Canada and the United States are considered as trans-border passengers, and they are treated as international passengers. The revenue derived from European airline is classified either from the Western Europe or the Eastern Europe.
The industry stabilizes its market share on the medium and short hauls routes, which coupled with their excellent products, have made it possible to meet their customers’ demands. Included in the vision is also group and leading edge technology, which enables the companies in the industry to improve their opportunities in the competitive market.
The firms in the industry are able to communicate their intentions to stakeholders and the customers. All the policies and procedures that govern air transportation are formulated and implemented by bodies set by the industry hence they have oligopoly influence.
Supply and demand condition
There has been a decline in the airline market. The cost of airline continues to increase following insecurity thus the demand for the services goes on the decline due to the impact of price on demand. The issue of insecurity following frequent attacks from the terrorists has also been in the front line in reducing airline services demand.
Different European regions deal with air security in different ways. For example, in the U.S., the homeland security continues to request high budget for the purpose of dealing with aviation security issues. France, Italy, Germany, Spain, and the UK are among the busiest states in Europe, but they are also faced by the challenge of insecurity, thus reduction in demand.
Technology
The continent has put a great effort in increasing technology, which is not only involved in flight operation, but also checking explosive machines that can be dangerous to airports and the passengers. The planes are advanced, having sensors and alarming signs that can be interpreted by security personnel in case of any explosives detected. There are plans to institute highly advanced technology.
For example, in 2011, body scanning machines were installed in many aviation checkpoints. The first is the use of hardened cockpit while the other is the use of federal air Marshall. Others include intelligence, task force against terrorism, crew vetting, travel document checker, customs protection, border protection, checked baggage and canines, bomb appraisal officers, random employee screening among others.
There are three main advanced methods of improving security. These are federal air Marshall, hardened doors at the cockpit and passenger resistance. Federal air Marshal is not very important in the first section because this outweighs the benefits. However, hardened doors have more benefits over the costs while other measures like vigilant intelligence, passport control and airport screening are likely to increase security.
Government regulation
The government incurs some fees on behalf of individuals. In addition, the homeland security department still investigates how airlines are in compliance with efficiency and fiscal discipline. However, this does not mean that they are exemplified from paying security fees. A look at how security fees might be expensive in America is explained by the constant activities that take place for security purposes.
For example, when an aircraft loses its radio control while on air, security jets must be flown to escort the airline to its destination. This is very costly since jet fuel is expensive for the period the airbus remains in the air. In addition, incidences of unruly passengers also add to the coat of aviation security.
Aviation officers have agreed that customers are the ones that pay for these extra security requirements to ensure that they act responsibly while in the airport and avoid issues that can cause alarm being mistaken for a terrorist attack. It is the duty of the governing body or the government to distribute the funds rose for risk reduction purposes in an equitable and consistent manner with the main goal of achieving the best outcome.
There is no common law that has been founded to deal with costs related to the security breach. In some European regions, there are new laws on aviation security that are in the process of development. This implies that it is very likely that the costs of security in aviation and hence the costs of air fare might increase with time. This means that travel will be more expensive for the consumers.
For example, reports on air tickets from Brussels International Airport and other airports in the Belgium and outside the country show that air tickets have risen because of the doubling of security charges since 2001. Studies show that the air charges have risen about 7 times in the past five years in this airport. A proposal had been raised by the European commission in September 2005 that was meant to regulate aviation security.
However, the debate is under the European parliament’s Transport Committee. The main aim of this proposal is to clarify and simplify European rules on air security (Lufthansa, 2010). However, there is no current solution to the current problem facing the funding of air security.
Future condition
The management has been developing some plans that would result in improvement of the industry in the future. There are plans to improve airport security, which is the greatest threat to the industry. This team is working together with the government to ensure that right measures are put in place to reduce terrorism and other threats that are posing a danger to the passengers and airline employees.
They have a budget for advanced technology that is essential in running and carrying out security operations. This management team is planning to work together with the government to ensure that the interests of the industry are catered for without exploiting the passengers.
It is expected that the industry profitability is going to be restored due to the following improvements in technological, managerial, government policies that can encourage more customers to use airlines without feeling that they are being exploited or are spending extra money when they use airlines.
Macroeconomic factors
European airline industry contributes to several macroeconomic factors, which include employment, gross domestic product, producer price index, and interest rates. The high and escalating prices on fuel, the shortage that was caused by Hurricane Katrina, and terrorist bombing had a great impact on macro and micro economics resulting in a ripple effect that was felt for quite some time.
Increase in the airline services reduces the disposable income for the passengers using these services thus having an impact on Gross Domestic Product. The increased prices result in reduced demand because of the law of demand and supply. This affects producer price index. Low demand can cause some employing to be redundant hence unemployment is created.
Organizing and investing resources
Cost leader
Global competition results from the availability of similar companies in the market that offers similar products. Companies try to market their products and services to secure a better market share to increase profitability. The management has to ensure that they formulate the best policies that will facilitate production of quality products that are competitive in the market at reasonable production cost.
This is achieved by managing all the resources, acquiring raw materials from reliable supplies, ensuring employees’ satisfaction, and setting rules and regulations that can help the company to achieve the set goals. The management’s decision plays a key role in ensuring that the running of the company maintains the set standards and the available resources are maximally utilized.
The company has set rules and regulations that govern it. These regulations ensure that the relationship between the employees and customers are observed and maintained. Severe disciplinary action is taken to any employee who breaks these rules. When these rules are implemented, an organization gains competitive advantage.
A cost leadership strategy is essential in investing and utilizing resources. Cost management plan is based on advertising where price acts as the main marketing instrument. The cost leader must ensure that the company offers its services at the lowest cost than any other player in the industry. Cost manager must ensure costs are reduced in marketing and non-marketing functions.
Cost management is applied where a business has a wide market share enabling it to reduce costs due to employment of economies of scale. Cost leader must be aggressive in constructing efficient scale facilities, tight cost and overhead control, apply cost reduction techniques acquired through experience and minimize general cost incurred in marketing.
Product differentiation
Differential strategies are measures taken to ensure that the products and services are unique and can be easily differentiated from those of competitors. Differential strategy involves having products in a peculiar form, brand name, technology, and other details that help customers to identify the product. The aim of differential strategy is to create customer franchise as a result of brand royalty.
The differentiator can increase margin and avoid competing at low cost section of the market (Flamholtz & Randle, 2011). This is most applicable when a larger market segment is occupied by a stronger competitor.
Market niche
The industry ought to identify the market niche. A market niche is a focused and tangible portion of the entire market as it focuses on services that are not emphasized by the mainstream. This helps in reaching a definite group of customers.
The main benefit of aiming a market niche is based on the fact that other industrial players may not be conscious of the customers’ explicit needs that calls for a market niche, and the large businesses may not bother to offer these services. The idea behind niche market is to create a market that can reach a wider range of customers, which is not established by other merchants, but has potential to grow.
Economic condition
There has been a general decline in the industry due to local airline failures and fuel pricing. The high and escalating prices of fuel, the shortage that was caused by Hurricane Katrina, and terrorist bombing had an adverse effect on the economic stability of airline industry.
In 2012, the average daily flights to Europe were 26,100 on average making a 2.67% decline comparing with previous years. The greatest decline was in intra-European flights. The condition is expected to improve in 2013 since right security measures are to be put in place, and there are expectations of improvement in the economy.
International dimensions
The industry has underway plans to expand beyond European borders. The management is considering signing treaties and agreements with several third world countries aiming at converging technical standards and transferring technologies. Interest countries are required to adopt and apply European transport legislations.
Regional dimension
Regional airlines operate as propeller driven aircraft over short distances. They help to raise revenue as they serves as subsidiaries of the main streamline carriers. These regional aircrafts are improving in size, speed, and can fly for longer distances. The industry is advocating for improvement of regional airline to ensure that customers do not turn to alternative means of transport while traveling short distances,
Outsourcing, alliances, mergers, and acquisitions
The companies can outsource some of moveable factors of production such as labor and entrepreneur skills. There are personnel from other continents who are highly skilled and competent. The industry may opt to outsources their services since they can be availed at a cheaper cost that hiring labor from Europe.
This industry can also form alliances with other service provided to develop policies that help in running its operations. They can mere with other firms to gain the controlling interest through acquisition. This increases the economies of scale hence they can be able to offer services at competitive prices (Lufthansa, 2013).
The industry is working towards expansion both within and outside the continent. There is an arrangement which is to expand their operation in other parts of the world. The industry has instituted a committee that is working with the international bodies to facilitate this expansion.
Conclusion
In conclusion, there are many issues that affect European airline industry. These issues include poor government policies, insecurity in the airport, and other micro economic factors. The issue on insecurity has threatened the progress of the industry greatly although it is addressed through the application of advanced technology that stabilizes the situation.
Proper management of the available resources and application of right managerial strategies such as cost leadership and product differentiation plays an essential role in growth of the industry. Offering diverse services helps in identifying a market niche. Expanding to other parts of the world and implementing right policies will lead to a consistent growth in the future.
References
Flamholtz, E, Randle, Y 2011. Corporate Culture: The Ultimate Strategic Asset, Stanford University Press, California.
Lufthansa 2013, Corporate Governance & Compliance. Web.
Lufthansa 2010, Vision. Web.
Lufthansa 2013, Group Strategy. Web.