Topics: Airline, Low-cost carrier, Southwest Airlines Pages: 8 (1366 words) Published: February 1, 2015
Jacqueline Bennett
Week 2 Business Case Analysis
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MBA526 Excellent work Jacqueline. With the airline industry, we have to be really current with articles leading up to 2012 (time period of the case study). And the de-bundling effort isn’t all profit but revenue. The difference between carrier operating costs is pretty low, so how does a continuing sustainable advantage get built when most customers do not differentiate? – Professor Becraft Statement of Academic Integrity:

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Jacqueline Bennett

Week 2 US Airline Case Analysis
Jacqueline Bennett
Park University

Week 2 US Airline Case Analysis

The US Airline industry since deregulation in 1978 barely earns a profit each year (Berry & Jia, 2010, p. 35). Many factors contribute to this environment; fuel costs, labor costs, government regulations, national disasters, economic uncertainty and changing customer travel preferences (KPMG, 2013, p. 11). Since low cost carrier airlines face few entry or exit barriers, the core challenge for this industry and the lesson for other businesses is how to compete successfully when all of the competitors do not face the same structural forces of competition. Synopsis of the Case

Since the deregulation of 1978, the airline industry weathered wave after wave of major challenges; recessions, labor issues, terrorist attacks and fluctuating crude oil prices. Thirty-five years later, legacy carriers, those carriers in business prior to 1978 utilizing a hub and spoke business model (Grahm & Vowles, 2006, p. 105), face nimble low cost competitors unfettered by union contracts, pension plans, older fleets or an established hub and spoke business model (Grahm & Vowles, 2006, p. 106). To survive and drive an overall industry profit, the legacy carriers must re-evaluate and address the competitive factors of their industry. Relevant Factual Information about the Problem or Decision the Organization Faced Five major passenger airlines dominate their industry by size (Grant, 2013, p. 479). But their size, legacy costs and hub and spoke business model created significant exit barriers (Grahm & Vowles, 2006, p. 108). New competitors not only started with no entry barriers but also few if any exit barriers. Legacy carriers had to identify new innovative strategies to augment their core business models to profitably compete. Explanation of Relevant Concepts, Theories and Applications Derived from Course Materials Porter’s five forces are competition from substitutes, from new entrants, from established rivals, the bargaining power of suppliers and bargaining power of buyers (Porter, 2008, p. 2). By its nature, flying to a destination faces few substitute competitors. The bargaining power of suppliers such as labor unions and fuel run high within the legacy carriers (Whitelegg, 2003, p. 247). The bargaining power of buyers, the people who purchase airline tickets, drives all carriers in the industry (Mertens & Vowles, 2012, p. 67). Competition from established rivals diminishes as mergers and alliances form (Porter, 2008, p. 13). The competitive threat of new entrants rises with each new airline. These new entrants often start with non-union labor, smaller and more fuel efficient planes with business models to take advantage of innovative strategies (Rubin & Justin, 2005, p. 221). From these forces of competition and actual business results, the profit potential of the US passenger airline industry is...

References: Berry, S., & Jia, P. (2010, August). Tracing the Woes: An Empirical Analysis of the Airline Industry. American Economic Association, 2(3), 1-43. Retrieved from
Carey, S., & Michaels, D
Grahm, B., & Vowles, T. M. (2006, January). Carriers within Carriers: A Strategic Response to Low-cost Airline Competition. Transport Reviews, 26(1), 105-126. doi:10.1080/01441640500179377
Grant, R
Lewis, A., & McKone, D. (2013, August 28). Edge Strategy: Tapping the Enormous Potential at the Edge of Your Core Business. Retrieved November 2, 2013, from L.E.K. Consulting:
Mertens, D
Porter, M. E. (2008, January). The Five Competitive Forces That Shape Strategy. Harvard Business Review, 1-19. Retrieved November 2, 2013, from
Rubin, R
Whitelegg, D. (2003). Touching Down: Labour, Globalisation and the Airline Industry. Antipode, 35(2), 244-263. doi:10.1111/1467-8330.00322.
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