The global airline industry exemplifies many of the concepts and influences we have

discussed.

Life-Cycle Stage

The industry can be described as having some mature characteristics because average
annual growth in global passenger traffic has remained relatively stable at 4.5 percent in
the 2000s (compared with 4.7 percent in the 1990s). Some market segments in the industry,
however, are still in their growth phase—notably, the markets of the Middle East
and Asia, which are expected to grow at 6.5 percent compared with projected North
American growth of 3.2 percent over the next 20 years.

Sensitivity to Business Cycle
The airline industry is a cyclical industry; global economic activity produces swings
in revenues and, especially, profitability, because of the industry’s high fixed costs and
operating leverage. In 2009, for example, global passenger traffic is expected to have
declined by approximately 8 percent, and airlines are expected to report significant net
losses—close to US$9.0 billion, which is down from a global industry profit of US$12.9
billion in 2007. The industry tends to respond early to upward and downward moves
in economic cycles; depending on the region, air travel changes at 1.5 times to 2.0
times GDP growth. It is highly regulated, with governments and airport authorities
playing a large role in allocating routes and airport slots. Government agencies and
the International Airline Transport Association set rules for aircraft and flight safety.

Airline customers tend to have low brand loyalty (except at the extremes of high and
low prices and service); leisure travelers focus mainly on price, and business travelers
focus mostly on schedules and service. Product and service differentiation at particular
price points is low because aircraft, cabin configuration, and catering tend to be quite
similar in most cases. For leisure travelers, the price competition is intense and is led by
low-cost discount carriers, including Southwest Airlines in the United States, Ryanair in
Europe, and Air Asia in Asia. For business travelers, the major scheduled airlines and a
few service-quality specialists, such as Singapore Airlines, are the main contenders. Fuel
costs (typically more than 25 percent of total costs and highly volatile) and labor costs
(around 10 percent of total costs) have been the focus of management cost-reduction
efforts. The airline industry is highly unionized, and labor strife has frequently been a
source of costly disruptions to the industry. Technology has always played a major role
in the airline industry, from its origins with small propeller-driven planes through the
advent of the jet age to the drive for greater fuel efficiency since the oil price increases of
the 1970s. Technology also poses a threat to the growth of business air travel in the form
of improved telecommunications—notably, videoconferencing and webcasting. Arguably,
the airline industry has been a great force in shaping demography by permitting
difficult-to-access geographical areas to be settled with large populations. At the same
time, large numbers of post-WWII Baby Boomers have been a factor in generating the
growth in demand for air travel in the past half-century. In recent years, social issues
have started to play a role in the airline industry; carbon emissions, for example, have
come under scrutiny by environmentalists and governments.