The airline industry is one of the most heavily regulated industries in the world, with some governments actively subsidizing their nation’s air carriers and other governments allowing great flexibility and competition. This is a capitalintensive industry with individual assets·aircraft·costing hundreds of millions of euro, and only two main suppliers, Airbus and Boeing, for the most popular jets. Decisions in this industry regarding future expansion are made years before the aircraft are delivered, and much can change during the interim. In addition to aircraft, airlines must take into consideration the gates to which they have access at which airports, expected economic conditions around the world, fuel costs, competing technologies, and labor relations within their organizations and their suppliers. This research considers the air transport industry in general, and the performance of British Airways (BA) and the challenges that confront the international carrier as it moves forward.
THE AIRLINE INDUSTRY AND BRITISH AIRWAYS
The airline industry is one of the few industries that has a truly perishable inventory. If an aircraft flies with empty seats, the revenue from those seats is lost forever; unlike excess inventory at a retailer, those seats cannot be sold later at a reduced price. Because of this, airlines seek to maximize their revenue per-seat, and have created complicated pricing schemes so that the yield is enhanced. Typically, airlines will charge full fares to travelers who have little option in when they fly and who cannot book far in advance. On the other hand, if an airline reserves too many high-fare seats on a particular flight, it runs the risk that the seats will not be sold. Thus air carriers must balance the need to fill each seat with the maximum revenue possible with the need to avoid overpricing seats. It is a challenge that the airlines have yet to completely conquer (McKenna, 2005).