The European Budget Airline Industry Essay

‘The European Budget Airline Industry’

1. Macro Factors Impacting the European Budget Airline Industry

In order to assess the major macro factors that impact the European budget airline industry, the PESTEL framework has been applied. Political, Economic, Technological and Environmental factors have the most influence on the industry.

  1. Political – EU Regulation and Aviation Taxes – Medium impact

EU and local government regulations/policies have a significant impact on the European budget airline industry. For instance, on 17 February 2005 a new EU regulation (261,2004) came into effect allowing passengers to be compensated should they experience a delay, cancellation or denied boarding (O’Higgins, 2007).   Ryanair stated that resulting compensation cost the airline €100 Million in 2010 and as a result they introduced a €2 levy per passenger in April 2011 (Ryanair.com, 2011).

The 1997 deregulation of the EU policy which restricted non national carriers from flying passengers between airports in the same country has enabled European budget airlines to operate more routes. The addition of members into the EU, such as Croatia scheduled for July 2013 (Europa, 2011), will provide further opportunities for route expansion and growth. Fig 1 below illustrates Ryanair’s rapid growth since 1995 as a result of the deregulation and EU expansion:

[pic]

Figure 1 – Ryanair passenger numbers vs. year (data source: Ryanair.com)

Aviation taxes set out by the EU and local governments also impact the European budget airline industry e.g. “Air Passenger Duty” (APD) enforced as a duty of Excise by the UK government and carbon permits under the EU climate change policy. Most airlines pass on the cost of such taxes to the consumer with Ryanair charging €12 per seat to cover the APD as of Feb 2012. However, there is a limit to the extent airlines can apply this strategy before consumers start to consider alternative modes of transport. Given this, budget...