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You have been asked to read the short account of the US airlines industry (please refer toBackground Information) and prepare a 2500-word report that addresses the following:• With the aid of a...

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You have been asked to read the short account of the US airlines industry (please refer toBackground Information) and prepare a 2500-word report that addresses the following:• With the aid of a clearly drawn diagram conduct a competitive forces analysis of theU.S. airline industry.• What does this analysis tell you about the causes of low profitability in thisindustry?• What are the principal advantages and disadvantages of using the five forcesframework?• The economic performance of the airline industry seems to be very cyclical. Why doyou think this is the case?• Given your analysis, what strategies do you think an airline should adopt to improveits chances of being persistently profitable?This assessment focuses on Strategic Position. In preparing your report, youshould demonstrate understanding and application of the strategic concepts.
Answered Same Day Apr 19, 2020 MNG93002 Southern Cross University

Solution

Abr Writing answered on Apr 22 2020
145 Votes
US Airlines – Case Study        13
Title: US Airline Industry- Case Analysis
Author:
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Table of Contents
Introduction    3
Overview of the US airline industry    3
Five forces analysis of US airline industry    4
Diagram    4
Components    4
Bargaining power of suppliers: Low    4
Bargaining power of customers: High    4
Threat of substitute products: Moderate    5
Threat of new entrants: Low    5
Rivalry between existing players: High    5
Advantages and Disadvantages    6
Economic Performance    7
Identifying strategies for airline profitability    8
Discussion    10
Conclusion    10
References    11
Introduction
The case provided for discussion is on the US airlines industry. The analysis that is required to be done is from the point of view of strategic positioning. The concept of strategic positioning is based on the positioning that the airlines have done in the present while considering the possibility of the changes that can happen in the future and keeping a scope for incorporating those changes. (Zenska Mreza, 2018)
Overview of the US airline industry
The case introduces to the readers the problems of profitability in the US airlines industry. It compares larger ca
iers like United and Delta with low cost ca
iers like Southwest Airlines etc. it explains the reasons for the inability of the larger ca
iers to compete with the low-cost version. These low-cost alternatives used only a single plane which made it easier for maintenance. They flew only the prime routes and that too by flying only point to point. This led to the larger ca
iers retaliating by offering discounts of their own and that led to price wars. These price wars subsequently led to reduction of profits. And for an industry like airline the costing could not be controlled beyond a point. The labour cost and the fuel costing combined contributed to around 58% of the costing and that left very little margin for the company to make profit. Besides the price war the increase of online travel booking websites which allowed the people to compare the prices also was problematic for these airlines. (Airlines For America, 2018)
This led to a period of many airlines declaring bankruptcy and going out of business. The period from late 2000 to somewhere early 2010 was then a period of consolidation. Many airlines consolidated into a single ca
ier and that helped the airline industry as the number of competitors decreased and these mergers led to consolidation of many competitors.
Five forces analysis of US airline industry
DiagramPorter’s Five Forces
Bargaining power of suppliers
Bargaining power of customers
Threat of substitute products
Threat of new entrants
Rivalry between existing players
Components
Bargaining power of suppliers: Low
If few top suppliers like Ai
us, Boeing etc. are not considered then the overall bargaining power is low. The big players do have a sufficient say in the decision making but the other players do not enforce the same power.
This is because the other suppliers are large in numbers and low in terms of size and financial pull that they have. Also, the switching cost is low therefore the suppliers’ bargaining capacity reduces even further. Any airline looks for quality and many suppliers are available to choose the best price therefore they are not able to extract the bargaining that they could have had they been lesser in number or the demand was more than the supply. (Pratap, 2017)
Bargaining power of customers: High
Generally, the bargaining power of the customers have increased throughout various industries and sectors. And the American airline industry is no different. The bargaining power of the customers is high, in fact very high. This is because the customers have all the relevant information available with them and they can easily switch from one ca
ier to other without any switching cost. This makes it very difficult for the airlines to retain their customers and they try and retain the customers via various schemes and offers. These also include the loyalty benefits that are provided to the customers. (Kling, 1995)
Even then the bargaining of the customers is substantially high because he can always come back saying even though I have loyalty card of one airline the other competition airline is offering me a better deal and therefore he would choose that over the present one.
Threat of substitute products: Moderate
This is moderate in nature. The reason behind is that the chance of this threat affects majorly the domestic travel. The customers have an option of choosing railways or other modes for domestic travel over the airlines. But for international travel the options are limited and therefore the threat is moderate.
Even speaking about domestic travel, the threat is predominantly more from other competing airlines than the railways. This is s the airlines have superior technology on their side, the ease of access that they provide, the time that they save and the popularity that they enjoy. (DePersio, 2018)
Threat of new entrants: Low
This threat probably has the least chance of ever coming true. And therefore, threats of new entrants are the lowest. This is because to enter the airlines market a lot of resources are required. The financial investments requirements are massive. Other required things are the technology to run the airlines, the infrastructure and the labour force. Then huge expenditure is needed to market the airlines so that customers are aware of the new
and. (BUSINESS WIRE,...
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