Abstract
This paper reviews literature on the positive effects of globalization on the international air travel industry. The researcher draws conclusion from different studies on the topic and concludes that globalization has revolutionized the international air travel sector. The most significant contributions that the essay notes are the facts that globalization has improved the quality of services delivered by the companies in the industry through liberalization. Other issues related to the operations of the companies, including the improvements in operational efficiencies and service quality, have emerged because of the need for the major firms to defend their positions in the wake of competition.
Introduction
Over the recent years, globalization has emerged as a fashionable idea in the field of social sciences, which is the principal dictum of politicians, journalists, and management specialists of any type. The dictum suggests that people live during an era in which global processes determine most of their social lives. The dictum suggests further that global pressures have been resulting in the gradual disappearance of national borders, economies, and cultures because of the emergence of a single unit of interaction. Globalization has had an immense influence on the economic, political, cultural, and social organizations of communities around the world. The fact that the emergence of globalization has been eliminating the effect of international barriers to interaction suggests that it brings both opportunities and challenges for players in the different sectors of life.
Delegate your assignment to our experts and they will do the rest.
It should be noted that the evolution of airline companies around the world is one of the most intuitive examples of the emerging alliances and strategies of globalization in the future. As do the rest of transport industries, the demand for air transport services around the world is derived. In this case, it is imperative noting that the demand for air transport systems relies upon the desire and need for the travelers to attain their final objectives. For instance, as much as air transport could result in the growth of a specific sector of the economy of any country, it is imperative noting that its thriving relies exclusively on the latent demand for specific products and services in the specified region (Button Drexler, 2006).
The focus of this essay is on the contributions of globalization to the international air transport sector of the world. The essay notes a growing level of blurring of both domestic and international air transport systems, which results from the fact that airlines around the world have been forming alliances and investing heavily in each other to form worldwide networks. For instance, the airline industry within the European Union is one market by de facto. The paper also notes the growing challenges in airport handling procedures that have been occasioned by an increase in the demand for air travel services in the midst of a concern for safety and security.
The Effects of Globalization of International Air Transport
The effect of globalization in its numerous manifestations has been immense on the companies operating in the global air transport sector. The effects have not been realized on the demand side only in which the geographies, nature, and scales of demand in the international markets has resulted in profound shifts. Related literature suggests that the supply side of the mix has also been affected since globalization influences explicit and implicit global coordination of air travels by governments and the private sector (Woodburn et al., 2008). As the cited study notes, most of such policies concern the environment, security, safety, the internationalization of aero-engine and airframe production, and others. The identified polices and others have been significant in influencing the technological and institutional environments involved in the delivery of air transport services. The most significant contribution of globalization to international air travel sector is the fact that it resulted in the liberalization of the industry, which came along with several other effects. The section highlights some of the significant effects subsequently.
The Effect on Competition and Fare Prices
Air travel charges are among the elements of international air transportation that globalization has affected. To this, it is critical understanding that bilateral restrictive policies, which typified the institutional organization of the global airline market before the evolution of open skies resulted in significant effects on the nature of air transport system (Morrison & Winston, 2010). The liberalization of the air transport sector through the Open Skies policy was intended at ensuring competitiveness in the industry, which would then have an upward push on the quality and efficiency of services provided (Ismaila, 2013). Therefore, one would expect that the first effect of the liberalization of the market was stiff competition levels, which would further rely on the regulations of the market. The US market was among the pioneering movers in setting the pace for fare-freedom in addition to allowing free market entry for other companies as long as they fulfilled the safety requirements (Graham, 1998). The effect of the institution of such regulations was immediate, and companies soon started the provision of discount fares for the customers. Perhaps, one may argue that the globalization allowed the airline companies to price their services at competitive prices compared to a time when they did not have the ability to do so.
The US Government Accountability Office (GAO) suggests that the effects of deregulation of the airline industry resulted in an increase in the average number of competitors by approximately 3.5 per market in 2006 compared to only 2.2 in the 80s (Warnock-Smith & Morrell, 2008). The same study suggests that the average fares charged by the airline companies in the country dropped by approximately forty percent. Another study found that similar reforms in the European Union resulted in a rise in the levels of competition during the 90s for both domestic and regional routes within the Union (Morrison & Winston, 2010). The number of international city-pair routes in the region with multiple, as the author still suggests, had risen from 500 to 566 by 1997 compared to 1992 and that most of them had a minimum of three competitors. The number of cities that multiple carriers served, on the denser side, doubled. It is also reported that the deregulation of the industry resulted in an increase in the numbers of routes that were served by at least two carriers by more than 256% on the intra-Union scale and by 88% on the domestic one. Consequently, as the author suggests, the average fares charged by the airline companies dripped drastically by the same period (Ismaila, 2013).
The Effect on the Volume of Travelers
The rise in the volume of traffic is another expected effect related to the globalization and liberalization of the international air transport industry. Theoretically, it is plausible supposing that the rise in the levels of competition lowered the travel prices for clients, which in turn stimulated a rise in the demand for air travel services (Dobruszkes, 2009). In fact, according to Warnock-Smith and Morrell (2008), liberalization has resulted in the rise in the volume of traffic because of two factors. The first one is related to the fact that liberalization eliminates the issues that affect service capacity, route entry, pricing constraints, and co-operative arrangements for alliance members. Consequently, the study posits, the airline companies have the ability to compete in approaches that are more favorable and to operate more efficiently. The process has a further effect on the reduction of the prices of travelling while raising the quality of services in terms of the frequency of flights and flier programs, which have the effect of stimulating a rise in the volume of passenger traffic. The second effect that the research identified is the fact that the liberalization of the market allowed the airline companies to optimize their configurations of the network. For instance, the development of hub-and-spoke networks allowed the airliners to connect small markets with their hubs, which caused them to expand the number of destinations served, and consequently, the volume of passengers.
There is significant level of evidence in support of the arguments staged above from almost every part of the world, both in the developing and the developed markets. It should be noted that some of them have even devised a model for international application and a sizable amount of literature coincides with the idea that the liberalization of the airline industry resulted in a rise in the volume of freight and passengers. The US is among the model case studies of the effects of globalization on international air travel. For instance, according to Ismaila (2013), the volume of passenger traffic rose by 88% for a twelve-year period that encompassed policy change (from 1976 to 1987) while employment had improved to approximately 450000 persons from only 340000. In addition, another study found that after only two years of the move to liberalize the industry, the volume of direct flights between India and the UK rose by approximately 229 percent from only 34 to 112 (Warnock-Smith & Morrell, 2008). The same study suggests further that as much as the main activities were conducted between Mumbai, New Delhi, and the Heathrow, they resulted in the emergence of smaller services that connected the two destinations, which increased the number of carriers that operated between the two routes significantly.
Impact on Operational Efficiency of the Airlines
While assessing the effects of liberalization of the air travel industry on the efficacy of operations of companies may be difficult, some researchers have ventured into this line of thought. For instance, they suggest that one can reveal a change in the operational efficiencies of some of the major airlines around the world before and after the liberalization (Dobruszkes, 2009). The stochastic frontier approach, for instance, was used to compare the productivity of eight airline companies in the European Union from 1976 to 1986 (Morrison & Winston, 2010). The researchers established that the firms would manage to save a collective $4 billion for the same period if they have operated with the same efficiency as those in the US did.
In the recent years, companies have managed to improve their operational efficiencies through the formation of alliances that have enabled them to improve their dominance along the routes that they operate. Currently, the world has three major airline alliances, which are the Sky Team, Oneworld, and Star Alliance. The influence of these alliances is the fact that they bring together between fifteen and twenty-seven airlines that enable them to operate in more than one thousand destination around the world (Dobruszkes, 2009). The contribution of these airline alliances to the efficiency of operations of the companies is the fact that they provide an extended network that allows two or more carriers to share routes and other services that define their operations. However, none of the the eight major airlines of the US are part of any of the alliances.
Effect on Contemporary Developments in the International Aviation Industry
By no doubt, globalization has resulted in the emergence of some of the modern advancements in the air transport industry. Not to mention some improvements, including the hub and spoke operations and the emergence of low cost-carriers, the industry has advanced in the technologies of handling passengers and fright at the airports. Most of the companies in the industry have been keen to sustain their businesses, which is why they have sought strategies that would improve their sustainability. In the wake of the force of new entrants into the market, it is reported that the existing companies have formed methods that would make competition quite difficult to manage. The spoke and hub, alliances, and low-cost aircrafts are one of the most significant strategies that the companies have formulated to ensure that they enhance their dominion to the newbies. The network patterns that the companies have created are strategies meant to ensure that the companies have a steady supply of customers, which enables them to maximize interline and online connections that would be available for the airlines. When the operations of a hub are coupled with the congestion of airports and connected to the strategy of airline alliances, the result of the strategy is a real possibility for the regulation of completion for individual airlines (Warnock-Smith & Morrell, 2008).
Companies have also had to improve their customer and freight-handling facilities owing to the large volumes of traffic that they handle per day. For instance, a growing concern for the security and safety of the airports and the flights has made it a requirement for the airline companies to enhance their security systems. An extra motivation for the companies to enhance their efficiency in handling cargo and customers comes from the fact that customer ratings include such elements. In the modern world, the service sector has had to orient its services to the production of services that suite the requirements of their target markets. Therefore, co-creation of services by the major airlines in the world has been adopted as one of the moves that such firms use to improve the efficiency of services offered. Therefore, most of the airline companies around the world have resorted to smart technologies, which help them to reduce the levels of congestion at their airports and to control their planes at the same airports with the objective of attracting positive reviews from their clients.
Conclusion
Globalization has contributed positively to the development of the international air transport section. As this research has established, the biggest effect of globalization on the industry was liberalization, which meant that each of the companies was allowed to operate as it wished provided it stuck to the requirements of safety and other issues mandatory for operations. While liberalization would have allowed some companies to overcharge customers, for instance, it attracted a reduction in the fare prices charged. The reason explained in this essay stems from the fact that liberalization paved way for competition among the companies. The new entrants pushed the existing ones to adopt pricing strategies that would attract more clients, which was to lower the fare prices. The move also contributed to a rise in the volume of flights that the companies were required to handle, an improvement in the services offered, and the formation of alliances that were defensive strategies against competition.
Since then, companies in the international air travel industry have been striving to remain profitable through the adoption of modern strategies, such as the hub and spoke that allows them to connect several smaller destinations to one place before linking them to the major destinations around the world. Globalization also raised a concern on the need for airline companies to ensure the safety and security of travelers, which is why the companies responded with strategies that improve the handling of passengers and freight to reduce the congestion levels in at the airports and other places concerned with their operations.
References
Button, K., & Drexler, J. (2006). The implications on economic performance in Europe of further liberalization of the transatlantic air market. International Journal of Transport Economics/Rivista internazionale di economia dei trasporti , 169-192.
Dobruszkes, F. (2009). Does liberalization of air transport imply increasing competition? Lessons from the European case. Transport Policy , 16 (1), 29-39.
Graham, B. (1998). Liberalization, regional economic development and the geography of demand for air transport in the European Union. Journal of Transport Geography , 6 (2), 87-104.
Ismaila, D. (2013). The Impact of International Air Transport Liberalisation: The Case of Nigeria (Doctoral dissertation, University of Huddersfield).
Morrison, S., & Winston, C. (2010). The economic effects of airline deregulation . Brookings Institution Press.
Warnock-Smith, D., & Morrell, P. (2008). Air transport liberalisation and traffic growth in tourism-dependent economies: A case-history of some US-Caribbean markets. Journal of Air Transport Management , 14 (2), 82-91.
Woodburn, A., Allen, J., Browne, M., & Leonardi, J. (2008). The Impacts of Globalization on International Road and Rail Freight Transport Activity–Past Trends and Future Perspectives. Transport Studies Department, University of Westminster, London, UK .
