Industry Profile: Airlines and Airports

The UK and European airline and airport service industry has been hit especially hard by the pandemic.

Passenger numbers have plummeted leading to a drop in revenues and, in many cases, to sizeable operating losses. Some airlines have shut down, others have dropped routes or found ways of cutting their fixed and variable costs in a bid to improve their financial position. Government financial support has been crucial in limiting job losses. But severe labour shortages have become apparent as the industry emerges from the recession.

Application: Examples of entry barriers to new carriers coming into an aviation market?

1. Availability and cost of landing slots
2. Cost of leasing airport departure gates
3. Brand loyalty for existing carriers (impacts on marketing cost)
4. First mover advantage for established airlines
5. Capital requirement to buy / lease aircraft
6. Costs of hiring skilled staff
7. Requirement to be awarded flight licences
8. Financial risk (linked to all of the above)

Recent UK airline failures:

Stobart Air (12 June 2021)

Flybe (5 March 2020)

Thomas Cook Airlines Ltd (23 September 2019)

WOW AIR (28 March 2019)

FlyBMI (17 February 2019)

Note: Four of these pre-dated the pandemic from March 2020

The drop in airline and airport activity has impacted on many other businesses and sectors in the supply chain such as:

Travel Agencies

Tour Operators

Other transport businesses such as taxi companies

Aircraft, Engine & Parts Manufacturing

Fuel Wholesaling

Key point: The depth of the supply chain means that the multiplier effects of changes in passengers numbers are high.

Airlines and airports might feature in exam questions on:

• Impact of the pandemic on demand, revenues and profit
• Evaluating ways in which airlines can control their costs
• Extent to which the airline industry is contestable
• Airlines, airports and their environmental impact
• Policies to get the aviation sector to decarbonise
• Pricing strategies and different business objectives
• Economies and diseconomies of scale in aviation
• Ownership and external/organic growth of businesses
• Price and non-price competition (including price discrimination)
• Extent to which there is collusive behaviour between firms