Air transportation is an imperative component of the transportation industry in Canada, as it deals with carrying passengers and cargo to national and international destinations. The air transportation industry consists mainly of commercial aircrafts, private planes, and helicopters. This paper will deal with the airline industry, scheduled air transportation in particular, as it is the most common type of air transportation today. Furthermore, my 4 years of experience in the airline industry has attracted me to look deeper into analyzing this industry.
The NAICS code for transportation is 48 and 481 for air transportation. The NAICS code for scheduled air transportation is 481110 which consists of companies transporting passengers and/or goods by aircraft, over regular routes at regular scheduled times. In comparison to companies in 4812, non-scheduled air transport, companies in the scheduled air transportation industry have less flexibility in regard to choice of airports, hours of operation, load factors and related operational activities. ("Statistics Canada") According to Transport Canada’s annual review, the transportation services sector represented 4.2% of Canada’s GPA or $53 billion for the year 2011. Air transportation, in particular, represented 12% of this amount which equals to $6.36 billion. ("Transport Canada / Transports Canada")
The airline industry suffered significantly after the economic downfall in 2008 and 2009. It has been steadily recovering in the last couple of years. In 2011, major Canadian air carriers reported and improvement of 3.8% in the number of passengers and 5.2% in passenger-kilometers as compared to 2010. The compound annual growth rate of the industry volume in the period 2008-2013 is predicted to be 4.7%. (“Statistics Canada”)
Figure 1 Air Canada versus West jet: Domestic market share
Air Canada is the national carrier of Canada. However, West Jet has been an up and coming threat to Air Canada. In 2000, Air Canada held 77% of the market share while West Jet only held 7%. Today, Air Canada and West Jet are the biggest market share holders with Air Canada holding 56% of the shares and West Jet with 36%. Altogether, Air Canada and West Jet hold 92% of the market share. ("Globe and Mail") Services offered by these airlines are scheduled regional, national and transnational passenger and cargo flights.
The PESTEL analysis is crucial in determining the opportunities and risks when entering any industry. The most essential factors for the airline industry are political, economical, societal, technological, and environmental.
The major issue pertaining to political factors is the government deregulation. Although the deregulation of the airline industry took place decades ago, airlines continue to see the effects today. The idea behind the deregulation was to open the market to competition; however, the increased market competition hurt many businesses in the industry.
Major economic factor in the airline industry emerged from the government deregulation. The deregulation mostly impacted Air Canada when low-cost airlines, such as West Jet, entered the industry. In order to compete with the cost-efficient new entrants to the industry, Air Canada needed to lower fare costs. However, it is difficult to lower fare costs while the gas prices continue to increase.
The rise of cost-efficient airlines opened doors for people of all levels of income to travel. This caused a change in the societal factors as it increased the range of passengers to include all levels of income. This requires a strategy change for the existing airlines to market for passengers of all types of income.
Technological issue in this industry emerges from the economical factor of rising fuel prices. Airlines, now more than ever, are in need of modern aircrafts that are more fuel efficient. The fact that aircrafts are not easily replaceable due to their