Case Study No.1
Case Study No.1
1. Conduct a competitive forces analysis of the U.S. airline industry. What does this analysis
tell you about the causes of low profitability in this industry?
Answer:
The causes of low profitability for this industry vary. Before the addition of lower
costing entrants into the industry the reason for low profitability was the fluctuation of the
economy and the costs of fuel and labor. As lower priced entrants entered the industry the
price of the airlines was effected greatly. With lower costs now being a variable the airlines
that once dominated the industry were forced to adjust to the competition.
2. Do you think there are any strategic groups in the U.S. airline industry? If so, what might
they be? How might the nature of competition vary from group to group?
Answer:
Yes, I believe there are strategic groups within the U.S. airline industry. I think the
largest group would be those companies that are larger, like United, Delta and American.
These companies have different strategies than the smaller companies because they are
required to use their profits in a different way. Because of the vast difference in company
strategies the competition would vary. Before the entrants became a part of the industry there
would be a higher competition level between the larger companies. However, after the
smaller companies joined the industry the completion wasn’t just between the larger
companies but between the larger companies and the smaller companies. When it comes to
the competition between the larger companies it would be more for the acquisition of the
smaller companies. However, when large companies and smaller companies engage
competition
3. The economics performance of the airline industry seems to be very cyclical. Why do you
think this is the case?
Answer:
There are two reasons why the performance of the airline industry seems to be very
cyclical; the first is that the economy fluctuation plays a great deal into the success of the
airlines, the second is that the addition of smaller companies effects the economics
performance. With the fluctuation of the economy comes increases and decreases in the
prices of resources such as jet fuel and maintenance. When smaller companies join the
industry it causes a new cycle to begin, not only are there fluctuations in the economy but
there is competition for the resources that are already available. With more companies
involved in the industry there is more demand for the already scarce resources.
4. Given your analysis, what strategies do you think an airline should adopt in order to
improve its chances of being persistently profitable?
Answer:
I feel the best strategy to persistently be profitable would be to decrease fares as much
as possible whilst adding incentive programs for consumes in order to increase sales. There
are many airline companies that have teamed up with or bought out credit card companies in
order to include them in their incentive programs. Another strategy is to merge companies
with another airline company to decrease competition and to increase profitability by having
two companies together.