Preview

US Airline Industry Case Analysis Final

Satisfactory Essays
Open Document
Open Document
316 Words
Grammar
Grammar
Plagiarism
Plagiarism
Writing
Writing
Score
Score
US Airline Industry Case Analysis Final
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,


References:  Contemporary Strategy Analysis  – Robert M. Grant 8th ed. Questions?
Continue Reading
View Writing Issues

You May Also Find These Documents Helpful

  • Better Essays

    Southwest Airline Case Study
    • 1202 Words
    • 5 Pages

    Southwest Airline Case Study

    The paper is about how the airline company named as the Southwest Airlines has been able to cater to the needs of the customers while still holding a greater market share in the Airline industry specifically during the economic crises phase.…

    • 1202 Words
    • 5 Pages
    Better Essays
    Read More
  • Good Essays

    Current Economic Analysis of Virgin Atlantic
    • 1897 Words
    • 8 Pages

    Current Economic Analysis of Virgin Atlantic

    Similarly, the economic issues in the industry are also mostly concerned with deregulation. The evolution of industry structure plays an important role in determining the robustness and stability of lower airfares in unregulated markets (2000). Deregulation also keeps airline fares so low as compared to that of other countries. The reason for this is because despite the failure of most entrants since deregulation, investors continue to create new airlines. There is substantial evidence that entry, particularly by low-cost, low-fare airlines, has a substantial effect in constraining fare levels in markets served by the new carriers (2000). The second reason is that some in the industry have argued that financially marginal carriers may act in ways that depress prices below competitive levels, inducing contagion in financial distress (2000). In addition, some industry participants have argued that financially distressed carriers have cut prices in an effort to raise short-term cash, depressing market prices below efficient levels and threatening the financial security of healthy carriers. Another economic concern is the fact that the airline economy of the US is in a huge upset after the September 11 attack. Some of the companies declared bankruptcy while others are still struggling to survive (2003).…

    • 1897 Words
    • 8 Pages
    Good Essays
    Read More
  • Better Essays

    Airline Deregulation Act Of 1978: A Case Study
    • 1412 Words
    • 6 Pages

    Airline Deregulation Act Of 1978: A Case Study

    Airline Deregulation Act of 1978 According to Congress, the Airline Deregulation Act of 1978 which was also known as ADA was to amend the Federal Aviation Act of 1958 to totally phase out the Civil Aeronautics Board (CAB) (Congress, n.d.). As such, the primary purpose of the act was to remove the federal government control over routes, fares, schedules and market entry of new airlines (GAO, 1996). The Airline Deregulation Act of 1978 was introduced by Senator Howard on February 6, 1978 and was signed into law by President Carter on October 24, 1978 (Congress, n.d.). Its purposes includes the maintenance of safety as the highest priority in air commerce; placing maximum reliance on competition in providing air transportation services; the…

    • 1412 Words
    • 6 Pages
    Better Essays
    Read More
  • Better Essays

    Case Study Southwest Airlines 2011
    • 1219 Words
    • 4 Pages

    Case Study Southwest Airlines 2011

    In October 1978, President Carter signed the Airline Deregulation Act. Prior to the signing of that act, the Civil Aeronautics Board had regulated airline route entry and exit, passenger fares, mergers and acquisitions, and airline rates of return. The deregulation gave all airlines more power to affect their financial future by allowing them to set their own fares, choose their service areas and acquire other airlines for expansion. After the economic fallout of September 11, eight out of the ten major airlines that controlled the industry in 1978 ended up filing bankruptcy. The three major airlines that survived – Delta, United, and American – controlled over two thirds of the domestic and trans-Atlantic air travel. The terrorists attacks of September 11, 2011brought to light the need to focus on better airline security, and new security measures were implemented to meet this…

    • 1219 Words
    • 4 Pages
    Better Essays
    Read More
  • Best Essays

    Southwest Airlines Case Analysis
    • 4181 Words
    • 17 Pages

    Southwest Airlines Case Analysis

    “The U.S. airline industry had lost money in 14 of the 28 years from 1980 through 2007, with combined annual losses exceeding combined annual profits by $15 billion. Yet in July 2008, Southwest reported record quarterly revenues, its 69th consecutive quarter of profitability, rising passenger traffic on its flights, and a record load factor.”5 With a brilliant strategy of ‘low cost/low fare/no frills’ Rollin King, along with Herb Kelleher, launched the most surprising success story in airline history. In 1966, King had an idea. “His business concept for the airline was simple: attract passengers by flying convenient schedules, get passengers to their destination on time, make sure they have a good experience, and charge fares competitive with travel by automobile.”5…

    • 4181 Words
    • 17 Pages
    Best Essays
    Read More
  • Better Essays

    Southwest Airlines 2010 Case Study
    • 1429 Words
    • 6 Pages

    Southwest Airlines 2010 Case Study

    Southwest Airlines employed many strategies over the years with their fist strategy being ads run in the media. Southwest airlines utilized a number of campaigns including skimpily clad flight hostesses, free in-flight alcoholic beverages and a “Love” campaign using the tag line “Now There’s Somebody Else Up There Who Loves You” in an effort to attract passengers. (Leavenworth) Southwest Airlines developed a ground crew turnaround plan that allowed them to add additional flights without the high expense of new plane purchases, even today their turnaround time is nearly half that of other commercial airlines. The idea of CEO Lamar Muse for system wide on-peak/off-peak pricing increased their passenger count and eventually became a standard across the airline industry. The company moved flights from an intercontinental airport where they were losing money to an abandoned airport with a closer vicinity to downtown destinations which doubled passenger traffic. In an attempt to fill empty seats, Southwest slashed its regularly priced fare in half, ran an ad against a competitor implying they were trying to run them out of business, and then offered complementary alcohol or ice buckets for those flying under the original fare price.…

    • 1429 Words
    • 6 Pages
    Better Essays
    Read More
  • Better Essays

    Piedmont Airlines Case Study
    • 5526 Words
    • 23 Pages

    Piedmont Airlines Case Study

    Piedmont Airlines recently invested over $1 million in state of the art equipment and employee development in order to forecast and analyze the appropriate amount of discounted fares to offer per flight. The company discovered that by offering several discounted flights to consumers willing to book their travel well in advance of their departure date left many options available for the business traveler who needed to book much closer to the actual departure date. The analysis was the task of the Revenue Enhancement Department (RED) managed by Marilyn Hoppe. While this state of the art equipment was a step in the right direction, Marilyn believed that there were still a lot of subjective decisions being made and automation was not as prevalent as she would have liked. She wanted the process to be more scientific in nature and leave less up to chance or human interpretation.…

    • 5526 Words
    • 23 Pages
    Better Essays
    Read More
  • Powerful Essays

    Industry Analysis of Us Airlines
    • 1590 Words
    • 7 Pages

    Industry Analysis of Us Airlines

    A4A passenger airlines have 1299 aircrafts on order for delivery through the end of 2022…

    • 1590 Words
    • 7 Pages
    Powerful Essays
    Read More
  • Powerful Essays

    Southwest Airlines
    • 6862 Words
    • 28 Pages

    Southwest Airlines

    Following the Deregulation in 1978, a competitive price war ensued among the airline industry as a direct result of the new freedom for airlines to set their own fares as well as route entry and exits. This gave rise to the operating structure of the airlines as it exists today, consisting of the point-to-point system and the hub and spoke system. With this came the change of focus for major airlines to non-stop, cross-country routes in densely populated cities, which, in a regulated environment, would be profitable. This resulted in the obvious outcome of increased competition, thus lowering the average industry prices for non-stop cross country routes which were profitable. This caused operating costs to increase, narrowing the profit margins. During the mid 80 's, acquisition led to eight airlines capturing a disproportionate share of domestic traffic. Due to a recession and increasing fuel prices in the 90 's, bankruptcy and collapse were common to many carriers. As a direct result, new airlines were formed, and now position themselves as low fare, no frill airlines.…

    • 6862 Words
    • 28 Pages
    Powerful Essays
    Read More
  • Better Essays

    Transportation Deregulation: US Government And Regulation Of Transportation
    • 766 Words
    • 4 Pages

    Transportation Deregulation: US Government And Regulation Of Transportation

    The Airline industry was incepted in the 1930’s and was heavily regulated by the Civil Aeronautics Board. The CAB determined which routes they could fly, ticket rates, and when they could schedule flights. Airline consumers were severely limited by routes and schedules and many were locked out by high fares. During this time the Airline Industry continued to operate and grow, but did not generate impressive profits. In 1978 the US Government began the process of deregulating the Airlines. The Airline Deregulation Act was approved by Congress on October 24, 1978. As a result, Airlines were able to fly to new destinations, flown more frequently, and dramatically lowered costs. Airlines also innovated new services such as overnight and same day shipping, and determined what consumer in flight amenities to offer. One estimate by the Air Transport Association suggests that ticket prices today are 44.9 percent lower in real terms than they were in 1978. (Brennan…

    • 766 Words
    • 4 Pages
    Better Essays
    Read More
  • Powerful Essays

    Bombardier Cseries
    • 2212 Words
    • 9 Pages

    Bombardier Cseries

    Politically and legally, governments had always supported aeronautics by shielding national manufacturers against competition and subsidizing their research and development projects. To some extent, foreign competition called for the intervention of the World Trade Organization to control anti-dumping policies. Governments also got involved in establishing environmental regulations to control the damaging effects of air transportation on the environment. The deregulation of the aerospace industry in the mid-1990s led to a socio-cultural change in consumer's preference from high comfort level to lower prices. The latter pushed airline companies to seek low-cost-carriers to reduce costs. Economically, airline carriers adopted flexible financial models with manufacturers to meet fluctuating aircrafts demand and develop the business further. Technologically, airline manufacturers focused on innovating their core competencies through R&D and achieved economies of scale by outsourcing airplane segments to suppliers and developing strategic partnerships with subcontractors.…

    • 2212 Words
    • 9 Pages
    Powerful Essays
    Read More
  • Good Essays

    Case Analysis American Airlines
    • 5553 Words
    • 23 Pages

    Case Analysis American Airlines

    In an attempt to generally identify the airlines and travel industry this analysis will examine the "key players" in these industries. Whenever we think of the airline industry by definition the key players in this industry include commercial/private airline companies, employees, aircraft manufacturers, customers/consumers of flight service, travel agencies and government entities responsible for regulation of the industry.…

    • 5553 Words
    • 23 Pages
    Good Essays
    Read More
  • Good Essays

    The U.S. Airline Industry
    • 1205 Words
    • 4 Pages

    The U.S. Airline Industry

    The U.S. airline industry provides a unique service to its customers. It transports people and goods with efficiency and convenience which is not achieved by any other service. The purpose of this article is to collect data on the U.S. airline industry and analyze the state of the industry today. Data came from sources such as the Federal Aviation Administration, scholarly articles, and websites such as dallas.culturemap.com and airwise.com. Tools used to analyze the data include P.E.S.T., and Porter’s five forces. The analysis also focuses on the industries’ drivers of change and its key survival factors.…

    • 1205 Words
    • 4 Pages
    Good Essays
    Read More
  • Powerful Essays

    Airline Deregulation
    • 1597 Words
    • 7 Pages

    Airline Deregulation

    In 1978, economic policy experienced a dramatic event that would change the airline industry for decades to come. The United States Airline Deregulation Act of 1978 effectively broke down the government control of the industry and allowed the airline industry to flourish over the next 25 years. Before deregulation, the airlines were tightly controlled by the federal government. Because of this micromanagement, airline companies were few and competition was scarce. Prior to deregulation aircraft travel was a costly mode of transportation which was limited to the upper class. Because of the tight control the government had on it, the industry saw little, if any, significant growth. “The Airline Deregulation Act of 1978 phased out the government's control over fares and service and allowed market forces to determine the price and level of domestic airline service in the United…

    • 1597 Words
    • 7 Pages
    Powerful Essays
    Read More
  • Good Essays

    Delta Airlines
    • 2028 Words
    • 6 Pages

    Delta Airlines

    Deregulation of airline industry in US brought many changes to the way the industry operated, which automatically resulted in increase in the number of carriers which specialized in services which were limited to regions and non-stop operations round the clock. These low cost carriers strategy was to purchase older cheaper aircraft and sometimes also operated outside the boundaries of industry wide online reservation systems which many of the larger carriers have implemented effectively. Against the inconvenience caused to the passengers, low fares as compared to the industry standards were offered to the passengers and every now and then new marketing strategies were implemented in order to lure more passengers to use their services on the basis of cost based competitive strategy. This paper also focuses on one of the low cost airline i.e. Delta Airlines and its oligopolistic position in the airline industry. By investigating Delta Airlines, a better analysis of price vs service impact in the airline industry as a whole can be understood and the impacts on travelers and people investing in the organization. Till late 1070s, much of the prices were setup by the government which resulted in price not being a factor of competitive…

    • 2028 Words
    • 6 Pages
    Good Essays
    Read More

Related Topics