US Airline Industry Case Analysis Final

Topics: Monopoly, Oligopoly, Airline Pages: 10 (316 words) Published: January 20, 2015
Strategic Analysis of the US Airline Industry
in 2012

Case Questions
1.

To what extent can the industry’s
low profitability be attributed to the
structure of the industry?

2.

Which of Porter’s Five Forces has
had the biggest impact in
depressing industry profitability?

Comparison of Airline Industry Structure
(Regulation/Pre 1978 vs Deregulation/Post 1978)
Oligopoly
(Regulation)

Perfect Competition
(Deregulation)

Concentration

Few players

Many players

Entry & Exit Barriers

Significant barriers

No barriers

Differentiation

Potential for product
differentiation

Homogenous product

Information

Imperfect availability of
information

Perfect information flow

Comparison of Airline Industry Structure
(Regulation/Pre 1978 vs Deregulation/Post 1978)
Oligopoly
(Regulation)
Concentration

CAB was established in
1938 and awarded
interstate routes to the
existing 23 airlines.

No new entrants between
the period 1938-1978
Entry & Exit Barriers High Government
Regulation

Perfect
Competition
(Deregulation)
By 1980, 20 new airlines
approved
By 2012 there are 151
companies

Minimization of Barriers

Differentiation

Set fares and routes,
guaranteed profitability

Commodity Product

Information

CAB governed

Dictated by need for best
price/highest profit

Role of Structure in Low Profitability:
Attributed to:
 Fierce

competition

 Powers

of industry members relative to
suppliers and buyers

 Immediate

effect to changes in the natural
environment

Case Questions

2. Which of Porter’s Five Forces has had
the biggest impact in depressing
industry profitability?

Porter’s Competitive Model
Airline Industry Analysis

•Aircraft Manufacturers
•Aircraft Leasing Companies
•Labor Unions
•Fuel Companies
•Airports

Bargaining
Power
of Suppliers

•Alternate Travel Services
• Fast Trains
• Boats
•Private Transportation
•Videoconferencing

Threat of
New Entrants

•Foreign Carriers
•Start ups (Low Cost Carriers)
•Technology

Industry Competitors
Rivals: United, American, Delta,
US Airways,Southwest, ETC

Bargaining
Power of Buyers
•Travel Agents
•Business Travelers
•Pleasure Travelers

Threat
of Substitute
Products
and Services

FORCE WITH BIGGEST IMPACT
Industry Rivalry

Price Wars




Lowering of prices to meet capacity
Market share



Excess capacity
Cost Condition
High ratio of fixed to variable costs






References


Contemporary Strategy Analysis


– Robert M. Grant 8th ed.

Questions?



References: 
Contemporary Strategy Analysis

– Robert M. Grant 8th ed.
Questions?
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