`There is no modern precedent for today's economic meltdown. The ground has shifted. Our industry has been shaken. This is the most difficult situation that the industry has faced' said international air transport association. Recession is the most significant factor impacting the industry's bottom line, the revenues declining an unprecedented 15%(80billin)(IATA, 2009) this is the worst possible recession in the history because of the economic down turn both private and public sector ar have suffed.and its effect will last long.many people loss their jobs, unemployment level increased alover the world(Daily Star, 2009). The aim of this essay is to describe how global recession effect on one of the world's expensive industry by using porter's five forces. Air line is the best mode of transport in the present world. The highest number of travelers (1.8 billion) traveled by air in 2004 (IATA, 2005). A Mintel report (2010) states that travelers holiday attitude has been changed, after the recession hit the global economy. Now a days, buyers are more conscious to spending money on travelling and holidays.
I have written to some 200 airports and ATC provides to urge them to implement financial contingency plans, in odred to freeze or even reduce charges and rates in this difficult period. Said IATA director general. From this statement it can be assumed how travelers are affecting from the current recession (IATA, 2009). Another force that porter has described in his model is the bargaining power of buyers (Porter, 2008). There is a competitive battle between buyers and the industry, buyers bargain for lower price, high quality, great level of service.(Michael et al, 2009:52). People must be must be working and economically well off before spending money for air travel. The recession effects on airline industry are obvious. Both business and pleasure travel has been dropped or curtail because of the sustainable global recession. Air traveler postponed their trips to save not only the airfares but also the travel related expenses. On the other hand companies cut back the business trip to save company's expenses in the current down turn. Also it is observed that people has switched from first class to economy class.(Wensveen 2007). IATA discloses the figure in a press briefing in 2009. In Asia pacific alone passengers fall 14.5%, north American carriers 13.45, European carriers 11.6% African carriers 15-6% , Latin American carriers 5.9% .(IATA, 2009). In the uk, recession has had a great impact on leisure habits. 53% of consumers staying at home and 59% spending less money when they go out. Buyers are now more depended on home entertaining technology. The cocooning trend has been accelerated for the recession. Low income household have cut back their leisure activities. Again 75% adults are taking advantage of leisure vouchers, discounts and offers.(Mintel , 2010).
In addition to buyers, suppliers can also exert power over the industries by reducing quality and increasing prices. The bargaining power of suppliers depends on threat of forward integration, substitute supplies, supplier concentration, switching costs and buyer information. .(Michael et al, 2009:52). Most obvious, the airport services and air traffic control have got the oligopoly power in the airline industry. So many airlines have no choice, they have to pay whatever airport and ATC charges on them. Presently airline industry is affected by sustainable recession and industries downturn. Many airports are regulating landing charges to keep the monopoly power on the airline industry.( Stephen, 2007). in the year 2008 Boeing has celebrated his 50th anniversary who was introduced Boeing 747 airline service for the first time and dominated the market for 25 years. If any carries needed over 400 seats aircraft there was no other option but Boeing 747. (Manuel, 2008). Boeing and its only rival air bus are highly affected by the global recession. Both of them cut the wide-body plane production. They are facing worst possible crisis in decades. Their market shares has fallen down, many employees has lost their jobs. Many airlines have cancelled their order. The most interesting fact is that, previously many of airline customers been compensated for production delay, now they are being forced to negotiate for late delivery because the recession hits the industry. (Airwise, 2009). Global distribution system (GDS) is integrated to airline industry, more then one billion air bokking 250 million for hotels, non-air content and cruises has been processed by GDS and generated over 6 billion dollars in revenues. Now they are also very much concered about consumers changing behavior which has effected by global recession.(Mintel, 2006). Presently air travelers are looking for other substitutes to fulfill their requirements which are more cost effective, available and reasonable.
The availability of substitute products and the threat of substitutes are another factor that can affect airline industry. As far as the customer concerned, the substitutes are the alternative products that perform essentially the same function. The substitutes of airlines include buses, trains, ships, and private transports. If the airline marketer decide to charge high then the customers have the options to switch over the substitute products which are comparatively cheaper. (Bennett & strydom, 2001). Along with the other substitutes, the most effecting issue for the air travel is electronic methods of communication. In the present recession, company has reduced business travels. Instead of business travel company has introduced teleconferencing and video conferencing. Because of the electronic methods business travelers are travelling less. Instead of sending urgent documents by air, people are more comfortable to send via email which affects the air freight industry. .( Stephen, 2007). Between the year 2003 and 2007 the faster growing mode of domestic transport in the United Kingdom is railways. In Europe the cities are connected as like spider nets by the high speedy train. (Ian & Britton, 2009). On the other hand, Short-haul cruise is another option for the consumers. In 2008 1.5 million cruise holidays were taken and it increased 20% was ever greater.(Mintel, 2009). Tough airline industry is saturated, it is also difficult for the new entrants to get into the industry. New entrants might have to overcome from the obstacles.
Barriers to entry is one of the forces describe by poter's which refers the new competitors entering the industry and reducing the profits of the established companies. The competitive equilibrium of the existing players may disturb by the new entry. ( Stephen, 2007). Today in the airline industry, there is hardly space for the newcomers to enter because of the saturated market and deregulation of the airline industry. The main problem to entry is the cost. during the recession period, the new entrants are discouraged to enter into one of the world most expensive industry. In order to enter into airline market newcomers need to think about buying and leasing aircrafts, man power, security safety mattres and customer service.( Robert, (2006). Other barriers to entry which are affecting newcomers to come into the airline industry are the high cost to develop new airlines and government restrictions, airline alliances, landing slots. Most of the slots are being booked by the major airlines.(Darin, 2006) . there are certain marketing strategies which make the things extremely tough for the other airlines to attract traffic. The elements of the strategies include frequent flier plans, code sharing partnership with commuter carriers, commissions paid to travel agent and computer reservation systems. As a result the airfares goes up and dominant's carriers make their position protected by operating such barriers. (Dian, 1996). But there are rivals who can take the competitive advantage over others by reducing cost, introducing new routs.
Competitive rivalry describes the competition among the existing firms, in order to get competitive advantage over their rival organization. Each firm try to establish their brand and reputation in order to strengenth their position over the chief rivals.( Nancy et al, (2008:73). Firms also can use of a several range of actions to get competitive advantage such as price variations, withdrawal or entry into new market, more tactical, more strategic. In the airline industry is charecterised by the cut-throat competition and such competition is immense. In the USA it has started in the early 1990s then in the EUROPE. Now it can be seen all over the world.( Werner, 2005, in Werner,Herbert,Stefan & Sascha, 2005). Europe's third biggest airline British airways disclosed a record of full-year loss which is hit by the recession. This is the biggest loss since BA was privatised in the year 1987. Long-haul airlines are struggling more than short-haul airless.(Airways, 2010). On the other hand, at the same time Europe's biggest short-haul low cost carrier Ryan air has increased their market shares and posted the profits of the year 2010 is 500 million pound.(Airways, 2010). Again, the biggest airline in the Europe Lufthansa is greatly affected by the global economic crisis and has posted their net loss for the year 2010 is 112 million euro. (Airways, 2010). During the sustainable recession, customers are more interested to shor-haul airlines rather than long-haul airlines. And short haul-airlines are keep expansioning their market all over the Europe.(Mintel, 2009)
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