Rivalry in the airline industry among existing companies is intense. First of all, the industry has already a saturated market and it is in the mature stage of the business cycle. Moreover, the industry has high entry barriers as well as high exit barriers. The reasons are the extremely elevated fixed costs in the industry, that’s why the very same companies stay in the long run. The products, which are involved heightens the competition, because of their complexity, moreover, technical standards and safety guidelines of the aircraft limit the companies from being differentiated.
In addition, the expected market growth is relatively low 3% – 4%, in developed countries. However, it is higher in developing countries, for instance, Latin America, Africa, Asia Pacific, and the Middle East are expected 6.1% – 5 % growth rate, respectively (Figure 1). Which is impacted by the higher demand for air travel. Moreover, According to UK-based aviation data monitor OAG, the busiest air route is, surprisingly, not from Los Angeles to London, but from South Korean Island of Jeju to Seoul, which is mostly occupied by leisure travelers, and its popularity has grown so fast that domestic flight from Seoul leaves in every 15 minutes.1 Additionally, the number of airline passengers is expected to grow at a compound annual growth rate (CAGR) of 4.7 percent.2 The companies can only grow by capturing market share from each other, which leads to high competition and many M. For instance, TWA airline merged with American Airlines in 2001, American West and U.S. Airways also merged with American Airlines in 2013.3
Figure 1: Estimated annual growth rates for passenger air traffic from 2017 to 2036, by region
Secondly, the products are difficult to differentiate, that’s why there are low switching costs, and it means that the competition is lessened by the brand identities of different companies, every company has its own character, and there are low-cost to luxury airlines. Ryanair, EasyJet, WizzAir as low-cost carriers, where they try to cut costs by having limited amenities and remain competitive, for instance, Ryanair do not have rear pockets, recline of a seat, or in-flight entertainment, which reduce costs of maintenance and cleaning. Qatar Airways, Emirates, and Singapore Airlines as luxurious airlines. Within these companies, customers can switch to different carriers easily with their preferences. Investment in marketing has also increased for attracting customers and retaining market share.4 Companies can differentiate themselves by providing more services in the same, or lower costs compared to other airlines so that customers will switch to better offers. For example, providing free in-flight Wi-Fi, while some companies have additional fees on that.5
Additionally, air cargo market has reported steady growth rate (CAGR) of 6 percent from 2014-2019. It has also shown great competition as the airline industry, whereas the main competitors account on land transportation, especially bullet trains. Which have lower costs, offer easier logistics and have higher acceptance among enterprises.6
For the recommendation, we suggest airline companies offer customers more services and amenities, such as airport transfers, reduced check-in time, and lower baggage costs, free in-flight Wi-Fi, loyalty programs, where customers can get extra discounts. Airlines can differentiate themselves by, price across different locations; in-flight service (food, friendliness, comfortableness, internet access, power for notebooks, devices), convenience (number of flights, destinations, check-in process), reliability (on-time arrivals), safety. However, adding innovative services is costly, while it needs extra maintenance to change physical features to aircrafts. For business-class passengers, companies can differentiate themselves by providing a high frequency of services, which leads to capture greater market shares. Additionally, providing air cargo services to different enterprises can be another way to penetrate in the market, by reducing shipping days, which currently is on average 6.5 days and has high demand, while a number of online shops are increasing.7