Open skies agreements and more international visitors will bolster industry demand
Los Angeles, CA (PRWEB) August 05, 2013
The International Airlines industry has experienced its share of ups and downs during the past five years. In 2008, airlines experienced sustained growth on the back of rising air travel rates. In 2009, however, the industry experienced one of its worst years in recent memory: Revenue fell 20.6%, demand collapsed, consumer capacity contracted and prices spiked, all combining to drive the industry down. “Fortunately, industry operators began to rebound in 2010 through hefty cost-cutting measures and an increase in travel demand,” according to IBISWorld industry analyst Andy Brennan. As operators slowly increase capacity in response to recovering travel demand, industry revenue will continue to grow. Thus, IBISWorld estimates revenue will grow at an annualized rate of 0.2% to $60.6 billion over the five years to 2013, including a 7.0% increase in 2013 alone.
Concentration in the International Airlines industry has risen to a high level during the five years to 2013, with the top four companies holding more than 70.0% market share. This concentration represents a significant increase from 2008. “Poor profitability and increasing competition have forced some airlines out of business, leading to industry consolidation and falling participation,” says Brennan. In November 2011, American Airlines filed for bankruptcy protection. A high-profile merger between Delta Air Lines Inc. and Northwest Airlines Corp. in 2008 led to the creation of the world's largest airline, with regards to revenue, at the time. Then, in 2010, United Airlines and Continental Airlines merged, placing United Continental Holdings Inc. above Delta as the world's largest airline. In February 2013, American Airlines and US Airways agreed to merge, a move that will allow the company to supplant United as the world's largest airline. Over the five years to 2013, the number of firms is estimated to decline an average 0.5% per year to 173, with industry employment also falling 2.5% per year on average to 167,461.
An operator's decision to fly to a destination is determined by the level of fixed costs necessary to operate a particular route; these expenses that need to be incurred prior to the delivery of a service and are independent of output. Firms will provide a service only if there is a sufficient market. It can also act as a barrier to entry as incumbent firms that have already incurred fixed costs (or provided state-aid incentives such as government owned airlines) and have large levels of output will be able to produce at a lower per unit cost. Other costs such as airport, ground handling, leasing, and various ancillary services are also taken into consideration before a network route is determined, in addition to the availability of landing slots. All these factors have the potential to reduce the number of routes of operating firms that would otherwise be in the market. Prior to an airline estimating its fixed cost for a route, the carrier is required to seek regulatory approval and landing rights from authorities. This provides national governments the right to decide which airlines have access to national airspace and in which manner. The high level of concentration implies little scope for new entrants into the industry. Possible entries include companies servicing niche markets and to a certain extent competing with the industry’s major players.
Revenue is expected to recover over the five years to 2018, as open skies agreements and international tourists coming to the United States will aid demand for industry services. These tourists are the industry's major driver and will be encouraged by further cyclical depreciation of the US dollar. Future profit will largely depend on volatile fuel prices, and airlines' ability to successfully hedge against their movement and increases in the cost of greenhouse gas emissions. New fuel-efficient aircraft will aid this cause and increase operator competitiveness in the global market.
For more information, visit IBISWorld’s International Airlines in the US industry report page.
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IBISWorld industry Report Key Topics
The International Airlines industry provides air transportation of passengers and cargo over regular routes and schedules. These services include any flights that either end or originate internationally. Scheduled air passenger carriers, including commuter and helicopter carriers (except scenic and sightseeing), are included in this industry. Furthermore, airlines that provide scheduled international air transportation of mail on a contract basis are also included in this industry.
Key External Drivers
Industry Life Cycle
Products & Markets
Products & Services
Globalization & Trade
Market Share Concentration
Key Success Factors
Cost Structure Benchmarks
Barriers to Entry
About IBISWorld Inc.
Recognized as the nation’s most trusted independent source of industry and market research, IBISWorld offers a comprehensive database of unique information and analysis on every US industry. With an extensive online portfolio, valued for its depth and scope, the company equips clients with the insight necessary to make better business decisions. Headquartered in Los Angeles, IBISWorld serves a range of business, professional service and government organizations through more than 10 locations worldwide. For more information, visit http://www.ibisworld.com or call 1-800-330-3772.