PESTEL analysis on European airline industry
PESTEL analysis is an updated version of “ETPS”, a mnemonic for the four sectors of his taxonomy of the environment: Economic, Technical, Political, and Social (Aguilar, 1967). PESTEL analysis is an analysis of the external macro environment (big picture) in which a business operates. These are often factors which are beyond the control or influence of a business. Airline industry is one of the most important transportation sectors for an area’s progress which makes crucial contribution on an economic, political and social, cultural level (Button, 2008). In the following part, this essay will target the Europe airline industry analyzing the political, economic, social, technological, environmental and legal aspects of the European airline industry.
In the political aspect of European airline industry, EU has liberalized the aviation market of two decades. EU adopted the first directive in 1983 so as to liberalize some inter-regional services. The second directive was adopted in 1994. In the second directive made most of the European market opened up. From then on, airlines registered in the EU and controlled by EU nationals had the right of establishment throughout the EU and were free to fly within and between all member states (Starkie, 2012). For example the biggest low-cost airline company Ryanair has the bases all over the European countries (list below).
Ryanair Bases January 2010. Source Airline Business, January 2010.
Along with the liberalized process of the European airline industry, EU politicians also focus the development of the full-service airline companies in order to satisfied multiple demand of the airline passengers. With the increasing growth of LCCs, the FSCs have changed their business policies (European Cockpit Association, 2006) and have been forced to implement reforms (pricing structures, cost-cutting, changes to on-board services, etc.) to increase the competitivity.
In the economic aspect of European airline industry, the upward momentum is obvious. Even the economic recession did not stop the upward trend of the European airline industry market. An easyJet’s table under, taken from an easyJet financial presentation in late 2008 shows the capacity changes in various European markets planned for the winter 2009 season, at a time when overall capacity placed into the market by easyJet changed little due to the severe economic recession. Benefit from the mature visa system of the European countries and the widely applied low-cost carriers, the airline passengers grows every year. The upward economic trend inspires more airline company purchase more airplanes and open more routes in the airports all over the EU regions. The result has been a big increase in the buying power of airlines. European airports now also compete with each other to attract the services of airlines, especially to attract base aircraft and appear to do so vigorously. Besides the upward trend of European airline industry, price elasticity of demand varies much across countries or regions, types of passengers, stage length and even over time. But it is widely recognized that price elasticity is lower for business passengers and for long haul flights(Brons et al., 2002).
In the social aspect of European airline industry, the appearance of the low-cost carrier is a crucial part. “The establishment of the single aviation market acted as a catalyst for the launch of new innovative airline business models, predominant amongst which was the low-cost carrier model, to an extent inspired by Southwest Airlines in the US although the long-standing European charter airlines had already adopted many of its features”(Starkie, 2012). In Europe, the appearance of low-cost carriers has been a major factor in the demand for air transport (Dobruszkes, 2006). Today, low-cost carriers carry more than one third of the scheduled passenger traffic within Europe and their market share even exceeds 50% on some large intra-European markets(Klophaus, 2012). Furthermore in the social part, pilot salary research is also a hot subject. According to the research by Ginieis(2013), RCCs are always those that pay the lowest salaries to their pilots. It is worth highlighting that FLAGs generally have the widest range of salaries paid to pilots.
In the technological aspect of European airline industry, the energy-saving technology is the heat issue. It is estimated that aircraft account for approximately 3% of total global CO2 emissions, yet they support 8% of global economy. However from the research from Higham and Cohen(2011), responders all consider less priority to the
carbon emission. In 2008, the European Commission, the European Parliament and the European Council agreed on including international aviation in the already existing European Union carbon market. On December 3rd 2009, Air New Zealand conducted the first flight test of a second-generation biofuel blend (Warwick et al, 2009). Followed this action, airline companies in the European also highlight the energy-saving technologies invention.
In the environmental aspect of European airline industry, the relationship between airline companies and airport has been studied repeatedly. “Given airport charges can represent around 12% of low-cost carriers’ costs” (Doganis, 2001). For Ryanair, airport choice factors for low-cost carriers companies included low airport charges, quick turnarounds, simple terminals, rapid check-in facilities, good passenger
facilities and accessibility (Barrett, 2004). In the research of Smith and Potter’s (2005) study, the Rank of airport choice factors for the full sample of low-cost carriers is listed beow.
In the legal aspect of European airline industry, the legal contract between low-cost carriers and airport has been highlighted a lot. The new nature of the European aviation market has led to yet another fundamental change. It has transformed the traditional business relationship between airport and airline. In term of this, the contract of the legal contract between low-cost carriers and airport also has been modified. The top issue is the instability. Generally airports increasingly have offered airlines discounted charges in return for long term commercial contracts in order to try and establish a more stable environment for their activities. The table list below is the Liverpool airport’s planning assumptions based on contract commitments by airlines. From this, it is obvious that a roll-out programme adding additional aircraft again with indicative dates has been the latest changes in the legal contract of European airline industry.
PESTEL analysis on European airline industry
