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Industry Analysis

Competition, even as airlines stake out their positions in the global market, they are not immune to competition in their own backyard. Among the struggling airline industry, regional airlines such as Frontier and ExpressJet have gained ground with the development of newer, larger jets that are faster and roomier than previously used turboprop planes and have greater ranges. The new regional jets have also made operating in previously underserved markets more cost efficient.

Some airline executives predict that the market for regional airlines will flourish in the coming years as larger airlines view them as a new weapon in th...

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...e highly competitive air travel business. The major carriers are turning to regional partners to operate on routes normally flown by larger, but unprofitable, jet transports and to feed their operational hubs. As the major carriers continue to suffer from weak capacity, depressed fares and low yields, large European carriers such as British Airways which concentrate on quality rather than cost have sought to control all or part of the upstart areas.

In Europe, regional airlines are seeking partnerships with major airlines to more effectively gain access to certain hubs. Major carriers hoping to merge such as United Airlines and US Airways have been met by regulator opposition citing competition issues. An operating partnership established by KLM Royal Dutch Airlines and Alitalia has fallen apart amid disputes. The industry is going through a phase of consolidation, restructuring and value proposition analysis. As opposed to the hub-and-spoke system used by most full-service carriers, flights are scheduled on a cost-effective point-to-point basis.

Many airlines continue to deploy technology solutions and automate its processes, in order to deliver product to its customers at a cheaper price. To compete with the smaller, point-to-point carriers, larger airlines are using code sharing arrangements that help companies to coordinate flight schedules and sell tickets on each other’s flights. Code-sharing arrangements allow larger airlines to offer more destinations, departures and connections, without having to buy more planes or hire more crews than current revenues will support.

Code-sharing benefits both for the flying public, especially those catered from smaller areas that otherwise would not be profitable for the carriers to serve, and the airlines as service demand can still be met during downsizing costs in a difficult economic environment. The airline industry is a service that satisfies customer needs for traveling. In the airline industry the customers can be divided into two segments, business and leisure.

While the airline industry started out as a luxury item, business travel has changed this industry to a necessity. As we further become a global economy and communication between international companies intensifies, travel needs continue to increase. The leisure traveler has always had the need for the airline industry. Satisfying the customer needs today involves competitive rates, convenient booking of flights and benefits with those flights. Some of the problems with this industry are personally experienced by the customers.

The airlines have a difficult time being punctual and this has become the norm in the industry, although some companies avoid it. The airline industry historically fluctuates in response to general economic conditions that affect business and leisure travel. The industry is highly susceptible to situations that result in declines in air travel, such as political instability, regional hostilities, recession, fuel price escalation, inflation, adverse weather conditions, consumer preferences, labor instability or regulatory oversight.

An airline company’s results of operations for interim periods are not necessarily indicative of those for the entire year, because the travel business is subject to seasonal fluctuations. Due to the greater demand for business and leisure travel during the summer months, revenues in the airline industry for business and leisure travel in the second and third quarters is typically greater than revenues in the first and fourth quarters of the year. This has an overall impact on the industry.

The airline industry is defined and categorized as mature due to slow growth. Due to the deregulation and therefore increased competition, there has been a growth in the number of alliances in the airline industry. These co operations among the airlines involve sharing of routes, reduction in the number of aircraft in service, joint fare setting and schedules, integrating marketing and incentive programs including mutual frequent programs and combining aircraft maintenance, catering, reservation and a host of other operational matters.

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