Airline Industry

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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. 1/12

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? The fourth criterion is Power of Buyers; are the buyers still interested in the services of USF or is there enough demand for the services of USF? The fifth criterion is Supplier Power: Does the supplier power have any influences on the strategy? Another criterion is the Competitive 2/12

Environment in which USF is located. Are there any other competitors who pursue the same strategy?

E. Limitations

The focus of this issue is on Strategic Management; therefore a deep financial analysis will not be performed. All financial and operational data are arbitrarily. Also all taxes, interest rates, and overall economic condition will not be considered. Additionally only passenger fares are considered, therefore all freight issues are faded out.

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II. LITERATURE REVIEW

A. Theoretical/ practical basis for each alternative solution

Companies with a Low-Cost-Strategy strive for low production and distribution costs. The overall goal is to underprice all the other competitors and to gain market share (Kotler, 2007). This strategy requires comprehensive capabilities in the areas of research& development, construction, procurement and distribution. This results generally in a standardized and generic product, which is easy to copy (Jackson & Jackson, 2009). In case of USF the Low-Cost-Strategy would guide to a competitive pricing under the usual market price. Also there has to be some cutbacks in service quality, as it is standardized. The Differentiation-Strategy is striving for a unique product performance by emphasizing an important customer benefit. A unique service, technology or design can conduct a leading position in the market (Kotler, 2007). In case of USF this means, that the airline has to use its competencies to produce a service which is unique to its customers.

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B. Summary of previous studies or reports

In recent years many carriers chose the low cost strategy and they have been successful with it. Southwest...
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