INDUSTRY OVERVIEW AND COMPETITIVE ENVIRONMENT - AIRLINES

INDUSTRY OVERVIEW AND COMPETITIVE ENVIRONMENT - AIRLINES -...

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INDUSTRY OVERVIEW AND COMPETITIVE ENVIRONMENT SWOT Strengths A major strength of any airline is the product itself -- air travel. Despite downturns, over time air travel continues to grow, not only due to population growth, but also due to an increased propensity to fly. Another strength is the safety record, and the associated public acceptance of air travel as both a fast and safe way to travel. Both traditional, brand recognized airlines and new low cost carriers share this strength. Airline staff is highly trained and experienced, from pilots and flight attendants to mechanics and ground staff. Business-wise, airlines have the ability to segment the market, even on the same routes. This allows airlines to establish different levels of service and make associated pricing decisions. Weaknesses Airlines have a high "spoilage" rate compared to most other industries. Once a flight leaves the gate, an empty seat is lost and non-revenue producing. Aircraft is expensive and requires huge capital outlays. The return on investment can be different than planned. Large workforces spread over large geographic areas, including international points, require continual communication and monitoring. This can be exacerbated during operational irregularities, e.g. bad weather. While the business climate can change quickly, airlines have difficulty making quick schedule and aircraft changes due to leases, staffing commitments and other factors. Opportunities Airline market growth offers continual expansion opportunities for both leisure and business destinations. This is particularly true for international destinations. Technology advances can result in cost savings, from more fuel efficient aircraft to more automated processes on the ground. Technology can also result in increased revenue due to customer-friendly service enhancements like in- flight Internet access and other value-added products for which a customer will pay extra. Link-ups with other carriers can greatly increase passenger volumes. By coordinating schedules, airlines can offer service to destinations via a code share agreement with a partner carrier. Threats A global economic downturn negatively affects leisure, optional travel, as well as business travel. The price of fuel is now the greatest cost for many airlines. An upward spike can destabilize the business model. A plague or terrorist attack anywhere in the world can negatively affect air travel. Government intervention can result in new costly rules or unexpected new international competition.
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Porter's 5 Forces Analysis Threat of New Entrants. At first glance, you might think that the airline industry is pretty tough to break into, but don't be fooled. You'll need to look at whether there are substantial costs to access bank loans and credit. If borrowing is cheap, then the likelihood of more airliners entering the industry is higher. The more new airlines that enter the market, the more saturated it becomes for everyone. Brand name recognition and frequent fliers point also
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This note was uploaded on 06/20/2011 for the course MGT 476 taught by Professor Duffy during the Spring '10 term at Sam Houston State University.

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INDUSTRY OVERVIEW AND COMPETITIVE ENVIRONMENT - AIRLINES -...

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