Magazine article Marketing

Sector Insight: Airlines - Steady Ascent

Magazine article Marketing

Sector Insight: Airlines - Steady Ascent

Article excerpt

Having suffered a slump since 9/11, airlines are seeking to build on rising passenger numbers.

The Background British travellers are now able to fly to more destinations, more cheaply than ever, and an increasing number are doing so. In the past decade, the rise of low-cost carriers has irrevocably altered the sector, but other more negative factors are also having an impact. There has been consolidation among the full-service airlines and some less profitable routes have been closed. A combination of rising oil prices, terrorism fears and increased competition has seen some operators struggle. However, as people continue to take more overseas holidays, the sector seems likely to prosper.

Rising awareness of the environmental impact of air travel and persistent terrorism fears have had little impact on the UK population's desire to fly. In 2004, 86m passengers flew from UK airports, up from 70m in 2000, according to Mintel.

However, the dynamics of the sector are shifting, with low-cost airlines such as easyJet rapidly expanding, and traditional carriers such as British Airways and Virgin reducing capacity.

The airlines are divided into three main types: scheduled or full-service, low-cost, and chartered or tour operators. The main British scheduled operators are BA, Virgin Atlantic and bmi.

In the low-cost sub-sector, the leading UK carriers are easyJet, bmibaby and Flybe - Ireland-based Ryanair, with more than 26m passengers, is the biggest, but does not feature in UK-only Civil Aviation Authority figures. All low-cost carriers fly direct, with no connecting flight network, and operate short-haul routes only.

The leading tour operators are MyTravel Airways, Britannia Airways (Thomsonfly), First Choice Airways and Thomas Cook Airlines. They offer chartered flights, which are usually sold as part of a package holiday through a travel agent. However, sales via this channel are decreasing, as direct bookings by phone or online rise.

The low-cost airlines have performed best in terms of capacity and passengers carried, helped by growth in the use of the internet, which has become an important sales tool for the industry. However, they too face a number of issues, especially as European budget carriers establish themselves and increase competition on many routes.

Co-operative strategy

One of the most significant developments has taken place in the full-service category, with the rise of airline alliances. These mean routes can be linked and airlines gain a wider network without having to launch additional routes.

These co-operative agreements also offer the benefit of the practice of codesharing, which enables one airline to sell tickets under its name for travel on an alliance partner's routes. Other advantages include linking frequent-flyer schemes and combining ticket offices.

There are three major alliances: Star Alliance, which includes United Airlines, Thai Airways and SAS; SkyTeam, taking in Air France, Continental and KLM; and oneworld, which includes BA, American Airlines and Cathay Pacific. Together, the three account for 60% of the world's airline capacity, according to the International Air Transport Association.

BA is the biggest of the scheduled airlines, flying to about 170 destinations in 76 countries. Its two-year business plan for 2003-2005 has focused on implementing technology to help it reduce external costs by pounds 300m. This has included introducing self-service check-in kiosks and boosting the use of e-tickets. More changes may be afoot; last month the airline put its highly coveted pounds 60m ad account up for review.

Virgin Atlantic is the UK's second-biggest long-haul carrier, serving 22 destinations. Initially hit by a post-9/11 drop in traffic, it now plans to expand further into Africa, India and China.

British Midland's rebrand as bmi in January 2002 aimed to give it a more international feel, in line with its network of routes; its destinations include India and the Caribbean. …

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