University:
London School of Economics and Political Science
Course:
L400 | International Social and Public Policy
Academic year:

2023
Views:

348

Pages:

1
Author:

Prerna T

Airline Industry UK Firms and Market Share (as of 2018): EasyJet (32.62%), Flybe (30.16%),* British Airways (24.22%), Ryanair (4.13%) *Flybe, a regional airline service, went bust, and therefore ceased operations in March 2020 (mainly due to COVID) Market Structure: Oligopoly - Why? The market is dominated by relatively few firms, due to significant barriers to entry, which limits the number of new competitors entering the market. ➤ Here are just a few barriers to entry: high start-up costs (new airplane can cost up to $116mn) where the initial investment in capital is expensive, constraints in infrastructure/land where there is not enough space for landing and take-offs, economies of scale which deter new entrants to enter the market, cost of innovative engineering and technology for planes which may reduce efficiency and raise costs, strict regulations to protect passenger safety and wellbeing which is costly, brand loyalty is not established. In an oligopoly market, firms may choose to co-operate (collude). This has happened before within the airline industry, which reduces competition and increases profits for the firms involved, for eg. between British Airways and American Airlines in 2001. Firms in the airline industry also take account of their competitors' behaviour, making them interdependent. ➤ Firms within the airline industry produce similar services (they let people fly), so makes it easier to collude. How badly did COVID hit them? ➤ Reduced air travel by 97% this year, and seat capacity fallen by 92% compared to April 2019. ➤ Losing revenue during 'normal' peak selling periods ie. Summer months. British Airways made £7.4bn loss in 2020. UK economy lost £32m everyday in 2020 due to no air travel between UK and US. Affected whole aviation industry, including aircraft manufacturers, research companies ➤Flybe collapsed (a whole firm within the UK airline industry() Benefit from Subsidies? The UK airline industry receives £7bn in 'subsidies' per year, as they are exempt from paying fuel tax and VAT on tickets. There is lots of controversy surrounding this as international flights are a huge threat to climate change, and if the airline industry continue to be exempt from paying taxes, the likelihood of them reducing their emissions is small. Labour Market: 11.3 million people work in aviation industry directly, with 648,000 work for the airport operator, and 5.5 million in other airport-based roles (eg. retail, car rentals, catering). ➤ Labour costs being pushed down in order to increase profit margins in LFA (low-fare airiines), such as Ryanair. Staff work overtime during summer months, but are then furloughed during the winter when demand is low (job insecurity). ➤LFAs have developed the most aggressive anti- union strategies. Externalities (mostly negative): Environmental pollution and contributions to climate change: airline industry accounted for 8% of UK CO2 equivalent emissions in 2019. ➤ Building airport infrastructure (eg new Heathrow Terminal) leads to air pollution, noise pollution, traffic jams and congestion, biodiversity loss, loss of habitats, loss of homes as people have to relocate. However, the airline industry is also good-brings about tourism, trade, employment, and foreign investment. Eg. UK avlation sector supports 11 million jobs and contributed $1.6tn in total economic activity.