Analysis of US Airline Industry using Porter's Five Forces Model

Running head: STRATEGY AND CASE ANALYSIS 0
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STRATEGY AND CASE ANALYSIS 1
Table of Contents
Introduction................................................................................................................................2
Overview of the Industry...........................................................................................................3
Porter’s Five Forces Analysis....................................................................................................5
Advantages and Disadvantages..................................................................................................7
Economic Performance..............................................................................................................8
Strategies for Airline Profitability..............................................................................................9
Discussion................................................................................................................................10
Conclusion................................................................................................................................11
References................................................................................................................................12
List of Figures
Figure 1: Growing rate of Jet Fuel Price....................................................................................4
Figure 2: Porter's Five Forces Model.........................................................................................5
Figure 3: Economic Growth and US Airlines Revenue.............................................................9

STRATEGY AND CASE ANALYSIS 2
Introduction
In the rapidly changing business world, management struggles to implement policies that are
focused on achieving organisational objectives. The management uses different strategic
tools to develop and implement policies in order to improve a firm’s profitability. Porter’s
five forces model is a popular strategy development tool which was developed by Michael
Porter. This report will analyse the attractiveness of the US airline industry by evaluating its
strengths and weaknesses and examine different factors that affect the business of
corporations operating in the industry. The primary goal of this report focuses on using
Porter’s five forces model in order to develop strategies for airlines companies that operate in
the industry. This report will also include advantages and disadvantages of Porter’s five
forces framework. Economic growth of the US airline industry will also be discussed in the
report while developing the strategies for improving the profitability of the airline companies.

STRATEGY AND CASE ANALYSIS 3
Overview of the Industry
In the US airline industry, a large number of corporations operate that provide their services
to customers. The industry includes both high priced airlines along with low priced airlines.
The corporations operate in high priced zone include United, Delta and American Airline
(Belobaba, Odoni and Barnhart, 2015). However, in previous few years, the number of low-
cost airlines has increased in the US airline industry. The companies operating in low priced
zone include AirTran, Southwest Airline, Virgin Airline and Jet Blue. The low priced airlines
have increased issues for the leading organisations because they offer substantially lower
prices to their customers which increase their customers. The low priced airlines reduce their
flight charges by selecting air routes which are most convenient and affordable (Hannigan,
Hamilton and Mudambi, 2015). These companies use specific type of aircraft that did not
increase their operating costs, and they use non-union workers maintain low operation rate.
Due to increase in low priced airlines, the business of other high priced airlines is suffering
which also negatively affect the US airline industry.
The increase in a number of online ticket booking services has also affected the economic
growth of the US airline industry. Due to the popularity of smartphones and online-based
services, many small companies have emerged in the market that enables customers to
purchase flight tickets directly through their smartphones (Daraban, 2012). Companies such
as Travelocity, Orbitz, and Expedia are the main leaders in online flight ticket booking
service. Other than ticket booking services, these companies also allow its users to compare
flight ticket prices between airlines. These create issues for high priced airlines because
customers can easily compare between air ticket prices and choose the most affordable option
(Lee, Seo and Sharma, 2013). Other than the reduction in sale of tickets, the increase in jet
fuel prices also results in increasing issues for the corporations operating in the US airline
industry. The fuel makes up about 32 percent of the airlines’ costs and increases in fuel prices
increase their operating costs. The labour costs take another big part of overall airline costs.