The Porter framework shows that the airline industry is exceedingly unattractive. Nevertheless, JetBlue has quickly attained profitability while maintaining its unusual low cost, low-fare, and high-quality service strategy.
Rivalry is High
Consolidation notwithstanding, rivalry is high as numerous competitors remain in the airline business. Major airlines such as Delta, United and American offer a substantially similar flying experience to the customer, even though they try to differentiate by focusing on features such as frequent flyer programs and legroom. Given their hub-and-spoke systems, these airlines tend to fly to the same cities and tend to appeal to business travelers who have the least price sensitivity. This commodity-like quality intensifies rivalry by engendering price-based competition. Additionally, the industry is extremely sensitive to economic cycles. When the economy contracts business travel declines, which is particularly adverse for airlines insofar as corporate travelers display relatively price-inelastic demand. Their comparatively price-sensitive counterparts, leisure travelers, also diminish booking flights when the economy slows. Threat of New Entrants Is Low
As with most cyclical industries where rivalry is intense and profit margins are low and unsustainable, the threat of new entrants is low. Obviously JetBlue is an exception as a company that began service in February 2000, but it is pursuing a low-fare, point-to-point niche that is far less crowded. Assuming a potential entrant can arrange financing, lease a fleet of safe and reliable aircraft, negotiate reasonable gate access and landing fees, and survive high labor and fuel costs, the operating records of the overwhelming majority of airlines indicate high probability that a new entrant will be a money loser. So the question is not whether there are barriers to entry — though there are moderate ones — but would a new company want to...
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