Essays on Changes in the Airline Industry - Germany vs China Case Study

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The paper "Changes in the Airline Industry - Germany vs China" is a good example of a business case study.   In the last decade, the aviation industry has undergone many changes from changes in structure to increased costs especially of fuel to effects of economic recession like the closure of some airlines and mergers and acquisitions. From the collapse of many airlines like American airways, Pan AM, compass airlines and others in the late 1990s to the industry structure change experienced in the early millennium. The aviation industry consisted of three types of structures i. e.

the full-service network carriers (FSNC) which cost more and giving quality service. The low-cost carriers (LCC’ s) cost less and gave less or no service and the hybrid that was a combination of the two. With the introduction of LCC’ s, major airlines went into partnership with them leading to mergers and acquisitions as airlines tried to remain profitable and reduce costs. Mergers include Air France and KLM, British Airways and Iberia Airways among others. The price of jet fuel has been on the rise and in 2008; it formed 35% of the total operating costs of airlines thus pushing ticket prices up (Shaw, 2004).

Another issue to affect the aviation industry has been the economic recession of 2008-2009 that reduced demand for air travel. This is because people cut down on what they term as luxury goods of which air travel is one as disposal income reduces. This recession greatly affected Europe where the major airlines exist and saw many countries being bailed out after near-collapse like Greece. The German aviation market is dominated by 2 airlines i. e. Lufthansa Group and Air Berlin.

Lufthansa consists of a group of airlines like Lufthansa Cityline, Lufthansa Italia, Eurowings, Swiss, and Brussels Airlines among others. It controls 52.4% of the domestic market and 34.7% of the international market. It was the world’ s largest airline group in 2010 in terms of revenue. LCCs control 43.9% of the domestic market. Germany is the largest aviation industry in Europe and the fifth-largest economy in the world (data monitor, 2011).   In terms of market value, it was 20.7 billion in 2010 despite an industry shrink of 11.2%.

The compound Annual Growth Rate (CAGR) was 5.8% for the period 2006-2010. Market volume was 95.2 million passengers in 2010 a growth of 4.7% while CAGR was 1.9% for the period 2006-2010. In terms of market segmentation, international sales took a bigger share at 74.6% of the total volume while domestic volume was 25.4%. In Europe, Germany accounts for 12.5% of the industry value coming in second after the UK with 12.9% (data monitor, 2011). China has three major airlines i. e. Air China, China Eastern and China Southern which are government-owned.

Next is Hainan Airlines, a privately owned airline that is the fourth largest in China. The big three account for 80% of the total market (CAAC Report). Mergers have existed e. g. between Air China and China Southwest in 2001 and China Eastern merged with Shanghai Airlines in 2009. In terms of market size, China's aviation industry is the second-largest market in the world after the US. There were 180 airports in 2010 (data monitor, 2011). The market value of the Chinese airline's industry was 12.1% in 2010, a value of $26.9 billion and the CAGR for the period 2006– 10 was 10.8%.

The market volume was of 247.4 million passengers, a growth of 7.3% in 2010. The CAGR for the period 2006– 10 was 11.6%. As for market segmentation, domestic sales were more accounting for 93% of the total volume while international sales were a mere 7% for the period 2010. In the Asia-pacific region, China is the leading country in the aviation industry accounting for 30.2% of the sales value with Japan coming next with 26.2% of sales value for the period 2010.

References

Data monitor (2011) Airlines in China, Reference Code: 0099-0756. Retrieved from www.datamonitor.com

Fahy, J. & Jobber, D. (2003).Foundations of Marketing. McGraw Hill, New York.

Porter M. (2002). Competitive Strategy. Free Press, US

Shaw S. (2004). Air Transport. A marketing Perspective Pitman Pub. Melbourne

Manson K. (2005). Observation of fundamental changes in the demand for aviation services. Journal of Air Transport Management 11:19-25

Zhang, Quirong.(2009). China: General Aviation Industry Outlook 2009. Rep. Shanghai: U.S. Commercial Service.

Lu, C. (2009). The implications of environmental costs on air passenger demand for different airline business models. Journal of Air Transport Management,15(4), 158-165.

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