Analysis of the International Airline industry Environment
Since the unprecedented, tragic events, of September 11th some of its profound consequences are coming to light. As events have unfolded it has been thought inevitable that the airline industry would suffer heavily, stocks have been devalued and ticket prices are at all time lows. The flag carriers (national airlines) have certainly been forced to retrench, cutting the number of short haul European hops where costs are too high. In this intensive competitive environment 35,000 European airline jobs have been destroyed and three national carriers disappear.
Sabena, Belgium’s national airline and one of the oldest in the world has gone out of business. Swiss Air has had similar liquidity problems and has had to be bailed out by the Swiss government. Even now they are not running a full service. To survive, airlines are radically restructuring. There is currently a strong trend in the international market towards increased liberalisation of the air transport sector. This trend is gaining momentum worldwide; Dempsey and Gesell explain: “Although nationalism remains an issue with most countries, global market forces, aided by U.
S. policy, are moving the industry closer to an open skies policy”1. In addition to U. S. policy, the European Union’s wide-reaching developments in the industry are also a driving force that must be recognized. Even if Cyprus Airways is the flag carrier of Cyprus, with a privileged position in and around its domestic market with a large government ownership share, and even if it has been benefiting from considerable amounts of direct financial support from the Cyprus Government at the past, is still running losses.
Cyprus Airways, since it is backed by the government, usually tends to obtain privileged positions in whatever bilateral aviation agreements are signed with other countries. Therefore, it enjoys considerable market power at around its hub, its center. At the 21st century, there is demand in the aviation industry for unrestricted and fully flexible services. It is important to assess what kind of operations can actually deliver the essential types of services and satisfaction demanded by each category of passengers.
Are low cost services suitable alternatives to business passengers having as a benchmark that they usually need uncompromised level of services? , more frequent flights to and from the major capitals with business centers are needed? , etc. Answers to these questions can be given mainly from market research, especially targeting separately groups according not only to their demographic characteristics, such as income, but also from the reasons and how often they travel, etc. At the end of the day, the true winner will be the customer who benefits from lower prices and wider as well as improved range of choices.
Even more and more airline companies are currently adapting their services to meet the increasing demand from business travelers. In the case of ‘regular’ customers, the price elasticity is high, since people tend to search for better prices and special offers, especially when they have available time ahead of them to plan and book the flights in advance. On the other hand, at the case of business class travelers, the price is a totally inelastic factor, since the flights are paid by their Company, and since they need to go to the targeted destination as faster and as relaxing as possible.