Must-know: External factors that influence the airline industry

Teresa Cederholm - Author

Dec. 15 2015, Updated 7:28 p.m. ET

External factors that influence the airline industry

The airline industry has contributed to the globalization of the world economy. It connects buyers and sellers. It also transports goods across nations. It breaks the barrier of distance and time. The U.S. travel growth forecast is provided in the following table. The industry’s future looks bright. Travel expenditure in the U.S. is expected to grow by 4.3% in 2014 and 5.1% in 2015. The number of business and leisure trips is expected to increase. This is supported by economic growth.

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Like any other business, the airline industry is impacted by changes in its external environment. In this series we’ll use the Political, Economic, Social, Technological, Environmental, and Legal (or PESTEL) framework to analyze the airline industry. We’ll also look at how the framework’s factors influence the airline industry’s fundamentals.

Most industries are very sensitive to changes in the PESTEL factors. However, the factors aren’t controlled directly by the companies in the industry. Companies are forced to alter their business models, pricing, revenue, and cost structures to suit their customers’ changing needs in different economic conditions. As a result, knowledge of the trends and the economic life cycle can help predict external opportunities. It can also predict risk factors of investing in the industry.

The major players in the U.S. airline industry—including Delta Air Lines (DAL), United Continental (UAL), American Airlines (AAL), Southwest Airlines (LUV,) and JetBlue Airways (JBLU)—have contributed significantly to the growth in air travel. The companies have added customized services and capacity expansion to cater to the industry’s demands. Exposure to airlines can be gained through funds such as the Fidelity Select Air Transportation Portfolio.


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