Discuss about the Strategic External Environmental Analysis.
The Australian aviation industry has a long background and is currently operating all over the world besides Australia. The aviation industry in Australia has gained importance because of the country being on an island and a having a thriving economy. It consists of sub-segments like gliding, hand gliding and autogyros. The Australian aviation industry has experienced the transferring of all the major airports from being Commonwealth-owned to privately owned into long term leases, regulatory changes and service restructuring. The Australian airlines carry international cargoes and passengers all across the world. Being an island country most of the visitors come by air. There are separate domestic and regional services in the region and the best aircrafts link the main cities and ports (Bamber 2015).
External Environment Analysis
The analyzing of the external environment of the Australian industry is crucial to the industry’s survival and understanding the trends and practices existing in it. The industry has seen difficulties, and is even sensitive to law, economic situation and social factors that has influenced the airline industry despite the growth in popularity and passenger numbers. The external factors that can continue to influence the industry in future also are discussed below:
The airline industry had seen a significant change in the operation processes after the 9/11 incident. After the incident, the travelling to other countries decreased significantly due to the uncertainty in safety and security. Additionally, the visa policy and border control became strict that caused the travelers inconvenience and decreased the travelling figures. The industry has coped up considerably with the political situation and has favored the passengers over the airlines. The industry had inclined towards a more monopolistic approach previously, and with a decrease in that has come increased competition and strict regulations for passengers. The passengers would be having a favorable position because of which they can push for lower prices and better amenities. Governments all over the world are investing in expanding the airports and building new ones to encourage travelling and handle a larger number of passengers.
The airline industry has always been highly dependent on the economic situation. The economic instability in the form of extended recession, oil price fluctuations and global slowdown has acted as debilitating factors, but has also given rise to low cost airlines. These kind of economic slowdowns have enlightened the airline industry on ways to survive difficult economic conditions and become more productive by reducing costs (Grant 2016).
Globally, travelling on holidays and vacations are becoming a trend as more and more tourist spots are coming up and travel companies are providing exclusive holiday packages. In addition, the income of the middle class is growing and along with it the air travelling costs are decreasing, making travelling by air more affordable. As a result, tourism is turning into an effectively potential customer market. Globalization also has the capability to expand businesses across borders, making it easier for CEOs and business managers to travel and meet with prospective clients. This trend has the probability to increase further with time. The maiden age of travelers is going up, which means that older people are becoming more inclined towards air travelling because of different reasons (Ancell 2016).
Technology has a widespread impact on all industries, which includes the airline industry also. The use of internet is increasing, and customers are getting the chance to conveniently purchase tickets from the comfort of their homes. Moreover, the ability and access of airlines are on an increase as passengers can get the latest update about fares and times. Airlines are increasing their usage of technology that has the potential to facilitate better interaction with customers.
Countries are with time introducing different rules, legislations and quality standards to guarantee safety and security of passengers. Airline companies are making it compulsory to follow these rules and conducts while travelling to other countries. It can increase the costs of air travelling as many standards and service levels have to be maintained. In addition, it would become difficult for new airlines to obtain an operating license in certain countries because of the new restrictions and requirements. There is a high chance that lawsuits would increase against airlines as customer expectations would increase and the laws are becoming severe against the airlines. It would become a bigger challenge for the airline companies.
With the increase in environmental issues, customers are becoming more aware and concerned about safety. Airline industry contributes almost 4% to the climate change that would be growing significantly in future (Eurocontrol.int 2017). As a result, customers would become more aware and prefer eco-friendly options for travelling by air. Airlines are planning to develop corporate social responsibility programs in an attempt to address this issue and properly deal with it. All eyes would remain on the airlines in future to see what they are doing to deal with this issue. Currently many companies are trying to introduce environment friendly airplanes in the industry. Bio fuel usage tests by eco-friendly airplanes have been successful and are being appreciated by many organizations for their attempt to work towards environment protection.
Demographic factors are important for the airline industry as it helps in conducting business with the help of a comparatively luxurious but reasonably priced service. The demographics also helps in forecasting demand for services and understand customer expectations. The Australian populations is growing, and at the same time its aging. The major parts of the population are youngsters and they are the group that influences the spending patterns of the country. As the number of baby-boomers retiring is increasing, the consumer group that would consume more is growing. It can be easily understood that the millennial generation would define the future of the travelling and airline industry (Lucarelli 2014).
The Australian airlines industry has experienced turbulent trading conditions in the last few years. However, the industry is expected to increase its revenue level through 2016-17 at an annualized 0.4% over the five years. The anticipated growth is of 2.2% in the current year. The depreciating Australian dollar has been assisting the broader tourism sector over the period and has helped in the growth of the economy (Ibisworld.com.au 2017).
The Australian airline industry is moderately concentrated, even with the introduction of budget carriers. The traditional low cost airlines have provided the challenge for a long time. The high-end players differentiate their products in terms of service quality, which would make it difficult for them to abandon all that for competing with the low-cost alternatives. In addition, the largest players own majority of the aircrafts, leading to high exit barriers (Homsombat, Lei and Fu 2014).
The profitability territory of the airline industry is expected to bring in a net profit of $29.8 billion in 2017. It is expected to be in its eighth year of aggregate airline profitability, which is illustrative of its resilience of industry structure to external shocks (Iata.org 2017).
The airline industry is growing and along with it is the competitiveness in the international market. Industry researches have shown that competition in Australia's worldwide aircraft industry will keep on being tempered by the bilateral air service assertions unless there are fruitful multilateral moves towards a more liberal administration over the more extended term. Thus, Qantas is adequately ensured a noteworthy part in its global markets, despite the fact that the power of competition with Qantas changes amongst business sectors and could grow if new Australian banner bearers access Qantas routes (Aph.gov.au 2017).
The airline industry experiences success factors in the form of its people, products and services, route systems, revenue and so on. The people and performance division always supports and receives the same kind of support from other business divisions. The recruitment also keeps in mind to include people who can provide superior in-flight customer services. Moreover, product developments, in-flight developments and aircraft developments are repeatedly taken care of (Wu and Liao 2014).
Ancell, D., 2016. Clipped Wings: Corporate social and environmental responsibility in the airline industry. Routledge.
Aph.gov.au. 2017. Australian Airline Industry – Parliament of Australia. [online] Available at: https://www.aph.gov.au/About_Parliament/Parliamentary_Departments/Parliamentary_Library/pubs/rp/rp0203/03RP10 [Accessed 3 Jan. 2017].
Bamber, G.J., 2015. Low-cost airlines’ product and labor market strategic choices: Australian perspectives. Members-only Library.
Eurocontrol.int. 2017. Environmental issues for aviation | Eurocontrol. [online] Available at: https://www.eurocontrol.int/articles/environmental-issues-aviation [Accessed 3 Jan. 2017].
Grant, R.M., 2016. Contemporary strategy analysis: Text and cases edition. John Wiley & Sons.
Homsombat, W., Lei, Z. and Fu, X., 2014. Competitive effects of the airlines-within-airlines strategy–Pricing and route entry patterns. Transportation Research Part E: Logistics and Transportation Review, 63, pp.1-16.
Iata.org. 2017. IATA -Another Strong Year for Airline Profits in 2017. [online] Available at: https://www.iata.org/pressroom/pr/Pages/2016-12-08-01.aspx [Accessed 3 Jan. 2017].
Ibisworld.com.au. 2017. Domestic Airlines in Australia Market Research | IBISWorld. [online] Available at: https://www.ibisworld.com.au/industry/default.aspx?indid=472 [Accessed 3 Jan. 2017].
Lucarelli, G., 2014. The corporate strategy of Qantas Airways. A case study.
Wu, W.Y. and Liao, Y.K., 2014. A balanced scorecard envelopment approach to assess airlines' performance. Industrial Management & Data Systems, 114(1), pp.123-143.