Airlines will allow demand growth to outstrip capacity increases, and prices will continue to grow
Los Angeles, CA (PRWEB) July 01, 2014
Domestic air travel has a buyer power score of 2.8 out of 5, indicating limited negotiating power for buyers. Major airlines wield significant pricing power. According to IBISWorld procurement analyst Hayden Shipp, “their high market share and use of differential pricing means that most buyers cannot negotiate for discounts on published fares.” During the past three years, market prices have risen at a moderate rate despite a decline in airlines’ largest cost, fuel. Such price growth illustrates the market-based nature of prices, because input costs play a lesser role in determining fares than demand and competition.
Unfortunately for buyers, recent growth in major airlines’ market share has eroded competition. Legacy airlines have engaged in large-scale mergers and acquisitions during the past decade, the most recent of which was 2013’s merger of AMR Corporation and US Airways to form American Airlines Group. Additionally, the market’s largest nonlegacy airline, Southwest, acquired AirTran in 2011. “Consolidation has resulted in merged carriers dominating routes that were once contested by smaller players, particularly routes between hub airports,” says Shipp. While some low-cost airlines have grown during recent years, such growth has largely stemmed from serving more remote secondary airports and leisure markets, neither of which are suitable for many business travelers. Additionally, the domestic air travel market is protected from foreign airline competition, further limiting buyer choice. IBISWorld expects major airlines to continue to consolidate, though on a smaller scale, during the next three years to gain further control over market capacity and maintain moderate price growth.
Airline consolidation has been accompanied by aggressive unbundling of services as airlines seek to lower costs and raise revenue. As a result, travelers have faced a proliferation of ancillary fees for services that were once included with airfare. Airlines’ increasing reliance on such fees has made it more difficult for travelers to grasp the full price of air travel and comparison shop. Fortunately for travelers, recent and forthcoming passenger protection regulations increase fee transparency and reduce the risk of incurring unexpected costs when flying. The top four vendors in the market are United Continental, Delta Air Lines, American Airlines, and Southwest Airlines.
For more information, visit IBISWorld’s Domestic Air Travel procurement category market research report page.
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IBISWorld Procurement Report Key Topics
This report is intended to assist buyers of domestic air travel. Domestic air travel includes scheduled passenger routes within the United States. Airlines are the dominant suppliers in this market. Other supplier types include corporate travel management companies, travel agencies and online travel companies. This report does not cover international air travel, aircraft charter services or air cargo transport.
Recent Price Trend
Product Life Cycle
Total Cost of Ownership
Supply Chain & Vendors
Supply Chain Dynamics
Supply Chain Risk
Market Share Concentration
Buying Lead Time
Key RFP Elements
Buyer Power Factors
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IBISWorld is one of the world's leading publishers of business intelligence, specializing in Industry research and Procurement research. Since 1971, IBISWorld has provided thoroughly researched, accurate and current business information. With an extensive online portfolio, valued for its depth and scope, IBISWorld’s procurement research reports equip clients with the insight necessary to make better purchasing decisions, faster. Headquartered in Los Angeles, IBISWorld Procurement 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.