American Airlines Strategy Analysis

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INTERNATIONAL BUSINESS
COURSEWORK 1:

The US Airline Industry in 2004

Sommaire
Introduction3
I.The External Analysis3
1The macro-environment3
2The micro-environment5
II.The Internal Analysis7
1.SWOT analysis7
III.The Strategic choices9
1.The Bowman’s strategy clock9

Introduction

The US Airlines market experiences ups and downs, and different phases; for example the period of regulation up until 1978 and the period of deregulation. The US civil airline was created in 1920, but in those days, for deliver mail, it was after 1930 that began the competition and new entrants came. Then the US airlines grew, and became very important, were created CAB and FAF to strengthen the security. The deregulation has had a significant impact in the 80’s; there was a wave of new entrants and an upsurge in price competition. The financial crisis came at the same time, which provoked the bankruptcy, mergers… Many companies have experienced lot of setbacks, as the crisis, the staff strikes, but also the arrival of low cost companies in the market. To begin we will focus on the external analysis of US Airlines industry, realize thanks to two models, “PEST analysis” for the macro-environment and the “Five forces of PORTER” for the micro-environment. Then we will talk about the internal analysis, with the “SWOT” model; carry out from the different strength/weaknesses and opportunities/threats. We will finish with the strategic choices, in third part.

I. The External Analysis
The macro-environment

To begin the external analysis I will use the P.E.S.T model. This policy tool allows evaluating the influence of external factors on Airlines Company.

* POLITICAL:

* The CAB: civil aeronautics board was established by Congress, for restrict or eliminate the competition.

* Federal Aviation Administration, the national aviation authority was created in 1958 following an aircraft collision. It has authority to regulate and oversee all aspects of civil aviation in the US.

* The political government in United States was stable.

* ECONOMIC:

* En 2003 the US Airlines Companies have survived a difficult crisis, because of the terrorist attack on September 2001, the war in Iraq, a depressed world economy, the increase of fuel prices and the hard completion from low-cost airline.

* Drop in traffic following the terrorist attack of September 11th 2001. People are afraid to fly.

* Labor cost is very high (table 3.7), and we can see an increase between 1991 and 2003.

* SOCIAL:

* The unions were very rigid about wages of employees. Before 2000 they negotiated high wages despite the problems of the companies. This caused a drop in ticket prices and financial weaknesses of the airline industry.

* The population growth rate in 2004 : 0,91%

* In 2004, in United States there were more than 293 million of inhabitants.

* TECHNOLOGICAL:

* New technology like the internet is very useful for the airlines. They have their own web site. It is better for the customer to; because they are not obliged to reserve their tickets in an agency (without agency fees it is cheaper).

* The fuel is the main energy for the airlines. “Fuel prices represent the most volatile and unpredictable cost”. In 5 years (1999 to 2004) prices have fluctuated between $14 and $40 a barrel.

The micro-environment

The 5 forces of Porter. This analysis is used to simulate a situation of competition. THREAT OF NEW ENTRY

TH
BUYER POWER
SUPPLIER POWER

COMPETITIVE RIVALRY

THREAT OF SUBSTITUTION

* The competitive rivalry: There is a lot of competition in this market, Airlines try to have as much market share, many customer. The four biggest companies during 1935-54 were United, American, TWA and Eastern. But that changed few years later, during 1982-2002, they were United, American, Delta and Northwest (p32). Something that has increased...
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