This assignment requires you to take us airlines and do case analysis with another us airlines . for eg: if you are taking budget airline of us so the comaparison should be with another budget airlines not with domestic or international airline.
1)so sellect first which airlines you want to choose i.e budget,domestic or international
2) then take another airline of same field i.e either budget, international or domestic who is doing better than the airline you have chosen.
3)Please note that both the airlines should be us airlines.
4) please provide intext citation after every 2-3 lines because this is important
You have been asked to read the short account of the US airlines industry and prepare a 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?
Statistics of US Airlines Industry
The report aims to conduct a statistical analysis of U.S airline industry, after taking into consideration two budget airlines. The two airlines are JetBlue and Frontier Airlines, which will be able to provide with a comprehensive analysis of the U.S airlines. A number of factors will be taken into consideration for the purpose of elaborating on where the business has failed and where it can improve itself. Special emphasis will also be given to understand the economic sector of the airline industry. The report will therefore conclude stating the strategies and approaches that will help the airlines to cover up for their losses.
According to the statistics, around 100 certified passenger airlines that are operational in the US airline industry (Aguirregabiria and Ho 2012). The airline sector have incurred huge amount of profit during the world wars and the huge demand has also has a major role to play in improving their infrastructure as well the other operational aspects. Over the recent years, there has been much advancement in the airlines sector. In the U.S airline sector there are four categories into which the airline industry can be segregated- International, National, Regional, Cargo. However, recently the market has witnessed major shift like the introduction of low-cost carriers, a rapid decline in the fare of the major airlines, surfacing of HS system and more. Today, the entire business sector has been subjected to massive competitiveness in the market. Critics conclude that the crisis has also affected other sectors like the employment sector and the way by which the aviation industry executes its business in the market. The global financial crisis has also resulted in a serious fall of the entire US industry. According to the economists, the airline sector in US plays a fundamental role to foster its tourism, immigration and facilitate business. However, recently the airline sector has hit a hard ground with many airlines completely vanishing off the market.
The budget airline sector has been the worst victim due to the consequence of thee low-cost carriers that are coming into the market (Aharoni and Noy 2012). It is becoming increasingly apparent with each passing day that the US market is not taking adequate steps to earn revenues which will revamp the entire economy. The budget airlines are also falling short of inventive measures that can be implemented to gear up the entire business. There are also certain factors which have their role in diminishing the market growth of budget airlines. Some of them are- low ticket fare, lack of technological innovation, fluctuating fuel prices, increasing labor costs and admittance of new competitors on a frequent basis in the market.
Budget Airlines in the US
Porter analysis of the airline sector will be effective in enumerating and analyzing the external environment of the sector. As it is, the airline industry has suffered a flow due to a couple of external factors which may have a role to play in decreasing passenger traffic, unreasonable hike in the fuel prices and more. These factors will help to determine why market analysts have labeled the entire sector as a death spiral.
Bargaining Power of Suppliers: The external factors pertaining to an airline industry include the labor, fuel prices and aircraft maintenance (Zou et al. 2014.). the bargaining power power of supplier is immense for Frontier. The airline labor union markets and their potential union workforce have also reduced the productivity rate of the industry. What affects the operational system of the airline industry the most is the threat of frequent strikes. As a result often the entire operation has to be kept stagnant which further degrades the reputation of major airline companies. Currently, airport has generated a dynamic market and has generated an approach which is more commercially focused (Williams 2017.). Therefore, the budget airlines like JetBlue are being confronted with a number of rival competitors. It should renew its old customer policies to attract prospective customers. The worst victims are the airline companies because the passengers have more option than ever to switch to a better company. Budget airline Frontier should develop third party manufacturers to incur stability.
Threat of Substitutes: Frontier Airlines has suffered a major setback because of the countless possibilities which offer unique services with a better negotiation. For instance the comparatively cheaper tickets of trains and buses have posed a serious threat for airlines like Frontier and JetBlue.
Threat of New Entrants: Frontier Airlines can adopt a number of strategies to deal with the new entrants in the airline sector. The new companies are coming up with better innovations at a very reasonable or negotiable price which is posing as a major threat to the existing airline companies (Daraban 2012). As far as Frontier is concerned, one of its competitors is JetBlue but, it can revive its business if it focuses on increasing the switching cost, emphasizing on the requirements of customers and by devising strategies to provide with better services. However, according to market research, the new entrants will find it difficult to cope up in a market where Frontier has tried to redefine the resources.
Porter Analysis of the Airline Sector
For instance, JetBlue has always prepared itself to deal with rival in the market by coming up with innovative products and quality services (Lohmann and Koo 2013). As far as JetBlue is concerned, its top competitors are American Airlines Group, and United Continental Holdings. The later has acquired regional operations and boasts about holding 4,500 flights per days operating throughout 335 domestic and international airports. They have also made it a point to keep the standard consistent and therefore retain its position in the market. For Frontier airlines the barriers to entry is potentially low.
Bargaining Power of Buyers: as research goes, airline industry itself is the worst hit sector especially with the rising competitors which have spoilt the passengers for choices. The bargaining power of buyers is high because Frontier is constantly batting for better pay with the upper management and is also rejecting labor contracts due to financial crisis (Mallikarjun 2015). According to reports, the budget airlines are continuously cutting down the customer luxuries and quality services in order to live up to the budget. This has an adverse impact on the reputation of major budget airlines like Frontier.
JetBlue needs to attract a large number of buyers to reduce the bargaining power of buyers. It should offer new discount coupons and launching new products that will benefit the customers in different ways. The scarcity of customers has to be handled by Frontier Airlines by conducting a thorough market research and identifying the areas where it falls short of providing with the best to the buyers.
Industry Rivalry: it goes without saying that the US airline sector is fiercely competitive with a business model that is fairly outdated. They are more concerned with providing the best fare to the customers (Choo and Oum 2013). The sectors operate more on the supply side and the competitiveness of the existing rival firms will throw out any new entrants that do not possess sufficient capital investment. The existing industry rivalry clearly calls for innovation in order to sustain in the sector for long-term, especially for the worst hit brands like Frontier Airlines. The facilities or infrastructure that JetBlue offers are more or less similar in quality, the airlines are constantly facing the risk of losing out passengers. The passengers have the luxury to switch from one brand to the other at a simple click of mouse and this makes the industry even more competitive (Puller Taylor 2012.). What the sector lacks is innovative and compelling marketing campaigns that will build brand and customer loyalty.
Advantages and Disadvantages of US Airlines Industry
Bargaining Power of Suppliers
It is high because of the rising fuel costs.
Bargaining Power of Buyers
it is fairly high because of multiple airline companies with cheaper air tickets.
Threat of New Entrants
Threat of New Entrants is high because of multiple airline companies that are introducing new products.
Threat of Substitutes
High because of other low cost transport options and web-conferencing.
The new companies are coming up with better innovations at a very reasonable or negotiable price which is posing as a major threat to the existing Frontier
Bargaining Power of Suppliers
High because suppliers can be dominant and extract huge amount of profit from the companies.
Bargaining Power of Buyers
It is high as the passengers have a number of options to choose from.
Threat of New Entrants
threat of new entrants is immense as far as JetBlue is concerned, its top competitors are American Airlines Group, and United Continental Holdings.
Threat of Substitutes
Web Conferencing and other cheaper mode of transportation with passenger comfort can be a major threat.
The facilities or infrastructure that JetBlue offers are more or less similar in quality, the airlines are constantly facing the risk of losing out passengers. It therefore needs innovation in this sector.
Things To Remember:-
1. Innovation is the key point without which no airline company can proceed in the future.
2. Finding out rival competitors and implementing what they lack at should be the main objective of the budget airlines like Frontier and JetBlue.
3. Providing passenger comfort should be the one of the main concerns of the budget airlines.
4. The major budget airlines should upgrade their old business modules to cope up to the shifting paradigms of market trend.
From the above analysis one can list down the advantages and disadvantages of the entire airline industry of US. Some of the major hindrances standing in their way of progress are frequent outbreak of strikes, which have slowed down the services and cancellation of flight services. This is very unlikely of an efficient airline service.
Another foremost disadvantageous aspect is the lack of innovation which is one of the reasons why the airline industry has came to a standstill today. Lack of innovation has taken away their brand recognition as well.
The airline companies have repeatedly failed to provide with customer oriented services and this has made the customer lose brand preferences (Ciliberto and Schenone 2012). To regain the same, the airline companies should incorporate new business models and proper usage of new technologies.
The airline companies like Frontier Airlines should come with innovative ideas which they can be able to cater to the passengers at a reasonable price (Brueckner, Lee and Singer 2013). The budget airlines should concentrate more on providing the best to the passengers. This means it should try to eliminate customer issues like denied boardings, delayed flight. These measures can significantly improve the quality f services that the airlines are known for.
Ineffectiveness and lack of adaptability have made the US airlines sector suffer huge loss. The high rate of taxes that the government imposes, also affect the economy of the airlines. Furthermore the increase in fuel rate and terrorist activities have also shaken the market of airline companies (David Mc 2013). Due to the high process, there are a number of airline companies that went completely bankrupt in the 2000s, some of the popular names being Delta, US Airways, and Northwest. As a result the US airline costs continued to decline 12.6 percent every year ad one of the driving forces behind this happens to be the maintenance cost. Frankly, the business is hugely dependant on the country’s economic growth. Albeit the airline industry at times tends to return to profitability but critics are skeptical whether it will achieve any stability in the long run (Dai, Liu and Serfes 2014). It is because of the increasing economic freedom in the US airline sector that has allowed the entry of multiple new airline companies has made it impossible to predict the economic aspect of airline industry. In the recent years, one of the many reasons why aviation industry suffered a blow is due to the failure of financial institutions. The economic downturn has also affected customer traffic. According to the statistics, Frontier has managed to increase approximately 30 percent since 2005 (Choi, Lee and Olson 2015). JetBlue also has reported an increase in passenger traffic around 3.8 percent.
One of the main reasons why the budget airline sector has failed to cope up with the shifting paradigm of economic structure is their inability to deal with the number of new entrants. One budget airline will always strive to attract more number of customers by lowering its fare. Additionally in the last few decades, the budget airline companies have failed to upgrade their old business module that will help them to sustain in the long (Barros, Liangand Peypoch 2013). Furthermore, due to global economic crisis, there has been significant rise of low cost carriers which provide the options for low fared journeys. Southwest Airlines primarily gained importance due to this option itself.
The management sector of the airline sector is degraded as well especially, baggage mishandling which is very common within these budget airline companies. This has considerably lowered their reputation and financial condition. As far as Frontier Airlines is concerned, their ticket fares are rather confusing and depend a lot on the site from which the passenger is purchasing it.
Any business, to ensure long-term success, needs a proper procedure of strategy making and implementing. Hiring professional staff members is an essential requirement for budget airlines in order to match up to the high competition that is presently at work in US airline sector. They should be more customer-oriented where common issues like baggage misplacement or damages can be avoided effectively (Assaf and Josiassen 2012). Where the US sector of budget airlines essentially lack is in providing plush accommodations that will result in their rapid expansion, therefore, innovation is needed in this sector.
The budget airlines, can add more benefits to its services and products for the customers which will also help in increasing brand awareness. Providing relevant content or advertising on the social media platforms are also a necessary part of the package which will fetch the attention of the customers.
Proper management is also necessary and which includes the assortment of seats with legroom standards. Most of the budget airlines are marked for providing cramped up sitting arrangements which further pulls down their reputation and makes them extremely commonplace (Choi, Lee, and Olson 2015).
The industry also needs to focus on earning revenues to cover up the long-term costs. The budget airline companies can gain customer traffic by providing entertainment services. The companies like Frontier should ensure to adhere by the laws and norms pertaining to customer and services (Büschgens, Bausch and Balkin 2013). There are indeed a number of airline companies that do not re-think before flouting the rules and regulations (Assaf and Josiassen 2012). Airline industry is a business and therefore, it needs a thorough assessment of its strengths, weaknesses, opportunities and threats to increase its brand value. Budget airlines should hire experienced personnel for the airline which has again worked for their reputation (Weiss and Friesen 2017). Frontier needs to improve its online growth and needs to gear up its financial growth which is somewhat stagnated by the increasing fuel prices.
The US airline sector is actually hampered by frequent strikes and the union density in the sector has remained consistently high throughout. Studies have shown that the labor force has become one of the major concerns of US airlines even more than fuel (Belobaba, Odoni and Barnhart 2015.). In 2014, JetBlue and Frontier have showed comparatively better results in their International operations whereas, some of the other companies like Hawaiian enjoyed improved results from their domestic networks. However, with the advancement of digital age, web conferencing is gaining huge popularity which has strategically made the airlines suffer a minor blow. In any case, the airline industry should adopt new strategies through which they will be able to operate on low fuel burn. The fluctuation in fuel prices naturally had its effects on the growth of the airline sector.
Investors have complained to have received $17 billion less with each passing year with their capital in the airline sector. As it is, the rate is significantly higher with investments in ANSP, CRS, in the freight forwarding sector and travel agents. As statistics reveal, JetBlue has performed fairly well pertaining to baggage, cabin comfort and therefore amassing customer satisfaction. However, it has received severe criticism due to its unpunctuality; these inconsistencies make it apparent why the US market is not doing well in the airline sector (Riwo-Abudho, Njanja and Ochieng 2013). For achieving a steady growth the airline sector should fund for better cabin comfort that includes the seat size, free Wi-Fi and other relevant contemporary comforts that can vouch for more customers.
As economists have stated that a decline in the airline sector would negatively impact the travel and tourism sector equally. With a proper execution of strategies like increasing fleet modernization, the US macroeconomics will be benefitted as well.
Additionally, another instrumental factor that has had its influence in the slowing down of US airlines is the lack of competent pilots. There are many budget airline companies that are filing for bankruptcy protection due to the increasing rate of labor crunch.
Therefore from the above discussion, it can be effectively concluded that US budget airline sector is lagging in ways different than the rest of the countries. However, with a proper business module it can still revive its business and strive towards on increasing brand value and elevate the same to International level. Branding indeed becomes a fundamental aspect of US airline industry and therefore many other airline companies are adopting creative strategies through which it can soar high in the stiff competitive market. With more features pertaining to convenience and customization, the budget airlines can secure a strong foothold in the market.
Aguirregabiria, V. and Ho, C.Y., 2012. A dynamic oligopoly game of the US airline industry: Estimation and policy experiments. Journal of Econometrics, 168(1), pp.156-173.
Aharoni, Y. and Noy, E., 2012. The components of airline business strategy and their impact on revenues. Editorial and Advisory Board, 3(2), p.52.
Assaf, A.G. and Josiassen, A., 2012. European vs. US airlines: Performance comparison in a dynamic market. Tourism Management, 33(2), pp.317-326.
Barros, C.P., Liang, Q.B. and Peypoch, N., 2013. The technical efficiency of US Airlines. Transportation Research Part A: Policy and Practice, 50, pp.139-148.
Belobaba, P., Odoni, A. and Barnhart, C. eds., 2015. The global airline industry. John Wiley & Sons.
Brueckner, J.K., Lee, D. and Singer, E.S., 2013. Airline competition and domestic US airfares: A comprehensive reappraisal. Economics of Transportation, 2(1), pp.1-17.
Büschgens, T., Bausch, A. and Balkin, D.B., 2013. Organizational culture and innovation: A meta?analytic review. Journal of product innovation management, 30(4), pp.763-781.
Choi, K., Lee, D. and Olson, D.L., 2015. Service quality and productivity in the US airline industry: a service quality-adjusted DEA model. Service Business, 9(1), pp.137-160.
Choo, Y.Y. and Oum, T.H., 2013. Impacts of low cost carrier services on efficiency of the major US airports. Journal of Air Transport Management, 33, pp.60-67.
Ciliberto, F. and Schenone, C., 2012. Bankruptcy and product-market competition: Evidence from the airline industry. International Journal of Industrial Organization, 30(6), pp.564-577.
Dai, M., Liu, Q. and Serfes, K., 2014. Is the effect of competition on price dispersion nonmonotonic? evidence from the us airline industry. Review of Economics and Statistics, 96(1), pp.161-170.
Daraban, B., 2012. The low cost carrier revolution continues: evidence from the US airline industry. Journal of Business & Economics Research (Online), 10(1), p.37.
David Mc A, B., 2013. Service quality and customer satisfaction in the airline industry: A comparison between legacy airlines and low-cost airlines. American Journal of Tourism Research, 2(1), pp.67-77.
Lim, S.H. and Hong, Y., 2014. Fuel hedging and airline operating costs. Journal of Air Transport Management, 36, pp.33-40.
Lohmann, G. and Koo, T.T., 2013. The airline business model spectrum. Journal of Air Transport Management, 31, pp.7-9.
Mallikarjun, S., 2015. Efficiency of US airlines: A strategic operating model. Journal of Air Transport Management, 43, pp.46-56.
Puller, S.L. and Taylor, L.M., 2012. Price discrimination by day-of-week of purchase: Evidence from the US airline industry. Journal of Economic Behavior & Organization, 84(3), pp.801-812.
Riwo-Abudho, M., Njanja, L.W. and Ochieng, I., 2013. Key success factors in airlines: Overcoming the challenges. European Journal of Business and Management, 5(30), pp.84-88.
Weiss, E.N., Weiss, E.N., Friesen, M. and Friesen, M., 2017. The JetBlue Story. Darden Business Publishing Cases, pp.1-12.
Williams, G., 2017. The airline industry and the impact of deregulation. Routledge.
Zou, B., Elke, M., Hansen, M. and Kafle, N., 2014. Evaluating air carrier fuel efficiency in the US airline industry. Transportation Research Part A: Policy and Practice, 59, pp.306-330.
To export a reference to this article please select a referencing stye below:
My Assignment Help. (2021). US Airlines Industry Essay: Budget Airlines Analysis.. Retrieved from https://myassignmenthelp.com/free-samples/isys5001-business-project-management/us-airline-industry-and-its-pitfalls.html.
"US Airlines Industry Essay: Budget Airlines Analysis.." My Assignment Help, 2021, https://myassignmenthelp.com/free-samples/isys5001-business-project-management/us-airline-industry-and-its-pitfalls.html.
My Assignment Help (2021) US Airlines Industry Essay: Budget Airlines Analysis. [Online]. Available from: https://myassignmenthelp.com/free-samples/isys5001-business-project-management/us-airline-industry-and-its-pitfalls.html
[Accessed 26 February 2024].
My Assignment Help. 'US Airlines Industry Essay: Budget Airlines Analysis.' (My Assignment Help, 2021) <https://myassignmenthelp.com/free-samples/isys5001-business-project-management/us-airline-industry-and-its-pitfalls.html> accessed 26 February 2024.
My Assignment Help. US Airlines Industry Essay: Budget Airlines Analysis. [Internet]. My Assignment Help. 2021 [cited 26 February 2024]. Available from: https://myassignmenthelp.com/free-samples/isys5001-business-project-management/us-airline-industry-and-its-pitfalls.html.