Case Styudy Us Airlines Industry

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Strategic Management
Case Study 1: “The US airlines industry”

Question one

Basing myself on the Michael’s Porter five forces analysis, I studied de threat of new entrants for the US airlines industry in two directions. In the first place I looked at the barriers of entry to see whether it is tough to enter the market or not. Although the conventional wisdom says that huge companies could achieve in an easier way economies of scale, there is little evidence of this happening in the airlines industry. Nevertheless the text says that the cost differences between airlines can be the ultimate factor to become an industry leader, so, on the past years the new entrants where mainly “low cost” competitors which could achieve lower costs by maximizing the utilization capacity. The problem I found is that when we are talking about leisure travelling, the consumers are very sensible to price. When reducing costs, the big airlines have a limited ability due to their inelastic structure (Trade unions, airport fares, higher fuel costs…), but they do selective price cuts in those routes where they compete with low cost airlines. We should also take into account the possibility also of international airlines entering the US domestic market due to a potential agreement between US and UE or Japan or any other country. In second place I analyzed the Low cost “industry” as a substitutive product. Some years ago it was quite easy to change from traditional airline company to flight with low cost. Trying to retain costumers, the big airlines tried to offer a differentiation on services instead of differentiation in price offered by the low cost airlines. The result was that the budget/leisure costumers preferred to save some money instead of having on board meal. Nowadays conventional airlines offer incentives to stay in their airline creating switching costs by offering a “frequent flier program” where they offer free upgrades or tickets In conclusion, there is a high...
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