ACCA SBL in real life: PESTEL Analysis

The September 2023 SBL case study is based on the airline industry so the examiner may draw some examples of real-life scenarios when setting questions. The following article relates to a topic in the SBL exam topic of  Environmental Analysis, which is a crucial element of the SBL syllabus and popular with the examiner.

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Navigating the UK Budget Airline Industry with PESTEL Analysis: Insights for SBL ACCA  students

Introduction

Aspiring ACCA professionals must embrace strategic tools pivotal to business success. Among these, PESTEL analysis shines as a robust framework for assessing external macro-environmental factors. In this article, we will delve into PESTEL’s application within the UK budget airline industry, with a focus on the upmarket segment. Real-world examples, including those tied to social media, demographic trends, inflation, environmental concerns, legal factors, technology, and economic factors like fuel costs, will illuminate its significance. We will also explore its relevance to the Strategic Business Leader exam case study.

Decoding PESTEL Analysis

PESTEL analysis dissects six pivotal dimensions – Political, Economic, Social, Technological, Environmental, and Legal – to discern the forces shaping a business’s landscape and strategy.

Applying PESTEL in the UK Budget Airline Industry

1. Political Factors:

Political factors exert substantial influence on budget airlines. Air Passenger Duty (APD) in the UK is a clear example of government policy affecting the industry. APD is a tax levied on flights departing from the UK, with rates varying based on factors such as distance travelled and class of travel. Changes in APD rates can directly impact airlines’ financial health and customer demand. Additionally, government policies related to travel restrictions, airport security, and international agreements can significantly affect the operations and profitability of budget airlines. As an additional example, government subsidies or incentives for environmentally friendly practices can shape budget airlines’ strategies.

2. Economic Factors:

Economic variables sway budget airlines’ fortunes. Economic conditions like inflation directly affect operational costs and pricing strategies. Notably, fuel costs significantly impact budget airlines’ financial health. Fluctuations in oil prices can lead to volatile operational expenses and affect profitability. Furthermore, economic trends can lead to shifts in consumer preferences. For instance, during economic downturns, travellers might seek more affordable travel options, increasing the demand for budget airlines.

3. Social Factors:

The upmarket budget airline segment reflects shifting societal preferences. The surge in “leisure” travel prompted airlines to enhance services for business travellers, including Wi-Fi connectivity and tailored seating. Moreover, social media’s influence shapes travellers’ expectations and experiences. Platforms like TikTok have become influential in customer behaviour. Viral videos showcasing travel experiences can spark interest and influence purchasing decisions, especially among the younger demographic. Additionally, evolving family structures can lead to more solo travel, impacting airlines’ service offerings.

4. Technological Factors:

Technological advancements dictate customer experiences. Biometric facial recognition at UK airports streamlines boarding processes, catering to the fast-paced nature of budget airline passengers. Additionally, technology plays a significant role in allowing budget airlines to save costs. Automated check-in systems, online booking platforms, and self-service kiosks minimize staffing requirements and operational inefficiencies, contributing to streamlined operations and reduced expenses. Advances in aircraft design and efficiency also impact budget airlines’ decisions on fleet upgrades.

5. Environmental Factors:

Environmental awareness drives industry change. UK budget airlines prioritize sustainability, with initiatives like EasyJet’s carbon neutrality commitment and partnership with Airbus for electric aircraft development. For instance, Ryanair’s efforts to reduce emissions by implementing more fuel-efficient aircraft showcase the sector’s environmental initiatives. Another example is the development of biofuels that can significantly reduce the aviation industry’s carbon footprint.

6. Legal Factors:

Legal considerations mould operational strategies. The UK’s EU exit necessitated aviation regulation adjustments, impacting licensing and operations. Airlines adapted to new international flight procedures, requiring business model modifications. Moreover, health and safety issues are paramount. Airlines must comply with stringent safety protocols to ensure passenger and employee well-being. This includes implementing social distancing, sanitation, and health screenings. Additionally, evolving data protection regulations can impact airlines’ handling of customer data for marketing purposes.

Relevance to the Strategic Business Leader Exam Case Study

In the Strategic Business Leader exam case study, budget airlines’ pursuit of the upmarket segment is a common scenario. PESTEL analysis empowers candidates to gauge external impacts. Imagine an airline introducing luxury amenities. Economic conditions (affordability), technological innovations (cost-saving technologies), social media trends (customer engagement), demographic shifts (solo female travellers), environmental factors (carbon neutrality), inflation, legal considerations (data protection), economic factors (fuel costs), and legal factors (health and safety compliance) shape the strategic choices.

Conclusion

Proficiency in tools like PESTEL analysis equips ACCA aspirants with strategic insights. The UK budget airline sector’s adaptability underscores its relevance. Concrete examples illustrate how political, economic, social, technological, environmental, and legal facets influence strategies. Embrace these insights to excel in ACCA examinations and shape financial landscapes. Remember, strategic thinking propels success, particularly in the dynamic realm of budget airlines.