Effects of External Environment on Airline Industry

Introduction

            The business environment includes a set of relationships between stakeholders or agents in the environment. According to Coman and Ronen (2009), these relationships are transformed by the respective strategic decisions taken by businesses. In addition, these relationships and interactions co-create the environment. The present external business environment is more dynamic than ever before. Some of the key factors in the external environment of a business include economic, social, demographical, management and ecological factors. These factors indirectly or directly shape the evolution and activities of the international airline industry. The evaluation of the external environment can result in the possible detection of forthcoming trends in the international airline industry. The international airline industry offers services to almost every place of the world. This industry has been an essential component in the creation of the global economy. According to Macmillan and Tampoe (2001), this industry itself is a chief economic force in terms of both its effects on related industries such as tourism and aircraft manufacturing, and operations. In this regard, this paper discusses the ways in which and the extent to which the external environment shapes and constraints the strategic decisions and direction of an organization.

The Effects of Economic Factors on International Airline Industry

            According to Mason (2007), economic factors comprises of highly sophisticated structures. These factors include the speed of economic development, internal and external markets, fiscal and credit policies, purchasing power of consumers, currency rate, and inflations. According to Slack, Orife and Anderson (2010), these economic factors can ultimately shape the international airline industry by having an effect on the income and demand. Statistics data for some airline routes on the globe are not that promising, whereas other routes on the globe are economically promising. For instance, the route from UK to New York is more promising. It attracts major key players in the airline industry such as British Airlines and Virgin Atlantic. This is perhaps because of the sound economic business environment in this region. However, these airline companies have to deal with competition. As such, they need to make strategic decisions on how to overcome it.

Another economic factor influencing the strategic decisions of not only airline industry but also other organizations is government-induced taxes. The high number of taxes is a crucial factor affecting this industry. Such indirect or direct taxes affect virtually 70 per cent of the income in the airline industry. Additionally, these taxes make it extremely difficult for airline organizations to make substantial profits. The low economic potential of some regions on the globe has had a negative effect on the international airline industry. According to Verma (2009), the huge taxes charged on airline companies in some countries are perhaps the reason why some countries have been lacking competitiveness. This is because government-induced taxes act as a constraint, preventing the entry of new airline companies.

However, there are positive aspects related to economic factors affecting international airline industry. The decreasing interest rate is offering a more relaxed credit policy, which results in higher investment. According to Xaxx (2013), the rate of currency and fluctuation can influence investment. This result is expanded international market, which brings opportunities. International airline companies will be forced to make strategic decisions in order to capitalize on these new opportunities resulting from expanded global markets. However, economic factors and their impacts on strategic decisions fluctuate according to time and space. As such, airline companies need to have a clear picture of the potential external influences and their role in the global economy.

The effects of Management factors on strategic decisions and direction

            Management factors also play a crucial role in influencing the strategic decisions and directions of the international airline industry (Goodman et al. 2005). These factors include the features of global economy, global strategy, control and coordination policy, methods and techniques used in management, and the quality of studies. The aspects of the global economy apparently influences the international airline industry as well as the process of management by introducing various ranks of decision making, establishing functions and structures, and guaranteeing that competences and responsibilities are clear. Mergers and acquisitions, as a strategic decision, have resulted in smaller number of structural links. Nevertheless, according to Macmillan and Tampoe (2001), airline mergers and acquisitions have poor and slow and poor management has been visible.

Demographic, Social and Cultural Factors influencing Strategic Decision and Direction

Demographic factors like the total number of inhabitants, the proportion of active population, rates of both birth and death, and life expectancy can influence the strategic decisions and directions of the organizations (Stonehouse et al. 2007). These demographic factors can influence the airline activities since they have a significant effect on the number of customers and the structure and quality of the workforce. The international airline industry has been hit by a negative effect resulting from the 37 per cent of the 15-40 age groups among the total population. According to Coman and Ronen (2009), this has been evident when it comes to consumptions and demand of airline services.

Social and cultural factors of the global population influence the strategic decisions and directions of the international airline industry. According to Coman and Ronen (2009), social and cultural factors include rural and urban population, social environment, healthcare, level of education, customs and traditions, and cultural values and mentalities. Macmillan and Tampoe (2001) pointed out that these factors have been known to have an effect on the attitudes of consumers towards air transport and the behavior of employees of international airline industry. The lower rate of occupation can consist in the opportunity for labor market whilst the negative effect is seen on the industry via the effect it has on the levels of income, demand and purchasing power. According to Slack, Orife and Anderson (2010), cultural traditions, mentalities and values are also present in the financial results of airline companies.

Technological Effects on Strategic Decisions and Directions

Technological factors have also influenced the strategic decisions and directions of organizations including international airline organizations (Goodman et al. 2005). During much of the development of global airline industry, it dealt with important technological innovations like the introduction of jet airplanes for commercial use in the 1950s. The introduction of the jet airplanes was followed by the development of jumbo jets in the 1970s. During this time, airline companies were being regulated throughout the globe. This created an environment in which technological improvements and government policies took precedence over competition and profitability (Stonehouse et al. 2007). Presently, technology has transformed the international airline industry in various ways.

Technology has increased the ability of organizations to reach wider consumer base. Many airline companies strategically use information technology to market their services to a large number of consumers throughout the globe. Networked technologies have given airline companies an instant access to consumers. Consumers can book flight tickets online with a click of a button. Many airline companies are adopting unique technologies to gain a competitive advantage in the highly turbulent industry. The ability to reach a large number of customers provides airline organizations with competitive advantage. The internet provides a wide dissemination of advertising, while other technologies enable the quick design and production of these advertisements.

Technology has also impacted on strategic decisions and direction by increasing flexibility and speed of airline companies. Technology enables airlines companies to react quickly to dynamics in the airline industry (Coman and Ronen 2009). For instance, if a competitor develops a service that becomes popular, advertisers can change the image of their service to resemble that of their competitor. Coman and Ronen (2009) points out that different market can be aimed with different promotions using technology. As such, airline companies use technology to target various market segments with different promotions without incurring prohibitive costs related to traditional print technologies.

Technology has also increased competition. The fact that technology is available to every airline organizations in the industry renders it less than perfect. If only a single airline organization had the access to improve technology, it would have a tremendous advantage. In an industry that is saturated with technology, the outcome is a marketing race in which every organizations is struggling to for a competitive advantage over its rivals. According to Slack, Orife and Anderson (2010), this level of competition can become stressful and expensive. This is because these organizations will need to buy software and machines that in turn require constant training of employees. This increases the costs of operations, which influence strategic decisions.

Technology, as an external factor, has resulted in homogenization. As marketers struggle to have the most efficient way of having public attention, the outcome is the increasing homogenization in both the way in which products or services are marketed. Since digital technologies are simple to replicate, no marketer can have a competitive advantage for a very long time. According to Macmillan and Tampoe (2001), this is because other organizations will copy anything that is efficient. An advertising environment in which services and products look similar makes it difficult for consumers to differentiate between products and services. Such environment also increases cynicism concerning the process of marketing itself.

The Effects of Competition on Strategic decisions and directions

            Competition in airline industry emanates from various sources. This is the major reason why the industry is turbulent. According to Verma (2009), competition poses significant threats to many airline organizations in this industry. International airline companies such as Southwest Airlines faces competition from low fare airlines with similar business model. In order to deal with the high competition, airlines strategically reduce their costs of operations in order to charge low prices. Charging low prices places competitors in a position that they cannot earn profits. As such, they are forced out of the industry. Some airlines engage in mergers and acquisitions in order to overcome the threat of competition. According to Macmillan and Tampoe (2001), mergers and acquisitions are strategic business methods of overcoming competition.

Conclusion

            The external environment comprises of a set of relationships between stakeholders or agents in the environment. The present external business environment is more dynamic than ever before. Some of the key factors in the external environment of a business include economic, social, demographical, management and ecological factors. Economic factors include the speed of economic development, internal and external markets, fiscal and credit policies, purchasing power of consumers, currency rate, and inflations. Management factors influencing strategic decision of airline organization include the features of global economy, global strategy, control and coordination policy, methods and techniques used in management, and the quality of studies. Technology has increased the ability of airline organizations to reach wider consumer base. Many airline companies strategically use information technology to market their services to a large number of consumers throughout the globe. Competition poses significant threats to many airline organizations in this industry. International airline companies such as Southwest Airlines faces competitions from low fare airlines with similar business model.

 

 

 

 

 

 

 

 

 

 

References List

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Xaxx, J 2013, Advantages and Disadvantages of the Technological Environment When Marketing a Product, viewed 3 April 2013, <  HYPERLINK “http://smallbusiness.chron.com/advantages-disadvantages-technological-environment-marketing-product-21853.html” l “gsc.tab=0”   http://smallbusiness.chron.com/advantages-disadvantages-technological-environment-marketing-product-21853.html#gsc.tab=0 >.