Economic vote announcement, the GBP / EUR exchange rate

Economic

The airline
industry must understand which economic factors challenge them in order to
strategically plan ahead to meet their aims as this industry largely
contributes to the world’s economy in many ways. The airline industry forms
connections between people, businesses, buyers and sellers as well as the
distribution of goods. Although this industry largely contributes to the
economy, it is also greatly reliant on the given economic situation. “Growth
brings improvements in real incomes and a greater variety of goods and services
to all sectors of the economy.” (Needle, 2015).

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Another
economical factor which the airline industry must consider is the exchange
rates and consumer confidence. Consumers won’t be as inclined to go on holiday
if there is a bad exchange rate. The Brexit vote also proved to be a major
factor influencing the economic environment. The drastic fall in the value of
the pound due to the Brexit vote has created economic uncertainty. People will
be less inclined to go on holiday or travel to another country as the exchange
rate plummeted. This will decrease airlines sales dramatically. According to
Xe.com (2018), on 22nd June, 2016, the day before the Brexit vote
announcement, the GBP / EUR exchange rate was 1.31, however, only a few days
after 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 encountered
turbulence in the months following, with both issuing profit warnings since the
vote” (Megaw, 2017).

A critical
factor which may impact the airline industry is the increase or decrease in
fuel prices, consequently affecting operational costs for airlines. There is a
current low price of oil in comparison to the last decade which may be
reflected in ticket costs. The current low prices with be helping airlines to
recover losses from previous periods where fuel costs were significantly
higher.

Social

The performance
of the airline industry can be highly impacted by many social changes taking
place in the UK. The population commonly known as baby boomers are likely to
double the population of over 65s in the next 20 years. This generation will
have been frequent flyers and accustomed to modern day air travel. This may
cause an increase in flight sales as 65+ typically have a higher disposable
income and may use their retirement to travel. This would be a great advantage
to the UK airline industry. However, this could also impact the airline
industry negatively. Airports may need to adhere to the needs of age related
mobility problems. This could encounter a large cost for airports.

As social media
increasingly emerges, people around the globe are increasingly aware of offers
and deals for package holidays and flights. Social media platforms are now used
as a marketing strategy by airlines, reaching out to specific target markets
with the aim of increasing their sales. Along with social media, the growth of
income of middle class consumers is resulting in travel becoming more
accessible. The airline industry will be able to use this information from the
social factors of a PEST analysis to understand their target market and form
strategies to target those consumers.

The role of immigration in the UK’s
multicultural society is another important factor that the airline industry may
need to analyse. “Immigration to the UK created a multicultural, ‘cosmopolitan’
society: a society characterised by the co-existence of many cultures rather
than a single homogeneous culture” (Wetherly and Otter, 2014). Due to the
Brexit vote, airlines will have to tighten border controls to ensure every
passenger goes through immigration control. In order to do so this will affect
the airline industry as they may need to factor more employees in order to
carry out highly controlled checks as well as speeding down the airlines
processes. This could affect the amount of consumers willing to travel due to
inconvenience. If airlines fail to follow strict border controls this could
result in a large fine, impacting the airlines stability and reputation.

Technological

Airlines need to keep up-to-date with the
latest technologies to ensure they remain competitive. Machinery use is becoming
more efficient and cheaper in the long-run for large scale operations, such as
airports. Airlines now utilise new technologies such as wireless devices,
intelligent scale, self-check in machines, and electronic labelling. These new
technologies will benefit both the airline industry and its customers. For the
consumers, new technology will decrease the amount of time they have to wait at
the airport prior to their departure by increasing the efficiency. It may also
make the process a lot easier, increase their desire for air travel,
consequently increasing the profitability of airlines. New technological is
also an advantage for the airline industry. New technology will cut down the
number of employees needed at different stages of travelling. Although the
initial cost of new technology will be high, cutting down the need for as many
employees will save the companies money in the long run. Airlines must assess
their need for new technology, using the PEST framework, and use their
knowledge to survive competition amongst similar airlines.

The expansion of the internet has many added
advantages for the expansion and success of the airline industry. The airline
website BA.com for British Airways offers passengers the chance to check in
online, compare deals, search for tickets and many more advantages. The
internet is widely used and highly accessible with virtually all adults, aged
16-34, 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 to
consumers, this directly cuts out the use of travel agents. The cost of
communicating through a physical, store-based travel agent will be reduced, saving
the airline industry money. Overall, new technology may reduce costs, improve efficiency and productivity
and enable new products to be tried and tested.

Conclusion

Having analysed
and critically discussed the risks, posed by external forces, on the modern
airline industry in the UK, there are many conclusions made regarding their
impact on the operations and success of the industry. The airline industry will
be able to use their evaluated understanding, from the PEST framework, to
develop an understanding of the changes they currently face in a global
society. Due to Brexit, it would appear that the external forces pose
challenging threats towards the airline industry with the upcoming exit of the
EU suggesting a hard fall in consumers and sales. Brexit also poses the threat
of the exchange rate continuing to decrease and consumers becoming less able to
travel by air due to the rising costs. However, the PEST factors, particularly
the social and technological factors, would suggest that there may be a growing
success in the airline industry, contrary to opinion. The advance of new technologies
and growth of social media platforms suggests an increase in sales and a highly
efficient process. In conclusion, due to the insight gained from the PEST
analysis, the challenges facing the airline industry is un-determinately
neutral. Respective airlines in the UK industry will be able to form strategic
plans to overcome any risks posed by the four key macro level factors in order
to reach their objectives with minimum fault.