Marketing Environments:

The European Airline Industry

Gemma Massey


Word Count:  4,500




Executive Summary

  1. Intentions of the Report

  1. The Marketing Environment

  1. The Micro-Environment
  1. Suppliers
  2. Intermediaries
  3. Customers
  4. Publics
  5. Competitors

  1. Situation Review: The European Airline Industry

  1. Segmentation of the European Airline Industry

  1. The European Airline Industry vs. The US Airline Industry

  1. The No-Frills Sector of the European Airline Industry
  1. Effect of the No-Frills
  2. Reactions to the Low-Cost Threat

  1. The Macro-Environment
  1. SWOT Analysis
  2. Pestle Analysis
  3. Porter’s Five Forces Analysis

  1. Conclusions and Recommendations

Summary of Abbreviations

Research Portfolio

Executive Summary

The European airline industry is a competitive and dynamic industry whose fortune is closely linked to the performance of the overall European economy.

The European airline sector has historically been dominated by national flag carriers who together account for over 70% of civilian passenger traffic. These airlines emerged along national boundaries after World War II and historically were important state-owned or state-sponsored instruments of economic development. Examples include British Airways, Lufthansa and Air France.

In 1997 the European Commission deregulated commercial aviation within the European Union (EU) with an ‘open skies’ agreement allowing any airline to fly any route in Europe.  Over the last 10 years European aviation has moved from a highly regulated market, based on bilateral agreements, to a highly competitive single market.  The liberalisation of Europe’s airline industry was hailed as a turning point.


The dominance of the flag carriers is now being eroded as the European airline market is exposed to free market forces.  A rising share of the market is migrating towards low-cost airlines who are establishing themselves as long-term competitors to traditional airlines thanks to deregulation.

Another major turning point to this industry came as a result of the terrorist attacks of September 2001.  Although this  the resulting turmoil provided an opportunity to . While America's federal government  its ailing airline industry with cash and loan guarantees, the European Commission . , the national carriers of Switzerland and Belgium respectively, filed for bankruptcy that October.

The big winners of the shake-out were  who continue to grow in market share.  The established network carriers slimmed down and began fighting back.

History suggests that the low cost airline sector will experience market consolidation and increased market concentration over the coming years. The low-cost airline segment in the European market may eventually be dominated by just two carriers – EasyJet and Ryan Air. Numerous start-ups will come and go. Scale matters in the aviation industry.

Most of the big airlines have pursued marketing alliances. In October 2003 two European airlines, KLM and Air France, .  In a further step towards market consolidation, talks began in October 2003 between the EU and the United States over extending the liberalisation of transatlantic traffic.  This could be a final momentous agreement that will alter the industry so it may begin a phase or maturity.

Over the medium term a new market beckons in the ten countries joining the EU in 2004. These countries have a combined population of 75 million.  There is every chance for existing airlines to exploit market opportunities.  The new members of the EU will become part of the EU Open-Sky Treaty allowing point-to-point services between EU countries.  

The demand for air travel in Europe increased three-fold between 1980 and 2000, and is set to double by 2020.  It is predicted, preliminary, that overall, air traffic in Europe will increase overall by 7.5% in 2004.  While the full-service carriers are struggling to get back to the traffic levels they enjoyed in 2000, the budget airlines are growing by more than 10% a year and little is getting in their way.

Perhaps one of the main threats to this industry is terrorism.   The recent terror bombings in Madrid have spelled bad news for airlines.

1.0 Intentions of the report

This report will look sequentially at the marketing environments of the European airline industry and will analyse the main forces shaping its future.  It will concentrate on the impact of low-cost airlines on this industry.


2.0 The Marketing Environment

An organisation’s marketing environment can be defined as: "... the actors and forces external to the marketing management function of the firm that impinge on the marketing management’s ability to develop and maintain successful transactions with its customers" (Kotler et al 1997)

There are three key perspectives in the marketing environment which all need to be considered in order to undertake a comprehensive analysis (see diagram below):

  • The 'macro-environment'
  • The 'micro-environment'
  • The 'internal environment'

Figure 1 Source: http://


3.0 The Micro-environment

The micro environment can be seen as the forces close to an organisation that have a direct impact on its ability to serve customers.  In developing marketing plans, marketers must take into account the different objectives within the firm including influences from management, finance, R&D, purchasing, manufacturing, HR and sales as well as from suppliers, intermediaries, customers, publics and competitors.  

Main players in the aviation industry

The diagram below breaks the airline industry into different sectors which each exert forces upon the organisation:

Figure 2 Source:  IATA Legal Symposium 2004:

The diagram above highlights airlines as being the weakest link in the value chain.  The airline market has an over-capacity with fierce competition.

3.1 Suppliers

The activities of suppliers’ impact marketing decisions in terms of availability, quality, type, cost and quantity of goods and services offered to the organisation.  In a quest to cut costs a rising number of operations are outsourced to suppliers. Examples of suppliers include:

Aircraft manufacturers:


Fuels and Liquids:    


Security Services:


Catering Services:


Maintenance Companies:        



3.2 Intermediaries

Intermediaries aid in the distribution process and have direct contact with the customer.  Travel agents may be used to assist in ticket sales including:



In an attempt to cut costs and avoid commission fees airlines, especially low-cost airlines, use more direct techniques to sell tickets; via telesales or the internet.  This technique drives down administration costs even further.  Also, ticket-less systems are increasingly being used.  Examples of these intermediaries include:


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The global distribution systems (GDS) Amadeus, Apollo/Galileo, Worldspan and Sabre are used in ticket distribution.  They sort airline flight schedule and fare information for travel agents.


3.3 Customers

Customers can be split into two broad categories:  business passengers and leisure passengers.   Considering the fact that 4.5% of the UK population make 44% of all flights and that the people most likely to fly are those earning over £30,000 it seems that price is a major driving factor in this industry and for customer segmentation.

The chart below indicates Customer Segmentation in ...

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