US Airline Industry Analysis

This assignment requires an in-depth analysis of the US airline industry. Students must examine the competitive environment, strategic choices made by airlines (including alliances), and key performance indicators such as service quality, productivity, and fuel efficiency. The analysis should also consider regulatory influences and future trends impacting the industry.

Running head: BUSINESS STRATEGY AND PLANNING
BUSINESS STRATEGY AND PLANNING
Name of the Student:
Name of the University:
Author note:

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BUSINESS STRATEGY AND PLANNING
Table of Contents
Introduction......................................................................................................................................2
Overview..........................................................................................................................................3
Porter’s Five Forces Analysis of Airline Industry of United States................................................5
Diagram.......................................................................................................................................5
Components of Porter’s Five Forces Analysis on US Airline Industry.......................................6
Benefits and Limitations of Porter’s Five Forces Analysis on Us Airline Industry....................8
Benefits........................................................................................................................................8
Economic Performance of US Airline Industry.............................................................................10
Identifying Strategic Position for Airline Profitability of US.......................................................11
Discussion......................................................................................................................................12
Conclusion.....................................................................................................................................13
References......................................................................................................................................14

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Introduction
The airline industry has been exemplified by intense competitiveness with well-
established price range pressure that further demands a continuous necessitate in developing its
level of efficiency. However, similar to it the airline industry is regarded as a business that
continuous to develop with an increased number of passengers who are frequent flyers. Since the
origin of commercial and profitable air traffic, the airline industry has manifested by increased
level of development in comparison to the GNP (Gross National Product) tendency and enduring
productivity growth (Belobaba, Odoni and Barnhart 2015). Several technical advancements,
recent commercial ventures and rate of efficiency progressions have facilitated to absorb and
further comprehend inflation, which in amalgamation with increased living standards have
facilitated more number of people to opt for airline travelling. It has been reported that over 3
billion passengers are anticipated to travel with commercial airlines in 2014. It is been expected
by the International Air Transport Association (IATA), that the international travel and traffic
has witnessed a slight rise of over 6% along with the competence to develop by about 6%
(Williams 2017). Further progress is expected to persist a steady development in addition to this
the aircraft manufacturer Airbus anticipates determined and constant positive annual traffic
development until 2023 of a rate of over 5% (Dai, Liu and Serfes 2014). The report will intend
to focus on the US Airlines Industry by focusing on its strategic position. The paper will intend
to provide a synopsis of the US airline industry and further conduct a competitive study through
Porter’s five-force analysis and further highlight its advantages and disadvantages. In further to
this the report will explore it economic performance and identify strategies to improve airline
profitability.

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BUSINESS STRATEGY AND PLANNING
Overview
The US airline industry consists of a vast range of airlines that vary from low cost carrier
air models to the multitude global airline groups. The airline industry in United States is referred
to be among the leading dynamic airline industries across the world. The airline industry in the
United States in recent times have been responsible in producing advanced balance sheets,
improved assessments and generated 13 consecutive quarters of revenue and profitability along
with the functioning margins over 10% based on the evidence to the level of quality and
discipline followed by the management with this strong competitive industry (Tan 2016). With
the increasing growth of domestic airlines who are witnessing a steady profit and restrained
operating expenditures because of the major portion to below $50 barrel crude keeping
petroleum costs at low range (Hannigan, Hamilton and Mudambi 2015). This status has led the
US airline industry face rough path of turbulence, which caused risks and threats to the US
bottom line profits. One of the reasons behind the turn down of the US domestic line is excessive
competence and ability coming on website at great discount rates when the US economy was
facing a growth in the low rate single digits (Doganis 2013. The routes established between US
and Latin America, whereby the value delivery services have been belligerently progressing that
has been regarded as the largest development in recent available seat miles occurring over the
past five years. The Domestic Airlines domain has been witnessing a development over these
five years because of the increasing levels of per capita non-refundable income, consumer
reliability along with total commercial revenues, which have reinforced demands from both
corporate, as well as leisure passengers (Vahlne and Johanson 2017). Passenger airlines
belonging to the US are making profits from an enhanced economy. The airlines of the United
States is anticipated to hold a well established position for passenger carriers in 2014 regardless

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to the crippling winter weather in certain regions of north eastern and mid western United States.
It has been anticipated that the US airline industry will establish its fourth consecutive year of
productivity in 2014 (Holloway 2017). As per the recent Statista survey, passengers from USA
have travelled more frequently for leisure purposes in the past six months along with the major
section of the airlines generally travelled on economic category flights. It must be noted that the
on-time arrival rate of performance of the airlines of US has seen certain number of
improvements in 2017 to an average of over 80% (Ambec et al. 2013). While the number of
grievances have increased to some extent by more than 1% in comparison to last year with Spirit
airlines producing the highest rate of grievances and complaints based on per 100,000
enplanements (Flouris and Oswald 2016).

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BUSINESS STRATEGY AND PLANNING
Porter’s Five Forces Analysis of Airline Industry of United States
Diagram
Bargaining Power of Buyers
Low
No longer relies on agents and representatives for
ticketing and other services.
Bargaining Power of
Suppliers
High
Immensely dependent on
fuel, labour and aircraft
manufacturers. Thus,
have low power on
negotiation process with
the suppliers.
Rivalry among Existing
Competitors
High
Multitudinous companies
target same customer base
and similar services have
led to high competitiveness
within the US airline
industry. Delta and
American airline being the
biggest competitors
Threat of New Entrants
Low
New entrants will pose
very less threats on the
US airline industry due
to its intense
lucrativeness.
Threat of Substitute Products or Services
Low
Threats from substitutes are low to moderate, as US
citizens prefer air routes rather than covering long
distances through road or railways
(Created by Author)

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Components of Porter’s Five Forces Analysis on US Airline Industry
The major factor for conducting Porter’s Five Forces for the US airline industry is because of the
US industry has been threatened by steady headwinds from the wide range of external forces.
These threats involve the declining passenger traffic, rising functional expenses, increased rate of
fuel and petroleum prices along with improved and safer landing with better maintenance cost
(Porter and Heppelmann 2014). However, it can be stated that the global airline industry has
been facing a ‘death spiral’ specifically in the United States whereby, numerous renowned air
carriers were either reinforced into bankruptcy or had to come in amalgamation with other airline
companies in order to remain steady in the industry.
 Bargaining Power of Suppliers- (High) The supplier power in the US airline industry is
immense due to the three major factors that US airline comprises of in terms of fuel,
aircraft along with labour force which are further been influenced by several external
forces (Vanhove 2017). The price of aviation petroleum for instance is subjected to the
instability in the international market for oil and lubricants that has been revolved
massively due to several geopolitical and other elements. Due to the restricted number of
the two major suppliers, which are Airbus and Boeing, they tend to direct the prices and
maintain immense authority (Belobaba, Odoni and Barnhart 2015). The other increased
cost contribution of the US airline industry and is further controlled by the workers of
American Airlines subsidiary.
 Bargaining Power of Buyers- (Low) The increasing rate of propagation of online
ticketing as well as distribution methods, various US airlines namely, American, Delta
Airlines, Virgin America and others who fly broad range of passenger everyday no longer
needs to rely on their representatives and other intermediaries for their ticketing

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requirements (Zou et al.2014). However, there has a strict regulation and policies situated
at the demand sector of the US airline industry. This further signifies that all passengers
travelling in any airline belonging to the US airline industry is provided utmost protection
and security by the regulators.
 Threat of Substitute Products or Services- (Medium) US airline industry is not
exposed to threat from its substitutes (Holloway 2017). Unlike other nations, US citizens
generally prefer flying, thus making it a natural phenomenon in comparison to its
substitutes such as roadway transports, which have comparatively less influence on the
passengers (Kleymann and Seristö 2017). However, several US citizens use their
personal cars for long distance journeys thus posing as a threat.
 Threat of New Entrants- (Low) - The US airline industry requires huge capital venture
in order to make an entrance. During their exit, the airlines must script down and further
absorb several losses. US airlines have been witnessing low-level traffic since the
massive attack of 9/11 and an absence of popular and desirable gate accessibility in
airports (Grant 2016). These factors have been posed as threats and obstacles of entry in
the US airline domain. Furthermore, the capital, labour intensive, and energy demanding
nature of the airline industry in the US can cause complexities for new entrants.
 Rivalry among Existing Competitors- (High) - US airline industry comprises of several
domestic and international airline carriers. The three most renowned international carriers
are namely Delta Airlines, American Airlines and United Airlines (Wu and Liao 2014). It
also consists of an additional nine large carriers that has its operation in primarily
domestic air carriers but further have some global destinations namely Alaska Airlines,
JetBlue, Southwest Airlines and Hawaiian Airlines (Holloway 2017). These airline

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services mainly compete on ticketing price range and services. On the other hand, they
compete on the ground of the flight frequencies, reliability and other services and
amenities (Grant 2016). The Southwest Airlines Company is known as the major
competitor within the US airline industry that carries more than 100 million passengers in
an average year that is poses as the biggest threat to the other airlines (Choi, Lee and
Olson 2015).
Benefits and Limitations of Porter’s Five Forces Analysis on Us Airline Industry
Porter’s Five Forces Analysis has been widely implemented in order to analyse varied industrial
positions. As the US airline industry experience several challenges while maintaining
competitive benefits over its rivals, the above conducted Five Forces analysis has effectively
determined the fundamental competitive impact of external forces on the US airline industry.
Benefits
 The Five Forces analysis has explicitly evaluated the authoritative position of suppliers
within the US airline industry. If the level of this force within a particular sector is high
then those buyers have a less degree of pricing authority over their client companies or
suppliers (Belobaba, Odoni and Barnhart 2015). Since the US airline industry alike any
other airlines sector is intensely reliant towards supplies like fuel, labour force and
aircraft manufacturers, the negotiation power of the suppliers have thus been explicitly
evaluated through this analysis.
 The US airline industry being a lucrative industry has high degree of competitiveness
amongst the multitude of companies providing services to the same target base. As there
has an assembly of players all trying to destabilize and challenge each other (Holloway

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2017). The US airline industry has always been occupied with historic rivalries. Earlier
leading airlines Pan AM and TWA (Trans World Airlines) had competed with each other
for dominance over the international routes. In recent times, Delta and American airlines
have emerged as strong opponents within the industry (Flouris and Oswald 2016). The
Five Forces analysis have been beneficial in order to analyse the rising competitiveness
between these two airlines. Delta has reportedly posed criticisms against its rivals for
mediocre and substandard services and reliability and further endorsed its high and
improved quality amenities through effective marketing strategies.
Weaknesses of Five Forces
In terms of US airline industry, the immediate domestic competition lies on the sharing of
common challenges and strategies of labour and services, shifting governing environment
and alike. The Porter’s Five Forces analysis have not been successful to identify the threats
that can be caused through new entrants within the airline industry (Borenstein and Rose
2014). Though the level of threat has been shown as low in this force analysis, yet the
detailed exploration could have facilitated to understand the strategic position of the US
airline industry.
One of the major area of limitations underlying the analysis of Porter’s Five Forces has
been incompetent to pay equal attention and consideration to all five forces. It must be noted
that for most industries, especially the airline sector, there will be one or more than once
forces, which will overshadow the other significant forces (Belobaba, Odoni and Barnhart
2015). For example, the threat of substitutes has not been explicitly evaluated within the
analysis framework.

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Economic Performance of US Airline Industry
US Airline Contribution to GDP
The US airline industry to, from and within the United States has created three distinctive
types of economic benefits. Certain reports reveal that ‘economic footprint’ of the airline
industry has been assessed by its contribution to GDP, employment and taxation revenues
produced by the airline sector as well as its supply chain. However, the economic significance
and value created by the US airline industry is more than it has been evaluated (Flouris and
Oswald 2016). The US airline domain aid over $600 billion in GVA that is Gross Value Added
to the nation that is equivalent to almost 5% of the country’s economy (Grant 2016). The total
economic contribution to US GDP consists of catalytic advantages via aviation associated with
global tourism of over $100 billion that create the airline sector input as a whole.
US Airline Contribution to Public Economy
Over 3 million jobs have been directly aided by the airline sector and further 2 million
jobs indirectly have been financed through the US airline’s supply chain. The US plays a major
contribution to the US public finances for more than $55 billion in taxation charges that involve
income tax revenues and receipts from the US labour force (Flouris and Oswald 2016). Social
security and corporation taxation has further been levied on the revenues and profits of the US
airplane industry. The US has been recognized as the world’s largest airline services sector that
gives a production of $30 billion direct and $40 billion in indirect contribution along with almost
$22 billion induced as benefit to GDP.

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BUSINESS STRATEGY AND PLANNING
Consumer Profit for Passengers and Shippers
It has been reported that over nine hundred thousand scheduled global flights have their
departure from several airports of the US annually that have been destined for more than 250
airports in over 100 countries (Flouris and Oswald 2016). Several air passengers residing in the
US consists of approximately 600 million of the passenger as a whole. For a major section of air
passenger flights in aggregation pay $600 billion including tax charges along with the US
residents paying around $500 billion (Belobaba, Odoni and Barnhart 2015). The air transport
sector is considered crucial for the distribution and supply of increased value to weigh products
of passengers.
Facilitating Enduring Economic Development
The year 2010 witnessed 3200 routes relating major US airports to urban collections
across the world. On an average, there were 5 outbound flights per day along these air path
routes. A total number of more than 350 of these routes were linking the US to cities of over 10
million residents with five outgoing flights every day available to passengers (Flouris and
Oswald 2016). The rate of frequencies has been higher to the majority of economically major
destinations. For instance, travellers benefitted from a number of 31 outgoing flights each day
from Los Angeles to the New York offering high-speed accessibility for commercial and leisure
purposes all through the day . It must be noted that, several of these city pair networks are only
achievable due to the passenger traffic density offered by major hub airports.
Identifying Strategic Position for Airline Profitability of US
Recognizing strategic positions within the airline industry is immensely necessary from
both a qualitative and quantitative perspectives. Establishing correct operational performance can

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facilitate in balancing the functioning trade-offs that the US airline experience. For instance,
Delta airlines tagline is “one time machine” while the Alaska airline believes in “safe on time
and with your bag at the lowest expenditure” (Choi, Lee and Olson 2015). Furthermore
evaluating drivers of operational performance is another strategy to use for ultimate profitability.
Several airlines services such as BCG has shed light on certain operational measures such as
OTP and proficiency along with focusing on customer contentment and employee engagement.
Discussion
Considerable improvements in airline route linkage have contributed to the financially
viable performance of the broader economy with the enhancement of its overall productivity
level. However, this development in efficiency in airlines companies outside the airline sector
passes through two major channels such as via the impact on national firms of improved access
to international markets as well as enlarged foreign competition in the domestic market (Art
2013). This must be noted that enhanced associations gives US-based trades and businesses
improved access to international markets acknowledging the exports and enhances contest and
rivalry in the local markets from international based suppliers (Choi, Lee and Olson 2015). This
way, advanced networking acknowledges US companies to specialise in areas whereby, they
own a comparative beneficial factor (Grant 2016). It must be noted that the increased rate of fuel
and oil prices have further complicated the scenario that led several US airlines to face
bankruptcy during the 2000s that included Delta, United, American. However, this airline sector
have conquered all the struggles and obstacles and have been regarded as recent driving agent of
airline profitability further influencing the airline service decision-making processes.

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Conclusion
To conclude it can be seen that the US airline industry has undoubtedly struggled a long
journey to become such a lucrative and immensely profitable sector. It has successfully produced
improved balance sheets and enhanced valuations by facilitating a profitable operating margin
within the US economy. This airline sector is reportedly to be on an achievable line despite of
the increasing fuel and labour expenses. A consistent demand for air travel in US has overtaken
major section of the US economic development. The report has effectively provided a vibrant
and well-established synopsis of the airline industry of the United States. It has further conducted
a competitive forces analysis of the US airline sector by proving a diagram and detailed analysis
through Porter’s Five Forces. In addition to this, the paper further evaluates the strengths and
limitations of the five forces analysis by shedding light on the airline sector. After effective
exploration on the strategic position of the US airline sector, the paper highlighted the economic
performance of this airline sector further identifying the strategies for improving its profitability
and lucrativeness.

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References
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BUSINESS STRATEGY AND PLANNING
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