IBISWorld Industry Report

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September 2018
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IBISWorld Industry Report
Global Airlines
September 2018
About This Industry………………………………. 2
Industry Definition ………………………………….. 2
Main Activities ……………………………………….. 2
Similar Industries …………………………………… 2
Additional Resources …………………………….. 3
Industry Performance…………………………… 4
Executive Summary ………………………………. 4
Key External Drivers………………………………. 4
Current Performance……………………………… 5
Industry Outlook…………………………………….. 7
Industry Life Cycle…………………………………. 9
Products & Markets………………………………. 10
Supply Chain…………………………………………. 10
Products & Services ………………………………. 11
Demand Determinants …………………………… 12
Major Markets ……………………………………….. 12
International Trade…………………………………. 14
Business Locations………………………………… 15
Competitive Landscape ……………………….. 17
Market Share Concentration……………………. 17
Key Success Factors …………………………….. 17
Cost Structure Benchmarks……………………..18
Basis of Competition ……………………………….20
Barriers to Entry ……………………………………..21
Industry Globalization………………………………22
Major Companies …………………………………..23
Delta Air Lines Inc. ………………………………….23
American Airlines Group Inc. ……………………24
Deutsche Lufthansa AG…………………………..24
United Continental Holdings Inc………………..25
Other Players …………………………………………25
Operating Conditions…………………………….26
Capital Intensity………………………………………26
Technology & Systems……………………………26
Revenue Volatility……………………………………27
Regulation & Policy…………………………………27
Industry Assistance…………………………………28
Key Statistics………………………………………….29
Industry Data………………………………………….29
Annual Change……………………………………….30
Key Ratios ……………………………………………..30
Global Airlines
This report was provided to
Federation University (2133015199)
by IBISWorld on 31 May 2019 in accordance with their licence agreement with IBISWorld
WWW.IBISWORLD.COM Global Airlines September 2018 2
About This Industry
Industry Definition
The Global Airlines industry includes airlines that transport passengers over scheduled or nonscheduled
routes, both domestically and internationally. Cargo that is transported within passenger aircraft is also
included in this industry, though dedicated cargo airlines are excluded from this industry definition.
Main Activities
The primary activities of this industry are:
• Non-scheduled air transportation of revenue passengers
• Scheduled air transportation of revenue passengers
The major products and services in this industry are:
• Domestic passenger transportation
• International passenger transportation
• Other
• Cargo transportation
Similar Industries
G4611-GL – Global Hotels & Resorts
This industry provides hotel and resort accommodations, with private or shared facilities, and with or
without meal services and restaurants attached.
H4832-GL – Global Cargo Airlines
This industry provides air transportation for mail and cargo.
H4911-GL – Global Travel Agency Services
This industry is engaged in tour wholesaling or acting as retail travel agents in selling travel or tours to the
general public and commercial clients.
H4912-GL – Global Airport Operation
This industry operates air transport terminals.
X9001-GL – Global Tourism
This industry catalogues the short-term movement of international tourists across national borders for any
purpose, including leisure, business, conference or seminar and visiting friends.
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Additional Resources
For additional information on this industry:
UN World Tourism Organization
Airlines for Europe
International Air Transport Association
International Civil Aviation Organization
US Federal Aviation Administration
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Industry Performance
Executive Summary
Despite rising levels of airborne passenger and cargo traffic, revenue for the Global Airlines industry has
grown sluggishly over the past five years as volatile fuel prices and growing competition have placed
downward pressure on airline ticket prices and freight shipping rates, constraining industry revenue
growth. Moreover, the total value of world trade has decreased at an annualized rate of 0.2% over the past
five years, limiting demand for cargo transportation services. At the same time, recent growth in global per
capita income has fueled demand for airline passenger transportation, with the number of global tourist
arrivals increasing at an annualized rate of 5.2% over the five years to 2018. Overall, industry revenue is
estimated to increase a modest annualized 0.8% to $773.8 billion over the five years to 2018, including
expected growth of 5.1% in 2018.
As unemployment has declined in several developed economies and disposable income has risen in
emerging economies, total discretionary travel spending has increased. Additionally, the number of
business travelers, who usually pay a premium for tickets, has increased over the past five years as
corporate profit and industrial output have grown. Despite these positive trends, substantial declines in the
world price of crude oil forced operators to significantly lower prices, causing industry revenue to decline
in both 2015 and 2016. At the same time, declining fuel costs, combined with continued investments in
more fuel-efficient aircraft, have caused industry profit margins to expand during the five-year period, and
profit is expected to account for 6.2% of total industry revenue in 2018.
Moving forward, industry revenue is projected to prosper as continued increases in global per capita
income and travel activity are bolstered by economic growth in Asia and other emerging markets.
Moreover, the price of jet fuel is expected to rebound in coming years, enabling operators to generate
significant revenue by implementing fuel surcharge fees and raising ticket prices. However, industry
revenue will remain somewhat limited by growing competition from alternative modes of transportation,
as well as the persistent problem of excess carrying capacity as airlines continue to order larger aircraft
with greater passenger and cargo space. Ultimately, industry revenue is expected to increase at an
annualized rate of 3.2% to $907.7 billion over the five years to 2023.
Key External Drivers
The key sensitivities affecting the performance of the Global Airlines industry include:
Global per capita income
A significant portion of industry revenue comes from discretionary consumer spending on leisure travel.
When global per capita income rises, consumers can spend more on nonessential vacations and increase
spending on airline amenities. Global per capita income is expected to increase in 2018.
Global tourist arrivals
The industry is sensitive to the number of international visitors to individual countries. Airlines rely on this
market for a portion of their revenue, meaning that any positive changes in international tourism will
benefit industry operators. The number of global tourist arrivals is expected to increase in 2018,
representing a potential opportunity for industry operators.
World GDP
The industry is highly sensitive to global economic conditions. An increase in world GDP reflects rising
manufacturing activity, increased consumer spending and growing business sentiment, boosting demand
for airline services. World GDP is expected to increase in 2018.
World price of crude oil
Given that jet fuel is refined from crude oil, when global crude oil prices decline, jet fuel prices tend to
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decline as well, causing major airlines to remove fuel surcharges and reduce ticket prices to remain
competitive. In turn, lower prices limit industry revenue growth. The world price of crude oil is forecast to
increase in 2018; however, the volatile nature of world oil prices will pose a significant threat to industry
operators in coming years.
Current Performance
The Global Airlines industry has experienced sluggish growth over the past five years as excess carrying
capacity, rising internal competition and volatile trends in the price of fuel have placed significant
downward pressure on airline ticket prices and freight shipping rates. Slowing growth in China and weak
economic growth in Europe have also negatively influenced industry revenue, while the continued
appreciation of the US dollar has resulted in limited international demand for several of the industry’s
largest US-based operators. At the same time, passenger and cargo traffic have exhibited strong growth as
rising levels of global disposable income and consumer spending have bolstered demand for airline
services from the expanding middle classes in several emerging economies. Consequently, while rising
demand has been able to largely offset declining airfare, industry revenue is estimated to increase at a
modest annualized rate of 0.8% to $773.8 billion over the five years to 2018, including projected growth of
5.1% in 2018.
Mixed revenue conditions
Overall economic growth, rising consumer spending and improving corporate profit have caused demand
from both business and leisure travelers to increase in recent years, and the number of global tourist
arrivals is expected to increase at an annualized rate of 5.2% over the five years to 2018, generating
significant revenue for industry passenger airlines. However, as expenses on fuel can range from 25.0% to
40.0% of the typical airline’s total costs, large-scale movements in jet fuel prices can have a significant
influence on airline revenue and profit margins. When the price of jet fuel increases, industry carriers are
typically able to earn revenue by implementing fuel surcharges and increasing ticket prices and freight
rates, shifting the burden of rising fuel costs to consumers. Therefore, while passenger and cargo traffic
have increased during the five-year period, industry revenue declined in both 2015 and 2016 as
plummeting crude oil prices caused many airlines to remove fuel surcharges and reduce prices to remain
At the same time, many of the industry’s key markets have experienced relatively weak growth over the
past five years, with the Euro Crisis constraining demand from several developed economies while many
emerging markets have experienced a slowdown in economic growth. As a result, the total value of world
trade has declined at an annualized rate of 0.2% over the five years to 2018, severely constraining demand
for industry cargo transportation services. Moreover, the industry’s total freight carrying capacity has
expanded substantially over the past five years as airlines have purchased newer, larger aircraft to improve
fuel efficiency and access greater economies of scale. As industry capacity has increased more quickly than
demand for airborne cargo transportation, operators have been forced to further reduce freight rates to
attract and retain downstream consumers.
Airline profit
Most airlines earn slim profit margins; however, industry profitability has improved over the past five
years. Prior to the current period, industry profit fell due to a combination of factors, including sluggish
demand, fierce price wars and high fuel prices. However, increased global travel activity and large declines
in the world price of crude oil have resulted in a substantial increase in the typical airline’s operating
margin. Extensive cost-cutting measures and increased investment in labor-saving technology have also
benefited industry profit margins. Ultimately, profit is estimated to account for 6.2% of total industry
revenue in 2018, up significantly from 3.5% in 2013. To maintain margins in a competitive global industry,
many airlines have increased automation through the addition of check-in kiosks, online check-in and
online seat selection.
Industry landscape
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Consolidation activity has intensified over the past five years as major airlines have attempted to maximize
the benefits of globalization and return to favorable conditions by expanding code-sharing agreements and
airline alliances. For example, American Airlines and US Airways joined forces in 2013 to form the largest
revenue-generating airline in the world. Moreover, the industry’s three largest airline alliances, Star
Alliance, SkyTeam and Oneworld, consistently account for more than 60.0% of the world’s total scheduled
traffic, which acts as a significant barrier to entry for small-scale players attempting to gain market share
in this industry. Despite these trends, total industry participation has increased during the five-year period
as the airline sectors in several emerging economies have continued to expand and overall passenger and
cargo traffic have experienced steady growth. Ultimately, the number of industry enterprises is expected to
grow at an annualized rate of 2.7% to 4,638 companies over the five years to 2018. Similarly, total industry
employment has increased at an annualized rate of 3.1% over the past five years, reaching an estimated 2.7
million workers in 2018.
Stopping short of merging or buying one another’s assets, some companies have simply strengthened
agreements with their foreign counterparts, and with heightened competition and increasingly saturated
markets, international cooperation has become a common trend among industry operators. Open-skies
agreements serve to liberalize international air transportation markets between the two signing countries
or parties of the agreement. These agreements remove certain government restrictions, such as limits to
the number of flights any one airline can operate between countries. The removal of these limitations has
opened several routes to increased competition, enabling airlines to fly more frequently and making these
routes more accessible.
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Industry Outlook
The Global Airlines industry is projected to improve in coming years, fueled by increasing levels of
disposable income, an expanding global middle class and surging travel activity. Moreover, the price of jet
fuel is projected to rebound over the next five years, enabling airlines to implement fuel surcharges and
generate additional revenue from passenger and cargo transportation. Industry growth will likely occur at
a slower pace in developed economies compared with emerging economies, and the dominance of USbased airlines may dissipate to some degree as airlines in North Asia and the Middle East handle a growing
portion of the world’s total passenger and cargo traffic. Overall, industry revenue is estimated to increase at
an annualized rate of 3.2% to $907.7 billion over the five years to 2023.
Improving revenue conditions
Following a recent slowdown in emerging market growth, the world’s developing economies are expected
to bolster global economic activity in coming years. For example, the GDP of BRIC nations (Brazil, Russia,
India and China) is forecast to increase at an annualized rate of 5.8% over the next five years, indicating
greater manufacturing output and consumer spending on the part of the world’s largest developing
countries. As worldwide consumer spending increases and the global middle class expands, demand for
industry services is forecast to rise, and the number of global tourist arrivals is projected to increase at an
annualized rate of 4.2% over the five years to 2023. Rising demand for international air travel will generate
significant revenue for the industry’s passenger transportation services, while global per capita income is
expected to increase at an annualized rate of 2.7% over the next five years, enabling greater numbers of
passengers to purchase first-class seats, extra baggage allowances and other discretionary amenities.
However, mounting price-competition from an array of low-cost airlines will continue to place downward
pressure on industry ticket prices, benefiting airline customers while reducing revenue opportunities for
airline companies
Rising consumer spending is also expected to bolster global manufacturing, wholesaling and distribution
operations, stimulating international trade activity and generating demand for airline cargo transportation
services. Additionally, growing industrial output and improving corporate profit will likely lead to larger
travel budgets for businesses, especially for senior executives who often purchase first-class and businessclass tickets for business-related air travel. This trend will predominately benefit major airlines flying longhaul international routes, since budget-friendly airlines are generally unable to compete with industry
leaders in the industry’s lucrative business travel segment. As corporate demand for industry services
increases, airlines will compete through new amenities that provide more luxurious accommodations for
passengers paying a premium, most likely at the expense of space in the economy sections of aircraft. This
strategy of catering to business and first-class customers is also expected to contribute to the industry’s
growing profit margins, since high-end airline services are often relatively profitable.
Profit and participation
The price of jet fuel is forecast to rebound from recent declines and experience steady growth over the next
five years, increasing operating costs for many airlines. Moving forward, the industry’s profit margins will
also be constrained by the rising costs of capping and trading greenhouse gas emissions, as well as
increased price-competition from low-cost airlines. However, passenger load factors, which measure a
plane’s capacity utilization, are projected to rise over the next five years as airlines incorporate new
technologies and adjustable price ticketing to increase loads. Aircraft can operate more efficiently and
achieve higher returns by filling empty seats, which ensures that airlines are operating near maximum
capacity. Additionally, technological developments in aircraft manufacturing are expected to result in
faster, more fuel-efficient models that will improve the competitiveness of operators. Overall, industry
profit is expected decline slightly over the next five years, accounting for an estimated 6.0% of the
industry’s total revenue in 2023.
Growing revenue and respectable industry profit margins are projected to bolster industry participation in
coming years, aided by continued industry liberalization and general economic growth in countries like
China. In fact, the total number of industry enterprises is forecast to grow at an annualized rate of 2.4%
over the next five years, reaching an estimated 5,211 companies in 2023. In turn, an increase in the global
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number of airlines will fuel industry job growth despite industry cost-cutting initiatives and the increased
automation of industry services, causing total industry employment to increase at an annualized rate of
3.0% to 3.1 million employees over the five years to 2023.
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Industry Life Cycle
This industry is in the mature stage of its life cycle.
Life Cycle Stage
• Industry value added is growing at about the same rate as GDP
• Consolidation is occurring as airlines seeks to access higher profit margins through combining
• Technological developments have slowed
The Global Airlines industry is in the mature phase of its economic life cycle. Industry value added, or the
industry’s contribution to the global economy, is expected to grow at an annualized rate of 4.2% over the 10
years to 2023. Comparatively, global GDP is forecast to increase at an annualized rate of 3.4% during the
same period. While the contrast between these two growth rates generally indicates that an industry is in
the growth phase of its life cycle, substantial coordination among the industry’s largest players and full
market acceptance of industry services point to this industry’s ongoing maturity.
Mergers and acquisitions are prominent in the industry as major players attempt to expand their market
share. For example, in 2013, American Airlines and US Airways merged to form the world’s largest revenue
in terms of revenue. Industry operators also frequently form international alliances to expand their
geographical reach and share the costs associated with transportation. Many of the industry’s largest
shipping alliances, such as Star Alliance and SkyTeam, were formed in recent decades as companies
attempted to improve operating efficiency in a highly competitive environment. Moreover, the industry’s
substantial barriers to entry and high level of government regulation prevent many small-scale operators
from entering the market. As a result, the industry’s major players have experienced a period of prolonged
consolidation, which is indicative of a mature industry.
This industry also plays a critical role in the global economy, and therefore, passenger and cargo airline
services have consistently been fully accepted by downstream consumers. Airlines offer a quick, relatively
affordable method for private consumers to travel, and cargo airlines remain the most popular mode of
transporting high-value, time-sensitive goods. Therefore, as global levels of disposable income,
international travel and total manufacturing activity continue to increase in coming years, airborne
transportation services will continue to be fully accepted by downstream markets.
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Products & Markets
Supply Chain
Key Buying Industries
L-GL – Global Business Activities
Many manufacturers rely on airlines to transport high-end, time-sensitive manufactured goods.
X9001-GL – Global Tourism
Tourists use airlines to get to and from their vacation destinations.
Key Selling Industries
C2543-GL – Global Commercial Aircraft Manufacturing
The Global Commercial Aircraft Manufacturing industry supplies aircraft and aircraft components to
industry operators.
H4911-GL – Global Travel Agency Services
The Global Travel Agency Services industry provides reservation and consulting services to travelers.
H4912-GL – Global Airport Operation
The Global Airport Operation industry provides space for airlines to unload and load passengers and
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Products & Services
Cargo transportation 7.2%
Domestic passenger transportation 41.8%
International passenger transportation 28.8%
Other 22.2%
Passenger transportation
Passenger transportation is the primary service offered by the Global Airlines industry, accounting for an
estimated 70.6% of industry revenue in 2018. More specifically, 41.8% of total industry revenue is
generated through the domestic transportation of passengers within a given country’s geographical
boundaries, while 28.8% of the industry’s total revenue is earned through international passenger
transportation. Major passenger airlines generally focus on long-haul flights between and beyond their
alliance’s main hubs. Many mainline carriers also have subsidiaries or affiliates that provide regional
transportation services that connect passengers to major airline hubs. The global number of tourist arrivals
has increased at annualized rate of 5.2% over the past five years, as strong economic growth in several
developing countries and the proliferation of low-cost airlines has bolstered international travel activity.
Moreover, rising levels of per capita disposable income and corporate profit have enabled more airline
customers to purchase relatively high-end airline services. As a result of these trends, passenger
transportation has grown as a share of total industry revenue over the past five years.
Cargo transportation
The transportation of freight and mail is estimated to account for 7.2% of the industry’s total revenue in
2018. Operators in this segment are generally divisions or subsidiaries of major passenger airlines, and
these carriers typically use recently built or converted aircraft (passenger to freight) to carry cargo.
Industry operators transport a wide variety of cargo, such as fresh produce, perishable goods, livestock and
dangerous or hazardous goods. Carriers that operate on scheduled routes do not provide door-to-door
service. Instead, these carriers provide transportation from an airport near the cargo’s origin to an airport
near the cargo’s destination. This service segment has declined as a portion of total industry revenue over
the past five years as a chronic excess of aircraft carrying capacity has caused many cargo transporters to
lower shipping rates to remain competitive. This segment has also experienced growing competition from
waterborne freight transporters in recent years.
Other revenue streams for airlines include maintenance services, excess baggage charges, reservation
cancelation fees, scheduled sightseeing tours, catering services and other miscellaneous products and
charges. Collectively, these sources of revenue are projected to account for 22.2% of industry revenue in
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Demand Determinants
Factors that affect global demand for air transportation include the price of flying, consumer and business
sentiment, currency exchange rights, flight availability, safety concerns and overall manufacturing and
wholesaling activity.
Movements in airfares can have a substantial influence on leisure travel, and holidays and overseas visits
are often postponed during periods of high airfares. In contrast, airfares are not such an important factor
for business travelers since these costs are generally considered part of the usual expenses of running a
business. Major demand determinants for business travel include the level of international trade activity,
corporate profitability and available substitutes, such as video conferencing. During periods of weak
corporate profitability, business travel may be restricted or class of travel may be downgraded for shorter
international trips. The extent to which companies expand overseas and become more globalized also
influences demand for global air transportation services, and demand for industry services typically
increases as industries and companies expand.
Additionally, the emergence of no-frills scheduled carriers has caused price differentials among airlines to
contract in recent years, enabling a greater number of consumers to enjoy air travel. An increase in tourist
activity generally boosts demand for airline services, especially from cash-rich, time-poor tourists. In fact,
the number of global tourist arrivals has increased at an annualized rate of 5.2% over the five years to
2018, generating significant demand for industry services. At the same time, the industry is vulnerable to
unexpected safety problems or global political developments that affect an individual’s perception of air
travel. Abnormal events decrease demand for air travel, adversely affecting airline operations. Seasonality
is another factor that influences demand in this industry. Due to weather conditions, industry performance
is generally weaker during the first and fourth quarters of the calendar year than the second and third
Factors that influence demand for global airfreight services include competition from other modes of
transportation, availability of routes and the timeliness of travel. Air transportation is generally more
expensive than road, rail and ship transportation, largely due to the high fuel costs and limited economies
of scale associated with aircraft. When these competing means of transportation become less expensive,
they will likely attract more consumers, reducing demand for industry services. For example, substantial
overcapacity in maritime shipping has caused many waterborne transporters to lower shipping rates in
recent years, increasing demand for marine transportation at the expense of airlines. At the same time,
many customers are willing to pay more for their goods to be transported quickly and safely via air, and
goods that are either high-value or time-sensitive are generally shipped using air transportation. Moreover,
the rising popularity of online shopping has increased demand for airfreight because most of these
deliveries must be made in a short period of time.
Major Markets
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Economy class travelers 76.4%
Business and first class travelers 23.6%
Airlines provide passenger transportation, cargo transportation, catering and other services to a variety of
customers, ranging from private consumers to large-scale distribution companies. The industry’s wide
range of operations and customers makes it difficult to obtain accurate customer data. Instead, IBISWorld
has segmented the Global Airline industry’s passenger transportation services according to revenue
derived from economy class, business class and first-class travelers.
Economy class travelers
Economy class travelers are expected to account for 76.4% of total industry passenger revenue in 2018.
Over the past five years, this market segment has grown as a share of passenger revenue due to rising
demand for inexpensive air travel options. In recent years, major airlines have experienced growing
competition from low-cost airlines that attract price-sensitive travelers by omitting standard amenities to
reduce operating costs and offer lower ticket prices. For example, low-cost carrier Ryanair minimizes its
operating costs by outsourcing work to contracted crews, fitting more passengers onto a given aircraft and
operating out of secondary airports that charge lower landing and rental fees. As a result, Ryanair has
become one of the industry’s most profitable airline companies, and the carrier is currently one of the
largest airlines in the world in terms of passengers carried. The increasingly significant role played by
emerging economies in this industry has also contributed to the growth of economy class traveling, since
these markets typically focus on offering standard transportation services to a growing customer base of
middle class consumers.
Business and first-class travelers
Though business and first-class seats account for a relatively small portion of the typical aircraft’s total
passenger carrying capacity, the Global Airlines industry can generate significant revenue through these
seats by charging passengers a substantial premium for upgraded amenities such as extra leg room, access
to private airport lounges, dedicated terminals and customs officials, complimentary ground
transportation and in-flight food and entertainment. For example, while an economy class seat on a roundtrip flight between major international destinations will generally cost between $1,000 and $2,000,
business class tickets for the same flight often cost more than $5,000, and first-class tickets can easily cost
over $10,000 each. As a result of this price differential, business and first-class travelers are estimated to
collectively account for 23.6% of the industry’s passenger revenue in 2018. Over the past five years, this
segment’s share of industry passenger revenue has declined as emerging economies have played a greater
role in the Global Airlines industry, generating demand for low-cost, no-frills travel options at the expense
of the industry’s more luxurious products.
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International Trade
Exports in this industry are low and steady.
Imports in this industry are low and steady.
As a service-based industry, international trade is not technically a feature of the Global Airlines industry.
However, the industry generates revenue through sales to customers originating and travelling overseas.
Moreover, many companies provide contract or ad hoc services to foreign airlines, and industry operators
in certain countries frequently transport passengers of other citizenships. In effect, these companies are
providing service imports and exports, and these exchanges are typically concentrated in countries that are
major tourist destinations, since these locations tend to attract visitors and airlines from all regions of the
Code-sharing agreements and global airline alliances have stimulated international exchanges in this
industry. Code-sharing refers to a practice wherein multiple airlines advertise and handle booking for a
single flight, though the flight is only operated by one of these carriers. This practice enables capacity to be
split between multiple parties, which significantly reduces airline operating costs. Rising industry
competition has resulted in a growing number of code-sharing agreements being formed.
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Business Locations
Region %
  Europe”> Europe 26.4
  North America”> North
America 21 .9
  North Asia”> North Asia 20.0
  Africa & Middle East”>
Africa & Middle East 1 2.6
  South East Asia”> South
East Asia 7 .4
  South America”> South
America 4.6
  India & Central Asia”>
India & Central Asia 4.1
  Oceania”> Oceania 3.0
Region %
  Europe”> Europe 26.5
  North America”> North
America 23.0
  North Asia”> North Asia 1 8.9
  Africa & Middle East”>
Africa & Middle East 1 1.5
  South East Asia”> South
East Asia 6.8
  South America”> South
America 5.1
  India & Central Asia”>
India & Central Asia 4.9
  Oceania”> Oceania 3.3
The world’s airline passenger and cargo traffic are largely concentrated in highly developed, densely
populated regions of Asia, Europe and North America, though the Middle East has experienced the largest
annualized increase in total passenger traffic over the five years to 2018, according to data from the
International Air Transport Association (IATA).
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The Asia-Pacific region is a major hub for airline passenger traffic, and demand from this region has
increased significantly over the past five years as strong economic growth has enabled an emerging middle
class to make discretionary travel purchases. The region also accommodates a high percentage of business
travel, with major financial hubs located in Hong Kong, Singapore and Japan. Moreover, the appeal of
doing business in Asian nations with relatively low labor and capital costs results in substantial
international passenger traffic on the part of foreign investors and business owners. Asia-Pacific also has a
dominant presence in the Global Airlines industry due to the region’s role as a manufacturing hub for
electronics and other commercial goods, which results in substantial airline cargo transportation activity.
This region includes North Asia, South East Asia, India and Central Asia and Oceania, which are estimated
to account for 18.9%, 6.8%, 4.9% and 3.3% of global airline passenger traffic, respectively.
European airlines are projected to handle 26.5% of the world’s passenger traffic in 2018. The expanding
European Union plays a key role in the economic development of the region, and the removal of customs
inspections on people and goods moving among certain European nations has significantly boosted the
industry’s performance within the region. Europe is also home to several of the industry’s largest players,
including Lufthansa and Air France, making the region a global hub for airline activity. European demand
for industry services is also supported by the region’s highly developed transportation infrastructure and
relatively wealthy consumer base, though revenue from this region has suffered in recent years as Europe
has experienced a prolonged period of weak economic growth.
North America
North America has traditionally been one of the industry’s largest sources of revenue, and the region is
expected to account for 23.0% of global passenger traffic in 2018. The Global Airlines industry in North
America has experienced significant structural changes in recent years as low-cost, no-frills airlines have
become increasingly prominent within the region, siphoning market share from some of the industry’s
largest players. Driven by the preference for direct service and low fares, low -cost airlines have promoted
their image by focusing on internet-based ticket sales and one-way pricing. Despite this shifting industry
landscape, most airlines in North America have remained profitable during the five-year period as steady
industry consolidation has enabled the region’s passenger load factor, which measures how much of an
airline’s passenger carrying capacity is used, to remain relatively stable in recent years, according to IATA
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Competitive Landscape
Market Share Concentration
Industry concentration is low.
The Global Airlines industry is characterized by a low level of market share concentration, and the
industry’s four largest players are expected to account for 22.3% of the industry’s total revenue in 2018.
Due to recent merger and acquisition activity on the part of the industry’s major companies, the level of
concentration within this industry has inclined slightly over the past five years. The global scope of this
industry makes it extremely difficult for any operator to gain a large market share. Furthermore, antimonopoly regulations and anti-protectionist policies help prevent a single carrier from completely
dominating certain routes. Moreover, most airlines primarily serve routes in and out of their home
country, which makes it difficult for operators to expand into new markets and access economies of scale.
Additionally, growing demand for passenger and cargo transportation in Asia and the Middle East has
encouraged these regions to further develop their own aviation sectors. Qatar Airways, Etihad Airways,
Emirates Airlines and China Southern Airlines have all become increasingly important players in the
sector, siphoning market share from encumber major players such as Lufthansa and Air France.
Key Success Factors
The key success factors in the Global Airlines industry are:
Prompt delivery to market
Competition is fierce in this industry, so the inability to deliver services on time may result in the loss of
customers to a competitor.
Effective cost controls
Good cost-control systems help operators manage yields and increase earnings. This is particularly
important in times of operational uncertainty, as is currently the case with highly volatile fuel prices.
Ability to pass on cost increases
Operating costs in this industry are high. Transferring cost increases to passengers can assist operators in
maintaining profit margins.
Well-developed internal processes
Airlines require reservation systems and e-commerce products that enable clients to access to the services
Access to the latest available and most efficient technology and techniques
The use of up-to-date technology and new aircraft can improve operational efficiencies.
Ability to expand and curtail operations rapidly in line with market demand
Establishing flexible capacity to meet troughs and peaks in demand permits profitability to be maintained.
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Cost Structure Benchmarks
Purchases 38.3%
Wages 21 .5%
Rent & Utilities 8.5%
Depreciation 5.2%
Marketing 0.8%
Other 1 9.5%
Profit 6.2%
Profit, measured as earnings before interest and taxes, is highly volatile in the Global Airlines industry,
though the industry is largely dominated by major airlines that can afford to run losses for several years
before experiencing serious problems. Typically, airlines in developed markets, such as the United States
and the United Kingdom, experience relatively slim profit margins since these markets are mature with
high levels of competition. As a result of external factors placing downward pressure on industry profit,
most airlines have introduced measures to increase fuel efficiency and protect profitability over the past
five years, including flying at slower cruising speeds and reducing the number of flights operating on lessprofitable routes. At the same time, severe declines in the world price of crude oil have significantly
reduced the industry’s operating costs, causing industry profit margins to expand. In 2018, profit is
expected to account for 6.2% of total industry revenue, up from 3.5% in 2013.
Purchases, which include the acquisition of materials such as aircraft, fuel, food, uniforms and similar
items, are the industry’s largest expense, accounting for an estimated 38.3% of total industry revenue in
2018. Jet fuel is one of the most significant expenses for an airline, often accounting for between 25.0%
and 40.0% of total operating expenses for companies in this industry. As a result, airlines are vulnerable to
fluctuations in oil prices, with many operators investing in financial derivatives and using fuel surcharges
to mitigate the effects of fuel price volatility. Over the five years to 2018, purchases have declined as a share
of total industry revenue due to significant decreases in the market price of jet fuel.
Maintenance costs are also considered purchases. Maintenance expenses include the cost of expendable
aircraft spare parts, maintenance to repairable aircraft components, contract labor for maintenance
activities and other noncapitalized direct costs related to fleet maintenance, including spare engine leases,
exchange fees and shipping costs. Additionally, many operators charter flights from other airlines to meet
demand or provide customers with shipping routes that the company does not typically service.
Wage costs are estimated to represent an additional 21.5% of industry revenue in 2018. Generally, an
aircraft crew consists of a pilot, co-pilot, flight engineer (depending upon the type and age of the aircraft)
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and flight attendants. Wages can vary significantly depending on an airline’s location and the position of
the employee. For instance, pilots are typically the highest paid employees within the industry, while crews
from developing nations generally experience lower wages than workers in developed economies.
Additionally, employee travel expenses often reflect the cost of air transportation, hotels and
reimbursements to cockpit and cabin crew members incurred when crews operate away from home. This
expense tends to be greater for unscheduled charter operations than for scheduled aviation operations,
since unscheduled flights are more likely to position crew members in remote locations, and these
companies are less likely to take advantage of frequent-user discounts. High union participation rates
among airline staff continue to keep industry labor costs high, and wages have increased as a share of total
industry revenue over the past five years.
Rent and utilities
Rent and utilities are expected to account for 8.5% of industry revenue in 2018. These costs are typically
related to airport hubs, where operators store planes, handle freight and deliver passengers. Airlines must
pay airports for the use of real estate, terminals and other facilities. Rent and utility costs have increased
slightly as a portion of total industry revenue in recent years, as rising demand from airlines has placed a
premium on land in many of the world’s major metropolitan areas.
Depreciation is also a major expense for industry operators, and depreciation costs include the
depreciation of aircraft, aircraft parts, loading and unloading equipment, communication equipment,
office supplies, technology and software. In 2018, depreciation is expected to represent 5.2% of industry
revenue, and these costs have increased as a portion of the industry’s total revenue over the past five years
due to the replacement of older aircraft with newer more fuel-efficient models and the expansion of
airlines in emerging markets.
Expenses on advertising and marketing efforts are projected to represent an additional 0.8% of industry
revenue in 2018, and these costs have risen over the past five years as global competition has intensified.
Other costs for industry operators include airport landing fees, handling expenses, insurance premiums,
legal fees, cleaning costs and a variety of administrative fees. Collectively, these miscellaneous costs are
estimated to account for the remaining 19.5% of total industry revenue.
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Basis of Competition
Competition is high and increasing
The Global Airlines industry has a high level of competition, though government restrictions on foreign
ownership and market entry can reduce the level of competition within some countries. Airlines compete
for customers based on price, flight frequency and capacity, route offerings, loyalty programs, promotions,
rewards programs and quality of service. Industry operators must also attract customers from substitute
modes of transportation such as cars, trains and buses. The level of competition varies among segments of
the industry. For example, an airline generally experiences weaker competition for customers seeking
domestic passenger transportation within the airline’s country of origin due to government regulations that
favor domestic carriers.
Internal competition
Competition among airlines has intensified over the past five years. Providers of relatively inexpensive air
transportation have boosted the level of price competition in the industry, increasing the focus on quantity
over quality. While quality is still an important measure of success for an airline, this type of competition is
more prevalent at the higher end of the market (i.e. business class and corporate customers). Price
competition is the most important tool in attracting customers in times of poor economic conditions when
unemployment is increasing and incomes are falling. The local currency exchange rate also comes into
effect, as it represents the relative price of airfares; companies with strong currencies as base values will
have to lower prices accordingly to remain competitive. During stable economic times, airlines may offer
value-added services and higher quality services to avoid cutting prices.
To attract more full-fee customers, many airlines have introduced features such as internet booking, online
check-in and a wide range of in-flight entertainment, among other features. Additional services that may
attract long-term customers include: participation in loyalty rewards programs, special promotions on
additional reward points, use of airport lounges, participation in alliances with other international airlines
and contracts with travel agencies. Customers may also feel loyalty toward airlines that sponsor local
businesses and sporting events.
Airlines also compete on the quality of their services. Major airlines undergo quality checks by review
agencies, such as United Kingdom-based SKYTRAX. These airlines are subject to quality inspections and
evaluations across all aspects of their front-line product and service standards. An airline that has been
“quality-certified” will typically have an edge over their competitors. Quality of service is generally a more
important competitive advantage in the industry’s premium market segment.
The most significant advantage an airline can possess is exclusive coverage of a route. For example, US
carriers generally have an advantage over foreign competitors in their ability to generate traffic from their
extensive domestic route systems. In some cases, however, foreign governments limit US air carriers’ rights
to carry passengers beyond designated gateway cities in foreign countries. To improve access to each
other’s markets, many carriers have established marketing relationships and code-sharing agreements.
Alliances link the networks of member carriers to enhance customer service and smooth connections to
destinations served by the alliance, including linking carriers’ frequent flyer programs and access to the
carriers’ airport lounge facilities.
External competition
The industry also competes with alternative forms of passenger and cargo transportation, such as road, rail
and water transportation. Consumer preferences for different forms of passenger and freight
transportation are generally determined by differences in price, travel time and destinations served.
Furthermore, overcapacity in the global water transportation sector has led to lower maritime freight
shipping rates in recent years, which has generated significant competition for airlines that transport
cargo. External competition is more prominent in regions with well-developed transportation
infrastructure. For example, the vast rail network in Europe competes directly with the Global Airlines
industry by providing affordable, efficient cross-border transportation services throughout the region.
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Barriers to Entry
Barriers to entry are high and steady.
Barriers to Entry checklist Level/Impact
Industry Competition High
Industry Concentration Low
Life Cycle Stage Mature
Capital Intensity Medium
Technology Change High
Regulation and Policy Heavy
Industry Assistance Medium
The Global Airlines industry exhibits high barriers to entry. Start-up costs, which include initial expenses
on hangar and airfield space, skilled labor, highly specialized machinery and adherence to stringent safety
requirements, are extremely high for operators in this industry. Additionally, a wide network of industry
contacts, a proven safety record and the demonstrated ability to deliver projects on time and on budget are
often essential to succeed in this industry. As a result, new entrants could struggle to win business even
after massive initial capital outlays. Moreover, existing major players can use economies of scale to win
business by consistently undercutting smaller players on price and speed of delivery. It is also important to
note that products offered by airlines are highly perishable. Seats that remain unsold prior to an aircraft
taking off are lost and cannot be recovered.
Government regulations, licensing requirements and reporting standards also restrict the number of new
participants in this industry. Airline agreements involving landing rights can determine the number of
aircraft designated to operate on each route, acting as a barrier to entry for undesignated airlines. These
agreements also set capacity limits for each country and impose a volume quota on airline services on a
country-by-country basis. Countries that have privatized their national airlines often have slightly lower
barriers to entry, as these regions rely on market forces and competition to manage the industry. However,
while several countries have highly liberalized air transportation markets, many businesses that serve
airlines, such as airports, remain largely insulated from the competitive pressures of deregulation, enabling
these industries to charge high fees for airline-related services (e.g. landing and parking fees).
Many major airlines also rely on aircraft management, promotions and open skies agreements to increase
revenue and market share in this industry. Most routes are determined by supply and demand factors,
which are usually volatile. Many network routes are established or suspended because of demand.
Therefore, having a large fleet of aircraft to maximize load and capacity, combined with a competitive
pricing policy, is vital for airlines to achieve profitability and sustain their operations. As a result,
incumbents generally have code-sharing agreements in place and belong to networks with other airlines.
By selling seats on a flight operated by another carrier, code-sharing enables an airline to make direct cost
savings by rationalizing services or establishing market presence on a route without operating on it. Thus,
both airlines may be able to save on fuel, labor and other variable costs, in addition to making more
effective use of aircraft and other capital assets. In recent years, low-cost business models operated by nofrills airlines have proven to be an effective model for new entrants in the Global Airlines industry.
However, the market for low-cost airlines is becoming increasingly saturated due to the substantial
number of players already in existence.
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Industry Globalization
The level of globalization is high and increasing.
The Global Airlines industry has a high level of globalization. Most airlines operate branch offices outside
their domiciled country, and airlines may also act as travel consultants providing travel options through
their own or partner airlines. Additionally, many airlines form international alliances, such as SkyTeam
and Star Alliance, to tap into additional routes through code-sharing agreements.
The ongoing liberalization of many countries’ airlines sectors has been a key driver of globalization in this
industry. Wide-ranging policies aimed at deregulating market entry, increasing foreign ownership,
liberalizing market access and easing infrastructure restrictions have been implemented by several
national governments, and these policies have proven to be highly beneficial for this industry. This
development is reflected by significant increases in annual passenger traffic over the past 20 years,
including a substantial rise in international traffic, which indicates that more consumers are choosing to
explore other countries using international airline operators.
Many nations are also engaged in open skies agreements, which aim to improve operating efficiency among
global airlines by limiting government restrictions on industry operations. For example, the United States
and the European Union (EU) are engaged in an open skies agreement that gives airlines from the U nited
States and EU member states open access to each other’s markets, with freedom of pricing and unlimited
rights to fly. This agreement has significantly increased airborne passenger and cargo traffic between the
two regions.
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Major Companies
Major Player Market
Delta Air Lines Inc. 5.8% (2018)
American Airlines Group Inc. 5.7 % (2018)
Deutsche Lufthansa AG 5.6% (2018)
United Continental Holdings Inc. 5.2% (2018)
Other 77.7% (2018)
Delta Air Lines Inc.
Market Share: 5.8%
Delta Air Lines (Delta) is one of the world’s largest airlines. The company operates a system of hubs,
international gateways and key airports in Amsterdam, Atlanta, Boston, Detroit, London, Los Angeles,
Minneapolis, New York City, Paris, Salt Lake City, Seattle and Tokyo. Collectively, Delta and its
subsidiaries offer service to 314 destinations in 54 countries through more than 15,000 daily flights. In
2017, Delta employed 80,000 full-time equivalent workers, nearly 19.0% of whom were represented by
Delta’s operations have traditionally focused on the US domestic market, where it has become one of the
fastest-growing carriers. International flights account for less than one-third of the company’s annual
revenue. Delta has code-sharing agreements with various airlines and is part of the SkyTeam Airline
Alliance. These agreements provide for the sharing of revenue and costs on transatlantic routes. The
airlines in this alliance also cooperate on routes between North America and Africa, the Middle East and
India, as well as on flights between Europe and several countries in Latin America. In 2013, Delta acquired
a 49.0% stake in British carrier Virgin Atlantic, giving Delta access to the lucrative New York-to-London
route. This transatlantic route is one of the world’s busiest and is heavily used by business travelers.
Financial performance
Delta’s global revenue is projected to increase at an annualized rate of 3.6% to $45.2 billion over the five
years to 2018. During the first half of the five-year period, Delta raised its ticket prices and freight rates in
response to soaring fuel costs, spurring the company’s revenue growth. However, in recent years, the
company’s operations have suffered from a decline in passenger revenue per available seat mile, which has
largely been driven by substantial price competition caused by decreasing fuel prices. At the same time, the
strengthening of the US dollar has reduced ticket sales in foreign markets, where tickets are typically
purchased in the local currency. The company’s international operations are also subject to intense
competition from government-funded carriers in the Gulf region, such as Emirates and Qatar Airways.
These foreign competitors maintain substantial fleets of wide-body aircraft, and these companies are
increasing their service to the United States, which has cut into Delta’s market share.
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American Airlines Group Inc.
Market Share: 5.7%
American Airlines Group Inc. (American Airlines) was formed in December 2013 following the merger of
American Airlines and US Airways. This merger was negotiated with the US Department of Justice, which
forced the company to give up landing slots in seven major airports before the deal could be approved.
Collectively, the company’s airlines operate an estimated 6,700 flights each day to nearly 350 destinations.
The company also employs more than 122,000 pilots, flight attendants, maintenance personnel and other
staff members. AMR Corporation, the former holding company of American Airlines, had previously been
under Chapter 11 Bankruptcy Protection, having filed a voluntary petition for relief in November 2011. At
the time, the company had $29.6 billion in debt and $24.7 billion in assets. The US Airways Group was
formed in 1982, with origins traceable to the formation of All-American Aviation in 1939. This subsidiary is
based in Delaware and employs 31,200 full-time equivalent staff, including more than 4,000 pilots and
7,000 flight attendants.
Financial performance
American Airlines Group’s financial information for 2012 and 2013 has been calculated based on combined
revenue and operating income earned by AMR Corporation and US Airways individually. The company
began reporting consolidated revenue in 2014. The company’s revenue is expected to increase at an
annualized rate of 1.4% to $44.2 billion over the five years to 2018. While US Airways has consistently
contributed less to the combined entity’s revenue, the airline outperformed its new partner in terms of
revenue growth over the past five years. US Airways’ low-cost air transport business model was popular
with travelers as consumer confidence and leisure spending remained relatively low during the first half of
the five-year period. American Airlines experienced significant losses over the past five years due to rising
competition and high interest repayments.
Additionally, while global passenger traffic has increased significantly in recent years, the company has
suffered from constrained demand due to weak foreign currencies, and declining fuel prices have caused
operators to lower ticket prices to remain competitive. At the same time, lower fuel costs have substantially
bolstered the company’s profit margins, and American Airlines Group’s global operating income is
estimated to increase at an annualized rate of 2.0% to $2.5 billion over the five years to 2018.
Deutsche Lufthansa AG
Market Share: 5.6%
Deutsche Lufthansa AG (Lufthansa) is one of the world’s largest airlines, with multiple business areas
including passenger traffic, logistics, maintenance, repair and overhaul, catering and IT services. The
airline, which was partially owned by the German government until 1997, is now owned exclusively by
private investors. Lufthansa is headquartered in Cologne, Germany and maintains hubs in Frankfurt and
Munich. The company is also one of the founding members of the Star Alliance program, the world’s
largest airline alliance. In 2017, Lufthansa employed more than 129,000 workers and offered service to
more than 300 destinations in more than 100 countries.
The core business of the company is passenger transportation, which accounts for more than 75.0% of the
company’s total revenue. The company’s passenger transportation segment includes Lufthansa Passenger
Airlines, Swiss, Austrian Airlines, Germanwings and British Midland, as well as equity investments in
Brussels Airlines and SunExpress. At the same time, the company’s logistics segment provides freight
transportation services. The largest proportion of freight is handled at Frankfurt International Airport at
the Lufthansa Cargo Center, which also houses the trans-shipment center for the company’s European
Express services.
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Financial performance
Like other players in the Global Airlines industry, Lufthansa’s operations have been constrained in recent
years by substantial declines in the world price of crude oil that have lowered fuel purchase costs, forcing
many industry operators to eliminate fuel surcharges and reduce passenger ticket prices to remain
competitive. Moreover, modest economic growth in Europe has limited demand from the company’s
primary customer base, despite overall increases in global per capita disposable income and consumer
spending. These factors have caused the company’s passenger revenue per available seat mile to decline
during the five-year period, and Lufthansa’s total industry-relevant revenue is estimated to increase at an
annualized rate of 1.7% to $43.3 billion over the five years to 2018.
United Continental Holdings Inc.
Market Share: 5.2%
United Continental Holdings Inc. (UCH) is a holding company for two wholly owned subsidiaries: United
Air Lines and Continental Airlines. The combined entity is based in Chicago and is the result of the 2010
merger between the two airlines. Since this merger, UCH has slowly integrated its products, services,
policies and information technology systems into its combined operations. The company is now one legal
entity and has a single reservation system, loyalty program and departure control system. According to the
company, the merger delivers more than $1.0 billion in net annual synergies.
UCH has grown to become one of the highest revenue-earning airlines in the world, and the company
operates more than 4,500 flights per day to 338 airports across the world. UCH mainly provides
transportation services for people and property throughout the United States and abroad. The company
serves almost every major market in the world, either directly or through its participation in the Star
Alliance network. UCH operates from hubs in Los Angeles, San Francisco, Denver, Houston, Chicago and
Washington, DC. In 2017, UCH employed more than 89,800 workers throughout its global operations.
Financial performance
UCH’s global revenue is expected to increase at an annualized rate of 1.2% to $40.6 billion in 2018. The
company experienced relatively stagnate revenue growth during the first half of the five-year period, as
relatively weak demand for the company’s services was largely offset by global post recessionary economic
recovery. However, UCH’s revenue declined in both 2015 and 2016 as dramatic declines in the world price
of crude oil caused many airline operators to remove fuel surcharge fees and reduce ticket prices and
freight rates to remain competitive. Moreover, the strengthening US dollar has made flights to the United
States relatively expensive for consumers in foreign countries, which has limited global demand for
industry services. As a result of these trends, the company’s passenger revenue per available seat mile has
decreased significantly over the past five years, including a decline of 5.4% in 2016 alone.
The company has also adjusted its operations in recent years to improve profit margins. To save on costs,
UCH has decreased the frequency of certain flights, pulled out of less-profitable routes and indefinitely
postponed the launch of flights in some markets. UCH has also removed less fuel-efficient aircraft from its
fleet to minimize the influence of volatile fuel prices. Additionally, UCH’s profit margins have benefited
substantially from plummeting jet fuel costs. In 2018, UCH’s total operating income is expected to reach
$2.9 billion.
Other Players
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Operating Conditions
Capital Intensity
The level of capital intensity is medium.
• n/a
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The Global Airlines industry is characterized by a moderate level of capital intensity, and industry
operators are expected to spend $0.24 on capital investments for every dollar spent on wages in 2018.
Acquiring and maintaining aircraft requires substantial investment. Moreover, many large-scale players
operate hundreds of planes, in addition to massive airport hubs where cargo and passengers are loaded
and unloaded from aircraft, all of which contributes to the industry’s capital costs. However, in recent
years, the industry has moved toward a business model of renting or leasing equipment (such as planes)
and buildings.
Labor is also an important component for the industry. Workers are involved in operating and maintaining
aircraft, handling freight, checking trade documentation and many other relevant operations. Some
employees, such as pilots, benefit from relatively high wages due to the skill requirements needed to fly a
plane. In addition, airline employees are heavily unionized in many countries, w hich generally puts upward
pressure on industry wages. At the same time, efficient communications equipment, newer aircraft,
computer-assisted booking, strong and flexible packing equipment and route planning facilities can reduce
the need for nonflying and maintenance labor and lower the industry’s labor expenses. Overall,
technological advances in both aircraft design and avionics have improved industry labor productivity,
causing the level of capital intensity in the Global Airlines industry to increase over the five years to 2018.
Technology & Systems
The level of technology change is high.
The Global Airlines industry is subject to a significant level of technological change. For example, fuel
efficiency per available ton-mile has improved substantially in recent years due to the introduction of
larger aircraft with more aerodynamic designs and the development of new fuel-efficient engines. Greater
fuel efficiency reduces fuel costs, one of the industry’s most volatile and significant expenses, and improves
the distance that an aircraft can fly for a given amount of fuel. As fuel burn efficiency improves, aircraft can
carry less fuel per trip and more cargo. Many aircraft manufacturers are also developing quiet arrival and
departure techniques that could reduce aircraft noise by as much as 35.0% in coming years.
E-commerce has also played an increasingly significant role in the industry’s operations. For instance,
United Airlines has developed country-specific sites that enable customers to compare fares in their local
currency and book travel in their native language. Internet-related initiatives such as wireless booking
services through mobile phones and proactive paging services for travel and flight information updates
have all improved customer service. Moreover, the use of communication technology in check-in systems
and the introduction of self-service kiosks at major airports have streamlined administrative processes and
reduced costs. The most significant benefit of these trends has been increased transparency in ticket
pricing. Demand for leisure tickets is price elastic; therefore, customers have an incentive to search for the
lowest airfare, which can be done most efficiently on the internet.
Another important development for this industry has been the evolution of the capacity and range of
aircraft. The introduction of the Boeing 747 in the late 1960s changed the aviation sector, as it increased
the capacity of aircraft and provided a broader choice of aircraft types to make it easier for airlines to
penetrate different markets. Since then, a variety of new aircraft models have been manufactured, but the
A380 by Airbus, launched in 2008, was a significant leap for this industry. The A380 can carry 555
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passengers in a three-class configuration, or up to 853 passengers in a single-class economy configuration.
In 2017, the first Boeing 737 Max was delivered to Southwest Airlines. This aircraft was equipped with two
engines, as well as a new tail section and winglets, which are projected to reduce the aircraft’s fuel
consumption by 14.0%. However, after one flight, the aircraft was pulled due to mechanical issues. The
Airbus A321neo entered service in 2017, and the jet’s manufacturers hope the aircraft will be able to
replace the out-of-production Boeing 757.
In recent years, industry participants and aviation industry associations have called for an overhaul of
existing air traffic control systems as increasing air traffic congestion continues to cause delays and reduce
operating efficiency. At present, many air traffic control systems are based on post-World War II
technology, which is fast becoming obsolete in the modern digital era. However, two of the largest regions
for air travel, Europe and North America, are currently working on the structuring of improved air traffic
control systems, which will reduce flight times and open skies to more flights. The Single European Sky
ATM Research Program (SESAR), an entity that coordinates air traffic research and development efforts
among European nations, expects to reduce greenhouse gas emissions by 16.0 million tons each year.
Additionally, by 2035, SESAR aims to triple the capacity of European airports, improve safety by a factor of
10 and reduce the cost of air traffic management services by at least 50.0%.
Revenue Volatility
Industry revenue volatility is medium.
Over the past five years, the Global Airlines industry has experienced a moderate level of revenue volatility,
with year-to-year revenue growth rates ranging from a decline of 7.2% in 2015 to a projected growth of
5.1% in 2018. Global air travel is highly sensitive to overall economic growth, consumer sentiment and
global levels of per capita disposable income, and stable economic growth generally fosters steady growth
in industry revenue. However, events such as natural disasters, rising or falling oil prices and shifting
currency exchange rates between major trading partners can often destabilize global economic growth and
increase industry revenue volatility. For example, airlines generally respond to high jet fuel prices by
implementing fuel surcharges that increase ticket prices for passengers. As a result, industry revenue is
subject to the highly volatile prices of crude oil and jet fuel. Additionally, the emergence of budget carriers
has contributed to the volatility of industry revenue by diversifying flight prices. Industry revenue is also
affected by non-economic factors, such as the popularity of specific tourist destinations, global weather
conditions and outbreaks of panic concerning terrorism or disease.
Regulation & Policy
The level of regulation is heavy and the trend is steady.
The Global Airlines industry is heavily regulated. Standards and regulations are set by both national
government authorities and industry associations. Most government regulations are enforced by each
nation’s department of transportation and are similar across most countries. Global air travel is also
governed by bilateral air service agreements, which generally restrict industry market freedom and dictate
where airlines can fly and how much they can charge. There are an estimated 3,500 bilateral air service
agreements in place worldwide. Over time, air travel has become more liberalized, though regulation and
government policy remain stringent in newly industrialized countries, particularly smaller ones. Though
uncommon, price fixing, and collusion are also regulated by government officials. For example, British
Airways has been fined on multiple occasions for colluding with competing airlines to fix prices regarding
flights to the United States and fuel surcharges on tickets.
Additionally, regulation exists in the form of safety requirements, competition restrictions and
environmental compliance standards. These standards are generally enforced by the International Civil
Aviation Organization, a United Nations agency. Similarly, the International Air Transport Association
(IATA) is an organization of international airlines that involves itself in all aspects of airline operations. In
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fact, most nongovernment discussions within the industry take place under IATA auspices. In the past,
airfare negotiations were an integral function of the IATA, but with the emergence of more non-IATA
members and increased market size, the association’s role is now largely limited to clearing inter-airline
debts and providing general guidelines for fare setting in the industry.
Industry Assistance
The level of industry assistance is medium and the trend of industry assistance is steady
There are no specific tariffs for this industry.
Over the past few decades, the Global Airlines industry assistance has been provided through the
liberalization of the aviation market and expanding international trade. The domestic airline sectors in
many countries are subject to extensive regulation, normally by incumbent, government-owned carriers
attempting to limit entry and charge higher than competitive fares. However, recent trends suggest that the
industry is changing. One of the first countries to liberalize its domestic aviation market was the United
States, which adopted the Airline Deregulation Act in 1978. This act eliminated most controls on entry, exit
and pricing in the US airline sector and led to extensive competition and structural changes in the nation’s
domestic airline market. The European Council initiated a similar transition for Europe in 1992, which
further promoted freedom of pricing and operational flexibility within the region.
The privatization and increased foreign ownership of government-owned national carriers have also
ensured that airlines can reap the benefits of international trade. In 1982, British Airways became one of
the first airlines to be privatized, and it was soon followed by major airlines in Japan, Australia, France,
Canada and Germany. Emerging countries, such as Malaysia and Singapore, have also privatized their
airlines. Foreign ownership of international carriers has also been undertaken to boost competitiveness but
is largely capped to less than 50.0% of total ownership to ensure that governments retain the right to
control their sovereign airspace for local carriers.
Open skies agreements have also become increasingly prominent within the global air transportation
sector, and these policies can provide direct assistance to the industry by reducing the government’s role in
the commercial decisions of air carriers regarding routes, capacity and pricing, which enables carriers to
provide more affordable and efficient services for consumers. For example, the United States has
established open skies policies with over 100 partners from every region of the world and at every level of
economic development. In addition to bilateral open skies agreements, the United States has negotiated
two multilateral open skies accords: the 2001 Multilateral Agreement on the Liberalization of International
Air Transportation (MALIAT) with New Zealand, Singapore, Brunei, and Chile, and the 2007 Air Transport
Agreement with the member states of the European Union. This 2007 agreement provides airlines from
the United States and European Union member states open access to each other’s markets, with freedom of
pricing and unlimited rights to fly. The European Union also maintains an Air Traffic Working Group,
which enhances industry competition and improves cooperation with the European Competition
Authorities on dealings with the airline industry.
The Global Airlines industry further receives support from industry trade groups like the International Air
Transport Association (IATA), which aims to simplify processes, reduce costs and improve the operating
efficiency of the world’s commercial airlines. The IATA also promotes the liberalization of the air
transportation sector and advocates for greater competition within domestic markets.
Provided to: Federation University (2133015199) | 31 May 2019
WWW.IBISWORLD.COM Global Airlines September 2018 29
Key Statistics
Industry Data
World price
of crude oil
($US per
2009 520,242.9 159,711.0 15,373 4,413 1,889,020 – – 132,277.0 61.8
2010 611,924.0 201,118.0 14,837 4,160 2,074,227 – – 143,606.8 79.6
2011 682,625.3 192,568.9 15,516 4,082 2,179,754 – – 143,409.6 104.0
2012 739,376.1 188,342.0 16,331 4,133 2,292,443 – – 146,618.5 105.0
2013 742,575.2 197,889.2 16,265 4,068 2,317,248 – – 144,389.6 104.1
2014 779,093.0 234,487.7 17,430 4,475 2,322,789 – – 142,207.3 96.2
2015 723,277.2 253,291.1 17,214 4,455 2,366,979 – – 144,454.8 50.8
2016 702,251.7 248,696.5 17,280 4,394 2,433,619 – – 151,386.2 43.3
2017 735,904.6 244,214.7 17,344 4,446 2,574,337 – – 158,483.8 52.3
2018 773,756.3 254,079.7 18,132 4,638 2,697,628 – – 166,186.4 62.3
2019 793,462.8 263,803.3 18,515 4,721 2,756,638 – – 169,941.1 61.8
2020 824,521.0 275,379.2 19,177 4,884 2,866,729 – – 176,701.0 67.6
2021 854,761.3 281,974.4 19,560 4,964 2,950,097 – – 182,108.1 72.1
2022 883,065.2 289,854.7 20,160 5,113 3,053,180 – – 188,404.7 74.8
2023 907,671.9 297,548.9 20,584 5,211 3,134,144 – – 193,451.6 77.1
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Annual Change
World price
of crude oil
2010 17.6 25.9 -3.5 -5.7 9.8 N/C N/C 8.6 28.8
2011 11.6 -4.3 4.6 -1.9 5.1 N/C N/C -0.1 30.7
2012 8.3 -2.2 5.3 1.2 5.2 N/C N/C 2.2 1.0
2013 0.4 5.1 -0.4 -1.6 1.1 N/C N/C -1.5 -0.9
2014 4.9 18.5 7.2 10.0 0.2 N/C N/C -1.5 -7.6
2015 -7.2 8.0 -1.2 -0.4 1.9 N/C N/C 1.6 -47.2
2016 -2.9 -1.8 0.4 -1.4 2.8 N/C N/C 4.8 -14.8
2017 4.8 -1.8 0.4 1.2 5.8 N/C N/C 4.7 20.8
2018 5.1 4.0 4.5 4.3 4.8 N/C N/C 4.9 19.1
2019 2.5 3.8 2.1 1.8 2.2 N/C N/C 2.3 -0.8
2020 3.9 4.4 3.6 3.5 4.0 N/C N/C 4.0 9.4
2021 3.7 2.4 2.0 1.6 2.9 N/C N/C 3.1 6.7
2022 3.3 2.8 3.1 3.0 3.5 N/C N/C 3.5 3.7
2023 2.8 2.7 2.1 1.9 2.7 N/C N/C 2.7 3.1
Key Ratios
Revenue per
per est.
2009 30.7 0.0 N/C 275.4 25.4 123 70,024.1
2010 32.9 0.0 N/C 295.0 23.5 140 69,233.9
2011 28.2 0.0 N/C 313.2 21.0 140 65,791.6
2012 25.5 0.0 N/C 322.5 19.8 140 63,957.3
2013 26.6 0.0 N/C 320.5 19.4 142 62,310.8
2014 30.1 0.0 N/C 335.4 18.3 133 61,222.7
2015 35.0 0.0 N/C 305.6 20.0 138 61,029.2
2016 35.4 0.0 N/C 288.6 21.6 141 62,206.2
2017 33.2 0.0 N/C 285.9 21.5 148 61,563.0
2018 32.8 0.0 N/C 286.8 21.5 149 61,604.6
2019 33.2 0.0 N/C 287.8 21.4 149 61,648.0
2020 33.4 0.0 N/C 287.6 21.4 149 61,638.5
2021 33.0 0.0 N/C 289.7 21.3 151 61,729.5
2022 32.8 0.0 N/C 289.2 21.3 151 61,707.7
2023 32.8 0.0 N/C 289.6 21.3 152 61,723.9
Figures are inflation-adjusted 2018 dollars
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CODE-SHARING AGREEMENT An agreement between two airlines to share the same flight; a seat can be
purchased on one airline, but is actually operated by a cooperating airline under a different flight number
or code.
IATA International Air Transport Association.
OPEN-SKIES AGREEMENT An international agreement under which two or more countries permit
unrestricted overflight and landing rights to one another.
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