PESTEL framework analyzes the industry’s external environment

PESTEL Framework for analyzing external environment of the industry

The Political, Economic, Social, Technological, Environmental, and Legal (or PESTEL) framework covers the six external factors that impact the airline industry. The framework provides a broad perspective on opportunities and threats that surround the industry. The factors can’t be controlled by the industry.

Political and legal factors

Political and legal factors include government intervention on economic operations or a particular industry. Airlines operate in a political environment that’s very regulated and restricted. Government intervention can be necessary to protect the passengers’ interests and airline operations’ safety measures. You can read more on this in Part 3 and Part 4.

Economic factors

A healthy economy acts as a catalyst for industrial growth. Economic health is also measured by various economic indicators. Examples of economic indicators include growth in gross domestic product (or GDP), per capital income, disposable income, industrial production, level of business, and consumer confidence. Fluctuation in oil prices is another major factor that impacts airlines’ profitability. We’ll also see how economic indicators, like industrial output and business confidence, directly influence growth in airline passenger and cargo traffic in Part 5.

Social and demographic factors

The demand for air travel has increased significantly over the years. This indicates changing travel preferences among the latest generation. Demographic factors play an important role in forecasting demand and future travel preferences. For example, the future of U.S. travel and tourism will be defined by the growth in the millennial generation. This generation includes 16–34 year olds. Retiring baby boomers’—people who were born between 1946 and 1964—spending on travel is expected to decrease. We’ll discuss this more in Part 6 and Part 7.

Technological and environmental factors

To survive the intense competition in the airline industry, companies must adopt the latest technology. The use of advanced aircraft technology results in lower fuel consumption. This improves efficiency and the cost of airline operations. Technology is also one of the four pillars under the International Airline Transport Association’s (or IATA) strategy to address climate change. All companies—including legacy carriers like Delta (DAL), United (UAL), American (AAL), and low-cost carriers like Southwest (LUV) and JetBlue (JBLU)—have been replacing their old aircraft with new fuel efficient ones. We’ll discuss this more in Part 8 and Part 9.