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You have been asked to read the short account of the US airlines industry (please refer to the file Assessment 2 – Background Information.pdf, which is available on MySCU) and prepare a 2,500 word report that addresses the following:
∙ With the aid of a clearly drawn diagram 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? What are the principal advantages and disadvantages of using the five forces framework?
∙ The economic performance of the airline industry seems to be very cyclical. Why do you think this is the case?
∙ Given your analysis, what strategies do you think an airline should adopt in order to improve its chances of being persistently profitable?
Airline industry all over the world is viewed as one of the most lucrative industries and the rapid speed at which new airline companies enter the industry, it is easy to assume that the industry is also very profitable for the carriers. While many of the global airline companies are earning significant profits, the structure of the industry is not similar in all developed nations. For instance- the airline industry in the United States has been facing troublesome financial state as the carriers are having difficulty in making a profit (Martin, 2017). Prominence of low-cost carriers such as AirTran, Virgin America, SouthWest, and Jet Blue carriers have introduced a price-war in the airline industry to appeal to the customers, leading to all companies reducing the profit margins. Some larger companies have attempted mergers as a way of industry consolidation to gain high power in the industry.
The economic performance of the US airline industry is very damaging as many of the companies are unable to earn sufficient profits for carrier operations (Wise & Vats, 2016). The current structure of the industry is very damaging and destructive for the airline companies and therefore, many airline companies of the United States have filed for chapter 11 bankruptcy in recent years (Reed, 2017). It is very important for the airline industry of the US to find ways of competing in the challenging industry environment and develop ways of increasing financial stability and profitability of the industry.
This paper makes an assessment of the current environment of the US airline industry and performs an analysis of the industry's micro-environment using Porter's five forces model. On the basis of the analysis performed of the US airline industry, the current factors involved in the economic performance of the industry will get identified. Finally, some recommendations will be made based on the industry analysis to help the industry economic condition improves.
2. Overview of the airline industry in the United States
The airline industry of the United States is facing difficulty in earning profits (Clark, 2007). The industry, which once was very lucrative and profitable, is no longer in the state to retain sustainable economic performances. Over the years, many small and large low-cost airline companies have started operating in the US airline industry. Business of many large carriers such as American Airlines, Delta, and United Airlines has suffered significantly from the low-cost carriers taking a significant share of the market. Low-cost airlines are able to provide affordable services to customers by strategies like only using one or two types of aircrafts (to lower maintenance), fly only most frequented routes, and often use non-union labour (Lorenzetti, 2015). The market is essentially requiring larger airline companies to both launch low-cost carrier services while also lowering the prices of premium flight options (Strutner & Walsh, 2017).
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