Since deregulation in 1978, the airline industry has been one of the most volatile in the American economy. As an industry, profits were $2.4 million in 2000 and dropped to $-8.2 million the following year. This market volatility has caused countless airlines to file bankruptcy over the years, while providing other companies the opportunity to enter the market. In this paper, I will analyze Porter's Five Forces on the airline industry. This includes identifying external powers and threats surrounding the airline companies. This also includes mapping the airlines into strategic groups and identifying key factors contributing to their success. Additionally, my analysis and strategic recommendation explain how market consolidation, the identification of market niches, and differentiation within those niches can alter Porter's Five Forces within the airline industry to favor the airline companies.
Supplier Power - Summary
To accurately analyze supplier power over the airline industry, it is essential to distinguish the segregation of airline needs into separate industries. This segregation reveals the four essential airline needs of fuel, labor, landing slots and terminals, and aircrafts. This segregation is essential because supplier power may be high in one area of need of the airlines, but relatively low in another area. Such an analysis provides a more accurate depiction of the overall strength held by suppliers within the airline industry.
Supplier Power - Fuel
Fuel is a unique variable in the analysis of supplier power mainly because of price and volatility. The current market price of crude oil and jet fuel is an external factor that airlines companies have little control over. However, the suppliers themselves have little control over the price of fuel as the market is so competitive due to the number of suppliers and the need to sell fuel in large volumes. Additionally, all jet fuel is essentially the same making switching costs and product... [continues]
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(2007, 10). Airline Industry in 2007. StudyMode.com. Retrieved 10, 2007, from http://www.studymode.com/essays/Airline-Industry-2007-123733.html
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