ANALYSIS OF THE AIRLINES INDUSTRY
The airlines industry in the U.S. provides air transportation services for passengers. To determine the current state of the airlines industry, various analyses were performed. An analysis of the macro-environmental factors affecting the industry was first analyzed. Then, a Porter’s five forces analysis was used to determine the attractiveness of the industry, and current changes in the industry as a whole. Key success factors were analyzed to determine a firm’s ability to thrive within the marketplace. And lastly, a strategic group map was created to assess the companies that are best positioned and worse positioned in the industry, along ...view middle of the document...
Changes in disposable income and therefore directly affect the demand for airline services. It is reported that disposable income is expected to increase during 2013 (Brennan, 2013). For this prediction we can conclude that there will be in increase in revenue for companies.
Environmental factors such as the increase in fuel cost have highly affected the airline industry. Price fluctuations in oil can highly affect a companies profit margins and ticket costs for consumers. According to IBIS World, “The Air Transport Association estimates that for every dollar increase in the price of jet fuel (a derivative product of crude oil), US airlines incur an additional $445.0 million in fuel expenses” (Brennan, 2013). As a result of the increase in fuel costs, airlines have increasingly used higher ticket fees to recover some of the expenses lost. It is reported that some airlines companies have filed for bankruptcy due to the increase in oil prices (Brennan, 2013). Oil price volatility has negatively impacted company’s profit margins and ability to stay alive in the industry.
Porters Five Forces Analysis
A Porters Five Forces analysis was conducted in order to understand the competitive forces that affect the attractiveness of entering an industry. Refer to Appendix A to view the industry specific model, with brief descriptions of the factors that influence them.
Rivalry among competing sellers is strong in this industry. Competition has intensified with providers of cheap air transportation, increasing the level of price competition in the industry. Low cost air transportation providers are able to attract customers to their services and steal them away from other companies. Multiple companies in this industry are using additional services, such as Internet booking and loyalty rewards programs to differentiate themselves from competitors (Brennan, 2013). However, the majority of additional services provided by airline companies is becoming more alike and therefore are weakly differentiated, giving buyers less reason to be brand loyal. Competitors are also becoming more equal in size and competitive strength due to the increase in mergers between companies (Corridore, 2013). Consolidation of companies allows them to increase their competitive strength by enhancing their market share and reducing variable costs, such as labor and fuel costs.
Threat of New Entrants
“New entrants to a market bring new product capacity, the desire to establish a secure place in the market, and substantial resources” (Gamble, Thompson, & Peteraf, 2012, p. 80). The threat of new entrants in the airline industry is fairly low. Significant barriers to entry in this industry exist. Costs to purchase aircraft and machinery are extremely expensive for companies to purchase and acquire. Another barrier is acquiring skilled labor. Extensive training is required to be in this industry and it is also hard to come by skilled pilots. Finally,...