RESEARCH & SITUATION ANALYSIS
Industry
General Overview
Efficiency and attitudes:
Airlines have been facing consistent drop in yields (defined as fare per kilometer). With any exogenous events, airlines tend to lose a significant amount of their revenues. Such events may include, infectious disease outbreaks, volcanic eruptions, earthquakes, etc.
The airline industry been struggling with profit margins, but the recent and current growth rate in markets, along with with the customer preferences and evolving technology offers a real opportunity.
This being said, airlines are continuously focusing on their topline to maintain their cash flow given the minimum profit margins of the industry.
Shifting airline landscape:
Air travel has grown rapidly in developing markets such as in Latin America and the Middle East.
Middle East based carriers have been acquiring a large slice of the profitable Euro-Asia traffic from the former legacy airlines. These carriers highly dependent on connecting traffic. (Clayton & Hilz, 2015).
The unique geographic positioning of these airlines gives them the edge of being able to capture a significant share of connecting flights, and hence, future market growth (Clayton & Hilz, 2015).
Trends
Revenue and pricing:
Global airline revenues grew from $369 to $746 billion from 2004 to 2014 respectively. Both passenger and cargo pricing have been declining year on year. Cargo revenue has declined for the second year consecutively even though freight charges increased. However, the overall industry revenue was offset by the rapid and steady growth of scheduled flights and passengers (PriceWaterHouseCooper, 2014) (Clayton & Hilz, 2015) (Kollau, 2013).
Airlines have been focusing more on expanding their passengers’ fleet and neglecting the continuous demand for cargo resulting in mega suffering of cargo performance (PriceWaterHouseCooper, 2014).
Both cargo and passenger yields...