Introduction to Aviation Industry
The aviation industry is the world transportation system of connection that conveys goods and passengers by air. Whereas in the early 20th century air travel was only made possible, now the aviation industry brings about billions of dollars in annual earnings.
In addition it supplies significant services to various other industries, from medicine and national defense to tourism and sports. The quantity of the global aviation industry is included the use and manufacture of aircrafts.
The Chain of Aviation Industry
Up-stream Mid-stream Down-stream
Business and Industry
Service part
• Tourism and service that related to tourism activity
• Transportation and logistics
Manufacture part
• Produce electronic parts and perishable products
Factors Affecting the Airline Industry
Some factors can impact not only airline industry but also impact other industries and customers. Next are some factors;
First is air passenger tax; increasing passenger tax from government, the airlines have to increase price as well (Davis.J, 2011). This may cause the decreasing of passengers who do not need to spend money with an expensive or unstable ticket prices.
Second is fuel policies are somewhat important cost, because policies affect not only fuel supply but also the price that affect sustainability of airline. Supply decisions by oil suppliers and refinery expansion by oil companies and government also include in this part, which mean these can be the cause of fuel prices that impact airline sector (Davis.J, 2011). According to figure A.1 there are bunch of cost in an airline industry by way of example, station expenses, passenger service, flight crew and so on. However, the fuel costs play a large role in operating expenses (12% compared with total operating expenses).
Source: The Aviation & Aerospace Almanac, ICAO Air Transport Reporting Form EF-1.
Figure A.1 Operating Expenses of the Airline Industry
Figure A.2 Fuel Prices
Moreover, figure A.2 the fuel cost increases each year which mean it is one of the most concerning factors in airline industry.
Third is actual or terrorized war, terrorist attacks, and unstable of political; for this factor, passengers or customers do not want to involve in dangerous situations, as a result the airlines may suffer decline of revenue and number of passengers, this reason can come from an unstable of political as well, for instance changing in policy; increase tax, fuel cost and others which related to airline both direct and indirect way.
Fourth is global aspects; some governments offer unfair advantage subsidies and price inferior than market conditions which influences directly to airline industry and Global environmental policies about discharges and international route deregulation may affect airline operations in present and in future as well. (Davis.J, 2011)
Fifth is airline revenue sources; the airline transports people and goods in order to gain money. Most of the revenue comes from airline’s service rather than a physical product. (Davis.J, 2011) Which mean the majority of airline’s revenue come from service that provide to customers, if airline offers good services, for example airline provides service mind, convenience, fast, and accurate information of customers, goods, time, destination, and so on. For these reasons airline can impress customers, they might come back. Furthermore airline can create brand royalty as well. On the other hand, many airlines also gain money from their services, so customers have many alternatives; they can choose which airline’s service they prefer. This can also be the main cause of high competition for several airlines.
Sixth is airline expenses; all airlines have many expenses that they have to pay without any excuse. (Davis.J, 2011)
Figure A.3 Airlines Input Cost Structure
According to figure A.3 has shown the airlines input cost structure; fuel, maintenance, depreciation, passenger services, labor, aircraft rentals, landing fees, and other.
Source: China Southern Airlines
Figure A.4 China Southern Airlines operating expenses: 2011
Compared to figure A.4 has shown the flight operations, maintenance, aircraft and traffic servicing, promotion and sales, general and administrative, impairment on property, plant and equipment, depreciation and amortization and others.
Figure A.5 Total Operating Costs
In addition figure A.5 has shown that total operating costs; fuel, crew, passenger, maintenance, ground, flight, ownership, and indirect.
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Seventh is internal factors of economic; the internal economic factors that affect airline profit, including each flight is full of the price that passengers pay for it with different cost, how much they pay (Davis.J, 2011). So they expect something different according to the price, such as food, drinks, and other service they should receive. Airline has to provide related to number of passengers, if provide too much, it might be the cause of wasted food, drinks and also decrease profit. Otherwise, provide less than passengers’ demand can drop passengers’ satisfaction and airline’s reputation as well.
Eighth is external factors of economic; the external economic factors can impact airline’s profit, for instance rise in fuel cost (figure A.2) because of political or economic events can reduce airline’s profit as well as weather conditions; snowstorms, can be harmful to air travel. Other events such as airplane crashes negatively affect to people who wants to travel by air. From the mentioned causes can temporarily lose airline’s profits (Davis.J, 2011).
Ninth is technological factors; Nowadays technology plays a large role in driving globalization. The significance of technology is it can reduce airline’s expenses, at the same time it can increase online sales. In addition, technology can reduce customer traffic as well (OUP, 2007). Technology hand over benefits not only customers who receive convenience (they do not need to travel to airline counter; they can save their time) but also help airline to save costs. Here are some examples on customers’ side; customers have capability to check-in via their mobile phone then use a barcode that show on their mobile phone’s screen as a boarding pass- this procedure can help customers’ journey flow smoother, at the same time can save airline costs. As well as offering information of flight status for airline staffs and customers through the internet, so both airline staffs and customers can have up-to-date information (Robert Boyle, 2009).
For airline side can increase revenue through technology, such as airline’s website, mobile payment from airline’s application, or an alternative payment types. The reasons that motivate airline to offer alternative payment has shown on figure A.6
Figure A.6 Motivations for offering alternative payment methods
KLM said that “the initial catalyst for alternative forms of payment (AFOP) was to reduce the cost of transactions, although customer demand is now the biggest driver”.
According to the figure A.6 the reason for providing alternative forms of payment (AFOP) is to meet the demand of customers with 89%, next is to reduce cost with 64%, to increase revenue, to keep up with competitors/other airlines and to fit in with cross-border expansion plans are 59%, 41% and 23%, respectively.
Figure A.7 Benefits of offering alternative payment methods
According to figure A.7 has illustrated that the advantages of providing alternative payments are airline can achieve new customers (63%), lower payment processing fees (61%), and lower fraud rate (50%). In addition alternative form of payments (AFOP) can also help competitive differentiation (39%), customer royalty (38%), lower shopping cart abandonment, higher conversions, improves process automation and increase in average order value with 34%, 21%, 20% and 11%, respectively.
Another reasons that why technology is an important role for many airlines;
Malek Nejjai (2011) claimed the following:
The key thread running through this report is that travel will become more collaborative over the next decade, both in terms of how people travel, and how travel providers work together with travelers. This collaboration will help reduce the stress, uncertainty and chaos that is present today, due partly to the onset of mass tourism. Understanding these trends in the travel, tourism and airline industry is a key to developing longer term solutions that meet traveler needs. The airline business, as well as the tourism industry, relies on satisfying demand and understanding how that demand is evolving and changing as we head into the future is what this report is about.
Figure A.8 Travelers’ Frustrations and Travelers’ Expectations
According to figure (A.8) has displayed 2 sides; the right side is travelers’ expectations and the left side is travelers’ frustrations that is the action that travelers or passengers do not want to do, for instance going through security, passport control and customs, if the airport or airline provides automatic security (passengers can scan, check, and investigate by themselves) it will reduce time for both passengers and airline and airline can cut cost from hiring people, as well as the human error may decline. From picture A.8 has shown a clear understanding not only for passengers (what are they expectation) but also for airline that know what to do, what to provide.
From above explanation has proved that technology is somewhat important to airlines and all related for operating, customers service, it also help not only airlines but also aviation industry because it has significant role in every parts of aviation industry. Technology supports industry to grow perfectly.
Tenth is trend of passenger and cargo;
Geneva the International Air Transport Ass