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Date: Subject: To: From: July 13, 2009 Airline Industry Analysis Dr. Matt Ford Adam Brown, Radmila Gogzheyan, Greg Huwel, Marie Meininger, Josh Riedel, Christina Ryan
Introduction The following is an analysis of the airline industry. Using collected information and Porter’s “Five Forces” model, we will provide information about the attractiveness of the airline industry and provide a recommendation based on that information. Industry Background We will be outlining the Scheduled Air Passenger Transportation, NAICS number 481111 “This U.S. industry comprises establishments primarily engaged in providing air transportation of passengers or passengers and freight over regular routes and on regular schedules. Establishments in this industry operate flights even if partially loaded. Scheduled air passenger carriers including commuter and helicopter carriers (except scenic and sightseeing) are included in this industry.1” We will focus on domestic travel, that is, travel within the continental United States. We have also limited our scope to include only flights that carry passengers or passengers and cargo. Flights carrying exclusively cargo will be excluded. Geographic Scope Airlines performing passenger flights within the continental United States will be focused on. Flights outside the continental United States and flights carrying only cargo are not included in this analysis. Each airline is located at a number of locations in major cities, at major airports, all over the country. Some airlines have hubs at multiple airports all over the country. Many airports are hubs for multiple airlines.
Airline Industry Analysis
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Supply Chain Inputs: Air Planes Fuel Water Lavatory Items Concession Items Equipment Labor Process: Fleets of planes constantly performing flights or preparing for the next flight Output: Providing ontime flights with correct baggage and cargo Downstream: Anyone who needs or chooses air travel as a form of transportation
Those upstream are those who provide planes as well as those who provide goods and services that make the planes work, and work efficiently, and make the flights more comfortable for customers. Downstream customers are those who use air travel in order to travel quickly for recreation or for business. Industry Size After several years of decline the industry size showed growth in 2007. The following chart shows the number of Full-Time Equivalents (FTEs) for the U.S. airline industry over the past five years2. After consistently falling from 2000 through 2006, airline employment in 2007 grew to an average of 560,997 FTEs. Despite the year-over-year increase, the workforce remained 118,970 FTEs below the 2000 peak. Though pilots, copilots and other personnel experienced a modest decline in headcount, all other work groups showed gains, lead by flight attendants at 9.5 percent3. Year 2003 2004 2005 2006 2007 Market Value The US airline industry consists of about 3,000 companies, with combined annual revenue of $120 billion. Major airlines include American, Delta, United, and Continental, and the air operations of cargo and courier companies, such as FedEx and UPS. Average Full-Time Equivalents (FTEs) 569,778 569,498 552,857 544,540 560,997 Change (%) (5.2) (.0004) (2.9) (1.5) 3.0
http://www.airlines.org/economics/review_and_outlook/annual+reports.htm http://www.airlines.org/NR/rdonlyres/770B5715-5C6F-44AA-AA8CDC9AEB4E7E12/0/2008AnnualReport.pdf 3
Airline Industry Analysis
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The government classifies airlines as "major," "national," "regional," and various others. About 40 national airlines have annual revenue between $100 million and $1 billion, and 90 regional airlines have annual revenue under $100 million. The remainder of the industry consists of small air companies that generally have annual revenue between $5 and $50...