EconomicThe airlineindustry must understand which economic factors challenge them in order tostrategically plan ahead to meet their aims as this industry largelycontributes to the world’s economy in many ways. The airline industry formsconnections between people, businesses, buyers and sellers as well as thedistribution of goods.
Although this industry largely contributes to theeconomy, it is also greatly reliant on the given economic situation. “Growthbrings improvements in real incomes and a greater variety of goods and servicesto all sectors of the economy.” (Needle, 2015).Anothereconomical factor which the airline industry must consider is the exchangerates and consumer confidence.
Consumers won’t be as inclined to go on holidayif there is a bad exchange rate. The Brexit vote also proved to be a majorfactor influencing the economic environment. The drastic fall in the value ofthe pound due to the Brexit vote has created economic uncertainty.
People willbe less inclined to go on holiday or travel to another country as the exchangerate plummeted. This will decrease airlines sales dramatically. According toXe.com (2018), on 22nd June, 2016, the day before the Brexit voteannouncement, the GBP / EUR exchange rate was 1.31, however, only a few daysafter on 27th June the exchange rate had already fallen to 1.2.Since then the exchange rate steadily dropped to a current rate of around 1.
12.”EasyJet and IAG, the owner of British Airways, have already encounteredturbulence in the months following, with both issuing profit warnings since thevote” (Megaw, 2017).A criticalfactor which may impact the airline industry is the increase or decrease infuel prices, consequently affecting operational costs for airlines. There is acurrent low price of oil in comparison to the last decade which may bereflected in ticket costs. The current low prices with be helping airlines torecover losses from previous periods where fuel costs were significantlyhigher.SocialThe performanceof the airline industry can be highly impacted by many social changes takingplace in the UK. The population commonly known as baby boomers are likely todouble the population of over 65s in the next 20 years. This generation willhave been frequent flyers and accustomed to modern day air travel.
This maycause an increase in flight sales as 65+ typically have a higher disposableincome and may use their retirement to travel. This would be a great advantageto the UK airline industry. However, this could also impact the airlineindustry negatively. Airports may need to adhere to the needs of age relatedmobility problems. This could encounter a large cost for airports.As social mediaincreasingly emerges, people around the globe are increasingly aware of offersand deals for package holidays and flights.
Social media platforms are now usedas a marketing strategy by airlines, reaching out to specific target marketswith the aim of increasing their sales. Along with social media, the growth ofincome of middle class consumers is resulting in travel becoming moreaccessible. The airline industry will be able to use this information from thesocial factors of a PEST analysis to understand their target market and formstrategies to target those consumers.The role of immigration in the UK’smulticultural society is another important factor that the airline industry mayneed to analyse. “Immigration to the UK created a multicultural, ‘cosmopolitan’society: a society characterised by the co-existence of many cultures ratherthan a single homogeneous culture” (Wetherly and Otter, 2014).
Due to theBrexit vote, airlines will have to tighten border controls to ensure everypassenger goes through immigration control. In order to do so this will affectthe airline industry as they may need to factor more employees in order tocarry out highly controlled checks as well as speeding down the airlinesprocesses. This could affect the amount of consumers willing to travel due toinconvenience. If airlines fail to follow strict border controls this couldresult in a large fine, impacting the airlines stability and reputation.TechnologicalAirlines need to keep up-to-date with thelatest technologies to ensure they remain competitive. Machinery use is becomingmore efficient and cheaper in the long-run for large scale operations, such asairports.
Airlines now utilise new technologies such as wireless devices,intelligent scale, self-check in machines, and electronic labelling. These newtechnologies will benefit both the airline industry and its customers. For theconsumers, new technology will decrease the amount of time they have to wait atthe airport prior to their departure by increasing the efficiency. It may alsomake the process a lot easier, increase their desire for air travel,consequently increasing the profitability of airlines. New technological isalso an advantage for the airline industry. New technology will cut down thenumber of employees needed at different stages of travelling.
Although theinitial cost of new technology will be high, cutting down the need for as manyemployees will save the companies money in the long run. Airlines must assesstheir need for new technology, using the PEST framework, and use theirknowledge to survive competition amongst similar airlines. The expansion of the internet has many addedadvantages for the expansion and success of the airline industry. The airlinewebsite BA.
com for British Airways offers passengers the chance to check inonline, compare deals, search for tickets and many more advantages. Theinternet is widely used and highly accessible with virtually all adults, aged16-34, as recent internet users, in contract to 41% of adults aged 75+ (Ons.gov.uk,2018).
As the airline industry has more online services readily available toconsumers, this directly cuts out the use of travel agents. The cost ofcommunicating through a physical, store-based travel agent will be reduced, savingthe airline industry money. Overall, new technology may reduce costs, improve efficiency and productivityand enable new products to be tried and tested.
ConclusionHaving analysedand critically discussed the risks, posed by external forces, on the modernairline industry in the UK, there are many conclusions made regarding theirimpact on the operations and success of the industry. The airline industry willbe able to use their evaluated understanding, from the PEST framework, todevelop an understanding of the changes they currently face in a globalsociety. Due to Brexit, it would appear that the external forces posechallenging threats towards the airline industry with the upcoming exit of theEU suggesting a hard fall in consumers and sales. Brexit also poses the threatof the exchange rate continuing to decrease and consumers becoming less able totravel by air due to the rising costs. However, the PEST factors, particularlythe social and technological factors, would suggest that there may be a growingsuccess in the airline industry, contrary to opinion. The advance of new technologiesand growth of social media platforms suggests an increase in sales and a highlyefficient process. In conclusion, due to the insight gained from the PESTanalysis, the challenges facing the airline industry is un-determinatelyneutral. Respective airlines in the UK industry will be able to form strategicplans to overcome any risks posed by the four key macro level factors in orderto reach their objectives with minimum fault.