Airline Industry

Air travel plays an important role in the globalization of economies which generates many valuable, positive impacts. It allows us to connect more people and places, increasing mobility and trade opportunities. Since the start of the novel Coronavirus crisis, air transport has been negatively impacted and its effects remain severe. Daily life has changed around the world since January of 2020, when the first cases were reported. Air travel is still one of the hardest-hitting global industries, especially since the start of the crisis, when the industry entered survival mode. The economic impact of COVID-19 in numerous sectors across the globe is immense. In 2020 the passenger airline industry decreased in volume by over 60%. As travel bans initially set in with the onset of the Covid-19 global pandemic, airlines around the world found themselves with no other alternative but to lay off their staff to minimize their losses.

Through the next year as restrictions went through waves of level of restrictions airlines found themselves constantly trying to navigate their operations. With continued consumer precaution they had to transition from not being able to operate to having to entice travelers back, while also being required to limit passenger capacity. With record low demand airlines were forced to significantly drop in airfare pricing to gain an advantage over other airline competitors.

In 2022 with travel restrictions being further lifted and requirements of covid testing or quarantining being dropped the impact of Covid-19 is now being felt in different ways in terms of staff shortages and excessively high demand for travel.

Pre-pandemic, airports and airlines were operating at 80% capacity. According to CTV news, more than half of flights in and out of Canada are being canceled. Canadian customers are enraged with the inconveniences to their travel due to the unreliability of airlines. Canadian flights are being canceled frequently. The airlines can seemingly get away with cancelling the flights and upsetting their customers because they know that people who have to fly will not have much choice other than to fly with them in the future. Are Canadian airlines getting away with neglecting their duty to their customers because there is little competition amongst airlines in Canada due to having far fewer than other regions?

Canadian customers note the cost of traveling within Canada often exceeds the price of traveling to the Caribbean. In Canada, there are far fewer airline options than the United States and other countries. In Canada, airlines can get away with charging substantial amounts and getting away with it because consumers don't have the option to choose other airlines. In other countries, the airlines are fighting for the competitive advantage as they have more competing airlines in their regions, whereas Air Canada, WestJet and others in Canada can continuously get away with the cancellations, heavy costs and losing baggage and customers have no choice but to keep traveling with these same airlines in the future.

Using Porter’s model for the forces that shape competition, there is little to no threat on new entrants to the flight industry in Canada which ties into why there is also no threat of substitute products or services. Next, while considering the bargaining power of customers, it can be noted that the airline customers have little to no bargaining power as they can’t even rely on their flight to a) be on time, b) not be canceled, and c) not have their luggage lost. The bargaining power currently falls in the supplier’s hand as there are limited flights offered and limited airlines operating in Canada. The final force in Porter’s model is rivalry among competitors, which as discussed above is little to none. Therefore, the degree of competition in the industry is limited.

Given that there is little to no competition, airlines in Canada have a competitive advantage. The corporate social responsibility should be called into play. The airlines blame staffing struggles for the cancellations and delays. The airlines are taking little to no responsibility for the inconsistencies and unreliability of air travel. Normally, where companies are competing for competitive advantage, they can be held more accountable for their social responsibility, however that is not the case in this market. If staffing is an issue, airlines could look at increasing wages, offering retention bonuses, etc., rather than hoarding profits towards the top. Ultimately, with less flight cancellations due to sufficiently staffed airports, the companies will make more revenues anyways.

In addition to this airline chaos, Covid-19 cases are once again on the rise creating unrest and a sense of urgency in the industry. Korea has over 37,000 confirmed cases this week, which is their highest total in 62 days. Even with the risk of a lockdown both Korean Air and Asiana Airlines have decided to continue expanding international flight. After two years of restrictions, financial hardships, fear of travel restrictions being put in place again and the industry not expected to recover until about 2025 airlines are taking advantage of whatever opportunity they can to produce revenue and stay competitive in the industry.

Throughout the pandemic, organizations developing core competencies to build competitive advantage among others was quite difficult. A competitive advantage is the ability to gain an edge over competitors by focusing on specific strengths. Companies need to pay attention to both internal and external factors when creating a competitive advantage. Internal factors include talent, culture, and processes. External factors include customer needs, industry trends, technological advances, and partnerships. Covid-19 forces major airlines to re-evaluate competitive advantage over other companies as they went from highly profitable organizations to major losses. To incorporate cost focused changes, they were forced to implement major layoffs as well as fewer planes running. With these practices, airlines such as Air Canada, WestJet and Delta were able to save hundreds of millions of dollars. Larger aircrafts also flew fewer times during the pandemic, thus reducing overall fleet utilization. As airlines reduced flight capacity, the market for large, overseas aircrafts was saturated. Today, the industry still faces several challenges regarding Covid-19 as well as high fuel prices, low yields, and increased competition.

1. What opportunity is there to find competitive advantage given the current nature of the airline industry? Is there an opportunity for a new airline to enter the market?

2. A question amongst consumers should be at what point can they hold the airlines accountable. With rising Covid–19 cases, a consideration should be whether airlines have a social responsibility to fulfill. Should airlines be held more responsible for the last-minute cancellations of their flights inconveniencing customers? Is this part of their social responsibility?