Airline Industry Analysis

Airline Industry Analysis - Mike Marcinek Case Analysis 1...

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Mike Marcinek Case Analysis 1 Professor Steffy Industry Structure Analysis: The Airline Industry Backward Channel / Suppliers - Because there are only two major suppliers of airplanes and materials to the industry (Boeing and Airbus) the industry has no leverage over the prices. The price of acquiring new planes and materials, therefore, is very high and causes the industry to suffer. - The other key inputs to the backward channel are labor, facilities, and fuel. - Labor costs have caused the industry to suffer much because of the unions. The unions have a history of militancy and force the industry to pay about 40 percent more than other private industries. The airlines were forced to cut compensation and pay because of this, and this resulted in a fall in employment. - Facilities are a major force in the industry. Each airport is an extremely complex facility and landing costs, which are usually based on the plane’s weight, are high. Agreements between firms and the airports for slots are common, but the slots are expensive. - Due to the fluctuations in crude oil prices, fuel prices often change. Unfortunately for the airline industry, the prices have been rising and are taking a heavy toll. Potential Entrants - The threat of new entrants in the airline industry is extremely low. The fragile industry is not attractive to newcomers and is subject to failure at any time. A recession could immediately wipe out a new, or even established, airline because people would not have the extra funds to pay for the airlines’ services for what brings many consumers; vacations. - The industry has extremely high entry and exit barriers. The total cost of beginning an airline includes the setup and purchasing of airplane(s), fuel, gates, and landing slots. Gates and landing slots are dominated by the major airlines and force new airlines to secondary airports. The problem of marketing and distributing tickets also poses a problem for potential entrants. The costs of exiting the industry are also high due to large closure costs in employee contracts and the inability to sell excess materials. -
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This note was uploaded on 04/21/2008 for the course BOS 215 taught by Professor Forbes during the Spring '08 term at F & M.

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Airline Industry Analysis - Mike Marcinek Case Analysis 1...

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