Industry growth rate Not much of a factor. The industry has reached the mature stage and
must work to maintain or lower costs.
Societal Changes Not much of a factor. Many people have taken to flying on commercial
aircraft and many people feel now that flying is safer than driving a car. However, with terrorism
on the rise and security being increased, many passengers have second thoughts about flying.
This small percentage of people, however, have not hurt the industries bottom line.
Regulatory Changes Major Factor. Landing and taking off at the major airports in big cities
such as New York City, Washington DC, and Chicago are regulated by the federal government
in efforts to prevent congestion. Also airlines pay major fees for taking off and landing at these
airports. Also service to small isolated airports are regulated by the government. In addition to
operational regulations, airlines face a barrage of safety regulations. From number of seats, to
the size of the walkways inside each jet airlines are faced with many restrictions.
Product Innovations Non Factor. When the product or Aircraft in this case changes, Airlines
would simply replace its older aircraft with the new and improved design. This may affect the
smaller airline carriers if the new design is costlier, but overall it will not have an effect on the
industry as a whole.
Technological Change Technology is something that moves at a tremendous speed. The
airline industry has seen aircraft that are now cable of streaming satellite television to allowing
passengers to use Wi-Fi while in flight. We have also seen a shift to where buyers can buy
their own tickets online without the need of a travel agency. Airlines in the future will see
aircraft that can fly on alternate fuels or by using solar power. We have just recently seen an
aircraft fly around the world without passengers using solar panels as its source of energy.
With this advancement in technology, it will, in the long run, allow the Aviation industry to
reduce transportation costs.
Marketing Innovation Currently the US domestic airline industry markets through several
streams. From TV ads to airline miles through your favorite credit card. Marketing in the past
has been focused on obtaining new customers and not particularly focusing on existing
customers. However, this is beginning to change in the industry as many carriers have adopted
a reward program with airline miles. They are starting to market and obtain loyal customers.
Especially business customers who spend more on a per passenger revenue basis.
Industry consolidation Major Factor. In the Airline industry we have seen many mergers.
Some of the major ones have been, American airlines/US airways, Delta/Northwest,
United/Continental, and Southwest/AirTran. Whenever these mergers take place we see an
industry where the number of aircraft does not change but the shifting of power changes.
These main four airlines are the ones who hold the majority of the market share in the industry.
They are more routes to more airports with better ability to expand with the establishment of a
merger. Mergers threaten the smaller airlines and essentially effect prices that passengers
may have to pay.
Industry Globalization Low Factor. The Domestic Airline industry has a low possibility of
losing market share to global competition. Many airlines do not have the capability or
economies of scale to afford to compete extensively within the US. The only factor that
globalization has on the domestic airline industry, is the possibility to pull market share from
some of the major routes. Routes such as New York City to Los Angeles.
3. 5 Forces of Industry Competition: (for each force, state whether it is strong, moderate, weak,
and then list the supporting facts about the industry that led to your conclusion bullet points are
fine)
Industry Rivalry: Strength __Strong__________
-
The regional airlines have a slight fear of alternatives, such as trains and buses, but airlines
have convenience and amount of time it takes to travel from destination to destination on its
side. The fear here would be the price would be too high and customers would select one of
these alternatives.
Buyers no longer have to buy tickets through a travel agency. They can now purchase tickets
online.
They can search for the cheapest price and do not have to settle for the first price they see.
Conclusions from 5 Forces Analysis (re: industry attractiveness and profit potential):
In conclusion, the domestic airline industry is very competitive. It has four major carriers that make
up a huge part of the market share, and multiple other carriers fighting for the rest. The airline
industry is also very hard to get into. One must have huge amounts of capital, knowledge, and
expertise. The airline industry is not threatened by substitute products. Trains and buses do not offer
the same type of experience and are therefore not used very often to replace flying on an airline. The
bargaining power of suppliers is strong because there are only two suppliers of aircraft and the
market price of fuel is dictated by outside controls. Finally, the bargaining power of buyers is high
because the buyer has many different options when selecting which airline. The seats in many aircraft
are the same from carrier to carrier. Although profit potential can be very high, the industry is not an
attractive one to enter. The airline industry is complicated and takes a lot of patience and risk.
4. Industry Key Success Factors (list and explain why each is a KSF)
- Keeping Airline ticket prices as low as possible
o Buyers of tickets for flights are often times looking for the lowest price when considering
the cost of the ticket and any fees.
- Building Brand loyalty
o Switching costs are low and therefore each carrier should work to do whatever it takes
to get repeat customers. Those loyal to a certain airline will often return to the airline
even if the price is a little more expensive.
- Keeping costs low
o With cheaper ticket prices comes the need for airlines to reduce costs. Whether that is
investing in research of alternative fuels or finding way to eliminate having empty seats
on flights.
Opportunities
Threats
Sources