Custom «EU Airline Industry» Essay Paper Sample
Air transport in Europe started in early 19 Century. Initially most of the airlines served domestic countries in the E.U region. Due to rapid development trends, it raised the need for a convenient and fast mode of transport. This guaranteed investors good returns in their investments. Consequently, there has been increased the need of expansion of the serviced routes, both within the E.U region and a cross other regions such as Middle East and India. The safety merits of air transport outweighed other forms of transport hence increased demand. However, the E.U airline industry as many other industries in the region faces dynamic trade competition. This has seen some of the airline close due to bankruptcy and stiff completion.
Benefits of a Single Market Share in E.U
The air transport in its early stage remained dormant comparing with other forms of transport, which was not preferred to road and water transport. However, invention by Charles Augustus in 1902 to 1974, improved the first solo and non-stopable transatlantic flight. These created a different view on the air travel from the public point of view. Services greatly improved after creation of Boeing's. Lockheed's decision to produce airplanes specifically designed for commercial purposes. This was key in the integral passenger grow, an estimate of few thousand a year by 1930 to about 2 million in 1939 and 16.7million people in the year 1949 (Rigas, 2002).
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The launch of jet airlines in 1957 and other larger aircrafts lowered the cost of travel which has since been reviewed to extremely affordable rates. A further regulatory board was put in place in 1938, according to Rigas and Routlege the board remained responsible in its roles involving routes, fares and safety standards within the E.U. regions and even the to non-member states. Air transport plays a vital role in the European Economy and the international Trade. Creation of a single air transport market in Europe was well received; as consumers expected substantial benefits that would come with not only improved trade market but also this Initiation of a single united market signaled improved competitiveness among the service providers in the industry. It's estimated that the industry generates 120 billion Euros as annual revenue, as well employs 3 million people. This actually accounts for more than 30% share representation worldwide air transport employees or job creation in the industry. A study by Rigas shows Austria, Belgium, Finland, France, Germany, Netherlands and the United Kingdom being the first Europe countries to embrace Air transportation in Europe.
The British company way back in mid august 1919 served a route from London to Paris. This was the world's first regular international flight; the flag carriers of United Kingdom at that time known as Imperial Airways. This then changed to British Overseas Airways Co (BOAC) in 1939. BOAC is said play a major business in the region as it started servicing routes between London, Middle East, and India; this was a huge achievement for the United Kingdom as a E.U member made it possible for travels access the destination. Expanding member's regional trade to the internationals; Sampson in his article of 1991 felt that Service of the airline in the mentioned counties had massive influence not only in painted a great business picture to the non-members of E.U; but also encouraging other Europe countries to get involved in the international travel.
According to Rigas most airlines in early 19th century served the international markets; for instance Austria initiated airmail service, regularly serving Vienna and Krakaw in Poland. Which Rigas says it plays a major role in trade enhancement among the E.U. member countries, despite the achievement, the embraced unity E.U. has have brought in the airline trading in the region; the industry has further came up with other strategies to better and maximize the regions outcomes on profits through increased revenue turnover. As they are involved alliances with other regional airlines e.g. the E.U.-U.S airlines, working in these regions has seen competition magnified (Dooanis, 1991).
Europe market share competition
According to Myron (2002) full-service airlines normally have high operational cost and fixed costs these are taken into account for basic requirement in order to maintain quality services to the customers. The required costs indents to cater for labor, fuel, IT services and networks, equipments and other handling services among others. A small estimate of the collected revenue from ticketing and other out sourced services will account fr the cost involved at operating costs. Smith affirmed that E.U. airline industry terminals in European nations works as tax collecting points, these helped the E.U. industry to remain responsible in accounting for the output income generated thus creating an open chance for public interest as they could easily follow the financial structure and decided on safe investments on Airlines listed on the stock market.
Smith too gives an analysis from 1992- 1996. In these period alone all players in the air transport industry, made profitable investment unlike the airline itself, that is, airlines that had areole in collection of fees and revenue it only acted as agent to the investor and government units. The estimates stands at ; Airlines as a whole earned 6% return on capital employed (representing less than 2-3.5% of capital) airport earned 10% , for instance the catering companies earned between 10- 13% , the other beneficiaries were Handling companies who made up to 14% profits in the period. This is well reflected in Doganis, (2002) in the study made over the profitability of the main stakeholders in the European region. Spinetta further clarifies on the investments in return of the main stakeholder who are reportedly created the right field for business and positively improved the economical scale of many European member countries (2000).
The European airline industry is currently facing its deepest crisis. Most airlines companies are reportedly losing hundreds of millions of US Dollars. Several have closed their business entirely others rescued by their governments (Rigas Doganis,2002). Rigas further argues that the crisis is due to security matter which is brought about by external socks(The terrorism act made against, the state member of Eu-US ) i.e. the attacks made on the Twin Towers in New York, the inversion of Iraq and SARS epidemic. These events have dynamic effects that potentially destabilize internal developments of many airlines.
Other than an even growth that have taken place in this industry, talk of getting new investors venture into the EU market; take for instance the United State Airline, Asia Airline and the emerging Airlines from the third world countries have continually posed stiff competition to the ready established EU airlines. These have exposed the Europe market not only to EU members but it have done so to other willing investor, who are out of Europe and intentions of either exploring other trade using air transport to their advantage or investing in airline serving these region (Sampson,1984). In his study Sampson argues that reversed acts by the licensing board, further magnified the competition as Airlines were allowed to set their own route fares.
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Impacts of Partnerships on Job market, revenue turnover and profits
The stiff competition meant each party had to benefit. In these case both passengers and service provider got its right, as air tickets cost dropped, hence increasing number of passengers willing to use the air transport both on domestic travels and international. As stated by Routlege (2002). It remains evident as lowered cost on travel gets airline much involved in transport activities; which in turn increases the revenue turnover. These can be accounted for by increment on sales made on cargo and passengers tickets. Dooanis (1991) in the article reports an immense increment of passenger numbers in the U.S airline, standing at 551 million passengers by 1998. The US airline currently controls to about 96% U.S market share. According to Dooanis partnership will improve the possibility of making more profits. Yes this is achievable as most airlines serving in these regions have a well established infrastructure and fairly well trained personnel; for instance most of the E.U. member countries have well developed airports, roads, light rail system.
Bankruptcies remain one of the major challenges that have cultivated the spirit of merging in Europe. France started an air mail destined to Morocco; this didn't last long as it only served from 1919 to 1927. When it was bought and renamed Aeropostale. Capital was injected into the business serving as an international carrier; by 1933 it went bankrupt. It was nationalized and even merged up with other several airlines which currently serve under Air France. According to the European Union,1999 reports clarifies that mergers in the E.U. countries have emerged to save inter county business relationship, job market for member countries citizen and even benefit the European economy.
Deregulation of the European Union airspace in early 1990s also adds to the list of improved competition and hence servicee to consumers. This has seen the industry structure substantial changes, as the shift towards shorter routes is rapidly imminent i.e. Easjet and Ryanair as all these have happened at the expense of the old traditional existing national airlines in the region. The current trends shows an increased will to privatize the existing National airlines as reported by Sampson and Rigas, e.g. Aer Lingus and British Airways are among the recent national airlines serving in the region to have completed the private deal the other is Italy's Alitalia have suffered particularly in regards to rapid increase of oil prices in early 2008.
However, there are concerns in indulging in merger and partnerships. Airlines operating globally, its essential that further steps have to be taken in to fully liberalize international air transport service; A common transatlantic aviation area, comes with increased competition which is seen to be a great concept .European commissioners on these case advocated for a possible alliance with other airline industrial players across all the world through the responsible authorities for completing enforcement, to surely avoid conflicting decisions instead enhance convergent application of the competition rules. The will help decline pressure on costs involved in restructuring across the national borders and legally adopting the alliances; as they remain high and severe to service provider.
On the other hand these will see the job market significantly grow resulting from increased traffic in cargo and passengers, improved productivity and other economic benefit to both regions as a result of cost saving measures at long run. Hamilton argues that improved partnerships among the air transport players will radically increase cost efficient and further boost the end product i.e. investment return in form of profits.
Although increased network by the air transport companies creates a vibrant service sale to most involved airlines; it requires clear decision making and analytical skills, emphasizes Mc.Laney, (2003). According to Mc.Laney, decision making remains key in any business; concept on better management, improved analytical skills and powers or role played at different level of management. This accounts the general outcome of any form of business. In these case the E.U. airlines management has to greatly involve real stakeholders in the market in a clear research on how to better their airlines' efficiency in services, improved asset facility and in return ripe equally high outputs in terms of profits and Serviced revenues on the market.
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Open skies benefits to E.U. airlines in the region Market
Due to the competitive effects of the airlines with the emergence of alliances on the E.U. environment, it has brought benefits to the people and E.U. Open skies being a top agenda in this industry the consumer has thus been offered extensive air travel. This has reduced the travelling time. European countries will have limitless flights within the region especially New Zealand. With the open sky agenda the regulatory bodies on both ends would reduce their task forces. The E.U. market will flood with commercial activities enhancing development and betterment of the economy. The Euro will be strengthened with good economic standards, Eurozone. This translates down to creating more employment opportunities and increased cargo and passenger turnout. the Eurozone has in this way become a "dog-bone" international hub this is because it links all regions within the E.U. with this in mind the airlines becomes the neuron that controls all E.U. activities or otherwise redundant flow of tasks. (Bradley, 2011)
On the other hand Sascha Albers (2007) looks at the rising need for industrialization in the region, as it is faced with rising issues of global warming. Global warming is rise of temperature on the earth's surface due to green house emissions. The open skies will hence cause the open sky to be busy. Emissions from burning fuel would then pollute the air leading to increased carbon concentration in the atmosphere; pollution.
At the end of every plan a great and wise decision has to be made. All potential stakeholders in this industry have a fair share of responsibility to work on. It is therefore important to engage all players while resorting to company consolidation for a mutual benefit of involved parties, currently the trend in many airline groupings may consist of limited bilateral partnerships, alliances between carriers, equity arrangements, mergers or even takeovers. It is equally important for all airlines engage in activities that are environmentally friendly as well support economical growth.
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