MASTER BUSINESS STRATEGY CONSULTING , DELTA AIRLINES CASE
To determine the profitability of the airline industry, we will do an industry analysis using
Porter’s five-forces framework
a) Rivalry among existing competitors
The concentration and the number of competitors make very difficult any agreement about pricing.
Diversity of competitors
There are many competitors with approximately the same size, especially for the legacy carriers.
Concerning the significant product differences and brand identities between the competitors, we have two types of competitors: the legacy competitors and the low cost carriers. In this ...view middle of the document...
Then, is a lot of capital needed to enter the industry? Is equipment expensive to acquire and to serve? First of all, concerning the aircrafts, yes it’s an expensive equipment to acquire but as we said previously we can use the leasing, concerning matters such aircraft maintenance, food service, ground services, reservation, we can use the outsourcing. Choosing the leasing option can avoid the problem of the necessity of raising huge capital.
Economies of scale
Concerning the question, if the large firms have a cost or performance advantage in this industry? No, the high fixed cost, and a low marginal cost, reduces any type of scale economy. But, such companies, particularly the low cost companies, use secondary airports which decrease the landing costs, use the same aircraft type in order to decrease the maintenance cost, use the Internet for tickets reservation in the purpose of cost cutting.
Absolute cost advantages (“first mover advantage”)
Does experience help to continuously lower costs? In the airline industry, experience can help to reduce costs, but not enough to create an competitive advantage, however, effective management of fuel, maintenance, and labour costs seemed to be the key success factors of the low cost airlines. Does a newcomer have any problems in obtaining the necessary skilled people, materials or suppliers? Any new entrant should have the key success factors we mentioned previously in order to have a competitive advantage regarding to the competitors otherwise it will be very hard for him to compete. Regarding to the economic turmoil, it became very hard to have these key success factors.
Are there any established brand identities? Not particularly, because in the airline industry the price of the ticket is the most important, and yes, beyond price, there are some other factors for passengers choosing an airline, as for example safety, reliability, and convenience, service quality, amenities, entertainment, and food, which also influencing the purchase decision. But the price ticket is the most important factor for many passengers. Then it’s not important the brand or the name of the company as a matter of fact that the price is low.
Access to channels of distribution
Does a newcomer to the industry face difficulty in accessing distribution channels? Facing the transformation of the model buying a ticket with the new technology, the newcomer has not to face a difficulty in accessing distribution, because now internet is where almost all passengers buy their tickets and then it’s easy for a newcomer top be in the internet and then sale their ticket.
Governmental and legal barriers
Are there any license, insurance of qualification which are difficult to obtain? The newcomer may have to face some legal barriers, in order to have the right to fly and to carry passengers.
Can a newcomer expect strong retaliation on entering the market? No, because the other...