Strategic Analysis of US Airlines

This report provides a strategic analysis of the US airlines industry, including a PESTLE analysis and Porter's five forces analysis. It discusses the current market position, challenges faced, and recommendations for improvement.

Running Head: STRATEGIC ANALYSIS OF US AIRLINES
STRATEGIC ANALYSIS OF US AIRLINES
Name of the Student
Name of the University
Author note

iSTRATEGIC ANALYSIS OF US AIRLINES
Executive Summary
The report dealt with strategic analysis of US airlines industry. It was designed in a way to
give holistic exposure of the industry, that after deregulation how US airlines would manage
its losses. The study was carried through some analysis such as PESTLE analysis for external
environment and the famous managerial tool Porter’s five forces model to frame strategic
analysis. Basically the aim was to find out the Strategic position and strategic choices for
achieving future goals. Finally, the report carries a clear understanding of the inferences of
strategic concepts followed by the formulated recommendations for company profitability.

iiSTRATEGIC ANALYSIS OF US AIRLINES
Table of Contents
Executive Summary....................................................................................................................i
Introduction................................................................................................................................1
Historical Overview...................................................................................................................1
Theory........................................................................................................................................2
PESTLE analysis....................................................................................................................2
Porter’s Five Forces Theory...................................................................................................2
Strategic Choice Concepts.....................................................................................................3
Analysis......................................................................................................................................3
PESTLE analysis....................................................................................................................3
Political Factors..................................................................................................................3
Economic Factors...............................................................................................................3
Social Factors.....................................................................................................................3
Technological Factors........................................................................................................4
Legal Factors......................................................................................................................4
Environmental Factors.......................................................................................................4
Michael Porter’s Five Forces Analysis..................................................................................4
Supplier Power...................................................................................................................5
Buyer Power.......................................................................................................................5
Threat of new Entrants.......................................................................................................5
Threat of Substitutes..........................................................................................................5
Competitive Rivalry...........................................................................................................5
Discussion..................................................................................................................................6
Conclusion..................................................................................................................................8
Recommendations......................................................................................................................8
References..................................................................................................................................9

1STRATEGIC ANALYSIS OF US AIRLINES
Introduction
This report is based on the analysis of Strategic Position and strategic choices of US
Airlines Industry which is the most favoured airlines brand over the world. The domiciliary
US airline has an intense competitive past since it got deregulated in 1978. Labour unions got
powerful and thus workers at major imperative carriers got overpaid. Consequently, after the
deregulation effect those obligatory carriers felt the utmost pressure, and many ways opened
for new agile carriers with relatively low cost stratas for cut throat competition with the
prolong entrenched airlines (Pickrell 2017). There were extensive insolvencies followed by
the best carriers available and the rest being acquired or going out of business. The
deregulation effect, fluctuation rates of fuel price and increasing vulnerability of terrorism, is
continuing and airline industry is struggling to meet these challenges. It is important to
analyse this problem in the report as US Airlines is oppressed with hefty labour costs, for a
balance sheet that is not so strong, and continuous trade union issues (Williams 2017).
American Airlines never entered into unethical ways to achieve cost reductions to meet the
losses. The aim of this report is to provide the strategic analysis in order to show the current
market position of US airlines through PESTLE theory and Porter’s five competitive forces
with recommendations of strategic choices to improve its position in the market. The report
follows ahead detailed analysis of how the US airlines is struggling with other emerging
competitors and what competitive edge it can provide to become the market leader.
Historical Overview
US Airline industry by nature has an oligopoly market structure. The historical view
with respect to economic performance of the US airlines will be discussed in terms of
competition, pricing strategies and collaboration in the local market of America. Further,
merger-acquisition of the airlines industry and deregulations impact will be analyzed in the
economic performances (Bachwich and Wittman 2017).
Previously, in the past US airlines industry faced tough times due to the recession
period of 1930’s and eventually the price rates established jointly by airlines and IATA
(International Air Transport Association). As per estimations IATA evidenced a severe loss
of US$9 billion in 2009 due to recession. The economic situation facing competition among
carriers of the high and low cost which was majorly a downfall for the whole airline industry
of US. It has been grown tremendously since the deregulation act of 1978 due oligopoly
market structure that removes price and entry rules. This has adversely effected the economic

2STRATEGIC ANALYSIS OF US AIRLINES
performance of airline industry of US because during this time many other airline industries
were set up with their own strategies in market. This brought the heterogeneity in terms of
services provided to the passengers and fares taken. As a result passengers rejoicing the
variations from one airline to the other ultimately the US airlines facing the financial crunch.
In 2010, United Airlines merged with continental airlines and US Airways merged with
American Airlines in 2013 to save US Airlines from bankruptcy. This financial crisis has
affected the GDP growth of the US economy (Pearce 2015). According to the National Air
Traffic Controllers Association the airlines industry has contributed $150.5 billion dollar in
the GDP of America and a contribution of $44.6 billion dollar from airport operations.
Therefore 4.9-5.2% share of GDP is from US airlines industry (Helleloid et al. 2015).
Theory
Theories are the best source to plan and strategize work formats. In this report mainly
two theories have been used for the strategic analysis of US Airlines industry, PESTLE
analysis and Michael Porter’s competitive five forces analysis. Strategic Positioning is the
process that is used in most of the companies to recognize itself in the market as a leader and
to identify the core competitive advantage as a whole to differentiate with the other
competitors to cater to demand and supply. The next relevant aspect is the strategic choice
which is the most selective strategy/s to achieve future goals. Hence strategic choice depends
on few steps of strategy selection to choose the best out of the alternative strategies (Chen
and Pawlikowski 2015). Company’s performance mostly depends on the choice of proper
strategies from corporate levels.
PESTLE analysis
PESTLE is the abbreviation of Political, Economic, Social, Technological, Legal and
Environmental. PESTLE analysis is a famous concept used for analysing the external
environment. This is a tool used by the companies to operate in external environment or to
introduce a new product, service or scheme in market. It is an effective method to study the
external environment and forces. Advantage is the thorough study externally and
disadvantage include, sometimes study becomes prolonged, resulting in high cost and much
time invested.
Porter’s Five Forces Theory
It is the most reliable model to understand the business environment. The five forces
include, Competitive rivalry, Supplier power, Buyer power, Threat of substitution, Threat of

3STRATEGIC ANALYSIS OF US AIRLINES
new entrants. It helps in understanding every aspect before starting with the business. This
model is very relevant for new business starters. Disadvantage may be that this analytical
study can be costly for small business models.
Strategic Choice Concepts
The strategic choice concepts help selecting the best strategic concept out of the
alternative strategies available. It helps in achieving overall favourable outcomes for an
industry. The available options are evaluated first and then at the end selection process
arrives. The strategic concepts is very effective in making strategic decisions. There is also an
option for feedback. It has few approaches, like, planned approach, enforced choice
approach, experience based approach and command approach. These concepts together
contributes in the selection of the best strategy required for the industry.
Analysis
PESTLE analysis
The initiative to learn better about the US airlines industry is the PESTLE analysis,
the most preferred study than all other business analysis tools.
Political Factors
There are certain existing political factors which variedly affects the US airlines
industry. Since after the 9/11 terror attack, the country has increased the security reasons for
safety of the citizens, this resulting in decreased number of people travelling to other
countries. It is adversely affecting the country’s airlines business as it could not make much
profit annually, therefore, it is deviating to some other proposals as investing on new airports
and improving the existing ones to attract more travellers across the nation.
Economic Factors
The increased fuel prices is the first major concern for the airlines industry and
secondly is the demand in the market for low budget airlines. These factors seem to be
challenging for the US airlines because it never compromised with its quality served to the
passengers (Iatrou and Oretti 2016). The trend of low cost airlines resulted in rise of many
new competitors of the similar field and as a result the existing players have to cut down their
costs to be competitive enough to stay in market.

4STRATEGIC ANALYSIS OF US AIRLINES
Social Factors
The trend of tourism and holiday packages are increasing at a global rate. People are
inclined for social gatherings and therefore find short distance travelling to fulfil their holiday
desires. Even if they go for long tours they find better solutions over internet sources in low
budget airlines as per their requirement. The demand of perfection within low cost structure
has made it all for the US airlines to down grade gradually (Rothaermel 2015).
Technological Factors
The airlines are greatly affected by the technological factors. People are now
becoming more active on internet and they find it quite accessible to check for all kinds of
airfare tickets, discounts and offers by the emergent of same field. They get more options to
choose from the low cost airlines to travel (Hitt, Ireland and Hoskisson 2016). They book
tickets online and as the competitors are always active to beat others so most of them now
have airlines ticket booking app to make bookings easy and faster. The aero planes is the
most fuel efficient and thus provide the benefit of low cost travelling.
Legal Factors
The legal factors related to the airlines industry is getting stronger day by day. Many
law suits are charged for unsafe travelling and many countries have introduced their
guidelines to run airlines industry which has increased the costs of air tickets. As per the
guidelines under certain rules and regulations the industries have to maintain the basic
services and standards during travelling (Iatrou and Oretti 2016). Thus it is tough for the
airlines to sustain longer in the market without innovations as the law has become strict than
before for airlines industry.
Environmental Factors
The environmental concerns are alarming among the people. Every second person in
the world today is concern and aware of their environment and related health issues. The
awareness reached at a point where there is a demand for eco-friendly aeroplanes that
consume less diesel and runs on bio fuel, which also contributes to cost reduction and safe
travelling (Lawton 2017). The emissions of chemicals through airlines is anticipated around
15% globally which needs to be checked before it rises high. This new demand made existing
airlines to change from the older versions to newer ones accordingly to remain in the market.

5STRATEGIC ANALYSIS OF US AIRLINES
Michael Porter’s Five Forces Analysis
The reason behind implementing five forces analysis is that it is the most appropriate
tool to analyse the external forces in the environment (Hannigan, Hamilton and Mudambi
2015). By this methodology, companies prepare strategies keeping in mind the futuristic
goals. This analysis helps an industry to review the overall phenomena going on including the
Buyer’s Power, the Supplier’s Power, Competitive rivalry, Threat of substitution and threat
of new entrants.
Supplier Power
The supplier power is fully external. The US airlines industry is depended on three
major elements like, labour, aircraft and fuel. These three has outwardly production and
external supply from respective suppliers. Therefore, according to Porter’s five forces
analysis this has a huge impact and one of the most important forces of competitive analysis.
Buyer Power
Factors like demand regulation crisis, price wars, competitiveness yields power to the
passengers and thus retaining the buyer’s power medium to high according to the Porter’s
competitive five forces analysis (Mallikarjun 2015).
Threat of new Entrants
This is subjected to the entry and exit barriers for new comers in business line. This is
quite important to know before setting up a business. The US airlines industry is pretty high
in this aspect as the rules and regulations for entry to an industry like airlines is no less then a
tough job irrespective of one is expertise in the same field(Lelieur 2017). Similar is the case
for exiting from business. Nobody can either enter or exit freely from the business industries
in US.
Threat of Substitutes
The emerging threat to the US Airlines industry which has been identified is the
American culture of motor down. Practice of using cars for long journey seems more
relishing than travelling to airways. This stands out the major cause of threat to the airlines
business.
Competitive Rivalry
The US airlines has always been the target area for the competitors. The reason why it
has many competitive rivalries is due to its outdated business model (Tan 2016). The trend of
low cost carriers, government intervention and strict regulations resulted into many other

6STRATEGIC ANALYSIS OF US AIRLINES
emerging airlines industries which constantly pushes back the huge business of US airlines
industry.
Figure 1: Michael Porter’s five forces analysis
Source: (Grant 2015)
Discussion
The key drivers of change are the changing agents internally and externally to reshape
the organisational vision, mission, structure, principles, culture and values. It asserts pressure
to make a change to existing conditions of the US airlines industry. Underlying are some of
the key drivers of change,
 Capabilities are the key drivers to change because it is an internal factor depends on
the employees of an industry like the US airlines. In this case the engineering and
designing capabilities needs improvement.
 Organisational culture is another change driver which is the root cause for changing
outdated principles and embrace that is in fashion. Resistance to change will remain a
limitation while modifying organisational culture.
Supplier power- The Us
Airlines Industry is
based on three
supplying elements viz.,
fuel, labour and aircraft
which is to be supplied
externally for smooth
finctioning.
Competitive Rivalry-
competition due to low cost
carriers, strict regulations by
law and outdated business
model.
Buyer Power- The buyers
prefer online ticketing, low
budget airlines and easily
accessible ways for the
airways.
Threat of new entrants- No
such threat from the new
comers as the US airlines
have strong entry and exit
barriers to their business
models
Threat of Substitutes-
substitute being the motor
down culture of preferring cars
for long distance travelling.
Even attractive hospitality and
services could not attract
people towrds the airways.

7STRATEGIC ANALYSIS OF US AIRLINES
 Technology is the most powerful external change drivers that forces to update
regularly. An organisation is forced to change the technology to sustain in the market
(Birim Anitsal and Anitsal 2016).
 Customer needs and preferences is the most addressed external force that acts as a key
driver for the industry. Customer needs can vary with demographical change and
customer preferences is the shift from one change to another for time being.
The industry attractiveness can be better outlined by Michael Porter’s five forces analysis as
it is designed in a way that gives an entire analysis of the external and internal environment.
This model can be used by both the new entrants to understand the current market scenario.
This is equally important for a company that is in declining stage and wants to win back the
growing stage (Holloway 2017). The potential opportunities can be explained with respect to
the PEST analysis. It studies the external environment and reaches to the findings that which
area of the environment best suits for business settlement and also a portion where effort
needed to alter things accordingly. The possible threat for the US airlines is the competitors
with strong command on modern technology, cost reduction with environment friendly
products and services matching to the customer demands.
The importance of applying strategic choice concepts for profitability includes
decision taken strategically (Grant 2015). The following strategic choice concepts can
contribute to the profitability factor of the US airlines industry:
 Planned approach: This is a planned approach towards the strategic choice concepts.
It is based on ranking measures to select the best strategy out of the available
alternative strategic options.
 Enforced choice approach: The dominant company stakeholders who has prolonged
years of stake in the company is liable to enforced choice approach.
 Experience based approach: Here the experience of the managers is being weighed
before involving the strategy formulation. Past experience curve is needed for those
mangers to implement the strategic choice.
 Command approach: Here the strategic choice depends on the command and direction
of the corporate level. In an organization it follows as top down approach.

8STRATEGIC ANALYSIS OF US AIRLINES
Conclusion
Therefore, to conclude, the report carries essence of the strategic analysis for the US
airlines industry. This would help the company to strategize in order to take proactive
measures to stay above the competitors. Strategizing is the key element for any business to
set up or to sustain its position in market. This report provides complete background and
theory of the US airlines, its downfall after deregulation and its present condition to sink
down due to non-adaptive of innovations and newness in services. It is incapable to cope with
the external forces and therefore seems lacking in maintaining standards. Suggestion is to
follow the underlying recommendations and renovate strategies by eradicating former
practices for a successful airlines journey.
Recommendations
Following are few of the recommendations after going through a thorough analysis of
the US airlines industry.
 The industry should be updated with the latest technological changes.
 The industry should diversify to environment friendly flights so as to match with the
modern sentiments.
 The best way to face competitors is to improve core competitive advantage.
 The industry should go for BCG and SWOT analysis for deeper understanding of
service positioning.
 The industry should implement offers and discounts to attract passengers.
 The industry should initiate applying bio fuel instead of diesel to lower down
environmental risks.
 Should find ways of cost reduction by introducing low budget airlines facility.
 The industry can outsource maintenance and servicing to retain the set standards.

9STRATEGIC ANALYSIS OF US AIRLINES
References
Mallikarjun, S., 2015. Efficiency of US airlines: a strategic operating model. Journal of Air
Transport Management, 43, pp.46-56.
Hannigan, T.J., Hamilton III, R.D. and Mudambi, R., 2015. Competition and competitiveness
in the US airline industry. Competitiveness Review, 25(2), pp.134-155.
Pickrell, D., 2017. The regulation and deregulation of US airlines. In Airline
Deregulation (pp. 5-47). Routledge.
Williams, G., 2017. The airline industry and the impact of deregulation. Routledge.
Bachwich, A.R. and Wittman, M.D., 2017. The emergence and effects of the ultra-low cost
carrier (ULCC) business model in the US airline industry. Journal of Air Transport
Management, 62, pp.155-164.
Pearce, B., 2015. Economic performance of the airline industry. Retrieved March, 1, p.2016.
Helleloid, D., Nam, S.H., Schultz, P. and Vitton, J., 2015. The US airline industry in
2015. Journal of the International Academy for Case Studies, 21(5), p.113.
Tan, K.M., 2016. Incumbent Response to Entry by Low‐Cost Carriers in the US Airline
Industry. Southern Economic Journal, 82(3), pp.874-892.
Birim, S., Anitsal, M.M. and Anitsal, İ., 2016. A Model of Business Performance in The US
Airline Industry: How Customer Complaints Predict The Performance?. Business Studies
Journal, 8(2).
Rothaermel, F.T., 2015. Strategic management. McGraw-Hill Education.
Grant, R.M., 2015. Five Forces of Competition. Wiley Encyclopedia of Management, pp.1-4.
Helleloid, D., Nam, S.H., Schultz, P. and Vitton, J., 2015. THE US AIRLINE INDUSTRY
IN 2015: INSTRUCTORS'NOTES. Journal of the International Academy for Case
Studies, 21(6), p.145.
Moreno, L., Ramon, A. and Pedreño, A., 2015. The Development of Low-cost Airlines and
Tourism as a Competitiveness Complementor: Effects, Evolution and Strategies. Journal of
Spatial and Organizational Dynamics, 3(4), pp.262-274.

10STRATEGIC ANALYSIS OF US AIRLINES
Lelieur, I., 2017. Law and policy of substantial ownership and effective control of airlines:
prospects for change. Routledge.
Moon, J., Lee, W.S. and Dattilo, J., 2015. Determinants of the payout decision in the airline
industry. Journal of Air Transport Management, 42, pp.282-288.
Chen, L. and Pawlikowski, H., 2015. The expansion of low cost carriers into the long-haul
market: a strategic analysis of Norwegian Air Shuttle ASA (Master's thesis).
Lawton, T.C., 2017. Cleared for take-off: Structure and strategy in the low fare airline
business. Routledge.
Holloway, S., 2017. Straight and Level: Practical Airline Economics: Practical Airline
Economics. Routledge.
Hitt, M.A., Ireland, R.D. and Hoskisson, R.E., 2016. Strategic management: Concepts and
cases: Competitiveness and globalization. Cengage Learning.
Iatrou, K. and Oretti, M., 2016. Airline choices for the future: from alliances to mergers.
Routledge.