Airline Industry
I. INTRODUCTION
A. Introduction
U.S. Flightways (USF) is a large-sized airline which is publicly traded and has 80.000 employees. It serves more than 50 countries and 250 destinations. Latest airline related measurements show that the Available Seat Mile for USF is 169.9 and the Revenue Passenger Mile is 138.4. The Passenger Load Factor shows 81.5 and The Cost per Available Seat Mile is 11.3 cents per mile, whereas the Revenue per Available Seat Mile shows 10.7 cents per mile. USF has a total market share of 8,1%, whereas the largest competitor has a market share of 23,5%. The expected growth rate for the airline industry is 6,7%. USF has a substantial amount of business and first-class customers. The fleet of USF is mixed; there are several types of models from different suppliers.
B. Statement of the issue
The management of USF is facing a profitability issue. The operations are not efficient enough to generate a net profit. So they have to conduct a strategy to make the USF profitable again.
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C. Alternative solutions for the issue
As Net Profit is equal to Sales Revenue minus Total Costs, one way to increase the net profit of USF is to increase the sales revenues. Another way would be to minimize Total Costs. Revenues can be increased by setting a higher price or increasing the actual sales amount. Costs can decrease by reducing the variable Costs. Therefore two strategies emerge out of this construct. The first one is the so called Low-CostStrategy; the second one is a so called Differentiation-Strategy.
D. Decision criteria used to select best alternative
In general there are 6 criteria to evaluate future strategies. One of them is the Implementation Difficulty of the solution. Will it be difficult to implement the strategy? Another one is the Influence on Brand. Does the strategy have any bad influences on the company image? The third criterion is the Effect on Market Share. Does the Strategy have influences on market share?
A. Introduction
U.S. Flightways (USF) is a large-sized airline which is publicly traded and has 80.000 employees. It serves more than 50 countries and 250 destinations. Latest airline related measurements show that the Available Seat Mile for USF is 169.9 and the Revenue Passenger Mile is 138.4. The Passenger Load Factor shows 81.5 and The Cost per Available Seat Mile is 11.3 cents per mile, whereas the Revenue per Available Seat Mile shows 10.7 cents per mile. USF has a total market share of 8,1%, whereas the largest competitor has a market share of 23,5%. The expected growth rate for the airline industry is 6,7%. USF has a substantial amount of business and first-class customers. The fleet of USF is mixed; there are several types of models from different suppliers.
B. Statement of the issue
The management of USF is facing a profitability issue. The operations are not efficient enough to generate a net profit. So they have to conduct a strategy to make the USF profitable again.
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C. Alternative solutions for the issue
As Net Profit is equal to Sales Revenue minus Total Costs, one way to increase the net profit of USF is to increase the sales revenues. Another way would be to minimize Total Costs. Revenues can be increased by setting a higher price or increasing the actual sales amount. Costs can decrease by reducing the variable Costs. Therefore two strategies emerge out of this construct. The first one is the so called Low-CostStrategy; the second one is a so called Differentiation-Strategy.
D. Decision criteria used to select best alternative
In general there are 6 criteria to evaluate future strategies. One of them is the Implementation Difficulty of the solution. Will it be difficult to implement the strategy? Another one is the Influence on Brand. Does the strategy have any bad influences on the company image? The third criterion is the Effect on Market Share. Does the Strategy have influences on market share?
References: Datamonitor, Industry Profile United States Airline Industry, (2011) Delta Airlines (2012), Traffic Stats Jackson, W. T.; Jackson, M. J. (2009). Southwest Airlines: The next fight begins. Journal of the International Academy for Case Studies, Volume 15, Number 8, 59-70 Kotler, P.; Keller K. L.; Bliemel, F. (2007) Marketing-Management. Pearson Studium Lufthansa (2011) Annual Report retrieved from http://www.investor-relations.lufthansa.com Ryanair (2011). Annual report pursuant to section 13 or 15(d) of the securities exchange act of 1934. Retrieved from http://www.ryanair.com/doc/investor/2011/20F_2011.pdf Southwest Airlines (2011), Annual Report Retrieved from http://www.southwest.investorroom.com 12/12